Newsroom

Newspaper supply should be liberalised

OFT consults on recommendations

PN 88/02    12 December 2002

The OFT has concluded that the rules governing the wholesale supply of national newspapers should be liberalised and retailers should be allowed more freedom to sell on to other retailers.

Download our consultation paper OFT review of undertakings given by newspaper wholesalers in pdf format (239 kb)

The OFT makes the recommendation following its review of the code of practice that binds wholesalers of national newspapers. The code was implemented following a Monopolies and Mergers Commission (now the Competition Commission) report in 1993. The OFT has a duty to review the statutory undertakings that underpin the code. The year-long review concludes that the code contains too many restrictions on retailers selling-on titles. The OFT is now consulting on its provisional recommendation to the Secretary of State for Trade and Industry to liberalise this aspect of the market.

The code in its current form has three fundamental features:

• it obliges wholesalers to supply retailers that agree to purchase a set value amount of newspapers per week (known as the Minimum Entry Level)
• it defines only a narrow range of circumstances in which retailers can sell on titles to other retailers (which impedes selling-on for most retailers) [see note 3 for further information]
• it reinforces territorial exclusivity (the geographic area in which a wholesaler has the exclusive right to distribute national titles).

When the OFT first reviewed the code in 1997, it found that there were more outlets selling newspapers than in 1994, suggesting that the code was working well and encouraging new entrants into the market. While the current review finds that the number of outlets has not declined since 1997, it has identified several concerns. The regional market power of the main wholesalers has increased due to higher concentration and entry barriers. Carriage and service charges (CSCs) have risen faster than delivery costs, which in turn have risen substantially faster than retail price inflation. Selling-on has not developed on a significant scale, despite many industry views that more selling-on would be desirable.

The report's main recommendation is that selling-on by retailers should be fully liberalised within the wholesalers' exclusive territories. This would involve:

• removing distance restrictions on where titles can be sold on within exclusive territories
• removing time restrictions on how long a retailer has to have sold newspapers before they are able to sell-on
• removing restrictions governing the maximum value or volume of newspapers that can be sold on
• removing restrictions on resale by sub-retailers who have bought titles from other retailers rather than wholesalers (i.e. so that they too can sell on titles and are not restricted to selling direct to consumers).

The OFT considers that this would provide more choice to retailers by introducing new supply sources and encouraging some competition between the established wholesalers and the sub-retailers within an exclusive territory. Where wholesalers set high CSCs, retailers will have the option of obtaining titles from another retailer instead of a wholesaler.

The recommended liberalisation would also make selling-on a more viable option than is currently the case. This should promote innovation in distribution, which is especially important in light of distribution costs rising significantly faster than retail price inflation. For example, retailers will be free to arrange to collect titles from a 'hub', rather than wholesalers having to deliver to each individual outlet. In addition, the proposed recommendation will allow the industry greater flexibility to respond to changing purchasing patterns, so promoting availability and convenience for consumers as well as efficiency in distribution.

The review did not cover the issue of publishers awarding exclusive territories to wholesalers although an investigation into this aspect of the market is not ruled out in the future. The OFT currently considers that if its main recommendation is implemented there would be fewer concerns regarding the granting of exclusive territories.

Launching the consultation on the recommendations, John Vickers, Director General of Fair Trading, said:

'Greater freedom for retailers to distribute newspapers should help to improve the efficiency and responsiveness of newspaper supply to the ultimate benefit of consumers.'

The recommendations are now open to consultation for three months before the OFT makes its final report to the Department of Trade and Industry.

NOTES

1. 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.

2. Under Section 88(4) of the Fair Trading Act 1973, the OFT has a duty to review these undertakings to ensure that they remain appropriate. The first review was conducted in 1997.

3. The newspaper supply code of practice has three main strands:

4. The OFT announced its second review of the undertakings in January 2002. See PN 02/02.

5. Download OFT review of undertakings given by newspaper wholesalers in pdf format (239 kb). A hard copy is available from the OFT's mailing house on 0870 60 60 321

6. The recommendations in the report are open to consultation. The findings in the report are not open to consultation. Deadline for comments is 14 March 2003. Submissions should be made to Katie Walters at OFT, Fleetbank House, 2-6 Salisbury Square, London, EC4Y 8JX.

7. The three big newspaper wholesalers are WH Smith News, John Menzies and Surridge Dawson.

8. In this press release the functions of the Director General of Fair Trading (DGFT) under the Act are for simplicity described as the functions of 'the OFT'. The Enterprise Act 2002 will replace the office of the DGFT with the OFT, to which will be transferred the DGFT's functions. The relevant provisions of the Enterprise Act are not yet in force.

Back to:2002