John Fairfax Holdings Limited
ACN 008 663 161

Thursday, July 6, 2000

Mick O'Regan: Now to a different issue, although many might argue one that has deeply ethical implications: the ownership and regulation rules governing our media.

The progress of the government's recent legislation on digital broadcasting exercised the minds of policy makers and media proprietors alike, especially over ownership and competition issues.

The Chief Executive of the Fairfax group, Mr Fred Hilmer, is no exception. He argues current policy has frozen ownership, restricting development at a time when new technologies require different regulatory environments, without the distraction of a constant focus on the personalities of media players.

Fred Hilmer: It's a debate really about an industry structure, about how many players there are going to be, and what sort of activities those players are going to be able to be involved in, and how that can evolve over time, because this is not a static-state industry, this is not like making buggy whips and the horse is going to be here forever. So when you have the debate about personalities, you stop looking at the policies, and if you don't look at the policy then at the end of the day you forego the benefits to the country and to the consumer of having good policies.

Mick O'Regan: In your National Press Club address you spoke of a couple of options. One was effectively a commercial duopoly plus the ABC and SBS. The other option was to re-shape the structure of the industry to bring in viable competitors. Can I ask you firstly about Option 1; how do you see that working?

Fred Hilmer: Well you could say, if you look at the numbers that I put to the Press Club that Option 1 is what is in fact evolving. In other words, if you look at the relative value of the businesses that News control and that PBL control, they are so much larger than everyone else combined that in effect you could say the duopoly is here, although there are companies like ours which are credible players, but would like to be more significant players if we had the freedom to move which is why we made such a strong claim to be allowed to compete in datacasting, which takes us into broadcasting. You need growth, you need scale, you need content and you need size. And Option 1 is where we're heading because there aren't enough players of the size and scope and scale that can really compete in the world as its evolving. Because you've got to make such big bets; I mean, the beats you've got to make to for example, be a datacaster would be bets that would be quite big even for our company, and you know, we're twice the size of say, the Seven Network and we're three to four times the size of any of the other players, and yet for us it's a big bet.

Mick O'Regan: So Option 2, to reshape the industry structure and to bring in what you called three or four viable competitors with adequate size and the global relationships to effectively provide diversity, competition and development. From what you're saying, that's really the only option you think?

Fred Hilmer: Well I think that that would be a good option. I would like to see policy encouraging that to develop. I don't think the government can sit up in Canberra and with a pen create an industry. Industries evolve because of commercial opportunities, because of people with vision, entrepreneurs coming up with ideas, capital markets being prepared to back them. But the question is, what's the framework, what's the incentive structure? Is this a framework that encourages a third and a fourth competitor of size and scale to come out, or is this a framework that basically continues to hold everybody into their walled garden, given that we're effectively moving to a duopoly structure?

Mick O'Regan: If you look at the reality, the global reality of contemporary communications, are the existing cross media ownership laws in Australia effectively out of date? It's a nationally-based system trying to regulate an increasingly internationalised industry?

Fred Hilmer: Well I've been arguing that consistently since I've been at Fairfax, for a number of years, that the whole cross-media, foreign regulation is out of date, and it's datacasting that is just the latest example of another freezing of the situation. We are going to need to get out of that. For example I think we're going to need international investment; we've already seen international investment coming in to telecommunications, that's a big industry that's not unrelated to ours. Without that sort of investment frankly we wouldn't have had an Optus of the size and scope that we have, and we wouldn't be having Vodafone and other companies coming in to the market and providing alternatives. If you look at the restrictions, foreign companies that would complement us in terms of the content they could bring, that bring very fine traditions in terms of editorial input, would be real pluses, and then there are other companies that would really bring us skills in distribution; people with satellite expertise, with cable expertise around the world. And we've got a regulatory system that doesn't encourage them to come a) because they're foreign, and b) because if they come here, they can't use their skills because they're fenced into the little walled gardens that companies like ours that they'd probably love to work with, are fenced into.

Mick O'Regan: One thing that you've suggested Mr Hilmer, is a special commission established by parliament which might have a year to draw some conclusions and nominate some potential reforms. Could I ask you how you see that working?

Fred Hilmer: Yes, I wouldn't actually see this commission as coming up with the answer. I think that it would a) have to be staffed with people of very high integrity and very sound skills. It would have to be established by the parliament to do that. And b) it would have to have some very clear criteria in terms of the media landscape that we want to see in this country, and the things I talked about were the diversity, the competitive structure and the ability to promote the development of the industry. Now what that commission would do, it would say the industry, that is either people here today or people who aren't here today but would like to be, put up proposals for what you would like to do as some major transactions, even if they happen to offend foreign ownership rules or cross ownership rules as they exist today. Just for a moment, assume you could do what you liked in this industry, what deal would you like to do as a commercial company that is consistent with our goals of diversity, competitive structure and industry development.

Mick O'Regan: So look for optimal outcomes rather than possible outcomes under the existing regulatory framework?

Fred Hilmer: Yes, you would be told and what would I do in Fairfax at that point? You know, I'd pull our senior people together and we'd have a think about Well what do we really want to do, where do we think we really could attract partners? Forget the rules for a minute, What's the best combination of media assets and content that Fairfax could hope to have, what's our dream arrangements? And then see if we couldn't encourage people to join us in a proposal that says We should be allowed to do this.

Now when those proposals are on the table, that's when the commission really has to earn its money, because it has to sort through them and say, We think these meet the national criteria for the industry and we think these three or four other proposals that we would be prepared to approve, i.e. allow the waiver of current restrictions for those things to occur. It's not unlike what we've done in telecommunications, where we really said Here's the new framework, who'd like to play, give us your bids.' And Optus won the first bid and then others came in later.

Mick O'Regan: Fred Hilmer, Chief Executive of the Fairfax group.

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