On 6 March 2018, the French Competition Authority (FCA) released the result of its 2-year inquiry into the online advertising sector. The report describes a thriving yet increasingly complex market, characterised by a "fragile competitive equilibrium" and presided over by major global players benefitting from competitive advantages. Underlining the overarching importance of personal data to the industry, the FCA expressed the wish that the enforcement of forthcoming EU and French data-protection regulations should be balanced in a way that will not have an adverse effect on competition.
The FCA's inquiry into the digital advertising industry was launched in May 2016 in the context of the vast expansion of an industry regarded as both a source of financing and a "laboratory" for technological innovations such as big data and machine learning. The FCA's aim was to further its understanding of the digital economy and the challenges of platform regulation, notably with respect to personal data collection and use.
To this end, the FCA opened a public consultation on 11 July 2017, to which various industry stakeholders, including publishers, advertisers and service providers, were asked to contribute. The FCA released its findings, which were based on responses to the consultation as well as market studies undertaken by private organisations, on 6 March 2018.
Main findings of the FCA
With revenues between €3.5bn and €4.2bn and a growth rate of 12% in 2017, the digital advertising market in France ranks third among European markets. As the internet overtakes television as the largest advertising medium, the importance of social networks and video/mobile advertising has grown, which in turn has driven growth of "display" advertising. In 2017, revenues from display advertising rose by 62% due to an increase in programmatic advertising (i.e. the automated purchase, setup and display of advertisements).
Given its multi-faceted nature, the digital advertising market has experienced an exponential increase in players on all sides. These new players address increasingly specific consumer needs but are also present on multiple sides of the market. Online advertising is considered to be a "fragile competitive equilibrium", in which multiple new players, driven by powerful technology dynamics, face competition from major global entities, notably major US tech giants, which hold strategic positions and generate most of their revenue via advertising.
The FCA identifies that these large players hold significant competitive advantages by being capable of:
(i) targeting, thanks to the popularity of their logged-in environments, which generate massive volumes of diverse, qualitative data with extensive exploitation capabilities; and
(ii) providing integrated solutions by being involved in both publishing and advertising intermediation.
The FCA notes that two major global players were responsible for almost 90% of the industry's growth in 2017, with no other player able to gain a significant market share. The few players that have entered the online-advertising market have been able to compete and capture parts of the market either by specialising in a specific sector (e.g. in publishing or in intermediation) or by creating partnerships aimed at pooling users' data from their websites to boost the reach and effectiveness of their advertising.
The FCA underlines the overarching importance of personal data in its report, observing that internet users have the capacity to influence some of the essential parameters of competition because they act as both consumers and suppliers of the data that increases advertising value. Access to data is a challenge for stakeholders, especially for those who have to collect it from third-party sites and applications.
In this respect, the FCA raises several concerns relating to the enforcement of forthcoming EU and French regulations on data protection. It expresses a desire to balance the implementation of personal data protection regulations with the potential effects on competition. Specifically, the FCA observes that the EU obligation to obtain users' prior approval before collecting data may disadvantage those who rely on accessing data via web cookies, and may benefit those that rely on logged-in environments.
What about competition law?
The FCA reminds us that advertising services, even when they are free of charge, can be subject to competition law. In respect of market definition, online advertising retains some specificities (i.e. targeting and tariffs), but the functionalities offered to users remains key and distinctions can be made between ad types (e.g. internet/TV or search/display), specialised offers and demands for intermediation, services to users and services to advertisers. In addition, multi-sided offers, potential barriers to entry and required levels of investment, potential network effects, and editors or advertisers' checks and balances will also be taken into account.
The FCA describes various practices, as identified by industry players, including bundling/tying, “low prices” and exclusivities, leveraging effects, discriminatory treatment, restrictions on interoperability, and restrictions on the ability to collect and access data.
Although the FCA may regard such practices as having an adverse effect on competition, it notes that the purpose of this opinion is not to address concerns relating to alleged anti-competitive practices but only to provide an analysis of the market.
The FCA indicates that concerns regarding competition law expressed by certain industry players are likely to merit its close attention. More specifically, the FCA announced that it would proceed with a preliminary examination of the information collected, in order to determine whether it is necessary to initiate one (or more) investigation(s). This statement was recently confirmed by the president of the FCA.
The launch of investigations in the online advertising sector in France should therefore be expected in the near future.