Select Committee on Communications First Report


CHAPTER 6: CHANGES TO MEDIA OWNERSHIP REGULATION

228.  This chapter examines the regulatory regime for media mergers. It outlines the current framework of media ownership regulation, which is based around the Public Interest Test for media mergers. We propose certain changes to ensure that the system is as independent, robust and stream-lined as possible.

THE STANDARD MERGER REGIME

229.  The Enterprise Act 2002 sets out the standard merger regime and the media merger regime which includes the Public Interest Test. If a non-media merger or acquisition qualifies as a "relevant merger situation" and meets a certain turnover threshold then it will be investigated and considered by the competition authorities. A relevant merger situation is created when enterprises cease to be distinct, so that in effect, they have come under common ownership or control.

230.  In addition to the common ownership or control test, a merger will only be investigated if it meets either the turnover test or share of supply test. The turnover test is met if the UK turnover of the acquired enterprise exceeds £70 million. The share of supply test is met if, as a result of the merger, at least 25% of goods or services of any description supplied in the UK (or in a substantial part of the UK) are supplied by, or to, the merged entity. A final proviso is that the share of supply test only applies to activities that overlap in relevant markets.

231.  The Office of Fair Trading (OFT) is the authority of first inquiry and will assess whether or not a relevant merger situation has been created. It will then make a judgment on whether the merger could cause a substantial lessening of competition. The OFT can accept undertakings-in-lieu from the relevant parties to prevent a reference to the Competition Commission. At no stage in the standard merger regime is there any role for Government ministers.

232.  Media mergers and acquisitions are subject to the standard merger regime like any other sector. However, because of the special position of the media, media mergers and acquisitions can be subject to an additional level of scrutiny that looks at their impact on the public interest.

THE MEDIA MERGER REGIME

233.  The Public Interest Test was introduced by the Communications Act 2003 which amended the Enterprise Act 2002. Before this legislation, media mergers were still subject to separate ownership restrictions. These took the form of restrictions on ownership of particular combinations of broadcast media, restrictions on cross-media ownership and a specific merger regime for newspapers. The purpose of these restrictions was to ensure plurality in media ownership.

234.  The Communications Act 2003 was deregulatory in its approach. In a policy document considered by the Joint Committee on the Draft Communications Bill, and published on 7 May 2003 the Government explained that the aim of the new legislation was to liberalise and simplify media ownership rules. The reasons given for doing this were that:

235.  The Communications Act 2003 made some important changes to the way in which media mergers are considered. First, it changed many of the historical limits on media ownership by:

  • lifting the restrictions on mergers of ITV companies (but retaining some limits on ownership of ITV so that a company holding a national ITV licence cannot merge with a company owning 20 per cent of the national newspaper market, nor can it merge with a company owning more than 20 per cent of the newspapers of that region);
  • lifting the rules preventing a company owning 20% of the national newspaper market from owning Channel 5;
  • increasing the scope for cross-media mergers;
  • increasing the scope for radio mergers; and
  • allowing non-EEA companies to own UK television and radio companies.

236.  As well as lifting specific restrictions on mergers, in particular cross-media mergers, the Communications Act also introduced a separate regime for considering the public interest implications of a media merger. This is known as the Public Interest Test. It was not part of the Government's initial proposals when the Bill was published but was the result of a compromise between the Government and the House of Lords which was concerned about the implications for the citizen of the Government's deregulatory approach.

237.  The Public Interest Test was inserted into section 58 of the Enterprise Act by section 375 of the Communications Act. The Enterprise Act had already created a Public Interest Test to be applied to mergers with national security implications. The Communications Act extended the application of this test to media mergers. Lord Puttnam, Chairman of the Joint Committee which scrutinised the draft Communications Bill, described this arrangement as "a double lock whereby you use the provisions of the Enterprise Act to look at things from a competition perspective and at the same time you looked at those same provisions from the perspective of the public interest. By creating these two locks, you were likely to get a reasonable result" (Q 2097).

THE CONSIDERATIONS IN THE PUBLIC INTEREST TEST

238.  The Communications Act inserted two slightly different sets of public interest considerations into the Enterprise Act. One set for newspaper mergers, and one for broadcasting mergers and cross media mergers.

