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SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

7 April 2017

Mr Luke Howarth MP Chair Standing Committee on Communications and the Arts Parliament House ACT 2600

By email: [email protected]

Introduction

Thank you for the opportunity to make a submission to the House of Representatives Standing Committee on Communications and the Arts inquiry into the Australian Film and Television Industry, and the factors contributing to the growth and sustainability of the Australian film and television industry.

This submission is made on behalf of the three major regional television broadcasters, (Prime), the WIN Network (WIN) and Southern Cross (SCA).

Challenges to the growth and sustainability of the Australian television industry Prime, WIN and SCA play a vital role in their local communities, broadcasting free to air television to their viewers, employing locally, supporting local businesses and playing a central role in the life of their regional communities. With the proliferation of alternate sources of entertainment and the rise of tech media companies like Google and Facebook, the free to air television industry is facing a decline in audiences and revenue, and the regional television industry faces its own unique challenges above and beyond those faced by metropolitan networks. There is a significant question mark over the on-going ability of the industry to provide the current level of local, and other services, to all the regional viewers it seeks to serve. The aggregation model that was introduced in the late 1980s has not met the expectations of either the regional television industry or our regional television viewers. Despite enabling viewers to access more metropolitan channels, aggregation has, over time, resulted in less local content.

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

There are a significant number of factors contributing to the challenges and the long term sustainability of the commercial free to air television industry generally, and these are most keenly felt by regional television broadcasters who: - do not control the bulk of the program content (including Australian content) – or its placement on the main channel or the multi-channels;

- have very little bargaining power in the affiliation negotiations and are charged excessive fees for content they licence from metropolitan networks;

- do not control or derive any financial benefit from the metropolitan networks’ catch up television services (, Ten Play or ) or the networks’ live streaming services that can be accessed via the internet anywhere in ; and

- incur significant infrastructure and technical costs to deliver and maintain the broadcast signals to regional and remote parts of Australia. Across the board, over the past four years the regional television industry has witnessed more than an 11% decline of its audience numbers in prime time (6pm – 10:30pm). What we are witnessing is a change in viewing habits. On 3 April 2017 (the members of which are Nine, Seven, Ten, ABC and SBS), announced that Australians had watched 1.2 billion minutes of catch up and live streaming TV in the past month, according to the latest OzTAM VPM 28 Day Rolling Report and that, according to Nielsen DRM figures for February 2017, 5.14 million Australians are streaming free content. This ability to watch television “democratically”, using the internet as a means of delivering the service, coupled with the 3.5 million Australians who are watching subscription video on demand services such as Netflix and (according to Nielsen), adds to the challenges faced by regional broadcasters. The market valuations of regional television companies have slumped by as much as 75% in the past 3 years, in part due to the uncertainty around media regulation reforms that could otherwise improve regional television’s prospects. Commercial television advertising revenue declined overall by 4.3% in the period from January to June 2015 compared to the same period in 2016, and in the regional television markets, the decline was higher, at 5.7%.

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

Who are the main regional broadcasters?

Prime and SCA are members of Free TV Australia, the television peak industry body, which has also made a submission to this inquiry on behalf of the commercial television industry.

WIN broadcasts the Ten Network’s services (Ten, Eleven and One) in southern , the Australian Capital Territory, regional , regional , , Griffith, regional , , and Mt Gambier in .

SCA broadcasts:  the ’s services (Nine, GEM, GO and ) in northern New South Wales, southern New South Wales, regional Queensland, the Australian Capital Territory and regional Victoria;  the Ten Network’s services (Ten, Eleven and One) in northern New South Wales;1 and  the ’s services (Seven, and ) in Tasmania, Darwin and Remote Central and Eastern Licence area.

Prime broadcasts the Seven Network’s services (Seven, 7mate and 7TWO) in northern New South Wales, southern New South Wales, the Australian Capital Territory, regional Victoria, Mildura, the Gold Coast area of south eastern Queensland and all of regional Western Australia.

In addition to the above-mentioned licence areas, each of SCA, WIN and Prime have joint venture licences (under s.38B of the Broadcasting Services Act) as follows:

- Mildura (MDT), a joint venture owned by WIN and Prime, which broadcasts Nine, GEM and GO in Mildura;

- Tasmanian Digital Television (TDT), a joint venture owned by WIN and SCA, which broadcasts Nine, GEM and GO in regional Tasmania;

- West Digital Television (WDT), a joint venture owned by WIN and Prime, which broadcasts Nine, GEM and GO in regional WA;

- Darwin Digital Television (DDT) a joint venture owned by SCA and the Nine Network, which broadcasts Ten, Eleven and One in Darwin; and

1 SCA announced on 28 March 2017 that it has reached agreement in principle with WIN Corporation for the sale to WIN of SCA’s northern NSW Proposed Sale of NNSW TV Operations (ASX Release)

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

- Central Digital Television (CDT), a joint venture owned by Imparja and SCA, which broadcasts Nine, GEM and GO in Central Australia.

