8

The Kingmaker

Now Kerry Packer is poised to achieve what his father never could. Almost nobody in the business, either upstairs or downstairs, believes any longer that this won’t happen. All it needs is for John Howard to let him, which he will. Even that wonderful sage, Blind Freddy, can see it coming.

Alan Ramsey, The Sydney Morning Herald, 3 May 1997

They were polar opposites. Packer was the brash billionaire—a heavy gambler, a womaniser, a big game hunter. Howard was a canny politician but his image was every inch that of the suburban solicitor, the happy family man with a modest home on Sydney’s lower north shore and a wife who often called the shots. Yet there was a chemistry between the two men—Howard and Packer actually got on. They both loved cricket. And there was the added element of ‘my enemy’s enemy is my friend’. They had both been up against Paul Keating as prime minister since 1991.

Keating had done Packer (and Murdoch) an enormous favour with his media legislation of 1987, when he had declared that media barons could control either newspapers or television, but not both. Packer had offloaded his television network to Alan Bond for over $1 billion, buying it back for a fraction of the price just a few years later, while Murdoch with his HWT purchase now accounted for two-thirds of all newspaper sales in the country. When the new regulations were introduced, Howard had criticised Keating and Hawke’s penchant for favouring particular media companies. But, nearly a decade later, the temptation to go down the same path was almost irresistible as the Opposition leader fought for the prize of the prime ministership.

Packer played the game like a true professional. He had anointed Howard as leader-in-waiting on A Current Affair a year ahead of the election, which had come as a shock to prime-time viewers. Few knew at that stage that the relationship between Keating and Packer had cooled. But it had been rocky ever since Packer had declined in 1993 to come to the financial aid of Western Australian property developer, and Keating’s friend, Warren Anderson, who was under pressure from US lenders. When, during his A Current Affair appearance, Packer was asked for his view of Howard as an alternative prime minister, he let his true feelings be known.

‘He’s been around a long time’, said Packer of Howard. ‘I think he’s a decent man. I think he’s an honest man. And I think he’s a man who has seen the mistakes made and I don’t think he’ll make them again. At some point in time we need a changing of the guard’. Then, asked about Labor’s long term in office, he said, sarcastically: ‘I don’t know if twelve years is long enough’, before stating, ‘I don’t know whether John Howard will get in this time or next time, but the truth of the matter is I think he’d do a good job if he gets there’.

Not a bad commendation from the country’s richest man.

Keating was livid and within days claimed that Packer had made an agreement with Howard about Fairfax. Keating told the SMH he had no doubt that Howard had given Packer ‘the nod that he would remove the cross-media rules’. Howard denied it. In the run-up to the March 1996 election, however, the Howard-led Coalition promised a ‘full public review of cross-media laws’, which played right into Packer’s hands. If he was to get a clear run at Fairfax, he needed the cross-media laws dropped, but he also wanted the foreign-ownership restrictions to stay in place. The latter regulations stymied Black and Murdoch, both considered foreigners under the legislation. With the two moguls out of the way, Packer would be a shoo-in for Fairfax.

Packer was having a sweet ride. Murdoch had been defeated on Super League, thanks to the scathing Federal Court judgment of February 1996, and his new friend Howard was about to become ensconced in The Lodge in Canberra. If Packer controlled both Nine and Fairfax, he would have 45–50 per cent of the advertising market in Sydney and Melbourne. That would put him in a position to set advertising rates and dominate the market, which was the last thing Murdoch wanted.

As for Fairfax, that once great media company, it had become a plaything, something for the politicians and the moguls to bargain over. Fairfax just didn’t rate as a corporate player in Canberra. It didn’t have a leader with the charisma and the money of a Packer or a Murdoch. And, historically, it had been less than willing to do what was expected of it. In any case, its board and management couldn’t make any promises on an editorial stance because they didn’t have that level of control over their own newspapers— they hadn’t had it for two decades. In the nation’s capital, it was purely about what Packer and Murdoch wanted.

