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Panpa Bulletin : April 2006
40 | PaNPa bUlletiN april 2006 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 dec- ade ago and joint managing direc- tor Ross McPherson said the busi- ness 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 advertis- ing models. Strong content attracts eyeballs and that attracts advertis- ing. But scale is not the only factor and there are other viable models, some of which may be more ap- propriate 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 pub- lishers buying up online business- es Mr McPherson said, "I think it is a healthy development for the industry. To me, it signals that newspaper boards and manage- ments 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 im- portant 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 Fair- fax Holdings' total revenues. In- stead of putting out a newspaper every day, Fairfax has now added an Internet empire and has set up arrangements with Telstra, Voda- fone, 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 mo- bile phone. Also they have a choice about when they consume their entertainment content because it can be downloaded." 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 audi- ence loyalty," Mr Cola said. "That drives revenue and is an impor- tant measurement for us." Advertising revenue is an im- portant measure, as are the differ- ent ways advertisers are willing to spend to reach their targets, but these are now added to by Fair- fax's ability to sell premium and content services. e-MeDia By Warren Page University drop-out Sam Morgan has sold Trade Me, the Internet trading business he created in 1999, to John Fairfax Holdings Ltd for NZ$700m [A$625m]. Fairfax will pay up to NZ$50m extra if Trade Me reaches certain earnings targets. 30-year-old Morgan, who once lived in a house bus, was suddenlyone of New Zealand's richest men, scoring NZ $227 million forhis share in the deal. Morgan started Trade me when he tried un- successfully to buy a second-hand heater online. He held the largest block of shares among the 12 other investors in the 55 employee firm. The price Fairfax paid was the equivalent of 15.6 times Trade Me's forecast earnings for the year to the end of March, before interest, tax depreciation and amortisation. Fairfax's chief executive David Kirk confessed to a Wellington news conference that the price might seemingly be high. However, Kirk said, the economics of the Trade Me business were extraor- dinary. "There is virtually no capital required, high margins and double or triple traditional business growth, and that is a very valuable business in anyone's language," Kirk said. He also argued that once a leading player was established in an online auction and advertising market, there were high barriers for rival new- comers to enter. Trade Me, Kirk said, was on a high growth trajec- tory and had been planning to expand. Kirk also noted that Trade Me had 500,000 registered users in New Zealand's largest city, Auckland, where Fairfax does not have a daily metropolitan news- paper. [Rival APN owns Auckland daily The New Zealand Herald, which is fat with classifieds]. Trade Me has more than 60 percent of New Zea- land's web traffic. The website has 1.2 million reg- istered members who are expected to host 35 mil- lion general merchandise auctions this year. Trade Me has become a leading classified advertising market for motor vehicles (more than 34,000 cars listed) and real estate (more than 15,000 proper- ties listed for sale or rental). The site also runs a dating service and another to find old friends. Users of Trade Me do not pay a fee to list items for auction. Instead they pay a small fee for each successful sale. The site saw more than 20 million listings last year. Kirk said Fairfax intends to operate Trade Me just as it is, as a stand-alone business with its own well-established plans for expansion. Morgan and other key executives will remain in charge for at least the next one to two years assisted by a joint advisory board of current Trade Me directors and Fairfax executives. The purchase would be paid for through a mix of debt and hybrid capital. Independent brokers and analysts quoted by the Fairfax-owned The Dominion Post talked of a 'large price' and a 'surprise' price paid. But they also said the future earnings would be in line with, or lower than, other Internet businesses and the purchase ensured Fairfax dominance in the New Zealand on-line market. Credit rating company Standard & Poor revised Fairfax's BBB long-term corporate rating to a neg- ative outlook following the deal. The great online buying spree continued David Kirk and Sam Morgan at the announcement of the trade Me buyout. Drop-out trades up