Wednesday, February 15, 2012

Eurozone economies shrink under weight of cutbacks; media feels the strain as austerity shrinks demand

For most companies, attempting to grow one's business in an atmosphere of belt tightening and austerity is a difficult challenge. For media companies it is basically impossible. As Europe's economy shrinks, media companies are finding it difficult to survive, let alone find the investment necessary to continue their move to new digital platforms.

This morning Eurostat, the European statistics agency reported that economic activity in the 17 countries that make up the Eurozone fell 0.3 percent. Even Germany fell 0.2 percent. Only France and Slovakia were able to report numbers in the black.

In the U.K., the International Labour Organisation reported that unemployment remains at a 16 year high, 8.4 percent.

While some analysts are saying that "the worst is probably over", the effects of continued cutbacks in government spending, combined with the continuing Euro debt crisis, is putting a tremendous stress on media firms.

The WSJ is reporting this morning that Deutsche Bank has downgraded its ratings for European broadcasters, and HSBC has downgraded "French advertising companies, Publicis Groupe, to neutral from overweight and JCDecaux to underweight from neutral."

In Greece, where austerity has made the economy dramatically decline, Eleftherotypia, is one of the largest newspapers in the country, has shut down. Serafim Fintanidis, editor of the center-left newspaper, was arrested on tax evasion charges, and the workers have not been paid for months – a common practice in Greece for companies in bankruptcy.

Eleftherotypia was highly leveraged and saw its revenue fall over 30 percent prior to stopping publication.

The paper's website is now offline and some of the staff is attempting to start up their own paper in a highly charged atmosphere prior to national elections in April.

Without sounding too much like Paul Krugman, it is hard to see how media firms can be expected to grow in an recessionary environment – then again, the proponents of austerity have been promising growth through contraction for quite some time, and appear to still have the upper hand politically.

Despite growing evidence that current policy measures are leading to recession the prescription is to double down on the medicine and wait to see if the patient survives (or is carried off to the morgue).