Opinion of July 22, 2003 on two draft decrees on advertising, sponsorship and teleshopping
Opinion no. 2003-5 of July 22, 2003 on two draft decrees amending decree no. 92-280 of March 27, 1992 establishing the general principles defining the obligations of service editors with regard to advertising, sponsorship and teleshopping.
The French Superior Audiovisual Council (Conseil supérieur de l'audiovisuel) has been asked to give its opinion, in application of article 27 of law no. 86-1067 of September 30, 1986, as amended, on freedom of communication, on two draft decrees amending decree no. 92-280 of March 27, 1992, laying down the general principles defining the obligations of service editors with regard to advertising, sponsorship and teleshopping. After deliberation, the Conseil supérieur de l'audiovisuel notes the Government's concern to develop national advertising regulations.
As a preliminary point, the Conseil recalls that for several years it has been recommending the gradual and concerted opening of sectors prohibited from television advertising by regulation, in order to promote the increase in services distributed by cable or shown by satellite, the rise of local terrestrial television and the deployment of digital terrestrial television.
In its opinion of October 23, 2001 on the draft decree amending the decree of March 27, 1992, the Council suggested that all services, with the exception of national analog terrestrial services, should be able to show advertisements for the press, literary publishing and cinema, and that local terrestrial channels and local cable channels should also be able to show advertisements for the distribution sector.
The imminent launch of digital terrestrial television, the challenges posed by the creation of new local channels, and the growing difficulties faced by theme channels, make it more important than ever to reflect on the economic scope of this reform, which should be implemented according to a timetable and procedures that take into account the new realities of the market.
With this in mind, the French Superior Audiovisual Council has examined the government's plans to open up advertising to the four audiovisual industries concerned. The Conseil's concern is to reconcile the principle of equal treatment of operators, on the one hand, with the challenges of plurality and competition on the television and television advertising markets, on the other, taking into account the characteristics and state of development of the French audiovisual landscape.
The French Superior Audiovisual Council shares the Government's analysis and plans regarding the opening up of the literary publishing sector and the lifting of the ban on the press sector, subject to a few observations.
With regard to the distribution sector, the CSA is also in favor of opening up the sector, but wishes to draw the Government's attention to the major consequences this opening up - envisaged in the very short term by the draft decree - would have for the TV sector, in the particular case of national terrestrial channels shown in analog mode.
The Conseil would like to see all television services, with the exception of national terrestrial hertzian television services broadcasting in analog mode, benefit from the opening of the market as of January 1, 2004. The phase during which it seems desirable to defer advertising on national analog terrestrial television must be sufficiently long to allow the development of audiovisual services which have not yet reached a sufficiently high level to collect advertising revenues to ensure their survival.
If this phase were too short, the main effect of opening up the market would be to strengthen the position of the leaders in commercial television, and in particular that of the dominant player in the television advertising market.
With this in mind, the Council would like to make the following observations.
1. The scope and application of the proposed scheme should be clarified.
In the first place, the total lifting of the ban on the press sector, while satisfactory in principle, is likely to be a source of enforcement difficulties with regard to the provisions of article 14 of the aforementioned law of September 30, 1986, which prohibits political advertising. In particular, the presentation of press titles whose front pages are devoted to political figures, parties or events is likely to give rise to disputes. Furthermore, the titles of newspapers that are independent of the main communications groups will not be able to access expensive television advertising; to safeguard them, the government must implement the appropriate schemes.
Secondly, the wording of article 1 of the draft decree relating to the literary publishing sector authorizes advertising for this sector on the screens of national analog terrestrial television services, which are also distributed by cable or shown by satellite. It would be advisable to clarify the wording of the draft by limiting the opening to "services distributed exclusively by cable or shown by satellite". Furthermore, it would be desirable to extend this opening to local television services and digital terrestrial television services, to the exclusion of national analog terrestrial television services.
Thirdly, the Council takes note of the fact that the regulations concerning the cinema sector have been maintained, and that it remains excluded from advertising screens, with the exception of those programmed in the encrypted slots of cinema services distributed by cable or broadcast by satellite or digital terrestrial hertzian means. It considers it desirable for the economic equilibrium of these channels that advertising for videocassettes and DVDs of cinematographic works should also be permitted in their encrypted slots. As these belong to a specific sector distinct from the cinema sector, they cannot currently be promoted in these slots.
Finally, the scheme for controlled opening of the distribution sector poses difficulties of application, in addition to the question of the rate of opening examined below.
