Network Insight Institute

John Porter

John Porter, Chief Executive Officer, Austar

I have drawn the position of provocateur and I'm going to discuss briefly some of the challenges facing our industry. I shall also look back at the digital terrestrial television discussion and pose the question whether it's a business or not; and if its not where do we go? I think you would agree looking around the world benchmarking that in our particular situation here in Australia we are challenged by the small market economics which drive every industry towards one infrastructure. The likelihood of two substantial digital television infrastructures is very low.

I think there are three reasons that digital terrestrial television faces substantial challenges in their business model. The first I would summarise by saying that in the area of investment, risk and co-operation, this is a new model for the open broadcasters. A result of their own success, they haven't matured very much on a cash flow growth, earnings per share growth profile. They are going to be very reluctant to be able to move from that, given the constraints associated with investment in digital and the digital platform. It is nothing that we are proud of, but the fact of the matter is that initially we have spent $8 billion and we have yet to turn a profit. Even if a duplicate network could be developed for one tenth of that price, I'm not sure that the appetite would exist among the current players in terrestrial TV. There would have to be very high levels of co-operation amongst the providers. The providers today are having a very difficult time even presenting one electronic program guide on the digital platform. As you would know, there are several. Co-investment and co-risk would be required to deliver any level of channels that would be attractive to consumers. This is from an industry who historically have beaten each other to a pulp over a half a rating point.

The second area of challenge is around the issue of consumers and who are the customers of a digital television platform. Moving the business model from a one-to-many to a one-to-one is an immense challenge. We have spent an enormous amount of our $8 billion in investing in the infrastructure to facilitate that. As Kim Williams mentioned, we would take three quarters of a million phone calls a month, the amount of transactions that take place in our business are incredible. We offer 7 day a week, 24 hour a day call centres. The level of support that we have to put into managing our customer base is huge. Somewhere between 40 per cent and 50 per cent of our customers would call us every month. That is equivalent to any benchmark around the world which you care to look at. It would be a huge transition for an industry that is not used to managing a customer base in that way.

I think that a business model that requires consumer investment is yet to be proven anywhere in the world. Any successful multi-channel platform has been built on the back of massive subsidisation on the part of the providers. For example we are putting in a digital set top box which might cost $200 or $300 for nothing. It has also happened in the UK, in the US, and anywhere you care to look. There is no substantial example of consumers accelerating growth in digital television on the back of their own wallet. I do not believe that even consumers who choose to go out and buy large digital televisions will be satisfied with a 5, 10, 20, or even 25 channel service which is an incrementalisation of terrestrial broadcasting. There will be competition out there that will be providing 200 channels and a substantial amount of services associated with those channels. That's what people are going to want to put on those new television sets.

I think the third and final challenge facing terrestrial broadcasters is that essentially the horse is out of the barn. The new services Kim Williams outlined are going to be in people's homes in very short order. The ramp-up time to do the things that we have talked about to put these business plans together and to move for the legislative and regulatory environment really didn't allow for a lot of critical mass against a competition of the type that we are talking about. As I mentioned, the regulatory challenges we believe are significant and should be significant. The spectrum that was given to broadcasters to provide digital television services was given for free. Competition was ruled out for the open broadcasters in order for them to provide the public benefit of improved television signals; plus some small improvements in the programming content in public affairs and other areas; not to enter the subscription television business. If that's the game then we have to go back to square one and people have to pay for spectrum, pay for infrastructure and compete in an open marketplace the same way the subscription television industry does.

So what is the challenge then, what is the opportunity for digital terrestrial television? My belief is that in looking around the world it gets back to this: if you can't beat 'em, 'em. If you look at the US, you look at the UK, you look at New Zealand, anywhere in the first world you care to look, virtually every broadcaster is up on a digital platform. There are 96 broadcast channels in the UK on the satellite platform. There are hundreds in the US. Every single one of the New Zealand channels is up on the satellite over there. Several of them are working quite closely with the subscription television operators to develop interactive channel enhancements and interactive advertising. Those are revenue streams for the future. Several of them in the US have entered the narrowcasting business and have developed channels of their own for the commercial subscription television platforms. By doing that they can enhance revenue streams by packaging their programming and doing more targeting in narrowcast ways. That level of innovation that comes with cooperation as opposed to a regulatory and legislative war of attrition and smoke and mirrors associated with multi-channelling needs to be brought into the debate in Australia. The first broadcast channel that does it is going to win.

In terms of where we are as an industry, and certainly speaking for Austar, we have asked the open broadcasters in their regions to join us. We are keen for them to join us. I think that we have some challenges because we have 80 separate signals in the regions but challenges can be overcome. We are open to additional channel ideas and we are more than willing to work with the broadcasters in a collaborative way. We can grow the pie together and I think that's the way forward that we would support.

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