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NZME and Stuff appeal decision; industry shares its thoughts on merger

NZME and Stuff have announced this week they will seek leave to appeal a High Court ruling that upheld a Commerce Commission block on their proposed merger. In December the High Court upheld a Commerce Commission ruling not to clear or authorise the merger. With that in mind, we take a look at what industry folk think of the proposed merger and mergers in general.

February 7, 2018 | features

Like a real-life modern iteration of a Capulet parent, the Commerce Commission has done all it can to stand in the way of the proposed matrimony of Fairfax and NZME, and Sky and Vodafone. So what does the future hold for the star-crossed lovers? We ask a chorus of some smart folks across the industry for their thoughts on these tragic romances. 

Dr Merja Myllylahti

Do you think the regulators understand the challenges of modern media? 

Dr Merja Myllylahti, project manager of Journalism, Media and Democracy research centre (JMAD) based at AUT

The final determination of the NZME/Fairfax merger clearly shows that the Commerce Commission understands the digital challenges of the two companies. It correctly notes that the applicants “like all news media, are in a transition phase. The growth in digital revenues is currently not replacing falling print revenues and they are seeking to transition to a more sustainable business model”.

However, I think we need to ask if anyone understands the real challenges of the modern digital media and how to respond to those challenges. Do publishers themselves know where we are heading? I doubt it. It seems that no-one really knows how the news media looks in the future, and how they make money and sustain journalistic operations.

I recently attended an international media conference in San Diego and one of the key messages there was that news publishers need to stop blaming Facebook and Google for all their problems, and start to find solutions. For example, in Norway, news publisher VG has invested in a separate video company which now produces more advertising revenue than its print products. 

Tim Murphy

Did the Commerce Commission over-reach in the NZME/Fairfax decision? Did it extend into territory that doesn’t really fall into its remit? 

Tim Murphy, co-founder of Newsroom

This is the crux, really, of the NZME/Fairfax appeal. Basically, they say the Commerce Act restricts the Commission to considering economic efficiencies alone, not social goods or ‘political’ considerations. (I think by ‘political’ the StuffMe parties mean talk about democracy and the public good.)

The Commission’s view, clearly, in its final decision after hearing all the Fairfax and NZME arguments on sticking to its Commerce Act knitting, was that all considerations of how a market could be detrimentally affected not only can, but must be considered. It provided clear examples where just that approach was validated by the courts.

My view is that you cannot and should not evaluate a media merger solely on the efficiencies, the ‘synergies’ that applicants put forward. Nor can you try and divorce the dollar savings from the journalism costs. No one seriously thinks journalism will benefit from this proposed merger. They simply think by being given a break by the Commerce Commission to act anti-competitively they might stay around a little longer and something, anything, might happen that changes the dominance of Facebook and Google in the ad markets.

Leaving out the effects on journalism and the public good would be like assessing an anti-competitive telecoms merger and focusing only on the dollars saved and not the fact the 111 service would no longer function as it needs to. 

Nicky Greville

Have Google and Facebook won the online ad game because they simply offer more efficient/ effective forms of advertising (their offerings are more targeted, require fewer people to run and work instantly) and how can local media companies compete with this, regardless of how big they might be? 

Nicky Greville, national general manager of media at Y&R NZ 

There is no denying that both Google and Facebook are the most prolific digital advertising platforms that we have at present in terms of reach and management of advertising options. Both are fuelled by intuitive technology and almost endless targeting opportunities that focus on the consumer first, with advertising technology then designed around them; no doubt entirely daunting for local companies not used to economies of scale at a global level and innovation at the rate of a heartbeat.

However, as the recent safety and reporting accuracy issues have highlighted, advertising that works is not solely about efficiencies, metrics that oversimplify (or overstate) time spent with content, or reach.

We have a saying at Y&R Media – attention eats reach for breakfast. Yes, local companies have a way to go in terms of competing (or more likely working to integrate with) the technology that both Google and Facebook platforms offer, but where they do have an advantage is knowing inherently what it is that makes Kiwis tick and making great content that people invest time and attention on.

Here’s what I know: across a number of our recent successes, all of the triggers we used for capturing the attention of massive audiences have been using content via traditional media. Google and Facebook were certainly an important part of the channel mix for the spread of ideas–but they were not the be all and end all of the ideas themselves. Google and Facebook don’t build brands or sustain brand values; it’s conspicuously creative content that drives this. As such, they cannot achieve the power of tangible traditional media.​

So what’s the opportunity for local companies to compete? The answer lies in brands, agencies and media partners coming together to make conspicuously creative ideas that generate an earned PR effect (using Google and Facebook at their best). It’s about making stuff together that people truly want to spend time with.

