SMALL BUSINESS CO-OPERATION AND THE FREE-RIDER PROBLEM: SHARING NEWS COPY IN NEW ZEALAND GRANT HANNIS SCHOOL OF COMMUNICATION, JOURNALISM AND MARKETING MASSEY UNIVERSITY

Summary This paper considers the history of the New Zealand Press Association (NZPA), the news agency that operated in New Zealand for more than 100 years. Established in 1879, NZPA was a co-operative, owned by many of the then small newspapers situated around the country. The member-newspapers used NZPA to share news copy among themselves. However, in the early part of the 21st century, NZPA abandoned copy sharing and in 2011 closed. Drawing on the theory of the free-rider problem, this paper demonstrates how, initially, the small atomized newspapers in New Zealand were happy to co-operate and share news copy. But as the newspapers became concentrated in ownership and faced increased competition, both from each other and from new media technologies, so they came to see each other as free riders on NZPA’s services. Eventually, this led to the largest shareholder newspaper chain leaving NZPA and the news agency’s closure.

Keywords: Co-operation, Free rider, NZPA Acknowledgements: My thanks to Lincoln Gould, Rick Neville, Peter O’Hara and Tim Pankhurst for their invaluable assistance with this project.

Contact: [email protected]

Introduction Whereas a conventional firm is owned by shareholders who take a share in its profit (or loss), a co-operative is owned by its suppliers or its consumers. The co-operative form of business enterprise can be traced back to classical times and the workers’ guilds in the Middle Ages. Today, co-operatives play a major role in many national economies, including the agricultural, fishing and financial sectors, as well as among consumer and labor groups (Cobia, 1989; Deiter, 1997; Goddard, 2002; Goddard, Boxall & Lerohl, 2002).

Some news agencies operate as co-operatives, such as Associated Press in the United States, and their operations have included sharing news copy among the member-newspapers; by contrast, other agencies, such as Reuters, rely solely on reporters (Associated Press, 2010; Reuters, 2010). This paper considers the history of the New Zealand Press Association (NZPA), the news agency that supplied national and international news in New Zealand. NZPA was established in 1879 and for well over a century operated primarily operated as a co-operative, sharing copy among its newspaper shareholders. However, in the early part of the 21st century, NZPA dramatically changed its behavior, abandoning such copy-sharing arrangements. Then, in 2011, NZPA closed. This study explicitly applies theory to a news agency’s managerial decision-making. A recent scholarly survey noted the frequent “absence of overt theory” in academic discussions of news agencies, with the agencies often attracting the interest of “the least theoretically inclined” (Boyd-Barrett and Rantanen, 2002, p. 216). This is not to suggest that the agencies have not been theorized, but rather such theoretical approaches have often been implicit, such as regarding the agencies as shadowy monopolistic organizations or agents of nation-building (Boyd-Barrett and Rantanen, 2002).

By contrast, this paper explicitly draws heavily on the economic theory of the free-rider problem in the provision of public goods to explain and understand NZPA’s behavior. The paper begins by considering the theory of co-operative behavior and the mechanisms by which such behavior can end. The research method and research questions are presented. The paper then considers the operation of NZPA over time, in light of the theoretical discussion. This is followed by the concluding comments.

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Co-operative behavior, public goods, and the free-rider problem There are numerous reasons why firms should wish to form co-operative modes of organization. Firms may wish to behave co-operatively in order to monopolize markets, form cartels or generally exert greater economic power. Such co-operation is detrimental to economic development and has been denounced by some theorists as a sclerosis in modern economies (Cook, 1995; Milgrom & Roberts, 1992; Olson, 1997). By contrast, firms may behave co-operatively in order to promote greater economic efficiency. For instance, a group of firms may form a co-operative to counteract the economic power wielded by a monopolistic supplier of goods purchased by the firms (Boyce, 1998). Alternatively, firms in a particular industry may form a business association that supplies services to its member firms in order to promote economic efficiency, such as industry-training programs or disputes-resolution services (Doner & Schneider, 2000a; 2000b).

Whatever the reason for establishing the co-operative, there is, of course, no guarantee it will live indefinitely. There are a number of factors that can spell the end of co-operative behavior. The first is a change in organizational culture. Firms will only continue to behave co-operatively if they feel at ease doing so. If the decision-makers within the firms no longer see eye to eye on matters or are personally antipathetic towards each other, this may spell the end of co-operation even if the co-operative is economically advantageous (Child, Faulkner & Tallman, 2005; Boyce, 1997). The second factor is changes the market conditions, which may mean the need for the co-operative disappears. For instance, if a group of firms has formed a co-operative to counteract the economic power of a monopolistic supplier, should the government break up that monopoly this may remove the need for co-operative behavior among its client firms (North, 1990).

