Webdiary - Founded and Inspired by Margo Kingston

Fairfax eyes new media opportunities

PM - Monday, 29 August 2005 18:37:19
Reporter: Andrew Geoghegan

MARK COLVIN: People have been predicting the death of the newspaper since the early days of radio, but now in the age of the worldwide web, they really are under siege as never before.

Australia's second largest newspaper publisher, Fairfax, is no exception, but the company believes diversification is the key to remaining profitable.

The company today forecast further earnings growth from advertising.

The retiring Chief Executive, Fred Hilmer, has indicated that Fairfax plans to buy more new media businesses, while pursuing opportunities presented by changes to media ownership laws.

Andrew Geoghegan reports.

ANDREW GEOGHEGAN: Newspaper publishers worldwide are struggling to maintain their circulations as readers switch to the Internet for their information.

Combined with a dramatic fall in real estate advertising, Australian papers have had to meet significant challenges.

But the country's second largest newspaper publisher, Fairfax, is more than happy that it's strategy of diversification is working.

FRED HILMER: We have a more diverse, more balanced business that enables us to deal with these challenges that we get in different parts of the business more effectively. Where we're not hostage to any one particular market or any one particular masthead.

ANDREW GEOGHEGAN: Fred Hilmer is Fairfax Chief Executive.

FRED HILMER: You know, if you look at the company certainly as it was five or six years ago, it was basically The Sydney Morning Herald and Age company. And the metros now are less than half our business and that includes online, which is lumped in with the metros, and it includes magazines, which have been an area of very strong growth.

ANDREW GEOGHEGAN: Fairfax's headline profit may be down six per cent because of tax consolidation, but Fred Hilmer is keen to point out that underlying net profit is up 24 per cent to a record $234 million dollars, driven by earnings from job ads and high end advertisers.

At the same time its Internet business, Fairfax Digital, reported its first ever profit before tax.

FRED HILMER: They're very good results. What makes them particularly strong is that those results are based on huge increase in our cash flows. The cash flows were up some 77 per cent.

We had strong cash flows a year ago and this year the cash flows are $120 million.

ANDREW GEOGHEGAN: And the company's expansion offshore is also reaping benefits. Its New Zealand papers now account for one-third of revenues and 40 per cent of profits.

FRED HILMER: It's almost like every rock we turned over there had some more gold underneath it.

HAROLD MITCHELL: Importantly, they've overcome any downturn that they might've had in the classifieds business, growth in New Zealand, growth in their business magazines publications; they've done very well.

Harold Mitchell, Australia's most influential media buyer. He thinks the real challenge for Fairfax is the threat posed by its online competitors.

HAROLD MITCHELL: Fairfax are going to have to put a lot of time and attention into looking at the online service that they've got.

There's no doubt that with the growth of Seek, Realestate.com and others to come, that this is a real danger for Fairfax; they've got more work to do there.

They have to look at a wider geographic spread to their business. Being on the edge of Asia as Australia is, where else have they gone? We saw Murdoch so many years ago elsewhere out to the world. That's the first challenge for Fairfax, and we'll see how they treat that.

The other is the general move of online readership of newspapers where newspapers level off – in the physical sense, people are reading them online. How will Fairfax get a dollar from that service in the future?

ANDREW GEOGHEGAN: Fred Hilmer says Fairfax is looking at more business acquisitions and any changes to media ownership laws may provide significant opportunities.

However, his desire to make further purchases will be tempered by his forthcoming retirement.

FRED HILMER: I want to make sure anything I buy, David Kirk is absolutely as passionate about as the rest of the team is.

Fred Hilmer will leave the helm of Fairfax in November with a retirement package of $4.5 million.

MARK COLVIN: Andrew Geoghegan.

From http://www.abc.net.au/pm/content/2005/s1448714.htm

From the Crikey subscription email of Monday 29 Aug.

Now that Fairfax chairman Ron Walker has had a few days to put his long legs under his new desk, Crikey understands he has started to turn his attention to what he sees as one of his biggest priorities: installing Melbourne tabloid talk back king Neil Mitchell as editor of The Age to “fix up” the paper.

