StuffMe merger result through a crystal ball

The final decision on the StuffMe media merger will be delivered by the Commerce Commission next week. Newsroom editors Mark Jennings and Tim Murphy join Newsroom Pro editor Bernard Hickey in making their predictions

Mark Jennings: Little choice but to say yes

Like most journalists in this country, I don’t want the proposed merger of Fairfax and NZME to go ahead. Not just because of the inevitable job losses it will cause, but because it would take away a big part of journalism’s lifeblood: competition.

Without competition, news organisations and journalists are not driven in the quite the same way. There is less urgency, less reward for going the extra mile.

Without a competitive media, democracy suffers and the country is poorer for it.

However, I have a feeling the merger will get Commerce Commission approval and go ahead.

Fairfax and NZME have gone to tremendous lengths to convince the Commission that they will die if it sticks with the original decision to turn down their application.

The managements of our two biggest news organisations can see a fight to the death looming. Newspapers are in serious decline but digital (mainly the Stuff and websites) make up just 12 percent of their revenue.

Facebook, it is claimed, takes 80 cents out of $1 of new digital advertising.

Potentially, just one company will survive in the long term and that would probably be NZME because of its profitable radio arm.

The two parties have told the Commission that the “fourth estate” will benefit from a sustainable entity invested in journalism and print with incentives to keep journalists in the regions.

The Commission in its draft decision placed a lot of emphasis on non-economic factors like the impact a merger would have on media plurality (diversity of views) saying the loss of plurality is likely to be significant and potentially irreplaceable.

And this is where the lawyers come in.

Lawyers for NZME and Fairfax argue that Commerce Act compels the Commission to “focus on economic efficiency and disregard the broader goals that are not within the scope of the Act.”

They say that case law (previous cases decided by the courts) makes it clear that the Commission is not permitted to stand back and overlay social judgement on the authorisation framework. Media concerns, more broadly, are outside the scope of the Act.

There is no question that there will be major efficiency gains for the new entity if the two companies are permitted to merge.

There will be no need for two highly-paid CEOs or CFOs. The efficiencies to be had in the backrooms and IT departments will have the analysts salivating.

The parties illustrated their point with an example of a story called “Digger hits bridge”.

It provided the Commission with copies how the country’s five major news organisations covered a digger hitting an Auckland motorway bridge in May 2016. The story was reported in almost identical fashion.

Fairfax and NZME made the point that by reducing duplication they would be enhancing efficiency while there would be no loss of plurality.

There seems more than a good chance that if the merger proposal is turned down, the case will end up in court.

The Commission’s legal advisors will have thought long and hard about this. The Commission is right in its view that competition, diversity of views and democracy will all be seriously impacted by a merger, but the nature of the current Commerce Act might mean it has little choice but to allow it after all.

* Mark Jennings was previously head of news and current affairs at MediaWorks.

Tim Murphy: When no means no

The Commerce Commission is unlikely to have an out-of-body-experience next week and overturn its rejection of the StuffMe merger.

Sure, it has delayed, delayed and delayed again giving its final 'No', but in all likelihood it has done so to neutralise a badgering, obdurate legal team working on behalf of Fairfax NZ and NZME. 

It will have been exasperated by repeated, late, subtly different lectures from the StuffMe lawyers, with the obligatory economic analysis from a hired gun.  The applicants even sought in vain to 'out' the author of an anonymous submission which questioned their ongoing arguments.

The Commission suggested, none-too-subtly, that the flow of long-winded polemics cease so it could assess the arguments and the evidence once and for all.

Since the StuffMe lawyers' last efforts at the end of February, the Commission bought extra time to cross its 't's and dot its 'i's - re-setting the final determination date to next Tuesday, May 2, at the latest.  It will be keen to avoid grounds for subsequent legal challenge.  So its staff and the four commission members will have gone through the motions and considered if the sky really is green.

