John Fairfax Holdings Limited
ACN 008 663 161

Today at the National Press Club, the chief executive of Fairfax, Mr Fred Hilmer. Mr Hilmer will discuss his plans for Fairfax, as digital TV looks likely to change the face of the Australian media. Fred Hilmer with today's National Press Club address.

CHAIRMAN:

Ladies and gentleman, welcome to today's National Press Club Telstra address. We're very pleased to welcome Fred Hilmer back to this forum. The last time he was here was just a little over four years ago, when he was still director of the Australian Graduate School of Management at the University of New South Wales and had just finished what became known as the Hilmer Report, whose implications are still reverberating around the political scene. Almost as much as digital television data-casting, which on this very day are being … the legislation for which is being passed in the Senate. Perhaps not quite in the form that was originally envisaged.

But for the past two years now - it's surprising how time flies - Fred Hilmer has been chief executive of the Fairfax Group and is well immersed in that industry, and is about to tell you about how he sees the future for it. Please welcome Mr Fred Hilmer.

(Applause)

FRED HILMER - JOHN FAIRFAX PUBLICATIONS:

Thank you very much. Thank you for the invitation. When I spoke to you some four years ago, I talked about competition policy. They were very broad reforms, and I talked from the vantage point of an analyst and very much an outsider to the areas being reformed.

Today is quite different. I'm going to talk to you about some specific reforms, and I'm going to talk to you much more from a perspective of an insider, because I have a different role. Now, fortunately I find myself in a position where those two perspectives - someone who's interested in policy, and someone who's running an organisation - coincide. So, I believe that what is good policy is also good for Fairfax. Although if at times in this talk I perhaps overlap into some self-interest, you probably won't find it out of character in terms of what's normal in our industry.

(Laughter)

My starting point is that our industry urgently needs reform. Unless we get that reform, we are at risk of foregoing a number of the benefits that we’re starting to see and that can occur from the technologies that are starting to reshape what we all do every day. High quality jobs, new forms of information, new ways to reach people, new ways for people to transact are happening already, but very much in their infancy, and not yet commercially viable.

But the potential is terrific. If you look at our own interactive division – F2 - we have something like seven hundred people employed. And that's good quality jobs in a very exciting growth area. So, we have the potential, but in order to deliver the potential we need the reform and reform just doesn't seem at this stage to me to be possible.

The Productivity Commission work went nowhere - doesn't seem to be listened to. The data-casting debate seems to be stuck. And we're in a time warp, in terms of regulation, at a time when our industry is probably facing the potential of more rapid change than at any other time in its history.

Now, my message today is that one of the main barriers to reform, one of the reasons we're finding it so hard to reform, is that we're addressing some of the wrong issues. We're not dealing with what I think is the central issue facing our industry. And that issue is not an issue about personalities, it's not an issue about platitudes or language, technical jargon or economic jargon. It's an issue about structure. If I had to paraphrase Bill Clinton I'd say, it's the structure, stupid.

Now let me first talk about what it isn't, and then I'll talk about what it is, and give you some ideas about how we might break out of this deadlock that we seem to be in.

Firstly, reform isn't about personalities. I recognise that media is a business of personalities. Many of you are here in this room: columnists, star reporters, cartoonists, commentators and, of course, the proprietors. And they're all well known - you're all public figures, you're perceived to have a lot of power. Now, that's quite different to other industries. And if you think of other companies that have at least as much impact - companies like Unilever or Coke or Rio or Foster's - the names of those chief executives and players are at best only known in the financial community, and even then not always.

But in media we're a personality business and the people are perceived to have power, and what the people do evokes strong emotions. Now, why do we get the power? We get the power because of what is written, or what is said, or what is produced. And the owner gets the power because they're perceived to be able to influence that. If we didn't have that, then we'd be just like the producers of another consumer goods, or a beer, or whatever.

But because we're seen to have that power, the debate gets personalised. And I've experienced it in my short time, you know, why are you doing this to me - as if I sit there on the nineteenth floor editing all of the various mastheads for which I'm ultimately responsible.

(Laughter)

However, despite the fact that we are an industry of personalities and there is this confusion, you can't make policy and you can't do reform on the basis of personality. I mean, people express to me from time to time a concern - should Kerry Packer be allowed to buy Fairfax? And they express it in very much personal terms. I guess it raises to me the question, if Kerry Packer was a different person, would it then be okay for him to buy Fairfax? And what if he had a personality transformation after he bought Fairfax?

(Laughter)

Would he then have to divest it?

You could ask the same question of Mr Murdoch. If Rupert Murdoch were more reticent in his opinions, and if they were different opinions, would it then be okay for him to have a more direct involvement in broadcasting? And again, what if those opinions were to change?

