Memorandum submitted by News International
RESPONSE TO CONSULTATION ON MEDIA OWNERSHIP
News International is grateful for the opportunity
to respond to the Government's consultation document "Consultation
on Media Ownership Rules" and to contribute our views once
again to this important policy area.
Over recent years successive governments and
ministers have repeatedly approached the question of reforming
media ownership regulation. That even after many consultations
and proposals have been exchanged, no clear pattern for reform
has emerged, is a reflection of the difficulty of this task.
The consultation document opens with the Government's
commitment to "making the UK home to the most dynamic and
competitive communications and media market in the world"
(paragraph 1.9) and its recognition that existing legislation
needs overhauling (paragraph 3.1). We believe that the Government's
goal of making the UK media industry a world leader can be achieved
only by significantly lightening the regulatory burden that currently
prevents the industry from fully exploiting its skill and capital.
The Government's other policy objectives are
clear to "ensure that citizens receive a diverse range
of content from a plurality of sources" (paragraph 1.3).
The consultation document rightly makes the point that these two
objectives are delivered by different means. We are concerned,
however, that some of the options offered in section 6 of the
document fail to maintain this distinction.
We agree with the Government's assessment of
the failures of the current regime (paragraphs 3.3-3.4). The system
of media ownership rules is too rigid to allow organic growth
in an industry that is constantly changing and developing. Its
reliance on arbitrary thresholds is one of the fundamental problems.
The current system is also highly discriminatoryas the
document states, the rules are still "directed at particular
areas of the media industry" (paragraph 3.4); most notably,
the newspaper industry and certain companies within that sector.
News International agrees with the key aims
of media ownership rules, as set out in section 5 of the document.
If the UK is to create a world-leading media industry, it first
needs to create the most competitive market possible at home (paragraph
5.2). Such a market will enable efficient, innovative companies
to thrive and will, as well, preserve the plurality of voice and
diversity of content that are essential characteristics of the
media in any modern democracy.
It is clear that the new regulatory framework
must be "robust but adaptable to a rapidly changing technological
and economic environment" (paragraph 5.3), and should provide
a predictable environment in which business decisions can be made
(paragraph 5.4). These goals can both be achieved by keeping any
regulation to the minimum consistent with preserving competition,
diversity and plurality. Indeed, an essential part of this review
should be to subject every proposed new regulation to a proper
cost-benefit analysis, applying the "Better Regulation Task
Forces" five tests of transparency, accountability, targeting,
consistency and proportionality. The new regime must be proven
to be necessary, effective, fair and ultimately to benefit the
consumers of media services; viewers, readers and listeners. Regulations
that do not meet these criteria, and cannot demonstrably be linked
to the achievement of specific policy goals (mere assertion will
not do), should be eliminated.
In this light, we would like to focus our comments
on three areas: foreign ownership rules, cross-media ownership
rules and newspaper mergers. These comments expand on comments
we have made in previous responses to consultation on this subject.
We agree that any policy should be aimed at
"enabling British companies and consumers to benefit from
the investment and skills of international companies" (paragraph
5.3). That goal cannot be achieved by restricting foreign companies
from owning certain media properties in Britain. It is only because
these rules did not apply to non-domestic satellite television
that Britain has become the world leader in that field.
In the UK newspaper industry, a long history
of foreign ownership has brought new investment and innovation,
adding to diversity and competition. From Max Beaverbrook and
Roy Thomson to Conrad Black and Rupert Murdoch, this foreign involvement
has helped to create the most competitive and popular newspaper
market in the world.
Foreign owners, like UK-based companies, must
respond to British consumers' demands for lively, unbiased news.
It is important to stress this point: the competitive nature of
the industry does not allow some foreign owner to foist its own
agenda on British consumers. The media industries are consumer-driven,
not producer-driven. For example, what could be more British than
The Times or The Sun? Or look at News Corporation's TV satellite
business in Asia, which is expanding precisely because of the
strategy of providing local content in different markets. The
objective of any media company is to be successful within its
local market: nationality of ownership cannot drive contentcontent
is determined by the demands of consumers.
Concerns about ensuring that "European
consumers continue to receive high quality European content"
(White Paper, paragraph 4.9.5) are not best dealt with through
ownership restrictions, but rather through content regulation.
At the European level, we already have in place a quota system
that guarantees that over half of broadcast fiction is of European
origin. (And even here, consumers have shown that they, not the
regulators, are in the driver's seat as TV companies have responded
to consumer demand by broadcasting more European-originated content
than the quota system requires.)
