Forma de alimentación del estrato social vulnerable en Ecuador

A6.13 The estimated actual AAC is then compared with the critical AAC. If the estimated actual AAC is above 100% of the critical AAC, the SSNIP then becomes profitable when cost savings from reduced advertising airtime sales activity are included. A6.14 Chart A5 below shows the estimated actual AAC as a proportion of the critical AAC

of supplying a 30 second slot under the more profitable and central survey cases under different assumptions on the number of advertising minutes supplied and after the application of the 5% SSNIP. The horizontal line at 100% ‘estimated actual AAC as a % of critical AAC level’ shows the point above which the SSNIP becomes profitable. The results under the less profitable case are not shown in the chart because they are below the central survey case and therefore substantially below the 100% benchmark at which the SSNIP becomes profitable.

Chart A5: Estimated actual AAC of supplying a 30 second slot as a proportion of critical AAC of supplying a 30 second slot for the 5% SSNIP test

Estimated actual AAC as a proportion of critical AAC, 5% SSNIP test

0% 50% 100% 150% 200% 250% 300% 0% 20% 40% 60% 80% 100% 120%

% of direct radio advertising budget transferred by partial switchers Es ti ma te d a c tual AAC a s a % of c ritica l AA C

More profitable case - 5 minutes per hour

More profitable case - 10 minutes per hour

More profitable case - 13 minutes per hour

Central survey case - 5 minutes per hour

Central survey case - 10 minutes per hour

Central survey case - 13 minutes per hour

A6.15 Chart A5 shows that the 5% SSNIP is 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).

A6.16 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:

6.16.1 the more profitable case is assumed (i.e. the weakest possible constraint imposed by press advertising and an extreme scenario that is unlikely to materialise);

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

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

A6.17 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 AAC required under the 10% SSNIP for the base case SSNIP test results to be reversed.

Annex 7

7

Profitability analysis

A7.1 This annex describes Ofcom’s high level profitability analysis. This analysis was undertaken with the data that is currently readily available.

A7.2 Ofcom has calculated return on sales (ROS) as a measure of profitability. There are alternative measures which calculate profitability with respect to assets. However, as radio is not a very capital intensive business, but rather a sales driven business, ROS appeared more appropriate than return on capital employed (ROCE) for this high level profitability analysis.

A7.3 As data on some individual stations that belong to larger radio groups is not available, Ofcom has used a combination of aggregate radio group data and

individual radio station data (where radio group data was not available as well as for independent radio stations).97 For those radio groups that undertake radio as well as other activities (e.g. Emap), the operating profit and turnover figures used are the split relating to radio activities only. Ofcom has sought to gather data for the financial period April 2004 – March 2005 for as many radio stations/radio groups as possible. For those radio stations/radio groups for which data for this period was not available, Ofcom has collected the data for the closest available year end to that financial period98.

A7.4 Data on the profitability of individual lines of business (e.g. direct radio advertising only) is not currently available.99 Hence for this high level profitability analysis Ofcom has used aggregate profit data (i.e. aggregate profit earned as a result of all radio activities, including direct as well as indirect advertising, sponsorship, promotions, advertisement production, etc). Ofcom’s analysis is therefore based on the

assumption that direct radio advertising is not more profitable than other radio activities (e.g. indirect radio advertising, sponsorship, etc).

A7.5 Ofcom has calculated an average ROS for the industry. As different radio

stations/radio groups have different size (i.e. some represent a larger proportion of the direct radio advertising market than others), Ofcom has weighted each radio station/radio group profit measure by their share of total direct (or local) radio advertising turnover in its sample. If for the same number of impacts/slots one radio station charges higher prices for direct advertising than another then by weighting by its share of total direct radio advertising turnover its profit measure is given a higher weight.

A7.6 Ofcom has first calculated the industry profitability under a base case, and

subsequently performed a number of sensitivities to test the robustness of the base case to alternative assumptions.

97

For 24 radio stations neither Group nor individual radio station data was available, so those stations are excluded from the analysis. We have also excluded other stations where data was incomplete.

98

The dataset contains operating profit and turnover data with financial year ends ranging from December 2002 to September 2005.

99

Calculating the profitability of individual lines of business (e.g. local radio advertising) typically requires complex allocations of those costs that are common across the different lines of business, as well as identifying what costs can be directly attributed to the different radio activities.