The NFRN notes that out of the issues it recommended to form part of the OFT’s MIR investigation, the OFT has chosen just five as the basis to test whether a referral is justified:
* Absolute Territory Protection (ATP) within publisher-wholesaler contracts
* Competition for the market
* Sale or Return
* Copy Allocation
* Cover Prices
Why the OFT has chosen just these issues and not others is not clear, even less why is has not included what retailers would argue is the most serious and anti-competitive issue of all – carriage charges. This is despite the NFRN pointing out this critical gap in the OFT’s analysis during the consultation period.
The OFT has said that magazine distributors have removed, or intend to remove the ban on passive sales from their contracts. Whilst this sounds positive, the removal of the industry’s third wholesaler, Dawson News, from the market means there is virtually no competition left, making it difficult to determine how passive selling can now work, let alone assess what benefits, and to who, are likely to ensue. We also note that whilst Smiths News and Menzies Distribution have recently produced revised terms and conditions of supply to retailers, there is no mention of passive selling arrangements in either of them, neither is the NFRN aware of even one example where passive selling is taking place.
The OFT says that it will allow ATP to continue if publishers have conformed to the OFT’s guidance and there are offsetting customer benefits. One hopes that the OFT understands that the wholesalers’ primary customers are the publishers (the creators and principal beneficiaries of ATP along with the wholesalers), whereas retailers are merely captives in a monopoly supply chain. It does not need a rocket scientist to work out which party the wholesalers consider to be the more important. So what benefits exactly can captive retailers, even less consumers, expect from ATP?
The OFT still says that publisher-set prices would, in general, be significantly lower than retailer set prices. This, however, appears to ignore evidence provided by the NFRN showing that publisher-led price increases have been double the rate of RPI or CPI over the past year, an inflation-busting trend that has now been continuous for the past 5 years.
Despite the market consolidation to just two wholesalers over the past year, the OFT still claims that the industry is in a state of “flux” meaning that it would be difficult for the Competition Commission to carry out an investigation at this time. Whilst the OFT has said that it is not giving the industry a clean bill of health and it may undertake a short review of the industry again in two years time, this will depend on the OFT’s other priorities at the time and on what further changes have taken place in the industry in the interim. In reality, no industry stands still and there is always some element of “flux” when any change is taking place. Whilst “flux” resulting from industry change was argued by the OFT as the reason for delaying a MIR in October 2008, since then publisher contract changes have accelerated and new 5 year contracts are already in place. It is, therefore, difficult to understand why, even though the OFT confirms that the conditions for an MIR are met, it is still arguing for delay on the grounds of “flux” rather than making a referral now. We cannot imagine what further significant change the OFT expects in the next two years to warrant such a delay.
The Competition Commission is very experienced in investigating industries and, whilst the news industry is complex, we cannot see why this should pose an insurmountable challenge.
The OFT places considerable emphasis on the “number of best practices” which if adopted more widely could make the newspaper and magazine supply chain work more effectively, ensure effective competition for the market and address some of the “apparent concerns of retailers”. After providing the OFT with 1,000 pages of recorded and documented retailer services complaints, the NFRN believes that the concerns of its members are more than just “apparent” which appears to imply some doubt.
Even more strangely, the OFT makes reference to the industry discussions on a new Code of Conduct – discussions that publishers, distributors and wholesalers walked out on nearly 12 months ago. Since then there has been no further discussion on a self-regulatory Code and the NFRN has suspended its membership of the Joint Industry Group (JIG) because voluntary self-regulation is failing to deliver for the independent retail sector. After its long examination of the news industry, together with regular change updates from the NFRN, we cannot explain why the OFT is apparently so out of touch with the independent newsagents’ trading environment.
In an industry that features mega-powerful multi-national publishers and distributors, at the top; a wholesale duopoly in the middle and “Mr Patel”, independent corner-shop newsagent at the bottom; it does not take a genius to work out that toothless voluntary self regulation is not likely to be the best solution to deliver supply chain efficiency and eliminate exploitation.
The NFRN has consistently sought a legally underpinned Code as the most obvious means of effectively self-regulating the news industry. However, after thwarting this by refusing to make a referral to the Competition Commission, it is difficult to understand now why the OFT thinks that a voluntary solution offers any kind of satisfactory outcome. The NFRN is calling for a full market investigation by the Competition Commission simply because it is trying to maintain consumer access to a diverse and free press through a network of 30,000+ small community retailers across the UK. In today’s tough competitive environment that in itself is no small challenge, now made all the more difficult after the OFT’s decision not to refer the sector to the Competition Commission.
