OFT changes spell trouble for magazines as small titles fight for life

The chain that provides the nation with its favourite magazines and newspapers is about to crumble in the face of proposed regulatory changes, publishers warn. In the process, the new distribution system will hand editorial control to supermarkets. So free speech goes out the window too.

The chain that provides the nation with its favourite magazines and newspapers is about to crumble in the face of proposed regulatory changes, publishers warn. In the process, the new distribution system will hand editorial control to supermarkets. So free speech goes out the window too.

This gloomy scenario has been getting magazine and newspaper owners seriously worried. It is a powerful group to take on, particularly in the run-up to a general election.

In the firing line is the Office of Fair Trading, which in February announced it had decided that the current arrangements for distributing magazines broke competition law. The trouble is that newspapers are shipped along with magazines, in the same vans. So costs are shared. If magazines are about to be separated, this could significantly drive up the costs of newspaper distribution.

The OFT is due to publish its detailed explanation of its position by the end of this month and then a round of furious lobbying will begin, before any changes are actually brought about.

Magazines and newspapers are distributed under an apparently cosy arrangement between publishers and wholesalers, with exclusive distribution rights given to a wholesaler for an area. These regional carve-ups are monopolies for the wholesalers. Rivals are not allowed to encroach on their territory, while retailers are not permitted to source publications from a wholesaler outside their area.

In return, the wholesalers agree to supply any magazine or newspaper that any retailer in their area requests. That is why a bewildering range of magazines, seemingly catering for fairly obscure special interests - railway modelling, cross stitching or whatever - are available in even remote shops, at the same cover price as a supermarket charges.

The OFT has reached the preliminary view that, for magazines, these tie-ups work against the public interest. It thinks that, while there is competition among wholesalers to win a contract for an area, once that deal is secured, there is no competition among wholesalers.

The OFT seems to have listened to the retailers, who complain that carriage charges from wholesalers have gone up while levels of service are very unsatisfactory. The only reason why the competition watchdog is not applying the same logic to daily newspapers is the extreme time-sensitivity of the product.

But the trouble is, according to the publishers, once the shared cost-structure between magazines and newspapers goes, the whole distribution structure falls apart. So papers suffer too.

No one really knows what will follow if the OFT implements its plan but the publishers paint a pretty apocalyptic picture.

Mike Newman, the chief executive of the Newspaper Publishers Association, says: "The winner will be Tesco. There's no doubt about that."

The scenario put forward by the publishers is that the wholesalers will decide to supply only the larger retailers, especially the supermarkets. That means that smaller outlets - such as corner shops in remote places - will not receive as nearly as many titles to sell, possibly none at all.

The publishers, backed by a study by Professor Paul Dobson of Loughborough University, estimate that 20,000 smaller retailers will go out of business, as well as one-third of the 3,000 magazines in this country.

More titles will be sold via supermarkets, giving them much greater power. Supermarkets will stock a smaller range of publications, over which they could exercise great influence. That power could extend even to deciding not to stock publications whose content they do not like.

The editors of many leading magazines, including Vogue's Alexandra Shulman and GQ's Dylan Jones, have written to Tony Blair warning of this danger. The magazine industry has also been to Downing Street to confront the Prime Minister (though, as this is an OFT matter in which politicians are not allowed to interfere, it is difficult to see what the Government can do).

Ian Locks, the head of the Periodical Publishers Association, says: "If they [supermarkets] have the power, you cannot guarantee that the power will never be used. We will go the way of farmers, with supermarkets dictating terms,"

Although the idea that top management at Tesco or Sainsbury's will start vetting the contents of, say, The Spectator or The Independent may be fanciful, the publishers point to the situation in the US. There, wholesaling was liberalised a decade ago. There has been at least one instance of a supermarket refusing to stock a particular issue of a magazine - Wal-Mart would not sell Cosmopolitan because it objected to an article on abortion that the magazine carried.

Supermarkets have already enjoyed huge growth in the proportion of the newspaper and magazine market they service. As recently as 1991, the big four chains had just 4.2 per cent of magazine sales. Last year this had ballooned to 27.6 per cent. Under the OFT reforms, their share will grow much higher, according to the publishers.

The wholesalers have formed an alliance with the publishers and they speak with one voice on the matter.

Coming from the other side of this argument are the retailers, most of which are unhappy with the current arrangements.

James Loman, of the Association of Convenience Stores, says: "We want retailers to have choice [of wholesaler]. We are locked in a position where are margins are declining, costs of carriage increasing and service is generally pretty poor."

The larger retailers, including the supermarkets, are believed to be even keener on the OFT's proposed shake-up of distribution, although they are reluctant to go public: supermarkets are already accused of causing enough ills in society without wanting to be seen to be behind press censorship as well. The smallest retailers want to see the current system largely retained, but with some added flexibility.

Critics of the OFT charge that it is applying too purist a version of competition law on this matter and that it is not seeing common sense. That is, while the present distribution arrangements may seem uncompetitive, the alternative would undermine consumer choice and destroy the viability of huge numbers of retailers and publications.

Newspaper editors are set to join this battle more openly in the near future, something that politicians will find very hard to ignore. Whether it is independent of political pressures or not, the OFT has a real fight on its hands.

When press freedom itself is said to be at risk, the stakes for the media industry and society at large are very high.