PUBLIC VERSION Fairfax New Zealand Limited / Wilson & Horton Limited NOTICE SEEKING AUTHORISATION OR CLEARANCE OF A BUSINESS ACQUISITION PURSUANT TO S 67(1 ) OF THE COMMERCE ACT 1986 27 May 2016 The Registrar Business Acquisitions and Authorisations Commerce Commission PO Box 2351 WELLINGTON Pursuant to s 67(1) of the Commerce Act 1986 notice is hereby given seeking clearance , or in the alternative, authorisation , of a proposed business acquisition. PUBLIC VERSION 2 EXECUTIVE SUMMARY 1.1 Wilson & Horton Limited (trading as " NZME ") and Fairfax NZ Limited (" Fairfax ") and their respective parent companies, APN News & Media Limited (" APN ") and Fairfax Media Limited (" Fairfax Media "), are seeking Commerce Commission approval to merge the New Zealand operations of NZME and Fairfax (the " Transaction "). 1.2 The decision by Fairfax and NZME (jointly, "the Parties" ) to merge is in response to the dramatically transforming media landscape. The media industry has been subject to exponential change over the last five years and this is set to continue, with print readership and revenue in decline and revenue from online news/information provision becoming highly competitive. The change has been particularly felt in New Zealand, where Internet penetration and smartphone ownership rates are among the highest in the world. 1.3 Over the past few years, NZME and Fairfax have both independently reshaped their businesses, and their traditional print publishing models, to respond to the modern media industry dynamics. These media dynamics started with the growth in popular use of the Internet, and the significant migration of classified advertising to websites such as Trade Me, but the pace of change has rapidly accelerated with the ubiquity of smartphones. New Zealand has seen the increased use of search engines and social media platforms for the distribution to New Zealanders of local and regional news, life and style, sport, and entertainment content (" news/information "). 1.4 New Zealand is among the world leaders in Internet penetration (91% were active users in 2015) and smartphone ownership (from 48% in 2013 to 70% in 2015), with smartphones now being the key device for accessing digital news/information, and social media usage (2.5 million New Zealanders access Facebook each month, including 1.9 million every day, with each person checking Facebook on average 14 times per day). As a result, New Zealand media companies that are committed to bringing high quality local, regional and national news/information to New Zealanders must do so today in an entirely different media environment from that prevailing even five years ago. 1.5 Already almost 90% of New Zealanders with smartphones use those devices to read news/information. The mobile phone is a device platform that is more difficult for publishers to monetise as it drives content access through third party mobile phone and social media apps, and there is less physical space for advertising. The Parties estimate, like in Australia, at least 40% of people in New Zealand access news/information through a social media platform and nearly 50% through a search engine, in addition to other sources of news/information. Given the ubiquity and popularity of social media and search platforms, publishers need to make their content available via those platforms, in particular Facebook. Publishing news/information content on these platforms enables these platforms to attract and hold consumers within their ecosystems, and at the same time determine the rules under which publishers' content is accessed and how advertising revenue is earned. For a news/information content business this means that: (a) news/information is simply one form of content vying for consumers' attention on social media platforms in competition with all other content forms (eg humour, gaming, social posts etc); and PUBLIC VERSION 3 (b) consumers increasingly take their news/information in a far more piece-meal way, without accessing the news/information provider's website, and only providers of the best news/information content will succeed in the competition for New Zealand consumers' attention in amongst all other content sources vying for consumer attention. 1.6 As a result, in order to thrive in the modern digital environment, the Parties must first and foremost continue to invest to deliver on their commitment to quality journalism and other content that attracts consumers, regardless of the platform through which that news/information is brought to their attention. At the same time, they must continue to adapt their businesses, to deliver to advertising customers a more targeted, lower cost, data rich, higher return on investment (" ROI ") advertising offering. The Parties must deliver content that attracts consumer attention in an increasingly competitive content/attention environment. 