Examination of Witnesses (Questions 460-514)
Mr Steve Williams, Mr Tom George, Mr Geoffrey Russell
and Mr Andy Jones
30 NOVEMBER 2010
Q460The Chairman: Good afternoon. Thank you
very much for coming along. I am delighted to see that you have
brought your own name tags, as well as those provided. We're double
banked now, so there is absolutely no chance that we will misidentify
you in the course of the proceedings. I wonder if you could introduce
yourselves and just explain your area of expertise, because obviously
it will be very helpful when we are addressing the questions to
know where the thrust of them should go.
Could I also apologise? I am really sorry that
we were delayed but, as ever, we have internal deliberations to
get through as well. So I am sorry for that.
Mr Russell: If I could possibly kick off then.
My name is Geoffrey Russell and I'm the Secretary and Director
for Media Affairs at a body called the IPA.
For those of you who have not come across the
body before, the Institute of Practitioners in Advertising is
the trade association and professional institute for UK advertising
agencies. We have 263 corporate members who are primarily concerned
with providing strategic advice on marketing communications, including
the creation and the placing of advertising. These members are
based throughout the country. They are responsible for over 85%
of the UK's advertising agency business and they play, we like
to think, a key role in advising the nation's companies on how
they should deploy their total marketing communications.
While the IPA membership comprises all forms
of advertising agency, given the nature of the subject today we
have representatives from our media policy committee, which is
called the Media Futures Group. IPA media agency members will
be responsible for planning and buying their clients' media budgets
across all the different media in the UK, and the Media Futures
Group represents their interests from large to small on matters
of common concern.
I'm a generalist and I will defer to my expert
colleagues who work, as it were, at the coalface of media. So,
I will start with Steve Williams at the end there.
Mr Williams: Hello there. I'm Steve Williams.
I'm the Chief Executive of OMD, which is part of the Omnicom Group
in the UK. I sit as Chair of the Media Futures Group with the
guys here. Through history, I'm a TV trader by background, and
I now run the agency in a more general sense.
Q461 The Chairman: Could you just
explain what Omnicom does?
Mr Williams: Omnicom is a global marketing services
group.
Q462 The Chairman: You are media
buyers and so on?
Mr Williams: Absolutely. A full range of marketing
services—all the guys around the table work within that,
but I work specifically within OMD, which is the media division.
Mr George: Good afternoon. I'm Tom George. I'm
the CEO of MEC UK, part of the WPP Group, which is also a global
marketing services group. Again, in an earlier part of my career
I headed up trading for a media agency, so was responsible for
directly dealing with all the broadcasters.
Mr Jones: Hello. I'm Andy Jones. I'm CEO of
UM, which, like the other two guys at the end there, is a media
communications planning and buying agency. Again, it's owned by
one of the large advertising groups, Interpublic. And again, like
Tom and Steve, my background originated in the TV trading side
of the business. In fact, I worked at ITV on the sales side trading
with agencies before I came over to the agency side, although
that was many years ago I must admit.
The Chairman: So I do not know whether
you are a poacher turned gamekeeper or a gamekeeper turned poacher.
Mr Jones: You decide.
The Chairman: Very good. Geoffrey, will
you help us direct the traffic? That might be necessary, I think.
Mr Russell: Yes, indeed. It will be my pleasure.
The Chairman: I think that to some degree
there may be competition in answering the questions. We have a
very competitive group here.
Mr Russell: We did spend a little time divvying
up responsibilities this morning.
Q463 The Chairman: Good. That is
very helpful. Thank you. Perhaps I could introduce the first question.
Since the introduction of CRR the number of commercial impacts
has increased by about a third. At the same time, the price per
impact that advertisers are paying has fallen significantly in
real terms, even after the recent recovery and even for ITV1 and
Channel 4. Do you agree that advertisers are now able to buy many
more impacts and are also paying much less for each impact?
Mr Jones: Yes, that's true. Over the last six,
seven years or so commercial impacts have increased by something
like 35%, due to the extra channels that have come on board primarily.
So, the price of airtime has deflated overall by about 16%, although
interestingly ITV has only deflated by 6% so it's managed to stem
the tide in many ways. There are a number of reasons why the price
of airtime has come down. You have mentioned commercial impacts,
but it's not just that and we believe that the UK digital economy
is one of the biggest factors in this as well. A lot of money
has gone out of television. There is a big e-commerce business
in the UK. A lot of money has gone online or it has gone to search,
so that has been a factor as well, but I guess increased supply
of commercial minutage is significant.
Q464 The Chairman: Is this post hoc
or propter hoc? Is it just simply the result of the digital age
or is it because of CRR being instituted in 2003?
Mr Jones: No. I think since 2003 we have seen
broadband penetration increase significantly in this country and,
as I say, we lead the world in many ways in the online e-commerce
economy. So a huge amount of money is being spent online by advertisers
and that has had an effect on all other media, not just television.
