WHAT IS CONTROL? Australians, or as many as possible, should have access to a choice of three commercial television channels Introduction In the same way as viewers in five of the six mainland capital cities. The The views expressed in this paper policy also made the grant of a third are entirely my own. They do not commercial television licence In Perth necessarily represent the views of any inevitable. person or company for whom I act or The means by which equalisation have acted in matters arising under is to be achieved remain an area of the relevant legislation. controversy. The debate about the use This paper is primarily concerned of multi-channel services (MCS) or with the answer to the question "What aggregation and the possibility of the is Control?". That question must now staging of MCS followed by aggregation be asked and answered In the light of has excited the regional stations. It the proposed new legislation announced has also been followed with great by the then Minister for Communica­ Interest by the networks. The timing, tions, the Hon. Mr Michael Duffy MP on commercial viability and the relation­ 27 November, 1986. In the absence of ship between MCS and aggregation are any more detailed information, it is all matters dealt with in the Broad­ necessary to speculate about the new casting Amendment Bill, 1986 which was regime to a considerable extent. reported on by the Richardson There are clearly risks in such an Committee. exercise, but they are risks worth taking In the debate about the new rules relating to ownership and The New Rules control. The mere announcement of them has brought about one of the The Government's proposal to greatest media reshuffles this country expand ownership and control to enable has ever seen. any one television owner to reach 75% For the sake of simplicity, and of Australia's population has opened because the process of change in rela­ up the whole market, both in respect tion to ownership and control of tele­ of the metropolitan stations and the vision appears to be more advanced regional stations. The combination of than in the case of radio, I propose proposed changes has given a new per­ to limit the scope of this paper to spective to networking. While all television. Except where expressly this may not rectify "the structural stated references to "the Act” are to imbalance" of the Melbourne and Sydney both the Broadcasting and Television stations to which reference Is so Act, 1942 and the Broadcasting Act, often made, it has produced a distinct 1942. shift in the balance, if not in the centre of gravity. Fears of undue Background concentration under the new ownership rule have been somewhat allayed by the The origins of the development of limitation on cross-media ownership. the equalisation policy and the Despite the frenetic market announcement of the 75% audience reach activity of the past few months, the proposals can be traced back to the existing law remains unchanged. Sec­ report presented by the Packer Organ­ tion 92 of the Act still prohibits a isation to the Fraser Government in person having a "prescribed interest" 1977, relating to the introduction of In more than two commercial television a domestic satellite system. Since licences. In his press release dated then, in the context of a series of 27 November, 1986 the Minister said studies, reports, inquiries and that the "two-station" rule was to be announcements, equalisation has become abandoned. He said it would be re­ central to the present Governments placed by a new rule which would limit commercial television policy as I per­ the reach of any one commercial sta­ ceive it. Equalisation means that all tion owner to 75% of Australia's popu­

