Ofcom resists review after German ruling

by Emma Barnett, Media Week 04-Dec-07, 10:15

LONDON - Ofcom is ignoring calls for a wide-ranging review of the TV trading market, following a recent ruling by German regulators that key parts of the country's TV ad trading system are illegal.

The UK communications regulator is preparing to launch a review into the contract rights renewal system, which governs how the UK’s biggest commercial broadcaster ITV trades its TV airtime.
But despite the ruling in Germany – Europe’s biggest TV advertising market – Ofcom has no plans to broaden the CRR inquiry.

An Ofcom spokesman said: “No [there are no plans], not at the moment. What we are planning is to take full part in the Office of Fair Trading’s review of ITV’s CRR mechanism – which is expected to start in January 2008.”

The question of whether a full market review is necessary has come to light in the aftermath of events in Germany. In October, the Federal Cartel Office found the two ad sales houses representing RTL Germany and ProSiebanSat.1 Media guilty of abusing their market power and handed out two huge fines.
The Cartel Office objected to the longstanding system – mirrored in the UK – under which media buying agencies agreed to allocate fixed percentages of ad spending to either of the two big sales houses, in return for discounts in the form of cash or free advertising time.
IP Deutschland, the sales house for RTL, was fined ¤96m (£68m) and SevenOne Media, the sales house for ProSiebenSat.1, ¤120m (£85m). Together the two broadcasters account for around 80% of the German TV ad market.
Chris Hayward, head of investment at ZenithOptimedia, said: “I know people in the industry are watching what is happening in Germany with great interest. You can’t afford to be dismissive about it. Their whole trading operation has been shown up.”
He added: “If you are going to have a CRR review, you should balance it with a review of the whole marketplace and these events in Germany should be considered.”
One sales house head suggested the German case added to the momentum that is building for a full market review. He said: “It doesn’t directly impact the UK, but it builds on the momentum growing for a full review. We need this review because TV trading in the UK is built on the status quo. The agencies are motivated by what deals they have done in the past and are obsessed with share – not growing the market.”
A senior source at a British broadcaster added: “A full review would be good to find different ways for the market to trade. Agencies only ever want to drive prices down and often get their clients to spend less money on TV because they can get paid more money elsewhere.”