Chapter 5
Economics
Press ownership
Historical
In 1923, there were 26 metropolitan daily newspapers in Australia owned by 21 proprietors. By 1950, the number had fallen to 15 metropolitan dailies having 10 owners. By 1987, there were three major proprietors of the metropolitan dailies—the Herald and Weekly Times Limited (HWT), News Limited (News), and John Fairfax Holdings Limited (Fairfax)—as well as a small number of independent publishers with newspapers in one city, which shrank to two when News Limited took over HWT that year.
Metropolitan press
Five companies own most of the newspapers of Australia. By far the biggest is News Limited which controls 68 per cent of the market (70 per cent of metropolitan newspapers and 30-35 per cent of all Australian newspapers measured by circulation). The next biggest, Fairfax, owns 21 per cent. They control all of the metropolitan press except for West Australian Newspapers ( The West Australian, eight per cent) and Rural Press (Canberra Times, three per cent).
Regional dailies
As with the metropolitan newspapers the majority of regional dailies are owned by the five biggest companies. Only four are owned by independent family-owned companies.
| Company | Titles | Circulation | % of total |
|---|---|---|---|
| APN | 13 | 162,496 | 27.2 |
| Fairfax | 3 | 95,030 | 15.9 |
| News Limited | 4 | 137,028 | 23.0 |
| Rural Press | 9 | 127,292 | 21.3 |
| WA Newspapers | 1 | 5,746 | 0.9 |
| Independent | 616 | 68,382 | 11.5 |
| Total | 36 | 595,974 | 99.8 |
Source Communication Update: Communications Law Centre June 2005
Suburban, rural and community newspapers
Newspapers in these categories are also predominantly owned by the main companies, News Limited, APN and Rural Press. Details of the circulation and ownership of each paper are listed in Communication Update a publication of the Communications Law Centre and in the appendix of the Australian Press Council Annual Reports.
Ownership restrictions
The existing laws, restricting cross-media ownership between television and newspapers, have been in force since 1992. They were introduced with the intention of maintaining diversity in all forms of media and enhancing public access to a variety of viewpoints. Several failed attempts to reform these laws have been made since.
The controls are embodied chiefly through the Broadcasting Services Act. Where it impacts on the print media, that legislation restricts the holder of a commercial television licence or a commercial radio broadcasting licence from owning a newspaper in the same licence area. In essence, that means a television or radio station owner in a city such as Sydney or Melbourne cannot own a newspaper that also services that same area.
There are additional laws that restrict foreign ownership. They restrict aggregate foreign ownership of national and metropolitan newspapers to 30 per cent. Ownership by foreign individuals is capped at 25 per cent.
Shareholdings of portfolio investors are restricted to 5 per cent, but there is provision for applications to be made to allow higher levels. Aggregate foreign shareholding of provincial and suburban newspapers is held to 50 per cent. There are no cross-media or foreign shareholding restrictions placed on magazines, the ethnic community press or online information sites.
Because of the cross media rules, the owners of the major broadcast networks are separate from the metropolitan newspaper owners. The three major network owners are PBL (Nine Network, except Perth & Adelaide); Kerry Stokes's group (Seven); and Canwest (Ten). APN as well as owning newspapers is a major owner of radio stations. Some other radio network owners (such as Southern Cross) also have small television interests.
The only restrictions on concentration of press ownership are contained in the Trade Practices Act, which sets out Australian anti-trust law and applies to all industries. Section 46 proscribes the abuse of monopoly power through predatory practices. Section 50 proscribes the attainment or increase of a dominant position in a market. However, these may be authorised if there is a public benefit in the take-over.
The Australian Competition and Consumer Commissioner's view is that the product market for the press is the newspaper industry, not all media, and that for most metropolitan newspapers the market is limited to the state concerned.
A report of a parliamentary committee in 1992 found no abuses of concentration and made no recommendations concerning initiatives to create new newspapers. However, all members of the committee agreed that "…concentration of ownership is potentially harmful to plurality of opinion and increases the potential risk that news may be distorted" and accordingly urged that the risk of further concentration "…should be minimised'.
The report seemed to accept that, if new newspapers were created, there would be a market battle that would result in only one newspaper emerging. It recommended that the test in Section 50 of the Trade Practices Act be amended to return to the pre-1977 proscription of takeovers that would result, or be likely to result, in a substantial lessening of competition.
