The transcripts of the official inquiry into the culture, practices and ethics of the press. More…

  • MS CLAIRE WHITMORE ENDERS (Affirmed).

  • Thank you. Your full name.

  • Claire Whitmore Enders.

  • You've kindly provided us with a witness statement on the issue of media plurality. It's dated 9 July 2012.

    Are you content to put this forward as your formal evidence to the Inquiry on that specific issue?

  • You also gave us a presentation at one of our seminars on 6 October 2011 and the paper which you submitted has now been put on our system. Again, are you content that that be formally accepted in evidence?

  • We're not going to run through that today because you explained it very clearly seven or eight months ago.

  • Ms Enders, thank you very much for both those contributions. Rather a lot of water has flown under the bridge since the last one, so it's perhaps fitting that you should come in at this sort of stage of the Inquiry, having been at the very beginning, but I'm grateful to you.

  • Can you tell us briefly about yourself and about Enders Analysis?

  • Yes. It's quite hard to summarise a working life that has spanned for than 30 years but I have been very fortunate in being given many interesting problems to think about and solve and in particular, I just wanted to highlight the fact that I was an expert witness in the proceedings that set digital copyrights in the US congress as well as in the UK, and therefore I can be said at least to be an expert in digital models. I hope that's helpful.

    I also wanted to stress that my sole nationality is British. I am not American. I ceased to be American some time ago. So I have a -- I have been in love with this country since I emigrated to it and my concern for it is that of an immigrant.

  • Thank you. Now, you explain monitoring the plurality of news provision. You say there are several ways of monitoring that --

  • I think we'd better just record that you've spent 30 years as an analyst, strategist and forecaster in the media and technology sectors in the UK, and 15 years working in cable TV, satellite TV and commercial public sector broadcasting before setting up Enders Analysis in 1997, which creates comprehensive models and forecasts of all parts of the UK media, telecoms and technology sectors.

  • Well, it's just so that it's all in one place and anybody watching this evidence can know the background from which Ms Enders speaks.

  • And also, if you'd like any background about Enders Analysis, I can provide it to you, but in summary, I own 100 per cent of the company and you know, I work at it every day. We produce written research which the list of companies in the relevant companies in the annex support for by paying for it.

  • Thank you. The different means or ways of monitoring/measuring news plurality. There are three of those. In terms of identifying the candidates, your position is the same as Ofcom's. You favour the share of consumption metric. May I ask you to explain why?

  • Well, like Ofcom and indeed other commentators, this metric ends up by being one of the best ways of giving a guide, a set of estimates, to (a) the number of media and of course the actual minutes of viewing or listening or reading and so on that are allocated by members of the public, and as a result of that -- essentially, consumption is a very good proxy for how the public interacts with all media and indeed how the public interacts over time.

    I do agree with Robin Foster that the issue of the impact on politicians is left outside of this measure, and indeed that is not Ofcom's job. But that is something -- and indeed, Ofcom thought relatively deeply about this matter when it was considering the News Corp/BSkyB merger in 2010. So it thought quite deeply about this matter and it ended up with a metric that involved share of consumption measured at the time as being around 17 per cent for News Corporation's share of total UK news provision, plus BSkyB rising to 21 per cent. So this is something which has been dealt with and is relatively advanced as a metric.

  • Is one of the other advantages of the share consumption metric that it's reasonably objective, non-judgmental and uncontroversial -- some of the other metrics have a greater judgmental and subjective element and therefore there's more argy-bargy about what they might mean on the one hand and amount to on the other?

  • Yes. These are all imperfect measures and they involve estimates and so on, and they are quite complicated calculations to make, but what matters in any case is not absolute specifics. It's actually trends or -- you know, the big pieces in any story are what matter. But also the problem with share of consumption is also that it doesn't measure the relative impact of -- I think Robin Foster also alluded to that -- various types of -- different forms of consumption, and indeed supporting consumption and debate, around any particular use of a medium. So it's a soft measure but it's as good as we've got.

  • The television might be on, but one might not be watching it?

  • Correct, and indeed in the case of radio listenership, people do leave their radios on for very long periods of time and may be in and out of listening and so on. So it is a very imperfect soft measure, but it gives an idea.

  • How about the news? Is there Data Research on how long people read newspapers for?

  • Yes, there is, actually.

  • So that's how you do that?

  • On the other hand, just to the point made by Mr Jay, although for instance, in this country, an average newspaper reader -- again, who's an average? -- would read a newspaper for 40 minutes a day, a consumer of a newspaper website will only consume for around 15 minutes a month. So these are very, very different media in terms of impact, but also in the case of newspapers, the work that we submitted to you subsequent to the first appearance indicated that, depending on the newspaper, the idea of news is a very broad picture. It includes news of celebrities, news of TV shows, news of movies, news of a million things that we wouldn't really put in the serious buckets. Indeed, news of bridge triumphs and sporting triumphs as well. So there are many different kinds of things that are encompassed in newspapers, so even newspaper readership itself is not a good proxy -- that 40 minutes a day is not a good proxy for the readership of hard news.

    Of course, in the vast continuum of newspapers, which the UK is blessed in having an extraordinary number -- and indeed, newspaper readership in the UK is exceptionally high by comparison with all other nations except for certain very small ones, but nonetheless, within that, the fact is that the tabloids have relatively less hard news, and the quality papers, which are a very small subset of total circulations themselves, have more. So I think that it is a very, very difficult thing to get a grip on in any kind of adequacy, but it's as good as we have.

