NZ regulators have blocked the proposed NZ$3.4 billion merger between Sky TV, the country’s dominant pay TV group, and Vodafone NZ because of worries that the deal would restrict and reduce competition — a decision that raises question marks for Fairfax Media’s move to sell off its Kiwi newspapers and websites. The Commerce Commission statement came before the start of trading on the NZ stock exchange. When it opened Sky shares lost more than 17% of their value in the first minutes, or more than NZ$240 million.

NZ’s competition overseer left little room for Sky or Vodafone to rework the bid at a later date. Seeing that had declined to do that after the commission had first raised extensive objections last October, there is no chance of a new bid being crafted. Had the merger been allowed, Britain’s Vodafone would have taken a 51% share of the merged firm and grabbed NZ$1.25 billion in cash. The decision raises doubts over the proposed creation of a newspaper monopoly through the merger of Fairfax Media’s NZ papers into NZME, the listed radio and print rump of APN News and Media. A decision from the Commerce Commission is expected next month.

But the rejection means Sky TV will remain a standalone business for now, and may have to pursue other avenues to stave off competition from emerging rivals such as Netflix. That competition, and the loss of subscribers because of rising costs and too much “choice” (too many unwatched channels), has damaged Sky TV’s finances and subscriber numbers, especially in the past year. The Vodafone deal was designed to stop that by providing a potentially larger base of possible new subscribers.

On Wednesday Sky TV, after 18 months of weakening returns, said its profits for the December half year plunged by 32% in fact to NZ$58 million on a 3.7% slide in revenue to NZ$458 million (and Sky’s biggest asset is the exclusive deal it has to broadcast All Black games). The company said total subscriber numbers fell from 852,679 to 816,135 in the six months to December 31.(In Australia, Foxtel lost around 100,000 subscribers in the six months to December). Sky is now facing a declining future and its one that sends a big warning to the much larger Foxtel in Australia, which is facing similar pressures from jaded subscribers and rising competition. But Foxtel can’t merge with either Telstra or News Corp, its owners, because neither wants such a deal (or in the case of News, can afford it). The big hope was that Telstra would float part of its stake, leaving news Corp in de facto control but the sudden slump in the six months to December in earnings, subscriber numbers and now a weak outlook, but that float is no longer an option. — Glenn Dyer

Peter Fray

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