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 competitive market

  • 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? competitive market

  • 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?


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


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


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


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? Share of Net. TV Advertising Revenue

  • 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 Share of Net. TV Advertising Revenue1996 – 2002 (£ millions – 2001/2002 Market Prices)





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 against Real Terms NAR

  • 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 against Real Terms NAR

  • 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 against Real Terms NAR

  • 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 against Real Terms NAR

  • 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 against Real Terms NAR

  • 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 against Real Terms NAR


Itv gmtv real terms nar against ftse 100 source omd uk financial times
ITV (+GMTV) Real Terms NAR against FTSE 100 against Real Terms NARSource: 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 against Real Terms NARSource: OMD UK; Financial Times


Five real terms nar against ftse 100 source omd uk financial times
Five Real Terms NAR against FTSE 100 against Real Terms NARSource: 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 against Real Terms NARSource: OMD UK; Financial Times


Forecast digital television take up source itc
Forecast Digital Television take-up against Real Terms NARSource: ITC


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