TVNZ's profit has dropped by tens of millions as content costs return to pre-pandemic levels.

The broadcaster reported a net profit after tax of $7.9 million for the financial year ended June 30, a decline of $51.3m from the previous year.

TVNZ chief executive Simon Power attributed the decline to increased investment in the business as well as a surge in content costs.

Total operating expenses at the business increased $62.3m to $315.6m, driven largely by a 33.6 per cent increase in content costs to $189.5m for the year.

Power noted that it was important to view these numbers in the context of the record result TVNZ posted a year ago.

"TVNZ achieved a record financial result in FY21 due to very strong revenues, a lack of content availability and cost constraints designed to preserve cash," Power said.

"We're now exceeding our pre-pandemic levels of expenditure and the FY22 result reflects a significant investment in the business."

Content costs had declined significantly in recent years because of delays and cancellations caused by the pandemic. With the production industry now playing catch-up, content costs have risen.

This is particularly important given the significant role that locally made content plays in keeping viewers tuned in to traditional television.

Of the top 10 shows over the past year, eight were locally made TVNZ productions.

All 20 of the most watched shows on TV across networks appeared on TVNZ in the past year.

This has played a major role in ensuring that TVNZ revenue remained steady at $341.7m, a year-on-year increase of only around $1.7m.

Total advertising revenue was also steady, sliding $1.3m from a year ago to $321m.

While the list of the most-watched shows is evidently a big win for TVNZ over Warner Bros' Discovery-owned Three in the local market, Power notes that TVNZ needs to look beyond its New Zealand-based competitors.

"As we think about our role as a digital media company competing against international streamers, local content is our point of differentiation. That continues to be a real opportunity for us as New Zealanders look to see themselves and their stories reflected in our programming."

TVNZ+ platform is the main tool that the broadcaster uses to go toe-to-toe with the likes of Netflix, Disney+ and Amazon Prime.

Power says the TVNZ+ reached more than two million New Zealanders in the past year, but that the platform needs consistent investment to maintain its edge - and this also contributed to the high operating costs of the business in this financial year.

"The work on a new IP Platform is a multi-year project," says Power.

TVNZ boss Simon Power. Photo / TVNZ

"We need to make sure we're able to deliver to audiences on platforms that they choose."

The other point of difference for TVNZ+ is that it remains fully ad-funded and does not charge viewers to watch any of the shows, but this advantage could soon be weakened.

Netflix has intimated that it will be offering a cheaper ad-funded tier for its streaming service in the coming months. And internationally, there's been a sharp growth in ad-funded streaming services that offer a huge range of content to viewers willing to have their viewing interrupted by the odd ad.

"We're obviously keeping a very close eye on what that might look like, but we're comfortable with where we're positioned," says Power.

"We have good partnerships, a good level of content and good variety on TVNZ+, but we still have work to do. That's part of the reason our costs have increased. We have to keep making sure that the quality of what we're producing or putting to air allows us to compete appropriately."

Asked whether TVNZ might pull the plug and go the other way by launching an ad-free option soon, Power said that TVNZ+ would remain for now.

"TVNZ is preparing for and investing strongly in our digital future," he said.

"We expect multiple customer propositions will be required to meet the evolving content needs of our different viewer segments – this may include the ability to have a subscription model, but for now TVNZ+ remains a free service, supported by our advertising content."

'A poorly drafted bill'

The long shadow cast over the coming months is the prospect of the merger between TVNZ and RNZ.

Power says that he remains supportive of the idea, but has serious questions about the legislation associated with the merger.

"The bill in its current form is very poorly constructed," says Power, who previously was a National MP.

"It's badly drafted and it needs attention."

Power says that TVNZ will be making a submission to reflect his concerns.

"The issue of editorial independence and how it's reflected in the bill is of the utmost importance, and frankly should be at the front of the bill as a core principle rather than merged in the section in the bill that relates to ministers' powers."

Power says this is integral if TVNZ and RNZ are to remain credible sources of news in the eyes of the public.

"The entity has to be totally free from any political influence, and importantly it has to be seen to be so."

Power says this shouldn't be a partisan argument.

"I'm not worried about this Government. I'm not worried about the next Government. But for this legislation to endure, it has to be able to survive future ministers who might have a different view from those that are currently in the role.

"So, I think there's actually a lot of work to be done on that bill."