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In broad terms, media agencies agree to commit a proportion of their television advertising spend to a particular broadcaster. In return the broadcast sales house gives them a discount off the station average price. This is the price which the broadcaster charges for a particular target audience or demographic group; for example, men aged 16 to 34. During the course of the year, within the terms of the annual contracts which have been negotiated, advertisers then negotiate terms to reach certain target audiences for particular advertising campaigns. The standard station average price is calculated after the advertisements have been aired and varies month by month depending on the viewing ratings delivered by a broadcaster for a particular demographic group. The audience viewing figures for each advertisement are measured using an independent industry metric and the overall revenues which it has received.
What I have just said eminently proves what my noble friends Lord Clement-Jones and Lord Patten have indicated-that this is a completely non-transparent, peculiar system. The most fundamental element of our report was that it should be reviewed. All members of the committee were absolutely unanimous on that. We were also unanimous that the CRR undertakings should be removed. They were implemented in 2003 and the broadcasting world has fundamentally changed since then. I was not in my place when the noble Lord, Lord Grade of Yarmouth, spoke in the previous debate but I understand that he expressed the view that I have put rather more strongly than I have just done.
Picking up a point that has been made, if these concessions are going to be made to ITV, it is important that binding undertakings are obtained from it on its commitment to invest in further quality UK original
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Lord Patten: Would my noble friend also add to his list of desiderata in the matter of undertakings which ITV says it is glad to give that a certain amount of resources should be devoted to more and better training for more up and coming young broadcasters and producers?
Lord Razzall: The committee made that point. I am not sure that in its representations to us ITV talked about training but it certainly indicated its receptiveness to giving undertakings on UK programming. I entirely agree that that is a very important point.
As regards the remarks made by the noble Lord, Lord Lipsey, I do not think that the committee ever contemplated removing all the restrictions on advertising minutage. The debate, which was lengthy-we had representations from a number of different channels on this-concerned whether we should bring in line the minutage that ITV, Channel 5 and Channel 4 were allowed to have with that which the other commercial channels were allowed to have. There was a long debate about whether everyone should go up to nine minutes or the nine-minute people should come down to seven, but we never discussed whether the COSTA rules should be abolished entirely. Even the noble Lord, Lord Lipsey, indicated that there was a general feeling that the public really would not want to have more advertisements. We had no detailed evidence to that effect; there was a general assumption that that was the public's view. Therefore, we felt that everyone should be brought in line and come down to seven minutes. I will be interested in the response that the noble Baroness, Lady Rawlings, makes to this but no doubt there will be a recommendation by Ofcom in due course as to which of the two it should be. I will be very surprised if the noble Lord, Lord Lipsey, carries the day on a complete abolition of the COSTA rules. To go back to my first point, it is fundamental that we have a comprehensive review as to the way television advertising is sold.
Baroness Fookes: My Lords, before turning to the substance of the debate I want to add my own tribute to that paid by my noble friend Lord Clement-Jones to our late chairman, the Earl of Onslow. He behaved most honourably in relinquishing the chairmanship when he did not feel he could give it his full attention but remained an assiduous member of the committee as far as he could and despite increasingly debilitating illness. I admired greatly his resilience and his honourable approach to the matter, and my respect for him increased by leaps and bounds.
This was the first inquiry that I had held as a new member of the Communications Committee. Unlike
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I certainly hope that Ofcom, which I believe is going to report soon, will come up with some really good recommendations to cut through this obscure arrangement. Even if it does, it may involve the Competition Commission and the relevant government department. I fear that between these three and possibly other bodies nothing at all will happen or what does happen will not be as clear and decisive as it should be. I hope that my noble friend, if he is unable this afternoon to give detailed responses to what we have recommended, will give an indication that firm and decisive action will be taken, particularly so that if it does require any form of legislation we can latch it on to the next communications Bill, which I believe will be brought forward within the next two years or maybe less.
Looking at one aspect raised by the noble Lord, Lord Lipsey, I have to confess that he is on his own as far as I am concerned. I look at it as an ordinary television viewer and for me there is too much advertising already. I certainly do not want any more. I dislike especially when advertising comes in the middle of a particularly poignant part of a TV programme-I will not mention the one by my noble friend Lord Fellowes, but I have it in mind. It is irritating and demoralising to have some adverts slotted in just when you are in a real state of emotion. For me, the amount of advertising on television that we have at the moment is quite enough and there is merit at least in making the arrangements the same, either seven or nine minutes-for me, definitely seven.
