The full monty

Now that we've got the full decision in NZME/Fairfax, what can we take from it? Apart from some admiration for the combined writing style of Justice Dobson and Professor Richardson: I liked the crack at [98], about the likes of Facebook, that "Fifteen recyclers of the product of two producers of news are still only making two views available", the worked examples, and the historical footnote disquisitions.

Let's start with the clearance arguments - whether the merger would or wouldn't lead to a substantial reduction in competition, an 'SLC'. This was always going to be an uphill ask for the appellants, and so it proved. The court agreed with most of the SLCs the Commission had found.

It's not a great idea to give good advice away for free, but here's some anyway for NZME/Fairfax: don't even think about appealing the clearance judgement. When a judgement says at [74] that in the online news market "the merged entity would employ over 300 more editorial staff than the three next biggest mainstream media organisations combined" and at [135] that "The Sunday newspaper reader market is a duopoly so that each firm is the greatest constraint on the other", you haven't a snowball's.

On to the authorisation arguments - whether there were net benefits to the public that compensated for the adverse effects of the SLCs.

The first point traversed was how the net benefit test should work. One argument was that the balancing exercise to determine a net benefit should count benefits in the markets where there were SLCs, detriments in the markets where there were SLCs, and any benefits anywhere else, but not costs anywhere else.

This is manifest nonsense from any economic, commonsensical or public policy point of view: why should some of the detriments be ignored? The trouble was, though, that the Commission, in its 2013 Mergers and Acquisitions Guidelines, went with the lawyerly view that this daft detriment test (DDT) was indeed what the Commerce Act and its jurisprudence required. In its NZME/Fairfax decision, however, the Commission decided to count the detriments elsewhere (particularly the national cost of loss of media plurality). The appellants, wholly understandably, called foul.

I'd thought that the DDT had been definitively and rightly knocked on the head in the various Godfrey Hirst cases (see 'The net benefit test' and 'Common sense - at last'). But whatever lingering zombie existence it still may have had has been well and truly terminated now. Sample quotes from the decision: at [195]

It is inconsistent with Parliament’s approach to infer, without any clear indication of such an intention, that Parliament intended to discriminate between the scope of benefits to which the Commission could have regard, and then a narrower subset of detriments

and at [213]

Proposed mergers will have widely varying levels of impact on New Zealand consumers generally and where those impacts are as broad and as significant as arose here, then it would be inconsistent with the statutory scheme to require the Commission to ignore them. Parliament cannot have intended such an outcome

and at [221]

The broader approach in the Court of Appeal’s reasoning in Godfrey Hirst 2 suggests the detriments that may be taken into account need not be confined to those arising in the relevant market. Non-quantifiable factors may be decisive, and no logical reason for limiting the type of detriments is suggested

and at  [223]

There should not be an artificially limited assessment of detriments if such limitation would prevent the preferable advancement of the long-term interests of consumers. That cannot have been parliament’s intention

and at [232]

it would be illogical to exclude consideration of identifiable detriments that affect an overall assessment of the benefits to the public merely because those detriments do not arise in the market in which the merged entity would operate.

The DDT is now buried at a crossroads with a silver stake through its heart, and good riddance. Our competition regime is the better for its demise.

The next bunfight - once it was established that the Commission could indeed count detriments elsewhere, even touchy-feely ones ("Non-quantifiable factors may be decisive") - was whether the Commission had been right to put a large adverse value on the potential loss of media plurality. In short, yes it was.

The court didn't much take to attempts to put a number on the plurality loss: at [299] "Material unquantifiable detriments are simply unquantifiable". And at [301] it sympathised with merger parties that "it can be frustrating for participants in an authorisation application to be confronted with an outcome that is determined by findings of unquantifiable benefits or detriments".

But at the end of the day someone's got to make the call. It mustn't be a guess: at [301] "a decision on such matters must strive not to rely on a purely intuitive judgment and is to avoid undisciplined subjectivity". Rather, still at [301], "An outcome determined by application of unquantifiable factors (detriments and/or benefits) is a matter of qualitative judgement, informed as in this case by expert opinion".

