When more doesn't mean more - Ad minutage rules: a welcome return to evidence-based policy-making

A couple of weeks ago, Ofcom made a decision that will avoid an impact on multichannel broadcasters of anything up to £150m a year, and the wider TV sector several years of disruption.  O&O had carried out independent market analysis to help inform the debate.

The decision relates to the slightly arcane world of advertising regulation – in particular, the number of minutes of advertising a channel is allowed to show each hour.  Currently, the commercial PSB channels – ITV, Channel 4 and Channel 5 – have slightly tighter restrictions on how much advertising they can show.  While every channel can show a maximum of 12 minutes of advertising per hour, the PSBs are restricted to an average of 8 minutes per hour, or a total of 40 minutes, during the five hours of peak time (6pm-11pm).  Through 2023, Ofcom has been consulting on changing this – “levelling up,” to coin a phrase.  Ofcom’s consultation was essentially between its two preferred options of levelling up – neither of which is leaving it as is.  So why did we end up with no change?

Over the last two decades we’ve looked at this issue a number of times.  Each time the result has been the same – no change.  Let’s walk it through one more time.

(One quick note – when adverts are broadcast, the audience they reach are called impacts so one advert reaching a million viewers is a million impacts, and the advertising is priced per impact).

First, let’s start with a few statements of the obvious:

• Increasing minutage will increase advertising impacts (viewing won’t change very much, so the total number of advertising impacts in the market will go up)

• Increasing the supply of impacts will reduce their price (Economics 101)

• Channels that don’t benefit from additional minutage will therefore lose revenue (they will have the same number of adverts and impacts, but their price will have dropped)

• Channels that get more minutes will be selling their impacts at a lower price – this might be positive overall, but depends on the specific levels of demand

So – some channels may benefit, but others will definitely be worse off.  Hopefully, this all makes sense.

Then a couple more less obvious ones:

• The commercial PSBs have other channels – ITVs 2, 3, and 4; E4, More4, 5 Star, etc – that are not subject to tighter restrictions, and therefore would suffer from the same fall in price and revenue

• Commercial PSB channels can already broadcast the maximum of 12 minutes of advertising in any hour – as long as they hit the 8 min average across the five peak time hours

Which means that a PSB might gain on its main channel, but would lose out on its others – and so may be worse off overall.  And, in the highest audience programmes, channels already show the maximum amount of adverts, which means that any change will have a smaller effect than you might expect.

Then the one that isn’t sufficiently discussed. 

The PSBs hit their average peak time limit by showing very few adverts during the news.  This has a number of benefits – firstly it allows minutage to be more lucratively deployed elsewhere in peak time; secondly it avoids issues with advertisers not wanting their ads to be run alongside bad news stories or distressing pictures and, lastly, it gives the news audience a longer show.  (It also means you should be wary of anyone that says news on television is not economic – this may depend on how it’s measured).

But it also means that the minutes available during peak time, where these extra adverts could be shown, are likely to be in those same news hours.  Here’s an example:

And here’s the rub.  Those minutes in the news hours, which could be taken by additional advertising, are currently used to show, well, the news.  Any additional advertising would primarily mean a reduction in the amount of news being shown – a core purpose of the PSB system.  And the change could have been significant; we estimated that this could result in up to 27.5 minutes less peak time news content per day across the PSBs currently showing news in peak.

In summary then, the changes being proposed could have resulted in:

• The commercial PSB channels gaining overall from having more adverts (although with a lower price per impact)

• Other channels (including the PSBs’ own portfolio channels) being worse off

• A net transfer of value from the multichannel sector to the PSBs

• A substantial reduction in the volume of news being shown on television in peak time

In light of this, Ofcom has taken the sensible decision to retain the status quo.

Is there a solution?  We can’t see one, and trust me we’ve looked.  There is no answer that supports the health of all types of broadcaster.  There is very little evidence that “new” money would come in to television, and any change – levelling up, levelling down, meeting in the middle, would result in a transfer of revenue from one part of the sector to another.  Some would gain, but some would lose.  In that case, no change is probably for the best.

We think about tricky conundrums like this every day – if you have one you would like us to contemplate, get in touch with Huw Evans at huw.evans@oando.co.uk.