Regulators must reach for the sky…not tinker

ANDREW

The Communications Act of 2015 is a chance for the UK to create a deregulatory ’big bang’ that will see its digital revolution flourish.

Last week, as one chapter closed in newspapers and TV, a new chapter opened on a new Communications Act for the digital age. First, culture minister Jeremy Hunt ruled on News Corp’s bid for BSkyB. The next day, in a busy week for his office, final consultation responses were received at the department on proposed themes to be covered in the Communications Act 2015.

This is the accelerating pace of media change: newspapers and satellite TV are themselves now challenged, as internet TV, fourth generation mobile networks and superfast broadband transform the way we communicate and how we access content. For regulators and politicians, it’s a struggle to keep up with the present, let alone plan for the future.

Let’s try and unpack it all a little. First, while the old media world is consolidating, it still remains full of contradictions. It needs scale to compete in the new world, but is hampered by a regulatory regime still locked in the past. So we have a single ITV (but still constrained by contracts rights renewal, a mechanism designed to regulate for the media scarcity of the analogue world). We have Global Radio and Bauer Media with two-thirds of the commercial radio audience (but we still have a publicly funded BBC with spectrum dominance and more than 50% market share). We have Universal Music dominant in recorded music (but with 80% of its sales lost to online piracy) and so on.

In that context, News Corporation mopping up the 61% of Sky that it doesn’t already own is an important move to secure the long-term cashflow it can’t hope to deliver in traditional newspapers alone. As I predicted a couple of months ago, News Corp’s bid was always going to be approved once a suitable remedy was found to secure the independent future of Sky News. The eight-month inquiry will cost Rupert Murdoch a massive £2bn given that Sky’s share price touched 847p last week on news of the approved deal, compared to News Corp’s original offer price of 700p. Nevertheless, all that now remains is for the deal to be sealed, with Hunt’s slow and measured consultation (a political masterclass in how to handle a hot potato) designed to avert any threat of a judicial review.

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But the sealing of that deal highlights the challenges of the digital age even for those same companies. For example, less of a masterclass has been News Corp’s own brave attempts to monetise digital readership of The Times and The Sunday Times. Last week, it published figures trumpeting the fact that those papers now have 100,000 subscribers behind a £2 a week paywall.

It sounds promising, until you realise that it’s just 1% of Sky’s 10 million subscribers, who all pay £50 a month for movies and sport. Revenues from 100,000 online subscribers add up to a relatively modest £10m on a par with Sky CEO Jeremy Darroch’s bonus.

At the same time, the free-to-air online model is still performing well (such as Mail Online achieving 80 million unique users a month with its focus on gossip and celebrity online rather than right-wing rhetoric and BBC-bashing in print). So, it’s not yet clear who’s right on the paywall versus-free-model debate.

In mobile, by contrast, new entrants are thrashing the incumbent market leaders. When the iPhone was launched on 29 June 2007, Apple’s stock price was $122.04. Yesterday, it was $335.26, up threefold during the greatest slump we have seen since the great depression of the 1930s. The iPhone now accounts for half of all Apple’s revenues and the App Store has 425,000 apps, which have been downloaded 14 billion times, paying developers $2.5bn in the process. Meanwhile, Nokia’s stock price has reversed from $23.63 to $6.11 on the New York Stock Exchange, a quarter of its value four years before.

This speed of change is the real challenge for the next Communications Act. It’s not scheduled until 2015, so risks being behind the curve before it even reaches the statute book.

The challenge for all of us in the media industry is to lead the politicians to a brave new world that embraces this future. Market leaders, incumbents and existing players may seek only evolutionary change a modest tinkering with existing regulation (ideally with a little bit of discipline and legislation for those pesky unlicensed digital competitors) but now is the time to be brave. We need a “big bang” that deregulates the media opening it up to competition and innovation with incentives on tax, on new technology and a plan to retain and attract talent so that Britain’s world class creative industries can compete in the digital age.

We want more great media businesses created in the UK, like Sky and WPP, not a complacent nod to the past while Google, Apple and Facebook accelerate into the distance. We want London to be the world’s great media hub not Palo Alto, Abu Dhabi or Mumbai.

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