The Commerce Commission has proposed to decline the NZME/Fairfax merger.
The Commission said its preliminary view was that the merger would be likely to substantially lessen competition in a number of markets, including the markets for premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions throughout New Zealand.
"It also considers the merged entity would be likely to increase subscription and retail prices for Sunday newspapers and introduce a paywall for at least one of its websites," the Commission said in its draft determination.
Chairman Dr Mark Berry said the merger would result in one media outlet controlling nearly 90% of New Zealand's print media market. This would be the second highest level of print media ownership in the world, behind only China. The merged entity would also control New Zealand's two largest news websites - nzherald.co.nz and stuff.co.nz - which together have a population reach more than four times larger than the next biggest domestic news website.
Further, the merged entity would own one of New Zealand's two largest commercial radio companies. All this would result in an unprecedented level of media concentration for a well-established liberal democracy.
"Our preliminary view is that competition would not be sufficiently robust to constrain a multi-media organisation, potentially with a single editorial voice, that would be the largest producer of national, regional and local news by some margin in New Zealand," Dr Berry said.
"NZME and Fairfax each play a substantial role in influencing New Zealand's news agenda. Competition between the parties drives content creation, increases the volume and variety of news available in New Zealand and assists with objectivity and accuracy in reporting.
''Our view is that the removal of this competitive tension would likely lead to a reduction in the quality and quantity of New Zealand news content both online and in print, with potential flow-on effects in television and radio.
"We recognise that the merger would achieve net financial benefits through organisational efficiencies. However, while we cannot quantify the detriments we see with respect to quality and plurality of the media, we consider that detriments resulting from increased concentration of media ownership in New Zealand would outweigh the quantified benefit we have calculated. In particular, the potential loss of plurality has weighed heavily in our draft decision. On this basis, we propose to decline the application."
The regulator's draft decision does not necessarily indicate its final ruling and is often used to gather more information from the parties involved.
NZME and Fairfax NZ want to merge their operations and earlier this year applied to the Commerce Commission for authorisation.
According to a plan revealed in September, NZME intends to pay Fairfax Australia $55 million in the tie-up, with the Australian parent taking a 41 per cent stake in the merged group.
Fairfax Australia will nominate two directors to the board of NZME, who will be appointed on completion of the merger.
In the year to June 30, Fairfax generated revenue of $350.3 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $60.2 million. Over the same period NZME generated revenue of $415.9 million and EBITDA of $75 million.
On a combined basis, NZME and Fairfax generated total revenue in the year to June 30 of $766.2 million and total EBITDA of $135.2 million.
NZME, publisher of the New Zealand Herald, has a raft of other newspaper titles and string of radio stations.
Fairfax NZ owns stuff.co.nz and more than 60 metro, Sunday, regional and community newspapers, lifestyle magazines.
Shares in NZME, which debuted on the NZX in June last traded at 66c compared with its first traded price of 85c.
