Joint Committee on The Draft Communications Bill Appendices to the Minutes of Evidence


APPENDIX 106

Supplementary memorandum submitted by the Radio Authority

LOCAL RADIO OWNERSHIP AND PLURALITY

   The Radio Authority is pleased to submit an additional Memorandum to the Joint Committee addressing points raised by the Commercial Radio Companies Association during their oral evidence to the Committee on 24 June 2002. This memorandum specifically comments on issues of local radio ownership and plurality.

SUMMARY OF KEY POINTS

    —  In order to allow OFCOM the ability and flexibility to develop its thinking on ownership, the Radio Authority, following lengthy consultation with the radio industry, put forward proposals in June 2001 which were aimed at delivering both substantial liberalisation and the Government's stated policy objectives of local plurality and diversity.

    —  The proposal was that, at the local level in mature markets (those with five or more licences), no one should own more than a 45 per cent share, ensuring at least three players, in addition to the BBC. In less mature markets, less stringent rules applied.

    —  The Government welcomed these proposals as an example of good practice between an industry and its regulator and incorporated the proposals into its draft Communications Bill.

    —  Since the publication of the draft Bill, the radio industry's trade association, the Commercial Radio Companies Association, has put forward the view that the regulatory burden on radio will be greater than that proposed for television or newspapers. This is not a view shared by the Radio Authority.

    —  The Government has placed great emphasis on any structure for local radio satisfying its policy objectives on diversity and plurality. Under CRCA's proposals, we may end up with one or two owners of all local independent radio stations in the UK, which would negate any possibility of plurality of voice.

    —  Annex B CRCA's "worked example" is wrong, and indicates the opposite of the actual impact of the Government's current three plus BBC proposals.

BACKGROUND

  In its submission on ownership to Government, the Radio Authority, following extensive consultation with the radio industry, put forward a proposal based on a "three plus the BBC" formula, under which in mature markets there would normally be three separate commercial owners plus the BBC, thereby ensuring plurality of voice and diversity of format. The example of the industry working closely with its regulator to develop policy was identified by Government as an example of good practice.

  Recently, the Commercial Radio Companies Association has indicated that it is no longer in favour of the "three plus the BBC" formula, preferring instead to rely on competition law to regulate the market. This viewpoint is not shared by the Radio Authority.

INDEPENDENT LOCAL RADIO

  In the UK, whilst there are three independent national radio stations, for the general public commercial radio it is local radio which, as Tessa Jowell has said "is perhaps the most intimate of any of the media . . . stations that broadcast to their community—proud of being local, giving people the news, talk and music they want in accents they recognise".

  All local radio licences are awarded in a competition based mainly on criteria looking at local relevance. Prospective licensees must satisfy the Authority that their service understands its local market, its tastes and needs, and will provide a quality service for the duration of the licence period.

  The current rules allow someone to hold two licences on a single waveband (ie either FM or AM) in an area, plus a third (on the other waveband) subject to a Public Interest Test. We believe those rules can be simplified and liberalised, but not at the expense of local plurality of voice, which must be protected. We have seen a number of examples where concentration of ownership has reportedly led to abuse, both in the UK and in highly deregulated markets such as the USA.

DIVERSITY AND PLURALITY

  The Government places great emphasis on both diversity and plurality. Diversity can be seen as a range of formats, covering different music and speech genres, presented in a variety of ways. Plurality of voice is a democratic safeguard, ensuring freedom of expression through a number of sources of news and expressions of opinion, a range of potential employers, and a choice of people deciding music play lists. To use an analogy, plurality is ensuring enough people get through the door; diversity is about what they do once they're inside.

THREE PLUS BBC

  We have proposed to Government a simple rule to ensure plurality in local markets, a "three plus BBC" formula, whereby in a mature market there are three separate commercial owners plus the BBC. The Government has accepted this proposal and defined a mature market as an area having five licences or more. All these proposals were developed in consultation with CRCA, the radio industry's trade association.

