Network Insight Institute

Debra Richards

Debra Richards, Executive Director, ASTRA

It's lovely to see so many friendly and familiar faces in this audience. For probably most of you who are sitting here and have sat through these discussions, I am overcome and probably you are too, by an overwhelming sense of deja vu, to say the least.  Digital here we go again!

And in representing the subscription TV sector, at the last minute, I was a bit concerned that I couldn't say much until our submission was finalised.

I put one caveat on what I say this afternoon, and that is, it may be subject to change, although, given the history of digital terrestrial television broadcasting and the process and conversion of digital terrestrial broadcasting in this country, I very much doubt it.

So, where to start!  I started with the Department's Issues Paper, a very good place to start.  And that paper being the "provision of services other than simulcasting by free-to-air broadcasters on digital spectrum." 

And can I say I really wasn't overwhelmed by the paper. It read like a paper that they didn't really want to write and a paper that I didn't really want to read it.  But having done that, I went to our previous submissions: the original ASTRA Submission on Digital Terrestrial Television Broadcasting in 1997; the subsequent submissions on the Bill in 1998; the Productivity Commission Inquiry into Broadcasting, remember that, in 1999; submissions on the eight reviews we had to have in 1999 and 2000; submissions on the Bill in 2000; the subsequent submissions and letters to pollies on the phantom Cabinet submissions on the issue of whether commercial television broadcasters would be allowed to multi-channel in 2001, 2002 and 2003.  However I think there was a period of regulatory certainty between August and September 2003, but will have to check as I am a bit hazy on that one!

And can I say what we said then still holds true today.  So while resisting the temptation to dust off the 1997 submission with a new and improved covering letter, I tried to think of what had changed, which in any way, and in the spirit of being a discussion starter, would alter the thrust of our submission or our view from the subscription television industry and the subsequent impact on our industry.

My view is that the fundamentals remain.  We still have the same Government.  Ownership and control rules remain the same.  Telstra is still a majority public owned.  Channels Seven, Nine and Ten are still owned by Messrs Stokes, Packer and CanWest.  Commercial TV still makes a healthy profit out of public spectrum, which increases each year.  We don't.  That is, make a profit, nor use public spectrum.  Commercial TV is still a protected oligopoly.  We are still nobbled by anti-siphoning.  That is, there is no level playing field.  Terrestrial free-to-air broadcasters are still the dominant broadcasters with 98.9% penetration - I could be corrected on that by Ian McGarrity - and 85% share of viewing.  And we are still the drivers of digital take-up.

So what has changed?

FACTS changed its name to Commercial Television Australia.  David Flint is no longer the Chairman of the ABA.  Alston is no longer the Minister for Communications. The ABA no longer will have the authority to issue commercial television licences, although they are pretty good apparently at issuing a whole lot of other licences.

Our penetration has increased but it's still not where we need to be at 35-40%.  Our share of viewing has increased to 15% of all homes in metro markets.  And so our ad revenue share has increased, but is nowhere near the dominance of Commercial Television.  The Content Share Agreement that impacted on all platforms and channels within our sector was approved by the ACCC.  And then last year we had the launch of the new Optus satellite providing more space for digital, the relaunch of AUSTAR Digital, and launch of FOXTEL Digital.

So there were changes to provide opportunities for growth in our sector, but not enough to change the fundamental planks of the digital terrestrial television broadcasting framework.

So what have we (ASTRA representing subscription television industry) said? 

Of course, it's well documented but I will briefly go through some main points.

ASTRA entered the digital debate in 1997 to provide an alternate view to Australia's transition to digital terrestrial television broadcasting.  We were concerned with: giveaway or free loan available public spectrum to the incumbents; the opportunities to exploit that spectrum for new services, including subscription television; multi-channelling and non-broadcast services.  There were assumptions made about what the Australian consumer wanted and was prepared to pay to participate in Australia's digital future and the convergence costs for broadcasters.

We did acknowledge the need to guarantee a path into digital for the existing broadcasters and therefore suggested the proposed multiplex model, more akin to what they did in the UK.

The commercial TV broadcasters successfully argued that they should be given a seven megahertz channel to broadcast DT TV - digital terrestrial television.  Their argument has been predicated on the notion that the spectrum will be used for high definition television and given the overseas experience, ASTRA found that to be a highly dubious proposition.  However, the importance of HDTV, as advocated by the networks, was accepted by Parliament.  The basis of the grant of the spectrum to incumbent broadcasters was for the provision of HDTV.  And walking away from that negates the framework agreed to and passed by Parliament.

Now while ASTRA expressed this point and the Federal Government's decision was to give spectrum for free to the commercial television networks for digital broadcasting, we were pleased that Parliament recognised the importance of our sector by prohibiting the commercial television networks from using this spectrum for both subscription television or multi-channel services.  Of course that was subject to review, which we are now having.

We also said the free-to-air broadcasters have a competitive advantage and that they need not compete for spectrum on the open market.  They have continued protection until 2007, exclusive loan of the public spectrum, financial assistance, established infrastructure, solid market base, first-mover advantage of datacasting, prohibition on competitive, specific multi-channelling by the ABC and SBS, comprehensive restrictions on datacasting and provision for some multi-channelling by enhanced programming.

We have also said that it will be an extremely poor policy if the outcome of the investment in the Australian subscription television sector by infrastructure providers, content providers, creators, encouraged by Government policy to date - and I'm talking about 2000 - were to be undermined by a terrestrial regime that offers unclear consumer benefits.

There was also a moratorium on the introduction of new commercial television services as a fundamental plank of the regulatory policy for the introduction of digital terrestrial television.  Also a fundamental principle that there be no terrestrial multi-channel television services. 

