Sunday, November 20, 2005

Editorial: Rugby, not profit, is the winner

For years, the International Rugby Board has been derided by New Zealanders. It was, most believed, the preserve of gin-swilling Old Etonians whose innate conservatism and muddled thinking precluded any meaningful advances in the game. Is it time, therefore, in the wake of New Zealand being handed so spectacular a prize as the hosting of the 2011 World Cup, for a dramatic reassessment? Perhaps not. This was, in many ways, a case of rugby's governors once again taking the staid option.

Now it is Japan's turn to complain about the IRB's conservatism. New Zealand's success, said Yoshiro Miro, of the Japanese Rugby Union, was down to the established nations passing the ball among themselves. An opportunity to establish rugby as a truly global sport had been lost.

Japan, based on that sentiment, allied to strong commercial sponsorship and the prospect of a lavish profit, had been the favourite to claim the event. It was widely assumed the IRB would take the chance to stage a grand showpiece, using Japan's impressive stadiums and infrastructure. Instead, it was swayed by the altogether more sober prospect of a truly rugby environment, one that had demonstrated its excellence as recently as this year's Lions tour.

That may have been the conservative option but, as it happens, it was also the right one. It is tempting to believe the idea that millions of Asians would embrace rugby if only the World Cup were played in Japan. Yet history suggests otherwise. Similar thinking led soccer's governors to stage their World Cup in the United States. Americans were indifferent. There is little to suggest that Japan, where rugby is a minor sport compared to the likes of soccer and sumo, would be any different.

In fact, the lack of genuine interest in Japan would probably prompt the embarrassing spectacle of half-empty stadiums for at least some of the minor games. That will not happen in New Zealand. Provincial centres will leap at the opportunity to be associated with international rugby.

How, then, could bookmakers and commentators have got the outcome of the hosting vote so wrong? Undoubtedly, too much emphasis was placed on the profit that Japan and the other bidder, South Africa, could deliver. This overlooked the fact that, with the Clark Government underwriting the tournament fee, New Zealand met all financial goals.

Also underestimated was the importance of the All Black brand. No one will say it but New Zealand's bid might just have been sweetened by the offer of All Black fixtures.

Most of all, however, some IRB members - the likes of Scotland and Ireland, perhaps - must have been wary of rugby surrendering to the dictates of profit, thereby rendering the World Cup out of bounds to all but the biggest countries. Such countries would have empathised with New Zealand's bid.

Perhaps they even turned their noses up at the public relations campaigns undertaken by Japan and South Africa, but shunned by New Zealand. And their conservative instinct was probably confirmed when they thought, as Colin Meads suggested, of the decision purely in rugby terms.

New Zealand deserves this opportunity. Without its pioneering work, there might not even be a World Cup. Much, however, has changed since the first tournament in 1987, when some provinces saw little need for even a minor sprucing-up of their facilities. Six years from now, New Zealand will be on the global stage as never before. The passion that secured the hosting rights must now be brought to the preparation for, and staging of, the event. Given our rugby heritage, this must be the best World Cup ever.

Paul Thomas: O'Driscoll furore gets even more grotesque

I didn't intend to revisit the Brian O'Driscoll affair - or Speargate, as the British media has, with thudding predictability, labelled it.

There's the New Zealand view (one of those unfortunate things) and the British and Irish view (malice aforethought) and never the twain shall meet.

After that, all that remains is hysterical self-pity and the huff and puff of misdirected moral outrage.

However, last Saturday John Roughan wrote a thought-provoking piece on the subject under the heading "O'Driscoll incident a slur on our national character".

He argued that the affair has cast New Zealanders in a poor light and was particularly disappointed at the attitudes expressed by his companions in print.

I assumed he included me in that sorry company, as I had put in my tuppence worth the previous week.

I'm afraid to say this isn't the first time a column of mine has been a source of disappointment. Last December I affectionately referred to our Queen-in-waiting, Camilla Mountbatten-Windsor, as a "leathery old boot", which earned me a withering blast from E.R.Y. Monckton of Tauranga.

In a communique hand-gouged in agitated capital letters but containing no clue as to E.R.Y. Monckton's gender, I was also scolded over a column in which I quoted my father as admitting that if he had his time over again, he probably wouldn't join the church.

He, she or it considered this "absolutely despicable; I wouldn't blame your Dad if he never confided in you again".