With current editor Andrew Jaspen about to celebrate his first year in the paper’s hot seat, Crikey hears that Walker has told friends and business colleagues over recent months that he sees Mitchell as the answer to The Age’s circulation and credibility problems, not to mention straightening up its left-wing slant. ...

... As for Walker’s array of potential conflicts of interest in his role as Fairfax chairman, we’re waiting for The Age to follow up this story from Sunday’s Herald Sun - which revealed that “Ron Walker has made 19 international first class trips in his role as Games chairman, with travel, hotel and entertainment costs of more than $325,000.”

G'day. From Crikey's sealed section today:

Fairfax tells it like it is

Frank Sufferini, general manager of investor relations at Fairfax, has taken issue with Glenn Dyer's claim on Monday that the company uses figures selectively to make its profit results look better than they are:

I am writing in response to the Crikey article yesterday regarding the reporting of Fairfax's underlying and reported profits. We deserve a correction.

Glenn Dyer's comment that the 22% increase in “underlying” profit was the focus of our earnings release because the reported number showed a fall of 6% is not only factually incorrect but makes an insinuation that Fairfax intentionally tries to mislead its shareholders and the investment market. Some facts which I believe Mr Dyer may have intentionally disregarded or just doesn't understand:

* Our earnings media release issued on 26 August 2004 clearly states that the “Underlying” EPS was up 48.5% and the “Underlying” NPAT of $207.6 million was up 65.4%. The release does not, until the third paragraph on Page 2, make any mention of the higher reported result.

* Notes 4 and 16 of the 2004 preliminary final report (Appendix 4E) clearly split out the “one off” nature of the significant items which were included in the reported result.

* The major difference between the underlying and reported result in 2004 was an $88.9 million tax gain due to the Federal Government process of tax simplification If Mr Dyer were to check his facts he would find that a large majority of Australian companies had this same tax adjustment in that year.

* Our 2004 analyst presentation, which was released to the ASX and posted onto our website on the same day, again highlights the underlying result and not the reported result.

* The earnings media release issued yesterday was totally consistent with the 2004 media release, highlighting the underlying result and not taking into consideration over $7million in increased profits due to the sale of a business or a significant tax credit which is included in the reported result.

* Our 2005 analyst presentation, which was released to the ASX and posted onto our website yesterday, again highlights the underlying result and not the reported result.

* Our 2005 preliminary final report (Appendix 4E) clearly show the differences between the underlying and reported results.

* The financial highlights page as well as the Chairman's, CEO's and CFO's Reports in the 2004 Annual Report clearly states that all numbers are “pre significant items.”

Given these facts I cannot fathom how Mr Dyer or anyone could come to the conclusion that we try and somehow “hide” our results or try and put a “spin” on them. Fairfax has always reported on the underlying trends of its profitability as this gives our shareholders and the equity markets the most transparent view of how the company is performing and this practice will continue.

G'day. From Crikey's sealed section today (subscription recommended):

The Age -- a newspaper where there aren't many

Cost cutting at The Age in Melbourne continues apace, with this memo to senior editors last week making its way to Crikey.

NOTE TO EDITORS:

The hardcopy delivery of overseas newspapers will end soon. This includes the supplements and magazines contained inside those newspapers.

One of the options I am looking at is to buy individual hardcopies from a newsagent who can print a pdf version at A3 size. This would be B&W on photocopy paper. There is still a fee per paper but this is much lower than the hardcopy fee as there are no freight charges. There are no archive or back issues available with this option. It's only a 48-hour life span of the masthead.

Please send a reply message if you would like to identify a 'wish list' of the section/s you want retained. The costs will then be considered.

CRIKEY: There are two problems with this policy. One is the obvious difficulty it will pose for editors who no longer have access to overseas papers from which to steal so many of their best layout and story ideas. And what would happen if all The Age's competitors adopted a similar approach and stopped buying rival publications?

Margo: Or the paper's long suffering readers, for that matter!

