Fran O'Sullivan: Stock exchange puts on gumboots

NZX boss Mark Weldon believes he is on to a winner with his plan to leverage the stock exchange's acquisition of a raft of rural publications as a "goldmine space".

The NZX's rationale is compelling.

It already owns professional online subscription-based publications that focus largely on price and volume data across soft commodities in New Zealand and Australia. But the NZX does not sport an advertising sales operation of any depth. Country-Wide Publications (CPL) does.

Weldon reckons that by marrying the two businesses the NZX will have "a distinctive and valuable footprint in the rural space" which will bridge rural communities and capital markets over time.

The upshot is the NZX will be able to access a much greater reach into the rural sector to underpin a new agricultural futures and commodities trading platform.

Weldon has already attracted broker interest out of Hong Kong for the proposal to create a new futures and commodities platform, particularly as interest grows on the back of Fonterra's foray into China.

But right now the news media focus is on the potential for NZX Rural to "corner" the rural agriculture information market.

An injudicious statement in an internal NZX memo leaked to Christchurch publisher Max Bowden may have opened the door to a Commerce Commission investigation into whether the NZX's acquisition breaches the Fair Trading and Commerce Acts.

Bowden is hanging his complaint on a two-page memo sent by Rachael Cross - from the NZX's business acquisitions team - to all exchange staff on Tuesday, April 28.

At issue is the explanation that Cross gave NZX staff for the deal.

In a paragraph headed in bold type "The Question Why", she explains that the CPL deal will add scale to NZX's existing agricultural and media businesses and "give NZX exposure into the rural sector (aka farmers) that to date we haven't really been able to achieve with our existing agricultural acquisitions".

"The combination of our corporate-focused information products (focused predominantly on data) and CPL's farmer-focused news and information products (focused primarily on editorials) will enable us to corner the market as the provider of agri information, news and media on NZ agri sector for farmers and corporates alike," the Cross memo said.

Bowden's letter to the competition regulator claims the NZX is supposed to be a market regulator - not a promoter of its own propaganda.

His central point is that the NZX should be there to inform the entire market in a squeaky-clean fashion.

It should purchase editorial material in an arm's-length fashion for its website and not use its own media to promote its trading products.

The Cross memo also asked NZX staff to introduce themselves to the Country-Wide team and make them feel welcome - "they will be part of the NZX team so it's important we make them feel so" - a factor that Bowden could use to bolster his own position.

The NZX's response is telling.

Weldon reckons most of the complaints have come from people who "are going to lose business".

He says Bowden - who publishes the influential political newsletter Trans Tasman and the Main Report - is upset because he may have wanted to sell his own business to the NZX.

"You've got to take a grain of salt on that stuff."

Bowden dismisses Weldon's claim as a "red herring". He says his publications use Agrifax services and he met Cross - at her invitation - in Wellington two years ago.

He never tried to sell his business to the NZX - or even discussed it - and has emails that back this up.

It is pretty tetchy stuff as the potential clearly exists for the NZX to play to its own publications, particularly when it advertises its new product platforms to the rural market.

In my view the commission does need to seek some assurances from the NZX over its intentions, particularly as far as advertising its product suite goes.

Expanding into publications during the economic downturn is a bold move.

The Cross memo explains that the NZX is getting into an "advertising-reliant media publication" in this climate. She contends print media are the best way to contact farmers while internet access remains slow and inconsistent for rural New Zealand.

"This protects to a certain extent rural publications from the downturn in advertising in mainstream/daily media publication and, second, farmers' behaviours as the majority still read physical papers instead of accessing the internet for their news and information."

The memo predicts it will be more than five years before farmers swap to online news services.

Bowden's handwritten complaint - which was also dated April 28 - apparently officially landed at the Commerce Commission on Monday. The commission gets about 15,000 complaints each year. But few get publicised.

Bowden - an old media pro - has made sure it got plenty of aeration this week. But it may not be until late next week before the commission indicates whether it will investigate the complaint.

The CPL group's stable includes publications such as The NZ Farmers Weekly, Country-Wide North and Country-Wide South, NZ Dairy Exporter, Deer Farmer and Young Country.

The CPL assets will be combined with the exchange's existing three online publications - Agrifax, Dairy Week and Pro-Farmer - and rolled up into a new entity called NZX-Rural.

One intriguing factor is that NZX Rural will now own NZ Dairy Exporter, which has published some vigorous articles by accountancy expert Alan Robb questioning why the exchange did not compel Fonterra to restate its recent interim accounts to directly marry up with the 2007 financial year interim result.

Robb has taken a gutsy approach on this score.

Weldon maintains that Fonterra disclosed the nature of the changes to the market, and the NZX had communicated with the co-op and was comfortable that there was sufficient disclosure to meet the needs of bond investors.

Herald: "Would the exchange protect the editorial integrity of its publications?"

Weldon: "The answer to that is, without question, yes. There is, I have to say, a fair degree of disappointment from myself and internally that we've got this person Alan Robb whom we now pay who apparently has issues with presuming what our level of integrity about editorial is."

Speaks volumes.