The possibility that I'd squared it away with my father beforehand had presumably been buried under the avalanche of E.R.Y. Monckton's self-righteous indignation.

Then there was the time I suggested that, despite the widespread belief in his imbecility, George W. Bush mightn't be as dumb as he looks. An enraged gentleman emailed from America to tell me that I'm not as smart as I think.

He might have a point: it increasingly appears as if Bush is every bit as dumb as he looks. However, I suspect this mea culpa won't appease my correspondent, who was too busy taking offence to notice that I was actually questioning the conventional wisdom that his hero is a simpleton.

Roughan revealed that he'd been hit hard by a column by the Observer's Kevin Mitchell, who found it dispiriting that New Zealanders aren't up in arms over what he called the All Blacks' "moral cowardice".

Mitchell's piece, which was reprinted in this newspaper, began thus: "Only the Japanese take longer to apologise than the All Blacks."

The Japanese have dragged their feet over saying sorry for various atrocities committed before and during World War II: the Rape of Nanking (300,000 massacred), the Burma Railway (115,000 dead), biological experiments on live Chinese POWs and forcing thousands of women in occupied territories into sex slavery.

Notwithstanding that he "could have died", O'Driscoll suffered a dislocated shoulder.

To give this a sports medicine context, one of my brothers-in-law had dislocated his shoulder playing rugby five times by the time he was 21.

The juxtaposition, however flippant and however much a product of a desire for a snappy, attention-grabbing intro, is grotesque and suggests the author should take a cold shower next time he feels the urge to sit in moral judgment on anyone, let alone an entire nation.

But wait, there's more. The Irish journalist Fergal Keane made his name covering the genocide in Rwanda and has been awarded an OBE for services to journalism.

In the Irish news magazine Village, Keane describes the All Blacks as "the most cynical group of athletes assembled outside of an Olympic sprint final. Anything it takes to win, they will stoop to it. Violence, assaults, cheating".

Like Mitchell, Keane isn't satisfied with vilifying our sporting representatives. "It speaks of something deeply flawed in the psyche of the New Zealander that cheating to win is widely accepted. But then this is a country whose only contribution to the culture of the world in recent years has been the film Once Were Warriors, a devastating critique of their own society. They are a dour and unimaginative lot who are despised and derided by their nearest neighbours, the Australians."

This is such a toxic piece of writing that one hardly knows where to begin. Perhaps with the observation that, throughout Australian history, many of our nearest neighbours have despised and derided Aborigines, but only the foulest racists have wanted to pat them on the back for it.

The irony is that while we stand accused of taking the game so seriously that it sends our moral compass haywire, it's our Anglo-Irish critics who have lost all sense of proportion.

They are inflating a dislocated shoulder into a crime against humanity and are using an incident in a rugby match and a team's support for its beleaguered captain as a launch-pad from which to shower abuse on all New Zealanders.

There is indeed a slur on our national character but in the sense of an aspersion rather than a stain.

Audrey Young: Unholy government alliance in strife

It is a tough job but somebody has to do it. So said former New Zealand First president Doug Woolerton in Parliament this week about leader Winston Peters having become Foreign Minister.

Woolerton was wickedly echoing Peters' hammed-up humility at the time the announcement was made, when he claimed to have answered the call to serve one's country.

After Peters' first foray into the international arena this week, at the Apec ministerial meeting in South Korea, Woolerton's words might be more true than facetious.

Despite Woolerton's resignation as president over Peters accepting a ministerial post, the party leader is likely to find little objection to his appointment when he faces members at his annual meeting in Rotorua tomorrow.

He no longer works his magic with his caucus colleagues in the way he used to, but to the wider party he is still the charmer who can do no wrong.

The conference will be at the venue where he pledged during the election campaign not to accept the now immortalised "baubles of office" that he later did.

The steady stream of controversies emerging from the Apec meetings is more likely to galvanise the party behind Peters.

He will play the theme of persecution by the media rather than by former Foreign Minister turned Trade Minister Phil Goff, but it has been an unsettling start.

And if the negative press continues to envelop Peters, he may win public support to the view that he is not being given a fair go.

The events of the past week show where the vulnerability in the arrangement will lie - not within his own party but in Peters' relationship with Labour.

Prime Minister Helen Clark and Peters have not insignificant matters to sort out as well, namely New Zealand's attitude to the United States' overtures to improve the relationship.

