Comment

NZ media - lost in transition

Government plans to help New Zealand’s seriously ailing media industry are starting to resemble a satellite TV signal in heavy rain – not completely gone, but very fuzzy.

Cabinet appears to be moving to reshape its own assets but leaving the rest of the media to fend for themselves.

RNZ’s political editor Jane Patterson, who last year broke the story that the Minister of Broadcasting Kris Faafoi had backed a plan to establish a new, single, public broadcaster to replace TVNZ and RNZ, reported on Monday that Cabinet will probably endorse the idea after it sees the “business case”.

This will likely focus on how much money the Government will need to commit to build the new entity, and secondly, how much this behemoth will require on an ongoing basis.

Faafoi will be under pressure to get the cost calculations in front of his cabinet colleagues well in advance of the September 19 election.

Commercial broadcasters, like MediaWorks and any potential buyers of its TV arm, will be anxious to see a high level of transparency around what is being proposed and what impact the new entity will have on the advertising market.

The crucial decision for Cabinet will be how much commercial revenue the big public broadcaster is allowed to go after.

If it is anything like TVNZ’s current level, then, as one senior media executive put it, “all the oxygen will be squeezed out of the industry”.

The Government will want to prevent that. 

Patterson reported her sources as saying there would be “specific emphasis on the fact the new company will be primarily a public service media outlet, and to ensure that is made crystal clear in any legislation, and through a charter”. And that it will fund only “some of its operations through commercial or advertising revenue.”

Faafoi will need to factor in that the TV advertising market is declining and could, although unlikely, go over a cliff like print advertising.  

Public broadcasters in other countries that rely on a 'mixed funding model' like Ireland’s RTE have ended up begging for a licence fee increase as its commercial revenues have dived.

The proposed charter will also be hugely important if the Government is to convince Wellington’s Wadestown set, and voters generally, that RNZ won’t end up being swallowed whole by the more aggressive commercial culture of TVNZ.

Work on a charter and structure of the new entity is unlikely to progress much before the election. If National wins, Simon Bridges has threatened to bin the whole idea. 

“My concern is that a merged public broadcaster would be all too powerful and monolithic…. this is not something to be pushed through in an election year and National reserves the right to unwind changes that are made without thought and consideration of the National Party’s position.”

Presuming the coalition returns, the charter, which will be the foundation document of the new outfit, would be designed with input from executives at both TVNZ and RNZ.  

Respective CEOs Kevin Kenrick and Paul Thompson appear to be fully in favour of building a new public broadcaster. Kenrick will need to temper the highly commercial behaviour that he has driven into TVNZ under his current mandate, while Thompson will have the task of preparing a small, highly-focused RNZ to be part of something much bigger.

Both appear up for the challenge.

The restructure of public broadcasting, even though it is some years away from completion and may not yet happen, should turn out to be a positive for MediaWorks.

The company is clearly struggling to find a buyer for its loss-making TV arm, but if its main competition is not chasing nearly as much advertising revenue and is not bidding for the same US and Australian reality shows because they’re incompatible with its charter, then Three becomes a more attractive proposition.

The Australian newspaper recently reported that the Australian TV networks, Seven, Nine and Ten have dropped out of the running to buy Three. The paper said it was likely that only a couple US players remained interested.

The Aussie networks are obviously struggling to see how they could turn around Three’s profitability even though they could inject some of their own programming at minimal cost. But, a change in the dynamics of the advertising market could entice them back in.

There is also an outside chance that MediaWorks could reverse its decision to sell and look to hold on until the shape of the new public broadcaster becomes clearer.

It has extracted $26 million from the sale of its Auckland headquarters, secured a two-year leaseback of the premises, interest rates on its debt will likely stay low and the beast in the market, TVNZ, will be distracted in the short- to medium-term.

MediaWorks also has a new shareholder alongside the existing owners Oaktree and QMS. Australian private equity company Quadrant is taking over QMS and that will give it a 40 percent share of MediaWorks.

It is not known what Quadrant’s view on the TV arm is yet, but sources close to MediaWorks say it is “not a slash and burn operator”. They point to Quadrant’s experience with another media company, APN Outdoor, which it bought, built up and floated on the ASX at $2.50 a share. The company was eventually taken over by JC Decaux at $6.70 a share.

Two other factors might play a part in Oaktree’s and Quadrant’s thinking. The Government’s stimulation of the economy through its infrastructure spend-up could help the advertising market, and there will almost certainly be an increase in NZ on Air’s budget - which MediaWorks will benefit from.

This may not be enough to return Three to profitability but it could give MediaWorks some breathing space until the tribe in the Beehive has spoken and we know who is leaving and who is staying in the media game.

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