Case of Fairfax Media Limited

Media Industry: Strategy and Implementation

Written by Gábor Bene

Zoltán Czére

Halil Yildirim

3rd December 2014

Table of contents

I. Introduction 2.

II. Financial problems 3.

III. The obligatory mogul behind the media company 3.

IV. Outsourcing & downsizing strategy 4.

V. Digitalization & trends 5.

VI. CEO Gregory Hywood (2011-present) 6.

i. Critiques of Gregory Hywood 6.

VII. VII. Fairfax Media in 2014 8.

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I. Introduction

Fairfax Media is the second most influential commercial media organisation in Australia and

one of the biggest employers of journalists in the country. The company publishes some of the

main metropolitan broadsheet newspapers: the Age, the Sydney Morning Herald and the

Australian Financial Review1.

As the company claim, Fairfax comprises metropolitan, rural, regional and community

mastheads and serves its audiences through high-quality, independent journalism and offers

dynamic venues for commerce and information. 2

The 1st table illustrates the media ownership of the company as of December, 2014.

1. table: Media ownership of Fairfax Media Ltd. Source: http://www.fairfaxmedia.com.au

Fairfax is the main competitor to Rupert Murdoch’s News Limited, which controls most of

the Australian newspaper industry. Articles in Murdoch’s Australian newspaper have claimed

that Fairfax’s the Age will lose money next year, after losing $101 million in revenue and $68

million in profit over the last five years. According to others, the Sydney Morning Herald is in

even worse position.3

1 http://www.themonthly.com.au/issue/2011/january/1298525748/margaret-simons/crises-faith2 http://www.fairfaxmedia.com.au3 http://www.themonthly.com.au/issue/2011/january/1298525748/margaret-simons/crises-faith

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PrintThe Australian Financial Review

The Sydney Morning HeraldThe Age

The Canberra TimesThe Land

The Sun-HeraldFairfax Community newspapers

DigitalDomain.com.au (real estate)Drive.com.au (automotive)

MyCareer.com.au (employment)RSVP.com.au (personal dating)Weatherzone.com.au (weather)

Brisbanetimes.com.au (online news)other online news sites

Almost a decade ago, Fairfax Media was one of the most powerful institutions in the

continent of Australia4. However, due to ineffective decisions and the company’s passive

response to the changing, evolving market, Fairfax lost a whole lot of its worth.

The company answered the financial downturn mainly by cutting its costs. Though Fairfax’s

overall profitability improved in 2014 as advertising volumes increased after the global

financial crisis, structural problems remained5. More on this topic in later chapters.

II. Financial problems

From 2007 Fairfax Media was suffering from serious financial decline. The media industry,

especially printing branch generally faced challenges regarding their revenue and cost

structure, Farifax Media was not an exception either.

The stock price of the company has declined by 60 per cent by September 2011 comparing to

2007 and this trend didn’t stop there, in June 2012 it was 85 per cent lower than in 20076.

The reasons of this distrust of the market can various fact. The change of the reading habits

caused a shift from newspaper sales to online publications. This caused a constant decline of

revenues which began in 2008 and hasn’t stopped since then. The costs couldn’t catch on with

this diminution thus 2014 was the first in 5 years when the EBITDA was positive.7

III. The obligatory mogul behind the media company

The largest shareholder of the company is Gina Rinehart since 2010. Gina Rinehart is a

mining heiress Hancock Prospecting Group, the wealthiest person of Australia and the 6th

richest woman on Earth. She had acquired 18% of the shares. Since she expressed her interest

to increase her shares to 19.99%8 which would be the maximum allowed by the laws of

Australia, however the board rejected it and made her decrease her ownership to 14.99%.

4http://www.yasni.info/ext.php?url=http%3A%2F%2Fwww.readings.com.au%2Freview%2Fstop-the-presses-

by-ben-hills&name=Ben+Christopher+Hills&showads=1&lc=en-us&lg=en&rg=us&rip=hu5 http://www.abc.net.au/news/2014-08-14/fairfax-posts-profit/56703226 http://www.bloomberg.com/news/2012-06-17/fairfax-media-to-cut-1-900-jobs-as-readers-shift-to-web.html7 http://www.fairfaxmedia.com.au/ArticleDocuments/193/2014-10-21_5_Year_Summary_Schedule.pdf.aspx?Embed=Y8 http://www.smh.com.au/national/gina-rinehart-lifts-stake-in-fairfax-to-15-as-pressure-for-board-seats-builds-20120614-20d5n.html

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Because of the disagreements about editorial independency with Hancock Prospecting she

was not offered a seat int he board so she couldn’t have a a bigger impact on company

decisions.

