Changing channels: a look at the TV landscape following Sky TV and TVNZ’s latest results

  • Media
  • March 9, 2018
  • Findlay Buchanan
Changing channels: a look at the TV landscape following Sky TV and TVNZ’s latest results

Cord cutting pundits have predicted the death of ye olde television for years. And while few would argue with Merja Myllylahti’s 2017 AUT Journalism, Media and Democracy summary when she said commercial television broadcasting showed signs of distress, the six-month interim reports released by New Zealand television heavyweights TVNZ and Sky TV had some surprises. We check in with the media owners and the media agencies to break down the facts and the figures.

TVNZ:

The key outcomes for TVNZ’s 2018 interim report includes increased advertising revenue and lower operational expenses, which has lifted TVNZ’s earnings performance for the six months ended in December 2018.

The year on year performance was put down to modest growth in revenue and continued tight control in costs, with a net effect of strong in profit results.

TVNZ enjoyed refreshing growth in TV and online advertising income, which contributed to total revenue $170.4 million, up $1.6 million (1 percent year on year).

TVNZ chief executive, Kevin Kenrick said it has been delivering year on year growth in digital revenue for quite some time, but this is the first time in many years it has delivered year on year growth in television revenue.

Kenrick believes while many advertisers and media agencies have gravitated toward the shiny new thing that is digital, they are now “starting to assess where is the best place to invest”.

He says television has its own pulling power; while digital can be exceptional in targeting audiences and retail activation, and is a good near-term tool in the advertising armoury, TV is powerful in terms of building brands and emotional engagement as well as actual viewability of ads.

SKY TV:

When CEO John Fellett and CFO Jason Hollingworth sat its audience down for the intensive breakdown of Sky’s financial findings, it begun by stating that paid television is a seasonal business, with generally more subscribers in winter than summer.

Therefore, instead of comparing Sky’s interim results with the previous 6-month report, Sky compared the six-month interim results to the same time in December last year.

Under this narrative, Sky TV’s net profit was up 12 percent, rising from $59.5 million (Dec-16) to $66.7 million (Dec 17).

The scary number for Sky was that its net subscriber count was down by 37,359 compared to the same period last year, from 816,135 in December 2016 to 778,776 subscribers in 2017. As well as subscribers leaving for cheaper SVOD options, Sky said a major contributor to the loss in subscribers came after the closing of online DVD rental business, Fatso.

As a result increased competition from the likes of Netflix, Lightbox and other streaming services, Sky dropped its entry level prices to $24.91 a month and is holding on to cash for what many believe may be an expensive renewal of broadcast rights following the Rugby World Cup. With sport – and particularly rugby – still being a huge competitive advantage for Sky, these are rights they will definitely be fighting for.

Fellett said that he cannot cite any examples of traditional paid television platforms in first world countries that show growth in subscriber count.

Sky TV’s total television advertising revenue is down five percent comparative to the same time in December last year.

So what do the media agencies make of the current TV market?

Alex Lawson, general manager of Carat, believes TV is still an incredibly powerful medium for reach building and impact. He further states that the “TV is dead” conversation is changing.

“Digital is still the bugbear for TV and traditional media in terms of where the flow is going, but we should remember that most of these traditional publishers or broadcasters have all been running digital operations themselves for a while now.”

Lawson claims the organisation facing the biggest challenge is Sky, which he says, up until this week seemed hellbent against change.

“Even with changes to pricing, once you dig down into actual channels delivered it loses its sheen. Same thing with Fanpass, establish what was becoming quite a good consumer platform and make it $99 a month with no other options. John Fellet is right when he looks overseas to the threats of distributors like Amazon, it’s whether they’ll do enough to stave them off that is the question.”

Richard Pook, general manager of Amplifi NZ weighs in with how television is faring in comparison to other mediums. He says while it is currently well placed due to Google’s brand safety issues, television is running out of time.

“Time is running out though as transacting process, currency (should be CPM) and lack of addressable audiences accentuate audience decline and fragmentation problem.”

 In saying this he claims audiences are flat overall but the under 35 group is falling quickly.  

Pook gleans the most telling results out of TVNZ and Sky.

“TVNZ showed a surprisingly decent performance considering the decline in PUTs of 6-10% per annum and the ageing of the broadcast TV audience. Sky’s key results showed costs fell faster than revenue. Advertising was not split out but I am feeling that this is falling faster than TVNZ and MediaWorks.”

FCB head of investment David Turner believes that despite the negative press Sky TV receives, it continues to deliver big profits.

Turner says while competition for content rights is expensive, its recent decision to lower its dividend and retain cash for content rights was a masterstroke.

He adds if television continues to rely on efficiency and reach for its main selling point, revenue will be sliced off in favour of other channels, which offer greater targeting and personalisation

“Television is certainly not dead and will not die. The key focus needs to be the viewer experience, ensuring it is the highest quality, allows for viewer personalisation, is available to everyone via multiple means and stands up against any online competitor in terms of how viewers can interact with the platform.”

Chief investment officer of OMG New Zealand, Scott Keddie says television has weathered a tough 2017, with investment up slightly YOY (CY2017 up 0.8% yoy, based on agency spending statistics from SMI NZ). He believes quality content and, in particular, local content will decide television’s fate in 2018.   

“TV will benefit from a resurgence in brand advertising and will again hold its head above water in 2018, but with rising content and tech costs, holding your head above water isn’t a long-term solution.”

The MediaWorks interim report is released in May and is unavailable. StopPress approached MediaWorks, but they did not want to comment about their financial results.

It did announce its line up – and a new channel called ThreeLife – a few weeks back and chief content officer Andrew Szusterman told StopPress he was proud of what the broadcasting team has achieved to put Three into the position it is currently in, which he says was really healthy.  

“If we look at the numbers in 10+ [age category] we’re now the number two network behind TVNZ 1. TVNZ 2 has slipped back to third position for the first time since 2008 – so something we’re doing is going well, I think we have a really good content mix.”

And it’s not just the audience who benefits, but the advertisers too, says Szusterman.

“What we’ve built our channel upon and what we’ve built Three on is consistency and product. What we’re rolling out for this year [are] well-known brands be it Lost & Found and Grand Designs New Zealand that are known and loved not only by audiences but as importantly by advertisers, so they know when they book us they have a solid-ratings show.”

This is echoed by MediaWorks’ chief commercial officer, Glen Kyne, who said ThreeLife would provide greater performance and optionality for its advertisers.

Bringing up the threat of Netflix and SVODs, Szusterman says what he sees is a levelling out of people using television (PUT), whereas when Netflix arrived five or six years ago there was the assumption PUTs would go into a massive decline.

“It’s fragmentation, what’s happening with Netflix now and those SVOD are becoming part of everyone’s media mix. As we all just play on a level playing field now, it becomes a little more fragmented. Media has been fragmented for years and years and we know that Netflix is there but it’s no more of a threat than it was the year before.”

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