New world, new approaches. Australia is a vibrant, younger economy. You can feel it everywhere. It moves on, it changes, it adapts. And, in the media business, it seems to adjust pretty fast.
Fairfax Digital is, by far, the leading online group in Australia and in the region. It is a division of Fairfax Media Ltd., with the following perimeter:
- 434 publications between Australia and New Zealand (for a country of 21.3m people!)
They include:
- 248 newspapers in Australia: among them two of the country most influential dailies, The Sydney Morning Herald and The Age published in Melbourne
- 80 newspapers in New Zealand
- 46 magazines in both countries
- 15 radio stations
- 24 printing plants
- 284 web sites (229 in Australia, 51 in NZ and 4 in the US).
Below are basic numbers for FY 2009 ending in June 2009 (the annual report is here), in US dollars and in euros (conversions are at today’s rate)
Fairfax Digital (FD) accounted for about 10% of Fairfax Media Ltd. revenue and 16% of its EBITDA for FY 09 (and a hefty 52% for the first half on FY 2010). This give FD’s chief executive Jack Matthews and his crew a great deal of pride — and sustains their fierce independence. This American-born TV and digital media veteran is passionate about the business he’s been building within Fairfax. “We treat this change as a point of singularity, he says, you know, when rules break down, and nothing make sense anymore. Usually, in technology, we tend to overestimate the short term impact and underestimate the long term”. For Jack Matthews, it is more a question of transformation rather than a matter of development or evolution of existing lines of business.
And the rules he bends. Of the most visible, one involves the organization within the Sydney Morning Herald galaxy. As many Western newspapers are still debating the integration of digital and paper newsrooms, Fairfax Digital has made a decisive move: no integration whatsoever; no subordination to the broadsheet editors (although a great newspaper); all editorial decisions are taken independently by each media boss.
When it moved into a brand new building facing the stunning Sydney skyline, Fairfax Media built a hub-and-spoke Daily Telegraph-like newsroom. Everyone knows what everyone else is doing but there is no subordination. As such, the Sydney Morning Herald site, www.smh.com.au, claims that 65% of its traffic stems from original contents produced by the digital crew. Jack Matthews and Mike van Niekerk, editor in chief of the SMH site readily admit this strong autonomy has not gone without friction. But rivalries now seem to be eclipsed by a shared sense of common interest in the news gathering process (and against competition, read: Murdoch’s papers).
And this tactic seems to work. Today, as a brand, the Sydney Morning Herald’s footprint has never been larger: each day, it reaches 2.2m readers.
Among them :
- only 19% look at the paper and the website
- 39% stick to the paper only
- 42% are exclusively online consumers.
And Fairfax Digital’s media director Pippa Leary says the web enjoys a more qualified audience: younger, with a higher income.
To put things in perspective, when we compare audiences for NYTimes.com and smh.com.au in their respective markets, the Australian news sites has roughly three times the penetration of the NY Times. And if we compare advertising market shares: the SMH is doing twice as well as the NY Times.
Some lessons can be drawn from Fairfax Digital’s performance:
1) Accept the coming digital domination. Today, digital is a fraction of the revenue, yes; but it is the bulk of the profits. Like with the BBC or the New York Times, digital drives growth and strategy. The digital takeover is inevitable. Resistance is futile. So is nostalgia.
2) Focus on reader engagement. Says FD’s media director Pippa Leary: “Engagement rewards content and design”. Therefore, FD’s primary focus is the time spent on its online properties. Its video traffic, for instance, is rising exponentially thanks to a greater volume of targeted productions.
3) Be an online company. Period. “We are switching from an online media business to an online business only”, says Jack Matthews. Today, the transactions part of the business, as opposed to traditional ads, is rising sharply. Transactions will soon reach half of Fairfax Digital revenue with the huge margins that come with them. Apart from that, classifieds account for a big third and the rest is display ads, mostly in news content. Of course, this has ruffled feathers among journalists; but pragmatists acknowledge it is the only way to support the cost of quality reporting.
4) Bet on multiple business resources. FD had no less than 15 revenues streams: advertising, subscription, commission on auctions, paid by the transformation of a contact, listings, e-commerce, mobile fees, etc. In New Zealand alone, FD’s classifieds and auction site TradeMe serves 70% of all the country’s web pages.
5) Capture readers and users one group after the other. Fairfax Digital has mapped its readership by all possible definitions: type of usage, geography, platform, type of growth, monetization potential… FD captures group after group with a specific product, a specific revenue model and a specific brand.
