Sky TV entrepreneur Craig Heatley believes it’s easier than ever for Kiwi business creators – as long as they can overcome NZ’s inferiority complex.
Anyone who can afford a commercial jet can afford a pilot to go with it, and Heatley does employ full-time commercial pilots. But he not only enjoys flying, he also likes the intellectual challenge of mastering a new aircraft. Also, whether it is a plane or a company, it is not in his nature to sit down the back. He likes being in control, particularly of his family’s assets.
It has been that way since the early 1980s when he and business partners John Sheffield, Margaret Tapper and Margaret George transformed a clutch of mini-golf sites into a successful leisure business. New Zealand’s first theme park, Rainbow’s End, became the centrepiece of their company. In May 1984, they floated Rainbow Corporation, with Heatley as managing director. He was 27 and, on the day of the float, he became a millionaire – at least on paper.
He thinks that while owning your own business is never easy, conditions now are more conducive for Kiwi entrepreneurs than when he started.
Capital has never been more freely available, he says. Nor has information. “That first step seems, for lots of reasons, to be a little bit easier than it once was. When the first step is easier, and the second step is easier, then the path is a little more open than it previously was.
“Having said that, competition has never been greater, either. That’s the flip side.”
Through the hoops
Absurd levels of regulation made everything difficult when he and his partners started their first company. When they were planning Rainbow’s End, a permit from the Reserve Bank was required to send more than $4000 out of New Zealand, Heatley recalls. The company wanted to buy bumper boats for the new park but a set of boats would have cost more than $4000 so they had to get a special permit to import a single one and then copy it, “even though the price of copying them was five times what we could have bought them for”.
Heatley cites businessman Alan Gibbs’ similar experience, outlined in Paul Goldsmith’s biography of Gibbs, Serious Fun. Gibbs owned Atlas Majestic, which had JVC as a supplier of Japanese electrical goods. But in order to protect local jobs, New Zealand forbade the importing of fully assembled televisions, radios and video players. In the book, Gibbs describes going to Japan and asking JVC to disassemble its TV sets and export them as parts so they could be reassembled in New Zealand to comply with Government requirements.
“They’d say, ‘Do you have lots of cheap labour? Why would you do this?’” Gibbs recalls in the book. JVC would then break down the TVs into components, send them to New Zealand with instructions on how to put them together again and charge 10% more than the cost of a fully assembled TV. Then, Atlas would create an assembly line to put them back together to sell to New Zealanders, who paid twice as much as they would have if the TVs had been imported assembled.
Nowadays, Heatley relates anecdotes like these to his four children – aged 16 to 28 – “and they kind of nod because, unless you lived through it, you really don’t get it”.
In 1984, the reformist Labour Government led by David Lange but propelled by Finance Minister Roger Douglas and State-Owned Enterprises Minister Richard Prebble was elected. It quickly set about cutting through the bungy cords holding back innovation and enterprise. Ministers also cut a swathe through the public service, privatising, corporatising and deregulating as they went. People in a position to benefit from the new environment did well. Others suffered.
Today, not only Heatley’s children but a whole generation of New Zealanders have no memory of living in an economy that Gibbs considers to have been the most tightly controlled outside the communist states. Almost every industry would have similar tales to Gibbs and Heatley’s of the difficulty of trying to do anything innovative in an era of over-regulation.
Punting on choice
Heatley and former New Zealand test cricketer Terry Jarvis tested just how high the hoops could be for entrepreneurs when they began exploring the idea of starting a pay-TV network. Heatley says the idea grew from Jarvis, a racing aficionado, watching horse racing live on TV in pubs in Australia. Jarvis wondered if New Zealand could do the same. While investigating how to make it happen, he approached Heatley. Relatively quickly, their idea became more ambitious than showing horse racing. Pay TV had started overseas and, in the mid-80s, when New Zealanders had only TV One or TV2 to watch and video cassette recorders were new and expensive, the pair were convinced New Zealanders would embrace choice if it was offered to them.
But the telecommunications industry was totally regulated. When the pair initially considered satellite dishes as a delivery method for their proposed television service, they learnt they would need licences from Telecom. “It was so absurd that when we went to ask for permission to put our own satellite dish on our own property using our own engineers at our expense, Telecom said, ‘Yes, we’ll give you a licence, but it will cost $10,000 for every dish,’” he recalls. “We said, ‘Are you joking?’ We asked what it did to earn the $10,000 and it said, ‘We give you the licence.’ That’s the truth and it was 1987 and it’s not that long ago.”
Instead, Sky launched with three channels in May 1990 using a terrestrial delivery service – bouncing its signal off transmission towers – and missing out many valleys along the way. It took almost another decade before satellite delivery was introduced. By then, telecommunications had been deregulated and Sky was well established and successful. But the financial toll on Heatley and Jarvis in getting the company to that stage had been enormous. He admits to “staring into the abyss” when, for a time in early 1991, the young company was losing a million dollars a week and struggling to attract subscribers.
