Memorandum from News International Ltd

 

Introduction

 

1. News International Ltd welcomes the Culture, Media and Sport Committee's inquiry into the future for local and regional media.

 

2. News International's subsidiaries publish four paid-for national newspaper titles - The Times, The Sun, The Sunday Times and News of the World - and the free newspaper, thelondonpaper, which circulates in London.

 

3. This inquiry comes at a time when the newspaper publishing industry is facing both massive structural change led by the shift to digital media and severe economic challenges caused by the recession.

 

4. The national, local and regional press are all subject to similar commercial pressures as a result of the burgeoning of alternative means by which consumers can access similar content and by which advertisers can reach their target audience.

 

5. News International wishes to contribute to this inquiry, not only as the publisher of thelondonpaper, but also because our national newspaper titles are facing many of the same challenges and issues under review.

 

6. News International supports the goal of sustaining a plurality of media sources. We hope that this inquiry can provide an opportunity to re-think the approach to regulation of the newspaper sector [i.e. not just local & regional newspapers], which is so vital for the UK economy and democracy.

 

7. Our comments focus on three areas: The impact of digital convergence on the newspaper sector; the desirability of changes to the regulatory framework; and the appropriateness of initiatives undertaken by public sector bodies in this area (in particular the BBC).

The impact of digital convergence

8. The internet has introduced a new dimension to the competition faced by newspaper publishers. New forms of competition for consumers' attention and for advertising revenue are being developed all the time and many of the companies operating in this space are not traditional media companies.

 

9. Furthermore, the pace of change is far greater than anything envisaged by those who drafted the Communications Act 2003. In the last six years, new online products and services have been developed with breath-taking speed.

 

10. The following are examples of online offerings, available today, that were unheard of in 2003:

 

Monthly Unique Visitors Feb 2009

 

Facebook 22,656,000

Bebo 9,593,000

MySpace 7,122,000

Twitter 1,427,000

 

(Source: ComScore)

 

11. As little as five years ago, regulators may have questioned whether different media platforms were effective substitutes for each other, in terms of both readers and advertisers. However, today we know that the converged world provides consumers and advertisers with genuine choices.

 

12. The following table shows the growth in the number of media outlets between 1999 and 2007. It illustrates not only the increase in plurality and consumer choice but also the increase in competition faced by businesses operating in this sector:

 

Medium 1999 2007

Multi channel homes 7,126,000 19,490,000

Consumer Magazines 3,174 3,445

Commercial Radio Stations 235 324

Cinema Multiplex Sites 168 243

UK Home Internet Users 7,470,000 32,325,000

National Newspapers 19 20

[Free Daily Dist Newspapers 1 6*]

 

*Includes 10 Regional Metro Editions

 

13. The following table shows the extent of cross over usage between different media:

 

TV Radio Online Press

TV x 99% 99% 99%

Radio 69% x 74% 72%

Online 76% 82% x 75%

Press 79% 82% 77% x

 

(Source: TGInet Wave 18. Read up and across, e.g. 75% of national press readers have accessed the internet)

 

14. We know that more and more people are choosing to access news, sport and entertainment online. Young people in particular are more likely to get their news predominantly from online sources, including public sector offerings such as the BBC and news aggregators such as Google. A study in America as long ago as 2005 showed that the Internet was already becoming the primary news source for young people (Pew Internet and American Life project, author John Horrigan). And a recent TGI.net survey (TGI Internet Wave 18) shows that 32.3% of 20-24yrs old have visited a news site. The internet is an important part of young people's news seeking portfolio.

 

15. The change in consumers' behaviour means there is increased choice for advertisers seeking those audiences. There is a wider range of advertising opportunities for advertisers than ever before.

 

16. The following table shows the change in adspend share by medium between 2003 and 2009:

 

Medium 2003 2009*

Internet 3.1% 22.6%

Nat Press 12.8% 10.7%

Regional Press 20.0% 13.6%

TV 25.1% 22.3%

Radio 3.6% 2.8%

Outdoor 5.3% 5.6%

Consumer 5.3% 4.4%

B2B Mags 7.1% 5.0%

Cinema 1.0% 1.0%

D Mail 16.7% 12.%

 

(*2009 Forecast. Source: Advertising Association)

 

17. The Newspaper Society has provided much evidence of the decline in classified advertising experienced by the local and regional press. The digital world allows companies to reach consumers directly through search advertising, rather than through the traditional media. The overall impact is that advertising is being diverted away from national, as well as local newspapers, to new forms of online media.

The desirability of changes to the regulatory framework

18. Our comments in this section focus on three areas: the need for the competition authorities to adopt a wider market definition when considering media merger cases; the illogicality of the media public interest considerations; and the desirability of further relaxation of the cross media ownership rules.

 

Market definition

 

19. The print media is not a self-contained market. Newspapers at local, regional and national level face competition for readers and advertisers from TV, radio, cinema, magazines, directories, outdoor and - as we have argued above - ever increasingly from the internet. Competition comes from both the public and the private sector.

