TVNZ CEO Kevin Kenrick is about to do what most media company bosses spend their lives trying to avoid – increase expenditure.

The strategy du jour for just about every big media outfit in the country has been to make sure that cost cuts outpace declining revenues. It’s been a successful formula for the likes of NZME and Sky, which have boosted profits despite falls in advertising and, in Sky’s case, subscription revenues.

TVNZ’s bottom line has also benefited significantly from lower costs. In the six months to December its net profit was up 115 percent to $33.9 million. Revenue was down $3.3m or 2 percent at $176m, but costs dropped $32m to $119m, a whopping 21 percent lower than the previous corresponding period.

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Covid-19’s impact on production meant there just wasn’t the same amount of content (local or international programmes) to buy, handing a $24m saving to the broadcaster, but a further $8.6m came from cost cuts across the business.

Kenrick says it’s now time to put some meat back on the bones of the business and hire more people.

“What we’re starting to see is growth in parts of the business that is going to require us to add back some resource. So, you know, our two big costs are content and people. And, we had to respond to what we saw at the time, and one of the things we did is we cut back on number of people. And we’re now in a situation where the recovery has been faster than we forecast…. And there’s areas of the business that are under real pressure.”

Bounce back

Kenrick’s spending intentions are a clear pointer to advertising revenue being on the rise at TVNZ.

“I think the health of any business is really your top line revenue, because you ultimately can’t save your way to prosperity. And, on that score, we’re actually really encouraged by the momentum and the trend in revenue for us.

“If look at the back half of the year, we’re expecting to deliver a year on year growth. So while we are adding to that labour cost beyond what we originally proposed I don’t see that being a challenge to our bottom line.”

TVNZ 1 Dominates

Covid-19 has produced winners and losers in every industry sector. In broadcasting, TVNZ 1 has been the undisputed winner. TVNZ 2, Three and Sky (Sport) lost ground in 2020. The domination of early evening viewing by 1NEWS has driven the network’s performance and given it a tight grip on audiences hungry for information during the pandemic.

“We definitely picked up audience share versus Three around prime time and around the news area. Now, 1NEWS at 6pm and Seven Sharp have twice their audience and we expect that to be the new benchmark. And, we also benefited from that really tough spot that Sky was in where there was just a shortage of sport being available. So typically, the seasonal lift, they would have got just didn’t show up.”

TVNZ 1’s share gains more than made up for the weak performance of TVNZ 2. A look at the top 20 programmes in the 6 month reporting period demonstrates the strength of TVNZ 1.  The only programme on another channel to make the list was Three’s leaders debate hosted by Patrick Gower.  

These ratings are the percentage of the country’s population (over the age of 5) that watch a programme.  Not all episodes of the regularly schedules shows will rate as highly as the episodes that made the list.

Source: Nielsen TAM, consolidated data, Top 20 shows ranked by AUD%, AP5+, 1 Jul 20- 31 Dec 20, excludes repeat and bloopers and ASB Backing Business   

In the commercially important 25 to 54 demographic, the performance TVNZ2 and Three was slightly better. Gower’s documentaries On Weed and On Lockdown made the top 20, as did a couple of family movies on TVNZ 2. The big advantage for TVNZ1 though, is that many of its top rating shows are schedule staples and not one-off’s that rarely make any money, or change long-term viewing patterns, for the networks.  

OnDemand pushes on

The migration of viewers from broadcast platforms like TVNZ 2 is fuelling the growth of TVNZ OnDemand. Helped by the lockdowns, 2020 streams rose by 31 percent to 250 million. The number of people reached each week averaged 484,000 – up 28 percent. The most streamed shows were Shortland Street, followed by Home and Away and then Friends.  All were once top rating programmes on TVNZ 2.

The success of OnDemand is a reward for Kenrick’s brave, early adopter stance. TVNZ pumped millions of dollars into its streaming platform, and content to go on it, at a time when returns looked uncertain. The critics who felt the company should’ve been concentrating on its traditional broadcast channels or paying the Government a higher dividend have gone quiet.

