What next for Fairfax?

So the Fairfax share price is in the doldrums. The real question is whether the organisation will survive in a recognisable form. So news that Fairfax has sold a substantial asset (Trade Me) and bought down debt is interesting.

Fairfax’s sale of its 51 per cent stake in the online auction house Trade Me is an important early step along a treacherous journey to save its iconic media empire. In October I encouraged Fairfax’s board to do exactly this in addition to several other initiatives.

The $600 million that will be crystallised from the divestiture of a non-core and geographically-isolated asset will help Fairfax eliminate a substantial chunk of its debt. This has clear merits, the most obvious of which is radically reducing interest repayments that were absorbing Fairfax’s free cash-flow.

To my mind this will settle the question of whether Fairfax is likely to be financially distressed or economically distressed. I’m not convinced that debt is their problem as opposed to not having a product that can be sold at a profit. I can’t think of a single reason why The Age or the Sydney Morning Herald should attract sufficient paying customers to survive. Radical reform is required if Fairfax is to survive.

Christopher Joye has some ideas:

Fairfax would be best suited to a privatised structure that unifies owners with managers. As a non-public entity, Fairfax would also be spared the myopic pressures of fund managers trying to bolster monthly returns. This is not conducive to effective long-term decision-making.

Going private isn’t a bad idea – neither are some of his other ideas. Merging with either Channel Nine or Ten (there is a problem of cross-ownership laws here) and better cost control. I can’t really fault any of that, but it just isn’t enough.

Three things need to happen to any firm that gets into trouble.
(1) Fire the existing management – lock, stock and barrel.
(2) Recapitalise the firm – at this stage would anyone want to pump more money into Fairfax? Especially if you can’t fire the management?
(3) Re-establish the product market presence. Herein lies the problem – does Fairfax have a product to sell? In that business their journalists are the product – so along with the management a lot of the journalists would have to go too. Christopher Joye reckons they might be able to re-establish a product market presence:

It’s well-known that Fairfax has let great commercial opportunities slip through its fingers, and suffocated the start-ups it has fostered. If it has any chance of growing, this has to stop. Here Fairfax would benefit from an injection of experienced venture capital DNA. This is why a consortium involving successful private equity and/or high net worth investors might be ideal.

Again – I’m under-whelmed. To survive Fairfax needs a new product offering now. Not a history of good ideas that get fluffed, but a new product now. In March next year the Age and the SMH are going tabloid – but is that really a new idea?

Over the past couple of years Christopher Joye has had some good ideas for Fairfax that should have been implemented. Rather than appointing him as a columnist to the AFR (a jewel in the Fairfax empire) they should have appointed him to their board. Now, however, I think it is too late.

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42 Responses to What next for Fairfax?

  1. Infidel Tiger

    They could start charging the ALP and the Greens for publishing all their media releases.

  2. Sinclair Davidson

    That is part of the reason why they don’t have a product to sell. Their journalists are crusaders – wanting to make the world a better place, rather than simply doing their jobs and telling us the news.

  3. Rabz

    … wanting to make the world a better place…

    …while simultaneously making it worse.

    The fauxfacts paradox writ large.

    Liquidation beckons…

  4. blogstrop

    Merging with either Channel Nine or Ten (there is a problem of cross-ownership laws here)

    This refers back to Keating’s dictum that media had to decide whether to be Princes Of Print or Queens Of The Screen. Dressing up your one-liners for the media was what he did well, but it was (again) an attempt to control what the media said about Labor.
    Fear of the media when in the hands of people who might simply tell it as it is, or worse, be of a conservative mindset and tell it as it is with a dash of extra prejudice, is the greatest fear the left side of politics has.

  5. The Fairfax culture is oriented towards advertising rather than editorial. Copy is viewed as something to run in between the ads.

    They’ve recognised they need to go digital but the problem there is that content is king. They can only sell advertising if the punters sign up for the editorial. And it has to be the right editorial because there are plenty of alternative online advertising options.

    That requires a very different approach to content providers and a need to reflect the diversity of reader views. Readers want to be informed, amused, entertained and illuminated, not hectored and lectured.

    Given their refusal to allow Gina Rinehart on the board because she won’t sign up to the policy of editorial independence, it’s pretty obvious the problem starts at the top. The board ought to be deeply concerned about editorial and far from uninvolved.

  6. Rabz

    I can’t think of a single reason why The Age or the Sydney Morning Herald should attract sufficient paying customers to survive.

    Unfortunately, like the ALPBC, Fauxfacts expects to be able to transcend the drudgery of an actual (realistic) business model.

