Gina Rinehart’s company is continuing its pressure on the Fairfax Media board, with a letter sent to each shareholder. radioinfo’s Steve Ahern, a Fairfax Media shareholder, responds.
Part of the original Hancock Prospecting letter to shareholders, headed ‘Change is needed at Fairfax Media’ is at the bottom of this article. As Ms Rinehart has made her correspondence open on this issue, Steve has also done so. His reply is below.
Open Letter To
Chief Development Officer
Dear Mr Klepec,
Thank you for your letter of 31 July headed Change is needed at Fairfax Media. I am writing to contribute some media expertise to the discussion that has been going on publicly between Fairfax and your Executive Chair Ms Rinehart.
It is a time of great change in the newspaper industry, with digital technology bringing new production tools and consumption patterns to the centuries old print medium. The internet, mobile applications and digital production tools are fundamentally changing the business model. Radio and TV have already faced up to these changes, but newspaper businesses have been slow to change, until now.
Like every other newspaper company in the world, Fairfax Media’s print businesses have finally reached a tipping point. Newspaper businesses can now see the imminent collapse of their old business model, and they are trying to reinvent themselves to survive in the new environment.
In the mining industry I’m sure you understand the investment terminology ‘patient money,’ which does not expect short term returns. Mining investments take decades to make a profit.
Newspapers are in a period of their history where they need ‘patient money’ invested in them, because to find a successful new business model will take time. Everyone who works in the media is trying to track people’s evolving consumption patterns in this digital media age. They want to work out how they can continue to make a profit from new consumer behaviours that use the search and sort power of computers to deliver what they want, where they want it, and for whatever price they want to pay.
This is not a time to measure ‘shareholder value’ by rising dividends or growing share prices, it is a time for patient money to be invested, while the company works out how to make long term profits again.
There are some lessons to be learnt from other media that will help Fairfax in its quest for reconstruction:
The radio industry faced a painful period of increased competition and structural change more than a decade ago and eventually restructured its staffing and internal production processes. Radio staff learnt to be multi-skilled and to go beyond their traditional audio medium. Fairfax Media has a huge asset in its Radio Division, and the expertise within Fairfax Radio could help the other parts of the company to embrace internal technological change if given the chance.
Free to Air Television also faced similar competition when Foxtel was introduced. Foxtel understood interactivity, subscription business models and the changed power relationship between consumers and producers. The free to air industry has fought back against that challenge with the introduction of digital TV by adding new digital channels in a brand extension consumer strategy. The Australian TV industry is now in a better position to survive in the new media environment than it was in the past.
Niche websites, like our www.radioinfo.com.au, have demonstrated the ability to survive on a combination of subscription payments, advertising and job advertisements, but there are no big profits in this business model. Big media companies which move to digital delivery should never again expect to generate profits of the magnitude they once did from one large business entity. The barriers to entry have tumbled down. Once it required huge printing presses, complicated distribution channels and many production staff to make a newspaper. Now almost anyone can create a newspaper on the internet and can eat away at the revenue streams of the big players. Big companies like Fairfax will need to learn to behave like small internet publishing companies to survive in the long term. Two recent examples of this are APN’s latest results (http://www.radioinfo.com.au/news/11314) and the New York Times appointment of a CEO with broadcasting, not traditional newspeper experience (http://www.radioinfo.com.au/news/11306).
Quality content is the only thing that will distinguish the long term survivors from the short term crash and burn media companies. News is a commodity these days. Anyone can find it on the net and cut and paste it to their own blogs or web sites. The long term survivors in news media will be the ones which can carry on a basic level of cost-effective commodity news reporting, but supplement it with quality fearless reporting, analysis and opinion that makes it worthwhile for consumers to pay for it. This will continue to be expensive and will take a courageous commitment to sustain it.
We are lucky in this country to have the ABC, which Australians value so much that they continue to support it with their taxes. But our media landscape is strong because the ABC and commercial media have competed fiercely over many decades and there is a balance of opinion across these major players. Community media and the voices of individual bloggers and self-publishers further supplement a strong diversity of views.
In the past few years I have trained broadcasters and helped media companies reinvent themselves in countries such as Afghanistan, Sudan, and India, and I know what it is like to be in a country where media infrastructure is slowly being rebuilt after major disruption. In this country we are lucky not to be in this position.
I am happy to continue to invest my patient money in a media company that is important to the balance of media power in Australia, as long as it is seriously trying to engage with new trends and technologies, to understand future consumption patterns and recreate a new media company from an old one. I believe Fairfax Media is trying to do this.
On your specific points:
- I have no objection to KPIs for the Chairman, but these should not just be indicators based on the short term share price or dividends, they should encompass all the structural change issues I have raised in my letter.
- I do not have any objection to the charter because it is likely to help encourage quality content into the future.
- I agree, Fairfax Media must be technologically refreshed to continue in today’s technological age. I believe this is in progress, but it will take long term commitment from shareholders to see through the changes.
- You own many more shares than I do, and it is common practice to allocate board seats to major shareholders, but I would like to know what you would propose to do with your two seats and how your board representatives would contribute to generate long term company survival, a better media landscape in Australia, and the development of new revenue models that reflect the new media landscape, as I have outlined above.
I wish you all the best for your continuing investment in Fairfax Media.
Disclosure: Steve Ahern holds shares in most of Australia’s media companies so that he can follow the fortunes of each company and report them for radioinfo. His investments are ‘patient money’ and are not actively traded.
Steve Ahern has worked in ABC, community and commercial media, and was previously the Director of Radio at the Australian Film Television and Radio School. He is the founder of the radioinfo website, and founding consultant for the National Electronic Media Institute of South Africa and the Nai Media Institute in Afghanistan. In 2009 he received an Order of Australia Medal for services to the radio industry and education.