Report of a steering committee to the Minister of Broadcasting.
MEMBERS:
H.B. Rennie (Chairman)
B.K. Astill
R.E. Jones
R.E. Sayers
D. Spence
Officials
D.R. Andrew (The Treasury)
J.R.A. Stevenson (Department of Trade & Industry)
EXECUTIVE OFFICER
A.R. Cocker
CONSULTANTS
Booz.Allen & Hamilton International (U.K.) Ltd
Dr. C. Jonscher, J. Hughes, A. Mierzwa.
Fay Richwhite & Co
P. Duignan
EXECUTIVE SUMMARY
THE TASK
1 The Committee's task was to provide recommendations "on the optimal organisation and financial structure" of the Broadcasting Corporation of New Zealand (BCNZ), based on State-Owned Enterprise guidelines, This task, so defined, reflects the government's policy to permit greater competition in the broadcasting industry, to remove conflicting objectives for state-owned broadcasting and to alter the means by which public funds are allocated for the delivery of social objectives in broadcasting.
THE BROADCASTING ENVIRONMENT
2 Government policy is in this sense determining change. How-ever. major changes in broadcasting are inevitable. These changes are, in large part, being driven by new and increasingly affordable technology. What has been described as the Four Horsemen of the Apocalypse, the video cassette revolution, broadband cable, satellite broadcasting, low-power local television services, challenge the traditional national public service broadcaster. Broadcasters will recognise not only the tremendous challenges and problems but also the exciting opportunities.
3 It is true that there are difficulties in estimating the pace of the changes that are taking place. How soon their full impact will be felt is still largely unpredictable and affected by such factors as techno logical problems and delays, the daunting cost of setting up some opera-hons, and doubts about the willingness of potential viewers to pay for reception equipment. Yet the fact that major changes are on the horizon is not arguable. Especially with the New Zealand deregulation of the industry, it must be stated quite clearly and unequivocally that the present Broadcasting Corporation structures must undergo substantial change to meet the new environment.
4 As greater competition impacts on the New Zealand market, traditional media must adapt to meet the competitive challenge. The struggle for revenue will be intense and existing operators must be given the flexibility to react, attack and diversify. The restructuring of the BCNZ provides the opportunity to adopt a competitive business approach. The Committee's role is to recommend structures that will enable state-owned broadcasters to compete successfully in the international market and to maximise taxpayers' return. The Committee would also see the SOEs as effectively promoting a distinctive New Zealand identity in broadcasting.
THE ISSUES
5 Early in its deliberations the committee decided that decisions on the scale of the activities to be undertaken by the new businesses are best left in their detail to the incoming State-Owned Enterprise Board or Boards. The Committee's approach has been to identify the policy framework within which executives and boards can "manage for change" in the context of strategic objectives agreed with the owners. The committee sees this flexibility as essential if the BCNZ is to adapt while the industry as a whole undergoes a rapid change.
6 The structural issues arising from the Terms of Reference have been identified as follows. First, whether there should be one State-Owned Enterprise for the Corporation's activities or more than one. Second, the future shape of radio and television services and structures to provide for their commercial and non-commercial activities. Third, the position in the structures, or outside of them. of Broadcasting Services, The Listener, and the New Zealand Symphony Orchestra.
TWO SOES
7 The Committee recommends that the Broadcasting Corporation of New Zealand be replaced by two State-Owned Enterprises: Television New Zealand and Radio New Zealand. This decision was reached after considerable inquiry and extensive debate. On the weight of the evidence presented, the Committee agreed that the positive aspects of separate radio and television structures outweighed the advantages of continuing with a single SOE. In particular the advantages to be gained from the focus of management in two distinct areas of broadcasting in this challenging period of change are likely to be significant. The accountability in the allocation of publicly-owned resources is also important in this environment. Each SOE would remain free to combine with the other in any business area of mutual advantage, subject only to general commercial law.
8 The Committee, in its terms of reference, was required to estab-lish an organisational structure which accommodated the broad-casting activities which the government has determined will be carried on in public ownership. In respect of those activities which the BCNZ carries on, and whose ownership has not been defined by government, the Committee gave careful consideration to the alternatives of ownership or sale. The guiding principle in that consideration was the maximisation of the overall value of the broadcasting businesses now carried on by the BCNZ. The value of those businesses has been significantly affected by the decision to deregulate the industry, the related requirement to put BCNZ activities on a commercial base, and the prospective entry of many competitors over the next two or three years. The Committee has concluded that the board of the new SOE for Radio New Zealand will need to make substantial adjustments to that business, including both sale and perhaps acquisition, as an early step. However the Committee considers that it is essential, in the interests of the broadcasting objectives and in the interests of obtaining the maximum value of present busi-nesses, to allow them to adjust and adapt to the deregulated market in a planned way under the new SOE management. While the report identi-fies some instances where sale, or the introduction of joint ventures with the private sector, may be appropriate, the Committee is certain that those changes should follow the establishment of the SOE structure, and be the result of commercial decisions by the boards of those companies.