In a grossly oversimplified summary, the merger would have certainly helped in terms of scaling up the resources to help deliver efficiencies to the businesses. But our jobs are about so much more than cost efficiencies and numbers. The need to produce outstanding content that captures hearts and minds of New Zealanders (and in doing so compelling them to act) isn’t a new requirement from our media sources, nor is working collaboratively with brands and agencies to do this. 

Paul Catmur

Would the NZME/Fairfax merger have made a difference given how much better Google and Facebook are at the online ad game?

Paul Catmur, managing partner and executive creative director at Barnes, Catmur & Friends Dentsu 

It all depends who you ask... 

NZME & Fairfax Shareholder: ‘You’re not fooling anyone. This would just be papering over the cracks, a chance for a short-term financial blip as the redundancies and closures roll through. It will take a much more innovative solution to our long-term problems than hiding in a cave with our rival.’

Consumer: ‘I find the standard of journalism (with a few exceptions) across New Zealand papers cannot compete with foreign publications. True, The Guardian, The Daily Mail and The New York Times might not cover the possible drench shortage in Whykickamoocow but I’m not half as concerned about that as you seem to think.’

Client: ‘So with my already fragmenting media options they want to create a monopoly to further limit my choices and allow them to crank
up the price? If Google and Facebook offer more effective solutions I suggest you try and better them, rather than crying foul to the Commerce Commission.’

Democrat: ‘There’s a name for people who think that it’s a good idea to consolidate the press into one outlet. It’s a name often used in the same sentence as Donald Trump.’ 

Taxpayer: ‘If Facebook and Google are scraping off our media dollars and hiding them offshore it’s down to the government to find a way to collect. I look forward to seeing proposals about how to claw this back during the coming election.’ 

Facebook and Google: ‘NZME and Stuff who?’ 

Sam Aldred

In light of Vodafone’s recent partnership with the All Blacks, do you think it’s likely that the telco might one day vie for digital streaming rights, particularly when viewed in the context of all the problems Sky has had with its online services? 

Sam Aldred, director of Receptive.tv 

Vodafone aren’t going to make a standalone exclusive investment in broadcasting rights for the All Blacks. I don’t see Vodafone Group releasing $100 million in capex to pay for it or the millions in annual production costs and the significant internal team that would be required to administer it. So, no. Much more likely is a joint bid between the pair, with Vodafone having some exclusive carveouts – likely mobile, with the big screen experience still owned by the satellite broadcaster.

There is a chance the NZRU might go it alone and sell direct packages to the New Zealand public but their core remit is to maximise their revenue and a cheque in hand is probably worth two in the bitcoin bush.

The best bet for smoke signals to the future broadcast state of rugby in New Zealand, is to look at how the battle over cricket rights in Australia pans out later this year. There are multiple players involved and a progressive rights body. I’m sure the NZRU will be looking at it with interest.

Nigel Douglas

Who do you think is in a better position now that Sky and Vodafone haven’t merged? 

Nigel Douglas, managing director of MediaCom 

What you’re seeing is audiences and thus revenue fragmenting and shifting with the digital revolution. The media companies need to evolve their businesses with the market. It’s a travesty that the recent mergers were declined by the Commerce Commission and hypocritical that they approved Bauer’s (APN’s magazine titles were purchased by Bauer in 2014).

All of the media companies could benefit from mergers, but the ones that are losing audience are print and TV. NZME and Fairfax could create efficiencies for their declining newspapers and regional synergy across print and radio. Bauer could still do more.

The TV companies could all benefit from almost any media partnership, but as Vodafone has shown, the watch out is for emerging players. In a digital world, the telcos are basically the ‘broadcasters’.

Whilst the Com Com doesn’t seem close to getting its head around this, I would predict that the telcos are and will. Traditional media companies may need to remodel their business, the telcos want to remodel theirs. This is just the beginning. 

Richard Thompson

Given the amount advertisers are spending on Google and Facebook, do local marketers actually care whether businesses are local or international? Is this something they should care about? 

Richard Thompson, chief executive of KPEX 

Yes, absolutely. There are a couple of factors to take into account when considering why they care that go beyond the obvious and more emotive reasons.

