Análisis estadístico de la influencia del volumen del cake

7.82 As discussed in section 6.5, the only category of avoidable costs directly associated with the supply of direct radio advertising is likely to consist of advertising sales staff costs51.

7.83 Aside from advertising sales staff costs, the Ofcom licence fee and royalty payments, there is no evidence to suggest that any of the other cost categories incurred by radio stations supplying direct radio advertising would be avoided as a direct result of a reduction in the volume of advertising sales52.

7.84 In order to estimate and quantify the magnitude of cost savings achieved directly as a result of the reduced volume of advertising sales in response to the SSNIP, Ofcom has estimated a volume-related measure for the marginal cost of supplying a unit of advertising airtime. Aggregating the marginal costs saved across all units of

advertising airtime no longer supplied provides an estimate of the cost savings achieved.

7.85 A number of volume measures for advertising airtime may be used, including a standard 30 second advertising slot (’30 second slot’) or the delivery of a commercial impact. Due to practical difficulties associated with reconciling the volume of

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This is because, while a marginal reduction in the volume of advertising airtime sales may not warrant the laying off of an advertising sales employee (or a change from a full-time to a part-time post), it is reasonable to assume that advertising sales staff costs may fall in response to a sufficiently large and lasting reduction in the volume of advertising sales. It may be that a proportion of other types of staff costs (e.g. senior management costs) may be directly attributable to advertising sales activity but the extent to which such staff costs may be avoidable following a reduction in the volume of advertising sales is likely to be very limited.

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It seems more appropriate to treat costs associated with engineering (e.g. transmitter operating costs and studio maintenance), commercial premises, marketing, promotion, audience research and content rights as fixed or sunk costs that are not avoided as a result of reductions in the volume of advertising sales. Commercial production and legal and professional costs are likely to be shared across a range of radio station activities (e.g. in-house programme production or the negotiation of transmission contracts) and are therefore unlikely to be fully or directly avoided following a reduction in the volume of advertising sales.

commercial impacts acquired by direct radio advertisers with the realised audience figures achieved during that advertising airtime, Ofcom considered it more practical to use a 30 second slot as the unit measure of advertising airtime volume.

7.86 Due to the lack of information available on the specific nature of the cost function faced by a supplier of direct radio advertising, Ofcom considered it practical to use the average avoidable cost (‘AAC’) of supplying a 30 second slot as a proxy for the marginal cost of supplying a 30 second slot. As explained in annex 5, this is a conservative assumption.

7.87 The methodology Ofcom has adopted for testing the robustness of the base case SSNIP test results to the inclusion of cost savings associated with reduced advertising sales staff costs consists of:

7.87.1 calculating the AAC per 30 second slot required for the hypothetical

monopoly supplier of direct radio advertising to breakeven (i.e. the AAC per 30 second slot required to overturn the base case SSNIP test results or ‘critical AAC’);

7.87.2 estimating the actual AAC per 30 second slot; and

7.87.3 comparing the critical AAC with the estimated actual AAC – if the estimated actual AAC falls short of the critical AAC, then it can be concluded that the cost savings achieved are not sufficiently large to overturn the base case SSNIP test results.

7.88 Each of the three stages of the proposed methodology is discussed in greater detail in annex 6.

7.89 The base case SSNIP test results are robust to the inclusion of cost savings achieved directly as a result of reduced advertising airtime sales activity.

7.90 The 10% SSNIP is always unprofitable even after the inclusion of cost savings from reduced advertising airtime sales activity. Even under the more extreme assumptions (i.e. the more profitable case, partial switchers transferring 100% of their direct radio advertising budget to press (thereby maximising cost savings) and an average supply of 5 minutes of advertising airtime per hour), the estimated actual AAC does not account for more than 14% of the critical AAC required under the 10% SSNIP for the base case SSNIP test results to be reversed.

7.91 The 5% SSNIP is also unprofitable after the inclusion of cost savings under the central survey case and irrespective of the proportion of direct radio advertising budget transferred to press by partial switchers. The estimated actual AAC is substantially lower than the critical level of AAC required for breakeven (the former accounting for less than 5% of the latter).

7.92 Under the 5% SSNIP, the inclusion of cost savings makes the price increase

profitable (i.e. the estimated actual AAC exceeds the level of AAC required to reverse the base case SSNIP test results) only if:

7.92.1 the more profitable case is assumed (i.e. the weakest possible competitive constraint imposed by press advertising; and

7.92.2 partial switchers transfer over 20% of their direct radio advertising budget to press; and

7.92.3 it is assumed that the hypothetical monopolist radio station supplies on average 10 minutes of radio advertising airtime per hour.

7.93 It is important to highlight that, as explained in paragraph 7.69, the more profitable case is an extreme case which would be very unlikely to arise.