30 Aug 2020

Is the Covid crisis over for commercial media?

From Mediawatch, 9:10 am on 30 August 2020

Six months ago, commercial media companies pleaded for government help and pundits warned their days could be numbered. Most cut costs, jobs and pay to stay afloat. But this week, two of New Zealand's biggest media companies posted positive annual results and claimed confidence about the year ahead. Is the commercial media Covid crisis over already?

Stuff, TVNZ, NZME buildings and Broadcasting Minister Kris Faafoi.

Photo: RNZ / Supplied

Back in April, when the entire country was in Level 4 lockdown, the nation’s media bosses told Parliament’s Pandemic Response Committee advertising revenue had “fallen off a cliff.” 

They pleaded for help and the government responded with a $50m package of short-term assistance and the promise of a second package to come for the medium term. 

But commercial media companies didn't wait for that. 

Among them was NZME - which owns the Herald and half the country’s radio stations. It cut 250 jobs, Radio Sport and and community papers - and also cut the pay of staff to stay afloat. 

But last Tuesday, it unveiled better-than-expected annual financial results. 

NZME’s statement even said it would invest in “further business journalism and in regional journalism, specifically in Wellington and Christchurch.”

There was also an uptick in people signing up for digital subscriptions and paying for the Herald’s premium content online. 

CEO Michael Boggs told reporters profits would grow “if current trends continue into next year.” 

In June, state-owned TVNZ responded to the Covid crisis with “a change in business structure” and 70 to 90 redundancies. 

“TVNZ’s revenue dropped 30 percent during the nationwide lockdown and we expect revenue momentum to recover gradually over the next 18 months,” chief executive Kevin Kenrick said at the time. 

But when TVNZ released its annual results on Tuesday, the headline on TVNZ’s news website - quoting its boss Kenrick - was upbeat: TVNZ emerges from Covid-19 slump 'a whole lot stronger'

In spite of a final quarter incorporating the lockdown slump in April to June, TVNZ’s operating revenue was $311 million for the year - a shade higher than the financial year ending in June 2019.

TVNZ also ended the financial year with more than $52m in the bank - $18m more than last year. Unlike some of its commercial media rivals, it has no debt. 

TVNZ’s audiences surged before and during lockdown. 

Almost all of the top rating TV shows of the year screened on TVNZ’s channels - the Rugby World Cup was a ratings hit and use of TVNZ on Demand hit new highs. 

This week, Minister of Broadcasting, Communications and Digital Media Kris Faafoi told reporters the second rescue package for the media never made it to Cabinet, partly because financial reports showed media companies were “doing better than expected.” 

So if the bounceback has been better than expected, were TVNZ’s redundancies and state subsidies for employees’ wages really necessary?

“In the month of April, we saw revenue drop by 33% and in the month of May it was 27%. You need to pull a lot of costs out of a business to offset that sort of decline,“ TVNZ's Kenrick told Mediawatch.

“We saw a recovery in June, but the decline in revenue was still 16 percent. We were feeling pretty optimistic, but then we went into another lockdown.

“The overall (annual revenue) number is relatively stable but it masks dramatic differences between the first nine months and the last three."

TVNZ's boss tells media and telco execs there will be casualties in a converged market where too many are competing for too little money.

TVNZ's boss tells media and telco execs there will be casualties in a converged market where too many are competing for too little money. Photo: PHOTO / RNZ Colin Peacock

Has the government made the right call to postpone a second round of financial support for the media because it thinks one is not needed now? 

“It all comes down to what you think the future is going to look like. If New Zealand goes back into multi-week or multi-month lockdown, there will be challenges not just for the media industry but for the economy as a whole,” Kenrick said.

“If you believe that we’ve seen the worst of it and we’re not going to go back into lockdown, the minister’s view is probably more likely."

State safety net 

The government has, however, helped out TVNZ. 

Its annual results this week revealed $30m of public money is available “if business conditions worsen substantially in coming months”. 

With $50m in the bank and a dominant position in free-to-air TV, is that necessary?

“The absolute decline in advertising revenue in that fourth-quarter was roughly $20 million. If you’re going backwards at that rate every quarter, you would chew through $50 million pretty quickly,” said Kenrick . 

“We don’t expect to have to draw down on that $30 million facility. It’s essentially there as a safety net and we intend to manage the business within the cash reserves that we’ve got."

A year ago, TVNZ got another break from the government, which told it not to worry about a dividend to the Crown in the foreseeable future and to put any profits back into programming. 

That got up the nose of its commercial media rivals, who felt it gave them an unfair advantage in a competitive and increasingly tight market.

Local content coming? 

At that time, Kenrick said the payoff for the public would be a substantial increase in local content - around 25 percent.    

“In fact, the company increased its spend on local by a puny $4 million,” Newsroom’s co-editor Mark Jennings wrote this week

Kenrick said plans for more local content hit the judder bar of Covid-19 - it could not be produced in a lockdown environment.

"We had to cut costs to ensure the commercial sustainability of the business and the biggest cost is content, so we put on the brakes and pulled that back,“ he said.

While TVNZ claims it faces 2021 “with confidence” off the back of it’s 2020 results, under current government policy the TVNZ of today will be replaced by a new public media entity by 2023. 

“TVNZ will preserve the core capabilities required to support the government’s future public media objectives,” a TVNZ statement this week said. 

But sustaining the public service parts of a broadcaster and keeping a highly commercial media business afloat in the post-Covid era are conflicting imperatives. 

“What we’ve been guided to do is when cutting costs is to cut in areas that wouldn’t inhibit the future public media objectives,“ Kenrick said.

“What’s most valued by the government for its public media aspirations would be local content – both news content and local entertainment. Which also supports the local production environment in terms of local employment jobs and keeping people in the creative sector.” 

Big names still at risk?

For some time, Kenrick has argued there are too many “sub-scale” players in the New Zealand media market and “consolidation is inevitable".

So far, only the offshore-owned magazine publisher Bauer Media has got out of the business after Covid-19 struck. Most of its key magazines have been picked up by new owners and are set to reappear soon. 

Is it inevitable other media players will go out of business post-Covid?

“Across the sector, there are players that are thriving but few are thriving. Covid has just accelerated that there needs to be some resolution,“ Kenrick said.

He pointed out that in Australia, the government and the regulators have moved to allow mergers and corporate cooperation – and also progressed legislation to confront the financial impact of offshore tech companies, such as Google and Facebook.

“In New Zealand, decisions from the Commerce Commission have actually inhibited that. I’d say something still has to give,“ he told Mediawatch.