Global's Response to the Competition Commission's Provisional Findings Annex 1 the East Midlands
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GLOBAL’S RESPONSE TO THE COMPETITION COMMISSION’S PROVISIONAL FINDINGS ANNEX 1 THE EAST MIDLANDS 2 1. EXECUTIVE SUMMARY 1.1 Global does not agree with the CC’s provisional conclusion of a substantial lessening of competition in the non-contracted advertising sector in the East Midlands. 1.2 Firstly, the CC fails to take into account evidence that non-contracted advertisers in the East Midlands view non-radio media as an effective alternative to radio - this is further addressed in Section 2 of this Annex. 1.3 Secondly, within t he r adio s ector, t he CC has a pplied t he wrong t est in as sessing competition in the East Midlands. It has given too much weight to share of listening and non-contracted r evenues and i nsufficient weight t o differences i n t he t arget demographics and geographies of t he r elevant s tations. The C C’s ap proach i s not informative when as sessing c ompetition between highly differentiated radio s tations in the East Midlands. 1.4 Smooth an d Capital target di fferent dem ographics: S mooth’s av erage l istener age is older ( 49) whereas C apital’s i s younger ( 34). O rion’s G em 106 is a m uch better alternative to both Capital and Smooth with an average listener age of 41. In particular: (i) In C apital’s t arget dem ographic, G em 106’ s r each is more t han twice that of Smooth ( 135,000 and 5 4,000 r espectively) a nd i ts s hare of l ocal c ommercial listening is around three times that of Smooth (29% and 10% respectively). (ii) In Smooth’s target demographic, Gem 106 has an equivalent reach as Capital (98,000 an d 9 9,000 r espectively – both 20% ) and a hi gher l ocal c ommercial listening share than Capital (26% and 18% respectively). 1.5 Gem 106 is a strong competitor in the East Midlands, with a much higher share of non- contracted revenues than Smooth (20%-29% for Gem 106 compared with 10%-19% for Smooth) and a very similar share of local commercial listening to Smooth (27% for Gem 106 and 28% for Smooth). 1.6 Capital is pr edominantly used b y l ocal a dvertisers: []% of C apital’s non -contracted customers purchase on a single transmitter basis in the East Midlands. As Smooth is only s old as a r egional s tation, it will not be an effective alternative f or t he []% of Capital’s n on-contracted c ustomers w ho ad vertise l ocally in t he E ast Mi dlands. In particular: (i) a no n-contracted ad vertiser us ing Smooth t o t arget customers w ithin C apital Nottingham’s coverage ar ea would p ay for approximately 48% of wasted population coverage; (ii) a no n-contracted ad vertiser us ing Smooth t o t arget customers w ithin C apital Leicester’s coverage area would pa y f or approximately 71% of wasted population coverage; and (iii) a no n-contracted ad vertiser us ing Smooth t o t arget customers w ithin C apital Derby’s coverage area would pay for approximately 84% of wasted population coverage. 3 1.7 The above points are addressed in greater detail in Section 3 of this Annex. 4 2. NON-RADIO MEDIA POSE A STRONG CONSTRAINT IN THE EAST MIDLANDS 2.1 The CC implicitly a ccepts that ac ross t he overlap r egions t he v ast m ajority of non - contracted customers view non-radio media as substitutable for the parties’ radio stations1 (see further Parts 1 and 2 of this Response). 2.2 In p articular, G lobal an d R SL’s internal documents ev idence plainly t hat bo th par ties’ commercial strategies are focused on: (i) finding ne w n on-contracted c ustomers b y t argeting principally us ers of non - radio media; and (ii) ensuring that they do not lose ex isting n on-contracted c ustomers to non-radio media. 2.3 In addition, since the publication of the Provisional Findings, the parties have sought to obtain an d provide further materials ( specifically competitors’ marketing m aterials) evidencing that third parties also recognise radio as competing strongly with non-radio media for advertising revenues. 2.4 As a result, when the parties negotiate prices for campaigns with both new and existing non-contracted customers in t he East Mi dlands, t hey are c onstrained b y non-radio media. Given that these non-contracted advertisers have equally or more effective non- radio a lternatives t o t he par ties’ s tations, there is n o bas is f or the CC’s p rovisional conclusion that the merger will lead to substantially higher prices for any advertisers in the East Midlands. 