COMMONWEALTH OF AUSTRALIA Official Committee Hansard

SENATE

LEGAL AND CONSTITUTIONAL LEGISLATION COMMITTEE

Reference: Classification (Publications, Films and Computer Games) Amendment Bill 1998 and related bill

TUESDAY, 13 APRIL 1999

SYDNEY

BY AUTHORITY OF THE SENATE INTERNET The Proof and Official Hansard transcripts of Senate committee hearings, some House of Representatives committee hearings and some joint committee hearings are available on the Internet. Some House of Representatives committees and some joint committees make available only Official Hansard transcripts. The Internet address is: http://www.aph.gov.au/hansard SENATE LEGAL AND CONSTITUTIONAL LEGISLATION COMMITTEE

Tuesday, 13 April 1999

Members: Senator Payne (Chair), Senators Coonan, Cooney, McKiernan, O’Chee and Stott Despoja Participating members: Senators Abetz, Bartlett, Bolkus, Brown, Colston, Faulkner, Harradine and Margetts Senators in attendance: Senators Payne and Cooney Terms of reference for the inquiry: Classification (Publications, Films and Computer Games) Amendment Bill 1998 Classification (Publications, Films and Computer Games) Charges Bill 1998

WITNESSES

MACKINTOSH, Ms Patricia, Manager, Corporate Services, Australian Film, Television and Radio School ...... 135

SAUNDERS, Ms Ruth, Student Film and Video Distribution Manager, Australian Film, Television and Radio School ...... 135

BECKER, Mr Richard Anthony Llewellyn, President, Australian Independent Distributors Association ...... 138

GOODER, Mr Mark, Head, Film Division, REP Film Distributors ...... 138

SIMES, Mrs Megan Mary Barry, Chief Executive, Australian Visual Software Distributors Association ...... 146

JONES, Ms Ruth Alexandra, Chief Executive, Australian Film Institute ...... 155

VAUGHAN, Mr Daniel John, Manager, Events and Promotions, Australian Film Institute ...... 155 BLADWELL, Mr Stephen Stanley, Partner, Ernst and Young; Representative, Motion Picture Distributors Association of Australia, Village Roadshow and Fox Film Distributors ...... 165

YOUNG, Mr Michael Stanley, Director, Ernst and Young; Representative, Motion Picture Distributors Association of Australia, Village Roadshow and Fox Film Distributors ...... 165

WILSON, Miss Roslyn Margaret, General Manager and Director, Roadshow Entertainment, Village Roadshow ...... 165

BLIGHT, Ms Rosemary Anne, Company Director, R.B.Films Pty Ltd ...... 177

McEWEN, Ms Melissa Louise, Research and Policy Manager, Screen Producers Association of Australia ...... 177

HOLMES, Mr Geoffrey David, Principal Legal Officer, Attorney-General’s Department ...... 186

REABURN, Mr Norman, Deputy Secretary, Attorney-General’s Department ....186

WEBB, Mr Simon, Acting Deputy Director, Office of Film and Literature Classifica- tion ...... 186 Tuesday, 13 April 1999 SENATE—Legislation L&C 135

Committee met at 9.07 a.m. MACKINTOSH, Ms Patricia, Manager, Corporate Services, Australian Film, Television and Radio School SAUNDERS, Ms Ruth, Student Film and Video Distribution Manager, Australian Film, Television and Radio School CHAIR—On 24 March 1999, the Classification (Publications, Films and Computer Games) Amendment Bill 1998 and the Classification (Publications, Films and Computer Games) Charges Bill 1998 were referred to the Senate Legal and Constitutional Legislation Committee for inquiry and report by 29 March 1999. Due to time constraints and other reporting requirements, the committee lodged an interim report on 29 March and received an extension to report by 19 April. I welcome Ms Ruth Saunders and Ms Pat Mackintosh from the Australian Film, Television and Radio School. You have lodged submission No. 6 with the committee which I note for the record has been released for publication. Do you wish to make any amendments or alterations to that submission? Ms Mackintosh—No, we do not wish to make any amendments or alterations. CHAIR—I now invite you to make a short opening statement, at the conclusion of which I will invite Senator Cooney to ask questions. Ms Mackintosh—I will make this statement as short as I can. Basically what we are saying as a training organisation in this cultural field is that section 32 of the amendment legislation which will become subsection 91(1) of the new act, if it is passed, is the section which the school supports because, one, it ideally suits its situation and, two, we think it is a good continuation of past practices where the training nature of our organisation is recognised and also the cultural nature rather than the commercial nature of the films that it produces is recognised. CHAIR—Ms Saunders, do you wish to add anything? Ms Saunders—No. I would support that. Senator COONEY—Let me clarify this. You are quite happy with the bill as it is? Ms Mackintosh—Yes, we are. We are saying that we think section 91(1) suits our situation. Senator COONEY—You never thought of raising any objections to the bill at all? Ms Mackintosh—No. We would actually hate to see that particular section altered. I guess that is our real concern. Senator COONEY—Have you looked at the bill that is the subject of today’s discussion, and are you happy that that does not change your situation at all? Ms Mackintosh—Yes. Senator COONEY—Have you had legal advice on that? Ms Mackintosh—We have received advice on it, yes, and we have talked to our department as well. CHAIR—To DOCITA? Ms Mackintosh—Yes. Senator COONEY—I don’t think there is much point in persisting.

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CHAIR—I would like to ask whether you are aware of some of the criticisms of the bill, which are being made in the community and in various parts of the sector, I suppose. Do you have any comment to make on some of those? The Australian Film Institute and a number of other groups are being critical about the effect of Australian short films particularly. I would be interested in your perspective on that. Ms Mackintosh—All of our product is short film, certainly. Any further imposts on those products I guess will raise some concerns. We put our concerns into the submission. Extra imposts will be of concern, but we are certainly not objecting to those as such. CHAIR—Do you have in your work at the school any contact with distributors, any views about the impact on them? Ms Mackintosh—The main distributor with whom we work is AFI Distribution, which distributes all of our films. We are dealing with students films which are of a very short length. They can be from four minutes. A long film for us would be one of about 25 minutes. So you might say that we are almost a mini-market of our own. The main distributor within Australia is AFI Distribution. Overseas we use a number of distributors, but our so-called overseas distribution is more about getting our films into film festivals, which are not income producers as such, or they are very minimal income producers. They are more to promote the school and its students. Ruth, who are the other distributors that we deal with in Australia? Ms Saunders—We deal only with AFI. We occasionally deal directly with an exhibitor, a cinema, which would mostly be one of the independent ones like the Dendy or the Palace. What we have said to them in the past is, ‘If you take this film on as a commercial venture, then we rely on you to go through the classification process as a commercial film’—if they choose to do that. They may or may not feel that it is worth it in terms of their financial income from it. Most of our films—I would say 99 per cent—were screened in a cultural sense either at a film festival, in a program of short films or in programs that support the school in showing off the work of the graduates for our annual recruitment tour. The number of films that have actually had a theatrical, commercial release in the past 20 years, I think, would be one film. CHAIR—So Tropfest is your— Ms Saunders—No, not Tropfest. The Dendy awards are awarded at the Sydney Film Festival; the AFI awards, Melbourne. Tropfest, possibly, but it is a different kind of thing. Locally and internationally, film festivals are probably 60, 70 or 80 per cent about distribution. Senator COONEY—To follow on from what the chair was saying: in your submission, the fifth dot point says: If a cinema wants to screen an AFTRS film, the exhibitor is asked to arrange and pay the classification charges. Clearly this is a major disincentive to them. Screening a short film with a feature adds nothing to the income produced by that screen and costs the exhibitor money. Even if the exhibitor offers no payment to the maker of the short film (as is usually the case), he is still out-of-pocket and the film-maker has generated no income for him/herself. This situation is not conducive to encouraging a healthy Australian screen culture—the general public is deprived of the chance to see the work of new film- makers and taxpayers are unable to see the result of the taxes that are put into training these new film- makers. When I read that originally, that seemed to indicate some concern, but you have not got any concern about that now? Ms Mackintosh—These are the concerns of the distributors that are being communicated to us.

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Senator COONEY—But the big point is that that is not of concern to your organisation. Ms Mackintosh—We think if section 91(1) remains our concerns will be principally allayed. The concern was if there was alteration to that. Section 91(1) does recognise those films which may be shown in a so-called commercial sense but which are of a cultural nature. Senator COONEY—The main thing, though, is that this committee can be assured that your organisation has no concern about this bill, and that the dot point there was simply expressing the concerns that you have heard others entertain but which you yourself do not entertain. Is that right? Ms Mackintosh—Yes. CHAIR—A number of the submissions have made reference to the Office of Film and Literature Classification, which is an issue of some currency at the moment. Do you have any comments you wish to offer on the role of the OFLC and how it carries that role out? Ms Saunders—We have generally not been involved in such classifications because we do not have a wide commercial release. So as a school, we have no major opinion on it, other than as long as it reflects community standards, it is of no critical concern to us. Ms Mackintosh—Certainly, of those films we have had classified, we have had no concerns with the operation of the office, the timeliness of getting the classifications through or the appropriateness of the classifications. The films we make generally fall into the PG and the M classification. We were trying to work it out and we thought that, in the 25 years of the school, maybe one film made it into the R classification many years ago. I guess we are also not coming up with a product that is likely to create problems with the board or the classification office. Senator COONEY—In the eighth dot point you say: AFTRS is primarily a training organisation and consequently very little funding is allocated to the marketing of student films. However AFTRS is required to generate a proportion of its income from its activities, including the distribution of short films. What was the point of putting that dot point in the submission? Ms Mackintosh—We probably should have prefaced it by saying that our support is for section 91(1), as 91(1) gives the ability to either waive fees or, if not, look at a reduced fee for products of organisations such as ours. We have a fairly small product base really—25 to 30 films a year—and not a great market for them and, provided that section stays there, we shall be right. If we are facing full fees for student films, we have a concern. Senator COONEY—But, as long as that not the situation, you are happy, and the dot points you have set out there were just apprehensions that you might be charged the full fee. Ms Mackintosh—If 91(1) were to be amended, yes. Senator COONEY—If 91(1) was removed, there would be your fears. Ms Mackintosh—Yes. CHAIR—That is very helpful for us in putting the role of the AFTRS and this process into perspective. So, while this may have been a brief experience, thank you very much for joining us this morning and for making your submission, which also clarifies your situation vis a vis other players in the field. Ms Mackintosh and Ms Saunders, thank you very much. Proceedings suspended from 9.20 a.m. to 9.38 a.m.

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BECKER, Mr Richard Anthony Llewellyn, President, Australian Independent Distributors Association GOODER, Mr Mark, Head, Film Division, REP Film Distributors CHAIR—I note for the record that you had not made a written submission to the inquiry but you have now provided a document. Do you wish to table that submission? Mr Becker—Yes, I do. CHAIR—I would like to invite you to make a short opening statement, at the conclusion of which we will ask some questions. Mr Becker—Firstly, I will just explain a little bit about our association. Our members are responsible for most, if not the vast majority, of Australian and art-house film releases in this country. For the record the members include: the Australian Film Institute, Beyond Films, Dendy Films, NewVision Film Distributors, Potential Films, REP Film Distributors, Ronin Films, Sharmill Films, Globe Film Co., Other Films, and Total Films. All these companies have one thing in common; that is, that they are Australian owned and operated. They are also not affiliated with any US or overseas studios. Our members specialise in films that have what we normally call ‘exclusive releases’; that is, films that may be released in fewer than 20 theatres and would spend less than $100,000 on releasing their pictures. The films that they have released in recent years include successes like Strictly Ballroom, Thank God He Met Lizzie, Angel Baby and Shine, which are obviously recognised as some of the best Australian releases. To give the committee some idea of what the market represents, of about 1,600 theatres in the country, 108 specialise in art-house releases. In 1997-98 approximately $25½ million was generated at the box office by these so-called art-house films. That represents about 3.2 million Australian theatregoers visiting those theatres to watch these art-house films. There were approximately 46 films in that time period, which gave a mean of about $300,000 at the box office per film. There were 13 distributors that released those 46 films. The reason that the association wanted to be represented at this committee hearing was so that it could, on behalf of its members, represent that the proposed charges that were being put in the classification amendment bill and the classification charges bill 1998 will have a significant effect on the ability of many of my members to release exclusive films or art-house films, which will directly impact on Australian film releases, foreign film releases, short films and the other art-house films that fall into the art-house category. I have asked Mark Gooder, who handles feature film releases for REP, to explain to the committee just what is entailed in a feature film release of an art-house nature, the amount of money that is spent and the sorts of results you can expect given the figures that I have just outlined that we experienced in 1997-98. Mr Gooder—The first thing I want to say is that the returns or the margins to a film distributor in this country on what we term ‘exclusive releases’ are very, very small. At the moment we face an uphill battle in the marketplace to get audiences to come to those kinds of films. Unfortunately, a lot of Australian films fall into the category of ‘exclusive’, so we need to try to protect them as much as we can to make sure that we can still release those films to the marketplace. The example I want to take you to this morning is a film called Passion, which is a film made on the life of Percy Grainger. I will break down the estimates that we place on that film in terms of revenue and the costs of releasing it into the marketplace.

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Passion will probably release in the Australian marketplace on five or six prints. It is a very exclusive release into the kinds of cinema locations that will hopefully give us a return on our investment. The overall budget for releasing that film into the Australian marketplace is about $50,000. That breaks down, effectively, into prints and trailers at a cost of $15,000; advertising at a cost of $20,000; publicity and promotions at a cost of $10,000; and censorship and freight at a cost of $5,000. The expected gross box office on that film, according to our estimates, is about $200,000. The expected revenue or rental back to us as a film distributor would be about 30 per cent of that figure or about $70,000. At the moment the rental return, on average across Australia when you take into account the larger releases, can roughly come out at 33 per cent. So taking those two figures, the margin is $20,000 in terms of profit. Obviously, this does not include video or television revenues, but it is very difficult to make any sales to Australian television, even for Australian films, let alone for films that come from overseas. So working on the margin of $20,000 shows that any increase in areas of cost makes a difference, especially with regard to censorship. For us to get Passion through the censorship approval process, we would apply for the trailer to be exempt in the sense that we would not have put the film to the censorship board, so we apply for an exemption on the basis that the trailer is screening when the film has not been censored yet. So that is one cost. The next cost would be for the film to be censored. We send it to the censorship board for censorship. In the case of Passion, the film came back with an R rating, which we felt was inappropriate for the film and potentially damaging for it. The next step would be to cut the film and put it forward again for censorship. If the board still classified it as an R, then we would go back to the board with an application for review. Adding all those things up, potentially, with the new charges that you are looking at putting into place, the cost could be up to $15,000 for the whole censorship process. When you are looking at the margins of $20,000 on the release of an Australian film like Passion, that would effectively make us consider whether it was worth releasing the film. Mr Becker—If I could just go through those charges for a moment, it is sometimes difficult to identify exactly how this is going to work until we see how it is administered by the department. But, in the example that Mark gave, the way I read the act it identifies for the initial application a fee of $2,190; for the revised version, a fee of $1,940; and for an appeal, an application fee of $6,020. We would have to classify the poster that we would release into the cinemas, and that would cost $110. We would, as Mark indicated, need an exemption to release the picture early in the cinemas as a trailer, so that exemption would cost us $320. And there may be a debate, which we have not gone into, as to whether the censorship tags on the poster and on the film may need to be varied. We have identified in the act that a review of those censorship tags requires a charge of $4,430. That totals $15,010. We have not been able to identify just how trailers are costed. On the assumption that a trailer could be considered a short film, between zero and 15 minutes, our interpretation is that it would be treated as a short film and would be charged at $1,210—the current charge for a trailer is $100—and that would bring that example up to a potential cost of $16,220. Those sorts of fees just could make a significant number of art-house films non-viable. Our presentation to the committee, as we discussed earlier, I think adequately addresses our concerns regarding this tax and how onerous and unfair we believe it is. I would like to conclude this opening statement by discussing briefly AIDA’s position. Its members support a self-regulated censorship system. In the United States, the Motion Picture Association of America provides a censorship service to its domestically released feature films.

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The Australian video industry currently pre-classifies all G-rated video products. The New Zealand film industry classifies films to an M rating. The pay TV industry is not required to submit its programs to the OFLC for classification. And I understand the computer game industry has established procedures at the OFLC to pre-classify video games. We feel that our industry obviously needs an alternative to just our objection that this tax as being onerous. We suggest that a self-regulatory censorship system could effectively reduce those costs and provide our members with a sustainable industry. Thank you. Senator COONEY—As I understand it, and I might be wrong, you have made the submission that purely in terms of the economics—I think there was some suggestion somewhere, in any event—there might be constitutional issues. Did you want to say anything about that? Have you got any legal advice about those matters? Mr Becker—We have not had legal advice, no. Our members have discussed this at length, and as an association we have come to the conclusion that this attempt to, I suppose, create a tax system for the purposes of collecting fees attempts to step around the Constitution. Obviously, we have asked in our document if the committee could investigate that. Senator COONEY—I think it says in the second reading speech in the second last paragraph on the first page: These activities are related to an efficient and effective co-operative classification and enforcement scheme. They assist in ensuring that the classification decisions are acceptable to applicants and the public generally and in maintaining the integrity of the Australia-wide scheme. However, their costs cannot, for Constitutional reasons, be included in the fee for the provision of classification services. And it was on that that you are making your points. Mr Becker—Yes, we are concerned that we are now seen to be financing the enforcement of censorship classification. I would have thought that issues such as enforcement were matters for enforcement bodies such as the police, so I do not quite understand why our members are being asked to finance this part of the activity of the censorship board. Senator COONEY—On page 2 of the second reading speech I notice it says: The Amendment Bill also removes some of the formal requirements in making applications for classification of material for the investigation and prosecution of an offence. This is to overcome the failure of two prosecutions in 1997 due to a lack of compliance with all the formal requirements of an application for classification of the material concerned. Do you know anything about that at all? Mr Becker—No, I do not. Senator COONEY—As I understand it, you are saying that there are two ways over this: that the government bears the cost, or most of the cost—I suppose you would say the taxpayer bears the cost or the major part of the cost, and that might be right—or else you go to a self- regulatory scheme. They are the two alternatives that you put up. Have you got a preference for either of those? Mr Becker—Yes, I suppose the preference is for self-regulation, because that can be sustained over the longer term. Ultimately, the same debate we are having now is going to occur in the years to come. So, rather than go through it again, I think self-regulation satisfies the community’s need to set standards and, at the same time, keeps some controls over the cost of providing that service. Senator COONEY—Mr Gooder, you were talking about Passion. Clearly, you did not expect that to receive an R classification, so you went ahead and spent money that you felt

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 141 need not have been spent; that was the attitude you went there with. Is there any way you can get an idea of how a classification is going to work out? Mr Gooder—The only way is to make an assessment based on script. If you are buying the film at script then, obviously, you can identify certain scenes that may effect an R rating or a rating higher than a M. Senator COONEY—Your comment was—if I understand this—that you had to go back twice for a thing that you thought would clearly not get the R classification. Mr Gooder—Absolutely. We were doing it at the tail end of the current climate raised by the film Lolita. So, questionably, there may have been some reaction to this film on the basis of the current climate, which we could not predict. Senator COONEY—Because you were making a film about an Australian composer, and you thought it would be taken on that basis. Mr Gooder—Absolutely, it had what we call ‘general art-house appeal’, which would appeal to 25- to 55-year-olds, mainly women. We thought it did not have anything offensive in it, and the fact is that an R rating can damage your access in the marketplace to that demographic. We have also had experiences historically with other films. We had another Australian film, which was a children’s film called The Real Macau, on which we went through an appeal process, because we believed the film should just get a G rating, rather than the PG rating it was given. We won at the end of the day but, again, it cost us a fair bit of money. Senator COONEY—So the main thrust of what you are telling us is that the margins are really desperate. Mr Gooder—The margins are very, very tough, especially for Australian films. Because, as much as we would like to believe that the industry will welcome Australian films with open arms and that the audiences will do the same thing, the opposite is actually true. Australian films have a much tougher place to carve out in the marketplace. The fact that they do not work off the star system and the fact that audiences are used to American style films makes it very difficult for those films to be commercially effective. Senator COONEY—In that context, have you mentioned anywhere in your submission the issue of the value of Australian culture? Mr Gooder—No, we have not, only because our members represent the whole range of art- house releases, not just Australian films. We are obviously concerned about Australian films, because my members, as a body, would release more Australian films than any other body; that is for certain. We have a rich diversity of entertainment in the film industry. Films can reach out to wide audiences. A particular recent example is Life is Beautiful. It would have been hard to visualise a few years ago that a foreign language film would achieve more than $4 million of the box office, but it has happened. And I think it has happened because more and more audiences are looking for films that are different from the big Hollywood blockbusters, which tend to be event pictures. So I think that pressuring the art-house market so that the smaller distributors will have a difficult time assessing whether they can release these sorts of films will diminish the diversity that is available to audiences. Senator COONEY—How many films would you, or the system—whatever the right expression is—make money out of, and how many would lose money? The point of that question is that I was looking at the issue of tax, and if you are being taxed on things that are losing money, that seems to be pretty tough.

