Federation of Australian Radio Broadcasters Limited
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FEDERATION OF AUSTRALIAN RADIO BROADCASTERS LIMITED ACN 059 731 467 SUBMISSION TO THE REVIEW OF BROADCASTING REGULATION BY THE PRODUCTIVITY COMMISSION TABLE OF CONTENTS 1. Introduction 2 2. Executive Summary 2 3. The Australian Radio Industry 3 3.1 Key Submissions 3 3.2 Diversified & Competitive 3 4. Responding to the Listeners 10 4.1 Key Submissions 10 4.2 Tracking Listeners’ Demands 10 4.3 Responding to Listeners’ Concerns 10 5. New Challenges for Free-to-Air Radio 12 5.1 Key Submissions 12 5.2 Radio’s Key Market Segments under Threat 13 5.3 New Technology 13 6. Digital Radio Broadcasting 16 6.1 Key Submissions 16 6.2 Background 16 6.3 Transition to Digital 16 6.4 Conclusion 17 7. Particular Issues 18 7.1 The Changing Nature of Broadcasting 18 7.2 The Public Interest and the Objectives of Broadcasting Policy 18 7.3 The Economics of Broadcasting 19 FARB Submission to Productivity Commission – 19 May 99 1. INTRODUCTION The Federation of Australian Radio Broadcasters Limited (FARB) was established in 1930 with 33 members. Today it has 215. FARB is an industry association representing the interests of Australia’s free-enterprise commercial radio broadcasters, several of them having been in operation since 1925. Its policy is determined by the industry membership each year at its Annual General Meeting and within this general policy framework, further policy decisions are made by a Board of Directors. The Federation makes this submission to the Productivity Commission to provide an overview of the radio industry in Australia in general and commercial radio industry in particular, but several issues on which there are no industry consensus will be addressed by individual Members. FARB argues that the industry is competitive, efficient and takes an active and research driven position in responding to the interests of its listeners. FARB argues that the position of free-to-air commercial radio services is likely to be eroded by new media (including subscription and free-to-air television and Internet services) capable of utilising digital technologies to provide radio-like services. FARB submits there is a need to introduce a timely legislative framework for the introduction of digital radio to ensure commercial radio is able to compete on equal terms in the digital era. The Federation acknowledges the assistance provided by Digital Business Consulting Pty Limited in preparation of this submission. 2. EXECUTIVE SUMMARY The two main points FARB wishes to bring to the attention of the Productivity Commission are: Commercial radio competes in a very crowded marketplace for a share of the listening audience and for a share of advertising revenues by providing a free-to-air service responsive to the needs of the Australian audience. The commercial radio industry sees the transition to digital radio broadcasting as the natural evolution from the current analog broadcasting and as a means to compete with other sectors utilising digital service delivery technologies. To ensure radio is able to move efficiently and deliberately to the new digital radio technology, there is a need for a technology neutral legislative framework for the introduction of digital radio. 2 FARB Submission to Productivity Commission – 19 May 99 3. THE AUSTRALIAN RADIO INDUSTRY 3.1. Key Submissions • The ABA should continue to ensure diversity of radio services by upholding the differences in the categories of service as specified in the Broadcasting Services Act (BSA) • Commercial radio, as the category of radio service most listened to, is providing diversity of programming, at various levels of cost • Competition for the radio audience is strong within the industry and from other media providing radio-like services, including on-line services • Competition for advertising revenues is also very strong, with radio likely to be affected by the advent of new services • Commercial radio revenues have not increased proportionately with the introduction of new services in regional areas causing many stations to incur losses • The ownership of commercial radio services within duopolies and networks enables cost efficiencies to be gained and services to be improved. 