Q465 Earl Onslow: I am extremely
confused by the system of discounts. Can you tell me if anybody
ever pays the full market price?
Mr Jones: Do you mean on television specifically?
Earl Onslow: On television.
Mr Jones: There are lots of advertisers who
would pay, depending on what kind of airtime they want to reach,
what kind of audiences.
Q466 Earl Onslow: If somebody quotes
£10 an hour, or whatever the figure is, media companies go
round and negotiate a discount, but somebody will actually pay
that £10, will they?
Mr Jones: Or more. It depends, as I say, in
which programmes you're advertising, on your selection of channels,
when you book, if you commit late, what you commit to the TV stations
in advance, whether you're prepared to guarantee them X or Y of
your budget. There are a number of factors. Then quite often after
campaigns have been booked, advertisers need to make amendments
to those in the short term, for a variety of reasons, and that
tends to get quite heavily penalised, particularly if you get
close to the date of transmission. So there are a number of ways
in which premia are paid, yes.
Mr Williams: Without wishing to get too technical,
there are a number of different target audiences that are bought
within the TV market. So, a price for a spot in "Coronation
Street" against target audience A, let's call it housewives,
will be a very different discount to a target audience if you
were buying ABC1 adults. There's a balancing act that goes on
in terms of that whole mathematical equation, so you're right
to ask the question.
Q467 Lord Gordon of Strathblane:
Just to supplement the question. My understanding is that the
ratio of the top rate to the bottom rate for the same sort of
spot is about 10 to one. Is that correct?
Mr Jones: Do you mean some people pay 10 times
more than others?
Lord Gordon of Strathblane: Well, depending
on when you buy it and this, that and the other thing.
Mr Jones: I would imagine that if you book a
late spot in the "X Factor" this weekend on Friday,
compared to committing to a very cheap spot on a low-rating channel
months in advance, yes, that is probably true.
Q468 Lord Gordon of Strathblane:
Just to pick you up on an earlier point you made, I rather got
the impression that you thought there had been a transfer of business
from TV to the internet.
Mr Jones: Yes.
Lord Gordon of Strathblane: I think a
lot of evidence put forward by the advertising industry has suggested
that TV is immune from the internet, and that therefore nothing
has changed that would warrant changing CRR.
Mr Jones: I don't think any media is immune
to the internet at all. I don't think that's true.
Mr Russell: I think it would be true to say,
however, that certain media have been more vulnerable and if you
were to look at, say, the regional press you would have seen that
that had been very severely hit by the arrival of the internet,
most notably in the loss of things like its classified advertising.
Similarly, if you were to look at one or two—I'm just trying
to remember the other areas; radio in particular—they have
suffered very badly. Alongside that, television has probably suffered
less.
Q469 Lord Gordon of Strathblane:
There is a general feeling that if CRR were removed the cost of
airtime would go up. Is that your impression?
Mr Williams: Yes. There's no doubt, in our view,
that the costs would go up. As a generalisation, I think it's
fair to say that if interested parties are looking to remove a
control that would be for reasons of making more money. Our point
is, there's no question that if control was taken away—in
this instance CRR or whatever now may be put in its place, without
getting on to a further question no doubt—that would have
the effect of prices uncontrollably going up potentially, yes.
Q470 Lord Gordon of Strathblane:
So it's not a zero-sum game? It is not as though the removal of
CRR would hit the other commercial channels? ITV would win over
the other commercial channels, all boats would rise and the price
of all airtime would go up, you would argue?
Mr Williams: There is no doubt that with ITV's
power it would stand to gain above other stations in that regard.
Q471 Lord Gordon of Strathblane:
But do you think the others would gain as well?
Mr Williams: I think that would be a tough one
for them, unless the general economy lifted to such an extent
that that gave a greater opportunity for all, but if all things
were equal, then I think that would put much more control back
into ITV's hands to increase its prices over others.
Q472 The Chairman: One of the issues
for us is whether there is this idea of a kind of fixed pot for
advertising budgets, and that is why Lord Gordon used the phrase
"zero-sum game". But the issue is, as he said, whether
it does make all boats rise in those circumstances, whether additional
money could come into advertising, or whether all that would happen
would be that ITV would benefit at the expense of other broadcasters.
Mr Williams: Our view would be that there is
a good chance that ITV would benefit over and above other broadcasters,
in that scenario.
Mr Russell: Basically, it would suck the money
away from Channel 4 and Channel Five if CRR were removed.
Bishop Liverpool: I think question 3
has been dealt with so I am going to pass on to question 4.
The Chairman: Yes, okay. Move on to question
4, absolutely.
Q473 Lord St John of Bletso: Many
would argue that CRR should be scrapped because the whole TV market
has moved on substantially since the days in 2003. Surely the
preservation of CRR protects the status quo of the main three
to four media agencies. As a supplementary to Lord Gordon's question,
to what extent would the cost of advertising rise, or consumers
suffer an increase in retail prices if CRR were to be removed?
