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Regulation of Television Advertising HOUSE OF LORDS Select Committee on Communications 1st Report of Session 2010–11 Regulation of Television Advertising Report with Evidence Ordered to be printed 8 February 2011 and published 17 February 2011 Published by the Authority of the House of Lords London : The Stationery Office Limited £24.50 HL Paper 99 The Select Committee on Communications The Select Committee on Communications was appointed by the House of Lords on 22 June 2010 with the orders of reference “to consider the media and the creative industries.” Current Membership Lord Bragg Lord Clement-Jones Baroness Deech Lord Dixon-Smith Baroness Fookes Lord Gordon of Strathblane Bishop of Liverpool Lord Macdonald of Tradeston Earl of Onslow Lord Razzall Lord St John of Bletso Lord Skelmersdale Lord Clement-Jones chaired the Committee in place of the Earl of Onslow for the duration of this inquiry. Declaration of Interests See Appendix 1. A full list of Members’ interests can be found in the Register of Lords’ Interests: http://www.publications.parliament.uk/pa/ld/ldreg/reg01.htm Publications All publications of the Committee are available on the internet at: http://www.parliament.uk/hlcommunications Parliament Live Live coverage of debates and public sessions of the Committee’s meetings are available at: www.parliamentlive.tv General Information General Information about the House of Lords and its Committees, including guidance to witnesses, details of current inquiries and forthcoming meetings is on the internet at: http://www.parliament.uk/about_lords/about_lords.cfm Committee Staff The current staff of the Committee are Audrey Nelson (Clerk), Emily Davidson (Policy Analyst) and Rita Logan (Committee Assistant). Ralph Publicover was Clerk to the Committee until December 2010. Contact Details All correspondence should be addressed to the Clerk of the Select Committee on Communications, Committee Office, House of Lords, London SW1A 0PW. The telephone number for general enquiries is 020 7219 6076/8662 The Committee’s email address is: [email protected] CONTENTS Paragraph Page Abstract 6 Chapter 1: Introduction 1 9 Chapter 2: Regulation of Television Advertising 12 11 Background 12 11 The UK industry 14 11 How television is funded 16 12 Figure 1: Total TV industry revenue by source in 2009 12 Figure 2: Total funding by revenue stream in 2015 13 Figure 3: Share of total advertising revenues split by type of advertising 14 Why television advertising is important 19 14 How television advertising is regulated 21 15 Considering the public interest 22 15 Competition and transparency within the industry 28 16 The provision of UK-originated content 32 17 Figure 4: PSB spend on original networked production (excluding nations and regions programming), 2005 and 2009 18 A range of national and regional quality programmes 40 19 Investment in training and in the wider creative industries 48 21 The cost of goods and services advertised 50 22 The quantity of advertisements on television 53 23 Chapter 3: Contract Rights Renewal 54 24 The current advertising airtime trading system 54 24 The Contract Rights Renewal undertakings 58 24 Previous reviews of CRR 64 26 Does CRR adversely affect the advertising market? 72 28 Addressing the competition issues 81 30 The wider public interest and CRR 110 36 An appeals process 118 39 How might CRR be removed? 123 40 Chapter 4: Code on the Scheduling of Television Advertising (COSTA) 127 41 The Code 127 41 Harmonising the rules 131 41 The effect of harmonisation on the cost of television advertising 141 44 How the rules should be harmonised 148 45 Figure 5: Viewer attitudes towards television advertising 46 Chapter 5: The Regulatory Framework in the future 165 50 The case for a wider market review 165 50 What a wider review might consider 174 51 Who might carry out a review of the television advertising market? 179 52 Chapter 6: Summary of Recommendations 181 53 Appendix 1: Select Committee on Communications 56 Appendix 2: List of Witnesses 57 Appendix 3: Call for Evidence 60 Appendix 4: The Television Advertising Trading System 62 Appendix 5: Reasons for the decline in the television advertising revenues 66 Appendix 6: Timeline for changes in the television industry 70 Appendix 7: Glossary 72 Oral Evidence Enders Analysis, Financial Times, Internet Advertising Bureau and Thinkbox Oral evidence, 19 October 2010 1 Supplementary written evidence, Enders Analysis (RTA 23) 14 Competition Commission and Office of Fair Trading Written evidence, Competition Commission (RTA 3) 16 Written evidence, Office of Fair Trading (RTA 11) 20 Oral evidence, 26 October 2010 24 Supplementary written evidence, Competition Commission (RTA 18) 35 ITV plc Written evidence (RTA 15) 37 Oral evidence, 2 November 2010 51 Supplementary written evidence (RTA 20) 60 BSkyB, Discovery Communications Europe, MTV Networks UK and Ireland, Satellite and Cable Broadcaster’s Group (SCBG) and Turner Broadcasting Written evidence, SCBG (RTA 8) 65 Oral evidence, 2 November 2010 76 