Irish Competition Authority Decisions

1. Two related agreements involving David Allen Holdings Limited (DAH) and Adsites Limited (Adsites), were notified to the Authority on 30 October 1992, with a request for a certificate or a licence. Under the terms of these agreements, DAH obtained from Adsites an exclusive licence to market and sell in respect of advertising panels owned by Adsites up to 31 December 1994, and an option to purchase such panels from Adsites, at any time up to and including 12 noon on 30 September 1994, provided DAH complied with its obligations under the terms of the licence agreement. The present decision concerns the exclusive licence agreement. The option agreement is the subject of a separate notification (CA/1127/92). The Authority issued a Statement of Objections to the parties in respect of the notified agreements on 13 September 1994 and an Oral Hearing was held on 27 October 1994.

2. The notification concerns a Licence Agreement dated 2 January 1992 between DAH and Adsites. The Licence Agreement grants DAH an exclusive right to market and sell advertising space on the Adsites panels referred to in the agreement up to 31 December 1994.

3. DAH is an English registered company established in 1859 and is part of the Avenir Havas Media Group. DAH has operated through a branch (David Allen) in Ireland since 1859. It is an outdoor advertising contractor and is involved in the business of providing space for use in outdoor advertising. It negotiates a site rental with a property owner, constructs and maintains an advertising structure on the property and rents the space to advertisers in fortnightly units. Up until 1991 outdoor advertising contractors gave exclusive rights to other companies known as poster specialists to perform their sales function and contracted with them rather than with the advertising company. It was claimed that this had the effect of distorting the market as access to particular sites depended on which specialist had exclusive rights. Following the collapse of the largest company in that area, contracts are now made directly with the advertising agency.

4. The Avenir Havas Media Group (AHM), is a Paris based multinational, whose shares are publicly quoted. It is 97% owned by Havas which was established in 1835 and which is now France's largest media and communications group. Havas is also engaged in seven major business areas in France and worldwide, including publishing, tourism and audiovisual. Havas' total revenue in 1992 was FF28 billion. Adsites comprises Adsites Limited, Campaign Poster Sites Limited and Adsites (Northern Ireland) Limited. Adsites is an outdoor advertising company whose registered office is at Lynwood House, Ballinteer Road, Dublin 16.

5. The agreement relates to large panels which are used for poster advertising. There are a large number of alternative media available for firms wishing to advertise their products to consumers. In its submission to the Authority DAH argued that the market could be broken down into two expenditure categories, i.e. traditional forms of media and ´below-the-line' expenditure. Media advertising includes television, radio, press and outdoor advertising. According to DAH, industry estimates indicated that expenditure in this sector in Ireland for 1991 was £170m. ´Below-the-line' activity refers to sponsorships, supermarket tasting and any other activity which does not involve employing a media company. It is difficult to assess the level of expenditure in this area but according to DAH it was in the region of £100m. Table 1 below indicates the level of advertising expenditure in Ireland in 1993. It is based on figures which the Authority has obtained on the national advertising market from Advertising Statistics Ireland Ltd. (ASI), a company which specialises in monitoring the overall advertising market. Their figures are not wholly accurate since their estimates of newspaper advertising in particular are based on the ´rate card' whereas it is widely acknowledged that newspapers regularly give significant discounts from these rates. According to these figures the total expenditure on media advertising in Ireland in 1993 was £235.3m. The national press were estimated to account for 45% of this with television representing a further 31%. Outdoor advertising, including posters, was estimated to account for just 5% of the total.

Media £m % Market Share

National Press 105.9 45

Regional Press 8.1 3

Consumer Press 12.3 5

Television 72.1 31

Radio 22.9 10

Outdoor 12.8 5

Cinema 1.2 1

Total 235.3 100

Source: ASI

6. DAH submitted that the buyers in the market are advertisers and advertising agencies. The method of advertising chosen is influenced by factors such as cost per thousand of audience, size of the audience and the number of times it can be reached, target audience and availability. The sellers in the market are the media owners or advertising contractors.

