Loss of diversity through Fairfax/NZME merger would affect all NZers: Ross Patterson video

Kevin Stent/Fairfax NZ

Commerce Commission chairman Mark Berry answers question on the decision not to allow the Fairfax merger with NZME.

OPINION: Today's decision by the Commerce Commission, to decline NZME and Fairfax's application seeking clearance to merge their media operations in New Zealand, completes a process which began almost a year ago.

During this time, the commission received more than 100 submissions and expert reports, and extended its decision date multiple times.

The proposed NZME/Fairfax merger would have combined New Zealand's two largest newspaper networks and news websites (stuff and nzherald.co.nz), with close to 90 per cent of daily newspaper circulation, and the largest reach for online New Zealand news by a significant margin.

The conclusion that "this merger would concentrate media ownership and influence to an unprecedented extent for a ...
KENT BLECHYNDEN/FAIRFAX NZ

The conclusion that "this merger would concentrate media ownership and influence to an unprecedented extent for a well-established, modern liberal democracy" was pivotal, says Ross Patterson (file photo).

The commission could only grant clearance if it were satisfied that the merger would not be likely to substantially lessen competition in any market.

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The commission assessed the competitive effects of the proposed merger on two distinct but inter-related customer groups, readers and advertisers. As readership declines, a publication becomes less attractive to advertisers and advertising revenue also declines. In economics this is known as a two-sided market.

The commission's analysis focussed on whether readers and advertisers would be likely to face price increases or reductions in quality as a consequence of the merger.

The commission accepted that the applicants are operating in a challenging and rapidly changing commercial environment, and face major difficulties in monetising digital news where global giants Facebook and Google account for the majority of digital advertising revenue.  

Whilst acknowledging these challenges, the Commission took the view that NZME and Fairfax are each other's closest competitors in both advertising and New Zealand news content production.

Removing the closest competitor of each applicant would likely lead to advertising price increases on the advertiser side of the market and price increases and/or quality reductions on the reader side. Competition between the applicants leads them to produce higher quality content than would exist with the merger and removing this rivalry would harm both the quality of news and breadth of coverage provided.

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Accordingly, the commission could not be satisfied that the merger would not be likely to substantially lessen competition in reader and advertising markets for online national news, Sunday newspapers, and a number of community papers, and declined clearance.

The applicants had in the alternative sought authorisation for the merger. The commission must authorise a merger which is likely to substantially lessen competition if it is satisfied that the merger will result in a benefit to the public that it should be permitted. This requires the commission to balance the benefits and detriments of the merger.

In its decision, the commission identified reductions in corporate overhead costs (marketing IT, premises and management), and editorial and operational cost savings as benefits ranging from $40 million to $200m over five years.

However, these benefits were far outweighed by the detriment flowing from loss of  media plurality ("a diversity of viewpoints available and consumed across and within media enterprises"), which could not be quantified in a mathematical sense.

The applicants argued that the loss of plurality was not something the commission could properly take into account when balancing benefits and detriments – only economic harm within the market could be counted.

The commission rightly rejected this argument. Its conclusion, that "this merger would concentrate media ownership and influence to an unprecedented extent for a well-established, modern liberal democracy", was pivotal.

A loss of plurality would have consequences for society, affecting all New Zealanders, whether they directly consume news content or not.

 - Dr Patterson heads the MinterEllisonRuddWatts competition team, and was formerly New Zealand's Telecommunications Commissioner. He advised TVNZ in relation to the NZME/Fairfax merger.

 - Stuff

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