  The proposal has most impact on a small number of developed markets, such as London and the metropolitan areas. In mature markets, the Radio Authority has proposed that "any one company can own 45 per cent of the available licences" which guarantees at least three owners, but not necessarily all of the same size. For example in London, where there are 15 local stations, two owners could each hold up to seven stations. However, in many areas there would only be one or two owners. In areas with two radio stations, these could be under common ownership, whereas in areas with three or four stations—which includes cities such as Norwich, Leicester, Nottingham and Plymouth—there would only need to be two owners.

  The draft Communications Bill would allow any one radio company to have the potential to increase its market share from 15 per cent (as under current legislation) to 45 per cent which is already major liberalisation by any standards. The Bill also proposes a 3-yearly review of ownership provisions, so if after time Parliament is satisfied that plurality concerns can be satisfied notwithstanding greater concentration of ownership, changes can be made using Order-making powers.

  Despite that, CRCA has expressed a change of mind. Their suggestion now seems to be either that "two plus the BBC" suffices for local radio provided there are three owners of all media in a given locality or that competitions rules alone will suffice. However, neither proposal takes account of the fact that newspapers and television are nearly all owned by national or international companies. We believe that local plurality is something worth preserving. An analysis of CRCA's arguments and the Radio Authority's response is at Annex A.

  Annex B corrects the false data supplied by CRCA in their letter to the Committee on 1 July 2002.

July 2002

Annex A

ARGUMENTS AGAINST DILUTING THE "THREE PLUS BBC" PRINCIPLE

  The Radio Authority, in consultation with the Commercial Radio Companies Association (CRCA) submitted proposals to government on local media ownership, based on a "Three plus the BBC" principle, whereby in a mature market there should normally be three separate commercial operators. The CRCA has recently expressed a change of opinion, claiming that ownership proposals for other media to be regulated by OFCOM provide a more liberalised regime than that for radio. This is not a view shared by the Radio Authority.
CRCA Proposal Radio Authority Response
The Communications Bill allows two owners of commercial television (three for radio): there should be parity between the media —  There is parity, and in fact radio ownership is more liberal than TV. The Bill permits two of the three national TV services (ITV and C5) to be in common ownership (subject to competition law) whereas all three Independent National Radio stations could be jointly owned;

—  It is not reasonable to compare national media with local media. There is no TV equivalent to Independent Local Radio (as regional ITV stations do not overlap), so comparing the rules for ILR with national TV is not comparing like with like;

—  In terms of local media, a plurality test will remain for local newspapers (although the public interest test for radio plurality will go) thus making local newspapers the most heavily regulated local media (in terms of plurality considerations).



Competition law should suffice as proper regulation of the market
—  This is not a matter of market regulation, but the protection of plurality;

—  While the OFT will retain its role in investigating radio mergers, unless it changes its market definition it will not be interested in investigating radio/newspaper mergers;

—  If the OFT does change its market definition (eg to include local newspapers with radio as the "relevant market"), then potentially there could be just one owner of every radio station in an area;

—  The Broadcasting Act competition provisions are being repealed, so that OFCOM's competition powers in relation to radio will be only .those under the Competition Act. This will result in a significant deregulation of the industry as Chapter 1 prohibitions do not apply to parties with a combined UK market share of less than 25 per cent; Chapter 2 prohibitions are unlikely to bite on a market share of less than 40 per cent.



Other media have been more deregulated than radio
—  National radio has been more deregulated than national TV;

—  There is no TV equivalent to local radio;

—  Newspapers are to be potentially more heavily regulated than radio in terms of plurality.



Diversity is better protected by allowing greater concentration of ownership, as services under common ownership will not compete with each other and therefore seek a wider range of target audiences
—  We have evidence from the USA, New Zealand and other deregulated markets which demonstrate the opposite. Formats move towards the central ground, with competition focused on variants of the most popular target groups for advertisers.

