AUSTRALIAN COMPETITION TRIBUNAL
Trade Practices Act – Newsagents in New South Wales, Australian Capital Territory, Victoria and Queensland – review of determinations made by Australian Competition and Consumer Commission – determinations revoking authorisations of Rules of Newsagency Councils relating to the distribution of newspapers and magazines and granting substitute authorisations – whether material changes of circumstances since authorisations granted – whether authorisations should be revoked – whether it is appropriate to grant further authorisations in substitution for those revoked.
Trade Practices Act(1974) (Cth) ss 90, 91, 101
Re: 7-eleven stores pty ltd, independent newsagents association, australasian association of convenience stores inc.
VON DOUSSA J, DR B I ALDRICH & PROFESSOR D K ROUND
SYDNEY
18 NOVEMBER 1998
IN THE AUSTRALIAN COMPETITION TRIBUNAL
NEW SOUTH WALES DISTRICT REGISTRY 6 and 7 of 1997
1, 2 and 3 of 1998
RE: APPLICATION FOR REVIEW OF A DETERMINATION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION MADE ON 12 DECEMBER 1997 REVOKING THE AUTHORISATION GRANTED IN RESPECT OF APPLICATION FOR AUTHORISATION No. A90368 AND GRANTING A FURTHER AUTHORISATION IN SUBSTITUTION FOR THE REVOKED AUTHORISATION (DISTRIBUTION OF NEWSPAPERS AND MAGAZINES IN VICTORIA) BY 7-ELEVEN STORES PTY LTD, INDEPENDENT NEWSAGENTS ASSOCIATION AND AUSTRALASIAN ASSOCIATION OF CONVENIENCE STORES INC.
APPLICATION FOR REVIEW OF A DETERMINATION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION MADE ON 12 DECEMBER 1997 REVOKING THE AUTHORISATIONS GRANTED IN RESPECT OF APPLICATIONS FOR AUTHORISATION Nos. A15421, A15422, A15423, A15425, A15426, A15605, A30092 and A30093 AND GRANTING A FURTHER AUTHORISATION IN SUBSTITUTION FOR THE REVOKED AUTHORISATIONS (DISTRIBUTION OF NEWSPAPERS AND MAGAZINES IN NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY) BY THE AUSTRALASIAN ASSOCIATION OF CONVENIENCE STORES INC.
APPLICATION FOR REVIEW OF A DETERMINATION OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION MADE ON 12 DECEMBER 1997 REVOKING THE AUTHORISATIONS GRANTED IN RESPECT OF APPLICATIONS FOR AUTHORISATION Nos. A2061, A2064, A2089 AND GRANTING A FURTHER AUTHORISATION IN SUBSTITUTION FOR THE REVOKED AUTHORISATION (DISTRIBUTION OF NEWSPAPERS AND MAGAZINES IN QUEENSLAND) BY AUSTRALASIAN ASSOCATION OF CONVENIENCE STORES INC.
MEMBERS: VON DOUSSA J (ACTING PRESIDENT), DR B I ALRDRICH, PROFESSOR D K ROUND
DATE OF DETERMINATION: 18 NOVEMBER 1998
WHERE MADE: SYDNEY
INDEX
1. Introduction
1.1 Newsagency Council of Victoria
1.2 Newsagency Council of NSW and ACT
1.3 Newsagency Council of Queensland
1.4 Authorised newsagents and sub-agents
1.5 The applications
2. History of Authorisations under the Act
3. The Relevant Law
4. The Authorised Systems and their Operation
4.1 The substance of the authorised conduct
4.2 Differences between the States
4.3 Impacts on the conduct of other retailers
5. Material Change of Circumstances
5.1 Changes of circumstances identified by the Commission
5.2 Changes in regard to the distribution of magazines
5.3 Conclusions
6. Should the 1980-1985 Authorisations be Revoked?
6.1 The evaluation of net public benefit in 1994
6.2 Strategic responses of publishers and newsagents after 1994
6.2.1 Responses by the authorised newsagents
6.2.2 The viability of the authorised newsagency
6.2.3 Responses of the newspaper publishers
6.2.4 Responses of magazine publishers and distributors
6.3 Re-evaluation of net public benefit in 1998
6.3.1 The relevant markets in 1998
6.3.2 An additional public benefit? – The survival of new magazines and small publishers
6.4 Conclusion
7. A Transition Period?
7.1 Submissions for and against a transition period
7.2 The evaluation method and the issue of managed change
7.3 Consultation and negotiation as mechanisms for change
7.4 The argument about uncertainty
7.5 The scope for introducing change during an authorised transition
8. Conclusions on Elements of the Authorised Conduct
8.1 The Tribunal’s task
8.2 The wholesale distribution of magazine publications
8.3 The wholesale distribution of newspapers to look-alikes
8.4 The wholesale distribution of newspapers by newsagents to sub-agents generally
8.5 The home delivery distribution of newspapers
9. The Decision
1. Introduction
Five applications for review have been made under s 101 of the Trade Practices Act 1974 (Cth) (“the Act”) of three determinations of the Australian Competition and Consumer Commission (“the Commission”) dated 12 December 1997. The determinations concerned the established systems for the distribution of newspapers in Victoria and of newspapers and magazines in New South Wales (“NSW”), the Australian Capital Territory (“ACT”) and Queensland, which for many years have operated under a number of authorisations granted between 1980 and 1985 by the Trade Practices Commission (“the TPC”). The three determinations challenged by the present review revoke these authorisations and grant substitute authorisations which will have the effect of allowing the same distribution systems to remain in operation until 1 February 2001. The determinations provided that if an application for review were made, the determinations would come into force either on the day that the Tribunal makes its determination or when the application for review is withdrawn.
The determination under review in relation to the distribution system in Victoria was a sequel to the decision of this Tribunal (then the Trade Practices Tribunal) delivered on 11 November 1994 in Re 7-Eleven Stores Pty Ltd, Australian Association of Convenience Stores Incorporated and Queensland Newsagents Federation (1994) ATPR 41-357(“Re 7-Eleven Stores (1994)”). That decision contained a detailed review of the distribution systems not only in Victoria but also in NSW, ACT and Queensland; see Chapter 6 and following from 42,661. The distribution system in each of these geographic regions has at all material times been administered by the Newsagency Council of Victoria Ltd (“NCV”), the Newsagency Council of NSW and ACT (“NCNSW”), and the Newsagency Council of Queensland (“NCQ”) respectively.
1.1 Newsagency Council of Victoria
The members of NCV presently are (1) The Herald and Weekly Times Ltd (“HWT”); (2) David Syme and Co Ltd, referred to in the Rules as “the Age Group” (“David Syme”); (3) News Limited and subsidiaries including Nationwide News Pty Ltd (“News”); (4) John Fairfax Holdings Ltd and subsidiaries including John Fairfax Publications Pty Ltd (“Fairfax”); and (5) the Victorian Authorised Newsagents Association Ltd (“VANA”). VANA represents the majority of the 1014 authorised newsagents who carry on business in Victoria.
News through associated companies publishes the Herald Sun and Sunday Herald Sun, primarily in Victoria; The Daily Telegraph and Sun Daily Telegraph, primarily in NSW; the Courier Mail and Sunday Mail, primarily in Queensland; and The Australian nationally. In addition, News publishes a number of smaller circulation newspapers and magazines.
Fairfax through associated companies publishes The Age and Sunday Age, primarily in Victoria; the Sydney Morning Herald and The Sun-Herald, primarily in NSW; and The Australian Financial Review nationally. In addition, Fairfax publishes a number of magazines, and undertakes the distribution of a number of smaller circulation newspapers and magazines on behalf of other publishers.
1.2 Newsagency Council of NSW and ACT
The rules of NCNSW specify that it shall consist of five members. Each member is a group. The five membership groups are: (1) The ACP Group comprising ACP Publishing Pty Ltd, and its subsidiaries (“ACP”); (2) The Eastern Suburbs Group which consists of three companies trading as “Eastern Suburbs Newspapers” (“ESN”); (3) Fairfax; (4) News; and (5) the Newsagents Association of NSW and ACT Inc. The Association represents the majority of the 1309 authorised newsagents who carry on business in NSW and ACT. The newspapers published by Fairfax and News are referred to above. ACP is the publisher of over 60 magazine titles including The Australian Womens Weekly, Women’s Day, Cleo, Cosmopolitan and The Bulletin. In the 1997 calendar year ACP's audited circulation exceeded 95 million copies. It is the largest publisher of magazines in Australia, by copy sales. ESN through NDD Distribution Pty Ltd (“NDD”) and Retail Delivery Service (“RDS”) packs and delivers approximately 1500 magazine titles to 3647 newsagents on behalf of more than 400 publisher clients ranging from Time Inc Magazines (which publishes the high volume Who Weekly), to small publishers who produce limited runs of special interest titles.
1.3 Newsagency Council of Queensland
The Rules of NCQ provide that it shall consist of five members. The members are (1) Queensland Newspapers Pty Ltd; (2) ACP; (3) Fairfax; (4) ESN; and (5) The Queensland Newsagents Federation Ltd (“QNF”). There are 1113 authorised newsagencies in Queensland comprising a number of different categories of newsagency which the Rules of NCQ provide for.
1.4 Authorized newsagents and sub-agents
The Rules of each of these Councils (together referred to as “the Newsagency Councils”) establish and maintain a system of distribution for the publications of each of the publisher members. The Rules, which are discussed in more detail in Section 4 of this decision, provide for each Council to accredit newsagents (referred to as “authorised” newsagents) to sell and distribute publications in a defined and exclusive territory. Typically an authorised newsagency is a family business operating a retail shop which sells newspapers, magazines and a range of other items like greeting cards, stationery, books, tickets, stamps, cigarettes and confectionery. Each authorised newsagent has obligations to deliver the publications within the designated territory to final purchasers. The delivery may be by home delivery, over the counter sales in the newsagent’s premises, or through sub-agents. Historically an authorised newsagent has been the sole supplier of publications to sub-agents who range in size from small outlets like kiosks, milk bars and take away shops to large convenience stores and, almost exclusively in Victoria, “look-alikes”. A look-alike is a large retail outlet that has the appearance of being an authorised newsagency, but operates as a sub-agent, as it is in the territory of an authorised newsagent.
There are close to 6000 sub-agents (including convenience stores and look-alikes variously estimated at between 70 and 100) in Victoria, 4100 in NSW, and 3434 in Queensland.
The arrangements for distribution established by the Newsagency Councils’ Rules were the subject of authorisations granted initially by the TPC and are now the subject of the substituted authorisations granted by the determinations under review. Members of NCV, NCNSW and NCQ are the parties to the authorisations.
1.5 The applications
Applications numbered 6 and 7 of 1997 and 1 of 1998 have sought review of the determination of the Commission in relation to the distribution system in Victoria.
Application number 6 of 1997 has been brought by 7-Eleven Stores Pty Ltd (“7-Eleven”). 7-Eleven is a private wholly family owned company which operates a convenience store franchise network in Australia comprising 171 stores in Victoria, NSW and Queensland. The stores trade 24 hours a day, seven days a week and sell a diverse range of products including food, drink, household products, petrol, newspapers and magazines. In the 1996-1997 financial year the total retail sales generated by 7-Eleven was almost $199m of which newspaper and magazines sales accounted for approximately $11.4m. All 7-Eleven stores are supplied pursuant to sub-agency arrangements established under the Rules of the Newsagency Councils, except for the direct supply of magazines recently negotiated with ACP (see Sections 5.1 and 5.2 below) and Pacific Publications Pty Ltd (which is not a party to any of the authorisations).
Application number 7 of 1997 has been brought by the Independent Newsagents Association (“INA”). INA is an association of some 50 look-alike newsagents in Victoria who are independent of NCV.
Application number 1 of 1998 has been brought by the Australasian Association of Convenience Stores (“AACS”). AACS was formed in 1991 as a representative body to promote the objectives of the convenience store industry at a local, State and Federal Government level. AACS represents approximately 85 per cent of some 850 convenience stores operating throughout Australia. Members of AACS range from large franchise chains such as 7-Eleven, Quix, Caltex, Shell Select and BP Express to small individual store members. The majority of members’ stores are operated by individual franchisees. Convenience stores carry a limited range of newspapers and magazines. With few exceptions, each of these is obliged by the distribution systems established under the Rules of the Newsagency Councils to obtain newspapers and magazines as a sub-agent from the authorised newsagency in whose territory the store is situated.
Application number 2 of 1998 has been brought by AACS seeking a review of the determination in respect of the distribution system for newspapers and magazines in NSW and ACT. Application number 3 of 1998 has also been brought by AACS, and seeks a review of the determination in respect of the distribution system of newspapers and magazines in Queensland.
It will be noted that none of the applications for review have been made by members of the Newsagency Councils who are the parties to the authorisations. The Tribunal granted leave to the Australian Newsagents Federation Limited (“ANF”) to intervene in each of the applications for review, to 7-Eleven and AACS to intervene in the matters where they were not the applicants, and to ACP to intervene in relation to the three applications concerning the Victorian distribution system. ACP as a member of NCNSW and NCQ, was entitled to appear on the hearing of the review in respect of those applications as it was a person to whom the authorisations were granted; see s 109(1) of the Act. ANF is the peak industry body representing some 3400 authorised newsagents and seven State industry bodies (three of whom are parties to the authorisations under consideration) that also represent authorised newsagents.
At the hearing the primary position of the applicants was that the three substitute authorisations granted by the determinations of 12 December 1997, but not the revocation of the earlier authorisations, should be set aside. If this occurs the distribution systems established under the Rules of the Newsagency Councils would no longer have any authorisation under the Act. As fall back positions, the applicants contended that authorisation of the Rules which prohibit direct supply by publishers to look-alikes and convenience stores (including 7-Eleven stores) should be set aside or the duration of the substitute authorisations considerably shortened. ANF and ACP appeared at the hearing to contend that the determinations should be affirmed. Other publisher members of the Newsagency Councils did not appear on the hearing, although evidence from executives of the major publishers and from other participants in the distribution systems was led before the Tribunal by the Commission. The position of the publishers and the Newsagency Councils was that the authorisations under review should be affirmed.
2. History of Authorisations under the Act
The distribution systems now conducted under the Rules of the Newsagency Councils have been in place since early this century. They first received authorisation in respect of six applications made on 9 January 1975 in NSW and ACT pursuant to ss 88 and 90 of the Act on 7 February 1980. The history of events leading up to the authorisations granted for NSW was summarised by the Tribunal in Re 7-Eleven Stores (1994) at 42,655 - 42,659. Anti-competitive features of the system as it operated before the 1980 authorisations were identified in passages quoted by the Tribunal from the 1979 draft determination and from the 1980 determination of the TPC.
In the 1980 determination the TPC found that the effect of the distribution system on competition was substantially anti-competitive, essentially because of the territorial monopolies created for newsagencies. However, it considered the anti-competitive detriment was outweighed by the benefits to the public, and granted authorisation. The TPC found the following benefits to the public; subsidisation of home delivery in outlying areas; extended shop hours; and assured availability of a wide range of newspapers and magazines to the public. The TPC said that as a result, particular parts of the market would continue to be served that might otherwise be served only at a higher price or not at all, and that persons who might want newspapers or magazines would be able to get them, at times and by methods that were convenient for them.
Following the NSW authorisations, the TPC, for similar reasons, granted authorisations pursuant to ss 88 and 90 on 28 April 1982 in respect of the Victorian distribution system, and on 18 October 1985 in respect of the Queensland distribution system. Additional authorisations were also granted in respect of the NSW and ACT distribution system on 26 April 1984.
Under the authorised systems, the publications of parties to the authorisations are distributed on a basis agreed between the publishers and the industry organisation representing authorised newsagents in each of the States and Territory concerned. The agreed basis finds expression in the Rules of the Newsagency Councils which administered the systems in the relevant States and Territory. Authorised newsagents receive publications on an exclusive territorial basis. The territorial area is determined by the publishers, through their control of the Newsagency Councils, and by horizontal agreement between them. Each publisher is obliged to appoint the same newsagent for the same territory. In exchange for exclusive territorial rights, authorised newsagents are obliged to deliver under agreed conditions to all addresses within the territory when requested to do so, to supply sub-agents at the direction of the publisher and to operate for prescribed minimum hours a shop for retail sale and display of the publications of the publisher. The practical effect of the Rules is to prohibit home delivery sales and any other supply into the territory of another authorised newsagent, except with the consent of the relevant Newsagency Council.
In November 1988 the TPC announced a study into newsagency distribution systems throughout Australia. In May 1990, it released an issues paper entitled “Study of the Distribution of Newspapers and Magazines”. The paper raised a number of issues which the TPC considered should be addressed and invited input from parties with an interest in the industry. The release of the issues paper was followed by discussions between the TPC and NCV and its constituent members who later lodged applications relating to the Victorian newsagency distribution system which were intended to replace those then existing under the April 1982 authorisations.
After conducting inquiries, the TPC concluded that the proposed distribution system would result, or be likely to result, in public benefits which outweighed the anti-competitive detriments. On 30 July 1993 the TPC granted authorisations which retained core features of the system authorised in 1982, but with certain modifications.
The intended effect of these modifications was discussed in Re 7-Eleven Stores (1994) at 42,660. The modifications were intended to address certain aspects of the highly regulated distribution system which the TPC noted had prevented the industry from adapting to wider changes occurring in the market place, and had insulated it from the need to be innovative in meeting the demands of those changes. The TPC considered that the system might no longer be achieving the benefits for which authorisation was originally granted and might be inhibiting the development of a more efficient distribution system for newspapers and magazines. The 1993 determination was to be for an indefinite period. However, the TPC anticipated that the authorisation would be of a temporary nature, leading in due course to a system substantially more free of anti-competitive detriment and more responsive to market forces. This was intended to take Victorian newsagencies closer to a deregulated system with minimum disruption to a large number of small businesses: see Re 7-Eleven Stores (1994) at 42, 661.
AACS, 7-Eleven, and QNF each applied for review of the 1993 determination. AACS and 7-Eleven argued that the Tribunal should refuse authorisation in terms that made it clear that the TPC should exercise its power under s 91(4) of the Act to revoke the 1982 Victorian determinations. Conversely, QNF argued that the 1982 determinations should continue in operation without modification.
