7

Clash of the Moguls

I had always said that Kerry Packer would never do to me what his father did once, and that he’s a man who is someone you can trust. I’ve told the world that.

Rupert Murdoch, 1996

The bonhomie, the good faith that had been evident at the Savoy Hotel in London when the Tourang consortium had come together to plot its takeover of Fairfax, had been destroyed by December 1996. Kerry Packer, dressed in shorts, barking at his Portuguese waiter, slapping Conrad Black on the shoulder, doing the deal of the century—that was 1991, and it was all finished. By the time Black withdrew from Fairfax, his anger was visceral. Just days after the Telegraph Group sold its Fairfax shares, Black told Fred Brenchley of the Fin Review, ‘Nobody in their right mind can do business like that—all winks and nods. There are certain cross-currents [in Australian business] known only to the intimates’.

There was a certain irony here. Brenchley, a former editor of the Fin Review, had been promoted to general manager of Fairfax and then tossed out when young Warwick had taken over in 1987. Now, nearly a decade later, he was back as a working journalist, the London correspondent for the Fin Review, notebook out, scribbling furiously as Black downloaded on the mates’ game being played out in Sydney, Melbourne and Canberra.

Packer had failed to get his hands on Black’s 25 per cent stake in Fairfax. Brierley Investments Ltd had scooped that up. But the guys at Brierley were people that Packer could deal with. They were entrepreneurs, opportunists. Everything was for sale at a price. Packer had to wait for the federal cross-media laws to change before he could legally move on Fairfax—in the meantime, it was in safe hands.

As Black told Brenchley, no-one was a match for Packer on his home turf, and in relation to Fairfax, Packer had been the master chess player since move one. It seemed that from the moment he’d resigned from Tourang, Packer had another play in mind. It tracked right back to the start of Black’s tenure at Fairfax, to when he’d first landed at the Broadway headquarters in 1992.

Neville Miles, the South African–born stockbroker who led the Fairfax float for underwriter Ord Minnett, rehearsed his lines as he approached Ellerston, Packer’s rural retreat in the Hunter Valley in NSW: ‘I have got a million shares in Fairfax set aside for you, Kerry’. That was the pitch—straightforward, direct. Packer might even be appreciative. It was May 1992. Fairfax was about to be listed on the Australian Stock Exchange for the first time in five years, the first time since young Warwick’s disastrous privatisation of 1987.

Packer let Miles have his say. Then he laughed. ‘You couldn’t fucking sell them, could you?’

This wasn’t going well. Miles began to fear anew that Ords, as underwriter, would get stuck with these shares. Then Packer relented. ‘Okay, I will take them’, he said. ‘But you couldn’t fucking sell them, so don’t try and tell me that you kept them for me.’

Packer was in. It was a tiny shareholding, but it was the start of a new play for Fairfax—or at least a seat at the table.

Brian Powers had a seat at the table too. The fast-talking American, always in ‘send’ mode and rarely ready to ‘receive’, but with a powerful intellect to back it all up, had clashed spectacularly with Malcolm Turnbull during the Tourang bid. But he had become very close to Packer. Powers was on the board of Fairfax in 1992 as the Hellman and Friedman representative and he visited Australia regularly. Packer wanted him to make his presence permanent, to make Sydney his home. And, in February 1993, he succeeded, convincing Powers to join Consolidated Press Holdings as chief executive.

Powers succeeded Al Dunlap, who had been appointed to the job by Packer after Trevor Kennedy resigned to join Tourang. Dunlap, nicknamed ‘Chainsaw’ to fit his reputation as a fierce cost cutter, had cut a swathe through CPH, racking up plenty of enemies along the way. Eventually, Packer had become one of those enemies when he and Dunlap had a spectacular falling out over the handling of Packer’s strategic 10 per cent stake in Westpac. Dunlap was cut loose to make way for Powers.

‘It is always great to follow an Al [Dunlap type]’, Powers says today. ‘I have usually been thought of as a really tough boss, but everyone at Consolidated Press thought I was great [after Al].’

Within three months of Powers’ appointment, Packer was engaged in a new, opportunistic push for Fairfax. It was choreographed by Powers but masterminded by Packer, and politics would play a big part in it.

When Paul Keating was re-elected prime minister in March 1993, unexpectedly defeating the John Hewson–led Coalition, it was clearly crunch time for Black. Either Keating would let him increase his Fairfax stake from 15 to 25 per cent, or Black effectively would be forced out of the Australian media scene. While he was fretting about his chances of success, Packer laid out another $75 million just to let everyone know he was still in the game. He built up a 10.4 per cent stake in Fairfax by April 1993, becoming the second-biggest shareholder after Black’s Telegraph Group. As it turned out, Keating did let Black go to 25 per cent, which meant that Packer’s move was for nought. But the relationship with Black had been irrevocably damaged—Packer had betrayed him by trying to increase his own influence on the Fairfax share register.

