NZME and Fairfax said the Commerce Commission had gone beyond its remit by pouring cold water on the publishing companies' merger plans.

The competition watchdog said in its draft determination that it would decline the merger application because it would give rise to material loss in media plurality, or a diversity of voices.

The media companies have countered by saying it was not the commission's role to make determinations on such issues, and that plurality would suffer more if the status quo were to remain.

The parties also took issue with the commission chairman Mark Berry's comment that a merger would mean New Zealand would have the second highest level of print media ownership in the world, behind only China.


NZME and Fairfax said in their submission that the draft determination highlighted several key issues the Commission needed to consider carefully before reaching its final decision, which is expected in March next year.

The publishers said significant competition and plurality existed in news media beyond the parties in the form of other "traditional" news businesses such as TVNZ, MediaWorks, RNZ, and others. In addition, any barriers to entry and expansion have been lowered by distribution platforms such as Facebook and Google, they said.

"The most likely outcome in the absence of a merger is that the parties would each be forced to significantly reduce their investment in front-line journalism in the short to medium term, and this would result in a loss of plurality, particularly as these cut backs would impact 'niche' areas including regional and community reporting," they said.

"The commission has stepped outside its jurisdiction under the Commerce Act in reaching a view that despite the economic benefits of the merger outweighing the measurable economic detriments it is entitled to decline the merger on unquantifiable media plurality grounds," they said.

"Fairfax and NZME do not agree that the merger will give rise to a material reduction in plurality of voices, if any," they said.

The Commission has "grossly underestimated" the countervailing power of Facebook and formal and informal sources of news, and Facebook and Google's impact on the New Zealand media environment.

In a supporting economic paper, the companies said Google (with 42 per cent) and Facebook (19 per cent) already have the largest shares of online agency revenue in New Zealand.

NZME and Fairfax said the commission had wrongly declined to consider the competitive effects of those search engines and social media platforms.

The parties said the comparison of the merged group with China in terms of aggregation of print ownership was baseless.

"The media in China is entirely controlled and funded by the state. Facebook and Google are banned, and reporting on the government and its decisions is also banned," they said.

Given the pace of change the media is industry is facing, there is unlikely to be a "next time" for the transaction, they said.

To maintain profitability, the parties would each need to consider material cuts to frontline news functions such as reporting. The functions most at threat in this circumstance are likely to be areas that have lower general interest, such as regional and local coverage and minority issues.

"While no decisions have been made by each of the parties, it is inevitable that in the absence of a merger each of the parties would be forced to pursue this course of action," the parties said.

The Commission's preliminary view, released on November 8, was that the merger would be likely to substantially lessen competition in a number of markets, including the markets for premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions throughout New Zealand.