Gordon Campbell on the Fairfax/NZME merger

Not that Mark Zuckerberg probably thinks about us all that much, but Facebook is having a profound impact on the survival strategies of every media company in New Zealand, big or small. Basically, Facebook, Google etc continue to soak up the lion’s share of the advertising dollars that local media had once naively hoped would fund their own digital news operations. To rub salt in the wound, Facebook and its ilk serve only as distribution platforms for news, and don’t invest anything at all in the costly business of news gathering. Local media do all that, while Facebook scoops up the bulk of the financial rewards.

Last week, the Commerce Commission held a conference in Wellington in order to canvass the competition issues involved in the proposed merger between this country’s two biggest media companies, Fairfax and New Zealand Media Holdings. Facebook didn’t attend the conference, but its spectre hung over the entire proceedings.

According to the Fairfax/NZME executives in attendance, the role of Facebook – when added to the competition from RNZ, TVNZ, Newshub and smaller players like NBR, The Spinoff, Scoop etc – means that a healthy amount of competition would still survive, post-merger. Allegedly, the merger could even help a viable media industry to survive in this country. If you can believe the Fairfax/NZME top brass, news coverage would actually improve if the merger got the green light. How come? Because (a) needless repetition in the coverage of news events would be reduced or eliminated (b) the spare reporters would be given other news assignments and (c) a more diverse range of quality journalism would thus become affordable. A win/win outcome, you might say.

Hmmm. Would that rosy vision ever really come to pass? The Commerce Commission isn’t the only sceptic on that question. Elsewhere in the world, media cutbacks and consolidation haven’t exactly ushered in a bright new era of more diverse, more substantial news coverage. Instead, labour costs (and quality) tend to be slashed to make ends meet and to keep the returns to shareholders ticking over. Diversity is more likely to be reduced – internally and externally – as meaningful competition all but vanishes from the media landscape.

If the merger was approved, as the Commission noted in its draft response to the merger proposal, 90% of the New Zealand news media would then be in the hands of a single owner – a level of media concentration, the Commission observed, that would be unique in the world, outside of China.

The merged entity would also have indirect control over much of the national content provided to the remaining independently-owned print media that rely on this content for their regional audiences. Additionally, the Applicants would control New Zealand’s two largest news websites – nzherald.co.nz and stuff.co.nz – which together have a population reach more than four times larger than the next biggest New Zealand news website, and control one of New Zealand’s two largest commercial radio companies. This would be an unprecedented level of media concentration in a well-established liberal democracy…..

Our view is that competition post-merger would not be sufficiently robust to constrain a multi-media organisation, potentially with a single editorial voice, that would be the largest producer of national, regional and local news by some margin in New Zealand. The detriments resulting from this concentration of media ownership are, in our view, likely to be significant and not in the public interest. In particular, the potential loss of plurality is a factor that weighs heavily in our decision.

Over to Fairfax/NZME then, to change the Commission’s mind before the March 2017 deadline when a final determination will be made.

No doubt, gathering news about New Zealand, for New Zealanders, is an expensive business. It costs a lot of money to maintain a journalistic presence out beyond the metropolitan centres, and for the benefit of small, dispersed communities. Print readership and print advertising are in steep decline, and only 13% of the public still regard newspapers nowadays as their prime source of news.

Digital has become the dominant mode of news delivery and news consumption, and both Fairfax and NZME have instituted a ‘digital first’ strategy. So far though, no media company in the world has yet developed a sustainable economic model that enables digital news services to pay their own way. (Revealingly, those old-fashioned print operations at Fairfax/NZME still account for 85% of the company revenues.) For the meantime, Fairfax/NZME have chosen to pursue the further consolidation of resources (and cost reductions) that the merger would deliver. While simultaneously praying for a revenue miracle – somehow, sometime – from digital.