The third factor is the free-rider problem, the focus of this paper. The free-rider problem is the primary mechanism in which co-operative forms of organization may cease: it is the Achilles’ heel of co-operatives (Olson, 1965). To understand the free-rider problem, we must first consider the nature of private and public goods.

In conventional, competitive markets firms supply private goods. A private good has two defining characteristics (Leach, 2004; Hindriks & Myles, 2006):

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1) It is excludible. That is, suppliers of the good can prevent consumers from consuming it.

2) It is rivalrous. That is, after the good has been consumed by one consumer, it is not available for other consumers.

For instance, consider an ice cream. This is a private good. When a retailer displays the ice cream for sale in their shop, the retailer can prevent consumers consuming the ice cream by requiring them to buy it first (it is excludible). Once a consumer buys the ice cream and eats it, no other consumer can subsequently eat it (it is rivalrous).

A public good is one with the opposite characteristics: it is non-excludible and non-rivalrous. National defense is a classic example of a public good. When a country’s government supplies the country’s national defense, all the people in the country are defended. The government cannot choose to make defense only available to some of those people (national defense is non-excludible). Further, one person’s consumption of national defense does not reduce the amount of defense available to the rest of the people in the country (national defense is non-rivalrous).

Two important caveats should be made. First, no good is purely private or public. We can imagine a case where two people share the eating of an ice cream, or a government may chose not defend citizens in one part of its country. Nevertheless, these exceptions often have little practical relevance. Second, the term “public good” is being used here in its strict economic meaning. In common parlance, public goods are often taken to mean goods that the government should supply (such as education or public parks) or actions that are in the public interest (such as a whistleblower who reveals the activities of a corrupt politician). Neither is the meaning of public good used here.

The nature of public goods means they are unlikely to be supplied by private firms in conventional

markets.

For

instance,

consider

a

road.

Roads have

public-good

characteristics—any car can drive along the road (it is non-excludible) and one car on the road does not reduce the amount of road available for other cars to use (it is non-rivalrous). This means drivers can, without paying, use the road. That is, they can be free riders. As private firms cannot generate revenue from free riders, private firms are unlikely to supply 3

public goods to a market. Thus we end up in a situation where a product consumers want—a road—is not supplied. The market has failed.

Steps can be taken to remedy the situation, leading to instances where a public good is provided by a private firm. Tolls could be charged on all those drivers using the road, for instance. Altruism may also play a part: a firm may provide a public good out of a sense of corporate responsibility, such as contributing money to help a local community raise enough money to build the road. These exceptions are generally rare, however. As such, public goods tend to be provided by governments, as governments have the power to compel would-be free riders to pay for the provision of public goods through taxes. Hence, the provision of national defense and roads are generally the responsibility of governments.

Co-operatives can also face the free-rider problem. This is because the products co-operatives supply may display public-good characteristics. A co-operative’s products are generally nonexcludible—all the members of a co-operative can access the co-operative’s products. This problem is exacerbated if the co-operative’s goods are also non-rivalrous. That is the case with news: if one member consumes the news, the amount of news available to the other members remains unchanged (Shmanske, 1986). If members of a co-operative come to regard their fellow members as free riders—consuming the co-operative’s goods but not paying for them—the members may see little point in remaining with the co-operative. As a result, the co-operative would collapse.

Research questions and method Armed with a theoretical understanding of how the free-rider problem in the provision of public goods can end co-operative behavior, two research questions were established:

1) When it was first established, how did NZPA overcome the free-rider problem?

2) What role did the free-rider problem play in NZPA’s closure?

To answer these questions relevant primary and secondary documentation were consulted, including minutes of NZPA board meetings, and narrative histories of New Zealand journalism in general and NZPA in particular (as referenced below). The author also interviewed at length the key actors in NZPA’s recent past. These participants were: 4

- Tim Pankhurst, NZPA’s chief executive between 2008 and 2011; - Lincoln Gould, NZPA’s chief executive between 2002 and 2008; - Peter O’Hara, a senior executive at NZPA and latterly a senior representative on NZPA’s board of large news media organization Fairfax Media; and - Rick Neville, a representative of the other large news media organization on NZPA’s board, APN.