The differences between Clark and Peters on this issue in the past week have been stark - the former sanguine and the latter enthusiastic.

Clark has to decide whether to entrust that task to Peters, in the knowledge that his likely success could reflect badly on her.

Under a private agreement between Peters and Labour, the only person who can supersede Peters is Clark. But Goff came close this week, in substance if not form, in what amounted to a very messy beginning.

Hints of trouble began last week when Goff as Defence Minister gave an interview to the press about the defunct Anzus Treaty. Under Labour that subject has previously been off-limits for the Defence Minister and has been the domain of the Foreign Minister.

Goff publicly frowned on Peters' intention to "browbeat" China about the trade deficit with New Zealand and disputed Peters' comments about monitoring of English language schools.

He revealed that Australian Foreign Minister Alexander Downer had inquired about how the New Zealand Government arrangements would work - a disclosure that Downer himself was surprised had been made by Goff.

And he capped it off with a comparison of Peters to a mother-in-law who best kept her distance.

Peters has an abundance of goodwill to Labour at present and differences will be minimised in this honeymoon phase of the arrangement.

But he is known to take offence easily and Goff and Labour will have to handle him with more care in future, especially with National's old scandal-hand Murray McCully on the Peters case.

Goff's sudden loss of diplomacy is intriguing. He is such an accomplished politician and it is difficult to imagine that his behaviour in Korea this week was other than deliberate.

In less than a week he has fashioned for himself a role that neither Clark nor Cullen can afford to take - a credible member of the Government with the ability to publicly castigate Peters.

Goff could be forgiven for feeling a sense of cynicism at the bastardisation of collective Cabinet responsibility that allows Peters to criticise other ministers but not vice-versa, and to claim the fiction that he is not in Government.

Whether Goff was given licence to act as he did in Korea or acted from resentment is unclear, though the latter is more likely.

But the comments by Goff, who has leadership aspirations, will do him no harm with the left of the party, some of whom are privately holding their noses in having to work closely with New Zealand First.

That is another reason for Clark and Labour to handle Peters with care.

More than any other factor, the thing that undermined New Zealand First's relationship with National was the attitude of the latter to the former, or at least perceptions by NZ First that they were considered scum.

But Labour has a better track record in managing other parties and will be more alert to any potential undermining of the governing arrangements.

Peters is frustrating National at present with his heavy travel schedule and absences from Parliament. He is off to the Commonwealth Heads of Government meeting in Malta next week and will return to his legal challenge against National's win in Tauranga the following week.

(If he wins, there is a possibility that he might not contest the seat but put up someone like Ron Mark or Brian Donnelly.)

Peters' earliest next appearance in Parliament will be December 6. When he eventually settles back for a stint, what may become apparent is that he is in the Government but his MPs are not.

For some purposes they may act as a team, but Peters for much of the time will be forced by the Opposition to speak for the Labour Government.

A greater degree of separation between Peters and his caucus would not be a dramatic event. The distance has been growing for several years. The pre-election and post-election events simply exacerbated it.

There is resentment at the way Peters conducted the campaign with little consultation and at the way he blamed others for it.

Despite the caucus backing Peters to accept a ministerial post - it didn't initially - there is a little resentment that they were forced to back a broken promise.

But none of that resentment should be interpreted as revolt, not even from Woolerton.

Peters' frequent absences have given his MPs the chance to play a more active role in Parliament than they have been used to. They may come to enjoy his trips more than he does.

Like a group of orphans, they have decided to rally together to try to prove they can foot it without always having to rely on the head of the family.

Despite their resolve, that will be the toughest job.

Fran O'Sullivan: Peters in debut as post box

Winston Peters' debut on the world stage this week - when he represented New Zealand as Foreign Minister at Apec - brought home vividly the absurdity of this country being represented by a politician whose role is now so circumscribed by his "colleagues" that he is little more than a post box through which his international counterparts must route their requests to where the real foreign policy decisions are made, the Clark Cabinet.

Peters' bravado and frequent counter-punches cannot disguise the fact that he was outclassed and undermined by former Foreign Minister Phil Goff, who revealed Australia had sought clarification of his role - and basic negotiating ambit - from first Peters, then Goff himself, who definitely wants Labour's "mother-in-law" outside the tent rather than in the Cabinet.

