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CPBF responds to OFT proposals on magazine distribution
22/6/05: Response by the Campaign for Press and Broadcasting Freedom (CPBF) to Office of Fair Trading public consultation, Newspaper and magazine distribution, May 2005.1 Introduction
The CPBF has, since its foundation in 1979, had an active interest in the issue of press and magazine distribution. One of our Statement of Aims is ‘To campaign for publications’ statutory right of access to the distribution system and a guaranteed right of display’.
Our interest in press distribution is longstanding. In 1980 the CPBF published, in association with the Minority Press Group, The Other Secret Service: Press Distributors & Press Censorship. In 1996 we gave active support to the Committee for Diversity and Pluralism, an umbrella organisation which campaigned for a fair distribution service for newspapers and magazines. We expressed our opposition also to the proposal in 2000 by Tesco/WH Smith to form a national distribution chain for the supply of magazines.
We therefore welcome the OFT’s recognition that there is a ‘high level of public interest’ in the proposal to change the distribution agreements for magazines, and to undertake this public consultation.
2 We have prepared this response because we are concerned that competition law is being used to address policy issues about the distribution of printed media when what is required is a wider debate which also considers social, cultural and democratic issues. European competition law cannot, in the case of newspaper and magazine distribution, be the decisive factor in determining policy formation.
The present system of distribution for the print media plays a crucial role in giving people across the United Kingdom (in rural and other isolated areas, as well as villages and other communities close to larger conurbations but with difficulties of easy transport access to them) the possibility of buying a range of newspapers and magazines. Our concern is that this will be drastically affected if the OFT proposals are implemented.
We acknowledge that there are weaknesses in the present system. As the OFT document points out [1.17] the number of independent wholesalers has reduced from 70 in 1993 to 22 today, with three wholesalers having a dominant role: WH Smiths News, Menzies Distribution and Dawson News. The OFT also notes that the current tender process ‘may not be working perfectly’ because, when contracts to appoint wholesalers within an exclusive territory were re-tendered, in over 50% of territories they were uncontested. [3.21]
However we believe that, for all its weaknesses, the scrapping of the present distribution arrangements for magazines should not go ahead. We present our arguments below.
3 The CPBF does not have the resources to conduct its own research on the impact the OFT opinion would have, if implemented, to maintain the present exclusive arrangements for newspapers and to end it for magazines. We have however followed the debate in the trade press and looked again at the analysis presented in August 2000 by Professor Paul Dobson at the time of the WH Smith/Tesco distribution proposals. We think the following points are persuasive:
- The US experience. Although the USA and UK distribution systems differ, the example of what happened in the USA after 1995 is important. The decision by Safeway to stop dealing with dozens of small wholesalers and focus on one distributor at national level led other retailers, including Walmart, to follow. In an intensely competitive environment wholesalers battled with each other to see who could offer retailers the best deal. The result, according to the Periodical Publishers’ Association, is that now four major wholesalers control 90% of magazine distribution, 2,000 US titles closed, and more than 20,000 retailers went out of business. The supermarkets have as a result a significant power over which titles are displayed.
- The OFT draft advice, if implemented, would also give an advantage to the big supermarket chains in the UK who could negotiate better deal with wholesalers and replicate the experience in the USA in terms of the range of titles displayed, whilst at the same time leading to a decrease in the number of independent retailers.
- Some organisations (the British Retail Consortium, for example) dismiss the predictions by the PPA as ‘scaremongering’ and the OFT has accused the PPA and the British Society of Magazine Editors of ‘excitable sloganeering’ because they predict that changes in the magazine distribution system could result in thousands of small newsagents closing and niche magazines disappearing. The CPBF considers the information which the PPA and the BSME are presenting is extremely important because the OFT document, News and Magazine Distribution, does not give any prediction about what the impact of the proposed distribution changes for magazines may be, except in very general terms. [3.31} The chief executive of the PPA is quoted in Press Gazette (27/05/05): ‘We are disappointed that the OFT has not recognised in its provisional statement the immense damage we believe would be caused to both newspapers and magazines through increased costs, reduced sales and loss of choice for the consumer.’ The CPBF also thinks that the OFT report is deficient in this respect.
- The changes in the distribution system will hit hardest some of the vulnerable areas of newspaper and magazine retailing - rural areas and neighbourhood shops, according to Jay Shah, editor-in-chief of Community Retailer. (Quoted in Media Week, 10/05/05) He also predicted 1,500 to 2,000 titles would disappear if the OFT supported changes in the current distribution system.
- One other issue is the impact on small magazine publishing houses. This area of publishing is particularly vulnerable. Already High Street retailers like WH Smith have cut back on the range of smaller circulation titles which they display, but changes in the distribution system will, according to Jon Bickley of Anthem Publishing, ‘increase the cost of entry and could diminish innovation from independent publishers’. (Media Week, 10/05/05)
- The OFT report acknowledges [3.29] ‘there appear to be economies of scope to be derived from distributing magazines jointly with newspapers’ If this is the case, what would the consequences be of changing the system to exclude magazines? As a Guardian editorial (20/05/05) pointed out, newspaper publishers oppose the change because ‘the lost economies of scale of combined distribution will cause them to pay higher prices’.
4 The focus of the OFT consultation is understandably on legal and competition aspects of the present distribution system, but it is the CPBF’s contention that other perspectives and concerns should inform any discussion on changes in the press and magazine distribution system.
- There is already a lively debate about the impact of the growth of a few large supermarket chains - Tesco, Sainsbury’s, Asda, Morrisons - and the consequences of their purchasing power on suppliers. This is also relevant to the issue of distribution. The CPBF believes that the removal of the exclusive territory agreement could result in supermarkets setting up their own distribution networks and weakening the economic prospects for existing distributors.
- The present distribution system has in our view a dual role, both economic and social. The system, in the form of more than 100 exclusive territories, is economically efficient. In return for a local monopoly, a guaranteed supply of newspaper and magazine titles are delivered to those that want them. The point is that the system works whilst at the same time keeping the costs low for the publishers. At the same time it allows people access to a vital commodity in the sense that newsagents, neighbourhood shops, post offices and off-licences in all corners of the country carry papers and magazines. Thus it performs a vital social function. This might well disappear in some areas of the country, if the system changed, because it might be too expensive to supply retailers in remote parts if other lucrative areas of distribution disappear.
5 If it is the case that there are specific defects in the present distribution system they should be addressed, rather than jettisoning the present system. For example, Becket McGrath, the OFT case officer leading the OFT inquiry, is quoted in The Guardian (20/05/05). He argues that opening magazine distribution to competitors would benefit consumers because under the current system it is publishers, and not readers, who dictate what appears on retailers’ shelves. He said, ‘Retailers were telling us they could not tell the wholesaler that they want so many copies of a magazine. They get what the wholesaler and the publisher tells them they are going to get.’ It is our view that changing the distribution system, with all its uncertainties, is an extreme response towards such service problems which could be easily remedied.
Campaign for Press and Broadcasting Freedom
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Email: freepress@cpbf.org.uk
Last modified: Wednesday, June 22, 2005
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