The ComCom should be able to put behavioural conditions on mergers

Posted 31st Aug 2016

This piece was originally published on 24 August on National Business Review.

It might not be headline news but the major shake-ups of our media environment threaten a seismic shift in the New Zealand media landscape. Do we care? Should we care? Yes, we should.

The proposed mergers of NZME and Fairfax, and of Sky TV and Vodafone are being considered as the remnants of public interest media (aka Radio NZ and a declining number of TV programmes funded by NZ on Air) are toughing out eight years of government funding freeze.

These mergers are driven by changes in technology, viewing habits and a steady collapse of the traditional advertising revenue model. The result is that the role of media in our society is becoming less about truth-telling and more about clickbait entertainment.

We also need to confront the fact that our lack of media regulation and the weakness of a Commerce Act, that the Commerce Commission itself wants reformed, could deliver consumers two dominant players that will reduce choice, increase the costs of access to content on digital platforms that we already have to pay for, and further limit live sports coverage.

Worst of all, public debate about the big issues that affect our lives will continue to shrink.

Under current competition law, the Commerce Commission can't require conditions on either of the two media mergers. They have to rule 'yes' or 'no.' However, the merging companies could offer pre-undertakings to sweeten opposition to the deals. If they do, the Commerce Commission can accept and even enforce them though some clarity is needed on this.

NZME and Fairfax together control 90% of our newspaper market. Two of the public submissions on the merger stand out.

E tu, the union representing journalists, wants undertakings to provide a charter of editorial independence, a beefed-up Press Council to investigate breaches of the charter and guarantees of clear separation between commercial and editorial functions. They also want enforceable undertakings on staffing numbers and competition for excellence, including (and especially) in the Parliamentary Press Gallery.

Another well-argued case against the Fairfax/NZME merger comes from the Coalition for Better Broadcasting. It says that, although the media market is in commercial crisis, it should not be exempt from regulation that prevents undue levels of market concentration and power being acquired by any single company.

The coalition says an NZME/Fairfax merger will lead to an unacceptable concentration of editorial power that fails the public benefit test required under the Commerce Act. There is no benefit to the consumer.

What about the Sky/Vodafone merger? Again, two public submissions stand out – this time from their competitors.

Spark and TVNZ point out the lack of a wholesale market for them to access premium sports and other 'must have' content. This will be further entrenched with the merger, which they claim will continue the monopoly of all kinds of pay-TV services.

TVNZ goes a step further. It demanded that Sky should be required to sell its free-to-air Prime television business. "Since acquiring Prime," says TVNZ, "Sky has bought bundled pay and free-to-air rights and increasingly put premium content behind the paywall, resulting in higher prices for consumers for premium entertainment and sporting content." The question is whether the consumers (the public) will be worse off under a merger. All the submissions say they will be worse off, and that competition to access streaming TV will be increasingly throttled. Can the Commerce Commission come to the rescue? Well, no. New Zealand's competition law is weak, and the commission has recent 'form' in its investigations into the media sector. Sky controlled the internet service provider market, with restrictive contract deals for how its content could be shown on internet platforms. After a lot of industry pressure, the Commerce Commission eventually investigated this and found Sky was probably in breach of s27 of the Commerce Act. The result of this anti-competitive behaviour was a formal warning to Sky and a promise to monitor their commercial behaviour. The commission knew that had it acted formally against Sky the result would have been years in court, millions of public money and, given the Commerce Act, an uncertain result anyway.

If the commission did keep checking up on Sky (it almost certainly didn't), then it made no difference. Sky continued imposing contract terms on other networks and internet service providers that no one would dare in any other jurisdiction.

So, wet bus tickets all round. The question now is will the merged Vodafone/Sky continue to apply similar restrictions? They say that it's not in their interests to do so. They argue their businesses are complementary and "there is no basis upon which to conclude there is any likelihood that the combined group would cease to offer content to resellers and require all SKY customers to use Vodafone telecommunications or the combined group's bundles would harm competition in a market."

History suggests otherwise, so the commission needs to ask, contract point by contract point, if the merged company would continue to apply such onerous and anti-competitive terms to the internet-service providers.

No doubt the commission will ask but what can it do? As with the NZME/Fairfax merger, the commission can't impose behavioural conditions.

I don't envy the Commerce Commission one bit. If NZME/Fairfax and Sky/Vodafone came up with voluntary undertakings, the commission would surely be more inclined to agree to the mergers. But don't hold your breath.

There are issues beyond the need to regulate in a way that delivers genuine competition. Even if we achieved that, there remains the glaring lack of non-commercial and public interest media in New Zealand.

After months of silence on the inadequacies of the existing regulatory environment, this week the ICT and Broadcasting Minister Amy Adams finally announced some fairly minor changes to the Broadcasting Act to extend responsibility for broadcasting content standards to online content and limited relaxation of advertising on Sunday mornings and an extension of the powers of the Broadcasting Standards Authority.

It's as if she is oblivious to the bigger issues occurring in the media/communications environment. And as an aside, the irony hasn't escaped me of the government on the one hand pushing for shop-trading on Easter Sunday but refusing to allow television advertising on Sundays, out of step with other media (bar RNZ). Yet advertising is to be allowed during special events? How about requiring special events in general to be broadcast on free-to-air television so that all New Zealanders get to see them?

Competition can breed innovation and nimble and responsive technologies in the hands of consumers. Just imagine if during the next Olympics we are all dependent on a $120+ monthly Skodafone subscription to get access to our national champions' heats and finals.

It's the response from NZME/Fairfax to the submissions on their merger, however, that provides the best marker for the dilemma. They describe the arguments that the merger would lead to a loss of "valuable journalism" as a "subjective matter" and therefore not subject to competition law. What is it, then, that they do that is of value?
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