It was soon to become clear, however, that Black was his own worst enemy. Over the ensuing twelve months, he argued for the right to increase his Fairfax stake to 35 per cent. He pledged that with more control of the company, he would turn Fairfax into a powerhouse media group with influence throughout the Asia-Pacific region. But Black and Canberra were like oil and water—the magnate’s controversial autobiography and the ensuing Senate inquiry into the media in 1994 only confirmed this.

Packer’s change of heart regarding Black is harder to understand. One insider views it this way: ‘The fact is that Black was going through a period of megalomania. When he first came to Australia he was not quite as megalomaniac[al]. He was new on the scene, he had just come from Canada and England. But he was doing really well with The Daily Telegraph in London—it was incredible to see what he had done [with that newspaper]. In Australia, he saw Packer and quite a number of [other] people as threats to his omnipotence. Fairfax was his baby now, his deal. Brian [Powers] is not a shrinking violet. I think it was a train crash. Black wasn’t here [in Australia] that often. Even Colson stayed in a hotel room when he came to Sydney; he didn’t keep an apartment here. But Packer was here a lot’.

Packer sensed that if the politicians thought Black was ‘going rogue’, then it was worth keeping his hand in. So he kept building up his stake. By February 1995, he had accumulated 17.8 per cent of Fairfax, deliberately testing the boundaries of the government’s cross-media laws. While still the controlling shareholder of Channel 9, Packer and his companies were allowed, under government regulation, to hold only 15 per cent of Fairfax. But the determining element in the actual legislation was that of ‘control’. Packer’s argument was that even with more than a 15 per cent shareholding, he still didn’t have control. As long as Black held a larger shareholding than him, and as long as Packer had no representatives on the board, how could he control Fairfax? According to this reasoning, he should be able to build up a stake of nearly 25 per cent.

It was a bold play. The Australian Broadcasting Authority (formerly the Australian Broadcasting Tribunal) had no choice but to hold an inquiry and test Packer’s claim. While the inquiry was underway behind closed doors, Packer went public with his campaign to hold more Fairfax shares. He returned to his old Channel 9 stamping ground to argue his case, and he didn’t hold back—particularly when it came to Black, with whom a spat had been simmering for two years. The theme music for A Current Affair had barely faded out when Packer went on the attack.

‘He [Black] has no right to control Fairfax’, Packer told his interviewer, Ray Martin. ‘The law is there to stop him trying to control John Fairfax. This plea that he should be allowed to increase his control is a totally fallacious argument’.

That assertion was strong enough. But it was Packer’s comments on politicians that grabbed the headlines. When Martin asked Packer whether John Howard would make a good prime minister, Packer replied, ‘Yes, I think he would’. With those five words, Packer endorsed John Howard and the Liberal Party a year ahead of what was clearly going to be a very close federal election. Paul Keating, as the current prime minister, never forgave him. John Howard, as the next prime minister, never forgot what Packer had done for him.

While Packer was giving his imprimatur for Howard to lead the country, his ears should have been burning because of the in-camera evidence that the Black camp was giving to the Australian Broadcasting Authority inquiry. Leaked transcripts of the hearing later revealed that Dan Colson, by then deputy chair of Fairfax and Black’s closest adviser, was doing his best to hang Packer for breaching cross-media laws. The evidence is worth repeating at length. It gives a sense of the depth of the anger felt by the Black team, and shows how two parties can simultaneously play the betrayal card.

‘The reality is that he [Packer] is in as good a position to exert control over Fairfax as anybody else is’, Colson told the ABA. ‘We have two nominees on the board; Packer has three. It is not imaginary control. It is real. If one of those directors brings forward a matter, it has weight. They will speak in a bloc and have significant influence. Every time they speak, the others feel the heat of Packer standing behind them.’

The accusations went on and on. ‘Packer has a hit list of journalists’, said Colson. ‘They say, “We want this guy or that guy to be sacked”. We say to Packer, “This is the exclusive jurisdiction of editors”. In all our other papers, the board hires and fires the editor and the editor hires and fires the staff. There is constant friction and conflict on that level too—there has been plenty of it and it is ongoing. For anyone to think that Packer has no influence, they are only kidding themselves.’