In 2001, the company was on its feet but trouble in his marriage and the death of his friend and Independent Newspapers head Mike Robson caused him to re-evaluate his life. Flying back to Auckland from Robson’s Wellington funeral, he decided to quit most of his business commitments. He resigned from seven boards and began the process of selling his stake in the television company that he, Jarvis and engineer Brian Green had built from nothing. In doing so, they had created thousands of jobs and changed New Zealand’s media landscape.
Heatley has no time for the idea that New Zealand entrepreneurs should hold on to their companies for longer to help them become big enough to compete internationally. The merino clothing company Icebreaker’s sale this year to US firm VF Corporation is a recent example in which the pending transaction was announced by Newshub with the line, “another iconic brand will be sold offshore”.
It is hard to generalise, he says, because each entrepreneur, each company and each industry is different. But it is not only New Zealanders who sell companies that they could have made bigger and, when it happens, “it does not mean the former owners are sitting at home crying about it”.
“It happens all over the world. Everyone has their price, everyone’s circumstances are different and I don’t blame anyone for selling up. I did it myself. I sold out of Sky and after I did, it probably doubled in value – although now it does not look so silly to have sold because it’s valued at less than I sold it for 17 years ago. But the reason I sold was because once I decided to step away, I did not want all my eggs in one basket that I was not intimately involved with day to day. I took that money and I’ve done well with it.
“So you could say someone sold and they could have got more if they had waited but they’re probably going to invest the proceeds and do something else. How much money does anyone need anyway?”
As a general rule, he says, a business owner is going to make more money selling a company than operating it.
“Running a business is no walk in the park. If you can sell your business it makes you feel good because you’ve done something successful, and you bank a cheque. But a sale gives you the greatest thing of all, which is not money, but your time.
“Time is more valuable than money ever will be and you’ve just got it back so I would not blame people at all for selling up. In fact, I’d be more inclined to encourage it.”
Although he thinks it is a good idea for people to “every now and then count what they have”, he also believes that thinking internationally is easier in a world as connected as today’s, compared with when he was running businesses.
“For the past 20 years or so New Zealanders have felt they can compete in the world, whereas I never felt that when I was establishing companies.”
Although Rainbow Corporation made successful buying forays overseas, he says he had an inferiority complex about ever being able to compete in bigger markets. “I never really tried. I just had an innate sense that I would not have been good enough. As New Zealanders, we might still think that a little bit, but not as much as we used to.
“As a nation, we have a bit of an inferiority complex, but entrepreneurs less so. That’s not to say it’s easy; it is not. There are lots of examples like the Mowbrays who have formed successful companies in New Zealand and out of New Zealand and I would give you odds that none of them would say it had been easy.”
Since getting back his own time with the sale of Sky, Heatley has invested publicly and privately in growth sectors in Asia, North America and Europe, but also has become one of New Zealand’s largest currency traders. It blends his interests in trends, the future, politics and current affairs with a desire to make money.
The latter is an instinct he has had since boyhood, growing up in modest circumstances in the Hutt Valley. Starting with a BCom at Victoria University, he eschewed the offer of a job in a bank, feeling it was not the right place for him. He wanted to make his own money, not look after other people’s. A job at Fletcher Steel led him to meet John Sheffield. During a visit to Coromandel, they chanced upon a well-run mini-golf business they thought would be a money-spinner if they could replicate it in Auckland. Upon discovering that two Remuera women, Margaret Tapper and Margaret George, had already had the same idea and found an ideal site on Tamaki Drive, Sheffield and Heatley instead went to Taupo and started mini golf there. The four partners came together back in Auckland, eventually building Rainbow Corporation.
But it was Sky that was Heatley’s most audacious undertaking, and although he sold his shareholding long ago, he has never lost his interest in the industry, or in related technological developments and consumer trends.
Commerce Commission’s ‘mistake’
There is no question Sky has made mistakes, he says, but he thinks the bigger mistake was made by the Commerce Commission, which turned down Sky’s proposed merger with Vodafone. The commission, he believes, adjudicated on domestic players without understanding that consumers are making their television choices from a global market.
The history of competition among TV channels in New Zealand is short. When Sky started, it doubled the number of channels available to New Zealanders. Viewers’ choices were TV One, TV2, the new TV3 – which was in financial strife almost as soon as it started – and Sky’s dedicated movies, news and sports channels. Otherwise, there were radio stations, newspapers and magazines.
“Jump forward to 2018 and the choices are almost infinite. We can stream something from London, New York or Los Angeles without thinking about it, just as people can watch live sport almost wherever it’s being played. So I think the most basic mistake made by the Commerce Commission was looking at competition within the New Zealand market when competition for entertainment is now global.
“When we started Sky, only a few media companies could access New Zealanders’ homes. We were one of those companies. Today, YouTube videos can be watched in New Zealand homes, just as Netflix and others can, even though those companies are based in the United States.”
In Heatley’s view, the biggest irony of the Commerce Commission’s decision is that the merger was turned down on the grounds that it would not be in consumers’ interests, whereas he believes the decision actually weakens the domestic landscape.
“There is no question in my mind that Sky and Vodafone are weaker apart than they would be together. They will not be as able to compete with the bigger international onslaught that, for sure, is coming. With New Zealand players unable to merge to form stronger companies, those foreign companies will find New Zealand more fertile ground.”
