Concentration of NZME, Fairfax tie-up a concern irrespective of financial gains: ComCom

Tuesday 8th November 2016

The financial gains delivered by merging the country's two biggest publishers - NZME and Fairfax New Zealand - would be a concern irrespective of their size given the concentration of power and ability to influence opinions, the Commerce Commission says.

In a draft determination against authorising a merger of the media groups, the antitrust regulator says it would be concerned irrespective of the size of financial gains because of the sweeping change to the industry landscape. The commission estimates the deal would generate benefits of between $136.5 million and $218.7 million over five years, largely through cutting double-ups, with between $29.2 million and $122.4 million of detriments through price hikes, productivity losses and wealth transfers to foreign shareholders.

That nets out at a quantified benefit of between $14.1 million and $189.5 million over five years, which the commission notes as a wide range due to the uncertainty of the estimates. However, the regulator's draft report said it would be concerned about a merger of this size "irrespective of the size of operational benefits" because the savings achieved would struggle to "offset the fundamental changes this merger would bring to New Zealand’s media landscape". The regulator deemed that to be "an essential factor" in assessing the unquantified detriments.

The regulator deemed the merger of the two companies would substantially lessen competition in a number of markets, including premium digital advertising, Sunday newspaper advertising, and community newspaper advertising, and would probably pave the way for the introduction of a subscription model for at least one of the dominant websites. That meant it had to pass the public benefit test, something the regulator's preliminary view sees as being too high given the concentration of power into one organisation.

"Even in the face of a changing media landscape, the commission cannot lose sight of the fact that is being asked to authorise a merger that would provide a single organisation with control of nearly 90 percent of all print media, New Zealand’s two largest news websites, and one of New Zealand’s two largest commercial radio companies," the draft report said. "This would be an unprecedented level of media concentration in a well-established liberal democracy."

NZME and Fairfax "exert meaningful editorial influence over New Zealand’s news agenda" and it is essential that society can't sway a single provider without the ability to air alternative opinions, it said. The industry's self-regulation isn't a strong enough safeguard against a reduction in quality or able to rein in the commercial objectives of a business.

"We consider that the level of media concentration brought about by the proposed merger would not be in the public interest," the report said. "We have weighed the cost-savings arising from the merger against the increased levels of media concentration, the ability of the merged entity to influence opinions and lead the news agenda and the overall detriments to plurality.

"In an industry where there are substantial costs of entry to achieve the scale of a large news publisher, we consider that the loss of plurality that arises from the proposed merger is likely to be significant and potentially irreplaceable."

The merger was put forward as a way to combat online giants such as Google and Facebook which dominate digital advertising revenue, in an environment where shrinking newspaper readerships and the loss of classified ad income has put traditional news companies under stress. Both Fairfax and NZME have been shrinking their newsrooms and putting a priority on their online offerings, though online ads remains a fraction of their current revenue stream at about 4.1 percent.

In a statement to the NZX and ASX, the media companies said they were of the view that the regulator "failed to properly take into account the diversity of opinions that will continue post-transaction in an increasingly converged digital world" and will put forward their case in the next round of submissions.

NZME shares sank 6.1 percent to 62 cents on the NZX, a new low since the company was carved out of APN News & Media.

Fairfax New Zealand's Australian parent, Fairfax Media Group, last traded at 80.5 Australian cents.

BusinessDesk.co.nz

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