Independent Radio Sales Ltd and its shareholders: Competition Authority Decision

 
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Competition Authority

Notification No. CA/1/01

Decision No: 591

Independent Radio Sales/Shareholders Agreement
Abstract:

Notification No. CA/1/01 - Independent Radio Sales/Shareholders Agreement Decision No: 591

Notification was made on 22 January 2001 of a draft shareholders' agreement between Independent Radio Sales Limited ("IRS") and each of its Shareholders, with a request for a certificate or, in the event of refusal by the Authority to issue a certificate, a licence.

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Introduction

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1. Notification was made on 22 January 2001 of a draft shareholders' agreement between Independent Radio Sales Limited ("IRS") and each of its Shareholders, with a request for a certificate or, in the event of refusal by the Authority to issue a certificate, a licence.

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Seventeen shares have been allotted but one is held by IRS because a previous Shareholder wished to exit from IRS and sold its share to the other Shareholders. The remaining shares are held by sixteen independent local radio stations, licensed by the Independent Radio and Television Commission ("IRTC"). There are only fifteen Shareholders, however, as Midland Radio Group Limited holds two radio licences and thus two shares - for Shannonside Radio and Northern Sound FM.

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The Facts

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(a) The Subject of the Notification

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2. The notification concerns a draft shareholders' agreement ("the agreement") between Independent Radio Sales Limited and each of its Shareholders. The Shareholders are independent local radio stations, who propose to engage in the joint sale and marketing of radio advertising slots on their stations ("the arrangements"), through the establishment of the company. The agreement sets out the terms and conditions for membership of IRS.

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(b) The Parties

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3. The parties to the arrangements are IRS and the following radio Shareholders:

  • i. Carlow/Kildare Radio Limited - trading as CKR

  • ii. Kalacastle Limited - trading as LMFM

  • iii. Kilkenny Community Communications Co-operative Society Limited - trading as Radio Kilkenny

  • iv. Midland Community Radio Services Limited - trading as Midland Radio 3

  • v. Cormuda Limited - trading as South East Radio

  • vi. East Coast Radio Limited - trading as East Coast Radio

  • vii. County Tipperary Radio Limited - trading as Tipp FM

  • viii. Tipperary Mid West Radio Co-operative Society Limited - trading as Tipp Mid West

  • ix. South East Broadcasting Company Limited - trading as WLR FM

  • x. Clare Community Radio Holdings plc - trading as Clare FM

  • xi. Radio Ciarrai Teoranta - trading as Radio Kerry

  • xii. County Mayo Radio Limited - trading as Mid West Radio

  • xiii. North West Radio Limited - trading as NWR FM

  • xiv. Midland Radio Group Limited - trading as Shannonside Radio

    and

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Northern Sound FM

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xv. Donegal Highland Radio Limited - trading as Highland Radio

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4. IRS was established in 1998 to provide a common marketing and sales organisation in Dublin for member independent radio stations throughout the country. The Board is made up of representatives of cluster groups of radio stations. The cluster groups will consist of three shareholders and be loosely linked to geographical areas. The parties stated that the shareholders would probably be grouped in threes as per the list above, beginning with Carlow/Kildare Radio Limited, Kalacastle Limited and Kilkenny Community Communications Co-operative Society Limited. Membership of the Board will rotate each year among the members of the cluster group. The registered office of IRS is 62 Lower Mount Street, Dublin 2.

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5. The Shareholders all operate independent local commercial radio stations, licensed by the IRTC and operating within the State.

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(c) The Product and the Market

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6. The product is radio advertising slots and the relevant market is that for the sale and marketing of those slots in the State. Each of the Shareholders of IRS operates at a local level, i.e. the transmission range of their radio signal covers only a limited area within Ireland. Independent local radio licences are awarded by the IRTC for a "franchise area" roughly equivalent to a county in the State. There is currently only one licence for each of the franchise areas of the IRS stations. None of the IRS stations are based in Dublin, Cork, Galway or Limerick. In order to ensure high quality and complete coverage of the franchise area, the transmissions tend to spill over into adjacent franchise areas to a certain extent.