I cannot believe that restricting it will ensure that the whole arrangement for making TV programmes will go down the drain, as I think the noble Lord, Lord Lipsey, was implying. I understand that about £4 billion a year is spent on advertising. If I am incorrect on that I hope somebody will put me right. Anyway, it is a huge sum of money. I believe that for the final contribution of "The X Factor", £250,000 was being charged for a 30-second slot. I will not shed tears if there is some sort of reduction in the number of minutes that can be broadcast per hour.
Lord Fellowes of West Stafford: I shall interrupt to say one thing, if I may. ITV is a marvellous company to work for. A drama is paid for by advertising. Although I do not disagree with anything that people have said about making things more transparent and so on, I do not think that anyone should ever see advertising revenue as a completely negative factor. We would have been unable to make the show, which I cannot bring myself to name yet again, in that way at the BBC. We were left entirely free to make the show that we wanted to make because we had the funding of advertising to do it. It is wrong to present advertising as a sort of hideous evil that wrecks the programmes it appears in. It also enables and makes them.
Baroness Fookes: I take the point that my noble friend has made. I was against the apparent wishes of the noble Lord, Lord Lipsey-to increase the amount of advertising, to make it without limit and that there should be no rules. That was what I was concerned about. I entirely take the point of my noble friend Lord Fellowes that it is the advertising revenue that produces good-quality drama and other types of programme.
Lord Lipsey: I should correct the misapprehension, which is no doubt my fault. I did not say that we should increase the amount but that we should get rid of the restrictions. It might go up; it might go down. Who can tell? I am not in favour of restrictions on competition in this field.
Baroness Fookes: That is exactly what I thought the noble Lord had said, and what worried me was the thought that there might then be an increase in advertising. However, that is an academic point at the moment. All in all, as I persisted in remaining on the committee despite my initial reservations, I thought that we came out with a good, robust report. It is one that I hope the Government will take on board very seriously.
Lord Macdonald of Tradeston: My Lords, I speak as a member of your Lordships' Select Committee on Communications and as a veteran of 30 years in the advertising-funded side of public service broadcasting in ITV, Granada and Scottish Television, alongside six years moonlighting on-screen for Channel 4 in the 1980s. I, therefore, vigorously applaud the sentiments expressed by the noble Lord, Lord Fellowes.
I moved on from ITV in 1998, and since then the network has changed a lot. The old network structure of 15 independent regional companies has consolidated into ITV plc, based in London, and only Scottish and Ulster television are still independent.
The issue of contract rights renewal being debated today is a product of the most significant merger to create today's ITV plc-the merger of Granada and Carlton Television in 2003. The CRR regime in all its complexity was introduced to stop the merged ITV from abusing its powerful position in the advertising market. We did not find any evidence of attempts to abuse that position in the years since. Over the past eight years, many new channels have offered advertisers
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The Select Committee examined the relationship between ITV, media buyers and advertisers, and airtime trading mechanisms are complex and opaque, as has been said. We recommended a short inquiry by an impartial group of industry experts into the system. Our concerns about this operation prompted Ofcom to launch its own review of the way television advertising is traded, as our chairman said. I would be grateful if the Minister could update us on Ofcom's progress, when it is expected to report, and whether it will report in time to influence trading before the next communications Bill comes to your Lordships' House; or will all the committee's concerns be rolled into that legislative process that presumably starts with a Green Paper next year?
Given all the debates and reviews about the contract rights renewal mechanism over the years, it is something of a surprise that the value put on CRR is only between £30 million and £55 million a year, which is a small percentage of a total UK advertising spend of between £8 billion and £9 billion-much less than 1 per cent by my count. If that was spread across corporate advertising budgets, the queues at supermarket checkouts would remain calm. When customers got home and turned into viewers, they might welcome seeing the improved ITV programme that CRR money might put on their screens. As the noble Lord, Lord Clement-Jones, said, it might be a 5 per cent boost to ITV's programme spend of around £1 billion. I say "might" because ITV could use the extra revenue to enhance dividends for shareholders but, to thwart that, our committee linked the removal of CRR to undertakings that would be required of ITV to put the money on the screen.
Given the nine months since we published our report, it now seems more likely that the spending of any post-CRR gains would be left to the discretion of the management. ITV's chairman, Archie Norman, complained that the CRR mechanism helped drive a "ratings rat-race". ITV does seem to be committed to improving its schedule with quality, popular programming. In the first half of this year, ITV launched eight of the 10 most popular new dramas on television, and the second series of "Downton Abbey" has held its huge audience-despite complaints of the advertising breaks being too long.
