Bracing for Battle – U.K. industry players prepare to face the fallout from Ofcom’s war on junkfood ads

The tide of controversy surrounding childhood obesity and kids entertainment's role in the marketing of food to children has swept across the world in recent years, leaving many industry players scrambling in its wake. In the U.S., for example, kids broadcasters and IP owners continue to push for industry self-regulation and take pre-emptive steps, mounting activity-oriented public service campaigns and pursuing healthier food licenses and promos. Industry activity across the pond has followed suit.
September 1, 2006

The tide of controversy surrounding childhood obesity and kids entertainment’s role in the marketing of food to children has swept across the world in recent years, leaving many industry players scrambling in its wake. In the U.S., for example, kids broadcasters and IP owners continue to push for industry self-regulation and take pre-emptive steps, mounting activity-oriented public service campaigns and pursuing healthier food licenses and promos. Industry activity across the pond has followed suit.

So far, the Beeb’s commercial arm BBC Worldwide has taken the biggest stand and in 2004 put an end to licensing its kids characters such as the Teletubbies for fast food QSRs and use on everyday packaged foods high in fat, salt or sugar. However, unlike the U.S. for the time being, self-regulatory efforts on the part of the industry aren’t cutting it in the U.K. Facing the growing din emanating from the likes of celebrity chef Jamie Oliver as he lobbies for healthy school lunches for the nation’s children, the British government via it communications regulating body Ofcom is stepping in to quell the uproar.

Ofcom will announce new rules govering TV junkfood advertising directed at children this fall, and news of the impending regulations has sparked a panic amongst U.K. kids entertainment players. It’s certain the region’s commercial nets will take a financial hit that will ripple down to the production community. And while the full impact won’t be known until some months after Ofcom makes the ruling, we thought we should take a look at the options being circulated, how the kids production and broadcast communities are responding and whether or not the situation is as dire as some believe to be.

So what’s all the fuss about?

After nearly three years of examining the issue, Ofcom has formulated four options to regulate the time, amount and type of food advertisements broadcasters will be permitted to put on air. The packages aimed at curbing the on-air marketing of junkfood – or products high in fat, salt and sugar (HFSS) in Ofcom-speak – went public this past March. They range from not-so restrictive to what Talent TV MD John Marley calls ‘Draconian’ in scope. And regardless of which one Ofcom chooses, the org has acknowledged ‘any measure excluding HFSS advertising from children’s programming could have a potentially damaging economic impact.’

Briefly, number one calls for a total ban on junkfood ads during children’s slots. The second goes one step further to ban all food and drink ads during hours devoted to children. Option three is the most stringent and effectively prohibits any food and drink spots from airing until the 9 p.m. watershed. And a source of optimism for some is number four – an industry-proposed regime. (See ‘Let’s Make A Deal’ below for more details.)

In its analysis, the regulator estimates the annual loss for broadcasters could range between US$34 million and US$81 million. But what’s been most troubling, perhaps, is the group likely to bear the brunt of the blow is the U.K. independent production and distribution community. The group universally expects the legislation will cause a sharp drop in commissions and might well affect acquisitions.

Mike Watts, co-founder and managing director of Novel Entertainment and chair of the Producers Alliance for Cinema and Television (Pact) children’s and animation policy group, says even if Ofcom chooses the best-case scenario option, total money spent on kids programming would drop by US$21 million per year. ‘That’s around 25% of the total amount spent on original commissions in the commercial area each year,’ he adds.

Worse still, if the dreaded option three gets the nod, US$52 million in annual revenue stands to evaporate almost immediately. And when you take into account the disappearance of related overseas and ancillary program sales, the amount lost annually to independents shoots up to US$158 million, Watts says.

In addition to the dip in foreign sales for U.K. prodcos, indie distributors selling kids shows into the U.K. could see a drop in business. The country has many dedicated children’s satellite channels, but they are primarily subsidiaries of international broadcasters whose deals for shows usually include U.K. broadcast rights.