-27- lation. An important feature of the As a result of the various acqui­ abandonment of the two-station rule sitions, subject to the approval of was the Introduction of limitations on the Australian Broadcasting Tribunal "cross-ownership”. The press release (ABT) and the passage of the imple­ said that the legislation which would menting legislation, the Networks are be Introduced would prevent a person now owned as follows: — from acquiring a television licence to serve an area in which that person, Brisbane: BTQ-7 QTQ-9 TVQ-0 for example, owned a daily newspaper Fairfax Bond Skase whose main circulation was in the same area, or who already held a licence Sydney: ATN-7 TCN-9 TEN-10 for a commercial radio station which Fairfax Bond wcc had a monopoly in the service area. Existing interests held on 27 Novem­ Melbourne: HSV-7 GTV-9 ATV-10 ber, 1986 which would otherwise offend Fairfax Bond WCC the cross-ownership rules were to be "grandfathered". The Minister made it Adelaide: ADS-7 NWS-9 SAS-10 clear that future acquisitions of a Stokes Lamb Bell prescribed interest in a television licence, whether or not that licence Perth: TVW-7 STW-9 WTW-10 was "grandfathered", would require the Bell Bond Stokes new owner to conform to the cross­ ownership test. This part of the Pending the enactment of the pro­ announcement made it clear that the posed legislation these various acqui­ new package of rules was intended to sitions must be the subject of applic­ be enacted with effect from 27 Novem­ ations under s92F. ber, 1986. Until the legislation is enacted, the Tribunal would be required to The Recent Acquisitions refuse the applications unless steps were taken by the applicant to comply It is against this background with the two-station rule. Under that a whole series of acquisitions s92FAA(ll) where an applicaton for have been made. As at 27 November, approval of a transaction Is refused 1986 the three existing networks were by the Tribunal, and notice of such owned as follows:- refusal given to the applicant, the applicant has six months after the Seven Nine Ten date of service of the notice, or such Network Network Network longer period as the Tribunal, on application, allows, to dispose of Brisbane: BTQ-7 QTQ-9 TVQ-0 excess prescribed interests. The Act, Fairfax Bond Skase therefore, recognises that trans­ actions which would result in a Sydney: ATN-7 TCN-9 TEN-10 contravention of s92 may be entered Fairfax Packer NTHL into. The contravention does not itself constitute an offence under the Melbourne: HSV-7 GTV-9 ATV-10 Act. The Tribunal may, however, give HWT Packer NTHL a direction for divestiture under s92N(l) where it is satisfied that a Adelaide: ADS-7 NWS-9 SAS-10 person is the holder of interests in a HWT(18) Lamb Bell company in contravention of s92. If the circumstance arose that there was In addition STW-9 Perth, also no reasonable prospect of the relevant owned by Bond, was an affiliate member legislation being passed in the fore­ of the Nine Network. TVW-7, owned by seeable future, the Tribunal could Bell, was identified with the Seven give directions under s92(l)(a), if it Network and the proposed new station thought necessary "to ensure that the WTW-10, owned by Stokes, was identi­ person ceases to hold interests in fied with the Ten Network. that company In contravention of that

-28- section". Such a direction cannot take which reach no more than 75% of Aust­ effect during any period in which the ralia's population, it is quite poss­ contravention referred to in s92N(l) ible that fairly elaborate provisions does not constitute an offence. Thus, relating to ownership and control in the direction may not be given until terms of the new limit will continue after expiration of the period of six to apply. It is to be hoped that the months after the date of service or opportunity will be taken for simpli­ notice by the Tribunal of its refusal fying and streamlining the existing to approve the transaction, or such provisions as far as possible. longer period as the Tribunal allows. It is interesting to speculate The directions when given would not how the limitation might be expressed necessarily require that the addition­ in the legislation. For example, al interest sought to be acquired by a s92(l) could be simply repealed and party following the Minister's announ­ replaced by a provision to the effect cement be the subject of divestiture. that, subject to the section, a person The divestiture could cover existing contravenes the section if, and so interests, which were held prior to long as, he has a prescribed interest the acquisition of additional pre­ in any licence or in each of two or scribed interests following the Minis­ more licences where the aggregate of ter's announcement. Alternatively, if the population in the service area of it emerged that there was no prospect that licence or those licences, as the of enactment of the legislation in the case may be, as determined by refer­ foreseeable future, application for ence to the most recent census, additional interests in excess of that exceeds 75% of the total population of permitted by the two-station rule Australia as so determined. Instead could be approved, subject to a condi­ of expressing the limit in terms of tion that any existing interests population, it would also be possible which, together with the new inter­ to express the limit in terms of audi­ ests, would be in excess of the rule, ence reach. Thus, the limitation should be disposed of. could be expressed in terms of tele­ In the period between acquisition vision homes. and the determination of any applica­ There is a real question whether tion there is, however, a difficulty the concept of prescribed interest about directorships. Section 92C(1) should necessarily be retained and a of the Act provides that:- question whether the concepts of own­ ership and control should be defined "Subject to this section, a more in terms of the ordinary meaning person contravenes this section of those concepts, rather than using if, and so long as, he is a deeming provisions to extend them to director of two or more companies cover situations where a mere poten­ that are, between them, in a tial for influence exists. A pre­ position to exercise control of scribed interest is, essentially, a three or more licences." shareholding, voting or financial interest of more than 5% in a company There is an obvious loophole in holding a commercial television lic­ this provision in that there is no ence: s9i(2). A person is also deem­ prohibition against a person being a ed to have a prescribed interest if he director of one company that is in a is in a position to excercise control position to exercise control of three directly or indirectly of a licence: or more licences. s92B.