His only real diplomatic success - gaining a commitment by Australian Foreign Minister Alexander Downer to "put in a good word for New Zealand" in discussions with powerful United States figures Donald Rumsfeld (Defence) and Bob Zoellick (State Department) - was scuttled by "Acting Foreign Minister" Michael Cullen back home, who suggested he had not made the request. (He had.)

Instead of headlines trumpeting his successful introduction to some of Asia-Pacific's most powerful politicians, Peters was forced on to the defensive as the effect of Goff's verbal incontinence hit home.

His body language showed unease with his "Clayton's" role. Other foreign and trade ministers from the 21 Apec nations joined shoulder-to-shoulder for a group photograph. But anyone looking for Peters in the lineup would have been hard-pressed to find him.

It took a double-take to spot him standing 1m away from the rest of the high-powered ministers, staring into space - a mirror image of his formal photo at the Government House swearing-in ceremony for Clark's third Administration.

This recourse to staged photographs is hardly a credit to a New Zealand which prides itself as "punching above its weight" internationally, as witnessed by this week's successful pitch to host the rugby World Cup, and is more likely to lead foreigners to question his psychological makeup.

These subtleties - if indeed they can be called that - are not lost on foreign or domestic audiences.

Peters is not yet a fully fledged member of the foreign ministers' club and will face extraordinary hurdles if he is to be seen other than as the deliverer of relatively anodyne messages scripted for him by Ministry of Foreign Affairs and Trade officials.

Real foreign ministers bargain and cajole, take decisions and implement them, talk across portfolios - such as security, trade and immigration - and are considered powerful enough, as senior Government representatives, to be entrusted with other countries' security and intelligence requests.

They are present at the top table where decisions take place and in the engine room where policies are forged. They do not sit to one side like well-paid political eunuchs taking the "baubles of office" while their predecessor chairs the important insider forum in which any real decision in their portfolio takes place.

This is the subtext to Downer's embarrassing "please explain" request to Peters in their first bilateral meeting over his role and its intersection with the Cabinet.

Under NZ First's agreement with Labour, Peters must promote Government foreign policy but can criticise other areas, such as trade, defence, security and immigration.

That these areas go to the heart of our foreign policy in the first place has been conveniently overlooked by Peters, who resorts to browbeating when clarification on boundary issues is sought from journalists.

But the semantic distinction is not lost on Downer or, for that matter, on China's Li Zhaoxing and a dozen other experienced Apec foreign ministers - no matter the Peters propaganda that these experienced politicians understand aspects of the NZ First-Labour accommodation which are beyond New Zealand's domestic media.

Downer is far too experienced to say so publicly, but my soundings within Australia official circles suggest that the Australian Cabinet believes the accommodation Clark has had to make to retain political power is a frank absurdity.

It is yet another example of the fundamental "silliness" of an MMP electoral system which enables a politician from a minor party to demand the key role as foreign representative yet retain the right to spit all over that country's policies in key overlapping areas.

The Australian Foreign Minister was sharp enough to give Peters some public credence by saying he would be his main New Zealand point of contact.

But he is also sharp enough to have whittled out that the real power on issues closest to Australia's heart - Asia-Pacific security, relations with the US and China - still lies with Goff, who chairs the relevant Cabinet committee and holds the defence and trade portfolios, in effect making him the person who really pulls the foreign policy strings.

There are boundary issues that Australia will not want to share with a minister outside the Cabinet whose party could possibly use them to its own political advantage.

The Downer-Goff channels will remain as active as they ever were.

John Roughan: Media studies puts an old hand to the test

It is many years since I sat an exam and I'd rather not remember the 1969 equivalent of NCEA level 3.

A great deal of nonsense is written about declining standards of education. School leavers who began sitting their third year's national examinations this week deserve to know their parents had it easy.

They had only one test that really mattered, School Cert. It was the first national exam they faced and it was a bit of a lottery; the results were fiddled to fit the Bell curve of expected intelligence, which meant the mark individuals received for each subject was a figure of mystery to them. It reflected the performance of all their contemporaries as much as their own.

We didn't really understand that at the time. We knew only that once you squeezed through that gate the path to life became straightforward. If you had passed School Cert by any sort of margin your school could award you the next exam, University Entrance, without your having to sit it.

At the start of the following year my class-master, bless him, told us the Bursary was hardly worth the trouble. We should relax and enjoy the final year of school, he said, which we did, swanning about as prefects, luxuriating in power, privilege and long pants, organising parties.

