From relative obscurity to a global phenomenon, the Internet has grown in the past decade to be a powerful force in the day-to-day lives of people the world over. The boom a few years ago meant early Internet entrepreneurs became millionaires, or sometimes billionaires, overnight. It seems the dot-com crash has not scared businesses off digital acquisitions though, with both Fairfax and News Ltd joining Yahoo, ninemsn, AOL and Google in spending millions in the past few months to expand their digital offerings.
To the newspaper publishers, online businesses are a way of extending their reach to a market that is becoming less interested in buying a newspaper and more interested in getting information instantly on the Internet via high-speed broadband, blogs, instant messaging, 24-hour television and their mobile phones. A recent report to Carnegie Corporation of New York stated that 18-34 year-olds “intend to continue to increase their use of the Internet as a primary news source in the coming.. . Newspapers and national television broadcast news fare poorly with this critical demographic group”.
“Clearly, young people don’t want to rely on the morning paper on their doorstep or the dinnertime newscast for up-to-date information; in fact, they – as well as others – want their news on demand, when it works for them. And, say many experts, in this new world of journalism, young people want a personal level of engagement and want those presenting the news to them to be transparent in their assumptions, biases and history,” the report said.
Changing Media Consumption Leads to New Strategies
University of Western Sydney Media Policy and Research lecturer Dr Tim Dwyer said there had been many studies of young people that indicated their media consumption habits were changing fairly rapidly.
“Audiences are using media differently and are interacting with a fragmented media landscape, which has consequences for the way media relates to the audience,” Dr Dwyer said.
He also cited the changing advertising setting and decline of traditional outlets for the change in the media landscape.
“Myspace is fairly significant. If [media outlets] can’t buy outright they enter into alliances, for example ninemsn and Seven Yahoo where broadcast media need the reach of a major online portal as a distributor,” he said.
“There’s a trend for traditional media businesses, who in the past had a role in advertising, to get into online space.”
One business that has gone from strength to strength is Google, which is now investing in conventional advertising outlets to increase its hold on consumers, Dr Dwyer said.
“Google is really the model for success. They set up a business model and are actively buying traditional advertising now to soak up the audience who weren’t going online and have co-ordinated a strategy between online and traditional media.”
Dr Dwyer’s comments were backed up by University of Queensland School of Journalism and Communication deputy head Professor Michael Bromley, who said newspaper publishers had two reasons to buy up digital interests.
“The first is the siphoning of the rivers of gold of classified advertising and the other is the abject inability of newspapers to attract younger audiences. A recent Morgan poll showed that only four per cent of Australian 14-17 year-olds regarded newspapers as their single primary source of information,” Professor Bromley said.
He said existing media organisations were making significant moves to digitise, including the BBC, which “runs the most successful website operated by a media entity”, ABC which had “moved heavily into podcasting” and Guardian Unlimited, which “is a major international web presence”.
“Most telling of all is the proposal by News Ltd to leverage its purchase of Myspace into a facility for the Sun’s website,” he said.
The value of digital business is derived in many ways, but Professor Bromley said the latest buzz phrase was “user-generated content (UGC)”.
“The BBC has about seven UGC projects underway and the Sun-Myspace proposal is about UGC,” he said.
“What may have tipped this over is the take-up of the software which allows blogging and podcasting. This has changed the configuration of what we call media – from a system defined by mass to one in which 24 (the average readership of a blog) constitute a viable audience.
“The tentative conclusion to be reached is that traditional media organisations are losing control incrementally. How existing media organisations can play a significant role in that is perhaps what they are currently exploring,” Professor Bromley said.
The Digital Buy-up
News Corp bought Intermix Media, owner of Myspace.com, in July last year for $770 million in a bid to drive traffic to other News Corp media, but this also presents an opportunity for more interaction between News’ websites, television stations, magazines and newspapers. Myspace is a site for dating, making friends, professional networking and sharing interests and in March MediaGuardian said Sun Online was looking at linking with its new online partner. Users can set up a ‘MySun’ portal on thesun.co.uk site using a Myspace template with video and photograph sharing, as well as personalised blogs and web pages. News Corp is also reported to have considered integrating MySpace with Times Online, its other major British publishing brand. Reuters chief executive officer Tom Glocer said this acquisition put News Corp in a very powerful position by giving it access to marketing data and the brand choices of the world’s youth market.
Fairfax Digital has grown to include more than 30 websites and digital operations, including online newspapers smh.com.au and theage.com.au, MyCareer recruitment site, Drive for motoring, real estate site Domain, online dating with RSVP and accommodation site stayz. Its recent acquisition of New Zealand online auction business Trade Me for $NZ700 million ($A625 million), which accounts for more than 60 per cent of New Zealand’s web traffic, and stayz for $A12.7 million shows it has created a firm foothold in the digital arena.
What About the Smaller Players?
In his report to Rural Press shareholders at last year’s annual general meeting, chairman John B Fairfax said the Internet was a very powerful information tool.
“At this stage in its development it would be wrong to dismiss any possibility that the Internet may unravel,” he said.
“Its capacity to search, to reveal, and to inform at any time is unprecedented. We now have the ability to know almost everything almost immediately. The only time when breaking news will not be available to us will be when we reject it or when we draw the curtains, turn off the lights, and try to get some sleep before we wake to the next tsunami, or terror attack, or hurricane or political upheaval,” Mr Fairfax said.
While Rural Press is a company that concentrates on regional and rural publishing and broadcasting, it also has a digital presence, with many websites spanning news, information, weather, real estate, recruitment and motor vehicles.