Possible Legislation Change Control

The Act as it stands contains The definition of "control" in elaborate provisions regulating owner­ s9l(l) is expressed in inclusive terms ship and control. Given that the which do not define what control is, two-station rule is abolished and but describe the means by which replaced by a rule which limits sta­ control may be exercised. "Control" tion ownership or control to services is defined as including:

-29- "... control as a result of, or January, 1987. This is because the by means of, trusts, agreements, definition of "control" in s91(l) is arrangements, understandings and expressed in wide inclusive terms practices, whether or not having which are capable of extension to legal or equitable force and situations other than those specified whether or not based on legal or as those in which a person shall be equitable rights.” deemed to be in a position to exercise control under ss92A and 92B. Hence, It Is essential to determine what for example, the expression "in a is meant by "control". This is be­ position to exercise control” in cause a person is deemed to have a s92C(l) in relation to directorships prescribed interest in a licence, even has a meaning which is wider than that if he has no direct Interest in It, if connoted by the various deeming provi­ he Is In a position to exercise sions. It must be remembered, how­ control, either directly or indirectly ever, . that the ordinary meaning . of of a licence: . s92A. A person is "control" is the power or function of deemed to be in a position to exercise directing and regulating. It does not control of a licence under s92A(l) if: .extend to merely having a capacity to influence. "(a) that person is the holder of The wording in s92C is to be the licence; contrasted with the wording of the limitation, on foreign shareholdings in (b) that person is in a position s92D which refers to a person being to exercise control of . the "in a position to exercise control, company that holds the lic­ either directly or indirectly, of the ence; or company holding the licence”. This was the provision that was considered (b) that person is in a position in the abovementioned case by the Full to exercise control of . the Court of the Federal Court. In that operations conducted under case it was held that The News Corpor­ or by virtue of .the licence, ation Limited (TNCL) had a sharehold­ .. . the management of, the sta- ing interest such that it was .deemed tioh in respect of which the to be in a position to exercise licence is in force or the control of Network 10 Holdings Limited selection or provision of (NTHL) and Its subsidiaries pursuant the programmes to be tele­ to s92B of the Act. More importantly, vised by that station." the Full Court held that the premiums paid on the relevant shares were to be Section 92B sets out various included in the calculations of both circumstances under which a person is "an amount equal to the value of the deemed to be in a position to exercise shares" and "an amount equal to the control of a company. For the purpos­ value ... of the person's interest in es of these provisions "person" in­ the shares", within the meaning of cludes a company. s91(3)(b) of the Act. It was also Basically, the position is that a held that s92B did not exhaustively person who holds more than 15% of the define the meaning of "being in a voting power at a general meeting, or position to control, either directly who holds shareholding interests or indirectly, of the company holding exceeding an amount of 15% of the the licence" within the meaning of total of the amounts paid on all s92D(l). In my view, while some of shares, or all shares of a particular the reasoning relating to the inclu­ class, in the company is deemed to be sion of the amount of any premium in in a position to exercise control of the relevant calculations for the the company. These deeming provisions purposes of s91(3)(b) is open to ques­ are not, however, exhaustive: see In tion, the non-exhaustive construction Re The News Corporation Limited and placed upon ss90£ and 92B is undoubt­ the Broadcasting and Television Act edly correct. There is, however, a 1942 unreported, Fed. Ct. (Full Ct. clear distinction between ss92C and Bowen CJ, Lockhart and Beaumont JJ) 20 92D. Section 92C refers to "companies