The ban on promotional campaigns on television is justified in that it makes it possible to partially contain the impact of the opening on the most exposed media (radio and regional daily press). Moreover, this ban reflects market constraints, as national television is not a suitable medium for diffusing advertisements for one-off product or service promotions, which are often reserved for a local market.
The French Superior Audiovisual Council points out, however, that its control over the non-promotional nature of advertising messages could prove tricky. Furthermore, the scheme could give rise to simultaneous and coordinated advertising campaigns between television media, promoting the advantages of a brand for certain types of products, and print or radio media announcing promotions on the same products. The French Superior Audiovisual Council notes that there is nothing in the decree to prohibit this type of advertising campaign, which can help maintain the revenues of print and radio media.
Lastly, the Council notes that the Government's proposed wording of the scope of the ban on commercial promotions seems to allow the diffusion of messages announcing prices, provided they are not of an occasional or promotional nature.
2. The economic scope of the proposed opening
The current situation on the television advertising market is characterized by a concentration of advertising revenues on a limited number of media, and by development difficulties for the so-called "complementary" television landscape.
2.1. A major financial challenge for the television sector
The financial impact of the measure is difficult to assess, as it is likely to be gradual and come under the control of many players. There is little doubt, however, that it represents a significant amount of money for television operators, given the scale of advertising investment in distribution.
For example, according to data from the France Pub institute, advertisers in the retail sector invest 403 million euros in national non-television media. Part of this investment is likely to be redeployed for the benefit of national television. If the proportion of this redeployment were, in the long term, to be 35% (i.e., the average share of television in the media expenditure of other sectors), 140 M of annual investment could be redeployed for the benefit of national television (i.e., 5% growth in net television advertising revenues). If this proportion reached 60% (as in some sectors where advertisers prefer television), the gain for television would be 240 M
This range could be increased if part of the investments of local or regional retail advertisers were to be redeployed, or if we were to observe a possible streaming to television of part of the non-media investments of retail advertisers. In the latter case, and according to information gathered by the French Superior Audiovisual Council, this streaming could represent 10 to 20% of advertising investment in flyer publishing and distribution.
2.2. Possible consequences for each category of player
- National terrestrial channels
National terrestrial channels continue to attract the lion's share of TV viewers (90.5% in 2002 - source Médiamétrie 2002, target audience 4 years and over). They benefit from complete territorial coverage and massive household initialization. National terrestrial channels are in a strong position in the advertising market, generating 92% of gross advertising revenues (estimate for 2002 - Secodip basis) and 95% of net revenues (based on channel sales). Among the national channels, it is the two major commercial channels, TF1 and M6, that benefit most from advertising investment: they account for 70% of both gross and net TV channel advertising investment (national channels and so-called supplementary channels), for an audience share of 46% of individuals aged 4 and over, with TF1 capturing 51% of net advertising investment and 32.7% of the audience, and M6 19.2% and 13.2% respectively.
Given their mass-media character, and the preference of mass-market advertisers for leading media, there is little doubt that advertising investment redeployed to TV after 2006 will be captured mainly by national terrestrial channels.
An analysis of the last significant development in the diffusion regime for TV advertising (a reduction from 12 to 8 minutes per hour on France Télévision in 2000 and 2001) shows that only the major commercial TV channels were able to take advantage of this relaxation. The reduction in the diffusion time of advertising on France Télévision resulted in massive advertising investment being transferred to TF1 and M6.
Similarly, the opening up of the distribution sector should primarily benefit TF1 and M6, probably at least in proportion to their current market shares (70%), thus strengthening the imbalance in the breakdown of the advertising market.
In addition, given the likely congestion of advertising screens due to the arrival of advertisers from the mass retail sector, it is to be feared that the advertising agencies of the major channels will significantly increase their rates. This likely inflationary dynamic represents an additional risk of strengthening the strong positions of these major chains and the dominant position of the leading chain.
In addition, the rising cost of TV advertising screens is likely to encourage economic players (broadcasters and advertisers) to put pressure on the authorities to increase the authorized duration of broadcasting and to authorize a second advertising break for works shown on private channels.
In this respect, the Conseil has reservations about any measure aimed at increasing the authorized volume of advertising space, which would be detrimental to viewers' listening comfort. Such a measure would also have the effect of further reducing advertising revenues for print media and radio stations, whose situation will already be affected by the reform submitted to the Council.
