Download - Paying for Public Service: Advertising revenue in a competitive market Jamie Cowling June 2003
Paying for Public Service: Paying for Public Service: Advertising revenue in a Advertising revenue in a
competitive marketcompetitive market
Jamie CowlingJamie Cowling
June 2003June 2003
Historical Bargain: Rights and Historical Bargain: Rights and ResponsibilitiesResponsibilities
• 1955-1956 – ITV1955-1956 – ITVFor-profit network granted an advertising For-profit network granted an advertising monopoly in return for public service obligations.monopoly in return for public service obligations.
• 1982 – Channel 41982 – Channel 4not-for-profit public service broadcaster.not-for-profit public service broadcaster.
• 1990 – Commercial competition begins1990 – Commercial competition begins• 1996 – Channel 51996 – Channel 5
Second for-profit commercial public service Second for-profit commercial public service broadcaster, some positive content obligations.broadcaster, some positive content obligations.
A plurality of public service?A plurality of public service?
• Assumption has been that public service Assumption has been that public service content is a cost on for-profit broadcasterscontent is a cost on for-profit broadcasters
• Has increased competition meant that the Has increased competition meant that the historical bargain is breaking down?historical bargain is breaking down?
• Assuming Government want a plurality of Assuming Government want a plurality of public service content providers how best public service content providers how best should this be achieved in the future?should this be achieved in the future?
ITV Share of Total Audience All Homes ITV Share of Total Audience All Homes against Share of Net. TV Advertising against Share of Net. TV Advertising
RevenueRevenue Source: BARB; OMD UKSource: BARB; OMD UK
ITV (+ GMTV) - Share of Total Audience Against Share of Net. Advertising Revenue
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
1996 1997 1998 1999 2000 2001 2002Date
Shar
e of
tota
l net
ad
reve
nue
(%)
0
5
10
15
20
25
30
35
40
shar
e of
tota
l aud
ienc
e al
l ho
mes
(%)
ITV (+ GMTV)Share ofrevenue
ITV (+ GMTV)Share of totalaudience
Channel 4 Share of Total Audience All Channel 4 Share of Total Audience All Homes against Share of Net. TV Homes against Share of Net. TV
Advertising RevenueAdvertising Revenue Source: BARB; OMD UKSource: BARB; OMD UK
Channel 4 - Share of Total Audience Against Share of Total Net. Advertising Revenue
15
16
17
18
19
20
21
22
23
1996 1997 1998 1999 2000 2001 2002Date
Shar
e of
tota
l net
UK
ad
reve
nue
(%)
7
7.5
8
8.5
9
9.5
10
10.5
11
11.5
12
Shar
e of
tota
l aud
ienc
e al
l ho
mes
(%)
CH4 Share ofrevenue
CH4 Share oftotal audience
Five Share of Total Audience All Homes Five Share of Total Audience All Homes against Share of Net. TV Advertising against Share of Net. TV Advertising
RevenueRevenue Source: BARB; OMD UKSource: BARB; OMD UK
Channel 5 - Share of Total Audience Against Share of Total Net. Advertising Revenue
0
1
2
3
4
5
6
7
8
1996 1997 1998 1999 2000 2001 2002date
Shar
e of t
otal
TV
adve
rtisin
g re
veue
(%)
0
1
2
3
4
5
6
7
Shar
e of t
otal
telev
ision
au
dien
ce (%
)
CH5 Share ofrevenue
CH5 Share oftotal audience
All Multi-Channel Share of Total Audience All Multi-Channel Share of Total Audience All Homes against Share of Net. TV All Homes against Share of Net. TV
Advertising RevenueAdvertising Revenue Source: BARB; OMD UK Note: Includes BBC; ITV2; E4 etc.Source: BARB; OMD UK Note: Includes BBC; ITV2; E4 etc.
