The changing media landscape in New Zealand
05 July, 2016
NZ media heavyweights are joining forces to compete in a market that's changed drastically in the last decade. Last month SKY TV announced its plans to merge with Vodafone NZ — who in late 2012 spent $840 million buying Telstra Clear. Earlier this year media giant New Zealand Media and Entertainment (NZME) who own the likes of NZ Herald and ZM Radio, split from their Australian owner APN News & Media, and are now seeking to merge with Fairfax New Zealand (Stuff and various publications).
It's not often we see such sweeping changes in our media landscape. Previously the NZ Commerce Commission would have almost certainly declined both proposed transactions on monopoly grounds. However, the fast and ever changing digital landscape means these traditional media and entertainment companies now have new and powerful competition from a range of companies that in some cases were formed only in the last few years.
No longer is SKY TV the dominant player with competition from Netflix and consumers' ability to download just about anything online. The age-old tradition of perusing the morning paper has been replaced for many, with access to online networks like Google and Facebook. These changes, we believe, will see the Commerce Commission likely approve the mergers.
Our view is that SKY TV, NZME, Fairfax NZ and to a lesser extent Vodafone NZ are 'challenged' companies. Sky TV is under competitive pressure from 'over-the-top' content providers like Netflix and is facing programming cost increases to retain its lead in content offerings in New Zealand.
NZME and Fairfax are also faced with a storm of competitive pressure from digital media companies like Google, which capture most of the growing on-line advertising revenue in New Zealand. Vodafone NZ is the only company forecasting an increase in profits next year; however, that growth is off the back of two years in decline.
The proposed mergers are seen as a way to reduce costs and, to a lesser extent, increase revenue through 'synergy benefits'. The opportunity of merging for these 'challenged' businesses is that they can better compete against well-resourced international competitors. Our view is that, although there will be short term synergy benefits, in the long term these companies' business models will still be under competitive threat and remain challenged. Given that our STEEPP investment process favors growth companies with sustainable competitive advantages, we tend to avoid such challenged businesses.