Facing streaming giants with multi-billion dollar budgets, the state broadcaster has announced it expects a big 2020 loss. Duncan Greive goes to find out why TVNZ CEO Kevin Kenrick is still smiling.
Kevin Kenrick is dreaming big. “I think our biggest competition, because of their ability to wrap their hands around the digital revenue streams, would be Google and YouTube,” he says. “[That’s why] it’s not enough to be the biggest local player,” he says. “We’ve got to be three times bigger than what we are to have critical mass.”
It’s an arresting statement. To talk of immense growth at this moment, after a winter which has had media executives throwing around the word crisis amidst a string of poor results. MediaWorks, owner of TVNZ’s crosstown rival Three, has openly wondered whether its television business can even survive.
Yet there he is, CEO of TVNZ, suggesting that it needs to triple in size. To put that in perspective, to achieve that it would need something like the revenue of TVNZ, Stuff and NZME (owner of half of New Zealand’s commercial radio, and publishers of the NZ Herald) – combined. To put it in further perspective, over the past 20 years TVNZ’s revenue, far from marching forwards, has in fact shrunk by nearly 40%.
An absurd goal, on the face of it. And yet of all the big four ad-funded media outlets – MediaWorks, NZME and Stuff being the others – TVNZ is in easily the best position to weather the current storm, to survive the pinch bedeviling media worldwide. Of the four, it has the most committed owner, in the New Zealand government. When it made the strategic decision to forego dividends “for the foreseeable future” in favour of investing in its digital transition, its board simply informed its minister, former TVNZ journalist Kris Faafoi, who readily accepted it.
Three’s campaign to turn off TVNZ’s commercial taps
The news was greeted with amazement by Three, whose CEO, Michael Anderson, told The Spinoff in an interview that he thought the government should consider making TVNZ non-commercial to protect the diversity of news providers. Kenrick says he understands why Anderson is making the case.
“If I was one of the other commercial players, I’d probably push that angle as well,” he says. “If I could sell it, I reckon I should be given a knighthood. Cause it’s so self-serving, you kind of go, well, why wouldn’t you have a crack? But I’m not sure what problem it’s solving other than actually helping someone’s vested interest.”
Anderson has a point, to a point. TVNZ is a rare bird in the world television marketplace, in being both wholly government-owned and run on a for-profit basis without any public good charter (it had one, but National scrapped it). Yet Kenrick suggests that all it is doing is channelling profits back into its business as it undergoes a once-in-a-lifetime transition from linear to digital.
“I think that the media sector is in a phase where people are either choosing to invest or they’re looking to exit,” he says. “And I see NZME investing in this business. I see Sky investing in its business. I see TVNZ investing in this business. I think some others are waving the white flag. So that’s a choice.”
He says that MediaWorks’ pleading is ironic, given that while its television business is losing millions of dollars a year, its ultimate owners, Oaktree Capital, are more than capable of investing to help it out. “If I look at their majority shareholder, a VC fund with US$120 billion at their disposal, I don’t believe they can’t afford to invest if they chose to. So I think it’s their choice. And in fact they’ve got the deepest pocketed shareholders of any media company in New Zealand.”
Three put on a show the day The Spinoff’s interview with Anderson was released, with Duncan Garner shutting off the studio lights on the AM Show to make a lively if somewhat garbled plea to Faafoi for help. Garner’s boss, Newshub head Hal Crawford, put the case more surgically in an opinion piece entitled ‘The Problem with News in New Zealand’, talking of his frustration at the “polluted waters” he says TVNZ creates. The government appeared unmoved by the extraordinary episode, simply restating that it intended to have an announcement to make on journalism by the year’s end.
The competition is global, not local
Seated in a semi-private meeting room on the seventh floor of TVNZ’s sparkling headquarters in downtown Auckland, Kenrick does a reasonably convincing impression of a man above such petty concerns. He says he is “not actively involved” in a conversation with Faafoi about decommercialising TVNZ, which seems to indicate that it has definitely been discussed. But if there’s motion around any type of reform, it still seems a while off.
Kenrick doesn’t want to talk about that. He doesn’t really want to talk about the local market at all. His sightlines are looking outwards, rather than in. “I think the big change that has occurred in the marketplace is a shift in competition from local versus local to local versus global,” he says. “And I think that it’s getting to the point that everyone’s got to make a choice. Are you up for that competition? Because if you are, you’re going to have to put your hand in your pocket, you’re going to have to invest and you’re gonna have to go really hard at that. When we look at competitors like Netflix and Amazon and Disney+, they are prepared to lose billions of dollars a year to create a future business.”
Put in that context, TVNZ’s projection of a $17m loss in 2020 looks hopelessly unambitious. This focus on international competition isn’t just a fun way of slighting Anderson and MediaWorks (though it is that, too). It’s also a hard fact.
Five years ago, in 2014, TVNZ published an annual report which talked about its ratings in various demographics. It published the top 20 shows of the year for those aged 25-54. In 20th place was Trophy Wife, a one-season-then-cancelled US sitcom, which averaged 190,000 viewers and took a 10% share of all available viewers in that age range.