Any other Governmens concerns about programming
content should be dealt with through content rules and licensing
requirements, not through regulations based on the nationality
of the owner.
In the modern, global marketplace, it is increasingly
difficult to try to define the nationality of companies. We only
have to look at the preposterous situation in France in which
the French government is questioning France's leading media company,
Vivendi Universal, about its nationality.
The consultation document includes a survey
of foreign ownership rules in a sample of key countries. Yet,
as the table in paragraph 4.2 shows, only six of the 17 countries
studied have limits on foreign ownership. Why Britain should adopt
a policy merely because a minority of the countries studied have
such rules is unclear. Indeed, it is not at all clear why the
policies of other countries, even a majority of them, should necessarily
be a model for Britain.
Britain is Europe's leader in attracting inbound
investment, and a world leader in arguing for the unimpeded international
movement of goods and capital. The idea that a protectionist policy
in the media is justified by a desire to maintain the quality
of programmes is belied by (a) the wide numper of domestically
produced programmes to which consumers have access if that is
their preference; and (b) the generally high quality of many of
the programmes made available from Australia, the United States
and other countries.
In any case, in the context of EU law, the restriction
does not apply to the equally "foreign" and much larger
Vivendi Universal or Bertelsmann. There has been press speculation
recently as to whether Bertelsmann will make a bid for an ITV
company. How can a UK policy of allowing such a bid, while denying
similar opportunities to US, Australian or Indian companies, add
to diversity or shield UK consumers from non-UK content?
Foreign ownership disqualifications date from
an era when scarcity of spectrum and concerns about national security
were the prevailing conditions. These conditions no longer apply.
Indeed, the rules are so out-dated that they apply only to analogue
terrestrial licences. In the context of the Government's commitment
to analogue switch-off, these restrictions look more and more
absurd and should be removed with immediate effect.
Furthermore it has to be remembered that these
controls are quite clearly no longer lawful. Leading counsel opinion
states that the existing foreign ownership prohibitions, and any
subsequent leglislation which fails to remove these prohibitions,
will be open to action on grounds that it is in breach of the
Human Rights Act 1998 by virtue of its incompatibility with the
European Convention on Human Rights. The foreign ownership prohibitions
are in contravention of Article 10 (concerning freedom of expression)
and Article 14 (prohibiting discrimination) of the ECHR.
The consultation document appears to concede
some of these points, yet it backs away from the conclusion that
these rules should be removed. It argues that as long as a number
of our key trading partners, such as US and Australia, impose
restrictions on British ownership of their media, the Government
would not be justified in lifting our own bans (paragraph 6.1.5).
But retaliation-by-imitation of protectionist policies is self-defeating.
If this is the only reason for retaining these restrictions, it
is a weak one.
We repeat: restrictions on the inflow of capital
and skills damage the country that establishes such restrictions,
whatever the policy of other countries. To apply such restrictions
to an industry in which technological innovations originate in
many countries, in which massive capital investment is required,
and in which talent can flow to the most receptive jurisdictions,
is to impede the development of Britain's media industry.
In the areas of television and radio ownership
the Government appears happy to embrace the idea of relying to
a far greater extent on competition law. It suggests that the
time may now be right to allow a single company to own the London
ITV licences and to remove the 15 per cent limit on the share
of TV audience that any one ITV company may have. The justifications
given are that the provisions of the Fair Trading Act 1973 would
address the impact of such mergers on the interests of consumers
and market players such as advertisers, while concerns over plurality
of ownership within commercial TV are seen as being "less
valid, given the range of alternative media and pay-TV options
that are widely available" (paragraph 6.2.2).
News International believes these same arguments
apply to cross-media ownership considerations. We believe that
vigorous application of competition law will prove sufficient
to assure that in any proposed mergerwhether it is a merger
within one media sector or across media sectorsneither
economic power nor an undue concentration of sources of information
and entertainment results. Competition rules are an excellent
tool for this job. In contrast to the current system, which is
based on arbitrary and discriminatory thresholds, competition
rules are sufficiently flexible to keep up with changing market
conditions and the new forms of competition that companies face.
Preserving the right of consumers to choose
between competing products, offered by independent sellers, is
nothing new for the competition authorities. They traditionally
have to decide whether consumer choice would be unduly constrained
if producers of different products were allowed to merge.
So, for example, in a specific geographic market
where consumers are only served by one radio station and one local
newspaper, the case would be very different to another market
in which three local newspapers and three radio stations compete
and there is a high penetration of cable and satellite TV and
high Internet usage. As the consultation document acknowledges
in paragraph 6.2.2 concerning TV and radio, where there is a range
of alternative media and pay TV options available, concerns over
plurality of ownership become "less valid".
