Buying the space between the ads

Viewers have become so adept at decoding advertising that your average post- modern couch potato can spot a marketing strategy a mile off. Now it seems they will have to apply those skills not only to the ads but also to the programmes in between.

A few days ago, Elisabeth Murdoch's production company, Shine, struck a deal with Mindshare, the media-buying company owned by advertising giant WPP. The joint venture has been created to take advantage of the latest broadcasting innovation: "advertiser-funded programmes".

AFPs, as they are known, do exactly what they say on the tin. Instead of paying for the airtime between programmes, companies pay directly for the TV shows. The proportions vary, but some programmes are entirely financed by an advertiser.

"We will sit down with brand owners and decide on the best way to get their strategic messages into content and then we will offer these programming ideas to broadcasters," explains David Pemsel, managing director of the joint venture.

These programmes won't resemble conventional ads, with slogans and brand names all over them. Independent Television Commission regulations explicitly forbid editorial interference by advertisers and the showing or mentioning of a sponsor's products. Nor will the companies automatically get their name in the programme title. Instead, the shows will convey a general set of values or concerns identified by the brand owner. "It's about creating more subtle cultural shifts," says Pemsel.

He cites the example of the programme Changing Rooms which, despite the absence of any commercial link, "did more for IKEA's sales by promoting modernity and colour and the idea of change, than any advertising campaign."

Estimates of the likely extent of AFP vary. Steve Hewlett, director of programmes at Carlton TV, says it will be never be more than a "minority" of programmes, while Shine and WPP hope that within four years as much as a quarter of all shows could be funded by advertisers. Management consultant Arthur D Little predicts the figure could be as high as 65 per cent of all commercial programming by 2005, amounting to £1.3 billion a year.

The idea of programming with commercial intent clearly raises ethical issues. But in such a harsh advertising climate, broadcasters are slowly coming round to the idea, after years of disdain. "You can't be entirely happy about it," admits Carlton's Steve Hewlett, "but the presence of a commercial agenda is not necessarily antithetical to programming of the highest possible integrity." He adds: "It would not be appropriate in news or documentaries. AFP makes more sense in peripheral areas of the schedule and with daytime game shows or comedies, for example. But providing it is open and clear, why should it be a problem?"

The boundaries between editorial and commercial messages have long been blurred. Straightforward sponsorship has been around for some time in Britain. The very first "soaps" were US radio series about everyday life created by soap manufacturers in the 1930s.

In fact, there have already been advertiser-funded programmes in this country. Little trumpeted, and hidden away in obscure corners of the schedule, Unilever co-funded Animal Alert with Channel 5; Carlton took money from the internet company Web Baby for a series called Baby Baby; and Granada's The Real DIY Show and Better Homes were produced with the help of funding from B&Q and Homebase respectively. Probably the most high-profile example of AFP to date has been the Pepsi Chart Show on Channel 5, which gave the channel a music show it desperately wanted but couldn't afford. In return, Pepsi receives a high-profile, long-running platform which perfectly fits its strategy of "owning youth music".

What is about to change significantly, though, is the amount of programming funded by advertisers and the prominence of the programmes. "WPP has big international clients and they aren't going to be satisfied with peripheral areas of the schedule," says Pemsel.

The reasons for this change of heart are not hard to find. For starters, an hour of programming costs less to make than a 30-second ad. Last year, in the US, Nike paid about £200,000 for a 40-minute documentary called The Road to Paris. A half-minute ad could easily cost three times that amount.

For years advertisers have been growing increasingly unhappy with television as an advertising medium. "It is harder and harder to make conventional commercials effective. There are too many channels and too many ads. So consumers can increasingly avoid or ignore them. We urgently need better ways to reach them," admits the chief executive of one ad agency.

During the good times the TV stations could afford to ignore these concerns. But now they sound like sweet music to the ears of TV companies experiencing their worst slump in a decade - ITV's income dropped by 16 per cent this year, seriously threatening its £750m programme budget.

"Over time our resources have been fragmented by the need for more programming. Lately, falling income and the rapidly increasing costs of producing high-end television means that it is getting harder and harder to fund programmes," says Hewlett. "Now we are always on the lookout for new sources of funding."

It's the same story over at Channel 4, which last year ran a series, Living in the E World, funded by Microsoft. Later this month, its sister channel E4 starts a new series of a youth travel magazine called Passengers, funded by PlayStation 2. "Pressure from advertisers and shrinking budgets means we have to find new ways to finance content," says a spokesman. The station refuses to say what percentage of the production costs has been picked up by the company.