John Fairfax Holdings Limited
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PRESENTER:

After speculation, leaks and gossip, the free newspaper wars of Sydney and Melbourne have been called off. John Fairfax and a scrambling News Limited were headed towards a battle for the eyes of commuters in both cities with a product similar to the Metro paper launched in London. But at a board meeting on Thursday, Fairfax hit the stop button hours after a lengthy feature in The Australian newspaper suggested a price war against the existing Fairfax titles. Well, John Fairfax ceo Fred Hilmer joins us this morning. And here again is Michael Pascoe.

REPORTER:

Thanks Jim. Mr Hilmer, Fairfax lost its nerve can’t handle a bit of competition?

FRED HILMER – JOHN FAIRFAX LIMITED:

You’ve got a great make-up department at Channel Nine and you should look at me. But this is businessman, I’m not Russell Crowe, I’m not a gladiator. And at the end of the day, what I put to the board and what I and my colleagues decide to do will be rational business decisions, and that’s what we did in this case.

REPORTER:

Well, what did your competitor at News Limited, Paul McCourt, Peter McCourt, sorry, mean by starting a price war and what products, what was the threat?

HILMER:

There was nothing specific.

REPORTER:

It was just a general competitor price war.

HILMER:

It was … whatever you read is what I read.

REPORTER:

And that was enough to turn you off pursuing a model that’s worked in a much more competitive market than Sydney or Melbourne?

HILMER:

Let me back up for a minute, Michael. We are pursuing growth. I think if you look at the very good results that we’ve been producing over the last couple of years. We’ve had three factors at work. We’ve had good top line growth. We’ve had good cost control and we’ve continued to refine and improve the capital structure. The context of doing that … we’re looking at a lot of opportunities. This is one opportunity. It’s not in fact a very large opportunity. It’s not an overwhelmingly successful opportunity, but it’s clearly one that was worth a very close look.

We took a very close look and in the circumstances what we found was that the upside - which is relatively small, when you look at the pool of earnings we have and the pool of revenue we have - that the upside was outweighed by the downside. And we made what was a rational business decision as I hope we always continue to do.

REPORTER:

And it wasn’t worth rocking the duopoly you’ve got in Sydney and Melbourne.

HILMER:

It wasn’t worth in this case, going after what were relatively small revenue streams and under you know, reasonable scenarios and I think this is true of Metro’s everywhere, a little bit of Internet-type earnings profiles, no profits for some years, it wasn’t worth doing that if the cost was very high.

REPORTER:

Can you see how this looks, though? Fairfax are going to launch a new newspaper, the first totally new title since, well, for decades. The competitor says they don’t like it, you have a meeting with your competitor and it’s scrapped. A certain irony that Fred Hilmer’s name was meant to be synonymous with competition is involved with something like that.

HILMER:

Well, let me come back to my first comment. What we’re doing is, we’re looking at a lot of growth opportunities. We’re going to look at a lot of opportunities on a lot of fronts. If we’re to be a more rapidly growing company - which we have been in the last periods - then we’re going to have to do what other growth companies do, and that is we’re going have to look at ten, fifteen opportunities and take them close to implementation before we actually make commitments.

Now, we did a transaction earlier in the year with strategic publishing. We went right to the wire on that. Would we do it, wouldn’t we do it? At that time we chose to do it. That’s turned out very well. That’s exceeding our expectations. There’s … a good growth company looks at lots of things, is prepared not to let its heart or its ego or bravado run away with it. And we need to have lots of opportunities and continue to be hard-nosed and rational. And we’ll find the ones that work and back them. We might miss some in that context, but the secret is to the opportunity rich and that’s my intention in terms of continuing to surface things. We’ve done a tremendous number of new things in the last year.

REPORTER:

But in terms of where you make your money, your core business, it’s still making newspapers. Your other activities are still minority, they might have potential – they’re not making money. What did you discuss with Mr McCourt? I mean, how does it … how do you decide not to do something?