The Tribunal undertook a detailed analysis of the workings of the newspaper distribution system: see Re 7-Eleven Stores (1994) at 42, 661 - 42,685. It considered the power of the newspaper publishers in Victoria was considerable. In effect they operated a private licensing system which created high barriers to entry, determining who shall enter retailing and in what capacity. The Tribunal considered the key anti-competitive features were the horizontal agreements and understandings between publishers. These in turn interlocked with the parallel vertical agreements to deliver an anti-competitive outcome that was qualitatively different from that which would arise out of the independent practice of territorial exclusivity by individual publishers subject to market forces.
In Victoria, the parties to the authorisation were primarily newspaper publishers, and the Tribunal concluded that the authorisation did not extend to approval of a system for the distribution of magazines. However, the magazine publishers had been accorded ready access to the system, so much so that their de facto inclusion re-enforced the barriers to entry that existed against alternative methods of distribution.
At 42,688 the Tribunal expressed its ultimate conclusions:
“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 the 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…
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 anti-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 the result, the Tribunal set aside the 1993 determinations. That left in place the 1982 determinations for Victoria, but the reasons for decision in Re 7-Eleven Stores (1994) plainly raised the question whether the TPC should consider revocation of the authorisations granted in the early 1980’s, not only in Victoria, but in NSW and ACT, and in Queensland.
The decision in Re 7-Eleven Stores (1994) was handed down on 11 November 1994. On 16 June 1995 the TPC issued notices under s 91(4) of the Act to the corporations granted authorisation in respect of the distribution systems operative in Victoria, NSW and ACT, and Queensland and provided copies to other persons it believed to be interested parties. The notices stated that it appeared to the TPC that there had been a material change of circumstances since the authorisations were granted, and invited submissions. The notices formally commenced a review of the authorisations.
The Commission (having by then replaced the TPC) received a large number of submissions, including two from the Federal Government. On 26 November 1997, 7-Eleven filed an application for an order of review under s 7 of the Administrative Decisions (Judicial Review) Act (1977) (Cth) to review the failure of the Commission to make a decision as required under s 91(4) of the Act as to whether or not to revoke the 1982 Victorian authorisation. On 12 December 1997 the Commission published the determinations now under review.
The Commission determined that there had been a material change in circumstances since the issue of the authorisations in the early 1980’s. This view accorded with that expressed by the Tribunal in Re 7-Eleven Stores (1994). In a summary of the decision attached to the determinations, the Commission said:
“The system has a lack of flexibility which creates inefficiencies and reduces the choices available to both businesses and consumers. Authorised newsagents are restricted in the ways they can develop their operations.
While it has been three years since the Tribunal's decision in 1994 which suggested a period of three years to allow for adjustments to the system, the Commission's enquiries and the time taken to receive and consider submissions has meant that no progress has been made by the industry towards making changes called for by the Tribunal, in the past three years.
The Commission understands that there is an expectation, particularly among newsagents, that the present distribution arrangements would continue in full for a defined period from the time of the Commission's decision. Other parties with an interest in the system oppose any continuation. Notwithstanding that, the Commission considers the industry itself still needs time to consider what it has to do to meet the Tribunal's concerns and to put in place and adjust to such changes as are necessary. The Commission considers that there is benefit in allowing a period of stability and preparation for changes to come.
The Commission accepts that there are strong arguments by those adversely affected by the current arrangements to have the system deregulated over a reasonable timeframe. The Commission is also conscious that if it does not allow some reasonable period of transition from the current system many, but by no means all, authorised newsagents will be disadvantaged.
The Commission has concluded that the transition period needs to give both publishers and newsagents time to adjust and in the circumstances the appropriate timing for the expiration of the substitute authorisation is 1 February 2001.
There has been some concern that if the Commission were to find against the existing system home delivery of newspapers would cease. That issue was considered in the Government submission and by the Tribunal. On the evidence before the Tribunal and the Commission and in the submission of the Government, that is unlikely to be the case. The existence of an efficient home delivery system is very much in the publishers’ interests and they are likely to ensure home delivery is done. The Commission takes the view that there is public benefit in an efficient system for home delivery of newspapers. Whilst the current system may not be delivering the full potential of public benefits of an efficient low cost home delivery system this determination will allow that to be addressed for the future.
The Commission has therefore decided to:
· revoke the authorisations relating to the system for distribution of newspapers and magazines in [Victoria, New South Wales and the ACT and Queensland]; and
· grant a substitute authorisation to the existing arrangements until 1 February 2001.”
The Commission in its summary also said that its decision to revoke the existing authorisation and to re-authorise the arrangements until 1 February 2001, was in keeping with the Federal Government’s 1996 submissions to the review, and would give the newsagents the stability the Government said it believed they needed.
The 1996 submissions from the Government are annexed to the determinations. The Government supported the maintenance of an efficient, low cost home delivery system for newspapers. It believed that such a system generated a number of public benefits and that these benefits outweighed any anti-competitive effects that might flow from arrangements necessary to support it. The following public benefits were specifically identified in submissions: (1) home delivery of newspapers provided significant opportunities for small businesses of the kind which it was in the public interest to foster and promote; (2) home delivery promoted the wide, efficient and cheap dissemination of news and editorial comment, important in the functioning of a democratic society; (3) home delivery service was of particular importance to vulnerable consumer groups such as the elderly, infirmed and disabled; and (4) efficiency considerations arising from the reduced wastage and better planning opportunities for publishers flowing from the degree of certainty in supply which arises from home delivery sales. The Government urged that in light of its views about the public benefits attaching to home delivery under existing distribution arrangements, and the significant capital invested by newsagents in such things as delivery vehicles and wrapping equipment, it would be appropriate to retain the present authorisations in their totality for a further fixed period. The Government suggested a further four years from the date of its submission (November 1996) because, it was suggested, the newsagents had been operating in an uncertain business and regulatory environment in the two years since the Tribunal handed down its decision in relation to the Victorian distribution system.
3. The Relevant Law
The five applications before the Tribunal have been brought under s 101(1) of the Act which provides that a person dissatisfied with a determination of the Commission in relation to an application for, or in relation to the revocation of, an authorisation may apply to the Tribunal for a review of the determination. Section 101(2) provides that a review of the Tribunal is a rehearing of the matter and that ss 90(6),(7), (8) and (9) apply in relation to the Tribunal in a like manner as they apply in relation to the Commission.
The Tribunal must engage in a rehearing in the fullest sense and it must reach its own conclusions on the material before it. The Tribunal is empowered to make a determination affirming, setting aside or varying the determination of the Commission; s 102(1). It is the determination itself, rather than the reasoning process of the Commission that is to be the subject of the inquiry on the review; see Re Media Council of Australia (No 2) [1987] ATPR 40-774 at 48,491 and Re 7-Eleven Stores (1994) at 42,654.
Subsections 90(6),(7),(8) and (9) which by s 101(2) apply to the Tribunal are provisions which in terms empower the Commission to grant authorisations. The determinations under review were not determinations made on applications for authorisation in exercise of power arising under ss 88 and 90. The determinations were made under s 91(4), which empowers the Commission after giving notices of the kind given on 16 June 1995, if satisfied that there has been a material change of circumstances since the authorisation was granted, to revoke the authorisations, and, if appropriate, to grant a further authorisation in substitution for the authorisation so revoked. In Re Media Council of Australia & Ors [1996] ATPR 41-497 at 42,238 - 42,241, Lockhart J considered the quite “curious hiatus” in relation to the functions and powers of the Tribunal when hearing a review of a revocation decision made by the Commission of an authorisation arising from the fact that ss 90(6), (7), (8) and (9) make provisions in respect of authorisations not revocations. His Honour concluded that as the Tribunal is directed by s 101(1) to review a revocation decision of the Commission, and to do so by way of rehearing: (at 42,239)
“To perform its statutory duty to review such a determination as a rehearing, the Tribunal must, by implication, have the same powers as those specifically vested in the Commission by s.91(4)(b), namely, to revoke the authorisation and, if the Tribunal considers it appropriate to do so, grant a further authorisation in substitution for the authorisation so revoked…
Although sub-sections (6),(7),(8) and (9) of s.90 do not strictly apply in relation to the Tribunal when considering revocation issues, questions of public benefit and detriment, including anti-competitive detriment, must be at the heart of the Tribunal's functions and powers. Reference to the Commission's powers is useful. Before the Commission is empowered to grant an authorisation it must first be satisfied that the requisite degree of benefit to the public exists and that it outweighs the detriment to the public constituted by lessening of competition. That is at the core of the Commission’s task (see s.90(6),(7),(8) and (9)). For the Commission to conclude, pursuant to s.91(4), that revocation of an authorisation is justified on the basis that there has been a material change of circumstances since the authorisation was granted, consideration of matters going to public benefit and detriment to the public are fundamental. So it must be with the Tribunal, because it is engaged in a rehearing of the matter that was before the Commission.”
Proceeding from this construction of the Act, Lockhart J identified a number of matters which a Tribunal should consider sequentially on an application to review a determination to revoke an authorisation under s 91(4). Before this Tribunal, the parties accepted as correct the principles stated by Lockhart J.
To determine whether there has been a material change in circumstances since the authorisation was granted, the Tribunal must commence by examining the circumstances as they existed at the time the authorisation was granted. From that point the Tribunal then moves forward to the circumstances as they exist on the material before the Tribunal at the time it conducts the rehearing. In the present case, the first step requires an examination of the circumstances in each of the relevant States and Territory when the authorisations were granted in the early 1980’s. As the Tribunal must conduct a rehearing in the fullest sense, it is required to examine for itself those circumstances. However, where there has been an earlier hearing and determination by the Tribunal, a later Tribunal, as a matter of practical common sense, will be fully justified in accepting the earlier Tribunal’s finding of facts in the absence of cogent new evidence to show that some other finding should be made. That course was followed in Re Media Council of Australia [1996] at 42,240. In the present case, this Tribunal has the benefit of the assessment of the newspaper distribution system in Victoria in 1982 made by the Tribunal in 1994, and findings in respect of changed circumstances up to 1994. No party has challenged before this Tribunal the findings of fact made in Re 7-Eleven Stores (1994).
Having examined what the circumstances were at the time of the original authorisation, and what has happened in the intervening period, if the Tribunal finds that there has been a change in circumstances, it must determine whether or not the change is material. On that consideration, Lockhart J said in Re Media Council of Australia [1996] at 42,241: “A material change of circumstances includes a change of circumstances which has a significant impact upon the benefits to the public or upon the detriment, including anti-competitive detriment, arising out of the conduct or the provision in question.” The Tribunal must determine, in the exercise of its discretion, whether the kind, magnitude or significance of the change warrants the Tribunal revoking the authorisation previously granted because the net public benefit which justified authorisation has changed or disappeared.
If the Tribunal is satisfied that the authorisation should be revoked, the Tribunal must then consider whether a further authorisation should be granted in substitution for the authorisation so revoked, and the terms of the substituted authorisation.
Central to the exercise of the discretionary powers to revoke an authorisation, and if so to grant a further authorisation in substitution, is the evaluation of public benefit and detriment. The exercise of those powers is conditioned upon the Tribunal being satisfied that a benefit to the public results, or is likely to result, from the authorised conduct or authorised provision of a contract, arrangement or understanding, and that the benefit outweighs the detriment to the public constituted by the lessening of competition.
In the course of determining relevant public benefit and detriment, the Tribunal has consistently applied “the future with-and-without test”; Re Queensland Independent Wholesalers Ltd [1995] APTR 41-438 at 40,928, and Re Media Council of Australia [1996] at 42,241 and Re: AGL Cooper Basin Natural Gas Supply Arrangements (1997) ATPR 41-593 at 44,175). In the present case, in conducting a review of the Commission’s determination to revoke the earlier authorisations, the Tribunal must compare the position which is likely to arise in the future if authorisations in some form were to continue with the future if the authorisations were revoked.
No party has sought to challenge the Commission’s conclusions that in respect of each of the authorisations there has been a material change of circumstances since the grant of the authorisations, and that on the application of the “future with-and-without test”, the authorisations should be revoked. The parties seek only to challenge or uphold the determination in so far as it substituted a further authorisation of the distribution systems until 1 February 2001. At initial directions hearings, the parties urged the Tribunal to confine its considerations on the review to this final issue. In curial proceedings based on the adversarial system, the role of a court is to determine issues identified by the parties, usually in pleadings. Proceedings before the Tribunal are not adversarial in nature, and the role of the Tribunal is not merely to resolve issues in dispute between the parties. It is an administrative tribunal with a much wider role. It is required to determine whether anti-competitive conduct or anti-competitive provisions in a contract, arrangement or understanding that would otherwise be unlawful, should, in the public interest, be authorised because the public benefit outweighs the detriment constituted by any lessening of competition. Determinations of the Tribunal are likely to impact on the commercial interests of many people who are not participants in the proceedings before the Tribunal.
Notwithstanding the positions taken by the parties in this case, the Tribunal in the exercise of its statutory functions, must consider each of the issues arising under s 91(4) which precede a consideration of the terms and duration of the further authorisation granted by the determinations under review. On these essential steps, the Tribunal must reach its own conclusions. It must make its own assessment of both benefit and detriment.
However, where the applicants and other parties participating in proceedings before the Tribunal agree with findings on factual matters set out in the Commission’s published reasons for determination, the Tribunal would ordinarily be justified in treating those findings as common ground which significantly limits the areas of primary fact which the Tribunal is itself required to examine in detail; see Re Herald & Weekly Times Ltd (Media Council of Australia (No 1)) (1978) 17 ALR 281 at 296 where the Tribunal (Deane J, President, Shipton and Walker, Members) observed that fairness and common sense combine to require that the Tribunal determine an application for review within the context of matters which can properly be seen to be in issue between the parties or which the Tribunal itself raises or indicates that it regards as being at large.
4. The Authorised Systems and their Operation
The Rules of the three Newsagency Councils, which constitute the authorised conduct, are very similar. Correspondingly, the three determinations of the Commission being reviewed in these proceedings were couched in very similar terms. Without any suggestion being made to the contrary, all parties accepted that the applications for review should be heard together, as variants of the same basic conduct. Evidence on behalf of publishers, newsagents, and convenience stores was submitted as being pertinent in all matters, with distinctions being drawn between the States where appropriate.
4.1 The substance of the authorised conduct
All three sets of Rules are directed to the fostering and closely managed use of the long-established and widespread networks of local newsagency retailers, as the predominant channel for the distribution of major daily newspapers, magazines and other publications produced by publishers adhering to the Rules.
There is some variation to the Rules between the States, as described in Section 4.2 below, but the substance of the authorised conduct is common. In each locality across the State, one newsagent is selected by the Newsagency Council and designated as being “authorised”, with sole rights (subject to some exceptions at the publishers’ limited discretion) to distribute the publishers’ publications within a defined territory. Hence, in effect, each publisher that is a member of a Newsagency Council has agreed with other publishers, with the assent of the State association of authorised newsagents, to employ the same distributing agent for the same local territory. Newspapers and magazines are supplied by publishers to authorised newsagents on a sale or return basis. The newsagent is granted credit by the publisher, and a commission of 25 per cent is payable to the newsagent for publications sold. The authorised newsagent is also permitted to charge home delivery customers a fee at a rate determined by the publisher.
Each authorised newsagent enters with each publisher into a “Newsagency Agreement”, which is a contract of appointment as sales agent to that publisher in the defined territory. Operating practices of newsagencies are strictly defined under the Newsagency Agreements, which bind the newsagent contractually to the implementation of the Rules. Correspondingly, the Rules mandate compliance with the contractual terms of Newsagency Agreements. Procedures for enforcement of the Rules are defined, with penalties for non-compliance. Loss of the newsagent’s authorised status is the extreme penalty that may be applied. An appeal process is available.
The Rules and corresponding agreements require that the authorised newsagent undertakes three functions:
· retailing of newspapers and magazines;
· daily early morning delivery to households and business premises in its territory in response to standing orders (“home delivery”); and
· on-distribution to other retailers in the territory (“sub-agents”), who also enter agreements that define their obligations as sub-agents.
While this structure is the norm in all three states, the Rules of NCNSW and NCQ (or their application in practice) allow some flexibility in that certain accredited sellers may be authorised on a more limited basis, not performing all three functions for practical local reasons, or for reasons of long-standing custom. Other rights and obligations of both publishers and authorised newsagents in regard to the sale and distribution of relevant publications are defined by the Rules, including:
· the terms on which another publisher can join the Newsagency Council, or a publisher can withdraw from membership; and
· the requirements to be met before any authorised newsagency business may be sold, leased, controlled or operated by another party.
Sub-agents are appointed by the authorised newsagent with the consent of, or at the direction of, the publishers to provide a comprehensive retail coverage of the territory, with the intention that newspapers and magazines should in consequence be widely and readily available to consumers. The form and content of their contract of appointment by the newsagent (“Sub-agency Agreement”) is an attachment to the Rules. The authorised newsagent usually conducts sales administration for sub-agents in respect of orders, payment to publishers, and return of unsold copies to the publisher. Sub-agents share with the newsagent the sales commission payable, and customarily the sub-agent receives 12.5 per cent of the cover price of publications sold.
The typical sub-agent is a small retail business for which the owner is willing to supplement the ordinary scope of the business by also selling newspapers (and often magazines). Sub-agents typically operate at such locations within the boundary of the newsagent’s territory, or during such extended opening hours, as will usefully complement the location or opening hours of the authorised newsagent’s shop. The easy availability and sale of newspapers to the public are thereby improved without the publisher being required to deliver to every point of sale. Many sub-agents find that the sale of newspapers, while not especially profitable because of the sharing of commission with the authorised newsagent, attracts customers to their shops and increases sales of other items. A sufficient network of sub-agents in a territory is thought to assure the publisher that sales are maximised, and the authorised newsagency at the centre of the local supply network gains additional income.
It is instructive to examine the practical basis for the distribution systems that take this general form in eastern Australia. The primary considerations in their evolution and continuance have plainly related to the imperatives intrinsic to the distribution of major metropolitan newspapers. The additional use of the systems to distribute magazines has been incidental to this central function.
