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Key newspaper merger set to be blocked by commission

THE preliminary decision to not allow two of New Zealand's biggest media companies to merge is "short-sighted" and suggests the Commerce Commission is stuck in the past, one media commentator says.

In a draft determination released this morning, the Commerce Commission has proposed to decline the NZME/Fairfax merger. In a tweet it hashtagged the proposed merger as #StuffMe.

NZME owns the NZ Herald, Herald on Sunday, nzherald.co.nz website, a range of regional newspapers, Newstalk ZB and a range of entertainment radio stations while Fairfax owns stuff.co.nz, the Sunday Star-Times and other metropolitan and regional newspapers.

The Commission said in its preliminary view, the merger would be likely to substantially lessen competition in a number of markets, including the markets for premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions throughout New Zealand.

"It also considers the merged entity would be likely to increase subscription and retail prices for Sunday newspapers and introduce a paywall for at least one of its websites," the Commission said in its draft determination.

The two media companies made a joint statement to the NZX this morning, saying the Commission's concerns relating to plurality of media were "unquantified."

"The parties' view is that the NZCC has failed to properly take into account the diversity of opinions that will continue post-transaction in an increasingly converged digital world," the statement said.

Media commentator Bill Ralston said he was surprised by the decision, which he called "short-sighted".

"I think the Commerce Commission are still operating somewhere way back in the 20th Century," he said.

"Frankly, it's getting harder and harder for traditional mainstream media companies to be able to survive and it would seem to me that some form of merger is possibly the only way they would do it. They've got to reduce expenses while increasing the number of people who are actually reading or viewing what they want. To disregard the competition from organisations like Radio New Zealand, TVNZ or Newshub is very short-sighted."

He added that the Commission appeared to be "missing the point" when it came to advertising.

"Any attempt to raise advertising prices I think would be thwarted by the fact that there is a large international market out there that people can use just as easily."

The regulator's draft decision does not necessarily indicate its final ruling and is often used to gather more information from the parties involved.

NZME and Fairfax NZ said they would review the draft determination in detail and provide further information to the Commission to assist in working through its consideration of the issues identified on a preliminary basis. Further written submissions would be submitted to the Commission during the conference process.

Commission chairman Dr Mark Berry said the merger would result in one media outlet controlling nearly 90 per cent of New Zealand's print media market, which would make it the second highest level of print media ownership in the world, behind only China.

The merged entity would also control New Zealand's two largest news websites - nzherald.co.nz and stuff.co.nz - which together had a population reach more than four times larger than the next biggest domestic news website.

Further, the merged entity would own one of New Zealand's two largest commercial radio companies. "All this would result in an unprecedented level of media concentration for a well-established liberal democracy," Dr Berry said.

Our preliminary decision on the NZME/Fairfax merger is to decline authorisation | https://t.co/l7KpgbyjPM #StuffMe

- Commerce Commission (@NZComCom) November 7, 2016

"Our preliminary view is that competition would not be sufficiently robust to constrain a multi-media organisation, potentially with a single editorial voice, that would be the largest producer of national, regional and local news by some margin in New Zealand.

"NZME and Fairfax each play a substantial role in influencing New Zealand's news agenda. Competition between the parties drives content creation, increases the volume and variety of news available in New Zealand and assists with objectivity and accuracy in reporting. Our view is that the removal of this competitive tension would likely lead to a reduction in the quality and quantity of New Zealand news content both online and in print, with potential flow-on effects in television and radio.

"We recognise that the merger would achieve net financial benefits through organisational efficiencies. However, while we cannot quantify the detriments we see with respect to quality and plurality of the media, we consider that detriments resulting from increased concentration of media ownership in New Zealand would outweigh the quantified benefit we have calculated. In particular, the potential loss of plurality has weighed heavily in our draft decision. On this basis, we propose to decline the application."

The Commission rejected the submission that Facebook is a competitor for advertising expenditure, saying Facebook doesn't hire journalists and doesn't produce New Zealand news content.

Act Party leader David Seymour said the Commerce Commission appeared to be stuck in the 1990s.

"It's as if newspapers are a distinctive product from the media in general. They've written their decision as if this is going from two [newspapers] to one nationwide. The reality is there are five major newsrooms - it would have been a reduction from five to four."

"Convergence is a reality. The Herald is doing video, TVNZ are running written editorial content, and apparently Radio NZ have cartoons. So I think generally the commission is out of date. It's just this conflict between old government and new technology."

In contrast, New Zealand First leader Winston Peters said the commission had "made a sound decision at last".

Peters said a merger would have led to "an even faster race to the bottom".

He said the commission's preliminary decision was " a glimpse of good news".

"This country has suffered immensely from the foreign ownership of our media - something that many countries will not allow."

NZME and Fairfax NZ want to merge their operations and earlier this year applied to the Commerce Commission for authorisation.

According to a plan revealed in September, NZME intends to pay Fairfax Australia $55 million in the tie-up, with the Australian parent taking a 41 per cent stake in the merged group.

Under the proposal, Fairfax Australia would nominate two directors to the board of NZME, who would be appointed on completion of the merger.

In the year to June 30, Fairfax generated revenue of $350.3 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $60.2 million. Over the same period NZME generated revenue of $415.9 million and EBITDA of $75 million.

On a combined basis, NZME and Fairfax generated total revenue in the year to June 30 of $766.2 million and total EBITDA of $135.2 million.

Shares in NZME, which debuted on the NZX in June last traded at 66c compared with its first traded price of 85c.

The Commission is seeking submissions on its draft determination by the close of business on Tuesday November 22.

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