Application for a review of a determination by the Trade Practices Commission dated 30 July 1993 granting authorization in relation to applications A40059, A40060 and A40061 (proposed newsagency distribution system...
[1994] ATPT 1
•11 Nov 1994
| % | / | TRADE PRACTIES TRIBUNAL |
| JUDGMENT NO. ...I | ........ ,.. | p \ J q Y | ...,.,- |
TRADE PRACTICES - Victorian Newsagents - review of the Trade Practices Commission authorization of a newsagency distribution system in Victoria - whether the proposed conduct including territorial monopolies of authorized newsagents would substantially lessen competition - whether public benefit outweighs public detriment from the lessening of competition - jurisdiction of the Tribunal under s.88.
| I | Trade Practices Act 1974, ss. 45, 88, 90, 101, 102 |
| Q1 of 1993 | |
| V3 of 1993 NSWl of 1993 | |
| Lockhart J. (President), Professor M Brunt, Dr B I Aldrich 11 November 1994 |
COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT 1974
| IN THE TRADE PRACTICES TRIBUNAL | Nos. Q1 of 1993 V3 of 1993 NSWl of 1993 |
APPLICATION FOR A REVIEW OF A DETERMINATION BY THE TRADE PRACTICES COMMISSION DATED 30 JULY 1993 GRANTING AUTHORIZATION IN RELATION TO APPLICATIONS A40059, A40060 AND A40061 (PROPOSED NEWSAGENCY DISTRIBUTION SYSTEM FOR VICTORIA)
LOCKHART J. (President); PROFESSOR M BRUNT and DR B I ALDRICH
| (Members | ) |
11 November 1994
MINUTE OF ORDER
THE TRIBUNAL DETERMINES THAT: the determination of the Trade
Practices Commission dated 30 July 1993 be set aside.
| IN THE TRADE PRACTICES TRIBUNAL | Nos. Q1 of 1993 V3 of 1993 NSWl of 1993 |
APPLICATION FOR A REVIEW OF A DETERMINATION BY THE TRADE PRACTICES COMMISSION DATED 30 JULY
1993 GRANTING Authorization IN RELATION TO - - - - - - -
APPLICATIONS ~40059, A40060, AND A40061 (PROPOSED NEWSAGENCY DISTRIBUTION SYSTEM FOR
LOCKHART J. (President); PROFESSOR M BRUNT and DR B I ALDRICH
| (Members | ) |
11 November 1994
REASONS FOR DECISION
INDEX
INTRODUCTION
GLOSSARY OF TERMS. PARTICIPANTS AND WITNESSES
Terms
Participants before the Tribunal
Witnesses
DETERMINATION AND WHAT THE PARTIES. ONF AND
INTERVENERS SEEK
| S | D |
| STATUTORY TESTS | |
| g | |
| NSW draft determination of 1979 NSW final determination of 1980 The 1982 determination | |
| The 1993 determination | |
| The Australian pattern The scope of the Victorian system Arrangements for governance Publication and primary distribution The operation of the newsagency The newsagency as a viable business Home delivery of newspapers Sub-agents Directions of change in the system Enforcement of newsagency obligations |
ANALYSIS OF THE PRESENT SYSTEM
Markets and market power
The horizontal and vertical restrictions
The potential for public benefit from the present
system
Efficiency effects in the present system
Anti-competitive detriment
Inefficiency
Denial of commercial freedom and economic
opportunity
Defensible elements of the system
BENEFIT AND DETRIMENT FROM THE 1993 DETERMINATION
The 1993 determination
Tribunal's assessment
CONCLUSION
| 1. | INTRODUCTION These are three applications for review under s. 101 of |
the Trade Practices Act 1974 (the Act) of a determination of the Trade Practices Commission (the Commission) dated 30 July 1993 (the 1993 determination). The applicants for review are 7-Eleven Stores Pty ~imited (7-Eleven) (V3 of 1993), Australian Association of Conveniences Stores Incorporated (AACS) (NSW1 of 1993) and Queensland Newsagents Federation (QNF) (Q1 of 1993). A fourth application for review of the 1993 determination was made to the Tribunal by Independent Newsagents Association (NSW 2 of 1993); but, on the Association's application, the Tribunal granted leave to it on 2 6 November 1993 to withdraw the application. The Association
took no further part in the review. None of the applicants for review was an applicant for authorization before the Commission.
The review concerns the system of distributing newspapers in Victoria. The system is administered by the Newsagency Council of Victoria (NCV) which has as its constituent members The Herald and Weekly Times Limited (HWT), David Syme and Co Limited (David Syme) and Victorian Authorized Newsagency Association Limited (VANA). The system consists of deliveries of newspapers by the two publishing groups (i.e. the HWT group and the Age group) to authorized newsagents (i.e. newsagents accredited under the rules of the NCV). Each authorized newsagent operates within a defined and exclusive territory, which is the same for both publishers. Within that territory each newsagent has obligations to deliver newspapers to final purchasers of publications (homes, businesses, institutions, etc. ) and appoints (at the direction, or with the consent, of the publishers and distributors) a number of retail sub- agents. An authorized newsagent is in practice the sole supplier of newspapers to sub-agents. Sub-agents range in size and type from "look-alikes" (an expression defined later), convenience stores and mini-markets to delicatessens, milk bars and take-away shops.
The central features of the system were authorized by the Commission on 28 April 1982 (Application No. A90368, reported (both draft and final determinations) in [I9821 ATPR (Com) 50- 035) (the 1982 determination). The Commission said, in the 1982 determination (paragraph ll), that it considered the key anti-competitive feature of the then proposed system was the
grant of a territorial monopoly to newsagents. Nevertheless, the Commission said that the territorial monopoly yielded a public benefit of a low-cost, efficient home delivery service and a greater availability of newspapers and magazines than would otherwise be the case. The Commission concluded that this public benefit outweighed the anti-competitive detriment of the system. The Commission accordingly granted authorization except in one respect to which reference shall be made later.
The 1982 determination followed a prior authorization granted by the Commission to the system for the distribution of newspapers and magazines in New South Wales ([1979-801 ATPR (Com) 35-200) to which we shall refer later.
In 1987, the Commission commenced an examination of the newsagency systems then in force in Australia; and on 15 May 1990 released an issues paper entitled: "Study of the Distribution of Newspapers and Magazines" (the "1990 issues
| paper" | ) . The Commission said in its summary of the 1990 |
issues paper:
"The existing distribution systems have been authorized by the Commission over the past 10 years. The Commission believes it is important to remember that these authorizations effectively grant an exemption on public benefit grounds for arrangements that would otherwise be illegal. The Commission has a responsibility periodically to review such exemptions in the light of changing
circumstances, particularly when it
receives complaints about them."
The release of the issues paper was accompanied by a news release which said that the Commission could consider revoking past authorizations if this would achieve desirable reforms in the industry, but in the short term it preferred to continue encouraging participation in a reasoned and informed debate about the best long term arrangements for the industry.
Three applications were later made to the Commission for authorization relating to the Victorian newsagency distribution system which were intended to replace the then existing authorization which had been in place since April
1982. The applicants for authorization to the Commission were
NCV, HWT, David Syme and VANA.
The Commission conducted its usual inquiries and concluded that the proposed conduct,and arrangements, the subject of the three applications, would result or be likely to result in public benefits which would outweigh the anti- competitive detriments. On 30 July 1993 the Commission granted authorization to the applicants on condition that the rules of the NCV were amended in terms which need not be set out at this stage. It is this determination (the 1993 determination) that is the subject of the review before us.
The 1993 determination was expressed in terms that, if an application for review was made to the Tribunal (as it was), the determination would come into force, where the application was not withdrawn, on the day on which the Tribunal made a determination on the review. 7-Eleven, AACS and QNF were dissatisfied with the 1993 determination of the Commission and applied to the Tribunal to review it by the three applications mentioned earlier. They were heard together by consent of all parties and interveners.
It is important to bear in mind that the 1993 determination in essence authorized certain modifications to the existing newsagency system, the central features of which had been authorized by the 1982 determination. The 1982 determination, to which more detailed reference shall be made later, dealt with an application for authorization involving a proposed agreement between the publishers, HWT, David Syme and VANA. The proposed agreement had a schedule attached to it which set out in detail the Rules of the NCV. The standard form of agreement to be entered into between each publisher and individual newsagents formed an Appendix to the Rules, as did the standard form of agreement between individual newsagents and sub-agents. The Rules concerned "the publications" of the publishers, namely, HWT and David Syme. The form of newsagency agreement in Appendix C to the Rules was in a similar vein. Both documents referred at different points to the "publications" as being "newspapers and
magazines" published by the publishers. Although those publications included magazines they were in a very small minority of the publications which were primarily newspapers. It seems that the 1982 determination approving the proposed agreement between the publishers approved the then "newsagency system" relating to newspapers and magazines published by HWT and David Syme; but when the determination is considered as a whole the scope of the determination did not in our view extend to approval to the proposed newsagency system relating to the publication of magazines by persons or companies other than HWT and David Syme. The great majority of magazines were published by others. One must be careful when reading the
1982 determination to remember that it was not giving approval
to the "proposed newsagency system" concerning newspapers and magazines generally but was confining the approval to the proposed agreement between HWT and David Syme concerning the distribution of their newspapers and magazines only. So it is with the 1993 determination.
The 1982 determination followed closely upon the relevant determinations which preceded it, namely, the New South Wales draft determination dated 5 February 1979 and the final determination dated 7 February 1980. Both concerned applications for authorization in respect of the system of distributing newspapers and magazines through approved outlets in New South Wales and the Australian Capital Territory, that system being described in the draft and final determinations
as "the newsagency system". Those authorizations granted by the Commission were not confined to the system of distributing newspapers but extended to newspapers and magazines because the applicants for authorization were placed by the Commission into three publishing groups "Fairfax, News, and Australian Consolidated Press (ACP)". ACP in particular was a large publisher of magazines. Though the 1979 draft determination and the 1980 final determination relating to the newsagency system in New South Wales concern both newspapers and magazines careful distinction must be drawn between that system and the newsagency system in Victoria approved by the Commission in the 1982 determination and the 1993 determination which concerned the distribution of newspapers and only to a very limited extent the distribution of magazines as mentioned above.
Authorizations have not been sought by or granted to the publishers of the vast majority of magazines distributed in Victoria. The interveners in the review before us are the major publishers of magazines in Australia and they seek membership of NCV which is at the helm of the newsagency distribution system in Victoria. They seek to play a role in guiding its affairs as members of the NCV. The publishers of magazines have (to adopt a phrase used in evidence and submissions before us) "piggy-backed" on to the system of distributing newspapers in New South Wales by allowing the newsagents to act as the vehicle for the distribution of their
magazines in Victoria. But these magazine publishers are not members of the NCV and are therefore not within the horizontal structure relating to the newsagency system in Victoria, the parties to which are the publishers who control the NCV.
We shall mention later what the parties and interveners before us are seeking in this review; but it is helpful to state briefly at this stage the essential features of their attitudes.
QNF's basic stance is that the system as authorized by the 1982 determination is a fine system and needs no change. The changes proposed would harm the system. It feared that the changes made to the Victorian system, which it saw as undesirable, would flow onto Queensland.