This wasn’t always easy to work out. Packer’s emotional campaign against foreign ownership of the media left some observers bemused. He had done a complete backflip since he’d stood in front of the parliamentary print media inquiry in 1991 and argued the case for Tourang to have a high level of foreign ownership in its tilt at Fairfax. ‘Nowhere in the English-speaking world are you restricted from owning newspapers’, Packer had told the inquiry on oath. ‘Here, for some extraordinary reason, we are sitting down and saying, “You can only have 20 per cent ownership”. It is absurd. I think we as a nation have to be aware of that and we have to start doing something which encourages capital to be brought into this country. The whole world is trying to encourage money [to come] in. We are still sitting there saying, “We don’t know whether we want it”, and I don’t think we are that rich anymore.’

Four years later, Packer told A Current Affair: ‘He [Black] has no right to control John Fairfax … This plea that he should be allowed to increase his control is a completely fallacious argument. I’m not entitled to go to Canada and buy his newspapers. Why is he entitled to come to Australia and buy newspapers that Australians want to buy?’

For all his bluster, Packer was just the celebrity frontman. The real spadework was being done by his lobbyists in Canberra. Graham Richardson, the influential former federal Labor minister for communications, had left parliament and was now on Packer’s team. Peter Barron, a former adviser to Hawke and one of the best Canberra operators in the business, was walking the corridors of power for Packer. And so was Michael Kroger, a powerbroker in the Victorian Liberal Party. As a team, they were outgunning Murdoch, who relied largely on Malcolm Colless, a long-term News Corporation officer. Ken Cowley, Murdoch’s top man in Australia, was well connected in Canberra, but he had been wounded by the Super League war and he was on the way out, soon to be replaced by Lachlan Murdoch.

After Howard sailed into power, he appointed Richard Alston as minister for communications. Alston’s primary task was to get a media inquiry up and running. A spirited debate erupted straight after the election on whether the inquiry should cover both foreign-ownership and cross-media issues, as Black and Murdoch wanted, or just the latter, which was Packer’s preferred option. Alston and Howard vacillated for nearly eight months before making a decision—changes to the foreign-ownership rules on newspapers were off the table.

Before the choice was revealed, Conrad Black made one last trip to Canberra to judge the political wind at close quarters. He also fronted the Fairfax annual general meeting, where he addressed the Packer problem head-on. ‘If Mr Packer wants to control Fairfax’, said Black, ‘he’ll have to do it the old fashioned way … and pay cash. I’m not anti Packer. I’m supportive of him. But if he wants Fairfax, he’s going to have to recognise that this isn’t going to be like taking back the TV channel from Alan Bond’.

Reading between the lines, Black was actually putting his Fairfax stake up for sale. He and the Fairfax board had had a tough year. They had lost a chief executive in controversial circumstances.

When Stephen Mulholland decided to leave the Australian media scene behind and return to South Africa, he nominated Bob Mansfield, the chief executive at telecommunications company Optus, as his replacement. It was not a good move. Mansfield was close to Packer and Brian Powers. Within weeks of his arrival at Fairfax, it was clear that he would treat Black’s Telegraph Group as just another shareholder. Dan Colson thought he was dangerous and became increasingly alarmed as, one after another, five senior executives, including the deputy chief executive, the chief financial officer and the managing director of David Syme in Melbourne, all resigned or were sacked. Then, when Mansfield was asked to present his strategic plan for Fairfax to the board, the lack of detail and vision left board members like Mark Burrows feeling very underwhelmed. By April 1996, Colson had convinced the board to send Mansfield packing—he had been in the job for seven months.

In the kerfuffle that followed, one voice stood out, that of Victorian premier Jeff Kennett. ‘The problem was not Mr Mansfield. The problem exists in Melbourne with The Age and The Sunday Age. Fairfax is in crisis and it deserves to be in crisis … [Mansfield] was a very good executive and he had both hands tied behind his back. If I was a shareholder I would want to have the board’s heads next’, Kennett blustered. He followed up with: ‘I have got a paper that is crap. It is absolute crap’. Kennett’s opinion carried a lot of weight in the Liberal Party. At that point, it was not looking good for Black.

