03 Apr 2014

Media reform back on the agenda

by Kate Jordan, Anna Haynes

The focus of the discussion of media reforms is on the "75% audience reach rule" and the "2 out of 3 rule".

Earlier this month, the Communications Minister Malcolm Turnbull put media reform back on the national agenda commenting that he was sympathetic to industry requests for reform.

While a reform proposal has not been announced, the mooted changes to the cross-media ownership and control provisions under the Broadcasting Services Act 1992 (Cth) (BSA) have sparked discussion about the impact of any reforms, including potential mergers.

What reforms have been mooted?

Recent discussion has largely centred on the proposed removal of two rules under the BSA, which are barriers to further media industry consolidation, being:

  • the "75% audience reach rule"; and
  • the "2 out of 3 rule".

Removal of "75% audience reach rule"

Under the "75% audience reach rule", a person must not be in a position to exercise control of commercial television broadcasting licences whose combined licence area populations exceed 75% of the population of Australia. A similar prohibition applies in respect of directorships.

The impact of this rule is that metropolitan television networks (ie. Seven West Media, Nine Entertainment Co and Ten Network Holdings) cannot acquire control of regional television networks (i.e. Prime Media Group, WIN Corporation and Southern Cross Austereo), if, following the acquisition, the aggregate reach of the network would extend to more than 75% of the population.

Malcolm Turnbull is reported in the Australian Financial Review as having commented: "The proposition being put to us is that platform-specific ownership regulation is no longer relevant given the way in which the hyper-platform of the internet has increased competition, contestability and diversity."

Free-to-air television networks reported to be in support of removal of the rule include Nine, Ten, Prime, Southern Cross and WIN. Seven is reported to be reserving its position until its sees further detail of any proposed reform. Fairfax Media, APN News and Media and News Corp Australia are all reported to be supportive of the removal.

The chairman of the Australian Competition and Consumer Commission, Rod Sims, has weighed in to the debate describing the test the ACC would apply to takeovers or mergers following a removal of the rule as "nimble and flexible".

Discussion of removal of the rule has sparked some concerns about protection of local content such as news and weather in regional areas. However, Malcolm Turnbull has stated that the removal of the rule would have no impact on local content rules. The Minister has also pointed to a recent report of the ACMA into regional commercial television and local content as evidence of the effectiveness of local content rules.

Removal of the "2 out of 3 rule"

The "2 out of 3 rule" provides that a person cannot be in a position to exercise control of more than 2 out of 3 of either:

  • a commercial television broadcasting licence;
  • a commercial radio broadcasting licence; and
  • an "Associated Newspaper",

in the same radio licence area.

An Associated Newspaper is a newspaper with at least 50% of its circulation within the licence area of a commercial television broadcasting licence, or with at least 50% of its circulation within the licence area of a commercial radio broadcasting licence and its circulation is at least 2% of the licence area population. Associated Newspapers include The Sydney Morning Herald, The Age and The West Australian. National newspapers like the Australian and the Australian Financial Review are not Associated Newspapers.

The effect of the "2 out of 3 rule" is that incumbent players who hold two regulated media assets in a licence area are prohibited from acquiring control of a third. For example, there has been suggestion of a proposed merger of Fairfax Media and Nine, which would breach the rule in both the Sydney radio licence area and the Melbourne radio licence area. However, while supportive of media reform, Nine has recently indicated it is not intending to pursue a merger. Seven has also indicated it is not involved in merger discussions with Fairfax.

New chapter

Removal of the "75% audience reach rule" and the "2 out of 3 rule" were both recommended by the Convergence Review Committee in its final report of March 2012.

Following the findings of the Convergence Review and the Finkelstein Inquiry, the former Labor Government sought to introduce a range of media reforms in 2013, without success. The Labor package included the introduction of a new public interest test for mergers of national significance, which was the subject of significant criticism, and this test is certainly not on the cards anymore.

The success of any media reform package will it seems, rest on the combination of industry support and sufficient cross-party support to ensure passage through the Senate.

It is reported that consultation with the industry on proposed reforms is continuing and a further meeting of the media advisory council comprising media industry representatives will be held in September, following from a meeting held earlier this month. The year-end has been suggested as the target date for reaching a landing on any reform package.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.