The High Court has dismissed an appeal brought by NZME and Fairfax New Zealand against the Commerce Commission’s May 2017 decision refusing their proposed merger.
 
The High Court explained that, under the Commerce Act, the Commission had two avenues via which it could have approved the merger application. The first, section 66, provides for the Commission to grant clearance for a merger if it is satisfied a merger “would not have, or would not be likely to have, the effect of substantially lessening competition in a market”.
 
Failing that, under section 67, the Commission could grant authorisation for a merger if, despite the risk of decreased market competition, the merger would nonetheless result in such a benefit to the public that it should be permitted.
 
The appellants, NZME and Fairfax, argued, among other things, that the Commission’s market definition and competition analysis was flawed. If unsuccessful on that appeal ground, the appellants argued that the Commission’s assessment of the benefits and detriments of the merger was wrong in sufficient respects that the Court should grant an authorisation.
 
The High Court reached the same conclusion as the Commerce Commission in respect of four of the six markets subject to the competition analysis, namely: the reader markets for online national news and for Sunday newspapers; and in both the reader and advertisers markets for community newspapers in 10 North Island areas where the appellants’ existing community newspapers compete.
 
The Court did not uphold the Commission’s view that the proposed merger would have resulted in the likelihood of substantially lessened competition in the advertising market for Sunday newspapers, and it also dismissed the prospect of one of the appellants introducing a pay wall for their online publication, post a merger.
 
The proposed merger would have seen NZME acquiring all of the shares in Fairfax and, in exchange pay $55m cash, issuing shares equal to a 41 per cent shareholding in NZME to an Australian subsidiary of Fairfax Media. Under section 67, the Commission treated the appellants as each other’s strongest competitor in most of their businesses’ principal spheres of activity. The High Court upheld the jurisdiction of the Commission to consider detriments beyond economic or financial detriments in the relevant markets and, in particular, to take into account the material detriment arising from loss of media plurality.
 
On the issue of media plurality, the Court stated: “On all the evidence before the Commission, we consider that it is appropriate to attribute material importance to maintaining media plurality. It can claim status as a fundamental value in a modern democratic society. We cannot be certain that a material loss of plurality will occur because of the factors we review that would hopefully assist in maintaining it. However, the risk is clearly a meaningful one and, if it occurred, it would have major ramifications for the quality of New Zealand democracy. In our analysis on the clearance application appeal we have recognised material barriers to entry in the market for production of New Zealand news. We agree with the Commission that a substantial loss of media plurality would be virtually irreplaceable.
 
The Court found the Commission was also entitled to place significant weight on the prospect of reduced quality of the products produced by the merged entity.
 
Fairfax and NZME also challenged a number of inadequacies in the process adopted by the Commission in its investigation and production of its determination. The Court dismissed those criticisms.
 
The Court has indicated that the Commission is entitled to costs.
 
The country’s leading online news sites Stuff and nzherald; the three largest metropolitan daily newspapers, The New Zealand Herald, The Dominion Post and The Press; the three Sunday newspapers; radio stations; and a large number of community newspapers.
 
The High Court will make the full version of the judgment, redacted for any commercial sensitivities, available on the Courts of New Zealand website as soon as possible.
 
Commission Chair Dr Mark Berry welcomed the Court’s decision. Ha said, “The merger determination and subsequent appeal have been a significant and resource intensive piece of work for the Commission over the past 18 months.
 
“The Court’s ruling confirms we have the jurisdiction to consider detriments beyond those which are economic and that we can consider the wider public benefits when assessing merger authorisation applications.”
 
NZME chief executive Michael Boggs expressed disappointed with the decision as the company believed the merger was in the best interests of shareholders and the media industry as a whole. He said, “While the Fairfax merger offered us benefits, we have not been resting on our laurels in the last 18 months as we pursued the transaction. We will continue to examine shareholder value enhancing strategic initiatives, while enhancing the competitiveness of content generation and distribution.
 
“NZME has great people, brands, audiences and customers and a sound strategy to grow shareholder value. We remain very much of the view that the New Zealand media sector is an exciting place to operate and, while there are headwinds in some areas, there are real opportunities in others. NZME is well positioned to take advantage of those opportunities.
 
Fairfax Media chief executive Sinead Boucher says its strategy not change. She said, “Obviously we remain very competitive around our journalism, but we are fortunate that in New Zealand the main media companies can operate really collegially where there is shared advantage. I’d expect we would continue to look for areas to cooperate in – I don’t see any reason that would change.”
 
“Our focus continues to be on building out our digital products and ventures, and actively seeking new partnerships to allow us to leverage our large audience into new areas of revenue.”

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