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Mr Becker—It is very hard to give you an accurate assessment. The industry talks about one in 10 films making money. So the one Life is Beautiful would make up for nine failures. Of course, our business is a big gamble. I would not say that to my shareholders, but there is a gamble in that you try to predict public opinion, and I think that success of most distributors is their ability to release a sufficient number of films to make the odds better that they are likely to get success. But, of course, censorship charges do not reflect that. You are just charged based on the film’s running time; not on the size of the film’s budget, not on the size of the film’s release, and not on the special nature of the film or on the impact or value it might have as an alternative form of entertainment. Senator COONEY—And, if you have to pay a tax, you are paying a tax on a losing business—which, I suppose, would be different from what normally happens. Mr Becker—Exactly. If you use this example of one in 10, then that means there are going to be up to nine times the taxes paid, where a company may not make it to the tenth. We are talking about small Australian distribution companies. These are not large companies. Senator COONEY—I suppose you are taxed the same on a successful film as you are on a losing film. Mr Becker—That is correct. CHAIR—In the part of your submission you describe as background, you have made a comment in relation to the OFLC’s classification service, which you describe as perceived as high cost/poor efficiency. Do you want to give us some more detail on that? Mr Becker—It is a perception. CHAIR—Is it your perception? Mr Becker—It is my perception and it is my members’ perception. I gave an example inside this document about the last movie convention, which is a convention where distributors display their upcoming product to exhibitors, so exhibitors from all round the country come once a year to Surfers Paradise and they screen new films that are likely to be released over the next six to 12 months. CHAIR—Exhibitors meaning cinema owners? Mr Becker—Yes. A number of my members indicated to me that there were at least four OFLC officers attending this convention in Surfers Paradise. I do not know what censorship has to do with a trade fair where we are showing future product; this is a question that baffled our members. If our members are being asked to pay a tax to support that sort of service, then we feel that service is inefficient. CHAIR—On the basis that your films are going to go through the OFLC process anyway? Mr Becker—They must—so they are not going to see anything they will not see by way of application. CHAIR—I have skim read your submission as we have been talking this morning. Another comment you make under the heading of ‘Issues’ is that the variation for the tax, as you describe it, is to be by way of regulation. Have you taken legal advice on that issue, or are you just making that observation that it is inappropriate? Mr Becker—We are just making the observation that it is inappropriate. We are hoping that the committee will help us review the legalities of some of these questions.

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CHAIR—Mr Gooder, could I ask in relation to the evidence you have given about the costs in association with the release of Passion: these are costs based on the regime set out in the bill, I assume? Mr Gooder—In terms of the $5,000 for censorship and freight or the new one? CHAIR—No, the $15,000. Mr Gooder—From what we can gather from reading? CHAIR—That is right. Mr Gooder—Exactly. If Passion, as an Australian film or as an independent film had gone through the process under the new charges? CHAIR—Right; okay. Mr Becker—I should identify that Passion has not been released yet. CHAIR—No, we figured that. I am not overly familiar with all of the ins and outs of the film release process. Is the trailer release exemption, which I think you indicated was $320, a normal process? That is one of the things you see in a cinema that says, ‘This has not been classified by the Office of Film and Literature Classification’. Mr Gooder—Absolutely, it is fairly standard. It means that basically you want to get your trailer up with an audience before the film has been censored; again, this is mainly because sometimes we do have to wait for the film to be censored. Obviously there are a large number of films coming through to be processed, so— CHAIR—What sort of time frame are you looking at for something like the process of classification? Mr Gooder—From beginning to end, including appeals and the whole thing? CHAIR—Yes. Mr Gooder—It really depends sometimes on when you applied because, obviously, prior to heavy periods of film releases— CHAIR—Like the United States summer? Mr Gooder—Yes, and pre school holidays; there is going to be a backlog. But the whole process, in terms of trying to recut the film and putting it back to the board et cetera, could take upwards of three months. Senator COONEY—I think you have made it clear you have not discussed the issue of fees and taxes in any formal way with a lawyer at this stage? Mr Becker—No, I have not. CHAIR—Again, in relation to your submission, on page 3 you refer to the Ernst and Young review. Could I just clarify: is it the case that the independent distributors were not consulted in that process? Mr Becker—I asked my members and none of them had been approached. In fact, we were not aware of it. I have spoken to some of the associations that were approached and they said that they were only given something like seven days to respond, in any event. It seemed to have been rushed through. I have tried to get a copy of this review because, clearly, the conclusion that was identified in the information pack stated that there was no single compelling argument supporting a change in the charging structure to provide concessions based on limited market appeal. Clearly, without discussing it with any of our members who

LEGAL AND CONSTITUTIONAL L&C 144 SENATE—Legislation Tuesday, 13 April 1999 work and live in that environment, I do not see how the review could have reached that conclusion. Senator COONEY—Did anybody discuss the actual bill with you? Mr Becker—No. We actually found out about it by accident. I think it was going to its reading in the House of Representatives and we ran around trying to find out as much information as we could. That is why we were quite late with this, but we wrote to as many senators as we could get the names of. CHAIR—Mr Becker, could you just perhaps give me a little more detail on the point that you make on page 4 under C in relation to performance indicators? Mr Becker—This is the area that obviously concerns us greatly. If, as I indicated in that example, OFLC officers are going to be travelling to attend markets, who decides what markets should be attended and in what force should they be attending? Are they are markets limited to Australia or should they be going to the Cannes Film Festival or the Berlin Film Festival? We just do not have any assessment as to what terms and conditions are being applied to the management of the OFLC. Consequently, the charges that would arise out of that would clearly be impacted by an increase in tax or increase in the charges which, again, our members would be paying a significant proportion of. CHAIR—So you are saying that if your money is going to pay for that part of the process, there should be an accountability or a performance indicator, as you put it? Mr Becker—Absolutely. CHAIR—You again refer to another report—one with which I am not familiar—and that is the commercialisation review by KPMG. Was that something in which you would or should have been involved? Mr Becker—We heard about this report. We do not know. We would like to see it. All these reports and reviews exist and consultants are being hired. Unfortunately it all seems to impact on our industry in a significant way and we have no knowledge of what these different reports are concluding, where they are drawing their conclusions from and what their recommendations are. Senator COONEY—Nobody writes you a letter or rings you up or asks your opinion at all about the classification system? Mr Becker—No. In fact, the department itself did not know about this act until we informed them. CHAIR—The department, meaning? Mr Becker—The Department of Communications, Information Technology and the Arts. CHAIR—At the beginning of your submission, Mr Becker, you read out your membership. Does that comprise the majority of the main independent distributors in Australia? Are you the peak body? Mr Becker—I believe that is all but one company. Senator COONEY—To sum up, you seem to be saying, ‘We’ve been asked to pay more than just a fee; it is a tax to encompass it all, and we’ve got no say or even any depth of knowledge about the way it is going to work.’ Mr Becker—Absolutely. We do not know where it will finish. That is the point. We started five years ago. I do not know the exact time frame, but my memory of when I got all involved in the day-to-day operation of film distribution is that censorship fees were about $250. They

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 145 now can be as high as—on a long running film—$3,500. Appeal costs, trailer costs, even charging censorship for T-shirts— CHAIR—What do you mean by that? Mr Becker—My reading of this bill indicates that there are charges to be applied to any— CHAIR—Do you mean like a promotional T-shirt for a film? Mr Gooder—Any non-film materials. I think there are charges in there for advertising materials. That would run from a simple invitation to the media to come and see a film—I presume that would have to be classified and will have a charge; we would have to send that in—to a flier. We would have to send in a flier for a film. A charge would be applied against it. We would have to send in a poster and a charge would be applied. Mr Becker—A lot of art-house films base their marketing success on less expensive means. In other words, they avoid television because of the sheer cost of advertising on television, and they would spend a lot of their time on grassroots community promotions that involve posters, invitations, premiers, particularly test screenings. I have just found the section; it is schedule 5, item 1: 1 Advertisement The following table sets out the amount of charge for an application for approval of an advertisement that advertises a publication, film or computer game: ...... 1 a poster, a photograph or any other written or pictorial material $110 2 an item of clothing $110 3 a container or wrapping $110 4 a recording from which sounds or images can be generated $160 So every time we move in trying to promote our films, we will be paying a fee for the purposes of having, as a I say, a T-shirt, given out at special screenings. Mr Gooder—Also, if we script some dialogue for a radio advertisement on Triple M, then we would have to send that forward to be censored or approved, and a charge would be made. CHAIR—Mr Becker, just a moment ago you said that the fee you used to face was about $250 and now it is about $3,000—to do the comparison. I assume you are not arguing that the OFLC should do this entire process without any effort towards cost recovery. It does cost them something and they have to make the charges reflect that to a degree, at least. Mr Becker—I always assumed that the OFLC service was a community service. The community demanded that certain standards be set for its film, television and publication material, and to prevent an abuse of that service there would be some entry fee to avoid people bringing in thousands of magazines and just trying to test the water to see whether there were going to be any opportunities there. But a fee of $250 is very different from a fee of thousands of dollars that then has a multiplying effect for everything that you do that surrounds that film. It has gone from a barrier of entry for serious players to an onerous tax that a lot of Australian independent film distributors will not be able to afford. CHAIR—Mr Becker and Mr Gooder, can I thank you both very much for appearing this morning. If there is any further information you want to provide us in this process, then we would be happy to receive that. I appreciate your evidence. Mr Becker—Thank you very much.

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SIMES, Mrs Megan Mary Barry, Chief Executive, Australian Visual Software Distributors Association CHAIR—Welcome. You have lodged submission No. 3 with the committee which, I note for the record, has been released for publication. Do you now wish to make any amendments or alterations to that submission? Mrs Simes—No. CHAIR—I invite you to make a short opening statement, at the conclusion of which we will ask some questions. Mrs Simes—Thank you. I will make three points; they are covered in the submission, but I will just reiterate them. I suppose the first one seems fairly trite: we are not happy to be paying the full costs of the OFLC functions. The association’s members are happy to pay the costs of classification itself; but they feel it is unjustified that they should have to pay the costs of the other functions which they see as not being directly classification related. Nevertheless, to a certain extent there is an acceptance that the government has made a decision and, if it is to go ahead, these are the points I would like to make. Generally, our members are quite happy with the current method of determining the fees—that is, on a sliding scale, depending on the length. We would be very concerned at a move to a system which meant that, basically, the distributors were subsidising their competitors. We feel that cross-subsidisation, based on any of the methods suggested during the Ernst and Young review, would be open to a lot of criticism in pretty well all instances. For example, turnover is not necessarily an indication because it does not represent profit; neither is the number of prints necessarily an indicator. In the case of videos, the number sold is not necessarily a good indication of profit; again, they are sold at different price points. With there being so many variables, it would be a system that would be very hard to administer and it would not necessarily be equitable. While we welcome the proposed provision to waive fees for product considered to be ‘in the public interest’, we are concerned in that its wording is rather vague. In the longer term, it could be open to quite a large volume of product being subsidised, again, by distributors of other types of products and product which is seen to be more commercial and, therefore, an easy target for cross-subsidisation—and that is not necessarily a legitimate view. I have not given a lot of background to the video industry, but there are two types of products: one is the sort you get in rental stores; and the other is the sort you buy at places like K-mart and Target to take home. For example, you can buy take-home product for $5, $10 or $25, or a product of several volumes—such as the Beatles anthology—probably costing $150 or $200, or something like that. Depending on the price at which it is sold and the cost of its development, the profit margin on each individual video will be quite different. We have made the point in the submission—and we think it is a very valid point—that, to a greater extent, the equity demands of these types of industries can be much better met by an extension of the exemption scheme. I have stated in the submission that AVSDA, while representing pretty well all of the big distributors of video and games product, also represents some small ones. A lot of those smaller ones and even the bigger ones do not release product; because of the classification fees, it is just prohibitive. With a classical music tape or a tape of an opera, or something like that, not many copies would be sold. Even though there would be some demand, once you add in the classification fees, it just is not worthwhile releasing and distributing it in Australia.

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As far as censorship goes, I think Australia is probably the most highly regulated country in the world. Certainly, the UC has a much broader exemption scheme. New Zealand accepts Australian and UC classifications. In Canada, it depends on the province but, generally speaking, it is not as highly regulated as Australia. In the US, it is administered by the industry. It seems to us that there is certainly much opportunity for streamlining our present system. While the companies recognise the Australian community’s need for classification and accept the community wanting a system administered by the government with the additional costs thereby entailed—as with any government function over a private sector function because of accountability needs—that system still does not need to be as complex and expensive as it is. There is already an exemption scheme which is working well, and there is no evidence of abuse of that. Also, with the games category being so complex, the OFLC trains people in the companies to do the preliminary classification—but it is really the bulk of the classification. They then come along and present it to the OFLC, and it makes the decision on that. Despite any success that we have in filtering material coming through the net, there will still be a lot of material, with the amount that will be coming through, that will not be censored. Some rationalisation, I think, needs to occur with changes in technology and what is coming into the country. The other point to make quickly—and we mention this in the submission—is that we would like to see more formal accountability and consultation from the OFLC. While, as I have said, we are quite comfortable with the sliding scale for the current fees, nevertheless the OFLC budget is based on current operating practices, and certainly there would be some criticism of those practices as to whether they are the most efficient possible. We would like to see a more open system of accountability from the OFLC; that is, a greater commitment to satisfying its customers, who will be paying 100 per cent of the bill, that it is the most efficient operation, that there are guarantees of efficiency. For example, with the 20-day processing time, we do not see the requirement for the director to give reasons in the annual report as being a very big stick which will make them adhere to that. I am not saying that there may not well be good reasons. For example, the government may not have appointed the additional people required, which is what happened a couple of years ago: they did not have the staff. But, when 100 per cent of the fees are being paid by the users, I think there is even more of a requirement to be efficient and effective. That is all I will say. Senator COONEY—You talk of the OFLC’s accountability. What do you mean by that? Do you mean that they should explain further how they come to their conclusions as to what classification to assign? Mrs Simes—No. It is purely in an administrative sense: if you are paying the bill, you want to know that the money is well spelt; if it be that much, you want to know that that is what it costs to run a lean, efficient organisation. You want to know that no fat exists and that the fees could not be cut down further just by greater efficiency. Senator COONEY—So you are not concerned about the process by which they come to their decision in any particular matter? Mrs Simes—No, our members have never expressed any concern about that.

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Senator COONEY—But you are concerned that the way they go around their task is as efficient and cost effective as possible. Mrs Simes—Yes. Senator COONEY—Are your members concerned at the moment that that is not happening? Mrs Simes—Yes, I think they are. Part of it may be a perception thing in that we are talking about private sector versus government. Clearly, they would say, ‘Well, I could do that cheaper.’ And they could, but that is not recognising that government processes have many layers that the private sector does not need to have. Nevertheless, there may well be efficiencies that can be made. I certainly heard from the government’s side that there is an acceptance that there may well be efficiencies that can be made. I think it behoves government, when it is charging industry for something, to make it very clear and open that an organisation such as that is as efficient and cost effective as it can be. Senator COONEY—Are your members satisfied with paying the full cost of the exercise carried out by the OFLC? Mrs Simes—No, they are not happy, because a lot of the functions are not related to classification. For example, the $600,000 a year that is paid to the states for enforcement benefits them not at all. Whether it is spent or not is another thing. Really, enforcement is largely directed at going out and policing X-rated product or product that would be X or banned. So the distributors of The Lion King are really not terribly concerned about whether X-rated product is being policed or not. There is the funding of a lot of the research that goes on; that is not something that they see any direct benefit from. They do not see any direct benefit or even implied benefit to them from the OFLC staff drafting letters of response to those that are being written to the minister about classification matters. There are all these sorts of things. So no, they are not happy. Nevertheless, if it is to be, there are these other things they would like to see introduced that would make them happier. Senator COONEY—I am not sure how censorship is carried out, but I presume that somebody sits there and watches or examines a particular piece of material. But, whatever action it is, what do your members say about paying for that only? Mrs Simes—They are quite happy about that, generally, except that there is quite a range of product that they see as being a total waste of everybody’s time, energy and money being classified at all for no public benefit. For example, the Wiggles. It has already been on free-to- air TV. The television stations, which are in competition to videos, are self-regulated, they do not go through the OFLC. So the television stations decide to put a G rating on it. It has gone out. But then it is put on video and somebody distributes it, and they have to put it through the OFLC and pay for classification costs. We see that as being pretty ridiculous with something that has already gone out. It is the same with a footy match—provided that there was not a streaker going across the pitch. Then there are other products, such as a video of an opera. What benefit is there to the community in having the OFLC spend their time watching that and giving it a G classification, when clearly there is a lot of room for a broadening of the exemption scheme which already exists? For example, educational product or business product is clearly inoffensive and quite acceptable. To layer that into the system just seems to be—

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Senator COONEY—Is a censorship exercise carried out on ‘the big replay’, as they call it, of football and so on? Mrs Simes—If it is on a video, yes. CHAIR—But not on free-to-air television. Mrs Simes—No. Senator COONEY—But on a video it is? Mrs Simes—Yes. CHAIR—So the replay of a bodice-ripping opera on television is not, but the video is. Is that correct? Mrs Simes—Yes. As soon as you put something on video, it has to be classified. Senator COONEY—What about running; what about when you are winning the 100 metres at Sydney next year? Mrs Simes—Yes, that would have to be classified. Senator COONEY—Is this correct: you are saying, ‘Look, nobody is happy paying for services such as this. If the members of the association have to pay for matters that are real issues, they are happy to. But they do not want to be paying money for what they see as unreal issues, such as children’s programs and replays of the football and things like that that are on video.’ Is that correct? Mrs Simes—Yes. Senator COONEY—The next point I want to clarify in my own mind is the issue of cross- subsidisation. You say that some parts of the industry cross subsidise others. Am I right in saying that the producers of children’s programs cross subsidise X-rated producers, or did you mean something else? Mrs Simes—No—if you switch to the system where the fee is waived because it has a fairly low distribution and it is not seen to be a high profit product. There are difficulties in how you decide who is going to get a reduction in fees and who is going to pay no fees, and this is what the Ernst and Young report looked at. Is it on the basis of how many prints are released or how many videos are released? Do we say that for fewer than 500 copies of a video we will not charge you? It may be that your profit margin on a low selling video is very high. In the case of the X-rated industry, which represents 40 per cent of the video product, I read an article recently from somebody in that industry who said that a high selling title is 500 copies. Because they do not sell many copies of any particular title, should they be subsidised by somebody who is selling Babe, The Lion King or something like that? Senator COONEY—So what would you like instead of the system suggested? Mrs Simes—I think the waiver that is mentioned in the bill is a good system: that in the public interest it is within the power of the director to waive or partially waive the fee. But our concern would be that that is very broad. CHAIR—What do you envisage will fall within that? Mrs Simes—It talks about cultural events and various other things like that, so I suppose the opening of the Olympics, opera in the park or something like that. At the same time, I do not think they are products which should be classified any way because they are totally inoffensive and probably have gone on free-to-air TV. That is pretty straightforward product, which in any other country is exempted any way. They are the sorts of things.

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If you get to the point of saying, ‘I’m not as commercially successful as you are,’ then determining that is very difficult. You are asking somebody who is seen to be commercially successful to subsidise somebody who is not. While the Australian community subsidises the ABC, we do not ask Channel 7, Channel 9 and Channel 10 to subsidise their competition. The public pays for it through its taxes and I think that is a more equitable way to do it. Certainly, if the public thinks that for cultural reasons a range of product should be released that would not be released otherwise, then that should be at the taxpayers’ expense not at their competition’s expense. Senator COONEY—I suppose decisions have to be made about whether a matter is a cultural event or whether it is going to be a successful video. If you just tax the lot, that makes it simpler to administer. Have you got any comments on that? In other words, if you start making distinctions, somebody has to make a decision as to what is going to fall into what category, and that might be very difficult. Mrs Simes—The current bill provides for it to be at the discretion of the director. She is given guidelines but it is basically at her discretion. There is room, I think, for that to escalate, so the amount of product being exempted could inevitably increase significantly. The overall costs still have to be met, and people who are paying fees are going to be paying a large proportion of the bill. Senator COONEY—I think I probably misunderstood. You are saying that everybody should be charged the fee or taxed? Mrs Simes—I think they should. The more equitable way to increase the release of product that might be marginal is through a broadening of the exemption scheme, rather than through increasing the waivers. The distinction between a waiver of a fee and an exemption is that the exemption does not even go to the OFLC at all. Senator COONEY—So you are saying that you set up a system of exemptions under the law, either by act or by regulation, and if you fit into that, you do not even have the problem of going off to the OFLC? Mrs Simes—Yes, and that already exists for some products, so it would just be a broadening of it. Senator COONEY—So you would want to broaden that? Mrs Simes—Yes. CHAIR—Mrs Simes, several of your member companies are fairly large scale, big distributors of product. They include playstation games and those sorts of things, as well as videos and so on. Mrs Simes—Yes. CHAIR—One point you made at the beginning of your submission is that your members are not enthusiastic about the idea of providing funds to support what you describe as things like secretariat services for the Standing Committee of Attorneys General, the preparation of ministerial letters, research and community consultation and so on. You note that: Other regulatory bodies specifically exclude such normal functions of government from industry cost recovery. Have you identified any of those? Mrs Simes—We have. I think it includes ANZFA, which is the Australian New Zealand Food Authority, and the National Registration Authority for Agricultural and Veterinary

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Chemicals, but I might be wrong. I am jumping around the place to other things I have written. I have that in the context that they have government appointed board members, so they may not be. CHAIR—If any of those come to your attention, could you provide those for the committee? It would probably have to be sometime this week, given our time frame. Mrs Simes—Yes. CHAIR—You referred in your evidence, and also noted in your submission, that your association’s members estimate they would have released approximately 250 additional titles in 1998 but for classification costs, half of these falling into the sport or classical music genres. Can you give us some examples of those? Mrs Simes—I cannot, but I can find out. I wrote to all members last year and asked them to tell me how many titles they had had classified and how many they had not released, would have released or whatever. I did not ask specifically for titles, but I will and I will get it to you. CHAIR—That would be helpful in terms of the sorts of things that are not progressing in your organisation’s view because of the process as you have identified it. In your comparison with overseas classification systems, you referred specifically to an Australian versus New Zealand example of classifications, where one of your members has identified that the cost of classification ‘of the same range of product was $58,850 in Australia and $8,000 in New Zealand’. Do you have any more details of that example? Mrs Simes—That is because New Zealand accepts Australian classification for most product. CHAIR—So, rather than starting at taws, they take the Australian classification? Mrs Simes—Or the UK. If it is probably the equivalent of our MA, they do classify that under their regime. In fact Simon would probably know that better than I would. CHAIR—I just wondered what that particular example pertained to, a video or a computer game? Mrs Simes—That would have been a video company, a company that distributes videos. CHAIR—You were discussing with Senator Cooney the broadening of exemption categories. Although I think you noted in your evidence that given the definition it is hard for you to know what is in or what is out at the moment anyway, for example we have had evidence this morning from the Australian Independent Distributors Association which, as I understand it, is heavily involved in the distribution of art-house films for want of a narrower classification. They might in some cases argue that those sorts of things would fit into a broadened exemption. Would you see that as possible? Mrs Simes—They are talking about a waiver or an exemption? Senator COONEY—I do not think they use that language. I think they just said that consideration should be given to it. CHAIR—They said consideration should be given to the circumstances in which their distributors find themselves, which is art-house limited market and so on. Senator COONEY—Narrow profit margin. CHAIR—Narrow profit margin. One example used was in relation to the yet to be released profile of Percy Grainger’s life and fashion. I am asking if you would perceive that as something that might fall into a broadened category of exemptions or waivers for that matter?