239.  In the case of newspaper mergers, the three public interest considerations are the need for:

240.  In the case of broadcasting or cross-media mergers, the three public interest considerations are more specific and detailed. They are the need for:

  • in relation to every different audience in the UK or in a particular area or locality of the UK, for there to be a sufficient plurality of persons with control of the media enterprises serving that audience;
  • the availability throughout the UK of a wide range of broadcasting which (taken as a whole) is both of high quality and calculated to appeal to a wide variety of tastes and interests; and
  • persons carrying on media enterprises, and for those with control of such enterprises, to have a genuine commitment to the attainment in relation to broadcasting of the standards objectives set out in section 319 of the Communications Act 2003 [99].

241.  Neither the public interest considerations for newspaper mergers nor those for broadcasting and cross-media mergers include any requirement to establish that a merger will not adversely affect professional news gathering and investigative journalism. This is a significant omission given the evidence highlighted in chapter two, which showed that it is the expensive job of news gathering that is suffering most.

242.  Chapters two and four show that there is no evidence that the economies of scale that consolidation brings necessarily lead to investment in news gathering. It is news gathering and investigative journalism that distinguishes a great news organisation. It is therefore clearly in the public interest that a media merger does not negatively impact in the amount of time and money devoted to this type of journalism.

243.  We recommend that the public interest considerations for newspaper mergers and broadcasting and cross-media mergers are amended to refer specifically to a need to establish whether a merger will impact adversely on news gathering.

The considerations for newspaper mergers

244.  A comparison of the public interest considerations for newspaper mergers (see para 239) and those for broadcast and cross-media mergers (see para 240) shows that the newspaper considerations are considerably less rigorous.

245.  In relation to broadcasting and cross-media mergers plurality of ownership may be considered, but for newspaper mergers this is not necessary. The need is merely for a "plurality of views" in newspapers and even this has the caveat of only when it is reasonable or practicable. As highlighted above there is also no requirement to prove that a merger will not impact on the commitment to newsgathering.

246.  We are also concerned that the considerations for newspaper mergers are hard to measure objectively and are in need of review. How can accurate presentation of news be measured and considered before a merger has gone ahead?

247.  Ofcom is the body charged with conducting the initial investigation of the public interest implications of a newspaper merger, once the Secretary of State has issued an intervention notice. However, Ofcom seemed unaware of this responsibility. Ed Richards, the Chief Executive of Ofcom, told us that in relation to newspapers, Ofcom only has "marginal responsibilities in relation to cross-media ownership rules" (Q 856). But the fact is that Ofcom has the important responsibility of advising the Secretary of State about whether a newspaper merger is likely to harm the public interest and therefore whether there is a case for referring the merger to the Competition Commission on public interest grounds. Ofcom is charged with promoting the interests of citizens in communications matters, and its duties towards newspaper mergers clearly fit with this brief.

248.  Trinity Mirror's written evidence states that Ofcom has conceded it is not well equipped to offer the Secretary of State advice on the public interest considerations of newspaper mergers. Trinity Mirror therefore calls for a more limited role for Ofcom in newspaper mergers (p 558). However, if Ofcom had a more limited role then there is no obvious body who could advise the Secretary of State. We therefore believe the solution is not to limit Ofcom's role but to ensure it has the skills and expertise to carry-out its duties. The need for a review of the public interest considerations for newspaper mergers provides an opportunity for Ofcom to build expertise in this area.

249.  We recommend that the considerations set out in the Public Interest Test for newspaper mergers should be reviewed by Ofcom. This exercise should consider the rigour of the criteria and how they can be assessed. Conducting such a review will give Ofcom the opportunity to start building an expertise in advance of actually having to look at a newspaper merger.

