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Review of Media Ownership Rules

Published 14 November 2006

Published 14 November 2006

Executive Summary

1.1 Section 391 of the Communications Act 2003 (“the Act”) requires Ofcom to review the media ownership rules (“MO rules”) at least every three years and, as a result of that review, make recommendations to the Secretary of State if in Ofcom’s view changes to the MO rules are needed. This report contains the results of the first Ofcom review of the MO rules.

Background

1.2 The MO rules are designed to strike a balance between ensuring a degree of plurality on the one hand and providing freedom to companies to expand, innovate and invest on the other. The first is vital for democracy since plurality of ownership helps to ensure that citizens have access to a variety of sources of news, information and opinion. The second can also benefit citizens and consumers by providing a basis for delivering higher quality programmes, greater creativity and more risk-taking.

1.3 A major review of the MO rules was completed by Government in 2003; the outcome of that review is reflected in the Act. The review resulted in the removal of many specific prohibitions and the simplification of other rules. However, it was recognised that the media landscape was changing rapidly and that further liberalisation might be needed before long. To facilitate this, and also to consider the impact of the 2003 changes both in terms of the extent to which they had encouraged consolidation and their effect on plurality, Ofcom was given a duty to review the rules at least every three years and to make recommendations to the Secretary of State. It would then be for the Secretary of State to decide what actual changes, if any, should be made, through secondary legislation.

Process

1.4 In carrying out this review we have considered in particular what effect the significant liberalisation of the MO rules in 2003 has had in terms of media concentration and plurality; whether problems have arisen in applying the current rules; and whether changes have occurred in the media landscape since 2003 which would justify further changes at this stage.

Findings

1.5 In most areas – the MO rules relating to television, national cross-media and national newspaper ownership, religious bodies and the appointed news provider for Channel 3 – the position seems straightforward. Some consolidation has taken place since 2003 but not as much as there could have been given the 2003 regulatory reform. No substantive problems have arisen in applying the rules; and while the media landscape is changing rapidly, such as growing use of alternative news sources on the internet, the assumptions about the influence of the traditional media and spectrum scarcity, which underpin the present rules, remain valid and justify continuation of the existing rules.

1.6 In the case of local radio services, radio multiplexes and local cross-media ownership between radio, newspapers and television, the position is rather different: the MO rules here, despite the reforms carried out in 2003, remain complex. It could be argued that plurality of traditional media news sources relating to local issues is vital and that the current regime delivers this. It is certainly true that, while concentration has increased since 2003, for example as a result of the Capital Radio/GWR and Emap/SRH mergers, there is scope for significantly more consolidation within the current MO rules. On the other hand, the rules have not always operated in the public interest. On one occasion, following the Emap/SRH merger, Emap was obliged to divest a service (Smash Hits) from three local digital multiplexes (Ayr, Aberdeen and Dundee). No alternative service providers could be found to take up the capacity. Emap therefore withdrew the services and the capacity was then left unused (referred to below as the “Emap issue”). In this case, the application of the rules led to a reduction in choice on these multiplexes as a result of the removal of a service. In addition, Ofcom’s research indicates that the use of radio and newspapers as sources of local news appears to have reduced slightly ; and further liberalisation may assist local commercial radio to expand, innovate and compete more effectively with the BBC.

1.7 We have considered in some detail the effect of the current MO rules on commercial radio. A model was produced looking at 21 potential mergers involving the large groups (Emap, GCap, Chrysalis, Classic Gold Digital, Guardian Media Group, Scottish Media Group and Ulster Television). This enabled us to identify where issues would be likely to arise under the three sets of rules i.e. those which apply to analogue local radio, digital local radio and local digital multiplexes.

1.8 The model cannot predict precisely what will happen but it indicates that a similar situation to the Emap issue (i.e. being obliged to drop a service when nobody else seems likely to take up the vacant capacity) could well arise again in different parts of the UK, especially if either GCap or Emap were to merge with another large radio group.

1.9 In fact, several issues were identified in relation to the 21 potential mergers considered as part of this modelling exercise (i.e. how many services the newly merged groups might be required to dispose of in order to avoid breaching the rules which apply to analogue, digital and multiplex ownership). Eleven of the mergers would raise issues under one or more of the rules. An Emap/GCap merger, for example, would probably require the disposal of six local analogue services, 19 local digital services and one multiplex (either London or Kent). In contrast to the Emap issue, it is likely that buyers or alternative providers would be found for some of these services. Even so, the requirement to divest services could discourage mergers from taking place.

1.10 We have considered various options for tackling the Emap issue. One approach would be to give Ofcom discretion to disregard this particular ownership rule (Article 11 of the Media Ownership (Local Radio and Appointed News Provider) Order 2003) if it was in the public interest to do so.

1.11 An alternative approach would be to allow digital radio (DAB) take-up to increase and see if this resolves the problem of unused capacity on local multiplexes. The rapid increase in digital take-up by listeners could lead to an increase in demand from service providers to go on multiplexes and could solve the Emap issue without reducing plurality. The issue could be kept under review and wrapped up in a more radical overhaul of the MO rules at a later date.

1.12 As regards the wider issue of the general complexity of the radio MO rules, options include combining the rules for local analogue and digital services or abolishing them altogether and relying instead on cross-media ownership rules or competition regulation. The benefits of allowing further consolidation need to be weighed against the importance of maintaining plurality in commercial radio at a local level.

1.13 Ofcom recognises that the adoption of any of the approaches set out above would have both advantages and disadvantages for a range of stakeholders and that these approaches therefore need to be subject to a wide reaching consultation. As a result, our preferred approach is to consult on the question of whether the local media ownership rules remain fit for purpose as part of Ofcom’s Future of Radio Review. As part of this review Ofcom is considering major changes to the structure, licensing and regulation of radio in the light of technological developments and competitive pressures. Any overhaul of the local ownership rules for radio would be dealt with in conjunction with these other changes. This will encompass the Emap issue in the event that it is not resolved naturally as a result of the increase in DAB take-up.

1.14 Although no practical problems have arisen in applying the local cross-media ownership rules, we recognise that they are complex rules and may require more detailed analysis. As the MO rules relating to the accumulation of radio interests will be considered in the context of the Future of Radio Review, Ofcom considers it appropriate that the local cross-media ownership rules should also be considered during that review, given the close relationship between the two sets of rules.

Recommendations

1.15 We recommend that no changes should be made to any of the MO rules at this stage.

1.16 As set out above, in the case of the rules for local radio analogue and digital services, radio multiplexes and local cross-media ownership we believe that further deregulation should be considered in conjunction with other changes to the structure, licensing and regulation of commercial radio which are being assessed and will be subject to consultation under Ofcom’s Future of Radio Review, as indicated in Ofcom’s Annual Plan 2006/7.

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