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DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT B: STRUCTURAL AND COHESION POLICIES

CULTURE AND EDUCATION

Advertising Rules and Their Effects under the New Audiovisual Media Services Directive

STUDY

This document was requested by the European Parliament's Committee on Culture and Education.

AUTHOR Kern European Affairs (KEA)

RESPONSIBLE ADMINISTRATOR Mr Gonçalo Macedo European Parliament B-1047 Brussels E-mail: [email protected]

LINGUISTIC VERSIONS Original: EN. Translations: DE, FR.

ABOUT THE EDITOR To contact the Policy Department or to subscribe to its monthly newsletter please write to: [email protected] Manuscript completed in April 2009 Brussels, © European Parliament, 2009. This document is available on the Internet at: http://www.europarl.europa.eu/studies

DISCLAIMER The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorized, provided the source is acknowledged and the publisher is given prior notice and sent a copy.

DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT B: STRUCTURAL AND COHESION POLICIES

CULTURE AND EDUCATION

Advertising Rules and Their Effects under the New Audiovisual Media Services Directive

STUDY

Abstract This short study conducted by KEA European Affairs for the European Parliament provides an overview of several issues linked to new regulations on advertising and particularly product placement. It assesses the current transposition status of the AVMS Directive in Member States in relation to rules concerning product placement, and provides insight about the possible evolution of the European product placement market. The study also looks into the effects of advertising on children and assesses the probable effectiveness of self-regulation measures (codes of conduct) regarding advertising aimed at children.

IP/B/CULT/FWC/2006_169/Lot3-C1-SC3 PE 419.093

04/2009 EN

Advertising Rules and Their Effects under the New Audiovisual Media Services Directive ______________________________________________________________________________________________

CONTENTS

CONTENTS

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LIST OF ABBREVIATIONS

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LIST OF TABLES

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LIST OF FIGURES

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EXECUTIVE SUMMARY

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1. INTRODUCTION

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2. PRODUCT PLACEMENT

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3. COMMERCIAL COMMUNICATIONS AND CHILDREN

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4. CONCLUSIONS AND RECOMMENDATIONS

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REFERENCES

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ANNEX

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LIST OF ABBREVIATIONS AVMSD Audiovisual Media Services Directive ACT Association of Commercial Televisions in Europe BEUC Europan Consumer’s Association EAO European Audiovisual Observatory EBU European Broadcasting Union EGTA Association of television and radio saleshouses OFCOM Office for Communications UK

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LIST OF TABLES TABLE 1 Definitions of “children” and “minors” among Member States

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TABLE 2 Response rates for consultation regarding AVMSD transposition

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TABLE 3 Transposition of article 3 g of AVMS Directive into national legislation

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TABLE 4 Time spent watching TV in different EU member states

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TABLE 5 Extract from the ICC “Framework for Responsible Food and Beverage Communications”

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LIST OF FIGURES FIGURE 1 Sources of funding of TV industry by country in 2007

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FIGURE 2 Internet advertising spend as a share of total advertising, 2006-2007

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FIGURE 3 Shares of product placement spending in 2004, by type

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FIGURE 4 Daily reach of all television services

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FIGURE 5 Children’s viewing in adult airtime by time of day

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FIGURE 6 TV commercials target range

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EXECUTIVE SUMMARY I.

Introduction

In November 2007 the European Parliament approved the “Audiovisual Media Services (AVMS) Directive”. At a time when European audiovisual markets are subject to important technological transformations and fast evolving consumption patterns this important legislation provides common EU-wide rules for the circulation of audiovisual content. It also provides an important framework for the regulation of advertising and for the first time allows – under certain conditions – product placement as a means of advertising. Member States have until the end of 2009 to transpose the AVMS Directive into their national regulatory frameworks. This short study examines issues related to advertising in the new Directive and, in particular, assesses the role of product placement and the effects of advertising on children in this context. It also provides an overview of the current transposition status in Member States in relation to rules concerning product placement. A brief analysis of trends in advertising markets and a discussion of some issues which may require future investigation provide further necessary background information.

