Ofcom to investigate UK's £3.5bn TV advertising market

The media watchdog has launched an inquiry into how television advertising is bought and sold in the UK, following concerns that the current system may distort competition.

Ofcom announced yesterday that it was to review the trading mechanism governing the £3.5bn television advertising market and warned it will call in the competition authorities if any issues emerge.

The head of the regulator said the system had caused "perennial anxiety" in the industry. The review will scrutinise the underlying model for buying and selling advertising and "will seek to assess whether the current method prevents, distorts or restricts competition, and whether this has a detrimental affect on consumers".

The results could create a significant change to operations at some of the UK's largest broadcasters including ITV and Channel 4.

Sources close to Ofcom said it hopes to wrap up the review in six months. If Ofcom's study reveals cause for concern it will be passed on to the Competition Commission for a full-scale formal review of the UK's trading model.

Ed Richards, the chief executive of Ofcom, revealed the inquiry at the annual conference of the Incorporated Society of British Advertisers (ISBA) yesterday morning, saying he wanted to find out "whether the advertising market is truly working effectively".

He told those at the event, which was held at Lord's cricket ground: "The significant recovery in the advertising sector means that the industry is now in a much better position for a review of the trading model."

He continued: "We are aware that the way advertising is traded could be constraining or preventing the sector from evolving, as the media market around it is doing so rapidly and significantly."

As well as the trading mechanism, Ofcom will also review the difference in minutes of advertising allowed on commercial broadcasters and public service broadcasters.

The ISBA responded to Ofcom's announcement at its conference today, calling it a "major development in our regulatory landscape and follows widespread and concerted pressure over many years and from many quarters".

The group warned that the issue was "very complex" and would provide a difficult challenge for Ofcom. The ISBA media and advertising director, Bob Wootton, said: "An effective review needs to look at one point in time but the complexity of the issue means this will take much longer than that to complete." The broadcasters said they would wait for more detail over what the review will include before commenting fully.

A spokeswoman for ITV said there was clearly an "urgent need for a reduction in regulation in the fast changing UK advertising market, which is now one of the most competitive in the world for buyers and sellers".

She added that after several reviews into advertising as well as a four year probe into CRR – the contract rights renewal regulation – "we're concerned about the prospect of yet another lengthy review process at a time of such rapid change in the industry."

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