Hot Topic NBR Focus: GMO
Hot Topic NBR Focus: GMO
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My top five 'Kill me now' moments in the NZME-Fairfax merger application

An exercise in abject humiliation.

Chris Keall
Sun, 29 May 2016

By their very nature, applications for merger approval are an exercise in abject humiliation.

To push their deal through, the two companies concerned must convince the Commerce Commission their combined powers will be no threat to market competition.

That means accentuating the negative about your own operation, and talking down your market.

As a colleague notes, if Spark and Vodafone NZ wanted to merge, they would talk up the threat from Skype.

And so it goes for the public version of APN and Fairfax's joint application to merge their New Zealand assets (on the APN side, assets including the NZ Herald, NewsTalkZB and GrabOne; and on the Fairfax side, properties including Stuff, the DomPost, The Waikato Times and The Press. On a side note, although APN has recently renamed its local subsidiary NZME, the ComCom is not hip to the rebranding; it refers to the company by its legal name, Wilson & Horton Ltd; the Horton family – which sold out in 1996, on the cusp of the internet going mainstream – can have a good chuckle).

Here are my top five "kill me now" moments from the application as the pair put their worst foot forward. 

1) Google and Facebook snaffling all the online ad revenue

It's barely news that, although online advertising generates a fair whack of cash (it has moved past radio and is now breathing down the neck of TV), media companies aren't getting much of it.

On Sunday Business with Andrew Patterson, Bernard Hickey recently noted a Morgan Stanley estimate that 85c of every new dollar spent on online advertising in the US in the first quarter of this year would go to Facebook or Google. 

A table in the NZME-Fairfax application lays out a similar problem in the New Zealand market:

The situation isn't quite as bad as it seems. NZME and Fairfax have over-egged things a little by pushing an unspecified amount of their revenue into the "Agency Trade Desk" line, and they leave out direct bookings, which could add millions to their total.

But it's still pretty bad. Five years ago, ex-Fairfax head of digital Bernard Hickey was talking about Fairfax's online revenue being stuck around the $10 million mark. It seems the needle has barely moved since.

Fairfax financials show the company's print business, while falling, still towers over online. For the first half of 2016, earnings before interest, tax, and depreciation fell to 11% to $30.3 million, while revenue was down 7.4% to $181.4 million. It's the same deal at APN. Its results for the same period show a $A10.2 million loss for its New Zealand assets (from a $A11.05 year-go profit) on revenue that fell 2% to $A402.4 million. One-off restructure charges were blamed for the loss. But as their combined 3000 or so staff are keenly aware, every year has been Restructure Year in recent times for APN and Fairfax.

A couple of footnotes on that table: Metservice's ads are so intrusive I find its mobile site unusable — but it's obviously doing the business overall.

And check out those revenue totals for Google and Facebook, which are so far ahead of their most recent Companies Office filings. Google, for example, recorded $14.8 million revenue for its New Zealand operation in 2014. Either it's had hyper growth since, or its invoicing most of its business to the company's subsidiaries in Ireland and Singapore. Hmn.

Conservative governments in the UK and Australia have introduced measures to crack down on profit shifting by multinationals, and France has set the police on Google. An NBR Business Pulse poll this week was strongly in favour of a crackdown. Spark and other local companies are also pushing for the government to level the playing field. Yet it was something ignored by the bland Budget 20016. But we digress.

2) Competition everywhere!

As is the way with these things, the application includes a laundry list of competitors, from those who provide mainstream news websites (TVNZ, RNZ), to those who compete in niches (such as NBR in business news. The application duly talks up NBR ONLINE's success and the fact NBR has 17 journalists on staff; cheers).

The surprisingly up-to-date list of competitive threats includes Tim Murphy and Mark Jennings proposed news site, quoting NBR as the source (read the latest on that one here). 

But we also have three mentions of cat gifs, and includes everyone from Trade Me to Snapchat to Buzzfeed, the Daily Mail, various blogs (Bomber Bradbury will be chuffed to know he's listed under "Existing Competitors"), Whaleoil, Microsoft's Bing search engine, Tumblr, The Wall Street Journal, Pinterest, Sky TV and YouTube. The list goes on for 13 pages.

Think of a site, and it's on the list.

I don't want to over-analyse this section of the document, since it's agenda is abundantly clear, and we all know that there are many sources of news beyond the traditional, and beyond NZ, as media converges.

But once the merger is done and dusted, it will be an opportunity for Stuff and the Herald to review their focus on entertainment and stories and Buzzfeed-style zaniness.

Stuff is better at the Daily Mail-type celebrity photo bucket or amusing cat stories (by a nose), and they do bring in the eyeballs. But in an online world starved of ad inventory, what does it mean to beat the Herald  for total clicks most weeks? As the table above shows, the Granny actually earns slightly more from online ad revenue.