The benefits of such a system are that it would
mean applying the same approach to all media, thus reducing complexity
and lightening the overall regularity burden. It would also rely
on the expertise already existing in the competition authorities
and it would replace arbitrary rules with case-by-case determinations
in light of the pertinent specific facts.
There is no good argument for retaining the
existing limits on cross-media ownershipthey are outdated
and discriminatory, they prevent skills and capital acquired in
one sector from being deployed in others, to the ultimate loss
of the consumer; and they have no basis in empirical or other
The option of reformulating the existing rules,
incorporating the extent to which different media differ in their
influence, throws up obvious difficulties. These are touched upon
in the document's own discussion of how a "share of voice"
system might operate (paragraph 6.5.8). It would be virtually
impossible to devise a way of calculating the relative influence
of the different media that is universally acceptable.
A system that establishes a set of limits on
all forms of cross-media ownership would do no more than reintroduce
and extend arbitrary limits. Necessarily any scheme of regulation
that imposes limits on investment will prove to be arbitrary and
quite possibly discriminatory in its effect. Since the passing
of the Broadcasting Acts of 1990 and 1996 we have seen absurd
distortions in investment behaviour in order to accommodate the
arbitrary rules imposed by those Acts. Any comparable scheme of
cross-media ownership regulation is going to produce the same
Furthermore, by its very nature such a formula
of regulation is a gift to the lawyers and if it is introduced
we will see a proliferation of complex corporate finance structures
and off-balance sheet contractual arrangements that will in essence
try to frustrate the denial of investment opportunity.
This is not a desirable development for the
industry. And similar consequences are going to follow from any
model that seeks to peg cross-media interest at any stated level
What is required, instead, is proper analysis
by the competition authorities of the effects of any proposed
merger on the relevant market for news or views in the relevant
We do not accept the idea that cross-media ownership
rules could be combined with a rule that allows these limits to
be exceeded if a plurality test is satisfied. This retains the
disadvantages of the current arbitrary system while introducing
a new test for media companies to pass before they are allowed
to merge. The burden of proof should be the other way aroundit
should be for the authorities or the Government to prove their
case if they wish to prevent a merger, rather than for the companies
concerned to prove that they meet certain complex requirements
in order to be given an exemption from the usual limits.
Why should there be a need for special rules
where newspapers are involved? The concerns about plurality of
ownership can be met in the same way whether the prospective merger
involves, say, a magazine publisher and a TV broadcaster, or a
radio broadcaster and a local newspaperie by the thorough
application of competition rules.
In any case, the so-called "Plurality Test"
that appears in Annex B would be unlikely to pass the Better Regulation
Task Force's test of transparency.
Finally, on the question of reviewing ownership
rules in the future, News International believes that the provisions
should lapse unless their continuation is agreed by Parliament,
based on recommendations by the regulator that demonstrate, after
public consultation, the continued need and cost effectiveness
of each regulation that is to remain in force.
The Government's White Paper promised to consider
a lighter touch approach to newspaper mergers.
News International feels that the two options contained in the
Consultation document do not adequately deliver this objective.
News International disagrees with the view expressed
in paragraph 6.4.5 of the consultation document; we believe that
the only sensible way forward is to allow newspaper ownership
to be regulated by normal competition law. We do not accept that
there is any remaining justification for treating the ownership
of a newspaper publishing company any differently from the ownership
of a TV or radio broadcaster or, for that matter, any other product.
A properly competitive market is a pluralistic market in the sense
of the Government's policy objective.
The consultation document refers to the "particular
public sensitivity" relating to newspapers (paragraph 6.4.3).
It is true that newspapers do not operate under the same impartiality
rules as the broadcasters. However, that is because there is healthy
competition in the market for national newspapers, in contrast
to terrestrial TV where monopoly regional and national licences
are granted. In this context, News International does not disagree
with the Government imposing impartiality rules and other content
requirements as part of a licence agreement. However, in the longer
term, with the liberalisation of the TV and radio sectors and
the increased competition from pay TV and other new media, and
where barriers to entry (such as spectrum scarcity) no longer
exist, we believe that the time will come when there will be no
further need for impartiality rules for any of the media.
