An unconventional Fairfax fix

Western democracies allow any individual to buy and sell ownership stakes in private companies. And once you become an owner of a company, you have strong protections under the law. In particular, the Corporations Act (2001) states that all directors of that company and, crucially, all employees, must always act in the best interests of the company and its owners. They have no amorphous obligations to the "public interest".

Even the privately-owned major Australian banks, which The Australian recently estimated benefit from extraordinary taxpayer subsidies in the order of $5 to $10 billion per annum, have no public interest responsibilities imposed upon them. Indeed, a key learning from the global financial crisis is that mixing up public and private interests is a recipe for extreme dysfunction.

So one can freely purchase equity in ASX-listed companies, start a fresh private business (like the founders of Business Spectator and Eureka Report did), or acquire an exposure to an operating concern, such as the Private Media group that runs Crikey and Property Observer, and which recently undertook a private equity raising.

Taxpayers rightly pour $1.2 billion per annum into our government-owned national broadcasters – ie. the ABC and SBS – with formal charters that safeguard the "public interest" by being required to always produce freely-available and impartial news and current affairs information. In contrast, the owners of private media businesses, which are increasingly diverse and populate a multiplicity of media platforms, can lawfully disseminate whatever content they want.

For example, the owners of The Monthly, Crikey, and The Australian can adopt whatever hard-left or hard-right editorial lines that meet their commercial or non-commercial goals, as the case may be. This is a basic tenet of any open civilisation: freedom of expression irrespective of whether those communications conflict with the desires and/or interests of the elected government of the day.

Recently we have seen some resistance to the emergence of Gina Rinehart as a shareholder in Fairfax, a privately-owned enterprise listed on the ASX. The chart below shows the change in Fairfax's market capitalisation over time. Since 2005, the owners of Fairfax have suffered a 67 per cent decline in the value of their capital.



Today the equity in Fairfax is worth around $1.3 billion, based on Bloomberg data. If the Fairfax board is right, and its readers passionately believe that Fairfax should deliver a specific media product – one that is determined exclusively by Fairfax employees rather than the business's owners – then they have the legally-enshrined right to buy the business and control it for themselves.

And since the share price is sitting near record lows, this might be an opportune time to do so. How much would it cost? According to Google Trends data, smh.com.au and theage.com.au get about 1.1 million unique readers every day. Just taking the two major mastheads' online audience, purchasing Fairfax outright would, therefore, cost just $1,200 per person. When you think about it, this is probably the equivalent of a two to four year subscription to a pay-walled media site. In fact, it would currently get you 2.9 years worth of The Australian's complete news package. This would, as a consequence, seem like a modest investment for those that care to preserve the principle of editorial independence.

Christopher Joye is a leading financial economist and a director of Yellow Brick Road Funds Management and Rismark. The author may have an economic interest in any of the items discussed in this article. These are the author's personal views and do not represent the opinions of any other individual or institution. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations.