ComCom argues case for refusing media merger

The Commerce Commission's lawyers have begun their defence against a second appeal by NZME and Stuff over the regulator's refusal of their attempted merger. Photo / Sarah Ivey

The Commerce Commission's lawyers began their defence today against a second appeal by NZME and Stuff over the regulator's refusal of their attempted merger, arguing that an informed society was worth the $200 million price tag the media companies have put on the rejected deal.

Last May, the Commerce Commission declined to clear or authorise the merger between New Zealand's two dominant newspaper publishers, arguing it would concentrate too much media influence in one entity.

The subsequent appeal by NZME, which owns the New Zealand Herald, and Stuff, heard in the High Court in October 2017, was unsuccessful when Justice Robert Dobson and lay member Professor Martin Richardson found that the regulator was entitled to place significant weight on the loss of media plurality if the merger went ahead.

NZX-listed NZME and Stuff, the New Zealand arm of ASX-listed Fairfax Media, applied to amalgamate in 2015, arguing the merged entity would be more able to survive the global competition for local advertising dollars from online search and social media giants such as Google and Facebook.

In March, the publishers said they would renegotiate the terms of the merger if they successfully appeal, due to business changes, with Stuff having agreed to close or sell a third of its New Zealand mastheads in the elapsed time.

This afternoon, the commission's lawyer James Farmer QC defended the regulator's decision, saying its reasoning had not been plucked out of thin air but was a considered judgement following a year-long consideration.

This followed criticism from the media companies' lawyers that the commission did not quantify nor establish the likelihood of the potential downsides, including plurality, if the merger were approved.

Farmer said the potential cost savings from the merger, which the media companies have estimated to be between $133m and $209m over five years, "are cost savings that are the result of a substantial lessening in competition, which is why they didn't get a clearance in the first place. They're only regarded as a public benefit if they're not outweighed by public detriments".

"What does the loss of plurality to each one of us mean if we end up living in a country that's less informed, where there's less discussion, less debate?" Farmer said.

Justice Stephen Kós, who is president of the appeal court and is on the bench for this case, asked whether a premium should be applied to qualitative benefits which apply to all New Zealanders.

"A small boy walking down the street in Otara gains from the fact that there has been a debate in the newspaper which his parents talked about, which he then talks about to his mates," Justice Kós said, and asked whether the cost savings could be equated to $40 per head by splitting $200m over a population of roughly 5 million New Zealanders.

"Do you value proper working democracy to be worth more than $40?" Farmer asked, before backtracking somewhat to clarify that he wasn't saying the merger would result in the total destruction of democracy.

"I tried to qualify that as I was saying it - a diminution in the degree to which we have our views formed as a result of a loss of dissemination of quality news, and the flow-on impact that would have on our ability to be properly informed. What value do you put on that, is that worth more than $40?"

Farmer began making the commission's case late in the afternoon, and will continue tomorrow.

David Goddard QC, the media companies' lawyer, earlier said he had two tasks in order to get the court to authorise the merger, as he is seeking, rather than for the case to be referred back to the Commerce Commission.

He has to persuade the court that something significant went wrong in the regulator's decision-making, and he has to give the court enough information to authorise the merger itself.

Justice Kós said this was a "steep gradient" for Goddard to climb, made harder by his criticism of the material presented by the Commerce Commission and the evaluations it made.