The development of a The development of a media plurality test in media plurality test in the UK: Criteria and the UK: Criteria and

competencecompetence

Rachael Craufurd SmithRachael Craufurd Smith

University of EdinburghUniversity of Edinburgh

r.c.smith@ed.ac.ukr.c.smith@ed.ac.uk

Communications Act 2003 Communications Act 2003 Deregulatory thrust of the 2003 Act, which Deregulatory thrust of the 2003 Act, which removed many of the existing ‘structural’ removed many of the existing ‘structural’ media ownership restrictions, eg it media ownership restrictions, eg it removed all restrictions on accumulations removed all restrictions on accumulations of TV licences. The Act was influenced by:of TV licences. The Act was influenced by:

Technological developmentsTechnological developments, especially , especially scope for enhanced transmission capacity scope for enhanced transmission capacity from move to digital terrestrial TV, from move to digital terrestrial TV,

Policy goal to create Policy goal to create internationally internationally competitive UK firmscompetitive UK firms..

Communications Act 2003Communications Act 2003

The Act did, however, retain restrictions on:The Act did, however, retain restrictions on: Cross media (print/tv/radio) concentration at Cross media (print/tv/radio) concentration at

the local level – now under review,the local level – now under review, Companies with a 20% share of the national Companies with a 20% share of the national

newspaper market (and related companies) newspaper market (and related companies) holding 20% or more of the shares in the holding 20% or more of the shares in the holder of the Channel 3 terrestrial television holder of the Channel 3 terrestrial television licence, andlicence, and

National news on Channel 3 is to be by an National news on Channel 3 is to be by an ‘appointed news provider’.‘appointed news provider’.

Reliance on Competition LawReliance on Competition Law

Marked a general shift to reliance on Marked a general shift to reliance on competition law, supplemented by a competition law, supplemented by a ‘media plurality test’, introduced after ‘media plurality test’, introduced after pressure from the House of Lords (upper pressure from the House of Lords (upper Parliamentary chamber in the UK).Parliamentary chamber in the UK).

Plurality test is contained in section 58 of Plurality test is contained in section 58 of the Enterprise Act 2002, as amended by the Enterprise Act 2002, as amended by the Communications Act 2003, ss375-89.the Communications Act 2003, ss375-89.

Enterprise Act 2002, Section Enterprise Act 2002, Section 5858

Print merger considerations:Print merger considerations: accurate presentation of newsaccurate presentation of news, and , and free free

expression of opinionexpression of opinion,,

the need, to the extent reasonable and the need, to the extent reasonable and practicable, for a practicable, for a sufficient plurality of sufficient plurality of viewsviews in newspapers in each market for in newspapers in each market for newspapers in the UK, or part of the UK.newspapers in the UK, or part of the UK.

Enterprise Act 2002, Section Enterprise Act 2002, Section 5858

Broadcast and newspaper/broadcast merger Broadcast and newspaper/broadcast merger considerations comprise the need:considerations comprise the need:

in relation to every different audience in the in relation to every different audience in the UK (or part) for a UK (or part) for a sufficient plurality of sufficient plurality of personspersons with control of the media with control of the media enterprises serving that audience, enterprises serving that audience,

for a wide range of broadcasting which … is for a wide range of broadcasting which … is both of both of high qualityhigh quality and calculated to appeal and calculated to appeal to a to a wide variety of tastes and interestswide variety of tastes and interests, ,

genuine commitment to specific standards genuine commitment to specific standards in the 2003 Act (standards).in the 2003 Act (standards).

Procedure 1Procedure 1

1.Secretary of State has competence to trigger 1.Secretary of State has competence to trigger investigation where merger is of a sufficient scale investigation where merger is of a sufficient scale and Secretary believes one of more of the public and Secretary believes one of more of the public interest considerations applicable – discretionary,interest considerations applicable – discretionary,

2.Office of Fair Trading reports on competition 2.Office of Fair Trading reports on competition issues, OFCOM on media plurality,issues, OFCOM on media plurality,

3.Sec. of State decides whether or not to refer to 3.Sec. of State decides whether or not to refer to Competition Commission – discretionary,Competition Commission – discretionary,

4.Competition Commission report binding on 4.Competition Commission report binding on competition issues but Sec. of State free to competition issues but Sec. of State free to decide whether merger contrary to public decide whether merger contrary to public interest and the terms, if any, on which it might interest and the terms, if any, on which it might proceed.proceed.