  • You say in relation to the next metric, which is reach, it has less value. You explain how it's calculated. The modes of calculation appear to be about as objective or as subjective, depending on your point of view, as the consumption modes of calculation. Is that a reasonable assessment?

  • Yes, that's right, but remember that these calculations came about out of a chance remark made by Lord Puttnam. When he was asked what plurality meant, he said "share of voice". So these calculations have somewhat emerged from sort of an accident off-the-cuff remark, so one can -- one is trying to find something that fits with the law.

  • Why is reach of less value than consumption?

  • Well, we think that the -- can I get back to you about that? It's just not something I really --

  • Yes, fair enough.

  • So the multi-sourcing, which is -- again, you say it has some use but less than the consumption measure. You refer to the modes of calculation again. Really, it's the same point. They're as good or as bad as the consumption and reach modes of calculation, are they?

  • I think the point that Ofcom sought to make -- can I sort of put it to you in these terms? -- is that really one has to combine these measures to get at the best end point, when my understanding of your evidence is that you would prefer to focus on consumption but not look at reach and multi-sourcing. First of all, have I correctly understood where you're coming from? And if I have, what's wrong with the combined approach?

  • We don't make any suggestions about the combined approach or indeed -- you know, Ofcom's really very expert in these matters.

    I must say, to our credit as an organisation, Ofcom decided to use the methodology that we had advanced in November 2010 in order to come to a view, but I wouldn't want to underestimate the difficulty of coming to those views or the effort that Ofcom has put, nor its greater understanding than I have about the different impacts.

    It is still a measure that is a proxy and gives only a sense of what is going on in the media marketplace. But Ofcom has thought very deeply about this because it prefers this kind of measurement and it prefers measuring. So it's very fond of that.

  • Because it's more objective than subjective, but it actually buries within it -- this is what I was rather suggesting -- all sorts of subjective questions.

  • That's right. And also I sometimes wonder whether the focus -- and I think it's something I point out in my submission -- I wonder if Ofcom's almost exclusive focus on news and plurality as calculated in this way is in fact what was originally embodied in the legislation, the 2003 legislation, and my understanding is that it is not. I think I make the arguments in my submission that there are many other forms of plurality that should be more important than counting this kind of impact, although it is important -- it is important to have an understanding of how it is that people in the UK are consuming all kinds of media outlets.

    I mean, for instance, it is always a source of great surprise to people that the BBC has such an extraordinary share of voice in the UK, mainly because there are apparently so many news media, there is -- of course, this is the most digital nation, there's the most extensive use of online news and media in this nation than there is anywhere in the world. So it is a paradox of plenty versus a concentration on the supply side. So this -- you know, Ofcom is right to put a lot of emphasis on it, but I think that in the recent report that Ofcom put out on these matters, I felt that the emphasis on what it can count reliably in terms of consumption rather missed the point of the whole plurality debate in its totality.

  • May we look next, please, at paragraph 8 of your witness statement, Ms Enders. We're identifying here a definition of plurality. You commissioned Professor Brewer to examine this question for you and she made it clear that plurality unambiguously means a large number. When we talk of plurality, we're talking of a profusion, a multiplicity and an abundance. Aren't we also talking about difference, not just large quantity?

  • Yes, absolutely. I mean, diversity. Diversity, differentiation and so on. Yes, definitely. As I go on to say in my submission, that is definitely how it is that different points of view can be expressed in a complex and interesting society.

  • Yes. Ofcom have pointed out that the reality of the news market is such that there will be a tendency these days to consolidate and that sustainable provision may not be compatible with a profusion or abundance of provision. Do you agree with that?

  • That's certainly true on the news side. There is a great difficulty in economic models for all news, whether it's in the newspapers or on TV or on radio.

  • I suppose the point is that one can't force new voices into news provision, so plurality must be dependent on the willingness of the market to provide it, mustn't it?

  • Or the willingness of its patrons, because after all, it is a patronage -- it is funded by patronage. I mean, the BBC is funded by public patronage and the Times is funded by News Corp and the Guardian is funded by the Scott Trust and so on. Patronage is quite a common feature of the provision of newspapers and of news more generally.

    I believe there are only two major news organisations in the world that are profitable and very significantly profitable, and that's Fox News and CNN, and that's probably because of the size of the American market.

  • It may be market forces are working against new patrons coming into being?

  • Well new patrons come into being because they make money in other places. You know, they make money through property in the case of the Barclay brothers or they make money in mining in the case of Ms Rinehart or indeed, in the case of Lebedevs, in other activities in Russia. So actually new patrons for newspapers come into being, I presume, at least once a month.

  • Fair enough. Question one, which you now address in paragraph 9 and following --

  • I wish it was once a month.

  • That would be nice. Well, they come along regularly.

  • The question was, in question one:

    "Is there a risk that there is or could be an overconcentration of control over news and current affairs provision?"

    You point out that:

    "Society has said that news plurality is important."

    And you give a number of reasons why that's so. Can I ask you about point (b):

    "All other matters being equal, plurality is greater if providers have roughly equal shares of news consumption than if one or two news sources have large shares and others have very small shares."

    Why is that so?

