It's no coincidence that James Bond drove a BMW Z8 in "The World Is Not Enough", or that most of the robots in the 2007 "Transformers" movie transformed into GM vehicles. Product placement, like the traditional advertisements that come before movies and during commercial breaks of television shows, helps offset the costs of production, allowing consumers to watch the content without having to pay the "full price" of what the content actually costs. The latest product friendly production grabbing attention is the "Sex and the City" movie.

This type of advertising has been around since the 1950s, but it is definitely becoming more prominent in modern movies today. In a consumer-based economy this promotion goes for big money. Research company PQ media estimates product placements across all media were worth $2.21 billion in 2005. With investments and returns this high, product placement advertising is as big a business as ever. (Memorable advertising is a brick in the fortress that keeps competitors at bay; for more information, read Advertising, Crocodiles And Moats.)

Selling in the City
Since it began airing on HBO in 1998, "Sex and the City" has made designers like Louis Vuitton, Manolo Blahnik, and Vera Wang names known by almost every woman in the television-watching world. With this in mind, there is no surprise that the movie is pretty much one big advertisement. A New Line Cinema executive coined the phrase "Super Bowl for women," referring to the large percentage of the population that look forward to the Super Bowl's advertisements, as much as the football itself. Many products and services are seen on screen in the new Sex and the City movie, and if not, they were clearly plugged in the four urban women's dialog. From this list of products and services, we have created a list of 12 publicly traded companies and dubbed it the Sex and the City Index.

The Sex and the City Index

Company Product/Service Featured and How 52 week loss/gain*
Nike plugged throughout movie, also Nike shoes given to actors at casting party. 17.3%
Tiffany & Co.
Carrie\'s wedding gifts -8.03%
Nasdaq:BFLY (Plug) -64.2%
Nasdaq:NFLX (Plug) 43.8%
Carrie\'s computer and Samantha\'s iPhone 53.4%
Research In Motion
Miranda\'s Blackberry 144.9%
Miranda and Big\'s computer -16.6%
Sprint Nextel NYSE:S Carrie\'s service provider -59.6%
All four visit it repeatedly -37.8%
Samantha flies on American Airlines, also ad seen in her office -74.2%
Daimler AG
Big\'s chauffeur drives a Mercedes-Benz -17.4%
News Corp.
Carrie writes for the New York Post, The Wall Street Journal is Big\'s bedtime reading -23.5%
Capitalization-Weighted Index Results: 31.83%
*Data as of market close June 3, 2008

Over the same time period, the S&P 500 had a 52-week return of -9.8%, so as you can see the comparison is pretty cut and dried. If you had invested in the products showcased in the Sex and the City movie over the past year, in weightings based on market capitalization, you would have beat the market by about 40%. (For further reading, be sure to see our related article Market Capitalization Defined.)

Even if you had simply invested an equal amount of money into each of these stocks, you would have beet the market by about 6% with a loss of only 3.5%. So why has this happened?

Hot Technology Carries the Index
Apple, Research In Motion (RIM) and Netflix all saw outstanding results over the past year, giving investors returns of 53.4%, 144.9%, and 43.8% respectively. When you look at the market capitalization of these stocks, you see Apple and RIM are leading the pack as well. With market caps of over $163 billion, and $75 billion respectively, just these two companies make up over 50% of our capitalization weighted index. So, what would happen if we took out these two winners? The Sex and the City Index sans Apple and RIM would give a loss of 19%, over 9% worse than the market. But if you took everything else out of the index, you would have seen gains of over 83% on your invested capital!

Bottom Line

What we see in this situation is important to note. Can we just invest blindly in companies that we see plugged in hot new movies? Maybe... It's possible extra attention that these products get over the next month or so, will give all 12 positive returns when compared to the market. But we'd be smarter using this index as a starting point, and then researching which companies to invest in from there. All of these companies have the potential to do well over the next year, mainly because they are large, well-known companies providing valuable products and services, and because of the extra exposure from a big movie such as this. But from here on in, it could be well worth the trouble of searching for a diamond in the rough. (Find out the difference between a company capable of surviving a share-price beating and one that cannot, in Finding Profit In Troubled Stocks.)

Add Your Two Cents
What do you think will happen with the stocks in the Sex and the City Index going forward? Could one of the companies that has seen a large decline, like Sprint Nextel or Bluefly, bounce back to be the next big winners in the upcoming year? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

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