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Lord Harris of High Cross: My Lords, I accept the proposition of the noble Lord, Lord McNally, that newspapers are different. Indeed, newspapers are already constrained under the Broadcasting Act and by the merger provisions of the Fair Trading Act. As the Minister will no doubt tell us at greater length, the noble Lord's purpose is to graft on to a general competition Bill a most specific clause discriminating further against newspapers with the unconcealed objective of regulating the commercial policy of one newspaper.
As one of the independent national directors of Times Newspapers in the House, I believe that it may help the subsequent debate to set the context. History tells us that The Times has lost money throughout most of this century, despite successive changes of ownership from Northcliffe to Astor and to Thomson. When the Government accepted News International's last ditch rescue attempt in 1981, Rupert Murdoch followed the agreement with the noble Lord, Lord Thomson, in accepting six independent directors--I am one of them--with the responsibility of ensuring that the proprietor should not have influence over the editor or editorial policy.
Throughout the 1980s, severe losses continued and mounted despite several changes of editor, approved by the independent directors. The circulation of The Times fell to one-third of that of the Daily Telegraph which retained the dominant market position it had in turn acquired in the 1930s through the practice of old-fashioned price competition.
The aim of price cutting was not to destroy the Independent, nor even the Daily Telegraph. It was to escape from chronic loss-making and to endeavour to increase circulation, which is essential if advertising revenues are to be increased. Advertising revenues form the major part of the income of all the broadsheet newspapers. By any standard, that strategy has proved remarkably successful. The circulation has doubled, and advertising revenue roughly likewise. The total market for broadsheet papers has been enlarged; the size of papers has increased; and the average price has reduced.
Other papers naturally did not like price competition. As Corporal Jones used to say of the enemy's response to bayonets, "They don't like it up them". Nevertheless, the Guardian managed to retain its circulation and, with some less publicised price cutting, the Daily Telegraph has also managed to remain within the one million total circulation.
The noble Lord, Lord McNally, referred to Report stage at which he said that he had one intention and one only:
- "to promote the framework of fair and transparent competition in our newspaper industry, with the intention of sustaining diversity, quality and choice".--[Official Report, 9/2/98; col. 913.]
The noble Lord emphasises his good intentions. That is not enough. We know the road to hell is paved by little else. I wish to put a few fairly simply practical questions which are left unresolved. What constitutes fair and transparent competition? Does open price cutting have any part to play? If so, how much? If not, how could we prevent well established newspapers from colluding to raise their price, as they did comfortably enough in the 1980s? And how could a new entrant break into the market if it cannot deploy deep price cutting without the noble Lord's permission?
Closer to home, how can a declining newspaper attempt to revive its flagging fortunes if it is forbidden to deploy effective price competition? Price is not everything--that is a mistake which, to some extent, the noble Lord makes--but how important is price compared with the quality of the newspaper in building up circulation? If a declining paper such as The Times attempts a major reconstruction and relaunch, is there a better way of getting new readers to sample it than by dramatic price cutting? Those are not hypothetical questions. They are the do-or-die issues which came to a head shortly after I joined the board of Times Newspapers in 1988. When the circulation of The Times fell below that of the Guardian in 1992 or 1993, that may have been the galvanising element to radical reform.
No one supposed that cutting price would guarantee increased circulation--the key to higher advertising revenue. Many a hopeful entrepreneur has embarked on price cutting only to find that it is a spectacular way of throwing ever larger sums into a black hole. The perennial challenge for serious newspapers remains: what is the optimum blend of quality, quantity and price in a newspaper? We are not talking about baked beans, but about sophisticated products. So who is the best judge of the right mixture? Is it the scattered army of readers, faced with a wider choice in Britain than elsewhere in the world, or the noble Lord, Lord McNally, or even the Office of Fair Trading?
At Report stage, the noble Lord, Lord Peston, from his rather lofty professorial perch, airily countered my economic logic with his customary dismissive wave, although without anything remotely resembling coherent argument. Accordingly, I am setting a more scholarly example by avoiding dogmatic assertion. On this occasion I have relied on posing questions, although the answers may seem self-evident. One thing should be clear even for unworldly professors. It is that lasting success in competitive markets for complex products, such as newspapers undoubtedly are, could never be secured by price-cutting alone, however deep the proprietor's pockets.
