UK advertising in a digital age Contents

Chapter 2: Internet advertising

Changing face of the industry

12.In this chapter, we investigate the impact of digital advertising. UK businesses have been particularly successful at taking advantage of this medium but we heard concerns that digital advertising lacks the high standards of transparency provided by TV, radio and press advertising.

13.Digital advertising is growing quickly and taking an ever larger share of advertising spending. John Mew, Chief Executive Officer of the Internet Advertising Bureau UK, told us:

“The ad market in the UK has grown over the last 10 years from £17.4 billion to £21.4 billion spent in the UK. The market is growing but … digital has grown from 8% to 48% … Print advertising has declined from 39% to 11%. Directories have almost completely disappeared.”10

14.Within digital advertising, ‘mobile advertising’, designed to be delivered on a smartphone device, accounts for over half of display advertising and for most of the growth in the market.11 Figure 1 shows how advertising spending has changed since 2005.

Figure 1: Ad spend

Source: Written evidence from the Internet Advertising Bureau UK (ADV0022)

15.Katharine Newby Grant, an Associate Director at Procter & Gamble, which spends more on advertising than any other company worldwide, explained the attractiveness of digital advertising:

“We can reach consumers when they might be receptive to advertising; … we can reach certain demographics of consumers—the younger demographic; and … we could be more targeted within digital. Also, sometimes digital is close to that moment of purchase—if we think about online shopping.”12

However, she added: “There are no boundaries in the amount of digital advertising that is allowed on the internet and so, as a consumer, you are bombarded.”

16.In response to this bombardment users are increasingly resorting to ‘ad-blocking’ technology which prevents advertisements from being displayed. This is itself of great concern to the industry as it undermines the ability of advertisers to reach consumers.13

17.Phil Smith, Chief Executive of the Incorporated Society of British Advertisers (ISBA), told us that most advertisers “say they are going to continue to spend more in digital” because consumers are spending so much time online: “Reach is the primary reason why brand-based advertisers are using digital today”.14 By contrast, “there has been a real fragmentation of the audience when it comes to traditional media”.

18.The UK spends more on digital advertising than any other EU country and more per capita than the USA. Figure 2 shows the relative size of EU markets. According to Professor Patrick Barwise of the London School of Business, “Nobody knows the answer to why the UK is the leading major economy in terms of marketers and consumers using the internet.”15

Figure 2: Digital ad spend

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Source: Written evidence from the Internet Advertising Bureau UK (ADV0022)

19.As noted above, the shift to digital advertising had been particularly disruptive for the print advertising sector. Sir Martin Sorrell, Chief Executive Officer of WPP, said, “If you had asked me what proportion of media spend is accounted for by traditional print about a year or so ago I would have intuitively reacted by saying 25% or a third. It is now 9%. When I started in the industry, which is a long time ago, it was 40%.”16 Classified advertising—which includes listings for jobs, property, cars, tradespeople—used to be a major source of income for the press, particularly local newspapers, but the low barrier of entry to online advertising has made classified print advertising almost disappear.17

20.News publishers receive revenue from digital advertising, but according to Guardian News & Media (GNM), “since 2012, news organisations have lost £31 in print advertising, in return for a gain of the equivalent of just £1 in digital advertising”. The change has encouraged some publishers to change their revenue model. For example, according to James Collier, Co-Founder of Prism, the New York Times has “started to mediate their business away from advertising and [towards] a consumer-direct and subscription-style service.” Matt Rogerson of the GNM said that print advertising now accounts for less than 10% of his company’s total revenue base: “We have a range of other revenue sources, which include digital advertising, some e-commerce and money from philanthropic organisations to help to fund specific areas of work that we do.”18 But most importantly it now receives revenue from “subscriptions, membership and contributions.”

21.There was concern for the future of serious journalism as the lure of vast digital advertising revenue influences news content. Mr Rogerson told us that “advertising follows audiences” online whereas previously advertisers would place their advertising next to the best quality content:

“The platforms that have the most personal data on the most people are the most attractive to advertisers. The two platforms that have the most personal data on the most people are Google and Facebook. Therefore, advertisers book to follow an audience around the web, regardless of where they go, in terms of the quality environment.”19

22.By contrast, TV advertising has remained more resilient than print. It has also exploited new technology to target audiences. Nonetheless, those of our witnesses who represented broadcasters were unanimous in expressing concern about the mechanisms of digital advertising.20

Digital media advertising market place

Programmatic advertising

23.An advertiser or agency may arrange directly with a media owner to buy online ‘inventory’—the space available for advertising—just as with print advertising. But the majority of online inventory is now sold through automated processes, known collectively as ‘programmatic advertising’. Advertisers may have a direct relationship with media owners when they buy inventory through programmatic technology. ‘Real-time bidding’ is a further form of programmatic advertising whereby advertisers can ‘bid’ for ads to target individual users. Bidding takes place in an auction which lasts milliseconds when a user visits a site. Box 2 outlines the steps involved in the process. According to IAB UK, after rapid growth in recent years, 72% of all digital advertising was traded programmatically in 2016, and it is expected to account for 80–90% of display ad spend in 2019. Google explained the benefits of programmatic advertising:

“It improves the effectiveness of advertising for advertisers and enables publishers to maximise the monetisation of their content and minimise the risk of inventory remaining unsold. For users, it means that they are more likely to see advertisements that are aligned with their interests.”21

Box 2: How programmatic advertising works

Key players:

Ad exchange: an ad exchange is a digital marketplace that enables advertisers and media owners to buy and sell advertising space through real-time auctions.

