The great Mediaworks beatup

March 10th, 2011 at 1:00 pm by David Farrar

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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25 Responses to “The great Mediaworks beatup”

  1. slightlyright (93 comments) says:

    I almost agree with Trevor on this very rare occasion, the government has made the wrong call. Mediaworks have a reputation as being some of the biggest shysters in the industry. They went around in boom times and brought up all and any competition, then when it got tough they couldn’t afford the licenses not withstanding being a license they had notice from the time they acquired it, that it was a significant contingent liability they should have planned for.

    Rather than put aside funds to pay for it, they spent up large and then basically hit the wall in the recession. Mediaworks and The Radio Network breaking up / falling over would have been excellent for the broadcasting industry as it would in effect have been the market remedying the market failure which is the duopoly between Mediaworks / The Radio Network we have at present.

    It is absolutely absurd that we have a radio market worth about $250-$300m in advertising $’s and basically two companies fighting it out for the biggest share of that pie.

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  2. backster (2,171 comments) says:

    Yep another anti government media propaganda. The cub reporter responsible should be dismissed inside his 90 day trial period.

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  3. m@tt (629 comments) says:

    “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.:
    “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.”
    Play semantics all you like, the difference between this and a loan is precisely zero in outcome.

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  4. BeaB (2,123 comments) says:

    Just like me paying my ACC bill in installments – thankfully not for the next 20 years. Who dreamed that up?

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  5. SBY (121 comments) says:

    A deferred payment scheme where interest is paid is no different in effect to a loan where an amount is advanced and then paid back. By deferring the obligation to pay to a later date the payee is giving the payer the use of its money, and is charging interest for that use.

    That’s why it’s a loan.

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  6. Spider_Pig (62 comments) says:

    In no way does this constitute a $43 million lifeline using taxpayers money, nor has Mediaworks “essentially received a $43.3 million loan”. I choose to pay my car insurance in one annual payment. Do I essentially receive a loan if my insurance company offers and I choose monthly payments? If I sign a contract for one year of insurance, but pay monthly, I have a liability for all future months. Exactly the same here. Is the MSM using year 11 social studies students as journalists?

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  7. sparky21 (10 comments) says:

    Remember that the Radio Network is the friend of the NZ Herald, Mediaworks is the opposition….

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  8. djg (72 comments) says:

    The alternative was, let it fail and forfeit the license back to the crown who get to resell it.

    That would be great so long as there was a purchaser.

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  9. Nick R (507 comments) says:

    If it looks like a duck, walks like a duck and quacks like a duck…

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  10. RightNow (6,994 comments) says:

    Sounds like a hire purchase arrangement. Smart move by the government.

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  11. sparky21 (10 comments) says:

    Why is it suddenly news now, why wasn’t it news 18 months ago?
    I understand that other radio companies are also in the same position.
    Perhaps Mediaworks should have a whip-round, a-la-Radio Rhema.

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  12. TripeWryter (716 comments) says:

    @ “The cub reporter responsible should be dismissed inside his 90 day trial period.”

    It wasn’t a cub reporter (they haven’t been called that for nearly 40 years).

    But the story could have been better subedited to make clear what the story was.

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  13. queenstfarmer (782 comments) says:

    A deferred payment scheme where interest is paid is no different in effect to a loan where an amount is advanced and then paid back

    Subjectively, perhaps. But it is recognised as different in law and accounting. For example deffered payments with “interest-like” payments are the basis of Islamic banking (which prohibit “loans”).

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  14. V (719 comments) says:

    Be interesting to see the cost of spectrum licenses over time. Are they decreasing, flat or increasing?

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  15. peterwn (3,271 comments) says:

    There was a similar media beat-up over Wellington and Hutt councils giving Terry Serepisos’s companies more time to pay their rates as if the Councils were doing Terry a great favour. The joke there was that the councils would invariably have their rates paid, the late penalties would more than cover their overdraft interest, and that even if the properties were put up for mortgagee sale, the Councils would still be able to extract the rates etc from the new owner who would factor this into the bidding.

