The Competition Commission has published its provisional decision on the continuation of ITV’s Contract Rights Renewal undertakings. Zoe Hare analyses the issues and looks at why the advertising industry may not be as happy as one might initially think.
Who: Competition Commission
When: 15 September 2009
Law stated as at: 21 September 2009
On 15 September 2009, the Competition Commission ("CC") published its provisional decision on ITV's Contract Rights Renewal ("CRR") undertakings.
In 2003, Carlton and Granada merged to form ITV. As a merger of two of the UK's largest commercial television companies, the CC investigated the merger to ensure that it would not have an anti-competitive effect. The CC allowed the merger to proceed on that basis that ITV would give certain undertakings in relation to the CRR regime.
The CRR regime caps the amount which the owner of advertising space such as ITV is able to charge an advertiser. The undertakings given in the case of ITV were designed to protect advertisers from loss of competition in the sale of TV advertising as a result of the merger.
In 2008, at ITV's request, the OFT commenced a review of the undertakings, which was subsequently carried out by the CC. The CC investigated, in particular, whether the market has changed sufficiently resulting in the undertakings being out of date and whether the undertakings could be justifiably removed.
ITV's primary argument in the case was that, due to the increased significance of digital television and the number of channels available, its market share has declined considerably since the undertakings were given in 2003. The market in television advertising is far more fragmented now due to the vast array of channels available and the "digital switch over". ITV argued that as a result advertisers are able to achieve their objectives without the use of ITV1.
However, the CC concluded otherwise. It asserted that although ITV's market share has decreased since the merger and in turn the substitutability has increased, ITV1 still remains the primary means of targeting large audiences within a short timeframe and is still dominant in the market. The Chairman of the CRR Review Group, Diana Guy, stated in the press release:
"The media agencies, through whom the vast majority of TV advertising is bought, need access to ITV1 for their advertiser clients. As a result they cannot withdraw all their business from ITV1. However, we found that if they try to reduce their proportion of expenditure on ITV1 they could be faced with significantly less attractive terms for their remaining ITV1 business."
The CC concluded that as media buyers would not be able to move all expenditure on advertising away from ITV1 in the event that the fees increased, the CRR should remain in place.
However, this is not the end of the appeal for ITV. The CC, instead of removing the CRR restrictions completely, has decided to consult on proposed changes to the undertakings to take account of change in advertising market.
The CC's consultation closes on 6 October 2009 and it intends to publish its findings and final decision by the end of 2009. The consultation considers various amendments to the undertakings, for example by limiting the scope or removing certain elements but not all of the restrictions. The amendments could lead to relaxation of the rules and may see the definition of ITV1 broaden to include various other channels including ITV1 HD. It remains to be seen what the CC will decide following the consultation.
Why this matters:
Although ITV may be disappointed that the CC has not completely removed the CRR (in fact shares in ITV fell by 6% following the hearing), it will be content that the CC has decided to proceed to consultation and potentially relax the undertakings.
The advertising industry on the other hand will consider this ruling a victory, since the CRR remains in place and protects advertisers against rising costs. However, if various aspects of the undertakings are relaxed following the consultation, the advertisers could see fees increasing. In particular, if the CC's assertion proves correct i.e. that media buyers are unable to switch completely away from ITV1 without losing their chosen demographic, it appears that the advertisers will have to pay the increased fees without complaint.
Bob Wootton, the director of media and advertising at ISBA, approves the decision of the CC but has warned that in the dynamic world of media advertising "ITV's economic power to dictate terms and prices will also change, allowing CRR to be modified and then, at some point, ended." Therefore advertisers must be prepared for increased costs if they wish to reach the large audiences and extended coverage which ITV1 provides.