Sky

"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."

"The golden age of radio had been the 1940s, when programmes like ITMA and Family Favourites attracted enormous audiences. But it was already becoming apparent that television was the medium of the future. In 1946 there were only fifteen thousand television licence-holders in Britain, most of them in London. A decade later there were five million, and 98 per cent of the population was in reach of a television signal.'° The BBC’s huge investment in television was reinforced by its coverage of major events, notably Queen Elizabeth II’s Coronation in June 1953. In much the same way as Rupert Murdoch would use sport to attract viewers to his Sky satellite channels forty years later, the BBC was using the big events of the 1950s to cultivate public interest in television. It succeeded to such an extent that demand for television receivers far exceeded supply."

"Over the years my risk appetite has grown a lot, but I’ll never be in his league. He’s a gambler at heart, always calculating just how far he can push to get the opportunities he hungers for. Sometimes he overreaches, and usually overpays, but he’s always been saved by his ability to pull out of his hat whatever profits are needed to pay off the debts. Over and over, he’s been the great media disrupter. He changed British television by launching Sky satellite service, committing billions of dollars he didn’t actually have for a market that didn’t exist. I’ll be forever grateful that he backed me with Fox Broadcasting against such huge odds."

"There were dilemmas everywhere the novice Sky team looked. What if the government changed its mind and the frequencies were never tendered? What if they were tendered but Sky lost the bid? Or won it but had nothing to broadcast? But if they signed up pay TV rights, then lost the bid, the money they had paid for content would be wasted. Would their chances of signing up rights, and winning frequencies, be enhanced if they had a demonstrable physical base? But what if they paid for a base, then did not win the frequencies or could not obtain the rights or both? However they looked at it, there was no way of escaping significant financial risk. On top of that, apart from Jarvis’s early discussions with Kerry Packer’s Channel Nine in Australia about televised horse racing, none of them knew how to go about signing international broadcasting rights for a TV company, let alone one that was not yet on air. The one outcome they did not consider was what might happen if they set up pay TV and not enough New Zealanders were willing to pay for it to make it viable. But as David Grieve observes, Heatley has an ability to look past problems. Grieve remembers that in the post-crash environment when people were being much more cautious in their spending, Heatley paid $2 million for a property at O’Neills Avenue in Takapuna. ‘He always seemed prepared to move forward, rather than move backwards.’"

"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."

"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."

"In its negotiations, Sky tried to persuade the studios to allow it to take movies directly after their cinematic release. Sometimes studios would agree because, Heatley says, they did not like TVNZ. The New Zealand broadcaster had a take it or leave it attitude when it came to negotiating and relied on studios preferring to get some kind of return from New Zealand rather than none at all, he contends. While there was no competition, that approach worked. It might have annoyed and frustrated studios, but it was advantageous for TVNZ and for taxpayers since it meant that movies could be purchased more cheaply. He says that often studios would tell Sky that it would get a deal at reduced cost ‘just to piss off TVNZ because it had a reputation for arrogance’."

"Try to avoid concentrated investments with your own money, it’s too dangerous. My investment philosophy for a long time had been to avoid putting my own money into a deal. It wasn’t an absolute rule, I’d put money into Sky in 1990, but it was my temperament. Unless you can structure a deal in such a way that you don’t have to put money in and no financial guarantees, it’s generally not very good. Having to convince and persuade other people to fund you 100 per cent provides a good discipline. You really have to work hard and have a sound proposition. Whereas, if you’re just wandering around like we were after 1997 with cash in our pockets, looking for somewhere to invest some of it, you’re likely to get into trouble. You don’t take as much care; you don’t do half as much homework and more often than not, you get burned."

"So Gibbs had left Telecom by May 1999. Ironically, soon afterwards Craig Heatley and the others on the Sky board went cold on their proposed acquisition of ihug, which had been the actual trigger for Gibbs’ departure from the Telecom board. Sky, meantime, had been an excellent investment for Gibbs and Farmer. The US grouping of Ameritech, Bell Atlantic, Time Warner and TCI, which Gibbs had helped to bring in as 50 per cent shareholders in 1991, had provided the company with the additional capital it needed to get established with two excellent executives in Nate Smith and John Fellet. But the American partnership was inherently unstable because of the rivalry between its constituent companies. In August 1997 Heatley engineered the sale of the Americans’ stake in Sky to Independent Newspapers Limited (INL), a New Zealand newspaper company that was controlled by Rupert Murdoch’s News Corporation.[15](private://read/01jrsfvkjy84rkprtbz9amfvj8/#rw-num-note-477355-616451090-15) Then a few months later, in November 1997, Sky had its initial public offering."

