Examination of Witnesses (Questions 541
- 559)
TUESDAY 5 MARCH 2002
DR IRWIN
STELZER AND
MS ALISON
CLARK
Chairman
541. It is very nice to see you here again.
It is always a pleasure to see you.
(Dr Stelzer) It is nice to be here.
Michael Fabricant: Dr Stelzer, you probably
know that I am the only hero . . . well, maybe not the only one,
but I am a great hero of Rupert Murdoch.
Chairman: You are a hero of his?
Michael Fabricant: No, he is my hero.
Chairman: A bit of a difference there,
Michael
Michael Fabricant
542. Let's wind back the video tape and start
again. Rupert Murdoch is my hero and the reason why he is my hero
is because he made a difficult decision and a very expensive decision
to almost bankrupt News Corporation to go into satellite communication.
Of course, now that he enjoys a near monopoly, others criticise
him for it, nevertheless they did not have the guts to do what
he had to do in those early days. Dr Stelzer, when you last came
here in January of last year you referred to an "aura around
Mr Murdoch". There is no question that he is still very much
a bogeyman in the United Kingdom, particularly with regard to
media ownership. Is there anything that News Corp is doing to
try to overcome this problem and to stop the attacks, if you like,
on News Corp, with the view that they/you have a unique position
in dominating digital technology in this country for television
transmission?
(Dr Stelzer) First of all, I hate to quibble with
such a glorious statement but in terms of monopoly power it is
just not true; they operate in highly competitive markets. As
far as this apparently famous statement of mine about the Murdoch
aura, it was designed to emphasise that there was a certain irrationality
in decision making about the media industries which seemed to
stem from what I considered an irrational, negative reaction to
Murdoch. I do not think it concerns him very much. I do not think
News Corp spends a lot of time worrying about it. News Corp solves
its problems in the market, not in any other way. So the answer
to your specific question is they do not think about it too much
and I do not think they are doing anything about it.
543. Is the market distorted, though, by government
legislation of the United Kingdom regarding media ownership? Would
you like to see media ownership rules banned altogether? Or do
you like the SMG model, which I heard you were listening to, saying
that revenue equals power and that should be the model by which
we determine how much corporations own of the various media companies?
(Dr Stelzer) I would like to see the rules concerning
competition policy applied fully to the media industry. As you
know, I have been a strong advocate of strengthening competition
policy, including criminalisation of certain offences under competition
policy.
544. Could you amplify that for us?
(Dr Stelzer) Yes, I think people who fix prices should
go to jail. I think that is the biggest deterrent to price fixing.
I do not think fines are a very effective deterrent, since the
people who commit the acts do not in the end pay the fines. Going
to jail has a certain greater deterrent effect on behaviour.
545. It depends on which jail.
(Dr Stelzer) No. I cannot think of one that I would
want to go to. I am very, very strong on competition policy, which
is the direction British policy is going fortunately, and very
able people now are running it at OFT. The other rules, it seems
to me, do distort competition—some of the other rules. The
rules that bar foreign ownership, for instance, prevent the free
movement of capital, which, as a free trader (with apologies for
steel—I am sorry), I am for. I think that the cross-ownership
rules prevent the free movement of talent between the sectors
in the media industry. I think that is unfortunate. I think the
other distortion comes from the ability of the BBC essentially
to write its own cheque in determining the expansion areas, which
deters potential investors, if they have to worry that free competition
is around the corner. So I think those are the kinds of distortions
that you now have the opportunity, in reviewing legislative policy,
to correct.
546. You have raised a whole series of areas.
I wonder if I could question you on the position of foreign ownership.
I do not know whether the law has changed, but, certainly when
I was working in the US, the FCC had very strict rules about foreign
ownership; in fact, it was not permitted on radio and television
stations. I do not know whether that has changed and maybe you
can tell me. Also there was the whole question of maximum ownership:
I think, if I remember rightly, something like seven TV stations
was the maximum. Could you, first of all, tell me what is the
current position in the US?—and then I will come back to
the British position.
