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Commission declines NZME/Fairfax merger

3 May 2017

The Commerce Commission has today released its final decision declining authorisation for NZME and Fairfax to merge their media operations in New Zealand.

The merger proposed to bring New Zealand’s two largest newspaper networks and corresponding online news sites under common ownership.

The Commission’s preliminary view, published in November last year, was that the merger would be likely to substantially lessen competition in advertising and reader markets – specifically Sunday newspapers, online news and community newspapers in 10 regions. It also indicated that the merger would not be of such a benefit to the public that it should be allowed. Those views remain largely unchanged.

Chairman Dr Mark Berry said the Commission recognises NZME and Fairfax face a challenging commercial environment as they seek to transition from their traditional print products to a sustainable online model. However, the Commission disagreed with some of the scenarios they put forward about their respective futures without the merger.

“Following our draft determination the applicants significantly altered their submission on what the state of the market would look like without the merger. The details of those submissions are confidential; however, we do not consider the scenarios presented to be likely outcomes. In our view, without the merger NZME and Fairfax will be increasingly focused on their online businesses as their print products diminish in number and comprehensiveness over time,” Dr Berry said.

“We accept there is a real chance the merger could extend the lifespan of some newspapers and lead to significant cost savings anywhere between $40 million to around $200 million over five years. However these benefits do not, in our view, outweigh the detriments we consider would occur if it was to proceed.”

The merged entity would have direct control of the largest network of journalists in the country, employing more editorial staff than the next three largest mainstream media organisations combined. Its news media business would include nearly 90% of the daily newspaper circulation in New Zealand and a majority of traffic to online sources of New Zealand news. Including its radio network, the merged entity would have a monthly reach of 3.7 million New Zealanders.

“This merger would concentrate media ownership and influence to an unprecedented extent for a well-established modern liberal democracy.  The news audience reach that the applicants have provide the merged entity with the scope to control a large share of the news consumed by a majority of New Zealanders. This level of influence over the news and political agenda by a single media organisation creates a risk of causing harm to New Zealand’s democracy and to the New Zealand public,” Dr Berry said.

“Having reviewed all the evidence, our primary concerns remain that this merger would be likely to reduce both the quality of news produced and the diversity of voices (plurality) available for New Zealanders to consume. Competition between NZME and Fairfax leads them to produce higher quality content than would otherwise exist with the merger. This competition incentivises investment in editorial resources, motivates journalists and editors in their day-to-day work and acts as a safeguard to plurality.

“In our view, the merged entity’s competitors would not be able to constrain it in any real way from making cost-cutting decisions that reduce quality and plurality. The extent of internal plurality is also discretionary on the part of the media owner and we do not regard promises to maintain current levels as a sufficient safeguard on future editorial decisions.

“While we cannot weigh in dollar terms the net benefits against the detrimental societal impacts we expect to see, in our assessment this is not a finely balanced decision. We decline to grant authorisation.”

A copy of the Commission’s final decision will be available on its website shortly.

Background

On 27 May 2016 Fairfax and NZME sought authorisation to merge their respective New Zealand operations. Authorisation applications follow a two-step process under the Commerce Act. The Commission must first assess whether the merger would be likely to substantially lessen competition in a market.

We assess whether a merger is likely to substantially lessen competition in a market by comparing the likely state of competition if the merger proceeds, with the likely state of competition if it does not. If we are satisfied that the merger is not likely to substantially lessen competition, then we would clear the merger at the first step.

If we cannot give clearance due to competition concerns, the second step is to determine whether the merger should be authorised applying the public benefit test. The public benefit test involves a balancing of the public benefits and detriments that would, or would be likely to, result from the merger. We must authorise a merger if we are satisfied that the merger will result in such a benefit to the public that it should be permitted.

The Commission can only accept structural undertakings, such as the divestment of assets, from parties to resolve competition concerns in a market. We cannot accept behavioural undertakings – where the parties agree they would or would not make specific business decisions post-merger in order to gain approval.

Our Authorisation Guidelines provide further detail on the process we use to determine authorisation applications.

On 8 November 2016 the Commission issued a Draft Determination signalling our preliminary view that the proposed merger would be likely to substantially lessen competition in advertising and news media markets of interest, and that the merger should not therefore be cleared. We also indicated that there was not likely to be sufficient benefit from the merger such that we should authorise the transaction, taking into account the likely detriments to the public that we identified.

Following the release of the Draft Determination we sought and considered the opinions of the applicants, experts and the public, including at a public Conference convened to hear submissions held on 6 and 7 December 2016. Extensive submissions were subsequently received and considered, along with additional and updating evidence.

Following the release of the final decision today, the applicants now have 20 working days to decide whether to file an appeal with the High Court.