By Kate Perry of NZPA
Friday 10th March 2006
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Rumours of a potential $700 million sale of Trade Me started circulating a few weeks ago, but were dismissed by most who heard them as absurdly high.
In fact, the price tag seemed to surprise everyone except Trade Me's 30 year-old founder Sam Morgan, who reportedly held out against offers of around $30m-40m last year.
Morgan said his negotiations with Fairfax was the first time he had had a "meeting of minds" with a potential buyer about Trade Me's value.
The question now is, why does Fairfax see Trade Me as such a valuable addition to its portfolio?
Fairfax bought all of Rupert Murdoch's New Zealand publications - nine dailies including The Dominion Post, The Press, and two Sunday papers - for just $1.2 billion in 2003.
Australian media analyst Greg Fraser told media the purchase had the "sniff of a panic buy". He said he couldn't see what Fairfax could do to grow the business in the small market of New Zealand.
Despite the seemingly limited market Fairfax has said it has no plans to expand the business outside its small home market, insisting it will be business as usual at Trade Me.
Most analysts see the potential synergies between Fairfax - which prints national newspapers on both sides of the Tasman - and Trade Me - which has the heaviest Internet traffic in New Zealand - as the most likely reason Fairfax paid such big bucks.
But Morgan has downplayed this potential in the past.
"It would be fundamentally wrong to think a newspaper could buy a company like Trade Me and achieve any kind of synergy," Morgan told the National Business Review last year.
Fairfax chief executive and former All Black captain David Kirk said there might be some potential "at the margins" for Trade Me and Fairfax's online news website Stuff - which has its own classified advertising section - to collaborate in a limited way.
"There's not a lot of opportunity for Stuff to direct additional traffic to Trade Me. It possibly could work in the other direction around our news and information sites, but that's something we'll look at in the future."
He said he had no plans to transplant the Trade Me brand across the Tasman where global Internet shopping group eBay was already well established.
"It's been shown all around the world, that really there's only one successful online auction company in any market," Kirk told a media briefing on Monday. "The reason being that once scale is established and all the buyers and all the sellers are going to one place it makes no sense for either sellers or buyers to go anywhere else."
Much has been made of the fact the purchase could protect Fairfax's revenues as online classified advertising gained traction against traditional print media.
But last year, Fairfax Digital's chief operating officer, Mike Game, was denying the growth in online classified advertising meant a corresponding decline in print ads.
"It's an urban myth peddled by my online compatriates and superficial analysts that if online is going up then print must be coming down," Game told a media conference in Australia.
Having said that, Game then admitted Fairfax's online classified advertising rates were growing faster than its metros, with usage of the group's Australian job, property and vehicle sites growing by over 40% a year.
While online auctions remain Trade Me's bread and butter, the company has been beefing up its classified advertising component.
It launched real estate classified ads last year, cars in 2003 and plans to add job vacancies by the end of the year.
Trade Me has 34,000 cars and 15,000 properties are for sale or rent on the site, and plans to significantly boost its rental property ads with new software which would allow licensed agencies to "autofeed" the data. Trade Me hopes to have 10,000 rental property classified listings in the longer term.
Kirk said Fairfax was already a strong player in classified advertising in Australia both in print and online, via Fairfax Digital.
But Kirk admitted the classified advertising market was becoming more segmented.
"Some forms of advertising, some forms of classified advertising, will be very effectively delivered online and others will be more effectively delivered in print. We don't know where that new equilibrium is or how long it will take to develop. In the end what we do know is it will be driven by consumers and advertisers," he said.
Fairfax released its financial results for the half year ended December on Monday, just after it announced the Trade Me deal. The figures showed online earnings were becoming increasingly significant. The group's overall revenue rose just 4.4% to $A977.6 million , while Fairfax Digital's revenue jumped 67% to $A42.6 million, and its earnings before interest, tax, depreciation and amortisation skyrocketed to $12 million from just $1.2 million in the previous December half.
Obviously, the changing paradigm of print versus online does not just affect Fairfax. Its main media rival in New Zealand, APN News & Media, which published the New Zealand Herald, recently set up a new division to manage its online operations.
APN Online has bought the job site Netcheck which it is integrating into a new Search4jobs brand in the hopes of building it into the top employment website in New Zealand - a job made all the trickier in light of Trade Me's planned expansion into the classified job vacany arena.
Together with the Herald's news website and a recently launched online shopping portal bidnsave, APN hopes the online business will generate revenues of over $10m in 2006. The company did not break down its online earnings for 2005.
International media magnate Rupert Murdoch has made no bones about the fact he sees online advertising as a threat to traditional print media.
"The threat of losing print advertising dollars to online media is very real," he said in a speech to British newspaper editors last April. "In fact, it's already happening, particularly in classifieds."
His global media group News Corp has recently spent about $US1.3 billion on online acquisitions, buying MySpace.com owner Intermix Media, gaming Web network IGN Entertainment, and online sports company Scout Media plus Stg14.3 million ($NZ39 million) on British classified advertising site Propertyfinder.com.
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