Select Committee on Communications Minutes of Evidence


Memorandum by the Guardian Media Group (GMG)

SECOND CALL FOR EVIDENCE

EXECUTIVE SUMMARY

  GMG is pleased to be offered the opportunity to comment on the current UK Media Ownership rules and the implications for provision of news.

  GMG is a strong supporter of the general objectives of plurality, diversity and quality across the news ecology—indeed, our own unique ownership structure is designed to safeguard similar objectives for The Guardian.

  We suggest that (in order to achieve these objectives) the scope of the media ownership regulatory framework needs to be widened, to ensure that the market impact of all powerful media companies can be properly considered. Currently, the framework focuses on "traditional media", meaning that some types of organisation could fall outside its scope. The table below gives some examples of the consequences of the current regulatory framework for cross-media ownership and activity:


Examples
Issues arising
Potential remedies

Online aggregators (such as Google)

Cross-platform media owners (such as News Corp)
Online aggregators, potentially, can have a "double negative" effect on high-quality, plural news provision: acting as a gatekeeper to multiple news sources, whilst extracting revenue directly from news content, without re-investing in journalism

Some cross-platform owners may, through their various holdings, have acquired an unhealthy share of voice across ALL media, despite operating within current regulatory rules. For example, although News International would not be able to make further national newspaper acquisitions (because of its existing newspaper market share), its parent company's control over the UK's largest pay-TV provider would not itself, currently, be an impediment to further newspaper ownership.
—  Widen the scope of the Communications Act rules to place some limits on cross-media ownership across all media, to ensure that organisations like Google or News Corp do not have too great a total share of voice

—  Raise the current thresholds for cross-media ownership, to ensure that any broadening of scope, suggested above, does not limit cross-media activity per se—an important part of serving today's news consumer effectively
The BBCThe breadth of the BBC's PSB activities can damage, rather than complement, commercial markets—especially in the radio and online sectors. This can have a direct effect on commercial investment in quality news provision, and may lead to a further negative effect on plurality, with commercial news provision increasingly uneconomic

There is also concern as to whether the BBC's commercial activities, both in the UK and abroad, are appropriate, in the context of commercial British media companies struggling for limited revenues to invest in quality journalism. For example, the decision to accept advertising on bbc.com removes potential revenue from commercial news providers. The aggressive growth plans of BBC Worldwide and their reported desire to partner with private equity firms raises similar concerns
—  Liberalise the rules for intra-medium radio asset ownership, to help to enable effective competition to the BBC (as part of a wider programme of radio regulatory liberalisation)

—  Ensure that the BBC Trust is diligent in monitoring the scope and effect of BBC public service and commercial activities, and commits to full publication of its research


  We also welcome this opportunity to suggest that the radio regulatory regime is overly burdensome and, in particular, acts as a disincentive to commercial investment—with, therefore, a potential impact on both plurality and quality of news provision.

  Finally, we would highlight the current challenges to the historic newspaper business model, all of which make it increasingly uneconomic to provide quality news, eg: internet competition for advertising revenues, the impact of free sheets on cover price revenues, and BBC competition for eyeballs. These concerns are most clearly illustrated by reference to local markets, where the effects have been most keenly felt.

GUARDIAN MEDIA GROUP'S SUBMISSION

1.  Are the requirements in the Communications Act 2003 relating to the quality, quantity, scheduling and impartiality of national and regional broadcast news appropriate? Are they sufficient? Will they be appropriate and will they be sufficient after digital switchover?

  1.1  GMG supports regulation that seeks to maintain quality, quantity, scheduling and impartiality of broadcast news.

  1.2  As news consumption is increasingly a cross-media activity, we have considered the impact of these regulations across the whole media sector, with a specific, separate focus on national and regional/local effects.

