Letter and memorandum from Trinity Mirror
PLC
I enclose Trinity Mirror Plc's submission to
the extended Lords' Select Committee inquiry into the BBC with
a specific reference to broadcasting in the Nations and Regions
and "ultra-local" services.
In essence, we believe that the launch of the
BBC's pilot projects into ultra-local news provision has not been
properly thought through. The proximity of the conclusion of the
pilots and the adoption of a new Charter with its accompanying
new regulatory regime, leave any Market Impact Assessment of these
new services in a regulatory no-man's land.
1. INTRODUCTION
1.1 The Lords BBC Charter Review Committee
has extended its review into the BBC and will now hold a short
inquiry to consider specific aspects of BBC activity including
decentralisation and "ultra-local" services. The Committee
has invited interested parties to submit evidence to assist it
in its inquiry.
1.2 This submission has been prepared on
behalf of Trinity Mirror Plc, the largest regional newspaper publisher
in the United Kingdom with a regional presence of 250 titles including
the Newcastle Evening Chronicle, The Journal, Liverpool Echo,
Liverpool Daily Post, Western Mail, South Wales Echo, Birmingham
Post, Birmingham Mail and the Coventry Evening Telegraph. Through
its subsidiaries, Trinity Mirror also publishes the Daily Mirror,
Sunday Mirror and The People and the Daily Record and Sunday Mail
in Scotland. This submission is structured in accordance with
the suggestions contained within the Committee's announcement
of 2 August 2005.
2. DISTORTION
OF THE
MARKET
2.1 The Government's central communications
policy is to ensure a plurality of media voices in any market
place. Trinity Mirror has long held the view that plurality ensures
strong competition and a diverse market. If the BBC uses public
funds to create a new ultra-local news content service using new
technologies and delivery mechanisms it will ultimately stifle
investment from commercial investors and inevitably lead to a
reduction in pluralism.
2.2 Local newspaper companies invest in
providing ultra-local content. Our audiences demand ultra-local
content. As those audiences adapt to new technologies they will
want their trusted newspaper content, segmented or otherwise,
to be available to them on platforms of their choice.
2.3 If the BBC has already colonised those
new platforms what incentive is there for commercial operators
to compete? Even if they wanted to compete, would they be able
to do so?
2.4 The BBC is not subject to the financial
or revenue constraints of a commercial business. It could support
a financially unsuccessful project in the name of the public's
interest. Trinity Mirror argues that if a revenue-blind model
is allowed to lay claim to new delivery platforms in an infant
market, it will distort that market.
2.5 The commercial development of local
news online relies upon investment rewarded by advertising revenue
generated from site users. The BBC, entering early with rich content
and no need for commercial returns, will take a significant share
of the audience for local news. In doing so it will reduce the
returns available to the private sector and hence its level of
investment in local news services.
2.6 We agree with Philip Graf, who conducted
a market impact assessment of BBC online, when he concluded that
the presence of the BBC in the online market might: "Lessen
competition by deterring investment by commercial operators that
could have led to new forms of competition". (Graf Report
Page 58).
2.7 Competition is served best when investment,
risk and innovation lead to many new projects being launched in
the market. In a burgeoning low-audience digital market these
projects are currently defined by higher than average levels of
investment with higher levels of risk exposure and much lower
returns, at least in the short term.
2.8 When innovative decisions are considered
in this environment, the presence of a licence-fee supported BBC
service will act as a deterrent to investment decisions. Even
a commitment by the BBC for a service expansion into a new or
extended digital market will bounce commercial innovation away.
This isn't a matter of the BBC addressing market failure. It is
rather that early ownership of a new platform, backed by public
funds, might leave the BBC acting as a monopolistic incumbent.
2.9 As the market fragments, it will be
essential for traditional paper-based media to expand onto alternative
platforms to retain readers and advertisers. If those new platforms
are effectively closed off because they have already been occupied
by subsidised services from the BBC, the long-term future of the
core paper product may well be placed in jeopardy, with a consequential
threat to plurality.
2.10. Licence fee-backed experimentation on
new delivery platforms constitutes, in our mind, unfair competition
against commercial parties who need shareholder approval to proceed
with new investments.
3. MARKET IMPACT
ASSESSMENTS AND
PUBLIC VALUE
TESTS
3.1 The Government's Green Paper says: "There
should be sufficient flexibility in the system for the BBC to
add and remove services in response to changing technologies and
market conditions. Any significant change should be subject to
a public value test that incorporates a market impact assessment
(MIA). Only where the public value of a change outweighs any adverse
market impact should it be allowed". (Page 14 "Review
of the BBC's Royal Charter").
3.2 Trinity Mirror asks the Committee to
consider whether the public's interest is served by the extension
of BBC content into ultra-local markets. If the public's interest
is served at all by such an extension, does that public value
outweigh any adverse market impact? How can such a market impact
be measured given that the effects on competition of a new or
extended BBC service must include the likely effect of the BBC
hindering competition in the medium to long term?