The mogul had other problems too, including a raging price war with Murdoch in the London newspaper market. The Times slashed its cover price mid-year by two-thirds, from 30 pence to 10 pence. This hit The Daily Telegraph’s revenues. And in the Australian market, a cyclical downturn in advertising saw profits plummet by over 50 per cent in the first quarter of the 1996/97 financial year. It was all getting a bit too hard.

So when Howard made it clear in early November that the foreign-ownership regulations would not be revisited, Black decided to go. ‘We’re not interested in staying forever at 25 per cent’, he said to The Australian. ‘If the road is truly blocked, then obviously we’re going. We’re going somehow and some way.’ The way that was chosen was a sale to Brierley Investments Ltd, as Black explained it to The Australian in December: ‘The Australian Government’s recent public statements indicate that it does not intend to review foreign ownership limitation in the media sector as part of its current review of media rules … in the circumstances it would have been irresponsible of us not to have agreed to sell our shares to BIL. We were not prepared to keep the place of the most influential shareholder in Fairfax warm for whomever might emerge to seize it’.

Even so, it had been a profitable investment for Black. The Fairfax shares sale price was $553.8 million. That meant a profit for Black’s Telegraph Group of nearly $300 million in five years.

Colson, who had sat on the Fairfax board for five years and spent a lot more time than Black in Australia, was more sorrowful about the sale. ‘This is not what we intended and not the way we wanted things to go,’ he said in an interview with the Fin Review. ‘We tried for five years to increase our stake. To say we’re sorry we are parting would be an understatement but you can only hit your head against a brick wall for so long.’

It was left to Colson to inform his fellow board members at Fairfax that Black was pulling out. Some were very unimpressed with the decision to sell to BIL. One board member recalls visiting Colson at the Ritz Carlton Hotel in Sydney’s Double Bay the day before the announcement: ‘He [Colson] said, “Tomorrow it will be announced that we have sold to Brierley”. I said, “You must be joking. So you are basically delivering it to Packer”. He didn’t want to talk to me, didn’t want to discuss it. Rod Price [of BIL] was always the person you could do a deal with. I said, “Dan, so you are giving the option to Packer”. He was very upset. He liked coming here. He was a thoughtful director’. (Black and Colson clearly were not selling Fairfax directly to Packer, but the implication was that BIL was only interested in a quick profit—it would sell out in a heartbeat. If the media laws changed, the likely buyer would be Packer.)

Murdoch was out of Fairfax too. He sold his remaining stake as soon as Howard’s stance on foreign ownership became clear. Murdoch was not a happy man, and his anger would dog the prime minister for the next eighteen months. He fired his first verbal missile at the Howard government via an ABC TV interview from Tokyo, a few weeks after Black’s sale of his Fairfax stake. Reflecting on the government’s first nine months in office, Murdoch said: ‘On the whole, it’s pretty bad at the moment … There’s not many places in the world booming, but I think it’s very important that Australia, if it’s going to engage in Asia and going to grow really well, [has] to get on with structural reform, tax reform and labour reform and a whole lot of things’. He then said that he sympathised with Conrad Black—the same man he had been trying to send broke in London. The next day, Murdoch backed up for yet another attack: ‘We’re at real risk of becoming a backwater unless we hurry up and get some energy in the country like New Zealand did’.

But Murdoch wasn’t the only problem. It was starting to dawn on Howard that the concentration of media ownership, and tight control over the national advertising market, that would be delivered to Packer with a clean takeover of Fairfax was not going to wash with his party room or the electorate. There had to be another option. Howard’s solution was to try to introduce a third player into the newspaper market, which he actively pursued for months. An interview given on Melbourne radio station 3AW was revealing. It showed just how hands-on Howard had become in trying to mould Australia’s ‘free press’. Howard had had a highly publicised meeting with Packer the previous week and the radio host bluntly asked the prime minister: ‘What did he want?’

