An econometric analysis of the TV advertising market: supplementary report

15 September 2011

Ofcom is today publishing a supplementary report on the econometric study of the demand for TV advertising that was published in May 2010.

Supplementary econometric analysis

At the end of 2009 Ofcom commissioned consultants to carry out an econometric study of the demand for TV advertising in the UK. The econometric analysis was intended to provide estimates of the responsiveness of prices (measured in costs per thousand) to changes in the volume of commercial impacts delivered by different broadcasters as a result of any potential changes in the rules on the amount of advertising. The study also explicitly included an analysis of the viewer side of the market i.e. the response of viewers to changes in the amount of television advertising.

This original study was published in May 2010 and at the time Ofcom made it clear that the results of the analysis were intended to be an input into the modelling of different options for any proposed changes to the advertising minutage rules. Thus, the intention was that the econometrics would inform any assessment of the impact of the different options if there was to be a formal review of the rules on the amount of TV advertising.

We invited comments from interested parties, and received two submissions from broadcasters. These made a number of comments both about the conceptual approach that underpinned the econometric analysis and also about the robustness of the econometric analysis that had been carried out. The submissions expressed concern about the suitability of the econometric analysis as a basis for modelling changes to the rules on advertising minutage.

To follow up those comments, we asked the original consultants to explore and assess the validity of these concerns in more detail, and to report their findings. The supplementary report, which we are publishing today for the sake of completeness, makes clear that:

  • a) the econometric framework used by the consultants to analyse changes in the rules on the conceptual approach was valid and was not undermined by the reality of the way in which the price of TV advertising airtime was determined; and
  • b) although econometrics is more concerned with not rejecting rather than proving particular hypotheses, the additional testing set out in the supplementary report supports the assumptions used in the original modelling analysis.

We also note the recommendation in the supplementary report that any remaining uncertainty could be addressed through the use of sensitivity testing of the output of any modelling.

As confirmed earlier this year we are currently considering internally whether there is a case for a move away from the status quo in relation to the current minutage rules. We will take this econometric analysis into account in considering the impact of any changes to the rules on the amount of advertising.

Full Report

An econometric analysis of the TV advertising market: supplementary report (PDF, 1.1 MB)