Fairfax: Gina Rinehart’s money can’t buy readers

As Ken Parish’s post below shows, there is now a widespread view that Gina Rinehart will win control of Fairfax, publisher of the Sydney Morning Herald and The Age, and then seek to move their editorial stances well to the right. From people who believe that, you hear both wails and cheers, depending on their point of view.

Many of these people still seem to believe that rather than customers choosing a newspaper, newspapers shape the minds of their readers*. That’s a little bit true, but mostly wrong, and getting wronger every year the Internet is with us. If a newspaper doesn’t reflect the readers’ world-view and interests, then the readers leave.

Gina Rinehart’s billions might well help shape opinion on a single issue like the mining tax, where they’re employing emotive 30-second TV spots to tap existing beliefs that the mining industry keeps the nation from penury. Those same billions can’t make people keep buying a newspaper they don’t like, though.

There isn’t enough money in the world for that.

If Rinehart does move the Fairfax general newspapers’ political and cultural outlook substantially, she will learn a sharp business lesson.

It’s the same lesson that Fairfax last learnt in 1992-1995. Back then they tried then to move The Age towards the centre, bringing on columnists like Des Moore and writing editorials saying Japanese whale-hunting was just fine really.

The move to the centre did indeed make business sense. Just as Moreso than today,  in 1992 The Age was overall well to the left of the political centre. That, as Harold Hotelling could tell you, is a dangerous place to be in a two-product market. The UK’s Guardian newspaper can maintain its current positioning because it sells to a customer catchment area of 50 million people, and because it’s one of many newspapers. The Age’s catchment is one-tenth that size, and it’s one of just two major newspapers**.

The result of The Age’s 1992 shift to the centre was a truly spectacular loss in circulation. From memory, The Age dropped 15,000 circulation in short order.

Why did that happen? Because customer acquisition for a general newspaper tends to be an assymetrical process. You win customers slowly, but you lose them fast. General newspaper reading is a gradually acquired habit, like smoking, but less addictive and more sensitive to changes. You get hooked on a very particular formula that fits with your own political and cultural outlook. If someone suddenly messes with that formula, they break your habit. All that was true pre-Web***; it’s even more true today.

So moving the political outlook of a general newspaper is, even in theory, a decade-long task. In practice, it has usually happened only where one newspaper withdrew from the market. London’s Sunday Times is the only general newspaper I can recall pulling off this trick, and the London newspaper market of the 1980s was a very unusual one. (Moving the political and cultural outlook of a specialist newspaper may be easier, especially when its customers mostly buy it for information. The Financial Review has moved rightward in the last few months, so we’ll get some interesting numbers on this soon.)

Making a gradual shift to the centre from 1992 on could have yielded benefits for The Age. But it would have yielded those benefits very slowly – so slowly that the chances are they would not have been noticed. This inability to measure long-term shifts is one reason why few boards and even fewer management groups think in terms of decade-long market repositionings. The Fairfax management of 1992 clearly wanted The Age repositioned fast. That didn’t work then. It won’t work now.

Steven Conroy had this right on ABC AM this morning:

“If she [Rinehart] was to directly interfere … it would actually lead to a crisis of confidence in the, among the readership, and if the readership deserted, then the share price for every shareholder would decline.”

Gina Rinehart may decide to mess severely with the political outlook of the SMH and The Age. But if she does, she won’t do it for long. The market understands newspaper readership dynamics fairly well. The smallest suggestion of a hit to circulation and profit will provoke an unforgiving sharemarket reaction, and the new proprietor will have to decide how long she wants her Fairfax shares to stay at 1 cent each.

* Not the writer’s mind, of course, or yours, but the minds of other, more sheep-like readers  :-)

** The Australian’s Victorian circulation is not big enough to upset this picture.

***Technically 1992 isn’t pre-Web, but you know what I mean.

About David Walker

David Walker runs publishing consultancy Shorewalker DMS (shorewalker.net) and is commissioning editor of Acuity magazine. David has previously edited the award-winning INTHEBLACK business magazine, been chief operating officer of online publisher WorkDay Media, held policy and communications roles at the Committee for Economic Development of Australia and the Business Council of Australia, and run the website for online finance start-up eChoice. He has written professionally on economics, business and public policy since 1987 and spent three years in the Canberra Press Gallery for News Limited and The Age.
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62 Responses to Fairfax: Gina Rinehart’s money can’t buy readers

  1. fxh says:

    All Gina has to do is cut costs and she’s left witha hobby that would cost her less than Dick Smiths helicopters to run. Pocket money, small change in the context of her wealth.

  2. conrad says:

    Think of the great poetry column we’ll get from her every week.

  3. fxh says:

    If the shares drop to 1 cent each then Gina just buys them all. Whats the problem?

  4. derrida derider says:

    Yes, your assumption is that Gina cares about making money from Fairfax. Nope – she’ll happily buy the lot and run it at a loss if it means critical voices are thereby stilled. No doubt she will justify it to herself and others by saying it’s all for the greater good of the country – magnates traditionally have great trouble distinguishing the national interest from their self-interest.

    You don’t think The Australian makes a profit do you?

  5. JC says:

    Seriously David, you really think that having in-house paid for speech writer, Des Moore on the op-ed made them centrist at the time? Like that was a wholesale change towards the centre?

  6. Richard Tsukamasa Green says:

    In addition to the ability to carry a loss, newspaper’s political power hasn’t lain in their readership for years – consider the influence the Australian has out of proportion to its readership.
    The power comes because of the was other media outlets (particularly TV) outsource their framing and filter to newspaper editors – particularly the broadsheets for which they retain a misplaced reverence. The habit of morning TV shows and radio discussing “today’s headlines” is the most extreme form.

    So even in the SMAGE is reduced to an tiny rump readership (of comparable size to the Oz for instance) it’s headlines will still shape discussion everywhere else.

    So we end up with Sensible and Moderate journalists (particularly the strategically vacuous at the ABC) solemnly espousing views designed to be in the middle – i.e between what Gina thinks and what Rupert thinks.

    And when the rents in mining are so high, the loss in advertising revenue is a small investment.

    • Tel says:

      I agree, propaganda is the primary purpose, but that’s nothing new in the media industry. As I point out below, the battle came to Gina, she never went round looking for this particular fight.

      You must admit, it would be kind of hilarious if she could get the old Fairfax stable turning a profit again after all these years. Murdoch might suddenly sense a genuine opponent.

      • JovK says:

        ‘Kind of hilarious’ only if you think that permanent loss of media diversity & the disenfranchisement of those who don’t habitually vote Liberal is hilarious, which you may well do. And don’t talk to me about the alternatives offered by online content, because if Rinehart (not ‘Gina’) takes over, that will be tainted too. A choice between Murdoch and Reinhart? Wow. What a choice.You seem to regard the media as just a business like any other. It isn’t.