Class time was given over to worldly discussions. If there had been such a thing as media studies in those days, who knows, I might have salvaged something from the exams that I sat in a blur and quickly blotted from memory.

But I doubt it. When the Herald published a sample of questions from a level 3 Media Studies paper on Tuesday, I wondered whether even 30 years in the trade would have got me through.

Question one. Analyse how a specific media industry is organised and controlled?

Organised would be easy enough, but controlled? The markers want to hear about corporate forces, I suspect. The truth is that the media business is organised for the dual purpose of making a profit and providing reliable news. Since a serious publication's profit ultimately rides on the credibility of its content, it is in the interests of both purposes that editorial autonomy is preserved and, by and large, it is.

But somehow I don't think this is the acceptable answer. Possibly I could satisfy the examiners by conceding that the interests of profit and public information can be in conflict when the subject is the media company itself or its product. Not even state-owned media report their own problems with quite the alacrity they address those of others. Witness TVNZ's coverage of its current troubles.

Not so long ago there was a reluctance in newsrooms even to report the errors or embarrassments of rival publications on the principle of "there but for fortune ..." And I've sensed a residue of that in TV3's treatment of the TVNZ story.

But newspapers here are now largely owned by two big Australian publishers and competition, in both business and editorial terms, is much keener than it used to be when long-established local proprietors did not threaten each other's patch. Editors are more likely now to admit their misfortunes and mistakes before papers in the other stable feast on them.

Truthfully the commercial need of editorial credibility is what ultimately controls large news organisations. But I fear I have failed this one. Next question:

Explain the relationship between society and a media genre? I suppose news is a genre. How grand.

When media studies first appeared in schools one of its stated aims was to produce more discerning readers and audiences. My hope was that most people would come to realise what news really is.

It is not what newspapers like to claim they are, a "mirror of their community". News is what does not ordinarily happen in the community. In places where violence, corruption and disaster are daily occurrences they rapidly cease to be prominently reported.

It is where citizens don't expect those things to happen that their occurrence is news. If that seems insultingly obvious it is not realised by just about everybody who complains that the news is unduly dismal.

Thank God the news is usually negative. If peace, love, contentment and prosperity is news in any place you can be sure it is a nasty, depressing, poverty-stricken place for most of its inhabitants most of the time.

News does itself no favours, I believe, by focusing so tightly on the disturbing.

After last summer's Indian Ocean tsunami, for example, I longed for the cameras to pull back from the beaches just occasionally and show us buildings still standing, streets still busy and people going about their lives as normal.

I still have no idea how far they would have had to pull back, and that's the point. I never received an idea of the limit of the damage. There seems to be a belief in news gathering that unless you fill the frame with devastation you reduce the impact of the story. But this means the picture people receive has no frame, no definition, no perspective.

This applies to the words as well as the pictures. News loves stark facts and figures that look worse in isolation than they might in a wider context.

You realise the power of imprecise news when something happening locally is reported widely. When Ruapehu erupts people in Auckland get anxious calls from abroad asking if they are okay.

News is really no different from ordinary conversation. Interest is engaged by the exceptional, the tragic, the worrying, funny or salacious. But people have a way of keeping a sense of perspective in conversation that news needs to learn.

I don't hear in conversation, for example, much fear of bird flu or shock at Marc Ellis' purchase of a party drug, or any audible evidence that higher house valuations send the owners crazy with their credit card.

This is straying too far from the topic and time's up. Whatever problems remain with the NCEA, I'm glad there were simpler exams in my day.

Paul McIntyre: Telstra to unleash a broadband beast

Google schmoogle: Now famous words from Sol Trujillo, the American telecommunications evangelist responsible for A$22 billion ($23.45 billion) in revenues at Telstra and who spearheaded a marathon seven-hour briefing on Tuesday unveiling a breathtaking overhaul of the company.

Up to 12,000 jobs will go in the next five years - already 50,000 have been cut out of Telstra since 1996 - and the telco mothership will rapidly refocus on becoming a broadband network provider with all sorts of content flying across a new national high-speed voice, data and video network serving countless digital media screens and mobile devices.

Telstra will also tackle Google and online trading company eBay by morphing its advertising and directories division, Sensis, into a hybrid version of the two.

