Joint Committee on The Draft Communications Bill Appendices to the Minutes of Evidence


APPENDIX 36

Memorandum submitted by IPA (Institute of Practitioners in Advertising)

  The IPA welcomes the opportunity to submit views to the Joint Committee's Inquiry into the draft Communications Bill.

1.  ABOUT THE IPA

  1.1  The Institute of Practitioners in Advertising has been the trade association and professional institute for UK advertising agencies since 1917. It represents all those companies concerned primarily with providing strategic advice on marketing communications, creating and/or placing advertising. The IPA's 213 corporate members represent the major part of the UK's advertising agency business, handling work with an estimated value of around £7 billion in 2000 (over 80 per cent of the advertising placed by agencies). They also play a pivotal role in advising the nation's companies on how they should deploy their total marketing communications spend of £42 billion (source: IPA Bellwether Report, Apr 2002).

  1.2  Since the advent of commercial broadcasting, the IPA's consistent objective has been to secure for British business a cost-effective television (and radio) medium for promoting their products to the public at all levels. To this end, it has lobbied for two principal goals:

  1.2.1  To maintain a high standard of programme output which will appeal successfully to a diverse range of consumer interests and so provide an effective means of communicating advertisers' messages to substantial audiences across the entire demographic and socio-economic spectrum.

  1.2.2  To secure and maintain an effective and competitive marketplace for the sale of advertising airtime.

  1.3  Against such a backdrop, the provisions of the draft Communications Bill are clearly of vital and direct importance to our members.

2.  SCOPE OF OUR SUBMISSION

  2.1  As the IPA is the trade body for UK advertising agencies, we shall restrict our views to those three areas of the bill, which will impact upon our members most directly:

  2.1.1  its proposals relating to media ownership;

  2.1.2  Ofcom's proposed relationship with the BBC;

  2.1.3  the proposal to introduce a degree of self-regulation into TV and radio advertising.

3.  WHY ADVERTISERS NEED TO BE HEARD

  3.1  While all contributors to the Committee's inquiry will stress the importance of their cause, there is a real case for paying particular attention to the needs of the advertising industry since, in many ways, they are fundamental to the entire UK media landscape—and vital to the economy as a whole.

  3.2  The basis for this proposition is three-fold:

  3.2.1  the key role of advertising on a macro basis, in helping to fuel the success of manufacturers, distributors, retailers and service industries;

  3.2.2  its role in financing the activities of the majority of commercially based media, which—without advertising revenues—would be forced into subscription/paid for funding;

  3.2.3  its fundamental contribution to maintaining free-to-air broadcasting and accessible cover prices—and thereby ensuring that society does not break down into those who can afford to be information and entertainment rich and those who cannot.

  3.3  Although, surprisingly, advertising may still be viewed as an unnecessary extravagance in some circles, the reality is that responsible commercial communication plays a major role in the success of "Great Britain plc"—as important in its own way to the health of the nation as the arguments put forward in the Bill for diversity of content and plurality of source of content. Advertising informs, educates and entertains; it promotes healthy competition and, as the IPA's own Effectiveness Awards have underlined over the last 22 years, it provides a vital element to the business mix which can determine the growth and prosperity of whole corporations. To this extent, advertising is a vital component in ensuring the health of UK business and through this, employment and the health of the economy overall.

  3.4  Although, directly, UK advertising agencies may employ only 14,000 people—according to the DCMS' own figures, this number will rise to approximately 93,000 when supplier and media companies are included—and when applied to the economy as a whole, could justifiably be said to play a part in the employment of the nation's entire workforce of 27,000,000.

  3.5  Advertising is, for example, the key stimulus in the activities of the 5,000 call centres currently operating in the UK. According to the Health and Safety Executive, these centres now employ more than 400,000 people or about two per cent of the working population—more than the coal, steel and car manufacturing industries put together. Equally significantly, it is crucially important in preserving the livelihoods of the 190,000 postal workers, who help handle the three billion direct mail advertising items sent out each year.

  3.6  However, advertising is not only responsible for employment, its revenues are also critical in funding a major proportion of the nation's entertainment and news. Advertising revenues presently directly fund the majority of non-BBC broadcasting and are key in the maintenance of current cover prices in the press. Without advertising the average broadsheet would cost £1.50 to £2—while commercial free-to-air broadcasting would simply cease to exist.

