New Zealand: Antitrust Alert: Impact Of Plurality On Media Merger In New Zealand

Last Updated: 30 January 2017
Article by Prudence Smith and Nicolas Taylor

The New Zealand Commerce Commission has declined to approve the application from NZME and Fairfax New Zealand Limited and their parent companies (Applicants) seeking approval to merge the New Zealand operations of NZME and Fairfax. NZME proposed to acquire all of the shares in Fairfax, NZME would then pay NZ$55m and issue shares equal to a 41% shareholding in NZME to a wholly owned Australian subsidiary of Fairfax's parent company. The Commission responded to the application by indicating in its draft determination that it would likely decline the proposed merger on the basis that competition in the New Zealand media market would be substantially lessened.

The Commerce Act 1986 (NZ) provides that the Commission would be obliged to give clearance for a proposed acquisition if it would not have the effect of substantially lessening competition in a market. In contrast, the Commission is to withhold clearance for any merger that would result in a substantial lessening of competition. However, if the Commission is satisfied that a merger would result in a public benefit, it may grant clearance. The task for the Commission is to first determine whether the merger would result in a substantial loss of competition in any market. If this question were answered in the affirmative, it was then for the Commission to determine whether the merger could bring about a public benefit.

Decision

Both NZME and Fairfax submitted that they were attempting to respond to the rapidly changing media landscape. The use of print and newspaper circulation being in sharp decline, and the increasing popularity of digital platforms, was submitted to have necessitated the merger. However, the Commission determined the merger would have an anticompetitive effect on various markets.

First, the Commission noted that the merger would likely had adverse effects on at least some advertising markets, as the merged entity could take advantage of its market power to raise advertising prices for its newspapers and online website. However, it was noted that the daily newspapers markets, one of the more substantial markets considered by the Commission, would not be substantially impacted by the merger.

Second, the Commission found that a small number of reader markets could be negatively impacted as the merger could lead to both an increase in prices as well as decreased in the quality of content available to readers. Indeed, the Commission thought it likely that, if the merger were to proceed, it would be likely that some form of paywall should be expected, given the considerable market power that the merged entity would possess. The Commission considered that reader markets would suffer from a reduction in quality, as competition promotes accuracy of information and competing media companies often keep one another in check by ensuring the veracity of their competitors' reporting. Ultimately, due to evidentiary deficiencies and the force of the materials put forward by the Applicants, the Commission could only be satisfied that competition would be diminished in the following markets: national online news, premium digital advertising, the Sunday Newspaper in the North Island advertising and readership markets and finally, various local newspaper advertising and readership markets.

Having determined that the proposed merger could substantially lessen competition, it was for the Commission to then assess the public benefits and detriments that the merger would deliver. The Commission noted that the merger would produce several quantifiable benefits. For example, there would be production efficiencies due to reductions in duplication in a number of the Applicant's operations. There would also be savings on marketing, research, printing and other business operations. However, the Commission was also satisfied that the proposed merger would bring about substantial detriments. In addition to there being an apparent risk to the quality of news within New Zealand, the Commission also noted that by giving a single entity market control, "organisational slack" would likely creep into their operations and lead to significant productive inefficiencies. Furthermore, the Commission also found that the proposed merger would allow the merged entity to transfer wealth from New Zealand consumers to its international branches. The Commission also noted that several unquantified detriments were likely to occur, such as the decreases in the quality of news product, the introduction of paywalls and, most importantly, the loss of plurality and diversity within the New Zealand news and media market.

The Commission was particularly wary of the "single editorial voice" that the loss of plurality would produce, and ultimately found that on balance the detriments of the proposed merger outweighed the benefits. In explaining this conclusion, the Commission reiterated the weight of the arguments surrounding plurality:


Plurality of the media is essential to the maintenance of a well-functioning democracy, and a healthy democracy is dependent on a divergence of views.[...]We consider that the level of media concentration brought about by the proposed merger would not be in the public interest. We have weighed the cost-savings arising from the merger against the increased levels of media concentration, the ability of the merged entity to influence opinions and lead the news agenda and the overall detriments to plurality. In an industry where there are substantial costs of entry to achieve the scale of a large news publisher, we consider that the loss of plurality that arises from the proposed merger is likely to be significant and potentially irreplaceable.

The concerns regarding plurality were the most prominent and forceful justifications raised by the Commission for refusing the merger. While these concerns are obviously politicized, the Commission assembled a strong evidentiary base comprising of lay and expert evidence in advancing its point regarding plurality.

Comment

The decision reveals significant policy considerations which may make it difficult for parties seeking to merge within media and news markets. Unless such applications are handled correctly, and all sides involved give particular consideration to minimizing the anticompetitive effects that would come with combining their operations, then issues surrounding plurality could become a major obstacle to these kind of deals. Applicants must not only be equipped to support the economic benefits of a proposed media merger, but must also be able to show why a merger would not lead to the kind of "single editorial voice" that was treated so skeptically by the Commission.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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