Cool head sizzles in the hot seat at TVNZ

By KARYN SCHERER

The view from the seventh-floor office of TVNZ chief executive Rick Ellis is soothing, if not spectacular.

From where the former airline and computer industry executive sits, central Auckland sprawls down to the harbour and spills north. Behind him, the orange and red tones of a giant banner, advertising one of the state-owned broadcaster's new programmes, gives the impression that the outside of the building is on fire.

The effect is somewhat appropriate, for Ellis is most definitely in the hot seat.

More than three-quarters of the way through a four-year contract to oversee one of the country's most high-profile businesses, the first non-journalist to take on the role is facing one of his biggest tests.

When he took over in February 1998, he was clear about his mission: get costs down, profits up, and ensure the broadcaster was well positioned to cope with the digital age.

Three years later, TVNZ's profits are faltering, its costs have risen spectacularly and there is no sign of a digital service. Millions have been wasted on an ambitious plan to enter the pay TV arena, and it has been outmanoeuvred by its competitors on issues crucial to its future.

As far as the Government is concerned, Ellis' considerable achievements - making TVOne profitable for the first time, boosting viewer loyalty to TV2, increasing television's share of the advertising market, reversing a ratings decline, and extracting TVNZ from a restraint-of-trade agreement with Clear Communications - count for little.

On his desk sits a thick set of papers outlining TVNZ's ambitions to run a new Maori channel. But it remains to be seen whether the Government can be convinced that the broadcaster is up to the job.

A former TVNZ employee, who despite being a fan of Ellis is reluctant to be named, sums it up thus: "Christine Rankin is the only person whose [political] situation I imagine could be worse right now."

The comparison is not entirely ludicrous. Says Ellis in his own defence: "If you read the newspapers you get the sense we're a business that's stumbling from one cock-up to another. The reality is, that is not the case."

As he sees it, TVNZ has been a victim of circumstances not of its making. Hit by a triple whammy of a worldwide slowdown in advertising, increased costs and a weak New Zealand dollar, it is finally facing the grim future that has been predicted since the industry was deregulated.

Brandishing fiscal forecasts prepared to back his case for major surgery, he produces a series of graphs that appear to show a patient with a terminal illness.

Year on year, advertising revenues are already down by 5 per cent, slicing about $11 million off the balance sheet. By next year, overseas programming costs are expected to have risen by 81 per cent on the level they were when Ellis took over. Labour costs are expected to increase by 14 per cent, and depreciation of the company's investments in technology will rise by 42 per cent.

"Given those dynamics, the fiscal reality is that the TV business, in the absence of action to address it, is in a negative cashflow, negative EBIT [earnings before interest and tax] position from next year," he says.

It will be up to a team led by former Lion Nathan human resources manager Alan Brookbanks to suggest ways to slice $20 million from the organisation's budget. Their report is expected by the end of August.

Ellis is reluctant to offer his own thoughts on the way forward, other than to hint that some advertisers might be getting too good a deal, that it needs to look at "lower cost and more effective forms of distribution," and that more needs to be done to persuade marketing graduates that television is still "exciting and sexy."

He also hints at some "interesting trials with advertisers" in its internet business, Nzoom. Even more interesting could be an attempt to extend its experiment with its low-advertising zone.

On the cost side, "everything's up for grabs, frankly. There are no sacred cows."

Although the review is obviously unsettling for TVNZ's 1500 staff (not least because the previous restructuring, known as Operation Hamburger, also had "no sacred cows"), it does not appear to be unsettling for Ellis. In his previous jobs, which include heading Ansett New Zealand, rescuing Wang UK from near bankruptcy and heading sales and marketing for Ansett Australia, restructuring has been a way of life.

The last major restructuring at TVNZ, just before he joined the organisation, was "fairly ineffective," he says.

"I'm somewhat surprised that we haven't had to embrace this process earlier."

What does surprise him is that TVNZ's commercial mandate is still up in the air.

Despite countless reviews, scoping studies and Treasury reports, its new political masters have still not agreed whether it will continue to be profit-driven, or whether its transmission arm, BCL, will be sliced off.

The cabinet is expected to address the issue on Monday, but Ellis is clearly losing patience.

"We're all professionals in this business and we do the job that's required of us - but let's have some clarity about what the job is," he harrumphs.

Likewise with the TVNZ charter. Ellis claims to be happy to embrace the charter, as long as the Government recognises that it will affect profits.

"My issue with the charter is one of funding. If you expect a result that's going to cost you Y and you're only prepared to fund X, and there's a gap between X and Y and then you get flogged for not having found a way to meet that gap then I have a problem with that. But if there's clarity about what funding is available, so let's develop our measurement against that - terrific."

Ellis has made no secret of the fact he was hired by National to prepare TVNZ for sale. By the time he got his feet under his new desk, Jim Bolger had been ousted as Prime Minister by Jenny Shipley, and the privatisation plans were shelved.

He was given the chance to opt out, but decided to stay. Just as well, apparently, as he now insists TVNZ should be kept in public hands.

"At the end of the day, every nation needs a state broadcaster to defend, protect and grow its culture and its heritage," he argues.

"Given the huge disparity in the cost of local programming versus overseas programming, if we were flogged off I've no doubt that over time the extent to which New Zealanders would see themselves expressed on TV would diminish."

If that sounds like a suck-up to Helen Clark, it almost certainly isn't.

Ellis won't discuss his next move, but friends have no doubt he is itching to return to the private sector. He was widely rumoured to be interested in the job now filled by Gary Toomey at Air New Zealand, and his eyes light up when the subject of the airline industry's woes are raised.

The television industry, he suggests, is not dissimilar to the domestic airline industry.

"Without being disrespectful to the other players in this marketplace, the regionals are charitable trusts at best. The national regionals don't make money, TV3 and TV4 aren't making any money, and we are now tracking not to make money. Sky is not making money and it will be a wee while before TelstraSaturn makes any money, so fundamentally we've got an industry that doesn't make money."

Finding colleagues who will talk about Ellis on the record proves difficult. Business associates admire his skills and point to a highly successful career so far. In the broadcasting industry, where passion is often rated more highly than profits, the praise is more muted.

"[Former chief executive] Mike Lattin was passionate about trying to work out how to make television work and how to make a profit," recalls one colleague. "[Ellis' predecessor] Chris Anderson was passionate about trying to find a future for himself. I can't actually find out what Rick Ellis is passionate about, which is sad because he is quite likeable."

Asked if he is really as sanguine as he appears about the impending cuts, Ellis explains he has become resigned to the fact that there is going to be change. Nevertheless, he hopes the "major shadow" hanging over the company will soon go away.

"It's unsettling for all our stakeholders: employees, advertiser agencies, and the independent production sector."

I'm sure he meant to add viewers as well.