From Crikey's sealed section (subscription recommended):

Is Ron Walker commissioning pro-Kennett features?
by Stephen Mayne, former Kennett government spindoctor.

The latest fill-in editor of The Australian's Strewth column, Michael Bachelard, had an interesting theory in Monday's column.

When he was Victorian premier, Jeff Kennett regularly ranted at The Age, accusing the newspaper of bias and of being anti-reform and desperate to bring his government down. The ABC's 7.30 Report suffered from similar views and was banned from interviewing Kennett for years. But last week Kennett appeared on the program to hit out at Health Minister Tony Abbott for his callow jokes about former NSW Liberal leader John Brogden. Swiftly The Age swooped and this weekend not just one but two lengthy, full-page profiles of the former premier appeared, one on Saturday, another on Sunday. Both were nice, soft pieces that began with descriptions of his office decorations and time management before referring to the rapprochement with the ABC and his new role at the Hawthorn Football Club. Both contained vague hints of lingering political ambition. Welcome back into the fold, Jeffrey.

A fair argument indeed, but Bachelard could have made an additional point: that Kennett's great mate Ron Walker is now chairman of Fairfax and a regular visitor to The Age's Spencer Street building.

Shaun Carney's 2,112 word Saturday feature was trumped by Peter Wilmoth's 2,353 word epic the following day, and neither laid a glove on the lad. The easy conspiracy theory goes as follows: Age editor Andrew Jaspan doesn't want to be shafted for Ron's mate Neil Mitchell so he endeavours to please his new chairman with a soft Saturday profile of his great mate.

Meanwhile, Sunday Age editor Alan Oakley operates independently of Jaspan and commissioned his own soft Kennett feature to impress chairman Ron as he firms into favouritism to be the next editor of The Sydney Morning Herald, provided big red gives him the nod.

That's almost certainly garbage as both papers simply leapt at the chance to interview the notoriously unco-operative Kennett after his Hawthorn coup and depression commentary over the Brogden affair. So why did Kennett agree to co-operate with the paper he hated so much? Was it after assurances from his mate Ron that he was unlikely to be done over now that friendlier forces were in control at Fairfax?

From today's Crikey sealed section (subscription recommended).

Circulation rorts: a Fairfax insider spills the beans

Despite denials by newspaper publishers, secretive rorting of audited circulations by publishers is apparently still going on – as a Fairfax insider writes:

It is with deep regret that I write to you. I have worked for Fairfax for many years and have been closely involved with the circulation department for at least ten years.

All publishers are allowed under audit rules to give away up to 1% of total circulation for means of sampling at major events, and we have stuck to this for many years. But now, [chief operating officer Brian] Evans has declared that he will not accept another drop in circulation for either the Herald or Sun-Herald. Here's some examples of what he has done to ensure we grow sales:

1. For many months we've been claiming 15-20K sales a week for Sun-Herald at Greater Union cinemas across Sydney even though we don't give away anywhere near that and get complaints from cinema managers about leftovers.

2. We are now trying to give away approx 5,000 papers every day in Fitness First gyms (I'm told there are many leftovers – don't know if we're claiming them). We have also cut newsagents out of the distribution so they don't get any benefit from this which has upset many of them.

3. We will soon be giving away The Herald and Sun-Herald for free with breakfast in McDonald's stores in Sydney

4. We are giving away well in excess of 1% of our sale at major events – even giving people morning editions of papers in the evening when they are well out of date. We claimed around 50,000 sales for the City to Surf fun run when I don't think we gave away anything like that amount.

5. We've been giving away papers in museums, art galleries, cafes and any other public place that we've been able to buy off with contra advertising.

CRIKEY: Crikey contacted each of the companies named by our insider to verify these claims. Fitness First confirmed that they do have a deal with Fairfax, but declined to talk numbers. A McDonald's spokesman told us that the franchise didn't have a deal with Fairfax, to his knowledge. Greater Union didn't get back to us. We contacted Brian Evans at Fairfax, but were redirected to corporate spokesman Bruce Wolpe, who said he had "no comment for Crikey."