NZPA overcomes the free-rider problem in its early years New Zealand became a colony of the British Empire in 1840 with the signing of the Treaty of Waitangi between the British crown and Maori (the indigenous people of country). For the early decades of the colony’s life New Zealand operated as a collection of largely selfcontained provinces, mostly situated in the coastal areas of the country’s two main islands, the North and South Islands. New Zealand’s embryonic newspaper industry consisted of a multitude of independently owned, mostly small newspapers based in local towns or provinces. These papers gathered news from their local regions, but could not afford to establish networks of reporters to gather national or international news, instead largely relying on what such news they could obtain from visiting ships (Scholefield, 1958).

In order to publish news from elsewhere in the country and from overseas, the newspapers needed better access to that news. The introduction of a nationwide telegraph system in 1862 and an international telegraph cable linking New Zealand with the rest of world in 1876 encouraged the New Zealand newspapers to establish a national news agency to receive and transmit news on the telegraph. The United Press Association was duly formed in 1879, changing its name to the New Zealand Press Association in 1942 (hereafter, for ease of exposition, referred to as NZPA) (Day, 1990; Sanders, 1979).

The member-newspapers together owned NZPA, paying the news agency entrance and ongoing fees for membership. No comprehensive list of the newspapers that formed NZPA has survived, but it is known that by 1880 the list of member-newspapers included such major daily newspapers as The New Zealand Herald, The Press and Otago Daily Times. Although these were major newspapers in cities around the country (Auckland, Christchurch and Dunedin respectively), they were by no means all the newspapers operating in the country (Sanders, 1979).

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Under NZPA’s rules, each member-newspaper had to make all its news copy promptly and freely available to NZPA, which in turn made the copy available to all its membernewspapers to publish. Each member was forbidden from making this shared copy available to non-members (Sanders, 1979). NZPA obtained its international news from Reuters, which, as part of a cartel arrangement with the other international news agencies of the time, was the monopoly supplier of international news to Australia and New Zealand (Boyd-Barrett, 1978). NZPA’s rules forbade its members from obtaining overseas news from any organization other than NZPA (United Press Association, 1879-1890).

In short order, then, NZPA had created for itself a monopoly in the provision of national and international news in the colony. The only way a New Zealand newspaper could obtain timely national and international news was by joining NZPA. Each member-newspaper would not have regarded its fellow members as free riders. That is because each paper benefited from the arrangement, obtaining news copy from elsewhere in the country and the rest of the world that would not otherwise be available. But NZPA’s members did regard another group of newspapers in the colony as free riders: those newspapers that did not belong to the association but which stole its news and republished it. In the early years of NZPA’s existence, the lack of copyright legislation in the country meant these newspapers were able to pirate NZPA copy with impunity. Nonmember-newspapers would buy early editions of the member-newspapers’ papers, extract the NZPA-sourced news and republish it. In this way, non-member-newspapers could publish NZPA news at almost the same time the member-newspapers’ editions appeared (Copyright Telegrams Committee, 1896). As it was primarily overseas news that was pirated, NZPA took action to halt the free riders by successfully lobbying the government for copyright legislation to protect overseas news. The Protection of Telegrams Act, passed in 1882, protected the copyright of overseas news telegrams for 18 hours from first publication (Scholefield, 1958). As a result, in the early 1880s Reuters successfully prosecuted one nonmember-newspaper for pirating Reuters copy originally published in an NZPA membernewspaper. Later, the public’s appetite for news on the Spanish-American War (1898) saw many non-member-newspapers pirating NZPA copy, a practice the association was able to stamp out by threatening legal action (Sanders, 1979).

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In using copyright legislation against the free riders, NZPA was able to strengthen its cooperative structure. Newspapers needed international news and were obliged to join NZPA to obtain it. As NZPA noted with satisfaction, copyright law was “the means of making several papers join the Association and it will no doubt force many others to come in” (United Press Association, 1879-1890, p. 56). By the early part of the 20th century every major newspaper in the country was a member of NZPA (Sanders, 1979).

The free-rider problem hovers Most of the major newspapers that operate in New Zealand today were established in the 19th century. What newspapers were established in the 20th century joined the existing papers in becoming members of NZPA. For instance, The Dominion (later The Dominion Post), a major newspaper in Wellington (the country’s capital), began publishing in 1907 and promptly joined NZPA. All the daily newspapers in New Zealand continued to focus on selling newspapers in their own, mutually exclusive, geographical areas.

