SI Research: Can Product Placement Benefit Local Stocks?

Remember the 2016 South Korean television series, Descendants of the Sun (DOTS), which transformed the declining Korean Wave (K-Wave) into a Korean Tsunami?

The series took flak for its use of product placement involving Korea’s largest automaker Hyundai, a fast food restaurant franchise and a well-known cosmetics brand. Criticism aside, the marketing strategy proved successful, boosting the sales of these brands in South Korea and abroad, particularly in neighbouring China.

While product placement is not uncommon in the film and television industry, instead of taking a page out of the book, mm2 Asia took the entire book in its recent film Ah Boys To Men 4.

Although keeping a balance between product placement and the quality of a production leads to positive results, could excessive product placement end up with adverse effects?

The Business

mm2 Asia’s (mm2) core business lies in films, television and online content production, distribution and sponsorship. In recent years, the group has also extended its businesses to include cinema operation as well as concert and event production.

Although mm2 is based in Singapore, the group also has a presence in Malaysia, Hong Kong, Taiwan and China, having co-produced and distributed over 80 films across Asia since 2008.

For FY17, the group’s core business contributed to 59 percent of total revenue followed by concert and event and cinema operation at 23.6 percent and 13 percent respectively. Geographically, Singapore operations contributed 41 percent of total revenue followed by Malaysia at 26 percent.

mm2’s financial performance has been nothing short of impressive. Revenue expanded at a compounded annual growth rate (CAGR) of 76.3 percent since FY13, while net profit surged at a CAGR of 120.2 percent as the company continues to expand.

Product Placement

Typically, the traditional form of product placement involves the prominent display of a certain brand or product at some point in the production content. Unlike a commercial, this does not make use of any narratives to directly promote the product itself.

Taking the entire book of product placement for Ah Boys To Men 4, mm2’s film started off with a scene that could literally be akin to a commercial for POSB Bank, a subsidiary of Asian banking giant DBS Group Holdings.

Subsequently the film had other numerous placements including health and wellness supplement Brands, as well as local-listed companies such as Singapore Technologies Engineering (STE) and Old Chang Kee.

Apart from a showcase of its armoured fighting vehicles (AFV), STE also had a special mention of its exhibition and a separate one highlighting certain features of a new generation of AFV. It almost seemed like a hotline would flash on the screen with a number to call for purchase orders. As it is obvious that consumers would not be able to purchase most of STE’s products, the value that such product placement creates for STE is very much unclear. Unless the group has plans to export the vehicles and hopes for an increase in sales orders after release of the film, just like how Hyundai reported an increase in sales following the airing of DOTS.

The contract value of such product placements are undisclosed. However, given the heavy quantity, it is likely that mm2 would already have made a handsome profit from the production of the film itself, not to mention the subsequent ticket sales.

While that has been a very strong point for mm2, it might not fare well with consumers and could potentially lead to adverse effects in the long run.

Adverse Effects

Unlike television shows which are generally free or at low cost to consumers, films on the other hand, cost much more. Hence, viewers would be more invested in the film and are likely to notice such product placements especially when the item is more than just a prop.

Viewers who are aware of it would not feel too pleased with paying to watch something that has already been paid for, resulting in an overall negative brand attitude for both the film producer as well as the brands involved.

If product placement in the film was not enough, mm2 went the extra mile to release a “deleted scene” of a product placement, a clickbait commercial which garnered over a million views.

Conclusion

Despite all the negative reviews, mm2’s film was a huge success topping the local box-office over its opening weekend earning $2 million in just four days. This is well ahead of the $1.4 million raked in by second placed Kung Fu Yoga, which starred popular action superstar Jackie Chan.

Although any adverse effects of the aggressive marketing strategy have yet to show, consumers who have been turned off by this film would surely think twice about the next film. This could possibly result in lower attendance and lead to a decline in product placement deals.

The share price of mm2 Asia has remained flat since the opening of the film on 9 November 2017.