-30- that are, between them, in a position interests in a company exceeding in to exercise control of 3 or more lic­ amount 15% of the total of the amounts ences”. Section 92D refers to a paid on all shares in the company. In person being "in a position to exer­ the third case, the Full Court deci­ cise control, either directly or in­ sion in Re The News Corporation Limit­ directly, of the company holding the ed and The Broadcasting and Television licence". in my view, s92C refers to Act, supra requires any premium paid direct control of the licensee company in respect of shares to be taken into in the sense of control of more than account in computing the amounts paid 50% of the votes which may be cast at on shares in the relevant company. In a general meeting of the relevant my view this result was somewhat sur­ company, or control of more than half prising. A premium is normally of the members of the board of direc­ credited to a share premium reserve. tors: cf W.p. Keighery Pty Ltd v While this reflects a shareholder's FCofT (1957) 100 CLR 66 per Dixon CJ, financial stake it does not, without Kit to and Taylor JJ at 84; Mendes v more, have any significance in terms Commissioner of Probate Duties (Vic) of control as distinct from mere (1967) 122 CLR 152 per Kitto J at 165; influence. Even more surprising was per Taylor J at 166; and per Vindeyer the decision that the ability to J at 169; and Kolotex Hosiery (Aust­ nominate one half of the board of ralia) Pry Ltd v FCofT (1973) 130 CLR directors of a company amounted to 64 per Mason J at 77-78; (1975) 132 being in a position to exercise CLR 535 per Gibbs J at 572-573. In control of that company. This equated FCofT v Commonwealth Aluminium Corpor­ a power of veto with control and also ation Ltd (1980) 143 CLR 646 the High required an assumption that the nomin­ Court distinguished the meaning of ees would vote en bloc as directed or "control" of a business. Stephen, required by the appointor. Mason and Wilson JJ said at 659-660 that shareholders, through their power Tracing Control to control the company general meeting and, perhaps, through their power to Once company A is deemed to be in elect directors, may be said to control of company B, company A is "control" the company, "but as a deemed to have any shareholding inter­ general rule they do not exercise de est that company B has in another facto control of the company's busi­ company. Thus, as long as the 15% ness.” The control referred to in level in any relevant sense carries on s92C is control of the licence, which up a chain from a company holding a means control of the business rather licence, all persons and companies in than control of the company. This re­ the chain will be deemed to be in quires control of the company in the control of the companies further down true sense rather than in any arti­ the chain and, consequently, of the ficial or deemed sense. company holding the licence. The Section 92B gives three instances position is made even more complex by of circumstances in which a person the provisions in s9lA for a means of shall be deemed to be in a position to proportional tracing, even where the exercise control of a company. In chain of deemed control of companies substance these are, first, where the has been broken. The tracing exercise person controls more than 15% of the is required to be done both horizont­ maximum number of votes that could be ally and vertically. Thus, a number cast at a general meeting, whether of proportionately traced sharehold­ with respect to all questions or only ings in a licensee company obtained one or more of such questions. through shareholdings in a range of Secondly, where he holds shareholding different companies may all need to be interests in respect of voting shares aggregated. This could result in a on all questions at a general meeting, person being found to have a prescrib­ exceeding in amount of 15% of the ed interest in a licence. There are total of the amounts paid on all also the provisions for loan inter­ shares of the same kind. Thirdly, ests. It is clearly a matter for where the person has shareholding consideration whether all of these

