There is a vicious battle underway between the American digital advertising giants and the United Kingdom’s broadcast media institutions, including ITV, Channel 4 and Sky. Almost all of the growth in paid advertising is now going into the digital channel and the US digital giants are taking well over 90% of that revenue. This should sound an alarm bell for us all: it raises concerns not only around the issue of media plurality but also about much-needed UK tax receipts.
The situation demands an even more creative approach to policy-making beyond the almost apologetic Google Digital Service Tax (DST) recently introduced. This is, in effect, merely an additional pass through levy for UK advertisers (that is UK businesses) because this tax is passed straight through to the advertiser and doesn’t affect Google’s profitability at all.
As we wrestle with the effective government and free market tools which can be deployed to drive economic recovery, we are faced with a sobering reality – whatever an effective stimulus looks like, it won’t be driving job creation in our vital home grown media and advertising industries.
This is a sector that drove over £25bn of UK revenue in 2019, the fourth biggest advertising market in the world. Broadcast media accounted for a mere c. 20% of this against the ongoing march of digital with c. 60%. Much of the latter sits offshore via Google, Facebook, Apple and Amazon. Digital media strategies have, of course, got increasingly more adept at harvesting active and latent consumer purchase intent. It is this ability which is fuelling its exponential growth versus more traditional media platforms – even though it is these latter channels, above all TV, that are doing the heavy lifting by stimulating consumer demand and creating brand awareness. Ironically, the UK’s biggest advertiser in 2020, so far, is Public Health England with at over £45M at the last count. Much of that spend, sadly, going to Silicon Valley.
The current issue of media plurality within the advertising industry is highly contentious. It effectively penalises home advantage in favour of a so-called “level playing field” that is increasingly governed offshore and is digital.
Take our largest and oldest commercial TV broadcaster – ITV. It had anything but a happy 65th birthday celebration this September as it nursed a full year revenue deficit of over £150m vs 2019 and a share price that has lost 80% of its value since 2015, despite the fact that its viewership has held steady over the same period.
The quasi-public, privately-financed Channel 4’s revenue status is even more precarious in 2020, although the channel is getting infinitely more creative in a way that calls into question its public ownership. Channel 4 is now getting into the venture capital space by taking equity in private companies in return for advertising inventory.
It is time, too, to highlight the ongoing debate about the funding of the BBC and consider whether now is the time to test opening up some of its highly valuable real estate to commercial endeavour. It is also worth recalling the government and Competition Commission’s disastrous decision to block Project Kangaroo in 2009. Created by ITV, BBC and Channel 4, this would have been the UK’s response to the threat of Netflix. Today, Netflix is a $200bn behemoth competing against UK broadcasters who have a tiny fraction of the company’s budget. It was another example of the government ruling “in the interests of plurality” when in fact it had only cleared the way for an American business to eat all our lunches.
Recent research from Institute Of Practitioners In Advertising (IPA) shows some of the real-world influence traditional media still has. When asked how much trust people have in their media, it was press and radio that showed a strong uptick. National press grew 9% from pre- to post-lockdown, radio was up 6%, and direct mail was up 1%. Meanwhile, TV remained flat and trust in online platforms dropped significantly, with search results and social media down 8% and 13% respectively.
Now, more than ever, the government should be supporting the industry as we look to see our way out of the coronavirus depression. Advertising, but more specifically advertising in non-digital media channels, provides a key factor in our economic recovery.
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As we know, there will be no economic recovery without a rebound in consumer purchasing, and there will be no rebound in such purchasing without advertising investment. The UK’s advertising market represented £25.4 billion of the UK economy in 2019. Deloitte research shows that across Europe €1 invested in advertising produces €7 of GDP. Advertising is essential because it provides consumers with choice and the confidence to make purchases. Advertising platform plurality is therefore well worth protecting, as the various Big Tech antitrust actions in the EU and US are now demonstrating.
There is a potential short-term solution, namely a “Bounce Back Advertising Credit” (BBAC). Government could support and allow companies to benefit from a specific “advertising credit” in order to finance advertising campaigns today that they will pay for in the future, the mechanism for application and qualification mirroring that of the successful Bounce Back Loan Scheme (BBLS). Only advertising spend intended for UK media would benefit from this solution. This growth-igniting scheme would act as an extension of the current BBLS.
The proposed BBAC is consistent with the government’s desire to ensure that economic activity resumes as quickly as possible. A version of it is already live in France to great effect. It would correct the seizure of so much advertising wealth by a minority of overseas companies to the detriment of the plurality of UK media, at a time when we are talking about reinvigorating the economy.
For context, at the time of writing, over £53bn has been loaned to over 1.2 million businesses via BBLS (and its sister schemes, CBILS and CLBILS). It is worth pointing out we now know that a meaningful proportion of the claims for those schemes are fraudulent and the cost is borne by the UK taxpayer. BBAC, in contrast, would put government-backed support to direct use, stimulating GDP and where it can be clearly seen and audited.
Quite simply, advertising is good for Britain. It is an industry where we innovate on a world-beating level, one which employs tens of thousands in a very diverse work force. It contributes significantly to the tax base of our economy as well as to the fabric of our society. It is high time for the government to act to save our ailing advertising industry and preserve the precious plurality of our media. The costs of not doing so would be immeasurably damaging.