When trouble looms phoenix your company


So, the US Federal Reserve (broadly equivalent to the Bank of England – it influences the availability and cost of money and credit in the US economy) is about to bail out Fanny Mae and Freddie Mac, the two largest US mortgage providers. This comes on the back of the Bank of England helping, in no small way, Northern Rock.
One rule for them, another rule for us
In reality, in general economic terms, these companies (especially Northern Rock) should, in our world have had a receiver been appointed, and have gone out of business. Luckily for them, governments seem to think that banks and mortgage companies underpin modern day economies and that, if they fail, distrust in the market would make investors like you and me so nervous that we’d take our money out of the system causing the economies to collapse.
But, in our world, governments are not prepared to underwrite failing companies and we have seen in the last few months several high profile failures running into trouble.
Rising from the ashes
Typically these companies reappear a few days later as new companies (one might call them Failed Company 2008 Ltd), Phoenixed from the ashes having, it seems, shed their burden of debt so they can continue to trade.
Let’s have a look at how this can happen and the consequences.
Cause and effect
When companies run into trouble it normally means that the market is saying they either have too high a cost base and/or are not pricing their product correctly. Let’s take post production, for instance.
Currently, there are too many companies chasing too little business. They are having their budgets cut by the television companies. This forces down the price of jobs and, eventually, something has to give. The economy is telling us that, in Darwin’s terms, it is survival of the fittest; several companies are no longer fit.
In theory, unfit companies fail. Their work is then shared among the fitter companies who consolidate their position. The world continues with a new look.
Unfortunately the law, and common business practice, now allow people to circumvent this economic reality. Now I am not saying that any of the next few steps are ever thought through in advance; stuff happens. And it often happens like this.
The route to ashes
Let’s call the company Phoenix. Phoenix spends huge amounts of money on new edit suites. It takes on new staff and, probably, a telecine suite. It is now the new best thing since sliced bread.
But Phoenix now has huge debt and a large salary package to maintain. Somewhere along the line, it does not meet its business forecasts, perhaps because work is not coming in quickly enough, or the costs of funding its debt are rising, or many other everyday, unsurprising reasons.
It goes along to its bank and asks for extended facilities. The bank, in the current climate, says no. Phoenix is in a quandary. It cuts its prices to get work. (This also affects its competitors, the prudent companies, as you’ll see below.)
Phoenix continues to suffer as it now can’t bring in enough cash to service its debt. VAT and PAYE are due at the end of month, so it stops paying its crown debt (owed to the government in taxes). Business continues to slow down, it decides to continue to not pay its VAT and PAYE bills and then starts not paying the leasing companies for the debt it originally took on to expand. In desperation it cuts prices even more (this further effects the prudent competitor companies). Then, bang; Phoenix goes into receivership.
Rising from the ashes
Two days later, having shed some staff (the state – that’s you and me – pays the redundancy costs) and having left its debts (VAT, PAYE, advertising, creditors, lighting, heating, electricity, blah, blah, blah) in the shell of the old company, opens up as a new company – let’s call it Phoenix Risen – with its leasing debt rescheduled by the leasing companies. Phoenix Risen carries on trading.
But at what cost? The market was telling it that it was uneconomic. It has pushed down market prices for everyone else – their fitter competitors, companies which are paying their leasing debt, their crown debt and their creditors – yet they are allowed to walk free.
Just a soap box theory?
I may sound as though I am on a soap box this month but is this system fair?
Going back to the first paragraph, Gordon Brown is not going to bail out Peter Savage if I make some wrong decisions in my lending – so why should companies be allowed to run up huge numbers of creditors then ditch their unfit companies – and then carry on? It is against all free market arguments.
Maybe you have gone through a receivership and can show me the benefits. Maybe you have been affected by a receivership or, worse, maybe a receivership has caused you to go out of business. It would be good to hear your comments.
If you would like to comment on this article, or any in the series, write to Peter Savage at peter.savage@azule.co.uk or contribute to the blog at www.azule.co.uk/articles.asp where you can also read previous articles in this series.

