New Zealand Herald publisher NZME should be afraid. It remains to be seen whether it should it be very afraid.
The abrupt exit by company chairman Peter Cullinane last week was the first move against the company by Australian fund manager shareholders but it will not be their last.
Cullinane resigned only hours before a shareholders’ meeting at which he was up for re-election and later conceded that “it recently became apparent that I didn’t have the support of significant Australian fund managers.”
He said the obvious reason was the depressed share price.
The depressed share price is a reflection of NZME’s ongoing failure to produce a dividend as it struggles to reduce debt in the face of declining revenue (down four per cent in the past year). It also reflects NZME’s string of failures in its attempt to merge with Stuff, which ended in a humiliating (for NZME) management buyout for a symbolic dollar.
Three Australian fund managers – Citicorp, J P Morgan and HSBC – between them control 52 per cent of the shares. If they talked among themselves to unseat the NZME chair, they could be in a mood to also demand other changes. And it seems clear they have lost patience with the New Zealand publisher and broadcaster.
It is difficult to gauge what those changes might be.
A return to paying dividends doesn’t seem to be on the cards any time soon. NZME’s bankers have been pressing the company to reduce debt and, in fairness, the company has done well in cutting that burden from $98.3 million in 2018 to $62 million at the end of May. However, Covid-19 saw the company go back to the banks for a new $110 million facility so the pressure to forego dividends will remain. The banks hold the upper hand.
Reducing costs to produce sufficient profit to repay debt and pay a dividend would be easier said than done. NZME has already announced the loss of more than 200 jobs or 14 per cent of its workforce. It is difficult to see how further significant cuts could be made without materially diminishing the company’s outputs. Nonetheless, there is an awful example of how to reduce costs with the stroke of a pen and it is sitting on the fund managers’ doorsteps. News Corp Australia has conﬁrmed that more than 100 local and regional newspapers will become digital only or disappear entirely, with a signiﬁcant number of job losses. An axe could be taken to NZME’s regional and community newspapers in the same way but the effect on local journalism would be devastating. Its poorer performing radio networks could be targeted. Radio Sport has already gone but could Flava and Coast be in the gun? Both are near the bottom of the ratings stack but have audiences that are significant in other ways: More than 100,000 of Flava’s audience are from minority ethnicities including Māori and Pacifika and almost 200,000 of the Coast’s audience are over 55 years old (commercially discounted but as one of them I think we – and the Beatles — are important, too). Unfortunately, Fund managers sitting in their tower blocks in the Sydney CBD might not care too much about the effect on the New Zealand reading and listening public. Impatience tends to result in statements like: “I don’t care how you do it, just do it.” We can only hope their collective view is more enlightened.
They could demand the sale of part of the company for a distribution of capital in lieu of dividend. However, they have not so far shown an inclination to do so. At the shareholders’ meeting there was a resolution by a disgruntled individual shareholder to break up the company. Ninety per cent of the vote went against the proposal and that almost certainly included the fund managers. The result was unsurprising. NZME has worked assiduously to integrate its operations and attempts to tear them asunder would be both difficult and ultimately counterproductive.
They could demand more heads. Although the board was at pains to express its support for senior management and CEO Michael Boggs in the aftermath of Cullinane’s demise, that does not mean the fund managers’ thirst for blood has been satisfied. However, news media have long-standing underlying issues that have been exacerbated by pandemic. An executive purge may not solve the problem. The question is: Is there such a thing as rational blood lust?
The one thing we cannot expect of fund manager shareholders is the championing of journalism. They will see that as a cost centre rather than the real reason the industry must survive. That journalistic focus must come from within but, handled well, it should draw audience and advertising. And that is music to fund managers’ ears.
There are, however, things that the fund managers usefully could suggest to the company.
Some of NZME’s newspapers are a drag on the finances. The regionals and communities could be sold off without unduly affecting the core operation, although syndicated content and printing would require new arrangements. They should be offered to local interests who, frankly, are more likely to ensure their survival. The Wairarapa Times Age serves as an example of how local ownership can sustain local media. It was sold by NZME in 2016 to the paper’s then general manager Andrew Denholm and currently employs 29 people in Masterton. NZME could continue to derive revenue from such disengaged assets by offering cost-effective back office services (although the papers under new ownership could form their own cooperatives for such purposes).
NZME could also rationalise its printing operations. Its Ellerslie press hall in Auckland was built when the New Zealand Herald was six-day-a-week broadsheet with a circulation more than twice the present level. With the exception of the Weekend Herald, all issues are now tabloid format that could be contract printed on single width presses that are available in the Auckland region. Convert the Weekend Herald to tabloid and the Ellerslie press hall may not be needed (although the loss of the broadsheet would be a personal blow as I led the team that created it).
Here I am beating a well-worn drum, but NZME could champion a return to the cooperative ventures that characterised our newspaper industry before they were destroyed by foreign owners who thought they knew better. They could offer substantial economies if extended across all media organisations.
Better still, they could encourage an industry-wide approach to ‘sell’ their combined story to both audiences and advertisers, and to break the advertising agencies collective irrational preoccupation with digital platforms pandering to the baser instincts of 18 to 54-year-olds. And they could lobby our government to join forces with its Australian counterpart in calling social media platforms and search engines to account over their exploitation of content they take from media companies without compensation.
There will be a clue to the fund managers’ behaviour in this week’s NZME board meeting to elect a new chair. If the winning candidate is a newcomer nominated by the fund managers, her or his CV will give us a better idea of how afraid NZME should be.
To the New Zealand Herald for ballyhooing its paid digital subscription numbers (36,000) on page 3 of Friday’s edition while relegating the forced resignation of the company chair to page 16. A dramatic standing down by the head of any other major New Zealand company would have made the news pages. To reverse the old biblical saying, it should do unto itself as it does unto others.
To Andrea Vance whose Sunday Star Times column put the Prime Minister’s celebratory Covid boogie and Paul Goldsmith’s dropped stitch in context and decried the amount of trivia that passes for political journalism. Her column last Sunday stated: “On their own, each story is a harmless titbit, worthy of attention. But taken together, politics becomes a feedback loop of trivia, and very real problems are forced from the public’s attention.” She is worried that trivia will obscure the very real issues we face in the forthcoming election. So am I.
To John Daniell and Guyon Espiner whose five-part Radio New Zealand podcast on the SIS during the Cold War is compelling listening. The Service reveals the contest between the New Zealand intelligence service and the KGB, which thought this country was a ‘soft touch’ on security. It brings back my memories of likely Soviet agent William Sutch, and of an affable Russian always keen to strike up a conversation when I was in the Parliamentary Press Gallery.