(Dr Stelzer) On foreign ownership, the rules which
were made in the thirties to prevent the Germans seizing control
of the radio industry still exist but they are being applied with
increasing flexibility by the FCC. But they still exist, and I
think those are likely to stay so long as the Democrats control
the Senate because Senator Hollings, who is the key legislator
there, is in favour of them and of retaining them. As far as other
restrictions on media ownership, those are crumbling in the face
of court challenges which have now removed the restriction on
mergers of cable and broadcast networks. The rules on cross-ownership
between newspapers and television stations, there have been waivers
issued, which fortunately introduces diversity into the New York
newspaper market, and the limitations on the ownership on the
reach of the television stations that one owns have been attacked
by the courts and are now being re-examined. I think they will
go; they are on their way to going right now. That is about it
on the current state of play.
547. SMG drew the analogy with magazine ownership
and said that there are no restrictions there. But of course the
argument in the past has been, "Well, you can have as many
magazines or newspapers as you like, there is no restriction on
it," whereas of course there has been a problem with frequency
spectrum in the past, with the number of television and radio
stations you can have. Of course that all goes to a pretty large
degree with cable and with satellite, though not completely—one
must not get carried away with that—but, nevertheless, we
have not got to that stage yet. It is still something like 60
per cent of people who are able only to watch analogue television
in the United Kingdom. Would you advocate, when there is eventually
a digital switch-over in this country—and I gather that
we are aiming for 2010, which seems pretty far off to me—that
all restriction on media ownership should go completely?
(Dr Stelzer) I do not know. That is why, when I was
listening to Mr Wyatt talk about playing catch-up with the legislation
and I listened to this kind of arbitrary mismatch the Scottish
people were suggesting as a substitute for competition policy,
it occurred to me that if you legislate the rules of the game
but not the score you are way ahead. In other words, if you say,
"Look, we are for vigorous competition. It is our goal and
we are going to have competition policy. However it comes out
is fine with us, so long as there is competition," if it
results in substantial monopoly power you then have to talk about
regulating it. But to try to predict what the media landscape
is going to look like in 2010 . . . I mean, I know there are people
who do it, and they do it for a living—they are some of
the people who forecast Enron's earnings!—but I would not
want to try to do it.
548. Finally, if I can take you back to this
question of foreign ownership. Like you, I am a free trader. Like
you, I am keen on the World Trade Organisation—apart from
anything else, it makes other political blocks pretty irrelevant
if you have the World Trade Organisation (and I do accept your
apologies for the US policy on steel.) But, having said that,
do you not think there is possibly going to be a democratic deficit
or democratic danger if you had no restriction at all on the amount
of media that any organisation would be allowed to own, and if
an organisation from abroad were to come along and invest in the
United Kingdom or in the United States' media and dominate it
and use it for ends which are not in the interests of the people
or the government of the nation in which they are buying?
(Dr Stelzer) There are six strands in that question.
Let me just address a couple of them. The dominance question,
it seems to me, is solved by competition laws; that is, competition
policy should prevent anyone from dominating any industry. So
we have rules against market dominance and I think those work
reasonably well. As far as a foreign owner being able to dictate
the content, it seems to me consumers dictate the content. We
know that there are some publications—Pravda was
one such, and so on, Nobody paid much attention to them. It is
not what people look at. So long as you have no market dominance,
so long as you have no ability by government to specify that you
shall read this or you shall hear only that, I think consumers
sort it out. Consumers are pretty smart and they can tell propaganda
and entertainment on the one hand from news on the other. So it
would not be a thing that would worry me. Some situation might
develop some day, sure, it might, but, right now, to legislate
because of the fear of some foreign owner—and the definition
of foreign is really getting increasingly peculiar, since it would
apply to, let us say, News Corp but not to Bertelsmann or Vivendi
as foreign—it seems to me, is just not a worry I would legislate
about.
Derek Wyatt
549. I just want to engage in a sort of quiz
with you. Do you know who published Harry Potter?
(Dr Stelzer) No.
550. Do you care?
(Dr Stelzer) No.
551. Because?
(Dr Stelzer) Because there are lots of publishers
around and consumers decided they wanted that product and they
had it available.
552. And they bought it because it was, for
them, a high quality book.
(Dr Stelzer) Yes.
Chairman: Or they thought it could make
money.
