Sunday, 07 May 2017 20:53

NZ Commerce Commission Fairfax & NZME Merger Saga Decrypted---Presents Case Study on Peril in Strategic Planning of an Early Assumption That Masks Evolving Reality

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Indicates need to distinguish between what is known and what is hoped for

The two newspaper companies always gave the appearance of being confident that they could win over to their way of thinking the Commerce Commission?
They made the mistake, so evident now, of believing in their own assumption to the effect that the Commerce Commission would see the merger positively.

What were the contrary signals from the Commission that they missed?
The Commerce Commission’s point of view in its rejection of the first draft of the merger proposal turned on several doctrinal, ideological, words that indicated that it was not for turning.

What were these words?
Democracy, plurality and above all, diversity.

Why diversity?
The loaded word runs through the Commission’s deliberations in a now clearly visible thread. It means that people considerations carry clear priority over any competing considerations in this case those of efficiency, economy of scale and so on.......

Why did the two companies go to the Commerce Commission in the first place? Would it not have been more effective to have simply concocted a new structure with a holding company?
The Wellington and Auckland based companies had their hearts set on a single merged New Zealand company with a consolidated balance sheet and all that goes with it such as just one management structure.

Until quite recently the two companies worked closely together with a cooperative news pool and joint advertising sales promotion – why didn’t they just carry on as a de facto cooperative?
This cooperative structure began to dissolve when the two newspaper groups came into play during the stock market bubble. The old proprietorial families moved away and were replaced by professional managers.

Where and when did they lose the plot?
In their search of their competitive edge they opted for going it alone and thus they acted independently now in terms of their own evolving individual web sites and also in acquisitions. They dissolved their news gathering and dissemination cooperative, the New Zealand Press Association. Also abandoned now were certain geographic areas in which they had long agreed not to compete with one another.

Did they underestimate what the internet was going to do to them?
At first the internet looked even promising. There were new personalities, celebrities that people wanted to read about. Covering the internet brought in the coveted younger demographic. Let’s look back. When television arrived in New Zealand the newspapers actually benefitted, and the Sunday papers were now launched to satisfy the interest in the new world of television

What happened with the internet?
The internet instead now ushered in the era of disintermediation which is still accelerating all around us. People want to deal direct, sweep away the middle operator, the mainstream media, which had hitherto controlled the gateway to news coverage. You want an event covered?You go to Facebook. You want something known – there’s Twitter. You have an opinion? Then you start a blog. You have a range of points you want to air? Start your own website.

There are also any amount, at least 50, broadcasting channels available now. Plenty of competition you would think?
The Commerce Commission took a narrower view of this scene than the newspaper managements jointly appeared to appreciate. The Commerce Commision’s verdict centred on most of the nation’s daily newspapers being held in a single set of corporate hands, and the perception thereof.

The daily newspapers published by the two groups are often considered to say the same thing about the same things anyway?
The Commission concerned itself with the perception. In this case the perception of most of the dailies being controlled by just the one proprietor. It was now at the first decision that there was introduced the notion that New Zealand if the merger went through would convey a similar perception as that of China in that the press in China is controlled by just the one entity, the Communist Party. The signal was clear. It was not picked up.

The Commission’s second and seemingly last veto was delivered at the very start of International Free Press Day. Was this symbolic?
Perhaps – and just because in this attenuated affair so much can be viewed as turning on symbols and perceptions.

What happens now?
The two newspaper groups, the ones based in Auckland and Wellington must wash their minds of further approaches, appeals, to constituted authority including now the judiciary, and they must do so primarily on the grounds of sidestepping any further distractions. The danger of a strategic assumption, in this case that the Commerce Commission would approve the merger, is just that it is so enticing just because it makes the transition from supposition to reality. The wish becomes the fact.

In practical terms, this means....?
The two groups will have to rearrange themselves around a new corporate structure and one that stops just short of a unified balance sheet. The daily newspaper business, an extremely marginal one, is riddled with intensive and in-built administration procedures especially on the subscriber and circulation side where there are stop-starts that can only be automated up to a certain point. They must now merge these departments. They must merge too their printeries.

They will have to be more radical than that, given their falling circulations?
They will have to adopt a new business model and my feeling is that they will develop a franchise model which has already been experimented with by at least one rural newspaper management buyout. Print is relatively strong in the provinces. A franchise move will allow the two groups to develop their centralised services and will dilute the liability also of their substantial staff contingencies.

What about the hedge funds and such like said to be lurking in the middle distance?
The two newspaper groups began to go heavily into play in the 80s bubble and will have been stripped by now of hard asset value i.e. real estate. So they are unlikely to be a target for speculators.

We keep hearing about the Auckland and Wellington-based groups. But what about the third proprietor, the one in Dunedin?
The Smith family who control the Otago Daily Times group kept it within the family. They are a force to be reckoned with and in the affair under discussion remain the dog that did not bark. Or, if it did, was not heard by anyone. They remain in an envious competitive situation notably now dominating the high value tourist region centred on Queenstown.

What would you recommend that the two beleaguered would-be North Island-based suitors NOT do?
Cut the frequency of any of their dailies to let us say three issues a week. The disruptive force of the internet and everything that came with it was to break the newspaper-reading habit. This custom so dominant until just so recently can only be further disrupted by meddling with the frequency of established daily titles.

One has this impression, somehow, of unfinished business. Was anything held back by any one of the parties involved?
The episode was characterised by candour. It was just that the two parties looked at the same thing, the merger scheme, and each saw something that was quite different.

Your full hindsight?
The two groups should have pulled back after the first round when the Commission’s viewpoint was made clear. They should have done so issuing high-minded yet truthful communiques about the severity of their position, and their continuing determination to better the lot of the public at large. In the event they appeared resentful and so their task in formulating a virtual amalgamation will be harder than before.

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