Mathew Horsman on the media

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The Independent Online
Don't like the rules? Then bend 'em. That seems to be the received view in media circles in the UK, as company after company exploits loopholes in the legislation covering media ownership. This is deviousness masquerading as clever business practice. It's enough to make the Independent Television Commission, which is meant to administer the complicated rules, weep. And so should we all.

Consider some recent examples of letter-but-not-the-spirit conniving. Carlton and Granada inherited stakes in ITN, the news provider, when they took over the Central and LWT franchises respectively two years ago. They were given until 31 December last year to sell the offending shares, in order to comply with rules limiting single shareholders to just 20 per cent of ITN. When the two ITV giants could not reach an agreement with potential buyers, in came the lawyers.

The excess shares were placed in a "deadlocked" company over which, the lawyers say, "nobody" has control (although Carlton and Granada continue to derive the "economic benefits"). This structure is to remain in place until the companies can find willing buyers. The ITC publicly complained but conceded it could do nothing.

Also known as "warehousing", the legal trick was pioneered by EMAP, the publishing and broadcasting concern, when it risked exceeding limits on radio licences. Versions of the wheeze were also used by bidders for the Channel 5 licence to get around the ownership limits.

More recently still, Lord Hollick's media and financial services combine, MAI, and United News & Media, Lord Stevens's newspaper and magazine empire, established a similar structure to allow them to proceed with their merger. Under the scheme, the Express newspaper titles are to be held in a deadlocked company, shared with the financial advisers UBS. That frees the way for a single company to own national newspapers and ITV television licences - without actually owning them. Get it?

Last week, Granada went a step farther when it waded into the stock market to buy a further stake in Yorkshire-Tyne Tees, the ITV company long an object of Granada's desire. The move amounted to placing a marker - more a warning to would-be competitors than a takeover bid.

There was nothing wrong with taking the stake to just under 20 per cent - the ceiling for any company that already owns two ITV licences. But controversially, Granada bought a further 4 per cent stake via Allquiet, a joint venture with its bankers, Lazard. And surprise, surprise, Allquiet is "deadlocked", so "nobody" controls it.

And that's not the end of it. Granada's Gerry Robinson last week said he saw no reason why Allquiet could not be used to mount a full bid for YTT, giving him four ITV licences. Of course, the YTT shares would remain warehoused. Better yet, Granada could warehouse the licences it already owns (Granada and LWT), and bid for YTT unencumbered.

You can understand why these companies are availing themselves of the deadlock loophole. The Government intends to liberalise the ownership rules, via the Broadcasting Bill now making its way through Parliament. It wants to create more powerful media conglomerates to allow Britain to compete globally. Under the proposed legislation, Granada could buy YTT, and MAI and United could merge. So, the companies argue, what is wrong with moving a little early? After all, you have to keep an eye on your competitors, who are also jockeying for position. Strike when you can, even if it requires a little nimble legal footwork.

But surely this is wrong. Rules are rules, whatever you think of them (and I, for one, would prefer to see competition policy, and not specific rules on media ownership, hold sway). Now that Granada, MAI and United have tested the waters, the floodgates could open wide.

The hopelessly tight-lipped Michael Green of Carlton, tipped to move on MAI as early as this week to break up the intended merger with United, would be shirking his responsibility to shareholders if he were not contemplating the use of deadlocked companies to get in on the action. All he needs to do is warehouse the Carlton and Central franchises, and then bid for MAI's Anglia and Meridian. And to those who say he could not get around the competition rules, which limit a single company to a maximum of 25 per cent of ITV advertising revenue, Mr Green will have a ready answer. Why not set up separate sales houses, over which Carlton has no "control"? A useful thing, this deadlock wheeze.

Why, even the Mirror Group, which owns 43 per cent of the Independent, could use deadlocking to get around the "Murdoch" clause in the Bill, which would limit any company with more than 20 per cent of the national newspaper market to just 20 per cent of an ITV company. That clause hits just two companies: Rupert Murdoch's News International and the Mirror Group. So why not put at least part of the present publishing empire in a separate, deadlocked company, shared with the financial advisers Hambros, and then bid for Scottish Television, in which the Mirror Group already has 20 per cent? Illegal? Pish! Deadlocked, dear boy.

Similarly, Mr Murdoch's BSkyB, the satellite broadcaster, wants to become a "nominated" news provider for ITV. Under the rules, no single company can own more than 20 per cent. Not much of a hurdle, of course, for that superhero of legal devices, able to leap over the highest of barriers in a single bound.

The ultimate irony in all of this is that the new Broadcasting Bill, once it comes into force, would outlaw warehousing schemes by providing a far more onerous definition of "control". But the TV watchdog wants the Government to go further, by allowing it greater discretion over definitions of control. Wider powers of this sort would give the ITC the ability to deal with future legal loopholes as and when they materialise.

The new Act ought to give way on this point. If rules there must be, then they must be enforceable. Lords Hollick and Stevens and Messrs Robinson and Green have already made a mockery of the law, and that is despicable.

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