We live in times of convergence. TV is online, radio and print are making video and online is pretty much doing everything. And around the world, media companies are attempting to bring their assets together and adapt to a challenging new environment. MediaWorks chief executive Mark Weldon discussed his strategy to bring the company’s disparate news brands under one ‘power news brand’ last week and pointed out that while Fairfax, NZME, TVNZ and Sky are all experimenting, MediaWorks is the only one trying to do it across TV, radio and digital.
He admits the number of media companies that have embraced the theory of integration and failed to execute it properly is substantial. So why would MediaWorks be any different? Two months into his role, he says it looked at the seven major media channels and put them on a set of criteria to try and find out which ones worked well together. And they found it was the ones that shared characteristics, like digital, and didn’t require any physical media.
“Things you can repurpose and recirculate content on and around. And then ones which audiences will move relatively naturally between, as you can see with second screening growing quite quickly. TV, digital and radio work really well together. And the other one that came out of that analysis was live, so we’ve made some investments in that [through its joint venture with TEG, which was Nine Live].”
He says The Paul Henry Show is the most tangible example of that strategy in action so far, and he says the move in this direction is based on the belief that it’s a “bilateral market”.
“If it just works on production but not for the customers, then there’s no point. And if you’re just packaging something for customers that audiences don’t respond to, then it’s not worth it.”
One of the issues with integration is the belief that 1+1 will equal 3 when it comes to revenue when 1 +1 often seems to equal 1 because the way different media is sold varies so widely. In the case of radio, sources says around 80 percent of the ad revenue comes via direct sales, while TV is almost the exact opposite and largely comes from agency spend. And that makes selling across multiple platforms very challenging because there’s so little crossover—and because sales staff aren’t renowned for their strategic nous.
But Weldon says it did a big piece of work with trade marketing manager Sarah Ferbrache and director of integrated content Glen Kyne that involved around 50 qualitative interviews with a range of customers, from multinationals to large national companies, to local radio-only clients. And they discovered a number of trends.
“Some of them are quite obvious. As the media world fragments, if you’re sitting there as a large player, providing a single offering—and in particular providing unduplicated audiences across multiple media—is a very, very valuable position to be in. So we’re very confident there is a demand from customers to package it together.”
In the last story, Weldon discussed the simple laws of gravity in business and said “when the world, your audiences and your customers are moving really quickly, if you keep all your resources in the same place, you become obsolete”. And the simple law of media is that if your assets aren’t performing, you won’t be able to charge as much for ad space. This isn’t just an issue affecting MediaWorks, of course, with Nielsen stats showing free-to-air viewing has declined by six percent this year as other formats have come on stream, ASA figures showing ad revenue for TV was down by two percent in 2014, despite a rise in ondemand ad revenue that broadcasters said more than made up for it; and in Matt Nippert’s story in the Herald on Friday, MediaWorks CFO David Chalmers saying that the TV ad market had declined by $60 million in the past year.
The general perception from senior media agency folk we spoke to is that radio is still performing well for MediaWorks. But TV is struggling with high costs and declining ad rates. So, with reports of “streamlining” at MediaWorks Radio nationally, is radio being asked to save TV?
“No, TV is an important cornerstone to our business. It’s still the best media by far at building brands and really good at building our brands. So we need to be able to monetise those brands additional to selling rating points.”
He says The Block is a good example of this approach. He wouldn’t give specific numbers, but he says the integration revenue it gets is significant and the feedback from the customers when their products are featured in the show is fantastic.
“The Morepork stuff is very innovative and really works for that product. It’s a really great relationship.”
And he says the Jono and Ben campaign for V is another example.
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“We negotiated that in a very platform-neutral way. We didn’t have TV reps or radio reps in the room like we would’ve 15 months ago. And we weren’t arguing where the revenue fell. We were simply looking at what was the best outcome we could give to the client. And it played out in an very integrated way on TV, on the Rock radio show, and we also used their brands and their talent out of home.”
While it has a whole bunch of tangible broadcasting assets, he says it also has significant intangible assets in the form of the largest portfolio of talent in the country. And “more and more, that’s what advertisers are interested in”. So he believes its prospects are good.
Keepin’ it real
When we spoke with Paul Maher and Liz Fraser last year ahead of MediaWorks new season launch, they were both oozing confidence about the international reality show formats it had secured. Fraser, who recently took a job with Air New Zealand, said they were lower risk than starting new shows, as it did with The Great Food Race, because they were well-known. But, as the declining ratings for most of its major formats in comparison to previous years shows, there’s no such thing as a low-risk show in TV and MediaWorks has been accused of having all its eggs in one big entertainment basket. But Weldon believes that’s more about being accused of it, rather than looking at “the facts of what we’re doing”.
