Message to All Staff November 23, 2010

At the Fairfax Media Annual Results presentation in August, I foreshadowed that we would hold an Investor Update event to provide details on the company.

This morning, Fairfax Media executives and I are briefing investors and media analysts about the company, including information on the strategic review and specific business units, particularly in relation to our digital businesses.

As employees of our great company, you are a vital part of the future of Fairfax Media. So I believe it’s important that you, too, should be kept informed about the decisions taken by the Directors and senior management to ensure we remain Australasia’s most successful and dynamic media company.

All of you know that we are witnessing enormous change in the media environment. The unprecedented pace of innovation in technology, changes in consumer behaviour and market fragmentation mean that the media is evolving in ways nobody could have foreseen even a decade ago.

There isn’t a media company in the world that does not face enormous challenges in adapting their business to make the most of the new media landscape.

But these are not just challenging times, they are also extremely exciting times for the media, and in order to take full advantage of them, Fairfax Media is embracing change.

Fairfax Media must transform our business model to adapt and integrate to strengthen our competitive position and improve profitability.

To achieve those objectives, Fairfax Media will become an integrated, multi-platform company comprising leading media brands in Australia, New Zealand and the USA that will enable us to successfully monetise our content through any channel.

Our strategic review has been a lengthy and careful process, beginning in August last year when we asked all of you to contribute ideas about the future direction of Fairfax.

Since then, after many internal discussions and an external review, the Directors signed off on the plan at the end of October.

What emerged from this process was clear: in a fast-changing media landscape, Fairfax must play to its strengths.

Fairfax has trusted brands; deep engagement with our audiences; editorial integrity and quality content.

Content is our key competitive advantage. Our readers are increasingly consuming media content when, how and where they want it.

New platforms mean we are reaching bigger audiences than ever before – to remain relevant and engaged, we must be able to deliver content to our consumers the way they want to receive it, and we must be able to monetise that content wherever possible.

What’s more, advertisers are following consumers to those new media platforms and want to be able to deal with Fairfax in more flexible ways.

This is why Fairfax Media needs to adapt to become an integrated, multi-platform company with higher portfolio growth objectives.

To do this we will undertake these key initiatives:

  1. An organisational restructure to shape our management team for the future.
  2. A more integrated editorial model.
  3. Integrated selling of our products and brands.
  4. Monetising our online and mobile content.
  5. Change our portfolio growth profile over time.

Organisational Restructure

We will implement a new organisational structure which will align our media platforms by geographic audience and market as opposed to distribution channels.

The new structure will result in greater integration between print, online and mobile platforms, greater integration of media sales teams, and will present us with cost-effective opportunities across our business.

The new structure will comprise nine distinct business units. These are:

  • Metropolitan Media
  • Digital Transactions
  • Trade Me
  • New Zealand Media
  • Australian Regional Media
  • Agricultural Media
  • Financial Review Group
  • Fairfax Radio Network
  • Printing and Logistics

The operational roles of five of these business units — NZ Media, Agricultural Publishing, Financial Review Group, Fairfax Radio Network and Printing — will remain mostly unaffected in the new organisational structure.

A sixth business unit, Trade Me in New Zealand, will continue as a stand-alone business in that country to take advantage of its great potential for growth, collaborating with our New Zealand Media business where appropriate.

A stand-alone new unit, Digital Transactions, will encompass Australian digital transactions and services. There will be one report to me covering all our regional businesses.

The other new unit, Metropolitan Media, will integrate metropolitan media print, online and mobile in Sydney, Melbourne and Canberra under a new Metropolitan Chief Executive who will report directly to me. We’ve begun the process to identify suitable candidates.

Some of the benefits of the new expanded Metropolitan Media unit are that it will provide for:

  • A more integrated approach to customers in our markets.
  • Greater streamlining and improved processes.
  • A unified sales approach across multiple products to national clients.
  • Retention of strong ‘on-the-ground’ publishing management in local markets.
  • Greater sharing of knowledge and skills.

Editorial Integration

The new structure will enable better content sharing across different platforms so that the best of our content will be made available across the group to our key mastheads in print, online and mobile.

Our print, online and mobile mastheads target and reach different audiences, so we will continue to publish content that is connected to our respective local communities and audiences. We are not adopting a ‘one size fits all’ approach.

In the Metropolitan Media business, editorial integration will be achieved in two ways. The first is through the reporting structure — Sydney, Melbourne and Digital publishers will report to the Metropolitan Media CEO. The second is through the establishment of a National Sections department to manage the creation of specialist content across all platforms in areas such as travel, business, motoring and lifestyle.

Sales integration

This initiative is all about putting greater focus on our customers.

To achieve this we intend to enable better integration of media sales teams to streamline the sales experience for advertisers, whether they want to buy across all our metropolitan platforms or in just one.

We will offer our customers a more cohesive product and content approach, while improving our cross-selling and marketing.

Monetising Content

The quality and depth of our editorial content is one of Fairfax Media’s greatest strengths.

We need to ensure it is adequately valued in the new media environment and as a result, we believe we should charge for that content wherever possible.

Charging for online and mobile content is one of the most hotly debated issues in the media today, and there is not one media company to date which has been able to develop a “catch all” solution.

However, consumers have shown they are willing to pay for premium or niche content, and for add-on products and services.

