Ever since John Fairfax took over the fledgling Sydney Morning Herald newspaper in 1841, the Fairfax name has straddled Australia’s media. After 177 years, it is to disappear. On July 26th Fairfax Media and Nine Entertainment, Australia’s oldest television network, announced they would merge in a deal worth A$4.2bn ($3.1bn). Nine will take control with 51.1% of the new company. One of the biggest media conglomerates Australia has seen, it will be known simply as Nine.
The merger is the first big result of changes to the law on media-ownership that the conservative coalition government, under Malcolm Turnbull, made last year. Dating from before the internet, it had included a “two out of three” rule: proprietors were banned from owning more than two of a newspaper, radio or television outlet in the same city. With the arrival of Facebook, Google and other global media outfits, Australia’s firms complained the rule left them handicapped. Mr Turnbull’s government abolished it. It also scrapped the “reach rule”, which had stopped any commercial television network from broadcasting to more than three-quarters of the population.
Australia’s media industry was once dominated by three powerful dynasties: the Fairfax, Packer and Murdoch families. One by one, the dynasties have declined. The late Kerry Packer built Channel Nine, founded by his father, into Australia’s most successful television network. His son, James, later sold control to a private-equity group.
The Fairfax family lost control of its newspaper empire 28 years ago, after a bid by Warwick Fairfax, a descendant of its founder, to privatise the company saddled it with debt and sent it into receivership. Revenue from classified advertising once made Fairfax newspapers among the world’s richest titles, but the shift of advertising to the internet hit them hard. On July 18th Fairfax said that it would share printing presses with News Corporation, Rupert Murdoch’s company and its biggest rival. Not long ago, such a deal would have been unthinkable.
Before he entered politics, Mr Turnbull once worked for Kerry Packer, as both a journalist and a lawyer. A market champion, he started the process of changing media-ownership laws after becoming prime minister three years ago. Mr Turnbull thinks the Nine-Fairfax merger will make both businesses stronger competitors and put them “in a stronger position to support quality journalism”.
The merger certainly offers Fairfax a financial lifeline. But some worry that the new media law that made it possible will make both media ownership and opinion less diverse. At 87, and the last of Australia’s earlier dynasty moguls on the scene, Mr Murdoch already controls about two-thirds of newspaper circulation in the country’s big cities. Editorially, they are right of centre. Fairfax’s three papers, the Herald, the Age and the Australian Financial Review, mostly occupy the political centre ground. Channel Nine takes a more tabloid approach to news.
Hugh Marks, currently Nine Entertainment’s chief executive and expected to keep that role in the new company, has pledged that Nine will adopt a Fairfax charter that guarantees its journalists independence from commercial or management interference. But Paul Keating, a former Labor prime minister who helped introduce the rule limiting “cross-media” ownership that Mr Turnbull has abolished, dismisses this as worthless. As the laws stood, he says, they guaranteed “various streams and alternatives within which to think”. He reckons Nine’s majority stake in the merged company means it will set editorial policy. “The problem with this is that, in terms of news management, Channel Nine, for over half a century, has never other than displayed the opportunism and ethics of an alley cat.”
The Australian Competition and Consumer Commission, a regulator, will review the planned merger to see if it is “likely to substantially lessen competition in any market”. It says the “impact of technology on the media sector” will be central to its analysis. It is already conducting a separate inquiry into the effect of digital platforms, such as Facebook and Google, on competition and the supply of news. If it clears the Nine merger, as most think it will, the effects could be far-reaching. More mergers may follow. Tim Dwyer, of the University of Sydney, predicts a cut in diversity, and the loss of some regional papers that have “played a key civic journalism role”.
Japan still has great influence on global financial markets
IT IS the summer of 1979 and Harry “Rabbit” Angstrom, the everyman-hero of John Updike’s series of novels, is running a car showroom in Brewer, Pennsylvania. There is a pervasive mood of decline. Local textile mills have closed. Gas prices are soaring. No one wants the traded-in, Detroit-made cars clogging the lot. Yet Rabbit is serene. His is a Toyota franchise. So his cars have the best mileage and lowest servicing costs. When you buy one, he tells his customers, you are turning your dollars into yen.
“Rabbit is Rich” evokes the time when America was first unnerved by the rise of a rival economic power. Japan had taken leadership from America in a succession of industries, including textiles, consumer electronics and steel. It was threatening to topple the car industry, too. Today Japan’s economic position is much reduced. It has lost its place as the world’s second-largest economy (and primary target of American trade hawks) to China. Yet in one regard, its sway still holds.
This week the board of the Bank of Japan (BoJ) voted to leave its monetary policy broadly unchanged. But leading up to its policy meeting, rumours that it might make a substantial change caused a few jitters in global bond markets. The anxiety was justified. A sudden change of tack by the BoJ would be felt far beyond Japan’s shores.
One reason is that Japan’s influence on global asset markets has kept growing as decades of the country’s surplus savings have piled up. Japan’s net foreign assets—what its residents own abroad minus what they owe to foreigners—have risen to around $3trn, or 60% of the country’s annual GDP (see top chart).
But it is also a consequence of very loose monetary policy. The BoJ has deployed an arsenal of special measures to battle Japan’s persistently low inflation. Its benchmark interest rate is negative (-0.1%). It is committed to purchasing ¥80trn ($715bn) of government bonds each year with the aim of keeping Japan’s ten-year bond yield around zero. And it is buying baskets of Japan’s leading stocks to the tune of ¥6trn a year.
Tokyo storm warning
These measures, once unorthodox but now familiar, have pushed Japan’s banks, insurance firms and ordinary savers into buying foreign stocks and bonds that offer better returns than they can get at home. Indeed, Japanese investors have loaded up on short-term foreign debt to enable them to buy even more. Holdings of foreign assets in Japan rose from 111% of GDP in 2010 to 185% in 2017 (see bottom chart). The impact of capital outflows is evident in currency markets. The yen is cheap. On The Economist’s Big Mac index, a gauge based on burger prices, it is the most undervalued of any major currency.
Investors from Japan have also kept a lid on bond yields in the rich world. They own almost a tenth of the sovereign bonds issued by France, for instance, and more than 15% of those issued by Australia and Sweden, according to analysts at J.P. Morgan. Japanese insurance companies own lots of corporate bonds in America, although this year the rising cost of hedging dollars has caused a switch into European corporate bonds. The value of Japan’s holdings of foreign equities has tripled since 2012. They now make up almost a fifth of its overseas assets.
What happens in Japan thus matters a great deal to an array of global asset prices. A meaningful shift in monetary policy would probably have a dramatic effect. It is not natural for Japan to be the cheapest place to buy a Big Mac, a latté or an iPad, says Kit Juckes of Société Générale. The yen would surge. A retreat from special measures by the BoJ would be a signal that the era of quantitative easing was truly ending. Broader market turbulence would be likely. Yet a corollary is that as long as the BoJ maintains its current policies—and it seems minded to do so for a while—it will continue to be a prop to global asset prices.
Rabbit’s sales patter seemed to have a similar foundation. Anyone sceptical of his mileage figures would be referred to the April issue of Consumer Reports. Yet one part of his spiel proved suspect. The dollar, which he thought was decaying in 1979, was actually about to revive. This recovery owed a lot to a big increase in interest rates by the Federal Reserve. It was also, in part, made in Japan. In 1980 Japan liberalised its capital account. Its investors began selling yen to buy dollars. The shopping spree for foreign assets that started then has yet to cease.
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