All Multi-Channel Audience Share vs. Share of total Net.Advertising Revenue
0
2
4
6
8
10
12
14
16
18
1996 1997 1998 1999 2000 2001 2002
Date
Shar
e of t
otal
net.
adve
rtisin
g re
venu
e (%
)
0
5
10
15
20
25
Shar
e of t
otal
audi
ence
all
hom
es (%
) Total Sat Share of revenue
Total Sat Share of total audience
Does declining share mean Does declining share mean declining revenues?declining revenues?
• It is possible that increased supply of It is possible that increased supply of advertising space may stimulate demand for advertising space may stimulate demand for space by lowering barriers to entry and space by lowering barriers to entry and encouraging new market entrants.encouraging new market entrants.
• The ability of a commercial broadcaster to The ability of a commercial broadcaster to deliver on PSB obligations is not deliver on PSB obligations is not immediatelyimmediately linked to share of revenue but linked to share of revenue but to costs of production and total net. revenue.to costs of production and total net. revenue.
Total Real Terms NAR UK Total Real Terms NAR UK 1996 – 2002 1996 – 2002
(£ millions – 2001/2002 Market Prices)(£ millions – 2001/2002 Market Prices)
0
1000
2000
3000
4000
1996 1997 1998 1999 2000 2001 2002
Date
Total UK Real Terms NAR £ millions (2001/2002 Market Prices)
ITV (+ GMTV) – Share of ITV (+ GMTV) – Share of Total Audience all homes Total Audience all homes
against Real Terms NAR against Real Terms NAR Source: BARB; Source: BARB;
OMD UKOMD UK
ITV (+GMTV) - Share of Total Audience against Real Terms NAR (2001/2002 market prices)
15001600170018001900200021002200230024002500
1996 1997 1998 1999 2000 2001 2002
Date
NA
R (£
mill
ions
)
2022242628303234363840
Sh
are
of
To
tal
Au
die
nce
all
ho
mes
(%
)
ITV (+ GMTV)Net ad revenue
ITV (+ GMTV)Share ofaudience
Channel 4 – Share of Total Channel 4 – Share of Total Audience all homes against Audience all homes against Real Terms NAR Real Terms NAR Source: BARB; OMD UKSource: BARB; OMD UK
Channel 4 - Share of Total Audience against Real Terms NAR (2001/2002 Market Prices)
500
520
540
560
580
600
620
640
660
680
1996 1997 1998 1999 2000 2001 2002
Date
NA
R (
£ m
illi
on
s)
56789101112131415
Sh
are
of
To
tal
Au
die
nce
all
ho
mes
(%
)
CH4 Net adrevenue
CH4 Share ofaudience
Five – Share of Total Audience Five – Share of Total Audience all homes against Real Terms all homes against Real Terms
NAR NAR Source: BARB; OMD UKSource: BARB; OMD UK
Five - Share of Total Audience against Real Terms NAR (2001/2002 Market Prices)
0
50
100
150
200
250
1996 1997 1998 1999 2000 2001 2002Date
NA
R (£
mill
ions
)
0
1
2
3
4
5
6
7
Sha
re o
f tot
al
audi
ence
%
CH5 Net adrevenue
CH5 Shareof audience
Total Multi-Channel – Share of Total Multi-Channel – Share of Total Audience all homes against Total Audience all homes against
Real Terms NARReal Terms NAR Source: BARB; OMD UKSource: BARB; OMD UK
Total Multi-Channel - Share of Audience against Real Terms NAR (2001/2002 Market Prices)
0
100
200
300
400
500
600
1996 1997 1998 1999 2000 2001 2002
Date
NA
R (
£ m
illi
on
s)
0
5
10
15
20
25
Sh
are
of
tota
l au
die
nc
e
all
ho
mes
(%
)
Total Sat Net adrevenue
Total Sat Shareof audience
Summary 1Summary 1
• Demand for advertising space on Demand for advertising space on massmass broadcasters broadcasters is closely linked to the state of the wider economy.is closely linked to the state of the wider economy.