And in this instance, at [305]

We are satisfied that maintaining media plurality and the quality of the media produced are fundamental values of benefit to the public and of real and national significance.

There were also arguments about the Commission's processes. In the end, none of the objections - the Commission only talked to anti-merger people after its conference, it commissioned a hatchet-job rather than an independent expert report - stuck. But if the Commission's got any sense it will take on board, from this judgement, ideas for improvements in how it goes about its business in those two areas.

For economists, there are other interesting points in this judgement. If you haven't mugged up enough on two-sided markets, you'd better, and especially that article cited at [63] and quoted with approval at [64] ("We agree with that analysis of the two-sided markets in which the appellants operate"). And there are some aspects of the economics of this case that I wouldn't mind challenging at some point.

Market definition, for one: at [161] the court said that "The appellants made the superficially attractive submission that it was illogical to find the prospect of an SLC in a market of undefined scope", but I'd dispute that "superficially". How to treat "wealth transfers" to non-New Zealanders in the net benefits test - see [291] to [297] - where in my view the law is at best chaotic and probably wrong. Even the basics of how to decide if products are substitutes or complements, for example when as in this case you observe people consistently visiting different online sites ("multi-homing").

But that's enough free analysis for one day.

Quick reaction to NZME/Fairfax

Back in June I wrote a piece - 'Howzat!?' - on the likely outcome of the two appeals against Commerce Commission decisions that were live at the time, Skyfone, and NZME/Fairfax.

And I finished up saying

We can't see everything - there's a wholly blacked-out bit in paragraph 19(c), for example, in the 'Natural justice and fairness' section of the NZME / Fairfax appeal - but on what we can see, what are the umpires likely to do with these appeals?

I'll be surprised if I see the Commission trudging back to the pavilion.

I won't be dashing off to the TAB to exploit my newly discovered tipping skills, because, to be fair, it wasn't a hard call. You had unacceptably high post-merger levels of concentration in some markets, and little realistic prospect of divestments as a remedy: the market for Old Media assets isn't exactly thriving at the moment. And the appellants were asking the court to ignore or downweight a stonking great albeit qualitative detriment, loss of media plurality. The Commission didn't win on everything, but it was in my view at short odds-on with the bookies on the overall yay/nay outcome.

We, the general public, haven't got the full decision yet - as I write there's only a media release from the court and an extract from the decision summary - but there are two things I'll be especially interested in when we do get it.

One is the discussion around qualitative things like the value of media plurality in a democracy, and whether, and to what extent, and how, they should be included in the benefits and detriments balancing. My answers would be yes they should, as completely as possible (I quite liked this Aussie court's approach), and ideally with whatever numbers you can put on it.

There may be companies thinking that mergers have just got a lot harder if they've got to allow for all this airy-fairy social impact stuff on the detriment side. I wouldn't see it that way: it also opens up the opportunity for companies to argue qualitative payoffs on the benefit side. In 'new economy' sectors, for example, I could see companies successfully arguing, who knows what sort of blue-sky benefits might emerge from bringing two sets of research talent together.

The other thing that caught my eye in the court's press release was that the court "dismissed the prospect of one of the appellants introducing a pay wall for their online publication, post a merger". That sounds like a finding of fact. But even if the merger had actually enabled a pay wall, and NZME/Fairfax consequently decided to introduce one, I can't see that as much of a detriment. It seems to me that's a completely normal development in online media: consumers mightn't like it, but I don't have an issue with media charging readers for valuable content. I can even see a logic that without the paywall, there might not be valuable content in the first place.

Speaking of content quality, the press release also said that "The Court found the Commission was also entitled to place significant weight on the prospect of reduced quality of the products produced by the merged entity".

Live by clickbait, die by clickbait.

The real issue with Hugh Laurie

There's been quite a lot of media coverage about who said what to whom in the supposed stoush between Hugh Laurie and Immigration New Zealand  over a work visa - see, for example, Hugh Laurie's spat with Immigration NZ - and I've been waiting for someone to make the most obvious point of all, and the only serious takeaway from the whole thing, but nobody has. So here it is.

