Flawed sales model the key to CEO’s demise

THE publication of extracts from Kim Williams’ new book has started a blame game about his abrupt departure from News Corp Australia.

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THE publication of extracts from Kim Williams’s new book has started a blame game about his abrupt departure from News Corp Australia.

The truth is Williams precipitated his own demise following a dramatic collapse in advertising revenue after he introduced a national sales model that slashed revenues at the company’s Australian newspapers.

Illegally obtained leaked documents show revenues from News Corp’s Australian newspapers fell 14 per cent to $1.9 billion in 2012-13.

Like all media companies, News was and still is challenged by a cyclic downturn in the advertising market and structural shifts in a disrupted media sector where rapid technological change is rewriting many of the old rules.

The company’s nearest rival, Fairfax Media, was also facing strong headwinds on two fronts. But revenues at Fairfax’s newspaper division, Metropolitan Media, fell a more moderate 11.9 per cent to $995.9 million in the same period.

The trend line in the advertising market unsettled bosses at News. The company was losing market share in media agency bookings to Fairfax, a pattern that has since reversed under a new management team at News.

Standard Media Index data for June 2013 throws the changing dynamic in market share into stark relief. In that month, Fairfax overtook News in revenue market share for the first time in 11 months.

Williams left News on August 9 last year, replaced by chief executive Julian Clarke, who was soon joined by chief operating officer Peter Tonagh.

Clarke’s arrival heralded a change in direction and pace. He immediately unwound the single sales force model.

The former Herald & Weekly Times managing director understood that local ad selling is still mainly a human business, even with programmatic ad buying, and promptly reinstalled local teams.

As Clarke observed to colleagues at the time: “We might be one company, but we’re many different businesses.” A News Corp insider described the national sales model as “ill-conceived”.

The insider added: “You can be penny wise, pound-foolish looking for efficiencies where the loss of local connections and revenue far outweigh the perceived savings.”

Williams’s short tenure was characterised by traumatic upheaval within the group. But some changes were welcomed and aspects of his strategy appeared sensible.

The harmonisation of some functions, which reduced back-end costs and duplication, made sense, and the company continues to benefit.

But Williams was too eager to get ahead of the digital curve. He had put himself in lock-step with Fairfax’s digital-first strategy under CEO Greg Hywood. It was a fatal mistake.

In summing up Williams’s strategy, one bewildered observer commented at the time: ‘‘Why are those two roosters racing each other to the bottom of the toilet?’’

Deep cost cuts and the wrong business model exacerbated problems faced by The Australian, which was finding its feet again after the global financial crisis rocked the newspaper’s ad revenues. Commentary on website Crikey accompanying the leaked docs breathlessly reported The Australian posted a loss of $27m before depreciation that year.

In fact, editor-in-chief Chris Mitchell revealed the figure in an interview with The Australian six months ago, and said: “The Australian is on track to halve its loss for the financial year (2013-14).”

Last week, Mitchell confirmed it had. The commentary merely confirmed Mitchell’s description of the paper’s financial performance and the improving outlook following a reinvestment in staff. Under The Australian’s chief executive Nicholas Gray and sales boss Rachel Savio, the newspaper has clawed back market share from its closest rival, The Australian Financial Review.

Williams tried to abandon the main profit centre at a time when the company was still deriving 95c in every dollar from print publishing, and 1c in every dollar from digital sources.

The task is to extract as much as you can from print while building a viable digital business.