Sky
News Australia. "Viewpoint" 30 June 2002
Sydney,
June 30, 2002
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DISCUSSION ON ISSUES RELATING TO JOHN FAIRFAX HOLDINGS AND THE AUSTRALIAN
MEDIA INDUSTRY.
INTERVIEW WITH FRED HILMER, CHIEF EXECUTIVE OFFICER, JOHN FAIRFAX HOLDINGS.
PRESENTER:
Hello and welcome to Viewpoint. I’m John Gatfield. My guest is the chief
executive of one of our most significant media companies, John Fairfax
Holdings, publishers of The Sydney Morning Herald and The Age in Melbourne.
Fred Hilmer came to the world of newspapers after being Professor of
Management at the University of New South Wales and before that spent twenty
years as a partner of management consultants, McKinsey’s. He’s also served
on the boards of Westfield Holdings, Foster’s Brewing and Pacific Power.
Fairfax used to be a family-controlled company, and at one time owned radio
and television stations as well as newspapers. But during the past fifteen
years, Fairfax has been the subject of several takeover bids and speculation
on its future persists.
As CEO, Fred Hilmer has taken Fairfax into new technology and fought
strongly for the company to build a stake in pay television and datacasting.
Well, Fred Hilmer, welcome to Viewpoint. And I suppose the most
controversial issue that you’ve been involved in in recent times has been
this question of pay TV, and Fairfax’s objections to the Foxtel/Optus
programming merger. Why are you so strongly against that?
FRED HILMER – JOHN FAIRFAX HOLDINGS:
Well, three arguments really. The first is it creates a monopoly. We don’t
like to see monopolies created. We believe that media is best from our
perspective if there are opportunities for others who have aspirations to
grow into space. And we have had aspirations in pay television, and we’ve
been involved with pay television, so we have a real commercial interest.
Secondly, we’ve had concerns about the behaviour of the monopolist over
time, and those concerns are heightened ... you know, by the way in which
these agreements were put together and the degree of consultation we had
with them.
And thirdly, we see absolutely no public benefit in the agreements as they
were put up, and those are positions that were fully endorsed by the ACCC’s
ruling.
PRESENTER:
But as you said, you’ve had a relationship with pay TV before. So, what are
you now offering? What do you want to get into?
HILMER:
Well, we believe we have a number of opportunities where we could do
programming that would be valued by viewers in the financial space, in the
lifestyle areas. One of the, I think, concerning issues to us is the way in
which we haven’t had discussions in good faith with Foxtel or anyone else
about that.
There’s always this view, well, show us your programs, and yet the manager
of Foxtel, News Limited, is a direct competitor. Well, we’re not going to
do that. We’ve spent a lot of money working up program ideas. We’re very
confident that we could actively participate in the space, were there to be
an appropriate access regime, and that’s about as far as we’re prepared to
go till we’re prepared to see negotiations in good faith.
PRESENTER:
But doesn’t so much of this depend on the advent of digital television, or
at least the expansion of digital television and Foxtel and Optus going to
digital television? It can’t really happen for you until that occurs.
HILMER:
Well, we’re not quite as sure about that. I mean, we’ve seen various views
about how much capacity there is on the analog, but capacity seems to be
created when pressure is put on Foxtel. We also see that the composition of
the packages, the channels that are there, have some degrees of flexibility
in them. C7 was on. C7 is off. So, channels can come, and channels can
go. And it’s not as if we’ve got to wait until digital occurs. I think if
there were an access regime, it could operate now.
PRESENTER:
But Fairfax is essentially an information outlet, a news outlet. Now, is
that what you’re going to bring to pay television?
HILMER:
I think we are a little broader than just a news outlet. I think we provide
a variety of content, primarily in the news environment, but also on the
Internet, and in moving pictures. The content that we provide covers news,
it covers current affairs, it covers a number of important lifestyle
categories, and it covers purchasing, it covers finance, matters of quite
significant interest, and matters that I think in the pay environment are ofquite interest ... a lot of interest to a lot of consumers.