There are also “solus” licence areas (under s.38A of the Broadcasting Services Act) that service:

- Griffith – where WIN holds the licence to broadcast Seven, 7mate, 7TWO, Nine, GEM, GO, Ten, Eleven and One; and

- Riverland/Mt Gambier – where WIN holds the licence to broadcast Seven, 7mate, 7TWO, Nine, GEM, GO, Ten, Eleven and One; and

- Spencer Gulf / – where SCA holds the licence to broadcast Seven, 7mate, 7TWO, Nine, GEM, GO, Ten, Eleven and One.

Through affiliation agreements, Prime, WIN and SCA licence almost all of their programming from metropolitan networks2 and using more than 500 transmission towers located across the country, and satellites, deliver that programming into regional television licence areas.

In addition, the regional broadcasters produce and transmit local content to their audiences. This content includes local news bulletins, news and weather updates, specials for local events such as the Gympie Muster and on-air community services announcements for regional charities. Background - Aggregation Until 1989, all regional centres were served by a single (“solus”) commercial television station that “cherry picked” program content from the three metropolitan networks, generally at low cost. These single regional television stations were highly viable. In 1989 the Federal Government introduced a policy of regional television equalisation, usually referred to as aggregation, which resulted in a phasing in of two additional television stations in each of the regional markets where aggregation was to occur. The result of the aggregation policy was that viewers in certain regional areas had a choice of up to three commercial television stations, whereas previously they had one. While providing a varied slate of programs via the metropolitan networks (mainly US drama and comedy series) the result of aggregation substantially reduced the profitability of regional television stations and subsequently, the demise of regional television programing produced specifically for the unique attributes of the regional audiences. These programs included

2 Seven Network, Nine Network and Ten Network

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY localised children’s shows, local sports coverage and even ‘tonight show’ style programs; all of which were no longer sustainable under the affiliation model as the fees regional broadcasters were required to pay to metropolitan networks escalated dramatically, and continue to rise year on year. Aggregation did not occur in all regional areas until the commencement of digital switchover. Background – Switch from analogue to digital television Section 38B licences were introduced in the Broadcasting Legislation Amendment (No 2) Bill 2001 by the Coalition government as part of the process of switching to digital transmission. At the same time, the Government introduced a Regional equalisation plan3, which had as its objectives (inter alia), “bringing to regional licence areas a similar range of entertainment and information services as are available in metropolitan licence areas” and “maintaining the financial viability of the commercial industry in regional licence areas”.

The first licence was issued in Tasmania in late 2002, with Mildura in 2005, Darwin in 2007, Western Australia in 2009, the Remote Central and Eastern Australia, Mt Isa and the South Australian regional licences in 2010, and Griffith in 2011.

These digital-only licences, which were issued in markets that only had 2 television stations could be taken by the existing two licensees entering into a joint venture, or by one of the incumbents either as a result of a price based competition or uncontested. In all cases the s.38B licences were taken up by a JV comprised of the two incumbent broadcasters.

These licences were introduced at a time when there was no multi-channeling but it was anticipated in the future. The rationale was that the introduction of the s.38B licences would enable viewers to get all 3 networks’ channels and would encourage them to switch to digital as the third signal was only transmitted in digital.

In the case of Griffith, and the South Australian regional licences, these section 38B licences sit on top of 38A licences that were issued in 1996 and 2002 respectively to provide a second licence to the existing incumbent.

