MCH Regulatory Review
TVNZ Submission
April 2008 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 2 Executive Summary
• Public service broadcasting is important in order to ensure: the continued visibility and impact of local and public service content; plurality of voices in the media; and independence in an increasingly globalised world. TVNZ has a specific role to play as the Public Service Broadcaster to deliver Charter content and bring New Zealand to New Zealanders • New Zealanders value the principles of public service broadcasting as set out in TVNZ’s Charter. However, public service broadcasting in New Zealand does not receive stable, long-term funding • New Zealand has paid little attention to the broadcasting and media competitive environment. The lack of marketplace rules is not working for the existing broadcasting market, let alone converging markets • The lack of marketplace rules means that SKY has had the freedom to develop a business model in New Zealand not seen in other countries. SKY has been able to develop a vertically integrated business with the potential to exert considerable market power. That lack of marketplace rules and dominance by one player could lead to a lack of media diversity in New Zealand • Significant change is required across a number of areas identified by MCH. Marketplace rules are required in order to create a fair and level playing field for all participants. Marketplace rules are also a necessity if New Zealand is to create and sustain a diverse and effective media market, and optimise public good
TVNZ Submission: MCH Regulatory Review April 2008 3 There is a need for marketplace rules across a number of areas Barometer: Need for Marketplace Rules Status Quo Update Restructure Reform Restructure & Introduce specific Consistent & refresh in line with measures to counter up-to-date market changes specific threats CROSS VALUE CHAIN
Regulatory Model
Role of Regulator
Relationship with ComCom
Cross-Media Ownership
Media Literacy
CONTENT
Standards
Local Content
Role of Public Service Broadcasting
Advertising
DISTRIBUTION
Access for Disadvantaged
Premium Content
Consumer Understanding
Rights to Orphan Works
NETWORK
Open Access Regime
Technology Standards
Post-ASO Spectrum Allocation
Investment in Digital
TVNZ Submission: MCH Regulatory Review April 2008 4 TVNZ’s Position
Issues TVNZ Position
CROSS-VALUE CHAIN ISSUES
Regulatory Model • Irrespective of which regulatory model is chosen for the future, existing marketplace rules are inadequate and diversity is threatened Role of Regulator • Agreeing the rules required to promote diversity in today’s market is more important than determining the specific role of a future Converged or Single Regulator Relationships with ComCom • The Industry Regulator should focus on managing and monitoring diversity, and the Commerce Commission should focus on competition issues Cross-Media Ownership • Rules need to reflect a better understanding of today’s broadcasting and media markets, not just broadcasting-like and converging markets Media Literacy • Agreeing to the scope of media literacy and committing funding to media literacy should precede determining the delivery agency CONTENT ISSUES
Standards • Refer TVNZ Submission: Future of Content Regulation
Local Content • Funding needs to increase and be more predictable. A well-resourced converged funding body is desirable as New Zealand faces a number of challenges in sustaining the viability, availability and accessibility of local content. Funding for TVNZ’s delivery of the Charter should be ring-fenced, as should funding for Maori and other minority programming Role of Public Service Broadcasting • Public Service Broadcasting should be strengthened and funding should be focused on Public Service Broadcasters operating under a Charter. Core PSB channels should be available to New Zealanders on their preferred digital platform, provided that the Public Service Broadcaster is not disadvantaged Advertising • The industry should be regulated
TVNZ Submission: MCH Regulatory Review April 2008 5 TVNZ’s Position cont’d
Issues TVNZ Position
DISTRIBUTION ISSUES
Access for the Disadvantaged • Public funding of captioning should increase and public funding of audio-described television should be introduced in order to improve access for disadvantaged viewers
Premium Content • The current structure of the broadcasting market in New Zealand means that anti- competitive behaviour is a growing reality and needs to be remedied through marketplace rules
Consumer Understanding • The Government needs to invest in Media Literacy so that consumers understand copyright. Similarly, investment in Media Literacy will help promote internet safety
Rights to Orphan Works • Unlocking orphan works is important to “public good”. The industry should play an active role in agreeing the approach to orphan works
NETWORK ISSUES
Open Access Regime • Universal access would be best achieved through operational separation of the infrastructure operator and the service provider
Technology Standards • Network interoperability is desirable but faces technical challenges
Post-ASO Spectrum Allocation • Protecting sufficient spectrum for current and future needs of broadcasting is critically important
Investment in Digital • The lack of access to broadband is the key constraint on New Zealand’s ability to participate fully in a digital world
TVNZ Submission: MCH Regulatory Review April 2008 6 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 7 MCH has adopted the following value chain, but also uses many other terms
Components of Examples of other terms employed Broadcast Value Definition by MCH Chain “Broadcasting-like” digital audio • Services visual and audio material capable • Content producers Content of being delivered to the user by • Content rights electronic means
The process by which content is • Content distributors purchased, aggregated, packaged • Broadcasters and released for delivery to the • Service providers Distribution end user • Content providers • Aggregators
The means by which content • Platform operators reaches its audience, • Platform providers encompassing broadcasting • Network operators Networks transmission networks, wireline and wireless telephony and data • Infrastructure networks • Digital gateways
TVNZ Submission: MCH Regulatory Review April 2008 8 TVNZ has de-constructed the value chain to clarify the way the market works and help identify threats to diversity
Stage Description Examples
Content Produce multimedia content for Television studios; radio studios; music studios; Hollywood Originators each of the main distribution studios; Web publishers; news agencies such as Reuters; methods newspaper publishers; individuals
Content and Package content into bundles or Television broadcasters; major pay channels (e.g. CNN, Service brands (often called “channels”) HBO, Rialto, Eurosport); radio broadcasters such as Packagers to be delivered to consumers RadioWorks; ISPs; newspaper publishers such as Fairfax and APN; telcos Service Translate content into a form that FTA television providers; satellite television providers; cable Providers can be decoded by Consumer television providers; ISPs such as Xtra; radio broadcasters; Premises Equipment (CPE) telcos
Customer Manage individual customer Satellite television providers; telcos such as Telecom and Relationship relationships, including pay-per- Vodafone; ISPs Managers view; personalised interactivity; (CRMs) and customer accounting Infrastructure Communicate to and from “Backbone” platform providers such as Kordia; satellite Operators service providers, at both television broadcasters; cable television networks; telcos wholesale and retail level such as Telecom; electricity lines companies such as Vector
Consumer Provide customer-site equipment Set-top boxes (STBs); satellite receiving equipment; Premises that translates signals into televisions; computers; modems; radios; mobile telephones Equipment audio/video signals, controls (CPE) Providers access and permits interactivity Source: OECD 1999 (modified)
TVNZ Submission: MCH Regulatory Review April 2008 9 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 10 Public service broadcasting is important, but receives little public funding in New Zealand