 

20. We believe that the relevant market is now wider than that which was conservatively adopted by the competition authorities in previous newspaper and other media merger cases. In future, the competition authorities must not ignore the fact that in the current converged media market, competition for readers and advertisers now crosses newspapers, other print media, outdoor, online content and broadcasting.

 

21. In particular, the burgeoning area of search advertising provided by search engines, and all forms of internet advertising and promotion, divert advertising spend from newspapers.

22. Competition from other media is sufficient to constrain newspapers from raising their cover prices or advertising rates, however concentrated the newspaper market may become.

The media public interest considerations

23. News International has consistently taken the position that the media public interest considerations, which have been included in the merger control regime, are unnecessary and that the best way to guarantee plurality and diversity is to protect competition in the media market.

24. The newspaper-specific public interest considerations do not distinguish between local, regional and national newspapers. In particular the consideration in section 58(2B) may be applied to a market for newspapers in the UK or a part of the UK. This consideration takes an artificially narrow approach to the public interest, as its scope is confined to views expressed in newspapers, in contrast with section 58(2C)(a), which looks at plurality of control of media enterprises (including, for this purpose, newspaper enterprises). Consumers have access to many sources of news and views on international, national, regional and local issues, other than in newspapers. These sources include television and radio (provided by "media enterprises" within the meaning of section 58) and magazines (which are available to all consumers) and internet sources, both in the public and private sectors (which are available to a growing proportion of consumers through domestic broadband connections). It is therefore extremely artificial and serves no genuine public interest to subject newspaper mergers to a plurality test by reference to views in newspapers alone. In News International's view section 58(2B) should be repealed. The grounds for doing so apply equally to national, regional and local newspapers. Should any such provision as section 58(2B) be retained, it should (without subjecting non-newspaper mergers to any review other than under the general merger regime) take full account of news and views available to consumers from non-newspaper sources, whether print, broadcast or internet.

25. In summary, News International considers that the newspaper public interest considerations in their current form are not appropriate for newspaper mergers, whether national, regional or local. They should be repealed, but if they are not they should be drafted so as to require that due account is taken in the assessment of the public interest of other sources of news and views which are available to consumers.

Cross media ownership rules

26. The Communications Act 2003 removed some of the media ownership rules that were no longer considered justified at the time. The Government should review now whether the remaining cross media ownership rules are justified or relevant today. As we have argued above, much has changed since 2003 and the media landscape today is more pluralistic and diverse than ever envisaged at that time.

27. In its 2006 review of media ownership rules, Ofcom noted that: "As diversity of services and choice of content from different owners in the market increase, and as the consumer acquires increasing levels of control over what sources of news they use and when, the justification and need for specific ownership rules to guarantee plurality will arguably diminish."

28. We agree entirely with the Government's aim of ensuring a degree of plurality and providing freedom to companies to expand, innovate and invest. But we believe that these two aims can now be met solely by the thorough application of competition law. As we argued in the consultation phase prior to the Communications Act 2003:

29. "News International believes 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."

The appropriateness of print and electronic publishing initiatives undertaken by public sector bodies

30. Newspaper publishers face constant competition from a growing range of public sector news and information providers, most notably the BBC, but also local authorities.

 

31. An audit by the Newspaper Society in April 2009 found half of the local authorities surveyed in London published a newspaper or magazine on a monthly or more frequent basis and 90 per cent contained or accepted third party or public sector advertising.

 

32. Earlier this year the BBC Trust approved a 30.7m increase in the BBC's online budget over three years - an increase of 27% over its existing budget.

 

33. BBC Worldwide has been given approval to launch a Lonely Planet magazine, creating direct competition for travel magazines such as The Sunday Times Travel Magazine.

 

34. We are especially concerned that the interim Digital Britain report envisages a joint venture between BBC Worldwide and Channel 4, which would inevitably lead to an aggressive expansion online in the UK by both brands. We believe that this is a wrongheaded way of trying to ensure plurality of public service content because it ignores the powerful contribution made by the commercial markets.

 

35. Last year the BBC Trust rejected the BBC's proposals to launch a 68m network of local news websites with video content. The Chairman of the Trust, Sir Michael Lyons, said that in reaching this decision the Trust had recognised the negative impact that the local video proposition could have on commercial media services. He also said that the decision would mean that local newspapers and other commercial media could "invest in their online services in the knowledge that the BBC would not be intervening in the market".

 

Conclusion

 

36. Consumers are best served by a robust commercial newspaper sector, which is able to invest in quality journalism and reach its customers on whichever platform they choose.

37. As many Members of Parliament recognised in the House of Commons debate on local and regional media, the transition to a digital world brings enormous potential for consumers, but also comes at a cost.

38. Media businesses across the board are still struggling to develop a sound and enduring business model for the fast-changing digital age. This challenge has been hugely exacerbated by the economic recession and shortfalls in advertising. We are already seeing large-scale loss of jobs and closure of titles.

 

39. We must ensure that new businesses models can be developed, even in this difficult economic climate, without being strangled at birth by an outdated regulatory framework. It is vital that the Government, the competition authorities and media regulators focus on how they can support the long-term viability of a thriving and diverse media in the UK.

May 2009