House of Commons - Proposed Code of Recommended Practice on Local Authority Publicity - Communities and Local Government Committee

Proposed Code of Recommended Practice on Local Authority Publicity - Communities and Local Government Committee Contents

3 Unfair competition?

30. The most basic presumption built into the proposed new code is the notion that council publications divert readership and, in particular, advertising expenditure away from the traditional press, not least because they have a larger captive audience made up of every local household; and that this is being done with subsidy from local authority budgets. As the consultation document proposing the new code makes plain, the Secretary of State believes that "the existing rules on local authority publicity have resulted in taxpayers' money being wasted" and the free press undermined.[30] Likewise, in his oral evidence Minister for Local Government Grant Shapps told us "there is a real problem out there that needs to be tackled by a framework";[31] "too many authorities" are producing "propaganda published on the rates [...] off the back of hard pressed council tax payers".[32]

31. The section of the revised code addressing the principle of 'appropriate use of publicity' (clause 26-30) therefore specifies that local authorities should:

Not publish news periodicals which seek to emulate commercial newspapers in style or content;
Not issue newssheets more frequently than quarterly;
Not include material other than information for the public about the business, service and amenities of the council or other local service providers; and
Ensure that all publicity material is clearly identified on its front page as a product of the local authority.

Advertising

32. As the Newspaper Society told us, third party advertising is "incredibly important to the local newspaper industry";[33] they argued that publications funded by the council tax payer "are competing on an entirely unfair basis, when we are running a business on a commercial basis and they are not", and so threaten the survival of a healthy and independent free press. In an article he wrote for the Observer Eric Pickles (Secretary of State for Communities and Local Government) was forthright in condemning "weekly town hall Pravdas" arguing that they should not be "swallowing much-needed advertising revenue from local papers."[34]

33. In 2009, the Office of Fair Trading had noted "broad concern amongst stakeholders about the potential threats to commercial newspapers' revenues from [local authority] publications" in a review of the local and regional media merger regime,[35] and had recommended that the Government review this area further. Subsequent to this, in a pledge in the Digital Britain report,[36] the last government asked the Audit Commission to look at "the relationship between advertising in local authority and commercial newspapers, the prevalence of this practice, its impact; and to make recommendations on the best practice and if restraints should be placed on local authority activity in this field".[37]

34. The Audit Commission refused this request on the basis that its remit did not lend itself to examining the health of local newspapers or the impact of council activities on commercial entities. It was suggested that competition issues in the local media market would be better suited to the expertise of regulators with a specific competition remit. Instead the Audit Commission considered council periodicals within the general context of council spending on communication with the public.[38]

35. After what the Newspaper Society told us it regards as "a lot of buck passing and delays",[39] in January 2010 the Audit Commission made its report. It found that over 90% of English councils published a periodical, but that "few of these have characteristics to commercial newspapers" because less than one in twenty of them are published more than once a month. It did however find that 47% of council periodicals in England took some private-sector advertising.[40] Further information about local authorities' earnings from advertising came from an LGA survey (see below).

How much do local authorities earn from advertising sold in their own periodicals?
In its submission to the consultation the LGA states that in 2009/10 just under 60% of respondents to its latest survey confirmed they receive advertising revenue and that this averaged £61,000 per authority in this group.

Publications produced by more than half of all respondents to their most recent survey[41]either carried no advertising at all (33.7%) or reported that adverts comprised less than 10% of the publication.

The same LGA survey also confirms that a small number of council publications attract significantly higher levels of advertising expenditure: notably that London borough publications earn roughly four times as much in advertising revenues (£215,000 on average) as the next highest earning groups of authorities (Counties at £45,000) and almost eight times as much as the highest earning group of unitary authorities (which average £28,000).

LGA's 2009/10 survey also confirmed that across all 353 local authorities in England average advertising revenue figures stood at £33,000 per authority, implying a total revenue probably in excess of £11.6 million across the country as a whole—a figure up by nearly a third on an estimate of £8 million generated by previous LGA survey for 2008/09.

36. While the Newspaper Society considered the Audit Commission's finding to be prima facie "evidence that council publications are in direct and damaging competition with independent local papers"[42] the Audit Commission saw things differently: it suggested that "few council publications are published sufficiently frequently to be viable media for most local advertising".[43]

37. The Newspaper Society then wrote to the Office of Fair Trading to demand it follow this matter up. Subsequent to this however the OFT's Chief Executive, John Fingleton, told the Culture Media and Sport Committee's inquiry into Local and Regional Media that he did not think local authority publications and competition for advertising was an issue which fell into the OFT's statutory remit.[44] Nonetheless, the OFT had evidently seen enough about the issue to cast doubt on the contention that competition from local authority publications posed a serious problem for local newspapers:

The extent to which this is a really harmful problem in the market is something we have struggled to understand. The local newspaper market is about £3 billion a year. Our estimate is that there is about £50 million of local authority expenditure in this area, so that might be a measure of the size of the self-supply, and the decline last year I think was close to half a billion in the local newspaper advertising, and about a billion over the last five years, so that decline is quite rapid. So I think there is a risk that the issue about what local authorities are doing in this space, while contributing to the problem, is not in fact as big an issue as the internet and the decline in demand generally facing newspapers.[45]

38. Having secured action by the new Government in the form of proposals to revise the code the Newspaper Society appears to have dropped its demand for an investigation by the OFT.[46] Nevertheless, in its response to the consultation on the proposed Code the Newspaper Society pledged that its members would be describing the local problems faced in their submissions to the consultation.