"Gibbs’ primary contribution came in mid-1991, a year after Sky was launched. As Coopers & Lybrand had predicted, the fledgling business was taking longer to get established than initially estimated; the New Zealand economy was in deep recession and subscribers were signing on in a trickle rather than the steady flow that Heatley had confidently anticipated. The business was losing $1 million a week, which gained everyone’s attention. Heatley hadn’t lost confidence but admitted that he’d underestimated the startup costs. He remembers Gibbs calling him up at home one evening and saying, ‘Craig, you promised me that if I put a little bit of money in Sky I’d have lots of fun; I’ve now got more than a little bit of money in it, and it’s no fun at all.’ Their solution was to bring in more investors to contribute around $100 million in fresh capital. They started talking to Gibbs’ partners at Telecom, Bell Atlantic and Ameritech, sowing the idea that this could be a useful experiment for them. In the United States telecommunications companies were barred from investing in cable television, so New Zealand would provide an opportunity for them to explore potentially interesting synergies between the two industries. Soon a consortium was drawn together comprising Bell Atlantic, Ameritech and two cable companies, Time Warner and TCI, and they began negotiating an appropriate price for 50 per cent of Sky."

"Despite his high-profile pro-am successes, among golfers it is Heatley’s membership of Augusta that creates his profile and, in particular, his role as chair of Augusta’s media committee. The timing of his invitation to join Augusta was good for him and, arguably, for the club too. He had by then stepped back from Sky and was ready to devote time and effort to a new project. Although his radar was perpetually pinging in the search for interesting investments, he had no desire to emulate the enormous commitment that Sky had demanded. Other than family commitments, he was free to immerse himself in Augusta. With his background on the other side of the TV rights which are so vital for Augusta’s revenue, and his passion for the club, he was an ideal candidate for a position on the club’s board and chairmanship of its media committee."

"There is a final factor in his thinking about investing which neither he nor anyone else can do much about. It is the significant part played by luck. Good luck has made some investors rich, and bad luck has broken others. Heatley says he is living proof of the maxim ‘It’s better to be lucky than smart.’ His own first lucky break, he reckons, was that spell of good weather in Easter 1980 when he and John Sheffield opened Lilliputt in Taupō. Heatley was lucky again that overseas investment in the media had just been permitted, enabling Alan Gibbs to approach the Americans to invest in Sky, in 1991. It was third time lucky when rugby union turned professional in 1995, when Sky was in a better position than its competitors to sign up the live broadcast rights."

"At the time he was on seven different boards and in one day he resigned from all of them, including Sky, and pledged that only in exceptional circumstances would he ever sit on another. It had been flattering to be invited on to boards but he had not always felt like he contributed and the commitment was time-consuming."

"There was no natural connection to the US for New Zealanders until Sky bridged the gap, Tataurangi thinks. His mother was a keen follower of sports and subscribed to Sky. ‘Sky opened my eyes to the PGA Tour,’ he says. He would watch professional golfers play in places like Cincinnati, then he would go and look up Cincinnati to find where it was and to learn more about the course. He says Sky lit the fire for him to go to America, which he did in 1994 when, aged 22, he was the youngest golfer on the tour. The most useful preparation he had, apart from practice, was having watched Sky. Consequently, when Heatley asked him if he would like to play the 2003 AT&T with him, Tataurangi had no hesitation in accepting. ‘Up to that point I was just aware of who Craig was and what he did and that he was a keen golfer, a friend of the game, knowledgeable and he always had a great yarn to tell, which as a young, impressionable person you always remember,’ Tataurangi says. A golf championship—with hours spent together each day through all the hopes and disappointments of a competition—is a fast way to learn someone’s character."

"Because he stepped down from board roles, and has had a lower public profile since leaving Sky, Heatley says people think he now plays golf every day, which is not true. But these days his investments are more private than public and, in particular, he has been significantly involved in trading foreign exchange. The field gives him the opportunity to use his keen and long-standing interest in politics and current affairs to anticipate currency movements. He trades almost exclusively in New Zealand dollars, Australian dollars, British pounds, American dollars and Euros, turning over billions of dollars ‘with a fair modicum of success’. He was, for some years, New Zealand’s biggest individual foreign-exchange trader outside institutions like banks or companies like Fonterra. He is much better at trading currencies than equities, he says. ‘If I’m honest, my public-equity investment performance over about 20 years has been average at best.’ But in the notoriously fickle world of foreign-exchange dealing, Heatley would give himself an A minus. He also dabbles in private equity, which he says is not for the faint-hearted. While many people consider currency trading to be highly speculative and akin to gambling, he does not, though he cautions it is not an investment for the inexperienced."