7. Outdoor or poster advertising can be divided into three different sectors namely roadside, transport and other. Roadside advertising includes posters displayed by the side of the road and in pedestrian areas, while transport posters are those which are displayed on buses, railways and taxis. Posters may also be displayed at airports, sporting events or on vehicles in various locations. Outdoor advertising may also include neon lights and other special structures. The market is geographical and seasonal. Demand for outdoor advertising was highest for sites located in urban areas. The greatest demand occurred in the summer during the long daylight hours, with the six months from October to March accounting for only 30% of annual turnover. This situation is changing as a result of the increasing number of sites which are illuminated.

8. Posters come in various sizes and are attached to structures which are known as panels. This panel is placed, possibly with other panels on a poster site. The main sizes of posters in use are as follows:

(a) 4-sheet (5' X 3'4"). This small sized panel is aimed at pedestrians and is often found in shopping centres.

(b) 6-sheet (1.8m X 1.2m). Often referred to as ´superlites', these are mainly located on bus shelters and are aimed at motorists as well as pedestrians. They are often back-lit to improve night time effect.

(c) 12-sheet (5' X 10')

(d) 16-sheet (10' X 6'8"). These posters are often attached to the sides of buildings.

(e) 32-sheet (10' X 13'4"). Again posters of this size are often attached to the sides of buildings.

(f) 48-sheet (10' X 20'). The predominant large poster size, sited on panels. Such posters are aimed at both motorists and pedestrians.

(g) 64-sheet (10' X 26'8"). This is a variant on the 48-sheet

48 sheet posters account for 40% (approximately) of the total outdoor advertising market. The other most commonly used poster sizes are 4-sheet and superlites.

9. Poster contractors own the panels on which the posters are displayed and have rights to use the sites on which they are displayed. In general the sites are not owned by contractors but are rented from the owner. The advertiser pays the contractor for the use of the panels and also pays the production costs of his poster. Advertising agencies design a campaign to meet the needs and objectives of a particular manufacturer or supplier. Outdoor specialists occupy an intermediate position between the contractor and the advertising agency. They act for advertisers and advertising agencies as planners and/or buyers of poster campaigns. The advertising agency and the outdoor specialist receive their remuneration by way of a commission from the poster contractor.

10. There are three principal ways in which poster panels are booked. A contractor may sell individual panels for a particular advertising campaign, a form of short-term spot selling known as line-by-line sales. Alternatively the contractor may collect a group of panels into 'pre-selected campaigns' or 'packages' for a single period sale. Thirdly, a contractor may accept long term bookings for a panel for at least a year or possibly for an indefinite period.

11. According to DAH two specialist companies operated in the Irish market up until 1991, Outdoor Advertising Services Limited, (OAS) and Poster Management Limited (PML). Their respective market shares were 70% and 30%. The specialists were treated as principals by the outdoor contractors. These specialists negotiated exclusive rights to sell the plant of some of the contractors thus causing distortion in the market as access to sites depended on which specialist was used. In August 1991, OAS went into liquidation. Following the liquidation the poster contractors revised their terms and conditions of trading to establish the advertiser/advertising agency as principal. Payment is now arranged through the advertising agency. According to DAH there are three specialists currently operating within this system, PML, PosterPlan Limited and PosterLink Limited.

12. All of the advertising media may be considered to be substitutes, to some degree, with clients deciding which forum to choose based on cost, audience and product. The extent to which other media are substitutes for roadside posters will vary according to the product being advertised and to the nature of the campaign and over time. In general an advertiser makes use of more than one advertising medium and may use various media to portray different messages or concentrate on particular aspects of a product. In choosing which media to use an advertiser will take into account a broad range of factors. Television advertising, although expensive, is capable of portraying a strong image, reaches a wide audience and has a high impact inside the home. Press advertising includes national newspapers, local and regional newspapers and specialist periodicals. It costs less than television and may be aimed at different population segments or particular groups. Posters are relatively cheap, and large sized panels in particular offer strong visual impact. They may be used close to the point of sale and can be geographically directed. Posters are often used in conjunction with another medium to reinforce the message which the advertiser is trying to portray. To this extent posters should be regarded as complements rather than substitutes to other forms of advertising.