Firstly, a recent Communications Council NZ report has demonstrated that advertising contributes $6 billion to the New Zealand economy each year and helps employ over 44,000 people. New Zealand’s advertising industry ranks fourth in the world for creativity and if marketers expect to see such an outstanding output and business results into the future then we are all very incentivised to support the New Zealand advertising ecosystem.

Secondly, marketers care about the performance of their activity and there’s plenty of evidence to demonstrate that local content works harder from a brand perspective.

Why do we see so many New Zealand brands associate themselves with New Zealand’s culture, sporting teams or events? The answer is simply a more engaged and invested audience. New Zealanders care about, engage with and can relate best to our Kiwi culture. The same applies to content, it’s no surprise that the majority of the top rating TV shows every year are New Zealand made. Of course there is value in New Zealand content for brands and we should protect this fervently. 

What was the mood like in the newsroom on the day the merger failure was announced? 

Anonymous NZME reporter 

It was fine at NZME. Some people were saying we wouldn’t have jobs in five years’ time, but they were also celebrating increases in readership and more people listening to Newstalk ZB, so it’s not like it really mattered.

A lot of people seemed to support the merger, but I didn’t particularly. I don’t think we would be less likely to become redundant if we merged with Fairfax. It was business as usual. Come to think of it, I think Shayne Currie actually said “it’s business as usual”. It would be interesting to hear what it was like at Fairfax though, because they haven’t been doing so well. All I’ve heard from another Fairfax journalist was that they hadn’t been told anything. 

John Baker

Why do you think Sky and Vodafone are so eager to merge? They’re both successful businesses already, so what’s the possible motivation behind this deal? 

John Baker, managing director at Lassoo Media

I think this is a reflection of Sky’s need to future-proof its business and specifically about moving its obsolete distribution technology/network to the internet and migrating away from scheduled programming to a better user experience along with the evolution of its revenue/product model to enable greater flexibility and consumer choice.

While there is no reason they can’t do this alone, a partnership with Vodafone would appear to be able to accelerate it and perhaps mitigate the investment requirement. On the other hand, wholesale access to Sky content would give Vodafone a competitive advantage but once again, the same argument applies with respect to this being possible now. I am not sure I agree with the Commerce Commission’s call on this one either. 

Bernard Hickey

Can local publishers compete with Google and Facebook in the online advertising space?

Bernard Hickey, founder of Hive News 

The simple answer is that Facebook and Google have won the battle for online advertising. They own the data and have the engineering resources to out-compete, underprice and swamp news publishers hoping to survive on earnings from display advertising.

News publishers should give up on display advertising and either try sponsorship arrangements or go behind paywalls. The long-term future for news publishers is producing excellent, nourishing and compelling news that provides something worthwhile to news readers and viewers day in and day out, and which those readers and viewers are prepared to make regular payments for.

Other news publishers overseas have worked this out and are focused completely on serving their readers as subscribers both online and offline, rather than focusing on growing large online audiences that can’t be monetised through advertisers.

That game is over, but unfortunately, NZME and Fairfax NZ haven’t worked that out yet. They both need to focus on building long and strong relationships with paying readers directly, both online and offline. New owners may force the current leaderships of NZME and Fairfax NZ to see financial sense and stop them from giving away their news in the vague hope of monetising it with display advertising. We’ll see. I suspect that new private equity or family owners will be less enamoured with the digital-first group think. 

Kath Watson

Would there have been any advantages from a media buying/advertising perspective, had NZME and Fairfax merged? 

Kath Watson, OMD chief executive

OMD was an enthusiastic supporter of the proposed merger of NZME and Fairfax. Our media market has radically changed and will continue to do so.

From a media buying perspective, international content providers offer scale and efficiencies our local partners cannot compete with. But we also need local providers to offer New Zealand consumers locally relevant content in an engaging and innovative environment which in turn, creates effective opportunities for our clients. This merger would have allowed the resource to deliver this.

Granted, amalgamation would reduce duplication within the businesses. But, this would have created efficiencies to be funnelled into quality, local and topical content; as demanded by consumers and our clients. Global players do not pour enough resources into small markets like New Zealand to provide quality local content. This creates a clear role for NZME/Fairfax in the market and exciting opportunities for advertisers.

Without this merger, we worry about the future of our local publishers and their ability to produce content that New Zealanders love, and advertisers’ demand for engagement with audiences. Declining print circulations and difficulties in monetising digital content are constant challenges, but a merged NZME/Fairfax would create a commercially viable local voice to represent all of New Zealand. 

  • This story originally appeared in the 2017 Media issue of NZ Marketing magazine.

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