39. Of all the responses to the consultation from news organisations (as classified by the Department), only half a dozen (out of more than 75) independent newspapers had provided specific business data in their response to demonstrate loss of advertising revenue or audience reach as a consequence of competition from a local authority periodical. Moreover, of these, three originated from different parts of the same media publisher.

40. During oral evidence, therefore, we pressed the Newspaper Society to provide more evidence in support of its claims relating to unfair competition and hard data to show that loss of advertising revenue has not just been symptomatic of the recession and other trends in publishing such as those mentioned by the Chief Executive of the OFT.

41. On both these points the Newspaper Society appeared to us evasive. Firstly it confirmed only that the worst year of local paper closures was 2009 (consistent with the height of the recession). Next it admitted that in 2010 the sector has seen more launches than closures. Then it mentioned that the consultancy that previously warned that half of the industry's titles would close down in five years' time (Enders Analysis) " has now publicly retracted that forecast, saying that it was unduly pessimistic" and told us that "we need to put things slightly in perspective in terms of the so-called decline".[47]

42. As media commentator and Professor of Journalism at City University Roy Greenslade confirmed to us after this exchange, "to be absolutely frank about it, there is no data" to confirm or refute whether local authority publications are competing with the traditional independent press for scarce advertising revenues and, if so, to what degree.[48] Referring to East End Life, published by the London Borough of Tower Hamlets (one of the few titles for which there is concrete data to show a council publication depressing the sales and revenue of a thriving commercial paper, the East London Advertiser), he suggested that

[...] what has really concerned The Newspaper Society and the commercial sector is that it represents the thin end of the wedge. If we allow East End Life to stand and do what it does, it will be emulated elsewhere; at least at the moment by fortnightlies but maybe by weeklies in future [...] The main problem here appears to be about six or seven publications of which East End Life is the leader. It is that that concerns the industry so much. Around the rest of the country, it is not at all as prevalent.[49]

The concern of The Newspaper Society is not just the (relatively small) number of local authorities which currently publish frequent newspapers, but that if no action is taken then other local authorities will follow this lead.

Production contracts for local authority publicity

43. The production of local authority newssheets arguably supports the local newspaper industry, inasmuch as that industry is well-placed to compete for contracts for the printing and distribution of local authority material. The manufacturing division of Trinity Mirror, for example, has a large contract to print a significant number of council publications in Greater London.[50] When asked how many of the newspapers published by councils are currently printed by its members, the Newspaper Society said it did not have the figures.[51] The Society, however, chose to stress that "the strength of feeling in the industry towards these competing publications is such that they would be willing to forgo that revenue from frequent publications, because the fundamental principle at stake here is that local authorities should not compete with independent local papers".[52]

Conclusion

44. Very scant evidence has been presented to this inquiry, and to previous inquiries, which would sustain the claim that local authority publications have contributed significantly to the decline of local newspaper advertising revenues or sales. There do appear to be isolated examples of where there may be a local relationship between the development of a local authority publication and the decline of a commercial publication, but these examples are extremely limited. There is no evidence of a widespread problem of unfair competition on this basis.

45. However, there is a clear concern that some local authorities are using council taxpayers' money to promote their local politicians or policies. While there is clearly a case for individual politicians and parties to state their position on particular issues, this should be at their own expense. It is appropriate that the proposed Code should prevent such activities being undertaken at taxpayers' expense.

30 Condoc, para 2. Back

31 Q81 Back

32 Q85 Back

33 Q41 Back

34 Town hall freesheets are undermining proper journalism, Observer, 26 June 2010. Back

35 http://www.oft.gov.uk/shared_oft/mergers_ea02/oft1091.pdf. Back

36 Digital Britain, June 2009 (a major industrial policy report that outlined the Government's strategic vision for ensuring that the UK is at the leading edge of the global digital economy and which presaged the Digital Economy Act 2010) http://www.official-documents.gov.uk/document/cm76/7650/7650.pdf. Back

37 Review of Council Spending on Communication with the Public, Audit Commission, Jan 2010. Back

38 Letter, 22.1.10 from Stephen Bundred, Chief Executive of the Audit Commission to Rt Hon Stephen Timms MP, Minister for Digital Britain (concerning findings from the Review of Council Spending on Communication with the Public). Back

39 Q62 Back

40 Letter, 22.1.10 from Stephen Bundred, Chief Executive of the Audit Commission to Rt Hon Stephen Timms MP, Minister for Digital Britain (and appendices). Back

41 2010 LGA local authority newspaper/ magazine survey, as detailed in the LGA response to the consultation on the proposed code. Back