OFT stuns publishers by tearing up newspaper distribution deal

The Office of Fair Trading concluded yesterday that the current distribution system for newspapers and magazines is illegal, in a finding that could lead to a dramatic shake-up of the £11bn news publishing industry.

Newspapers and magazines are distributed under an unusual agreement in which wholesalers are given monopoly rights over particular areas. In return, they must make all titles available to retailers in their region.

To the horror of the publishing industry, the OFT said this scheme worked against the interests of consumers and retailers. Publishers accused the watchdog of endangering the diversity of the press by tearing up a system that ensured universal distribution of all titles, arguing that retailers outside major conurbations could find themselves not being supplied.

However, John Fingleton, the chief executive of the OFT, said the existing arrangements were wasteful - leading to nearly 3 million unwanted newspapers and magazines being returned to publishers every day. He said wholesalers had no incentive to become more efficient or respond to the needs of retailers.

"The current system is very much publisher-driven, not retailer-driven. If you put the retailer in the driving seat, that's likely to result in a much better match [of titles to consumer demand],"Mr Fingleton said.

For consumers, he said one in four trips to a shop to buy a newspaper or magazine resulted in finding the title they were after was not on sale. He said introducing competition would lead to benefits being passed on to consumers through lower prices or more publications being made available.

The OFT had already come out against the distribution arrangements for magazines in May last year, but it had said the greater time sensitivity of newspapers justified the existence of monopolies. When Mr Fingleton became chief executive in October, he announced a review of that decision, leading to hopes among publishers that the objections to magazines would also be dropped. Instead, in a "draft opinion" yesterday, the OFT concluded newspapers must also give up monopoly distribution.

Ian Locks, the chief executive of the Periodical Publishers Association, said: "This [verdict] is good for supermarkets, not for smaller retailers and not for the press itself. In the OFT's purist competition thinking, public policy concerns just don't register."

Mr Fingleton, who has made unexpected decisions during his short tenure at the OFT, insisted the market would ensure availability, as in other sectors. "In every industry, the participants say that if you introduce competition here, 'civilisation as we know it will end'. This is just scare-mongering... We're not here to protect competitors. We're here to protect consumers."

Wholesalers will also suffer under the new system. The market is dominated by three big players: WH Smith, John Menzies and Dawson News.

Fingleton in his own words

* "The current system is very much publisher-driven, not retailer-driven. If you put the retailer in the driving seat, that's likely to result in a much better match [of titles to consumer demand]."

* "In every industry, the participants say that if you introduce competition here, 'civilisation as we know it will end'. This is just scare-mongering."

* "Who is this bad for? If competition brings whingeing, big deal. Competitors should whinge. We're not here to protect competitors. We're here to protect consumers."