Why this politician and two mega-mergers won’t save journalism

Winston Peters and a slew of media executives hope the combinations of NZME and Stuff and RNZ and TVNZ will save local journalism. Bernard Hickey argues the mergers are more likely to again prove costly diversions.

Sadly, both attempts to 'save journalism' will prove costly distractions from the two main tasks: increasing public subsidies for the public good of public interest journalism and re-engineering commercial news businesses away from advertising and towards reader revenues from subscriptions and donations.

NZME and Stuff have already wasted the best part of three years trying to merge to solve their problems. Rightly, the Commerce Commission and the courts ruled this would reduce media plurality and create a monopoly. It would do so again without a Fonterra-style change in the law, which would itself waste the best part of a couple of years.

It's a tough time to be a journalist right now and I'm the last person who wants to talk down the prospects for journalism or dismiss potential rescue efforts.

Before anyone accuses me of being a self-interested naysayer who hates the mainstream media (and its saviour Winston Peters), it's worth sharing some of my history, both recent and not so recent. 

I am a journalist and the part-owner of a journalism business I think is helping solve the industry's problems, albeit in the tiniest and earliest of ways.

I've worked for 30 years in newsrooms and in the boardrooms of media companies. I've helped launch four successful online journalism businesses, including,, and this one, Newsroom NZ Ltd. I'm responsible for the subscription part of the business, Newsroom Pro (and thank you to all those who subscribed and read this first on Newsroom Pro!).

I love journalism and see every day how it can help everyone understand the world around them and hold powerful people and institutions to account. I've seen how valuable it is when it works, and the damage created when it either doesn't work or isn't there at all.

I've worked in open and free and valuable democracies such as New Zealand, Australia, Britain and America. I've worked in autocracies such as China where the truth is hard to find and the public fear their leaders more than trust them. I know why journalism really matters, and not just because asset prices are higher in democracies than dictatorships. 

I want a lot more and better journalism, not less, and now spend my days trying to sustainably hire more journalists. So I'm all in favour of any ideas that might solve a business model problem that is threatening to undermine democracies and societies all over the world. I've tried a few out myself, but sadly these two big new Government-backed plans emerging in these frantic days before Christmas are unlikely to work.

But before I detail why the mega-merger message should be challenged rather than welcomed, I want to shoot the messenger.

Suddenly, Winston loves journalism...

I couldn't help but shake my head in sadness and disbelief while watching a Youtube/RNZ livestream (from 11.01 mins) of Deputy Prime Minister Winston Peters waxing lyrical about journalism protecting and enriching our society, and how his support of a renewed attempt to merge NZME and Stuff would help local journalism survive and save journalists' jobs.

Firstly, this was The Right Honorable Winston Raymond Peters, MP, who was saying these things.

He is a politician who has repeatedly sued journalists, refused to talk to them or answer them, berated them over their questions and said as recently as three weeks ago in a video on Twitter that they should stop questioning his superior knowledge of electoral law in "fake news articles" about money given to the New Zealand First Foundation and then lent to New Zealand First in a way that allowed donations to be anonymous. The Electoral Commission is investigating after journalists from two competing outlets (RNZ's Guyon Espiner and Stuff's Matt Shand) reported on the details of these payments.

The Deputy Prime Minister would have preferred they had kept these inconvenient truths from the public, and he will be in a position of power over their bosses as soon as next Monday's cabinet meeting when he debates proposals for RNZ and TVNZ to come together in some form, and whether to support NZME's plan to merge with Stuff. 

"No more fake news," he tweeted on November 22. "If main stream media won’t do their job then we will go direct," he wrote. At least his tweets don't include Donald Trump's ALL CAPS and spelling mistakes, although my editor says 'mainstream' is one word, rather than two...

So now he wants to help the mainstream media survive?

Winston Peters' credibility and comments when it comes to furthering the interests of journalism and a free media should be taken with a bucket of salt.

Every journalist in New Zealand has been taught to be both sceptical and a little fearful of everything he says in every interaction. One of the first things my first editor at The Dominion told me in 1992 was to make sure he saw any story quoting Winston Peters before it went anywhere near a page layout to check for legal and other risks. Newsroom had existed for less than a year before Peters had attempted (and failed) to sue us for publishing details about his application for New Zealand Superannuation. See the report from Tim Murphy from February 2018 on Peters trying to use the courts to flush out the sources of those details.

Yet, now he was suddenly lauding the virtues of a free and independent press...

"As Holyoake articulated many years ago, there is a strong case to protect our media because of the role it plays in shaping our society and national identity," Peters said from speech notes from the Beehive Theatrette's pulpit. 

"A free, open and independent news media in New Zealand is an essential part of a healthy democracy. Any offshore editorial influence in any media entity should be regarded with deep concern," he said to the Press Gallery in front of him, including one he had described last month as a "psycho" for suggesting the Auditor-General look into a potential conflict of interest.

