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Fairfax slams merger decision, warns of cuts

Wednesday, 03 May 2017
By Print21

NZME headquarters in Auckland

The Commerce Commission has rejected the proposed merger between between New Zealand’s two largest newspaper networks NZME and Fairfax NZ, saying the deal would be likely to substantially lessen competition.

Fairfax slammed the decision and said it would lead to more cost cutting. “Further publishing frequency changes and consolidation of titles is an inevitability,” said CEO Greg Hywood.

In its final decision handed down this morning, the NZCC said the merger “would concentrate media ownership and influence to an unprecedented extent for a well-established modern liberal democracy.”

'A risk of causing harm to New Zealand’s democracy': Dr Mark Berry, chairman NZCC

The Commission’s preliminary view, published in November last year, was that the merger would be likely to substantially lessen competition in advertising and reader markets – specifically Sunday newspapers, online news and community newspapers in 10 regions. It also indicated that the merger would not be of such a benefit to the public that it should be allowed. Those views remain largely unchanged.

Chairman Dr. Mark Berry said the Commission recognises APN-spinoff NZME and Fairfax NZ face a challenging commercial environment as they seek to transition from their traditional print products to a sustainable online model. However, the Commission disagreed with some of the scenarios they put forward 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,” said Berry.

“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 $200 million over five years. However, these benefits do not, in our view, outweigh the detriments we consider would occur if it was to proceed.”

The merged entity would have direct control of the largest network of journalists in the country, employing more editorial staff than the next three largest mainstream media organisations combined. Its news media business would include nearly 90% of the daily newspaper circulation in New Zealand and a majority of traffic to online sources of New Zealand news. Including its radio network, the merged entity would have a monthly reach of 3.7 million New Zealanders.

'An even greater focus on cost efficiency will be necessary': Greg Hywood, CEO Fairfax

Fairfax said it was disappointed in the decision and would now take time to carefully review the details.

“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,” said Hywood.

“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.

“Our impression from the outset is the NZCC seemed to be fixed in its assumption that the relevant competitive marketplace was restricted to only traditional media. No amount of market data, comparable decisions or studies from similar markets overseas could move them from that.

“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.”

[Fairfax today announced that up to 120 journalists will be cut from the newsrooms of The Sydney Morning Herald, The Age and The Australian Financial Review in a cost-cutting drive to save $30 million.]

In a statement, Berry 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.

“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.

“In our view, the merged entity’s competitors would not be able to constrain it in any real way from making cost-cutting decisions that reduce quality and plurality. The extent of internal plurality is also discretionary on the part of the media owner and we do not regard promises to maintain current levels as a sufficient safeguard on future editorial decisions.

“While we cannot weigh in dollar terms the net benefits against the detrimental societal impacts we expect to see, in our assessment this is not a finely balanced decision. We decline to grant authorisation.”

NZME and Fairfax now have 20 working days to decide whether to file an appeal with the High Court.

 

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