14 Feb 2017
Agents’ Mutual chief executive Ian Springett said yesterday that it was “common sense” to introduce an element of exclusivity in contracts, the Competition Appeal Tribunal was told.
The market was dominated by two brands, and exclusivity was needed for the company to grow, it was said.
Continuing his cross-examination, Paul Harris QC, for Gascoigne Halman, asked Mr Springett about Clause Seven in the agents’ contracts.
Mr Springett said: “There are two parts to this. One of the obligations is to actively promote their own portal. I think you would largely understand that, doing anything they can to grow the brand.
“Secondly, they cannot go out promoting any other business.”
Mr Harris asked: “So there is one positive obligation to promote Agents’ Mutual, and secondly not to promote somebody else’s?”
Mr Springett answered: “It just seems to be common sense to me if you start a new business then you would cease to continue promoting your other business, and if you did previously have another one you would cease promoting it.”
The tribunal heard that in early planning of Agents’ Mutual, considerations were given to total portal exclusivity for three years but that was before the merger between Zoopla and Digital Property Group. After this, considerations changed to focus on the ‘one other portal rule’ for five years.
Mr Harris asked: “When you generated your duration figure using a limited budget and desk research yourself, how did you come up with the duration figure?”
Mr Springett replied: “We were pre-merger here, so there are four significant figures here.
“I think we looked on Friday at a document which showed November 2011 that the discussion was still on exclusivity for a few years.
“The five-year discussion came later after the merger had taken place.
“It wasn’t around this time that the decision was made.”
Mr Harris asked: “Can you show me the documents in which you show at this stage that only three years was required?”
Mr Springett: “At that stage I was considering history, together with some early advice, it was the first half of 2011.”
Mr Harris asked: “Can you show me the spreadsheet or data analysis which made you think that length would, and I quote, ‘allow it a sustainable entry’.”
Mr Springett answered: “The origin of that was referring back to previous experience. It was more an issue of what would work commercially. It was also a question of what the agent thought for them would be viable as a business.”
Mr Harris: “There is no underlying data. It’s effectively based on your view and experience with Primelocation.”
Mr Springett: “Primelocation launched at a time when Zoopla wasn’t really on anyone’s radar. Then an assessment was done on what was needed, then a financial model was put together.
“It’s a market completely dominated by two portals. The market when we launched Primelocation was rather easier than the one we did in 2015.
“Our challenge was we entered at a time when there were two large portals.
“They are strong brands, [have] strong marketing budgets, with entrenched consumer usage, so our challenge was how to come into the market and move those.
“I’ve always believed that properties, the listing themselves, are what draws the consumer.”
The tribunal then heard what led to the exclusivity duration to be extended from three years to five.
Mr Springett said: “It was based on the business plan. It would take us this time where we were sufficiently strong to stand on our own two feet. We also formed that view under legal advice, who reviewed our business plan, and that view was reached. I won’t pretend I didn’t want it as long as we could have it.”
Mr Harris suggested Mr Springett wanted complete exclusivity, and then described limiting agents to one other portal was a “compromised position”.
He said: “The thinking always once you knew what one of those portals would be, you thought it would be Rightmove, didn’t you?”
Mr Springett: “The idea that we cooked up a plot is fanciful.”
Discussion then turned to the company’s business plan, with Agents’ Mutual initially aiming for 1,000 offices at launch day.
Mr Harris said: “You wanted to be the number two player as quickly as possible, within 2-3 years.”
Mr Springett said: “I don’t think at the point we set out we had that ambition, but our view changed at the end of 2013, instead of getting to 1,000 branches we got to 1,800 so we recalibrated.
“It was a point of no return for us. If we could get to 4,000, we felt once we reached that level then we could confirm the project was going to launch, which we had not done until that point. We didn’t even have a brand name until July 2014.
“We had 4,000 total support in October 2014 and announced it, and some time after that we began approaching agents asking if you’ll now sign a contract.”
Mr Harris then turned to an email Mr Springett wrote, describing the venture as ‘unstoppable’.
The email allegedly said: “This means we are over 60% of the way to 4,000 supporting agents, at which point the venture becomes unstoppable.”
Mr Springett told the tribunal the email would have gone to members, and suggested Mr Harris was misinterpreting “unstoppable”, as he just meant the venture would go ahead.
The tribunal heard the company eventually launched with 4,600 offices signed up.
Mr Harris asked: “If you’d grown faster, you wouldn’t need the restriction in place for so long, would you?”
Mr Springett answered: “That’s self-evident.”
Mr Harris suggested that getting rid of Zoopla altogether was Agents’ Mutual’s aim.
Mr Springett replied: “That wasn’t our objective.”
Our second report, of later stages in the hearing yesterday, follows this.
The tribunal hearing continues.
Meanwhile, two new documents have been made publicly available at the link below:
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