Jarvis

"In November 1987, Jarvis and Heatley were pleasantly surprised to discover that while the Sky name was being used for pay TV overseas, no one had trademarked the name in New Zealand so they registered their new company as Sky Media. In February 1989, it was changed to Sky Network Television Ltd. Jarvis and Heatley were the original investors with Heatley, who had more financial resources, gradually increasing his share as the costs mounted. Green, who had a mortgage and young family, was not a shareholding investor but nonetheless committed by ‘taking a leap in the dark’ and leaving his secure job in a small manufacturing company to join Heatley and Jarvis. He had the technical understanding they needed and says he was promised they would see him right in the future. He feels disappointed, though not bitter, that in his view those promises were never made good."

"The regulation that first confronted Heatley, Jarvis and Green was daunting. Just to try to replicate the Australian situation of showing live racing in pubs meant first penetrating a dense thicket of bureaucracy and government-mandated monopoly. Technically, putting a satellite dish in a pub car park was not difficult. Nor was leasing transponder space—there was a satellite with a transponder capable of rebroadcasting from Australia to New Zealand, which potentially allowed Australian horse racing to be shown live across the Tasman. Jarvis had already talked with Kerry Packer’s Channel Nine about getting access to its racing channel’s content. But even if you owned your own pub—owned the land, owned the buildings—and bought your own satellite dish, paid yourself to have it installed and paid for the satellite space to receive the signal and the coverage, you would still need a licence from Telecom to set up the dishes and allow the telecommunications to go ahead."

"But Heatley needed something new. Brierley’s had offered him the role of heading their North American operations but working in a market in which he had no contacts held no appeal for him. While they never said it, he had the sense that Brierley’s had been disappointed by his decision not to go. Maybe it would have suited them to have him out of the way, he thought. Nothing else that interested him seemed on offer. Telecommunications and broadcasting were fields about which he knew nothing but gradually, and with full disclosure to Brierley’s, he started working on the project with Jarvis and Green. By late 1988, after about a year on the BIL board, the new project was requiring all his attention and he resigned from Brierley’s. He sold all his shares in the company, making a loss on much of the stock because he had bought at $3 after the crash, thinking it was a good buy, and was selling at $2–$2.40. But as the price gradually sank to 50–60c, he was simply relieved to have got out when he did. Now he was free, cashed up and keen for a new venture."

"Initially, the trio began investigating replicating the live horse racing that Jarvis had seen in Australia but the more they examined what was happening overseas the more they began to focus on pay TV and, at the same time, the new industry of mobile telephony. Heatley and Jarvis went to Hong Kong to talk to Hutchison Telecommunications, owned by Hong Kong’s wealthiest man, Li Ka-shing. Jarvis and Heatley were interested in how they might get into the mobile-phone industry in New Zealand but it was heavily regulated and, once again, controlled by Telecom. Hutchison was interested in pay TV, so the discussions were useful."

"Heatley and Jarvis were introduced to Sam Chisholm, the Kiwi then-chief executive of Kerry Packer’s Channel Nine. Sky paid around $350,000 to Chisholm and some of his people to act as consultants—effectively to broker the introductions Sky needed to set up meetings. It felt like a lot of money to pay for not much but it was the price of opening doors."

"In 1988, Heatley says he suggested to Jarvis that rather than trying to get into the mobile-phone market by competing with Telecom, perhaps they should try to buy Telecom’s own mobile phone business. The industry was in its infancy and while Heatley was captivated by its possibilities, he did not get the sense that Telecom had the same enthusiasm for it. It was also going to require massive capital expenditure and to do that, an investor needed a lot of faith in the future of the industry. Heatley, a voracious follower of the media, had that faith and his instinct was that Telecom did not, or at least not to the same extent. He and Jarvis went to see Telecom to ask if the company would be interested in selling. Heatley anticipated a rebuff but, to his surprise, the company seemed to view mobile telephony as an irritant that distracted from its lines business. Slowly, he and Jarvis negotiated the outline of a deal to buy Telecom’s frequencies and mobile-phone business. Heatley could scarcely believe it. They had started out thinking about televised racing, then pay TV and here they were planning to get into the mobile-phone business as well."

