When is a free market not a free market?

When I was a raw newcomer to newspaper circulation, this was an interesting pluralistic industry to work in that managed to balance comfortably both profitability and minority interest. There were many more newspapers and magazines than there are now and most of them were selling many more copies, despite the fact that they spent a fraction of today’s money on promotion and they contained little in the way of colour and added value supplements.

Add to that publishing mix a wholesale landscape that managed to allow hundreds of businesses to thrive, not to mention providing circulation managers with a nice cushy job once Fleet Street had finished with us. The retail sector was also bigger in those heady days with over 70,000 newsagents in a UK sector dominated by independents complete with the clanking chains of NFRN office.

Younger readers could be forgiven for thinking that I am an old buffer talking nostalgically about a pre-war era but, for once, they would be wrong, as this was only a few short years ago. What happened to turn this free thinking independent industry into a business dominated by a relatively few companies who seem, from afar, to be making a pretty rum job of it?

To be clear, I am not saying that life was perfect the old way, as there were plenty of inefficiencies and endemic malpractice but you could buy a paper on every street corner and somehow all parties made a good living.

Monopolies and mergers

Was this concentration of power caused by the attention of the Monopolies and Mergers Commission which twice looked very closely at this industry? The extreme irony of a fair trading body leading to the closure, merger and amalgamation of so many businesses is too hard to bear even for me and, for once, we may need to look closer to home. Perhaps factions within the news trade seized on the glare of regulatory attention and used the resulting reform for base commercial advancement? Maybe what we are seeing are natural responses to increasing shareholder pressure? Perhaps the whole process was just inevitable and that the Darwinian laws of the fittest winning out apply just as strongly in this business as they do in the Amazonian rain forest.

I look around and see domination of industry sectors at every turn and wonder if it has all been worthwhile. Sure, we still have some small retailers but they are many fewer in number and those that I meet seem pretty miserable in their work. We also have some independent wholesalers still thriving in their local monopolies, mainly in the north of England, but again there seems no sign of growth and optimism. Perhaps the big wholesale players are happier now they have fire proof swathes of the country to farm but again the signs are not good. These guys have bigger fish to fry than extra newspaper sales and there was never any guarantee that concentration of ownership was going to lead to a more creative and sales orientated approach.

It could be argued that the big national newspaper publishers have had their way over the past 15 years with significant terms reductions and ever expanding products. This is true up to a point but, again with falling sales (just strip out the bulks and then you can see what I mean) and bigger trade partners who are not so easy to bully, this is not a clear argument. I believe that two or three publishers have probably done well out of the changes in the industry but most have not and small publishers are as vulnerable to the cold breeze of trade monopoly as any other business.

The volumes required to allow a new entrant into the UK wholesale business are such that it will never happen unless publishers collude and no amount of wordy service contracts can alter that immutable fact.

Industry domination, without safeguards, can never be good in the long run because of the continual pressures from shareholders. When competition has been squeezed until the pips squeak then what incentive remains for investment in the best people and processes? In fact, the pressure goes quickly into reverse once a market position has been secured. The commercial instincts are then to keep costs down rather than investing for the future and levels of service are bound to drop.

Three phases

We have seen this happen in every industry where a free for all has been encouraged and we are now seeing the fruits of our collective labours in the news industry. The stages of this process are pretty standard. First off comes a rush of optimism as regulation is lifted and competition is fierce on both service and pricing. The customers do well in the short term as they pay less to get much more. The second phase is rationalisation as the service providers realise that this level of competition is costly and they either drop out or else eat their neighbours. The third phase is the cold dawning on the customers that they are stuck with a supplier who is likely to become less responsive as time goes by and whose pricing structure seems suddenly to have become a lot less flexible. The UK news trade business is deep into phase three and even the big publishers are realising (although perhaps not admitting) that negotiations in future will be trickier.

The answer, according to many expert voices, is to go for full de-regulation and do away with fixed wholesale areas so that the full beam of competition can really shine its light. This overlooks a key commercial weakness. The business of wholesaling requires volume to survive and very soon we would either have even fewer wholesalers left to choose from or large tracts of our land would not have news on sale. There is never enough publishing business to allow retailers sited near each other to appoint different wholesalers. The phases outlined above would be replayed at high speed and, although initially welcomed by the disadvantaged, the happy competitive period would be brief and ultimately unsatisfactory.

Local fixed term franchises

I suggest that the time has come for a movement in the opposite direction to both inject and sustain long term profitability and competition in the industry. The television industry was controlled by the IBA (now OFCOM) through a series of local fixed term franchises since the mid 1950’s and that worked well to keep up standards and offered newcomers the periodic opportunity to enter the market.

I wonder if paper publishing could be managed in a similar way? This would allow new entrants to compete for geographic wholesale areas through which they would sell all printed matter according to the terms of their charter. These franchises could be reviewed every 7-10 years and allow new players to plan their service offering in competition with the incumbent franchisees.

You could imagine this body overseeing between 30 and 50 regions covering the UK, defined by postcode and managed according to an agreed charter drawn up by publishers, retailers and wholesalers. Please let us not allow the depressing fact that these three interest groups find it hard to agree on anything get in the way of a nice juicy day dream. Let’s go further and imagine that this is a business that would be highly attractive to new entrants. After all it is a very cash positive business and, with all newspaper and magazine titles in a large area, it should also show significant profits. I can imagine any number of publishing/logistics based suppliers wanting to dip their beaks in this bowl.

The opportunity to harness new technology would be greater given the franchisee’s security of tenure and demonstrable profitability for the remaining life of the contract. As with all such systems, the existing wholesale players would remain in a strong position to retain and even grow their business given their expertise and local knowledge. I would expect, however, to see a new spring in the step of the business and some vigorous feather ruffling by new entrants.

I can hear the groans from the big fish now about interference with their rights to freely manage their business but let us think for a moment. Would a wholesale franchise restrict the rights of publishers any more than they are restricted now? Perhaps, and only perhaps, if you are the very biggest and you control more than the critical mass required to start a competitive wholesale business on your own then the answer is probably yes. For the rest the answer is probably no.

For most other trade elements this would actually allow significantly more input into the shape of the business than they have now. They will also benefit from the inevitable infusion of fresh marketing ideas and new wholesale thinking that would flow through both new and existing businesses.

I know that there are many crucial areas of detail that need to be considered but this article is all about the blue sky thinking leaving an examination of the plumbing to a later date. To my simple mind this type of system could preserve a level of competition while increasing the safeguards against the risk of ever decreasing circles of poor service. I believe that, despite the growth of web publishing, the printed word is still one of the most powerful communication tools and to that end we should invest more to ensure that the passage to market remains free and uncluttered by narrow commercial interests.