Outdoor advertising

Start date: 18 May 2010
End date: 3 February 2011

 

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Purpose of the study

We launched this market study into the outdoor advertising sector to consider whether there are any distortions of competition or barriers to entry within the sector. The study was prompted by high concentration at certain levels of the supply chain, in particular at the levels of outdoor media owners and specialist buyers. Concerns had also been raised with us about the contractual linkages and payments between levels of the supply chain and the conduct of some of the players in the industry.

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Findings and outcomes

Specialist buyers receive substantial volume rebate payments from media owners in addition to the commission they receive from advertisers. We found that the large majority of rebates are passed through by specialist buyers to media agencies or directly to advertisers. Some, particularly large, advertisers currently ensure that they receive rebates through contractual terms. Competition between media agencies appears intense. As a result, all advertisers may receive indirect benefit from rebates through lower fees and commissions charged by media agencies.

Nevertheless, we found some potential for rebates to distort how campaigns are booked and increase the prices that advertisers pay. We have concluded that the asymmetry of information between advertisers and the specialist buyers and media agencies can be tackled most effectively by advertisers themselves. Advertisers should engage more directly in the media buying process and seek greater transparency of rebates and of how their campaigns are bought. Advertisers can also negotiate contracts that set out explicitly how rebates are to be treated. We provide guidance for advertisers in Chapter 6 of the market study report.

At the media owner level, the three largest media owners provide around 80 per cent of outdoor advertising space. We found high barriers to entry and expansion that derive in part from contracts between certain large media owners and site owners. Contracts entered into by local authorities for street furniture such as bus shelters, with associated advertising rights, tend to be of long duration, in some cases exceeding 20 years. Many of the contracts that we received contained clauses that may restrict the ability of local authorities to enter into contracts with other media owners. As a result of the study, we have launched an investigation of street furniture contracts entered into by certain media owners with some local authorities under the Competition Act 1998.

We also found that many local authority contracts for small format advertising rights were agreed in the 1990s without a tender process, and appear to represent poor value for some local authorities. Local authorities can take steps themselves to protect their interests. These include using an open, formal tender process to maximise value and, potentially, taking ownership of street furniture so that they can sell the rights to advertise on existing street furniture. We encourage local authorities to ensure that procedures are in place to monitor their current agreements including any tacit renewal clauses. We provide guidance for local authorities in the market study report.

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Actions following the market study

We have launched an investigation into the street furniture contracts entered into by certain media owners with some local authorities. The investigation is at an early stage and no assumption should be made that any of the contracts infringes competition law.

During the course of the study, we considered whether a market investigation reference of the outdoor advertising market to the Competition Commission would be appropriate at this time. While the OFT considered that there may be features of the market that may restrict, prevent or distort competition in the market the OFT provisionally decided that it would not be appropriate to exercise its discretion and refer the market to the Competition Commission.

We consulted on our provisional decision and having carefully considered the consultation responses the OFT remains of the view that a reference to the Competition Commission would not be appropriate at this time.

Download the market investigation reference decision (pdf 217kb).

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Related documents

• OFT1304: Outdoor Advertising - a market study (pdf 890kb)
• OFT publishes outdoor advertising market study (press release 3 February 2011)
• Questions and answers
• Investigation into media owner contracts with UK local authorities for advertising on bus shelters and other street furniture

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Background

• OFT launches market study into outdoor advertising (press release 18 May 2010)

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Contacts

Team leader: John Reynolds (020 7211 8763, john.reynolds@oft.gsi.gov.uk)
Project director: Peter Lukacs (0207 211 8473, peter.lukacs@oft.gsi.gov.uk)
Senior responsible officer: Ali Nikpay (020 7211 8745, ali.nikpay@oft.gsi.gov.uk )

Any media enquiries should be directed to a member of our Press Office.

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