Competition and Markets Authority to conduct an investigation into UK’s digital advertising market

The chairperson of the House of Lords Communications Committee has welcomed a decision from the Competition and Markets Authority (CMA) that it will conduct an investigation into digital advertising market as part of its new digital markets strategy. The study intends to review digital advertising to “shine a light on the inner workings of the market” over fears it is “dominated by a small number of very large companies”.

Calling the market “poorly understood and opaque”, a statement from the House of Lords further adds digital markets “pose significant challenges to competition regulators” and that online platforms “have significant market shares” and “buy start-up companies before they can become competitive”.

“On behalf of the Lords Communications Committee, I welcome the CMA’s decision to undertake a market study of digital advertising and its digital markets strategy,” said chair Lord Gilbert of Panteg. “The Communications Committee called for a market study in its reports UK advertising in a digital age and Regulating in a digital world. We found that the market for delivering digital advertising to consumers is dominated by a small number of very large companies but is poorly understood and opaque. This market study should shine a light on the inner workings of the market and help the UK advertising industry regain the trust of the public.

“More broadly the Committee believes that digital markets pose significant challenges to competition regulators. Market power on the internet is concentrated in a small number of companies. These online platforms have significant market shares and buy start-up companies before they can become competitive. Their size means they can cross-subsidise services across markets to make them free to users. This challenges the traditional understanding of the consumer welfare standard. Competition regulators have struggled to keep pace with fast-changing digital markets. I hope that the CMA’s digital markets strategy will be an important step in addressing these issues.”

While video games have yet to be explicitly mentioned, the investigation may impact how the industry advertises games and associated services in digital markets, including in-game advertisements and sponsored content delivered via content creators,  YouTube, Mixer, and Twitch.

This is just one of a number of recent activities implemented by UK government to better understand the digital world, including the video games industry. Electronic Arts and Epic Games were recently called to give evidence before the UK’s Digital, Culture, Media and Sport Committee. During a discussion focussed on lootboxes and compulsive behaviours, both companies claimed it had not instigated investigations into whether or not its products could be harmful or addictive.

Representing Electronic Arts were outgoing UK and Ireland country manager Shaun Campbell and vice president of legal and government affairs Kerry Hopkins, who reframed the term “loot boxes” as “surprise mechanics”. Epic Games was represented by Matthew Weissinger, director of marketing, and Canon Pence, the company’s general counsel.

The discussion was focussed on some baseless claims in UK tabloid media, and included alarmist and occasionally inaccurate reports on the changing legislative landscape in other countries, such as Belgium and The Netherlands, which have clamped down on loot boxes in video games. Games were “compared to illegal drugs” and casinos, and reflected upon the WHO’s recent agreement to list gaming disorder as an official addictive disorder in the 11th International Classification of Diseases (ICD-11) (something disputed by Epic’s Pence, who said: “I don’t think it’s fair to say that gaming is a disorder”).