-31- detailed provisions will need to provision of programmes. survive the abolition of the two- Many people would now be familiar station rule. There would be much to with the form of programme agreement be said for a change which equated a entered into by STW9 with the Nine prescribed interest (now 5%) with a Network relating to the supply of deemed controlling interest (now 15%). programmes. It was shown as an attachment to the FDU Report on Future networking and Control Directions for Commercial Television. Under this agreement STW9 was not The concept of networking, bound to take any particular pro­ particularly in the context of the gramme, nor was it bound to show the proposals for MCS and aggregation of programmes at any particular time. regional television stations, raises Independence in relation to advertis­ important questions of control. ing was also assured. These and Currently, a person is deemed to be in other provisions prevented the rele­ a position to exercise control of a vant programme agreement from having licence if he is in a position to the result that STW9 was deemed to be exercise control of the selection or controlled by Nine Network Pty Ltd, provision of the programmes to be TCN9 Pty Ltd or any other company in televised by the station the subject the Packer organisation. In my view of the licence. It is generally the mere fact that licensee A (owned agreed that the introduction of MCS or and controlled by X) makes its full aggregation will stimulate the devel­ range of television programmes avail­ opment of networking from the existing able to licensee B (owned and control­ networks into the regional stations, led by Y) upon terms which do not unless an alternative network were to require licensee B to show all or any be established. Under the policy of of the programmes made available, or equalisation there is a perception to show them at any particular time, that this will entitle viewers to have should not have the effect that the the same choice of three commercial population in the area serviced by channels as do viewers in the mainland licensee B should be taken into capital cities- It does not necessar­ account for the purposes of the appli­ ily follow that this choice should be cation of the 75% rule to licensee A- a choice between three programme line­ Notwithstanding the elaborate ups which, apart from elements of framework of rules regulating owner­ localism, are identical with the ship and control which has now been in programmes currently being shown on existence for many years, Australian the three networks. Against this, commercial television stations have however, it is necessary to ask what formed networks. There is an existing objection there could be to a situa­ power under sl34 of the Act to make tion developing where, local program^ regulations governing the operations mes apart, the bulk of programming in of networks, but no such regulations regional areas was the same as that have ever been made. In its Satellite shown in the cities. This could not Programme Services Report in T984, the occur if the 75% rule were drafted or Tribunal listed four major economic interpreted in such a way as to limit advantages of networking: network coverage to 75% of the popula­ tion, thus arbitrarily depriving 25% (a) spreading the cost of programme of the population of the opportunity development, production and of watching programmes of a particular acquisition over a number of network. I doubt this is intended. stations; It could occur, however, if the net­ working arrangements were in such a (b) facilitating the national sale of form that the person or company which advertising; controlled the originating stations in the network was deemed to control all (c) reducing programme distribution participating stations (quite apart costs; from the ownership and control rules) by reason only of the selection or (d) scheduling of several hours of

-32- continuous programming when dis­ tributed simultaneously enabled the network to take advantage of audience flow" from one pro­ gramme to the next.

The Tribunal regarded some form of networking to be inevitable for commercial television in Australia. It regarded networking as economically rational and beneficial, insofar as it allowed high quality programmes to be made available to viewers throughout the country. The abolition of the two—station rule and the introduction of a 75% audience reach rule are them­ selves a recognition of the major part networking has to play in the future of commercial television in Austral­ ia* The report of the Richardson Committee also recognises the role of networking in commercial television broadcasting in Australia. The Committee pointed out that some types of networking arrangements may be advantageous or essential to the development of the Australian tele­ vision industry, in particular in relation to the production of more Australian programmes. It was also indicated that, provided demand for local programming was strong, network­ ing need not necessarily interfere with "localism” in commercial tele­ vision broadcasting in Australia.

Conclusion

It may be anticipated that the policy of equalisation will bring about the introduction of competitive commercial television throughout Aust­ ralia. The cross-media ownership rules should be accepted as an essen­ tial political step in an attempt to counter-balance the great increase in potential media ownership, control and influence provided by the adoption of the 75% rule.

David K. Malcolm QC