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Mrs Simes—Given that I do not know anything about it, I really could not say. I attended the two days of hearings of the Ernst and Young inquiry in Sydney and listened to the arguments that were put forward by various people who believed that they should be a special case for a reduced fee or waiver from the OFLC. The reason the government decided from the Ernst and Young report that it was too difficult to do and that there was not a lot of justification was because deciding on an economic basis who is entitled to it and who is not is extremely difficult, whether it be do you decide before or after a product is released, does it relate to how much it costs to develop, or does it relate to what the turnover or profit is. There were so many variables that it was basically going to be extremely difficult to administer. Again, how do you decide on worthiness what products should be specially treated and what not. CHAIR—Did you participate in the Ernst and Young report process? Mrs Simes—Yes. CHAIR—What would be your description of that process? Would you regard it as comprehensive, positive? Mrs Simes—It was very thorough, but the shortness of time in which we had to prepare a submission, the notice that we were given, we were not entirely happy about. We were aware that it was a fairly short timetable. There was a fairly broad range of people that they spoke to. Certainly there were cases where a Jo Average person would think it was just appalling that they should be paying this amount of fees. There was a fellow who imports maybe half a dozen titles a year from the UK on how to grow roses. Having him pay— CHAIR—Video titles? Mrs Simes—Yes. Having him pay $800, $900 or $1,000 to have them classified just seemed quite mad. CHAIR—Indeed. Mrs Simes—But I was less sympathetic to some of the other arguments because I thought you can make half a case but that, really, because of the difficulties in determining whether you really are hard up or are not making much of a profit so you should be cross-subsidised by somebody else who is making a bit more money, it was not quite convincing. Senator COONEY—Did Ernst and Young talk about the issue of this being a tax rather than a fee, and being a tax because the category of fee did not seem to cover the problem? Mrs Simes—I do not think that was within the parameters of what they were asked to look at. I think pretty well everybody who came along said, ‘We don’t like this idea of paying a tax and paying for functions that we don’t see as strictly classification related.’ Senator COONEY—Have you had any lawyers look at that? Mrs Simes—No. Senator COONEY—You draw a distinction between an exemption and a waiver. Mrs Simes—Yes. Senator COONEY—I think I understand that, but could you just go through what is the vital difference in your mind? Mrs Simes—With an exemption it does not even go to the OFLC. For example, at the moment educational product is excluded. So people will ring us up and say, ‘I’ve got this video that I’ve made myself’ or ‘I’ve got a little company, and we’ve made a video. It’s about whales, and it is just a little documentary telling people what the life process is,’ or something

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 153 like that. We have somebody, who used to work at the OFLC, who will look at it and say, ‘Yes, that is pretty clearly educational product. That is all it was designed for—for a classroom situation or whatever.’ We will charge them a pretty modest fee, so it is never submitted. They sell it to three people or so. But, with a waiver, it will actually go to the OFLC. They will say, ‘This is actually MA-rated.’ But my understanding of the bill, as it stands, is that it is MA-rated or M-rated or G-rated, but it is in the public interest to release it: it is a good documentary or a film on something that really is not commercially viable, but it is a valuable cultural addition for the Australian public. So I will not charge you or I will only charge you $100 or $200 or whatever. Senator COONEY—On the exemption, though, somebody has got to make the decision as to whether or not a particular film falls within the exemption, haven’t they? Even with the documentary on the roses, I suppose somebody has to make sure that there is not something hidden in the roses. Mrs Simes—It is something where you rely on people to do the right thing. Senator COONEY—Is that on the honours system? Mrs Simes—Yes. We have a screening process for people who want to just make sure that they are comfortable, that they are not doing the wrong thing, but under the law there is no obligation for them to do it. Business product is exempted; accounting product is exempted. Senator COONEY—But that is all done on the honours system? Mrs Simes—Yes. CHAIR—Thank you very much for your evidence this morning. It has been very helpful to us in our considerations, and I appreciate your time. Senator COONEY—Mrs Simes, we have just thought of another question. CHAIR—I am sorry about that. One issue which was raised with the independent distributors, and which I had not identified in my reading of the submissions before that, was in relation to things like promotions of films and games, and so on, on T-shirts, clothing, posters and so on, and each of those having to be separately considered and a fee paid for each separate consideration to classify those. Are you aware of that, and do your members have a view? Mrs Simes—It sounded a little confusing to me. CHAIR—Were you in the room then? Mrs Simes—I was, but it was not something I was particularly familiar with. CHAIR—Mr Becker was saying that, under schedule 5 of the bill, items which advertise or promote the product—say, the film in question, or the video in question, I should imagine— and identified by the bill as being ‘a poster, a photograph or any other written or pictorial material’, ‘an item of clothing’, ‘a container or wrapping’ and ‘a recording from which sounds or images can be generated’, have to be approved. Each of those has a separate fee: $110, $110, $110 and $160. I was wondering whether your members had any views on that. Mrs Simes—It is not something that has been brought up with me, so I really could not comment. I would think that perhaps somebody from the Attorney-General’s Department or the OFLC would be better explaining how that works because it is not something I am familiar enough with. CHAIR—Certainly, and I am sure that we will ask them that question. But in terms of your members—pick a member, any member; Nintendo, for example—promoting a product which

LEGAL AND CONSTITUTIONAL L&C 154 SENATE—Legislation Tuesday, 13 April 1999 it might make into a child’s T-shirt and so on, this change, as I understand it, would make Nintendo pay a separate fee to approve each of those items. I stand to be corrected if that is not the case. Mrs Simes—I am sorry; I really do not think I am familiar enough with that. I was not aware that that was a new provision. CHAIR—If you could have a look at schedule 5 in the next short period and if there is any response you could bring to us from your members on that, that would be appreciated. Mrs Simes—Okay. Thank you. CHAIR—Thank you. I am sorry; we will suspend this proceeding again. Proceedings suspended from 11.10 a.m. to 11.20 a.m.

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JONES, Ms Ruth Alexandra, Chief Executive, Australian Film Institute VAUGHAN, Mr Daniel John, Manager, Events and Promotions, Australian Film Institute CHAIR—Welcome. You have lodged submission No. 2 with the committee, and I note for the record it has been released for publication. Are there any amendments or alterations you wish to make to that submission? Ms Jones—No, there are not. CHAIR—I now invite you to make a short opening statement at the conclusion of which we will ask questions. Ms Jones—The Australian Film Institute is Australia’s national film culture organisation. Our objective is to promote enjoyment of and education about film and, in particular, Australian film, and we run a number of activities in support of that objective. One of them is distribution of independent Australian short films and documentaries, and high quality but, in terms of box office, what would generally be regarded as marginal Australian feature films. We are the country’s largest distributor of Australian short films. We are the distributor for the Australian Film Television and Radio School and the Victorian College of the Arts School of Film and Television and the distributor of choice for most independent producers of short films. I do not know if the committee is aware, but there has been an absolute explosion of short film making in Australia over the last five years in particular. We would take on between 50 and 80 short film titles each year. We sell those into all markets. That is, we arrange their theatrical screening, their television sales and their non-theatrical distribution, which is generally educational sales, home video and in-flight entertainment. Of course, one of the markets which we are most anxious to penetrate is the theatrical exhibition of Australian short films. In order to do that, we have to have the films classified by the Office of Film and Literature Classification. The majority of films that we would wish to have classified by the office are less than 15 minutes in duration. The current cost of that is something like $770. The exhibition opportunities which are available to us are relatively few, and the high cost of that fee means that there is no capacity for that number to grow. We have testimonials from a number of major independent exhibition chains who say that, if it were not so expensive to classify short films, then they would be willing to screen them. A point that needs to be borne in mind is that AFI’s work is subsidised to a degree in doing this but, on the whole, the films that we distribute are supported by government film agencies. Any money that we make goes back to film-makers and, in a sense, back into those government agencies. The more income we can make, the more income goes to film-makers and, in the end, back to those agencies. We find that, frankly, the current fees are prohibitive. The suggestion that it will cost us another 37 per cent, up to $1,210, to classify what might be a five-minute animation film seems to us completely unreasonable—the cost will close off even the few theatrical exhibition opportunities available to us. Frankly, we cannot afford to classify Australian short films under that regime. Daniel, would you like to run through some of the films that we have classified? Mr Vaughan—Of the films that have been classified in the past, I suppose the most recent example is a film called El Twisto. The East Coast Cinema, which ran an outdoor cinema at the Sidney Myer Music Bowl in Melbourne over the recent summer, expressed a very strong desire to have short films, particularly Australian ones, screening before their features. Given

LEGAL AND CONSTITUTIONAL L&C 156 SENATE—Legislation Tuesday, 13 April 1999 the expense in the past, we have not had a lot of films available for them and it actually reached the point where they contributed half the cost of having the film classified purely so that they could have something to screen. That is how interested they were in doing that. We have now got that classified. It had 10 screenings and it is now available to the whole Australian market—I think that is important—and it will have further screenings from there on. Another film, Uncle, had six theatrical venues. It was classified. It came from the Victorian College of the Arts. The department has, in the past, classified certain VCA and other student films free of charge for us—that is much appreciated—but it is done on down time traditionally. So by the time films are done on that basis, quite often they are not as relevant as when they first came out. Ms Jones—It does not fit the theatrical exhibition schedule of both the AFI as their distributor and the exhibitors who are interested in screening that material because, frankly, we do not know when the stuff is going to be ready or available. CHAIR—Can I just clarify one thing—classified VCA for free but not AFTRS? Ms Jones—Yes. CHAIR—Why is that distinction made? Mr Vaughan—I am unsure why that distinction is made. I assume from the investigation they did, it is more the relationship that VCA has had with the OFLC rather than something that AFTRS maybe has not established as yet. I could not answer that for you. CHAIR—That is fine. I will ask the OFLC. Ms Jones—But it does create certain anomalies in that independent producers who are struggling and students of the AFTRS pay substantial fees while students at the VCA do not; but then again students from the VCA are disadvantaged in that they are waiting on the office to classify the films. Our relationship with the office is very good. They are extremely helpful and cooperative. We have no difficulties with the staff at the Office of Film and Literature Classification at all. It is just that the fees, which are currently being charged, are in fact a form of economic censorship. We cannot, as the distributor, afford to classify many and certainly the individual producers cannot. I think we should not underestimate the influence that short films have on the Australian film industry in general. It is a cliche but people who make short films go on to make feature films. CHAIR—They go on to make long films. Ms Jones—They are the future of the Australian film industry. Mr Vaughan—We have short films by Jane Campion, Paul Cox—a whole gamut— Ms Jones—Peter Weir. Everybody and anybody who is today a major figure in the Australian film industry has made short films. We distribute many of them. We would like to be able to get them out to an audience. Mr Vaughan—Another example, No Way to Forget, was a short film that was screened with a mini feature called Parklands—both with an indigenous theme. The recorded revenue for No Way to Forget was $322. This is because it is the short before a feature. The feature will take 94 per cent to 100 per cent of the revenue because it does create a forum. Richard Frankland, who was the director and producer of that, has since been the executive producer for After Mabo—a film dealing with indigenous issues again; it has been screened in the US, New Zealand, Ireland and a lot of other international areas. He is currently producing a new

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 157 feature. There is a direct relationship with people coming through, having their short films screened, and establishing a greater career in the Australian film industry. Ms Jones—There have been examples that have struck us very much in the last couple of years. The Australian government, through the AFC and through SBS, has funded a series of really outstanding short films by young indigenous film-makers—two sets of six short films: the first, From Sand to Celluloid; the second, Shifting Sands—which did go on to have a television screening on SBS, but there was considerable interest in screening those films individually before features at art-house cinemas around the country. CHAIR—Was SBS Independent involved in their production? Ms Jones—Yes. We were able to screen them in a block by getting a festival classification, but a festival classification allows us only to screen them a limited number of times in a block. We were obliged to say, ‘I am sorry, but we cannot actually provide these films on an individual basis that make up that total feature length package of six to cinemas, unless they are prepared to actually cough up the cost of the classification fee.’ The cinema exhibitors are working on very small margins and their view is, ‘Well, we are not possibly going to make back $1,000 at the box office from the screening of these short films. I am sorry, we are going to have to forgo the opportunity.’ And I do not actually think they are being unreasonable. They will not make back anything like $1,000. Mr Vaughan—Included in the submission, which you have in front of you, are just some of the revenue returns from some of our better selling titles. We are talking very small figures. It is important from the AFI’s perspective to promote the growth of the industry; it is a cultural mission that we have to fulfil. So it is not always coming down to the financial recompense there. By having these films screened, raising the profile of film in general and the film-makers in particular, we are growing the industry and fulfilling the cultural perspective of the organisation. Ms Jones—Perhaps committee members will remember that there was even a campaign in the early 1980s that the big cinema chains ran, ‘no more boring shorts,’ which was when they stopped running travelogues and everything before screenings. In fact, that process is now being reversed and there are an increasing number of cinemas which, in an effort to differentiate themselves from the major chains like Hoyts, Village, Greater Union and Birch, Carroll and Coyle, are actually interested in screening short films and in appealing to a younger market and a market that is specifically interested in Australian or unusual programming material. In the course of preparing for this committee hearing, we have spoken to many of the cinemas with whom we presently deal. Certainly, in Sydney, for example, the Stanmore cinema and the Chauvel cinema; in Adelaide, the Mercury cinema; in Melbourne, the Nova cinemas, Palace cinemas and the Longford cinema—Palace, in fact, is also in New South Wales, South Australia and Western Australia—have all indicated their preparedness to screen more short films if we were able to supply them with a reasonable product from which to choose. Daniel, I think that about wraps it up, doesn’t it? Mr Vaughan—Yes, that is good. Ms Jones—We could do more if we were able to. CHAIR—Thank you. How is the AFI funded? Ms Jones—We are a not-for-profit independent membership based organisation. We raise 75 per cent of our total budget of $3.8 million and we receive the remaining 25 per cent from

LEGAL AND CONSTITUTIONAL L&C 158 SENATE—Legislation Tuesday, 13 April 1999 a variety of federal and state agencies. We will receive this year about $800,000 from the Australian Film Commission and about another $150,000 from the whole consortium of state agencies. But we raise the other $3 million ourselves through a combination of membership fees, box office revenue, corporate sponsorship, gross box office through activities and events, entry fees for the AFI awards and ticket sales. CHAIR—Thank you, that just gives me a perspective of where you fit. Senator COONEY—Just going on from that question, what got you going? Why have we got the Australian Film Institute? Was it to educate and train film-makers or to give the opportunity of film-makers to show their films or to engender an Australian culture in the films? Have you got a constitution? Ms Jones—Yes. Senator COONEY—What are the aims set out in that? Ms Jones—Basically, our principal aim is to raise the profile of film, and of Australian film in particular, and build audiences and support for the industry. We do that through a range of activities. We have membership events, and we run about 70 of those a year, which are aimed at both professional people working within the film industry and people who are simply film lovers to educate them about and entertain them with film. We run an AFI exhibition, which tours programs of curated films, perhaps classic, archival or contemporary films, which will not receive a screening otherwise at cinemas around the country. AFI Distribution is, as we have indicated, the largest short film distributor, but it also distributes selected Australian feature films. That actually grew out of the need to have somebody who would take the responsibility for ensuring that, once films were made, they were actually seen by the widest possible audience. Then there are AFI awards, which most people are aware of because that is our most high profile activity, and AFI research and information, which is an extensive library of film history, aesthetics and criticism which basically caters for an increasingly international but very large industry and tertiary audience. Senator COONEY—I take it you do not make a profit because of the amount of money you have to raise through appeals and through grants and what have you? Ms Jones—No. We are a cultural organisation and a not-for-profit organisation. Senator COONEY—Right. Does this proposed law affect you directly? Have you looked at this? Does it affect directly just the members that make up your organisation? In other words, does the AFI have to pay money under this legislation? Ms Jones—The AFI’s distributor is responsible for paying the fees, not the film-makers whose work we license. We have a strictly commercial relationship with the film-makers whose work we distribute. We operate on a strictly commercial basis with exhibitors too. Senator COONEY—So you have to pay the fees? Ms Jones—We would have to pay the fee. We do pay the fee. Senator COONEY—They are the fees that you have raised through your fundraising activities? Ms Jones—Yes, and through commercial activities. Mr Vaughan—We do pay the fees on classification and, since 1994, there have been just over a dozen films classified, purely because it has not been commercially viable for us to do that. We will continue to pay the fee, so we only choose films that we really think are going to get pushed through.

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Senator COONEY—Who has missed out? Can you give us any instances of people about who you thought, ‘It is a great pity that we can’t exhibit their product’? Ms Jones—I think we would probably select some of the films from those two recent indigenous programs of which only one was classified for individual commercial release. The rest have a festival classification only. Senator COONEY—Do you think that is holding the development of any film-maker back? Ms Jones—When Globe distributors in Sydney, who run the Stanmore cinema, recently announced that they would be screening short films before features, they were literally flooded with film-makers. The key, of course, to advancing your career is, to a large degree, building public profile and recognition of your work. Theatrical exhibition is crucial in building that career. Senator COONEY—You were quoting Peter Weir before, I think. Ms Jones—Yes. Senator COONEY—When he made that short film, was that on the way up, or once he had got there? What part did it play in his development? Ms Jones—The film we are speaking of is Holmesdale, which was one of his earliest films. Holmesdale received a commercial release. I would not by any means suggest that it made any money for him, but it was a means by which he got his name out there. Such films are also the means by which one starts to build public interest and media interest in Australian film-makers. A recent highly publicised example of a film-maker whose work has been screened theatrically and who has gained a lot of a publicity as a result is the actress Rachel Griffiths, who has most recently just been nominated for an academy award. Her short film Tulip has screened commercially and that has been an enormous boost to her career because thousands of people have now seen it. There has been the opportunity for there to be media coverage and acknowledgment of the film. But there are lots of short films which screen to tremendously limited audiences. We could show them to more people if we were able to afford to do it. Senator COONEY—How sensitive is the AFI to even minor increases in either the fee or the tax applied to the films that it sends out? Mr Vaughan—We are extremely sensitive. The rates at the moment we find prohibitive, and if they were to increase it would become even more so. We are looking at a fee of approximately $1,200. In the first 12 months of a film’s life, the return we can get is fairly minimal. We estimate, for the better films, between $2,500 to $3,500. Again, it is more about raising the profile and exposure of the film-maker, plus making that available to audiences around Australia so they can see what is happening in the Australian film industry. So to have half of the potential income taken up with getting the film classified is very prohibitive. Ms Jones—And that is before one has prepared any of the commercial publicity materials such as flyers, media kits and the works, which obviously need to accompany it and which also suck up some of that income. CHAIR—What sort of commercial material do you need to prepare to go with a short film that you are wanting to promote? Ms Jones—You would prepare a flyer. You would make multiple copies of the video, which you would distribute to journalists. You do a colour flyer if you can afford it. But it might be that you can only afford a very limited two-colour flyer, or even sepia flyer. Then there

LEGAL AND CONSTITUTIONAL L&C 160 SENATE—Legislation Tuesday, 13 April 1999 is a media kit which you have to make multiple copies of. Sometimes you will do something like producing little advertising postcards that you see these days. Frankly, we cannot afford to do anything more. We certainly cannot afford to make trailers and the like. Trailers are extremely expensive. But, again, on the issue of price sensitivity, perhaps it puts it in context when I say that the AFI in 1995 made a surplus of $127,000, which was a brilliant year. Then in 1996 it was $120,000, and in 1997 it was a $7,000 surplus. In 1998 we made a loss of about $63,000. So you can see that it is always a line ball operation. CHAIR—Why the difference? Ms Jones—Frankly, because the costs of running cultural activities increase each year. There is the difficulty that we are working with non-commercial materials. With the material we take on, everybody involved in the film industry recognises its significance, that this is quality material. We do not take on just anything that is made. There are thousands of short films that are made in Australia each year. We only take on the very best 50 to 80 of them. But even then this is a marginal operation at the best of times. Mr Vaughan—There is a film by Phillip Crawford called Denial which has been screened in France, Edinburgh, throughout Britain, and at Palm Springs in the USA. So it has had a lot of festival and international exposure. Yet the prohibitive costs of us getting it classified means that it has had limited exposure in Australia. I have had US production companies contact me to get Phillip’s details because they have seen his film and they are interested in him and the work that he can do. Here is an Australian film-maker with international exposure and interest from international production companies, yet we are not really getting the chance to see this product fully in Australia because we find the cost of getting it classified and, therefore, screened before features at a variety of venues prohibitive because, even if that is done, it takes a lot of screenings of the film to offset that cost. Senator COONEY—I will comment on what I think is a conceptual issue, in a way. The last two films that I saw—down at Anglesea in the local hall—were Elizabeth and Zorro. You would think that if either of those films had to pay $3,000, $4,000 or even $20,000 for censorship it really would not matter. I think that might be a problem here. Can you comment on the culture behind those sorts of films and your sorts of films and the sort of money that is involved? Ms Jones—We find it very puzzling when we do a two-print release of a film like Vacant Possession, which won a number of awards and was very highly regarded. It was a debut feature from Margot Nash starring Pamela Rabe. It is a very good film. We did a two-print release of that nationally. We pay the same amount to have that film classified as the distributor of Titanic, which has hundreds of prints made of it and which they are making an absolute fortune from. We would like there to be some recognition on the part of the Office of Film and Literature Classification that there needs to be a sliding scale of fees which takes into account the type of release that is planned for the film in question. If we are talking about a major Hollywood release which is going to go into hundreds of cinemas around the country then it is reasonable that they would pay more for the cost of classifying the film than for, say, Vacant Possession. Mr Vaughan—In terms of creating a basis to judge that it might seem a bit all up in the air, but really it can be based on the number of prints that will be available in the country. Quite literally, it is two prints or 300. It is quite a distinct measuring point.