"On signing, Heatley decided to verbally ask for something additional—a favour rather than a condition and personal not business. If he signed the deal, might ESPN somehow arrange for him to play a round at Augusta National Golf Club? He says he was ‘kind of joking but kind of not joking’ when he asked. He thought that if anyone had the contacts to pull it off it would be ESPN, whose people he now knew well and liked. He was certainly not going to approach the club directly even though by then he had been to Augusta three times to watch the Masters—a small perk of Sky’s contract with the prestigious golf club. He did not have the right contacts and, anyway, by reputation Augusta was one of those clubs where if you asked to join you would never become a member. Perhaps, similarly, if you asked to play you would never get the chance. But asking ESPN was different. ESPN was hugely influential, he was a client and even if he was rebuffed it was worth trying because if he never tried, it would certainly never happen."

"While Heatley is ready to credit good luck as a significant factor in his success, he does not have the Midas touch. His biggest corporate success, Sky, became a household name but other investments have failed, some at considerable cost. In about 1999, Goldman Sachs suggested an investment that he says was touted to him as a great opportunity for a few affluent investors. Walker Wireless was a new company started by Rod Inglis that was aiming to provide a new broadband/wireless network in New Zealand. Heatley had always believed in the internet and in mobile technology, although he says his first instinct on Walker Wireless was ‘nah, no’. However, partially swayed by the other investors who were involved, he made an initial investment of $2–3 million. His mistake, he says, was that once he was close to the business and felt that it did not know what it was doing, he invested more. Start-ups, as he personally knew, often needed more capital than the founders had initially thought. But over about five years as the company lurched from crisis to crisis, always losing money, he invested $10 million, and lost it all. He considers it an expensive lesson in knowing when to cut your losses, although that point is often learned only with the benefit of hindsight overlaid with regret."

"For Hart, who was on Sky’s board for 17 years, the price was simultaneously too much yet also what had to be paid. ‘I can understand that Sky has always paid a lot more for rugby than it thought was real value but in the end, it was a business case that said we’ve got to prop the rest of Sky up around rugby. We can’t not have it. So, rugby is Sky and Sky is rugby. Sky would like to say otherwise, but the fact is that rugby is a big component of Sky and the changes occurring in technology and the emergence of all the alternative ways of watching sport on mobile devices mean that holding on to the rugby rights is still fundamental to Sky’s long-term survival, because rugby is so important in New Zealand.’"

"Chisholm’s role in the negotiations was to maximise the return for News Corp. Heatley’s was to maximise the exclusivity for Sky, while minimising—as far as reasonable—the financial outlay. Both men knew the picture. TVNZ also wanted the rights, but its board was likely wrestling with the constraints faced by the boards of all government-owned companies: trying to weigh the public tolerance for spending against people’s expectations of service and trying to second-guess what their minister-shareholders would want them to do. TV3 would also want the rights but was likely to be priced out of contention, especially since it had just beaten Sky to the Super League rights so, Heatley thought, had probably spent its budget. But he could take nothing for granted."

"Around the time that Sky floated, all the talk in the investment community was about the internet. Even though it was years before the advent of social media sites such as Facebook and Instagram, there were already fortunes being made by those who invested in the right companies. Trying to analyse or use instinct or simply guess which the ‘right’ ones were was the key to making money. Walker Wireless was part of the hype. To tap into these opportunities, Heatley, Todd, News Corp and Japan’s Softbank Corporation formed a company that they thought had bright prospects. They called it eVentures New Zealand and Heatley had a 20 per cent stake. Its role was not only to invest in e-commerce and internet-related companies but to create new ones. Its founders were hoping to experience the sort of success with start-up companies that the original shareholders in PayPal and Trade Me later enjoyed. They also wanted to introduce to New Zealand online products that were working overseas."

"‘If there is one part of my corporate history that I could change, it would be that decision I made not to tell Trevor and Alan that I was selling my Sky shares,’ he says. ‘It was spur of the moment, based on my friendship with Rupert Murdoch and I did not think it through enough. I wasn’t trying to be clever, I wasn’t trying to do a deal behind the bike sheds and I wasn’t trying to do something that was not in their interests. My total concern was security of information, but that implies that I did not trust them and that is not true. I totally trusted them. So I don’t quite know, looking back, why I did it. It is a big personal regret and it caused some strain in our relationship for a while, but I consider both of those guys to be my close friends. Sometimes things like that happen in life—you get caught up in the moment, you don’t think something through and later you think, I should not have done that.’ Gibbs and Farmer later sold their Sky shares to Telecom."

