Fairfax ABC

The report on the spin off of 40% of the Domain property listing website from Fairfax Media reveals for the first time the strong “golden handcuffs” that will keep Fairfax and its papers tied close to Domain for years to come and stop an ambitious management team looking for freedom elsewhere. The report also suggests a timetable for the next crisis in the company’s newspapers. 

The report (from Macquarie and Herbert Smith Freehills and Grant Samuel) reveals the agreements that bind Fairfax and Domain tightly together so far as print advertising, market and ad sales, and editorial content on Domain and on Fairfax media’s websites, such as those for the metro papers and some regionals (like the Canberra Times). The report also suggests the reach of similar agreements between News Corp and its papers and REAG Group — tight and no defections. Given that, the thread of agreements between Domain and Fairfax Media look at first glance a bit of overkill. But there is a wider picture to be seen.

The report reveals that Domain paid Fairfax $21 million for the various services contained in the agreements and Fairfax paid Domain $9 million in commissions for 2016-17. Every little bit helps.

But Fairfax Media Management have a long memory, especially in Melbourne where the Domain CEO, Anthony Catalano has been both employee and rival in the past couple of decades. The various agreements detailed below will stop a bidder for Domain (say a private equity group like TPG) from trying to separate the two companies via a high priced offer. The editorial, marketing, promotion, carriage and printing agreements tie the two companies tightly together (and at less than market rates for the first two years in some cases). It also stops an aggressive management from trying to break free via a management buyout funded by someone like TPG.

The report reveals that in the 2016-17 financial year, “28% of Domain’s revenues came from print advertising. Real estate advertising in print is undergoing a structural decline, as consumers increasingly shift online to search for property. There is a risk that the decline in print revenues may continue or accelerate in the future and print advertising may become economically unviable, which may adversely affect Domain’s financial performance,” Macquarie pointed out. That risk is rising, as the trading update issued last Thursday from Fairfax confirmed with revenues falling faster than previously disclosed.

Normally that would be taken to mean that 28% of the revenues came from print ads in the various metro and regional papers owned by Fairfax. But as the report reminds us, some of the print spending is in a group of newspapers in Melbourne owned by Metro Media Publishing, the old empire started by Catalano:

“In 2010, MMP launched The Weekly Review, a glossy lifestyle and property listings magazine focussed on a number of a affluent suburbs in Melbourne. MMP subsequently launched Review Property, a digital listings website. Fairfax Media acquired an initial 50% interest in MMP during 2012 and the remaining 50% interest in 2015… Domain publishes eight The Weekly Review branded magazines in Melbourne, as well as The Weekly Review online, Domain Geelong and the Review Property digital listings business.”

That means the bonds between Domain and Fairfax’s other papers — The Age, Sydney Morning Herald, Canberra Times and Financial Review are not as strong as the 28% might suggest (which in turn isn’t as high as some might have thought). Some of Domain’s print ad spending is with its own papers.

And the report detailed the various “handcuffs” that will bind the two companies in future years. For instance, the “Printing and Carriage” agreement which ties Domain more tightly to Fairfax than anything else. Under the agreement Fairfax Media has been appointed to:

“Print certain Domain publications and insert them into relevant Fairfax Media publications and; distribute such publications to the relevant distribution areas agreed between Fairfax Media and Domain… The printing, insertion and distribution services will be provided to Domain at rates which have been calculated substantially on a consistent basis with the rates charged prior to Separation, and are largely in line with general market rates.”

Then there is a third tie between the companies – the “Marketing and Promotions Services Agreement (Metro)” which will see Fairfax Media appointed to provide “digital marketing and promotions services to Domain, including the placement of Domain-branded property sections and Domain advertisements in certain Fairfax Media metro digital publications, linking to, and referring traffic to, the Domain website”.

And finally there are a group of lesser agreements, the most important being the “Online Lead Generation Agreement”, under which Fairfax Media will maintain on certain metro digital publications (such as the sites for The Age and the SMH) “links to consumer product and service comparison services covered at the websites of Domain partners or at Domain websites for the purpose of Domain earning commission and other revenue on leads generated”.

With Domain moving deeper into financial services (like REA Group), there will be links to mortgage deals, insurance and related products at Domain.

The “Print Wrap Sales Representation Agreement” sees Domain “appointed as Fairfax Media’s non-exclusive agent for the sale of print wraps on metro print mastheads to certain third parties”. Then there’s a “Data Sharing Agreement”, “under which each of Fairfax Media and Domain will provide the other with a non-exclusive licence to use certain of its data…”, alongside an “Editorial Content Agreement” and “Commercial and Residential Real Estate Agency Agreements”.