In late 2001Gavin O’Reilly was appointed chief operating officer of Independent News & Media PLC, a newly-created executive position within the media conglomerate’s global management structure. It was an appointment that left analysts speculating that the 34-year-old was being formally introduced as heir apparent to the group’s Dublin-based throne.
Then in June last year the guesswork got another boost. Patriarch Sir Tony O’Reilly had announced to an annual meeting of Independent News & Media shareholders that he would bow to corporate governance best practice and split his joint chairman and chief executive roles, so the media pundits jumped on the implications. “Gavin O’Reilly—is the red-hot favourite to become the media group’s new chief executive officer within the next year,” Ireland’s Sunday Business Post practically shouted. “The 36-year-old son of executive chairman Tony O’Reilly is said by fund managers and analysts to be a shoo-in for the soon to be created position of chief executive.”
Naturally, comparisons with the Murdoch dynasty abound. But whatever bite there may be behind the associations, they are appropriate in at least one important sense. As with James Murdoch, the touted heir to Rupert Murdoch’s News Corp., the O’Reilly father is not about to hand the empire keys to an inexperienced son. If Gavin O’Reilly does get the top spot, it will be tough for shareholders – and perhaps even for the notoriously cynical British press – to question his credentials.
After working in Asia and Europe in advertising and stockbroking, the younger O’Reilly, a graduate of Georgetown University Business School, was appointed to the Independent News & Media board in 1997 and elected chief executive of the Irish division in 1998. He serves as chairman of National Newspapers of Ireland, chairman of Internet Ireland, and on the boards of charities such as the Irish Heart Foundation and the Ireland Funds. His corporate successes include the central role he played in the disposal of the company’s New Zealand newspaper assets to its Australian subsidiary, APN News & Media, an exercise that significantly reduced the group’s debts.
And it was those debts – currently sitting at around 978-million euros (R7,5-billion) -that until last year represented one of the group’s major challenges. Speaking to the UK’s Guardian newspaper about his father’s decision in March 2003 to dip into personal wealth to meet debt obligations, O’Reilly denied that the use of loans to finance a decade-long acquisition of media assets in New Zeland, Australia and South Africa were returning to haunt the group.
“We didn’t run too fast at all,” O’Reilly told the Guardian. “There may have been a perception that we had too much debt, but these things ebb and flow. A few years ago banks couldn’t chuck enough money at us to do deals. Today there are a lot of other media companies facing greater operational challenges than us.”
That may be, but South Africa’s experience of the operational challenges of global media companies is pretty much restricted to Independent News & Media, which owns 15 newspapers across the country’s major metropolitan centres (amongst others The Star, Cape Times, Cape Argus, The Mercury and the Sunday Independent), a 40,3% stake in the country’s top outdoor advertising operator Clear Channel Independent, and a recently acquired 100% stake in Conde Nast Independent Magazines (local licensees of international Conde Nast titles such as GQ and Glamour).
Which means that Independent News & Media represents South Africa’s most direct and immediate exposure to the vagaries of the global media market. The criticisms leveled at the group by local journalists – that their editorial cutbacks are harming journalism; that they have squashed multiple newsrooms into single newsrooms; that they have shut down key editorial resources like libraries – don’t get hurled with nearly the same frequency at the homegrown Media 24 or Johncom.
So how does Gavin O’Reilly, who if the pundits are to be believed will soon be where the buck ultimately stops on the South African operations, answer these criticisms?
To start, there’s the question of how the Independent group came by its South African assets, a question that admittedly gets most air-time when the knives are out for the foreigners. It concerns the perception that Sir Tony O’Reilly came by what was then the Argus company after letting Nelson Mandela use his island holiday home.
“That’s Irish pub chat,” says the younger O’Reilly. “It [the purchase] was a very competitive process and Mandela, great man though he is, did not have carriage of sale. Somehow the notion that Oppenheimer would be selling an asset but leave it up to Mandela to decide [on the buyer] is ridiculous. The opportunity arose in 1994 and we did a huge amount of due diligence. The board of JCI made the decision that we were the most acceptable bidder and we paid fully for our stake. We bought a minority shareholding on the Johannesburg Stock Exchange and over the next six years we bought the whole thing. It’s easy to look back with hindsight, but at the time it was a huge gamble for us.”
Back, then, to the more relevant questions. What about the fact that what were once multiple newsrooms for multiple newspapers are now single newsrooms for multiple papers? Does this lead to a lower standard of journalism? And what about the library that is purported to have been closed down?
Answers O’Reilly: “We have single, efficient newsrooms all around the world, and we don’t make any apologies for being commercial. People with a vested self-interest may not like this reality, but we need to find more efficient ways of putting newspapers together.
