KPEX was set up in November 2015 and is a quarter owned by each of Fairfax, NZME, Television New Zealand and MediaWorks as "an ad exchange to sell remnant digital advertising inventory across qualifying publishers' online and mobile websites."
The aim was to give the local media companies scale "to compete more effectively with large international players operating programmatic ad exchanges, such as Google, Facebook, and Yahoo," the application says.
"The parties compete in a crowded, converged print/digital advertising market, with a large number of other providers of advertising services," the application says.
"The merger will enable the merged business to deliver advertisers a better product at a competitive price point."They argue the merger wouldn't create competition issues because the two companies' newspapers typically sat in their own markets and for the most part didn't overlap, while NZME has radio assets and Fairfax doesn't.
A competition analysis and quantification report from NERA Economic Consulting for law firm Russell McVeagh, counsel to Fairfax and NZME notes that: "Even without considering the constraints that other offline platforms such as television might provide, it seems likely that the merged entity would continue to be subject to significant competitive pressure" including the need to offer quality content to attract audiences and advertisers, and maintain journalistic quality".
Much of NERA's financial analysis was redacted from the public version.Both Fairfax NZ and NZME have a 'digital first' strategy, which prioritises editorial and advertising content to their online services.
The application presents charts showing the decline in print advertising as the internet has taken over as consumers' first choice for content via smartphones and computers.
One chart showed US newspaper classified ad sales tumbled between about 2006 and 2009 while revenue for Craigslist surged by a similar amount.It cited a Reuters Institute report last year that concluded that the smartphone was 'the defining device for digital news with a disruptive impact on consumption, formats and business models".
APN and Fairfax announced they were in talks about a potential New Zealand merger two weeks ago. APN abandoned plans for an initial public offering of its NZME division in February and is instead proposing a demerger that would create a separate company listed on the NZX. Fairfax's New Zealand assets would be poured into that company in the event of a merger, they have said.
Shedding their New Zealand assets would allow both APN and Fairfax to participate more effectively in what is expected to be significant consolidation of Australia's media market following a looming law change across the Tasman that will relax ownership rules.
A decision is due on August 22.
