A proposed merger between media groups Fairfax and NZME has been blindsided by the Commerce Commission rejecting the merger, in its draft determination released yesterday.
However, the media groups noted it was not the Commerce Commission's final decision and they would continue to try to pull the merger together.
NZME shares slumped 24% on large trading volumes following the announcement, down to 50c, half the nominal $1 price when NZME was spun out of APN News and Media earlier this year.
NZME chief executive Michael Boggs said in a statement both media organisations believed the merger should be approved.
They would be reviewing the draft in detail to make a submission in coming weeks.
A merger would have resulted in one media outlet controlling almost 90% of New Zealand's print media market, commission chairman Dr Mark Berry said.
''This would be the second-highest level of print media ownership in the world, behind only China,'' he said in a statement.
Dr Berry said the merged organisation would control New Zealand's two largest news websites which together had a population reach more than four times larger than the next biggest domestic news website.
The merged groups would also own one of the country's two largest commercial radio companies.
''All this would result in an unprecedented level of media concentration for a well-established liberal democracy,'' Dr Berry said.
The journalists' union E tu welcomed the Commerce Commission's rejection of the merger proposal.
E tu's national media organiser, Paul Tolich, said the concerns raised by the commission echoed E tu's submission on the merger.
''That includes the issue of reduced competition, which E tu's journalist members believe could drive down quality and reduce media diversity, which is not in the public interest,'' he said in a statement yesterday.
Mr Tolich said the comparison with China, in the event of any merger, was also telling.
''A very powerful position has been stated about the fourth estate and the role of a free press to hold the powerful to account in our society,'' he said.
Dr Berry said the commission's preliminary view was that the merger would be likely to substantially lessen competition in a number of markets, including premium digital advertising, advertising in Sunday newspapers and advertising in community newspapers in 10 regions around the country.
It also considered 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, Dr Berry said.
''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.
He said competition between the parties drove content creation, increased the volume and variety of news available in New Zealand and assisted 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,'' Dr Berry said.
NZME owns the New Zealand Herald, Herald on Sunday, nzherald.co.nz website, a range of regional newspapers, Newstalk ZB and a range of entertainment radio stations, while Fairfax owns stuff.co.nz, the Sunday Star-Times and other metropolitan and regional newspapers.
NZME and Fairfax NZ earlier this year applied to the Commerce Commission for authorisation to merge.
According to a plan revealed in September, NZME intends to pay Fairfax Australia $55million in the tie-up, with the Australian parent taking a 41% stake in the merged group, The New Zealand Herald reported.
On a combined basis, NZME and Fairfax generated total revenue in the year to June 30 of $766.2million and total earnings before interest, tax, depreciation and amortisation of $135.2million. Shares in NZME, which debuted on the NZX in June, first traded around 85c.
Submissions on the commission's draft determination close on November 22.
