Making sense of the year ahead

By Geoff Hoffman.

Key Points:
Possible changes to media ownership laws and the likely role of the ACCC in policing takeover activity, the take-up of digital TV and moves in digital radio - Geoff Hoffman looks at a big year ahead for the media industry.

There are several potentially significant changes affecting the future structure of the media industry on the agenda in 2005.

In this article we look at the possible changes to media ownership laws and the likely role of the ACCC in policing any potential takeover activity; the take-up of digital TV and the continuing debate about the structure of that industry; and, finally, we look at the latest moves in digital radio.

Changing media ownership laws

Few had predicted that the Government's victory in the October 2004 election would deliver the Government control of the Senate from July 2005. However, since that result, there has been no shortage of commentators predicting that the Government will soon use its Senate majority to pass the proposed amendments to media ownership laws that stalled in the Senate in 2002.

This is notwithstanding comments by the Prime Minster that indicate he is in no hurry to change media ownership laws, having been quoted as saying that he did not want to "dissipate a lot of political capital" on the issue.[1]

What amendments? A repeat of 2002 or something more complex?

Leaving aside the takeover rumours, market speculation and denials by relevant players, it is worth remembering that it is still uncertain exactly what form any new amendments would take.

The Government's previous proposal to change media ownership rules included:

• relaxing cross-media rules by allowing the ABA to issue a certificate exempting a person from the prohibition against owning or controlling more than one of a commercial TV licence, commercial radio licence or newspaper in the same licence area (and associated cross-directorship restrictions) - on condition that the person kept editorial control of the acquired media operations separate; and
• removing the foreign ownership and control restrictions (including relevant Foreign Investment Review Board policy) thus enabling foreign ownership and control of commercial TV and pay TV licences and newspapers.

It did not propose any changes to:

• the audience reach rule which prevents a person from owning or controlling commercial TV licences that cover more than 75 percent of the population; or
• the two commercial radio and one commercial TV licence rules which prevent a person from owning or controlling more than two commercial radio licences and from owning or controlling more than one commercial TV licence, in any one licence area (and associated directorship restrictions).

While the removal of the restrictions on foreign ownership and control of media organisations is, relatively speaking, uncontroversial, the removal of cross-media ownership rules is a far more complex and divisive issue. The complexity of the issue is borne out by recent experience in the US, with the Federal Communications Commission's amendments to the US cross-media rules (which had been more than two years in development) being challenged in the US Court of Appeals[2] and the US Senate and then abandoned by the Bush administration.[3]

Since the previous proposal for relaxing of cross-media ownership restrictions was put forward by the Government there have been a number of changes in the local media landscape. Significantly, we have seen the re-invigoration of the subscription TV industry with the digitisation of the Foxtel network and the ascendance of Foxtel following the ACCC's approval of its content sharing deal with Optus. We have also seen the entry of institutional investors into the media market, with Macquarie Bank's Regional Media Fund purchasing the shares in RG Capital Radio and most of DMG Radio's regional stations in 2004. Whether these changes, the impending sale of Telstra or the continuing debate about digital TV and delivery of "television-like" content on alternative platforms will cause the Government to rethink its previous approach remains to be seen.

ACCC likely to be more active in media markets - section 50 and "markets"

The other significant factor with respect to any potential consolidation in the media industry is the role which the ACCC will play in policing transactions which it perceives would have the effect, or be likely to have the effect of substantially lessening competition in a market under section 50 of the Trade Practices Act.

In the past, the ACCC has taken the view that electronic media and print media were separate markets. In October 2004, however, the ACCC Chairman Graham Samuel was quoted as saying that new technology and the convergence of media markets over recent years meant the separation of print media outlets and electronic media outlets would start to blur - meaning that the ACCC could well be a "major brake" on cross-media ownership if the Government introduced changes to its media laws.[4] The fact that the ACCC is taking a keen interest in the future shape of the media industry is a message which it is continuing to make very clear.[5]

Telstra sale - market power in converging media markets

The Government's majority in the Senate from July 2005 has also placed the full privatisation of Telstra back on the political agenda.

