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NZME-Fairfax says lack of submissions from advertisers shows merger concerns misplaced

Tuesday 2nd August 2016

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Fairfax Media and NZME's response to submissions on their merger proposal says the lack of opposition from advertisers indicates a competitive advertising market will remain if the two media groups are allowed to combine.

The Commerce Commission received 50 submissions on the merger application, although Fairfax/NZME says this can be whittled down to 40 "once duplicated submissions from a single person/economic entity are removed", which was "a low number" for a high-profile transaction. 

The two companies said competitors featured strongly among the submitters and there was opinion from the US that this could actually be an indication a merger was "pro-competitive". They also said submitters strayed from the competition framework of the Commerce Act to cite concerns that aren't relevant to the commission's assessment of whether the transaction would result in a substantial lessening of competition.

Those included concern about a loss of "valuable" journalism, a subjective notion, and reflected "the myriad of different perceptions in society about the role of the media," they said.

"The commission should remain focussed on the statutory competition law framework, and leave the protection of what is 'valuable' news / information for the market to resolve through the incentives on the parties, operating in a two-sided market, to produce content that is appealing to consumers given that is essential to their advertising-funded business model," the cross-submission says.

"If there are broader public policy issues outside the competition law framework, those are best addressed through other policy tools", including "public good broadcasting via state-owned media and public funding of the media more generally," they said.

They argued that in a "two-sided market" where media companies had to attract audiences with content in order to be attractive to advertisers, whose spending, in turn, funded the content, there were economic reasons to maintain the quality and diversity of content.

A merger would combine NZME's flagship New Zealand Herald newspaper and website, a portfolio of radio stations including Newstalk ZB and the GrabOne daily deals site with Fairfax's suite of newspapers including the Sunday Star-Times, The Press, the website and magazines including NZ House and Garden.

NZME listed on the NZX as a stand-alone New Zealand media company on June 27 after being spun off from APN News & Media through the issue of shares to APN's existing shareholders.

The shares listed at $1 but by July 13 had dropped to a low of 69 cents amid speculation some Australian shareholders weren't natural holders of a New Zealand media business and represent an overhang of stock in the market, while uncertainty about the final shape of the company and the downturn in advertising revenue in the media generally capped the pool of potential buyers.

Rupert Murdoch's News Corp is a 14.99 percent shareholder in NZME.

NZME stock last traded at 86 cents, valuing the company at $169 million, not big enough for entry to the benchmark S&P/NZX 50 Index. 

This week Fairfax wrote down the value of its New Zealand assets by a further A$95.3 million. The Australian publisher had already slashed the value of the New Zealand mastheads by 80 percent in 2012 in a group-wide writedown of its traditional publishing assets. 

In their original submission, NZME and Fairfax said they operated a "digital first" strategy and provided figures showing that, combined, they had a meager 11.7 percent of New Zealand's digital advertising market - $10.4 million in annual terms for Fairfax and $10.8 million for NZME. They were up against Google, ranked first with $67 million, or about 37 percent, followed by Facebook with $29.5 million, or 16 percent.

In their cross-submission, the two companies said they weren't surprised by the lack of opposition to the transaction from advertisers, "given the highly competitive New Zealand advertising market".

"Advertisers are aware of the range of advertising options open to them, which they can and do switch between, for example, print, digital, TV, radio, billboard, cinema, etc, and that the providers of these various advertising media options (e.g. Google, Facebook, TVNZ, MediaWorks, Trade Me, Allied Press, Bauer, APN Outdoor,10, oOh! Media, Val Morgan, etc)," they said.

In answer to concerns from submitters that a merged company would offer lower advertising pricing and bundles as predatory pricing to drive out rivals, they said there was no reason to think the transaction would give rise to abuse of market power and that lower prices were one of the aims of the Commerce Act. NZME was already offering advertising bundles across print, online and radio in parts of the North Island and there was nothing to stop rivals teaming up to do the same.

A combined NZME/Fairfax NZ would face significant national rivals in the provision of New Zealand news and information, such as Television New Zealand, MediaWorks' Newshub, and radio New Zealand's RNZ site. All the rivals had made the decision to make a transition to multimedia news and information businesses and content was "inevitably digitised" to be deployed on websites and mobile apps.

NZME and Fairfax also sought to allay concerns that a merger would restrict access to news syndication services, such as Otago Daily Times publisher Allied Press being denied access to NZME syndication because had an audience in Otago and Southland.

"This is not a credible concern," they said. "Both NZME and Fairfax already engage in news syndication because it makes commercial sense and will continue to do so" by providing additional content and an additional revenue stream that came at zero incremental cost.

The commission is scheduled to make a decision on the merger on Aug. 22.

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