SCOPE OF THE PUBLIC INTEREST TEST

250.  When the Government introduced the amendments to establish the Public Interest Test during third reading of the Communications Bill in the House of Lords, the Minister explained that "In principle, all media mergers, including cross-media mergers, can be subject to a media plurality test. However, we intend as a matter of policy normally to apply the test in practice to those areas only where the current rules are being removed completely"[100]. This means that the Secretary of State will normally only trigger the Public Interest Test for mergers that involve:

  • National newspapers with more than 20% of the market and the Channel 5 licence holder;
  • National newspapers with more than 20% of the market and a national radio service;
  • Mergers involving a change in control of one or more Channel 3 licences such that the acquirer would control licences accounting for an audience share of greater than 15% (though such acquisitions are less likely to raise concerns where the acquirer is already an existing ITV licence holder in view of ITV's proven track record as a public service broadcaster);
  • Two Channel 3 licences for the same region;
  • A Channel 3 licence holder and the Channel 5 licence holder;
  • A national Channel 3 licence holder and a national radio service;
  • The Channel 5 licence holder and a national radio service;
  • Two or more national radio services;
  • Owners from outside the European Economic Area (except where prior to the Communications Act 2003 there were no restrictions on non-EEA ownership)[101].

251.  However, although it was the Government's intention to only use the Public Interest Test in these circumstances, there is flexibility in the system. The Public Interest Test could be applied to any media merger and the Government's own guidance suggests it might be used in exceptional circumstances when a merger gave rise to "serious public interest concerns", in particular the Government highlight three specific areas:

  • Where a large number of educational or news channels came under single control;
  • Where all the music channels came under single control; and
  • Where a new entrant to local radio has not shown a commitment to broadcasting standards in other media or countries[102].

252.  We have received evidence calling for the Government to signal an intention to use the Public Interest Test for a wider range of mergers. For example, the Guardian Media Group argued that "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" (p 324). Lord Puttnam stated in his written evidence that there is a need to consider the influence of larger internet players (p 431).

253.  We understand why the Government provided guidance to the market about the likely areas of application of the Public Interest Test. It provided a degree of predictability at a time when ownership rules were being lifted or significantly amended. However, we have concerns about the relatively narrow scope envisaged for the use of the Public Interest Test. For example, although the Public Interest Test could be used to investigate the implications of a large internet company acquiring a UK media enterprise, the Government's guidance indicates that the Secretary of State would be unlikely to trigger the Test if such a merger took place. We recommend that the Government should be more flexible and adopt a case-by-case approach when considering which media mergers the Public Interest Test should apply to. We believe that it would be essential to apply the test if a major international internet company bought a stake in a UK news provider.

THE ROLE OF MINISTERS

254.  The most significant difference between the standard and media merger regimes is the degree of ministerial involvement. Under normal merger rules, the OFT and the Competition Commission operate without reference to any Minister. However, in keeping with previous media merger regimes, Ministers have a significant role in the Public Interest Test. Specifically, the Secretary of State for Business, Enterprise and Regulatory Reform has the following responsibilities:

255.  We are concerned about the role of the Secretary of State in the Public Interest Test. Governments of all persuasions spend time building good relationships with powerful media proprietors. This is not necessarily wrong but it does raise a possible conflict of interest if the same people who want, and need, to stay on the right side of a media company, have the final say on that company's business interests.

256.  Sir Christopher Meyer, Press Secretary from 1994 to 1996 to the former Prime Minister John Major, discussed how much influence politicians believe media coverage has on their success: "politicians of all parties get far too steamed up and worked up about what is written about them in newspapers because they fear that the headline and the story is going to influence the voters' view of them as individuals, as politicians, and then affect the way they vote" (Q 1801). If a politician is that concerned about media coverage then it makes sense that they will want to have good relationships with powerful media owners. This illustrates the potential conflict of interests.

257.  Several witnesses expressed concern about ministerial involvement in the Public Interest Test. The media commentator Roy Greenslade thought that the Competition Commission were "more likely to be more objective" (Q 1742). Sir Simon Jenkins, former Editor of The Times from 1990-1992, was convinced that "the Minister should not be involved" (Q 1788). Michael Grade, the Chairman of ITV, said, "I am not quite sure I fully understand why it is necessary for the Government of the day to be involved in signing off the decision of an independent body like the Competition Commission" (Q 1054). Jocelyn Hay, Founder and Chairman of the Voice of the Listener and Viewer, argued that because "The media is so important politically … where you have concentrated cross-media ownership of newspapers and radio stations and television stations, there is, again, huge potential for subtle, behind-the-scenes pressure" (Q 1338).

