12

His Grandest Experiment

I wouldn’t fucking hire him [Fred Hilmer] as a sweeper. For Fairfax to be run by a management consultant is just an act of stupidity. I think it’s ridiculous … He came from McKinsey and he has never run a business in his life. Now, if that is the right criteria for running a newspaper business then I am a Dutchman.

Kerry Packer, ABA inquiry, October 1998

It was late on a Friday afternoon in October 1998 when a small group of Fairfax journalists, including Jeni Porter from the SMH, were summoned to the boardroom on the nineteenth floor of Darling Park for a company briefing. John Greaves, the company’s chief financial officer, alerted the journalists to prepare themselves for an important bit of news and an interview. He said to Porter, rather cryptically, ‘I will be interested to see how you react to this one’. The meaning behind his words became clear when the news was delivered. It was straight out of left field. Fred Hilmer had just been appointed as the new chief executive of John Fairfax.

Everyone had heard of Hilmer. He had headed up a committee to review Australian competition policy in the early 1990s. The outcome was known as the Hilmer report and in 1995 it led to the introduction by state and territory governments of sweeping new competition laws. He had had plenty of publicity. But Hilmer was an academic. If he had ever been inside a newspaper office, no-one could remember the occasion. Worse, he had never managed, or even worked inside, a major company. True, he had experience as a public company director. He was deputy chairman of both Westfield Holdings and Fosters Brewing; a director of Coca-Cola Amatil and chairman of Pacific Power. And Hilmer had run McKinsey’s management consulting business in Australia for nearly two decades. He was also known to be very close to the Lowy family and to fellow Fairfax director David Gonski—he was well connected, he was well respected. But his day job was running the Australian Graduate School of Management at the University of New South Wales. What did he know about newspapers?

Hilmer had a distinctive physical presence that set him even further apart from those in the newspaper industry. The short, slim 53-year-old compensated for an otherwise nondescript appearance by sporting dapper suits and colourful bow ties. It would have been hard for him to look more out of place in a newspaper office. But there was a much more troubling aspect of his nonconformity. At his first press briefing, Hilmer quite happily admitted that he knew very little about the industry.

Jeni Porter asked him what he thought made a good newspaper. ‘I don’t know yet’, Hilmer replied. He confided that he was not an avid newspaper reader but that he had ‘fairly strong ideas about good writing’. The assembled journalists were horrified. This was one of the most high-profile and prestigious positions in the Australian media, and the new appointee didn’t even read newspapers. It seems extraordinary that Hilmer was so poorly briefed for his first public outing with the media—Porter’s question was an obvious one, but neither Hilmer nor his minders had anticipated it. Fred Hilmer had walked into the corporate equivalent of a lions’ den at Fairfax and he had been woefully unprepared.

Hilmer went on the offensive a few days later, relating in a Fairfax staff newsletter how disappointed he was that he had been misquoted in the article by Porter that had appeared in the SMH the day after the press briefing. An indignant Porter rang him up. She pointed out to her new boss that she had a tape of their conversation and he had certainly not been misquoted. Hilmer backed down. He agreed with Porter but said that he had meant to refer to quotes being taken out of context—it was so irritating that a thirty-minute conversation had to be squashed into 300 words.

Welcome to the world of newspaper reporting. It was a world that Hilmer never really seemed to appreciate or understand. He didn’t get bolshie journalists either, those who would report on Fairfax and hold their own management to account, just as they would any other. Instead, he remained frustrated that newspaper articles didn’t have the discipline of academic writing or McKinsey reports—they were not properly researched, they were not heavily data driven. He found journalism largely irritating and trivial.

Hilmer seemed to have inherited the proverbial poisoned chalice. The man who appointed him (although at Gonski’s prompting), Fairfax chairman Brian Powers, had only been a few months in the job, and the ABA hearing into Powers’ appointment was still underway—Kerry Packer was yet to give his evidence, including his colourful and unsolicited assessment of Hilmer. As for the Fairfax board, its members had been trying to work out how to deal with Powers. They had been saddled with a chairman who had the capacity to dominate board meetings to such an extent that some members recall never being able to get a word in despite sitting around a table for eight hours at a time.

Powers was also championing a massive cost-cutting drive—$40 million was to be lopped off the cost structure. The previous chief executive, Bob Muscat, had apparently resigned for personal reasons. But his departure might have had something to do with Powers hijacking his annual budget meeting and extending it from the scheduled two hours to one-and-a-half days, cutting costs all the way. And, to top it all off, Fairfax’s major shareholder, BIL, was financially crippled and had recently parted company with both its own chief executive and its chairman.

