Comment

Employ journalists rather than lawyers

NZME and Stuff should focus more on finding viable business models to pay for journalism and less on paying lawyers and merger and acquisition bankers, Bernard Hickey argues.

Comment: Three strikes by the best judges and commissioners in our land should be enough to realise you're out, but apparently not if you have a big budget for lawyers.

It's quite possible our two largest employers of journalists could spend yet more hundreds of thousands of dollars on lawyers at hundreds of dollars an hour to keep litigating a merger that three sets of experts have rejected. That would be a pity and a waste at a time when more journalism is sorely needed rather than more lawyering.

NZME and Stuff, who collectively publish almost 90 percent of New Zealand's newspapers, the country's two biggest news websites, all three Sunday papers and almost half the radio stations, applied to the Commerce Commission over two years ago to merge in a deal they said would give them more time to come up with a viable business model for news.

It was rejected by the Commerce Commission in May 2017 on the grounds it would reduce diversity in our news landscape and reduce competition. That ruling was upheld by the High Court in December last year, and now the Court of Appeal has again rejected the merger bid this week.

NZME and Stuff (formerly known as Fairfax) wanted permission to further reduce costs and extend their 'runway' of profitability while they found new ways to make news pay. It seemed a sensible pursuit if you believe your core business of publishing newspapers has no future and that the path to profitability is to cut your costs faster than your revenues are falling.

The trouble is both of those assumptions are worth challenging, and the two companies have wasted at least two years of their runway paying lawyers and fighting in courts to find ways to cut costs, while spending untold more on consultants and investment bankers building fresh org charts and planning redundancies. They should have spent the time finding ways to stop their revenues falling and keep employing the journalists that produce their most valuable product, which is still news published in newspapers.

Instead, that wasted time has seen those assets further shrivel and more journalists leave. After two years of diversions, delays and frustrated plans, neither have found a business model.

The latest Court of Appeal action was budgeted by the companies to cost $500,000. NZME has publicly held open the possibility of a further appeal - to the Supreme Court - on points of public importance.

Trees are falling in forests, and on farms

It's worth considering how that $500,000 could have been spent.

The best place to look is the companies themselves.

Stuff, which owns the Dominion Post, The Press and The Waikato Times alongside the eponymous news website, also owns a host of community newspapers and magazines. They are less high profile, but no less vital to their communities. They employ journalists who attend council meetings, cover the 'boring' details of community life and are often the last resort for those wanting to publicise the bad decisions and injustices of the powers-that-be in councils, businesses and in Government.

Stuff announced in May it would close 15 community and rural newspapers, including NZ Farmer, NZ Dairy Farmer, Waikato Farmer, Central District Farmer, Canterbury Farmer and Otago Southland Farmer. They duly closed in mid-June and you can see their final editions here.

Their closure meant nine journalists and six commercial staff lost their jobs. The annual costs of those nine journalists would not be much more than the legal bill for these appeals. Just three rural journalists have remained to provide coverage online for the NZ Farmer section on Stuff.

People in farming communities were stunned and now have to rely on reporters from the biggest newspapers and Stuff, who are writing for urban audiences, to tell their stories and reflect their views. That includes on controversial topics such as climate change, water quality, water allocation and farm safety. Many now think they are being ignored, or worse, marginalised.

Understandably, they worry that the cities are not hearing the stories of the provinces, and vice-versa. Back in the days when the New Zealand Press Association shared copy between rural and urban newspapers, those stories were often heard on both sides of the divide. That widening divide was most evident during last year's election.

Now many in the rural sector are resorting to social media to get their message out, with all the risks of misinformation, political bias and polarisation that goes with that.

This movie does not end well.

America's media also decided to neglect its newspapers in the vain hope digital advertising would support journalism. Some US cities the size of Hamilton don't have their own newspapers. But they do have Donald Trump after a foreign power used social media to intervene in America's elections.