At the other end of the spectrum are 7-Eleven and AACS which, although separately represented at the hearing before the Tribunal and differing in certain respects from each other in what is sought in the review, seek essentially the same result, namely, that each convenience store be freed from the requirement to obtain its supplies from the newsagent within whose territory it is.
HWT and David Syme were not applicants for review of the
1993 determination and played no direct role in the hearing
before the Tribunal. The NCV played an active role before us
however, as did VANA. As mentioned earlier NCV is a body which has as its constituent members HWT, David Syme and VANA. The views of the Herald group and the Age group were in essence put by the NCV.
2. GLOSSARY OF TERMS, PARTICIPANTS AND WITNESSES A brief description of the participants in the newspaper
and magazine distribution system in Victoria is necessary.
First, a glossary of terms is required.
2.1 Terms
Authorized newsagents. There are 1080 authorized newsagencies in Victoria. The authorized newsagent is responsible for secondary distribution of daily metropolitan newspapers in a designated exclusive territory, as agent for the publishers as principals. The typical authorized newsagency in Victoria is a family business based in a retail shop, selling newspapers and magazines, usually also greeting cards, stationery, paperback books, cigarettes and confectionery.
The agency role for an authorized newsagent requires, inter alia, operation of a home delivery service for daily newspapers and the supply of sub-agents, within the territory allotted to the agency.
Publications are sold by the newsagent on a sale or return basis. Subject to specified conditions, unsold copies are returned by the newsagency (or by the sub-agency, through the newsagency) and are credited by the publisher.
Victorian newsagents are represented on the Newsagency Council of Victoria by a nominee of VANA.
Convenience stores. They are retailers of a diverse range of products including food, drinks, general household products, and are usually associated with motor fuel sales. They generally sell newspapers and magazines on a sub-agency basis. They have long trading hours, often trading during the times that newsagencies are closed. AS sub-agents, the present system requires them to obtain supplies from one authorized newsagent and not to deliver publications. The present system does not in theory prevent publishers supplying them direct, although publishers do not in fact supply convenience stores directly, a major complaint made by these stores. The relevant industry association is AACS.
Home delivery customers. They are final purchasers of newspapers and magazines who are required to obtain their needs from one authorized newsagent according to territory. A fee is paid to the supplying newsagent. The deliveries are predominantly to homes, but are also made to institutions, businesses, offices, schools etc. (it is customary to use the
expression "home deliveries" to encompass all deliveries of
this kind).
Look-alike newsagents. They are retailers who specialise in newsagency lines that are supplied under sub-agency arrangements with authorized newsagents. Their shops look like authorized newsagencies, but are not in fact authorized newsagents. Supplies are received from authorized newsagents. They share commission with the authorized newsagent who is responsible for the local territory. Many look-alikes are represented by the Independent Newsagents Association.
Magazine publishers. They publish and distribute a large number of titles, ranging from high profile, large circulation titles, to special interest magazines of limited circulation. They are not parties to the existing or proposed authorizations in Victoria. Their main means of distribution of magazines is through authorized newsagents, look-alikes and supermarkets.
| Newspaper publishers. | They are publishers of |
metropolitan daily newspapers, mainly morning newspapers. They also publish a small number of magazines. They are subject to the existing and proposed authorizations. They are members of the NCV. Each publisher enters into newsagency agreements with the same newsagents using standard form contracts.
Sub-agents. They are typically small stores, service stations etc. who obtain their supplies from and share commission with a local authorized newsagent. Some sub-agents sell newspapers and magazines only after the local newsagency has closed. Look-alikes are sub-agents. Statistics provided to the Tribunal indicate that there are about 5,500 sub-agents in Victoria, supplied by 683 of the authorized newsagents. (The other authorized newsagents, with no sub-agents, are typically general stores in small country towns.) Sub-agents are more common in metropolitan areas, and a typical metropolitan newsagency might have 8 or 9 sub-agents. One newsagent in a large country town gave evidence that he had 24 sub-agents. Sub-agents who receive their stocks direct from publishers, share commission with the local authorized newsagent, as do those who get their stocks from the newsagent. Under the present system it is only look-alikes who are not permitted to be directly supplied by publishers. Appointment of sub-agents is at the discretion of publishers. Not all people who seek to become sub-agents are accepted.
| 2.2 Partici~ants | before the Tribunal |
The three applicants for review are QNF, 7-Eleven and
AACS .
NCV and VANA were entitled to participate in this review as they were persons to whom authorization was granted by the Commission (s. 109(1) of the Act).
Leave to intervene in the proceeding was granted by the Tribunal to three publishers of magazines: ACP Publishing Pty Limited (ACP); Gordon and Gotch Limited (Gordon and Gotch) and Eastern Suburbs Newspapers (ESN) which is a partnership (6. 109(2)). These three publishers between them account for publication and distribution of almost all magazines in Australia.
The Commission appeared. The Commission and all parties and interveners were represented by counsel or solicitors.
| - | NCV | |
| Authorized newsagents are appointed at meetings of the constituent members of the Newsagency Council of Victoria Limited (NCV), a body incorporated under guarantee. The Council determines other matters that come before it according | ||
| ||
| determination of the Commission, the NCV was constituted by agreement between the three constituent members, the two major publishers and VANA. Subsequently, both HWT and Syme were taken over by News Limited and John Fairfax respectively, and constituent membership was increased to five at the time of the NCV's incorporation, with each of the two publishing groups now nominating two members of the NCV. | ||
|
VANA was established in 1879. 1t represents the
interests of newsagents in Victoria. It provides advice to newsagents on how to improve their businesses including the running of a course for potential applicants to purchase newsagencies. It is represented on the NCV.
AAcs
The convenience store industry is a relatively new segment of retailing in Australia that has evolved and appears to be successful because it meets the need of the consumer today for 24 hour service. AACS represents approximately 95% of participants in the convenience store industry (about 500) from the largest (7-Eleven) to the smallest (with only one store). Approximately 275 convenience stores are in Victoria. Convenience stores sell a diverse range of products including food, drinks and general household products, those sales usually being associated with motor fuel sales.
7-Eleven
7-Eleven is the franchisor of 162 7-Eleven convenience stores operating in Victoria, New South Wales and Queensland. There are 84 stores in Victoria.
w.
QNF is a corporation incorporated in Queensland. Its constituent members are the 743 authorized newsagents throughout Queensland. QNF represents those newsagents on the Newsagency Council of Queensland, which is the administering
body of newsagencies in Queensland. The present system of distribution of newspapers and magazines in Queensland is that authorized by the Commission on 18 October 1985. The Queensland system is very similar to the system presently in operation in Victoria pursuant to the 1982 determination. QNF's entitlement to participate in the present review arises from s. 109(1) of the Act. It has no direct interest in the newsagency distribution system in Victoria.
&Q.
| ACP is a company incorporated in New South Wales. | It is |
the largest publisher of magazines in Australia, currently publishing 107 different titles. Network Distribution Company, a division of ACP, distributes a total of 631 different titles in Australia.
Gordon and Gotch.
Gordon and Gotch is a company incorporated in Victoria where it has been carrying on business for 142 years. It is the largest distributor (it is not a publisher) of magazines in Australia including Victoria. It is currently responsible for the distribution of more than 2,000 individual titles.
m.
ESN is a partnership carrying on its business in New South Wales. The members of the partnership are General Newspapers Pty Limited, Double Bay Newspapers Pty Limited and
Brehmer Fairfax Pty Limited. ESN contains within it various divisions, one of which is Federal Publishing. Federal Publishing currently publishes 209 different magazine titles,
79 of which are published on a regular basis. Newsagents
Direct Distribution Pty Limited (NDD) is a company owned and controlled by the companies which are in partnership as ESN. NDD distributes magazines published by Federal Publishing and other publishers. In total, NDD distributes over 600 magazine
| titles in Victoria. | ESNfs sales are very much smaller than |
either of the other two magazine publishers.
2.3 Witnesses
Statements were filed on behalf of many witnesses, some of whom gave oral evidence and were cross-examined. The statements of those who were not called to give oral evidence were, by consent, admitted into evidence by the Tribunal and accorded the same weight and evidentiary value as if the witnesses had been called and verified their written statements by oath or affirmation (s. 107 of the Act). A list of the persons who furnished statements and were called to give oral evidence and a list of persons who furnished written statements but were not called as witnesses to give oral evidence is annexure A.
| 3. |
THE APPLICATIONS FOR REVIEW OF THE 1993 DETERMINATION AND As mentioned earlier, there were three applications for
authorization to the Commisdion. There are three applications for review before the Tribunal, none of which was made by the corporations which had sought authorization from the Commission.
7-Eleven
7-Eleven objects to the maintenance of the tied sub- agency arrangement authorized by the 1982 determination and continued by the 1993 determination whereby each of the stores of 7-Eleven is bound to take' its supply of newspapers and some magazines from the authorized newsagent within whose exclusive geographic territory the particular 7-Eleven store is located.
7-Eleven in its application for review seeks a determination that any authorization in respect of the distribution system for newspapers and magazines in Victoria should allow sub-agents (including 7-Eleven stores) to be supplied with newspapers and magazines from anv authorized newsagency regardless of whether that sub-agent is within the exclusive geographic territory of a particular authorized newsagency; and the rules of NCV should be modified to permit those arrangements.
In its final submission to the Tribunal, 7-Eleven submitted that the 1993 determination should be varied by removing the tied sub-agents restriction immediately, but otherwise leaving the 1993 determination intact for a period
of some two to three years to enable the parties to the arrangements to effect a transition to a system without the present restrictions. It was submitted in the alternative that the Tribunal should refuse authorization in terms which make it clear that the Commission should exercise its power under s. 91(4) of the Act to revoke the 1982 determination, a course which, so it was said, was adopted in Media Council of Australia (No 2) [I9871 ATPR 40-774 (also (1987) 88 FLR 1).
AAcs
AACS, in its application for review, fastened on the exclusivity of tied arrangements as being the essential vice within the present system and sought total deregulation of the distribution system in Victoria. It modified its stance in its final submissions to the Tribunal, pressing (as did 7- Eleven) that it seeks the capacity to be supplied newspapers and magazines from any authorized newsagent irrespective of the geographical location of that agent. It emphasised that only the broadest freedom would bring about a competitive market. AACS requested the Tribunal to refuse authorization and follow the course taken in Media Council (No 2) mentioned above.
Alternatively, it was submitted that if the Tribunal is concerned that revocation of the 1982 determination, without a period of trbi~sition, would bring about injustice, authorization should be granted on terms that would be fair in
all the circumstances, but the exclusivity of the present tied
sub-agency arrangements should be removed immediately.
ONF
QNF's case was that the arrangements encompassed by the 1982 determination result in benefits to the public which outweigh any anti-competitive detriment. It was argued that the changes proposed to be made to the 1982 determination by the 1993 determination would reduce public benefits and cause increased detriment from lessening of competition. QNF is content with the system that presently operates under the aegis of the 1982 determination. In particular, it was argued on behalf of QNF that the improvements which NCV and VANA said would be introduced by the 1993 arrangements are misconceived. It was argued that there were no real or substantial problems with the working of the 1982 system, and that the proposed arrangements inherent in the 1993 determination would reduce competition for circulation sales of newspapers and magazines. The 1993 determination would reduce the public benefit associated with an efficient low-cost home delivery service and a broad range of titles.