Among other questions that remain I might ask: is a competitive dynamic market feasible in newspapers, or any other product, if no participant is to risk getting hurt? Why should one participant, say the Independent, be shielded from the decline brought about, to a degree, by its own editorial and management failures? If such
a paper is truly vital to some people's conception of democracy as we know it, why should not readers or backers be prepared to pay enough to save it? Has the noble Lord thought of putting the Independent on the protected list, or perhaps launching a flag day?I come to the most awkward question of all on the noble Lord's amendment. How can The Times be charged with exploiting a dominant position in the broadsheet market when it was struggling against terminal decline in the early 1990s? In the earlier debate, the noble Lord, Lord Borrie, whom I see in his place, put his finger on the nub of popular concern when he said:
- "News International holds a substantial degree of market power ... and is able, for long periods, to cross-subsidise its loss-making newspaper sales from its highly profitable operations in satellite television".--[Official Report, 9/2/98; cols. 915-6]
All this talk about predatory pricing is an excitable distraction. Serious, destructive predatory pricing is an extremely rare phenomenon, as shown by two classic texts: McGee on the celebrated Standard Oil case in the Journal of Law and Economics, and Koller's Empirical Study on Anti-Trust in the Law and Economics Review. My experts tell me that the worst recent example of predatory pricing was the collusion of other airlines, backed by government, to drive the challenger Freddie Laker out of the market.
What we have here is a good old-fashioned circulation war, such as helped to test and shape the present newspaper industry. If price competition is forbidden, will the noble Lord try to curb competition through bigger papers, give-away offers, lotteries, travel vouchers and all the other special deals? All such promotions are quasi or substitute price cuts, offering more without extra charge.
It seems characteristic of the Liberal Democrats to prefer a namby-pamby world of harmless, ineffective competition where no one must win lest their friends get hurt. The crowning facts are fourfold. First, The Times has been a loss-maker for most of the century. Secondly, Rupert Murdoch was allowed to take over the ailing paper in 1981 because he could carry current losses, though hardly increasing cumulative losses forever. Thirdly, he has found a strategy to put The Times on the high road towards self-sustaining profitability. Fourthly, his critics are outraged by his success.
My concluding question is: why should we let the Liberal Democrats, and sundry other malcontents, vent their pique against The Times by smuggling through this wholly unnecessary amendment?
5.30 p.m.
Lord Borrie: My Lords, I was rather glad that the noble Lord, Lord Harris, made his speech before I made mine because he threw a whole number of red herrings over the trail, especially when he talked about what the 9th February amendment was about, and indeed what the noble Lord, Lord McNally, is proposing today.
The cut-price policy of The Times, which has now lasted for more than five years, cannot possibly be compared with a cut-price promotion, whether literally in price form or in the form of coupons, prizes or anything else. The policy has been going on for a long time. It is not and could not be regarded as a temporary or promotional exercise. Of course I do not know how The Times has managed it. If The Times was wholly isolated, even from the Sunday Times, let alone from the wonderful moneys coming in from other sources of related companies, I do not know how they could have paid the costs of printing, the costs of marketing and the tremendous programme, through television and elsewhere, which has advanced the cause of The Times.
No, my Lords, it has been a predatory policy. A line can be drawn between cut-pricing for a new newspaper on the scene or for an old newspaper, for that matter; but that is quite different from the policy that has now gone on for so long. It is a policy which must have been, and can be demonstrated to have been, damaging, even seriously jeopardising the very existence of rival broadsheets, whether one has the Independent or the Telegraph in mind. Even if their existence is not jeopardised because somehow or other they are enabled to survive, the service that they provide to readers must be damaged because their costs are always under close scrutiny. The mischief of The Times's policy over five years, to my mind restricting or distorting competition, has forced rivals both to follow suit and to reduce costs by cutting the service to their readers.
Leaving aside for the moment what the noble Lord, Lord Harris, has been saying--though I would love to go on--I turn to the Government's view. I have been extremely disappointed both by the manner in which they dealt with the matter in the House of Commons a few months ago and, as it seems from briefing received last week, again today.
The Government's view seems to be that if there is predatory pricing by The Times, or indeed by anyone else, then Clause 18 of the Bill, which covers industry in general and not just newspapers in particular, prohibits all forms of abuse by dominant companies; that it is fully effective; and that it is for the competition authorities--the Office of Fair Trading or the competition commission--to use it. I have carefully considered that argument. It is possibly correct, but it is doubtful. The purpose of the amendment originally passed by this House on 9th February--and, as I understand it, the purpose of the amendment in the name of the noble Lord, Lord McNally,--is to strengthen the law where it is needed in order to make more certain what the Government are saying the Competition Bill provides for.
The Government admit that the European law which is brought into the Competition Bill via Clause 60 defines dominance to mean--I paraphrase only
slightly--such economic strength as to allow a firm to behave to an appreciable extent independently of its competitors and customers. I do not believe that The Times is in that position, because if next week The Times doubled its price would all the readers remain with it? I think not. Some of them would go, or gradually go, to other available broadsheets. It is not possible for The Times to act independently of its competitors and customers.Mr. Richard Fowler, Queen's Counsel, is the expert in competition law to whom the noble Lord, Lord McNally, has already referred. I quote from his opinion, which is freely available--the Government's legal opinions have been kept entirely secret to themselves. Mr. Fowler said that it is:
- "unlikely that The Times or News International would meet the European Court of Justice tests for dominance",
The Government rely on the case to which the noble Lord, Lord McNally, referred, the Tetra Pak case, about dominance in one market being abused in another related market. Therefore, the Government may wish to argue, as they have in another place, that as News International, with its admittedly minority stake in BSkyB, is undoubtedly dominant in the satellite TV market, abuse in the newspaper market may be a breach of Clause 18. But as Mr. Richard Fowler points out in his opinion, the European Court of Justice held in Tetra Pak that it is only in special circumstances that abuse of a dominant position could apply to conduct in another non-dominated market. It seems to me that although the Government's case is possibly correct, it is unwise for Parliament to rely on it as being correct because it builds a case for the adequacy of Clause 18 and existing European jurisprudence on a feeble foundation.
