By Donal Curtin 04/05/2017


By now you’re likely reaching saturation point on the NZME/Fairfax merger decision – every newspaper in the country seems to be running an editorial on it this morning, with the Herald for example saying ‘Blocking this merger is a big mistake’ and the Dominion Post going for ‘The Commerce Commission doesn’t get it’ – so I’ll try and say something new.

First thing is, I have a fair degree of sympathy for the folks in the two companies. They’re on leaky ships that are taking in water, and even though the merger lifeboat wouldn’t have held all of them, enough of them would have clambered on board to live for another day. You can understand why they’ve reacted with everything from disappointment to rage.

But that’s commercial life, folks. Technologies  improve, customers switch preferences, economic policies change, businesses lay their plans best they can, and the best plan (by luck or design) wins, and sometimes wins big, as it should given the risks involved. And the losers, well, lose. The whole process – and you’ll realise I’m just channelling Schumpeter here – works out for us in the end as businesses are highly incentivised (by stick and carrot) to do their level best to be the most appealing option to us customers. As an American judge once said – oddly enough, in a media case – “society has an interest in competition even though that competition be an elimination bout”.

And that’s my second point. The Commission did a good job explaining why ongoing competition would be a better long-run option than permitting the substantial loss of competition the merger lifeboat would have caused.

It’s a perennial battle to make that case, because people tend to have odd but partly understandable ideas about competition: the ideas make some sense because there are some facts which appear to support them.

At the one end there are the people who see competition as a race to the bottom – who can deliver the nastiest barebones bundle at the cheapest price. You get a lot of that kind of reaction when anyone suggests more private provision of education or health services, for example, but you can see why people think it could apply to the media, too. As I write, the latest ‘News’ on the Herald‘s website includes ‘Princess Diana’s biggest fear over Camilla revealed’, and ‘Kanye’s Met Gala absence due to fury over Kardashian’s butt photo’.

At the other there are the people who argue that less competition means better resourced competitors, who are better able to meet consumer demands or fight an effective fight against rivals (one of the big themes in  NZME/Fairfax). Too much competition, and nobody in a skinny-margin industry will have the funds for R&D, too little and you’ll get lazy monopolies who’ll gouge the customer, but in a sweet spot in the not-too-much-competition middle, companies will be making enough money to be able to fund research and innovation. There’s some evidence for this, too, as I mentioned the other day in the context of the mobile phone business.

But I thought the Commission made a good fist of arguing the case that competition typically enhances quality, rather than reducing it, and that more competition is more likely to hold companies’ feet to the fire than less. As the Commission put it (in paras 26 and 27 of the Executive Summary)

we consider that competition between NZME and Fairfax leads them to produce higher quality content than would exist with the merger. Competition incentivises investment in editorial resources, motivates journalists and editors in their day-to-day work, and ensures diversity of editorial approaches. Competition also leads to greater investment and innovation in the way that content is presented to readers.

Fairfax and NZME compete to be the first to unearth and break news. When they have been beaten to a scoop each works quickly to catch up and look for new angles. Under the proposed merger this rivalry and the benefits it delivers is likely to be removed. In our view this would negatively impact the quality of news and breadth of coverage produced.

My final point is that the decision represents a rare triumph for generic competition law over sectoral regulation. Many countries have given up on the competition law of the land as an effective way to rein in unwanted problems and have turned to sector-specific regulators instead. In the UK, for example, there are Ofgem (gas and electricity), Ofwat (water) and Ofcom (communications), and we’ve gone down that road, too, with a Telecommunications Commissioner and an Electricity Authority.

But we haven’t gone down the route of a media overseer, though many countries have: as the Executive Summary said (para 42), “there are no media ownership restrictions or other mandatory journalistic regulations that would be effective enough, in our view, to materially constrain the merged entity”. For once, the Commerce Act has been able to step into the breach and play that role, without erecting another bit of complex sectoral regulatory infrastructure. That’s a plus.

There’s a lot else in the decision, mostly around process and the technical pros and cons of the various economic and legal arguments, but when we’ve already had wall to wall coverage, I’ll keep my tragically tragic post for tragically tragic competition tragics for another day.