NCV
NCV sought to uphold the 1993 determination which, it was said, would introduce changes to the system that will diminish the anti-competitive aspects and enhance the public benefits of the present system operating under the 1982 determination.
VANA
VANA also sought to uphold the 1993 authorization for the same reasons in essence as those advanced by the NCV.
Magazine Publishers
ACP's primary interest (together with the other interveners) was to become a member of the NCV because they are the three principal distributors of magazines in Australia including Victoria. Gordon and Gotch and ESN adopted basically the same stance as ACP.
ACP supports the 1993 authorization, but asked the Tribunal to impose a condition of the authorization to the effect that magazine publishers should be entitled to be represented on the NCV and that ACP as a major publisher of magazines should be entitled to be a member of the NCV.
The Commission
The Commission submitted that the 1993 determination should be approved by the Tribunal, the applications for review should be refused and the applications by the interveners should also be refused. The Commission's 1993 determination should, so it was submitted, be affirmed.
Counsel for the Commission said that the Commission
sought "phased change" to the system operating under the 1982
determination which, he argued, would be brought about by the
1993 determination. The Commission saw the 1993 determination as but a phase moving towards a "more market-oriented system" and more responsive to competition and market forces. The case for the Commission was conducted on this basis and is reflected in the statements of the Commission itself which appear in the 1993 determination.
| G | m | y |
NCV, VANA and QNF stressed time after time during the hearing that newspapers and magazines are vital to the dissemination of information within Australian society and therefore vital to the democratic process. This echoed a submission made by the Minister for Business and Consumer Affairs to the Commission when it was considering the New South Wales determination in 1979, that "widespread dissemination of information and of critical comment is regarded by the Government as being of major importance in a democratic society such as Australia".
No party or intervener sought to deny the importance and accuracy of this statement; nor do we. Indeed, we too regard it as a fundamental matter to bear in mind when considering the questions before us.
NCV, VANA and QNF continued to assert before us that the
wide dissemination of information at low cost was an important
public benefit. In support of the present exclusive tied
agency arrangements they stressed what was said to be the "cross-subsidy" of uneconomic home delivery of newspapers (and magazines) by shop sales of those publications made by authorized newsagents and sub-agents.
During the course of the hearing there was a significant shift in the stance of the NCV, VANA and QNF and their formulation of the public benefit argument. They ceased to emphasize the cross-subsidy argument because it was apparent, as the review proceeded, that it had little, if any, substance in it. The home delivery of newspapers and magazines by agents is rarely subsidized in fact by shop sales.
NCV, VANA and QNF proceeded to emphasize three entirely different matters: first, the fundamental role which advertising inserts were said to now play in the production and sale of newspapers; secondly, the effect of removing the tied sub-agency restrictions upon the goodwill of authorized newsagents; and thirdly, the efficiency of the newsagency system.
This change in stance went beyond mere tactical considerations. It shows that a fundamental basis relied upon to support the system which has existed since 1982 and which would still inure in substance under the 1993 determination has shifted to different arguments which, for reasons given later, we find lack substance.
| 4. of the Commission's 1993 determination (s. 101(1) of the Act). | RELEVANT LAW - SCOPE OF THE APPLICATIONS AND STATUTORY The three applications before the Tribunal are for review |
One of the applications before the Commission (A40059) was made under s. 88(8) of the Act for an authorization to engage in conduct that constitutes or may constitute the practice of exclusive dealing. The conduct that would or may constitute such practice is the granting of sole distribution and delivery rights to newsagents in specified areas and restrictions which prevent sub-agents from delivering newspapers.
Application A40060 was made under s. 88(1) of the Act for authorization to make a contract or arrangement or arrive at an understanding where a provision of the proposed contract, arrangement or understanding would or may be an exclusionary provision within the meaning of s. 45 of the Act. The provisions of the contract, arrangement or understanding that would or may be exclusionary provisions are provisions which restrict the supply of newspapers to particular classes of persons on particular conditions.
Application A40061 was made under s. 88(1) of the Act for
authorization to make a contract or arrangement, or arrive at
an understanding, a provision of which would or may have the
purpose, or would or may have the effect, of substantially
lessening competition within the meaning of s. 45 of the Act.
Upon a review of a determination of the Commission in relation to an application for an authorization, the Tribunal is empowered to make a determination affirming, setting aside or varying the determination of the Commission and, for the purposes of the review, may perform all the functions and exercise all the powers of the Commission including the imposition of conditions (s. 102(1)). Such a determination by the Tribunal shall be deemed to be a determination by the Commission (s. 102(2) ) . The Commission's power to grant the authorization which it did in this case was derived from ss. 88(1) and 88(8). Hence, the Tribunal's power to grant authorization in the present matter arises from the combined operation of ss. 102(2) and 88(1) and (8) of the Act.
The appropriate tests to be applied by the Tribunal when making its determination are found in s. 90(6) and (8) of the Act.
Section 90(6) and (8) in substance prohibit the Tribunal from granting authorization under s. 88(1) or (8) unless it is satisfied in all the circumstances that the conduct or proposed conduct or the relevant provision of the proposed contract, arrangement or understanding'would result, or be likely to result, in such benefit to the public that it should
be allowed to occur or be made or that such benefit would outweigh the detriment to the public constituted by any lessening of competition that would result or be likely to result from it. As the Tribunal observed in the Media Council of Australia (No 2) at 48,418, the tests are the same whichever of the two subsections of s. 90 applies (sub- sections (6) or ( 8 ) ) .
To fulfil its statutory duty the Tribunal must examine on the one hand the anti-competitive aspects of the conduct, proposed conduct and relevant provisions of the proposed contract, arrangement or understanding, and on the other hand the public benefits arising from it and weigh the two. If the Tribunal is satisfied that the public benefits or expected public benefits outweigh the anti-competitive detriment, the Tribunal may determine that the Commissionrs determination be affirmed with or without conditions. Should the Tribunal reach a different view it shall set aside or vary the Commission's determination.
It is important to note (as the Tribunal pointed out in Media Council (No 2)) at 48,418-9) that conduct which answers the statutory description of anti-competitive lessening of competition does not necessarily constitute anti-competitive detriment for the purposes of s. 90. It is erroneous to equate anti-competitiveness with detriment. Anti-competitive behaviour may in certain circumstances be a benefit.
The Tribunal must engage in a rehearing in the fullest sense and it must reach its own conclusions on the material before it. The reasoning process of the Commission is not itself the subject of this inquiry: see Media Council (No 2) at 48,419 and the cases there cited.
It is also useful to recall that the Tribunal has power where appropriate to grant an interim authorization: Re Queensland Timber Board (1975) 24 FLR 205 especially at 210-1; Re Australian Paper Manufacturers Limited (1976) 25 FLR 504; Re International Air Transport Association (1985) 58 ALR 721 and the cases there mentioned.
The 1993 determination modifies the 1982 determination, but preserves its fundamental elements.
To understand how the newsagency distribution system would be likely to work under the authority of the 1993 determination it is necessary for the Tribunal to examine how the system works at present pursuant to the 1982 determination. It is impossible to understand the likely operation of a modification to a system without first knowing what that system is and how it works in practice. The Tribunal must, of course, accept the fact of the making of the 1982 determination; but it must proceed to examine how the newsagency distribution system operates in Victoria pursuant to it. It would be artificial for the Tribunal to approach
its task on the assumption that the system that presently operates pursuant to the 1982 determination necessarily embodies the public benefit or the anti-competitive detriment which the Commission found that it would be likely to have when making its determination twelve years ago. The Tribunal is not reviewing the 1982 determination. It has before it for review the 1993 determination. But the Tribunal cannot apply the tests required by s. 90(6) and (8) with respect to its review of the 1993 determination without examining the whole of the relevant elements and operation of the system presently in force in order to determine public benefits and detriments that would be likely to result from the operation of that determination.
The application of the statutory tests required by s. 90(6) and (8) requires the Tribunal to compare a newsagency distribution system as it is likely to operate under the 1993 determination (which necessarily includes the elements of the 1982 determination except as modified by the 1993 determination) with the system presently in force (i.e. as authorized by the 1982 determination, without the changes introduced by the 1993 determination).
The observation of the Tribunal in Media Council (NO 2) at 48,419 is equally apt in the present case:
"The comparison is between the future with the relevant conduct and the future without the relevant conduct."
We repeat also what the Tribunal said at 48,419: "It is doubtful if past benefits may be relied on in support of the present applications for authorization . . . except to the extent that the past may be
| indicative of the future. | '' |
5. RELEVANT DETERMINATIONS OF THE COMMISSION To understand the 1993 determination requires an
examination of the practical operation of the newspaper distribution system in Victoria since the 1982 determination because the former is based on the latter but introduces certain modifications. The 1982 determination itself arose following the Commission's earlier determinations with respect to the newspaper distribution system in New South Wales, namely, its draft determination dated 5 February 1979 and final determination dated 7 February 1980. A list of the Commission's determinations with respect to newspaper and magazine distribution systems in Australia was appended to the Commission's Issues paper of 1990 previously mentioned and marked "Attachment B". We attach that list as annexure B. Accordingly, the logical starting point for an examination of relevant determinations is the New South Wales draft determination.
Applications for authorization were lodged by major newspaper publishers in respect of the system of distributing newspapers and magazines which they conducted through approved outlets in New South Wales and the ACT. The system then in force in Victoria was substantially the same. The draft
determination was made on 5 February 1979. I t is reported in
| [1979-801 ATPR (Com) 35-200. | The applicants for authorization |
were John Fairfax & Sons Limited, Associated Newspapers
Limited, Mirror Newspapers Limited, Nationwide News Pty Limited, Australian Consolidated Press Limited and News Limited.
