Senate inquiry into Australian content on broadcast, radio and streaming services Film Victoria submission – 12 February 2018

/ Australian content on broadcast and streaming services is subject to market failure and require continued Australian Government intervention. / These services provide accessible gateways for Australians to experience Australian stories that advance Australian culture and identity. / Without such intervention Australia risks dilution of its unique culture by global, commercial market forces. / Content sectors most at risk are adult and children’s drama, narrative comedy and documentary through which Australians have the benefit of seeing themselves represented on screen - their accents, humour, lifestyles, environments and history.

Introduction

/ The Victorian Government has three agencies dedicated to supporting and developing Victoria’s screen industry. Film Victoria provides strategic leadership and assistance to Victorian creators of film, television and digital media by investing in projects, businesses and people, and promoting Victoria as a world-class production destination nationally and internationally. Docklands Studios (DSM) is Victoria’s premier film and television production studio facility and Centre for the Moving Image (ACMI) is the national museum of film, television, digital games, digital culture and art. / Victorian Government support for the Victorian television industry is focused on the creation and production of television drama, narrative comedy and documentaries. These are generally high cost productions that rely on a degree of government financial support unlike other types of screen content such as reality television, news or sports. / The term “television” is used for convenience in this submission. It includes mini-series, series/serials, telemovies and online content (e.g. webisodes) for public and commercial broadcasters and streaming services. Increasingly, “television” content is being developed with one or more distribution platforms in mind. / While Australian television content is expensive for local broadcasters to commission compared to acquiring the equivalent imported content, it offers more cultural and social benefit. Very few television drama, narrative comedy, documentary and children’s programs would be produced and screened without government intervention in the marketplace. / The Victorian Government made submissions to the House of Representatives Standing Committee on Communication and the Arts Inquiry into factors contributing to the growth and sustainability of the Australian film and television industry and the Commonwealth Government’s Australian and Children’s Content Review. It is understood that these submissions will be referenced as part of this inquiry and are taken as read. / The Victorian Government welcomes another opportunity to highlight issues facing the Australian television industry, and independent production companies in particular. Many problems and possible solutions have been raised in the House of Representatives Inquiry and Content Review consultation process. We encourage the Commonwealth Government to consider any changes to the support it

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provides in a holistic manner. We also urge the Commonwealth Government to make swift changes where the solution is clear and has strong industry support, and to undertake further examination and industry consultation on more contested issues.

Current state and operation of the Australian television industry

The television industry has changed rapidly

/ Technological advancements such as the introduction of mobile technology (e.g. smartphones), multi- channels (e.g. ELEVEN), catch up television (e.g. ABC iView), subscription video on demand (SVOD) services (e.g. Netflix) and internet enabled devices (e.g. Chromecast) have fundamentally changed the way we watch “television”. / As a result, audiences no longer passively consume whatever is broadcast to their television set by public and commercial broadcasters. Audiences today can choose the content they wish to watch on a platform, device, time and location of their choice. / The Australian Video Viewing Report Q2 2017 highlights this trend, for instance: - The total number of screens in Australian homes continues to rise. The average household had 6.6 screens in Q2 2017, compared to 6.0 screens in Q2 2015. - The ubiquity of mobile screens (e.g. smartphones, tablets) has contributed to the gradual and steady decline in time spent watching live and time-shifted broadcast television on television sets at home. - Australians aged 18+ spend on average 20 hours and 30 minutes (20:30) per month watching online video on a desktop, laptop, smartphone or tableti. / The Deloitte Media Consumer Survey 2016 also provides insight into audience trends: - Despite rapid change in the options for how we interact with and consume media, watching television on any device is still our preferred entertainment activity (62% of survey respondents rate it in their top three). - The popularity of streamed programming in Australia is growing and now accounts for 22% of our total viewing time (up from 18% in 2015). This is on par with the US (22%), where streaming services have been in the market longer. - 22% of respondents now have a SVOD subscription in their household, up from just 12% in 2015. This could be expected to increase further, given patterns in more mature SVOD markets such as the US (46%) or Norway (41%) where these services have been available since 2007 and 2012 respectively. - The emergence of live video presents social platforms as complements (or future alternatives) to both SVOD services and on demand free-to-air (FTA). / Audiences are benefiting from and helping to drive an era of high screen content consumption that is currently being experienced by the global television industry, with huge demand for new content in all forms across all platforms. For example: - The “Netflix effect” is driving a boom in scripted television production and back catalogue acquisition. The number of scripted shows in the US has more than doubled since 2010; 216 shows aired in 2010 compared to 455 in 2016, and over 500 shows were expected to air in 2017ii. SVOD players Netflix, Amazon and Hulu were expected to spend a combined US$13 billion on original content in 2017iii. Apple is the newest market entrant with plans to spend US$1 billion on original content in 2018iv but it remains to be seen whether it can leverage its considerable resources to successfully compete with subscription and streaming services.

