Advertising and promotions

Background

In May 2001, the ITC launched a public consultation on cross-promotion in commercial television, including a set of proposed new rules to regulate this area.  As a result of the responses to this and of the importance of the issues raised, it was thought that, exceptionally, a further round of consultation was warranted.  A revised set of proposed rules was therefore drawn up for a second public consultation.  These proposed rules were presented, along with the main points arising from the initial consultation, with a full explanation of the recommendations on each.

Our overall aim throughout this process has been to achieve a balance between supporting the real benefits for viewers that cross-promotions can bring, especially in the new multi-channel digital environment, and the disbenefits that arise if cross-promotions are excessive, affect editorial integrity by misusing programme time for advertising, or threaten fair and effective competition in the provision of ITC-licensed services and services connected with them.

The second consultation

The second consultation was published in October 2001.  We received 16 responses to the second consultation paper, with contributions from all the key broadcasters, channel providers and industry interest groups.  These responses were, in general, positive and in agreement with the principles motivating the proposed rules.  The main proposals consulted on were:

• ITC licensees may promote programmes or events on their own channels, or promote other channels or services that they provide, outside advertising minutage.
• The ITC should keep a watching brief on the amount of promotion on all ITC-licensed channels, with periodic reviews of its effect on viewer information and competition.
• There should be specific rules applying to analogue terrestrial broadcasters, such that:
  • Promotions of channels by analogue terrestrial broadcasters should not give an excessive amount of airtime to a particular channel, service or suite of channels/services.
  • Analogue terrestrial licensees should not be allowed to promote (as opposed to providing short factual information about) any particular digital platform or platform service provider, outside paid-for advertising minutage.
  • Platform service providers should only be mentioned by name where the programme or channel being promoted is provided on all main platforms.
  • Promotions outside advertising minutage should not include any information on prices of products or services.
• In-programme promotions should provide information likely to be of value to the viewers of the programme containing the promotion, and should not compromise the editorial integrity of the programmes within which they are placed.
• Digital channels which can be shown to have market power in their relevant market will, if requested by a particular distribution platform, be expected to provide a feed clean of interactive icons referring to the interactive service.

Main Competition Issues

The main points of debate arising from the consultation concerned the proposals to limit the promotion by analogue terrestrial broadcasters of digital platforms or platform service providers (for example, the promotion on ITV of ITV Digital).  We outline the arguments made and our conclusions on this point, as well as some more general arguments which arose in the consultation, before setting out the new rules in full.

Promotion of channels, platforms and platform service providers by analogue terrestrial broadcasters

The second consultation paper included analysis and rules on the extent to which analogue terrestrial channels could promote pay-TV channels, platforms and platform service providers.

Firstly, we examined the possibility that promotion of pay-TV channels by those broadcasters could adversely affect competition in the channel market and identified several factors that might give rise to competition concerns.  Secondly, we examined the extent to which analogue terrestrial broadcasters, and particularly ITV, might through cross-promotion, distort competition in the platform services market.

It was put to us by some respondents that there are no competition law grounds upon which ex-ante regulation of cross-promotion can be made.  It was argued, for example, that ITV is not in a dominant position in any of the relevant economic markets, and that even if it were, it is not in a position to lever its market power to distort competition in a related market. Furthermore, it was maintained that existing prohibitions in EC and UK competition law are sufficient to deal with any possible problem of this nature, should one arise.

ITC analysis

We have been explicit throughout this consultation that the proposed rules were written under our competition duty as set out in the Broadcasting Act.  The ITC has previously made clear that, in fulfilling this duty, it would follow the approach of the DGFT and other competition authorities, so far as was practicable.  In this case, we have considered the structure of the market and its inherent competitive pressures to determine the extent to which competition is working less effectively than it would within a truly competitive market.  Our aim has been to assess the need for any ex-ante rules of conduct, rather than to conduct an ex-post competition assessment.