And, later, Colson said: ‘You would have to be naive to assume anything that comes up before the board which has Packer implications is dealt with the same as anything else. Here is a guy who uses his own television and magazines to put [forward] his views. If he had control of newspapers, he would use them too’.

To bolster his argument that there was a Packer bloc on the Fairfax board, Colson claimed that it was Packer and Brian Powers who had suggested that a Packer adviser, David Gonski, be made a Fairfax director. ‘Black and I went to see Powers and Packer about a year ago’, Colson told the ABA. ‘We said, “You guys are shooting everything we are trying to do with this company”. They said, “We don’t like this and we don’t like that and we want more representation on the board”. We told them that they weren’t entitled. Packer said, “Yeah, but we will find somebody”. Powers [later] rang and said, “Gonski”. I canvassed [the] other directors and they said, “Okay”.’ (Colson did not nominate the Packer bloc on the board, but he appeared to be referring to Sir Rod Carnegie, the Hellman and Friedman representative Matt Barger, and Gonski.)

Colson also said that the Packer camp had interfered at the management level too, trying to have Fairfax chief executive Stephen Mulholland sacked. ‘Ever since Powers went to Packer, he has agitated to get rid of Mulholland’, Colson claimed.

Mulholland was obviously feeling the stress at this stage, regardless of whether Colson’s evidence was accurate. The lanky South African was noted for his temper and it was on full display in February 1995 when he kicked, and knocked down, a Channel 7 cameraman outside the Fairfax offices at Broadway. It was all caught on camera and played over and over again on the national television news. An outcry ensued and Mulholland was forced to issue a public apology—albeit he did so reluctantly. ‘If the chap has hurt himself then I’m sorry about that. But I guess it’s the risk of your profession if you want to walk around with heavy cameras backwards’, Mulholland said.

This didn’t win Mulholland many friends among journalists. But it was irrelevant because the chief executive had had enough of Australia. He would be gone by the end of the year, after choosing his own successor—Bob Mansfield of Optus.

Mulholland clearly didn’t understand Australian business networks. Black and Colson didn’t either. If they had done some homework, they would have realised pretty quickly that Mansfield and Packer went way back. When Mansfield was managing director of McDonald’s, the hamburger company was a sponsor of Packer’s World Series Cricket. When Mansfield was at the telecommunications group Optus, Packer was a small but very significant shareholder. Black’s ignorance of Australian corporate workings had caused him to stumble yet again. Within six months of Mansfield’s appointment, the Black team would be convinced that it had an enemy in the ranks, and that it would have to get rid of him. But that was still ahead of them.

Fairfax may have been emotionally significant to Packer, but the conflict over the company paled in comparison with the ructions that took place in the Australian media world throughout 1995. The real battle was between Packer and Murdoch, and this was to culminate in an extraordinary agreement—sealed in Murdoch’s News International office in London in November 1995—to carve up the Australian media between the two of them. Fairfax was a key part of the wide-ranging deal but so were sports rights, free-to-air television and pay TV. If the deal had come off, it would have been the biggest upheaval in the Australian media since Paul Keating’s ‘Queen of Screen or Prince of Print’ law changes in 1987. The audacity of the two media moguls was breathtaking.

The ceasefire between Murdoch and Packer had a fascinating background. Packer had fought for years to keep pay TV out of Australia in order to protect the lucrative free-to-air TV licences, particularly his own licence at Channel 9. And he had had a great deal of success. There had been a series of government inquiries into pay TV that effectively delayed its introduction. Then there had been a deliberate federal government decision to place a five-year moratorium on it. It was a disgrace—Australia lagged behind the rest of the world while the government bowed to media self-interest. But Australian viewers would only put up with this for so long. By the early 1990s, the delaying tactics were finished and pay TV was coming. Battlelines were now drawn for the next clash.

In anticipation of an auction for satellite licences, Packer, Murdoch and Telstra formed a consortium, PMT, to place a bid. But they were comprehensively beaten by Steve Cosser, a media entrepreneur who briefly led the consortium that bought the Ten Network from Frank Lowy in 1989 and who then moved on to pay TV after Ten went into receivership in 1990. Cosser founded the technology start-up Australis and it outbid PMT at auction to pick up all the satellite licences.

As it turned out, the stoush over the satellites was not the main event. It soon became clear that the dominance of pay TV would be enabled by cable. That meant joining forces with one of Australia’s two telecommunications companies—Telstra or Optus. Consequently, Murdoch joined up with Telstra to form Foxtel, while Packer took a share in Optus Vision, backed by Optus Communications and the US enterprise Continental Cablevision. Now the fight was really on. Packer and Murdoch, who was building BSkyB in Britain, went head to head over lucrative sports and movie rights.

