Stephen Conroy: Rupert Murdoch’s wisdom made me give all that money to the free TV networks

Stephen Conroy has cited Rupert Murdoch’s public comments about the economics of television as one of the reasons he decided to give Australia’s TV networks a multi-million dollar discount on their licences.

When the announcement was made in February that the networks were getting the unexpected discounts, amounting to more than $200m, the Government cited a need to guarantee local content as the reason for giving free TV the leg-up.

The decision to give free TV the money created a furore, particularly in the pages of Murdoch’s News Ltd papers and from pay TV player Foxtel, in which Murdoch’s News Corp is a quarter owner. Foxtel has not received any similar government subsidies.

But in newly published transcripts  from this week’s Senate Estimates Committee, Conroy said that although he has never met him, Rupert Murdoch’s views influenced him to hand over the money.  

Conroy went out of his way to state several times that Murdoch’s views were what led him in that direction, although he later revealed that he has never met him. During his grilling, he mentioned Murdoch’s name more than a dozen times.

But the furious reaction at the time by the Murdoch titles suggest that Conroy’s comments this week are intended to irritate the media mogul.

During the hearing, Conroy was questioned at length about the unusual deal with the TV networks and he claimed the deal was because of both the economic situation and longer term changes in how media is consumed. he also revealed for the first time theat the TV networks had asked him to abolish their licence fees altogether.

He warned that without his intervention, the Australian public would see less Underbelly and more Two And A Half Men, both of which are shown on Nine. He claimed that Underbelly costs Nine 800 times more to make an episode than it does to air the US sitcom.

Conroy said: “As I have said many times, the pressures on the free-to-air TV sector have been quite significant. There is a combination of pressures across the free-to-air networks: there has been a cyclical pressure due to the global financial crisis and there has been a more structural change that has been taking place for a whole range of factors.”

Senator Mathias Cormann: “According to whom?”

Senator Conroy—According to people as ‘irrelevant’ as Rupert Murdoch, who has stated publicly that the business model of free-to-air networks is broken. He may know something about it. I do not know whether you have heard of him. Tony Abbott has met him though, just so that you know. But Mr Murdoch himself has stated that the free-to-air business model is broken, as have a whole range of other executives.”

Senator Cormann: “So a number of interested parties have said, ‘We’ve got a worry; we’re worried about the…’

Senator Conroy: “No. The point I am making is that I am drawing on somebody outside the free-to-air networks to make the point, when you say ‘who’. So I am drawing on people who have a long and deep understanding of the media sector and who are not, if you like, partisans on behalf of the free-to-air networks.

If you look at what is happening to advertising in the free-to-air world, you will see that there has been a dramatic shift of advertising online, and that is something that is going to continue to grow. So the free-to-air networks have been caught by a combination of cyclical structural change and the fact that the costs of producing Australian content continue to rise.

You might have heard me talk about the cost of producing, say, an hour of Underbelly, which can be around $800,000 to $900,000 per hour, compared to the purchase of an hour’s worth of, say, Two and a Half Men, which is a very popular American sitcom that rates very highly here in Australia. So that is $800,000 to $900,000 versus $1,000. So enormous cost pressures are coming to bear on the Australian free-to-air broadcasters, and we make no apology for wanting to protect Australian content to ensure that quality Australian content can be produced.”

Senator Cormann: “Minister, what evidence do you have that those networks would not have complied with the Australian content requirement, just as they have every single year over the last decade? What evidence do you have of that, moving forward, given the conditions of the broadcast licence that were there?

Senator Conroy: “There has been a major shift..”

Senator Cormann: “Is that none?”

Senator Conroy: “…in the revenue available because it has gone online. So, at a time when expenses are increasing and revenue is decreasing, you do not need to be a rocket scientist to work out that there is a permanent shift taking place in consumption of media worldwide.

“Rupert Murdoch acknowledges it—one of the main competitors of the free-to-air network. As I have said, he has stated publicly that the business model is broken. So the government is responding both to the pressures that exist today and with the advent of the National Broadband Network, which will mean that enormous further competitive content will become available through IPTV. Already, thanks to the Australian Broadband Network, we have seen a new organisation called FetchTV establish itself and announce that it will be providing IPTV as a competitor. So you have a situation where a whole range of factors have influenced the government’s thinking.

“So we are looking ahead. We have recognised this worldwide trend that has been publicly advocated by competitors of free-to-air networks, like Mr Rupert Murdoch, and we recognise that all of these competing pressures are coming to bear. If we wanted to protect Australian voices and tell Australian stories on free-to-air networks, then we needed to begin a process of review—and that is exactly what we have put in place: a two-year cut, and a review in the third year.”

Senator Cormann: “So, as part of your assessment of the environment in which free-to-air TV commercial networks are operating, did you assess their historical levels of profit or return in coming to your conclusion?

Senator Conroy: “I was aware of the levels of profitability of the sector in earlier years; but what you just continue to completely ignore is the structural change in the advertising dollar movement. The advertising dollar follows eyeballs, and eyeballs have moved online particularly rapidly in the last few years. Also, with the advent of the National Broadband Network becoming a reality, despite the stone age approach taken by your party, it means that pressure will intensify. Advertising dollars follow eyeballs.”