        • Tel says:

          If you think hilarity is a bad thing, then Krugman will call you a Very Serious Person (VSP), or to put that in other words, “Why so serious?”

        • JovK says:

          I saw your fellow Rinehart fan John Singleton on TV a few days ago, assuring us that this whole takeover issue was just a case of a poor little girl growing up in WA & finally being able to buy what her poor old Daddy had always wanted, the voice in national affairs those nasty Lefties/Eastern Staters had always denied him. Just a couple of ordinary Aussies like you or I, Singo implied, without mentioning the personal fortune of $29.2 billion and growing. Do I believe that such people are going to continue to present an alternative view to the Murdoch-dominated press in Australia? No. And neither do you – you just don’t think it’s a bad thing.

          So -Why so serious? I dunno, Tel – I’ve tried to dumb it down like Singo does, but I just can’t manage it. Your question, on the other hand, when presented as a riposte to the concerns of Fairfax readers (which is 40+ years in my case) seems to indicate that you’re able to manage it pretty well.

        • Pedro says:

          Wow! Gina’s plans are obviously bigger than I’d realised.
          http://en.wikipedia.org/wiki/Disfranchisement

        • JovK says:

          Pedro, even Page 1 of a Google search on the ‘D’ word reveals more shades of meaning in its public usage than just the literal loss of the right to vote. You might like to look them up, even if it does involve looking at more than just Wikipedia.

          If Rinehart goes ahead with her plans for Fairfax it will result in a contraction & impoverishment of public debate & information in this country, and in the marginalization of any opinion which differs from that of its poprietor. It’s that marginalization that I refer to as a form of disenfranchisement, apologies to any pedants among you. The only reason some people are arguing the opposite is because that marginalization is precisely what they want to see happen.

        • Tel says:

          Why so serious? I dunno, Tel – I’ve tried to dumb it down like Singo does,

          I know just how you feel, my dig was at Paul Krugman for using VSP as an insult, I apologize if it sounded like I was taking you to task for believing in something. The “why so serious” is a reference to Batman, as a Fairfax reader you probably aren’t much up with popular culture, but the Joker was kind of the bad guy, while Batman (the serious guy) was kind of the good guy. These things lose some of the punch when you have to explain them.

          Your question, on the other hand, when presented as a riposte to the concerns of Fairfax readers …

          Once again, I apologize if I gave the impression that I was concerned for Fairfax readers, that was absolutely not my intent.

        • Pedro says:

          Full marks for the sense of humour JovK. Another lefty stereotype nailed down.

  7. Anderson says:

    I never really saw what the fuss is that The Australian runs as a loss. A lot of topics carried by the Australian drives the content in Telegraph, etc. If The Australian gets cut, the other tabloid papers needs to generate a lot of additional content on their own to replace it.

  8. daz says:

    How is the Age “well to the left of the political centre”? I ask that quite sincerely.

    It seems to me, based on a very occasional flip through The Age, that it’s quite a different beast to the News Ltd papers, and it defines itself somewhat by that opposition, but that’s not the same as being ‘left of centre’. If that’s all it takes to be ‘left’ then you need to define your ‘left-right’ axis.

    d

    • Tel says:

      I’d say that the very discussion of some sort of left-right axis is one of the biggest ignorance promotion tools in all of politics. The ultimate false dichotomy.

    • David Walker says:

      Daz, I think you’re right to suggest that The Age is closer to the political centre now than it was in 1992. I’ve edited the post to reflect this.

      I agree that the left/right axis is hard to define. It still seems to be used regularly, though, particularly in commentary about News Ltd.

  9. daz says:

    Richard Tsukamasa Green on June 19, 2012 at 4:52 pm said:
    “The power comes because of the was other media outlets (particularly TV) outsource their framing and filter to newspaper editors – particularly the broadsheets for which they retain a misplaced reverence.”

    Yes! Exactly! Journalists in other media devote a remarkable amount of time to promoting the idea that journalists in newspapers are HIGHLY TRAINED IMPORTANT EXPERTS PERFORMING CRITICALLY VITAL WORK ON WHICH THE VERY HEALTH OF THE NATION RELIES.

    d

  10. Tel says:

    The UK’s Guardian newspaper can maintain its current positioning because it sells to a customer catchment area of 50 million people, and because it’s one of many newspapers. The Age’s catchment is one-tenth that size, and it’s one of just two major newspapers

    I really don’t get that. Surely no one is still out there seriously proposing that the future of newspapers is delivering news, on paper, covered in greasy black ink. Since the only option is to adapt to the online environment or die, both the Guardian and the Age, and all publications have exactly the same “catchment area”. Fairfax have for a long time presumed that their gatekeeper control over physical distribution has put them in a safe position, but lost revenue after lost revenue would very gradually be beating through the message that physical distribution is obsolete.

    Interesting that when the ALP started pushing their mining tax, they immediately accompanied it with a big cloud of attack propaganda:

    “miners are greedy”

    “miners have money”

    “let’s take their money”

    So the Minerals Council of Australia (which is primarily BHP, Rio Tinto and Xstrata, i.e. the established corporate powers of the mining world) attacked right back with their TV advertising campaign and those big corporations ended up having a quiet handshake with the ALP and settling the matter. Gina at the time spoke for herself, without feeling the need for a polished professional advertising campaign, she merely spoke to some reporters. As a consequence not only did deals get made for her competitors, but she personally took the brunt of Wayne Swan’s public lashing. You won’t find Wayne Swan digging at BHP and Xstrata the same way, oh no, we have to make the individual entrepreneur into the bad guy, not the well behaved (and well lobbied) corporate bureaucracy.

    I kind of think Gina might be the sort of girl who can very quickly learn from her mistakes.

    • David Walker says:

      Tel, your point about the catchment area is a good one. If Fairfax turns the SMH and The Age into a single nationwide product – as it is seeking to do via The National Times – then its positioning may get somewhat more commercially viable. (That doesn’t mean it will actually make money after accounting for editorial costs, unfortunately.)

      • john r walker says:

        I am told that it all boils down to the loss of classifieds revenue. Unfortunately advertisers these days can target audiences much more effectively than before and things like Google can create audiences for a fraction of the cost of old fashioned journalism .

  11. Pedro says:

    Still, the real story is the totalitarian instincts of the govt members and backbenchers who are now loudly calling for press control.

  12. JB Cairns says:

    Pedro as usual with so-called conservatives you are generalising .Be specific.

    A call to institute for example for a charter of independence is the antithesis of control by Government.

    This must be surely be caused by the ABC.

    They wil lbe the major winners from this if people’s forecasts are correct.

