Extra! Extra! Stop The Presses. No, Really.
By Mike SeccombeJune 21, 2012
Will the Australian print media, already the most concentrated in the developed world and weakened by its own cannibalism, be able to drive readers up the paywall?
How do you best measure the decline of the Fairfax newspapers over time? There are many possible ways.
One very obvious indicator was cited in the company's own The Sydney Morning Herald on Tuesday, June 19, the day after the company's chief executive, Greg Hywood, announced 1,900 jobs were to be axed and its broadsheet papers turned into tabloids; that the papers might become entirely digital in a couple of years, and their content then put behind a paywall. The measure was share price — down 85 per cent in five years.
Other measures have been reported along the way. Take the double-digit drop in circulation, registered in the audit figures for the three months ended March this year, compared with the same period in the previous year. The figure was no doubt exaggerated by Fairfax's decision to cut out unprofitable distribution, but the underlying trend is down and it is accelerating.
That's not true only for Fairfax, of course. News Limited waited only a couple of days before it followed suit with its own restructuring plans. It has not yet, however, announced how many jobs will go. The expectation is about 1,000.
It appears the Australian newspaper business is tracking a similar course to that in other developed countries, it's just a few years behind.
That bodes ill. According to figures contained in the report of the Independent Inquiry into the Media and Media Regulation (the Finkelstein Report), delivered just four months ago, the newspaper market in the United States declined 30 per cent between 2007 and 2009. In the United Kingdom, the decline was about 22 per cent.
In Australia, the slide didn't really begin until 2007 or 2008. The Audit Bureau circulation figures tell the story. Let's just take a few of the more dramatic: between March 2007 and March 2012, The Saturday Age was down more than 10 per cent; the Saturday SMH, down close to 20 per cent; the Saturday Canberra Times down more than 20 per cent and: The Weekend Financial Review down 30 per cent.
Advertising revenue was down even more sharply. The papers got skinnier. We'll spare you more numbers; you get the picture. But, like we said, this is a global problem for newspapers, and different publishers responded in different ways. Some opted to maintain the quality of their products as much as possible, even if that meant taking a hit to profitability. The New York Times provides an example of this, of which we'll say more later.
Fairfax did not put quality first; it put cost-cutting first. It opted to chop away at the muscle of its operation — its writers, or as the former, unlamented chief executive Fred Hilmer would describe them in McKinsey-speak, its "content providers". (Fairfax executives love anodyne euphemisms. They prefer to call the paywall the "digital subscription system"; they call the slash-and-burn asset sales and cost-cutting "Fairfax of the Future".)
Of all the statistics about the decline of Fairfax, the hardest to establish is how many good people went out the door. Was it eight rounds of "voluntary"' redundancies at the SMH and The Age over the past decade? Nine? Ten?
We asked current executives, we asked the journalists' union and currently active members of the House Committees. No one could be sure. (A personal declaration: I took redundancy from the SMH in late 2005.)
One executive did offer this: "In your day, [Herald] staff would have been somewhere north of 400."
Before Hywood's announcement this week, some 280 editorial staff remained on The Sydney Morning Herald. That will now be cut by about 70. The Age also will lose about 70 and The Canberra Times about 10.
The union put the number of jobs shed over the past six or seven years even higher.
But even accepting the executive's numbers, the Herald's journalistic staff has been cut by half. The figures for the Age would be of the same order; The Financial Review mostly escaped the cuts, until this latest round.
Even as Fairfax was cutting its editorial staff, it moved into the online world, initially in a rather clumsy way. The website lost a great deal of money at first, and was then pitched as a dumbed-down version of the print edition, with lots of light fare which might inspire one to click on a headline, and then read just a line or two.
But The Sydney Morning Herald online has become somewhat more substantial in recent years.
The reason for that, according to analysts, is that the means of measuring online activity have become more sophisticated. Media organisations can no longer sell to advertisers on the basis of cheap clicks alone; you have to be able to show that readers stick with your site for more than few seconds. That's why video has become such a popular element of online publishing — viewers must generally sit through a preambling video ad before they get their content. The new metric in the online world is not clicks but "audience time", the percentage of people's online time that they spend looking at newspaper sites and, theoretically, the ads that are there with the stories.
