Convergence emergence

The New Zealand TV sector is embracing the digital age, but growing pains are likely.

WELLINGTON -- If all goes as planned, embattled Kiwi pubcaster TVNZ will become the center of New Zealand's convergence universe in the near future.

Over the past five years, the once unassailable two-channel juggernaut has shed tens of thousands of viewers as it has grappled with becoming a semipublic broadcaster in the face of intense competition from free-to-air, pay-TV and emerging new-media platforms.

But on March 1, it will take the first major step towards its evolution into "the hub of television and converged media in this industry" with the launch of TVNZ OnDemand, a broadband service that will offer streamed and downloadable episodes of popular local shows such as "Shortland Street" and "NZ Idol."

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TVNZ also is exploring multiplatform opportunities and alliances with rival media and will be the first broadcaster to offer new channels on FreeView, the country's first digital FTA service, due to start in April.

"TVNZ's biggest challenge is to manage (stockholder) and public expectations as we begin to implement our digital strategy," chief executive Rick Ellis says.

Those stockholders include the independent producers from whom TVNZ commissions most of its local content for TV One (which aims for a schedule that's 51.5% New Zealand-made) and TV2 (22.5%).

"Local content remains front and center to the core of this business and to our strategy in the future," Ellis adds.

But while more channels means more Kiwi content, how much more is unclear.

"The challenge will be how we get through the first years of digital with potentially small audiences and limited production budgets allocated to those channels," says Jane Millichip, managing director of the country's biggest TV drama producer, South Pacific Pictures. "New Zealand has a tiny population, and that's the main limiting factor in introducing new business. As a result, we can't afford to create the same niches as they do in the U.K. and U.S. But overall, the arrival of FreeView is a very good thing for New Zealand television."

At the same time, pay-TV satcaster Sky continues to erode FTA dominance. It's in more than 42% of Kiwi households and is at the forefront of innovations like VOD, which it is set to introduce in May.

In 2008, it has plans for IPTV and high-definition transmission of its sports and movie channels, as well as its FTA acquisition, Prime Television.

Moreover, TVNZ's fears that Sky ownership of Prime would push up foreign program costs have been realized.

Ellis describes reports that TVNZ had to spend an extra NZ$20 million ($13.8 million) on rights in 2005-06 as "speculation" but acknowledges, "Without a doubt, we paid a lot more to renew the Disney output deal, for example, than we would have had Prime not been in the frame."

It will be CanWest TVWorks-controlled rival TV3's turn to feel the heat next year, when its Fox Broadcasting Co. deal comes up for renewal.

"There are so few broadcasters in this market that any major change is cause for concern," says Millichip, who also is vp of the Screen Production and Development Association of New Zealand. "I would hope, whether it's a private deal or another broadcaster, the new owner will recognize ... TV3 is benefiting from two years of hard graft and investment in production."