We also contacted Steven Hollings, chairman of the Audit Bureau of Circulations, to ask him about the ABC's three-month "review of the audit process," which by Crikey's calculations should be just about complete. We were told by Hollings's PA that he was in "back to back meetings" and wouldn't have time to get back to us. Crikey has been attempting to talk to Hollings about circulation matters for the past month, without success.

From today's Crikey sealed section: (subscription recommended)

Fairfax: we're not rorting our circulation figures

Yesterday, Fairfax corporate spinner Bruce Wolpe refused to respond to detailed allegations of systematic circulation rorts at Fairfax which were published in Crikey. This morning, Fairfax's NSW managing director James Hooke sent this response to staff:

From: Staff Notices
Sent: Thursday, 15 September 2005 9:56 AM
To: All_Fairfax_Staff
Subject: Message from James Hooke

Dear Staff

Some of you may have seen today's Crikey story (Crikey, 14 September) about the circulation of The Sydney Morning Herald and The Sun-Herald. I am sending this email to correct the record as the Crikey story is grossly in error and baseless.

Ernst & Young audit our circulation figures and have confirmed that these figures comply with the audit rules. Earlier this year, at the company's initiative, KPMG also audited our publisher's statement to ensure we were in compliance with the audit rules.

The specific allegations contained in the Crikey story are all factually incorrect.

1. We have had a commercial arrangement with some Greater Union cinemas for purchasing our Sunday newspaper since the late 1990s. Other publishers like News Limited also have had arrangements with cinemas. Our arrangement with Greater Union has always complied with audit rules. Crikey's numbers are grossly exaggerated and the figure quoted is incorrect.

2. For some years, we have had periodic commercial arrangements with Fitness First for purchasing copies of The Sydney Morning Herald and The Sun-Herald. All of these arrangements have complied with audit rules. Crikey's numbers are grossly exaggerated and the figure quoted is incorrect.

3. We are currently engaged in an industry trial of selling copies of The Sydney Morning Herald and The Sun-Herald through select McDonald's drive-thrus. This trial includes other papers such as The Daily Telegraph.

4. Our event sales are well within the 1% permitted under the audit rules and are fully audited. The City 2 Surf allegation is incorrect: all copies that will be claimed are within the audit rules. Crikey's numbers are exaggerated and the figure quoted is incorrect.

5. We sell small quantities of newspapers to several businesses and these sales comply with the audit rules. It does not surprise me that this report came out a day before a meeting on the audit rules by the Audit Bureau of Circulation. Please be assured of Fairfax's full commitment to improving the audit rules.

James Hooke, Managing Director, NSW
Fairfax Metropolitan, Regional and Community Newspapers

CRIKEY: Yes, but what does this really mean? Here's what one insider has told Crikey it means:

The question now seems to be the weakness of the audit rules on behalf of advertisers. If such schemes to launder newspaper sales are so easily justifiable under the current audit rules this suggests some changes are needed to make all publishers accountable. Currently the audit rules are vague at best and you can claim a publication sale for a charge as little as .05 of a cent.

All publishers exploit the audit rules to such an extent that the rules are basically obsolete as there is always a way to get a round them. The circulation numbers advertisers should ask for are:

1.The number of fully paid subscriptions (fully paid as advertised, not discounted subscriptions or term offers)

2.The number of fully paid casual sales (fully paid as per retails price listed on the cover)

Sit back and watch the squirming begin (not to mention the fraud).

I'd assumed that a comment was being made by whoever chose to print a particular nearly seven-year-old Dilbert in this week's SMH 'Next' supplement. Text: pointy-haired boss says: "For the tenth year in a row, the employee satisfaction survey says morale is low: manager's bonuses are linked to these results. You can be sure we'll make big changes ..."

"... to the survey."

I think audits are a joke and just another stamp to seal cover ups of misconduct and maladministration.