Focussing on personalities, on people, is a distraction. And it obscures the real issue, which is, why does the industry have power? And what is it about it's structure that gives the industry that power? And what is it about the structure that ultimately either allows it to deliver the benefits to the society and to industry, or prevents it from doing that?

Now, when we try to deal with this, we can get past the personalities, and then we get into the second set of solutions - in quotes. And those are solutions around platitudes, around language. Now, we're an industry where language is very important, I think all of us in this industry love words. And I think, in terms of the reform agendas, we have made words an art-form. But it's an art-form of lack of clarity, rather than an art-form, again, of addressing the real issues.

The best example is our new word of the moment - data-casting. There's no such thing as data-casting, or at least there wasn't until it was invented in Australia. I don't think that, you know, when history's written, data-casting is quite going to go down with Vegemite, or the stump-jump plough, but it's a great Australian invention.

And we invented the word because what we wanted to do was recognise that broadcasting spectrum could actually do quite good things for consumers: could bring them content, it could allow them to interact in a variety of ways on their television sets and on other devices. And we've been interested in that because we see there's a potential business, in areas such as news, and e-commerce, and in broadcasting the Internet and, in particular, in being able to do that in an interactive way.

But that possibility threatens broadcasters, it threatens the free-to-air companies, and it establi… it threatens the established industry structure. But we're not going to address the structure problem. What we're going to do is dive into the language problem. And so we invent this new term, data-casting, which we can't even define in English words, you have to use the French word genre to define data-casting.

When you look at the various bills that are going through, there's drafting that I think probably required a few people from the GST team who did the iced-buns drafting to come across.

(Laughter)

For example, we've got a distinction between news and current affairs. Data-casters can broadcast news but not current affairs. I'd like someone to tell me what the difference is between news and current affairs. Presumably, current affairs would have been news when it grew up.

(Laughter)

We can offer information programming on products and services - that's an important part of e-commerce. But it can’t have, quotes, a significant amount of entertainment value. So, guess what - no one tunes in. I mean, P.T. Barnum would be rolling in his grave, or laughing at us. I mean, the essence of commerce is to make business entertaining. Does this sound like a framework that's consistent with reform?

I went back to the Minister's statement last December twenty-one when he said, what are we getting with this new world of data-casting? We're going to have new information and entertainment options - provided, bracket, they're not entertaining – through the establishment of a thriving and viable data-casting industry. We're going to have a wide variety of information, education, advertising, shopping, and news services, to maximise the choice and the opportunities available to Australians.

Now, data-casting's just one example of the resort to platitudes. We've done the same when we've had debates about cross-media ownership and foreign ownership, where we've been driven by other agendas - often having to do with people - and where we have, again, not dealt with structure.

So, in my view, structure's the issue, and the attempts to deal with structure, either by focussing on personalities or by focussing on platitudes, isn't going to get anywhere. I think we need to confront this issue of structure much more directly. We need to recognise that there are relatively few choices - this is not what I call a big numbers problem. There are relatively few players, and there are relatively few configurations available. We need to recognise that those choices need to be made, and they need to be made sooner rather than later.

Now, when I talk about industry structure, I'm going to go beyond traditional measures of market share and numbers of readers, or viewers, or circulations. I'm going to look at the metric that I think is most important to the industry at this point in time and that's the measure of the firm's value. In other words, the market capitalisation of the major players in the industry.

And I look at that because we're at a point in time in the industry where, in order to keep playing, you're going to need pretty deep pockets. You're either going to need a lot of capital, if you're going to get into new technology, or you're going to need the wherewithal to sustain fairly significant operating losses while you build up these new businesses. And the people who aren't able to do that are already beginning to fall by the wayside, with … people talk about the burn rates of the dot.coms.

So, you need to look at the market capitalisation structure of our industry. Let me just give you a few numbers. Top of the tree is news. News is capitalised. The value of news in total is in the order of eighty-five billion dollars. If you say, well, about fifteen per cent of its business is Australian, it's still a ten billion dollar plus Australian business in an eighty billion dollar plus world business.

You come to the next in size and you get PBL. And PBL and the associated interests that are in other but related structures are probably worth in the order of eight to ten billion. They've been higher when the Internet bubble was higher, they've been lower - but in that order. Then you come to Fairfax and Fairfax is around three billion dollars. It's been at four, it's been arou… between three and four. So, it's something like a half to a third the size of a PBL, and it's a pimple next to the size of a News Limited.

Then you come down to the TV stations, and you look at Seven, and Seven is again half of what we are - a tiny fraction of the two dominant industry capitalised companies. Then you look at the rest: West Australian News Rural, APN Ten, and they're all around a billion. If you add up all those other players and ourselves, you still only come to about a PBL or a News Australian interests.

You might have noted that I didn't mention radio … I didn't mention radio because there isn't enough value in radio to get onto the radar screen in terms of market capitalisation.