13. Pricing is a significant factor in determining the substitutability of posters by other media. Posters tend to be significantly cheaper than other forms of media advertising. Expenditure on poster advertising also tends to constitute a relatively small proportion of an advertiser's total marketing expenditure. In such circumstances it might be expected that it would require a significant increase in the cost of poster advertising before users would switch to other forms of advertising. Two other factors must also be considered in defining the market. Firstly there are legal restrictions in respect of certain types of advertising in specific media, e.g. tobacco advertising is banned on television. Such restrictions limit the number of alternative outlets available to advertisers of such products. In addition the UK Monopolies and Mergers Commission found that poster advertising appeared to be favoured more by advertisers of particular products. [1] A similar pattern is also true of Ireland with poster advertising more frequently used by some advertisers than others.

14. Within the outdoor advertising medium substitutes also include the size of the poster. There is a degree of overlap between roadside posters of different sizes as well as some complementarity in their use. The value to an advertiser of particular panels depends upon their location as well as other factors such as design features in terms of angle to passing traffic, illumination and the number and size of panels on a site. On balance the Authority believes that the outdoor advertising market does constitute a distinct product market and that larger size posters constitute a distinct market segment within the overall outdoor advertising sector. The arrangements in this notification relate to 48 sheet posters. In their submission DAH indicated the breakdown of 48-sheet panel holdings was as follows:

Table 2: % Distribution of 48 Sheet Advertising Panels

David Allen 1,425 (56%)

Adsites 207 ( 8%)

1,632 64%

MOF Adshel Ltd. 311 12%

Metro Advertising Ltd 176 7%

Computer Advertising Network 278 11%

Summerbrook Ltd. 140 6%

2,537 100%

Source: DAH

15. The operation of the poster market depends on the availability of sites. No advertisement can be displayed without first obtaining planning permission from the local authority. DAH submitted that entry to the market requires that a contractor negotiate for advertising rights with a property owner, obtain planning permission for an advertising display and erect an advertising structure. This would cost £2,000 per 48 sheet site. The planning regulations, which limit the number of new structures that can be erected, significantly constrain the extent to which a new entrant can construct panels or a small firm can expand. The past decade has also seen a shift towards the development of poster networks. The AHM Annual Report for 1991, for example, stated that the development by it of the network concept meant that outdoor advertising had become a powerful new mass medium. The network concept involves thinking ´no longer in terms of single billboards but in terms of sets of billboards which target groups of people.' [2] The Report points out that a poster network was made up of a set of billboards linked by the same marketing idea, with local networks for cities, for urban areas, for regions or even national networks. This tends to imply that effective entry to the market would require a firm to establish a widespread range of poster sites. Technical advances within the industry, the growth of packages by leading firms and other improved services tend to make it more difficult and more expensive for smaller firms to compete.

16. The Licence Agreement gave DAH an exclusive right to market and sell all Adsites 48 sheet advertising panels within the 32 counties of Ireland, in respect of which Adsites was the freehold owner or licensee with the right of outdoor advertising up to 31 December 1994. The agreement applied to a minimum of 262 panel sites, of which 200 are located within the State. Clause 4.2 provided that DAH could compete with Adsites. Clause 5 set out the level of payments to be made by DAH to Adsites. Essentially DAH were to pay Adsites all of the rental revenue less all of the costs involved in selling the advertising and less a 10% commission for DAH, although this commission only applied provided the revenue due to Adsites exceeded the guaranteed minimum specified in the agreement. Clause 8.1 provided that any new panels signed up by Adsites would be treated in the same way as existing Adsites panels. Clause 8.2 provided that if Adsites wished to acquire or develop a new panel, it would notify DAH giving full details including anticipated revenue to be derived from the panel, and that DAH would have the right within 30 days to decline the inclusion of the panel upon giving reasonable grounds in writing. Clause 9 provided that if at any time the agreement was referred to any relevant authority which determined that it was void, it would terminate immediately. Clause 11 provided that either party could terminate the agreement by giving notice in writing in certain circumstances such as the other party being in breach of the agreement or becoming insolvent.

