Best of the Week: Harold vs ASIC; Time up for tardy media agencies?

[View web version]( BEST OF THE WEEK And another thing... Welcome to Best of the Week, written in the early hours of Saturday, midway through a birthday break in beautiful Sisters Beach, Tasmania. Today’s soundtrack - Bruce Springsteen and the E Street Band, [New Year’s Eve at the Capitol Theatre, 1977](. Yes, there was a time when even Bruce could forget the words to Born To Run. S is for supine? So ASIC - the Australian Securities and Investment Commission - woke up this week. Regular observers of the banking Royal Commission may have come to the conclusion that the S in ASIC stands for supine, while the C stands for complacent. But fresh from accusations that it’s a timid corporate regulator, [ASIC has belatedly decided to go after Australia’s biggest media beast, Harold Mitchell](. This week saw James Shipton, the chairman of ASIC finally step into the box at the Royal Commission. Sounds like it was quite something. For months now, the public inquiry has been hearing stories of banks and other financial institutions pretty much pleasing themselves in how they ripped off the public. And how even when ASIC was aware of breaches, it would do almost anything to avoid taking them to court. Much preferred was negotiating enforceable undertakings in which the banks could promise to stop doing whatever bad thing they’d been caught doing. Yesterday, extraordinarily, Shipton revealed that about three weeks ago, he and the guys at ASIC kinda got to chatting. And the thought occurred that while their habit had been to give the big end of town a slap with a wet lettuce for any malfeasance, maybe there was another way. Perhaps they should start taking actual legal action against alleged wrongdoing. I presume the fact that they hadn’t been doing that thus far was down to some sort of hilarious misunderstanding about their job as a regulator. I paraphrase only slightly. Shipton, really did tell the commission that the decision to get tough on the big institutions is only two or three weeks old. As James Thomson put it in the AFR’s Chanticleer column yesterday: “This was breathtaking evidence. All year, the royal commission storm's been raging. All year, Shipton and his team have been talking tough. All year, the community's hunger for ASIC to get tougher has been blindingly obvious. “And yet it's taken all year for the chairman to finally come up with this sort of decree.” And while ASIC’s action against Mitchell - which involves a five year old TV rights negotiation - has nothing to do with the world of banking, the timing of ASIC finally going after a big target is certainly eyebrow raising. It does make me wonder if they took a look in the cupboard to see what they could dust off. Nonetheless, the court action will be one of the big media stories of the coming months. Significant as the court case is, it’s also worth acknowledging that those who’ve joined the industry in the last five years - and in this sector, that’s a big proportion - may never have heard of Harold Mitchell. Yet for four decades, he was the ultimate media powerbroker. Harold was up there with Kerry, Rupert and Gynge in the single name media fame stakes. In 1976, Harold was among the first in the world to jump on the opportunity of taking media buying out of creative agencies. By the time he took his company onto the ASX, Mitchells was already Australia’s biggest media agency. By the time he sold again to Aegis, he was already exceptionally wealthy. And by the time Dentsu bought Aegis, Harold was moving towards the upper echelons of the rich lists. So it’s been a long time since he’s done anything for the money. I suspect that these days it’s just a nice way of keeping score. Instead, since he stepped back from what’s now the Dentsu Aegis Network, he’s become even more of a power broker. That’s included as chairman of industry lobbying body Free TV Australia and a director of Tennis Australia, from which he retired only last month. At 76 years old, he’s retained his relevance. Under Mitchell, lobbying by Free TV Australia delivered the networks a huge windfall when the government was persuaded to get rid of broadcasting licence fees last year. And the accompanying changes to media ownership laws is perhaps the main reason for many media owners’ relatively healthy share prices. Whatever fee they were paying him as chairman (until he resigned this week) wasn’t enough to reflect the multi-million dollar value of whatever part he played in delivering that political deal. He is, as I say, a power broker. And the key to being a successful power broker is having a finger in multiple pies, but successfully managing those conflicts of interest. In