  13. Pedro says:

    So Homer, legislation to prevent a newspaper owner controlling the key part of its business, the actual product, wouldn’t count as press control?

    “As Labor caucus members voiced fears that Mrs Rinehart would “trash the brand” and weaken journalism, Victorian MP Steve Gibbons called for laws to empower a new authority to oversee media behaviour and impose harsh penalties on those who breached standards.

    The motion, which Mr Gibbons wanted to be debated in parliament on Monday, argues that the media industry has lost its “social licence to operate” and must face greater government control. “Concentration of news media ownership in the hands of a few represents, prima facie, a competitive market failure requiring compensatory regulation to ensure socially acceptable outcomes,” his motion states.

    Labor whip Joel Fitzgibbon last night threw his support behind Mr Gibbons’s motion, saying he expected it to spark debate on both sides of politics.”

  14. JB Cairns says:

    Legislation proposed by a backbencher no-one has ever heard of is not Government legislation Pedro. government legislation is proposed by the relevant Minister.

    That misleading argument is something I would expect at Catallaxy.

    I find it ironic the ABC has understood the importance of the Internet and its importance much quicker than Fairfax or News.

    People have missed the major point.It is revenue from classifieds that has been hit not revenue from sales.

  15. Pedro says:

    Umm, I said that govt members and backbenchers are calling for media control and show the news report to that effect. There is a call for press control legislation, I never said that the govt had announced anything.

    I’m trying to make the simple point that the real worry arising from the Fairfax story is that there are people in our parliament openly calling for press control. Businesses and owners will come and go without any lasting damage, but dicks like Gibbons can do real damage in the long run.

    • Tel says:

      They were openly calling for press control last time Murdoch gave them a kick in the knees, and they have been openly calling for Internet censorship for years (both major parties have, when it suited them). This is just business as usual, every powerful group wants to squelch criticism. In some countries, if the local priesthood takes a dislike to you, they will simply behead you for sorcery. Over here we have to use, you know, subtlety ‘n that.

      • Pedro says:

        Maybe my memory is faulty, but the current term is the first I can recall in which there have been serious calls for press control. I’m 50 so my memory goes back to the Fraser govt. Internet filter demands have been about porn etc, not political opinion.

        • Tel says:

          I did a bit of the memory lane with the search engine and found this link might be interesting:

          http://ausmall.com.au/acnarch/acnews39.php

          The Australian Broadcasting Authority (ABA) has praised China, Malaysia and Singapore as role models for the censorship of Internet content and suggested that Australia should follow the same path. In a submission to the Senate committee currently looking into the Federal Government’s widely criticised proposed Net censorship bill, ABA deputy chairman Mr Gareth Grainger called for an additional $1.9 million in funding and 5 extra staff so that the ABA could assume responsibility for content regulation if the legislation is passed. He then praised the three totalitarian and authoritarian Asian states for taking a lead in the area. “Whatever noises Malaysia is making about this issue (censorship), they don’t intend to allow problematic content on the Internet into their country,” he said.

          It’s hard to read that and think “problematic content” is just porn, although Alston did threaten to close down the Internet porn industry, what happened is the servers just jumped over the the USA — probably helping to retard the whole hosting and server side of the industry in Australia.

          I doubt even the most hard baked Australian censorship advocates would actually stand up in public these days and liken their strategy to China. I’m sure the Internet porn industry are not worried in the least.

  16. JB Cairns says:

    How?

  17. john r walker says:

    Fairfax’s problems are very deep. Years of management by people who know nothing about its core business and care even less, declining quality and content (it is not uncommon for page 4-5 to be mostly ads) the substitution of cheap opinion for journalism has made the SMH a expensive read …. Ms Rinehart is buying a rusty wreck/ folly.

  18. JB Cairns says:

    rinehart’s understnding or experience of the media is …?

    • john r walker says:

      zilch

      • Pedro says:

        So what, you think she’ll do more than change the management to people who she thinks will make shareholders some money?

    • Tel says:

      She knows it hurts when someone misrepresents you in public. Probably enough to get started.

      • john r walker says:

        it takes a bigger skill set than that to paint a good portrait.

        • Tel says:

          Ha ha, did I miss something? When did any mainstream press “paint a good portrait”? Maybe I’m too young or something.

          At best they collect a few useful tidbits of facts or perhaps point a finger in the right direction. At worst they deliver a total hatchet job. Mostly you get a bit of each.

    • Jc says:

      And the current board had how much media experience? None.

      She inherited 75 million which she then turned into 30 billion. This suggests a return of around 45% compounded after taxes since she got the money. Comparably BHP’s return has been 14 % over the same time frame. Her accomplishment is nothing short of astonishing.

      Of course, what would she know about business, right homer.

      • JovK says:

        Of course all of the current board has signed off on respecting editorial independence, which both Rinehart & Hungry Jack have said they won’t do.

        And you’re right – minerals, newpapers, breakfast cereals – what’s the difference? After all, your analysis of Rinehart’s career sounds like it came right off the back of a corn flakes packet.

        • JC says:

          Of course all of the current board has signed off on respecting editorial independence,

          Actually that’s not true from what I read. They haven’t which makes Corbett’s gambit so hypocritical and preposterous.

          which both Rinehart & Hungry Jack have said they won’t do.

          Yep, they’re free.

          And you’re right – minerals, newpapers, breakfast cereals – what’s the difference?

          You want me to pick the odd man out?

          After all, your analysis of Rinehart’s career sounds like it came right off the back of a corn flakes packet.

          So you think she’s been a complete failure? Really?

      • Fyodor says:

        I think such claims about Rinehart’s business acumen and accomplishments tend to be over-egged. Both of those numbers (i.e. $75m and $30bn) are estimates that are highly contingent on the market value of iron ore in the ground – iron ore discovered and exploited by her father, Lang Hancock, not Ms. Rinehart. Further the bulk of the cashflow generated by her iron ore interests over the last 20 years was actually the result of considerable development work by other mining groups (most notably Rio Tinto), not Hancock Prospecting P/L.

        Now, it looks like Rinehart has been deploying her wealth sensibly in the mining space (if not media…) in recent years, but the bulk of that (estimated) $30bn in wealth is attributable to her father’s extraordinary accomplishments, not hers.

        That is, she’s a rentier, not an entrepreneur. NTTAWWT.

        • JC says:

          I think such claims about Rinehart’s business acumen and accomplishments tend to be over-egged.

          Okay, Finkelstein is going stop you saying that yet.

          Both of those numbers (i.e. $75m and $30bn) are estimates that are highly contingent on the market value of iron ore in the ground – iron ore discovered and exploited by her father, Lang Hancock, not Ms. Rinehart.

