Fairfax leaves nothing while News remains committed to print

Is the collapse of the once great Fairfax newspapers a threat to Australian democracy and accountability journalism?

Is the collapse of the once great Fairfax newspapers a threat to Australian democracy and accountability journalism? And what is the real task for newspaper publishers in moving to their digital futures?

If you believed some media executives over the past five years their main job has been to take costs out of print as fast as possible and build out digital news websites and apps even more quickly. News Corp has, at least since the departure of former chief executive officer Kim Williams in August 2013, taken a different path, trying to extract as much revenue from print as possible while building out newspaper digital businesses, national free site news.com.au and special interest verticals such as taste.com.au, at the same time building paywalls where possible to generate consumer revenue.

As global CEO Robert Thomson told The Australian last Thursday, the company remains committed to, and proud of, its print products.

Two years ago I was criticised by a couple of try-hards with media columns for using the phrase “pro-cyclic decisions”. Yet as Fairfax’s annual result released on August 11 makes clear, that is exactly what Fairfax CEO Greg Hywood has been doing since he took over from Brian McCarthy in 2011.

He has accelerated the decline of the publishing business’s main revenue drivers: its print products. In this latest result, Fairfax wrote down the value of these mastheads by another $1 billion. A share price of $5 before Greg Hywood took over had languished below $1 in recent years.

This does not please me. As an editor I always wanted strong competitors.

I worked with Hywood when he was a young political journalist at the Australian Financial Review under Paddy McGuinness in the early 1980s. He was no Paul Kelly but he did have one great thing going for him. He was dating the smartest woman on the paper — Kate Legge.

I would have loved him to be able to do what the journalists at Fairfax thought he would when they welcomed him back after he left the business under failed former CEO Fred Hilmer in 2003: they wanted him to save the once great Sydney Morning Herald and Age.

Hywood had a track record as a successful editor at the AFR, SMH and Age and time to build business strategies to offset the long-run collapse of the company’s former classified revenue sources in cars, property and jobs, the so-called rivers of gold.

But under his former chairman, one-time Woolies CEO Roger Corbett, he failed miserably. So much so that the future of Fairfax is now most likely as a property website, Domain.com.au, and perhaps not as a provider of journalism at all. It has already flagged selling its community and regional newspapers and may even be open to offers on its metro titles. It seems clear it will close Monday to Friday print editions within 12 months.

At The Australian the print product still generates more than 75 per cent of earnings and annual revenue since 2013 is up $40 million a year, largely on the back of increased consumer revenue (newspaper cover price rises and paid digital subscriptions) and strongly increased display advertising as luxury advertisers flock to the last full size metro broadsheet.

Yet, as with Fairfax, The Australian was very badly hurt by collapsing employment advertising for mainly federal and state government jobs on Saturdays and IT jobs on Tuesdays.

The News Corp tabloids are probably still earning about 90 per cent of annual revenue in print even as they have built enormously popular news websites. Why would anyone wind the papers down?

Fairfax’s metros have lost about 60 per cent of their peak weekday circulations while most of the News Corp tabloids have lost a third of their peak sales. Latest readership numbers show the SMH losing readers too. And Friday’s circulation audit results showed the midweek editions of The Australian for the first time ever now outselling The Age and SMH. And guess what? Newspaper circulations and readership really are linked to advertising volumes. What a surprise.

You mean advertisers are more likely to spend huge dollars for ads that are more likely to get them a result because they are more widely read? Who knew? I am being facetious, but there were serious media executives only a few years ago denying that link between circulations, total audience numbers, total ad volumes and advertising rates.

They were really daft. Think of television land. Ad rates and ad volumes for very successful shows such as My Kitchen Rules or The Voice are much higher than for shows hardly watched on Saturday mornings. Makes sense, right? And Fairfax offered audiences in the prime AB demographic: people with money and education.

So that would be a good reason to defend print sales. First, print circulation revenue can make up as much as half of a publisher’s earnings and, second, they are linked directly to advertising rates and volumes in the same way as TV audience numbers.

Yet Fairfax has for almost a decade been doing what former group editor-in-chief Mark Scott once referred to as “shaking off low-value sales”. A decade ago some sales really were not worth having. Papers were almost given away to audiences of little or no interest to advertisers. Think bulk sales to schoolkids.

But what these geniuses did — and not just at Fairfax — was cut discounted sales to prime targets. Teachers for example. Or people flying at the front of the plane. Or staying in premium five-star hotels.

These are exactly the sort of people advertisers to prime AB audiences (the sort of audiences Fairfax claims to be targeting) value highly. And in the case of The Australian even these sales are at profitable prices to the publisher. You read that right Crikey dweebs.

But it got worse. Hywood, and before him Hilmer, targeted the best and most highly paid journalists for redundancy, those journos their papers’ buyers wanted to read.

The papers got smaller, went tabloid and adopted a “digital first” strategy so that people who read Fairfax’s websites all day got a paper the following morning that simply packaged up what consumers had already read.

It should have been obvious all this would smash sales, and it did. But in the interests of pleasing fund managers who are only interested in short-term share price gains, they kept up the pace of shrinking the news offering and increasing the price they demanded for it. The fundies will sell when they have their profits anyway, as they always do.

There is an old saying in business. You can’t cut your way to prosperity. The name of the game since the global financial crisis has been to extract as much revenue from print as possible while building digital businesses. There are no prizes for being the first to kill the goose that laid the golden egg.

But if boards give CEOs annual bonus KPIs linked to cost-cutting that is exactly what will happen. And that is, sadly, how too many boards have presided over the destruction of their most precious asset.

Their journalism. Because like it or not journalism is the glue that binds advertisers and readers and drives circulation revenue.

There is another longer term way to look at the issue. While some newspapers will die, some will not. It will depend on how much unique news they generate and how they serve their communities.

Television did not kill radio but radio changed. Young readers may not remember that AM radio was once the home of music. That all went to FM and AM reinvented itself with talkback.

The internet will not kill television but it is changing broadcast TV. Sunday night movies, once the ratings highlight of the week, have given way to reality television around the world. The Monday morning water-cooler conversation is no longer last night’s movie blockbuster but last night’s blockbuster recipes.

The final nail in the coffin of the “race to our digital future strategy” is the present boom in social media and search advertising. Ad rates on news websites are plummeting and the big winners in digital advertising are no longer mummy bloggers and lifestyles websites.

The digital advertising revenue Hywood was banking on is flowing rapidly to Facebook and Google, which between them now dominate worldwide digital ad agency spending.

And Hywood cannot count on digital subscription revenue. Fairfax cannot maintain a hard paywall at its city metros as The Australian or the AFR do because it no longer has enough journalistic resources to produce a site full of unique news each day that people are prepared to pay for. Increasingly Fairfax’s metro sites are populated with gossip and lifestyle.

So what does it all mean for our democracy and for accountability journalism from the progressive side of the media? I reckon all that now sits with the ABC and the Guardian. A host of other free news websites on the Left are for the high jump as their ads migrate to Facebook and Google.

News Corp will continue to produce public interest journalism in print and online from the centre and the centre-right.

Correction: An earlier version of this story claimed a share price of $5 when Fairfax CEO Greg Hywood took over. This is incorrect. The share price was $1.41 when Hywood was appointed interim CEO on December 6, 2010. The last time Fairfax’s share price was $5 was on April 30, 2007. This error has been corrected in the story.