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CHAIR—You would envisage a classification of something down the line of short films: narrow release, feature films: broad release, video release only and festival release only? Ms Jones—Yes. Within the feature film category that could be on a sliding scale according to the amount that was to be spent on its general release, so that if one is mounting a multimillion dollar campaign and a very wide print release then one would pay proportionately more than somebody who is doing a one-, two- or three-print release of a film with a very limited advertising and promotional campaign. Senator COONEY—I think one of the problems with that might be that the legislation seems to contemplate that this will be a tax rather than a fee. You probably cannot vary your taxes across the range. Ms Jones—The Australian government has poured enormous resources into funding and supporting an Australian film industry. It funds both the VCA and the AFTRS. The majority of short films that we are taking on and distributing have been supported in some way by the AFC or by the state film agencies or SBS Independent. It just seems counterproductive to invest in the individual and in the film and then have another office of government taking such a great whack out of such a limited earnings potential. Also, I do not understand how it could cost $1,210 to classify a five-minute film. Senator COONEY—Have you seen classification take place? What happens? Do people sit there and watch it? Ms Jones—I have not seen it take place. One simply forwards the film to the Office and they then come back to you with the classification. CHAIR—What sort of time frame do you find yourself working in in that environment? Ms Jones—You can get an urgent classification done if you need to. I am not actually sure of the time; I have not kept track of that. Mr Vaughan—I have seen it happen. We have a relationship with the Office. It has happened in as short as a two- or three-week period. Ms Jones—We do not have any issues related to that. The Office have always been extremely helpful. Senator COONEY—But what you are saying is that you get charged the same fee if the classification board looks at a five-minute film as you do if it is a two-hour film. Mr Vaughan—No, it is on a graded scale. Ms Jones—It is on a graded scale. Mr Vaughan—On a given time period. Senator COONEY—Is it time costed? Ms Jones—It must be. The proposal is that, if this goes through, a film from zero to 15 minutes will cost $1,210, a film from 16 to 30 minutes will cost $1,290 and a film from 31 to 60 minutes will cost $1,430. Mr Vaughan—It is a sliding scale, but it seems that at its lower end the fee is fairly large and a bit excessive. If you look at the guide that came out on 1 November 1997, it operates not as a tax but as a fee for service and that is what they are charging for. In the lead page introduction they say it costs anything between $100 and $1,500 to do the classification, yet none of the fees actually start at $100— Ms Jones—Or none of the ones that we get!

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Mr Vaughan—which seems a bit of an anomaly to me. If they are saying it costs that much, shouldn’t they start at that level as a fee for service? CHAIR—But the fee-for-service position is changed, as I understand it, to the specific tax concept. Mr Vaughan—Yes. That is a whole new approach. Senator COONEY—You are located in Victoria. Do you have any offices anywhere else? Ms Jones—Yes, we have a small office in Sydney, and we run a cinema in Tasmania and have an office there. Senator COONEY—Whereabouts in Tasmania? Ms Jones—The AFIA State Cinema in North Hobart, which is the only art-house and independent cinema in Tasmania. It is therefore very highly regarded and, fortunately, makes money, which subsidises some of our other loss-making activities. CHAIR—In relation to your point at the end of your submission on box office returns for Australian films, you note in the middle paragraph your re-release of Walkabout— Ms Jones—I am sorry, that should have said Vacant Possession. It should not have said Walkabout. CHAIR—That is a feature film? Ms Jones—Yes. That relates to the discussion that we just had about our paying the same for— CHAIR—A three-print release? Ms Jones—Yes—as Titanic does for a 200-print release. Senator COONEY—How much weight do you give to the issue of Australian culture in your selection of films to show? Ms Jones—A film has to be good. It has to be a good film, a quality product, or else we will not take it up. As I said, this is a marginal activity at the best of times, but we do have to raise that $3 million a year in order to fund our activities. Therefore, we take on films which we do see there being an audience for. We are, in fact, the largest educational distributor of Australian films around the country—most people are not aware of that—and we think we could screen more theatrically if we had the opportunity. Senator COONEY—That is straight educational films, films that anybody would say are educational? Ms Jones—That is through video sales. We sell about $300,000 worth of videos a year into the educational market. Mr Vaughan—The film Denial, by Phillip Crawford, which I referred to before, works both in the education market and theatrically. It deals with a very troubled youth, drugs and things like that. CHAIR—Have you had that classified? Mr Vaughan—No, we have not, but it would be terrific if it were. It works educationally and in the theatre, so quite often there is a crossing of the boundaries there. Senator COONEY—What other access do Australian young people have who want to launch a career in film in Australia besides the AFI?

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Ms Jones—You have probably noticed that in the last couple of years there has been a tremendous explosion of interest in short film festivals—Tropfest, Cafe Provincial Comedy Film Festival in Melbourne, Flicker Fest and St Kilda Short Film Festival. Those are extremely important in gaining visibility for somebody. But they are, on the whole, one-off screenings. Senator COONEY—There is no other organisation like yours whose mission is to service the Australian film industry? Ms Jones—There are many commercial distributors who are working with more commercial Australian films, but if you mean is there anybody else who is committed to working specifically with independent short film- makers and with the two schools in promoting those film-makers and their work, no, there is nobody, with the exception of the AFI. Mr Vaughan—We are working very closely with each of the state bodies—Screenwest in WA, the New South Wales Film and Television Office, and Qpix in Queensland. So it is an environment where we all work very closely together to try to boost the Australian film industry and the culture of film. Ms Jones—Part of what we have to do is to actually educate film-makers about the commercial process of distribution. Basically, when they are in school, their focus is on the creative aspects of film. Our job is very much an educative one, to help them understand the processes of marketing their film. That is probably what our distribution manager, Cynthia Mann, is probably spending most of her time on. CHAIR—Interestingly, the AFTRS in evidence this morning were fairly relaxed about the whole thing, I suppose. Ms Jones—They are not the distributors of the films. CHAIR—That is because you pay the fees— Ms Jones—Yes. CHAIR—or the distributors pay the fees? Ms Jones—Basically, the school’s responsibility ends, and that is when we come in. CHAIR—Upon completion of production? Ms Jones—Yes. The students leave, we take on their films and the issue then becomes an issue for the AFI and the individual film-maker, not the school. Mr Vaughan—We actually do not take on all of their films. We have the first right of refusal on a film. So, again, it has to fulfil our needs. It has to be a good film; it has to have a potential market. We do not just take it on and run with it. Ms Jones—Or hope for the best. Senator COONEY—What you are saying is that the issues that face the AFTRS and you are very different? Ms Jones—The AFTRS is not a distributor. That is not part of its role. CHAIR—They have in fact referred in their submission to a process on which you have made reference, which is that you have been able to obtain: . . . certain exemptions for specific screenings where the complete program consists of short films and the program is screened once only in each city. Is that the festival example you gave us? Ms Jones—Yes. It is a general festival classification whereby you can put together a package of films, have it classified as a festival and are then enabled to run a limited release

LEGAL AND CONSTITUTIONAL L&C 164 SENATE—Legislation Tuesday, 13 April 1999 in each city. We are very grateful for the festival status. That is a terrific classification. It allows us to actually screen probably a total of about 50 short films a year around the country. CHAIR—So those films are not included in your figures here of 21 per cent as being classified? Ms Jones—No, they are not. CHAIR—Festival classification is not included there? Mr Vaughan—No. They are not actually classified. It is more the event, that is the festival, which allows for those screenings to take place, rather than the specific film being classified. Ms Jones—Yes. Those films are able to be screened within a festival context, but you cannot take one of those films and run it before a feature at the Chauvel cinemas. CHAIR—Do you have to pay a fee to get that festival classification? Mr Vaughan—The festival has to be classified as a festival. You cannot just say, ‘We’re a festival.’ CHAIR—Is Tropfest classified as a festival? Mr Vaughan—Yes. CHAIR—But you do not have to pay a fee to put a film in Tropfest once it has been classified as a festival. Mr Vaughan—Correct, because Tropfest is the festival. CHAIR—Thank you very much for your evidence this morning, Mr Vaughan and Ms Jones. It has been very helpful, and I appreciate your being here today. Ms Jones—We actually brought you a couple of videos, which we are going to leave with you. We hope you will take them back with you to Canberra. We wanted to show you the quality of the films that we are actually distributing. CHAIR—We will provide those to the secretariat, thank you. Proceedings suspended from 12.01 p.m. to 2.02 p.m.

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BLADWELL, Mr Stephen Stanley, Partner, Ernst and Young; Representative, Motion Picture Distributors Association of Australia, Village Roadshow and Fox Film Distributors YOUNG, Mr Michael Stanley, Director, Ernst and Young; Representative, Motion Picture Distributors Association of Australia, Village Roadshow and Fox Film Distributors WILSON, Miss Roslyn Margaret, General Manager and Director, Roadshow Entertainment, Village Roadshow CHAIR—Welcome. Would you like to make any comments about the capacities in which you appear? Mr Bladwell—I am a partner and Mr Young is a director at Ernst and Young. We appear for the MPDAA, the Motion Picture Distributors Association of Australia. As well as that we have two further hats—Village Roadshow and also Fox Film Distributors, for whom we represent wider interests outside the theatrical distribution. Miss Wilson—I am General Manager and Director of Roadshow Entertainment and I am representing Village Roadshow, which is our theatrical arm, and Roadshow Entertainment, which is our video distribution arm. CHAIR—You have lodged submissions Nos 1 and 1A with the committee. I note for the record that the first has been released for publication and that the second is confidential. Do you now wish to make any amendments or alterations to those submissions? Mr Bladwell—No. CHAIR—I invite you to make a short opening statement, at the conclusion of which we will ask questions. Mr Bladwell—I would like to go through the summary in our submission, because I think that really settles the opening statement. One point I will make at the start is that I happen to be a tax partner at Ernst and Young, which might give you a view of what we think of this particular bill. I am just going to follow the order of the submission that we made. The bill, in our view, introduces a new tax. The concept of user pays is absurd in this particular context. Firstly, the censorship board does not provide a service to the industry. Rather, they are required by law to have films censored. So the idea of saying that it is user pays is absurd. Secondly, what this bill in fact does is require certain elements of the industry—and I stress that not all the industry is required to pay this; it is a very narrow band, and I will come to that—to bear most of the costs, which is another misapplication of the user- pays principles. The second problem is that the Office of Film and Literature Classification incurs costs that are outside and unrelated to the classification of films for theatrical and video release. There are a number of other matters that they address. They answer queries, they do work for the police and the customs office and various other things. They also make payments to the states of about $600,000 a year. All these are taken up as costs. What happens then is that these costs are charged back to the major theatrical companies and the video companies, and between them they bear something in the order of 85 per cent of those costs. I am being very brief here so that we can have a discussion, but the third problem that we have is that, when you look at those costs, those companies making theatrical releases and those which have video release are required to pay virtually all of the costs of the operation of this office. The television and pay TV people are allowed to self-censor effectively, following on from that original classification. So, again, you have a great misallocation of

LEGAL AND CONSTITUTIONAL L&C 166 SENATE—Legislation Tuesday, 13 April 1999 those costs to people who are not users of the service. So we have an excessive cost in the first place and a misallocation of those costs. As if to add insult to injury—and this is really where we come to the nature of a tax—the way the bill is structured is that by regulation the government can change the amount that is recovered from this narrow band of people who really are not supplied any service. There is no incentive whatsoever on the Office of Film and Literature Classification to be efficient. Indeed, there is an incentive for them to be inefficient, and this would be very contrary to the government’s competitive philosophy in most other areas. It seems absurd that the costs of this office could increase, and they could go back to the government, and there is really no policing of that costing structure. Our last major point is that we believe that just the sheer magnitude of the increases will cause more problems than it will resolve. That is, we will go from approximately $1,100 to $1,700. Clearly, there is a major incentive for the lower end of the market, the brown paper bag people, anyone other than the major film companies, not to comply with the law. The less others comply, the more that is borne by the companies which are actually complying with the law. For all those reasons, it seems to us that it is a misapplication of the user-pays principles. It can be described as nothing more than a tax, because it is not a correct recovery of costs associated with the services that are required to classify films for the companies in question. It is requiring companies who do not really absorb all those services to pay virtually all of the costs. I would leave it there at that point, so that we can go into any discussions or questions that we have. CHAIR—Miss Wilson, did you wish to make an opening statement of any sort on behalf of Roadshow Entertainment? Miss Wilson—No, I am supporting what Stephen has said and the submission that was made. Senator COONEY—Do you have the second reading speech there, or have you seen the second reading? Mr Bladwell—I have seen it. I do not have it with me. Senator COONEY—Are there are any comments you would care to make about some parts of it? I will pass it over to you—it is in this information package. The fourth paragraph on page 2 says: The charges are set out in the Schedules to the Classification Charges Bill. They have been set at an amount calculated to meet the estimated revenue needed to fully fund the OFLC’s operations for the first full financial year in which they take effect. I am particularly interested in the next one which says: The structure of the charges set out in the Schedules reflect the approach, which was agreed to with the industry, in the current fees regulations which came into effect on 1 November 1997. There is another part. I will put it into context and ask you about that too. It says a couple of paragraphs further on: The Government is aware that increases in the cost of classification and other services are of concern to some of the users of OFLC services. In particular, concern has been expressed about the effect of cost increases on the classification of material that has a limited market appeal in Australia. Then it goes on:

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As foreshadowed in the Attorney-General’s Second Reading speech last year on the former Bill, he appointed an independent body to review the charges structure with a view to seeing whether greater equity can be provided to applicants who submit material for classification that has a more limited market appeal. The speech continues: That review was undertaken by Ernst and Young in Melbourne and a copy of their Review of Statutory Charges for the Classification of Publications, Films and Computer Games was made available to representatives of the Opposition parties and Independents in the Senate and, more recently, to the spokesman opposite on Attorney-General’s matters. The Review’s conclusion was that there is no single compelling argument supporting continuation of the proposed charging structure or, alternatively, changing the charging structure to provide concessions based on limited market appeal. In light of the factors set out in the Review, the Government does not support limited market appeal mechanisms of the kind canvassed in the review. It goes on, and I will not continue reading it. I will hand it over to you. There are those two things: the government seems to be suggesting that there was a wide-ranging consultation and, if not that, a very broad one in any event, and that Ernst and Young was apprised of all this and said, ‘You go ahead. This is a terrific idea.’ This would not really be consistent with what I think you are saying now. Do you want that? Mr Bladwell—I know what it is about. A partner of mine, Colin White, who is a specialist accountant, was requested to do a review. That review was very limited in its scope and it really did not address—and was specifically required not to address—the overall increase in the charges, nor was it allowed to address the correctness or otherwise of trying to recover the costs. What we are saying to your committee now is that our first and foremost charge is that the whole bill is flawed. That is something that Colin White was not required to do. Indeed, he was specifically required not to do it, that is, address the nature of the charge. The second point we are making to you is that the fee is excessive. Again, that was something that Colin White was not allowed to address. CHAIR—Do you mean specifically precluded from doing so? Mr Bladwell—His terms of reference were very narrow and specific as to what he was required to address. I do not have them here, but I welcome the opportunity to give them to the committee and explain exactly what we wanted originally. We understand that request came up because of our original concerns with the bill, and then it was divided up into different processes to review. We would have preferred a more wide-ranging review, but that was not the case. Senator COONEY—He had a brief—and I do not say that in a derogatory sense. He had terms of reference or a brief to carry out a certain task which he carried out, and you would say carried out very well, but it was a limited task. Mr Bladwell—A very limited task, yes. Senator COONEY—What you are addressing us about today is a broad view of just how this will work in the industry? Mr Bladwell—Correct. Senator COONEY—I do not want to pay disrespect to the second reading speech or anything else, because it sets things out well. The second reading speech does not seem to set out as well as it might the slide from fees into tax. Do you have any thoughts about that?

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Mr Bladwell—Yes. Let me quote a couple of figures which were accurate at the time we did this. They may be slightly inaccurate now. The budget at the time we wrote this submission was $5.4 million, but only about $3.2 million was spent on classification. Yet the entire $5.4 million was recovered from the industry, but not the entire industry. It is going to be recovered from the companies doing theatrical releases and the companies releasing videos in the shops, not from the free to air and pay TV operators. You are collecting more costs than it costs to actually classify films and you are collecting them from a very narrow band of people, not necessarily those who enjoy—if that is the correct word; it is probably a little bit wrong—the benefits of it. In this case it can only be described as a tax; it cannot be described as something that is a genuine application of the user-pays principle. In addition to those costs, there is $600,000 that is paid back to the states. In theory, it is described as funding their policing of the censorship laws. In reality, it is probably fairer to describe it as a payment in compensation for them releasing all of their rights to classify films back to the federal government. That we do not have any problem with. Again, if you are going to apply user pays correctly and correct costing application, you would then take all the fines that states receive back into the federal pool and reduce the cost. But again this is not done. For these reasons, you do not have an application of a user-pays principle. What you have is an attempt to collect money for those who are not enjoying the full benefits of the service. I do not think you can describe that as anything other than a tax. Senator COONEY—The second reading speech calls it a tax. Mr Bladwell—Senator, would you be able to give me the page reference again? Senator COONEY—I will have a look at this. Have you got the second reading speech there? Mr Bladwell—I have just been handed a copy. Senator COONEY—Go right to the back and come at it backwards. On the last paragraph, on the first page, under the main heading, it says: Implementation of the Government’s decision therefore requires that charges for classification and related services be imposed as a tax. This decision ensures that those who benefit directly, and indirectly, from the work of the OFLC pay the full cost of its operations. You would be a lot better at this than me. Can you identify what the tax is on there? You can understand if it is a fee for going through the exercise of giving an opinion about your film or whatever you have got. But you do not tax an opinion—or I hope you do not. What would be taxed there? Mr Bladwell—The film companies are being charged to have their films classified. Senator COONEY—What sort of tax are they talking about there? Can you work it out? Mr Bladwell—I could not describe it as anything other than a tax. But it is a tax on only a very narrow portion of the industry. The best way to describe it with a film is looking at copyright laws. Under Australian copyright law you have four sub-copyrights. In a film, one equates with theatrical distribution, one equates with free-to-air distribution, one equates with pay TV distribution and one with the sale of videos, either in retail outlets or in video rental stores. That is roughly. What you have are those four methods of distribution. Two of the distributors are being required to pay all the costs. So theatrical, if you want to release it, has to pay. Video, if you want to release it, has to pay. Pay TV and free-to-air TV do not. CHAIR—In your experience, Mr Bladwell, what is the historical justification for that?

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Mr Bladwell—My understanding is that they self-censor, based on the classifications that are already given by the board. Miss Wilson—It is the ABA requirement, I think. CHAIR—Right. Senator COONEY—Do those taxes fit within the taxes that the Commonwealth is allowed to impose under the Constitution? Mr Bladwell—I would say it is constitutional. I do not have any difficulty with the federal government having the power to impose it. Senator COONEY—That is what I want to know. I want to know what the tax is. It is a tax on what? Is it a tax on goods, or a tax on income? What is it a tax on? With a fee it is easy enough. If it is a fee it is a fee you pay to me because I am a censor. Is it a tax on your consultation of me? Mr Bladwell—That is an interesting question. It is not a tax on the goods themselves, it is a charge which is made to receive a classification. Senator COONEY—I suppose you could say it is a tax on services but then, as you say, it is not all services, is it? Mr Bladwell—No. Senator COONEY—You said before that it goes wider than services. So it is not a tax on services because there are other matters taken into account. Mr Bladwell—From the federal government’s point of view, I think the Australian Constitution would allow them to impose it. Our problem with it, again, is that it is described as a recovery of costs. The censorship board will recover more than its costs and it will recover them from a narrow band of people. Senator COONEY—Are you concerned about the practical effect of it? Mr Bladwell—Yes. CHAIR—Mr Bladwell, I am not familiar with one of the areas pointed out in your submission in relation to classification of products gratis, or at greatly reduced fees, for the police and Customs. Although I will have an opportunity to ask the OFLC about this later, could you just elaborate for me? Mr Bladwell—My understanding is that the board does classify films for Customs and for the police from time to time, but they do it at a greatly reduced charge. CHAIR—When you say for Customs and the police, what sorts of material were you thinking of? Mr Bladwell—If Customs were to seize goods— CHAIR—All right, so the OFLC has a look at those to decide whether they— Mr Bladwell—Apparently, that is the procedure. CHAIR—But it is not on a cost recovery basis? Mr Bladwell—My understanding is they do not charge the police or the Customs Service at the same rate as they charge the film distributors. Senator COONEY—Do you know the history of the measure? Do you know who suggested that it be done this way? Mr Bladwell—No, but Roslyn might.