          I think the Rio royalty stream is worth about $5 billion from what I read.. Of course they’re estimates, but so are those for say BHP or Rio (in terms of assessing future earnings). It’s not as easy with her assets because they aren’t publicly traded, as you know.

          According to stuff I’ve read and a couple of people in the mining game, she’s done far more than simply sit on the royalty stream from Rio. She’s really quite respected- more so than someone else that will remain nameless, but in that sorta league.

          Further the bulk of the cashflow generated by her iron ore interests over the last 20 years was actually the result of considerable development work by other mining groups (most notably Rio Tinto), not Hancock Prospecting P/L.

          I’m sure that’s the case.

          That is, she’s a rentier, not an entrepreneur. NTTAWWT.

          She certainly had a leg up with the $75 mill,but it doesn’t appear she has been resting on her backside clipping coupons either, as you imply. People in the game have a great of respect for her.

          In any event, you describe her as a rentier. She may have been, but that’s certainly not the case with her bets in media, which is really what we’re discussing (with some panicking over).

          Ultimately, if she ends up buying it all or gaining control, the investment has to perform or failing that it will fail, which will mean she keeps funneling money into or let it go. Fairfax under her will only be as good as the last consumer buying their products.

        • JC says:

          One other thing.. on the 45% compound return vs BHP’s 14% return for the same period.

          If you’re treating her assets as inheritance you kinda of have to apply the same thinking to BHP, as the one significant acquisition they made that has paid off hugely in value added during the same period was the purchase of Western Mining ( a master stroke). However all that is factored into the 14% rate too that I brought up.

  19. JB Cairns says:

    yeah JC,

    She masterfully caused a commodities boom. She obviously did very well out of channel 10.
    do you ever think before you JC yourself.

    Fairfax simply didn’t understand their ‘rivers of gold’ would dissipate with the rise of the Internet.

    mind you News haven’t shown a lot of nous there either.

    • JC says:

      Hi Homes

      She masterfully caused a commodities boom.

      Nope, she didn’t of course. It’s not what I was alluding to so let me explain to you again. Go back and see how I adjusted for the boom. I said she turned 75 million into 30 billion, which is about a 45% compound while the comparable return for BHP stock was 14% compounded.
      I’m surprised your claims to have a MBA would need that highlighted again.

      She obviously did very well out of channel 10.

      She can wait and if it doesn’t work out it’s perhaps .25% of her portfolio. No biggie.

      do you ever think before you JC yourself.

      lol. Oh the irony.

      Fairfax simply didn’t understand their ‘rivers of gold’ would dissipate with the rise of the Internet.

      Actually they did as they moved into digital. They wrecked the businesses in all sorts of ways.

      mind you News haven’t shown a lot of nous there either.

      Yes they have, they’re well diversified. Fox News for instance spews out $400 million a quarter in operating earning from what I recall.

  20. JB Cairns says:

    Mining is the same business as the media.

    Onlu a person who has no experience of being in a business could be sooo stupid

  21. JC says:

    Mining is the same business as the media.

    No, but she seems to have an eye for it though if the rumors are to be believed that she helped Bolt get the 30 min Sunday morning spot, which is just recently ranking equal to Barrie Cassidy’s flame out of a talk show. I haven’t seen “Bolt”, Homer. Is it any good? On those numbers it seems to be making money.

    Onlu a person who has no experience of being in a business could be sooo stupid

    Really? Buffet has no experience in newspapers and he bought a several dozen a few weeks back. You can buy them buy the box these days. In any event her experience is about equal to the Fairfax Chairman when he showed up. She’s got a toe in the game, while he hasn’t. His total investment in Fairfax is 99,000 shares worth around 60K while owning $700K in Walmart which he is a director of. His confidence in Fairfax seems off the charts with that sort of divergence, no?

    In any event she’s already said she wants to diversify out of a high multiple business like mining and asset swap into lower multiple ones. I wish her luck in her bets. I don’t really doubt that’s her game and would dearly like to see Fairfax succeed and her investment pay off.

  22. JovK says:

    Mining is the same business as the media?
    I’m sorry. I had no idea what kind of person I was dealing with. Of course I always get my news, opinions, and entertainment by contacting BHP or Rio Tinto. Just like you.

    People like you are clueless when it comes to what matters in a society. It all just comes down to money, doesn’t it? Government should get out of the way and just let business people do it. The same philosophy that informs Rinehart & Hungry Jack.

    And by the way, I am in business. My own business. And it’s doing very well, thank you.

  23. JC says:

    Mining is the same business as the media?
    I’m sorry. I had no idea what kind of person I was dealing with.

    You got the idea i said such a thing from where eggscatly?

    Of course I always get my news, opinions, and entertainment by contacting BHP or Rio Tinto. Just like you.

    I guess if you’re getting news from them it could explain why you think I said mining and the news business are the same.

    People like you are clueless when it comes to what matters in a society. It all just comes down to money, doesn’t it?

    Pretty much, it does yea. It certainly does for Fairfax which has long term bank loans of around $500 million,which the banks want back and a Euro bond issue of roughly around $600 million coming due. The banks have already told them they want their money back obviously before the bond issue falls matures, as the firm has as much chance tapping the bond market as Greek Railways at the moment.

    Government should get out of the way and just let business people do it. The same philosophy that informs Rinehart & Hungry Jack.

    You have to explain that one.

    And by the way, I am in business. My own business. And it’s doing very well, thank you.

    Good to hear, however I’m a little perturbed by the first comment you made which suggests you have difficulty with comprehension.

    Where does “society” come into it? I’m not exactly seeing “society” preventing the stock from collapsing to junk, or people rushing out early in the morning to buy their broadsheet dailes in order to avoid zero valuation estimates placed the two mastheads. Armchair strategizing is all well and good, but as far as I can see Gina is the only buying the stock. Have you bought any lately?

    • JovK says:

      First off, JC, I acknowledge my error. You did not say mining and the media were the same thing. The post just above yours did that, and I misread it as yours.
      My problem with you is that you concentrate mainly on the business aspects of Rinehart’s move to control Fairfax. I’m not arguing with you about the obviously lamentable state of Fairfax’s finances, or even about how they got there. I’m arguing with you because you seem unwilling to acknowledge that this takeover is part financial, part political. At the very least, you seem unconcerned by it. Are you really such an apolitical animal that you can just dismiss all the other issues surrounding this takeover, as debated endlessly by media, politicians, the protagonists themselves and right here on this site?

      Finally, no, I don’t have any Fairfax shares. Are you seriously suggesting I, or anyone else in this country, could compete with Gina Rinehart? However I have been reading The Age (and for a while The Oz) for 40+ years – at today’s prices, that’s about $20,748 I’ve put into Fairfax coffers. If money invested is your criterion, I think that qualifies me to express an opinion.

