The future is you - Brent Impey's John O'Shea Memorial Address

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The following speech was delivered by Brent Impey at the 2010 SPADA conference, on Friday November 12th.

Brent Impey at the SPADA conference. Photo /
Brent Impey at the SPADA conference. Photo /

Good morning, I just saw the honourable Jonathan Coleman walk in the room so I checked that I wasn't giving the Dave Gibson John O'Shea memorial speech a few years ago.

And Karen Soich asked me while I was having coffee if I was going to mention the word 'quotas' and advocate for them, and I actually thought that word went out in the 1980s but I might be wrong.

My only connection with John O'Shea is that both of us were awarded a New Zealand Commemoration Medal in the 1990s - his for services to the film industry, mine for broadcasting. 1989 this was... 1990.

Who would ever have thought that both our industries would be virtually unrecognisable 20 years on; and that if we thought that change had been rapid, it's nothing compared to the change that we all in this room are facing going forward.

And, our industries are intertwined. Always have been, always will be.

It is only 23 years ago that as TV3's lawyer, I was cross examining John Barnett in the old Broadcasting Tribunal days. Trying to prove there was room in the market for a third television channel.

And later on, on topics such as restricting foreign ownership to 5%, forcing the TV companies to have a quota of regional programmes; 100% government money was for TVNZ, and private television was to be forced to fund all its local programmes totally from advertising. There was no pay television.

Today we've got at least five free-to-air's, multiple pay channels.

There are no foreign ownership restrictions and significant foreign ownership in all our business'. No regional television from the major free-to-air's except regional advertising on ONE and TV3; and a very strong pay provider with rights to significant content the free-to-air's just cannot compete with.

And then there are all the other technologies coming in - internet, mobile, apps, Wi-Fi etc.

So, I'd like to start with the challenges that both industries face.

And, remarkably, those challenges are very similar. Sure there are different priorities and emphases, however they are close similarities.

And note this - it only takes one incident for both of us to realise how closely we are connected to government, and the importance we have in the scheme of things.

Take Paul Henry for example. Here we have a television host making some quip about a foreign politician's name, which leads to a formal diplomatic apology and front page headlines and the Prime Minister of the day having to make statements.

Or a film which results in the same Prime Minister dropping everything else to do a deal with an overseas production company, agreeing to further incentives, and changing the employment law for one industry only. Well done!

We all know that the future of broadcasting is more channels and more fragmentation. The advent of Freeview will see more niche channels, all looking for their own piece of the advertising dollar.

Whether it is the Country Channel, Documentary, TVNZ6, C4, or Trackside, all are after their little bit.

There is already pressure on available digital space for broadcasters who want to either enter the market or expand their reach. And this fragmentation will become more pronounced with the broadband roll-out.

This will spread the television advertising dollar even further, making it harder for any one channel or broadcaster to be able to fund local programmes from advertising alone.

But, I hear you say, television advertising has rebounded this year with growth on last year in excess of 8%.

Even so it will still be 2016 before television advertising is back to 2006 levels. The economy is predicted to be tight these next three or four years, and this has a direct relationship to advertising spend.

Sure, you can get temporary blips, and that blip has actually happened in the last few months. But, what we've seen is advertisers, and the large advertisers seeking to gain market share. That blip has now gone, and did go, about four or five weeks ago.

So if you think advertising is on the way up and that things are looking good, go out side this room and visit your friends who own and run small and medium sized businesses in New Zealand, and they will tell you how tough it is.

In advertising, we are witnessing the same phenomenon that followed the 1987 share market crash - a tough 1988, tougher 1989, a slight rebound in 1990, which has happened in 2010 and then a three year grind.

My point here is that you cannot rely on advertising growth in the next few years to sustain and grow the independent production sector.

I believe the free to air television market is going to be tough going forwards. Hollywood studio costs have increased significantly - and even the falling U.S. dollar does not help given most overseas programmes in New Zealand are purchased with the Aussie dollar.

There is pressure on costs as seen at both TVNZ and Mediaworks with significant cuts in the past two years.

In TVNZ's case, it has gone further by reducing advertising agency commission by half, from 20% to 10%.

So, if advertising and the economy are going to be tough, we can't look there, what about the regulator? The Broadcasting Standards Authority (BSA) has always been a bug bear of mine. Supporter of NZ On Air, opponent of the BSA, as I support self regulation.

Having said that, it has struck a pretty good balance over the last few years. However, there are growing signs of a conservatism which should cause both broadcasters and SPADA some real concerns.

Two decisions this year serve as warnings.

On TV One, there was an uphold of a sex scene on Hung at 10:10pm which the majority of the BSA found to be "explicit and gratuitous" - yet this scene was not out of step with what is seen on many other programmes, such as Outrageous Fortune.

Then, a complaint against TV3 was upheld on Home and Away where an adult couple kissed passionately - the man was fully clothed and the woman had long pants and a bra on. Their kiss was interrupted by someone entering the room.

My own view is that these decisions border on the BSA dictating a conservative morality; and, in the case of Home and Away, received widespread derision in Australia.

