Fairfax-Nine deal waved through in a bad decision reflecting bad law

The Australian Competition and Consumer Commission’s decision to wave through the Nine Network’s takeover of Fairfax is a poor decision — but the poor law behind it is just as big an issue.

The ACCC admits that the takeover will lessen competition — but not substantially lessen competition — which is the crucial legislative hurdle in the Competition and Consumer Act that the ACCC administers. That call is flawed, and so is the law.

The ACCC’s assessment process revolves around which economic markets will be affected by a transaction. It is not there to protect media diversity but competition, which is different. The markets affected by the Nine takeover of Fairfax involve advertising and content acquisition but, most importantly, news. The last is the one that the ACCC focused most on because it couldn’t find any big issues in the other two areas. But the ACCC doesn’t stop at the market level: it drills down. Nine is a TV network and Fairfax a print outlet so they compete in different sub-markets. But there is one sub-market where they compete directly — online news. The the ACCC doesn’t think the takeover will substantially lessen competition there. Why? ACCC chair Rod Sims explains:

This merger can be seen to reduce the number of companies intensely focusing on Australian news from five to four. Post the merger, only Nine-Fairfax, News/Sky, Seven West Media and the ABC/SBS will employ a large number of journalists focussed on news creation and dissemination. With the growth in online news, however, many other players, albeit smaller, now provide some degree of competitive constraint. These include, for example, The Guardian, The New Daily, Buzzfeed, Crikey and The Daily Mail. While there are important barriers to building trust and scale, significant new entry into the Australian online news market has already occurred and made a noticeable difference.

The statement reflects an ignorance of how media works. The “competitive constraint” of the outlets listed is minimal, not because we don’t do good journalism, but because we lack the resources of big outlets — not merely the resources to fund quality journalism, but the institutional support for journalism, especially the legal costs of it. Small outlets can’t fight suppression orders or defend defamation suits, at least not regularly. Only the Fairfaxes, News Corps and TV broadcasters can. The Guardian has some limited capacity to do it, but the rest of us simply don’t have the size.

Paul Keating nailed this in his statement on the issue. “The ACCC’s naïve waffle … shows a complete misunderstanding of the role of capital city print journalism in shaping the media debate in television and print on a daily basis. The notion that, as the ACCC says, The Guardian, The New Daily, Buzzfeed, Crikey and The Daily Mail can be seen as adjuncts to the print mastheads of trust and scale, is simplistic nonsense unbecoming of an economic body as the ACCC should be.”

And then there is the problem of lumping the ABC and SBS into the market assessment. They may “compete” with commercial outlets like Fairfax and Nine, though they provide comprehensive rather than commercially oriented services. But they are state constructions, not elements of the marketplace. They are constrained by political actors: the Abbott/Turnbull/Morrison governments have been engaged in a war against the ABC since 2013 that has seen hundreds of millions of dollars slashed from the ABC’s budget and direct interference in the editorial processes of the broadcaster. Often this war is on behalf of the other players in the news market: it is Nine, Fairfax and News Corp that demanded an inquiry into the “competitive neutrality” of ABC and SBS. And it is a former News Corp executive who is leading yet another review into ABC finances to justify further funding cuts that will diminish ABC news coverage further. Lumping the ABC and SBS in with Fairfax, Nine, News and other commercial providers ignores the reality that they are very, very different. The ACCC’s analysis simply doesn’t stack up.

The other problem is that word “substantially”. The ACCC admits the takeover will reduce competition, but not enough to reach the legislative hurdle to ban it — meaning the ACCC can’t intervene. It’s becoming clearer now that the “substantial lessening of competition” test that’s been part of the Trade Practices Act and now the Competition and Consumer Act for decades has failed to prevent Australia from becoming a heavily concentrated economy — an issue Labor’s Andrew Leigh has been pursuing for some time and which is now being picked up by the mainstream media (ironically, Sims himself expressed concern about the issue in 2016).

“Substantially” no longer cuts it — it’s too high a threshold for an economy that already has too much concentration, especially in the media sector. And we’re all paying the price.