    • Fyodor says:

      I think the Rio royalty stream is worth about $5 billion from what I read.. Of course they’re estimates, but so are those for say BHP or Rio (in terms of assessing future earnings). It’s not as easy with her assets because they aren’t publicly traded, as you know.

      The royalty stream is on a percentage of iron ore sales, so as both price and volume have increased substantially since 1992 the royalty stream has increased massively. It is the capitalization of this royalty stream that drives the royalty, and thus valuation, yet neither price nor volume was under her control. She’s been an entirely passive rentier beneficiary on this score.

      The capitalization of BHP or RIO reflects the same implied valuation approach, but those corporations were the entrepreneurial vehicles that sank $ billions into the Pilbara to extract the iron ore, i.e. they took big risks. Rinehart inherited the tenement rights and royalty stream from her father – totally different situations.

      Now, in the last decade she’s been converting that hugely increased royalty stream into her own developments, but those have only been possible because of that royalty stream and her inheritance of developable tenements. Your assertion that she’s responsible for the rate of return you estimate simply doesn’t hold water once we acknowledge that, in retrospect, her inheritance was worth far more than the $75m estimate you use.

      According to stuff I’ve read and a couple of people in the mining game, she’s done far more than simply sit on the royalty stream from Rio. She’s really quite respected- more so than someone else that will remain nameless, but in that sorta league.

      She certainly had a leg up with the $75 mill, but it doesn’t appear she has been resting on her backside clipping coupons either, as you imply. People in the game have a great of respect for her.

      She’s no dummy, but that’s very different from attributing Omaha Oracle-like returns to her. And, yes, for most of that period she really did just collect royalties.

      In any event, you describe her as a rentier. She may have been, but that’s certainly not the case with her bets in media, which is really what we’re discussing (with some panicking over).

      No, in respect to her media bets she’s behaving like a nouveau riche naïf. She’s essentially pissing money up against the wall on a vanity “investment”, quite possibly out of infantile spite. This rather undermines your argument about her investment abilities.

      Ultimately, if she ends up buying it all or gaining control, the investment has to perform or failing that it will fail, which will mean she keeps funneling money into or let it go. Fairfax under her will only be as good as the last consumer buying their products.

      Yes, very insightful: it will perform or fail. Can’t fault your logic there.

      Unfortunately for Rinehart, turning around a failing media business is a more difficult proposition than clipping coupons, and she’s probably smart enough to know this, which means her motives are highly likely to be non-commercial.

      • JC says:

        The royalty stream is on a percentage of iron ore sales, so as both price and volume have increased substantially since 1992 the royalty stream has increased massively. It is the capitalization of this royalty stream that drives the royalty, and thus valuation, yet neither price nor volume was under her control. She’s been an entirely passive rentier beneficiary on this score.

        As far as you think she’s been passive in the trust, which is also why I marked that part of her net worth by suggesting it’s now valued by something/someone I read at about $5 billion. See above. Do you know if that’s the case or simply speculating?

        The capitalization of BHP or RIO reflects the same implied valuation approach, but those corporations were the entrepreneurial vehicles that sank $ billions into the Pilbara to extract the iron ore, i.e. they took big risks. Rinehart inherited the tenement rights and royalty stream from her father – totally different situations.

        That’s not the point though really is it? Rio also took a form of legacy assets shared with her in the trust into the boom, which also rose in value.

        …in retrospect, her inheritance was worth far more than the $75m estimate you use.

        “In retrospect”, or at the time of death/inheritance and public spat with “whatshername”. That’s because those assets at that point in time were worth $75 million or at least that’s what came out in the courts. That was supposed to be the value of her share of the estate and it was a pretty public spat from recollection.

        She’s no dummy, but that’s very different from attributing Omaha Oracle-like returns to her. And, yes, for most of that period she really did just collect royalties.

        Does it matter when she accumulated the additional bets or the bets themselves even if I take your word that she was coupon clipping for most of the time. It doesn’t really matter much does it? Especially when the value of the inheritance is supposedly around $5 bill. In other words she could have coupon clipped for 90% of that time then did deals that made her even wealthier.

        No, in respect to her media bets she’s behaving like a nouveau riche naïf. She’s essentially pissing money up against the wall on a vanity “investment”, quite possibly out of infantile spite. This rather undermines your argument about her investment abilities.

        Why though? In her mind she’s buying assets at fire-sale prices and swapping for very high valuations probably at peak for the time being. i don’t fault her game plan and I said I can’t read minds.

        Unfortunately for Rinehart, turning around a failing media business is a more difficult proposition than clipping coupons, and she’s probably smart enough to know this, which means her motives are highly likely to be non-commercial.

        Look, there are two huge immediate problems confronting Fairfax at the moment, as I see it. The banks are calling in their loans and the euro bond issue that is coming due (soon but I can’t recall when). That’s over $1 billion according to the accounts.

        If those two things are bedded down the firm will have a lot more time to tinker with the strategy of making a buck going forward. Now she can basically put those two problems into the solved basket and do so quickly. You’re also assuming that she wants to manage the business in some direct way and that doesn’t appear to be her future role going ahead. She will hire someone to do that. Frankly it couldn’t get much worse in terms of talent there on the management side.

        Lastly, she appears to be the only white knight around at these levels without the private equity vultures showing up.

        Yes, very insightful: it will perform or fail. Can’t fault your logic there.

        Thanks, it wasn’t meant to be insightful, but only to underscore the obvious point that seemed to be getting lost.. not necessarily by you.

        Just getting back to the comparison..

        How can you argue that Gina’s net worth is largely impacted by inheritance (describing her as a rentier) while BHP stock didn’t carry legacy (inheritance) assets into the boom? I don’t think that’s a fair way of measuring her added value. That’s why I looked at BHP’s stock price behavior over the same time. By the way BHP, I think is a far better proxy than Rio because Rio fucked up in the GFC and almost went bust avoiding it only through a significant equity dilution to shareholders at the time.

        Comparing the growth of her net worth and the growth in BHP’s stock price is a rough but fair way of mitigating somewhat the impact of the boom and figuring out relative value added by either Gina or BHP……… Can you think of a better with the limited information on hand? Honest question.

        • Fyodor says:

          As far as you think she’s been passive in the trust, which is also why I marked that part of her net worth by suggesting it’s now valued by something/someone I read at about $5 billion. See above. Do you know if that’s the case or simply speculating?

          That someone valued one part of her holdings $5bn? I’m not sure where you got that number, but I think it’s an understandable valuation, albeit one that, as I pointed out, relies upon current conditions (notably iron pricing and volumes) holding up for a long time, and that’s not necessarily the case. Most mining analysts prefer a DCF to take such issues (e.g. cyclicality) into account. As I noted earlier, the $30bn number is not cash in the bank, it’s a back of the envelope calc on a range of assets, including a lot of rust in the ground, on a number of simple assumptions. Just like the $75m assumed starting point – which I know isn’t your number either – it’s not a valid basis for calculating investment returns.