This scenario would have challenged the most experienced of corporate managers. But in stepped Hilmer, who had no experience as an executive of a publicly listed company. Veteran media analyst Roger Colman echoed the thoughts of many when he said that Fairfax’s rival, News Corporation, would be happiest with the Hilmer appointment. ‘This is great news for News Corporation and it continues the dumbing down of Fairfax’, he said. Powers, on the other hand, appeared supremely confident that he had made the right decision. Hilmer, he claimed in The Australian, was the ‘ideal person to lead Fairfax during the next period, which is destined to be one of unparalleled change for the newspaper and information industries’.

As it turned out, Powers was wrong. Colman was right, and so was Kerry Packer. Hilmer’s years at Fairfax have been dubbed ‘the lost decade’. Media commentator Mark Day refers to them as ‘the Brezhnev years’.

What could Powers have been thinking? Greg Hywood, newly appointed as publisher and editor-in-chief of the SMH following John Alexander’s sacking, asked the chairman directly. Powers replied: ‘It is an experiment’. As far as Powers was concerned, the Hilmer appointment could be a stroke of brilliance or it could be dreadful. And if it was dreadful, he would just get rid of him. Except he didn’t. Hilmer was there for seven years—long after Powers himself had departed.

Today, Powers admits he probably would have appointed John Alexander to the chief executive position if Alexander hadn’t been sacked as editor-in-chief of the SMH just a few months earlier: ‘If he [Alexander] had been there and I could have housebroken him, there is a reasonable chance he would have been chief executive. He was a very able newspaper man’.

As for why he selected Fred Hilmer, Powers explains: ‘We chose Fred because we thought, here is a guy who is very bright and who, during his time at McKinsey, had worked with many companies who were facing a fair amount of turmoil and change in their industries. He had done a very credible job at the electricity company [Pacific Power]. We thought that he was a man of ideas, that he wouldn’t be overly dogmatic and wasn’t going to try to control the editor too much. He would fit in with what the culture at Fairfax should be. That was our thought’.

The internet was also a factor. ‘It was clear the internet was going to play a big role’, Powers says. ‘We talked to a couple of people overseas—most of them were not impressive at all. I was pretty concerned about getting someone who would embrace the importance of journalism. It was a content bet on one hand. But also [the candidate needed to] be a good enough businessman to face the challenges imposed by the online world. And the media market in Australia is a very local business.’

Hilmer, meanwhile, has written a book about his years in the media industry, titled The Fairfax Experience: What the Management Texts Didn’t Teach Me. It reveals a degree of self-knowledge. On his appointment, Hilmer writes: ‘The board must have been pretty desperate as I was hardly a conventional candidate—I had no experience leading a major publicly owned company and no knowledge of publishing or media’. He also refers to the Fairfax job as ‘what on some days I thought of as my grandest experiment’. It seems that he and Powers were on the same page.

But Hilmer’s book also demonstrates his faults, although he doesn’t see them as such. One of those faults was that he didn’t see the fostering of good journalism as part of his job, despite Powers’ stated hopes in that area. ‘I think some on the board still think that improving the journalism would have helped the company turn a corner, but I never thought it was the key to solving the business challenge’, he notes. And, later in the book, he writes: ‘There was no increase in circulation that could be linked to an editorial initiative. Higher circulation was only ever driven by things such as sales and discounting, putting papers in petrol stations and promotional activity’. No wonder he didn’t get on with journalists.

Hilmer is also dismissive of the Fairfax board in his book:

Fairfax lacked a strategy or at best was pursuing a flawed one. The board’s favoured route of cutting costs, improving editorial and trying to figure out what the internet might mean, ran counter to a classic mature industry strategy of consolidation, rationalisation and sensible gambles on new businesses.

And, as he acknowledges, he was easy prey for a highly competitive News Corporation: ‘[I was] at a disadvantage because of my lack of industry experience and history, I badly underestimated the depth of rivalry and animosity between Fairfax and Rupert Murdoch’s News Ltd’.

Hilmer’s management-text plan for Fairfax was expansion, but he fell down there too. Planned mergers or takeovers during his reign included the whole gamut of possibilities from Telstra to West Australian Newspapers, Channel 10 and Rural Press. All failed to eventuate—except for a deal to secure a New Zealand newspaper group.

When it came to the troops, the following was about as stirring a proclamation as they would hear under Hilmer: ‘Now we are going to break up into teams. You will find in front of you either a whistle, a pair of goggles, or a swimming cap. This will determine which team you are in’. The instructions were issued at the aquatic centre at Olympic Park, in the inner-west Sydney suburb of Homebush, where Fairfax’s top editors, journalists, and advertising, sales, marketing and circulation executives had gathered for another one of Hilmer’s management strategy days. There was no talk of flailing circulation or falls in advertising revenue. It was all about team building. The newspaper traditionalists hated it. They saw corporate love-ins as a waste of time. If you weren’t going to talk about the product, what was the point in being there?

