7 Dec 2016

Media merger hopefuls make their pitch

From Mediawatch, 3:33 pm on 7 December 2016

The Commerce Commission has been meeting in Wellington this week to hear submissions from media firms about the potential effects of a proposed merger by Fairfax and NZME.

It would be the biggest shake-up in the news media for years, but the two applicants face an uphill battle to get a green light.

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Fairfax and NZME are New Zealand's two biggest news publishers. Photo: RNZ

Fairfax Media NZ owns Stuff.co.nz, The Dominion Post, The Press, Sunday Star Times and most daily and community newspapers around the country. NZME owns The New Zealand Herald and its website, along with other regional newspapers and radio stations including Newstalk ZB, Radio Sport, ZM and Radio Hauraki.

The companies employ about 1200 journalists in New Zealand.

On the face of it, it would be hard to make a case for one single company, which would almost monopolise newspapers and online local news publishing.

But Fairfax and NZME insist other local media companies are not their main competition any more, and their future is bleak alone.

What's the problem?

NZME and Fairfax insist the income from digital advertising - ads on websites and social media feeds and apps - is now crucial to their businesses.

They are competing for that with many other online businesses, and online giants Google and Facebook are getting the lion’s share.

In November, the Commerce Commission said it was inclined not to approve the merger because one single company would dominate newspapers and local online news - and it didn’t consider Google and Facebook to be their competitors.

The commission said a merger would also be likely to reduce competition in digital advertising and the diversity of our news.

Fairfax and NZME editors responded with fresh submissions and a joint letter which warned “a rapid dismantling” of news operations in the regions would follow if the merger didn’t get a green light.

This week’s conference was a chance for the companies to change the commission’s thinking before its final decision in March 2017.

Competitors everywhere

Commerce Commission merger hearings

The scene at one of the merger hearings Photo: RNZ/Jeremy Rose

Editors and executives from both companies took turns to argue their current combined dominance of online news was not what it seemed.

They said all big media outlets here  - including TVNZ, MediaWorks and RNZ  - were all now boosting their own online content.

The digital expansion of non-commercial RNZ was frequently cited, as was relatively new start-up The Spinoff.

“The Spinoff is touting half a million unique users. That’s a quarter of stuff.co.nz’s audience in little more than a year," said Fairfax Media chief editor Sinead Boucher.  

NZME chief editor Shayne Currie described Facebook as “a phenomenal beast” that swallowed ad revenue and dominated the distribution of online news.  

“It is the curator and editor of the world’s news feeds these days. We compete with them for people’s attention,” Ms Boucher said.

Fairfax managing director Simon Tong said Google and Facebook were only likely to increase their dominance in future and starve news media of more money.

The decline of revenue from ads in print was also a worry.

"It’s not a fabulous picture. The speed is increasing and I see no abatement in international markets that show it’s going to flatten out,” he said.  

“There is no status quo of the business that we have today,” NZME chief executive Michael Boggs said. 

“In the first half of the year our print revenues went backwards 14 percent and our digital revenue grew 20 percent, but our total revenue still went backwards."

Dependent on dwindling print

Fairfax and NZME newspapers still provide the bulk of both companies’ income, but their audience expects news online for free.

Fairfax Media chief operating officer Andrew Boyle said many dailies have recorded double-digit annual falls in circulation.

But while the digital-first policy reflects audience behaviour, has it hastened the publishers’ own decline?

The independently-owned Otago Daily Times (ODT) has suffered more modest decreases in recent years.

Grant McKenzie - the chief executive of ODT publisher Allied Press - told the conference that was because it did not have a digital-first policy.

“Why wouldn’t it decline if you’re putting everything online for free and there’s no incentive to buy a newspaper?” he asked.

Another way to make money online is a paywall - making readers pay, just like subscribers of printed paper.

Overseas The New York Times, News Corp and The Economist charge online readers. Here, the National Business Review has more than 4000 online subscribers.  

Fairfax Media and NZME have both planned paywalls in the past but pulled back from deploying them.

Now it seems they never will.

Fairfax’s Simon Tong told the commission the cost would outweigh the gains.

“It's very clear that if we were to create a paywall for general news that that would create a fantastic opportunity for our competitors. There's no maths that I've seen ... that suggests that a paywall for general news will work.” he said.

Diversity deficit

The commission also cast doubt on whether the public would enjoy the same range of news and information if the control of most of the country's newspapers, a leading radio network and two major news websites all ended up under one owner.

It is likely that single teams of reporters would cover sports, business and politics in place of two teams doing so now.

Business commentator Rod Oram told the commission there was nothing in the merger application to safeguard editorial independence and diversity.

Fairfax and NZME executives insisted there would still be a variety of views both within their own newsrooms and in the wider media if the companies merged.

Fairfax's Sinead Boucher cited as evidence of free thought the fact that Fairfax had published columns by Mr Oram himself, which were critical of the proposed merger.

NZME's Shayne Currie also claimed variety of opinion was alive and well at The New Zealand Herald.

A Mike Hosking column praising John Key to the skies was countered by a contrary one from new columnist Rachel Stewart.

But NZME has already shown that single ownership can amplify in-house viewpoints at the expense of others.

After the company was created by mashing together The New Zealand Herald's publisher APN and The Radio Network, the company's radio personalities - including Mike Hosking - began to write regular columns in The New Zealand Herald.

So will merger really help in the long run?

A merger could allow Fairfax Media and NZME  - which are still profitable - to cut costs and duplication.

At a stroke both companies would also lose their main online news competitor: each other.

But a new company would still face the same problems of falling revenue and increasing digital competition in the future.

Time and again the executives and editors said a merger would “extend the runway” and allow them to develop new sources of digital revenue.

Outside of closed sessions with the Commerce Commission, where commercially sensitive details were discussed, not much was said about what those might be.

The merger hopefuls have an interest in making their futures alone look as bleak as possible to get a green light from the regulator.

Ms Boucher left them in no doubt where the axe would fall first.

"We know that as it gets harder and harder to fund big news rooms and ... it's not going to be Auckland and Wellington and Christchurch that suffer, it's going to be Marlborough, Nelson, Timaru, Manawatu, Taranaki - the smaller places."

Behind closed doors, the Commerce Commission might now have a clearer picture of how close to the cliff both companies really are.

That could be the crucial factor when they announce their final decision next March.