Photograph by Alistair Guthrie
You know the television scene is getting weird when TVNZ launches a new channel on Sky's pay platform. But Eric Kearley, the broadcaster's new head of digital, says it makes perfect sense. A Swedish-American veteran of MTV International and responsible for all TVNZ programming on FreeView, the web and now Sky, as well as licensing and business development, Kearley reckons it heralds a new age of co-operation in New Zealand media. Others say TVNZ is already irrelevant. So is Kearley just rearranging the deckchairs?
I'm trying to work out if you have the best job in New Zealand media, or the worst.
I think it's one of the best jobs in any media; I'm just chuffed because it's in New Zealand. There's a lot you can do with the structure of the media industry in New Zealand and now I'm in a position to influence that structure. There's also so much you can do in strengthening the industry domestically to make it stronger internationally. And I think what we'll see in New Zealand—at least if I have any say—is the sheep sleeping with the lions, a lot more co-operation, more alliances where they'd previously been seen as impossible.
Okay. So is TVNZ now a sheep or a lion?
Uh, that's a very good question. We're certainly not a sheep. We're probably a lion in terms of our ambition and our culture at the moment, but not a threatening one. We're like that nice lion that's just had a thorn pulled out of its paw …
That's a picture. I hear you—untapped potential, all sorts of possibilities, it's scary at every step.
No, it's not scary at all.
It is for TVNZ as an organisation though.
No, not these days. I don't think anyone, certainly not in the senior management team at TVNZ, has any hesitations about change at all.
Still, there's no choice, right? TVNZ has to change.
There's always choice. There are traditional free-to-air incumbent broadcasters who have taken a very defensive approach of investing in core business, trying to maintain that as long as possible and also lobbying very heavily for protective legislation. It's just not the option for us.
Sure, you're being proactive, but you're heading into the unknown. You don't really know what the revenue models are going to be.
I think we've got a fair idea. Which ones don't we know?
Let me put it a different way—you don't know how much revenue there will be.
No, but you can always make assumptions. Uncertainty is only scary if you allow things to happen to you. Uncertainty is where I thrive. You can create certainty out of uncertainty if you take charge.
I've talked to a few media people who see TVNZ in a pretty weak position to take charge, in that it's not a content creator itself except for news, and the day when, say, NBC distributes its stuff itself across the internet is probably not that far away.
There are a lot of external forces affecting the future and if you sit back and wait to see how it's going to play out, you're probably screwed already. But I'm lucky in the sense that I was born without the ability to do that. I can't do that, that's just not an option.
Look, if you applied a traditional value chain model to the industry, free-to-air broadcasters could be in trouble although there's a bit of resurgence of free-to-air going on now. There's lots of opportunity for a company like TVNZ and we're not intending to stay where we are in the value chain, we are intending to completely transform. In terms of the studios going into markets directly, people I know in companies like Warner and Disney are saying, 'Look, we will work with the biggest player in each market. We don't have any ambition to go in directly.' They will look for the best aggregator to work within each market.
But when the platform is so accessible, anyone can become an aggregator. Idealog could become an aggregator.
No. This is what the telcos do—every three or four years the telcos say, 'Right, we're going to get into content,' and then they realise it's actually a complex business. You need scale to be an aggregator. Look at Joost—which I love because I know the senior management who started it very well—and Hulu. If you look at the difference and why Joost had to retreat, it's Hulu's ownership and its support by the big traditional networks and their access to already-marketed, high-value content.
Hulu's owners are content creators—NBC, Disney …
Partly. They're also aggregators. But as soon as you start applying this value chain—this is a content creator, that's an aggregator—you get into this fatalistic, 'Oh, everyone in the old value chain is actually screwed.'
That might be true.
Yes, which is why you've just got to go, 'Well, that value chain is redundant and we're reinventing ourselves as a company that fits the new environment where the value chain has collapsed or converged,' and what that means is co-operation between the various players and also between competitors in certain areas and competition in others. And I think that's what we're seeing through the launch of Heartland. TVNZ diversifying its revenue model and launching a pay channel with Sky would have been unthinkable six months ago. But that's what we're going to see more and more of.
How hard was it? Was there resistance inside TVNZ?
No, the transformation of TVNZ from a traditional broadcaster to a modern digital media company is so ingrained now. There is a lot of scrutiny but not resistance. Having said that, what puts us in a strong position to transfer is the strength of One and Two. We can never lose sight of that. One and Two are not a liability, they're our core strength and a core differentiation.
The market share those two channels still control is unheard of. So that's still what we have to build our transformation on and that's what we did with Heartland—although we buy content originally commissioned from TV3 and everywhere else, the majority of the content on that channel was originally created for One and Two and wouldn't exist without them.
The motivation behind Heartland is obviously revenue, but is it also making a statement to Sky and to groups inside TVNZ and to the shareholder about where TVNZ's going, that the old battles are over?
I think it is inadvertently and, at least for me personally, may have become a statement. It's a not-unwelcome side effect because it clearly shows one of many directions we're heading and it clearly shows that Sky and TVNZ are not enemies. We have a lot of joint projects at the moment and there'll be more of them.
At MTV I was in charge of 27 markets. I couldn't even remember them. I've negotiated with platforms from South Africa to Norway—and platform negotiations between a broadcaster and a platform are commonly quite hostile—and I've never had a more placid negotiation. I got to know John [Fellet, Sky CEO] expecting him to have horns and a tail and he's the most pleasant man you can ever do business with. It's the quickest deal I've ever done.
