David Kirk: Unfinished business

David Kirk. Photo / AP

It's 8pm on a cool Sydney evening and David Kirk is trying to persuade me to drink what's left of his bottle of beer.

It's not that he doesn't want it - on the contrary, it appears - but his glass is half full and he's concerned that I don't even have one.

For someone who has been in the news for days for accepting a A$4.1 million ($5 million) golden parachute from his former employer - just months before it announced an annual loss of hundreds of millions of dollars - Kirk is remarkably relaxed.

We have agreed to meet at the corporate headquarters of the mighty Macquarie Bank, where Kirk has just addressed an event organised by the Centre for Independent Studies (CIS), to discuss how New Zealand should close the economic gap with Australia.

Just the previous day he had returned from watching the All Blacks wallop the Wallabies in Tokyo, and seems more concerned about being asked to decide which rugby team should join the Super 15 franchise, than the fuss about his Fairfax payout.

Kirk's sudden departure from one of Australia's top corporate jobs just before Christmas last year was part of a messy boardroom battle that may not be over for some time yet, despite the company's new chairman insisting otherwise at its AGM this week.

He warns me he is going to be "charming but unhelpful" on the subject. But while we mostly talk about what is wrong with New Zealand, he seems happy to drop heavy hints that he has unfinished business in the media industry - and is even prepared to say that radical solutions might be required.

Kirk's three-year tenure at Fairfax Media is of more than just passing interest to Kiwis who continue to live on this side of the Tasman.

In Australia the company is best known for publishing the Sydney Morning Herald, the Melbourne Age and the Australian Financial Review. But it also owns a swag of newspapers in New Zealand, including the Dominion Post, the Press and the Sunday Star-Times, as well as magazines such as TV Guide, Cuisine, NZ Gardener, and NZ House & Garden.

Under his reign the company pursued an aggressive expansion strategy which cost billions of dollars and saw its digital division dramatically increase in size.

In Brisbane and Perth, where it didn't have established newspapers, it launched online-only mastheads. And in 2007 it filled in the gaps in the rural areas by merging with the Rural Press group, in a deal worth A$2.9 billion.

While it has been criticised in Australia for failing to stem the loss of classified ads to competitors, that's not the case here. Kirk was personally responsible for its decision to fork out a whopping $700 million for online auction site Trade Me - a sum that initially bewildered analysts on both sides of the Tasman.

The deal was announced the same week Rupert Murdoch bought MySpace, and Kirk is quick to note he isn't the one who is now experiencing buyer's remorse.

Trade Me contributes around $85 million a year to Fairfax's coffers, whereas MySpace, which has absorbed many more millions, has yet to make a profit.

"The old John Fairfax Holdings from five years ago, today contributes only 35 per cent of our total earnings," he noted in a speech to the Sydney Institute just over a year ago.

His attempt to future-proof the company was not universally acclaimed, however.

As production processes in particular were streamlined, many hundreds of staff were made redundant and several editors either quit or were sacked.

Not surprisingly, former staff, and some current staff, remain bitter about what they claim has been a focus on cost-cutting at the expense of quality journalism.

Kirk has frequently rejected the charge, and it is certainly true that newspapers in New Zealand and Australia have not suffered nearly as much as those in the United States and Europe.

Many have in fact increased their readership and some have even boosted their circulations. But critics remain concerned that Fairfax's new media assets are cannibalising its old ones.

On Monday, Seven Network chairman Kerry Stokes claimed he had taken a "serious look" at Fairfax before deciding to spend A$264 million on Consolidated Media instead.

"We weren't satisfied that its publishing model had a long-term future. Those concerns remain," Stokes told the AFR.

To be fair to Kirk, in hindsight he picked the worst possible time to take the helm at Fairfax. His strategy might have worked had the global financial crisis not hit. But it was really the Rural Press merger that seems to have sealed his fate.

The merger was widely seen as partly a defensive move to prevent a potential takeover, which Kirk has repeatedly denied. Before the credit crunch it seemed possible for almost anyone to raise huge amounts of cash, he has noted.

But crucially, it brought two members of the Fairfax family back into the company, more than two decades after the Fairfaxes lost control in a disastrous privatisation attempt.

John B Fairfax and his son Nicholas are these days Fairfax Media's single largest shareholders. Even though they own less than 10 per cent of its shares between them, there is no doubt who is in charge.

John B Fairfax is widely believed to have engineered Kirk's departure, replacing him with his trusted financial lieutenant at Rural Press, Brian McCarthy.

But the major conflict was between the Fairfaxes and chairman Ron Walker. John B Fairfax wanted to get rid of Walker too, and eventually went public with his concerns. In an extraordinary spectacle of shocking governance, other directors publicly disagreed.

In October Walker agreed to step down and was replaced by Roger Corbett, a former head of grocery giant Woolworths in Australia. Corbett is highly regarded by Australian investors for wringing the maximum possible profit out of companies and some believe he and McCarthy - who also has a reputation for slashing costs - will make a good fit.

Warehouse founder Stephen Tindall is said to have once vowed he would never sell out to Woolworths as long as Corbett was in charge, because he so disliked him. And some observers have questioned how much longer Corbett, too, will last.

It should be noted that INM, which owns a significant chunk of NZ Herald publisher APN News & Media, also has a history of airing its dirty laundry in public, with a serious scrap between two of its rival shareholders, Irish media baron Tony O'Reilly and newcomer Denis O'Brien.

In fact, boardroom battles are de rigueur right across the global media industry, as the sector grapples with its tricky transition from offline to online publishing.

But Corbett was certainly making the right noises at Fairfax's AGM this week. Outside the meeting he was asked if he could understand shareholder embarrassment over the feud between the Fairfax family and Walker.