Hilmer was aware of the challenge. As he writes in his book: ‘Changing an entrenched culture is not easy … [Fairfax] was a cynical organisation suspicious of management speak’.

The new chief executive also introduced performance reviews at Fairfax. He insisted on management flow charts, too, but these created problems on the newsroom floor. Where did the economics editor fit? He didn’t have any direct reports but he held a special position on the newspaper. You couldn’t put him below the section editors, for example. He would go ballistic.

And then there was the problem of employee productivity. As an executive at the time recalls, ‘Fred had those kinds of Jack Welch [of GE] notions. Employees fitted on a bell curve and the bottom 10 per cent should go every year. You should be able to grow your business by X per cent and get costs out by X per cent. He had this kind of mantra’. Early in his Fairfax stint, Hilmer had an obsession with measuring journalists’ productivity. Would it be the number of stories written each quarter? Well, not really, explained the editors. That would mean that a top columnist like Ross Gittins or Alan Ramsey would be in the bottom 10 per cent—they only wrote twice a week. A cadet might write two stories a day. Well, could it be the number of phone calls made? Not really—a top journalist could probably mine his contacts and get a story in two phone calls. A dud journalist might need to make fifty calls.

There was frustration on both sides. And, over seven years, it never really dissipated. ‘The worst thing for Fred was really his inability to engage people’, says one of his supporters in the company at the time, who feels that Hilmer has been unfairly assessed and that the problem was one of personality. ‘He does people by numbers. He doesn’t really get people. He is not personable. He is very transactional. He values a certain kind of intellect and not others. He found the journalists very frustrating … he didn’t think people were numerate enough and he found the place highly political. He tried to break it down but didn’t have the personal skills to build a strong team.’

Hilmer’s lack of respect for journalism impacted on his appointment of editors. He valued those who focused solely on the bottom line. He expected everybody to have not only numeracy skills but to think having them was their primary job—a greater priority than good stories. He didn’t seem to understand the role of newspapers in terms of the fourth estate, as being critical to a working democracy. This was a long way from the values of the Fairfax family, who did understand the broad political importance of credible journalism.

Ironically, Hilmer himself showed signs of poor numeracy skills when it came to the central pillar of Fairfax’s profitability—the classifieds.

The Fairfax family was not the perfect proprietor but it did understand the role of the media. And the general managers it appointed, from Rupert Henderson to Greg Gardiner, understood the so-called ‘rivers of gold’. They knew that their real business was classified advertising, those pages and pages of small ads for jobs, homes and cars. They kept a hammer lock on that business in the two major advertising markets, Sydney and Melbourne. But Hilmer didn’t seem to get that concept either. And that is where Fairfax’s internet strategy fell down. For the first two years of Hilmer’s reign, the company was very firmly focused on the internet. Powers understood its importance and so did Hilmer. What they didn’t understand was that the priority was to protect those rivers of gold, to make sure that Fairfax’s dominance in the print classifieds was maintained as the business moved online.

The Sydney Maritime Museum sits on the shores of Darling Harbour, next to the historic Pyrmont Bridge. Hilmer leased the expansive top level of the museum in 1999 for the headquarters of F2, Fairfax’s newly minted digital division. It was deliberately separated from the newspaper building, which lay on the other side of the harbour. The two divisions were only a five-minute walk away from each other, across the adjacent bridge, but they may as well have been a world apart.

The F2 offices were modelled on the finest hi-tech campuses of Silicon Valley in California. There were bars and ping-pong tables in the middle of the office area. There was hot-desking. Cool dudes wandered around in jeans and T-shirts. The place had the lot. The business model also came straight out of California. It was largely centred on search engines. After all, hadn’t they generated hundreds of millions of dollars in profits for the likes of Google, Yahoo! and LookSmart? The problem with the strategy, however, was that it tended to ignore Fairfax’s real business—the Sydney and Melbourne classified advertising market. Its managers had jealously protected this franchise for 150 years. But Hilmer and his head of digital, Nigel Dews, a fellow McKinseyite, had different ideas.

‘The board gave Fred $150 million to spend on the internet and he spent only $8 million of it on classified sites for jobs, homes and cars’, recalls a senior editor with bitterness. ‘The rest went on Citysearch [a directories business]. He didn’t understand how we made our money.’

A different interpretation is possible. Hilmer and Dews perhaps did understand the value of the classified advertising franchise, but it was just too hard to handle. Print advertising was still making a lot of money and the executives in charge of it, people who had been at Fairfax for decades and were hard nuts to crack when it came to new technology, were very reluctant to cannibalise their own business—their instinct was to kill the new competitor. Hilmer may have recognised this and made a decision to separate completely the digital division.