6) Control your advertising innovation. FD runs an entire team devoted to strategic advertising. They customized all possible campaigns, working directly with brands, creating new formats, adjusting rate cards. Each month, the FD strategic ads team creates 6 new products for specific needs or clients. By next year, predicts its CEO, half of FD’s advertising revenue will come from customized ads. (If they don’t react, Sydney’s ad agencies might see their business drying up like a pond in the Outback — exactly as everywhere else).
7) Stay awake. Fairfax Digital’s is constantly balancing its contribution to the bottom line against investing in the next five years’ cash-cow, through ex nihilo creations or with acquisitions. This doesn’t happen by itself. It requires vision from management and trust from its board — and from financial markets (over the last 12 months Fairfax Media shares are up by 65% when other global media indexes remain basically flat).
—frederic.filloux@mondaynote.com
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18 Comments
hello frédéric: great analysis, thanks. can you give more details on their transactions? what exactly do they sell to make “Transactions will soon reach half of Fairfax Digital revenue”?
I share Marcel question. Can you further explain on transactions?
Marcel/Man
the transactions are mostly in TradeMe, which dominates the NZ market for eBay-type transactions and is expanding into most adjacent categories. Fairfax CEO David Kirk bought it (very expensively) a few years ago.
In general, Fairfax Digital failed to create a strong player in any of the categories the company held strongly in print, especially classifieds. The web sites maintain traffic by taking the whole demographic down market.
In other words, this is no model!
Dear Mr. Nuffield, we are flattered that you know so much about Fairfax Digital, but you may not be aware of all the most recent facts about our business that Frederic was exposed to when he visited Australia for Media2010 recently and refers to in his article.
Fairfax Digital includes both Australian and New Zealand operations. In the New Zealand market, TradeMe is by far the lion’s share. The ROCI (return on cash invested) of purchasing that business is extremely positive, well above the business case that justified its acquisition and one that any VC would be paying out big bonuses for. We thank you Mr. Kirk!
Your facts on Australia aren’t up to date. Fairfax Digital Australia makes the majority of its revenues from transactions not advertising (excluding classifieds). We have been actively diversifying away from advertising as a primary business model and into hybrid revenue streams since 2005. In answer to your questions Marcel and Man, we are operating 15 different types of transactional revenue streams that are each over $1m in revenue. The range is broad, but it includes people paying to contact others on our dating site, RSVP, holiday property owners paying us commission whenever someone stays at their property when booked through our Stayz site, trailing commissions on investments made through our InvestSMART site, payment by consumers for property data through our HomePriceGuide site. Our model is to aggregate an audience around an area of interest by providing them deep, quality content, then looking for multiple ways to generate revenues from that audience sector.
Edward, you are right, we have suffered from “the Innovators Dilemna” and aren’t the leaders in the 3 digital classified streams (cars, jobs, houses) in Australia (wouldn’t that be nice!), but our classified sites are world class, are well trafficked and, in some cases, lead the national competitors if you just look at NSW and Victorian state numbers (obviously we get a kick from our metro newspapers in these markets). Nevertheless, our digital classifieds do make significant profits and are growing (and we have a few tricks still up our sleeves..).
As for your comment on ‘taking demographics down market’ I beg to differ. Roy Morgan Research data tells us that online readers of our masthead sites are younger and, actually, slightly more affluent than the readers of our metro newspapers. Both are higher demographics than our respective online and print competitors.
Good article, thks. “Control your advertising innovation”: this point seems to me very important: you nedd to control your business!
Dear Dale McCarthy: My reading of your corporate web site (December results presentation) would suggest that viirtually all the transaction revenues are TradeMe? (After allowing for the revenue data you indicate.) And so virtually all the profit is also TradeMe? For which Mr Kirk paid about $NZ800million?
Mr Nuffield, results presentations don’t reveal the split of transactional revenues vs advertising within TradeMe nor Fairfax Digital. Perhaps we should encourage our investor relations people to do so in future as I think it is a positive story for the company and would diminish these misperceptions.
I can confirm my earlier statement, as I’ve seen the numbers and we talk about it publically in industry speeches etc., that more than half of Fairfax Digital’s revenues are from transactional revenue models, not advertising.
Re Trademe. As stated in the press, the acquisition price for Trademe was circa NZ$700m. But the total value of an acquisition must be viewed in proportion to its return and growth profile. Trademe currently serves 70% of all webpages in New Zealand, dominates auctions/online retailing, has taken the leadership position in motoring and real estate classifieds and is a strong 2nd place in employment classifieds. It has also developed and acquired businesses in the travel category. TradeMe’s growth has been strong over the 4 years since acquisition and it continues to enter and grow new sectors to maintain this. As a result, the return that Fairfax is enjoying on this investment has proven that the acquisition price was by no means “expensive.”