Senator Cormann: “Okay. Let me just be clear on understanding what you are saying. Are you saying that the TV licence fee rebate became necessary because, for a whole range of reasons—you have described them—your expectation was that the profitability of the free-to-air commercial TV network sector was going to reduce in the years ahead.”,

Senator Conroy: “As for the question about the profitability of the sector, in the past, at times, it has been in the half-a-billion-dollar range upwards per company. But I think no-one in the marketplace today would suggest to you that they are going to return to the levels of profitability they were at 10 years ago or even five years ago. Does that mean that their profits are going to continue to decline from where they were last year? No. But dollars follow eyeballs and there has been and is continuing to be a structural shift in where the advertising dollar goes. If you want to ignore that, that is fine for you, Senator Cormann; but we recognise that this shift will continue to accelerate, particularly with the advent of the National Broadband Network.”

Senator Cormann: ” Ithink you are making a business judgment on behalf of commercial organisations here. Given that there is a taxpayer subsidy…”

Senator Conroy: “—I think Rupert Murdoch has called it….”

Senator Cormann: “As a result of the decision that you have made to grant a TV licence fee rebate. My question—and it is a legitimate question—is whether that is justified.

Senator Conroy: “The fact that you have such a short-sighted view of the structural changes that are occurring in the media sector, Senator Cormann, is perhaps your failing and not everybody else’s. But we have recognised that a permanent change is occurring: dollars are following the eyeballs. That is a permanent ongoing shift and we are getting ahead of the curve; and we make no apology whatsoever for protecting Australian content and the quality of Australian content.”

Senator Cormann: “So that is the only tangible benefit, even though no new local content requirements are attached to the rebate; is that right?

Senator Conroy: “As I have said—I have said this many times; I have said it in the chamber, I have said it to Senator Minchin and I have said it to you already today—this is recognition of what is occurring in the real world in that the advertising dollars are following the eyeballs; the eyeballs are going online. There will continue to be growing pressures because of the increased costs of Australian content versus overseas content. I cited the example earlier of Underbelly and Two and a Half Men. If you cannot see that there is a significant cost imbalance then I cannot help you much more, Senator Cormann.”

Senator Cormann: “So can somebody perhaps explain for me the methodology you used to arrive at the timing for the rebate payments? How did the government arrive at a 33 per cent rebate figure in year 1 and a 50 per cent rebate figure in year 2?”

Senator Conroy: “Following discussions with the sector.”

Senator Cormann: “What, you put a thumb in the air and the sector said, ‘We need 33 per cent in year 1 and 50 per cent in year 2?

Senator Conroy: “No. Perhaps I am being a little unkind to the sector, but it would be fair to say that actually at one stage they even asked for the abolition of the licence fee rebate.”

Senator Cormann: “So you said, ‘We cannot quite abolish it, so we will give you a third and then a half.’ Is there some science behind this, or is this….?”

Senator Conroy: “As we have said, we are going to hold a review in two years time to see whether or not we do so and, if not, what the basis of the ongoing licence fee should be. But, in the short term, we looked at a third and 50 per cent.

“If you look at what has happened around the world, if you listen to relatively well informed individuals such as Mr Rupert Murdoch from News Limited, not a free-to-air television owner in Australia, he says the business model is broken. I happen to agree with Mr Murdoch on this; that there is a need for governments to recalibrate policy in this area. We have a converged media world now with us—not coming soon, now with us. With the NBN it will only accelerate. You can already buy televisions today that are fully internet enabled. You can watch YouTube on the screen in front of you. You do not have to sit in your study, bedroom or lounge room with your laptop on your knee. You can actually watch the internet on your main television screen now. All of this is going to drive eyeballs, and continue to drive eyeballs, away from free-to-air networks.”

Senator Cormann: “What data on your structural challenges in terms of future profitability have you actually relied on? When you say that clearly there is going to be an upswing because that is cyclical, but long term we are still going to have a problem, you must have some data to base that sort of assertion on?”

Senator Conroy: “If you actually have a conversation with any analyst, if you have a conversation with the sector, if you even get a chance like Mr Abbott did to have a chat with Mr Murdoch, he will explain to you very simply that the advertising is following the eyeballs.”

Cormann: “Did they present any evidence to you…”

Senator Conroy: “I think, unkindly—they may not thank me for saying—they actually sought the abolition of the licence fee.

“We have considered all of the factors I have described and reached the view that there is an ongoing structural change in the sector. We have a converged media world coming and so we reached the view. It is very simple and straightforward.

Senator Cormann: “You have reached a view that ultimately there were going to be some challenges to the profitability of the sector moving forward; is that right?

Senator Conroy: “I think that given the level of profitability if you look at it from, say, 10 years ago to five years ago to today and even in the cyclical upswing, no-one is suggesting that they are going to return to those levels of profitability. In fact, one of the world’s most pre-eminent media moguls, Mr Rupert Murdoch, thinks that the business model for free-to-air television is broken.”

Senator Cormann: “You are sort of saying to us there is a structural change which means…”

Senator Conroy: “No, I am not. Rupert Murdoch is.”

Senator Cormann: “Rupert Murdoch and others have spoken to you and you have presumably taken their word for it.

Senator Conroy: “No, I have never met Mr Murdoch. I am not as lucky as Mr Abbott.”

He repeated: “I have not met Mr Murdoch. I am not as lucky as Mr Abbott.”


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