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Deep Dive

Former Foxtel, News Corp boss Peter Tonagh on legacy media’s challenged future, why he’s backing niche players and the merits of “soft socialism” in business

By Paul McIntyre - Executive Editor

7 September 2020 6min read

Peter Tonagh: "Those companies that have brands that actually signify authentically their focus on society will continue to do much better than those that don't."

By Paul McIntyre - Executive Editor

7 September 2020 6min read

Former News Corp and Foxtel CEO Peter Tonagh is a man on a mission to connect start-ups with big brands through marketplaces via media investment fund ACT. Success guarantees further fragmentation of media - and he thinks the new niche players will ultimately usurp their heavier, broader rivals. Meanwhile, Covid has brought "soft socialism" to the fore. Organisations that hold to "first principles" and contribute meaningfully to society will do much better than those who do not, says Tonagh. As will those with the cultural integrity to survive the permanent shifts - but not end - to office hubs.

Check out this week's podcast with former Foxtel and News Corp boss Peter Tonagh below:

 

You need to know this:

  • Peter Tonagh is a former Foxtel and News Corp CEO
  • He fronted the consortium that saved newswire service AAP, now operating as a not-for-profit. Australia, he says, needs an “unbiased, reliable, trusted news source”
  • Last month Tonagh took a stake in media investment vehicle ACT Capital Partners
  • ACT, which stands for 'audiences, content and technology,' aims to create marketplaces and enabling infrastructure to bring together big brands and smart startups and their audiences. Podcasts are a good example
  • Tonagh is also chairman of Woolworths-controlled data analytics firm Quantium, and is a director at Village Roadshow and Bus Stop Films
  • He thinks Covid will kill off firms that were already struggling while rewarding those with strong culture and purpose. "Soft socialism" is in, profit over purpose is out - as is the office, in favour of part-time collaborative work spaces
  • Meanwhile, he thinks Australia has become too reliant on the large consulting firms and “needs to find a way out of it”. Continuous professional development is Tonagh's solution.

 

“I think when you're a legacy business of great scale, it's very, very hard to compete with somebody who is very, very focused, who is targeting a particular segment and who knows that segment better than the legacy business will ever know.”

- Peter Tonagh

Kim Williams and chickens coming home to roost

When Lachlan Murdoch asked Peter Tonagh to move from Foxtel to News Corp as COO in 2013, Tonagh baulked, because it meant his former mentor, Kim Williams, was being pushed out. Williams, however, told Tonagh to take the job regardless - which his protégé says illustrates the man’s class.

Seven years later, the changes Williams was trying to enact are now taking place as News accepts reality.

“It's important that those changes do happen. Those legacy businesses have to transform,” says Tonagh. “Kim had a very aggressive transformation agenda, and I think the argument really can only be that it was too aggressive at the time.”

Inertia is the fundamental challenge facing all legacy media: “How do you bring the organisation along with you on a journey where you have to move very quickly?”

That includes staff, management, the board and shareholders. No mean feat.

“It’s a juggle because a lot of the newer media businesses tend to be incredibly focused around a particular audience, around a particular platform. And yet these legacy businesses have become bigger and bigger, so the degree of complexity within them is huge - and probably getting greater,” says Tonagh.

“So the real challenge is how do you simplify a business that's so complex? How do you take the cost out of that? How do you get the engagement with the particular segment of customer that part of the business is focusing on? I don't think there's an easy answer,” admits Tonagh.

“I think when you're a legacy business of great scale, it's very, very hard to compete with somebody who is very, very focused, who is targeting a particular segment and who knows that segment better than the legacy business will ever know.”

 

“85 per cent of podcasts around the world aren't monetised, but many of them have that very deep level of engagement. And so investing in the infrastructure enables that bringing together of the fragmented podcast community with the fragmented set of advertisers.”

- Peter Tonagh

In a world of scale, go niche – and then scale it

While at the top end, media is consolidating and getting bigger, at the bottom, it’s fracturing faster than ever. Tonagh admits there's a conundrum here - investors, advertisers and communications groups want consolidation, less complexity and transaction ease to tap customers and prospects while audiences want their more niche interests served with authenticity.   

Tonagh and his partners at ACT aim to aggregate scalable niches and create marketplaces along the way, enabling the small new players to transact with big brands, offering them in return a route into the deep engagement and authenticity they crave.

Tonagh bought into the investment management firm last month. ACT stands for audience, content and technology, and aims to make money by joining the dots.

“We're not interested in investing in producing a specific movie or backing a specific person with great talent. We're interested more in providing the infrastructure that can support that fragmented media landscape,” says Tonagh.

