Television broadcasting services: A report on the publicising, in the course of supplying a television broadcasting service, of goods supplied by the broadcaster

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Summary

One of the conclusions of the recent Sadler enquiry into standards of cross-media promotion was that the British Broadcasting Corporation's (BBC's) practice of using its television airtime to publicise its magazines both by trails and by referring to them in programmes had `exceeded by quite a wide margin the extent to which it was proper' for media companies to promote their own or their associates' other media interests. He recommended that consideration should be given to referring these practices to the MMC. This reference followed shortly afterwards (Appendix 1.1).

We were asked to investigate and report on whether a monopoly situation exists in the supply of television broadcasting services in the United Kingdom and, if so, whether in the particular context of broadcasters publicising, during the course of transmission, goods which they or their associates supply, there was any action or omission that operates or may be expected to operate against the public interest. We shall refer to goods supplied by broadcasters or their associates as `reference goods'.

The monopoly situations

We found two monopoly situations: first in favour of the BBC and its subsidiary company, BBC Enterprises Ltd (BBCE), and second in favour of the Independent Television Commission (ITC) and its wholly-owned subsidiary, Channel Four Television Company Ltd (C4). The BBC and the ITC together supply about 95 per cent of television broadcasting services. The ITC's primary role is that of regulator of independent television services but it is by statute also the provider of independent television (ITV) and C4 television broadcasting services until 1 January 1993.

The supply of reference goods

Broadcasters commonly tell viewers about their programme support material such as fact sheets, and other products such as books and magazines, in the course of transmission. These announcements can take the form of moving trails (ie videos, lasting between 10 and 40 seconds), and still trails (ie voice over the end credits of a programme or over a single slide) and mentions in the course of a programme. The BBC is much more active in the publicising of reference goods (other than programme support material), which it supplies through BBCE, than commercial television. It has not been the BBC's practice to charge BBCE for the airtime provided for the promotion of BBCE's goods, and we have valued this at £20 million in 1990/91 and £14 million in 1991/92.

BBCE's turnover from goods amounted to £150 million in the year to 31 March 1991, mainly from magazines (£97 million), and from books, videos, records and tapes (£44 million), and it was nearly all within our terms of reference. The turnover of the ITV companies, C4, S4C and British Sky Broadcasting Ltd (BSkyB) (commercial television) from sales of goods, mainly books and videos, was far less, in aggregate under £3 million in 1991. However, this income arose primarily from royalties which were, apart from some insignificant examples described in Chapter 3, outside our terms of reference, because the goods concerned were not supplied by the television broadcaster or one of its associates but by a third party.

Findings

There is no significant promotion of reference goods on commercial television, and we found no distortion of competition. As far as the BBC is concerned, we found detriments to the public interest arising from the reference practice only in respect of the consumer magazines market. We estimate that BBCE's share of the market is between 7 and 10 per cent, and it has much larger shares in certain of the market sectors: measured by circulation, it has 32 per cent of the specialist television listings magazines sector; 43 per cent of the general gardening magazines sector; and nearly 90 per cent of the dedicated food and cookery magazines sector.

BBCE's magazines in these sectors have been heavily promoted on BBC television, and, although the BBC, having recognised the potential for distortion of competition, has introduced a limit on the number of moving trails, the level of use and the style of trails continues to have a significant and persuasive effect. While it is difficult to maintain a line between the provision of information of use to viewers and persuasion, the BBC's publicity has clear elements of persuasion and `selling'. We believe that such promotion has gone too far. Additionally, BBCE's plans to increase substantially its share and penetration of the consumer magazines market include launching a number of new magazines over the next five years.

We conclude that the BBC's use of free airtime to promote its magazines has distorted competition in the food and cookery market sector, with adverse effects on the public interest. It has also distorted competition in the listings and gardening sectors but there have so far been no such adverse effects. We expect, however, that distortion of competition will continue in these, and arise in other, consumer magazine market sectors, unless suitable constraints are placed on the BBC's publicising its magazines on BBC television. We have identified actual or expected adverse effects on the public interest-increased risk of closure of magazines, discouragement of market entry and a reduction in consumer choice.

There are countervailing benefits: in addition to the function of informing viewers, the BBC sees its consumer magazines as a source of extra funding for investment in programmes. However, we are unable to attach much weight to this consideration. We estimate that, after taking into account our calculation of the value of promotional airtime, the profit contribution from BBCE's magazines would be long deferred, and at best would not be significant in the overall context of programme funding. Nor do we believe that this consideration outweighs the detrimental effects on competition we have mentioned. We accept that the BBC may expand the magazine markets it enters and increase competition and consumer choice in the short run. However, in the longer term, we believe that competition and consumer choice will be reduced.

Recommendations

We believe that moving magazine trails are more open to abuse than still trails, and are more likely to contain elements of persuasion, overt endorsement and selling. We also believe that the provision and monitoring of effective guidelines may prove to be impracticable. In our view, the only certain way to safeguard competition in the various sectors of the consumer magazines market and to remedy the adverse effects we have identified will be to prohibit the use of moving trails to publicise the BBC's magazines on BBC television. We accordingly recommend that the broadcasting of moving trails publicising BBCE's magazines should be prohibited, but that still trails by announcement over the end credits of a programme or over a single slide should be allowed, subject to certain restrictions that would exclude persuasion, endorsement and selling.

As regards in-programme mentions of magazines, we recommend that they too should be prohibited to remedy the adverse effects. We believe that information such as, for example, recipes or other useful material which are in a BBC magazine can be satisfactorily brought to the attention of viewers in a still trail broadcast before or after the relevant programme.

We have noted the BBC's view that restricting its use of trails promoting its magazines to stills would be onerous. We do not agree, but nevertheless welcome the current consultations between the BBC and the ITC about possible joint principles for the trailing of programme related products, although we note that there has not yet been any discussion on prohibiting in-programme mentions. If joint principles are agreed within three months from the date of publication of this report, and the Director General of Fair Trading (DGFT) is satisfied that the implementation of the principles, in a Code of Practice for television broadcasters in the United Kingdom, will remedy the adverse effects we have identified by excluding elements of persuasion, overt endorsement and selling from product trails, and in-programme mentions, we recommend that the implementation of such a Code should be substituted for our recommendations.

Royalty arrangements

As to licensing and royalty arrangements rather than supply by the broadcaster or its associates, we noted that the free publicising of goods marketed under royalty arrangements fall outside our terms of reference. However, in principle, these arrangements have the same effect as the reference practice; they subsidise the promotion of goods in which the broadcaster or programme contractor has a financial interest and from which he gets a financial benefit. We see no indication that they are carried on to an extent which is at present distorting competition. Nevertheless, there is the potential for such distortion if this practice were to be more widely adopted by any broadcaster.

Overview

In our inquiry, we have found adverse effects that concern only the BBC, and then only in sectors of the consumer magazines market. What has emerged more generally, however, is the need for broadcasters to distinguish between the provision of information about products that is useful to viewers but does not attempt to persuade them to make a purchase, and paid-for advertising of products that has a persuasive aim. It is clear to us that this is an issue that is likely to grow in significance as the television broadcasting industry, and its links with other commercial activities such as publishing, become more complex.

We have reached conclusions and recommended remedies to deal with present observed effects of a broadcaster using free airtime to promote its own goods. The potential for abuse is clear and we trust that all present and future providers of television broadcasting services will have regard to our recommendations. No doubt the DGFT and the ITC as well as the BBC will keep a close watch on developments.

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