Mr Williams: Putting a number on exactly what
would happen with CRR is a tough one because I think there are
many plays here. There is the economy in general, obviously, if
we look at what is going on. There is what is going on with the
rise of procurement in our business in terms of driving prices
down, which is a very real factor. It's not a moan but it's just
a market reality for us there. There are the other options for
our clients to take their marketing budgets on to other channels.
Digitally, it is a big opportunity that kind of resets the frame,
if you will, on the cost of marketing full stop at the moment.
Putting a number on exactly what that would do to the TV market
in terms of its cost is a tough one to say but—a personal
point of view here—I would say within a range of 5% to 10%
could be the number that we would look at.
The Chairman: Sorry, could you say that
again?
Mr Williams: I would say that if we were to
put a number on exactly what would happen with the price of television,
with regard to ITV, that could be in the region of 5% to 10%.
That's not a formula I'm playing back at you there, that is a
sense, and it's very difficult for us to put a finite number on
that.
Q474 Lord St John of Bletso: What
about the first comment that I made about those who would argue
that CRR should be scrapped because the whole television world
has changed substantially since 2003?
Mr George: We sat before the Competition Commission
in 2003 when the Carlton-Granada merger was proposed. Our view
is that fundamentally the conditions haven't changed since 2003;
and that is that ITV1 is still a very important channel.
Q475 The Chairman: Despite what Lord
St John said about the internet?
Mr George: It's still a very, very important
channel within TV. It has the unique property of being the only
channel able to build mass coverage very rapidly, and that hasn't
changed to any great extent since 2003.
Q476 Earl Onslow: I have a problem
when you say "our clients". It seems to me that you
get paid both by the advertisers—or the media companies
do—and those who place the adverts, because you get a discount
if you use X% of your budget on somebody, which means you get
paid to distort your own internal market for an individual client.
We had a very intelligent—at least I thought it was very
intelligent—description of how media companies work and
this was a thing that jumped off the page. If you took X% of the
broadcast time of your budget, you got a bigger discount from
the company than you would if you got slightly less. That must
mean it is saying to you, "Bring us the budget from your
clients at the other end". That seems to me striking two
ends against the middle.
Mr George: Just to clarify, we make our income
from the fees and the commissions that our clients pay us for
planning and placing their advertising space. We negotiate discounts
with media owners but those discounts are passed on in the form
of discounts to our advertisers.
Q477 Lord St John of Bletso: But
is this necessarily in the interests of the advertisers? The point
I am trying to make is that those who would argue that CRR should
stay are surely the main three or four agencies. You almost have
your own monopoly on prices.
Mr George: It's true to say that there has been
consolidation in media agency ownership over the last seven or
eight years and I think the issue is, as it pertains to ITV in
particular, that we represent hundreds of clients in our respective
groups, and we respect their interests and their wishes. It's
more of an implied leverage than being actually deliverable, because
we have hundreds of clients who all want different things. If
there were a replicable broadcaster to ITV delivering the sort
of qualities that ITV delivers, then I would say that that would
put us in an advantageous position. At the moment, there is nowhere
that is a realistic alternative for ITV on advertising.
Q478 The Chairman: Just following
up Lord St John's point: are you not using the power of your clients
to negotiate better terms with ITV?
Mr George: We are trying to use the power of
our clients' combined spend to negotiate better terms with all
media owners, and we do leverage that with other broadcast channels
and other media owners. The point is that with ITV there really
isn't very much of an alternative for the majority of the moneys
that it spends on ITV1.
Q479 Lord Gordon of Strathblane:
Just to be clear, the discount deals are between you, as media
buyers, and ITV.
Mr George: Generally, although there are exceptions
where you do a deal with a single advertiser on behalf of that
advertiser.
Q480 Lord Gordon of Strathblane:
That to some extent pre-empts my next question. I was going to
say, is there not a tendency for that—which is no bad thing
from your point of view—to lock in your clients to you,
because it is through you they get those deals, whereas if they
move to another agency they are starting from scratch?
Mr George: It is part of the position—in
a competitive position in the marketplace.
Q481 Lord Gordon of Strathblane:
No, but if I have a good deal, based on something you did for
me in 2003, and I move to another agency, I might not get as good
a deal. So I am kind of locked into you, am I not?
Mr Jones: I think any advertiser that moves
agency would ensure that it gets that covered off before it moves.
Q482 Lord Gordon of Strathblane:
And who do it negotiate that with then?
Mr Jones: With the other agency.
