Upheaval in media landscape

It's been a curious week in the media.

Monday morning dawned with the news that TV3 and Radio Live owner MediaWorks could bear the weight of its $700m debt no longer and had toppled into receivership.

By Tuesday, we had practically every female journalist in the country out to lynch New Zealand Herald columnist Deborah Hill Cone for her assertion that those of us over 30 may as well hang up our notebooks, because our thickening waistlines make it impossible for us to honeytrap our way to getting stories any more.

On Wednesday, digitisation opened up a new world for Kiwi soccer fans, with a consortium backed by mega-rich property developer Peter Cooper outbidding Sky TV for the rights to English Premier League football and offering pay-per-view coverage on the internet and mobile platforms.

The deal signals the rise of internet television and the beginning of the end of Sky TV's near-monopoly over sporting rights.

It also rather undermines Labour Party broadcasting spokesperson Clare Curran's claim that had the current government imposed more controls on the media, Sky could not have cornered the market at the expense of free-to-air television and MediaWorks would not have failed.

Politicians are not known for their commercial nous, but this pronouncement is up there with the more obtuse.

MediaWorks isn't government-owned like TVNZ, nor is it respectably publicly listed like Sky TV.

It is owned by private equity, an unsentimental branch of the venture capital industry with little interest in building businesses or long-term ownership, and every intention of wringing as much profit as possible from its investment targets.

Private equity investors typcially leverage an organisation to within an inch of its life - literally, in MediaWorks' case.

It's a well trodden path. Remember REDgroup, owners of bookstore chains Whitcoulls and Borders? After being bought by Australian private equity firm Pacific Equity Partners in 2004, REDgroup went into voluntary administration in 2011 with many saying it was a familiar tale of mismanagement, relentless cost-cutting, and bleeding cash out of the business in management fees and debt servicing.

Whitcoulls was rescued by the wealthy retail-owning Norman family which also turned around department store Farmers. David Norman once commented that they do not take profits out of their companies.

"We just let them grow," he said.

The two management styles could not be more different.

Since Australian private equity firm Ironbridge bought MediaWorks in 2007 for $561 million, the broadcaster has struggled with debt and ongoing financial restructuring.

Finally, this week senior lenders owed $400m of the group's total $700m debt had had enough, placing the company in receivership and announcing plans to form a new company and take over the group's assets.

It's unusual for lenders to end up being owners, but in this case it means the receivership is actually good news for MediaWorks' staff, advertisers, viewers and listeners.

It is also a deft solution to another problem MediaWorks faced. It's one of a string of trans-Tasman corporates in the gun over the use of a controversial financial tool the Inland Revenue Department alleges was designed to avoid tax. One test case has already gone the IRD's way, and MediaWorks was up for a tax bill of $22m should it lose when its time came.

The receivers have said the disputed tax debt is "very unlikely" to be carried across to the new company, meaning the taxman can whistle for it.

I may be over 30 and no longer entitled to flirt on Twitter, but from what I know of business MediaWorks' woes have far more to do with ruthless private equity ownership running headlong into a financial crisis and a changing media structure than any perceived lack of regulation.

If Government has cause for concern here it is over the $22m in tax it will now almost certainly miss out on, nothing more.

* Maria Slade is morning editor at the Fairfax Business Bureau. maria.slade@fairfaxmedia.co.nz