New engines needed. Not just more runway

These news deserts are forming in New Zealand too. Some events and issues are simply going uncovered. The most obvious example is in regional sports coverage.

Stuff decided in November last year to sack its entire group of 13 provincial sports reporters working for the likes of The Southland Times and Timaru Herald.

Sport Southland's CEO Brendon McDermott was aghast at the decision in a letter published in The Southland Times of all places.

"It was in the pages of the Times that we first read about a precocious blond-haired kid scoring 66 points in one game for the Cargill High School first 15," he wrote. "A couple of years later Jeff Wilson was a double All Black."

NZME is restructuring its own sports team, with journalists having to re-apply for jobs and initial indications of four job losses now moving to promises that jobs elsewhere in the business could be found.

NZME and Stuff argue they have to sack journalists because their newspaper advertising and circulation revenues are falling faster than their digital revenues are rising. That may be true, but the speed and extent of that decline is partially self-inflicted.

Prioritising money-losing digital over profitable papers

They both prioritised their digital readers and advertisers over their newspaper readers and advertisers, even though the digital readers paid them nothing and digital advertising rates have plummeted in recent years as Facebook and Google have hoovered up the growth in digital advertising.

News was published first online. Scarce investments and new hires were completely digital. No wonder subscribers and advertisers at the most digitally focused publications canceled subscriptions and stopped advertising. The best way to measure the difference is to look at circulations for The Otago Daily Times, which prioritises its newspaper, and the Dominion Post, which has a digital first policy driven by Stuff.

One Wellington dairy's supply of weekend newspapers waits on its doorstep. Photo: Lynn Grieveson

The ODT's circulation has fallen three percent over the last year while the Dominion Post's circulation has fallen 10 percent. Readers and advertisers know when they're being treated like mugs for spending money on a product that was given away the day before.

As recently as a decade ago, the widely held assumption was that print newspapers would naturally die and advertising that had been wrapped around the news in print would transfer online. Readers migrated, but the advertisers didn't. They went straight to Trade Me, Google and Facebook in that order.

So what do I know?

I too used to think the days of newspapers were numbered and that digital advertising would fund the useful and often boring work of public interest journalism that reflects our communities and speaks truth to power.

I was on the executive team at what was then called Fairfax and actually ran the digital news operations a decade ago, which included Stuff and worked with Trade Me. For a long time I believed the advertising money would come with the readers.

I left Fairfax in 2008 to help set up and run an independent specialist financial news and information website called interest.co.nz, in part because I could see general news advertising rates were falling as Google started hoovering up cash and I thought that one refuge for the highest paid online advertising was specialist financial news.

That was true, but by 2012 I could see there was no hope left for digital advertising as a viable way to pay for substantial general news journalism. It might just be able to pay for click-baity celebrity and crime stories, but not the more useful journalism about the things that matter.

By then, Facebook was hitting its stride and advertisers were moving en masse to the Google-Facebook duopoly. Their advertising revenues from New Zealand businesses now dwarf those of NZME and Stuff combined. They also only pay tiny amounts of tax and employ no journalists, but that's a story for another day.

So what should NZME and Stuff do instead?

Our two biggest employers of journalists should have done what almost every other news organisation in the world has done, which is acknowledge the advertising is not coming and focus instead on producing news that readers will pay for directly, either as a donation or subscription.

Most others 'pivoted' as they say in the technology industry around 2012.

For some reason I still can't fathom, Stuff in particular and NZME did not pivot. They kept believing, even though the facts had changed.

If only they had taken the advice of the great John Maynard Keynes: "When the facts change, I change my mind. What do you do, sir?"

Instead, Stuff doubled down on its digital strategy and is now creating brand new businesses using its only remaining spare resource -- virtually free advertising online and increasingly in print. It has launched Stuff Fibre (a broadband business) Stuff Pix (an online movie rental service), energyclubnz (an electricity retailer) and Done (a health insurance joint venture with NIB)

Somehow, the theory goes, these will be able to successfully grow and compete against dominant and cashed-up players such as Spark, Vodafone, Netflix, Meridian, Genesis, Trustpower and Southern Cross to build large and super-profitable businesses that will effectively subsidise journalism.

