Fairfax chops and changes into the future

For years, many accused Fairfax of standing still when it came to making the tough decisions required to future-proof its business. But the company’s actions this week have showed that Fairfax can’t be accused of being indecisive.

To be frank, Fairfax doesn’t have the luxury of sitting on its hands. No media company does. The advertising market is tough and despite a lot of bluster around growth in the back half of the year, the numbers don’t really seem to reflect the bullish confidence many expressed earlier in the year.

Fairfax is no longer content to ‘die wondering’. On Monday, there are numerous reports saying that they were in advanced discussions regarding a merger of their AM radio assets with Macquarie Radio group. On Tuesday, Fairfax hired Tourism Australia Chief Executive Andrew McEvoy to head up their refreshed events division. On Wednesday, Fairfax parted company with Netus executives Daniel Petre and Alison Deans, both brought in to provide digital expertise to the group through the acquisition of Netus just ten months earlier. And last week we had the decision — reportedly against the publishers wishes — to terminate the print edition of Business Review Weekly and move the BRW brand online only and free to access, allowing Fairfax to cut numerous jobs in the process.

These moves merit closer inspection.

The mooted MRN merger appears to make sense on paper at least. Despite AM radio not having the gloss of its FM cousin, Fairfax’s radio division had a strong 2013 financial year,  growing in revenue and EBIT. It has some very strong assets within the portfolio - including Melbourne powerhouse 3AW - and delivers respectable earnings of around $15 million per year in a tough market. While this performance does not justify the price tag Fairfax paid for the stations six years ago, it is a meaningful contribution to the group. Pairing these stations with MRN’s stations will result in some decent operational savings across sales and administration that could add up to $10 million to the consolidated group’s bottom line. The only thing standing in the way appears to be agreement between the parties on the value each brings to the merged entity.

The appointment on Tuesday of Tourism Australia CEO Andrew McEvoy was a surprise for most. Fairfax chief executive Greg Hywood had briefly discussed the companies want to generate more revenue from non-advertising sources, but few expected that the company would hire such a heavy hitter to drive the area.

The appointment of McEvoy — and the compensation someone of his stature and experience would command — shows that Fairfax has more than modest hopes from a move into events. With brands like Domain, Essential Baby, AFR, BRW and Stayz, there are some obvious areas the company can look to leverage these well-known, well-read assets.

Conferences, trade shows, seminars and functions are ways these brands can evolve from purely ad supported to a more diversified revenue pool. It is also likely Fairfax will look to partner with external brands - TV formats come to mind - to bring live experiences to Australia. However, events are a specialised and relatively risky pursuit and a long way away from a content and advertising-focused operation.

Events can be a huge drain on cash flow and the difference between a million- dollar gain and a million-dollar loss can often be a 5 per cent variance in sales. For this to work, it needs to be given the operational autonomy, staff resources and financial support to really fly. However, the gains will be significant if Fairfax can nail an integrated model with revenue from attendance and sponsorship and brand integration.

Wednesday's announcement that Daniel Petre and Alison Deans had decided to part ways with the company was equally unexpected. When Netus was acquired last year, the reports were Fairfax had forked out $50 million, however from information contained within the 2013 annual report the figure is more likely to have been $30 million for Netus, wholly owned business Allure Media (which licences international brands such as Gizmodo, Lifehacker, Business Insider and Shopstyle domestically) and most likely an additional amount of cash: the acquisitions disclosure of the annual report  showed that Fairfax paid $35.4 million for all businesses acquired during FY13, with net cash or cash equivalents purchased valued at $13.1 million.

At the time Greg Hywood stated that the purchase would “bolster Fairfax’s digital experience and expertise”, and Petre added that “Alison and I are excited … to build a strong and sustainable Fairfax in a digital world.” Ten months later, Petre and Deans are out the door and the market is still unclear why the initial acquisition was made, and unclear where Allure Media fits into the recently revamped structure of the publishing media business.