Bauer takes first place in queue of business failures

Last week’s column suggested the easy part of the Covid-19 crisis was over; big decisions were in place and now their implications would start to play out. Thursday’s announcement that a clutch of New Zealand’s longestrunning, most-loved magazines were suddenly to disappear was a giant leap in that direction.

Bauer Media’s total New Zealand operation may not be the largest part of the local media landscape, but its sudden departure is big enough to matter for several reasons and it has rattled the Government.

It’s difficult to know exactly what Bauer’s finances looked like. The German-controlled business has taken a cavalier attitude to its legal requirement to file annual accounts with the Companies Office, last having done so in 2015.

Revenue then appears to have been about $57 million a year and those accounts don’t include a profit and loss account. By comparison,

Herald publisher NZME is at least five times larger, having turned over $372m in its last financial year. NZME employs around 1400 people, while Bauer’s full-time headcount was 237.

However, while Bauer was a middle-sized media player, it was a large-scale employer by New Zealand standards. There are plenty of other medium-scale businesses facing fundamental questions about their future. Bauer’s announcement has brought that truth into the open.

Yet this is still not an economic blow on the scale of, say, another major construction company failure, the closure of an aluminium smelter, or the potential for an industrial plant such as Norske Skog’s Tasman pulp and paper mill not to reopen when the lockdown lifts — all of which are credible possibilities.

But there can be few closures so clearly visible to so many New Zealanders, for whom the loss of The Listener, Metro or the NZ Woman’s Weekly removes big chunks of the national cultural furniture.

Add to that the fact that it is the first big casualty to occur during the Covid-19 lockdown, and the Bauer closure becomes particularly politically unhelpful.

The Prime Minister’s angry response demonstrated that, as did her ministers’ attempts to spin the closure as a case of Bauer exploiting the Covid-19 crisis as an excuse to close down anyway.

That Bauer did that is undoubtedly true.

But it is also undoubtedly true that commercial advertising has evaporated since the lockdown began, that Bauer’s total New Zealand operation depended on advertising, that it had been making losses on most of its titles and that attempts last year to find a buyer had failed.

The writing was on the wall. Covid19 just delivered the coup de grace.

To suggest, as ministers have, that Bauer would have been better to take the wage subsidies and close down in 12 weeks’ time doesn’t hold water. Wage subsidies might have given Bauer an extra $1.7 million, but that would not have covered the gaping advertising vacuum.

The next problem the Bauer closure presented was that it sent a chill through journalists who work for other, financially challenged privately owned media outlets.

Like Bauer, TV3’s owner MediaWorks has been trying to flog off the loss-making TV operation for years, without success. Its staff were asked to take pay cuts and unpaid leave this week.

Likewise, Stuff ’s new owner, Nine Entertainment in Australia, has sought and failed to find a buyer for the New Zealand print and online news publisher.

For its part, NZME has sunk from a valuation in 1995 of around $1.1 billion to under $40m today and has been seeking voluntary redundancies, cancelling freelance contributors and asking staff to use up leave.

Outside state-owned Radio and Television New Zealand, the outlook for the large media players is shaky. Ministers will worry about the extent to which publishers, let alone journalists, might reflect their own existential fears in their coverage of a lockdown that is finding a growing range of critics.

Doubly unhelpful was the implication that the Government had somehow missed a trick by not accepting an offer to buy the Bauer titles for $1.

Whether or not that was ever a serious offer, going down that path would commit the Government to becoming the majority shareholder in most of the companies operating in every sector of the New Zealand economy today.

It has to do that for Air New Zealand, which it partly owns already and because the country needs a national airline. But it clearly can’t do it for everybody.

It would rather not have had that fact so starkly exposed by Bauer’s move this week.

The reality is that when it comes to distressed sectors of the economy, there is a long queue forming and it will only get longer. It is full of businesses that are less noticed and therefore less easily lamented than much-loved magazine titles, but all of which are in the same boat: cashflow has dried up suddenly and they don’t know how long it will last.

At the time of writing this column, the Government was preparing to announce relaxations to the insolvency regime, heeding increasingly urgent advice from the business community that company directors all over the country are suddenly facing the very real prospect of trading while technically insolvent — within weeks.

The law as it’s stood has required them not to do that, but to call in receivers instead. Even with changes to relax that requirement, owners may still face that choice, especially if their business was struggling before the lockdown.

In fact, one of the greatest risks in all the current efforts to make it possible for businesses to survive this unprecedented time is that company owners will be encouraged to avoid hard choices, borrow more, trade for longer, and achieve no more than delaying the day.