Fairfax Strikes Out

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Fairfax’s journalists are striking. Journalists and editors at Fairfax’s metro newspapers, including the high-profile ones like the Sydney Morning Herald and The Age, are walking off the job today. The wildcat strike — which is illegal under the Fair Work Act — is in protest against plans to cut 66 jobs at the Illawarra Mercury and the Newcastle Herald, with the work being outsourced to sub-editors in New Zealand.

You can’t help but sympathise with Fairfax’s hard-pressed journos and subbies. A once-proud organisation has suffered years of hubris and mismanagement. Hundreds of highly trained journalists have been let go in recent times. The modern-day Age or Sydney Morning Herald are shadows of their former glory, both editorially and in terms of the quantity and scope of their news coverage.

A wildcat strike like this is another sign of poor management. The changes have obviously not been communicated well and staff are clearly frustrated with the direction their newspapers are heading in.

But as much as we might sympathise, there is a whiff of unreality about the industrial action. The truth is that, in the cold hard calculus of the market, the move to outsource the sub-editing makes sense.

Take a look at Fairfax’s balance sheet and you can see the problem that Fairfax CEO Greg Hywood faces. Fairfax’s metro newspapers probably lose money already. Their circulation is declining fast: the Sydney Morning Herald’s Monday-Friday circulation shrank by 13 per cent last quarter. Their revenue is shrinking nearly as quickly. And they have a very high cost base. Many of Fairfax’s editorial staff earn well above $100,000 a year. Those wages made sense in the go-go days of the mid-90s, when the internet was still a curiosity and classified advertising poured in: the once-famous "rivers of gold". But now the rivers of gold have dried up.

Sure, Fairfax still makes money. Australia’s oldest media company is diversified into a range of profitable businesses and still pulls in $2.4 billion of revenue every year. Lest we think it is going broke, we should remember that it even makes a profit on this revenue. Fairfax’s 2011 annual report states an "underlying EBITDA" of $607 million in the 12 months to June 2011.

These numbers obscure a deeper malaise explained by the break-down in Fairfax’s balance sheet. While digital is going great guns, the legacy parts of Fairfax’s business are withering away. Even after the dramatic declines in circulation and concomitant reductions in display advertising revenue, the metropolitan newspapers are still the biggest aspect of Fairfax’s operations.

The metro newspapers — the famous mastheads like The Age, the Sydney Morning Herald and the Australian Financial Review — pulled in fully a third of Fairfax’s revenue last year. But despite sales of $873 million, they made an underlying profit of only $83 million. In contrast, Fairfax Digital made $118 million in profit from $234 million in sales.

What this means is clear enough. Fairfax will have to transition quickly from a newspaper business to an online business. It doesn’t help that the business stayed in denial for so long, refusing to comes to grips with the existential threat to its business model under supposedly savvy managers like David Kirk.

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.

Should we care? In one sense, of course we should. Newspapers matter in a democracy. They represent the largest pool of primary news gatherers in our media. Take newspaper journalists and subbies out of the equation, and we will have a manifestly thinner and less diverse mediascape.

Unfortunately for those who value the role of newspapers in our democracy, no-one has yet found a way to square the circle of declining profits with big newsrooms of well paid journalists and editorial staff. It’s going to be tough for journalists to accept this, but in the 21st century, the value of news is declining. News is being commodified, and news journalists are increasingly being out-competed by technology and by cheaper options elsewhere in the world.

The full-time journalist with a deep knowledge of her beat is a wonderful source of news and analysis, but she is only one source. News can be gathered by a highly paid and deeply experienced Canberra press gallery correspondent, or it can be gathered by a microphone permanently attached to a Parliament House lectern. It can be gathered by an award-winning foreign correspondent on assignment, or a local stringer working for third world pay rates. It can be gathered by a crew of three, complete with broadcast quality television camera and boom mike, or by an amateur watching a Twitter feed.

The melancholy truth is that while healthy newspapers are good for democracy and good for accountable governments, markets and investors care little for the moral purpose of the companies they trade in. Unless the business of news can make money — a difficult, but perhaps not impossible prospect — quality journalism will continue to shrink in the private sector. As I argued as long ago as 2008, the days of journalism as a steady job within a large media organisation may be drawing to an end.

The future is almost certainly going to be much more freelance and insecure, marking a return to the earlier models of news-gathering common before the newspaper empires of the late 19th Century were built. This makes community-supported media like New Matilda all the more important (hint, hint).

For those on strike today outside Fairfax’s newspaper offices, let us offer our support and a measure of optimism. It is possible to imagine a revamped Fairfax, one that is much leaner and much more digital, but still employing many primary news gatherers and highly-knowledgable commentators and writers. But there will be fewer of them, and they will be paid less.

If there is one consolation, it is this: journalism is increasingly becoming an artform. Only those truly passionate about it will keep doing it. Shorn of the careerists and the opportunists, the profession may be left to those who care about it the most.

Ben Eltham

Ben Eltham is New Matilda's National Affairs Correspondent.

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