UK Advertising in a Digital Age (Communications Committee Report) - Motion to Take Note

Part of the debate – in the House of Lords at 11:52 am on 25th April 2019.

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Photo of Lord Gilbert of Panteg Lord Gilbert of Panteg Chair, Communications Committee 11:52 am, 25th April 2019

My Lords, I am pleased to introduce this debate on the Communications Committee’s report on the advertising industry. The report, which was published nearly a year ago, was the first published by the committee under my chairmanship. I would like to thank the staff for their assistance in preparing the report: Theo Pembroke, our clerk, Niall Stewart, who was then our policy analyst, and Rita Cohen, the committee assistant. I also thank Professor Agnes Nairn of the University of Bristol, who was the specialist adviser for our inquiry. I declare an interest as a freelance consultant to Finsbury, a PR company which is owned by WPP. However, I have no involvement with WPP. I have also received hospitality from ITV at events which it hosted but which were unconnected to the inquiry.

Advertising is an essential driver of growth in the economy. It helps businesses to win customers and to compete with one another. It is fundamental to the media and the creative industries in providing employment and nurturing the talents of creatives, including musicians, filmmakers, graphic designers and writers. Meanwhile, it provides the primary source of funding to most of the media, including radio, the press and television and now a vast quantity of content and services available online.

The UK is very good at advertising. London has become a global centre for it. According to the Advertising Association, the industry’s trade body, the UK now exports £6.9 billion a year in advertising services around the world, representing faster growth than the average for service exports. A large proportion of agencies hire individuals from overseas, giving them better understanding of overseas markets. This gives the industry a highly international character which, in a virtuous circle, makes it a more attractive destination for the most talented individuals from around the world. The success of the industry needs to be recognised and celebrated. Advertising, along with other creative industries, is likely to remain resistant to automation and so become ever more important in the economy of the future.

Given this background, the committee chose the advertising industry as a case study on the impact of education, skills and immigration policies on a key industry in the creative sector. We set out to discover how the advertising sector could be better supported and how individuals from all backgrounds can participate in this exciting and fulfilling work. The industry needs individuals with a blend of arts, digital and other STEM skills. Unfortunately, the education system in England encourages children to specialise at an early age. The drive for schools to do well in performance measures, such as the EBacc and Progress 8, which prioritise core subjects, can deprive children of the broad education that they need to thrive in advertising and the wider creative sector. In our report, we call on the Government to review the skills needed for the future economy. I would be grateful if the Minister could provide an update on this.

The advertising industry needs a diverse workforce that reflects the demographics of the UK. By that, we do not just mean people of different ethnicity and gender but, importantly, also people from different social backgrounds and those with disabilities. This is essential for the reputation and trust of the industry, which are necessary for advertisers to communicate effectively with their audiences. There is a risk that the advertising industry has become the preserve of the middle class. It has already taken steps to improve access and diversity in all its forms, but we recommended that it should now show further leadership in this regard. We argued that it should discontinue informal working and recruitment practices, such as unpaid internships, which present a barrier to those from lower socioeconomic backgrounds.

Better careers advice is needed so that young people from all backgrounds are aware of the opportunities offered by the industry. We recommended that the Government should provide more resources to encourage quality careers advice and should support schools which facilitate interactions between children and advertising employers. The industry should also do more by providing role models and tools to help schools, and by creating stronger initiatives to promote advertising as a career.

Although university is still the main source of workers in the industry, apprenticeships can present an alternative route in. They have the potential to increase the talent pool and diversity of the industry, but many businesses expressed frustration about the Government’s apprenticeship scheme. We heard that the scheme was failing to provide training of an appropriate quality that works for businesses, and that there were delays in approving apprenticeship standards. The Government must ensure that apprenticeships are of a high standard and satisfy the needs of industry.

The advertising industry’s global success relies on its ability to attract and retain international workers, who understand international clients and their audiences. If the tiered visa system is applied to EU workers after we leave the EU, the immigration system will become unmanageable and damage the advertising industry. We recommended that the Government should negotiate reciprocal arrangements with other countries, under which international workers with a job offer in the advertising industry would have the right to work in the UK.

As the inquiry proceeded, it became clear that trust in the industry was severely undermined by digital advertising. Our findings, which I will discuss, led to our subsequent inquiry on regulation in the digital age and our recent report, Regulating in a Digital World. We found that there was an urgent need to update regulation generally for the digital world. The lack of a level playing field has aggravated the decline of high-quality journalism and the regional press, which was the subject of The Cairncross Review. I also welcome the Government’s Online Harms White Paper, which is an important first step in dealing with some of the problems in the digital world and which we will have ample opportunity to debate in this House.

Following year-on-year growth, digital now accounts for more than half of all advertising expenditure in the UK. While this has spurred growth and innovation in the industry, it has also generated complicated business models to make money from the provision of online content and services which are not open to external scrutiny. The market for serving ads on to computer screens as we open a web page is opaque. Users of internet services have their data extracted so that they can be targeted. Recent research commissioned by the Information Commissioner’s Office and Ofcom shows that people have only a limited understanding of how ads are personalised and that people tend to view the personalisation process as unacceptable when they are given more information about it.

At the same time, users find themselves bombarded with “clickbait”. There is a risk that digital advertising will undermine the trust which this industry relies on to be effective. The evidence of Phil Smith, the director-general of the Incorporated Society of British Advertisers, to the committee on Tuesday supported this finding. He told us that public opinion of advertising has been steadily declining because of “bombardment”, which has four aspects: volume, repetition, irrelevance and obtrusiveness.

At the other end of the value chain, the lack of transparency in the digital ad market means that advertisers who pay for advertising cannot see where their ads are being delivered or whether they get value for money. Fraud is rife. While it is difficult to judge exactly how much fraud there is, according to one estimate more than $16 billion was stolen globally in 2017.

“Ad misplacement” was another problem that we identified. This is where advertising is displayed next to inappropriate or illegal content, damaging the reputation of the advertiser and helping to fund illegal content. We recommended that the industry take greater steps to regulate itself through independent bodies such as the Joint Industry Committee for Web Standards, known as JICWEBS. We encouraged Google and Facebook, the largest companies, to sign up. I am pleased that it appears that the industry has taken some steps to improve. The Internet Advertising Bureau says that the number of organisations participating in JICWEBS has doubled in the past year and that accredited companies must have a responsible officer to ensure compliance. I understand that Google is now fully certified with JICWEBS and that Facebook is registered and undergoing its audit process to become fully certified. However, there are indications that the scale of fraud remains overwhelming. What steps are the Government taking to address this?

Although the digital ad market comprises thousands of companies acting in different ways, it is dominated by just two companies, Google and Facebook, which together account for more than half of all digital ad expenditure. While these companies maintain that the market is competitive and that they do not abuse their position, the opacity of the market makes it hard to see what is really going on.

We recommended that the Competition and Markets Authority undertake a market study to ensure that this market is working fairly for consumers and businesses. These studies do not limit themselves to narrow competition law issues; they provide a broad health check of a market. Since we reported nearly a year ago, Dame Frances Cairncross endorsed our recommendation in her review and the Secretary of State for Digital, Culture, Media and Sport wrote to the CMA. I would be grateful if my noble friend the Minister could provide an update on this.

Dr Andrea Coscelli, the chief executive of the CMA, told us last October that he would be minded to undertake a study provided that there were resources and that this would depend on the outcome of Brexit. The digital ad market is vital to the digital economy, so this must be treated as a priority. I would be grateful if my noble friend the Minister could explain what resources the Government are providing to support the CMA in undertaking a study. I beg to move.