The newspaper publishers in Victoria showed themselves in the Tribunal’s proceedings in Re 7-Eleven Stores (1994) to be reluctant to contemplate modifying their long established distribution systems, and evidence in this proceeding confirmed their reluctance. As processes for physical delivery of newspapers and for administration of sales and returns, the present arrangements are seen to work reliably and well, to be supportive of economical printing operations, and to be capable of ready and close control. Newspaper publishers understandably consider such factors to be of great commercial importance.
It is characteristic of daily newspapers in a large city that they are printed in very large numbers for urgent delivery to numerous points of sale in metropolitan and other settled areas associated with significant demand. They are displayed for sale to the widest possible body of potential purchasers, and are delivered promptly to customers who have ordered copies. Further, so as to win maximum sales, newspapers are delivered as rapidly as is reasonably practicable for sale in more remote or less accessible locations, where some system of further local distribution may be appropriate. Daily newspapers are a highly perishable product, with most sales made during a short time period, usually only a part of one day. Unsold newspapers are wasted and thus are costly to the publisher, yet it is crucial for the publisher that newspapers be widely available for sale to customers during the peak buying period. Evidence adduced in Re 7-Eleven Stores (1994) was that the average cost of printing and distribution is not uncommonly higher than the cover price less newsagent’s commission, and is sometimes significantly higher, with advertising providing the additional revenue required for profitable publication. Sales can fluctuate from day to day and from location to location in response to many factors. It follows that a newspaper publisher faces a daily conundrum, to print and distribute a sufficient number of newspapers in anticipation of sale, without unacceptably inflating the number of unsold copies.
In this context, home delivery orders are especially important to a newspaper publisher, because they represent secure sales with minimal attendant risk of unsold returns — provided always that home delivery is effected at a time and in a manner that reasonably satisfies customers. The contracts of a newsagent with publishers include strict requirements that newspapers be delivered sufficiently early, and in good order.
The above considerations serve to explain why the distribution systems for newspapers have evolved to the form that is being examined in these proceedings. To the evident satisfaction of the newspaper publishers, the broad architecture of these systems provides for:
· knowledgeable ordering by directly supplied retailers bound by contract;
· close matching of print runs to predicted demand; and
· systematic and reliable distribution, directly by the publisher and secondarily by the authorised newsagent, in good time to satisfy consumer demand.
These imperatives have been considered by the newspaper publishers to justify provisions in the Rules and associated agreements that give them close control, separately and in concert, over their shared distribution system, and indeed allow them to direct the business operations of individual authorised newsagents by way of direct and detailed instructions, or in default by application of the Newsagency Council’s power to exact penalties for non-compliance. Samples of typical publisher instructions to newsagents were filed in evidence.
Close publisher control, actual and potential, is made palatable to newsagents by the protection from competition accorded to their businesses by the Rules. A newsagent’s monopoly in the designated territory is protected — nobody else can make home delivery sales in the territory, nor (with some exceptions as noted below) place orders with the publisher. Sub-agent retailers in each territory operate subject to the newsagent’s control of the supply of product and on shared commission. No authorised newsagent can sell into the territory of another, and publishers are precluded from directly supplying any newsagency-type outlets within the newsagent’s territory that are not authorised.
Look-alike retailers are necessarily supplied as a sub-agent. Proscription of direct supply of newspapers to them is stipulated in Victoria by Rule 11, which says (in part):
“Each publisher, (adopting its own criteria for the purpose) is free to make its own individual commercial judgement concerning the supply of its publications or any of them to any outlet in a territory other than the authorised newsagent but may not in a territory supply to a business clearly identifiable as a newsagency specialising in the sale by retail of a wide range of newspapers and magazines except for railway and airport bookstalls.”
Corresponding provisions exist in the Rules of NCNSW and NCQ.
Thus, while protected from direct competition from near-by businesses of a similar specialised character, the authorised newsagency remains vulnerable under the provisions of the Rules and associated agreements to a publisher supplying newspapers directly and on similar terms to any other retailer that does not so specialise. Although each publisher has the contractual right to supply any of its publications to an outlet that is not a look-alike, historically the publishers have not done so in the case of convenience stores.
4.2 Differences between the States
While the substance of the Newsagency Council Rules is broadly the same in all three States, there are significant differences in detail, which were usefully described in evidence by Mr Dean, the Chairman of ANF. For example, NCNSW arrangements differ in practice from NCV arrangements in some limited respects:
· membership of NCNSW includes magazine publishers in addition to newspaper publishers and the newsagents’ association. No magazine publishers are members of NCV;
· the administration of NCNSW Rules has resulted in there being “only a handful” of look-alike newsagencies in NSW, many situated in border regions. The number of look-alikes in Victoria is variously estimated in the range of 70 to 100;
· in NSW and ACT, sub-agents have a right of appeal against Newsagency Council decisions affecting them; in Victoria they do not;
· in the Melbourne CBD, a single territory is shared by eight authorised newsagents competing for retail and delivery business. There is no corresponding scheme in NSW and ACT; and
· NSW and ACT Rules (but not the Victorian Rules) provide for a class of seller distinct from the orthodox newsagent. The authorised “news vendor” is defined in terms of a retail location rather than a territory, has no home delivery obligations, and is supplied direct by the publishers. Street sellers and certain country stores operate on this basis.
The Rules of NCQ are more flexible again than those of NCNSW, in that they allow both authorised newsagents and vendors, and also allow alternative permitted ambits for authorised newsagencies. Newsagencies trading only through a retail shop and performing no home delivery are permitted, as are agencies performing home delivery but performing no retail function. The newsagency agreements applying to such newsagents differ correspondingly, although the close publisher control of their operation remains. Sub-agents can be appointed in locations outside a newsagent’s territory where they are not within the territory of another newsagent, as is possible in sparsely populated areas. The flexibility of the NCQ Rules and of their administration was said by Mr Dean to explain why there are very few look-alike newsagencies in Queensland.
Mr Dean also stated in written evidence that:
“…the Rules of the Newsagency Council of Queensland make it less difficult for a prospective purchaser to acquire a newsagency.”
If this is so, the outcome relies on the administration of the Rules rather than their explicit terms, because on their face, the Queensland Rules governing the sale of newsagencies are very similar to the corresponding NCNSW and NCV provisions.
The Tribunal’s reasons in Re 7-Eleven Stores (1994) provide a brief description of the corresponding newspaper distribution practices elsewhere in Australia: (at 42,661)
“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 Australia, with only one major newspaper publisher, authorised 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.”
4.3 Impacts on the conduct of other retailers
The authorised conduct, by selecting authorised newsagents to have a preferred commercial position in the distribution of newspapers and relevant magazines in designated territories, excludes other retailers who might also wish to sell newspapers and magazines directly supplied by the publishers, and subordinates each of them to the role of a sub-agent to an authorised newsagent. Exceptions may occur at the commercial discretion of the publisher when the retailer is not a look-alike newsagency, as already noted.
The applicants in these proceedings each represent groups of sub-agents that are not typical of the traditional sub-agent, and that are dissatisfied with the system’s effect on their retail operations.
Of the applicants, the grievance of the look-alike newsagency is the more immediate and severe. Sales of newspapers and magazines typically contribute much of the sales revenue of a look-alike newsagency, so that it is especially significant that the supply of these product lines should be organised and controlled by another near-by newsagency, who will ordinarily compete directly at retail within the same community, and who will also share the commission income derived from sales of publications by the look-alike. For the convenience stores, sales of newspapers and magazines represent perhaps four per cent to six per cent of their total sales revenue, so that for them the supply arrangements for newspapers and magazines are less fundamental to their viability.
As described in Re 7-Eleven Stores (1994), the look-alike newsagency emerged as a consequence of shifting patterns of retail demand, notably in respect to the decline of suburban retail shopping streets in favour of self-contained shopping malls with convenient car parking. For example, a traditional authorised newsagent, located in an established local shopping street, might not have responded farsightedly to the commercial opportunity of the new shopping mall in its territory – either by moving its retail business there or by setting up a branch newsagency outlet. Nor might the relevant Newsagency Council have paid early regard to the new patterns in retailing and sought to accommodate them. In the upshot, a new retail outlet with all the appearances of being a newsagency might be set up in the shopping mall by another party, selling in that more attractive milieu as a sub-agent, without contractual obligations for home delivery or for on-supply to other sub-agents. Such look-alikes have often succeeded commercially, despite their sharing sales commission with their supplying newsagency – indeed the Tribunal heard evidence of look-alike newsagencies that now sell more newspapers at retail than the authorised newsagencies supplying them. Nevertheless, the look-alike newsagency is far from common in the scheme of things. There are perhaps 100 in total, predominantly in Victoria with only a few in NSW, ACT and Queensland, as against more than 3,400 authorised newsagencies and more than 13,000 sub-agencies.
The inevitable competitive tension arising from the existence of a look-alike newsagency shop in the territory of an authorised newsagency was reflected in the written and oral evidence of Mrs Schieron, co-owner and operator with her husband of a look-alike newsagency located at a shopping mall in a Melbourne suburb. Mrs Schieron is also Secretary of INA. She described specific problems experienced in her own business, and more generally by look-alike newsagencies. Her claims, which were supported by statements submitted in evidence by other look-alike operators, can be summarised as follows:
· the authorised newsagent supplying the look-alike commonly sees the look-alike more as an unwelcome competitor than as a sub-agent. In such cases the authorised newsagent is in a position to take direct advantage of the position of supplier to constrain its competitor’s operations, or the newsagent might prove indifferent to the need for timely physical supply of publications to the look-alike sub-agent, or might give little priority to the resolution of particular supply problems;
· the look-alike is also subject to the administration of orders, payment and returns by the authorised newsagent, whatever the calibre of that administration, and without the option of going to an alternative supplier. Overdue payment of a publisher’s account by an authorised newsagent can affect the commercial reputation of a look-alike sub-agent. Deficiencies in records and accounts must be remedied by time-consuming representation and negotiation. Poor management of newspaper orders by the authorised newsagent can result in reduced supply to the look-alike, seriously affecting the look-alike’s business, because the authorised newsagent will satisfy its own needs first, choosing if need be to leave the sub-agents short because they yield the authorised newsagent less commission revenue than sales through the authorised retail shop;
· promotional and merchandising material supplied by publishers to an authorised newsagent is often not made available to the look-alike, limiting its capacity to contribute to promotional sales effort by publishers;
· typically the look-alike has no direct communication with the publisher, and hence is not easily able to report deficiencies in the supply arrangements that affect sales; and
· in instances where the volume of sales through the look-alike is so large that the publisher elects to deliver supplies direct to the look-alike rather than rely on the authorised newsagent for secondary distribution, the authorised newsagent still receives half the commission payable, despite playing no role either in delivery or physical returns. Such “direct delivery” arrangements need to be distinguished from the “direct supply” that authorised newsagents enjoy, in that direct delivery does not entail the recipient of supplies having an account with the publisher and making direct payment for orders delivered. Nor do direct delivery outlets submit orders to the publisher, but rather must rely on the authorised agent to do so on their behalf.
The Tribunal concludes that these criticisms of the authorised system by look-alikes, which are consistent with the evidence provided in Re 7-Eleven Stores (1994), arise from two causes implicit in the system as authorised:
· the structure of the delivery system for newspapers relies on a network of specialised retailers to make on-deliveries to a much more numerous set of retail sub-agents which typically will be less focussed on newspaper sales as their prime source of revenue. The small number of look-alike newsagencies are atypical among sub-agents, and administration of the system by either publishers or Newsagency Councils makes no provision for their anomalous circumstances; and
· the look-alike newsagency exists contrary to the intention of the authorised system, and might be considered to threaten the integrity of the compact between publishers and authorised newsagents that underpins it, whereby a tightly managed distribution and sales structure for newspapers is made acceptable for the authorised newsagent by the quid pro quo of effective territorial monopoly. Moreover, the commercial viability of a specific authorised newsagency business is crucial to the general distribution of newspapers in its designated territory. In such circumstances, it cannot be surprising if the publisher tends to favour the authorised newsagent in any dispute with a look-alike, unless the publisher’s own interest is somehow significantly affected.
Convenience stores are a class of general retailer that might be considered to be a modern version of the traditional local mixed business, satisfying immediate consumer demand for a range of essential and impulse items, mostly food. In this matter they have been equated with the chains of stores operating under the banner of either 7-Eleven or of one of the other corporate members of AACS. These stores commonly have associated car parking and sell petrol. Most are open for 24 hours, seven days a week. The usual pattern is for stores to be managed by franchisees, who are small business-people. However, membership of a branded chain, such as 7-Eleven, Shell Select, BP Express or Quix, facilitates the economies of central purchasing and the use of modern administrative, shop display and stock control procedures.
The Tribunal received evidence from franchisees and from chain managers as to the workings of the authorised system in regard to the supply of newspapers and magazines to convenience stores. These criticisms were similar to and consistent with those submitted by the look-alike newsagents, but differed somewhat in emphasis, in that they focussed on:
· difficulties with service and supply from the authorised newsagent, who commonly considers the convenience store as a retail competitor, being of significant size, open for longer hours, and often more convenient for customers because of on-site parking;
· difficulties in obtaining adequate and timely supplies of newspapers to meet the demand patterns that apply for a retail outlet that has convenient car access and is open 24 hours a day;
· the obligatory sourcing of newspapers and some magazines for each outlet in the convenience store chain from a particular local newsagent, thus precluding the benefits of central purchasing and of modern category management and stock control systems such as are used for other product lines sold; and
· obligatory dependence on the authorised newsagent’s limited administration systems, which are generally less reliable and less sophisticated than those used by the convenience stores.
The further complaint of the convenience stores is that the newspaper publishers have discretion under the Rules of all three Newsagency Councils to directly supply convenience stores, being general retailers and not look-alikes, yet refuse to do so, even where newspapers are directly delivered to the stores. Evidence for the convenience stores established that newspaper publishers already have accounts with certain department stores and major supermarkets under these provisions, and supply them direct, yet they neither extend the facility to the convenience store chains, nor have been willing to negotiate alternative supply arrangements for them.
Evidence and argument for the convenience stores asserted also that, despite the purport of the Tribunal’s remarks in Re 7-Eleven Stores (1994) following similar evidence for the convenience stores in that matter, experience since 1994 shows no improvement in the service provided by authorised newsagents to convenience stores. Evidence from members of management of the convenience store chains contended that significant sales of newspapers are lost because present supply arrangements to the stores rely on the cooperation and efficiency of authorised newsagents. Mr Baird of BP Australia described an amicable agreement with an authorised newsagent in Ashfield in NSW under which, with the assent of the publishers and NCNSW, BP gained the right to have newspapers and magazines directly supplied to a new BP Express Store in that suburb, with the payment of agreed compensation to the authorised newsagent, i.e. as part of a newsagent’s territory was transferred to another party in accordance with the Rules. Newspaper and magazine sales at the Ashfield BP Express, which has been trading only since February 1998, are now running at 11.5 per cent of turnover, whereas these items ordinarily contribute six per cent of turnover at other BP Express Stores.
Concern for the economic viability of authorised newsagents which would lose business income if direct supply were available to a convenience store in their territory apparently underlies the policy of newspaper publishers. However, the Tribunal was advised in the course of the hearing that some discussion had begun between Shell Select and one publisher on the possibility of an arrangement where newspapers would be delivered to a central point by the publisher, for on-delivery to a number of Shell Select stores.
5. Material Change of Circumstances
Comprehensive background material relating to perceived changes since the early 1980's was filed with the Tribunal by the Commission prior to the hearing. This material includes evidence gathered by the Commission upon which its conclusions on the question of material change were formed; see in particular sections 4 and 7 of its determinations. Notably, what has changed very little since the authorisations were granted are the distribution systems themselves. The distribution of newspapers and magazines in Victoria, NSW and ACT by publisher members of NCV and NCNSW is virtually the same. Whilst there have been some changes in the Rules of NCQ to increase distribution options, the basic structure in place at the time of the authorisations also remains in Queensland. The parties to the authorisations continue to include the suppliers of the major daily newspapers and in places other than Victoria, two of the distributors of the major and special interest magazine titles, ACP and ESN. Newspapers continue to dominate the home delivery function, with only a very small proportion of magazines being home delivered by newsagents.
Charges which authorised newsagents are able to impose on home delivery customers, and standard rates of remuneration in respect of the supply of publications to sub-agents, continue to be controlled by the publishers through the Newsagency Councils. Supply continues to be usually on the basis of sale or return. The same division of commission applies even where the sub-agent administers its own ordering and returns directly with the publisher and where the sub-agent receives direct delivery. In these situations the newsagent has no involvement and bears no risk.
Authorised newsagents continue to be required by the Rules to maintain uniform minimum hours of operation, usually from 7am to between 6pm and 7pm on weekdays, and for shorter periods on Saturdays and Sundays. At the time when the authorisations were granted, these hours exceeded the business hours of most other retail outlets, and were important to ensuring the availability of newspapers as a source of information and comment.
The Rules do not facilitate adjustment to the territorial areas allocated to authorised newsagents. Notwithstanding demographic shifts and other changes which impact upon the viability or efficiency of distribution in those areas, they tend to remain unchanged. This is so even where there has been considerable growth in the number of sub-agents, including look-alikes and more recently convenience stores, which compete for retail sales with the authorised newsagency which supplies them.