Some interpret the Commission's delay as signalling doubt about its draft determination - which at its core said two things:

- there was a New Zealand online news market, with Facebook and Google not really creating news in that market, and 

-  the two biggest media companies in the country, with the two biggest news websites - would dominate online news without sufficient constraint.  

The Commission cannot require the applicants to 'behave' in any way once approval is given, so there is no way StuffMe could be required, say, to continue to cover regional markets, or keep certain newspapers or newsrooms open or invest in quality journalism.

Fairfax and NZME had argued that without being able to merge they would not have sufficient scale to counter the global platforms. They would run out of runway in their change from print publishers to online content providers as revenues are sucked up by the majors.

But the draft determination was so definitive, so comprehensively unsympathetic to the StuffMe arguments, that it would make a mockery of the regulatory process for the same four commission members to cart-wheel themselves to an approval six months on. 

The major argument from the StuffMe advocates is Facebook and Google are so dominant in people's lives that Fairfax, NZME, and could never dominate a news market.  

As well, the domestic broadcasters Radio New Zealand, TVNZ and MediaWorks are growing rapidly as competitors and possess the holy grail of quality video capability - which is where online growth and big audiences via Facebook exist.

Their current numbers may be modest - Stuff and the Herald have audiences of about 2 million unique viewers a month while MediaWorks (combining Newshub with music radio stations) has about a million, TVNZ about 800,000 and RNZ 428,000. But to listen to Fairfax and NZME, these and other niche players will provide constraint and competition. 

As Fairfax and NZME talk themselves down and the broadcasters' potential and Facebook's threat up, the broadcasters have told the Commission they do not see their digital news offerings being able to compete agains the StuffMe giant.

Print-digital news companies like Fairfax and NZME face fearfully challenged revenue lines as advertisers exit newspapers - and turn away, even, from advertising on general news websites -  as readers simultaneously give up paying for newsprint in favour of free digital fare.

The journalism market is not going to get any easier, with The Guardian (Australia) lately seeking philanthropic financiers here to setup a New Zealand staff and news menu and The Conversation, an Australian-based journalism and academic site, also about to launch a Kiwi version.

The Commission is unlikely to help Fairfax and NZME meet those challenges, however, by creating an anti-competitive monolith: A giant combo which seeks to counter a search engine, Google, and a social media platform, Facebook, but offers neither search nor social solutions for the consumer.

* Tim Murphy was previously editor-in-chief of the NZME-owned New Zealand Herald.

Bernard Hickey: The ruling won't matter

After almost a year of intense and welcome debate over the future of New Zealand’s media landscape, the Commerce Commission’s final final decision on the NZME-Fairfax merger application on May 2 is shaping up as a kind of D-Day for the news industry, where we’ll learn of its survival or destruction. Or is it?

Opponents of the merger argued against the creation of a monopoly with more than 90 percent of the nation’s newspapers as an anti-competitive move that could damage the fourth estate’s role in an open and contested democracy. They warned it would concentrate power in the hands fewer editors and further reduce the number of journalists on the ground covering the nuts and bolts of public life in council meetings, Parliament and the courts.

That’s all true. A merger would weaken the fourth estate in New Zealand, but saying no to the merger won’t change that. A ‘yes’ decision to the merger would actually slow that weakening, but only marginally, and not in any long term sense. A ‘no’ decision would actually speed it up slightly because both groups would be forced to cut journalists faster and more aggressively to arrest their sharp falls in profitability. Those cuts could be further accelerated under possible new private equity ownership, which would have less transparency or commitment to the public good aspect of the fourth estate.

Proponents for the merger argued it was the best way to find cost savings that would buy time for Fairfax NZ and NZME to come up with a new business model to compete with the likes of Google and Facebook for advertising. It is true that Google and Facebook and other platforms such as Trade Me and Amazon are hoovering up most of the advertising spending that is now shifting online, and they won almost all of the growth in that online advertising spending in the last year. These online-only firms are doing that without producing a skerrick of news because the link between news production and advertising spending has been shattered.