II.

Developments in advertising and product placement

The AVMS Directive defines product placement to be “any form of audiovisual commercial communication consisting of the inclusion of or reference to a product, a service or the trademark thereof so that it is featured within a programme, in return for payment or for similar consideration”. The authors of this study take the view that the potential role of product placement in the EU must be considered in light of key trends in the audiovisual advertising market. Television advertising revenues are stagnating, if not decreasing1, after some years of steady growth. The following factors contribute to this trend or may accelerate it in the future:

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The fragmentation of audiences due to multi-channel viewing and alternative forms of entertainment (online, gaming, mobile communications, etc.) New ad-skipping techniques of digital video recorders or video-on-demand applications The global financial and economic downturn, which results in a decrease in advertising expenditure.

In this context, some stakeholders have considered product placement as a significant additional future revenue stream for European media service providers. The study assesses this potential primarily by looking at evidence from the US2 and by relying on anecdotal evidence collected through interviews3. The baseline findings can be summarised as follows: 1 Girard Laurence, Lauer Stéphane, Le consommateur est en train d’entrer dans l’ère du non, lemonde.fr, accessed on 09.01.09. 2 EU data is not available due to the prohibition of product placement in most Member States until the potential transposition of the directive. 3 A list of interviewees can be found in the appendices.

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Although advertising turnover for product placement is growing at a faster rate than the rest of the industry in the US, it accounts for a relatively modest share of total advertising turnover in television (1.7% in 2007)4. Estimated global revenues of product placement grew by 37.2% to $3.36bn in 2006 and were forecast to grow even further in the years to come5. More recent data presented at the Media Literacy Conference in Prague in March 2009, valued the global product placement market for 2008 at $7bn. The US market’s growth was estimated at 18% for 20096. More detailed recent figures on global, US or European product placement are not yet accessible, so that predictions for the future of product placement are difficult to make. A study by the UK communications regulator OFCOM7 estimates the UK market potential of product placement to be £100m/per annum8. However, in a related public consultation most participants predicted far less turnover (£25-35m9) for the coming years. The uncertainty surrounding forecasts of EU developments of product placement was mirrored in our consultations and must be seen in light of the fact that the AVMS Directive is not yet implemented in most Member States. Product placement is not yet liberalised across the EU and reliable market data will therefore not be available for some years to come.

However, in general, our consultations showed that, although most advertising stakeholders welcome the upcoming liberalisation of product placement, they do not consider it as a major new source of revenue. The potential of product placement to generate new revenues for film and television productions apparently has been overestimated in the past. Rather than replacing traditional advertising methods, the authors of the study would suggest that it will become a rather modest complementary form of advertising. Regarding the future role of product placement in Europe, a number of interesting observations were made in the course of our research which may warrant further investigation:

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There are “natural limits” – product placement is more suitable for certain products than for others and not necessarily considered as “the silver bullet” by advertising stakeholders who are wary of alienating target groups through excessive levels of advertising. The real impacts of product placement on viewers’ behaviour remain elusive as they are more difficult to measure due to a fusion of advertising and editorial content. Some stakeholders argue that product placement will encourage media service providers to commission their own productions, as it constitutes an additional source of revenue. Interestingly, this would imply that product placement may be beneficial to raising European production levels.

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PQ Media, Press release on PQ Media Global Product placement Forecast Series 2006-2010: Country-by-Country Analysis, 2007 accessible on http://www.pqmedia.com/about-press-20070314-gppf.html. 5 PQ Media, Press release on PQ Media Global Product placement Forecast Series 2006-2010: Country-by-Country Analysis, 2007 op.cit. 6

ACT (Association of Commercial Television) figures quoted by Jonathan Davis, UK Film Council, in his Report on Panel 2- Product placement - during the Conference “The responsibility of Content Providers and Users”, Prague 1920 March 2009.

