Anatomy of a media disaster: How MediaWorks TV ended up on its knees

The thing that made MediaWorks special has also proven to be its Achilles heel.

From its inception in 1989, TV3, as it was then known, has steadily evolved into the younger, edgier alternative to the more conservative state broadcaster. The idea being that it was easier to shape new habits among the young than break the older generation out of their long-established viewing groove.

In the 1990s and into the early 2000s, the strategy made perfect sense and the station - whose fire sale was announced today - swaggered its way to a valuation of more than $700 million on the stock market in 2007.

This figure now looks staggering, with one investment banking source telling the Herald MediaWorks has "no chance" of selling its loss-making and liability-laden TV business.

"They literally have been trying to sell it for five years," the banker said of the whole MediaWorks business.

Another banking analyst goes further, looking past any potential for finding a buyer and suggesting it is less about a sale process and more a case of finding someone willing to take the business off its owner's hands.

He estimated that MediaWorks' radio business had earnings before interest, tax, depreciation and amortisation (ebitda) of about $30m a year, but the TV arm was losing about $10m-$15m a year in ebitda.

That meant it was costing about $15m a year to keep the TV business going and it had become clear it was not possible to get it into profitability, despite trying over the past four or five years.

The banker said the TV business could be shut down but that would be a zero-sum game as redundancies and other expenses could mean it would cost as much as $50m to close.

"I can't see anybody wanting to invest in free-to-air," he said.

"It is more likely they go to a controlled shut-down but you never know - there might be somebody willing to take it on."

But he said the road to profitability was really difficult and the TV broadcaster hadn't got close in the past four or five years - in a good consumer advertising market.

"The digital strategy hasn't worked either."

So how did we get from a half-billion business to something that can't even be shut down without registering a loss?

What few anticipated 12 years ago was the drastic impact the digital revolution would have on MediaWorks' core audience.

The very audience that MediaWorks had become so good at attracting was now the thing that made it most vulnerable to the changing media landscape.

While MediaWorks was still leering across the TV divide at its mortal enemy, viewers were steadily picking up new consumption habits that would set the scene for today's streaming-mad landscape, in which even our legacy telecommunications companies are reinventing themselves as broadcasters. MediaWorks was effectively fighting on two fronts and losing ground in both battles.

Advertisers saw the changes happening and steadily started to shift spending to the digital realm. The amount spent on digital advertising in New Zealand has risen from $366m in 2012 to $899m in 2018.

Effectively, traditional media companies have lost almost a billion dollars in potential revenue to the big tech giants that are so effective at sucking money into their platforms.

Yes, the advertising market may have grown in that time, but it simply hasn't been enough to lift the tide for businesses treading water.

MediaWorks boss Michael Anderson has been frank about this, warning New Zealanders that commercial free-to-air television faces a tough future unless there are changes.

"The structural issues facing the industry are only increasing, both the internal New Zealand structure as well as the external influences," he told the Herald on Friday afternoon.

MediaWorks boss Michael Anderson. Photo / Supplied

Until this week, many had written off his concerns as little more than a bluff designed to force the Government's hand in de-commercialising at least some part of TVNZ to open more of the TV advertising pool to MediaWorks. Even after news of the sale broke, there were again conspiratorial claims from previous MediaWorks staffers that this was simply an elaborate move to get the Government to take notice of its cries.

"I actually feel quite angry about such statements," Anderson told the Herald.

"We would never put our staff in a position where we were just bluffing and putting them through the uncertainty they're currently going through.

"There's no bluff to this. This is a legitimate process, arrived at for all the right reasons with hopefully the best outcomes."

The move certainly hasn't yet had the effect of forcing the hand of Broadcasting Minister Kris Faafoi, who is sticking to his timeline of only announcing plans for the future of public TV later in the year.

These plans could include making TVNZ ad-free, which would make MediaWorks a much more attractive prospect to a potential buyer – at least for a few years.

Given the uncertainties of the whole free-to-air market and rapid proliferation of international competition in New Zealand, the question now turns to what organisation would be willing to fork out for a business set to bleed more money as larger and larger chunks of advertising spending migrate toward digital.

Initial reports had suggested that MediaWorks would close the business by December if a buyer wasn't found, but Anderson quickly hit back at those claims.

"There's absolutely no decision to shut down the business," he said, explaining that the company was happy to wait to find the right buyer.

Anderson would not be drawn into putting a price tag on MediaWorks TV, simply saying that the market would determine what the company was worth.

"We assign a lot of value to what do, from the content we create to the work we do with our clients, to what we provide to New Zealand, but in end, the commercial value of that will be judged by the potential owners."

MediaWorks talent faces a tough future. Photo / Supplied

So far, almost every name in the New Zealand media has been thrown into the mix, but media agency boss Alex Lawson believes the buyer would have to come from abroad and could possibly be another private capital group or Australian broadcaster.

Lawson, the general manager at Carat, describes MediaWorks as an "anchor that has been dragging down the business" for a long time and says it would near impossible to convince any board to invest in the business.

"It would take an individual who really believes they can turn it around," says Lawson.

"Maybe somebody out there who has far too much money and has just finished watching the second season of [HBO show] Succession and imagines themselves a bit of media magnate would step in to buy it."

The one viable solution at the moment does seem to come in the shape of an Australian media company perhaps purchasing the media company and replacing the expensive locally produced bits with syndicated international content.

This was an idea earlier mooted across the ditch by Seven-West Media boss James Warburton, who doesn't seem afraid of making big calls.

Just this week, Seven-West Media swooped up Prime Media in Australia in a A$64 million (NZ$69 million) merger move. This could be viewed two ways: it shows the company is willing to spend big, but it also means that it's just forked out a massive amount on another TV company. It's anyone's guess how much it has left in the acquisition coffers.

On the more positive note, there are still a few media juggernauts floating around that might be interesting in nabbing a Kiwi TV company - provided, of course, they can extract enough value out of them.

One thing that's certain is that the Three we see today – so willing to spend big on edgy shows like The Project – will change massively under new ownership. Turning a profit out of this business will mean that the cuts to comedy we saw this week will stretch elsewhere and only become more defined.

If anything, it's another reminder that being creatively and aesthetically good is no guarantee of being profitable in today's media – especially not in New Zealand.