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Newsroom
6 days ago
- Business
- Newsroom
Sky taking the reins at Three makes sense for everyone
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.
The Spinoff
22-07-2025
- Business
- The Spinoff
Sky buys Three and ThreeNow to create New Zealand's most muscular media empire
WBD has sold its linear and digital TV assets to Sky for $1, giving the pay TV giant a powerful new brand to take on TVNZ. Duncan Greive breaks down the deal. Pay TV giant Sky has agreed to buy Discovery NZ in a deal which profoundly reshapes the commercial TV and streaming landscape in New Zealand, creating easily the biggest media company in the country by revenue, and potentially by audience too. Discovery NZ houses the second-most-watched free-to-air channel, Three, along with a popular ad-supported streaming service in ThreeNow. It also has eden, Rush and HGTV, more niche channels which play on Freeview and Sky, all joining Sky's huge range of pay-TV and streaming channels. All changing hands for less than the cost of a month's Netflix. Sky paid just $1 for the assets, which come across debt free, with Sky assuming the ongoing commercial contracts of the business. The Commerce Commission was privately advised, and saw no issue – an unimaginable situation even a few years ago. It's the second major media company to change hands at that symbolic value in recent years, after Stuff was sold for $1 in 2020. The price indicates that Discovery NZ's parent, WBD, simply wanted to exit the free-to-air business, which had been bought by Discovery from Mediaworks in 2020 for a price described at the time as 'more than a dollar'. Sources familiar with that deal peg it at US$20m, suggesting Sky has got a comparative bargain – or that Discovery overpaid. For Sky, it's a major move into free-to-air TV and ad-supported streaming, at a time when the company has placed far more emphasis on advertising as part of its revenue mix than ever before (it scooped the Beacon Award for 'best sales team' just last week). While it has long had free-to-air TV through Sky Open (formerly Prime), Three is a much more powerful brand, with far larger audiences, home to smash hits like Married at First Sight and David Lomas Investigates. It brings Sky into even more direct competition with TVNZ. Historically, despite being the two biggest companies in TV, they were well differentiated. TVNZ was purely ad-supported, big on news and mass entertainment, a minor player in sports. Sky was largely a subscription business, mostly paywalled and big on sports with only a very minor presence in local news. That changes from August 1, with TVNZ facing down the largest and most formidable direct competitor in its history. Sky has over a million paying customers across pay TV and streaming products like Sky Sport Now and Neon. It now has a major free-to-air presence to both function as a funnel into its pay products, and extend the reach of its advertising. While Sky Open has functioned as a shop window into Sky for some time, Three and ThreeNow will be a far more powerful version of that proposition, with the ability to take a mix of Sky's sports and entertainment products and attack TVNZ on quality and content mix. That's why longtime former Sky CEO John Fellet sought to buy Three a decade ago. Three can now put NRL, Super Rugby and cricket head-to-head with TVNZ's prime time line-up, and given that live sports is one of the last big draws for linear TV audiences, it represents a very powerful tool to grow Three's audience. For NZ on Air too, the consolidated business is a much more interesting and powerful way of reaching New Zealanders. It's not uncomplicated for Sky. The declining sale price tells you just how difficult pureplay ad-supported media models are now. And it adds yet more brands and platforms to what is already a very complicated mix. Sky now operates two different boxes, a puck, Sky Go, Sky Sport Now, Neon and ThreeNow from a technology standpoint. Netflix just has Netflix. Rationalising that will be a priority for Sky CEO Sophie Moloney and her team. There remain a number of other unresolved questions. Sky and NZ Rugby have still not announced a renewal of their long-term broadcast deal, though industry sources suggest it is signed, with only haggling over free-to-air screening remaining. Three and ThreeNow loom as potential solutions to some of NZ Rugby's audience accessibility issues, even if it reduces by one the plausible buyers of its rights. Similarly, Three currently contracts Stuff to produce its 6pm news bulletin. That has had challenging ratings for much of the year, but remains an important part of a well-rounded product offering and starts the channel's evening programming. Aaron Ibbotson, a senior analyst at Forsyth Barr, is a fan of the transaction for Sky. He says 'the deal makes a lot of sense. They're not paying anything for it, and there would be natural synergies across broadcasting and content.' He contrasts it with a failed attempted acquisition of Mediaworks in 2022, saying that the Discovery NZ deal is 'closer to what Sky knows well, its core business'. Sky's shares are up 11c in early trading today. It's the latest big change to a media ownership environment which is suddenly very fluid. Earlier this year, Jim Grenon launched a hostile board takeover attempt after buying 10% of NZME, which ultimately rolled the company's chair and reshaped its governance. Then QMS completed a takeover of outdoor and radio giant Mediaworks, Stuff sold 50% of its digital arm to auction site TradeMe, while Are Media, New Zealand's biggest magazine publisher, went up for sale. New Zealand's commercial media has long been considered too fragmented, given the size of the market. It now has effectively two major TV operators, two radio networks and two scale digital news providers. All staff are being ported across, with Three's leader Juliet Peterson now reporting into Sky CEO Moloney, but over time there will be efficiency gains from accounting to sales to programming. Yes, efficiency gains is code for job losses, of which the media has endured too many in recent years. But the real battle is not with cross-town rivals, it's with unregulated tech giants. The question is, will we even have local news and entertainment products at all? For an embattled local media, which endured a cataclysmic 2024, this deal creates a powerful and diversified new media giant – one which poses challenges for TVNZ, but should result in a more robust local media landscape as a result.
