Getting government support for a merger between news publishers NZME and Stuff "will not be easy," but investment house Jarden says it can "see an argument" for intervention to allow a deal that both the Commerce Commission and the courts have so far rejected.
And if turned down, Jarden believes NZME's fundamentally stronger commercial position than Stuff's will still work to the advantage of the Auckland-based publisher of the New Zealand Herald and numerous other print and online news titles, and a string of profitable radio stations.
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Stuff reported this week that NZME approached the government with a 'kiwishare' proposal that it presumed would see it guarantee certain minimum standards of journalistic coverage and diversity of coverage and opinion, although details have yet to emerge. NZME confirmed in a statement to the NZX that it was in talks with Stuff's new owner, Australian media group Nine Entertainment, and the government on a possible purchase of the Stuff assets. Nine failed to sell the New Zealand unit earlier this year.
In return for such commitments, the government would support a merger that the competition regulator rejected on the grounds that allowing the country's two largest news publishers to become a single entity would not be in news consumers' interests - a decision upheld in both the High Court and Court of Appeal before NZME and Stuff dropped the merger proposal last year. Communications Minister and former television journalist Kris Faafoi has avoided comment on the proposal.
"We can see an argument involving the increasingly unsustainable position for Stuff and some of its key metro titles," say Jarden research analysts Arie Dekker and Grant Lowe in a note to clients.
There are "natural incentives for the combined business to continue to invest in content that drives audience ... to positively leverage a nearly $600 million combined cost base and make savings where duplication doesn't deliver value."
NZME has long dominated the Auckland daily news market through the Herald, but Stuff is dominant in other major centres as publisher of Wellington's Dominion Post, Hamilton's Waikato Times and Christchurch's The Press, among other titles. The Stuff and Herald websites are together the country's most trafficked websites.
However, Jarden warns any kiwishare commitments on local presence and plurality of media voices would also have to give the merged business "sufficient flexibility to achieve savings."
"How much range is required to cover national sport, for example? Would localised versions of a national daily ultimately matter versus no print offering?"
Jarden suggests the government may find the NZME approach compelling because of the wider fragility of the traditional New Zealand media, with TV3's future also uncertain as its owners examine again whether the loss-making free-to-air broadcaster has a future.
"The government may place weight on the broader media landscape where the combined print entity will still face viable local competitive alternatives in commercial radio; public broadcasting across radio and TV; and online."
The NZME proposal coincides with leaks suggesting the government is also considering a major shake-up of state-owned broadcasting assets, which could see non-commercial Radio New Zealand merged with TVNZ, which is largely commercially funded, and backed by a refocused version of the public broadcasting funder, NZ on Air, whose remit might extend to public interest journalism in future.
NZME shares closed yesterday at 43 cents apiece and have fallen 17.3 per cent in the last year, although the share price has bounced back since hitting a historic low point of 38 cents on Nov. 6.