Mediaworks gets a $34 million government bail-out. TVNZ blows $79 million on two non-commercial digital channels. And successive governments drop the ball on free-to-air public service television. There has to be a better way of broadcasting

Review all the horse trading between the successive governments and the television networks over the last eight years, and you have to conclude that free-to-air, advertiser driven television networks cannot deliver on the taxpayers’ investment to see more New Zealand content on TV.

The cracks started showing in 2003 when Labour broadcasting minister Steve Maharey announced that TVNZ would be given a public service charter and $12 million dollars a year to fund local productions that would meet the diverse needs of all New Zealanders – not just the impulse-buying consumers that advertisers want to reach.

The money made little or no visible difference to the diversity, quality, or quantity of programme content on TVNZ’s networks – but it certainly diminished the influence of NZ On Air, the government agency that promotes public service television on the basis of a contest for local content funding among all the free-to-air TV network operators. Labour’s charter funding was simply cash in the till for TVNZ, an opportunity lost to its foreign-owned rivals operating TV3 and Prime, and a black-eye for NZ On Air.

Subscriber-funded SKY was never in the contest for NZ On Air funding because viewers have to pay a fee to see its programmes. NZ On Air reasoned that free-to-air networks are accessible to a wider audience – so that is where the public funding for New Zealand TV programme content goes.

SKY had a sharper vision of its future. It neutralized any advantage the free-to-air networks might have derived from their exclusive ability to tap taxpayers for about $84 million a year to support their local content production by carrying their channels at no cost on its system. It climbed into satellite and digital television broadcasting faster than its free-to-air rivals, and shrewdly concentrated on building its subscriber base by offering everything the free-to-air networks transmitted, plus a combination of popular movies and sports content that New Zealanders were prepared to pay to view. Its dominance in subscriber-funded television broadcasting and its hold on live major sports coverage is now virtually unassailable, short of a regulatory change.

SKY’s next step was to pounce on the ailing free-to-air Prime network in 2005. The purchase offered two benefits. Prime could be used as a safety valve to manage public pressure for free-to-air access to major national and international sports coverage – and SKY could start tapping NZ On Air to provide taxpayers’ funds for local content that could be simulcast on its own free-to-air network and its subscription service. The other free-to-air broadcasters challenged SKY’s move into their domain at the Commerce Commission – and the Commission kicked their case out of court.

Two years later, the Labour government backed the development of the digital Freeview satellite and terrestrial transmission system for free-to-air broadcasters. It committed $79 million over six years to help TVNZ provide two non-commercial digital channel in an attempt stimulate a switch by free-to-air viewers to the new digital platform, and reclaim sections of the spectrum used for analogue TV for sale to other telecomms users.

Within days of the Freeview announcement, the Australian equity fund managers Ironbridge launched a successful bid to acquire the Canadian [Canwest] stake in Mediaworks and offered a premium price to other Mediaworks investors for their shares in the business. It was a heavily leveraged buy that would soon need recapitalization.

The 2008 election ushered in a change of government and a change of direction in broadcasting policy. National had been promising to put an end to the TVNZ charter. From here on, the story starts taking some bizarre twists and turns.

First, TVNZ and SKY cut a deal that saw its two taxpayer-funded non-commercial channels on Freeview simulcast on the SKY platforms, eliminating any competitive advantage that free-to-air broadcasters' digital system might have derived from exclusive provision of TVNZ6 and TVNZ7.

Just over a week later, new broadcasting minister Johnathan Coleman and communications minister Steven Joyce delivered another gift to SKY. They wrapped up a broadcasting regulatory review – part of an investigation of potential competition issues in the television broadcasting sector initiated by Labour. Another potential threat to SKY’s growing digital TV dominance was vaporized instantly.

Later the same month, Coleman announced the addition of $15 million to NZ On Air’s contestable pool of funds for the production of premium New Zealand content on the nation’s free-to-air TV networks. His new Platinum Fund was simply a quid-pro-quo for the removal of charter funding from TVNZ. Two years later, it is still an open question if the Platinum Fund has made any more impact on the quality, quantity or diversity of programme content than the charter funding it replaced.

While this was going on, SKY was quietly screwing a discount price for Prime’s distribution on the Freeview satellite and terrestrial transmission system, and Mediaworks was facing the grim reality of finding $43 million by October 2010 to renew its radio networks’ spectrum licences for the next 20 years.

Mediaworks revved up the commercial radio industry to lobby communications minister Joyce to give them a break in hard times. In October 2009, Joyce gave the industry the relief that Ironbridge- Mediaworks wanted: an interest-bearing five year time payment plan for spectrum licences instead of the original up-front, lump sum payment previously agreed.

Within two months of the announcement, Ironbridge was able to restructure its balance sheet, reduce its senior bank debt to a mere $387 million and trim its annual interest bill by $19 million. The myth that the switch to time payment was a radio industry lifesaver has been exploded by documentation obtained under the Official Information Act. TVNZ reported that of the $43.6 million worth of spectrum licence fees switched to time payment, $43.3 million went on providing relief for Mediaworks’ radio stations. That makes Mediaworks the lame duck that picked up the golden egg from the government goose.

Meantime, TVNZ and SKY were expanding their partnership and the menu for SKY subscribers. In March last year, TVNZ provided SKY with an exclusive Heartland channel – featuring repeat screenings from its archive of taxpayer-supported local dramas, comedies, and reality shows.

Then TVNZ convinced Dr Coleman that it should convert non-commercial TVNZ6 into the recently-launched, commercial , youth focused U channel – a move to capture an audience that Mediaworks had abandoned by dropping its youth-focused C4 music-based format and replacing it with FOUR, a more direct, mainstream competitor for TVNZ 2.

The final nail in the coffin of non-commercial public service television broadcasting at TVNZ was its decision to drop TVNZ7 as soon as the Government funding commitment runs out next year. That sound you hear is $79 million of your money flushing down the drain in another unfortunate taxpayer-funded broadcasting experiment.

So, with the millions of dollars of your money making little visible difference to the diet offered by the advertiser-dependent free-to-air television networks, you have to ask: is there a better way?

The answer is yes – and the model is the Maori Television Service. MTS is largely taxpayer-funded [about 90% of its income]. It delivers two networks on an operating budget of $36.5 million a year – less than half the current NZ On Air spends on funding public service television content across the major free-to-air networks.

More than 50 percent of MTS prime time content is in Maori – that’s a much higher ratio of local content than we see in prime time on the major networks. It grew its audience by nine percent last year, and it led the charge to provide free-to-air coverage of the Rugby World Cup.

Now we know where to go if we want to find Maori content on television. It would be great to know where to go if we want to find more general New Zealand content on television. The solution is staring us in the face – and it would actually cost less than propping up the current major players.

Declaration of interest: David Beatson is a former chair of NZ On Air and hosts a weekly current affairs programme on Stratos / Triangle television channels.