Obviously, significant savings could be wrung from (a) the merging of newsrooms, (b) the sharing of office space and technology, and (c) from the merging of press gallery teams of journalists and middle managers. While they keep on pushing for that outcome, Fairfax and NZME – not surprisingly – tend to downplay the potential for the merged entity to crush or stunt its domestic competitors, to cause job losses among its own journalists, and to deliver reductions to the quantity/quality/range of news coverage. As mentioned above, the two companies stolidly maintain the contrary: that it is only via the merger (and those prized economies of scale) that quality journalism will remain affordable for very much longer. As one Fairfax executive told the conference, sustainability is the best guarantee of plurality.

Really? Certainly, it would be nice to think that after the merger, the Fairfax.NZME leadership team would re-commit to their Fourth Estate role, and be willing to tell their shareholders that the economic gains from rationalization were going to be ploughed back into multi-part, long form journalism projects on issues vital to the regions. Unfortunately…that’s rather unlikely to happen. To date, the Commerce Commission has concluded that the interests of consumers would be worse served – not better served - if the merger was approved.

Media diversity

How come New Zealand finds itself in this dire situation? Good question. As one of the Commission’s expert commentary papers (written by David Levy and Robin Foster) on the merger has noted, the vulnerability of New Zealand to media concentration can’t be blamed solely on our small population. Ireland has roughly the same population as New Zealand, but it enjoys a robust and far more diverse media culture, despite being in close proximity to offshore media offerings from the UK and Europe. As Levy and Foster observe:

A wide range of newspapers – national and local – is published in Ireland and this is augmented by the circulation of the main UK newspapers and weeklies. In addition to the range of public- service state-owned radio and TV stations, a variety of privately owned stations also exist. Irish listeners and viewers also avail themselves of UK English-language stations, which are widely received in the country. As a result, Irish readers, listeners and viewers are exposed to a plurality of opinions.

These comparisons suggest that whilst market size may be one factor that can influence the degree of diversity of ownership and news provision, and potentially plurality in a country, it is not always the determining factor. If countries such as Denmark and Norway can have a rich provision of diverse sources of commercially funded news, it implies that there is no automatic link between New Zealand’s relatively small size and the diversity of provision.

There is an obvious public interest in the impact that the merger would have on the plurality of opinion and diversity of content – internally within Fairfax /NZME and externally, between the new mega-firm and its smaller rivals. These factors will be central to the “net benefits” decision that the Commerce Commission will finally have to make. What is likely to happen (a) if the merger goes ahead, and (b) what’s likely to happen under the counterfactual, if the merger proposal finally gets turned down? Some apocalyptic predictions have already been made about the job cuts likely in journalism, under either scenario.

In this column, I’m aiming to raise only a couple of aspects of plurality/diversity, before offering what I hope is a relevant case study. For starters…it should be kept in mind that both Fairfax and NZME are trading profitably at present. In their merger application they do not claim to be ‘failing firms’ whose future hinges upon the merger. Meaning: merger or no merger, Fairfax and NZME would survive. To the general public, this is a relevant point because…while job cuts in journalism may be inevitable whichever way the Commerce Commission decision goes, I would argue that the pattern of the job cuts in each case would be different.

Let me explain. A merger would allow for the consolidation of newsrooms and/or press gallery coverage, with subsequent job losses. Yet if the merger is rejected, those newsrooms and gallery teams would need to remain in active competition, albeit while operating on scarce rations. Under the counterfactual, the economic savings ( and job cuts) would need to be pursued elsewhere within the two firms, if only because someone has to create the local content that drives both the rival Herald and Stuff websites.

In other words, sustained competition between Fairfax and NZME could well become the mother of invention, when it comes down to finding alternative forms of revenue generation, other than via the current reliance on consolidation and rationalisation. Particularly if – as was alleged by Fairfax/NZME at the conference - audiences and advertisers are currently gravitating to those news outlets that provide them with the best local news coverage. Have either company done all they could – out in those expensive-to-service regional markets – to foster a sense of local ownership and willingness to fund the retention of a community asset?

