Tim Murphy looks at the implications of both a Yes or No verdict on the StuffMe merger
Today at 8.30am the Commerce Commission will release its final verdict on StuffMe - the proposed merger of two of our biggest media companies, Fairfax and NZME.
The combined company would include Stuff.co.nz, nzherald.co.nz, the Herald newspaper, all three Sunday papers, and 90 percent of all newspapers nationwide - plus half the country's commercial radio stations.
In a draft decision six months ago the commission found the combo would dominate the markets involved and any new competitors would struggle to find the scale to constrain it. It refused to clear or authorise the merger, finding insufficient public benefits to justify the anti-competitive company it says would result.
What happens if the commission confirms that finding, despite extensive and plaintive arguments from the parties since the draft, and what would follow a decision to overturn the initial rejection and let them merge?
Scenario One - Commerce Commission continues to say NO
If it is a No, the parties could challenge the decision in the courts. However that would be costly, and more importantly, time-consuming when both companies say they have too little time left in the battle for revenue against Facebook and Google. A challenge would most likely centre on the commission considering social good concerns beyond its Commerce Act remit.
Should no appeal be declared, the head of Fairfax Australia, Greg Hywood, has predicted his company in New Zealand would be entering the "end game". That would initially see draft plans to close or cut publication of some newspaper titles. Those high on any list for urgent cost reduction could include the Waikato Times, Timaru Herald, Marlborough Express (already down to three day publication), the Sunday News and numerous small and marginally viable community titles. Expect the Southland Times, for example, to be sold (possibly to arch-rival Allied Press up the road in Dunedin).
Management, commercial, support and editorial jobs would also be cut throughout the company. Fairfax Australia could decide to depart New Zealand entirely, disposing of remaining assets or selling them to media and non-media parties. Private equity moneymen are circling.
For NZME, a No decision would mean cuts and closures as well, with the Daily Post, Rotorua, vulnerable as well as community papers. The company has talked down its prospects to the commission, to emphasise the need for merger relief, but has performed relatively well boosted by big cost cuts. Print advertising continues to dive and digital advertising is not growing as hoped. NZME's radio business has been an under-performer, losing in the revenue and ratings war against MediaWorks in what should be a growth part of the media. Any standalone NZME operation would need to put those radio operations right to provide ballast against the print/digital declines.
NZME could be vulnerable also to private equity funds who would need little more than 20 percent of the company, at a relatively small outlay given the current 91c share price, to take effective control, remove the pro-merger board and executives involved and drive the assets and 'long-tail' of cashflow from the Herald, with radio, hard. The company's share price might not fall greatly, as a No would mean it is a live target.
A No decision could also see a new round of media mergers proposed. It is possible Fairfax could sell or seek part-mergers with Newshub, Spark or other tech firms. Parts of NZME would be a cheap feed for non-media players hungry for content.
Scenario Two: Commission changes its mind and says Yes
Both companies say the merged entity would implement significant cost savings. These would come from the removal of double-ups in senior management and in major functional areas of the businesses. Who needs two chief executives, chief financial officers, transformation chiefs, editorial leaders,** marketing gurus, human resources, IT and sales directors? Jobs further down in commercial, support and editorial functions would still go, as 'synergies' of removing overlapping offerings in newspapers are realised.
The early view, broadly confirmed from within the companies was that up to 700 jobs could go under a merger. It seems likely, from the tone of public comments made by the players that the total cuts may have been wound back in the confidential estimates of savings provided to the commission.
The companies say their merger aims to protect and enhance quality journalism, not imperil it. To that end, the combo's treatment of its two massive news websites, Stuff and nzherald.co.nz, would be instructive. Relieved of the need to compete blow-for-blow for clicks and eyeballs, a move could be made to take the Herald's content more up-market, restoring brand credibility and offering the chance to charge readers for some high-end content.
Oddly, the nzherald.co.nz site is about to be transformed by adopting an expensive and market-leading Washington Post platform. If a merger occurs does the Wapo platform still get introduced or does NZME have an out-clause so the Herald site can instead be merged with the Stuff platform that Fairfax has invested in?
Newspaper closures and cuts would occur under an approval, too. Three Sunday papers cannot remain; many overlapping local and even regional newspaper titles would be vulnerable. Would you retain the Hawkes Bay Today newspaper within the footprint of the now-sister paper the Dominion Post? Can the Waikato Times, which has suffered shuddering declines in sales and readers since going head to head with the Herald in the morning, be retained other than in some local insert or bi-weekly free paper scenario?
How many film critics, fashion editors, cooks, wine columnists, book reviewers, motoring writers, travel editors, sports writers, columnists, bloggers, graphic artists does one company need?
Buyouts by management or local business interests could preserve and even enhance some local papers. Early examples of papers returning to local ownership from the grasp of the national chains have been encouraging in Te Puke and in the Wairarapa.
The two big Auckland newsrooms feeding the Herald/NZME radio and Fairfax papers/Stuff would be de-duped; the Parliamentary Press Gallery offices of the combo would be over-stacked with journalists and face restructuring.
The applicant companies have offered the commission an editorial charter, guaranteeing diversity of viewpoints and editorial independence from the interests of owners and advertisers.
But what would be at risk would be diversity of first-hand reporting. There will be fewer journalists, photographers and video journalists overall charting the first, rough draft of history.
- There is, of course, a Yes-but scenario - where the commission approves a merger but directs that certain assets be divested so as not to dominate markets. However the only divestment that could alleviate the central anti-competitive result - that in online news - would be an order for StuffMe Ltd to sell either Stuff or nzherald.co.nz. And for all kinds of reasons, that would not be feasible.
** Except for Newsroom