It seems to make perfect sense for NZME to Fairfax NZ to team up to take on the goliaths of the online world. They have essentially argued that the news and advertising businesses are the same business and that this combined business is now truly global and hyper-competitive. After all, they argued: ‘how could we create a monopoly for news and advertising when almost all New Zealanders have a world of new choice in the phones in their hands and advertisers large and small can reach their customers via Facebook and Google?’

That is also mostly true. There is plenty of free news available online globally and, to a lesser extent nationally. Advertisers also have plenty of choice both locally and nationally, and at increasingly low prices. The biggest national banking advertisers and the smallest local plumber can reach their target audiences easily through Facebook and Google. The missing part of this argument is local news, which is mostly provided by NZME and Fairfax newspapers and paid for by local subscribers and advertisers. But the Commerce Commission could accommodate for that by forcing NZME and Fairfax to sell their newspapers in smaller towns and cities, which would probably be acceptable to them because they’ve been either winding them down (the Marlborough Express) or selling them anyway (the Wairarapa Times-Age).

But the trouble with the arguments on both sides of the debate is that they’re irrelevant.

Saying ‘no’ to the merger on the grounds it would reduce plurality would be a wasted effort with the current views of the major players. Their revenues and profits and staffing levels would keep falling and sources of real news (as opposed to the fake versions) would become even less diverse. That’s because both NZME and Fairfax New Zealand have insisted they would continue to give away all their news on their websites in the hope they can make enough money from online advertising to pay for it. The current leadership teams of both companies have said they would not put paywalls on either Stuff or NZ Herald, regardless of whether or not the merger is approved.

Their collective view is that they have to keep their websites open and free to all and keep barreling on down the route of hoping that someone will come with a model that makes advertising pay for the news. That means creating websites with big audiences and broad appeal, which they have both now successfully done. This view has now ossified into a kind of groupthink that is barely challenged any more within the companies.

The trouble is the facts of the advertising industry keep getting in the way. They have built the broad audiences, but the advertising has not come. In fact, it’s actually going away. NZME and Fairfax said in their last submission to the Commission that spending on display advertising online, which is the revenue that Stuff and rely on, actually fell three percent in the December quarter of 2016 from the same quarter a year ago.

“It is accepted in the industry, based on both New Zealand and overseas developments, that the current growth in digital revenues is not sustainable, and is likely to slow significantly in the coming years – in particular for publishing-based businesses such as NZME and Fairfax NZ (as opposed to for Google/Facebook who together are taking 80 percent plus of new advertising expenditure),” NZME and Fairfax wrote.

So why are they still ploughing ahead with their strategy of running big, broad websites that are funded by online display advertising?

Almost every other large newspaper-based publisher in the world decided several years ago to abandon display advertising on free sites as a strategy and focus on other revenue sources, including corporate sponsorship and revenues from subscribers and supporters. Other news firms overseas have focused all their efforts on building strong and direct connections with those paying subscribers, supporters and corporate sponsors, rather than punting on online advertising or peripheral businesses such as e-commerce.

While the leaderships of NZME and Fairfax pursue this groupthink about ad-funded news, a ‘yes’ or ‘no’ decision won’t make much difference to their trajectories for revenues and journalist headcount in the long run. However, there are two wild cards to this view.

If a ‘no’ decision triggers the sale of one or both of them to new private equity owners, they could change the leadership teams and break the groupthink about online advertising paying for news. That could force one or both to focus on building paywalls and protecting their print subscribers and advertisers. That could arrest the decline in both print advertising and subscription revenues.

Secondly, a ‘yes’ decision that forces Fairfax NZ and NZME to sell its Sunday newspapers and its regional newspapers could create more diversity and allow for individual owners to also break out of the groupthink and arrest the revenue declines. The best recent example of that is the Wairarapa Times-Age, which was sold last year to a local publisher, Andrew Denholm. He has since revived advertising sales and employed extra journalists to write for the newspaper, rather than a freely-available website.

* Bernard Hickey has previously written for Fairfax and NZME publications.

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