I support the removal of CRR primarily to encourage more investment in ITV programme production. If ITV gets CRR removed and any unprincipled diversion of that gain can be identified, the danger will be of reputational damage. That would be a real risk. It is probably the most feasible incentive that we will eventually come to rely on-but I hope that I am wrong.
I do not wish to seem pessimistic, but after reading the Government's response to our report, I think that the long grass beckons for our recommendation that the amount of advertising permitted per hour should be harmonised across all channels. I cannot conceal some sympathy for the arguments put forward by my noble friend Lord Lipsey. The government response batted the recommendations on to Ofcom-but we should not hold our breath for that report. My political judgment, for what it is worth, is that if the hundreds of satellite and cable channels lose revenue to a more competitive post-CRR ITV, I doubt that the Government would want to see the sector hit again by a reduction in its advertising minutage. As I said, I have sympathy for the arguments of my noble friend, but in the world to come it will be for viewers to zip through fast and for companies to decide their own minutage.
Another smaller but for me more important interest must be the independent licensees. Scottish Television and Ulster TV must still be protected. Both exist on channel 3 alongside ITV plc. Together, the two of them make up just a small percentage of ITV's advertising revenue. Their airtime is sold largely by ITV's sales house under another arrangement that was put in place in 2003. The undertakings inhibit ITV plc from flexing the rates on its digital channels-ITV2, ITV3 and ITV4-to the detriment of the sales income of channel 3 proper, better known as ITV1, on which Scottish and Ulster depend. These undertakings are covered by airtime sales rules. Removing CRR would give an incentive to ITV to bundle together channels and break those sales rules-an incentive that does not exist at present. It will be for Ofcom to ensure that the two unconsolidated companies are dealt with transparently and fairly if CRR is eventually removed. I am sure that the Minister, too, will want to protect the interests of Scotland and Ulster in this regard.
I greatly enjoyed the description by the noble Lord, Lord Patten, of ministerial mystification. Like him, I will make a confession. During my 30 years in ITV I never quite understood the dark art of airtime sales. For that reason, I look forward with great curiosity to Ofcom's review of the television advertising market. I hope that it will come sooner rather than later. I, too, conclude by paying tribute to our late chairman, the Earl of Onslow, and by thanking our chairman, the noble Lord, Lord Clement-Jones, for his comprehensive and clear introduction to the key concerns of our report.
Lord Stevenson of Balmacara: My Lords, I was briefly a member of the Communications Committee. By a curious coincidence, my time encompassed almost all of this inquiry, although I was not a member when it started or when the final draft was approved.
The noble Lord, Lord Patten, in his entertaining speech, was right to focus on the CRR and the advertising selling system. Like the noble Baroness, Lady Fookes, I found some of the issues we were probing, in particular the trading system for selling TV advertising, to be extremely complex and arcane. The comparison to the Schleswig-Holstein question was not far-fetched. I also have fond memories of our session with the CRR adjudicator. Rereading the minutes brought back the
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Your Lordships' House owes the noble Lord, Lord Clement-Jones, a considerable debt of gratitude for chairing the committee and delivering this report. In an earlier debate, the noble Lord, Lord Fowler, said that the committee went through a golden period while he was chairman and the noble Baroness, Lady Bonham-Carter, was a member. I felt that was slightly churlish, but they are his memories and he may wish to differ on that. It seemed to be a golden time when I was on the committee.
Although the late Lord Onslow was present only for a few meetings, he made a great impact and, like other noble Lords, I want to pay tribute to his contribution to the committee and to his memory. In his absence, and sometimes when he was present, the noble Lord, Lord Clement-Jones, was a tower of strength as our chair. Often he probed reluctant witnesses, including Ministers, with supplementary questions that we could never have imagined, let alone deliver, particularly with the Ministers, Messrs Davey and Vaizey. We were brilliantly served by our advisers, Professor Steven Barnett and emeritus Professor Patrick Barwise, and I record my thanks to the clerks for their help and support to a new member and during the inquiry.
Several of the committee's recommendations affect Ofcom and the Competition Committee as well as DCMS, and the situation is made more complicated by the fact that a lot of time has passed and action has been taken already in some areas and is continuing. As the Government's response to the committee made clear, this is a fast-moving policy area. On the other hand, as we have heard, we are promised a communications Green Paper and presumably legislation will follow, so in some senses this debate will feed in very well.
The key points are that, by and large, British television benefits, as it always has done, from the main channel groups having separate funding streams. Satellite, licence fee and advertising supported channels are freed up to compete on quality. This has been for the public benefit ever since ITV was introduced to break the BBC monopoly. However, in today's broadcasting ecology, TV advertising supports hundreds of channels and underpins investment in high-quality, UK-originated content, in particular from the commercial PSBs, ITV, Channel 4 and channel Five. As a matter of public policy, we want this to continue, albeit technology may in the end subvert this desire.
