As Jeff Bezos says in his book The Everything Store, there are two types of companies: those that exist to raise prices and those to exist to try and lower them. Amazon is in the latter category, of course, whereas most media companies would be in the former. But Q3 has proven to be something of an anomaly, because TVNZ has decreased its ratecard prices while MediaWorks has increased them. So what's the rationale behind those decisions?
TVNZ’s head of sales and marketing Jeremy O’Brien had value on the brain when he chatted with us, saying quite regularly that the decision to drop the rates by four percent on TV One and TV2 is simply about "bringing better value to the market".
He says this isn’t just about competing with MediaWorks and other TV networks, however. It’s also about competing against other media and getting more businesses to consider TV as an option.
O’Brien says TVNZ has been performing very well, with 18 of the top 20 shows this year, and it has a really strong line-up for Q3, with the local version of My Kitchen Rules the biggest drawcard (the Aussie version has got off to a very good start on TV2). So while it may seem counter-intuitive to drop the prices if performance is good, he says it's all about "quality product and price equals value".
He says the ratecard is based on previous performance and predictions of performance in the future, and he admits that it has taken into account the steep decline in viewership that started in July last year and affected TVNZ more than it did MediaWorks.
After the decline in PUTS was pointed out, there was plenty of doomsday commentary about the 'death of TV'. But, as discussed at the time, viewership was coming off ten year highs, there were a number of reasons for the decline and, as Nielsen pointed out, viewing went back to levels seen in 2007. That said, O'Brien admits the expectations didn’t match the delivery, but he’s confident the numbers are going to grow in Q3, he believes "TV is still delivering really strong audiences" and "there’s a reasonable amount of predictability".
O’Brien didn’t want to discuss the specifics of current market share aside from saying “we remain by far the preferred choice”. And he hopes the better value it's now offering means its share—and, once again, perhaps slightly counter-intuitively, its revenue—will increase further.
In TVNZ’s last financial report, "lifts in both TV and digital ad income contributed to topline revenue growth of three percent to $202 million, up from $193 million at the same time last year. TV advertising revenue was up 2.4 percent to $171.5 million, up from $167.5 million the year before, and digital revenue was up 23.3 percent from $4.8 million to $5.9 million."
He wasn’t keen to get into a "he said she said" about MediaWorks. But he did say he doesn’t see anything too different from what they had on offer last year. And with that seven percent ratecard increase for TV3, he says it needs to guarantee audience growth to maintain the same level of value.
MediaWorks head of sales Liz Fraser says the company has had a very good run recently, as evidenced by winning the Media Brand of the Year title at The Beacons, and she believes the seven percent rate card increase is entirely justified.
She says its pricing is derived from forecasted performance (ratings) and demand. And with The Block NZ, X Factor Australia, House Rules and its existing stable of shows on offer in Q3, she says it's looking good on both counts.
“The TV market has grown 4.2 percent in the last 12 months year-on-year and MediaWorks has seen more than double this percentage.”
While she says Sky has seen some growth as well, albeit off a lower base, MediaWorks has been taking a greater share of TV revenue over the last 12 months from TVNZ.
“TV3 now has the same average ratings as TV One – 7.1 percent, peak only, all 25-54 years, last 12 months (Q2 2013-Q1 2014). And TV3 matches TV2 on weekly reach against all 25-54 years.”
While TV3’s primetime rates went up, Four’s rates have decreased by 27 percent in primetime, following on from the restructure of the ratecard that was implemented in Q2.
“We price TV3 to be the most efficient network vs. TV One and TV2 and our forecasts show that we will deliver this in Q3, even with TVNZ’s drop in rates. When it comes to Four we’re moving from a pricing structure of guaranteed CPTs to one that is in line with the other three major networks. So what looks like a decline in ratecard is actually a sign of good performance.”
Fraser was less concerned about playing he said she said and pointed out that for a very long time TVNZ’s ratecard CPTs have been much higher than those of MediaWorks.
“This strategy clearly isn’t working for them anymore, which is why they’ve had to reduce their ratecard. They don’t appear to have a long-term strategy that’s consistent. Instead, every quarter you’re never really sure what you’re going to get.”
She says the decline in PUTS has been well-documented, but she says TV3 held up well in comparison to TVNZ. And she agrees with O’Brien and believes it will normalise in Q3 and she’s expecting audience growth.
She says MediaWorks normally waits for TVNZ to release its ratecard and then responds, but she says there is a growing confidence within the company and a growing confidence from the market because of its commitment to "deliver on our deals".
The response to the price increase has been quite gratifying, she says, and there has been great support from agencies and clients on the Q3 laydown (at present 16 percent of its revenue comes via direct clients, which has grown rapidly over the past 18 months, vs 84 percent via agencies). She’s also heard some agencies say they feel TVNZ should be dropping its rates even further.
FCB Media’s managing director Derek Lindsay agrees with that and says some of the agency's clients are saying, 'hang on, ‘what am I paying for here?’ But he also says the deals MediaWorks was offering were unsustainable, so he understands the need to increase prices (not surprisingly, he doesn’t necessarily like it).
He says it works closely with TVNZ on some of its bigger clients like Mitre 10 ('Easy As' was an exclusive with TVNZ) and Noel Leeming (which won the best in show award at the Beacons for a collaborative campaign that involved a number of different media owners). And in those situations, he says it's not exclusively about price, it's about the value those tight relationships can deliver.