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MediaMay 10, 2021

TVNZ is all in online – and planning an ad-free Netflix-style subscription service

Image: Tina Tiller
Image: Tina Tiller

The state broadcaster is not waiting for the merger to imagine its future, reports Duncan Greive after a wide-ranging interview with TVNZ CEO Kevin Kenrick.

TVNZ is planning a major reimagining of its TVNZ OnDemand platform that will ultimately lead it into a post-linear TV future, CEO Kevin Kenrick has revealed in a wide-ranging interview on The Fold podcast. This includes multiple online-only channels, a major expansion of its digital news offering – and the bombshell confirmation of an ad-free paid subscription service.

“The future is going to require multiple monetisation streams – I think it’s going to be pretty hard to do it solely on any one,” says Kenrick, sketching a vision of TVNZ OnDemand that goes “beyond just being the on demand version of what we’ve got, to actually being the digital version of TVNZ that replaces broadcast”.

This will initially involve a re-platforming of TVNZ OnDemand which will ultimately allow for a far more complex product, including paid subscriptions. The new version could launch as soon as this year, though subscriptions won’t be turned on until the company judge the service has reached sufficient scale.

Kenrick has contemplated such an offering since at least 2018, but has never yet publicly committed to it. The driver to do so now is a realisation that, despite the explosive growth of TVNZ OnDemand’s audience and ad revenue – now in the mid-teens as a percentage of overall sales, he says – there is a strong sense internally that to maintain the same quality and scale will require a more diversified business. The pure advertising model has been its foundation for decades but will not be enough in a purely online future, with Kenrick saying that the new TVNZ will require “multiple different ways we can generate a return off of that content”.

The ad-free service is also an acknowledgement that, given the choice, many people will avoid advertisements. Chris Schulz wrote a plea for an ad-free version of TVNZ for The Spinoff just last week, while Bloomberg reported on the paradox of the online ad market in the US, where growth is massive, yet the tech is ropey, with the same ads served over and over. With Netflix having made ad-free a core part of its service, there is a sense that to compete for premium customers who have become accustomed to that, ad-free subscriptions must be an option for TVNZ.

Follow The Fold  on Apple Podcasts, Spotify, or your favourite podcast provider.

TVNZ’s strategy has in part been informed by the UK market, where Channel 4 operates with a similar ownership structure and remit to TVNZ, and has recently announced Future4 – a major business transformation project that includes a desire to have non-advertising revenue reach 10% of total revenues by 2025. This is largely driven by planned growth in All4+ – an ad-free version of its All4 service priced at £3.99, a significant discount on UK Netflix, which starts at £5.99. It’s a major piece of work, though, not just technically, but in part because of the way the rights to deliver shows are parcelled up.

“The challenge we had initially was, firstly we didn’t actually have the content rights – because you’ve either got subscription or ad rights,” says Kenrick, who confirmed that the majority of local content deals now require subscription rights alongside ad rights. “And secondly we didn’t have enough scale, because the costs of setting up that subscription [service] versus the return we’d get on it made it really unattractive. But we’re now reaching over a million viewers a week with OnDemand, and our growth rate – we’re on track to massively grow that. So I think you earn the right to do more, offer more services and more choice.”

Kenrick says that the government is aware of the strategy.  “We’re big fans of no surprises – I’ve never seen them work out that well,” he says. “So we’ve been very open with officials and with the minister about where we see the future going.” When asked whether he was aware of TVNZ’s plans, broadcasting minister Kris Faafoi would only say via email that “TVNZ has presented a range of options for the digital future of its business.”

The big shift

It comes at a time of major upheaval within the larger commercial media sector. Sky TV has a new CEO and a determinedly low share price, despite a much-improved online product suite and a growing overall customer base. MediaWorks has cleaved in two, with Three now under the control of Discovery, which is building a global paid subscription TV service of its own. Stuff is newly independent and re-positioning, while NZME recently celebrated two years since the launch of its NZ Herald premium product.

The biggest unknown remains the timing and shape of the proposed merger of TVNZ with RNZ.

The Labour government presses on with its planning, with a group chaired by former NZ First MP Tracey Martin working on a second business case for the merger. A combined entity would make Kenrick’s expanded digital news offering easier to create, through the addition of RNZ’s work to TVNZ’s existing offering, but there are quandaries presented by the apparent preference for a mixed revenue model, with some government funding and a larger chunk of commercial revenue. 

One media executive spoken to by The Spinoff, who did not wish to be named due to having a business relationship with TVNZ, wondered whether Kenrick’s announcement meant there was an online future in which some RNZ content remained ad-free, but only behind a paywall. There were other complexities too, with the idea of a public media entity that allowed ad-free experiences only for those with the means to pay: “You don’t want to live in a world where ads are a tax on poor people.”

Faafoi would not be drawn on how a paid subscription would interact with the accessibility of TVNZ’s content, pre or post-merger, saying only that “TVNZ is required to make its content available to all New Zealanders. This will not change.”

The future is online

It seems clear that TVNZ is pushing into the future with full force, betting that more planning and strategy will allow it to be the natural controller of any merged entity. Kenrick, a decade into his time as CEO, might not stick around to run it, but if TVNZ can present as having the more well-rounded out strategy, it might be viewed as the naturally dominant player.

After staring oblivion in the face a year ago, during the lockdown-driven advertising collapse, the major media entities have had an unexpectedly strong year, driven by the frothy bubble economy. TVNZ’s ability to build and scale its operation has been significantly aided by the pandemic, as it controlled costs through some high-profile redundancies, and by savings on overseas content contracts that failed to be fulfilled due to major production delays.

This had the effect of accelerating its push into local content, while also producing huge savings. A TVNZ source suggests it is on the verge of its most profitable year in a quarter century – earnings it can retain and reinvest thanks to an agreement with government to suspend its dividend

It all ladders up to an organisation which has gone from a digital laggard – a few short years ago TVNZ OnDemand was not even part of its annual upfronts presentation to advertisers – to one that is fully embracing a digital future, and openly talking about the end of the current linear delivery service. With the streaming wars in full swing internationally, the push seems existentially important – to survive against the likes of Netflix and Disney+, everything needs to be on the table.

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