The CommComm axe has fallen on yet another media merger, as the Commerce Commission rules that the proposed deal between NZME and Fairfax is null and void.

The argument against the merger, as articulated in the Commerce Commission decision, revolves around two factors, loss of plurality and quality:

PLURALITY
“The fundamental detriment we described in the Draft Determination – and again here – concerns the likely loss of media plurality. Plurality ensures that there is a diversity of viewpoints available and consumed across and within media enterprises. Plurality helps safeguard against concentrating influence over public opinion and the political agenda. A loss of plurality cannot be quantified in a mathematical sense.
…
“The merged entity would have direct control of the largest network of journalists in the country, employing more editorial staff than the next three largest mainstream media organisations combined. Its news media business would include nearly 90% of the daily newspaper circulation in New Zealand and an overwhelming majority of traffic to online sources of New Zealand news. Including its radio network, the merged entity would have a monthly reach of 3.7 million New Zealanders.”

QUALITY
“We also consider that the proposed merger would be likely to cause a loss of quality. This loss is also unquantifiable. However, the Commission considers that there would be a reduction in quality in reader markets due to a loss in competition. While we were conscious not to double count plurality and quality detriments in reaching our decision, our view is that quality detriments from the merger would be significant, in particular for consumers of online New Zealand news.”

In terms of the commercial challenges faced by the two organisations without the cost efficiencies and savings of the proposed merger, the Commerce Commission was unconvinced:

“On 25 November 2016, following the Draft Determination and before the Conference, the Applicants presented the Commission with a significantly altered prediction as to the likely future for each of their businesses without the merger. The details of this submission are confidential. In this decision we reject that these are likely scenarios without the merger.”

All in all, the Commerce Commission seems to have given credence to the notion of “loss of plurality” as the most important consideration — even though, at least in our view, NZME and Fairfax have very little geographic overlap (with one exception, the Sunday newspaper market) and there are plenty of other competing editorial voices, most notably online and on television.

WHERE’S THE MONEY?
We live in interesting times, as the old curse has it, and newspapers more than any other medium have felt the pain of digital competition. If we look back five years to 2012, NZ newspaper advertising revenues stood at $553 million whilst interactive stood at $366 million.

By the end of 2016, newspaper ad revenues had dropped to $417 million (excluding digital revenues) but interactive had grown to $783 million (digital only), $891 million if you include the digital dollars earned by traditional media (ASA figures).

It’s difficult to argue that four hundred million dollars plus change is just one step away from the poorhouse. Still, a print revenue decline of 24.6% over five years, whilst your biggest competitor has grown by 143%, is cause for concern for any CFO.

Worse, according to IAB/PwC NZ data, most of the growth in digital dollars is happening in social media, mobile and online video — channels where newspaper are underrepresented.

Factor in the news that Google and Facebook between them now siphon up one-fifth of global ad revenue and that’s a scenario no business operator wants to see.

REVIEWING THE ISSUE OF PLURALITY

We are obviously not privvy to the arguments mustered by NZME and Fairfax in response to the Commerce Commission’s concerns. However, if it were us debating the case, we might point to two pieces of research that should be taken into consideration.

The first, US Pew Center research from 2016, points out that newspapers are no longer the journals of record they once were:

• As of early 2016, just two-in-ten U.S. adults often get news from print newspapers. This has fallen from 27% in 2013.
• This decrease occurred across all age groups, though the age differences are still stark: only 5% of 18- to 29-year-olds often get news from a print newspaper, whereas about half (48%) of those 65 and older do.
• Compared with print, nearly twice as many adults (38%) often get news online, either from news websites/apps (28%), on social media (18%) or both. (81% of adults ever get news on these online platforms.)
• Still, TV continues to be the most widely used news platform; 57% of U.S. adults often get TV-based news, either from local TV (46%), cable (31%), network (30%) or some combination of the three. This same pattern emerges when people are asked which platform they prefer – TV sits at the top, followed by the web, with radio and print trailing behind.

Secondly, as 2016 NZ On Air research points out, newspapers now only reach a third of Kiwis Under 40 on a daily basis:

In other words, our argument would be that plurality is no longer an issue because there are now so many other sources of news (and only the Over 65s rely heavily on printed newspapers for their news).