Preventing the Expansion of Media Empires

What is a media monopoly in this country and how did Rupert Murdoch get permission to buy the rest of BSkyB? Matthew Cook examines competition law in respect of media ownership

Amid the present controversy over hacking at the News of the World, concerns have once again come to the fore about the size and role of Rupert Murdoch’s media empire and the power that this gives him over British politicians and the British public.  The position is very different from a few months ago when it looked likely that News International would be given permission to extend its media empire in the United Kingdom still further by acquiring the rest of BSkyB (in which it presently has a 39.1% minority interest), subject only to a condition that it should dispose of Sky News.



Media control has always been something that politicians and the government have been very much alive to, given their dependence upon the media for conveying their message to the public and the extent to which intrusive media attention can damage or derail the electoral prospects of individual politicians or parties, as most dramatically seen in recent times by the investigations into parliamentary expenses.

 

 

 

Enterprise Act 2002


As a result, UK merger control law (set out in the Enterprise Act 2002) has a special regime for dealing with mergers or acquisitions in relation to media companies – a regime which is shared only by mergers which give rise to national security concerns.

The special media regime involves not just different criteria for determining when regulatory intervention is permissible, but also a level of political involvement which is no longer present in ordinary UK merger control law.  

 

 

 

 

 

 

“Turnover” and “Share of Supply”


Under the normal rules of UK merger control, before an investigation can take place, one of two conditions need to be met, referred to as the “turnover” and “share of supply” tests.

The “turnover” test requires the turnover of the enterprise being taken over to exceed £70 million. The “share of supply” test requires the merger to give rise to an increase in the share of supply that the merged entity will have in the supply of goods and services of any description in the United Kingdom or in a substantial part of the United Kingdom and for that share of supply to exceed 25%.

The result of these rules is that where the target company is a large business, the merger will always be investigated. However, even if the target company is a very small business, the merger may be investigated if the two businesses operate in the same sector and have a combined market share exceeding 25%. As a result, if the market share of the acquirer is big enough, the merger will be investigated, even if the share of supply of the target company is tiny.

It is the responsibility of the Office of Fair Trading (the “OFT”) in the first instance to carry out a preliminary investigation to determine whether the “turnover” and “share of supply” tests are met and then to consider whether it “may be the case” that the merger has or may be expected to give rise to a substantial lessening of competition. If one of the tests is met, the OFT will then refer the merger to the Competition Commission (“the CC”), unless it concludes that the merger does not give rise to competition concerns or these can be resolved by undertakings offered by the acquirer and target. If the merger is referred to the CC, the CC will then carry out a more detailed investigation into whether the merger will give rise to a substantial lessening of competition. If it does, the CC has the power to block the merger or only permit it subject to conditions.

 

 

 

 

 

 

“Public interest”


However, while mergers of media enterprises remain subject to the ordinary regime, they are also subject to the specialist media regime. This operates at two levels, which consist of “public interest” cases and “special public interest” cases.

For “public interest” cases, an investigation of the merits of the merger will still depend upon either the “turnover” or “share of supply” tests being met. However, if the Secretary of State considers that one of the specified media “public interest” considerations is relevant, he can serve an intervention notice. This will require the Office of Communications (“Ofcom”) to carry out an investigation into the media public interest consideration identified in the notice and then provide a report to the Secretary of State. The Secretary of State can then decide whether to refer the merger to the CC for detailed investigation into whether the public interest considerations identified mean that the merger will be against the public interest. However, unlike the normal merger regime, rather than taking the decision itself, the CC instead reports back to the Secretary of State making recommendations on the steps which she or he should take. The ultimate decision on the public interest issues is, therefore, one taken by the Secretary of State.

The specified media public interest considerations include:

 

 

 

 

  • the need for accurate presentation of the news in newspapers;
  • the need for free expression of opinion in newspapers;
  • the need for a sufficient plurality of views in newspapers in each market for newspapers in all or part of the United Kingdom;
  • the need for there to be a sufficient plurality of persons with control of media enterprises in relation to every different audience in the United Kingdom or in particular areas or localities;
  • the need for the availability throughout the United Kingdom of a wide range of broadcasting which is both high quality and calculated to appeal to a wide variety of tastes and interest; and
  • the need for persons carrying on and controlling media enterprises to have a genuine commitment to broadcasting standards as laid down in Ofcom’s Broadcasting Code of Conduct.

 

 

 

“Special public interest”


In addition to the “public interest” regime, there is also a “special public interest” regime. Unlike the “public interest” regime, this is not dependent upon the standard “turnover” or “share of supply” tests but introducing a special “media share of supply” test.

The special “media share of supply” test involves one quarter of either all newspapers of a particular description or broadcasting of a particular description supplied in the United Kingdom (or a substantial part of the UK) being supplied by one of the enterprises.

Unlike the standard “share of supply” test, the special media share of supply test does not require the merger to give rise to any increment in the share of supply of newspapers or broadcasting. Once the 25% threshold is exceeded for either target or acquirer, the “special public interest” regime can be engaged even if the target and acquirer operate in entirely different media markets.

The Enterprise Act 2002 also makes clear that for the purpose of determining whether the 25% threshold is met for newspapers or broadcasting of a particular description, the decision-making authority can apply whatever criteria it chooses, including value, cost, price, quantity etc. The decision-maker might, therefore, conclude that the special media share of supply test was met for tabloid newspapers or free newspapers, rather than being forced to establish that the 25% threshold was met for the entire newspaper market.

Provided the special media share of supply test is met, the Secretary of State can then serve a notice under the “special public interest” regime if she or he considers that one of the specified media “public interest” considerations is relevant. The investigation process will then follow the same procedure, with the ultimate decision on whether to block the merger being one for the Secretary of State.

The special media regime for mergers, therefore, provides scope for media mergers to be reviewed on the basis of entirely different criteria and in circumstances in which no investigation would be possible into an ordinary merger.

 

 

 

 

 

Limited mergers reviewed


In practice, the number of media mergers reviewed on the basis of the special media regime has been limited. The most significant recent example was, of course, News International’s proposed acquisition of the remaining shares in BSkyB which was referred to Ofcom in June 2010 under the “public interest” regime over media plurality concerns by the Business Secretary Vince Cable, before he was stripped of his media merger responsibilities as a result of concerns over his impartiality. Those responsibilities were then transferred to the Culture Secretary Jeremy Hunt, who looked likely to approve the acquisition, subject to an undertaking by News International to dispose of Sky News on appropriate terms, before the hacking scandal derailed the bid.

Although ultimately less serious than the concerns raised about Mr Cable, the concerns publicly raised about Mr Hunt’s own impartiality during the review process demonstrate the problems associated with having politicians deciding on media issues, given their inevitably close connection to and reliance upon the media and those who control it. As a result, while the law provides extensive scope for limiting or even preventing the growth of media empires (at least by merger or acquisition), it could be argued that the larger the media empire under consideration, the stronger the incentive for the politician in question not to block their further expansion plan given the potential for an adverse response, thereby undermining the entire purpose of the special media regime.

Matthew Cook, One Essex Court

 

 

 

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