Q483 Lord Stevenson of Balmacara:
I am going to change the line of questioning a little bit. This
is more from the viewers' point of view, I think, and the consumers'
side. Ofcom have given us an estimate that about £700 million
of investment in original UK programming has been lost to free-to-air
television as result of the fall in public service broadcasters'
advertising revenue. You have said, and we would agree, that some
of that is because of the recession, but ITV specifically attributes
some of that lost investment to CRR. Channel 4 and Channel Five
have a slightly different take on this. They argue that without
CRR, total television advertising income could rise. I assume
that is broadly not in contention but I wouldn't mind your comments
on it.
The specific question is, you presumably have
a trade-off that you must think through, and I would like your
thoughts on it: is it in the public interest to have slightly
cheaper products as a result of all that or is it a better public
interest case to have fewer higher quality television programmes?
Mr Jones: I think that's something you can argue
either way for both those questions.
Q484 Lord Stevenson of Balmacara:
I think there is a public interest question. If you can get away
from that, is that possible?
Mr Jones: I think everybody would have a different
point of view. Do they want worse television or cheaper products?
I don't know. I don't think anyone could answer that objectively.
Q485 Lord Stevenson of Balmacara:
Just to follow that through: you say in the postscript in your
evidence on page 5 that you are not convinced that CRR is the
break in creative programming that ITV has claimed. Could you
give us a bit more on that?
Mr Russell: Yes. I think the fact that CRR is,
maybe, present during a time of reduced public service content
or original content doesn't necessarily mean it's responsible
for that trend. We've certainly seen no evidence to suggest that
CRR is responsible for a reduction in public service content.
If this were the result of constrained budgets, then we would
suggest that the economic recession and the driving down of rates
through the increased supply of impacts was far more important
than CRR could ever have been.
Q486 The Chairman: Can I just stop
you there, Geoffrey? Are you saying that those reduced budgets,
or whatever they may be, for programmes are purely in the last
few years, during the recession; they don't date back to 2003?
Mr Russell: No. We spent a little bit of time
looking at this and we think that the attitude towards public
service broadcasting could be broken down into what are called
four phases. The first phase is from the establishment of ITV
back in 1955-56 and will last through until the mid-1990s. This,
if you like, is the golden age of public service broadcasting
in the commercial sector. The reason for that is very simple:
there is no other commercial competition. If ITV wishes to produce
public service programming and it doesn't attract a large audience
it doesn't matter because ITV has complete control over the prices
that it charges. If it has a declining audience it can in fact
increase the price of the airtime that it has available to it.
There were, in fact, examples during the period from the 1950s
to the 1990s where ITV was withdrawing airtime, reducing minutage,
and as a result of that the ITCA introduced the selling-up rules
that have recently been withdrawn.
In the mid-1990s the world changed. It changed
with the arrival of effective competition from Channel 4, from
Channel Five, from the arrival of Sky, and from the arrival of
the satellite stations. What that meant was that if your audience
didn't want to watch commercial TV on ITV, it could go somewhere
else. What we identified at that particular stage was a tightening
up in ITV's attitudes. It became far more aggressive in its sales
approach. There was lobbying beginning to reduce and remove PSB
obligations. There was a move towards more populist programming.
You will remember towards the end of the 1990s
there was what was called "the battle of the bongs",
which was the attempts to move "News at Ten" away from
10 pm. That was purely to enable the running of films uninterrupted
by news from 9 pm right the way through until 11 pm. At the same
time, you started getting the development of more populist formats,
things like "Coronation Street", "I'm a Celebrity",
"X Factor", "Britain's Got Talent" and so
on. All that was taking place irrespective of CRR.
Then we come to the third phase, which was probably
from 2004 onwards; it was the arrival of the merged ITV and Charles
Allen cutting costs. He cut headcount, and he looked very severely
at his programming budgets, and you began to get pressure on regional
programming, pressure to try and release ITV from public service
broadcasting. At the same time you got pressure on original children's
programming. This was really as a result of the unintended consequence
of the ban on high fat/sugar/salt foods that meant that there
wasn't advertising going around the children's area. As a result
of that it didn't wash its face. As a result of that there was
a cutting down of original production in the children's sector.
It was only in mid-2007, when Michael Grade
starting looking at refocusing, if you like, the output of ITV
on quality of programming, that the concept of CRR being responsible
for the diminution of original programming was first floated.
We would cite that this trend started far earlier and was in fact
the result of increased competition in the marketplace that caused
ITV to begin to compete more strongly for its audiences.
Q487 Lord Stevenson of Balmacara:
That is very interesting. My final point on it, just to tie it
up: if ITV was in a situation where perhaps it was free from CRR,
we would still be faced with the problem of how to ensure for
the public interest the quality of programming that was provided.
Obviously as a commercial interest you want a range of diverse
and interesting programmes, high value, low value, everything
you can get in order to sell them, but in the public interest
there is obviously interest about UK content and diversity within
the programming. How would you approach a suggestion that might
be made that ITV should be regulated by, say, Ofcom to achieve
those better outputs?