Now, there are a couple of other things that need to be brought into the picture. One is telecommunications. Telstra has the firepower, Telstra is capitalised in that order of eighty billion and it's a very large player. But it's not a media company, it's more a source of capital at this stage than a source of skills or innovation, per se. And then the other m… the other telecommunication company of scale, Optus, is foreign, so it’s excluded. Then, lastly we’ve go the ABC and SBS, who are players that at times have schizophrenic roles.

So, that’s our structure. Now, what’s wrong with the structure? Firstly, it’s relatively uncompetitive - there are relatively few players and there’s an enormous gap between the biggest players and the rest of the field. And, you know, it’s quite different to, say, banking - and people complain about banking but at least in banking you have about four equivalent players with the size and scale to get out there and give people choice. So, it’s a relatively uncompetitive structure.

Secondly, it’s frozen at a time when the technology is changing daily, or certainly weekly and monthly. And it’s frozen because of the regulation, frozen because of foreign cross and now because of what might occur with data-casting. And so it’s no surprise that in the debates - read the Productivity Commission or read any of our papers - you get concerns about diversity, you get concerns about competition and industry returns. And you get concerns about this industry’s ability to develop and create new industries and continue to fuel that job growth, the growth of quality jobs.

So, you say, okay, this isn’t a great structure. Well, what are the options? I think, again, we have relatively few options. The first option, you might say the one that if you look at the number appears to be evolving, is what I’d call the commercial duopoly plus the ABC/SBS. And that’s where wire news and PBL, as restraints are lifted, effectively become full service, fully integrated media groups with television, with newspapers, with the various forms of pay and interactive TV, possibly with radio.

In that scenario of a duopoly, the ABC becomes, I think, quite schizophrenic because it has two roles. One of its roles is the public broadcaster role, the conventional role of an alternative voice and an innovator. But the other role is to be able to provide some market pressure via ratings or commercial deals in a structure about which everybody in the community will have competition concerns. And it could well be that that schizophrenia is beginning to become evident today as you move towards a duopoly structure.

The people who aren’t going to get caught in that structure will occupy interesting niches, they might even be reasonable businesses but they will be irrelevant. So, that’s one option.

The second option is that we reshape the industry structure so that there’s three or four or more viable competitors with adequate size and scope and scale and global relationships to provide diversity, to provide competition and to fuel the continued development of the industry. In that scenario, we and others would be encouraged to become involved in broadcasting, in radio, as well as developing what we do. Foreigners would be encouraged to come in and help and the large players would encouraged to reshape their portfolios where they felt there were pieces that didn’t make sense, in terms of the way they saw the world.

Now, which of those scenarios would I choose? As CEO of Fairfax, where I have a very clear responsibility, I’m actually indifferent because I think either of those scenarios are better than today and either of those scenarios are good for shareholder wealth. As an individual, I’ve always argued that we’re better off as a country with the maximum number of viable competitors, and I do believe that more than two are possible in media in Australia.

How then do we move ahead? I guess this is where is gets hard and where finishing a speech at ten past twelve doesn’t give me quite the same amount of reflective time as when I get two years to do a competition policy. But my starting point is to say, when governments look to reform industries, from time to time they do intervene quite directly in industry structure or set up processes that lead to quite a new industry structure.

Now, we’ve done that in Australia, we did it in telecommunications. If you look around … I mean, Optus and Vodafone and Hutchinson and One.Tel and AAPT, are all creatures of a government policy that caused a different industry structure to emerge. If you look at electricity - some of the work I did heading the government’s generation review and some of the work that was done in Victoria has lead to a different industry structure.

And if you look at the US, the US is dealing with some of the technical competition issues, at this very time, by considering the break up of Microsoft. And I think last night, I’m told, the merger of MCI WorldCom and Sprint was blocked.

So, my first point is: it’s okay to talk about structure and it’s actually okay, if you want to reform something, from time to time to get involved in structure and we’ve done it in Australia and it’s done overseas. So, how do you get involved in structure? What’s a way to do that here? I’m always reluctant to set up a bureaucrat who will define the structure. We’d like to see something in place where a better structure could evolve.

And one idea might be that we set up a special commission, we give this commission a one year life, we have parliament establish it and empower it and this commission would be set up to do just on thing. It would be set up to rule on proposals that participants in the industry would bring up, in terms of how they would like to restructure their business, whether by merger, joint venture, foreign affiliation or whatever. Would be … we would create an open slather for a year, in terms of considering different structures.

Those structures would be assessed on the basis of criteria and the criteria are very important - you can’t just create a god-like structure that can just do things, you’ve got to have a process and you’ve got to define your goals. And to me those goals are well established in the media field. The proposals would be assessed in terms of their impact on diversity, in terms of their impact on a competitive industry structure, and in terms of their impact on an industry that’s able to go forward and deliver to Australia the benefits now and in the future of technology.

