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

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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

    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?

  • 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?

  • 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)


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


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 NARSource: BARB; OMD UK


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

  • 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

  • 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

  • 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

  • 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


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


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


Forecast Digital Television take-upSource: ITC


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