Mr Russell: Are we talking about the abandonment
of CRR in that context?
Lord Stevenson of Balmacara: I am saying
you could move away from CRR to give you that freedom, but the
quid pro quo the Committee is exploring is whether or not we would
want to still impose slightly higher thresholds in such things
as regional programming, or—
Mr Russell: I would suggest that that would
be a requirement, yes. You would lay that down as a requirement.
I thought it was a very interesting statement that Adam Crozier
made; that if CRR were abandoned, the moneys would go into programming.
I suggest that the shareholders of ITV would be equally clamouring
for some sort of reward, not having received dividends for some
months or years.
The Chairman: I don't think they were
quite as explicit as that, strangely enough, but we had better
look back at the transcript.
Q488 Baroness Deech: Can I ask a
supplementary? Why is it the case that UK content is always deemed
to be synonymous with quality, or are we just talking about keeping
our own industry going?
Mr Jones: I don't think we've claimed that.
Baroness Deech: No, you have not but
it is generally accepted that UK content must be a good thing.
Mr Jones: I don't necessarily think it is. You
look at Channel 4, for example, and its track record of importing
US comedies. They're not for everybody but I would argue the content
has been of a high standard—they wouldn't succeed here otherwise—compared
to some of the programmes that ITV, or in fact BBC, puts out that
get bigger audiences. So I think, again, it's a subjective area.
As advertisers, we would generally look at the quality, if you
like, of the audience profile, and depending on which brand you're
advertising, you're going to have a preference as to which target
demograph, which people you want to reach. They will tend to normally
have a high disposable income or maybe a younger profile, depending
on the brand. So, I don't think necessarily mass ratings are the
be all and end all.
Q489 The Chairman: Do you define
quality by the quality of audience rather than some sort of indefinable
quality of programme?
Mr Jones: Yes. To us, as advertisers, it's the
quality of the audience that the programme reaches, rather than
a pronouncement on the quality of the actual show.
Q490 Lord Skelmersdale: But that
said, you, as I understand it, place bookings for advertisements
very many months ahead.
Mr Jones: Two months ahead normally.
Lord Skelmersdale: So, although you have
a good idea of what the actual programmes are, you have no idea
what the audience reaction to those programmes will be. There
is an historical basis—for example "Britain's Got Talent",
which we mentioned earlier—but there are other things where
I suspect you have very little idea indeed.
Mr Jones: Yes, you're right. There are some
shows that will come on that are new that you can't predict. You
can never predict exactly what a show is going to do tonight until
tomorrow, until you know the result. It's not a prediction then.
Mr Williams: That's why the trading mechanism
is based around keeping an audience as opposed to buying the show,
generally speaking. There are some differences at the very top
end. Let's use "X Factor" as an example where ITV, for
example, will sell that at what it calls a special rate. Completely
understandably, arguably a quasi auction piece that goes on there
too. But fundamentally the job of an agency is to achieve the
right quality of audience for its particular advertiser, and that's
what we buy and trade against as opposed to saying, "We'd
like three X Factors and a Coronation Street, please".
Q491 The Chairman: If you are not
careful you will get us very excited because we want to talk about
auctions later for special events and so on. That is very interesting
that you are equating those very highly rated programmes to an
auction process.
Mr Williams: A different sort of demand, yes.
Mr George: We generally buy audience rather
than specific spots, but we will have a viewpoint on which are
the most relevant spots for our brands.
Q492 Lord Dixon-Smith: I am still
trying to work out whether, in my mind, I see you as grit or grease.
I suspect your advertising agency clients might see you as grease,
but that the television companies might see you as grit. Is that
a valid description, and if it is not why not?
Mr Jones: You're probably right. I'm sure they
do. We're there to negotiate on behalf of our clients, as Tom
said earlier. We're paid by our clients to do a job and that job
is to get them the best value we can for whatever their objectives
are. That may not always coincide, or quite often doesn't coincide,
with the objectives of a media owner, not just ITV but any media
owner.
Q493 Lord Dixon-Smith: What would
be the effect if you were not there?
Mr Jones: If there were no media agencies, I
suspect that clients would pay a lot more for their media.
Q494 Lord Dixon-Smith: That would,
therefore, free up money for the television channels to spend
on programming.
Mr Jones: You could argue that but I'm not sure
you can un-invent media agencies now.
Mr Russell: Also I'm not sure that the inefficient
use of advertising moneys would be of great benefit to those advertisers.
They will be spending money unnecessarily, and as a result of
that I suppose you'll get a filter through to the cost of products
to the consumer at the end of the day.
Mr Williams: If agencies weren't there, just
to be clear, in my humble opinion, the clients that we're talking
about representing here, would have to represent all that expertise
inside their own organisations, which simply moves the cost, because
it doesn't just happen.
Q495 The Chairman: Well, Procter
& Gamble for example.
