Television New Zealand's 89% fall in profit shouldn't ring alarm bells about major cost-cutting as it reflects restructuring work already done in the past year, chief executive Kevin Kenrick says.
The state broadcaster's net profit fell to just $1.4 million in the year to June from $12.7 million in 2016.
TVNZ reported earnings before interest, tax, depreciation, amortisation, and fair value adjustments of $17.4 million, down $19.5 million on the previous year, which it said was mostly due to an "onerous contract provision and marginal year-on-year declines in advertising revenue''.
Its revenue declined 2.5% to $316.5 million. While 2017 started with a faster fall in TV advertising, TVNZ said it ended with year-on-year growth in TV revenue.
Mr Kenrick said the business was now in good shape to put the foot down in three key areas including investing more in local content.
Overall advertising revenue, however, was down from $303.9 million to $299.2 million.
"There was a distinct difference in momentum between the first half and the second half, Mr Kendrick said. "It recovered really strongly to the extent that we were seeing year-on-year growth in the last quarter."
The broadcaster said that its content agreement with Disney had become loss-making and it has booked a $12.4 million provision in FY2017 to recognise the forecast future losses of this contract.
The Disney contract dated back at least five years and its failure was a reflection of the changing nature of viewership, Mr Kenrick said.
It was not necessarily a reflection on Disney content, he said.
A number of television companies had been faced with similar issues around long-term contracts. Some had opted to pay large exit fees while others had stuck with them but were adjusting balance sheets and writing them down to reflect the likely losses.
Contracts that had previously been negotiated with prices based on exclusivity could now no longer guarantee that exclusivity "because since those deals were struck you've seen the emergence of subscription on demand and a growth in piracy," Mr Kendrick said.
"So it's two-fold, there's the accounting obligation but it also clears the decks and gives you the confidence to invest in the future. So what we've done in the past 12 months is re-baseline the operating costs of the business to set us up for the next few years.''
Other contracts, like a deal with Coronation Street's producer, the UK's ITV, had been renewed, he said.
Mr Kenrick said he now had confidence around the medium-term cost outlook for the business.
"That's given us an environment where we're confident about placing some [bets] around growing."
That growth would be in three key areas, he said.
Firstly, it would mean "tilting the content spend more and more towards local, from both a news and entertainment point of view because that's our sustainable point of difference''.
"Secondly, we are going to invest to accelerate on-demand growth both in terms of content, user experience and the numbers of access points and devices that we're available on.''
The third thing would be the continuation of the "new blood initiative'' which was aimed at attracting younger audiences that viewed TV in non-traditional ways.
"So those are the big [bets] that we're placing. So having cleared things from the year before the focus is moving from cost containment to: what are we going to do to grow the business''.
Mr Kenrick said TVNZ's state-owned structure did not reduce the pressure to make a profit.
"We're crown-owned but we're not crown-funded and the crown doesn't really have much of an appetite to put more money into the business, so we need to create enough head room to fund our own growth.''