So, we believe we have very rich content, that we have spent serious money
on looking at the potential to develop into a moving picture format and, intime, an interactive format and we would like to have the opportunity to do
that. And, for that to occur, you don’t want to see a monopoly structure
controlled by companies that have not been prepared to negotiate in good
faith with no offset in public benefit.
PRESENTER:
But, at the same time, there are also government regulations there that say
there are certain things you can and cannot do, that you can’t just run a
news service as such, for example.
HILMER:
Well, there’s nothing we want to do on pay TV that current regulationprohibits us from doing. The only thing we can’t do is that we can’t inSydney and Melbourne run free to air television stations or radio stations.
Other than that, we can do these things. So, that’s why this is
particularly important to us because this is one of the growth avenues that
is open to us and we would like to see a playing field which allows
competitors of the current incumbents access if they wish to have
monopoly-type arrangements.
PRESENTER:
Do you almost feel bitter about the way you’ve been treated by Telstra and
News?
HILMER:
Absolutely not. Absol… we’ve played a very straight bat here.
PRESENTER:
But you talk about them not negotiating in good faith.
HILMER:
Well, I understand that and at the current … in the current environment,
that they also don’t have a monopoly, they have a competitor. And, so, we’
ve been able, from time to time, to get content and to develop what we’redoing in that space. Our concern is that if this proposed deal had gonethrough, we would have been shut out. So, you know, this is straight
business and we continue to do it in good faith with a view to what we
think is the right kind of structure for this part of the media market.
PRESENTER:
And, so for you, coming from a background in the university world, what’s it
been like taking on News Limited as a competitor?
HILMER:
News Limited are a good competitor and a tough competitor. PBL are a tough
competitor. The world is full of tough competitors, but I’ve spent a lot of
my life in what are very competitive areas, often not all recognised as
competitive but these are very competitive areas. Ours is a competitive
market and I actually enjoy competing. I don’t feel it ever personally. I
feel that it’s an important thing for us to do well.
I think there was a time when Fairfax was on the back foot, when it let
people take bits of its markets. We haven’t done that for a number of
years. We will protect our markets and we will aggressively seek to give
ourselves the space to grow.
PRESENTER:
Subject, of course, to whatever happens in parliament with changes to
legislation. There is always speculation around that Fairfax could be sold,
that even Telstra might buy it. Or that you might sell off part of it, for
example, The Financial Review. Do any of these things really come into your
calculations?
HILMER:
Yeah, well, firstly, we’re not interested in selling any parts of it and
that would be our decision. We don’t think we’ll add value by doing that
and we think we’d actually destroy value because there are very good
synergies between the pieces of the company that are Fairfax today.
Whether we are bought or not is really not a concern of mine. I mean, we
have … we live in a market society and people can buy things. My concern,
as CEO, is that we’re not bought cheaply, that we’re bought well and that we
’re bought ultimately by a company that will take what are very important
media properties forward and that’s really all I can be concerned with.
PRESENTER:
Would it matter to you, as a matter of principle, as to whether Fairfax was
Australian owned or overseas owned?
HILMER:
No, as a matter of principle, it would not matter to me. It would be nice
to see Fairfax as a larger important media company in Australia but with
overseas interests. I think that would be good for the country, but that’s
not really the issue from my perspective. The issue from my perspective is
to keep improving Fairfax’s business and that’s what, you know, ninety-five
per cent of my time is spent on.
It’s not spent on things like a Foxtel or lobbying for regulation. It’s
spent on getting printing plants up that can handle the next generation of
newspapers that we’re doing, on turning our Internet businesses around and
on continuing to improve what we do here every day.
PRESENTER:
But so much of what you are doing, and are trying to do, is governed by
government regulation. Whether it be trying to expand into other forms of
the media, whether it be a question of ownership or what you can own and
what you can’t own, so much of it is just government regulation now that
stops you doing certain things.
HILMER:
If you don’t want to go mad you ought to spend most of your time on the
things you can control and not sit there wishing for the things that you can
’t control that, you know, someone will wave a magic wand and they’ll
happen. What are the things we can control? We can control the way in
which we manage our existing business, which is a very good business and a
robust business.
