13 December 2005

Fraser bombshell shows TVNZ giving lip service to Charter

A memo to the TVNZ Board from then CEO Ian Fraser says the state broadcaster has become virtually indistinguishable from commercial channels and is giving no more than lip service to its Charter obligations, Green Party Broadcasting Spokesperson Sue Kedgley says.

The document, titled "A More Public Broadcaster" and dated "October 2005", was obtained by Ms Kedgley. It says TVNZ's local content will "shrink markedly" next year to 36 percent, the same level it was before the Charter, and that it will give priority to commercially driven Charter programmes that "deliver maximum commercial value and maximum audience share and protect our channel shares from competitive erosion." Further, he warns that TVNZ is faced with "the reality of having to can such Charter initiatives or consigning Charter programmes to inhospitable places in the schedule unless they are 'sure bets'."

"This memo shows that the man who was at the helm of TVNZ believed that its current mixed model is failing to deliver on its Charter goals because they are essentially incompatible with its commercial priorities," Ms Kedgley says.

"Fraser says 'the texture of our schedule is profoundly incompatible with any recognisable model of public broadcasting' and warns that the organisation has 'made a u-turn' away from its public service television mandate and is becoming almost totally focused on commercial objectives."

"Ian Fraser's bombshell suggests it's time to acknowledge that the present split focus of TVNZ has failed to deliver public service television and to begin a fundamental review of its mandate and direction.

Mr Fraser proposes three options for restructuring TVNZ to better deliver public service television - making TV One a fully funded, non-commercial public broadcaster entirely charged with delivering Charter values; making TV One a semi-commercial broadcaster screening no more than six minutes of advertisements an hour; or adding two new public service digital channels.

"I hope the Government, and Parliament, will seriously review the three models Mr Fraser has proposed for restructuring TVNZ to give it a genuine public service emphasis - in particular his proposal to convert TV One into a non-commercial public service broadcaster.

"With 13-14 minutes of advertising every hour, and a minority of New Zealand programmes screening on both channels, it is hard for viewers to accept that TVNZ is public service television," Ms Kedgley says.

Mr Fraser points out that TVNZ's level of local content is "much lower than what most similar public broadcasters world-wide deliver," while its level of advertising - 13-14 minutes an hour - is higher than comparable public service television channels around the world.

"This is an indictment on TVNZ and the Government for allowing this to happen." Ms Kedgley says.

Is this as good as it gets?

The Government obviously believes that we don't stop here. Its vision for public broadcasting is dynamic and expansive. In its Programme of Action, it declares its intention to build "a strong and sustainable public broadcasting environment for New Zealand".

To this end, since 2000 it has:

* transformed TVNZ from an SOE into a Crown company, with a set of statutory objectives laid out in the TVNZ Charter.

* funded TVNZ directly for Charter purposes. Amounting to about $15 million per year (after GST), this is the first direct funding from the Government to the broadcaster in more than 20 years.

* Set the course towards digital television in August 2003, via Cabinet endorsement of an extensive Cabinet Committee report.

In charting the way forward, the Programme of Action is critical of the fact that because TVNZ relies on commercial income to a level beyond that of any comparable nation's public television broadcaster, its behaviour is too influenced by commercial considerations, whereby "viewers as consumers are given greater emphasis than viewers as citizens". Later in the document it underlines the desirability of public broadcasters not being "dominated by commercial pressures" and not being driven towards the goal of "maximising ratings on a commercial model".

The Programme of Action is clear about what constitutes true public broadcasting (within a mixed market model). "[Public broadcasters] are expected to consider the interests of a range of audiences beyond the demographic groups that commercially-driven broadcasters are obliged to deliver to their advertisers. They are charged with providing ... a comprehensive service covering all aspects of the nation's life".

It commits the Government to strengthen public broadcasting by, inter alia, "investigating an appropriate ratio of commercial to non-commercial funding for TVNZ, as a guide, to assist in fulfilling the Charter" and places a priority on the need "to achieve adequacy and certainty of funding for public broadcasting".

