Are we seeing another sign of a looming global economic recession?

I was a journalist at one of the country’s biggest business to business (B2B) publications in 2008 when the world was plunged into the biggest global economic crisis in modern history.

The attrition that was felt during the time was significant and impacted almost every industry in the world. One of the first budget items that was curt was marketing. Money that was set aside for advertising was significantly reduced. A person who held one of the top finance positions at the South African Broadcasting Corporation once told me that advertising revenue during the 2008 GFC decreased by between 70% and 80%.

There are significant concerns that the world is on track for another global recession. If global energy crises and a global cost-of-living crisis are not strong enough portents, the recent job loses experienced by Meta and other social media platforms (due to decreasing advertising revenue) and the recent warning issued by Independent Media should confirm that the storm is well and truly on its way.

Trouble brewing

The Daily Maverick article points out that more than 1 000 employees of Independent Media received notice during the week of 20 March (2023) to 24 March (2023) that only 75% of their salaries would be paid on the morning of 25 March, with communication regarding payment of the remaining 25% to follow, because ‘our shareholders have advised us that they will no longer be supporting Independent Media financially’.

The Daily Maverick s in possession of two internal memos. The first is the memo to staff alerting them to a short-payment of salaries, and urging staff to make necessary provisions to pay their monthly commitments, with the assurance that “we are happy to issue a confirmation of this arrangement in writing to any creditors that require such information”.

The article points out that the second memo, to senior staff members and management, advises that “the business is in a very precarious situation”. Management has been organised into 15 separate groups, with instructions to develop a five-point “intervention and rescue plan”, which must be submitted to chief executive Takudzwa Hove by close of business on Monday, 27 March. Hove’s instructions are that groups are to focus only on “matters which have a high financial impact and which can be implemented urgently i.e. within 30 to 60 days”.

On thin ice

According to the Independent Media website, its shareholders are Sagarmatha Technologies and Interacom Investment Holdings, which comprises China International Television Corporation and the China-Africa Development Fund. The Sagarmatha Technologies website is “down for maintenance”.

The Daily Maverick article points out that, according to the Sekunjalo website, Iqbal Survé is the chairman of Independent Media. Sekunjalo is the controlling shareholder in AYO Technologies, which reached a controversial out-of-court settlement with the Public Investment Corporation this week.

When asked if the sudden pulling of shareholder funding for Independent Media had anything to do with the fact that AYO has had to immediately pay about R600-million to the PIC, an Independent Media spokesperson hotly denied this. A statement mailed to Daily Maverick said, “Let us be clear, the out-of-court settlement between AYO and the PIC has nothing whatsoever to do with Independent Media. A wholly objective reviewing of the AYO/PIC matter would clearly determine why that matter was resolved in the way it was.”

The article adds that the spokesperson pointed out that all media, especially print media, are experiencing challenges, with the price of newsprint having gone up by 30% in the last year alone.

“Independent Media distributes throughout the country and the cost of distribution has also increased, along with the costs of fuel over the last while – this has also impacted on overall operational costs. Thirdly, inflation and the impact on all other operational requirements has contributed immensely to these costs.”

The spokesperson says Independent Media is taking the appropriate measures to align its revenues with its cost structure, as it cannot rely on its shareholders to continuously provide it with capital to plug the gap.

Will advertising revenue be a saviour?

None of the communication in the memos to staff indicates that there is a significant drop in advertising revenue, it only indicates that the business is in trouble.

If the shareholders are not willing to provide the capital that is needed to continue plugging the gap, then the group needs to find other ways to fund it. This can become tricky if media houses experience a 70% to 80% decline in advertising revenue in the coming months.

The 2008 GFC was important in that it provided lessons that can be applied in businesses that are responding to future crises. But will these lessons be applicable in the current environment? Digitalization has increased significantly over the past 14 years and media companies have found new ways to monetize their service offering. Advertising revenue still remains a major cash cow for these companies, but can a media company increase individual revenue streams (such as a paywall) sufficiently to make up for the loss of advertising revenue or will it be a case of trying to maximise all revenue streams to adjust?

One thing is for sure, if there is going to be a significant decrease in advertising revenue, in line with those experienced in 2008,