Supply Side Platform (SSP): SSPs help publishers access advertisers on different ad exchanges to get the best yield for their advertising space.

Demand Side Platform (DSP): a DSP is a technology that enables advertisers to plug into different ad exchanges and access advertising space.

Key steps of ‘real-time bidding’ programmatic advertising:

1.Publishers make their inventory available to the ad exchanges via an SSP.

2.Advertisers decide roughly which audiences they want to target with their ads (this could be based on their existing audience data such as existing website visitors, act-alike audiences of existing customers, or demographics).

3.An individual visits a webpage. As the webpage loads, information about the individual and the content of the page is gathered and reported back to the ad exchange.

4.Algorithms process the information to make inferences about the individual’s characteristics such as age, income and interests. The information may derive from ‘cookies’, software downloaded on to the individual’s device during previous web activity, or from an online service provider with whom the individual holds an account. GPS technology may also provide information about the individual’s geographical location.

5.If the characteristics match targeting defined by the advertiser, the advertiser is entered into an auction with other advertisers who are also bidding for the individual.

6.Whichever advertiser has the highest bid wins the right to show advertising to the individual during the visit to the webpage.

7.Publishers get paid for the advertising they show on their sites.

Steps 3 to 6 happen in milliseconds.

Source: Written evidence from Google UK (ADV0031) and Tara West, ‘How to get started with Programmatic advertising: A beginners guide’: http://www.stateofdigital.com/get-started-programmatic-advertising-beginners-guide/ [accessed 2 February 2018]

24.There has been an explosion of ad tech businesses using different technologies and business models. James Murphy, Chief Executive of adam&eveDDB, told us: “It is a very fragmented landscape which is enormously complicated with lots of players involved and very fast-changing; in fact, we often see that the people working in that sector cannot themselves fully understand what is happening around them.”22

25.Marc Pritchard, the Chief Marketing Officer of Procter & Gamble, told an industry conference in January 2017 that the supply chain of digital media services23 from the advertiser to the consumer is “murky at best and fraudulent at worst”.24 Many of our witnesses, particularly advertisers and traditional media owners such as the press and broadcasters, cited this speech in their evidence. According to Professor Patrick Barwise of London Business School, “2017 is the year of the beginning of the pushback by advertisers against the murky value chain”.25 In this section, we consider the related problems of transparency, measuring effectiveness, advertising misplacement and fraud and what steps have been taken to address them and what more can be done.

Transparency

26.There are so many intermediaries in the digital media market between advertisers and media owners that it is very difficult for advertisers to see how their money is being spent, where their advertisements are displayed and whether they receive value. Sky UK told us:

“Taken as a whole, the digital advertising market is not fair and open. Much of this comes down to a lack of transparency in a highly complex value chain and a historical poor level of standards around responsibility.”26

27.Jon Mew of the Internet Advertising Bureau UK, however, thought that concerns that advertisers could not see where their money is being spent were not new: “It is not a problem that has come about because of digital; it is a problem that has always existed in media about having transparency.”27 Indeed, according to Mr Mew, technology could help to resolve some of the problems.

28.James Collier of Prism, on the other hand, explained that the scale of digital advertising made the problem different:

“We now have about 3,000 companies, the middle men, involved in the trading of digital advertising. Unfortunately, it is very difficult to unpack. On a typical ad page—let us say on MailOnline—you may have 400 or 500 different requests for you as an individual when you arrive on that page.”28

29.Guardian News & Media, a publisher, told us that it that it had conducted tests to purchase its own ad inventory to see how advertisers’ money is spent across the value chain. It found that in the worst cases, “just 30 pence of a pound spent by an advertiser was received by the publisher”.29 Figure 3 shows where some of this money is spent.

Figure 3: Where money is spent in the value chain

Source: Written evidence from John Chisholm (ADV0036)

Measuring advertising effectiveness

30.Measuring the effectiveness of digital advertising is linked to the issue of transparency. Metrics, such as how many users click on an advertisement, are used to determine how much advertisers pay. Without understanding the metrics and whether they reflect genuine effectiveness, advertisers cannot judge whether their money is well spent.