3.3 "Market impact assessments of BBC
services also play an important role. Significant investment by
the BBC in new services would—if not properly directed—have
a chilling effect on private sector investment. Uncertainty about
the BBC's plans could deter commercial operators, especially in
niche markets" (Para 3.19 Ofcom Response to Green Paper).
3.4 Trinity Mirror supports Ofcom in seeking
to carry out impact assessments of BBC services. We also support
the Ofcom view that: "significant changes or repeated changes
to existing services are not different in nature to new services,
as to their impact on the market(s), competition, and on predictability/certainty
in the market. Ofcom believes they should not be treated differently.
In fact, if they are treated differently, there is a risk that
the objectives of the market impact assessment regime could be
circumvented by simply reclassifying new service as a change to
an existing one" (Para 3.21 Ofcom response to Green Paper).
3.5 We fully support Ofcom when it says:
"Our view is that these are new services or are at least
significant changes to existing services, and that there could
be reasonable grounds for believing that they may have a significant
impact on the market. They should therefore be subject to an independent
assessment by Ofcom" (Para 3.26 Ofcom response to Green Paper).
3.6 If current proposals for the new Charter
are adopted, after Ofcom carries out an impact assessment, the
BBC Trust will have the final decision on the continuation of
that service based on the overall public value of that service
and whether it outweighs any potentially adverse market impact.
3.7 Trinity Mirror has concerns about the
status of the proposed BBC Trust and the public value test, as
outlined by the BBC's Building Public Value document. We support
the OFT when it says that all activities of the BBC must be appropriately
regulated within a framework of legal accountability.
3.8 In a letter to the BBC Charter Review
consultation Becket McGrath from the OFT said that the BBC: "can
also produce outcomes that are uniquely damaging to effective
competition and to commercially funded innovation on media markets
due to the BBC's unique scale, scope, status and ambition. As
a result, the systems by which the BBC is governed and generally
held accountable must be able to provide sufficient safeguards
for those whose legitimate interests may be harmed by the BBC's
activities." (Page 2, OFT letter to DCMS June 2 2005).
3.9 The new BBC Trust will have power to
agree BBC services based on a public value test. The Trust could
approve a service that, in Ofcom's assessment, might have a negative
market impact. The discretion of the Trust to override Ofcom's
advice when deciding on a new service must be matched by a structure
to allow those parties who feel damaged by such a decision to
have course for redress. "In our view, it is important that
this accountability is clear, to enable aggrieved parties to seek
redress, and that it includes, in appropriate cases, accountability
in law" (Page 4, OFT letter to DCMS 2 June 2005).
3.10 Unfortunately for Trinity Mirror, the
first ultra-local pilot project is in the Midlands, one of our
core publishing markets, and it is launching in December 2005.
The reassuring regulatory tones from both Government and the BBC
for the new Charter seem a bit flat as these new BBC services
are to be launched without any of the checks and balances described
and debated above in place. This is deeply un-reassuring to those
with doubts like ours about the potential adverse market impact
of BBC expansion onto new platforms.
4. CONCLUSION
4.1 We agree with Ofcom when it says: "In
one sense, by its very existence, the BBC impacts on competition
in the market-place" (para 3.14 Ofcom response to the Government
Green Paper on Review of the BBC's Royal Charter).
4.2 The BBC is a powerful force that will
affect decisions made by media investors. In emerging digital
markets, new and extended BBC services must be rigorously scrutinised
to prove there is no short or long term threat to current, near
or future investment and ultimately plurality. The BBC must be
forced to adopt what the Graf Report described as a "deliberately
precautionary approach". Their behaviour this year, in extending
and launching digital services, seems more expansionary than cautionary.
4.3 Ultimately, the responsibility falls
to Government to ensure the BBC shows restraint. But structures
that regulate BBC activities—Ofcom, BBC Trust—must
offer transparent, independent and inclusive review procedures
for new and extended service and must offer genuine routes to
redress.
4.4 Ofcom must be allowed to review the
BBC's new ultra-local news services, including the pilot launched
in the Midlands in our core publishing market. This review must
allow for withdrawal of the services, and the elimination of the
widely publicised rollout plan, if they are not deemed to add
value to what the commercial market would provide now, or more
importantly, in the future as digital content delivery matures.
4.5 Commercial operators must know what
expansionist services are planned by the BBC to enable them to
take educated commercial investment decisions. The extension of
existing services onto new digital platforms must be treated,
from a regulatory framework, as the provision of a new service.
Changes to those services—platform delivery or availability—must
be monitored closely by Ofcom through it's own research and via
concerns from commercial operators. The changing reach and remit
of an existing service cannot be allowed to go ahead without an
impact assessment on what the possible effects on the future health
of the market into which those services are expanding will be.
4.6 Procedure and process aside, Trinity
Mirror believes that wider issues of competition must be addressed.
The BBC has the potential to distort the market. In doing so,
it will harm plurality by adversely affecting future investment.
Moves into ultra-local content provision could pose a very real
threat to the local press.
10 October 2005
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