Is Stuff Stuffed?

Published on the 16/08/2018 | Written by Pat Pilcher

Stuff NBR Paywall

Media mergers pose a much bigger question – who will pay?…

Fairfax Media is looking to merge with Australian broadcaster, Channel 9, what does it mean for the New Zealand media-scape?

The proposed merger is subject to regulatory approvals from Australia’s ACCC and shareholders. Either way, it is probable that the merger will be completed or declined before 2019.

“Although the list of potential suitors is small, each would need a clear strategy to make Stuff profitable.”

The proposed deal would see the new entity branded as “Nine” with Channel 9 owning 51.1 percent, and Fairfax the remaining 48.9 percent.

If that is what the new combined entity will look like, what are the likely impacts of the merger on New Zealand’s media?

In the ensuing media frenzy,  there was little to no mention of Fairfax’s New Zealand operations. The New Zealand arm – the local Stuff news operation – barely rated a mention in the 95-page document Fairfax/Nine submitted to the ASX.

Assuming the Fairfax-Nine merger is approved, Fairfax’s New Zealand operations stand to gain access to a considerable body of news and entertainment assets. These could see Fairfax looking at partnership or acquisition opportunities in the New Zealand market.

Another distinct possibility is that the new Nine-Fairfax entity could spin Stuff off from their Australian business. That would, however, require a buyer.

Although the list of potential suitors is small, each would need a clear strategy to make Stuff profitable.

In an audacious move, NBR owner Todd Scott has thrown his hat into the ring. Scott says that he has the backing of a ‘consortium’ (an NBR rich lister and a couple of other interested parties) who would finance the deal that, according to Macquarie valuations, could set them back an estimated NZ$120 million.

While there are no immediately apparent synergies between NBR and Stuff, Scott has made his plans for a post-purchase Fairfax clear. His focus would be 100 percent online. Local content would be delivered online via Stuff’s community networking site Neighbourly. And subscribers would pay for news and editorial content.

Scott is pinning his plans on local news attracting a paying audience, and NZX sharemarket investors, to support a high quality journalism offering. NBR has successfully introduced a paywall model to NBR online – the only publisher to do so successfully in the NZ market – on the back of its well-heeled business executive audience. To get a deal off the ground, his backers will need to have similar faith in both the value attached to quality journalism and the willingness to pay among the populace in the outer suburbs, towns and provinces across the country. They will also need to predict how their key competitor, NZME, will respond.

Regardless of subscriber sentiment, the paywall model is technically difficult to deliver. Scott has only recently upgraded the NBR website in a project that was significantly over budget and late even after the scope was reduced. To deliver similar capability at the scale of Stuff will take much deeper pockets and patience.

Other potential buyers would need to see strategic value in Fairfax’s NZ arm, which could be tricky. In February, Stuff closed 28 community and rural papers as it sought to stem red ink and refocus on its digital platforms. While losses have slowed, year on year revenue for Stuff was AU$146 (NZ$160.7 million) in 2018, down eight percent on the previous year’s earnings.

One of the most widely speculated parties for a merger is MediaWorks. The former head of TVNZ news, Bill Ralston, was quoted speculating that a merged Nine and Fairfax business could have the wherewith to acquire MediaWorks and fold them into Stuff. In one short move, an ailing print/online company would gain radio and TV, with associated efficiency gains in a consolidated newsroom. They could also jointly develop content/programming deals with Nine, whose trans-Tasman scale could afford them extra buying power in the strategically significant sports category.

MediaWorks, which owns TV3, recently sent a submission to a ministerial advisory committee warning that the Government might soon find itself left as the only broadcaster in New Zealand if their policies did not change.

Things were already looking interesting for Fairfax’s New Zealand operations. Over the past two years, Fairfax has been chasing a merger with NZME which has been blocked by the Commerce Commission (a decision that is under appeal).

The proposed merger was floated as a way to head off the threat of global internet companies – Facebook and Google – which are attracting a significant share of online advertising. Both businesses had previously talked up the growth of their digital revenues, but both are still heavily reliant on declining print advertising sales to drive scale, if not profit.

Earlier this year, The Commerce Commission ruled against the merger amidst fears of a loss of media diversity which they said significantly outweighed the benefits of the deal.

If the NZME/Stuff merger gets knocked back by New Zealand regulators again, Fairfax will still have other options, depending on what its Australian parents decide to do with it.

While speculation on both sides of the Tasman continues to swirl, Fairfax and Nine await a ruling from Australian regulators, the ACCC, who could intervene and block the merger. Unions and pundits from within the Australian Media, Entertainment and Arts Alliance (MEAA) have already called for the ACCC to prevent the deal from happening.

How long regulators can continue to resist the clear market forces on display is a significant question. Who is prepared to pay for robust fact-based journalism immune from commercial or political bias, and how, is a more important debate.

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