Consumer products giant Procter & Gamble (NYSE: PG) could answer the question: “can traditional brands survive in the 21st Century.”
Strangely, the rise of digital media like massive multi-player online games (MMOGs); and streaming video, could be the greatest threat to P&G’s survival. How can Procter & Gamble (P&G) get its advertising in front of consumers’ eyeballs when most people are playing Fortnite; or watching Netflix (NASDAQ: NFLX), for instance?
To explain, P&G’s traditional business model is to sponsor entertainments on mass electronic media like broadcast television and radio. In fact, Procter & Gamble invented American soap operas and Latin American telenovelas to promote laundry detergent.
How Branding Works or used to Work
Additionally, legendary P&G executive Neil McElroy invented modern branding during the 1950s, The Balance reveals.
In detail, P&G operates brands; such as Tide, like separate businesses. Consequently, each brand has own its advertising strategy and business plan. Under the McElroy model a specific executive; that P&G calls a brand manager is in charge of each brand.
Traditionally, Procter & Gamble’s brand strategy relies on close relationships with retailers and purchases of huge amounts of advertising. Incredibly, Procter & Gamble spent $2.75 billion on paid media in 2017, AdWeek estimates. P&G buys all that advertising to get its products before the eyeballs of as many consumers as possible.
Will Anybody See Procter & Gamble’s advertising?
Unfortunately, fewer and fewer people are watching all that adverting. Ratings estimates show that viewership for one of P&G’s favorite medias; broadcast television is sinking to abysmal lows.
Specifically, Dateline: NBC; the top-rated broadcast network show on 25 May 2019, had just 2.98 million viewers in the United States, TVbytheNumbers estimates. However, Worldometers estimates the United States has a population of 329.093 million in 2019.
Consequently, I estimate less than 1% of America’s population saw the highest-rated network TV show on 25 May 2019. Thus less than 1% of the US population was watching the top prime time TV show.
Hence, the rumors of network television’s demise are no exaggeration. Network television is apparently dead as a mass medium.
Network TV is dead
Meanwhile, the most-watched network program 2018; NBC’s Sunday Night Football, had just 19.28 million viewers in the 2018-2019 viewing season, Deadline estimates. Moreover, the most-watched scripted show on broadcast television, CBS’s The Big Bang Theory was seen by only 17.31 million people during the last season.
Finally, here are Deadline’s estimates for Daily Broadcast TV ratings on 32 May 2019:
- ABC – a 0.6% rating among adults 18 to 49, with 4.82 million viewers.
- CBS (NYSE: CBS) – a 0.6% rating for adults in the 18 to 49 age range, with 4.78 million viewers.
- NBC – a 0.4% rating for adults aged 18 to 49 with 2.17 million viewers.
- The Fox Broadcast network – 0.4% rating for 18 to 49-year-old Americans with 1.24 million viewers.
- The CW – a 0.2% rating in the 18 to 49 demographic with 670,000 viewers.
If Deadline’s numbers are correct all four US broadcast networks had a viewership of 13.68 million in the 18 to 49 demographic on 23 May 2019. Conversely, Statista estimates there were 150.45 million people aged 19 to 49 in the United States in 2017. Note I arrive at that figure by adding up Statista’s estimates.
Thus, less than 1% of Americans age 18 to 49 years were watching network television on 23 May 2019. Under those circumstances, less than 1% of the most important demographic advertisers saw broadcast television adds on that day. Advertisers value the 18 to 49 year-old figures because those people are most likely to buy consumer products.
Procter & Gamble’s Problem
Interestingly, the death of network TV is only part of P&G’s problem. All those people who are not watching broadcast TV are staring at digital images that could be beyond Procter & Gamble’s reach.
For instance, the incredibly popular Battle Royale shooter MMOG Fortnite had 250 million players worldwide in March 2019, Statista estimates. Moreover there were 53.6 million console gamers in the United States in 2017 according to a Statista estimate. Plus, Variety estimates video games now take up 16% of Americans’ leisure time.