2.5 All of the evidence referred to in paragraphs 2.2 and 2.3 above is outlined below. The CC has failed to take into account Global’s internal documents for the East Midlands 2.6 Global loses on average []%2 of its non-contracted customers every year in the East Midlands through churn (representing an average of []%3 of its non-contracted 1 E.g. The CC states at paragraph 6.39 of the PF that “the survey results suggest limits to the constraint provided by other media. We note, for example, that the existing customer survey suggests that 15 per cent of existing customers did not consider using any other media at the time of their last campaign and 24 per cent said that they ended up using only radio. Similarly, 9 per cent of respondents said that they could not use any other types of media to meet the same objectives as radio”. A clear implication of the results cited by the CC is that non-radio media constitutes an effective competitive constraint for the remaining 75% to 90% of non-contracted advertisers. 2 RBB analysis based on Global and RSL’s transactional data from 2009/2010 to 2011/2012 (i.e. three years). N MR data is only available up t o September 2012; therefore, the average churn by count and r evenue does not include a customer who may have purchased on the parties’ stations in Q4 2012. 3 RBB analysis based on Global and RSL’s transactional data from 2009/2010 to 2011/2012 (i.e. three years). N MR data is only available up t o September 2012; therefore, the average churn by count and r evenue does not include a customer who may have purchased on the parties’ stations in Q4 2012. 5 revenues each year in the East Midlands) – it is therefore fundamental to the survival of its bus iness t hat it s ucceeds i n t argeting ne w non-contracted customers t o r eplace those t hat c hurn away ( and r etains as many ex isting non-contracted customers as possible) to compensate for lost revenues. 2.7 The CC failed to take into account any internal documents submitted by Global concerning the East Midlands market. An analysis of these internal documents would show that Global’s entire strategy for the East Midlands is focused on growing radio’s share of t he “ total m edia pi e” a nd c ompeting with non-radio m edia bot h f or ne w and existing non-contracted customers. In particular, the CC has failed to take into account Global’s s trategy o verview pape r, which pr ovided a f ull d escription of t his non - contracted advertising strategy4. Global’s [] strategy 2.8 As explained in Global’s strategy overview paper, Global implemented the [] strategy in 2 009 with t he express f ocus of add ressing c ustomer c hurn b y c ompeting more effectively with non-radio media competitors. Global introduced its current [] strategy [] in early 2 012 with the obj ective of bu ilding o n []. T he []5 sets out G lobal’s current strategy in the East Midlands specifically. 2.9 The C C has f ailed t o t ake i nto ac count the internal doc uments r elating t o t he k ey initiatives in the East Midlands under the [] strategy, which include, among others, the following []: (i) Global’s [] initiative; and (ii) Global’s [] initiative. Global’s [] initiative 2.10 As further detailed in Global’s strategy overview paper, the [] initiative is Global’s [] commercial scheme for non-contracted advertisers. It is focused on targeting [] – i.e. [] businesses – that are using non-radio media, particularly []. 2.11 Under t his i nitiative, s taff members ar e ex plicitly instructed t o [] using t he f ollowing media (in addition to other radio): “press”; “magazines”; the “Internet”; “outdoor media”; and “TV”.6 [] 4 Annex 9 (also provided as part of Global’s response to the First Day Letter (“FDL”)) 5 [] submitted to the CC on 28 January 2013. 6 Annex 17A(i).039 to Global’s response to the Initial Factual Information Request. 6 Figure 2.1 [] 2.12 Similarly, a flyer for a [] in Derby is expressly designed for non-radio users, inviting customers to come “find out about new ways to market [their] business”7. Global’s [] initiative 2.13 As f urther detailed i n G lobal’s s trategy o verview paper, G lobal’s s ales team i dentifies [] for the East Midlands who are advertising predominantly on non-radio competitors.