So why are the Government adamant that an amendment to the Bill to deal specifically with anti-competitive predatory pricing of newspaper proprietors should be rejected? The nub of the Government's objection seems to be an assertion rather than an argument. The assertion is that it would be wrong to treat newspapers as a special case. Why? Competition between newspapers and the availability of a multiplicity of choice is far more important in the newspaper market than it is in other markets because democracy requires that there should be a good range of choice, diversity and plurality. That is important in newspapers but may not be important in ball-bearings or baked beans.
The Government admit that the special Fair Trading Act provisions which deal with newspaper mergers--and solely and only with the merger of newspapers--and specifically refer to the need for diversity are a good thing. The Government more than once during debates in both Houses have specifically stated that they have no intention of changing the Fair Trading Act provisions and are content with them. They could have amended them or they could have got rid of them if they thought that newspapers mergers did not need to be dealt with separately and specifically, but they are keeping them.
I say to your Lordships that a newspaper title can disappear through the pricing tactics of a rival, just as it can disappear by takeover. Therefore, there is nothing peculiar in dealing with the anti-competitive risk of the disappearance of a newspaper by special provision for abuse of power.
The Competition Bill, as it has gone through both Houses, makes special provision for a number of different markets: civil aviation, agriculture and the professions. A short while ago, your Lordships may have received from the Treasury, as I did, a substantial draft of a financial services and markets Bill which may well come before us in the next Session. It provides for a special competition regime for financial services regulators, exchanges, clearing houses and so on. The Government are very clear--and in my view, rightly so--as provided in Clause 60 of the Competition Bill, that our law should be consistent "so far as possible" with EC jurisprudence. However, the relevant Minister, when introducing the new clause on vertical agreements, which we shall deal with later tonight, said in another place that the Government do not intend to copy all the various qualifications and conditions that the European Community proposes. There would be nothing inconsistent with the Government's general approach in the Competition Bill if special provision were made concerning predatory pricing in the newspaper market. That is what the Government are refusing to do and what the noble Lord, Lord McNally, is seeking to move tonight, as he did successfully in another context some months ago.
5.45 p.m.
Baroness Oppenheim-Barnes: My Lords, I, too, support the Motion proposed by the noble Lord, Lord McNally. I would have preferred to have seen the previous sweeping amendment retained rather than this narrower version. My interest in Patman/Robinson-type legislation goes back a very long way. Although in those days I was persuaded that that would have been going too far, in the 1980 Competition Act we introduced the flexible power for the Director-General to refer a matter to the Monopolies Commission, with action to follow, if a complaint were made about predatory pricing and it had not been put right at his instigation.
I hope that when the Minister replies he will be able to tell your Lordships what is to happen in the interim period. The 1980 Act will be repealed by this Bill, but this Bill will not come into operation for another year. What will happen to the flexible powers which will vanish with the 1980 Bill until the new Bill is brought into being? Secondly, I believe that every aspect of discriminatory discounting, when it is used as a blunderbuss either to sway opinion or wrongly to gain support, as no doubt is the case in the newspaper industry today, is wrong.
I had hoped not to use the "M" word in this context. However, the noble Lord, Lord McNally, made a mistake in referring to Lord Wyatt's diaries on the subject. I was the Minister responsible at the time and I can assure your Lordships that there was no intervention from the Prime Minister of the day. Our considerations were those which would normally take
place when such an application was made. They included the consumer interests, the national interests and, last but by no means least, unemployment interests. They were extremely important in that particular case, as vouchsafed by the noble Lord, Lord Harris. I would like the noble Lord to withdraw those remarks at an appropriate time.The situation arises in which the Government, for whatever reason, refuse to listen to people who really do know better. The noble Lord, Lord Borrie, is second to none in his knowledge and experience of these matters. He has the voice of reason, too. For the Government to bypass such expertise, and for whatever reason to say that the interfering European Commission with its second-rate competition policy might not permit this to happen, is not an excuse. In relation to an earlier amendment the noble Lord said that if the Commission acted in a certain way the Government would take a strong line. I should be very interested to know what strong line they would take and what effect it would be likely to have.
I do not wish to detain your Lordships from what will be a most interesting debate, other than to say that I hope that your Lordships will support the Motion tonight.
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