31.James Collier said that measuring return on investment is more difficult in digital advertising than it may appear on the face of it: “No one really understands what metrics to apply. Is it attention? Is it clicks? Clicks do not lead to sales. It is probably one of the most difficult issues we face in digital advertising.”30

32.John Kearon, founder and Chief Executive Officer of System 1, argued that advertisers were being lured by metrics such as clicks and shares because they appear to be mathematical and based on the action of users. In his view, the ability “to make you feel” was more important. He cited a study which found that advertising on traditional media was 11 times more effective than digital advertising. Nonetheless, he did not think that greater standards of transparency were necessary: “Frankly, buyer beware. If you choose to be blinded by the perception that these numbers are delivering a return on investment, then more fool you.”31

33.‘Viewability’ is another way to measure advertising effectiveness. Advertisers are charged if an advertisement becomes viewable to a consumer. The IAB defines viewability for video advertising as 50% of the ad in view for two consecutive seconds.32 Many witnesses argued that this was not adequate. Keith Weed, Chief Marketing Officer of Unilever, called for 100% viewability of the whole ad.33 Many digital advertising businesses are not audited by an independent body to verify the adequacy of the accuracy of their metrics.

34.By contrast, the News Media Association said that other media sectors (such as print publishers, and television and radio broadcasters) had invested heavily “in developing a range of robust third-party audience measurement systems.”34 As a result, there no uniform standard of metric and according to Sky UK, “advertisers are not always clear on the product they’re buying and how comparable they are”.35

35.For Professor Barwise the lack of independent audit by a third party was an “abomination”:

“Facebook marks its own homework and then repeatedly has to fess up to getting it wrong. To me, what we need is the equivalent of [the Broadcaster Audience Research Board] for online display advertising. I would like to see more power to [the Incorporated Society of British Advertisers’] arm in particular to say, “We are simply not going to play ball with you until you clean up your act and have audited measures”.”36

Advertising misplacement

36.The automated buying of inventory and placement of ads has increased the risk of ‘ad misplacement’, “where ads are placed against content that may be inappropriate for the advertiser for commercial reasons (e.g. irrelevant audiences for a particular brand) or more seriously inappropriate in a broader societal context (e.g. against illegal, harmful or offensive material).”37 Sky UK told us that in February 2017 one of their adverts was placed next to a YouTube video uploaded by David Duke, a white supremacist. Ad misplacement can damage the reputation of brands. Because content providers receive a share of advertising income, it has also enabled “a viable funding model for illegal content such as terrorism material and copyright infringement”.38

37.Advertisers have therefore taken steps to address misplacement. Phil Smith, Director General of the Incorporated Society of British Advertisers (ISBA) said that advertisers can “be more specific about where your advertising is going to be placed. You can do that by direct dealing with publishers, by using only private exchanges and by the more or less extensive use of whitelists and blacklists”.39 Whitelisting is a process by which the advertiser only buys inventory on channels which it has identified appropriate content for their brand. Mr Smith noted, however, that each of these steps come with costs for advertisers.

38.Following press scrutiny, YouTube took steps to address this issue, including “installing additional controls around sensitive subjects and updated machine learning models”. However, during the course of our inquiry other serious instances of advertising placed next to inappropriate content were reported.40 Unilever, which is the world’s second largest advertiser, threatened to withdraw its advertising from both Facebook and Google unless they eradicate inappropriate content.41

39.Mr Smith told us that ISBA has had repeated meetings with online platforms to ensure that “content is fit for consumption”. Despite some progress, ISBA would continue to “push for a much stronger line”. In particular, ISBA thought that only content that has been positively vetted should be made available by platforms for advertising.42

Advertising fraud

40.‘Ad fraud’ is fraud committed in the delivery of advertising. Different varieties of ad fraud are set out in Box 3. Phil Smith of ISBA told us that ad fraud is a significant problem but not well understood:

“The biggest single issue is that estimates vary so much depending on the vested interests you ask. Some people will tell you 2% and some will tell you way more than 50%, and that is a very big range. The World Federation of Advertisers put an estimate at 30%, but that is rather a wet finger in the air. The ISBA equivalent in the US, the [Association of National Advertisers], did a study of 49 more sophisticated advertisers and came up with a global estimate of something like $6.5 billion worth of fraud, 9% in display advertising and 22% in video advertising.”

41.Other witnesses presented other figures. Matt Rogerson cited a further study by WPP which estimated the cost of ad fraud at $16.4 billion in 2017. James Collier put the figure at about 20% across digital advertising.43 Mr Smith told us that ISBA was working with PwC and other industry bodies to produce an estimate for the UK in 2018.

Box 3: Types of advertising fraud

Invalid traffic: traffic or clicks on ads from non-human entities or ‘bots’ on the web.

Malware: fraud software unwittingly installed on users’ computers or mobile devices to replicate or repeat clicks and views.

Inventory fraud: advertising space is sold on fraudulent sites which imitate the URL or domain name of a legitimate media owner.