Really? Are they actually serious?

These are all capital intensive businesses with already dominant players and Stuff is a news brand, not a broadband or streaming video or electricity or health insurance brand.

It is a fanciful strategy that has never been successfully executed overseas and will survive for minutes when a commercially-focused set of investors take a closer look at Stuff's books. That may not be that far away, if Stuff's owners Fairfax are bought as planned by Australia's Nine Entertainment. Nine's managers have already said they're not interested in keeping Stuff's assets. In theory, they could be in control as soon as the end of the year if Australia's competition regulator allows that deal. An asset sale to private investors beckons, and at least a review of this strategy.

Sadly, it's possible the NZME-Stuff merger proposal could still be tied up in the courts well into next year if they choose to appeal to the Supreme Court, and the agony will be prolonged.

Stuff should instead do what similar newspaper publishing groups in similar sized markets have done, which is focus their efforts on building a strong and growing base of readers who subscribe and support the news by paying for it directly, both in print and digital.

The best example is Amedia in Norway, which is of a similar size to New Zealand. Amedia owns 62 newspapers and decided in 2013 to focus on building up digital subscriber numbers and revenues, rather than giving away their news and hoping advertising would pay for it. The move paid off and subscriber revenues now dwarf advertising revenues and are growing. It wasn't easy and it has meant a big change in focus, but it is working, as this Niemanlabs article shows.

It's dawning on NZME though, slowly

Meanwhile, NZME, which publishes the NZ Herald, appears to be moving away from the model of giving away all its news for free online. It has also invested more, or at least cut less, from its main newspaper, the New Zealand Herald.

NZME's CEO Michael Boggs has flagged the Herald will have the capability for a premium online subscription service this year, and it is investing in new journalists for that service.

But this pivot has taken four years longer than it should have, and has been relatively slow once it started. NZHerald.co.nz is still targeting the largest possible audience with a mix of sensational celebrity, crime and lifestyle articles on its front pages. NZME has also invested heavily in peripheral businesses, including online jobs and property sites that will struggle to compete against the likes of Trade Me and Seek.

The problem for both NZME and Stuff is that the merger proposal and the appeals have preoccupied their managers for at least two years, and cost them both valuable momentum and time that could have been used to rebuild their news and subscription engines. They need the 'jets' of digital subscription revenues to replace their failing digital advertising propellers.

Simply asking for more runway and paying more lawyers just puts off the day when NZME and Stuff will have to refocus completely on their readers and their journalism, and do something obvious but apparently novel: do great journalism, which both do a lot of now, and ask their readers to pay for it online.

But you would say that wouldn't you?

It's true that I and Newsroom have skin in the game here, so it's worth knowing how we work. We produce journalism on both Newsroom and Newsroom Pro and ask our readers to pay for it directly through donations and subscriptions. We also ask our corporate supporters to pay through sponsorships.

We don't accept traditional display advertising because it's frankly not worth it. We focus every day on producing great journalism our supporters (both individual and corporate) will find valuable and pay for directly. We are continually rebuilding our engines in a way that is focused on revenues from readers and supporters for news.

Critics might argue we'd like NZME and Stuff to turn off their news online so we could gather up some of their readers.

Fair enough.

But it could also be argued we'd like Stuff and NZME to keep stumbling on and not developing their subscription and supporter revenues online, because that gives us more time to develop our own offering.

I actually would prefer Stuff and NZME refocus now on building revenues from readers so they can keep doing their great journalism. New Zealand is a much stronger and better place with the high quality journalism they produce, and should grow rather than cut.

The first thing to do is to use that next $500,000 for lawyers to keep six or seven journalists on and work out how readers can help pay for that journalism in the long run.