Yesterday in Sydney, I helped launch a book called Killing Fairfax: Packer, Murdoch & the Ultimate Revenge by Pamela Williams, editor at large of the Australian Financial Review.
It’s about how Fairfax Media lost classified advertising to three companies backed by James Packer and Lachlan Murdoch – Seek, REA and Carsales – and it opens with the two men having lunch on an “early spring day” in August 2012, at Rockpool in Hunter Street, Sydney.
As they lifted their glasses in a toast, James Packer said: “Fairfax didn’t see any of this coming. They thought it was all beneath them. They thought we were idiots. You know, I think we killed Fairfax."
“I think so,” said Lachlan Murdoch.
Well, they didn’t kill Fairfax because it’s still alive. But it’s definitely unwell.
Pam Williams’ book is a story of, on the one hand, mismanagement and hubris on an epic scale, and fantastic entrepreneurship on the other.
It’s true that Packer and Murdoch saw what was happening early and acted decisively to take positions in them, but it was Greg Roebuck and Wal Pisciotta (Carsales), Paul and Andrew Bassett and Matthew Rockman (Seek) and Karl Sabljak and Martin Howell (REA) who created and drove those businesses and munched through Fairfax’s lunch.
Those three businesses are now worth a total of $9.4 billion; Fairfax is worth $1.2 billion. Not long ago it was the other way around.
In my speech to launch the book (as editor of the AFR I hired Pam Williams on August 31st, 1987 – the same day that Warwick Fairfax Junior launched his disastrous takeover offer for Fairfax) I made a few points about the company that are worth repeating here.
First, to some extent Fairfax was the victim of what I called the "I can do that" syndrome, which journalists and writers often encounter through life.
Journalism doesn’t seem too hard. You don’t need a degree for it, although all recruits now have one, and there is no certificate on your wall that says you are a certified journalist or editor.
People think the business of journalism is no big deal – “I can do that!” – and so they can think that it's OK to not have journalists or others who know about publishing on the board or management of a journalism business, because, after all, what’s to know?
What’s needed, they always think, is a fresh look. Not only can I do that, they reckon, but I can do it better.
And so smart business people on the Fairfax board who did not understand publishing appointed CEOs who knew even less. And when they did appoint an experienced publisher to run the business – Brian McCarthy – he only understood the print form of it. He had no idea about digital publishing, which had been eating the business for ten years by then and was clearly the future.
They have finally appointed a talented, modern journalist and publisher as CEO – Greg Hywood – but it’s very late, and his job is difficult.
Second, there was no excuse for not seeing what was coming. When I was editor of The Age in 1994, and the internet had only just started, I repeatedly told staff and management at Fairfax that I thought classified advertising was going to move online. I even made a few speeches predicting it (which were very unpopular with management at the time).
I was no genius, but it was obvious even to me that web browsers were a superior way to distribute data listings to customers and that eventually it would happen. But 15 years after that, with Brian McCarthy at the helm, Fairfax was still in denial.
And the third point I made was that even if Fairfax had seen it coming, and had managed to transfer its dominance of print classifieds to online classifieds, it wouldn’t have saved the business of journalism from the painful adjustments that are now required.
That’s because the fundamental thing that happened, and which Packer, Murdoch and the entrepreneurs named above understood, was that journalism and classified advertising became decoupled, and at the same time the barriers to entry collapsed.
Newspapers began with classified advertising on the front page and even when the ad listings went inside, they were all one business. Classified ads were the revenue; journalists were the cost. Some papers, like the Trading Post, had no journalism and just classifieds, but the real money was in the combination of the two.
But when they went online, the classifieds were always going to be 'pure play' as they became known, whoever owned them. That’s because the marriage of journalism and classified advertising was a one-way street. Journalism needed classified advertising, but the reverse did not apply, and competitors no longer needed to buy printing presses.
Even if Fairfax had owned them and remained a publishing behemoth, the real estate, job and auto listings would still have to have been 'pure play', with no journalists adding to the costs, because otherwise its prices would have been too high, making it vulnerable to online competitors who employed no journalists.
So from the moment the World Wide Web was invented, journalism was always going to have to pay its own way through display advertising and subscriptions.
And two other digital phenomena have conspired to undercut those things as well: search engines (that is, Google), which deliver billions of pages of free content, and advertising accountability (advertisers now know exactly how the display advertising performs, and pay accordingly).
At its core, Fairfax has always been, and still is to some extent, a big, nationally important collection of journalists and editors, paid for by print advertising. News Ltd is too*.
In the digital world, such collections are smaller.
*Business Spectator is owned by News Ltd.