Telstra has a significant involvement in the media sector - including its 50% interest in Foxtel (Australia's largest pay television provider) and its interests in "new media" through its ownership of Australia's largest ISP (Bigpond) and its 3G mobile services. Its Sensis division also owns the Whitepages and YellowPages directories and the Trading Post (making it a significant player in the classifieds industry).

The potential full privatisation of Telstra may therefore shine a brighter spotlight on the overlap between the telecommunications sector and the traditional media industry and, in particular, the ways in which the potential for competition in the media sector might be affected by market positions in the telecommunications sector.

One recent example of this focus is the ACCC's announcement that it would be investigating ways of limiting Telstra's ability to enter into exclusive broadband and 3G content deals with owners of rights to sporting events (such as the Australian Football League and the National Rugby League).[6]

The digital TV networks have been built - but are they being used and what for?

The slow pace at which consumers are converting from analogue to digital terrestrial TV receivers (notwithstanding that current legislation proposes that analogue transmissions will end in less than four years) continues to fuel debate concerning the significant digital TV policy decisions of the late 1990s. The slow take-up of set-top boxes capable of receiving the digital offerings of the free to air networks can be contrasted with the recent success of the pay TV digital roll-out (with Foxtel and AUSTAR claiming 900,000 digital subscribers a year after launch).

Perhaps the recent launch of "ABC2" (the first broad-focus digital channel on Australian free-to-air TV) will go some small way toward turning the tide, but at this stage it is difficult to see that the take-up of digital free to air TV will improve while the restrictions regarding the use of digital spectrum by commercial broadcasters remain (i.e. the prohibitions on multi-channelling and the corresponding narrow definitions of the "enhanced services" and "datacasting" which are allowed on that spectrum).

It must be remembered that these restrictions were a trade-off for the corresponding decisions by the Government which were designed to support the investment in digital network roll-outs by the existing broadcasters (i.e. the mandating of the use of the spectrum-hungry high definition television (HDTV) standard and the moratorium on new commercial TV licences until the end of 2006).

These digital TV decisions, however, all have inbuilt time limits and review mechanisms and the many Government reviews of the decisions which commenced in 2004 are continuing in 2005. Interestingly, submissions to the Government's review of multi-channelling policy conducted in 2004 indicated that the Seven Network has come out in support of the possibility of the commercial TV broadcasters providing free (in addition to subscription) multi-channel services. This is in contrast to Ten, which argued against free to air multi-channelling and Nine, which argued against any multi-channelling at all. Like all complex policy trade-offs, digital TV policy is prone to challenge when one of the many interwoven limbs starts to shift, so such movements should not be ignored.

Digital radio on the move - at last...

After many years of delay, it appears that the Government, following focused lobbying by the commercial radio industry, is making moves towards developing a concrete digital radio policy, with a consultation process for the development of a policy and regulatory framework for digital radio announced by the Minister for Communications, Senator Helen Coonan, on 20 December 2004 (submissions close on 20 April 2005).

The debates concerning the introduction of digital radio, at a basic level, parallel the debates about digital TV, namely: the use of a "simulcast" period to allow for the 40 million analogue radios in Australia to be replaced with digital receivers; and the extent to which the incumbent holders of analogue radio broadcast licences will be protected from competition from new entrants in recognition of their investment in licences and potential costs of digital conversion. Specifically, the Government has announced that the moratorium on the granting of licences to new entrants will be five years, although Commercial Radio Australia, the industry lobby group, contends that this is nowhere near long enough.

In the meantime, the parallel digital radio trials which have been taking place since late 2003 in Melbourne (conducted by Broadcast Australia (a subsidiary of the listed Macquarie Communications Infrastructure Group)) and Sydney (conducted by Digital Radio Australia, a consortium of commercial and public broadcasters) continue to expand. On 1 March 2005 Macquarie Radio Network’s 2GB announced that it had begun a new NRL score service via the current digital radio broadcast trials, enabling "listeners" to access match statistics via their digital receivers. Listeners to 2GB's sister station 2CH have previously been able to access track title and artist information, as well as program information, news headlines and weather.[7]