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Miss Wilson—It goes back several years to when the OFLC was instructed to investigate full cost recovery. At that time, everyone who was a player in the industry was consulted. In fact, I think everyone who is appearing before you today put a submission in. I did, from Roadshow Entertainment. That was from a video point of view. We would have submitted it to Ernst and Young. I do not know how they were appointed. Mr Bladwell—We were only appointed to look after the cost allocation. Miss Wilson—We made submissions at that stage. As I say, everybody in the industry was consulted. Again, we were not involved in any way other than as protesting about full cost recovery. I think the OFLC does perform an ancillary role. It is not directly, as it says in the bill, related to us, to other theatrical business or our video business. The appointment was made for someone to examine the cost recovery situation for the OFLC, and that is the report we got, given that the parameters, the reference, were very narrow. But past that we were not involved. And now is our only opportunity to speak our piece about this. Senator COONEY—How should it be done? If you had a magic wand and had set up a classification system, what would you do? Miss Wilson—We firmly believe and support that we should be paying something. I think that if you take into consideration that video—and I am only speaking about Roadshow at the moment—distributes the ABC, our company could be paying up to, say, $800 or $900. Actually, I am not familiar enough with the projected charges to speak confidently about them. But things like Bananas in Pyjamas are on television, and then we release them on video. And this is children’s product, so it gets very broad. We also have to censor Vanity Fair, which was just on TV on the ABC, and Pride and Prejudice. We censor roughly 250 videos outside our theatrical censorship, because when you apply for theatrical you get video as well. So the cost to us is getting quite high. I think there could be some sort of equation. Whilst I am not suggesting for a second that self-regulation be removed from the television channels, maybe pay TV and free-to-air television could subsidise the ratings that we acquire because they use our ratings for their broadcast. If it is an MA, it goes to air after 9.30 p.m. if they choose not to cut it. So there could perhaps be an arbitrary fee that they pay, but it does not have to be arbitrary. They can all tell you what they are going to screen and from whom they are getting it. There may be some fee that they contribute towards it. Senator COONEY—So what happens now? Does the ABC show Pride and Prejudice without any classification—nobody classifies that—but, as soon as that is put on a video and you want to distribute it, you have got to get a rating? Miss Wilson—It is censored, yes. Mr Bladwell—It goes to television without censorship, then when you release it on video you pay to get it censored. Miss Wilson—I am using an extremely simple example. You can always take this to extremes, or you can go the other way. Almost all movies do not go to air before they are censored. But I am using the example now of other children’s product that has been to air on television and that is usually censored after it has gone to air. We will pay; we just do not want to pay so much. Mr Bladwell—Following through on the senator’s question is this idea of a recovery which exceeds the cost of actually classifying films. That is a major concern. If our figures are correct

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 171 and it is $5.4 million to run the Office and it is about $3.2 million spent on actual film classification, it seems absurd to collect $5.4 from the industry. The second point on that is that we would like to have a mechanism by which the Office’s costs of operation are in some way controlled or regulated. That is not to cast any aspersions on the people that work there; it is just that the government’s policy is one of competition, because it believes that that pushes down costs. So there is a firm belief that if you do not have some mechanism in place, costs will increase. It is Parkinson’s second law, isn’t it? We would like some mechanism that is going to limit those cost increases. At the moment, they can just go up without any policing whatsoever. CHAIR—Is your concern in relation to that operation being done by regulation and not by primary legislation? Mr Bladwell—Yes, but it goes further than that. There is just a bland statement, ‘We will recover the full cost of the operation of this office.’ Where is the incentive to keep the cost to a minimum? Where is the incentive to continually look to reduce costs? I go back to the statements of Senator Alston and Professor Hilmer that this competition policy is intended to provide a continual push for people to review cost structures and to reduce costs. There is no such mechanism here whatsoever. If you cannot introduce competition—and I accept that there are certain areas where competition does not work—then you need another mechanism to police that cost. CHAIR—Mr Bladwell, one of the references in your submission is about what you regard as the provision of incentives to avoid classification. Could you elaborate on that for us—either you or Miss Wilson? Miss Wilson—I speak only from a commercial point of view in that we see—or rather, we do not see it all the time, but we know it happens, particularly with imported foreign language films; and I am sure that my colleagues from the OFLC could support that later as well—there is a lot of product brought in that is not censored. It is foreign language film which is sold, admittedly only into the foreign language groups but that does not necessarily mean that they are not breaking the law. I think also, if you have got smaller titles that are not going to have a great revenue contribution, smaller operators will seriously consider that they can get a title out quickly, sell it through quickly—even in regional areas—and not have it censored. I do not think this is going to bring the country to its knees; but I do believe that it is going to be attractive to people not to have it censored. What happens then? Again, we major distributors are going to be penalised. CHAIR—Because you are doing the right thing? Miss Wilson—We are doing the right thing. Because if this tax can be changed at whim, they are suddenly not recovering their 5.4, or whatever they need, and then what we used to call our fee will go up to make it totally cost recoverable. It could be a bad wheel to get onto. CHAIR—We heard evidence earlier today from the Australian Film Institute, and previously from the Australian Independent Distributors Association, which I understand represents smaller distributors—art house films as they described it. The AFI in particular remarked on what a significant impact this would have on short films in particular, which will see costs of classification application going from $770 to $1,210 for them—for example, for films of one to 15 minutes duration. In discussion, we explored classification classes, if you like—short films, feature films, films with three-print release versus 300-print release, video release and those sorts of things. I thought you might have a different perspective. Can you, Mr Bladwell, first of all give me a view on whether you think that is an accurate representation of the impact

LEGAL AND CONSTITUTIONAL L&C 172 SENATE—Legislation Tuesday, 13 April 1999 on the short film industry in particular; and secondly, your view of the classification of films in that sort of a way? Mr Bladwell—I would hand this over to Roslyn, only because the people I am representing are basically producing longer movies, outside of the videos. Miss Wilson—Of course it will impact on short films, although—very quickly, an ad for Village Roadshow—we have just opened a cinema down in Melbourne that screens only short movies. Therefore, we will be looking at paying that $700 or $1,000 or— CHAIR—$1,200. Miss Wilson—whatever it is going to become. I am speaking strictly commercially now. If Village Roadshow has bothered to do this, obviously there is growth in this business. Maybe the people who were representing to you this morning may have been downplaying the size of the business, as it would seem to be? CHAIR—No, they did not do that. Miss Wilson—Yes, it will affect them. Yes, they will get smaller. They would probably have to consider twice before they submitted, but they will nevertheless pay for it because they need the exposure. If they are granted a C licence for whatever the segment is that these short movies fall into, again I think that the larger companies will be jeopardised. And why should we be jeopardised if we are going out with 300 prints—may it happen in Australia one day— or a high print release? Why should we be subsidising these smaller companies when they are already subsidised by the Australian populous because the Australian Film Institute is subsidised by us— CHAIR—‘Us’ meaning? Miss Wilson—You, me and everybody in the room; not Village Roadshow, sorry—us. CHAIR—The broad us as opposed to the narrow us. Miss Wilson—Yes, the broad us. They are already being subsidised, so we are going to get hit again. In fact, in a lot of cases they are funded by larger companies such as Roadshow, so they are going to be hit again. But what else can fall into that category, if it is 30 minutes and it is a broad enough category? Does Bananas in Pyjamas go into that?—30 minutes; the Wiggles?—30 minutes; macrame? That is always my example of stuff I do not think should ever be bothered with censorship. CHAIR—Rose Growing was this morning’s example. Miss Wilson—Yes, Rose Growing; you know exactly what I mean. Does that fall into the short category as well? And will we have a waiver on that product? I am concerned that the larger companies will be put upon to subsidise everybody who does not really want to pay this increased fee, when the people who should be contributing to OFLC functions, because they are in fact performing a service for them, are probably pay TV and free to air—in whatever kind of subsidised form you think it should be made. Mr Bladwell—Two further points: the $1,200 for a short film still represents an overrecovery of the Office’s costs. CHAIR—An overrecovery? Mr Bladwell—An overrecovery in terms of what it costs to classify films versus the extraneous services that the Office provides, so the argument still stands whether it is a short film or a full film. CHAIR—Yes. I do not think the AFI would quibble with that.

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Senator COONEY—Have you ever actually seen a film being censored? What does the— Miss Wilson—No, and I am not at liberty to do that. Senator COONEY—I suppose the censor— Miss Wilson—They do not have open day at the OFLC. CHAIR—They do not have it? Senator COONEY—So what do you do? You just submit a feature? Miss Wilson—We submit it, usually with a synopsis and a cheque. Mr Bladwell—You have standard days, don’t you? You book them? Miss Wilson—For film you do, you have standard days. For video, you put it in and hope that you are going to get it out quickly. CHAIR—What sort of a time frame, for both film and video, do you usually find— Miss Wilson—Film is booked, so if you have a movie that you know is going to be delivered into Australia you can book it in. It can almost be there the day it arrives in Australia and gets through Customs—if we are waiting for it urgently. CHAIR—That is an official process that works well? Miss Wilson—Yes, I do believe it does. A lot of swapping around goes on. When you have a booking made and we may urgently need something else, we might swap the movies around; that works well. With video, you submit it to the board and virtually wait for it to come out. We do pay a fast clearance fee which is supposed to give, I think, a 48-hour turnaround. But that fast clearance fee now only covers a week turnaround. So any efficiencies that we thought might have been introduced when we agreed to pay a fee do not seem to be there now in terms of a 48-hour or longer turnaround. That is not happening anymore. We are getting classification now in four to five weeks. Senator COONEY—What is your impression about the way they are classified? Can you always see why they are classified in a particular way? Miss Wilson—We do not ever have a difficulty with them. Occasionally a theatrical company will challenge a classification, more often than not it is to try and get a lower classification so that a younger age group can attend the cinema. In video, we do not have a problem with classification. I think that the board members are extremely in tune with consumer desires and demands at the moment. Senator COONEY—Is the only issue the payment for the services? Miss Wilson—Yes. It is interesting with video games because, due to the fact that the OFLC does not have the infrastructure to support it, we have appointed people who can do a submission internally, at our own companies, with a synopsis and submit it to the board, who then approve or challenge it if they have heard something about it or if it has been monitored on the net. I am suggesting that a lot of the movies and a lot of the product that we have does not even need to be censored. I do not mean it like that; I mean Bananas in Pyjamas, for heaven’s sake. Senator COONEY—Does most of our stuff come from overseas, from the United States? Miss Wilson—Yes. Senator COONEY—Has that been classified over there?

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Miss Wilson—Yes. There is no formal requirement nationally in the States to have censorship; certain states require it. CHAIR—Do a range of states have self-censorship up to a particular level? Miss Wilson—Yes, they can actually ban a movie. A state like Georgia can ban a movie. CHAIR—As I understand it, that can happen here too. Western Australia could ban a film. Miss Wilson—They could, yes. Fortunately, that has not quite succeeded yet. CHAIR—I have one more question out of your submission. I am sorry, I was distracted by the thought of states handling their own films. Senator COONEY—I would like to ask about the theatre you have opened in Melbourne for short films only. Miss Wilson—My little ad. CHAIR—Senator Cooney is a Victorian Senator, I might add. Senator COONEY—Where is that? Miss Wilson—It is in the Jam Factory. Senator COONEY—Is it going to be exclusively for short films? Miss Wilson—It is an art-house cinema that might have an art movie in it one day but will be showing shorts—particularly Australian shorts—and it might have a season of shorts. CHAIR—Will Village Roadshow be the distributors of those short films? Miss Wilson—Yes, we will distribute them. CHAIR—Will they be commissioned through AFI? Will they come through the AFI? Miss Wilson—Not directly to us. We will probably be the producer. The AFI may speak to us. When Village is supporting Australian product, it could be through the AFI. We could do it with a director who has had some success at Tropfest, which is a short film festival which we have just had here. We have picked one up for video—the one that came second—which we will be running on our video titles eventually. That could possibly—by the time I have it censored—cost me $1,200, but we would think twice before we did that. CHAIR—Is that because of the cost of the classification process? Miss Wilson—Yes. We are only doing the director a favour to get his work exposed. Senator COONEY—We had some discussion with the Australian Film Institute about developing local culture and local film-makers and what have you. Do you have anything to say about whether this would have any effect upon your attitude towards what you do? AFI talked about there being a very narrow range of profit, and an increase in cost could be quite critical. Miss Wilson—It would be for smaller movies, particularly movies that maybe only get less than a week’s exposure in some of the art-house cinemas. Village Roadshow probably would not be investing in any of that type of product, but we could pick it up after it has been made for distribution. But, again, you would have to start thinking about whether you will spend that money on a short film and whether the revenue contribution is going to be there. Senator COONEY—So the revenue could be a factor in whether a person gets his or her short film to the public? Miss Wilson—Yes.

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Mr Bladwell—There is an assumption when you see the movies and you see the advertisements on television, say, for theatrical release that there is a tremendous amount of money in it. There is significant turnover. There are a lot of theatres in Australia, and there are lot of films being released. But the number that make a profit is actually a lot smaller than the number that is released. The cost of releasing movies is very, very high, and I think that it needs to be borne in mind that turnover does not equate with profit. What you have here is, in many circumstances, a tax which will merely increase the loss that those movies are making. Senator COONEY—What about videos? Can you lose on a video? Miss Wilson—Most definitely. Absolutely. Senator COONEY—Can you give us some idea of the proportion that are successful? Miss Wilson—From the rental side I would expect 50 per cent to be successful and 50 per cent to make a loss for us. But we have contractual obligations which require us to release them. We would make a net revenue from one-third of the sell-through side of our business. CHAIR—Is that the sell-through video business? Miss Wilson—Yes. It would be one-third. There are very, very slim margins in the sell- through business, and frequently we release titles that we might only do 2,000 or 3,000 units nationally, net. We do not make any money on those—it costs nearly as much to release those videos, just in printing the sleeves and doing a little bit of advertising. There is no revenue in those. I would say that only one-third made an appreciable net revenue. But contractually we are required to release a lot of the product that we pick up. Senator COONEY—I suppose you never quite know what is going to work. You have to just put them all out. Miss Wilson—You do not know. A lot of our contracts are made years before the film or video is made. You do it hoping that it is going to work for you, and sometimes it does not. Mr Bladwell—With theatrical releases the companies are required to release films here, and very often they know it is just not going to work in the Australian market. They still have to go through theatrical release as part of their contractual operations. CHAIR—You are saying that happens even if what they wanted to do was to release it to video? Mr Bladwell—Yes. There are a number of theatrical releases that are made purely and simply because of the contractual obligations that the parties have, knowing that it has to then go through the other stages of release. CHAIR—I have two further questions based on some of the evidence we were given this morning. One was from a small distributor who took us through a step-by-step OFLC approval process and what it was costing them to make an application and receive a classification which they were not expecting, appeal and so on. Do you have any examples like that that you could give us? Secondly, in relation to advertising under schedule 5, which was drawn to our attention, there are several categories—advertising, clothing and things like that—which you might use to promote your product, for which you must seek approval for each item. A separate application fee applies to those. Mr Bladwell—I suggest that we take the question on notice and put something to you. We can set it out for a video and a theatrical release which has a number of advertisements and components to it.

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CHAIR—We have a very tight reporting time. This committee is due to report to the Senate next Monday. I realise that makes it very tight for you, but any information that you could give us would be helpful. Mr Bladwell—We will get it done. Senator COONEY—You have just cost him the next three nights. Miss Wilson—I am on holidays tomorrow. Mr Bladwell—Past tense, Ros. Miss Wilson—There is a requirement to have each piece of advertising approved. But, once you get your ratings, if you are a responsible distributor you abide by the OFLC classification and guideline. So if it is classified PG and has occasional course language—another ad—or something like that, you put that on every piece of advertising that you do. Again, the infrastructure of the OFLC does not support every piece of advertising going to the OFLC. In my experience in 17 years in the industry, unless you have transgressed, you do not have to show them any of that advertising. CHAIR—I have yet to ask these questions of the OFLC, who have had the great fortune to listen to all of this today. So it is not your understanding that that is what has to be done, that every new— Miss Wilson—There was a requirement—in fact, I am not even too sure that you actually have to do it; I think it is only trailers. They will be able to fill you in on that. Unless you are breaking the law there is no need for you to do this. I am doubting— CHAIR—Okay. We will seek clarification on that. Any information you can give us on the process of approvals and so on that I outlined before would be helpful. Thank you all very much for appearing this afternoon, your evidence has been very helpful.

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[2.54 p.m.] BLIGHT, Ms Rosemary Anne, Company Director, R.B.Films Pty Ltd McEWEN, Ms Melissa Louise, Research and Policy Manager, Screen Producers Association of Australia CHAIR—Welcome. You have lodged submission No. 8 with the committee. I note for the record it has been released for publication. Are there any amendments or alterations you wish to make to that submission? Ms McEwen—There is one small amendment. There is a figure that is quoted in there as being the value of Australian films at the box office last year. That figure is in US dollars, so in Australian dollars it is more like $25.6 million. CHAIR—That is the $16.7 million figure? Ms McEwen—Yes. That is a US dollars figure. CHAIR—Thank you. I now invite you to make a short opening statement, at the conclusion of which we will ask some questions. Ms McEwen—Going back to the fact that that number has changed, what is actually important in the submission is the percentage of Australian films. Australian films held a share of just four per cent in 1998. That number is slightly lower than in most years, partly due to the overwhelming presence of Titanic at the box office and also partly due to the slightly more challenging nature of the Australian films that were released last year. In the past we have seen a lot more comedies; last year there was perhaps a slightly darker edge to a lot of the Australian films released. Nonetheless, Australian films, even in their better years, rarely take more than a 10 per cent share of box office takings. What I am interested in doing today is moving away from the broader perspective that you have had with Village and so forth and looking specifically at the impact that these changes are likely to have on the Australian production industry. The hegemony of Hollywood product in the Australian market swamps smaller films and, in particular, Australian films. Part of the reason for this swamping effect is the amount of money which US distributors can pour into advertising and other forms of marketing, such as cross-promotional, toys at McDonald’s, things like that, which your average Australian independent film just has no access to. Most Australian films are distributed by independent Australian companies who have limited marketing budgets due in part to their size; they do not have the economic muscle of US distributors. In other cases, Australian producers distribute their own films because they have trouble gaining distribution deals that are favourable to them. In this situation, the marketing budget naturally is even more constrained. For small independent distributors, or for producers who distribute their own films, the extra cost for classification will pose a disproportionately high, additional constraint on the marketing budget. This can result in reduced returns for the producer and distributor, which means they in turn have less to invest in future production of Australian films. In extreme cases it may mean that it is economically unviable for a marginal small Australian film to be distributed, particularly if it becomes necessary for there to be an appeal of that film’s initial classification. I note in the regulatory impact statement on page 5 in the explanatory memorandum the second dot point which says: . The degree to which the increase in classification costs will be passed on to consumers will depend upon the operation of normal market forces.