Peters said his party had been "abused" by the media in the past, but could "rise above the clamour".

"As Michelle Obama said in 2008, when they go low we go high. And if you believe in a free press then you have to do what is the right thing."

If I had any millennial-like skills in creating TikToks and snappy memes I would be playing a Tui ad over the top of that clip.

But are these mega-mergers the 'right thing'?

Peters' new-found passion for a free media is worth challenging, but so is the idea that merging four of our biggest news operations would improve the sustainability of journalism.

We've been here before and so have many other news organisations and companies in general. 

I was also taught early on as a business news journalist that academic studies had shown most mergers failed to deliver value for the shareholders of the acquirer, and that operationally they often failed because of culture clashes and the disruptions to customers and staff.

It's certainly something NZME shareholders should think about before they approve a takeover of Stuff (and that is what it would be because Stuff's value has fallen faster than NZME's since the first merger plan). 'Synergy' cost and revenue benefits are more often than not over-estimated and under-achieved. 

All those journalists and editors hopeful that the mergers of TVNZ and RNZ and NZME and Stuff might save their jobs should retain their natural wariness.

Mergers distract, delay and disrupt everyone inside and outside the business, particularly those in industries with contracting revenues and disrupted customers and technologies.

These merged businesses almost never add staff and they often lose customers. Usually they are predicated on cutting duplicated costs, especially in industries with falling revenues. Some may believe the rhetoric of executives that the only costs to be cut would be 'back office' and 'head office' costs, and that front line journalists and editors would be safe. 

The 'jaws' are down to the bone

Be sceptical should be the opening stance of any journalist. The biggest chunk of the $570 million a year in variable costs shared by NZME and Stuff are journalists, editors, producers and sub-editors. Many of those costs have already been cut back multiple times.

The 'easy' fat is long gone.

Lease costs for flash new offices (Ponsonby for Stuff and Victoria Street for NZME) can't be cut quickly. Printing plants can't be closed or wound back or sold off easily. There is only muscle left and both businesses' profit margins are being sliced hard and fast by the 'jaws' of high fixed cost bases and falling revenues.

There are very few places to hide cost reductions to offset ongoing declines in advertising and circulation revenue. Sub-editing functions have already been 'hubbed'. High-cost old-timers have already been shuffled off. For example, Stuff has already sacked its regional sports reporters and the front pages of many regional dailies are produced in one or two centres. I have regularly seen The Southland Times and The Press with exactly the same front pages.

NZME's interim accounts show profit fell to under $1 million in the six months to June 30 from $3.6 million in the same period a year ago. Print and digital advertising and circulation revenues fell more than $8 million and its costs fell $5 million. While revenues are falling this fast, NZME's only option is to cut costs even faster, hence the hunt for shared 'back office' costs to cut. It had to suspend its dividend to repay debt, which was still $101 million at June 30. More on that later.

Stuff is in a slightly different, but just as dire position. Stuff's accounts for the year to June 30 showed its net cash flow from ongoing operating activities fell to $9.4 million for the year from $25.6 million the previous year. Revenues from advertising and circulation fell more than $46 million for the year. It could only cut costs by $28 million, hence the $18 million fall in the bottom line. If Stuff's 'jaws' continued to bite this hard since June 30, it may already be in a cash-burning situation, which its Australian owners, Nine, won't tolerate for long. 

Stuff's main benefit is its accounts show it is not carrying any debt. If NZME's executives are successful in turning the latest proposal into an actual transaction, NZME shareholders should be very careful about what debt Nine might want to load into Stuff before it flicks it on to NZME shareholders. None would be the best option. 

It is debt that very quickly kills businesses like these with tough-to-cut cost bases and fast-falling revenues. Debt is the hydraulic power squeezing those 'jaws' shut. The combined business would start with at least $100 million in debt and very little easy way to cut that back, given they have almost run out of cashflow runway.

NZME and Stuff are already out of runway. They are already off the concrete and headed for the security fence at 200 kph and are showing few signs of liftoff.

Winston Peters seemed to think in his sermon from the Beehive lectern that NZME and Stuff only needed a couple of years to reshuffle things a bit and everything would be fine. His perception, no doubt fed by the NZME chairman, CEO and managing editor sitting in the front row of the press conference after visiting the Beehive in person to lobby Peters for the deal, was that the merger would solve the industry's problems because it would give it more runway.

NZME and Stuff are already out of runway. They are already off the concrete and headed for the security fence at 200 kph and are showing few signs of liftoff.

Stuff's strategy of using its unsaleable online advertising inventory to advertise its own broadband, streaming video and electricity retailing businesses has failed to take flight. NZME's Herald Premium paywall has made a good start, but it also is not growing revenues nearly fast enough to offset the falling print advertising revenues. Neither have really touched the wing and engine designs, let alone started a full rebuild needed to change the aerodynamics of the business and get liftoff.