“The idea of the ‘concertinaed newsroom’ does not lead to a lower standard of journalism. Let’s take the Business Report as the example. We took localised business sections and created one new regionalised section. What it’s meant to papers like The Mercury, the Cape Times and The Star is that overall the general quality and depth of business reporting has gone up. That said, people naturally dislike change and will rebel against it.
“And there’s always been a view in newspapers that what you have, you hold. Our view is that newspapers compete not just with rival titles, but against the internet, TV and other mediums. So we have to, with all our 175 titles around the world, produce newspapers in a more profitable way to ensure that we can invest in areas like marketing and ongoing product development. Remember, we’re in the business of producing the best quality newspapers for the buying public, not for a certain clique in the journalist fraternity, per se.
“As for our library, it’s now digital and contains the full archives and resources. We’re also developing a new PDF-based editorial system where any journalist or editor in any of our regions worldwide can pull down an article straight into lay-out from anywhere else. We have a massive pool of top-class international and local content, and it makes perfect sense for us to use it in all our regions.”
Significantly enough, across these regions Independent News & Media’s fortunes have taken a turn after several lean years. The group’s 2003 results, released in late March this year, “edged ahead of market expectations with a 20% rise in pre-tax profit before exceptionals to 154,6-million euros [R1,194-billion],” according to Reuters.
The news agency also reported that a turnaround in the South African currency boosted the group’s bottom line, but then goes on to state, sourcing the younger O’Reilly, that a “restructuring programme announced in December and aimed at cutting the total workforce by five percent to yield annual savings of around 20-million euros from 2005 was on track.”
So, despite strong results, there are more cuts in the pipeline? What about the fact that the Sunday Independent, the group’s high-end quality South African flagship, is running on a very tight staff? What about paying and retaining the top editorial talent to attract the desired audiences?
“These criticisms would probably be levelled at every media group in the world,” emphasises O’Reilly. “Our company’s capital and resources will be invested in the areas we see fit.
“There’s a sense of misguided entitlement that certain people in the newspaper business have. But it has to be responsible. Let’s not forget, we’re the ones taking the risk at the end of the day. When we did what we did with Business Report a lot of people didn’t like it at first, but it has proved to be remarkably successful. In South Africa there seems to be a ‘not-invented-here’ reaction to us, but we are very committed to this country as a family and as a company, and we will continue to invest in it.
“That said, our first thought has to be with how we can produce a better newspaper daily, and enhance the profit. All these issues, such as editorial excellence, which rightly seem to be tattooed on the foreheads of journalists, are ultimately a function of economic independence. Today, without economic freedom, there is no freedom.
“For all of our quality titles we believe in having the best writers commanding the highest salaries. People don’t buy a top-end newspaper just for breaking news anymore, they buy it for the commentaries and in-depth perspectives on the news. A full team of newspaper-specific editors and journalists was once the sole-essential ingredient, but across the world that’s changing, and now, commentators – both local and foreign – are as essential.
“Of course it can generally be said that salaries on newspapers were poor in the past. That was then – this is now, and they are getting better. In all our regions, we’re actively seeking to retain the best talent.
“Remember, this group is very profitable, so it’s not really an issue of what we can afford per se; it’s a question of value; it’s a question of finding and securing the best talent possible.”
O’Reilly points out that the current cost restructuring at Independent News & Media – which involves the abovementioned five percent reduction in staff worldwide – is not about repaying debts. He affirms that the 20% reduction in debts in the past year, by 245 million euros (R1,9-billion), has led to the group’s shares almost doubling, with market capitalisation now at 1,6-billion euros (R12,3-billion). What the restructuring is about, he says, is ensuring that the group can continue to invest in products, brands and marketing without any reduction in shareholder return. “It is about efficiently re-directing our expenditure into our brands, in South Africa and the rest of the world.”
So, as with any multinational conglomerate in a world where capitalism reigns, Independent News & Media has had to spend to grow, and has had to watch its operating margins while spending. It seems the issue certain local journalists and commentators have with Independent News & Media is simply part of a broader global dilemma: media companies are also businesses responsible to shareholders.
For Gavin O’Reilly, who may well be global chief by the time this article goes to print, the upside to the predicament can be found (unsurprisingly) in the market – specifically, in the anticipated worldwide recovery in adspend.
“One of our strengths is our portfolio approach to our operations. In terms of advertising spend, the northern and southern hemispheres tend to run counter-cyclically, so we have a natural capacity to hedge our operating performances. Thankfully, everybody is talking of the advertising world’s rebound now, and confidence begets confidence. We could have, for the first time in five years, a situation where all the countries in which we operate will show positive growth. That will enable us to re-invest in key areas.”