          The capitalization of BHP or RIO reflects the same implied valuation approach, but those corporations were the entrepreneurial vehicles that sank $ billions into the Pilbara to extract the iron ore, i.e. they took big risks. Rinehart inherited the tenement rights and royalty stream from her father – totally different situations.

          That’s not the point though really is it? Rio also took a form of legacy assets shared with her in the trust into the boom, which also rose in value.

          Of course it’s the point. If Rio Tinto had to invest a shitload of money and take on a lot of risk to develop those assets, as opposed to simply inheriting them from Daddy, it makes a very big difference to the evaluation of investment performance. Importantly, the $75m “value” is just an estimate, whereas we have market valuations for Rio Tinto/CRA and BHP (pre-Billiton) back in 1992. At that point in time they were diversified mining groups coming out of a global recession with cyclically low metal prices. Even the starting point in terms of calculating investment performance is thus not apples with apples.

          …in retrospect, her inheritance was worth far more than the $75m estimate you use.

          “In retrospect”, or at the time of death/inheritance and public spat with “whatshername”. That’s because those assets at that point in time were worth $75 million or at least that’s what came out in the courts. That was supposed to be the value of her share of the estate and it was a pretty public spat from recollection.

          Courts regularly get this sort of thing wrong, and the point is that, knowing what we know now – i.e. RETROSPECTIVELY – the value of Hancock’s iron ore tenements was vastly more than the $75m estimated at the time. The increase in their ESTIMATED value since that time has little to do with Rinehart’s efforts and a hell of a lot more to do with the massive increase in the value of iron ore as a result of Chinese industrialization. As Homerkles correctly pointed out, Rinehart clearly was not responsible for the latter, so it’s naïve at best to attribute the increase in value solely or even largely to her management.

          She’s no dummy, but that’s very different from attributing Omaha Oracle-like returns to her. And, yes, for most of that period she really did just collect royalties.

          Does it matter when she accumulated the additional bets or the bets themselves even if I take your word that she was coupon clipping for most of the time. It doesn’t really matter much does it? Especially when the value of the inheritance is supposedly around $5 bill. In other words she could have coupon clipped for 90% of that time then did deals that made her even wealthier.

          WTFF? Of course it matters when investments were made and what the returns were on those. There’s no point in debating relative investment performance if you’re not willing to concede that much. Remember that the estimated value of the royalty stream, calculated by capitalising the estimate of one year’s royalty, does not represent all of her inheritance. Not included are the other tenements and developments which she has been able to sell stakes in at hugely inflated values because of the rise in the price of iron ore. The bulk of that $30bn-odd comes from the imputed value of those projects, based on recent transaction prices which, again, are hugely inflated by the current boom in iron ore prices. Those are not “hard” values – they’re paper gains that could quite easily fall substantially.

          No, in respect to her media bets she’s behaving like a nouveau riche naïf. She’s essentially pissing money up against the wall on a vanity “investment”, quite possibly out of infantile spite. This rather undermines your argument about her investment abilities.

          Why though? In her mind she’s buying assets at fire-sale prices and swapping for very high valuations probably at peak for the time being. i don’t fault her game plan and I said I can’t read minds.

          Hang on. She’s spending cash with a known value on a business which the rest of the market says is likely worthless. I know you acknowledge you can’t read minds, but how do you rationalize a person with no media experience whatsoever making a sizeable bet like that? This isn’t a case of reliable cash-generative assets being sold cheaply – there are deep structural problems with Fairfax that nobody has been able to fix, over more than a decade now and yet you think she has a reasonable chance of turning it around? Why?

          Unfortunately for Rinehart, turning around a failing media business is a more difficult proposition than clipping coupons, and she’s probably smart enough to know this, which means her motives are highly likely to be non-commercial.

          Look, there are two huge immediate problems confronting Fairfax at the moment, as I see it. The banks are calling in their loans and the euro bond issue that is coming due (soon but I can’t recall when). That’s over $1 billion according to the accounts.

          If those two things are bedded down the firm will have a lot more time to tinker with the strategy of making a buck going forward. Now she can basically put those two problems into the solved basket and do so quickly. You’re also assuming that she wants to manage the business in some direct way and that doesn’t appear to be her future role going ahead. She will hire someone to do that. Frankly it couldn’t get much worse in terms of talent there on the management side.

          Those are symptoms of the underlying problem, not the root. The root problem is that the core media business is failing, unable to generate the cashflow that once serviced that debt. Refinancing Fairfax is easy – any dickhead with enough capital can fix the capital structure; turning around the print business so it generates more cash flow is the core problem, and nobody has come up with a good plan to do it, as it’s widely assessed to be in structural decline.

          Lastly, she appears to be the only white knight around at these levels without the private equity vultures showing up.

          So the smart money isn’t buying…but she is? What does that tell you?

          Just getting back to the comparison..
          How can you argue that Gina’s net worth is largely impacted by inheritance (describing her as a rentier) while BHP stock didn’t carry legacy (inheritance) assets into the boom? I don’t think that’s a fair way of measuring her added value. That’s why I looked at BHP’s stock price behavior over the same time. By the way BHP, I think is a far better proxy than Rio because Rio fucked up in the GFC and almost went bust avoiding it only through a significant equity dilution to shareholders at the time.

          Comparing the growth of her net worth and the growth in BHP’s stock price is a rough but fair way of mitigating somewhat the impact of the boom and figuring out relative value added by either Gina or BHP……… Can you think of a better with the limited information on hand? Honest question.

          See commentary up top. It’s a very hard estimate to make because there’s so little publicly available data on the inheritance.

          But I’m not saying it’s an easy calculation; I’m saying: (1) the estimated start point ($75m) and the end-point ($30bn) for calculating returns are almost certainly wrong; and, (2) given the active contribution of Rinehart to the value of her assets appears to be genuinely limited, particularly for the bulk of that period since inheriting the assets, how much of the increase in wealth was attributable to her investment performance and how much to dumb luck?

          Let me put it back to you: what investment decisions did she make that are evidence of outstanding investing acumen?

      • JC says:

        From what I recall she became a pretty significant big lot player during the GFC, which means she scored some relative bargains looking back (after bulking up). It was from those activities that net worth to an upward spike. That doesn’t suggest to me she’s only a coupon clipper but someone with a sharp mind who is prepared to step up to the plate when valuations are out of whack. In other words a value player…. a value player who has time on her hands and not bothered by the debt pac man machine. In a sense it appears she’s repeating the same sort of strategy in the media business. So I’m not at all sure it’s about the vanity thing, as you suggest.

