POSSIBLE STEPS TO STRENGTHEN REGULATION OF CONTENT

Whichever option we choose, Channel 5 might be owned by a large newspaper group, and its audience share may grow. To address any concerns we might have over the quality of news and programming, there are some steps we could take to regulate content, rather than ownership..."

¶5.34 There was a further meeting with Mr Blair and it was agreed to remove the restriction against sizeable newspaper companies owning Channel 5:208

"We have met twice to discuss the reform of media ownership rules. This letter summarises the decisions we have taken. Our approach will be deregulatory wherever possible, but we will retain a set of simple rules to prevent too great a concentration of ownership and political influence. Where we propose to remove rules (for example to allow sizeable newspaper companies to own Channel 5) content regulation will be able to maintain the quality, impartiality and diversity of programming and competition law will tend to encourage dispersed ownership and new entry..."

¶5.35 The then Prime Minister's thinking was obviously influential in this decision, as Ms Jowell readily acknowledged:209

"He was in favour of this option and he agreed with me on the safeguards that should accompany a decision to pursue this option to lift the ownership bar created by the 20 per cent on Channel 5".

¶and, later:210

"Q. I'm not for a moment suggesting that this wasn't a considered decision and that these things can happen as policy and legislation develops, but my question was: was it the influence of the Prime Minister's thinking that set you on a course of thinking that led to you changing your mind?" "A. Well, of course, it did, because he's the Prime Minister, and, you know, when you develop – you're a Secretary of State and you're developing policy and the Prime Minister has a slightly different view from the one that you're advancing, you take that seriously."

¶I

¶5.36 The safeguards referred to in the first of the quotations above concerned content regulation

and the ability to require that Channel 5 took a nominated news provider in the event that the channel grew significantly. Their inclusion indicates that consideration was clearly being given to the plurality ramifications of the altered stance on Channel 5:211

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"But the safeguards I wanted to ensure was that if Channel 5 exploded on the back of new investment from being a tiny and rather marginal terrestrial company, that Ofcom would be in a position to (a) require that they took a nominated news provider and that they would be in a position to exercise the content control that ITV, for instance, was accountable for–or accountable to–"

¶5.37 In the course of denying the existence of any implied deal, Mr Blair confirmed his preference

for deregulation, explained that he thought that Mr Murdoch was more interested in Channel 3, and emphasised his wish to encourage very large foreign media companies to enter the United Kingdom's market:212 "Q. In terms of the substance of the matter though, do you feel that the Communications Act reflected in any way an implied deal with Mr Murdoch or not? "A. No, absolutely not. For a start, the thing that we did which was boost Ofcom is a thing that he absolutely disliked. And contrary to what's often written about this, Channel 5 was not his – I mean, I never thought he was (inaudible) Channel 5. Channel 3 would have been a far better fit for him, and that he was unable to do. I mean, my thing with this Communications Act – because I did talk to the ministers about it several times, my thing was very much to do with trying to open up the media ownership thing. ... "And I actually remember during the course of this piece of legislation, I actually wanted to see if there were major media companies, I mean people the Time Warners of this world, Viacom, I think, Axel Springer, other big organisations that if you had a more open media policy would be prepared to come in, because what concerned me always was that you needed – it wasn't necessary just to have other media ownerships, it was necessary to have other media owners with heft, with the ability to put major investment in, and frankly with the type of global media position that I could see the world moving to."

¶5.38 There can be no doubt that the relaxation of the 20% rule was good news for Mr Murdoch,

and that the decision to relax the rule was personally influenced by Mr Blair. However, it does not follow from those bare facts that there was any explicit arrangement to that effect; nor even that the latter pushed this point specifically in order to favour News Corp in the hope of maintaining its support. The evidence demonstrates a more complex position. There was a clear desire to deregulate within the Government, the only differences being as to how far deregulation should go. Mr Blair was ready to go further than Ms Jowell was initially prepared to go and she in turn was prepared to go further than her predecessor Lord Smith.213 Ultimately, this was an area in which a balance had to be struck between plurality safeguards and market freedom and in which there was considerable room for differing views as to what I was best for the country.

¶5.39 The decision was not unqualified good news for Mr Murdoch. As Mr Blair pointed out, the

2003 Act contained much which News Corp did not like, not least insofar as it related to Ofcom. In relation to the 20% rule, the final decision to remove the rule only in relation to Channel 5, but not in relation to the more influential Channel 3 did not go anything like as far as News Corp had been seeking. Whilst it would be wrong to say that Mr Murdoch had no interest in Channel 5, the evidence does not demonstrate that it was a priority.