As my noble friend Lord Macdonald says, the growth in internet advertising needs to be taken into account and may upset the entire way in which we approach this. Our report argues that the current advertising minutage rules create an uneven playing field between the commercial PSB channels and the satellite and cable channels. This may have been appropriate 20 or 25 years ago to help the satellite and cable channels when they were starting out, but the situation is very different today. My noble friend Lord
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The current TV advertising market delivers many benefits to advertisers and viewers. It is alleged that advertisers benefit from lower prices, and the price of TV advertising has certainly fallen steeply over the last 10 years. Apparently it has not been cheaper since 1993. Having said that, I feel, like other noble Lords, that the system is almost impossible to follow. It is counterintuitive and arcane. On the other hand, it seems to work. Again, I suggest that an urgent review is required.
The noble Lord, Lord Grade, has fired off a broadside against the CRR regime. Again, the arguments seem to be finely balanced. ITV's continuing market power, with 40 per cent of TV advertising revenue in 2010, suggests that whatever it says-and it said a lot in evidence-a competition remedy ought to remain in place. However, if the CRR undertakings were removed and the strict conditions imposed by the committee actually took place, there would be a great deal of extra money to invest in UK content across the industry and in matters such as training. As that is definitely a public good, we have to consider it as important. I agree with noble Lords that ITV's commitments to quality, original UK TV production, training and other PSB obligations would need to be held closely in front of it and there might have to be additional regulation.
For me, this has been a trip down memory lane and I have enjoyed it. This has been a very good debate. The committee system in this House is impressive and it commands wide respect. This report does the committee and your Lordships' House great credit. I invite the Minister to respond.
Baroness Rawlings: My Lords, I am most grateful to my noble friend Lord Clement-Jones for elevating the last part of this afternoon, which has given us the opportunity to discuss the importance of the regulation of television advertising through the report he chaired following the untimely death of my noble friend Lord Onslow. As my noble friend Lady Fookes, the noble Lord, Lord Stevenson, and my noble friend Lord Clement-Jones all said, we miss him and his contributions.
This debate has confirmed something that is obvious and known to us already, but I repeat it. There is a staggering accumulation and store of informed expertise and experience available in this House that can be marshalled and focused upon in this area. I am grateful to the chairman and members of the House of Lords Communications Select Committee-six noble Lords-for contributing today and for undertaking this inquiry into the regulation of television advertising. I thank all noble Lords who have contributed to a most interesting debate. I read the report with interest and rather wished I had been on the committee.
As the report points out, many of the recommendations are matters for the competition authorities, but there are also recommendations for ways that the competition regime could be changed, which would require legislation.
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There is no doubt about the importance of television in most people's lives. We must therefore make certain that the regulation is correct. That will allow for innovation and growth but will still provide a degree of protection where necessary. The continued success of television broadcasting in the United Kingdom and abroad suggests that the existing regulations are, broadly speaking, fit for purpose.
Let us briefly consider the state of the market, since it is against this backdrop that calls for change must be considered. Time prohibits me from reeling out a series of statistics, but 2010 was a good year for television. Viewing figures were up, revenue was up and investment in content and first-run originated programming for the five main PSB channels also increased. Despite the growth of multi-channel TV, the highest percentage of this viewing remains with the PSBs and their extra channels.
I commend the Communications Committee for its diligence in examining the complexities and regulation of this market with a view to simplifying and improving it. The committee quite rightly concentrated on identifying ways of maintaining the commercial PSBs' revenue potential so as to encourage more investment in programmes which have high standards.
I now turn to the CRR. Many of the recommendations in the committee's report concern the removal of contract rights renewal and replacing it with the imposition of undertakings to make certain that ITV invests an appropriate proportion of any additional advertising revenue in high-quality programming. While we would welcome any increase in ITV investment in more diverse and new high-quality programming, we are not persuaded that this is the right way of achieving that.
First, there are a number of potential practical problems with introducing such undertakings which need to be looked at. For example: how is high-quality programming defined and by whom? How can it be determined whether the programmes would have been made anyway? In other words, how do you avoid deadweight? Is a decision taken in advance of broadcasting, so programmes have to be vetted in advance to see that they fit the criteria, or is the decision taken retrospectively? Aside from the practical issues, some of which could possibly be resolved, there are bigger problems around the operation of the competition regime.