The beauty of something like that is that the onus of coming up with something that’s commercially viable is on the industry participants and everyone can play. The smaller players can play by dealing either with bigger players or overseas players or with each others [sic] and the bigger players can play and look at what they have and say, I'd like to cut that bit off and add that on. And they would know that whatever was put up would have to meet the tests of diversity competition in industry development.

What happens if we don't do something like this? Well, it seems to me if we keep going down this road we're on, we're going to continue with non-reforms, like data-casting and digital. As a result, we're going to deprive consumers of the chance to use new technologies and applications and we're going to continue to stifle the development of new industries. And lastly, we're going to continue to lock in what I think is a really unfortunate pattern, where you get political involvement in our industry because of this ongoing concern that the politician and the media baron are actually joined at the hip, and need to be for each other's survival.

The only way to break that nexus is to establish a structure where that is less clear and where there is less government involvement. When that structure's established, you don't need foreign, you don't need cross, you don't need any of the kinds of rules that we have today. And if at the end of my year that structure was found not to be possible, you know where we'd be? We'd be where we are today. So, we'd be no worse off. Only we might have applied some creative energy, to actually breaking out of what is, to me, a highly unsatisfactory industry position.

Now, is this madness, is this wishful thinking? Is it naïve to think you can get the government out of meddling in the media? Well, it wasn't very long ago when you might have thought it was wishful thinking to get the government out of meddling in interest rates. But the government doesn't do that anymore. And it wasn't very long ago when you would have thought it was wishful thinking to think the government might actually adopt some competition reforms and not meddle in power prices. And governments don't do those anymore.

And I think my type of proposal is no more absurd than what we're doing with data-casting and the Internet. And at least I can explain it to you without having to use French words. Thank you.

(Applause)

CHAIRMAN:

Thank you very much, Fred Hilmer. As usual, we move on to our period of questions, and the first one today is from Margo Kingston.

MARGO KINGSTON - Sydney MORNING HERALD:

Mr Hilmer, Margo Kingston, Sydney Morning Herald. This morning, the Shadow Communications Spokesman Stephen Smith said, if you want to change the data-casting regime, if you want to change digital legislation to enable all Australians to fully embrace the use of new technology, you've got to change the government. Obvious question, do you agree? But after that really interesting new proposal, have you had discussions with Labor about that sort of idea?

My second question is about e-commerce and online, given that for the last few months there’s been a real dust-up in the industry, a lot of downgrades, evaluations and some … even suggestions that e-commerce online on its own mightn't be viable. Have you, as CEO, changed your perspective or learnt some lessons over the last few months? And perhaps you could tell us what your current vision is for how our newspaper can work online.

HILMER:

Okay. Two questions, Margo. Firstly, have I discussed this proposal? This proposal evolved in the very last few hours as I've thought about what sort of a box we're all in and whether we don’t at least to get on … need to get on the table a different way to think about it. Like all proposals, I'm sure it'll need some fine-tuning and thinking but I think the basic issue it addresses, which is the issue of structure, is the right issue, and I'd like to get that on the table. There's … and I'm happy to discuss it with whoever would like to discuss it with me.

Your second question was e-commerce, online - what are we learning. Well, we learn every day. Sometimes they’re are expensive lessons and sometimes they're less expensive. I remain very optimistic about e-commerce and I remain very optimistic about online. But I think, like a lot of developments in our industry, they're going to require people with staying power and they're going to develop in ways that complement what we do now, rather than in ways where suddenly the world changes and everything's different, no one goes out of their home, no one disconnects themselves from the screen to which they're hard-wired, and no one talks to anyone any more.

I think there's going to be a world in which e-commerce will coexist with and complement things we do today, such as newspapers. And the strategies that we're following at Fairfax are very much in that mode.

KINGSTON:

Just, one, to repeat the first question. Do we need a change of government to open up data-casting? Or do you think there's some room within government circles for the government to actually take that step, to acknowledge that it hasn't got it quite right and there might be another way?

HILMER:

Yeah, I don't believe we necessarily need changes in government. I think sometimes we need changes in ideas and changes in perspective, and hope that sensible people can come together and see the sense.

CHAIRMAN:

The next question's from Jason Koutsoukis.

JASON KOUTSOUKIS - THE AGE:

Jason Koutsoukis, from the Age. If the cross-media laws were relaxed, what would Fairfax do? Would it seek to acquire a television station, for example? And how would it protect itself from becoming a takeover target to a company like PBL?

HILMER:

That's a difficult question for a person in my position to talk to, because there are clearly commercial considerations that you don't throw onto the table. But I've consistently said that we would as often be buyers as we would perhaps be seen as a seller. In fact, I think we're more likely, in the competitive scenario that I've outlined, to be a buyer.

But if we were to be acquired, there could well be good acquisitions that … and I would want to evaluate all of them on their merits and see that what we're trying to do, at the end of the day, is to continue to provide a corporate home where our mastheads and our strengths, and our ability to develop our business can continue to go forward.

