Regulation of Television Advertising - Communications Committee Contents

Regulation of Television Advertising

CHAPTER 1: Introduction

1.  Television plays an integral role in people's lives and accounts for a high proportion of leisure time. It is an important source of information and entertainment and, despite the increasing number of media devices competing for consumers' time and attention, certain television programmes continue to attract audiences of many millions.

2.  In recent years television advertising revenues have been in decline. The economic downturn has had a profound effect on the advertising sector and this has undoubtedly played a major part in the fall in television advertising revenues. In addition, the price of television advertising has fallen as a result of increased supply in the market due to the rapid growth in the number of television channels broadcasting in the United Kingdom (UK). The growth of internet advertising has also had an indirect effect on television advertising, as some advertisers have moved resources away from display advertising (of which television advertising is a major part) towards key-word based search and classified advertisements online.

3.  Television advertising airtime is not sold in a conventional way. A very complicated system has evolved over time based on the sale of television airtime with guaranteed numbers of viewers from specified demographic groups. This system lacks transparency but the industry has rejected calls for a detailed investigation into how an alternative trading system might be designed.

4.  This market is subject to regulation by two specific rules. The first is the Contract Rights Renewal mechanism (CRR) which bears specifically on the marketing of advertising by ITV plc for ITV1. The second are the rules governing the quantity of advertising that can be shown on both the main commercially-funded public service broadcasting (PSB) channels (ITV1, Channel 4 and Channel 5) and on all other commercial channels. This is known as the Code on the Scheduling of Television Advertising, COSTA.

5.  CRR was introduced as a result of competition concerns at the time of the merger between Carlton and Granada to form ITV plc in 2003. It was designed to prevent the newly merged ITV plc from abusing its dominant position in the television advertising market. ITV plc claims that ITV1's position in the advertising market is no longer dominant and that CRR is therefore no longer necessary. It is calling for the removal of CRR, saying that it is restricting its advertising revenues and that this has hampered its ability to invest in original and diverse UK programmes.

6.  The Competition Commission finalised its detailed inquiry into CRR last year. It found that although ITV1's market position was not as strong as in 2003, it had retained an enhanced market position, primarily due to its unique ability to quickly deliver large audiences.[1] As a result, the Commission concluded that the CRR undertakings should remain in place and indeed that they should be extended to other parts of ITV plc's output (ITV1 +1 and ITV1 HD).

7.  The conclusions of the Competition Commission inquiry have not, however, laid the debate about CRR to rest. In particular the Commission was required to conduct its review using a narrow definition of what constitutes the public interest, focusing exclusively on the interests of advertisers, media agencies and other broadcasters. The impact of CRR on the specific interests of viewers and consumers was not within the Competition Commission's remit. For this reason, we concluded that a further inquiry into the broader issues of CRR would be appropriate.

8.  In addition we also looked at the rules governing the amount of advertising which can be shown on television on each channel and at different times of the day. The rules are outlined in the Code on the Scheduling of Television Advertising (COSTA) and allow for the majority of commercial broadcasting channels to carry more advertising per hour than the three main commercial public service broadcasting channels. COSTA was originally formulated when multichannel television was in its infancy. However, given that digital television is now well established in the UK, with 92.6% of UK households now owning a digital TV service,[2] and with analogue broadcasts to cease from next year, there have been several calls for the rules to be harmonised so that all broadcasters are allowed to carry the same number of television advertising minutes on average per hour per day.

9.  Until September 2010, television advertising was also regulated by two airtime sales rules.[3] One prevented commercial PSBs from withholding airtime on their channels in order to decrease supply and increase the cost of advertising (the withholding rule). The other prevented all broadcasters from only selling their airtime in a bundle with several channels in their portfolio (the conditional selling rule). Ofcom rescinded these rules in September 2010. There are a number of other rules governing the content of television advertisements.[4] As these rules have recently been revised (most recently to incorporate Government changes to allow product placement in television programmes in the UK)[5] they have not been the focus of this inquiry.[6]

10.  The membership of the Committee is set out in Appendix 1, a list of witnesses is in Appendix 2, and our Call for Evidence is in Appendix 3. Appendix 4 provides an outline of how television advertising is traded. Appendix 5 provides further details on the reasons for the decline in television advertising revenues in recent years. Appendix 6 sets out the relevant changes in television advertising on a timeline and Appendix 7 provides a glossary.

11.  Our Specialist Advisers for this inquiry were Professor Patrick Barwise, Emeritus Professor of Management and Marketing at London Business School, and Professor Steven Barnett, Professor of Communications at the University of Westminster. We would like to express our thanks to them for assisting us in our work. We have benefited greatly from their expertise.

1   Review of ITV's Contracts Rights Renewal Undertakings, Final Report, Competition Commission 12 May 2010, para. 7.1 Back

2   Digital TV Progress Report, Ofcom, Q3 2010 Back

3   ReviewoftheAirtimeSalesRules,Ofcom,29March2010 Back

4   For example, tobacco and guns cannot be advertised on television Back

5   Broadcasting Code Review: Commercial references in television programming, Ofcom 20 December 2010:  Back

6   From 28 February 2011, for the first time, references to products in programmes in UK television films and series can be paid for. In anticipation of this, Ofcom announced a set of rules governing product placement in December 2010. A timeline showing significant changes in the UK television industry is set out at appendix 6. Back

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