Tune-up for TVNZ

Photo / Kenny Rodger

National insists privatisation is completely off the agenda as it presses ahead with the Television New Zealand Amendment Bill removing the last ghosts of the public charter.

It is the latest in a long list of Governments to try to change, fix, tweak or punish the state-owned TV company.

Financial returns announced this week - a $2.1 million profit, down from $19.4 million the previous year - come as the network faces more tough times and pressure to boost dividends in the middle of an advertising slump and media revolution.

Yet TVNZ chief executive Rick Ellis insists things aren't so bad.

"Financially the company is in better shape through the ability of the company to weather the storm. We are in a jolly good state and we are getting on with it."

TVNZ is not alone in its fight for survival. Around the world commercial broadcasters are coping with an unprecedented decline in ad revenue from the recession alongside a shift in the way that people use media.

Free-to-air television is looking for a new, viable business plan to counter the emergence of digital video recorders such as MySky and new competition from the internet.

Being freed from social obligations - what used to be called its double remit - should make the pursuit of profits easier.

But this Government is going further in setting the state broadcaster free - not just to compete with other media but to play a game of brinksmanship with the advertising industry.

The TVNZ board of directors, led by Sir John Anderson, now faces a new era of "dividends at all costs" and has tacit approval for commercial decisions such as dropping its long-running commitments to the Commonwealth Games.

Now there are even doubts it will bid for rights to what might be a seminal event for New Zealand - the 2011 Rugby World Cup.

Led by the technology-savvy Ellis, TVNZ has invested in Australasian rights to TiVo, whose digital video recorder will compete against Sky's new IPTV (internet) channels and take revenue from downloads of movies and programming.

TVNZ has declined to specify the financial performance of its online developments, which are being implemented as it cuts back on staff and local programming.

After the muddle of political interference and mixed aims of the charter, a focused commercial management has been good for TVNZ and its survival.

But with more trouble ahead and the days of big dividends in the past, what benefit will taxpayers get from supporting an underperforming commercial network in a troubled industry?

"The first thing is that the public is very comfortable owning it," says Jonathan Coleman, who is Broadcasting Minister and shareholding minister for TVNZ. "It is not for sale."

More to the point, though, he says there are no buyers out there. The value of the company through equity has dropped from $333 million at June 30, 2000, to $184 million this year, he says.

"If you look at what [the] equity has done nobody would want to buy it."

While it is less popular than the BBC or ABC, privatising TVNZ was seen as potentially unpopular, a political risk.

This week Ellis revealed a 90 per cent fall in profits for TVNZ, which delivered the Government a dividend of just $1.47 million.

To put that into context, that is about one-tenth of the taxpayers' money provided to TVNZ in direct charter funding.

TVNZ says that in large part the drop was due to a $17 million fall in advertising revenue in a slump that is expected to linger into the new year.

Ellis says that had TVNZ not acted early in the advertising slump to cut costs - cutting 88 jobs and programming, including news budgets - it would have been $13 million worse off.

He insists TVNZ is still "the national broadcaster" but a decision over its role in the 2011 Rugby World Cup may raise a question over what that means.

It emerged this week that Maori Television - which some postulate is "the real public broadcaster" as TVNZ pulls back - may access $3 million of taxpayer funding to show games free-to-air.

TVNZ is looking at the possibility of having no rights to the Rugby World Cup. It would be a bad look but may make good financial sense.

Ellis said yesterday that TVNZ's position on World Cup coverage would be clear next week but the "dreadful economics of big sporting events" was playing a bigger part in whether TVNZ could show them.

The dominance of Sky TV means sport is the most obvious example of free-to-air TV being squeezed out.

"Even the licence fees [paid by TV networks for programme makers to access the bulk of funding from taxpayers] exceed the per-episode cost of buying international content.

"It is a substantial diversion of commercial revenues to support our local-content value," he said.

A lot of people are watching TV but revenue is not coping because advertising demand and prices are low.

The good news for the commercial advocates at TVNZ - and a commercial culture that has resisted attempts to soften its advertising focus - is that the old dual remit of commercial and non-commercial performance is gone. So too are the ideological passions and meddling of the last Labour Government in the first half of the decade.

"The amendment to the charter is that we are expected to be a successful television and digital media company," Ellis says.

"The word successful means that we meet the shareholders' expectations of a return on capital invested, which is currently 9 per cent.

"Our remit as national broadcaster - a term used by Australian Broadcasting and SBS - is that we serve a national interest," he said.

In reality TVNZ has never come close to being what most countries regard as a public broadcaster.

The question is really whether TVNZ is heading for having the same obligations as TV3 or Sky-owned Prime TV. Shortland Street is a major earner for TVNZ and is wholly funded by TVNZ, but our most successful TV drama, Outrageous Fortune, is on TV3 with huge subsidies from the taxpayer.

Meanwhile, last week, Rupert Murdoch's Sky TV ran a documentary by filmmaker Alister Barry which was a pure public-service, left-wing analysis of New Zealand education policy - and had no chance of appearing on state television.

Broadcasting Minister Coleman insists there is nothing new in this commercial focus. But 15 years ago TVNZ ran educational television and individual programmes were not required to pay their own way.

Shows that were only marginally viable, returning their cost in ad revenue, were shown because they were good for the brand and should be shown.

Coleman says: "TVNZ is a commercial company that delivers some public-sector aspirations. The Government owns this excellent television broadcasting company which we have to make work."

Certainly in the Labour years and with an ideological wish for a public broadcasting edifice, TVNZ did well soaking up subsidies like the $79 million allotted to TVNZ6 and TVNZ7 for five years.

TVNZ is halfway through the funding deal - which delivers news update repeats and a handful of local shows - but Coleman says that in 2012 there will be no more public money.

Inevitably there will be speculation that these channels will wind up as the receptacles for public television roles in the future.

Ellis is hoping to get a focus on the options early next year.

Meanwhile, TVNZ is more focused on the bottom line than it ever has been. That means bold initiatives such as the decision to halve the commission paid to advertising agencies.

That is a move that agencies and a former TVNZ sales and marketing director, Lauren James, said appeared to be a de facto price rise in the middle of a recession.

In the context of Government demands for more profits, the decision looks like smart, aggressive business.

But organisations such as ad agencies body Communications Agencies Association of New Zealand (Caanz) and the Association of New Zealand Advertisers worry it will force some ad agencies to shut shop.

And even supporters of the commission cut - such as ad veteran Martin Gillman - agree with industry concerns the cut may mean some media buying may be shifted to Australia.

Ten years ago under a National Government, TVNZ's hard stance towards ad agencies would have been countered by politicians focused on the concerns of the private sector. But for now Nats support anything that boosts dividends from state-owned TV.