No benefits in foreign ownership

UPDATED

NZME’s failure to persuade the High Court that there was life left in its attempt to acquire Stuff has ended that bid but leaves a pall of uncertainty over our largest media company.

Nine Entertainment made soothing noises in the wake of Justice Katz’s refusal to grant an interim injunction extending NZME’s period of exclusivity. It issued a statement in which it stated it would “…continue to operate Stuff and work for the best outcome for our audience, our people and the wider business.”

The key phrase in that statement is ‘the wider business’. Nine has told everyone who will listen that it wants out of the New Zealand market and the withdrawal by NZME of its Commerce Commission application (an effective end to its bid) does not change that. What has changed is that we now have no idea who the suitors for Stuff might be.

Nine will continue to look for ways to exit the New Zealand market and its preferred means will obviously be to try to extract some value on the way out.

Apart from  NZME it is unlikely other New Zealand media organisations will be in the market for Stuff. MediaWorks’ owners are looking to sell the less-profitable part of their business, not to buy new ones. TVNZ may have ambitions, but they are unlikely to be shared by the government that owns it.

Given recent activity in other media markets, it is highly likely that potential buyers will be private equity firms who believe there are ways of making money out of Stuff if you’re clever enough (they seldom  are). Inevitably, the vast majority of such potential buyers will be based outside New Zealand.

A significant portion of NZME is owned by foreign financial institutions but at least it is a New Zealand-listed media company and a known quantity. The position I took in light of the Covid-19 lockdown’s effect on commercial media cashflows was that it would be better to allow Stuff to merge with NZME than face the prospect of possible closure. Events of the past week suggest that we now face the prospect of Nine selling Stuff to an unidentified overseas buyer with undisclosed intentions. Why, otherwise, would it spurn NZME’s offer to take Stuff off its hands?

That is not a happy position for New Zealand to find itself in – the perilous world of Donald Rumsfeld’s ‘unknown unknowns’.

Today’s decision throws into sharp relief the fact that we need to rethink foreign ownership of our news media. Put bluntly, no good comes of it.

A Guidance Note on the national interest test to be applied to overseas investment in New Zealand was released by the government last week. Among the enterprises subject to the test are ‘media entities that have an impact on New Zealand’s media plurality’. Apart from national security, the test is to assess both the effect on competition and ‘an investment’s likely impact on the New Zealand economy and society, and the extent to which any benefits to New Zealand are commensurate with the sensitivity of the asset being acquired’. There is also a character test, but the guidance note is at pains to explain this wouldn’t be an onerous burden on individuals.

The test, we can be reasonably certain, will ensure our media doesn’t fall into the hands of the Russian mafia or America’s alt-right movement. It may even keep our media out of the clutches of some of the less-reputable private equity firms.

However, a national interest test on the acquisition of media assets still presupposes that foreign ownership is not only permissible but, in certain circumstances, is to be encouraged.

When it comes to media assets the opposite should be the case.

In the days when media companies were worth something, overseas buyers injected significant capital into the New Zealand economy with their purchases. Therein lay the benefit of the transaction for New Zealand. However, over time the canny ones took it all out again…and more.

With the decline in investment value of media assets, there are no more large purchase prices, and companies are susceptible to takeover by groups whose focus is decidedly short-term and based on the extraction of any residual value that may have been overlooked. That, of course, would not be evident from their responses to the national interest test where, no doubt, their intentions would be ‘honourable’ and stretching into the distant future.

I’m reminded of an episode recounted by Jenny Lynch in her memoir Under the Covers after Brierley Investments took over New Zealand News and the New Zealand Woman’s Weekly (on which she worked) in 1988: “We felt extremely vulnerable. Bruce Hancox, Brierley’s chief hatchet man, fronted up to the staff. ‘We’re in this for the long haul,’ he told us. Fat chance. The ‘long haul’ lasted less than a year. In 1989 Brierley stripped the remaining NZ News assets…”

When that happened, the mastheads sold to various parties by Brierley survived (in the case of the Auckland Star only briefly). Much has changed in thirty years: Value stripping of media assets will now leave nothing but dry husks behind.

The writing has been on the wall for profit-seeking media investors. The next wave of buyers seeking quick-turnaround gains will probably be the last. They will see – or be responsible for – the collapse of traditional ownership as titles and services are diminished or closed. The collapse will be hastened if the investors are thousands of kilometres away, have no understanding of – or concern for – the culture of this country and their investment’s place in it, do not feel pressure from local stakeholders (in the broadest sense), and believe they can cut-and-run without consequence.