"Half an hour later the TVNZ team returned. Downey talked to them about contract law, about the nature of offer and acceptance. ‘This morning we made you an offer and you did not accept it so, to clear the air and make sure of exactly what we are saying now, that offer is gone because you did not accept it,’ he said. ‘We are starting again.’ In a brilliant deal for Sky, by the end of the negotiation TVNZ agreed to pay $5 million over three years—the same cost of Sky’s full package of rights from News Corp over the same period. ‘The beauty of the story for us,’ says Heatley, ‘is that for the first three years that Sky had wall-to-wall rugby, and while our subscriber numbers went through the roof, it cost us nothing. In exchange for a package of delayed rights and nothing live, we got TVNZ to pay us the same amount of money that we were paying Murdoch. I don’t want us to sound like smartarses, because I don’t mean it like that, but if TVNZ had been willing to pay that amount to News Corp, TVNZ could have won the exclusive rights for itself. But for various reasons the board of a government-owned company is a lot slower than the board of a private company. So instead of getting the rights itself, it had unknowingly just agreed to pay the full cost of us getting them.’ Ironically, just as Sky’s board had gone into the negotiation feeling under pressure from the government because Sky had the full package of rugby rights, TVNZ’s board had probably gone into the negotiation also feeling under pressure from the government because TVNZ did not have any rights. Board members may even have thought their jobs could have been on the line. After all, if the prime minister was angry that the live games were all going to be on Sky, how much angrier might he have been if TVNZ had emerged from the negotiations without even delayed coverage rights? For Sky, the deal was a triumph. ‘We felt very happy. It was fun,’ Downey says."

"In 1994, Hart was approached by Sky’s marketing manager, Peter Scutts, with the rudimentary outline of a semi-professional Australasian rugby competition that Sky was proposing. The idea seems to have been for an eight-team competition—six teams from New Zealand and two from Australia—with Sky paying the Australian Rugby Union and New Zealand Rugby Football Union for television rights. The unions would in turn pay the provincial unions, who would pay the players. ‘Sky led the way, in my view, in looking at what was a realistic approach to professionalism,’ Hart says. He was in a difficult position—sitting on the board of the Auckland Rugby Union, which was opposed to professionalism, but keenly following any developments so the union was forewarned if a professional breakthrough was imminent. He talked to the ARU chairman and they agreed Hart should stay close to Sky. ‘The Sky story, which really is a sports story, said that rugby was crucial to Sky’s future and they wanted to be part of the evolution of the game in a way that would help secure the game’s future,’ Hart says. In the end, Sky’s proposal was overtaken by events."

"Through the early nineties, Heatley closely observed the debate. Professional rugby would need money. Sky needed rugby coverage. The synergy was plain but the breakthrough was elusive. ‘We knew rugby was the Holy Grail,’ Heatley says. ‘If the rugby union would agree, we thought there was potential for us to cover some of the minor games that otherwise got no TV coverage. That would give us a foot in the door. It was a time when rugby was still a religion, yet almost no domestic rugby was shown live and, before Sky, even a test match might be on at 2 p.m. at Eden Park and the soonest TVNZ might have the game on would be 3.30 p.m. or 4.30 p.m.’ Rugby authorities were worried that if people knew that they could see a test match on TV, even delayed coverage might reduce the vital gate takings that were every rugby union’s main source of revenue. To Heatley’s mind the situation also illustrated how much TVNZ, with no competition, took its viewers for granted. Live coverage was, and still is, expensive to produce, so TVNZ had no incentive to spend a lot of money on live broadcasts when viewers had no chance of seeing the game on another channel. If viewers had to wait two hours until after a game had started, and then the coverage was interrupted by advertisements, TVNZ had nothing to lose because viewers had nowhere else to turn."

"On the eve of the 1995 World Cup final, the chairmen of the South Africa, Australia and New Zealand rugby unions called a press conference to announce the formation of SANZAR (South Africa, New Zealand, Australia Rugby) and to make the shock announcement that Rupert Murdoch’s media empire, News Corporation, would pay US$555 million over the following 10 years for exclusive rights to televise all international rugby tours to New Zealand, South Africa and Australia and a new competition between franchises that would be established in those countries. It was an astonishing sum of money for a code that had had no TV sponsorship until then. The figure stunned not only the rugby community but other sporting codes too. A final clincher in Murdoch’s enthusiasm seems to have been watching All Blacks star Jonah Lomu’s explosive game in the World Cup semi-final against England. Murdoch executive Sam Chisholm—who had helped open doors for Heatley and Jarvis when they were first signing up TV rights for Sky and who Murdoch had headhunted from Packer’s Channel Nine—says that in a call after that match Murdoch told him, ‘This is amazing. We’ve got to have that guy…’[5](private://read/01jectdbce729daxqkxt7cbe8r/#mn38)"

"Compelling sporting content, Heatley reckoned, would bring its own publicity. ‘Watch how much free publicity we get if we have exclusive All Blacks touring South Africa—and watch how many new subs we get,’ he urged. Sky should be budgeting in the expectation of buying exclusive rights to live coverage of the next rugby and cricket world cup competitions, along with rugby league and domestic rugby coverage. These events were critical. ‘We could have the best marketing in the world but if the product is not compelling we will not achieve the market penetrations that we can and thereby generate the profits that are there for Sky.’"