- Local TV channels
The development of local terrestrial television channels - of which there are currently only eight in mainland France, five of which cover major conurbations - is a priority for the French Superior Audiovisual Council, and one that has been affirmed on several occasions. Unfortunately, their economic viability is not yet assured. Providing these editors with access to advertising in favor of the distribution sector, which the Conseil has repeatedly summoned, is one of the measures likely to increase the resources of these services. The Board is therefore obviously in favor of such a measure in principle.
However, an even more fundamental condition for the long-term equilibrium of local television is the development of a network of fifteen or so stations working together to market their advertising space to national advertisers. With this in mind, the French Superior Audiovisual Council is launching calls for applications for the creation of new local TV channels (future local TV stations in Lille, Marseille, Montpellier, Nîmes, Orléans, Tours, Angers, Le Mans and Grenoble will join those already in operation in Lyon, Toulouse, Bordeaux, Clermont-Ferrand and Troyes, and the one in Nantes currently in the process of being authorized).
But the question of local services' access to advertising for distribution cannot be considered independently of the reality of bidding schedules.
Given the usual length of tender proceedings, it is unlikely that these new local TV channels will see the light of day before the end of 2004, at the earliest. The theoretical two-year time-lag made provision for local TV channels will thus be reduced to less than a year for these new services, which are expected to account for the largest share of the network. The real extent of this "advantage" is even less if we consider the average ramp-up time for this type of service - which comes under the control of the speed with which viewers adapt their reception equipment to receive the new channel - as it is never less than three years.
As a result, the two-year "window" provided by the draft decree for the benefit of local television stations in particular, before the general opening up of the distribution sector, appears far too short. To be truly effective, this time lag should be extended to four years.
This window of opportunity is likely to be even shorter, as there is a real risk that the implementation of this network will be significantly delayed. Indeed, the Government's proposed amendment to legislation, aimed in particular at improving the legal status of local television stations, to the point of conferring on this service category the status of "most favored audiovisual medium" - in the words of the report submitted by Mr. Michel Boyon to the Prime Minister - while laudable in its intentions, is likely to introduce major disruptions into the timetable envisaged by the Conseil.
Indeed, if the Conseil had to wait for the new legislative and regulatory framework to be put in place before launching new calls for applications, it is likely that no new stations could be launched before mid-2005 at the earliest. To avoid disrupting the momentum that is currently building in favor of the development of local television, it is highly desirable that regulatory or possibly legislative measures be studied very quickly, to enable the effective launch of new calls for applications as early as autumn 2003, and their processing during the first quarter of 2004.
Two accompanying measures, proposed by Mr. Michel Boyon in his complementary report on digital terrestrial television, could be taken in favor of local television stations:
- The current rate of tax on advertising messages has the effect of imposing a much heavier proportional tax on local TV channels than on major national channels. Proportional taxation or exemption below certain amounts should be considered;
- The contribution to the support fund for radio expression could be waived for newly-created television channels for a certain period.
- Cable and satellite channels
Cable and satellite channels (numbering around 100) reach on average ten times fewer households than national terrestrial channels. To date, only two complementary channels have reached more than 5 million households. Cable and satellite channels account for a growing share of household TV consumption (Médiamétrie's Médiamat "other TV" item, i.e. TV channels other than national terrestrial channels, represented 9.5% of the total TV audience in 2002). However, they still struggle to represent a significant advertising outlet: they only collect around 5% of net television advertising revenues (8% of gross advertising revenues). Cumulative losses for channels reporting to the French Superior Audiovisual Council (78 channels) amounted to 117 million euros in 2001, on sales of 848.7 million. The combination of a difficult advertising environment and a sharp drop in the average licence fee per subscriber is putting many of these channels in difficulty.
The difficulties faced by cable and satellite channels will be compounded for those that have not been selected for digital terrestrial television.
In a context where cable and satellite channels are struggling to gain access to the advertising market, the Government is proposing to protect these channels for two years from competition from national analog terrestrial channels for access to advertising investment from national retail advertisers.
The French Superior Audiovisual Council considers this period of protection to be insufficient to help cable and satellite channels overcome the difficulties they are currently experiencing. It would also be insufficient to encourage retail advertisers to switch significantly to cable and satellite channels.
- Free-to-air digital terrestrial channels
Digital terrestrial TV channels will be launched by the end of 2004. In line with the provisions of the French law of September 30, 1986, a significant proportion of these channels will be shown free of charge. These will include six private channels selected by the French Superior Audiovisual Council. The increase in television advertising revenues will therefore be crucial in financing these channels.