The eventual outcome, as we now know, was that Murdoch and Packer would come together. Within fifteen years, pay TV would become a virtual monopoly in Australia—Packer and Murdoch would jointly own Fox Sports, and Packer, Murdoch and Telstra would share ownership of Foxtel. In 2012, it would be taken a step further with James Packer selling out of pay TV altogether. The lucky buyer? Murdoch’s News Corporation.

But back in 1995, prior to the compromise brokered that November, this happy outcome was a long way off. Packer and Murdoch were at loggerheads on several fronts. The two moguls were brawling over free-to-air television, with Murdoch having claimed a 15 per cent share of Channel 7 and Packer controlling Channel 9. Murdoch had also built up a 5 per cent stake in Fairfax, while Packer held 17.8 per cent. The nastiest battle of all, however, was over pay TV rights, specifically for Rugby League, Rugby Union and horseracing. Pay TV was a symbolic battleground—this fight was the biggest of them all, and it could potentially destroy both parties.

Packer had been closely involved with the Australian Rugby League for years. His Nine Network held the free-to-air rights for the sport, and he also owned the pay TV rights—Packer was smart enough to have had those thrown in for free in the 1993 deal that saw him pay the ARL a record $80 million for the free-to-air TV rights until 2000. As Murdoch couldn’t wrestle the pay TV rights away from Packer for at least another five years, he decided to set up his own competition—Super League.

Murdoch’s initial tactic was to try to include Packer and Channel 9 in the deal. The initial approach to Brian Powers, Packer’s chief executive, was made by Ken Cowley, chief executive of News Limited in Australia. It was an attractive deal. Packer and Channel 9 would receive a package of free-to-air rights to Super League at a lower price and for longer than under their current arrangement with the ARL. Powers phoned Packer, who was in London at the time, and relayed the details of the News Limited offer. Packer then asked his chief executive what he thought of the deal.

‘The simple advice is, economically, it is a great deal for us’, Powers said. ‘But you live here. I have only lived here for a couple of years, I feel terrible doing this [to the ARL]’.

Packer’s reply was short and to the point: ‘Go and tell them to fuck off’.

Hostilities between the Packer and Murdoch organisations resumed in full. Brian Powers and James Packer became closely involved in the battle to shore up the ARL. Optus Vision threw more than $40 million into the fight, money that would primarily strengthen Channel 9’s stranglehold on the broadcasting of Rugby League. Meanwhile, Kerry Packer focused his attention on Rugby Union. Murdoch agreed in June 1995 to fund a Union pay TV deal to the tune of $760 million over ten years to boost his existing European rights. But then the World Rugby Corporation, backed by Packer, started busily signing up players in advance of negotiating its own free-to-air and pay TV rights deal. A key part of this plan was South Africa, the host and ultimate victor in that year’s World Cup competition. Murdoch was horrified—Packer was doing a Super League to him.

Then there were the pay TV rights to horseracing in Australia, which included access to the potential goldmine of interactive betting. Packer’s Sky Channel had negotiated a preliminary agreement with the Australian Jockey Club, but Foxtel was battling for the rights too. And, most significantly, the Victorian Racing Club and Vic TAB were working on a threatening alternative—the racing industry’s own pay TV channel.

At this point, both Murdoch and Packer formally acknowledged that the stakes were getting too high, that it was time to see eye to eye—which they would do in Murdoch’s London office. The groundwork for this had already been done a few months earlier, when Powers had called upon Cowley and Murdoch during a visit to Australia. Powers told the pair that, in his view, the battle had reached a ridiculous stage. Both sides were losing out. All the money was going to third parties.

It was during these discussions that Powers and Murdoch ended Fairfax’s dream of hosting a 24-hour pay TV news channel in a joint venture with the ABC that was called Australian Information Media. Powers and Murdoch were thrashing out Super League when Powers said, ‘Rupert, we are fighting each other and you are putting Fairfax into Foxtel. You hate Fairfax. Every time I see you, you tell me how much you hate Fairfax, and you are going to let them control pay TV news in Australia’. Murdoch, alarmed, picked up the phone and that was the end of AIM. Instead, Packer, Murdoch and Kerry Stokes’ Channel 7 set up Sky News.

The first public sign that a rapprochement was possible between Packer and Murdoch came in mid-August 1995, when Packer, after a meeting with key Murdoch executives in London, withdrew his support from the World Rugby Corporation. Two weeks later, a compromise deal was reached on the pay TV rights for horseracing. News Corporation bought half of Packer’s Sky TV, scotching any attempt by the racing clubs and by Foxtel to establish viable, rival racing channels. Then, in September, Murdoch’s BSkyB and Nine Network announced a joint venture (later to include the Seven Network) to produce a non-exclusive pay-TV news channel in Australia—the deal that ended the hopes of AIM.

