Last week Justin Schlosberg (of Birkbeck, University of London and the Media Reform Coalition) and I debated media plurality issues at an LSE event. We agreed (I think) on the objectives of media plurality, but had very different views on the merits and form of regulatory intervention.
At the event Justin presented a paper Modelling Media Ownership Limits. This paper contains much useful material, but I write now to question one of its conclusions.
The paper sets out various proposed media ownership caps to support plurality, and their likely impact. For brevity I will focus on the caps proposed by the Media Reform Coalition (MRC), which are typical. In brief, they are:
- At a 15% share of a media market, behavioural remedies would be applied such as the appointment of an independent panel to oversee editorial policy
- At a 20% market share, ownership limits would be applied to ensure no person or entity had a controlling stake in the media entity
Justin’s paper suggests that “the impact on markets [of these caps] would be relatively minor”. However, this seems a bold claim.
Selling off the Sun and the Mail?
Both the Mail and the Sun have shares of the national newspaper market of over 20%. Thus under the MRC’s rules, both these titles would need to be publicly floated as independent entities. It is not at all clear that there is much public demand for the shares of new newspaper companies, particularly ones that would have no ‘take over premium’, since they could never be acquired. Thus the value placed by the public markets on a new ‘Sun PLC’ or ‘Mail PLC’ might be well below its true value. Moreover, there would be the listing costs to be borne, and the future costs of being a public company. Ultimately these would all be costs borne by the current owner (since they would be factored into the initial sales price). The current owner would also face the loss of any synergies with the rest of the group, and the intangible costs of loss of control.
What would a rational owner do when faced with such a forced sale? Presumably seek to avoid it by bringing the title’s share down below the 20% mark – relatively easily done through a price increase (which would keep revenues flowing but reduce circulation). The result would be a further reduction in newspaper readership. Moreover, it would severely discourage any future investment in those titles that might once again increase their share, and trigger an enforce sale.
Nor do the problems end there – if the Sun and the Mail reduced their share, then someone else would gain it. The Mirror could easily find itself close to or above the 20% share mark, forcing it to be spun out, or potentially to reduce its own circulation to avoid that fate. There is a clear risk of a vicious circle, and at minimum an acceleration of the already alarming decline in newspaper circulation.
Putting Sky News out of business?
Serious though the implications for newspapers are from a ‘20% rule’, they are far from the most drastic consequences. Because of Sky’s provision of wholesale radio news, the paper suggests that Sky News would fail the 20% test. However, it is hard to imagine Sky News being viable as an independent company – it is substantially loss making. In such cases the paper allows that “an equity carve-out or the transferral of voting rights from shareholders to employees” would be appropriate. It is not clear what is meant by an equity carve out – who would be interested in owning any number of shares that had no prospect of paying dividends, but rather required constant subsidies?
Conceivably voting rights could be transferred to employees, but would this have any practical benefit? If a Sky News remained utterly dependent on its parent for financial support – and by extension, the employees remained dependent on the goodwill of the parent for their jobs – how much real editorial independence would they have? Indeed, why would we expect the parent to continue to support a loss making, uncontrolled entity? Ownership regulations could put Sky News’ life at stake.
Within wholesale TV news, ITN is close to a 20% share – a relatively small drop in BBC consumption or the disappearance of Sky News could push it over the threshold. Once again, there are real concerns whether an independent ITN would be viable as a public company. In 2012 it made a pre-tax profit of just £1.5m, which contrasts to its net liabilities of £60m – without the support of its parents, it could well be bankrupt.
Thus the rules proposed by MRC could jeopardise the future of some leading news providers, accelerate the decline of newspaper circulations and act as a major disincentive to investment. It is hard to reconcile these significant risks with a view that the rules’ impact would be “relatively minor”.
Rob Kenny is a member of Communications Chambers.
This post originally appeared on the LSE Media Policy Project Blog and is reproduced with permission and thanks.