the higher echelons of Australian business, everybody is conflicted. The real challenge is how they handle those conflicts, both ethically and practically. In Michael Bodey’s biography of Eddie ‘Everywhere’ McGuire, a terse “I’ll manage it, thanks” was the radio presenter, game show host and Collingwood president’s regular response whenever asked about conflict. And this is what the ASIC case is about. Did Mitchell manage the conflict? Did he fulfill his duties as a director of Tennis Australia when the organisation was negotiating its TV rights agreement with Mitchell’s trading partners at the Seven Network? Other than a Royal Commission induced change of attitude, or possibly Mitchell’s recent retirement from the TA board, there’s no obvious explanation of why ASIC has suddenly started to explore the events of five years ago. All of the rumblings about Mitchell’s closeness to Seven - one of his biggest trading partners - during the deal were there five years ago. It’s so far in the past, there’s since been another round of rights negotiations, which of course sees the tennis shifting to Nine, while the cricket heads in the opposite direction. ASIC’s basic case is fairly easy to understand. Its legal filing is only 2000 words long. ([It’s worth a read](.) It alleges that Mitchell - and then TA president Stephen Healy - knew that the organisation could get more money for its rights deal on the open market - probably from Network Ten - than in only speaking to incumbent Seven, which was entitled to a period of exclusive negotiation. But, it claims, the duo failed to make that clear to the rest of the board. The evidence offered by ASIC includes internal emails between Seven staff which indicated they had been talking to Mitchell about what the TA board was thinking. One of the challenges for ASIC in making its case will be to demonstrate that Mitchell wasn’t actually acting in Tennis Australia’s interests in having these conversations. By flagging Ten’s plan to bid for the rights to Seven, could Mitchell have been attempting to lure the network into increasings its bid before the exclusive negotiating period ended? Seven might have wondered that and responded by sweetening the deal. And how serious was Ten about actually outbidding Seven if given the opportunity? All the networks try to push up their rivals to spend too much, even when they don’t really want rights themselves. The CEO of Ten at the time, Hamish McLennan conceded as much when I interviewed him on stage at Mumbrella360 in 2013, saying he’d forced the price of international cricket up for Nine: “We picked a number that was fair and reasonable and added another $20m to it.” There’s no guarantee Ten would actually have formally made a bid for the tennis if given the opportunity. (Although given the network’s ratings woes at the time, and indeed since then, I suspect it would have done.) To win, ASIC would have to persuade the judge that Harold was effectively Seven’s man on the inside. However, that’s a further important point. It won’t be a jury that needs persuading. This isn’t a criminal jury trial. It’s a civil, Federal Court case, being heard by a judge. Which is one reason it’s possible to discuss it in a bit more detail here than if criminal proceedings were active. In this case, it’s the Federal Court’s Justice Jonathan Beach running the case. Justice Beach’s learned treatise on the different grammatical uses of the word ‘fuck’ - which was central to ASIC’s rate fixing case against Westpac - earlier this year, suggests the case will be an entertaining one for the neutrals. Being a civil case, it also means ASIC will need to hit a lower threshold to win its case. In criminal cases, guilt can only be determined if there is no reasonable doubt. In civil cases, the outcome is determined on the balance of possibilities. Mitchell of course also has the means to ensure the best representation that money can buy once it goes to trial. (The directions hearing is this coming Friday, after which we’ll have a better idea of when that will be.) You can bet your life he’ll invest in a Queen’s Council. As The Sunday Telegraph’s Claire Harvey memorably put it when writing about another case: If in doubt, get a silk. “If you’re ever in trouble with the law — for anything, no matter how trivial — get a QC. “If you’re guilty, get a QC. If you’re not guilty, get a QC. Pay whatever it takes. Mortgage the house. Sell the kids. “Because in our quirky and confusing system of justice, the one sure bet is that if you submit to the rules of the lawyers and their status-saturated internal value system, you will do better. “You might get a lesser sentence. You might blow the opposition out of the water. “All those