Slaughtering sacred cash cows
When you look at the growth of new companies like Snapchat, Waze or Uber, TVNZ is fighting against some of the fastest growing companies the world has ever seen. TVNZ reported a net profit after tax of $28.1 million for the year ending June 2015, up $10 million on the prior year. And he says total online video streams across news and ondemand last year was 97 million, which was up 185 percent. But it was only up 19 percent in online revenue year on year (it has now stopped splitting digital and linear revenue out in its reports, but it was $13 million at the same time last year, so its total online revenue clocked in at around $15.5 million). So is that good enough?
“It’s never enough, is it. I think the day that we think we’ve done enough is the day we need someone else to lead the business.”
But he points out that the time spent viewing content online is still at an early growth stage. According to Nielsen's multiscreen report, 11 billion minutes of online video were watched in New Zealand last year (this includes watching online and streamed through Smart TVs), but there were 186 billion minutes watched on linear TV. As Clay Christensen wrote, the innovator’s dilemma is deciding whether to go all in on a new emerging business or tinker around the edges with the old one. And Kenrick thinks it has the balance right.
“There’s any number of players and media that are either really heavily stuck in a traditional world or they’re at the forefront of what’s new and what’s happening. And the bulk of the markets are somewhere between the two. The ability to blend both of those is critical to success, particularly in a market the size of New Zealand. It’s hard to have a viable, sustainable business if you’re just operating in a niche here.”
There's no doubt online is growing, but it’s off a small base, and he says it will continue to grow because “you’ve got more fragmentation, and you’ve got more people accessing stuff on more devices”.
“But on-air dwarfs online and will continue to do so for quite some time. What you get is people who will come out and say ‘here’s the huge growth in online’ and as a percentage increase it sounds really impressive. Then I think you have to stack it up against what are the other options. It’s not diminishing the growth of online, but it’s just saying that in the scheme of things, it’s still a whole lot smaller …”
As Nielsen showed, those in the marcomms bubble are not normal. And they often have a barrow to push.
“Most of the spokespeople for whatever’s new and exciting are going to be early adopters. But I think online viewing of content is just breaking into the early majority now.”
And that seems to stack up when you look at the numbers. Back in 2009, TVNZ’s ad revenue clocked in at $298 million. And now it’s up to $313 million. Given the chatter about the death of everything traditional, a lot of people might be surprised about that.
The overall TV advertising market is decreasing, year on year TVNZ’s advertising revenue has fallen and younger people are watching less TV, so there are plenty of challenges. The last time I interviewed Kenrick he said: “As long as the advertising is relevant to the viewer and to the show, and it’s not shouting at you, it’s fine”. Most would argue that isn’t the case on free-to-air TV. So does he see any signs that advertisers are moving away from the shotgun approach of TV—and that consumers are moving toward an ad-free model offered by the likes of Netflix and Lightbox?
“I think there’s always going to be combination. I think that the viewers understand that you either pay with your data, you pay with your time, or you pay with your wallet. I don’t think there’s a one-size fits all thing. Increasingly we’re going to see combinations of all the above.”
At present, TVNZ has close to 750,0000 registered users on the TVNZ Ondemand service that it relaunched earlier this year, so he says it’s entered the big data fray in a big way. And the next goal is to get to two million.
“We’re on track to achieve that in this new financial year that we’ve just started. That gives us a critical mass that enables us to offer really deep rich insights to our content team and a better understanding of what sort of content we should make available. It will enable us to work with data reach advertisers to have far more targeted relevant ads.”
So will TVNZ start charging for content? It sounds like it. Kenrick believes there will be people who will happily pay to avoid ads (Google is trialling something along those lines now and there are plenty of examples, from Spotify Premium to the New York Times). But as Sky’s John Fellet sagely says, buying the content is the easy bit. Making money from it is the challenge. Sky has done that remarkably well and is still bringing in record profits, despite plenty of braying from the vocal minority. And it even gets to show ads on content that people pay for.
“As part of a mix, if you’ve got mass advertising, if you’ve got targeted advertising, if you’ve got no advertising, they all feel like they’ve got a role play.”
TVNZ has found a few ways to, as Kenrick says, “incinerate cash” in the last few years, particularly with the failures of Igloo and Tivo. And the lack of a multi-million dollar impairment as there was last year with Igloo was a major reason for TVNZ’s increased profitability this year, especially given ad revenue fell. So could there be another financial disaster lurking?
“I think the challenge is to put yourself in the shoes of the people who made the decision at the time with the information that was available to them. If I look at Tivo or Igloo or Channel U, I can absolutely understand the logic of that decision at the time and why it was the right thing to do. I think that the market evolves and moves, competitors evolve, and they change their plans and based on that you have to be prepared to reassess those.”
As commercial director Jeremy O’Brien explained recently, TVNZ is also opening up its OnDemand platform to advertisers to create more short-form content in a non-cluttered environment. And Kenrick believes there’s also an opportunity for TVNZ in ecommerce.
“One of the crazy things we have in the media market is media agencies and buyers have shown that they think everybody dies at 55 years of age. If the media industry places little value on people of that age, we might get a better return by participating in e-commerce and selling products and services to that group.”
Like the incontinence undies from Confitex that were shown recently at NZ Fashion Week?
“That’s probably not the first thing that springs to mind.”
It seems like a sitter. And many mass media companies have tried. But very few seem to have made that ecommerce angle work. So can TVNZ?
“Historic analysis is a great identifier of what you should or shouldn’t do. I think there’s a lot of possibility that we haven’t experienced, and we’ve got to look at what’s in the best interest of viewers and advertisers. If we focus on that, I think that we’re spoilt with opportunity.”