1.3  National


Dimension
Comments

1.  QualityGMG notes, with concern, the increased reliance of national broadcasters on third parties for, in particular, foreign coverage, with a consequent reduction in foreign bureau staff; this mirrors the pattern seen in most national newspapers (with the exception of The Guardian) which may reflect less editorial priority being given to foreign news. Between 2002 and 2006, in the US, the number of foreign newspaper correspondents is estimated to have fallen by 30%.[1]

Although "quality" is a subjective test, GMG shares the common perception that there may have been some "dumbing down" of broadcast news. Although quantities of political and foreign coverage are sometimes used as a proxy for quality—for example, in Ofcom's survey for New News, Future News—this approach may be unreliable because of dominant stories such as the war in Iraq.

We are also concerned that visually-spectacular, first-world news stories—such as the aftermath of Hurricane Katrina—receive more substantial coverage than equally significant stories from less accessible parts of the world.
2.  QuantityNo substantive concerns
3.  SchedulingNo substantive concerns
4.  ImpartialityIn New News, Future News Ofcom suggests that impartiality regulations may be less enforceable in a digital environment. In our view any move towards more opinion-led news provision relies on the continued presence of the PSBs as "ballast", and on a range of such services, with different opinions, being made available.

Without a requirement for impartial news from the PSB channels, the UK could risk creating a situation where major broadcasters take commercial decisions to provide opinion-led news (as has happened with Fox, in the US, after the removal of the Fairness Doctrine in 1988).

At a time when plurality of opinion has grown significantly, the impartiality obligations on PSB broadcasters remain vital. In 2007, there were over 100 million blogs globally, with 100,000 new blogs being created, and 1.3 million posts daily. The broadcasters remain an important source of fact, helping to ensure that opinions can be put in context.


1.4  Regional


Dimension
Comments

1.  QualityThe BBC provides a quality local news service; however, the scale of its local activities impacts on the viability and, therefore, quality of commercial regional and local news. BBC local websites and radio stations attract audience, especially where the BBC cross-promotes its activities between various channels, lowering the revenues of the commercial sector and, therefore, limiting the resources commercial providers are able to commit to quality local news and journalism.
2.  QuantityGMG is concerned about ITV's wish to reduce/abandon its regional coverage; this would significantly cut the quantity of regional broadcast news available in the UK. At a regional level, the main consequence would be to diminish both the plurality of supply and choice for consumers, who would be increasingly dependent on the BBC.
3.  SchedulingNo substantive concerns
4.  ImpartialityNo substantive concerns beyond those expressed in "national" section


  1.5  Following DSO, we believe that the situation may change, both locally and nationally:

1.6  National

  1.7  Following DSO, there may be a wider number of potential broadcast news sources able to reach a wider audience. The impartial PSB broadcasters, however, should act as fixed point in the news eco-system, complementing the increasing plurality of opinion-based news in print, online and the wider broadcast market. PSB broadcast impartiality rules should be maintained.

1.8  Local

  1.9  GMG is concerned by the lack of comfort given to investors in quality local journalism, when considering the "digital dividend". Local TV services, such as GMG's Channel M (a dedicated city TV station broadcasting to the Greater Manchester area), are under threat given the considerable uncertainty around their spectrum allocation post-ASO. A purely market-led approach to the award of spectrum would, in all probability, lead to a market failure in the provision of local TV.

  1.10  We would also note some specific issues relating to radio. There is a long list of onerous regulatory requirements for commercial radio providers, including, for example, the threshold for eligibility for programme-sharing and co-location. Taken in aggregate, these act as a disincentive to commercial investment, especially in local radio, potentially affecting both the quality and plurality of news provision. We note Ofcom's recent relaxation of certain regulations and regard this as a step in the right direction.

2.  Are the public interest considerations for media mergers set down in section 58 of the Enterprise Act 2002 strong and clear enough to protect a diverse and high quality news media? Are the conditions under which the Secretary of State can order a public interest investigation appropriate?

  2.1  In general, current "public interest" considerations are robust and clear—we strongly support their role within the general competition law framework.