On the basis of these two decisions, and a trend when you read more recent decisions, I don't hold out too much hope of producing drama, comedy or soaps which push the moral boundaries. So, little help from that regulator.

What about the government? Since you got them to move quickly over The Hobbit, surely they will ensure the sector thrives.

Think again. Public spending is and will be under great pressure as the economy strives to recover. The government, whether National or Labour, is expecting more accountability from recipients of public funding - show us some results they say.

Some of you know I work in the aid area. What's happening there is an increasing demand for accountability from government.

And there is every reason to believe the same will apply to local television programme funding, and why shouldn't it?

From a taxpayer's point of view, why not demand accountability? Holding on to what you have got, via NZ On Air, or direct funding, will be achievement enough.

Okay, all pretty depressing.

All of the above is half glass full. Now let's now look at the opportunities, and there are some.

They require, from the people in this room, an openness to change, and a realisation that the old structures will not survive; whether they be broadcasting or the independent industry.

Let's start with television.

It is no different to radio. I was involved in the de-regulation of radio in the early 1990s which saw the massive expansion in the number of stations.

Today, the radio industry has something like 300 commercial stations or more, compared with fewer than 100 in 1990, yet the industry is more profitable today than it was then.

In television, the free-to-air companies will have to embrace more channels, utilise the internet for not only catch up and on-demand, but for first run programmes.

They will be forced to partner with each other in joint ventures or other commercial arrangements. They will become 'frenemies'.

For TVNZ, there will be a reduction in government support, as it separates its commercial and public service obligations (a separation which I support for many reasons and have lobbied in favour of for many years while at Mediaworks). I believe it would be better for TVNZ, as it would be come focussed on a goal, and better for your sector and industry for exactly the same reason.

I don't have any inside knowledge on this, but why shouldn't TVNZ be a similar crown owned entity to Air New Zealand. Why not float 20% or even up to to 49% once it becomes a purely commercial entity.

That in itself will give TVNZ opportunities to grow. For what it is worth, I cannot see a valid objection to a pure public broadcaster comprising Radio New Zealand and TVNZ 7.

It removes cross subsidy, and results in a far more transparent and accountable television public broadcaster.

The issue of course will be funding. We either have a public broadcaster funded by public money or we go down the 100% commercial mode. Trying to achieve both has proven to be impossible, despite the numerous attempts to do so within the TVNZ structure.

The reality is that a business, particularly one that operates in such a competitive world as television, cannot also act as the delivery mechanism for aims to serve the social good.

Mixed funding, charters and direct funding have compromised both the public and commercial objectives. In the scenario where TVNZ is split, there must be a high possibility that the $13m per annum funding for TVNZ 6 and 7 will be the budget for the public service channel.

Mediaworks also has the chance to grow with its multi media offering of TV, interactive and radio. SKY is in a very strong position, and has first mover advantage in terms of the satellite platform, pay services, MySky, and of course content.

So the resources of the television companies will have to be prioritised, and will involve slicing and dicing content across multi platforms, new channels, and being able to produce in-house little other than news and sport.

Here lies an opportunity for your industry to grow. Take Current Affairs for example, which has generally been produced in house; Sunday and 60 Minutes.

Both are under severe cost pressure, and the genre itself is proving harder to justify for in-house television production. Which one of you will be first to go to the networks to produce one of these 'signature' or 'iconic' programmes? There is an opportunity.

The Hobbit has given the independent industry an opportunity to leverage an improved regulatory position.

The government, like all governments, showed it will react when under pressure from public opinion. Now is the chance to develop a proactive policy for future film and television productions which can be sold into the international market.

That policy should include tax, seed funding, anticipated returns from public investment, fast track barriers such as resource management, and fast tracking local council by-laws where appropriate.

Any public-private partnerships where joining the two sectors is certainly an opportunity.

It can be done with the Rugby World Cup, it can be done with The Hobbit, so why not events such as film and international television production.

Where does NZ On Air fit into all of this? And as the sponsors of this address, well Jane [Wrightson - CEO of NZ On Air], having me up here is like having a fox loose in a chicken house, but here we go.

I have always been a very big supporter of the NZ On Air model, and was part of the lobbying for that in the late 1980s.

I might have had a few heated debates with them over decisions and interpretation of their statutory obligations. However the model is very sound and has made a major contribution, and if I could find a better word than major without going over the top I would have it, to both the independent sector and the television industry over the last 20 years. It's a gem.

Its key, as Jane said, has been contestable funding, and in a small economy such as ours, this has driven efficiencies and accountability, as well as allowing diversity and creativity to flourish.

However, it is in the execution where the debate lies. In my opinion, NZ On Air has placed too great an emphasis on off-peak and one-off short films and documentaries.

It has too often rewarded mediocrity.

How often have I attended Qantas Awards, sitting next to Jane and looking at her and staring at her, and heard the winners declare "this is simply the best team", or "we worked so hard on this and deserve recognition". When the television show or short film has appeared once in off-peak, or was dropped after a few weeks of ratings failure, or did not produce the ratings needed to justify the investment.