"It was at that point, Smith said, that it became clear to Sky that TVNZ ‘was going to continue to act in an uncompromising manner when it came to joint purchasing of compelling product’. That was when Sky decided to bid alone for the South African tour and sent a fax to TVNZ to say so. On learning of Sky’s determination to bid, Harman rang Fellet. Fellet afterwards made a file note of the call. In it, he recorded that Harman had said that TVNZ had been told its bid for the South African tour was not the highest, so TVNZ presumed that Sky’s was higher.[8](private://read/01jectdbce729daxqkxt7cbe8r/#mn31) ‘I told him that was probably a good assumption,’ Fellet wrote. ‘He said, “It is crazy that we should be bidding against each other for programming.” I told him I couldn’t agree with him more but Sky could not survive being a replay service of the highlights of TVNZ. He said, “We [TVNZ] put in a good bid and I can sleep at night knowing it was a fair bid. I hope you [Sky] are prepared to take the political implications that this move will generate. Your bid will cause Members of Parliament to discuss for the first time legislation to prevent siphoning of programming from broadcast [free-to-air] to pay TV…” I thanked him for his insight and told him that he and Nate both agreed on what type of programming was important for Sky, yet somehow it never seems to translate to any positive action by TVNZ.’"

"On 4 June, Heatley wrote to Smith again, this time about the ESPN contract, but the theme was the same and he directly spelled out his concerns and the need for urgent action: ‘I don’t want to harp on about programming issues but the main problem we face is that most sports contracts (rugby, cricket, league, netball etc.) are multi-year deals and even if we decide to get aggressive now, it would be years before we have any significant impact.’[6](private://read/01jectdbce729daxqkxt7cbe8r/#mn29) The company had to lay the foundation for these exclusive deals now rather than keeping the strategy in reserve for when sales stalled, he urged. If Sky was going to get 20,000 subscribers in the next few years, it needed exclusive coverage that people wanted to see, in particular, sport with local teams. But it would be complex and expensive to arrange, so the Americans had to be convinced that it was the right strategy and then commit the time and money to achieving it."

"It was a fair point. If TVNZ had bid US$350,000—and Sky knew that figure—and TV3 did not bid at all, then Sky was the only potential bidder left so had not needed to pay so much. However, doing so signalled that the market had changed and that Sky was prepared to pay a significant premium for exclusive rights. It wanted to dominate live sports coverage on New Zealand television. TVNZ was furious. ‘If the time for co-operation is at an end and Sky is to “go it alone” then, clearly, we must be formally instructed so that we can end the feather-bedding arrangements put in place to assist Sky,’ remonstrated Harman.[3](private://read/01jectdbce729daxqkxt7cbe8r/#mn26) It was not up to Sky’s executive to terminate agreements laid down in the original and subsequent shareholders’ agreements, he wrote. The board and shareholders needed to do that and Harman was requesting an urgent board meeting to be preceded by a shareholding meeting."

"The negotiations ground on for weeks, partly because while in principle the HK Partnership was buying half of Sky, in reality it was four different companies buying 12.75 per cent each. Given the size of the respective four companies, it was a small investment for each of them, but in the unusual circumstances it was hard to get everyone in agreement."

"Heatley knew that the other shareholders had not deliberately planned this outcome, but the company was in serious financial difficulty. As a businessman he could see it their way and he did not blame them. Nevertheless, it hurt. But he was not quite done—his money was dwindling but not yet exhausted. As Smart notes dryly, Heatley was parking his helicopter at Sky headquarters around this time, so he was not completely skint. Just as importantly, Heatley was not ready to give up and would not accept the dilution of his shareholding in the company in which he had invested so much. The board agreed to instead look for new investors who could provide new capital."

"Gradually a figure of NZ$108 million, with a raft of conditions, was reached. They shook hands on it. It was a phenomenal deal for Sky. To have even had the four companies sit around the same table, let alone agree on a figure that was well above the New Zealanders’ expectations, was far more than Heatley had dared hope for. Gibbs’s bullishness, Heatley’s salesmanship and Craddock’s legal skills had combined to pull off a coup. Now, everyone’s shares would become more valuable and, while most of the HKP price would be distributed among the existing shareholders, there would be $25 million in new capital for Sky, which would help strengthen the company’s balance sheet. Anxious to get the deal done and desperate to stop Sky’s bleeding, Heatley would have conceded a lower sale price but Gibbs had been resolute. ‘They’ll pay it,’ he promised."

