The great Mediaworks beatup

The Herald ran a story yesterday headlined “Your $43m lifeline to TV3 owner: and said:

The Government has thrown a lifeline to ailing private media company , which owns TV3, Four, and about half New Zealand’s commercial radio stations.

MediaWorks’ latest accounts show it has essentially received a $43.3 million loan from the Crown to enable it to renew its radio broadcasting licences for the next 20 years.

This got copied all over the place with people aghast that the Government had lent MediaWorks $43m in some secret deal.

However there was no loan and no secret.

In October 2009 (18 months ago) the Government announced:

“The Government recognises that some licensees may have difficulty paying the one-off lump-sum renewal payments for their 20 year spectrum licenses next year.”

Cabinet has agreed to offer an alternative payment option to the radio broadcasters, provided any change is revenue-neutral to the Crown. 

This will allow a series of not more than five annual payments incorporating interest at 9.5 percent, plus inflation. 

So in reality it is a simple deferred payment option – broadcasters had the choice of paying for a 20 year licence in one lump sum, or spreading it over five years at a higher cost. This is no different to what often happen in the commercial world – you can spread payments out but pay more for them.

It’s not a lifeline, and it is not a loan. It is a liability but that is a different thing. If at balance date I have not paid a bill, I have a liability my creditor but that does not mean they have lent me money.

And finally the taxpayer made money from Mediaworks with the deferred payment. The interest rate is 11.2% and the government 6% on its debt, so the Government makes a net 5.2% from Mediaworks.

Sadly far too many will have just read the original story, and will remain convinced that the Government bailed out Mediaworks with a loan.

UPDATE: I notice the original story was front page and the story the next day clarifying things was very small and obscure.

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