Was the ComCom right to consider Fairfax-NZME merger's impact on democracy?

The clincher for the Commerce Commission not authorising the NZME and Fairfax merger was the likely negative impact on news media diversity. The Commission supported the idea that news should come from multiple and separately owned sources: an outcome known as “plurality.”

It’s widely recognised that news media plurality is a key feature of a strongly functioning democracy. So much so that many OECD countries have regulatory controls forcing this: Australia and the UK are two examples.

It is easy to see how highly concentrated ownership can lead to bad outcomes, potentially leading a country down the path away from a well-functioning democracy – and perhaps even nearer the dictatorship end of the road. It may seem we are far from that and that all sounds extreme, but we don’t need to dig too far to see how this issue has played out and is playing out, elsewhere.

And so, the Commission concluded that there would be substantial negative plurality consequences from the merger for New Zealand. This outweighed the benefits of the merger. The way the Commission described this shows why it was concerned:

The Commission is being asked to authorise a merger that would concentrate within a

single organisation control of nearly 90% of all print media, New Zealand’s two

largest news websites, and one of New Zealand’s two largest commercial radio

companies. We understand this would be an unprecedented level of media

concentration in a well-established liberal democracy….

Plurality of the news media is essential to the maintenance of a well-functioning

democracy, and a healthy democracy depends on the availability and exchange of a

divergence of views.

The Commission considered that having other news sources such as TV and other radio stations was not enough plurality to overcome this “unprecedented level of media concentration”. In addition, they rejected the idea that journos not being subjected to tight editorial control would lead to so-called “internal plurality”, thereby producing plurality by a different path. While that does happen now — and all credit to NZME and Fairfax for this as they allow freedom to their reporters — that may not stick for the next five years, which is the period under review by the Commission, the more so due to financial pressures.

This plurality issue only came up because the Commission decided the merger would lead to substantial lessening of competition (and so it would not be “cleared”). Broadly, that Commission conclusion, if correct, means poor outcomes on the economic analysis, particularly for consumers. But the Commission can override and “authorise” what would otherwise be in breach of the Commerce Act if the public benefits outweigh the public detriments.

And that’s where the controversial introduction of plurality into the net public benefits test comes in. The Commission rejected legal arguments that the public benefits and detriments to be taken into account must be limited to economic impacts.

The Commission – rightly – quantifies impacts where it can. Here the quantifiable net public benefits of the merger are, says the Commission, around $40M to $200M over 5 years (with it being more likely to be at the lower end). It also – again rightly – takes into account benefits and detriments that cannot be quantified. Plurality of course cannot be quantified.

Even at the high end ($40 millon per year), for these large companies, and in the broader NZ Inc context – and it is the latter that is most relevant under competition law – this is not particularly big money. Relative to the plurality concerns, I can see why, assuming it is right that there would be materially reduced plurality, the Commission decided that plurality trumps the $40 million per year and other unquantifiable factors, based on what the Commission’s figures. Once plurality is accepted as being relevant and is seen as a problem, that factor would, by a substantial margin, the decision to decline.

From a policy perspective, to me, it is right that the public benefit test should extend to non-economic impacts, the more so as applicants are getting something of an indulgence to override what is otherwise in breach of the Commerce Act. It was a bold step to go there for the Commission and I for one admire that, from a policy perspective.

Policy is one thing; applying the law and the facts is another. While I know much about this area of the law, it would be foolhardy to attempt to finally conclude, short of many days of analysis of decisions and submissions, what is right and wrong in the Commission’s decision. I have no view one way or another. For example, while it is said that the merger would lead to 90% dominance in print, there is an issue as to whether TV, non-NZME radio, etc, would provide sufficient plurality. Even then, I couldn’t take a full view as much key material is confidential. I can follow the logic in the decision, and it makes sense, but I’m not acting for anyone here, and I can’t be sure without the leg work. Often, pundits seem to have firm views about what is right and wrong in Commission decisions, seemingly without going through the detail.

It’s a tough outcome for NZME and Fairfax, which face decidedly challenging futures, as do other media companies. But competition regulators are firm about not allowing that alone to enable a merger, absent cases where a company is failing. Whether or not to appeal is an intensely tricky legal and commercial judgment call. Unless they kick the plurality point to touch, winning an appeal looks tough unless there is something in the confidential material.

These past three months have seen three mergers and acquisitions declined by the Commission: Vodafone/Sky (on which we acted for parties opposing the merger), NZME/Fairfax, and Aon/Fire Protection Inspection Services. Any grumbling by people that the Commission was getting close to rubber stamping mergers is well and truly answered.

Michael Wigley is a solicitor specialising in regulation and campaigns.