MEDIA LIBERALISATION

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MEDIA LIBERALISATION: 4.

Ms Irene Ng Phek Hoong asked the Minister for Information, Communications and the Arts, given the recent merger deal between Singapore Press Holdings and MediaCorp, (a) what lessons can be drawn on the process of media liberalisation; and (b) how can it be ensured that media competition in future can succeed and result in greater product variety and better-quality journalism.

The Minister for Information, Communications and the Arts (Dr Lee Boon Yang): Mr Speaker, Sir, let me say from the outset that although we have given in-principle approval to Singapore Press Holdings and MediaCorp's application for merging part of their media operations, the Media Development Authority and my Ministry are in the process of examining the application and studying the details of the merger before taking a decision on formal approval.

Having said that, Sir, I now turn to the lessons that we can draw from this

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experience. The aim of the media liberalisation in June 2000 was to help the local media diversify their media operations, tap the benefits of media convergence and give Singaporeans more choices in terms of TV and newspaper offerings. This was also to prepare the local media for competition in an increasingly globalised economy. As a result of media liberalisation, consumers, local production houses and advertisers have benefited from the increase in supply of media products. Compared to pre-liberalisation, Singaporeans now enjoy a wider selection of TV programmes from two additional TV channels and additional free newspapers, namely TODAY and Streats.

Sir, while competition has brought about some benefits for consumers, it has also demonstrated the difficulties faced by Singapore Press Holdings and MediaCorp when they venture into each other's traditional preserves. Competition reveals that a small media market, a limited talent pool and a small advertising pie segmented by languages are major constraints in the media environment. These constraints were exacerbated by the onset of economic downturn post-liberalisation and the consequential shrinkage in advertisement spending by companies. Furthermore, both companies resorted to aggressively bidding for imported content and undercutting each other's advertising rates. It is therefore not surprising that they suffered substantial financial losses in the midst of an economic recession. While we acknowledge that free-to-air TV services typically take several years before breaking even, we have to accept the companies' decision in not wanting to incur further losses.

The experience of Singapore Press Holdings and MediaCorp illustrates the complexity in media competition. Whilst competition may have worked well for other small countries, there is no one-size-fits-all formula for success as each

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country is different. Nevertheless, we have gained a better understanding of our media environment and a greater awareness of the challenges our media players face. Our experience had helped us to draw up a media competition code which was introduced in April 2003 as "The Code of Practice for Market Conduct in the Provision of Mass Media Services".

Sir, some have attributed the failure of both companies to the lack of a media competition code from the very beginning. I do not share this view. While the media competition code could guard against anti-competitive behaviour by preventing the dominant player from gaining unfair advantage over new entrants through predatory pricing, it could not be used to micro-manage the business strategy of media companies. Thus, it would not have addressed the aggressive competition for viewers and readers adopted by the two media companies. Such behaviour is best left to the market to sort out.

Sir, on the second question concerning media competition, the Government will not reverse its policy on media liberalisation and will remain committed to allowing competition. We do not have a cap on the number of media licences. Notwithstanding MediaCorp and Singapore Press Holdings' decision to merge, the Government continues to welcome new players willing to enter the TV and/or newspaper market, if they meet the prevailing criteria for such licences.

However, I would like to reiterate that the Government cannot foster competition at all costs or ensure that every media operation entering the market will succeed. Business success will depend on the operator's entrepreneurial capability and be subjected to the discipline of market forces.

On the Government's part, we will continue to foster a healthy media

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environment for the benefit of Singaporeans. We will continue to encourage the media players to strive for excellence, whether in broadcasting or newspapers. Both companies have indicated that through pooling of resources, they will be able to enhance the quality of their respective products and reach out to the regional markets. We support this strategy which can result in better media products for Singaporeans.

Sir, let me assure the Member that in considering the proposed merger, the interests of Singaporeans, who are consumers of the media services, will not be disregarded.

Ms Irene Ng Phek Hoong (Tampines): Supplementary question for a start, Sir.

Mr Speaker: Supplementary questions will do.

Ms Irene Ng Phek Hoong: Sir, can I take it that the Minister is saying that the failure of the two media companies to compete is because of their business strategy and not because of the regulatory environment? As the Minister noted, a point which has been made is that the media competition "came very late" three years after the media was liberalised.

Mr Speaker: Ms Ng, no speeches, please. Just ask your questions.

Ms Irene Ng Phek Hoong: Whereas in the telecommunications industry, it came on in the same year. Is the Minister aware that in the case of the telecommunications industry, it has succeeded in producing a better variety of service providers and products for consumers?

Mr Speaker: Ms Ng, what are your questions?