The NZ Herald has at best given the wing flaps a paint job with its paywall, which remains confusingly swamped in Daily Mail-style click bait aimed at holding up online display advertising revenues. Stuff has only just started talking about changing from the propeller engines of online advertising to the jets of subscription revenues. See Mark Jennings' interview with Stuff CEO Sinead Boucher from last week, where she started talking publicly for the first time about moving to paywalls and donations.

'We will keep the lights on'

It's worth going deep into the spreadsheets on the StuffME combination to understand why they have run out of time and why a few nips and tucks in the back offices won't be enough, and why the reassurances about keeping regional papers open and journalists employed should be challenged. 

NZME CEO Michael Boggs said after Peters' speech and smirkathon of a press conference that the Kiwishare proposal Peters had agreed to would require the merged companies to maintain two separate websites and competing newsrooms, with a number of performance metrics and requirements around journalist numbers.

But only for two or three years, and then things could change, he said. 

"This isn't something that will go away after two or three years, unless market conditions have changed."

Boggs' problem is not the weather of market conditions. It is the climate of technology and consumer behaviour change which means readers are spending most of their time on their mobile phones playing games, watching videos and making their own TikToks. They're not reading news or paying for subscriptions in large numbers.

Advertisers know this and have discovered they can much more efficiently and effectively dump their money into the automated ad exchanges and networks controlled by Google and Facebook.

StuffME cannot credibly promise to keep publishing the likes of The Northern Advocate or Whanganui Chronicle or Southland Times or Timaru Herald each day with these sorts of sectoral rather than cyclical trends.

To get a sense of the scale of the problem for Stuff and NZME, and why two years of a few nips and tucks won't work, just have a look at the directions of newspaper advertising revenues over the last 20 years in New Zealand (my chart below from Advertising Standards Authority figures in millions of dollars) and how media usage trends globally have changed (from Mary Meeker's annual internet trends chart pack).

This chart below from US figures shows advertising spending is still well above the time spent reading newspapers (it would be even higher in New Zealand) and mobile advertising spend (which is dominated by Google/Youtube and Facebook/Instagram) is rising fast and is now in line with usage. 

So what should NZME and Stuff do instead?

All this begs the question: if a merger is not enough, then what could or should they do?

The first rubicon to cross is that the current advertising model has stopped providing a commercial subsidy (in the form of over-priced advertising costs) for a public good of public interest journalism.

Public goods are typically paid for by the taxpayer. NZME and Stuff need to straight up ask for a subsidy for journalism from the Government, which would be politically difficult even for Winston Peters, and certainly for National. Peters made a point in his Beehive chat of saying there would be no cost to the taxpayer as the Kiwishare would only cost $1.

Also, NZME and Stuff need to stop trying for the Hail Mary of a merger deal. Their last attempt cost them at least three years in wasted effort in planning and waiting for merger cost reductions. That was time not spent getting down and dirty and working out how to re-engineer their business towards digital subscriptions and away from advertising. 

The NZ Herald has only just started that process. It is a slow grind and the resulting business is much smaller. That's just a fact it will have to get used to. Trying to start with $100 million in debt is very difficult.

So what's wrong with the TVNZ/RNZ merger?

Winston Peters was less enthusiastic about the full TVNZ/RNZ merger which now seems to be on Cabinet's agenda, at least for the broad outline, for next Monday.

He is right to be cautious. They have vastly different cultures and activities. It is still undecided how they would mix and match their advertising and public interest news missions. 

And again, without extra baseline funding from the Government, the only way forward is cost reduction by reducing news production costs. That has to mean fewer journalists and less coverage. The main driver for the merger is to get extra value out of TVNZ's assets, which have also stopped paying dividends. Adding extra public funds is not being discussed.

The guts of the matter is New Zealanders pay far less for their public interest news than many others. 

The Census shows journalist numbers have dropped from more than 4100 20 years ago to closer to 2500 now, despite a 30 percent rise in the population and a near-trebling of nominal GDP. The current trajectory will see numbers fall to below 1000 within a decade. That's largely because of the removal of the commercial subsidy for the public good of public interest journalism.

New Zealanders currently pay less than $10 per person per year in subsidies for the public interest journalism produced by RNZ. It will receive $46 million next year, including around $30 million for hard news, with the rest for Concert FM and other music. That’s the second-lowest public subsidy for public journalism in the world, as this Canadian public broadcasting inquiry chart shows. America has the lowest subsidy at less than $3 per person. Subsidies in Britain and Australia are at least five times higher than New Zealand’s.

The Government appears unlikely to act to lift that subsidy any time soon, and corporates and wealthy individuals have yet to step up to fill the gap.

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