For these reasons, the journalistic teams that currently generate the said-to-be essential news content would arguably stand a better chance of surviving relatively intact without a merger, than with one. As one Commerce Commission staffer reasoned aloud at the conference, if quality journalism really is the best resource that Fairfax/NZME currently own – which is what the executives were claiming – then why would it be the first resource in line to be cut should the merger be rejected?

To repeat: if the merger is rejected, other responses than consolidation would have to be explored at Fairfax/NZME to preserve their ongoing competitive rivalry. Yes, there would be intense economic pressure to scale back the expensive, low return journalistic coverage of the regions. However, that temptation will exist if the merger is approved, or if it isn’t.

Diversity, anyone?

Diversity is a related concern. What would happen to diversity – and the vital Fourth Estate roles of reportage, analysis and commentary on public policy – if the merger got given the go-ahead? Allegedly, there is a lot of repetition in our current news practices. At the conference, Fairfax/NZME executives cited disapprovingly the number of journalists sent to cover the John Key resignation, and the large numbers covering the recent All Blacks game in Chicago. If the merger was approved, such resources could (theoretically) be re-deployed into areas of public interest journalism that are currently being ignored, or ill-served.

Obviously, the journalists surplus to requirements are just as likely to be sacked. Moreover, the “repetition” claim ignores other key dimensions of political journalism. Often, it is only when many outlets chase the same story - and when they keep chasing it beyond the usual churn in the news cycle – that an issue reaches critical mass, and politicians feel obliged to respond to it. Conversely, if only one organization is chasing a story, the task of political management becomes very much easier. The Commission’s expert paper by David Levy and Robin Foster made this point succinctly:

Competition between journalists working in different organisations can lead to issues being exposed and scrutinised in a way that are unlikely to occur with only one provider.

That competition can also lead to a wider news agenda being covered by different organisations than if there was one alone. Such competition can also help protect journalists against attempts at political pressure or to bury stories, since where there are several providers pressure on one organisation is both less effective and riskier as it may be exposed. The same applies to areas where the commercial interests of media owners are used as a way to apply editorial pressure.

Famously, the Aussie politician Bob Hawke once said of press gallery journalists that there is no need to muzzle sheep. Post-merger though, only one big muzzle would suffice. (Only one call would be needed from the Beehive ninth floor to a single managing editor.) To put much the same point in a slightly different way: within a context of diversity, devoting sustained attention to an important issue of public policy can be seen as a crusade. If and when only one major media outlet exists, devoting the same level of sustained attention could be more easily dismissed as a vendetta.

The case study below reflects the wide range of news outlets – from Fairfax, NZME, Newshub, the ODT, RNZ, TVNZ and the blogosphere that published stories on the issue in question – leading to a plethora of new angles, and re-actions by central government that still continues to be newsworthy. Arguably, the public interest would not have as well been served if that spectrum of coverage had been reduced. Repetition prevents premature burial.

In the wake of the case study, I’ve also got a few footnotes on – among other things – the possibility that the current government will legislate to enforce the merger, if the Commission turns down the merger application in March 2017. But first:

Case study: Novopay

It is very easy to claim – as the Fairfax/NZME executives did at the conference - that a lot of crossover and wasteful redundancy occurs in news coverage. It is just as easy to claim that the harm caused by overlap is wildly over-stated, and that having rivals pursuing the same news agenda is of benefit to the public – including the fact that (to repeat) a degree of repetition helps to keep the issue on the political radar.

Beyond the ping ponging rhetoric though, proving the case either way is very difficult. So…are there examples where competing news organisations chasing much the same story did generate a series of fertile new angles, and thus delivered tangible benefits to the ordinary news consumer?

