best tracker Chris Luxon says the media didn’t innovate. In two crucial cases, it just wasn’t allowed. – Techss

Chris Luxon says the media didn’t innovate. In two crucial cases, it just wasn’t allowed.

Above the Fold: Since the announcements of mass layoffs at Newshub and TVNZ, many have suggested that the media has failed to evolve. Duncan Greive looks back at two momentous merger decisions that radically changed our media history. 

“I still lie awake at night and think about the merger,” says John Fellet. The former CEO of Sky, the longest-tenured major media leader this century, is talking about a potential tie-up of Vodafone (now One NZ) and Sky TV. It was 2016, and Sky was still a juggernaut, but facing hefty competition from Netflix. Vodafone international had a great internet TV device that Sky thought could be the foundation of its move to online streaming, in the era before widespread smart TVs.

The combined giant would have been an enormous, diversified business – when the merger came into view, each had a claim to be one of the 10 biggest corporates in New Zealand. Using the consistent cashflow of their vast subscriber bases, Fellet was confident it could make major investments into technology and product and offer a compelling range of services to its millions of combined customers. And, Fellet says, Sky was extremely interested in acquiring TV3 – and believes it could have ultimately led to a different outcome to the mass layoffs announced last month.

It never happened. In early 2017, the Commerce Commission – the body charged with regulating our business sector – declined pre-approval for the Vodafone-Sky TV deal. It was a body blow, and the end of more than 18 months of work. “It was always perplexing to me,” says Fellet now. “[The Commerce Commission] never seemed to understand the internet.” Now the merger exists as a barely-remembered alternate history of our local media. But it’s worth revisiting, in part because it shows that a key critique levelled at news media is somewhat unfair. Media tried to consolidate to innovate. A major government agency simply wouldn’t allow it – not just once, but twice.

Where are we right now

To recap – within just 10 days in February, New Zealand’s news media landscape was turned on its head, first with Warner Bros. Discovery’s proposal to shut Newshub entirely, followed swiftly by TVNZ’s slashing of its key investigative, consumer affairs and youth brands in Sunday, Fair Go and Re: News. 

Notwithstanding the perma-awkwardness of news media covering its own business – exemplified by Sam Hayes and Mike McRoberts calmly announcing to the nation that they were losing their jobs – there has been a maelstrom of reaction. This is unsurprising given the large audiences and key democratic function performed by news media.

Yet almost as quickly as the news came, so did the diagnosis from beyond the industry. The common thread is a desire to pin some of the blame for the state of media finances on operators themselves. Prime minister Chris Luxon typified this, saying news media needed to “continue to innovate to find innovative business models to make businesses like that stand up”. He went on to ask pointedly “why aren’t they able to build sustainable business models?”

Christopher Luxon at government house
Christopher Luxon has said media needs to innovate (Photo by Marty MELVILLE / AFP)

It’s not only politicians with that critique – New Zealand’s tech sector has been loudly decrying the lack of entrepreneurship shown by our large media businesses. Adnan Khan, co-founder of marketing tech company Stitch, wrote pointedly on LinkedIn that our news media should embrace the global environment, pointing to “Kiwi companies like TradeMe, Rocket Lab and Xero [who] have succeeded by being scrappy and innovative… Local publishers should aim to be better, not by erecting barriers or seeking protectionism, but by embracing a mindset of continuous improvement, innovation, and customer-centricity.”

To be clear, the news media is not blameless. While it has innovated across product and service, it could clearly have done so faster and more adroitly. Some of the critiques around audience alienation through mission creep or tone and scope of coverage are not without merit at a sector-wide level, even if they were defensible within specific organisations at specific moments in time.

Yet beyond the slightly banal hindsight-rich debate over the timing and pace of innovation, it’s important to understand just how much innovation the industry was allowed to complete. 

Why scale matters to innovation

One of the major barriers to innovation is often cited as scale – investment is easier to attract, and efficiencies more easily found, when an organisation has a particular heft to it, or when an industry has fewer but larger participants. This is in part why huge sectors like telecommunications (three at scale) or banking (four to five at scale) have been able to handle transitions to digital relatively adroitly. 

The media in New Zealand has long been cited as excessively fragmented. At the start of the pandemic, you could count 10 medium-large domestic entities that had businesses making content around news and entertainment, and funding that through advertising, subscriptions or government support. They were TVNZ, Sky TV, Mediaworks, Spark, Bauer, NZME, Stuff, RNZ, Whakaata Māori and Allied Press.

As of today, there are nine such businesses. And consolidation has happened only because Bauer and Spark abandoned the market entirely. By some measures, it’s actually more fragmented, as the Bauer magazines are now held by a number of smaller businesses, while MediaWorks has broken in two.

