1.1 There are currently restrictions on the amount of advertising that any UK television broadcaster is allowed to show on its channels. These restrictions have been put in place to ensure that viewers are not exposed to excessive amounts of advertising, and that the quality of the viewing experience is maintained.
1.2 The framework that determines the amount of advertising permitted on television is set at a European level by the Audiovisual Media Services (AVMS) Directive. This sets a limit for all channels of 12 minutes on the amount of advertising which may be shown in one hour. The specific rules which apply in the UK are set out in Ofcom's Code on the Scheduling and Amount of Advertising (COSTA).
1.3 The rules which apply in the UK set limits for the commercial public service broadcasters (PSBs) Channel 3, Channel 4, S4C and Channel 5 - and all other commercial broadcasters. For example, there is a limit on the average number of minutes per hour of advertising across the day of 7 minutes an hour (off peak) for PSBs and 9 minutes an hour for all other broadcasters .
1.4 There have been significant changes in how television is distributed and consumed since these rules were first put in place, including the growth of multi-channel TV and the take-up of digital video recorders (DVRs). Ofcom has, therefore, been considering whether there is an ongoing need for UK-specific restrictions on the amount of advertising on television, and whether the current rules are fit for purpose.
1.5 Even if the UK-specific restrictions currently contained within COSTA were to be removed, the amount of advertising would still be restricted by the hourly limit set out in the AVMS Directive.
1.6 Any changes to advertising minutage regulation could have a significant impact on broadcasters, advertisers and viewers. There have been very different views expressed by different stakeholders on the need for, and nature of, any changes.
1.7 In 2007, in light of the above, Ofcom initiated the first of a number of consultations on advertising regulation. As part of this work we looked at the possible economic impact of different options for advertising minutage regulation and commissioned econometric research to inform the modelling of the impact of any changes.
1.8 It is important that, when looking at the advertising minutage rules, we consider how best to balance our various duties in this area. We have, therefore, conducted additional work on the principles underlying the regulation of advertising to consider whether there is a case for moving away from the status quo. This document sets out our position on the regulation of advertising minutage in light of this analysis.
1.9 The rules that frame the amount of advertising permitted on television are set at a European level by the AVMS Directive. Ofcom also has a number of statutory duties which are relevant to television advertising. Taking these into account, the key factors which we need to consider are as follows:
1.9.1 The AVMS Directive establishes the need to protect the interests of consumers as television viewers, particularly by ensuring they are not exposed to excessive amounts of advertising which is also detrimental to the viewing experience. This is the primary reason why TV advertising is regulated.
1.9.2 Ofcom's principal duty under the Communications Act 2003 is to further the interests of citizens in relation to communication matters and further the interests of consumers in relevant markets, where appropriate by promoting competition.
1.9.3 Ofcom has several specific duties which flow from this principal duty. They are not the primary goals of TV advertising regulation, but they are likely to be relevant to any consideration of such regulation. They include duties to secure a wide range of high quality television and radio services calculated to appeal to a variety of tastes and interests and to maintain a sufficient plurality of providers of different television and radio services.
1.9.4 Ofcom must also have regard, where relevant, to the desirability of promoting the fulfilment of the purposes of public services broadcasting in the United Kingdom and to apply a regulatory regime that seeks to secure the delivery of programming that fulfils these purposes. Television advertising is critical for financing TV content for many broadcasters, including the commercial PSBs.
1.9.5 Ofcom must also have regard to the desirability of promoting competition in relevant markets, in this case the TV advertising market. 1.9.6 In carrying out our duties, we must have regard to the likely impact of regulation on stakeholders such as consumers, citizens, broadcasters and advertisers and, where appropriate, on others likely to be affected by regulation.
1.10 These interests can potentially act in tension, for example, if we were only focused on protecting viewers from excessive advertising one approach might be to prohibit advertising within programme breaks and only allow advertising between programmes. However, restricting the amount of advertising to extremely low levels is likely to reduce the level of advertising revenue available to produce content, which in turn would be likely to reduce the range and or quality of programming available to viewers.
1.11 Our starting point has been to consider whether there is a need for regulation that goes further than the maximum limits set by the AVMS Directive, as UK regulation currently does.
1.12 As would be expected, audience research demonstrates that viewers frequently see advertising as disruptive to their viewing. However, when prompted, they also recognise its role in funding television content and that it can therefore have a value to them. A small majority of viewers seem to accept current levels of advertising as acceptable, but would not want to see a significant increase. Attitudes do not appear to be substantially changing over time despite growth in the overall amount of advertising.
1.13 Removing any UK-specific restrictions would be likely to lead to an increase in the overall volume of television advertising on all broadcasters, as competition within the market would encourage broadcasters to increase the amount of minutage to increase the share of commercial impacts, and thus the share of advertising revenue.
