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Ofcom launches review of TV advertising trading

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MUMBAI: UK media watchdog Ofcom has launched a review into the UK’s TV advertising trading market.

The review will establish whether the way TV advertising is currently bought and sold prevents, restricts or distorts competition, and whether this has a harmful effect on consumers.

The possible prevention, restriction or distortion of competition has the potential to negatively affect both advertisers and TV viewers. If competition is distorted, it may be affecting the allocation of advertising revenues across broadcasters, market innovation, and prices for placing advertisements.

Ofcom says that if it concludes that there are sufficient competition concerns, it will decide whether to exercise its discretion to refer the sector to the Competition Commission by the autumn for a competition investigation into the TV advertising market.

Advertising is critical for financing TV content for many broadcasters, and is the main source of revenue for commercial Public Service Broadcasters. TV advertising remains a powerful medium for advertisers and the sector is worth around ?4 billion a year.

Potential Competition Concerns:Ofcom has identified the following potential areas of concern within the market:

Transparency of pricing : At present, the way TV advertising airtime is sold may make it difficult for advertisers to make meaningful and informed price comparisons between channels and then to act upon them.

The effect of poor transparency of pricing might be to reduce the amount of ‘switching’ of advertising spend between TV stations by advertisers.

Bundling of airtime: Advertising is sold in packages, or ‘bundles’. It is possible that bundling, when combined with the market strength of TV stations, may have a detrimental effect on competition.

As advertising airtime is ‘bundled’ across an entire schedule (i.e. peak and off-peak), a TV station may be able to use its market strength to achieve higher prices across its entire schedule than would otherwise be the case. Again, this could also serve to distort advertisers’ purchasing decisions.

The trading model: The way in which TV advertising is bought and sold does not appear to have altered significantly in nearly 20 years. It is also a system unique to the UK.

Ofcom is considering whether there are barriers preventing the trading model from evolving in response to commercial and technological changes.

Offsetting benefits: Despite identifying potential areas of concern, the current system may be an efficient way of managing some of the particular risks involved in planning and scheduling TV advertising.

For example, whilst bundling across the schedule may reduce transparency of prices, it may offer great flexibility to media buyers, advertisers and broadcasters.

Also, the sale and purchase of bundled airtime may benefit broadcasters and advertisers by allowing them to schedule adverts more efficiently, while reducing overall transactions costs for the sale and purchase of airtime.

Ofcom’s consultation seeks to identify all the possible competition concerns about the trading model and all the possible benefits which may offset these concerns.

Ofcom is seeking to establish the balance of the costs and benefits and if competition is distorted, restricted or prevented, then how this could have a detrimental effect on viewers and advertisers.

Next steps: The consultation will close on 22 July 2011. Ofcom intends to publish a statement in the autumn, which will either be in the form of terms of reference to the Competition Commission or an explanation of why it does not intend to refer the market.

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