17. DAH argued that the agreements were not anti-competitive since they were for a fixed period with no post-term non-compete restrictions, that although DAH made certain payments the majority of these would be variable, that DAH was not restricted by the agreement, that DAH was required to sell and market the panels on the best terms so therefore it could not but market them in a competitive manner. They also argued that it had only one fixed price, the others being variable, it only limited the marketing of panels for a particular period, that it did not place Adsites at a competitive disadvantage and the agreement did not contain any conditions or provisions which had no commercial usage.

18. DAH submitted that outdoor advertising had experienced decline in relation to other media fora in recent years due to innovations in other media and lack of investment in this area of the market. They stated their intention to concentrate on broadening the base of advertisers using outdoor advertising. They pointed out that the market was subject to variations that arose from such a highly competitive industry. Competition took place at media expenditure level, between owners of different sizes of outdoor advertising sheets and between different owners of 48 sheets and also between transport advertising, press, radio and TV. In order to compete with other media, outdoor advertising had to be able to sell audiences to advertisers/advertising agencies. While other media fora could advise advertisers of viewing figures there were at present, no figures indicating measurement of the outdoor advertising audience. Therefore other forms of advertising had an advantage over outdoor advertising. DAH submitted that the use of Adsites sites and their investment would improve the service available and make it more efficient and competitive, thus increasing the quality of the market and the product available and resulting in benefit to the consumer.

19. DAH submitted that the purpose of the arrangement was to provide a sound commercial base for investment in the medium. The beneficiaries of the arrangement would be users and owners of the medium. Users would have a medium that could compete effectively with other forms of media while owners would benefit when market share for outdoor advertising had been regained. DAH concluded that the arrangements were not regarded as being anti-competitive and would effectively develop outdoor advertising to a higher standard so that it would be in a position to compete with other fora with higher market shares of advertising.

20. The Authority received a submission from an outdoor advertising company [ ] [3], in which they claimed that DAH, by marketing the outdoor sites of Adsites, had achieved control of the 48 sheet market and currently had a 70% market share. They claimed that in addition to Adsites, DAH had also acquired approximately 100 X 48 sheet sites from More O' Ferrall in exchange for regional bus shelter sites and had also acquired Phoenix Poster Sites which had a small number of 48 sheet sites.

21. [ ] argued that DAH's dominance in the market enabled them to dictate prices and availability. It was likely that the cost of advertising would rise and the cost would be passed on to the consumer. In addition it was claimed that DAH were in a position to dictate rents paid to landowners/siteowners thereby ensuring that small contractors were unable to compete on rental offers for sites. It was claimed that this eliminated competition and minimised the income potential of the landlord.

22. The AHM Annual Report states that one of its subsidiaries, Mills and Allen, which operated in the outdoor poster advertising market in the UK, had acquired another firm operating in that market. This acquisition had been investigated by the MMC and had been found likely to operate against the public interest. The MMC Report found that, while outdoor advertising represented only a small proportion of total advertising, it nevertheless constituted a distinct product market. It also found that large outdoor posters constituted a separate market from other forms of outdoor advertising. Although the acquisition would have increased Mills and Allen's share of the market to 33.8 per cent, the MMC found that this was likely to reduce competition and choice of supply in the relevant market and would in time lead to higher prices. While it found that Mills and Allen had introduced improvements to the industry which were beneficial it concluded that there were unlikely to be sufficient benefits from the merger to offset the adverse effects identified and that it would therefore offend against the public interest. An earlier investigation of a previous acquisition by Mills and Allen had reached similar conclusions but had been permitted on condition that Mills and Allen divest itself of a substantial number of panels. [4] The later acquisition would have given it control of these panels.