Here, Fairfax's results have been pretty impressive, at least in readership terms; Fairfax claims its total audience is up 30 per cent over the five years from 2007. The trouble is more than three-quarters of these "reader interactions" as they call them, now come via digital means. So, the audience is there, it's just that so far most of them are getting the news for free. And the ad money isn't there like it once was. The competition from other online businesses, which don't bear the expense of cross-subsidising news gathering, is fierce. Still, said our media analyst, Fairfax is in a better position than News Limited to capitalise on its online offering "because they have better masthead quality."
Masthead quality. It is a testament to the staff of Fairfax newspapers that masthead quality has held up so well despite a quarter-century of mismanagement of the company.
It was 25 years ago that the 26 year-old scion of the Fairfax family, Warwick Fairfax Jr, a naïf with an MBA, first plunged the company into permanent instability with his ill-fated attempt to wrest control for himself. In league with a crook, the late Laurie Connell, he managed to trash the place so completely that the company was in receivership within three years.
And this, bear in mind, was before any threat from the internet, while the "rivers of gold" from classified ads were still flowing strong.
Over the subsequent years of ownership instability, Fairfax has been like a wounded whale, struggling along as shark after shark has taken a bite. Some were savvy, like Kerry Packer; others were crooks, like Conrad Black; some were political, like Liberal Party operator Ron Walker; and some flashed MBAs, like Fred Hilmer.
Most were institutional investors with no particular interest in product quality, only in share prices and dividends. The downward spiral did not end even in 2007 when Fairfax merged with Rural Press, bringing Fairfaxes back into the company and making an empire allegedly too big to fail or be taken over. Indeed, that was when the rot really set in, with the Global Financial Crisis, and the blossoming of internet competition.
Through it all, Fairfax's ever-shrinking editorial staff kept putting out the news, resisting attempts to interfere with their independence.
The whale kept on swimming. But bleeding money, and jobs, it was weakened.
Once the proud boast was "Fairfax pays its way" meaning, it met its own costs of travel et cetera, involved in news gathering. Now, as one staff member says, "a lot of our business stories are paid for, so people can go to meetings. Even general stories. A lot of the news priorities are determined by who's got the cheque book out." [See Bernard Lagan's accompanying piece for more on this.]
Herald business writers complain they are subjected to demands from above to be more "pro business". The Financial Review, until recently merely an increasingly boring paper has become, as one staffer described it, "cravenly pro-business".
But, let's be fair, the Fairfax papers remain far more independent than those at News. Over there, a writer bucks the prevailing ideology at his or her own peril. Journalists' stories are directed, and messed with. I know; I once worked there.
No, editorial interference is not the main problem at Fairfax, or hasn't been until now. The main problem has simply been the unrelenting cost squeeze. As one long-suffering member of the Herald's staff noted on this most recent day of the long knives: "There's a program called Fairfax of the Future, intended to cut costs. It started off nine months ago at $85 million. Then we had a profit downgrade and they decided to double the savings to $170 million. And today Hywood said they'd decided to increase it again, to $235 million.
"How do you keep cutting like this? Fairfax is essentially cannibalising itself."
Did someone say cannibalism? You can read the detail of Fairfax's "strategic initiatives" — the staff cuts, the asset sales, the timetable, et cetera, here.
What is not mentioned, of course, is the biggest fly in Fairfax management's ointment, Gina Rinehart, who has taken her own strategic initiatives over recent months, buying up a stake of almost 19 per cent in the company. You will have heard, she wants to have three directors on the board, and demands the right to hand pick the editors of the papers. She is refusing to agree to the charter of editorial independence, negotiated 20 years ago under the aegis of the late Sir Zelman Cowen (who was five years on the Fairfax board) and endorsed by the company's board. Read it here.
Who knows precisely what Rinehart's intentions are? Maybe she just wants to make life tough for some of those journos who have reported the affairs of her dysfunctional family. Maybe she cares about the future of Fairfax or maybe she does not. Maybe she wants to exert influence on Australian politics and public policy in general, or maybe she sees having such control more narrowly, as a way of protecting her mining interests.
The only thing that appears clear is that she wants to be very active in directing the way Fairfax does the news.
Whatever her motivation, the Fairfax board is resisting her demands, and the staff are happy about that.
At the same time, many Fairfax staff see Rinehart as a catalyst to the board's sudden decisive action. But whether or not that is the case is unimportant.