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7. IRS offers various packages to advertisers whereby they can book simultaneous advertising slots on all 16 IRS member stations and thus advertise on an almost nationwide basis. The pricing of slots on all 16 stations is decided by IRS. It is also possible to book slots on a single station and to book slots on any number of IRS stations, and thus advertise on a local or regional basis. Customers rarely approach IRS for advertising slots on one station only. The pricing of slots on a single station, on its own or as one of a number of stations (but not all stations), is decided independently by each station concerned, and these types of product account for 35-40% of total IRS sales.

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8. There are a further six independent local radio stations (licensed by the IRTC) in the market who are not Shareholders of IRS. They are all located in the main urban centres

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Dublin, Cork, Limerick and Galway - and sell their own airtime exclusively. IRS offers a product called "Bulls Eye" which runs in particular news bulletins (INN News) across all22 independent local radio stations exceptfor the newest Dublin station, Lite FM. This product accounts for 15-20% of IRS annual gross sales.

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9. IRS has a 15% market share in terms of sales of advertising slots. The other six independent local radio stations collectively account for 30% of the market. RTE's three radio stations Radio 1, 2FM and Lyric - have 45% of the market and Today FM has a 10% market share - these stations broadcast nationwide.

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10. The number of potential entrants to the market is finite, in that there is only a limited amount of radio spectrum available for radio licences. The parties stated that it does not, however, appear to be a scarce resource currently. Thus there is the possibility of new entry to the market. The IRTC is currently assessing the amount of radio spectrum it has with a view to reviewing the ownership and control of radio licences. The IRTC does not plan to award any new radio licences in the franchise areas of the IRS stations, at least until the current licences expire, and so entry is severely limited in the short term. All local independent radio licences are for 10 years and will be readvertised in 2002/3, by which time the IRTC may have been allocated more radio spectrum from the Office of the Director of Telecommunications Regulation, and may be advertising licences which cover larger franchise areas in Ireland.

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11. There is currently another organisation providing advertising sales and marketing services for independent radio stations in the State. Broadcasting Media Sales is a sales agent based in Dublin, providing national advertising and promotion sales for Galway Bay FM, Cork 96FM and Limericks Live at 95FM. The agent is owned by Cork 96FM and the other two stations pay a commission to the firm and also have their own in-house sales staff. Broadcasting Media Sales' rate cards offer a variety of packages for each station but do not include any combined packages covering all three stations.

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(d) The Notified Arrangements

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12. The arrangements take the form of a draft shareholders' agreement of IRS. The members of IRS established the company to promote the individual sales of the members of the company and to market and promote a combined "rate card"1 offering an almost nationwide service. The agreement sets out the terms and conditions for membership of IRS.

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13. The Rate Cards give details, including the price, of various packages of radio advertising slots and promotions which cover all sixteen member stations.2 For example, one package offers a fixed price for a number of advertising slots, across all the stations, before lunch, Monday to Friday (titled the "Housewife Package").

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14. Clause 2.1 states that "The primary object of the Company is to carry on the business of radio and general advertising media sales and marketing contractors for independent radio stations licensed by the IRTC."It is thus a condition of membership that Shareholders hold a licence from the IRTC.

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15. Clause 9.1 contains non-compete restrictions. The Shareholders are not permitted to join or be associated with other companies or persons which compete with the Business of IRS, as defined in Clause 1.1, without the prior written consent of the other Shareholders. This restriction does not apply to Shareholders after they have exited the agreement. A Shareholder may still market and sell its own advertising. Clause 1.1 defined "Business" as: "the business of the company as described in Clause 2.1 and such other business as the parties agree in writing should be carried on by the Company and its subsidiaries."

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16. Clause 14 provides for the exit of a shareholder from the arrangements. A shareholder wishing to exit the shareholders' agreement is obliged to have been a shareholder for three 1 Although...

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