• New Zealanders value Public Service Broadcasting (PSB) – TVNZ continues to be the best way to reach the majority of New Zealanders, despite fragmentation of broadcasting – TVNZ demonstrates one of the highest audience share ratings of PSBs anywhere, even though New Zealand is an intensely competitive market • New Zealanders value local content – TVNZ is the major deliverer of local content – Many of New Zealand’s top-rated programmes are local content, broadcast by TVNZ • In spite of the importance of Public Service Broadcasting and local content to New Zealanders, TVNZ receives one of the lowest levels of public funding (as a % of revenue) of PSBs anywhere. Less than 10% of TVNZ’s revenues are publicly funded – Unlike other PSBs, TVNZ uses its public funding to make and acquire programmes, not for operating costs (which are totally funded out of commercial revenues) • On a per capita basis, broadcasting in New Zealand is poorly funded relative to other countries – Even after cost of living adjustments, New Zealand’s funding is particularly poor relative to other countries such as the United Kingdom • Public Service Broadcasters around the world are seeking more substantial, stable and sustainable funding – PSBs reliant on commercial revenues are seeking an increase in public funding – PSBs reliant on public funding are seeking to diversify their revenue base with more commercial funding
TVNZ Submission: MCH Regulatory Review April 2008 11 New Zealanders value the principles of public service broadcasting, as set out in TVNZ’s Charter Importance of TVNZ Charter Themes (Net Positive Responses)
0.00% 20.00% 40.00% 60.00% 80.00% 100.00%
INFORMED SOCIETY
Independent News 79%
Events of National Importance 76%
Analysis of Issues of the Day 76%
Events of International Importance 72%
EDUCATION
Educational for Young People 72%
Different Perspectives 60%
NATIONAL IDENTITY
NZ's History, Heritage, Natural Environment 62%
Reflect and Reinforce Our NZ Identity 58%
Inspiring New Zealanders 57%
DIVERSITY & MAORI
Tastes & Interests Not Covered by Other Channels 51%
Appeal to Smaller & Wider Audiences 51%
Reflect NZ's Many Cultures 50%
Understanding Different Cultures 48%
Maori History, Culture, Current Issues 36%
NEW ZEALND TALENT
Mix of Local & OverseasP rogrammes 67%
Supports Local Talent 52%
Good Quality Local Drama 50%
QUALITY
Consistently High Quality Programmes 79%
Source: TVNZ Annual Report 2007
TVNZ Submission: MCH Regulatory Review April 2008 12 Although FTA share has eroded, TVNZ continues to be the best way to reach the majority of New Zealanders
All-Day Viewer Share, 5+ audience All-Day Viewer Share, 5+ audience 100 100% Other
SKY SKY
80 80%
Other FTA Prime FTA 60 60% TV3
40 A more level playing field is 40% required in the future in order for FTA broadcasters to compete on a fairer basis with their Pay TV rival
20 20% TVNZ
0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2007
Source: AGB Nielsen Media Research
TVNZ Submission: MCH Regulatory Review April 2008 13 New Zealanders value local content, and TVNZ is the major deliverer of local content
Perceptions About the Level of Local Local Content by FTA Channel and Genre Content on NZ Television (Chart area is proportionate to share of local content) 100% Don’t Know Decrease Sports 90%
80%
70% Stay the Same 60% News/Current Affairs
50%
40% Maori Programmes
30%
Information 20% Increase Entertainment 10% Drama/Comedy Documentaries Children’s 0% TV1 TV2 TV3 Prime C4 Maori Initial Response (after Response (after being told being told that 33% of that local content in programmes shown on NZ Australia is 55%, England TVNZ Other FTA television are NZ-made) >75% and United States >90%) Source: NZ on Air Public Information & Opinion Monitor 2007; Local Content Report 2006
TVNZ Submission: MCH Regulatory Review April 2008 14 Many of New Zealand’s top-rated programmes are local content, delivered by TVNZ Top Programmes 2007 – All Channels, 5+ Demographic
(000’s of viewers) 0 100 200 300 400 500 600 700 800 900
Dancing with the Stars
Fair Go Aw ards 2006
Auction House
Animal House
F&P Ne tball NZLvAUS T3
Fair Go
Tri Nations ABvRSA
This is Your Life
Going Going Gone
Mucking In Country Calendar
NZ Idol Grand Final
The Vicar of Dibley Specials
Desperate Housewives
National Bank Cup Netball Final Tri Nations ABvAUS
The World's Fastest Indian
One Ne w s TVNZ Local Location Location Location TVNZ Foreign The Rich List SkySport1
Source: 2007 Annual Report
TVNZ Submission: MCH Regulatory Review April 2008 15 TVNZ receives one of the lowest levels of public funding (as a % of revenue) of any PSB
Funding Sources of Public Broadcasters (% of Total Earnings)
Licence Fee Govt Appropriations Contestable Programme Funding Other Public Commercial Revenues
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0% I
) T P F T T E S F T T S F T T 2 E S L P S E T K C R C K K C V C V A K C C D Q A T T N T T L R R R B V V R V B B B D H R D U H NZ TV C / U T T R IB K - SLO P T R R SV T T R V l V
B CB AB l Z 4 H O A C R NR s n ce F MB NO lic k T V d a LT e ER a SB n a LR y g d Y TV R ly T e R R a H SA a ec T a r y a i s a a i i s
y d
SwB a i T e nd i i l e n n N C a n e d l B v n u t d ar ay d r i d an r r an a UK ile t a k a Ita t ca w a eb a an ug a a l i n an an R n a r r n i s i o pub t ed eec h Is r p m w t r n u el nla nde u r o Fr a ong r onia r a a bour a r k DB UK s m e Lat i f l m i n st r el l C u l h a Po Ja I Tu Sp l u Q Ta t Au l F al c G m K Cr ar Ca Sw (WG er Po I a A F A e e No Au Li S h h R De h Ma zer m uth K t ven Ger x t ng Ger t W c B i o n o u u o e S L w Z Ne Sl z H So Sw De C on P Ne t s o B
Source: Sustainable Public Funding, A Survey of Broadcasters (TVNZ, 2006)
TVNZ Submission: MCH Regulatory Review April 2008 16 On a per capita basis, broadcasting in New Zealand is poorly funded Public Funding Per Capita (2005), NZD television radio Nor w ay
Germ any
UK
Finland
Hong Kong France
Japan
Ireland
Australia
Ne the r lands Italy
Canada
Israel
Gre ece While total public funding of television in NZ at the time of the New Zealand survey was $16.50 per capita, South Korea TVNZ’s public funding, as the Poland Public Service Broadcaster, is less than $5 per capita Spain
South Africa
Taiwan
0 20 40 60 80 100 120 140 160 180 200
Source: Sustainable Public Funding, A Survey of Broadcasters (TVNZ, 2006)
TVNZ Submission: MCH Regulatory Review April 2008 17 Wealthier countries appear to spend comparatively more on public broadcasting … Impact of Relative Wealth on Broadcasting Spend
200
Iceland 180
Nor w ay
Sw itzerland 160
Ge rm any 140 ) UK De nm ar k ZD N (
a 120 t Finland pi a C
r 100 Wallonia (Belgium) Sw eden ng pe Hong Kong Slovenia Austria
Fundi 80 c Ireland
ubli Japan P Flanders (Belgium) 60 France Australia Ne the r lands Italy Quebec (Canada) 40 Croatia Canada Israel Czech Republic Gree ce Portugal New Zealand 20 South Korea Latvia Poland Lithuania Turkey Spain Chile South Africa Taiwan 0 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP per Capita (NZD)
Source: Sustainable Public Funding, A Survey of Broadcasters (TVNZ, 2006)
TVNZ Submission: MCH Regulatory Review April 2008 18 … but even after cost of living adjustments, New Zealand’s spend is particularly low Impact of Relative Wealth on Broadcasting Spend (Cost of Living Adjusted)
250
) 200 Iceland ZD N ( d e t jus d Sw itzerland ng A i 150 Liv of
UK t De nm ar k Nor w ay s
o Ge rm any , C
a Finland pit a C 100 r Slovenia Sweden Croatia pe Wallonia (Belgium) Japan
ng Hong Kong Austria Ireland Fundi c France Flanders (Belgium) ubli 50 Italy
P Ne the r lands Czech Republic Israel Australia Greece Portugal Quebec (Canada) Latvia South Korea Turkey New Zealand Canada Poland Lithuania Spain South Africa Taiwan 0 Chile 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 GDP per Capita Cost of Living Adjusted (NZD)
Source: Sustainable Public Funding, A Survey of Broadcasters (TVNZ, 2006)
TVNZ Submission: MCH Regulatory Review April 2008 19 Stable, consistent and sustainable funding of Public Service Broadcasting is required
• Reliance on advertising carries with it a cyclical risk. Advertising revenues fluctuate with GDP – As a consequence there is a cyclical risk to local programming investment – Sustainable funding is required in order to maintain programme diversity in the face of this cyclicality • Audience fragmentation in a digital environment carries with it financial concerns for PSBs like TVNZ which are reliant on advertising – Erosion of audience share over time may lead to lower ratings, lower prices for ad inventory and ultimately, to a reduction in both advertising revenues and the funding base – Uneven competition in a multi-channel FTA and Pay-TV environment is contributing to audience fragmentation • While advertising revenues are likely to come under increasing pressure over the long term, programming costs are increasing – Foreign content is becoming more expensive to acquire, particularly premium content, with competition from Pay TV operators. There are relatively fewer first-run series and films targeting a mass audience, relative to the increase in the overall number of channels. As a consequence, rights to first-run series and films are becoming more expensive – Local content is expensive to produce (often costs 6-12 times more than purchasing foreign content)
