The media tax debate: Is it being used as a distraction for the broken business model?

Nic ChristensenYesterday saw Google, Apple, Microsoft and News Corp Australia front a Senate Committee on corporate tax avoidance. The event was high on drama, Nic Christensen argues, but while the tax discussion is important, too many traditional media businesses use it as a distraction for ignoring their disrupted business models.  

As a piece of entertainment, yesterday’s Senate Economic References Committee on corporate tax avoidance was superb theatre. 

Start with a cast of excellent characters (hello: Senators Dastyari, Xenophon, Milne plus the likes of Julian Clarke and even the normally camera-shy Maile Carnegie), add a large national stage (hello: saturation national press) and then add just the right amount of tension (usually Xenophon or Milne demanding that their question actually be answered) and you had quite a show.

Screen Shot 2015-04-08 at 2.34.52 pmThe appearance is, rightly, dominating today’s headlines and I know we’ve given significant coverage to the evidence of both Google/Apple/Microsoft and also the testimony of News Corp.

But if there’s one part of this discussion that strikes me it’s that the tax debate often becomes a distraction to the major structural challenge which face many traditional media businesses.

Don’t get me wrong, the evidence the committee heard, that the three tech companies at the table yesterday were, between them, sending billions of dollars in Australian revenue overseas is significant in a business content, especially when the local heads appear wilfully ignorant of what happens to their revenue once it leaves our shores. 

Indeed, the Australian public will, quite rightly, be angered by the sight of the likes global Microsoft tax expert Bill Sample telling the committee he knew nothing of a so-called “double Dutch” structure, only to concede when Senator Milne corrected her inquiry to the phrase “double Irish”, that: “oh yes we have one of those.”

Think of this as the verbal game of ‘pick a box’ where the rightly phrased question gets a direct answer.

But it was the testimony of News Corp’s local chief Julian Clarke that stood out the most.

The News Corp CEO was there to address allegations in Fairfax newspapers that Australia’s largest newspaper publisher had siphoned $4.5bn from its Australian business virtually tax-free.

Clarke did this with gusto, issuing strong denials that took aim at both Fairfax and the reporter who broke the story, Michael West. But he also spent a significant amount of time talking about Netflix tax advantages and issues around the GST.

Netflix being able to undercut local rivals Presto, which News has a stake in via Foxtel, and also Fairfax/Nine product Stan is a legitimate issue. But that $1 a month difference, even multiplied by an as-yet non-existent customer base of millions of streaming customers, arguably pales into insignificance when you consider the structural factors facing News Corp’s traditional newspaper business.

Clarke was asked specifically if the GST streaming issue was having “a significant impact” and responded: “It’s too early to tell… but clearly when you are selling something at a dollar less than the opposition you have got a distinct advantage.”

That is true, but if we’re being honest Netflix’s challenge to incumbents isn’t built on the fact that it has 10 per cent GST advantage but because it has global scale, deep pockets and because it is only asking consumers to pay $10 a month. Telco parter Optus is even throwing this in free for six months, compared to its pay-TV rival which charges up to $100 a month for a premium package.

Now Clarke said: “If the GST was applied to them as it is to us then there would be a level playing field”.

Frankly I’m not sure that’s true. Netflix, just like News’s others new Australian online rivals in the news space – The Guardian Australia, Daily Mail Australia and dare I say Buzzfeed Australia – aren’t burdened by the legacies of print businesses in Australia.

The woes of print are well told but to recap: newspaper circulation continues to consistently fall, digital subscriptions are increasingly stalled, and media buyers tell Mumbrella the print medium is increasingly “peripheral”.

For this who don’t believe how hard the playing field is getting for the likes of News, see this. The Standard Media Index numbers show total paid media spend on newspapers in January by media agencies fell from $78.03m in January 2012 to $42.6m in January 2015.

The reality is that for Julian Clarke the 45.4 per cent fall in the newspaper medium’s revenue is a greater threat than whether Netflix is paying the GST on its customer base.

Simply put, the other threat is more urgent.

Graphic from recent Tele front page story on tax avoidance

Graphic from recent Tele front page story on tax avoidance

Similar analogies can also be made with Google. News Corp papers love focusing on the ‘Google tax’ debate and its rivals who have benefited greatly from the advertising exodus from print to digital.

But there is a reason for the shift. Buyers typically get a more efficient, effective and measurable response for their client’s money online (or at least they should).

“There’s two billion dollars in unfair advantage”, Clarke complained, noting the tax structure which sees Google report that income out of Singapore. “We have them writing about $2bn of advertising revenue in Australia. That’s a big figure for any media company to be writing in advertising in one year.”

Clarke is right to highlight the issue and he is not alone in waving the stick of tax avoidance before both government and the media.

The TV networks, be they Kerry Stokes and Seven, or really any of the free-to-air compatriots all love to beat this drum too. Especially when they can use it to help argue for assistance from government, eg. a reduction in their licence fees.

But Maile Carnegie made the point yesterday that all businesses function in a competitive globalised world and that her competitors were not only sitting at the table next to her but were around the world.

“We are not opposed to tax, what we are opposed to is being uncompetitive,” Carnegie told the inquiry. “We structure ourselves to be competitive and when I think about morality I don’t think about it in terms of geographic boundaries.

“Just like Australia needs to compete with Ireland, the US or the UK for various things (Google) needs to compete with the people at this table as well as Tencent in China and Alibaba which is now incorporated in the US.”

The same is true for News and other media companies who base a substantial part of their business in Australia.

Most of the businesses who focus on this debate of tax avoidance in Australia simply aren’t thinking globally.

The tax issue in the long term must be addressed and increasing the political signs (at the G20 and elsewhere) are that it will.

But make no mistake, it will require the help, support and reform in other jurisdictions as well and I worry that media businesses like News Corp or our major free-to-air TV channels, dwell on this while failing to focus the the industry’s attention on solving their broader structural challenges.

Free to air TV networks this year have struggled to pull audiences over one million, while in demographics there are big falls, illustrated by the whopping 14 per cent fall in TV audiences among 13-24 years olds in 2015.

In print, while they will continue to try and drive digital uptake the collapse of print revenue continues unabated.

The risk is that they are ignoring the looming financial cliff face and worrying about drowning in the tax waters below.

What these legacy media companies fail to realise is that it’s not tax avoidance, but the structural revenue factors that have the very real potential to kill you.

Nic Christensen is the deputy editor of Mumbrella. He is a former media writer for News Corp’s The Australian and reporter for The Daily Telegraph. 


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