CHAIRMAN:

Next question's from Gillian Bradford.

GILLIAN BRADFORD - ABC:

Gillian Bradford, from the ABC. The Democrats said this morning, you could drive a truck through the holes in the current digital legislation. And given your own thoughts on the definition difficulties in news and current affairs and entertainment, if it is passed in its current form, are you going to have to start, from tomorrow, lobbying to have it changed? Or following up on Margo's question, is that a waste of time in the present term of government?

And the second question is - you've said what a waste of time it is to deal with personalities in the media industry. Is the government just as guilty in dealing with personalities in its current legislation?

HILMER:

Let me deal with your first question. Well, would we continue to lobby for change? We will continue to lobby for change. It may be a waste of time but it's something that we would continue to do. At the moment, we've withdrawn from trials - I announced that a couple of weeks ago. I sat down and I looked at our budgets for next year, and I looked at all the things we wanted to do, and one of them was trial data-casting. And I looked at where the legislation was and where I thought it went and I said, this is just a waste of money. We wouldn't spend the money.

So, there are better things for us to do at Fairfax, but we would certainly continue to lobby. At this stage, you know, while we're always going to reserve our options, we're finding it very hard to see a commercial case. And if there's no commercial case for data-casting, then it isn't going to take off. Someone may - and I think that's far less likely now than it was, say, a year ago - go and raise some public money that they'll throw at it, but on this model my prediction is, if they do, they'll run out of burn, like many of the other dot.coms.

Secondly, is the government guilty of playing the personality game? I think everybody plays the personality game, I think that is part of the game today. And I think it's an unfortunate game, it's never going to go away. But I think we can diminish the impact of personalities if we had an environment where a few more could emerge.

CHAIRMAN:

The next question's from Belinda Goldsmith.

BELINDA GOLDSMITH - Reuters:

Yes, Belinda Goldsmith from Reuters. My question is about the Fairfax online unit, F2. In recent weeks there have been a couple of resignations by senior executives amidst speculation that there's some internal pressure to bring F2 into profit. Could you outline what your immediate plans are for F2 and when you would expect that unit to turn a profit?

HILMER:

Yeah. Firstly, there have been no resignations that are really extraordinary or in any way out of line with the patterns of what's happening in this industry. This is an industry which is … where people tend to change jobs and I think our record of retaining people, if you look over a year or two years, is absolutely outstanding. You know, we've got a terrific team that we've brought together and that team has been amazingly stable in any sort of a media industry. But, like any business, from time to time you get turnover. But our turnover, I think, in F2 has been very low at the senior level.

What are our plans for the online business? Our plans are to concentrate on a number of new initiatives and at the same time build up our newspaper-related businesses. The new initiatives that have highest priority are our initiatives in terms of directories, and our initiative in terms of financial services, where we've just concluded the joint venture with Macquarie Bank.

In terms of our ongoing news and classified businesses on the web, Alan Ravel (ph.sp.) has come over from the publishing job at the Sun Herald and responsibility for regionals, we’ve put a senior executive over to take control of that whole area and he has the responsibility for building our business there.

When will it make a profit? Part of the answer to that question depends on how fast and for how long we want to keep developing the business. We have pieces of the business that actually make a profit today, and if we stopped the development, what we’d have is a nice little but irrelevant business. And that’s why in my talk I said, what we need to have competitors with the pockets to sustain development over time.

Now, what we’ll do is we’ll create pieces of the business and all our new pieces of business have business plans, with a goal of getting to break even in a three, four year time frame. We’ll create pieces that will achieve those goals - and some have, even though it’s very new area. But we will continue to do new things.

When we stop doing new things, then we’ll have a different P&L result. At this stage, we don’t want to stop doing new things but we also recognise the market environment’s different and we’re going to be very careful about how we spend our money, which is why I said no to the data-casting trial.

CHAIRMAN:

Stephen Spencer.

Stephen Spencer – aap:

Stephen Spencer, AAP. Just on that data-casting trial, what would it take for you to get back onto that trial? What would it take … there are amendments going through the Senate as we speak, it’s all still up in the air there. Is there anything that could happen in the next few days that would get Fairfax to go back on board with that trial? And then, just taking that to a broader question, but how sensible is that for a long term policy, that the whole future of this area seems to be dependent on what sort of deals can be struck in the Senate at any one time, who can be in government and what happens after the next election?

You might get a Labor government which does pretty much what you want - or more of what you want - but then it’s not what Kerry Parker wants, so then perhaps he pulls the plug on it. How sensible is that for doing this sort of policy?

Hilmer:

I’ll take your second question first. Not very sensible - and having a better industry structure allows you, I believe, to be less reliant on detailed regulation and therefore better able to look forward with some certainty, not always being worried about, gosh, what happens if x influences this piece of regulation or y influences that piece of regulation.

