Shares in NZME have slumped after the Commerce Commission revealed it planned to turn down the media company's merger with Fairfax.
NZME shares have taken a hammering. Photo: RNZ / Calvin Samuel
In a preliminary decision, the commission said the merger would substantially lessen competition for digital and online advertising.
The merged entity would also be likely to increase subscription and retail prices for Sunday newspapers and introduce a paywall for at least one of its websites.
One media outlet would control almost 90 percent of the country's media market, which would be the second highest level of print media ownership in the world, behind only China, its chairman Mark Berry said.
Sharemarket reaction to the Commerce Commission's knockback was swift, with NZME's share price dropping 23 percent to a lifetime low of 50 cents in the first 90 minutes of trading.
The price briefly nudged higher, to 53 cents, before dropping back to 50 cents after midday.
Fairfax shares were steady on the Australian exchange, which opened at midday NZ time.
An investment manager said the initial rejection by the commission was not a complete surprise.
"A sign of its attitude on these issues was given when the Commission issued a list of its concerns about the Sky-Vodafone proposed merger," said Harbour Asset Management analyst Shane Solly.
He said the draft decision was not the end of the merger, but the companies would probably have to "rework" their proposal.
Competition law specialist Anne Callinan of law firm Simpson Grierson said the draft decision was a setback for the merger.
"The commission will have an open mind ... it's certainly not irreversible but it will be an uphill battle for the applicants."
The two media companies said the competition watchdog had missed the point about the change occurring in the global industry.
In a statement, NZME and Fairfax said the commission had failed to properly take into account the diversity of opinions available in the digital world.
They plan to make further submissions.
The media firms have previously said they needed to merge to counter the growing media power of Facebook and Google.
Massey University head of journalism Grant Hannis shared the companies' position.
"The Commerce Commission interpreted the market very narrowly. It's speaking basically about print media but there's a much wider market for online news. You can get news from all around the world, obviously, just by a click of your mouse."
Fairfax NZ owns Stuff.co.nz, The Dominion Post, The Press, Sunday Star Times and many other daily and community newspapers around the country, as well as a range of magazines.
NZME owns the NZ Herald newspaper and website, along with other regional newspapers, deals site GrabOne, as well as a bevy of radio stations including Newstalk ZB, ZM and Radio Hauraki.
Media commentator Gavin Ellis, a former NZ Herald editor, said the commission was concerned a merger would reduce plurality - or the multiplicity of voices - and would result in too heavy a concentration of editorial power.
"They talk about the merging of the websites, for example, or having both websites under single control as being four times bigger than the next news website," he told Nine to Noon.
"In terms of editorial or political power that's a significant issue and they say, as a democracy, we need to guard against the aggregation of editorial power."
Mr Ellis said the commission pointed out it had to be guided by structural and competitive considerations, not by the firms' good intentions, such as assurances on staffing or behavioural undertakings.
Estimated the potential savings as $14 million over five years was not a lot of money, spread the organisation. "And I think they would be looking for bigger savings than that."
The E Tu union, which represents many journalists, was pleased with the finding.
Labour leader Andrew Little agreed with the commission's concerns about the concentration of ownership.
"I think it is right to identify that and it is important for a robust democracy that we have a diversity of media ownership and I would share the concerns of others that have said a merger would change that to our detriment."
Prime Minister John Key would not comment directly on the draft findings, saying there would still be some discussion between the interested parties and the commission before a final decision was made.
The Commerce Commission said it would accept further submissions from the public and companies before making its final decision in March.