Media: Ownership

Lord Hollick Excerpts

Thursday 4th November 2010 Lords Chamber

[Lord Hollick]

My Lords, I, too, thank the noble Lord, Lord Puttnam, for his brilliant timing. I have sat on two media boards with him and can testify that his robust pursuit of plurality of opinion extends not only to this Chamber but to the boardroom. I declare an interest. I am a director and shareholder in ProSieben, a Munich-based broadcasting business with 30 channels throughout Europe. In our home market of Germany, we by turn co-operate and compete vigorously with Sky, which is not such a dominant player in the German market.

As the noble Lord, Lord Borrie, said, one test of plurality is to take a snapshot at a moment in time by reviewing the number and independence of media outlets, such as TV news and newspapers. Another and I believe more important test is to examine the sustainability of that plurality over time. That needs to be considered in the context of what is likely to, or may, happen to the dynamics of the general media sector—in this case, if News Corp owns 100 per cent of Sky. While past behaviour is not always a good guide to the future of a sector that is undergoing unprecedented and disruptive technological change, as many noble Lords have said, it can give a clue to the likely consequences of the proposed merger.

I first met Rupert Murdoch in 1969 when I was a junior member of a team advising him on the purchase of the News of the World. I recall being struck by the strength of his determination and resolve, his bold vision for the paper, his grasp of what the reader wanted and his outsider’s disregard for convention—but, above all, by his gambler’s instinct. These traits were in greater evidence as he successfully launched the Sun, revitalised the Times and the Sunday Times, killed off Fleet Street’s antiquated work practices, took effective control of a failing satellite business on which he basically bet the bank, and, more recently, has breathed new life into the Wall Street Journal. At every turn he—and I have to say from my experience of dealing with this organisation that his DNA runs right the way through it—is totally focused on radical measures to improve the product, increase market share and, as a consequence, make life much more difficult for the competition. The breadth and scale of News enables it to take big bets and to be unafraid of failure. I can testify to the fact that News is a very tough competitor indeed, to be respected and often copied.

So how will this consistent approach to business work if News acquires 100 per cent of Sky? The enlarged group will enjoy market-leading positions in pay TV and newspapers and a strongly growing share of the broadband market. Sky itself is at the end of a significant capital expenditure programme and will provide the enlarged group with an unfettered access to a very substantial cash flow. The group will have the opportunity to fund cross-promotion of all of its products across all of its platforms, to bundle its products to subscribers, to acquire the best content and to market its products more extensively through advertising on non-owned media. When in 2000 I attempted to merge United and Carlton—which together would have owned 50 per cent of ITV and the Express newspaper group and a host of production businesses and websites—the ability to implement cross-promotion, to cross-subsidise and ultimately to bundle products and to develop content which could be deployed on all platforms was the key strategic and economic benefit. That merger was squashed by the Competition Commission as being too large a concentration, particularly in commercial television. The full integration of Sky and News Corp would create a combined business broader in scale and with far greater market power and financial resources.

So how will News Corporation’s competitors in the UK respond to this cuddly new 800-pound gorilla? The competitive set is fragmented and relatively undercapitalised with no great record of concerted action. The BBC provides a powerful countervailing force and is now assured of funding until 2016—albeit on meagre rations. Commercial television is coming out of a deep advertising recession and continues to suffer from the punitive effect of CRR, which has reduced ITV’s revenue by between £75 million and £100 million a year. That of course seriously compromises its investment in programming, which is the very lifeblood of TV and an important part of the British production sector. The newspaper groups are doing a remarkable job in staying afloat in fast-declining markets, often thanks to profitable non-newspaper businesses, but they do not have the financial clout to tackle News Corp.

The launch next year of You View will provide a significant opportunity for broadcasters and publishers in the UK. You View will bring video, still images and texts over the broadband network to the computer and, crucially, the domestic TV set and mobile devices. It is likely to become the most important distribution platform for media. It will deliver both free and paid-for content, will be open to all content providers and will provide a programme guide to rival Sky’s. It is a most welcome competition to Sky—

[Baroness Anelay of St Johns]

My Lords, I reluctantly remind the noble Lord that he has already reached the fifth minute and has now exceeded the time allocated to him.

[Lord Hollick]

I have nearly finished. As Ofcom now ponders the proposed acquisition, it must take into account sustainability; otherwise, looking at the marketplace as it now is—

[Baroness Anelay of St Johns]

My Lords—