Your first question was, what changes would encourage us to do a trial? I think we would rather put it the other way - and I’d almost like to go back to the Minister’s statement that I read from - and say, if we saw a framework that gave us a great opportunity to get involved in news, which will include current affairs and it will include documentaries. I think there’s no public interest in restricting the public’s access to interactive news in any way. So, we will get into … we will have a robust news service. I want to see robust e-commerce and I want to see the ability to get the Internet into people’s homes, which I think is a very positive thing for the country.

If we could see that, we then need to work up … we would probably be trialling and seeking to build a commercial model. But we wouldn’t be over the line, because it isn’t even yet clear that that’s viable, but at least we’ve seen that there’s enough space there to encourage us to go the next step and invest some seed capital.

CHAIRMAN:

And the next question’s from John Millard (ph.sp.).

John Millard – ArtSound FM:

Ken. John Millard, ArtSound FM. Professor Hilmer, you mentioned two possible scenarios for the structure of the industry in the future, a duopoly with ABC/SBS government-owned broadcasters, or alternatively at least an oligopoly with a number of different competitors. Now, given the very high entry costs to this industry and the very great risks involved in entering it de novo, where would you see this source of new competitors coming from? And if you’d only see them as coming from overseas, such organisations having the sort of deep pockets to take those risks, would you see any problems in that scenario?

Hilmer:

Good question. Where is the capital going to come from to build up the other participants in the industry? Think, as you can show capital markets that you have a viable business plan without the degree of what’s at times seen as capricious political risk that is currently involved in media investment, you might find that there’s actually an appetite among Australian investors and institutions to help fund new media businesses. I’m certain you’ll find interest from foreign companies - and I think that’ll be very good for us, because many of those companies have tremendous depths of complementary content and tremendous skills and great heritage that would enhance our industry.

And we also have people in the infrastructure end of the industry, such as Telstra, who are beginning to come into the fringe of the industry and, with a clearer way forward, might find that there are pathways to entry that are more attractive and, again, more commercially secure than the way they see the world today.

Capital … sorry, lack of capital has rarely stopped ventures. What’s stopped ventures is a lack of good ideas and an excess of unpredictability - risk.

CHAIRMAN:

Malcolm Farr.

Malcolm Farr – THE Daily Telegraph:

Malcolm Farr from The Daily Telegraph. What order of savings do you anticipate Fairfax will be able to make under the new tax system? And is it fair to say that the oil industry is similar to the news industry … the newspaper industry, inasmuch as there’s a lot of fixed capital, a lot of transport and a lot of scattered retail points? Can you understand the oil industry telling the government that it’s unable to achieve that one-point-five cents a litre savings that the government would like it to?

Hilmer:

Yep. I’m reluctant to comment about the oil industry - I don’t know very much about the oil industry. In terms of our industry, our two major input costs in our print businesses are people and paper - there’s no tax saving in either of them, so the rest of it is relatively minor. I think that’s true of any newspaper company. In terms of our interactive business, our electronic and F2 businesses, the major input costs, again, are people and various digital services and there are relatively few tax savings in those.

As I say, as for the oil industry I really can't comment. I have no particular knowledge - only what I read in the press.

(Laughter)

CHAIRMAN:

Must be right. Steve Lewis.

STEVE LEWIS –FINANCIAL REVIEW:

Steve Lewis, from the Financial Review. Mr Hilmer, can I just ask you a question about option one, where you have relatively few players - News Limited and PBL - as fully integrated, full service providers, I think was your description. How do you ensure diversity of media voice under that scenario? You've, I think, established that as one of the criteria. But how do you really protect media diversity under that scenario? Or are you prepared to sacrifice that in order to develop some global-oriented media companies in Australia?

HILMER:

I think that's exactly the trade-off that really has to be debated. You know, I said my own view is I think both the market and the community can tolerate more diversity than that. But if you track where policy is now heading, it seems to me to be heading, at least to a large degree, down that duopoly road.

So, I'm simply outlining that when we talk about choices and industry restructure and reform, and when we use all these great platitudes, we're actually talking about a small numbers problem, with few players and few options. And you can write them down on one sheet of paper and you can debate them. And I think that would be actually a healthy thing to do.

CHAIRMAN:

Jim Middleton.

JIM MIDDLETON - ABC TELEVISION:

Jim Middleton, ABC Television. Mr Hilmer, you've accused the government, in its current legislation, effectively of playing the mogul game which, of course, is something that Richard Alston always says he won't do. Do you think also that specifically the Labor Party, which has adopted a holier-than-thou attitude, as far as its proposed amendments go, and perhaps the Democrats, too, can effectively be accused of doing the same, as far the digital legislation's concerned, and particularly with data-casting?

