Fairfax – Where did it all go right?

Today's blockbuster merger between Nine Entertainment Co and Fairfax Media will radically change the Australian media landscape. In a piece first written prior to the announcement, for Saturday's "Best of the Week" email, Mumbrella's Tim Burrowes examines how Fairfax Media came back from the critical list.

As I write this in a remote part of Tasmania, my laptop is sharing the table with the daily miracle, today’s newspapers.

And I must admit, if you’d asked me five years ago whether that would be still be the case now, I’d not have been sure.

I may have been listening to the wrong people.

I’m slightly disturbed to discover that on LinkedIn I’m connected with 42 people who include the word “futurist” in their description. Mind you, I’m also connected to 541 with the word influencer, so I may be mixing in questionable circles. But more on influencers another time.

However, one of Australia’s more influential futurists is Ross Dawson who famously (or perhaps infamously) created his Newspaper Extinction Timeline back in 2012.

And one of the risks of making future-gazing predictions is that eventually, the future happens. And at that point everybody remembers the prediction, and nobody remembers the caveats.

In 2018, the prediction that newspapers in the US would be extinct by 2017 looks a little awkward. Tell that to the New York Times. And the idea that they’d be irrelevant in the UK by next year seems increasingly unlikely.

And although it’s still four years away from his predicted newspaper extinction in Australia, it’s now fair to say it ain’t gonna happen here in 2022. And as a newspaper reader, nay lover, I couldn’t be happier.

On Friday, Fairfax closed with its healthiest share price in just under a decade.

It’s a $1.85bn company. Which is something I never expected to write when it fell below $1bn value for the first time in October 2012.

The upwards blip followed this month’s announcement that News Corp and Fairfax are to cooperate with printing. As is so often the case, the market likes it when people lose their jobs – in this case because of print works closing.

But in the wider scheme of things it feels – dare I risk saying it – as if the worst is over.

For a while, the build up to the end of each financial year was characterised by hundreds of redundancies, with journalists often bearing the brunt.

That didn’t happen this year. And when the printing rationalisation with News Corp was announced, it had more the feeling of a long-overdue dawning of sanity between the two bitter competitors, than another desperation round.

Of course, a lot has changed in the last few years.

On the one hand, Fairfax lost many great journalists. Indeed, without their redundancies from Fairfax, Guardian Australia’s ranks wouldn’t be half as strong as they are.

And the problem with that is the loss is immeasurable: as the public, we simply don’t know what we don’t know as a result of the people who would have been able to tell us being missing.

But the company’s three great mastheads – The Age, The Sydney Morning Herald and the Australian Financial Review – survived, and stabilised. None of them are what they once were, but all of them are still admirable products. And that was by no means always certain.

That’s a result of CEO Greg Hywood pulling off a tightrope walk I never thought he could manage. He took the costs out necessary for survival, but he didn’t kill the patient during the operation.

(The above interview with Hywood was recorded at Mumbrella360 in 2011, shortly after he became CEO)

Of course, there were blunders along the way. Most notably, for a while management took on the same view as the outside world that weekday printing would soon be dead.

That drumbeat reached the outside world. It looked like a managed retreat, because for a while that’s what it was.

But it dawned just in time: closing the print editions would kill the mastheads, and didn’t actually make business sense.

For all the talk about thriving as an online only product, it’s rarely worked. Look at the shadow The Independent newspaper has become in the UK.

Sadly, the change of heart came too late to avert some of the damage done to advertising sentiment. What media agency wants to make a recommendation to a client of including a dying medium in the schedule?

But perhaps, like television, it’s not dying; it’s just mature.

I suspect with the stability the long term print deal signals, it may herald a subtle change in advertising sentiment towards newspapers. I wouldn’t be surprised to see an upwards blip.

Not that the glory days will return of course. Newspaper copy sales will continue to fall, I’m sure. And classifieds are of course gone, never to return.

But the print product now looks set to survive long enough to build out those paywall strategies which have been so much harder than they looked.

Not that the Fairfax share price can be explained by the fortunes of its print operation.

When it comes to public interest journalism, there’s no justice in the market. Much of the value Fairfax titles deliver to Australia in keeping its readers informed of the activities of those in power will never reflect on the bottom line.

Without newspapers (and the ABC) there’d have been no Royal Commission into the banks.

But Fairfax has also played its other cards shrewdly.

The last decade saw Fairfax foolishly get rid of real estate savant Antony Catalano (for the first time), only to see him create a mighty rival in The Weekly Review, which they ended up having to buy.

But combined with Domain, it became Fairfax’s last trip down the classified river of gold.

Last year’s float released value in Domain that still underpins Fairfax’s own share price. By coincidence, like its parent, Domain is also a $1.8bn company, and Fairfax still owns 60% of the shares.

And there are other valuable assets.

Macquarie Media – the parent of the thriving 2GB-3AW talkback radio axis – also hit a 13 year high on Friday, giving it a market capitalisation above $270m. Fairfax still owns 54%.

And in the best example of value creation for shareholders, Fairfax’s joint streaming venture with Nine Entertainment Co – Stan has been a triumph.

Stan has become a domestic challenger to Netflix, with arguably a better content offering. That’s good going, in not much more than three years. Both sides’ initial investment of $50m each looks like money well spent.

I must admit, at the time I was much more cynical about that investment in Stan. It felt that the might of Netflix would be impossible to beat. And I was convinced most of the money would be spent on buying back ads in Fairfax titles as a way of artificially maintaining an ad revenue number

But I was wrong. They built something real.

But it’s also another demonstration of the weird economics of paid content.

I pay far more for my AFR subscription than I do for Stan. Yet I spend far more hours re-bingeing on the likes of Breaking Bad than I do reading the paper, much as I love it.

(Like the rest of this article, the following paragraphs were written prior to the announcement.)

I suspect though that the other thing lifting the share price is that when it comes to the consolidation of media ownership, the game is now afoot.

After a long delay, Ooh Media’s acquisition of Adshel and JC Decaux’s purchase of APN Outdoor has finally kicked things off.

Here There & Everywhere is presumably on the breakup track, having sold Adshel. Its ownership of Australian Radio Network doesn’t make much sense in isolation.

Meanwhile to Nine, the news and opinion radio output of Macquarie Media must look like a tempting fit. As, of course, would the other half of Stan.

Also add into the mix the fact that News Corp is clearly on the way out of the door with its local and regional newspapers, possibly with some sort of private equity-driven deal.

Fairfax would unlock a lot of value for its shareholders if it could get a slice of that action with its regional titles.

Not that it would be good for those working for them, or necessarily for readers either. Cost cutting is the name of the only private equity game.

But Fairfax might also be a buyer rather than seller of assets. Or failing that, a senior partner in a merger with a TV network. (Update: I was wrong on this prediction – it’s a 49%-51% partner in the merger. Futurists, huh?)

Seven would make sense because of its ownership of The West Australian. But it’s heavy debt load creates a more confusing picture.

And the Stan partnership with Nine, and the talk radio attraction, makes sense too.

But most amazing of all of this is that it’s all a possibility.

Six years ago, the idea that Fairfax would be anywhere near the largest media company seemed hopeless.

When Fairfax launched the new “Independent. Always” positioning five years ago, it seemed a little like whistling past the graveyard.

But maybe, just maybe, they’ve come back from the dead.


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