5.1 Changes of circumstances identified by the Commission
The Commission contended before the Tribunal that several material changes in relevant circumstances had occurred since the authorisations were granted. These changes had also been identified in the notices given under s 91(4) which initiated the review process prior to revocation. The Commission pointed to:
· changes in the manner in which information and comment is disseminated. These changes included a substantial fall in demand for weekly newspapers and an increase in demand for weekend newspapers and magazines. New means of disseminating information have emerged in the community such as ethnic and regional newspapers (some of them free to readers), the internet and an increased emphasis on current affairs and news programming on radio and television. There has also been a concentration in media ownership such that two national publishers, News and Fairfax, now account for most of the newspaper circulation in Australia - greater than 90 per cent, according to an estimate before the Tribunal. At the time when the authorisations were granted there was a greater spread of ownership, and more daily newspapers. The present concentration of ownership reduces the opportunity for a wide range and depth of information and comment through newspapers;
· changes in the availability of newspapers and magazines. The central role played by authorised newsagents in achieving widespread availability of newspapers and magazines has declined. New and altered forms of retailing have developed, particularly through other retailing outlets such as convenience stores, including those associated with petrol outlets and shopping centres whose supply conditions permit them to sell a limited range and quantity of newspapers and magazines. Many convenience stores and major grocery chain stores are now open for longer hours than newsagencies;
· changes in factors relating to home delivery which include both a decline in the demand for home delivery and the emergence of alternative home delivery procedures, such as the adoption of direct home delivery, by-passing the newsagents, by The Canberra Times for Canberra and Queanbeyan. Modern computer technology has introduced the potential to improve efficiency in the management of home delivery services;
· developments in competition policy, leading to initiatives for industry deregulation which have aroused public expectations for flexible and competitive business practices; and
· changes to the authorised arrangements in NSW, ACT, and Queensland, under which ESN has been admitted to membership of NCNSW and NCQ. ESN distributes on behalf of 400 publishers approximately 1500 magazine titles which are now required to be distributed in accordance with the authorised arrangements.
5.2 Changes in regard to the distribution of magazines
It became apparent to the Tribunal in the course of the hearing that the manner and terms of distribution of magazines, and the relevance of the authorisations to the conduct of magazine distribution and practice, had so changed, even since the decision of the Tribunal in Re 7-Eleven Stores (1994), as to constitute another significant change of circumstance that warrants consideration of its materiality under s 91(4) of the Act.
These changes will be described more fully later in these reasons. It suffices here to note the following:
· the original authorisations applied to the conduct of the major newspaper publishers in Victoria, NSW, ACT and Queensland; the authorisations reflected the fact that at that time these publishers also published magazines;
· over more recent years the major newspaper publishers have broadly vacated the publication of magazines, and one former newspaper publisher (ACP) has vacated newspaper publication, while continuing to publish magazines; in consequence, the publication of newspapers and magazines is largely no longer integrated;
· Australian magazine publishers and suppliers of overseas magazines presently distribute their product through a number of distributing companies, only two of which are subsidiaries of publishing companies that are covered by one or more of the authorisations. No magazine distributor is protected by the authorisations in all three States and ACT, and some distributors are not protected by any authorisation;
· following the Tribunal’s decision in Re 7-Eleven Stores (1994), the commercial practices of magazine distributors, which hitherto had closely paralleled those adopted by newspapers in conformity with the authorised conduct, began to diverge and differ significantly between distributors, with revised commercial terms being introduced by Gordon & Gotch, a major distributor outside the authorisation, and direct supply to 7-Eleven stores being introduced by ACP and Pacific Publishing Pty Ltd; and
· the authorisations are presently considered by magazine publishers and distributors to be relevant for them in that the authorisations support an established network of specialised retail outlets (the authorised newsagencies) that are compliant in accepting delivery of a comprehensive range of magazine titles, displaying them for retail sale, and on-distributing them to sub-agents in their immediate area; but that the authorisations do not preclude the direct supply of magazines to such other outlets as they see fit (other than look-alikes in NSW, ACT and Queensland), including outlets that are not supplied in respect of newspapers.
5.3 Conclusions
Do these changes amount to “a material change in circumstances” as required by s 91(4) of the Act? The test to be applied requires the Tribunal to consider whether the balance of benefit and anti-competitive detriment resulting from the relevant conduct might now be assessed differently in consequence of the changes.
The Tribunal is satisfied that each of the following changes of circumstances is material:
· the manner in which information and comment is disseminated in the Australian community has radically changed, with more diverse sources of supply, shifting demand, and changes in concentration of ownership;
· the widespread availability of newspapers and magazines is no longer dependent on retail distribution solely through the authorised newsagency systems, because of changing public buying habits and the emerging significance of alternative forms of retailing;
· far-reaching changes in the competition policy of governments have altered the climate within which benefit and detriment are to be assessed, and have changed public expectations as to outcomes; and
· the distribution of magazines can no longer be considered integral with the distribution of newspapers, because of the separation of ownership and growing differences in distribution practice and terms of supply.
The Tribunal therefore concludes that circumstances have materially changed, in all relevant States and ACT, since the original authorisations were granted. It follows, in accordance with s 91(4), that the issue of revocation must be considered by the Tribunal. This requires an evaluation of whether, notwithstanding the material change, the authorised conduct continues to deliver a net public benefit in the circumstances which exist today such that the Tribunal should allow the authorised conduct to continue.
6. Should the 1980-1985 Authorisations be Revoked?
6.1 The evaluation of net public benefit in 1994
In 1994 the Tribunal made the following findings (at 42,678-83) about the public benefits claimed to have arisen under the conduct covered by the then existing authorisations:
· the argument about “wide availability” was dated - “If it has any relevance today, it must be only by reference to home delivery”;
· there was “some merit in the argument that a territorial monopoly of home delivery can give rise to ‘route economies’”, but there was “no significant cross-subsidy of the delivery function … there is no necessity to compel home delivery upon a reluctant newsagent”, and it was “inconceivable that either publisher, acting independently, would fail to promote home delivery”;
· there was no substance in the new claim (not raised at the time of the 1982 authorisation) that exclusive territories facilitated the targeting of advertising inserts in newspapers;
· there was no direct evidence to substantiate a claim that exclusive territorial monopolies were necessary to encourage or to protect investments in delivery networks or promotional activities from free-riding;
· with respect to the claim that the existing system was necessary to ensure the survival of newsagencies as small businesses, the issue was “rather what kind of small business might be encouraged to exist”. The Tribunal accepted that even if the system were disbanded there “would continue to be a large role for retailers … stocking a wide array of newspapers and magazines … What would be different is that retailers would enjoy greater freedom to respond to market forces.” It also noted an important equity issue - “commercial freedom is a value neglected by the present system” for both newsagents and sub-agents, and concluded:
“That many sub-agents must be dependent upon a direct competitor for supplies is not only inefficient, as giving rise to distorted incentives; it is also inequitable. The convenience stores themselves are a new field of small business opportunity whose growth is inhibited by the newsagency system.”;
· the Tribunal acknowledged that “there are substantial efficiencies to be gained by each publisher adopting some form of territorial exclusivity, both in primary distribution to retailers and in home delivery”, but also believed that “competition in home delivery could promote efficiency” and that the sub-agency system was an inflexible system “that has difficulty accommodating new forms of retailing such as supermarkets and convenience stores”. It saw the claim by publishers, that the system was efficient, as being a claim based on “their own concept of efficiency … a command system that responds to the imperatives of the task of physical distribution and simplifies administration” - and not on the role of economic efficiency as required in the context of the Act;
· the system also inhibited dynamic efficiency, as “such a tight system of interlocking horizontal and vertical restraints of its very nature must inhibit adaptation to a changing environment … change must be negotiated - which must inhibit change ... In short, it is a system driven by rules and regulations rather than by incentives. There are few prizes, indeed opportunities, for independent innovation”; and
· the Tribunal considered that the three modes of distribution undertaken by authorised newsagents - retailing, home delivery and supply to sub-agents “have been created and 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 … there is no reason to expect that optimal scale for each of the three functions would coincide in that one establishment.”
The Tribunal gave a wide ambit to the term anti-competitive detriment, interpreting it at 42,683 to mean “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.” It found there were two major classes of detriment; inefficiency, and denial of commercial freedom and economic opportunity.
The Tribunal made the following observations on the inefficiencies of the system: (at 42,683)
“The inefficiency stems, at base, from the following facts: the somewhat muted competitive environment; the horizontal 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 …
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.”
As to the denial of commercial freedom and economic opportunity to both newsagents and other retailers, the Tribunal said: (at 42,684)
“…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. …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.”
In its 1994 decision, the Tribunal found that there existed some “elements of the system which we judge could be so designed and implemented so as to yield net benefit” - what it called defensible elements. It stressed that its findings were not meant to “design a delivery system, only to indicate what could prove defensible under the procedures of the Act.” It 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”, but noted that such changes would lead to industry bodies like NCV and VANA having “vastly different functions”, and cautioned that there was a danger that “VANA could be used as a pivot for reconstruction of the system through parallel agreements with each of the publishers.”
Specifically, the Tribunal found that “a form of territorial exclusivity for each publisher’s delivery elements could be justified, if designed and implemented independently.” The features nominated by the Tribunal included initial contractors and “second level delivery operators from depots (for home delivery and possibly small retailers)”, and it did not rule out the possibility that each publisher independently “might choose to use the same second level delivery operators upon occasion, whether or not for the same territories.” While noting that achieving these independent arrangements might be difficult, given the previous history of association between the publishers, the Tribunal believed that there were “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.”
The Tribunal expected in 1994 that in the new environment “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 … the publisher might well prefer to undertake direct supply to all retailers of any size through its own contractors.” (In 1998 the Tribunal notes that this is the system being used by The Canberra Times, evidently to its great satisfaction, according to evidence given in this hearing by Mr Samaras, its General Manager.) Whatever the supply arrangements, the Tribunal stressed that “it would be undesirable for any category of retailer to be forced to be dependent upon a competitor for supplies - or for a retailer to be forced to supply a direct competitor”, and that “it would be difficult to make a case for any restraint upon one retailer’s obtaining supplies from another.”
The Tribunal counselled against the introduction of change overnight, but concluded that “the interests of the public would be met if the present bad features of the newsagency system are removed within approximately three years”.
With the exception of an argument that revocation of the substitute authorisation will serve to damage severely the prospects of both new magazines and small publishers seeking to obtain maximum retail exposure for their product at least cost (see Section 6.3.2), the Tribunal has not been able to identify the emergence of any significant new public benefits or anti-competitive detriments attached to the authorised system itself since the Re 7-Eleven Stores (1994) decision.
6.2 Strategic responses of publishers and newsagents after 1994
The Tribunal accepts that in general enterprises of all kinds will behave in their markets so as to obtain a strategic advantage. The strategies adopted are likely to be directed towards protecting or increasing market shares, and insulating the enterprise as far as possible from market forces, thereby creating, defending or increasing market power, and enhancing the prospect of profit.
All the enterprises that have taken part in this hearing, whether directly, through representative associations, or by submitting witness statements, have acted strategically in regard to the authorised conduct – in opposing or in seeking to justify its continuance, in seeking to circumvent it or in taking advantage of it while it persists. As noted in Re 7-Eleven Stores (1994), the behaviour of the parties adopting the authorised conduct has been joint, either as horizontal agreements between publishers that are otherwise rivals, or as vertical arrangements between the functional levels of the operational chain stretching from publishing to home delivery or retail sale. The 1994 decision has aroused responses from interested parties which throw light on their strategic motivations.
6.2.1 Responses by the authorised newsagents
Mr Dean, whose position as Chairman of ANF since September 1995 covers most of the relevant period, comprehensively described the responses of the authorised newsagents. During this time the role of ANF has been upgraded to facilitate the coordination of the views of the State newsagency associations on authorisation matters. Mr Goddard, giving evidence for RDS, an affiliate of the magazine publisher and distributor ESN, pointed particularly to the recent role of ANF in focussing the policies of the authorised newsagents:
“The industry has operated for much of the past decade in an atmosphere of uncertainty as to its future, compounded by a faltering economy and the on-going ACCC reviews. Concentration by all players was largely on survival and growth within the existing system. …Commercial reality and the pro-active attitude of the restructured ANF has seen an encouraging change in this defensive stance in recent times.”
ANF’s submission of 20 December 1996 to the Commission contended that there had been no material change of circumstances, and also reminded the Commission of political support during the 1995 election campaign for its position that the authorisations should continue. The submission stated further that the Prime Minister had been advised in the following terms:
“In return for continuation of the current authorised arrangements, the industry would undertake to move to alleviate the concerns of the ACCC by, in an agreed time frame, bringing about changes that would decrease what are seen as anti-competitive aspects of the current system provided that the key elements of the system, i.e. the territorial servicing of sub-agencies and the opportunity for publishers to collectively appoint the one newsagent to service a territory are retained.”
The ANF submission to the Commission went on to suggest changes in five respects to the existing authorisations, which would otherwise continue:
“· The introduction under the authorisation of separate arrangements for retail and delivery operations … which would introduce increased flexibility enabling a combined retail/delivery agent to sell off separately either part of his business … which may lead to a consolidation of some delivery areas and could result in economies of scale…
· Appointment of sub-agencies within a territorial system to be made by each publisher separately on the basis of their evaluation of commercial merit not by publishers acting in concert … [which] would address the ACCC concerns about a perceived lessening of competition… These arrangements would include establishing commercially viable scales of commission.
· Control, direction and termination of sub-agency agreements to be by individual publishers not by collective action … [which] would transfer control of the trading arrangements generally and supply quantities to the publisher, addressing concerns … of one small business controlling the supply of product to another small business in the same area.
· Territorial newsagents to be placed in the role of a territorial distributor contracted to individual publishers. Publishers however being free to appoint a common carrier for delivery to enable low cost distribution which maintains the public benefit of cheaper home delivery of newspapers … arrangements [that] would allow sub-agents to receive direct supply if they became large enough for a publisher to decide that this was economically viable.
· Look-alikes to be able to receive direct supply at the discretion of the publishers in return for a period of compensation to the territorial newsagent.”
The Tribunal notes that some of these proposals are not new. The separate operation of the retail and delivery functions of the newsagent is already authorised conduct in South Australia, and, in effect, is also available in Queensland. The separate operation of these functions was also an element in the amended conduct that the Tribunal refused (for other reasons) to authorise in Re 7-Eleven Stores (1994). The proposal that look-alikes might receive direct supply subject to a period of compensation for the territorial newsagent had, according to evidence from Mrs Schieron of INA, been the subject of a negotiated agreement between INA and NCV in 1994, so that in consequence INA withdrew its application to intervene in Re 7-Eleven Stores (1994). However, the agreement lapsed following the Tribunal’s decision in the matter.
We note that at the present hearing before the Tribunal ANF did not seek to develop an argument that any removal or diminution during the process of deregulation of the exclusive right to supply look-alikes or other sub-agents should be accompanied by a period of compensation.
Mr Dean denied that the newsagents, through ANF, had been “extremely resistant to change” as claimed by the applicants, and pointed to the above proposals as showing willingness by the authorised newsagents to accept modified arrangements. In his written evidence, he also pointed to other initiatives that ANF considered constructive:
· ANF did not apply for review of the Commission’s determinations of 12 December 1997. Nor was ANF, in the present proceedings, contesting the Commission’s determination that there had been a material change of circumstances, nor that the authorisations should be revoked;
· ANF had established a committee to examine possible new arrangements;
· Professor Fels was invited to address the Newsagents National Convention in March 1998; and
· discussions were held with senior Commission officers in June 1998, as a beginning to a process of facilitating changes to the current arrangements.
Mr Dean asserted that the onus for initiating change in the authorised system rested primarily with the newspaper publishers, because the newsagent is their agent performing functions on their behalf and under their instructions. He said:
“…there is an extreme imbalance of power between newsagents and publishers in favour of publishers. This is because publishers are not dependent upon any individual newsagent for the distribution of their publications. Publishers have a choice as to the means by which their product is distributed. This power would be enhanced in a situation where there was time pressure on the newsagent to enter into an agreement.”
ANF hopes for consultation between newsagents and publishers about any new arrangements, but does not feel able to initiate such consultation. Mr Dean said:
“…I think it’s up to the publishers to put something in front of us, in front of the individual newsagents, as to whether they would accept it [or] they won’t. It’s not up to us to tell them…; it’s up to them to put something on and we’ll give them an opinion about what we think individual newsagents may think about what they put on the table based on our experience.”
ANF accepts that the negotiating position of the authorised newsagents in dealing with the major newspaper publishers is not strong, and that in principle newsagents could be left out of a new distribution system – or given a much reduced role. The newspaper publishers have shown no inclination to consult with newsagents as to either the general shape or the detail of future arrangements, and ANF has not felt able actively to pursue changes to the system with them. Rather, it has pursued political support for its position, which effort presumably triggered the Federal Government’s submissions to the Commission’s review of the authorisations.
As the publishers have not put any proposal for change to ANF, it has taken no action to give effect to the five proposals for change that were suggested in its submission to the Commission. These proposals, if put into effect, would broadly maintain the present structure of newspaper and magazine distribution and the central role of authorised newsagents in its operation. They are designed to maintain the income of authorised newsagents and to make it likely that adjustments to their income would be predictable and readily managed.
In these proceedings ANF has pressed strongly that in the inevitable changes which will occur in consequence of the present authorisations coming to an end, the following minimum characteristics should be incorporated in any new distribution system (and, by inference, protected by new authorisations):
· the network of authorised newsagents to remain the central structure for the distribution of newspapers and relevant magazines, with each newsagent operating as shared and sole agent for all relevant publishers within a defined territory, and optionally in respect of particular distribution functions rather than all such functions; and
· the continued tying of sub-agents in each territory to supply by the authorised newsagent, so that they may not source newspapers and relevant magazines from another authorised newsagent, and hence so that the authorised newsagent retains the share of commission income from sub-agency sales in the territory.
The Tribunal considered ANF’s strategic perspective and preferred outcome to be significant. In particular, ANF proposals to the Commission in 1996 conceded that:
· the relationship between newsagents and sub-agents needs to be reconsidered; and
· the anomalous position of some sub-agents (the look-alikes and by implication the convenience stores) might be provided for by variation to the detail of the system’s operation, without otherwise changing the authorised conduct.
The Tribunal noted the further contention of ANF that the authorised arrangements represent a single and integral system that necessarily must be considered by the Tribunal for authorisation as a whole. This contention, with its implication that no part of the authorised system is in practice severable from the whole conduct, is contradicted by ANF proposals, which envisage separate consideration.
6.2.2 The viability of the authorised newsagency
The express aim of ANF has been to protect the continued viability of authorised newsagents in the emerging circumstances. Both Mr Dean and counsel for ANF stressed on several occasions that the financial situation of many newsagents is presently fragile, and is potentially even more fragile for the typical newsagent if changed arrangements reduce sources of secure income. The three legs of ANF’s argument before the Tribunal — the uncertainty faced by newsagents after several years of review of the authorised system, the serious impact on newsagents of any abrupt termination of the authorisations, and the expectation of industry consultation with the Commission to resolve the matter during a transition period — all at bottom reflected a concern for the viability of the typical newsagency business in changing times.