"Heatley and Jarvis developed a matrix of who, around the world, owned the rights to all the products that they thought would work on the three channels they were proposing. But it was no longer a matter of Heatley simply picking up a phone and calling. This was different. Heatley and Jarvis learned that, far from their first impressions, the ‘worldwide’ media industry probably boiled down to about 20 influential people controlling most of what a company like theirs wanted. It was a global family, and one in which Heatley and Jarvis knew no one and no one knew them. They had to establish their bona fides and convince people they did not know to have faith in the future of a TV company that was not yet on air in a remote market about which many people overseas knew nothing. Beyond the existence of Television New Zealand there was, at that point, not much else to know."

"The pay TV model was beginning to spread elsewhere in the world so there was no reason to assume that it would not work in New Zealand, although the tough topography and areas of sparse population were difficulties Sky would have to overcome somehow. But the upsides, Heatley thought, outweighed the down. There was no obvious rival for the frequencies Sky wanted. He considered that New Zealanders had been poorly served by state-owned television so would embrace a competitor. He and Jarvis looked at what was on offer by pay TV companies around the world and thought that three new channels dedicated to sport, news and movies seemed likely to be popular. The channels would be close to commercial-free and Kiwi viewers would, for the first time, get 24-hour live news, and access to movies years before they would see them, if ever, on free-to-air TV. Sport would be the real drawcard. New Zealanders could not then watch live golf, soccer, cricket, rugby league or motor racing and only a small amount of rugby and tennis. Sky would change that. Heatley was excited, and confident that New Zealand viewers would be too."

"Establishing themselves was not easy or cheap. Jarvis and Heatley, sometimes together, sometimes separately, spent months on planes—flying economy class to Britain or the US, getting off the plane, attending a meeting and sometimes heading back home the same night. For more than a year the fledgling Sky negotiated with CNN and the main stumbling block was not money, although that was challenging enough, but persuading CNN that Sky would one day exist as a credible and responsible network and a worthy host of CNN coverage. Heatley is persuasive and a natural salesman, but media companies take seriously their reputations and no matter how much cash went with the deal, the New Zealanders were asking the mostly American companies they were meeting to take a leap of faith. CNN was ambitious for worldwide coverage but was hedging its bets by also talking to TVNZ. The state broadcaster wanted a news feed from CNN that would allow TVNZ to put CNN segments in its own news bulletins or to cross live to CNN reporters when required. But Sky wanted CNN exclusively, and for a good chunk of 24 hours a day. Sky was offering a few hundred thousand dollars a year but so was TVNZ, and it was asking for a lot less."

"As the impressive and expensive package of rights came together, the crucial missing element was rugby union. At the time Sky was being established, rugby was still an amateur sport, though players were increasingly dissatisfied with their conditions and arrangements. But although the agitation for reform was real, it was not yet coordinated or well directed. Heatley was aware that when the time came, Sky would have to beat TVNZ or TV3 to rugby rights. More than that, it might be that Sky itself needed to be the catalyst to start a professional competition to which it alone would have the rights. But for now, Heatley and Jarvis had a lot more to juggle, decide, sort and, worryingly, pay for."

"Heatley read about Mounter’s appointment and did what he does—he reached for the phone. TVNZ might have been staid in many ways but it had access to taxpayers’ funds, longstanding viewer loyalty, a significant incumbency status and its government ownership could, Heatley thought, potentially work for or against Sky. He was worried that with a new, savvy chief executive on board, TVNZ could use its strengths to quash his and Jarvis’s start-up. In particular, the two companies were likely to be competitors for the rights to show popular products, especially live events."

"It was not the only critical problem. The first crude business plan that Jarvis and Heatley had drawn up estimated that Sky would need $5 million in capital before it became profitable. That figure proved to be hopelessly optimistic and catastrophically wrong. By midway through 1989, when Sky had originally hoped to launch, more than $20 million had been spent or committed on rights, engineering and set-up costs and wages, and still the UHF frequencies would need to be paid for. The money was coming from Jarvis and Heatley’s personal financial resources. The urgency to begin earning subscriber income was pressing. But even if the frequencies became available and Sky’s new channels were launched, not everyone shared Heatley’s confidence that New Zealanders would be rushing to sign up. Many people, including Heatley’s own mother, were openly doubtful that the concept would work. The idea of paying for television—other than the annual licence fee which many New Zealanders already resented—was novel and not immediately appealing."

