Introduction

Most nations restrict the advertisements that are broadcast on television. There are restrictions on both the length of commercial breaks and the content of the advertisements themselves. This chapter is concerned with the economic rationale underlying such regulations. Examples of the types of regulatory constraints on advertising broadcast on television are drawn from Europe, the United States and, most prominently, Australia. The Australian case is particularly useful because the regulations are clearly set forth in official publications. Many of the regulations in Australia have counterparts in other nations.

Length restrictions are widespread in developed nations, with the conspicuous exception of the USA (the USA does not restrict the broadcasting of commercials, except during children's programming). Understanding the economic rationale for length restrictions requires first understanding the complex interactions in the market for television advertisements. The main players in the market are the advertisers, the television viewers and the broadcasters who coordinate the two sides of the market. Advertisers want to communicate with viewers, who are the prospective consumers of the products touted in the ads. Viewers want to enjoy the programme content and ‘pay’ for it through being exposed to the advertisements. Broadcasters must balance the revenues earned from delivering eyeballs to advertisers with the distaste to ads that viewers express by switching off or switching over. A broadcaster's calculus does not fully internalise the net social costs of ads (viewer distaste minus advertiser surplus) and broadcasters are also able to exploit market power in delivering viewers to advertisers.