I think, you know, when I started here four or so years ago people were
talking about the demise of newspapers. We haven’t seen that. We’ve seen
that, you know, this is a very robust trusted source, it works as an
advertising vehicle and it’s continued to do well, particularly when the
times have been tough as a news source. So we’ve seen solid circulation,
solid readership. So, we have a fundamentally good business.
It’s a business that can be made more efficient, it’s a business that can
provide more value to people particularly as you can do colour and zoning
and inserts. And in order to do that, you know, we’ve been spending
hundreds of millions of dollars on that business.
The government will have a big say in issues such as will we have a
television station. And, you know, it’s definitely worth my spending time
to see if we can create those possibilities but it’s not like they close us
off at every turn.
Now we have a business in which we’ve been able to invest significant money
so that its basic performance could be improved and that’s ultimately where
the value of the company is. Now, if the government blocks us here we would
then need to look at what others things might we do offshore where we’ve
started on some small moves to get an involvement in business publishing.
Will we move more aggressively offshore or will we give more money back to
our shareholders, which is in my terms, in no sense a failure.
Or will we look at, you know, other opportunities that may be possible and
it’s in that context that having the opportunities in pay TV is important.
PRESENTER:
So, looking at offshore investments, apart from those small beginnings that
you’ve mentioned, what sort of thing are looking at doing offshore?
HILMER:
Well, what we’ve looked and continue to look at and, you know, this is
something that you are always going to be very careful about things in the
business publishing area, particularly niche publications, regional
opportunities to expand our footprint, opportunities to build off the base
of The Financial Review and the business magazines that we have.
PRESENTER:
You’ve also been outspoken in the past few months on the government’s
proposed anti-terrorism laws, in particular saying that it threatens freedom
of speech in this country. Why do you say that?
HILMER:
Well, I think freedom of speech is fundamental and it’s very important and I
don’t think anybody argues with that. We don’t have a constitutionalprotection, so when governments tend to intrude in the areas of freedom of
speech then we can’t sit back and say, well, you can try that folks but you’
ll be struck down in terms of a court challenge.
So, it’s very important if we’re going to operate the way we do, which I’m
quite comfortable with, that we’ve got to be quite loud and vocal when you
get laws that intrude on freedom of speech. I mean, we’ve seen a number of
instances of that, the anti-terrorism provisions that we saw in the
datacasting provisions. You know, and I think we’ve got to be very careful
that governments don’t regulate what we can and can’t say whether they do it
implicitly or explicitly, and it’s mostly implicit.
And that’s been one of my concerns about the current media bill, that some
of those aspects that have, you know, so-called editorial freedoms in fact
empower the government to start looking at how we set our editorial policy,
how we conduct our editorial business, and I’m strongly of the view that in
free societies, that is not the province of government.
PRESENTER:
So, do you suspect the government has deliberately drafted the laws to stop
the media getting information that it doesn’t want to get out, for example,
whistleblowers?
HILMER:
Well, we had those concerns about the anti-terrorism provisions, but the
government has changed its view on that, and, you know, we’re not concerned.
I think sometimes these things occur inadvertently. I don’t think there’s
anybody in the government who says, well I’m against free speech. I think
it’s entrenched.
But I think it’s very easy for draughtspeople and ... you know, ministers
putting legislation together to say, well, we don’t like the press doing
this and that, so we’ll cover it with legislation. And our job is to say,
wait a minute, we have a free press in this country and we will oppose that.
And generally, these things have worked out okay. You know, we had that
instance where we were to be controlled in terms of photographs in the House
... in the parliament. But again, you know, with pressure being brought to
bear, the parliament backed down and the freedom of the press was
maintained.
So, it is important. It’s particularly important to a company like ours.
You know, we produce papers like The Herald and The Age and The Financial
Review that are really seen as the bastion of independent journalism, and we
need the unfettered access to what’s going on in order to do what we do and
get the readers’ confidence in the franchise that, you know, has been built
up over so many years.
PRESENTER:
But at the same time, you’ve attracted criticism from within the Fairfax
organisation on your plans to merge perhaps The Sydney Morning Herald and
The Age, particularly in the Canberra bureau. Now, how far do you plan to
take those mergers?
