Mitchell Communication Group chairman Harold Mitchell tells Business Spectator's Alan Kohler, Robert Gottliebsen and Stephen Bartholomeusz:
* He has no intention of selling his stake in MCG to Sir Martin Sorrell, CEO of global marketing giant WPP * While he doesn't know Kerry Stokes' reasoning for apparently trying to get hold of Foxtel, he describes Stokes as a 'very clever man' * He believes digital could take up to 25 per cent of ad dollars, from its current share of around 14 per cent * The downturn in overall ad spend will be around 7 per cent, but will be 11 per cent for those not exposed to digital media * The downturn in advertising spend will last around two years, but we are more than halfway through it with the sector no longer deteriorating.
Alan Kohler: Well Harold, have you been talking to Sir Martin Sorrell of WPP about merging your businesses in Australia?
Harold Mitchell: I talk to, Alan, all of the key media people once a year including Sir Martin. It’s one of the things you have to do and so of course I’ve been talking to Sir Martin, but they’re private talks. I’ve been that way for probably a dozen or more years.
AK: But is there any thought in your mind of selling the business?
HM: No. Our business is a public company.
AK: Or selling your part of it?
HM: No. Not in the slightest. Ours is a public company. We did that on purpose, so that you could have a wider spread of shareholding and be able to be competitive. We’re not selling anything of our particular business. I in fact went to a lot of trouble to lose a lot of weight I can tell you, so I’ll be around for a long time.
Robert Gottliebsen: Harold, you’re going to be around for a long time.
HM: Yeah.
RG: So, look forward five years and what are going to be the growth mediums for advertising in that period?
HM: Well Bob, the growth is already underway and it’s a trend that’s probably been there for over nine years since the beginning of the internet in the mid ‘90s. It was something none of us quite knew what it was, but by around ’99, 2000 of course the dot.com bubble and then bust that occurred showed a particular highlight to what the internet could do. The money markets took over. It became the darling. It went too high.
But we launched a company then which was an internet business. It’s now the biggest internet advertising business, because we thought that the world of the individuals was going to be important. I grew up in a world of mass media; mass products, mass markets, mass media. We all did. You watched television. There was one television in the corner, but the world was changing dramatically and the product world was changing because people were individuals. You could buy a Mercedes Benz; one Mercedes Benz. Twenty years ago, you had 'a' Mercedes. Now, you can get 50 different types of Mercedes and so on through all of the others. That was the big change that we saw and that’s what the internet delivers now. It went through a rocky start. Most things do in the beginning, whatever the industry is, but it’s now settled down.
When I looked at it, I knew that you could get almost anything online and still can, and I looked at it and I thought, 'how can it possibly pay for itself?' and I don’t know that people thought about it quite so much, because they were fascinated with all of the 'how it could be done', just a marvellous world, look what we can do. But I drive into town every day to make money, I can tell you that, and all businessmen should and I would always say to them 'how does it make money?'. There wasn’t really an answer. In the end, it was the world that I grew up in which was the world of advertising and that’s what really started to happen.
AK: Some online publishers are beginning to abandon the advertising, aren’t they?
HM: They are trying very hard. They’re trying very hard to get subscription back. When they gave it away…
AK: Because they have to.
HM: Well, they have to or particularly want to. The other thing is that they are pushing very hard for advertising. They don’t talk about that part of it because they talk to subscribers, but advertising is now … well, the evidence is there. Within nine years of the internet starting in Australia, and probably around the world, in Australia it’s now 14 per cent of the ad dollars. That’s more than magazines. That’s more than radio. That’s been 70 or 80 years in the making. In the UK, where broadband is much more developed – a smaller country, greater concentration – it was at 25 per cent. It’s now moving towards 30 per cent of all advertising dollars to the internet and that doesn’t mean old media has had it, not in any way at all. It just means that there is an emergence, a change...
RG: Are we over 30 per cent here?
HM: Well, we think it’ll go to 25 per cent, because it’s held back by a number of things in a couple of ways; mostly our broadband. I’ve been arguing for a long time that in a country like ours it is so wrong not to have developed our broadband because of, the words are famous, ‘the tyranny of distance’. That’s what Australia is. We’ve got 65 per cent or 66 per cent of our population in just five cities in a bit of geography as big as all of the United States and so we have to be very clever about how we bring all of that together and of course the new roads and the new rails of the future is the internet. We should have been well ahead with all of that and it’s good that we’re now making these moves.
