Contemplating the end of Three

MediaWorks’ CEO asks us to imagine a world with only government-owned TV news. Unless something is made to change at TVNZ, he tells Duncan Greive, that could be a reality. 

The New Zealand media executive in 2019 is an individual suffering from a very specific type of exhaustion. This is true of people from all walks of life, obviously, and most are doing it tougher than anyone with chief and officer in their job titles. The specificity comes from a rising sense that no matter what they do, no matter how hard they fight, how many titles they cut or people they make redundant – that absent some kind of radical intervention, their business is beyond saving.

Business is always hard. Retail is being smothered by Amazon. Hospitality by Uber Eats. But even in their darkest moments, bosses in those sectors know people will continue to eat, and need to buy things. They won’t necessarily always consume local content. Media has finally arrived at a winter which makes it wonder whether spring will ever come.

“Right now, November is a long way off,” says Michael Anderson. “This six months feels like it’s been going on forever.”

Anderson is one of the most senior of those exhausted executives. He leads MediaWorks, the parent company of Three, The Edge, The Rock, Mai FM, outdoor advertising company QMS and a host of other media assets. I met him in his compact corner office on a damp early evening on the last day of July. He’s an Australian, raised in the commercial radio sector, one which even now makes a lot of money, and he has the slightly shell-shocked look of someone who can’t quite believe that it has come to this. He took over from the cursed Mark Weldon three years ago this month, yet couldn’t have known what he was getting himself into. As a media company, MediaWorks has “never been one that is over-resourced,” he says wryly. It has not, he adds, “had the luxury of making big mistakes and then getting away with it”.

That’s an understatement. MediaWorks required a $43m government loan guarantee in 2011 to renew its licences. In 2013, groaning under $700m in debt, it was put into receivership. In 2015 it lost a string of major talents, while its CEO Weldon became a news lightning rod.

Its Flower St headquarters have never had the kind of plush makeover its competitors have enjoyed. Everything MediaWorks possesses it has scrapped for, competing directly against the most formidable foe in media: the state-owned giant that is TVNZ, whose TV assets earn more than twice what MediaWorks’ do.

By some metrics, this has been a banner year for Three. In a hard linear television market, its multi-night franchises such as Married at First Sight Australia, Dancing with the Stars and The Block NZ have held up strongly, and press releases have bragged of a primetime lead in the 25-54 demographic for much of the year (figures which TVNZ says are misleading).

Yet recent weeks have been brutal. Despite its successes, the TV advertising market is historically soft. And MediaWorks suffered a pair of damaging stories in July. First, it announced that the local version of international mega hit Love Island, a franchise it had snatched from TVNZ with great glee earlier in the year, would be delayed until 2020, along with a hiring and non-essential international travel freeze. Then, that Andrew Szusterman, its chief content officer and the “major architect” of its successful reality TV strategy, was leaving.

“It’s a big dose of reality,” says Anderson of the bad news. “You’re operationally at your peak and yet the market is still challenging you. It does give you an idea of the global issue for free-to-air TV, certainly as it relates to New Zealand. The scale of New Zealand, the size of New Zealand, the number of players in the market.”

These factors combined tell a grim story: that despite 10 years of unimpeded economic growth and some of their best head-to-head numbers ever, Three couldn’t afford to make its prized new show. And, causally-related or not, it was losing a prized exec – someone who worked as well with advertisers as talent. Anderson says the two events aren’t linked, but that the decision to air Love Island UK in the crucial slot 6pm news lead-in slot – where it regularly gathers less than 10% of the audience of its TVNZ opponent in The Chase – was transparently a huge error.

“You know, it’s pretty straightforward,” says Anderson. “We wanted to do a number of things with that content. One, we wanted to produce a local version and we still have the belief that that would be a very strong piece of content for us. Two, we wanted to get access to the tapes so that we could we could use VOD for those tapes. And that has proved to be very, very strong for us. So that paid off. The gamble of putting it in 5pm absolutely hasn’t paid off.”