It was an easy way out for Hilmer and Dews. But it was also a potentially highly profitable one. If F2 could be floated, new capital could be raised to fund the new technology and there was the possibility of lucrative executive share schemes. Besides, everybody else was doing it—or, at least, Packer was. (Ecorp, Packer’s digital division, which was essentially the old ticket-management company Ticketek dressed up as a hi-tech spin-off, was floated in June 1999.) Turnbull handled the float of eCorp for Packer. ‘My pitch to him was, “Well, you don’t know whether this will be worth a billion or nothing. So why not raise some money to fund the company and if it succeeds you will own 80 per cent. If it doesn’t, then at least you haven’t burnt your own money.” Good advice, as it turned out. After eCorp I went to see Fred (Hilmer) to pitch a similar deal for F2. Fred said: “No, Malcolm, we have looked at this very carefully with Morgan Stanley and we think this business is so valuable, with so much upside, that we don’t want to share any of the upside with anyone else.” I couldn’t believe it,’ Turnbull recalls. As it turned out, however, there were no upsides. F2 was a financial disaster. The losses amounted to $120 million over the first three years. There was no float. Discussions over allocating the digital rights to editorial copy led to brutal infighting within the Fairfax organisation. Editors were protecting their own patch, but they rightly argued that giving away the digital rights to their product was financial suicide.

This issue was thrashed out at a key meeting in August 1999 at which Dews, Hilmer, Powers and Gonski argued the case for a float of F2. The meeting dragged on for several hours and became very heated. The editors and publishers could not be convinced of the merits of a float. Michael Gill, publisher and editor-in-chief of the Fin Review, was implacably opposed. ‘We can’t do this’, Gill said. ‘If we float off the digital rights to all Fairfax’s content, what is to stop a competitor like Telstra leveraging off a minority shareholding and gaining control?’ Gill’s point was also that once the digital rights to content were sold off, it would not be possible to get them back. Those rights would be incredibly valuable, so the float would be a success, yielding healthy fees for the advisers, plus any executive options granted would make Fairfax management rich. But control over the content would be lost.

The Fairfax board ultimately pulled back. In September 1999, it announced that the float of F2 was now off the table. Instead, the digital division would become an entity in its own right—a wholly owned subsidiary, F2 Limited. Nigel Dews was to be the chief executive. It was to Hilmer’s credit that he had allowed open discussion of the plan within the Fairfax organisation. But the bitter fighting had left scars, a legacy of the unbridgeable gap between editorial and digital. They simply loathed one another.

A few months later, Hilmer was able to enjoy a respite from the tensions at Fairfax’s headquarters. He was one of many corporate executives attending the World Economic Forum, the annual talkfest in Davos, Switzerland. Bill Gates, Tony Blair and Bill Clinton were the star attractions that year, and there was an infectious optimism in the air. New technology had created a fresh paradigm for business and there was serious money to be made. The NASDAQ was flying (the tech stock crash was still four months away—it is hard to remember now the extent of the enthusiasm at the top of the boom). Twenty-three-year-old computer geeks were feted like rock stars. There was standing room only at the session where Bill Joy of Sun Microsystems spoke—he was the guru. Michael Dell of Dell Computers was considered a business genius. And Fred Hilmer, on his fifty-fifth birthday, was soaking it all up. For Hilmer at Fairfax, it wouldn’t get much better than this. He had launched F2 as a stand-alone subsidiary four months earlier and it looked like nothing but blue sky ahead.

Hilmer and his wife Clare stayed at the Schatzalp, an Art Nouveau–style hotel accessed from the centre of Davos by its own funicular and made famous by the Thomas Mann novel The Magic Mountain. When the forum had wrapped up, the hotel held a farewell lunch for all attendees. The Schatzalp has a magnificent Belle-Époque dining room, but the lunch was held on the Snow Beach Terrace, which offers views across the surrounding mountains. The guests sat at long tables carved from ice. The champagne was flowing.

After lunch, Hilmer met with another Australian CEO who was attending Davos, Telstra’s Ziggy Switkowski. On the agenda was the sale of a Telstra division, Pacific Access, publisher of the Yellow Pages and the White Pages, Australia’s main telephone directories. Fairfax owned the only major competitor in the directories business—Big Colour Pages, the building block of F2’s Citysearch. Pacific Access could be bought for around $400 million. The plan was that Fairfax would pay for it in stock and Telstra, in turn, would become a significant shareholder of the media company. Mark Carnegie was advising Telstra on the deal, while Morgan Stanley, chaired by David Gonski, was advising Fairfax.

Hilmer and Dews saw directories as the future of F2, but the deal really went nowhere. Hilmer reported back to the board that Switkowski was just too difficult to deal with. They couldn’t agree on a price. But it was a significant negotiation nevertheless because it was the first of several attempts during Hilmer’s reign to link up with another media player. Only one was successful—a takeover in May 2003 of Murdoch’s newspaper assets in New Zealand, Independent News Ltd. It cost $1.1 billion but the deal bolstered Fairfax’s bottom line.