TVNZ Submission: MCH Regulatory Review April 2008 20 Relying on advertising, especially television advertising, carries cyclical risk Relationship Between Ad Spend and Economic Growth (December Years)
2,500 20% Nominal Total Ad Spend Growth
15% Nominal Television Ad Spend Growth 2,000
Nominal GDP Growth
Total NZ 10% Advertising 1,500 Spend Nominal NZD Year-on-Year millions, 5% Growth nominal (Lines) (Bars) 1,000
0%
500 -5%
0 -10% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: ASA; Statistics NZ
TVNZ Submission: MCH Regulatory Review April 2008 21 Competitive pressure has resulted in a substantial increase in the cost of foreign content …
Foreign Programme Costs Local Programme Costs
500 200 Index Relative Index Relative to 2004 Cost 450 to 2004 Cost per per Programme Programme 400 Hour Hour 150 350 Local Basket
300 Local programme cost Foreign Basket increases have been 250 100 more modest, with some exceptions
200 Popular drama, soap and reality series have 150 all experienced substantial price rises 50 100
50
0 0 2004 2007 2004 2007
Source: TVNZ
TVNZ Submission: MCH Regulatory Review April 2008 22 … but in spite of increases in the cost of foreign content, local content remains very expensive
Cost per 30 min Segment of NZ on Air Indicative Cost of Local Content vs Foreign Funded Programmes by Genre Content by Genre (various Top-rating $600,000 Programmes)
$500,000 Children's
$400,000
$300,000 Reality
$200,000
$100,000 Foreign Drama/Soap Local
$0 Drama Children's Comedy Documentary Children & Drama Young Persons
Source: NZ on Air; TVNZ
TVNZ Submission: MCH Regulatory Review April 2008 23 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 24 New Zealand’s rules do not promote diversity
• New Zealand has paid little attention to the broadcasting and media competitive environment – Unlike other electronic communications and network industries, New Zealand has relied on general competition law for broadcasting • In other jurisdictions, such as Australia, UK/Europe, and the United States, marketplace rules for broadcasting and media cover areas such as: network access; wholesale service provision; media ownership and mergers; anti-siphoning; anti-hoarding; and other conditions imposed by way of licensing of television service providers – The objective of marketplace rules in these countries has been to promote: plurality of voices in the media; cultural diversity and national identity; programme diversity; community standards (incl. advertising content and levels); universal coverage of a free broadcasting service; and efficient allocation of scarce spectrum – Many countries encompass broadcasting rules under a wider framework applied to all electronic communications, thereby recognising the concept of convergence – In New Zealand, marketplace rules for electronic communications networks and services is limited to that of telecommunications • New Zealand and overseas countries are at opposite ends of the spectrum in terms of current marketplace rules – All countries, regardless of current marketplace rules, are seeking to stimulate innovation and encourage competition in a converging environment. For some countries that means simplifying current rules, while for others it means putting some rules into the marketplace • The status quo is unacceptable if diversity is the desired outcome – The market structure and competitive environment in New Zealand is very different. No other flagship PSB in any other country has to compete against a dominant, vertically-integrated pay- TV provider – The lack of marketplace rules for broadcasting places enormous pressure on TVNZ and other FTA broadcasters
TVNZ Submission: MCH Regulatory Review April 2008 25 New Zealand’s policy environment is very different to that of other OECD countries …
Objective Types of Policies and Measures NZ Situation (broadcasting) Plurality of • Restrictions on cross-media and cross-sector ownership NO voices in the • Restrictions on the reach of individual broadcasters NO media (number of channels or audience reach) • Restrictions on line of business NO • Funding of public service broadcasting Very Limited Cultural • Broadcast quotas for programming produced domestically NO diversity and • Financial and other assistance to encourage domestic Very Limited national content production identity • Restrictions on foreign ownership of broadcasters NO • Funding of public service broadcasting Very Limited Programme • Quotas for particular types of programming, such as news NO diversity and current affairs, programmes with high production values, educational programmes, children’s programmes • Obligation to provide certain programming deemed to be NO of national significance on free to air television • Funding of public service broadcasting Very Limited • Must-carry rules for cable and satellite operators NO
Source: OECD
TVNZ Submission: MCH Regulatory Review April 2008 26 … with the main focus being on standards
Objective Types of Policies and Measures NZ Situation (broadcasting)
Community • Content prohibitions and restrictions relating to YES standards offensiveness, taste and decency • Requirements relating to accuracy and impartiality in news and current affairs programmes YES
Restriction on • Restrictions on the amount of advertising NO advertising • Prohibition of advertisements for certain goods (e.g. YES tobacco products) • Restrictions on advertising during programmes intended Self-regulation for young children Universal • License conditions stipulate coverage obligations NO coverage of a free broadcasting service Efficient allocation • Restrictions on the number of broadcasters NO of scarce spectrum
Source: OECD
TVNZ Submission: MCH Regulatory Review April 2008 27 The lack of marketplace rules has allowed SKY to develop as a vertically-integrated media business …
NZ Market Participants Other NZ Other NZ Stage Description SKY/ TVNZ Broadcasting Participants Prime Participants (examples) Content Produce multimedia content for Independent studios; Fairfax; APN; Originators each of the main distribution 9 9 Mediaworks; MTS; radio individuals methods broadcasters
Content and Package content into bundles or MediaWorks; MTS; Fairfax; APN Service brands (often called “channels”) to Freeview; radio Packagers be delivered to consumers 9 9 broadcasters
Service Translate content into a form that Media Works; MTS; radio Telecom; Vodafone; Providers can be decoded by Consumer stations; TelstraClear Xtra; ihug Premises Equipment (CPE) 9 9
CRM Manage individual customer TelstraClear Telecom; Vodafone; Managers relationships, including pay-per- Xtra; ihug view; personalised interactivity; 9 and customer accounting Infrastructure Communicate to and from service Kordia; TelstraClear Telecom; Vodafone; Operators providers, at both wholesale and Vector retail level 9
CPE Provide customer-site equipment Independent retailers of Independent retailers Providers that translates signals into STBs of computers, audio/video signals, controls access 9 modems, telephones, and permits interactivity etc
TVNZ Submission: MCH Regulatory Review April 2008 28 … and assisted with SKY’s subscriber growth
800 000’s 50% SKY Subscribers Household Penetration by SKY
45% 700
MY SKY 40% 600 35% Wholesale 500 30%
400 25%
20% 300 Satellite 15% 200 10%
100 UHF 5%
0 0% 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 Year Year
Source: Annual Reports
TVNZ Submission: MCH Regulatory Review April 2008 29 The lack of marketplace rules has serious implications for both FTA television and consumers
• The lack of marketplace rules has serious implications for FTA television – SKY’s business model enables it to have deeper pockets than FTA. SKY’s subscription revenues exceed the advertising revenue of any single FTA broadcaster. As a consequence, FTA broadcasters are finding it increasingly difficult to compete with SKY for content • For example, TVNZ has to spend a substantially greater proportion of its revenue on programming than SKY – Unlike other countries, the lack of marketplace rules in New Zealand has allowed SKY to secure nearly all premium sports content – The lack of marketplace rules has allowed a variety of other anti-competitive behaviour to develop in the New Zealand market, including bundling, hoarding, cross-subsidisation and gate-keeping • The lack of marketplace rules also has serious implications for the New Zealand public – New Zealanders have to pay if they want to watch our national sports