Infringed content: content lifted from legitimate publishers and transferred to a fraudulent site with surrounding advertising which generates income for the fraudster.

Source: Written evidence from Sky UK (ADV0029)

42.Mr Smith said that a range of “bad actors” were responsible:

“Some of them are operating on quite a local basis simply by clicking on ads in order to be able to earn revenue. Some are much more sophisticated actors, who are, potentially with organised crime backing, creating software that, in itself, is going to be driving very large numbers of false impressions.”

43.The News Media Association cited one scam called ‘the Methbot’, which defrauded advertisers of between $3 million and $5 million a day at its peak via half a million fake users and 250,000 fake websites.44

Regulation versus self-regulation

44.Advertising is primarily self-regulated through the Advertising Standards Authority (ASA) which enforces two codes of practice. Consumer protection legislation is used by the ASA as backstop in cases where advertisers refuse to comply with its adjudications.45 Data protection legislation, which we consider later, is also relevant to advertising.

45.James Murphy told us that media owners, advertisers, agencies and trade bodies need to work together to regulate the digital advertising market and deliver an appropriate level of transparency. In Ms Newby Grant’s view, the failure of industry to take responsibility for advertising would mean “consumers will lose trust in the brands, in the advertising and in the platforms”.46 Max Beverton UK Policy Manager of Sky UK said, “It is a market that has no or little trust and little accountability. There is nobody watching over it independently to give us surety as an advertiser that we are getting value.”47

46.Leo Rayman, Chief Executive Officer of Grey London, told us: “We think people should self-regulate rather than have … regulation imposed upon them, and it is incumbent on every party in the value chain to be involved in making that decision.”48

47.Katharine Newby Grant told us about the measures Procter & Gamble had put in place to improve standards of online advertising:

“We also now hold all our publishers to a high level in terms of brand safety. We only want our advertising to go next to what we would deem appropriate non inflammatory content. We have put in third-party verification, so we tag and track our digital advertising so that we know where it was placed and that it was viewed by a consumer. We are also insisting on eliminating ad fraud. We are taking action and we have put in place procurement contracts so that we can do that and third-party verification.”49

48.Mr Smith explained that advertisers were taking steps to address the problems of the value chain:

“However, that tends to come at a cost, such as additional technology costs to be able to monitor that and, more importantly, in terms of your ability to reach audiences cost-effectively, because you tend to constrain the amount of inventory that you can access.”50

49.Mr Smith told us that ad misplacement should not just be the responsibility of advertisers but also of platforms:

“We do recognise that much has been done and we have had repeated meetings with the platforms through the course of the year. We are aware of some of the things that are going on behind the scenes and some of the measures they have proactively introduced, but we are pushing for a much stronger line. Particularly for advertisers, we think that content should only be made available that has been positively vetted, and that is not the case currently.”51

50.Professor Barwise told us that the market would resolve some of the issues raised by the “murkiness” of the value chain, but he was not “over-optimistic” that the market will sort it out.52

51.On 25 January 2017 the Government launched its Digital Charter, a work programme “to agree norms and rules for the online world and put them into practice”.53 According to the Government’s written evidence, “It is likely that the Charter will cover issues relating to online advertising”.54

Joint Industry Committee for Web Standards (JICWEBS)

52.The Joint Industry Committee for Web Standards (JICWEBS) comprises representatives from ISBA, the Institute of Practitioners in Advertising, the Internet Advertising Bureau UK and the Association of Online Publishing. It was created by the UK and Ireland media industry to ensure independent development of standards and benchmarking of best practice for online ad trading. It has agreed principles on viewability, brand safety and ad fraud.

53.Mr Smith told us:

“We are founder members of JICWEBS and have been encouraging the major platforms to join, along with all the other online publishers, and we are seeing movement in that area. One of the issues that is raised frequently, though, is a local standard versus a global standard. These are big global companies that we are dealing with and, in many cases, the objection is: “We do not want to adopt something in one market that we will have to replicate in 100 different ways in other markets”.”55

54.Mr Collier explained that Google and Facebook may already have internal standards that they apply more rigidly than the IAB or JICWEBS would require, but because they have such a large share of the market across different technologies, they rarely commit to external rules. His solution was to give trade bodies “more teeth”, including enforcement powers that would “encourage people to get involved, because at that point if you are not in it you risk being in a situation where you are being governed by other people and you have no say.”56

55.Advertising fraud and misplacement present serious problems for the industry. They are caused by the lack of transparency in the digital media value chain. This has diminished trust within the market. There is a serious risk that advertisers, particularly smaller ones with less experience of the market and fewer resources, may not receive value for money.

56.It is in the interests of the whole industry to take greater steps to self-regulate through independent third parties such as JICWEBS. We think that the largest industry bodies should commit to signing up fully to JICWEBS. We recommend that the industry should give these bodies greater powers to create and enforce rules establishing robust industry standards on measuring effectiveness and third-party verification. If businesses fail to do so, the Government should propose legislation to regulate digital advertising.