It is only with hindsight that the real gaps in Fairfax’s digital strategy can be highlighted. It may have been sensible to float off the classified sites—Drive, MyCareer, the real estate site Domain. That wasn’t done. Instead, Fairfax left the way clear for start-up competitors, what McKinsey calls atomisers—Seek for jobs, realestate.com.au and carsales.com.au. The start-ups had the advantage of not having to worry about legacy costs, an entrenched print culture or print advertising executives who wanted to protect their own turf. And journalists? Who needed them?

Fairfax had the opportunity to buy into both Seek and realestate.com.au but, inexplicably, passed it up. Carsales.com.au was not there for the taking—it was snapped up by Packer’s PBL shortly after the site’s launch. (In early 2005, Fairfax did end up buying 11.5 per cent of carsales.com.au from Yahoo!, but James Packer then outsmarted Hilmer. He put a deal to the website, suggesting it merge with the Packer start-up Carpoint. As a result, Packer emerged with 41 per cent of carsales.com.au.) Packer later bought a key shareholding in Seek and News Corporation bought into realestate.com.au. By then, Fairfax effectively had given away its control of the classifieds. Rupert Henderson, who had died in 1986, must have been turning in his grave.

Hilmer’s biggest miss was arguably Seek, whose market capitalisation in 2013 was two and a half times that of Fairfax. Like Google before it, the enterprise effectively started out in a garage—well, almost. In 1997, at the height of the dotcom boom, three young friends in Melbourne, Paul and Andrew Bassat and Matthew Rockman, drew up a business plan for a job-advertising site called The Spot—Rockman’s father, Irvin Rockman, the Melbourne hotelier and former lord mayor, put up the initial funding. Over the next two years, the trio raised money, largely from the Melbourne Jewish community, to launch the product, now called Seek.

In 2001, after surviving the dotcom crash, Seek began looking for more capital. Jonathan Fennel was an early small investor in Seek and by 2001 was a partner at the Sydney boutique advisory firm Longreach Ltd. He and his colleagues Jeff White and Barry Davies could see the value in Seek, so for two years they tried to convince Fairfax to buy it. ‘Between May 2001 and August 2003 we were never formally acting for Fairfax, but we were trying to broker some deal between Fairfax and Seek’, White says. ‘There were many meetings and we introduced Nigel Dews to the Bassats and Rockman. We got to a meeting with Hilmer.’

Fairfax prevaricated until, in August 2003, the Packers paid $33 million for 25 per cent of Seek. However, it was not a done deal. It was conditional on board and Seek shareholder approval. Fennel was convinced that the shareholders would be attracted to an alternative deal with Fairfax. Seek, at that point, was valued at $111 million, including $30 million in cash.

There had been every opportunity for Fairfax to embrace the possibilities and combine MyCareer with Seek. This would have put a big price on the venture and given the Bassats and Rockman a leg up with their investment. But, as Fennel explains, ‘Fairfax was cautious. They were worried about cannibalisation and the culture fit—can we manage [the] Bassat[s] and Rockman?’ Then the deal with Packer happened and suddenly Hilmer wasn’t interested anymore. The entrepreneurs had gone behind his back and done a deal with Packer. That was it.

‘They just refused to acknowledge the world was changing’, Fennel says. The Bassats also found Fairfax, both Hilmer and his executives, to be very complacent. Paul Bassat says there was never a serious offer on the table. He had only one meeting with Hilmer, over a cup of coffee at the Spencer Street headquarters of The Age in Melbourne. ‘The underlying assumption [at Fairfax] was that Seek would run out of money and they could put a foot on us and buy the business at any time’, Paul Bassat recalls. During their discussions, it became clear that Fairfax wanted to buy a minimum stake for a small amount of money and to negotiate a level of control that would prevent Seek from bringing in any other investors. It wasn’t acceptable to the founders.

To be fair to Hilmer, he had recently had a sobering experience trying to manage some young entrepreneurs who had started up a number of computer magazines in Asia. This was Strategic Publishing, one of Hilmer’s early acquisitions. It had ended in tears, with massive write-offs. So his reluctance regarding Seek was understandable. But it was still the wrong call.

Fairfax board members placed the blame for missing out on Seek squarely on Hilmer. ‘The board was pushing it’, says a former director. ‘If there was a different way of digitalising classifieds, we needed to be in there. No-one on the board was stopping that. It was Fred’s indifference, Fred’s intellectual superiority [that stopped it].’

