Paying for public service advertising revenue in a competitive market
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Paying for Public Service: Advertising revenue in a competitive market. Jamie Cowling June 2003. Historical Bargain: Rights and Responsibilities. 1955-1956 – ITV For-profit network granted an advertising monopoly in return for public service obligations. 1982 – Channel 4

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Paying for public service advertising revenue in a competitive market

Paying for Public Service: Advertising revenue in a competitive market

Jamie Cowling

June 2003


Historical bargain rights and responsibilities

Historical Bargain: Rights and Responsibilities

  • 1955-1956 – ITV

    For-profit network granted an advertising monopoly in return for public service obligations.

  • 1982 – Channel 4

    not-for-profit public service broadcaster.

  • 1990 – Commercial competition begins

  • 1996 – Channel 5

    Second for-profit commercial public service broadcaster, some positive content obligations.


A plurality of public service

A plurality of public service?

  • Assumption has been that public service content is a cost on for-profit broadcasters

  • Has increased competition meant that the historical bargain is breaking down?

  • Assuming Government want a plurality of public service content providers how best should this be achieved in the future?


Paying for public service advertising revenue in a competitive market

ITV Share of Total Audience All Homes against Share of Net. TV Advertising RevenueSource: BARB; OMD UK


Paying for public service advertising revenue in a competitive market

Channel 4 Share of Total Audience All Homes against Share of Net. TV Advertising RevenueSource: BARB; OMD UK


Paying for public service advertising revenue in a competitive market

Five Share of Total Audience All Homes against Share of Net. TV Advertising RevenueSource: BARB; OMD UK


Paying for public service advertising revenue in a competitive market

All Multi-Channel Share of Total Audience All Homes against Share of Net. TV Advertising RevenueSource: BARB; OMD UK Note: Includes BBC; ITV2; E4 etc.


Does declining share mean declining revenues

Does declining share mean declining revenues?

  • It is possible that increased supply of advertising space may stimulate demand for space by lowering barriers to entry and encouraging new market entrants.

  • The ability of a commercial broadcaster to deliver on PSB obligations is not immediately linked to share of revenue but to costs of production and total net. revenue.


Total real terms nar uk 1996 2002 millions 2001 2002 market prices

Total Real Terms NAR UK 1996 – 2002 (£ millions – 2001/2002 Market Prices)


Itv gmtv share of total audience all homes against real terms nar source barb omd uk

ITV (+ GMTV) – Share of Total Audience all homes against Real Terms NAR Source: BARB; OMD UK


Channel 4 share of total audience all homes against real terms nar source barb omd uk

Channel 4 – Share of Total Audience all homes against Real Terms NAR Source: BARB; OMD UK


Five share of total audience all homes against real terms nar source barb omd uk

Five – Share of Total Audience all homes against Real Terms NAR Source: BARB; OMD UK


Total multi channel share of total audience all homes against real terms nar source barb omd uk

Total Multi-Channel – Share of Total Audience all homes against Real Terms NARSource: BARB; OMD UK


Summary 1

Summary 1

  • Demand for advertising space on mass broadcasters is closely linked to the state of the wider economy.

  • Declining share is important but it is important to remember for advertisers this is relative.

  • The expansion in supply of advertising space has increased number of advertisers by lowering barriers to entry thereby enlarging the advertising cake.

  • Niche services compete with each other for advertising as much as, if not more than, they compete with mass broadcasters.


Summary 2

Summary 2

  • If demand will meet supply, where is the problem?

  • It is possible that a glut may form in a period of general economic downturn. This should lead to a reduction in supply of advertising space.

  • However, it is possible that the expansion of supply may lead to a lower advertising price equilibrium, particularly among channels exhibiting similar characteristics.


Summary 3

Summary 3

  • There may well exist a tipping point beyond which there is no longer a mass audience premium.

  • This, alongside profitability, should be used to determine how onerous psb obligations should be.

  • It is possible that in the future with universal digital availability another broadcaster may consider making the investment necessary to develop a mass channel. This would seriously affect the commercial psbs ability to deliver psb content.


Potential policy solutions

Potential Policy Solutions

  • Raise and lower psb obligations according to share of audience and net revenue. (proportionality)

  • Extend psb obligations to any channel reaching the psb threshold. (fair competition)

  • Fund broadcasters so they don’t reach the tipping point from taxation.

  • Establish a psb “pot” available to all channels above the psb threshold and remove psb obligations from commercial public service broadcasters. (fair competition)


Selected bibliography

Selected Bibliography

  • Cottrell A. (1997) ‘Keynes, Ricardo, Malthus & Say’s Law’ Discussion Paper History of Economics Society Meeting June 1997 Charleston

  • Erickson G.M. (2003) Dynamic Models of Advertising Competition (2nd ed.) Dordrecht: Klumer Academic Publishers

  • Hendry DF (1992) ‘An Econometric Analysis of TV Advertising in the UK’ Journal of Policy Modeling 14(3): 281-311

  • HM Treasury (2003) GDP Deflators at Market Prices 2001-2002 Available: http://www.hm-treasury.gov.uk/economic_data_and_tools/gdp_deflators/data_gdp_fig.cfm

  • Masih R. (1999) ‘An Empirical Analysis of the Demand for Commercial Television Advertising’ Applied Economics 31(2): 149-163

  • Nilssen T. & Sorgard L (2000) TV Advertising, Programming Investments and Product Market Oligopoly Discussion Paper 06/00 Norwegian School of Economics

  • Richards B., I.MacRury & J. Botterill (2000) The Dynamics of Advertising Amsterdam: Harwood


Ftse 100 against total uk nar

FTSE 100 against Total UK NAR


Itv gmtv real terms nar against ftse 100 source omd uk financial times

ITV (+GMTV) Real Terms NAR against FTSE 100 Source: OMD UK; Financial Times


Channel 4 real terms nar against ftse 100 source omd uk financial times

Channel 4 Real Terms NAR against FTSE 100 Source: OMD UK; Financial Times


Five real terms nar against ftse 100 source omd uk financial times

Five Real Terms NAR against FTSE 100 Source: OMD UK; Financial Times


Total multi channel real terms nar against ftse 100 source omd uk financial times

Total Multi-Channel Real Terms NAR against FTSE 100 Source: OMD UK; Financial Times


Forecast digital television take up source itc

Forecast Digital Television take-upSource: ITC


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