• Declining share is important but it is important to Declining share is important but it is important to remember for advertisers this is relative.remember for advertisers this is relative.
• The expansion in supply of advertising space has The expansion in supply of advertising space has increased number of advertisers by lowering barriers increased number of advertisers by lowering barriers to entry thereby enlarging the advertising cake.to entry thereby enlarging the advertising cake.
• Niche services compete with each other for Niche services compete with each other for advertising as much as, if not more than, they advertising as much as, if not more than, they compete with mass broadcasters.compete with mass broadcasters.
Summary 2Summary 2
• IfIf demand will meet supply, where is the demand will meet supply, where is the problem?problem?
• It is possible that a glut may form in a period of It is possible that a glut may form in a period of general economic downturn. This should lead to a general economic downturn. This should lead to a reduction in supply of advertising space.reduction in supply of advertising space.
• However, it is possible that the expansion of However, it is possible that the expansion of supply may lead to a lower advertising price supply may lead to a lower advertising price equilibrium, particularly among channels equilibrium, particularly among channels exhibiting similar characteristics.exhibiting similar characteristics.
Summary 3Summary 3
• There may well exist a tipping point beyond which There may well exist a tipping point beyond which there is no longer a mass audience premium.there is no longer a mass audience premium.
• This, alongside profitability, should be used to This, alongside profitability, should be used to determine how onerous psb obligations should be.determine how onerous psb obligations should be.
• It is possible that in the future with universal It is possible that in the future with universal digital availability another broadcaster may digital availability another broadcaster may consider making the investment necessary to consider making the investment necessary to develop a mass channel. This would seriously develop a mass channel. This would seriously affect the commercial psbs ability to deliver psb affect the commercial psbs ability to deliver psb content.content.
Potential Policy SolutionsPotential Policy Solutions
• Raise and lower psb obligations according to share Raise and lower psb obligations according to share of audience and net revenue. (proportionality)of audience and net revenue. (proportionality)
• Extend psb obligations to any channel reaching Extend psb obligations to any channel reaching the psb threshold. (fair competition)the psb threshold. (fair competition)
• Fund broadcasters so they don’t reach the tipping Fund broadcasters so they don’t reach the tipping point from taxation.point from taxation.
• Establish a psb “pot” available to all channels Establish a psb “pot” available to all channels above the psb threshold and remove psb above the psb threshold and remove psb obligations from commercial public service obligations from commercial public service broadcasters. (fair competition)broadcasters. (fair competition)
Selected BibliographySelected Bibliography• Cottrell A. (1997) ‘Keynes, Ricardo, Malthus & Say’s Law’ Discussion Cottrell A. (1997) ‘Keynes, Ricardo, Malthus & Say’s Law’ Discussion
Paper History of Economics Society Meeting June 1997 CharlestonPaper History of Economics Society Meeting June 1997 Charleston• Erickson G.M. (2003) Erickson G.M. (2003) Dynamic Models of Advertising Competition Dynamic Models of Advertising Competition (2(2ndnd
