Acquisition by GWR Group plc of the radio interests of the Daily Mail and General Trust plc

No. 00154/C

Report under Section 125(4) of the Fair Trading Act 1973 of the Director General's advice, dated 18 October 2000, to the Secretary of State for Trade and Industry under Section 76 of the Act

Assessment

The parties

This completed transaction involves the acquisition by GWR Group plc ('GWR') of the radio interests of Daily Mail and General Trust plc ('DMG'). GWR operates a number of radio stations in the UK. These comprise 37 local stations, the national station Classic FM and two digital stations. It also has a controlling interest in Digital One, the national digital radio multiplex. DMG is a media company with interests in national and regional newspaper publishing, business publishing, television, radio, exhibitions and information publishing. Its radio interests comprise seven local AM stations in the South East of England, Vibe FM - a regional station broadcasting in East Anglia - and overseas radio interests in Hungary and Australia. The deal has been structured so that GWR acquires only 49.99% of Vibe FM.

Jurisdiction

I understand that GWR's shareholding in Vibe FM will be further reduced to meet the requirements of the Broadcasting Act 1990 (see Note 1). On the information available to me it appears likely, however, that GWR has acquired and will retain de facto control or, failing that, material influence over Vibe FM. On this basis, I have concluded that the transaction has created a merger situation which qualifies for investigation by satisfying the share of supply test in section 64(1)(a) and (3) of the Fair Trading Act 1973 (FTA) in relation to the supply of advertising airtime by radio stations based in East Anglia, a substantial part of the UK.

Relevant markets

The parties overlap in the supply of radio advertising in the UK. The ownership of radio licences is regulated by the Radio Authority which issues licences for eight years and determines the broadcasting area and licence format, which stipulates the type of music and other services a station can provide. This will have an effect on the type of listeners a station attracts and will influence to some extent the type of advertising.

The Monopolies and Mergers Commission (MMC) concluded in previous inquiries that radio advertising is an economic market separate from other forms of advertising. This was because radio advertising has particular characteristics as an advertising medium. For example, the qualitative differences between radio and other forms of advertising are reflected in different pricing arrangements, which make pricing comparisons difficult, and most large advertisers are likely to be relatively insensitive to movements in advertising prices (because radio advertising forms a small part of most major advertising campaigns). The MMC also found that the price of radio advertising in London was likely to be constrained more by the prices offered by competing radio stations than by other forms of media (see the MMC report on Capital Radio plc and Virgin Radio Holdings Limited). I also note, however, that the MMC found in another inquiry (see note 2)that the price of local newspaper advertising may be constrained by other advertising media, which I take to include radio stations within the circulation area.

I believe that there may be some substitutability for advertisers between local newspapers and local radio stations. I note that several of the advertisers contacted indicated they would consider switching some of their budget between these media in the event of small but significant price changes. A distinction can also be made between the sale of radio advertising by national sales houses and the radio advertising which is sold at regional and local levels by individual radio stations. In my view there are distinct geographic markets for national and local radio advertising in the UK. The position for regional radio advertising is less clear, however.

Horizontal issues

I have concluded that no competition concerns arise in the market for the sale of national radio advertising, given the small increment in market share of 1.8%, giving a total of 22.8%. I note that a number of other national sales houses have similar market shares to GWR and that national advertisers are sophisticated and have a degree of buyer power.

The acquisition gives rise to concerns in East Anglia, through the overlap of the regional DMG station, Vibe FM, with four local GWR stations, Q103 (Cambridge), Broadland (Norwich), Hereward (Peterborough) and SGR (Ipswich). If it is appropriate to aggregate all of the radio stations that broadcast solely within East Anglia, Vibe FM accounts for 8.9% of the radio advertising revenue in East Anglia and the four GWR stations together have 77.3%. Six independent local stations account for the remainder. It is not clear that such aggregation is appropriate, however.

Vibe FM is a dance music station playing contemporary and specialist dance music aimed at the under 25s. The GWR stations play more mainstream chart music targeted at an age range of 25-44. Audience data indicate that 69% of Vibe FM listeners are under 35 and nearly 35% of listeners are under 25. In contrast, 58% of those listening to the four local GWR stations are over 35. Therefore the listening demographics and, hence, potentially the advertisers of the four GWR stations, are different from that of Vibe FM.

For many advertisers based in the area, a regional coverage, as provided by Vibe FM, may not be relevant or cost-effective if they want only to reach local customers. I note that most GWR advertisers use only one or two of the four GWR stations.

The size of the overlap of advertising business between Vibe FM and the four GWR stations is difficult to gauge. I note, however, that Vibe FM's total revenue from local (as opposed to national) advertising was less than [details omitted] in the most recent financial year. I recognise that Vibe FM is a comparatively young station that may well grow. Nevertheless, the relatively small scale of its local advertising business, combined with the demographic and geographic differences discussed above, lead me to conclude that any loss of actual competition arising from the merger is likely to be marginal and the loss of prospective competition is probably not substantial.

Vertical issues

No substantive vertical issues arise as result of this merger.

Third party views

In my investigation I have consulted both customers and competitors in the usual way. I also received a small number of representations about the change in ownership of one of the stations. These representations do not raise competition concerns in the area of geographical overlap, which is the only area that I can consider, but are matters for the Radio Authority. I am satisfied that the points made do not indicate any significant anti-competitive effects arising from the merger situation.

Undertakings in lieu of a reference

This is a completed merger, for which the statutory deadline is 6 November. The parties have not made information available in a sufficiently timely fashion for undertakings in lieu to be feasible if you were to conclude that a reference to the Competition Commission was warranted.

Conclusion

This case raises potential concerns in the overlap of the supply of radio advertising airtime within East Anglia. However, on the basis of the above analysis I do not consider that the possible loss of actual or prospective competition is sufficiently material as to justify an investigation by the Competition Commission.

Therefore, I conclude and recommend that you should not refer this completed merger to the Competition Commission.

Notes

1. I have subsequently been advised that GWR's shareholding in Vibe FM has remained at 49.99% and that consequently GWR has de facto control or material influence over Vibe FM for the purposes of the Fair Trading Act 1973.
2. Portsmouth and Sunderland Newspapers plc and Johnston Press plc/Newsquest (Investments) Ltd/News Communications and Media plc.
3. RAJAR figures, Week 2, 2000.

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