What gives for network TV in NZ?

Can you feel that chill? That’s the winds of change blowing through the New Zealand television industry. All three of our major network players are undergoing major upheaval and it’s not clear who’ll be left standing when the dust settles.

Let’s start with Mediaworks. First Hilary Barry resigned in April, the most recent in a long list of staff changes for the broadcaster. Then they launch a rebrand of Channel 4 as Bravo. The next day, Mark Weldon calls it quits and brings to an end a short but dramatic tenure as its CEO. While he achieved some great things, he did it reportedly without finesse or empathy and at significant human cost.

Sky TV, too, has had a pretty bad run lately. In news about as surprising as rugby league players acting up, Sky TV announced the loss of a substantial amount of paying subscribers – around 45,000, roughly five per cent of their total base. As a result, shares fell by 83c.  And they’ve just put their prices up.

Now to TVNZ. The other week, I strolled past their fancy new building on Victoria St West. Looking up, I wondered if the broadcaster’s future profits would ever recoup the cost of the building upgrade, given the transformation of broadcast media in the digital age.

The original estimated cost was NZ$35m, but there have been reports of a cost blowout to an additional NZ$25m. Even if you allow for a bit of exaggeration, our national broadcaster’s revamped offices are probably costing the better part of NZ$50m to upgrade. The good news is TVNZ made NZ$28m last year, so they only need a couple of years to clear the debt. But a few short years might be all they have before advertising revenues diminish even further.

Beyond the networks themselves, we witnessed a TV phenomenon of sorts in the ending of The Bachelor. It’s been a great reminder of how local programming, however cheesy, can capture the nation’s imaginations and headlines. Finally, we had the announcement of a potential NZME and Fairfax merger.

What can be construed from all of these developments? Most obviously: the NZ media landscape is now, more than ever, in a state of major turmoil, and nothing is certain – except that viewers are more powerful, and more mobile, than ever before. Some of the pressures are clearer than others, but collectively they are exerting a major force on media decision-making and strategy, MediaWorks being the classic case study. Remaining relevant and agile, and earning a degree of “brand love”, will undoubtedly be critical to survival.

If you want customers, you need valuable content. There, Sky is still king. The pay-TV giant still has two key weapons in its arsenal. One is rugby, the other Game of Thrones. But even with these treasures, it seems like Sky are sleepwalking into trouble. Many subscribers, like me, will have picked up Soho for the sixth season of Game of Thrones. But Sky has utterly failed to capitalise on this influx of new viewers. I was offered the usual opportunity to sign up to Rialto, because the rulebook determines it’s the obvious add-on purchase. That’s it. As I predicted, Sky has passively allowed me to cancel Soho, since Game of Thrones has finished. Their best hope seems to be that people like me will forget to cancel straightaway.

Maybe Sky’s current conundrum – surely not its last – will make it realise that adding 45,000 subscribers is a lot harder (and more expensive) than losing them. Analysts say Sky runs a great business, but it’s never invested in great technology and, in my view, has never communicated well with existing or potential customers.

Why does this matter?  Because you don’t meet many people saying they love Sky, but a lot saying that it’s very expensive. That’s going to hurt soon.  The irony is Sky should have amazing customer data and the potential to really understand and connect directly with their consumers – they just don’t; if they had a better relationship with users they might have a much softer landing through all this change.  But they seem to keep shooting themselves in the foot – they’ve followed up their recent clunky interface upgrade (which still isn’t great), with a price rise.  Little wonder social media comments are not favourable.

Now that Lightbox and Netflix are here, NZ consumers have more choice in entertainment content than ever before. Our options for sport are more limited, but Sky is increasingly becoming an overly expensive solution. It’s hard to see how Sky can win the looming battle with cheaper online options, however comprehensive its offering, without greater insight into the needs and wants of its customers.

Back on terrestrial, TVNZ has weathered the upheaval pretty well, and is clearly making money, but it can’t turn back the tide of media fragmentation. Its schedules are overly reliant on multi-night fare, which will soon get tiresome for viewers; it’s a strategy that needs an urgent review. TVNZ’s own efforts to produce content have also been patchy: look at My Kitchen Rules NZ, an example of how to deliver a poor local version of a great international show.

Meanwhile, companies like NZME are realising that they, too, can deliver a visual news show. How long before we start watching our evening news via non-traditional TV news broadcasters? The Fairfax connection, if it happens, could make this approach even more compelling. We all know that the Internet changes everything, so why should the TV networks “own” news that can be delivered digitally?

To be frank, what does TVNZ offer other than news, cooking or DIY shows? The answer: not a lot. TVNZ’s stated purpose is “… to make a difference by sharing the moments that matter to New Zealanders”. Well then, let’s look at a typical Friday night schedule and see what those “moments” are. The crucial 6:00pm slot sees news on One, or The Middle and Neighbours on TV2. At 7:00pm we have the hot half hour of Seven Sharp or Shortland Street. Channel 2 then really gets into delivering on the TVNZ mission, with an hour and a half of The Voice Australia, followed by UK blind-dating show, Strip Date, and then – proving what really “matters to New Zealanders” – an Australian show, Mesmerised (where hypnotist, Peter Powers convinces Aussies to perform inappropriate activities in public). In nearly five hours of prime time viewing, TV2 has just half an hour of NZ content.

Back on One, we get The New Zealand Home (which at least is NZ made), and then back-to-back episodes of Coronation Street which takes us through to the news. In One’s four and half hours of primetime, there’s only two and a half hours of NZ made content.

It begs several questions. Does New Zealand even need a state broadcaster? Should we sell it off? Why do we need all that infrastructure to run a schedule of predominantly overseas programmes? Should we just pour additional funds into NZ On Air and then allow all television platforms (including Netflix, Lightbox and Neon) to buy the resulting content?

Increasingly there are going to be so many other ways to view overseas content that TVNZ’s role is going to change dramatically. It will be hoping its channels continue to be the most convenient place to “snack” on TV. That’s currently the case, but for how long? And how long will its advertisers, who essentially underwrite everything, remain loyal?

American futurist Mark Pesce predicted much of this a while back, when talking about the rise of BitTorrent. In particular, he honed in on the need for local networks to focus on what makes them special – specifically, local programming, in the form of domestic sport, news, and unique local content.

I don’t believe things have changed since he foresaw this. The success of The Bachelor has demonstrated that such a strategy can be effective, and TV3’s Friday nights of comedy, coupled with Newshub, are also great examples of quality local programming. And Sky’s Prime TV, surprisingly, has done a nice job of delivering some interesting local content. It’s less clear to me whether TVNZ have got this right, given their huge advantage. Meanwhile Sky seems to be relying on a strategy of clinging to the rugby as core to locking in eyeballs.

What does this mean for the future? It’s all about content, because the historic network control of access has been blown apart by the Internet.  Consumers will find content whether the networks want to let them see it or not; it’s those with the content who will be in control.  What might things look like in 2020? The Rugby Union, for instance, could choose to simply stream footage of their games globally via multiple pay channels rather than via a network like Sky.

NZME/Fairfax could own news whether print, audio or visual, but Facebook will probably be the number one way people access it.  TVNZ could have been sold off to be a TV production organisation, or rolled into NZ on Air, with the government realising that there’s no need to own a national broadcaster that makes stuff anyone can do. Sky might have moved away from dishes and boxes to offering streamed channels with a totally different financial model, having been faced with massive churn in subscriber numbers.

Basically, those with content rich strategies, providing easy, cost effective access, will win.  But great, unique local content will draw eyeballs – hopefully we will have heaps of it. Interesting times indeed.

 

Ben Goodale, Managing Director