Memorandum submitted by SMG plc
CROSS-MEDIA OWNERSHIP
EXECUTIVE SUMMARY
Ownership Regulation
Cross-media ownership regulations should be
replaced by competition rules alone, if the vision of making the
UK "home to the most dynamic and competitive communications
market in the world" is to be realised in the foreseeable
future. Existing regulations hamper the growth and development
of UK media owners, create instability within the media sector
and ultimately threaten choice for viewers, listeners and readers
in the UK.
Transitionary Proposals
Should this move to competition rules be felt
premature, we propose a transitionary system, based on financial
turnover, that would allow for the development of UK media owners
across separate media sectors, while ensuring continued plurality
of ownership within each regulated sector (television, radio and
newspapers). This system would also allow for the smooth transition
to competition rules based regulation in the future.
Competition and Consumer Choice
Competition in the UK media sector is increasing
dramatically, both among traditional media and with the introduction
of new media. This has been accompanied by a diverse range of
content for UK viewers, listeners and readers on both a national
and a regional level. However, this further heightens the need
for UK media owners to invest in the creation of new content and
the development of new and existing products. The existing UK
media ownership regulations undermine the ability of media owners
to gain sufficient scale to be able to invest in the future.
OFCOM
We acknowledge the Government's proposals to
create a single regulator in OFCOM, and hope that this will serve
to provide much-needed consistency in approach to content regulation.
However, we believe that OFCOM should report to only one Government
department and that a regional presence should be included in
its architecture. Furthermore, we recommend that due prominence
is given to all media that fall within its remit and that this
remit should be extended to include the BBC.
1.0 INTRODUCTION
1.0.1 SMG plc (SMG) welcomes the opportunity
to respond to A New Future for Communications. The pace
of change in the communications industry in the last 10 years
has been remarkable, and new legislation to take account of the
changes is both overdue and necessary. The environment is competitive,
dynamic and pluralistic: the aim to "make sure that the UK
is home to the most dynamic and competitive communications market
in the world" is laudable and, with the appropriate approach
to communications regulation, achievable. The introduction of
digital technology has led to convergence, blurring the boundaries
between broadcasting, publishing, telecommunications, the Internet
and other previously distinct branches of the media, and we note
the Government's proposals to create a single regulator in OFCOM.
While we acknowledge the convergence of media
and telecommunications, our submission focuses on what is generally
regarded as conventional "media" and, for the purposes
of clarity, our use of this collective term is intended to indicate
television, radio, newspapers, magazines, outdoor and cinema advertising.
1.0.2 SMG is a successful, ambitious and
growing media company providing information and entertainment
services to audiences across the UK. SMG's operations include
television, radio, newspapers, magazines, an Internet business
and cinema and outdoor advertising. These are as follows:
— Scottish Television and Grampian
Television—the ITV franchises that broadcast to 95 per cent
of the Scottish public;
— S2—a pan-Scotland digital terrestrial
television service;
— SMG Network Productions—which
makes network television programmes for ITV, BBC, Channel 4, Sky
and overseas broadcasters and is the sixth largest television
programme producer in the UK;
— Virgin Radio—the national AM
and London FM broadcaster of pop and rock music;
— The Herald, Sunday Herald and Evening
Times—three high quality Scottish newspapers;
— SMG Magazines—a stable of consumer
and business titles;
— Primesight—a national outdoor
advertising business;
— Pearl & Dean—a national
cinema advertising business; and
— S1—a recently launched suite
of web-sites aimed at Scottish audiences.
1.0.3 As such, we are perhaps uniquely placed
to offer a view on cross-media ownership in the UK. Consequently,
this section of our submission focuses principally on the issue
of cross-media ownership rules. (4.0 Maintaining Diversity and
Plurality)
1.0.4 Having established a stable base from
which to expand, SMG's strategy has been to grow, on a national
basis, into the fastest developing sectors of UK media. We are
committed to cross-media ownership and we believes that a less
constrained regulatory approach to media ownership in the UK will
enable the creation of UK media companies with sufficient scale
to invest further in their businesses, to the advantage of viewers,
listeners and readers and the creative and journalistic communities
alike. We further take the view that the current regulatory environment,
based as it is on primary legislation, is cumbersome and has resulted
in UK media companies being hampered in their ability to develop.
1.0.5 Separately, SMG's Television, Radio
and Publishing Divisions outline our responses to matters relating
specifically to those media sectors.
1.0.6 Further background information on
SMG is attached in Appendix A.