23. On 13 September 1994 the Authority issued a Statement of Objections to the parties indicating its intention to refuse to issue a certificate or grant a licence on the basis of the information available to it concerning the agreement. DAH submitted that the arrangements were not anti-competitive. They argued that 48 sheet poster panels did not constitute a separate market and that the market was at least that for all outdoor advertising and could be viewed as all forms of media advertising. They also argued that they had not pushed up their advertising prices during the period in which the agreement had operated. Adsites replied indicating that they accepted the Authority's views as set out in the Statement of Objections.

24. An Oral Hearing was held on 27 October 1994. During the course of the hearing DAH conceded that the licence agreement offended against section 4(1).

25. Section 4(1) of the Competition Act states that 'all agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in goods or services in the State or in any part of the State are prohibited and void'.

26. Section 3(1) of the Competition Act defines an undertaking as ´a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.' DAH is a corporate body engaged for gain in the business of providing outdoor advertising space. Adsites is also an outdoor advertising company and is engaged for gain. Therefore, they are both undertakings and the arrangements constituted an agreement between undertakings.

27. The Licence Agreement grants DAH a three year exclusive licence to market and sell Adsites 48 sheet outdoor advertising space. In return DAH pays Adsites all revenue received from renting such sites less all of the costs involved and less a commission for DAH, although the commission is only paid provided Adsites receives a certain guaranteed income. Essentially the agreement involves two competitors deciding to cease competing with one another in respect of a particular product and instead to allow one to have sole responsibility for joint marketing of that product, namely 48 sheet advertising panels. The arrangement applies to 64% or more of the 48 sheet poster advertising market. There is no question, in the Authority's opinion, but that the object and the effect of such an agreement is to prevent, restrict or distort competition within the State. This would apply even if the market were that for all outdoor advertising. Under the agreement Adsites gives DAH exclusive rights to market and sell all advertising space on all of its large poster panel sites within the State in return for a specified schedule of payments. Thus DAH and Adsites, by virtue of this agreement, effectively agree not to compete with one another in the market. Nor can Adsites compete by acquiring new sites, since DAH also has exclusive rights to such sites unless it specifically chooses not to exercise them. The Authority has no doubt therefore that the Licence Agreement is anti-competitive and clearly offends against section 4(1).

28. Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement which offends against Section 4(1) but which, ´having regard to all relevant market conditions, contributes to improving the production of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

(i) impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

(ii) afford undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question.'

29. The Authority does not believe that the notified agreement contributed to improving the production of goods or the provision of services or to promoting technical or economic progress. The parties have offered no convincing arguments to show how the notified agreement would produce such benefits nor that consumers receive any share of these. Since the agreement did not satisfy all the requirements of Section 4(2), no licence may be granted in respect of it.

30. In the Authority's opinion DAH and Adsites are undertakings within the meaning of Section 3(1) of the Competition Act and the notified arrangements constitute an agreement between undertakings. In the Authority's opinion the Licence Agreement dated 2 January 1992, whereby David Allen Holdings Limited is granted an exclusive right to market and sell Adsites Limited advertising panels has both the object and effect of preventing, restricting or distorting competition and consequently offends against Section 4(1). The Authority does not believe that the agreement satisfies the requirements for a licence set out in section 4(2). The Authority therefore refuses to issue a certificate or grant a licence to the Licence Agreement of 2 January 1992 between David Allen Holdings Limited and Adsites Limited (notification no. CA/1128/92), notified on 30 October 1992 under Section 7 of the Competition Act, 1991.

For the Competition Authority

Patrick Massey

Member

21 November 1994