FYI | Oct 18 2006
Today, the 18th October 2006, Australia’s House of Representatives has, as anticipated, voted in favour of the proposed new media regulations. As the Senate already approved the Federal Government’s media reform proposal last week, Australia will likely have different media rules and legislation from February next year onwards.
Does this make today an historic day?
The answer to the question is probably “yes” but there is a chance all those who answer affirmatively are not thinking the same thing.
Media analysts at Morgan Stanley published a few in-depth reports on the matter over the past few months. One report, published in mid-July, carried the title “Deregulation… What you won’t read in the press”. For obvious reasons it caught my eye.
The proposed media “reform” (quotation marks are mine), the report states, will definitely trigger a new wave of mergers and acquisitions throughout an already heavily concentrated Australian media landscape. And so the country will end up with having fewer, and bigger, media companies, but not necessarily more profitable ones.
The main reason behind this is that all companies involved are old media companies, active predominantly in TV, radio, magazines and newspapers – these are all mature sectors. Audiences are in decline and so are advertising revenues. The internet has developed into a genuine threat and so will mobile telephony in a few years from now. Most Australian media companies will tell you they already have operations in these new fields but they are rather small still, with the exception of News Corp (NWS) which, it can be argued, is more foreign than Australian anyway.
All the chess games that are being played behind the scenes are therefore all about acquiring “strategic” assets and market positions. Importantly, Morgan Stanley notes, international experience tells us any upside for the bottom lines of media companies will come from cost savings that will follow M&A transactions. In other words: it is very much likely there will be even more journalists (and other staff) looking for a job in the Australian market in six to twelve months from today.
Morgan Stanley’s conclusion is therefore that the new legislation will NOT re-invigorate the sector. Once the dust has settled, it will be more of the same, in fewer hands, with a short term boost to earnings as head offices, back-end systems and staff will be reduced.
It makes one ponder about the meaning of free and independent media, doesn’t it? (As well as to why exactly these changed needed to be made).
One of my favourites among the books I’ve read over the past two years or so is Corporate Cannibals by journalists Colleen Ryan and Glenn Burge. It’s an old book, published in 1992 already, and provides a fascinating insight into all the schemes, lobbying and kongsis that went on in the early Nineties aimed at acquiring control over John Fairfax, publisher of iconic newspaper mastheads such as The Age and The Sydney Morning Herald.
If you ever wondered why the Fairfax family has a controlling stake in Rural Press (RUP) but not in the large metropolitan publisher that bears the family name I advise you to read this book. The main danger is that it will keep you awake at night and you’ll be disappointed as you turn the final page.
If current market expectations prove correct Fairfax may again face a similar fate: different people, same battle. Will the end outcome still be an independent Fairfax?
Again, Morgan Stanley analysts have looked into the matter and come up with the conclusion that shareholders in the company would be far better off if the board would decide to carve up the company in smaller pieces across the Tasman Sea and organise a garage sale to prospective bidders.
The analysts believe such a sell-out could well generate up to $5 in cash for every share held in the company (thus $5bn in total proceedings) compared with a fundamental value of maximum $3.90 now.
I understand the Fairfax board had a special meeting on Tuesday this week. I doubt whether they discussed the option of carving up all the assets and inviting everyone in the industry over to make an offer.
I also think the coming months will provide any other two journalists who want to step into Ryan and Burge’s footsteps with sufficient scheming, lobbying and kongsis to write an even more interesting book.
Why is that?
Because this time it’s not simply about Fairfax but about Australian media as a whole.
My gut feel tells me the importance of independent media voices in this country will only increase from here on.
Till next week!
Your I am so happy to watch all this happening from the sidelines editor,
Rudi Filapek-Vandyck
(as usual supported by the Fabulous Terry, Greg and Chris)