Newspaper agreements likely to get green light

But magazine agreements likely to need change

88/05 19 May 2005

The OFT today issued, for consultation, its draft opinion on the compatibility with competition law of exclusive distribution arrangements between newspaper and magazine publishers and wholesalers.

The OFT has concluded, subject to consultation, that current distribution agreements for newspapers are likely to satisfy the criteria for exemption under the Competition Act. However, the distribution agreements for magazines are likely to need amendment to satisfy those criteria (see note 2).

Under existing distribution agreements, newspapers and magazines are distributed to retailers through a system of exclusive territories, reinforced by absolute territorial protection. This means that a retailer must use the wholesaler allocated to its area and is prevented from seeking a better deal elsewhere. Absolute territorial protection would normally be banned under competition law.

In the case of newspaper agreements, the OFT is nevertheless satisfied that the restrictions are necessary to ensure the benefits that flow from the agreements. Newspaper distribution has special characteristics, in particular the very narrow overnight time-frame for distribution and the newspaper code of practice (the Code). The Code obliges wholesalers to supply all retailers within their exclusive territory meeting the minimum supply level. The OFT sees this obligation – which ensures that even small and remote retailers can stock a full range of newspapers – as one of the key benefits justifying the current system for newspaper distribution (see note 3). The Code does not extend to magazines.

In the case of magazine agreements the OFT believes that territorial exclusivity but not the further restriction of absolute territorial protection is likely to satisfy the criteria for exemption. Retailers should be free to seek better deals than those offered by the appointed wholesaler for their territory. Absolute territorial protection prevents alternative, and potentially more efficient, arrangements for magazine distribution emerging.

Where substantial efficiencies arise from distributing magazines jointly with newspapers, as will often be the case, joint distribution is likely to continue naturally, unforced by anti-competitive restriction.

The OFT’s draft opinion is open for consultation until 17 June. It will publish its final opinion after it has considered the representations it receives.

NOTES

1. The OFT published its provisional conclusions on 23 February 2005 (see press release 35/05). The draft advisory opinion, published today available from the Consultations area of the site sets out further details of the OFT’s analysis and the basis for its provisional conclusions. Comments should be sent to Dominique Hughes, Office of Fair Trading, 2-6 Salisbury Square, London EC4Y 8JX, fax: 020 7211 8354, email: dominique.hughes@oft.gov.uk

2. The OFT has made an assessment of newspaper and magazine distribution agreements against section 9 of the Competition Act. Agreements that come within section 2 of the Competition Act 1998 (Chapter I prohibition) are exempt from the Chapter I prohibition if they meet all the conditions in section 9 of the Act ? i.e. if they:
(a) contribute to
(i) improving production or distribution, or
(ii) promoting technical or economic progress

while allowing consumers a fair share of the resulting benefit; but
(b) do not
(i) impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
(ii) afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.

3. Following the Monopolies and Mergers Commission report into the supply of national newspapers in 1993, an industry code of practice, underpinned by statutory undertakings given by wholesalers, was accepted by the Secretary of State for Trade and Industry in October 1994. Following a review of the undertakings carried out in 2003, the OFT recommended liberalisation of the code, permitting retailers more freedom to sell on to other retailers within a wholesaler’s territory (see press release 88/02). The Secretary of State accepted the OFT’s recommendations in August 2004 (see DTI press release)

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