RG: What about Foxtel and television? What’s going to happen there?
HM: Well, free-to-air is going to continue to change. It’s probably been doing that for 10 years or so. The Foxtel/Austar combination will grow. It’s been held back by some moves here in Australia, which is the anti-siphoning in sport. The big sport was on free-to-air, but if that changes and it undoubtedly will, then Foxtel will continue to grow.
In advertising terms, it’s quite low, because of course it is what the marvellous words are, ‘pay TV’. You have to pay for it and so it has got probably the best model of all in that it’s got a wide arrangement of programming (ie. people like different things). It’s been made up into many, many different little worlds now. That’s very good. It’s got scale of economy, of delivery and that’s a very important thing to do. It has got people prepared to pay and they need it in this downturn and people will say 'well, we won’t go to Fiji, but we’ll keep the Foxtel – look how much money we’ve saved'. And people want to feel good and want to do things.
I’ve had two parts of my life. I grew up in the world of television, which was the early ‘60s onwards. We’re able to see how that grew so much and now a great time at the beginning of a new digital world and that’s the next big transition that’ll happen. The great big media owners, they merged and took over the new world of television. One, there was a bit of a defence mechanism and ultimately they took it on and it in fact became their businesses and I suspect it’ll be the same with the digital world. I’m a great believer in the 80/20 rule. It’s been there for 200 years of commerce – 20 per cent usually control 80 per cent of the volume. Talk to digital people, they think that the whole world of commerce will change. It will be many, many, many thousands, if not hundreds of thousands of small organisations that will control the communications business. That isn’t the world of commerce. So, what can we see? Our big media companies will transform into the new landscape which will include digital and it will fit in beside everything else that they do. After all, people are fascinated. They watch nearly three hours of television a day and that hasn’t changed. My dear mother-in-law once said to me, she was so pleased last night when it was time to go to bed because the movies were so awful, but they still watch television.
AK: Kerry Stokes seems to be trying to get hold of Foxtel. Do you think he’s running away from free-to-air TV or running towards pay TV?
HM: Well, I wouldn’t know and I would never ask him. I don’t want to know. It will play out as it will. What I do know is that he’s a very clever man, he’s very patient, but he’s also very supportive of the total landscape. Consider that he took a position with The West Australian.
AK: Which was a disaster. I mean, that wasn’t very clever, was it?
HM: Well, that probably means, Alan, that you and I aren’t as patient as he. We’ll see where all that gets to because it’s got something of an underdeveloped…
AK: He’s done $300 million pretty quickly.
HM: Well, we’ll both live long enough to come back in 10 years and see where all that finished up, because it needs to finish and it needs to develop its whole digital platform. It’s an incredible growth area, Western Australia, which has been through its boom and its changes from time to time, but you look at how close that is to Asian markets, to the markets which are really going to explode in every way and he’s right in the middle of it, but back to where Kerry Stokes might go, I suspect he understands the new world that I’ve just been talking about here much better than I ever would.
AK: What’s happened to the ad spend this year? We saw a pretty sharp decline overall and within the overall trend of ad spending this year, what’s happening to the traditional media?
HM: Well, there’re two stories at play here. The overall advertising will probably go down 7 per cent. We’ve seen that for a while. That’s the biggest downturn in our recent history. The last big one was 6.8 per cent in 2001, very short, sharp, recovered again, September 11, etc, all things that happened then. Previously at the end of the ’87 crash and everything that followed through that, in the early ‘90s the recession we had to have, it went down around four per cent, two per cent the next year and then pretty flat for four years.
So, this year it’s a deeper downward move than we’ve seen before. I said it’s in two parts. The second part is that if you were to take out the digital element that I’ve been talking about because there is a major structural change underway with advertising here. One, there is a trend that some of it has changed in different ways, the major structural change towards digital. After all, 14 per cent is now not with the other medium, it’s with this. So, if you’re not in the digital space, the downturn we say will be around 11 per cent and that’s getting on towards 50 per cent greater than ever before.
But good businesses and good businessman adjust. Our business, a media buying business, 15 years ago it dealt in the main media. It’s now 22 different businesses which spread across everything that is involved in the communications platform and that’s what the bigger media companies do, but if you deliver old-fashioned media, and that’s a pretty old fashioned thing to do, I might say, that would be down quite a bit.