—  While we believe that plurality of ownership contributes to diversity, there are other fundamental reasons for promoting plurality, including the link to Article 10 of the European Convention on Human Rights—the right to freedom of expression. Plurality is about the right to have access to broadcast, the availability of different voices which cannot be regulated for within a single service. Concentrated common ownership runs the danger of leading to diminished diversity of view.

—  Diversity of music formats is not comparable with sources of news, information and opinions. One involves music genres, the other freedom of expression.

Since reaching a consensus with the Radio Authority on ownership, there have been significant changes in the broadcasting and telecommunications sectors, not reflected in the Bill in respect of radio —  The only unexpected change has been the proposed allowing of foreign ownership. There has been no significant change in UK radio—while the roll-out of DAB continues, take-up is still low. Overall, the radio market remains fairly static.



Local media plurality will be protected by a combination of competition law and providing for three local media owners in each market
—  It remains unclear how competition law will act on cross-media mergers, if at all (as this will depend on the OFT's market definitions). If the OFT defined a common TV/radio/newspaper market, a single provision requiring just three media owners in each local market in theory would be satisfied by there being a single newspaper proprietor, a single TV owner, and a single radio licensee for the entire UK.

—  However, for the time being, the media remain different; they are no more substitutable for advertising than they are for more general plurality concerns.


The rules on impartiality provide adequate protection for freedom of expression
—  While news must be accurate and impartial, local radio presentation is only required to avoid undue prominence—it can be partial;

—  Impartiality is not the same as freedom of expression. The right to freedom of expression is a right to express and impart ideas—a requirement to be impartial does not require views to be expressed at all.

9 July 2002


Annex B

THE CRCA "WORKED EXAMPLE"

  CRCA's submission to the Joint Scrutiny Committee includes a "worked example" from the Manchester area. In presenting this "hypothetical" example, CRCA somewhat surprisingly observes that it is "ignoring for now the peripheral stations". In fact, the points accruing to these "peripheral stations", each of which covers less than 75 per cent of the Manchester area, produce a points total in each local licence area which invalidates the example chosen by CRCA to advance its argument.

  CRCA's example cites several licences of varying population scale which cover Manchester, ranging from the North-West regional licences (Century and Jazz) to the Manchester "city" licence of Galaxy 102.

  The points position in relation to each of these individual licence areas is as shown in the attached pages (full workings are available if required). In summary, this analysis shows that where, on page 3 of Paul Brown's letter to the Committee, it is stated that "it is theoretically possible that the following could happen", in fact neither of the radio acquisitions used as examples would require the disposals of licences which CRCA states to be needed as a result of applying these rules. GMG can acquire Capital Radio without needing to sell off Capital Gold, and an Emap acquisition of Galaxy 102 (Chrysalis) would not require the disposal of Magic 1152.

  The calculations needed to produce these conclusions took less than an hour to complete. CRCA, as joint architects of the original model, are fully aware of how the mechanism should be applied. CRCA has produced results which are wrong, and misleading for the Joint Scrutiny Committee, as a result of over-simplifying this mechanism.

DETAILED CALCULATIONS

North-West regional (Century—Capital, and Jazz—GMG)
4 ptsCentury (Capital), Jazz (GMG)
2 ptsKey 103 (Emap), Magic 1152 (Emap), Galaxy 102 (Chrysalis), Capital Gold (Capital), City FM (Emap), Magic 1548 (Emap), Rock FM (Emap), Asian Sound Radio (Asian Sound)
1 ptMagic 999 (Emap), Wave 96.5 (TWG), Crash FM (Forever), Tower FM (Forever), Revolution (UKRD), Imagine FM (TWG), Wish FM (TWG), MFM (GWR)


Total pts =32 pts
x45 per cent limit =14 pts maximum
Emap: 11 pts
Capital:6 pts
GMG:4 pts
TWG:3 pts
Chrysalis:2 pts
Asian Sound:2 pts
Forever:2 pts
GWR:1 pts
UKRD:1 pts

CONCLUSION

  Capital or GMG can acquire (or be acquired by) anyone except Emap, without disposing of any licences.