57.We agree with the Incorporated Society of British Advertisers (ISBA) that content should not be made available for advertising placement unless it has been positively vetted. We ask ISBA what progress it has made in persuading online platforms to vet such content and what action still needs to be taken.

Market dominance

58.The digital advertising market is dominated by a small number of tech firms. In the UK, Google and Facebook alone receive the majority of spending on online advertising. Google operates businesses at different levels of the digital advertising value chain through its DoubleClick business57 and now has an 80 to 85% share of the ad tech market.58

59.Professor Barwise of the London Business School told us that market forces were unlikely to counteract the dominance of these companies: “once you achieve a dominant market share in this kind of market, it is almost impossible to be displaced … The most you can hope for is that they get eclipsed by someone dominating a new market that becomes bigger.”59

60.Market dominance is not illegal in itself. Abuse of such dominance—for example restricting competition or exploiting consumers—is illegal 60 and dominant companies have a special responsibility to ensure that their conduct does not distort competition. In their written evidence Google emphasised that:

“Ad tech is a highly competitive part of the market, with many established businesses, but also regular new entrants and start-ups. This competition has resulted in rapid innovation, which has benefited both advertisers and publishers.”

61.However, many analysts believe that the number of ad tech companies will decline significantly over the next few years.61 Professor Barwise told us, “Most of the new technology is being developed by startups and the big tech players. When a startup is looking successful, it tends to get bought by one of the big tech players.”62 According to Guardian News & Media:

“As a consequence of this consolidation in the digital advertising market, publishers, media owners, advertisers and media agencies will become increasingly reliant on a few, large digital intermediaries to trade and serve digital advertising.”63

62.There were indications that this is already a problem. James Collier, co-founder of Prism, an ad tech business, told us that through its various businesses Google “own the device and they own the browser. They own the ad server; they own the ad network that monetises it. They are also a brand, et cetera. Throughout the value chain, they have a large and quite—I use this word with some preface—dominant position in some of those areas.”64

63.Mr Collier also told us that Google’s DoubleClick prioritises its own requests for advertising in that space.65 If so, this appears to reflect the findings of a European Commission investigation into Google’s search practices. On 27 June 2017 the Commission fined Google and its parent company Alphabet Inc 2.42 billion euros for breach EU antitrust rules after finding that it had it abused its dominant market position by giving an illegal advantage to its shopping service in search results. 66

64.A similar issue exists with Facebook. Mr Collier said that “Facebook is an open platform but is obviously highly controlled. That means they control the message that comes through and the types of advertisers that are used.”67

65.Phil Smith of ISBA told us:

“The impact, in digital, of their [Google and Facebook’s] strength is that advertisers do feel they lack choice when they are looking simply within digital media. In addition, the mechanisms for the sharing of revenues between content provider and platform, and the need to be on those platforms if you wish to be represented digitally … are tilted in the wrong direction.”68

66.Adam Cohen of Google defended the competitiveness of the market:

“You have made the point that Google and Facebook are side by side here and everyone else is small. That is definitely not the case. We are in competition with Amazon and Snapchat. Adobe and Oracle are in the ad tech space. News Corp has just led a consortium with Axel Springer for online programmatic advertising. There are big agencies such as WPP and Publicis. There are lots of enormous players in this space. What we see, from the competition perspective, is all the qualities that you would want: an enormous amount of choice, low prices and high quality.”69

67.Tobin Ireland, Chief Executive Officer of Smartpipe Solutions, added:

“Facebook and Google, the duopoly, have earned their market share by providing better tools, better data and a better environment, which drives higher performance advertising. That is why a higher percentage of the media spend is going on to Facebook and Google channels. It does not mean there is not an opportunity to compete with that; it means that the bar is pretty high.”70

68.However, Mr Smith expressed concern that the dominance of Google and Facebook might affect consumers. The volume of advertising had increased over time, for example, with regard to search. He told us that “There is something around the way in which the platforms have struck their relationship with consumers when they go advertisingfree first and then introduce advertising over time, where the contract is not quite as transparent as it has been in other media.”71

Role of the Competition and Markets Authority

69.Some of our witnesses, including representatives of the press, argued that the Competition and Markets Authority (CMA) should undertake a ‘market study’ of the digital advertising market. Box 4 explains this process further.

Box 4: Competition and Markets Authority: market studies and investigations

The Competition and Markets Authority’s (CMA) primary duty is to promote competition, both within and outside the UK, for the benefit of consumers. Under section 5 of the Enterprise Act 2002 the CMA has a general power to carry out research into matters relating to its functions. This includes a ‘market study’. A market study can result in recommendations encouraging businesses to self-regulate or to the Government to change legislation or public policy. A ‘market investigation’ is a more detailed examination into whether a market is uncompetitive and requires a reference from a sectoral regulator. The benefit of both these mechanisms is a broad ‘health check’ of the market concerned. The CMA has powers under this system to look at how the market is functioning without being constrained by the need to establish a dominance and abuse.

