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Executive Summary

1.1 Ofcom is the independent regulator and competition authority for the UK communications industries. Ofcom undertook this research to develop its understanding of the radio advertising industry and the competitive constraints faced by suppliers of radio advertising airtime. In particular Ofcom was interested in understanding the extent to which pricing in radio advertising markets appears to be affected by other media.

1.2 The Competition Commission last examined the provision of radio advertising in May 2003. Since this time the radio and advertising industry has developed in a number of ways which may have affected the competitive landscape. These developments include:

• a decline in commercial radio advertising revenue;
• the BBC’s increased market share of radio listening;
• the growth in DAB digital radio penetration;
• online and outdoor advertising growth; and
• a decline in press circulation.

This research allows Ofcom to examine the radio advertising industry in the light of these changes.

1.3 Ofcom conducted a survey based programme of qualitative and quantitative research. The research allowed Ofcom to analyse which media appear to impose the strongest competitive constraint on the pricing of radio advertising. In addition, it outlines the drivers of demand for radio advertising, the decision-making process for media purchasing, advertisers’ attitudes towards radio in the context of other media options, and the impact on the demand for radio advertising following an increase in the relative price of radio advertising.

1.4 In its submissions to the OFT in relation to recent radio mergers, Ofcom has defined two separate radio advertising markets; direct and indirect.

• Direct radio advertising occurs where the advertiser purchases airtime by approaching the sales teams at individual radio stations separately.
• Indirect radio advertising occurs where an advertiser uses a media buying agency to manage its purchase of advertising on radio stations via a radio group’s advertising sales house.

In this research the constraints faced by suppliers of direct radio advertising and indirect radio advertising have been assessed separately.

1.5 Findings from the analysis of direct radio advertising include:

• The pricing of direct radio advertising appears to be constrained by press advertising. As a result, a hypothetical monopoly supplier of direct radio advertising would not find it profitable to raise prices by 5-10% for a sustained period of time. This result appears to be robust to a range of sensitivity analyses.
• Evidence suggests that direct radio advertisers perceive radio and press advertising as interchangeable.

1.6 Findings from the analysis of indirect radio advertising include:

• Television, online and press advertising pose the strongest competitive constraints on the pricing of indirect radio advertising.
• An increase in the price of indirect radio advertising would result in media buying agencies moving budgets away from radio to a range of alternative media. These alternative media taken together appear to collectively constrain the pricing of indirect radio advertising. As a result, a hypothetical monopoly supplier of indirect radio advertising would not find it profitable to raise prices by 5-10% for a sustained period of time.
• Media buying agencies appear to have a degree of countervailing buyer power, and therefore, would be likely to try and negotiate down any attempted increase in the price of indirect radio advertising.

1.7 The conclusions of this study are intended to act as a starting point for Ofcom in cases where an understanding of the radio advertising industry and the competitive constraints faced by radio advertising is required. In the context of a complaint, dispute, market review or in providing submissions to the OFT in relation to mergers the precise scope of the relevant product and geographic market would need to be assessed based on the specific circumstances and facts of the particular case in question.

• Radio Advertising Market Research [pdf]
  Full Print Version
• Supporting Document 1 [pdf]
  Market Research Report - Harris Interactive
• Supporting Document 2 [pdf]
  Market Research Report - Human Capital

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