Manchester "large" FM (Key 103—Emap)
4 ptsCentury, Jazz, Key 103, Magic 1152, Capital Gold
2 ptsGalaxy 102, Asian Sound, Revolution
1 ptCity FM, Magic 1548, Rock FM, Tower FM, Imagine FM, Wish FM, Wire FM (TWG), Classic Gold 1278/1530 (TWG)


Total pts =34 pts
x45 per cent limit =15 pts maximum
Emap:11 pts
Capital:8 pts
GMG:4 pts
TWG:4 pts
Chrysalis:2 pts
Asian Sound:2 pts
UKRD:2 pts
Forever:1 pt

CONCLUSION

  All acquisitions are possible, except between Capital and Emap, without any licence disposals.

  Similarly, for other Manchester licences:

Manchester AM (Magic 1152—Emap)
4 ptsCentury, Jazz, Key 103, Magic 1152, Galaxy 102, Capital Gold
2 ptsAsian Sound, Revolution
1 ptMagic 1548, Rock FM, Tower FM, Imagine FM, Wish FM, Wire FM, Classic Gold 1278/1530


Total pts =35 pts
x45 per cent limit =15 pts maximum
Emap:10 pts
Capital:8 pts
Chrysalis:4 pts
GMG:4 pts
TWG:4 pts
Asian Sound:2 pts
UKRD:2 pts
Forever:1 pt

CONCLUSION

  All acquisitions are possible, except between Capital and Emap, without any licence disposals.

Manchester AM (Capital Gold—Capital)
4 ptsCentury, Jazz, Key 103, Magic 1152, Capital Gold
2 ptsGalaxy 102, Asian Sound, Revolution
1 ptMagic 1548, Rock FM, Tower FM, Imagine FM, Wish FM, Wire FM, Classic Gold 1278/1530


Total pts =33 pts
x45 per cent limit =14 pts maximum
Emap:10 pts
Capital:8 pts
GMG:4 pts
TWG:4 pts
Chrysalis:2 pts
Asian Sound:2 pts
UKRD:2 pts
Forever:1 pt

CONCLUSION

  All acquisitions are possible, except between Capital and Emap, without any licence disposals.

Manchester "city" FM (Galaxy 102—Chrysalis)
4 ptsCentury, Jazz, Key 103, Magic 1152, Galaxy 102, Capital Gold
2 ptsAsian Sound, Revolution
1 ptRock FM, Tower FM, Imagine FM


Total pts =31 pts
x45 per cent limit =13 pts maximum
Emap:9 pts
Capital:8 pts
Chrysalis:4 pts
GMG:4 pts
Asian Sound:2 pts
UKRD:2 pts
TWG:1 pt
Forever:1 pt

CONCLUSION

  All acquisitions are possible, except between Capital and Emap, without any licence disposals.

NOTE ON MECHANISM

  The ownership of two local licences which share a potential audience (ie the larger covers 50 per cent or more of the adult population of the measured coverage area of the smaller), regardless of waveband (FM or AM), would be permissible. Where a company seeks to make an acquisition which would give it three or more licences, each of which shares a potential audience with all of the others, the proposed new rules would come into play. The "45 per cent limit" (see below) could not be breached in respect of any one of the licences that would be in common ownership.

  The mechanism drawn up by CRCA and Authority staff was designed to set limits on the concentration of ownership with reference to the number of ILR services available to listeners within a given local area. All significantly overlapping ILR services would be given a points value, as an index of their relative degree of overlap of the measured coverage area (MCA) of the licence concerned.

  "Points" are awarded as follows:
For each service which covers 75 per cent or more of the MCA adult population of the licence concerned 4 points
For each service covering between 25 per cent and 75 per cent 2 points
For each service covering between 5 per cent and 25 per cent 1 point


  Overlapping coverage of less than 5 per cent is ignored.

July 2002


 
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