Shares in NZME fell 10 per cent to close at 79c.
Steve Johnson, chief investment officer of Forager Funds, which owns a 9.07 per cent stake in NZME, said the decision was disappointing but Forager had given the merger only a 30 per cent chance of going ahead.
When it bought into the company it saw the potential merger as the "cream on the cake" but it didn't buy the shares on the assumption that it would go through.
Johnson believed NZME may now be ripe for a private equity buyer and there had been speculation in the market about potential buyers for the radio assets.
NZME chief executive Michael Boggs said he believed there would continue to be consolidation in the media market.
"We want to be at the forefront of that," he said. That would "absolutely" include Fairfax assets if they were to be sold off individually.
While the decision highlighted some traditional areas where competition would decrease - such as Sunday newspapers and some geographic overlap - it focused heavily on the growth of online news where nzherald.co.nz and Stuff.co.nz are dominant players.
Berry said the commission's focus had moved increasingly to the online part of the business as the process had progressed.
A judgment about the merger's impact on the quality of journalism and the plurality of media voices in New Zealand also played a major role in the decision, Berry said.
"It is fair to say this was an unusual, one-off merger," he said. "It is not often that we have the qualitative analysis so central to the case. It's been a case of analysis of a kind which is not your common competition law case."
In commentary on the decision law firm Simpson Grierson - which does not represent either applicant - called the plurality argument a "live legal issue" and said it was the most likely avenue for appeal from NZME and Fairfax if they chose to. They have 20 working days to make a call on any appeal.
But Berry rejected suggestions that the commission had stepped beyond its mandate on public interest in journalism.
"The legislation uses the word 'public benefit' and it is deliberately open-ended," he said.
When courts had looked at it in the past they typically addressed efficiency considerations, he said.
"But the case law is also equally clear that the concept of public benefit is very wide and includes anything of general benefit to society. That is where we thought that the diversity of voices and the quality of competition and journalism was extremely important."
The commission acknowledged the financial pressure exerted by international competitors such as Facebook and Google but was not swayed by arguments that a merger was needed to combat them.
"What we face at the moment is a really dramatic change in the market in that 80 per cent of advertising revenue now goes offshore to Facebook and Google," Berry said.
"That inevitably is putting a lot of financial pressure on the applicants. But the complexity is that Facebook and Google belong in a different part of the market. When we analyse the reader market there's two important parts - the first is the creation of content and the second is distribution of content."
The creation of content sat with the New Zealand news producers, the presence of Facebook and Google was simply as a distributor, he said.
-Additional reporting Tamsyn Parker