“I look at this year and the number 1 and number 2 dramas launched in free to air were Westside and Humans. We’ve launched Fail Army and Funny Girls, which have done really well in comedy.” And he says one of the core tenets of the company’s new strategy is flexibility.
“If you look at something like 7 Days of Sport, we’ve got five shows up. It’s not quite a US style pilot, but it’s not far off. We’re learning real-time. If you look at the reality formats, we always have a view that 1) they play out better in their second and third year and 2) of the four new shows we introduced, we expected two or three to be carried over and to introduce one new in the next year to continue to refresh. This will sound a bit odd but it’s about managing a portfolio.”
That has meant it won’t be showing MasterChef next year due to what the company says is a shift away from food related content. X Factor NZ, which had a year off before its second season, won’t be back next year either. But it is launching a new show called Family Feud and The Bachelor NZ, The Block NZ and Grand Designs are all returning.
When asked if it was announcing any new shows and reducing spend on local programming next year, MediaWorks said: “The full 2016 content strategy has not been finalised but the spend is not the focus – the quality and audience appeal rather than the cost is the most important thing for us.”
Ratings and ratecards
So what does this converged, flexible strategy mean for MediaWorks’ revenue model? Weldon says the ratecard is a “vexed topic” (the same phrase he used when asked how he thought competing media had portrayed MediaWorks and him) and a notion that’s “somewhat fictional” anyway.
One media agency source we spoke to said MediaWorks is being very aggressive from a deal perspective as some of the bigger exclusive TV deals they’ve had, such as Unilever, are coming to an end. And those deals are harder to do in the face of declining performance.
“At any given performance level across all of your assets, they would prefer to buy in a singular way, as opposed to multiple invoices and no co-ordination,” he says.
He also says the focus on overnight ratings doesn’t give an accurate reflection of performance these days. He points to a show like Humans, which consistently grew its share from around 4 to 7.5 with consolidated ratings and then video on demand streams added in more.
“From a market structure perspective, we’re looking at moving from selling airtime and CPT to CPM, because that then harmonises with how we sell video. The idea of a ratecard is incredibly complicated. Every single show has a different price, some of them have make goods attached, some have different bonuses and different guarantees. It’s an incredibly complicated system that no-one would dream up again.”
He says it made sense when TV was dominant and when brands needed to buy TV to get their brand out there (he points to the famous comments of Telecom chief executive Theresa Gattung around complicated pricing structures but says that only worked with a monopoly). Now, as many brands are discovering, you can achieve mass awareness without TV by using digital, although he says you still can’t achieve it as quickly or as cost-effectively.
“Digital can learn a lot from TV. The simplicity of selling CPM is very attractive and very comparable across all types of inventory. There’s a lot of comment about TV’s competitiveness with digital. We need to address that in every single way and that includes how it’s sold and how it’s priced, not just what the content is and where the audience is. So we’re definitely looking at whether a ratecard is needed.”
TVNZ’s Jeremy O’Brien has openly said that if the industry had its time again, it would probably try to sell fewer ads at higher cost. And that’s exactly what it seems to be doing with video ondemand.
“If you look at where the money comes in from and where the customers are, advertisers are increasingly more willing to pay for a pre-roll on a video of Humans and they’ll pay more for it,” Weldon says.
This evolution has also impacted on The Radio Bureau, which had its wings clipped earlier this year. While NZME and MediaWorks put up a united front, sources suggest the changes were led by MediaWorks and that it may have underestimated the TRB’s importance when it came to dealing with agencies. So why did MediaWorks want to break up the cartel?
“The ratings methodology and the nature of the TRB needed to change. It needed to be brought into the current age, where it was less of a binge, 12 weeks a year, and more 40 weeks a year, national coverage. And it needed to be in a way that 22 year olds in Onehunga and 65 year olds in St Heliers would feel comfortable filling in a survey.”
He says there’s still a place for the TRB and it has always believed that “a neutral radio expert who can provide best in class planning services is a great facility in the market”. But having a monopoly on the sale of radio to agencies when, for example, Hallensteins could buy it direct or through the TRB, was increasingly hard to manage because there were different agency rates and commissions, depending on which door the client came through.
“We needed to make that playing field level. We didn’t see any point in TRB getting into digital as a radio expert. It’s doing a very good job. The planning team down there are very good. We’ve also got a planning team in our sales organisation with some of the best planners in the country and you can buy most of what you need, in some cases all, from us, so it makes sense. If we’re genuinely going to organise around the customer, and we are, it’s a bit odd to say ‘yes, you can buy radio but you have to plan that somewhere else.’”