2.0 CROSS-MEDIA
OWNERSHIP
2.0.1 The Government's stated aim is to
make the UK "home to the most dynamic and competitive communications
market in the world". To achieve this requires scale. We
believe that this can best be achieved through the liberation
of media companies in the UK to develop responsibly across different
areas of media and at a pace that reflects the fast-changing world
that is media in the 21st century.
2.0.2 Regulation that allows one company
or group to own media across a number of media sectors, as opposed
to dominating a single sector, enables such companies to achieve
the necessary scale to invest in products and services to compete
effectively with large international groups, whilst, importantly,
maintaining plurality within each media sector.
2.0.3 Cross-media ownership creates stability.
Economic changes affecting one media sector can be offset by the
performance of other sectors, thereby ensuring that new product
development and investment can continue. For this reason, some
of the most successful media companies worldwide have built their
businesses on the basis of a cross-media platform.
2.0.4 For the Government's vision to be
realised, UK media-owners must be allowed to develop and grow
so that they can compete in what is an increasingly European and
global marketplace. Even the largest UK media companies lag behind
their European and US counterparts by a considerable margin, as
the following three examples show:
| | Approximate Market Capitalisation
|
| AOL Time Warner, (US) | £140.0 billion
|
| Vivendi Universal, (France) | £47.0 billion
|
| Granada Media Group, (UK) | £4.0 billion
|
2.0.5 We agree that diversity and plurality are desirable
and beneficial, to society in general and the consumer in particular,
however it is our view that UK media-ownership rules must ultimately
be based on competition rules alone, if the Government's vision
is to be realised. We believe that the safeguards provided by
competition law, consumer choice and the protection of regionality
under the watchful eye of a new single regulator are sufficient
and that a move to competition rules is both timely and necessary.
2.0.6 In addition, the move to competition-based regulation
would obviate the need to continually re-visit primary legislation
in an effort to keep the UK communications industry at the forefront
of development.
2.0.7 Furthermore, we believe that to continue to restrict
cross-media ownership is counter-productive as it undermines the
stability of all but the largest media owners and could ultimately
reduce choice for consumers, thereby threatening the very diversity
and plurality that the Government seeks to protect.
2.0.8 We would therefore propose that the Government
creates the optimum conditions for the development of UK companies,
by creating a cross-media regulatory framework that enables growth,
thereby allowing UK media owners to achieve sufficient scale to
compete effectively on a world stage.
Lest it be viewed that this proposal would work solely in
our own interests, it should be noted that while this would enable
the growth of such media owners, it would also create the opportunity
for them to be acquired by larger companies.
3.0 COMPETITION RULES
3.0.1 Competition is intense and increasing across all
media sectors; there is a wealth of consumer choice, a strong
appetite for the provision and consumption of regional content
and the promise of a powerful, consistent and comprehensive communications
regulator. There is a need for a new regulatory framework which
must be sufficiently flexible and robust to reflect not only the
current environment but that of the future, taking into account
the potential explosion in the range and volume of media, enabled
by the development of new technology.
3.0.2 Against this background, where content regulation
on appropriate media is the responsibility of a single regulator,
we believe UK media-ownership regulations should move from the
current system to one based on competition rules alone.
3.0.3 We recognise that this proposal must stand the
test of diversity, plurality, and regionality and believe that
this is best addressed by tackling each of these issues under
the broad headings of: Competition; Consumer Choice and Regionality,
as detailed in the following three sections of our submission.
4.0 COMPETITION
4.0.1 We concur with the view expressed in the Communications
White Paper that, in the short term, most people will continue
to rely on terrestrial television, radio and newspapers for their
information and entertainment needs. However, the availability
of other media, both traditional and new, is accelerating at a
dramatic pace.
4.0.2 Currently, UK analogue terrestrial television channels
must compete with a multitude of channels, both analogue and digital,
available through digital terrestrial, cable and satellite platforms;
for example, 7.8 million UK homes now receive cable or satellite
television. In addition, the BBC have proposals for a further
three terrestrial channels.
4.0.3 UK radio stations compete with an increasingly
diverse range of radio offerings, either new analogue licences,
Internet radio, digital radio, digital satellite radio and, in
time, services through other digital developments.
4.0.4 Similarly UK newspapers, regional and national,
must stand comparison with the best newspapers from around the
globe, also available instantly over the Internet every day.
4.0.5 Notwithstanding the development of new media competitors
enabled by technology, competition within the traditional media
markets is not only healthy, but growing. In the UK, newspapers
readers can select from no less than five national daily broadsheets
and five tabloids (not including weekly, free or evening titles).
In Scotland, competition is even more intense with nine daily
broadsheets and seven tabloids. Additionally, within the last
two years, Scotland has also seen the launch of two new titles,
one daily and one Sunday. This latter point is noteworthy in that
this activity has taken place amidst ongoing price wars as large
UK players price discount only in Scotland to squeeze indigenous
players.