I think the news coverage of the Novopay scandal was just such an example. For weeks and months leading into years, news organisations of every shape and size have pursued stories on this debacle, and have consistently generated new angles – and gone well past the point where a single news entity might have cried: enough, already. In fact, one can see the points in the Novopay saga where the extent and the diversity of coverage impelled the government to make some kind of response: first in January 2013, when Steven Joyce stepped in to replace Hekia Parata as the Minister directly responsible for the scheme, and later, when the government finally felt impelled to buy out the contract from the inept private provider.

Timeline: the Novopay saga began in late August /early September 2012. The following does not pretend to be an exhaustive list of all the stories on this issue – for one thing it doesn’t include most of the TV, private radio or ODT stories – but it adequately illustrates the sustained nature of the coverage, the diversity of angles found on the story, and the fact that the story was advanced by dint of this intense, diverse coverage. IMO, it is not valid to write this coverage off as a wasteful duplication of resources.

The snowballing degree of repetition in the Novopay coverage was not only beneficial in generating political outcomes. The repetition also aided the public’s understanding of a complex issue. In turn, this made it impossible for politicians to bury the story, and the competition for angles perpetuated the saga well beyond the duration of the ordinary news cycle. Of course, it is impossible to quantify when diverse coverage and repetition enables a story to reach critical mass in the public & political consciousness. Yet it can hardly be discounted simply as waste. As one attendee indicated to the conference, one person’s duplication is another person’s plurality. Here’s how some of that plurality played out with respect to Novopay:

Initial problems emerge
31 August 2012

7 September

7 September 2012

Official assurances given (prematurely)
10 September 2012

NZEI demand inquiry
11 November 2012

Repercussions for teachers
12 November 2012
15 November 2012

Prior NZPost failures by providers
23 November 2012

Failures persist
28 November 2012

Education Ministry CEO resigns
19 December 2012

Cost of payout to departing Ministry CEO
March 5, 2013
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10869354

Govt spending on Novopay consultants
20 December 2013

Steven Joyce takes Novopay over
22 January 2013

Unexpected Novopay side effects
27 January 2013

Further revelations about Novopay providers
28 January 2013

MoE release Novopay background documents
1st February 2013

Running tab on teacher salary losses
2 February 2013

Novopay inquiry head appointed
4 February 2013

The Novopay debacle explained
4 February 2013

Novopay’s Aussie providers’ prior problems
6 February 2013

Parata concedes responsibility
8 February 2013

Cost of fixing the Novopay botch-ups
18 February 2013

Govt help to schools affected by Novopay?
19 March 2013
http://www.stuff.co.nz/dominion-post/news/8441386/Strained-schools-likely-to-get-cash

No govt help to schools affected by Novopay?
31 July 2014

NZEI launch court action for schools affected by Novopay
7 April 2016

A further 172 Novopay defects detected
23 April 2013

Govt. to assume ownership of Novopay
29 April 2013

Novopay anniversary retrospective
20 August 2013

New problems with Novopay
21 February 2014

Schools celebrate govt ownership of Novopay deal
27 July 2014

Govt ownership transition occurs
17 October 2014

Hidden costs of Govt’s Novopay takeover
16 December 2014

Payback of teacher overpay
20 September 2015

Debt collectors recoup teacher pay arrears
13 November 2015

Does MBIE have Novopay-like problems?
March 7, 2016

Novopay and holiday pay glitches
March 30 2016

Novopay breaches teacher privacy
3 November 2016

New problems emerge at Novopay
3 November 2016

and
4 November 2016

Footnoes, footnotes

On paywalls. If the merger is approved, the extent of free local news online could readily become endangered. Elsewhere in the world, the relatively successful media paywalls (eg the New York Times, Financial Times, Wall St Journal, New Yorker etc) happen to be those that can offer unique, or highly valued, content. Otherwise consumers will simply go elsewhere to other free providers - and the revenue gained from the paywall subscriptions then won’t outweigh the financial losses incurred via the site’s departing advertising content.