HILMER:
Well firstly, we’re an organisation that thrives on rumours, and many of
those rumours become big news stories, so it’s not unusual that a lot of the
rumouring will be about ourselves. I’ve only ever had one goal in looking
at our major newspapers and our magazines and our Internet sites, and that
is that we have the best product that we could have, using all the resources
of the company.
Now, in terms of The Herald and The Age, the strength of The Herald and The
Age, in each case is that they are the best local paper in their markets ...
you know, they are the paper that really is the paper of record in each of
Sydney and in Melbourne. And my concern is that we stay that way in a
market environment which is pretty tough, where getting real growth in
revenue is hard, and where you have to manage cost well.
In order to do that, we ought to also understand that The Herald and The Age
don’t actually compete for readers. The reader overlap between those papers
is, you know, close to zero. Its main reader overlap is in Canberra. So,
it’s been important that we have processes that allow the editor of The
Herald and the editor of The Age to have access to each other’s copy, so
that when we have a scoop, of whatever kind, that we can run that in each
paper, and you’re seeing that increasingly through copy sharing. That
allows us to have better quality papers.
Now, with respect to Canberra, we’re going to cover Canberra from different
angles for The Herald and for The Age, because what’s a big political issuein Melbourne, from a federal perspective, may not be such a big political
issue in Sydney, and you see that when you see a Canberra story becomes page
one in Melbourne, page four in Sydney.
But at the same time, I’m adamant that the stories that each of the bureaux
have are available to the other, and that if we’re simply duplicating
activity, and therefore wasting money that we could rather invest in better
quality, we don’t do that. And that’s about as far as we’ve gone in terms
of a direction and a philosophy.
We’re not about creating a single paper, The Herald Age or The Age Herald.
We’re about having distinct papers that are the best they could be in their
local market, and that does involve copy sharing because we have great copy.
We also have great copy frankly from overseas. We have by far the best
syndication rights of any newspaper group in this country, with papers like
The New York Times and The Telegraph in London and The Washington Post.
And so, I want us to have the best copy from wherever for our readers, so
that we can really do a good job for them.
PRESENTER:
I suppose, in the end, too, you have to face the reality that we are a
fairly parochial nation. I mean, apart from The Australian Financial
Review, The Australian newspaper and, say, an organisation such as Sky News,
we don’t really have national news media. We’re very much parochial, aren’t
we?
HILMER:
And so are other countries. I mean, in ... you know, in America, there are
very ... the very strong papers are largely regional papers, though they
have a bit more of a broader footprint, but they’re largely regional papers,
where you talk about the Tribune or the LA Times or The Washington Post, New
York Times and so that’s the nature of the market that we’re in.
But despite that, we can still in terms of the way in which we run the
company, operate as one company because that is what we are. We’re one
company against competition who are much bigger than we are and we therefore
have to use all our resources and all our wits to compete well.
PRESENTER:
How much consultation do you have with your editors and how much influence
do you bring to bear?
HILMER:
I don’t have direct influence on the content of the paper. The influence
that I seek to have and that I do have is over the direction of the paper.
I’m concerned that we have good quality journalism. I’m concerned that the
journalism is attractive to our readers, that they’re not walking away from
us, but that they’re coming to us.
I’m extremely concerned with its accuracy and we’ve put a lot of effort into
making sure that the quality is reflected in accurate journalism. And we
are benchmarking ourselves against some of those papers that I talked about,
the best in the world and are beginning to reach levels of accuracy that are
very good.
So my concern is that we have a good quality environment and that we have
editorial directions that meet the needs of our readers. And if we do that,
then, yeah, we’ll continue to have very successful papers.
PRESENTER:
So, apart from circulation figures, how do you gauge that? What yardsticks
do you use?
HILMER:
Well, we have extensive discussions where we look at significant amounts of
market research. So, we have … whether we have reader panels where we have
feedback on redesigns as we’ve been getting lately as we’ve looked at that.
Whether we do focus group research, which we do from time to time. These
are all things that I look at with our publishers and with our editors as part of the normal course of running the business.