If these disconcerting factors weren’t enough, there is one more reason for U.K. kids TV makers to worry. ITV – the largest commissioner of children’s programming in the country alongside the BBC – is looking to scale back its mandatory children’s programming quota on ITV1 (see ‘Double whammy’, sidebar at right).

Many observers have pointed out that the combo of a decreased kids output at ITV and the Ofcom-driven dive in commissions would give the commercial-free BBC a near monopoly on original children’s terrestrial programming. Individual execs are keeping mum right now, but the Beeb has gone on record to say it wouldn’t want the job of being sole commissioner of homegrown kids programs, as competition makes for a healthier industry overall.

All pain, no gain?

The looming loss of revenue might be somewhat palatable if the pending measures could achieve their desired impact on childhood obesity. But the benefits of limiting HFSS-ad airtime are unclear at best. For example, an Ofcom-commissioned researcher calculated as little as 2% of a child’s food decisions are influenced by TV advertisements. As Gary Pope, founding partner at London-based consultancy Kids Industries says, ‘if the figures say it is only a 2% impact, then why the big song and dance? Why not spend some money on education so people’s diets are better?’

Another possible (and quite ironic) casualty of the ban could be on-air healthy-eating initiatives, designed to help kids get active and eating better in the first place. So far, Ofcom has said only government-endorsed healthy eating campaigns would be permitted in certain circumstances. For example, Nicktrition – the multi-media health and lifestyle initiative from Nickelodeon UK that began airing on Nick, Nick Jr. and Nicktoons in June 2005 – will likely be shuttered when the new rules take effect. ‘That seems counterproductive, if the regime is so severe and the timing (of its implementation) is that immediate,’ says Nick UK’s MD David Lynn.

And even though the goal of tighter restrictions is to influence consumption patterns in kids’ homes, research conducted by Kids Industries found moms are unsettled by the idea of advertising rules that drastically curtail the production of homegrown children’s shows and up the number of U.S. imports. In short, it’s not clear that U.K. parents would get behind the tradeoff.

When Ofcom hands you lemons……

Possible parental support aside, Ofcom’s steadfast drive to push the legislation through and imminent cuts at ITV mean there’s little doubt the U.K. market for children’s programs is going to get smaller. ‘Some production companies will go out of business,’ says Oliver Ellis, the director of children’s and family programming at London-based distributor Target Entertainment, ‘it is going to happen.’

That said, the indies aren’t about to take it lying down. A number of prodcos have banned together to lobby the government in an effort to mitigate the impact. Although its battle plan was still being hammered out at press time, the group provisionally known as Action for U.K. Children’s Media was hoping to make enough noise to sway public and political opinion in favor of the least damaging Ofcom option.

The group is chaired by Anna Home, the chief executive of the Children’s Film and Television Foundation, and its membership includes representatives of Pact and the British Academy of Film and Television Arts (BAFTA) kids committee. After holding its first meeting at the British Film Institute in late July, and setting up a website ( organizers were planning to stage a townhall debate to garner more media and public attention. ‘There is a momentum behind this,’ Home says of the lobbying efforts.

Additionally in July, Pact began calling for the establishment of a US$94-million fund to act as seed financing for approximately 10 new programs per year. It would provide recoverable, interest-free loans to prodcos, Watts says. ‘This is not just an underwriting [fund], it is meant to be treated as an investment that would help provide for the potential loss of commissioning budgets.’

Also some producers aren’t waiting for the other shoe to drop before dealing with the fallout of Ofcom’s decision and have started pursuing more co-pro and alternative financing strategies. Cosgrove Hall, for one, has already begun to work as though the ban has upended the marketplace. Anthony Utley, head of the London-based company, is now treating broadcasters in his home market as a source of potential ancillary sales, rather than as the chief providers of seed money.

