15 NOVEMBER 1997, Page 35


Why Mr Murdoch's price war is a war on quality


Ihave been asking myself again why Rupert Murdoch's price war is wrong. The question arises because three peers have put down amendments to the government's Competition Bill which if passed, and sub- sequently adopted, would render Mr Mur- doch's 'predatory pricing' illegal.

Let me for a moment put the case for Mr Murdoch. He bought the Times in 1981. He found himself 12 years later, and on his fifth editor, having lost many millions of pounds for pretty insignificant circulation gains. He then hit on the idea — or was it the brainwave of the Times's editor, Peter Stothard? — of cutting the paper's cover price from 45 pence to 30 pence. The rest is history. The sales of the Times have risen from about 370,000 to nearly 800,000. Whatever else, it was a brilliant manoeuvre, which confounded almost everyone's pre- dictions, including my own.

On the face of it, Mr Murdoch's decision to initiate a price war seems justifiable. What else was he to do, having tried every- thing else? He had an unprofitable paper consuming millions of pounds and he had other profitable businesses making even greater sums. As he saw it, he was merely re-investing funds from one part of News Corp to another. The alternative was the continuing atrophying of the Times, and possibly even its eventual closure.

This is the case for Mr Murdoch, and many reasonable people hold to it. They also say — indeed, Mr Stothard says — that most of the Times's new sales have not come at the expense of other titles. This is true. The Daily Telegraph and the Guardian have actually put on a few sales. Only the Independent has suffered in this respect, losing about 80,000 buyers. But that — so the argument goes — merely shows that the paper was inherently weak. All in all, the quality newspaper market has consider- ably expanded.

It is a seductive argument, but a dishon- est one. The effect, and no doubt the pur- pose, of Mr Murdoch's predatory pricing has been to drive other businesses towards unprofitability. It is not an even playing field. The Independent, which can't draw on the vast profits of BskyB to subsidise it, barely survives, and has been by far worse hit. But even the profits of the Daily Tele- graph have been slashed because the paper has been forced to indulge in expensive subscription deals in order to maintain its sales. The general effect of the price war may have been to encourage more readers towards so-called quality newspapers. But those newspapers are forced to make edito- rial economies, and so readers have less good journalism.

A further effect has been to drive the quality papers further downmarket more quickly than would have otherwise been the case. The Times is making the running in that direction, and the others, in differing ways, feel that they have to follow. If the effect of Mr Murdoch's predatory pricing was to elevate our newspapers and enrich our culture one might cheerfully tolerate his distortion of the market. But he is not peddling the Frankfurter Allgemeiner or the New York Times. What appeals to the new readers of the Times is not, on the whole, its leaders and letters and admirable'centre page columns, but its increasingly tabloid news and features.

Mr Murdoch's price war would not be allowed in America or many other coun- tries. Predatory pricing is almost bound in the end to restrict choice and diversity. It is in Mr Murdoch's, but not the public, inter- est. Four years ago the Office of Fair Trad- ing found there was nothing objectionable under British law in Mr Murdoch's con- duct. At that time, several leading Labour spokesmen, including Robin Cook and Alistair Darling, said that predatory pricing should be outlawed. Now there is a chance to do so if the government accepts amend- ments which may be passed in the Lords. Or will New Labour swallow its principles again, as reluctant to offend its new sup- porter Mr Murdoch as it was to upset its generous new donor Bernie Ecclestone?

Lingering doubts about the Indepen- dent's relaunch should be dispelled. Some £4.5 million has been spent to absolutely no effect. The paper sold 254,000 copies last week, which puts it back where it was.

One man is surprisingly relaxed about this state of affairs: David Montgomery, chief executive of Mirror Group plc, which owns 46 per cent of the Independent and Tuns the paper. You might think that he would be tearing his hair out, having presid- ed over the expenditure of several million pounds of shareholders' money to no effect. Not a bit of it. Mr Montgomery is as radiant as that dour Ulsterman will ever be.

The explanation is that he has long want- ed to get rid of Andrew Marr, editor of the Independent. Charlie Wilson, managing director of Mirror Group, is even more anxious to see the back of him. Their diffi- culty is that young Mr Marr has hitherto received the support of Independent News- papers of Ireland, which also owns 46 per cent of the Independent. That group's chair- man, Tony O'Reilly, greatly respects Mr Marr's intellect. The Mirror people, by con- trast, think he is stuffy and stuck-up. They have been gunning for him, but lacked a pretext to dismiss him.

Now it seems they have one. The re- launch was unquestionably a botched job, as was not difficult to predict. Mr Marr bears a heavy responsibility. But before he is led out and shot it is worth asking whether others should not share the blame. For one thing, neither Mr Man nor his deputy was shown the pathetic television advert which marked the paper's makeover until it was too late for them to dissent. For another, at the very moment of the re- launch a further eight journalists were made redundant — this after many other cut-backs approved by David Montgomery. The paper had been so editorially weak- ened that failure was practically guaran- teed, the more so as the accompanying pro- motion was so hopeless.

Was Mr Marr set up? Something similar happened to his predecessor but one, Ian Hargreaves. In June 1995, when Mr Harg- reaves was editor, and heartily disliked by Mr Montgomery, the Independent added a tabloid section. Money was spent on televi- sion advertisements and reader research, to no obvious effect. A few months later Mr Montgomery was able to sack Mr Harg- reaves, who had evidently not brought home the bacon, and replace him with his crony, Charlie Wilson.

Mr Montgomery has brilliantly helped to create the conditions for Mr Marr's dis- missal. He wants to replace him with Rosie Boycott, who has been presiding over something of a renaissance at the Indepen- dent on Sunday. She is believed to have the popular touch that Mr Marr is thought to lack. Yet at the moment of Mr Mont- gomery's apparent triumph, he finds that the Irish are still loyal to Mr Marr, though Tony O'Reilly's man in London, Brendan Hopkins, is a friend of the ambitious Ms Boycottt, and well aware of her attractions. But if the Mirror Group hangs on to its stake, which is admittedly questionable, Mr Marr will not be long for this world.