If the moratorium is designed to preserve the economic viability of commercial free-to-air services, then ASTRA submits that any changes to this system or the rules that have been set down should not undermine the commercial legislative framework under which subscription television has been founded in Australia.

There is no good policy objective to be achieved by changing the rules to allow free-to-air television services to move into subscription television by using public spectrum granted to them for other purposes. 

That was then. What do we say now and what will we say? I've come up with some provocative (maybe), and predictable thoughts.

Our sector is the major investor of Australian broadcasting in the past decade.  We've invested more than $8 billion in cable and satellite infrastructure, broadcasting systems, programming investment, channels contributing local content - including drama, as well as our recently announced commitment to captioning on our services.  AUSTAR alone has invested around $1 billion in delivering digital TV and other services in regional and rural Australia.  Then there's the latest investment by FOXTEL - $600 million for its full digital upgrade.

Across the subscription television sector - and the many suppliers which provide services from technology to sales, to installations, to programming enterprises -the direct employment for our sector generates and exceeds more than 5,000.

Future investment, employment growth, and industry sustainability is dependent on public policy that delivers competitive fairness in the entertainment market, of which we are all a part, particularly the protected commercial TV oligopoly.

We have been, and continue to be, the drivers in digital.  Since March, as has been reported, over 400,000 digital subscriptions have been sold between AUSTAR and FOXTEL, compared with the 322,000 terrestrial digital STU sold in almost 3 years (although I did note that Ian McGarrity has updated that today).  However, for the principal investors in the infrastructure of subscription television, the platforms, remain loss-making.  And as you can imagine, ongoing digital investment is required to achieve industry profitability.  But significant continued investment, competition, and the evolution of new consumer services and employment, cannot be robust if legislative advantage continues to give into the dominant commercial TV sector - which hasn't really been overwhelming in promoting interest in, or providing, digital TV services.

Commercial multi-channelling, the fourth commercial network, and anti-siphoning, are all linked issues.  This was what the ACCC noted in its Emerging Markets Report in 2003, and that remains the industry's view.  The issues are inter-dependent.  Commercial multi-channelling should not occur separate to the resolution of the fourth network issue.  Multi-channelling, and all that it implies, is the point of difference for subscription television. Allowing multi-channelling by the commercial networks would be to give new commercial television network licences only to the incumbent oligopoly of commercial broadcasters and to lock out the benefits of new competition, diversity and investment growth in television broadcasting.

The related issue of subscription television multi-channelling is critical to the health and sustainability of Australian broadcasting, and of the health and sustainability of competition within it.

The Issues Paper has raised the question of whether to allow the commercial networks to provide subscription terrestrial multi-channelling using the publicly-owned spectrum they were loaned exclusively (at no charge, ie the normal license fee - percentage based on gross revenue) to provide "free" television services. This is a critical point.

Commercial television networks have been loaned a scarce public asset -broadcasting spectrum - and given a unique legislatively enshrined protection to provide free digital TV services.  There can be no public benefit in allowing them to provide pay TV services using a public asset given to them for the opposite purpose.  Regardless of who I represent, that is not good public policy by any stretch of the imagination.  Now I will quote Kim Williams (because it has been reported), CEO of FOXTEL, "...to do that is like giving them the use of publicly-owned waterfront land on the condition that they provide a public park and then allowing them to lock the gate to the park and build themselves blocks of apartments for private sale" It's just not on!

Diversity, innovation and consumer services, investment and employment growth, are key features of subscription television and while others making profits are cutting jobs - as it has been reported - we are actually making investment for the future and we need to be encouraged to do so and are only going to do that with regulatory certainty.

I just want to add one more thing before I finish and that is a question of Freeview as highlighted in the Issues Paper and subject to a question this morning.

Two of the three commercial networks in Australia have in the past year made submissions to Government opposing multi-channelling, saying it would increase the costs of the commercial TV system without increasing the TV advertising pie, and therefore it would seriously undermine the free-to-air TV system to the detriment of the public interest.  The regional commercial broadcasters are also opposed.

The UK Freeview model has been promoted as a possible terrestrial multi-channelling model for Australia.  I don't know if it has been promoted but it certainly has been discussed in the Issues Paper.  But what it doesn't explain is that Freeview is fundamentally propped up by the BBC - the world's richest broadcaster - which is funded by the British taxpayer to the tune of A$7 billion per year from licence fees alone.  (Now I might be picked up on the maths because I'm not very good at it) but that's about twice the annual income of the entire Australian broadcasting sector.

The BBC provides the vast majority of TV and radio channels that comprise Freeview, and the BBC and Freeview are not driven by commercial objectives or discipline, as an Australian 'free-view' system by commercial networks may be, as they sought a return on investment for private shareholders.  The BBC and Freeview are both taxpayer-funded.  So they are taxpayer-funded public services.  Let me make that quite clear; without the BBC there would be no Freeview, and unfortunately, the ABC - Australia's equivalent to BBC - is a financial shadow of the BBC and could not support an Australian Freeview.  I can't see the Government giving its blessing, let alone the funding required.

And I would also like to mention that the previous digital terrestrial subscription TV model in the UK, ITV Digital, did not succeed either.  Further, the UK and Australian markets are vastly different in terms of size, market structure, and the relative maturity of both the subscription and terrestrial sectors.

So my conclusion is Freeview is not the free-to-air digital TV solution for Australia. In terms of making comment about subscription TV vs free-to-air in terms of convergence or divergence, I would make the point that on multi-channelling, our view converges with some broadcasters and diverges with others, but I await to here comments from Paul.

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