Also in 1907 New Zealand ceased to be a British colony and effectively became an independent country. Over the course of the century, many small newspapers in the country amalgamated or closed down, reducing the number of daily newspapers from 67 in 1910 to 23 in 2010 (Conway, 1981; Newspaper Publishers’ Association, 2010). The only national general newspapers were the Sunday newspapers, which all belonged to NZPA, but did not use much of the agency’s copy, preferring—in typical Sunday newspaper fashion—to break their own stories. NZPA employed or retained a network of national (and some overseas) journalists to gather and produce news, but continued to produce a considerable amount of copy via copy sharing. By the end of the 20th century, NZPA was producing 140 to 160 national stories a day, about half from shared copy. It also supplied the newspapers with vast amounts of overseas news from a host of international news agencies.1

As none of the daily newspapers operated nationally, they were largely happy to share their copy under the NZPA system. Sharing copy allowed them to publish national news. But the system rankled somewhat with the newspapers, particularly when they broke big stories. Member-newspapers would sometimes file copy late with NZPA (or withhold it altogether), in order to postpone or prevent the copy appearing in other newspapers. Peter O’Hara was 1

The information in this section was primarily obtained from my interviews with the four key players, combined with other primary sources, as cited in the text.

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charged with investigating such transgressions. He recalls that although there were sometimes legitimate reasons for the delays (a newspaper wanted to check that the story was legally safe and properly sub-edited, for instance), at other times the reason was because of the newspapers’ competitive instinct to publish their story first. Once one paper withheld a story, another newspaper might do the same later in a tit-for-tat exchange. In other words, when any newspaper felt it had broken a large story or had been denied a story, it regarded—for a short period—its fellow NZPA members as free riders.

The rise of the new media technologies of television and radio also brought the free-rider problem to the surface. At first, government agency the New Zealand Broadcasting Service had a legislated monopoly on radio and television broadcasting in the country. In the 1950s, the New Zealand Broadcasting Service approached NZPA to obtain a feed of international and domestic news (NZPA, 1957). Initially reluctant to provide any news feeds to the organization, in the 1960s NZPA did start to supply international news to the New Zealand Broadcasting Service (NZPA, 1964). This decision was driven by NZPA’s fear that if it did not do so the broadcaster would obtain a feed from another international agency, Reuters’ monopoly in supplying news to Australasia having collapsed in the 1930s (Read, 1999). But NZPA steadfastly refused to supply domestic news to the Broadcasting Service. The reason was the free-rider problem, with one NZPA board member declaring, “it would be quite unacceptable to have a newspaper staff spend the day gathering news which could then be supplied to the Broadcasting Service to use before the newspaper could publish it” (NZPA, 1957, p. 2).

In the 1960s the government allowed independent radio stations to be established. When these stations began to approach NZPA for news feeds, NZPA made the same decisions as it had in the case of the Broadcasting Service, for the same reasons. NZPA supplied the stations with international news, to discourage them obtaining the material elsewhere (Verry, 1969). NZPA refused to supply the stations with domestic news, with one board member declaring, “The Association was on strong ground in declining to make available to others the news service to which members contributed but to which others did not” (NZPA, 1969, p. 3). The problem was particularly pressing in the large cities, whose newspapers contributed the greatest volume of copy to NZPA and would face the greatest competition from radio stations. Some of the large metropolitan newspapers threatened that if NZPA made domestic news available to radio stations, they would delay filing news with NZPA, resulting in “a 8

reduction in the efficiency of the [NZ]PA service by 70 to 80 per cent” (NZPA, 1970, p. 4). The chairman of NZPA concluded that “requiring some members against their wishes to hand over news to non-members could be disastrous for the Association” (NZPA, 1970, p. 5).

NZPA felt the full power of the free-rider problem when, in the 1980s, the then large newspaper organization New Zealand Newspapers proposed to launch a new newspaper, The Auckland Sun. Here, for the first time, a major newspaper was intending to compete with another in the same geographical area: the Sun would be in direct competition in the Auckland market with the incumbent newspaper, The New Zealand Herald, owned by Wilson and Horton. New Zealand Newspapers duly asked NZPA for shared copy for publication in the Sun. NZPA agreed, but only on condition that no Herald material would be made available to the Sun and vice versa (NZPA, 1987). That is to say, as these two membernewspapers would be competing against each other in the Auckland market, they did not wish to provide the other with any assistance, such as by simply giving them their news copy via NZPA. Each regarded the other as a free rider, and this had suddenly ended co-operative behavior between them. The problem cured itself, however, in that the Sun failed to generate sufficient readers to become profitable and quickly closed (Ovens & Tucker, 2004).