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- Reality television has become a staple of commercial FTA broadcasters due to its family friendly content and “water cooler” type content drawing large audiences for advertisers. Programs such as The Block, Masterchef and The Voice are routinely watched by audiences in excess of one million viewers every evening. Australian Ninja Warrior was a ratings success in 2017 and the finale was watched by over three million viewers. - Social media is driving the boom in short form “shareable” content. Each day, YouTube users watch more than a billion hours of videov and YouTube talent are becoming increasingly sophisticated at building and leveraging fan bases to create additional streams for commercial return.

Commonwealth Government support for the Australian television industry is inadequate

/ The Australian television industry largely owes its existence to Commonwealth and State government support that emerged in the late 1960s and early 1970s, in recognition of the cultural need for Australian stories and the high cost of their production. Direct and indirect Commonwealth and State government support has helped to sustain the creation of screen content that is a product of – and which responds to – Australian culture. / Commonwealth Government support for the Australian television industry is wide-ranging and has generally been successful. However, many of the policy and regulatory settings have failed to keep pace with the technological and other changes that have impacted the industry and are out of date. / Changing technology and audience behaviour and the rise of SVOD services have disrupted traditional business models and made it more difficult for Australian production companies to compete locally and overseas. These interconnected trends have made it harder to finance and earn revenue from screen content because: - Audiences have fragmented across the increasing number of platforms and services available, which has increased competition for audiences to earn revenue through advertising or subscription fees. - Audiences have higher expectations of what a quality drama should be due to the popularity of large budget productions such as House of Cards and The Crown, which has increased local production values and costs. An hour of Australian drama television now typically costs at least $1 million to produce, compared with $750,000 in 2010/11. / The aim of government intervention is to support the production of Australian television content and to support business activity, IP ownership, employment and the telling of Australian stories. Without intervention, or as interventions become outdated, these impacts diminish. / Government intervention should guarantee a baseline of Australian television production through appropriate funding and regulation to: - Support a minimum and continuous pipeline of television production activity to sustain the local industry (economic outcomes). - Ensure Australians are able to see Australian society reflected on screen (cultural and social outcomes).

Producer Offset

/ The Australian Screen Production Offset legislation is 10 years old and requires review to ensure that it continues to effectively support the growth of the Australian television production industry. The Victorian Government’s submissions to the House of Representatives Inquiry and Content Review recommended the following changes:

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- Increase the Producer Offset for television to 40%. - Remove the 65-episode cap on access to the Producer Offset. - Ensure the Producer Offset legislation is distribution platform and service delivery neutral. / The 20% Producer Offset for television (and other non-theatrical film formats) has remained unchanged since its introduction in 2007. An increase to the Producer Offset for television would recognise the rising costs of production and the other challenges faced by Australian broadcasters and production companies in producing original Australian content. An increase in the Producer Offset would also assist local production to compete for international finance. / An increase in the Producer Offset may also encourage additional production by platforms that are not subject to the content quotas and are not required to produce Australian content (e.g. Stan) as the cost of production may become more within their reach. / Removing the 65-episode cap would remove the penalty on successful television programs. Television drama series typically have a limited life span. If a show is not finding a strong enough audience to warrant continued investment it will usually not be re-commissioned. However, there have been several highly successful dramas that would have continued had it not been for the 65-episode limit, such as Dance Academy and House Husbands. / Adopting a neutral approach to distribution platform and service delivery would ensure the legislation remains up to date through periods of technological change.

Funding for Screen Australia, the ABC and SBS

/ Screen Australia, the ABC and SBS have suffered significant funding cuts since 2014/15. All three organisations have reduced staff and implemented other operational efficiencies to minimise the impact of funding cuts on production. / However, reduced funding for any of these investors in, and commissioners of, Australian content ultimately translates to less Australian television production as the financing pool for Australian television production is primarily limited to the broadcasters, SVOD and other services, Commonwealth and State government, and Australian production companies. / Reduced funding may also risk the quality of content produced if the development and production processes are squeezed with shorter timeframes and lower budgets. / Funding for Screen Australia and the ABC and SBS should be restored to pre-2014/15 levels. If this is achieved the funding should be specifically tied to the production of adult and children’s drama, narrative comedy and documentary content for digital and linear transmission, all of which should be commissioned from the independent production sector.