258.  Lord Puttnam questioned whether politicians actually wanted this level of control over media mergers. After discussions with the Secretary of State for Business, Enterprise and Regulatory Reform, he felt that the "clear sense was he would like this whole thing a million miles away from him. He did not think these decisions falling on his desk had any political or any other form of attractive mileage" (Q 2131). Roy Greenslade concurred with this assessment, saying "I think the Secretary of State might enjoy being taken out of it because I think it puts immense pressure on the Secretary of State from internal politics and external pressures and the Competition Commission can make a rational decision" (Q 1743).

259.  We are particularly concerned that Ministers are the only people with the power to initiate the Public Interest Test. At the beginning of the process the Ministers' decision may be subject to very little scrutiny because the case will not yet necessarily have a high public profile. At least at the end of the process the Secretary of State's decision will be subject to significant media and public scrutiny.

260.  One possible safeguard would be to give Ofcom concurrent powers with the Secretary of State to initiate the Public Interest Test. Professor Prosser, Professor of Public Law at Bristol University, made the case for Ofcom to have this power. He stated that "the early stage of deciding whether to investigate seems to be something which could be left to the independent regulator. That regulator will know the market better than the Minister, one hopes, or the civil servants, because it is the job of the regulator to keep the market under supervision. It would seem to me that that would be very desirable" (Q 1980). We agree. How can Ofcom pro-actively promote the interests of the citizen in media mergers if it cannot decide that there should be an investigation of the impact a media merger has on those interests?

261.  We recommend that Ofcom should be given the power to initiate the Public Interest Test. This would sit more comfortably with Ofcom's duty to promote the interests of the citizen. We do not believe that the power to trigger a Public Interest Test should be taken away from Ministers. Along with Ofcom, Ministers should retain the power in the event that they consider there is a risk to the public interest that Ofcom has not fully recognised. Therefore, the power to issue an Intervention Notice should be held by both Ofcom and the Secretary of State.

262.  At the other end of the process, we are content that the Secretary of State should retain the power to make a final judgment on the validity of the Competition Commission's findings and decide on what remedies are appropriate if a merger is considered to act against the public interest. We accept that Ministers have a legitimate role at this point. As Professor Prosser stated "in the end there is an important role for the Minister because he or she will be able to take an overall look at the public interest and take into account non-competition based concerns, but that is distinct from being involved in the investigation itself" (Q 1944).

263.  John Hutton MP, the Secretary of State for Business, Enterprise and Regulatory Reform, stated that, "Speaking personally I think it would be exceptionally difficult to imagine a set of circumstances where, having intervened and referred to the Competition Commission and the Competition Commission makes recommendations on these public interest grounds, that any Secretary of State would say, "I am sorry, I am not accepting the findings of the Competition Commission". I think that would have to be a unique set of circumstances. I would find it very hard to envisage that actually coming about" (Q 2372).

264.  While it can be argued that there is still a conflict of interest in Ministers having the final say on the recommendations of the Competition Commission, this part of the process will be very high profile. The recent BSkyB/ITV judgment was covered in great detail by the press and discussed in Parliament. Given this level of scrutiny we believe that there are sufficient safeguards at this end of the process. Ultimately, there is the option of judicial review if it is believed that Ministers have made an unreasonable decision.

STREAMLINING THE PROCESS

265.  Application of the Public Interest Test is currently a five (possibly six) stage process:

266.  We heard repeated complaints from witnesses about the complexity of this process and the length of time that it takes. Michael Grade stated that "my only complaint is that everything seems to take so long" (Q 1048). Virgin Media agreed with this assessment, stating that the regulatory authorities should be "sufficiently resourced in order to move at speed and in order to make a judgment that actually has an impact rather than makes a ruling once the market has moved on" (Q 1120). Mr Clark, Trustee and former Board Member of the Voice of the Listener and Viewer, concluded that "it is a very tedious process at the moment: the reference to Ofcom, the reference to the Competition Commission, the reference to the Secretary of State. Time seems to be the real problem in it. Huge swathes of time disappear in the whole thing" (Q 1339).