Mr Dean gave evidence that at least 50 per cent of the annual turnover of a newsagency derives from the sale of newspapers and magazines, so that loss of commission from a large sub-agent such as a look-alike or a convenience store would represent a significant financial set-back. The authorised newsagent commonly faces substantial fixed costs, in that 90 per cent of newsagency premises are leased, with three to five year lease periods. Moreover, the newsagent has typically borrowed a substantial proportion of the purchase price when entering the business. In the eight months to February 1998, purchasers of newsagencies in NSW borrowed an average $225,000, or 70 per cent of the purchase price.
Mr Dean said that proprietors of authorised newsagencies will commonly have entered their business and financial commitments assuming a secure revenue stream founded in an exclusive right both to make home deliveries and to supply sub-agents within a defined territory. At least until the decision in Re 7-Eleven Stores (1994) became common knowledge in the market, these expectations were understandable.
It must be expected that some proprietors will be concerned at the prospect of reduced business revenue, either because of new competition for their customers from other small businesses (perhaps other newsagencies) selling like products, or because of the risk of losing commission shared with a large sub-agent that they have hitherto supplied. Some may fear an unfamiliar business environment where they compete with other retailers without the scales being weighted in their favour. Some might not appreciate immediately that competition need not inevitably damage them, but rather can represent an opportunity. Some might worry whether they personally possess the skills to handle competition imaginatively and well, and may in consequence consider selling out.
Such considerations give rise to the possibility that prospective change in the authorised system will affect the value of newsagencies sold. Mr Dean stated in evidence that, in the last six years, 70 to 75 per cent of the purchase price of newsagencies has been represented by goodwill, and valuations of goodwill exceeding $250,000 are not uncommon. The likelihood of recovering that goodwill on resale is obviously an issue for all authorised newsagents.
The Commission led evidence of a recent but somewhat hurried professional study into the financial circumstances of eight Victorian newsagents, each selected to have differing characteristics, that was intended to illuminate the likely effects of various hypothetical change scenarios on the valuation of newsagency businesses. Mr Sincock, the experienced chartered accountant commissioned to conduct the study, reported that although the newsagencies studied were in the same industry, their business operations and finances varied so widely as to preclude any definitive conclusions.
However, he considered that a revocation of the present authorisations would have an adverse effect on newsagency valuations, but to a degree that would vary between newsagencies. He considered that a renewal of the authorisations for only a limited period could mean that a notional, prudent purchaser for a smaller newsagency that already has tight profitability levels may be driven away, whereas a prospective purchaser of a larger newsagency may be less concerned about the future of the business.
Mr Bice, a certified practising valuer with practical experience in newsagency valuation in Victoria, also gave evidence. He agreed with Mr Sincock that much of the goodwill associated with the valuation of an authorised newsagency relates to the newsagent’s “licence” to conduct the business with some monopoly rights in accordance with the authorisation. However, he considered:
“…it is difficult to draw any definite conclusions about the effect of changed sub-agency arrangements or the loss of home delivery income on the overall profitability of newsagents in general… The number and importance of sub-agents varies so dramatically from newsagent to newsagent that it is impossible to identify a ‘representative’ case.”
Mr Bice considered that the 1994 decision of the Tribunal quickly became general knowledge among newsagents and:
“… immediately resulted in a sharp deterioration in purchaser enquiry and a consequent deterioration in the value of newsagency businesses in Victoria.”
He offered the following conclusion:
“The downward value trend is such that, if the territorial monopolies were dismantled overnight, it is my view that the value of the smaller newsagencies will deteriorate and … is likely to be reduced to a level similar and comparable to other small businesses that have no protection. The market appears to be anticipating the removal of controls … and it would appear that the market has substantially factored in the potential for the loss of the territorial monopolies.”
The above evidence conforms with commercial expectation. The prospective but yet to be defined lessening in the favoured position (the “licence”) of authorised newsagencies in the supply chain for newspapers and some magazines is likely to lead to a reduction in the value of newsagency businesses. However, the prospective fall in value has already been substantially factored into the sale price of newsagencies. If the authorisations are revoked, so that the territorial monopolies presently enjoyed by authorised newsagents disappear, some newsagents may suffer a further reduction in value. Others, along with retail outlets not presently authorised, are likely to exploit the new market opportunities that will arise, and increase their businesses and the value of them.
Moreover, the evidence from the publishers (discussed below) is that, because newspapers and magazines will continue to be published and must be somehow distributed effectively, the functions presently performed by the newsagents in home delivery and distribution to other retailers in their area would continue if the authorisations were immediately revoked, at least for a significant period until publishers devise and adopt alternative arrangements. They considered that if the current authorisations were to be revoked, not much would change in the short term.
In general, the Tribunal doubts that the removal of the authorisations (whenever that might occur) is likely to have a dramatic and immediate systematic adverse effect on the present value of newsagency businesses.
6.2.3 Responses of the newspaper publishers
Given that the two major newspaper publishers were not parties to the proceedings, we must necessarily rely on the evidence Mr Prowse from News and Mr Whitehead from Fairfax led by the Commission. Both are senior executives in their organisations, qualified to speak with authority about their company’s intentions in the present matter.
Their evidence revealed that the publishers have not yet reached any decisions about the structure of new distribution systems. Some options have been considered, but they have not been discussed with ANF. Nor have they been disclosed to the Tribunal. In written evidence, Mr Prowse stated:
“The News Group companies have not yet identified what modifications would need to be made or what changes it will introduce in response to the prospect of changes being required in relation to distribution arrangements because of the removal of the authorised systems.”
Mr Whitehead described actions taken by Fairfax following the Tribunal’s decision in 1994. Beginning in early 1995, detailed examination of alternative distribution models began. This work included a study into the feasibility of Fairfax running its own home delivery system for newspapers, as is done by The Canberra Times; the study found that the option (the terms of which were not defined to the Tribunal) was not viable. A very detailed model was developed as to how Fairfax would proceed if, with the endorsement of the then government, rapid deregulation were to proceed. However a change of government, coupled with difficulties with a new production facility in Sydney, led to the matter being put to one side, and the plan was subsequently rejected. Fairfax does not presently have a plan of action to be proceeded with on 1 February 2001, the end of the transition period determined by the Commission.
Mr Whitehead summed up the requirements for any changed system as follows:
“Fairfax requires a distribution system for newspapers that operates 7 days a week and that maximises circulation throughout the community. The distribution system must necessarily have an emphasis on efficient and timely home delivery. Further, the distribution system must have the aim of minimising the return rate of newspapers to Fairfax. In essence, the distribution system as reorganised in the future must be the most practicable and incur the least possible cost to Fairfax.”
The network of authorised newsagents is perceived to be an essential element of any changed distribution arrangement:
“Newsagents are essential to Fairfax because of the central role they play in delivering newspapers to people’s homes at an early hour each morning in addition to making them available at a variety of outlets including specialist selling points and offices. Newsagents provide a compulsory comprehensive coverage for newspaper distribution. …It is of vital importance that the current relationships which Fairfax has with newsagents continues to be of mutual benefit.”
The viability of newsagencies is plainly of importance to the publisher:
“Newsagents are small businesses and just as Fairfax relies on them to distribute their publications, they rely on Fairfax and other publishers for their livelihood. The newsagents business is founded on his/her appointment as a newsagent. …[T]he newsagent takes … and sells a comprehensive range of newspapers and magazines. That is the newsagents core business. The fundamental part of the income of newsagents is thus that earned through commissions on the sale of publications. A new system which jeopardises this income cannot be introduced quickly without risking serious damage to that income or the level of commitment to those aspects of the newsagency business that most concern Fairfax.”
Mr Whitehead also worried about the administrative obligations that the publisher must assume in the absence of a Newsagency Council:
“Without newsagency councils, Fairfax must undertake the time consuming task of dealing with each newsagent individually. Fairfax will have to do all the things that newsagency councils currently do. This will include approving buyers of newsagency businesses. Currently, complaints and problems with regard to the contracts and other aspects of the relationship between Fairfax and newsagents are dealt with by the newsagency councils. In future, this-e function will have to be performed by Fairfax. Fairfax will have to establish a new department and hire and train extra staff. Currently, newsagency agreements are processed by the newsagency councils. In future, these will need to be managed by individual publishers and facilities to do so will need to be established.”
Mr Prowse identified similar considerations as important for News. Further, he stressed that the task for newspaper publishers would be of a demanding scale in two respects:
· the continuing distribution of the major metropolitan dailies — each day News must organise the distribution of between 1.3 and 1.9 million papers, directly and indirectly to about 3,500 newsagents and 16,000 sub-agents over an extensive area, and do so with regard to requirements for early home delivery; and
· the need to separately evaluate each of these outlets for newspapers, so that each might be supplied by the most efficient and effective method, will be laborious and time-consuming.
Mr Prowse observed:
“The News Group Companies have assessed that any changes required of it or adopted at its own initiative will involve some cost to them… What we do not yet know is if there will be any gains to be made to offset these costs, however with the marketing and promotional effort in the marketplace daily, it’s reasonable to assume we reach a large percentage of newspaper readers now. What will be needed is in-depth analysis and research by each company, which will take considerable time. It is not in the News Group companies’ commercial interest to bear extra costs for marginal sales increases.”
Mr Prowse seemed to accept that in the authorised system convenience stores represent an anomaly in being classified as sub-agents. He said that it “is a very real possibility in a new system” that convenience stores might be a category to which special rules would apply.
While Messrs Prowse and Whitehead continually stressed the merits of the authorised distribution system, they accepted that other models for a newspaper distribution structure are in principle feasible. The customary system used in Australia differs from systems elsewhere. In the USA, a variety of systems are in use, with individual newspaper publishers making their own arrangements. Home delivery is primarily conducted by contractors in fulfilment of subscriptions by the customers. The specialised newsagency is uncommon, and unmanned street vending points, known as “honour boxes”, supplement news stands as outlets for retail sale. In the UK, publishers deliver their product to common wholesale warehouses, which deliver on to retail outlets. Home delivery is handled variously, with some publishers making their own arrangements, and some retail newsagents providing home delivery service.
The Tribunal received evidence about the home delivery system adopted in 1993 by The Canberra Times from its General Manager, Mr Samaras. Home delivery copies are delivered by contractors for the publisher, direct to household subscribers and other subscribers in Canberra and its immediate district, and to numerous small retail outlets. As they commit to purchase for a defined period and pay in advance, subscribers receive their copies at a price substantially below the cover price. Copies are also available through authorised newsagencies, which continue to distribute other metropolitan dailies according to the authorised system. Hence Canberra has two newspaper distribution systems operating in parallel.
Mr Samaras said that on visits to the USA prior to 1993, he had been impressed by the focus there on home delivery of newspapers, and by the tendency for newspapers to organise their own home delivery, thus assuring high standards in home delivery and a direct relationship with readers. A software database containing every residential address is used as a basis for marketing to non-customers and for rapid handling of complaints and missed deliveries.
Based on this idea, The Canberra Times developed its own distribution model, modifying a commercially available US circulation management system to suit local conditions. Whereas under the authorised system, home delivery of The Canberra Times had waited for the arrival of newspapers from Sydney and Melbourne before proceeding, home delivery can now proceed without delays arising from the problems of other publishers. Papers are wrapped centrally for home delivery rather than reliance being placed on the newsagent to do so. It is very rare for home delivery customers not to receive their copies before 6 am. A team of distribution couriers responds promptly to missed deliveries reported by customers, and to shortages of stock at retail outlets. In consequence of the changed arrangements, home deliveries of The Canberra Times have grown significantly over the last five years, from about 50 to 70 per cent of that newspaper’s sales in the Canberra area. Retail sales coverage has also changed. Whereas authorised newsagents had resisted servicing small sub-agencies that The Canberra Times considered to be useful outlets, The Canberra Times now supplies direct to any outlet that can demonstrate the ability to sell more than five newspapers a day. The Canberra Times now supplies 129 direct supply retailers as well as 51 newsagents. The commission payable to direct supply retailers varies according to the volume of papers sold.
Counsel for the applicants argued, in effect, that the experience of The Canberra Times demonstrated by example the commercial deficiencies of the authorised system, and the merits of exposing it to competition as soon as practicable. However the Tribunal accepts the counter-argument that demonstration of a distribution procedure as being effective in the Canberra context proves little as to what might be the most suitable system for a newspaper publisher in Sydney, say, where the distribution task is much larger in scale. The argument is nonetheless two-edged — The Canberra Times experience demonstrates equally that a single distribution system, including the presently authorised system, need not be optimal in all circumstances, and that the suitability of a system to a particular publisher in a particular location provides no justification for its general application. As Mr Prowse of News put it:
“It is not expected that the outcome will be uniform for each State, or for that matter each city.”
Neither Mr Prowse nor Mr Whitehead gave any indication that they contemplated continuance of common distribution arrangements for newspapers, for example by means of an authorised modification of the present system. Their evidence does not directly support the hopes of newsagents, as put by ANF, for general consultation between newsagents and publishers during a transition period, with the involvement of the Commission, leading to a modified joint distribution system that can be authorised. To the contrary, Mr Prowse said that the arrangements adopted by his company might well differ from city to city. Both witnesses indicated that newsagents would not be consulted until their company’s preferred system had been selected. However, they both made it plain that the newsagency network will contribute importantly to any distribution systems that each publisher devises.
Only limited conclusions can be drawn from the evidence of the two newspaper executives. Both shared the opinion that the present authorised system satisfies the requirements both of timely delivery to a large and sufficient number of retail outlets and timely delivery to homes and other premises that have placed orders. Ideally from their perspective the present system would continue with the minimum of change. However, both implicitly accepted that significant change will take place, and that future arrangements will be devised with prime regard to the publishers’ requirements for the distribution of daily papers. The distribution of magazines through the same channels would be a secondary consideration — although perhaps a desirable one, in that the sale of magazines contributes usefully to the income of the newsagents.
In sum, the Tribunal has been given little information about the strategic planning of the newspaper publishers since Re 7-Eleven Stores (1994), beyond their stated intention that each will make its own corporate decisions about distribution arrangements in due course, and that use will be made of the existing newsagency network in those arrangements. Neither publisher exhibits a sense of urgency in determining what will be done. In the meantime, they continue to distribute newspapers in strict accordance with the authorised arrangements, as administered by the Newsagency Councils.
6.2.4 Responses of magazine publishers and distributors
Two magazine publishers, ACP and ESN, are parties to the authorised systems in NSW and ACT and in Queensland, and have followed its practices in Victoria. Other magazine publishers have until recently conformed generally with arrangements that gave the authorised newsagent the right to organise distribution within the defined territory. Until recently, the commercial discretion for publishers to by-pass the authorised systems, and to supply direct to retail outlets other than specialised newsagencies, had not been exercised by magazine publishers. However evidence of events since 1994 has served to demonstrate amply to the Tribunal that the magazine distribution system essentially is presently conducted independently of newspaper distribution.
The strategic behaviour of the magazine publishers and distributors since 1994 has been quite different to that of the newspaper publishers. The Tribunal has heard evidence as to how magazine publishers and their distributors have been considering and testing options for alternative distribution arrangements, and introducing some significant changes in practice, while continuing to rely on the authorised arrangements where no change is presently contemplated. Moreover, the magazine publishers and their distributors have not acted in concert, but have moved independently in distribution matters in the manner of businesses competing for advantage. The commercial terms applying to magazine distribution have begun to exhibit differences as between the several publishers and distributors.
The various commercial moves by magazine publishers and distributors since 1994 was promptly noticed by the authorised newsagents, by their State associations and by ANF, and at times aroused open hostility from them. The Tribunal gained useful perspectives from related evidence, as to contending forces and strategic considerations that are at work in the market for magazines.
Competition in the sale of magazines is fierce. Ms O’Grady of ACP in her statement said:
“The magazine sector is vigorously contested on all levels from publishing to retail, and competition is being increased by market developments.”
Both magazines and daily newspapers compete for sales primarily on the content of each issue, and also particular magazines and newspapers are promoted to consumers in various similar ways. However, there are clear differences between magazines and daily newspapers in the processes of competition between publishers.
Buying a daily newspaper is commonly an habitual purchase, which can be entrenched by the encouragement of standing orders for home delivery. Additional sales are fostered by point-of-sale posters and by ensuring ready availability from numerous outlets. The customer’s choice is limited — there are two daily newspapers in Sydney and Melbourne, and one in Brisbane; all three cities have corresponding Sunday papers; and there are two national daily papers, The Australian and The Australian Financial Review. On the other hand, some 5,700 magazine titles are available from the three major distributors, and a large newsagency might typically display 2,000 titles for sale. Perhaps 100 of these (“the popular titles”) are familiar to consumers at large. A small sub-agent might have only 10 to 20 of the popular titles for sale. Supermarkets and convenience stores will stock only well-known magazines that will be in demand from their customers. Minor and less popular magazine titles, and newly introduced magazines that have not yet won significant market recognition, are stocked only by a specialist retailer such as the authorised newsagent. Hence for the overwhelming majority of magazines, and for newly introduced magazines in particular, the existence of retail outlets that will show off numerous magazines in large, well-organised display racks, encouraging leisurely browsing and considered selection by potential buyers, is critical to their commercial viability.
Obviously enough, magazine publishers and distributors will seek to encourage sales through all available channels, and notably:
· the authorised newsagencies as specialised retailers and their sub-agents, most magazine sales being made through this channel;
· the supermarkets and convenience stores, which sell large numbers of the popular titles and represent a growing sales channel for magazines; and
· subscriptions, where the publisher can offer delivery either by mail or through the home delivery capability of the authorised newsagent.
Evidence in regard to magazine distribution made little mention of home delivery by the authorised newsagent, beyond Ms O’Grady mentioning it as a useful alternative to the mail in delivering subscription copies.
However, a dilemma has emerged for the publishers and distributors of magazines in developing compatible marketing strategies for both authorised newsagents and convenience stores. On one hand the newsagency network is presently the major retail conduit through which magazines are sold; typically magazines represent 30 per cent of the value of a newsagent’s sales of publications, and newsagents will be watchful for threats to their revenue arising from changed commercial terms for handling magazines. On the other hand, the increasingly numerous convenience stores, which have been supplied as sub-agents, represent a major opportunity for growth of sales of popular magazine titles; poor service from some authorised newsagent suppliers and sharing of commission with the newsagent do not constitute a good basis for encouraging convenience stores to pursue sales growth.
