Media24 drove rival local paper out of business

Guilty of predatory pricing in landmark case

IN the first ruling of its kind, the Competition Tribunal has found that Media24 used predatory pricing to drive an independent community newspaper out of business.

The case involved a battle for market dominance in Welkom, in the Free State, and resulted in the permanent removal of an independent competitor.

In its 151-page decision, the tribunal refers to comments by the marketing manager of the Goldfields Casino in Welkom, which was a regular advertiser in the independent Gold Net News, about being worse off as a result of the paper’s disappearance from the market.

“She had no option but to advertise in Vista [Media24’s remaining community paper] which she said could ‘. . . charge me what they want’ and that she had no choice where her adverts were placed. She spoke disparagingly about Vista’s quality and described how, because it carried so many adverts, it was difficult to find her company’s adverts easily.”

The tribunal said Media24 used one of its two Welkombased community newspapers, Forum, as a “fighting brand” to ensure Gold Net News could not survive. Forum charged advertising rates that were below its costs and for a lengthy period operated at a loss. Ten months after Gold Net News was finally forced to close, Forum also closed, leaving Media24’s Vista in a dominant position. Vista subsequently hiked its advertising rates.

This is the first time in the 16 years since the Competition Act came into force that a firm has been found guilty of predatory pricing. The only other case of predation involved a charge brought by Nationwide Airlines against SAA in 1999. The tribunal granted interim relief in that matter, but no final ruling was made.

No fine has been levied against Media24 because the finding of predatory pricing was in terms of section 8(c) of the Competition Act, for which no first-time fines are levied. But Media24 is facing some action by the tribunal, which has indicated it will convene a further hearing to deal with the remedies that should be imposed.

Media24 issued a statement noting the matter had not yet been completed. “We are preparing for this [remedies] hearing and will only consider our options once the process at the tribunal has been completed.”

The case was initially brought to the Competition Commission in 2008 by Hans Steyl, who ran Gold Net News from 1999 until its closure in 2009. After an investigation, the commission referred the matter to the tribunal for prosecution. This week’s finding by the tribunal follows a hearing that began in November 2013 and ran intermittently over several months, with the last submission coming from Media24 in March this year.

Media24’s legal bill is estimated to be between R10-million and R20-million, with the involvement of two senior counsel throughout, prompting speculation that there was more than dominance of the Welkom community newspaper market at stake.

“If you’re the largest player in the national media industry, you can’t really afford to be accused of driving smaller competitors out of the market,” said one competition analyst.

Media24’s parent, Naspers, might also be sensitive about the predatory pricing charge given its dominance in the subscription-TV market and its position as a global internet player.

Media24 denied it had driven Gold Net News out of the market and said there was no policy decision to undercut the paper or to position Forum as a cheap advertising opportunity. According to Media24, Forum’s closure was not related to the closure of Gold Net News but was due to the 2008 recession and continuing downsizing in Media24 as a whole. The tribunal was not persuaded.

In finding against Media24, the tribunal said it had removed an effective competitor and that consumer choice had been adversely affected in two ways: advertisers lost an alternative outlet to advertise their goods and paid higher prices; and readers lost the choice of an alternative newspaper.

The evidence showed that after Gold Net News closed down, Vista was able to achieve higher rates than it could previously. These rates were higher than competitive rates. Given that it had a monopoly in the market, “this effect is hardly surprising and is predictable”, said the tribunal, noting that the anti-competitive effects of this monopoly situation “are substantial and enduring”.

The Competition Commission seemed unprepared for the outcome; it said it was studying the judgment and “will provide a detailed comment in due course”.

Speculation that more than dominance of the Welkom community newspaper market at stake