MEDIA ANALYSIS: FORUM - How fair is it for the OFT to ban exclusive deals?/Can the watchdog really legislate against a crucial negotiating tool, Alasdair Reid asks?

By ALASDAIR REID, campaignlive.co.uk, Monday, 18 October 1999 12:00AM

It’s not often that events in Aberdeen or Weston-super-Mare have potentially important ramifications for the media industry - but this might be one of those rare occasions. In the last fortnight, the Office of Fair Trading has asked for, and received undertakings from, two publishing houses - Aberdeen Journals and Community Media, based in Weston-super-Mare - that they will refrain from overly aggressive sales practices. The misdemeanour? Their practice of ’making it a condition when offering free or cut-price advertising in (their) publications, that advertisers agree not to advertise in other publications’.

It’s not often that events in Aberdeen or Weston-super-Mare have

potentially important ramifications for the media industry - but this

might be one of those rare occasions. In the last fortnight, the Office

of Fair Trading has asked for, and received undertakings from, two

publishing houses - Aberdeen Journals and Community Media, based in

Weston-super-Mare - that they will refrain from overly aggressive sales

practices. The misdemeanour? Their practice of ’making it a condition

when offering free or cut-price advertising in (their) publications,

that advertisers agree not to advertise in other publications’.



John Bridgeman, director-general of the OFT, stated: ’Under new

competition legislation, from 1 March 2000, I will be able to impose

penalties of up to 10 per cent of UK turnover for each year of the

infringement up to a maximum of three years, for companies acting in a

such an anti-competitive manner. I will also be able to make an interim

order requiring an undertaking to refrain from engaging in suspected

illegal activity while I investigate the matter.’



This is scary stuff, given that exclusivity is an important ingredient

in all negotiations in some parts of the media market, especially

regional and trade press where the possibility of there being two bitter

rivals in a relatively small market is arguably greater than in any

other sector. Other publishing groups given an OFT warning in recent

years include Centaur, Reed Business Information, Scotsman

Communications and VNU Business Publications.



Chris Stanley, the marketing director of the Newspaper Society, says:

’It is more common to incentivise advertisers to use your media than to

attempt to bar them from using others - and from what I’ve seen from the

OFT, it is particularly concerned with negative tactics. They are not

common tactics but I’m sure they exist and can be found in all corners

of the media world.’



The OFT’s new powers, and its enthusiasm to assert them, could have

implications for the whole media industry. It is hardly unknown for

sales teams to offer incentives for exclusivity, and it isn’t just a

sales issue - buyers regularly offer campaigns on a solus basis in

return for favourable rates. Nor is it just a press phenomenon. The OFT

has in the past censured Capital Radio for this sort of thing.



Some buyers privately admit that this could have huge implications

After all, exclusivity is a fundamental part of the trading currency -

and some publishers in the national newspaper market are notorious for

insisting on it.



Laura James, the director of press at New PHD, comments: ’This will have

implications for some aspects of trading because there are obviously

incentives for rewarding the stronger players - and some take advantage

of this route more than others. If this is taken away from them, it will

be interesting to see what alternative route they will pursue. But there

are difficulties. For instance, this sort of incentivisation takes place

in other industries and, if the OFT does start the ball rolling, it may

find it has a big problem on its hands. It will be harder to administer

and will have broader ramifications than it realises.’



National newspaper publishers were reluctant to comment on the record

for obvious reasons - they don’t want to do anything that might attract

the attentions of the OFT. However, one said: ’Exclusivity is a major

factor in press negotiations. The thing is, it’s introduced by buyers as

much as sellers. If you were being honest you’d have to say the OFT

stance has implications for all of us.’



Marc Mendoza, the managing director of Mediapolis, is also concerned. He

states: ’It is now deemed unfair for an advertiser who goes solus to get

a better rate than someone who doesn’t. I can’t see it. A greater

commitment given by an advertiser is always going to affect the rate

paid. If everyone pays the same regardless, then our side of the fence

becomes redundant. The OFT is trying to interfere with the parameters

within which you can negotiate and I can’t see how that can be

practical.’



And Mendoza agrees that the OFT may regret embarking on its existing

course. He adds: ’It’s fundamental that a supplier should be able to

reward a customer for greater custom. For instance, what about an

organisation with a fleet of company cars, all of which are Fords? The

rate they get would obviously change if they started buying one or two

Vauxhalls.’



The law, in this case, seems to be an ass. Tim McCloskey, the deputy

managing director of BMP OMD, says: ’The OFT legislation is designed to

be in the public interest and to stamp out anti-competitive behaviour,

but it is a hindrance to our business and ultimately detrimental to

advertisers and consumers because it limits trading.’



McCloskey also points out that the OFT tends to get involved when one

media owner complains about another. He says: ’Media owners who go

crying to the OFT rather than getting on with improving their products

and services and actively selling their audience to advertisers are

often taking a soft option. In very few instances media owners force us

to buy space and, technically, we can always walk away. But advertisers

want deals because each one rightly wants incentives for volume and

competitive advantage over rivals. Agencies are briefed accordingly. We

are paid to negotiate these deals.



’There have always been exclusive deals in every market and to pretend

otherwise is fatuous and incorrect. If legislation leads to an increase

in the price of advertising, it doesn’t do any favours to consumers. It

restricts the number of messages detailing client benefits and puts up

the price of marketing by putting up the cost of advertising.’



This article was first published on campaignlive.co.uk

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