TV business ‘worth zero’
About 520 staff face an uncertain future as channel put on the market — no buyers are in sight and Govt won’t step in
New Zealand’s media landscape could be set for a seismic shift as MediaWorks puts its TV arm and Auckland headquarters up for sale with no obvious buyers or Government intervention in sight.
Up to 520 jobs hang in the balance at the cash-strapped, 29-year-old broadcaster, which was once worth $700m on the stock market.
As audiences steadily pick up new viewing habits with streaming service options in abundance, and what it says are inequities with its rival TVNZ, MediaWorks have effectively been fighting on two fronts and losing ground in both battles.
Advertisers have seen the viewing changes and jumped, with an increase spending in the digital realm of $366m in 2012 to $899m in 2018.
MediaWorks bosses have ruled out a sudden closure of its flagship channel, Three, which screens Newshub’s 6pm news, The Project and The AM Show, which is simulcast on its radio station Magic. It also owns Bravo, a “pure entertainment” channel known for reality shows — and ThreeLife, a lifestyle-focused channel.
But just this week MediaWorks axed or reduced several shows including 7 Days and Married at First Sight NZ and The Project host Jesse Mulligan said Three may have no choice but to shut down if the government doesn't change its broadcasting policy.
Media commentators said the TV business was worth “zero” and it was difficult to see who would take it on.
The sale is the latest blot on the media landscape in this country.
Stuff was also put up for sale this year but Australian owner Nine put that on hold after it failed to get a satisfactory bid.
TVNZ is on course for a $17m loss this financial year.
The announcement left MediaWorks staff reeling.
It is understood that they found out about the plans six minutes before they were made public.
TV presenters were called to oneon-one meetings, though some of the network’s biggest names are away. Newshub Live at 6 anchor Mike McRoberts is in Japan for the Rugby World Cup and Samantha Hayes is on maternity leave.
Former 6pm news anchor Hilary Barry, who spent 23 years at MediaWorks, said she was “incredibly sad and concerned” for her former colleagues.
“There are so many talented and genuinely wonderful people there. I just want to give every one of them a giant hug,” she tweeted.
MediaWorks chief executive Michael Anderson yesterday dismissed any suggestion that the announcement was an attempt to force the Government’s hand over regulations governing TVNZ.
“I actually feel quite angry about such statements.
“We would never put our staff in a position where we were just bluffing and putting them through the uncertainty they’re going through.”
TVNZ, whose profit nearly halved in the year to June, has stopped paying dividends to the Government.
The Government is looking at its options to strengthen public media, which could include making TVNZ advert-free — allowing MediaWorks to pick up leftover ad revenue.
Asked if it was a level playing field, Prime Minister Jacinda Ardern said yesterday: “This Government is not putting funding into the day-to-day operations of TVNZ and I think that’s important to keep in mind.”
She said there was a place for a public broadcaster in New Zealand, and the Government was strengthening public broadcasting.
“We need to have a strong fourth estate.
“We need to have a strong media to hold to account both political agents, but others as well.”
Commerce Minister Kris Faafoi has said that work would be unveiled before the end of the year, and would not be fast-tracked as a result of the MediaWorks’ sale.
Media agency veteran Alex Lawson said he could not think of anyone who would want to buy MediaWorks’ TV assets.
Lawson, the general manager at Carat, said the obvious choice would be another media company, but he couldn’t think of a local player with the means or appetite to fork out for the business.
“It’s a really tough sell. It would have to come from abroad.
“Maybe another international private capital group or an Australian broadcaster?”
Former MediaWorks head of news Mark Jennings said the TV business was worth “zero”.
“I don’t think anybody’s going to buy it, but somebody might take it off their hands if they can see a way forward.”
He believed MediaWorks was genuine in putting its assets up for sale.
The thing that made MediaWorks special has also proven to be its Achilles heel.
From its inception in 1989, TV3, as it was then known, has steadily evolved into the younger, edgier alternative to the more conservative state broadcaster. The idea being that it was easier to shape new habits among the young than break the older generation out of their longestablished viewing groove.
