Advocates of a public interest test for media mergers need to look long and hard at the fallout from James Murdoch’s evidence to the Leveson inquiry on Tuesday.
News Corporation provided a trove of internal emails relating to communications between its public affairs director, Fréd Michel, and Adam Smith, special adviser to Culture Minister Jeremy Hunt, over the government’s consideration of News Corp’s takeover of BSkyB. Under the UK’s competition laws, Hunt was the decision maker on whether to refer the takeover to the UK Competition Commission on public interest grounds. Last year, Hunt was on the verge of accepting News Corp undertakings that would have waved the takeover through, when the phone-hacking scandal wrecked it.
The emails show Michel claiming extensive contact with Smith and Hunt over details of Hunt’s handling of the takeover. The Cameron government has circled the wagons around Hunt and jettisoned Smith, who resigned admitting his dealings with News Corp “went too far”.
Hunt’s defence that he’d done nothing inappropriate and that it was the fault of Smith and Michel, who may have overhyped his government access to figures such as James Murdoch, is rather undermined by the way his personal website for so long carried a press article in which he was described as “a cheerleader for Rupert Murdoch”.
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This “cheerleader for Rupert Murdoch” ended up as the decision maker on the merger after the removal of Business Secretary Vince Cable from the process, after Cable was reported saying he was “at war with Murdoch” to undercover reporters — although from the Telegraph, not from a News International publication.
The Convergence Review draft report in December recommended the removal of some quantitative media diversity restrictions and the use of a public interest test “to ensure that diversity considerations are taken into account where Content Service Enterprises with significant influence at a national level are involved in mergers or acquisitions”. Today, The Australian’s Mark Day reported the public interest test would feature in the review’s final report, to be released next week.
A public interest test has a lot of fans among people frustrated that an array of numerical media diversity restrictions have failed to stop the remorseless consolidation of the Australian media market.
But as the Cable/Hunt BSkyB saga demonstrates, a public interest test creates its own issues when an individual is charged with making a subjective decision about the merits or otherwise of a major transaction. The decision maker might be biased against the applicant, or towards them. And when the applicant is as powerful as News Corp, any politician will be tempted to allow political calculation to influence their judgment. At the very least, a powerful applicant will make a concerted effort to influence the process through any means they can. Relevantly, Rupert Murdoch overnight revealed that he had met with David Cameron himself far more often than the Prime Minister had previously admitted.
The Convergence Review seeks to avoid the problem of a single decision maker making subjective judgment that could be influenced by external forces by proposing that a regulator make the decision, not a politician.
That solves the problem of having Rupert’s mates or enemies making calls on major transactions but also raises the question of what exactly we have politicians for in a democracy if we need to hand major decisions to bureaucrats.
Nor does it address the problem that some regulators can end up being perceived as too close to the industries they regulate. Industry capture doesn’t just happen to politicians — it’s a widespread problem in the public service.
Against this, you can argue the ACCC does a good job of making subjective decisions about substantial lessening of competition from transactions.
But a public interest test is far vaguer than competition law. Identifying what is a “substantial” reduction in competition, and that markets will see the reduction, is one thing; identifying a broad “public interest” is quite different. Politicians and regulators prefer not to define such terms, for fear of boxing themselves in over future transactions. That’s why FIRB’s “national interest” test for foreign investment is notoriously opaque. The stakes are higher, as well. Allow a company merger that enables a big reduction in competition and the damage is entirely economic. Allow merger that reduces media diversity and the damage is to our polity, to the quality of our public debate, which is already rubbish anyway.
Business doesn’t like a public interest test because it’s necessarily uncertain — deal makers can see what will fly and what won’t under media regulation at the moment, but won’t be able to under a public interest test. But it’s uncertain for those concerned about media diversity as well. The UK experience suggests politicians can’t necessarily be trusted to handle a public interest test. It’s not immediately clear our regulators could either.