Stop the press for a management f iasco
THERE are two stunning revelations in Colleen Ryan’s latest book on the Fairfax saga, one at the start and the other at the end. They distil in hard numbers the cost to the company and its shareholders of mistakes made by its board and management a decade ago, at a time when media groups globally were being challenged by the matrix of noughts and ones known as digital technology.
Even the damage inflicted by Warwick Fairfax Jr’s takeover fiasco in 1987 pales in comparison. In the early 2000s, at a time when Fairfax was delicately poised to make a return potentially to the influence and profits that it enjoyed in the 1970s and 80s or rush headlong for the knacker’s yard, it chose the knacker.
Ironically, the revelations Ryan provides are essentially the same numbers put differently. In case the reader missed the significance the first time (on page 12), by the time they reach the other bookend 246 pages later, it hits like a sledgehammer. Eight billion dollars of market cap is now tied up in realestate.com.au, carsales.com.au, and Seek. That basically came out of Fairfax, and Fairfax is worth $1.3 billion. That is the scale of the tragedy.
Ryan is quoting Daniel Petre, Kerry Packer’s online guru from the late 90s, who she reports has just sold a small online business to Fairfax as the company continues to struggle with the irreversible changes wrought by digital technology, and its business continues its death spiral in response to relentless cost-cutting and falling revenues.
Fairfax: The Rise and Fall is a fascinating read. Ryan, drawing largely on Gavin Souter’s books tracing the company’s early history, takes the reader from the beginnings of the Fairfax family’s media empire in the mid1800s through to the family tensions in the 1970s that led eventually to Warwick Jr’s disastrous 1987 takeover, on which much has been written, including by Ryan.
But I want to focus on what happened after the consortium led by Canadian Conrad Black took control of Fairfax from the banks at the end of 1991, and even more specifically after he was forced to sell, licking his wounds, in 1996.
The rise is a great story, but the decline and fall of Australia’s once most powerful media group fills the reader with a mixture of anger and sadness. It is sad because the people who watched the group — its friends, employees, and even its rivals and readers — could see this coming like a slow-motion train wreck. This is no benefit-of-hindsight exercise.
Ryan intertwines the two powerful forces at work on Fairfax by the time Black finally sold out of Fairfax to tend to challenges elsewhere in his empire. The constant control struggles and boardroom faction-fighting that slowly drained its strength and produced some bizarre management changes diverted the company as digital was having a rising impact, particularly on the way we communicate.
For Fairfax, these changes were particularly ominous and certainly more threatening to its traditional business, classified advertising revenue, than for its main rival, News Limited (publisher of The Australian). News relied more on revenue from its mass circulation newspapers and was part of a larger global group that included a US movie studio and a television network. Its Australian newspapers are less than 1 per cent of its business.
The classifieds that nourished Fairfax from its earliest days had, by the 70s, provided the group with the commercial strength to employ the best writers and run the most important stories in comparison with its rivals. The Sydney Morning Herald in the 80s was arguably the country’s most powerful paper. In its heyday before Warwick Jr moved so foolishly, it was contributing $60 million a year to Fairfax’s before-tax profit. This was a lot of money in those days. Its weekday editions would barely be breaking even today.
Strong profits led to bold journalism and creative publishing. Fairfax led the way in developing new titles and paying good money for the best editors and writers. It had the money to protect its mastheads from those who tried to use the defamation courts to stifle inquiry. Supported by its classified revenues, it could afford to ignore threats by companies or governments to withdraw advertising (as Bond Corporation and Wran Labor did in the 80s) when reportage on their activities got a bit hot. The threat to withdraw advertising usually resulted in the paper intensifying its inquiries.
The balance of media power between Fairfax and News shifted, though, during the 90s, as News invested more in its titles, particularly The Australian, while Fairfax became increasingly absorbed in its internal power struggles and outside threats from its unstable share register and from corporate predators, mostly in the form of Kerry Packer and Rupert Murdoch.
Neither group had an inkling at this stage how much change digital technology would inflict on newspaper revenues, but it was clear one thing was happening — classified revenue was starting to fall as people discovered an array of new ways to buy and sell on the internet, in many cases without charge.
As the Fairfax board and management turmoil reached a crescendo in 1998 with the sacking of Fairfax’s most senior editorial executive, John Alexander — and then of Bob Muscat, the chief executive who had fired Alexander — out of the blue the board appointed academic and management consultant Fred Hilmer.
On hearing of Hilmer’s appointment, leading media analyst Roger Colman remarked, ‘‘ This is great news for News Corporation.’’ Even the chairman at the time, former Packer sidekick Brian Powers, admitted to a senior editorial executive that ‘‘ this is an experiment’’. It could be added — and no doubt the executive was thinking this too — that this was not the time to indulge in experiments.
Packer’s view on Hilmer at the time is couched in words not reportable in this, a family newspaper.
Ryan devotes a chapter to the bumbling, shambolic period of Hilmer’s management, widely referred to as the ‘‘ lost years’’. That he stayed in the role for seven years until 2005 is testament only to the fact that the board overseeing his time at the helm was equally dysfunctional.
Ryan gives Hilmer credit for recognising that the internet was going to change the industry, but also points out he couldn’t grasp that the reason Fairfax had been so strong, and had survived a decade of instability, was its classified revenues — the ‘‘ rivers of gold’’, as Murdoch originally described them.
Hilmer set up the much-ridiculed F2 digital division on the top floor of the Sydney Maritime Museum, within sight of Fairfax’s Darling Park headquarters, but sufficiently distant for it to have little connection or even relevance to Fairfax’s core commercial business — the classifieds.
Instead, he focused on a web directories portal called Citysearch, on which he spent more than $130m. He spent just $8m developing websites for the critical cars, jobs and property websites. ‘‘ He didn’t understand how we made our money,’’ one senior editor told Ryan (with some bitterness, she notes).
Then there was the interminable search for ways to measure journalists’ productivity, and the management strategy days (the day at the Olympic pool at Homebush where executives were handed ‘‘ a whistle, a pair of goggles or a swimming cap . . . to determine which team you are on’’ was greeted with some cynicism).
It was about this time, while Hilmer was throwing money at F2 and Citysearch, that opportunities to buy into start-up websites that were potential rivals for Fairfax’s critical classified ad revenues — carsales.com.au, realestate.com.au and Seek — came along.
These opportunities were well known at the time, as were the consequences of Hilmer’s decisions. As a business columnist writing for The Australian, I was fortunate enough to receive a phone call from one senior editorial executive Hilmer had sacked because of disagreements over digital strategy. This former executive told me in detail what he and others had been urging Hilmer to do — to put
Fred Hilmer; below,