  3.7  Finally, advertising helps ensure diversity. It is still too early to assess the extent and speed with which subscription and pay-per-view services within television will finally develop. Having said this, they have both grown significantly and have the potential to threaten other parts of the market. This threat will manifest itself in the potential loss of major programming and events to subscription or pay-per-view channels—creating a significant gap between viewing opportunities for those who can afford subscriptions and those who cannot.

  The BBC alone cannot be responsible for preventing a slide into a country of the information rich and poor.

  As matters stand, the financial success of ITV and Channels 4 and 5 depends on a delicate balance of investment in quality programming capable of attracting significant audiences—and airtime costs which are deemed fair for accessing these viewers.

  Should the landscape of this market alter adversely as a result of owner consolidation, advertisers could face a situation in which they would be forced to seek potentially less effective alternative solutions to their advertising needs. In television terms, this could result in an increased reliance on "paid for" channels in advertising—or more likely sponsorship, reducing revenues for "free-to-air" services and so creating a downward spiral in which lower revenues lead to lower programme investment, resulting in lower audiences, leading in turn to lower advertising investment etc.

4.  THE NEEDS OF THE UK ADVERTISING INDUSTRY

  4.1  Alongside the above, the requirements of the advertising industry are comparatively simple. At their most basic, advertisers need three core things to promote their products successfully:

4.1.1  Quality media which attract substantial high quality audiences

  This, in turn, will require:

    —  high quality, involving and enjoyable programmes;

    —  a wide cross-section of channels from the large main market to the niche;

    —  an equally wide range of programme types to call for all tastes and interests.

4.1.2  Open access to these channels

  Advertisers need to be able to deliver their messages to the audiences attracted by the above conditions, requiring:

    —  Media to be open to advertising;

    —  Media that are accessed (and accessible) by the overwhelming majority of the UK.

4.1.3  An open and competitive market for space and airtime

  Audiences need to be accessible at fair and reasonable prices, requiring an open and competitive market.

5.  TO WHAT EXTENT HAS THE DRAFT BILL DELIVERED AGAINST THESE NEEDS?

Media ownership

  5.1  As indicated above, the advertising industry firmly believes there should be healthy and constructive competition both across and within each medium.

  5.2  In an ideal world, therefore, we should have preferred to have kept the current ownership rules intact—in that they have been effective in maintaining competition levels in the marketplace for the last six years.

  5.3  Having said this, we are realists and recognise that in the light of:

    —  the eventual likelihood of media convergence through digital technology;

    —  the world trend toward media consolidation;

    —  the Government's perceived acceptance of the media owners' efficiency and international competitiveness arguments.

  the maintenance of the position is probably no longer possible.

  5.4  We were therefore not surprised to find that the proposed legislation would largely sweep away earlier prescriptive rules and potentially open the market to a period of profound consolidation.

  5.5  However while the Government's proposals for liberalisation were expected, they have done nothing to remove our concerns that these could now impact adversely on the open and competitive market for space and airtime sales we need in which to conduct our business.

  5.6  It is noted that outside the remaining restrictions on cross media ownership (ie the prohibition on newspapers with over 20 per cent market share owning an ITV franchise, the prevention of newspaper and regional ITV licence ownership in any region and that there must be three separately owned commercial media in addition to the BBC in every region), any future mergers will still require the consent of the competition authorities.

  5.7  However, while this may grant us some comfort, we remain dubious as to whether competition law alone can prevent subsequent potential abuse in sales practices.

  5.8  In simple terms, without rules which separate sales points and so physically preclude such activity, the competition authorities will require buyers both to complain and produce evidence of abuse. The European Convention on Human Rights will quite justifiably require such evidence to be made available to the defending media owner, who then via his records would be able to identify individual complainants, regardless of how the data is consolidated and attempted to be made anonymous. The potential risk that this might lead to subsequent commercial retribution (whether real or imaginary) by the media owner on the complainant would be sufficient to prevent such abuses being highlighted.

