TVNZ looks to its future
TVNZ wants to change the way Kiwis watch television, writes Damien Venuto
Your very own TV channel, no more constant advertising interruptions, even customised news — they’re all on the cards for TNVZ. But first, the broadcaster has to spend about $10 million a year for the next three years. And for now at least, it’s hoping viewers don’t notice any changes.
The broadcaster will be quietly pouring that money into upgrading its on-demand services as audiences continue to move online.
The upgrade aims to make sure the digital platform has the muscle to carry the weight of the burgeoning audience. As well, it will allow innovations that will change the way Kiwis watch television.
TVNZ chief executive Kevin Kenrick stresses that success in the first part of that process will mean viewers won’t be aware of anything the broadcaster has done.
“You’ve got to design and build a new platform and you’ve got to cut across your current services into the platform, and at no point do you want your viewers to notice anything,” he says.
The resilience of the audience for standard TV broadcasts — “linear” TV, in the jargon — combined with viewers’ steady move to digital means that TVNZ will be straddling two worlds simultaneously in the coming years — and that won’t be cheap.
“You’ve got all your costs of broadcast, which are pretty fixed in nature, and now all your costs of digital, which are quite variable in nature,” Kenrick says.
TVNZ remains in good financial shape, having posted a net profit of $33.9m for the six months to December 31, but the rising cost of operating across two mediums at the same time means pressure will grow on the broadcaster every year.
“When you look at the long term, it’s not a sustainable way to run a business and you have to start considering your choices.”
Kenrick says one option would be to drastically divert spending from traditional broadcasting to digital, but that would only end up frustrating some of TVNZ’s most loyal viewers.
A smarter move, he says, is looking at how it can accelerate the process and get to the future faster, to reach the point where you “can actually switch off some of those broadcast costs” and move to a fully digital business.
“The really painful bit is the migration period,” he says.
NZ On Air’s Where are the Audiences 2020? report showed that TVNZ OnDemand grew from reaching only
7 per cent of the potential audience in
2014, to 21 per cent by 2020. And that trend is only likely to continue in the coming years.
Kenrick says that while the current platform is good enough for that level of audience, the challenge is ensuring it will be good enough when numbers consistently hit two or three times that scale.
Once the system is stable enough to achieve this, the experimentation can begin — and that’s when viewers will start to notice the changes.
Paying to avoid ads
Kenrick has long admitted that TVNZ would be willing to consider introducing a paid service that would offer ad-free viewing, but he urges Kiwis not to hold their breath.
“We’re not suddenly going to move from being an ad-funded business to being a subscription business,” he tells the Weekend Herald.
“We just think that in the fullness of time, and given our aspirations, that will be one of the options we make available.”
He says that as the company builds scale, it will start to look at different ways to generate revenue, but the plan isn’t to get into a slinging match with the likes of Netflix.
“Going head to head with some of the biggest companies on the planet and playing by the same rules as them is not a recipe for success,” he says.
“If we get to the point where we’ve got sufficient scale then we could give the option to some viewers who might want to pay a fee to see the content without ads.
“[British network] ITV is a good example. They have an ad-lite or an adfree option, and what happened is that most people continued to watch it with ads. But they just felt a whole lot better about it because they now had the choice.”
This decision also makes sense given that advertising remains the best way to make a profit from your content in the entertainment industry.
Competing with the low prices Netflix charges would make it nearly impossible for a local broadcaster to turn a profit. For that reason, it’s still in the best interests of local broadcasters to keep the advertising revenue stream flowing, whether that’s on traditional TV or ondemand.
Kenrick makes no secret of the fact that TVNZ would get eaten alive if it even thought about challenging Netflix.
“Globally, our investment in content would represent about three days’ investment for Netflix,” he says.
“That would be a real problem if we were trying to compete globally, but we’re not. In this market OnDemand is reaching over a million viewers per week and growing at a double-digit rate, so we just need it in the consideration set for New Zealand viewers. And we want to be a tier-one player.”
The idea of paying for content also shouldn’t be put in the same category as the subscription model that’s come to dominate the industry.
TVNZ also has its eye on moving into pay-per-view for major sport or entertainment events.
“That would be a natural progression from where we are currently at,” Kenrick says.
“There’s a number of sport and properties that actually sell themselves on a pay-per-view basis, and if you’ve got the scale then it could lead to a good partnership.
“It wouldn’t make sense to bolt that on to the current platform, but we’ll get that as part of the suite of options with a future platform.”