Mr Williams: For example, yes.
Mr George: I think it's interesting that there
are practically no clients in the UK who take responsibility for
planning and buying their own airtime.
Mr Williams: Not the whole piece, no. Procter
& Gamble have a negotiation piece, absolutely, but the agency
facilitates the remainder of the implementation.
Q496 Earl Onslow: I still do not
follow this. If I want to buy an insurance policy, which is in
some ways just as complicated, I go to an insurance broker and
he is my servant and my servant only. He is not the servant of
Lloyd's or whoever it may be. He gets his commission, admittedly
from a discount, from the broker. Why does this not happen in
advertising? If I want to advertise Pepsodent, say, I go to advertising
agency A and say, "Please, you know how to advertise Pepsodent.
That is why I am employing you". What is the point of you,
as somebody said of Lord Quickswood years ago? Why do you have
to come in the middle? Why can't an advertising agency do it itself?
Mr Jones: As a client, as an advertiser, you
probably could book some TV. You can; no one is stopping an advertiser
from booking its own media. I think we have a number of roles.
One is that we will advise clients on how those different media
work together and what is the best combination for a client, and
we use our own research and the industry research that we buy
into, that we pay for, to help us with that. Another is we have
experts that are in the markets and we can negotiate deals that
may be preferable to a client doing it on their own, for example.
We have a number of ways in which we work for clients. We don't
just book media; we do quite a bit more than that.
Q497 Earl Onslow: But is that not
what the advertising agency is supposed to do?
Mr Jones: They make the adverts. We will advise
them on—
Q498 Earl Onslow: The advertising
agency is the chap who reaches a million housewives every day.
Mr Jones: The creative agencies. What a media
agency will do is advise a client on who they should be trying
to reach, when to reach them, how to reach them, by which medium,
how much they should spend, what is the optimal level of spend
and so forth.
Mr George: I think very simply any client could
do it. I think it would be absolutely cost prohibitive for them
to achieve the same sort of value that can be delivered by media
agencies.
Q499 The Chairman: Thank you. I think
we need to move on from there. In a sense, one could argue that
there has been great consolidation in the media agencies, and
what you are now butting up against is consolidation in the media
sales houses. Is that not the reality of the situation? Is this
not just a battle of the titans, and we have a bunch of oligopolies,
really, operating?
Mr Jones: Do you mean in regard to CRR specifically?
The Chairman: Just in regard to the trading
system generally, irrespective of CRR.
Mr Jones: I think that is true up to a point.
With CRR we think that ITV does have, as Tom said earlier, a particularly
dominant position, an unsubstitutable position, and that's exacerbated
in the UK TV market by the fact that the BBC is anomalous, compared
to other countries. There is an equally large channel that you
can't advertise on, so you can't take your money from ITV and
put it in BBC1. At the outset of CRR, ITV represented 51% of TV
advertising revenue and now it's 45%. So, it has slipped but it's
still incredibly dominant.
Q500 Lord Gordon of Strathblane:
On the uniqueness of ITV, we are getting conflicting evidence.
Granted that ITV can reach a lot of people very quickly, and if
you are trying to advertise a Sunday newspaper scoop it is probably
pretty well indispensable. But Adam Crozier stated that that represents
only 1.65% of its business. Would you agree with that figure or
would you give us another?
Mr George: I think he is being selective with
the statistics that he has chosen. I'd counter that with another
statistic that says 96% of the top 1,000 advertisers in the UK
used ITV1 in 2009.
Q501 Lord Gordon of Strathblane:
Can we just explore this? How unique is ITV?
Mr Jones: There is no other channel that can
deliver the speed of reach, the mass environment—
Q502 The Chairman: So you dispute
that percentage, basically?
Mr Jones: I wouldn't dispute that percentage.
What I would say, as Tom has just said, is that there is another
95% of advertising money that uses ITV1 to some degree, and the
key attributes of ITV1 are fast cover build, mass reach and so
forth. So that is primarily why you would use it.
Q503 Lord Skelmersdale: Is that not
just the point, to some degree? What we are trying to establish
is what that degree is. Can you help us?
Mr Russell: I think we would say to a very high
degree. The fact is that being on ITV says something about you
as a brand. If you are a new brand, you acquire status by being
on ITV. If you are an established brand, you retain status by
being on ITV. In addition to the straight numbers that we've been
talking about in terms of the reach, in terms of speed of acquiring
cover, ITV also has a whole load of what I'll call soft reasons
why an advertiser would want to be there. Prestige I've mentioned
and there is rapid sales. The fact that you'll get your message
out there quickly means that advertisers can see that their campaign
is beginning to work.
It's also extremely important for trade distribution.
If you are a manufacturer, you need to have your products out
there in the marketplace. A retailer will want to know that if
he takes your products into his shop they're going to go back
out through the door. And they will go back out through the door
if you advertise on ITV. They know that from history and they
require that in order to take the stock in. On the back of that,
the retailers will also grant you an appropriate number of facings
in the store; they may give you a better position in the store.
