Nine Entertainment Co. Submission House of Representatives Standing Committee on Communications and the Arts Inquiry into the Australian Film and Television Industry Factors contributing to the growth and sustainability of the Australian film and television industry. April, 2017 1 1. Introduction Thank you for the opportunity to make a submission to the House Standing Committee on Communications and the Arts inquiry into the Australian film and television industry. In making this submission Nine would like to outline: The changing dynamics of the Australian television and film sector and the importance of television as the foundation and driver of the Australian production sector. The reasons why reducing licence fees is the single most important factor that will drive sustainability and growth in the Australian television industry. The significant transformation Nine is undergoing to ensure we engage with audiences across all platforms and continue to stay relevant to Australians. The role public broadcasters play in the new media landscape and the risk they pose to the commercial sector. The need for flexibility in accounting for Australian content to ensure high quality Australian stories are told and strong local voices and skills are retained. Outdated regulations which constrain the ability of commercial free-to-air (FTA) broadcasters to adapt to the evolving media landscape. This review is a timely reminder that the current regulatory framework is restricting growth and threatening the sustainability of the Australian film and television industry. The television industry is an interdependent ecosystem including audiences, broadcasters, production houses, advertisers, journalists, sporting codes, investors and creative talent which all rely on the health of the television industry for entertainment, information, income and employment. It is imperative that Australia’s media regulatory framework drives growth and ensures the sustainability of the Australian television industry and Australian stories by taking into account the changing viewing habits of Australian audiences and the new sources of content enabled by new platforms. Inflexible regulation restricts media participants from adopting commercially rational strategies to meet audience demand and can result in distorted outcomes that do not benefit business operators or the Australian audiences. 2. About Nine Entertainment Nine Entertainment Co. (ASX: NEC) is a leading Australian media and entertainment company with an objective to create great content, distribute it broadly and engage audiences and advertisers. We do this through our: Free To Air Television business; digital publishing including as 9news.com.au and 9Honey; on-demand services including 9Now and Stan; and television content production and distribution. Nine Entertainment Co turns over $1.28B consisting of $1.1B in television revenue and $150M in digital revenue. We employ approximately 2300 employees across seven main sites. 2 Our main regional affiliate is Southern Cross Austereo for the broadcast of Nine’s metropolitan TV content into regional Queensland, Southern New South Wales and regional Victoria. This new partnership is currently rolling out 15 new news rooms across regional Australia. Nine is a 50% joint venture partner in Stan a Subscription Video on Demand (SVOD) platform. Stan has over 700K active subscribers and is the leading local player in this growing sector. Nine is also a majority stakeholder in PedestrianTV, a leading youth publishing business and a majority stakeholder in CarAdvice, a leading publisher of online automotive editorial content in Australia. Nine continues to build new media businesses to ensure that its high quality content is distributed as broadly as possible and we continue to be on platforms where the audiences are. 3. Licence fees: an immediate capital injection into the Australian content and production market. Nine supports the well-made case of Free TV for licence fee reduction. The Free TV submission outlines how out of step Australia is internationally in relation to the unfair taxes we are expected to pay in an increasingly competitive marketplace. In addition to the Free TV submission Nine would like to make the following observations. While it is true to say that Nine and the other FTA networks are operating under, and responding to, a range of revenue challenges, the single most damaging regulatory impost impeding the industry is the continuation of an unjustified, and obsolete licence fee regime. Accordingly, the single most important factor which will drive immediate growth and underpin sustainability in the television industry is the reduction in television licence fees. Nine Entertainment Co. currently pays 3.375% of its television revenue as a broadcast tax on top of our corporate tax and payroll tax requirements. In FY16 Nine paid $34.6M in broadcast licence fees. The commercial FTA industry is being challenged by multinational media companies including Facebook, Netflix and Google which are not required to pay an additional TV tax, are not constrained by regulatory requirements for Australian content and classification of content and carry fewer restrictions on advertising. This current market structure tips the market in favour of large multinationals which enjoy an ability to allocate their capital to the most audience responsive and efficient commercial use. The case for licence fee relief is overwhelming. Licence fees for the commercial television industry were originally introduced with the Television Licence Fees Act 1964 and set at 9% of broadcasters’ gross advertising revenue1. The original fee was set at a time when commercial television licences afforded certain privileges, and a near monopoly on audio-visual media in the home. The fee reflected access to a scarce and profitable delivery platform, at a time when the right to use spectrum was the basis for above-average profits which justified an additional levy. 1 Television Licence Fees Act 1964, section 6. 3 The media landscape has completely changed since that time, and viewing habits continue to fragment. Substantial shifts in advertising revenue from traditional media to digital have occurred. There is no longer any reason for the asymmetry that has been created by a tax which was imposed at a time where broadcast television was the only source of television for Australian audiences. Furthermore, representatives of the production sector have recognised the direct relationship between licence fee relief and the vital injections made by the Australian broadcast sector. Mark and Carl Fennessy, co-chief executives of production house Endemol Shine have referred to the “heavy regulatory burden” carried by the FTA broadcasters, and said it is “totally unsustainable”.2 The previous licence fee relief obtained by Nine has been reinvested into high quality Australian productions including Doctor Doctor, House of Bond, This Time Next Year, Travel Guides, Married at First Sight, The Voice and Australian Ninja Warrior. Further licence fee relief for the FTA networks would also be funnelled into Australian production, and translate to an immediate capital injection into the Australian content and production market. Reduction in Television Licence Fees is the single most important factor which will underpin the immediate health of the Australian TV industry 4. Business Transformation: Reimagining TV in a digital era a. The evolving media landscape Consumers today have more choice, in what they watch, where they watch it, and when they watch it. As a result Australian television audiences are demanding high quality content, on their terms, regardless of platform. It’s this change which is driving innovations including Nine’s streaming and catch up service 9Now. Viewers want their choice of platform whether that be on a broadcast or IP network and they want to access it on the device of their choosing: television; computer, tablet; or mobile. Nine is working hard to meet the evolving viewing habits of its audiences. Australian commercial FTA continues to remain relevant by offering high quality drama, entertainment, news, current affairs and sports. It is TV which underpins the Australian production sector. For the Australian TV and feature film industry to be sustainable it needs a foundation of skills and production facilities to draw upon when films and big event TV such as Howzat and House of Bond (2017) are commissioned. It is the Australian TV sector that provides this foundation. It provides the certainty of revenue for Australian production houses and the base employment for important production skills including editing, costume design, visual effect, cinematography, set design, writers, directors and performers. 2 2017, 03, 20, Darren Davidson, Australian story of unfair television licence fees, http://www.theaustralian.com.au/business/media/australian-story-of-unfair-television-licence-fees/news- story/1955696076de30b7fc19a52268112aec 4 The reliance of the Australian production sector on the FTA networks is well documented. The inability of FTA networks to fund or commission new production has a direct impact on the prosperity of the production sector. Commercial free-to-air television industry generates $3.2 billion per annum of economic surplus across viewers, advertisers and broadcasters3. Without this strong foundation the whole industry will suffer. Nine is transforming its business to deliver highly engaging content distributed across various platforms to all devices.