1.14 Analysis which takes into account the econometric data available to us suggests that significant increases in minutage may actually lead to a decline in the total amount of television advertising revenue. If the supply of advertising was increased then prices would be likely to reduce and our analysis suggests that the overall effect would be a reduction in total advertising revenues. This would reduce the amount of funding available for the production of content.
1.15 We therefore conclude that removing UK specific regulation, and moving to the maximum permitted under the AVMS Directive, would not be in the interests of viewers, since it would be likely to increase viewers' exposure to advertising whilst at the same time reducing the range and quality of content.
1.16 The only stakeholders who might be expected to benefit from such a move are advertisers, who would potentially experience lower prices. However, advertisers appear to recognise that the current restrictions have the benefit of funding programming that is attractive to viewers, thereby maintaining the value of television as an advertising medium.
1.17 The evidence therefore suggests that there remains a strong case to continue UK specific restrictions on the volume of advertising.
1.18 The second question we have considered is whether the current rules, which distinguish between the levels of advertising that can be shown by PSBs and non-PSBs, are delivering against the interests of consumers, and whether it would be appropriate to amend the rules to better deliver against these interests.
1.19 Some broadcasters have argued that there is a strong case for harmonisation of the rules between PSBs and non-PSBs, as the distinction is no longer as valid as we approach digital switchover. This could take the form of, for example, 'levelling up' to the current restrictions on non-PSBs, or 'levelling down' to the levels of PSBs.
1.20 Levelling up, whilst representing a less significant change to the rules, would have similar consequences to setting the rules at the AVMS limits. It would be likely to lead to an increase in the overall levels of advertising which is not in the interests of viewers. For similar reasons to those set out above, we do not believe there is a strong case for levelling up.
1.21 From the perspective of viewers, levelling down would certainly mean a reduction in exposure to advertising.
1.22 If the current rules act as a restriction on broadcasters then it is likely that they have the effect of raising prices above what might otherwise be the competitive level which would in turn mean that some broadcasters benefit from increased revenue, increasing the total revenue available to produce content. The same analysis suggests that additional restrictions on the supply of advertising could further raise prices, and lead to an increase in the revenue that would be available to broadcasters to invest in content, including programming that meets the purposes of PSB. This could also be positive for viewers who continue to value highly PSB programming.
1.23 However under the current regulatory framework, and taking into account the econometric research available to us, it is difficult to predict with any certainty what the effect of levelling down would be. There is not only uncertainty as to how much additional revenue might be generated, but also how it would be distributed between different broadcasters. There is also uncertainty as to how much of that revenue broadcasters would invest in content and in what type of content. While we would expect some additional investment in content, the current regulatory regime particularly with regard to the current licence obligations on the PSBs - provides no guarantees as to the use of any additional revenues received.
1.24 Finally, a further restriction on supply would represent a further regulatory intervention in the market for TV advertising. This is likely to have an adverse impact on purchasers of advertising and non-PSBs have also expressed concerns that levelling down would negatively impact on their revenues.
1.25 Since levelling down would be a significant further intervention in the market we would need to be persuaded that there was sufficient evidence to justify such a change. It is possible that levelling down could potentially lead to increased investment in content and in particular to content invested by the PSBs. However we do not believe that the outcomes of this further intervention are clear enough to justify consulting on amending the rules at the current time.
1.26 In conclusion, given our existing legislative duties, the purpose of regulation in this area and the evidence gathered as part of this work, we believe that there continues to be a strong case for UK-specific restrictions on advertising minutage, over and above the hourly limit set out at a European level in the AVMS Directive.
1.27 We believe that the interests of consumers are delivered effectively through the rules as currently set out. We have not found or been presented with evidence that suggests a change to the existing rules would necessarily better deliver against these interests and the overall goals of regulation in this area. We therefore do not propose to consult on changes to the rules at the current time.
1.28 This decision is based on our current duties and the existing evidence. It does not preclude Ofcom from reconsidering this issue in the future if, for example, there are changes to the regulatory framework that change the balance between our duties, or we are presented with new evidence that provides greater certainty about the outcome of any changes in the rules.
1.29 In addition, in the context of a new Communications Bill, Government has indicated that it will consider how best to drive the growth of UK content production across all platforms . It is possible that the regulation of advertising minutage could be potentially used as a lever to help incentivise investment in UK content, both generally, and by the public service broadcasters in particular. This is a policy issue for Government to consider as part of its review, but should this lead to changes to the legislative framework for broadcasting in the UK, or to Ofcom's duties in this area, we would then need to consider the issue further.