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¶5.40 This is an example of media policy being personally influenced by a prime minister and,

as such, points to the importance of the personal access which many senior media figures have had to our Prime Ministers. There may not be a deal, actual or implied, but access to communicate one's views in person to a Prime Minister who can directly influence policy is potentially a very important advantage.

¶Lord Puttnam's amendment and the media plurality test

¶5.41 In relation to acquisitions by national newspaper owners of terrestrial television interests,

before the enactment of the 2003 Act, a public interest test was applicable in three circumstances:214

(c) Any application by any newspaper owner to hold a licence for GMTV, Channel 5, or any national radio service; (d) Any application to hold a regional Channel 3 licence or a local radio licence, by any national or relevant local newspaper owner; and (e) Digital programme services could not be provided for three months after the award of the licence to a national or relevant local newspaper owner unless a plurality test was met.

¶5.42 These rules were not thought to be helpful by DCMS and DTI. They initially consulted on

the possibility of incorporating an alternative public interest test into cross media ownership decisions, in terms which were summarised by Ms Jowell, when writing to Mr Blair, as follows:215

"...We ask for views on whether the cross media ownership limits should be abolished, retained or reformulated. If they are retained in some form, we ask whether they should be permeable, with decisions above the threshold of the formula subject to a plurality test, and whether such decisions should be taken by the Secretary of State or by OFCOM."

¶5.43 Government thinking was at that stage concerned with whether to apply a plurality test

above a quantitative ownership threshold so as to make the threshold permeable. It was not the overarching test that was ultimately adopted following Lord Puttnam's intervention. Even this limited proposal met with disfavour when the responses to the consultation paper had been considered. DCMS officials noted that most respondents rejected the idea of a media plurality test and recommended against such a test:216

¶I "Plurality tests are not well supported by the industry because they are inherently

uncertain. Given that we are offering significant deregulatory reforms in most areas, and setting rules only where we feel we need to draw a line at what is acceptable in terms of plurality, there seems little point in offering additional flexibility where it is not wanted."

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¶5.44 The notion of some kind of plurality test was nevertheless explored further, and at Ms

Jowell's request, the idea of expanding the plurality test in the newspaper regime to apply to all mergers (including cross-media mergers) that involve newspapers was the subject of a detailed ministerial submission prepared for her and Ms Hewitt in February 2002.217 The fact that this paper was sought at all tends to suggest that the Ministers had open minds and were genuinely seeking to explore the options.

¶5.45 The joint recommendation which ultimately went from the Secretaries of State to the Prime

Minister did not propose the inclusion in the draft Bill of a plurality test to be applied to cross media acquisitions. On the contrary, it recommended the abolition of the three extant public interest tests which applied to the acquisition of other media by a newspaper proprietor (see 1.41 above):218

"The three existing rules that together make any purchase of any broadcasting service by any newspaper proprietor subject to a public interest test will be removed. The scope of these tests is not clear; they discourage newspaper owners from attempting levels of consolidation that would not necessarily dilute plurality; and they distort the market by encouraging existing owners who wish to sell to accept bids from non-newspaper owners who will not have to wait to pass a public interest test (a parallel may be drawn with the recent purchase of the Express newspapers by a non-newspaper owner who was not subject to any test under the special newspaper regime)."

¶5.46 Plurality was instead to be ensured by quantitative limits on cross media ownership and

competition law. The rules were to be the subject of automatic review by Ofcom no less than every three years. Insofar as it relates to national newspapers, their relevant proposals were summarised as follows:219

"Cross-media ownership "The existing patter of rules to be stripped down to those rules we feel are essential: – A rule preventing those with more than 20% of the national newspaper market buying a significant stake in Channel 3 or Channel 5... "Other rules to be removed: Rules that stipulate public interest tests for any acquisition of any broadcasting licence by any newspaper company to be scrapped ... "... "Review of ownership rules – All rules to be subject to automatic review by OFCOM no less than every 3 I years OFCOM to make recommendations to the SofS, who can amend rules by secondary legislation."

