2nd June 2012: Fairfax, Quality Media, & Journalist Strikes

Fairfax Media Share Price 28th May - 1st June 2012

 

New Matilda‘s Ben Eltham on Fairfax journalist strikes:

 

No matter how much the journalists protest about “quality”, the hard facts remain. Fairfax’s newspapers will have to be slimmed down even more quickly than they already are, while new revenue sources in the digital space will have to be conjured up. Under Greg Hywood, there seems every sign that at last management “gets” this, and is moving aggressively to implement the necessary changes.

This is the unmistakeable logic behind the decision to remove 66 sub-editors from newspapers in Newcastle and Woollongong, to be replaced by staff in New Zealand, where presumably they will work for less. Call it outsourcing, call it offshoring — call it common sense. Hywood and his team are doing what most listed corporations would do when faced with a high-cost part of their business with rapidly declining revenues. They’re slashing costs. They’re looking for ways to deliver the same product more cheaply.

 

Offshoring sub-editorial jobs has been on the cards for a decade. John Hagel III and John Seely Brown’s book The Only Sustainable Edge (Boston: Harvard Business School Press, 2005) situated offshoring as a cost-cutting option amidst the “accelerated capability building” that would underpin sustainable competitive advantage. For Hagel III and Brown, offshoring helped firms to engage in “dynamic specialization”: “the commitment to eliminate resources and activities that no longer differentiate the firm and to concentrate on accelerating growth from the capabilities that truly distinguish the firm in the marketplace” (p. 54, emphasis added). This argument resonated with a broader debate about disruptive innovation and also with the 2003-07 growth of emerging markets and exchange traded funds for international investors.

 

Eltham’s arguments also do not contradict a 2009 study that I co-wrote with Barry Saunders on journalists as ‘investigators’ and ‘quality media’ reputation. Saunders and I studied a cohort of 20 journalists who differentiated themselves with investigative skills from other domains. For example, Bethany McLean who broke the Enron scandal had Wall Street investment bank experience. Media outlets like The New Yorker and The New York Times built their ‘quality media’ reputation also through fact-checking, editorial, and legal processes, and through a Classical Hollywood-style star system of journalists. NYT journalists are often featured on PBS Frontline documentaries, for instance. Finally, our study coincided with a debate about philanthropic foundations and grant-making as a funding model for quality journalism.

 

Fairfax has not followed the study’s advice.

 

Neither have the striking Fairfax journalists.

 

Regrettably, many of New Matilda‘s readers also missed Eltham’s insights about Fairfax’s market valuation. It’s vital to understand the role of structural economic factors, debt/equity ratios, and labour market bargaining in assessing the possible futures of newspapers. Institutional investors also influence Fairfax’s management. Fred Hilmer’s memoir The Fairfax Experience: What The Management Texts Didn’t Teach Me (Milton: John Wiley & Sons Australia, 2007) reveals that he spent almost half his day at Fairfax dealing with financial issues and meeting with institutional investors. The same week as the Fairfax journalists’ strike, investor Gina Rinehart continued her bid to control Fairfax’s board. Rinehart’s tactics reflect Carl Icahn‘s ‘activist investor’ strategy (presentation). However, these insights are often taught more in mergers and acquisitions courses than in journalism school.

 

Fairfax’s share price was range-bound on 30th and 31st May before dropping on 1st June. It’s difficult to show that the Fairfax journalist strike was a causal factor that convinced investors to sell Fairfax’s stock. The strike may have created an opportunity for short-sellers and event arbitrageurs. Macroeconomic uncertainty in China, India and the United States broadly affected the Australian financial markets. The month’s end also meant portfolio rebalancing by fund managers.

 

What could striking Fairfax journalists do? Visit SalaryTutor.com. Read The Lean Startup and The Startup of You. Develop a personal competitive advantage, and several back-up plans. You will face a more lean newsroom environment.