Fairfax, Nine deal leaves competition regulator to map out Australia's media landscape
26 July 2018. By James Panichi and Laurel Henning
It’s the media deal Australia had been waiting for.
Less than a year after laws were relaxed to allow companies to own television, radio and print outlets in any given market, the proposed merger between Nine Entertainment and Fairfax Media will create a media company with more platforms than Sydney’s Central Railway Station.
The deal’s logic, according to the two companies, is clear: the new media giant will offer advertisers tailor-made campaigns across media outlets. The merged entity will offer widget-sellers an unbeatable palette of platforms, from Fairfax newspapers and radio stations to Nine’s TV networks.
It’s a business model designed to sideline Google and Facebook. That’s because the merged companies have access to what Nine’s Chief Executive Officer Hugh Marks today described as “quality, premium Australian content that Australians want to engage with”.
This is something that “the Googles and Facebooks of the world” don’t have, and advertisers will be quick to figure that out, Marks assured investors and journalists in a conference call after the proposed deal was announced to the Australian Securities Exchange.
And, more importantly, the new company — to be called simply “Nine” — will have size on its side. It will be able to leverage good deals in acquiring content and offer what Fairfax Chief Executive Officer Greg Hywood described as “flexible cost bases” that can “respond to the market.”
That is: journalists who can be redeployed from one outlet to another — if they’re lucky.
Whatever its detractors may think, this deal will bring to life exactly what Australian legislators had planned — a cross-platform behemoth that will at least have a ghost of a chance in the existential fight against online platforms.
What remains totally untested, however, is the regulatory framework in which this new media ecosystem must evolve. To be sure, the deal harnesses the government’s new take on media ownership. But how will the merger fit in with the country’s competition laws?
This is where the country’s competition watchdog comes into play.
The Australian Competition & Consumer Commission, or ACCC, has already announced it is gearing up for a review, the outcome of which could determine the country’s future media landscape.
— Acquisition disguised —
Both Fairfax and Nine see the deal, announced today, as a capital-M merger, with Nine shareholders winding up with over 51 percent of the new entity, against the 49 percent earmarked for Fairfax shareholders. The combined worth of the company will be A$4.2 billion ($3.1 billion).
But not everyone’s convinced. Fairfax’s stable of high-brow newspaper mastheads, which includes The Australian Financial Review, The Sydney Morning Herald and Melbourne’s The Age, have been hemorrhaging revenue to online platforms for years.
More important, neither The Age nor The Sydney Morning Herald has been able to capitalize on their stranglehold over classified advertisements — known locally as the “rivers of gold” — when they began to migrate online. This revenue had provided a foundation for Fairfax’s journalistic endeavors.
This has led Fairfax to slash its newsroom staff and left it in desperate need of a deal that could give it a new lease on life — or, at least, one that would buy it some time to work out how to monetize its news gathering.
Adding credibility to the new merged company are assets with a much stronger business model than newspapers. Stan is a video-streaming company that is a joint venture between Fairfax and Nine; Domain is a property-listing website, in which Fairfax has a majority stake.
If completed as announced, the deal would create a media company capable of operating across a range of media platforms — something the two companies say is key to survival.
“We will have a media company…like no other in the region,” Hywood said, while Marks argued the new entity would be “providing a platform for advertisers” rather than just trading “spots and dots.”
— The New Zealand precedent —
Speaking today, Fairfax’s Hywood implied that the ACCC’s green light was all but a done deal. “There’re not a lot of areas of competition overlap and we’re pretty hopeful,” Hywood said. “This deal is well within the spirit of last year’s reforms.”
He’s right, of course — on paper, a media conglomerate that includes print, television and radio outlets is exactly what the 2017 revamp of media ownership was designed to allow.
But Hywood's comment, along with the subsequent suggestion by Marks that this isn’t “a transaction that the ACCC … should attempt to intervene in,” ignores a precedent being set on the other side of the Tasman Sea, where the merger between Fairfax's New Zealand business and media company NZME is unlikely to survive a lengthy court case.
New Zealand’s competition regulator has been both willing and able to block that merger on issues that go beyond the business case. And the country’s courts have, to date, been even more militant in standing up against media concentration in the name of quality journalism.
Could Australia’s regulator follow the example of its New Zealand counterpart and get prescriptive on the best way to safeguard high-standard journalism? That’s not a possibility that Fairfax and Nine appear ready to countenance. But that doesn’t mean it can’t happen.
Riffing on the scope of the ACCC’s inquiry into the impact of digital platforms on the media industry, the regulator's chairman, Rod Sims, recently suggested there was a case for an assessment that amounted to more than “an economic cost-benefit analysis” — the provision of quality news to consumers was, he suggested, a worthy issue for a regulator to pursue.
“Broadly speaking, we will be investigating whether the reduction in advertising revenue prevents publishers and broadcasters from delivering quality journalism, by which we mean investigative, verified and diverse journalism,” Sims told a conference in Sydney.
— Activists steer clear —
When asked whether Nine was the only company to have expressed interest in Fairfax since the slackening of media ownership rules in 2017, Hywood was guarded. All he would say was that the Nine deal was compelling and good for both shareholders and the business.
Shareholder activists contacted by MLex suggested Australia’s media industry had yet to provide them with palatable options. With the industry still in a state of flux and large media companies groaning under the weight of commercial challenges, nimble investors appear to be keeping their distance.
They argue that where external investors have come in to take large stakes in media companies — as mining billionaire Gina Reinhart did with Fairfax in 2010 — it’s usually for political reasons. Reinhart had been an outspoken critic of Fairfax’s perceived progressive bias.
But for an activist to get involved, he or she would need some certainty of being able to turn something around in the notoriously difficult industry. Nothing yet meets that description.
“The challenge for traditional media players is they are already in businesses in secular decline and most moves are attempting to stave off that inevitable decline,” said Gabriel Radzyminski, the founder of Sandon Capital, an activist fund.
“This is compounded by the fact that at current market prices, there don’t appear to be many ‘bargains,’ which makes it challenging for an investor who hasn’t already invested to take the plunge,” Radzyminski told MLex.
Even the joint Fairfax and Nine venture, a video-streaming site called Stan that was feted by the two companies in today’s communication with investors, has yet to be prove it will come anywhere near matching the growth of Netflix.