Print Empire
Strikes Back
Article on Fairfax and CEO Fred
Hilmer by Jane Schulze of The Age. Saturday, 3 July 1999.
Fred Hilmer, the
management guru turned manager, likes to tell the story about Sony's creative co-founder,
Masaru Ibuka, who refused to accept that the market for radios had peaked. According to Mr
Hilmer, Mr Ibuka had other ideas, believing radios could be refined into an everyday
fashion accessory.
"They were saying radio was a mature product but
Ibuka said `What if you could put one in your shirt pocket?' He designed the Walkman and
suddenly radio is no longer a mature product."
This lateral thinking added billions to Sony's balance
sheet, and it's a philosophy Mr Hilmer has adopted in his role as chief executive of John
Fairfax Holdings. "I really believe in self-fulfilling prophesies," he told The
Age in an extensive interview this week. Speaking about Australia's second-largest
newspaper company he said: "If you think your product is mature, it's mature, and if
you think it has growth it has growth."
Consequently, Mr Hilmer is refusing to accept theories
that newspapers will die or have little growth potential as new digital media emerge.
Since arriving at Fairfax in November, he has been
engineering a revolution within the century-old newspaper empire that owns mastheads
including The Age and The Australian Financial Review.
A former head of the management consultancy McKinsey
& Co, management professor at the Australian Graduate School of Management and
architect of the nation's competition policy, Mr Hilmer has introduced tough management
techniques to an industry that has experienced little change since the introduction of
computers almost 20 years ago.
But now a stiff breeze is blowing through Fairfax's
corridors as Mr Hilmer climbs the learning curve of media technology.
When he first joined Fairfax, he said: "To say the
Internet is the future for Fairfax is meaningless because we don't know what the Internet
is and we don't know Fairfax's role."
But it didn't take him long to change his mind. He has
embarked on a bold expansion, using the Internet to leverage Fairfax's quality publishing
into a broader multi-media news and information company.
His actions this week have underscored the new approach.
Fairfax announced the potential listing of its online business, the launch of the online
auction site Sold.com.au and other initiatives such as a new $220 million printing plant
for The Age. But Mr Hilmer says the idea of Fairfax becoming a company with a
wider focus is not new as it once owned the Seven Network, a radio company and other print
assets before financial troubles forced a sell-off.
"It was obvious to me very quickly that one of our
greatest assets is our talented people and skills, and part of my job was to find ways to
use those to build the business and businesses in other media," he says.
"So I have talked about this vision of becoming a
media company, but not an entertainment media company but one based on news, current
affairs and information."
And it was the Internet which gave Fairfax its first
chance to develop into a media company. Sites such as Sold.com.au (which are cheaper for
advertisers than print ads) presented Fairfax with the chance to grab back classified
advertisers lost to milk-bar notice boards and garage sales, he says. Also, the
unregulated nature of the medium and the ease of transferring Fairfax's content online
convinced him the company's Internet efforts should be accelerated.
Already Fairfax seems to be leading the world in this
area. After a recent trip to the United States, Mr Hilmer says the only newspaper company
with a similar Internet presence is The Washington Post (its site was ranked
10th) but Fairfax's sites regularly feature in Australia's top three.
"There's no other newspaper in the US that has the
same position in the Internet market that Fairfax has in Australia," he says. And
Fairfax's proposal to list its online business means "we could well be the first
(newspaper company) in the world in doing this".
A further extension of the Internet is the business of
datacasting (delivering information across digital TVs), with Fairfax hoping to soon begin
trialling services in the areas of news, finance and shopping. The shopping service would
build on Fairfax's ability to create markets between buyers and sellers, he says.
"Our papers make the largest marketplaces for homes,
cars and jobs in the country and we have good expertise in capturing the offers from the
sellers and presenting them to buyers in an attractive way," he says.
Mr Hilmer says Fairfax's ability to combine the product
market with information "gives us the natural leg up into shopping"."If you
view shopping as just people looking for goods then we're not special, but if you say that
instead of being displayed in a store people want the goods in an information-rich
environment then we have something quite special."
Similarly, Mr Hilmer says the news service could provide
rotating news programs using Fairfax's existing content while creating another advertising
forum. But while Mr Hilmer has been developing his long-term vision for the business, he
has also reconstructed its daily management.
He says Fairfax's core newspaper business needed "a
lot of care and attention" as staff had not been hired or properly trained and there
were no computer systems able to track the company's performance.
A tough cost-cutting regime was put in place by Mr
Hilmer's predecessors, as was the move to upgrade The Age's printing plant. But
Mr Hilmer is introducing other significant changes.
In what will be a revolutionary move for the media
industry (and one sure to attract much controversy), Mr Hilmer plans to introduce job
descriptions. While he expects them to be in place in the production and advertising
sections this year, he acknowledges it is more difficult to assess the performance of
journalists.
"I think it was one of the reasons frankly why I was
approached by the board to do the job because it's most similar to what I've done (at the
AGSM)," he says. The difficulty in assessing journalists, he says, is that their job
is not one of managing but of producing "direct output", which is difficult to
define but has been achieved elsewhere. For example, the business section of The New
York Times now has performance measures.
"They do not just a qualitative performance
appraisal but also look at the volume of what you write, where it's published and how many
page ones and page threes," he says. "They also classify the stories in terms of
`are you writing up a press release' or did you actually have to source information that
required a bit of nous and then have to interpret it to put together something that is a
new insight?"'
In terms of Fairfax, Mr Hilmer does not have a preferred
model, "but we ought to start by accepting the idea that giving people accountability
and feedback is actually good". But he says it is usually the strongest people that
are able to take input and grow, "while those that put up barriers and push it away
generally may be the people that don't fit into elite organisations".
However, Mr Hilmer's short time at Fairfax has not been
problem-free. The Australian Broadcasting Authority questioned whether the appointment of
chairman Brian Powers (a former chief of Mr Kerry Packer's media group) meant Mr Packer
was really controlling Fairfax.
The ABA decreed Mr Packer was not in control, and Mr
Powers and Mr Hilmer then moved to stabilise Fairfax's ownership by organising the sale of
the 25 per cent of the business owned by the NZ company Brierley Investments. The result
has been an unusual harmony at board level.
"We work very well as a board and I think that's one
of the big changes," Mr Hilmer says. "A year ago the board rejected the budget
but this year they didn't change one word, and that probably says a lot about the
transformation of the company."
A by-product of these changes is that, after years of
being shunned by investors, Fairfax has suddenly gained market credibility with the share
price rising 69 per cent since Mr Hilmer's appointment. Mr Hilmer is one of the main
beneficiaries, owning 3.5 million options exercisable at $2.85, which, with Fairfax's
share price closing five cents higher on Friday at $4.87, puts him in the black to the
tune of $7.07 million.
Similarly, Fairfax's largest shareholder with 15 per cent
of the company, the Packer-controlled FXF Trust, has seen its units rise from a year low
of 18 cents to close at 64 cents on Friday. As for the Fairfax ownership debate, Mr Hilmer
has moved it from one of "will Kerry Packer buy Fairfax?" to that of access to
new technologies. In the process Fairfax has suddenly become visible in Canberra as it
tries to gain access to the emerging digital technologies required to deliver its content
to a new digital audience.
Also, with Fairfax's shares rise, the Packer/Fairfax
issue has begun to dissipate as the business may soon be priced beyond even Mr Packer's
deep pockets.
