122/08    22 October 2008

The OFT has today issued three publications following a wide-ranging analysis of competition in newspaper and magazine distribution in the United Kingdom. It has:

• published an Opinion, providing guidance on the legality of newspaper and magazine distribution agreements, which indicates that current arrangements for newspapers may be better placed to benefit from competition law exemption than those for magazines
• recommended that wholesalers are released from the undertakings underpinning the National Newspapers Code of Practice, and
• published for consultation its proposal not to refer the newspaper and magazine supply sector to the Competition Commission.

1. Competition Law Guidance (the Opinion)

The OFT's Opinion provides guidance to help publishers, distributors and wholesalers assess for themselves whether their newspaper and magazine distribution agreements comply with the Competition Act. These agreements provide 'absolute territorial protection' (ATP), with wholesalers granted exclusive territories in which other wholesalers are prevented from selling to retailers. For the supply of newspapers, the Opinion sets out a number of factors that may demonstrate that the agreements benefit from exemption under the Act. For the supply of magazines, however, these factors appear less likely to apply.

A key difference between newspapers and magazines is that magazines sales are not subject to the same extreme time sensitivity as newspapers. This means that there may be greater scope for competition to develop in the distribution of magazines in the absence of ATP. In addition, the efficiency benefits of ATP appear less clear for magazine wholesaling. The parties are now expected to self-assess their distribution agreements, taking the OFT's guidance in the Opinion into account.

Download Newspaper and magazine distribution - Opinion of the Office of Fair Trading - guidance to facilitate self-assessment under the Competition Act 1998 (pdf 489 kb)

2. National Newspapers Code of Practice

The OFT has also published today its review of the National Newspapers Code of Practice, introduced in 1994 following concerns that wholesalers were refusing to supply new retail outlets if they considered an area was already adequately served. To address these concerns, the Code required wholesalers to supply all new retailers who agreed to minimum weekly purchases of newspapers.

The review has found changes in the market since the Code was introduced, and as a result the OFT considers that greater commercial incentives to supply new retail outlets now exist. The OFT has therefore advised the Secretary of State for Business Enterprise and Regulatory Reform, the ultimate decision-maker regarding the review of the Code, that wholesalers should be released from the undertakings underpinning the Code.

Download National newspapers - A review of undertakings relating to the supply of national newspapers in England and Wales (the Code of Practice) (pdf 390 kb)

3. Consultation on proposal not to refer to the Competition Commission

In its third strand of work, the OFT is minded to decide not to refer the newspaper and magazine supply sector to the Competition Commission. The OFT is minded to decide that, although certain features of the sector meet the statutory test for reference in this important sector, it should exercise its discretion not to make a reference.

A key reason behind this is the positive market developments that could come about from parties applying the guidance in the OFT's Opinion in their self-assessment. Given that the sector may evolve, it will also be difficult to assess the need for, and the impact and effectiveness of, any remedies. The OFT will now carry out a consultation and expects to come to a final decision regarding referral next year.

Download Newspaper and magazine distribution in the United Kingdom - Public consultation on the OFT's proposed decision on a request for a market investigation reference (pdf 405 kb)

Today's announcements follow a great deal of engagement with the industry which the OFT has valued in undertaking a holistic and complex review of this sector.

John Fingleton, OFT Chief Executive said:

'Being able to get newspapers and magazines where and when they want them, at keenly competitive prices, matters hugely to consumers.

'The OFT has brought together three strands of work which reflect the most detailed and thorough analysis of the sector done in recent years. We are recommending a release from regulatory restrictions, while the industry should now take a close look at its own arrangements. We hope that once it has done this, our work in this important sector will enable competition to deliver even better outcomes.'

NOTES

1. The OFT has also published today a paper that provides an introductory overview of key elements of the operation of the newspaper and magazine supply chains for those outside the industry. Download Newspaper and magazine distribution in the United Kingdom - Introductory overview paper on the newspaper and magazine supply chains (pdf 755 kb)

2. Section 2 of the Competition Act 1998 prohibits agreements that have the object or effect of preventing, restricting or distorting competition in the United Kingdom or a part of it and which may affect trade in the United Kingdom or a part of it. An agreement that comes within the scope of section 2 is, however, exempt if it meets all the conditions in section 9 of the Act, that is the agreement -

(a) contributes to -

(i) improving production or distribution, or
(ii) promoting technical or economic progress,

while allowing consumers a fair share of the resulting benefit, and

(b) does 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 in October 1994 by the Secretary of State for Trade and Industry. The OFT has a statutory duty to keep these undertakings under review and advise the relevant Secretary of State whether, by reason of any change of circumstances, the undertakings are no longer appropriate and either the parties can be released from them or the undertakings need to be varied or superseded by new undertakings. The review of the undertakings has been conducted under the Fair Trading Act 1973 and is limited to the adverse effects specified in the 1993 report on the facts found by the Monopolies and Mergers Commission.

4. Under section 131 of the Enterprise Act 2002, the OFT may make a reference to the Competition Commission if the OFT has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.