Obviously there are no advertisements for Tide on Apex Legends or product placements for Crest in Fortnite. Unfortunately for P&G, today’s young mother is more likely to be playing Fortnite than watching General Hospital.
Viewers are not Seeing P&G Ads
To make matters worse, America’s most popular soap opera is Game of Thrones not The Bold and the Beautiful – if you judge by media attention. That’s problematic for P&G because Game of Thrones ran on the famously commercial free-cable outlet HBO.
Procter & Gamble now faces the question: “how can we get our products in front of today’s viewers’ eyeballs in today’s media landscape.” Strangely, P&G’s history could offer a solution for this dilemma.
P&G can Survive by Going Back to the Past
Historically, Procter & Gamble paid for the production of radio and later television soap operas and other programs. In fact, during the 1950s so-called Golden Age of Television, networks named popular programs like The Buick Berle Show and Texaco Star Theatre for advertisers.
P&G could resurrect that strategy by sponsoring MMOGs or paying for their production. Additionally, P&G could pay for the production of movies or TV shows it distributes through Netflix, Hulu, Apple TV, or Disney’s rumored streaming service Disney+.
Finally, Procter & Gamble could pay game developers or producers to place its products in games and programming. Okay, Tide in an MMOG is bizarre, but is it any stranger than anything else in Fortnite?
Can Procter & Gamble cash in on Rewards Points and Games?
Under these circumstances, executives games developers in need of finance might consider giving P&G’s marketing department a call. Procter & Gamble could get in at the beginning of next-generation gaming platforms like The Abyss.
To explain, The Abyss’s creators intend to lure gamers with Ethereum token rewards points. I think P&G could benefit by allowing gamers to accumulate rewards points towards a discount on its products.
For instance,Procter & Gamble could use games on The Abyss to drive consumers to its P&G Shop. To drive sales, P&G could offer gamers’ rewards points toward purchases; or discounts, at the P&G Shop. An obvious advantage to this strategy will be to direct younger consumers away from Amazon (NASDAQ: AMZN).
A game could suddenly say, “congratulations you just won $5 off a box of Tide at the P&G Shop for killing 12 zombies,” for instance.
Is Procter & Gamble a Value Investment?
Consequently, I think Procter & Gamble (NYSE: PG) could have a bright future in today’s digital age.
Notably, P&G is making a lot of money. It reported a gross profit of $8.035 billion on quarterly revenues of $16.462 billion on 31 March 2019, for example. Plus Procter & Gamble reported a quarterly operating income of $3.229 billion and a net income of $2.745 billion on the same day.
Thus Procter & Gamble achieved a gross margin of 48.81% for the last quarter reported. Moreover, P&G reported an operating cash flow of $3.517 billion, an investing cash flow of $573 million, and a free cash flow of $2.765 billion for the same period.
This allowed P&G to accumulate $2.738 billion in cash and equivalents and $7.085 billion in short-term investments at the end of the last quarter. As a result, P&G had $9.823 billion in liquid assets at the end of March. I think this number is high for a consumer products company.
Therefore, Procter & Gamble has the cash to finance both research and and next-generation media to expand its market in the 21st Century. Given those circumstances, I consider P&G a growth stock.
P&G is a Great Dividend Stock
Finally, P&G (NYSE: PG) is a great dividend stock. In fact, Procter & Gamble has been paying a dividend for 62 years, since 1957, Dividend.com reports. Ironically, P&G’s dividend began in the Golden Age of Television.
Stockholders received a 74.6₵ dividend from P&G on 15 May 2019. Moreover, that dividend was 2.9₵ more than the 71.7₵ paid on 15 February 2019.
Thus, PG offered a growing dividend, a dividend yield of 2.83%, an annualized payout of $2.98, and a payout ratio of 67.5% on 31 May 2019.
I think Mr. Market undervalued Procter & Gamble (NYSE: PG) at $105.33 on 31 May 2019. Therefore, I advise people seeking an undervalued income stock with lots of growth potential to investigate P&G. The historic soap maker could have a dazzling future in the digital universe of the 21st Century.