These channels will experience the same difficulties as the cable and satellite channels described above. What's more, those channels that are to be shown free of charge will have to face stiffer competition for advertising revenue from the incumbent terrestrial channels, which will be doing their utmost to preserve their market. Any measure aimed at increasing the advertising market available to these channels should therefore be supported.
On this point, however, the draft decree is unsatisfactory. In view of the first DTT rollout scheduled for the end of 2004, it limits to one year the period during which DTT channels will benefit from de facto priority access to advertising resources. However, it is doubtful whether, just one year after their launch, digital terrestrial TV channels will represent an attractive outlet for retail advertisers. According to the average hypothesis drawn from the initialization forecasts communicated by publishers to the French Superior Audiovisual Council, fewer than one million households should be able to receive the new DTT channels in the second year after their launch. As of the fourth or fifth year, these channels are expected to be received by three to five million households, making them a significant advertising medium in the eyes of retail advertisers.
- The radio sector
The retail sector accounts for 22% of radio advertising revenues, according to data from the France Pub institute. This figure covers a wide disparity from one station to another. Moreover, two of the top five radio advertisers are retail chains.
The envisaged opening up of the market will probably lead to a redeployment of part of the national campaigns launched by retailers, to the detriment of radio.
However, this medium could play a part in coordinated advertising campaigns, using television to promote a particular brand, and radio, which, thanks to its local presence, could be used to announce the promotional operations of the same brands. Similarly, the retail sector could allocate new "overweight" advertising investments to radio, in order to increase advertising pressure on the commercial targets sought during major national television advertising campaigns.
Nevertheless, the real impact of the planned opening remains difficult to quantify.
In conclusion, the French Superior Audiovisual Council considers that the necessary opening up of the distribution sector to the advertising screens of analog terrestrial TV channels, if it were to take place as early as 2006, could have the effect of decisively strengthening the position of the two players who today capture 70% of the resources of the TV advertising market, and of hindering the development of emerging players: cable and satellite channels, local channels and free-to-air channels on digital terrestrial TV, the only ones likely, in the long term, to develop competition on this market.
The Conseil therefore insists strongly on the need to postpone the opening of this market for national analog terrestrial channels until such time as emerging broadcasters have been able to take their place in this market to the point where their survival is not threatened, thus ensuring the diversity and plurality of the audiovisual landscape.
3. The risk of strengthening imbalances between the public and private sectors
Pursuant to Law no. 2000-719 of August 1, 2000, the French government reduced the maximum duration of advertising allowed on France Télévision from 12 to 10 minutes per hour in 2000, and from 10 to 8 minutes in 2001. This measure resulted in a 33.5% reduction in the length of advertising slots on France 2 and France 3 between 1999 and 2001. The difference in the duration of commercials shown between TF1 and M6 on the one hand, and France 2 and France 3 on the other, has become very marked: 1,579 hours for the two private channels versus 905 hours for the two public channels, in 2002.
While the reduction in advertising time on public channels was approved by the Conseil in its opinion no. 99-5 of December 15, 1999, the fact remains that the widening gap between the revenues of commercial channels and the public sector may marginalize the latter by preventing them from meeting the rising cost of programming.
For this reason, the Conseil considers that if the draft decree opening up the distribution sector were to be published as it stands, it would be incumbent on the Government to rapidly launch a debate on the development of the resources of public channels, examining in particular the possibilities of adopting compensatory measures, thus enabling them to maintain their place in the audiovisual landscape.
4. Possible accompanying measures
As explained above, since the opening up of the distribution sector without exclusivity runs the risk of increasing the imbalance in the breakdown of the advertising market in favor of strengthening the strongest positions, the Conseil recommends extending the transitional period during which national analog channels cannot access distribution investments. This period, set at two years by the draft decree, should be extended to four years, by bringing cable, satellite and digital terrestrial television in line with the notice recommended for local television channels, or - better still - adjusted according to a timeframe to be set in line with the roll-out of digital terrestrial television and the emergence of strengthening competition on the television advertising market.
Furthermore, the Conseil considers that it is important to examine measures now to prevent the negative effects of the proposed opening-up on effective competition in the television advertising market. Given the existing market structures and the risks of undermining competition during the period in which emerging players will not have sufficient access to the advertising market, it would like the government to propose the compensatory measures needed to remedy these risks.
In particular, the foreseeable scale of the new revenues generated by private terrestrial television stations as a result of the opening up of the distribution sector justifies redistributing part of the additional resources generated by the "windfall effect" to promote the development of emerging players, in particular digital terrestrial television and local television stations, during the time needed to rebalance the market.