Prime time hurts TVNZ

TVNZ has to pay more to secure top shows such as US hospital comedy Scrubs

The cost of TVNZ's international programming deals have risen by about $20 million a year, in a sign of the increasingly intense free-to-air TV competition since Sky TV bought Prime Television.

The state broadcaster renegotiated deals for content from Walt Disney and Warner Bros during the last financial year, securing top rating shows such as Lost, Scrubs and Desperate Housewives.

But Sky TV's bid for both free-to-air and pay-TV rights on the Disney deal pushed up the price.

The pressure could continue to inflate prices when other contracts, such as CanWest MediaWorks' deal with Fox, come up for renegotiation.

TVNZ has not revealed details of the renegotiated contracts but its just-released annual report shows its programme rights commitments over the next two years are more than $20 million a year higher than last year.

Its commitments for the purchase of programme rights within one year in 2006 are $106.8 million, compared with $84 million in 2005. For the one-year to two-year band the cost for 2006 is $69.5 million, compared with $44.7 million a year earlier.

TVNZ spokeswoman Megan Richards said the increased costs reflected the renegotiated content deals.

"We wouldn't disclose the terms of the individual contracts. But it's fair to say there were very strong competitive pressures and this is the result."

The report also showed TVNZ's advertising revenue fell by $9.4 million to $334.8 million for the year, reflecting the softening advertising market.

The number of employees paid more than $100,000 rose by 24 to 156.

TVNZ paid a $70 million special dividend to the Government in June, in addition to its $14.5 million final dividend, following a directive it should carry debt, the report said.

Sky TV's acquisition of Prime in February bolstered its position to bid for international programming.

In the Commerce Commission decision clearing the deal, the commission noted pay network Sky TV had previously attempted to sign several TV series but was consistently outbid by free-to-air TV providers.

Now that the NZX-listed company has a free-to-air outlet it can offer to pay more with an eye to recovering costs through advertising.

CanWest - which owns TV3, C4 and commercial radio stations - had no major deals up for renegotiation in the next year, spokesman Roger Beaumont said.

It had "life of series" free-to-air rights for many of its top shows, such as CSI, NCIS and SVU.

Chief executive Brent Impey told the Herald earlier this year that the company had a deliberate strategy of securing long-term programming rights.

"That provides security, it provides certainty of content and enables you to manage the business in a more reasoned way," said Impey.

However he said Sky TV's purchase of Prime had changed the "rules of the marketplace".

"The experience of the Disney deal would suggest that the player who has the ability to purchase both free-to-air and pay rights has a significant advantage."

An analyst said the timing of TVNZ's renegotiation with Disney, done through Buena Vista International in March, was particularly difficult, coming when Sky TV was hungry for content after it had just bought Prime.

Prime's viewership would determine if Sky TV aggressively bid for programming to compete against the other free-to-air channels, said the analyst, or if it was transformed into a channel to replay sport.

* CanWest's result for the year to August is expected this month.

* Shares in CanWest closed up 1c at $1.42. Sky closed up 12c at $5.52.