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Lord Harris of High Cross: My Lords, I cheerfully declare my interest as an independent national director of Times Newspapers Limited. We own The Times, the Sunday Times and three excellent specialist supplements. At the outset of my remarks I hope to spread a little light on what may increasingly become a rather shady debate. Of course, I yield to no one in my concern for a free, diverse national, regional and local press. Unlike some noble Lords who have already spoken, I rejoice that Britain can boast of an unrivalled, lively, vigorous and varied choice of daily, weekly, and monthly newspapers and journals.
The situation in this country could not be further from the fevered imaginings of a press monopoly and the survival of democracy that obsesses the supporters of this amendment. As a regular reader of The Times and the Daily Telegraph, like millions of other readers, I am grateful to be getting better value for my money now than before the competition that so agitates the noble Lord, Lord McNally, and others.
The amendment is no doubt great fun if you like that kind of thing. It provides a field day for Liberal Democrats and sundry other malcontents, to let off steam against Rupert Murdoch whom I persist in regarding as the saviour of what we used to call Fleet Street. If we leave aside personal and political opportunism, I believe that support for this amendment, even when it is most earnestly well intended, as by my noble and learned friend Lord Ackner, is nevertheless fundamentally misguided. In brief, criticism of The Times strategy is founded on a myopic view of markets that is at once too narrow and too short-term.
All this impassioned rhetoric and moral indignation starts from a factual error. It proceeds via a couple of logical inconsistencies and takes in a number of economic fallacies, before arriving at a primitive commercial misconception. I shall return to this charge in a moment, but first, I fear, a very brief history lesson.
I became a non-executive director of Times Newspapers in 1988. I was able to witness the steady decline in The Times circulation to about 350,000, which was even below the Guardian. It was falling further behind the Daily Telegraph, which, with 1 million circulation, had been the market leader in broadsheets since the 1930s. Pray note: that dominance was achieved through the time-honoured fashion of well-judged price cutting!
In the 1980s and, indeed, for most of its recent chequered history, The Times made losses--that is to say, it was sold below cost. But no one complained so long as its circulation was falling. Indeed, the paper nearly went bust several times. It was rescued first by Northcliffe in 1908, then by the Astors in 1922 and by Roy Thompson in 1966. By 1980 huge losses brought the paper to the very brink of closing. Of the potential buyers, Rupert Murdoch was chosen as the best guarantor of its survival as an independent paper.
In 1993 The Times reached its lowest ebb. The entrepreneurial decision was in effect to relaunch an improved paper. Judging that the cover price of broadsheets had risen far too high and far faster than inflation, a long-term strategy was launched, led with price cutting, which this sour amendment now calls into question.
What really angers the critics is that this bold, competitive strategy has been so spectacularly successful. Now, four or five years later, The Times' circulation has doubled from 350,000 to around 700,000, thereby enabling advertising revenue, which is a major source of income, to more than double. The result is that The Times has moved from chronic losses to break-even. Price cutting was reinforced by a massive increase in editorial spending and increased quality and quantity of The Times followed, under competitive pressure, by the Daily Telegraph. Not least, the lower prices of both papers due to direct price cutting by The Times and special offers by the Daily Telegraph, have increased the total market for broadsheets by no less than 14 per cent.
So, in conclusion, perhaps I may summarise the reasons for rejecting the myopic arguments advanced by supporters of a mischievous amendment artfully dragged into a reform of the general law on competition. It starts with a factual error that there is cross-subsidisation from other businesses to finance price cutting. That is plainly untrue since in 1993 The Times was already financing large and increasing losses, which have now been stemmed and indeed eliminated, to produce a highly profitable business. I can give an assurance that not one penny piece of this tainted Sky TV money has been necessary to help finance that particular strategy.
We come to the first logical inconsistency: the claim that The Times abused a dominant position. In 1993 The Times was in terminal decline. It was the challenger
rather than the top dog. In the economic text books predatory pricing means cutting the price to destroy competition and then recouping the losses by exploiting the monopoly position in today's broadsheet papers. There is nothing in the Sherman Act, frequently bandied around, or in any other anti-trust law, that would condemn the pricing strategies of The Times.Another inconsistency is the claim that selling below cost was unfair and even sinister. The truth was that for all those early years of huge losses The Times was in effect selling below cost. How can what was acceptable for decades from a declining enterprise, selling below cost, suddenly become unacceptable from a reviving enterprise?
There is the further inconsistency that competition, it is said, may be legitimate against a stronger rival, but not if a smaller player might be hurt. This amendment is equivalent to writing in a clause that says, "Competition is fine, but don't be beastly to the Independent".
I approach the conclusion of my remarks and refer to what I believe are economic fallacies. One position taken by critics of The Times is that competition is a fine and necessary thing, but not if it drives prices down too far. Alternatively, there is the opposite thought: price is the only determinant and dimension of competition and therefore has some special taboo. The truth is that improvements in the quantity and quality of The Times have contributed powerfully to its outstanding success in the market place.
Another economic fallacy is that lower prices succeed only by taking--snatching--business from other customers. That is obviously not true in this case because the effect of competition has been that the total market for broadsheets has increased by some 14 per cent. Only the Independent has gone down.
Finally, I come to the commercial misconception that the calculation of profit or loss in a large business can sensibly be made over a year or two in a business with chequered fortunes in this case going back over 200 years. It is now in profit for the first time in living memory.