3.2. Diversified & Competitive 3.2.1. Diversity between Categories of Broadcasting Services The Broadcasting Services Act (“BSA”) defines six categories of broadcasting services: (a) National broadcasting services (b) Commercial broadcasting services (c) Community broadcasting services (d) Subscription broadcasting services (e) Subscription narrowcasting services (f) Open narrowcasting services The Australian radio industry provides services in each of these categories of service. Only commercial radio and community radio services require individual licences, all other radio services (other than the national radio services) are provided under the relevant class licence. The national radio services are those services provided in accordance with the Australian Broadcasting Corporation Act 1983 (up to five services in each market) and the Special Broadcasting Act 1991 (one or 3 FARB Submission to Productivity Commission – 19 May 99 two services in each metropolitan market). Commercial radio broadcasts services1: (a) that provide programs that, when considered in the context of the service being provided, appear to be intended to appeal to the general public; and (b) that provide programs that: (i) are able to be received by commonly available equipment; and (ii) are made available free to the general public; and (c) that are usually funded by advertising revenue; and (d) that are operated for profit or as part of a profit-making enterprise Community radio broadcasts services2: (a) that are provided for community purposes; and (b) are not operated for profit or as part of a profit-making enterprise; and (c) that provide programs that: (i) are able to be received by commonly available equipment; and (ii) are made available free to the general public Australian Radio Stations 1998 700 600 500 400 300 AM Number 200 FM 100 0 l l t a ia ity s on rc n ca ti e u w a m m o N m rr om o a C C N NOTE: National figure refers to number of transmitters, ABC Annual Report 97/98. In 1992 a new broadcasting category was introduced in Australia that was to be complementary to the services already provided as national, commercial and community radio services. This category of service is called Open Narrowcasting. Open narrowcasting radio provides broadcasting services3: (a) whose reception is limited: 1 Broadcasting Services Act 1992 Section 14 Part 2 section 14 2 Ibid section 15 3 Ibid section 18 4 FARB Submission to Productivity Commission – 19 May 99 (i) by being targeted to special interest groups; or (ii) by being intended only for limited locations, for example, arenas or business premises; or (iii) by being provided during a limited period or to cover a special event; (iv) because they provide programs of limited appeal; or (v) for some other reason This legislative categorisation of services found in the BSA provides the Australian consumer with a diversity of choice of radio programs delivered free of charge to a standard radio receiver. 3.2.2. Program Diversity with a Range of Cost Levels Within the commercial radio category there is a diversity of program formats with different cost levels and revenue expectations. Commercial radio provides a variety of program formats with combinations of personalities, music, news, sport, promotion and audience interaction. Each station has a different emphasis on each of these components. The right formula today may need some subtle changes tomorrow. In the competitive commercial radio industry success rarely comes cheaply. The following table sets out the numbers and average operating expenditure and revenue levels for the 215 commercial radio services in Australia at June 19984. Commercial Radio Market AM/FM Number Average Annual Average Annual Operating Cost Revenue $ ‘000 $’000 Capital Cities AM 18 7,511 7,722 FM 21 9,524 12,752 Larger Regional AM 18 1,328 1,561 (100,000+ pop) FM 26 2,146 2,535 Medium Regional AM 37 1,238 1,386 (40,000-100,00 pop) FM 33 367 415 Smaller Regional AM 33 582 642 (<40,000 pop) FM 29 310 303 In the highly competitive capital city markets, salaries and wages represent 35% of total operating costs for FM services and 45% for AM services. Expenses that are variable with revenue represent 31% of total costs for FM services and 16% for AM services. In regional markets, salary and wages represent 40% of total operating costs while revenue related costs represent 14%. 4 Broadcasting Financial Results 1997-98, Australian Broadcasting Authority March 1999 5 FARB Submission to Productivity Commission – 19 May 99 Revenue earning capablity, the program format being provided and the nature of the market being served are the determinants of the level of costs. With dual station ownership of radio services in the same market, sharing of overhead costs (administration, occupancy) has enabled some economies to be achieved. 3.2.3. Competition for the Radio Audience With the increased number of leisure activities available, the competition is intense for the time audiences allocate to radio. Commercial radio competes for the radio audience with national radio (up to seven services in each market), community radio and various narrowcasting services. Of all the radio broadcasting sectors, commercial radio has the largest audience share of listening with 75%, followed by the national (21%) and community (4%) sectors. The strongest competition for audience is from within the commercial radio sector of the radio industry. One of the greatest advantages for radio over other media is its mobility, with audiences free to listen to radio programs in cars, outdoors, at work and around the home. All radio services capitalise on this feature, but none more so than commercial radio. The BSA allows the common ownership of two commercial radio services in the one market.