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Stuff-Me: The newspaper gobble-up

Julienne Molineaux
This article was first published at the Briefing Papers
The proposed merger between NZME and Fairfax New Zealand is the latest instalment in the increasing concentration of ownership in New Zealand’s newspaper industry. There is much commentary about the merger; the purpose of this paper is to provide some history.

In New Zealand, concentration of newspaper ownership via mergers and acquisitions has a long pre-digital history. The trends of declining readership and fragmented audiences began before digital content, and mergers and acquisitions proceeded apace, enabled by weak legislative protections. There raises the question: is New Zealand simply too small to have thriving competitive markets with many providers, not just for news, but some other products and services as well? Some commentators have suggested the NZME-Fairfax New Zealand merger is necessary in such a shrinking market.

In New Zealand, the Commerce Act ‘promotes competition in markets’. Fewer providers of goods and services in a market may lead to less consumer choice and higher prices; consequently, mergers and acquisitions that lessen competition have to gain approval from the Commerce Commission before proceeding. Is NZME-Fairfax New Zealand right to be so confident their merger will be approved? It will depend, in part, on how the market they operate in is defined. Also of note is that New Zealand is unusual in having no media-specific ownership or competition laws. When the law is applied to media mergers, the product and market are treated just the same as any other. Readers are consumers, not citizens with a need for quality and diverse information.

The long, slow decline

From the 1960s on, New Zealand’s daily newspapers faced increasing indirect competition for their readers’ attention and the advertisers’ dollar. Daily newspaper circulation dropped 21% between 1971 and 1996, a time when the population increased by 28%. The number of daily newspaper titles also fell, as uneconomic papers were closed down or converted to community newspapers, which continued to thrive. There was a steady decline in the number of towns and cities producing two or more daily newspapers, with evening papers hit hard by the advent of television. In 1991 when the Auckland Star folded and The Christchurch Star became a free weekly community paper, only Wellington was left with two daily newspapers, both owned by INL. The Dominion and The Evening Post eventually merged in 2002 into a sole morning newspaper, with dozens of job losses.

Newspaper closures were not new, but since the 1960s new titles were not successfully started to replace closed titles. While there are no legal barriers to entry in the news market, there are considerable economic barriers, including the need to commit large amounts of capital to start-up and the need to overcome reader preferences for existing news sources. (In the digital era, there is the added problem of readers not wanting to pay for content.)

This market shrinkage created a demand for rationalisation. For corporate owners wanting to grow in a contracting market, acquisition was the primary option. Economic imperatives drove moves for acquisitions; weak competition law let them happen.

Commerce Acts

The 1975 Commerce Act allowed the Commerce Commission to refuse merger and takeover applications on public benefit grounds. The Commission was to take account of employment and regional development impacts – elements of public benefit – in its mergers and takeovers considerations, although ‘necessity’ could override these factors. Despite the public interest requirement, between 1980 and 1985 approximately one-third of daily newspapers changed hands, all being bought by the big three companies of the day: NZ News, INL and Wilson & Horton.

As the market shrunk, it became harder for papers to survive outside chain ownership. The nature of family firms was also a factor behind the sale of family-owned newspapers to corporates: overseas research indicates numerous problems with second and third generation family ownership including weak management, family squabbles and the temptation of money that a sale could bring. There was some evidence of these problems in New Zealand.[i]

One way of measuring concentration of ownership is through concentration ratios. These show the percent of industry output produced by a given number of firms.

CONCENTRATION RATIOS: New Zealand daily newspaper industry YEAR
		1971		1976		1981		1986		1991		1996
CR4 % of circulation produced by four largest firms		61.2		70.99		72.20		84.61		90.83		95.62
CR3 % of circulation produced by three largest firms		53.93		63.39		64.59		76.59		88.77		94.44
CR2 % of circulation produced by two largest firms		44.33		42.05		44.10		52.93		82.92		88.58

Sources: Market share based on circulation (not titles); circulation information from Audit Bureau of Circulations; ownership information from Newspaper Proprietors Association and New Zealand Official Yearbooks.

The big jump in CR2 between 1986 and 1991 resulted from the 1989 asset-stripping of New Zealand News by its owner Brierley Investments. All its titles were bought by INL and Wilson & Horton.