In addressing the first matter of channel cross-promotion, and as set out in the second consultation document, we noted that analogue terrestrial channels have varying but important audience shares in the relevant market^[1] (i.e. multichannel households).  In recommending some modest limitations on the extent to which such promotions could be carried out on Channels 3, 4 and 5, we noted several points.  Firstly, these channels have relatively high audience shares, compared with pay-TV channels (for example, ITV’s share in multichannel households is 20 per cent; Sky One’s is 3.6 per cent).  Secondly, ITV in particular is in a strong position, with a share of peak time viewing in multichannel households of 27.5 per cent^[2].  Thirdly, as promotion is of such importance in launching new channels in pay-TV, especially as the number of such new channels grows over time, the promotional advantages accruing to channels owned by analogue terrestrial broadcasters could represent genuine barriers to entry.

We concluded, therefore, that the audience and coverage positions of the free-to-air analogue terrestrial broadcasters could give any new channels they launched a clear advantage, and that possible competition between these analogue-promoted channels and existing or potential new entrants would be affected if excessive cross-promotion were allowed.  Although we note the arguments presented to us, we regard it as both reasonable and proportionate that indicative limitations (though certainly not any outright ban or even explicit time limit) be placed on the use of such promotions.

On the second matter, the cross-promotion of pay-TV platform service providers, in our view, the market position of ITV (with an average audience share of around 27 per cent in all TV homes over the past year, and 31.5 per cent in terrestrial-only homes^[3]) could give it an unfair advantage in attracting customers to the ITV Digital platform service.  We are concerned that this could distort fair and effective competition in the platform services market.  The relative sizes and positions of the platform service providers in the UK pay-TV market mean that it is important that such distortions be kept to a minimum, in order to maintain a healthy number and variety of competing platform service providers.  We have, therefore, proposed a limited restriction on the way in which non-advertising promotional time can be used, such that platform service providers may not be promoted directly.  Again, all broadcasters remain free to use paid-for advertising time to promote channels, platforms, platform service providers or any other associated service.

In summary, while we have carefully considered the arguments presented to us, we believe that the proposed new rules are entirely proportionate measures in line with our statutory duty to ensure fair and effective competition.  They are intended to facilitate, by ex-ante intervention, the better working of the markets concerned through competition in quality and types of service.

Other issues raised

Several additional points were raised in response to the second consultation:

The proposals were interpreted by some as imposing a bar on analogue terrestrial licensees from promoting generically any digital platform.  We wish to make clear that this is not the ITC’s intention, and that the new rules permit material promoting digital terrestrial television generically to be broadcast outside advertising minutage by analogue terrestrial licensees.

It was suggested that the proposed rule for ITV licensees to be allowed to make non-financial arrangements between themselves for the promotion of ITV network or ITV-branded programmes or channels (footnote 1 in Rule 1) is discriminatory, preferential to ITV licensees and therefore outside the ITC’s powers.  The intention behind this rule is that viewers be provided with a uniformity of promotional information in areas where a particular service is available.  The structure of the ITV network means that, without this provision, ‘ITV services’ cannot be cross-promoted on ITV in some areas where they are available, whereas they can in others. The rule is a measure to deal with a peculiarity of the ITV system and as such is not discriminatory, any more than are the ITV Network Arrangements.

At present, a refusal by any broadcaster to accept advertising of a generic kind from competing broadcasters is likely to be regarded by the ITC as “unreasonable discrimination”.  It was argued that this rule should apply only to broadcasters with market power, since it can only now be insisted upon for competition reasons.  However, the ITC still regards the maximum diffusion of information on pay- and digital television opportunities and options, through the appropriate channels, as of primary importance to the success of digital TV, and views the ‘no unreasonable discrimination’ rule as appropriate for ensuring this.