In the 1990s and into the early 2000s, the strategy made perfect sense and the TV station — whose fire sale was announced yesterday — swaggered its way to a valuation of more than $700 million on the stock market in 2007.
This figure now looks staggering, with one investment banking source telling the Weekend Herald that MediaWorks has “no chance” of selling its loss-making and liability-laden TV business.
“They literally have been trying to sell it for five years,” the banker said of the whole MediaWorks business.
Another banking analyst goes further, looking past any potential for finding a buyer and suggesting it is less about a sale process and more a case of finding someone willing to take the business off its owner’s hands.
He estimated that MediaWorks’ radio business had earnings before interest, tax, depreciation and amortisation (ebitda) of about $30m a year, but the TV arm was losing about $10m-$15m a year in ebitda.
That meant it was costing about $15m a year to keep the TV business going and it had become clear it was not possible to get it into profitability, despite trying over the past four or five years.
The banker said the TV business could be shut down but that would be a zero-sum game as redundancies and other expenses could mean it would cost as much as $50m to close.
“I can’t see anybody wanting to invest in free-to-air,” he said.
“It is more likely they go to a controlled shutdown but you never know — there might be somebody willing to take it on.”
But he said the road to profitability was difficult and the TV broadcaster hadn’t got close in the past four or five years — in a good consumer advertising market.
“The digital strategy hasn’t worked either.”
So how did we get from a $700m business to something that can’t even be shut down without registering a loss?
What few anticipated 12 years ago was the drastic impact the digital revolution would have on MediaWorks’ core audience.
The very audience that MediaWorks had become so good at attracting was now the thing that made it most vulnerable to the changing media landscape.
While MediaWorks was still leering across the TV divide at its mortal enemy, viewers were steadily picking up new consumption habits that would set the scene for today’s streamingmad landscape, in which even our legacy telecommunications companies are reinventing themselves as broadcasters. MediaWorks has effectively been fighting on two fronts and losing ground in both battles.
Advertisers saw the changes happening and steadily started to shift spending to the digital realm. The amount spent on digital advertising in New Zealand has risen from $366m in 2012 to $899m in 2018.
Effectively, traditional media companies have lost almost a billion dollars in potential revenue to the big tech giants that are so effective at sucking money into their platforms.
Yes, the advertising market may have grown in that time, but it simply hasn’t been enough to lift the tide for businesses treading water.
MediaWorks boss Michael Anderson has been frank about this, warning New Zealanders that commercial free-to-air television faces a tough future unless there are changes.
“The structural issues facing the industry are only increasing, both the internal New Zealand structure as well as the external influences,” he told the Weekend Herald yesterday.
Until this week, many had written off his concerns as little more than a bluff designed to force the Government’s hand in de-commercialising at least some part of TVNZ to open more of the TV advertising pool to MediaWorks. Even after news of the sale broke, there were conspiratorial claims from previous MediaWorks staffers that this was simply an elaborate move to get the Government to take notice of its cries.
“I actually feel quite angry about such statements,” said Anderson.
“We would never put our staff in a position where we were just bluffing and putting them through the uncertainty they’re currently going through.
“There’s no bluff to this. This is a legitimate process, arrived at for all the right reasons with hopefully the best outcomes.”
The move certainly hasn’t yet had the effect of forcing the hand of Broadcasting Minister Kris Faafoi, who is sticking to his timeline of only announcing plans for the future of public TV later in the year.
These plans could include making TVNZ ad-free, which would make MediaWorks a much more attractive prospect to a potential buyer — at least for a few years.
Given the uncertainties of the whole free-to-air market and rapid proliferation of international competition in New Zealand, the question now turns to what organisation would be willing to fork out for a business set to bleed more money as larger and larger chunks of advertising spending migrate towards digital.
Initial reports had suggested that MediaWorks would close the business by December if a buyer wasn’t found, but Anderson quickly hit back at those claims.
“There’s absolutely no decision to shut down the business,” he said, explaining that the company was happy to wait to find the right buyer.
Anderson would not be drawn into putting a price tag on MediaWorks TV, simply saying that the market would determine what the company was worth.