But the poor judgement on internet strategy cannot be placed solely on Hilmer’s shoulders. Fairfax journalists share part of the blame. Most of them resisted the move to online journalism in the late 1990s. The prevailing culture—one that reserved all the accolades for page one ‘exclusive’ stories in print—could not accept the value of breaking a story online as soon as it was confirmed. ‘Why give the story to the opposition?’ was the cry. If an exclusive story was placed online, a news editor at The Daily Telegraph or the Herald Sun would see it and put it on their next edition’s front page too. In the early days, there was no value attributed to online journalism. And if reporters had to cater to online publications as well as to the newspapers, the union representatives argued, then they should be paid an extra allowance. The complacency that was evident in Fairfax management’s attitude to Seek was also evident in the newsroom.

It is also highly likely that Packer and Murdoch would have moved more aggressively if Fairfax had got even close to taking over Seek. The media moguls seemed to take particular delight in humiliating Hilmer. The Fairfax journalistic culture may have irritated him, and choosing the right internet strategy may have eluded him, but for Hilmer, dealing with Packer and Murdoch was another level of frustration altogether.

The first shot was fired early in Hilmer’s reign. It was Thursday evening, 23 December 1999, and Hilmer was hosting Christmas drinks for his executives at Darling Park. It had been an eventful twelve months. Profits were up, thanks to an economic recovery and a boost in advertising revenues. BIL had sold its 24 per cent stake in Fairfax, partly to institutions and partly funded by a share buyback. Fairfax’s biggest shareholder now was the Packer-controlled FXF Trust, which held just under 15 per cent of the company, while Powers, in turn, held 15 per cent of FXF. The internet had consumed much of Hilmer’s time during the year. There had been the proposed float of F2. Domain, Fairfax’s real estate site, was launched in October 1999, four months after an eBay-style auction site, sold.com.au, had come online. And Hilmer was building his own team—he had appointed a new head of operations, Peter Graham, whom he knew from Pacific Power, and a new chief financial officer, Mark Bayliss.

As festivities got underway, the party was interrupted by security personnel. There was a process server downstairs who wanted to serve a writ on Hilmer. Kerry Packer was having a bit of fun. He had launched a defamation action against Fairfax over comments made in the SMH relating to Channel 9’s claims to exclusive New Year’s Eve broadcasting rights. It was not so surprising—Packer was litigious. What was surprising was that Packer had named Hilmer personally as the second defendant. Hilmer took it as a personal insult, but this was just the way of the world of the media moguls. A spokesman for Fairfax later told the SMH: ‘We knew he [Packer] disagreed with Fairfax on digital TV, but this is ridiculous’.

In fact, Packer was generally unimpressed with Hilmer. As far as the big man was concerned, Hilmer was the wrong person to be running Fairfax. Over the next few years, communicating his disdain, Packer would launch three separate writs against Hilmer. And eighteen months after those Christmas drinks were so rudely interrupted, Packer sold out of Fairfax altogether.

It wasn’t just Packer who Hilmer was up against. The Murdoch press was directly competing with Fairfax and they appeared to relish the prospect of taking on the newspaper industry naif. Hilmer’s legendary tussles with the Murdoch press focused on the free afternoon newspaper market. These commuter papers had been a big success in London—the advertisements had poured in. Hilmer wanted to mirror that success in Australia and planned to launch free afternoon papers in both Sydney and Melbourne. But this was tabloid territory, and Fairfax would be going head-to-head with Murdoch, the king of the tabloids.

Hilmer’s first attempt at getting a free afternoon paper up and running took place in May 2000. Its backdrop was a lavish corporate bash he was hosting at the recently refurbished Regent Theatre at the so-called Paris end of Collins Street in Melbourne. Hilmer had chosen a French theme for the event—guests were greeted as they arrived at the theatre by French-speaking actors in period costume.

At the time, Fairfax was on the nose in Melbourne. Jeff Kennett had lambasted The Age right through his premiership, from 1992 to 1999. In his view, Fairfax’s Sydney headquarters had ruined the newspaper. He believed that, as it was a Melbourne icon, it should be owned and run by Victorians. But Kennett had recently suffered a humiliating defeat in a state election. There was a new government, and so, Hilmer had thought, perhaps Fairfax could start afresh in Melbourne.

The Fairfax board had met in Melbourne earlier on the day of the Regent Theatre reception. Hilmer had expected to get approval at that meeting for the free afternoon papers. He could then announce it to Fairfax’s top advertisers and the cream of the Melbourne business community at his function that evening. The first disappointment for Hilmer was that the board knocked back his proposal—the big announcement was off. The second disappointment was that his lavish function to impress Melbourne was a debacle.

