The Federal Budget doesn’t do enough to save free-to-air TV
Last week's Federal Budget included the Turnbull government's media reform agenda which it says will “improve the sustainability of Australia’s free-to-air broadcasting sector”. However, University of Technology Sydney's Peter Wells argues the budget didn't contain enough measures to save the broadcasters.
In a bid to save free-to-air television, the government has announced plans to repeal media ownership rules, and the 2017 budget included a change to licence fees.
But the media landscape is undergoing a structural change as advertising dollars move online, into a marketplace dominated by Google and Facebook. The budget didn’t contain enough measures to save the broadcasters, especially as the drop in licence fee pales in comparison to the industry’s recent losses.
The broadcast licence fee will change from one based on revenue to one based on how much of the spectrum the networks use. This adds up to a A$400 million reduction for all the broadcasters over the next four years.
The changes to ownership rules will see the repeal of the 75% “reach rule”, which currently prevents networks from reaching more than 75% of the population. The government will also repeal the “two out of three” rule, which prevents companies from controlling more than two out of the three forms of media (radio, television and newspapers).
These regulations were developed to ensure diversity of media ownership in what was historically a very concentrated industry. But they have had the unintended consequence of preventing the industry from evolving to meet the challenges of the digital age.
The industry now faces a challenge just to survive. The loss of our free-to-air broadcasters will have widespread impacts, from the loss of regional broadcasting and domestic content, to funding elite sports.
The television industry is hurting
Nine Entertainment Holdings posted a loss of A$236.9 million in the half-year to December 31, 2016. This included a reduction in the value of assets (called an impairment) of A$260 million. Since 2014, impairments have totalled almost A$1.3 billion.
Seven West Media reported a small profit of A$12.4 million in the half year to December 2016. But there were A$75.5 million in impairments, which have totalled nearly A$2.6 billion since 2011.
Finally, Ten Network Holdings reported a loss of A$231.7 million for the half-year to February 28, 2017. This included impairments of A$214.5 million, which have totalled A$1.1 billion since 2011.
The trend is bad and it’s unlikely that the impairments will stop here.
What’s causing the problems?
The commercial television broadcasters and newspapers are experiencing a crisis of revenues. More specifically, a “structural change” in the advertising market, as the Ten Network Holdings half year report calls it.
Advertising is the life blood of media companies like our free-to-air broadcasters. But television advertising (excluding subscriptions) fell by 5.4% year over year, in the half-year to June 30, 2016.
In total, advertising expenditure is little changed in nominal terms over last decade. But the television networks have taken a hit. Whereas they once accounted for 30% of total advertising expenditure in Australia, free-to-air TV now claims just 21% of the total advertising spend.
Firms such as Google and Facebook are benefiting as advertising moves online, but they are not constrained by rules about media formats or audience reach.
Saving free-to-air television
Google is also pushing for a greater expansion of “fair use” in copyright laws. Their aim is to keep using (free) content, often developed by the very media companies that are currently suffering, to keep attracting more viewers and advertising revenue.
If free-to-air television is to survive, they must be able to offer advertisers something competitive. For starters, their copyright must be protected, and copyright laws should be strengthened, not weakened. For instance, networks should benefit from their own news gathering, without Google News sharing the spoils.
But this won’t stop the decline in the advertising market for conventional media. So cost reductions will also be critical. The elimination of the reach rule is a boon here, as it will allow for consolidation in the industry, although this might also lead to a decline in regional content.
Policymakers should also consider the role of taxpayer-funded media operations such as the ABC, SBS, and community media. We need to ask whether and how they compete with commercial media enterprises, and what might be done to ease the pressure.
This matters, because free-to-air television has a role in maintaining our Australian identity just as much as taxpayer-funded media. The loss of our free television stations will create a void in preserving Australian identity, as well as broadcasting in regional Australia.
Peter Wells, Professor, Accounting Discipline Group, University of Technology Sydney
This article was originally published on The Conversation. Read the original article.
The only thing that will save free to air television is a commitment to producing a product that will be worthy of public support.
When television companies start producing a quality mix of good programming and stop trying to lead the public by the nose or earlobes
to a meal of gruel and sugar coated stale bread, then the corner may be turned towards a profitable future. The future will not be as profitable as the heyday, and the ground rules will never be the same as they were, but high-quality programming in a variety of subjects and disciplines will save the day.
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Only Ten made an operating loss, all the other “losses” are based on non-cash impairments that don’t affect operations. Even then, Ten only made a loss because of a big increase in programming costs from Big Bash and News Ltd programs.
The networks recently spent $5.5 billion on football rights, they certainly aren’t poor. Despite their recent near death experiences, Ten and Nine have substantially _increased_ their programming expenditures and Seven wasted hundreds of millions on pointless court cases against cable TV.
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I know many discount impairments as non cash, but that is only half right as cash was paid for those assets at inception, and recognition as one hit (as opposed to progressively) will be misleading. Regarding performance, I would let the stock price be the judge of profitability and as you can see the trend over the last 5 years is all one way – down.
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Unfortunately Richard not everyone has your refined tastes (and the Networks know that).
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I think we are is stall the death rather than save the industry territory with free to air now. Have you ever met anyone under 30 who watches free to air? Like print, the audience is literally dying out.
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As I understand it, the operating licences were given away _free_ to the newspaper proprietors and it is this, rather than the cost to subsequent purchasers, which is included in the impairment.
The cost of acquiring the businesses is included on the balance sheet as a debt and also spread throughout the balance sheets of shareholding companies through various complicated debt and debt-for-equity instruments, which make it difficult to ascertain the true financial position of the networks.
The stock price of Ford has fallen 40% this year with a $2bn profit, meanwhile Teslas shares are soaring and its nowhere near making a profit. Its based a lot on future hopes rather than current reality.
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Even over 30s. I have noticed that I find it hard to watch TV today now I am no longer used to seeing them.
Plus free to air is much more inflexible to watch.
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Even over 30s. I have noticed that I find it hard to watch TV today now I am no longer used to seeing ads.
Plus free to air is much more inflexible to watch.
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