It states: "It is crucial that TVNZ be enabled to plan with greater confidence and to develop the comprehensive service intended by its legislation" [my emphasis]. It also observes that while TVNZ should have increased resource available for investment in its mandate as a Chartered public broadcaster, the company "will be required to demonstrate efficient and effective capital use".

What's wrong with the current model?

* Following one year of increased investment in and much enhanced delivery of local content (average across both TVNZ channels of 40%-plus in FY2005), the level of local content on TVNZ will shrink markedly in 2006 and the outer years to about 36%. This is no more than the local content ratio we were achieving prior to the introduction of the Charter. It is a level of local content much lower than what most similar public broadcasters world-wide deliver. It makes it hard for us to sustain the claim that local content differentiates TVNZ from its competitors and is, indeed, the key element of TVNZ's "Charter difference".

* In the light of more or less static direct Charter funding in FY2006 (and an expected fall in advertising revenue), we have prioritised our local content to deliver maximum commercial value and protect our channel shares, so far as we can, from competitive erosion.

This entails a re-weighting back towards commercial performance after a couple of years of steady progress in delivering greater Charter value. A higher priority has been placed on ensuring that the shows we commission are more commercial and able to yield audiences that meet our commercially determined ratings and share targets.

This approach, which will intensify as the economy tightens, greatly limits our capacity to make challenging scheduling decisions in line with the values of the Charter. The game is about maximising audience in an environment that is no longer a seller's market. We find ourselves, in a contracting environment, less able to sustain the opportunity costs that flow from scheduling a "Charter programme" that under-delivers against our channel ratings and share targets -- when an internationally sourced programme acquired for a fraction of the price would be much more likely to deliver effectively against them.

* In spite of the increase in the level of local content we have been driving towards, we have not yet measured any significant increase in viewer satisfaction - nor any marked public conviction, after more than two and a half years experience with the Charter, that we are more of a public broadcaster than we were before it was introduced.

The Minister of Broadcasting observed in July 2005 that "in true New Zealand form, TVNZ have been knocked from pillar to post for not doing [the Charter] enough, not doing it quickly enough, not doing it well enough and not doing it years ago". He went on to state that "TVNZ are only a short way down the [Charter] path and we can all look forward to the journey ahead". In fact, currently the signs are that in many important respects we have made a U-turn and are retracing our steps back to where the "journey" began.

* We recognise that we have a major commercial performance problem with ONE. Work is underway to restore the performance of ONE News, which drives success - or failure - through the entire peak time schedule. However, News is not the only factor in the channel's under-performance.

We are starting to measure the opportunity cost associated with some forms of Charter delivery. We are faced with the reality of having to can such Charter initiatives or consigning Charter programmes to inhospitable places in the schedule unless they are "sure bets".

* The texture of our schedule is profoundly incompatible with any recognisable model of public broadcasting. Public broadcasters in the rest of the world do not broadcast 13-14 minutes per hour of advertising. Our need to do this to "maintain our commercial performance" means that many viewers regard us as being more driven, as a consequence of our dependence on advertising revenue, to sell them things to meet the needs of advertisers rather than to meet their diverse needs as viewers.

The "static" generated by the weight of the commercials we carry impedes our ability to present ourselves with conviction as a Chartered public broadcaster and scrambles the message to viewers that we have a commitment to re-balance TVNZ away from straight commercial to more public broadcaster objectives.

* Bob Collins, the former Director General of RTE, in his speech to the Public Broadcasting Conference in Wellington (21 November 2003), stated that one of the "clear and succinct" statements that can be made about public service broadcasting is that its character is reflected in comprehensive schedules, not in individual programmes.

"The public character is reflected in the overall schedules and is not something which inheres in individual programmes which are then distributed across a schedule somewhat like sultanas in a fruitcake". The best that TVNZ has managed to achieve under the current model is the "sultanas in a fruitcake" approach (also known as "pepper-potting"). Now, under the combined weight of a slowing economy and the opportunity costs exacted by some Charter programming decisions, we are looking to cut back on the sultanas....

