Business Under Stress

In my last post, I outlined some of the problems as I see them on getting out of this virus problem. A clear example of the problems to be faced comes from what happened here within an hour of my posting. It turned out that the German conglomerate Bauer had bought up all the major magazines in New Zealand. It was one week into the lockdown when it said it was closing down the lot. Normally in tough economic times, weaker businesses can be expected to go under due to competition, but in this case, it was the strongest, the ones that had been going for up to eighty years, that go to the wall. Why? The stated reason was that due to lockdown, advertising revenue had dropped. Well, yes, but the lockdown will not last forever. It could have tried to last it out, and if everybody complies with the lockdown, the virus is supposed to die out in about four weeks. Bauer was seemingly buying up competition to its Australian magazines, and it needed the money. (Why it didn’t try to sell the NZ magazines is unclear.) It also probably thought the smaller New Zealand market would buy the Australian equivalent.

However, there were additional factors here that may apply more generally. The first is that in economic terms, if the owner is going to close down because that is inevitable, it is best to do it as soon as possible because all money spent in the intervening period between problem arising and submitting to it is money lost forever. A second factor is that the big conglomerate has no emotional link to its business; all it cares about is whether it is a sufficientlyprofitable business. Can it make more money by switching its resources elsewhere? In this case there is also a considerable cultural loss. Unfortunately, that is intangible, and only applies to the customers. The conglomerate seldom cares, and in this case since it is homed at the other side of the world, there is no benefit to it. Only dollars flowing in matter.

Looking at the consequences, a large number of journalists, proof-readers, etc. are unemployed, and at least for a limited amount of time, there is no further possible work for any of them. Nobody is likely to take over any of the magazines right now because of the lack of advertising revenue, although the lockdown period is likely to be over by the time all the legal complexities would be completed. There are downside consequences. The printer has just lost a very large amount of work, and maybe they cannot continue. Stores that sell magazines will not have any, and many of these stores would have magazines to attract people in who might not otherwise come, but when they do, they often buy other things. Also, a high fraction of the magazine sales would be on subscription. Subscribers have no comeback if the conglomerate does not refund unused money, but that would sour the field for anyone trying to resurrect such magazines.

Another problem for exports comes from the fact that many fruit such as kiwifruit and pip fruit are due to be harvested about now. With lockdown, pickers are in short supply, and the requirement for them to keep two meters apart can be a problem. If the fruit are not picked, the farmer loses valuable income, and that income only comes once a year. Owners of tourism ventures will be pulling out their hair because movement is forbidden, and when the lockdown is over, who will come?

The overall consequences of stories such as these is that only too many people are going to be short of money. That makes investment in new businesses very difficult to raise. There will be many rich people with lots of spare cash, and the ability to raise a lot more through banks, but that may not be available to start new businesses, as what that sort of money tends to do is to buy up existing assets that happen to be very cheap. The virus has brought a lot of problems, but such problems may also be opportunities. The difficulty is to see them, and act on them. Thus it is obvious that New Zealand has an opportunity for a new magazine, or maybe a continuation of the more successful of the old ones. Will that happen? Watch this space.Finally, in these testing times, Easter is upon us, and I wish you all a pleasant Easter.

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