A new set of rules for the media game

The Government has embarked on a bold architectural enterprise. Stephen Dorrell, the Secretary of State for National Heritage, announced yesterday that he was taking an axe to the conventional wisdom that neatly partitioned British media into newspapers, radio and television, to clear the way for Europe's first open-plan media market.

Bar a couple of notable exceptions, media companies will now face a more relaxed regulatory regime in which investment decisions can be driven by economic logic rather than statutory imperatives.

The Government's proposals on cross-media ownership reform have been more than a year in the making. While they are couched in terms of deregulation, there is at the same time a serious attempt to regulate an industry which has a unique ability to form and influence opinion.

That principle was codified for the first time in the 1980 Broadcasting Act, which prevented newspapers from controlling ITV companies. It was spelt out in tortuous detail in the 1990 Act. But no sooner had the ink dried on the statute book than the 1990 Act was obsolete. In the 1980s, the question of who owned what was straightforward. There were BBC1, BBC2 and ITV. There were four national BBC radio networks and around 60 local stations. And Fleet Street stuck to newspapers.

Fear of media barons and the political clout they could wield was an issue of sectoral rather than cross-media dominance. Political antagonism was centred on Rupert Murdoch and his newspapers' aggressive campaigning for the Conservatives.

Limiting newspaper groups to a 20 per cent stake in ITV licences, while preventing a single company from owning more than one ITV licence, appeared only prudent.

New technology changed all that. There are now plans for a fifth terrestrial television network. The BBC has launched Radio 5 Live to help it to compete with 150 commercial radio stations. There are satellite dishes attached to 3.5 million homes, while fibre-optic cable already passes 4 million. Digital technology will expand TV capacity a hundredfold, while multimedia will provide high-definition sound and vision on computer screens. Technological change and media convergence have made an ass of the law.

Crucially, the 1990 Act left one door slightly ajar - a door through which every newspaper group was entitled to pass, but which only Murdoch did. This was the loophole which allowed newspapers to control non-domestic satellite companies in order to encourage investment in an uncertain and high-risk enterprise. It is through his initially loss-making, but latterly highly profitable, development of satellite television that Murdoch has become the broadcasting force that has made a nonsense of the old regulatory framework and pioneered the shape of the new media industry.

Apart from political concern about Murdoch's undue influence, some of the loudest shouts for reform have come from within the industry itself. Carlton Communications, owner of two ITV licences, and the British Media Industry Group, which includes Associated Newspapers, Guardian Media Group and Pearson, have argued that liberalisation is the only way to limit the power Murdoch wields through his five News International titles and 40 per cent stake in BSkyB. For them the solution is to allow them to develop into competing cross-media companies.

How do the Government's proposals help their cause? The number of radio licences a company can own will be increased from 20 to 35, which is likely to start a mad acquisition dash. Television broadcasters will be able to take a 25 per cent stake in independent production companies (and vice versa) - good news for a capital-starved independent production sector.

Legislation expected in the Queen's Speech this autumn is more interesting. Newspaper companies with less than 20 per cent of national newspaper circulation will be able to control up to two terrestrial television licences while continuing to develop cable and satellite interests. They can expand up to 15 per cent of the total television market. Television companies can likewise buy into newspapers up to a limit of 20 per cent of national newspaper circulation.

That is good news for ITV companies such as Carlton and Granada, but better news for newspaper groups such as Associated, United, Guardian and Pearson, which have lobbied hard for such a relaxation. However, the changes are a blow to News International and Mirror Group which, with 37 and 26 per cent of national newspaper circulation respectively, see their terrestrial TV ambitions shattered.

The third and long-term strand of the Government's proposals remains embryonic. The aim is to sweep aside the existing structure of cross-media rules and lump newspapers, television in all its forms and radio into a national media market based on either revenue or audience. A suggested ownership threshold of 10 per cent would be established and any concentration above that level would have to be approved by a regulator bound by statute to protect the public interest.

The Government has announced a consultation period for this ending in August, when it will seek views on the most effective form of measurement and regulation. If enacted, the proposal would banish all regulatory divisions between different media. But that is a big "if" and one which this Government will not have to confront in its current term.

Dorrell has embarked on a potentially dangerous course of action - legislation on the media in the run-up to an election. He may get away with it. By opening up terrestrial television he has granted the owners of solidly Middle England but waveringly Tory titles such as the Daily Mail and Express everything they dreamt of. Murdoch's terrestrial ambitions will be capped, but that is now politically possible. As for treading on the toes of the Mirror Group, which owns a 43 per cent stake in the publisher of the Independent, that will not unduly trouble Conservative Central Office.

But as with the 1990 legislation, a combination of technological change and entrepreneurial flair could confound the draughtsmen. Services delivered on demand through personal computers and telecommunications systems are not covered by the latest proposals. If offered by existing media companies, they "could", the Government says, fall within the scope of the media ownership regime. But not necessarily. Like satellite a decade ago it is a high-risk, possibly loss-leading enterprise which would need encouragement for somebody to back and make viable. And who might that someone be? Rupert Murdoch, perhaps.

Rhys Williams