Media24 Press Release
Tribunal finds Media 24 caused a rival newspaper to exit the market
Today, the Competition Tribunal found that Media 24 had contravened the Competition Act by engaging in a predatory pricing strategy to drive a rival community newspaper publication, called Gold Net News (GNN), out of the market in the Welkom area.
This is the first time in the sixteen years in which the new Competition Act has been in operation that a firm has been found guilty of predatory pricing.
According to the Tribunal, Media 24 did this by engaging in a multi-pronged strategy which included using a Media 24 title, Forum, as a “fighting brand” to prevent GNN from expanding in the market. This strategy entailed pricing its advertising rates below average total cost and operating Forum for a lengthy period even though it was making a loss. Having started successfully and winning a larger share of the Welkom market than Forum, particularly in its start-up years, GNN finally exited the market in 2009. Within 10 months of the exit of GNN, Media 24 closed down Forum. From then until today, Vista, owned by Media 24, is the only local paper operating in the Welkom community.
The Tribunal found that Media 24’s conduct in operating Forum as fighting brand was the probable cause of the exclusion of GNN, and that Media 24, had for this reason, closed down Forum once GNN had exited.
The Competition Commission referred the case to the Tribunal after it investigated allegations originally brought to it by Hans Steyl who ran GNN from 1999 until its eventual closure in 2009. The Tribunal’s finding follows a hearing that started on 12 November 2013 and ran intermittently over several months with the last submission coming from Media 24 in March 2015. Sixteen witnesses presented factual or expert evidence to the Tribunal including Wian Bonthuyzen, Media 24’s senior manager for community publications in the Free State and Northern Cape from 1999 to 2008.
Media 24 denied the allegations against it saying there was no policy decision to undercut GNN or to position Forum as a cheap advertising opportunity. According to Media 24, Forum’s closure was not related to the closure of GNN. Instead, Media 24 attributed the closure of Forum to the 2008 recession, on-going downsizing in Media 24 as a whole, and the problem of publishing two newspapers, Forum and Vista, in the Welkom area. It further argued that GNN had exited because it was not viable for a variety of reasons.
During the hearing Bonthuyzen testified that Forum was kept alive in order to keep GNN out of the market. “If Gold Net News wasn’t there then we would have changed our strategy and closed down Forum” he said. In his witness statement he said “By 2003 Forum was operating at a significant loss and would, absent the presence of GNN in the market, almost certainly have been closed by Media 24”. The Tribunal found the evidence presented of direct intention to use Forum as a predatory vehicle against GNN was supported by Bonthuyzen’s testimony and documentary evidence presented. The Tribunal concluded that the Commission’s explanation that Forum was closed when it was; because GNN had exited the market was, on balance, the more probable explanation. Moreover, the Tribunal found that there was strong evidence that Media 24 had recouped the losses it suffered from operating Forum at a loss. “Since April 2009, barring some brief and unsuccessful entry, Media 24 has been the only firm in this market”. The Tribunal concluded that the evidence of recoupment was significant, robust and not controverted.
When considering the impact of Media 24’s conduct on the market, the Tribunal said its effect was to remove an effective competitor, GNN, from the market. However, consumer choice was also affected in two ways: advertisers lost an alternative outlet to advertise their goods and paid higher prices; readers lost the choice of an alternative newspaper. The evidence showed that after 2009 Vista had been able to achieve higher rates than it could previously and the evidence further suggested that the rates Vista obtained were higher than competitive rates. “Given the fact that Media 24 acquired a monopoly in the market post April 2009, this effect is hardly surprising and is predictable” the Tribunal said in its judgment. “Since the monopoly still subsists at the time of the conclusion of this matter the anti-competitive effects are substantial and enduring.”
The Commission had argued that the Tribunal should find that Media 24 had priced below its average avoidable cost. This was a novel legal approach and had the Tribunal made this finding, it would have meant finding that Media 24 had contravened a section of the Act [8(d)(iv)] for which an administrative fine is competent for a first time contravention. Media 24 argued that this was neither an appropriate measure of costs to meet the section 8(d)(iv) legal requirement, nor as a matter of fact, had it been shown to have priced below its average avoidable cost.
The Tribunal however found that the evidence had not established that Forum had been priced below this more stringent cost test, [section 8(d)(iv)] but rather the less stringent average total cost test accompanied by additional evidence of intention and recoupment of the loss of profits sustained during the predation period, which was a contravention of section 8(c).
The implication of this finding is that, although Media 24 has been found to have contravened the Act, by abusing a dominant position by engaging in predatory conduct to exclude a rival from the market, for the period 2004 to 2009, it will not be liable for a fine as this is a first time contravention. Nevertheless the Tribunal may still impose another form of remedy. The Tribunal indicated in its reasons that it will now convene a further hearing to deal with the remedies that should be imposed in this case. Both the Commission and Media 24 had indicated that the Tribunal should first make a finding on whether there had been a contravention before imposing a remedy.
Communications: Competition Tribunal
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On Behalf Of:
Registrar: Competition Tribunal
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