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
1. ABOUT THE
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
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
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
2.1.3 the proposal to introduce a degree
of self-regulation into TV and radio advertising.
3. WHY ADVERTISERS
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 landscapeand 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, whichwithout
advertising revenueswould be forced into subscription/paid
3.2.3 its fundamental contribution to maintaining
free-to-air broadcasting and accessible cover pricesand
thereby ensuring that society does not break down into those who
can afford to be information and entertainment rich and those
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 peopleaccording to the DCMS' own
figures, this number will rise to approximately 93,000 when supplier
and media companies are includedand 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 populationmore 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 £2while 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 channelscreating
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 audiencesand
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 advertisingor 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
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
4.1.1 Quality media which attract substantial
high quality audiences
This, in turn, will require:
high quality, involving and enjoyable
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
Audiences need to be accessible at fair and
reasonable prices, requiring an open and competitive market.
5. TO WHAT
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 intactin
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
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
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
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
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
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 landscapehelping
to set standards and delivering quality programming in those areas
where the commercial sector is absentwe 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
ratewith 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
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
clear responsibility for the
day-to-day operation of advertising regulation;
ownership of the code to which
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 Codewith
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
blocksand only once they are in placethe IPA believes:
the legal responsibility for broadcast
advertising content should pass from broadcasters to advertisersas
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.
6.1 In general terms, the IPA has welcomed
the Draft Communications Bill.
6.2 Having said this, it is disappointed
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.
(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 regulatorOFCOMand
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
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
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.
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.