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The problem with that statement is that the normal market forces in distribution and exhibition really do not allow for any cost recovery. You would be familiar with some of this, Senator Payne, from some of the arguments we put to the GST committee. The problem with the way the financing is structured is that it does not matter how much the film costs initially to make or distribute or market, it still costs the same to pay for a ticket at the box office. You do not pay more to go and see Titanic than you do to go and see The Castle, despite the difference in the costs of production. Nor do you pay more because there has been a mega advertising blitz. That does not make any difference. The costs are still the same. So the producer or distributor has almost no capacity to pass on any increased costs to the consumer. They need to be absorbed by the distributor, exhibitor or the producer. There is not that chain. It is not like if you have apples for sale which need to get some sort of health inspection passed, so that you can then build that cost into what the consumer will eventually be paying for them. With films, the cost of distributing the film does not affect the cost of the actual ticket. So there is no ability to pass on any increase in these costs for feature films. Obviously there is in videos, but with feature films there is not. The Screen Producers Association is particularly concerned with the impact on feature films. Senator COONEY—Can you have different charges for the videos? Ms McEwen—Not for rental but for sell-through for purchase you can. Ms Blight—There is a small ability in sell-through to do it but not major. Ms McEwen—Yes. You will still find that videos tend to cost the same amount no matter what they are. With more specialisation there, perhaps there is more opportunity to do that. Senator COONEY—So a ticket to a film that is going to net $60 million is going to be the same as one that nets $50? Ms McEwen—That is right. And the way the business works, if your film is really popular, you make a large amount of profit. If it is not—depending on the cost of production—it does not mean that all of a sudden your tickets are cheaper or more expensive or whatever. The main aim of the game when you are making a film is to make the most popular film possible for the least possible production costs, which is why something like The Castle was seen as a particularly good film in terms of its returns because it was a very cheaply made film which ended up being sold, particularly to the United States, for a very large amount of money. So it was a proportional earner, and this is one of the changes in focus in Hollywood now—to make films that do not cost as much initially but therefore earn a much larger return in proportion. But that is moving a little bit away from the topic. Senator COONEY—It is very interesting, though. Ms McEwen—It is interesting. But the point of it is that basically your producer or your distributor will not have the ability to return any increased costs. They have to absorb them themselves. In most cases, for Australian distributors and producers distributing their own films, that will come out of the marketing budget, which means that there is less money to put out there and to actually make the public aware. That is one of the big problems with Australian films. A lot of the time the knowledge of them does not actually reach the public until they are almost over in their screening periods because, generally, they are given fairly short distribution and exhibition windows. So that is another problem. The impact of that will be even more severe on short films. Generally, it is pretty hard to have short films gain any kind of theatrical distribution because they are only likely to earn

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 179 very small returns. I think they would probably fall into the area of no profit for most distributors. With additional costs, these are only likely to decrease the number of short films that get distribution. Short film making is an important developmental process for upcoming Australian film-makers. It generally involves a significant investment of the film-maker and their crew’s own time, money and energy. It therefore seems a little harsh to rob these people of the small window of opportunity that they have to earn some return on that particular investment that they have made. Quite often, with short films, people work on a basis of no-one actually getting paid until the film gets sold. So everyone puts in their time for free on a sort of joint venture arrangement. If there is no ability to sell that film for distribution, there is no ability to get any return for any of those people. While it is part of their learning process, it often involves significant costs and investment. The Australian government is a strong supporter of the film industry, and I think that has been a generally bipartisan approach. It is a supporter of development and training, it supports production through agencies such as the Australian Film Commission and the Film Finance Corporation, and it provides loans to help film-makers sell their films internationally. The area in which the government does not currently support film-makers is distribution and exhibition. When Australian films are made—and so many great Australian films are made—it is a tragedy if those films cannot be shown to Australian audiences. For this reason SPAA believes that it would be entirely consistent with the government’s approach to the support of the film industry in Australia for there to be special conditions for Australian films and, in particular, those Australian films which are distributed by small Australian distributors or producers themselves. Film-makers and film making in Australia are small businesses. The idea of a new tax being placed on these small businesses, which are a fairly vibrant part of both culture and economy, seems to be somewhat contrary to the government’s attempts to try to remove regulation, taxation and impediments on the growth of small businesses. Rosemary, who is here with me today, is the producer of In the Winter Dark, which last year was distributed through normal channels. At the moment, she is actually distributing her second film, Fresh Air, which was made under the Australian Film Commission’s million- dollar movie program. She can answer any questions that you have on that practical side of the process of distributing films. CHAIR—When you say it was distributed through the normal channels, what is ‘normal’? Ms Blight—That was through a company called the Globe Film Company, which is actually a local Australian distributor. CHAIR—The one that does it at Stanmore? Ms Blight—Yes, that is correct. They are a small independent Australian company and distributor. Ms McEwen—What we would like to see is either a waiver for Australian films generally or an expanded discretionary power for the director of the OFLC which may extend to Australian films. At the moment the discretionary power is fairly limited but we would like to see, specifically, an increased waiver power so that, in the case of Australian films that are being distributed and are very marginal, they have the opportunity to be able to go ahead without having to pay the costs, or at least the full costs.

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Senator COONEY—The institution that came this morning said they did not want a waiver but they wanted an exemption. What do you say about that? It is not a subtle distinction. They said if it was an exemption you just fall into that, whereas with a waiver you have to go— CHAIR—Do you mean waiver of fee? Ms McEwen—Of fee, yes; not of classification. CHAIR—Not an exemption from classification, but waiver of fee. Ms McEwen—Yes. Senator COONEY—Are you happy with the situation, as it now is, if you can get a waiver of the fee, or is that putting it too simply? Ms McEwen—I do not necessarily disagree with anything that has been said by Roadshow and Ernst and Young. I have not heard what other people today have said. I think that there are some problems generally with the approach that the prime responsibility does fall on the film distributors to pay for things that television and pay TV later can pick up on, or for regulations in an area where pay TV, if they import movies directly from America as movies of the week, can regulate themselves. The self-regulatory approach obviously has its advantages, but, without wanting to change the entire way that it is being approached, that is the best way that its effects can be mitigated for the Australian production industry. CHAIR—From the response to a couple of my questions, I suspect you might find Village Roadshow disagreed with your suggestion of a waiver of charges for Australian feature and short films. Ms McEwen—I was thinking that as they were pointing it out. Village Roadshow is, in fact, a member of SPAA as well, but not all our members agree with every single thing, as I am sure anybody who is part of a membership driven organisation would know. Senator COONEY—The term ‘SPAA’ has me— CHAIR—It is a very nice acronym. Senator COONEY—In my day, it used to stand for the Socialist Party of Australia. CHAIR—It is definitely not that. Ms McEwen—No, a group of small businesses does not generally fall into Socialist Party lines, I can tell you that much. CHAIR—Senator Cooney, would you like to ask some questions? Senator COONEY—If the bill stays as it is and becomes law, is it going to drive people out of producing and distributing films to any extent, or is it simply going to make it a lot harder? Ms Blight—I am speaking from the total other end from Village Roadshow. I am involved in making films that are seen at SPAA as rather dark, I hear—but I will talk to her later! So I am speaking from a place where I can actually weigh $1,500 or $2,250 in column inches that I will miss out on in the Sydney Morning Herald. For a company like Village, of course they have to look at their bottom line as well, but they have a lot more room to move. It would not drive me out of producing or necessarily drive other people out of wanting to produce films. What I have taken on with Fresh Air, my next film, is that I have chosen to distribute it myself; it is not because I could not get anyone to do it. But having made In the Winter Dark last year through normal channels, I found that it was extremely difficult to be on Hoyts Broadway for a week and then be pulled off because the next American film was

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 181 coming in. There was no word of mouth. I believe the audience for that film were all busy working people who need a lot longer than a week to get their lives together to go to a movie, apart from getting babysitters et cetera. So I decided that I would not go for the big scale but direct it to one cinema in each state and direct the whole campaign towards that. All my money has been spent, literally I am spending—I will just see who is in the room— CHAIR—Officers of the OFLC. Ms Blight—I am spending about $25,000, and that is tiny. Occasional Coarse Language had a million-dollar marketing budget. Producers such as myself—and there are a number of us—are choosing to identify our audiences more strongly to try to reach our natural audience. What is happening with our films is that they go out there, they get a week, our natural audience never sees them and then we are seen as failures, and then we announce that we have only four per cent of the box office. So the move that we are making as independent producers is calculated. It is not because Village or Globe do not want it; it is because we are saying, ‘Okay, if we are hands on, we spend our own money—so we watch our bottom line and become more accountable to our investors—and we make sure every single bit of marketing pays off.’ When I paid my $1,490 to classify Fresh Air—Fresh Air was made for $1 million—that took away from my bottom line and my marketing budget. I paid it because I believe all films should be classified; I do not have an issue with that at all. I do not have an issue about how it is actually run within the organisation; I have never had a problem with that. Obviously, I would have liked to have done another week’s worth of ads. I know that sounds awfully simplistic, but at this level it is very important. In that case, I am sure I would be speaking for other producers who are trying to find another way to get Australian audiences to see our films, because they are not, and these films deserve to be seen. It is not that they are bad, or necessarily dark, films. People do not get to hear about them because everyone else is buying full page or double page spreads and the front page of Metro guide. CHAIR—You have upset her, Melissa. Ms McEwen—No. I am agreeing entirely. CHAIR—Calling her films ‘dark’ films. Ms Blight—Poor Melissa! Ms McEwen—That is one of the arguments that have been put, but the point is the films themselves were very, very good films. As Rosemary says, one of the big problems is that, when you are distributed through a major chain like Hoyts or Greater Union or—dare I say it—Village Roadshow itself, you are put on for a week, and that is it. Films are generally slotted in between major releases of big blockbuster American films. During one week in August last year, I think something like three Australian films opened. It was done that way because it was considered a down time for major film-going. None of the American films was going to be distributed at that period, so there were a few spare cinemas across the chains and therefore they could slot the Australian films in at that time. CHAIR—So you are talking about something like the coincidence of timing in the opening of Matrix and Paperback Hero—that sort of thing happening simultaneously. Ms McEwen—Yes, and I think last year there was Welcome to Woop Woop and The Interview or something like that.

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Ms McEwen—It was actually Radiance, In the Winter Dark, Dead Letter Office and one other—I am really sorry I do not know who made it—but we all came out within two weeks of each other and all we did was divide the audience between us. The audience did not get bigger. Of course, we make films for half the marketing budgets of American and international films, so we cannot expect the other 90 per cent of the audience to come running towards us. It is very difficult to fight against TV advertising et cetera. Senator COONEY—Would the change in the fee ratio for the censorship service help? Ms Blight—Changing the fee rating as to putting it down? Senator COONEY—In other words you say, ‘Look, it is not really going to make a difference. Rosemary Blight will have to struggle a bit but it is only an extra $1,200,’ so it is not a major factor in all the struggles that you have in making Australian films? Ms Blight—Absolutely, it is. I came in here and I thought, ‘Okay, I paid $1,490 and now I’m being asked to pay $1,780.’ That does not seem like a lot of money but it is when you put it in context of what someone like myself is doing. No-one is paying us to distribute the films. Of course we would like to make money out of the film and we are taking ourselves higher up the food chain, definitely. We think these films deserve to be seen; people work on these films for 10 years. If I had to pay that extra $300 or $400, something would have to go by the wayside. It is that down to the wire. Senator COONEY—So your market is very tight? Ms Blight—Absolutely. It would be a matter of whether you do the stickers or the quarter- page ad; it is really down to that sort of basic thing. Although it sounds very small compared to the larger distributors and the impact it is going to have on them, what we are dealing with as independent producers is very much development of talent. It is very much development of Australian culture; it is maintaining our own stories. At this end of the market, we tell very much Australian stories and some miss the mark but some do not. We get our Strictly Ballrooms and we get these stories that are so intrinsically Australian. That is why it is important. What we do is important even though it sinks. Senator COONEY—What you are saying is you help the development of directors and actors of films and—what else do you need? Ms Blight—Fresh Air is a very good example. We had a DOP who had only ever made— Ms McEwen—Director of photography. Ms Blight—Director of photography, I am sorry. He had only ever made a no-budget film before he came on. We paid him, he shot the film and within four weeks of leaving our film he was director of photography on a $4 million film. I saw him last night and he has got three offers on the plate for July. The sound recorder is exactly the same. We were his first feature film. He has gone on to work on other films, including American films. It goes on and on: of the three actors we used, one is Nadine Garner who is relatively well known but the other two have never been seen before. They are now getting job offers. This is an incredible platform for people to grow. Senator COONEY—It is a bit like a singer or a vocalist who starts off in the pub, gets discovered and away they go. Ms Blight—It is quite interesting—this is a bit off the track—we actually got a whole lot of unrecorded artists to do all the music on the film and they have just signed a record deal

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 183 with James Murdoch, I think, at Festival Records. The obvious advantages which have come out of this film are extraordinary and they are as important as what I hope will be a huge season. What I have got by doing it myself is I have secured an extended season so they cannot pull me off. That is one thing which you can get when you do it this way. To take it back to that $1,500 or $1,700, you could see what I could do with it. CHAIR—Firstly, I have to confess that in that two weeks I saw Radiance. My apologies for that. Secondly, the dearth of live music venues at this stage in Sydney means films like yours are probably making a substantial contribution there. But I did want to ask a question of Ms McEwen. You say quite frankly that the Australian government does strongly support the Australian film industry. Through a series of hearings which we have experienced recently, that would certainly have been proven to be the case.. Ms McEwen—That is right. CHAIR—When you argue for further support in this category, in this area of your operations, other people from whom we have received evidence today—and I would imagine the distributors of smaller budget foreign films and people like that—will say, ‘The market in Australia is impossible for us to break into because the Australian film industry is so heavily supported by government. Give us an even break.’ What is your response to that? Ms McEwen—For foreign films there are a lot of countries other than the United States. Their films are also very heavily supported by their governments. The French industry is enormously supported by the French government, the Canadian industry is enormously supported by the Canadian government and the UK industry et cetera. One of the ways generally that films are supported and film making is supported by the government is through equity investment. The Film Finance Corporation and the Australian Film Commission work through not just giving money to film makers. In the industry there is very little money that is just given away. Most of the money is invested. What happens is that the Film Commission and the Film Finance Corporation and the state bodies usually gain some kind of interest in either the copyright or in a profit share. It seems to be almost cutting off your nose to spite your face to say, ‘We won’t give them that little tiny bit of extra assistance which ensures that the film gets distributed and which ensures increased ability to advertise the film.’ We would then return money back to those organisations which they can then reinvest in films. Film money and financing is a sort of never-ending circle. You make your film and your independent distributor earns money back from the film which means that they are then able to reinvest back in Australian films. It is the same with the Film Finance Corporation. The more money that they can recoup the more money that they then have available to invest in the future. That is why it is important that the government sees their support through to that small final stage, which they do not. I am not asking for the government to be providing huge amounts of money to fund marketing of films to the public in Australia. What we are asking is for a small dispensation when it comes to classification to allow independent distributors and producers that little bit of extra cash to be able to advertise and try to bring more money back into the industry. Senator COONEY—I suppose you say that you are showing Australia to its best advantage around the world. It is a bit like the Grand Prix. CHAIR—That is an interesting analogy. Senator COONEY—Do you want my opinion about the Grand Prix? CHAIR—Certainly.

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Ms McEwen—If you look at films like Crocodile Dundee, Strictly Ballroom or Priscilla: Queen of the Desert, which were enormously successful overseas, they do pay off in terms of tourism and sending our cultural message overseas and so forth. I am not sure whether most people want Australia to be depicted as full of homosexuals who travel through the desert in bright pink ostrich feathers but, then again, others of us probably do. Nonetheless, it shows the richly textured nature of Australian culture. CHAIR—That is right, the tapestry. Senator COONEY—The Castle was very good. It was made in the right place. Ms McEwen—Those films will not get made. I am sure whoever initially looked at Priscilla: Queen of the Desert— CHAIR—What are you saying? They will not get made? Ms McEwen—They will not get made if there is not money that continues to flow through the industry. CHAIR—Nobody is suggesting there is not going to be money flowing through the industry. What we are actually talking about is the fee structure. Ms McEwen—But that is the thing. It is a cycle—the more money you get from distributing, the more money you can spend on advertising. The more money you can bring back into the industry, the more money there is to be spent on making the next film. CHAIR—I would be interested to know whether any of your members have said to you, ‘I have this film. I have been through this process with the OFLC. Under the new schedule it will cost me this much money. This is a significant disincentive, and I am not going to do this anymore.’ Do you have any members who have said that? Ms Blight—That sort of thing comes especially from the makers of short films. I will declare my allegiance here. In my office there is a young producer who has just made this film. She has been offered theatrical release but she cannot do it. CHAIR—Because? Ms Blight—Because of the amount, the $790 for a film that no-one will get a cent from. She cannot do it unless she finds support. She can be supported by us, by the company, but when we are releasing a film we are all walking this fine line. We have to ask, ‘Can we justify putting in that money so that they get that theatrical release at a cinema?’ You will find that organisations like the AFI and AFTRS will actually pay the makers of short films a little bit of money to screen their films. For example, this film has been offered to the Stanmore cinema before Shakespeare in Love. That is huge, that is wonderful, but this money is going to make it near impossible because they have also got to try and get a print of the film. They have not quite finished it yet and everyone is begging and borrowing. On that level, yes, you would say, ‘Can we justify it? Could that money be best spent elsewhere?’ CHAIR—One thing you have not spoken about very much, and which has been raised with us several times today, is the uneven playing field between pay and free-to-air TV versus your members, right up to the Village Roadshows. Do you have a comment you would like to make on that before we conclude? Ms McEwen—It is something that we have not considered in a lot of depth. I would concur with the argument that it is difficult to sustain while free-to-air and pay TV basically are self- regulating and can pick off what has already been paid for by film distributors and producers. It seems somewhat unfair that they get a free ride on the back of those things.

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If a film-maker could sell a short film to a network, which is a pretty challenging task, they would not be faced with that issue. But they are unlikely to sell it to a network unless it has already had theatrical release because networks are only likely to pick up something like that, which is an incredibly marginal area, if they think that it is going to provide them with some kind of return. The networks—perhaps not the pay TV operators—are far better financed and have much more money to spend than do Australian independent distributors and producers who wish to distribute their own films. So, as I said before, we have not really considered this to any extent. I think that there is an inherent problem with the idea that the least cashed up part of the industry has to support probably what is the most cashed up part, that being the broadcasters. CHAIR—Ms McEwen and Ms Blight, we thank you both very much for your evidence today. It has been very helpful. We appreciate your presence.

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[3.31 p.m.] HOLMES, Mr Geoffrey David, Principal Legal Officer, Attorney-General’s Department REABURN, Mr Norman, Deputy Secretary, Attorney-General’s Department WEBB, Mr Simon, Acting Deputy Director, Office of Film and Literature Classification CHAIR—I welcome Mr Holmes, Mr Reaburn and Mr Webb. Officers will note that they will not be required to answer questions which seek opinions on matters of policy, reasons for policy decisions or a device they may have tendered in the formulation of policy. If necessary, the committee will enable officers reasonable opportunity to refer questions to superior officers or the minister. Senator COONEY—Is there anybody superior to these three? I think they are the most superior I have ever seen! CHAIR—I could not possibly comment, Senator Cooney. I invite you to make a short opening statement, if you wish, at the conclusion of which we will ask questions. Mr Holmes—Having been responsible for preparation, could I start by perhaps giving an overview to put the bill in perspective, because it might answer a few of the questions that have come up today. The underpinning legislation came down on 1 January 1996. It is a federal act for the ACT, which operates, in a sense, in a vacuum. The other part of the cooperative scheme is the state and territory enforcement legislation, and it is that legislation that makes people come to us for classifications. For instance, it says you cannot exhibit a film in public unless it has been classified—and that means classified under our act. The fees are currently imposed under our act. That structure, which is a truly cooperative legislative structure as each measures with each other, follows the Law Reform Commission’s report in 1991 into censorship procedure. The key—and we will come to this later, and I think it was mentioned by a couple of the witnesses today—is therefore effective enforcement. We get a lot of complaints by people that say, ‘We do the right thing, but so-and-so down the road isn’t; therefore, we have to pay more because he isn’t paying it.’ The enforcement component is a very important part of the scheme. The previous government decided that the OFLC should move towards full cost recovery for the provision of classification services. That is a full fee for service. It fell to the lot of the current government to introduce that on 1 November 1997. The current fees represent full cost recovery for the cost of provision of classification services. What the government decided in the May 1997 budget context was that the entire operating cost of the OFLC should be met from the revenue raised by it. The full cost of classification services is, I think, about $3.2 million. Mr Webb—About $3.2 million. Mr Holmes—That meant raising another $2.1 million. The areas to be covered by that are, essentially, some policy research, provision of policy, support for the standing committee, the Community Liaison Officer scheme and the payment to the states and territories. It is wrong to say the payment to the states and territories—and that, by the way, only results in $75,000 going to each of them—is entirely for enforcement purposes. If you look at the act—I think it is section 80-something—it says it is to help with the administration of their aspect of the scheme. In fact, part of that money comes back to us to help us with the Community Liaison Officer scheme and the research component. All of it does not go to them and stay with them for reinforcement purposes; they pay some of it back as part of a cooperative scheme to help with the whole scheme.

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CHAIR—What did you say after ‘It is wrong to say that’? Mr Holmes—It is entirely for enforcement purposes—that $75,000. Not only is that wrong but, in a lot of cases, they do not take the whole $75,000. They give some of it back to us to help with other cooperative ventures like the CLO scheme and research that we have going at the moment. Our scheme serves one primary purpose. We have led the world in what we do with classification. We not only classify things into categories but we have also led in consumer advice to people. Parents with kids know what they are getting when they see a film and what is in it, and adults do to. If you do not like strong level violence, then you can look at the consumer advice and not go and see it. Industry has recognised and told us that that scheme also benefits them directly. That is reflected in some of the evidence today—in the trouble they go to to get their films into certain categories because of the market and box office that results. In other words, if we give it a PG, they might seek a review to try and get it a G because you get a different market. Mr Webb will tell you about Passion later. They wanted an M and they got an R. That was part of the problem. The classification you get does affect box office receipts and that is why they cut films—to take them from R to MA so that they get a broader range of market for it. So what we do directly benefits them too. If you look at the additional matters that the government is trying to recover through a tax, they are all matters that, for constitutional purposes, may not—in the Commonwealth sphere— be able to be directly attributed to the classification service; but they do benefit the outcome of it. In other words, the Community Liaison Officer—there are now two of them, and all jurisdictions have subscribed—goes around and visits video shops, newsagents, tells people about their requirements under the law. Most of them do not know them; most of them want to do the right thing—and he reports bad breaches to the local police. One of the troubles with the enforcement of the classification scheme is that state and territory police have usually got what they consider more important things to do than run around corner stores to see whether the videos they are selling are classified are not. That scheme has had very considerable success in filling the gap between formal classification and educating people as to what their rights and duties are under the law, which benefits those people who do do the right the thing and have things classified because it ultimately results in more material coming to you. Again, some of the research that you may not be able to attribute directly to the classification service is nevertheless relevant to it; it helps us to make better decisions. And if you look at what we are doing in computer games at the moment, it may well, down the track, have direct benefits to industry. We have a more restrictive scheme at the moment for computer games than we have for films. That was brought in at the time by ministers because there was very considerable concern in 1994 as to the effect of computer games on young people. We have done three research projects on that and the results of those are about to be announced. That may well have a repercussion on the range of material you can have in computer games and the various levels. As the ministerial support is a cooperative scheme, if you want to do anything to change it, you have got to go through the standing committee. To change the guidelines, to change the code, you have got to get the agreement of all participating jurisdictions. We also provide a complaints mechanism for the industry. They do not get the complaints about Salo or Lolita; the government does. We handle those complaints. It is not the distributor who has it classified who has to deal with that; we deal with it. We are always looking at improving the system. It is a brand new scheme. It is essentially procedural. We are looking at quite a number of amendments to improve the procedure, to make it more efficient, to make it work better. You

LEGAL AND CONSTITUTIONAL L&C 188 SENATE—Legislation Tuesday, 13 April 1999 have got to do that through the states; you have got to do it in conjunction with the states. It will require Commonwealth legislation and state legislation. Because of the way the scheme works, the outcome of that will, I know, have a direct benefit on the way we deliver the service to industry. To cover that extra money, we had to impose it as a tax, and it makes no secret of it here. The structure of the taxing bill is the same, essentially, as the current fee structure. In other words, we had a long discussion with industry over a period as to what sort of structure they wanted for the fees, and it ended up being a structure similar to this—the running time component. The structure in the current fee schedule has been followed through into here, the difference being that the amounts have gone up. When the government’s decision was announced, the bill went in in the second half of 1997 and we were aware—because there had been a huge increase on 1 November 1997 and our bills went in shortly thereafter—that the combination of the two was a bit much, I think, for the industry. It was just unfortunate that the timing came so close together. We were concerned about reports we had that it would restrict the range of material available on the Australian market, particularly with limited market appeal; so the attorney announced in the second reading speech that he would ask an independent person to have a look at—and I think the words were—the structure and whether some concession could be made for limited market appeal. The government’s budget decision was that it should come in by 1 July 1998. We had the bills through the House of Representatives by the end of November; it was in the Senate. The time for turning this around was tight, but we engaged Ernst and Young and there was a report to the Attorney-General’s Department, which reported in March. This is dated 3 April, but I think the submissions cut off on 23 March. What it did, according to this, was write to everyone who had used the OFLC services in the previous two years. That should have covered some of the people today that said they were not. There was a very tight one or two week timetable to put in initial submissions. Then there were several meetings with interested people. Then there was a synopsis of the way they were thinking and final submissions were invited. I notice AIDA was one of the groups that made submissions and they did appeal before the review. The review has been made available to senators. Does the committee wish a copy to be made available to it? CHAIR—The Ernst and Young review? Senator COONEY—Is that the one that was discussed before? CHAIR—Yes. Mr Holmes—It is quite long. It is quite detailed. Senator COONEY—I did not get the impression that the people from Ernst and Young were embracing that with much enthusiasm. Mr Holmes—This was done by their Melbourne office, so it was a Chinese Wall exercise. Senator COONEY—Very interesting. Mr Holmes—But the interesting thing about the report— Senator COONEY—Is a Chinese Wall still allowed? Mr Reaburn—This is the accountancy profession, Senator. Senator COONEY—Very interesting.

