Should the Government spend taxpayers’ money shoring up companies that were likely in trouble pre-Covid-19? Dr Peter Thompson lays out three arguable public-policy pretexts for extending currently available government support.

Many private sector news media had been facing an uncertain future even before Covid-19. The economic impact of the lockdown, which has seen advertising revenues plummeting, must have seemed like the final nail in the coffin.

The increasingly desperate calls from Mediaworks, Stuff and NZME (among others) for some sort of government ‘rescue package’ to enable them to weather the storm were recently heard by a select committee and in a series of government workshops.

Our news media still play a crucial role underpinning our cultural and democratic wellbeing and we need to maintain a plurality of voices.

But should the Government spend taxpayers’ money shoring up companies that may have made bad investments in the past or are part of an overseas operation that, like we saw with Bauer recently, may decide to pull down the shutters on its New Zealand titles regardless?

New Zealand’s small and highly deregulated media market faced a number of challenges before lockdown added to them.

There were limited economies of scale, tight margins and high opportunity costs for quality local content. There was also a high level of market concentration and financialised ownership, with a dominant duopoly in most media subsectors, such as TVNZ and MediaWorks, NZME and Stuff, and Spark and Vodafone.

Traditional media business models dependent on advertising were being quickly eroded, with digital intermediaries and content-discovery platforms capturing their market share while producing virtually no content in return.

Looming over all this was the historic under-investment in public service media provisions, coupled with an under-developed regulatory framework for commercial media beyond basic competition law and content classification.

It is perhaps ironic that commercial media, historically sceptical of state intervention and supportive of deregulation, is now hoping the Government will come to its rescue.

It’s well-known many media sectors were under increasing strain well before Covid-19 reared its ugly head. NZME and Stuff had been closing titles after being unsuccessful in their merger application and TV3 had announced its imminent demise.

Covid-19 measures have made things worse – with Bauer summarily discontinuing its New Zealand titles despite wage subsidies being available – but it’s not the direct cause of the problem.

Now the commercial media sector is demanding additional government support to help them survive. As I see it, there are three arguable public-policy pretexts for extending government support beyond the currently available measures:

  • Maintenance of market competition underpinning the quality and plurality of voices (especially in the news media sector)
  • Sustaining content that confers some form of public service/public interest unlikely to be provided in the absence of a particular media service or services
  • Compensation for lost revenue directly attributable to restrictions on businesses stemming from Covid-19 lockdown restrictions.

In its determinations of what might be necessary and fair, the Government has to take account of a number of complexities.

For a start, not all media companies have been affected equally by the Covid-19 lockdown. For internet service providers and subscriber video-on-demand operators, revenues will have increased. For cinemas and theatres, Level 4 has reduced their revenue to zero, while hard copy print has stalled.

For the media dependent on advertising, including online news and broadcasting, audiences may have increased during lockdown but, with retail sales so restricted, advertising spend has declined by at least 50 percent.

Deciding which media operators and which business models merit special consideration therefore requires a clear differentiation of the public interest from vested interests.

The long-term benefits need to guide the short-term measures.

Bauer was criticised for not taking the available wage subsidies before shutting up shop, but a short-term subsidy to temporarily delay an inevitable closure has limited public interest merit.

It is also important to have a clear benchmark for what level of support would sustain the viability of a media business.

Offshore shareholders’ criteria of viability typically benchmark margins, returns and share price against the global media market as a whole, and carry higher financial performance expectations than smaller, locally-owned media operations, especially if they operate under heavy corporate debt structures.

What a subsidiary of a global media firm regards as minimally necessary to be sustainable will therefore be different from a smaller, local operation.

The Government’s response during this current crisis must take into account all unintended consequences of any measure on other parts of the media ecology.

For example, there have been calls from both NZME and Stuff to allow their declined merger proposal to proceed. But even if permitting this would be preferable to further newspaper closures, this might not be in the interests of some of the smaller competitors also struggling.

A plethora of possible interventions have been on the table for discussion at recent ministerial workshops and select committee meetings.

Few realistically expect the Government to simply hand over subsidies without any strings attached, and there would be huge complexities involved in any sort of scheme that saw the state becoming a creditor or taking on equity.

Nevertheless, several measures appear to have gained some support from many corners, including:

  • In the short term, refocusing government advertising expenditure on local media operators that invest in content production, and possibly buying up advertising in advance. There may be logistical limitations to this – government advertising spend is split across different departments and often targets specific audiences – but it would provide a short-term cash flow boost without it being a subsidy with no public value.
  • In the short to medium term, increasing funding available for public interest journalism, such as an expansion of the NZ On Air contestable fund or its equivalent. This would directly fund local content with high public value and protect news sector jobs. This could be accompanied by tax deductions for companies that invest in local content.
  • In the medium to long term, imposing a digital services levy on digital intermediaries that have soaked up so much of the domestic advertising spend but invest nothing back into content. This could be linked to the subsidy of public interest journalism.
  • Also, in the medium to long term, reviewing Kordia‘s spectrum licence fees and consider rebates for the broadcasters that invest in local content.

It is perhaps ironic that commercial media, historically sceptical of state intervention and supportive of deregulation, is now hoping the Government will come to its rescue.

But these are unusual times for the Government too.

It will be interesting to see whether there is the vision and will to break the existing regulatory mould. Some of our media depend on it.  

Leave a comment