Official papers show Television New Zealand won $79 million in government funding for its advertising-free channels TVNZ 6 and TVNZ 7, by claiming they would be self-funding by 2012. Now they are closing the new channels down to enhance profits.

Television New Zealand told the last Labour government that two advertising-free channels it was launching to lure viewers onto the Freeview digital transmission platforms would be self-funding by 2012.

Precisely how this miracle would be achieved is not revealed in the batch of Government papers that flopped into my mailbox last week as the standard one month deadline for a response to an Official Information Act request expired.

Nevertheless, the expectation that ad-free, family-friendly TVNZ 6 and ad-free news-junkies’ favourite TVNZ 7 would be self-funded by next year is explicitly described in advice from officials at the Ministry of Culture and Heritage to current broadcasting minister Jonathan Coleman:

The funding for TVNZ 6 and 7 was always for a finite period of time and the expectation, at the time the funding was agreed, was that by 2012 the two channels would be self-funding.”

On that basis, Labour agreed five years ago to commit $79 million over six years to get TVNZ 6 and 7 up and running, and a further $25 million over five years to get the Freeview digital transmission platforms established. This funding was in addition to the $15 million a year that Labour had already committed to TVNZ to meet its public service charter responsibilities.

To ease the pain, Labour extracted a $70 million special dividend from TVNZ one month before its Freeview funding decisions were announced. The official announcement made no public reference to the self-funded future that was supposed to be in store for TVNZ 6 and 7 after the government funding ran out. TVNZ’s CEO Rick Ellis uttered a few vague comments about the potential for revenue from programme sponsorship and from fees charged for any programme content accessed via the internet, and that was that – until June 2009.

Working through a business plan that TVNZ was preparing for the new National-led government, the Crown Company Monitoring Unit [CCMAU] spotted a problem: the state-owned broadcaster now wanted to talk about further Crown funding beyond the $79 million committed till 2012.

“TVNZ has indicated in its Business Plan that when these funding streams have been exhausted, and if TVNZ is unable to generate revenue from alternative sources, then the Crown may be requested to contribute additional funding to maintain TVNZ’s digital operations.”

CCMAU advised minister Coleman to let TVNZ know that it would have to identify “options for the long-term sustainability of TVNZ 6 and 7”. It appears that there were no further developments until early the following year.

By March 2010, TVNZ’s main free-to-air rival MediaWorks must have got wind of the funding problems with the advertising-free digital channels. Officials warned Coleman that MediaWorks were concerned.

“Two issues that MediaWorks are likely to raise with you are future funding for TVNZ 6 and 7 and the current restrictions on advertising on Sundays and certain public holidays… MediaWorks is interested in learning more about future funding options for TVNZ 6 and 7 and any impact there may be on contestable funding to which it currently has access, such as the Platinum Fund.”

The $15 million contestable Platinum Fund was created at NZ On Air when Coleman relieved TVNZ of its charter obligations and its special charter funding. TVNZ 6 and 7 were barred from “double-dipping” into the Fund while they were receiving direct Crown funding, but Coleman had been thinking of changing the rules, as the officials reminded him.

“One option you raised was for TVNZ 7 to compete for a share of the $15 million Platinum Fund.”

The Platinum Fund option seems to have died at that point, becauseTVNZ then came back to Coleman with another cunning plan. It could close advertising-free TVNZ 6, transfer some of its content onto TVNZ 7. It would fill the gap on Freeview with the fully-commercialised, youth-focused “U” channel – an on-air and on-line broadcast-internet combination with interactive audience participation and revenue-generating capacity. With this in place, it could then sustain just one advertising-free channel - TVNZ 7 – while it continued the search for a sustainable solution to keep it running beyond 2012.

Coleman took this proposal to colleagues on the Cabinet Domestic Policy Committee. In a report signed out on 14 April 2010, he warned them:

“TVNZ has a limited window in which to finalise this commercial opportunity for TVNZ 6 … TVNZ says it is not in a position to subsidise a non-commercial channel once the funding ends.”

But the proposal wasn’t all about saving at least one advertising-free public service broadcasting channel. There were also commercial benefits for TVNZ in the proposed arrangement, as Coleman’s officials reminded him.

“TVNZ has the opportunity to commercialise a re-branded TVNZ 6 with a new channel targeted at a young audience… TVNZ would improve its market share across the board. In addition, it would be operating under at least two different revenue models which would improve its risk profile.”

But by August 2010, TVNZ had not been able to close its “limited window” on the basis approved by Cabinet. It came back with another proposal – and an additional commercial ingredient to sweeten the deal. It now proposed the development of a “Kidzone24” channel exclusively for the SKY pay-to-view network. ”Kidzone24” would open up a new revenue stream for TVNZ - an affiliate’s fee paid by SKY - and draw on the programme base originally intended for TVNZ 6. Treasury officials summed up the bottom line impact in a briefing paper to its Minister Bill English.

The financial projections show that combined, the new TVNZ 6 and the new pay channel will generate a positive contribution from 2010/11 and therefore improve TVNZ’s financial performance.”

Effectively, we are seeing TVNZ turn its inability to meet its commitment to self-fund two advertising-free public service channels into a deal whereby it collects the same amount of Crown-funding to deliver just one advertising-free public service channel until 2012 - and two new commercial channels that give it access to new revenue streams and improved profits

If Rupert Murdoch had pulled a stunt like this, our politicians would be baying for blood.

Disclosure of interests: David Beatson hosts a weekly current affairs programme on the Stratos-Triangle channels and is a former chairman of NZ On Air.

Comments (10)

by Richard James McIntosh on July 24, 2011
Richard James McIntosh

C'mon Stratos TV!