The CMA employs ‘Prioritisation Principles’ to determine which projects and programmes of work to undertake and to make the best use of CMA resources in terms of real outcomes for UK consumers.

The CMA is also responsible for scrutinising mergers and acquisitions above a specified threshold to see if it is likely to lessen competition substantially. If so, it may prohibit the merger or require measures to be undertaken before the merger can take place.

Source: Competition & Markets Authority, Market Studies and Market Investigations: Supplemental guidance on the CMA’s approach (July 2017): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/624706/cma3-markets-supplemental-guidance-updated-june-2017.pdf [accessed 3 April 2018] and Competition & Markets Authority, Prioritisation principles for the CMA (April 2014): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/299784/CMA16.pdf [accessed 3 April 2018]

70.Dr Michael Grenfell, Executive Director for Enforcement at the CMA, told us that his remit was to protect consumers from practices prohibited under competition and consumer protection law, not “to protect one business against another business” or to prevent other social problems, however serious.72 The CMA had already been asked to conduct a market study in this area but declined to do so because they had not found any detriment to consumers on preliminary consideration. The CMA’s ability to conduct such a study was limited by the scale of its resources and the need to consider other sectors of the economy. The then Minister of State for Digital, the Rt Hon Matt Hancock MP, said that it was for the CMA to decide how to exercise its powers.73

71.In response, Professor Barwise told us:

“It is very fair to ask the CMA, “Can you please unpack the box and look to see what is going on that is not transparent?”—that includes not transparent to the advertiser. For instance, if rebates are being paid to media agencies that might cause them to invest advertisers’ money in a way that is in the interests of the agency rather than of the advertiser, that seems to be something the CMA should be interested in even though it is not a consumer issue.”74

72.Matt Rogerson of Guardian News & Media (GNM) told us that the consumer was also affected because money wasted by an exploited advertiser was passed on to the consumer whom the advertiser was targeting.75

73.The CMA shares competence with the European Commission to investigate competition law complaints but larger and more complex cases are reserved for the Commission.76 When the UK leaves the EU, the CMA will have responsibility for the oversight of cases that would otherwise be left to the Commission. Dr Grenfell suggested that the Government should provide greater funding to recognise this.77

74.Mr Collier thought regulators needed a better understanding of how the sector work. He noted in particular that the stronger data protection rules that will be introduced under the General Data Protection Regulation and the proposed E-Privacy Regulation may reinforce the control that dominant players have with respect to personal data. Regulators needed to look more critically at the takeover of small ad tech companies whose technology might be used in the UK market, even where the companies are bought overseas: “It requires that global awareness of M&A [mergers and acquisitions] and how you can unpick those processes in a local market.”78

75.Professor Barwise warned that the digital market posed new problems for regulators: “Not just in the UK but worldwide, regulators are simply not up to speed with handling, for instance, the extent to which big data gives an unfair advantage.”79 Dr Grenfell told us that such concerns had been recognised at the CMA, which was establishing an expert data unit to “be ahead of the curve, and understand and appreciate some of the difficult issues that these fastmoving technologies raise.”80

76.The lack of transparency in the digital media advertising market hinders the ability of advertisers to ascertain whether they receive value for money. This is in part caused by the superfluity of ad tech intermediaries, but Google alone has control at all levels of the market. We recommend that the Competition and Markets Authority (CMA) should conduct a market study of digital advertising to investigate whether the market is working fairly for businesses and consumers.

77.As the UK leaves the EU, we call upon the Government to ensure that the CMA is properly resourced to take on the burden of cases that would otherwise be dealt with by the European Commission.

78.Consumers do not pay for free online services, but in exchange they must give up their data. The dominance of Google and Facebook leads us to question whether current competition law is adequate to regulate the 21st century digital economy that is increasingly driven by personal data rather than money. We recommend that the Government should use the Digital Charter to gather evidence on this issue.

New forms of advertising

79.The rise of online advertising has blurred the distinction between advertising and content, because of phenomena such as social influencer advertising and content marketing.

80.‘Influencer marketing’ uses people to promote and sell products. The people may be celebrities but increasingly social media personalities are paid to promote products. Such personalities can have large audiences of a specific demographic; the influence of people who appear to be peers is particularly powerful.81 We heard from one prominent social influencer, Beckii Cruel, who explained that influencer marketing is particularly powerful because “the audience trust what you are saying; they trust that you will promote only things you believe in yourself and would use yourself”.82 She conceded, however, many influencers “just do it for the money”.