“Without the editorial in each local market, much of this content would not be available,” Mr Fairfax said.
Far from feeling left behind by bigger rivals, Rural Press managing director and chief executive officer Brian McCarthy said the company had already invested heavily in digital and found it was not what its audience wanted. Mr McCarthy said he wrote off around $25 million in the late 1990s after investing in farmshed.com.au in Australia and directag.com in the US.
“It didn’t suit our audience. We were a little bit ahead of our time and couldn’t grow the revenue,” Mr McCarthy said.
“This is not new and we have already been down that path. These guys are now doing something we did seven or eight years ago.
“We have formed a more internal approach in what we’re doing. We’re developing our own brands and developing a team of people in-house chartered with the objective of Rural Press producing the best websites in regional and rural Australia.”
Mr McCarthy said this plan included enhancing Rural Press website content, adding functionality to the sites and growing revenue in a more aggressive way and taking on new advertisers in different markets. While there has been a slower take-up of digital technology in regional areas, mainly due to it not being available, Mr McCarthy said he saw this as a good thing, rather than bad, because it gave the company a chance to iron out any problems.
Shepparton News, published by McPherson Media, was the first newspaper to become an Internet service provider more than a decade ago and joint managing director Ross McPherson said the business had been profitable for most of that time.
“Scale is certainly a significant factor in achieving a profitable Internet business – particularly in search, registration and advertising models. Strong content attracts eyeballs and that attracts advertising. But scale is not the only factor and there are other viable models, some of which may be more appropriate to smaller budgets,” Mr McPherson said.
“We made the decision early to focus on connectivity rather than content and we remain somewhat dubious about the ability of free content to deliver attractive online audiences in a regional context.”
He said as an independent group McPherson Media had a long-term perspective and felt no need to jump on the digital bandwagon any more than it had already.
“We have our own strategy and it is working. Our view is that the newspaper brand will remain a beacon of credibility in a noisy and unreliable online world, and that there is great potential for smaller newspapers to extend their brands to multiple platforms and to use subscription and other models to generate useful revenues.”
When asked about other publishers buying up online businesses Mr McPherson said, “I think it is a healthy development for the industry”.
“To me it signals that newspaper boards and managements have stopped being driven entirely by market expectations of improved earnings per share and are starting to look at circulations and total audience as a very important objective – one of which we perhaps lost sight for a while.
“Margins may suffer a little in the short term but they will prove highly sustainable over the longer term – and we’ll all be having a lot of fun,” he said.
Case Study: Fairfax Digital
The newspaper publisher has turned into a digital leader in the past 10 years, Fairfax Digital commercial director Nick Cola said. Fairfax Digital accounts for around three per cent of John Fairfax Holdings’ total revenues. Instead of putting out a newspaper every day, Fairfax has now added an Internet empire and has set up arrangements with Telstra, Vodafone, Optus and Hutchison 3G to deliver digital content via mobile phones.
“There has been a pretty big shift in the way many Australians consume news,” Mr Cola said.
“People now access information at any point of the day through newspapers, online or their mobile phone. Also they have a choice about when they consume their entertainment content because it can be downloaded.
“When you see these changing habits we have to be able to respond and meet their needs and provide information how they want it,” he said.
Mr Cola said Fairfax Digital’s worth was increasing and “there is strong growth predicted in the next year”.
Fairfax measures its value in “stickiness”, or audience reach, how long they stay on one website and how many pages they read.
“That is the best indicator of audience loyalty,” Mr Cola said.
“That drives revenue and is an important measurement for us.”
Advertising revenue is an important measure, as are the different ways advertisers are willing to spend to reach their targets, but these are now added to by Fairfax’s ability to sell premium and content services.
Delivering What the Market Wants
Going digital has been a profitable experience for Fairfax, both in terms of audience expansion and in finding new advertisers.
“Our audience trusts our brand and is demanding delivery across platforms,” Mr Cola said.
“We have grown our audience reach in Sydney and Melbourne. It is still AB, but younger. Our core audience is AB 24-35 year-olds, a bit younger than the print audience. We are now starting to mirror the Australian demographic more.
“Sixty per cent of smh.com.au’s audience is in Sydney and the rest is national and international.
“We have developed new capabilities as well. We used to produce news once a day, but now with online we are moving towards 24/7 stories and we’re not just using text, but video, audio and Flash,” he said.
Obviously News Interactive and Fairfax Digital are competitors, but these two publishers are also battling ninemsn, Sensis and Seven. However, consumers use these sites for different purposes. It is easier to search on Sensis and read the breaking headlines on smh.com.au, and that is where Fairfax Digital positions itself.
“We are not in the portal market,” Mr Cola said.
“Our audience consumes more pages and we have a tighter demographic. We are streets ahead in that market.”
Where to Now?
Fairfax has already been through a host of changes in the past 10 years since deciding to start a digital arm and is now looking forward for new challenges.
“If you look and see what’s happened in 10 years we have changed our distribution model and developed products and services to suit it,” Mr Cola said.
“In five to 10 years more platforms will become digital, for example radio and television, and those digital platforms will be used to get the message to market.
“They will get faster and more ubiquitous and will allow Fairfax to have a much bigger canvas to paint. We will have a wider remit and will focus on delivering superb content.
“As we go forward we will stick to building great news websites and special interest sites like rugbyheaven and Realfooty. We’ll develop more sites around areas of business, for example small business, and develop our city sites.
“We have no concrete plans now,” he said.
Fairfax chief executive David Kirk was quoted in March as saying the company intended Fairfax Digital to continue to enjoy significant growth in its news and classifieds businesses.