Procedure II - AppealProcedure II - Appeal

Appeal from the Secretary of State’s Appeal from the Secretary of State’s decision to the:decision to the:

Competition Appeal Tribunal Competition Appeal Tribunal

and then, with leave, to theand then, with leave, to the Court of Appeal in England and Court Court of Appeal in England and Court

of Session in Scotland, of Session in Scotland, Final appeal to the Supreme Court.Final appeal to the Supreme Court.

Two Recent CasesTwo Recent Cases

►BSkyB’s acquisition of a 17.9% BSkyB’s acquisition of a 17.9% shareholding in ITVplc, the holder of the shareholding in ITVplc, the holder of the Channel 3 terrestrial broadcasting Channel 3 terrestrial broadcasting licence (the ‘BSKyB/ITV case’).licence (the ‘BSKyB/ITV case’).

►News Corporation’s bid to take full News Corporation’s bid to take full control of BSkyB, in which it currently control of BSkyB, in which it currently owns a 39% stake (the owns a 39% stake (the ‘BSkyB/NewsCorp case’).‘BSkyB/NewsCorp case’).

BSkyB/ITV caseBSkyB/ITV case Took more than 3 years to resolve, with appeal to Took more than 3 years to resolve, with appeal to

the Court of Appeal. BSkyB required to reduce the Court of Appeal. BSkyB required to reduce shareholding to below 7.5% on competition shareholding to below 7.5% on competition grounds.grounds.

Case revealed uncertainty over how to interpret ‘a Case revealed uncertainty over how to interpret ‘a sufficient plurality of persons with control of media sufficient plurality of persons with control of media enterprises’ in s. 58 of the Enterprise Act 2002.enterprises’ in s. 58 of the Enterprise Act 2002.

The Competition Appeal Tribunal adopted a The Competition Appeal Tribunal adopted a precautionary approach, and emphasised external precautionary approach, and emphasised external plurality, that is the number of distinct owners, plurality, that is the number of distinct owners, whereas the Competition Commission considered whereas the Competition Commission considered that Sky’s shareholding would not enable Sky to that Sky’s shareholding would not enable Sky to exert sufficient power internally to influence ITV’s exert sufficient power internally to influence ITV’s news agenda, a view supported by the Court of news agenda, a view supported by the Court of Appeal. Appeal.

BSkyB/News Corp Proposed BSkyB/News Corp Proposed AcquisitionAcquisition

►European Commission cleared on European Commission cleared on competition grounds.competition grounds.

►Sec. of State sought OFCOM’s view as Sec. of State sought OFCOM’s view as to whether there would be ‘a sufficient to whether there would be ‘a sufficient plurality of persons with control of plurality of persons with control of media enterprises’ under s 58 (2C) EA media enterprises’ under s 58 (2C) EA 2002 after the merger.2002 after the merger.

►Both external and internal plurality Both external and internal plurality concerns relevant.concerns relevant.

BSkyB/NewsCorp Acquisition: BSkyB/NewsCorp Acquisition: OFCOM ReportOFCOM Report

OFCOM when considering internal OFCOM when considering internal plurality held:plurality held:Impartiality requirementsImpartiality requirements on TV were not on TV were not

enough to keep News Corp’s print/tv enough to keep News Corp’s print/tv content distinct. content distinct.

New online mediaNew online media were primarily were primarily aggregators or replicators not additional aggregators or replicators not additional news sources and did not, therefore, news sources and did not, therefore, guarantee a sufficient diversity of voices.guarantee a sufficient diversity of voices.

External Plurality: How Many External Plurality: How Many Speakers?Speakers?

OFCOM when examining external plurality OFCOM when examining external plurality considered:considered:Audience share of referenceAudience share of reference (news sources used (news sources used regularly at least once a week) regularly at least once a week) and reachand reach..It found that News Corp’sIt found that News Corp’s

Potential ability to influence as a result of its Potential ability to influence as a result of its share of reference would increase from 12% to share of reference would increase from 12% to 22%, 22%,

And its reach would increase from 32% to 51%.And its reach would increase from 32% to 51%. OFCOM concluded that the acquisition ‘may be OFCOM concluded that the acquisition ‘may be

expected to operate against the public interest’.expected to operate against the public interest’.

Present state of playPresent state of play

►Forceful rejection of OFCOM’s findings Forceful rejection of OFCOM’s findings by NewsCorp.by NewsCorp.