    Mark my words – while the lobodomee pardee is in gubberment, Fauxfacts remains “too big to fail”.

    Yabbott – ball’s in your court, Squire.

  7. Louis Hissink

    Wasn’t the Fairfax cash cow the classifieds on Wednesday and more importantly Saturdays? If that income stream has plummeted, then what caused it? After all I have memories of trawling through the classifieds decades ago, reading column 8, and the funnies.

    So if the primary reason you bought the SMH was for the classifieds, then the op eds etc were of limited importance.

    The product was and still should be the classifieds, and what would be interesting is learning how they stuffed that cow over time.

  8. Splatacrobat

    They could start by changing the format to this

    I’m sick of having to cut it up in little squares.

  9. PSC

    High operating leverage mostly on account of the fixed costs from the various printing operations is the nail in the coffin.

  10. Infidel Tiger

    Wasn’t the Fairfax cash cow the classifieds on Wednesday and more importantly Saturdays? If that income stream has plummeted, then what caused it?

    There’s a thing called the internet and somehow the gurus running Fairfax missed it.

    A couple of companies called Seek and realestate.com.au are now reaping the cash bonanza that should have been there’s.

  11. Louis Hissink

    IT, yeah I realise that they missed the internet, but I was wondering if there were added factors. One thing that might have heralded their demise was the sloppy sub-editing. I recall seeing a photo Alan Jones standing next to John Laws in the SMH and the photo nagged me a little since it was “odd”. The oddity was that both gentlemen had their coat top pocket on their RH sides rather than left. The SMH graphic artists simply reversed image to make it more visually effective, or whatever. Makes you wonder what else they did to the copy.

  12. Jim Rose

    Jensen argued that going private with a leveraged buyout is an organizational form superior to being listed because reduces agency problems between dispersed owners and the manager of the firm.

    Higher levels of debt makes sure the company on the brink of failure will go broke unless hard decisions are made and there is rapid adaptation using local knowledge.

    As a governance structure, going private allows detailed intervention in management while this is required – the company may be floated again when this need passes. firms that become private equity firms do not fail more and restructure faster when the are in distress.

  13. face ache

    All those Fairfax journos, being the smartest people in the room all the time, forgot that that even a moron like me can see disingenuity a mile off.

  14. Tom

    Perhaps Fairfax’s biggest problem has been classic “agency conflicts” between a largely non-shareholding board, staff disengaged from the existential objective of generating shareholder returns, and owners who have suffered through decades of financial misery. Even accounting for the reinvestment of dividends, Fairfax’s shareholders have lost 40 per cent of their capital since June 1992.

    – From the link above

    It’s hard to know where to start. First and foremost is the company’s rotten culture. The board is a collection of joyriding parasites enjoying some kind of reflected glory of a high-profile media company, but utterly devoid of any understanding of how to generate returns in the news business. The staff, protected by a cancerous “charter of independence”, are utterly disengaged from the need to provide shareholder value. In fact, the editorial culture is to raise two fingers at shareholders in the perverted belief that it’s a good thing for the staff to be alienated from the company’s capitalist structure.
    As has been widely observed, the editorial culture is poisonous because the staff do not see it as their job to report the news, but to conduct a political crusade to advance the cause of the left through support for the current government and all causes of the left. This terrible sickness perverts all the professional standards that journalism is supposed to have. Needless to say, the staff’s political crusade has destroyed its formerly prized AB demographic readership.
    This emanated from the 1990s incompetence of Professor Fred Hilmer as CEO and lightweight editors like Andrew Jaspan, who deliberately proliferated the opinionisation of news as a response to the slashing of editorial budgets by the company’s owners at the time, led by Brierley Investments – the company that later bankrupted Ansett.
    The company cannot survive unless its editorial culture is smashed. But it also needs new managers who can reverse the decimation of group revenues and yield, which has followed the promotion of its digital businesses, which are dictated to by the Google advertising monopoly and are forced to accept junk advertising rates that are about 10% of old media rates. From the outside, there has been little apparent attempt to create a premium advertising business that is not undermined by the white-anting of the Google monopoly, which is essentially a low-rent junk advertising competitor.

  15. entropy

    The SMH graphic artists simply reversed image to make it more visually effective, or whatever. Makes you wonder what else they did to the copy.

    occam’s razor would say they just stuffed up…

  16. Tom

    Wasn’t the Fairfax cash cow the classifieds on Wednesday and more importantly Saturdays? If that income stream has plummeted, then what caused it?

    Because the management was so mind-numbingly stupid and incompetent they waved to the revenue as it walked out the front door. There was no urgency about creating or buying websites that took all the company’s revenue stream in areas like car trading and real estate.

