Spain: CNMC identifies competition concerns in online advertising industry
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The Spanish Competition Authority (“CNMCâ) Recently published a study on the online advertising sector in which it analyzes the competitive conditions of the market, emphasizing the practices of theâ big tech â.
The study mentions, among other things, some key factors to tackle the set of identified competition problems, the role of transnational cooperation and the urgent need for more resources for competition authorities and regulators.
1. Overview of the online advertising industry
The CNMC says that advertising has become the main source of funding for content consumed on the Internet and that some of the largest âbig techâ companies have grown in particular thanks to advertising revenue.
According to the study, revenues for this sector come from two main channels: i) search advertising, characterized by advertisements that can appear alongside keyword searches in general search engines; and, ii) display advertising, which results from advertising in the form of video, banners, social media formats, etc., while browsing websites and applications.
The CNMC also describes two marketing models used in display advertising:
- Inventory of platforms – in particular Google, Facebook and Amazon – which directly market their own offer. In the total display advertising in Spain, these platforms can represent up to 60% of revenues, with growth rates of around 25% per year in recent years.
- The inventory of publishers with a predominantly national audience – such as digital newspapers, Internet television, radio or applications – where intermediaries are needed to enter into agreements with advertisers and media agencies. This is called “open display”. According to the CNMC, Google could hold a market share of 50 to 70% in these intermediation services.
The CNMC stresses that the market power acquired by âbig techâ companies in the marketing of advertising in their own inventory, but also in the intermediation of third-party inventory, is due to the major role played by data. These companies collect and accumulate first-hand data from consumers’ browsing within their platforms and enable them to personalize and optimally manage advertising campaigns.
2. Conditions of competition analyzed by the CNMC
On the one hand, the CNMC argues that online advertising generates efficiencies, such as:
- The capacity for personalization, a novelty in online advertising brought about by digitization, which allows advertisers to better reach their target audience and to enhance the advertising space of publishers.
- The ability to measure campaign performance contributes to better decision making by advertisers, agencies and publishers.
- The entry of new players and media, which expands the possibilities for advertisers and consumers.
- The emergence of new forms of contractualization, moving from physical space to digital space, and in which transactions are matched en masse in real time.
On the other hand, the CNMC identifies several problems that could limit effective competition, which can affect efficiency and ultimately the well-being of consumers:
- High level of concentration: the dynamics of the sector lead to positions that are difficult to contest, being the main cause of the role of data accumulation as a competition variable and of its interaction with network effects. The data increases the competitiveness of platforms in marketing personalized advertising and can introduce certain interoperability issues when using different providers, generating change costs and a tendency to focus on a single provider. As a result, data is a barrier to entry and growth in this industry.
- The opacity and lack of transparency regarding the information received by advertisers and media publishers is also a major concern for the CNMC. Lack of transparency can hamper optimal decision-making and can consolidate the market power of some operators, especially vertically integrated ones. It may also lead to discriminatory technical conditions or requirements in order to restrict interoperability.
- Leverage: Because digital platforms market their own inventory while participating in third-party inventory brokerage, they are used by advertisers as priority or even exclusive purchasing tools, which can generate incentives for these platforms to expand. their market power from one market to another.
- Self-preference: In addition, vertically integrated operators may be encouraged to discriminate in favor of their own services. This risk would be caused by the market power and interoperability advantages of vertically integrated operators, which limit the ability of advertisers to switch to alternative providers.
3. CNMC’s recommendations to reduce anti-competitive problems
Finally, the CNMC also addresses certain key recommendations to challenge competition concerns:
- Competition authorities should apply competition rules as a priority to promote competition in the online advertising market on a case-by-case basis;
- Competition rules should be complemented by regulation on digital platforms;
- Institutional cooperation between all the agents involved is necessary; and
- Competition authorities and regulators should be given more resources and autonomy to organize them flexibly to manage actions in complex markets.
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