Arguably, a merged Herald/Stuff website would have such overwhelming market dominance of local news content in New Zealand as to make a paywall viable. This would have some less obvious repercussions. For example, the landscape would become one where the merged private sector media company had felt impelled to institute a paywall to make ends meet, while RNZ and TVNZ were not feeling the same pressure – evidently because of the fulsome support that they enjoy from the taxpayer. It isn’t hard to imagine how intolerable that situation could be made to seem. At which point, a paywall would be both a revenue earner, and a political weapon against state funding.

Media profit curves. It isn’t valid – or helpful - for Fairfax/NZME to invoke today’s plunging profit curve when compared to print journalism’s golden days of yore. That’s a false benchmark. It would be like other industries making a case of necessity by harking back to the good old 1950s when everyone wanted our wool and meat, and there were jobs aplenty. The comparison may add pathos to the proceedings, but is not relevant to how the media should be regulated for the public good in the second decade of the 21st century. The Commerce Commission is not supposed to be on a mercy mission, or engaged in an act of restoration of past glories.

At crunch, the Commerce Commission has to decide whether its approval would be in the net public interest. On that point, a sizeable number of the public would probably say that the merger could hardly make the state of journalism any worse than it already is. That’s a genuine problem. Journalism - and its Fourth Estate duty to speak truth to power - is not like a national park, where a broad public consensus exists on the need to protect the wild things that dwell within it. When it comes to journalism, a majority of the public would probably vote for extinction.

Even if you do happen to believe that journalism serves a genuine public good, there’s something odd about expecting private enterprise to protect that public good, and nurture it. Surely, that’s a job for government; it exists to protect and enhance the public estate. Central government is supposed to display the regulatory foresight to ensure that journalism exists in a truly competitive market, one that’s able to support local news gathering and commentary on issues of local/national importance. The Commerce Commission could do with a bit more active help on that score. If modern realities mean that journalism can no longer be self supporting, that need has to be met – either by the public buying subscriptions to support a media that can no longer perform free of charge, or by paying indirectly via taxes and siphoning the revenue to online journalism through the likes of a NZ On Air.

In the meantime, the Commerce Commission has to soldier on and decide the competition issues using (a) the fairly skeletal provisions in the Commerce Act and (b) the precedents that are being amassed through case law. Yet there would be nothing to stop central government from imposing a tax on the likes of Facebook, in recognition that Facebook is enjoying the gains from news generation in this country, while contributing sweet nothing to the costs involved in news generation. Yes, Facebook pays a (nominal) amount of GST and company tax. Yet since Zuckerberg is only a news tourist in this country, maybe his profits should be subjected to a departure tax.

Will government legislate? If the Commerce Commission turns down the merger in March, will the National government pass legislation to allow it? It is worth remembering that the merger that created Fonterra was initially turned down by the Commerce Commission on anti-competition grounds, but subsequently enabled by special government legislation. At the 28 November 2016 post-Cabinet news conference, then-PM John Key was asked if his government was prepared to go down the same path:

Question : [Regarding] the Fairfax/NZME merger, both the applicants and the Commission seemed to talk at length about the possibility of regulation, or even legislation, to deal with allowing these two to merge. Is there any circumstance under which you can imagine the government going down that route?

Key: I haven't had any discussion about that. In the first instance, obviously, you know its preferable if the Commerce Commission can adjudicate, I think, rather than the government legislate. I can’t completely rule it out…

Arguably, Key (and now, PM Bill English) should be rejecting that sort of intervention out of hand. If legislation is being treated as a live option to ensure that the merger between Fairfax and NZME goes ahead, then the public should be regarding that as a warning siren. Ultimately, politicians should not get to make decisions with such major implications for the resources available to journalism, the structure of media inquiry, and the future of media plurality. Because…on past performance, what politicians prefer when it comes to media scrutiny is rarely in the public interest.

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