Internet holds media answers

The media mating game, which has sent share prices rocketing since the return of the Howard Government, promises to be one of the most interesting aspects of life on the stock market over the next three years. Already we have seen share prices in stocks such as WA Newspapers, Fairfax and Rural Press move sharply higher in anticipation of takeover activity.

From a business perspective this is totally understandable as media stocks always generate far more interest than other sectors because of their emotional pull and because the media loves navel gazing and being rude about rivals.

So far, there has been talk about Kerry Packer raiding Fairfax, WA News and Rural Press merging, Fairfax bidding for WA News and Rupert Murdoch buying everything just to complete his media monopoly set – this last point is not true, yet.

What we have not read much about is the effect on mainstream media of the Internet, and the speed at which it continues to penetrate markets that were once the sole preserve of newspapers – and in the way the Internet provides a window on some of the more secret parts of traditional media.

Briefcase is unsure whether this will have any effect on media valuations when the takeover game gets underway in earnest, which is likely to be sooner rather than later simply because financial markets are often prepared to move ahead of changes to legislation if they are convinced that a new set of laws are simply a rubber-stamp job – which is what they appear to be given next year’s change of control in the senate and a potential willingness among outgoing senators to do a deal before exiting the scene.

Whatever happens in the senate, it is the Internet that, in a curious way, is providing outsiders with a look at the readership structure of some of Australia’s best known newspapers.

Melbourne’s The Age newspaper, for example, is one of the best in the business even if it has suffered a serious decline in circulation over the past decade. Explanations for the decline in sales and a fall-off in advertising, are blamed on changing reader habits, the rise-and-rise of electronic media, and everyone in society being time poor.

At no stage, it appears to an outsider, has anyone inside The Age actually questioned whether it has the right readership.

Media types will look at that statement and ask whether Briefcase has been dipping into his supply of low-priced Mt Barker cleanskins. What on earth, he can hear them say, is the right readership, and who cares who reads the paper just so long as lots of them buy it.

The answer is that the right readers are the ones who spend lots of money, visit the shops of the major advertisers (Coles, Woolworths and Harvey Norman) and buy lots of Toyotas and Fords. The wrong readers are those damnable tree-hugging greens who live on rainwater, wear 10-year old clothes, and drive a 1975 VW Kombi – which all leads to the question of how do we (the outsiders and major advertisers) know who is reading The Age, and whether a new owner might have a problem building a better business without wholesale change.

Well, the answer lies in the Internet. More specifically, it lies in the ability to interpret who reads The Age, and other newspapers, from the results they post on their own website of readership polls. This was revealed spectacularly in the pre-election period and, while subject to the sampling errors of a new-medium favoured by left-leaning voters, showed precisely how out of touch readers of The Age are with the rest of society.

Take for example the question of "who will you vote for", which on October 9 had greater Australia giving the Coalition 47 per cent, Labor 38 per cent and Greens 7 per cent. The Age poll of October 8 on that question gave a response of Coalition 24 per cent, Labor 53 per cent and Greens 16 per cent. On the question of "who do you think would be Australia’s better leader", The Age’s reader response was Latham 70 per cent, Howard 23 per cent – and so it goes on, revealing a consistent pattern of one newspaper’s readership which can only be interpreted as out of touch, in decline, and almost certainly anti-business.

Just how this sort of readership data plays in the looming takeover struggles is anybody’s guess, though it is reasonably certain that if someone pays a high price for a media asset he will want to ensure that it is in touch with the biggest segment of the community, and in tune with its major advertisers.

ANOMALIES are the telltale signs that geologists look for when hunting orebodies and what journalists look for when hunting stories, which is what makes the Fortescue Metals Group anomaly so interesting.

Last week, when most companies in the mining sector lost billions of dollars in market value because of tumbling commodity prices, FMG went the other way. BHP Billiton traded around $14.96 at the start of the week and plunged to $13.97, a fall of almost $1, or $3.7 billion in market capitalisation. Rio Tinto went from $39.29 to $36.80, and WMC from $5.45 to $4.96. FMG, however, rose from 68 cents to 93 cents as it announced another possible iron ore sale to China and a share placement.

A modest recovery is under way among the mega-miners and FMG has eased back a bit. But, the point being made by Briefcase is that last week almost certainly marked the change in the metals market we have been waiting for and about which Briefcase warned last week.

So far, the big sell off has been by hedge funds and other speculative traders in base and precious metals such as copper, nickel and gold. Copper, as an example, plunged by a whopping 17 per cent over the week.

Now comes the key question. If the market is right, and new supplies of metals are rushing to meet demand (which will itself be falling because of the oil-price induced slowdown), how long will it take for this sea-change to reach the bulk commodities, such as iron ore and coal. Not long is the correct answer because everything is connected to everything else (thanks to VI Lenin for that piece of capitalist wisdom).

That leads to the next question. How much time has FMG and its mercurial promoter, Andrew Forrest, got before the iron ore window of opportunity closes as new mines fill existing orders, prices peak (and even retreat), and buyers take a much closer look at the quality of the ore and the cost structure of FMG’s proposed mines? Not long is the correct answer to that question as well.

"This is not a novel to be tossed aside lightly. It should be thrown with great force." Dorothy Parker.