HILMER:

Firstly, what I … how we decide not to do something is something that we go through in what I think is a fairly normal process. We discuss it in a management team. We look at the upside, we look at the downside, and then we discuss it with the board. And we take into account our best judgement of what we think we’ll make versus what we think it’ll cost us.

REPORTER:

Well, if someone else wants to start up this concept, if Text Media or Dick Smith want to start up this afternoon newspaper, what happens there, Fairfax and News Limited come down on them like a tonne of bricks?

HILMER:

We would look at our options and I’m sure other people would look at their options, and I think we have a very good understanding of the market potential and we’ll just play it as it needs to be played.

REPORTER:

But would you threaten someone else if they are thinking about starting up, the way it seems that News Limited has here?

HILMER:

Michael, I always reserve all my options.

REPORTER:

Well, your main business, your crown jewels, the Saturday editions of The Age and the Sydney Morning Herald, have got steadily falling circulation, at a time of economic boom, what happens to them, if the economy begins to slow?

HILMER:

Well, firstly, our core products of which there are actually a couple more than that, the Fin Review …

REPORTER:

But they are the crown jewels, the first two Saturday editions?

HILMER:

The Fin Review is doing extremely well, and is picking up a lot of circulation and particularly on the Saturday, so if you look at Fairfax on Saturday, Fairfax on Saturday is actually doing pretty well. If you look at circulation, and you know, I’ve only been here getting on a couple of years, but if you take a longer term view of circulation, our circulation has bounced up and down over the years. Where we are today, is not very different to where we are … where … five and ten years ago, with ups and downs.

One of the things I did find, and actually, one of the advertising people pointed this out to me, is that when you have very strong employment growth in the economy, you tend to get a few fewer people on Saturday buying the Herald or the Age, which have very strong employment sections. And I went back to the last time we had this kind of employment growth to test that, and I found very similar patterns in terms of circulation. So, we feel our readership is strong, and we’re continuing to see that, we feel our presence on Saturday is strong, the papers have never been performing better, and you know, if you look at them over the week, we have tremendous loyalty in terms of the readers and we’ve got some very promising signs.

REPORTER:

We are running short of time. The investment in the future growth, you haven’t been able to get a hold on the brand there, the way you have in newspapers, you’ve also had an expensive plan EASA (ph.sp), your Internet growth activities, it’s still a very iffy proposition.

HILMER:

I think our … firstly, we haven’t had an expensive play in EASA because we haven’t spent a cent, we are negotiating a situation with EASA and just as I commented earlier, we’ll enter into that when it’s in our best judgment, more up side than down side, and a good commercial deal on the table. We’re not there yet, so, important … we haven’t spent anything against that particular transaction to this point.

REPORTER:

Just briefly ...

HILMER:

Secondly, our other activities are going very well. Our revenue per unique user is tops in the industry, our Internet sites - which we’re focussing on, four areas, the city search area, the directories area, the finance area and the shopping area and auctions area - are in each case, at or close to market leadership, and what we have is four clusters of verticals under some very strong news brands, that are doing extremely well, in that market. Now, that market has a way to go, I accept that. It’s an important step out for us, but we are in good shape in the way in which that particular market’s evolving.

REPORTER:

Mr Hilmer, we must leave it there, thanks for talking to us.

HILMER:

Thanks Michael.

SYDNEY 2UE RADIO NEWS 8.00 AM

13TH MAY, 2000.

Businessman Dick Smith HAS offered to put up his own money to support the publishers of a free afternoon newspaper being planned for Sydney and Melbourne.

NEWSREADER:

Businessman Dick Smith’s offered to put up his own money to support the publishers of a free afternoon newspaper being planned for Sydney and Melbourne. Fairfax and News Limited have both held recent talks about launching a later publication. Mr Smith’s offered to put up two million dollars of his own money and says he hopes to raise another twenty million dollars to get the new paper off the ground.

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