Some examples illustrate the dilemma.
Gordon and Gotch, which is not itself a publisher, undertakes distribution of magazines for certain Australian publishers, in addition to distributing imported magazines. It is not a party to the authorised conduct in any State. Following the Tribunal’s decision in Re 7-Eleven Stores (1994), Gordon and Gotch gave six months’ notice to the newsagents that they were terminating existing contracts and substituting other contracts that observed the territories of newsagents but differed in other respects. Following protests from authorised newsagents, the revised contracts were put on hold. However since mid-1995, Gordon and Gotch has supplied magazines directly to some sub-agents, including look-alikes, without compensation to the authorised newsagents who had previously supplied them.
In April 1997, the general manager of ANF wrote a letter to NDD, another distributor, which included the following:
“We have been approached by Gordon and Gotch who claim that a number of their publishers are strongly suggesting to them that they should abandon the newsagency system … and supply direct to convenience stores, in particular the 7-Eleven chain. This is despite the fact that the basis of these decisions is a perception fueled by some convenience stores that they are experiencing supply difficulties as sub-agents. This is despite the fact that whenever this claim is made … no corroborative information is forthcoming.”
ACP, which is the major magazine publisher and another of the three large distributors of magazines, distributes its own titles and titles of some other publishers through a subsidiary enterprise, Network Distribution Company (“NDC”). The authorised system is followed closely in NSW, ACT and Queensland, and broadly in Victoria where ACP is not a member of the NCV. ACP presently supplies magazines direct to 2,400 supermarkets, convenience stores and other retail outlets, in accordance with the discretion allowed to publishers under the Rules of NCNSW and NCQ.
In late 1996, ACP decided to supply magazines direct to 7-Eleven stores, with authorised newsagents to have no involvement either administratively or by sharing the commission. This action was consistent with the Rules, and consistent also with the established practice of magazines and newspapers being supplied direct to large supermarkets. However ACP’s decision aroused a strong protest from authorised newsagents and their associations, because of its effect on the income of the newsagents that had been supplying 7-Eleven stores, and because the action could be seen as a precedent for the more general supply of magazines direct to outlets that were presently large sub-agents. Letters couched in vigorous terms were sent to ACP. Discussions were held with ACP in Sydney. In Queensland, circular letters to newsagents noted various ways in which individual newsagents might respond to ACP’s disadvantage, while stressing that the State association was precluded from recommending such actions because of trade practices considerations. Similar actions against ACP were discussed in Victoria. In the upshot, ACP continues to supply 7-Eleven direct, but has not to date extended the practice to other convenience stores.
NDD and RDS are members of the ESN group. They have the benefit of authorisation in NSW, ACT and Queensland. ESN is the third major supplier of magazines to retail outlets, distributing about 25 per cent of magazines sold. Mr Goddard, in evidence led by the Commission, said that magazine publishers that distribute through NDD are encouraged to follow the practice of the authorised system and not to allow direct supply to convenience stores. However a letter dated 16 June 1998 from the chief executive of NDD to ANF was put into evidence, which read in part:
“For a number of years, I have frequently expressed my concern over the inconsistent and inequitable manner in which the convenience stores and petroleum outlets have been supplied magazines by the industry. I warned that one day, publishers would become so intolerant of the situation that they would be forced, in frustration, to seek direct supply arrangements with those outlets.”
The minutes of the Annual General Meeting of VANA in November 1996 includes numerous references to the changing distribution practices of magazine suppliers, including the following response by the Chief Executive Officer of VANA to a question:
“Mr Jordan further advised NDD have written a letter stating their concern with regard to the situation, and notifying they plan to maintain their current supply arrangement. Gordon and Gotch, Pacific, Murdoch and IMD have all also indicated they have no intention in changing their distribution methods at this point, but have expressed concern about being disadvantaged by competitors. Mr Jordan went on to say that VANA are working very hard to contain the situation.”
Nevertheless a reference to IMD supplying a look-alike direct appeared elsewhere in the minutes.
In March 1997, the National Circulation Manager of Pacific Publications, which distributes through Gordon and Gotch, wrote to ANF in the following terms:
“Our support of the Newsagents to date has been solid but situations such as this are testing our patience. Since our competitors have changed their distribution arrangements, we have seen very few positives for Pacific Publications. The level of service provided to some major sub-agents does not seem to have improved in this period…”.
In July 1997, Pacific Publications advised newsagents of new distribution arrangements that would be promptly implemented — in effect, that Pacific Publications had decided to supply convenience stores direct. This announcement aroused further heated discussion among authorised newsagents about action in response. The newsagents’ association in NSW issued a statement headed “Pacific betrays Newsagent support”.
This and other evidence amply demonstrates how the commercial decisions of magazine publishers are governed by considerations that are different in important respects to those that concern the newspaper publishers. The ferment that has been apparent in magazine distribution since late 1994, with the authorised newsagents exhibiting open hostility to any modification to their preferred position in magazine distribution, reflects the awkward choices faced by magazine suppliers that are also trying to expand sales through non-traditional outlets.
As newsagencies typically display a large number of magazine titles for sale, they are crucially important for comprehensive magazine distribution. On the other hand, non-traditional outlets, which allocate their shelf space among categories of product to their best advantage (magazines being only one such category) are an increasingly important outlet for popular magazine titles. Convenience stores will display a broader range of titles than supermarkets, provided they are offered suitable supply arrangements and profit margins. The magazine supplier which seeks maximum sales of popular titles and hopes to win a share of growing sales through non-traditional outlets, but which also is concerned to sell minor titles and to introduce new titles, must somehow strike a strategic balance between fostering the authorised newsagent as the primary sales channel, and developing business through other sales channels. Patently, the latter is less likely to eventuate if the potential new sales outlet is treated as a sub-agency, receives only half the customary commission, and has no direct relationship with the supplier.
Both Mr Goddard and Ms O’Grady accepted that change is inevitable, but argued for a transition period until 1 February 2001, as determined by the Commission. Both justified such a period on grounds of the time required for the publisher to develop necessary administrative systems in advance of the introduction of changed arrangements. However, Ms O’Grady said that ACP could adapt quickly to a deregulated market.
For newspaper publishers, the authorised system represents a proven basis for organising a physical distribution task that must be conducted on a daunting scale and over a short time period daily. For them it also offers a manageable procedure for timely home delivery of a significant part of their production. On the other hand, the suppliers of magazines are different companies, with differing commercial imperatives to which they must strategically respond. Those publishers and distributors of magazines that adopt the authorised conduct appear to do so for marketing reasons, i.e. because it is supportive of a particularly useful relationship with the authorised newsagents as specialised retailers, and obversely because potentially damaging conflict with newsagents is avoided. Other publishers and distributors have found that they can maintain the necessary relationship without strict conformity to either the Rules or to the newsagents’ expectations. The overall picture since 1994 is of a distribution system for magazines in which the suppliers have in effect elected to deregulate themselves, and are doing so with increasing resolve.
6.3 Re-evaluation of net public benefit in 1998
6.3.1 The relevant markets in 1998
The operation of the relevant markets was thoroughly examined in Re 7-Eleven Stores (1994), and the present Tribunal is aided by the findings made in that decision. In this hearing there was no evidence led on market definition. There was implicit acceptance of the finding in Re 7-Eleven Stores (1994) that there existed two relevant markets for the purposes of analysis of the newspaper and magazine distribution system: (at 42,672)
“…first, the market for the publication and distribution of metropolitan daily newspapers offering two interconnected products: news, information and entertainment; and classified and display advertising. We distinguish this from the market for magazine publication and distribution, again with two interconnected products: magazine articles, fiction etc. and advertising.”
The Tribunal also found in 1994 that the geographic market for primary distribution was State-wide, at least in the case of Victoria, while for retailing, a series of local market areas existed. Nothing has changed to cause us to alter this view that these are the relevant markets to be considered in this review, and that they are State-wide. We emphasise the existence of successive functional levels in each of these markets - production, primary distribution, secondary distribution, and retailing, but note that there is some uncertainty as to the boundaries that circumscribe the wholesaling function.
The Tribunal has already noted that since 1994 magazine publishers and distributors have, by their independent strategic behaviour towards a number of sub-agents, effectively chosen to carry on their business independently of the authorised arrangements. The independent action by publishers such as ACP and Pacific Publications in their unilateral decisions to supply direct to some large sub-agents contradicts claims made in evidence about the interdependence between magazine and newspaper distribution.
6.3.2 An additional public benefit? - The survival of new magazine titles and small publishers
One public benefit which appears not to have been raised previously was introduced in these proceedings. ANF, ACP and the Commission submitted that the established distribution system facilitates the entry of new magazine publishers into the market, and of new titles from existing publishers. They contended that the authorised newsagencies, each stocking and displaying many hundreds if not thousands of titles, are utilised for the efficient exposure and promotion of new titles. No other means are available, it was claimed, to reach all potential readers at the same low cost.
It was argued that should the substitute authorisations be revoked, newsagencies might be forced to carry only the best selling titles in order to compete with convenience stores and others that would not burden themselves with being full-range sellers of magazines. Launching of new titles would become much more expensive, returns of unsold copies would be higher, and the probability of commercial success would be lower. The costs of competing would increase for publishers. There would be less new competition for existing titles, existing small publishers could disappear under the heavy cost and low exposure burden, publishers would have to find less suitable retail outlets for their new titles, and readers would be inconvenienced in having to discover new locations for existing low volume titles, and would no longer have the convenient opportunity to browse through a large range of new and old titles in the one location at the authorised newsagent.
This is an argument with which the Tribunal has some sympathy, but we do not find it convincing. As noted in Section 6.2.3 of these reasons, it is likely that the specialised newsagency will continue to be fostered by the newspaper and magazine publishers, simply because it demonstrably serves important needs in the sale and distribution of their products. We note further that new titles and new publishers successfully enter the magazine market in other countries with different distribution systems and different patterns of retail outlets. For example in the USA, where magazine titles are more notably by subscription, new titles are introduced and can prosper. In the absence of specialised newsagencies, other types of retail stores could be expected to display and sell a range of new and specialist magazines. Niche magazine retailers could enter the market. Publishers could contract with certain retailers to stock their titles. In short, to the extent that the perceived problem emerges at all, market solutions will be found.
6.4. Conclusion
The previously authorised system, according to the Commission in its 1997 determination, is now “inconsistent with the requirements of the contemporary market” for three main reasons:
· it lacks flexibility, leading to inefficiencies which restrict the choice of both businesses and consumers;
· it restricts individual newsagents and other potential retailers from reacting to market needs; and
· it has both the potential and the effect of restricting the supply of newspapers and magazines to other retail outlets.
The Tribunal agrees with these conclusions. They reflect the conclusions of the Tribunal in Re 7-Eleven Stores (1994), and have been amply demonstrated as correct by evidence before us in this hearing.
A further useful perspective on the revocation issue was offered in expert evidence by Professor Williams:
“…if the arrangements for which authorisation is sought are said to create public benefits in the form of increased efficiencies why does competition need to be restricted to give access to these efficiencies? In the normal case, one would imagine that competition would be the means by which efficiencies were secured.”
He argued that even if home delivery boundaries were efficiently drawn, it could be efficient to have more than one carrier operating within these boundaries. If home delivery were a natural monopoly, there might be an argument based on efficiency grounds to restrict competition in delivery services. However, in his opinion this argument could not be extended to a monopoly in territorial wholesaling by authorised newsagents to all the sub-agents in their designated territories, because:
“…if the wholesaling arrangements for which authorisation is sought were efficient, they would emerge from the white-hot fire of competition.
The process of authorisation is not needed to promote efficiencies - except for those efficiencies that are contingent upon joint action.”
It was Professor Williams’ conclusion, given the material change in circumstances, that:
“There doesn’t seem to be anything particularly odd or special about this industry that requires the particular arrangements.”
In other words, if the wholesaling arrangements were efficient, they would be efficient on an individual basis without any need for horizontal or collective action between the publishers. An individual publisher could independently write vertical contracts with chosen wholesalers, and “could survive competition from another publisher who perhaps chose not to do that.”
The evidence before the Tribunal convincingly satisfied us that, in the absence of the authorisations, the relevant markets will be exposed to constructive competitive pressures, so that increased efficiency and enhanced social benefits will occur. At any specific functional level, a competitive market will provide an equality of opportunity for all parties to succeed, but should not be expected to achieve an equality of outcome, for that would deny the role for initiative and rivalrous strategic conduct which is the essence of competitive markets. Publishers will be free to decide on the most efficient way to distribute their newspapers and magazines. Retailers other than newsagents will be free to decide what range of papers and magazines to carry and which supply source can best service their needs. Newsagents will have to face and respond to changing retail trading conditions like any other small business. They will be free to compete with each other for the business of supplying smaller retail outlets. It will become a matter of how good a service they offer and at how keen a price. All retailers will be free to negotiate the commission they receive for selling newspapers and magazines. Optimum geographic boundaries for efficient home delivery services will emerge. Much greater flexibility and responsiveness to supply and demand conditions will develop in the market.
The Tribunal concludes that very little has changed since 1994 in the newspaper distribution system. The system continues to be a shackle upon the capacity of the authorised newsagents to adjust to the present world. The severe anti-competitive effects of the distribution systems identified by the Tribunal in 1994 continue. The responses of the parties to the authorisations since 1994 suggests that the newspaper distribution system will not move to comprehensive self-directed reform until and unless the protection of the current authorisations is removed. Only then will the system be exposed to the sorts of competitive pressures which will lead to increased efficiency.
The severe anti-competitive effects of the authorised distribution systems continue, to the detriment of the public. There is presently no net public benefit arising from the operation of the Rules of the Newsagency Councils. The existing authorisations should be revoked. This conclusion leads to the question whether revocation should occur immediately, or after a transition period.
7. A Transition Period?
7.1 Submissions for and against a transition period
Despite the important anti-competitive detriments identified as arising under the authorisations, the Commission determined that substitute authorisations to 1 February 2001 provided a “safety net” to ensure a “measured, sensible and insightful” move towards deregulation. The Commission urged the Tribunal to find that support for this by the parties to the authorisations was not based on a desire to hold onto the present for as long as possible, but on a recognition that such a transition period was needed to take all the steps necessary to produce the most efficient system for a deregulated market.
The Commission disputes that an “impasse” now exists, as claimed by the applicants, arguing that if there had been one previously, it has been resolved by its 1997 determination. Stakeholders now accept that deregulation will occur. It would not be correct to assume that none of the bad features of the current system will be removed before February 2001, and that they would all be removed on that date, as this would mean that these stakeholders would face “the very same disruption and financial loss” then as would occur now if the substitute authorisations were to be revoked with immediate effect. It is implicit in the Commission’s submissions that it considers that the anti-competitive detriments associated with a transition period are minor, certainly in comparison with the public benefits associated with a managed transition process.
The submissions of the Commission, ACP and ANF contend that the substitute authorisations should be allowed to run until 1 February 2001 for the public benefit reasons set out below. Many of these benefits are of a temporal nature associated with managed change, and focus heavily on equity issues from the point of view of authorised newsagents:
i) System-wide public benefits
· the need to avoid sudden illegality of the present system, as the current rules would no longer be protected in the absence of authorisation;
· the need to eliminate uncertainty and provide stability for a fair and orderly transition;
· the need to retain for the public an assured availability of the widest range of newspapers and magazines and the widest range of outlets while the market was in transition to a less regulated environment; and
· the need to maintain a viable home delivery service.
ii) Publisher-related public benefits
· the need for publishers to evaluate alternative distribution systems and to modify the anti-competitive aspects of existing ones;
· the need to facilitate the development of a new efficient distribution system(s) to ensure widespread dissemination of information and critical comment;
· the need to find mechanisms to deal with the possibility of different publishers deciding on different distribution systems;
· the need to avoid detriment to all publishers, due to dislocation and increased costs, and to new and small publishers in so far as getting new titles launched successfully; and
· the need for time to develop data bases for the publishers which previously were available under the authorisations.
iii) Newsagent-related public benefits
· the need to meet the justifiable concern of publishers and newsagents that no unnecessary financial loss be caused by too short a transition period, and especially the need to avoid detriment and hardship to newsagents, which could happen through sudden declines in the value of their businesses;
· the need to protect newsagents as small businesses; and
· the need for time to allow a committee formed by ANF to look at aspects of change and to meet with the Commission; ANF was developing and implementing aspects of its five point plan, and this needed time to come to fruition.
ANF stressed that newsagents have long operated within a uniform, unchanging business structure that gives them little room for independent action, and that has always been defined and controlled by the newspaper publishers. Authorised newsagents are small business-people, with financial arrangements reflecting the certainties of the established structures. The review processes of the last several years have brought serious uncertainty for newsagents, and they need time to accept and to respond to this. Abrupt change could cause irrevocable damage to many newsagency businesses. Further, ANF emphasised the wish of newsagents that their representatives should be involved in consultation among parties and with the Commission leading to a sufficient resolution of competition issues, so that damaging consequences might be minimised. Such consultation, which they saw to have been already foreshadowed and encouraged by the Commission, would take time.
ANF has proposed to the Government and to the Commission changes to the authorised arrangements that might ameliorate some peripheral problems, while retaining the salient anti-competitive elements of the present system in any new system. However the newspaper publishers have entered no discussions with newsagents, and have expressed no present intention to do so.
The four witnesses for the two major newspaper publishers and for two magazine publishers and distributors also contended for a substitute authorisation until 1 February 2001 to allow their organisations the necessary time to determine optimum new structures for distribution, to put the required framework of agreements in place, and to build necessary in-house databases about their retailers rather than rely (as each publisher does now) on the databases of the Newsagency Councils. The transition period would also allow the newsagents needed time to agree and adjust to the financial consequences of changes mandated by the publishers.
The applicants, on the other hand, contended that the parties protected by the authorisations have been on long notice that their distribution systems will need to be changed to conform to competition law, and notably so since 1994. The Commission expresses a parallel view in the 1997 determination, at paragraph 9.5:
“It has been submitted to the Commission that this review came as a surprise to newsagents. The Commission does not accept that.”
