April 2006


The outsider

By John Birmingham
The outsider
Now who’s ‘The One’? Kerry Stokes: the fun begins at Seven

It was enthralling, in a ten-car pile-up kind of way, to watch the cyclone of rhetoric that blew through the media in the weeks after the death of Kerry Packer, much of it devoted to cementing his place in the national memory as ‘one of us’. An ordinary bloke, who loved a beer and a punt and watching a game of footy. So relentless was the effort, so unbroken the wall of sound put out by an army of heralds, that it threatened at times to completely obscure the base reality that Packer was not one us. He was something very different, a man with a will to power so great it wouldn’t even allow him to die in peace.

Having ventured once before across the boundary between life and death – to famously declare that there was fucking nothing there – the big man lay dying at last, holding on long enough to do two things: to talk to his son, James, who rushed back from overseas when he received word of his father’s sudden deterioration, and to lunge at an old foe who was confounding the end of his days by threatening the empire James was about to inherit. In a way, Packer was paying that foe, Kerry Stokes, a left-handed compliment. Stokes, the executive chairman of the Seven Network, had grown so dangerous and unmanageable that Packer was determined to wound him, even if it was the last thing he did.

Two days before Christmas last year, and less than a week before he died, Kerry Packer signed off a monster bid for the rights to broadcast the AFL on the Nine Network: more than three-quarters of a billion dollars, half again as big as the AFL’s previous deal, and a sum of such profligate madness that it virtually guaranteed the commercial ruin of anyone who tried to match it.

Stokes matched it, and Packer was free to pass on to the next world, if it was there, knowing that’d he struck one last blow on behalf of the family.

But was it the knockout blow he’d intended?

The object of the old mogul’s deathbed scheming is a former streetkid who earned every cent of his billion-dollar fortune. It is a fact not often remarked upon that Kerry Stokes differs from his rivals in the great game by not having been born into an established noble house. Unlike young James or Lachlan, indeed unlike old Rupert or Kerry, Stokes came into the world with no advantages. Where the Packers and Murdochs were brought up as modern potentates, Stokes lived a hardened, pinched existence.

Stokes was born poor to a Melbourne barmaid and given up for adoption. His biological mother died sometime in the 1970s and the closest connection he established with her after their separation was a small chance that they had once passed a short distance from each other. By age 14 he had turned away from his adoptive parents for life on the streets, where he stayed on and off for a few years.

It’s the sort of personal history often worn like the proud robe of a Roman senator by men who’ve risen far above their early circumstances. But Stokes has never had any time for the proposition that hardship is good for anyone. Asked a couple of years back, in the wake of the One.Tel disaster, whether James Packer and Lachlan Murdoch might have benefited from his life experience, Stokes was adamant that no one should have to live like that.

In June 2000 he told the ABC, “My background was very difficult, very hard, and I wouldn’t wish that on anybody. We’ve actually as a nation all worked really hard so the next generation don’t have to bear the same degrees of difficulty that we had to go through. I had lots of different occupations and obviously lots of different experiences. I had some time on the street, and sometimes work was very difficult. Australia, in that period of time, wasn’t a place where you could actually easily go and get a job, it was difficult, and we went where there was work available.”

Work, and first love, took him west as a young man, where he found himself sweltering on the rooftops of suburban Perth, installing the TV antennae that would, decades later, help to make him rich. A frontier city in a barely developed wilderness, Perth was much kinder to Stokes than the old-money town of his birth. There was nothing unique in the opportunities he found, of course. Outsiders have always been drawn to the edge of things, where nothing is settled, where power and the hierarchies that gather around it haven’t had time to anchor themselves properly. But Stokes was rare in that he didn’t simply adapt to this new environment, he thrived in it.

By the mid-1970s he’d accumulated his first fortune through property development and was about to step into a new industry, the media, to begin working on his next pile. Bruce Gordon, TV’s forgotten mogul, owner of the vast regional WIN network, once told the story of sharing a few beers with Stokes and suggesting he buy into a small TV station in Bunbury to help push a shopping centre Stokes already owned there. Gordon’s recollection was that the former antenna monkey asked bluntly, “Why the fuck would I buy a TV station in Bunbury?”

Synergy was why. The crossover buzzword of the internet boom that was still twenty years away. In spite of his initial scepticism, Stokes was alive to the prospect of cross-fertilising his various businesses through the agency of the media, even though some of them, such as his interests in heavy mining equipment as far afield as China, were miles removed from the twinkling ditz-fest of television. It was television, however, that would elevate him from mere millionaire to billionaire, and it was television that would make him a player at the highest levels, where money, politics and brute power coalesce in a process not unlike that at the heart of a fusion reactor.

