When US media giant Discovery bought MediaWorks TV in December 2020 the management and staff at TV3 celebrated. At last, the cost cutting private equity (PE) firms that owned the TV company were out of the picture.
For more than a year the threat of closure had been hanging over the business if a buyer wasn’t found. Now that evaporated and the new, well-heeled US owners promised stability, industry expertise and a pipeline of reality shows the PE investors couldn’t offer.
Two and a half years later the cost-cutting is back, and the picture is grimmer than ever.
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Discovery is now Warner Bros – or rather WBD – after a mega merger that brought together some terrific brands and hit shows but left the group holding US$45 billion of debt. WBD recorded an US$7.3 billion loss in 2022. Billion.
Discovery NZ (TV3) is a tiny part of this media colossus, but WBD’s focus on the bottom lines of its global operations – lines that extend from Poland to Australasia – has sharpened.
At TV3 a temporary sinking lid policy – staff that leave are not replaced – had been operating for some time. A few weeks ago, the “temporarily” reduced staffing levels became permanent.
Parts of the business, particularly the news division, are now under real stress. In Auckland, there are barely enough experienced reporters on the roster to get through a seven-day cycle.
The cost cutting hasn’t helped; Discovery’s latest accounts for its New Zealand arm show the financial problems are getting bigger. The net loss before tax was just short of $21 million in 2021. In 2022 it grew to $35 million despite advertising revenue growing by $18 million.
The increased revenue was dwarfed by increasing costs, which rose by $31m.
It seems Discovery’s NZ strategy was ‘spend more to make more’, but it didn’t end up making enough. Local production increased by $6m, programme royalties increased by $8m and wages by $3m. That is most of the increased revenue eaten right there.
On top of that, Discovery paid out commission to advertising agencies and distributors of nearly $40m in 2022, up from $34m in 2021. On the face of it, it looks like the extra $18m the company generated in advertising revenue cost it $6m in commission.
It chose to write off $5.4m-worth of programmes rather than risk playing them and having them rate poorly.
It is fairer, of course, to look at the rebate percentage across the total amount of advertising revenue not just the growth portion. The picture looks better but shows Discovery increased the percentage paid to agencies. This is a sign that the market is tough and the battle against TVNZ even tougher.
The network’s bottom line was also impacted by a programme impairment charge. That means it chose to write off $5.4m-worth of programmes rather than risk playing them and having them rate poorly.
Discovery obviously saw enough value in the MediaWorks’ TV business to pay $20m for it back in December 2020, but its strategy has never been clearly articulated by its managers.
Local commentators thought it might centre around revamping TV3’s digital streaming service ThreeNow, which has lagged TVNZ+ on both technology and programming .
In June 2021 Glen Kyne, then Discovery’s general manager for NZ and Australia, told Newsroom that Discovery’s streaming platform Discovery+ would replace ThreeNow by the end of that year. “ThreeNow has been underinvested in. We know it could do with a lot better user experience. Discovery+ has a great UX,” said Kyne.
Two years later, and any significant upgrading of ThreeNow seems to have been put on hold. Discovery’s merger with Warner Bros may have been the reason, or at least part of it. Earlier this year WBD announced that Warner’s premium streaming service HBO Max would merge with and Discovery+. The best US content from both companies is now on a new streaming platform called simply ‘Max’.
In a bit of a walk back, WBD has now decided to keep Discovery+ as a low-cost product in the market, but all the top shows: White Lotus, Succession, Game of Thrones, The Last of Us, House of Dragon are the preserve of Max.
In the New Zealand market these premium shows are on Sky. Last week Sky and Warner Bros jointly announced they had renewed their long-term agreement. This looks like a good outcome for Sky as it cements Neon as a major player in the streaming market.
But WBD is hedging its bets to some degree. It told Newsroom: “The deal provides optionality for the future launch of Max in New Zealand, including a provision to retail Max on Sky platforms. We have no specific details for the New Zealand launch at this stage.“
So what about ThreeNow? WBD says the platform’s reach is up by 12 percent and it will put some new channels on it later this year. They will be “advertiser-supported”, 24-hour channels that offer the viewer “a lean back experience”. It is hard to imagine that will be compelling viewing.
In its latest financial report the directors of WBD undertook to provide sufficient financial support to the local company for it to continue its operations and meet its future obligations. They pledged this support for a minimum of 12 months. WBD would not comment on whether this support would continue beyond the 12 months.
TV3 really needs one of its prime time shows to take off big-time and create some momentum for the channel. Its biggest hit in recent times has been Paddy Gower’s documentary series.
His investigation into weed (marijuana) drew nearly 800,000 viewers and no doubt inspired the decision to give Gower his own current affairs show – Paddy Gower has issues.
Gower’s live show is a slick production, but is not enjoying the same success as his documentary series. The network can’t put the same marketing money behind a regularly scheduled show as it could a small number of documentaries, and Gower is up against Masterchef, one of TVNZ’s most popular programmes.
The network will be desperately hoping Paul Henry’s new show, a local version of the global hit The Traitors, matches the marketing hype when it debuts soon. Dancing with Stars, probably TV3’s last really successful imported format, worked because the network’s in-house producers attracted some genuine big name celebrities to compete against each other. Unfortunately, the producers of The Traitors, South Pacific Pictures, have been unable to sign up a single A list celeb.
Henry has a deep understanding of what works on TV but if he can pull this off on his own he really is a superstar.