267.  One reason why the process takes so long is that Ofcom initially investigates the likely public interest implications of a media merger and, if the Secretary of State accepts there are public interest implications, then the Competition Commission is asked to carry-out a more detailed investigation of the public interest implications. This system means there are two consecutive investigations of the same subject. We are concerned that this system does not take full advantage of Ofcom's media expertise, and instead asks a purely competition focused regulator to give the final advice to the Secretary of State on whether a merger raises public interest concerns. A number of witnesses were concerned about the Competition Commission's qualifications for investigating the public interest. Professor Prosser believed that it "is not the best body to decide on issues of plurality, given that plurality is not essentially an economic issue … Ofcom would be a better qualified body to examine the plurality issues" (Q 1968). This view was supported by Professor Woods, Professor of Law at the University of Essex, who said, "I have concerns with plurality issues being determined in the final instance by the Competition Commission, merely because with its focus it has a very narrow view" (Q 1985).

268.  The only use of the Public Interest Test so far has been the recent and high profile case of BSkyB's purchase of a 17.9% stake in ITV. After its investigation Ofcom concluded that because of the acquisition, "there may not be a sufficient plurality of persons with control of the media enterprises serving the UK cross-media audience for national news and the UK TV audience for national news"[103]. Later in the process the Competition Commission considered the same issue. Its final report drew different conclusions to Ofcom in that it "did not expect BSkyB's ability materially to influence ITV to have an adverse effect on plurality of news" and that therefore "the acquisition would not materially affect the sufficiency of plurality of persons with control of media enterprises servicing audiences for news"[104]. In summary the two regulators came to different conclusions about whether the merger would affect the plurality of news.

269.  When asked about this discrepancy, Ed Richards stated that "We were a little surprised at the finding on plurality" (Q 901). Nevertheless, he went on to say that "We are pretty relaxed about it, though, because they found a concern in relation to competition. As a result of finding a concern in relation to competition, they have raised the question about the appropriateness and the appropriate level and conditions of that shareholding, and therefore the issue will be addressed through that means" (Q 900).

270.  We do not share Ofcom's sense of relaxation. Given the design of the Public Interest Test it would have been perfectly possible for the Competition Commission to have come to different conclusions to Ofcom not only on plurality but on the appropriateness of the merger overall. It is just a coincidence that despite disagreeing with Ofcom on plurality, the Competition Commission found there was a significant lessening of competition and therefore suggested there was a problem with the merger. If the Competition Commission has not found a significant lessening of competition then there would have been a situation where one regulator had suggested a merger was likely to operate against the public interest, but the other regulator, the one with the powers to recommend remedies, found there was no problem at all and recommended the merger go ahead.

271.  The BSkyB/ITV case has only served to reinforce our concern that Ofcom does not have a strong enough input. We recommend that legislation should be amended so that Ofcom investigates the mergers only on the basis of the public interest criteria, and the Competition Commission considers only the competition aspects of a merger. They should make their recommendations separately to the Secretary of State on whether the merger should be blocked or go ahead (with or without remedies). The Secretary of State would then have the final responsibility for accepting or rejecting Ofcom's recommendations and remedies, as they relate to the public interest criteria. As is the case now, the Secretary of State would continue to be bound by the Competition Commission's findings on the competition issues.

CLARIFYING THE REMIT OF OFCOM

272.  If Ofcom is to have the new powers that we recommend then it is important to consider how those powers fit into its remit. The Communications Act 2003 gave Ofcom a principal duty to further the interests of both citizens in relation to communication matters and consumers in relevant markets (where appropriate by promoting competition). Ofcom's duties to further the interests of the citizen will be of particular importance when considering a merger's impact on the public interest. Public interest considerations and citizenship considerations are very closely related.

273.  The dual aspects of Ofcom's consumer and citizenship duties have been a cause of much debate, primarily because of the sometimes competing interests of citizens and consumers. Professor Woods raised concerns about this: "I think Ofcom is not helped in that regard. Certainly it is left to its own devices in making a choice about which version, the consumer or the citizen, to prioritise in the event of conflict. I am rather uneasy about that" (Q 1974).