It is surely a salutary lesson that, having made so much money out of property development – an edgy, maverick industry, according to the architecture critic Deyan Sudjic, defined by “the naked realities of guile, bravado, aggression and ego” – Stokes could, in 2000, still talk of the importance of trust and honour in business. Interviewed by the ABC’s World Today, he said, “It’s much easier to do business with someone when you look them in the eye and say, ‘This is what we’re going to do,’ and you understand what you each mean, and you can go away and get it done.”

Asked whether he could look somebody in the eye and tell whether they were being straight with him, Stokes admitted he was no oracle but said he felt that “most people are honest.” He understood that while there was “a very small number of people who aren’t,” he still believed most people preferred to make a commitment and stick to it. Most people, he thought, were simply more comfortable being honest than dishonest. Such a belief puts him squarely in the romantic, rather than the Hobbesian, school of human nature and perhaps explains why he has confounded so many of his contemporaries and competitors.

In Kerry Stokes’ view, if conflict is necessary, as it so frequently is in business, it is best done quickly. Difficult messages should be delivered early and with great force: that way, “it’s always easier to be nicer afterwards.” It is the stern, somewhat unforgiving philosophy of a man who came into a world with nothing to offer him.

But Stokes is a complex character. He speaks out on social issues where others in his position remain silent. “When you’ve actually lived and worked in this country, you gain a lot more respect for the people you’re involved with when you’ve been through hard times with them. It’s no different to any other personal relationship.”

His $3-million sponsorship of the perennially doomed South Sydney Rabbitohs Rugby League club betrayed this connection to the tribal feeling of the poor, benighted Bunny community just as much as it appeared to be a poke in the eye for Rupert Murdoch. The club chairman Nick Pappas told the Sun Herald’s Catherine Munro that Stokes “understood that there were some things that were held very dear. He probably thought this was a good way to get back at Rupert, I don’t know; he never expressed it that way. He felt sympathy for the supporters who felt disenfranchised.”

One-time employee and long-suffering Souths supporter Andrew Denton did not categorise Stokes with the other big media owners, telling Munro that Stokes lacked the overweening need to be the centre of attention in any room he occupied (a neurosis common to alpha males and characterised by the diminutive comic genius as a big-swinging-dick syndrome). And Stokes is renowned for having perhaps the finest private art collection in Australia, but is still given to shopping for his groceries in shorts and a T-shirt. He lavishes support on some of his junior employees, allowing them to pursue the dreams that were denied him at their age.

He is not unique in this: a great deal of effort went into making sure the world knew of Kerry Packer’s previously undeclared generosity after he died. But for Stokes, unlike Packer, the travails of the poor and the beaten-down are not a curiosity experienced at a vast remove. This may be the key to understanding why, at an age when most men will gratefully retire to lives of modest stillness and humility, Kerry Stokes has taken up sword and shield to do battle with a veritable army of the most powerful orcs and trolls in Australian business.

I understand very clearly what it means to go up against the both of you, but I am not going to be run out of my own country and Seven will remain a competitor.

Kerry Stokes to James Packer, quoted in documentation for the C7 case.

It has been described, only half in jest, as the case of Kerry Stokes versus the world. It is a case that has already run for more than three years in its various phases, costing over a hundred and fifty million dollars and tying up dozens of the Sydney bar’s most expensive minds.

It is hugely complicated in detail, but in essence quite simple. Kerry Stokes is convinced – he really is – that Packer and Murdoch, through the agency of PBL and News Limited, entered into a conspiracy to steal the payTV broadcast rights to the AFL and the NRL, thereby destroying Seven’s fledgling payTV service, then known as C7.

At the core of the alleged conspiracy is a ‘master agreement’ to strangle C7 and divvy up the loot between News and PBL, with Telstra and Foxtel looking on approvingly and cleaning up the scraps. In Seven’s third amended statement of claim, published in late 2004 by Business Review Weekly, the network claimed that, “At a meeting held on or about 13 December 2000, Telstra, News, PBL and Foxtel entered into a contract, arrangement or understanding to secure both the AFL broadcast rights and the NRL pay, internet and naming rights.” The meeting was allegedly a teleconference, with representatives of the various players agreeing to give Foxtel payTV rights to the AFL, while Nine and Ten would share free-to-air rights. Murdoch would also allegedly grab the payTV rights to Rugby League, with Telstra getting the ‘internet and naming rights’, leaving nothing at all for Seven.

