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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