There were still some problems to solve, however. In November 1995, News Corporation and Super League were enmeshed in an ugly battle in the Federal Court. The ARL had taken legal action to prevent a Super League competition from being launched the following year. Ken Cowley was due to give evidence in the case later in the month, but he never made it to the witness stand. Everything changed when Cowley went to London for a meeting with Rupert Murdoch, Kerry Packer and Brian Powers, at which an extraordinary deal was struck to divide up the Australian media.

The meeting was held in the early evening and lasted for about one and a half hours. It was very civil. Murdoch and Packer were most respectful towards one another. And they managed to agree on a startling blueprint.

One key point was that Packer and Murdoch would not compete in television in Australia. Packer would stick to free-to-air broadcasts with the Nine Network and possibly ditch his support for, and 5 per cent shareholding in, Optus Vision and join Murdoch and Telstra at Foxtel. Murdoch would stick to pay TV and not assist in any strengthening of the Seven Network, perhaps selling his 15 per cent shareholding.

Another key point was that Packer would give up his plans for Fairfax and leave Australian newspapers to Murdoch. News Corporation would sell all its papers, or at least most of them, to a new company headed by Ken Cowley. In return, Murdoch would buy Packer’s large stake in Fairfax and eventually force out Conrad Black’s Telegraph Group to gain control of all Fairfax newspapers.

The ultimate outcome would be one clear winner in pay TV in Australia—Foxtel. And one clear winner in the free-to-air television stakes—the Nine Network. And, of course, one clear winner in newspapers—Murdoch would control Fairfax and Cowley would control the News Limited papers, including The Daily Telegraph in Sydney, the Herald Sun in Melbourne and The Courier-Mail in Brisbane. (There was a pattern developing here—cut loose your managing director, whether it be Trevor Kennedy or Ken Cowley, and let them become newspaper tsars. It would happen again three years later, when Brian Powers resigned as chief executive of Packer’s empire to become chairman of Fairfax.)

Tangible results from the Murdoch–Packer meeting were evident on 24 November, when Nine announced it had obtained the free-to-air rights to Super League. The ARL, Optus Vision and Channel 7 were gobsmacked. The ARL had been fighting alongside Nine all the way, while Optus Vision had thrown tens of millions of dollars into the fight against Super League at the urging of Nine—money that effectively had been put up by Optus Vision’s shareholders.

Kerry Stokes at the Seven Network was devastated. He believed that he had been promised the rights to Super League, but now Nine had the deal. And as if that wasn’t bad enough, Murdoch, had betrayed Seven when he’d handed over future Fox movie and program rights to its competitor, Nine.

But he need not have worried too much. By February 1996, the deal between Murdoch and Packer had fallen over and they were at one another’s throats again. There would be no Super League that year. The Federal Court had decided against the competition in a scathing judgment. In any case, Optus Vision, under Geoff Cousins, had refused to back Packer’s deal with Murdoch—they would fight on.

Now it was Rupert Murdoch’s turn to hit the airwaves, via Channel 7, presenting himself as the victim of the machinations. He told the current affairs program Witness how he was feeling: ‘I had always said that Kerry Packer would never do to me what his father did once, and that he’s a man who is someone you can trust. I’ve told the world that, when people have come to me and said, “Who’s this fellow Packer from Australia?” And you know I trust him, I always have absolutely—so my first reaction was to feel angry and let down’. Murdoch didn’t reveal any specifics about the London deal except that it was sealed with a handshake and Packer had welshed on it.

There are two versions of how the deal between Packer and Murdoch was broken. The version favoured by the Murdoch side is that the real problem was Geoff Cousins at Optus. He wouldn’t play his part and roll over on the Super League battle, as Packer had allegedly promised. The second version is that Packer and Murdoch each had a task to perform after the London meeting. Murdoch was in charge of getting Prime Minister Paul Keating’s approval of the deal, while Packer was to ensure that the Coalition, then in opposition, was relaxed about it. Murdoch failed to deliver Keating and the deal collapsed.

Whichever version is correct, Packer and Murdoch were at loggerheads again. This meant that Black’s shareholding in Fairfax was secure for the moment. But the federal election of March 1996 was fast approaching, from which the man whom Packer had anointed twelve months earlier, John Howard, would emerge a clear winner. Black would now have to contend with a threatening nexus—that between Australia’s wealthiest individual and a new political leader who had swept all before him.