TVNZ Submission: MCH Regulatory Review April 2008 30 Sky’s subscription revenues exceed the advertising revenue of any single broadcaster Broadcaster Funding Comparison NZD millions 700
600
500 MediaWorks Advertising
400 TVNZ Advertising
300
SKY 200 (subs only)
100
0 2002 2003 2004 2005 2006 2007
Source: Annual Reports
TVNZ Submission: MCH Regulatory Review April 2008 31 TVNZ has to spend a substantially greater proportion of its revenue on programming than SKY
TVNZ SKY NZD millions NZD millions 700 80% 700 80%
70% 70% 600 Total Revenue 600 Programming Programming Costs % Total Costs % Total Revenue Revenue 60% 60% 500 500
50% 50%
400 Total Revenue 400
40% 40%
300 300 30% 30%
200 200 20% 20%
100 100 10% 10%
0 0% 0 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Source: Annual Reports
TVNZ Submission: MCH Regulatory Review April 2008 32 The lack of marketplace rules has allowed SKY to secure most premium sports rights …
Sport Rights Rights Included Holder
Rugby Union SKY Domestic Test Matches, Tri Nations Tests, Super 14, Air NZ Cup, 6 Nations Championship, Heineken Cup, French Championship, Irish League, Vodacom Cup (SA), Top League (Japan), IRB World Sevens, Pacific Nations Cup
TVNZ IRB World Sevens Series
Rugby League SKY Rugby League World Cup, Domestic Test Matches, NRL Premiership, State of Origin Series, UK Super League
Cricket SKY Cricket World Cup, Twenty 20 World Cup, Domestic Tests and ODI’s / Twenty 20 Internationals, Provincial Championship, Australian Tri Series, IPL Twenty 20 League (IND)
Soccer SKY 2010 FIFA World Cup, English Premier League, FA Cup, Champions League, UEFA Cup, A-League, Spanish League, MLS (USA)
TVNZ 2010 FIFA World Cup (selected matches)
Netball SKY 2007 World Championships, Test Matches, Trans-Tasman League
TVNZ 2007 World Championships (selected matches), Test Matches, Trans-Tasman League (selected matches)
Olympics TVNZ 2008 Beijing Olympics
SKY, Prime 2010 Vancouver Winter Olympics, 2012 London Olympics
Commonwealth Games TVNZ 2010 Delhi Commonwealth Games
Motorsport SKY Formula One, Indy Racing League, NASCAR, WRC, Superbikes, MotoGP, World Touring Car Champs
TV3 Australian V8 Supercars, A1 GP
TVNZ NZV8’s, Toyota Racing Series, MX1 Motocross, MotoGP, British F3, Indy Racing League
Tennis SKY Grand Slams, ATP Masters
TVNZ ASB Classic, Heineken Open (NZ)
Golf SKY Grand Slams, USPGA Tour, European PGA Tour, NZ Open
Basketball SKY NBA, Australian NBL, NZ NBL, NCAA League (USA)
Rowing SKY World Championships, World Cup, National Champs
Athletics SKY IAAF World Champs, IAAF Golden League
TVNZ Submission: MCH Regulatory Review April 2008 33 … and also allowed a variety of other anti- competitive behaviour to develop
Behaviour Examples
Bundling • Because some sports events are sold as a total package (instead of individual competitions as in some other countries), SKY can use its purchasing power to secure total rights to sports events and thereby deny access to others e.g. Cricket • SKY is using its FTA business, Prime, to secure both PayTV and FTA rights to sporting events e.g. 2010 Winter Olympics and 2012 Summer Olympics. Prime satisfied the IOC ruling that every country should show the Olympics free-to-air
Hoarding • Even though SKY acquires both PayTV and FTA rights to sporting events, it seldom utilises any components to the FTA rights via Prime except on a limited, selective and delayed basis • Sky’s recent granting of FTA rights for the 2008 NZ-England cricket tests to Stratos coincidentally occurred during this Regulatory Review. However, these rights were not offered to all FTA broadcasters, just as other compelling sports content is not offered on an equal basis to all FTA broadcasters
Cross- • Prime’s advertising revenues are insufficient to purchase compelling content to attract and retain a viable Subsidising audience: SKY must be cross-subsidising the operation of its FTA broadcaster • Prime’s advertising revenues are not sufficient to win the Summer and Winter Olympics bids
Gate-Keeping • Sport is critical to New Zealand’s national identity. SKY has a virtual monopoly on live sports coverage • Until recently, a number of channel owners in New Zealand had nowhere to go but SKY in order to get their content to a broad and digital audience base. Consumers have to pay SKY even to watch FTA channels on SKY’s digital platform • The Optus D1 satellite has eight transponders servicing New Zealand. TVNZ contracted one transponder, which has since been transferred to Freeview. SKY contracted five transponders and took rights to lease the remaining two. As a consequence, there is no easy path for the growth of FTA satellite transmission
TVNZ Submission: MCH Regulatory Review April 2008 34 Gatekeeping results in New Zealanders having to pay to watch televised sports
Local Content Sports Coverage by Channel • Many New Zealanders are effectively paying 100% a “sports tax” – SKY Sport costs $64 per month, or 90% Maori $768 per annum – In order to get the Rugby Channel as 80% well, subscribers pay a total of $72 per month 70% SKY Prime • The median household income in New 60% Zealand is $56,000 – In order to participate in our sporting 50% culture, SKY TV sports costs around 1.5% of household income TV3 40% • SKY Sport costs a household $14.77 per week. This compares with average TV2 30% household spending of – Less than $13 per week on education 20% – Around $22 per week on health
10% – Almost $33 per week on clothing and TV1 FTA footwear 0% • To get in-depth rugby coverage, a household Split of Local Content Local Content Sports by pays a total of $16.75 per week to SKY Sport between FTA and FTA Broadcaster Sky TV
Source: NZ on Air Local Content Report; Statistics NZ. SKY website
TVNZ Submission: MCH Regulatory Review April 2008 35 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 36 Approach to the Regulatory Review
• The MCH Discussion Document focuses on five Areas: – Environment – Cross-Value Chain – Content – Distribution –Network • These five Areas break down into 19 Issues which are further explored in around 50 Questions in the Discussion Document • TVNZ has prepared its response to the 19 Issues, organised around the same five Areas as the Discussion Document. TVNZ has adopted a Principles-based approach to addressing the Issues, rather than focusing on individual Questions – During this (first) round of consultation, TVNZ believes it is important to focus on getting the direction of change right, rather than the mechanisms for implementing change • The Barometer depicting the need for marketplace rules (refer Executive Summary) indicates TVNZ’s view on the magnitude of change required in order to achieve a fair and level playing field for all market participants – The Barometer does not imply acceptance of the option for change as set out in the MCH Discussion Document – The Barometer is intended to indicate whether Updating (to ensure consistency), Restructuring (to reflect market changes) or Reform (to address specific issues) is warranted
TVNZ Submission: MCH Regulatory Review April 2008 37 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 38 Environment Issues
MCH has requested a view on TVNZ’s Position
• Whether the “Diversity Scenario” is a • The Diversity Scenario represents the best desirable state for New Zealand to work outcome for New Zealand because towards – The market should operate effectively (access, content, pricing, etc) – “public good” will be the greatest
• Whether the Threats and Issues to the • The Summary of Threats and Issues in the Diversity Scenario have been properly report provides a fair representation of the identified challenges facing New Zealand, many of which stem from a lack of marketplace rules • Broadcasting marketplace rules are the norm in many countries in order to ensure fair and efficient market and cultural outcomes, encourage competition and protect national interest • The most important Threats and Issues • The Barometer indicates the extent to which marketplace rules are required in order to achieve diversity
TVNZ Submission: MCH Regulatory Review April 2008 39 Diversity Scenario
Concentration Diversity • Everyone has access to digital platforms • Everyone has access to digital platforms • Content only accessible through small • High levels of digital use and literacy number of dominant proprietary services • Platforms and devices interoperable and devices • Effective content market • Decline in local content • Strong presence of local content • Limited plurality in news and current • News and info sources diverse, accurate, affairs balanced and relevant
