Kerry Packer is poised yet again on the bank of a river, pondering how its course can be diverted. He wants to control the Fairfax river of gold. These are the classified advertisements which have brought so much wealth to the various owners of Fairfax over the years.
The river is about to change its character, but will still be a large wealth generator. The nature of that change is very significant for media players in Australia, but more of that anon.
Last week Packer consolidated his Fairfax shares into one vehicle, PBL. Before that his shares were spilt between PBL and Consolidated Press Holdings. He also reduced his holding to 15 per cent, the maximum allowed under cross-ownership rules. Before that he used a grandfathering clause to have a total holding of about 17 per cent.
The significance of the consolidation is that he can move much more quickly in the event of the Government changing the cross-ownership rules.
Murdoch, too, is stalking Fairfax, which publishes The Sydney Morning Herald, The Age, the Australian Financial Review and several major regional dailies.
Several issues arise.
Foreign ownership (Murdoch is a US citizen and Conrad Black, the present controller of Fairfax, is Canadian). Cross media ownership (Packer owns Channel 9 and Murdoch has a 15 per cent share in Channel Seven, but would like more). General monopoly provisions (Murdoch owns the highest circulating newspaper in Sydney, Melbourne, Brisbane, Adelaide, Hobart and Darwin and Packer owns the lion’s share of Australia’s magazines). The effect of the changing media scene (the convergence of pay TV, telephone and Internet provision). The incessant need for growth to enable tax minimisation.
The 1950s Royal Commission into Television said that a television licence is “”a public trust for the benefit of all members of society” because of its enormous influence on public opinion. One could argue that ownership of a newspaper is the same. The difference is that the airwaves (until very recently) have limited capacity and so have to be rationed (presumably by government), whereas anyone can print something. None the less, printing or publishing to a large number of people (until very recently) required a very large investment of capital.
Until recently, government control of newspapers was limited by the Constitution. Broadly three heads of power could be used: the broadcasting power to prevent broadcasting licences from owning newspapers (cross-ownership); the foreign trade power to prevent foreigners from owning papers; and the corporations power to prevent monopolisation. As it happens no government has used any of them effectively. More recently the High Court has widened the corporations power to such an extent that if it wanted to the Federal Government could exercise greater control over newspaper ownership if it wanted.
The Howard Government is obviously more free market than the former one. It does not like restrictions like cross-ownership. John Howard, however, has hinted at a certain a distaste for foreign ownership of media. Making changes, however, will not be easy. Unfortunately from the Government’s point of view, the things the Democrats might like about government proposals (such as reduced foreign ownership) can be done by ministerial fiat and do not require Senate approval to change legislation; whereas the things that the Democrats might find distasteful, such as weakening of cross-ownership would require changes to the Broadcasting Services Act and hence, Senate approval.
The difference is that the Foreign investment rules generally give the Minister the power to oppose the investment in the national interest whereas the cross-ownership rules are legislated and say things like thou shalt not own a television licence and a newspaper circulating in the same city.
The other link between foreign ownership and cross-media ownership is this: the only practicable way that the Fairfax group can be wrested from the control of Black is by a change of cross-ownership rules and either Packer or Murdoch (with the agreement of Packer) moving in. This is because Black (25 per cent), Packer (15) and Murdoch (5) adds up to 45 per cent, making it virtually impossible for anyone else to get a controlling interest over their head. There are enough shareholders (small time and institutional) who are apathetic enough on the question of control through things like ballots for directors that no majority could form out of the remaining 55 per cent.
The only things that might change that are unlikely: that the Government issues a divestment order on Black or Black himself gets the jitters or fed up and puts his shares on the market. It would be interesting to see whether an Australian consortium could buy them up.
Alas, history shows it is too much to expect of any Australian government to put in place effective measures for a diverse, Australian-owned Australian media, though it would be possible with political will.
An incidental reason for both Packer and Murdoch to want Fairfax is that expansion enables tax minimisation. The Australian-resident arm of a multinational group can borrow money for acquisition and the interest is deductible in Australia. Earnings, on the other hand, are shipped through inter-group transactions to entities overseas in places where reporting is slack and tax rates very low. It only works while the group is constantly acquiring new assets.
That aside, Fairfax is likely to be critical in the changing Australian media scene.
It is quite likely that the much heralded convergence of technology around pay TV, telephones and the Internet is a fizzer. The theory was that people would line up for pay TV and get a high-capacity cable into the home. This would also provide cheaper phone services. It would also provide fast and efficient Internet services. But this thinking no longer holds.
The reason is that while the technology may be converging, the tastes which drive the wallets are certainly not. Pay TV is appealing to the CD sporting-yob market. The Internet is for the AB information-hungry market. The latter is getting quite a lot on existing phone lines, thank you very much. Moreover, Internet provision on existing lines is improving incrementally. Smarter compression programs and smarter modems are delivering better on the existing phones all the time. Further, the technology for extracting small sums of money electronically on the Internet using existing lines is being overcome, as is delivery of sound and video.
The earlier view that you need the quantum leap to coaxial or fibre optic cable is out-dated. As is the view that effective money-generating Internet services must therefore ride on the pay TV cable roll-out.
But until quite recently there has been something missing for the information-hungry AB market on the Internet: that is timely, authoritative information. Some newspaper, sites, however, are getting very good. Murdoch has woken up to it with by putting the classified ads of all his publications on one Internet database.
This is why the control of Fairfax is crucial. It (or any other quality newspaper) is the window to the real wealth generator that is expected to come from converging technology. Affluent, knowledge-hungry people want an authoritative of current information. It can include still and video pictures and sound where wanted, so it will do everything TV does, but it will include what TV never can … a few thousand words of text to tell the whole story with hypertext references to a wealth of background material.
TV will be left for what it is: entertainment in short grabs for the unthinking, and mass marketing. The electronic Fairfaxes of the future will deliver the better information packages and will continue to deliver the rivers of gold comprising targeted classified advertisements to the affluent, many with hypertext, video, sound and still pictures unfolding at the click of a mouse. And magazines will need this sort of delivery to compete (very important for Packer).
Sure, many will still get the printed version, but the electronic version will carry the wealth generation. But people using the Internet now are seeking a stamp of authoritativeness (pardon the back-formation, but I don’t mean “”authority”) that comes with a masthead.
This run contrary to an earlier view by Packer that newspapers are dead. Recent events show they will remain in one form or another a very significant wealth generator.
That’s why Packer is poised again on the river bank.