Podcasts are a prime example – and ACT plans to scale a business called Podcorn, which matches brands with relevant podcasters.

“85 per cent of podcasts around the world aren't monetised, but many of them have that very deep level of engagement. And so investing in the infrastructure enables that bringing together of the fragmented podcast community with the fragmented set of advertisers,” says Tonagh.

“And most of the businesses we're looking at are either global already or have the ability to be global.”

 

THE PULSE

Quick question: Can media consolidation and fragmentation co-exist?

Choices
Quantium: bigger data plans

One business that is well on the way to global scale is Quantium, the data analytics firm controlled by Woolworths now operating out of the US, India, South Africa and the UK as well as AUNZ.

Tonagh, currently Quantium chairman, indicates the big data firm has the calibre to get a lot bigger.

“One of the things I love about the [data] space is that the difference between the top 10 per cent of people who work in big data and the average is not a 50 per cent improvement or even 100 per cent improvement. It's 100 times better, a thousand times better. When you get data right, you can have a massive impact on the organisation in which you're applying it or in the society in which you're applying it,” says Tonagh.

“One of the things I love about Quantium is that they've got eighteen years of doing big data and advanced analytics at industrial scale, and they know how to deal with massive data sets. They know how to, first of all, protect the data and protect the security of the data. They know how to organise the data. They know how to process the data and analyse it and come up with insights out of it,” he adds.

”That's a very rare skill – and something which will become increasingly critical to organisations and governments around the world.”

 

Learn to ditch the consultants

Closer to home, however, he thinks government and corporates should rein-in a tendency to outsource strategy and decision-making.

Tonagh started his career at Boston Consulting, but is as stumped as anyone when asked why Australia reportedly spends more per capita on consultants than any other developed economy.

He thinks Australia, a relatively small market, “punches above its weight” at creating “very skilled general managers”. Conversely, “we maybe haven't developed that depth of skillset in particular capabilities that you develop in bigger markets - and that therefore we're reliant on external advice to a greater extent for those things,” he suggests.

Tonagh believes that dependence must be dispensed with.

“I think we have to overcome it. One of the issues for many Australian organisations and for Australian government is having managers that are accountable and responsible for the work that they are doing - without relying on those third parties to such a great extent,” he says. “So I think we need to find a way out of it.”

Tonagh thinks a solution would be for Australia to embrace continuous learning - so that it can create its own specialists and remain fit for purpose.

Despite his many business responsibilities, Tonagh is currently taking an 18-month Harvard Business School course in data analytics. Out of 80 students, Tonagh's the only Australian, which serves to underscore his point.

“It's something that I do because I want to be able to talk about [programming language] Python and I want to be able to understand big data and analytics in a way that goes beyond superficial high level.

“I don't want to be a coder. I don't want to be the guy that does the analytics.
But I want to continue to be able to question, to probe, to make sure that the answers that are being put in front of me are the right answers,” says Tonagh.

“And I think you need to actually continue to learn, continue to develop as the world moves to new areas if you want to be able to take that role of challenging and questioning things.”

“AAP is independent, it’s trusted; it’s a reliable source of information. We think that’s a core pillar of democracy and that's why we've fought so hard to get to this point.”

- Peter Tonagh

AAP – Australia needs unbiased news

Tonagh fronted the team that rescued AAP after its major funders, News and Nine, pulled the plug, with News starting its own rival service.

While cuts have had to be made, Tonagh is confident that AAP, operating as a not-for-profit, will return to full strength after a period of recovery. Australia needs unbiased news more than ever, he suggests.

“AAP is independent, it’s trusted; it’s a reliable source of information. We think that’s a core pillar of democracy and that's why we've fought so hard to get to this point,” he says.

“When the the shareholders of AAP announced they were going to close it down. We were concerned for a few reasons. We were concerned because of the loss of jobs for journalists in an environment where it's incredibly tough for that profession in any case. We were concerned around the lack of an independent, unbiased, reliable, trusted news source. And we were concerned because a number of start-up media companies or early stage media companies - and a huge number of regional organisations - rely on AAP content so that they can create their own differentiated level of content above that,” adds Tonagh.

“Two hundred and fifty five regional mastheads that carry AAP content … If they have to spend their money on collecting national content, they'd have less money to spend regionally. We want to make sure they can continue to receive that national content so that their investments can go fairly and squarely into reporting on the local communities in which they operate,” he says.

“That's a really important function for democracy in this country.”

While AAP will be nurtured through a recovery period, Tonagh says it must ultimately become self-sustaining.

During that transition period, “there's no doubt that we're going to be reliant on funding from our philanthropist partners, from our impact investors and from as many sources as we can get,” he admits.