In paragraphs 60 to 64 the Commission said:
"60. In that market [that is the product market for newspapers and magazines in New South Wales and the ACT] competition is effectively excluded. . . . the system calls for consideration as one total system. That consideration shows that in return for a territorial monopoly, the newsagents are closely controlled by the publishers collectively as to entry into the business, their operations while in it, and exit from it. Newsagents cannot expand into multiple businesses; there is no possibility of any one of them developing any market power that would matter as against the publishers. Even their goodwill is not saleable except to persons chosen by the publishers at the publishers' valuation (which relates only to the newsagency side of the business). Thus there is disincentive to run the newsagency c;s a sideline or develop any other side o f the business disproportionately. More innovative and aggressive competitors can be kept out of
| the newsagency trade. | The system i s |
| l i k e l y t o secure | that | selected | newsagents |
(and probably t h e i r famil ies a s we l l ) w i l l be t i e d t o the newsagency business from the time they buy t h e i r way i n on the publishers' terms un t i l they s e l l t h e i r way out again on the publishers' terms; meantime they w i l l necessarily be
| responsive | t o the publishers' | detailed |
| direct ions | notwithstanding | that | the |
| re lat ionship i s not | that o f employer and |
| employee | or | principal | and | agent | but |
| supplier | and | rese l l e r . |
6 1 . I t i s another question whether the
| system | produces | public | b e n e f i t , but | t he |
| conclusion | appears | i r r e s i s t i b l e | that | it |
| subs tant ia l ly | lessens | competition | i n | the |
| r e t a i l trade. | In | fact very l i t t l e room i s |
| l e f t for competition a t a l l . | Not only are |
| newsagents | and | the | poss ib i l i t y | o f |
| compet i t ion | between | them | c l o s e l y |
control led, b u t other r e t a i l e r s who might wish t o s e l l newspapers or magazines a s a service t o t h e i r customers and a means o f
| a t t rac t ing | business | fo r | t h e i r | other | l i n e s |
| are | res t r ic ted | i n doing | so. | The system |
| has | kept | the | general | framework | and |
| character | o f | the | newsagency | trade |
unchanged, whereas r e t a i l trade elsewhere has generally been subject t o dynamic change under the pressure o f competition and innovation. The many years o f regulation might well have entrenched tradi t ional a t t i t udes , so that change might take some time i n s tar t ing i f the system ceased t o be enforced, but t he potential for change cannot be denied unless the newsagency trade i s e n t i r e l y
| unique, and much | o f the t i g h t control i s |
indeed unnecessary. The publishers do not regard any o f i t a s unnecessary, which i s tantamount t o saying that a f ree market would procure a d i f f e r e n t resu l t and that
| the | system | r e s t r i c t s competition | i n order |
| t o stop that happening. | A p a r t | from | actual |
| competition, the constant potential | f o r |
| competition wold | i t s e l f be a | s p u r towards |
| greater | e f f i c i e n c y , | lower | prices | and |
| b e t t e r | service. |
| 6 2 . | The publishers | themselves a d m i t | that |
i n the absence o f r e s t r i c t ions competition i n shop or point sales would develop.
However the publishers claim that it is unlikely that competition would develop in home deliveries and in fact home delivery service would be curtailed. The Commission does not accept this claim. At the very least competition is likely 'at the borders' of different newsagents '
territories, where the cost of extending a run to a few more houses may be negligible and the homeowners may not be satisfied with the service provided by their existing newsagent. More widely than that, home delivery could become more significant than now as a competitive tool for attracting customers to the newsagent's shop. Moreover the removal of the restrictions could open up an opportunity for home delivery to be undertaken by entities not operating from a shop and operating over several of the existing territories. There is also the possibility that there wold be more incentive for the home delivery of other publications, particularly magazines, and that home delivery may be expanded to or combined with the delivery of free newspapers, advertisements and catalogues of department stores.
63. The publishers claim that whilst the operation of the newsagency system essentially requires an agreement between the publishers that they will not compete with each other in the distribution of printed media, by limiting competition in this particular area the system still allows the publishers to compete, and even enables more effective competition, in many other important areas, such as editorial content, general style of publication, promotion, cover prices and advertising rates. The system enhances competition in these areas, the publishers claim, by ensuring that all of their publications are visually displayed side by side in shops and at other selling points and are marketed to all customers who require home delivery.
64. The Commission does not accept this.
Editorial content, general style of publication, promotion, cover prices and advertising rates are all matters of competition which would be vigorously
utilised by efficient publishers irrespective of the method of distribution which is used. Additionally, if it is an important aspect of competition that publications be displayed side by side in shops then the retailer would have a vested interest in ensuring that this occurs as is now the case with other products where comparative display is
| important. | " |
As to public benefit, the Commission found (par. 96) that removal of the territorial restrictions on newsagents would be unlikely to result in the reduction in exposure of publications to the public, that consequently there should be no reduction in overall sales or circulation of publications and there may even be an increase with the greater number of retail outlets and different types of outlets selling them.
The Commission said (par. 100) that it could not see why people who presently want and use the convenience of home delivery rather than go to the newsagent to buy their publications over the counter would necessarily change their preference simply because of an increase in the number of over the counter outlets.
As to home delivery sales, the Commission said (par. 101) that it did not accept the argument that newsagents would cease home delivery to uneconomic areas in their territories (e.g. more distant homes). It said (par. 102) that if some newsagents could and did increase their booking fee to fully cover the cost of home delivery, the Commission would see no
public detriment in that:
"There is no public benefit in a service being sold at a price that doesn't cover the cost of providing it - any benefit to the consumer in the way of a low price is offset by the detriment to others who have to bear the loss involved (in this case, newsagents and/or their customers)."
The Commission also doubted whether, if booking fees did increase, the demand for home delivery would in fact be reduced (par. 103).
The Commission said (par. 108) that it did not think that
the:
"abandonment o f the publishers' restrictions relating to home delivery by newsagents would result in a decline in circulation of publications, or an increase in overall industry costs to maintain the same circulation."
The Commission concluded (par. 136) that, having
considered the system as an integral whole, "in terms of
sections 90 and 93 ... the system substantially lessens
competition and does not result in any benefit to the public".
The Commission therefore proposed to deny authorization.
5.2 New South Wales final determination of 1980
The draft determination of 5 February 1979 was followed
by the final determination of 7 February 1980 which is reported in [1979-801 ATPR (Com) 35,200. In the meantime, the Federal Minister for Business and Consumer Affairs had issued a media statement which stated that the Government had decided to intervene in the matter, that it had received many expressions of concern about the possibility of disappearance o f the present exclusive newsagency arrangement, representations coming in particular from newsagents and from members of the Parliament. The statutory conference was held by the Commission on 20 March 1979 and attended by a large number of persons including a representative of the Minister.
After the predecision conference, the publishers redefined their position and had discussions with representatives of the newsagents and of the Minister (par. I1 of the Final Determination).
In pars. 16 to 19 the Commission said:
"16. The force of those remarks was
apparently recognised, because the publishers sought by their amendments to reduce the anti-competitive effect of the system. They
| (1) | re1 axed the control over newsagents; |
| (ii) | admitted a representative of the newsagents to membership of the Council that was to administer the system; |
(iii) introduced an appeal from decisions o f the Council t o an independent Appeal Tribunal;
| ( i v ) | made i t s p e c i f i c a l l y clear that each publisher can individual ly decide t o supply publications t o any business i n a t e r r i t o r y other than the accredited newsagent provided the business i s not c lear ly i d e n t i f i a b l e as a newsagency specialising i n the sale o f a wide range o f newspapers and magazines. |
| 1 7 . | The | resul t | o f | ( i ) , ( i i ) , | and (iii) |
| above | i s | that | newsagents | are | more |
| independent than they were before . | For |
example, they have appeal r igh t s and a share i n the administration o f the system, they are now somewhat l e s s subject t o publishers' directions and demands for information, and they have some freedom as t o the to ta l range o f publications they
| w i l l stock. | They | can | s e l l | out | a t t h e i r |
own price t o a party o f t h e i r own choosing, w i t h the Council retaining only
a l imited right o f veto (on grounds o f
financial means, business capacity and standing) subject t o appeal t o the Appeal Tribunal. The price need no longer be related wholly t o circulation i tems, and,
i f a newsagent increases trade i n other
goods o r services , he w i l l have the opportunity t o reap the bene f i t o f it when he comes t o s e l l out . Meantime he w i l l be
| f ree | t o | engage | i n | other | business |
| a c t i v i t i e s | provided | he | meets | h i s |
| o b l i g a t i o n s | under | t h e | Newsagency |
| Agreement. | He | w i l l be | en t i t l ed t o own | u p |
t o three newsagencies.
| 1 8 . | There i s s t i l l , however, | considerable |
control over the way the newsagent conducts h i s business (claimed t o be for the purpose o f securing e f f i c i e n c y and
| good | services t o the publ ic) . | And | an |
| essent ial part | o f the system remaining i s |
| that | the newsagent | cannot | f i x h i s own |
del ivery charge according t o h i s own cos ts o f del ivery but must not charge more than the maximum fixed by the publishers even i f t h i s i s unprofitable t o h im and has t o
| be | subsidised | by h i s over-the-counter |
s a l e s .
| 1 9 . | The | h e a r t | o f | t h e | s y s t em | - | the |
| t e r r i t o r i a l | monopoly | o f | newsagents | - |
| remains . | Newsagents | themselves | a r e |
| preven ted | from | b r e a k i n g i t | down | b y s e l l i n g |
| o u t s i d e | t h e i r own | t e r r i t o r i e s . | P u b l i s h e r s |
| a r e | preven ted | from | b r e a k i n g | i t | down | by |
| s e l l i n g | t o | o u t l e t s | t h a t | a r e | o r | become |
| newsagencies | and | t h a t | a r e | n o t | a c c r e d i t e d . |
| A s | t o t h e p o s s i b i l i t y | o f b reak ing | i t | down |
| b y | s e l l i n g | t o | o u t l e t s | such | a s |
| supermarke t s , | p u b l i s h e r s | r e t a i n e d | some |
| i n d i v i d u a l | freedom | i n | t h i s m a t t e r | b e f o r e , |
| and | there | were | o n l y | two | p a r t i c u l a r |
| magazines | t h a t were | s o | s u p p l i e d . | But | now |
| ( s e e | ( i v ) i n | para. | 1 6 | above) | it | i s |
| under l i ned | t h a t | s u p p l y | must | n o t | reach | t h e |
| s t a g e | o f making | any | o t h e r o u t l e t | i n e f f e c t |
a newsagency. "
| I t i s c l e a r t h a t t h e submiss ion of the Government | t o the |
| Commission | played | a | v e r y | l a r g e | r o l e | i n the | d e l i b e r a t i o n s | o f |
| t h e | Commission | i n | reach ing | i t s | c o n c l u s i o n | t o | g r a n t |
| a u t h o r i z a t i o n | i n c l u d i n g | t h e | submiss ion | b y | t h e | Government | ( s e e |
| par. | 3 3 ) t h a t it saw: |
| " t h e widespread | a v a i l a b i l i t y o f newspapers |
| and | magazines | and | t h e | a v a i l a b i l i t y o f | a |
| prompt | and | low c o s t | home | d e l i v e r y s e r v i c e |
| a s | b e i n g | t h e | p r i n c i p a l | p u b l i c | b e n e f i t s |
| a r i s i n g | from | t h e | sys tem. | Newspapers | and |
| magazines | prov ide | a g r e a t | range | and | d e p t h |
| o f | i n f o r m a t i o n | and | comment. | Widespread |
| d i s s e m i n a t i o n | o f | i n f o r m a t i o n | and | o f |
| c r i t i c a l | comment | i s | regarded | b y | t h e |
| Government | a s b e i n g o f major importance | i n |
| a | democra t ic | s o c i e t y | such | a s A u s t r a l i a . " |
| T h e we igh t | g i v e n | b y | t h e Commission | t o the | Government 's |
| v i e w s | i s i l l u s t r a t e d | f u r t h e r b y par. | 36 | which | r e a d s : |
" I f the requirements imposed on newsagents
continue - a s the price o f t h e i r
| t e r r i t o r i a l | monopoly | - | that | w i l l |
| perpetuate subsidisation o f home de l ivery | i n outlying areas, extended shop hours, | |||||
| ||||||
| ||||||
| ||||||
| newsagency system secures that r e s u l t . The Government submits t h a t i t i s a matter o f public bene f i t t o secure that r e s u l t , because o f the importance t o be attached t o the dissemination o f news and comment i n a democratic socie ty . The Commission accepts that submission, coming a s it does from the elected Government speaking a s t o matters o f po l i t i ca l and social judgment with regard t o the community a t large." |
| In | conclusion | (par . 3 7 ) t he Commission said: |
"When i t comes t o balancing public b e n e f i t against anti-competitive detriment, i t has t o be remembered that the l a t t e r i s
| substantial | ( s ee p a r a . | 20 above), although |
| l e s s than | i t was | before because o f t he |
changes t o the system made by the applicants since the d r a f t determination. Having accepted the kernel o f the public
| b e n e f i t case ( see p a r a . 3 6 ) , there i s | d i f f i c u l t y i n balancing i t s qua l i ta t i ve | ||||
| nature against the detriment which i s o f a more usual economic nature. However, i n finding public b e n e f i t , the Commission has given special weight t o the Government submission for the reasons se t out i n para. 36, and the same approach indicates a h i g h value for the public t m e f i t - | |||||
| |||||
|
The Commission granted authorization to the relevant applications as amended by the applicants for authorization after the publication of the draft determination.