IV. Outsourcing & downsizing strategy

FAIRFAX Media's contentious decision to outsource a key part of the production process at

its flagship mastheads has angered staff, but management remains convinced that the change

will help the trans-Tasman publisher meet both the commercial and editorial goals of

newspapers in a digital world9

Outsourcing of news, business and sport sub-editing to Australian Associated Press subsidiary

Pagemasters at the heart of this transformation. Cuts to the printing operations in Australia

and New Zealand also will be made, with a total of 350 redundancies in printing and editorial

expected to cost $25 million in 2010-11.

Outsourced the sub-editing of some sections to Pagemasters which is a global provider of

design, sub-editing, listings and imaging services in Australia, New Zealand, the UK and

Canada provide complete media production services to metropolitan, regional and community

newspapers, websites, magazines, businesses, sporting bodies, and government and education

sectors10

Accelerate the sale of its radio assets -- a divestment Mr Hywood is already considering -- or

the partial sale of NZ auction website Trade Me website which is the most visited in New

Zealand before Google New Zealand, and is currently ranked 1,943rd globally  in order to

free up cash for shareholders. Fairfax has completed the sale of its 51 per cent stake in Trade

Me, the online shopping site confirmed in December 2012.It proceeds from the sale to be

used to reduce Fairfax's net debt. Mr Hywood expects that it will generate annual savings of

$15m and allow further investment in "quality journalism"

Photographers are the next victims of Fairfax’s cost-cutting: the majority will soon disappear

from newsrooms. Fairfax announced plans to fire 75% of its highly respected photography

pool, leaving far fewer photographers working across The Sydney Morning Herald, The

Age and The Canberra Times.11

9 http://www.theaustralian.com.au/business/fairfax-vows-to-lift-quality-by-outsourcing-production/story-e6frg8zx-122604942130510 http://pagemasters.com/about-us/11 http://www.crikey.com.au/2014/05/07/more-photographers-subeditors-to-go-in-new-fairfax-restructure/

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V. Digitalization & trends

The term ‘digital disruption’ is well known to all of us here today.  Jeff Bezos, himself now a

newspaper proprietor, decided that an ebook should cost under $10. Netflix delivers a

platform where people can watch an array of content whenever they like; the music industry

innovates in the sound quality on compact discs and then along comes Spotify. 12

The old models of production and distribution are being changed forever; entire supply chains

will disappear; customers’ behaviours change and eventually too, so must the behaviour of the

incumbents if they are to have a place in the new environment.

The Internet has not just offered new and cheaper platforms for advertising and, because of

the superior functionality of online search, especially classifieds, it has also dramatically

lowered the barriers to entry for new competitors

At Fairfax there are 140,000 digital-only subscribers to The Age and The Sydney Morning

Herald while those titles have around another 110,000 subscribers who have bundled physical

and digital packages2.  Both the Sydney Morning Herald and The Age have more digital

subscribers on Monday to Friday than they have subscribers to their physical paper (though

less than their total sales)

Today newsrooms are looking more and more like Silicon Valley start-ups.  Never have the

barriers to entry been so low for competitors and competition so intense.  Three of the top 10

news sites in Australia according to Nielsen were not there three years ago

Due to the Internet disruption on the printing business, Fairfax rely on changing their

conventional method of printing and distrubition business model. Fairfax’s circulations have

been rapidly declining, which Hywood says is part of a deliberate strategy to boost per-paper

profitability. Included in this strategy of moving away from a reliance on print has been the

sale of the Chullora and Tullamarine printing plants, which were state-of-the-art facilities

established with much fanfare in the early 2000s just before the internet began to seriously

disrupt the print business model. Hywood says the sale of these plants is saving the company

$45 million a year in running costs, with printing done more cheaply in regional centres.13

VI. CEO Gregory Hywood (2011-present)

12 http://www.malcolmturnbull.com.au/media/speech-to-the-newspaper-works-forum-innovation-and-deregulation-in-the-inte13 http://www.crikey.com.au/2014/07/21/fairfax-weathered-the-storm-says-hywood-but-more-cuts-possible/

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Hywood was appointed CEO of Tourism Victoria in 2006 and in 2008, he concurrently held

the position of Deputy Secretary (Brand, Communications and Tourism) at the Department of

Innovation, Industry and Regional Development

In October 2010, Hywood was appointed an Independent Non-Executive Director of Fairfax

Media, and following the sudden resignation of CEO Brian McCarthy in December 2010,

appointed interim CEO. By March 2011 Fairfax Media confirmed his appointment as

permanent chief executive and managing director

Mr. Gregory Colin Hywood, also known as Greg, has been Chief Executive Officer and

Managing Director at Fairfax Media Limited since February 7, 2011.14

VI.1. Critiques of Gregory Hywood

1- Loss of Experience, Decrease in Quality

Over the past two years, Fairfax has engaged external consultants, Bain and Co to devise a

strategy to slash costs, which included sacking photographers, not replacing senior journalists,

closing down printing presses and moving the papers to a tabloid size.