    The public don’t know that, even after its ASX listing, FXJ was still behaving like the public service — one reason why it has such a morbid empathy with the ABC.

  17. faust

    This is the first stage in a company turnaround strategy.

    Fairfax has an inappropriate capital structure for a company facing structural (economic and operational) decline. Repaying their debt at par rather than looking to equitise it is an interesting play but they are trying to prevent the troubles that Channel Nine just went through.

    I do not think that Fairfax could easily find equity investors until it has clearly set out an operational restructure. If I was a major shareholder I would demand a Chief Restructuring Officer be appointed; ideally someone with experience in turning around media or publishing assets (there are not many successful CROs with this type of experience). Once Fairfax has a strategy for the next 10 years to maintain consistently profitable and cash flow positive operations could they find equity investors.

    In an era where revenue dollars are being replaced by revenue cents then their operations require a radical overhaul.

    Still, given debt is being repaid at par I wish I was a distressed debt investor in this company!

  18. Marlene Nguyen

    Can they please explain what the “carbon economy” is — and why it needs an editor all of its own.

  19. stackja

    Fairfax went from hot-metal to computer printing after many a problem. Kerry wanted the rivers of gold but ended up still with TCN. James decided to sell TCN and work casinos. Fairfax has the kindy kids running the company. They seem to cater to the misogyny group now, so tabloid fare in a tabloid form seems right.

  20. H B Bear

    Fairfax is simply the ABC without compulsory taxpayer funding. They could try employing journalists people are prepared to pay to read. Well maybe a journalist …

    Possibly the worst managed Australian company in the last 20 years (HIH and CUB excepted).

  21. faust

    Also, I disagree with Chris Joye around the private equity side, particularly when he writes:

    With the elimination of most of its debt, Fairfax might be a more attractive takeover target for private equity funds and/or high net worth individuals with the appetite for managing the riskier transformation project.

    Private equity does not care about existing debt structure because when they buy a company at a certain Enterprise Value as the only people who get squeezed are the existing equity holders who are underwater.

    Furthermore, a PE firm may buy Fairfax using debt therefore negating any positive benefits from a reduced debt burden freeing cash flows all without additional assets that can be sold.

  22. They can reduce their production costs by paying what their editorial is worth, not much. They could sell their CBD offices and all work from home. Surely reprinting Greens media releases doesn’t cost much if they were pre formatted, next weeks McTernan talking points could be posted for 60c each Friday. Cut out the sausage rolls at morning tea. When Tony flogs off the ALPBC to a management buy out they could merge and share corporate overheads. The real question is who will they interview if the Trade Union Party is only left with 40 lower house seats?

  23. Louis Hissink

    The SMH graphic artists simply reversed image to make it more visually effective, or whatever. Makes you wonder what else they did to the copy.

    occam’s razor would say they just stuffed up…

    Unfortunately no, I had inside information and it wasn’t done accidentally. Still recalled that incident shaking my head in disbelief.

  24. James Bauer

    Why did Gina have to buy into Fairfax? Now I’m stuck being conflicted. I despise that leftist rag from my bones, but I don’t like seeing someone trying to change Australian media for the better like Gina getting screwed over.

  25. Old Bloke

    Faifax’s problems stem from poor management, or perhaps more accurately, no management. The in-house journalist collective decides what it will print, and the customers don’t want to read their socialist evangelising, so they lose market share. They can’t make a successful transition to the Internet as no one will pay to read the ALP / Greens daily talking points when the ABC already publishes them for free.

    The 2013 Leunig calendar highlights how poorly Fairfax’s position is at the moment. The calendar was offered for sale at $2.50 – the equivalent price of five Fairfax shares.

  26. Up The Workers!

    The thought occurred to me last week, that the weekday copy of the Melbourne ‘Herald/Sun’, costs $1.20, or about one twentieth of a News Limited share to buy.

    A weekday copy of the Melbourne ‘Age’ however, costs $2.00, or between four and five times the cost of a single, lowly ‘Fauxfacts’ share.

    If you’re prepared to donate another $8.00, they’ll probably throw in the rest of ‘Fauxfacts’ as a ‘job-lot’.

  27. Up The Workers!

    Fairfax’s abysmal share price is what happens when all of the “journalists” on staff would rather be “red” than “read”.

  28. johninoxley

    How to go down the gurgler 101. Sell the asset and keep the liability. Typical ALP/Green ideology. What will the luvvies do when Fauxfax folds….. ABC will go into print and we will be up for 20 cents a day. No need to worry about advertising revenue.

