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OPINIONBusinessApril 3, 2020

Bauer’s shocking fall reveals the government’s poisonous media dilemma

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The shockingly fast collapse of Bauer presents the government with a momentous choice, says Duncan Greive. Will it save the media industry, or concentrate on its own?

This moment was always coming. The long, steady flow of advertising revenue to the tech giants has left the private sector media gaunt, much leaner than is healthy for a number of years. They cut the fat and then the muscle, now you see the bones

Until this week our big five private sector media companies – NZME, Stuff, Sky, MediaWorks and Bauer – have been engaged in a prolonged and pitiful waiting game. Whoever blinked first and fell would be set upon by the remainder, its talent and revenue and any usable brands absorbed as fuel. Not to thrive (no one in media is that naive), just to survive, in the hope that something better would come.

(That they were forced into such a stalemate, it bears underlining, is because the Commerce Commission refused to allow any meaningful consolidation within the industry. So the only way they could ever enter one another’s bubbles was by going bankrupt.)

The government knows all this very well. For starters, it has TVNZ’s last decade of annual reports to study. More directly, last year the minister in charge of the industry, Kris Faafoi, heard from executives at all the major and minor media companies about how strained things were. How fast starvation was coming. After months of consultation and thinking, during which the private sector dared to dream of a change which might relieve the pressure, the net result was a planned merger of the government’s own two main media entities, RNZ and TVNZ (scoping of this continues even now, with private sector media representatives interviewed by PWC yesterday). 

The signal this sent to the private sector media was that the government was deeply concerned – but concerned about its own entities, and indifferent to its pain. More, it was hard to escape the feeling that it also didn’t even believe the agonised cries from the sector. That it thought MediaWorks was crying wolf.

Yesterday’s announcement clearly came as a shock to Jacinda Ardern, who appeared angry that the closure was being sheeted home directly to the Ministry of Culture and Heritage’s decision to classify magazines as non-essential under the level four lockdown. She made clear her belief the 237 jobs lost, and countless historic titles with them, were the fault of neither Covid-19, nor the government’s response to it. 

“What I want to make really clear is the government sought to assist Bauer – minister Kris Faafoi spoke to them and asked if they would take up the wage subsidy; they refused,” Ardern said yesterday. “This appears to have been a decision made at the same time as Covid-19, not because of it … The wage subsidy could have made a difference to those writers, to those journalists, and we were very keen that Bauer take it up.”

A selection of recent Bauer Media covers

Ardern’s assertion that this happened at the same time as Covid-19, not because of it, is a bold one. Magazines are different to other forms of media – they have long production cycles, frequently extending to months. Advertising, what little there is in this market, is often booked even further out again. Think about that in the context of the clear and consistent message from the government: that we do not know how long the lockdown will last, that some regions might escape it earlier than others, and areas could return at any time. This makes perfect sense from a public health perspective, but has obvious flow-on impacts for businesses with long lead times. 

It essentially left Bauer without any certainty of operation – for clients, customers or staff – for the foreseeable future, while also allowing its newspaper-inserted competitors like Viva and Sunday the ability to continue. The wage subsidy of $585.50 per week per staff member, inevitably covering significantly less than half its people costs, was clearly not persuasive to the Bauer board in Germany. 

While the closure was a bombshell within the media, it was likely inevitable as soon as the decision around exclusion from essential services was made. With one small classification decision, New Zealand has lost a media powerhouse, home of much of our best investigative journalism, political analysis and cultural criticism. The very form of magazines is now perilously threatened – the printers, the shelf space in supermarkets, the many smaller operators producing multi-award winning titles like New Zealand Doctor, Cuisine and New Zealand Geographic are still here, but remain essentially banned from operating.

Now the four surviving major media players nervously wait to see whether the same fate awaits them. Sadly, none are in a position to gorge on Bauer’s assets, because the timing of this means they’re concentrating on their own survival. Covid-19 has accelerated the entirety of New Zealand’s ad-funded media into existential crisis at the same time, meaning none is well-positioned to reach out an arm for another when they fall. 

All have a little more time, through their work being designated essential, so they can continue to create their products. But all are fundamentally suffering through the same massive loss of advertising revenue, particularly as so much of their income came from sectors like travel, tourism and retail, which have themselves been devastated by Covid-19. 

The government is of course itself a major media player – arguably now the largest, and certainly the most able to weather this storm. But its biggest asset, TVNZ, is very much exposed to the vanishing of ad revenue. Wet & Forget ads during Seven Sharp and Thin Lizzy ads during The Bachelorette reveal just how cheap inventory has gotten. Unlike the rest of the media, instead of debt, TVNZ has cash, a huge advantage in a crisis. Yet even the $60m or so it has stashed goes fast when your income falls precipitously away. It seems inevitable that TVNZ will need a bailout, and get one – both because the government owns it and because it has provided brilliant coverage of the pandemic.

It is hardly alone in that respect, of course. But whether the government does something similar for the private media sector is far less clear. It seems unimaginable that more media companies would fail just when they’re needed most. Yet it would also be anathema to most Labour supporters and many of its MPs to save the companies which put the likes of Mike Hosking and Mark Richardson in such prominent slots – out there every day, cruelly whipping its ministers. And it’s very hard to disentangle public good journalism from mass entertainment, at least at NZME and MediaWorks. Sky, despite its critical role in funding sport, is even less able to call for help, as a paywalled service targeting the relatively affluent.

For all this, a rescue is not inconceivable. There are mechanisms by which it could be achieved – an NZ on Air-administered fund for journalism, as Helen Clark has suggested, or RNZ or TVNZ being given the budget and directive to procure a broader range of content from the private sector. The government could offer fully guaranteed loans, realising that they might never be repaid, but that at least they buy time. It could legislate to allow and potentially fund some mergers, assuming there remains an appetite for them, which is far from certain. The options are varied, difficult, and some will take time the industry doesn’t have.

Yet the biggest problem is that the media tend not to be well-liked by the public. Industries like tourism and hospitality are also bent and breaking, without any of the antipathy the media generates, and they can also make their own claims to being essential to our life and function as a society or economy. Pick one pet sector and all the others will howl louder as they cull thousands of staff and tip into bankruptcy. The media’s interest will be seen as special pleading, even though parties across the spectrum tend to agree that the fourth estate has a crucial role to play in a well-oiled democracy. And there are manifest dangers with the state owning and funding the largest entities which cover it.

Thus the government finds itself with a stark choice. It has to decide whether it really believes in a plurality of media, enough to pay for it and accept the blowback which goes along with that. Or whether this moment in fact reinforces what it aimed to achieve through the proposed RNZ/TVNZ merger – an elevated and enhanced public media, to compensate for what now has the potential to be a near-complete market failure. 

The demise of Bauer shows that it will have to decide, and soon, whether it is willing and able to save NZME, Stuff, MediaWorks and Sky. Or whether those thin, hungry businesses too will fall.

More: The Fold podcast – Duncan Greive discusses Covid-19’s impact on the NZ media

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