  • I'm just using the sort of economic theory around oligopolies, which is that -- ologopolies are more effective if there's more equal strength between the parties. In the UK, for instance, there is ITV, Channel 4 and Channel 5 that all sell advertising and indeed there is a plethora of multichannels that do so too, but ITV has 50 per cent of net advertising revenue, and that's quite a concentrated market. The other two main players are very, very small indeed, one really very small. So it's just the effectiveness of real competition is always based on economic power and financial muscle. That's the truth of the world.

  • It's also the size of the megaphone, isn't it?

  • Yes, absolutely, and the megaphone across many different places, you know, in the City or in government and so on. Financial power is immensely significant in every way.

  • So if there are lots that are broadly the same -- I don't say they cancel each other out, but there is a fairer hearing for all than if some have particularly large multi-decibel megaphones that actually can --

  • Also they can also invest -- there's more leeway. But obviously we're not talking about a country in isolation; we're talking about the UK and the UK as it really is.

  • Point (d) on the next page, 01769, page 4:

    "Regulatory and court judgments and departmental guidance documents ..."

    Sorry:

    "Although the point is poorly expressed there, it seems to be the conventional assumption that at some point decreasing plurality would result in an overconcentration of control over news and current affairs provision."

    And that carries with it the associated vice of too much power in too few people and that, you say, is a matter of common sense; no more, no less than that?

  • I think it's also been constantly considered at regular intervals, anyway. Certainly in the 2003 concept, which I remember very well, there were a number of issues around the specificities of the UK which Lord Putnam and many other peers sought to frame. So they have always been conscious that there is always a danger and actually, I think that this is not the only society to look at those issues. I mean, there are -- every major country in the world has thought of these issues and fears overconcentration of control in news and current affairs and believes that would be anti-democratic for that to be allowed to develop. Although Robin didn't mention it, there are other kinds of structural remedies that people have in place, indeed to even remove the prospect of a foreign owner, for instance, having -- being an actor in an overconcentration.

  • Thank you. In paragraphs 10 and 11, you point to the distinction in the legislation between newspaper mergers on the one hand and cross-media or broadcast mergers on the other. In relation to the former, the statute looks at a sufficient plurality of views in newspapers but in relation to the latter, the statute looks at a sufficient plurality of persons with control. So in one case, it's views which we want a significant or sufficient number of but in the other case it's persons.

    In terms of the background to the legislation, could you help us, please, as to why in newspaper mergers it's points of views which count and not numbers of persons?

  • I'm not a specialist in this area, but it is a long-running leitmotif around issues of local markets and local advertisers, as well as local consumers. So recently there was a case involving the Kent Messenger Group in which a small local merger was turned down, and so in practice, you know, the existing legislation has precluded consolidation in local papers to an extraordinary degree because of a fear of loss of means of entry for advertisers as well as consumers -- more importantly for advertisers. In most of the cases that I have some knowledge of, it has been around allowing advertisers to reach that local market through separate media because local media are quite concentrated. I mean, it's very hard to -- if the economics of supply are quite questionable on a national and global front, I can tell you that on the local front they're also quite difficult in many cases.

    So there has been a longstanding view that local media markets should be looked at separately and on a case-by-case basis. It is quite an extraordinary paradox that these small scale mergers have been systematically rejected by the Competition Commission.

  • I think the consequence of that was that some papers closed.

  • Indeed, that is what happens when those mergers are not allowed. So it is a paradox of our situation in the UK that indeed, with a few behavioural remedies, the News Corp/BSkyB transaction was well on the way to full approval with Ofcom's blessing.

  • In terms of plurality of views or rather the lack of plurality of views, the risk you identify in paragraph 15 is that the range of news, comment and opinion reaching the citizen is lower than is beneficial for a healthy democracy and so that's, as it were, the policy underlying the relevant provision in the Enterprise Act. Here, I think, we're looking at section 582A and 2B.

    Can I ask you, please, to develop what you mean in paragraph 15 about the risk to a democracy?

  • I think this is a very conventional view and also a theoretical one, in the sense that reading all the literature on these matters, whether produced by academics and so on, there is a sense -- a systematic sense that -- to Lord Leveson's point, it's that noisiness of the voices, the differentiation of the voices, it's something that you feel is there or isn't there, and that what it does -- the fourth estate has always had this extraordinarily important role in society in terms of being almost a confrontational force to power blocs and indeed vice versa.

    So I think that part of the protection of plurality as envisaged in the law is a protection of consumers, of citizens, from forces that are around them that they may not understand that would end up by diminishing the range and diversity of the voices that reached them, and which they can't understand, as it were, on the ground, going about their daily lives.

    And I think that that is something which I think is extraordinarily important to any healthy society, but above all to this one, because this one is a very creative society, not only with the highest per capita consumption of printed material and so on in the world but also one which depends for its lifeblood -- many economic sectors in the UK depend on plurality as a whole to survive, flourish, prosper and innovate. This is an exceptionally wonderful country from that perspective, so there's such a range of creative enterprises.

    I mean, to give you an example, this market which, after all, has about 50 per cent smaller number of households than Germany -- 36 million in Germany and around 25 million here -- has a media market which is almost the same size as Germany's. So it is actually of vital economic importance as well as democratic importance and this is why plurality of owners is an immensely valuable concept here.

  • I think you mean plurality of views is a valuable concept because you go on in paragraph 16 to look at plurality of owners.

  • Yes, related but separate, because we're looking at a different provision of the Act this time.

