Sky taking the reins at Three makes sense for everyone

Newsroom

5 days ago

Comment: TV3 was New Zealand's first privately owned television station but in 35 years of operation it has lost well north of $1 billion in total for a string of local and overseas owners.
While it produced some great TV it was also a great destroyer of shareholder value. The latest owner, US giant Warner Bros. Discovery finally cried enough and gave it away to Sky for less than you'd tip a waiter.
Warners must have been close to shutting the doors on what was left of the local TV network after previously gutting the operation and contracting out its 6pm news production to Stuff. It may have stemmed the bleeding, but it clearly had no appetite for the investment required to keep the channel competitive.
After buying the TV operation in 2020 (minus its only real asset – a large building and adjacent properties on Auckland's city fringe) for $20 million Warners lost hundreds of millions trying to keep a channel that produced some local shows, including news and (light) current affairs, afloat.
In the end, it left a shell of a station (programmes are put to air from a control room in Sterling, Virginia) playing mainly reality shows.
Sky has always been the logical owner of Three, but it has been smart enough not be sucked into paying over the odds for a free-to-air broadcaster in a small and declining market dominated by a state-owned network.
There have been plenty of discussions between Sky and TV3's owners over the years, and at least one formal offer, which was turned down by the private equity funds that controlled MediaWorks (TV3's parent company at the time).
Then CEO of Sky, John Fellet, dryly and correctly remarked at the time 'I think I've dodged a bullet.'
One Australian private equity fund paid about $800 million for the business but lumbered the company with $700 million in debt. The banks moved in (not for the first time) and tipped MediaWorks into the hands of the receivers in 2013.
A new set of private equity owners struggled along and lost hundreds of millions before selling up in 2020. No doubt Sky would have, once more, run the ruler over the TV operation at this point. It would have come up with a price tag of $1 but Michael Anderson (former MediaWorks CEO) pulled off a genius move and convinced US-based Discovery to pay $20 million for the TV assets. Discovery later merged with Warners – both companies enjoyed long-term relationships with Sky.
From the beginning, Discovery seemed devoid of a strategy. The writing was on the screen when Warners left its major hits like Game of Thrones, White Lotus and other popular programmes on Sky channels. These shows could've transformed Three and seriously hurt TVNZ but clearly Warner Bros. felt it could make more money leaving them at Sky.
The enduring relationship with Sky has clearly played a role in Warners giving Three to its local ally. Sky CEO Sophie Maloney told Newstalk ZB's Mike Hosking that she and her Warners counterpart (based in Singapore) had been discussing various options for Three off and on for about two years.
Maloney also indicated that despite all of Warners' restructuring of the business and the deal with Stuff to supply it with a cut-price news service, Three was still unprofitable.
Maloney's rock-steady confidence around the deal has been reassuring for Sky shareholders and, under questioning from a skeptical Hosking, she was unequivocal that TV3 would return to profit under Sky's management.
Her optimism has been shared by share broking analysts with one predicting the deal might be worth $48 million to Sky.
Sky says it has locked in a supply of Warner programmes for Three and judging by Maloney's confidence around profitability it is likely to be at a very good price.
The synergies and value that Sky can bring to Three have always been obvious. Its sales and marketing team will take over the free-to-air inventory and add it to the advertising spots it's selling on the pay TV channels.
Having more eyeballs available to advertisers will help it compete, and possibly give it an edge over TVNZ and other media companies. Three will also be a handy vehicle to promote Sky's own channels and subscription products.
More rugby and cricket on Three will boost its ratings and Sky might also decide to migrate the best programmes from Sky Open (formerly Prime) to its new free-to-air platform. This would allow it to shut Sky Open, which is likely to have been losing millions annually. Sky has had to persist with its loss-making channel, so it could guarantee a free-to-air outlet for sport. That problem is now solved.
Hosking put it to Maloney that TVNZ was now 'dead in the water' in terms of sport but the Sky CEO diplomatically suggested that certain segments of TVNZ's audience might be attractive enough to keep it in the hunt.
NZ on Air will also find Sky a more attractive owner of Three than Warner Bros. While the reach of a platform rather than its owner should be the major factor in funding local shows for a network, there had to be some unease about giving millions in public money to an American corporate giant that has been rapidly reducing its staff and financial commitment to local programming.
Will Sky look to up the level of quality programming (local and international) on Three? It's hard to know. Any significant cash investment in shows, unless they are a spectacular ratings success, is hard to recoup in this market. Warners and previous owners of Three have found out the hard way. Sky might be interested in a modest investment given its zero-capital outlay. It will want to stall the decline of the linear audience as much as it can while it builds up the on-demand platform, ThreeNow. Maloney described ThreeNow, which has been growing audiences, as a jewel in the crown.
She will have a decision to make when Three's contract with Stuff to produce a 6pm news bulletin ends. The contract may have one, but most likely two, years to go.
Sky will probably want a better product while Stuff will want more money. It might be an opportunity to move to a 30-minute, higher-quality bulletin. Before Warner Bros. shut its own news division (Newshub), it had, for many years, produced a nightly 30-minute news bulletin for Prime (Sky Open). It was a point of difference in the market and one of Prime's strongest performing shows.