We'll see more and more people realising that it's not about creating a monopoly, it's changing your core paradigm. The world is changing. We have to change how we look at enemies as suppliers, as clients. Within New Zealand we have to work much closer together to strengthen our local industry and our local businesses so that we can export better and that's certainly something I really want to achieve.
Heartland does a couple of things. It shows strong cooperation between businesses that previously were seen as sworn enemies. It also shows that we can work much closer with advertisers that want to customise an offer for a particular audience. That's always been an issue in small markets because of the customisation cost. But I'm convinced that it's not about eyeballs anymore, it's about hearts. The media industry used to be based on an assumption that if you mattered very little to a lot of people that was the ideal, because the more people you mattered little to, the more money you got.
It's very hard to make any money out of that model these days. You've got to matter a lot. Now, it's best to matter a lot to a lot of people; the next best thing is mattering a lot to fewer people. So two things are happening. One is the resurgence of the direct charge market—even Hulu has said, 'We're going to start charging.' Murdoch's been saying it for a while but who thought Hulu would go first? And I bet Facebook will say it one day as well. And so it's the resurgence of that business model; in order to get people to pay, they have to care.
Facebook's going to do something. They're just about breaking even I think. So they've got 350 million users, they probably make about $350 million or something like that. Could be a lot more, but for the sake of example, let's pretend they make a dollar per year per user. Say they started charging heavy users $10 per year. Even if the proportion of heavy users reduces by 50 percent, they'd still make loads more money.
But you can only generate that kind of behaviour if you matter a lot to some people. Advertisers now want the mass but they want involvement as well. What TVNZ has that's unique is mass and engagement. I see the digital channels' role to create the kind of offerings that people care a lot about as a complement to One and Two. And that will help us drive our revenue model.
So the reason we have a deal with Sky is that Sky knows that people will care a lot about a channel like Heartland. It matters to people. Idealog really matters. Maybe not to every New Zealander but, you know, that's a great example. And I think the NBR is brave as well, saying, 'Look, we matter!'
Yet you're in New Zealand, so a small part of really small is all you're going to get. The Country Channel failed recently. That's content that matters a lot to some people and it failed.
You're right and that's why it's a great position to be able to supply both. The foundation sponsors of Heartland—National Bank, Toyota, they're already big clients of ours. They came to us for mass and they thought they had to go somewhere else to get customisation and involvement and they don't. That's the whole key to our future in a small market.
What I want to do is share this position of strength to help engage smaller businesses in New Zealand in media and do more things together. Heartland brings incremental revenues, albeit small, to content owners who thought, 'I'm never going to see another penny from this stuff.' That's a good example of cooperation, and we can do that without buying them.
So five years from now, what would your dream scenario be for TVNZ?
I'm inspired by a Swedish company called TV4 Group that used to run one terrestrial channel, TV4. It now has ten-plus pay channels, it is a leading business online, it has a huge video-on-demand multiplatform offering online as well as through set-top boxes. It has just bought Canal+ operations in Scandinavia and is now very rapidly expanding into the neighbouring countries so it's now a big Scandinavian business. And it's active in every part of the value chain. It now has a majority stake in two large production companies that are especially active in the digital area.
The way it's generated that growth is not by insisting on owning everything. It's very pragmatic—it doesn't say, 'We want to gobble things up.' It says, 'We want to create alliances,' and that's how it generated its growth. One of the reasons I'm inspired by it is because the more it's grown, the better its core first channel, TV4, has performed.
It's breaking new ground and has been first able to charge uniformly for video-on-demand offers across all platforms, no matter how you access it, which is very complicated. And so the same content's available for all platforms for the same subscription rate. That's something I want TVNZ to become and I'm sure we will.
Does it make a difference that TVNZ is publicly owned?
In terms of the plans of our ownership, l really don't know more than what the government has said in public. I have a private view on what it should be but it doesn't really affect the strategy because we'd still be publicly owned, just in a different way.
That's not quite right because TVNZ is really politically owned, isn't it? Every three years or so it becomes a bit of a political football.
Yes, it would be foolish to deny that. But we have become much better at delineating between our public service and commercial activities and when analogue switch-off happens that'll become even easier, when all our channels have 100-percent distribution. So for the first time, New Zealand has two completely public service TV channels. TVNZ previously had channels that have been partly public service and partly commercial, and it is very hard to manage a business like that.
Okay, so let me give you a nightmare scenario: the big international content creators just started webcasting all their stuff globally and look for local sales partners. Kiwi content creators are finding it difficult to sell into those markets, so they find something else—perhaps Vimeo comes up with a beautiful solution for narrowcasting. If you can imagine that future, where is that going to lead for you?
I can't really because it's just a scare scenario that isn't going to happen. There are no players in the industry that are moving in that direction.
You can't imagine Hulu becoming global?
I can imagine Hulu becoming global, but it will need strong local partners. Hulu New Zealand could be a joint venture. It's better to have a share of something big and locally relevant than a tiny share of something even smaller. When I worked for MTV, we were really big internationally and really small in every market. That's a really bad position to be in for a business.
International advertising is really difficult. If Hulu were to sell advertising internationally across its network, it would lose money. I've been there. And so locally, cooperation makes more sense for it than going into these markets on its own.