The free-rider problem overwhelms copy sharing By the end of the 20th century major changes in the ownership structure of New Zealand newspapers had taken place. As recently as 1971, more than half of the New Zealand newspaper market was supplied by New Zealand-controlled independently owned newspapers, the remainder being shared equally by two New Zealand news media organizations. But since then ownership became largely concentrated into the hands of two Australian news media organizations, Fairfax and APN, which together controlled 90 per cent of the New Zealand industry (Figure 1). Reflecting this concentration of ownership, by 2003 the NZPA board comprised three Fairfax representatives, three APN representatives and two representatives of the independent newspapers.

Fairfax alone controlled nearly half the New Zealand newspaper market. In owning The Press, The Dominion Post, Sunday Star-Times, Sunday News, and a host of regional and community newspapers, Fairfax dominated the Wellington, Christchurch, and national Sunday markets respectively. Indeed, Fairfax started to share copy within its stable of newspapers, much of it appearing on its news website, stuff (www.stuff.co.nz). The company 9

even hired NZPA’s highly experienced news editor to run the company’s copy sharing system, capitalizing on NZPA’s expertise in the area (Fairfax Media, 2004). APN owned The New Zealand Herald (plus many regional and community newspapers) and thereby dominated the highly desirable Auckland market (Auckland being the country’s commercial centre and easily most populous city).

Fairfax in particular was accustomed to competing aggressively against APN in Australia. Furthermore, Fairfax was a part-owner of the Australian Associated Press, NZPA’s counterpart in that country, which does not share copy (Australian Associated Press, 2010). O’Hara, by then a senior manager at Fairfax and a Fairfax representative on the NZPA board, recalled that, on entering the New Zealand market, Fairfax found quite extraordinary NZPA’s requirement that the company share its copy with APN. Fairfax was rapidly coming to the view that APN’s perceived free riding could not continue.

The tipping point was reached in 2004, when APN decided to launch a new Sunday paper, Herald on Sunday. APN intended to distribute this newspaper nationally, meaning it would compete head-to-head with Fairfax’s two national Sundays. But when in September of that year APN asked NZPA for access to shared copy for the Herald on Sunday, Fairfax refused. Fairfax explained to NZPA that copy sharing could no longer be justified:

[I]t is the view of Fairfax that the NZPA structure was put in place on the basis of regional newspapers which supplied news to a central pool for distribution to each other. That no longer reflects the structure of the industry in New Zealand (NZPA, 2004, p. 2).

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1971

Wilson & Horton (NZ) 21% NZ News (NZ) 23% Others/Independent (NZ) 56%

2006

Fairfax (Australia) 48% APN (Australia) 42% Other/Independent (NZ) 10%

Figure 1: Percentage ownership of New Zealand daily newspapers by circulation, 1871 and 2006 (Molineux, 1995; Author survey).

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Fairfax believed that if it shared copy with the Herald on Sunday that paper would be a free rider on Fairfax’s investment in its Sunday papers. In reality, as mentioned above, little NZPA copy appears in Sunday newspapers. Fairfax’s refusal to supply copy was actually more a stand on principle. As O’Hara said: Fairfax saw itself as coming under some degree of attack [from APN]. Why would we wish to co-operate with them?...We could have stopped all copy sharing, but we just stopped copy sharing on the Saturday to make the point that this was about the Herald on Sunday.

Understandably, APN was outraged at the refusal. Rick Neville, an APN representative on the NZPA board, retorted:

Fairfax unilaterally advised they would no longer supply material from their papers that could be used in the Herald on Sunday, despite the fact the Sunday Star-Times and Sunday News were still able to access and use APN-generated copy. This put them in breach of the news agreement with NZPA.

That is to say, APN believed Fairfax was the free rider.

With both ownership blocs regarding the other as a free rider, NZPA had to find a new business model or face collapse. To keep both blocs happy, in 2006 NZPA abandoned copy sharing. NZPA’s chief executive at the time, Lincoln Gould, welcomed the change. A keen supporter of free markets, Gould had long seen the need for change:

When I came [to NZPA] in 2002 I saw the need for change. When things are going well, it is difficult to people to change. In my view, you need a crisis for change... The catalyst for change was the Herald on Sunday... Fairfax gave us the chance to come up with another way of running NZPA without copy sharing. We didn’t blink: we restructured.

