OFT bares its teeth in distribution row

The Office of Fair Trading (OFT) has reiterated its tough stance on the distribution of newspapers and magazines, saying the current system may harm consumers and will be difficult to justify in terms of competition law.

In its second draft opinion, released on Wednesday, the OFT set out a framework for assessing whether distribution agreements comply with competition law. The process is likely to be completed by early 2007, with the consultation period ending on 1 September.

Its original draft, a year ago, suggested regional monopolies and their connected universal distribution system should end.

This prompted warnings that thousands of niche magazines and small newsagents could close and that supermarkets would have too much say in which publications reached the shelves.

The OFT has since examined evidence that the current system "encourages wholesaler inefficiency and is not working well for customers", with complaints of excessive wholesaler carriage charges, late or insufficient deliveries and unnecessary waste from unsold newspapers and magazines.

In more than half the distribution territories there is only one bidder for the distribution contract, "suggesting that competition for the market, as well as within the market, is limited".

The OFT has provided a framework for assessment, applying to both newspapers and magazines, which would "vary according to the factual circumstances in which the agreement operates".

To avoid conflict with aspects of the Newspaper Code, which regulates the supply of national newspapers in England and Wales, it will launch a fresh review "to establish whether the newspaper industry undertakings are still appropriate". The original draft was heavily criticised for proposing to treat newspapers and magazines differently.

OFT chairman John Fingleton said: "It is important that this market, as any other, delivers choice, innovation and competitive prices for consumers. This draft opinion questions whether the current system of local monopolies provides sufficient competitive incentives to publishers and wholesalers.

"Parties must weigh the harmful effects of their agreements against any benefit they can identify. Today's draft opinion sets out the factors that the newspaper and magazine industry must take into account when assessing their agreements."

PPA chief executive Ian Locks said the opinion had "perversely added more ambiguity" to the process, with the framework open to interpretation by wholesalers, distributors and publishers — but he added: "We think we can demonstrate lots of things they ask us to demonstrate, like universal availability.

Who is going to distribute to retailers which are completely uneconomic to distribute to if there isn't some obligation to distribute to?"

He said the review of the Newspaper Code was a "positive" and the agreement to look at newspapers and magazines in the same framework was "commonsense".

He added: "One of our great fears is that if you are subject to the full laws of competition, what you end up with is a few powerful publications delivered to a few powerful retailers, and that's the spectre at the feast. Yes you can have great efficiency if you have one newspaper and a couple of magazines going to a limited number of outlets, but it defies the reality of what this is all about."

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