You may have heard about the KwaZulu-Natal (KZN) issue around the Media24, Paarl Coldset and Natal Witness merger but what are the implications? Taryn Arnott investigates.
The media industry is at odds this proposed merger because it is seen as perhaps the largest of the media companies consolidating its power. The Naspers group (holding company of Media24) already owns around 40% of the country’s newspapers, 70% of its magazines, 80% of leaflet advertising distribution, and 90% of pay TV.
In a media market dominated by only a handful of powerful players, media freedom organisations are concerned that the merger compromises diversity and independence in the press. At stake is the ownership of the 165-year old Pietermaritzburg-based The Witness (previously The Natal Witness) newspaper and the survival of a network of community newspapers and substantial printing presses.
The merger was announced in July 2010 and was reported to the Competition Commission in early 2011 for investigation. In July 2011, the Commission finalised its merger report to the Competition Tribunal, which has to decide whether the merger will be allowed. The Commission recommended it be allowed with certain conditions that are designed to protect the small players in KZN.
A source at the Tribunal says: “Mergers have the potential to place the acquiring firm in a stronger position in the market in which the merger is taking place. This kind of takeover can lead to the elimination of a competitor and the consequent takeover of that competitor’s market share by the buyer in the transaction.”
The Commission’s report states that the merger could jeopardise media diversity in KZN and the Eastern Cape, and may be a threat to smaller publishers. It could also lead to Media24 gaining full control of Natal Witness (the printing and publishing company that owns The Witness newspaper), and a range of community newspaper titles in the province. Media24 already owns 50 percent of Natal Witness.
The merger would lead to the acquiring company holding a controlling stake in African Web – a printing company that is already partly owned by Media24 and Natal Witness – and the latter’s printing presses. These printing presses print many of the KZN community papers. According to the report, this could give Media24 the ability to “slowly force the publishers of the competing titles out of the market by raising their rivals’ costs”.
The Commission recommended that Media24 give guarantees that African Web will remain affordable for independent KZN publishers. Also, it initially recommended that Media24 get rid of enough shares in African Web so that it will not have managing control, and that Natal Witness and African Web operate separately. It has subsequently reached a compromise with Media24, allowing it to retain shareholding control of African Web. This issue is to be debated in the upcoming Tribunal hearing in March.
The Commission expressed concern that the merging parties would be able to force competing titles out of the market if Media24 and African Web choose to raise printing costs, reduce printing quality, allocate time slots not suitable to their needs, or miss their deadlines for distribution.
The Freedom of Expression Institute (FXI) has welcomed the upcoming Competition Tribunal hearings. FXI Director Elston Seppie says the merger compromises media diversity, freedom and ownership. “The merger sets us back in plurality of voices and media freedom,” says Seppie, “and we need this plurality to remain credible.”
But Stephen van der Walt, CEO of Paarl Media, says the merger “will ensure more printing capacity, and greater access to golden hours (through the night) required by all publishers”.
“It will allow Natal Witness to grow substantially through the provision of additional printing hours for independent publishers,” he says.
Caxton, which has a network of its own community newspapers in KZN, has been at the forefront of objections to the merger. In September, it launched an application to the Competition Tribunal for the right to intervene directly in the merger proceedings. Now, Caxton may present its own evidence at the 2012 hearings.
Caxton Chairman, Paul Jenkins, disagrees with the motivation for the merger. “Caxton believes Media24 and Paarl will become even more dominant. There is a strong likelihood of the perpetuation of their anti-competitive practices to the detriment of the small independent publishers in the region. In our intervention, we hope to assist the Tribunal in understanding why the merger will be bad for competition,” he says.
“We also have grave reservations from a public interest perspective, as we think the merger takes away one of the last independent newspaper voices, but our intervention in the merger does not extend to this issue. This will have to be addressed by the Competition Commission and anyone else who believes they can provide a valid perspective to the Tribunal,” he says.
Frans Kruger, Wits Journalism radio and ethics lecturer, insists that print media is dominated by too few players. “We need to see an extension of diversity, not a reduction,” he says.
