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Media Mergers: Why passing the buck to the Competition Commission is no answer

JUNE 2012

Lord Justice Leveson has now expressed the view that if politicians hand over decisions in relation to media mergers to the wise men and women at the Competition Commission, public confidence in the regulation of media ownership should return (or at least be substantially improved).  Removing politicians from deciding on the commercial projects of the media (whose criticisms terrify them despite falling press circulation) on the face of it looks like a solution.  As the framework for regulation of ownership is part of his remit, Lord Justice Leveson could make a recommendation along these lines.  So it is important to see what that might mean – if anything.

Unfortunately, the politicians have devised media “plurality” rules that make no sense at all and no change in these rules is imminent.  No expert body is therefore likely to make any more sense of it when assessing any given merger than the politicians as matters currently stand.   Why is this so?

The media merger provisions in the Enterprise Act contain dramatically different tests for “plurality” according to the media concerned.  As far as newspapers are concerned, free expression of opinion is a value that the authorities are supposed to uphold in assessing mergers.  In relation to broadcast news however, there is a need for impartiality; thus one of the factors that is incorporated into the test for assessing mergers is whether news included in television services is presented with due impartiality in accordance with the Ofcom Broadcasting Code.  As a result there are two tests; one involves protecting diversity of opinion and the other requires there to be in effect uniformity – since that will be the consequence of upholding impartiality.  

These two tests are inconsistent at a conceptual level and the effects are far reaching. For example, in a news market where the boundaries have evaporated, the BBC website has to be impartial in its reports whereas the Times’ website can be as biased as it likes.

If this is not sensible at a general level, what merger test should be used if a newspaper wishes to take over a broadcaster?  Of course, this is the problem that arose in the case of News Corp’s attempts to acquire all the shares of Sky that it did not already own.  Ofcom had to make a preliminary assessment but was faced with public outcry on the one hand (skilfully fanned by Rupert Murdoch’s commercial rivals) and on the other, the inconvenient fact that after the merger, News Corp would only achieve second place in news consumption by increasing its market share from 14% to 24%, (compared to the BBC’s 44% share of news minutes).  How then was this merger ever a problem?  Surely the correct decision was for Ofcom to have waived the merger through? 

In the event, Ofcom introduced a new test which was the “relative ability that merged enterprises have to influence and inform public opinion”.  What it found on a preliminary basis was  that whereas the BBC is subject to a Royal Charter that requires it to be independent and impartial, Rupert Murdoch, as a private owner of Sky, would have had nothing (other than the Ofcom Broadcasting Code) to stop him influencing the news.  Therefore, Ofcom believed that this was a matter which the Competition Commission had to look at in depth. 

If it was Ofcom’s finding on “plurality” that so angered James Murdoch and led Jeremy Hunt to take his phone call against the wishes of his officials, his anger is understandable. It is easy to see how Murdoch might feel that Ofcom’s new test simply serves to entrench BBC’s strong position as found by Ofcom.  And anyway, what is the point of the impartiality test in the Ofcom Broadcasting Code when selection and running order chosen by all broadcasters (including the BBC despite its Royal Charter) can so easily promote an unacknowledged news agenda without regulatory recourse?

Ofcom’s finding on BBC’s strong position has led to attempts by Murdoch’s opponents to re-define the market.  Enders Analysis paper of 28 May proposes a cap of 15% of the media market as defined by it.  In this market, BBC has only 12% and a combined News Corp/Sky would move it from 11% to 20% and would thus (conveniently) be prohibited.

It now looks as if changes to the so-called “plurality” rules won’t be for this Parliament and in any event giving the Competition Commission sole jurisdiction over the flawed “plurality” test would require primary legislation too. 

However even if time were to be found to implement any such change recommended by Justice Leveson, institutional change is not enough. The content of the relevant substantive test is fundamentally flawed; it follows that the Competition Commission won’t do much better than the politicians without much better guidance from Parliament.

Stephen Hornsby
Partner

This guide is for general information and interest only and should not be relied upon as providing specific legal advice.