Dive Brief:

• P&G’s latest earnings report for its fourth quarter put a figure behind its plan to reduce digital advertising — spending on digital ads dropped $140 million in the quarter — and the reduced spend contributed to the CPG giant beating earnings expectations, per Ad Age. What was surprising is even though there was reduced ad support for its product lines, organic growth also beat both analysts’ predictions and P&G’s competition, with sales up 2%.
• The company cited brand safety as the reason for the drop in digital spending, stating in an earnings release that it decided to "temporarily restrict spending in digital forums where our ads were not being placed according to our standards and specifications."
• In an earnings call, Chief Financial Officer Jon Moeller also mentioned that along with brand safety, P&G didn’t “need to be spending money that is seen by a bot and not a person,” referring to the ongoing ad fraud challenge in digital advertising, especially for ads bought and sold programmatically.

Dive Insight:

Clearly, the digital ad space is experiencing some growing pains after years of strong growth. Now that digital marketing has reached parity with TV in terms of overall spend, advertisers are taking a closer look at how they allocate their budgets online. At the same time, the space continues to struggle with big-picture issues like the prevalence of ad fraud and low-quality inventory. The news that P&G was able to reduce its digital budget by $140 million while still experiencing a sales lift is likely to cause other marketers to wonder if they need to right-size their digital budgets, which could have a ripple effect through the industry. 

The spending reductions by major advertisers like P&G and Unilever appear to be impacting agency holding groups more than major digital platforms. This week, Interpublic Group reported a 1.7% drop in Q2 revenue that was directly attributed to reductions from the CPG sector. 

However, Google revealed strong growth during the same quarter, attributing the gains to mobile search and YouTube, despite the fact that several CPG companies, including P&G, continue to boycott the video platform over issues related to brand safety. 

P&G’s Chief Brand Officer set the stage for the consumer packaged goods giant to have an adversarial relationship with digital ad platforms in January during a presentation at the Interactive Advertising Bureau’s Annual Leadership Meeting in which Pritchard demanded more transparency, third-party viewability accountability and a cleaner media supply chain. In June, reports came out that P&G and its CPG peer Unilever were both cutting digital ad budgets by 41% and 59% respectively. These cuts included reductions in the number of sites where the companies’ ads appear.

In conjunction with the reduction in digital spending, at upfronts in May P&G made commitments to meaningfully increase its linear TV advertising although its broadcast partners are stuck with legacy deals that give P&G low base rates and low price hikes on those rates. And in April, the company announced plans to cut $2 billion in marketing spending over the next five years.

The brand safety issue P&G referenced in its earnings report came to the forefront at the end March when some ads were displayed next to terrorism-supporting videos on YouTube leading to a months-long boycott by major brands and agencies of the video platform along with other Google properties. Most have returned to the platform, but P&G is among a few big brands that still avoid advertising on YouTube.