NZME's 'Kiwi Share' plan to take over Stuff could have led to disputes, officials warned

Friday, 24 July 2020

NZME’s Kiwi Share plan appeared to receive a lukewarm response from officials advising the Government.

Media company NZME planned to keep Stuff Ltd’s online news as a “competitor” to its NZ Herald website, if the Government had helped it take over Stuff.

NZME told the Government that Stuff was “on a road to failure as a standalone business within the next two years” when seeking help for its plan.

NZME’s intentions for Stuff were set out in a secret proposal that it put to the Government in September last year seeking its assistance in clearing the regulatory hurdles for a takeover.

Communications Minister Kris Faafoi originally turned down an Official Information Act request for details of NZME’s lobbying, but agreed to release documents on Thursday after Stuff filed a complaint with the Ombudsman.

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Stuff, one of New Zealand's largest mainstream news websites, is translating some of its news stories into te reo Māori.

They show NZME proposed seeking Commerce Commission approval to acquire all of Stuff’s assets and to transfer the Stuff website and “an appropriate editorial arm” into a subsidiary with its own constitution and in which the Government would be given a “Kiwi Share”.

NZME said the Stuff “special purpose vehicle” would source at least 30 per cent of its content from “third parties” under a revenue-sharing model and the remainder from mastheads owned by NZME.

The Kiwi Share provisions and principles would be designed to maintain Stuff as an “independent and sustainable competitive force in online news”, it said.

Stuff owner and chief executive Sinead Boucher said she had not been well acquainted with NZME’s proposal which was prepared “independently from Stuff by a competitor”.

Commenting on NZME’s forecast that Stuff was on a road to failure within two years, Boucher said that would not have been Stuff’s view of the business then “and it is definitely not my view of the business now”.

Stuff chief executive Sinead Boucher says NZME’s claim Stuff “on the road to failure” not Stuff’s view of the business “then, or now”.

NZME’s proposal was put forward almost a year ago, before the Covid-19 pandemic, and Stuff had since come through that economic shock, she said.

Stuff had a larger audience than the NZ Herald website even before NZME introduced an online paywall last year, according to researcher Nielsen.

But Boucher said NZME’s plan for Stuff appeared to be “just a mechanism” to overcome the plurality concerns that led the Commerce Commission to decline NZME’s original application to take over Stuff in 2016.

The Ministry of Business, Innovation and Employment (MBIE) said that if the Government determined NZME was not living up to its obligation to keep plurality alive through Stuff, it would have had the “nuclear option” of having the Commerce Commission re-examine the merger.

NZME’s lawyers, Chapman Tripp, told the Government that NZME considered its proposed acquisition of Stuff as “vital to the continued operation of the fourth estate as we know it today”.

“Without the merger, NZME predicts loss of commercial media plurality and a fall in media quality through corporate failure over the medium term,” it said.

The Stuff subsidiary would have had a “guaranteed base of editorial resources to maintain quality of content”, it said.

Chapman Tripp marked its memorandum as “strictly confidential” and “not to be released under the Official Information Act in any circumstances”.

NZME’s attempts to acquire Stuff finally collapsed in May when Stuff’s former owner Nine Entertainment terminated negotiations with NZME and instead agreed to sell Stuff to Boucher for one dollar.

Nine cited difficulties getting regulatory approval for a takeover of Stuff by NZME as a reason for breaking off its negotiations with NZME.

Boucher said she had supported a merger with NZME in the past, given the options she was aware of at the time, but with the benefit of hindsight she was pleased with the way things had turned out.

“I think the business as a whole is better off now where we are.”

NZME’s proposal appears to have been treated with caution by Faafoi and MBIE officials from the get-go.

MBIE officials said NZME wanted a commitment from the Government by October 24 that it would support its proposal, subject to Commerce Commission clearance.

But Faafoi’s office told Stuff as late as January this year that Faafoi had still not received a plan from NZME at a sufficient level of detail for him to consider.

MBIE officials said NZME had painted “a very bleak” picture of what would happen if the Government did not approve its plan.

But they said they believed there was only a “50:50” chance of the takeover being accepted by the Commerce Commission even with the Kiwi Share in place, questioning whether the commission could classify Stuff as a “failing firm”.

The Kiwi Share protections NZME had proposed to protect plurality “had some subjectivity about them” which could have led to disputes between the Government and NZME about whether they had been met, they said.

MBIE officials suggested the Government considered alternatives to NZME’s proposal, at one point reviving speculation that Stuff could instead be bought by TVNZ.

“It would be interesting to work with Ministry of Culture and Heritage to understand the counterfactual more. For example, whether TVNZ might be interested in buying Stuff’s online business,” they said.

MBIE advised Faafoi that NZME’s proposal could “hasten the decline of journalism” if the Kiwi share obligation was “poorly specified or otherwise allowed NZME to reduce the number of journalists employed faster than would happen in the absence of the acquisition”.

“If you are looking for a sustainable solution to the issue of the decline in journalism we think government funding through NZ On Air may be required,” they advised.

The officials made it clear in the documents released under the OIA that they did not support a “legislative override of the Commerce Act” to authorise NZME’s acquisition of Stuff.

“We also see it as incredibly important that the Commerce Commission’s independence is maintained.

“That is, there should not be any pressure placed on the commission to approve the clearance,” they said.