Serious customer service improvement was central to Trujillo's growth rhetoric, claiming Telstra would give customers a "powerful seamless user experience across all devices and all platforms in a one-click, one-touch, one-button, one-screen way."

Dozens of disparate IT networks would be buried and replaced by five high-powered computing systems powering a radically expanded database capability centralising and analysing customer behaviour and their likely needs.

Under the five-year makeover plan for Telstra, Australians will get fast movie and music downloads to their mobile phones and PCs, video calls - and they will be able to use their phones for tasks such as sending their shopping lists to online supermarkets.

The company also unveiled its first move into the film business by flagging a deal with Sony to offer 7000 movie titles from Sony's back catalogue which can be downloaded to computers from March.

"Let me say very clearly, very loudly and very succinctly, broadband is the key to the future of Telstra," Trujillo said. "This is the most ambitious transformation attempted anywhere in the world."

Ambitious indeed, although the market spooked, lopping nearly $3 billion off Telstra shares. Turnover in the stock was the highest in eight years as the market absorbed the cost of implementing the changes. Earnings will fall by up to 30 per cent - or more than A$1 billion - in the year to next June and a A$1.5 billion dividend was cancelled for 2006-2007.

By 2010 Telstra's revenue growth will be 2 per cent to 2.5 per cent a year, up from 1 per cent now, and new products will generate 20 per cent to 30 per cent of growth.

The company's two critical growth drivers will be directories business Sensis - a migration to the online White Pages and Yellow Pages is considered a huge opportunity, with Google-style search capabilities and eBay style trading - and broadband division BigPond.

BigPond is forecast to replace Telstra's fixed-line phone system as the single biggest contributor to revenue at 30 per cent.

"In the next five years, Sensis will double its revenue base to more than A$3 billion to become the leading one-stop shop for helping Australians to find, buy and sell," said Sensis chief executive Bruce Akhurst. Sensis was now attracting nearly 13 million net users a month and the 76 per cent of the population using the service today would grow to 90 per cent in five years.

"We are outgrowing Google in Australia," said Trujillo. "We are doing more, we are growing faster and we have more capability because we are more relevant in terms of how we think about growing our business here in Australia."

All of Trujillo's grand plans carried an ongoing caveat and message to the Government - too much regulation and Telstra will not be able to carry out its massive capital expenditure program to bring its infrastructure up to speed.

The federal Government is still looking at the end of next year to offload its remaining 51 per cent stake in Telstra and to that end, Prime Minister John Howard commented on the job cuts.

"The message to all of those people is that we have a very strong economy and the prospects of getting re-employment are greater now than they would have been 10 or 12 years ago when Telstra also had massive retrenchments when it was fully owned by the Government."

Telstra faces a tough journey but most analysts believe that if even half of Trujillo's bold claims are delivered, it will be a leaner, faster and more customer-focused beast.

* Paul McIntyre is a Sydney journalist

Brian Gaynor: Static about TVNZ blurs real picture

TVNZ's annual report, which was released this week, gave the company's competitors the opportunity to launch yet another hysterical attack on the government-owned operator.

TVNZ faces a number of challenges, but most of the criticism has been uninformed and exaggerated. The company has made several mistakes, but it has a difficult mandate in a changing and competitive environment.

The first point to note is that TVNZ employees are not overpaid when compared with CanWest MediaWorks (NZ), the owner of TV3, C4 and a number of radio networks.

TVNZ had total revenue of $436.7 million and 145 staff members paid $100,000 or more while CanWest had revenue of $250.3 million and 124 employees in the $100,000 plus bracket.

Sky Network TV, the country's only "pay-for-view" company, operates under a completely different business model and had only 37 employees paid more than $100,000 in the June 2005 year.

The number of highly paid TVNZ employees has fallen in recent years as 177 individuals were paid $100,000 or more in 2003, although that was before the wind-down of the company's satellite services division.

The latest annual reports indicate that the top man at TVNZ is not overpaid when compared with his counterparts at CanWest and Sky.

Brent Impey of CanWest was paid $770,424 in the latest year. John Fellet of Sky TV got $687,500 and the top salary at TVNZ, assumed to be Ian Fraser, was between $670,000 and $680,000. Judy Bailey's salary, which is $800,000 for the 2005 calendar year, was not included because she is contracted through her company.

The second point to note is that TVNZ has a strong balance sheet.

