Media monopoly depends on who pulls the trigger

Michael Beesley argues that the focus on regulating the industry misses the main point - the very large share held by the BBC

In May 1995 the Government's White Paper on Media Ownership concluded that "to preserve the diversity of the broadcast and press media in the UK", there was a "continuing case for specific regulations governing media ownership beyond those which are applied by the general competition law". At the same time, some liberalisation of existing ownership rules was proposed.

The Broadcasting Bill, now going through Parliament, contemplates abolishing "the existing structure of detailed rules", substituting a set of "triggers on ownership levels in the media market as a whole, and sector triggers, which when actually or prospectively exceeded would mean any media merger would be `subject to approval by an independent media regulator' to determine the public interest".

Thus, the special treatment of newspaper mergers in UK law would be extended, in modified form, to other media. A separate quango might be established alongside the other UK authorities, or incorporated in them.

Contributors to an Institute of Enconomic Affairs book on media concentration argue strongly against any further extension of regulation But accepting the premise that new rules to trigger regulatory action are needed to safeguard diversity in the media, do the proposals promise effective action?

The White Paper focuses on market shares above which a regulator must assess the public interest, whether the level is reached already or through merger or acquisition. The market shares for triggering intervention are defined by a mixture of shares in media as a whole (defined as television, press and radio) and shares of these sectors individually. The triggers for the media sector as a whole (embracing all three) are determined as 10 per cent of the UK market, or 20 per cent of a geographical market embracing all three; 20 per cent of an individual sector - meaning it seems the UK as a whole - is also a trigger.

Thus the argument is that, in the long term, the media will be incorporated into the body of UK competition law as it affects monopoly and merger. There may or may not be a specialist regulator: one option is to extend the OFT's remit.

Effective action will depend partly on these triggers - how to define them specifically, and who they will catch - and partly on what happens to the "assessment" when made. On the key issue of how to measure media markets, the White Paper failed to back a particular yardstick. William Shew and Irwin Stelzer argue convincingly for the "hours of use or audience time of the media", as the White Paper puts it, as the correct measure. They in effect dispose of the paper's alternative suggestions, advertising or consumer expenditure, and the British Media Group's approach.

These results clearly set out the incumbent problem, measured relevantly over the media as a whole. Their results may be put in MMC terms as a conventional four-firm concentration ratio of about 61 per cent. This would be sufficient to cause concern in the typical MMC monopoly inquiry and exceeds most analysts' trigger levels.

The really significant figure, however, is the BBC's share, with 44 per cent of the market . Were it not for the BBC, there would be no concern at all over concentration (as conventionally measured). The next biggest firm, Carlton TV, has only 6-9 per cent of the market. So, the answer to the question of who the proposals are designed to catch is, in part, easily answered. The BBC, the only significant source of concentration, is excluded from the proposed extension of monopoly powers as outside the private sector.

Data underlying Shew and Stelzer's analysis (see table) show that only in national newspapers does one group have more than 20 per cent of the audience. News Corporation has 37 per cent, and the Mirror Group has 26 per cent. Excluding the BBC, the largest share in television is Channel 4's 10 per cent, and in radio Capital's 10 per cent.

The immediate main target of the Government's proposals thus appears to be the two large newspaper groups which, in effect, are put on notice that further mergers in the sector or integration into other media will be scrutinised. The BBC, because it is in the public sector, is not affected by the proposed triggers. TV rivals have too small a national share to be caught by that trigger, but might qualify under the geographical rule which is obviously defined (albeit tentatively) with the existing regional TV licences in mind.

The package, by raising the possibility of an assessment and refusal, targets newspaper entrepreneurs, inhibiting their freedom to buy into large TV stations. Lesser cross-media moves will be able to proceed without this inhibitor.

Shew and Stelzer's work demonstrates that News International has only 3-4 per cent of the media market and the Mirror Group 2 per cent. Concern about a maximum of (say) 7 per cent of the national media market (for example, Carlton) being added to the 3-4 per cent or less held by a big newspaper group may seem odd in normal UK monopoly control terms, especially when entry conditions are becoming freer.

If there is an incumbent problem in a world of potentially free entry it must first and foremost concrn the BBC. In this respect, the Government's media ownership proposals are rather like Hamlet without the Prince. The BBC appears but fleetingly in them.

To summarise, much of the concern about media concentration is misplaced unless there are substantial barriers to entry. The evidence shows weakening constraints to entry, likely to gather momentum because of technological change and entrepreneurial response. It follows that concern about movements towards integration across the media is similarly misplaced.

It is logical to consider the existing incumbent position (the degree of concentration now) as an independent factor because of the possibility that strong incumbents could develop fresh barriers to entry on the basis of present market shares. This is equally improbable now, but there remains the need for a mechanism to review this possibility at intervals in the future. The most cogent reasons the Government's proposals on media ownership fail to be relevant is its neglect of basic economic issues, and even more important, their failure to confront the commercial implications of the BBC's being easily the largest player in the media scene (a failure found also in the 1994 White Paper on the BBC's future)."

The 1995 White Paper proposes, in the long term, a substantial prolongation and elaboration of regulation, involving the present UK competition law process not, as economic logic suggests, seeking a way forward in dismantling regulation as no longer needed. In short, the Government's media proposals reflect the general failure of UK competition law to provide properly for incumbent market power.

The focus on regulating the private sector in the media industries misses the main point about concentration - the very large share held by the BBC, whose future as a subsidised, large-scale producer is underwritten. This prospect does not, as many have argued, pose an economic threat to other players. But if the Government persists with its 1994 line (and there is no sign yet of a divergence in favour of privatisation), the practical focus of further policy reform should be the present Government- inspired impediments to entry, notably in licensing competitor networks of all disciplines including telephony, radio and TV channels.

This article is extracted from an Institute of Economic Affairs booklet, Markets and the Media, Competition, Regulation and the Interests of Consumers. Professor Michael Beesley is a founding Professor of Economics at the London Business School.

Power of the media

National media concentration as measured by hours of use or audience time

Company Media use %

BBC 44.1

Carlton Communication 6.9

Channel Four 6.2

Granada 4.1

Capital Radio 3.4

News International 3.4

MAI 3.0

Yorkshire Television 2.5

Mirror Group Newspapers 2.0

HTV Group 1.8

Scottish Television 1.4

Daily Mail and Gen Trust 1.1

United Newspapers 1.0

Pearson 0.9

Reed Elsevier 0.8

EMAP 0.8

Luxembourg Telecom 0.7

DC Thomson 0.5

Television South West 0.5

W H Smith Ltd 0.5

Guardian Media Group 0.5