It’s a more complicated issue than simply whether one company should control the majority of the market, writes regulatory law expert Edward Willis.

The closure of Bauer Media’s operations in New Zealand, along with many well-loved magazine titles, is devastating. The broad impact of the closure, coupled with the realisation that Bauer Media’s print media interests are so extensive, means that the closure is controversial. How could we allow foreign ownership of so many magazine titles when this type of across-the-board closure is such an apparent risk?

The Commerce Commission in particular has come in for criticism. The commission controls merger activity in New Zealand, and is responsible for ensuring that harmful mergers don’t proceed. In this capacity it considers market concentration issues, so why was it not alive to the risk of Bauer Media acquiring so many magazine titles?

It’s a fair question, but it is based on a misunderstanding about what the commission does and what it can do. So here I would like to set out in a bit of detail what the commission’s role in all of this actually is.

First, some technical detail. The Commerce Commission’s primary concern is with whether there is a lessening of competition in any market. These are specialised legal concepts that draw on underlying economic principles. A market is simply the collection of goods or services that are sensibly substitutable for each other. You might be quite happy to swap out your strawberry jam on toast for raspberry jam, for instance, but not for Marmite. So, this might indicate that berry jams are all in the same market, but Marmite is in a different market. This concept of a market is the basic unit for the commission’s analysis.

A lessening of competition occurs when there is a change in the market (a large competitor buys out a smaller one) and prices rise as a result (the commission is concerned about this happening significantly). This might happen in an obvious way — one player buys up all the strawberry jam manufacturers, and so can raise the retail price of strawberry jam to reflect the lack of competition. But it can also happen in less obvious ways, because ‘price’ is understood to be a broad concept. So, the jam monopolist might keep prices the same but water down the jam itself so it is less expensive to produce. This reduction in quality would also be a lessening of competition.

How does all this relate to Bauer Media? Well, the basic point is that when Bauer bought out some of its competitors’ titles the commission wasn’t concerned with market concentration per se. It didn’t express any real interest in who owns what or how many in general terms, because that’s not its job. What it cares about is if increased concentration in a market has the likely effect of lessening competition.

In practice, there are two key points to the commission’s analysis of Bauer Media. First, Woman’s Day and the Listener are both magazines, but they unlikely to be good substitutes for each other. As a result, they are probably in different markets. So some concentration in print media overall can occur without troubling the commission because competition in individual markets is unchanged.

The second key point is that concentration in a relevant market might not have any anticompetitive effect. So, if you own Metro and North & South, and buy the Listener, that might be increased concentration in the same market because the content in each title is similar. But can you raise prices as a result? Do other competitors still act as a constraint? Is it relevant that Metro is Auckland-focused rather than national in scope? Or that North & South is a monthly rather than a weekly offering? All of these considerations might suggest that Bauer can’t raise prices and keep them high despite the increased concentration in the market.

Having looked at these points and being satisfied on the lessening of competition point, the commission’s job was done. It doesn’t have the mandate to take into account wider risks such as the nature of foreign ownership or the risk of large-scale market exit. On the first point, a completely separate government organisation, the Overseas Investment Office, takes the lead on these issues. On the second, market exit is a natural feature of the competitive process. It might seem counter-intuitive, but it could be evidence of the market working well in a competitive sense.

Indeed, where the commission has looked at the broader impact of market concentration in the media sector, this itself has been highly controversial. The proposed NZME-Fairfax merger proceeded under a special kind of review not used in respect of Bauer Media that allowed for a public interest assessment over and above analysis of pure competition issues. The resulting decision was fraught, which is perhaps an indication that the commission is not always best placed to assess wider issues in the public interest.

None of this is likely to be much comfort to those who feel that Bauer Media’s decision to leave New Zealand is tragic. Nor does it alter the fact that high concentration in some markets may continue to be very problematic for non-competition reasons. These are issues that we should certainly be aware of from a policy perspective, especially in important legacy media markets that are facing disruptive global pressures.

Here it is relevant to note that many other countries rely on special decision-makers or powers to deal with media market issues, including issues like concentration and foreign ownership. New Zealand has traditionally taken a laissez faire approach to similar issues. The decline of legacy media may provide the impetus to reconsider such measures. They are seen by some as adding valuable consumer protection measures while to others they act as an unnecessary hurdle to the ability of the market to organise itself. Both views should form part of a broad-base public discussion on the place of traditional media in New Zealand. If nothing else, the reaction to Bauer Media’s exit proves that New Zealanders are ready to have this conversation.