Dr A n dr e a C osc elli Chief Executive Co mpetition and Markets Authority Victoria House 37 Southa mpton Ro w London WC1B 4AD

30 July 2019

D e ar D r C osc elli

O nli n e pl atf or ms a n d di git al advertisinga dv ertisi n g marketm ark et studyst u d y

I a m writi n g t o y o u o n b e h alf of R a di oc e ntr e i n r es p o ns e t o t h e C M A’s i n vit ati o n f or i niti al c o m m e nts r e g ar di n g its m ark et st u d y i nt o o nli n e pl atf or ms a n d t h e di git al a d v ertisi n g m ark et. R a di oc e ntr e is t h e i n d ustr y b o d y f or c o m m erci al r a di o i n t h e U K, r e pr es e nti n g o v er 3 0 0 lic e ns e d r a di o st ati o ns of all siz es fr o m n ati o n al br a n ds lik e Cl assic F M, Kiss, H e art, L B C a n d J azz F M, t o s mall independent stations in co m munities all across the country.

C o m m erci al r a di o is f u n d e d e ntir ely b y a d v ertisi n g a n d o p er at es i n a hi g hly c o m p etitiv e m ark et, g e n er ati n g o v er £ 7 1 3 m i n r e v e n u es i n 2 0 1 8 . Ov er 3 6 milli o n p e o pl e list e n t o c o m m erci al r a di o’s mix of m usic, n e ws, tr a v el a n d l oc al i nf or m ati o n e v er y w e ek. It als o s u p p orts £ 6 8 3 m i n gr oss value added to the UK econo my and over 12,000 jobs.

In co m mon with many other business sectors and areas of public life, the gro wth of the internet h as tr a nsf or m e d t h e w orl d i n w hic h r a di o a n d r el at e d m e di a c o m p a ni es o p er at e, cr e ati n g a h u g e range of ne w opportunities while presenting nu merous co mplex challenges. In particular, there h as b e e n a si g nific a nt s hift i n a d v ertisi n g r e v e n u es t o o nli n e pl atf or ms. I n t h e l ast 2 0 y e ars di git al advertising has gro wn fro m around 1 % to a more than 50 % share of UK ad revenue, with the m aj orit y of t his s p e n d n o w g oi n g t o G o o gl e a n d F ac e b o ok or t h eir s u bsi di ari es . T his tr a nsiti o n of advertising spend to online is the most significant econo mic trend that has put pressure on revenues across all media. In the case of radio, this surge in online advertising has meant a d ecli n e i n its s h ar e of a d r ev e n u e, as w ell as a r e al t er ms r e d ucti o n i n t ot al a n n u al r e v e n u es f or c o m m erci al r a di o si nc e t h e e arly 2 0 0 0s.

In the radio and audio sector co mpetition for audiences has never been more intense due to the r a n g e of e nt ert ai n m e nt o pti o ns n o w a v ail a bl e. O v er all list e ni n g t o onli n e s er vic es lik e S p otif y , Apple Music and podcasts no w account for a 20% share of overall listening ti me (higher a mong younger listeners) according to the official RAJAR MI DAS audience measure ment data for Su m mer 2019. This frag mentation has had li mited i mpact on total audience, but average ti me s p e nt list e ni n g t o r a di o h as r e d uc e d fro m 2 4. 4 h o urs p er w e ek i n 2 0 0 4 t o 2 0. 7 h o urs i n 2 0 1 8 .

It is clear that UK businesses have been particularly keen to take advantage of internet advertising due to the potential benefits in the ter ms of targeting, data and apparent cost efficiency. As a result over half of UK ad spend in 2018 was devoted to digital advertising (£13.4bn), more than any other E U country and more per capita tha n the US A.

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As the C MA rightly states, t he i mpact of this rapid gro wth of digital advertising has been c o nsi d er e d v ar i o usly b y pr evi o us i n q uir es, i ncl u di n g t h e w ork of t h e F ur m a n R e vi e w, C air ncr oss Revie w, D C MS Select Co m mittee, Lords Co m munications Co m mittee and Which?. It also runs in p ar all el wit h t h e G o v er n m e nt’s w ork o n t ackli n g o nli n e h ar ms a n d its br o a d er Di git al C h art er.

Each of these pieces of work have identified funda mental issues arising fro m the significant changes in the way that advertising is bought and sold online, with the rise of auto mated processes kno wn as progra m matic advertising. This process is able to use data on audiences to m atc h t h e c h ar act eristics r e q uir e d b y a d v ertis ers i n or d er t o s er v e r el e v a nt a ds o nli n e, w hic h c a n t h e n b e m e as ur e d a n d tr ack e d i n t er ms of us er i nt er acti o n.

T his m o d el is cl e arly attr activ e t o a d v ertis ers a n d t h eir a g e nci es w h o d et er mi n e t h e v ast m aj orit y of spending in this area. Ho wever, a nu mber significant issu es have arisen as a consequence of the increasing reliance on digital platfor ms that are largely unregulated and exe mpt fro m e xt er n al scr uti n y. I n p artic ul ar , t h er e is a l ack of tr a ns p ar e nc y o n w h er e t h e a dv ertis ers’ m o n e y goes (due to the cost of ad tech inter mediaries); absence of agreed effectiveness measures (including third-party audience measure ment and vie wability of ads); ad misplace ment (that can l e a d t o a ds b ei n g pl ac e d n ext t o ill e g al or h ar mf ul c o nt e nt); a n d d eli b er at e a d fr a u d ( w h er e w e b tr affic is i nfl at e d a n d m a ni p ul at e d t o driv e f als e i m pr essi o ns).

A nu mber of these areas are already subject to industry action and efforts to introduce more effective self-regulation. For exa mple, we note the position taken by the Incorporated Society of British Advertisers (ISB A) that content should not be made available for advertising place ment unless it has been positively vetted, an approach that may at least help tackle the issue of ad misplace ment that can be so da maging to brands. More broadly we sup port the reco m mendations made by the House of Lords Co m munications Co m mittee a mong others to enable self-regulatory bodies (such as JI C WEBS) to assu me greater po wers to create and enforce rules establishing industry standards, especially in measuring effectiveness and third-party v erific ati o n. If t h e i n d ustr y f ails t o d o t his i n a m a n n er t h at is s atisf act or y it m a y b e n ec ess ar y f or Govern ment to bring for ward measures to regulate the operation of digital advertising, with a p pr o pri at e s a ncti o ns.

No doubt these i mportant matters and many more will be under consideration as part of the C M A revie w. Therefore we welco me the forthco ming revie w and are particularly encouraged by t h e f act t h at it e x plicitly pr o p os es t o e x a mi n e t h e m ark et p o w er of t h e pl atf or ms a n d t h eir i m p act o n c o m p etiti o n i n di git al a d v ertisi n g.

Y o urs si nc er ely

Siobhan Kenny Chief Executive

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