This may be apocryphal but the fact that it is widespread throughout Fairfax tells us something about yesterday’s claimed revamp of the company’s publishing and media businesses.

As the story goes, CEO Brian MCarthy doesn’t read emails on his computer. He gets his assistant to print them out. He writes, either long hand, or dictates, his replies. The assistant goes away, turns them into an email and sends them.

As I said that this story is probably apocryphal. No modern CEO could be that illiterate, or ignorant of technology, especially when it is the last chance for the company.

But it tells us a lot about yesterday’s revamp and how it is being viewed on the newsroom floors in Sydney and Melbourne. The feeling is that the changes were flawed, rushed, not well thought through, with  little attention to detail.

McCarthy mentioned cost savings of $10 million and the analysts sat up and wagged their tails and said “good on you, Brian” and ignored the gaping holes in the presentation.

Insiders (mostly on the editorial floor) see numerous weak points, but mostly seem to have two main strands of criticism.

The first is that it was an expensive way to sort out an internal power struggle between McCarthy and the head of the company’s digital business, Jack Matthews, who was ousted in the announcement yesterday from his position, but may still get a gig but not heading up the Metro business, which was the only significant change.

That involved the joining together of the company’s Metro publishing and newspapers (excluding the Financial Review) and the digital businesses (except Trade Me in New Zealand).

If Matthews is given a position in management at Fairfax, it will be a direct snub to McCarthy and for that reason he won’t. So the alleged technological illiterate in McCarthy has won the battle with the tech head in Matthews. If that is the case, the Fairfax board deserves to be sacked.

Fairfax took more than a year, with the help of Bain and Co, to dream up yesterday’s changes, and yet they were unable to fill any of the positions in the Metro business, from the CEO, down to the national editor (tipped to be Amanda Wilson, the second in charge at The Sydney Morning Herald), commercial head or sales bosses.

But the websites for the various papers remain outside the control of the papers. No one knows why, but it seems to be incomplete.

The second point of criticism is that there was an enormous amount of confusion and apparent misinformation yesterday.

McCarthy and his management team had not spoken to editorial or the business and digital arms to sort out reporting lines. An example. The SMH and Age business sections currently report direct to the paper’s editors. It was assumed that would continue after the release of the emails to staff and statements to the ASX.

But then around mid-afternoon it became apparent the reporting lines for business (and possibly other sections) would be changed and they would report to the new, unknown national editor.

In other words the editor of the SMH and The Age will not have any editorial or other control over one of the most important sections in the everyday paper. That is a recipe for disaster.

Then there’s the confusion over where the tablet version of the SMH would be controlled. The revamp announcement said it would be in the new Metro section, but SMH staffers say that was saying yesterday afternoon that it would stay in his old digital business.

And then there’s the question of the new head of the Metro business. Fairfax says it is looking, but to get the right person could take months.

Fairfax will struggle to get a person with solid newspaper and digital credentials after the way Jack Matthews was ejected (penalised for doing too well compared with the “Luddites in management” is how one source described it).

There’s a tip that board member Greg Hywood will get the gig (he is a former publisher and editor at Fairfax). He’s too old and not up to date with digital developments.

And finally, there’s a financial imperative behind these changes.

According to reports from inside the company, management and the board have been told that Fairfax has 3-4 years (48 months max is how it was described), to steady the Metro publishing business before publishing the newspapers becomes completely unprofitable.

Fairfax’s ad volumes are falling, and with every drop, the ad rates have to be lowered (advertisers are rough folk). Eventually the company will face (around 2013-14) a rough choice, completely integrate the Sydney and Melbourne papers and look to chop into the rest of the business as well to cut costs.

The Metro business accounts for 22% of pre-tax earnings, which means Fairfax can survive without the papers in their current form, but it will be significantly weaker.

Revenues from digital businesses and the websites will command a greater share of the newspapers’ total revenues and earnings to the point where it becomes obvious what the course of action is

But it means that a lot of cash, clout and journalistic assets are out the door as well.

The feeling from inside the papers is that there is one chance; spend money on a new tablet for each paper (and the AFR too) and become the market leader in Australia. I(t’s the best and last chance for the SMH and The Age. That was not made clear yesterday, nor the tight timetable to get the business and cost model right, according to newsroom sources.

Peter Fray

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Peter Fray
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