"On Sky’s side, Heatley led the negotiations with lawyer Roger Craddock, and on the HKP side there seemed to be a small army. When things were tough, Heatley and Craddock would call in Gibbs to play the bad cop to Heatley’s good cop. ‘The two telecom companies plus the two TV companies would come to Hawaii with 12 people each, which is ridiculous,’ Gibbs recalls. ‘They would come with 50 people.’"

"Heatley recollects that TVNZ and Todd Corp said they would put more money in, but in exchange they would require a share dilution of 1:3. In other words, for every share TVNZ and Todd had, they now wanted three. These terms reflected the company’s poor performance against the business plan that Heatley had promoted and, related to that, the company’s risk of failure now being greater than the investors had believed it to be when they signed up. Heatley was aghast at the dilution prospect. He had thought that he and the shareholders were close, but this was the difference between business and friendship. ‘I thought, Oh shit, would they really do that?’ There was no way he would agree to the proposal, but he understood why they were suggesting it. Before TVNZ had become a shareholder, Mounter had warned Heatley that Sky had underestimated the running costs and underestimated how much capital the business would need. Mounter had been right, Heatley had been wrong and the business was now at crisis point."

"Gibbs and Heatley brought together representatives of the two biggest American media companies of the time, Time Warner of New York and Tele-Communications (TCI) of Denver, with two of the US’s biggest telecoms companies, Bell Atlantic and Ameritech, and began negotiating with them to buy into Sky. Initially, Gibbs and Heatley suggested they acquire 40 per cent of Sky, but the Americans were adamant it would be 51 per cent or nothing."

"Once, when Sky needed to build its installation capacity but had no money to pay for vans to access the sites, Heatley did a contra deal with Toyota New Zealand CEO Bob Field where Toyota gave Sky 25 vans in exchange for advertising airtime. ‘Soon after, when I was looking around to see where we could get money because we were running out again, I went to Hertz New Zealand and asked if they would like to buy all our vans for $500,000, and we would lease them back for five years,’ Smart says. They agreed and Sky got the cash it needed to keep running for another few weeks. Smart recalls that when Field found out that Sky had sold the vans he was furious, but he had no comeback because Toyota had taken no security over them. ‘I probably got a few pats on the back at Sky that day, but I could not have done what I did if Craig had not first done the deal with Toyota.’"

"From its first day on air in mid-1990 and into 1991, the company struggled. At one point, Sky ran a door-to-door campaign where a Sky representative would offer a decoder for free, which they would personally hook up then and there, plus a free subscription for three months. If at the end of that time the household liked the service, they could keep the decoder and pay weekly thereafter. The strategy, like many of Sky’s other marketing ploys, temporarily boosted subscribers but there were also a large number of households who rejected the offer outright or returned the box after the three months. The rate of subscribers dropping out was high and trying to combat churn was a constant headache."

"‘Craig sees things over the horizon that other people do not see,’ Bryden says. ‘He also has a powerful personality and is an outstanding salesman, which is reflected in the fact that he managed to achieve the Sky start-up. He had all the building blocks in place, but it was operationally that it was hard.’ Todd Corp was still confident their investment would pay off if the risks could be managed properly. Nevertheless, as the months of struggle went on, Bryden faced difficult questions from his own board about Sky’s performance. ‘There were quite a few conversations that went, “When are you going to make things come right, because you’re not performing to the business plan.” But the reality is that start-up businesses are tough, and because of the lack of operating experience it was all learning from doing and trying to follow what other people had done overseas.’"

"Smart’s quick synopsis is that the company started with Jarvis and Heatley as shareholders, spent all their money, brought in TVNZ and spent its money, brought in Gibbs and Farmer and spent their money, then did the same with Todd Corp. The cash burn rate was high. Smart’s forecasts were tracking how quickly Sky would run out of money—one month, two months, three months. Heatley did not always want to know. ‘I remember once saying to him, “Jesus, Craig, you make me feel like I’m responsible for Sky running out of money,” and he looked at me and said, “Good,” and walked out of my office.’ There was occasional professional tension around how to keep Sky going with limited funds without breaking any laws or breaching any accounting standards. ‘We never went over the line but we did occasionally skate along it,’ Smart says. ‘I’d characterise it by saying that in a start-up where you are constantly running out of money, you are challenged to use every means at your disposal to fund the company.’ He sees Heatley as driven and complex, hard to like but someone who commands respect. ‘He started a business from nothing, gave us all jobs, created all that and it wasn’t easy. He might be New Zealand royalty now, but he wasn’t always.’"

