Legal Opinion: is regulation stifling or promoting innovation in brand-funded content

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This article was originally published in the 2015 Global Edition of Best of Branded Content Marketing (BOBCM). By Boko Inyundo, former Business Development Manager, and Cliff Fluet,Partner, Digital Media & Brand Entertainment, Lewis Silkin:

At Lewis Silkin – a law firm with a long history of working with clients in the marketing communications, media and technology sectors – we have observed a growing interest from advertisers in financing online, mobile, TV, or film content. According to a July 2015 report by Enders Analysis, “brands are investing more than £5.2 billion a year in content strategies, £1.2 billion of it with consumer media, and investment is growing at 25% per annum, massively outstripping growth in traditional advertising”. Continuing media fragmentation, the explosion of mobile video consumption and the spread of Internet-connected devices are the key drivers enticing brands to turn, once again, to advertiser-funded programming (AFP).

As is often the case during periods of transformational change, domestic and regional regulatory regimes come under scrutiny as policy makers, industry, or wider society assess whether existing regulatory frameworks support factors such as the comparative advantage of countries, the development of innovative products and services, the protection of consumers, or improvements in people’s lives. With investment in AFP growing, and as it becomes ever more sophisticated, many are asking whether the regulations governing online, mobile, TV, or film content funded by brands are promoting or stifling innovation in this arena.

Notably, from July to September 2015, The European Commission conducted a public consultation on the scope of the current regulatory framework, the Audiovisual Media Services Directive, with a view to making it “fit for purpose in the digital age”. As part of the consultation, the rules on child protection, advertising and the promotion of European works were reviewed. The particularly contentious issue is that the Directive currently applies only to television broadcasters and on-demand services like Netflix, and not to Internet services hosting user-generated content like YouTube. The rules governing the promotion of goods and services in the audiovisual world, particularly television advertising and shopping, sponsorship and product placement, fall into this review, potentially impacting AFP.

 

The demand by brands and consumers to connect in more meaningful ways in today’s digital age is influencing the evolution of business models and regulation.

Cliff Fluet, Partner, Digital Media & Brand Entertainment, Lewis Silkin

Broadcasters are embracing shifts in media consumption

With the first televised ‘soap opera’ shows paid for and produced by the likes of Procter & Gamble in the 1950s and 1960s, broadcasters point to a long history of coordinating the development and distribution of branded content.

From a regulatory perspective, Section 9 of the Ofcom Broadcasting Code governs all commercial references within UK television programming, including AFP. The key over-riding principles relate to broadcasters’ editorial independence, as well as rules around transparency, audience protection from the risk of financial harm and the prevention of unsuitable sponsorship.

As part of the implementation of the Audiovisual Media Services Directive, an independent co-regulator named The Authority for Television On Demand (ATVOD) was established to regulate ‘TV-like’ on-demand programme services in the on-demand space, in order to ensure they comply with legislation. Relevant services must be notified to ATVOD. A breach, as determined by ATVOD, is considered an infringement of the statutory requirement and penalties can include a fine of 5% of qualifying revenue or £250,000, whichever is the greatest. Given the convergence of new platforms such as YouTube, understanding whether or not a service is subject to ATVOD rules is a matter of great concern to brands and platforms.

Broadcasters have been operating within this framework for some time while gearing their business models to fit the shifting media consumption patterns. For example, further to its acquisition by global mass media company Viacom in 2014, Channel 5 committed to increasing the amount of original programming it produces.

Viacom itself has pivoted its business model in the US to help serve brands more effectively. The creation in 2014 of Viacom Velocity, a division devoted to branded content, has already proved successful and, as of October 2015, the initiative is being rolled out internationally through Viacom Velocity International, based in London.

Viacom Velocity has had appreciable success developing content-led commercial partnerships with our U.S. advertisers, connecting them more effectively with audiences of all ages who are engaging more deeply with our brands and content than ever before, but doing so on a growing variety of platforms and devices.

Bob Bakish, President and CEO Viacom International Media Networks

Branded content is in focus for platforms 

Platforms, too, are already benefiting from the opportunities presented. In October 2014, Huffington Post’s CEO Jimmy Maymann announced that 30 per cent of the company’s 2014 revenue was likely to come from branded content solutions, a “significant shift” from almost 0 per cent two years previously.

Wireless and cable company Verizon’s US$4.4 billion acquisition of media platform business AOL, which closed in June 2015, was driven, in part, by the target’s portfolio of global content brands, including The Huffington Post and TechCrunch, as well as its original video content and programmatic advertising platforms.