As at June 30, the company had cash and short-term deposits of $32.3 million and no debt. CanWest has $187.8 million of long-term debt and SkyTV is highly geared since its merger with INL on July 1.

On a negative front, TVNZ experienced a drop in operating earnings in the latest year, has a low operating margin and is rapidly losing advertising market share to TV3 and SkyTV.

TVNZ's operating profit, or ebitda (earnings before interest, tax, depreciation and amortisation), fell from $79.6 million in 2004 to $72 million in the latest year. In the same period, CanWest's operating profit rose 11.3 per cent to $67.8 million and SkyTV was up 23.1 per cent to $230.5 million.

The Crown-owned company had an ebitda margin of 16.5 per cent in the latest year compared with 47.1 per cent for SkyTV and 27.1 per cent for the CanWest group. TV3 and C4 had an operating margin of 25.7 per cent.

It is difficult to assess the impact of the charter on TVNZ. The annual report shows that programmes with charter funding of $10.7 million were broadcast during the year. It is not clear whether TVNZ lost money on these programmes.

TVNZ appears to be overstaffed compared with CanWest. TV3 and C4 have 365 employees whereas TVNZ has 1173 staff members for its two channels.

The real threat for TVNZ is that its share of the advertising market, which is its main source of income, is falling. The state broadcaster's share of the major advertising market - which contains TVNZ, CanWest and SkyTV - has fallen from 73.1 per cent to 65.9 per cent since 2001. CanWest's share has risen from 23.7 per cent to 27.3 per cent and SkyTV's from 3.2 per cent to 6.8 per cent over the same period.

The most dramatic fall has come in the past 12 months with TVNZ's advertising share falling from 68.6 per cent to 65.9 per cent. In that period, the total television advertising revenue of the three companies rose from $488.8 million to $522.1 million with CanWest capturing 45.7 per cent of the increase, TVNZ 27.3 per cent and SkyTV 27 per cent.

That is an extremely worrying development for TVNZ, although the broadcaster's senior executives are quick to point out that CanWest has only $142.4 million of television advertising while TV1 and TV3 have $344.1 million.

The state broadcaster's main problems are that it has conflicting objectives and faces two tough competitors. Chairman Craig Boyce wrote succinctly in the latest annual report: "TVNZ has been given a uniquely challenging business model; public service broadcasting using primarily commercial revenues within a largely deregulated environment, and with specific dividend and profit goals."

By contrast, SkyTV has a simple and successful business model.

Unlike some other countries, important sporting events are not protected for free-to-air operators, and SkyTV has an almost complete monopoly over rugby, cricket and soccer. This forms the base of its spectacular growth in subscriber numbers, which now stand at 630,000.

Sky subscribers watch one of the 54 channels about 40 per cent of their viewing time and Sky's viewing share of all New Zealand homes is about 20 per cent.

This gives the company plenty of growth potential as recent figures in the United States show that pay-for-view operators have just over 50 per cent of total viewing time and attract one-third of the advertising revenue. Sky's advertising income is rising rapidly, but it still has less than 7 per cent of the total market.

Sky also has a digital platform that gives it huge advantages as audiences become more fragmented, with viewers wanting to watch more and more channels. Before digital was introduced in December 1998, Sky had only five channels whereas it now has 86, 54 of which are television channels.

Sky is leasing space on a new satellite to be launched next year. This will enable it to introduce a large number of new channels whereas TVNZ is restricted to its current offering until it moves to a digital platform.

CanWest is a successful radio operator that is making an excellent fist of turning TV3 into a highly profitable television channel.

The beauty of radio is that it is far more stable from an earnings point of view and offers relatively high operation margins.

In the August 2005 year, CanWest radio produced ebitda of $33.8 million and a margin of 31.3 per cent while TV3/C4 had ebitda of $36.7 million and a margin of 25.7 per cent.

CanWest's success is partly due to chief executive Impey, who is highly regarded.

CanWest and SkyTV are two well-run and profitable listed companies with good prospects. But it would be silly for them to think that TVNZ is past its use by date and the state broadcaster is not a serious threat.

TVNZ is wounded, but it has the ability to bounce back under a visionary, energetic and extrovert chief executive.

If the TVNZ board can find this individual then Impey and Fellet will have to work a little harder to stretch further ahead of the sleeping giant.

