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Abstract: Prices and conditions for the selling of TV-commercials by TV2

21. december 2005

Journal nr. 3/1120-0301-0095/SEK/SCL The Council meeting 21st December 2005

On the 21st of December 2005 the Danish Competition Council con-cluded that TV2/Danmark A/S has abused its dominant position on the market for TV-advertising in Denmark. The case is initiated by a notifi-cation by TV2/Danmark A/S of its rebate system and a complaint sub-mitted by the competing TV-station TV Danmark.

The decision from the Competition Council concludes that parts of TV2’s rebate system constitute infringements of Article 82 of the Treaty and section 11(1) in the Danish Competition Act.

The relevant marked in the current case is defined as the market for TV-advertising in Denmark, which based on turnover represents 1,911 million DKK (i.e. approximately 256.5 million €) in 2004. The state owned national TV-company TV2 has a dominant position on this market with a market share of [xx]% during the period of 2001-2005.

The market shares of the two other players in the market, TV3 and TV Danmark, are [xx]% respectively [xx]% in the same period.

TV-advertisements are sold as exposed viewer contacts. The price for the showing of a given TV-advertisement depends on the number of viewers that is exposed to the advertisement. The number of viewers is expressed as GRP (Gross Rating Point) or TRP (Target Rating Point). 1 GRP equals 1% of the entire TV-viewing population, whereas 1 TRP equals 1% of a given target group.

Because of TV2’s penetration of nearly 100% and large share of the viewing audience, advertisers who wish to run national TV-advertisement campaigns with a high reach need to place most of their TV-advertisement campaign budget with TV2. In effect, competition on the TV- advertising market mainly takes place with regards to the mar-ginal part of advertisers TV-advertisement budgets.

Almost all advertisers that advertise on TV2 enter into annual agree-ments with TV2, in which the advertisers expected annual TV-advertising budget placed with TV2 is laid down. In connection to the annual agreement TV2 offers advertisers an annual rebate, the size of which depends on the advertiser’s annual budget. TV2’s annual rebate is a progressive retroactive rebate with several volume thresholds. The per-centage ranges from 4.7% to 19.7%.

Unlike other markets, the market for TV-advertising is characterized by the fact that the marginal utility of additional showings of a given TV-advertisements is decreasing. Large advertisers will therefore almost al-ways choose to allocate their TV-advertisement campaign budget to more than one TV-station.

Nevertheless, the effect of TV2’s annual rebate is that TV2 can charge a high price on the first part of an advertiser’s annual budget and a low price on the marginal part of an advertiser’s budget. Because of TV2’s position on the market and the fact that competition mainly takes place with regards to the allocation of the marginal part of advertisers TV-advertisement campaign budgets, TV2’s annual rebate is capable of hav-ing an exclusionary effect on the market.

Furthermore, TV2 has not substantiated their claim that the annual rebate reflects the lower costs (or increased efficiency) that TV2 faces, when an advertiser’s annual purchase increases.

In order to demonstrate the effect of TV2’s annual rebate on the market, the Danish Competition Authority (DCA) has carried out an economic analysis of the effects. The analysis shows that TV2’s annual rebate has a loyalty-enhancing effect, which in turn generates a foreclosure effect by limiting the ability of rivals to sell to advertisers.

The Competition Council therefore concludes that TV2 has abused its dominant position, cf. Article 82 of the Treaty and Section 11 in the Danish Competition Act by offering loyalty-inducing rebates.

Alongside the annual rebate, TV2 also offers a number of other rebates to advertisers. Almost all of the other rebates intensify the effect of the annual rebate. However, based on an individual assessment of the other rebates, the DCA concludes that the use of these rebates do not constitute an infringement of article 82 of the Treaty subsequent section 11(1) in the Danish Competition Act.

Community dimension
The conducts may affect the intra-Community trade, as the conduct of TV2 may affect trade between member states due to the fact that it may foreclose the market. There is a risk that competitors from other Member States are deterred from entering the Danish market. This assessment is based on the fact that TV2, as the only national TV-station has a penetra-tion of close to 100% and a market share of approximately [x]%

The decision issues an order requiring TV2 to cease its infringements of Article 82 in the Treaty and section 11(1) in the Danish Competition Act by refraining from applying the annual rebate to annual agreements with advertisers.