TVNZ, Sky TV to wait up to 6 years for Igloo to break even

Television New Zealand and Sky Network Television may have to wait up to six years before their Igloo budget pay-TV service gets into the black, according to the state-owned broadcaster.

The Auckland-based broadcaster does not have any specific sales targets for the first 12 months, and Igloo will take "a number of years to build a subscriber base and to reach a break-even position," TVNZ says in a written answer to parliament's commerce select committee.

"We recognise it could [be] anywhere between 4-6 years for the business to break even."

The state-owned broadcaster stumped up $12.3 million for a 49 percent share in the joint venture with Sky TV in a bid to broaden its revenue streams and has recognised losses of $2.2 million, according to its first-half report.

Igloo was slated for a July 2012 launch, though that was delayed until December. Before the delay, partner Sky TV was expecting to have 50,000 subscribers by June 30 this year, though that has since been pared back, with chief executive John Fellet telling NBR that igloo could attract 30,000.

TVNZ told the committee that pay-TV opens up the broadcaster to "consumer paid for content" and is part of a wider move to cut reliance on advertising revenue.

The drive to find new revenue streams comes as the broadcaster is under greater pressure from the government to maintain its return.

In a December 20 letter, Broadcasting Minister Craig Foss told chairman Wayne Walden the government expects at least a 9 percent return on average equity over the next three years and wants TVNZ to change its dividend policy to a proportion of cashflow rather than net profit.

The broadcaster's existing dividend policy is to pay 70 percent of forecast net profit and it is targeting a $9.8 million return from the 2013 financial year. The broadcaster's net profit dropped 26 percent to $14.2 million in the final six months of 2012.

TVNZ's operating cash flow shrank to $13.7 million in the six months ended December 31 from $31.8 million, with much of that from reduced government funding. There was a net increase of $3.2 million in the six-month period, leaving TVNZ with cash and equivalents of $8.5 million as at December 31.

The broadcaster has scope to take on more debt with $10 million in borrowings amounting to a gearing ratio of just 6 percent, well below its upper cap of 40 percent flagged in its 2013 statement of intent.

(BusinessDesk)