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."

Fairfax Media chief executive Greg Hywood said: "We are disappointed by this decision and will now take the time to carefully review the NZCC's reasons for the decision. 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. We believe that the NZCC has failed New Zealand in blocking two local media companies from gaining the scale and resources necessary to aggressively compete now and into the future," he said.

"In light of the NZCC 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. Further publishing frequency changes and
consolidation of titles is an inevitability," Hywood said.

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.

E Tu Union has welcomed the decision by the commission, which it said recognised there were more than just commercial interests at stake.

Senior Industrial Officer for the union Paul Tolich said any concentration of the media industry would likely lead to a decline in diversity, the quality of news gathering and the reporting of opinions.

"The Commission has cited these factors in its decision which is a real turning point in the Commission's approach to commercial decision-making," Tolich said.
"Formerly the driver has been pure market forces. However, this decision recognises there are other values to consider in relation to this merger."

Tolich said the decision acknowledged monopolies were unacceptable in the media because of its role in democracy. He said it recognised the role of competition among media in promoting news quality and diversity.

"We congratulate the Commission on carefully considering the balance of interests related to ensuring a healthy news media as well as a healthy democracy."

Tolich said he expected the decision would spur a realigning of media ownership in New Zealand particularly within the print and radio sectors.

Coalition for Better Broadcasting chairman Peter Thompson said it was the right decision.

"I know that Fairfax and NZME are going to be very disappointed, however, I think it would have created an unprecedented level of editorial power and media concentration in our news sector. That was deeply problematic for civil society and democracy."

However, he added that the issues in the print media industry that the merger had sought to remedy still needed to be addressed, and urgently.

"We still now have a major public policy problem and that is how to sustain the news media and in particular the print sector given the current situation in respective to the loss of online advertising to operators like Google and Facebook.

"I think we need to very, very urgently look at ways in which we can support the news media sector and the print media sector in particular. That's an issue that Government have here to for been unwilling to contemplate and I think they have to grasp that nettle and say that we need to look at the regulatory framework for our media here."

AUT media ownership expert Merja Myllylahti said there was no winner in this decision.

"The merger would not have been a salvation for the companies. There was no guarantees that this merger would have solved their fundamental revenue problems.

"The decision is in the public interest as no one single company controls most of the online and print news in New Zealand. However, there will be negative consequences including job cuts, potential closure(s) of businesses and recycling of content. We may see rapidly emerging news deserts in regions."

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's 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.