Proposed changes to ownership restrictions
In 2006, the Federal Government released proposals that would result in substantial changes in laws that govern control and ownership of print media companies and assets. At the time of writing, the new rules have yet to be framed and placed before the Parliament.
Pressure to amend the laws has mounted because of the emergence of new forms of media – especially digital media that can be made available online or in mobile form – from convergence of different mediums and from increased diversity in some areas.
The centrepiece of the proposed new laws for print media is the removal of cross-media restrictions and the imposition of new rules that set minimum limits to the number of independent voices in any given market. The limit would be five independent newspaper, television and radio operators in metropolitan markets and four in regional markets. The proposal allows considerable room for consolidation, and could result in significant media industry takeovers.
Any such actions would be regulated by the Australian Competition and Consumer Commissioner under the general merger provisions of the Trade Practices Act. The Australian Communications and Media Authority would be charged with ensuring that transactions comply with diversity requirements and the minimum limits.
The plan would result in foreign ownership limits being scrapped, but the media industry would still be subject to the "sensitive sector" provisions of the government's foreign investment policy. Sensitive sectors have tighter restrictions for requiring permission from the Federal Treasurer to exceed a 15 per cent shareholding and also involve more rigorous examination processes for approval.
Economic Health
Newspapers
Print media companies have enjoyed five years of growing revenues. The largest impact has come from a marked increase in advertising sales.
Published financial accounts show that metropolitan newspaper publishers had, by 2005, fully recovered from less favourable conditions in the wake of the introduction of the Goods and Services Tax in July 2000 to reach a level where their operating margins generally were running near the peak levels of previous economic cycles. Gross profits typically were in the range 25 per cent to 30 per cent of revenues, up from low levels of under 20 per cent.
Regional newspaper groups have returned a steadier pattern of growth and margin maintenance during that period, not having suffered to the same degree in 2001 and 2002 after the introduction of the GST. Margins are in a 30 per cent to 40 per cent range.
A study by PricewaterhouseCoopers ( Australian Entertainment and Media Outlook 2006-2010, August 2006), shows that total newspaper industry revenues were $5.1bn in 2005, 14 per cent higher than the level of 2001. They had slumped to $4.35bn in 2002. The survey predicts an annual rise of three per cent to $5.84bn in 2010. About three-quarters of revenues come from advertising, which is predicted to increase at an average annual rate of four per cent—amounting to between $150m per annum (see section below on advertising trends).
Desirable but missing data for future editions would be trends in the employment of journalists, both for the print and internet activities of the paper, and trends annually in pagination, that is, the average size of newspapers in terms of number of pages for particular days of the week.
Table 10. Trends in the newspaper revenue market 2001-2006, projected to 2010
Circulation revenues on an industry basis now amount to $1.3bn. They have experienced considerable fluctuation as the sales of newspapers decline and aggressive promotional subscription offers are made. After a drop of 9.9 per cent in 2001, circulation revenues have slowly turned around to be running about one per cent annual growth, a trend predicted to continue through 2010. There is considerable variance between metropolitan and regional newspapers, brought about by migration of people to Queensland and to coastal towns on the east coast. This spurs greater growth in many regional areas. The other main reason for the current circulation revenue rise is increase in cover price.
Magazines
Magazine publishers have also been recovering from a downturn that started five years ago, but they have rebounded faster than newspaper companies. PricewaterhouseCoopers reports that this segment grew by 6.1 per cent in 2005, when revenues exceeded $2bn for the first time.
It expects future revenue growth until 2010 to run at an average annual rate over four per cent. Revenues streams are evenly divided between advertising and circulation, although advertising is expanding slightly more rapidly. The main causes of circulation revenue growth are increased unit sales, revitalised categories, new titles and cover price rises.
Table 11. Trends in the magazine revenue market 2001-2006, projected to 2010
The magazine industry covers a broad range of interests, from fashion to celebrity, special interest to news. The performance of any given category can vary significantly from year to year, with celebrity and fashion being two of the recent high growth areas. There has also been sizeable expansion in magazines that are inserted in newspapers. They enjoy wide distribution and have quickly attracted advertising support. It is a trend that is likely to continue.