The determination goes on to list a series of initiatives directed to change in the distribution arrangements over a period of ten years since 1988, and states:
“…during the period, Commission staff have received some hundred of inquiries from existing and prospective newsagents about the likelihood of the authorisation being revoked or modified.”
There has been ample time, the applicants argued, for revised arrangements to be defined, their strategic implications considered by affected parties, and their implementation commenced; and ample time also for authorised newsagents to reorganise their business affairs, where that might be needed. Moreover, the applicants contended, there need be no concern that the distribution of newspapers and magazines would be disrupted in the absence of authorisation — it is in the interest of both publishers and newsagents that the physical distribution, home delivery and retail sale of newspapers and magazines should all continue to operate smoothly while amended administrative arrangements between publishers and newsagents are put in place. Without the clear revocation of the authorisations, the applicants asserted, the required changes in anti-competitive aspects of the distribution arrangements would not take place.
The applicants contended that no substitute authorisations should be granted. They contended that no constructive discussions or negotiations have taken place since 1994 among parties in the industry, which is indicative of a determined and resolute resistance by newsagents and publishers to any significant changes to present arrangements. The Tribunal considers that this last contention has basis in the case of the newsagents and the newspaper publishers. However, in respect of magazine publishers, as already discussed, distribution practices have changed significantly, and look likely to evolve further.
7.2 The evaluation method and the issue of managed change
In considering the substitute authorisation, the Tribunal must address whether there is a net public benefit in authorising a transition period to provide for stability in a process of orderly change towards an unregulated free market, and if so, what is the optimum length of that period. This requires the application of the “future-with-and-without test”. An evaluation is required of the circumstances that will exist if the presently authorised systems, or some alternative systems were to continue until 1 February 2001, or for some shorter period, compared with those that are likely to prevail if the currently authorised distribution arrangements were revoked immediately to allow new methods of distribution which are not incompatible with the requirements of Part IV of the Act.
In interpreting the term “public benefit” the Tribunal gives it a broad meaning to include “anything of value to the community generally, any contribution to … the achievement of the economic goals of efficiency and progress”: see Re Queensland Co-operative Milling Association Ltd., Defiance Holdings Ltd. (Proposed Mergers with Barnes Milling Ltd.) (1976) ATPR 40-012 at 17,242.
On the one hand, public policy as reflected in competition law might be thought to require that, the authorisations having been revoked, the consequences should simply be left to workings of the market. On the other hand, the public interest also plainly requires that precipitate disruption to economic structures which impact on employment and on livelihoods should be avoided or mitigated where appropriate.
Any transition process to a competitive market from a tightly regulated one necessarily involves continual change as rival firms undertake new initiatives and learn how to respond competitively to each other. In the words of Professor Williams, change in the form of new levels of competition “will introduce an unpleasant note of uncertainty”.
In the Tribunal’s view, change and uncertainty are inevitable bedfellows. Change is likely to involve transaction, search and information costs, as new contractual arrangements are investigated and negotiated in light of new market circumstances. Against this must be weighed the benefits of change - new opportunities, greater choice, and more efficient ways of doing things. Unregulated change may, on occasion, lead to a lower net public benefit than could theoretically be achieved under conditions of managed change, even after allowing for the private and social costs of regulatory intervention.
Counsel for ANF tendered numerous examples of phased deregulation or managed change which had been initiated and supported by various Australian Governments, notably in the automotive; textile, clothing and footwear; sugar; and tobacco growing and manufacturing industries. Counsel argued for a similar process to be applied to the distribution and retailing of newspapers and magazines. However, the institutional environments of all these industries plainly differ one from another, and from the newspaper industry, in so many respects as to preclude the easy extrapolation of the experience in one instance to another. The Tribunal considers that any managed process of change needs to be evaluated case by case. There can be no unique prescription for the socially-optimal mechanism or instrument of change. This accords with the opinion of Professor Williams in evidence:
“… the way in which competition is introduced into a particular industry should be considered on a case by case basis. I don’t think there is a general rule that competition should always be introduced either overnight or that competition should be phased in. I think you have to look at the particular circumstances of the industry.”
The parties and the witnesses for the newspaper publishers have offered a variety of perspectives on the public benefits which could be expected from “managed change”, “phased change” or “ordered change” during a transition process. We treat these expressions as synonymous, and for convenience have adopted the expression “managed change”.
In considering the submissions which contend that there is public benefit in managed change during a transition period, a distinction should be recognised between a transition period, where change evolves perhaps gradually, perhaps fast, towards some final goal (in this case, deregulated systems for the wholesale distribution and retailing of newspapers and magazines), and what may be better termed a “holding period”, a time where no actual change occurs, but where considerable planning is undertaken to permit the introduction of major changes at the very end of the period.
7.3 Consultation and negotiation as mechanisms for change
Having expressed a general intention that newsagencies should remain a central element of newspaper distribution, the witnesses from both News and Fairfax said that they required a transition period to develop administrative systems to suit the particular distribution arrangement that each enterprise decided to adopt in future. Neither witness mentioned any intention to pursue joint arrangements. Neither foreshadowed any intention to enter discussions with the authorised newsagents prior to deciding the form of future distribution methods.
In magazine distribution, witnesses from both ACP and NDD said (in effect) that they needed time to develop internal administrative systems, that they valued the role of newsagencies in magazine distribution and planned to foster it, and that neither had any plans for changing their present distribution practices (despite evidence to the contrary).
ANF conceded that the newspaper publishers had not indicated any willingness to enter negotiations towards the new outcome; however it looked to the Commission to assist in assuring a negotiated arrangement. Consultation with other interested parties, such as the convenience stores, or their participation in the negotiations, appeared not to be contemplated by ANF.
The Tribunal interprets ANF’s strategy for a transition period as being the pursuit of new authorised arrangements that would represent the least possible revision to the present authorised arrangements. This outcome would be achieved by a settlement between newspaper publishers and the authorised newsagents as a group, in effect brokered by the Commission, which would advise the parties as to what arrangements were acceptable.
The Commission is well aware of the newsagents’ expectations of it. In the 1997 determination, the Summary of Decision included the following statement:
“The Commission understands that there is an expectation, particularly among the newsagents, that the present distribution arrangements would continue in full for a defined period from the time of the Commission’s decision. Other parties with an interest in the system oppose any continuation. Notwithstanding that, the Commission considers the industry itself still needs time to consider what it has to do to meet the Tribunal’s concerns and to put in place and adjust to such changes as are necessary.”
Counsel for the Commission was concerned during the hearing to dissociate the Commission from any implication that it planned to adopt a proactive role in any consultations between parties directed to development of revised arrangements. However, paragraph 9.22 of the 1997 determination reads in part:
“During the period of the substitute authorisation the industry may come forward with proposals that appropriately address the Tribunal concerns. The Commission is available during the transition period to discuss issues with the parties. Parties would then be free to approach the Commission for authorisation … for any remaining aspects that restrict competition.”
It has been a prime expectation of ANF that the Commission will play a major role in facilitating negotiated change. The Commission is, however, constrained by its statutory duty, which arguably implies (just as the Tribunal’s statutory duty implies in these and other proceedings) that the Commission’s role is not to design for others business arrangements that can be authorised, nor to insist on optimum arrangements before granting authorisation, but rather to assess formally whether some proposed conduct that might breach the provisions of the Act yields a net public benefit, and therefore can be authorised.
In any event, it cannot be assumed that negotiations between the parties will achieve sustainable common ground, particularly if (as ANF appears to propose) the look-alike newsagencies and convenience stores are not to be included at the table. The newspaper publishers have adopted a distant and non-committal stance, such that actual revocation could be required before they are stimulated to do much at all.
The evidence suggests that the distribution system is beset by inertia. The status quo appears to have suited the publishers, and they have not elected to engage in their right to direct supply to many large sub-agents except look-alikes. The newsagents have been the creatures of the system, beholden to it for most of their commercial decisions. Independent decision making has not often been required of them. They have strong reasons to maintain for as long as possible the territorial exclusivity of supply which protects them as retail sellers, as operators of home delivery services, and as wholesale suppliers to sub-agents.
There is currently no systematic, substantial, on-going agenda for significant change towards a more competitive distribution system, despite the parties concerned having had over three years to plan for the operation of a free market since the Tribunal’s decision in 1994. It appears that the parties are living to the full the observation of the prominent British economist, Sir John Hicks, who once said that “the best of all monopoly profits is a quiet life”: J R Hicks, “Annual Survey of Economic Theory; The Theory of Monopoly” in Econometrica, vol. 3, January 1935, p 8.
In summary, the Tribunal does not consider that independent negotiations between parties can be relied on to reach a mutually satisfactory, socially beneficial outcome. We identify the following reasons for this conclusion:
(i) Senior executives of the two major newspaper publishers have given no evidence in support of the newsagents’ model. Both have indicated that their companies intend to develop their own distribution arrangements separately and independently, an approach that contradicts the concept of a negotiated, joint and uniform system negotiated with the newsagents.
(ii) The proceedings in this matter, and the corresponding proceedings in 1994, have arisen because of the insistence of both authorised newsagencies and publishers that the distribution of newspapers and some magazines should be performed under terms that disregard their impact on other retailers that seek to compete with authorised newsagents. Negotiations between newsagencies and publishers alone do not constitute a sound or sufficient forum to remedy the anti-competitive shortcomings in the present arrangements.
(iii) Reliance on consultation with the Commission and negotiation between some of the parties leaves open the prospect that no agreed conclusion that is acceptable to the Commission will have been reached at the end of the transition period. Nor might any narrowly achieved agreement meet adequately the reasonable commercial expectations of others not party to the agreements, for example, the growing convenience store sector as alternative retailers of newspapers. The absence of consensus among all the parties to this hearing could open the way after February 2001 to further dispute and litigation that would be adverse to the public interest.
In so concluding, the Tribunal does not imply that negotiation or consultation between commercial parties is not a helpful and constructive device in resolving disputes on competition matters. Nor do we imply that constructive inquiry of and consultation with the Commission is other than a procedure to be encouraged for parties addressing competition problems. The Tribunal recognises that consultation processes, pursued with the Commission and with others, might well prove useful in offering the means for reassuring authorised newsagents who must expect to work in the foreseeable future within different commercial arrangements. Our comment is confined to the observation in this present matter that such processes are insufficient, and might in some respects be inappropriate, to be relied on as the only defined mechanisms for application during a transition period.
7.4 The argument about uncertainty
The uncertainty about the direction and prospects for their business that has beset authorised newsagents over recent years was stressed in ANF’s case for the extension of the present authorisations until 1 February 2001. The Federal Government’s submissions to the Commission in 1996, and the Commission also argued for a “period of stability” to mitigate the effect of this period of uncertainty.
We accept as having substance the concerns expressed by ANF in respect of uncertainty. We agree that the processes of review of the authorised system have already gone on for too long, and we share ANF’s concerns that in mid-1998 the future business structures within which the newsagents will operate remain unsettled. However, in considering the duration and scope of a substitute authorisation, the Tribunal distinguishes between two aspects of uncertainty that we see as having become muddled in this matter:
· uncertainty felt by those who cannot see enough of the future, or of the hurdles they must negotiate in getting there, to allow appropriate action in response to either impending difficulty or possible opportunity. This uncertainty properly is to be addressed by having those affected able, as soon as possible, to discern the broad structure within which they will work. Further, they are helped by having a clear and manageable timetable for progressive changes that will put it in place. In short, the genuinely uncertain are helped by clarity about their prospects and expectations, and by having enough knowledge of the timing of change that they can make plans to anticipate it; and
· concern for the consequences of change felt by those who realise, after learning the all-too-certain shape of their future business environment, that they will be adversely affected. Strong distaste for an unfavourable outcome is not to be described as uncertainty. Rather it is a common consequence of the rivalrous commercial behaviour that competition law is designed to foster, in the public interest. When small business people who have hitherto been especially favoured face the prospect of change, casting about to see whether it is somehow avoidable is to be expected at first. However, inevitably they will have to confront the modified environment, and their predicament will not be different merely by delaying the process of change.
It is the former, not the latter, aspect that may justify a transition period to allow managed change to occur. Managed change requires the imposition of a structure on to events – the introduction of deadlines, the conscious involvement of all interested parties, the identification of the sequence in which events will desirably occur, and so on. Implicit in a scheme for managed change is the assumption that someone is managing.
In the present case there is no overall program and there is no manager. Even on the part of the different participants in the markets whose conduct is presently authorised there is no program for managed change. The strategic responses of the participants since 1994 indicate that they are banking on a further period of authorisation which they will use as a holding period during which new mutually-satisfactory arrangements might be individually or jointly worked out by all the parties involved in the publishing and distribution of newspapers and magazines, possibly leading to a new approach to the Commission for authorisations. In the view of the Tribunal, those protected by the substitute authorisations proposed by the Commission are treating the period to 1 February 2001 in this way, with the result that if the substitute authorisations are confirmed there may be little or no change of substance in current conduct until after that date. The private benefits of the existing authorised conduct would be retained by the protected parties in the meantime.
7.5 The scope for introducing change during an authorised transition
In the course of the hearing, the Tribunal posed the question whether it could be argued that the Rules themselves constitute an obstacle to managed change because of the contractual restraints they impose on the parties to the authorised distribution systems. If so, it is not realistic, in a practical sense, to expect implementation of change beyond the planning stage whilst authorisation of the Rules remains.
The interrelationship between the Rules and the Newsagency Agreements and Sub-Agency Agreements under the authorised arrangements is discussed in Section 4.1 above. The Rules require that the Newsagency Councils enforce compliance with the Newsagency Agreements, and the terms of the Newsagency Agreements between individual publishers and individual newsagents require compliance by both parties to the contracts. The significance for the publishers of the contractual arrangements with newsagents was stressed under cross-examination by Mr Whitehead of Fairfax, who said:
“It is clear that we cannot unilaterally do anything. We have contractual obligations with the newsagents and we need to do things in a certain order. Fairfax does not have a plan to proceed with on 1 February 2001.”
The agreements of newspaper publishers with individual newsagents do not allow for termination by the publisher on notice, except for non-compliance by the newsagent with the authorised Rules, or after the publisher ceases to be a member of the Newsagency Council. If a publisher resigns from the Newsagency Council, it ceases to be a party to the authorised arrangements and loses the benefit of the authorisations in respect of the distribution of its publications; while the publisher remains a member, enforceable contracts with every newsagent remain while the authorisations remain. It appears to the Tribunal that dissent by a minority of newsagents would suffice to prevent the implementation of changed arrangements at the initiative of a publisher while the relevant clauses of the Newsagency Agreements remain enforceable, i.e. while relevant elements of the authorisations are in place. In these circumstances, the argument of the publishers, the newsagents and the Commission, that the authorisations should be continued in full for the whole transition period, to protect the parties over a period of managed change to distribution arrangements, looks to be unsound.
If the structure of the Rules as authorised, and their intertwining with the terms of the individual newsagency agreements, effectively precludes significant change in the practice of the distribution of newspapers (and of magazines in some circumstances) while the authorisations are in force, then it cannot be argued, as parties other than the applicants argued, that a substitute authorisation in conformity with the Commission’s determinations would provide an umbrella for useful change that might well be implemented prior to 1 February 2001. In short, this would not provide a transition period in any conventional sense, but rather a further period of grace for the publishers and the authorised newsagents, during which the present conduct would continue. The net public benefit accruing from the authorisation of a “transition period” so defined has necessarily to be evaluated by the Tribunal on that basis.
8. Conclusions on Elements of the Authorised Conduct
8.1 The Tribunal’s task
In the course of the hearing, the Tribunal indicated to counsel our interest in hearing evidence and argument in relation to:
· possible shortcomings to adopting a simple extension of the present authorisation as the central device for transition;
· the merits of alternative processes of transition; and
· the shape of prospective revised arrangements for the distribution of publications that might be in place at the end of the transition period.
In the event, all the parties persisted in offering evidence and argument that directly compared the merits of two options only — extension of the present authorisations until 1 February 2001, and immediate revocation of the present authorisations.
Although ANF, ACP and the Commission assert that it is necessary to have until 1 February 2001 to establish a new master plan, no analysis or justification of why this period was optimal, rather than some shorter period, was presented to the Tribunal. They merely pointed to the fact that in its 1994 determination the Tribunal had noted that a period of three years might be necessary for orderly change to occur, and that the necessity of a similar period was argued by the Australian Government in its 1996 submission to the Commission.
By the time the Tribunal hearing took place in July of 1998, the clock had ticked down to 30 months to the deadline, but no party suggested to us that any longer period of time than this was necessary, even though nothing concrete had yet been developed by any of the parties towards the establishment of new distribution systems.
All of the public benefits claimed to come from the continuation of the existing system during the period of the substitute authorisations were argued by the publishers and ANF from the perspective of preserving and facilitating the position of the publishers and the newsagents in the transition process. No reasoned analysis of benefits to the public at large from the lengthy period of transition sought (or from some other shorter period) has been presented to the Tribunal.
Furthermore, we were not assisted by any evidence presented in the hearing of the different levels of anti-competitive detriments associated with no transition period, or transition periods of varying lengths. It has been implicitly assumed by parties to the hearing that some anti-competitive detriment is associated with the operation of the system, in terms of, for example, lack of consumer choice and inability of sub-agents to secure their supplies in the most efficient way possible. This detriment to society exists, although its magnitude cannot be precisely ascertained. It is undefinable in dollar terms but nevertheless is palpable in terms of assessing the net public benefit of the system.
Past losses to the community incurred through suppression of competition can never be recovered. Efficiency losses through the non-achievement of available scale economies, and lost consumer choice, can never be recaptured. The longer it takes for free market conditions to permeate these markets, the greater the on-going irretrievable social efficiency losses. However, the on-going social costs of permitting the agreements to continue can be put to a halt, or at least can be lessened, by hastening the advent of fully competitive markets.
The approaches adopted by the parties represent a gross simplification of the issues before the Tribunal in considering a substitute authorisation. Further, it follows from the discussion in Section 7.5 above that managed change, intended to reduce newsagent uncertainty, comprised of a sequence of measured events over the period, could require parallel revocations or modifications of corresponding elements of the authorisation over the term of the transition period. The Tribunal became increasingly convinced as the hearing progressed that our acceptance of the simplification adopted by all parties would hinder us in reaching a decision consistent with the net public interest.
