Supplementary memorandum submitted by
News International Plc
News International is grateful to the Select
Committee for its invitation to provide evidence for its inquiry
into the Government's communications policies. This memorandum
focuses on those issues that most closely concern News International:
foreign ownership restrictions and cross-media ownership rules.
News International recognises the importance
of reforming the existing media ownership regime. 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 latest consultation document ("Consultation
on Media Ownership Rules", published in November 2001) 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 skills 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 discriminatory—as 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 two areas: foreign ownership restrictions and cross-media ownership
rules.
FOREIGN OWNERSHIP
We agree that any policy should be aimed at
"enabling British companies and consumers to benefit from
the investment and skills of international companies" ("Consultation
on Media Ownership Rules", 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 content—content
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 Government 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 "Consultation
on Media Ownership Rules" includes a survey of foreign ownership
rules in a sample of key countries. Yet, as the table in paragraph
4.2 shows, only 6 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 number 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 legislation 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.
CROSS-MEDIA
OWNERSHIP
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% 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 merger—whether it is a merger
within one media sector or across media sectors—neither
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 media 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 regulatory burden. It would also rely
on the expertise already residing 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 ownership—they 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
studies.
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
results.
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
of investment.
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 geographic
area.
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 around—it
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 newspaper—ie 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.
CONCLUSION
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 interest—i.e. in the best
interest of viewers, listeners and readers—should be automatically
deleted.
28 February 2002
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