Stagnation Fragmentation • Digital AV content available only in the • Digital platforms concentrated in towns cities and for the affluent • Online is the mainstream technology • Technology adoption stalls; commercial • Global content accessible through a wide broadcasting channels are the main media array of wireless and wireline devices • Content determined by concerns for • Very limited local content advertising revenue and access fees • Rise in user-generated content, spam, e- • Local content focused on “safe” genres crime, one-to-one advertising • Limited plurality in news, current affairs
TVNZ Submission: MCH Regulatory Review April 2008 40 Threats and Issues
Threats Issues Clarity and consistency of policy Regulatory Model Role of Regulator Cross-Value Relationship with ComCom Lack of competition and diversity Chain Media Ownership Media Literacy Lack of investment Standards Local Content Content Lack of local content Role of PSB Advertising Rise of cybercrime Access for the Disadvantaged Premium Content Distribution Inadequate protection of minors, Consumer Understanding etc Rights to Orphan Works Inequality of access to digital Technology Standards services Open Access Regimes Network Significant digital illiteracy & Post-ASO Spectrum Allocation confusion Investment in Digital
TVNZ Submission: MCH Regulatory Review April 2008 41 The Barometer indicates the extent to which new marketplace rules are required Barometer: Need for Marketplace Rules Status Quo Update Restructure Reform Restructure & Introduce specific Consistent & refresh in line with measures to counter up-to-date market changes specific threats CROSS VALUE CHAIN
Regulatory Model
Role of Regulator
Relationship with ComCom
Cross-Media Ownership
Media Literacy
CONTENT
Standards
Local Content
Role of Public Service Broadcasting
Advertising
DISTRIBUTION
Access for Disadvantaged
Premium Content
Consumer Understanding
Rights to Orphan Works
NETWORK
Open Access Regime
Technology Standards
Post-ASO Spectrum Allocation
Investment in Digital
TVNZ Submission: MCH Regulatory Review April 2008 42 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 43 Cross-Value Chain Issues
MCH has requested a view on TVNZ’s Position • The most appropriate regulatory model • Irrespective of which regulatory model is chosen for the future, existing marketplace rules are inadequate and diversity is threatened • The specific role and responsibilities of a • Agreeing the rules required to promote Converged Regulator versus the role of a diversity in today’s market is more important Single Regulator than determining the specific role of a future Converged or Single Regulator • Relationships and interactions between a • The Industry Regulator should focus on Single Regulator and the Commerce managing and monitoring diversity, and the Commission Commerce Commission should focus on competition issues • Market definition and cross-media ownership • Rules needs to reflect a better understanding of today’s broadcasting and media markets, not just broadcasting-like and converging markets • The delivery agency for media literacy • Agreeing to the scope of media literacy and committing funding to media literacy should precede determining the delivery agency
TVNZ Submission: MCH Regulatory Review April 2008 44 Regulatory Model
• An Industry Regulator is required – The Industry Regulator needs to balance New Zealand’s cultural interests with economic and market considerations • Irrespective of whichever regulatory model is chosen, the existing marketplace rules are inadequate. Diversity is already under threat as the current rules fail to prevent/remedy market dominance and abuse of market power • At a minimum, New Zealand needs to introduce marketplace rules for the broadcasting and media sectors in order to preserve and promote diversity – Recommended marketplace rules are outlined overleaf
TVNZ Submission: MCH Regulatory Review April 2008 45 Regulatory model cont’d
• General competition legislation is insufficient to deal with large network industries such as broadcasting and media – Other network industries, including electricity and telecommunications, operate with industry-specific marketplace rules • Marketplace rules to promote diversity and guard against a lessening in competition should include: – Preserving access to content through anti-siphoning and unbundling rules – Providing the consumer with more choice through a la carte rules – Establishing a media-specific public interest test • In the absence of the above types of marketplace rules, there should be: – Cross-media ownership safeguards – Separation of service providers from infrastructure operators in order to ensure universal access – Foreign-ownership safeguards (to apply to strategic media assets) • Marketplace rules need to be sufficiently flexible that they do not hinder innovation and investment in the development of convergence
TVNZ Submission: MCH Regulatory Review April 2008 46 Role of Industry Regulator
• The Industry Regulator should have responsibility for managing and monitoring media diversity, including – Maintaining plurality in the provision of broadcasting – Preparing regular industry monitoring reports on the state, structure and dynamics of the industry – Protecting Public Broadcasting Services – Overseeing industry self-regulation – Encouraging competition – Promoting and funding media literacy – Reporting on the impact of mergers / structural change for diversity – Advising on the planning and managing of the spectrum, including protecting the spectrum requirements of broadcasting • The Industry Regulator would be funded by Government to achieve policy objectives. Funding should be aligned with fulfilling statutory obligations and public good objectives • Funding of content should be independent of the Industry Regulator – Funding has to recognise TVNZ’s legislative obligations, as the Public Service Broadcaster
TVNZ Submission: MCH Regulatory Review April 2008 47 Role of Commerce Commission
• The Commerce Commission should retain responsibility for administering general competition law under the Commerce Act and the Fair Trading Act – Report on mergers and other structural change (seeking input from the Industry Regulator on the implications for diversity) – Investigate complaints relating to pricing, cross-subsidisation and perceived competition-related breaches of both industry-specific rules and general competition legislation • The Commerce Commission and Industry Regulator should be able to share confidential data
TVNZ Submission: MCH Regulatory Review April 2008 48 Market Definition and Cross-Media Ownership
• Broadcasting is a multi-layered industry in which market power at one level of the supply chain may have far-reaching consequences at other levels • Currently, cross-media ownership issues are more significant in relation to existing broadcasting markets than emerging “broadcasting-like” media and converging markets – Market dominance and anti-competitive behaviour is evident in existing broadcasting and media markets. Similar positions of market power could also emerge in converging markets • In the absence of other measures to guard against anti-competitive behaviour, cross-media ownership rules should be established – Ownership of service providers and infrastructure operators should be separated – The Industry Regulator, as part of its regular review of the state of the industry, should assess market structure and recommend any changes to cross-media ownership rules • Innovation and investment in broadcasting-like and converging markets is important. Existing broadcasters should not be constrained from investing in new markets, provided that activities do not lead to anti-competitive behaviour
TVNZ Submission: MCH Regulatory Review April 2008 49 Media Literacy
• Media literacy is becoming increasingly important • A media literacy programme should allow people to benefit from communication services by improving their skills, knowledge and understanding. Media literacy will enable people to – Access and engage with content – Be able to use media and communication services confidently – Distinguish between the different offers and get “value for money” • Media literacy should encompass all audio-visual content that is made available to the public and also, address issues such as internet safety • The Industry Regulator should have a specific duty to promote and fund media literacy • However, the industry needs to take ownership of media literacy programmes (funded by the Regulator) • TVNZ is committed to continuing to take a leading role in developing a media literate population
TVNZ Submission: MCH Regulatory Review April 2008 50 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 51 Content Issues
MCH has requested a view on TVNZ’s Position
