In Vogue: Merger analysis in women’s monthly magazines

1. In Vogue: Merger analysis in women’s monthly magazines • Bojana Ignjatovic • bojana.ignjatovic@rbbecon.com 7 June, 2014

2. Introduction • Practical issues in the assessment of horizontal mergers in magazine publishing • Market definition • Unilateral effects • Key issues • Interpretation of available industry data in a competition law context • Decision-making under imperfect information: where does the burden of proof lie?

3. Context • NatMags/ Hachette (OFT, August 2011) • Television listings (2011), Woodworking (2007), Horse Deals (2006) NatMags Hachette Selection of competitors

4. Market definition

5. Market definition - constraint from other media • For advertisers in particular, there exist a range of alternative advertising media • Television, Sunday supplements, Free press • Constraint from internet advertising • Interpreting evidence within the SSNIP framework • Would a hypothetical monopolist of magazines be able to increase price to readers/ advertisers by 5-10%? “Conde Nast trying to stop ad-loss pain” “Playboy posts loss, sees magazine ads decline” “Digital remains the sole bright spot for newspapers and magazines”

6. Available evidence: correlation versus causation • Evidence of shift in advertising share across media can be observed even for individual products/brands (n.b. for multi-product firm shifts may reflect different advertising priorities) • However, multiple plausible reasons for observed shift in spend

7. Internet constraint: a case of cart vs. car? • Substitution versus growth of a new technology? • Is the shift to internet advertising affected by small changes in relative price? US projected print magazine versus online spend ($bn) Source: emarketer, Jan 2012

8. Hume and the art of market definition • The supposition that the future resembles the past, is not founded on arguments of any kind, but is derived entirely from habit. • - David Hume, 1737 • Available evidence is interpreted on the basis of prior beliefs • If the burden of proof on market definition rests with the parties, this is a difficult burden to discharge • A case of déjà vu: travel agencies (Airtours)? • That said, other pieces of (indicative) evidence may be available • Internal documents • Media buyer feedback • Survey evidence

9. Unilateral effects

10. Closeness of competition • Magazines are differentiated products • Monthly / weekly • Lifestyle/fashion/ home interest/ food • Celebrity gossip/ fashion (high or low) / human interest/ relationships / culture • Beyond the question of market definition (even in magazines), are certain titles closer competitors? • Possible forms of evidence • Readership crossover data • Price and volume changes over time: e.g. how do customers react to promotions? • Internal documents

11. Readership crossover data • What percentage of readers of magazine A also read magazine B • Difficult to apply directly in the framework of customer demand side substitution • Readers may consider two titles as substitutes even if they have not read both of those titles within their latest publication internals • Readers may choose to read two magazines because they consider them to be complements rather than substitutes • Interpretation may differ for advertisers • Even if customers do not consider two titles as substitutes, the fact that they read both enables advertisers to reach them through either • However, for advertisers crossover data is not able to provide information on “where” the overlap between two titles may occur • With these caveats, provides some insight into customer readership behaviour

12. Price and volume data • Identifying “natural experiments” • Magazines are “seasonal”: holiday purchases/ “fashion issues” • Non-price factors substantially affect sales: free gifts (“cover-mounts”)/ cover picture • Options to isolate the effect of price changes • Price promotion for one magazine in a given month – in a particular retailer • Price change in one region relative to the UK • Interpreting the evidence • Promotional activity frequently more substantial than a small price change • Cumulative competitive constraints from (a) other merging party (b) competitor portfolios Price promotion A

13. Internal documents • OFT also considered competitor sets against which magazines are internally benchmarked • These may include only a sub-set of competitive constraints • Chains of substitution? Competitor set A Competitor set B Competitor set D Competitor set C

14. Some conclusions

15. Conclusions • Approach to date has been conservative and analysis has focussed on very narrow product groupings • Role of new business models and technologies largely unrecognised • Threshold imposed by OFT for wider market definition/competitive constraints is high • Query whether such a narrow focus is appropriate • Indeed, it may in some instances miss key competitive concerns about a merger

16. Two sided markets: a red herring? • The role of “cross-network externalities” between readers and advertisers virtually ignored in the analysis • Approach has been to focus on each side, largely separately • Ignoring these externalities may lead to a narrower market definition • SSNIP in price of readers leads to fewer advertising revenues (though not necessarily vice versa) • Ignoring these externalities may lead to a narrower market definition • But identifying the merger effects requires understanding how advertising revenues shift in response to changes in readership

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