5.3 The 1982 determination
Application was lodged on 9 November 1981 with the Commission for authorization to certain proposed agreements between HWT, David Syme and VANA, which together then constituted the NCV.
The Commission made a draft determination dated 3 December 1981 in which it granted authorization to the proposed agreements, subject to any pre-decision conference that may be requested pursuant to s. 90A of the Act (par 4.10). The draft determination is reported at [I9821 ATPR (Com) 50-035.
The Commission referred (par. 2 of the draft determination) to the New South Wales draft and final determinations, to which reference has been made. It noted (par. 3.3) that the applications for authorization in respect of the Victorian system were in respect of agreements which were similar to those then governing the New South Wales newsagency system as authorized by the Commission, but with some differences reflecting different circumstances in Victoria. The Commission noted (par. 4.1) that the proposed Victorian system was broadly the same as the system authorized
by the Commission in respect of NSW in a structural sense and in the basic objectives of the system and the methods employed to achieve them.
The Commission's draft determination culminated in its conclusion (pars. 4.8 and 4.9) that it was satisfied that the differences between the proposed Victorian system and the NSW system were not such as to justify a different conclusion on anti-competitiveness and public benefit of the system as a whole. It said that the matters in respect of which there was a difference between the two systems were of no great consequence from the point of view of competition and public benefit analysis. The key anti-competitive feature of both systems was the grant of territorial monopoly to newsagents. The Commission was satisfied that it was the territorial monopoly that yielded the public benefit of a low-cost, efficient home delivery service and a greater availability of newspapers (and magazines) than would otherwise be the case and that that public benefit outweighed the anti-competitive detriment of the system.
The final determination of the Commission was dated 28 April 1982 (reported in [I9821 ATPR 5 0 - 0 3 5 ) and relied substantially upon the draft determination. The Commission proceeded to grant authorization "to the application".
It is plain from a perusal of the draft and final determinations that the Commission relied heavily on its previous determination made in respect of New South Wales and the ACT.
As mentioned earlier, the Commission commenced in March
1987 an examination of the newsagency system in Australia. On
15 May 1990 it released the Issues paper previously mentioned:
Study of the Distribution of Newspapers and Magazines. The Commission consulted with the parties to the agreements authorized under the 1982 determination, and with other interested persons, to achieve changes which it believed were necessary:
"to minimise anti-competitive effects and to ensure continuing benefits to the public. Lengthy discussions have taken place with a range of people who have an interest in the issues, including look- alikes, convenience stores, business agents, magazine publishers and distributors, retailers and individuals as well as the parties with a direct interest" : par. 1.8 of the 1993 determination.
5.4 The 1993 determination
Subsequently, on 16 September 1992, three applications were lodged by the applicants for authorization with the Commission. On 26 March 1993 the Commission issued a draft determination proposing to grant authorization. A pre- decision conference was held on 3 May 1993. The Commission's final determination was made on 30 July 1993 (the 1993
determination).
In its summary of the 1993 determination the Commission
said:
"The proposed system includes provisions
which allow:
"(a) for the development of delivery only newsagen ts who, as delivery specialists, are expected to offer greater efficiency by being able to be more responsive than shop based newsagents to the needs of delivery customers;
| (b) | removal of conflict between retailing and delivery functions of shop based newsagents, leading to sub-agent networks being developed and serviced to the optimum economic level; | |
| (c) | flexibility in commission sharing between authorised newsagents and sub-agents, and between publishers and authorised newsagen ts; | |
| (d) | direct supply by publishers to all types of retail outlets, where it is judged commercially viable; and | |
| (e) | reduced involvement of the Newsagency Council in the retail side of | |
|
Also in the Summary the Commission made the following
statements:
I t identified as public benefits likely to arise from the
proposed system, the provision of a low-cost, efficient home delivery service for daily morning newspapers and
the widespread availability of a broad range of
publications.
The obligation of newsagents to deliver, if required, to all addresses in a territory was said by the Commission to be a guarantee to the public of timely and convenient access to newspapers.
The proposed system would bind home delivery customers and sub-agents to one newsagent and the Commission had been assured that the publishers would respond to valid complaints by requiring newsagents to rectify particular problems, and in extreme cases terminating newsagency agreements.
The NCV informed the Commission that it would approve cross territory supply to sub-agents by applying certain criteria relating to inadequacy of service by newsagents. The Commission believed the application of those provisions would reduce the anti-competitive aspects of the binding arrangements.
The Commission considered that the proposed system would provide structural changes to the newsagency distribution system in Victoria and the catalyst for a change of attitude by publishers, newsagents and sub-agents in the way they relate to each other. This should lead to a
more pro-competitive environment in keeping with changes that were taking place generally in the marketplace in Australia. The omm mission believed that the authorization of the applications would introduce necessary change in a measured way which would allow for a period of adjustment for the industry which is characterized by many small family businesses. Once its determination had been finalized the Commission would wish to discuss with industry participants the implications and possible application of the changes in Victoria to other States.
The Commission expressed the view (par. 3.3) that the highly regulated system, particularly the way it regulates retailing operations and the supply by newsagents to other retailers, has prevented the industry from adapting to wider changes occurring in the marketplace and has insulated newsagents from the need to be innovative in meeting the demands of those changes. The system, the Commission noted, may therefore no longer be achieving the benefits for which authorization was granted and may be inhibiting the development of a more efficient distribution system for newspapers and magazines. The changes to the system proposed in the applications before the Commission seek to address the need for a more market oriented system.
This sufficiently recites the Commission's statements and findings in the 1993 determination. Although the 1993
determination is for an indefinite period, the Commission plainly hoped it would be of a temporary nature, leading in due course to a system substantially freer of anti-competitive detriment and more responsive to market forces and competition, a system which would:
"take the Victorian newsagency market closer to a deregulated system with a minimum of disruption to a large number of small businesses. The new arrangements create the environment for a more market
| oriented industry. | " (par. 10.12) |
The Commission said (par. 10.1):
"the arrangements involved in these applications present the opportunity for
| measured change. | " |
The Commission said it would monitor the operation of the
newsagency arrangements in Victoria that would exist following
the changes made to the present system by the 1993
determination.
Counsel appearing for the Commission at the hearing before us reaffirmed those perceptions of the Commission.
6 . THE WORKINGS OF THE NEWSPAPER DISTRIBUTION SYSTEM
6.1 The Australian Datterq
The most common system in Australia for the supply of newspapers and magazines to the final consumer distinctively relies on the specialized local newsagency. In towns and settlements that are not large enough to support a specialized newsagent, newspapers and magazines are typically sold by the local general stores. Specialized newsagencies and country general stores alike can be appointed collectively by newspaper publishers in each state as "authorized newsagents" within a designated territory, through a central administering body usually known as the Newsagency Council. The authorized newsagencies receive newspapers directly delivered to them by publishers, and typically they undertake both retail sale and further local distribution of the newspapers, by supplying other retail outlets in their territory and by arranging direct home delivery. This pattern of business in Australia has a long history.
Australia's major newspapers are published in the state capital cities and in Canberra. Publishers have been concerned to develop and refine systems of distribution that allow newspapers to be offered for sale, in both metropolitan and country areas, quickly, reliably, at low cost and with minimum unsold surplus. It can be no surprise in these circumstances that the publishers developed distribution procedures allowing close management and control of the detail
of newspaper distribution, and that took advantage of opportunities for fruitful cooperation among competing publishers in that respect.
The traditional Australian system, relying on the authorized newsagent, as both retailer and secondary distributor of newspapers, is the norm in New South Wales, Victoria and Queensland. The relevant commercial arrangements in these States are conducted under current authorizations of the Commission. Authorizations are also in force for systems in South Australia and ,Western Australia that are somewhat different, but still involve the appointment by publishers of authorized distribution newsagents. The South Australian system, as amended in 1988, is of interest because it provides for authorized agents who do not operate a retail shop and limit their business to delivery to homes and retailers. In Western Australian, with only one major newspaper publisher, authorized retail agencies are distinguished from delivery agents. Authorized arrangements in Tasmania provide for yet another variant: there is no Newsagency Council, and the newspaper publishers separately authorize agents with exclusive territories in the distinct regions of the state where each newspaper is primarily distributed.
Publishers of newspapers in Darwin and Canberra adopt
distribution arrangements that do not rely on authorization
under the Act. The Tribunal heard detailed evidence about a
distribution alternative recently introduced by the "Canberra Times", under which individual customers in Canberra and Queanbeyan can purchase subscriptions at advantageous prices. The "Canberra Times" manages a sophisticated system of direct home delivery of the newspaper to these subscribers, by-passing and competing with the parallel home delivery arrangements offered by newsagents operating in Canberra under the authorized New South Wales system.
Authorized newsagents are also the major channel for distribution of magazines in Australia. The major magazine publishers have elected over many years to take advantage of the newsagency system and of the secondary distribution networks that the authorized newsagents operate for newspapers, to place a wide variety of magazines beside newspapers in retail outlets across the country. Practice varies between States as to whether the magazine distributors are formally parties to the authorized systems, and whether they enter formal agency agreements with the newsagents that retail and distribute their products.
6.2 The scoDe of the Victorian svstem
The distribution of newspapers and other periodicals in Victoria is wider in its compass than the 1982 determination, which is confined to the conduct of the two publishers who pL.int and distribute Melbourne's major newspapers, and to the conduct of the more than 1,000 local newsagents across
Victoria, who are authorized newsagents and who distribute the two publishers' products in accordance with a system of authorized agreements and understandings, and in conformity with the decisions and rules of the NCV, which has representatives of both newspaper publishers and newsagents as its members.
The distribution of magazines does not fall within the scope of the authorized system, except in regard to those magazines that are published by the Age group. Three other companies which publish and/or distribute magazines (who together with the Age group supply almost all the magazine market) take advantage of the system to distribute their products through authorized newsagents and sub-agents, while remaining outside the Victorian authorization and outside the related administrative structure of the NCV.
Nor do other Victorian newspapers, including country newspapers, fall within the authorization, except in so far as they may be owned by one of the two major newspaper publishers. Free suburban newspapers are also outside the distribution system, and newsagency agreements with publishers require that such newspapers not be delivered in conjunction with the delivery of publications that fall within the system.
