01 December 2003
The ITC and Ofcom today announced the outcome of their joint consultation on the rules governing the UK television airtime sales market. The decision, set out below, is with immediate effect.
The ITC and Ofcom have decided to withdraw the ITC's rules on joint selling of airtime. However, the regulators have decided to keep rules on conditional selling and withholding of airtime. Full details can be found in Related Items.
This decision brings to an end the fifth and final stage of the ITV merger process and related regulatory analysis;
1. That process began with the Secretary of State's decision to accept the Competition Commission's recommendations on the merger between Carlton and Granada.
2. Subsequent to that decision, the Office of Fair Trading, the ITC and Ofcom negotiated the detail of the Contracts Rights Renewal (CRR) remedy with the parties in consultation with the industry.
3. Signed undertakings were then presented to the Secretary of State.
4. Last week the ITC and Ofcom announced the appointment of David Connolly to the post of Adjudicator.
5. Finally, today the ITC and Ofcom published the outcome of their joint consultation on the rules governing airtime sales in the UK television advertising market.
The ITC/Ofcom joint consultation document set out two options for consideration. One option was to issue new airtime sales rules for the UK television advertising market. The alternative option would be to rely upon general competition law alone. Under competition law, any practice which could prevent, restrict or distort competition would be carefully examined by the Office of Fair Trading and/or Ofcom.
Broadcasters, the advertising community and others with an interest in the UK television advertising market were asked to submit views on the need for rules in four areas:
Most companies who contacted the ITC and Ofcom during the consultation period believed that it was right to lift the ban on "share for ITV” deals. This ban prevented Carlton and Granada from colluding in the sale of airtime. The ITC and Ofcom accepted this majority view.
Decision #1: the ban on "share for ITV” deals currently in force for all Channel 3 licensees is lifted with immediate effect.
A number of respondents suggested some other rules were needed in relation to ITV. These proposed rules were put forward in addition to the CRR remedy. However, the ITC and Ofcom believe the CRR remedy currently provides sufficient protection for the advertising community.
Decision #2: no further rules are required over and above the CRR remedy. However the ITC and Ofcom will keep this under review.
The existing ITC 2001 Rules Regarding Advertising Sales Arrangements prohibit the large TV sales houses from collaborating in the sale of airtime.
Views were split on whether those rules should be retained. Some respondents felt the rules gave certainty to the market by preventing further consolidation; other respondents felt that neither existing rules nor new rules would be sufficiently robust. A number of respondents felt that the Competition Act would provide sufficient protection.
The ITC and Ofcom believe the robust provisions of the Competition Act and the increasing body of competition case law provide sufficient mechanisms to prevent distortions of competition in the joint selling of airtime.
Previously the ITC, as the sectoral regulator, did not have concurrent competition powers. However, under the Communications Act 2003, Ofcom will have concurrent powers with the Office of Fair Trading from 29 December 2003.
The Communications Act also requires Ofcom to seek the least intrusive means of regulation. In practice, this means that wherever appropriate Ofcom will seek to address competition issues through the application of general competition law rather than the application of prescriptive and detailed ex ante rules.
On that basis, the ITC and Ofcom have concluded that general competition law will provide protections for all parties, and ex ante rules preventing joint selling are no longer necessary.
Decision #3: existing joint selling rules are removed with immediate effect. Joint selling by sales houses will be considered under Chapter I of the Competition Act, and sales houses must ensure they comply with the Competition Act. This would also apply should the merged Carlton and Granada enter into any additional joint selling arrangements.
The Office of Fair Trading has generally taken the view that combined market shares of up to 25% will not have an appreciable effect on competition.
However, the OFT also states that there will be circumstances where this 25% guideline does not apply. In some markets, the OFT may conclude that combined market shares of less than 25% could still harm competition.
Given the nature of the UK television advertising market going forward, the ITC and Ofcom's preliminary analysis indicates that joint selling by two or more of the larger sales houses may raise infringement questions, even if their combined market share was below 25%.
If the proposed joint selling were found to be an infringement of Chapter I of the Competition Act, the ITC and Ofcom would then need to consider whether such selling could be exempted from the Competition Act and therefore be allowed.
Grounds for exemption are set out in Section 9 of the Competition Act .
The Office of Fair Trading have published guidance notes on Chapter I of the Competition Act.
Between now and 29 December 2003 the OFT are responsible for acting under Chapter I of the Competition Act in relation to this market. After 29 December Ofcom would also be responsible for the application of the Competition Act in the communications sector. Interested parties should contact the Competition and Markets group within Ofcom to discuss this further.
Conditional selling occurs when a broadcaster requires that an advertiser or media buyer who wishes to purchase airtime on one channel buy another of the broadcaster's products as a pre-condition of the sale.
It is clear from the ITC and Ofcom's meetings with the advertising community in recent weeks that conditional selling has become widespread amongst all sales houses, even those which would not be considered to be dominant. Most respondents also felt that conditional selling reduced choice and maintained artificially high prices for advertisers and media buyers. The ITC and Ofcom agree with this perspective.
Decision #4: Conditional selling is prejudicial to fair and effective competition and will continue to be prohibited. However, the ITC and Ofcom will keep this rule under review.
It is important to note that the bundling of products - where airtime on one channel is offered in a "bundle” with airtime on another - will be allowed, providing the sale of the former is not dependent on the additional purchase of the latter. However, bundling must not breach Chapter II of the Competition Act which prohibits, for example, predatory pricing.
The ITC and Ofcom believe that the major terrestrial analogue TV broadcasters, with the tightest restrictions on the amounts of airtime they can sell and highest levels of demand, have the potential to withhold airtime in order to push up prices.
This practice is likely to create scarcity, drive up costs to the advertising community and increase profits for terrestrial analogue TV broadcasters. In the past the ITC has stated that failure by the terrestrial analogue broadcasters to sell the maximum available airtime would be considered to be prejudicial to fair and effective competition - and therefore would be a breach of a broadcaster's licence.
Respondents' views on this were mixed. Most wanted this existing rule to remain in place for ITV1. Some terrestrial analogue broadcasters wanted it removed for their channels. The advertising community wanted the rule to be extended to all TV channels - not just terrestrial analogue broadcasters.
Decision #5: Withholding of advertising airtime by analogue terrestrial channels will continue to be prohibited. The ITC and Ofcom will keep under review the need to extend this rule to digital channels.
These new rules replace the ITC's 2001 Rules Regarding Advertising Sales Arrangements and its 1996 Consolidated Statement Regarding Advertising Sales Arrangements. These rules take effect from 1st December. Responsibility for enforcement will transfer from the ITC to Ofcom on 29 December 2003.