1.7 Other news/information competitors, seeing similar trends, have done the same. For example, Mediaworks (Holdings) Ltd (" Mediaworks ") launched Newshub in January 2016; Television New Zealand Limited ("TVNZ ") launched One News Now in July 2015; and Radio New Zealand's (" RNZ ") legislation was amended in April 2016 to allow it greater multimedia flexibility. The government, attune to these trends, is currently consulting on digital convergence and its impact, in an effort to ensure consistency in approach across all platforms. 1.8 Advertisers, whether they are interested in commodity low-cost product or high- end bespoke campaigns, demand offerings that reach the largest number of potential purchasers, in the most targeted way possible. In that regard, advertisers are agnostic as to the platform and channel to market through which this is achieved - whether that be by television, radio, billboard, print, flyers, online or other advertising. Global search engines and social media platforms have high levels of data/information about New Zealand users, and so are able to provide in-depth data analytics and customer insights to support the advertisers' objectives. As a result, it is estimated that more than 50% of online advertising expenditure in New Zealand is now being placed with Google and Facebook alone (with that figure being 64% in the USA). NZME and Fairfax compete head-on with strong global and local media companies, search engines, and online auction and retail platforms for a share of advertisers' spend - without the benefit of the scale of the global businesses nor the low cost base of smaller digital-only competitors. 1.9 Quality journalistic content that consumers will choose to engage with is the only competitive edge available in a digital world, where anyone can create and upload content. In this digital world, the Parties compete against both global content giants with scale advantages, and small digital-only start-ups and blogs with low cost bases. The Parties need to evolve to develop a viable position in the middle of that spectrum. The Transaction will allow the merged business to deliver enhanced quality and diversity of editorial offering. Studies show improvement in quality and diversity from a merger of publishers. The reason for this is clear; the merged group's financial success depends on it being able to attract the widest range of audiences possible in competition against all other sources of content. The merged business will be incentivised to retain talented journalists across the spectrum of views to continue to expand that audience reach. 1.10 At the same time, the merged business will continue to develop and invest in new and innovative digital opportunities to maintain and grow its share of digital revenues. This is essential given in the future it is likely that some newspapers PUBLIC VERSION 4 will no longer be printed every day and digital revenue (in particular mobile revenue) will therefore be the primary source of revenue. 1.11 Even looking solely at the way the businesses were historically structured, before their respective reconfigurations as "digital-first" businesses, in the areas of newspapers, community publications and radio, the Transaction gives rise to no material overlap: (a) In paid daily papers, in almost every New Zealand region there is only one "masthead", because consumers have already picked their winner. The New Zealand Herald is the paid daily for Auckland, The Dominion Post is the paid daily for Wellington, the Otago Daily Times in the paid daily for Otago, etc. In the Waikato, The New Zealand Herald does have some circulation in the same area as the Waikato Times , and in the Lower North Island The Dominion Post has some circulation in the same area as NZME's Hawke's Bay Today . However, there is no region in which there is head to head competition between two strong incumbent paid dailies focussed on the same region. As a result, the constraint on the subscription/cover price of a daily paper is, and will remain, the fact that any price increase would necessarily reduce circulation. Reduced circulation will impact on print advertising revenue (which is currently the primary source of revenue for print publications). (b) There is some overlap in distribution area between the Parties' Sunday papers in the North Island. Herald on Sunday , however, has its primary circulation volumes in Auckland, while the Sunday Star Times has its primary circulation volumes in the balance of the North Island (and the South Island). As a result, again, the material constraint on subscription/cover price increases is, and will continue to be, attracting advertisers to the publications (with the readership declines resulting in decreasing advertising prices). (c) Both Parties have a number of free community publications. Those will remain constrained on the consumer side by over 80 independently owned community papers, and on the advertising side by online and other media alternatives, other community papers, advertising flyers, and the strong countervailing power of advertisers. (d) There is no overlap in radio, as only NZME has radio assets, which compete vigorously with MediaWorks' radio assets and with RNZ, as well as with a range of independent radio stations and online radio streaming alternatives (for example Spotify and Pandora).