¶5.47 At this stage, on cross media ownership, the large media companies were heading towards

getting most, but not all, of what they wanted. Within Government there was (and always remained) a refusal to accept that competition law alone would suffice to ensure plurality in

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the media. The ministers' underlying political thinking is well summarised in their joint letter to Mr Blair:220

"We believe that the case for deregulation is powerful. There has been an explosion of media choice in recent years giving people a wide range of sources of news, information, entertainment and other services. Meanwhile, the existing rules have hampered some companies from expanding and developing while others find themselves much freer. These anomalies are not good for investment, jobs or diversity of products for the consumer. However, we also believe that the media are different from other industries, which means that Competition law alone is insufficient. They are a uniquely powerful force in democracy and debate and there is a long history of some media owners using national newspapers in particular to promote their views. We need a significant degree of plurality of ownership for democracy to work, and competition law can't guarantee this for us. Our line is therefore to regulate ownership on top of competition law, but only where absolutely necessary – imposing a simple set of barriers to excessive concentration. We are therefore proposing substantial deregulation, both within each media sector (radio, TV, local newspapers, and national newspapers) and also between them, subject to retaining reduced but still significant controls on cross-ownership of national newspapers and major terrestrial TV channels."

¶5.48 A revealing part of the joint submission made by the Secretaries of State to the Prime

Minister is the annex listing potential commercial winners and losers on the proposals as they then stood. The "Big Winners" are stated to be terrestrial television companies, most non-EEA companies, the biggest radio groups and the smaller national newspaper groups. News International is not amongst the "Big Winners" but is placed is the "Smaller Winners" category along with the largest national newspaper groups, their subsidiaries and the regional-only newspaper groups.221 It must be noted that this assessment was at that stage on the assumption that the prohibition on a News International purchase of Channel 5 would remain and the ultimate outcome was more favourable for News International than that contemplated at this time. Nevertheless, the assessment tends against any suggestion that the Government of the time was seeking specifically to benefit News International and is consistent with its policy of deregulation for wider economic and consumer benefit.

¶5.49 As has been discussed above, the 20% rule, as it applied to Channel 5 was not in the event

included in the draft bill, as a result of discussions with Mr Blair. On the subject of cross media ownership, the Secretaries of States' recommendation to reduce the system to its

¶I essentials was accepted and no media plurality test was incorporated into the draft bill for

application to cross media acquisitions.222 This approach was consistent with the desire to provide predictable rules for business and with the greatly relaxed approach to newspaper mergers set out in the draft Bill, the effect of which was summarised as follows:223

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"A reformed newspaper merger regime will be less onerous and more targeted, applying post-acquisition only in cases where there is significant concern on competition or plurality grounds. Criminal sanctions will be removed. Final decisions, at least on plurality grounds, will rest with Ministers."

¶5.50 The absence of a plurality test generally applicable to media mergers in the draft bill became

the subject of some controversy. At the pre-legislative scrutiny stage, the Joint Committee made 148 recommendations.224 Amongst these, the Committee recommended the incorporation of a plurality test for media mergers to be incorporated into the general merger regime introduced by the Enterprise Act 2002 (and thus applicable to media mergers which were also qualifying mergers for the purposes of that Act). They also expressed concerns about the proposed exclusion of Channel 5 from the 20:20 rule and the lifting of the ban on foreign ownership.225 The core recommendation about plurality incorporated a widely drafted test and read:226

"We recommend that the general merger regime, as introduced by the Enterprise Bill, be amended by the Communications Bill to permit the OFT and the Competition Commission to have regard to plurality, as well as the issue of substantial lessening of competition, in reaching decisions on media mergers. For these purposes, we recommend that plurality be specified as a consideration in respect of which the Secretary of State may serve a public interest intervention notice and that plurality be defined as: The public interest in – (i) the maintenance of a range of broadcast media owners and voices sufficient to satisfy a variety of tastes and interests; (ii) the promotion and maintenance of a plurality of TV, radio and other broadcast media owners, each of whom demonstrates a commitment to the impartial presentation of news and factual broadcast programming; and (ii) the promotion and maintenance, in all media including newspapers, of a balanced and accurate presentation of news, the free expression of opinion and a clear differentiation between the two"."