  2.2  The "plurality of media" provision is particularly important in sustaining a diverse, high-quality news ecology.

  2.3  Given the cross-media ownership rules in—and derived from—the Communications Act, we are concerned that "public interest" questions regarding plurality might be thought only to arise in merger situations involving TV, radio and newspaper assets. With consumption of news becoming an increasingly cross-media activity, "public interest" considerations should apply explicitly to all media, including, for example, the internet, which may not currently be covered.

  2.4  This could help to ensure that concentration of voice (across all media) is not a threat to plurality. We expand on this argument in our answer to the next question.

3.  Do current national and local cross-media and single sector media ownership rules set out in UK legislation do enough to ensure a high quality and diverse news media? Or now that most news organizations are moving towards multi-platform operations, have these rules outlived their usefulness and relevance? In this context are there effective actions that can be adopted by news organizations to protect the public interest?

  3.1  GMG believes that quality of and diversity in news provision are fundamental contributors to a healthy democracy. The current rules—focused on newspaper, TV and radio ownership—are in danger of becoming anachronistic, as their scope, for example, does not cover (fully) some key cross-media players.

3.2  Cross-media rules

  3.3  Current cross-media rules can result in the wrong outcomes. Activity that should not be constrained—for example, shared ownership of major local radio stations and newspapers (where constraints can impact on the commercial viability of these sectors, and as such owners' ability to invest in quality content)—can be blocked, whereas the activity of large online providers (such as Google) is relatively unconstrained. These asymmetries have, potentially, negative effects on both quality and diversity.

3.4  Quality

  3.5  The main quality issue arises because of the diminishing ability of many companies to re-invest advertising revenue into journalism. News has historically been a "subsidised" activity, especially for newspapers, ie has been dependent upon cross-subsidies (from, for example, classified advertising) within a business. Traditional news business models are now under threat, mainly from the internet, reducing organisations' ability to invest in quality journalism.

  3.6  A significant amount of classified advertising—a major source of GMG revenue, effectively used to help pay journalistic salaries—has substantially migrated online. The yields generated by online classified advertising are far lower than for conventional offline advertising. Content is also widely available free online, putting cover price revenue at risk. In this context, there are, at least, two major challenges from types of organisation not constrained by current cross-media ownership rules.

  3.7  News aggregators, such as Google News, commercialise news without having to create any content. They do this by "scraping" the proprietary content of organisations, like GMG, and then presenting it to their own audience. With very significant audiences, these sites take advertising revenue away from companies like GMG, reducing the potential return on investment in journalism (and, therefore, probably reducing the incentive to invest). The lion's share of UK online advertising revenue (estimated to be c 80%) goes to a handful of US organisations, Google, Yahoo, MSN and AOL, all of whom provide news but none of whom invest (substantially) in journalism.

  3.8  The BBC's activities can have an unintended, detrimental effect on quality, plural news provision: the high quality, and wide scope, of their online offerings take eyeballs away from commercial providers, again reducing advertising revenue and, potentially, removing the incentive to invest in quality news-gathering and provision. This is particularly true at a local level, where our operations (and others') are trying to stay relevant by making output available online; competing with the financial, technological, cross-promotional and brand resources of BBC Online is, however, extremely difficult. In summary, the BBC has begun to displace, rather than complement, commercial providers at the local level.

  3.9  We also note that Ofcom has, in our view rightly, begun to give consideration to promoting public purposes in the arena of digital interactive participative media. However, we are not wholly convinced by the argument that public purposes are at present under threat given the general growth of provision by commercial and non-commercial players, and believe that any consideration of a Public Service Publisher as floated by Ofcom should take into account the impact an over-funded PSP could have on online plurality.

3.10  Diversity

  3.11  With news consumption increasingly becoming a cross-media activity, concerns about plurality of ownership—and, therefore, diversity of voice—should cover all media. The current framework does not take sufficient account of the concentration of voice from any one organisation across all types of outlet.

  3.12  This is partly because the current ownership rules have focused on specific, "traditional" media—ie radio, newspapers and free-to-air TV. Whilst, historically, those media may have had the widest reach (and, therefore, provided the greatest challenges to plurality through shared ownership), this is increasingly no longer true. Ofcom's work has demonstrated how people now garner news from a variety of sources; we would note that the UK reach of some online news providers is, already, almost at the same level as TV (and far greater than newspapers).