  29. Tom

    JIO, it is, in fact, an extreme irony: The ABC and Fairfax are competing arms of the same political movement. The ABC is using $1 billion p.a. of our money to kill a commercial competitor. It is eating Fairfax’s lunch.

  30. Econocrat

    They could do a capital rasing to boost their circulation? One share per paper – cut out the mastheads and post in to redeem.

  31. .

    Don’t worry


    They are basically almost at the Lord of the Flies stage.

    Leunig is 67 so he won’t be poisoning public opinion with his nasty shitheadedness for much longer.

  32. .

    I have a Jewish friend, a Holocaust survivor, who says that she never could have lived in Israel because in her view it is a totalitarian state…. I believe that something fundamental and vital, not just to Israel but to the entire world, has been gravely mishandled by the present Israeli administration and it bothers me deeply. It is my right to express it.[9] ”
    —Michael Leunig , 13 January 2006, The Age

    What a cock.

  33. Luke

    Infidel tiger – (first comment) brilliant!

    The problem with Fauxfacts is that they have nothig but contempt for the overwhemling majority of their paying customers. It’s become even more obvious over the christmas break. They write for the kind of paper that’s handed out for free at a trendy inner city cafe or indie rock pub.

    People only take you pissing on them for so long. And that’s not even dealing with their ABC problem.

  34. “Why did Gina have to buy into Fairfax?”

    Would it be cynical to suggest she wanted to make their reporting of her more positive? (Not entirely unreasonable considering their poisonous reporting of her to date).

  35. Lysander Spooner

    With (un)Fairfax being so unpopular these days I wonder how much of their “readership” comprises people like myself who HAVE TO read it for media scanning roles?

  36. Tom

    Former FXJ editor Alan Kohler has a good piece on the problems of yield and revenue in digital news media vs old media.

  37. .

    I reckon Domain is inferior to Real Estate.

    Both could do with a brush up on user friendliness.

    I would have thought smartphones and apps would have gotten them up to speed, but not yet.

    Note the listings for both in your area. Real Estate seems to dominate Domain now.

  38. Leigh Lowe

    What next for Fewfacts?
    They’re screwed, thats what.
    They asked me to do an on-line survey earlier this year, which I did out of curiosity.
    It was obviously directed at opinions about on-line subscription, and two conclusions could be drawn:-
    Firstly, the survey had been designed by committee and postulated every conceivable pricing option for all manner of permutations of access and delivery. Upwards of 60 or 70 separate options. That tells me there was no-one in charge of survey design and “everyone’s input is valued”
    Secondly, they asked what I thought was a weird question, along the lines of …. “do you believe media content is a commercial product or a social right?”
    And there’s your problem right there. Most of the current readership believe that they shouldn’t have to pay for content and they won’t.
    You might ask, “aren’t they paying for it now in print version?”. Well, I don’t think they are. I think most of the readership (as distinct from sales) comprises people who get it as a free hard copy from their school or other (public sector) workplace and will be highly resistant to paying for an online subscription.
    News is going to have a tough run getting on-line news content to pay, but I would argue that most News Ltd readers understand that stuff doesn’t come for free, and are more likely to pay.
    Age and SMH redaers …. not so much.

  39. DaveF

    A god set of comments which I genearally agree with.

    In summary:

    a crusading journalistic culture, not one based on reporting the facts

    unable to find a successful revenue model for the metro newspapers

    management is pretty much to blame, it really is a trophy position to be GM of Fairfax

    the ABC provides an identical editorial line and has a far higher reputation

    Some notes on other issues.

    The group has a radio network which is profitable. When they purchased it they thought they could have the newspaper work with radio and improve the news offerings, high profile opinion writers could spice up the talk back etc. However I understand there was a riot when they were told they had to soil their hands on shock radio so it never happened.

    They also purchased Rural News. It is profitable. You’d think they’d have a look under the bonnet there and see why that is. It includes The Land which is a pretty factual paper of note.

    I can’t see a turn around in the metro papers without a clean out of editorial. Which would alienate their rump readership as the publicity from the ABC would be horrendous.

    BTW did you know they only ship the certain suburbs in Sydney? Basically they excised most of the West, South West, basically west of Parra you can’t buy the thing!!!

  40. DaveF

    Actually I think Rural News was some sort of merger, but either way they should have learnt something from them by now.

  41. Honesty

    It’s really strategy 101, instigate a campaign for the ABC to be privatised if it doesn’t become unbiased. Then Fairfax should be able to make enough selling left propaganda without competing against the ABC’s subsidised by the tax payer, free left propaganda.

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