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Circling vultures: Why MediaWorks TV is really in trouble

Peter Thompson

MediaWorks announced in October 2019 that it intended to sell off its struggling television business and cancel or cut back on several popular local programmes, including New Zealand Today, Married at First Sight New Zealand and 7 Days.

Its radio and outdoor advertising arms are currently performing well, but MediaWorks’ television holdings, comprising Three, Bravo, ThreeLife and Newshub, have remained unprofitable despite relatively strong ratings in the 26-54 demographic and an increased share of the television sector advertising market. MediaWorks has become increasingly vociferous in its complaints that they face an ‘uneven playing field’ in the free-to-air television market, particularly since TVNZ’s recent indication that it did not anticipate paying dividends to the Crown for the foreseeable future. To that end MediaWorks’ executives and even its celebrity presenters have been calling on the government to intervene and avert the possible closure of its television operations.

The market position of MediaWorks television is indeed serious (and potentially terminal). However, its position is a product of what is virtually a perfect storm of political, economic and technological conditions which have affected the entire linear free-to-air television sector, including:

  • A significant decline in the television sector’s overall share of the advertising market (from roughly 34% in 1999 to 21% in 2019), explained largely by the growth in online/interactive advertising(especially Google and Facebook).
  • Audience fragmentation as television eyeballs are attracted to other platforms and services such as video streaming and subscription video-on-demand services (e.g. Netflix).
  • Increased competition (and consequent higher prices) for premium content rights (movies, high end drama and sports) from new subscriber services.
  • Higher opportunity cost of providing local content especially in prime time, especially when prime-time ratings are slipping.

Crucially, MediaWorks has been restricted in its ability to adapt to these pressures not because of competition with TVNZ but because of its shareholding and debt structure. In 2007, right before the global financial crisis began to materialise, CanWest sold MediaWorks to an Australian private equity firm via a leveraged buy-out (LBO). As Brian Gaynor explains:

Ironbridge, the new 100 per cent owners, geared MediaWorks up to its eyeballs with the company’s debt surging from $165 million before the 2007 acquisition to $769 million immediately afterwards. As a result, MediaWorks’ annual interest costs soared from $13.8 million to $92.8 million with the latter figure excluding $14 million of capitalised interest. This was a crazy strategy and, unsurprisingly, MediaWorks was placed in receivership for the second time on June 18, 2013 after drowning in a sea of debt. […] The company was reconstituted in August 2013 with new shareholders, mainly banks and private equity firms, and only $90 million of debt.

In 2013, MediaWorks’ creditors eventually ousted Ironbridge by placing it in receivership, a move that converted their debts into equity, and reduced the liabilities on the media company. This also allowed the cancellation/restructuring of its expensive content rights contracts and expediently sidestepped a potential $22m tax bill from Inland Revenue. The restructure saw MediaWorks valued at $285m, a large mark-down from Ironbridge’s 2007 LBO valuation of $741m. One of the key creditors was Oaktree Capital, a private US-based investment fund specialising in distressed assets, had already started buying up MediaWorks debt at a 50% discount in 2012. By 2015, it had become the majority shareholder and moved to buy out the other post-receivership creditors after it refused to accept a $400m takeover offer from Sky Television, a missed opportunity Oaktree may now regret. In 2015 and 2016, Oaktree injected $27m into MediaWorks with the company issuing additional shares in return, primarily to cover its debt repayment obligations while the new management set about trying to optimise its commercial performance.

More recently in September 2019, MediaWorks was merged with the New Zealand holdings of Australia-based QMS Media Ltd, a specialist in digital/outdoor advertising, with QMS taking a 40% stake while Oaktree retains 60%. Naturally Oaktree and QMS were up-beat about the potential cross-platform synergies, but a month later, MediaWorks announced the sale of its television business suggests the synergies were perhaps not so seamless.

At the point that Oaktree was completing its take-over, ultra-fast broadband was taking off, Netflix had just arrived, and the telecommunication companies were starting to partner with content providers to provide triple/quad-play options. As the market pressures mentioned earlier began to intensify, anyone unable to develop new revenue streams risked being left without a chair when the music stopped.

