Who can save TV3 now?
Former MediaWorks news chief and Newsroom co-editor Mark Jennings looks at who or what might save Three now it has been put on the block.
Three is not suddenly up for sale. It has always been for sale but it came as a package deal with radio.
MediaWorks has finally accepted the integration of its radio and television businesses has failed. Putting Three on the block in a distressed asset sale will not give it much of a financial windfall.
The whole company was offered for sale for around $400m not too long ago. The Three business now could sell for a small amount of cash, or more likely someone taking on the programming and staff liabilities. It won't quite be a case of 'free to a good home' but it will come close.
Previous attempts to sell MediaWorks have foundered because potential buyers did not want to take on the dead weight of the television business as well as the profitable radio division. The operations were so intertwined they were offered as a job lot.
There could well be buyers for Three now that the asking price will reflect the television business' standalone, stressed financial state. But no one in their right mind is going to pay much for a loss-making, free-to-air TV station. Three on its own probably loses somewhere between $5m and $10m a year.
The previous management's determination to integrate the radio and TV businesses was always a risk. In many cases 1 plus 1 does not equal 3, as promised by the business consultants. And for MediaWorks, this 1 plus 1 equalled 1.
For example, combining the sales departments - the people who sell advertising and bring in the dollars - always raised the prospect of one medium being championed and the other discounted. (The same would apply at NZME, where it has integrated its radio and publishing sales.)
Who might MediaWorks' advisers find when they go looking for potential buyers for Three?
Three has a close relationship with Australian billionaire Kerry Stokes' Channel Seven, but just today Seven has announced it is spending up in that market buying the Prime TV business.
Nine Entertainment, the owner of Stuff, is looking in vain to exit the New Zealand market.
Investment funds, like the current MediaWorks owner Oaktree Capital, could be an option, working with local business people.
NZME, which owns the half of the commercial radio market not controlled by MediaWorks, could have once been considered an option but it has suspended paying dividends to try to get its own debt under control, and its share price of around 42 cents is hovering near record lows, with a possible risk ultimately to its banking covenants.
The one logical buyer would be Sky. It has looked at MediaWorks in the past but at prices which in today's context are frighteningly high and it has more than once dodged that bullet.
Sky has had its own challenges, over sports broadcasting rights, but a case could be made for it to buy Three. That's because Sky already has a free-to-air channel, Prime, which loses money at probably greater rates than Three. Sky keeps Prime to offer major sports events a free-to-air option, and to keep at bay political pressure for free and open sports telecasts.
For Sky, taking on Three and ditching Prime could make sense - and produce less of a net loss than such a purchase might be for other media. A combined Sky-Three operation could develop a top-class on-demand digital service, and capitalise on the assets of Three's strongly Kiwi brand, culture and personalities.
But any new buyer is going to have to do careful due diligence. What programming commitments would they be locked into? Would a change of ownership allow any of those contracts to be exited? There would necessarily have to be cost cuts (Three's basic problem is its costs are too high for its revenues) but who would cover any redundancy payments?
One of the problems in New Zealand’s television industry is that there is too much competition for a small country ... too much inventory ... too much competition for eyeballs ... not enough eyeballs.
If Prime were to disappear and Sky took over Three and put its free-to-air sport on it, then it might be able to get to a breakeven situation by selling advertising at a slightly higher rate or at least not have to discount inventory as much.
Would Sky's CEO Martin Stewart do it? He has shown himself to be innovative and brave but he has his own problems battling Spark and Netflix.
MediaWorks' chief executive Michael Anderson said today: "We believe MediaWorks TV is now in a place where it can be separated from the radio and outdoor business, to be operated under a new owner in a more sustainable fashion - and, ultimately, for profit."
This is a scarcely believable statement.
Anderson’s strategy of taking Three to the top of the ratings in the 25 to 54 demographic was a bold gamble, but it failed.
The high-cost reality shows like Dancing with the Stars, Married at First Sight NZ, and The Block outgunned TVNZ in the ratings - but they didn’t make much, if any, money for MediaWorks.
What can a new owner do? If they want to reduce costs they will have to jettison these local reality shows but what will they replace them with that is going to rate high enough for advertisers to be interested in? Cheaper American and Australian shows aren’t going to cut it now that we have Netflix, Neon, Lightbox, Apple and TVNZ all competing with premium products.
Anderson is not publicly speculating on what might happen if no buyer is found for Three. But, 30 years since it revolutionised television in this country as our first private channel, Three could soon end up simply pulling the plug and turning out the lights.
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