A selection of (formerly) Bauer Media covers

Why is it like this? In part, it’s because the Commerce Commission refused to allow it to change. In two major cases it made serious attempts to consolidate, through huge mergers. Both came to a head within weeks of one another, in early 2017. And each was turned down by the Commerce Commission, citing the chance they might “substantially lessen competition” in one case, or have “the effect of substantially lessening competition” in the other.

The first to be declined was Sky TV and Vodafone. The Commerce Commission ultimately bought arguments by the likes of Spark that the entity would have excessive power. Then Spark turned around and partnered with Sky competitor Netflix, and not long after started aggressively buying sports rights, hugely raising Sky’s costs, accelerating its customer losses and arresting its ability to invest in technology. 

The second was the merger of NZME and Stuff. Again, this would have brought our two largest newspaper groups and employers of journalists under one roof. It was opposed by journalist unions and media competitors, on the grounds that it would have had huge control of the newspaper space and digital news arena. The Commerce Commission made a statement which seemed laughable then, and time has not been kind to. “We do not consider that services such as Facebook… are suitable alternatives for local advertisers.”

It’s not uncomplicated

To be fair to the Commerce Commission, there are market definition difficulties here. Would the merged Vodafone-Sky have operated in cellphone infrastructure or streaming video? Was the combined NZME-Stuff in the digital news market (in which case, too much power) or in the advertising market (in which case, dozens of powerful competitors). 

Still, even at the time, there were critics (including this organisation) who argued that the major competitors to all these companies were multinational technology companies, and they would slowly crush news organisations. It was not a hard case to make that Sky’s chief commercial rival was Netflix, and NZME’s was Facebook.

The news industry sits now in a profoundly humbled state. It’s four years since the shocking collapse of Bauer. One year since the closure of Today FM. And mere weeks since the twin hammer blows to Newshub and TVNZ. At this point, we should probably stop being shocked, and start expecting bad news to rain down in Q1 each year, as the summer advertising slump fails to give way to a sustained advertising recovery.

So was the Commerce Commission right in its decisions?

Marking its homework

This is why I was intrigued to see that the organisation had conducted just such an exercise recently. Entitled “Ex-post review of NZ Commerce Commission merger decisions”, it seeks to “determine whether specific aspects of a decision – such as the likelihood of new entry – had played out as expected”. Given its enormous power to decide the fates of our business sector, this kind of self-reflection is refreshing, especially coming from a government entity that had seemingly not been commanded to do so, but took it upon itself to look back. 

Because it undertook dozens of decisions over the last 10 years, it’s understandable that it could not assess them all. Instead it chose 13 to exemplify its work over the decade. Surely, I thought, among that number would be one or both of those momentous decisions to decline major media mergers?

Sadly I was wrong. It assessed mergers impacting yoghurt, table sauces and “personal lubricants”. It assessed two different mergers involving animal rendering. But chose not to reassess two enormously consequential mergers impacting the local media market. One which, even as it released its study, was bleeding out in public. 

A very old tweet from the Commerce Commission

It seemed a shocking pair of omissions, so I asked the Commerce Commission why it hadn’t opened those doors. They replied with a statement: “The review didn’t include an assessment of the Vodafone/Sky or the NZME/Fairfax applications. Cases were selected for review according to a range of criteria, including the availability of information and data, the time elapsed since the merger, the unique issues raised, and the potential relevance to future investigations. The cases assessed include cleared and uncleared mergers.”

To its credit, the Commerce Commission has undertaken to complete similar studies in the future, and may yet pick them up then. And there is no guarantee that had the mergers gone through we would not be in a similar or worse position around news. 

But there’s also a chance that ex-Sky CEO Fellet is right, and that a muscular Sky-Vodafone (now One NZ) might have been in a position to have bought Three a couple of years back. Or that the digital and print giant NZME-Stuff might have built a more coherent paywall / free-to-access product than we currently see, with greater employment of journalists as a result.

We’ll never know. And the Commerce Commission decided not to ask. Still, it’s worth remembering these sliding doors as we sit assessing the hundreds of jobs lost and stories that will never be told. Those who preach innovation now seem to have missed the fact that the industry was forcibly restrained from doing so at an utterly crucial time in its evolution.

Author’s note: I am aware that there was a third failed merger too. RNZ and TVNZ fell apart largely in the face of industry opposition (including my own) which feared the lack of restraints on its commercial operations allied to its nine-figure annual budget boost. That said, TVNZ was never too excited about it either. But as TVNZ faces huge cuts to its public media capacity, there are many who look at that path not taken too. 

One media veteran castigated me for not raising it in a recent podcast interview with Newsroom founder and former head of Three News, Mark Jennings. They asked “do Greive and Jennings feel at all sheepish about opposing the merger and the charter, and a stronger public good broadcast system in this tiny, un-economic country of ours?” It’s a fair question, though I remain of the opinion that better drafted legislation from the start could have addressed those issues, and turned opposition into support.

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