• Whether the administration of • Refer to TVNZ’s Submission on the Future of Content standards should be Regulation amalgamated into the one body • The level, targeting and • Funding needs to increase and be more predictable administration of local content • A well-resourced, converged funding body is desirable as funding New Zealand faces a number of challenges in sustaining the viability, availability and accessibility of local content • Funding for TVNZ’s delivery of the Charter should be ring- fenced, as should funding for Maori and other minority programming • The nature of public service • Public service broadcasting should be strengthened and broadcasting in a digital age funding should be focused on Public Service Broadcasters operating under a Charter • Core PSB channels should be available to New Zealanders on their preferred digital platform, provided that the Public Service Broadcaster is not disadvantaged • The regulation of advertising • The industry should be regulated
TVNZ Submission: MCH Regulatory Review April 2008 52 Content Diversity
• Local content is important to: fostering New Zealanders’ sense of national identity; promoting our cultures; informing, educating and entertaining society; and stimulating creativity • Current Government funding of local content is inadequate – Funding needs to be more predictable over a multi-year period – The economics of the New Zealand market mean that more public funding is required in order to deliver content diversity. The majority of local content is unprofitable and would not meet commercial performance criteria • Local content funding will never grow fast enough to match the proliferation of platforms and services. In order to maximise the value and visibility of local content, funding needs to be concentrated on a limited number of providers that New Zealanders can trust to deliver the New Zealand identity, rather than spreading resources thinly across numerous platforms and services – A greater focus on Public Service Broadcasters, operating under a Charter to deliver content diversity, would optimise the use of limited local content funding • A “must pay” obligation on Pay TV service providers (similar to the Canadian model cited on p42 of the Discussion Document Volume 2) could be used as an additional mechanism to boost local content funding
TVNZ Submission: MCH Regulatory Review April 2008 53 Content Diversity cont’d
• A well-resourced, converged funding body would lead to lower administration costs and also, promote streamlined contestability, effectiveness and transparency in funding. This would be desirable as New Zealand faces a number of funding challenges in sustaining the viability, availability and accessibility of local content: – High quality, original and innovative local content is expensive to produce – High quality local content is riskier for the commissioning broadcaster as it does not always have the same “mass audience” appeal as imported genres and formats – New and emerging technologies mean that more content has to be delivered across more formats in order to be accessible to a fragmenting audience • However, a converged funding body must align funding with statutory obligations – Funding for delivery of TVNZ’s Charter should be ring-fenced – TVNZ should receive bulk funding for the delivery of its Charter, with performance being judged on Charter outcomes. Bulk funding would bring TVNZ in line with Radio New Zealand and the Maori Television Service – Funding for Maori and other minority programming should also be ring- fenced • Additional conditions of access to funding (commissioning, scheduling, etc) are unnecessary. The funding body could use the mechanisms of new channels and new media services to promote diversity and maximise visibility and accessibility of funded programmes – The growing diversity of media makes it even more important that broadcasters have the freedom to schedule according to audience needs
TVNZ Submission: MCH Regulatory Review April 2008 54 Public Service Broadcasting
• A strong Public Service Broadcaster is important in New Zealand – A strong Public Service Broadcaster operating under a Charter is important in fostering a sense of national culture and identity. Public Service Broadcasting brings New Zealand to New Zealanders – TVNZ has a specific role to play as the Public Service Broadcaster to deliver the best of local and overseas content – TVNZ has a particularly important role to play in featuring New Zealanders and New Zealand events on FTA television as the majority of media in New Zealand are foreign-owned – The Public Service Broadcaster is not simply a deliverer of local content. Foreign content helps to attract audiences and generate the commercial revenues required to pay for local content which is expensive • Public service broadcasting should be strengthened to ensure: the continued visibility and impact of local and public service content; plurality of voices in the media; and independence in an increasingly globalised world – Funding of public service broadcasting will need to increase in order to: uphold the prominence of local content; compete for premium content; reduce the reliance on a finite pool of unpredictable and increasingly fragmented advertising revenue; and provide “new media” public service content across digital platforms – A greater focus on TVNZ, as the Public Service Broadcaster, would be the most effective means of ensuring continued delivery of local content, rather than spreading resources across multiple broadcasters and multiple platforms
TVNZ Submission: MCH Regulatory Review April 2008 55 Public Service Broadcasting cont’d
• TVNZ’s ability to deliver against the Charter fluctuates depending on revenues. Providing TVNZ with more certainty through greater public funding over a multi- year period would ensure higher levels of local content and better enable it to deliver on its public service remit – Long-term Government commitment is required in order to ensure that funding of dedicated public service broadcasters is predictable, certain and sustainable – Without long-term Government commitment TVNZ, as the PSB, will lack the funds to increase local content and purchase premium content • Core PSB channels should be available to New Zealanders on their preferred digital platform, so long as this does not disadvantage the Public Service Broadcaster – Limited sales and subscription data should be made available to channel owners in order to bring greater transparency to the market around viewership and to help channel providers and the Government better direct programming and funding initiatives • Rather than having an independent body monitoring Public Service Broadcasting, the Industry Regulator should conduct regular market reviews of the whole industry’s performance, structure and dynamics. The Industry Regulator should also assess outcomes in terms of the diversity, quality and accessibility of content
TVNZ Submission: MCH Regulatory Review April 2008 56 Advertising
• FTA broadcasters should be allowed to advertise on Sundays – The current Sunday morning advertising ban is inconsistent with other media, including Pay TV – The Sunday morning advertising ban is also inconsistent with international practice • As advertising funds the bulk of FTA broadcasting in New Zealand, any regulation which impacts on revenue could threaten funding of local content and the purchase of premium content • Other aspects of Advertising are covered in TVNZ’s Submission on The Future of Content Regulation
TVNZ Submission: MCH Regulatory Review April 2008 57 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 58 Distribution Issues
MCH has requested a view on TVNZ’s Position
• The accessibility of content for disadvantaged • Public funding of captioning should increase viewers and public funding of audio-described television should be introduced in order to improve access for disadvantaged consumers • The availability of premium content and • The current structure of the broadcasting services market in New Zealand means that anti- competitive behaviour is a growing reality and needs to be remedied through marketplace rules • Consumer understanding of the copyright • The Government needs to invest in Media framework … (and separately), the issue of Literacy so that consumers understand internet safety copyright • Similarly, investment in Media Literacy will help promote internet safety • An approach to dealing with “orphan works” • Unlocking orphan works is important to “public good” • The industry should play an active role in agreeing the approach to orphan works
TVNZ Submission: MCH Regulatory Review April 2008 59 Disadvantaged Viewers