  5.9  Against such a background, we should therefore urge the Government that while it might remove historical media ownership constraints, it should nevertheless impose strict requirements with regard to the number of sales points required within and across the media in line with the IPA's original proposals in this area. These may be summarised as follows:

  5.9.1  to avoid the dangers of concentrations in media advertising sales leading to price fixing and/or restricted access, thresholds should be set for referral to the regulator based on share of media advertising revenue;

  5.9.2  based on accepted market practice the thresholds defining the scope of the regulators' discretion within each medium should be 25 per cent of sectoral advertising and for cross-media sales control, 15 per cent of total UK media advertising revenue;

  5.9.3  where overall media ownership exceeds 25 per cent of sales revenues within a specific medium (or 15 per cent across media), the media owner should be required to operate that percentage of his sales above the 25 to 15 per cent limits through an independent sales company;

  5.9.4  in this context, ownership of sales should be defined as ownership of the sale of advertising and the advertising revenues this represents. Advertising revenue should be defined as those monies secured from all forms of paid-for advertising to include sponsorship, advertorials and inserts, and well as traditional airtime and space;

  5.9.5  in those cases where the current sectoral shares exceed 25 per cent (eg TV, press and cinema) IPA acceptance of these positions would be conditional upon:

    —  media owners' undertakings not to exploit their dominant positions;

    —  no further increase in these shares except through organic growth, achieved as a result of successful sales of media stock;

    —  a block on growth through mergers, acquisitions or the appointment of new contracts;

  5.9.6  on a cross-media basis, analysis reveals that the proposed 15 per cent ceiling on ownership of sales is not currently exceeded;

  5.9.7  in addition, we should seek the introduction of specific rules governing the ownership of sales in key/sensitive regions in the country;

  5.9.8  these should be determined by medium to take account of fair and proper competition by region, with the following applying as a minimum:

    —  of two London ITV sales companies until such a time as ITV falls to or below 25 per cent of total television advertising revenue;

    —  of three commercial radio sales companies by area in the UK;

    —  of two regional newspapers in key regions/cities of the UK, except for those where one or none currently exist;

    —  of two poster contractors/sales companies in key regions/cities in the UK, except for those where one or non currently exist.

  5.9.9  details of the rules governing the proposed independent sales companies are spelled out in Appendix I.

OFCOM and the BBC

  5.10  While we note and applaud that the BBC will be regulated by OFCOM for basic standards, we remain concerned that the nation's most important single broadcaster and publisher should remain largely outside the central regulator's remit. As a recent FT article's headline said, the Bill is currently "like Simpsons without Homer" and confirmed the IPA view that the UK has a delicately balanced broadcasting ecology and it is essential to its preservation that the BBC be included in OFCOM's remit.

  5.11  Although we believe that a strong and well-resourced BBC should be a key player in the UK media landscape—helping to set standards and delivering quality programming in those areas where the commercial sector is absent—we are increasingly worried by the growing commercial nature of the Corporation and its ability to use its privileged position to cross-subsidise its commercial activities.

  5.12  At the same time, the extent to which the BBC is cross promoting its services is increasing at an alarming rate—with even the Today programme on Radio 4 now running what are blatant advertisements for forthcoming television and radio programmes. These pieces have gone far beyond simple announcements and serve to bolster the audiences of the Corporation by means which are not only denied competitors but, in a normal commercial context, might arguably be seen as the abuse of a dominant position.

  5.13  Against this background, it is difficult to see how the current treatment of the BBC can be married with the Government's aim to create a more equitable, transparent and coherent regulatory system and we would urge that the activities of the Corporation should be brought more fully under the OFCOM control.

Self-regulation

  5.14  While the IPA was gratified to see that the draft Bill retains the concept of self-regulation for the broadcast media, we were disappointed at comments suggesting that the advertising industry was in some way remiss in failing to provide detailed proposals as to how this might be accomplished. The IPA would now like to take this opportunity to put forward its ideas on how self-regulation, as practised so successfully in non-broadcast, could be extended to the broadcast sector. We believe strongly that media convergence, and in parallel the massive increase in broadcast commercial messages, will require this step in the near future. We urge the Government to take this opportunity to implement in broadcast a model, which has proved its worth in non-broadcast for forty years, and demonstrate its value across all UK media.

  5.15  In line with the Advertising Association, the IPA believes that there are a range of core principles which must be agreed by Government and the industry before a self-regulatory (or co-regulatory) system can be established. Specifically:

    —  there should be a genuine and complete transfer of authority from OFCOM to the self-regulating body;

    —  that self-regulatory body should have:

      —  clear responsibility for the day-to-day operation of advertising regulation;

      —  ownership of the code to which it works;

      —  the authority to deal with complaints, referring to OFCOM only when its own sanctions prove ineffective.

    —  reflecting this, the role of OFCOM should be restricted to that of a backstop power.

