The churning flood of economic developments and the desperate measures of governments to lay financial sandbags to control the torrent present not one, but three calamities for media managers. Those that escape one may well be swept away by another.
Most media can survive the collapse of credit markets because media firms have high cash flows are typically require less short term credit than manufacturing and retail firms. Because most can acquire their most important resources without accessing credit lines or issuing commercial paper, banks struggling to keep their heads above water are not a major short-term concern. However, those media firms with large debts due in the short-term that were hoping to refinance face significant hurdles. Some will be rapidly shedding media properties in order to stay afloat.
The more immediate problem for some publicly owned firms is the financial damage caused by the dramatic drop in share prices following the credit market collapse. Because a number of companies use debt financing linked to the value of their shares, the drop in prices makes their debt more risky and thus triggers automatic increases in interest rates and debt payments. This puts even more financial pressure on the firms and is sweeping them along with the flood.
Media firms that escaped the rising financial damage of the first two problems are nonetheless being sucked into the swirling waters of a recession. Because manufacturers are cutting production and laying off workers and because credit is tightening and making it harder for consumers to buy, advertising expenditures are eroding rapidly. Further, consumer spending and confidence are directly related to sales of media products so one can expect declines in sales of media hardware, recordings, books, and other products as well as consumers concentrate their expenditures on paying mortgages and other debt.
At the moment there is no means to effectively project how deep the recession will be, but whatever the depth it will be difficult for media. In the case of advertising, a 1 percent decline in GDP produces about a 3 to 5 percent decline in advertising. So a 3 percent decline could produce a 15 percent decline in income for many media firms. Print media tend to be most affected by recessions and their declines tend to be 3 to 4 times deeper than television because of differences in the types of advertising they carry.
Media companies that are financially strong will weather the financial storm, but those whose managers leveraged their companies to make acquisitions, those whose owners recently purchased the firms primarily using debt financing, and those that have been poorly managed will be struggling to survive. The current financial storm is a classic example for why conservative financial management of a media firm debt is crucial.
Blog Archive
Popular Posts
-
The U.S. Supreme Court has agreed to hear a case concerning vulgarity on the airwaves -- you know, Bono using the F-word in an unscripted br...
-
With the NCAA's March Madness annual collegiate basketball frenzy underway, I see too many parallels to the music media business to not ...
-
By Jerry Del Colliano There is a military term for a situation caused by too many inept officers -- clustering -- referring to the insignia ...
-
I was just blown away when I saw the front page of Inside Radio Friday in which they described the results of their special survey on voice...
-
It's hard to fathom that a consumer electronic device that is both so cool and so hot may have finally peaked. In my work with college s...
-
All too often lately the major broadcast groups have been firing able and talented people to save money. Last week CBS pulled off a double f...
-
Clear Channel went private yesterday at long last. Thomas H. Lee Partners and Bain Capital Partners are in charge now. They are investment ...
-
The introduction and suspension of media services is becoming a regular occurrence and the combined effects of multiple false starts is crea...
-
Sounds funny doesn’t it. Like a headline in a consumer publication. You know, where the reporter always ends the article with “stay tuned” ...
-
A Washington Post article says "Women who have historically wielded serious power of the purse as consumers are now buying all kinds o...