HILMER:

Jim, I think you can make a broader observation, which is that we have a structure and an environment that goes back many years, where all parties have played the mogul game, because we have a structure that empowers moguls and we're all realists, including the politicians. And it could be that that's what we're going to have for the next five, ten, or fifteen years.

But I do think that, from time to time, bold governments have changed things. And we had some very exciting reforms in the ‘80s and ‘90s, and what I'm saying is perhaps this industry is important enough, and offers enough potential, that we could have an exciting and more fundamental reform right now.

CHAIRMAN:

Laurie Wilson.

LAURIE WILSON - NINE NETWORK:

Laurie Wilson from the Nine Network. If we take a much longer term view - from a global perspective, I guess we can say that governments sometimes lead and sometimes they follow, depending on what works and what doesn't work around the world. Twenty years ago, for instance, the notion of deregulating telecommunications or the airlines was really not a hot topic of public debate. But it's since occurred.

In terms of broadcasting policy, it seems that we've typically followed an approach which says we have a closed nation here, a public resource, and we can keep it to ourselves. Now, I mean, in global terms, that clearly has changed to a significant extent. Regardless of what governments do today - that's clearly a concern to you as a manager of a major media organisation - but regardless of what governments do today in terms of their policy, do you think there's some inevitability of the fact that they will ultimately be forced to follow what is a global trend?

HILMER:

I think the government will either follow the global trend, or, probably more likely, the global trend will render what the government does irrelevant. I don't know, for example, what the government would do if Australians could, in a relatively low-cost way, access satellites not now in place. People say it's huge capital, can't happen. But there are people who come to talk to me from time to time, who are still probably at the visionary end, who say, we can just crash through this whole media scene here by broadcasting from space.

The Internet - and the Internet with broadband access into everybody's home. What's going to be different to an Internet signal coming through at highband width, with lots of pictures? What's going to be different to that kind of signal delivered by an ISP - no broadcasting licences, no regulation - what's going to be different to that signal, and a TV signal, and a radio signal, and a mobile phone signal? What's going to be different?

So, to some degree, if we wait the technology might well swallow up what is the silliness in some of the reforms. But there's a cost in that. And the cost is that, rather than as a country be on the front foot, rather than, say, use data-casting to become one of the first countries in the world where everyone with a TV is on the Net, rather than do that, we'll be one of the backward countries that the people from outside with the capital and technology to bust open our system, will come in and do it for us.

And it won't be Australian companies in that scenario that reap the benefits, and it's less likely to be Australian workers who get the jobs. So, that's why I think we've got a great opportunity to reform and that's why I think we shouldn't lose that opportunity now.

CHAIRMAN:

Louise Dodson.

LOUISE DODSON - FINANCIAL REVIEW:

Louise Dodson, Financial Review. Mr Hilmer, the first option that you outlined, you said … you just said to Steve Lewis that that would be … would have less diversity. But in your speech you said that both those options were preferable to what you've … the current situation. So, is that a clear tradeoff between diversity and global opportunity, market opportunity? Are you saying that the current structure essentially isn't workable in the global communications market, media market?

HILMER:

I don't think it's workable in the global market and I don't think it's workable actually in the domestic market in any sort of long term sense, or even medium term sense. When you come back to diversity, there's one other part to that, which is actually quite important and which was the subject of quite a lot of debate when the Productivity Commission considered this - which is the extent to which diversity is allowed to flourish independently of ownership. And that has to do with the way in which media companies are run and the lines that are drawn between what is editorial and what is managerial.

I think that's another important twist on this situation. But, you know, that current situation would give us globally competitive firms, it may deliver some diversity. But the diversity that we might have today is diversity that we're, kind of, hanging on to in a structure that is, in a long term sense, unsustainable. And therefore, we don't have … I would rather us have diversity that we can count on, and a good growing industry, than diversity that we think we might have but we may not have for long.

CHAIRMAN:

Michelle Grattan.

Michelle GrattAn – Sydney Morning Herald:

Michelle Grattan of the SMH. Could I take you back to your former life as promoting competition policy. There’s been a big backlash since the days when that was first done, especially in rural areas. I wonder if you could tell us if you think that competition policy has much further to go and outline where you think the cutting edge should be. And what would be your message to the politicians and … especially to rural and regional Australia, who are now saying that reform has gone too far?

Hilmer:

What I do is quite engrossing and former lives seem a long time ago but I’ll try and answer. There’s been a backlash against … there’s always a backlash against reform, because the whole idea of reform is to shake up the power structure or an interest structure.

There was a time when I couldn’t book cabs in my own name because Hilmer was such a bad word.

(Laughter)

And particularly, you know, I couldn’t book a cab with Hilmer from the University of New South Wales because then they were a hundred per cent sure they got me.

