Wednesday 12 October 2016 03:02 PM
NZME, Fairfax lose digital ad share in growing market
By Paul McBeth
Oct. 12 (BusinessDesk) - NZME and Fairfax New Zealand have lost market share in the digital ad space, while still growing revenue, as they continue to defend the proposed merger to create a dominant nationwide publisher.
In the year ended Aug. 31, NZME generated $16 million in revenue from digital ads, accounting for about 5.5 percent of the market and Fairfax $15.8 million, or 5.4 percent, they say in a cross submission on their merger. That compares to $10.8 million, or 6 percent of the market, for NZME in the year to Feb. 29, and $10.4 million, or 5.8 percent for Fairfax.
The publishers are talking down the proposition put forward by broadcasters Television New Zealand and MediaWorks that a merged entity would have market power in the national ad market, calling such a claim "demonstrably false" with online giants Google Inc and Facebook a "significant competitive constraint".
Over the same timeframe, Google attracted digital ad revenue of $111.7 million, or 38.3 percent of the market, up from $67.4 million, or 37.3 percent in February, while Facebook's ad revenue of $50.1 million, or 17.2 percent, was up from $29.5 million, or 16.4 percent.
"One need only look at each of Fairfax and NZME's share of digital advertising expenditure in New Zealand, which has decreased again since the time of the application in favour of Google and Facebook, to realise there is no prospect of the merged entity having such market power or incumbency benefits," the cross submission said.
"TVNZ and MediaWorks have sought to discount the notion of Google and Facebook as competitors to Fairfax and NZME by characterising the global media platforms as content aggregators rather than content distributor," the publishers said. "However, the nature of two-sided markets means that the competitive constraint from Google and Facebook for advertising places competitive constraint on Fairfax and NZME in the provision of New Zealand news/information."
High levels of indebtedness put the Australasian media companies in precarious positions over the past decade, forcing them to sell assets and cut the size of their newsrooms in an effort to shore up their balance sheets, and the proposed merger of Fairfax and NZME's assets is seen as a way they could start competing online where the likes of Google and Facebook dominate advertising revenue.
Digital ad revenue remains a fraction of NZME and Fairfax's revenue, with the publishers reporting pro-forma revenue of $766.2 million and earnings before interest, tax, depreciation and amortisation of $135.2 million in the year ended June 30. That compares to revenue of $802.6 million and earnings of $133.7 million in 2015.
NZME and Fairfax were joined by TVNZ, Trade Me and Yahoo! in losing market share of the $291.7 million digital ad spend, with just MediaWorks increasing its overall share to 1.5 percent with $4.4 million, compared to 1.4 percent of the market with $2.6 million in the year through February.
Agency trading, which includes the KPEX venture between Fairfax, NZME, TVNZ and MediaWorks, increased market share to 8.7 percent with ad revenue of $25.3 million, compared to 7.5 percent with $13.5 million in bookings.
The publishers rejected the counterfactual scenarios put forward by the broadcasters, saying TVNZ's suggestion the state-owned company may retrench its digital investment lacked credibility, while MediaWorks' idea that an alternative merger where it was involved were "mere assertions" and that the NZME/Fairfax tie-up was the most "efficiency-enhancing merger opportunity".
NZME and Fairfax also said the broadcasters' submissions overstated the barriers to supplying news in New Zealand, and that the provision of local content was highly valued by local audiences.
NZME shares were unchanged at 71 cents, while Fairfax NZ's Australian parent Fairfax Media Group slipped 0.3 percent to 92.75 Australian cents on the ASX.