Where to from here?

There appear to be three options, apart from the default option of doing nothing:

Option One

Make ONE a fully-funded, non-commercial public broadcaster, charged to deliver the values of the Charter. Make TV2 fully commercial, divested of Charter responsibility, with a remit to generate optimum commercial revenue to help underwrite ONE.

* In a Mediawatch discussion with the Minister of Broadcasting (13 February 2005), it was suggested that a non-commercial public broadcaster could be run for about $140 million. A more informed back-of-the-envelope estimate (based on what it costs to run ABC Television) suggests that the cost of the service would be closer to $200 million. Whatever, it would almost certainly entail major down-sizing, since it would be a simpler institution on a smaller scale from a fully commercial model.

* The cost of international product would be cheaper because public broadcaster content is typically much less expensive than commercial programming.

* It would allow for the merger of ONE, Radio New Zealand and, possibly, MTS (all the public broadcasters). They would share a common remit and, in the case of ONE and Radio New Zealand, a common non-commercial basis of operation.

* This model is not a hybrid, as the current paradigm is. It is clearly a public broadcaster and would be readily identified by the public as one.

* It falls in the category of "marginalised public broadcaster". Steve Maharey has publicly taken a stand against that solution and so has TVNZ.

* Audience share would fall from around 30% now to as low as 10% (cf BBC2, RTE2, the ABC). However, from an advertising revenue point of view this would not matter.

* The fiscal value of ONE would plummet. Other media, business and political voices would attack the Government and TVNZ for generating a massive collapse in shareholder value.

* The funding would come in the form of new money from the taxpayer. The Government has stated on many occasions that this solution cannot be afforded. Mr Maharey said on Mediawatch (13 February): "Having made that step there's no way that you could put it to the public to go back to it, that's for sure, so you need now to work out the common tax take. The vision, I suppose, that we're working with, with Television New Zealand, is that here's a company that earns $300 million-plus a year.

Every single one of those dollars should be put to the task of providing us with a public service television channel and where they can identify areas that they can't address with that funding, they ought to be going to New Zealand On Air, which they traditionally do for funding for particular programmes, and we've agreed, of course, to work with them to provide extra funding so that they can meet that mandate".

Option Two

Make TV2 fully commercial, divested of Charter obligations. Make ONE semi-commercial - the Charter channel. This hybrid approach on ONE rests on the proposition that you can be both a public broadcaster and a commercial business. As Bob Collins said in the speech quoted earlier:

"Perhaps the most evident and at once the most complex of the challenges for a public broadcaster, if it is dual funded, is how to square the circle of public remit and commercial resource. Can you be a public broadcaster in your schedule with commercial revenue in your bank account? Can your schedule be public in its character if it is partly commercial in its funding? Does the funding shape the content?

"Dual funding is a well-established reality in many states. In many cases, especially in small countries, it was and remains a practical response to real situations. If advertising alone were the funding source, how would the public responsibility be provided? How would you guarantee plurality from a small economy?

If public funding alone were the source, how could the small population guarantee the comprehensive range of services without the economies of scale? This issue was easier to resolve in other times when competition was less widespread and when the measures of success or failure were less influenced by market criteria.

"It remains, however, one of the decisive tests. Is the hybrid possible? I believe that it is. It is not easy. It becomes progressively more difficult but all my experience tells me that it is still possible..."

Under this option, the balance would be tilted much more towards public broadcaster/Charter value on ONE - perhaps in the order of a 70/30 Charter weighting.

* ONE would carry about 6 minutes an hour of advertising, more tactfully scheduled than is possible currently. This is the weight of advertising carried on RTE and our friends there tell us that it is not so great that it alienates viewers and provokes them to view RTE as a commercial rather than a public broadcaster.

* Since ONE will be targeted more to the "A/B's" (the decision-makers, influencers, "the chattering classes") and there will be less inventory available for sale, some areas of the schedule may attract an advertising premium.