274.  Jocelyn Hay questioned whether Ofcom strikes a sufficient balance between consumer and citizenship issues: "in the Communications Act the word "consumer" (or "consumerism") is mentioned 79 times; "citizen" is mentioned three times. Ofcom, the regulator, has tended to continue with this emphasis at the beginning, in conflating the two when the interests are not the same, and its regulatory approach focuses much more on the economic value for money than on the citizenship side" (Q 1316). Professor Woods agreed, "I think there is a problem with the Act in the sense that you have the two duties specified one after the other, but then that is more or less it for citizenship" (Q 1974). Professor Prosser felt that there "is always going to be a problem where you have a combined regulator … there will be two ways of viewing things: the interests of consumers and the interests of citizens. In the end, they are not the same thing. This is something which has come out strongly in the Review of Public Service Broadcasting, for example. There is a conflict there" (Q 1969).

275.  Citizenship issues are particularly important with regards to news provision. Ed Richards said "a plural, diverse range of high-quality news in this country … ranks most highly from our own perspective; it ranks most highly from the general public, … in relation to meeting our duties which we were set by Parliament to further the interests of citizens as well as consumers I think that this is very near the top of the tree" (Q 903). In fact it is the protection of citizenship interests that provide the rationale for special intervention in media mergers. While the OFT and the Competition Commission have remits to consider the implications of mergers from a market perspective, only Ofcom is charged with protecting citizenship rights. We therefore believe that when Ofcom plays its role in the Public Interest Test, citizenship issues should be at the centre of its considerations. We recommend that when Ofcom considers the public interest considerations of a media merger it should be required to put the needs of the citizen ahead of the needs of the consumer.

OFCOM'S CONTENT BOARD

276.  It is mainly the Content Board which champions the interests of citizens within Ofcom. One example of this was given to us by Jocelyn Hay "when ITV said it was going to drop its non-news regional programmes, the Content Board advised that that should not happen for a year but the main Board took no notice of that report at all" (Q 1346). Ofcom's Content Board is a sub-committee of the main Ofcom Board, with delegated and advisory responsibility for a wide range of content issues, predominantly dealing with broadcasting. It was set up under Section 12(1) of the Communications Act 2003. The Content Board serves as Ofcom's primary forum for the regulation of television and radio quality and standards.

277.  Lord Puttnam explained why the Joint Committee that scrutinised the Communications Bill considered the Content Board necessary: "The original Bill was a purely economically focused regulator called Ofcom which was to make purely economic decisions. One of the achievements of the Scrutiny Committee was to broaden this out … to include issues that covered plurality, quality of content and range of content … Once we had the Public Interest Test as part of the debate, we moved into the committee structure of Ofcom itself. In order to deal with these issues the Content [Board] was created" (Q 2106).

278.  Some witnesses have questioned though whether the current arrangement, whereby the Chair of the Content Board also serves as Ofcom's Deputy Chairman on the main board, is sufficient to ensure citizen interests are properly represented throughout Ofcom. For example, Jocelyn Hay felt that "The Content Board appears to have very little power at all and its views are not necessarily taken notice of. They are very seldom reported in Ofcom's annual plan and its annual report. There is very little mention of the Content Board, apart from handling complaints" (Q 1346).

279.  Section 13(3) of the Communications Act 2003 states that the Content Board should have "at least a significant influence on" the main board's decisions. The evidence we received questions whether this statutory requirement is being fulfilled, at least in respect of enforcing the public service or "positive" content obligations laid down in the Act. This is worrying because the Content Board is where the citizens' interests might be expected to be properly represented and protected. We are concerned that Ofcom is inadequately implementing Section 13(3) of the Communications Act and believe that it should review whether the Content Board has a significant influence on Management Board decisions in respect of Ofcom's duty to promote the purposes of public service television as laid down by Section 3(4)(a) of the Communications Act. We ask that Ofcom publish the findings of this review so that they can be acted on by Parliament if necessary.

Local media ownership

280.  As we outlined in chapter four, the regional and local newspaper industry and the local commercial radio industry have already experienced significant consolidation. In part, this was encouraged by the Communications Act 2003 which was deregulatory in its approach. However, a number of regulatory rules governing mergers at a local level remain. These include:

LOCAL RADIO OWNERSHIP

281.  The current rules on local radio ownership are designed to ensure that there are at least two owners of local radio stations, plus the BBC, in any market where there are more than two local commercial stations[105]. Analogue and digital stations are considered separately, and in Ofcom's words, "because almost every station's market is unique, with many overlaps between stations' markets, the calculation of the ownership limits has to be carried out on a case-by-case basis, and is far from transparent"[106]. Radio Centre, argued that "radio-specific rules on concentration of ownership should be removed" because "this anachronistic approach is impeding the pace of consolidation within the commercial radio sector, which still consists of 70 separate owners" (p 411).