Dear Dale McCarthy
I shall take a rest after this note. But I do wish you’d take the point. Either TradeMe is or is not the bulk of your online business. My reading of your comments suggests that at best the non-TradeMe transactions part accounts for maybe $7m of profit. (50% of your $15m of revenue) The profit reported is $47m.
I also note that the price paid was at least NZ$750m. (You seem to have missed the deferred payments in the original announcement of the sale.)
Again, this is hardly a strategy model or a model strategy? (But quite a nice strategy for the TradeMe founder investors!)
Dear Mr. Nuffield, apologies for your frustration, however, I am taking your point. The problem is the inferences you are using to make the point are incorrect. In a previous post I said we had identified 15 revenue streams OVER $1m each. Some of these streams are in the tens of millions. I wish I was able to give you exact numbers for everything, but it is current FXJ policy not to divulge exact numbers and I don’t want to end up as one of those case-studies of corporate people who broke the rules of using social media. I am trying to set the record straight within these constraints. I can say that Fairfax Digital Australia’s revenues are comparable to TradeMe’s and profits from non-TradeMe transactions are significantly greater than the $7m you estimate. So, no, TradeMe is not the “bulk” of Fairfax Media’s digital business. Fairfax Digital Australia is a significant contributor and as Mr. Filloux concurred, it has been recognised by its global media peers as having a break-out ‘model’ for monetising its online audience.
Bonus points to Frédéric for using ‘ex nihilo,’ could have even gone with ‘creatio ex nihilo’. I will attempt to replace the over-used word ‘start-up’ with this highly apt Latin alternative the next time I’m hanging out with VCs. If they look at me funny, it wouldn’t be the first time.
I think even more apt as it relates to Fairfax will be ‘ex nihilo nihil fit’ or from nothing, nothing comes.
Fairfax online stable mainstays theage.com.au and smh.com.au get a lot of their content, credibility and promotion from their print editions. Sure a lot of the sites’ traffic comes from trashy yarns about Lara Bingle this and Paris Hilton that but without those print editions, there doesn’t seem to be much of a future or purpose in any of it. It’s certainly not difficult to replicate armed with copies of New Idea and colour glossy trash-mags. But do advertisers want to reach that audience? I doubt they will in the long-run.
Having ceded its monopoly/dominance in real estate, autos and jobs ads, Fairfax’s newspapers increasingly look like they belong to another era. The days of Melbourne and Sydney being blessed with two metropolitan daily newspapers seem numbered because they The Age and SMH were/are so utterly dependent on classifieds and that revenue stream is dying.
While others may play around in those areas online, as Fairfax belatedly did, it looks like Google is set to dominate in real estate and could muscle in to any category at any time should they have the desire.
Fairfax legacy news related online-only websites might survive the impending death of The Age and SMH in some form (probably like the brisbanetimes.com.au) if they are profitable. But I hear they are not.
I doubt Fairfax Digital’s Mr McCarthy will share any details on that matter. Indeed, his description of their strategy didn’t talk much about the news sites at all. How ominous for the nervous brigade of Fairfax editorial folk.
It is worth noting that the Sydney Morning Herald and the Melbourne Age also added online Tributes as an extension of their print death announcements: http://tributes.smh.com.au/ This is another clear example of newspapers generating additional revenue by extending its print business into the online world.
Andrew Landeryou: Dale McCarthy is a woman. It’s ironic smh.com.au and to a much less extent theage.com.au funnel most of the traffic but have modest editorial resources and very small dedicated online staffs. Few newspaper journalists have made a successful switch or even temporary presence online at Fairfax. A reluctant and embattled newspaper culture prevailed so strongly there was never any chance of integration. Now the inevitable has happened and the papers are struggling for survival, yet the very best journalism at Fairfax still comes from the papers. Waving a handycam at a starlet, following guided tours of Manhattan sex museums or running “repurposed” cable TV news grabs does not constitute good online journalism. Perhaps the concept of quality journalism might once again migrate to Fairfax Digital as it did in the late 90s, even while the newspapers are making its print practitioners redundant.
Mr Hogben makes the excellent point that Ms McCarthy ignores. The Fairfax titles have been mashed up online. They appear to be driven totally by Z grade titillators. Meanwhile the newspapers are slowly being strangled (perhaps by their awful digital offspring).
Better to scarp the web sites and focus on making good newspapers, I say. (And I gather the economics are in my favour.)
lol we have a mad day at fairfax printing place-.-
mantapss
hey there, I would like ot thank you for posting such a useful outline
The transaction and analysis is so wonderful.
Fairfax digital is doing its excellent work everywhere.
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