  • It's section 58.2C. You draw attention to the fact that the News Corp/BSkyB merger was considered not under the newspaper rubric, which is "plurality of views", but under the cross-media rubric of "plurality of owners". That, I suppose, was inevitably really given the issue but you then say what the risk is in paragraph 17:

    "Low levels of ownership plurality cause problems for different reasons to poor plurality of views."

    Can I invite you to expand on what those different concerns are in a low plurality of owners type of case?

  • As I explain in here, the world is so made that there are only so many patrons and only so many news outlets and inevitably the further concentration one gets, the less diversity, you know, the less porousness of the system.

    In the UK in particular, but in many other nations, you know, this problem of ownership plurality -- I think Italy comes to mind as a country where ownership plurality has been at the top of the political agenda for some time, and I think that these situations emerge and people are extremely concerned about them and also understand and have understood historically what the negative impact -- and I go on to talk about, you know, capture of politicians and vice versa. But I think these things are a matter of historical record, really, that in effect there have always been examples of those patrons of news organisations seeking to gain political or other kinds of favours.

  • So it's a risk of corruption, really. You put it as boldly as that in paragraph 20, that compacts will be entered into.

  • Yes. I think that's a good -- I think it's a harsh term, perhaps, and people may wish to see compacts between politicians and media owners in other terms or there may, in fact, be many different levels of compacts, but I think that the risk to society is significant if a group of politicians or a single politician becomes the bearer of a specific agenda of a specific owner, an agenda which may affect the lives of many ordinary people. For instance -- I can give you a very good example of this. There was a lot of lead-up to the 2010 election around issues to do with the existence and powers of Ofcom or the income of the BBC, and all of those decisions, taken very much on the spur of the moment as the incoming government had intended, would have had very, very far-reaching consequences. The original proposal of a 40 per cent cut in the BBC's income would have had far-reaching implications for people's lives and although the people advancing these various ideas may not listen to Radio 4 or may not enjoy medium wave or may not ever listen or view any of the services which are available to people in this country, all of these media -- public service broadcasting in particular -- are a bedrock of our culture and our understanding, and if these products, if these services are removed by people by political fiat through the pursuit of a specific agenda, especially when that organisation is not exactly co-adventuring with the rest of us, it is quite a threatening state for a society to be in. Or I saw it that way. I mean, I may be exceptional in seeing things this way, but I did feel that the agenda carried forward by News Corp in particular, in the years leading up to the transaction, was very threatening of services and products that people in this country consume and enjoy. Perhaps others don't, but they certainly do here. So I feel that's quite threatening.

  • And especially because -- I must tell you as I've been a media analyst for over 30 years. The fact is I've often found that politicians don't actually understand how people consume media. I've often found that a politician will tell me: "I don't like my local service, my local news", and I sit there and say, "Other people do. Have you checked out how many do? Or maybe you could try something else."

    So I think politicians themselves have a very distant contact with the media which is very sporadic and they may find it difficult to put themselves in the shoes of people who consume, after all, as the British do, a very large amount of radio and television and newspapers and books.

  • Paragraph 22 of your statement. You move on to a slightly different theme, namely whether the concept of plurality refers just to news and current affairs or whether it applies also to other types of information and entertainment. We heard from Ofcom, and I think Mr Foster as well, that a fairly narrow definition of news is relevant here and one shouldn't allow that to overspill into other areas of entertainment, but you, I think, are keen that we should look more widely. Can you explain in your own words, please, why that's appropriate?

  • Yes. Firstly, I think in the earlier part of my testimony I made the point as to how difficult it is to disintermediate what is news and entertainment anyway within the context of newspaper readership. So I think that again, the idea of news is such a broad concept already and there are many, many different kinds of programmes that might fit into that thing.

    Similarly, the issue of plurality also works across a very large number of different kinds of material -- entertainment or documentaries and so on -- and I think that it's -- in a sense, we know it when we see it because in this country, the public service broadcasters have been greatly encouraged to be plural in their provision of material that is of interest to the population as a whole, and that's a well understood and well established concept here.

    But in economic terms, what I'm really talking about is the number of gatekeepers. So in this country, in reality, as I've pointed out in our annex 1 of media ownership rules, there is actually -- in the Ofcom submission outline material, there is in fact quite a lot of information around the specific numbers involved. In this country, the BBC turns over around 3.5 billion, BSkyB, excluding its telecoms activities, is at around the sort of 6 mark and so on, so -- 6 billion mark.

    So we're looking at a very small number of very significant organisations in this country, and the oligopolistic nature of the media indicates that that's also true in the book publishing business and so. So you have a number of gatekeepers and they're the people who are going to commission scripts or allow a writer to spend the time to develop its material. This was the role that was once effected by, say, book publishers. Book publishers used to give advances, writers would have the time to complete their work and so on. So the whole creative landscape is formed by gatekeepers making investments in individuals or teams of individuals who will then bring creative enterprises to fruition.

    It is also, to my mind, incredibly important to look at plurality, especially because of the difficulties we face in defining news and current affairs -- is to define plurality in the effect, particular of a transaction, across all of its broadest elements and I think that the public -- that the politicians, as I point out in paragraph 23, have understood that at some level plurality is about our whole cultural vitality, and in my view, as a business analyst, part of our economic vitality.

  • Once we're outside the realm of news and current affairs, aren't the matters here so soft, so difficult to concern, that if they weigh in the balance at all -- we're talking about plurality in entertainment or those sort of areas -- it's scarcely worth taking into them into account even if they might feature theoretically?

