A prolonged downturn in the advertising market. Layoffs at all major operators. Just around the corner, the spending cuts of a National-Act government. How might all this play out for an embattled New Zealand media?

The stories are persistent, and not pretty. For weeks, news giant Stuff suffered through rounds of redundancies. Warner Brothers Discovery, owners of Three, shut its early news bulletin and started restructuring away roles after a mammoth $35m paper loss. Radio and outdoor advertising company MediaWorks abruptly shut its high-profile Today FM brand earlier this year, and has been reprimanded for failing to file its year-end accounts. Just this week, RNZ reported that TVNZ is instituting major cuts, an hour before the NZ Herald reported the loss of multiple senior editorial staff.

What unites all these businesses is that the vast majority of their revenue comes from advertising, and the advertising market has been incredibly soft so far this year. Notoriously, along with travel, advertising is the first discretionary spending where business is cut during hard times. After years of inflation crimping margins, many businesses have reduced or even paused advertising spend, leading to job losses not just at mass media companies, but also at related industries like creative and media ad agencies, and production houses – some of which are already suffering through the impact of the prolonged actor and writer strikes in the US.

The media is always scrutinising itself – that’s the whole point of this story – but after the pandemic distorted the true picture of revenues, normal service is resuming, and once again the media business looks deeply troubled. 

One unexpected bright spot in recent years? The government has become a much more active ad buyer. “The only thing that has kept the market in growth is government spending,” says Steve Tindall, chief investment officer at ad agency Group M. He describes its ad purchasing as “a firehose” at its peak.

He says this culture grew out of the enormous “Unite Against Covid-19” campaign, a much-awarded piece of work credited with helping New Zealand execute its elimination strategy. It eventually gave way to a major vaccination campaign, which also had a clear purpose to it. Yet Tindall and others working in advertising say the success of those campaigns led to a mission creep, with mass market advertising or communications seen as a valid path for a larger array of government communications strategies.

A number of these would have been unlikely to be considered for spending prior to 2020. Historically it was about getting someone to do something, such as quit smoking or wear a seatbelt. Lately though, he says it’s about “showing the government is doing something”, citing campaigns by Kāinga Ora promoting its role in communities or Waka Kotahi’s $15m spend on its “vision zero” ambition for ending road deaths.

Collectively the expanded remit of its advertising budgets led to a major increase in the scale and scope of government participation in the ad market. According to figures supplied by Group M, from a baseline of $71m in 2019, government expenditure on advertising grew to $93m in 2020, before peaking at $116m and $117m in the Covid-impacted years of 2021 and 2022 respectively. Yet despite the pandemic being declared over, government advertising spend has remained elevated, with $50m spent in the first half of 2023 – a slight increase over the previous six months, implying over $100m in spending in 2023.

Major campaigns have emerged from new agencies like Te Whatu Ora, and old institutions like the army. Corrections created ads to reimagine the role of a prison officer, and kept airing them despite an Advertising Standards Authority critique of what it perceived as “white saviour” narratives. The Ministry of Social Development used Vice New Zealand – which shut its doors in 2019 – to teach young people about safe relationships. 

This was not just visible on screens but in agency headcount. One former media executive points to the growth of media agencies in Wellington, despite the relative paucity of major businesses headquartered there.

Will the state stay on screen?

The scope of government advertising has not gone unnoticed by the opposition. Polling suggests National and Act are on course to win the election on October 14, so their intentions around advertising are being watched closely by both advertising-funded media, and those who place and make the ads. 

The signs are troubling for those reliant on that income. National’s “back pocket boost” tax manifesto has a bullet-pointed list of areas tagged for savings – first on its list is “reducing advertising and public relations spending”. Simeon Brown is MP for Pakuranga and National’s spokesperson for the public service. He says National has been “highly critical of the increase in government ad spending in recent years – particularly the type of advertising”. He cites the Waka Kotahi “vision zero” ads as being about the announcement of a goal, rather than making a contribution to it.

Unsurprisingly, Act would also favour a reduction in advertising. Its leader and finance spokesperson David Seymour says “the short answer is yes”. He continues, “we’d simply ask the question ‘if we weren’t already doing this today, would we start doing this tomorrow?’” 

When asked about how much the spend could plausibly drop by, both Brown and Seymour nominate the 2019 figure as a more appropriate baseline than 2022. Adjusting for inflation would take it to $85m, but Seymour would not stop there. “That assumes that all 2019 government advertising spending was worthwhile. So I can imagine halving it from there.” Brown goes further, saying he would look for a “50% reduction at least”. 

This implies a 2024 government advertising spend of around $40m per year, which suggests $60m leaving the New Zealand advertising market. Set against the total market, which sat at around $3.5bn in 2022, that seems small. However other advertisers have already significantly tightened belts, with Group M figures showing overall spend reducing by over $100m from H1 2022 to H1 2023. 

While not all of that heads to local media businesses, a significant proportion does, with one senior industry source saying the government is over-reliant on television for advertising due to the fact ministers continue to scrutinise the 6pm news so much. 

How will it impact advertising in practice?

TVNZ was recently scrutinised after Substacker Philip Crump, operating under the pseudonym Thomas Cranmer, revealed a $300,000 integration campaign from the EECA’s Gen Less brand. TVNZ+ has lately run ad breaks in which the government is the only client, through advertisers like the Electoral Commission, Corrections and Waka Kotahi, and government agencies are bigger spenders on Whakaata Māori. Despite this, a TVNZ spokesperson claims a reduction on spending would not have a profound impact on their bottom line.

“Government department spending (including agencies) does not make up a material proportion of our advertising revenue,” they wrote. “While we don’t want to see any advertising spend reduced, National/Act’s intentions aren’t a specific concern for us. My understanding is that global social media platforms are a more significant beneficiary of this type of advertising.”

A Warner Brother Discovery spokesperson was more forthright. “In a country the size of New Zealand, government advertising is crucial to the sustainability of the media sector and is just one of the ways that they can support local media players,” they wrote in a statement supplied to The Spinoff. They went on to echo TVNZ’s interest in the volume of advertising spent on platforms like YouTube and Instagram. “Equally as important is the split between local and international spend by Government departments – they should focus their spend on local businesses, because any offshore spend disappears to international players.”

That is perhaps the bigger story lurking behind this – yet data to verify the split between government advertising on tech platforms versus local media partners is hard to obtain. The Spinoff has a current appeal before the Ombudsman seeking a breakdown by platform of the $100m-plus “Unite Against Covid-19” campaign, which the department of prime minister and cabinet has persistently refused, citing commercial sensitivity. 

Access to that split would help illustrate a small part of the bigger story of legacy media over the past 20 years. Both globally and locally, it is one of steady decline, rounds of redundancies which never really seem to end. Even as newspapers, TV and radio have created large audiences for digital operations, they are faced with furious competition from a plethora of technology giants which offer sophisticated, data-driven advertising – everything from Trade Me to Google to Uber to Amazon to Meta. They have a seemingly inexorable structural advantage, in that local media pay staff to produce content, while the platforms have their audiences make it for free. This was in part what the RNZ-TVNZ merger set out to address, along with the Fair Digital News Bargaining bill. The former has been abandoned, and National broadcasting spokesperson Melissa Lee appears cold on the latter, despite essentially unanimous industry support.

It suggests the bad times are likely to persist, and whispers suggest some major ad-funded businesses might not survive a prolonged downturn. Yet Brown says his government would not intervene even if the reduced ad spend prompted further redundancies. “Those are commercial decisions for those businesses.”. It all spells further chill winds heading for a sector already weathering a years-long storm.