Why on earth does Hugh Laurie have to apply for a work visa in the first place?

Or the Rolling Stones, or the Berlin Philharmonic, or JK Rowling, or Billy Connolly, or the Indian cricket team, or anyone else coming for a concert, or performance, or sports or book tour?

Nobody seriously imagines that Immigration is going to turn down any of these applications: they're a completely futile formality. So why do them?

Presumably (if there's any good policy reason at all) it's because if we let Hugh Laurie in to work, next thing the country will be swamped by itinerant Indian applepickers.

Well, I've got three thoughts about that.

One, I've got no problem with the applepickers arriving, either. And neither do the farmers who'd like to employ them. And I don't see long queues of the New Zealand unemployed waiting at the farm gate for those applepicking jobs.

Two, why hasn't someone had the wit to devise a visa-free process for the Berlin Philharmonics of this world instead of the makework nonsense we currently have?

And three, what sort of image do we want to present to the rest of the world? We're supposed to be on the side of the non-protectionist angels when it comes to free movement of goods and services, money, and people. Why are using this footling process that achieves nothing except the occasional burst of bad PR?

Well that's settled then...

Headlines: from today's Yahoo! NZ site: "Treasury cleared over Solid Energy collapse", and from the Dom, "Solid Energy strategy contributed to downfall - report", both saying that the big message is that Solid Energy was the creator of its problems.

From today's NZ Herald's site: "Treasury not fast enough on Solid Energy - review", and from the NBR, "Treasury could have made more forceful Solid Energy response", both saying that the big message is Treasury's inaction.

Fair enough: opinions make markets, and a diverse range of media is an asset, not a complication. But you sometimes feel that if the sun didn't rise tomorrow, some media would run with "Treasury fails to forecast end of the world".

Is bad news the only news?

Last night I watched  the BBC World News, on Sky. And it had a major hooha about sharp falls in the Japanese stock market. The big news, apparently, was that the Nikkei had had a substantial fall - they talked about 5%, though the index data at the close weren't to hand, and in the event it was a less newsworthy but still largish  fall of 3.4% (opened at 14,072.9, closed at 13,589.03) - and the programme went on to note that, having hit a five week low, the Nikkei's weakness was causing alarm and unrest in the rest of  the Asian markets. No doubt the other news channels were running similar items.

Talk about something that is literally true, yet unbalanced.

Six months ago (its closing level on November 30 '12) the Nikkei was at 9,446.01. Since then, and even after this latest 'dramatic' fall, it is up by 43.9%. If this is a weak market, please, Oliver-like, could I have more.

Was there equivalent coverage when the market was rising? Were the TV channels as diligently reporting large gains as they have been in reporting large losses? For example, in the space of six days, 2nd to 8th of April)the Nikkei went from 12,003 to 13,193, a gain just shy of 10%. Were last night's handwringers celebrating back then? Cue for a Tui style: yeah, right. Investors becoming massively better off is, apparently, not news.

Irrespective of thoughts about media posturing, what's really going on?

The Japanese market had run hard and run strong. It had some good reasons for it. The new Abe government decided that it wanted substantially more spending on infrastructure, very low interest rates for even longer, and a much lower exchange rate (the whole 'Abenomics' thing). This big reflationary impetus greatly improved the short-term prospects for Japanese GNP growth and for Japanese corporate profits. A big rise in the equity market was entirely consistent with this new set of policy settings.

Did the equity market overdo things? I'd say, very likely. The Japanese share market is not the most transparent or above board of the world's equity markets, and a semi-organised over-ramp of share prices wouldn't have surprised me in the least. And even in less - let's call it collegial - markets, asset prices are well known to have tendencies to overshoot the levels that the fundamentals might justify. In some sectors of the Japanese market (and most notably the property and property development companies) share prices had, to use a technical economic term, gone mad.

The real news, in short, is that an extraordinarily strong equity market had got a bit irrationally exuberant, and needed to be a bit more realistic.

Was that too hard for the media to say?