New Fairfax CEO Greg Hywood and Seek chief Andrew Bassat have entirely different views of the Australian employment classified advertising market. One of them is going to be wrong. To the victor will come share market adulation and the loser will have a tough time — particularly if it is Bassat.

In an interview with Business Spectator, Hywood explained that The Sydney Morning Herald and The Age had come through the storm that had seen large volumes of classified advertisements go from print to online. In the case of employment ads, Fairfax was the big loser with Seek emerging with a dominant share and even News Limited beating Fairfax despite its print advantage.

But Bassat tells his shareholders that in employment classifieds the thrashing of Fairfax still has a long way to run.

Last February Bassat presented to his shareholders the graph below, which shows what he described as a “structural migration” from print employment advertisements to online where Australia is two years behind the US.

Save up to 50% on a year of Crikey

Choose what you pay, from $99.

Sign up now

As you can see the Australian online percentage of revenue in employment classifieds is just over 50%. Two years ago it was just over 40% with print holding close to 60%. Bassat expects that the online share of the market will follow the US and skyrocket to about 75% in two years — that’s a huge change that would devastate SMH and Age revenues.

Seek has been presenting this “two-year US gap” graph for many years and it has proved remarkably accurate. Successive Fairfax boards and chief executives over the past decade have scoffed at the trends predicted by Seek and every year the Fairfax directors have been wrong and Seek directors have been right. Finally Fairfax decided on a new strategy — investment in journalism — which is aimed at restoring the fortunes of the SMH and The Age over a wide range of issues, not just employment advertisements.

Fairfax has not had a board prepared to take this stance since the 1980s — before the Warwick Fairfax takeover. In fact, given that almost a quarter of a century has passed you could almost say that Hywood and his board have discovered a secret weapon for Fairfax. The fact that the company was built partly on this principle had been long forgotten.

And it’s true that whereas Seek took all before it in mass employment classifieds, in display advertisements for upmarket executive jobs, print has held ground, mainly because of the editorial environment. If the old Fairfax board policy of allowing the newspapers to run down in the name of lower costs there is little doubt that the Bassat forecasts would have continued to be right.

But in 2011 if Hywood is right and Bassat is wrong, then the growth outlook for Seek changes dramatically. Seek has never believed it should attach journalism to its push for upmarket executive advertisements whereas Hywood believes it is a weapon to help halt the Seek advance and to give Fairfax time to find a weakness in the Seek dominance of mass employment classifieds.

Of course Hywood has to sell the whole concept of investing in journalism to the institutions because, if he does it properly, it will affect profits in the short term. Hywood hopes to offset the investment with lower costs in other areas, perhaps even joint printing with News Corporation. But it is always hard to time the higher expenditure with the cost cuts.

Whereas employment dominates Seek, the SMH and The Age are now much smaller parts of Fairfax and it has a large online business so Hywood has less at stake than Bassat.

You will see at the end of the Business Spectator interview, we pressed Hywood on his views over radio. He clearly sees radio in Sydney and Melbourne as having limited cross promotional synergy with the SMH and The Age.

There are some (including potential buyers of Fairfax radio) who believe that talk radio and a leading newspaper in a city is the perfect combination and the way of the future. I believe the Hywood strategy of investment in journalism has an excellent chance of working. But if he is wrong then those who believe the radio/newspaper combination is the way to go may have a chance to test their theory.

*This article was originally published at Business Spectator

I subscribe to Crikey because I believe in a free, open and independent media where news and opinions can be published that I can both agree with and be challenged by.

As a Crikey subscriber I always feel more informed and able to think more critically about issues and current affairs – even when they don’t always reflect my own political viewpoint or lived experience.

Jess
Singapore

Join us and save up to 50%

Subscribe before June 30 and choose what you pay for a year of Crikey. Save up to 50% or, chip in extra and get one of our limited edition Crikey merch packs.

Join Now