Of course, concentration ratios look at New Zealand as one national market; in reality, before digital news, daily newspapers in New Zealand were regional not national, and few areas had any direct competition at all.

The 1986 Commerce Act shifted the balance towards the interests of the business community and away from consumers. The 1986 Act did not list or define what constituted public benefit, but an amendment in 1990 stipulated that ‘efficiency gains’ must be considered when weighing up public benefits. The Commerce Commission did not consider any distributional impacts of mergers, commenting that ‘distributional issues are subjective’ and best dealt with via the taxation system.[ii] That is, a merger that is beneficial to shareholders or the economy more generally, but detrimental to consumers, could proceed on the balance of impacts.

Competition takes place within a market; but who determines what the market is? The definition of ‘market’ is crucial in all merger assessments because defining a market widely or narrowly determines the extent of competition available. If newspapers are deemed to be in the news, entertainment and advertising markets, then they compete with all other news, entertainment and advertising businesses. That’s a big market, with much competition; larger still if overseas operators are included. A merger – even between two large companies – may not lessen competition much. But if the market a newspaper competes in is more narrowly defined as the newspaper market, then a sale of one paper to another might noticeably reduce competition.

In New Zealand’s pre-digital newspaper industry there was a high degree of geographic specificity. While newspapers from one town or city did sell a few copies in neighbouring towns, the volume of such sales tended to be low. The New Zealand daily newspaper industry was increasingly a collection of geographic monopolies. If a large newspaper company wanted to buy all privately-owned daily newspapers, it would not be leading to an increase in dominance in any individual geographic market – there was just a bare transfer of existing dominance from one company to another. In 1992 Wilson & Horton bought the Bay of Plenty Times; INL bought The Nelson Evening Mailin 1993 and in 1995 Wilson & Horton bought The Northern Advocate. All purchases were allowed by the Commerce Commission as market dominance in geographic markets were unchanged. The New Zealand Herald (Wilson & Horton) did sell in Northland and Tauranga, but the Commission noted that the out of town newspapers did not carry local content or display ads and so complemented rather than competed with the local papers. Indirect competition, consumer resistance to price changes and the countervailing power of advertisers – who had plenty of non-newspaper advertising options – all provided market discipline on the newspaper companies.

By having a narrow view of the ‘market’, the Commerce Commission was unable to consider cross-media ownership (newspaper, television and radio) and the nationwide power of large media companies. Successive governments stayed at arms’ length from the issue of media ownership agglomeration, by trusting the market and mainstream legislation to deliver the best for media consumers (citizens). The economic reality was a shrinking industry with increasing choices for consumers’ time, attention and money. It is impossible to know how the news market in New Zealand would have evolved under tighter ownership rules: Were economic forces so powerful that regional newspaper would have closed down?

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Media industries are converging and how the markets NZME and Fairfax New Zealand operate in are defined will determine the outcomes of their merger application. The commercial radio market would remain largely a duopoly, with ownership transferring from NZME to the new entity and remaining in competition with MediaWorks’ radio network. Daily print newspapers from the two companies are not competing in narrow geographic terms, so there is no increase in geographic dominance. Sundaynewspapers will be rationalised. It is online that competition will lessen and a paywall might be installed: less choice and (probably) a higher price for readers. Here, the hopeful couple will no doubt point to competition from other New Zealand online news services such as Scoop, TVNZ, MediaWorks and Radio New Zealand, as well as international sites. Indeed, some commentators are referring to the merger proposal as a defensive move in response to internet giants Google and Facebook sucking up digital advertising revenue. The major downside will be the inevitable loss of journalists’ jobs, as double-ups (more than one reporter covering the same beat) are eliminated.

If indeed the New Zealand market is too small to sustain a thriving community of news sources, then public policy needs to respond. Radio New Zealand, TVNZ, and Māori Television need to be funded adequately to ensure comprehensive coverage of economic, social and political news. If we want media to fulfil the liberal democratic ideal of holding the powerful to account and providing a diversity and plurality of information and perspectives, and the market cannot provide, then taxpayers must.

This article was first published at the Briefing Papers http://briefingpapers.co.nz/2016/05/the-newspaper-gobble-up/ on 17 May 2016.

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