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Ms Irene Ng Phek Hoong: Is the Minister aware that one reason why the telecommunications industry was successful in liberalising was because of the competition code that was introduced in the same year that it was liberalised? That is my first question. My second question is: can I ask the Minister what he would like to see as a desired outcome as a result of media liberalisation, given the state of play now and the experience of the last three years? And finally, can I ask the Minister whether he thinks that the merger deal, if approved, would send the signal to new players that this is indeed a hard game to play, that even media companies with deep pockets cannot sustain it? Will it mean that, in fact, the media industry will be hampered in terms of liberalisation?

Mr Speaker: I would like to remind Members to keep their questions short, please. We have so many Questions to deal with. Dr Lee.

Dr Lee Boon Yang: Mr Speaker, Sir, I have already explained in my main answer that I do not think we can attribute the failure of the broadcast and print media competition to the lack of a competition code or competition regulation right from the onset. I think it is not fair to compare the broadcast and print media to the telecommunications market. Both markets are quite distinctly different, involving different technology applications. In the case of the failure of the broadcast and the print media competition, as I have explained, one of the significant factors is the shrinkage of the advertisement pie over the period from 2000 up to now. When the media market was liberalised in 2000, the approximate broadcast advertisement expenditure was around $200 million and it was projected to increase yearly to a figure of $270 million. But we know that, in reality, far from increasing, soon after liberalisation, the amount of expenditure spent for

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advertisements actually fell, and last year it was only about $180 million. So, instead of increasing, it actually fell. To some extent, the competitors adopted strategies which further undermined each other's viability by way of a "cut-throat" type of competition that certainly did not help in business viability. It is not a question of not having a competition code in place.

I would also like to remind the Member that in the case of telecommunications, the competition code came later after the market was thrown open for new entrants to the market. It was about nine months or so before the competition code was introduced. So one cannot take the approach that just because it was liberalised without an existing regulatory framework, it was doomed to failure. I think the two businesses are quite different - newspaper broadcasting versus telecommunications.

What would be the desired outcome? I think the desired outcome is for viable media companies in Singapore making every effort to constantly improve the quality of the products and also to offer a choice to consumers. Having looked back in history, the Straits Times has been the dominant English mass circulation newspaper for more than 100 years without very much competition. Did that result in the Straits Times stagnating, or the Straits Times took it upon itself as the sole player and therefore took a very relaxed approach and just dished out a low quality media product? On the contrary, although it was the dominant player, the Straits Times made every effort to constantly upgrade the quality of the product that it was offering. Not just the Straits Times alone. In fact, if you look at all of the stable of Singapore Press Holdings' publications, each one, in its own way, even before pre-liberalisation and pre-competition, was constantly making efforts to improve the quality of its products. The fact that they have won

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many international awards in various media classifications or sectors shows that their efforts have been recognised. So we cannot assume that just because there is no head-on competition, companies do not make an effort to upgrade themselves. My Ministry will certainly be trying to encourage these companies, even after they have merged part of their operation, to constantly upgrade and improve the capabilities of their journalists and editorial staff so that they can produce better quality reports and better quality broadcast materials for the consumers.

Last, but not least, does the failure of this effort to introduce competition in the media market signal that there is no opportunity for media competition in future in Singapore? I would say no. We have to look at each situation on its own. We launched media competition in 2000. On hindsight, which is always a 6:6 vision, we can say that it was perhaps at the wrong timing because the regional economy and our economy went into a period of slowdown. That was not the best time. But how were we to know precisely what would happen next? We just threw open the market and let the competitors do what they think was best for their business interest. The same would apply, going forward in the future. Last year, we opened up bidding for a second pay-TV licence in Singapore. There were no takers. Does that mean that we are resigned to not having a second pay-TV operator in Singapore? The answer is no. Some time in the future, when the environment changes, when the market conditions improve, we will put the second pay-TV licence out for tender again.

Maybe then, somebody else would come in. There could be new technology available to minimise the cost of entering the pay-TV market, and somebody else might take it up and there could be competition even in the pay-TV sector. Likewise, for newspapers and broadcasting, there is always the

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possibility that other players might want to enter the market.

Finally, we must bear in mind that although the broadcast market, after this proposed merger, would fall within the ambit of a single operator, MediaCorp, it does not mean that MediaCorp has the entire Singapore broadcast market on its own. It has a free-to-air channel, but do not forget that we have a digitised cable TV system in operation today which has the capability to offer anywhere between 50-80 channels. Today, I think they already have more than 40 channels available, and the offerings are continuing to increase. So our free-to-air television stations would be constantly faced with competition coming from the pay-TV sector. So they cannot relax. They have to fight this competition. They have to improve the quality of the product, the diversity of the content that they could offer in order to justify the market share. So I think we could look at this more confidently that in future, as the market for both broadcast and newspapers evolves, who knows there may be other players interested and the Government would certainly not discourage them. As I said earlier on, we do not have a cap on the number of licences that we would issue. Any player who comes along, we are prepared to consider.

Ms Irene Ng Phek Hoong: Sir, the Minister mentioned that the liberalisation was introduced at a bad time because the economy was not doing well. Could I ask the Minister whether he is aware that both companies are doing very well in terms of profits and whether he thinks it is still too early in the day for both companies to be throwing in the towel?