Stuart Craib, Chairman of Natal Witness, says his decision to retire led to the idea for the merger. The Craib family has controlled the newspaper since 1942 and will no longer be involved. Craib believes that in his absence, the business would be better placed with a “focused publishing entity”. The merger will give Natal Witness “better access to capital and better efficiencies”, he says. Media24 acquired 50% of Natal Witness from the Craib family in 2000.
Media24 CEO Esmaré Weideman was approached for comment but declined, saying Craib spoke on their behalf as well.
Craib says Natal Witness’s current partnership with Media24 has proved Media24’s commitment to editorial independence, and he is sure this will continue. But the merger does mean The Witness will no longer be an independent newspaper.
“The closing of independent papers centralises control, makes smaller publishers vulnerable, and makes the market one-dimensional,” says Reg Rumney, director at the Centre for Economics Journalism in Africa at Rhodes University.
The proposed merger comes in the wake of separate Commission investigations into two more complaints against Media24 on predatory pricing behaviour.
One of these involves the now defunct Gold Net News in the Free State, which was allegedly forced to close its doors in 2009 after Media24 lowered its advertising rates below cost, the Commission said.
The Commission found that this pricing was intended to “exclude competitors and to bolster Media24’s reputation as an aggressive competitor in order to reduce the likelihood of future entry into the community newspaper market”. The matter was referred to the Tribunal.
The Commission also started investigating a similar case in Pietermaritzburg, where a publisher of community newspapers accused Natal Witness of attempting to force it out of the market by dropping advertising prices in its competing newspapers to predatory levels, in an attempt to exclude it from the market. The Commission notes in its merger report that Media24 could do the same in the KZN market, should the merger be approved.
But Craib says the partnership between Media 24 and Natal Witness has allowed the latter to open extra printing facilities for independent newspapers. This has allowed for the creation of new publications that grow the market, he says.
“For a country as diverse as ours, we don’t have much diversity of voice or plurality of press,” says Rumney.
By dividing the market or preventing new players from breaking into the market, coordinating parties can achieve higher prices and profits, according to the Commission’s report.
But Craib says the merger will offer other publishers alternative options and capacity for additional publications that they may wish to launch into the market through the improved printing facilities.
Craib also says competition in the province is growing. “Competition in print media in KZN is experiencing growth particularly in indigenous language publications.”
But media players like Seppie and Rumney say South Africa needs a system to measure and ensure this diversity in the press. Rumney says: “For small publishers to survive, they need to engage more with their communities. The industry needs to develop some kind of measure for diversity of voice, and improve and expand the ethnic language paper market.”
Kruger says: “Readers deserve to have as wide a choice of information sources as possible, and this only becomes real when there is competition between players.”
The hearings promise to reveal a great deal about the competitive forces which shape the media. The Competition Tribunal will face interesting challenges in weighing up the purpose of the Competition Act, which includes the promotion of “a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons”, against the interests of a dominant media player in increasing its interests in the market.
Investigation uncovers information sharing
The Competition Commission investigations into the KwaZulu-Natal merger (KZN) newspaper merger uncovered possible information sharing and coordination between major competitors in the KZN paid-for and free newspaper markets. Because of this the Commission proposed fresh investigations into the province’s key media players. These have not yet begun. According to the merger report, information sharing could be harmful to the competitive environment.
The merger enquiry uncovered an agreement between most newspapers (excluding the Mail & Guardian) in the province to share their unaudited provincial circulation figures. District circulation figures for Independent Newspapers and Avusa that were provided by merging parties were evidently obtained through information sharing.
This would enable direct competitors “to avoid head-to-head competition and force advertisers to buy advertising across the product and geographic space in order to reach their consumers”, the merger report says.
“Information sharing could mean they split up the market among themselves. Industry associations everywhere share information, but agreements that arise on pricing could become an issue,” says Reg Rumney, director at the Centre for Economics Journalism in Africa at Rhodes University.
“Industry associations everywhere share information, but agreements that arise on pricing could become an issue,” says Rumney.
This story was first published in The Media magazine.
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