The board stoush at Fairfax Media, entertaining though it has been, is just a bit of a scuffle between a couple of blokes pushing and shoving. One will go off with a blood nose (Ron Walker) with the shouts of the other (John B Fairfax) ringing in his ears, and the teacher (Roger Corbett) will come in and tell everyone to just settle down.
John B Fairfax, owner of 9.7%, was going to vote against both Walker and Corbett but he hasn’t got enough stock to hold sway on his own. The two candidates had been planning to count institutional numbers next week, but The Australian has this morning reported that Walker will announce today that he’s stepping down.
Roger Corbett will now almost certainly become chairman, probably with John B Fairfax’s support. In my view that would be a good outcome, and I’m not speaking as a competitor wishing Fairfax ill: he would definitely be good for the company. Let me explain.
Corbett and the other remaining directors, having convulsed through a “board renewal”, will have to sit down and figure out what to do. They need a plan, and then more importantly, they need to execute it well.
I refer them to the priceless explanation of Western Bulldogs’ player Jason Akermanis about the fact that he got too drunk, too early, to make it to the Brownlow Medal count on Monday night:
“I had a really good plan in place to get there. But it’s fair to say I miscalculated a few things, and as such didn’t execute the plan all that well.” His wife, all dressed up, was not pleased.
Like Mr Akermanis, and other listed media companies, Fairfax has an awkward problem: it is intoxicated on profits from the traditional source (newspapers) which are given a low-growth price earnings multiple by investors, and they need to get to the Brownlow (a high-growth, internet PE ratio).
What’s more, earnings from the new media, which are given a high PE multiple by investors because growth is expected, are not actually growing as expected.
In other words, to labour the metaphor, it turns out that the Brownlow is not all that good (true); you might actually be better off staying at the pub, except for the fact that closing time is approaching and chairs are noisily being put on tables.
Some companies are making money online, but profits are hard to get and hard to defend.
The sharemarket has a more realistic view of the internet now than it did in 1999, but online profits are nevertheless rated more highly than newspaper profits.
Even non-profits online are rated more highly than real newspaper profits. Twitter, the social networking site that doesn’t make any money at all, is reported this morning to have been valued at $US1 billion in a capital raising deal with a private equity firm.
How, newspaper companies want to know, can we get some of that action? Answer: by becoming an internet company. “But we are an internet company,” Fairfax would wail. “Look at all our excellent websites!” Well, yes, but most of the profits still come from newspapers, which are gradually dying, so why would anyone pay more than a few times one year’s earnings for them?
In the end it is going to come down to costs and a pragmatic focus on the business, rather than stars in the eyes about this crazy thing called the internet.
Roger Corbett used to be an internet sceptic, probably because grocery shopping online didn’t take off as many expected in the 1990s.
Presumably he has now figured out that the internet is here to stay and that people are using websites, and not newspapers, to buy cars and houses, and to get a job. He must also have observed that more and more people are reading journalism online as well, and are also viewing video via websites rather than TV channels.
But what’s happening is a common or garden industry disruption, not some mysterious publishing phenomenon that requires druids and alchemists.
The task is to find a way to move from a high-cost, cartel business environment to a low-cost, highly competitive environment. It will be very difficult and journalism as we know it will suffer (although, of course, I would argue that Business Spectator and its sister publication Eureka Report are pretty good role models for the future of good online journalism).
Ron Walker is definitely the wrong man for that job, and has been from the start. Roger Corbett is not a publisher either but he could be exactly the right man to transform Fairfax if he gets out his supermarket apron and puts his mind to it.
This article first appeared on Business Spectator.
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