A fistful of dollars (public)


Peter Thompson examines some legitimate funding concerns about the new public media merger to see if the sky is really falling

Comment: Government plans to create a new public media entity comprising RNZ and TVNZ, with additional direct public funding of $109 million, were always going to be controversial.

Some submissions on the bill creating the new entity, known as Aotearoa New Zealand Public Media (ANZPM), have raised concerns about the organization’s potential to distort competition in the market, arguing that it would use public funds to supplant its business rivals or that its non-profit status would confer an unfair advantage.

Unsurprisingly, the news that the ANZPM would receive an additional $84.8 million, reallocated from NZ On Air, sparked a lot of reactions. Renowned screen producer John Barnett predicted this would mean the closure of local production companies and even the disappearance of some genres of local programming.

But is the sky really falling for us?

The $84.8 million includes RNZ’s current funding from NZ On Air of $42.6 million, which was not contestable anyway. The remaining $42.2 million comes from the contestable pot and is still expected to pay outside commissions. So the assumption that this money will simply disappear internally is suspect. The problem is that currently the bill does not specify how the funds are to be used.

The commercial media industry frequently complains about any public media offering from which it derives no benefit. For example, there was vehement opposition to the (dropped) proposal for an expanded, non-commercial RNZ+, even though it would not have competed for publicity or the general public. In another case, a broadcaster shamelessly used its own presenters to lament a level playing field because TVNZ suspended dividend payments.

The vested interests of the commercial media sector must therefore be distinguished from its legitimate concerns about the merger.

A major shortcoming of the ANZPM Bill is the lack of clarity on the balance the entity must strike between commercial objectives and Charter objectives – the latter are set out in Section 13 of the Bill. To the extent that the Charter requires ANZPM to provide media services that incur commercial opportunity costs (such as content aimed at minority demographics), public subsidy is undoubtedly necessary. In an increasingly competitive environment where every look and every dollar counts, programs that cost more, attract smaller audiences, or generate less ad revenue than cheaper alternatives simply don’t make business sense.

NZ On Air’s questionable fund is intended to make under-delivered local content genres viable. However, the financing agency is not vertically integrated, ie it does not operate a distribution platform. This means that applicants must have a distribution agreement to ensure audience reach. Unfortunately, this puts trade commissioners in a gatekeeper position and subjects the contestable fund to the same market constraints it is meant to clear.

For example, when the non-commercial channels TVNZ6/7 were axed in 2011-2012, the government asserted that programming could still be provided via NZ On Air. But only two programs (Rear benches and Media 7) found broadcast channels willing to schedule them.

Even with the offer of full production subsidies, commercial media often refuse to air programs if they compare poorly to alternatives that offer higher markups. As competition for audience and advertising has intensified, the level of subsidy required to overcome opportunity costs has increased. Although NZ On Air’s funding is transparent, accountable and funds many excellent local programs, it has never been able to provide a full range of public service genres.

Will ANZPM make better use of this funding? Theoretically, a not-for-profit operator should be better able to absorb the opportunity costs attached to a public charter. However, the bill makes no mention of the ANZPM as being non-profit (contrary to the business case published by the Department of Culture and Heritage). The Treasury has advised the finance minister to implement measures to ensure ANZPM maintains its business performance and the 2022 budget provides for a recovery of $306 million in surpluses over six years.

If the new entity’s direct public funding is used to compete directly for revenue with commercial rivals that are not eligible for such funding, then there is a legitimate concern about market distortion. Similar objections have previously been raised to TVNZ’s charter when public funds were used to outbid rivals for the rights to the Beijing Olympics. It is therefore necessary to ensure that the ANZPM uses its funds primarily to deliver the Charter, and not simply to commercially outperform its rivals.

There are mechanisms that could alleviate these concerns, such as requiring publicly funded content to carry reduced advertising or be directed to genres aimed at underserved minority interests. But another option would be to require ANZPM to operate as a “public service publisher” in conjunction with NZ On Air.

The temporary Joint Innovation Fund arrangement between RNZ and NZ On Air was an example of this model. This vertically integrated the funding agency by securing a designated distributor (RNZ) for content produced by other companies and retained the benefits of contestable ordering. Importantly, such an arrangement could create synergy between ANZPM, NZ On Air and local producers without raising allegations of market distortion. It would surely be a more attractive option than seeing public money subsidizing Boy’s Island

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