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Media giants: Taxpayers can pay for plurality

The two media giants fighting to merge say the High Court has outdated and wrong views on the importance of newspapers and online media to the country's democracy.

Stuff Ltd and NZME, whose merger bid is known as StuffMe, have also told the Court of Appeal the High Court was wrong to turn their deal down because "if there are concerns about media concentration" these could be addressed separately by the state increasing funding to its three broadcasters.

A merged business would control 90 percent of the nation's newspapers, including all major metropolitan titles except in Dunedin and all three Sunday papers, both biggest news websites Stuff.co.nz and nzherald.co.nz and half the commercial radio market. It would have far more journalists than the next three biggest newsrooms combined.

The merger deal was announced in May 2016. NZME was spun off from its Australian owner APN in June that year and has had a difficult ride on the sharemarket since, with its nominal $1 shares listing at 86 cents and yesterday trading at 78 cents. Stuff Ltd is the renamed Fairfax NZ, owned by the Australian Fairfax Media.

The companies' application to challenge Justice Robert Dobson's judgment (which largely endorsed a powerful Commerce Commission rejection) in the Court of Appeal repeats their view that the Commerce Act does not exist to regulate media plurality. The applicants' case is being run by lawyers from Russell McVeagh, with Wellington QC David Goddard as barrister.

NZME and Stuff believe their deal should have been dealt with on business benefits alone, not intangible values such as the range of voices in the media, quality of journalism or the media's contribution to democracy.

In one pointed paragraph they say Parliament did not intend an assessment of a proposed merger to be "based on speculation, intuition, political preference or any other basis for decision-making that falls outside the expertise of Commissioners".

In his High Court judgment with expert adviser Professor Martin Richardson, Justice Dobson quoted debate from Parliament at the time the Commerce Act was amended, which showed MPs did indeed foresee the Commission looking at broader issues of public interest.

But the StuffMe notice of appeal - which wants the Court and Commission verdicts overturned and the appeal court to authorise the merger - ignores that to say: "Is it open to the Commission to make broad social and political judgments about what is in the interests of New Zealand, outside the economic sphere in which is has relevant expertise and statutory responsibilities or are such matters properly the preserve of the Government and the legislature?"

The High Court "appears to have accepted the mere possibility of a serious adverse impact on the democratic process was a relevant detriment". Instead, it should have considered it only if it was "likely" and then should have applied the same rigour to assessing it as for other detriments from the deal.

The companies label the two previous decisions against them "broad and impressionistic".

Their original application sought both 'clearance' from the Commission to merge - essentially a finding that the deal would not substantially lessen competition in affected markets and 'authorisation' to over-ride any impediment in the event that there was lessening of competition. This appeal wants the authorisation aspect revisited.

Stuff and NZME say the deal is essential to maintaining an effective, sustainable and thriving media industry "that supports quality journalism, news reportage and the functioning of New Zealand democracy as well as giving New Zealanders the stories they wish to read about".

A fascinating insight into how the companies view the importance of what their newsrooms do comes near the end of the notice of appeal.

"The decisions of the Commission and the High Court to decline authorisation were heavily influenced by their perception that the merger would pose a significant risk to the functioning of New Zealand's democracy.

"The appellants say that the view of the role of newspapers and online media in the functioning of democracy that is reflected in the decisions of the High Court and Commission is outdated and wrong - and the transaction poses no such risk in New Zealand's technologically advanced and globally connected modern democracy."

That was because consumers source their news from multiple places, making it "difficult for any single media owner's content to prevail".

The appeal documents talk up the role of television. "The news medium that is consumed by the largest number of New Zealanders is free-to-air television and the appellants own no free-to-air television stations."

They talk up social media and diminish the influence of papers. "More New Zealanders consume their news on social media than through newspapers."

There would be no material effect on the democratic process, and the High Court and the Commission should have considered other competitor and consumer reactions to a merger, and government regulation and other policy interventions that could identify and negate such a problem.

The appeal notice argues that government interventions could include more funding "for any of the three state-owned broadcasters and through mechanisms such as the redistribution of targeted funding through NZ on Air."

It says merging the companies would create a "step change to the merged entity's print-based cost structures". So-called synergies -involving closures or reduction in publication days for community and regional papers and likely job losses across the two companies newsrooms, commercial and administrative wings - are driving the companies' desire for a "longer runway" to defend advertising revenues against global digital platforms like Facebook and Google.

Stuff and NZME have used an economic consultant's assessment to imply the High Court's recalculation of benefits means the deal represents between $133m and $209m in positives. But both the Commerce Commission and the High Court doubted such benefits would all accrue to the public, noting the merged company's shareholders could seek extra dividends instead.

The Court of Appeal must yet give permission for the StuffMe action to be heard.