In the most recent Nielsen ratings released, the 20th most popular show in 25-54 commanded an audience less than half that size. Shortland St, once a ratings juggernaut, drew just 160,000 viewers in the demographic, significantly less than that unloved bomb of sitcom.
New Zealanders haven’t stopped watching television in the intervening years. They have simply changed channels. In 2014, Lightbox had just launched and Netflix required a VPN. Today Netflix is, according to a 2018 NZ on Air survey, New Zealand’s second-most popular channel.
It’s also one of the world’s most valuable companies, which is why the likes of Disney, HBO and Amazon are all pouring those billions into ad-free subscription video-on-demand (SVOD) platforms. They’re commissioning nine figure budgets without blinking, and increasingly stopping selling what rights they own to other networks in favour of going direct-to-consumer. So it’s both product differentiation and necessity which is driving a new strategic emphasis on content.
“If you’re going to compete, you need to compete on terms that are favourable to you rather than the terms that are set by the competitor,” says Kenrick. “For us, that means a much, much bigger focus on local content. We won’t access more international content than the international players. In the year ahead we’re going to increase investment on local content by around $20 million year-on-year. Now, it’s a rounding error versus the US$13 billion invested by Netflix. But it’s a step in the right direction.”
A re-emphasis on local content
In the 2014 TVNZ annual report, the faces of Mike Hosking and Toni Street smiled from the cover. They were its local stars, both since departed, but the slate behind them was relatively thin. Since then, TVNZ has commenced a major shift to reclaim the ‘champions of New Zealand content’ mantle which Three had a plausible claim to for a while there. It has recruited a number of ex-Sky and Three stars, most notably John Campbell, Hilary Barry and Scotty Stevenson, and poured money into creating local originals for its TVNZ OnDemand platform. (This has been matched on the exec side, with the highly-regarded likes of Cate Slater and Nevak Rogers joined by new recruits like Melodie Robinson).
Even reality TV, once unquestionably owned by Three (though pioneered by TVNZ), has become far more contested ground, with the likes of The Great Kiwi Bake Off and a revived Celebrity Treasure Island palpably different in intent to the more frenetic and adult likes of The Block and Married at First Sight.
Along with local content and original reality, the third way of differentiating your product in television is sports. For decades TVNZ essentially ceded this ground to Sky, who outbid them for everything as its subscription juggernaut gathered pace. Yet over the past few years TVNZ has quietly re-emerged, taking on events like the Commonwealth Games and Wimbledon. Then, in an audacious move, it partnered with Spark to buy the rights to this year’s Rugby World Cup. It’s a smart play – should there be anything like the technical difficulties which plagued Optus in Australia during the 2018 football world cup, TVNZ will function as backstop.
Kenrick sees sports as one of the increasingly rare opportunities to create appointment viewing in the VOD era. “One of the reasons that news is so strong is because it’s live – and that’s equally why sports is so strong,” he says. “There’s some sport that we can do ourselves. America’s Cup is a good example of that. And there’s others that we’re just not big enough to be able to do on our own and you need a combination of the ad-funded and the subscription-funded to make it commercially viable.”
While it is partnering with Spark on the RWC, Kenrick says he’s leaving the door open to working with Sky in the future, and speaks admiringly of the energy new CEO Martin Stewart has brought to the role.
The scale of the challenge
Stewart has in many ways attempted to do in six months what Kenrick has done in six years – pivot hard to digital, create partnerships, and send a message to the market that while linear television is not yet dead, his exec has a plan for what comes next. Both businesses share a strange quality, in that each are unquestioned leaders in their sectors (pay TV and free-to-air) within New Zealand, while most market analysts write them off. The key difference is that while Sky shares are at a multi-decade low, Kenrick has the luxury of not having his performance measured by the market every day.
This allows him the opportunity to convey a level of calm and farsightedness that his contemporaries lack. MediaWorks’ Anderson would say that’s because there’s an implicit bailout baked into its government ownership, and it’s obvious that there is a significant structural advantage for TVNZ. Yet it’s how you use your advantage which matters. Kenrick and TVNZ are doing all they can to convince New Zealand’s advertisers and audiences that they can handle this extraordinary transition, and carve out a space of their own even as the billions rain down in the peak content era.
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“I don’t think we’re naive about the challenge, but I think we’ve got an optimistic view and high ambitions for the role that we can play in that,” he says as our interview draws to a close. “I do think that the fundamentals of the industry are that there’s some great ingredients to work with.
“We reach two million viewers per day. We’ve got our most watched news, current affairs, local entertainment content. We’ve got the leading local player in terms of on-demand streaming.”
He pauses, perhaps aware that for all that, what lies ahead of TVNZ is extraordinarily difficult. Digital growth stubbornly refuses to make up for a decline in linear revenue. Indeed, a 38% increase in digital audience only created a 31% rise in digital revenue. So it’s far from clear that there’s even a business there once TVNZ completes its transition. But Kenrick seems undaunted, genuinely relishing the scale of what stands in front of him.
“We still have a mother of a challenge up against the global players… But you know, we’re going to have a crack.”
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