ComCom should carve out papers from NZME merger - Horton Media

The commission has said it will look at whether there are separate digital and print media markets, and whether there's much overlap in online advertising. Photo / NZ Herald

Horton Media, the printing group set up by the family that founded the New Zealand Herald, has urged the Commerce Commission to order the carving out of either Fairfax Media's Auckland suburban newspapers or NZME's flagship NZ Herald if it lets a proposed merger go ahead.

In a submission on the proposed tie-up of the country's dominant publishers, Horton Media chief executive Matthew Horton says the deal should be rejected as proposed because it will cut competition in print advertising, especially in Auckland.

• Read all of the Commerce Commission submissions here.

Horton said the applicants have "exaggerated" the diminishing influence of newspapers, which generate much of the content for their news websites and still dominate advertising revenue.

Auckland-based Horton Media said there is strong competition among printed media titles in the country's biggest city, with the Herald claiming a readership of 760,000 and Fairfax's suburban network 594,000.

"A combination of the two would present a powerful threat to advertisers, including the applicants' single biggest revenue segment - property advertising," Horton said.

"The removal of competition between these two groups would significantly diminish agents' negotiating position when deciding to advertise with the NZ Herald or the suburban network."

Combining the Herald and Fairfax's suburban network would account for more than 80 percent of high-frequency advertising in the region, making it "implausible" for a new competitor to win 10 per cent of the market within three years.

"If the merger is to go ahead, the commission should consider creating the conditions capable of supporting competition in the Auckland print advertising market," Horton said. "This would require the divestment of either the Auckland suburban network or the NZ Herald."

The regulator is assessing whether to authorise a merger of the two groups, who have pushed the idea that they can't compete in digital advertising against the likes of online competitors Google and Facebook without combining their resources, and that audiences and advertisers are agnostic as to the platform they use to get information. Both companies have adopted a 'digital first' strategy prioritising online editorial and advertising over their traditional print businesses.

The removal of competition between these two groups would significantly diminish agents' negotiating position when deciding to advertise with the NZ Herald or the suburban network.

The commission has said it will look at whether there are separate digital and print media markets, and whether there's much overlap in online advertising and the supply of news and entertainment via Fairfax's stuff.co.nz and NZME's nzherald.co.nz websites.

Other areas singled out for scrutiny were Fairfax's Sunday Star-Times and Sunday News and NZME's Herald on Sunday, Fairfax's Dominion Post and NZME's Hawke's Bay Today, NZME's flagship NZ Herald and Fairfax's Waikato Times, and free community publications.

Horton said the threat of aggregation in print advertising isn't diminished by digital media, "where it can be seen that the non-exclusive presence of real estate advertising on digital platforms such as realestate.co.nz proves the limits of that medium's substitutability with print" as "agents generally feel that print gives them better exposure to passive buyers and potential house sellers and therefore attracts listings".

If the merger is to go ahead, the commission should consider creating the conditions capable of supporting competition in the Auckland print advertising market.

Because the two companies are already sharing printing and distribution, the majority of cost savings would have to come from cutting sales and editorial staff, which Horton said meant there was "no discernible public benefit arising from the merger sufficient to offset the lessening of competition".

In a separate submission, Allied Press said the amalgamation would disadvantage the public by leading to a "material reduction" in the number of reporters employed.

The Dunedin-based publisher of the Otago Daily Times said the merged entity would be able to adopt advertising pricing regimes that could "materially influence the placement of national advertising" through its print, online and radio assets, which in turn could "adversely and significantly affect and cause detriment to its print competitors."

The future of NZME's shared news service was also a concern for Allied Press if the merged company chose to exclude the ODT from that wire service. That was also an issue for Westport News Co, the publisher of Westport's daily newspaper, which said the merger " should only be approved if NZME is prepared to retain and expand its current news sharing service to include Fairfax dailies".

Former Herald editor and RNZ media commentator Gavin Ellis said the potential for editorial consolidation required enforceable guarantees of editorial independence at national, metropolitan, regional and local levels, and that the dominance created by a merged entity should trigger a review of media regulation.