AFR redux

You might wonder why a blog dedicated to the analysis of risks to the Australian economy would bother to assess the decline of Australia's leading business newspaper.

But today there are two reasons to write about the Australian Financial Review (AFR), one short term, one long.

The immediate concern is the resignation of Fairfax CEO Brian McCarthy and the appointment of Greg Hywood as his temporary successor. Hywood is a former editor of the AFR.

Which brings us to the long term reason. The decline of the AFR has been almost ceaseless since Hywood's departure as editor and that has posed, and continues to pose, significant risks to the economy.

Foremost amongst those risks is the erosion of a central point of reference for accountability in business. A weak AFR has been unable to confront the powerful vested-interests that now rule virtually every sector of the economy.

This has the very real consequence of entrenching rent-seeking and diminished competition. Our productivity as a nation suffers as a result.

So why has the AFR declined so remarkably in the past decade?

Ten years or so ago, under the aegis of then Fairfax CEO and McKinsey boffin Fred Hilmer, the management of Fairfax Business Media (FBM) set about finding a new path for the paper in the age of the internet. The strategy embraced was simple: Cost-control.

A deliberate decision was made to fire or drive out expensive senior journalists and commentators and replace them with under-paid and over-worked junior writers with next to no experience.

The AFR now turns over the equivalent of its entire staff number every two years.

The strategy has succeeded in-so-far-as margins at the paper have been maintained because of its several monopoly advertising markets.

However, with no contacts or experience the young staff of the AFR make weak analysts and have no idea where to begin in terms of big ideas surrounding business and its function in society. In consequence the paper has virtually no investigative reporting nor ideas journalism.

In the age of instant news delivery, these are the only two streams of journalism upon which a paper can hang its hat to survive. Crucially, because both are unique and cannot be gotten elsewhere.

Sadly, this obvious decline in editorial standards has contributed to the paper's circulation falling some 16% in a decade, with no sign of slowing.

In short, the AFR's cost-cutting strategy is slowly devouring the paper it's intended to support.

The destruction wrought by the same strategy is even more advanced in the wider FBM group. For example, when in 2005 the leading investment magazines Shares and Personal Investor, were merged, their combined circulations were 111k. The new masthead AFR Smart Investor now has an official circulation of 54k with rumours that in reality it is significantly lower still.

One might well ask how the strategy has survived this destruction of shareholder wealth. The answer can be found in another convenient truth about the cost-cutting strategy, with such turnover of staff there's almost nobody around to recall the destruction.

And that's where we come back to Greg Hywood. With any luck he will secure the role of Fairfax CEO permanently. When he does the first thing he should do is realign FBM strategy, as well as spend some money rehiring the talent it has shed across the Australian business media.

He should return the paper to an editorial perspective of traditional liberalism and thus outflank The Australian and Business Spectator who are competing to endorse vested-interests behind a thin veil of bogus libertarianism.

This blogger also recommends building a world-renowned China expertise and unlocking the tomb that is the paper's online strategy.

In a few years he might have a paper worth its name and we can all consider buying it again.