DIGITAL MEDIA

It’s an unseasonably balmy August night in Sydney and a coterie of Australia’s new media elite are dining at Icebergs. At one table the management team of Austar are farewelling four of its longstanding top brass, while at another Fairfax Digital chief executive Jack Matthews holds court with his general manager for media, Pippa Leary, and Nic Jones, the former CEO of News Interactive and the man behind Mytickets.com.au.

The intersection of media heavyweights on any given night at Icebergs is de rigueur for the Bondi noshery. But for Matthews it was a timely reminder of his remarkable antipodean career journey, hatched in 1995 when Austar (via parent United Global Com) lured him from the US to run Kiwi Cable, known as Saturn in New Zealand, which evolved into Telstra Clear.

Navigating Fairfax through its most dramatic transformation is certainly a long way from lugging gear for the Allman brothers in the 1970s and hanging out in the Playboy grotto in the 1980s, but it is this quixotic edge that sets Matthews apart in the Australian digital scene.

“I am having a lot of fun: it’s been a crazy ride. This is a bit of a new thing for me. But I have a great team of people here that keep me out of trouble,” he tells Digital Media, days before the dinner at Icebergs.

As the self-described “crazy old man that sits in the corner”, driving Fairfax Digital’s unprecedented growth over the past year-and-a-half, Matthews has taken to the new media game with a seemingly effortless grace.

And it’s not surprising. Emerging out of an enclave of rising US communications execs who headed to Australia and New Zealand in the mid ‘90s to start up Austar, Matthews still counts John Porter, CEO of Austar, and Bruce Mann, CEO of XYZ Networks, as close friends.

Back at the dinner, Matthews chimes in on the farewell speeches for the departing Austar execs with sage anecdotes, something that Deanne Weir, group director corporate development and regulatory at Austar, says exemplifies the camaraderie that Matthews inspires despite having left the fold years ago.

“We are all very very good friends” says Weir, who worked with Matthews in New Zealand in 1999. She was on the Telstra side of the Telstra Saturn equation as director of corporate development and negotiated the merger deal.

Describing him as an “energising, charismatic leader,” who is all about “ shaking things up”, Weir says that as a CEO he puts great confidence in senior staff and gives them complete rope.

Her view is echoed through the industry. From competitors to past and current staff and colleagues, Matthews appears to inspire respect from either side of the negotiating table.

Pippa Leary says he swiftly dispelled any internal qualms about his appointment to the helm of Digital in April 2006. “He cut through that pretty quick – all it took for him was to talk once.”

Leary says his strength in transforming the business is that he is a great communicator. She concedes that in terms of the digital media space he was perceived as a latecomer – but this is something he has overcome by “being so visible” she says.

Despite frequent self deprecation over his age (55), it is precisely his extensive experience in the Pay TV and telecommunications markets that are helping drive Fairfax Digital into its next phase. Behind the measured tones and Southern lilt, Matthews cuts a rare figure against the traditional conservative Fairfax management style. “He’s not afraid to kick heads, when he needs to. He is absolutely not afraid of confrontation,” Leary says.

Long-time staffers claim he is unlike any other Fairfax manager they have come across, praising his exacting leadership style. “He likes pushing people, testing people. He’ll sledge them to see how they react and respects people that respond well,” one colleague reveals, claiming that this new style is central to Fairfax Digital’s ability to transform. “He gives good people a change but it’s a cold place if you are not a good performer.”

But it’s not just Matthews’s style that has helped drive Fairfax Digital’s turnaround, it’s his mantra of integration.

“With change management as long as you can paint the destination then the path to getting there is a lot easier. We have a lot of hearts and minds at staff meetings and he can really pull a crowd,” Leary says.

The results are demonstrable.

Fairfax Digital reported an EBITDA rise of 52.4% to $37 million on revenue of $132.9 million at its annual results in August. Traffic across the group's sites escalated to 14.3 million unique browsers per month, up 33.6% on the previous corresponding period. In July Fairfax Digital traffic surpassed that of Ninemsn.

