Discovery takes 'bet on NZ' by buying television channel Three

Discovery Inc has decided to take “a bet on New Zealand” by buying the television arm of channel Three owner MediaWorks, Discovery’s Asia-Pacific president Simon Robinson says.

Television channel Three owner MediaWorks announced on Monday that Discovery, the US owner of the Discovery Channel, would acquire its loss-making TV arm after a near year-long search for a buyer.

MediaWorks chairman Jack Matthews said the sale would be for “more than a dollar”, with Discovery agreeing to pay a “meaningful” price for the business, but beyond that terms have not been disclosed.

Discovery will buy television channels Three and Bravo and MediaWorks’ Newshub journalism arm, along with streaming service ThreeNow, Three+1, Bravo+1, The Edge TV and The Breeze TV.

READ MORE:
* What Discovery's purchase of Mediaworks' struggling TV arm would mean for viewers
* TV3 sale down to 'one party' says departing MediaWorks CEO
* Sarah Bristow announced as Newshub's new director of news

MediaWorks, which is majority-owned by US investment company Oaktree, will retain its radio and outdoor advertising businesses.

Chief executive Michael Anderson said it would be “pretty much business as usual” for those parts of its business.

Discovery is best known as the owner of lifestyle channels such as Discovery Channel, Animal Planet and Science Channel.

Robinson said it had not yet been decided whether it might screen more of that kind of lifestyle and entertainment content on Three.

But the company spent about US$4b (NZ$6b) a year on content and only about $1b was “the traditional stuff you would expect coming out of the US” and the rest was spent in local markets, he said.

The sale appears to safeguard a future for MediaWork’s Newshub journalism business, which has been one of MediaWorks’ biggest expenses.

Robinson would not comment in detail on its plans for Newshub but expected it would continue to supply news to its current customers, which include Sky’s Prime Television.

Anderson said MediaWorks’ radio stations would also continue to source their news bulletins from Newshub on a commercial basis after Newshub’s transfer to Discovery.

“That’s a good outcome for both parties,” he said.

Discovery is not completely new to the mainstream news-reporting business.

Robinson said it had “one very big” news operation in Poland where it was the largest news provider on free-to-air television and in digital and on-demand.

Discovery “clearly recognises the important role that Newshub and Three in general plays in providing independent and trusted news and current affairs programming and that is the asset we have bought into”, he said.

“This is us making a bet on New Zealand.

“We are cognisant of the challenges and the headwinds, but we think New Zealand is a great market and relatively stable.

“We wouldn’t invest in something that we thought was loss-making long term,” he added.

Speaking to Stuff shortly before noon, Matthews said Newshub staff were drinking champagne to celebrate what he described as “the best possible outcome” for the TV arm.

“The reaction across this business, and I think even in particular in Newshub, has been unbelievably positive,” he said.

Other companies that are believed to have considered a purchase of MediaWorks include Australian television network owners which could potentially have stripped out costs and re-run their content in New Zealand.

Anderson said the transaction was subject to approval from the Overseas Investment Office, and Commerce Commission “processes”, but was expected to be completed by the end of the year.

“This is a clean separation and a clean sale of the TV business,” he said.

MediaWorks TV business will be headed by Glen Kyne, MediaWorks’ former commercial head, in what Anderson said was a permanent appointment.

Anderson had previously announced his own departure from the company by the end of the year.

Matthews believed Discovery was “the ideal new owner” for the television business.

“Discovery understands the TV business completely, they have got a very good strategy of multiplatform distribution, and they have got the financial wherewithal to compete.

“And they appear to be pretty nice guys, so I think the cultural fit will be quite strong,” he said.

Discovery is valued on the US Nasdaq exchange at US$10.9b (NZ$16.3b) and posted a profit of US$1.5b for 2019.

MediaWorks originally announced it was seeking a buyer for its television business in October last year, hiring UBS as an adviser to help identify a list of potential purchasers.

Anderson had been critical of the Government’s media policy at the time.

In particular, he criticised its decision to allow TVNZ to forego paying dividends to the Crown, saying the market was “skewed against all of free-to-air, but particularly skewed against Three”.

TVNZ revealed in August that the Government had agreed to put an extra $30m into TVNZ, if needed, after the company racked up a $26m loss in the year to the end of June.

Anderson said the Covid pandemic and the “massive disruption” to revenues that flowed from it had drawn-out the sale process for MediaWorks TV.

It also meant negotiations with Discovery had to be conducted via “multiple Zoom meetings” rather than face-to-face, he said.

Robinson said the pandemic had effected everyone’s business but did not change the fundamentals with regard to MediaWorks’ TV business and had “not given us pause”.

Anderson said the “two good things” about a challenging year had been the sale of Stuff to its chief executive Sinead Boucher for a dollar and the sale of MediaWorks TV arm to Discovery, both of which he described as “great outcomes”.