Sustaining those growth rates and competing against the big international players Netflix, You Tube and Disney (plus Sky’s Neon) will require another dose of bravery and a lot more investment. Kenrick seems up for it.   

“From a TVNZ point of view, we’re in the strongest financial shape we’ve been for quite some time. And so we’ve got the strategic clarity of the need to really power up digital growth.

“We’ve made a reasonable start. So you know, we’ve got a horse in the race. For us, it’s actually an exciting time and we feel really well set up to have a good crack.”

The return of Sport

A move back into screening live sport is also paying off for Kenrick. A series of astute deals with Spark (RWC and cricket) and Sky (Olympics) plus the Americas Cup yachting means TVNZ is once again bringing a good chunk of premium sport back to free to air.  The value of live sport is its reach(number of people who have had an opportunity to see an advert during the event).  The recent T20 cricket matches had a reach of over a million per game.

The Americas Cup and yacht races associated with it are also pulling good numbers.

The entry of Spark into sports streaming and managerial changes at Sky have opened up the partnership possibilities for Kenrick at the right time.

“I think what it’s what it’s highlighting, for me, is the level of consumer demand for free to watch live sports. So I think that sport has sat behind a paywall in New Zealand for the best part of a decade and what we’re now seeing is, there’s a level of pent up demand, it’s possibly always been there and it’s just been unmet. And from our perspective, it’s been surprising us on the upside.”

Some clouds on the horizon

TVNZ is clearly on track to a higher level of profitability, perhaps its best result in 20 years. It has $100 million sitting in the bank and is pumping a $100 million a year into producing local content.

At the same time, the Government is moving towards scrapping it and establishing a new public media entity. 

Kenrick won’t admit it but there were subtle signs of frustration when he appeared before a select committee recently. The TVNZ CEO made it clear that he has not had a lot of input into the process or even knows much about the direction the Government is heading in.The Ministry of Culture and Heritage has been working on a business plan for more than year now. For an excellent analysis on this read Stephen Parker’s piece on Newsroom today.

When quizzed by Newsroom that the Minister for Media, Kris Faafoi, wanted to see under-served audiences better catered for, Kenrick jokingly replied, “ I don’t see too many teenagers crying themselves to sleep at night because they can’t get enough content.

“At the moment I want to hold back from commenting on this because I don’t know what it (new public media entity) is. It seems to be a high level concept without any definition. My response is that you need to ask the Minister.”

The Government is likely to reveal more on the so called “merger” of TVNZ and RNZ in coming weeks but Kenrick’s immediate focus is likely to be on the lower viewing levels experienced by all broadcasters in January and February.

Industry sources say PUTs (people using television) are down 16 percent this year. Kenrick acknowledged the drop but thinks it is temporary.  

“We agree that PUT decline has been greater in the first few months than it has been for a while, but I think we have had a period where people were locked down and postponing holidays. Now they are getting out and taking trips. We’ve also had good weather and I certainly wasn’t sitting inside watching television. I think we will soon see a trend back to more typical PUT decline levels.”

There are signs too, that Discovery (new owners of Three) is starting to fire a few shots at TVNZ. Three outbid the state owned broadcaster for the Britney Spears documentary and Oprah’s interview with Prince Harry and Meghan Markle.   

The latter gave Three its highest ratings in 26 years. TVNZ programmers will be disappointed they didn’t win the bidding war but Kenrick expects the new owners at Three will become a more formidable foe than the old owner, MediaWorks.

“You’ve got to be a realist, we are not going to win every battle when it comes to securing content. And, they are a large multinational business, they’re very well resourced. I don’t mind the odd skirmish and, you know, losing the odd piece of content here and there is okay if we use that as a catalyst to keep us on our game.”

Mark Jennings is co-editor of Newsroom.

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