MediaWorks in 2018: is the toughest kid in the media finally going to be released from private equity prison?

The home of Three and radio stations like The Edge has been owned by private equity for 10 years now. As part of his series on NZ media in 2018, Duncan Greive talks to anonymous executives within and without of the company to find out whether it might be close to getting an owner that really wants it.

In 2015, MediaWorks was a mess. Then-CEO Mark Weldon had imposed a brute force strategy to emphasise reality TV and entertainment over its historic strength in current affairs, and many of its senior journalists were in open revolt. Within a year some of the most important names in its history, including Hilary Barry, John Campbell and Mark Jennings, left the company which they’d help build. It appeared like a company spinning out of control, leaking to other media and without a coherent strategy to save itself.

Sources have revealed to The Spinoff that at the same time, a very serious offer of over $400m was made to buy MediaWorks. The suitor was Sky TV, in a move which – had it been successful – would have created a TV powerhouse of unparalleled strength.

Then as now MediaWorks was majority owned by Oaktree Capital, but several other private equity groups had minority stakes. Sources say there was a dispute over whether to accept Sky’s offer. The smaller shareholders believed it represented fair value, while Oaktree wanted to hold out for more.

A compromise was reached, with Oaktree using the offer as a valuation at which they bought out the rest – their taking of full ownership was covered in our media in June of 2015. Outgoing Sky CEO John Fellet recently confirmed to The Spinoff that Sky “has always found their assets interesting”, while MediaWorks refused to comment. It is believed that Sky has since made multiple efforts to revive the talks, each time at a lower valuation.

It’s a fascinating alternate history, as a wealthy, New Zealand-domiciled owner is precisely what MediaWorks has needed for some time. An irony of the inglorious end of the Mark Weldon era is that the strategy he and Julie Christie plotted has largely been carried out subsequently, and the business seems all the better for it.

What it might have been able to do with the stability of a connection to Sky remains in the realm of conjecture, but surely many who have worked for the incredibly lean MediaWorks operation in recent years wish Oaktree had accepted the first offer. It’s also likely, given the continued dwindling away of linear TV audiences, that Oaktree has had cause to regret passing on it – and that it is unlikely to realise anything like $400m for the same assets in 2019.

“It’s like a street kid in the media business,” said one TV exec. “It’s never had it good, so there is a certain amount of toughness.” That really does sum up MediaWorks, a Frankenstein cobbled together out of a latecomer TV channel and a bunch of radio assets originally rolled up by none other than former National finance minister Steven Joyce. It has never dominated anything, always had to brawl its way to any power, and that posture is now baked into its DNA.

For the last 11 years it has been owned by successive private equity firms – which typically buy distressed or poorly-run businesses they can turn around before flipping for a quick gain.

That is not what has happened with MediaWorks. After previous owner Ironbridge sold some of its distressed debt to Oaktree in 2013, Oaktree has steadily increased its stake, and has likely owned it far longer than it intended. The very public nature of its struggles is surely not a situation to which it is accustomed. But the core strategy – keeping it lean and ready for sale – remains. This is sustainable over short periods, but at a certain point a business needs to have a clear and far-sighted strategy, and invest in what is necessary to bring that to life. This is the piece MediaWorks has been missing in recent years.

This is not to say it has not been in motion. The television business is easily the most difficult, and Three has done a lot to build a more logical product. “A couple of years ago consistency – or lack thereof – was a problem for MediaWorks,” CEO Michael Anderson acknowledged at its new season launch recently. No longer. Its current affairs work has been streamlined into a small number of key products like The Project and The AM Show, all sitting underneath the Newshub brand, which is spread across radio and television and flowing to a news site which is a clear third in the New Zealand market (the only property where it consistently beats a TVNZ competitor).

The TV year is dominated by big event reality shows like Dancing with the Stars, The Block and Married at First Sight, all with as much integration as they can take (which is not a lot for the doomy Married to be fair), all playing as often as four nights a week. The stars and narratives then flow out onto the radio, creating a self-perpetuating flywheel which allows the kind of rat-king cross promotion for which MediaWorks is justly renowned.

This is supported by long-running franchises like 7 Days, Lost and Found and Jono and Ben – though the latter just ended a very successful seven year run, and the pair were conspicuously absent from the new season launch, especially given that they hosted the equivalent event the previous season.

The recent launch was noteworthy for its intimacy. We gathered around a knee high stage on the deck of a restaurant, in stark contrast to TVNZ’s megawatt event a few weeks earlier. Head of content Andrew Szusterman tried to make an asset of the scale. “God, MediaWorks does these this well,” he said. “Get ‘em in, an hour of chat, then get on the piss.”

He’s right to say they do it well – the loosest and most fun media events I’ve been to over the past few years have always been MediaWorks launches (disclosure: The Spinoff has a content syndication deal with MediaWorks). But he said something else which was perhaps more telling. “I’m not gonna throw a bunch of new things at ya.” And they did not. Apart from a co-production, a couple of comedies and a docu-series, it was essentially a re-run of the previous year.

This was conspicuous, as over the past few years there has always been one major new announcement: X Factor, The Bachelor, Married at First Sight or the return of Dancing with the Stars. Some eye-popping, social media-baiting, gossip-generating reality project to give the salespeople something to talk about and other media something to speculate on.

This time, it was conspicuously absent.

