Peter Parussini: NZRU's business model is killing rugby

Too much of a good thing has made rugby fans picky. Photo / Supplied

Opinion

The real test facing New Zealand rugby is not the Tri-Nations but the renewal of its broadcasting rights and the perilous financial state of the game that's driving this process.

The New Zealand Rugby Union, through its Sanzar partnership with the Australian Rugby Union and the South African Rugby Union, have put a broadcasting proposal to South Africa's SuperSports and Rupert Murdoch's News Ltd, the current owners of most of the televised rugby rights for the Southern Hemisphere.

Under the current US$323 million ($493 million) five-year deal expiring at the end of the 2010 season, Sanzar had to give "first rights" for a new deal to the broadcasting incumbents by June 30 this year.

The pay TV broadcasters have 60 days to come back waving a cheque for Sanzar to snap at or, more likely, will talk about how tough the media world is in the middle of a recession.

At that point Sanzar will need to make a big call. Will it persist and continue to talk or go to the market to test the broadcasting rights waters? Under the current contract Sanzar only has the ability to take to market a deal that is "materially" the same.

To the credit of the NZRU management and Sanzar, the proposal is more sophisticated than the current deal and is divided up into live, delayed, highlights, mobile and internet rights. In the first deal in 1996 and the second in 2005 everything was bundled together.

With Super 15 Sanzar has also tried to make the competition format more attractive with home and away derbies and more matches in the potential growth market of Australia.

In an ideal world Sanzar would sell off all its broadcasting "properties" to separate players to create some competitive tension in the market to extract better value.

It's a bit like your local butcher cutting up a lamb carcass into neck chops, leg roasts and the loin and retailing the pieces rather than selling a huge side of meat. They'd make more money that way. The difficulty for the butcher, of course, is that they have to hope enough people come through the store during the week to buy bits of lamb. And, what if someone comes into the store at the beginning of the week and says they want a whole carcass instead? Do they take the money, or hold off in the hope of getting more later?

That is the dilemma facing Sanzar and the NZRU. Is there a strong enough international televised rugby market to retail your product to rather than wholesaling?

With the recession the international television market is weak and rugby, despite all the hoopla, is still a fringe sport. To put things in perspective, in the large television rugby market of Britain, Europe's Heineken Cup final in May had 460,000 viewers. In contrast, soccer's Champions League final attracted almost 11.4 million.

Additionally, pay TV company Setanta has recently gone bust so its television rights, which includes the Scottish Premier League and two English Premier League soccer packages, have gone back into the market and sucked up any spare cash floating around.

In a way, the Sanzar partners have already devalued their product. They have already locked themselves into a Super 15 competition that will deliver 120 matches a season, up 29 matches on Super 14. This is not to mention the three rounds of Tri-Nations introduced in the 2005 deal, the add-on Bledisloe Cup clashes played in third countries and the 14-team NPC.

All these extra matches have commoditised the game, made it one giant rugby offering. There is so much rugby now that the fans have rightly become picky. Dwindling viewerships and game attendances in New Zealand attest to this.

It's a bit like a smorgasbord - when confronted with a table groaning with food, most diners go for the crayfish in the middle not the luncheon sausage on the sides. It's inevitable they end up getting their fill with the best that's available regardless of how much they love eating.

In a television sense it's invariably only the top All Blacks matches and probably the finals and semifinals of Super rugby that will be devoured. Sadly the NPC, from a television perspective, has been made into that luncheon sausage.

And the difficulty in New Zealand is that all those matches are only available via pay TV, which reaches less than 50 per cent of households. There's now a generation of Kiwis who've never been able to see an All Blacks test, which you'd think the guardians of the game would be concerned about.

The platform the matches are shown on is an issue. The pay TV business is based on subscribers. Once you subscribe, pay TV doesn't really care whether you then watch or not - the money's in the bank, thanks.

The greatest threat to pay TV is "churn", when subscribers cancel their service. To prevent this pay TV has, in effect, extended the local rugby season from February with the Sevens in Wellington to early December with the All Blacks Northern Hemisphere tours.

Free-to-air TV, on the other hand, relies on relentlessly trying to drive eyeballs to programmes because the business model relies on audiences for advertisers. Free-to-air TV internationally has a power that pay can never have. It drives mass audiences because of its accessibility and its constant promotion of programmes. Despite the huge increase in media choices, free-to-air TV audiences are at their highest in 10 years.

Is it any wonder, then, that the All Blacks v South Africa match in July last year on Sky Sports only had 600,000 viewers, while the Silver Ferns v Australia netball test on TV One in September had 1.2 million?

But the downside of free-to-air TV is that it can't show anywhere near the same amount of sport as pay TV. Free-to-air TV channels have to be broad so must present a mixture of programmes. It also can't match pay TV for dollars.

Netball New Zealand understands this and has a balanced approach to selling its television rights. The 17-week long ANZ championship is sold to pay TV with a replay on free-to-air. Test matches, on the other hand, are sold to free-to-air with a replay on pay TV.

Netball New Zealand values the promotion and exposure for the game and its sponsors that the reach of free-to-air TV provides.

But there is one other thing that Netball New Zealand has that the NZRU doesn't - more financial freedom.

The NZRU desperately needs to earn revenues. The NZRU roughly earns $100 million a year and spends more than that on the salaries of professional players, running the All Blacks and other national teams, running competitions, on investing in game development programmes and propping up ailing provincial unions.

Unless it addresses its cost structure, New Zealand rugby is caught in a death spiral of having to sell more and more matches to pay TV, even at the cost of dwindling crowds and viewers, to pay the nation's rugby bills. It's an unsustainable business model.

* Peter Parussini is the head of corporate affairs for TVNZ and the former general manager of communications for the NZRU.