ed.) Dordrecht: Klumer Academic Publishersed.) Dordrecht: Klumer Academic Publishers• Hendry DF (1992) ‘An Econometric Analysis of TV Advertising in the Hendry DF (1992) ‘An Econometric Analysis of TV Advertising in the
UK’ UK’ Journal of Policy Modeling Journal of Policy Modeling 14(3): 281-31114(3): 281-311• HM Treasury (2003) HM Treasury (2003) GDP Deflators at Market Prices 2001-2002 GDP Deflators at Market Prices 2001-2002
Available: Available: http://www.hm-treasury.gov.uk/economic_data_and_tools/gdp_deflatorshttp://www.hm-treasury.gov.uk/economic_data_and_tools/gdp_deflators/data_gdp_fig.cfm/data_gdp_fig.cfm
• Masih R. (1999) ‘An Empirical Analysis of the Demand for Commercial Masih R. (1999) ‘An Empirical Analysis of the Demand for Commercial Television Advertising’ Television Advertising’ Applied Economics Applied Economics 31(2): 149-16331(2): 149-163
• Nilssen T. & Sorgard L (2000) Nilssen T. & Sorgard L (2000) TV Advertising, Programming TV Advertising, Programming Investments and Product Market Oligopoly Investments and Product Market Oligopoly Discussion Paper 06/00 Discussion Paper 06/00 Norwegian School of EconomicsNorwegian School of Economics
• Richards B., I.MacRury & J. Botterill (2000) Richards B., I.MacRury & J. Botterill (2000) The Dynamics of The Dynamics of Advertising Advertising Amsterdam: HarwoodAmsterdam: Harwood
FTSE 100 against Total UK FTSE 100 against Total UK NARNAR
FTSE 100 against Total Real Term s UK NAR (2001/2002
Market prices)
0
1000
2000
3000
4000
5000
6000
7000
8000
1996 1997 1998 1999 2000 2001 2002Date
FT
SE
10
0 (
fina
l
qu
art
er)
0
500
1000
1500
2000
2500
3000
3500
4000
To
tal U
K N
AR
(£
mill
ion
s)
FTSE 100
Total UK NAR
ITV (+GMTV) Real Terms ITV (+GMTV) Real Terms NAR against FTSE 100 NAR against FTSE 100 Source: OMD UK; Source: OMD UK;
Financial TimesFinancial Times
ITV (+GMTV) Real Terms NAR (£ millions - 2001/2002 Market Prices) against FTSE 100
500
1000
1500
2000
2500
1996 1997 1998 1999 2000 2001 2002Date
NA
R IT
V (
+GM
TV
) (£
mill
ion
s)
010002000300040005000600070008000
FT
SE
100
(fi
nal
q
uar
ter
per
an
nu
m)
ITV (+GMTV)FTSE 100
Channel 4 Real Terms NAR Channel 4 Real Terms NAR against FTSE 100 against FTSE 100 Source: OMD UK; Financial TimesSource: OMD UK; Financial Times
Channel 4 Real Terms NAR (£ millions - 2001/2002 Market Prices) against FTSE 100
500
550
600
650
700
1996199719981999200020012002
Date
NA
R C
han
nel
4
(£ m
illi
on
s)
0
2000
4000
6000
8000
FT
SE
100
(fi
nal
q
uar
ter
per
an
nu
m)
C4
FTSE 100
Five Real Terms NAR against Five Real Terms NAR against FTSE 100 FTSE 100 Source: OMD UK; Financial TimesSource: OMD UK; Financial Times
Five Real Terms NAR (£ millions - 2001/2002 Market Prices) against FTSE 100
0
50
100
150
200
250
1996 1997 1998 1999 2000 2001 2002Date
Fiv
e N
AR
(£
mill
ion
s)
0
10002000
30004000
5000
60007000
8000
FT
SE
100
(fi
nal
q
uar
ter
per
an
nu
m)
C5
FTSE100
Total Multi-Channel Real Total Multi-Channel Real Terms NAR against FTSE 100 Terms NAR against FTSE 100
Source: OMD UK; Financial TimesSource: OMD UK; Financial Times
Total Multi-Channel Real Terms NAR (£ millions - 2001/2002 Market Prices) against FTSE 100
100150200250300350400450500550
1996 1997 1998 1999 2000 2001 2002Date
NA
R T
ota
l Mu
lti-
Ch
ann
el (
£ m
illio
ns)
01000
200030004000
50006000
70008000
FT
SE
100
(fi
nal
q
uar
ter
per
an
nu
m)
Total Multi-ChannelFTSE 100
Forecast Digital Television take-upForecast Digital Television take-up Source: ITCSource: ITC