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NZME Ltd and Fairfax New Zealand Ltd – Authorisation Draft Determination

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NZME Ltd and Fairfax New Zealand Ltd – Authorisation Draft Determination ISSN 1178–2560 Decision Series Project no. 11.04/15933 Public version Draft Determination Note: This is a draft determination issued for the purpose of advancing the Commerce Commission’s decision on this matter. The conclusions reached in this draft determination are preliminary and take into account only the information provided to the Commission to date. NZME Limited and Fairfax New Zealand Limited The Commission: Dr Mark Berry Sue Begg Elisabeth Welson Graham Crombie Summary of NZME Limited and Fairfax NZ Limited and its parent company, application: Fairfax Media Limited, seek approval to merge the New Zealand operations of NZME Limited and Fairfax NZ Limited. Draft Determination: The Commerce Commission’s preliminary view is that, on the basis of the information provided to date, it is not satisfied that the merger will not have, or would not be likely to have, the effect of substantially lessening competition in a market. The Commission is also not satisfied that the merger will result, or will be likely to result in such a benefit to the public that it should be permitted. Therefore, the Commerce Commission’s preliminary view is that it would be likely to decline to grant authorisation for the merger pursuant to section 67(3)(c) of the Commerce Act 1986. Date of Draft 8 November 2016 Determination: 2670529 2 Confidential material in this report has been removed. Its location in the document is denoted by [ ]. 3 CONTENTS SECTION 1: EXECUTIVE SUMMARY ...............................................................................................8 TIMEFRAMES FOR SUBMISSIONS AND A CONFERENCE ..................................................................... 11 STRUCTURE OF THIS DRAFT DETERMINATION ................................................................................... 11 SECTION 2: THE COMMISSION’S APPROACH .............................................................................. 12 THE PROPOSED MERGER .................................................................................................................... 12 THE COMMISSION’S PRELIMINARY VIEW ........................................................................................... 12 THE COMMISSION‘S INVESTIGATION ................................................................................................. 12 LEGAL FRAMEWORK ........................................................................................................................... 13 Analysing the competition effects of a merger .......................................................................................... 14 Assessing the public benefit of a merger .................................................................................................... 15 SECTION 3: KEY PARTIES AND COMPETITION ISSUES .................................................................. 19 THE MERGING PARTIES ....................................................................................................................... 19 NZME .......................................................................................................................................................... 19 Fairfax ........................................................................................................................................................ 20 OTHER INDUSTRY PARTICIPANTS ........................................................................................................ 21 Television New Zealand (TVNZ) .................................................................................................................. 21 MediaWorks Holdings Limited (MediaWorks) ........................................................................................... 21 Radio New Zealand (RNZ) ........................................................................................................................... 22 Allied Press Limited (Allied Press) ............................................................................................................... 22 KPEX Limited (KPEX) ................................................................................................................................... 22 INDUSTRY BACKGROUND ................................................................................................................... 22 Print is declining ......................................................................................................................................... 22 The move to online consumption of news and information ....................................................................... 23 A digital-first strategy ................................................................................................................................ 23 Inevitable consolidation ............................................................................................................................. 24 THE APPLICANTS’ RATIONALE FOR THE PROPOSED MERGER ............................................................ 24 WITH THE MERGER ............................................................................................................................. 25 WITHOUT THE MERGER ...................................................................................................................... 26 THE RELEVANT MARKETS .................................................................................................................... 27 How we define markets .............................................................................................................................. 27 Characteristics of two-sided markets ......................................................................................................... 28 Markets that could be affected by the proposed merger ........................................................................... 28 SECTION 4: ADVERTISING MARKETS .......................................................................................... 30 MARKET DEFINITION IN ADVERTISING MARKETS ............................................................................... 30 Applicants’ view ......................................................................................................................................... 30 Previous Commission decisions – advertising markets............................................................................... 30 Advertisers’ views ....................................................................................................................................... 31 The Commission’s view............................................................................................................................... 33 DIGITAL ADVERTISING MARKETS ........................................................................................................ 34 Market definition ....................................................................................................................................... 34 Competition analysis – digital advertising ................................................................................................. 35 KPEX ........................................................................................................................................................... 40 Competition analysis – premium digital advertising .................................................................................. 41 PRINT ADVERTISING ............................................................................................................................ 46 Market definition ....................................................................................................................................... 46 Competition analysis – Sunday newspapers .............................................................................................. 49 Do the Fairfax Sunday newspapers currently provide a competitive constraint on the Herald on Sunday? ...................................................................................................................................................... 50 Competition analysis – metropolitan daily newspapers in the Waikato and Hawke’s Bay regions ........... 53 4 COMMUNITY NEWSPAPER ADVERTISING ........................................................................................... 55 How the proposed merger could substantially lessen competition ............................................................ 55 Market definition ....................................................................................................................................... 58 Competition analysis .................................................................................................................................. 60 Investigation approach .............................................................................................................................. 60 Entry and expansion by competing community newspapers ..................................................................... 72 Conclusion .................................................................................................................................................. 76 Competition between The New Zealand Herald and Fairfax’s community network .................................. 77 SECTION 5: READER MARKETS ................................................................................................... 78 MARKET DEFINITION
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