81.This form of advertising overlaps with ‘content marketing’, whereby brands pay for content of whatever form to engage with consumers.83

82.The Advertising Standards Authority (ASA) told us that its remit covers these and the more established types of advertising.84 It has recently sanctioned advertisers and social influencers for failing to signify clearly when content was sponsored. The influencers had tried to signify this by writing “spon” (for “sponsored”) in their content. The ASA has determined that the use of “ad” may be acceptable as shorthand for “advertising” in brief messages across social media.85 It has not sought to impose a standard approach, however, as long as advertising is clearly labelled. It encourages advertisers and social influencers to adapt their labelling to the context in order to engage the audience.

83.James Erskine, Founder of Social Circle, an agency for social influencers, told us: “The ASA has a very strict code on what is known as advertorials online. The pages must look different; it must clearly be brought to you by a sponsor, and that must be signposted.”86 If the rules are followed, when a brand pays to be in the middle of a video it is required to state “This bit of the video is sponsored”. In Mr Erskine’s view this is stricter than for product placement on television, which requires that a “P” logo is shown at the start of a television programme.

84.Professor Jonathan Hardy of the University of East London said, “Labelling of branded content is inconsistent. Readers and viewers encounter a confusing array of terms. There is evidence of confusion and annoyance, especially when audiences find out only after viewing content that it was sponsored.”87 He recommended that there should be more consistent labelling: “There should also be discussion of a mandatory, or voluntary, universal logo, akin to the P sign that is required to alert consumers to the paid presence of brands in UK television production.”

85.On 15 March 2018 the ASA launched a consultation on people’s understanding of labels and other identifiers that are intended to indicate online content is advertising.88 The consultation is considering what level and type of commercial influence people expect to be informed about, and how people interpret specific labels.

86.Many advertisers and content providers flout the rule that online advertising must clearly be labelled as advertising. There is currently no standard way to label advertising, and so even those who comply with the rule are inconsistent in how they do so. At the same time, there is a poor understanding among consumers that much content has been paid for.

87.We recommend that the Advertising Standards Authority should create a universal, mandatory logo to signify wherever online content has been sponsored by a brand. It should enforce the use of the logo next to any paid for text or video. Producers of content should continue to engage with their audiences in words to signify when content is sponsored.

Data protection

88.The advertising industry uses personal data to target audiences and collect marketing information about consumers. As outlined in Box 2 above, businesses can use a variety of technical tools to gather data on individuals, including by tracking them online and as they use connected devices. Recent reports that Cambridge Analytica, a big data analyst, have gained access to the data of millions of Facebook users without their knowledge or consent have highlighted the need for high standards of data protection and robust enforcement.89

89.At the same time, the advertising industry relies on the free flow of data. The Internet Advertising Bureau UK told us that this is particularly important for trade with the EU:

“The UK acts as a hub for data used in digital advertising in the EU and therefore the free flow of data between the EU and the UK after the UK exits the EU is crucial so that services can continue to be provided seamlessly across multiple markets.”90

90.These data flows are enabled by uniform standards of data protection legislation across the EU. The current UK law is therefore EU-derived. For example, the Data Protection Act 1998 is based on the EU Data Protection Directive. This directive will be superseded on 25 May 2018 by the General Data Protection Regulation (GDPR) whose provisions the Government intends to implement through the current Data Protection Bill.91

91.Personal data may not be transferred from the EU to third countries except where specific limited conditions apply unless the European Commission recognises that a third country provides an ‘adequate’ level of data protection. The Court of Justice of the European Union has determined that the test for adequacy is that the data protection standards in the third country are “essentially equivalent” to those applied in the EU.92

92.Witnesses were concerned that without an adequacy decision the UK’s advertising industry would be severely undermined. Phil Smith of ISBA said, “Over half of UK trade internationally is deemed to be digitally enabled, and we think the impact would be catastrophic if there was not equivalency from day one.”93

93.In August 2017 the Government stated that it was its objective that early in the Brexit negotiations process the UK and EU should “mutually recognise each other’s data protection frameworks as a basis for the continued free flows of data”.94 In oral evidence, the then Minister of State for Digital, Matt Hancock MP, told us that progress had not been made as the EU had not set out its negotiating mandate. Nonetheless, Mr Hancock confirmed that it was the Government’s goal “to maintain unhindered free flows of data post Brexit”:

“We are seeking an adequacy arrangement with the EU or something better than that … I am confident that we will be able to get an arrangement for the unhindered free flow of data because not only is it very good for us, it is very good for the European Union.”95

94.Some witnesses were concerned that, while the UK would be required to maintain ‘alignment’ with EU data protection legislation, it would lose influence in making that legislation. For example, there were already signs that the UK was losing its ability to influence the creation of new EU legislation such as the proposed ePrivacy Regulation, which if adopted in its current form will restrict the use of cookies.96

95.The Information Commissioner’s Office (ICO) is the UK’s independent data protection authority in the UK with responsibility for the Data Protection Act 1998 and implementing the GDPR.97 ISBA has urged the Government to ensure that the ICO has a seat on the European Data Protection Board (EDPB) after Brexit.98 The EDPB was established under the GDPR and will be formed of the European Data Protection Supervisor and the head of each data protection authority from each EU member state (such as the ICO in the UK). When the GDPR takes effect it will help ensure that data protection law is applied consistently across the EU and to ensure cooperation among the data protection authorities.