If Stokes should win the case and see his demands for recompense ordered by the court, he will smash the current architecture of subscription TV, and do immense damage to the interests of Nine’s free-to-air service. He is seeking a number of outcomes. He wants $1.2 billion in compensation, a sum that would probably allow him to buy up every top-rating TV series in the English-speaking world. He wants PBL and News Limited to be forced to divest themselves of their stake in Foxtel and barred from reacquiring it; at the same time, Foxtel would be forced to buy two re-established sports channels from Seven. The resurrected C7 would then be given the AFL and NRL payTV rights. For good measure, he also wants Foxtel and Telstra banned from doing anything other than licensing subscription TV services from third parties such as Seven, effectively ending their role as players in the industry.

As a package of measures it would be every bit as significant as the federal government’s mooted changes to media policy, fundamentally altering the way Australians consume their broadcast entertainment. It would also cement Seven’s growing dominance of the TV sector for years to come. On a current reading of the case, he has only a slightly fair to less-than-middling chance of winning, but so confident is Stokes of his position that Seven has made no provision for losing the case. If they go down they will be liable for their own costs, and for up to 80% of their opponents’.

Stokes spent weeks in the witness box earlier this year, generally holding up well as the senior counsels for his enemies raked in nearly $8000 a day to accuse him of lying and cheating and base hypocrisy. News Limited’s silken head-kicker Noel Hutley launched a couple of blistering attacks on the businessman, at one point bellowing three times in quick succession, “You are lying, Mr Stokes.” If this was meant to unbalance him and induce a cascade of self-incriminating rage, as in a lame TV courtroom drama, it failed. Stokes responded with little more than a tilt of the head and the sort of wide-eyed, ingenuous look that implied he thought Mr Hutley a cruel and unusual chap for behaving in such a manner.

With dozens of witnesses yet to be examined by dozens of lawyers for the dozens of interested parties, there is no end to the case in sight.

Most industry players have interpreted the C7 case as nothing more than Stokes trying to blast his way into a position he was unable to achieve by conventional means. One unnamed senior executive told Business Review Weekly’s Stuart Washington in 2004, “There’s no doubt this is Stokes annoyed [that] he’s missed out on payTV and using legal tactics to try to leverage himself into the game. Particularly between Seven and News, the blood is bad. His performance means that they can’t let him in. If he becomes some form of member of Foxtel, he’s now displayed to all the parties that five minutes later he will be suing them again.”

This is essentially a counter-conspiracy theory, proposing that Stokes is manoeuvring himself into a position to take advantage of the coming change in laws for cross-media ownership by laying into his peer competitors in an effort to cripple them before the real contest starts (that is, when the government frees up the market in 2007). The reforms to media regulations announced by Helen Coonan in mid-March are certain to cause a feeding frenzy as twenty years of pent-up demand explodes into merger and acquisition activity. Seven, long seen as a takeover target while it languished far behind Nine, will now most likely be a predator, with Stokes and all of the other moguls free to go after the prizes that had been denied them by Paul Keating.

But the conspiracy theory of C7 fails the test of Ockham’s razor because there is a simpler explanation: that Stokes really does believe he was royally shafted by the industry’s noble houses and that he will have his satisfaction from them, no matter what the cost. The latter is all the more attractive a theory because it fits with his character. Stokes is a man who has never allowed the odds to dictate terms to him and he will not be denied what he sees as his due: in this case, the punishment of the conspirators and the world made new again with his network given a fair go. One of his opponents described the whole thing as a “ludicrous try-on”, and there has been such an ocean of blood spilled over the issue that there is unlikely to be any gentlemen’s agreement to just pack up camp and limit the casualties.

This must have been motivating Packer when he approved Nine’s mega-bid for the AFL at the end of 2005. David Leckie, Stokes’s chief lieutenant at Seven, had once been Packer’s right-hand man, but like many formerly loyal vassals he had jumped ship to the rising power. A good deal of the talent that made Nine ‘the one’ now works for Stokes, and the damage to the Packer family’s TV interests has been severe. This reversal of fortune hasn’t really been factored into the C7 equation. When Stokes set out on his crusade he was not the supremo of an all-conquering television network. Seven was struggling, badly, and a loss in such an expensive gamble could have made his position untenable.

But even as the costs of the battle have mounted, his ability to meet them has also improved. Seven has caught up with Nine to such an extent that the sour stench of panic at the former market-leader is unavoidable. In early March Seven released its profit results, showing that for the first time the perennial bridesmaid had won through. A 42% surge in earnings before interest and tax for the first half of this financial year saw it move ahead of Nine as the most lucrative station in Australia. The difference was quantitatively small, Seven’s operating income of $153 million just edging out Nine’s $148.9 million, but psychologically it was a powerful blow – like winning a Test by four runs.