And if you really care about who's got the most clicks, Nielsen figures indicate the prize has to go to Yahoo News and MSN News, for whatever that's worth (not much; ask Yahoo NZ's laid-off news team).

My advice: less Vaudeville entertainment, more local news, and more refinements that encourage readers to register. A qualified local audience is something you can work with. 

3. Print revenue falling faster than digital rising

Least there be a paucity of depressing artwork to describe the New Zealand market (which has been subject to a similar trend — hence the merger), the application pulls out this doozy from the US: 

4. Ad blockers on the rise

The applications notes promising trends, such as the rise of mobile advertising, and the possibility of revenue sharing from Facebook's new Instant Stories feature.

But with things getting dangerously optimistic, it throws in a segment about the rise of ad blockers. It notes:

Ad blocking software affects the ability of publishers to collect the advertising revenue necessary to support their investment in content. Between 2014 and 2015 the number of people using ad blocking software globally grew by 41%. In 2015, the estimated loss in global advertising revenues for content publishers due to blocked advertising was US$21.8 billion (14% of the global online advertising spend). In 2016, this number is expected to rise to US$41.4 billion. Late last year Apple announced that its new operating system for iPhones and tablets, iOS9, would allow iPhone and iPad users install ad blocking tools.

Obviously given the "downer" intention of the application document, it's not exactly a forum for addressing solutions.

But I will just say that although NBR has a paywall-driven model, and only one ad on its home page and none on mobile, I do accept advertising has a key role funding mainstream media.

Yet I do enable my ad blocker when I visit the Herald and Stuff, simply because I just physically cannot concentrate on an article when there's an animated ad smack bang in the middle of it. The first step to to combatting ad blockers is more thoughtful design.

5. Paywalls not a goer for replacing lost revenue

On several occasions, NZME (and predecessor) APN have announced a paywall was in the works. At one point NZ Herald editor Shayne Currie implied it was inevitable. And APN's (now abandoned) IPO plan turned, in part, around the ability of a paywall to compensate for some of the fast-disappearing print circulation revenue and the cruel ad market illustrated above.

Now, in their application at least, NZME and Fairfax say paid content is a non-starter (in Fairfax's case, cheerfully ignoring that it employs them across the Tasman).

The document goes out of its way to bash paywalls, using arguments including that information is already out there in social media; that they inhibit traffic from aggregators like Google News, Apple News and Facebook, and that paywalls make it hard to push stories on social media (and indeed that is problematic, though not insurmountable; NBR has a not inconsiderable 15,000 followers on Twitter). 

And while it's fair to say there is still kickback on social media when NBR posts a paid link, there's also been a notable shift in sentiment, with a growing number accepting that subscriber-funded content can not only save newsroom jobs, but also a quality over quantity environment where, both commercially and editorially, tougher stories are prioritised over churnalism.

The merger application notes that paywalls have simply not worked for various mainstream news sites overseas. In this, I'd say it's correct.

Unlike targeted sites that provide news their readers can use and, yes, even expense (NBR, Consumer), a paywall for mainstream news is a tougher sell — although the middle brow/high brow The Australian seems to be making a good fist of it (exactly how well is tricky to gauge since it doesn't break out digital subs).

A way forward
But enough negativity. Let's try and wrap this up on an uplifting note.

The application document does say that if a merger goes ahead, it will enhance the quality of journalism.*

It doesn't say how, but here's my theory: If Stuff and the Herald were in the same camp, it would eliminate the "who blinks first" problem about moving to a paywall (though readers could still turn to TVNZ, RNZ, Newshub and other sources for general news).

In one scenario, Stuff could become the celebrity photo bucket/cute animal site, while the Herald, freed from its weekly cage fight against Stuff for clicks, could go more high-brow, or at least middle brow. Despite what they say in their application, a paywall could even be put back on the agenda, possibly in social media-friendly metered form.

I'm not 100% sure that would work. It could be that New Zealand just simply doesn't have the population to support a Daily Mail-style tabloid and the cheap, mass volume advertising that fuels it.

And it could be the combined NZME-Fairfax just doesn't have the stomach to introduce a paywall.

But together, at least they'll have more options.

* As with any parties who want to merge, they also present the "counterfactual" or a scenario for what would take place if the deal is blocked. The counterfactual can be an opportunity to plead you'll go out of business if the merger is not authorised by the Commerce Commission (an argument the regulator is not always open to). But most of this section is redacted from the public version bar the bland, "If the Transaction did not occur, then in the short term NZME and Fairfax would continue to operate as separate entities. The Parties' ability to innovate, diversify and improve their offerings, to reach and engage the same scale of consumers, with diverse and attractive content, would naturally be more limited."

Chris Keall
Sun, 29 May 2016
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My top five 'Kill me now' moments in the NZME-Fairfax merger application