Derek Wyatt: No, the publisher publishes
it to make money; the consumer reads it because it has been recommended.
I use that as an illustration. Is it a peculiar British thing,
that we are so wrapped up in content? For instance, I go to the
cinema. I do not go to watch Gosford Park because it is
made by X or Y; I go because the chap round the coffee table says
it is a good film and I should go. I never look to see who makes
it, any more than I look to see who makes a film on television.
Chairman: That may well be in many, many
cases, but, for example, children go to see a Disney film because
of the name Disney, do they not?
Derek Wyatt: They do. Shall we have a
separate conversation?
Chairman: What I want you to do is to
refine your line of questioning.
Derek Wyatt
553. I am trying to get the British cultural
thing about content.
(Dr Stelzer) Yes. You are putting an American in terror.
First of all, it is awkward for me to be here in the first place,
and, second of all, for me to tell you about British cultural
peculiarities is not exactly the ground on which I want to stand.
I do think there is a difference between America and Britain,
if I can put it that way. In Britain you are more willing to have
Government regulate content than we are in America. In Britain
you are more willing to attempt to have a lack of bias in news
reporting whereas in America we would attempt to rely more on
diversity of news sources rather than try to get somebody to pretend
he is unbiased as people here pretend they are.
554. In that sense, the FCC does not regulate
content, is not interested in content.
(Dr Stelzer) It is not allowed to. We have a first
amendment.
555. 1923.
(Dr Stelzer) Yes. We have a first amendment—glorious
first amendment.
556. Do you find it peculiar that in OFCOM so
far much of it is on content rather than on regulation?
(Dr Stelzer) I do not find it peculiar within the
context of British culture. I am not prepared to say that completely
unregulated American culture is superior to British media culture.
That is for democratic societies to decide for themselves. I view
the first amendment as a very important thing in my life. It may
be better, but if in Britain the democratic decision is that various
regulatory bodies can contribute to some sort of superior content,
I think that is for British society to decide.
Derek Wyatt: I suppose I was really trying
to tempt you to say that the whole thing about media ownership
is totally irrelevant. If the consumer wants to watch, they will
watch. As the BBC will find out, nobody will watch BBC3 or BBC4.
In fact less than 11,000 people overnight were watching BBC4 this
weekend.
Mr Bryant
557. Thirty thousand.
(Dr Stelzer) But there is a difference. There is a
compulsory element involved in your system in which, whether they
watch it or not, they pay for it. That is a very, very big difference.
In America, if they do not watch you, you are broke and you are
off the air. Here, if only 11,000 people watch you, you plunge
forward with still more money. I think that is a very big difference.
Derek Wyatt
558. I have been an MP for five years and in
that period Granada and Carlton have got slightly bigger as UK
players but in the same period Vivendi has moved from a utilities
company to the second largest global media organisation in the
world. In other words, the French have done it but the British
have not. Do you think we are looking at our navel a bit on this
ownership? Is it important for the industry that there should
be one global British media player?
(Dr Stelzer) No, I do not think so. I am not a great
believer in national champions. We have had them; they have failed.
I think the future of Vivendi, at least if you look at the shareholders'
reaction, is not a model that you would want to follow—not
that Carlton or Granada are either. But I think that if a media
company is successful and meeting the needs of British consumers,
the notion that it is not also conquering the rest of the world
would not trouble me as a policy maker. I think this talk about
punching above your weight or slugging it out on the international
scene may be true—you know, if you are British Airways,
you have got to do that—but I am not entirely certain that
that is essential. There are some companies, if they can do it,
they should do it, but I do not think it is essential to the success
or the satisfaction consumers will get from the British media
companies.
559. Do you think that Mr Gates buying up first
option internet rights for major movies threatens the whole way
in which films are funded and seen?
(Dr Stelzer) Mr Gates is a separate case. Mr Gates
is a known violator of competition law and has been found to be
by the trial court and by appellate courts. His competitive tactics
are not those that are sanctioned by law, so that you cannot say,
"Here is somebody who won the game fairly." This is
a company that has a tradition of anti-competitive practices,
so I worry when they get involved in new areas. I do not know
enough about that area, but anything they do, given their past
history of law violation, I would look at quite closely.
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