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Opinion by Damien Venuto
Damien Venuto is the host of your daily news podcast, The Front Page.
The shock announcement this week that MediaWorks would be scrapping 90 jobs could serve as a precursor of what’s to come.
The leaked statement from the company’s chief executive Cam Wallace carried a line that should catch the attention of people working in any industry across NewZealand.
“We are not immune to the impacts of the current economic factors including a likely recession this year, which will see a dampening demand from advertisers across the board,” Wallace wrote to his staff.
Declining advertising is the first dry cough you hear from an economy heading into a recession.
Marketing is at the pointy end of business and is often the first thing to be cut when belts start to tighten. Advertising is ultimately about growth and this becomes far less important when businesses are treading through the sludge of a recession.
You can rest assured that the advertising agencies around town are right now preparing in-depth presentations, pointing to research conducted by an esteemed professor from the esteemed halls of Harvard Business School that shows the value of continuing to advertise when times get tough. Most of this advice will be ignored.
MediaWorks CEO Cam Wallace. Photo / Dean Purcell
MediaWorks might be the first New Zealand company of 2023 to announce a large cull of workers, but we’ve already seen this playing out in the tech scene.
It’s notable that all of these businesses are funded by that canary down the coal mine: advertising.
But there’s also more to this story than just advertising.
Posting to LinkedIn, business consultant Tom Goodwin noted that job cuts at these large tech firms came off the back of massive hiring sprees during the pandemic. The cuts, when viewed in this broader context, actually only affect a small percentage of the sheer number of staff hired over the last two years.
“Every layoff of 2023 has been a fraction of new headcount added in 2022 alone,” he writes. “The real story is of poor planning. This does not make being let go any less horrendous. This does not make any thoughtless process for it more excusable…
“[But] one of the questions we should be asking companies that hired so aggressively in 2022 is what were you thinking? What data did you have that suggested pandemic life was the new normal?”
Today FM struggling to get cut-through
New Zealand businesses have similarly gone on massive hiring sprees over the last year, while also throwing more money at staff threatening to leave. This has seen the negotiating power shift to workers, who have been able to secure better pay and working conditions.
These companies were responding to the immediate market conditions, rather than taking into consideration that we may see a reversion to the norm in the coming years. This now ultimately leaves both the companies and their workers in a precarious position.
The most public example of this at MediaWorks could be the massive investment in Today FM.
The company has poured money into this project to attract top talent and establish a brand capable of challenging the long-running supremacy of Newstalk ZB in the talkback space. Given the tight labour market, none of this would have come cheap but the investment would have seemed worthwhile at a time when the advertising market was cruising on a wave of pent-up consumer demand.
Today FM Breakfast host Tova O'Brien Photo / Supplied.
Media is often a gambling person’s game in that it’s incredibly difficult to pick what will succeed and what will fail. Even Netflix with all its money and algorithms struggles to get it right consistently.
The reality is that Today FM has struggled to get the cut-through it was hoping to achieve, with the station attracting only 100,000 weekly listeners in radio ratings tracking listenership between June and November. This was down 14,700 from the previous survey and leaves the station desperately clinging to its six-digit audience. Newstalk ZB meanwhile attracted 692,000 weekly listeners, sliding 8300 from its previous high.
Wallace has spent a lot of money hiring presenters Tova O’Brien, Duncan Garner, Mark Richardson, Polly Gillespie and others for Today FM.
But Today FM is only part of the broader picture here.
It’s worth remembering that MediaWorks management was open to being acquired by Sky Television as recently as June last year. The deal ultimately fell through, but it showed that international private equity firms – Oaktree Capital and Quadrant Private Equity – behind MediaWorks were clearly interested in offloading the company.
Mergers and acquisitions in the private equity scene dried up in the latter half of last year, as organisations became more risk-averse amid the changing economic conditions. There’s little appetite at the moment for companies to take a risk on a bloated media company making a loss.
MediaWorks’ latest accounts revealed a loss of $2.9 million for the year ended December 2021, following a loss of $4.8m in 2020. The company’s single biggest operating cost is staff salaries, accounting for more than two-thirds of the overall amount.
As brutal as this may seem, reducing staff numbers is simply the best way to neaten the balance sheet at a time when no company in the world wants to see losses or debt.
The pressure from investors and shareholders will be enormous in the coming months - something perhaps best captured in the recent example of Google, which, despite making billions in profits for years, has been slashing staff numbers.
After the recent round of 12,000 layoffs, activist investor Sir Chris Hohn chastised Google CEO Sundar Pichai by saying that the cuts simply did not go deep enough.
“The 12,000 jobs is a step in the right direction, but it does not even reverse the very strong headcount growth of 2022,” Hohn said in a letter to the Google boss.
“I believe that management should aim to reduce headcount to around 150,000. This would require a total headcount reduction in the order of 20 per cent.”
MediaWorks will not be the last New Zealand company in 2023 to be forced to make deep job cuts in the wake of the recruitment bonanza of the past few years.
Chief executives around the country are probably already sweating under the pressure from shareholders demanding swift action.
The reversion to business as usual will not feel good to the workers, who will again have to pay the price of the looming recession.