Instead the big news was the impending merger with outdoor advertising giant QMS – announced just an hour before the launch. A bunch of billboards changing hands is not the most exciting move in the world for a consumer. Yet from a business perspective it was very canny, a major play in one of the few areas of advertising that is actively growing, what with outdoor being a rare form of advertising which it’s hard (though not impossible) to ignore.

It is part of a greater business logic imposed across the company. MediaWorks has essentially abandoned investment in digital (more on that later) in favour of pouring resource into the business units where capital expended is most solidly correlated with income generated. The “fundamentals are good,” said one exec. “Radio is profitable and TV breaks even.” Another was less positive, saying that the “radio business helps maintain their unprofitable TV business”. Another suggested that were Oaktree not afraid of bad publicity turning back on them they would have simply shut the TV side so as to realise more value for the radio assets.

MediaWorks would strongly contest this, and ultimately there is little doubt that the firm as a whole makes money now. The radio business is a machine, with the sole blank spot being talk radio. There ZB remains a juggernaut, one which this year effectively shut down RadioLive, which next year will convert into a strange mutant known as Magic Talk. “Smart decision,” said one exec. “The problem for RadioLive has always been that you have an incredibly strong right-leaning commercial station in ZB. And a brilliant left-leaning public service broadcaster in RNZ. There’s just no room in the talk market for a third brand.”

Aside from talk, MediaWorks performs creditably in music, gliding along with a market share in the late 50s in 25-54.

This is the only demographic it really cares about. MediaWorks refers to itself as “the 25-54 audience company” – a pitch to advertisers and media buyers more than to consumers. This has paid off by one important metric: Three currently leads in the 25-54 demo between 7:30 and 10:30, in what the channel calls “the entertainment zone”. A veteran exec claims that has never been done before.

This is the area where its huge investment in reality pays off – drawing a big audience it fights to maintain through the night. “There are a small number of shows which hold Three together,” said one competitor. It sucks up the majority of organisational energy, and drives a huge amount of advertising and integration spend. The Block this year might have been the most successful advertising product in New Zealand TV history, a minor miracle after 2017’s low energy auction finale.

That does have flow on effects for the rest of the schedule, though. “[Multi-night reality] drives a lot of their marketing and focus,” said one executive. That can leave shows which fail to fall into that zone feeling somewhat unloved, and exasperates NZ on Air, which has been forcing Three executives to sweat harder than ever for funding.

The emphasis on reality also can have the effect of narrowing their audience even as it deepens Three’s relationship with them. TVNZ1 appears a far more textured channel, and while Three has some hits which break that populist mould – including Westside, Grand Designs and Lost and Found, they are outliers to an extent.

What is deeply apparent is that MediaWorks is a company living for today. While there are legitimate questions to be asked about TVNZ’s heavy investment in its OnDemand platform, it’s undeniable that ThreeNow is under-resourced. “It’s a catchup platform, it’s not an OnDemand platform,” said one rival dismissively, and this is born out by the way it is programmed to match what is screening, not as a channel in its own right. Most tellingly, NZ on Air will not fund for ThreeNow as a platform, while TVNZ OnDemand has a strong and growing slate of pureplay originals, some funded by NZOA, others internally.

The digital deficit is defensible on a revenue basis for the time being, as online still doesn’t generate enough ad revenue to justify a major investment. Likewise the promise of programmatic video advertising – micro-targeting specific demographics based on their being logged in – seems unlikely to ever work in a market the size of New Zealand. Yet it still leaves the company bereft of hope for growth given that its two core businesses are likely in structural decline – the only debate is around how fast.

“It all goes back to the waste of the Weldon era,” says one exec of the underinvestment in digital. “There was several million dollars wasted on things like [gossip site] Scout that could have been spent turning a catchup service into a VOD service.”

This sense of a great business without a great future is palpable when talking to media executives. It has been one of the most fun and chaotic media companies since birth, but there is a sense that years of private equity ownership have started to starve it a little. “The further it goes doesn’t suggest an increased performance unless they do something radical,” said one exec somewhat sadly.

Could next year be the one we finally see motion? As mentioned in Tuesday’s story on the state of Stuff, the prospects of a merger there are better than ever. Sources at Stuff suggest it would be a far better culture fit than the now-abandoned plan to merge with NZME. Yet the same block might await it: “It feels a bit ComCom to me,” said an executive when pressed on the prospects. “Especially with Newshub.”

Yet there is strong competition in every single sector in which a combined entity would operate. Given that Stuff’s assets might be available at very attractive prices shortly, plurality might be superficially maintained with an undertaking to sell off many of its newspapers.

If not, Sky remains a potential suitor. MediaWorks already creates its news product for Prime, and the prospect of a larger platform on which to screen some of its premium sports and drama products likely remains an attractive one for Sky. It would also give Sky access to a huge volume of distressed ad inventory across everything from radio to outdoor, just as it presses on with the launch of its own new generation digital products.

MediaWorks certainly feels like it’s being readied for some kind of sale. The lack of new announcements, the more low-key event, the expansion of an existing radio brand rather than the creation of a new one – all this suggests a company aiming to have a good time on a budget. If it is able to hold its form for long enough, there remains the tantalising prospect that it might finally be released from the private equity prison in which it has languished for so long.

The Spinoff’s NZ media in 2018 series: the running order

Monday December 10: TVNZ

Tuesday December 11: Stuff

Wednesday December 12: Sky

Thursday December 13: MediaWorks

Friday December 14: NZME

Saturday December 15: RNZ

Sunday December 16: Spark, Bauer, Māori Television


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