The entertainment for the evening included Ron Tandberg, the award-winning Age cartoonist, who drew cartoons on butcher’s paper and regaled the crowd with tales of how he’d decided on his topic for the day. He drew Jeff Kennett with his mouth agape and the caption ‘open 24 hours a day’. Then he moved on to Prime Minister John Howard—‘the nowhere man’. At this point there was loud heckling by a man in the audience. It sounded like an inebriated guest who had decided to be obnoxious. But the shouting was coming from the top table. It was Jeff Kennett. ‘You have just insulted half the people in this room’, he yelled. Tandberg gave as good as he got, telling Kennett that he had put more than half the Victorian electorate offside. Kennett stormed out.

It was left to Hilmer to take the floor and explain that this was what a free press was all about. He handled it well under the circumstances, but any thought that Fairfax could overcome its problems in Melbourne went out the window that evening. The top table guests had deserted the function by nime o’clock. Among them were former Melbourne lord mayor Ron Walker and Qantas chair Margaret Jackson—though both would become Fairfax board members in just a few years time. Hilmer couldn’t take a trick.

A free afternoon newspaper was finally launched by Fairfax in Melbourne in February 2001. It was called Melbourne Express. News Limited launched its free MX paper just hours after the Fairfax version hit the streets. The crew at News knew how to produce tabloid papers. They slaughtered the Fairfax effort. At the time of the launches, News chief John Hartigan said MX had been months in development and was ‘not something that we’ve planned on the back of a bus ticket, which they [Fairfax] appear to have done’.

Hartigan was merciless with Hilmer. Two weeks earlier, Murdoch’s Daily Telegraph had ridiculed Hilmer and Fairfax executives with a front-page story and colour photograph chronicling an annual strategy session for Fairfax executives held at the up-market Terrey Hills Country Club. It described the strategy session, which included an early-morning round of golf, as a ‘crisis conference’ because circulation was ‘plummeting’ and staff morale was ‘lower than a Tiger Woods scorecard’.

Hilmer had had a tough time of late. Fairfax had faced a cost blowout of $25 million thanks to the saturation coverage of the 2000 Sydney Olympics, and a lockout of staff at The Age, which had seen the paper fail to appear on one of its biggest sales days of the year—the AFL Grand Final. The domestic economy had suffered a reversal after the Olympics and advertising revenues had fallen sharply. The first two years of Hilmer’s reign at Fairfax had been a dream run by comparison. Strong advertising revenues had obscured any strategic errors. But times had changed.

And Hilmer faced the wrath of his biggest shareholders—the Packers. Kerry and James separately collared Hilmer, demanding to know why he had gone up against Murdoch on the free commuter paper in Melbourne. Lachlan Murdoch had been putting it around town that News Limited had offered a joint-venture product and Fairfax had rebuffed them. Fairfax executives counterclaimed that when they had cancelled an earlier plan to launch in Sydney and Melbourne in 2000, News Limited had agreed that the two companies would enter the market together or not at all, and then had broken the agreement. It was a mess.

Melbourne Express closed within seven months. But Hilmer had clearly irritated his main competitor. A few months later, Murdoch took on Fairfax in online real estate advertising. News Limited invested $10.75 million in realestate.com.au, a competitor to Domain that had been launched by a group of real estate agents. It went on to become the market leader.

Hilmer and Fairfax were floundering. There was no doubt that both Hilmer and Powers were now looking for stronger partners for Fairfax—either via merger or acquisition. When FXF Trust sold out of Fairfax, Powers had said, ‘The sale leaves Fairfax completely in control of its own destiny for the first time in its history’. But what was that destiny?

The company’s share price was tanking. It briefly reached a high of $6.24 in March 2000, but over the next twelve months, $2 billion was shaved off Fairfax’s market capitalisation. Print media was suffering from an economic downturn. Advertising revenues were nosediving. In October 2001, Hilmer told shareholders that Fairfax faced the worst advertising environment in thirty years. The internet strategy had gone awry. F2 was bleeding money. At that stage, investors were running away from internet stocks and media companies were pulling back from internet investments, Murdoch included. ‘We don’t look on [the internet] as a profit centre or even a potential profit centre’, the media mogul told his shareholders at the end of 2000.

When Kerry Packer sold out of Fairfax, this time for good, in July 2001, he was very bearish. PBL had lost $400 million on One.Tel, Jodee Rich’s ill-fated telecommunications venture. Rich, a new technology entrepreneur who had already made and lost one fortune on his failed computing venture Imagineering in the 1980s, had been introduced into the PBL fold by Packer’s son James. On top of this financial debacle, PBL had also lost $50 million on a television venture in India. There were question marks over Packer’s health and in business he was pulling down the shutters.

Fairfax was pulling back as well. By 2002, it had given up on Citysearch, sold to Telstra for just $20 million. Sold.com.au was then handed to Yahoo! for $24 million and a shopping site was sold off to David Jones. Hilmer was also in retreat. His five-year contract was coming up for renewal and the Fairfax board had decided to put him on a twelve-month revolving contract. It was a slap in the face.