6.3 Arranaements for aovernance
Control of the distribution system for metropolitan daily
newspapers in Victoria is exercised by the NCV, through the application of its Rules as authorized by the 1982 determination, to the parties to the distribution system, viz. the publishers, the authorized newsagents and the sub-agents. These Rules provide for and in practice interlock with agreements between each of the publishers and the individual newsagents, the standard form of which was also authorized by the 1982 determination. Each sub-agent is also required to enter a standard form of agreement with the authorized newsagent supplying that sub-agent. The only constituent members of the NCV, and hence the parties taking collective decisions under its Rules, are the publishers (or particular associated or subsidiary companies of the publishers) and VANA, with the publishers in the voting majority.
The newsagency agreements (and supplementary agreements required of corporate owners of newsagencies) include the following restrictive elements :
Requirements pertaining to the operation of the newsagency's business; for example, as to shop hours, display of the publisher's material, standards of performance for home delivery within the newsagent's designated territory, the sale of classified advertisements, and the general right of the publisher to give instructions to the agent in certain respects.
The right of the publisher to direct the appointment of a sub-agent, and approve all sub-agency appointments.
Limitations and requirements relating to the sale, ownership and management of the newsagency, complementing similar rules of the NCV.
The right of the publisher to set a maximum level of fee that the newsagent can charge home delivery customers for the service.
The right of the publisher to terminate the agreement because of non-compliance, subject to the NCV's consent, and subject also to the appeal process provided for in the Rules of the NCV; and the right of the publisher to issue default notices in accordance with the Rules of the NCV .
I
| I | The standard form of sub-agency agreement with the newsagent requires that the sub-agent be supplied only by that newsagent, and precludes the sub-agent from the delivery of newspapers. The publisher must approve the commission rates applying. With the publisher's approval, the newsagent may terminate the agreement on a broad range of grounds. |
| I | |
| 6.4 f |
Melbourne's daily newspapers are printed in a series of
editions, commencing late at night. Each edition is promptly distributed, with the first edition of both papers going to country and interstate customers, because of the time required to reach the reader while the paper is timely and in demand. Later editions are directed in turn to closer destinations according to the distance to be covered and the commercial priorities of the publisher. Distribution to newsagents in time for early morning home delivery receives priority attention, because such deliveries represent for the publisher secure pre-ordered sales without significant returns of newspapers. About 41% of sales of The Age are home delivered, and 32% of sales of the Herald Sun. Newspapers for metropolitan retail sale are the last to be delivered, because direct retail sales by newsagents and sub-agents are generally made after home deliveries have been completed. The Herald Sun, being an all-day paper, also prints a day-time edition only for retail.
With few exceptions, the primary distribution by publishers is to authorized newsagents only, although the rules of the NCV allow the publishers to deliver also to non-newsagency customers (an infrequent occurrence). The Age has 1121 direct accounts, as against 1080 authorized newsagents. In the few cases where a publisher may elect to deliver direct to a sub-agent, the ordering of newspapers and the related administration remains the responsibility of the authorized newsagent in whose territory the sub-agent is
located.
Delivery to newsagents is performed by contractors, usually owner-drivers. The Age operates 60 metropolitan delivery runs on weekdays, and 132 on Saturdays when the newspaper is so large with classified advertisements that it must be delivered in two sections. There are 13 country delivery runs on weekdays, and 26 on Saturdays. A further 103 secondary "feeder runs" carry The Age to more remote country areas. The Herald Sun operates 66 metropolitan delivery runs,
16 country delivery runs, and 125 feeder runs. About 8 or 9
metropolitan authorized newsagents are served by each metropolitan delivery run of each newspaper, but the runs of the two newspapers do not coincide and are subject to variation as required. Sales of The Herald Sun are spread across the Melbourne metropolitan area, while sales of The Age are concentrated in Melbourne's southern and eastern suburbs.
Publishers retain a stock of newspapers at their production plant for urgent metropolitan delivery to cover shortages. These "extras" are supplied after a telephoned order by an authorized newsagent.
The long-standing practice among publishers of distributing newspapers through retail and delivery,agents on a "sale or return" basis places pressure on the publishers to control tightly the acceptance of orders and the timeliness of
delivery for sale. The normal variation in sales from one day to another, according to the current news story and factors, such as the weather, increases the difficulty of managing print runs and controlling the level of returns. Newspapers returned unsold are costly for the publisher because the cost of printing one copy of a newspaper will not uncommonly exceed its cover price, and certainly its "wholesale" price (i.e. its price less the 25% commission commonly paid to newsagents). This situation arises because newspaper revenue is derived from both the cover price and from advertising. The Herald Sun derives about 60% of its revenue from advertising, and The Age about 80%. The production cost of a copy of The Age on a Saturday, with its major content of classified advertising, is about $2.50, while the cover price is $1.20, and the price at wholesale 90 cents. Unsold returns of The Age are 9% on weekdays, and 7% on Saturday. Newspapers with lower circulations tend to have correspondingly higher unsold returns; for example 15% for The Australian Financial Review, and 30% for Stock and Land. Returns of HWT publications show a similar pattern - 10% for the Herald Sun on weekdays, and 9% at weekends, 20% for The Australian on weekdays and 15% on Saturdays, 14% for The Weekly Times. The Circulation Director of HWT told the Tribunal that an increase of 1% in the level of unsold copies of the Herald Sun returned from newsagents would reduce annual profit by $100,000.
The Tribunal notes the highly unusual business predicament of the publishers in respect of unsold returns, in that a production cost higher than the selling price makes effective control of the level of unsold returns critical to the economics of a business that conventionally sells its highly perishable product on a sale or return basis.
The importance of advertising to newspaper economics also encourages publishers to consider the demography of its readers, and to offer advertisers ways to focus more efficiently on specific groups of consumers. The production of distinct newspaper editions that are distributed particularly to country or metropolitan areas, for example, allows advertisers some limited opportunity for market segmentation. The Herald Sun's new Westgate plant has five presses that potentially can turn out editions for distinct regions. The Westgate plant also incorporates high-technology equipment that allows coloured advertising inserts to be placed in small runs of newspapers that can then be separated and delivered to distinct districts for sale. The advertising insert service is popular with small advertisers serving a regional market, and with chain stores wishing to confine a promotion to one district. Some practical difficulties are being experienced by HWT, and advertising inserts are at present subject to a minimum run of 100,000 copies. However, the insertion equipment is in principle capable of inserting advertising material down to the level of one truck run to a
local delivery area, i.e. about 8 or 9 metropolitan newsagents. The Age also offers an insert service to advertisers, but the insertion process is not automated.
| 6.5 | c | y |
The central business of a typical authorized newsagency is the retailing and secondary distribution of newspapers and magazines within a defined territory, as the contracted agent of the newspaper publishers, and on behalf of magazine publishers and distributors. Evidence to the Tribunal suggests that typically more than half of the gross revenue of a newsagency is derived from the delivery and sale of newspapers and magazines. Other elements of the business are commonly the retailing of greeting cards, stationery, cigarettes and confectionery, and sometimes the operation of other agencies, such as Tattslotto, dry cleaning, bank and post office agencies.
accepted by banks and other financial institutions as the basis for loans to these small businesses. The applicants for authorization were keen to emphasize that there is no longer a requirement for sales to take place at the NCV valuation, but we were not surprised to be told that the market price of newsagencies is quite closely related to the NCV valuation (though somewhat above it).
As we earlier explained, the assessment of goodwill by the NCV is a systematic and detailed procedure that places a higher valuation on gross profit earned from newspapers and magazines than from other strands of the business. In our view the very existence of these elaborate calculations and the reliance of financial institutions upon them introduces a bias into newsagency operations which can then be viewed as an organization to maximize goodwill as calculated by the NCV, rather than the capitalization of future profits arising from competitive activity. In answer to the Tribunal's questions Mr Prowse said:
"really we do not want newsagents taking their eyes off the ball and the ball to us is newspapers and magazines and some other articles like cards and paperbacks and stationery. So, the weight has been in there so that when they come to think about their business plans and their day- to-day operation, that they concentrate on newspapers and magazines . . .
It is a 'trusted formula' arrived at over the years."
Question:
"But it also represents, does it not, the profile of the kind of person you are looking for and therefore that is a reason it could be of interest to financial institutions?"
Answer :
"Yes, it does."
There is another consideration. The three modes of distribution for newspapers and magazines - home delivery, supply to sub-agents, newsagency retailing - have been created and are enforced by the publishers' agreements. The coincidence of the three functions in the one enterprise has not been subject to the market test. It has been protected by the grant of territorial monopoly which finds only partial justification in public benefit. As Professor Williams said there is no reason to expect that optimal scale for each of the three functions would coincide in that one establishment. Further, the evidence was that there is a diversity in the contribution to profit made by each of the functions in different geographic areas; yet each territory is locked in to the same three-fold structure. Furthermore, there is no reason to expect that the three functions would be perpetuated in light of changing tastes and technologies if subjected to market forces.
There was very general agreement amongst witnesses from all sides that there is a need for the development of delivery-only newsagents ("delivery specialists"); a need to consolidate some old newsagency zones; a need for a mechanism that would improve supply to look-alikes and other non- newsagency outlets. But there was disagreement as to whether the revisions envisioned by the Commission's 1993 determination could be the vehicle for a desirable and sufficient process of change.
In sum, the benefits and detriments of the newsagency system are two sides of the one coin, in that both flow from the restraints of the system. From some viewpoints an element of benefit appears only to be swallowed up by the offsetting detriment - the excesses of a territorial distribution system that blankets a whole industry. Our overall assessment is that the system is inefficient.
7.5 Anti-comwetitive detriment
In the present context, anti-competitive detriment refers, in the language of s. 90(6) to "the detriment to the public constituted by any lessening of competition that would result, or be likely to result" from the system under examination. As with the assessment of benefit we give the characterization of the "detriment to the public" a wide ambit, namely, any impairment to the community generally, any harm or damage to the aims pursued by the society including as
one of its principal elements the achievement of the goal of
economic efficiency, in the sense we have adopted.
We find that there are two major classes of detriment:
inefficiency
denial of commercial freedom and economic
opportunity.
That this is the case must be abundantly clear from the preceding paragraphs. At this point we highlight in encapsulated form the nature of the detriment that flows from the present system.
7.5.1 Inefficiency
As with the identification of benefit, we take a "with and without" approach, seeking to identify the likely outcome were the system not to exist; yet we can foresee likely results only broadly because the precise outcome must be determined by the working of market forces. It is one of the functions of the competitive market, here denied operation, to discover "the kinds of goods and services the community wants supplied in the cheapest possible way".
The inefficiency stems, at base, from the following facts: the somewhat muted competitive environment; the hori.zonta1 agreement between the newspaper publishers largely not to compete in the distribution function; the rigidities of
the highly integrated system they employ; and the substitution of rules, regulations and committee processes for market incentives.
Accompanying the rigid margins, the rules and regulations, there is a standardized and inflexible newsagency service, focused upon the three functions of delivery, shop selling and sub-agency supply. The style of retail shop is governed by the publishers' criteria. Newsagents must be selected by the NCV and respond to the weighting of the various items in the goodwill calculation. The scale of the shop is constrained by the need to accommodate the other functions within the defined territorial boundary. Alternative styles of retailing to the newsagency have difficulty in obtaining supplies on suitable terms. All this flows from the fact that the newspaper publishers operate a private licensing system that creates high barriers to entry, determining who shall enter retailing and in what capacity.
