IBISWorld Senior Industry Analyst Andrew Ledovskikh has told The CEO Magazine that Nine is likely to protect the prestige of the Fairfax brand in today's blockbuster media merger.

By Daniel Herborn

Posted on July 26, 2018

The proposed merger was announced in a surprise move this morning. Members of the Australian media have reacted with shock and concern at the transaction which will bring an end to Fairfax’s 187 years as an independent media entity.

Katharine Murphy, the political editor of Guardian Australia and a former Fairfax journalist, tweeted: “This is a Nine takeover of Fairfax folks, it ain’t a merger if Nine has the controlling stake and Nine management is running the show.” Others feared one of Australia’s leading cultural institutions would lose its identity.

But Ledovskikh said that it would make sense for Nine to ensure that its new merger partner doesn’t simply become another part of its empire.

“Fairfax is a strong brand and I think Nine will want to protect it,” he said.

“It probably was a bit of a ‘shock and awe’ thing in terms of the Nine brand coming in over the top of it. But we’ll see how pervasive that will be and how much it will affect the type of product they will produce.”

Ledovskikh acknowledged it would be “a challenge” for Nine to adjust to some of the journalism Fairfax produces, such as the investigative reporting it has undertaken in partnership with the ABC.

Fairfax and the ABC collaborated to research the mistreatment of nursing home residents in 2017 in a Walkley Award-winning series of long-form investigative pieces.

Levodskikh said Nine will seek to leverage some of that journalistic prestige. “They will want to take advantage of what the newspaper assets at Fairfax have been so good at,” he noted.

“I don’t see Nine trampling on the reputation that Fairfax has built. I will expect Nine will be very careful to maintain the reputation of Fairfax for fear that they will lose the value of those assets.”

An unprecedented merger in Australia’s media landscape

Ledovskikh said the merger represented unknown territory in Australia. “It is a real test for the new media laws and it’s a good chance to take a look at what will be the possible effect of having one media company owning all three major broadcasting mediums in the same market. That will test how much market power that really gives a company.”

The merger still has to be approved by Australia competition law regulator, the ACCC, but Ledovskikh did not foresee any major obstacles to the merger being approved as the two media entities have assets in different markets. Given the high profile nature of the transaction, however, Ledovskikh said the ACCC would be analyse the transaction in great detail and will likely consider a range of submissions from interested parties.

He added that the changes to the media ownership law were specifically drafted to facilitate such cross-platform mergers and as such, any move to reject the proposed transaction on the grounds it would substantially lessen competition would run counter to the purpose of the legislative changes.

Fairfax share prices were up after the merger was announced

Ledovskikh said the surging share price was a “positive step” for Fairfax. Both companies involved in the merger have faced declining revenues in recent years but the merger should, in theory, allow them to cut costs significantly by eliminating duplication.

He said the market’s reaction was probably sound given the predicted efficiency gains in the post-merger company.

“In the short to medium term, it’s a reasonable reaction to think there’s a better chance for these two companies together to improve profit margins. Whether it fixes their long-term issues, it’s tough to say.”

Ledovskikh also said the merger will potentially facilitate lucrative synergies. Mega-popular renovation program The Block could work with and cross-promote Fairfax’s real estate listings site Domain, for example. Similarly, bringing together Fairfax’s fast-growing streaming service Stan and Nine’s relatively successful content on demand platform 9Now could create a powerful market force.

Investors were less enthusiastic about the deal for Nine Entertainment and its share price was slightly down at time of writing. But Ledovskikh said the company had its own revenue issues and needed to reposition itself.

“Both these companies definitely needed to try something.”