282.  While we understand the financial reasons put forward in support of consolidation, we nevertheless note that the four biggest radio companies (GCap Media 29%, Bauer Radio 25%, Global Radio 12.2%, and GMG Radio 11.2%) have over 77% market share of all commercial listeners. In addition, if the proposed £375 million GCap Media and Global Radio merger goes ahead, it will give one company over 40% of a single commercial market. However, we are mindful of increasing integration within and between media sectors, particularly with regards to different platforms.

283.  Ofcom's considered radio ownership rules following on from its review of the media ownership regulations in 2004. Ofcom concluded that "that there is a case for Government to consider simplifying the local analogue and digital services rules, at the appropriate time, allowing further consolidation while protecting plurality. This could take the form of bringing together the local analogue and DAB rules into a single set of rules, although other options are available"[107]. The Government told us that "The Government in principle accepts Ofcom's recommendations and will work closely with them to see where there may be a case for change to the existing rules" (p 501). Given the position of the Government and Ofcom, we recommend that the analogue and digital local radio ownership rules should be amalgamated.

LOCAL CROSS-MEDIA OWNERSHIP RULES

284.  The local cross-media ownership rules operate using a points system that prevents local newspapers with an aggregate market share of 50% or more, and Channel 3 regional licence holders, from owning local analogue radio licences in the same area if they would have more than 45% of the total points available in that area. The rules are designed to ensure that there are at least three local media voices in every area where there is a range of services.

285.  In its last review of media ownership rules, Ofcom argued for no change: "… plurality of voice in a local area remains important, even though radio itself is not a primary source of news. Taking local newspapers and local radio together under common ownership could unacceptably diminish the range of voices in an area"[108]. This was supported by Radio Centre (p 408). The Chief Executive, Andrew Harrison, told us that the size of the local radio industry is small in comparison to the local newspaper industry "The total turnover for the sector is about £600 million across these 320 stations. So this is a very small sector of the overall media world. Johnston Press alone, the local newspaper group, turns over more than all of commercial radio" (Q 2026). Against this, the Newspaper Society argued in favour of liberalising the local cross-media ownership controls. It stated that "The justification for special controls over such media transactions cannot be sustained. They should be treated in the same way as any other industry and subject only to general competition law" (p 106).

286.  The case for lifting the local cross-media ownership restrictions is based on the fact that in some areas it may not be economically viable to sustain at least three independent local media voices which can afford to engage in news gathering. The Newspaper Society argued that the restrictions "fail to acknowledge the commercial realities faced by regional media operations". It added that local news providers now have to compete with a "huge range of other media for audience and advertising: the Internet, ever expanding variety of online advertising and marketing services, directories, direct mail, advertising only publications, magazines, national newspapers, national, regional and local radio and television and their associated activities, particularly their ever developing online publications and variety of online services (BBC and commercial broadcasters)" (p 105).

287.  We understand the concerns that a local cross-media merger could potentially impact on the diversity of voices available to people in a given area. However, if the local cross-media ownership restrictions are lifted, then the impact of local cross-media mergers could be examined through the application of the Public Interest Test, which would be triggered if a local cross-media merger might result in a threat to the diversity of local media provision in a particular area. Following subsequent investigation the merger could be blocked if necessary.

288.  We believe that the Public Interest Test provides appropriate safeguards for maintaining a diversity of voices in local news provision. Therefore we believe that there is no need for specific cross-media ownership restrictions at a local level. The Public Interest Test is a more flexible tool than blanket restrictions on local cross-media mergers—it allows the competition authorities to consider the merits of any proposed merger on a case-by-case basis.

289.  We recommend that the local cross-media ownership restrictions should be lifted. But Ofcom must carefully monitor any local cross-media mergers and apply the Public Interest Test if any are likely to raise public interest considerations.