Which is to say that of the three things they wanted to accomplish, two – a news lead-in and a local version – have either failed or been delayed. And, again with the benefit of hindsight, a show which at times borders on soft-porn, and needs to be radically cut to fit the timeslot, was an incredibly bold choice for such a family-focused slot.

The one area it has been a success is on Three Now, where it has smashed streaming records for the platform. Unfortunately for MediaWorks, this is an area in which the channel is so far behind TVNZ OnDemand that it almost seems pointless to try. Particularly given that the state broadcaster has been so aggressively investing in content for OnDemand, buying the likes of Killing Eve and The Bachelor – shows which would run on free-to-air and in primetime on most other networks – to debut exclusively there.

Anderson sees it as part of a broader pattern of behaviour which shows TVNZ’s commercial character. “They are as aggressive as any competitor I’ve ever worked against,” he says. “That goes from poaching your key talent, to outbidding you on content to doing whatever it takes to win.

“On one level, I can’t disagree with that. Because that’s their charter. Their charter is actually to make as much profit as possible. If that happens to be at the expense of the industry, then that’s not really their concern.”

The issue that Anderson raises is that TVNZ’s government ownership gives it a significant advantage over commercial players. Because it was for many years the only broadcaster, it has a legacy audience which watches nothing else – hence the still-extraordinary ratings for long-running properties like the 6pm news, Country Calendar and its 7pm current affairs shows. It also has, in the nature of its owner, another kind of special power. TVNZ is far less subject to the kind of commercial pressures other media companies face, says Anderson. It has delivered slim margins for most of the past few years, in part under the proviso that it is investing in a transition to digital.

This year, it went a step further. The Spinoff broke news that TVNZ’s board had told its minister Kris Faafoi – himself a former TVNZ staffer – that it would not make a profit for the “foreseeable future”. In fact, it forecast a $17m accounting loss in the coming year. For any ordinary private business, the end of dividends and a period of losses or break-even performance would be a calamitous event. For TVNZ, it was a quiet note. When asked whether he was comfortable with this scenario, the minister simply replied: “yes”.

This matters because TVNZ’s performance is a mirror of the sector as a whole sector. For so long the New Zealand media industry was dynamic and profitable, thanks to the constrained supply of channels and frequencies, and the high barriers to entry of print. The electricity of celebrity, talent, new formats, the news business: media owned the attention industry, and that funded all kinds of cool stuff, from architecture magazines to hip hop culture to reality television to investigative journalism.

Then the internet broke the stranglehold on attention, and the search for a replacement revenue stream is now approaching 20 years. In monied sectors, in the big international cities, media companies can get by, or even thrive. Here, all are watching revenue lines trending the wrong way. Hence the stressed executives, and a growing sense of crisis. One not helped by the revelation that the government is comfortable with TVNZ no longer looking to make a profit.

Anderson read the TVNZ news like everyone else, and says that, quite apart from his self-interest, all New Zealanders should be concerned that a state-owned juggernaut is on the verge of becoming a not-for-profit. Particularly because its rival doesn’t just make glossy reality shows – it makes and breaks news. He says this scenario is not sustainable for any length of time, and raises serious issues of media plurality.

“A democratic government has to protect democracy,” he says. “I have to believe it’s true of any elected government. If that’s true, then a government would need to do what it needs to do to make sure that there’s news diversity. And certainly the government could never find itself in a situation where [there’s] a monopoly on broadcast news. Just for the perceived conflict, you know. It doesn’t work for democracy.”

The unmissable implication there is that, absent some form of intervention, MediaWorks might exit the TV business, where it makes consistent multi-million dollar losses, and content itself with radio, where it makes consistent multi-million dollar profits. “There is a genuine risk that the government, through its owned media channels, may become the only broadcaster in New Zealand,” Anderson was quoted as telling a ministerial advisory group last year.

Seen through this lens, the pause on Love Island NZ, a costly production, looks like a delay to see whether this government will end up intervening to make substantive changes to the sector.

