ComCom's unquantifiable judgement call on media merger a 'live legal issue'

"The near-term future of New Zealand media sector is not doomed, but the short-term outlook is gloomy".

NZME and Fairfax New Zealand are most likely to focus any appeal against the Commerce Commission's rejection of their proposed merger on the unquantified view that the detriments to the quality and variety of news is greater than between $40 million and $200 million of expected commercial benefits from the merger over five years, says Auckland law firm Simpson Grierson.

"While Fairfax/NZME will no doubt be unhappy that the commission has rejected their confidential submissions as to the likely future for each of their businesses without the merger, this is a factual determination by the commission, which is typically harder to challenge in an appeal," partners Anne Callinan and James Craig in a statement.

"The more productive line for an appeal will probably be regarding whether the public benefits of the merger outweigh the detriments."

The commission said in its decision this morning that NZME and Fairfax had failed "by a significant margin" to convince it that the commercial gains of a merger for the revenue-challenged traditional news publishers were greater than the downside of reduced media 'plurality' - the range of opinions, views and stories the New Zealand media would cover.

The commission found that the companies' claims of commitment to ongoing plurality, codes of ethics and editorially competitive ethos were not undertakings it could rely on, while accepting the scale of the potential benefits and the challenging circumstances for media companies facing sharply declining print advertising revenues and domination of online advertising by global internet giants Google and Facebook.

"There is a live legal issue as to whether loss of plurality in particular can be considered as a detriment and, even if it can, the extent of that detriment. We would expect this to be a key focus of any appeal," said Callinan and Craig. Simpson Grierson did not represent any of the parties in the hearings.

NZME and Fairfax have 20 days to appeal the decision to the High Court, and the issue could go as far as the Court of Appeal. However, Callinan said a challenge to the whole decision risked both very long hearings and associated high legal costs in a merger bid that has already taken the regulator nearly a year to rule on.

"If Fairfax felt it could narrow the issue on appeal, they may consider that more manageable."

NZME shares continued to fall throughout trading on the NZX today, down 11 percent to 79 cents a share by 3.30pm. ASX-listed Fairfax shares were down 1.9 percent at A$1.06, although the impact of decisions on its New Zealand assets would be unlikely to have a major impact. The company also today announced job cuts to editorial staff on its flagship Australian titles to save A$30 million.

Merja Myllylahti, project Manager at AUT's research centre for Journalism, Media and Democracy welcomed the decision as being "in the public interest" but there was no winner and "no cause for celebration".

"The near-term future of New Zealand media sector is not doomed, but the short-term outlook is gloomy," she said. "The decision is in the public interest as no one single company controls most of the online and print news in New Zealand. However, there will be negative consequences including job cuts, potential closure(s) of businesses and recycling of content.

"We may see rapidly emerging news deserts in regions" although the merger would not have represented "salvation".

"Let's not forget that NZME is profitable with growing digital revenue and audience, and Fairfax New Zealand papers are profitable. News companies need to collaborate. Tactical alliances and partnerships between media companies are rapidly becoming a new normal in New Zealand."

NZME chief executive Michael Boggs echoed Fairfax in saying the company was "disappointed", but stopped short of Fairfax chief executive Greg Hywood's signal of reduced publication and investment in New Zealand news production was inevitable.

"NZME's strategic focus continues to be on priorities identified to drive shareholder value; growing audience reach, retaining print revenue, returning radio revenue to growth, growing new revenue streams, practising effective cost and capital management and developing our people and talent."