Prime TV makes a loss but has strategic value as a free-to-air outlet for Sky. Māori Television struggles with ratings but its public funding and non-commercial remit in promoting te reo insulates it from short-term commercial pressures. TVNZ has made a success of its free video-on-demand platform which now offers original new-release content and has even received New Zealand On Air funds for some local content, reflecting its potential to deliver a significant audience.

Given MediaWorks’ transition out of receivership and its continued reliance on Oaktree to service its inherited shareholder debts, coupled with the constraints on new investment initiatives, it is perhaps understandable that its own response to evolving market pressures focused primarily on the consolidation and rebranding of its current operations, including its television channels.

Former NZX chief Mark Weldon was appointed CEO in 2014 while Julie Christie (former head of Touchdown which specialised in reality genres) shifted from the board to the management team. Doubtless tasked with cutting costs and rapidly increasing the margins to expedite a sale, the new management adopted a ruthless operational logic: programmes not generating sufficient margins (even if they pulled in respectable ratings) were culled and replaced by cheaper, more popular genres.

Campbell Live was an early high-profile casualty in 2015, being replaced by Story and then The Project. Factual/current affairs content like 3D and Third Degree were also dropped while the newsroom budget was cut, precipitating the departure of its investigative journalism team and the resignations of high-profile presenter Hilary Barry and the long-serving head of news, Mark Jennings. Reality genres proliferated with varying degrees of success –  Real Housewives of Auckland and Married at First Sight NZ have been discontinued while The Block NZ will return for 2019.

In purely commercial terms, this short-term strategy has had not been completely without merit: TV3 has been outperforming TVNZ in the lucrative 25-54 demographic. However, this has still not been sufficient to return the television business to profitability. Insofar as the long term effect of cutting popular programmes is diluting the brand value and viewer loyalty, throwing Campbell Live, Jono and Ben, and NZ Today on the scrap-heap seems like institutional-self harm

A review of the regulatory frameworks for the New Zealand media sector is certainly overdue. MediaWorks would like the government to turn TVNZ (or at least TV One) non-commercial which would expediently hand over the advertising revenue to the private media sector. Calling on the government to rescue TV3 and Newshub for cultural or democratic reasons does not sound unreasonable; indeed, the government has apparently been looking at restructuring TVNZ and Radio NZ into a new partly-non-commercial-partly public service entity (the details of which currently remain unclear). However, it seems highly unlikely that the government will agree to decommercialise TVNZ and thereby save TV3 just so Oaktree can flog them at the first opportunity.

If the government does have any responsibility for MediaWorks’ current situation, it is for permitting the digital media ecology to be dominated by private corporate interests without adequate regulatory protections. That includes allowing vulture capitalists to buy up media companies to extract short-term speculative profits.

If MediaWorks’ television business cannot be sold, Oaktree (and Ironbridge before them) must ultimately hold themselves responsible for eating their own media for lunch. While there is speculation that up to five potential buyers are looking at MediaWorks television, it seems doubtful that any prospective investor would want to invest heavily in a business which has self-advertised its own imminent demise. While MediaWorks hopes for a white knight to ride to the rescue, the vultures are already circling.

 

This paper is taken from a longer report on the predicament of Mediaworks television: Peter Thompson. (2019, November). MediaWorks Television: Death of a thousand cuts? https://thepolicyobservatory.aut.ac.nz/publications/mediaworks-television-death-of-a-thousand-cuts 

Categories: Media
Peter Thompson
About the author

Peter Thompson

Peter Thompson is a senior lecturer in the Media Studies Programme at Victoria University of Wellington. He has published extensively on New Zealand media issues, especially regulatory issues and funding arrangements for public service broadcasting. Peter is a founding editor of the Political Economy of Communication journal and currently Chair of the Coalition for Better Broadcasting Trust. He can be contacted at peter.thompson@vuw.ac.nz