Liam Dann speaks to Dr Mark Berry of the Commerce Commission on the decision to decline the NZME/Fairfax merger
NZME's and Fairfax's merger can't go ahead, the High Court says.
The media companies wanted to merge their operations but the Commerce Commission refused to approve the deal.
NZME and Fairfax took the regulator to the High Court, but Justice Robert Dobson upheld the commission's position in a decision released on Tuesday morning.
NZME owns the New Zealand Herald, nzherald.co.nz, a string of North Island newspapers, and radio stations such as Newstalk ZB, The Hits and ZM. Fairfax owns Stuff.co.nz, The Dominion Post, The Press and other newspapers.
Justice Dobson's full decision is not yet released but a minute from the High Court said the judge reached the same conclusion as the commission in "respect of four of the six markets subject to the competition analysis".
That included reader markets for online national news and Sunday newspapers and markets for community newspapers in 10 North Island areas where NZME's and Fairfax's existing community newspapers compete.
The court did not uphold the commission's view that the proposed merger would have resulted in the likelihood of substantially lessened competition in the advertising market for Sunday newspapers, and also dismissed the prospect of one of the appellants introducing a pay wall for their online publication, post a merger.
On the issue of media plurality, the court found the commission was entitled to place significant weight "on the prospect of reduced quality of the products produced by the merged entity".
"On all the evidence before the commission, we consider that it is appropriate to attribute material importance to maintaining media plurality," the High Court said.
"It can claim status as a fundamental value in a modern democratic society. We cannot be certain that a material loss of plurality will occur because of the factors we review that would hopefully assist in maintaining it," the minute said.
"However the risk is clearly a meaningful one and, if it occurred, it would have major ramifications for the quality of New Zealand democracy," the court said.
"In our analysis on the clearance application appeal we have recognised material barriers to entry in the market for production of New Zealand news," the court said.
"We agree with the commission that a substantial loss of media plurality would be virtually irreplaceable," it said.
NZME chief executive Michael Boggs said he was disappointed with the decision as the company believed the merger was in the best interests of shareholders and the media industry as a whole.
He said NZME remained committed to its strategic priorities that include growing audience reach, retaining print revenue, returning radio to growth, boosting new revenue streams, managing costs and continuing to develop people and talent.
"While the Fairfax merger offered us benefits, we have not been resting on our laurels in the last 18 months as we pursued the transaction. We will continue to examine shareholder value enhancing strategic initiatives, while enhancing the competitiveness of content generation and distribution," Boggs said.
"NZME has great people, brands, audiences and customers and a sound strategy to grow shareholder value. We remain very much of the view that the New Zealand media sector is an exciting place to operate and, while there are headwinds in some areas, there are real opportunities in others. NZME is well positioned to take advantage of those opportunities," he said.
NZME will review the full judgment, including its option to appeal the High Court's decision.
The commission, in a statement, said it welcomed the High Court's dismissal of the appeal.
Its chair, Mark Berry said: "The merger determination and subsequent appeal have been a significant and resource intensive piece of work for the commission over the past 18 months."
"The court's ruling confirms we have the jurisdiction to consider detriments beyond those which are economic and that we can consider the wider public benefits when assessing merger authorisation applications."
The commission is entitled to seek court costs of the appeal.
When the parties appeared in the High Court, NZME's lawyer argued the commission acted outside its authority in part of its decision on the merger.
The Commerce Commission in May declined to grant authorisation for the two companies to combine, saying the merger would be likely to substantially lessen competition - specifically in Sunday newspapers, online news and community newspapers in 10 regions.
Part of the decision relied on the fact that a merger would reduce media plurality - effectively the number of voices in the media.
But NZME's lawyer told the High Court in October that it was not the commission's place to take that into account under the Commerce Act.
"It's about the economy, that's what the statute's about," said Queen's Counsel David Goddard, who was representing the media companies.
The detriments related to that loss of plurality fell "outside the scope" of the commission's mandate, and it did not have the authority to consider it, he said.
The "quantified benefits" to the public of a merger would be in the realm of $40-200 million, he said.
Goddard argued a merger would provide a "very large gain to New Zealand compared to many of the transactions that come before the commission".
NZME building on Graham Street. Picture / Jason Oxenham.
He also submitted the commission had not put enough weight on the impact of social media on news.
"I don't often find myself quoting President Trump but he said recently that having a Twitter feed was like owning the New York Times, but without the losses, and it just goes to show that you can find truth in the most surprising places."
Social media contained a "scattering of articles from all over" drawing audience attention.
Goddard said the commission has made "a number of significant errors" in its decision and had adopted "an inappropriately static approach" to what was happening in the news environment.
The commission had taken a "snapshot, rather than a moving picture", and the moving picture would have underscored how intense the constraints were on the media.
But lawyers for the commission said the merged media entity of the country's biggest newspaper publishers could cut coverage quality or introduce a paywall without losing much advertising revenue, disadvantaging the public.
The commission said it was obvious the merger would result in cost savings and synergies for the media companies, otherwise they wouldn't do it. Those savings would translate into reduced quality of news coverage, but that wouldn't be seen by all audiences, as some readers wouldn't be aware of what they were missing out on.
Fairfax Media mastheads. Picture / File photo
The regulator's original decision
The commission said at the time of its decision that the merged company would have control of the biggest network of journalists in the country, 90 per cent of the daily newspaper circulation in this country and a majority of traffic to online sources of New Zealand news.
The merged business would reach 3.7 million New Zealanders each month, the commission said.
"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," commission chairman Mark Berry said when announcing the decision to reject the merger.
"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 $200m over five years. However these benefits do not, in our view, outweigh the detriments we consider would occur if it was to proceed."
