KEY POINTS:
Television New Zealand will no longer broadcast regional advertising on its satellite-delivered TV One and TV2 channels after falling out with Sky Television.
From February 1, the 30 per cent of viewers who watch TV One and TV2 via their Sky receiver will no longer see ads tailored to regional markets. Regional ads will also disappear for those who watch the channels through traditional terrestrial signals in the south of the South Island and Palmerston North.
The change brings TVNZ into line with TV3, which does not include regional ads on its satellite-delivered programming.
Industry sources said it would cost TVNZ "several million dollars" and marked a strategic shift after a clash at the end of last year between chief executives Rick Ellis of TVNZ and John Fellet of Sky.
TVNZ has long been niggled by its reliance on Sky to deliver regional ads. The crunch came at the end of last year when the Optus B satellite went off centre and TVNZ had to ask for Sky's help to stay on air. Sources said that, after helping TVNZ through the crisis, Sky refused to return its satellite arrangement to the status quo.
"Rick Ellis was appalled by Sky's approach and told Broadcasting Minister Steve Maharey that Sky was holding a gun to his head," one source said. "He called Sky's bluff and pulled back regional ads rather than renewing a deal that gave Sky power over its revenue."
A TVNZ source said: "It was a case of ... you want to go back on air, we want to talk to you about the future of digital television. For every day we were off air, it would have cost millions. The deal was up for renewal in January and TVNZ pulled out."
TVNZ and others in the industry said Sky's demands were "outrageous" and "bordered on anti-competitive".
The specifics of what Sky demanded are unclear. But Sky chief executive John Fellet said it was not a move to control digital TV advertising.
"Let me know how we can affect the future of the digital environment," he said.
He did confirm that Sky wanted TVNZ to end a ban on Sky commercials on its network. "They were asking us to do something so that they could make more money. I don't see why they cannot do something that helps us do the same," he said.
Others in the television industry were surprised by Sky's approach.
Said a non-TVNZ source: "Basically, there is a gentleman's agreement that when a competitor had trouble, like TVNZ had this time, that costs money, the other networks do not take advantage and help where they can to keep them on air."
Managing director of advertising agency Total Media, Martin Gillman, said the row signalled the reality of the new digital environment in which Sky was, for the first time, facing direct competition.
"Up until now they have had it their own way, but TVNZ's response this time suggests that will not always be the case."
Based on ACNielsen figures, regional ad breakouts account for about 13 per cent of television advertising spend, with TVNZ collecting around 80 per cent, or $80 million.
As for terrestrial services, in February TVNZ will merge the Dunedin and Christchurch regions. Later Palmerston North and Wellington regions will be merged.
SATELLITE SPAT
* TVNZ earns about $80 million a year from two minutes an hour of region-specific advertising
* It has relied on Sky Television satellite space for regional breaks on Sky's digital deliveries of TV One and TV2
* Sky demanded concessions in return for helping with a transmission crisis
* TVNZ has pulled back from regional advertising rather than bow to Sky's demands