"Yes I can, I felt embarrassed myself," he was reported as saying. Earlier he assured shareholders the board had moved on and would "speak with one voice" in the future.

As expected, shareholders also vented their anger at the meeting over the size of Kirk's termination payment.

The company's remuneration report had to be approved via a poll, after a show of hands revealed some opposition. About 15 per cent of investors voted against the report.

Corbett would only say that Fairfax had met its contractual obligations to Kirk, and that the terms of the contract were approved by shareholders several years ago.

He would not be drawn on the circumstances of Kirk's departure. According to one report, Corbett referred to it as a "mutual understanding". Another report said he later confirmed some of Kirk's duties had been downgraded.

At the same meeting, McCarthy stated that Fairfax was yet to come to a final position on the issue of charging for its online content.

Even that old master strategist, Rupert Murdoch, has struggled to come up with a clear answer to how the media will get people to pay for content in the future, now that they have got used to getting it free on the net.

Few others seem to be claiming to have cracked it, either, but Kirk seems much less unsure.

In the past he has hinted that newspaper cover prices will have to go up and that a promising new revenue stream for online news sites is likely to be video advertisements - currently known as TV ads.

"There are some clear answers," he insists. "But I don't think it's appropriate for me to give the answers, because I'm not running newspapers [now] and it would just be gratuitous advice to people who are slaving in the galley ships."

That said, he is happy to say that he thinks a fundamental problem is the reluctance of media companies to embrace radical change.

He personally believes the media should rely more on wire agencies for the bulk of their financial reporting, for example, while hiring specialists on a freelance basis to deliver the more in-depth analysis that readers might be prepared to pay for.

"It's the frog in the boiling water syndrome," he says. "The problem is the balance sheet - people don't want to write off the mastheads. But this is a fundamental change. We have to start again. We have to rethink our business model. There will be redundancies, but you can bring people back on much more flexible arrangements.

"We'll write down the printing presses, we'll write the masthead down by half, we'll do what really has to happen. But people can't face it. They can't stomach it and the bankers wouldn't let them do it anyway. But it's going to come to it - you can't escape it. So you can see why I'm not hurrying."

With newspapers, radio, the internet and TV all still struggling in the current environment, it is highly likely there will be more media ownership changes in both New Zealand and Australia, he agrees.

"Someone might do something," he grins. "But it's too early, it's another year away. Because when we come out of the recession, these businesses are not going to return. They'll get a bit better but there's going to be no cyclical uplift in earnings as there has been in previous ones.

"Some of them are still being priced as if this was the last recession we had in '91 or the last downturn in 2002-03, and we're going to come roaring back...

"The debt providers are very worried and when all of the media companies come to refinance their debt - I know this from direct conversations with people - they will not provide the same amount of debt. The equity providers are either too dumb or too fat and happy in [Australia]. They are like the proverbial dropped boyfriend or dropped girlfriend - they get very sour very quickly and so what you will see is equity getting very disenfranchised with some media, forcing break-ups and sales or something like that. They'll say: 'This is doomed, you can't do it, no one can do it, I want my money back, sell the business'."

In the meantime, Kirk claims to be thoroughly enjoying his new job as executive chairman of transtasman cinema business Hoyts, where he is overseeing the transition from film to digital projectors.

Hoyts is owned by private equity firm Pacific Equity Partners, and Kirk is once again diversifying, recently buying Instant DVD, a business that provides self-serve DVD rental machines for outlets such as supermarkets.

In March former NZ Stock Exchange chairman Eion Edgar invited him to join the board of sharebroking firm Forsyth Barr, which brings him back to New Zealand every six weeks or so. And he remains the 14th largest shareholder in Rod Drury's online accounting company Xero, which Kirk believes is well on its way to global success.

It's a fair bet he won't be on Meridian's Christmas card list, though. Last week he and a group of other high-profile Mainlanders celebrated a not insignificant victory when the Environment Court refused consent for what would have been New Zealand's biggest windfarm, Project Hayes in Central Otago.

Kirk had joined forces with opponents such as former All Black Anton Oliver, artist Grahame Sydney and former poet laureate Brian Turner to oppose the Meridian project.

While he stresses that he has no concrete plans to get back into the media business, he also notes "there are various trends that suggest there are going to be opportunities in the future".

"I think I will be involved in the media in one form or another, but on my terms. Hoyts is my terms - executive chairman is an ideal position to be in."

He mentions, apropos nothing in particular, that he personally enjoys Tina Brown's new website, The Daily Beast (named after the newspaper in Evelyn Waugh's satirical novel Scoop), as an example of "a good online model".

Far from being burned by his most recent experience, it appears that Kirk, like Brown herself (who burned through millions at her previous venture, a glossy magazine and book business called Talk), is hoping to get a second chance at success.

"There are things that I'm interested in doing that will no doubt come to pass, but at the moment I'm very happy to be doing what I'm doing. I don't have any particular interest in being CEO of a publicly-listed company. It's just not a job I'm particularly interested in doing.

"[But] I don't feel particularly bruised by Fairfax. I left on my terms and I was happy to move on to the next thing, but that's just where my head is at at the moment."

He will turn 50 next year, but insists a mid-life crisis is not his style. He believes he has avoided such existential dilemmas by ensuring he has plenty of challenges on his plate, and by constantly changing menus.

"I think about things a lot. It is interesting to be at this stage of my working career and this stage of my life. I'm enjoying the examination of myself. I feel very good about things."

While he admits he is enjoying spending more time with his family, particularly his three boys, the oldest of whom is sitting his final school exams this year, it is also clear he is biding his time.

"There's a very interesting intellectual and technology challenge to chart the way to a successful future for media companies. I don't perceive it to be conspicuously well done at the moment, so we'll see what happens."