All those things you'll get through being on ITV that you would
not get if you went on to a basket of satellite stations.
Q504 Bishop Liverpool: Since the
introduction of CRR, the monopoly, or the oligopoly, of the media
buyers has gone up from about 50% to 75%. What is it about the
CRR that has led you to increase your market share, or is there
no connection at all between those two facts?
Mr George: It's totally unrelated. It's nothing
to do with the CRR. It's about the continuing consolidation of
media owners and media sales force. It's a reaction to that so
we can try to meet might with might.
Q505 Bishop Liverpool: And has CRR
not driven that at all?
Mr George: No.
Mr Williams: In our view, the 2003—when
you talk about top buying points, I believe from previous video
that we've seen, it's the top four that you tend to view. So,
on my record 58% of the billings were through the top four agencies
in 2003, and that has crept up to 66% this year to date.
The Chairman: Is it 66%? We thought it
was rather higher than that.
Mr Williams: With the top four buying points.
This is published information from Nielsen, by the way, so it's
not real numbers, but it's as accurate as it can be in our market.
So we have a 58% top four buying points to a 66%. So, yes, it
has gone up for sure. Has CRR driven that? No, absolutely not.
Has the need to deliver competitive advertising full stop for
customers done that? Yes, it has. But it's not a CRR impact—
Mr Russell: It's a general market force of supply
and demand.
The Chairman: What, the consolidation?
Mr Williams: Yes, and the need for clients to
get stuff cheaper, whether that's through the economies of big
agents being able to do some work, or indeed prices.
Q506 Baroness Fookes: Could we say
a little more about the online auction, which was mentioned a
little earlier on? Do you think it would affect ITV's revenues
if that were to be introduced: up, down, the same?
The Chairman: Can I just, by way of background,
say that we do find as a committee the trading system incredibly
arcane. It has probably existed for 50 years and got quite a lot
of barnacles on it, but one of the areas that I think we are attracted
by is this idea of auction that Lady Fookes has mentioned.
Mr Jones: We would agree it's an interesting
idea. To your point about the trading system, we've been saying
this system has to change for 20-plus years and nobody has yet
come up with a better system. And I don't think that's for lack
of trying. There have been attempts to trade in different ways,
fixed price, volume deals, and we end up with this system because—
Q507 The Chairman: How have you tried?
Mr Jones: There was a sales house in ITV, probably
15 years ago, that sold airtime for Yorkshire and Tyne Tees. It
came out and said that it only going to trade on volume. The sales
house went under within 18 months because it had overtraded, it
had promised too much and couldn't deliver it. Channel 4 came
into the market with a slightly different take on trading. It
was fixed prices but with an impact adjustment. It has been out
there. Anyone can trade in any way they like but, generally speaking,
this is the most straightforward way to trade that we have against
a sort of station price or something along those lines.
Q508 The Chairman: You are all part
of global groups; WPP, Omnicom. None of your colleagues in continental
Europe, for instance, operates on the same trading system, does
it?
Mr Williams: There are different trading mechanics
but nobody operates on an online auction model.
The Chairman: That is not the answer
to the question. The question, or rather the observation, was
that none of your colleagues operates on the same trading system
as we have in the UK.
Mr Williams: Some of them do, yes. There are
parts of eastern Europe that have taken on, ironically, the UK
trading mechanism over the last five years.
The Chairman: You probably taught them
everything they know about an advertising trading mechanism.
Mr Williams: They believed it was better than
what they had before, and who are we to judge. I'm not an expert
on Hungary.
Lord Razzall: Fiji probably does as well.
Mr Russell: It has many pros and cons but, as
Andy has said, nobody has come up with a better system and that
isn't for the want of trying.
Q509 Baroness Fookes: May we assume
then that the idea of the online auction does not appeal to you
individually or as a group?
Mr Jones: It has an appeal in a way. As Steve
said earlier, there is almost an online auction with certain highly
demanded programmes at the moment, specials as ITV would call
them. I wonder whether, if I were a media owner, I would want
an online auction, because that would take the control of my inventory
away from me. I definitely wouldn't want it if I was a media owner.
Mr George: Let's not forget that
there used to be an auction system in place in the UK for airtime
and, again, that stopped.
Baroness Fookes: It stopped?
Mr George: Yes. It was the pre-emption system,
where there was a price for a spot, and if somebody was prepared
to pay a higher price you lost that spot.
Mr Williams: And advertisers felt that was a
very inappropriate way to be able to control their advertising
message going out, because of the coming and going, of spots in
and out.