For the delivery customer faced with poor service, or inflexibility in delivery arrangements or billing disputes, there is no choice of supplier. For consumer sovereignty there is substituted a complaints system of very doubtful utility. We were told that there are few consumer complaints in fact. In all the circumstances we take that as an indication, not of consumer satisfaction, but of consumer submission.
One example of the standardization of service is the trading hours of the authorized newsagent, to a large extent determined by the delivery function. Subject to exceptions (from location in shopping centres and trading in Tattslotto) there is a commonality of closing time: about 6 or 6.15pm. One obvious reason for this is that the newsagent, under the current system, must be tired from the need to rise at 3.30 or 4am in order to commence delivery at 5.30am.
So much for the characteristics of the retailing service as perceived by the consumer. Turning to the organization of supply, the outstanding fact is its rigid and historical structure as reflected in the specification of functions, limitations upon scale, and double-handling as between agent and sub-agent. Much of this rigidity is claimed to be justified by the provision of "low-cost home delivery", yet we have found that the system has built-in disadvantages in performing the delivery function, namely, the inflexibility of territories, the tie of home delivery to other newsagency functions and the limited access to modern information and control systems.
Finally, we review the performance of the system from the standpoint of dynamic efficiency. This is perhaps the outstanding detriment. It arises from the perverse structure of incentives, the rigidity of system design, the need to negotiate change in the publishers' joint interests. We refer
not just to the insulation of the system from new techniques of physical distribution, but also to new forms of retailing. It is striking that, whereas in so many fields of retailing over the last 30 or 40 years there has been a revolution in retailing forms,, the newsagency trade remains the same.
7.5.2 Denial of commercial freedom and economic
| v | - |
We were told that there is no shortage of people wishing to become newsagents. Yet it is a hard life, in many ways, driven by the need to maintain or increase goodwill according to the publishers' formula. There is only a restricted range of business decisions open. There is forced supply to sub- agents who may well be competitors. There are built-in limitations upon the scale, functions and merchandise range.
A newsagent may operate no more than three stores. There is
limited opportunity to innovate.
The only alternative form of retailing represented before the Tribunal was the convenience stores, but we bear in mind that their complaints are of wider application. The essential complaint of the convenience stores is the denial of economic opportunity that is associated with the system. They say, in the words of counsel for the AACS: "There is no choice of supplier; supply is most often sourced from a potentially competing retailer; there is no flexibility as to terms of supply; and sub-agents' commission is effectively non-
negotiable." The Tribunal concludes that alternative forms of retailing - and not just the convenience stores - are denied the opportunity to discover, and to demonstrate, what they are capable of achieving.
The Tribunal had before it a lengthy tabulation of complaints from 7-Eleven sub-agents regarding supply and service from authorized newsagents, the newsagents' replies to the specific allegations and the 7-Eleven responses to these replies. Whatever the substance may be in any particular allegation, it is clear that the essential problem the tabulation reflects is that the sub-agents have no alternative source of supply, and that supply is often in the hands of a direct competitor.
7.6 Defensible elements of the system
We use the phrase "defensible elements" to refer to those elements of the system which we judge could be so designed and implemented so as to yield net benefit.
We have concluded that some vertical restraints of the publishers could be defensible if they were not designed, implemented and enforced by the horizontal agreements (extending to "understandings") that we have described. In such an alternative world, any prospective industry body would have vastly different functions from those presently undertaken by the NCV. The Rules of the NCV and the standard
contracts would go. Also, VANA would be restricted to normal trade association functions (which could require authorization by the Commission). There would be a danger, that need not be spelled out, that VANA could be used as a pivot for reconstruction of the system through parallel agreements with each of the publishers.
More concretely, we find that a form of territorial exclusivity for each publisher's delivery elements could be justified, if designed and implemented independently. That might be thought to be difficult, given the long history of association of the publishers. But there are forces for change in the external environment; and the abandonment of the formal apparatus of the system would be an important force making for change.
These delivery elements could include initial contractors; and second level delivery operators from depots (for home delivery and possibly small retailers). These second level operators could be delivery specialists or distributors with wider functions. In no way do we seek to design a delivery system, only to indicate what could prove defensible under the procedures of the Act. We would not rule out the possibility that each publisher might choose to use the same second level delivery operators upon occasion, whether or not for the same territories.
In this alternative world, there would be many retailers with no delivery function, and therefore little basis for a distinction between agents and sub-agents - indeed for any agency status at all. In such a case the publisher might well prefer to undertake direct supply to all retailers of any size through its own contractors.
In any event, it would be undesirable for any category of retailer to be dependent upon a competitor for supplies - or for a retailer to be forced to supply a direct competitor. It is unwise to be too specific when merely speaking of the "defensible elements" of an alternative system. We would think, however, it would be difficult to make a case for any restraint upon one retailer's obtaining supplies from another.
| 8. LI LY | T AN | ON |
| 8.1 -nation, |
The 1993 determination was supported by the NCV, VANA and the Commission before the Tribunal. Though there were differences in emphasis, the broad position of all was that the 1993 determination would authorize conduct likely to enhance public benefit and diminish anti-competitive detriment. The comparison made was between the proposed arrangements and the state of competition that would exist under the existing authorization. We accept that this is the appropriate comparison. In particular, we take as the base the benefits and detriments we have found to result from the
operation of the present system and ask whether the proposed changes would be likely to effect an improvement in terms of net public benefit.
The changes envisaged to the present system are of two types: amendments to the formal agreements (the NCV Rules and the standard contracts) and assurances by the newspaper publishers of the way in which decisions will be made.
In their joint application to the Commission the newspaper publishers, the NCV and VANA stated:
"The proposed changes, particularly by permitting the development of delivery specialists and the direct supply by the publishers to all categories of retail outlets in a newsagent's territory, will lead to even greater efficiencies and to increased competition between newsagents and other outlets. At the same time, the restrictive aspects of the present arrangements will be reduced, as there will no longer be any Council control over the shop aspects of shop/delivery newsagents, or over shop only newsagents, the limit on the number of newsagencies that can be owned is to be removed, and newsagents are to be a party to decisions as to maximum home delivery fees.
The parties do not see such changes as being required to meet any changes that have occurred in the industry over the last ten years, rather they are to meet the perception of the Commission that such changes will further enhance the current
| system. | " |
The Commission's authorization was largely in the terms proposed by the applicants with one significant addition relating to unsatisfactory service to sub-agents.
We now summarize the changes envisaged in a way that will highlight the amendments to the Rules (and contracts) and the assurances given by the publishers as to future conduct. For the most part we draw upon the language used in the application to the Commission. We emphasize that what follows are the changes envisaged by the applicants for authorization, not by us.
From a formal point of view, the Rules have always permitted the publishers to supply sub-agents directly, other than look-alikes (described in the Rules as a "business clearly identifiable as a newsagency specializing in the sale by retail of a wide range of newspapers and magazines except for railway and airport bookstalls"). It is proposed to remove this restriction in the Rules. "The publishers have given assurances that they will carefully (and individually) consider all such applications favourably if commercially viable" and that "they will be flexible in relation to the amount of commission allowed".
There would be a transition period of 2% years withir.
which compensation would be required from any such look-alike
to the affected newsagent.
| Se~aration | of delivery rounds |
Newsagents would be free to dispose of their delivery rounds, provided that the purchaser is approved by the NCV: "Each publisher will individually decide on the terms on which they will supply such newsagents."
The sho~-retailing function to be freed from control bv the
rn
The NCV asserted, and the Commission accepted, that an effect of the new arrangements would be to free the shop- retailing function from control by the NCV.
Removal of restriction on chain operation
The prohibition on a newsagent owning or having an interest in more than three newsagencies would be abolished, but the chain would be subject to the approval of the NCV.
Service to sub-aaents
The Newsagency Agreement would contain a requirement that the newsagent "properly and efficiently service" sub-agents in the territory.
Establishment of a deliverv fee committee
This proposal would operate largely to formalize current
practice in determining maximum delivery fees. The committee
would consist of equal numbers of representatives from the publishers and VANA, and would be chaired by the Appeals Tribunal who would have a casting vote. The Rules would be amended to provide that the maximum delivery fee is to be determined by this committee, rather than "the publishers".
Commission condition reaardina unsatisfactorv service to sub- aaents
The rule governing territorial exclusivity should be modified to provide that "if the Council is unanimously satisfied that a newsagent has failed to properly and efficiently service a sub-agent, and has continued such failure after fourteen days' written notice from the Council requiring him to rectify the problem, then providing a neighbouring newsagent is willing to service that sub-agent, the Council shall give its written approval to such neighbouring newsagent to supply the publications to such sub- agents".
8.2 Tribunal's assessment
We now turn to our assessment of the proposed changes.
The most striking feature of the proposals is how little the essential. structure of the newsagency system would be changed. It would remain largely a joint distribution system administered by the NCV. The Rules of the PICV,' the standard contracts with newsagents and sub-agents, would remain.
Exclusive delivery territories would remain. Sub-agents are still to have no choice of supplier, apart from the possibility that the NCV might effect some relief from an unsatisfactory newsagent. What change there might be would be determined and administered largely by the NCV. There is no movement towards what we have termed the defensible elements of the system. There is nothing to motivate the newspaper publishers to compete in the distribution of their product.
Next we note the permissive quality of the changes to the Rules and the standard contracts authorized by the 1993 Determination. In its Summary of its determination, the Commission lists the respects in which the new provisions would "allow" changes to the system. When challenged on this point in the Tribunal, counsel for the Commission said: "At least the gates are open."
Another feature is the manner in which authorization would place reliance upon the NCV and the publishers' disciplinary procedures rather than upon market sanctions. The Commission writes in its determination of the manner in which home delivery obligations are:
"supported by a commitment from publishers to discipline newsagents who do not meet their obligations. Every instance of a home delivery customer who justifiably complains against an authorized newsagent detracts from the system. The Commission is satisfied that the publishers' commitment to discipline newsagents who do
not comply with their obligations should satisfactorily clear up problems and ensure realization of public benefit."
As regards sub-agency supply:
"There is now a commitment from publishers that where appropriate, they will issue instructions to newsagents to remedy problems relating to account formats or commissions. The commitment from publishers and a structure for the Council to exercise its power to approve cross territory supply in response to problem situations would be expected to place greater pressure on inefficient newsagents to perform."
Yet, having noted these features, we turn to what must be the question for the Tribunal, namely, whether the proposed changes would nevertheless give rise to an improvement over the existing system.
The applicants for authorization accepted that the present system is anti-competitive. They claimed that the changes to the system would lead to a reduction in anti- competitive detriment. To some extent they were pointing to a likelihood of increased competition. This they predicted would occur between the look-alikes (with improved supply) and the authorized newsagents, and between delivery specialists and over-the-counter-retailers. To some extent they were relying upon an amelioration of the detriments associated with limited competition through the various disciplinary measures
that, it was said, would be instituted by the publishers and
the NCV against recalcitrant newsagents.
Some public benefit was also claimed. First, they pointed to the manner in which the amalgamation of delivery rounds could give rise to efficiencies. This would come about from specialization in the delivery function, economies of scale from combining territories, and adjustment of territory boundaries to changed circumstances. They envisaged the possibility of trade in delivery franchises which would be a force, in itself, for increased efficiency.
