As the ‘alley cats’ take over Fairfax, digital growth gathers pace

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The timing could not have been better for Nick Griffin’s presentation in Sydney on July 26. The CIO and founding partner of Munro Partners had several slides about the prospects of further media disruption and how Google and Facebook would increasingly dominate advertising.

He was able to ad lib with a perfect example of what’s happening – the merger of two largely old-world media companies, Fairfax and Nine, announced that morning. Free-to-air television would be the next to feel the winds of change. For newspapers this had already happened, he said.

Munro Partners, a global equities manager, was an investor in Facebook since its IPO and has made a return of more than 400 per cent on its investment. But every stock dies at some stage, Griffin said. He correctly predicted that that evening on the US market Facebook would fall 10-15 per cent in line with the anticipated earnings downgrade.

Notwithstanding that and some other setbacks for Facebook, coupled with Google its share of total advertising spending is expected to grow from 19 per cent to 32 per cent between 2016 and 2020. They will take two-thirds of the growth in advertising spend in a year.

The tech-heavy Munro Global Growth Fund returned 21.0 per cent in the 12 months to June 30 compared with 15.0 per cent for the MSCI All-Countries index. Just five stocks make up 12 per cent of the portfolio. The Munro presentation was organised by Grant Samuel Funds Management, the firm’s representative, along with those from three of its other managers (see separate report this edition).

Griffin said: “We see the digital businesses as being very different to traditional businesses, but it scares people because it implies that ‘this time it’s different’.”

Google and Facebook’s advertising growth is not only because of their massive reach and inexpensive cost-per-thousand metric. What advertising works online and doesn’t work is different from traditional media. For instance, online publishers have taken over ‘search’ ads but they have discovered display ads are not so successful. Also online readers who are not engaged in a search are most likely to respond to an ad which has a call to action and immediate satisfaction. They don’t want to just go to a brand’s website.

In all the words which were written about the Fairfax-Nine merger and published across all media last week, perhaps Paul Keating’s were most jarring for those of us who still appreciate quality newspapers.

In a personal statement he took the opportunity to blame the Turnbull Government for the “media free-for-all” in contrast with the 30 years of stability following the Hawke Government’s cross-media ownership laws.

“Notwithstanding the obvious disruption that international platforms like Google and Facebook have made to advertising and traditional media revenues, the answer for Australia is diversity of income streams for Australia’s majors and not a closedown in news and content with major print being taken over by major television. This is an exceptionally bad development,” Keating said.

He then reminded us of what a political foe he was. He said: “Fairfax spent decades missing all the signals about the rise of the digital economy when it could have put itself in a position of relative commercial independence. That notwithstanding, the current management has, in the circumstances, done a better than reasonable job in creating income sources to allow the company to preserve its editorial independence, especially in print. But, if in the announced arrangement, Channel Nine has a majority of the stock, Channel Nine will run the editorial policy.

“The problem with this is that in terms of news management, Channel Nine, for over half a century, has never, other than displayed the opportunism and ethics of an alley cat. There has been no commanding ethical or moral basis for the conduct of its news and information policy. Through various changes of ownership, no-one has lanced the carbuncle at the centre of Nine’s approach to news management. And, as sure as night follows day, that pus will inevitably leak into Fairfax.”

– G.B.

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