When the ratings figures appeared a week later to show that Stokes’s network had comprehensively bested ‘the one’ for the first time, it sounded like the first loud crack of an approaching avalanche. There was no joy anywhere for Nine. Their bitter rivals had trounced them in news and current affairs. They had trashed Bert Newton’s comeback at 5.30 pm, with Seven’s Deal or No Deal picking up audience gains of 68% on the old campaigner. Stokes owned prime time, with more than half of the top 30 shows residing in Seven’s evening line up, including six of the top ten. Sunrise was humiliating Today every day, with roughly double its ratings. And, most importantly for advertisers, Nine had almost nothing to offer the AB demographic – the most fabulous demographic of all, those free-spending 18–39s – while Seven was hauling in millions of them with Lost, Desperate Housewives, Prison Break, Dancing with the Stars and Commander in Chief. With every ratings point worth tens of millions of dollars in advertising, it suddenly didn’t look as though Seven was going to take much of a beating, even if they went down in a flaming heap come judgment day in court.

Things were no better for the house of Packer over in the more genteel world of magazine publishing, where Stokes’ growing empire was beginning to look like it too might one day challenge the utter dominance of ACP. When Stokes had taken over Matt Handbury’s Murdoch Magazines and rolled them into his own Pacific Publications, he’d promised to grow the business by about 15% a year – a promise widely regarded as a load of old cods. In the same period that Seven overtook Nine, Pacific posted growth in earnings of 14%.

In this light, the AFL broadcast rights do not look like such a poisoned chalice. With so much momentum flowing from Nine to Seven, Stokes’s decision to match the bid, as expensive as it was, is looking increasingly shrewd: he now shares with Ten control over the only truly national football code in Australia. Nine still has a lock on Rugby League and the cricket, but they are haemorrhaging viewers everywhere else in the timetable, and one of the little-known demands of Seven’s legal team is that Seven be given the payTV rights to the Rugby League if they are vindicated in their case.

With the death of Kerry Packer, and the virtual absence of Rupert Murdoch, Stokes now finds himself the senior player in Australia’s media game just as the rules are about to change, probably opening up a period of ferocious takeover battles. It is intriguing to imagine what this might mean for the future, although the demands of market-leadership will inevitably place some constraints on Stokes’s freedom of action. For while he is obviously possessed of a will every bit as strong as the late Kerry Packer, his responsibilities to shareholders and employees will weigh heavily.

That said, he has apparently driven the C7 process like a one-man force of nature, with little or no input from the network’s board of directors, who have not sought out any independent legal advice about the case. If he goes down, there will be no quarter given by those whom he has pursued with a scarifying single-mindedness. They will come with knives for their pound of flesh and will not care how much blood is spilled in taking it.

But by then, it is entirely possible that the former streetkid from Melbourne’s postwar slums will have grown into a giant who barely notices his adversaries slashing away at him. And while most of the industry speculation has centred on the prospects for victory or loss, and the ramifications flowing from the result, there remains at the centre of this titanic legal clash a single question: why?

Stokes is one of the richest men in Australia. He is famous because of his exposure in and to the media, but he would be wealthy beyond most ordinary dreams even if he didn’t own Seven. Television, much more so than property development, is an ethical free-fire zone, where nothing matters more than the bottom line. And although a win in the C7 case would be a monumental prize, as a bet it’s a long shot and probably a loser. A hard-headed rationalist, even if they believed they had been grievously wronged, would simply suck up the pain and move on.

There is an old Chinese martial proverb that says that if you stand by the banks of the river long enough, the severed heads of your enemies will float by. Even without C7, Stokes has endured long enough to see that moment. His able lieutenant, David Leckie, has delivered it by systematically demolishing Nine’s predominance. So why tilt at this windmill? Can it be that Stokes is chancing hundreds of millions of dollars on a principle?

It would be a profoundly human response from someone who has built an empire from nothing, in an industry owned by the scions of established families. It speaks of something more than cold calculation as Stokes’s motivating force, because cold calculation would have seen him write off the loss of C7 and concentrate on extracting vengeance the old-fashioned way: by guile and stealth, if not by simply ‘living well’. Yet Stokes hasn’t allowed his pursuit of justice to completely cloud his judgment. Both the AFL and Ten were originally named as respondents to C7, but they have been removed as parties by Seven, in order for Seven to regain AFL broadcast rights in a joint deal with Ten.

Ultimately, no matter what the cost or the damage to reputations and relationships, Stokes’s commitment to his principles will have had one salutary effect: no one in the media industry will be left in any doubt about the dangers of crossing the outsider.

John Birmingham

John Birmingham is an author, a columnist and a journalist. His books include He Died With a Felafel in His Hand and Leviathan: The Unauthorised Biography of Sydney.


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