Will Local World also feel the sting from Global Radio’s competition ruling?

Following the Competition Commission’s “brutal” ruling for Global Radio yesterday, Raymond Snoddy argues that there could also be severe repercussions for Local World as the OFT examines David Montgomery’s regional newspaper initiative.

At least you can say that the Competition Commission has the courage of its convictions. It also has an enviable track record for consistency – or as its critics would say, the ability to be consistently wrong with a casual attitude towards the revolutionary changes taking place in the media market.

The logical consequence of this week’s decision in the case of Global Radio’s acquisition of Real and Smooth, formally GMG Radio, is that no further consolidation of any substance can now take place in the local radio market.

Even more important in the wider context of the UK media, there will now be real doubts over the future of David Montgomery’s bold initiative in local newspapers – Local World.

The deal was predicated on the fact that there would be no reference from the Office of Fair Trading to the Commission, something that can no longer be completely taken for granted.

The problem – at least this time around – is not that dozens of newspapers might have to be sold off, but the effect of cost and delay on the proceedings.

The OFT is believed to be looking particularly carefully at the Trinity Mirror’s 20 per cent stake in the venture. If this is judged to be material, although usually such thresholds sit at 30 per cent of more, all hell could break loose.

The Local World deal was carefully structured to ensure that there would be no regulatory problems now or – it hoped – in the future.

There was the underlying idea that Local World would be a continuing catalyst for further consolidation in a financially challenged local media sector. The aspiration was that the model with distinct local coverage, complete with rather idealistic promises of even more comprehensive journalism, could point the way to a sustainable future for local and regional newspapers.

The implication of what has been described as the Commission’s “brutal” report on the Global deal is that Local World can forget it for the future even if Montgomery manages to fight his way to first round success.

It seems almost pointless to complain about the activities of the Competition Commission, or what many see as its manifest flaws. Keep a guard dog and it is expected to bark and bite.

You cannot challenge its decisions, however damaging for the future of an industry, by judicial review because it will have acted rationally and reasonably within the remit that it has been given by Parliament.

We now know from decision after decision that the Commission takes a largely single media view of consolidation. There is a recognition that there is other media in the marketplace but, the argument goes, this amounts to complementary choices rather than direct substitution.

At the same time the primary focus of the competition authorities is based very narrowly on whether local advertisers will have to pay more if consolidation is allowed to go ahead.

This is a principle so important to the competition authorities that they are prepared to push ahead even if the result is closure of titles and a loss of jobs.

In 2011 we saw a small but perfectly formed example of this thesis in action in Kent. When a proposal for the Kent Messenger Group to acquire a number of titles from Northcliffe Media was referred to the Commission, the cost and delay didn’t just scupper the deal – it destroyed some of the titles.

The search for “perfect” competition actually led to less competition in the market.

If the OFT and the Competition Commission have learned anything from that almost laboratory-scale experiment it is not obvious.

On the grander scale, Global Radio is now facing a fire sale of stations in seven of the nine regions involved in the acquisition. The advertising numbers are even more scary. The station sales will involve more than 85 per cent of all the advertising minutes acquired in the £70 million deal and you can’t get more nitty-gritty than that.

There is an unfortunate logical weakness in the arguments of local and regional media when they come before the Commission.

When they are selling or promoting local radio they trumpet its uniqueness, its centrality and when pressed will fall back on how, at the very least, their medium is complementary to television and digital. In this context they would never concede that anything else is a close substitute for what they offer.

When they come before the Competition Commission they have to argue the opposite.

Even allowing for the tactics in this expensive corporate game the balance of probability has long shifted towards the impact of the big international digital players in the market – giants who are not subject in an meaningful way to UK domestic competition regulations in local markets.

To add insult to injury most of them don’t feel the need to pay UK corporation tax, something that is itself anti-competitive.

The competition authorities won’t, or can’t, take factors like this into account and there is little sign that they give due weight to how the economics of existing media have changed so dramatically, particularly in the past five years.

In an ideal world, three competition commercial radio stations in each area is clearly a very good thing.
But what if the market can only sustain two? What then? Do rules and assumptions then just change to meet the new circumstances – after the damage has been done?

Given what we know about the track record and attitude of the competition authorities it seems foolhardy of Global to move ahead as if the deal would definitely go ahead and assume all the financial risks involved.

They did it obviously to win a three way bidding battle with Bauer and UTV Media, owners of TalkSport, but the cost of courage could be very high.

If Bauer are, in effect, excluded by the approach of the Commission then it could be good news for UTV who could sneak in and make a few decent purchases at bargain-basement prices.

The bigger game – because the financial threats to local newspapers are greater – is Local World.
If an imaginative consolidation plan is blocked by a competition regime sealed in aspic then David Cameron may have to have a look – after he gets same-sex marriage out of his system.