Tom Burton: media reform for yesteryear

By Tom Burton

May 17, 2017

In the mid 90’s US academic George Gilder in his seminal work Life After Television predicted the rise of the “telecomputer” and fibre technology would fundamentally change television. Gilder foresaw the rollout of limitless broadband, through fibre-optics, and the inexorable increase in microchip power, would mean any television programs capable of being delivered by a computer server, would inevitably be delivered through computer IP networks (aka the internet).

In Gilder’s scenario, free to air broadcast television as we know it would remain, but would focus on big live events such as sport, news and contests like Australian Idol, and mass populist formats such as reality programming.

This remarkably prescient prediction has played out for all to see, and the federal government’s long over due reform of the analogue media ownership rules is a belated recognition of the fundamental and highly disruptive changes digitisation has caused across the media landscape.

In a classic case of government capture, media regulation has always been controlled by the big incumbent media players, who have in the main resisted any changes that would hurt their short term revenue prospects. As the media world has been revolutionised in ways even Gilder could not have predicted, the commercial networks have determinedly eked out as much profit as possible from the privileged oligopoly position they enjoy.

Through a cozy compact with successive governments, broadcasters agreed to limit their market reach, and provide local content, some news and a small dose of regionalism, in return for enjoying first dibs on big sports events and much more importantly, no new broadcast competitors.

The completion of the technical switchover to a fully digital broadcast platform a few years ago should have been a real opportunity to transition to a world where distribution is no longer the bottleneck for creating a diverse, vibrant and economically strong local media sector.

Just as Gilder forecasted, the internet has spurred a raft of new video content sources — professional and amateur — with the streaming services, Netflix and Stan, just the latest in so called over-the-top internet services. The rollout of the NBN — half of Australia’s homes will be connected by year’s end — will only accelerate this trend.

But whereas competition, innovation, investment and new players abound on the internet, the incumbent commercial networks have yet again log-jammed any attempt to seriously think through how we open up the extraordinarily powerful digital terrestrial broadcast platform to the very same dynamic forces.

Instead we have a cosy industry deal, where Free TV (and Seven in particular) drops long held corporate opposition to the dissolution of the rule that limits media owners to two types of outlets in any major market, in return for a very generous cut (see below) in the fees paid for access to the platform. No one is arguing against enabling national markets and the gambling and niche sports initiatives are worthy, but part of the window dressing to get the requisite political approval in the Senate.

The Communications Minister, Senator Mitch Fifield, made much of the historic industry agreement, a deal which unashamedly gave none of the other signficant consumer, citizen or broader public policy interests any say.

Am I the only one who finds it strange that this major change, with huge consequences for the future of the local media we all consume and desire, was essentially cooked up in a back-room Canberra deal with the very players who have belligerently resisted every attempt to modernise the regulatory system for the better part of 30 years?

And just like the commercial networks fought the rollout of pay TV — effectively using their political might to ensure subscription TV was long delayed and is now effectively capped to around 30% of the market — the commercial broadcasters will continue to be totally protected from any new competition on the government managed digital TV platform.

The sixth digital TV multiplex is readily available for use today for five free to air standard definition channels and advances in compression technology mean we can literally double the number of SD channels across all six multiplexes to around fifty. Today. And many more as the whole system inevitably moves to using IP protocols.

The networks get this remarkable protection at a price well below what other users are paying for similar spectrum. The old broadcast levy finally goes (just as the government unashamedly hits another regulated oligopoly — the banks), to be replaced by a spectrum fee.

No arguments with that, but the pricing of what is considered the “Rolls Royce” of spectrum, appears to be deeply discounted. Comparing spectrum pricing is horribly complex, but in its own submission to the ill fated 2011 Convergence review, the industry association, Free TV, estimated the cost of their spectrum at US$0.12 per MghzPop (broadly this measure indicates the price paid for spectrum to serve each head of population).

That was when the Australian dollar was on par with the US dollar, so in today’s value this would be crudely A$0.15 per MhzPop. The broadcasters won a 25% cut in their fees in last year’s budget and the reform package locks in new spectrum pricing that is somewhere between four to six times less than what the broadcasters were paying in 2011.

Being generous, lets say for comparison’s sake the broadcasters will be paying a MhzPop price of around A$0.04. This compares with a MhzPop price the aspiring mobile telco TPG recently paid for exactly the same spectrum of A$2.75. Crudely put, on those numbers the broadcasters are paying $40 million a year for something that cost TPG, in like-for-like terms, $2.8 billion upfront!

The exact numbers don’t matter, but what is abundantly clear is the commercial networks have been given a remarkable sweetener to buy their agreement. At a time of huge fiscal challenges.

The broadcasters say in return for peppercorn-like rents they have to stump up for (high rating) local drama (crudely estimated by Free TV at around $1.2 billion) plus some commitments to regional news and coverage. Not to mention total protection from any new broadcast competition, seemingly forever.

Other media players such as newspaper, music and book companies, who have also seen their business smashed by digitisation, get not a cracker. Nor the many other local sectors caught in the digital storm.

If pragmatism is the emerging brand of the Turnbull government, then the media reform package gets a tick for finally removing 30-year-old rules, albeit at a huge cost to the taxpayer. But in a world where this government is constantly calling on others to embrace the digital future, the reform is a big fail.

The government has announced a review of what local video content means in this global networked era, and the underlying support systems to fund it. The first part of that review has been under way at a Australian Content Conversation this week in Sydney, sponsored by the Department of Communications and the Arts, Screen Australia and the regulator, the ACMA.

But this much needed review goes ahead with the key delivery infrastructure — the terrestrial digital broadcast platform — totally locked up for the five incumbents.

This includes the two public broadcasters, the ABC and SBS, who together are funded to the tune of approximately $1.3 billion a year. As noted, reconceived for a digital era, the now deeply discounted digital TV platform could carry well up to 50 channels, and even more as technology improves. If for example the platform and the $1.3 billion per annum that goes to the ABC and SBS was opened up to all comers (Mandarin TV!), we would have the foundation for a very different media model, at a time where every player is struggling to find a viable future.

Given the previous history of media reform, the chance of the ABC and SBS being transformed into this type of pure digital play is zero. Ditto any attempt to introduce the smallest semblance of competition and innovation to the commercial part of the digital TV platform. Instead we seem to be intent on handing the surviving commercial media companies — all of which have been essentially clueless about how to respond to the internet era — a cheap pass to a very privileged walled garden.

Sadly it seems we are belatedly closing the analogue media era, with not an idea how, as a nation, we design the foundations of our local media system for the digital era.

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