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Appeal Court questions whether government should regulate media in merger appeal

Thursday 7th June 2018

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The Court of Appeal is grappling with whether the Commerce Commission is able to consider unquantifiable public benefits, like a diverse media, against quantified economic benefits when it makes merger decisions, as New Zealand's dominant newspaper and online news providers ask the court to approve their merger.

Last May, the Commerce Commission declined to clear or authorise the merger of NZX-listed NZME and Stuff, the New Zealand arm of ASX-listed Fairfax Media, arguing it would concentrate too much media influence in one entity. They had applied to amalgamate in 2015, arguing the merged entity would be more able to survive the global competition for local advertising dollars from online search and social media giants such as Google and Facebook.

The subsequent appeal by the publishers, heard in the High Court in October 2017, was unsuccessful when Justice Robert Dobson and lay member Professor Martin Richardson found that the regulator was entitled to place significant weight on the loss of media plurality if the merger went ahead. In March, the publishers said they will renegotiate the terms of the merger if they successfully appeal due to business changes, with Stuff having agreed to close or sell a third of its New Zealand mastheads in the elapsed time.

This morning, the commission's lawyer Jim Farmer QC said the case was the first of its kind, but the Commerce Act 1986 which gives the regulator its power does allow it to decline the merger on the basis of media plurality. 

"This case is not just a regular transaction. We are dealing here with the fourth estate, and the role of the media in the activities of the state seems a unique one," Farmer said. "Maybe it's the first time the commission has had to grapple with non-economic issues that are of such immense importance to New Zealand. The question arises, should the commission grapple with them, or should it just ignore them?"

Justice Raynor Asher, one of three judges on the bench for this case, said media regulation was not the commission's area of expertise and such a role was not given to regulators overseas. The media is "much more suited to be regulated by Parliament or by a specialist body", he said. 

Farmer said the Commerce Act had adopted the concept of considering public benefit when examining proposed mergers from previous legislation, and the commission could draw on specific media expertise even if it didn't have that itself, as it did when considering this merger. 

Justice Stephen Kós said similar considerations could be made by the commission when considering a merger involving formerly government-owned organisations which have become state-owned enterprises, such as the electricity industry or the public health sector, where similar non-economic issues could apply.

Later in the morning, another lawyer for the commission, James Every-Palmer QC, took over the regulator's arguments. He focussed on addressing whether the commission had adequately assessed the delta - the gap between what would happen if the merger were approved, and what would happen if it were not - and whether the commission had taken the right approach in balancing potential benefits and detriments of the merger.

Every-Palmer said the media companies hadn't provided the commission with "the sort of quasi-quantified analysis proposed" by its lawyers, even after the commission released its draft determination where it proposed to refuse the merger. The applicant had an opportunity to shape the commission's response through the information it put forward, he said. 

Every-Palmer continues this afternoon, with the case set to run until tomorrow.



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