Mr George: If I was a media owner I would be
very reticent. I think it's an interesting idea. I'd be very reticent
about taking control of my inventory to a free market, particularly
across the last few years where we've seen heavy recession. Don't
forget that media owners also conditionally sell their inventory
as well. So one could argue there might be a marketplace for the
very, very best spots; one could argue that the market price for
the less highly demanded spots would fall off a cliff as well.
Q510 The Chairman: But on the other
hand, if you have a virtuous circle of more investment in programming,
and therefore more impacts and so on and so forth, then if you
are a media owner you have, maybe, an incentive to introduce a
different system.
Mr George: I think theoretically it has some
interest. I think the practicality is the fact that, when you
start delving into the difficulties of selling individual spots
on an auction system, you can't have competing advertisers in
the same break, and the fact that you are leaving it open to market
forces. I'm not so sure that media owners would vote with their
feet for that system either.
Mr Jones: I think if we go back to the pre-emption
system that we discussed you can see the same issues arising from
an online auction now. Advertisers spend a lot of time building
other marketing activity around their TV campaign. So if you've
done a lot of marketing work and you find out that on Friday you
don't have the spot on "X Factor" that you thought you
did, and you can't get back in there, then you've got a bigger
problem to contend with. So, it's impractical.
Q511 Lord Skelmersdale: You could
stop that overnight by banning resale.
Mr Jones: Well, if it's an auction then—
Lord Skelmersdale: No, if it is an auction,
an auction comes to a full stop when the gavel goes down. What
you are suggesting is that once it has come down, the company
could resell that particular spot if it was suddenly offered more
money.
Mr Jones: That's how the pre-emption system
worked and I—
Mr Williams: Every advertiser would want that
gavel to come down at a very different time as well. So, if you
were an advertiser that needed to get late into the market for
whatever reason, maybe the day before, then the gavel is down
and you can't get in.
The Chairman: Sadly, I do not think we
can go further into this great new world of auctioning but your
reaction is extremely interesting. Thank you.
Q512 Lord Razzall: I want to change
the subject to two other areas really: the Airtime Sales Rules,
and the Code on the Scheduling of Television Advertising. As regards
the Airtime Sales Rules, I won't rehearse what they were because
you would be more expert than us, but they were dropped. The first
question is: have you noticed any difference in the way advertising
is sold as a result of the dropping of those rules? Secondly,
were we minded to recommend that CRR should go; one option would
be to restore some of the Airtime Sales Rules. Do you think that
would be a good thing and if so which rule? Then, thirdly, as
regards the Code on the Scheduling of Television Advertising,
we have had an awful lot of views regarding the seven minutes
and the nine minutes. Assuming they go, do you think everybody
should go to nine minutes or do you think the nine-minutes people
should come down to seven, without getting tautological about
whether that is up or down? Three questions.
Mr George: On the first point, you're talking
about the removal of the need for broadcasters to sell all their
minutage, aren't you? And then you're talking about conditional
selling. The honest answer is that we've seen absolutely no difference
in the way that airtime is sold with the removal of those rules.
On the first point, the reason for that is in
a CRR environment there is no incentive for any broadcaster to
depress the amount of commercial impacts by reducing minutage.
We would have a different point of view under a non-CRR environment.
Before CRR was in place and before there was a requirement for
broadcasters to sell their advertising minutage we did see manipulation
of minutage that artificially forced the price up.
Q513 Lord Razzall: So, were we minded
to recommend the abolition of CRR you would want restoration of
at least the minutage?
Mr George: We would probably want restoration
of that, yes. On conditional selling, the honest answer is of
course that we support the principle that airtime should not be
conditionally sold. On a practicality, it is just the thrust of
trading. It's the ebb and flow of trading that airtime is conditionally
sold. We conditionally buy as well. We're sort of grown-ups on
this. So, the theory we support; on the practicality, we know
it really doesn't operate that way in the marketplace.
Mr Williams: On your last point with regard
to up and down—
Q514 Lord Razzall: That is the question:
are you up or down? Are you seven-minutes people or nine-minutes
people?
Mr Williams: We'll go the middle, thanks. I
think it's a well trodden path. The bottom line is that it's a
legacy position now in terms of the minutes per hour, per advertiser.
In the first place it's anomalous. It was a leg-up for the multi-channel
environment that came into the market many years ago. That's not
the case now. There's much more equilibrium in the marketplace,
there's no question. Would we want everything to come down and
artificially suppress the market to make it more expensive again,
one of the points here? No, of course we wouldn't. Do we think
there's a happy medium in there? In other words, are the general
public really going to be very concerned at possibly another minute
on their terrestrial channels and thereby making, if there's a
difference between nine and seven, eight the mid-ground, from
a sensible point of view? No, I don't think we would have a problem
with that.
The Chairman: That's great. Thank you
very much. I will take away that phrase "the leg-up for the
multi-channel environment".
Mr Williams: A long time ago.
The Chairman: Definitely we will have
to consider that very carefully. Thank you very much indeed for
giving evidence today.
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