“We assign a lot of value to what do, from the content we create to the work we do with our clients, to what we provide to New Zealand, but in end, the commercial value of that will be judged by the potential owners.”
So far, almost every name in the New Zealand media has been thrown into the mix, but media agency boss Alex Lawson, of Carat, believes the buyer would have to come from abroad and could possibly be another private capital group or Australian broadcaster.
“It would take an individual who really believes they can turn it around,” says Lawson.
The one viable solution at the moment does seem to come in the shape of an Australian media company perhaps purchasing the media company and replacing the expensive locally produced bits with syndicated international content.
One thing that’s certain is that the Three we see today — so willing to spend big on edgy shows like The Project — will change massively under new ownership. Turning a profit out of this business will mean that the cuts to comedy we saw this week will stretch elsewhere and only become more defined.
If anything, it’s another reminder that being just being creatively and aesthetically good is no guarantee of being profitable in today’s media — especially not in New Zealand.
There’s no bluff to this. This is a legitimate process, arrived at for all the right reasons with hopefully the best outcomes.
MediaWorks boss Michael Anderson
Next month, TV3 will celebrate 30 years on air. Hopefully.
It’s been a hell of a ride, now overshadowed by the sale plans of its US private equity owner Oaktree.
But the broadcaster’s current woes are far from its first. On that basis, there must be good grounds for hope it will find a way to carry on.
Launched on November 28, 1989 by a local business consortium, TV3 was the nation’s first commercial channel. It was quickly listed on the stock exchange at $2.50 a share.
Less than a year later, the shares were worth just 10c. The TV broadcaster went bankrupt and delisted in mid-1990.
At that point, Canadian media company Canwest bought in, gradually working its way to 100 per cent ownership.
In 2000, Canwest dived deeper into the New Zealand media industry, buying RadioWorks in a deal valued at about $100 million.
By 2004, the radio and TV assets were fully integrated into the company known as MediaWorks.
The same year, Canwest partially floated the company on the NZX.
The successful float gave the company a market capitalisation of $350m. By the end of 2005, the shares had risen 25 per cent and the company was worth more than half a billion dollars.
These were boom times for mainstream media, when the global financial crisis and social media giants were still to emerge.
In 2005, after six years of strong growth, total advertising spend in New Zealand topped $2 billion for the first time. It has more or less plateaued at that level, with the additional problem that foreign tech giants are taking a 30 per cent bite.
In hindsight, it looks as though Canwest got lucky in 2007 when it sold its 70 per cent stake to Australian private equity group Ironbridge Capital.
Ironbridge then launched a full takeover bid which saw MediaWorks’ value skyrocket. Market estimates had Ironbridge paying between 11 and 12.5 times Canwest’s forward earnings (before interest, tax, depreciation and amortisation) — valuing the business at $727m, including debt.
The bid was successful and MediaWorks was delisted. Ironbridge was not so lucky. As Business Herald columnist Brian Gaynor put it, MediaWorks was “leveraged up to the eyeballs”, with company debt soaring from $165m before the acquisition to $769m afterwards. MediaWorks’ annual interest costs soared from $13.8m to $92.8m.
The GFC hit hard and the debt became unsustainable.
By mid-2013, TV3 was in receivership for the second time. Ironbridge suffered massive losses and the bankers were effectively in charge.
As part of the restructuring, prominent Australian businessman Rod McGeoch was brought in as chairman and reality TV queen Julie Christie joined him on the board.
Current owners Oaktree came in as investors in 2012 before the receivership.
Sometimes called a “vulture fund” because it targets distressed assets, the US private equity outfit manages investments worth more than $200b.
It gradually increased its holding in MediaWorks, revealing it had 100 per cent control in June 2015.
There has been speculation about a sale of MediaWorks ever since — including a break-up of the radio and TV assets.
In 2017, Oaktree Capital went close to selling the radio operations to Australia’s Southern Cross Austereo, but scuppered the deal at the last minute by insisting it also had to buy the TV arm.
What now? Well, the lack of an obvious buyer for TV3 has commentators fearing the worst and talking of closure.
But if TV3’s complex and convoluted ownership history (this was just the abridged version) tells us anything, it’s that the station is a survivor.