Good editors have left. Some of the expertise is no longer there in terms of particular writers,

it’s across the board. All of those decisions that are frugal and lead to a lack of employee

quality ultimately will transfer to a lack of product quality

Training of journalists, sales people and others across the entire company seemed to have

stopped where it was once a priority15

The consultants have recommended a lower-cost newsroom, replacing senior journalists who

leave the company with third-year trainees. Cost-cutting exercise, slashing staff numbers and

replacing senior journalists with junior employees on lower salaries.

The loss of experience at Fairfax for the problems besieging the company, including

publication of an anti-Semitic cartoon two weeks ago that resulted in a subscription boycott in

the Jewish community

14 Sinclair, Lara (7 December 2010). "Former Fairfax journo Greg Hywood replaces Brian McCarthy as CEO". The Australian. Retrieved 11 May 201115 http://www.theaustralian.com.au/media/fairfax-board-to-blame-says-former-ceo-brian-mccarthy/story-e6frg996-1227019826092

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2- Unrighteous Pay Rise & Strike Action

Fairfax Media chief executive Greg Hywood was protected from the cutbacks, taking home a

salary of $2.8 million including shares — up almost $1 million on the year before. In total, the

executive remuneration at Fairfax grew from $4.1 million in 2013 to $6.5 million in the 2014

financial year3Fairfax Media’s long-serving group general counsel and company secretary,

Gail Hambly, also received a generous salary top-up, with her total package including shares

rising from $718,000 to $1.063 million. Chief financial officer David Housego’s total salary

increased from $841,000 to $1.3 million, while Publishing Media managing director Allen

Williams also received a substantial pay rise to take his pay including shares to $1.196

million, up from $775,000.

Company had authorised stop work meetings today at 3pm for 30 minutes in Sydney,

Melbourne, Canberra, Newcastle and Illawarra.

Moreover, MEAA members at Fairfax Media have voted to accept the latest offer from the

company for a newenterprise bargaining agreement for editorial staff employed on the

company’s Metro Daily mastheads (including WA Today and the Brisbane Times). At the

same time journalists condemned the recent actions of management of rewarding themselves

with multi-million dollar bonuses. These actions are in stark contrast to the preparedness of

MEAA members to accept a sub-inflation pay rise in order to protect the long-term viability

of the company.16

3- Relations with competitors

According to some rumors, Fairfax CEO Greg Hywood “planned to ski” with competitor James Packer in Aspen in 2013. This was not the first time a Fairfax executive was linked to one of the competitors and these links supposedly kills Fairfax reputation across shareholders.

16 http://www.fairgofairfax.org.au/

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One of the most important criterias of any Fairfax director should be that they are independent

of any association or sympathy with its competitors since it can easily destroy Fairfax, being a

public company. 17

VII. Fairfax Media in 2014

In 2014 the company achieved some remarkable successes. It’s financial results turned into

positive profit, revenues went higher for the first time in years. The strategy of being more

agile, leaner and digital focused organization seems to start working.

In spite of the problems of the previous years Fairfax still has some excellent points. 60% of

Australia and 80% of the population of New Zealand consume Fairfax content18. They own

severaly newspapers and magazines. The Sydney Morning Herald is number 1 in total

masthead readerships in Australia. Besides that Fairfax Media ownes, The Age, The Canberra

Times and The Australian Financial Review, latter one is the most widely read business news

in Australia.

Fairfax media has also ownes the biggest dating site of Australia which has 500.000

subscribers, as they have managed to merge RSVP and Oasis Active.19 They are also present

int he real estate advertising business with owning Stayz20 and Domain21, two widely used

websites in Australia. These acquisitions shows that Fairfax Media strikes to get the

substitutial products of their former advertising products, realizing that costumers are not

looking for a new flat or a relationship in newspapers.

Some challenges have remained in their last year too. Their radio stations cannot fit their

strategy, which can be a problem and also a cause of their difficulties to monetize their market

share. It’s not clear either how their organizational structure is alligned, which can cause

serious problems in the long run.

17 http://www.smartcompany.com.au/growth/economy/32835-killing-fairfax-book-james-packer-and-rupert-murdoch.html18http://www.fairfaxmedia.com.au/ArticleDocuments/191/2014%20FAIRFAX%20Annual%20Report.pdf.aspx?Embed=Y19 http://www.theaustralian.com.au/business/latest/fairfaxs-rsvp-strikes-deal-with-oasis-active/story-e6frg90f-122686279014620 http://www.stayz.com.au/21 http://www.domain.com.au/

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