Sometime in the late 90s, as UK competition law started coming into line with European Union practice, the UK's magazine and newspaper distribution industry suddenly found itself potentially on the wrong side of the law.
The industry in the UK has always been carved up on a regional basis.
Within each territory, there's only one distributor operating and each has what is called absolute territorial protection. Industry-wide agreements prevent wholesalers from meeting unsolicited requests to supply retailers outside their allocated territories.
In other words, if you run a corner shop, you can't play one distributor off against another to get better terms. Worse still, you have little leverage if a distributor decides you're not a proper newsagent and refuses to supply you at all.
But regional monopolies are not exactly uncommon, especially when it comes to economically important infrastructures, from railways to cable TV. It makes no sense to have three train operators jostling for position on, say, the London to Brighton line.
Obviously there are fewer safety issues in distribution - but that hasn't made the Office of Fair Trading's task any easier, as it tries to clarify the industry's position. Last week, the OFT invited responses to its preliminary findings - in its wisdom, it has plumped for a split decision. It proposes to allow territorial monopolies for newspapers but not for magazines.
The two sides of the print medium remain united over this issue, and the magazine and newspaper sectors have been lobbying to get a block exemption - permission to carry on as before. As Ian Locks, the chief executive of the Periodical Publishers Association, puts it: "Newspapers and magazines are distributed in the same way, by the same wholesalers. It would be uneconomic to try to separate them."
1. There are currently around 185 wholesale magazine and newspaper distributors. The majority are owned or controlled by the big three - WH Smith, Menzies Distribution and Dawson News - but there is still a significant number under independent ownership.
2. Market shares are as follows: WH Smith, 39 per cent via its 28 depots; Menzies, 27 per cent, 30 depots; Dawson, 19 per cent, 13 depots.
3. Each depot of each wholesaler distributes to a clearly delineated set of postcodes. These sometimes aggregate into significant geographical blocs. For instance, Menzies has a monopoly of the whole of Scotland, while Eason's has Northern Ireland.
4. There are around 55,000 retailers selling newspapers and/or magazines in the UK, 60 per cent of which are independently owned. About 35,000 news-agents are significant stockists of magazines. On average, a wholesale operation will distribute titles to between 400 and 500 outlets.
5. The newspaper distribution business is recognised as a special case by the OFT. The product is more perishable than fruit or flowers, must be distributed by the early hours of the morning 364 days a year and is regarded as essential to the healthy functioning of the country as a democracy.
6. Magazines are arguably a less perishable, less essential commodity - but distributors and media owners say that the distribution of the two print media is inextricably linked. Crudely put, to use two sets of vans doesn't make any sense, economic or otherwise.
7. Retailers disagree. The National Federation of Retail Newsagents states: "The supply chain has grown inefficient and anti-competitive while failing to meet the needs of both retailers and consumers ... historically, magazines have merely ridden on the back of newspapers and have no case for special treatment." It adds that predictions of large-scale closures of small newsagents are long on assumption and short on fact.
8. Publishers point out that ten years ago in the US, legal challenges led to a print distribution restructure similar to the one proposed here. Magazine distribution became uneconomic at the margins and hundreds of retailers closed.
9. The OFT has invited responses to last week's provisional conclusions and will publish its final report in May. The Newspaper Publishers Association and PPA have pledged to continue their lobbying campaign.
WHAT IT MEANS FOR ...
ADVERTISERS
- Advertisers are taking seriously media owners' fears that revised distribution arrangements will lead to closures of specialist titles.
- They prize the niche audiences and attentive relationships with readers offered by magazines.
- Magazine circulations have been growing in recent years (up by 9 per cent last year) and choice has grown too. Any reduction in choice will be regretted by advertisers.
MEDIA OWNERS
- In a relatively small country, distribution is easy, and magazine publishers have never had to develop the range of outreach techniques found in the US.
- But learning new ways to drive subscriptions might not be too painful, as many major players - NatMags, IPC Media, Conde Nast - are owned by US corporations.
RETAILERS
- According to some observers, publishers have entered a Faustian pact with supermarkets. It would come as no surprise to see retailers exacting the fullest possible price.
- If distribution to smaller outlets becomes more expensive, supermarkets will become ever more important to media owners and the big stores will have even more influence on the types of publication available.
- That could give them more say when it comes to content. We've already seen Tesco flex its muscles in this regard, when it recently complained about magazines at the more extreme end of the lads' market.
- Smaller independent newsagents may also believe any distribution restructuring to be in their interests - they think they will be able to get their current stock on better terms. This is arguably misguided. If smaller titles go out of business, the raison d'etre of the specialist retailer - a vast range of titles representing every interest under the sun - will just no longer exist.
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