‘Well, he wants the cross-media laws changed and he’s never been shy’, Howard replied. ‘Media barons are never shy when you talk to them. He has an uncomplicated view. He would like to buy Fairfax. At the moment he can’t because he owns Channel 9. We’re considering whether that law should be changed … There’s really three options. You can leave [Fairfax] as it is, which is inherently unstable—and the Fairfax share register is very unstable—and you really don’t have anybody running the company, not in an identifiable way. I mean, that’s not meant to be critical of the management, but the fact is it’s a pretty unstable situation. Alternatively, you can open it up completely, and that is take off all restrictions, cross-media and foreign, and that could result in all of the media in Australia owned by foreign interests … Or alternatively, you can relax the cross-media rules, which means foreigners can’t buy more but it would allow Mr Stokes or Mr Packer or anybody else who also has television interests to buy [Fairfax] …’

The answer caused an outcry, best summarised by veteran journalist and former Age editor Les Carlyon’s sarcastic response in his Age column of 11 May 1997:

And what about those unstable share registers? One has visions of the Prime Minister skimming through the share lists at breakfast before rushing to the phone and shouting: ‘… Call an emergency Cabinet meeting. I reckon Joe Gutnick’s share register could be unstable!’ Mind-blowing, isn’t it? Have people been coming up to you at supermarkets and barbecues and saying: ‘My God, have you heard the news—the Fairfax share register is unstable’. The Fairfax register has been unstable for years—mainly because of government policy. People don’t much care about this; their interest in Fairfax newspapers is pretty much limited to the copy in them. Just about the only outsider interested in the stability of the register is Packer. He wants to stabilise it by taking all the shares himself.

Kerry Stokes, boss of the Seven Network, who was often referred to during Packer’s halcyon days as ‘little Kerry’, was incensed. ‘Who the hell does the prime minister think he’s representing?’ he declared in The Age. ‘For the prime minister to be playing kingmaker revisits the darkest days of the Labor Party’s deal-making with its mates.’

In the same month as the Packer visit and the unfortunate radio interview, Howard, chasing his elusive third player, also met with Stephen Hill, chief executive of Pearsons, owners of The Financial Times, to discuss a potential purchase of the Fin Review. Never mind that the Fairfax board claimed that it wasn’t for sale.

By May 1997, communications minister Richard Alston was ready to go to Cabinet with legislation that would free up Australia’s cross-media rules. But members of Howard’s own party and of his coalition partner, the National Party, stepped in. They were being lobbied furiously by smaller media owners like Kerry Stokes and regional newspaper proprietors like John B Fairfax of Rural Press and Cameron O’Reilly of Australian Provincial Newspapers. Young backbenchers like Joe Hockey and Brendan Nelson took Howard on too. There were even threats to cross the floor if the legislation ever made it into parliament.

And then Rupert Murdoch decided to pay Howard a visit. The prime minister was at Kirribilli House, recovering from pneumonia, but he agreed to see the media magnate and his son Lachlan. Murdoch’s message was clear. He wanted full deregulation of the media—the end of both cross-media laws and foreign-ownership restrictions. If he couldn’t have that, then he wanted the status quo to remain. As far as Murdoch was concerned, it was all or nothing.

It was too much for Howard. On 1 September 1997, he announced that any changes to cross-media laws would be delayed until after the next federal election, at least two years away. Howard could not satisfy both Packer and Murdoch. He had courted one and insulted the other. The easiest way out was to duck the issue altogether.

Three days later, Packer made his next move. He sold all of his Fairfax shares to a new entity, FXF Trust, which was 45 per cent owned by Packer’s Publishing and Broadcasting Limited. It was quite brilliant in its conception. Powers undoubtedly had a big hand in it, and within a few months, he was to benefit—he would become the chairman of Fairfax. Meanwhile, amid all the political infighting, the media mogul clashes and the game of musical chairs being played out on the Fairfax share register, there was still the daily business of putting newspapers on breakfast tables around the country.