Packer surrenders in newspaper war

A struggle for control of Australia's media scene involving the country's biggest press barons took a dramatic turn yesterday when Kerry Packer, the country's richest person, announced he was selling his stake in the Fairfax newspaper empire.

Mr Packer and Rupert Murdoch, his main media rival, have brought strong pressure on the conservative coalition government led by John Howard over its plans to change the laws on media ownership. Mr Howard had suggested that the government would scrap cross-ownership rules forbidding television proprietors from owning newspapers in the same city.

This would have allowed Mr Packer to realise his ambition of taking over the Fairfax group, whose newspapers are the richest and most influential in the country. They include The Sydney Morning Herald, The Age in Melbourne and the Australian Financial Review. The Packer family already controls Australia's biggest magazine empire and Channel Nine, its most powerful commercial television network.

Last month, as Mr Howard recovered from severe pneumonia, he was visited in his official Sydney residence by Rupert Murdoch and his son, Lachlan, who runs the Murdoch Australian publishing empire. The Murdochs are believed to have urged Mr Howard not to relax the cross-ownership laws, fearing such a move would give Mr Packer the lion's share of Australia's media in a market where Mr Murdoch's activity, as a United States citizen, is curbed by other laws restricting control of television networks by foreigners.

The Packers had been confident of taking over Fairfax. James Packer, Mr Packer's son and heir, boasted last May that the family's company, Publishing and Broadcasting, hoped to own it by Christmas. But on Monday, the government stunned the industry when it announced that it was indefinitely deferring plans to change the media ownership laws. The Packers lost no time in registering their displeasure when James Packer announced yesterday that their company was selling its 15 per cent holding in Fairfax, its limit under present laws, because it no longer wished to be a "passive investor".

The Fairfax newspapers have been fought over by some of the world's richest media moguls ever since the Fairfax family of Sydney, which founded the empire more than 150 years ago, lost control in 1991. Conrad Black, the Canadian proprietor of the Daily Telegraph, took control the following year, but his stake was limited by foreign ownership rules. Mr Black quit in frustration last December, when he sold for a big profit to Brierley Investments, a New Zealand company. Mr Black was furious at Mr Packer, who had tried to destabilise Fairfax by increasing his holding in readiness to pounce.

The latest episode highlights the highly charged nature of the politics surrounding Australia's media scene. Mr Howard faced unrest among backbench MPs who opposed any changes that would further restrict media ownership. He was caught in a vice between the Packers and Murdochs, who between them already control most main media assets. If he had approved law changes that helped Mr Packer, he risked incurring the electorally fatal wrath of Mr Murdoch, who controls two-thirds of Australia's main daily papers. But Mr Packer does not like being thwarted; he is likely to use his considerable power to damage Mr Howard where it most hurts, at the next election.