7 Office for communications. 8 Office for communications (OFCOM) Product placement - A consultation on issues related to product placement, 2005. 9 Ibid.

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III. Transposition of the AVMS Directive in Member States It is against this background that Section 2.2 of the study examines the transposition status of the AVMS Directive with regards to the treatment of product placement in EU Member States. In a survey (by phone and an email questionnaire) we asked EU members of the “Standing Committee on Transfrontier Television” of the Council of Europe10 two simple questions: first, if product placement in general would be allowed in the Member State and, if so, under what conditions. Second, if the exception made in article 3g 2(d) – allowing broadcasters not to inform the audience about product placements in bought-in productions – will be used or not. The results of this mini-survey are as follows: most Member States have not yet transposed the Directive (only Romania, France, and the Belgian Flemish Community have done so). For the moment, a majority of Member States intend to authorise product placement as proposed by the Directive. Only the UK has made it clear that it will not authorise product placement. Moreover, to our knowledge, Romania, Latvia, Lithuania, Italy, the Czech Republic, Slovakia, Spain and Sweden will make it possible for broadcasters not to inform the public about product placement in programmes not produced by them, as made possible in article 3g 2(d) of the Directive. As debates concerning the transposition have not yet taken place in most Member States’ parliaments, more specific regulations may still be introduced in some cases. An update of the survey should therefore be conducted in 2010.

IV.

Commercial regulation

communication

targeted

at

children

and

its

Any attempt to regulate the media must be considered in the context of constantly evolving media consumption and usage patterns. Section 3 examines those of children and asks whether self-regulatory approaches to and statutory regulation of advertising, as foreseen in the AVMS Directive, are appropriate. The authors provide evidence that children watch many television programmes that are not specifically aimed at them. As advertising in the EU is regulated by a two-tier system in which general rules apply to all types of advertising and programmes, and additional stricter rules only apply for children’s programmes, children are subject to advertising that is not necessarily suitable for them. In addition, as Member States define “children” in different ways, children’s programmes are often also defined in different ways, so different rules apply to the same age group in different Member States. Article 3e of the AVMS Directive asks governments to encourage providers of media services to develop codes of conduct regarding advertising targeted at children and the European Parliament’s brief asked us to assess the adequacy of the information available regarding such codes and their effectiveness. As with the assessment of the potential role of product placement in the EU, it is too early to give a definite answer to this question. Chapter 3.5 shows that codes of conduct regarding advertising targeted at children are currently elaborated and updated by many players. The main code to be quoted is the “Framework for Responsible Food and Beverage Communications” produced by the International Chamber of

10 The list of the AVMS Committee of the European Commission was not made publicly available.

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Commerce (ICC)11, which adapts its general advertising guidelines to food and beverage marketing communications that may have an impact on children. Our consultations showed that most of the stakeholders agree that codes of conduct can, in general, if well-designed and implemented, be very effective. Yet, the effectiveness of these codes regarding advertising aimed at children remains to be seen once the Directive has been implemented in Member States.

V.

The Effects of Advertising

The study makes considerable efforts to examine children’s viewing habits, discussing the types of programmes that they watch and the times at which they watch them. Based on this assessment, data concerning children’s exposure to advertising, and particularly their exposure to food and drink advertisements, is summarised. It reports that there is a growing consensus that television advertising influences food, beverage and purchase preferences of children aged 2-11 years. Against this background we briefly review research concerning the effects of advertising on children. Such research often follows the line of thought that until a certain age children cannot grasp the persuasive intent of advertising, lack advertising literacy and are therefore particularly susceptible to it.12 Since children are considered to be particularly vulnerable and unable to defend themselves, advertising aimed at children needs to be more cautiously regulated than other forms of advertising. Research by independent bodies such as the Office of Communications (OFCOM) in the UK supports this view on which much of today’s advertising regulation is based. However, the study also makes reference to media effects researchers such as Sonia Livingstone who shows that age is not necessarily the determining factor in understanding advertising. In fact, although it may be a general assumption, there is little evidence that young children are more affected by advertising than adolescents or even adults. Irrespective of age, vulnerability to advertising depends on an individual’s cognitive and social resources and his or her environment. Interestingly, Livingstone claims that recognition of the persuasive intent of advertising does not necessarily shield viewers from its effects13. This, of course, puts many popular assumptions that underlie media regulation and advertising literacy initiatives into question and points toward a more nuanced approach to evaluating the effectiveness of existing regulations.