This time two years ago, that would have seemed an inevitability. Labour campaigned on the creation of a new free-to-air broadcaster in “RNZ+”, and then-minister Clare Curran told a New Zealand on Air Christmas party full of network and production industry executives that Labour would deliver the funding they had been starved of under National. There was an air of expectation that the challenges media had experienced over 15 years were finally to meet a sympathetic ear.

Then the private sector media heard essentially nothing.

For MediaWorks, there are small things the government could do to help a little, from leaning on the state-owned Kordia to lower transmission costs, to forcing TVNZ to collaborate more on certain types of infrastructure. This would help, but the broader problem would remain.

One option which has its supporters across the political spectrum is the transition of TVNZ 1 into a non-commercial broadcaster.

“It’s one of the things that we raise and have talked about a lot,” Anderson says. “We believe that if you’re really trying to protect that local voice and you’re leaving it only to commercial outcomes, then there should be a public service broadcaster here. You’ve got it in radio, you should have it in free-to-air broadcast as well. So we’re a big supporter of that.

“That would still leave the government with two strong commercial stations, TVNZ 2 and Duke. But we’ve always said that TVNZ 1 is a natural home for a public service broadcaster.”

While the sale of TVNZ has occasionally been mooted in the past, the idea of making TVNZ 1 non-commercial seems like the most politically viable option. It avoids direct subsidy of private media, and is current policy for both NZ First and the Greens, while close enough to Labour’s RNZ+ idea that agreement shouldn’t be hard. It would be costly, but, as Anderson points out, judging by the current direction of travel, the public is likely to be subsidising a commercial TVNZ 1 before long anyway.

Clearly Anderson has a considerable vested interest in all this. But viewed from some angles, the problem with New Zealand media is simply an excess of supply. For such a small nation, we have a lot of commercial radio stations, two large print news media organisations, three large commercial broadcasters as well as an enormous amount of borderless digital inventory everywhere from the New York Times to Facebook. By removing the single largest commercial advertising venue, it’s reasonable to expect that all private media would benefit. The largest beneficiaries would be the likes of TVNZ 2 and Three, but they are also arguably the most imperilled, in large part because of TVNZ 1’s market dominance.

In and of itself it would not solve the problems of New Zealand’s media. The challenges remain immense. Facebook has near-infinite inventory, pays little tax and doesn’t make any content. Google has near-infinite inventory, pays little tax and doesn’t make any content. Both of them operate within safe harbour, protected from the rules of other media organisations, while soaking up a fast-growing proportion of government ad spending. Netflix has global scale and investors comfortable with years of losses. Amazon uses content as a loss leader for its delivery business. Sky is the most similar competitor to MediaWorks, and has lost 80% of its value in a few short years. NZME has a nine figure debt. Stuff couldn’t find a buyer when put up for sale recently.

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“Well when you put it like that, it can feel a bit daunting,” says Anderson. “They sort of all add up and can seem insurmountable. There’s just a couple of things to stay focused on and then allow those things to unfold.”

What does he mean by that? Anderson spends a considerable amount of time talking about runway. Meaning time to earn enough to figure out what comes next. Australia’s media has more runway, he says, because the market has scale, and the government is only a very limited participant in commercial media. He’s asking the government to figure out how to provide more.

The big question Michael Anderson is asking, and all of New Zealand really needs to contemplate, is what would happen if MediaWorks were to fold its TV stations. It has been a breeding ground for comedians, like Rose Matafeo, who announced an HBO show this week, while commissioning dramas like Outrageous Fortune. And it has long had one of the best and most vibrant newsrooms in the country, producing countless extraordinary and dogged journalists. It makes the news for Prime, the only other non government-owned channel with a news offering.

Given the huge economic challenges confronting all the private media, he says the government needs to confront whether it is prepared to let its media organisations transition from sustained losses into something worse. Judging by the demeanour of our media executives, that point is closer than any of them would like to admit.


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