I’ve just come back from the UK and I went there on purpose. I’d heard all the stories, I saw the charts, but I just wanted to soak it all up. It’s no doubt that across Europe – I don’t know about the United States, specifically – but across Europe it is very bad. We are doing much better because our economy is good and we don’t have all the problems. There are some markets in Europe which are down 30 per cent in advertising: absolutely catastrophic. The UK, it will take a dip. They say it will stay that way for quite some time and people have lost some of their confidence in it. I haven’t. We think that this is something that we saw coming. More than a year ago we kept quiet about what we saw as would be a downturn, but the figures we had then are turning out to be true. We think that this will last maybe only two years and we’re just beyond halfway through it. It’s stopped getting worse.
RG: So, it hasn’t picked up yet, but you expect it to pick up in, say, 12 months?
HM: No, no, no. We think that it probably started the middle of last year. It’s to do with confidence of both people and business. That’s what drives the advertising market. We’re seeing a return of confidence with the consumer. People are optimists. They want to feel good and business will follow that and as I say we’ve stopped seeing it getting worse. Now, that does mean that it’s getting better now. Very important, we were well above the trend line in 2007/08 and so when I say that it will go back and it’ll get better, we won’t go back to above the trend line or what it was before where we were probably three or four percentage points above the trend line and that had started back up and that’s very important for business generally.
AK: And if there’s a structural change that you’re talking about to digital, then the traditional media won’t get back that 11 per cent decline that you’re talking about, for this year anyway?
HM: Obviously some of our figures show that some of the traditional media will, by 2010, return to the point it was at in 2003 and that’s just a continuation of the trends that we see it, but the major media owners are onto this. You look at what News [Corp] have been doing. Since 2005 we can see that Murdoch has absolutely driven that organisation to be involved in the digital and data world. And it’s the same with Fairfax, which started at it earlier on and had a bit of a struggle for a time. They’re driving people to do it again. Seven have got tied up with Yahoo. PBL has its Ninemsn connection. They’re all there, in a progressively larger or smaller way, but understand all the figures that I’m talking about and that’s just the change in business generally.
AK: What does the success of the Masterchef program on Channel Ten tell you about the future of free-to-air TV?
HM: Well, it does show that you need to have ideas, good ideas, but don’t get too far ahead of what you think people want. It’s a pretty basic world out there and you can get a bit too clever for the people. That’s a very basic, down to earth, people next door show and it does show that programming is a very big part of life generally, of the media in particular, but even more particular free-to-air which is good to hear, as I do from Seven, Nine and Ten. They're keeping on developing and that’s the only way that you – you can’t just keep running repeats into oblivion and they’re fighting. We’ve got really good Australian media companies here and they fight on.
RG: Now, what do you think will happen in the advertising agency business? Is big going to get bigger or is it going to become smaller?
HM: Well, I’ve been a great believer for a long time, Bob, in the law of the jungle. I was involved many years ago at the Melbourne Museum and I looked at the display of deadly tarantulas that they had in an exhibition we had called Bugs Alive. I said the director Dr Patrick Green, 'so Patrick, they’re under the spotlight 24 hours a day, they’re in an enclosed space, everybody’s watching them, they’re like our media owners, what on earth do they eat?' And he said in a very droll manner, 'well, mostly each other'. And of course this is the nature of business; the big 10 to get a bit bigger.
We’ve not seen, Bob, in the last 50 years more than two major media companies emerge worldwide. One of course is Rupert Murdoch and a great Australian story in every way and the second one we’re all still coming to grips with which is Google. Other than that, it’s been much of the same people going around in circles and so I suspect that’s what we’re going to continue to see. There have been changes to that. In the late ‘80s, as we know, the big change of ownership where all but one of our major media companies changed hands, went to people who didn’t know how to run them. What happened? It basically went back to companies that knew what they were doing and so we don’t think there’s anything that’s particularly different here other than the long span of time.
AK: How do you see the future of print journalism?
HM: Well, there will always be newspapers. People enjoy reading newspapers. There’s always been print. People have wanted to read books and they have books and libraries collect them and keep them, but the world of distribution is changing dramatically before our very eyes. You’ve got kids, grand-kids, you know exactly what it is they’ve got; little electronic things in their hands and that’s the case and so the newspaper people have to and are learning how to deliver their product electronically. It’ll be about content and if they don’t keep up, it’ll be organisations like yours, doing very well, which will say well we’ll deliver it the way people want it and if you don’t do that and if newspapers don’t do that, there won’t be any newspaper publishers.
AK: Thanks very much for joining us, Harold.
HM: Thank you and we’ll meet in 10 years and see where we got to.