On the money
While there’s been plenty of speculation about the company’s revenue since Weldon took over, he says it’s a private company with a very private owner and he wouldn’t discuss any financial information. As it’s an overseas owner, it does have to file a return to the companies office and the last one for MediaWorks Investments from early 2015 showed a $12 million profit, with radio being the strongest contributor).
“I know a lot about being a public company [from his time heading up the NZX], and there are lots of benefits in that … But the transition is a lot better to do as a private company. You can make the long term investments. You can spend the necessary capital required today without worrying about the pressures of being publicly listed. We’ve got really good commitment from our owners to for a capital investment programme, which this business has not had in the last decade.”
Weldon says private equity companies like Oaktree own businesses to make money and they’re “not natural long term owners of media businesses”.
“My view on it and the reason I took the job is that you create the most value by having a clear vision for growth and staying ahead of the market … Businesses that are in low-growth behind the market scenario are not worth a lot. It doesn’t mean you end up fat and you don’t need to address costs. But that should be an everyday discipline around running a lean organisation that doesn’t make a habit of waste.”
And, in what some may see as convenient timing from a competing media organisation, NZME ran a story after the announcement of MediaWorks’ Newshub brand last week that mentioned a company policy requiring staff to print on both sides of the paper (it also ran a story about MediaWorks buying Weldon’s wine at cost for its Christmas booze ups, something that it had cleared with the board).
Over time, MediaWorks has come to be seen as something of a Kiwi battler; a company that has been through its fair share of rough patches and learned to operate on the smell of an oily rag in comparison to some of its competitors. So is that charming? Or just inefficient? Weldon thinks it’s a bit of both.
“While we’ve done a very good job of positioning ourselves over time as the underdog, we’re actually very big [at around 1,400 staff] … Silos equal duplication across the businesses, so having a radio finance team and TV finance team that were structured in exactly the same way is not efficient to run one overall business and not productive if you want to think about the economics of, say, The Bachelor, which plays across More FM, TV and digital. It’s not fit for purpose. Within any individual area the business has been run quite cheaply, but the design overall doesn’t fit with where we need it to be. So we need to shift it. That’s just a fact.”
When asked whether MediaWorks had closed its long-standing accounting department in Hamilton, it said no. But Weldon’s remit is to knock down the “rigid silos” and create a more efficient business, and it’s thought to be looking at it closely.
Creating efficiencies is often corporate shorthand for cutting staff, of course. And while he says “the day that anyone turns up to work and looks forward to a redundancy is the day they should get out of the job”, he says everyone is in agreement that the company needs to change.
He says it’s at the start of a three year journey to “quite a different end point” and a “company that looks fundamentally different”. So why three years? And will he be off to, as they say in press releases, pursue new opportunities?
“In this media landscape there’s no-one in the world who’s smart enough to draft a strategy for five years. And one is too short. So three sounds right.”
As an example, he points to Grand Designs, which was commissioned two years ago (and is currently performing well on Sunday nights).
Friends and enemies
As Weldon said when asked about the printing policy, small gestures can be very symbolic, both for staff and for those watching from outside. Big gestures can be symbolic too, and that’s certainly the case with KPEX, the collaborative ad network established by NZME, TVNZ, Fairfax and MediaWorks. He says MediaWorks played the lead role in pulling together the partners on the initial idea.
“As Google and Facebook take share from the four broadcasters, the competition is of a nature that’s quite different than a decade ago where advertisers bought their print and their TV. At the moment, many are making a choice between print and TV and that’s quite different.”
So, another cartel like the TRB then?
“Google is a self-organised cartel. They clip the ticket six times on any given digital ad. So if you’re competing with Google, you’re not a cartel. But, organisationally, we’re very keen to partner.”
He believes being able to compete and collaborate at the same time is one of the skills that will differentiate the winners from the losers in the emerging media landscape—and a lot of landscapes where technology is a major disruptor.
“We have a really good relationship with Sky TV. We are producing Prime News for them, delivering a really strong ratings performance for them, which is helping their channel share. It’s a high quality product. Sky is very happy with the tone of the product from the brief they provided but we compete with Sky tooth and nail in the advertising market, so we can manage those things. With Fairfax, there are a couple of pitches out there with major deals where we’re pitching jointly because we have assets they don’t have and they have assets we don’t have.”
Fairfax Media’s chief executive Simon Tong, who, like Weldon, had no media experience and was brought in to try and shake up the established model, is also big on collaboration and says the local players are not who they should be worried about. Weldon also feels that’s the right way to go. And there will be plenty of bystanders watching on to see if he’s right.