Richard Inder: Mike Pero sale bitter pill for minority

George Gould's decision yesterday to sell his 54 per cent stake in Mike Pero Mortgages will leave a sour taste in the mouths of the mortgage broker's minority shareholders.

The deal will see the blue-blood South Island businessman emerge well ahead on his investment in the company he floated on the exchange last year. Meanwhile minority shareholders are nursing a near 20 per cent loss.

This sorry tale began in March 2004, when Gould bought Mike Pero from its namesake founder for $15 million.

However, after some complex financial engineering linked to the broker's $25 million flotation on the NZX a couple of months later, Gould emerged with his majority stake for an estimated investment of $1.5 million. Pero retained a minority stake.

Mike Pero's shares never rose above the $1 float price and later plunged as low as 55c after some of the big banks stopped paying so-called trail commissions - annual payments for every year the loan remains in force. Concern about the housing market also hurt.

The latest deal, which will proceed only if New Zealand Finance makes a a full takeover offer for the rest of the company, values Mike Pero's shares at $20.5 million. Gould's share of this will be about $11.07 million.

Gould was not available for comment yesterday. But in a media release he issued what some shareholders may regard as an understatement: "George Gould said the decision to accept the proposal is very much based around the best interests of Gould Holdings. [It] is no reflection on the business prospects of Mike Pero Mortgages."

Gould added that he had always wanted to build Mike Pero's earnings and that the takeover had not been anticipated.

It is not the first time Gould has fallen foul of minority shareholders. The bitter and protracted battle for control of the plastic packaging group Vertex was also in part due to his moves.

Gould, after acquiring a 19.9 per cent stake in Vertex, appointed himself and an associate to the board. He then sold that stake to private company Masthead, which operated rival plastics company Alto and subsequently launched a takeover offer for Vertex.

Before Gould and his associate resigned, they voted Masthead directors to the board. The appointment, in the view of the remaining directors, was inappropriate because the new directors were conflicted.

Minority shareholders are sure to now handle George Gould more carefully.


Private Timaru-based businessman Allan Hubbard will be cock-a-hoop over Pacific Retail's agreement this week to sell its finance business to US giant General Electric.

The $145 million deal, which values Pacific Retail Finance at 10.6 times this year's pre-tax earnings, sets a useful benchmark for the impending float of his finance business, South Canterbury Finance.

Applying this benchmark to South Canterbury's earnings implies a valuation of about $320 million. This is well ahead of the $280 million present estimate.

Hubbard is selling a 75 per cent stake in South Canterbury, so if the float scales these heights his personal gain would rise by about $30 million.

GE always could pay more. Once it takes control - after shareholder and overseas investment commission approval due later this year - it will stop raising cash from the local market.

Instead of issuing debentures paying a 9 per cent coupon, it will tap international investors. Backed by GE's AAA Standard & Poor's debt rating it will be able to raise funds at about 7 per cent. On PRF's $500 million loan book, this represents a saving of $10 million a year - three-quarters of this year's profit. GE is likely to have shared some of these so-called synergy gains with Pacific Retail Group.

Apart from that, however, the two companies may deserve a similar rating.

Pacific Retail Finance is more exposed to an economic downturn than South Canterbury. Its loan book is made up of personal loans and funding New Zealanders' addiction to wide-screen televisions and DVD players.

In any downturn - read redundancies and job uncertainty, less overtime and rising mortgage repayments - these sorts of loans are more easily reneged upon.

South Canterbury Finance will still suffer from a downturn, but its loan book is much-less geared to the consumer market, with personal loans representing less than 20 per cent of its book.

Both companies have a strong record of growth. Pacific Retail Finance grew its pretax profits from $8.7 million to $13.7 million in the year to March. South Canterbury's earnings in the year to June grew its profits from $5.8 million to $30.2 million.

Meanwhile, Pacific Retail Finance debentures now must be the best in the market. GE is promising to buy up all outstanding debenture as they roll over but cannot start until the deal is completed.

Until then punters can buy the bonds in the knowledge that they will be backed by GE. The US corporation's balance sheet is better quality than of any other finance company in New Zealand and therefore offers better protection against the - albeit remote - chances of a finance company meltdown.

The one risk to this strategy is the possibility the deal does not get the necessary approvals.

But since PRG, more than 80 per cent owned by Eric Watson, needs the cash for, among other things, propping up UK appliance chain PowerHouse, a deal looks likely.