Dr Lee Boon Yang: Mr Speaker, Sir, just to correct myself, the amount of total advertising revenue for year 2000 was $200 million. For last year, it was only $170 million, not $180 million as I

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mentioned earlier on. At the lowest point, in 2002, it was in fact below the $170 million mark. Now the question is whether it is too early to tell. Competition has resulted in both companies suffering severe losses. As I said earlier on in my main answer, the Government cannot foster or engender competition at all costs. The companies have to decide for themselves whether they want to carry on bleeding in this fashion, in the hope that there is light at the end of the tunnel and that they would recoup their losses sometime in the future, or they want to cut losses, rationalise their operation and carry on with a different business model. That decision is for the companies to decide. That decision is for management to decide and to answer to their own shareholders. It is not for MICA or the Government to tell the company when and how they should develop their business model, faced with these continuing losses.

Ms Braema Mathiaparanam (Nominated Member): Listening to the Minister's answer just now, I have one question on the role of MICA in such an eventuality where two companies, media giants, are talking about a merger. It has come across from the Minister's answer as quite a stand-offish approach. If that is so, what then is the role of MICA in discussions on possibilities of mergers?

Dr Lee Boon Yang: I do not quite understand what the hon. Member meant by saying that we are taking a stand-offish approach. We are not taking a stand-offish approach. They have to submit their consolidation proposal to the Media Development Authority and the Media Development Authority would then examine this consolidation proposal, using the Code of Practice for Market Conduct in the Provision of Mass Media Services as a criterion to assess how to deal with this proposal. I do not think you can say that we have taken a completely hands-off approach. That is not a fair statement.

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We would continue to regulate and ensure that there is fair competition in the media market and that if there is a dominant player, the dominant player does not use any predatory pricing mechanism or practices to prevent others from entering the market.

Mr Inderjit Singh (Ang Mo Kio): I would like to ask the Minister whether this merger was a directive from the Government to the media companies to merge or it was their initiative. The impression I have is that the Government had told them to just merge and not continue competing.

Dr Lee Boon Yang: Mr Speaker, Sir, I think it is erroneous to conclude that the Government directed the companies to merge. The companies have to make a decision. They have to be answerable to their shareholders. It is up to them to decide. Whether they merge or not is a purely business decision. The Ministry did not tell them to merge, but I did say, if I remember correctly, on 12th November last year, when I addressed the Press Club, that we see that both companies were losing money, whether they could continue going forward at this rate of losses was a matter that they have to decide and they have to come to a decision by themselves. We have not directed the companies to merge. We have said that they have to take the decision on their own and be answerable to their shareholders. So I think it is quite wrong to say that we have, in some way, directed them to make this merger.

Assoc. Prof. Ngiam Tee Liang (Nominated Member): While the Minister has assured us that MICA would try its best to ensure that business considerations would not be the only logical reason for the merger, we also would need to protect the local news on TV, as an example, and of the need for MICA to safeguard the public interest. Right now,

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we have at least coverage by two stations, but the rumour is that Channel I might be axed, and, if so, there would only be one station putting up the news, even though it has two channels, Channel 5 and CNA, to do so. We actually would lose the coverage. Would the Minister be looking into how we can safeguard the wider coverage of our local news?

Dr Lee Boon Yang: Mr Speaker, Sir, MediaCorp, as the free-to-air service provider in broadcasting, would have the responsibility of providing fair, balanced, accurate and responsible coverage of local and international news. That is a given. You can take it as a given that they would continue to provide good and comprehensive news coverage, regardless of what happens to this merger.

Mr Low Thia Khiang (Hougang): Sir, the Minister has said that the Government has not directed the media companies to merge. I would like to know whether the Government has, in any way, influenced the decision of the media companies to merge.

Second, the Minister has said that they are private companies and they have to make their own decision. If that is the case, why is there a need for the Minister himself and some other Government leaders to speak openly about the fact that both companies are bleeding and it does not seem to be healthy to bleed in such a way?

Dr Lee Boon Yang: Mr Speaker, Sir, I think I have already answered the first question. It is not different from the question raised by Mr Inderjit Singh. We have not directed them. We left it to the companies. We have not influenced them. It is a matter of business decision. The companies have to decide whether they want to continue carrying such losses and how long they can carry these losses. Obviously, management and shareholders have decided that they have to put a stop

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to these losses and they have to revamp their approach to the whole business of competition.

The second point is: why should we be concerned? What we were saying, I think, were fair comments in the light of what was happening, particularly when I spoke to the Press Club on 12th November last year, because it was an obvious question begging for an answer: what was Government's position when the companies were suffering severe losses? So my answer was that: they are suffering losses as a result of the competition model that they have adopted and they would have to decide for themselves how they want to extricate themselves out of this situation.