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Public dodges a bullet from StuffMe

Twenty eight months, three jurisdictions and millions of dollars after our two biggest media companies applied to merge their businesses, the plan remains in the morgue, dead but unburied.

The Court of Appeal judgment rejecting the proposed merger between NZME and Stuff confirms money isn't everything when it comes to journalism, news and the public good. 

Lawyers for the StuffMe combo, who had lost resoundingly before the Commerce Commission and High Court where their plan was seen as detrimental to democracy and the public good, essentially told the appeal court the competition regulator had no authority assessing anything other than business efficiencies. 

It could not be "the regulator of everything" and hundreds of millions of dollars in potential savings to the companies ought to carry the day.

However the Court of Appeal explicitly disagreed. "Efficiency is a mandatory consideration," it said of the Commerce Commission's duties when assessing such an application, "but others are not excluded....Efficiency matters but it does not exhaust society's interest in the transaction."

It found the Commerce Act treats "efficiency as a subset of public benefit."

And, in the StuffMe case, the loss of public benefits of quality journalism and plurality of media voices overwhelmed the millions Stuff and NZME hoped to bank by merging operations.

Stuff and NZME between them own 90 percent of the country's newspapers, its two biggest news websites, all three Sunday papers and about half the commercial radio market.

The Commerce Commission declined to authorise the merger, worried about the effects on the public. It raised doubts over the companies' claims some of their savings would be reinvested in quality journalism, publicly suspecting their boards might take the money for other business priorities.

This latest judgment revealed for the first time the companies expected to make some of those savings by reducing editorial staff numbers by "some 13 percent" - around 140 based on the size of the combined newsrooms when the merger was first mooted.

But the Court of Appeal said that was a "seemingly modest" number and the Commerce Commission believed the higher end of a report the companies commissioned from consultants PwC, which had the newsroom cut at between 15 to 20 percent.  [At the top of that range that would have been around 210 journalists laid off or not replaced]. The Commission thought "even this figure is under-inclusive because some editorial staff were categorised differently."

"Counsel treated journalists' time, and hence journalist numbers, as a rough proxy for quality in news," the court said.

It rejected the companies' claim journalism cuts would be constrained by their customers' response if quality went down.

Stuff and NZME argued cuts would primarily affect "arcane topics and a modest reduction in the number of perspectives offered on topics of secondary public interest."

The Court of Appeal backed the High Court and Commerce Commission's concern that the loss of quality journalism would be great as two big competitors became one. 

"In our opinion.... the merged entity will have a powerful incentive to save costs by shedding journalists and editorial staff, with a corresponding impact on quality.

"We think the reductions would likely exceed those estimated by the appellants in argument before us, with a correspondingly substantial effect on quality.

"It is difficult to gauge but we think that staff reductions at the upper end of the PwC range would cause quality effects of a substantial magnitude."

That was its finding on quality. In itself, the Court of Appeal said quality detriments would have been sufficient to outweigh the deal's benefits.

The other major strand before it was 'plurality' or the number or range of voices in the media.

"The transaction would reduce to four the number of major news providers, and the merged entity would employ many more journalists and editorial staff than TVNZ, MediaWorks and RNZ combined," the court said.

Although the Court of Appeal disagreed with the High Court on one matter - that the remote chance one owner could advance their own political interests via StuffMe could be considered in ruling on the merger - it did say:

"Even if its owners are politically agnostic, the merged firm is more likely to follow a uniform approach in its various publications."

The court said: "We also agree with the High Court that the loss of plurality attributable to the transaction would very likely be irreparable."

Its verdict on StuffMe was no close thing.

"In the result, we find that detriments clearly outweigh benefits, and not by a small margin. It follows that authorisation was properly declined."

(Interestingly, the Court of Appeal actually increases the value of detriments settled on by the High Court by overturning its view that a combined StuffMe would not have introduced a paywall, involving charging for some or all of its journalism.)

The two companies have 20 working days to decide if they seek leave to appeal to the Supreme Court "on points of public importance."

So far, counting both the preliminary and final Commerce Commission findings, they are 4 and zero in convincing others of the merits of their case.

The list of luminaries who have been unpersuaded is:

Commerce Commission:

Dr Mark Berry, antitrust specialist

Sue Begg, economist

Elisabeth Welson, commercial lawyer

Graham Crombie, accountant

High Court:

Justice Robert Dobson

Martin Richardson, Professor of Economics

Court of Appeal:

Justice Stephen Kos (President)

Justice Forrie Miller

Justice Raynor Asher

Stuff and NZME's case was taken to the courts by David Goddard QC, aided by its original arguer Sarah Keene, a partner from Russell McVeagh. Jim Farmer and James Every-Palmer were the two Queens Counsel for the Commerce Commission.

It is unclear if at any point in this long saga the two companies' boards or executives sought other legal advice as to whether to continue the case in the face of emphatic losses. 

Will they do so now and walk away - or will those hundreds of millions in savings and hundreds of journalism job cuts be back on the table before the Supreme Court?

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