VI.

Conclusions and Issues for Future Enquiry

Given the early timing of this enquiry in relation to the adoption of the AVMS Directive in Member States and the limited scope of the assignment, the study does not conclude with precise projections concerning the future roll-out of product placement in the EU.

11 See appendices. 12 Livingstone Sonia, Debating children’s susceptibility to persuasion- where does fairness come in? A commentary on the Nairn and Fine versus Ambler debate, International Journal of Advertising, to be published soon. 13 Livingstone Sonia, Debating children’s susceptibility to persuasion- where does fairness come in? A commentary on the Nairn and Fine versus Ambler debate, op.cit.

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Nevertheless it can be said that:

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the impact of product placement on future audiovisual financing may have been overestimated in debates during the run-up of the AVMS Directive.

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product placement is likely to remain a modest source of income for the audiovisual sector. product placement will become a reality on Europe’s television screens and viewers in many countries will not always be informed about its existence in some kinds of programmes.

With regards to the effects of advertising on children, the study concludes that:

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children are increasingly confronted with advertising not aimed at them. a homogeneous implementation of measures to protect children from the effects of advertising cannot take place across the EU for the moment, given the variety of definitions of “children” and “children’s programmes” in EU Member States.

The study also shows that even though there is not yet sufficient evidence of the effectiveness of self-regulation in the advertising industry, codes of conduct in relation to advertising have the potential to be effective. It remains to be seen how the AVMS Directive will impact on the design of such codes of conduct concerning advertising aimed at children. The European Parliament has touched upon a range of topics that deserve more in-depth consideration as audiovisual markets and advertising practices evolve under the impact of the new AVMS Directive. In this context, we conclude with the recommendation that the European Parliament considers the following issues for further investigation and reflection in the coming years:

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Further research concerning recent trends in audiovisual advertising as well as more evidence with regards to the media consumption habits of children and adults on a European level is needed to assess the effectiveness and appropriateness of existing regulation.

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In order to really understand the impacts that product placement has on audiovisual advertising, additional research in the EU may have to be conducted over the next year or two. However, more immediate research results may be obtained by investigating the effects of product placement in Spain and Austria, where it has already been liberalised.

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By the same token, further research concerning the appropriate implementation of media service providers’ codes of conduct with regards to advertising aimed at children may have to be conducted after the implementation of the AVMS Directive. Such research could include an examination of the extension of such practice to programmes that are known to appeal to children despite not being children’s programmes.

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In addition to this, the study suggests that the European Parliament further examines the possibility of launching initiatives related to the development of advertising literacy among children, adolescents and adults (especially teachers and parents) and the networking of Member States’ policymakers responsible for regulating advertising.

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1.

INTRODUCTION

1.1. The assignment KEA European Affairs was commissioned by the European Parliament to undertake a short study on “Advertising rules and their effect under the New Audiovisual Media Services Directive”. The study specifically examines current trends with regards to product placement and provides an overview of the transposition of the Directive in this context. Additionally, the study examines the effects of advertising on children, children’s viewing habits and media services providers’ codes of conducts on advertising aimed at children. It also identifies issues that might require further investigation in the future. The findings of the study are based on a two-pronged methodology comprising desk research and phone interviews with key stakeholders (for a complete list of interviewees see appendices).