Matthews is proud of the results thus far but makes it clear this is a work in progress. He emphasises that Digital’s growth is good for Fairfax as a whole.

“We are really quite focused on making sure that digital and online is deeply integrated into the overall Fairfax strategy and I think David Kirk (Fairfax CEO) has articulated that quite clearly with the three big strategies - defend and grow newspapers, very strong online digital business and create this integrated digital media business.”

He adds: “We were particularly happy that we were able to deliver really strong bottom line by growing our core business faster than the market while also investing in future growth. We could, if we wanted to, have significantly higher margins in digital but we think it’s really important to continue to invest in further growth as it’s such a fast-growing category.”

Industry analyst Paul Budde states that since Matthews’ appointment Fairfax has been making all the right investment choices. He adds that Fairfax Digital’s position as an integral part of the news company has resulted in a level of innovation linking editorial to online engagement that very few publishers, even globally, have managed well. “Two years ago I was asking what the hell is Fairfax doing in the digital space. Now they are the leader, I am impressed,” he states.

While Fairfax Digital may claim to have the upper hand against News Digital Media for the moment, Matthews is on guard. “We are probably a little bit ahead of them right now but they have this whole global position that helps them do things that we probably can’t do. I like where we are, but you know I never underestimate News.”

Another analyst claims the reason Fairfax is tracking so well is that under Matthews “they are interfacing with advertisers better than ever before. There is a lot more coordination between newspapers and online”.

Harold Mitchell describes Matthews as a “silo buster”, claiming he has done “an outstanding job at Fairfax and is making the digital product really work and importantly tie across the other Fairfax divisions.” Leary concurs, stating that under previous boss Nick Leeder (now COO at News Digital) and Nick Game, Fairfax Digital was “very much a classified-led business. News was seen as something to get punters through the door”.

For someone with a commercial background, Matthews has a good understanding of editorial and editorial values, she says. “He has no problem stating that x home page is getting too light.” Fairfax Digital online editor-in-chief Mike Van Niekerk says he has a surprisingly wide range of interests.

“He’s the only American I know who can dissect a game of rugby, while he can analyse the latest highbrow novel as easily as he can review a budget.”

Van Niekerk says that coming from the editorial side he has always found it challenging to deal with Fairfax Digital’s tough approach to budgets and business planning “but it helps that Jack has a huge interest in all aspects of the media industry and enjoys the relationships he has with journalists. I think he’d secretly like to be an editor in another life”.

Matthews’ enthusiasm for the print and online mediums is clear.

“This idea that you can’t do print and online journalism –we just don’t believe that. We believe there is no reason why print and online from a journalism standpoint can’t be tightly integrated and work for both distribution mediums and the numbers certainly seem to support that as both are growing.”

In the case of the SMH, the online edition is matching one for one the number of newspapers sold each month and attracts about 5.8 million unique browsers. The Age attracts 3.5 million unique browsers, with the print version outselling online by 30%.

However Matthews maintains the transformation path for Digital is not all about waiting for the digital tipping point. “We still generate far more cash flow out of newspapers than out of Digital and that’s going to be the case for a long time. I think there are segments where things have moved on online faster than others but newspapers are still going to throw off lots of cash and will have deep close relationships with their readers for a long long time.”

Fairfax’s evolution into a publisher of news, not a newspaper publisher has liberated the Fairfax group to make strategic acquisitions and partnerships to enable new content distribution platforms via Austereo, Southern Cross Broadcasting, and Rural Press which the publisher anticipates will enhance local content level, online market share and circulation.

“It’s about making sure we have lots of different convenient outlets to get our content in the hands and in front of the eyes of our customers.

‘’It’s not about one distribution winning over another. We want to make sure that at any point of a person’s day Fairfax has the ability to get its content in front of them in a way that works for them.”