But NZPA was in an invidious position. Previously, NZPA generated all its revenue from its member-newspapers. With the end of copy sharing, NZPA’s board elected to reduce the fees paid by its member-newspapers. Membership fees now accounted for 35 per cent to 45 per 12

cent of NZPA’s revenue. The loss of co-operative copy sharing meant NZPA had to invest in its own news-gathering activities and find new markets to grow its revenue. But Gould found many on the NZPA board reluctant to sell copy to new clients, such as television and radio stations, and mobile phone networks. The newspapers saw these new clients as free riders. As Gould put it: “The board decided supplying material elsewhere was giving material to the competitors.” Gould left NZPA in 2008. Gould’s successor, Tim Pankhurst, faced the same frustrations. NZPA was selling content to news organizations such as television and radio stations, business newspapers, and online content providers. “But that produced new pressures,” he remembers, as NZPA’s owners “saw their rivals being given a boost by their own organisation. NZPA was under pressure on two fronts: opposition to continuing to supply content to rivals and a crippling loss of revenue, as the publishers had decreased their subscriptions.”

In December 2010, Fairfax gave notice that it was withdrawing from NZPA. Paul Thompson, Fairfax’s group executive editor, later declared that NZPA was no longer as valuable as it had been: “We are the biggest funder, obviously, because we’re the biggest shareholder and we’re the biggest publisher” (Anonymous, 2011, para. 4). By this stage, Fairfax was effectively running its own in-house agency, sharing copy between its own newspapers and investing heavily in its Auckland-based bureau. It was also able to access international copy with ease, via its contracts with overseas news agencies. Fairfax could see no reason why it should continue to support NZPA. As Thompson argued, “We have invested more in our own resources and our bureaus...the amount of duplication between our Fairfax content, driven by our journalists, and what NZPA provides has grown” (Anonymous, 2011, para. 6). Faced with Fairfax’s withdrawal, NZPA ceased operations in August, 2011. Pankhurst is clear as to the reasons why: “Income was down and the budget did not increase. The shareholders questioned the model and Fairfax gave notice it intended to withdraw. NZPA could no longer operate under those circumstances and had to close.” Following NZPA’s closure, three agencies filled the void: - Fairfax NZ News, Fairfax’s in-house news agency - APNZ, APN’s in-house news agency 13

- AAP, the Australian news agency, which increased its presence in New Zealand for its Australian client newspapers.

Many of the journalists laid off from NZPA were subsequently hired by these agencies.

Conclusions Although much has been written about news agencies internationally, the frequent lack of overt theoretical content in such work has been lamented. This paper has sought to address that concern by placing the theoretical notion of the free-rider problem in the provision of public goods overtly at the centre of a discussion of the management of the New Zealand news agency NZPA. That discussion now allows us to answer the two research questions posed at the start of this paper.

When it was first established, how did NZPA overcome the free-rider problem?

Although many newspapers rushed to join NZPA early in its career, the association faced the prospect that non-member-newspapers would free ride on its services. It is clear NZPA was all too aware that if such free riding were allowed to proceed unchecked it would ultimately spell the end of the association: NZPA prohibited its member-newspapers from supplying NZPA copy to non-member-newspapers and successfully convinced the government to pass copyright legislation to stop newspapers pirating its most popular copy. Once the legislation was passed, NZPA—along with its international news agency partner Reuters—vigorously pursued the pirates to stamp out the free riding. These strategies strengthened NZPA’s cooperative structure, with all the major newspapers joining the association. What role did the free-rider problem play in NZPA’s closure?

The free-rider problem played the pivotal role in the demise of NZPA. The free-rider problem had nagged away at NZPA throughout the 20th century, in the form of the petty withholding of copy, the refusal to supply domestic news to broadcasters, and the Auckland Sun controversy. But because the newspapers largely kept to their own geographical areas and did not directly compete with each other, the free-rider problem was kept at bay. But that all changed when APN’s Herald on Sunday attempted to enter the national Sunday-newspaper market in direct competition with Fairfax’s Sunday newspapers. Fairfax believed the Herald 14

on Sunday would be a free rider in the Sunday-newspaper market and so refused to share copy with the new entrant. As a result, NZPA’s co-operative copy-sharing model collapsed.

NZPA struggled on for several years, but its largest shareholder, Fairfax, remained uneasy with the news agency supplying copy to competitors, including news broadcasters. Able largely now to duplicate NZPA’s services, Fairfax decided it would no longer contribute to the news gathering of what it perceived as free riders, and left NZPA. With the loss of such a major shareholder, the agency had to close.

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