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Mr Holmes—It is a fascinating report in the sense that no-one agreed about anything in it. Depending on whether you were film, video or publications, what end of the market you came from and what your interests were, everyone had a different view. That is why they ended up the report conclusions in the way they did. They did look at some limited market appeal mechanisms, but no-one could agree on what they were, should be or how they would be calculated, so we did not pursue that line. What we did think was that there was some avenue or need to take into account to ensure diversity of product for material that had a very limited release or limited circulation. We attacked that through the expanded waiver power. We did, in fact, have some amendments in the Senate to do this, but the election intervened and so the bill lapsed. We incorporated them in the new bills that we introduced in November last year. What no-one has picked up in the Attorney’s second reading speech is that there was in fact a two-pronged attack: one was to expand the waiver power and the second was to look at the current range of exemptions under the act. He said in the second reading speech towards the end that he had taken up with his ministerial colleagues—and he has—and that is well advanced. But they are two different concepts. The exemption scheme means that you do not go near the OFLC, and is suitable for certain types of material in the lower range category—model trains, hobby or opera. CHAIR—Rose growing. Mr Holmes—But if you talk about—as is being raised here today—a short film for public exhibition in a mainstream cinema as distinct from a film festival, then I think the people who go there would expect that material to have been through the classification system. That really raises the waiver question, as distinct from the exemption question. The interesting thing is that, until we got a letter a couple of weeks ago, the Australian short film exercise was not really brought to our attention, and is not a highlight of the Ernst and Young report. So the current waiver is really based on a neutral but defined area of material. It is not country specific. It relates to certain types of film. CHAIR—Where is that spelled out? Mr Holmes—If you look at the waiver terms, it is in neutral. It just says, ‘A documentary record of event or of a cultural or like nature.’ It could be any culture. I think other ministers and senators got the recent letter. Until we got that letter, the concentration on the concept of the Australian short film justifying—and there are some wider ambit claims about all Australian films—really had not come to the fore. There is and there was in the preparing the waiver provision a delicate balancing act between cross-subsidisation, giving relief in areas which are appropriate to ensure diversity of product and securing and maintaining the integrity of the classification system. Because a lot of people place a great deal of store on it and would be concerned if a lot of material started appearing that did not appear to have been through the system at all. On the exemption side, there is a problem with the current system because it just says educational or business, and the film is exempt unless it goes to the restricted level of MA or above. So you could lose it if the material goes in a stronger category. But who knows what falls within that? The only way you determine what falls within it is if you prosecute a person for not classifying a film and the magistrate at the prosecution says, ‘I consider that to be business or educational.’

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So as part of this exercise with the states at looking at expanding the exemption categories— because that also came up today in evidence—we are looking at putting in a more secure exemption system so there is something like an exemption certificate that enables people to know that they are within the system. I think that is all I wanted to say by way of background, other than to say advertising is voluntary. There is a power in the act to submit material advertising for a publication, film or computer game if you want to. If you don’t, you don’t have to, but if we get complaints, there is a call-in power enabling the board to call it in to have it classified. So those fees are payable, for example, if someone puts in advertisements for R-rated films, or something like that, that might be thought risky. They might want to put those advertisements in the Sydney Morning Herald, for example. There is a capacity to do so. If you want to do it, you pay the fee; if you do not want to do it, you do not have to pay the fee. Senator COONEY—You say that you do not have to pay a fee for advertising if you do not want to? Mr Holmes—No. But, if you put in an application for classification of a poster, there is a fee prescribed, but there is no requirement to send it. Senator COONEY—Why would you? CHAIR—To cover yourself, obviously. Mr Webb—Yes, to cover yourself. Mr Holmes—Yes, it gives you protection from prosecution under state law. Mr Webb—On occasion we get the police submitting something. Not long ago, a T-shirt on which there was some offensive language was submitted; it had been obtained from a shop in Goulburn. It is not a common occurrence. Senator COONEY—Is it an offence to sell a video without classification? Mr Holmes—Unless it is exempt. Senator COONEY—So the actually selling— Mr Holmes—Yes, is the offence. Senator COONEY—But the selling of the advertisement is not an offence. Mr Holmes—No, it is the display. Sometimes advertisements are approved, subject to conditions. Mr Webb—Yes, that is right. Section 29 of the classification act of 1995, the original act, sets out the provisions that the board may apply when approving an advertisement. It does not classify an advertisement in the way that it classifies a film. Mr Holmes—No, it approves it or does not approve it. Mr Webb—It can approve it or not approve it, subject to conditions. CHAIR—We do not get PG advertisements. Is that what you are telling me? Mr Webb—No. Senator COONEY—Is there a distinction? What about a book, a calendar, a card? Mr Holmes—That is a publication. Mr Webb—Those would be publications. Senator COONEY—It is an offence to sell any of those without a classification.

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Mr Webb—If they are submittable publications. In publications, you have a partially voluntary or, if you like, partially compulsory scheme. You are only required to have a publication classified if it is submittable. In shorthand, that means that, if your publication contains material that is likely to warrant restriction to adults, you are required to have it classified. In that case, if you sell it without having it classified, it is an offence. Senator COONEY—But, with a video or a film, it does not matter whether it contains nasty material or not, it has to be classified. Mr Webb—It has to be classified. Senator COONEY—So you get punished for showing a film that has not been classified; whereas with books, advertisements, and what have you, you get punished for showing an obscene article. Mr Webb—In a sense, that is right, yes. If you have Bambi in book form, you are not required to have that classified. If you have Bambi, the computer game, you are required to have it classified. If you have Bambi, the video, you are required to have it classified before you can sell it or rent it. If you have Bambi, the film, you are required to have it classified before you can publicly exhibit it. Senator COONEY—So it is the film and the video that are compulsory. Mr Holmes—Yes, that is right. CHAIR—Mr Webb, do you want to make an opening statement? Mr Webb—No, I am very happy with what Mr Holmes has put forward. Let us deal with the questions as they come. Senator COONEY—Is a computer game treated in the same way as a film? Mr Webb—A computer game is the same as a film. Senator COONEY—And a video. Mr Webb—That is right. Senator COONEY—Just putting it around the other way: you can get yourself into trouble, get punished, for showing them without— Mr Webb—For demonstrating them or for selling them. Selling them includes the arcade machines where you put your dollar in, as much as like selling a CD from the game box in the Harvey Norman store, or something like that. Senator COONEY—With a book or a calendar you can take your chances; but, if the state law punishes obscenity, you get punished because it is obscene. Mr Webb—The offence is for selling a publication, but it is a submittable publication that has not been classified. A submittable publication requires classification under state law. A submittable publication is defined, once again, in the definitions in section 5 in the original act. Senator COONEY—But in no case is there punishment for not paying the charge. Mr Webb—No. The charge is a prospective charge. The classification board cannot provide you with a classification without your having paid the fee or the charge, as it will become. Senator COONEY—If you do not pay a tax—say, if you do not pay the goods and services tax when it comes in, or if you do not pay your income tax, or if you do not pay capital gains tax—you could be punished for not paying it. But this is a tax that you are not punished for not paying.

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Mr Webb—This is a prospective, at the moment, fee that subsequently may become a tax. That means that, if you want a classification, you have to submit an application and your application must be accompanied by that fee. If it is not, then the Classification Board cannot issue a classification. So, in a sense, the punishment is: if you do not pay, you do not get the service. Senator COONEY—But is it a tax or a fee? Mr Webb—It will be a tax; it is currently a fee. Mr Holmes—It has been expressed by the word ‘charge’ and it is a tax on application. If you look at the provision of the tax bill that applies it, it is part 2. Senator COONEY—You say that you are taxed on the application; it is an application tax. Mr Webb—Yes. Mr Holmes—Yes, and it says ‘charge payable under section 13 of the classification act on an application’. Senator COONEY—Is there scope under the Constitution to charge an application tax? Where would that be? Mr Holmes—It is a straight tax from the Commonwealth on applying for a particular service—for doing something, putting something in, from a government point of view. Senator COONEY—But you do not get punished for not paying? Mr Holmes—No. CHAIR—But you do not get anything if you do not pay. Senator COONEY—So you do not pay it. CHAIR—So the film does not get classified. Senator COONEY—No, that is a different issue as to whether or not the film gets classified. What I am putting is: there is no punishment for not paying it. Mr Reaburn—But I think the point is that there is no punishment, no particular and specific punishment, for not paying, because it is always open to anybody to not become involved in the process. You do not have to put a film, a video or a publication to us if you do not want to. The consequence of that is that you then do not have the opportunities to commercially deal in the product. CHAIR—It still does not give you a choice. Mr Reaburn—That is right, you have a choice, yes. CHAIR—No, you do not have a choice if you wish to be a commercial operator. Mr Reaburn—Yes, that is right. But, on the other hand, if you do wish to put material before the board in order to have it classified: first, you have to pay before you can get the classification; and, second, if you try to deal with the material without having the classification, you will be penalised for some element of that dealing. That, in effect, takes the place of a sort of direct penalty for not having paid the tax. It is a simpler and more straightforward kind of process than creating a further complication of a penalty on the tax. Obviously, it would be open to the Commonwealth authorities in the right kind of circumstance to bring in a whole range of the ordinary sorts of more general Commonwealth criminal offences, like fraud on the Commonwealth, conspiracy to defraud, and things of that kind. But that would depend upon the particular circumstances of any specific activity.

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However, you are right: there is no specific and particular penalty for not paying this tax. That is simply because we think the penalties that apply to the commercial dealing with a product make as equally a good response. Senator COONEY—I am just looking through this bill. Is there anything in the bill or the act that says you have to pay before you get your film classified? Mr Holmes—It is the current act. This just superimposes on the current act. Senator COONEY—And that says that you must pay before you— Mr Holmes—Yes, it says that an application must be accompanied by the prescribed fee, et cetera. Mr Webb—Amongst other things. Mr Holmes—Yes, amongst other things. Senator COONEY—Clause 3 of the bill says: This Act binds the Crown in right of each of the States, of the Australian Capital Territory and of the Northern Territory. However, it does not bind the Crown in right of the Commonwealth. What is that doing there; what is that all about? Does that have any great significance? Mr Holmes—The Commonwealth could not tax itself, so there are separate provisions to make it notionally liable. This is the separate taxing imposition act. Senator COONEY—Who pays Senator Payne’s fringe benefits tax? It has been said that the Commonwealth cannot tax itself. Mr Reaburn—We might have to treat that as a rhetorical question. Senator COONEY—Doesn’t it collect tax from itself? Mr Holmes—Yes, but there is a standard sort of provision that goes in legislation to make it notionally— Senator COONEY—But that is put in there because you have always done it. You have put in clause 3 because that is the common clause. Mr Holmes—Yes, and it is supplemented by the provision that you make Commonwealth agencies pay the thing in the administration bill by making them notionally liable. CHAIR—Some alleged anomalies have been provided to us in evidence today, and Mr Webb or Mr Holmes might clarify them for me I suspect. First of all, I assume that the officers who attended the Gold Coast movie convention fall into the category of community liaison officers? Mr Webb—A community liaison officer was certainly in attendance on the Gold Coast at the movie convention, as was the then director of the OFLC, the acting deputy for a period of time and the Queensland state censorship official. They are the four bodies involved. That convention is the largest convention of exhibitors in Australia, as you heard earlier today. It is the one opportunity for the OFLC to actually meet exhibitors and provide them with information about the classification scheme, the classification requirements. We get a lot of questions, for example, about what the MA restriction means. These are the people who actually have to apply the restriction. So we have a trade stall at that convention, which is a trade convention, and we deal with a lot of inquiries from exhibitors about those sorts of matters. What they tell us is that they get a lot of complaints and inquiries from consumers, such as, ‘What does this PG mean? What does it mean if it has an MA on it? Who can go? Do I have to go as well with my young child?’ There is that sort of thing. So we can provide

LEGAL AND CONSTITUTIONAL L&C 194 SENATE—Legislation Tuesday, 13 April 1999 them with information. We also provide them with kits, little stand-up boards that have the classification symbols on them and what they mean. It is that sort of affair. We do the same with videos and computer games, and that is one of the ways we interact with the industry. CHAIR—You go to the trade fairs. Mr Webb—Yes, indeed. CHAIR—What is the basis of the service that the OFLC offers to the VCA but not to the Australian Film Television and Radio School? Mr Webb—I could not understand the basis of the allegation this morning. I have checked with the office. Both bodies are treated in exactly the same way. They are both provided with fee waivers as nonprofit organisations. They both submit material to us and it is classified. In part, what was said this morning was right—in the sense that they go on to a waiting list, into a queue, and sometimes that does not meet their release schedules in the same way as it often does not meet other people’s release schedules. In terms of the fee waiver, yes, that is a free service. They make application to us for a waiver of the fee that would otherwise apply as a nonprofit organisation. Both of those bodies have received fee waivers for the material submitted as far as I am aware. CHAIR—I wondered whether the discrepancy which we were advised of this morning came from the fact that the AFI, as I understood it from their evidence—and I am not sure whether you were here when they were giving evidence—said that they acted as the distributor for the Australian Film Television and Radio School and therefore they made application for classification. So you probably do not waive that. Is that how that works? Mr Webb—There are a couple of confusing factors there. One is that the AFI is an approved organisation for the purpose of getting exemptions for festival exhibitions which it talked about. We do not classify those films; we exempt them from classification for the purpose of a specific event. They have to provide us with a synopsis and tell us about their program. So we get a synopsis for each of the films: how long or short the film is going to be, when they are going to show it, where they are going to show it, who they expect to attend the showing, whether they are charging entry fees—all that sort of stuff. CHAIR—Does it apply equally to festivals like Tropfest and the Sydney Film Festival? Mr Webb—Yes, it does. The exemption can be provided subject to conditions, and the conditions generally are agreed to by ministers. So there are guidelines that are applied in that instance. You have the AFI principally dealing with us as a festival organisation, for which they do not pay fees. For example, if they distribute some of the AFTRS films that have been classified, they do not need to come and have them classified again. Indeed, if they did make application, we would not be able to accept it because we cannot reclassify a film within two years. So if they are dealing with AFTRS product, most likely it has already been classified. CHAIR—There was some confusion in the evidence we received this morning. Mr Webb—Yes, I think so. I checked last year and they submitted five films to us for classification in their own right. CHAIR—The AFI? Mr Webb—The AFI did. For each of those films, they paid the fee. It is up to the AFI, if they so choose, to apply for a fee waiver, as a lot of other organisations do. Certainly, that information is open and available to them, and that is an avenue they could explore. In those

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 195 instances, they did not choose to do that as far as our file records show. They may have done that in the past, I do not know. There seems to be a bit of confusion there. CHAIR—If you are going down the road of full cost recovery—as I understand you are, particularly from Mr Holmes’s submission—what do you make of the example given to us I think by Mr Bladwell, from Ernst and Young, in relation to urgent classifications for police and customs? Mr Webb—There are a number of things with urgent classifications, and with police and customs as well. Currently, with police and customs, there is an intergovernmental agreement set out that was agreed to prior to the commencement of this scheme on 1 January 1996. That agreement provides in part that each state and territory will be provided with up to 100 classifications free of charge and, thereafter, they will only pay 50 per cent of the fee that would otherwise apply—in this case, it would then be a charge for enforcement purposes. That means that state and territory police can make application to the board for a classification. In New South Wales, in the months of January and February, we generally get about 100 applications; they do not pay for those. Those are currently paid for out of the amount appropriated to OFLC out of the Commonwealth budget. Under the new proposal, the industry will actually pay for the cost of those classifications. The Customs Service does not currently pay any charge, but we do not classify material for them. We provide opinions for them—advice, if you like. CHAIR—It must cost you money to do that. Mr Webb—It costs us money, but there is no fee arrangement with the customs department within the Commonwealth for that. That is currently being looked at; it has been discussed for some time. CHAIR—What are the police giving you to classify? Is it films they have seized? Mr Webb—I will take you through it. In the instance of the T-shirt that I talked about before, the police may get a complaint about something in a shop. They go to the shop, they look at the article. They think, ‘Yes, this is in breach of the law.’ They will seize the article. They will send it to us through an evidentiary chain into our secure bond store. It comes out of our bond store. It is screened by a panel of classifiers from the board. A classification decision is made. A certificate is issued. The article goes back to the police with the certificate. On the basis of that certificate, they can then commence their prosecution. Mr Holmes—They need to classify before they prosecute. CHAIR—Otherwise you could not find a breach, I assume, because there is no classification. Mr Webb—It gives them evidence of a breach having occurred. Senator COONEY—So your organisation gives a certificate. Mr Webb—Yes. Senator COONEY—And they tender the certificate, do they? Mr Webb—Yes. Senator COONEY—The magistrate is not bound by the certificate, I take it; or is he? Mr Webb—It is prima facie evidence under the state act. Senator COONEY—Under all the state acts? Mr Webb—Yes, that is right, all state and territory acts.

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Senator COONEY—It is then up to the magistrate, I suppose. Mr Holmes—The penalty varies depending on the nature of the content. Senator COONEY—Is it ever any more than prima facie evidence? Mr Holmes—In New South Wales for child pornography, they have a provision that says what the board classifies it as is what it is. Senator COONEY—And there is no argument? Mr Holmes—They had some difficulty there with different interpretations as to what constituted child pornography; what the age of the person involved was. Senator COONEY—It probably has got nothing to do with the inquiry, but it just interests me. Are you saying that in New South Wales, a certificate from the classification board is binding on the court? Mr Holmes—As to what the content is. In other words, they have said, ‘You shall not possess child pornography.’ Child pornography is defined to mean classified by the board in that category. That is broadly it, and therefore, if the board says that that is RC material on the ground of child pornography, that certificate is conclusive. CHAIR—That is an RC literature classification? Mr Webb—That is refused classification. Mr Holmes—That is where the child pornography component comes in. You have still got to prove the person possessed it and all the other elements of the offence. Senator COONEY—But the board does not turn up to be cross-examined or anything like that? Mr Reaburn—No, it does not. But, of course, the normal remedies would apply if you believed that the board was being unreasonable in the granting of its certificate. Senator COONEY—They could get gaol, I suppose. Mr Reaburn—No. But what I am pointing at is that, while it is certainly true that the presentation of the certificate takes away from the New South Wales magistrate the ability to come to a different conclusion on the nature of the material, the fact is that if you, as a defendant or as somebody representing a defendant, believed that the board had been unreasonable in the granting of its certificate, then the normal remedies and the normal ability to attack the certificate are not precluded. Senator COONEY—But you would have to go to another court. Mr Reaburn—Yes, you would probably have to go to the Federal Court. Senator COONEY—It seems to be a very interesting approach. This gives the classification board extraordinary power. Mr Holmes—It is only in New South Wales in that limited area. It does not apply elsewhere. It is only in the child pornography area in New South Wales. Senator COONEY—But in other states, it is prima facie evidence. Mr Holmes—Yes. CHAIR—Mr Holmes, is the Ernst and Young report public to the participants in that process or only the limited publication? Mr Holmes—I think that probably when you sent it to the opposition parties in the Senate, it was not a tabling exercise. It is a report to the Attorney-General’s Department. There was

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 197 a bit of a summary in the way they were going between the two rounds, but it has not been printed by the AGPS to put it out publicly like that. But I do not think we see anything to hide in it. CHAIR—I was concerned about the view of the Australian Independent Distributors Association. They felt it was an in-house closed process. Mr Holmes—They were in fact part of it. CHAIR—Yes. I heard you say that this afternoon. Mr Holmes—I wonder whether some of these groups have different people in different places. CHAIR—That is why I was asked Mr Webb about his membership twice. I want to clarify that. Senator COONEY—As I understand that Ernst and Young said that that had a very limited brief. Mr Holmes—There was a government decision in the budget context that the full cost of running the office be recovered from revenue. In the face of that, what the Attorney-General did was to send to them the question to look at the structure. You still have to end up with the same amount at the end. Whether the structure was appropriate, the review’s objectives are here, and investigate the opportunities to address perceived and actual inequities within the charges structure in order to provide greater equity to Australian businesses dealing in products of limited market appeal. So they could review the structure, but the end figure had to be the same. You could adjust the structure, but not the end result, which was the government’s decision for full cost recovery. It is actually a very interesting report to see all the conflicts in the different areas and different perspectives come up. CHAIR—Today’s hearing has provided a significant indication of that. Senator COONEY—What is your comment about what the man from Ernest and Young said when he was here—that that report was a very limited report given in very confined circumstances? They were not his words, but that is what he meant. Mr Holmes—Certainly they were the two objectives, and they are made quite clear there. But it was in the consequence of the government decision to see whether, within the confines of that— Senator COONEY—I take it from your approach to this that you agree with the man from Ernst and Young. Mr Reaburn—He was, if I recollect, here appearing for an organisation which has made a submission to you that says ‘It is really unfair that we should have to pay these fees at all.’ It is certainly true that that particular exercise was a limited one, in that the Attorney did not ask Ernst and Young to look at whether or not there should be fees and did not ask Ernst and Young to look at what the total collection of fees might be, but simply asked, ‘Within the parameters of having to raise this kind of money through fees, is there a better structure than the one we are looking at?’ That was highly relevant to an issue on which many senators at that time were receiving representations. The Attorney recognised the strength of that, and he recognised that there was some justification for some of the points being made to senators at that time and asked for this task to be undertaken.