* The target should be to hold a minimum $60 million commercial revenue on ONE to help underwrite Option Two.

* Audience share will fall steeply but not as far as in Option One. Perhaps to 15%.

* Less or no "pepper-potting" of Charter programmes. With less pressure to maintain an effective commercial yield, it will be possible to schedule a much greater weight of public broadcaster programming and much of it at more accessible times. * We would still come under an onslaught for reducing the commercial value of ONE.

* There would almost certainly be a need to separate ONE and TV2 institutionally (as there would be in Option One). It would be almost impossible to make a success of running one organisation with two such conflicting mandates - even though the conflict is less radical in Option Two than in Option One, since TV ONE would still earn commercial revenue and carry a volume of "commercial" programmes. TV2 could be run as an SOE and levied to help support ONE.

* A different cost structure for ONE entails significant down-sizing and a complete restructuring.

* Could be funded from a combination of sources: -- commercial revenue, bulk-funding from NZ on Air, a levy on TV2, but would still require very significant new taxpayer funding (perhaps $80-$100 million).

Option Three (The Third Way)

Keep One and TV2 as they are now - delivering as much Charter value as they can manage while rocking and rolling within the constraints of a tightening economy and the requirement to maintain commercial performance.

This Option means we should not attempt to "spin" the current mass audience operation as if it were a full public broadcaster according to international benchmarks - though TV ONE and TV2 are obviously much closer to the public broadcaster end of the spectrum than our commercial competitors. TV ONE and TV2 would continue to receive direct Charter funding at or above current levels in order to acquire and commission Charter programmes. They would continue to access funds from NZ On Air.

Channels ONE and 2 would maintain a high audience share and generate substantial commercial revenue, while pursuing a remit to give the people of this country New Zealand broadcasting with a quality and range of content that simply would not be provided if a strictly commercial approach was the only basis of what we do.

Added to ONE and TV2, however, we would provide a clearly recognisable full public broadcasting option on the digital platform(s). Option Three is based on the following proposition:

* Make the first two (or three) new channels on the digital platform(s) pure, non-commercial public broadcast channels. This would mean that the way we begin to inhabit the digital space would be much closer to the pure public broadcaster end of the spectrum than where we are at currently with ONE and TV2.

* The channels we have been working on are already close to this model. Under Option Three the factual channel would include (a) a lot of public broadcaster programming we don't currently buy (particularly high end international documentary content), and (b) a range of time-shifted news and factual programming acquired from ONE where it has had its first run, and (c) a range of minority programmes placed at more accessible viewing times, and (d) a greater proportion of first-run local content, including Question Time in parliament and, perhaps, programmes like Agenda.

The second digital channel devoted to children would follow the line currently proposed but the night-time schedule might be devoted to serious drama and arts rather than the more commercial lifestyle-oriented concept now contemplated. Again, there would be a mix of re-run and first run programming - with a greater balance of first run than has been considered until now.

* This approach can't credibly be stigmatised as "ghettoising the Charter". These pure public broadcaster channels will be available free to air: you don't have to pay a monthly subscription to gain access - you must acquire, at a minimum, a set top box.

* Public approval will depend on how quickly we can get onto free to air digital platforms. If this new dimension of public broadcasting, delivered on digital, can't be guaranteed within about a year, the Option becomes less politically attractive and the public are likely to develop a cynicism towards it. "Jam tomorrow" is not a slogan this electorate shows signs of warming to.

* Takes some of the heat of remit conflict off ONE in particular. ONE no longer has to schedule an increased weight of Charter programming where the opportunity cost analysis suggests there is intolerable commercial risk. There is another place, within the state broadcaster's stable, where pure, non-commercial public broadcasting would be readily and universally available for those who want it.

* No destruction of fiscal value of ONE and no risk of a decline in audience share.

* Estimated cost: $40-50 million in new public funding.

Ian Fraser October 2005

ENDS

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