NON-EEA OWNERSHIP OF UK BROADCASTING

290.  Until the Communications Act 2003 relaxed the foreign ownership rules, ownership of certain broadcasting licences, most notably for television and radio, were restricted for owners outside of the European Economic Area (EEA)[109]. The Government told us that:

    "opening up the UK broadcasting industry to foreign ownership still has the potential to increase productivity and efficiency, offering access to capital and to new management skills and ideas. At the same time the Act includes content regulation which ensures that the quality of programming is not threatened. These content rules apply equally strongly to foreign owners" (p 502).

291.  When the Government was first developing the policy behind the Communications Act it did not intend to lift the historic restrictions on non-EEA ownership of broadcast licences because it was unlikely other countries would allow UK companies to have reciprocal rights in this area. The Government stated in its 2001 consultation on media ownership rules that "Without reciprocal arrangements with other nations that would allow our own companies to expand into their markets, we do not feel we could justify lifting our ban at the present time"[110]. However, the Government later reversed its position. Tessa Jowell MP, then Secretary of State for Culture, Media and Sport, told the Joint Committee on the Draft Communications Bill that while the decision to lift restrictions was being used as a negotiating tool in discussions with US authorities it was "a negotiation in train". She concluded however that there was "no case for holding out for reciprocal agreement", in part because no change in US policy appeared likely (QQ 992, 988).

292.  The Campaign for Press and Broadcasting Freedom addressed the parallel issue of reciprocity between the US and the UK "the key issue here is the potential takeover of UK media by powerful US-based global media groups, and the lack of reciprocity in terms of rules on media ownership. The US specifically excludes foreign ownership of us television networks" (p 139). In several countries including the USA, UK companies are still prevented from owning domestic media companies.

293.  We asked Andy Burnham MP, the Secretary of State for Culture, Media and Sport, whether the Government had made any recent progress towards securing reciprocal rights. He told us that "There is not an example that immediately comes to my mind of a market that changed its rules in response to our request" (Q 2436). When asked why the policy had changed and what work was being done to ensure reciprocal ownership rights for UK companies, he replied: "We feel that we should be open to the benefits that overseas owners of media can bring but, to answer the point, we should continue to press for the same ability for our own media interests" (QQ 2437, 2437).

294.  Lord Rothermere, the Chairman of the Daily Mail and General Trust, told us that the DMGT could not plan on launching titles similar to the Daily Mail overseas because "foreign ownership restrictions, and various regulations and restrictions on our ability to produce the kind of newspaper with the kind of editorial independence that we enjoy in Britain" (Q 2607)

295.  The current inequitable situation facing UK companies is preventing their legitimate expansion into new markets. We urge the Government to continue its efforts to achieve reciprocal rights for UK companies. Without further information it is difficult to measure progress on this matter. We recommend that the Department for Culture, Media and Sport should publish an annual report on progress towards securing reciprocal ownership rights. This should detail the extent of ongoing negotiations with countries where the Government is seeking to achieve reciprocal rights, and explain the reasons why ownership limits remain in place.


97   Report of the Joint Committee on the draft Communications Bill, Session 2001-02, HL Paper 169-I, para 223. Back

98   Enterprise Act 2002, Section 58 (2A)(2B). Back

99   Enterprise Act 2002, Section 58, (2C)(a). Back

100   Lord Hansard, 8 July 2003, col 157. Back

101   Guidance on the operation of the public interest merger provisions relating to newspaper and other media mergers, Department of Trade and Industry, May 2004. Back

102   Ibid, para 8.8. Back

103   Report to the Secretary of State pursuant to Section 44a of the Enterprise Act 2002 of British Sky Broadcasting plc's acquisition of 17.9% shareholding in ITV plc, Ofcom, Section 5, para 5.1. Back

104   Acquisition by British Sky Broadcasting plc of 17.9% of the shares of ITV plc, Competition Commission, para 41. Back

105   Media Ownership (Local Radio and Appointed News Provider) Order 2003. Back

106   The Future of Radio-the next phase, Ofcom, November 2007, para 4.64. Back

107   Ibid, para 4.82. Back

108   The Future of Radio (The future of FM and AM services and the alignment of analogue and digital regulation), Ofcom, para 4.73. Back

109   The EEA = European Union + European Free Trade Association (Norway, Iceland and Liechtenstein). Back

110   Consultation on media ownership rules, DCMS, 26 November 2001, p.18. Back


 
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