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Why mining isn't football

Oct 08 2012 10:31 *Jarred Myers

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SPORTS and mining seem unlikely bedfellows, but lessons in one provide insight into the other.

Technology's advance has been good to sports, from third umpires to action replays, but the biggest gain in sports comes from a different technology, eyeballs.

In today's world fewer and fewer televised shows are able to attract significant percentages of targeted demographics, due in part to the plethora of content easily available - be it movies on demand , PVRs, bootlegged DVDs, illegal downloads of series and movies and more.

This audience deficit disorder has left advertisers in a pickle: how do they communicate en masse as they once could?

Those old enough to remember will recall that Tuesday night was a slow restaurant retail night in the 1980s because Dallas was on, those a little younger will know that Beverley Hills 90210 was watched and fawned over by your entire high school, despite it being dubbed over in Afrikaans, possibly the greatest apartheid atrocity carried out on white people.

Not only were these shows a sledgehammer opportunity to advertise, it was also much harder to skip the commercials. For those Gen Yers confused by my words, in order to record 90210 you would make two separate recordings, VCR and audio tapes and attempt to replay them in sync manually, clearly a large disincentive to miss the show.

With the easy days of eyeball trapping in the rear view mirror, advertisers are scrambling for share of mind.

Scarcity determines power in economic life and when scarcity shifts , life happens. Historically, television content was scarce, viewers had little bargaining power and advertisers capitalised on this by strategically placing commercials with astounding efficacy.

Today the scarcity has shifted to the audience and more and more content has resulted in less and less attention to any individual show, leaving marketers the suitors in an unrequited love saga.

This is true in all but one genre: there is but a single channel where audiences still need to be watching live and en masse, and that is sports.

Market forces have responded rationally with more than mere vanity acquisitions such as those taking place in the English premiership; in fact, domestic rights to the 2013-16 premiership were auctioned in June for $5bn - a 71% increase on the previous deal.

This will eventually plateau when the value of communicating with mass audiences equalises with the cost of the advertising space.

Now let's flip to the mining industry and show why sports and mining are indeed different - but first we need to establish how they are not.

Mining produces a scarce resource; despite rich deposits, the scarcity exists through limited access entry barriers such as high capital expenditure and long return on investment periods.

Until recent years, most industries were in similar situations with market forces establishing who succeeds and who fails. But mining has an Achilles' heel, unlike manufacturing or services which under duress can relocate to other countries and markets.

Mining is what mining does: it drills, blasts, hoists, smelts and refines and it does this with the underlying minerals which it has licence to appropriate for profit.

This has placed mining in the unenvious position that it is scarce - it is scarce in its ability to be bullied and strong-armed into submission by the authorities, since it has no alternative other than capitulation.

So mining is the unlucky canary in the macroeconomic mine, the slow fat kid whose lunch is eminently snatchable by government. This begs our attention since it indicates where next policy will tread.

If soccer and mining were to be similar, mineral prices would rise as they have and customers would put up and shut up much like sports advertisers.

However, despite South Africa being the market maker in several commodities - notably platinum and palladium - the market will not tolerate any price in the long term and either substitutes will be used or other ore deposits will become profitable.

Eventually, mining will no longer be able to sustain the bullying of uncompetitive labour costs and will either keel over or go the mechanised route. This is a lose-lose situation for government as it either loses employment, or employment plus taxes.

In short, mining and soccer are similar: they both have something scarce, they both respond to scarcity logically and they will both plateau where market forces reach homeostasis.

They are different in that sports will be the victor in high revenues leading to better facilities, more competition and likely more sports being punted to the public such as the Bollywood cricket love child walkathon.  A win for sports, a win for the public and a win for the marketers.

Mining will also respond to scarcity: it will comply with policy, it will grow stodgy and uncompetitive, it will return lower profits to shareholders who will in turn diversify elsewhere and it will crash into a crater like sinkhole, leaving pockmarks on the earth and economy alike.

A loss for industry, a loss for the economy, a loss for employment.

With mining beheaded and productivity lost, where next will Bully Inc tread? Logic will follow the low-hanging fruit paradigm that low hanging is relative, so once mining is picked, what is the next low-hanging target: real estate, heavy industry?

What is the solution? It is unclear but its principles are not. Popular short-term solutions are not good and leadership needs to be bold, as Thatcher battled the unions and an oncologist battles a cancer.

The treatment is always harsh, but the goal is for the body and not the parasite to survive.

 - Fin24

*Fin24 user Jarred Myers doubles up as guest columnist.

Any experiences you'd like to share with fellow Fin24 readers? Send your stories to editor@fin24.com and you could get published.

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