1.2. Policy context The Audiovisual Media Services Directive (hereafter AVMS-Directive) introduces a new regulatory framework for audiovisual advertising. In the context of the debate on rising child obesity in Europe on the one hand, and the debate on the future of television financing on the other, several changes to advertising regulation were introduced by the Directive. For example, article 3g gives Member States the possibility to decide whether to allow product placement in certain categories of programming or not. This new provision was considered to be crucial for the development of the advertising market in Europe. The issue of advertising aimed at children in the context of increasing child obesity was also addressed, by including article 3e which encourages the adoption of codes of conduct with regards to food and drink advertising.

1.3. Definitions 1.3.1. Product placement and advertising Advertising includes all “audiovisual commercial communication” as outlined in the AVMS Directive14, such as television advertising, sponsorship and product placement. As outlined in article 1(m) of the Directive, product placement is defined as “any form of audiovisual commercial communication consisting of the inclusion of or reference to a product, a service or the trademark thereof so that it is featured within a programme, in return for payment or for similar consideration”.

14 Directive 2007/65/EC of the European Parliament and of the Council of 11 December 2007 “Audiovisual Media Services” Directive (AVMSD).

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A distinction is drawn between “product placement” and “product integration”. “Product placement” is the integration of a product in the story of a programme, without mentioning the product or praising its characteristics, whereas “product integration” means ”the intervention of any undertaking or body in the plot of a film or fictional programme seeking to promote in particular a product, service or brand”15. This study only considers the case of product placement.

1.3.2. Children and minors As an important part of the study deals with children and minors, it is important to highlight that the definition of children varies from country to country, which has important effects on the homogenous implementation of EU-rules on advertising aimed at children and advertising in children’s programmes. In all Member States definitions of children and minors are based on age. While persons under the age of 18 are considered in all Member States as minors, definitions of children, adolescents or “young persons” vary greatly in the context of television and media. Such definitions can be mostly found within national broadcasting, child protection or child labour regulations16. For example, the Netherlands, Greece, and Sweden consider minors under the age of twelve as children, whereas in Germany and Hungary they are considered children until the age of 14. In the UK, minors remain children until the age of 15, whereas in Romania, Bulgaria, Portugal, Slovenia, Latvia, the Czech Republic and France no specifications can be found in any law concerning the broadcasting or advertising sector. In addition, regulations can have different effects on different target groups in each country: whereas in some countries advertising may not target “children” under 16, in other countries, the restriction applies only to “children” under 12. Therefore, potentially homogeneous regulation of advertising aimed at children across the EU is complicated by differing definitions of “children” across Member States. Furthermore in many countries there is no definition of “children’s programmes” as such, most Member States tacitly assuming that children’s programmes involve content that is specifically designed and targeted at children17. Some Member States do not define “children” separately, making a definition of “children’s programmes” even more difficult. This of course is another obstacle to the homogeneous and precise implementation of any European-wide rules on children and advertising. It is important to acknowledge these differences among Member States as different pieces of research investigating children’s viewing habits often use different definitions of children or 15 European Parliament Ruth Hieronymi, REPORT on the proposal for a directive of the European Parliament and of the Council amending Council Directive 89/552/EEC on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities (COM(2005)0646 – C6-0443/2005 – 2005/0260(COD)), (December 2006) Hieronymi report Amendment 72, article 1 point 2. 16 Our main source concerning this issue is the European Audiovisual Observatory’s report, Regulation on advertising aimed at children – The legal framework provided for by overarching European rules and the laws of 26 European Countries, EAO 2008. 17 Ibid.

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adolescents, making it difficult to compare data. For the purpose of this study we consider children mostly as persons under 18 years to allow us to make some basic comparisons. In individual cases we rely on criteria used in the sources quoted. The following table provides an overview of legislative definitions of children in most of the EU member States, as contained in the EAO study: Table 1: Definitions of “children and minors” among Member States Country Belgium

Bulgaria Czech Republic Denmark

Text

Child defined as :

Civil Code Art.388

Minor :