“But as we come out at the end of that transition, we're very resolute that the organisation has to be stand able to stand on its own two feet. Any surplus that's generated through the way in which you operate, the business will be put back into the business so that we can grow it back again to the position that we think it has to hold in the community, which is to cover as many of the important areas of news and sports that that really deserve to be covered in this country.”

 

“The reality is there's been a long-term decline in trust of some of the traditional [media] brands ... If you want to be a truly trusted organisation, you have to be at the top of the heap always, not just when there's a crisis.”

- Peter Tonagh

Trust wars: ACCC and the media versus tech platforms

Meanwhile, Australia’s legacy media companies are hoping for a cash injection of their own from the platforms that have so disrupted the landscape.

Yet Tonagh thinks the regulatory battle playing out between the ACCC, old media and new media risks delivering poor outcomes – unless the underlying issue is stripped back to basics.

“One of the problems is that I don't think it's clear to the general public what the goals are,” says Tonagh.

“You have to go right back to first principles, [which] have to be around ensuring that the person or organisation that produces the content, ends up with some of the benefits ... that are provided by the people who consume the content.”

As the battle plays out, government, Google and Australia’s legacy media groups are all vying for public support for their positions. Who will Australian hearts and minds?

“This is a really challenging problem because … it's not as though you've got a highly trusted set of players here in this battle,” says Tonagh. “I think that's one of the reasons [why] you've got to go right back to first principles and really understand what we're trying to do here.

“Otherwise it's going to be a public battle between organisations that don’t have the level of trust that we'd like them to have - and I think that is probably going to end up with a inferior outcome.”

Australia’s news media argue trust and readership has surged during Covid. Tonagh dismisses that as a blip.

“I think you have to be careful as to what you mean by trust. The reality is there's been a long-term decline in trust of some of the traditional brands. I'm not sure that if you ask the consumer in six months time, they won't have changed their view again, whether it's up or down,” says Tonagh.

“The problem is, if you want to be a truly trusted organisation, you have to be at the top of the heap always, not just when there's a crisis.”

 

“There's much more recognition at the moment of the need for better aged care services, better childcare services; companies with a purpose. I think this is something that is going to continue for a long time. Those companies that have brands that actually signify authentically their focus on society will continue to do much better than those that don't.”

- Peter Tonagh

Winners and losers post-Covid

Covid has compressed years’ worth of digital transformation into a few months. Yet the winners so far have been those that have been able to blend both the physical and the digital. Omnichannel wins in a post-Covid world, Tonagh suggests.

“One of the most interesting pieces of data I've seen is that when you look at sales growth - sales pre-Covid versus post-Covid - the winners really are the omni-channel propositions,” he says.

“And I think it's the coming together of the multichannels and the cohesion across the channels of branding and sales that are really important.”

Meanwhile, he notes a surge in “soft socialism”.

“I think there's much more recognition at the moment of the need for better aged care services, better childcare services; companies with a purpose,” says Tonagh.

“I think this is something that is going to continue for a long time. Those companies that have brands that actually signify authentically their focus on society will continue to do much better than those that don't,” he suggests.

Tonagh thinks that shift could accelerate the demise of legacy companies – media and more broadly – while favouring start-ups.

“A lot of new media start-ups are driven by that purpose, narrowly focused and really targeted at creating a community. I think those brands are getting stronger and stronger through this period. Those that are broad and are seen as commercially-driven without purpose, I think will continue to decline at a faster rate,” says Tonagh.

“It's probably one of the third trends that I certainly see coming out of this Covid period - the Darwinian death spiral where a lot of those dinosaur businesses that have been in decline will decline faster.”

When government support ends, he warns, a lot of legacy businesses are facing a Covid cliff.

“I think some of those dinosaur businesses will dramatically decline rather than continue at the slow rate of decline they have had,” says Tonagh. “And one of the reasons for that is because their brands aren't seen as resonating with today's consumer.”

 

So can the old guard survive or not?

“I think there will be winners and losers,” says Tonagh, with home working playing a determining role. He thinks home working is “here forever”, though firms will need “collaborative work spaces”. Working from home, he says, still needs help and peer interaction from working from work. 

Culturally strong organisations can withstand the loss of the office hub, Tonagh believes. Others may struggle.

“If you don't start with the core of authentic values, then it's very, very hard to instil anything, particularly when people aren't in a common place. If you start with that very strong set of core values, you can reinforce it even when people aren't together.

“So when I say there will be winners and losers, I think the winners will be those who have built strong values-based cultures and have been able to sustain those through this period, versus those who don't have the underpinning foundation to their cultures, where the culture will degrade through this period.”

 
Check out this week's podcast with former Foxtel and News Corp boss Peter Tonagh below:

 

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