(Laughter)

So, the backlash has always been there, it’s probably being popularised now. Where do we - back to your question - we’re do we still have to go? I think we’ve stalled in a couple of areas that are quite important and we’ve kind of got reform that’s stuck in the middle, it’s neither a competitive model nor a regulated model. And probably the most visible is electricity.

If you go back to the big things about competition policy. They weren’t the taxi driver and they weren’t the newsagent - the big things in competition policy were always utilities, transport. It was basically the non-traded domestic infrastructure, which is really important to Australia being competitive. And in a number of those areas we’ve done very well. We have competitive structures and they’re flourishing and nobody thinks of going back. But, I think, we haven’t finished in those areas and they’re the ones that are very important.

There are other areas where there’s a lot more noise but from a national perspective it’s a small problem, it’s not a big problem and we might need to wait some years. And I would rather see the totality move forward than, you know, going to war over a tiny outpost that means little to the big picture.

In terms of message to politicians, you know, what would you tell the rural people and what would you tell the regional people. I think the politicians - if I were to be critical, which I tend to do from time to time - if I were to be critical, is they’re very quick to jump on the bandwagon. Yes you’re being hurt and it’s not my fault, it’s someone else’s fault, it’s the Hilmer reforms or its Keating’s reforms or its Howard’s GST - it’s somebody else’s problem. And it’s very quick … it’s very easy to blame someone else.

I mean, my message to them is, before you point too many fingers please add up some of the benefits. Look at what people are paying now in terms of transport, look at what people are paying now in terms of telecommunications, look at the choices that people have in areas where they had no choice before. And just stand back and look at where Australia is in terms of the longest period of sustained growth at a time when the Asian crisis was battering all of our neighbours. And take a look at where Australia is and ask, would we really have been better off if we hadn’t gone forward.

CHAIRMAN:

Margo Kingston.

kingston:

Mr Hilmer, I’ve just been thinking about, you know, it’s quite a gloomy scenario you paint about the structure of the industry and our role in it if this mess doesn’t get sorted out. And when you said, oh, you know, the ABC is a bit schizophrenic, well, that’s what a lot of people say about Fairfax, too. And I just wondered if, given that the Senate’s just allowed the ABC and the SBS another channel each, is there an opportunity here for some sort of Fairfax/ABC alliance?

For example, we could take in our online site the ABC news updates and perhaps they could outsource at least twelve hours of their new channel to Fairfax. Now, obviously there would have to be a lot of protocols there, but are we at a situation where we’ve got to think really weird here to maintain and grow our business?

Hilmer:

Thank you for that definition of really weird.

(Laughter)

I ought to say, just coming back to your, sort of, lead in that I’m actually not gloomy about Fairfax, I think, we’re stronger than we’ve been and we can find our way through this. I’m more gloomy about the country getting the full benefits that it could get as a potential international leader and exemplar than I am about our particular situation. We’re … you know, frankly our domestic businesses haven’t been stronger and we’re continuing to look at opportunities and options outside Australia or in other fields if they’re foreclosed. So, I think that’s an important point to make - I’m not gloomy about our company but I think there’s a lost opportunity for the nation issue.

In terms of your, sort of, weird alternatives, I would like to think that in the scenario I've painted, you could put a lot of options on the table, but I do think you'd need to clarify the ABC's role. And I think having the ABC, sort of, as half commercial may well start to attack the very reason why we have a public broadcaster. And I think when you get your competitive structure clear, you can be clearer about why we have the ABC.

Because there are two possible reasons. One is, the classic public broadcaster role, and the other is to provide an additional element of competition to an uncompetitive market. And they're quite different roles and they drive you in quite different directions. And I would rather deal with the ABC second. You know, I think it's tail wagging dog to deal with the ABC first.

CHAIRMAN:

And a last question today from Jason Koutsoukis.

KOUTSOUKIS:

Mr Hilmer, the … Fairfax as a company was late to realise the revenue potential of data-casting. Is that one reason why the government's legislation is so restrictive? Or do you think they set out from the beginning to protect the free-to-air broadcasters?

HILMER:

Yes, I can't really comment because the early round of agreements pre-dated my time at Fairfax so, you know, I wasn't party to them. I know from the time I came to Fairfax - which is a little over eighteen months ago now - we've been quite interested in data-casting, we've been quite visible in the data-casting debate. The submission we made to the Productivity Commission focussed on data-casting.

So, if there was a lapse, or if there was a lack of being at the table, it was probably in the late ‘90s and, as I say, I can't really comment because it was before I even thought of Fairfax as a place where I might be.

(Applause)

CHAIRMAN:

Well, thank you very much, Fred Hilmer, for joining us today. It's a great pleasure to get high-flying executives from the media industry here - we've tried to get many here over the years, they've all got standing invitations. You're the first for years.

(Laughter)

So, thank you very much. I hope this reminds you of the occasion and we thank you for it.

HILMER:

Thank you.

(Applause)

-- ENDS --

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