TVNZ sells down: what's behind the power shift at igloo

An interesting footnote to Sky TV and TVNZ's annual results: TVNZ has sold down its stake in igloo.

The underperforming pay TV venture was previously 51% owned by Sky TV and 49% by TVNZ.

Now, Sky TV has paid $5.75 million to lift its stake to 66%.

The change in igloo ownership points to a power shift between the pay TV operator and the newly assertive state broadcaster.

Who initiated the shift?

"Here’s how it went: the igloo board made the decision to refine the business and retail model, which made an upfront capital injection necessary. Sky offered and TVNZ accepted that Sky will provide all of the extra funding in exchange for an increase in its interest in Igloo," TVNZ spokeswoman Megan Richards told NBR.

Sky TV CEO John Fellet told NBR that $5.75 million was a relatively small amount to pay for lifting its stake in igloo (both Sky and TVNZ also took impairments of around $5 million on the joint venture, which is projected to have 19,000 subscribers by the end of this year, well under half the initial number).

So what was the refinement in the busiiness model?

Simply that igloo wasn't selling at $199. The igloo team gave it a shot, but it just didn't work, Mr Fellet said. The price of the set top box was chopped to $99, and only Sky TV is bankrolling the move (which will presumably see it selling igloo decoders at a loss).

Although a shift in retail strategy is behind the shift, it's a positive overall for TVNZ.

As NBR has written before, igloo is all good news for Sky TV. The $24 a month pre-pay service is a good way to attack the budget market who won't stump up for Sky's full-blooded service. And if customers don't like igloo's lack of recording capability, or its hazy sports on-demand schedule, they can always be upsold to a MySky decoder. More, it gives the appearance of competition, and coopts TVNZ, otherwise a potential competitor.

But for TVNZ, igloo's always looked like a dead-end.

Both Ms Richards and Mr Fellet emphasise the state broadcaster has the option to lift its stake back to 49% in two years. It's hard to see why it would take it.

TVNZ (and MediaWorks) need to join Quickflix in backing Freeview's proposed ondemand channel, which could provide a mix of free and paid content, delivered to televisions via broadband. There's already a critical mass of Freeview setup boxes and compatible TVs in the market. It's an oppotunity waiting to happen.

New TVNZ CEO Kevin Kenrick has already proved quite front with ondemand content via the web and apps. But addiing ondemand content via Freeview - accessible via your TV remote, no internet know-how required - would really shift the balance of power.

And it needs to be done before Sky builds iSky capability into its next decoder upgrade, coming some time before the end of next year.

Some of that ondemand Freeview content needs to be paid, too. TVNZ is starting to make money from ads around ondemand content, it's so far only bringing in $1 for every $4 in lost broadcast advertising.

It's also interesting that TVNZ's igloo selldown comes on the heels of it partnering with newcomer Colesium Sports Media, which recently outbid Sky TV for rights to English Premier League soccer.

A Sky TV spokeswoman told NBR that its igloo partner's involvement in Colesium's bid came as a surprise. The way Mr Kenrick is shaping up, there could be more surprises ahead.

ckeall@nbr.co.nz

Follow @ChrisKeall