By Keith Newman

For television to survive in the 21^st century the passive one-eyed monster in the lounge must be awakened to its full interactive potential involving the viewer way beyond channel flicking and teletext.

New Zealand Television in is in crisis. Major investment and visionary leadership are required before next generation multimedia, drill-down, click and buy programming can be delivered to our lounges. Pretty pictures, more channels and one of the highest advertising to programming ratios in the world aren’t enough to pay the bills.

Broadcasters need to embrace digital technology, partnering with internet providers and content developers to enter the new interactive dimension of on-demand information and services.

Sky Television is currently our only digital pay-TV provider with 35 channels and 260,000 digital subscribers. Later this year it’ll offer an interactive programming guide, on-line games and email to boost its sagging revenues. Sky lost $24.3 million for the year ended December 2000.

TVNZ is also feeling financial pain and facing an identity crisis. Is it a public broadcaster with a social responsibility to provide cultural content or does it have a commercial imperative to earn money for the government? Can it do both?

Until recent TVNZ was a cash cow pouring millions into government coffers but the flow has begun to slow. It rejected an offer from Sky to carry TV1 and TV2 in digital until 2010, opting instead to compete. It blew $14 million before National pulled the plug. Then Labour began tinkering to make it much more of a public servant.

No-one’s clear what its new role is. The cost of sourcing international programming is skyrocketing, advertising has dipped and the accountants are looking to slash $20 million from the budget.

In January 2000, TelstraSaturn promised to reach 65 per cent of homes and 80 per cent of businesses with pay-TV, fast internet and phone services. It has 65,000 internet subscribers and 26,000 analogue pay-TV subscribers but Wellington and Christchurch are the only benefits of that $1.2 billion plan so far. A joint venture using TVNZ’s satellite capacity was expected to streamline a digital TV roll out but that went down the toilet earlier this month.

TelstraSaturn says it is now more sharply focussing on being a business focussed telecommunications carrier, although it’ll still work with TVNZ on its move to digital.

TVNZ’s worsening identity crisis may have helped kill the deal. The decision of TV3 and TV4 owner CanWest to reject an alliance with TVNZ cannot have helped either. CanWest obviously needs a partner that’ll help add value and cut costs – the two channels notched up a joint operating loss of more than $9 million for the nine months to May - it’s now negotiating direct with TelstraSaturn.

Meanwhile TelstaSaturn is panting at the chance to get into bed with Sky and gain access to an instant nationwide digital network. Existing sporting deals and arrangements with international content providers would be pooled and Sky would gain a powerful telecommunications partner. TelstraSaturn’s nationwide high-speed fibre network could be a significant rival for Telecom within a few years.

Telecom’s increasing aggression has also been a major factor in TelstraSaturn’s tighter focus. If a Sky deal goes through though they’ll be strange bed partners. Telecom has increased its shareholding in Sky to 12 per cent, and is bundling fast internet and phone services for some subscribers.

Meanwhile there’s speculation TelstraSaturn can’t keep the pace and may have to withdraw or cut back. Local break-even is at least three years away - last year TelstraSaturn lost $117 million on revenues of $127 million - and parent companies Telstra Australia and Austar are struggling in their own markets.

The race to the future requires a digital distribution channel to the mass market and from then on it’s all about adding value, bundling telecommunications, information services and click and buy t-commerce. The hope is Sky will agree to an open access set-top box standard so all players can offer their services to all subscribers from a single device.

TVNZ will certainly have to re-invent itself and offer a lot more value for viewers as it pursues digital. Why would anyone pay to see what they already get for free? Its deal with TelstraSaturn was always non-exclusive. The wildcard is its national distribution arm Broadcast Communications (BCL), experienced in both digital broadcasting and fast internet access. TVNZ can still develop and commission quality local content, including programming that champions local culture and heritage, although that will be increasingly difficult unless it cranks up its earning ability.

TelstraSaturn has a considerable way to go before it is a serious rival for incumbent digital provider Sky, together they would be formidable, and with TVNZ on board unstoppable.

While the players determine who’s bundling what with who and when, most of us will have to make do with the status quo - a dial-up internet connection on the PC, two voice carriers, five free TV channels and a standard programmable set-top box called the VCR.