4.0.6 Furthermore, commercial television and radio broadcasters
in the UK must contend with the increasingly competitive and cross
promotional power of the publicly funded BBC.
4.0.7 As new technologies become available and develop,
competitive pressures will only increase, with a more sophisticated
range of services available over a wider range of media, not only
from the Internet, but also through mobile telephony.
4.0.8 Against this background, competition within UK
media can be seen to be strong, and intensifying, resulting in
a diverse range of views and opinions being voiced to UK viewers,
listeners and readers. A regulatory system which promotes such
competition would protect and enhance this position.
5.0 CONSUMER CHOICE
5.0.1 The significant increase in consumer choice in
the UK media sector has led to viewers, listeners and readers
becoming more selective in the media that they consume and increasingly
sophisticated in their judgement of the quality of content. This
in turn requires the providers of media products and services
to enhance and improve the range and quality of that which they
offer, whilst maintaining pace with the changing needs of those
consumers.
5.0.2 For example, television sports coverage has developed
dramatically in recent years through technological enhancements,
such as those enjoyed by cricket viewers, and broadcasters now
deploy as many as 18 cameras to cover a football match. Entertainment
channels too now provide Hollywood quality films on a 24 hours
a day basis.
5.0.3 This requires a level of investment in rights and
infrastructure, that can only be supported and sustained by strong,
financially viable, dynamic companies with sufficient scale.
5.0.4 A more liberal market, subject to competition rules
that prevent undue dominance of any single sector, will enable
UK media companies to continue to produce compelling content for
UK consumers whilst also competing on a world stage.
5.0.5 Conversely, if UK media-owners are prevented from
growing and creating a stable base from which to operate, they
will consequently be unable to invest in content and new products,
resulting in either a diminution of content quality or the disappearance
of regional media, which, in turn, would impact on regionality,
diversity and plurality.
5.0.6 The move to a competition rules-based cross-media
ownership system would only enhance the range and quality of media
made available to them by media owners able to invest in content
and product development.
6.0 REGIONALITY
6.0.1 The existence of strong domestic media players,
with a thorough understanding of the needs and aspirations of
the viewers, listeners and readers in the geographic regions in
which they operate, is in itself a safeguard for the regionality
that the Government wishes to protect.
6.0.2 Indeed, it is this very regionality that serves
to differentiate such media from their national and international
counterparts. Consumers demand content that they can identify
with, that is relevant to them and that reflects their tastes
and aspirations. The need to offer something different to a consumer
base bombarded with offerings from both domestic and international
media ensures that the regional nature of such content is protected.
For example, there can be no doubt that regional television news
satisfies a demand that would otherwise not be met by national
broadcasters. Similarly, regional newspapers present a perspective
on events, local, national and international, that reflects the
viewpoint of their distinct readerships. Regionality makes a significant
contribution culturally and economically. Creating content in
and about the regions is important to local economies and promotes
and protects the creative industries across the UK.
7.0 TRANSITIONAL PROPOSAL
7.0.1 However, we recognise that the Government may not
wish to move immediately to a competition-based cross-media ownership
system and may prefer to put in place, for a period of a few years,
measures which, while liberalising the current regime, would apply
a measure of control over cross-media ownership beyond that provided
by normal competition rules.
7.0.2 Should this be so, we believe it is possible to
introduce a transitional framework that, while applying a lighter
touch to ownership control, would also allow for the ultimate
move to competition rules alone, if and when the Government felt
this to be appropriate, without the need to re-visit primary legislation.
7.0.3 A number of regulatory schemes have been suggested,
based on share of voice, audience reach etc, with weightings according
to the relative influence of various media on the public. The
implementation of such schemes has proved problematic, due principally
to the complexity and the degree of subjectivity inherent in aggregating
ownership levels within and across different media.
7.0.4 Outdoor and cinema advertising, magazines and Internet
advertising have survived and thrived without the need for regulation.
While these sectors of the market are, and should be, subject
to conventional competition regulations, they should remain outwith
the scope of any ownership regulation.
7.0.5 The important issue in formulating such a system
is the identification of the relative "media power"
of individual media owners. It is our view that the most effective
indicator of individual media owners' "media power"
within specific segments of the UK media sector is financial turnover.