►Sec. of State has not to date referred Sec. of State has not to date referred proposed acquisition to the proposed acquisition to the Competition Commission and is Competition Commission and is considering whether Sky News can be considering whether Sky News can be structurally separated from the rest of structurally separated from the rest of News Corporation, though not News Corporation, though not divested, with sufficient guarantees to divested, with sufficient guarantees to preserve editorial independence.preserve editorial independence.

Outstanding Questions and Outstanding Questions and ConcernsConcerns

1. Length of proceedings, cost, uncertainty.1. Length of proceedings, cost, uncertainty.

2. Focus on news provision.2. Focus on news provision.

3. Can divestiture or behavioural 3. Can divestiture or behavioural modifications adequately address media modifications adequately address media plurality concerns?plurality concerns?

4. Endogenous growth.4. Endogenous growth.

5. Regulatory independence and expertise.5. Regulatory independence and expertise.

1. Length of Proceedings, Costs 1. Length of Proceedings, Costs and Uncertaintyand Uncertainty

Present ‘Present ‘ex postex post’ case by case approach takes time, ’ case by case approach takes time, is costly, and uncertain in terms of the ultimate is costly, and uncertain in terms of the ultimate ruling. ruling.

How can we tell, for example, whether a 22% share How can we tell, for example, whether a 22% share of reference (potential influence) identified by of reference (potential influence) identified by OFCOM in the News Corp/BSkyB case as giving rise OFCOM in the News Corp/BSkyB case as giving rise to concern to concern isis too much? This uncertainty is too much? This uncertainty is arguably bad for business and citizens.arguably bad for business and citizens.

Are there alternatives? US Federal Communications Are there alternatives? US Federal Communications Commission attempts to render issue ‘formulaic’ Commission attempts to render issue ‘formulaic’ through a diversity index: through a diversity index: Prometheus Radio Project Prometheus Radio Project v FCCv FCC 373F.3d 372 (2004). 373F.3d 372 (2004).

An Alternative Objective An Alternative Objective Test?Test?

►Hirschmann-Herfindahl (HHI) Index: Hirschmann-Herfindahl (HHI) Index:

sum of the squares of the market sharessum of the squares of the market shares►1,800 ‘highly concentrated’ market1,800 ‘highly concentrated’ market►Application to Ofcom’s share of Application to Ofcom’s share of

reference:reference:

Wholesale Wholesale before: 1,941 after: 2,181 before: 1,941 after: 2,181

Retail Retail before: 1,812 after: 1,941 before: 1,812 after: 1,941►Difference 240 and 129 respectivelyDifference 240 and 129 respectively

Could the HHI be applied in the Could the HHI be applied in the UK?UK?

►OFCOM share of reference responds to OFCOM share of reference responds to some of the concerns raised in some of the concerns raised in PrometheusPrometheus – does not weight different – does not weight different media differently leading to absurd media differently leading to absurd results.results.

►Participants could name any news source.Participants could name any news source.►Recognises importance of wholesale Recognises importance of wholesale

sources.sources.►Lower HHI threshold for the media?Lower HHI threshold for the media?►Alternatives – Noam Index, Hill Index… Alternatives – Noam Index, Hill Index…

2. News Focus and the Role of 2. News Focus and the Role of Company Divestiture/SeparationCompany Divestiture/Separation► Focus on news, not other genres - but other Focus on news, not other genres - but other

programmes may have wider social and programmes may have wider social and cultural influence, eg scientific programming.cultural influence, eg scientific programming.

► Scope for divestiture/separation of the news Scope for divestiture/separation of the news provider as a solution to plurality concerns? provider as a solution to plurality concerns?

Weakened economic position of news Weakened economic position of news provider, self-censorship if linked company…provider, self-censorship if linked company…

and still a need for external diversity?and still a need for external diversity?

3. Endogenous Growth3. Endogenous Growth

Review only triggered by a merger Review only triggered by a merger situation but a company may become situation but a company may become the dominant news provider without the dominant news provider without market consolidation.market consolidation.Is there a need for more continuous Is there a need for more continuous monitoring, possibly by OFCOM, and monitoring, possibly by OFCOM, and scope for further remedial action?scope for further remedial action?Coalition government propose a new Coalition government propose a new Communications Act during its term of Communications Act during its term of office, which could address this problem.office, which could address this problem.