"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."

"Sky tried to keep costs down but even without big-name TV stars, which Sky did not need, it was hard. ESPN would send hours of sports programming daily, which Sky had to filter, view, select, edit, package and broadcast to New Zealand viewers, and as soon as it was done they needed to start on the next day. It was labour-intensive work. Sky had only 200 staff to TV3’s 300, and more savings were hard to find. Hardware like antennae and decoders had to be paid for. The advertising budget was high because, without commercials, subscribers were the only source of revenue, so trying to sign them up through advertising campaigns seemed vital. But without change, Sky was unsustainable."

"By early 1992, with Sky’s subscriber numbers grinding upwards but not reaching forecasts, revenue consistently lower than expected, the company in debt and its shareholders still having to put in more money, Sky was desperate for some wins. Heatley was convinced that rugby was the answer. On 11 March 1992, his eye was caught by a short Australian Associated Press report from London in that day’s *New Zealand Herald*. Just three paragraphs long, the article said that the Cricket World Cup, which was at the time being hosted by Australia and New Zealand, and in which the England team was a favourite, was leading to bumper sales of satellite dishes in Britain. ‘The form of [England batsman] Graham Gooch and the England team have sparked tremendous interest in the cricket extravaganza, shown exclusively on satellite television station British Sky Broadcasting,’ the article said. ‘According to the latest figures by the *Financial Times* satellite monitor, sales of new dishes were 78,000 last month, up from 41,000 for the same period last year.’[4](private://read/01jectdbce729daxqkxt7cbe8r/#mn27) This was exactly the evidence Heatley was looking for. He immediately fired a copy of it off to Nate Smith. ‘Nate, if the powers that be in America want any more evidence of what we need to do here, send them this,’ he wrote, attaching a copy of the AAP story.[5](private://read/01jectdbce729daxqkxt7cbe8r/#mn28) If Sky could get exclusive rights to the All Blacks tour of Australia and South Africa it could attract another 20,000 to 30,000 subscribers at least, he added, seemingly making up numbers in his enthusiasm."

"One Sunday night, the day before a board meeting, Heatley’s phone rang at home. It was Gibbs. ‘Craig? Alan here. You told me we were going to put a little bit of money in this TV company of yours, and that we were going to have a lot of fun. Well, bugger me, we’re putting a lot of money in this TV company of yours and it’s no fucking fun at all.’ Gibbs was angry—not at Heatley personally but at the situation. This was not what Heatley had promised. Heatley was embarrassed. He was trying hard but subscriber numbers were not rising fast enough. In theory Sky should have been a success. In practice it was not."

"By early 1992, with Sky’s subscriber numbers grinding upwards but not reaching forecasts, revenue consistently lower than expected, the company in debt and its shareholders still having to put in more money, Sky was desperate for some wins. Heatley was convinced that rugby was the answer. On 11 March 1992, his eye was caught by a short Australian Associated Press report from London in that day’s *New Zealand Herald*. Just three paragraphs long, the article said that the Cricket World Cup, which was at the time being hosted by Australia and New Zealand, and in which the England team was a favourite, was leading to bumper sales of satellite dishes in Britain. ‘The form of [England batsman] Graham Gooch and the England team have sparked tremendous interest in the cricket extravaganza, shown exclusively on satellite television station British Sky Broadcasting,’ the article said. ‘According to the latest figures by the *Financial Times* satellite monitor, sales of new dishes were 78,000 last month, up from 41,000 for the same period last year.’[4](private://read/01jectdbce729daxqkxt7cbe8r/#mn27) This was exactly the evidence Heatley was looking for. He immediately fired a copy of it off to Nate Smith. ‘Nate, if the powers that be in America want any more evidence of what we need to do here, send them this,’ he wrote, attaching a copy of the AAP story.[5](private://read/01jectdbce729daxqkxt7cbe8r/#mn28) If Sky could get exclusive rights to the All Blacks tour of Australia and South Africa it could attract another 20,000 to 30,000 subscribers at least, he added, seemingly making up numbers in his enthusiasm."

"Alan Gibbs thinks that his first conversation with Heatley about buying into Sky might have occurred when they bumped into each other on a plane. Sky did not fit Gibbs’s investment strategy. With the notable exception of the amphibious Aquada vehicles that Gibbs is developing, ‘and on which I’ve lost more money than Craig’s ever spent’, Gibbs’s business strategy has been to take over other people’s companies. Also, where possible, he tries not to invest his own money. ‘I basically never put money into anything. I make people give it to me,’ he says. But this time Gibbs and his business partner Trevor Farmer did put money in. They liked Heatley and he was persuasive."