In paragraphs 6.4.13 and 6.4.14 the paper puts
forward two alternative regimes for newspaper mergers. Neither
is attractive or appropriate. Under the first of these proposals
OFCOM would be given the duty of assessing whether a particular
newspaper transfer would compromise accurate presentation of news
and free expression of opinion. This would be a separate and additional
hurdle to Competition Act clearance. This proposal amounts to
excessive regulation, hardly complying with the objectives of
the Better Regulation Task Force, and, dangerously, would put
a regulator in the business of deciding on the accuracy of newspaper
reporting. There can be no greater threat to freedom of the press.
There is also the broader question of whether OFCOM, primarily
established to deal with and focused upon electronic communications,
is suitable for also dealing with print media.
The alternative suggestion presented in paragraph
6.4.14 is again not a suitable way forward. Apart from the unsuitability
of OFCOM (see below), there is no need for the "exceptional
public interest gateway"an idea which is a product
of the fiction that there is a meaningful difference between an
effectively competitive market place and an effectively pluralistic
one. The newspaper market, at national, regional and local level,
is already effectively pluralistic. There is no need to create
a plural market, merely defend it. Vigorously applied competition
law (in its new form) is perfectly capable of doing that, using
tried and tested institutions and personnel.
The use of OFCOM for the purpose of advising
on matters relating to newspapers would be entirely inefficient.
OFCOM, as currently envisaged, will be an amalgamation of the
Independent Television Commission, the Office of Telecommunications,
the Radio Communications Agency, the Radio Authority, and the
Broadcasting Standards Commission. None of these agencies has
any knowledge or experience of the newspaper industry.
The consultation document asks four further
questions with regard to newspaper mergers: whether the scope
of controls should be revised in relation to newspaper assets;
whether it is appropriate to retain the criminal sanctions that
underpin the regime; whether the regime should be extended to
include potential owners who do not already own a newspaper; and
whether local titles should be taken out of the regime.
With regard to the control of newspaper assets,
there has been such a wholesale technological change in the production
of newspapers since the provisions of the Fair Trading Act were
written in 1973 that the reason for such special provision has
now ceased to exist. The production plant and assets now needed
to establish a newspaper are so much more widely and easily available
that regulatory control at plant level is neither feasible nor
desirable. In current times the establishment of a newspaper production
plant or its facilities is no more special than the creation of
a TV studio. Consequently, there is no rationale for special controls.
On the subject of criminal sanctions, the unusual
provisions of section 62 of the Fair Trading Act 1973, making
it a criminal offence to fail to pay due regard to newspaper merger
controls, stands out as an odd and exceptional provision in current
merger law in the UK. This looks distinctly like a provision provoked
by the prevailing mood of the time of its enactment. There is
no justification for it and it should be abolished.
We turn, now, to the treatment of potential
owners who do not alredy own a newspaper. We see no reason to
exempt foreign or UK non-newspaper purchasers from any merger
regime that the Government might establish. It may well be that
the purchase of a single UK newspaper by a foreign buyer or local
new market entrant will provoke no competitive concerns. In those
circumstances the merger will pass scrutiny easily. If the potential
entrant's presence in the market would create competitive problems,
consistent application of uniform and universal rules will nip
the problem in its incipiency. No special exceptions to standard
practice are required.
Finally, with regard to local newspapers, the
consultation document seems to accept both that existing practice
marks a difference in the way local newspapers are treated, as
contrasted with regional and national newspapers, and that such
a difference should be maintained in the future. We see no justification
for this difference. The considerations relevant to a policy for
the local market for newspapers are the same as those that are
relevant on a national or regional level: consumers should have
available diverse and competitive sources of news they find relevant,
be it local, regional, national or international. The burden of
complying with the regime should, as in all cases, be proportionate
to the ability of affected parties to bear that burden.
Reforming media regulation is both difficult
and important. It is essential that the UK system is flexible
and clear. The key objective must be to allow media businesses
to develop, change and expand in response to consumer demands.
The Government's role is to serve the best interest of the UK
consumer. Truly competitive markets are plural markets. The new
competition laws should be allowed to do their job. There is no
need for further regulation, extra bureaucracy and more institutions.
Issues of content regulation and ownership restrictions must be
dealt with separately. Arbitrary thresholds should be removed
to allow relevant authorities to take account of the true market
for information, news, entertainment and opinion. Any regulation
should be subject to a regular review, and if it is shown not
to be operating in the public interestie in the best interest
of viewers listeners and readersshould be automatically
1 News International's pre-White Paper submission,
23 June 2000, and News International's response to the White Paper,
including addendum, 6 February 2001. Back
"A new future for Communication", December 2000, paragraph