Content quotas

/ Please see relevant sections below.

Funding for content development

/ Commonwealth Government interventions are primarily focused on the production of television content (e.g. Producer Offset, content quotas) and little support exists for the development phase of the production process. / The time commitment by producers and writers to create new screen content is not adequately compensated either during the development phase or later if the project moves into production. Our best talent often moves overseas where they can find paid work. This results in underdeveloped scripts and programs that fail to resonate with audiences and struggle to compete with international productions.

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/ The quality of local television production, not just the quantity, should be of importance when considering the best mechanisms to support the industry. Better ways to fund development should be considered.

Uneven market power exists in the Australian television industry

/ The Australian television industry has many sellers (i.e. production companies) and few, large buyers (i.e. broadcasters and SVOD services). / The commercial FTA broadcasters have been successful, in part because of their size and power, in convincing the Commonwealth Government to continually reduce broadcast licence fees since 2011. It is estimated that the latest 25% reduction in broadcast licence fees granted in the 2017/18 Federal Budget will reduce the collective costs of the three main broadcasters by an estimated $150 millionvi. / While some commercial FTA broadcasters have stated they will redirect savings from the fee cuts to production, they are under no obligation to do so. If any further cuts to licence fees are made, consideration should be given to ensuring that savings are tied to minimum levels of investment (via licence fees/equity investments) in a diverse slate of domestic television production. / Film Victoria has observed that licence fees paid by broadcasters to producers for a television program have remained fairly static for many years (e.g. $440,000/hour for drama). At the same time, these fees encompass the licensing of broader rights such as online rights. Given the limited number of broadcasters in Australia and financing available for productions, both of these factors are limiting financial returns for production companies. / Multiple submissions to the Content Review argued that in-house production by a broadcaster is no different in terms of economic/cultural/social impact to an independent production and should be eligible for direct funding from Screen Australia and other screen agencies. / While this argument has merit, such a change to the funding rules is likely to reduce competition in the Australian television industry and the diversity of content produced as broadcasters will prioritise productions from their in-house production companies. As a result, independent production companies will have even fewer “doors” to commission and finance their productions. / Any changes to the policy and regulatory settings must consider the total costs, benefits and the overall impact on the Australian television industry and Australian audiences.

Value and importance of local content requirements for television

 The Australian Content Standard is the core government intervention that ensures Australian content is produced and screened on domestic broadcast services. The content quotas mandate the minimum number of total hours of original FTA Australian television content and sub-quotas apply for first release Australian drama, documentary and children’s television. The content quotas only apply to the primary channel of each of the three commercial FTA broadcasters (i.e. Seven, Nine and Ten networks).  The commercial FTA broadcasters provide a vital national service to Australians. The content quotas have been successful in ensuring the production of original Australian drama, comedy, documentary and children’s content that is accessible to all Australians.  However, the cost of producing quality Australian drama, documentary and children’s television means that there is little incentive for commercial FTA broadcasters to produce more content than is required by the Australian Content Standard, given that less expensive imported content can be acquired to fill much of their programming schedules.

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 The content sub-quotas therefore underpin the Australian screen production industry by providing a baseline in terms of the level of content produced and screened. Australia is a low volume market compared to its main international competitors (i.e. US, UK) and the quotas provide an essential baseline of Australian content for Australian audiences, and production activity and employment to keep skilled screen talent in Australia.  The Australian Content Standard also requires subscription television (e.g. Foxtel) drama channels, and drama channel package providers, to invest at least 10% of their total program expenditure on new Australian drama. The scheme appears to be operating effectively with a record high of $51.95 million spent on Australian and New Zealand drama programs in 2016/17, well above the minimum expenditure requirement of $34.61 millionvii.  Submissions to the House of Representatives Inquiry and the Content Review made many recommendations that may improve the operation of the Australian Content Standard including: - Review the definition of “first release” so that a New Zealand program that has already been screened in New Zealand does not count as first release content in Australia. - Allow commercial broadcasters to acquit some content on any platform not just FTA television so they can choose a platform best suited to the audience. - Review the way the quotas are calculated so that the points allocated to different formats reflect their relevance in today’s industry landscape.  More contentious recommendations were made in relation to imposing a content quota or similar on public broadcasters and streaming services. Public broadcasters are governed by their charter who argue that Australian content is intrinsic to fulfilling their charter and thus a quota is unnecessary.  SVOD services are currently deemed to fall outside of the definition of a “broadcasting service”, which in 2000 was determined to exclude a “service that makes available television and radio programs using the internet”viii. New players in the screen content landscape such as Netflix are not subject to content quotas (or a range of other regulation) imposed on traditional television broadcasters. This appears contrary to the original intent of the Broadcasting Services Act 1992, which was to apply a simple regulatory regime to television “irrespective of the technical means of delivery”ix. Further consideration is needed of whether this exclusion is appropriate and should be examined in the broader context of how best to encourage SVOD services to contribute to Australian television production.  The Australian Content Standard is complex and any changes should be considered in combination rather than isolation, and presented to industry for further consultation. Any proposed changes should be implemented with caution because if lowered, the content quotas most likely cannot be increased again without contravening the US Free Trade Agreement.