Kenrick says he expects this to come about much sooner, and he’s interested in partnering with smaller streaming providers on major events.
With the unbundling of content across the market, there could be real value for some of the smaller players in joining forces with a business that commands such a big share of the online audience.
While the fight for content rights is likely to remain fierce, we could see a more collaborative approach emerge as entertainment companies work together to derive better value from their content.
Your own TV station
The click and play approach to viewing has given the audience the power to choose exactly what they want, but it has also had some unintentional consequences.
For all the benefits of services like Netflix, a common complaint from viewers is that having a wall of endless choices just results in decision paralysis.
One of the underlying strengths of linear TV has been that it functions as a lean-back experience, where viewers don’t have to constantly choose what to watch. Instead, those choices are already made and scheduled by the programmers who look for the shows that are most likely to be popular.
Kenrick hasn’t given up on this concept just because he’s throwing his weight behind the digital experience. He imagines a future in which viewers will be able to tap into a leanback viewing experience that’s been curated specifically to their tastes.
We’ve already seen this on the audio side with services like Pandora Radio and Spotify’s Discover Weekly, which serve up curated playlists based on the listener’s preferences, but there’s been little experimentation along the same lines in video, beyond auto-playing the next episode.
“This notion of curated content that’s relevant to me that I don’t actually have to make too many decisions is really appealing,” says Kenrick.
“That’s what’s enabled linear TV to stay so strong for so long.”
Launching a specially curated television service is expensive if you’re relying on traditional broadcasting, but it’s much easier in digital.
“If you look at the curated viewing experiences of TVNZ 1 and 2, we could do 30, 40 or 50 of those in the digital world. We could stand those up in weeks. Whereas to stand up a new linear channel is an enormous undertaking. It’s really expensive, takes a lot of time and you’ve actually got to get the spectrum.
“If you can build an IP platform that can scale, you can build as many of those as you’ve got viable audience segments to serve. You can chop and change them based on what viewers want.”
That means the programmers’ role will evolve and increasingly be driven by the data on what different viewers are consuming.
The fascinating thing here is that the stickiness of the platform will ultimately depend on how good those choices are.
Kenrick is even looking at how to modernise the holy grail of the news bulletin by making it easier for viewers to pick and choose the news segments they actually want to see. But this demands more than simply updating the platform. It requires journalists and news producers to alter the way they go about gathering the news.
“With our newsgathering, we currently go and gather a whole bunch of individual stories, and then we put them together as a bulletin that appears at six o’clock,” Kenrick explains.
“That’s a great way to get a summary of the news of the day, but in a digital world, people don’t want the bulletin. They want to pick individual stories.
“Our systems and processes have until now been geared around putting bulletins together, so we are now replacing our workflow processes to something that’s story-centric as opposed to programme centric.
“You could stitch those stories up into a bulletin, but you can also do so much more with them across different platforms.”
The evolution of ads
Viewers aren’t the only ones who get the privilege of choice in a digital world. Advertisers are also able to better target the demographic groups they’re hoping to reach.
This has been possible with ondemand content for some time, but TVNZ has also recently introduced an innovation that allows the dynamic insertion of ads for viewers who are streaming live shows on the platform.
“All the data is also stored with a third party, so there’s never any visibility of it to the advertiser.”
Gambling on the future
Predicting what might happen in the future and what content viewers will turn to is always a tricky game to play, but Kenrick has been here before.
Ever since its launch in 2007, TVNZ OnDemand has faced strong criticism, with many people questioning why the broadcaster would move out of its comfort zone. There were also those who said TVNZ was achieving little beyond cannibalising its existing audience.
And the discussion has more recently turned to whether there’s any point in a New Zealand broadcaster trying to compete with the Silicon Valley tech empires.
While Kenrick admits that predicting what will happen in media isn’t an exact science, he doesn’t see sitting still as a viable option.
“Any time you’re talking about the future, we’re all putting forward an opinion,” he says.
“It would be arrogant of us to think that we’re going to get it all right. We won’t. But hopefully, we’ll be a fast learner and we can adjust things on the way through it.”
And as they’re learning, more and more eyes will remain firmly fixed on smart TVs, tablets, laptops and smartphones.
TVNZ can only hope some of that screen time is spent on its evolving platform.
We’re not suddenly going to move from being an ad-funded business to being a subscription business.
Kevin Kenrick (left)