4. Regulatory Independence and 4. Regulatory Independence and ExpertiseExpertise

Who should decide media plurality issues?Who should decide media plurality issues?► Regulatory independence and potential for Regulatory independence and potential for

politicisationpoliticisation. Policy decisions may be . Policy decisions may be appropriately devolved to the executive but appropriately devolved to the executive but questionable role of Secretary of State in this questionable role of Secretary of State in this context given potential value of media context given potential value of media coverage for politicians and political parties.coverage for politicians and political parties.

► Regulatory expertiseRegulatory expertise. Is the Competition . Is the Competition Commission a suitable body to evaluate media Commission a suitable body to evaluate media pluralism cf OFCOM, the specialist media pluralism cf OFCOM, the specialist media regulator – or scope for a new media tribunal?regulator – or scope for a new media tribunal?

Selected sources and case Selected sources and case referencesreferences

► Craig Arnott, ‘Media Mergers and the Meaning of Sufficient Plurality: A Craig Arnott, ‘Media Mergers and the Meaning of Sufficient Plurality: A Tale of Two Acts’, 2010 2 Tale of Two Acts’, 2010 2 Journal of Media LawJournal of Media Law 245-275 245-275

► Rachael Craufurd Smith, ‘Media Ownership and the Public Interest: The Rachael Craufurd Smith, ‘Media Ownership and the Public Interest: The Case of Virgin Media, British Sky Broadcasting and its ITV Shares’, 2009 1 Case of Virgin Media, British Sky Broadcasting and its ITV Shares’, 2009 1 Journal of Media LawJournal of Media Law 23-38, 23-38,

► Lesley Hitchens, Broadcasting Pluralism and Diversity: A Comparative Lesley Hitchens, Broadcasting Pluralism and Diversity: A Comparative Study of Policy and Regulation, Study of Policy and Regulation, Hart PublishingHart Publishing, Oxford, 2006., Oxford, 2006.

► Eli Noam, ‘How to Measure Media Concentration’, Eli Noam, ‘How to Measure Media Concentration’, FT.comFT.com, 30 August , 30 August 2004.2004.

► Natascha Just, ‘Measuring Media Concentration and Diversity: New Natascha Just, ‘Measuring Media Concentration and Diversity: New Approaches and Instruments in Europe and the US’ 2009 Approaches and Instruments in Europe and the US’ 2009 Media, Culture Media, Culture and Societyand Society, vol 31(1), 91-117,, vol 31(1), 91-117,

► Maurice Strucke and Allen Grunes, ‘Towards a Better Competition Policy Maurice Strucke and Allen Grunes, ‘Towards a Better Competition Policy for the Media: The Challenge of Developing Antitrust Policies that for the Media: The Challenge of Developing Antitrust Policies that Support the Media Sector’s Unique Role in our Democracy’ University of Support the Media Sector’s Unique Role in our Democracy’ University of Tennessee College of Law Legal Studies Research Paper Series, January Tennessee College of Law Legal Studies Research Paper Series, January 20, 2009.20, 2009.

► British Sky Broadcasting Group plc v Competition British Sky Broadcasting Group plc v Competition CommissionCommission [2010] 2 All ER 907; [2010] EWCA [2010] 2 All ER 907; [2010] EWCA Civ 2.Civ 2.

► Competition Commission report on the BSkyB/ITV Competition Commission report on the BSkyB/ITV case and related documents are available at case and related documents are available at http://www.competition-commission.org.uk/inquirhttp://www.competition-commission.org.uk/inquiries/ref2007/itv/ies/ref2007/itv/

► Competition Appeal Tribunal cases are available Competition Appeal Tribunal cases are available at http://www.catribunal.org.uk/at http://www.catribunal.org.uk/

► OFCOM OFCOM Report on Public Interest Test on the Report on Public Interest Test on the Proposed Acquisition of British Sky Broadcasting Proposed Acquisition of British Sky Broadcasting plc by News Corporationplc by News Corporation, 31 December 2010., 31 December 2010.

► News Corporation submission to the Secretary of News Corporation submission to the Secretary of State for Culture, Olympics, Media and Sport of State for Culture, Olympics, Media and Sport of the 14 January 2011, available at the 14 January 2011, available at http://www.guardian.co.uk/media/2011/jan/25/ofchttp://www.guardian.co.uk/media/2011/jan/25/ofcom-report-news-corp-bskyb.om-report-news-corp-bskyb.