Other issues

The following issues also arose from the consultation:

• Some respondents commented that the proposed rules were unclear as to whether the previously-existing 20-second limit on cross-promotion in centre breaks would continue to apply only to Channels 3, 4 and 5.  Our final guidelines make clear that this rule applies only to these channels.
• The proposed definition of the relationship required between cross-promoting channels was queried.  The increasing prevalence of joint ventures, particularly in the pay-TV channel market, meant that many new channels would be denied cross-promotion under the proposed rule, which required ‘control’ status according to the Broadcasting Act 1996.  Our final guidelines therefore make it clear that, to be considered as ‘provider’ of another channel or service, a promoting channel must hold or be beneficially entitled to at least 30 per cent of the shares in the promoted channel or service, or possess 30 per cent or more of the voting power in the promoted channel or service.
• Further definition of acceptable ‘related services’, detailed in 3(a), was also requested by some respondents.  With the rapid pace of technological convergence and the associated problems cause by over-specificity, we do not feel that further definition of this term would be helpful.
• It was suggested by some respondents that the explicit ban on including price information in promotions on analogue terrestrial channels would mislead viewers.  However, this exclusion was specifically inserted in the proposed rules in order to ensure the demarcation of promotions for information purposes from advertising, and we are not persuaded that it should be changed.
• It was suggested by some that there needs to be further clarification of what is meant by an ‘excessive’ amount of promotion, as included in Proposed Rule 3(a).  However, since public feeling and general industry opinion are the best indicators of whether or not levels of promotion are excessive, and since these tend to change over time, we believe that the ITC should respond to feedback, surveys and complaints which indicate significant changes in opinion, rather than adopt an inflexible definition.
• Proposed Rule 6 caused some confusion during consultation.  It was unclear to some respondents whether the rule should have referred to section 8.1 or 8.4 of the Programme Code when discussing the use of relevant taped material during programme time.  Section 8.4 is the appropriate part of the Code.
• It was suggested by one organisation that cross-promotion should be limited to one mention per programme or break of each programme or service being promoted.  Given the other provisions we have proposed for analogue terrestrial licensees, we would regard such a rule as adding little whilst imposing significant further monitoring duties.
• It was argued by some that the scheduling problems, cited by other broadcasters as a reason for rescinding the proposed 90-second limit on cross-promotions during peak hours, could be avoided by making the requirement an average over a longer period, and that the rule could still be used effectively.  We believe, however, that sufficient limitations are already imposed and that commercial pressures and public service obligations provide additional limitations to the amount of cross-promotion which can be undertaken.  In addition to this, the benefit from the certainty of such a limit would have to be weighed against the significant increase in monitoring which could arise from its imposition.
• One respondent regarded the proposed rule on ‘feeds clean of interactive icons’ as misguided in addressing competition issues, since it was contended that excessive on-screen and voiceover references to interactive features would remain.  We consider, however, that the rules on in-programme cross-promotions provide for ‘excessive ‘ promotion of this sort, and that, in any case, imposing rules on the use of occasional on-screen and commentator references to inform viewers would impose significant technical problems on broadcasters, when the issue of ‘viewer confusion’ is better dealt with by our new rule.
• Some respondents cautioned against too liberal an interpretation of the ‘related services’ that could be cross-promoted by licensees, as this could give multi-media broadcasters too much scope to promote all of their other communications interests.  We will monitor developments over time in response to this concern.

The new rules

The ITC’s new rules on promotions are set out in full below, and will come into effect on January 11, 2002. They replace all existing rules and guidelines on promotions and cross-promotions.

The promotion of programmes, channels and Related services on commercial television

Principles

The overall aims of the new rules on programme, channel and related service promotion are to reach a balanced outcome allowing benefits to be gained, while minimising the potential disbenefits.  Benefits include:

• Information to viewers about programmes and related services likely to be of interest to them; and
• Increased understanding about digital television, and progress towards digital switchover.

The disbenefits could include:

• Irritation among viewers about the amount and nature of promotions;
• The impact on editorial integrity  if informative promotions included within programmes become advertising; and
• Competition concerns, if promotions are used as advertising for channels or platform service providers in a way that might threaten competition.

In short, promotions should be designed to give viewers information about programmes and services likely to be of particular interest to those watching at the time and should not become advertisements, or threaten fair and effective competition in the provision of licensed services and services connected with them.