RADIO
9 Regarding the structure of Radio New Zealand it was agreed that there would be a clear distinction between the National and Concert networks and the community and metropolitan commercial sta tions. The Committee recommends the establishment of a Special Broad-casting Services division to run the National and Concert Networks. This would be a distinct business unit with an aim to satisfy the Government's social objectives through public funding, while maximising efficiencies and seeking revenues other than grants received from the new Broadcast ing Commission. Transitional contracts with the Broadcasting Commis sion for continued funding at or near current levels will be necessary, While new revenue opportunities can be identified for these networks. they will remain principally dependant upon Broadcasting Commission Funding after that transitional period.
10 Radio New Zealand's 'community radio stations were viewed by the Committee to be commercial businesses. These stations have, however, a considerable adjustment to make as a result of the structure inherited from the highly regulated period of broadcasting. A lamuted number of small local stations or relays may never be fully conimercially viable, and may need assistance from the Broadcasting Commission to survive. This assistance should nevertheless, first be proven in the new environment. It is recommended that the Radio New Zealand SOE Establishment Board should be granted maximum flexibil ity to optimise the value of the assets within its control. A wide range of options should be available to this board so that it has the freedom to buy sell, franchise or establish joint venture radio stations. After a transitional period, a stronger competitive commercial radio system should then exist. Recognising the talents which exist in Radio New Zealand, the Committee believes station managements should then be able to partici pate in any privatisation that the Government may subsequently deter mine
11 Maori radio initiatives, including the new Maori radio network, are identified as matters which should not fall directly within the responsibility of Radio New Zealand. Separate and commercially sustainable mechanisms should be evolved to realise Maori aims and provide for autonomy in ownership with representative Maori control. Support will be required through the Broadcasting Commission and/or other sources, especially in the establishment period for such stations.
12 The Committee is strongly of the view that certain "public service" radio programing should be separately contracted with appropriate agencies and not be funded from the public broadcasting fee. The broadcasting of Parliament, if desired by that body, should be funded by a separate Parliamentary vote. The shortwave service of Radio New Zealand should be given a priority in Vote: Foreign Affairs. Educational broadcasting, where it is an efficient educational system, should be funded under contract from educational institutions.
TELEVISION
13 The competitive environment for the new Television New Zea-land State-Owned Enterprise demands, in the committee's view, a positive, commercially aggressive, response. That approach involves a corresponding business risk. If low risk options are chosen and Tele-vision New Zealand offers a defensive posture to its national and inter-national competitors, then the business will. almost certainly, soon fail to provide a comprehensive New Zealand television service. The major proportion of Television New Zealand's resources are devoted to televi sion production. In some areas of production the committee agreed, this traditional in-house production structure will become less appropriate over the next few years. New systems for television production are thus required. Production areas and units must be more clearly defined as individual cost centres. Channel controllers should approve the total cost for each programme produced, and have the flexibility to commission programming from any source. On cost efficiency grounds the Commit tee feels there is potential for an increase in the proportion of Television New Zealand's programmes which are "commissioned-in".
THE LISTENER
14 The Listener has a natural connection with Television New Zea land and Radio New Zealand, but also a need for editorial inde-pendence. The Committee's advice is that it should be an independent business in which both SOE's will have equity. Its future in detail should be determined by the establishment boards.
THE SYMPHONY ORCHESTRA
15 On the issue of the structural relationship of the New Zealand Symphony Orchestra with broadcasting, it was determined that the orchestra is essentially a distinctive cultural venture. Its operation has some synergy with the management of the Concert Programme and Radio New Zealand could enter into a contractual relationship with the Government for its management through a Concert Music Unit, perhaps leading in time to an independent trust board and management structure. The Committee did stress its belief that it should be directly funded by the Government.
BROADCASTING SERVICES
16 The Broadcasting Services Division presently undertakes a number of functions. Its primary role is radio and television transmission and their related engineering. The Committee noted that under the deregulated industry structure the new establishment boards will have the freedom to own and operate their own transmission assets. It follows that the existing service should be divided between Radio New Zealand and Television New Zealand, who would operate them as separate cost centres. The Committee considers that each SOE would remain free to combine transmission services in areas of mutual benefit, including the development of business with other customers as long as the principle of competitive neutrality with other operators was adhered to. This could include a joint venture company, perhaps with outside investment. Other current activities of the Broadcasting Services division should be under-taken within the new radio and television businesses and assets transferred to each as appropriate.
AIM: A RESPONSIVE FRAMEWORK
17 The Committee's recommendations are framed with the prime purpose of enabling the new enterprises to meet the challenges of competition and to prosper in the new broadcasting environment. The Committee believes that the new organisations will be responsive to their consumers' needs, and will become and remain efficient and vital business entities and contributors to the social, cultural and political life of the community. Most importantly, they will continue our tradition of innovative quality broadcasting, carried on in the interests of all New Zealanders.
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