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CanWest MediaWorks NZ: Brent Impey

Friday 25th November 2005

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CanWest MediaWorks NZ, which owns TV3 and C4 and a number of radio brands including Radio Pacific, More FM, The Edge, Solid Gold and Radio Live, reported a $13.1 million net profit for the year ended August, well up on the $6.9 million prospectus for its float in mid 2004. In accordance with its policy of paying out 75% of free cash flow in dividends, the company paid 6.3 cents a share in dividends for the year. Highlights of the year included the successful launch of Campbell Live on TV3 and significant market share gains by both Campbell Live and its 6pm news hour. The company's radio operations also went through significant change including rebranding 16 local radio stations under the More FM brand and launching both the Radio Live and Kiwi stations. MediaWorks shares have fallen from their peak at $2.44 in January but have recovered from their $1.60 low in May to $1.83, well above the $1.53 float price.

Sharechat: How much of the company's current strong performance, particularly from TV3, is cyclical?

CanWest MediaWorks NZ chief executive Brent Impey: Yes, some of it's cyclical. Certainly in terms of the advertising market which has been at record highs for the past two years. Yes, that growth is coming off the top,but it's still running at a good 4%.

SC: What's the historical long-term average growth?

BI: The compound annual growth rate over the 17 years between 1986 and 2003 was 7% or 7.1%. It's running at 5% to 5% so it's come off the top of the cycle but it's still positive. However, that's the total market. The second part of the question is really to do with the ratings and of course our ratings have improved significantly, particularly in the 6 to 7.30pm time slot. So we're gaining share at our opposition's expense so our growth is higher in ad rates and in revenue share

SC: To what extent will the increased advertising rates as a result of TV3's increased market share offset any softening in advertising demand?

BI: It will (completely offset any softening). The growth in share - you saw it in the TVNZ annual report: they went up only $9 million from $335 million to $344 million (in advertising revenue). Compare that with our growth of $21 million in the last financial year. That trend has continued with our ratings, particularly in the early part of the evening.

SC:Did Campbell Live break even in the year ended August?

BI: Yes. Cambell Live has averaged a 19% share in the 18 to 49 market and in the metro markets, which is the five metro markets, it's averaged a 25% share and it has performed above our break-even expectations.

SC: Is MediaWorks likely to object to Sky buying Prime?

BI: I don't know yet. The announcement only came out on Friday night and I've been overseas. I haven't applied my mind to it as yet. I see TVNZ has come out with a statement. We're considering our position.

SC: What grounds could you have for objecting since Sky only has 20% of the total television market and Prime has 3%?

BI: That's if you do (look at the whole television market). Is the market television or is there a separate pay TV market where they are a monopoly player? I haven't really thought about it.

SC: If Sky is successful in buying Prime, what is the outlook for programming costs?

BI: We have fairly long-term deals with offshore distributors, Alliance Atlantis, Universal, Paramount and Fox. Our programming contracts are set for a number of years. I don't see any initial issues as far as we're concerned. We have that issue with TVNZ. The reason why we've had those long-term contract deals and managed them well in advance is because of TVNZ's position. There are no studio deals out there. I'm sure they will attack in that area but most of them are tied up by TVNZ and TV3. Yes, Sky will be a competitor but are they going to be even more of a competitor than TVNZ has been in this area? I suspect not. That's an issued that's faced TV3 for many years.

SC: Are you likely to exercise your first right of refusal for Sky's delayed rugby coverage or are other non-sports programming options likely to draw bigger audiences?

BI: Correct. Because of Sky's increasing penetration, the delayed rugby is no longer such a priority for us. We would be better off running other programming. Are we going to exercise our rights? It's not a priority.

SC: Why don't the free-to-air channels compete more vigorously for sporting rights?

BI: As it is internationally, the advertising model doesn't support what the subscription model does as far as revenue for sporting rights. When the Rugby Union sold the rights for Super 14 and the NPC for in excess of $30 million to $35 million a year, there's no way that the advertising model could support anything like that.

SC: How can you develop C4 further? Can you get it much past breakeven? If not, why continue with it?

BI: Yes, it is better than breakeven. It had a profit in excess of $1 million in this financial year. Yes, it will be advanced further. We're sticking with the plan when it was launched. We're gradually introducing more half-hourly programming as opposed to running music videos.

SC: Is TVWorks ignoring the baby boomer segment of the market?

BI: Our biggest growth at the moment is in the 30 to 54 age group, particularly out of news. The TV3 growth in news, a lot of it is in the 30 plus market. The baby boomer market - well TV1 is the established market player. It's about picking the gaps. We certainly go for the baby boomers with Solid Gold.

SC: Why is TVWorks increasing its spending on local programming?

BI: Two reasons. One is that we decided that we would attack TVNZ where they thought they were strong in the local programming and news, as it happens. With the increasing fragmentation of the market, whether it's on Sky channels or all the various forms coming, how are we going to win? We're not going to win with overseas content, we're going to win with local programs. That's the clear statement of how we go forward as TV3. That's what's going to win in years to come when we have perhaps 100s of channels. It's a deliberate strategic decision.

SC: Will it be able to get NZ on Air subsidies for any or all of this programming?

BI: Yes, NZ on Air are the support for the independent producers. We don't produce any drama, children's or documenaries. They're all provided by independent producers who access NZ on Air for funding. That continues.

SC: What's TV3 appears to have much less British programming compared with its competitors. Is there a strategic reason for this?

BI: British programming doesn't generally fit with the TV3 brand. It tends to appeal to the older TV1 audience rather than the TV3 audience. We've tried things in the past like A Night of British. It's never worked for us. We do show various British movies like Bridget Jones Diary, for example.

SC: How is the Kiwi radio brand performing relative to the other radio brands?

BI: It's at break even. When it was set up back in February, when we announced it's launch, I said it wasn't just a radio station but that we're positioning it for further options such as internet etc. It's already streamed internationally. I think it's future isn't just as a radio station. It's not a genre of music. It's not like easy listening or rock. It's been positioned not as a radio station. We have launched it as such. Whether it's a radio station long term remains to be seen.

SC: How about Radio Live?

BI: Its first survey showed a 116,000 nation wide audience. That compares with 430,000 for ZB and over 300,000 for National Radio. They've been in the market 75 years each at least, National Radio more. Radio Live is six months. We're very pleased with the start of Radio Live. It has been profitable from month one.

SC: Is the repositioning of the RadioWorks stations complete?

BI: In our game, nothing's ever complete. The answer is yes, I wouldn't say complete, but the rebranding of all the local stations to More and The Breeze etc and positioning, yes, it's complete from that perspective. It's a dynamic thing. We keep enhancing.

SC: But the major spend is over for now?

BI: Yes, it is.

SC: Is there any scope to buy more radio stations?

BI: It's pretty limited, very limited. TRN and RadioWorks have between a 45% and 46% share of the market each. Any acquisition opportunities in New Zealand are very small.

SC: What are the prospects for increasing the dividend payout?

BI: Our policy, which was set a year ago, was to pay 75% of free cash flow. That remains the situation. We do face expenses coming up, but we're comfortable with that within the dividend policy. For example, there will be costs going out a few years in terms of digital television and various platforms for the future. We haven't made any decision about premises - in Auckland, we operate out of four separate premises. And we face the 2011 payment of approximately $40 million for our radio licences through to 2031. All those things are factored into our cashflows. We're comfortable with where we are in terms of our current dividend policy.

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