  • I think that in economic terms that wouldn't be right. First of all, I don't think that definitionally they're all that difficult because Ofcom actually -- I mean, public service broadcasting licences require public service broadcasters to fulfil a number of commitments anyway and they are expressed in terms of entertainment, and the industry in this country certainly understands what Ofcom means by those words. So definitionally, there's no real difficulty with measuring plurality and entertainment any more than there is -- it's actually easier, I would say, than measuring plurality in news.

    Secondly, it's really a broader economic point about not forgetting that plurality in a society actually operates, again, around the plurality of owners of large enterprises and in reality in this country there are but a handful of those.

  • You've covered the disintermediation point in paragraph 27.

  • Unless there's anything else you'd like to say about that. Can I ask you, please, to explain the point you're making in paragraph 28: the unusual economics of mass media. The marginal cost of serving an extra customer is often zero.

  • That's right. It's one of the great truths of broadcasting companies and one of the reasons why they have such extraordinary longevity that once they're past the stage of covering their fixed costs, they can actually -- bar, obviously, economic cycles, they can actually increase their profitability, assuming that they face no competition.

    So in a sense, they're completely different kinds of enterprises anyway. TV broadcasters tend to be very significant. BSkyB is a good example. ITV, the BBC. These are very, very significant enterprises which need very large scale investment and an ongoing capex, but once they're basically past their innovation stage, which is usually thought to be around eight to ten years, then actually they can just deal going.

    Unfortunately, the economics of broadcasting also work against organisations where, for instance, there is a fall in consumption and in fact, it becomes very difficult for organisations to recover unless they savagely cut their costs. But it's -- I mean, broadcasting is a large-scale model. It is -- in every market in Europe, you see -- apart from Germany, which has a lender system, so very strong local broadcasters -- you see no more than three or four mainstream broadcasters in general, including state broadcasters and so on, and the mix is different.

    I think the point I wanted to make was also just in response to Robin Foster's evidence earlier in which he said that there was so much uncertainty over digital models and actually I wanted to remove that uncertainty because I think we can say with certainty that digital models will not fill the role of traditional enterprises. We can say it with certainly because we have the evidence. The MailOnline started a decade ago almost. The impact of that is very simple. It's, I believe, the second-largest newspaper website in the world, but the website turned over 16 million -- 16 million -- in the financial year that just went by, and in contrast, the Mail and the Mail on Sunday turned over 608 million. I believe that the MailOnline's website, which, as I said, is the second most popular newspaper website in the world, is going to be breaking even this year, but this is a very small enterprise. This is really small, even though, as I said, it is one of the most popular websites in the world.

    So I think we do know that the digital revenues -- there is a very famous view by an American which referred to digital as the transition between anaogue dollars and digital pennies, and I think we know that those digital pennies do not pay for origination and that the origination of hard news has continued to be the preserve primarily of the newspapers -- regional and national newspapers in this country and elsewhere, and I think that is why we do know all of this myriad of enterprises, whether it's HuffPo, Huffington Post or -- that they're interesting phenomena, they may be heavily used online, they may get a lot of buzz in the papers, but in terms of being able to really employ journalists to do very complex work -- I mean, the Trafigura investigation, the Wikileaks, the MPs' expenses scandal, the phone hacking story -- these are not enterprises that have been taken forward by any enterprise but print enterprises.

  • But doesn't that merely serve to underline the need for these organisations to find a way to monetise what they're doing online? I don't know the figures; you probably do. You mentioned the Guardian, without naming it. Stories put out by the Guardian, read by X and online by --

  • Millions more people. I mean, the Guardian is another very good example of an extraordinarily successful digital operation. I believe that the revenues of its digital operation were around -- I'm talking about the newspaper; I'm not talking about the other stuff that they do, although they do other things -- was around 14 million in their last financial year, which compared to 150 million of revenue from the Guardian and the Observer. So it's around one tenth. If you look at other newspaper groups, their digital revenues tend to be below 10 per cent, or at 10 per cent in the case of the Guardian.

    It isn't through want of trying that these organisations are having a struggle. There have been many different experiments. You mentioned earlier pay walls. The New York Times has gone down that route, as has the Times and the Wall Street Journal and the Financial Times, but the Financial Times and the Wall Street Journal have made a better first of it and that's because they have very specialised business information that people really will pay a lot of money for.

    So, you know, we have the paradox that the consumer of the newspaper is prepared to pay a pound plus to consume a product that that person will read for 40 minutes a day. That is the reality. That product is really quite different from a website, which is grazed, you know, to the tune of -- I think the average news site user is 15 minutes a month, as I mentioned. That's half a minute a day. It's not a significant engagement. People will not pay for something with which they're not significantly engaged.

    I mean, an American writer called Nicholas Carr has referred to this as the shallows. This is a shallow world full of facts and they just buzz by and people aren't reading long form online. And so it is quite frightening and the digital media are no substitute for the kind of engagement that people have with newspapers in this country and the effort that people who read newspapers make to think about political issues which they will subsequently vote on.

    So it isn't the fault of the newspapers for not having found the magic bullet, because my heavens, they have all tried and they've tried from one end of America to the other. They've tried from one end of Europe -- I mean, the organisation called Mecom, which owns newspapers, is one of the organisations we've looked at in detail and it runs newspapers in the Netherlands. In every single nation apart from Japan and Norway, which are very strong language groups -- and strong language groups will help to solidify the hold of the traditional media and to keep them going, but elsewhere, I really wouldn't task the newspapers with finding some wonderful model, because my heavens, they're desperate to do it and we, as their advisers, would be delighted if they could but so far the only method of staying alive has proved to be cutting your costs.

