The Commerce Commission has released its draft decision on the proposed merger between two of New Zealand’s largest news businesses, Fairfax and NZME. The Commission’s draft decision is to decline the merger.

This is a controversial decision dealing with a number of complex issues. In this post I want to set out my initial impressions of the draft decision, and speculate as to what the draft decision might ultimately mean. I do this from the perspective of someone who practises competition law, but I have no direct involvement in decision itself.

What is the Commission required to do?

Understanding the type of decision the Commission is making is important. There has been a lot of comment about the need to consider the democratic role of the news media, the importance of media plurality, and the impacts on journalists and journalism generally. The scope of the Commission inquiry is not boundless, and it can’t necessarily take these matters into account for their own sake.

The Commission is concerned with the impacts on these issues on competition (a relatively narrow inquiry) and, possibly, the wider benefits and costs to New Zealand as a whole. These are, in fact, the points that the applicants have asked it to consider.

The Commission doesn’t have the power to promote an ideal like media plurality as a trump that override its usual analysis. To the extent these factors are relevant, they need to fit within the Commission standard assessment framework.

What did the Commission decide?

As already foreshadowed, the Commission decided to decline the merger. 

First, it found there were markets where Fairfax and NZME act as close competitors, and so act as a competitive restraint on each other’s behaviour in a way that no-one else realistically can. One instance of this, which is bound to be controversial, is in the market for “premium digital advertising” – in particular native advertising, homepage takeovers and mobile interstitial advertising. The Commission has found that these types of digital advertising are more valuable to advertisers than others, and that Fairfax ad NZME are the best at providing them. As a result, if the merger were to go ahead the combined entity could raise the price of these forms of advertising.

Second, the Commission found that the detriments of the merger in a wider, non-competition sense outweigh the benefits. Of particular interest here is that the Commission placed significant weight on the value of a plurality of media sources in a liberal democracy. There is no doubt that media plurality is valuable, but it crosses the line from economic benefits into ‘social’ considerations – in the broadest sense of that word. That’s not a usual thing for the Commission to do, and so again this part of the decision will be controversial.

The Commission was in fact particularly bold, claiming that it ought to put significant weight on this factor despite that fact that the detriments couldn’t be accurately measured. The applicants had claimed that the benefits of the merger would be economic savings through the removal of duplication between the two organisations, and a better quality product from more focused investment. The Commission found that these benefits could not outweigh the detriments to a democratic nation from a reduction in the variety of news media sources.

But isn't traditional print and digital media in decline, which is why the applicants want to merge?

Yes, but the idea that one or both of the applicants might go out of business completely in the near future is not an argument that the applicants raised. The decline is happening, but it is a slow one. Neither business is at the point where competition law would factor its removal from the market as being directly relevant. 

Is it a good decision?

On some measures, yes. The decision is a very careful, measured one. It extends to 195 pages, which is very long for a decision of this kind. Length is not always a proxy for quality, but the Commission has been very deliberate in articulating and assessing each of the key arguments that have informed its decision. Strictly as a matter of process, the decision is a good one – intellectually coherent and accessible to the informed reader.

It is also a very confident decision th. There are many aspects of the decision that are inherently controversial, but in respect of which the Commission is required to reach a decision. In another context the Commission might be expected to use wishy-washy language – simply listing factors for and against and then making a decision “on balance”. It is to the Commission’s credit that there is very little of that type of language here. The Commission is confident in its views, as if it has done its research and analysis thoroughly. That’s exactly what we want from an economic regulator.

Is it the correct decision?

This is a more difficult question to answer. The Commission's analysis is strong, but it strays into areas where its views are untested. 

The most striking conclusion, as I have already mentioned, is that weight put on media plurality in a liberal democracy. The Commission treats the importance of this point largely as self-evident, but it is open to question both in terms of its legal relevance and on the facts. Protecting the interests of a functioning democracy in such direct terms is not the sort of thing that most countries leave up to an economic regulator. In the absence of specific legislation empowering the Commission to consider these issues, its mandate to do so is unclear. Further, there would seem to be good arguments that media plurality in a national, democratic sense is not greatly affected by the removal of just one competitor. 

There are also more technical competition law arguments available to the applicants if they are minded to challenge the decision. The finding that there is a separate market for "premium digital advertising" relies on a very narrow definition of the relevant market, which has the effect of exaggerating any competition law concerns. It seems reasonable, at least from where I'm sitting, to push back on this point, but the success of a counter argument here will depend on specific facts that I am not privy to. 

What happens next?

It's important to remember that this is just a draft decision. The Commission is very good at reconsidering its views if new evidence requires it to do so, and so theoretically there is room to move the Commission closer to the applicants' view. 

In reality, I'm not sure it will be so easy to convince the Commission to change its mind. As I said above, the Commission's decision is very careful and confident. To change its views from here would require significant new evidence to become available, and I can't imagine from the outside what that might look like.  

The more likely scenario is that the applicants set themselves up for a challenge to the Commission's decision in the courts. The applicant is likely to argue that the Commission is simply wrong on some of the more controversial points. This won't change the Commission's view, but will expose the weaknesses in the Commission's thinking if it is done well.