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Fairfax moves fast to confirm cuts to news production after merger rejection

Wednesday 3rd May 2017

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The competition regulator declined the merger in a final decision this morning, saying NZME and Fairfax had failed "by a considerable margin" to convince it that the clear commercial benefits of the merger would outweigh the potential detriment to the quality and variety of news available to New Zealand news consumers.

"While we cannot weigh in dollar terms the net benefits against the detrimental societal impacts we expect to see, in our assessment this is not a finely balanced decision," said commission chair Mark Berry, confirming a draft decision to decline the merger last November on an application that it has taken almost a year to turn down.

NZME shares dropped 5.6 percent to 84 cents immediately after trading opened on the NZX this morning.

An appeal for judicial review can be lodged to the High Court within 20 days, but Hywood appeared to indicate that Fairfax would begin immediately to shrink its New Zealand operations, which the struggling ASX-listed publisher has made clear it wants to quit.

"The regulator's failure to grasp the commercial and competitive realities of modern media is disappointing," said Hywood in a statement. "This decision does nothing to address the challenge of the global search and social giants, which produce no local journalism, employ very few New Zealanders, and pay minimal, if any, local taxes 

"In light of the decision, an even greater focus on cost efficiency will be necessary. Moving to the next stage of our New Zealand publishing model will involve reshaping how we deliver our journalism to local communities," said Hywood. “Ensuring the ongoing sustainability of the New Zealand business will require continued diversification of our digital revenue base, building on recent progress of monetising our audiences through new advertising products, and businesses such as Stuff Fibre and Events."

The company would be "carefully reviewing" the commission's reasoning, contained in a 357-page decision.

At its media conference, the commission was at pains to reject the proposition from legal counsel for Fairfax and NZME that it was operating outside the bounds of the Commerce Act by basing its decision on concerns about media 'plurality' - the range and quantity of views published in a single media market.

"We reject the submissions that there is a category of consequences that we are required to ignore," said Berry. Australian and New Zealand case law made the commission confident that non-commercial factors could be weighed against commercial considerations to reject a merger application.

NZME and Fairfax argued commercial benefits of between $40 million and $200 million over five years if the merger went ahead, and that it was vital if the growing impact of global social media and search giants Facebook and Google was to be combated effectively. Those two alone were soaking up around 80 percent of online advertising revenues at a time when revenue from the traditional newspaper publishing business is in steep and apparently irrevocable decline.

Fairfax executive editor Sinead Boucher accused the commission on Twitter of a "hypocritical" decision, claiming it had rejected the suggestion that Facebook and Google were competitors for the advertising dollar when the commission itself had spent "45 percent of its own ad budget on non-paying Facebook, YouTube".

The commission said it recognised the "very real commercial pressures" on both print and online news producers, but concluded that the potential loss of competing views and voices in the media represented a greater threat to New Zealand democracy and news consumers than the threat of reduced advertising revenue to the would-be merged publishers.

Reaction from major political parties was slow in coming but Act Party MP David Seymour said the decision would lead to the "slow, painful withering of our major newspapers".

“Allowing the merger would not have created a monopoly. Fairfax and NZME already compete with Radio New Zealand, 1 News, Newshub, the NBR, the Spinoff, Facebook, Twitter, and more."

The union representing journalists, E Tu, trumpeted the decision, saying "any further concentration of media ownership would lead to a decline in diversity, the quality of news gathering and the reporting of opinions". 

The decision was "a real turning point in the commission’s approach to commercial decision-making," said union president Paul Tolich. "Formerly the driver has been pure market forces. However, this decision recognises there are other values to consider in relation to this merger."



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