In our view the applicants' claims reflect an appropriate perception of some important defects in the present system. But we are sceptical as to whether the claims are likely to be vindicated; and we are troubled that a degree of success could inhibit the development of a less restrictive alternative.
Counsel for the Commission placed most emphasis upon two lines of argument. First, there was the claim that these proposals would give rise to "measured change" (cf the determination at 10.1). Alternative expressions were "phased change" and "managed change". By this it was meant that the authorization would be essentially a transitional phase on the way to a restructuring of the kind envisaged in the Hilmer Report.
The claim was rejected, not only by 7-Eleven, but also by the NCV. Counsel for 7-Eleven said this could not be a proper characterization in that the authorization would be of indefinite duration and, further, there had been a failure to identify the mechanism for phased change. We accept this submission. In any event, at the commencement of the proceedings counsel for the NCV roundly rejected any such characterization: he said there is benefit to the public from the very existence of the system whose operation would be enhanced by the proposed changes. Given this belief, it would be unreal to characterize the 1993 authorization as facilitating "phased change" to a deregulated industry.
The second line of argument is more weighty. This was the contention that precipitate change to the current system would likely result in hardship and economic detriment to existing newsagents. The determination expressed the point thus: "the authorization of the applications will introduce necessary change in a measured way which will allow for a period of adjustment for this industry, which is characterized by many small family businesses". There is a particular concern to protect, at least to a degree, the goodwill of existing newsagency businesses.
The Tribunal has given careful thought to the importance
and relevance of this consideration. We have reached the
conclusion that it is not a persuasive argument for preserving
the newsagency system for an indeterminate period; nor is it
persuasive in support of the 1993 determination.
We have come to the conclusion that the existing newsagency system is a shackle upon the capacity of the authorized newsagent to adjust to the present world - and the world that is unfolding. There have been enormous changes in market circumstances since 1980-82: the rise of television; the demise of the evening paper; shifts in the structures and forms of retailing; the emergence of significant newspaper outlets outside the authorized newsagency system; shifts in public attitudes; and shifts in public policy on competition issues. The newsagency too must change; but in a way, and by a process, different from that envisaged in the applications for authorization. In such a case it could be appropriate to build in a period of adjustment, albeit one that is strictly limited.
9. Conclusion
We are not satisfied that there would be any benefit to the public from the proposed changes to the newsagency system.
We further find that the applications would be likely to give rise to anti-competitive detriment as compared with a continuation of the present system. The present system, in turn, gives rise to severe dnti-competitive detriment as compared with the circumstances that would likely prevail were
the system not to exist. The 1993 determination purports to be directed to providing for the future, but a confirmation of its terms would serve to entrench a system that is increasingly anachronistic. The present system is subject to considerable tensions and pressures for change. The proposals for variation of the system would have the effect of patching up a system that is ripe for fundamental change. In our view, also, the consultative practices endorsed by the 1993 determination would reinforce the joint. market power of the newspaper publishers exercised through the NCV.
The result of our determination is that the 1982 determination will stand unless and until it is revoked by the Commission.
The present system has been in operation for many years and there has been clear change in some material circumstances since the 1982 determination.
We realize that for changes to be introduced overnight to completely remove the present problems of anti-competitive detriment would be difficult and possibly cause injustice. In any regime of deregulation some parties will claim that their commercial interests will be damaged. Nevertheless, public policy will require that deregulation shall proceed in an orderly manner. In our view and on the basis of the material before us, the interests of public policy would be met if the
present bad features of the newsagency system are removed
within approximately three years.
In these circumstances it is unnecessary to consider the question whether interveners should be entitled to become members of the NCV because it does not arise in the light of our declining to grant authorization.
The ~ribunal sets aside the 1993 determination of the
Commission.
I certify that this and the preceding one hundred and thirty-four (134) pages are a true copy of the reasons for decision herein of the Trade Practices Tribunal.
Associate
Dated: 11 November 1994
Counsel for Queensland
Newsagents Federation
Solicitors for Queensland
| Newsagents Federation | Hunt and Hunt |
| Counsel for 7-Eleven | Mr Styant-Browne & Mr M Walter |
| Solicitors for 7-Eleven | Slater and Gordon |
| Counsel for AACS | Mr J Gobbo |
| Solicitors for AACS | Cornwall Stoddart | |||
| Counsel for ACP Publishing | Mr Taperell | |||
| Solicitors for ACP Publishing : | G Q Taperell | |||
| Counsel for Eastern Suburbs | ||||
| Newspapers | Mr D M Yates | |||
| Solicitors for Eastern Suburbs | ||||
| Newspapers | Gilbert & Tobin | |||
| Counsel for Gordon & Gotch | Mr R D Strong | |||
| Solicitors for Gordon & Gotch : | Mallesons Stephen Jaques | |||
| Counsel for NCV | Mr C M Scerri | |||
| Solicitors for NCV | Freehill Hollingdale & Page | |||
| Counsel for VANA | Mr A Kuhn | |||
| Solicitors for VANA |
| |||
| Hedderwicks | ||||
| Counsel for TPC | Mr B J Hess | |||
| Solicitors for TPC | Austrlaian Government Solicitor | |||
| Dates of Hearing | 4, 5, 6, 7, 11, 12, 13, 14, 15, 19, 20 July 1994 | |||
| Date of Judgment | 11 November 1994 |
Witnesses - In order of examination
Anthony Raymond Prowse
Circulation Director of Herald & Weekly Times
Chairman NCV
Daryl Michael Fedden
National Circulation, Sales and Marketing Manager of Gordon & Gotch Limited
Alan Gordon Lyons
Circulation Manager of Syme ("The Age" etc)
Director of NCV
Charles Wallace Killingbeck
Field Service Manager VANA
Lindsay Albert Hathaway
Authorised Newsagents at Traralgon
Magdi Batty
Authorised Newsagent at Northvale
Russell George Withers
Chairman of 7-Eleven Stores Pty Ltd
Mr Samaras
General Manager of the Canberra Times
Broderick Ivory
National Marketing Manager of Quix Stores
Ian Malcolm Burns
National Merchandise Manager BP Australia
Mr Walsh
Managing Director and Publisher of ACP Publishing
Dr Philip Williams
Assistant Director and Reader in Economics, Gradutate School of Management,
University of Melbourne
Professor Robert Rupert Officer
AMP Chair of Finance & Deputy Directorship of Melbourne Business School
James Leslie Longmire
Senior Lecturer Economics, University of Queensland
Alan Donald Farquhar
Director of Farquhar Associates Pty Ltd
Urban Research Consultant
Statements of Persons who were not called as witnesses
Kenneth Garrv Murphy
Chief Executive OfJicer of QNF
Robert Stewart Dean
Newsagent; Chairman, Board of Directors, QNF
John Stuart Western
Professor of Sociology, University of Queensland
Clement John Llovd
Professor of Journalism, University of Wollongong
Peter D i m o ~ o u l ~ ~
Co-owner of 7-Eleven Franchise, Heidelberg
Irene Helen Zeitler
| Solicitor for | NCV |
Barrv Thomas Anderson
Executive Director AACS
Jeffrev Rogut
National Merchandise Manager of Shell House
Peter Matthew
Merchandise Manager of Ampol Road Pantry Stores
Laurence Bain Predolin Hiu
Franchisee of Food Plus Convenience Store, Belmont
David William McKernaq
Franchisee of Shell Store, Kew
Carl John Stillman
Franchisee of Ampol Road Pantry Store, Springvale
Graeme Clive Oxley
Manager of Authorised Newsagency, Heidelberg
Neil Chandler
Authorised Newsagent at Croydon
1 %
Rodnev Rov Olsen
7 Authorised Newsagent at Balwyn West
| . |
Murrav James Monteith
| I | Authorised Newsagent at Belmont |
Attachment B
Summary of Commlsslon delermlnations
| State | Authorlsalion | Dran | Flnal | ATPR | Parlles |
| number | issued | Issued | reference |
| NSWIACT | A15421615423 | 52.79 | 72.80 | (1980) ATPR | John Fairlax d Sons Lld (Fairlax) |
| A1542SA15-426 | (can) | Astociahd Newspa ers Ltd | |||
| A15605 | 935-200 | Mirror Newspapers etd Nationwide News Pty Lld | |||
| NSWIACT' | A30092 | 22.12.83 | 26.4.84 | (1984) ATPR | Australian Consolidated rei is Pty |
| A30093 | (can) | Ltd (ACP) |
| P50-070 | News Lld (News) Newsagenu Association |
| Victoria | AW368 | 3.12.81 | 28.4.82 | (1982) ATPR | The Herald 6 Weekly Times Ltd David Syme 6 Co Ltd |
| f 4 | 50-035 | The Victorian Authorized Newsa- | |||
| gents Association |
~-
| Tasmania | A4782 | 30.1 1.83 | 9.5.84 | (1984) ATPR | The Mercury Newspapers Pty Ltd |
| A4937 | (Can) | (150-072 | |||
| Tasmania | A5001 | 30.1 1.84 | 62.85 | (1985) ATPR | The Advocate Newspaper Pty Ltd |
| NW021 | (can) g50-089 | ||||
| Tasmania | ' A501 0 | 3.10.85 | 21.1 1.85 | 1985) ATPR | The Examiner Newspaper Pty Ltd |
| A5013 | Icm, | ||||
| A501 6 | gs0-0ss | ||||
| A5018 N90054 | |||||
| Oueewlvd | A2061 | 26.7.85 | 18.10.85 | (1985) ATPR | Queenstand Newspapers Pty Ltd |
| ,42064 | (can) | Mirror Newspapers Ltd | |||
| A2089 | 950-097 | ACP Fairlax Newsagents Cooperative | |||
| Western | A102 | 1 .ll.85 | 30.1.86 | (-6) | West Australian Newspapers Ltd |
| Australia | ATPR | ACP | |||
| TVW Enterprises Lld (The Western |
Mail)
Nationwide News Pty Lld
Fairfax
Newsagents Association
| 23.12.87 | 30.3.88 | (1988) ATPR | Advertiser Newspaoers Lld |
| (can) |
| ||
| 850-071 | Advertiser-News Weekend Publishing Co Ply Ltd (ANWP) ACP Fairlax Newsagents Association |
| South | A90487 | 30.6.88 | 14.1 1.88 | (1988) ATPR | Companies owned by News Lld: |
| Ausualia | A43486 | (can) | Advefiiser Newspapers |
| (50-083 | ANWP Gordon 6 Gotch Ltd Nationwide News Ply Ltd trading |
1 as Southdown Press
| . | South | A60014 | 10.7.89 | 21 8.89 | (19901 ATPR |
| *, | :? Australia2 | A60015 | f c ~ l | The News (SA) Ltd |
| US0-0e-3 | ACP | |||
| ? . | Fairfax |
| ; | .. | Newsagenls Associalion |
| 1'. | 1 |
| r . | determinations deal1 with amecdmenls | la | the ryslem dealim wllh lhb a-anlmenl | of | sub-agents |
| c:, | Lld lor John Faillax & Sons Llb as the dlstrbulor |
| ~ p l i c a t r o n ~ | related only lo the s*nnutian | a! john Faidar Gloyl |
'$.~al F a i d u publicationr in South Auslraiia
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