There have long been concerns that the UK outdoor advertising sector was rife with anti-competitive practices, rebates being a particular concern. So the Office of Fair Trading launched an investigation and now it has published its “market study”. Dan Barnhouse finds a mixed bag of findings.
Who: Office of Fair Trading
When: 3 February 2011
Law stated as at: 18 February 2011
The Office of Fair Trading ("the OFT") has published its market study on outdoor advertising. The OFT has found that the sector is largely competitive at the specialist buyer and media agency levels of the market. However, the OFT found that there is a potential for rebates granted by outdoor media owners to specialist buyers to reduce the value for money obtained by advertisers. This potential is seen to arise from the tiered rebate structure commonly applied whereby increased advertising spend by specialist buyers leads to exponential rebate rates for them, with little or none of this benefit passed on to advertisers.
It has also identified concerns that competition for new contracts put out to tender by local authorities may be weak. The OFT cited long contract periods, tacit renewal clauses and exclusivity clauses as the main causes of the potential imbalance in market power between incumbent outdoor media owners and local authorities in relation to street furniture agreements (namely, agreements for the installation of bus shelters by media owners, with associated advertising rights). The OFT therefore makes certain recommendations and provides guidance for advertisers and local authorities in the hope of redressing this balance.
Despite highlighting aspects of the market that might restrict, prevent or distort competition (such as high levels of concentration, barriers to entry and information asymmetries), the OFT does not intend to make a market investigation reference to the Competition Commission. However, the OFT has opened a Competition Act 1998 investigation into street furniture contracts between the media owners Clear Channel and JCDecaux and some local authorities. The OFT is examining whether these agreements restrict competition in breach of the Chapter I prohibition under the Competition Act 1998 or Article 101 of the Treaty on the Functioning of the European Union.
The OFT invites comments on the provisional conclusion of the market study by 18 March 2011.
Why this matters:
Whilst the OFT has decided to open the Competition Act investigation in relation to street furniture contracts, it has left the onus on large advertisers and the representative body for advertisers, the Incorporated Society of British Advertisers (ISBA), to improve the rights of advertisers for price transparency. It proposes that this could be achieved through a more robust approach in the negotiation of their agreements. Of particular interest is the OFT's proposal for some advertisers to establish an agency at law relationship with their media agencies, as a means of obtaining a greater share of the rebates currently retained by the agencies. The implications of such a change would be felt by stakeholders in every media format by virtue of the one-stop shop nature of the role performed by many agents, and therefore the OFT noted that it doubts whether this approach will be taken often.
In these times of record public sector cuts, the OFT seems to be focusing its efforts on limiting the losses incurred by the local authorities, whilst adopting a laissez-faire approach to the plight of the private sector. The large advertisers ought to have a fair chance of redressing the balance in their dealings with its agents and specialist buyers; however for smaller and/or new businesses, their chances of obtaining value in their outdoor advertising spend rest on the ability of ISBA to implement changes to its standard contracts.