96.As we await the implementation of the General Data Protection Regulation, we remain concerned that many businesses exploit users’ data without informed consent. Nonetheless the ability to transfer data to and from the EU is essential for the advertising industry. We recommend that the Government should ensure that the UK maintains regulatory alignment with the EU on data protection. We are concerned that Brexit will cause the UK to lose its influence in setting EU rules for data protection which the UK is likely to remain aligned with post-Brexit. We recommend that the Information Commissioner’s Office has a position on the European Data Protection Board.


11 Written evidence from the Internet Advertising Bureau UK (ADV0022)

13 Supplementary written evidence from IAB UK (ADV0033)

14 Q 74. ‘Reach’ refers to the number of people who are exposed to a given medium.

17 Q 124 (Professor Patrick Barwise)

20 e.g. written evidence from Thinkbox (ADV0017)

21 Written evidence from Google UK (ADV0031)

23 This supply chain is sometimes referred to as the ‘value chain’.

24 Marketing Week, ‘P&G issues call to arms to ad industry over ‘antiquated’ media buying’: https://www.marketingweek.com/2017/01/30/pg-media-buying/ [accessed 1 February 2018]

26 Written evidence from Sky UK (ADV0029)

29 Written evidence from Guardian News & Media (ADV0032)

32 Written evidence from Sky UK (ADV0029)

33 Written evidence from News Media Association (ADV0011)

34 Written evidence from News Media Association (ADV0011)

35 Written evidence from Sky UK (ADV0029)

37 Written evidence from Sky UK (ADV0029)

38 Ibid.

40 Q 86 (Henry Faure Walker)

41 ‘Marmite maker Unilever threatens to pull ads from Facebook and Google’. The Guardian, (12 February 2018): https://www.theguardian.com/media/2018/feb/12/marmite-unilever-ads-facebook-google [accessed 15 February 2018]

44 Written evidence from News Media Association (ADV0011)

45 Written evidence from ASA System (ADV0015)

53 Department for Digital, Culture, Media & Sport, Digital Charter, (January 2018): https://www.gov.uk/government/publications/digital-charter

54 Written evidence from HM Government (ADV0016)

57 Written evidence from Google UK (ADV0031)

58 Q 127 (James Collier)

60 Q 118 (Dr Michael Grenfell)

61 Kevin Gallagher, ‘Ad Tech Explainer’ (January 2017): https://www.businessinsider.com/intelligence/research-store?IR=T#!/The-Ad-Tech-Explainer/p/79018167/category=11987293 [accessed 4 February 2018]

63 Written evidence from Guardian News & Media (ADV0032)

66 Commission Decision of 27 June 2017 relating to proceedings under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the Agreement on the European Economic Area (AT.39740 - Google Search (Shopping)): http://ec.europa.eu/competition/antitrust/cases/dec_docs/39740/39740_14996_3.pdf

76 Q 122 (Dr Michael Grenfell). See also Regulation 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

81 Intellifluence, ‘What Is Influencer Marketing’: https://blog.intellifluence.com/what-is-influencer-marketing-40549fe706b4 [accessed 3 April 2018]

83 Content Marketing Association, ‘Why Use Content Marketing?’: http://the-cma.com/about-us/why-use-content-marketing/ [accessed 3 April 2018]

84 Written evidence from ASA system (ADV0015)

85 Q 107 (Beckii Cruel)

87 Written evidence from Professor Jonathan Hardy (ADV0009)

88 ASA, ‘Our call for evidence: recognition and labelling of online ads’, (15 March 2018): https://www.asa.org.uk/news/our-call-for-evidence-recognition-and-labelling-of-online-ads.html [accessed 4 April 2018]

89 ‘Revealed: 50 million Facebook profiles harvested for Cambridge Analytica in major data breach’, The Observer (18 March 2018): https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influence-us-election [accessed 3 April 2018]

90 Written evidence from International Advertising Bureau UK (ADV0022)

91 Q 145 (Matt Hancock MP)

92 Maximillian Schrems v Data Protection Commissioner (2015) C-362/14

94 Department for Exiting the European Union, ‘The exchange and protection of personal data - a future partnership paper’: https://www.gov.uk/government/publications/the-exchange-and-protection-of-personal-data-a-future-partnership-paper [accessed 3 April 2018]

96 Q 79 (Phil Smith) and written evidence from Direct Marketing Association UK (ADV0021)

97 Q 115 (Steve Wood)

98 Q 79 (Phil Smith)




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