Commerce Commission announces decision on NZME-Fairfax merger

Posted by nzherald.co.nz on Tuesday, 2 May 2017

The Commerce Commission won't allow media companies NZME and Fairfax to merge.

The deal was rejected in a final ruling by the regulator this morning after being knocked back in a draft decision last year.

A disappointed NZME CEO Michael Boggs said the merger had been an exciting prospect for both businesses and their audiences.

"We will be carefully reviewing the NZCC's full written decision and over the next few weeks we will be considering our options."

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He said NZME's strategic focus continued in six key areas: growing audience reach, retaining print revenue, returning radio revenue to growth, growing new revenue streams, ensuring effective cost management and developing people and talent.

"We have progressed a number of initiatives aligned with these priorities including implementation of the Washington Post Arc content management system, launch of the Salesforce singular CRM system, progressing the redesigned nzherald.co.nz site, and the nationwide launch of the new The Hits radio breakfast shows."

The parties have 20 working days to decided whether to lodge an appeal.

NZME owns the NZ Herald, Herald on Sunday, nzherald.co.nz website, a range of regional newspapers, Newstalk ZB and entertainment radio stations, while Fairfax owns stuff.co.nz, the Sunday Star-Times and other metropolitan and regional newspapers.

The commission, in its draft decision, said the merger would be likely to substantially lessen competition - specifically in Sunday newspapers, online news and community newspapers in 10 regions.

It also believed, at the time, that it wasn't of enough public benefit that it should be allowed. The commission said this morning that those views remain unchanged.

Commission chairman Mark Berry said the regulator recognised that NZME and Fairfax face a "challenging commercial environment".

But the regulator disagreed with some of the scenarios put forward by NZME and Fairfax about their respective futures without the merger.

"Following our draft determination the applicants significantly altered their submission on what the state of the market would look like without the merger. The details of those submissions are confidential; however, we do not consider the scenarios presented to be likely outcomes. In our view, without the merger NZME and Fairfax will be increasingly focused on their online businesses as their print products diminish in number and comprehensiveness over time," Berry said in a statement this morning

"We accept there is a real chance the merger could extend the lifespan of some newspapers and lead to significant cost savings anywhere between $40 million to around $200m over five years. However these benefits do not, in our view, outweigh the detriments we consider would occur if it was to proceed."

The commission said that the merged company would have control of the biggest network of journalists in the country, 90 per cent of the daily newspaper circulation in this country and a majority of traffic to online sources of New Zealand news.

The merged business would reach 3.7 million New Zealanders each month, the commission said.

"This merger would concentrate media ownership and influence to an unprecedented extent for a well-established modern liberal democracy. The news audience reach that the applicants have provide the merged entity with the scope to control a large share of the news consumed by a majority of New Zealanders. This level of influence over the news and political agenda by a single media organisation creates a risk of causing harm to New Zealand's democracy and to the New Zealand public," Berry said.

"Having reviewed all the evidence, our primary concerns remain that this merger would be likely to reduce both the quality of news produced and the diversity of voices (plurality) available for New Zealanders to consume. Competition between NZME and Fairfax leads them to produce higher quality content than would otherwise exist with the merger. This competition incentivises investment in editorial resources, motivates journalists and editors in their day-to-day work and acts as a safeguard to plurality," Berry said.

The commission's final decision comes almost a year after the two companies applied for authorisation.

The companies wanted to merge as traditional revenues decline so they could better stand up to the likes of Google and Facebook, which are taking an ever increasing share of the online advertising market.

After the regulator's draft decision last year, the commission hosted a conference where Fairfax chief executive Greg Hywood argued that if the merger was disallowed, it would "become end game" for Fairfax NZ's media assets

NZME shares closed yesterday at 89c, down 2c.

NZME, as of last year, had roughly 1800 fulltime staff while Fairfax had 1500.

NZME made a net profit for the year to December 31, 2016 of $74.5m and a trading ebitda (earnings before interest, tax, depreciation and amortisation) of $71m. Revenue was $407m.

Fairfax's New Zealand media division for the year to June 30, 2016 made ebitda of $60.2m and revenue of $352m. Fairfax New Zealand is a division of Fairfax Australia which means a net profit is not reported for the New Zealand part of the business.