StuffMe is back, but will the Commerce Commission play ball?

Tuesday, 19 November 2019

News that Stuff could be acquired by NZME has capped off the most tumultuous month in the history of New Zealand media.

ANALYSIS: November has been the month of the media mega-merger.

News that NZME has initiated a second attempt to acquire Stuff, after its first was shot down by the Commerce Commission and the Court of Appeal last year, underlines the exacting position the modern media finds itself in.

It comes on the back of news last week that the Government is considering disestablishing RNZ and TVNZ and merging them into a single mega-broadcaster, and news in October that TVNZ's competitor, MediaWorks, is trying to offload its loss-making TV assets.

It's hard to imagine a time when the five largest players in a single industry were all up for sale or merger all at the same time.

* PM 'not approached' on NZME-Stuff merger but broadcasting minister may have been

* Rise of Facebook and Google and failed NZME/Stuff merger threaten regional journalism

* Stuff, NZME lose at Court of Appeal over merger

Sources say the Government is being lobbied to help progress the sale of Stuff to NZME.

* Stuff to sell or close 28 community and rural newspapers**

It's been clear for some time that the media industry is in trouble. It's also clear that the media and competition regulators have been even slower than the companies they regulate to fully appreciate the scale and scope of the change.

When the Stuff-NZME merger was first rejected by the Commerce Commission, it said that the synergy benefits of between $40 million and $200m a year did not outweigh the loss of a 'plurality' of voices and quality in the news media.

Questions were quite rightly asked as to whether the competition regulator had any mandate to probe into media plurality.

Those questions look to be set to rest by a new proposal that would ring fence the editorial operations of the two companies, keeping them independent and competitive, whilst taking advantage of backroom synergies.

This means we could be headed back to the Commerce Commission, which is under new leadership after Mark Berry, the previous chairman, left last year.

Reviewing the commission's previous rulings, it still isn't clear that it understands the nature of Stuff and NZME as modern media companies.

In its ruling, it noted it would result in a single outlet controlling nearly 90 per cent of New Zealand's print media market, merging the country's largest mastheads, such as NZME's New Zealand Herald with Stuff's Dominion Post and The Press, alongside a raft of community newspapers.

It also said it would 'substantially lessen competition in a number of markets, including the markets for premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions throughout New Zealand'.

Commerce Commission previously decided to block the Fairfax and NZME media merger in 2017.

Those of you reading this piece on your phone, tablet, or computer can possibly understand the folly of such an objection. The modern media landscape isn't fought by trenchcoated reporters telephoning scoops back to smoke-filled rooms, ready for an 'evening edition' hawked by cheesecutter-wearing paperboys on every corner in town.

That landscape was a battle for print supremacy, where multiple papers would battle it out in each main centre as well as up and down the country.

Modern media is different. This is an attention economy, where companies aren't just competing for space on the newsstand or for your viewership of their 6pm bulletin, they're competing for your attention – and they're competing for it 24 hours a day.

This means Stuff and NZME aren't just fighting with each other, they're also competing with RNZ, TVNZ, MediaWorks, Newsroom, and The Spinoff.

And that's just New Zealand's small piece of the equation. The attention economy has some pretty hefty international competition too, in the form of Facebook, Google, and the companies they own.

In terms of attention, Stuff and NZME compete ruthlessly and successfully with the social media giants. Information given to the commission showed 2.4m New Zealanders spent 5m hours a month on those two companies' websites.

New Zealand is one of the few countries in the world where news websites hold their own against social media giants. Stuff is the most visited domestic site in New Zealand.

The problem of course – and what separates companies like Stuff from ones like Facebook – is that media companies tend to be very heavily leveraged. They cost a lot to run. Stuff returned a profit of A$28m (NZ$30m) on revenue of $253m in its first year as part of Australia's Nine media group.

It's not true that the only problem is media giving up on revenue from subscriptions and paywalls.

While it's true that media companies should probably never have given their content away for free, turning their collective backs on a healthy source of revenue, it's also true that they have never sustained themselves from cover prices alone.

Newspapers have always been in the advertising business – and they've generally been pretty good at it. Not that long ago, newspapers didn't just make money, they made people rich.

Rupert Murdoch, now one of the richest men in the world, saw that opportunity. He bought the company that owned The Dominion, forerunner of The Dominion Post, his first acquisition outside of Australia.

That same paper, along with others up and down the country, was eventually bought by Fairfax, a Sydney-based media dynasty.

It wasn't the paltry cover prices of Fairfax papers that made the dynasty's fortunes, it was the fabled 'rivers of gold' from advertising.

If an advertiser wanted to reach their audience, traditional media was the only game in town. The rules were the same if you were a carmaker advertising your latest model, or proud parents letting the world know you'd had a baby.

This has irrevocably changed. Facebook and Google offer cheap and ferociously effective ways of targeting ads at consumers. The cost of advertising has crashed. Newspapers are no longer the gatekeepers.

Interestingly, this argument found short shrift with the commission, which found that NZME and Stuff (then Fairfax) were competitive in the advertising space, and that advertisers pitted the two firms against each other to negotiate the best price.

The commission didn't think Facebook and Google were real competitors in local advertising, and that's partly true. There's still no better place than papers for a big local advertising campaign from big local retailers – but that won't be the case forever.

We still don't know what the commission thinks about the new proposal and it appears there's a chance we never will, if ministers choose to enact some legislative override.

But it's high time that New Zealand's regulators, like the companies they oversee, drag themselves into the 21st century. When they do, they will see that the real competition isn't between the rapidly evolving legacy brands scrapping for what's left of the New Zealand advertising market, but between enormous multinational tech companies over consumers' ever-fickle attention.