In any event, the Tribunal notes several items of evidence that contradict the simplification. The scheme for modifying the authorisations that ANF put to the Commission in 1996 explicitly proposes changes to elements of the arrangements while retaining others. The determination of the Commission in 1993 on the Victorian arrangements, which was supported by NCV before the Tribunal in Re 7-Eleven Stores (1994), proposed limited changes to the conduct while retaining its central features. The proposed settlement between INA and the Victorian newsagents in 1994, which lapsed after the Tribunal’s determination, similarly involved change to one element of the conduct while retaining the remainder. In all these instances, the parties to the authorisations have conceded that elements of the total conduct are severable, and might be modified independently of other elements.
The Tribunal considers that the unravelling of long-established arrangements that is now contemplated should distinguish between different elements of the presently authorised conduct, and provide for deregulation of those elements according to different time scales.
Many of the arguments in favour of a transition period are not lightly to be set aside. On their face they plausibly support (as counsel for ANF, ACP and the Commission argued) the setting of an extended transition period during which alternative arrangements could be put in place to avoid unnecessary disruption to the businesses affected, and to minimise the risk of dislocation to the continued distribution of publications meeting a public need. However, the simple continuation of the present authorisation for a further period, with the ostensible purpose of allowing the parties to move to a new basis without abrupt dislocation, does not represent the only option for effecting necessary change. The problem with that option is that it allows the possibility that, because the newsagents and the publishers are not the only interested parties, there will be continuing disagreement as to the direction and detail of change, so that little or nothing might be achieved during the transition period.
The Tribunal must consider alternative processes likely to encourage change. We recognise that the mechanisms adopted in introducing change to an established business system over a defined period can constrain and even predetermine the outcome. Just as it is no part of the Tribunal’s role in this matter to design a preferred future structure for the distribution of newspapers, so it is proper that we should seek to avoid facilitating change processes that could in some degree have the effect of distorting the form of the outcome of transition, and the future workings of a competitive market. The Tribunal has therefore looked for evidence and argument relating to the mechanisms that might be applied during a transition period, with a view to deciding whether they are conducive to the achievement of a deregulated market, and whether their use to assist change during the transition would yield the net public benefit that is required for their authorisation.
The Tribunal has concluded that the following elements of the previous authorisations require separate treatment:
· the wholesale distribution of magazine publications;
· the wholesale distribution of newspapers to look-alikes;
· the wholesale distribution of newspapers by newsagents to sub-agents generally; and
· the home delivery distribution of newspapers.
8.2 The wholesale distribution of magazine publications
The authorised system developed and has been maintained with the particular intent of suiting the demanding distribution requirements of the publishers of daily newspapers. Whereas all the major metropolitan newspapers in Victoria, NSW and Queensland (but not in ACT) are published by companies that are members of the relevant Newsagency Councils, and are distributed in accordance with the authorised Rules, the publishers and distributors of magazines have never all been members of Newsagency Councils. Neither Fairfax nor News nowadays publish a significant number of magazine titles.
Magazines published or distributed by subsidiaries of ACP and ESN, both members of NCNSW and NCQ, are distributed to authorised newsagents in accordance with the authorised system in NSW, ACT and Queensland, and also in Victoria where they do not enjoy the benefit of the authorisation. Other magazine publishers are not bound to distribute their product in conformity with the practice of the authorised system, but until recent times many appear to have done so. This practice was spoken of in these proceedings and in the Tribunal’s 1994 proceedings as “piggy-backing on the system”, and was a matter of particular complaint by INA. No evidence was led by any party that would suggest that this parallel conduct has been or is unwelcome. Such conduct on the periphery of newspaper distribution reinforces the operation of the authorised distribution systems.
Magazine distribution arrangements are no longer uniform, and increasingly diverge from the norms of the authorised conduct followed by the newspaper publishers. Taken together with the general separation of newspaper ownership from magazine ownership that has occurred, the Tribunal concluded in Section 5.2 that these changes in magazine distribution practices constitute a material change of circumstances.
ACP and Pacific Publications (and evidence suggests that other magazine publishers are thinking similarly) have acted in a way that indicates that the current distribution system no longer serves their needs in responding to the changing market forces of supply and demand. The constraints under which magazine publishers operate now appear to be different to those faced in the distribution of newspapers.
The magazine publishers have, to a large extent, through their own non cooperative strategic behaviour, already moved down the track of self-deregulation. By their own actions they have shown that they do not need the protection of authorisation and can operate independently of the historical distribution systems for newspapers.
We believe that the entire current distribution system serving two markets, one for newspapers and one for magazines, is not so inextricably inter-related that it should be considered only as a whole entity. The distribution system for magazines is separable, and capable of separation reasonably promptly, without compromising the integrity of the rest of the system during a longer transition period, and without increasing the burden faced by those required to design new systems to cope with an unregulated competitive environment.
We do not overlook that magazine sales represent a far from insignificant component in an authorised newsagent’s revenue, typically around 30 per cent of income from the sale of publications. However, as we have noted earlier in these reasons, it is likely that newsagents will remain significant retailers of magazines in any deregulated market. The deregulation of the systems for the distribution of magazines may result in a redistribution of income streams between authorised newsagents, sub-agents and other retailers like the convenience stores, but that does not constitute a detriment to the public constituted by a lessening of competition. A redistribution of income streams of this kind is a consequence of the economic efficiencies that will occur as market forces come into play.
In suggesting that the distribution of magazines can be separated reasonably promptly, we are not ordaining the features of a new system. Rather, we are acknowledging that a different distribution system is already emerging in the market for magazine publication and distribution. Moreover, by formally removing magazines from the authorised distribution systems, impetus will be given to the participants in the market for the publication and distribution of newspapers to move more promptly towards deregulation.
The new title argument that was advanced in relation to magazines is one that supports the existing system being retained indefinitely, rather than one that supports a managed change process. The problem at the heart of the submission would still exist on 1 February 2001 when all parties accept that the system should be fully opened up to competition and the substitute authorisations expire. After that date, new titles and small publishers would have to fend for themselves as best they could in the deregulated marketplace. So the avoidance of this alleged damage would be short run at best. At worst in the short run there may be some delay in the launch of new titles, and some extra cost for publishers in securing alternative retail facings. It is the Tribunal’s conclusion that there is little public benefit arising from this circumstance to be attached to a substitute authorisation. In addition, as the retail side of the system is opened up to more competition, the range of titles carried may become a key competitive weapon for many newsagencies in differentiating what they have to offer. Some may choose to focus on lower volume titles, just as “big people” shops have carved a niche for themselves in providing large sizes of clothing and footwear.
We consider only a short transitional period should be allowed to provide the participants in the market for the publication and distribution of magazines to become aware of this determination, and to make forward adjustments in their advertising, printing and distribution arrangements. We consider that under a substitute authorisation, the Rules insofar as they relate to magazines should be authorised until 1 July 1999, but not beyond that date.
8.3 The wholesale distribution of newspapers to look-alikes
The evolution of look-alikes is a comparatively recent one not anticipated when territories were designated and assigned by publishers and Newsagency Councils to authorised newsagents. Indeed, look-alike newsagencies exist contrary to the intention of the authorised system. The 100 or so look-alikes which exist, although often having substantial retail sales of newspapers (sometimes greater than those of the authorised newsagents) are bound to receive newspapers as a sub-agent. The Rules deny the look-alikes the benefit of an exercise of the publishers’ commercial judgment to make direct supply of their publications, and compel each look-alike to obtain newspapers from another small business retailer that is likely to be its main competition in the area. The grievances of the look-alikes which arise from the trading relationship required by the Rules are compelling, as are the anti-competitive detriments which flow from them. The anomalous position of the look-alikes was highlighted in evidence before the Tribunal in 1994, and in its reasons for decision, yet nothing has been done by the parties to the authorisations to ameliorate the anti-competitive consequences, nor even to plan for change.
In our opinion the anti-competitive detriment to the public flowing from the present restraints on look-alikes is so severe that there can be no net public benefit in allowing the restraints to continue other than for a short time to allow those immediately affected to take stock of their likely positions once the prohibition against the direct supply of newspapers by publishers to look-alikes is removed.
Events since 1994 indicate to us that no change is likely to occur regarding look-alikes whilst the Rules relating to them remain authorised. In any event that may be the position imposed on the parties by their contracts under the Rules, whilst those contracts remain legally enforceable.
In our opinion authorisation for the provisions in the Rules and in the contracts made under them that restrict the freedom of each publisher to make its own individual commercial judgment concerning the supply of any or all of its publications to any outlet in a territory other than the authorised newsagent should not be continued beyond 1 July 1999.
The withdrawal of authorisations in this respect will open the way for independent action by the publishers to address the complaints of the look-alikes, and will require the publishers to do so independently of each other.
8.4 The wholesale distribution of newspapers by newsagents to sub-agents generally
The concern of ANF to be a party to discussions and negotiations on proposals for change is understandable. Newsagents will have little power if precipitate change occurs in relation to newspapers, except in the short run, when their skills will have no close substitutes. It would be possible for publishers quickly to find alternative secondary distributors or to supply direct to the larger sub-agents. Exclusions of these kinds would not be surprising, given the historically subservient role played by the newsagents and ANF to that of the publishers. The relationship is very much one of principal and agents, in which the agents, the newsagencies, are appointed to work in the interests of the publisher, and have little room for independent strategic initiatives relating to the sale or secondary distribution of newspapers. They are given some concessions, such as territorial exclusivity, but in the main they operate at the whim and behest of, and in the private interests of, publishers. The relationship is a symbiotic one, but the undeniable fact is that newsagents do not have a long term monopoly on the skills which the publishers need to ensure that their products are efficiently and promptly delivered. Newsagents’ livelihoods, as they currently know them, are plainly at the crossroads.
As we have observed, no detailed analysis has been provided of the public benefits or anti-competitive detriments which are likely to arise from continuing the authorisation of the Rules insofar as they regulate the distribution of newspapers to sub-agents through the authorised newsagency system. We have found a number of the general arguments advanced on behalf of ANF in support of the substitute authorisations to be unconvincing. In particular the argument that such a transition period will lead to “seamless change” is contradicted by the inaction of the parties to the authorisations since 1994. Subjecting a market to the forces of competition is not, and can never be seamless. The seamless change hoped for by ANF is not change through the market, but administered or centrally determined change where as few as possible of the currently authorised practices are disturbed. Such change would be the very antithesis of what happens in a competitive market. Competition involves the active and unpredictable forces of market rivalry; there is nothing smooth about a fiercely competitive market:
“Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to “injure” each other in this way … these injuries are the inevitable consequence of the competition sec. 46 is designed to foster.” (Queensland Wire Industries Pty. Ltd. v The Broken Hill Proprietary Company Limited & Anor (1989) ATPR 40-925, at 50,010, per Mason C.J. and Wilson J.)
The argument that an early termination of the authorisations will cause a loss in value of authorised newsagencies that might be avoided or significantly reduced by the proposed transition period is not established by the evidence. The prospect of change at some time in the future is already factored into the market valuations and sale prices to a substantial degree, and insofar as any further adverse effect may follow from the removal of authorisation, it is likely to affect only some authorised newsagents. Others may take advantage of the new market freedoms and increase their turnover and the value of their businesses.
However, it does not follow from our conclusions that specific arguments advanced by ANF are unconvincing, that there should not be a transition period that runs beyond the minimum time necessary for the parties to take stock of their positions under this decision. The failure of the parties so far to formulate programs for change is disturbing. The public interest is likely to be served best by parties planning ahead as to how they will deal with deregulation. The formulation and promulgation of plans will provide the means of removing the uncertainties about which ANF complains. The need for forward planning remains, notwithstanding the inaction of the parties up to date. To give effect to this need is, in a sense, to reward the parties for their inaction, but the Tribunal must be concerned with the wider public interest. Absent better evidence as to the way in which the parties most closely affected by deregulation – the parties to the present authorisations – will manage changes brought about by market forces, the public interest is most likely to be best served by proceeding cautiously, and by giving the parties a further opportunity to plan, albeit one which is constrained to a relatively short period.
Against this, however, the Tribunal must give weight to the severe anti-competitive detriment to the public interest which arises from the present system. The main feature of the existing system recognised by the Tribunal in 1994 as containing the “defensible elements” of the system was the provision of a low cost, efficient and timely means of home delivery of newspapers. That feature is not dependent on the distribution of newspapers to sub-agents through authorised newsagents. We consider that the restrictions in the Rules that mandate that sub-agents shall only be supplied by the authorised newsagent for the designated territory should cease to be authorised from 1 February 2000. Substitute authorisations until then should allow the parties time to determine independently their new strategies for wholesale distribution to retail outlets.
The period we propose for the substitute authorisation in respect of the wholesale supply of newspapers to sub-agents is shorter than the period we propose in the next Section for the substitute authorisation for home deliveries. We consider that to determine substitute authorisations for different periods for these two separable functions will better allow the development of competitive interactions in the market, and will help to achieve efficiencies that might not occur if the parties to the authorisations continue to treat those functions as inseparable ones.
8.5 The home delivery distribution of newspapers
The importance of a low cost, efficient and timely home delivery system has been the central reason for the existence of the authorised distribution systems, and for the justification of the authorisations. At the time of the original authorisations in 1980-1985 the TPC was satisfied that the territorial monopoly yielded the public benefit of a low-cost, efficient home delivery service and a greater availability of newspapers than would otherwise be the case, and that the public benefit outweighed the anti-competitive detriment of the system: see Re 7-Eleven Stores (1994) at 42,659, 42,660, 42,666 and 42,677. That reason was advanced before the Tribunal as a justification for the continuation of authorisations in 1994. The Tribunal then observed that “‘the wide availability’ argument has certainly dated”, but nevertheless concluded that “there is some merit in the argument that a territorial monopoly of home delivery can give rise to ‘route economies’”, and rejected a further argument that home deliveries were cross-subsidised by other aspects of the business of an authorised newsagency: at 42,678.
The Tribunal in 1994, when discussing “defensible elements” in the Victorian system said, at 42,685:
“More concretely, we find that a form of territory 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…”.
The benefits perceived to arise from the present home delivery systems were also central to the 1996 submissions made by the Federal Government to the Commission referred to earlier in these reasons.
In 1994 the Tribunal received evidence from the newspaper publishers that home delivered newspapers – pre-sold and normally representing standing orders – are commercially important. During the present hearing similar evidence was received. These strong commercial reasons make it unlikely that home delivery of newspapers will cease. However, as the evidence of Messrs Prowse and Whitehead stressed before us, the design and implementation of changes to the present systems in a way that will ensure cost effective, efficient home delivery will be a complex and prolonged exercise, and one that is likely to require negotiation with many interested parties, including existing newsagencies.
As with the position of sub-agents, it is regrettable that so little has been done to plan for a deregulated market. We have already expressed our assessment that the publishers’ inaction appears to reflect a desire to hold on to the private benefits which they receive from the existing systems for as long as possible.
In these circumstances to allow further time for planning may appear to be prolonging the anti-competitive detriments of the present systems for the private gain of the publishers. However, we consider that to precipitate rapid change by refusing to grant authorisation for a sufficient time to allow orderly planning, negotiation, and implementation is not likely to create a net public benefit. On the contrary, such a course would carry a high risk of confusion in the market, leading to inefficient and costly decisions, and importantly, could threaten, at least in the short term, low-cost efficient home deliveries. In the absence of evidence from the publishers and other interested parties which enables a properly informed assessment of the optimal time span which is necessary for orderly, and perhaps managed, change, we consider we should err on the side of allowing a longer rather than shorter period of continued authorisation of the present systems under which home deliveries are made. In our opinion a longer period to plan for deregulation of home deliveries is desirable than is necessary in relation to the authorisations for wholesale supply of newspapers to sub-agents. One reason for this is that there may be aspects of a changed home delivery distribution system that will require further authorisations, and time should be allowed for that process. No party or witness has suggested that the period should run beyond 1 February 2001, and in our opinion that is an appropriate date on which authorisations for home deliveries under the present system should end.
9. The Decision
THE TRIBUNAL DETERMINES THAT:
(1) Authorisations numbered A 90368, A 15421, A 15422, A 15423, A 15425, A 15426, A 15605, A 30092, A 30093, A 2061, A 2064, and A 2089 be revoked.
(2) Further authorisations be granted in substitution of the authorisations hereby revoked, as follows:
(a) until 1 July 1999 in all respects to the arrangements hitherto authorised.
(b) until 1 February 2000 in respect of the arrangements hitherto authorised, except
(i) in respect of the distribution of magazines
(ii) in respect of any prohibition or restriction on publishers or any of them from supplying all or any of their publications to any outlet other than the authorised newsagent in a territory designated under the Rules of the relevant Newsagency Council.
(c) until 1 February 2001 in respect of the home delivery of newspapers.
I certify that this and the preceding eighty-one (81) pages are a true copy of the Reasons for Decision of the Australian Competition Tribunal
Associate:
Dated:
Solicitors for 7-Eleven Stores Pty Ltd : Slater & Gordon
(first applicant)
Counsel for 7-Eleven Stores Pty Ltd : Mr N Styant-Browne with
Ms M Foley
Agent for Independent Newsagents Association : Ms J Schieron
(second applicant)
Counsel for Independent Newsagents Association : Mr N Styant-Browne with
Ms M Foley
Solicitors for Australasian Association of : Cornwall Stodart
Convenience Stores Inc.
(third applicant)
Counsel for Australasian Association of : Mr R J Weber
Convenience Stores Inc.
Counsel for Australian Competition and Consumer : Mr S J Rushton with
Commission Ms M Painter
Solicitors for Australian Newsagents’ Federation : Corrs Chambers Westgarth
Limited
Counsel for Australian Newsagents’ Federation: Mr C C Hodgekiss
Limited
Solicitors for Australian Consolidated Press : Gilbert & Tobin
Limited and ACP Publishing Pty Ltd
Counsel for Australian Consolidated Press : Mr K Andronos
Limited and ACP Publishing Pty Ltd