7.0.6 Turnover in commercial media equates to advertising
revenues; income from newspaper sales; subscription sales and
pay-per-view income (in the case of pay television). For the BBC,
turnover would be the licence fee. The level of such income dictates
the funding available to invest in content, which, in turn, leads
directly to a media owner's ability to attract an audience. The
size of their audiences reflects the relative positions of individual
players within any single sector. This correlates directly to
a media owner's "media power". For example, it is ITV's
investment in high quality content that results in the network
attracting the highest peak-time audiences and, therefore, correlates
directly to its "media power".
7.0.7 Applying financial turnover as a measure, has the
following benefits:
— It provides a finite, comparable and transparent
measure of each media owner's position within a sector.
— It embraces the totality of each sector (eg all
television—including BBC, ITV, Channel 4, Channel 5, Sky
and all other channels).
— It takes into account the volume and, where relevant,
demographics of audiences.
— It accommodates shifts in balance within sectors
without the requirement to re-assess the measurement criteria.
— It includes all relevant sources of income.
— Importantly, it enables the logical transition
from sectoral to competition rules, as this is a concept already
enshrined within existing competition law.
7.0.8 We believe these limits should be set at a level
that prevents one single media owner gaining significant market
power by enabling a minimum of, say, five media owners to operate
within each of the relevant sectors of UK media, ie 20 per cent
of each market. The specific definition of these sectors would
be a matter for the Government to define, however adopting this
model, would ensure that no two media owners acting in concert
could control any individual sector or market. This is consistent
with other sectors, such as banking, where the Government has
accepted similar levels of plurality of ownership.
7.0.9 This level of regulation would ensure plurality
of ownership, while allowing sufficient flexibility and scope
for media owners to develop across different sectors should they
wish to do so.
This system of sectoral limits relies on two key assumptions:
— Sectoral limits are applied only on a UK-wide
basis.
— Individual sectors are accepted as not generally
substitutable.
These assumptions are expanded upon below.
7.1.0 UK National Market
7.1.1 So that such a system of regulation can operate
fairly and effectively, it is a pre-requisite that sectoral limits
can only be viewed on a UK-wide basis. This is a wholly logical
and reasonable assumption as the substantial majority of advertising
spend in the UK is by national advertisers, out of the London
advertising market; while regional media may have geographical
limits in terms of audience reach, its advertising revenues must
be generated in competition not only with other regional media
but with national media also.
7.1.2 Additionally, it should be recognised that consumers
of media have freedom of choice across both regional and national
media and, as such, regional media owners must also compete with
national media to attract an audience.
7.1.3 The relative power of media owners in the regions
is most appropriately dealt with by conventional competition rules
criteria.
7.2 Media are not substitutable
7.2.1 Consumers want to be informed and entertained how,
when and where they choose and often their specific circumstances
at any given time dictate the appropriate medium. For example,
they cannot substitute television for radio when they are driving
their cars. Advertisers also need to have access to consumers
when they are most receptive to advertising and in a format that
is most appropriate to carry their message. Therefore the laws
of supply and demand, and the distinctive characteristics of each
medium, preclude the substitutability of individual media.
7.2.2 It is acknowledged that different media are appropriate
for specific types of advertiser and product. For example, financial
services companies have not traditionally used radio or television
as a main advertising medium for complex financial products due
to the requirement to include financial "health warnings"
on all advertising. However, radio has proved popular with dot.com
companies, due to the demographics of the radio audience and because
radio can be consumed while accessing the Internet.
7.2.3 Further evidence that media are not generally substitutable
is that little or no cross-selling exists across different media,
even where there is common ownership. Indeed, the structure of
advertising agencies generally works against anything other than
a strictly sectoral approach to advertising sales.
7.2.4 It is also worth noting that rulings in recent
media merger investigations referred to the Competition Commission
have recognised that different media sectors are not generally
substitutable.
8.0 OFCOM
8.0.1 We note that the Government proposes to establish
a single regulator, OFCOM, to replace the multiplicity of regulators
that currently exist. One consideration in this development is
that it should provide a much-needed consistency of approach across
appropriate media in areas such as taste and decency, where consistent
standards must be set and maintained, and the role of such a regulator
is clear. We understand that OFCOM will replace the current group
of regulators but we do not believe it would be beneficial for
regulation to encroach on sectors that are currently thriving
without such controls.
8.0.2 Standards in content quality for television and
radio are, of course, subject to regulation also and we would
anticipate that responsibility for ensuring such standards are
maintained, and that broadcasting licence conditions are observed,
should rest with OFCOM. This would provide a safeguard for content
diversity.
