TV layoffs followed letter from Beehive

Television New Zealand embarked on a cost-cutting programme including 90 staff lay-offs just a week after getting a letter from Broadcasting Minister Jonathan Coleman telling it to boost its financial performance and lower its costs.

Documents released under the Official Information Act include a letter from Dr Coleman to TVNZ's board in January setting out his expectations for the Crown-owned company as a shareholding minister.

A paragraph that appears to relate to expectations of a dividend has been withheld for commercial reasons, but the letter said that in general TVNZ's future performance targets should exceed those of the current year.

It said ministers would be paying "close attention" to the forecast returns of all Crown-owned companies in their business plans and "expect to see a marked improvement in both forecast and actual performance".

All state-owned companies were expected to increase their productivity and while it was up to boards to decide how to do so, ministers would be looking for evidence of this happening.

TVNZ first mentioned cost-cutting plans to Dr Coleman just a week later in its fortnightly briefing to him, which was released under the act.

On February 4, TVNZ mentioned a review of costs was pending, "including the appropriate way to manage salary costs and managing the expectations of employees and unions".

On February 19, its update said that cost-cutting would "possibly" include jobs, and on March 4 it said that job losses were "likely" as well as "minor cuts" to local programmes.

On March 18, TVNZ chief executive Rick Ellis announced that up to 90 jobs would be lost as part of efforts to save $25 million.

The move followed a drop in advertising revenue, which meant the company was tracking $30 million lower than budgeted for.

In his January letter, Dr Coleman acknowledged the economic downturn but said TVNZ needed to "carefully manage" its performance to cope with it and focus on increasing its audience to "maintain [or grow] advertising revenue".

TVNZ paid $10.3 million last year - an 8.3 per cent return. Its target for this year was set under the previous Labour Government at 9 per cent.

However, the final dividend is decided on by TVNZ's board and calculated at about 70 per cent of its net profit after tax.

Its $18.2 million profit for the six months to December was down 12 per cent from the year before and briefings to Dr Coleman show TVNZ was expecting the second half of the year to be worse - revenue was expected to be 12 per cent down in the quarter ending March and 7 per cent for the fourth quarter to the end of June.

As well as the slump in advertising revenue, the Government is putting the $15 million that TVNZ got in Charter funding each year into a contestable fund with NZ On Air.

Dr Coleman's letter said TVNZ should ensure it was "well-placed" to secure any funding it required from the pool.

The Key Administration has refused to relieve TVNZ of the expectation of a dividend for its $200 million investment, saying the Government's own revenue was falling and it expected payment from its SOEs.

However, Prime Minister John Key has said it is up to the board to set the dividend and expectations could be relaxed because of pressures on advertising revenue.

Yesterday, TVNZ spokeswoman Megan Richards said 88 redundancies had been confirmed. Some staff were working out their notice while others had left.

Mr Ellis has said other cost-cutting measures include departments cutting their costs by 10 per cent and about 100 fewer hours in local programming.

MESSAGE MADE LOUD AND CLEAR

Jonathan Coleman's letter to TVNZ reveals more details of the heat being put on all state-owned companies by the National Government to boost their financial performance.

The letter predated a meeting State-Owned Enterprises Minister Simon Power and Finance Minister Bill English called for SOE heads last month to reinforce the Government's demands for better performance.

The letter said the SOE portfolio's return in 2007-08 was "just 4.8 per cent" of the Crown's $24 billion investment, "clearly inadequate for the portfolio as a whole".

It said the general expectation of SOEs was for new performance targets to "exceed or at least match" those set in the previous year.

"We would therefore expect this to be reflected in an increase in the directors' estimate of the value of the Crown's investment in each SOE and Crown entity company and for the business plan to clearly demonstrate how this will be achieved."

It said ministers expected all state-owned companies to set challenging performance targets and their non-financial targets should reflect stakeholder interests as well as each company's objectives.