¶5.51 DCMS and DTI considered the Joint Committee's recommendations, accepting most of them

and they also considered the responses of interested parties to the draft Bill. On the question of a media plurality test, they were unmoved by the Joint Committee's recommendation. A contemporary joint briefing produced by officials for Ms Jowell and Ms Hewitt succinctly recorded their position:227

"[The Government's view is that the only way to guarantee sufficient levels of plurality on a cross-media basis is to set clear, specific limits on ownership through a number of key rules. "Since these rules – which will apply to all mergers – are directed at the same I objectives as a general plurality consideration, we do not see the need to provide additionally for a general plurality test in the Enterprise Bill merger control regime]."

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¶5.52 There were also concerns that the proposed test would effectively impose a form of content

regulation on newspapers.228 The Communications Bill, when it was introduced, did not include a media plurality test.

¶5.53 Lord Puttnam was not prepared to let the matter rest and led a campaign for, amongst other

things, a media plurality test, against the relaxation of the 20:20 rule in relation to Channel 5, and against the lifting of the ban on foreign ownership. He met Ms Jowell on 11 June 2003 when the position, on these issues, recorded the plurality test as being to the fore:229

"Lord Puttnam thought a plurality test would resolve his own concerns about foreign ownership and Channel 5. He accepted, however, that he couldn't speak for anyone else. The SoS said she would be concerned about a double bind of ownership rules plus plurality test, and was not convinced that the industry would buy it, given the uncertainty involved. Puttnam said his conversations with industry leaders suggested they were not unduly bothered by such uncertainty. He is not hung up about the precise wording – the extract from the PCC Code is deliberately provocative. SoS agreed we'd look at his ideas and discuss with our lawyers."

¶5.54 There was some limited counter lobbying from the industry but the political tide was turning

against the Government.230 As the Bill approached its first day of Lords Report, Ms Jowell and Ms Hewitt wrote jointly to Mr Blair, informing him that the Government faced defeat on the three issues which this sub-section of the report has focused upon: foreign ownership, Channel 5, and a media merger plurality test. They invited him to agree to make a concession on a plurality test, it having been indicated to them both by the Conservatives and Lord Puttnam that such a move would win their backing on foreign ownership and Channel 5. The thinking behind recommending the concession reflected the increasingly deregulatory course which the policy had taken and was stated to be:231

"Until now we have resisted calls for a plurality test on the basis that our mix of content regulation and core ownership rules should protect plurality. In Parliament, it has argued that because the Bill is so deregulatory we should equip ourselves with the means of investigating further those rare cases where we have removed ownership rules but where some concerns remain. We can see the logic in this, although such a concession only makes sense if the wider liberalisation central to the Bill is retained."

¶5.55 There then followed a period of internal policy debate about the form which a plurality test

should take and, including amongst other things whether it should be a narrow test or a wide test, accompanied by guidance and applied only exceptionally in practice.232 There was

¶I

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a further discussion between Ms Jowell, some of her officials, and Lord Puttnam on 26 June 2003 which, on the issue of media ownership, as recorded at the time, had all the hallmarks of a negotiation:233

"Andrew McIntosh repeated that at Report stage we would signal our concern about plurality in general and our intention to consider Puttnam's plurality test amendment. Puttnam said that would not be enough to satisfy him. He was clear that only the exact text of his amendment (as scrutinised by Lord Grabiner) would work for him. He also circulated a new, additional amendment that would prevent any removal of ownership rules relating to Channel 5 until a plurality test had come into being. The Secretary of State asked for clarification that if we introduced a plurality test we would withdraw his opposition to our proposals on Channel 5 ownership. He agreed that if we can reach a common position on plurality he will not push the Channel 5 amendment – he would take his name off it and would encourage Lord McNally and Lord Crickhowell to do the same. He will repeat this offer, making clear its conditional nature, at Report. On foreign ownership, he said he would support the Government. He will take his name off the amendment, and will stand up and oppose those who argue for reciprocity."

¶5.56 If this meeting produced the outline of a compromise between the Government and Lord

Puttnam, it still left a real issue between them as to the scope of the plurality test which should be put in place. Internal e-mails between officials recorded their understanding of the position bluntly and with an emphasis on the impact for News Corp:234

"TJ had now spoken to Puttnam – he will push his amendment to a Division regardless of what we say. He will only accept a plurality test that makes absolutely sure News Corp can't buy Channel 5. He will also vote against us on C5, though not foreign ownership."

¶5.57 No consensus had been reached on the wording of a plurality test before Lord Puttnam's

amendment was debated in the House of Lords on 2 July 2003.235 The amendment moved at the start of the debate was in these terms:236