"ESPN, which produced thousands of hours of televised sport, was a key to making Sky’s sports channel work. Although ESPN’s sport was not the most compelling for a New Zealand audience—being mostly US-centric baseball, motor racing and gridiron—a dedicated sports channel soaks up a lot of material. ESPN was the biggest sports network in the United States and Sky needed ESPN’s volume. ESPN knew that too. It was in a position to drive a tough bargain, and it did. Negotiations went on for more than a year, concluding only when Sky agreed to a contract that gave ESPN a minimum of US$1.75 million per annum, paid quarterly in advance with an additional fee of 40c per subscriber per week once subscriptions reached more than 150,000. The contract was for seven years with an annual escalation clause. But the requirement that most staggered Heatley and Jarvis was that ESPN also demanded 5 per cent of their company and a seat on Sky’s board. ESPN was the single toughest company that Sky had to deal with."

"Around the time Heatley and Jarvis were approaching Gibbs and Farmer, Heatley’s broker friend David Grieve was talking to Todd Corporation CEO John Hunn about the possibility of investing in Sky. ‘I wasn’t a broker on the deal, I was just a friend helping,’ says Grieve. ‘I didn’t take it further but Craig did, and Todds ended up taking a stake. That’s where Craig was absolutely brilliant. He could go and see them and convince them to live part of the dream and I think it’s been a very rewarding investment for them.’ Todd Corp was a good choice for Sky. The company had been closely watching the deregulation occurring in many industries at the time. It had been instrumental in establishing new Telecom rival Clear Communications and had already taken an in-depth look at the possibility of partnering with an American company to bring cable TV to New Zealand. The cost of putting in cabling made the idea uneconomic. However, the company’s research meant that when Heatley made his approach, Todd Corp was already interested in the industry, had a good understanding of it and could see that Sky’s proposed terrestrial service was the right strategy. In September, four months after the network’s launch, Todd took a 15 per cent stake."

"With a staff of 200, all being paid out of shareholders’ funds and bank loans, Sky finally went to air on 18 May 1990. Initially, only Auckland could receive the new service though by August, Waikato and Tauranga households could get it too, and by the end of the year it was available in most of the North Island. For Heatley the launch meant relief rather than euphoria. He, Jarvis and Green had achieved a huge amount. They had done what they had set out to do. They had built a TV network from scratch offering international channels and up-to-date choices that New Zealanders had never before had, but pre-launch subscriber sales had not matched predictions and the drain on shareholder funds was unabated. By the time of the launch Heatley’s shareholding was about 40 per cent of the company and Jarvis’s was 14 per cent, reflecting how much of his own money Heatley had had to put in. TVNZ had about 25 per cent, Gibbs and Farmer’s investment company Tappenden had about 18 per cent and ESPN’s shareholding had been diluted to 1 per cent."

"But for a time, all the ingenuity made no difference to the company’s struggle. A year after its launch, Sky had just 18,000 subscribers when the company had expected more like 100,000. For a period in early 1991, Sky was losing $1 million a week. Smart recalls some months where he would sit down with others to decide whether they should use the available cash to pay wages or the previous month’s PAYE, because there was insufficient money to do both. Board meetings were spent discussing loans and how much the shareholders—Heatley, Jarvis, TVNZ, Tappenden and Todd—would put in on a pro-rata basis and whether more could be raised from the banks. Gibbs and Farmer were particularly irritated. More money was required every week."

"Once the basic goal was set, McCaw spent very little time with Fiber- Link. He held the title of chairman and chief executive, but never came to a board meeting. Instead, he made himself felt in casual ways, includ- ing unannounced visits to Jarvis's office. "What did you buy today?" he would ask. Jarvis knew what that meant. McCaw didn't want to hear about a deal already done or one about to be done. He wanted an ever faster pace. That was his way of saying "Go," Jarvis says."