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Mr Holmes—In fact, the report more or less said, ‘Don’t do anything.’ But we, nevertheless, went ahead and did something. I would just say very briefly that one thing I was a little disappointed about today with the people who came forward was that there was no real suggestion or assistance in defining any particular area where there might have been some capacity to ameliorate some of the effects. The one area I think that was picked up—and we have become aware of it; in fact, we will be discussing it with censorship ministers in Darwin later this week—is the short Australian up-and-coming film producer films that some of the cinemas are running before their feature films. Mentioned were a couple of cinemas in Sydney, and also in Melbourne, that are doing it. I think, looking back, that was probably the one defined area that came forward. If you were to do something in that area, how would you define the area that you wanted to cover? I still think that if it is in an ordinary public access cinema with feature films it ought to be classified, and there is a question then as to the waiver. But I think you would run into some difficulty if you do it by reference to Australian films only, in view of trade agreements and other matters. We have had the question in relation to television, for instance. There really was not much input into how you describe it or what you would give some relief to. CHAIR—That is true. There are two other things that I seek some information on. Firstly, Mr Webb, a number of submissions today have noted the lack of incentives for the OFLC to operate in an efficient and accountable manner, based on the fact that the levels of charge can be changed by regulation under the principal act and so on. I would be interested in your response to that on behalf of the OFLC. And, secondly, can I have some response from officers in relation to the free-to-air TV and pay TV involvement in this process and the view that they sponge off the censorship costs paid by the film industry? Mr Reaburn—Can I say something before Mr Webb gives his no doubt scintillating response? CHAIR—Yes. Mr Reaburn—Firstly, we are very conscious of the point that has been made. It is a point that both the department and, of course, the ministers involved have been conscious of for quite some time. There is a vague feeling in a lot of the suggestions that are made that the OFLC will just be able to increase the charges whenever it feels like wallowing in a lack of budget discipline, which does tend to overlook the fact that they have actually got to come to us and convince us—that is, the ministers and officials involved—to put something into the regulatory structure which— CHAIR—I think it is a concern that they might become a profit centre. Mr Reaburn—There is no government decision that the OFLC should be a profit centre. We are quite conscious of that. One of the things that Mr Webb and I have been talking about—for far too long, I must confess—is the need for some kind of industry advisory group that has a direct relationship with both the OFLC and the department. CHAIR—That would have a very constructive effect, I think. Mr Reaburn—One of the prime functions of such a group would be to, in a sense, keep the OFLC honest in a resource usage kind of way, to turn around and say, ‘Our task is to make the processes within the OFLC as transparent as we possibly can to you, because it is your money.’ You have got to come and say to us, ‘We think you can do that more efficiently.’ You have got to say it to the OFLC, and you have to say it to the department, because either of us can put pressure on the other. We are very conscious of that.

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CHAIR—It sounds like that would have a very constructive effect on the process which we have observed and which is an issue today. Mr Reaburn—Yes, we think so. Mr Webb—We maintain ongoing contact with all of our clients. As long as I have been involved, we have been hearing complaints about inefficiency, lack of controls and these sorts of things. As Mr Reaburn has said, we are very keen to address that in a formal way, and we will proceed to do that. The other thing is that the OFLC operates—and will continue to operate in this way, as far as I understand it, under the proposal that is on the table at the moment—under the normal budgetary controls that apply to any government department in the Commonwealth arena. That requires us to deliver efficiency dividends every year that are set by the Treasurer. We have met those in the past. We will continue to meet those, and we would expect to exceed those. In the past we have been soundly criticised—for example, for the location of our office in downtown Sydney. Rather than shrugging that off, we hear that. We have picked an appropriate moment in the leasing cycle and we are moving out of high cost CBD property into lower cost fringe CBD property. So there are a number of measures that we are putting in place ourselves to address those sorts of concerns. The way we approach it is that classification essentially works best on a cooperative basis in terms of not only compliance with the law but also the efficient operation of the classification function that we perform. We need to have good relationships with our clients. So if matters of cost efficiency and those sorts of things get in the way of that, we will do everything we can to address them, and most of our clients are aware of that. The point was made earlier today—I think Ernst and Young made the point—that very few of our clients pay about 85 per cent of our costs. In other words, that is a reflection of, particularly, the film industry in Australia—you have very large operators dealing in very high volumes of product, and you have a whole host of other smaller distributors dealing in low volumes of product. The big distributors are most vocal about needing to get commercial standards of operation into the classification business as it operates on a cost recovery basis. We are very interested to hear their views about how we can in any way improve or streamline the operation of our service. We are going through that process at the moment, and for the last two years we have been going through a process of review in which industry has been involved and will continue to be involved, sometimes more formally and overtly than others. So we feel there are a stack of controls, and the proposal that has been put on the table—and the Attorney mentioned it in the second reading speech—about a formal consultative mechanism is a very good one and we would certainly move toward that. It needs to be said that part of the difficulty with this is that it is very difficult to get the disparate groups that we call the industry—and Ernst and Young is a case in point—to agree with each other; trying to get people to agree about how they would like to be consulted. We could probably consult them endlessly, so we will formalise a mechanism. They will in their various ways participate in that process, we hope. CHAIR—We will move now to the pay TV and free to air issue. Mr Reaburn—The television issues, of course, are the responsibility of the Communications, Information Technology and the Arts portfolio. The links with the OFLC are fairly remote in the sense that the OFLC does some work giving advice to pay TV. Mr Webb—On occasions.

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Mr Reaburn—On occasions. There are one or two places in the structure where the ABA refers material to the OFLC, but not under OFLC legislation, under ABA legislation. We have a provision in the Classification Act which allows the ABA to take that kind of work. In consequence of some of the things that I heard about television and so forth, yes, I suppose it is true that, if you get material which has already been through the OFLC process and therefore has a classification, it might not need a further classification for being shown on television. But you cannot say that as a consequence of it already having a classification because television might want, for example, to cut it in order to fit it into an allocated time. It might want to cut so that it can show it at a particular time of day, rather than another time of day. So the classification process within television—unlike the OFLC where the OFLC simply looks at it and, in effect, puts a classification on it at the end of process—is often an interactive process where they are both shaping the product as well as actually classifying it. So there is a fair amount of effort goes on in television and they all have structures of people who are employed to do this kind of work, so it is not as though they do not have costs. They sometimes occasionally produce results that we look at very strangely, like the paedophile thing on the ABC the other night that was rated PG, but never mind. CHAIR—I am sure one of my Senate colleagues will bring our attention to that. What about in reverse, Mr Reaburn, where the material comes from television and has not required a classification? All the examples which have been given to us today are either children’s programming or BBC style classics, whether it is Vanity Fair or Pride and Prejudice.Soit comes from television where it has not faced a classification cost in the same way. But for video release the distributors then face a classification cost which their colleagues in television do not pay. Mr Reaburn—It is certainly true that with the costing structure it might have had to face in order to go on television, it then has to face a further costing structure if it seeks video release. We have made a number of points today about the integrity of the classification system. If you go down to your video shop, you expect to see something on every video there available for rent or purchase that will assist you as a member of the Australian community to make your decision. Mr Webb—Could I just add to that? The point that was made today I found a little confusing, because it seemed to be based on the principle that free-to-air television broadcasters and pay TV operators do not incur any cost for classifying material. They do. They employ people to do it themselves. So they are incurring a cost for classification that they are doing themselves. When it comes to selling a video or showing a film in a theatre or something like that, the law states that they cannot do it themselves. The cost that they bear is then the cost that we require them to incur, which is our cost and we transport that over to them. A case in point here was referred to a couple of times today. People were talking about the computer games classification scheme and how wonderful that is because it is a streamlined operation. It is, but what we cop on occasion from some of the computer games distributors is how much it costs them to actually prepare those recommendations. I think Roadshow was talking about the fact that, because the OFLC does not have the infrastructure, they have had to put people on to go through the games, make the recommendations and prepare all the submissions to us so that we can then accept them. That is their cost. In terms of pay TV and free-to-air broadcast, somebody has to sit and watch

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 201 through that material, and—as Mr Reaburn said—not only do they have to watch through it but they have to take out their scissors as well and then get it approved through whatever processes they have to get it approved. So there are costs every which way you look at this. The community demands classification. Since 1992, television classification symbols—the categories—have been the same as those for film classification. Up until I think 1986, the film censorship board classified for television as well. We do not do that anymore. But the symbols and standards are the same insofar as, under the Broadcasting Services Act, the codes of practice under which television operators operate and do their classification are based on the OFLC film classification guidelines. So you have that nexus in terms of standards. You have the community standards being represented through; it is just a matter of who is going to bear the cost and where the cost appears, because there is certainly a cost of classification in free-to- air broadcasting and pay TV. Senator COONEY—Over Easter, you had the Sydney Cup run. That was free to air and also on pay television. If you bought a video of that, you would have to have it classified. Mr Webb—At the moment you would. There is a legitimate case that you can make for certain classes of product. The footy show, the football match, the fun run or the opera in the park—these sorts of things fit into that. We have looked at those sorts of things in terms of the fee waiver. CHAIR—You don’t mean The Footy Show? Mr Webb—I do not mean that footy show. I mean the video of the football match. CHAIR—Yes. Mr Reaburn—The polite football match where they do not tear each other apart. Mr Webb—Yes, that is the real one where you can actually see it on the screen. Mr Reaburn—No, I mean the polite one where there is not a lot of blood. CHAIR—Do you mean with the union, Mr Reaburn? Senator COONEY—There are people on the various racecourses who make a video of the race that a person might have his or her horse in. Do they have to get a rating? Mr Webb—Only if they are going to sell it commercially or show it publicly. Senator COONEY—Yes. Do they do sell it commercially? Mr Reaburn—Yes, they do. There are in fact a whole range of areas where this kind of thing is done. I am reminded of when my son did a parachute drop and somebody videoed it while he was coming down; it is the same kind of thing. That is an area that we are very conscious of. I think you will find that one of the provisions in the new proposals actually accommodates that kind of video, that recording of an event, but being done for a commercial purpose where you might only sell one or a handful. Senator COONEY—It might be to raise money for the school; you might take it of little nippers. Mr Reaburn—That is exactly right. So we recognise that particular situation. CHAIR—There is a provision in the bill that addresses this? Mr Holmes—Yes, there is a list of matters we think the waiver covers in the explanatory memorandum, in paragraph 26. But, as I said, at the moment that is only a waiver thing. The next thing we are looking at is whether some of these matters should be taken over into the exemption area so they do not need to come near us at all.

LEGAL AND CONSTITUTIONAL L&C 202 SENATE—Legislation Tuesday, 13 April 1999

CHAIR—The pruning of roses is obviously more popular than I realised. Senator COONEY—That is very big. CHAIR—Extraordinary. Mr Webb—It is quite a large area of interest, as is model trains and model aeroplanes. It is quite a market. Mr Reaburn—And big trains, too. Mr Webb—That is right—steam trains. Senator COONEY—You spoke before, Mr Webb, about the clients, but they are not really clients, are they? Client has some connotation of freedom. CHAIR—Choice. Senator COONEY—Choice—that is a better word. That is the first thing. Secondly, if a doctor does something for a patient, he or she charges a fee for service but you do not charge a fee for service here, you charge a tax. Mr Holmes—That is right. Senator COONEY—It is to give a wrong impression to say that this is a service given, it is all very friendly. It is really not, is it? Mr Webb—I take your point. I will give you an example of how it works in practice. I will use the Passion example that was raised earlier today because it is quite a good one. In running this operation, which is a regulatory operation, as I said before, we maintain very close contact with our clients. We value that and we believe our clients value that. In the sense of the vernacular, we talk about our clients in that way. However, just to describe it, with Passion as an example: as an Australian film, with a script that is being developed, the distributor is concerned because they want a particular classification, so they come to us, the regulator, and they say, ‘We want to get a particular classification; could you have a look at the script and tell us what you think?’ I think this was in April of last year. So we read through the script and give them advice about what we think are going to be their difficult scenes in terms of confronting material. They go away. They come back a couple of months later and they have a work print video of their film. They say, ‘Would you mind having a look at this because we want this particular classification? Would you mind telling us what you think?’ So we have two senior people look at that video with the producer. There is a discussion afterwards and some advice is given about the likely classification if they are to submit a film like that, identifying the various scenes within it. It comes back to us in final form for classification in January this year. It is classified R, mostly because of what was said previously about whatever the classification might be. They made a decision, a choice, about what they included in their film and what they did not. They got their classification, they got their certification, they got their reasons for the decision and they went to the review board and appealed. CHAIR—Did they cut it before they went to the review board? Mr Webb—No, they did not, as far as I am aware. CHAIR—I was not sure. Mr Webb—The review board also thought, ‘Well, this is an R film.’ So it went through that whole process. What I am describing to you there is a relationship, for my money, in

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 203 practical terms, between a service provider and a client. The client is trying to achieve an end result and we are trying to assist them. Senator COONEY—Say you went to a senior partner or a senior physician, you would expect to pay a particular sum—more than you would if you were going to somebody who was junior in the practice. Here you just slap on a straight fee. I could look at it and the same fee would be charged. The job I would do would be nowhere near the sort of job that you would do with all your skill and knowledge. It is a tax, and simply that—not a fee for service. Mr Webb—It is a tax indeed. Senator COONEY—It is a tax that can be changed by regulation. If you look at part 3.13, parliament does not get much of a chance to exercise its budgetary control. You were talking about the budget before, but some people in the department can just change this tax at will. Mr Holmes—We did write to you as Chair of the Scrutiny of Bills Committee back in March last year to explain why we ended up with this structure. Senator COONEY—What did I say? Mr Holmes—It was reported that it allowed a charge to be proposed by primary legislation. You could have, I think, other mechanisms: you could have an upper limit or you could have a formula. Other people do that. But when you have a structure of this sort that is made up of a myriad of application based charges and you have got to cover the full operating cost of the OFLC in any one year, first of all, you will never be able to mesh it completely, so there will be in some years a little carry over or debit. The thought of having to go back to parliament to change four of the ones on a repeated basis did not seem to us to be able to work. We tried some formulas with the Department of Finance and Administration, but they could not come up with one. We did point out, of course, that parliament has the ultimate control to disallow. I know it is not as good, and your committee does not think it is as good— Senator COONEY—What did the committee say? I cannot recall. CHAIR—What did the Scrutiny of Bills Committee respond, if anything? Mr Holmes—They just noted the Attorney-General’s—I think these were the words— ‘comprehensive reply’. I have a copy of the letter we wrote Senator Cooney, if that is a help. Senator COONEY—Does this happen in any other act? What about the Amendments Incorporation Act 1905? Do you know anything about that? Clause 13, ‘Regulations may amend a Schedule to this Act’ says: (2) For the purposes of the Amendments Incorporation Act 1905, amendments made by regulations for the purposes of this section are to be treated as if they have been made by an Act. Mr Holmes—That was the drafter’s formulation, I think. Does it mean for reprinting of the Amendments Incorporation Act? CHAIR—I think it means that if under the regulations you make an amendment to the schedule, then it is treated as if it has been made by the principal act. Mr Holmes—I think that means that when this act is reprinted the amendments will be part of it. Senator COONEY—That does not help, does it? You then print another one. We are going to send this one through parliament now. Mr Holmes—A lot of others—the chicken levy slaughter act and things like that—are based on numbers. So you can have a formula—or where producers pay something as a tax there

LEGAL AND CONSTITUTIONAL L&C 204 SENATE—Legislation Tuesday, 13 April 1999 is some formula—but when you have a requirement like this you could have put an upper limit, but you would have to make it so unrealistic— CHAIR—Perhaps we could have copies of that correspondence. Senator COONEY—Let us work this through now for the purposes of this committee. Is there any precedent for this way of dealing with charging for services? Surely somebody will say, ‘This is the sort of thing that parliament ought to look at,’ but it is supposed to be there to scrutinise taxes, more than anything else. Mr Holmes—What it is really all about is what you include as part of that service because, for constitutional reasons, we have expanded the area that we recover money from. Senator COONEY—That is part of the problem. If it was a fee for service, you would say, ‘It is a fee for service.’ You have rendered services for all these people, as Mr Webb says, and you have got to do it anyhow, and it is what the public wants. But this is not a fee for service. That is your problem. It is a tax, the same as an income tax, as we went through before. It is a tax on application. So you really cannot explain it away by saying, ‘We can give you all these services,’ because it is not a fee for service. It is a tax, and why should the parliament have a look at the tax? Mr Reaburn—Except the way it went was this. We have raised about 60 per cent at the moment of the total cost of the OFLC on a straight fee for service basis. I think we could probably raise maybe 70 per cent on a straight fee for service basis. After that, I think we could go higher than 70 per cent. But there are people who very firmly have the opposite view that we could not go higher than 70 per cent, and I think that if we went higher than about 70 per cent we would find ourselves being constantly subject to actions in the courts claiming that the fee for service was improperly based and that it was an attempt to impose a tax and was unconstitutional, and so forth. When the government decided that it wished to recover the whole of the costs of the OFLC because of that situation, the only way that we could do it was by transforming that cost, technically, into a tax. But the fact remains that something of the order of 70 per cent of that charge represents directly and purely a fee for service. We would argue that it is a lot higher than 70 per cent, but after 70 per cent you start to become subject to the possibility that a court might accept a different view. On that basis, it has to be a tax. We appreciate the point that you make about taxes normally imposed in a piece of primary legislation. It is normally put before the parliament before it is imposed but, in this instance, as the letter to your other committee has set out, there are some particular difficulties and problems with this one. Parliamentary scrutiny, of course, exists with a regulatory approach and we thought it would be a useful and valuable compromise in these circumstances. Senator COONEY—It is not a new form of tax, is it? With all those cases you have told us about, Mr Reaburn, you say a capital gains tax is a new sort of tax; income tax is a new sort of tax. What I was trying to get at before is that this seems to be in a category of its own, doesn’t it? Is this a new sort of tax, or what? Mr Reaburn—I would not have thought so. It is, in a sense, a transaction based tax. On that basis, I would have thought it probably has lots of analogies rather than necessarily direct precedents, given the nature of the transaction. Mr Holmes—I have a feeling that the Therapeutic Goods Act is similar. Senator COONEY—Could you have a look? Although Ernst and Young seemed to be pretty happy that it was a legitimate tax and they had no problems with it, I thought it might

LEGAL AND CONSTITUTIONAL Tuesday, 13 April 1999 SENATE—Legislation L&C 205 be the sort of point that somebody might challenge, particularly if it is passed by regulation. So I want to know if there is any precedent that we could look at. I do not mean now. Mr Reaburn—We will come back to you on that, Senator. Mr Holmes—Could I just mention that we are in parliament three days from tomorrow. Your reporting is Monday. Do you wish to take what we have here? CHAIR—Yes, that would be very helpful. As long as that does not leave the Attorney- General’s Department bereft of sources for our secretariat if we need anything else. Mr Holmes—Perhaps if I give you my number, and I will see what we can do. Senator COONEY—On that point, can you tell me why the bill did not go to the Department of Finance and Administration? CHAIR—Senator Gibson? Because it is in the Attorney-General’s portfolio. Senator COONEY—But it is a tax. CHAIR—Thank you very much Mr Reaburn, Mr Webb and Mr Holmes. I would like to thank all the witnesses for giving evidence today. I would note that further public hearings may be held in the future and you will be advised of the dates of any such hearings, although our reporting date is Monday, 19 April. I thank the secretariat, Hansard and Senator Cooney in particular. I declare this public hearing of the Senate Legal and Constitutional Affairs Legislation Committee closed. Committee adjourned at 4.50 p.m.

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