Tags: iss022 | finance | business | azule | bank of england | phoenix | N/A
Contributing Author N/A

Read this article in the tv-bay digital magazine
Article Copyright tv-bay limited. All trademarks recognised.
Reproduction of the content strictly prohibited without written consent.

Related Interviews
  • Azule Finance at BVE 2016

    Azule Finance at BVE 2016

  • Azule Finance at BVE 2013

    Azule Finance at BVE 2013

  • Five Arrows Media Finance at IBC 2015

    Five Arrows Media Finance at IBC 2015

  • Kit Financing with Medialease at NAB 2017

    Kit Financing with Medialease at NAB 2017

  • Pilat Media on BroadcastShow LIVE at IBC 2013

    Pilat Media on BroadcastShow LIVE at IBC 2013

  • Digital Vision on BroadcastShow LIVE at IBC 2013

    Digital Vision on BroadcastShow LIVE at IBC 2013


Related Shows
  • Paragon Bank Technology Finance at BVE 2016

    Paragon Bank Technology Finance at BVE 2016


Articles
Managing Technological Change
Alan Wheable Continual technological change in the broadcast and media industries can make it difficult to plan for the mid to long term. Typically, broadcasters and media organisation are still implementing the last set of changes to working practices when the next changes come along.
Tags: iss133 | omnitek | ip | waveform | vectorscope | ultra tq | Alan Wheable
Contributing Author Alan Wheable Click to read or download PDF
What is next in OTT
Mary Kay Evans In the past year alone, we’ve seen a substantial increase in the amount of OTT content that’s being streamed. In the first quarter of 2018, there’s been a 114 percent year-over-year growth in streaming video hours, and those numbers are only expected to rise. With OTT revenue predicted to reach $16.6B in 2018, a 40% gain over last year, there’s no question that OTT is booming, and that there’s never been a more critical time to pay attention to the space.
Tags: iss133 | ott | verizon | cisco | Mary Kay Evans
Contributing Author Mary Kay Evans Click to read or download PDF
Live audio contribution over wireless networks
Pablo Rodrigues Altmann Wireless “live” contribution from anywhere at any time, this is the ultimate goal for most news reporters. The old favorite of using ISDN is becoming harder and much more expensive to access easily. Today most of us use wireless daily, in particular Wifi and HSPA/LTE 4G networks. These are now mature technologies and widely used for many applications in the home and whilst out and about. However there are still some professionals who prefer to persevere with the traditional, costly and limited ISDN communication technology before jumping into the wireless era.
Tags: iss133 | adrl | wireless audio | isdn | cellular audio | Pablo Rodrigues Altmann
Contributing Author Pablo Rodrigues Altmann Click to read or download PDF
Taking on a self employed placement year
Joshua Round The idea of being self-employed or freelancing has always been somewhat terrifying for me. There is a level of uncertainty and responsibility that comes with the freedom of being self-employed, the likes of which makes me wonder why I chose to give it a go for my placement year as part of my university course - (BSc) Television and Broadcasting.
Tags: iss133 | placement year | university | student | education | portsmouth | Joshua Round
Contributing Author Joshua Round Click to read or download PDF
IBC in a post Brexit world
Peter Savage 2 Cast your mind forward and we are not in 2018 but next year and, yes, it’s you and me walking to the departure lounge to catch the plane to IBC just as I, and perhaps also you, have done for the last 25 years. (By the way, where is my long service award – and perhaps a new pair of shoes as I must, surely, have walked the equivalent of five Caminos covering the 12 halls in the Rai). We are at the gate and my imagination kicks in as I hypothesize on what the trip might look like next year. I leave it to you to decide which is closest to what might be to come.
Tags: iss133 | azule | brexit | ibc | finance | Peter Savage 2
Contributing Author Peter Savage 2 Click to read or download PDF