Disappointment from Fairfax and NZME executives as merger fails

As the Commerce Commission (NZCC) announced this morning that it would not approve the merger between NZME and Fairfax New Zealand, the heads of both organisations published official statements expressing their disappointment at the decision.

While NZME chief executive Michael Boggs offered a more measured response focusing on a continuation of the company’s current strategy, Fairfax Media chief executive Greg Hywood criticised the decision for failing to address the impact of international media companies in the local market.  

“This decision does nothing to address the challenge of the global search and social giants, which produce no local journalism, employ very few New Zealanders, and pay minimal, if any, local taxes,” Hywood said.

“We believe that the NZCC has failed New Zealand in blocking two local media companies from gaining the scale and resources necessary to aggressively compete now and into the future.”

Hywood also did not shy away from explaining what this would mean for the local business.

“In light of the NZCC decision, an even greater focus on cost efficiency will be necessary,” he said.

“Moving to the next stage of our New Zealand publishing model will involve reshaping how we deliver our journalism to local communities. Further publishing frequency changes and consolidation of titles is an inevitability.”

What this means is that the media diversity the Commerce Commission was trying to defend will in any event come under pressure as Fairfax restructures its news teams to ensure that the desired “cost efficiency” is achieved.

During one of the hearings conducted in the lead up to this decision, Hywood stated, emphatically, that preventing newspapers publishers from making necessary commercial decisions would spell an end-game for the business.

Whether this now signals the start of that end-game is unclear, but newspaper journalists employed by Fairfax throughout the country will continue to face uncertainty for the foreseeable future. A nervous look across the ditch where Fairfax has proposed plans to cut 125 full-time equivalent positions will only accentuate these concerns.

Two conversations happening simultaneously

The Commerce Commission’s initial rejection of the merger expressed concern over the concentration of media control that would result from the two companies coming together, and these views remained largely unchanged as the final decision was made.

“This merger would concentrate media ownership and influence to an unprecedented extent for a well-established modern liberal democracy,” said the Commission’s chair Mark Berry.  

“The news audience reach that the applicants have provided the merged entity with the scope to control a large share of the news consumed by a majority of New Zealanders. This level of influence over the news and political agenda by a single media organisation creates a risk of causing harm to New Zealand’s democracy and to the New Zealand public.”

Whether the remit of the Commerce Commission even extends beyond competition analysis into public policy analysis remains moot, but the reasoning given by the Commerce Commission clearly straddles both sides of the debate.

Setting aside the issue of media plurality, Hywood went on to even question the commercial reasoning given by the Commerce Commission in his statement.   

“Our impression from the outset is the NZCC seemed to be fixed in its assumption that the relevant competitive marketplace was restricted to only traditional media,” he said.  “No amount of market data, comparable decisions or studies from similar markets overseas could move them from that.” 

Hywood isn’t alone in expressing his frustration in regard to the Commerce Commission’s antiquated view on digital media. 

Commenting after the Commerce Commission’s initial rejection, The Spinoff editor Duncan Greive described the government body as standing in the way.

“I think it’s really a case of misunderstanding the reality of the contemporary media situation. There’s this arrogant assumption that the news will continue to be made,” Greive told StopPress.

“It assumes that if the merger doesn’t go ahead, things are just going to continue as they are. But everyone working in journalism knows that this is a very optimistic view.”

The ASA’s decision to release ad spend figures yesterday again reiterated exactly how much pressure traditional media faced under the growing weight of Facebook and Google’s share of overall ad spend.

The ASA split out the digital revenue of the television, radio and newspaper industries for the first time, giving an indication how small digital revenue remained for local publishers.

If anything, the timing of ASA’s release served as a reminder that Google and Facebook were competing with local media companies for ad spend but that they were winning the battle without actually making anything.

To underestimate the impact this might have on the future of media in New Zealand while simultaneously claiming to protect media plurality seems akin to locking the cabin doors on a slowly sinking ship.

Approval does not equate to salvation

Although the merger would have brought together the two largest news providers in the nation, it would not have necessarily equated to a more successful commercial future.

A 2003 research paper titled ‘Cultural Conflict and Merger Failure: An Experimental Approach’ published in Management Science found that a majority of corporate mergers fail commercially in part because of cultural conflict between the two previously independent organisations.

The researchers found that cultural conflict between the two merged firms often led to widespread failure of corporate mergers.

They explained that one of the more consistent ways in which this might play out in a merged business is through the distribution of blame.

“The questionnaires we administered suggest a typical pattern of blame consistent with research on attribution errors: employees of the acquired firm blamed the new employee, and new employees blamed the managers, for poor postmerger performance,” the researchers said in their conclusion.

This, when viewed in the context of two highly competitive news firms filled with big egos, suggests that integration wouldn’t have been all that easy.

This is not to say that it would’ve been impossible. But as the researchers point out, underestimating the difficulty of cultural integration is one of the biggest mistakes companies make when deciding to merge.

The point here is not that the merger would’ve failed to deliver the results it was intended to, but rather that there’s no point in bemoaning what might’ve been. Because what might’ve been would’ve depended entirely on what happened after the merger was actually approved. 

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