  • Sounds all rather depressing, actually.

  • It's the way things are.

  • Paragraph 29 now, Ms Enders. To be clear, you say:

    "The plurality rules must have as their explicit purpose the distortion of the natural processes of competition."

    Do you mean by that natural market processes?

  • You say:

    "They have to hold back the more successful, larger, financially stronger companies in order to help the smaller competitors."

    The point has been made before, but many would say all you're doing there is penalising success. How could that possibly be justified, save in quite minor respects?

  • Well, actually -- but in this country people have a very well understood idea of competition and it's been applied for many years -- and again, I'm not a competition specialist but all I can point to you is that there has been a large scale series of mergers of supermarkets, for instance, and divestments of supermarkets within the acquiring group are a constant feature, and in fact, the Competition Commission has developed a whole means of establishing which supermarkets should be sold where and it has done so also in the cases of cinema transactions because cinemas are also quite concentrated in this country.

    I think where there is a lot of concentration, the Competition Commission has a habit of forcing divestments and indeed of wishing to sustain competition thereby. So again, I think there may be a misunderstanding around the proposal that we've advanced that it's systematically penalises success, which of course is a no-go area. But actually in practice, in Britain, there are many, many examples of very successful, very innovative organisations which have secured the capital to take over their brethren and which are not backed by the Competition Commission to preserve choice for consumers or for suppliers or for advertisers or for whoever. I think this is a well understood thing.

    The idea that somehow -- especially in this country, where we have real enterprises -- we have a real BSkyB, a real BBC. We're not talking about any other country. In this country, we have very large media enterprises and then a plethora of very small ones. That's the way it is. So holding back the very, very large ones from predatory pricing, from engaging in destructive activity or indeed in leapfrogging their brethren in some way or in dominating the political agenda to knock another one back -- I don't think that that is something that we shouldn't be concerned about. I think that is a very real concern. It is very important.

    I think -- I do point out that, you know, we're really looking at ideas around transactions, around M&A. We're not talking that much about organic growth. The big shifts occur primarily through transactions, not through organic growth. Indeed, organic growth for the BBC -- well, we know what that's going to be because the licensee formula is set out. For ITV, we know -- for the television sector as a whole, we know it would be at best a 2 per cent growth rate in the next five years. We know those outcomes. There's no mystery.

  • If success is penalised, if that's the right way of putting it, to meet the public interest reflected in anti-competition law, you say logically there's no difference between that and pro-plurality law. So you can do one in one case, which you can for competition -- see your supermarket -- and why can't you do it in the other case? Because the public interest is of equal force, really. Is that what you're saying?

  • Thank you. Can we deal then with question 2, which is the introduction of the proposal of a cap. Can I understand first how it's going to work. You outline the proposal in paragraph 32. We're going to look at total UK media market revenues and that each participant is only going to be permitted up to a certain ceiling within the -- percentage ceiling, rather, within the total media market revenue. You propose a ceiling of 15 per cent, which will allow, therefore, for at least seven players on the arithmetic. Is that basically --

  • Yes, it's just a proposal. The fact is, as we point out, there are definitional issues. Whether you include books and games is an interesting question and so on. So I don't want to attach any real significance to the figure of 15 per cent. Nor indeed -- I mean, although we've calculated it with some difficulty, the media market value -- those are real figures but how you draw that market and how many participants you want -- I mean, it might be, to your earlier point to Mr Foster, that a market share of four players with 25 per cent each is what society deems to be all right, or four players with a market share combined of 70 per cent. But -- I'm just trying to lay out for debate, in this society going forward, what would be the comfort zone. I mean, in supermarkets, I think the end point has been around, you know, a three to four player market.

    I think it's something to actually ponder: what is the right level? Particularly in the context of -- the real context of the real transaction that was introduced in 2010, which would have very substantially moved the market towards a higher level of concentration than it had before.

    So I think -- I'm not proposing 15 per cent. I put it on the table. I just put it there. A seven player market, a six player market, a five, a four. You know, what are we comfortable with? In mobile telephony, we have a five-player market. In broadband, effectively we have a five-player market. These are very important issues and I hope that this will be the beginning of a debate or indeed that the debate will actually continue as to what it is that society feels most comfortable with, because of course we always have, as a given, the BBC as a player and actor. So one of those slots is always taken.

  • It's clear from the companion document you've submitted, which is annex one, that the media market might well include advertising and subscription revenues, ticket sales, news stand payments and sales of physical media such as DVDs; is that right?

  • Well, we put as many items that seemed to fit in there and of course, we discussed this with a number of organisations and they felt that this was a sense of it, but of course, you can expand and contract this and it's really a question of relevance, what fits together. I mean, you could draw the market much no narrowly, and indeed Parliament has spent time doing that, believing that the closeness between newspapers and television should be something that's much more monitored. So that's why there are cross-media ownership restrictions on newspaper owners and ITV, for instance, ITV licences historically. That's been brought to fit in political terms and to be an issue.

  • Why would you include something such as advertising revenue within your media market? Why is it relevant to the issue of plurality?

  • Well, I mean, we were just trying to draw a media market, not actually a media market for plurality purposes. If one went down that route, one would obviously exclude -- for instance, the video games market would not seem to fit naturally within that, but we didn't -- we were trying to get at the numbers that the European Commission uses and which would be useful for -- in fact, just to put them down so people can make a judgment around whether that particular medium should be included.