Value and importance of Australian children’s television

 There is a strong rationale to ensure Australian children continue to have access to high quality, entertaining content made especially for them that reflects Australian society, identity, humour and the world in which they live, as opposed to having access to predominantly US or UK content.  The Australian Content Standard has underpinned the level of local children’s content produced and screened. However, the current regulatory framework does not adequately support the production of unique, high quality Australian stories for Australian children.  The Australian Children’s Television Foundation’s (ACTF) submission to the Content Review highlighted the shift from live action drama to animation, and away from distinctly Australian content. The amount and proportion of live action children’s television drama has been in decline for over a decade as commercial FTA broadcasters seek to meet their content quota requirements by airing

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more low cost animated content. Animated shows are often co-productions that have a more “international” storyline that appeals to multiple jurisdictions. The decline in live action children’s television drama means that fewer distinctly Australian stories are available to Australian children.  The commercial FTA broadcasters claim that Australian children are not watching the preschool (P) and children’s (C) classified content they are required produce, and that older children prefer to watch family shows such as Masterchef. While this indicates weaknesses within the current regulatory settings, it does not relieve commercial FTA broadcasters of their obligation to screen Australian produced children’s content.  The ABC is the most significant commissioner of Australian children’s television. It does not need to meet the C classification for children’s content and can therefore be more innovative and bolder with its content. However, the ABC also has no obligation to produce children’s content and in the face of funding cuts, the amount of funding allocated to children’s television production could continue to decline. The reliance on the ABC as the main provider of local content for Australian children is problematic from both a production and audience perspective by limiting choice.  The ACTF plays a critical role in supporting the production of quality children’s content in Australia. With revenue around $4.4 million per annum, the organisation has a modest budget to discharge its functions across production and funding, education and advocacy.  Quality may be more important than quantity when it comes to children’s television content. The types of content children like to watch and how they watch it should inform government policy and regulatory settings.  Any new measures should be designed to encourage all platforms (whether FTA, subscription television, SVOD or other online services) to commission Australian children’s content.  The role the ACTF might play in supporting children’s television production should also be a key consideration in how this sector is supported in the future.  Submissions to the House of Representatives Inquiry and the Content Review raised a range of possible solutions such as a contestable fund and tradeable quotas for children’s television. Further examination of such solutions is required and as outlined above, any changes to the Australian Content Standard should be considered in combination rather than isolation, and presented to industry for further consultation. Any proposed changes should be implemented with caution because if lowered, the content quotas cannot be increased again due to the US Free Trade Agreement.

Contribution of the Australian television industry to the economy Television generates substantial economic impact

/ Australia’s screen industry delivers significant economic value to Australians, the extent of which was measured in the Screen Currency report released by Screen Australia in 2017. / Victoria has been the home of television production in Australia since the 1960s when Crawford Productions dominated drama production. Crawford Productions produced classic, long running series such as Homicide and , which provided the training ground and foundational skills for screen practitioners across writing, directing, producing and crew roles. Over the last five years an average of 50% of national television drama production expenditure has been located in Victoriax. / Television is the backbone of the Victorian screen industry and comprises between half to three quarters of annual screen production expenditure by projects supported by Film Victoria (see table below)xi. Television production expenditure in Victoria reached a record high in 2016/17, with 2017/18 also expected to be a strong year.