  5.16  As such, the above would replicate the current situation with regard to the ASA and the CAP Code—with the OFT as the backstop power. This set-up has been universally praised for its effectiveness and we see no reason why the broadcast media should be treated differently.

  5.17  Moreover while it is recognised that this will require modification to the current Draft, our concern would be that without such a transfer of power, the industry could potentially find itself not only funding an operation over which it had no authority but opening up a situation of double jeopardy in which the self and statutory regulators could both be involved in investigating the same complaint.

  5.18  In addition to these basic building blocks—and only once they are in place—the IPA believes:

    —  the legal responsibility for broadcast advertising content should pass from broadcasters to advertisers—as is the case with non-broadcast advertising as regulated by the ASA, with the OFT as backstop power;

    —  the responsibility for paying for the cost of the pre-clearance system (BACC, RACC) should also pass from the broadcasters to advertiser clients, again mirroring the situation in non-broadcast media. (It is acknowledged by both broadcasters and clients that the current cost of running the BACC and RACC is "in the rate card" and thus advertiser clients are already de facto the financiers of the system);

    —  the system should then be financed in a similar manner to that which currently obtains in the non-broadcast sector. The model for such a system is Asbof (Advertising Board of Finance), which raises funds through a levy on client media invoices administered by IPA agencies.

6.  SUMMARY

  6.1  In general terms, the IPA has welcomed the Draft Communications Bill.

  6.2  Having said this, it is disappointed that:

    —  above and beyond recourse to the competition authorities, no specific action has been taken to protect the legitimate interest of advertisers and the advertising industry with regard to the buying of advertising time and space;

    —  the nation's principal broadcaster and publisher (ie the BBC) remains largely outside the remit of the central regulator, despite the former's increasingly commercial stance and its unrivalled ability to distort or destroy markets for the commercial sector;

    —  the issue of co- or self-regulation for broadcast media still leaves many vital administrative areas unaddressed, without which the advertising industry is unable to develop meaningful recommendations on implementation.

  6.3  Against this background, we should urge the Joint Committee to press Government that these topics be reconsidered.

Appendix I

  (Drawn from a paper written by the Incorporated Society of British Advertisers (ISBA), the advertiser trade body, and derived from a joint IPA/ISBA working party in this area.)

Rules Governing Independent Sales Companies

  1.  The UK has a well-established, long and successful history of independent media sales companies. However, we recognise that their introduction to handle separate advertising sales for market shares in excess of the 25 per cent and 15 per cent limits will present some difficulties, albeit not insurmountable. In these instances, to prevent undue influence or collusion, the following rules should apply:

  1.1  In accordance with established practice, the enforcement of adherence to these rules should in the first instance be the responsibility of the sectoral regulator—OFCOM—and its appointed specialists.

  1.2  A media owner on whose behalf an independent sales company operates may not own more than 19 per cent of the sales company, whether directly or indirectly.

  1.3  An independent sales company may not have any direct or indirect interest in any media owner which they represent.

  1.4  Independent sales companies which jointly represent a common media owner must not have any direct or indirect interest in one another.

  1.5  Nor may a media owner be represented on the board of any independent sales company on whose behalf it operates.

  1.6  Whilst the media owner should have access to sufficient information to enable it to determine the independent sales company's effectiveness on its behalf, it should not have access to any information whatsoever on the sales company's specific arrangements with individual advertisers and/or agencies, nor within overly narrowly-defined advertiser sectors.

  1.7  Whatever their basis, any sales incentives operated by the media owner for the independent sales company must relate entirely to the performance of the sales company on its behalf, and must not relate in any way to the overall performance of the media or of others within the market.

  1.8  The contract between the media owner and the independent sales company should acknowledge and be based upon these enforceable rules. Likewise, the contracts between the media agencies and the sales companies, and between advertisers and their media agencies should also acknowledge and base themselves upon these rules similarly, carrying their currency right through the business process.

Annex

DEFINITIONS

  1.  The relevant markets are currently: television, radio, national newspapers, regional and local newspapers, magazines, outdoor/out-of-home (posters, transport and other location specific advertising), online (ie Internet) and wireless messaging (SMS).

  2.  Ownership of sales is defined as ownership of the sale of advertising. The most effective measure of this is the revenue thus generated.

  3.  Advertising is defined as all forms of paid-for commercial communications, and includes spot and space advertising as well as sponsorship, "advertorials", items inserted into or onto publications etc.


 
previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2002
Prepared 5 August 2002