Hilmer had management issues too. He was fed up with the battles between the print and online advertising divisions. He decided to move Nigel Dews from F2 and put him in charge of all Fairfax classified, print and online. It was a brave vote of confidence in a man who had already lost the company $120 million. But it was met with bitter resentment among the print sales team.

Hilmer also decided to shake up his key editorial positions at the SMH and The Age by swapping staff—Greg Hywood would move to Melbourne and Steve Harris would move to Sydney. But Harris baulked at the edict and left the company. Hilmer filled the gap in Sydney by appointing Alan Revell as SMH publisher. Revell had previously had a less than stellar career as publisher of The Sun-Herald before being moved across to special projects.

There was a period of chaos in the ranks as journalists and advertising sales reps adjusted to the changes. Hilmer’s popularity among the rank and file seemed to be at rock-bottom. To make matters worse, profits for 2002 were down by 58 per cent. And it was at this point that Powers decided to move on.

Powers says today that his main reason for doing so was that as an absentee chairman based in the United States and travelling to Australia seven or eight times a year, he was getting less effective—Fairfax needed a chairman who was on the ground in Australia. ‘Newspapers had seen their best days’, he says. ‘Might there be one more cycle in it? Perhaps. I didn’t think we were going to lose the classifieds. Clearly there was going to be a winner but I wasn’t convinced that winner wouldn’t be us [Fairfax]. I think it is very important for Australia to have a serious newspaper. I would have thought Fairfax would be holding up a bit better than they are now. Such strong brands. But no question it was going to be hard.’

Powers wanted David Gonski to succeed him in the chair, but Gonski didn’t want to take it on. Mark Burrows was living and working in London at the time and didn’t put his hand up. His perceived links to Murdoch probably would have ruled him out, in any case. Sir Rod Carnegie and Julia King were not interested in taking on the role either. It was an interesting case of board dynamics. Dean Wills was the man left standing, so he got the job.

Wills was qualified on the basis of his extraordinary record at Coca-Cola Amatil, as chief executive and later as chairman. He took what was then Amatil, a conglomerate covering five industries, and turned it into an internationally focused beverage company. Wills boosted the market capitalisation of the company from $400 million to more than $8 billion in a decade. He had been on the board of Fairfax since 1994, when he had stepped down as chief executive of Coca-Cola Amatil, so he knew the organisation. On paper, he should have been perfect. However, it was late in Wills’ career. He was close to seventy and his best years were behind him. In reality, Wills was not the ideal choice to lead Fairfax in difficult times. But he was definitely the best choice for Fred Hilmer. The appointment consolidated Hilmer’s clout on the board—his close colleague from Westfield and Coca-Cola Amatil was now his chairman. And Gonski was still there to support him.

But Powers had a departure gift that would eventually make Hilmer’s life difficult. At his last annual general meeting as chair in November 2001, Powers announced the appointment of three new directors, none of whom were put to a shareholder vote. They would have a dramatic impact on the future of Fairfax. The new board members were Qantas chair Margaret Jackson, Woolworths chief executive Roger Corbett and high-profile developer Ron Walker.

Walker was the most controversial of these appointments. His role as Liberal Party treasurer for fifteen years, a position from which he had only recently stepped down; his business activities as one of the key developers of Crown Casino; his role in bringing both the Formula One Grand Prix and the Commonwealth Games to Melbourne; his well-known criticisms of The Age—it all added up to a shock decision. Shareholder activist Stephen Mayne attracted a round of applause at the AGM when he asked Powers to explain Walker’s appointment.

Why would you be appointing a controversial property developer from Melbourne, who’s the prominent fundraiser for one of the political parties, or has just retired as, who raised $170 million over the years, who has sued The Age for defamation, who has been a vehement critic of The Age, along with his great mate Jeff Kennett.

I know that he just sends a terrible message that Fairfax is putting such a controversial figure on their board. Now, is it because you want the Commonwealth Games publishing contract? Is it because you want the Grand Prix publishing contract?

I mean, he’s going to have conflicts to start with, and he’s just completely inappropriate, and I know I’ve heard from many of your journalists that they are not happy with such a controversial figure joining such a respected board. Of all the messages that it sends.

Powers has always been well aware that Walker was a wildcard choice. But he is still pleased he did it. ‘I wanted someone who would stick up for Fairfax in Melbourne’, he says. ‘The Herald Sun had all the swagger—The Age was a great newspaper but it had no swagger. No-one was standing up for it, to the politicians and so on. Ron is a fighter. When Ron gets into something … like, he gets the Commonwealth Games single-handed. To get some pride back in the organisation in Melbourne was a big deal.’

And Ron was a mate.