The industry
The improvement in the industry's financial health has resulted in an increased investment in news rooms, but the extent to which this occurring is difficult to quantify. Funds are being spent on newspaper and magazine websites in an attempt to capitalise on the rapid expansion in advertising through this medium.
Newspapers now frequently update their websites, with news stories written by members of staff through the day rather than running articles supplied by wire services. A considerable number of staff are devoted to the production of inserted magazines and lifestyle sections, some of which add to staff levels. Available total headcounts often show strong rises, but these are misleading because most major publishers in recent years have expanded by making acquisitions within Australia and overseas.
Advertising revenue trends
Advertising revenue has rebounded strongly in recent years, but its continued strength depends directly on domestic economic conditions. Some print media companies have recently cautioned that the outlook is weakening because of factors such as increased fuel costs. Consumer sentiment and retail spending are both displaying weakening trends, and they have a considerable impact on both advertising and circulation.
Newspapers
Total advertising expenditure in newspapers has been growing since 2002 at an annual amount reaching $300m. That reflects high single digit growth. PricewaterhouseCoopers predicts that this will moderate, but still continue at an annual rate around 3.5 per cent until 2010. About two-thirds of the growth comes from display advertising.
Table 12. Trends in the newspaper advertising market 2001-2006 projected to 2010
Display advertising makes up 57.6 per cent of the advertising stream, up from 52.3 per cent in 2002. To be most effective, display advertising requires full colour printing. That has become more widely available in recent years, allowing colour advertisements to run on many pages of a newspaper. Publishers are also focusing on inserts and the development of lifestyle sections and premium magazines, which open doors to new display advertisers. This trend should continue as newspaper companies sell more, higher margin colour display advertising. To this end, the major publishers have recently formed a new industry body to promote their colour printing capacities to advertisers.
Classified advertising, long known as "the rivers of gold" for newspapers such as The Age and The Sydney Morning Herald, is diminishing in importance as advertisers are attracted to online sites and specialist publications. According to the 2006 survey, Classified revenue grew by 1.4 per cent to $1.6bn (compared with the 2.2 per cent overall growth in newspaper advertising). In 2002 classifieds accounted for 47.7 per cent of advertising in newspapers; this share is now down to 42.4 per cent.
Magazines
Magazine advertising grew by 9.3 per cent in 2005. One reason for this was the strong increase in circulation, enhancing magazines' attractiveness as an advertising medium. The 2006 survey predicts growth at about five per cent for the rest of the decade, outpacing the predicted growth in newspaper advertising revenue.
Table 13. Trends in the magazine advertising market 2001-2006, projected to 2010
The industry
The largest threat for advertising comes in the form of competing online sites. Consumers are spending more time using the internet and advertisers are finding new ways to reach them, either by placing advertisements on those sites or by supporting search engines. A global report by Boston Consulting Group ( Finding the Sweet Spot in Online Search, July 2006) says that the time consumers spent between 1999 and 2004 on newspapers, magazines, radio and television rose or fell by just a couple of percentage points. But time spent on the Internet escalated by 24 per cent. Online advertising expenditure rose by 22 per cent, whereas traditional media spending declined.
A similar trend is evident in Australia. PricewaterhouseCoopers says that Internet advertising in 2005 topped $500m for the first time, reaching $620m, compared with $160m in 2001. It expects annual growth exceeding 20 per cent for the rest of the decade, with revenues reaching $1.78bn by 2010. The annual dollar expansion in the near term is predicted to be around $200m. That is about the same dollar growth expected for newspapers. On the other hand, UK media buyer Group M has recently estimated that Internet advertising this year will beat for the first time advertising in national newspapers in that country.
Table 14. Trends in the internet advertising market 2001-2006, projected to 2010
The online trend is particularly impacting print media's grip on classified advertising. The three core categories of internet advertising, general, classifieds and search & directories, each experienced strong growth in 2005 and now have a relatively even share of revenue. Search & directories had the greatest growth and now surpass classifieds as the main category.
Fig.13. Internet advertising by type 2005
With the widespread adoption of broadband, the Internet could also have a negative effect on display revenues. Estimates provided by stockbroking company ABN Amro suggest that employment advertisements online currently account for an estimated 20 per cent of the market, and it is the largest single classified advertising sector. Real estate comes next, with online accounting for about 10 per cent, and cars come third at around eight per cent. Chapter 6 provides additional detail.