But the agency said the pullback from reality talent shows was not due to the bullying by judges Willie Moon and Natalia Kills of contestant Joe Irvine, with the decision made months ago.
After it funded the current series, "New Zealand on Air decided that we had higher priorities for spending," said spokeswoman Allanah Kalafatelis.
New Zealand On Air paid MediaWorks $1.6 million for The X Factor series last year - where Moon and Kills were not judges - and $800,000 for the this year's series, where they were.
In 2012 New Zealand On Air paid $1.6 million and $800,000 for the second series in 2013.
Funding for the heavily sponsored reality show has attracted controversy in the past partly because of the high commercial value, overseas-based control and hefty fees charged by the franchise owner Simon Cowell.
Kalafatelis said the shows provided a big profile for New Zealand performers.
The format was popular overseas and received taxpayer funding because it was expensive to make and would not be made without taxpayer support.
New Zealand On Air television funding manager Glenn Usmar - a former TV programmer at TV One - said the funding agency had expressed its disappointment about the bullying incident on Sunday which led to a lot of negativity from the public.
He stood by the funding of the international format talent shows.
New Zealand On Air had been assured by producers that the comments by Moon and Kills had not been scripted for them.
TV3 management did not return calls today.
MediaWorks announced yesterday that it had sacked Moon and Kills as judges.
Commercial sponsors complained about the comments and it is understood that at least one of the sponsors threatened to withdraw sponsorship from the show unless strong action was taken