  24. JC says:

    First off, JC, I acknowledge my error. You did not say mining and the media were the same thing. The post just above yours did that, and I misread it as yours.

    No probs. It’s always a risk taking Homer at face value. In fact, on second thoughts it’s more than a risk, it’s darned near suicidal. (Homer= JB Cairns)

    My problem with you is that you concentrate mainly on the business aspects of Rinehart’s move to control Fairfax. I’m not arguing with you about the obviously lamentable state of Fairfax’s finances, or even about how they got there. I’m arguing with you because you seem unwilling to acknowledge that this takeover is part financial, part political.

    I’m not a mind reader JovK and neither are you. I can only go on by what she said, which was that she wanted to diversify away from high multiple assets (obviously mining) into low multiple ones. She’s only really been in the public eye since her net worth was publicized and I don’t have longer-term frame to go by … as if any of that matters. Buffet has been buying newspapers too recently.

    Perhaps newspapers owned by the rich person without concerns of the debt monster could end up being a good investment over time. Everyone talks about the death of newspapers, but I’m not so sure to pronounce them dead yet. The model obviously has to change, but dead? Naaa. So they could be bargains, if you’re buying city mastheads at zero like the two dailies estimated to be worth.

    What I find amusing is how all thee people are calling them dead but are panicking about Gina buying into the sector. I mean if it’s a dying business why bother getting concerned, right? She’ll just lose her money.

    At the very least, you seem unconcerned by it.

    Well broadly I am not concerned in the least. A few things can happen. She basically leaves the leftwing sway of the dailies alone but improves on it with a little more flavor by changing the staff. She takes it on a right wing slant, which is a big risk and would be competing with News Ltd, or she completely fucks it up in a big way and thereby losing her investment. I’m sure there are more possibilities but that’s the three I can think of at the top of my head.

    I think you’re concerned with the last two points, right? Do you really think that if she leaned Right, there would be no one here in Australia prepared to service the market with a leftwing slant? You think that voice would be lost and no one would take up the slack over a short period of time? If she fails then the mastheads would be sold off in receivership and someone else ends up with them.. that is if they consider it worthwhile.

    Are you really such an apolitical animal that you can just dismiss all the other issues surrounding this takeover, as debated endlessly by media, politicians, the protagonists themselves and right here on this site?

    Yep pretty much, because I consider the purchase and sale of Fairfax shares to hold no more importance than other stocks. I don’t like seeing markets frozen in time and that’s what any special regulation to limit the purchase of Fairfax shares would amount to (like any form of regulation, it attempts to freeze time and dissuade change).

    Finally, no, I don’t have any Fairfax shares. Are you seriously suggesting I, or anyone else in this country, could compete with Gina Rinehart?

    No, but you raised the issue of “society” and I haven’t seen “society” aggressively buying into Fairfax stock.. not even their chairman by the looks of things…. or the rest of the board.

    However I have been reading The Age (and for a while The Oz) for 40+ years – at today’s prices, that’s about $20,748 I’ve put into Fairfax coffers. If money invested is your criterion, I think that qualifies me to express an opinion.

    You’re making a very basic error here by confusing consumption with investment. They are not the same thing. You have consumed Fairfax’s services…you haven’t invested in Fairfax. It’s important when talking about these things to really get the terms right.

  25. JB Cairns says:

    Gina certainly doesn’t understand how boards work.

    It is the board as a whole that appoints an Editor.
    If she wants to ditch Hywood and appoint someone else it is up to her to convince other board members.

    She can only appoint the person herself when she controls the company and I cannot see her doing that.

    • JC says:

      Gina certainly doesn’t understand how boards work.

      Good thinking Homes. Great, great point. How did we all miss somehting so obvious.

      It is the board as a whole that appoints an Editor.

      Really? And here I was thinking it was the CEO at Fairfax which appointed the editors. You really know how a board works Homes. You’re a natural boardster it seems.

      If she wants to ditch Hywood and appoint someone else it is up to her to convince other board members.

      But she’s not on board, or rather on the board… Yet. And she doesn’t appear to have made any noises she wants to terminate him. Where are you getting this inside info from?

      She can only appoint the person herself when she controls the company and I cannot see her doing that.

      The loot ran out, ya think?

  26. john r walker says:

    What is dead is newspapers based in classified ads.( and to a degree based on advertising in general)

    The current board of Fairfax know next to nothing about publishing .
    They are good knob polishers:

    When I was a lad I served a term
    As office boy to an Attorney’s firm.
    I cleaned the windows and I swept the floor,
    And I polished up the handle of the big front door.
    I polished up that handle so carefullee
    That now I am the Ruler of the Queen’s Navee!

    Ms Rinehart is buying something with rust in all the doors and bananas in the gear box

  27. JB Cairns says:

    JC,

    like a lot of ignoramuses you pontificate on subjects you know nothing about.

    1) you missed it because you didn’t know

    2) boards can appoint Editors as it is the Editors that determine the coverage.

    3) She wants to at present have the ability to appoint said Editor of papers and sack them. That is the major problem.
    didn’t know that. Not surprised.

    4) A lot of loot even for Gina given the probability most of it might be lost.

  28. JC says:

    T

    hat someone valued one part of her holdings $5bn? I’m not sure where you got that number, but I think it’s an understandable valuation, albeit one that, as I pointed out, relies upon current conditions (notably iron pricing and volumes) holding up for a long time, and that’s not necessarily the case. Most mining analysts prefer a DCF to take such issues (e.g. cyclicality) into account. As I noted earlier, the $30bn number is not cash in the bank, it’s a back of the envelope calc on a range of assets, including a lot of rust in the ground, on a number of simple assumptions. Just like the $75m assumed starting point – which I know isn’t your number either – it’s not a valid basis for calculating investment returns.

    It’s not only one person or people that valued her inheritance at a present day value of $5 billion but a couple from what I recall reading. I think what started this public discussion about her net worth was Citigroup. Lord knows why they got involved in net worth porn, as I hadn’t seem them do this thing before. Yes I’m aware it’s certainly not cash in the bank and mostly DFC modeling of her major assets.

    As for the $75 million number.. this is what came out of a pretty acrimonious court case between Gina and the second wife (I called recall her name) and if it was that acrimonious I’m reasonably comfortable about the fact that the assets would have undergone a sophisticated valuation from both parties and the court would have decided validity. Consequently i think it has some merit… But then you may be right and it was much higher, but that’s just guessing.

    She has been active developing though from what I read.

    The making of Gina Rinehart

    Rinehart didn’t just inflate her wealth by trading on the luck of the iron ore price – at near historic highs. It came as a result of impeccably astute investments in mining, in infrastructure associated with those mines and savvy deals with big miners that can get production underway and foot some of the massive costs involved.