• Audio-visual content should be accessible to disadvantaged consumers • Increasing accessibility to disadvantaged consumers is a “public good” and should be funded by Government • Public funding of programme captioning should be increased so that deaf consumers have access to a wider variety of content across more channels and more platforms – The Government should fund an increase captioning of TVNZ, as the Public Service Broadcaster, to 100% – Extend subtitling to selected new platforms i.e. those whose usage is becoming widespread or which have particular relevance to the deaf community • Public funding of audio-described programmes should be introduced so that the blind and sight-impaired community are not disadvantaged by visual content
TVNZ Submission: MCH Regulatory Review April 2008 60 Availability of Premium Content
• The FTA business model is critically dependent on premium content to drive viewer numbers and the bulk of its revenue (from advertising) – FTA television, including the Public Service Broadcaster TVNZ, relies on premium content to attract viewers, and in turn, advertisers – Anti-competitive behaviour threatens the viability of FTA channels in New Zealand. As such, the FTA business model of the Public Service Broadcaster, TVNZ is also under threat • The current structure of the broadcasting market means that anti-competitive behaviour (siphoning, bundling, hoarding, cross-subsidisation) is a growing reality and needs to be addressed through marketplace rules • Establishing marketplace rules should not be regarded as a “step-backwards”, but instead necessary for the operation of a fair market and to protect public access to premium content – Rules governing premium content is well-accepted overseas to avoid anti- competitive behaviour and preserve access for the wider public • Ideally, the marketplace rules would include: – Anti-siphoning rules to provide fair access to all New Zealanders to key events, free-of-charge – Unbundling rules to restrict rights holders from selling to a single buyer/selling a single package/selling combined Pay TV/FTA rights. This would improve access by New Zealanders to events of national importance, provide consumers with greater choice and guard against monopoly behaviour
TVNZ Submission: MCH Regulatory Review April 2008 61 Availability of Premium Content cont’d
• The fundamental principle underlying these types of rules is that no operator should be able to act as the gatekeeper for content of national interest – Premium content should be available to all New Zealanders free-of-charge – Anti-siphoning and unbundling rules may need to extend across platforms other than Pay TV in the future • Any more limited anti-siphoning regime such as that suggested in the Discussion Document (extended highlights packages, near-live broadcasting and other premium content made available on “fair play” terms) should apply equally to FTA operators who are independent of the Pay TV rights holder – The Pay TV rights holder should not be able to choose the FTA operator, but rather, all FTA operators should have an equal opportunity to give viewers access to premium content • In addition, any limited anti-siphoning regime should be accompanied by consumer-oriented “a la carte” rules that allows consumers to buy television channels individually or in smaller packages than the current multi-channel basic offering • It is in the interests of sports in New Zealand that televised coverage is accessible to all New Zealanders in order to: encourage participation in sports; improve the health and well-being of the community; attract sponsorship; and help celebrate a shared sense of what it means to be a New Zealander
TVNZ Submission: MCH Regulatory Review April 2008 62 Consumer understanding
• Copyright law needs to be technology neutral • The Government needs to launch a range of initiatives aimed at increasing consumer understanding of the copyright framework in order to discourage consumers from copying and sharing digital content, and protect rights holders and the commercial value of intellectual property – Improved consumer understanding could be pursued as part of the Media Literacy programme – Improving consumer understanding of copyright law is increasingly important in a digital environment where content can be sourced from anywhere • The Media Literacy programme should also extend to promoting internet safety as again, it is difficult to fully police content/malicious activity which may originate anywhere in the world – New Zealand should cooperate with international initiatives aimed at improving internet safety
TVNZ Submission: MCH Regulatory Review April 2008 63 Orphan works
• Unlocking orphan works is important to “public good” as they allow New Zealanders to access their history, culture and identity • Legislation may be required in order to free-up copyright content and make the content available to New Zealanders • A Central Government Fund may need to be established to recompense copyright owners as they emerge • The industry should play an active role in agreeing the approach to an orphan works regime. An Industry Steering Group should be established to develop guidelines for both accessing copyright works and also, recompensing copyright owners – The Industry Regulator could administer the guidelines • In addition, the Government needs to fund digitalisation of orphan works to assist with their preservation and enable their transmission across a variety of platforms
TVNZ Submission: MCH Regulatory Review April 2008 64 Contents
• PART 1: Executive Summary 2
• PART 2: Terminology 7
• PART 3: Context
– Value of Public Service Broadcasting 10
– The Need for Marketplace Rules 24
• PART 4: Regulatory Review
– Approach 36
– Environment 38
– Cross-Value Chain Issues 43
– Content Issues 51
– Distribution Issues 58
– Network Issues 65
TVNZ Submission: MCH Regulatory Review April 2008 65 Network Issues
MCH has requested a view on TVNZ’s Position
• Open access regulation • Universal access would be best achieved through operational separation of the service provider and the infrastructure operator
• Technology standards • Network interoperability is desirable but faces technical challenges
• Spectrum allocation • Protecting sufficient spectrum for current and future needs of broadcasting is critically important
• Investment in digital content and • The lack of access to broadband is the key infrastructure constraint on New Zealand’s ability to participate fully in a digital world
TVNZ Submission: MCH Regulatory Review April 2008 66 Open access regulation
• Universal access would be best achieved though operational separation of the service provider and the infrastructure operator – Other network industries (telecommunications, electricity and rail) have been required to separate in New Zealand and elsewhere – TVNZ and Broadcasting Communications Ltd (BCL, now renamed Kordia) have been separated • In the absence of separation, FTA content should not be encrypted and should be available to consumers on their preferred digital platform, so long as the service provider pays content and service packagers for the FTA channels carried as this content helps drive the commercial revenues of the service provider – Consumers should not be subjected to unreasonable costs for receiving FTA content over their preferred platform • Freeview provides an important alternative digital platform into the homes of New Zealanders for both PSB and other FTA channels – Freeview should be supported on an ongoing basis – The premise for Freeview is universality so all FTA channels should be available on Freeview • Conditional access to services will always be required in order to: manage programme rights; manage subscription packages; and manage distribution across time zones • EPG providers should be subject to “must list” obligations that give prominence to the listing and promotion of Public Service Broadcasting and other local content (e.g. regional channels) so that viewers have easy access to PSB and local content – There should be no cost of listing on EPGs for the Public Service Broadcaster
TVNZ Submission: MCH Regulatory Review April 2008 67 Technology standards
• Network inter-operability is a desired future state – However, there are a number of technical hurdles to achieving this and networks would be compromised • The New Zealand broadcasting industry has already voluntarily cooperated in adopting DVB standards – This means that as long as the industry continues to adopt standards that are part of the DVB family, there will be inherent compatibility between networks – These standards continue to evolve over time as technology changes so there may be timing differences between the evolution of standards, but new technology will be compatible with old – Timing differences are unavoidable if the industry is to retain the flexibility to evolve with technology • The Government could extend media literacy programmes to include technology so that the consumer has a better understanding of the benefits and risks of new technology, and the life expectancy of old technology