Exhibit 1

REACH OF SELECTED COMPANIES ACROSS MULTIPLE MEDIA (MILLIONS)[2]


  3.13  Their high levels of reach mean that online companies should be brought within the regulatory framework and some quantitative limits should be placed on their ability to acquire media companies (beyond any potential public interest concerns voiced by the Secretary of State).

  3.14  Similarly, as we approach DSO, pay-TV businesses should be counted within any future cross-media ownership thresholds. Currently, while News International would not be able to make further national newspaper acquisitions because of its existing newspaper market share, its parent company's stake in the UK's largest pay-TV provider would not be an inhibition on its newspaper ownership. This seems particularly anomalous, as Sky News, for example, is currently available free-to-air on Freeview and in basic satellite packages, and has a very high audience reach.

3.15  Single sector rules

  3.16  In general, the specific sector ownership rules for TV and newspapers seem to us to be reasonable. Radio rules, however, are problematic: extensive barriers to ownership of multiple local franchises make it very difficult to achieve economies of scale. In an embattled commercial environment, this could lead to unintended consequences—a fragmented marketplace with multiple under-resourced providers struggling to service, effectively, their listeners, or to compete with the BBC. Cumbersome regulation can be a disincentive to commercial investment—in the local radio sector, generally, and by extension in quality local radio news. If the framework and rules are not updated, we would expect some operators not to survive, leading to less plurality—a concern reinforced by the potential withdrawal of ITV from regional news provision.

  3.17  These problems are, again, exacerbated by some of the public service activities of the BBC. Its mainstream services compete directly with much of the UK commercial radio sector, but have a substantial competitive advantage as they do not carry advertising. At a local level, BBC radio services sometimes have a similar effect to BBC online services, ie reducing the audience available to commercial stations and cutting their ability to invest in quality news provision.

  3.18  We also believe that the challenges to traditional news business models highlighted above mean that, in order to ensure continued diversity and quality within the local press, a more flexible approach towards consolidation within that sector is merited.

3.19  Potential suggested actions to protect the "public interest"

Cross-media ownership rules

  3.20  Widen the scope of the rules to take account of cross-media ownership across all media—perhaps looking at share of voice and revenues (especially advertising) across all media, to ensure that organisations like Google or News Corp cannot acquire too big a share of voice across all media.

  3.21  Raise, however, the current thresholds for cross-media ownership to ensure that cross-media efficiencies can be harnessed on behalf of the consumer.

Single-sector ownership rules

  3.22  Liberalise the rules for intra-medium radio asset ownership to enable more effective competition to the BBC (as part of wider programme of radio regulatory liberalisation).

  3.23  Add intra-medium rules for online and pay and multi-platform TV.

Other regulation

  3.24  Ensure that the BBC Trust is diligent in monitoring the scope and impact of BBC public service and commercial activities.

4.  Do any problems arise from having four bodies involved in the regulation of media markets (OFT, Ofcom, Competition Commission and Secretary of State)? Are there any desirable reforms that would improve the effectiveness of the regulatory regime?

  4.1  At least two aspects of the current regime should be considered: first, the efficiency of the current processes and, secondly, the effectiveness of the regulatory regime in delivering against its objectives.

4.2  Efficiency

  4.3  GMG views the current processes as generally working well.

  4.4  The outcome of the BSkyB-ITV review has demonstrated that the processes can be relatively swift and simple, whilst providing an opportunity for all relevant stakeholders to provide input.

  4.5  A key contributor to the success of the current regime has been Ofcom's market knowledge: this is in marked contrast to the situation in some other countries, where competition authorities alone must resolve media competition and ownership issues. The result is frequently lengthy and cumbersome processes, which are often, also, highly politicised.

