Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by SMG plc (continued)



  Current ownership controls on newspapers, requiring approval for newspaper acquisitions by existing newspaper owners prior to sale place these businesses at an unfair disadvantage. These controls should be replaced by normal competition-based rules, providing a level playing field for newspaper owners and other potential buyers.

  The UK newspaper market is highly competitive and provides wide diversity of content for readers and broad choice for advertisers. This underlines the case for a move to competition-based regulation of ownership.

  We do not believe that the Advertising Standards Authority, nor the Press Complaints Commission, should be brought under the jurisdiction of OFCOM. We strongly believe the current process of self-regulation to be effective, worthwhile and worthy of protection.


  1.0.1  SMG Newspapers was created in 1996 with the acquisition by Scottish Television plc of Caledonian Publishing Limited, with interests in the following businesses: newspapers; magazines; online design.

  1.0.2  The newspaper business comprises three newspapers: The Herald, a broadsheet newspaper published in Glasgow since 1783; the Evening Times, the largest evening newspaper in Scotland, serving Glasgow; the Sunday Herald, launched in 1999—a broadsheet Sunday newspaper. All titles have online editions.

  1.0.3  The Scottish newspaper market differs markedly from the English market in that there are a number of "city state morning newspapers", for example the Dundee Courier, and the Press & Journal in Aberdeen. The Herald, formerly know as The Glasgow Herald, circulates predominantly in Strathclyde, although it is available throughout Scotland. The Evening Times is Glasgow's evening paper, circulation serving Greater Glasgow, and the Sunday Herald, whilst having a more even spread in its distribution footprint, sells most copies in the West of Scotland.

  1.0.4  The Herald is published daily Monday-Saturday, as is the Evening Times, and the Sunday, as the name suggests, is published as a Sunday newspaper. In terms of circulation, we await the issue of ABC audited circulation figures for the six months ending December 2000. We estimate that the audit bureau's figures will show:

    —  Herald weekday circulation 93,000 copies

    —  Sunday Herald 55,000 copies

    —  Evening Times weekday circulation 104,000

  1.0.5  SMG Newspapers employs 675 people (full time equivalents) including around 130 working in its newspaper printing business. Following a move of all editorial and non-production staff to new offices, adjacent to the TV Studios of Scottish Television, SMG Newspapers has recently embarked on the building of a new printing plant scheduled for completion in summer 2002—this is a project involving an investment of £38 million.


  2.0.1  We welcome the stated intention of considering a lighter touch approach for newspaper mergers. In framing these comments our primary, but not exclusive focus is upon the local and regional newspaper sectors—hereafter "regional newspapers"—within the United Kingdom.

  2.0.2  Unlike most other sectors of the economy, including other media and communications sectors, regional newspapers are subject to industry-specific regulation. The case for regulation of newspaper ownership (and indeed for media ownership more generally) has been predicated on the grounds of plurality. The argument is advanced that the power of regional newspapers to direct and influence opinion makes it unique. Accordingly, increases in the concentration of ownership per se have been seen to be unwelcome. Such concentration would reduce, so it is argued, the plurality of sources of information and opinion.

  2.0.3  These ownership controls are to be found within: specialist newspaper sections of the 1973 Fair Trading Act (which covers transfers of ownership within the newspaper (industry) and the 1980 Broadcasting Act (as amended by the 1996 Broadcasting Act) which focuses upon cross-media ownership.

  2.0.4  The general position in the wider economy is that businesses are free to agree the transfer of assets before the outcome of any Competition Commission reference is known. Clearly, such actions would inevitably be taken knowing that divestment may be required following the recommendations of any Competition Commission inquiry. Within the newspaper industry such transfers are not permitted until the Secretary of State has given approval. This is the case even where a transaction gives rise to no competition or plurality concerns. We regard the position of newspaper businesses to be disadvantageous. It distorts the competitive marketplace. The inability of a newspaper group to purchase another newspaper prior to permission being granted places those businesses which are caught by the provisions at a disadvantage to others which are not caught by the provisions, not to mention the entirely anomalous position of purchasers from outside the newspaper industry or the country.

  2.0.5  Furthermore, the discretion of a Secretary of State to approve mergers is reduced as compared to the discretion available in regard to all other mergers. The Secretary of State is unable to approve a merger between newspapers without reference to the Competition Commission, except in restricted cases.

  2.0.6  Under the Broadcasting Act (and this is a matter more fully covered in our comments in relation to cross-media ownership), regional newspapers may hold a controlling interest in radio licences within their area of circulation, subject to limits and to satisfying a public interest test as implemented by the relevant regulator.

  2.0.7  Any assessment of regional newspapers must take account of the dynamic changes taking place within the media and communications industry. Our earlier comments in relation to the advances in technologically enabled media illustrate this process vividly. These developments in technology, and in particular the growing availability of digital technology, have had and will continue to have a dramatic effect. The traditional distinctions between the various media will increasingly be blurred. In a digital environment content, whether moving images, sound, text or data, will be freely transmittable across any medium. Currently many of us have the benefit of electronic versions of newspapers from around the globe delivered to our PC, palm-top, or television set, 24 hours per day.

  2.0.8  It is not our view that such competition inevitably means the end of regional newspapers. Regional newspapers retain a number of attractive advantages. Paper retains characteristics of durability and portability, that cannot be currently matched by electronic media. Most importantly of all, regional newspapers—or at least successful regional newspapers—possess strong links with their local communities that make them well placed to serve the demand for local news and information.