We have already seen the effect of Hamburg-based Bauer’s abrupt shutdown of a massive section of our magazine market. Their decision to extend possible sales processes to the end of this month was characterised by their sales agent EY as “good news for a positive outcome”. It could mean that they hope some who walked away in frustration at the sales process might come back or that an elusive better offer might materialise. Whatever the final outcome we can be certain that the magazine sector will be permanently depleted – a victim of the time-proven adage: Distance makes the heart grow harder.

Private sector mainstream media in New Zealand has a high level of ownership by financial institutions and a majority of them are overseas based. Mediaworks and Stuff are wholly foreign-owned, and both are either partially or fully on the market.

The journalism that has been at the core of such endeavours will be vulnerable for as long as we continue to treat media no differently than other sections of private enterprise – with or without a national interest test.

If we are to preserve journalism as a non-negotiable part of the democratic state, we need to start thinking about it in a different way and to nurture it for its own sake, rather than as a means to a financial end.

The first step is to recognise journalism as a strategic asset over which New Zealanders must have control.

The next step is to ensure that the organisations producing journalism are in the hands of owners who either willingly embrace the public service nature of the endeavour or are left with no choice but to see it in that light. That almost certainly calls for local ownership and domicile. Local owners feel accountable in ways that overseas entities – multinationals in particular – do not. In another context I have written about a proximity filter: the closer you are, the more likely are you to display empathy and sense of identification. That filter affects the behaviour of those who know that in six months, in a year, in two years they will still come face to face with those impacted by their decision-making. It is part of a complex system of influences that are diminished by distance.

Finally, there must be a matrix of ownership structures that can accommodate journalism at varying scales and orientation. We must have local entities that are large enough to make politicians and other powerholders take notice. We must have small-scale newsgatherers at local level and serving niche audiences. We must have a mix of public and private sector media. But above all, their destiny must be under New Zealand control.

Half a century ago, New Zealand banned foreign ownership of news media. The News Media Ownership Act survived little more than a decade but its intentions were clear. Media law expert John Burrows summed up that intent:

“This statute is a very effective attempt to keep control of New Zealand newspapers and broadcasting stations out of the hands of overseas interests. The government was apparently afraid that wealthy overseas newspaper corporations might gain such a hold in the country that they would stifle their rather less powerful New Zealand competitors and thus gain substantial control of the industry.”

Rupert Murdoch saw to it that the Act did not survive and the rest, as they say, is history. Murdoch came and went. Tony O’Reilly came and went. Broadcaster CanWest came and went. Nine Entertainment came and wants to go.

The threat is no longer dominance by press barons but ownership by foreign investors  driven by short-term financial interests and not the broader interests of New Zealanders. They make our media vulnerable while providing no tangible benefits for this country. If we are able to put in place a framework that can sustain our journalism, we will be better off without them.

 

A bouquet

To Andrea Vance for an eloquent defence of journalism in the Sunday Star Times. An excerpt:

“We report the bad stuff, whatever the consequences. You might curse us for being too negative: no-one reports the planes that land safely. But it is our duty to lift the rock. Because, here’s the thing. Politicians and big corporates will only ever tell you the good stuff. They employ an army of communications to shine up their messages. The negatives are either buried, or so sugar-coated you can’t taste the bitter reality.

“New Zealand isn’t Northern Ireland [where she grew up], although it’s been a rough couple of months. But when things went really wrong: (a shortage of PPE, flu vaccines, MPs passing the wrong legislation), you didn’t hear it out of the mouths of politicians. You learned of it from news media. For those distressed about crowd limits on tangi and funerals, reporters gave them a voice. The Government backed down on gatherings for grieving because of the pressure brought to bear by the media. Wealthy companies repaid the wage subsidy they’d claimed, because of uncomfortable questions from reporters. Journalism brought to light the sanctioning of warrantless searches in homes and marae.

“It’s not all gloom, though. Throughout the novel coronavirus pandemic, reporters churned out a boundless volume of essential information about life under Covid-19. Last week, they crunched the numbers and translated the Budget in a little under four hours. We have celebrated essential workers. And, for future generations, we have recorded the first draft of this strange chapter in our history.”