  4.6  For example, in Spain, the competition authority (Servicio de Defensa de la Competencia) has expressed its frustration with having to investigate three complex, inter-related media competition issues—historical dominance of the football rights market, cross-selling and rights acquisition collaboration— without the necessary media expertise.[3]

4.7  Effectiveness

  4.8  GMG would highlight two issues which suggest that the current regulatory regime may benefit from additional reform.

  4.9  GMG believes that the "Public Interest" considerations, set out in the Enterprise Act, are crucial to maintaining a healthy market for news and that competition law alone may not suffice. In the case of BSkyB and ITV, GMG noted, like Ed Richards (CEO of Ofcom), that the OFT's concerns ultimately focused on competition aspects and not on the impact on plurality. It may be necessary to issue further guidance on public interest and plurality.

  4.10  In the absence of specific rules governing online aggregators, it is important that the current flexibility, enjoyed by the Secretary of State, to trigger "Public Interest" investigations is maintained and, where appropriate, used.

  4.11  As previously discussed, under current competition rules, a Google acquisition of a major UK media asset might not automatically trigger an investigation. Such a move would raise genuine "public interest" concerns—with Google's share of voice in the online world reaching levels similar to that of the analogue terrestrial broadcasters on television. GMG, therefore, believes that the "Public Interest" test should be used by the Secretary of State when considering acquisitions by large online companies, such as Google and Yahoo!

  4.12  Continued flexibility in this area would also help to make the legislation and regulatory regime future-proof, by enabling the Secretary of State to respond to the evolving market for news.

5.  Has the lifting of all restrictions on foreign ownership of UK media affected the quality and independence of the UK news media or will it affect it in the future? Has the UK industry benefited or does it stand to benefit in the future?

  5.1  GMG believes that ownership rules play a very important role in safeguarding the quality and independence of news. Some forms of commercial ownership prioritise cost-cutting over investment in quality journalism; some forms of, in particular, private ownership, may give rise to undue prominence to the proprietor's politics.

  5.2  GMG has an ownership structure unique in the UK media industry: we are privately owned by the Scott Trust, which was created, in 1936, to safeguard the journalistic independence and liberal values of The Guardian. The core purpose of the Scott Trust is clear—to secure the financial and editorial independence of The Guardian in perpetuity: as a quality national newspaper without party affiliation; remaining faithful to its liberal tradition; as a profit-seeking enterprise managed in an efficient and cost-effective manner.

  5.3  Put simply, The Guardian exists to create public value, not private gain. Its unique ownership structure means that the wider Guardian Media Group does not seek profit for the financial benefit of its owners or shareholders, but to sustain journalism that is free from commercial or political interference, and to uphold a set of values laid down by our former Guardian editor, CP Scott, and now enshrined as the Scott Trust values.

  5.4  A fundamental tenet of governance is that the Scott Trust Trustees have no role in the day-to-day management of The Guardian or in the day-to-day editorial control of news and content, nor do the Board of Guardian Media Group plc. The day-to-day editorial control of news content is the sole responsibility of the Editor and his staff.

  5.5  The integrity of the newspaper is further protected by the readers' editor, a role created by The Guardian in 1997. The role of the readers' editor is to "collect, consider, investigate, respond to, and where appropriate come to a conclusion about readers' comments, concerns, and complaints in a prompt and timely manner, from a position of independence within the paper".[4] Readers' editors are now in place in several international newspapers, including The Washington Post and The New York Times, which made its first appointment in the wake of the 2003 Jayson Blair affair.

  5.6  In summary, GMG believes that there can be "good" and "bad" owners of news organisations, irrespective of nationality.

7 February 2008



1   Source: Shorenstein Centre on the Press, Politics, and Public Policy. Back

2   Online measured in terms of monthly unique users, source: Comscore; Newspapers measured in terms of adult readership, source: Zenith Optimedia; TV measured in terms of weekly reach, source: broadcasters. Back

3   Source: Spectrum Value Partners interview with Servicio de Defensa de la Competencia. Back

4   Source: http://www.guardian.co.uk/readerseditor/story/0,,652390,00.html Back


 
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