But we have a very … one of the beauties of a newspaper is you get a lot offeedback … you get a lot of feedback from the market, you get a lot of
feedback from your reader. And, you know, we get far more feedback than
just raw circulation figures. But even those tell you things because we get
feedback on the day when we try something.
PRESENTER:
But those media proprietors who own an outlet tend to say, what’s the goodof owning something if I can’t have my opinion expressed? Now, as the CEO
of Fairfax, aren’t you sometimes tempted to say the same thing?
HILMER:
Well, much as I’d love to, I don’t own the company and I have to manage the
company in the interests of its shareholders. Now, indulging in my
preferences is not necessarily in the interests of shareholders, unless I
was firmly of the view that my preferences would actually be better for the
readers.
And we have pretty robust processes to ensure that what we do is best for
the readers. I think that’s fundamentally our strength as an editorialenvironmental, which is that everybody here is working for the readers
because to work for the readers is to work for the shareholders.
And, you know, when an owner says, well, I want to say that even though that
may not be the best thing to say in terms of the readership, then what they’
re really saying is I’m happy with a lower profit or I’m happy with a less
valuable property because it’s my money and I will do with it as I wish.
And it would be quite wrong for me to behave that way because I’m an officer
of a public company.
PRESENTER:
Well, going back perhaps to where we started, other forms of media. Now f2,
the Internet site, that isn’t really been a great financial success for you,
has it?
HILMER:
Well, I think in relative terms f2 has been successful. I think, you know,
if you look at who’s left standing in the Internet space, we are one of the
people left standing. And in terms of news and classifieds we’re left
standing with a strong position. We invested a hundred million and people
have said to me, well, you’ve wasted a lot of the money. You know, with the
perfect wisdom of hindsight, I would have loved to got where we’ve got to
with about half what we’ve spent. And I’ve said that publicly a number of
times.
But with, you know, the wisdom of foresight I think we made a series of bets
that we played out. When we saw the bets weren’t going to pay off, we got
out of them. I think we got out of them far better than other people. We
got out of our CitySearch bet by selling the online component to Telstra for
twenty million. We got out of our auctions bet by selling that to Yahoo for
twenty-four million. We got out of our broking bet very early with very
small losses. We sold our shopping site. We didn’t go into liquidation.
We sold it to David Jones.
So, I think, you know, we’ve managed in an environment where people have
lost serious amounts of money with what I think are moderate losses. Not
that I like any losses.
PRESENTER:
It still raises questions over the future of the Internet as a form of doing
business, I suppose, such as this, as to whether it really is going to work
or not.
HILMER:
I have no doubt it will work. And I’ve said next year we will have a loss
of less than ten million which is tiny in terms of the rub-off benefits we’
ll get. I think we’ve had to learn, but if you look at media, every media
business takes pretty significant losses before they get to profitability.
I mean, our losses in the Internet compared to the losses in pay TV are
absolutely trivial. It cost us money for many years to launch The Fin
Review. People are now saying it’s a jewel in the crown, maybe you should
sell it. But, if you’d looked at that at year three or year four, you would
have said, what are these guys doing, losing money.
It’s the nature of a media business that you’ve got to build your audience
before you can monetise it and, you know, we are building audiences on the
Internet which are good quality. They extend the audience we have in terms
of the AB franchise into the younger segments of the market.
They aren’t cannibalising the newspapers and we’re getting something like
three times the news traffic of our next competitors and we have strong
positions in the Classified areas and that’s really where we’ve narrowed our
focus to at this point in time.
PRESENTER:
So, I suppose, if you analyse your own performance, it’s probably better to
have somebody like yourself with marketing skills run the company than
somebody with journalistic skills?
HILMER:
I always leave those judgements to other people. You know, I’m never going
to make judgements about my own performance. I’m always my own worst critic
because, otherwise, I think you can easily fall for the trap of complacency
and this is not an industry where you can be complacent for a second.
PRESENTER:
I suppose those critics or those judges are going to show up in the share
price anyway.
HILMER:
They vote every day millions of times.
PRESENTER:
Fred Hilmer, good to talk to you and thank you for your viewpoint.
HILMER:
Thank you, John.
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