There is a reluctance to reward success. Outrageous Fortune is a good example where when I was at TV3, there was a battle to secure funding for years four, five and six, and that battle was significant because we faced resistance. And without which, that funding, the programme could not be made.

I look at the recent funding round and ask myself the same questions I have been putting to NZ On Air for years.

Praise Be might be an icon in some people's eyes, however its audience is tiny and yet received funding of $500,000. Why should this religious show receive public money in a society where there are multi religions which have to fund their own broadcasts, and the churches have enormous wealth, yet one is picked out. Why? For historical reasons.

Asia Downunder is another off-peak show, which received $1,200,000. Why, is it that Asian radio stations can operate local programmes without public support, world TV broadcasts Asian programmes on Sky, and there is advertising support in that community, yet the taxpayer privileges this one show?

Or Rural Delivery with $1,060,000 where Country Calendar is already so well established, and where a dedicated country channel is under way, albeit with financial challenges?

And why NZ On Air is funding obscure documentaries on Maori Television rather than a special MTS fund makes no sense to me.

At least, Jane, I stabbed you in the front.

The goal should be one of excellence in my opinion. Reward those independent producers who have produced a winning show with continued funding. Place more emphasis on peak time, as that is the true test of whether a programme has been successful.

The only exception should be children's television for obvious scheduling reasons, and the fact that public funding is really the only source of funding.

Advertising contribution in children's will continue to diminish due to advertising restrictions, and the economic situation which requires advertisers to obtain their return from the most eyeballs, namely peak time.

Within this framework, the future for the independent sector is satisfactory, and I mean satisfactory, nothing better.

The television companies will not be able to fund in-house production of drama, comedy, children's, documentaries and in all probability current affairs.

NZ On Air is accepted by both political parties as a good model, so there is then only the question of how much it is allocated from the public purse.

There will be pressure from government to limit any increase to NZ On Air; pressure from broadcasters to limit the licence fees payable to NZ On Air; particularly so if TVNZ is partly privatised and required to produce a commercial return. But, your industry in this environment, will survive satisfactorily.

Is that enough? It shouldn't be.

Outside of public and broadcaster money, there are innovative funding opportunities. Some within the independent industry have entered into successful international partnerships, particularly in Australia whose economy will continue to boom as long as they sell to China what they dig up.

There are also other revenue opportunities which exist such as commercial sponsorships, or percentage of online revenue generated, or percentage of pay rights.

In this regard, Sky now, and other providers possibly in the future, offer a new market.

Why not consider going to Sky for first run and negotiating cents per subscriber for the duration of a show? I know this is not necessarily what the free-to-air's want (but hey I'm out of that game); however in certain genres such as children's and documentaries, the reality is that they are struggling for commercial justification on free-to-air, and their futures rest with a differe nt model.

But, all of this is still not enough to grow your industry. In order to achieve revenue growth from a tough market, sales and marketing expertise is required.

You need to recruit top sales and marketing people with expertise in commercial partnerships, revenue sharing, online revenue, international partnerships, and pay/subscription television to lift revenue performance. And in the future, broadband also in the way content is released.

The problem is that your companies don't have the resources to employ such talent; this means that you must be open to mergers and acquisitions within your own industry; otherwise you will continue to lack the expertise necessary to grow.

By my count there are seven or eight medium-sized independent production companies. When we wake up from the recession, this is what we will see;

-broadband will have been rolled out to over 85% of the population with its own collection of aggregated content

-digital television will have resulted in hundreds of new channels

-TVNZ has been privatised in some form

-the advertising market will be back to 2006 levels

And the successful production companies will be those with sophisticated branding, sales and marketing expertise. The big companies will be the ones with the resources to chase down every last revenue opportunity.

My prediction is that there will be maximum three or four, and I even think two or three, companies which take over 90% of the available revenue.

It will happen.

How will you others respond if say Barnie [John Barnett, South Pacific Pictures CEO] or Julie [Christie, Eyeworks/Touchdown CEO] and Dave Gibson [Gibson Group] announce a merger today? Or all three of them? This is what happened to the radio industry and has happened in television.

There are challenges, not the least of which is to ensure creativity and diversity is maintained when you've got an overall corporate model. That comes down to strategic direction and good management, to ensure that creativity is maintained and developed.

This is New Zealand. It is a very small economy. We only have five banks, all but one Australian owned. We have two supermarket groups, three television companies, one pay TV company, two cinema opera tors, two newspaper groups, two commercial radio groups, two breweries.

Why should your industry be any different? It isn't. And I use the word "industry" loosely, because you are not there yet.

Use this time, and it is an opportunity - downtimes, recessions are great opportunities - use this time to set yourselves up for the future, or else face the fact you'll gradually become marginalised.

The exciting thing is that the key to your future, and your survival isn't the government, isn't NZ On Air, isn't TVNZ, isn't the free-to-air television industry, it isn't the advertising market, it's not the economy.

The future is you.

Thank you.

Brent Impey is a former CEO of Mediaworks.

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