3 Digital television broadcasting, subclause 64, Schedule 4, Part 11 of the Broadcasting Services Act 1992

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

Compliance with the quota to broadcast 1460 hours of Australian Content on multi-channels per annum All broadcasters are required to broadcast 1460 hours per year of Australian content across their multi-channels. Where a regional broadcaster does not carry a particular multi-channel that broadcasts programs that go towards meeting the Australian content requirement, the broadcaster is then unable to meet the required quota. The cost associated with compliance of the Australian Content obligations, and notably since the advent of multi-channelling, is of concern to WIN, Prime and SCA in all its regional markets – but it is particularly challenging in small licence areas where they hold s.38A and 38B licences. Given the nature of affiliation arrangements, regional broadcasters do not have input or influence on decisions made by the metropolitan broadcasters as to when and where they will broadcast the programs that go towards meeting the Australian content requirements. Without reference to the impact on their regional affiliates, metropolitan broadcasters are free to broadcast the Australian content across their main channel and their multi-channels as they see choose from time to time. This affects compliance by the regional broadcasters because they do not – nor are they obliged to – broadcast all the multi-channels in regional licence areas. Due to the technical, capex and opex costs of delivering services to regional and remote areas, WIN, SCA and Prime have not been in a position to deliver all the multi-channels that are available in the metropolitan markets. The metropolitan broadcasters therefore have more channels on which to broadcast their Australia content, and this has led to issues of compliance with the Australian content quotas for regional broadcasters. In addition, there is a potential for a compliance issue where a metropolitan broadcaster transmits sub-quota complying programming, for example C and P programs on a particular multi-channel, which is not broadcast by a regional broadcaster. Given the size of these markets, the regional broadcasters will be seeking from the Government, an exemption from compliance of the Australian Content requirements on multi- channels, particularly in relation to their section 38A and 38B licences. Local content obligations In 2002 the Australian Broadcasting Authority (ABA) conducted an investigation into the “Adequacy of local news and information programs provided by commercial television services in regional and rural Australia”.

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

This investigation was in response to political and public concern following the cessation of some regional television news services. As a result of the investigation, the ABA introduced in April 2003 a local content licence condition for regional commercial television broadcasters in four aggregated markets – northern News South Wales, southern New South Wales, regional Victoria and regional Queensland. The local content obligation is contained in the licence condition that commenced on 1 February 2004. In 2008, the successor to the ABA, the Australian Communications and Media Authority (the ACMA) expanded the local content condition to cover five aggregated markets (by including Tasmania) and a further condition was put in place commencing on 1 October 2014. This licence condition remains in force. Current local content requirements and compliance The regional broadcasters in each of the five aggregated markets of northern New South Wales, southern News South Wales, regional Queensland, regional Victoria and Tasmania are subject to the licence condition requiring them to broadcast minimum levels of “material of local significance”. The licence condition defines material of local significance and establishes a system where each broadcaster must satisfy the condition by complying with a points quota system. Points accrue for each minute of material broadcast that directly relates to either the local area or licence area of the station.

Prime Media, WIN and SCA have consistently met their quotas and have in many cases exceeded the licence condition in both the five regulated markets and in the other unregulated markets4. The ACMA noted in its most recent annual report5 that during the reporting period there were “no complaints or investigations involving compliance with the local content licence condition”. Regional networks’ capacity to provide local content The capacity for a regional network to invest in local content is dependent on the viability of the service in the relevant licence area and scale of its operations.

4 Unregulated markets are: Griffith, Mildura, Loxton/Mt Gambier, /Broken Hill, Darwin, Central Remote Australia and regional Western Australia 5 p. 75 ACMA Annual Report 2014-2015, tabled in Parliament on 28 October 2015

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

In cases where regional broadcast licences are owned by metropolitan television networks, it has been clearly demonstrated that there is a greater capacity for them to invest in local content. A. Seven Queensland in regional Queensland, which is a wholly owned subsidiary of (owner of the Seven Network capital city stations in , , , and ), produces seven local news bulletins in regional Queensland; and

B. NBN, which broadcasts the Nine signal in northern New South Wales, became a wholly owned subsidiary of in 2007. Since Nine Entertainment (also owner of the Nine’s capital city stations in Sydney, Melbourne, Brisbane, Adelaide, Perth and Darwin) acquired NBN, it continues to produce six local news bulletins in the northern NSW licence area. Through economies of scale, and by availing themselves of common “back room” operations including management, sales, marketing, PR, procurement, legal, finance and HR, there is greater capacity for metropolitan networks who own regional licences to produce more local content. Recognising the economic advantage of a metropolitan broadcaster to produce local news services, SCA has entered into an agreement to purchase its local news services for regional Victoria, southern NSW and regional Queensland from its affiliate the Nine Network. Using its metropolitan resources in Sydney, Melbourne and Brisbane, supplemented by local journalist staff based in the regional markets, Nine is in a stronger position to produce the news service than SCA would be. In contrast, stand-alone regional commercial television broadcasters face more constraints when considering their investment in the production of local content. With the collective expense of operating and maintaining more than 500 regional transmitters (in comparison to less than 20 in all metropolitan areas), high affiliation fees paid to metropolitan networks and licence fees paid to the ACMA that are out of kilter with international best practice, there is less capacity to invest. This pressure is exacerbated by the fact that the regional broadcasters merely act as a broadcast transmitter for the metropolitan networks, who otherwise retain all the rights and revenue to exploit and monetise their content ubiquitously, disregarding licenced broadcast areas through live streaming of the broadcast feed on the internet and the prevalence of their own catch-up TV services6.