    Rinehart’s second iron ore mine follows this model and will start exporting in 2014 … after a $7 billion set-up cost.

    She is said to be able to talk about mines and mining relentlessly and knows the ins and outs of the industry like few others. You get the sense she doesn’t just work in mining, but it is her life.

    More here. Ignore the poem for obvious reasons. There’s a shitload of stuff about her on the web and what she has been doing.

    Of course it’s the point. If Rio Tinto had to invest a shitload of money and take on a lot of risk to develop those assets, as opposed to simply inheriting them from Daddy, it makes a very big difference to the evaluation of investment performance. Importantly, the $75m “value” is just an estimate, whereas we have market valuations for Rio Tinto/CRA and BHP (pre-Billiton) back in 1992. At that point in time they were diversified mining groups coming out of a global recession with cyclically low metal prices. Even the starting point in terms of calculating investment performance is thus not apples with apples.

    Why wouldn’t the the starting point be applicable? The stock price I used for BHP was from 1992 and the valuation presumably derived from what was presented to the court was around that time too. It’s close enough. The share price would reflect the markets valuation of future income streams in those firms and although i can’t say for sure the $75 million valuation was was calculated along similar lines. You know and this is going back from memory, the old man was always worth a nickel of two in the 80’s etc. but he never never up there in the top leagues from what I recall. As you said there was a depression in the mining business at that time. (More on the proxy valuation further down)

    Courts regularly get this sort of thing wrong, and the point is that, knowing what we know now – i.e. RETROSPECTIVELY – the value of Hancock’s iron ore tenements was vastly more than the $75m estimated at the time. The increase in their ESTIMATED value since that time has little to do with Rinehart’s efforts and a hell of a lot more to do with the massive increase in the value of iron ore as a result of Chinese industrialization. As Homerkles correctly pointed out, Rinehart clearly was not responsible for the latter, so it’s naïve at best to attribute the increase in value solely or even largely to her management.

    But I’ve never suggested she was ever responsible for the inheritance assets. However she was responsible was invested for how the cash flow coming out of those assets.

    This shows she’s a builder too.

    Rinehart didn’t just inflate her wealth by trading on the luck of the iron ore price – at near historic highs. It came as a result of impeccably astute investments in mining, in infrastructure associated with those mines and savvy deals with big miners that can get production underway and foot some of the massive costs involved.

    Rinehart’s second iron ore mine follows this model and will start exporting in 2014 … after a $7 billion set-up cost.

    WTFF? Of course it matters when investments were made and what the returns were on those. There’s no point in debating relative investment performance if you’re not willing to concede that much. Remember that the estimated value of the royalty stream, calculated by capitalising the estimate of one year’s royalty, does not represent all of her inheritance. Not included are the other tenements and developments which she has been able to sell stakes in at hugely inflated values because of the rise in the price of iron ore. The bulk of that $30bn-odd comes from the imputed value of those projects, based on recent transaction prices which, again, are hugely inflated by the current boom in iron ore prices. Those are not “hard” values – they’re paper gains that could quite easily fall substantially.

    what I was suggesting is that the timing of the investments (hers) doesn’t matter when figuring out her net worth on x date. In other words if I bought GE 9 bucks it doesn’t really matter 20 years ago or 3 years ago and they’re worth 20 bucks today it doesn’t matter in terms of figuring out my net worth. It does of course matter when they were bought in figuring the rate of return but not the net worth per se, which is what I was trying to get at.

    However we don’t have much to go other than the claims of what she was worth coming out of a 10 year court case with Rose and what she’s worth now.

    Hang on. She’s spending cash with a known value on a business which the rest of the market says is likely worthless. I know you acknowledge you can’t read minds, but how do you rationalize a person with no media experience whatsoever making a sizeable bet like that? This isn’t a case of reliable cash-generative assets being sold cheaply – there are deep structural problems with Fairfax that nobody has been able to fix, over more than a decade now and yet you think she has a reasonable chance of turning it around? Why?

    Fairfax’s most immediate problems as I see it is the financing and that is belting the share price down for a coupla reasons. As far as the markets sees things it either means fire-sale selling of assets to accommodate the banks first (as they want their money back before the bond issue is due), there will be an almighty dilution of the equity or both.

    I think that in a comfortable setting (no fire-sale) you could basically count the two major mastheads and worthless and still have around $1.5 ps value over time. They do have some decent assets. If I was looking at this, I would give the two mastheads two years to get their act together or simply close them down.

    They could be reconfigured in a way that could make 20 million apiece I reckon. With the right editor and decent management the Age/SMH could make 40 million a year, but that’s tops. The rest of the main assets like radio etc. are doing well. There is money there.

    I actually went through it with a broker about 6 months ago and he had a decent view of the assets and what they were.

    So the smart money isn’t buying…but she is? What does that tell you?

    It really doesn’t tell me much. Carl Icahn for instance goes in where the smart money doesn’t go. She’s no Ichan or at least hasn’t presented herself to be. I’m simply using him as an example of the player in the orphan market.

    There are people that specialize in those sorts of plays which is like trying to capture a falling knife. There’s good money to be made in that syle of investing mainly because I think people tend to panic more on the down side. Emotions get the better of people in downside markets. So i wouldn’t put a great deal of stock in the fact there are no other buyers showing up. Yet.

    Let me put it back to you: what investment decisions did she make that are evidence of outstanding investing acumen?

    Fair point, but until recently she seemed to avoid any limelight and according to reports did business deals very confidentially and always demanded confidentiality agreements from what I’ve heard.

    I also don’t think she would even consider running that business but would have some say in the senior management.
    ——-

    You said this in the earlier comment:

    It is the capitalization of this royalty stream that drives the royalty, and thus valuation,

    Isn’t it the other way round, where the royalty drives the capitalization/valuation?

    ————

    “Proxy battle”

    Perhaps you’re right about Gina R having with more. However quite a few sites keep referring to her $75 million inheritance dating back to 1992. Now they may be incorrect and simply all sourcing each other, unaware of the error, however that’s the best account so far in terms of how much the starting kitty was worth.

    Secondly, there are more than a few references on various sites suggesting that the part of her net worth tied in directly with the inheritance has a present day value of around $5 billion. Some sites are even suggesting that figure may be too high.

    In any event her net worth has compounded at around 45% since 1992 and my claim that this is an astonishing result is reasonable if the start off and the present day net worth are approximate in line. Using BHP as the proxy to eliminate the impact of the boom is fair I think. It’s a rough but decent proxy.
    BHP and Rio also had legacy assets carried into the boom like she did and yes they sold and purchased assets like she has. At the end of the day BHP stock compounded at 14% while her net worth at increased at 45% compounded.

    (i haven’t proof read this. Hope it’s okay)

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