TVNZ Submission: MCH Regulatory Review April 2008 68 Spectrum allocation
• The Government should establish a clear timeline for digital switchover – Analogue switch-off sooner than 2015 would benefit diversity as more services (and new services) can be added. Early switch-off would also have cost and energy savings – Setting an early date, together with other initiatives, would encourage consumers towards a faster switch to digital • In order to realise the digital dividend, analogue UHF licenses should be cancelled and returned to the Crown when the ASO date is reached • In allocating spectrum, property rights held by existing digital rights holders (TVNZ, MediaWorks and Kordia) should be respected – In freeing up spectrum that has been used for broadcast purposes, the priority should be broadcast-related services (mobile broadcasting, HDTV, IPTV, interactive TV) – At a minimum, spectrum should be reserved for protection of Public Service Broadcasting and other “public good” broadcasting (Maori, non-commercial, etc), including sufficient spectrum for these broadcasters to grow broadcast- related services • Ongoing management of the spectrum needs to enable the latest technology to be embraced while, at the same time, managing the gradual shut-down of legacy services • Any future licensing of broadcasters should not constrain innovation and entry into the market, but rather focus on controlling the integrity of broadcasters • The Industry Regulator should advise on the planning and management of the spectrum, in order to help protect the spectrum requirements of broadcasting
TVNZ Submission: MCH Regulatory Review April 2008 69 Investment in digital content and infrastructure
• Ongoing Government investment is required to provide certainty to content providers and ensure sustainable, viable and accessible local digital content – Government funding needs to increase (see Content Diversity) • The lack of access to high-speed broadband is the key constraint on New Zealand’s ability to participate fully in a digital world – A broadband infrastructure is essential for the development of broadcasting initiatives such as IPTV and interactive TV – The current lack of high-speed broadband infrastructure and low level of broadband penetration is constraining the development of broadcasting in New Zealand
TVNZ Submission: MCH Regulatory Review April 2008 70 Separating Roles
A proposed approach to the “Future of Content Regulation” consultation paper April 2008 Contents
• Background
• Introduction
• Proposed Framework 1. Access Neutral 2. Pragmatic 3. Permissive 4. Impartial
• Summary
Separating Roles Background
• Increasing number of sources of news, entertainment and information available
• Consumption of this content is in the hands of the user / audience
• Consumption is technology-led leaving content providers playing catch- up
• That means the existing regulations are creating an unlevel playing field for traditional media
Separating Roles Introduction
• The traditional reasons for regulating broadcasting in the traditional ways are fast disappearing • Distinctions between broadcasting, telecommunications, print and other forms of media are becoming increasingly blurred • This calls into question the logic of maintaining separate regulatory frameworks – BSA, ASA, Press Council • Prescriptive rules are becoming less feasible • Principle-based regulatory framework may be more suitable • Need for a single, coherent policy framework across the entire New Zealand media/communications sector
Separating Roles Proposed Framework
• Over-riding principle: Judge content against set standards, regardless of how it is accessed by the consumer
• New permissive, all-encompassing regulatory framework that supports, yet safeguards, the freedom of the individual to choose what information they receive and how they receive it
• Protecting consumers and minority interests, particularly children, from harm, ensuring community and cultural values are reflected, and providing fairness, balance, accuracy and privacy of the individual
• Content falls into four basic categories, regardless of how it is accessed: advocacy/advertising, news and current affairs, entertainment and education
• Codes/rules/regulation should be developed for each of these categories and not the method it is accessed by
Separating Roles Proposed Framework cont’d
• Codes/rules/regulation should be developed by the communications/media industry and reviewed regularly (every five years?) to stay in tune with community standards • Codes/rules/regulations should be enforced by a single regulator/authority on public complaints • The regulator/authority should first seek responses from the content provider complained about • Any codes/rules/regulation should relate to all content except that made available by private individuals • Other legislation covers private individuals, e.g. defamation laws • Any codes/rules/regulation should aim to be: 1. Access Neutral 2. Pragmatic 3. Permissive 4. Impartial
Separating Roles Proposed Framework cont’d
1. Access Neutral
Apply to all content in an access neutral manner
• Perpetuating a regulatory framework based around different rules for the different ways content is accessed inherently creates ‘winners’ and ‘losers’ and distorts the marketplace
• Separating content from the way it is accessed unfetters content providers to compete in new and emerging markets on a level playing field
Separating Roles Proposed Framework cont’d
2. Pragmatic
Apply to all content originating in New Zealand except for that made available by the private individual
• The relentless proliferation of choice makes it impossible for access to all content to be controlled and prescribed
• Many New Zealanders publish material online as a form of individual expression rather than for commercial gain
• The Unsolicited Electronic Messages Act (2007), which deals with New Zealand sourced Spam email, accepts the reality of what can be controlled
• Including internet, live streaming, interactive and mobile phone based services, as well as advertising (currently covered by the ASA) and newspaper news material (currently covered by the Press Council)
Separating Roles Proposed Framework cont’d
3. Permissive
Apply voluntary codes/rules/regulations across all ways of accessing content
• Industry developed regulation has been successful; let’s learn from that experience
• Industry developed regulation enables the regime to be agile to reflect and adjudicate on prevailing public standards and opinions rather than waiting for legislative change
• Codes/rules/regulations around types of content rather than the way it is accessed establishes a healthy tension between content providers to self-police, and enables content delivery to be separated from formal enforcement
Separating Roles Proposed Framework cont’d
4. Impartial
Establish a single regulator/authority
• Relieves content providers from the burden of being ‘referee and player’
• Provides consumers with open, independent and transparent monitoring and enforcement
• Objective source for educating consumers to enable more informed choices and raise the level of media literacy
• Has industry and community representation to ensure impartiality
Separating Roles Summary
• Current model is outdated and has been surpassed by technology and consumer behaviour • New regime needs to separate content from how consumers access it • Over-riding principle: Judge content against set standards, regardless of how it is accessed by the consumer • Establish universal standards based on a voluntary code that reflects cultural and community values, protects minority interests such as children, and provides fairness, balance, accuracy and privacy of the individual • Content falls into four basic categories, regardless of how it is accessed: advocacy/advertising, news and current affairs, entertainment and education. Codes/rules/regulation should be developed for each category, not the method it is accessed • Any codes/rules/regulation should aim to be: access neutral; pragmatic; permissive; and impartial • Codes/rules/regulations should be enforced by a single regulator/authority, with industry and community representatives, acting on public complaints
Separating Roles