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Old 15th September 2019
Originally Posted by The Byre View Post
A few points to be addressed -

Not being propped up and being genuinely profitable are two different things entirely!

Enter blinking into the sunlight the concept of 'opportunity cost'!

In a good P&L account, there must be a figure placed against the final genuine net profit figure that answers a simple question - "What is the next most profitable thing we could being with these resources/capital and how much net profit would we get from that next-best-thing?"

If that figure is higher than our present net profit, we must either (1) bring our present activity up to that figure, or (2) do the next-best-thing and do it now!

e.g. Abbey Road is paying its way - but profitable it am not! As it has a preservation order on it, Universal cannot get shot of the thing and so they are stuck with what is, in reality, a great white elephant.
But that's a different thing - you're comparing profitable and non-profitable vs profitable and could be much better!

I guess the difference is - If I have a studio that pays its way, pays me a wage and makes me happy, that's better than having an apartment complex that pays me more and bores me to tears running it.

Or it's a bit like being CEO of a charity - you get paid well, but you could be being paid much better being CEO of a bank. So is it the wrong thing to do, or is the job satisfaction/moral satisfaction worth the tradeoff?

The same way a souvenir shop at some tourist attraction (real case study here!) run by a husband and wife team was running at a loss.

On paper, they were earning a gross profit after all costs were subtracted of c.a. £40,000. They paid themselves £10,000 each to cover state pension schemes and other payroll obligations without actually having to pay them or pay taxes on their income. That left £20,000 company profit on which they paid c.a. £4,000 corporation tax.

So our couple thought they had a gross profit of £40,000 and a net profit of £36,000. £3,000 a month gave them a comfortable income, two nice cars and a nice home. So far, so good.

Except when they wanted to retire and sell the business, nobody wanted a shop that is running at a loss.

In reality, what they were trying to sell were two very low-paid jobs and there really isn't much of a market for those!

I can already hear the cries of FTF??? OK, the real calculation looks like this -

Both were working about 60 hours a week, so it was not two jobs but three. Without going into the filthy details, an employee on minimum wage in the UK costs at least £400 a week (remember pension rights, NI contributions and payroll taxes, then add sickness, holidays, maternity leave and a few other things!) In Germany that figure is at least 50% more!

So now we are at three jobs costing us about £21,000 p.a. to run a shop that brings in £40,000. That is a loss of £23,000 each and every year. (And I don't see much hope for a business using the sort of staff who will work for just minimum wage!)
Yeah that makes sense. Again its passion vs outright capitalism. That shop might have been worth it for the husband and wife team owner-operators, but not for an investor looking to employ others!

The owners of large buildings employ people like me to calculate their opportunity costs - stupid they am not either!

Some nutter running a studio and scratching together A$6,000 a month for an old converted cinema is hardly an inviting business proposition when we could build a block of condos there and get the same sum for each and every apartment!
Again, same thing - I don't think you'll find anyone arguing that running a studio is the thing you do for capitalist reasons!

And I remember being told by cinema owners back in the 60s that surround sound for cinemas is just a gimmick and will never catch on!
Did they tell you the same thing about SACD 5.1 audio?! Cinema is something else - you sit there and watch. pure listening environments? I guess surround sound that works over headphones is a potential still...but the idea of surround for purely audio that involves fixed speakers and a static listener is clearly never going to happen.

Then I also remember back in the late 90s being told by none other than Helmut Thoma (MD of RTL Television in Germany at the time) that

(1) Digital television will not take off. He condemned it as 'Digital Mad Cow Disease!'

(2) High definition television is pointless and stupid. "Hardly anyone can see the difference!"
Yeah, that's a bit short sighted - I don't really know what to say other than I don't think his view would have been shared by other more forward thinkers. Didn't have anything to say about 3D cinema, or definitely 3D TV at home did he? both quietly dying (particularly 3D TV).

The latest sound-bar technology from Sennheiser and others (but the new thing from Sennheiser is the real deal!) produces 3D sound throughout a room from just one box.
I can't say I've heard it. It'll be interesting to hear - these things have always been a bit smeary and fudged in the past..and what happens when you leave the room?!