WHEN MEDIA DECIDE TO MERGE

This column was written for the June 2016 edition of the PANPA Bulletin

Once upon a time there would be cries of democratic indignation at the prospect of most of a country’s newspapers being owned by one company. There would be demands that the plan be stopped in its tracks.

However, only fairy tales begin with “once upon a time” and merging the New Zealand assets of Fairfax and APN will pass largely unnoticed by most of the residents of that complacent nation. Within the media, there will an air of resigned acceptance and the monopoly watchdog Commerce Commission will be persuaded that it is the only available survival strategy.

Note the tense: The merger will take place as both parent companies are determined to exit the New Zealand market. However, the failure of APN to either float or sell NZME at the right price has been a reality check for both groups. Significant rationalisation plus the creation of a near monopoly in print and a significant digital platform provide the only prospect of leaving two slowly sinking ships with some realisation of value.

What happens, though, after the flotilla of lifeboats head back across the Tasman? Will the lashed-together New Zealand-registered ships be capable of finding safe harbour or will they simply sink more slowly? Much will depend on whether a replacement Kiwi vessel can find a more innovative and successful long-term business strategy than those of the Australian motherships.

In part, this will depend on how much debt the combined New Zealand enterprise assumes. The demerged NZME will take on $NZ102 million in pro forma net debt, along with liability for the outcome of a dispute with Inland Revenue that could see it face a tax bill of $NZ64 million plus penalties of 10 to 50 per cent. It is inconceivable that Fairfax will fold its New Zealand assets into the new company without offloading some of its debt. The long-term viability of the Kiwi enterprise will depend heavily on the weight of that ballast.

In the meantime, there will be a host of shorter-timeframe consequences. There will be headcount and systems consolidation. The inevitable newsroom reductions are already being rehearsed, as is the effect on the range of ‘voices’ that will continue to be carried in New Zealand newspapers. An impact on sales and back office staff is equally inevitable. However, there will be less effect on distribution systems as NZME and Fairfax NZ already have printing and distribution agreements.

Where there is duplication, it will go – as in the Sunday newspaper market where NZME’s Herald on Sunday competes with Fairfax’s two titles. The smaller of them, Sunday News, likely faces closure while the other title, Sunday Star-Times, will target the upper half of the market and its new stablemate the lower half. However, the majority of other titles in both stables are reasonably geographically distinct and, where there is duplication, there may be some consolidation of titles or re-arranged circulation areas. And it is equally likely that the restructuring will simply accelerate some hard decisions that would inevitably have to be made over less viable print publications, particularly in regional and community markets.

From an editorial point of view there are few positives in these scenarios – beyond the fact that they can prolong the life of newsrooms. There is, nevertheless, one large digital positive that APN has already rehearsed to jump a potential monopolies watchdog hurdle. The combination of Fairfax’s Stuff website with its two million unique visitors per month and Herald Online (1.6 million) would, even allowing for crossover, create a site able to compete locally with Googler and Facebook – the real enemies faced by mainstream media today. Even a complementary twin-site strategy with common advertising content would garner a greater share than the two competing platforms.

Unrehearsed in the commentary chatter, however, has been the consequences of the merger for industry bodies. The Newspaper Publishers Association and its promotional and commercial arm News Works are already dominated by the Big Two but they become hopelessly lopsided after a merger. The few remaining independents – the Otago Daily Times, Ashburton Guardian, Westport News and Gisborne Herald – will carry insufficient weight to justify continuation of the stand-alone industry body.

Nevertheless, there are benefits in the existence of independent bodies to represent a collective voice in dealings with government and regulatory bodies. Perhaps the demise of the NPA could be a catalyst for the formation of a Mainstream Media Association representing both print and broadcasting entities (with their digital enterprises). They already cooperate in the Kiwi Premium Advertising Exchange (KPEX), a joint programmatic advertising exchange service launched last year by Fairfax, NZME, Television New Zealand and MediaWorks.

Equally unrehearsed in the analysis the merger plan has been the effect on senior personnel beyond the creation of an NZME board following its demerger from APN. Merger with Fairfax NZ should signal a time for board and senior executive renewal. The new company will need new thinking if it is to reverse the decline that precipitates its creation.