8.0.3 However, it is unclear from the proposals contained
within the White Paper to which Government department OFCOM will
be responsible. DCMS' acknowledged lack of experience in economic
regulation and the DTI's corresponding lack in terms of content
regulation, leads us to the view that neither of these departments
is the appropriate point of reference for OFCOM and that the Government
should give consideration to the creation of a new Department
of Communications. A single, clear reporting line from OFCOM to
one Government department will help to ensure that regulation
is interpreted and implemented in a consistent comprehensive and
transparent manner.
8.0.4 OFCOM's role in the maintenance of regional content
provision creates the need for a regional presence of its own.
The White Paper clearly states that there should be links with
relevant policy committees and the devolved assembles (ref 8.7).
We would therefore strongly urge that there should be representation
from across the UK on the executive and that there should be a
network of regional offices, such as currently exists with the
ITC.
8.0.5 Furthermore, while we recognise that the convergence
of media and telecommunications technologies has prompted the
Government to propose the establishment of a single regulator,
there remain issues which are specific to sectors within OFCOM's
proposed area of responsibility and we would advocate the involvement
of individual sector "experts" to ensure that issues
that affect only one or more sectors are given due attention.
8.0.6 The White Paper proposes the creation of "a
more level playing field that is fair between different broadcasters
taking account of their differing missions and funding sources"
(5.4.1). Under the proposals for OFCOM the BBC is still regulated
through its Governors and reports to the Secretary of State for
Culture, Media and Sport (5.4.1, 5.8.6 and 5.8.7 Securing Quality).
8.0.7 The White Paper states in section 5.8.7 that OFCOM
will. . . "give formal advice to the Secretary of State on
the, often important, market impact of both proposals for new
BBC public services and for material changes to existing ones,
before he reaches a final decision". This is not independent
regulation and it is not compatible with the "more level
playing field" to which the paper refers.
8.0.8 The exclusion of the BBC from OFCOM's regulatory
power is, in our view, in conflict with the Government's aim to
create a more equitable, transparent and coherent regulatory system.
We strongly recommend that OFCOM's backstop powers should apply
to the BBC. This does not threaten the regulatory functions of
the Governors, nor does it affect the BBC's editorial independence.
8.0.9 We believe that the existing Governors could continue
their role in interpreting the BBC Charter and report to OFCOM,
which would also take on the responsibility of approving new licence-funded,
or subsidised radio or television services and changes to the
existing services.
9.0 OTHER MATTERS
9.0.1 We wish to express our concern, along with that
of others, at the increasingly, commercial activities of the state-owned
public service broadcasters, the BBC and Channel 4. It is not
that these broadcasters are commercial per se, but that
they use their privileged and protected positions to cross-subsidise
these commercial activities which, in our view, represents unfair
competition for the commercial sector, whose sole sources of revenue
are commercial.
9.0.2 This practice is particularly unacceptable where
these services are not truly universally available or if such
services are already, or will be, provided by the commercial sector.
Furthermore, this, crucially, diminishes the diversity of public
service broadcasting on offer—the core remit of these broadcasters—by
diverting funding away from their principal operations. By way
of example, the BBC has launched News 24, available only to viewers
with access to multi-channel television, in an environment already
served by Sky News and more recently by ITN's 24-hour news service.
Channel 4, whose remit does not allow it to make a profit, has
already launched two subscription-based channels (Film Four and
E4), effectively subsidised by the terrestrial channel.
9.0.3 Not only is such activity unfair, but it also hinders
investment in the development of new technologies by commercial
media owners who are unable, or reluctant, to compete with their
publicly subsidised counterparts. We would urge that all UK broadcasters
should be included within the remit of OFCOM to ensure equitable
regulation and to guard against an erosion of public service broadcasting.
9.0.4 Separately, we recognise that it may be the case
that the Government wishes to review the current rules on foreign
ownership of UK media. The original rationale for such regulations
was based on protecting national interests and the need for regulation
to provide protection may have receded, however we believe that
until such time as UK media owners have been able to develop to
the same extent as their foreign counterparts, and until reciprocal
ownership opportunities are made available by foreign governments,
that the current rules should remain in place.
10.0 CONCLUSION
10.0.1 The communications industry worldwide is changing
at an ever-increasing pace. Competition has never been greater
and consumer choice is varied and extensive. UK media owners are
seriously off the pace being set by their international counterparts
and must be enabled to grow and develop scale, to support and
sustain investment in products and services. Cross-media development
allows the creation of such scale whilst protecting plurality
of ownership within individual media sectors.
10.0.2 UK cross-media ownership regulation must move
to a competition rules-based system at the earliest opportunity
if UK media owners are to be enabled to rise to the challenges
of the 21st century.
10.0.3 We urge the Government to grasp this opportunity
to liberate the UK communications industry and deliver its own
vision of creating the most dynamic and competitive communications
market in the world.
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