Our immediate focus will be on monetising our content via apps for the iPhone, iPad, and other smartphone and tablet devices.

The appetite for apps is undeniable — our free Domain app recently passed 250,000 downloads. Monetising this demand is the challenge ahead of us. With upwards of 50 apps currently in development, monetised content via mobile digital apps is the way of the future – and Fairfax intends to be right at the forefront of it.

Change the portfolio growth profile over time

Fairfax Media will focus on leveraging all the media assets in our portfolio to deliver higher earnings growth in the years ahead.

We need to increase the level of digital earnings contribution, particularly with transaction-based businesses, and we need to be opportunistic with both asset acquisition and asset disposal alternatives as they arise.

In terms of our digital earnings, they have grown to be around $300 million per annum or approximately 12 percent of total revenues and are the highest growth segment.

Our digital revenues can be generated from many sources including classified advertising, display advertising, auctions, subscriptions, licensing fees and content syndication, to name a few.

I recognise that change is sometimes a challenging concept for us. However, we must change and adapt as the world around us changes. We must have flexible attitudes to change to achieve the best possible outcomes for our long-term future.

With our strategic direction now in place, senior management will work with staff on the fine detail of implementation. Working as a team, we will decide the best way to implement each of the initiatives I have outlined today.

In the meantime, it is important we all continue to focus on the job at hand to achieve the best results for our readers, advertisers and listeners in a competitive marketplace.

Finally, let me express my appreciation to all of you for your continued great work. I am very proud of this company and its staff, and look forward to working with you in the years ahead.

Brian McCarthy
CEO and Managing Director

*********

23 November 2010
MELBOURNE PUBLISHING
From: Don Churchill
To: All staff, Melbourne Publishing

Dear colleagues

This morning you have all received email and video messages from Fairfax Media CEO Brian McCarthy explaining the new strategy which the company’s Board, staff and senior management have been involved in developing.

To briefly repeat Brian’s key message, the announcement signals the next stage in the transformation of our company’s business model to adapt and integrate Fairfax in a fast-changing media world.

Fairfax’s transformation started eight years ago with a diversification strategy — acquisitions of INL New Zealand, Trade Me, Southern Cross Broadcasting and the merger with Rural Press — to broaden our earnings base from a reliance on metropolitan publishing.

These are exciting times for media and in order to take full advantage of them, Fairfax is embracing change to become an integrated, multi-platform company.

The strategic review has been driven by the collective desire to: grow our mastheads; grow our online businesses; and adapt to become a multi-platform business;

In short, we are determined to enter the next decade as Australia’s most successful and dynamic media company, and we are confident we have the people with the strength and ability to do it.

Today Brian announced, as part of the company’s strategy review, the formation of nine business units, the heads of which will all report directly to him.

A core element of this new structure will be the creation of a new Metropolitan Media business unit.

Metropolitan Media will embrace all key metropolitan print mastheads, The Age, The Sunday Age, the Sydney Morning Herald, and the Sun-Herald. It will also be joined by The Canberra Times, formerly part of the ACT/Illawarra/Newcastle publishing division.

Metropolitan Media will also include the entire portfolio of Fairfax Community Newspapers titles.

The newly created Metropolitan Media unit will also encompass all of our online metropolitan mastheads — theage.com.au, smh.com.au, brisbanetimes.com.au, watoday.com.au and canberratimes.com.au.

The Digital transactions business will be split off from online media, to become a separate report to the Fairfax CEO.

The Metropolitan Media unit will have a new CEO, yet to be appointed, who will report directly to the Fairfax Media CEO. This is a major step to address some of the structural issues that have challenged us. Brian has said that this appointment will likely be made before Christmas, with the person in place by February.

Under the new structure the reports to the new Metropolitan Media CEO will include three publishers — Melbourne, Sydney, and Digital.

New positions will be a National Display Advertising Director, in charge of FIS/national sales, interstate offices, Digital Agency sales, and other areas to be determined. This will give sales and support staff the opportunity to work across all platforms.

Another new role will be the Metropolitan National Classifieds Director, taking charge of National strategy, national promotion, national and interstate sales but with classifieds sales teams still linked to the relevant mastheads.

In Editorial, at the same level as the Editors-in-Chief, a National Editorial sections position will be established to develop the “deep verticals” that will back future development on-line as well as in print.

These changes will not happen overnight. The Metro Publishing CEO, when appointed, will take charge of the planning and implementation of the new structure across print, online and digital mastheads. It will be a thorough process, involving department heads.

The Metro CEO will also oversee a transparent process to appoint the Display and Classifieds directors, and the National Sections editor.

You will have questions about the implications of the new business structure on your own role. Unfortunately it will not be possible to answer many of these until the implementation plan is prepared. In the meantime, I will answer those that I can.

Management will continue to communicate with you once again with further updates and as the implementation process rolls out.

Finally, I’d like to add that these changes at Fairfax are crucial to enabling our company to meet the future confidently and competitively. They are also key to our ability to build on our proud and long-established commitment to serving the great communities of Melbourne and Victoria, a commitment which has been particularly strongly re-established in recent years and which we will build on.

With this new strategy we will also build on all the strengths of what is one of the world’s great media companies. I am very much looking forward to continuing to work with all of you to ensure that we remain a leader in the media industry.