June 2002
Efficiencies of scale or abuse of power.

Efficiencies of scale or abuses of power.

In our March comment we put out views on the consolidation that appeared to be increasingly likely as governments round the world moved to ease media ownership restrictions. At that stage we felt that condolidation had now moved so far that the cons far outweighed the pros.

Subsequently actions in and comments from the US have raised additional questions as to how far the giants that have already been created may have abused their power.

Without prejudging the issue in any particular cases, we felt it worthwhile revisiting the issue of consolidation from the above point of view.

Efficiencies of scale.

Efficiencies and concentration of ownership in themselves may well have effects we would judge as against the wider public interest or the interests of particular groups but we would not hold to be abuses of power whether or not a final determination on any other basis was favourable or unfavourable.

In this frame we would put developments that are possible because of efficiencies of scale as in, for example, selling a package of advertisements for a cluster of stations thus making a transaction one-stop as opposed to requiring more effort from both sides. Linked with this almost automatically, of course, is likely to be a cost reduction for the broadcaster who may be able to operate with fewer or smaller premises, employ less sales people or develop systems that reduce administrative costs.

Similarly a large scale operation may well be able to perform the same level of service as regards technical operations throgh more efficient use of expertise and it can also do the same to a degree with on-air product, although the last if likely to be detactable by the audience whilst the former is not.

Abuses of power.

We would take the view that examples such as the above were reasonable economies of scale and, whether or not we approved of the outcome, find such actions acceptable.

A little further along the line however and the grey area starts to move along the scale towards abuse.

The determining factor to us is whether in a particular case, the power balance becomes such that one side (or the other) has no reasonable alternative but to accede to an unjust situation.

Such to us would be a case where a major group tried to exert unfair pressures on the suppliers, supporters or customers of a small one to move away their business from the latter as opposed to transacting it with the former in a particular case because of a threat of action in a wider frame.

Allegations that have been made, for example, include those of putting pressures on analysts not to favour a small company or face the loss to their employers of the business of the large company, of pressures on artists to go with one arm of a company or face exclusion by other arms.

Such actions would create unfair competition and in the past the US has enacted anti-trust legislation to deal with such situations, usually when the excesses had become such as to make them impossible to ignore.

Pro-active rather than reactive.

The result of the above has been to allow the abuse then curb it. In our view it would be better to be pro-active and make it so clear in advance that the penalties for breaches would be draconian that there is a much stronger incentive to play fair.

To do so would need some fair and frank debate about what practices were undesirable and how undesirable with appropriate ranges of penalties being set out and enforced on all occasions.

Some would relate to programming as is now the case, some to technical violations, as is now the case, and others would come into play when power that an organisation has been allowed to accrete has been abused.

The latter, we would suggest, is an area calling for vigorous debate at the moment.

To, for example, disadvantage a competitor unfairly is as bad for a free market when the company is in broadcasting as when it is in energy; to fail to audit the accounts of a broadcaster properlyis not different from doing the same for an energy company.

Both are not areas specific to broadcasting but strong anti-trust legislation and accounting rules are just as necessary for media operations as for any other business.

Broadcaster-specific penalties.

Since a broadcaster operates by virtue of a licence to use a limited spectrum resource over and above the general legal protection offered to any company, it is quite reasonable to have strict rules concerning the issuing and renewal of such licences.

To us, where there has been abuse of power, the person or company responsible is unfir to hold a licence; the only question in such a case is whether the abuse was gross in which case every single licence held by the broadcaster should be at risk or limited in which case the sanction should reasonably apply to only the specific areas or stations involved.

Either way, we think that a system that guaranteed a company would lose significantly if it pushed things to far, and that also ensured by fines that individuals could not be allowed to benefit by such actions or payoffs when dismissals resulted from lawbreaking, would ensure far finer calculations of how much things came into the fair plan and how much into the unfair advantage categories.

Any views? Please comment on the above. For that matter, if you can put the time aside, we'd like your "Guest comment" pages this year to stimulate more feedback and dialogue.

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