Rules

ITC licensees may, outside advertising time, and subject to the following rules,

• promote programmes, events and strands being shown by that licensee, and
• make reference to any other channel or related service (such as a website) that they provide.

Promotions outside advertising time should provide information of value to viewers and should avoid creating significant viewer annoyance.  The amount of promotion on all ITC-licensed channels will be periodically reviewed by the ITC, such reviews being informed by surveys of viewer attitudes and an assessment of the extent to which such promotions might affect competition in the relevant television market.

To promote fair and effective competition while ensuring continuing informational benefits for viewers, there will be special restrictions for Channel 3 licensees, Channel 4 and Channel 5:

• Promotions for other channels and related services provided by these licensees, such as websites, are permitted, but must not give an excessive amount of airtime to a particular channel, service, or suite of channels/services.
• Specific promotions for any particular platform service provider, including ITV Digital, will not be permitted, outside of paid for advertising minutage, although generic promotions for digital television are allowed
• Short, factual, generic mentions of the platform on which a promoted channel or service can be found will be permitted (e.g., DTT, DSat, Cable).
• If a programme or service is carried on all main platforms, platform service providers can be mentioned by name (e.g. Sky, ITV Digital, Telewest etc) providing such mentions are of a factual nature and are non-discriminatory (i.e. all main service providers carrying the programme or service must be mentioned).
• Licensees may broadcast outside advertising minutage material promoting digital television generically, i.e. without favouring particular service operators.
• Promotions outside advertising minutage may not include any information on prices of products or services.
• These rules remain subject to the existing restriction for Channels 3, 4 and 5 that promotional material shown in centre breaks must not exceed 20 seconds per break.

Channel 3 licensees will be allowed to make non-financial arrangements for the promotion on the ITV network of ‘ITV-branded’ programmes, channels and related services in ITV regions where such services are available.

The primary place for cross-promotions and other promotions is within promotional airtime and not programmes.  In-programme promotions should not compromise the editorial integrity of the programmes within which they are placed by any means, or lead to advertising substituting for programme content.  In-programme mention of other programmes or services:

• must provide information likely to be of value to the viewers of the programme containing the promotion,
• must not constitute a call to make a specific purchase.

Where it is of general interest to viewers and consistent with the style of the programme, it will be acceptable for programmes to contain:

• Short factual references to forthcoming programmes/content of obvious interest on the same channel or other channels (e.g. it would be acceptable for one sport programme to be promoted on another).
• Mentions of and visual references to interactive features which might enhance viewer enjoyment of the current and upcoming programmes on the same or related channels.
• Editorial features about forthcoming programmes on the same or related channels, which are of value to viewers in their own right.

Additionally, certain multi-item programmes of more than one hour’s duration (including sport, provided the action is not interrupted) may include taped material that is relevant to the subject matter of the programme.

NB Material allowed for in this section will not be deemed to be in breach of Section 8.4 of the ITC Programme Code.

Programme end-credits will not be defined as falling within the definition of in-programme time for the purposes of these rules.

Guidance

Special guidance for digital channels
Digital channels which can be shown to have market power in their relevant market will, if requested by a particular distribution platform, be expected to provide a feed clean of interactive icons referring to the interactive service, if that interactive service is not available on the platform concerned.  It is not intended that this rule will supersede the existing BSkyB undertaking to the OFT on this subject.

Definitions

To be considered as ‘provider’ of another channel or service, a promoting channel must hold or be beneficially entitled to at least 30 per cent of the shares in the promoted channel or service, or possess 30 per cent or more of the voting power in the promoted channel or service.

Since the public view and general industry opinion are the best indicators of whether or not levels of promotion are ‘excessive’, and since these tend to change over time, no further definition of this term is believed to be useful at the current time.  The ITC will monitor and respond to feedback, surveys and complaints which indicate significant changes in these opinions.

[1]ITV, Channel 4 and Channel 5 had shares of 20%, 6.8% and 4.5% respectively of audiences in multichannel homes at the end of November 2001.  ITC figures.
[2]ITC figures.
[3] ITC figures.  Terrestrial-only figure averaged from May to October 2001