A new vision for national public TV.

by mudfish on July 25, 2011
mudfish

Is there no halfway between an advertising-free public service channel and no public service channel? While I like the lack of adverts, it's the content I watch TVNZ7 for and I would still watch that with adverts. Sure, other channels would make more money but how much public service can you get on a break-even basis? Any? (Am I describing Stratos?)

by David Beatson on July 26, 2011
David Beatson

Yes. There are half-way house options under the current non-commercial [not for profit] licence system which allows for a limited amount of advertising revenue to be employed to support a channel's operation. In combination with programme sponsorship, philanthropic contributions, and Crown funding for specific public service programme genre [such as special and minority interest] it is possible to model a sustainable operation that could include a limited amount of advertising. However, it is important that the channel is not so dependent on advertising revenue that it simply marches to the same drum as the solely commercially focused networks we have now.

  

by Tim Watkin on July 27, 2011
Tim Watkin

So let ,e get this right, David: Government and TVNZ went from the finitie two ad-free channels... to continued government funding... to using the Platinum Find to keep 7 going (which would have taken the entire Fund, so would never have worked without increased funding)... to a single ad-free channel (a mix of 6 and 7) plus U... to finally U, KidZone and nothing more?

Sounds to me like they should have stopped at the penultimate option. A blended 6 and 7 could have built some sort of audience, with kids during the day and adults in the evening. Not a huge audience, perhaos, but not a huge cost either... Do the papers give any more detail as to why that option was abandoned?

Because from what you say, it sounds like TVNZ may have had a solution to keep 7, but jettisoned it for the sake of a fee from Sky.

by David Beatson on July 27, 2011
David Beatson

Tim - TVNZ was not able to offer an option that would keep TVNZ 7 operating on a self-funded basis beyond June next year... I understand some content from TVNZ 6 was blended into the programme offered by TVNZ 7 - but TVNZ was still not able to produce a self-funded operation for one advertising-free channel - let alone two -  by June 2012, as originally proposed.

The new youth focused "U" channel replacing TVNZ 6 is an advertising funded venture and the new Kidzone24 channel on SKY generates revenue for TVNZ by way of an affiliate's fee paid by SKY for exclusive distribution of this children's channel. These are both commercial operations, consistent with TVNZ's purely commercial mission now the Charter has been repealed by the  recent passage of the Television New Zealand Amendment Act.

With the Charter gone, and government funding for advertising-free public service channels running out, TVNZ is no longer obliged to concern itself with this kind of broadcasting. What a shame!

 

 

 

 

 

 

by Philip Grimmett on July 28, 2011
Philip Grimmett

This is just another example of playing polical football and messing up. Ian Johnstone predicted this about the time of the loss of the licencing fee 20 odd years ago.  Remind you  of building self regulation ( leaky homes debacle ), electricity market self regulation ( that was a huge success ) mining self regulation ( to a large degree that we are finding out at the Pike River Inquiry ).Telecom self regulate - yeah right.  We now find that our soldiers in Afganistan are ill equiped and trained. Rewrite NZ  laws  for Warner's. Oh nearly forgot - finance companies self regulate.  It's almost government  by not governing.   Mind you it took about 90 years of political messing about before we got daylight saving where it is today. Maybe we just need more patience.  Heaven forbid!  Plague on National and Labour. We desperately need a public commercial free qualityTV broadcaster for a healthy democracy.  If we can't afford that I can only conclude we can't really afford a democracy. at all.

by Frank Macskasy on August 06, 2011
Frank Macskasy

I recently wrote to TVNZ, requesting an explanation as to why "Heartland" tv was currently available on on SKYTV - a pay-to-view broadcaster. Considering that "Heartland" was a TVNZ project, tax-payer owned, it seemed curious that it was part of a oprivate, commercial operation.

TVNZ's reply to me was,

Hi there,

It took me a little time to understand why Heartland is not on

Freeview/TVNZ, but after making some enquiries I now understand why.
Hopefully this will clarify for you too:

TVNZ Heartland will be exclusively distributed on the SKY pay platform

because it is the only way TVNZ can cover the costs and make a profit
from creating and maintaining a new channel like this.

In our current economic circumstances we cannot contemplate any new

project that doesn't give us a commercial return, and there is no way we
can do this with a free to air channel.

We would not have created the channel at all if we had not had the

opportunity to put it on the SKY platform, which after all reaches 50%
of the New Zealand population.

We do want to get excellent local content out to as many people as

possible, and we feel it is better to reach 50% of the population on SKY
than no-one at all.

Thanks for your email.


Kind regards

- Mon, Jul 25, 2011 at 11:11 AM

There appears to be something dodgy going on here.

by David Beatson on August 07, 2011
David Beatson

Frank - thanks for the insight. The same situation applies to the Kidzone24 channel that TVNZ supplies exclusively via SKY. We are now seeing SKY using its commercial dominance to capture more taxpayer-funded production from our major Free-to-Air broadcaster - and charge viewers for the privilege of seeing what their taxes have been used to make. At the same time, SKY's competitive advantage over the taxpayer-funded, FTA digital platform Freeview is enhanced. All in all, several kicks in the teeth for the notion of public broadcasting services in New Zealand, which is what the Government funding of local content was supposed to provide. Get angry.

by David Beatson on August 09, 2011
David Beatson

Incidentally, Frank. Who signed off your letter from TVNZ?

 

by danniel on August 06, 2013
danniel

As long as we don't forget about ethics in our business I don't think we have too much to worry about. Of course a business is all about profits but that doesn't mean we have to reach them at all costs. There are better ways to do that.

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