UK media regulation is constraining growth and ‘drowning’ strugglers

Anyone with even a vague interest in the future of newspapers should pause for a moment and ponder the fate of two small newspapers in Kent – the Medway News and the East Kent Gazette.

They will cease publication later next month (December) with the loss of 38 jobs. What may you ask is surprising about that? Surely small, marginal papers are quietly slipping beneath the waves up and down the country as a result of the economic shipwreck of the local press.

This is very different. This is not a case of accidental death. This is much more about death at the hands of regulators. You could call it a premeditated murder given that the consequences of regulatory purism could so easily have been predicted.

The plot is a very simple one, banal even in its frequency. Northcliffe Media wanted to sell the titles and three others to the KM group. The Office of Fair Trading (OFT) decided to refer this almighty deal to the Competition Commission for a full inquiry. Apart from the inevitable delay and the management time involved the inquiry would have cost Northcliffe an estimated £800,000 and possibly more.

It was the death knell for the Medway News and the East Kent Gazette – possibly marginal titles that could nevertheless have been saved, pushed over the edge by the actions of the OFT.

The organisation can now be thoroughly proud of itself. It has preserved competition in the local advertising market in Kent from any danger of monopoly pricing – by removing two newspapers from the market. It’s not just the loss of the 38 Northcliffe jobs, a further 10 are to go at the KM group because they will not realise the savings the deal would have brought.

It’s back to the old problem of how competition regulators define markets. Undoubtedly the OFT will be able to point to the fact that the tiny merger of titles in Kent would reduce competition for local newspaper advertising in that narrowly defined market. Such tunnel vision ignores, or does not pay sufficient attention to, the reality of the internet and other competing outlets for advertising in the local market including commercial radio and direct mail.

Then there is the even larger, though related problem, of the more than challenging economics of the industry. Protecting competition in the local newspaper advertising market can never be accomplished by driving newspapers to the wall.

As a result competition has not been protected to any degree and has anyone considered the position of the interests of readers who at present receive 53,000 copies a week of the Medway News, 90% of them distributed for free.

Let’s be generous for a moment to the OFT – although some will argue that that is an unnecessary stance in the circumstances. Accept for the sake of argument that they are neither stupid nor mendacious and that they have correctly interpreted the existing rules on markets and that they cannot apply a disproportionate importance to consequences.

Why if they did, they would be forever prey to something akin to blackmail. Allow this deal or we will close down the business the argument would run. If any of those arguments are true then the system, and if necessary the law, has got to be changed as quickly as possible.

The Government has promised to relax the cross-media ownership in local markets but that is not much of a solution. There is little evidence of radio stations wanting to take over local newspapers and vice versa and even if they did there is even less evidence that much money would be saved as a result.

The main prize has got to be the enabling of mergers of small titles in local markets. Consolidation may not be the answer in every case but it must surely be better than lost publications. If the case of the Kent Two was an isolated one, the industry could live with it, although where do 48 local journalists, many of them presumably young, go to find jobs in the current climate.

There is however a streak of unreasoning competitive purism running through all our competition regulators, something seen at its very worst with the Competition Commission’s decision to block Project Kangaroo. The argument was that the project, which grouped the UK’s main broadcasters, might limit future competition in the market.

Dear God no harm now but it might – just might – lead to market dominance in the future, forgetting of course that the real competitors are Google, Yahoo and possibly even Microsoft. As the Google boss Eric Schmidt said with mock incredulity at the Edinburgh Festival – “you mean you were afraid Project Kangaroo would have been too great a success”.

The result has been truly special. The UK could have had a leading position in online, connected TV. Instead the regulatory approved replacement is still not with us and some believe that in this fast-changing market YouView, when it finally appears, will now be an also ran at best. Another triumph of regulation designed to throttle one of the industries where the UK could have a world-leading position.

It may be too much to expect but perhaps Lord Justice Leveson will eventually lift up his eyes from the endless daily, unchallenged litany that forms the prosecution case against the press to consider the equally horrible economic realities facing the industry.

If he cannot, then Prime Minister Cameron, who shot so quickly from the hip on the ethics and practices of the media industry, might look into the economics of that industry and in particular how regulators are constraining growth and innovation and pushing the heads of strugglers under the water.

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