MediaWorks: When winning is not enough
Profits continue to elude the country’s biggest private broadcaster despite better TV ratings and steady success of its music radio stations. Now, as Mark Jennings writes, its hopes are resting on a billboard company to light up its prospects.
COMMENT: It might be tough running a media business in New Zealand but it’s even tougher trying to sell one.
MediaWorks’ boss Michael Anderson must realise now that it is going to take some sort of miracle for him to conjure up an exit for the company’s owner, Oaktree.
Anderson did his annual round of media interviews this week when the broadcaster released its financial result.
The result itself was pretty ordinary – a similar loss to the previous year of just over $5 million, but what must be depressing for Anderson is that nobody wants to buy New Zealand media assets.
His task when he took over from former CEO Mark Weldon was to stabilise the company and sell it for the best possible price. The problem is there are no buyers. Nine Entertainment, the Australian company that owns Stuff, has been trying to quit its New Zealand operation since the start of the year.
Stuff made a profit of $40 million in 2018 and corporate advisor Graeme Samuel valued it at $115 to $135 million. Its print operations remain profitable but, if the market talk is correct, Nine has not received one serious offer for the business.
What hope then for Michael Anderson trying to sell MediaWorks? It’s still losing money and, in the past, the US fund manager Oaktree has wanted north of $400 million for the TV and radio business.
A rather gloomy Anderson told Newsroom this week: "If that’s true (about Stuff) then that’s not heartening.”
Somehow, Anderson has to get MediaWorks back to profitability. To date, the planets haven’t aligned. The radio division, which dominates the music market with brands like The Edge, Mai FM, The Breeze and More FM, was down $6 million in revenue last year, wiping out the gains made by TV and digital. This year, radio has rebounded but Anderson says TV revenue is “challenged”. Another way of saying it is down and not meeting budget.
“The difference between success and failure in New Zealand media can be a very short journey.”
Three remains Anderson’s biggest problem. Well-placed sources say the TV operation is losing around $10 million a year but it could be higher depending on how the company's costs are split between radio and TV.
It is hard to see what Anderson can do to fix the problem. He and his programme director, Andrew Szusterman, have done a very good job to get the network to number one in the commercially important 25-54 demographic.
TV3 has sat in the number one spot for three months now, beating both TVNZ 1 and 2. No previous management had been able to achieve this.
Reducing costs in television is an option but it will almost certainly be followed by a ratings and revenue decline. As Anderson points out, the thing that differentiates free-to-air television from international goliaths like Netflix is local production.
“Local content is critical. It is either sport, entertainment or news. Sport is not an area where we can play (Sky and Spark have dominant positions). We’ve chosen news and entertainment. Unfortunately they are expensive, all local production is expensive, but it’s in our DNA and there isn’t any other choice. What we try to do is offset these with cheaper programming (in other parts of the schedule)."
It is this rationale that keeps programmes like The Project in Three’s line up. The licence fee MediaWorks pays the Australian owners of the franchise and the production costs compared to the audience it attracts means it loses money but is an important part of Three’s identity.
So how do Anderson and Oaktree find a pathway to profitability and then sale?
The fastest and quickest way would be to shut down its TV stations immediately, but the deep integration of the two businesses over recent years makes that harder than it looks and Oaktree appears to have little appetite for the nuclear option.
Instead, they have doubled down on the local media scene by merging with QMS NZ, the local arm of Australian billboard company QMS.
It’s a costly deal for Oaktree as it's giving QMS 40 percent of the merged entity and $36 million in cash.
Last year QMS NZ had revenue of $41 million and Anderson has previously said he expects it to add about $13 million to Mediaworks’ earnings. That would put MediaWorks into profit as long as TV revenue doesn't fall too much and there are no cost blowouts.
But Anderson will be hoping for an even better result from QMS. Out of home, as it is known, is the only sector of traditional media that is showing any growth and New Zealand’s $140 million market is expected to keep climbing as digital billboards provide advertisers with more flexibility.
Anderson can fuel his own profits by diverting all the money MediaWorks currently spends on out of home to QMS.
Billboards are a major marketing tool for radio and TV, so Anderson will effectively be “closing the loop”. Even better, he can use any of QMS’ unsold inventory to further boost the marketing campaigns of Newshub, The Block and a myriad of other programmes and radio stations.
If the strategy works, it will make MediaWorks much more attractive to a potential buyer and Anderson will retire with plenty in his back pocket. But, there is a realism about the ex-pat Australian that often comes through in interviews. When this optimistic outcome was put to him, Anderson’s reply was swift: “The difference between success and failure in New Zealand media can be a very short journey.”