The StuffME merger (again) - What is competition law for?

NZME and Fairfax are New Zealand’s two largest media businesses. They want to merge their operations, but both the Commerce Commission and the High Court have said that this would breach the Commerce Act. NZME and Fairfax have now announced that they are appealing those decisions to the Court of Appeal.

This announcement is not a surprise. The proposed merger obviously matters a great deal to the affected parties as it will determine how they can address the reality of declining revenues in a converging media landscape. In addition, the decisions of the Commission and the High Court are contentious. Both the Commission and the Court found that (1) the proposed merger would likely result (or would risk resulting) in a material reduction in news media plurality (having multiple sources of news), and (2) that this was a detriment that could be taken into account when declining to authorise the proposed merger.

Proposition (1) is a statement of fact and is unlikely to be reversed on appeal. Proposition (2) is a statement of law, and is controversial. This is where the decision to decline may be vulerable on appeal, although I think on balance the decisions of the Commission and the High Court will be upheld. Either way, the appeal is important because it is indirectly concerned with a very interesting question – what is competition law for in New Zealand?

NZME and Fairfax (and their team of lawyers and economists) have a very clear view about what competition law is in New Zealand. They consider that competition law is a solely technocratic exercise concerned with economic efficiency and, if necessary, other measurable benefits. On this view, news media plurality is irrelevant to a merger review decision. It is a potential effect of the merger outside of harm to competition from market concentration, and so can’t be counted against the merger. There is support for this view in a plain reading of the Commerce Act, because only mergers that risk substantially lessening competition meet the threshold for Commission scrunity, and because the Commerce Act says expressly that wider benefits (but not wider detriments) can be taken into account.

Obviously, the Commission and the High Court have taken a different view. They think a reduction in news media plurality is relevant to the decision, which is why they have declined the merger. By adopting this view, the Commission and the Court are forced into defending a position that believes competition law is not (or at least is not always) a technocratic exercise – ‘political’ trade‑offs that can’t easily be quantified need to be made in some cases. And where NZME and Fairfax seem to have a plain reading of the legislation on their side, the Commission/Court view has an instinctive appeal that is difficult to disregard in this particular case. If allowing the proposed merger would negatively impact New Zealand’s democracy, then it doesn’t sound like something we should let happen.

My instinct is to side with the Commission and the Court on this issue. In my view, the merger review decision‑making process necessarily engages what I would call ‘public law values’, which mean that constitutional considerations are potentially relevant to all merger review decisions. It's quite orthodox to interpret decision-making powers as not detracting from fundamental aspects of our constitution. Further, I think the Commission is entitled to put signficant weight on the potential reduction of news media plurality in this case. The essential question is one of predicting certain outcomes following a change in market structure, and in particular the effects of increased market concentration. These are areas of analysis well within the Commission’s usual expertise. So there are good grounds to stick with the Commission’s (and the High Court’s) decision to decline the proposed merger on constitutional grounds.

However, the difficulty for the Commission (and the High Court) in the context of this appeal is that this is not how they justified their decision. While there are hints in each case that they are treating news media plurality as a constitutional level consideration, the main argument they use for taking it into account is an interpretation of the Commerce Act that if wider benefits can be taken into account then wider detriments can be too. The Commission goes as far as to say that they can take into account an “adverse impact on the environment, employment, privacy interests, or other constituents of social welfare” when making their decision.

That’s a big call. It widens the scope of what we tend to think of as competition law and has the potential to take the Commission into social policy and distributional politics that are beyond its traditional areas of expertise. There are theories of competition law that do allow for such a broad range of political trade‑offs to be made when particular decisions arise (the work of Michael Dowdle from NUS is a prominent example), but I think there are real challenges with applying those theories in this case. First, it requires a departure from the ordinary interpretation of the Commerce Act to bring such broad considerations into the scope of merger review decision‑making. That's not a king-hit argument by itself, but it does suggest that a strong justification is needed to support a more 'creative' interpretation of the Commission's powers. This feeds in to a second point, which is that neither the Commission nor the Court carry their analysis very far in terms of how they envisage competition law functioning effectively if non-efficiency factors carry so much weight. If they have something like the Dowdle model in mind, that hasn't been clearly articulated as yet. And third, even if this kind of model is what is intended, as far as I’m aware these political thoeries of competition law have never been explicitly applied in any mature economy that New Zealand might like to compare itself to. That means any justification for the Commission having such broad political power definitely starts on the back foot.

So where does this leave the Court of Appeal? I think it will be inclined to accept that a reduction in news media plurality is a relevant consideration. And they may not be too worried about the theoretical concerns I have raised here - this is just one decision, and can't be the foundation of a theoretical framework all on its own. But at the same time there is the potential for the NZME/Fairfax legal team to convince the Court of Appeal that the reasoning of the Commission and the High Court on the issue of news media plurality is quite unattractive. Either way, the decision is likely to shape how we view competition law in New Zealand for the foreseeable future.

#CommerceCommission #CommerceAct #competitionlaw #StuffME

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