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StuffMe’s last gasp

A 17-month bid by two of the country's biggest media companies to merge into one giant news provider reaches its final desperate hurdle today in the High Court at Wellington.

Fairfax NZ (now called Stuff) and NZME - owners of the two biggest news websites, the New Zealand Herald, all three Sunday papers, almost all metro and regional newspapers and scores of community titles, plus NewstalkZB and half the commercial radio market - were turned down unanimously by members of the Commerce Commission in May.

The companies said the financial crisis in the media industry caused by people and advertisers moving away from print and traditional media to digital products, social media and their own direct channels meant the pair needed to merge to cut costs and help keep NZ journalism alive.

They say global giants Facebook and Google are hoovering up most of the digital advertising spend here and across the world and Stuff and NZME need a relaxed view taken of competition law to give them 'runway' to change their business models sufficiently to survive.

After the Commerce Commission said the detriments of the merger would outweigh any economic benefits, the two companies said it was wrong, had put too much weight on social concerns such as diversity of media and plurality of voices and not enough on what would happen in the industry if a merger was not approved.

Commissioners wondered at the companies' claims that savings by cutting post merger would be reinvested in journalism, instead speculating that boards might be tempted to use savings to pay shareholders dividends.

Stuff reported in May that their appeal is based on the Commission having defined the markets StuffMe would operate in too narrowly and failed to take into account competition it would face from small local and large overseas online competitors.

The companies claim the Commission also underplayed the competition that would be provided by TVNZ, MediaWorks and RNZ.

The Commission decision was thorough, took care to anticipate any legal challenge, and was definitive that the outcome under a merger would be worse for media consumers than if the two businesses had to continue operating separately. 

It said a loss of competition between them was likely "to lead to significantly greater rationalisation" than no merger. Commissioners wondered at the companies' claims that savings by cutting post merger would be reinvested in journalism, instead speculating that boards might be tempted to use savings to pay shareholders dividends.

The Commission estimated a joint StuffMe operation would control a network of journalists three times the size of the next biggest mainstream news provider.

Newsroom's analysis of the decision is here.

Since the first plans for the merger were announced in May last year much has changed - and not only the name of one of the businesses as Fairfax Australia, which owns the local unit, changed the New Zealand operation to the name of its big website Stuff.co.nz. Its chief executive when the merger was planned, Simon Tong, left for ASB Bank and has recently been replaced by former editorial chief Sinead Boucher.

Two Stuff newspapers, the Marlborough Express and the Nelson Mail, went through consultations with their readers on the path to reducing publication from daily to three times a week. Some in the newspaper industry now predict the South Island could end up with just two daily papers, The Press in Christchurch and the independent Otago Daily Times in Dunedin, irrespective of the merger appeal.

In both companies staff have been operating on the basis that a merger will not succeed and have pressed on with plans in a status quo world. Word from the Stuff camp is the falling revenues and high costs mean further staffing cuts across the company, possibly as high as 10 percent or towards 200, are already being mooted.

The companies will certainly be able to provide evidence to the High Court of the pace of change and challenge in their businesses.

Certainly Fairfax Australia's chief executive Greg Hywood has left staff and the Commerce Commission in no doubt that without merger approval Stuff moves into its end game, with major changes needed.

Last month, Fairfax Media reported its NZ revenues had fallen 7 percent in the new financial year which started in June. As well as the website, Stuff owns the Dominion Post, the Press and the Sunday Star-Times.

NZME reported its Herald and regional stable of print publications dropped revenues by a further 4 percent in the past financial year - surprisingly slightly less than the 6 percent fall by its radio and experiential businesses. 

The companies will certainly be able to provide evidence to the High Court of the pace of change and challenge in their businesses. They were allowed to update their financial positions at early August this year, despite objections by the Commission which felt it would need to re-analyse considerable data before the hearing beginning today.

For example, since the merger plan was announced, sales of the New Zealand Herald have fallen from 128,427 on average a day in the year to March 2016 to now sit at 118,645 average daily to this March. That is almost 10,000 fewer Heralds circulating a day, a drop in one year of nearly 8 percent.

Even the companies' big website audience numbers - which had grown exponentially for years and were seen as the answer to commercial success - are down on a year ago. Stuff.co.nz had a unique monthly 'brand' audience of 2.02 million, measured by Nielsen, in August 2016. This August that figure had fallen to 1.987 million For nzherald.co.nz, it was at 1.93 million and a year on it stood at 1.83 million after having nudged 2 million before a dramatic redesign in June which seems to have tested readers' tolerance for change.

(September figures for online audiences, released today, show both sites soaring again to 2.2 million for Stuff and just over 2 million for nzherald.co.nz, alongside growth in almost all other news sites - but those figures have been stimulated by peak interest in the general election so are not direct comparisons with a year ago).

NZME's chairman Sir John Anderson wrote in the company's annual report  before the Commission's rejection that the merger was a priority for the business. "The transaction, if approved will underwrite the competitiveness of NZ content generation and delivery."

The High Court hearing is set for 10 days.

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