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Television production expenditure in Victoria (Film Victoria supported projects) Year Number of Production expenditure projects $m % of total 2016/17 41 161.9 70.2 2015/16 28 119.9 69.3 2014/15 23 97.0 55.9 2013/14 24 98.0 53.6 2012/13 27 107.8 76.1

/ Drama, comedy, documentary and children’s production is complemented by news, light entertainment, reality and other types of television content made in Victoria. The mix of production (e.g. genre, budget, local/interstate/international creative control) coupled with a strong pipeline of production is essential to maintaining a skilled talent base in Victoria, which supports the broader screen industry. / The television industry generates the majority of screen employment and typically provides longer employment contracts and greater job security. The television industry is also a vital training ground for screen professionals who go on to work in screen production and related creative areas in Australia and around the world.

Television generates substantial cultural and social impact

/ Australia’s screen industry delivers significant cultural and social value to Australians. Screen Australia’s 2017 report Measuring the cultural value of Australia’s screen sector demonstrates the substantial instrumental, institutional and intrinsic value provided by television and other screen content. / Television content has a unique ability to reflect Australian society, history, values, diversity, accents and humour through Australian stories that can be enjoyed by Australian and global audiences. / For instance, television can successfully promote national discussion and reflection about key issues affecting Australian society: - Struggle Street has given a voice to Australians doing it tough, helping all Australians as a community to better understand issues of social and economic hardship. The series provided a platform for a national conversation about disadvantage, with the potential to promote a better understanding of social issues to the broader public, thereby promoting tolerance, empathy and often a call to positive action. - First Contact drew an unprecedented level of positive feedback through its in-depth exploration of connections between Indigenous and non-Indigenous Australians, challenging misconceptions about the First Australians. With a broad and diverse audience, the series had a strong educational appeal to schools and universities via SBS's outreach strategy and cross platform resources. - The contemporary and highly topical social drama Romper Stomper revisited the prescient themes and story of Victorian screenwriter Geoffrey Wright’s iconic, provocative and controversial 1992 film. The series explores themes that remain relevant, 25 years later, as western nations confront the politics of hate and hard-right populism. / Television can also successfully showcase Australia to the world, promote Victoria and Australia as a tourism destination, and contribute to the visitor economy, for example: - Miss Fisher’s Murder Mysteries has been an undoubted success at home and abroad, running to three series with episodes reaching an average viewing audience of over one million people,

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selling into more than 120 territories, and spawning costume exhibitions, board games, jewellery, walking tours, an interactive digital adventure gamebook and a future feature film in the pipeline. - As Australia’s longest running drama series has become a household name in Australia and abroad with millions tuning in for their daily dose of family entertainment. The series has been home to over 200 Neighbours cast and crew filming more than 250 episodes a year. It has launched the careers of writers, directors and actors including Kylie Minogue, Guy Pearce, Jason Donovan and Margot Robbie who is now one of the most sought-after talents in Hollywood. The Neighbours studio complex attracts 10,000 visitors per year and Ramsay Street six to 12 visits weeklyxii indicating its enduring popularity. / Locally produced television programs have demonstrated the ability to resonate with domestic and international audiences and generate cultural and social impact. Adaptations of Australian literature such as Big Little Lies and Tomorrow When The War Began, are often successful as they are able to further develop a proven concept and build on an existing audience base.

i No comparison data available as Q2 2017 was the first quarter of measurement ii http://www.indiewire.com/2017/08/peak-tv-fx-scripted-series-tally-2017-1201865111/ iii https://techcrunch.com/2017/09/15/hulu-to-spend-2-5-billion-on-content-in-2017-add-7-more-original-series/ iv https://techcrunch.com/2017/08/16/apple-said-to-be-spending-1-billion-on-original-content-in-2018/ v https://www.wsj.com/articles/youtube-tops-1-billion-hours-of-video-a-day-on-pace-to-eclipse-tv-1488220851 vivi http://www.theaustralian.com.au/business/media/licence-fees-cut-by-25-per-cent-to-counter-netflix-effect/news- story/c862667ba2ad2262501500415dda35b8 vii https://www.acma.gov.au/Industry/Broadcast/Television/Australian-content/new-elig ble-drama-expenditure-scheme-results-i- acma viii https://www.alrc.gov.au/publications/16-broadcasting/definition-%E2%80%98broadcast%E2%80%99 ix Screen Producers Australia, Subscription Video on Demand Services, Position Paper 2017 x Screen Australia Drama Report 2016/17, additional statistics xi Film Victoria annual reports xii Free TV Australia submission to the Australian and Children’s Screen Content Review, September 2017

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