6 Plus7, 9Now, tenplay

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

All three metropolitan networks are using the internet to stream some, or all, of their television broadcast signal across Australia with no regard for the exclusive broadcast licence areas (and the fees paid to the ACMA for that exclusivity) and regardless of any cannibalisation this may cause to viewing numbers7 or revenue8 in regional licence areas.

Media Reform Bill The Broadcasting Legislation Amendment (Media Reform) Bill 2016 is currently before the Parliament. As noted in the Second Reading speech, will (inter alia), extend and increase local content obligations for regional commercial television licensees. The new obligations will apply to regional commercial television broadcasting licences which, as a result of a change in control (called a 'trigger event'), become part of a group of commercial television broadcasting licences whose combined licence area populations exceed 75 per cent of the Australian population. The additional local content obligations will commence six months after the bill receives royal assent. The requirement for the licensee to be part of a commercial television group that reaches over 75 per cent of the population ensures that the additional local content obligations are only 'triggered' after the licensee is in a position to benefit from the additional scale and efficiency that the media reforms will allow. SCA, WIN and Prime support the Media Reform Bill – that was introduced on 1 September 2016 - and urge the Senate to pass it as a matter of urgency. In addition to providing for an increase in local content on a trigger event, it includes repeal of the out-dated 75% “reach rule” and the cross media ownership – “2 out of 3” rule. Both of these provisions date back to the pre- internet, pre-pay TV, pre-free video on demand era and further delays to the passing of this important reform just increase the uncertainty facing the television industry.

Licence fees SCA, WIN and Prime support comments made about licence fee relief as set out in the submission made by FreeTV Australia.

7 Seven Network reported that there were more than 7.4 million streams (46.4 million minutes) of the Seven Network’s broadcast of the 14 days of the 2016 tennis.

8 KPMG figures revealed that total regional television advertising revenue fell -6.6% (YOY) for the period 1 July 2015 – 31 December 2015

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

We agree that broadcasting licence fees should be in line with international best practice so that regional broadcasters can continue to invest in regional and local news. Broadcast licence fees are an industry specific tax that must be paid annually in addition to company (and other) taxes. Licence fees are not required to be paid by any of our competitors; they are out-dated, and threaten the ability of commercial free-to-air broadcasters to continue to deliver quality local content that attracts Australian audiences.

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

WIN PRIME SCA S.38B JOINT S.38A SOLUS OWNED BY IMPARJA VENTURE LICENCES A METRO LICENCES NETWORK Northern N/A Seven, Ten, N/A N/A Nine, GEM, N/A NSW 7mate, Eleven, GO, 9Life 7TWO One (NBN – owned by Nine) Southern Ten, Seven, Nine, N/A N/A N/A N/A NSW Eleven, 7mate, GEM, One 7TWO GO, 9Life Queensland Ten, N/A Nine, N/A N/A Seven, N/A Eleven, GEM, 7mate, One GO, 7TWO, 9Life (Seven Qld – owned by Seven West) Victoria Ten, Seven, Nine, N/A N/A N/A N/A Eleven, 7mate, GEM, One 7TWO GO, 9Life Mildura Ten, Seven, N/A Nine, GEM, N/A N/A N/A Eleven, 7mate, GO (MDT is One 7TWO a WIN /Prime JV) Griffith N/A N/A N/A N/A Seven, N/A N/A 7mate, 7TWO, Nine, GEM, GO and Ten, Eleven, One (WIN) Darwin N/A N/A Seven, Ten, Eleven, N/A Nine, GEM, N/A 7mate, One (SCA GO, 9Life 7TWO /Nine JV) (Nine owns 9Darwin)

SUBMISSION TO THE INQUIRY INTO THE AUSTRALIAN FILM AND TELEVISION INDUSTRY

Tasmania Ten, N/A Seven, Nine, GEM, N/A N/A N/A Eleven, 7mate, GO (TDT is a One 7TWO SCA/ WIN JV) Western Ten, Seven, N/A Nine, GEM, N/A N/A N/A Australia Eleven, 7mate, GO (WDT is One 7TWO a WIN /Prime JV) Riverland/ N/A N/A N/A N/A Seven, N/A N/A Mt 7mate, Gambier 7TWO, Nine, GEM, GO and Ten, Eleven, One (WIN) Spencer N/A N/A N/A N/A Seven, N/A N/A Gulf 7mate, /Broken Hill 7TWO, Nine, GEM, GO and Ten, Eleven, One (SCA) Remote N/A N/A Seven Ten, Eleven, N/A N/A Nine 7mate, One (CDT is GEM a SCA 7TWO GO /Imparja JV)