are distinct possibilities. What’s certain is that you will have the ear of the presiding officer from the moment you enter the courtroom. “Your side of the case will get a fair hearing. “Justice might be blind, but judges aren’t. They can tell silk from polyester a mile away.” That’s what ASIC will be up against. I’m not sure I’d want to pick a winner at this stage, but what is certain is that we’ll find out a lot more about how TV sports deals are really done. Justice, tempered Staying with the Royal Commission for just a moment longer, I have a hunch that a new PR phrase has entered the lexicon. CommBank’s Matt Comyn revealed that when he urged his then boss Ian Narev to do the right thing by its customers, he was told to “temper your sense of justice”. “Temper your sense of justice”, as a shorthand for doing the wrong but expedient thing, could prove to be the phrase of the year. Cashflow is king Meanwhile, a big piece of news for media agencies dropped on Wednesday, and I’m not sure the implications have fully dawned. I must admit, we haven’t written a news article about it yet ourselves. PM Scott Morrison has announced that companies with turnovers of more than $100m - which would include all the major media buying groups - will in future need to publish information on how they pay their bills. The key metric will be payment times - how long it takes them to pay their suppliers. That will be bad enough. Media agencies are shockingly bad at paying in good time. But it goes further. If these companies want to compete for government tenders, they will need to commit to paying their bills within 20 days or less. Given that the big media groups do indeed chase government business, they’ll be included. And it will mean a radical change in how media agencies do business. Much of their original business model was founded on delaying payment as long as possible. When agencies first went independent it was in the days of high interest rates. They’d book the media, take the client’s money, then sit on it for at least 90 days before paying the media owner’s bill. The interest was theirs. It was more lucrative than any fee. And even in these days of lower interest rates, it’s still an integral part of the model. In the ten years we’ve been doing Mumbrella, I can’t think of a single time a big agency has paid its bill within 30 days, let alone 20. Much more typical is 90 days. A big part of managing any small business is dealing with the cashflow issues. It sucks up resources chasing it (the more you chase, the sooner it comes in) and management time talking about it. And that’s the media agencies with well run admin, rather than the ones where you have to submit and resubmit the same invoice, while account departments deny receiving the original and run down the clock. On a couple of times when it went way beyond 90 days, I had to write “This is awkward…” emails to media agency CEOs, who’d then embarrassedly kick their account departments on the backside and pay us. I was lucky enough to at least have relationships with those CEOs to be able to do so. Plenty of smaller players have almost no leverage. Plus the big players seem to take pride in finding clever ways of delaying payment. One booked a significant campaign with us. They insisted we signed their standard contract. Buried in the terms and conditions was a stipulation that the bill would not become due until 90 days until the end of the campaign. Buried elsewhere in the contract was a definition that stated the campaign wasn’t over until they said it was over. Effectively they got 12 month payment terms from us. It was all completely legal, and I’m sure their lawyer felt pretty smart. It was somewhat counter-productive for the relationship though. I’m looking forward to seeing how this one unfolds. My first rodeo If you haven’t listened already, [this week’s Mumbrellacast is now live](. We discuss Harold Mitchell’s ASIC court case, and our media writer Zoe Samios chats to the management team at Oath. Meanwhile, I’ve just been out on the deck. The full moon is sliding behind Rocky Cape, rabbits are frollicking, and the dawn chorus is getting louder than the waves, while the sun rises over Bass Strait. It’s going to be a beautiful day in north west Tasmania. Not to mention that I’ve got a rodeo to go to later. It is, in fact, my first rodeo. As always, you’re welcome to drop me a line at tim@mumbrella.com.au, and my colleague Paul Wallbank - paul@mumbrella.com.au will be running the weekend newsdesk. Have a splendid weekend. Toodlepip... Tim Burrowes Content director - Mumbrella Mumbrella | 46-48 Balfour Street Chippendale NSW 2008 Australia [Unsubscribe](| [Manage Subscriptions]( [Facebook]( [LinkedIn]( [Twitter](