Mobile is driving branded content partnerships and reach

With mobile technology and applications powered by analytics, and cloud computing now at the centre of advertising strategies in today’s fragmented media landscape, data protection and privacy regulations – and anticipated EU-driven reforms in this area – are, and will increasingly be, key. This is particularly so as advertisers harness and exploit the growing amounts of consumer data in delivering insight-driven, multi-platform/channel content and a consistent feel across multiple devices.

Both companies [Verizon and AOL] see significant opportunity to service consumers and customers in a differentiated and exciting way. …The deal will give our content businesses more distribution and it will give our advertisers more distribution and mobile-first features.

Tim Armstrong, CEO, AOL

For AOL, the key attraction of the Verizon deal was the ability to ramp up mobile-first distribution of its branded content. Brands across the board are recognising that, with the ubiquity of smartphones, successful implementation of branded content strategies requires a focus on the consumer experience, particularly the experience of that content on a mobile device.

Action camera brand GoPro, for example, has begun to position itself as a content and media company, and is pursuing a strategy to mobilise and monetise its vast library of user-generated content. In September 2015, it released new media-sharing features for its app that enable users to create, edit and share video clips more quickly and easily on mobile devices.

Another exemplar is Sony Mobile and its ‘Kaleidoscope’ branded content partnership with Red Bull Media House – the first ever commercial partnership for Red Bull. In November 2015, Sony sponsored a new series of Red Bull short films of BMX pro cyclist Kriss Kyle, mostly shot using Sony’s 4k mobile technology and geared for viewing online and, of course, on mobile.

At Verizon, we’ve been strategically investing in emerging technology that taps into the market shift to digital content and advertising. AOL’s advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams.

Lowell McAdam, Chairman and CEO, Verizon

The trend for brands to finance film and video 

The recent rise in branded video content consumption online highlights the growing interest in how sight, sound and motion in film help brands tell their stories. The storytelling facets of branded content play a key role in supporting the wider investments that brands make to build emotional and long-term relationships with consumers.

Brands are also discovering that moving-image-based branded content can not only increase product sales, but also cover the cost of producing the content in its own right – and sometimes even generate a profit. For example, while the product line launched off the back of LEGO’s US$200 million blockbuster, The LEGO Movie, was “a significant contributor to the [company’s] strong sales growth in 2014, D&AD’s Luc Benyon points out that the bottom line success of the movie itself has spawned investment in three sequels. Chipotle’s Farmed and Dangerous satirical web video series offset its production costs through an advertising revenue share with on-demand TV channel Hulu, and has started generating income through traditional TV distribution.

Media, creative and research agencies are stimulating brands’ investment in content

Media buying and planning agencies, major influencers in the management of brands’ media investments, are transforming their business models and playing a lead role in the development and implementation of many branded content initiatives. For example, in June 2015, ZenithOptimedia’s specialist brand content and experience division, Newcast UK, announced the newly created role of Head of Production, described by its incumbent Mike Clear as “an excellent opportunity to help brands make content that people genuinely want to engage with by bringing data insight, original productions and media collaborations closer together.”

Creative and marketing agencies are increasingly helping brands establish deeper connections with consumers through the creation of content that’s based on robust consumer insights, derived from not simply the ubiquitous Big Data but more in-depth research systems.

Brands are also investing more readily in content when they can see its value through the growing number of new measurement tools designed specifically to monitor the performance of branded content, specifically its effect on consumer preferences and behaviour, both online and offline.

Regulation should reflect innovation in brand-funded content

In conclusion, it would appear that regulation covering branded content in the UK is perhaps not as restrictive of innovation as one may initially assume. Clearly all interested parties will closely monitor the regulatory narratives that develop throughout 2016 from the results of the European Commission’s public consultation on the scope of the Audiovisual Media Services Directive. (Preliminary results are available here.)

There is, however, already plenty of evidence of how brands are responding in business-boosting ways to the changing demands and expectations of their consumers, and the opportunities digital platforms present for branded content. We can anticipate regulation evolving, where appropriate, to reflect the new norms that are developing. We can also expect rising volumes and values of partnerships that enable brands to use original and user-generated online content to connect more meaningfully with audiences globally. Such agreements will play an instrumental role in fostering further innovation in brand-funded content and programming, with a net benefit for enterprise, policymakers and consumers.

About the author

Boko Inyundo, former Business Development Manager, Lewis Silkin,