The reality before us in this amendment is of a massive, orchestrated campaign of special pleading for the Independent in which BBC TV on Sunday intervened in a quite disgracefully partisan way. Yet at its peak the Independent had a circulation of approaching 400,000. I remind your Lordships that in 1993 the circulation of The Times was down to 350,000. The Independent is owned by two powerful groups. Why cannot they learn from the success of The Times? If they cannot do so, another buyer is in the wings, ready to try his luck in the competitive market place with the Independent. The defenders of the Independent have no business coming to this House and trying to rig the market to protect their special interest.
Lord Murray of Epping Forest: My Lords, when moving the amendment, the noble Lord, Lord McNally, referred to Mr. Murdoch's impact on Fleet Street. The noble Lord, Lord Harris, seemed to ask us to award Mr. Murdoch some brownie points for what he did in
that context. Let us give Mr. Murdoch what credit he deserves in that regard. There is no doubt that some of the practices in Fleet Street were indefensible--and we said so at the time. Many of them were defended by appeals to freedom and to the right of trade unions concerned to do almost whatever they wanted. I acknowledge that it was right to set some bounds on their freedom to act.However, it is a pity that Mr. Murdoch was necessary to sort out the consequences of a long history of poor and weak management in Fleet Street. I once told Mr. Murdoch that Fleet Street employers had got the unions that they deserved. His reply to me was--I winced when he said it--"Yes, Mr. Murray, and now the unions have got the employer that they deserve". It was right that some limits should be set on the power of the employees to take the action that they did and to use--and, indeed abuse--their power.
However, it is true that in the reaction to what may well have been the excessive regulation of some industries, as was the custom in Fleet Street, competition has now become elevated to the level of a moral imperative. It is seen as a cure-all for all sorts of conditions and ills.
However, the threat to our press--there is a threat--illustrates that competition is not in itself an automatic and inevitable guarantee of social well-being. In some cases, boundaries and limits to competition have to be set and enforced. It is right that each case should be judged on its merits, but I believe that competition law should state clearly--not merely imply or hint--that in the case of the press, those limits need to be set and enforced in the interests of us all.
Lord Desai: My Lords, the noble Lord, Lord Harris, said something about malcontents. Having been a signed-up malcontent more or less since I was born, I have to speak in support of this amendment.
I should like to deal first with the case outlined by the noble Lord. When moving the amendment, the noble Lord, Lord McNally, said that the amendment applies as much to Mr. Murdoch as to Mr. Montgomery, Mr. Black or any other newspaper proprietor. The amendment would apply to the newspaper industry and to whoever in it engages in predatory pricing. There are difficulties with the economics--the noble Lord, Lord Harris, illustrated some--and in discerning exactly when predatory pricing is operating. If, as has been said, Mr. Murdoch has not engaged in predatory pricing and can prove so to the Director General of Fair Trading, that would be fine under the amendment. This is a belt-and-braces amendment which could only prove his case. Therefore, the noble Lord, Lord Harris, should support the amendment because if it were passed and Mr. Murdoch's case were proved, he would be doubly virtuous. He would then be unassailable--but perhaps that is not an appropriate word to use in the British political context. I do not know what the noble Lord is complaining about.
There is a difference between selling at below cost when one's business is going down because one cannot help doing so, and selling at below cost when one has
the ability to sell at above cost because one has a market, but one is pricing in that way not only to secure one's own market, but to eliminate someone else. I know that the distinction is a difficult one to make and that lawyers will have a bonanza with all this. Economists never get any money from such things; only lawyers do that.There are precedents in American law, such as the Reder Turner clause which sets out the conditions under which predatory pricing can be identified. There are two components. The first is the relationship between price and marginal cost. The other relates to a point which the noble and learned Lord, Lord Fraser, identified when moving Amendment No. 20 which he then withdrew with the leave of the House. In that connection, my noble friend did not like the word "intention". I tried to explain that if we removed the word "intention", but stated instead, "would be likely in the opinion of the director general to have the effect of eliminating a competitor" rather than "intending to eliminate a competitor", we would remove the problem. That would have implied that if a firm was making persistent losses when it was in a position to avoid doing so--that is an important caveat--predatory pricing would have occurred.
For a long time, British competition law has been very lax about this. We have believed in laissez-faire which has meant that we have allowed monopolies to remain monopolies. We have not been active in that area. However, both American and Australian law have actively enforced competition. There can be no more competitive society than the United States of America, as I am sure the noble Lord, Lord Harris, will agree. If the United States has such laws to forbid predatory pricing, what harm could there possibly be in our adopting such rules?
Once again, I urge noble Lords to remember what the noble Lord, Lord McNally, said: this is a belt-and-braces amendment. If we include it in the Bill, we strengthen Clause 18 which is not clear at present. The inclusion of the amendment would settle this issue by putting the matter in the hands of the Director General of Fair Trading who is an independent authority. There would then be careful examination of the records and issues such as power in related industries would also have to be considered. I was glad that my noble friend rejected Amendment No. 22, which was moved by the noble Lord, Lord Kingsland, because I believe that dominance in related markets is very germane to the issue. That is why, unlike the noble Lord, Lord Harris, I urge noble Lords to accept that this is a harmless amendment. We would do no harm by passing it. The cause of truth would be supported by it--and not only one, but every, newspaper owner who could possibly think of reducing diversity would be punished. What better amendment could there be?
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