The only thing missing from the portfolio, Matthews states, is access to lounge room video screen.

While Fairfax has made it clear it is not really interested in buying a television station, for now it is actively exploring IPTV solutions. Matthews confirms that within this fiscal year it will launch video over mobile phones as part of its expanding mobile content relationships with all four carriers, but he will not reveal which carrier it will launch with first.

He adds that Fairfax is still considering talking part in the Channel A and B spectrum auctions, despite their disappointment that the regulator allowed incumbents to participate.

However, TV access on high-speed networks remains front of mind for the executive who has spent most of his career working for US cable companies, from Cox Communications and Playboy Video enterprises to Liberty Media’s Jupiter Programming in Tokyo and PMP – local operator of Showtime and Encore.

“In July we downloaded 4.5 million video files from our sites. Yet think of what that could be if we had connectivity like I enjoyed in Japan with 100 Mbps to my home.” Jupiter, where Matthews was CEO from 2004 to 2005, delivered 40 Pay TV channels via broadband.

“This is no longer controversial. It is finally an accepted premise in this market that broadband networks in the market are not sufficient. It is really imperative for a whole range of economic activity – not just Fairfax – that these networks get developed to the point that they are world class. We and most people are constrained but we have confidence that this is going to change and we are prepared to make the investments that are dependent on success on that change. But we need to make sure that when they do we have a plan for that and we do. Video on demand (VOD) is the first baby step in that.”

The infrastructure issue in regional Australia has also become a key concern for Fairfax following the Rural Press merger.

“We are certainly looking to leverage our presence in regional Australia now and the merger is a huge opportunity for Fairfax Digital to work with the Rural Press properties there and really grow the online piece in partnership with the print guys. So almost by definition if there is somebody out there that is doing something technically or in broadband that is going to facilitate us to do that- then clearly we would like to leverage that.”

Fairfax has begun rolling out its brands starting with Domain, to be followed by My Career across all the Rural Press mastheads. Analysts estimate that Fairfax could pick up a further $10 million in online advertising revenue by rolling out these properties across Rural Press’ 130 titles at little additional cost.

Meanwhile the brisbanetimes.com.au model, which is performing above expectations and is forecast by analysts to break even in the second half of 2008, is expected to be replicated in other cities soon. Matthews confirmed that Perth and Adelaide are markets they are interested in (the pºerthtimes and adelaidetimes domains have already been registered) but he would not be drawn on launch time frames. He says national expansion such as the brisbanetimes.com.au and some of the vertical categories of its newspapers – business, sport, travel – would also garner further investment.

“The ability to take these deep vertical categories out of the newspaper and create big destination sites is something that we think we are uniquely in a position to do because of the fact we have so much deep content and so much broad content.

“Those sites will be a combination of news and editorial, tools and transactions and user-generated content. So there will be a series of those types of investment going forward.”

Meanwhile Fairfax Digital will continue to invest heavily in video on its news sites.

“Those are things that we are going o continue to do because we want to stay ahead of the curve.”

He adds that “clearly entertainment is an important area for us and ventures like our relationship with Austereo where we are sharing content and access to each others audiences and sharing business development opportunities”.

Fairfax has yet to reveal how its relationship with Google, struck earlier in the year to monetise Fairfax’s international traffic, will unfold. “It is still early days. We are still getting it bedded in but we are happy with the way it’s gone. We think that Google is a good solution for us there … but there are no millions yet” he quips.

Matthews says that while there are no front-page mega acquisitions in the pipeline they are continuing to look at assets that are consistent with the strategy of “driving more engagement and building national verticals.”

He says Kirk has given him a remit that if the deals make sense we will be able to execute them.

“Its a sellers’ market right now and it’s hard to get deals to make sense sometimes. That’s a real challenge and our portfolio is so broad we could kind of talk to anybody .

“The challenge for us (Fairfax Digital) is to stay focused on the kind of investment and acquisition that make sense, both strategically and economically.”

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