Television advertising sales market and the CRR remedy

Ofcom today set out its approach to the UK television advertising sales market and the Contract Rights Renewal (CRR) remedy put in place as a condition of the Carlton-Granada merger to protect the interests of the advertising community purchasing airtime from ITV plc.

Television Advertising Sales Market

In its conclusions granting regulatory approval for the Carlton-Granada merger, the Competition Commission suggested that a wider review of the UK television advertising sales market should be considered. In its Annual Plan for 2005/6, Ofcom proposed conducting this review.

Ofcom has subsequently undertaken a preliminary analysis of the market. In its view, the case supporting the need for a full review of the entire market has not been made. The reasons for this include:

Ofcom has received no complaints regarding the operation of the television advertising sales market;
there is no strong evidence of consumer detriment arising from the workings of the market as currently constituted;
there have been no calls from either the advertising or the broadcasting industries for such a review; and
the CRR remedy (of which more below) has a significant effect on the market; therefore, in Ofcom’s opinion, there would be limited value in a wider review prior to any examination of the case for a review of the CRR remedy.

Ofcom’s regulatory principles state that it will operate under a bias against intervention and that it will always seek the least intrusive regulatory mechanisms. Given these and the absence of demands for – or evidence to support – a review of the television advertising sales market at this time, Ofcom has removed this proposal from its work plan.

Contract Rights Renewal (CRR) Remedy

The CRR remedy was established in October 2003 in acknowledgement of the potential for the newly-merged Carlton and Granada to exercise significant influence over the ability of advertisers and media buyers to negotiate contracts fairly and effectively. ITV plc has given formal undertakings to comply with the CRR remedy as a condition of regulatory approval for the merger.

The CRR remedy imposes conditions upon ITV plc which are intended to ensure that advertisers and media buyers are no worse off after the merger than before. It includes an automatic “ratchet” – a linkage which reduces the amount advertisers will have to commit if ITV’s audience shrinks. The remedy is overseen by an independent Adjudicator to ensure that fair competition prevails.

The Office of Fair Trading (OFT) is responsible for the CRR remedy, supported by Ofcom. The decision as to whether the CRR remedy should be reviewed – and if so, when – would rest with the OFT. As the sector regulator, Ofcom will continue in its role of monitoring the CRR remedy and assessing its impact on the wider industry

ITV1 still has a significant (greater than 40%) share of the television advertising sales market and may continue to do so in future. Therefore, the assumption based on current understanding of the television advertising market is that any request for review and subsequent modification of the CRR remedy would have to demonstrate, with substantial evidence, that the wider market as a whole would not be adversely affected by any such modification.

The Office of the Adjudicator (CRR)

The Office of the Adjudicator seeks to ensure that ITV plc responds fairly when the demands of advertisers or buyers change from time to time. It also determines the outcome of disputes between the broadcaster and its advertising customers. In examining a dispute the Office of the Adjudicator has access to all of ITV plc’s contracts and trading information. Its decisions are final and binding on ITV plc.

The Adjudicator is independent of Ofcom; however Ofcom is responsible for ensuring the Office of the Adjudicator is able to function according to the terms of the merger undertakings.

The current Adjudicator David Connolly has decided to step down next year, in line with his original commitment to spend three deal seasons in the role. He will continue in post until the end of March 2006. Under the terms of the Adjudicator’s contract, confidentiality and employment restrictions will remain in place until 2007. The selection process for David Connolly’s replacement will begin in January.

Ofcom Chief Executive Stephen Carter said: “The airtime sales market is complex, with multiple players. Our priority is to continue to monitor the CRR remedy and to work with the OFT in the event of any subsequent review.”

He added: “I would like to thank David for his work over the last three years. The role of the Adjudicator is – and will remain – an important part of the remedy.”

Ends.

Television advertising sales market and the CRR remedy