No proven new basis for merger
A merger of NZME and Stuff is too vital a decision to be rushed, writes Prof Rex Ahdar.
NZME Ltd has made a bold bid to acquire the
Stuff group of media outlets
(owned by
Australia's
Fairfax Media, which is in turn a wholly owned subsidiary of Nine Entertainment).
It has offered $1 to buy its major NZ rival. On April 23, 2020, NZME and Nine agreed to an exclusive negotiation period. Nine has said it is not interested in merging, but that did not stop NZME from publicising its bid and pushing ahead for the amalgamation.
The saga is a long one. In May 2017 the Commerce Commission, after an 11month investigation, declined to grant approval for the two major media companies to merge. This comprehensive decision (345 pages) was upheld on appeal by both the High Court (December 2017) and the Court of Appeal (June 2018).
The gist of the denial of approval was that despite undoubted productive efficiency gains for the merged firm, these would be outweighed by losses in the journalistic quality of the news publications and in ‘‘media plurality’’.
The latter means the number and diversity of views offered by daily and Sunday newspapers, radio stations, etc to the public. Media plurality enhances public debate and contributes to the health of a liberal democracy. The Court of Appeal concluded that the ‘‘detriments clearly outweigh benefits, and not by a small margin’’.
The loss in media plurality ‘‘would very likely be irreparable’’.
To acquire Stuff, NZME could go ahead (prior approval is not compulsory) but to do so would risk breaching section 47 of the
Commerce Act 1986 and expose it to significant pecuniary penalties. The safe course is to seek prior permission from the commission. In deciding whether to grant a clearance, the commission has 40 working days to evaluate the application.
Authorisations, another approval route where the anticompetitive potential cannot be overcome, involve a complex costbenefit analysis and here the commission has 60 working days.
NZME seeks to get the commission to complete its assessment by May 31. To expedite this in under three weeks is, in my view, totally unrealistic. It has also audaciously proposed that special legislation be rushed through to bypass the usual strictures under the Commerce Act and permit the deal to go through. I do not see this as warranted and, in any event, it would (if one wants proper public input) require the usual select committee process to be completed, which would not be a swift exercise.
Short of ad hoc legislation, the
Government could issue a section 26 notice to the commission. These transmissions of government policy must be taken into account by the commission in the exercise of its powers but they do not require it to render a decision in line with the Government's wishes.
On March 24, the Government issued a section 26 notice stating that the government policy was that ‘‘the Commerce Commission should have regard to the Government's objective of maintaining confidence in the market for essential goods and services such as grocery products, by ensuring that there is broad and fair access to them by as wide a range of consumers as possible’’.
The Government could issue a similar notice endorsing the media merger if it so wanted. Certainly we know that NZ First is in favour of this. The Prime Minister studiously avoided making any comment on the media merger when asked three times (by my count) during question time in the live ‘‘moving to Alert Level 2’’ announcement yesterday.
In advancing its case, NZME has simply rehashed the same arguments that it used previously:
‘‘NZME believes that the New Zealand media sector is too small for the current number of quality participants and consolidation is urgent in the face of dramatically declining advertising revenue and current general economic conditions. NZME continues to believe that it is the best owner for Stuff as it is best placed to preserve mastheads, newsrooms and jobs.’’
It argues that given ‘‘the current New Zealand media landscape’’ its acquisition of its main rival would ‘‘not substantially lessen competition in any market’’. I dare say that NZME will try to rerun the market definition debate where it lost the argument that new technologies, online platforms and international news agencies meant it was but a bit player in a huge dynamic market. That strategy is unlikely to succeed any more the second time around.
It is hard to agree with NZME's contention that there would not be loss in workable competition in the various media markets. The competition analysis was thoroughly investigated by the commission and it found the merger would significantly impair effective competition in a number of discrete markets such as nondigital advertising, national news (online and print) and community news.
The only real difference I can see is the possibility that ‘‘the current media landscape’’ has altered so much due to the Covid19 crisis that Stuff is on its last legs and thus its acquisition will not really affect competition in the reader and advertising markets.
This is known to competition lawyers as the ‘‘failing company argument’’ and describes the situation where an otherwise potentially anticompetitive merger ought to be allowed since the target firm is irreversibly fading and hence its assets will leave the market anyway. A market player is, according to this argument, on the way out and will disappear as a meaningful competitor. Thus its acquisition cannot reduce competition in the market. The commission has, over the years, quite rightly viewed the failing company argument sceptically and it requires detailed evidence that the firm to be acquired is indeed mortally wounded and that the acquirer represents the only realistic purchaser.
The NZMEStuff merger is in too vital an industry for it to be rushed through and the coronavirus pandemic provides no convincing basis to embrace media monopoly with alacrity.
Do we want, as the commission put it, ‘‘an unprecedented level of media concentration in a wellestablished liberal democracy’’? I think not.