Rags in Tatters

Telecom, Media & Technology (TMT)

March 21, 2013

Local papers are at the heart of the local community, holding local MPs, local authorities and rogue businesses to account: a vibrant local press is vital for our democracy. Yet the local press is in long-term decline. Why? Because of turbulent times, digital transformation, changing consumer preferences, policy blunders, the competition regime, and management waiting too long to respond to structural change. We ask: can anything be done to turn around the distressed business model and ensure that local papers remain in business? For the long term.

Introduction
The regional press is in long-term decline owing to a combination of changing consumer preferences, new technology, and failed management bets. Arguably there have been some policy blunders and the competition regime may be hampering the future fortunes of the sector. As is the case with so many sectors as they mature, there is a need, at least for some publishers, for consolidation to enable the realisation of cost efficiencies. The economics of the sector are such that for some publishers relatively small scale works – witness Tindle. For others, consolidation is the only way forward. Stay medium-sized, and the numbers don’t stack up – the revenues won’t cover the costs. We examine the various trends in the sector with a specific focus on the competition regime to assess the extent to which it may be an obstacle to the sector’s future viability.

Is the competition regime a barrier to success or are management errors and policy blunders to blame?

Backdrop
Stephen Carter’s interim Digital Britain Report presented local media groups’ views that the transition to digital business models required consolidation but that the then current media merger regime did not take account of potential cross-media competition.2 The first stage competition authority, the Office of Fair Trading (‘OFT’) immediately conducted a review, concluding that: 

“…the current merger regime, which is broadly the same for newspapers as for other industries, is well placed to take into account developments such as competition from the internet because it is evidence-based and capable of reflecting market realities. The regime is also flexible in that it can take account of valid ‘failing firm’ arguments, as well as efficiencies and any other benefits to customers brought about through a merger. The OFT has therefore recommended that no legislative changes are needed to the media merger regime.”


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