The point, he says, is that the way technology is unfolding is changing, and rapidly. Now, people are forced to pay for a bundle of movies or channels they have no interest in watching. In time, he thinks TVs will be fully equipped for streaming and viewers will choose à la carte. A viewer will press “golf” and they will get golf. If they press “history” they will get history. They will not be forced to pay for channels they never watch. Further, instead of consumers paying one company for an internet service, another for a phone service and a third for video content, it would be more efficient and likely to be cheaper for them, he argues, to have one company provide all that, which might have been possible with a Sky-Vodafone merger.
“The implication from the Commerce Commission was that if you had to buy all those from one supplier, you would pay more. As a businessman I would say that’s completely wrong. You would actually pay less. The commission has said that internet is separate from video, that video is separate from cellular and wireless. Well, you know what? They used to be, but in today’s world they are not. I just think their decision was out of touch with the times.”
Heatley also thinks newspaper companies Fairfax and APN should have been allowed to merge. The argument that a merger would have reduced competition in covering domestic news and reduced the number of voices in the mainstream media is valid, he says, “but only if you think that they are both going to survive, which I don’t”.
“By turning down the newspaper mergers, which included some radio assets, and Sky-Vodafone, the commission is keeping everyone separate and completely ignoring the fact that an Amazon could come in with an open chequebook and essentially create a much more dominant and aggressive competitor in the market that could ultimately result in less consumer choice.”
He thinks the commission’s decision might have been valid had there been only two main telecommunications players in the New Zealand market. “But the communications space is not like that. It’s global so, if I want to, I can stream a game of baseball being played right now in Philadelphia. I think the commission’s decision means you will end up with all the local players being weaker.”
US media merger
Very similar arguments have just been aired in the US, where the scale of the industry is far bigger but the pressures similar. AT&T – the biggest pay-TV distributor – has been allowed to acquire Time Warner, whose stable includes CNN, HBO and Warner Bros TV and film studios. The judge in the case said the Justice Department, which argued against the deal and said it would make the pay-TV market less competitive and less innovative, had not proved its case.
Reaction in the US to the US$80 billion ($118 billion) deal has been mixed. A former Federal Communications Commission official, Rob McDowell, told the Wall Street Journal the decision showed the court recognised the market was changing and business models were converging. “Yesterday’s definitions of old channels of commerce are quickly becoming obsolete,” McDowell said.
Georgetown University’s McDonough School of Business project director Larry Downes told the WSJ the deal showed incumbents on the contribution and distribution side of TV were fighting a losing battle against new entrants. “These deals are not signs of strength; they are almost desperate efforts to come up with new combinations of assets they can use to compete with Netflix and Hulu.”
Against the merger, Gigi Sohn, distinguished fellow at the Georgetown Law Institute for Technology Law and Policy, said she thought the price of Time Warner products would rise, and programming choices would be reduced. “I’ve never seen a media merger that’s had any benefit to consumers and this one is certainly no different.”
Public Knowledge president Gene Kimmelman went further, saying the deal was dangerous. “This enables the content and transmission companies to further consolidate and maintain their control over large bundles and high prices, whether delivered on cable, satellite or broadband,” he said.
Heatley thinks the Commerce Commission missed the speed with which technology is moving and if another application by Sky and Vodafone was made in a year or two, the outcome might be different.
Sky misses the bus
He concedes that the criticism about not keeping up with the changes could also be made about Sky itself. Sky would probably admit that it should have embraced streaming earlier than it did, he says. “It was a little late to that party in seeing the challenge of video-streaming, but it was hardly alone. Ten years ago, Netflix was minor, now it’s huge. None of us really saw how quickly that transformation would happen.”
Sky is a prime example, Heatley thinks, of the hazard of incumbency. He says Sky never had a monopoly and never had anything that a competitor could not also have bid for – a point proven by Spark and TVNZ recently winning the rights to show the 2019 Rugby World Cup. Incumbency feels advantageous but that can be misleading, and especially dangerous in an era of fast technological change.
“Just ask Xerox, or ask Kodak, which for decades made 24- or 36-exposure films for cameras and sat there as a fat and happy company when it should have been leading the digital revolution. When you are an incumbent, you think defensively when you should be thinking offensively, but that is far easier to say than do. The most successful businesses I’ve seen are those which, every day, say, ‘Okay, what would we do to disrupt our own business?’ They are really brutal in their assessments and then they say, ‘If that’s what’s required, that’s what we’ll do.’ Not many companies are willing to do that.”
But none of this is to say that anyone should write Sky off, Heatley contends. It remains a substantial and significant company. It could be in a better position, but it’s not too late to fix its problems.
“Did Sky make mistakes? Yes. Did the Commerce Commission make mistakes? Yes, I think it did. There have been mistakes, no question, and I think the people in Sky would say the same thing. But a company, at the end of the day, is a group of people, and show me a company, show me a person, who’s never made a mistake. I’ve never met one, and I’ve certainly made lots myself.”
This article was first published in the August 4, 2018 issue of the New Zealand Listener.