Beware the minister bearing false goods

Beware the minister bearing false goods

Well, it was a good week for Tessa Jowell. With last week's announcement, she's gone from low credibility to the darling of City media analysts and those who hold under-performing media sector shares. The draft Communications Bill was certainly bold in its scope and sweep, tidying up a lot of the messy detail that surrounds ownership, competition and protectionism.

Who could reasonably argue with New Labour's business credentials and preparedness to embrace global trends? In effect, UK Media plc has put up its For Sale sign. The boldness of the Bill and the City euphoria that surrounds it does, I think, mask the fact that it will create some serious winners and losers in the years to come.

I suspect that once a number of deals have been completed on the back of this Bill, some of the recurring questions that have dogged New Labour will come back. In particular, that in the analysis of the effects of its policy (rather than what it says) it is handing rather more over to big business interests than to those of the consumer or Labour.

Firstly, the winners. Those who have been brave enough to hold on to their media shares over the past 18 months must already be trying to estimate the acquisition premiums they will command. City bankers and analysts will already be dusting down those reports on acquisition targets and calculating the likely fees that an M&A frenzy will bring. A word of caution for shareholders, before you get over-excited about this. The empirical evidence from acquisition history suggests that the acquirer tends to lose out in terms of shareholder value, post-acquisition. If you want to turn a profit - get bought!

Then again, given the parlous state of US media companies that have, or certainly should have, learned in the last few years that merger and acquisition does not necessarily create value. Will they really be that keen to do it all again so soon after recent disasters? The big US corporates mooted as possible partners are very much in convalescence mode.

Assuming we do end up in short order with fewer, but bigger, media companies, then, from the media agencies' perspective, it is a good thing. It simplifies the planning, negotiating and buying processes, taking costs out of their operations and increasing margin. For a top-ranking global agency group with its ultimate decision making in New York, it has to be a good thing.

Advertisers of a certain scale will also see advantage in the proposals. Those international companies with a grip on global procurement will look to the opportunities opened up by international ownership. Think about it - linking your UK negotiation of several millions of pounds to your US one of several tens of millions of dollars.

And so to the probable losers. Let's call them the small business men and women of the global world. The advertisers who are UK-only or, at best, regional in scope and those agencies that are stuck between an ambition to grow, but a desire to remain local.

Most of all, I wonder whether the consumer, ostensibly the most important beneficiary of the Bill, will really be the winner. In terms of choice and value, we will have fewer media owners, and we know what happens to prices with limited supply. As for choice, irrespective of giving me a couple of hundred
channels - without content and quality of content - where is the choice?

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