ITV remains by a long way the most popular commercial channel in terms of audience. As the committee's report noted, it is the only commercial broadcaster able consistently to draw in large peak-time
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Lord Patten: My noble friend and other noble Lords might wish to be aware that at the close of the London Stock Exchange at 4.30 pm, the biggest riser on the stock market was indeed ITV, up by 5.94 per cent. I am not a shareholder but it may well prove that the mentions of ITV in your Lordships' debate this afternoon have indeed moved markets.
Baroness Rawlings: I thank my noble friend Lord Patten for keeping us up to date. Unfortunately I have been in the Chamber for most of the day and have not seen that, but I thank my noble Friend very much.
It is precisely these kinds of successes that were a key consideration in the Competition Commission's review of the CRR, which led it to conclude that it should be retained, notwithstanding the changes in the market since the original review. It cannot be the right time to be making the TV advertising market less competitive, which would be the inevitable effect of removing the CRR undertakings. I am most grateful for the intervention of my noble friend Lord Fellowes, which came from his highly successful professional viewpoint.
I remind noble Lords that Ministers themselves have no power to lift the CRR, which is a competition remedy that only the Competition Commission has the power to lift. Although we have some sympathy with ITV's position, we should not forget that the CRR undertakings were offered by ITV at the time of the merger of Carlton and Granada when the Competition Commission had concerns that the new company, ITV, would have a dominant market position. We are aware of the important contribution that ITV makes to public service broadcasting. It produces high-quality programmes which also act as a spur to the BBC to produce equally good television. This competition is good for all of us.
We do not believe that it is in anyone's interests to allow ITV to abuse its dominant position in the television advertising market. This would be bad not just for consumers and advertisers but would also have a detrimental effect on other broadcasters' ability to produce high-quality content. Even if we could construct a watertight system for making certain that the additional revenue that ITV could raise as a result of the removal of the CRR was spent on additional high-quality content, it surely cannot justify making the TV advertising market less, rather than more, competitive.
The Competition Commission believes that its review of the CRR was constrained by not being able to consider the wider advertising market. This was something it felt Ofcom could do. Many noble Lords, including my noble friends Lord Razzall and Lady Fookes, and the noble Lord, Lord Lipsey, have pressed for the removal of CRR. The Government hear their case, and we welcomed Ofcom's announcement in March that it would review the way TV advertising is traded. This review is currently going on and we await its outcome with interest. I wish I could answer the question asked by the noble Lord, Lord Macdonald,
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Perhaps I could answer the question put by my noble friend Lord Clement-Jones on harmonising advertising minutage for commercial PSBs and non-PSB commercial channels. I recognise that there is a debate about commercial PSB channels having different rules to non-PSB channels. However, that is an issue for which the independent regulator, Ofcom, is responsible, taking into account representations and the requirements of the AVMS directive. Ofcom is currently reviewing this.
On the question from the noble Lord, Lord Macdonald, on revenue arising from internet advertising, Ofcom has concluded that that is a different market. Of course, I shall pass the clear views of my noble friend Lord Patten to the department.
I close by thanking all noble Lords who have contributed to the debate. If I have not answered all the questions, I shall of course write, placing a copy of my letter in the Library. I am grateful again to my noble friend Lord Clement-Jones for undertaking this inquiry, for his chairmanship of this difficult subject area and for bringing this debate to the House. It may be that as the market develops and circumstances change, the Competition Commission concludes that the CRR is no longer necessary, as felt by so many of your Lordships today. I shall take noble Lords' views back to the department.
I should like to end on a more positive note. As I touched on earlier, with revenues, investments and viewing all up, television is one of the UK's strengths and its quality remains the envy of the world.
Lord Clement-Jones: My Lords, I thank all noble Lords who have taken part in the debate, including members of the committee and the two non-members, the noble Lords, Lord Lipsey and Lord Patten, who have plunged into the debate so effectively. As a result of his Front Bench duties, we miss the noble Lord, Lord Stevenson, just when he was making a major contribution to the debate.
The debate has not been at all Byzantine or incestuous. We appreciate the noble Lord, Lord Fellowes, keeping a watchful eye over the future finances of ITV. That has been very helpful. None of us expected a Damascene conversion from the Government in the light of their original response. I am sure that ITV's share price will go down tomorrow morning as a result of today's debate, even if it went up earlier.
We have heard significant differences about whether CRR is fit for purpose. We have a common interest in believing that it is the viewers' desire to have original UK programming. That is paramount. How you judge that and what kind of regulation over ITV advertising is adopted is crucial. I hope that the debate will continue with the Green Paper, when that is produced, and that the Government are persuaded by the outcome of the Ofcom review that the trading system needs to change.
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