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
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
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.
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,
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.
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.
As these rules have recently been revised (most recently to incorporate
Government changes to allow product placement in television programmes
in the UK) they have
not been the focus of this inquiry.
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
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
Digital TV Progress Report, Ofcom, Q3 2010 Back
For example, tobacco and guns cannot be advertised on television Back
Broadcasting Code Review: Commercial references in television
programming, Ofcom 20 December 2010: http://stakeholders.ofcom.org.uk/binaries/consultations/724242/statement/statement.pdf
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