The Commerce Commission is planning to decline to authorise the merger between media giants Fairfax and NZME, it has revealed this morning.
The Commission released its draft decision today, which was not final and would be subject to further submissions and a public meeting to discuss the draft next month.
The two companies lodged a merger application with the Commerce Commission in May.
The Commission's preliminary view - revealed today - was that 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 said the merged entity would also be likely to increase subscription and retail prices for Sunday newspapers and introduce a paywall for at least one of its websites.
Chairman Dr Mark Berry said the merger would result in one media outlet controlling nearly 90 percent of New Zealand's print media market, and would be 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 reached more than four times more readers than the next biggest domestic news website, and would also 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.
"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," Dr Berry said.
"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."
The two companies said the Commission had failed to properly take into account the diversity of opinions that were available in the digital world, and they planned further submissions.
They added they would now take the time to review the draft determination by the Commission and would provide further information on this matter.
The comments follow suggestions in the draft determination that the merger would cause as a "loss of plurality in reporting".
A Fairfax staff member - who declined to be named - said there was some confusion around what the preliminary "no" meant, though a lot of staff now believed the merger would not go ahead.
"Most staff will think it means no, because that is what they've read."
The staffer said many were delighted as they believed it meant "they didn't have to look for another job".
Meanwhile, a former Fairfax staffer said many people at both companies would still be nervous.
"The draft no doesn't mean an agreement can't be reached. This is likely about the Commerce Commission appearing to be robust around its process and probably wasn't unexpected on both sides. Now is when you will see the haggling start. The first thing in frame will be the publishers' regional papers."
Even if the no was confirmed, the former staffer believed there would still be widespread cost-cutting to meet budgetary demands.
E tù, the journalists union, said the concerns raised by the Commission echoed the union's own issues.
Spokesperson Paul Tolich said the comparison with China was telling.
"A very powerful position has been stated about the fourth estate and the role of a free press to hold the powerful to account in our society."
In a merger agreement the two companies signed early last month, NZME would buy 100 percent of Fairfax New Zealand in return for 41 percent of the enlarged company's shares.
The two businesses have a combined workforce of more than 3000 people and former New Zealand Herald editor Tim Murphy has estimated a merger could cost up to 750 jobs.
Fairfax NZ's Australian owners would also receive $55 million in cash.
Between them, the two companies own New Zealand's two most-visited news websites and most of the print media in New Zealand, with the only independent daily newspaper being the Otago Daily Times.
Fairfax NZ owns Stuff.co.nz, The Dominion Post, The Press, Sunday Star Times and many other daily and community newspapers around the country, as well as a range of magazines.
It also bought 51 percent of TradeMe's shares in 2006, but sold again it in 2012. More recently, in 2014, Fairfax NZ also bought a minority shareholding location-based social media network Neighbourly.
NZME owns the NZ Herald newspaper and website, along with other regional newspapers, deals site GrabOne, as well as a bevy of radio stations including Newstalk ZB, ZM and Radio Hauraki.
However, the main delivery areas for most of the daily newspapers are not in direct competition.
The planned deal has also led to speculation of paywalls for either or both the Stuff and NZ Herald websites.
In the year ended June, the companies had a combined revenue of $766.2m, with an operating profit of $135.2m.
NZME listed on the NZX this year after demerging from its Australian parent company APN. It is projected to increase its debt levels by $90m to $250m.
The Commerce Commission had pushed out its decision to mid-March, after receiving a large number of submissions opposing the plan.
It previously said the merger plan was complex and it would in particular look at the impact on local and national news coverage, and whether prices might go up for advertisers and readers.
The Commerce Commission is also looking at another major media merger proposal put forward by telecommunications company Vodafone and pay television operator Sky Network Television. A final decision is scheduled by 11 November but an extension seems likely.