"At the time, Robert Bryden was managing director of Todd Capital, the family-owned corporation’s investment arm. ‘Like Craig, we always thought that long term Sky would make money but the performance of the business was not as good as the business plan that he had provided us,’ Bryden recalls. ‘There’s no question that the take-up of subscriptions was not as fast as Craig had projected when he did the sales pitch to the investors. It was slower growth in terms of subscriber numbers and cashflow in those early years than had been forecast. There was a bit of angst, no question about that. We were not concerned about the actual industry or where it was heading, but we were concerned about the operations.’"

"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."

"Sky also needed a home base and studios to transmit from and here, finally, it had some good fortune. When the government had tendered the licence for a third free-to-air TV channel, Wilson & Horton had bid for it. The Auckland-based media company had already been dabbling in television and, apparently anticipating winning the licence, had constructed purpose-built TV studios on a 2.6 hectare site in Mt Wellington. The studios were not perfect for Sky—for a start Wilson & Horton had anticipated just one channel, not the three that Sky proposed, so the equipment needed replicating twice over and technology was changing so quickly that it already needed updating. But it was a proper set of functioning, soundproof studios, technical facilities and offices so Sky did not have to start from scratch. Wilson & Horton had rented some morning airtime from TVNZ and had broadcast a few programmes from the studios, but was left with a white elephant when TV3, not Wilson & Horton, won the licence for the third channel. Importantly for Sky, the acquisition enabled it to hang its shingle on a building that genuinely was a television studio. It was important physical evidence that Sky was real, and was coming."

"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."

"Paul Smart, Sky’s first chief financial officer, recalls Heatley ringing one day from Gibbs’s office where Heatley was trying to encourage Gibbs and Farmer to invest. ‘Hey, Smarty,’ Heatley said, ‘tell me, when does this thing break even?’ Smart was the keeper of Sky’s business plan, which was constantly being revised as the company failed to meet its own financial targets. ‘The business plan says in two years,’ Smart told him. Sky was going to work, Heatley told Gibbs and Farmer, it was going to be great, but it was taking more ingenuity, time, effort and, most of all, money to get established than he had originally thought. But if they invested and hung on, it would get there, he promised. ‘It will only take a little money and we’ll have a lot of fun,’ Heatley told Gibbs. In fact, it would take a lot more money, another eight to ten years longer than the business plan Smart had quoted, and the company would teeter far closer to the edge of the precipice than any of them anticipated before Sky began turning a profit. ‘We made good money out of it in the end, but it was probably the hairiest ride I’ve ever had,’ Gibbs reflects."

"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."

"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."

"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."

"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."

"To set up towers in remote high spots was not only beyond Sky’s financial resources but the process of getting resource consents would have taken years, quite aside from the physical and financial challenges of getting power and infrastructure to the difficult-to-access sites. In that field, TVNZ subsidiary Broadcast Communications Ltd (BCL) literally held the high ground. It had the towers and access agreements already in place with landowners to allow it to reach and maintain the towers. At considerable cost, Sky partnered with BCL. In February 1989, *The New Zealand Herald* announced that Sky and TVNZ’s broadcasting services division had agreed ‘a multi-million-dollar contract’ for the state broadcaster to provide ‘a total transmission service for Sky Media’.[1](private://read/01jectdbce729daxqkxt7cbe8r/#mn18)"

"Learning how they operated, Heatley became determined that Sky would stagger the lengths of its contracts to prevent the studios acting in concert when the contracts expired. They might share other information but it appeared to him that the studios did not share information about the end dates of the contracts they were signing. That allowed Sky to do a three-year deal, which was about the norm, with one studio, while another was four years, and another five. When the contracts expired, he hoped the staggered terms would make it difficult for the studios to demand a huge hike in fees in order to renew at a time when Sky would be beholden to them. The strategy worked. By the time the contracts were renewed in the nineties, Sky had credibility and more bargaining power and it could deal with each studio individually on its merits. However, getting past the danger zone proved far more protracted and precarious than Heatley and Jarvis could, at the time, predict."

"⁠The one thing all Sky’s deals had in common were that they were tough to negotiate. That was partly because the network was not yet on air, partly because its people were new, and also because TV rights are notoriously brutally expensive. Heatley initially could not persuade CNN to do an exclusive deal. The US network accepted both offers—Sky got CNN news for the bulk of its 24-hour news channel, supplemented by the BBC, but TVNZ got the news feeds and access to CNN reporters it was after.⁠"