    Because -- you know, I agree with you. I mean, these are all subjective views. Apart from the easy ones -- for instance, music and books are quite questionable to include in any market that has to be measured for plurality, but they do --

  • If you want to cap revenue, why aren't we capping revenue which is relevant to the issue of plurality? Why are we including revenue which may probably be irrelevant to the issue of plurality?

  • Well -- but remember that my sense of plurality is perhaps a bit broader than that put forward by Ofcom anyway. I'm including in that a number of creative areas like music and books where a number of different enterprises is an important factor in terms of ensuring creativity and is understood that way. Anyone who's following the Universal/EMI transaction in Brussels will see that those issues are much to the fore. What's the right number of big players in Europe to ensure creativity and innovation?

    Certainly -- I mean, this is, you know, for discussion and consideration, but I do think that the entertainment market as a whole is the right locus for a view around plurality, particularly because, as I said, there's a lot of blurring of categories around programming, but also there are potential bottlenecks which would inflict damage on either the economic side of the equation for the UK or the consumption picture for consumers if growth in power went unchecked.

    But these are all for debate and consideration and we don't -- you know, we don't have a new Coms Act yet but we may do some day and there will be a lot of debate around these points. I'm just throwing them out there and hoping that people will take a view and take an interest in this issue, because it's fundamentally about how many major actors are the right number for the UK. For the UK specifically. Four, five, six, seven? People will take a view.

  • You set up two contrary arguments against your proposal. You've already dealt with one of them, I think, very clearly. This is the penalising success point. But the arbitrary limit point, Ms Enders, in paragraph 37 you address. Isn't it fair that you're really accepting in paragraph 37 that your limit is an arbitrary one?

  • I am accepting that it's an arbitrary one, but I am also positing that it is very important to have a sense -- a multi-player -- active multi-player market and therefore you do have to have arbitrary limits to guarantee that.

  • In principle, you wouldn't want to have arbitrary limits. You'd want a limit which was based on some sort of principle, wouldn't you? It's objectionable a priori to have a limit for which you can't justify, which you're just plucking out of the air?

  • No, well, I'm -- I didn't want to use the word "arbitrary" in that way but it is, in a certain way, arbitrary to take a decision that six players or seven players or this media market definition or that. There is a certain arbitrary -- there is going to be an area of judgment involved in all of these phenomena.

  • I've been asked to put to you these points on the idea of the cap as you have envisaged it. The first point is this: is it not theoretically possible that under your definition, all of the news provision in the UK could be in the hands of one provider without triggering the cap as long as they had no other media interests?

  • Well, the purpose of our proposal is additive to proposals put forward by Ofcom and indeed other proposals under -- or indeed existing law, and other mechanisms of review of transactions in any case. We're not proposing that this would replace all existing media ownership legislation, but rather that it would be additive.

    Because also when the News Corp/BSkyB transaction was announced, we seemed to enter into unknown territory in relation to scale and scope of enterprises in the UK. So this would be a mechanism of forcing any large actor, whether that actor is specifically Google -- because Google is, after all, a very significant organisation in the UK -- or News Corp, from -- you know, at some level this is what is behind our proposal. The trigger is really M&A -- sorry, mergers and acquisitions.

  • You could overreach the cap by organic growth, could you not?

  • That would be something where, again, if you looked at it deeply, you would have to come to a view about what is (a) the right definition of the market, and (b), the number of players you want. It would not be our intention for organic growth -- foreseeable organic growth to cause that kind of breach. That would not be our intention. So that's really a question of setting it at the right number.

    It's not our objective to penalise the success of any enterprise that is generated through organic -- but again, we're not talking about any other nation but this one, and in this nation, commercial broadcasting is going to struggle to grow at more than 2 per cent a year. Newspapers will continue to dramatically fall, both in circulation and in revenues, and that will continue. The share of voice of the BBC will grow. BSkyB will become more powerful in the mix. These are all things that are baked in to the way things really are.

  • If one looks at the figures for 2010 -- this is figure 2 to your April 2012 report, which is annex 1. It's page 7 of 8, our page 01729.

  • I have page 7. This is figure 1, the size of the UK media market in 2010.

  • I think figure 2.

  • This will tell us how the cap might operate. If you look at News Corporation and you include the 39 per cent BSkyB, which was the position as was, the market share was only 11 per cent.

  • But you will say if you included the shares which News Corporation wanted to buy, so therefore the 100 per cent BSkyB, you would then overtop the cap because you would arrive at 20 per cent. So the way the cap would operate would be on this approach: to prevent News Corporation buying those extra shares or indeed all of those extra shares. They could buy some of them to keep them at 14.9 per cent presumably. Is that how you envisage it working?

  • Indeed, or they could choose to divest themselves of other interests in the UK, or indeed the position could change over time and indeed, the newspaper circulation and revenues would decline over time and at some future point, there would be the right mix of things.

    But again, it is not for me to say that 15 per cent is the right number, or indeed 20, but it's to put perspective into the proposals of what, after all, is a transaction which seemed to cause all politicians to pause very long and hard last year, and indeed, which caused me to take a great interest in the situation when it first emerged in June 2010, precisely because of the issues of scale and scope -- and of course, of increasing scale and scope because, of course, as newspaper or other enterprises decline, then of course, other -- BSkyB in particular will continue to grow strongly and will become more powerful in the market and have more economic power and more leverage and more opportunities for regulatory capture.

