THE DISTILLERY: New News

Jotters deliberate on the differences between the Fairfax and News Ltd restructures, while others look at Packer's move away from media.

The News Limited restructure proves it too is suffering the same print media decline as chief rival Fairfax Media. However, the accompanying bid for Consolidated Media Holdings and purchase of Australian Independent Business Media show News is on a much more powerful position. Meanwhile, other commentators move their thoughts to billionaire James Packer and how he’s almost certain to use the money.

Firstly, Fairfax’s Malcolm Maiden argues that News Limited has a better springboard into the online world than its rival.

"Rupert Murdoch's News group and Fairfax Media are responding to similar challenges with their restructuring announcements, and headed broadly in the same direction: away from print media. But the changes that News' Australian boss, Kim Williams, announced yesterday underline that News is starting from a different place, and has the corporate power to bring a second element to bear. Fairfax is accelerating its retreat from traditional media assets, and intensifying its focus on digital as part of that process. News is also scaling back its exposure to print, but super-charging the process by also acquiring non-print media businesses.”

Business Spectator’s Stephen Bartholomeusz agrees, adding that part of News’ comparative strength stems from the fact that it never relied on some of the businesses that Fairfax did, which it has lost to online competitors.

"Fairfax’s mastheads, its culture and its cost base were created and embedded by its former dominance of classified advertising markets, the so-called rivers-of-gold that have now evaporated, or at least moved elsewhere. The classifieds dictated broadsheet papers, an up-market demographic and relatively small albeit affluent audiences, which in turn necessitated high-quality and expensive journalism. With most of that revenue gone and its audience migrating rapidly online, Fairfax had no option but brutal surgery and a bet on its only option for viability, its online presence. News Ltd is different. It never had meaningful classified revenues or cost bases as generous as Fairfax’s. Its key papers are mass market tabloids with mass audiences. Despite suffering from the digital migration it retains mass audiences. It still has more than 13 million readers a week. There isn’t quite same urgency in News, which is also part of a massive and massively profitable global media group, as there is within Fairfax even if it is tracking broadly in a similar direction.”

But let’s not kid ourselves, there’s a lot of pain to be felt at both companies, as telecommunications consultant Paul Budde explains.

"There is no end in sight for the further shrinking of the media companies as the changes in the industry are continuing at great pace, totally beyond the control of the traditional players, who failed to take decisive action five or 10 years ago. The writing has been on the wall all that time, but the traditional players chose to ignore those messages and thought that they would be able to weather the storm. They were blinded by their ‘rivers of gold’ in revenue streams coming from advertising. However, even if they are able to hold on to all or some of the older traditional media, the inevitable further decline in their revenues will result in the inability to fund the content that people are interested in. BuddeComm strongly believes that it is already too late for the traditional media to turn around and regain any of their former glory in the new digital media environment. So it is no longer a matter of ‘wait and see’ what will happen, the situation as we have it now is it – and will only further deteriorate.”

The subsequent issue to come out of yesterday is the sale of Consolidated Media Holdings, which will give billionaire James Packer an extra billion to throw into casinos. The Australian Financial Review’s Chanticleer columnist Tony Boyd says Williams should be careful when dancing with the Packer, who is an apt seller of media assets.

"The Williams strategy for transforming News Ltd is partly an indictment of his predecessor because it involves stripping out the geographical and divisional silos, centralising back-office functions and finally dealing with the company’s antiquated publishing systems. However, in doubling up the company’s bet on pay TV he is lifting the exposure to discretionary spending on top of having to deal with the digital disruption pressures that are bearing down on Fairfax Media, which publishes The Australian Financial Review. Packer, who was once pilloried for his involvement in collapsed phone company One.Tel, has proven over the past decade that he is a master at selling assets, and has a great record on picking trends in technology. Remember, it was Packer who bought online website Seek out from under the nose of Fairfax Media. Seek now has a market value of $2.2 billion, or about a $1 billion bigger than Fairfax.”

Although, as The Australian’s John Durie explains, the situation at Packer’s target, Echo Entertainment, is getting more complicated.

"If all goes to plan, James Packer will collect close to $1 billion to help chase his casino dreams and presumably Kerry Stokes will cash out his pay-TV interest to concentrate on his own backyard. Genting confirmed yesterday that it has 9.8 per cent of Echo, which presents Packer with a potential dilemma, given his aim of controlling the casino group without paying a control premium. Although he came out in front on his Foxtel investment, any deal with Genting's KT Lim will come at a price, unless Packer cashes his chips on that play as well. The Australian Competition & Consumer Commission will take a look at the Foxtel deal but will approve it without too much concern because News already provides Foxtel management, so on paper nothing much changes."

And Fairfax’s Elizabeth Knight spots Kerry Stokes sitting on the other side of the CMH sale. Might he have an axe to grind?

"Those with a sense of history will remember his attempts to create his own pay television operation many years back – C7. It failed, thanks to what Stokes' believed was a conspiracy led by News Ltd to ''kill'' the fledgling operator. The behaviour of News and other media operators (including Packer) was later the subject of one of Australia's longest running and most expensive commercial legal actions. Stokes ultimately lost but bears the scars and resentment of what he has always maintained was an attempt to lock him out of this market. It's a fascinating twist. Murdoch now needs Stokes to further his own pay television ambitions. And the wily Seven network boss is not about to do any cosy deals. Chances are he will either obstruct, make Murdoch sit and spin or (at the very least) make Murdoch pay up.”

The AFR’s Matthew Stevens reflects on just how close Packer is to ending his relationship with media for good.

Business Spectator’s Alan Kohler explains why Australian Independent Business Media decided to sell to News Limited. Kohler also expands on those comments in The Australian this morning, with some amusing recollections about how it is that this is the fourth time he’ll be working for News Limited.

Fairfax’s Paul Sheehan says the balance of power between the PR industry and the journalists that scrutinise them is tipping towards the former.

In other company news, Fairfax’s Ian McIlwraith has detected a trickle of Alesco Corporation shareholders selling out at $2 a share to DuluxGroup.

Meanwhile, Fairfax’s Michael West looks to overspending by electricity providers for rising power costs.

And finally, The Australian’s Robin Bromby brings word from Macquarie research that makes the case that China has been able to increase production in certain commodities this year to keep a lid on domestic prices.

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