Take Roger to the Rescue, for example. The 52 x 10-minute 2-D preschool series is a copro with Toronto-based Nelvana slated for delivery in 2007.

The plan is to try and land a broadcast berth in Canada on Treehouse, which is owned by Nelvana parentco Corus, says Utley. Further funding should be shored up through U.S. and Euro presales in Germany and France. At least that’s Utley’s theory. And then, he explains, ‘We’ll sell the show into the U.K. as an acquisition afterwards.’

He adds, ‘It is a pity that we have to look at our own domestic market that way, but there are so few options open to us.’

Talent TV’s Marley notes producers are now having to make even more sophisticated strategic alliances. They also need to experiment with new program sponsorship-funding models, such as with ‘telcom companies that are looking to exploit snackable content for 3G-capable mobile phones, which are becoming more commonplace on the market.’

International L&M is another option, says Marley. Licensing companies with worldwide reach doing business in the U.K. will be indirectly affected by Ofcom’s decision, as TV becomes that much less of an appealing marketing option. (Under current Ofcom rules, ads for merch based on kids shows are prohibited from broadcast from two hours before until two hours after the show the merch is based on airs.) Nevertheless, Marley believes they may be willing to make unconventional deals.

‘Maybe a producer can say, ‘Okay, we can give you this program, but only if you can sell it internationally. And then, if you help us get an audience for it internationally, you can have the licensing rights.” In this scenario, prodcos would also be left with a smaller percentage of the backend rights, as the licensing partner would be taking more of the upfront risk.

Target TV’s Ellis goes as far as suggesting Ofcom may loosen up currently tight restrictions governing the ability to exploit L&M opps – including those prohibiting the broadcast of TV series based on pre-existing toys – in a bid to give broadcasters and independent producers some entrepreneurial leeway.

Cooler heads prevail at broadcasters

Of course, Ellis’s speculation remains just that for now. For its part, Ofcom knows the production community is alarmed. Kate Lee, a spokesperson for the regulator, says, ‘We are aware of the range of views that exist around this topic [and] Ofcom has a duty to weigh all of these interests in the balance when coming to a decision.’ But Ofcom remains firm on its agenda, she adds.

For the time being cooler heads seem to be prevailing at affected broadcasters (ITV, Five and Channel Four). Despite all the worry voiced by those around her, Estelle Hughes, the controller of ITV diginet CiTV who’s exiting the post this month, is confident Ofcom will chose the broadcaster-formulated proposal, known as option four.

Although she wouldn’t divulge all the details, Hughes says option four builds on discussions broadcasters have been having with Ofcom for about for two years. It includes ‘things like no use of animated characters in the advertising; no celebrity endorsement; no encouragement of pester power,’ she says.

Also some broadcasters read the writing on the wall several years ago when Ofcom was first handed the task and have already built the change into their advertising-based business models.

‘The effects of the ban have come in long before the ban itself,’ says Nick Wilson, controller of children’s programming at Five. ‘The advertising industry – in being very forward thinking in its own right the minute this appeared seriously on the horizon – started to withdraw a lot of food advertising from children’s programming.’ So when Ofcom makes its decision known in the autumn, he says, ‘I don’t think it will influence our commissioning decisions one jot.’

Despite the pessimism on the part of the production community, there are thin rays of optimism piercing the gloom. For example, Lee says, given television advertising’s small role in the whole dietary imbalance issue [the 2 % factor], Ofcom is concerned that regulatory action should be proportionate to the scale of the problem, and that the costs the broadcasting industry would incur as a result of any advertising restrictions should also reflect that scale.

Broadcasters are also pushing for a phase-in period to make the transition. Most have multi-year program supply contracts to abide by and Pact has also formally requested a three-year period to allow producers and distributors time to figure out how they will operate with so much less money in the market.

‘It is early days, but there are green shoots,’ says Nick UK’s Lynn. ‘And that is why we need a phased-in approach, to try to develop new revenue streams going forward.’

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