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  16. RightNow (6,994 comments) says:

    “Be interesting to see the cost of spectrum licenses over time. Are they decreasing, flat or increasing?”

    Good question. But more importantly it highlights the real monopoly in this situation, being there is only one issuer of spectrum licences. How does the government set spectrum license prices? I guess if they’re too expensive the commercial stations would just stop using them. In that case I’d pick internet radio to take up the slack (even so far as broadcasting to your car media device over 3G).

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  17. BlairM (2,339 comments) says:

    Essentially this is just a tax on media outlets. It’s bollocks.

    Sell the licence to the highest bidder and be done with it.

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  18. Grant Michael McKenna (1,159 comments) says:

    Why bother us with facts? Emotion! Emotion! That is what politics about! If we begin to rely on reason then where will we land up?

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  19. PaulL (5,981 comments) says:

    If I said to you the govt was going to loan money to an organisation at 11.2%, and that was a great deal because the govt only pays 6% interest, so they’re making 5.2% profit, would you laugh at me? And point out that perhaps there is risk involved somewhere?

    If it were true that there is no risk, then Mediaworks would have been able to borrow the money, at substantially lower interest rates, on the open market. They would have just secured the loan against the licenses.

    Consider a different deal. Mediaworks pay the govt the full $43.3 million, borrow the money from a bank, commit to pay the bank 5 annual payments with 11.2%. What risks do the bank have? Would a bank consider this a great deal? If they wouldn’t, why would the government?

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  20. bij (66 comments) says:

    the only reason its a beatup is because it is old news – the media should have cottoned on in 2009.

    licences are sold to the highest bidder, by auction. because stations build fixed, high cost infrastructure, they have a right of first refusal so that they keep investing in towers over the 20yr life of the licence without the assets getting stranded. these were sold back in the 80s and Mediaworks had amassed so many together that they now own half of them. i guess they didn’t want to give the licences up at renewal time because their business depended on them, but were too highly leveraged by their overseas owners.

    spin that dpf – hire purchase is still a loan.

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  21. RightNow (6,994 comments) says:

    Vendor offers terms, buyer accepts terms. What more is there to say?

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  22. Rex Widerstrom (5,354 comments) says:

    slightlyright is absolutely on the money when he says:

    Mediaworks have a reputation as being some of the biggest shysters in the industry. They went around in boom times and brought up all and any competition, then when it got tough they couldn’t afford the licenses not withstanding being a license they had notice from the time they acquired it, that it was a significant contingent liability they should have planned for.

    They have acted anti-competitively and they should be made to shed the licences they can’t afford to pay for. That would perhaps open up a new market for alternative broadcasters who were outbid by Mediaworks in a deliberate move to keep them off the air so the public would have fewer options to listen to.

    And on the broader principle, he’s also right about the contingent liability planning. FFS if I can’t afford to relicence my car (which I’ve known was coming for a year) will the government allow me to amortise the cost, with or without interest? Will it hell – it’ll fine me and take my car if I use it.

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  23. Pete George (23,559 comments) says:

    FFS if I can’t afford to relicence my car (which I’ve known was coming for a year) will the government allow me to amortise the cost, with or without interest?

    You can choose to license it for 3, 6 or 12 months – you pay more per month for shorter periods. And if you really can’t afford to license it you won’t be able to afford to drive it.

    http://www.nzta.govt.nz/vehicle/registration-licensing/fees.html

    It’s common to have different payment terms, insurance is another example.

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  24. bij (66 comments) says:

    you guys are missing the point – it is not common. other spectrum users have to pay lump sums or it goes to someone else via auction. this is a special deal. why is it okay to play loan shark with other peoples’ (i.e. taxpayers’) money? esp when the real banks consider it too risky an investment?

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  25. kaya (1,360 comments) says:

    Might be a beat up but it’s still a loan. “Deferred payment” my arse!

    Anyway, the owners of MediaWorks are Ironbridge(Australian Equity Co),Goldman Sachs,Royal Bank of Scotland and BNZ. Damn, the GFC is worse than we thought if that bunch can’t afford to pay their bills on time! Another straw, perception Mr Key, perception…….lol

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