  • One of the points Ofcom makes is that the cap would limit the economic strength of any one company, obviously I suppose, but doesn't target the issues of diversity or influence with any precision. What is your assessment of those criticisms?

  • I think that's absolutely right. It's just one proposal and there are other proposals. I mean, Ofcom is keen and it is important to measure news plurality the way that it wants to measure it. That is one measure. It's also important to have competition legislation. That's another measure.

    This would be something that would preclude the UK from being colonised entirely by, say, two very large-scale global organisations, which might not be an outcome that the British public has really bought into, but is possible. After all, what is possible under existing legislation is the transaction that we saw withdrawn last year.

  • The third question which you address in paragraph 39 of your statement, the effects you seek to achieve and why they're desirable, you explain that the principle effect of your proposal is to block any single owner controlling too large a share of the total media market now or in the future. It is through financial muscle that proprietors exert most of their influence and seek to ensure that no company ever gets too large:

    "The point I'm asked to put to you is this: if it's the financial power rather than use of media channels that is the root of influence, why do you consider that financial muscle in the media market needs to be limited in a way which would not happen in other markets such as banking or retail?

  • Again, it is one measure. The only reason I put it forward so strongly is because it tends to be dismissed in favour of the softer sense of influence, the touchy-feely aspects of it and also the hearsay elements of influence and impact on politicians and so on. What I'm really trying to get at is financial power in the real world, in the global world that we live in, is of immense importance in terms of a company's ability to carry out transactions, to capture regulatory processes or to defend them, and then that is the reality in the UK, so there are many wonderful thinkers in this field which give a very wide array of views. Mine is just the view of a business analyst with the emphasis that I make on the forces that I see more clearly, which are the forces of the economic forces and the capital forces which power the world's largest media organisations and which are not really accessible to companies that have come out of the local culture, companies like ITV, which are relatively small.

  • I've been asked to put these points to you by another core participant. Do you accept that your proposal has in effect, rightly or wrongly, been rejected by Ofcom?

  • No, I expected it to be rejected by Ofcom because it's very outwith the powers that Ofcom has and it's a completely new approach. But I have only advanced it not because of any certainty that it would be the right single answer to the question of plurality in the UK, but in order to advance the idea that people should consider how many participants -- and core participants are probably a good way to put this -- how many is the right number for the UK at minimum. In the real world with its structure of financial forces which are of immense importance and, of course, as you know from having heard a great deal of evidence on the matter, the massive challenges and issues around the monetisation of existing newspaper models and their future.

    So it's on the threshold of the future where we know that although the titles may not disappear, certainly their resources are in very significant and sustained decline.

  • The other point this core participant wishes me to draw to your attention is if you look at the submission you made on 16 November 2010, which of course was in the context of the BSkyB bid, our page 01731, you explain that the position was commissioned by a small group of Enders Analysis clients to provide them with clear and coherent arguments and relevant supporting data and references.

  • Presumably those clients were opposed to the bid, and I think the point which I'm asked to make is whether you were putting forward a completely objective analysis or whether you were putting forward an analysis which reflected the underlying views of your client, which was to oppose the bid?

  • No, there was a group of clients and they're actually well-known because they opposed the merger, but this was the only work that they commissioned us to do. Looking further back in time, the work that we did which initially brought to Vince Cable's attention a number of matters on which he should intervene, and subsequent -- all of the time that we've spent on these matters subsequent to that particular submission -- I mean this has all been my time and my gift to my wonderful nation. So I'm afraid that these are not even the views of my company. These are my views that I advance.

  • The reason it's important to ask that is this: we're very familiar with barristers getting the cause and then thinking of arguments that justify the result that their clients want. That's what they do most of the time in litigation, I'm sure you're aware. Therefore I think it's a sensible question. Whatever you might have done in relation to this piece of work, what you're now providing me with, it's not a brief that you've been asked to deliver. This is your assessment of the position and how one could go forward in the light of your years of experience in the business. Is that --

  • That's right. And it is a slightly quixotic cause, since no one agrees with me.

  • Okay. That's very frank. The final point they wanted me to put is that we know that you met Dr Cable at City Airport, I think, he referred to it in his evidence. Can you remember what you discussed?

  • Well, yes. He didn't discuss anything with me because -- but he did smile at me, so that was nice. All I did was say, "Dr Cable, would you mind sitting down and listening to what I have to say, because I sent you a document and I have had no official or unofficial sense that you actually received it or read it, and I sent you this document about six weeks ago and so I'm wondering if I can just quickly explain to you what it's about and why it is that there's no doubt in my mind that a ministerial intervention in the News Corp/BSkyB transaction is something which you must do without question."

    Anyway, he didn't say a word but he did politely sit down and he did give me a nice smile, and then his assistant sat right there and they listened to the whole thing and he said, "Thank you very much", and walked off to get his plane.

    So he never said a thing, but he was -- he did smile, so I did take that as an invitation to go forward with my pitch, and I managed to get it across in about five or ten minutes, I think. Maybe even five. Unlike today, sorry.

  • I think it's clear from your evidence at all material times he acted quasi-judicially in relation to your representation. That's very helpful. Thank you very much.

  • Ms Enders, thank you very much indeed. Thank you for your help both at the beginning and now here we are approaching the end. Thank you.

  • (The hearing adjourned until 10 o'clock the following day)