The important fact is that, having been asleep at the wheel for years, the members of the board and senior executives have apparently now awoken, just as the car is about to plunge over the cliff. And in panic, they've jammed both feet down, one on the accelerator — the massive cut to staff — and one on the brake — the paywall.
To explain the metaphor, we turn to Alex S. Jones, director of the Shorenstein Center on the Press, Politics and Public Policy at Harvard's Kennedy School, and a Pulitzer Prize-winning journalist. He also wrote the book Losing the News, which examined the consequences of the decline of newspapers, which provide what he calls "the core news that has been the essential food supply of our democracy."
Jones says paywalls can work, but only in the right circumstances.
And here we go back to The New York Times.
"I think The New York Times is close to the place where if they stopped producing a newspaper, on paper, they would still be able to remain the news organisation they are, based on purely digital publication. I don't think they're there yet, but they are close," he told The Global Mail, from his office in Cambridge Massachusetts.
"That is very encouraging. The discouraging part is that I don't think there are many other newspapers that can do what [it] has done. You've got Gannett now, which is a big chain of [mediocre] newspapers over here, and they are apparently going to try a paywall. But they're not regarded in the community like the Times is.
"If it works for [Gannett], I'll be surprised, because the reason people are willing to pay for The New York Times is value perceived.
"I think that is where a lot of these newspapers that have cut themselves back to being shells of what they were, have a problem," says Jones.
"The community has to believe you, to support you."
The question is whether there is enough perceived value left in Fairfax — after all these years of staff cuts and online mediocrity — to warrant that kind of support. Will readers be sufficiently confident of finding something of value behind the wall to justify paying?
The best that can be said is "maybe". Fairfax has already tried an online pay-for-news model, at the Financial Review. It was not a success, so they have just made that wall more permeable. Over at News Ltd, The Australian online content is now behind a wall; we're still waiting for the audit bureau numbers to gauge its success.
One thing Fairfax has going for it is lack of competition. Australia has the most concentrated print media in the developed world; between them News Ltd and Fairfax control 86 per cent of all circulation, and 90 per cent of metropolitan/national daily circulation, according to Finkelstein. In comparison, the two biggest newspaper groups in the United States control 14 per cent.
So if an American does not want to pay for an online subscription to the NYT, he/she can go to The Washington Post or one of a number of other quality papers which don't have paywalls.
In Australia, what newspaper alternative to Fairfax do you have? The Australian, which is already behind a wall, or one of the Murdoch tabloids. New digital sites, such as The Global Mail, are aspiring to fill some of the critical gaps, but don't pretend to offer local news or common newspaper ancilliaries such as weather, TV guides or sporting scores and fixtures.
The key point here is that on the evidence to date, paywalls only work if there is very, very good stuff behind them. Which brings us back to Gina Rinehart. What do you think her foray into Fairfax is doing for its perceived value? How will her involvement in the company affect its reputation for objective journalism? You might like to check out this screamingly funny mock-up of the "Sydney Mining Herald" front page for a clue.
Seriously, though, it is not hard to imagine the agenda Rinehart would impose if she succeeded with Fairfax, given the world view she apparently inherited along with the mining interests of her late father Lang Hancock.
And among the potential redundees at Fairfax, they are certainly imagining it: Rinehart takes control of Fairfax, gangs up with News Ltd against the ABC — which is then emasculated by an incoming Tony Abbott Government. This would not just be an ideological thing, it also would be a commercial thing. The material behind the Fairfax and News paywalls would become comparatively more attractive to readers if the excellent, free content on the ABC site were no longer there.
The end point: conservative hegemony, Rinehart gets what she wants on mining tax, carbon tax, environmental laws, et cetera, and media diversity limited to a simple choice: the Rupert Murdoch view or the Gina Rinehart view, the right-wing view or the very right wing view.
Don't laugh. The senior Fairfax journo who ran this scenario past me on Wednesday has a pretty good record as a prognosticator. And, clearly, judging by the reaction from parts of the Labor Government, they are imagining similar scenarios.
Maybe it won't come to that. Maybe Fairfax will fight off Gina Rinehart and the company's hapless management and long-suffering residual staff will somehow find a way to a happy, profitable future.
But then, you have to consider the 25 years of company history since young Warwick Fairfax first screwed up.
So far, every time it has looked as if it couldn't get worse, it has.