  2.0.9  The impact of these dynamic changes on regional newspapers remains uncertain. Regulation will however play a significant role in these future developments. Like any other sector within the communications industry, the ability of regional newspapers to adapt to these changes of convergence will to a significant extent be determined by sector specific and general media regulations. Most, if not all of the issues regarding the effects of convergence on competition and plurality, are identical to those faced by the broadcasting and telecommunications sectors.

  2.0.10  As noted, the current system of newspaper ownership regulation is predicated on the grounds of the protection of plurality. The effectiveness or otherwise of the system can only properly be determined by its success at protecting plurality. Media convergence, consumer and advertiser choice, together with changed social trends, suggest that regulation of media ownership by specific media types will not foster the existence or growth of the regional newspaper industry.

  2.0.11  The newspaper specific provisions of the Fair Trading Act have generated a considerable number of references to the Competition Commission. In many of these referrals neither competition nor diversity issues have been raised. This fact alone suggests a need for change. The very large proportion of such references cleared by the Competition Commission similarly suggests that the references serve only to distort a market process with no compensating benefits despite an unnecessary burden on the industry and taxpayers.

2.1  Plurality

  2.1.1  We believe that both issues of plurality and media ownership concentration can be adequately addressed by the application of general competition policy and/or legislation as it applies to all parts of the economy.

  2.1.2  Regional newspapers compete in a highly competitive media market where consumers are faced with a surfeit of choice for news, information, comment and advertising, from other printed and non-print media. It is important to note that this competitive environment applies not only to the battle for readers but also the competition for advertising.

  2.1.3  The majority of regional newspaper advertising categories are, and are likely to remain, exposed to effective competition. The competition authorities when assessing the likely competitive effects of newspaper mergers have properly considered the effects such mergers might have on post merger advertising rates. The issue to be addressed being that a post merger regional newspaper group will have the dominant power to increase advertising rates in the titles concerned.

  2.1.4  We believe that the price of advertising in regional newspapers is subject to effective and competitive constraints from other printed media and the explosion in media sources available within the marketplace. Indeed, these potential future trends are a serious matter for regional newspapers. The growing range of advertising outlets and the growth in the sources of news and information raises the prospect of reducing regional newspapers readership and therefore their ability to fund editorial content.

  2.1.5  New media has the potential to become tomorrow's dominant classified advertising marketplaces. Where classified advertising revenue goes, display advertising revenues may follow. In commenting in their report of April 2000 News Communication & Media Plc and Newsquest (Investments) Limited/Johnstone Press Plc/Trinity Mirror Plc, the Competition Commission stated:

  "Our view therefore is that the market for regional and local advertising remains competitive and now extends beyond newspapers. The local and regional press competes with nationals.  .  .  The new electronic means of communication are already beginning to establish themselves as credible advertising media and the signs are that they will grow as a competitive force".

  2.1.6  Any concerns over the potential anti-competitive effects of mergers as they apply to the advertising market are adequately addressed by the non-substitutability of the various and competing advertising platforms, together with the application of general competition policy.

  2.1.7  If then there is no justification for the current ownership controls on the basis of competition what of the objective of protecting plurality? We consider plurality to encompass the issues of access to news and opinion and the centralised control of news so as to present a single interpretation of issues of public interest. Protecting and nurturing a diversity of opinion, comment and interpretation is properly regarded as a vital element of the democratic process. The maintenance of plurality of ownership has been regarded as the optimum way of preserving this diversity.

  2.1.8  We do not consider that any increase in common ownership of regional newspapers would lead to a reduction in diversity of news, comment or opinion. We believe there are two fundamental reasons for this view: firstly, there is a large and increasing range of alternative sources of regional news and opinion, one need only consider the BBC, Internet and the regional editions of national newspapers; and secondly, the economic imperative linking a regional newspaper's sales and advertising revenue to its ability to be and remain in step with, and reflect the interests of its region, rather than the prejudices of a remote owner.

3.0  FCOM

  3.0.1  We have noted the recommendations for the establishment of OFCOM with powers over telecommunications, broadcasting and communication industries, and in particular, proposals that OFCOM would have specific powers in relation to broadcast advertising and programme content.

  3.0.2  Whilst the integration of a number of existing regulators to provide one consistent source of regulation and guidance is both welcome and sensible, we consider within the context of regional newspapers other issues are of importance.

  3.0.3  We do not believe that any case has been made for an extension of regulation to cover those areas not currently regulated. Moreover, we see no benefit or justification for replacing effective self-regulation with regulation by OFCOM or any other similar organisation.

  3.0.4  The Government has recently expressed its support (and rightly so in our view) for the work of the Press Complaints Commission (PCC) and the Advertising Standards Authority (ASA). The remit of the ASA includes newspapers and their electronic or online versions.

  3.0.5  In a modern, democratic society, we believe that the burden of proof rests upon those who propose an extension of regulation, not those who oppose it. We do not see any persuasive case for the ASA or PCC, nor indeed their roles and functions, to come under the jurisdiction of OFCOM. Perhaps more importantly we see no basis for suggesting that newspapers or their online versions should come under the jurisdiction of OFCOM. We believe that the current process of self-regulation, as applied and developed by both the ASA and the PCC, to be effective and wholly worthwhile and worthy of protection.

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