Inquiry on the advertising industry
Introduction
Radiocentre welcomes the opportunity to respond to this inquiry. Radiocentre is a member of the Advertising Association and supports its submission to this inquiry. Our submission focuses specifically on Question 12 and addresses the future of radio advertising.
The advertising industry in the UK contributes significantly to the UK economy, with the Advertising Association stating that advertising generates £120 billion in economic activity through helping businesses to attract customers. The value of advertising on radio to advertisers is estimated at £4.6bn (based on an average return on investment of £7.70 for every £1 spent) in addition to the value to music sales which is estimated at £103m.
The future of advertising in the radio industry is one with great potential and an area we would like to help the Committee address. A future-proof and effective advertising industry is vital to commercial radio, which relies entirely on advertising streams for funding. We believe the current rules governing radio advertisements significantly hinder our industry disproportionately to other media whilst doing little to protect consumers.
About Radiocentre
Radiocentre is the industry body for commercial radio in the UK, representing almost 300 licensed radio stations from national brands like Classic FM, Kiss and Jazz FM, as well as local stations like Heart and many small independent stations.
Commercial radio reaches 36 million listeners each week with a mix of music, news, travel and local information. The sector contributes significantly to the UK economy, supporting over 12,000 jobs and generating over £600 million in revenues each year.
Overview
One of the most important aspects of advertising is consumer protection, with radio listeners deserving to be sufficiently protected and reliably informed by advertisements. Terms & conditions on radio advertisements in the UK are currently damaging the radio advertising industry and failing to protect consumers. Current messages are widely seen as lasting too long, being too complicated and doing little to protect listeners. Recent research, highlighted below, has shown that the majority of listeners believe the messages are there to protect advertisers, not consumers.
One example in particular comes from current EU legislation which requires certain radio advertisements to provide excessively long and complex terms and conditions which are often longer than the original ad. Article 4 of the 2008 EU Consumer Credit Directive requires that standard information be provided in any advertising referring to credit and indicating an interest rate or figure relating to cost of credit to the consumer. As a result it can apply to a range of products, from cars to consumer goods. In the case of radio this standard information results in 12-15 seconds of additional airtime – below is a typical example, lasting roughly 15 seconds:
“Representative Example Cash Price 14,666, finance deposit allowance £2000, cash deposit 988, amount of credit 11,678, total amount payable 16,069, 30 payments of £199, optional final payment. 5.9% Representative APR, finance subject to status, guarantees may be required.”
Impact on the industry
The commercial radio industry supports £683m in gross value added to the UK economy and 12,340 jobs across the country. The value of advertising on radio to advertisers is estimated at £4.6bn (based on an average return on investment of £7.70 for every £1 spent) in addition to the value to music sales which is estimated at £103m.
The long and complex nature of current terms and conditions messaging in financial advertisements drives away potential advertisers and costs the radio industry and advertisers an estimated £120 million a year in lost revenues, of which £70 million is estimated to be as a result of consumer credit regulations.
Rapid developments in digital technology have resulted in a much larger market for advertisers. However, given the nature of audio advertising the current rules disproportionately impact our industry compared to other media. Regulatory changes to ensure a level playing for different media would better protect consumers and directly benefit the economy.
Impact on consumers
Research commissioned by Radiocentre has shown that very few listeners retain the information they hear immediately after listening, resulting in them missing vital pieces of information about cost of credit. Radiocentre is calling for more timely and effective messaging which allows listeners to better retain the information they are provided with and better understand potential risks.
Research carried out by Radiocentre, provided to the Committee alongside this submission, has shown the severe lack of protection this legislation provides to UK consumers. Of particular note, the research showed:
When listeners were provided with a shorter, simpler message noting terms & conditions and directing them to where they can find more information, the recall rate for the information heard was significantly higher.
Progress to date
Radiocentre is currently working to reform the 2008 EU Consumer Credit Directive through the REFIT Platform through which the European Commission, national authorities and wider stakeholders seek to identify where existing regulation can be made more effective and less burdensome.
In 2016, Radiocentre made a submission to REFIT requesting a review of the Consumer Credit Directive, This was supported by similar submissions from the Advertising Association, ISBA, EGTA and AER. The REFIT platform have now published their opinion on our submissions with the stakeholder group and several member states from the stakeholder group supporting a review of Article 4 of the Consumer Credit Directive. We are now waiting for a response from the Commission on actions to be taken.
Separately, recent discussions between the UK Government and the European Commission led to radio advertising being exempt from a new directive on Energy labelling. The group accepted that, in contrast to visual advertisements, audio advertising presents a special case. We welcome this as setting a valuable precedent for other regulation including the CCD.
What we are asking for
We are asking for fair consideration to be given to the radio industry to ensure regulation is both effective and reflects the nature of the medium and the changing digital world. Despite the UK’s decision to leave the European Union, Radiocentre is continuing to work with the EU to better protect UK consumers. Public support from the Government on the radio industry’s campaign in Brussels, as well as better engagement with civil servants and industry will provide our campaign with the added strength to achieve positive reform in the EU and boost the UK’s radio advertising industry.
Moreover, serious consideration is needed from the Government to show our case as a clear opportunity to make regulation more effective and less burdensome as we leave the EU.
23 October 2017
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