The documents and papers used in audits are more often than not prepared and provided by those that are being scrutinised. These papers are specially prepared, picked and selected to be audited. Of course they end up adding up, with sometimes a little something amiss so that they look human. Many a time all the juicy stuff is removed before the documents are provided and only the picture that is to be presented is presented. They treat us like fools.

Its all farce. Its just like FOI. To make it worse, documents can be destroyed and the system just says "Oh well, They cant give it to you if they haven’t got it!". Just like that! No more questions are required to be asked as to why important documents are being permitted to be destroyed and nobody is trying to stop it happening. No connection is even made that if somebody is alleging misconduct and documents are being destroyed then maybe, surely somebody should look into it. Just in case!

Australia is seriously disconnected. We need to engage.

By saying nothing we are protecting and supporting the wrong people.

Check out the newInside Fairfax staff protest site.

G'day. The new editor of the SMH is Alan Oakley.

G"day. AAP reports at Content will keep papers alive: Fairfax:

Newspapers are better equipped to cope with fragmenting audiences than other media outlets because of the value of their news content, according to the editor in chief of Fairfax's flagship broadsheets. The editor in chief of The Sydney Morning Herald and The Age newspapers, Mark Scott, said Fairfax would increasingly deliver its news through multimedia channels to counter a reader trend towards the internet.

The internet allows everyone to print and disseminate information ... it's a challenge for us," he said. But with a glut of information available to readers, the quality of the Fairfax mastheads and its content ensured the group was well placed, he said...

Margo, saw this on the Washington Post website. I like the phrase, “Margo Kinston’s Webdiary, Australia’s most influential blog.”

“Do you want to find out what the rest of the world thinks of the US? Try reading Margo Kingston's Webdiary, Australia's most influential blog."

"This is on the comparison with Cyclone Tracy that destroyed Darwin in Christmas 1974 (for the geographically challenged, Darwin is Australia's most isolated city, about 2000 k from the rest of the country):"

"As a survivor of Cyclone Tracy I couldn’t help but compare the botched evacuation of New Orleans to that of Darwin. The evacuation of Darwin happened over the Christmas period it was a credit to the Australian armed forces, emergency services and the Whitlam government, their rapid response and expertise saved many lives..."

"Regards, John Pratt"

Keep up the good work

This is not really a comment, but instead a question on whether there is any follow up in the case set out in one of Margo's earlier SMH columns. There was a lot of commotion, then nothing at all.

By Margo Kingston
July 23, 2004

G'day. I've just heard the news that Indonesia's top appeal court has ruled
the conviction of a Bali bomber unconstitutional because he was convicted
under retrospective criminal laws in breach of Indonesia's constitution.
This could be another Howard scandal in the making.

How on earth did it happen that Australia endorsed retrospective criminal
laws in Indonesia when it refused to do so itself so Hicks and Habib could
be charged if returned to Australia from Guantanamo Bay? It's a fundamental
democratic principle that you can't be convicted of a crime for conduct
which was not a crime at the time. It's likely Australia's High Court would
overrule such a conviction, even though the principle is not entrenched in
our constitution.

Questions for Howard and co. What involvement did Australia have in
encouraging or pressuring Indonesia to enact special terrorism laws after
the event and charge the alleged Bali bombers under them rather than under
existing murder and conspiracy laws? Why did it not strongly press Indonesia
not to do so, to avoid the real risk of the tragedy dragging on for
survivors and the families of the dead?

Thanks for spotting Inside Fairfax, David. Position filled for our Focus on Fairfax column, eh? I've just posted this on the site:

*

Congratulations for lifting the lid on the tragic mismanagement of the mindless asset strippers who seem determined to destroy the company’s most precious assets - the reputations of its mastheads.

If there’s anything I can do to help spread the word to SMH and Age readers before it’s too late let me know. I’ll link to this site for a start.

And I’d love to run a report on the FF AGM on Webdiary from you guys if you’re interested.

What chance us shareholders suing the Board for giving Fred that huge leaving bonus in the knowledge that the co. was in trouble? $4.5 million would save those journos jobs, and more.

No respect, Fred.

In solidarity,

Margo