Supplementary written evidence, SCBG (RTA 22) 86 Channel 4 and Channel 5 Television Written evidence, Channel 4 (RTA 13) 87 Written evidence, Channel 5 Broadcasting Ltd (RTA 16) 94 Oral evidence, 9 November 2010 96 Supplementary written evidence, Channel 4 (RTA 24) 107 CRR Adjudicator Oral evidence, 16 November 2010 110 Incorporated Society of British Advertisers (ISBA) and Procter & Gamble Written evidence, ISBA (RTA 6) 114 Oral evidence, 16 November 2010 119 Ofcom Written evidence (RTA 10) 129 Oral evidence, 23 November 2010 137 Supplementary written evidence (RTA 19) 145 Institute of Practitioners in Advertising (IPA), Mediaedge: CIA, OMD Group and Universal McCann Written evidence, IPA (RTA 5) 148 Oral evidence, 30 November 2010 162 Mr John Billett, Mr Steve Hewlett and Mr Ray Snoddy Oral evidence, 30 November 2010 171 Skillset and Professor Sylvia Harvey Oral evidence, 8 December 2010 181 Ed Vaizey MP, Minister for Culture, Communications and Creative Industries, Departments for Business, Innovation and Skills (BIS) and for Culture Media and Sport (DCMS) and Edward Davey MP Minister for Employment Relations, Consumer and Postal Affairs (BIS) Written evidence (RTA 4) 190 Oral evidence, 8 December 2010 193 Supplementary written evidence, DCMS (RTA 25) 203 Further supplementary written evidence, DCMS (RTA 26) 203 Channel Television and STV Oral evidence, 14 December 2010 205 NOTE: Evidence taken at or in connection with a public hearing is printed in this volume. Other evidence is published online at http://www.parliament.uk/hlcommunications and available for inspection at the Parliamentary Archives (020 7219 5314) References in footnotes to the Report are as follows: Q refers to a question in oral evidence; RTA 1 refers to written evidence as listed in Appendix 2. ABSTRACT The UK television advertising industry has changed over recent years as a result of the growth in the number of commercial channels, competition for marketing budgets from internet advertising and the economic downturn. This has led to calls for changes in the regulation of television advertising. Although there has been some deregulation within the television advertising industry there remain constraints on the quantity, scheduling and content of television advertisements and additional constraints on the price of commercial airtime on ITV1. This report takes a fresh look at the impact of the regulations on viewers and consumers as well as advertisers and broadcasters. It focuses on the regulations which do not involve advertising content. ITV plc is committed to a set of undertakings relating to the sale of advertising airtime on ITV1. These undertakings, known as Contract Rights Renewal (CRR), address competition concerns identified when Carlton and Granada merged to form ITV plc in 2003 and provide a fallback right for media agencies and advertisers to continue with the contract terms negotiated at the time of the merger if they choose to do so. We have concluded that the CRR undertakings are no longer the most appropriate mechanism for regulating how advertising airtime is sold on ITV1. In return for CRR’s removal—as Adam Crozier, ITV plc’s CEO, suggested to us—we recommend that ITV plc increases its investment in quality, wide-ranging, original UK programming on ITV1. In addition we wish to see renewed investment by ITV plc in training. These commitments should take the form of binding undertakings which will enable ITV1 further to fulfil its public service obligations. It is extremely difficult to predict how much ITV plc would stand to gain in additional advertising revenue from the removal of CRR. However the available evidence suggests figures of around £30 million to £55 million per annum. This equates to roughly 5% to 10% of ITV1’s current investment in original UK content. The changes to CRR may require primary legislation. However it would be preferable to deal with these as soon as possible under the aegis of the Secretary of State for Culture, Olympics, Media and Sport. We recommend that the proposed changes together with any proposals for changes to the way that television advertising airtime is traded are implemented at the very latest as part of the next Communications Act. We agree with the Competition Commission and Ofcom that the trading system used for selling television advertising is complex and arcane. The lack of transparency within the trading system favours neither fair competition nor the viewer. We recommend that there be a short, focused review of the trading system for television advertising airtime in order to find a more transparent system which includes a robust appeals process to address any outstanding industry concerns. We also believe that digital switchover, due to be completed in 2012, will be the right time to abandon the long-standing differences between the commercial public service channels—that is ITV1, Channel 4 and Channel 5—and other commercial channels, in the quantity of advertising airtime they are permitted to sell (the “COSTA” regulations).
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