Opinion

Trump’s victory was a good day to bury news – like the government’s $40m sweetener for TV networks

Australia's TV networks will be $3bn better off over the next decade thanks to government licence fee cuts. So why did communications minister Mitch Fifield slip out the announcement, asks Mumbrella's Tim Burrowes.

In the PR-driven world of news management, there’s a cynical game to be played at the time of national disaster, public holidays or other dramatic news events. And that’s to slip out your announcement while the journalists are distracted and the public are looking elsewhere.

The practice became notorious when an email sent by a government spin doctor in the UK on the day of the 9/11 attacks was leaked suggesting: “It’s now a very good day to get out anything we want to bury.

It’s one reason why Friday afternoon announcements to the ASX are always worth a look. During the death throes of Quickflix as an ASX-listed company, it was a proponent of both the Friday afternoon drop and the Christmas Eve drop.

The thought occurred on Wednesday night as I flew back into Australia on a Fiji Airlines flight, after seven days without access to the internet or other form of media, and the flight crew made a startling announcement as we approached Sydney.

The unexpected victory of Donald Trump would indeed be a good day to bury any news a spin doctor might not want the public to show much interest in.

And sure enough, a few hours later, there was an announcement from communications minister Mitch Fifield, although at the time of posting you won’t find anything about it on his website, either in the press releases or speeches sections.

The TV and radio networks have been given another rebate on their licence fees, cutting them by another quarter. Unlike many of its budget commitments that fell over (such as the watered down super crackdown), the government actually went through with this one, which it first indicated in May.

Other than a couple of small trade press stories, this wasn’t covered by the mainstream media this week. When legislation finally passes, there’s usually much more fanfare.

Mitch Fifield

Fifield: Another 25% off the networks’ licence fees

Curiously enough, back in 2012, Fifield’s predecessor Stephen Conroy took a similar approach, using the last sitting day of the year to quietly give the networks an early Christmas gift of not only a licence fee discount but also watering down their quota obligations to provide local content.

It means that in the last four years, Australia’s commercial broadcasters have successfully persuaded the government that they should go from paying 9% of their revenues to 4.5% and now down to 3.375%.

Based on the annual numbers released by Free TV, before the discounting began 2009 saw the networks bring in annual national revenues of $3.4bn. Now admittedly, 2009 was a low benchmark, as this represented the post GFC-blues. But even in 2007 the revenue was $3.8bn.

By last year, annual TV revenues had risen back to $3.8bn. However you slice it, TV revenue is not (yet) in the disastrous state the lobbyists claim. Kerry Stokes pushed the Free TV line the Seven West Media AGM last week:

“It is interesting to note that the UK Government acted in 2011 to dramatically reduce television licence fees to almost zero. They also adjusted local production incentives. As a result the television industry and production industry are thriving and growing. In fact, they are one of the best performing sectors in the UK economy. And this is one of the reasons why Seven is investing in production in the UK.

“Australian commercial television licence fees are holding back our company and the industry from the opportunity for achieving growth as has been experienced in the UK. Our licence fees are 15 times higher than those levied in the UK and more than 100 times higher than both the UK and the US. In both the US and the UK spectrum available is of a similar size but the licence fees are so much less.

“We urgently need the issue of licence fees and production incentives to be addressed as the most important of media changes.

“Much has been made about the entry in the Australian market of Netflix. No question they commission ultra-expensive blockbusters in the UK and the US but those blockbusters do not create a whole industry. The industry is created by the total demand primarily of the major free-to-air broadcasters. In Australia, 6 out of every 10 dollars spent on film and television production comes from commercial television.

“Netflix is reported to have spent around $5 billion on content in the last year. Not much of that money is being spent in Australia.

“Their model will certainly ensure less tax paid in Australia by traditional companies, as we compete against those who have advantages not available to us. Our Government has highlighted jobs and growth as a key focus for our economy. The UK example shows that commercial television has a key role to play in contributing to that goal. But the Government needs to play its part by getting the regulatory settings right to encourage growth and
innovation.

“If we do not do this, the free television services that Australians love are at risk. And even worse, our Australian economy is missing out on the jobs and growth that this industry can deliver.”

The numbers in the table above suggest the reality doesn’t yet look quite as dire as Stokes made out, even if the last six months have been slightly tougher.

This latest largesse is worth roughly another $42m a year to the networks. In total, the networks are now paying less than $130m to access the public airwaves, compared to an annual $430m or so four years ago.

Emotionally, this help for the networks feels like no bad thing. Commercially successful, locally owned TV networks are a good thing for the wider media ecosystem. In theory it leads to more and better local content.

And the legal but morally indefensible tax-offshoring strategies by the likes of Facebook and Google (and probably Netflix) certainly don’t create a level playing field. They offer a genuine existential threat to established players, and they’re not paying a fair proportion of tax locally for the dollars they’re bringing in from Australia.

But at the same time, Australia’s broadcasters also enjoy a privilege which other media do not – access to the public airwaves.

It’s this ability to deliver mass media reach which of course underpins the networks’ abilities to write that nearly $4bn a year in advertising revenue.

And of course they should pay a fair price for it.

For most of the networks’ history, that price has been 9% of revenue. Suddenly though, over the last four years or so – and of course under both Labor and Liberal communications ministers – this has dropped by nearly two-thirds.

It will amount to a gift of more than $1bn a decade for Seven and Nine, and a little less than this for Ten, which brings in lower revenues so pays lower fees.

For a government that’s under pressure to control its budget, that’s extraordinarily generous, given there was no legal reason it had to do so.

It certainly showcases the formidable lobbying skills of industry body Free TV, which is chaired by the well connected former media mogul Harold Mitchell.

From left to right: Sandra Sully (Ten); Karl Stefanovic (Nine); Melissa Doyle (Seven); Harold Mitchell at the Free TV event in Parliament House, Canberra.

Mitchell, right, turns on the charm at a Free TV lobbying event at Parliament House featuring Sandra Sully (Ten); Karl Stefanovic (Nine); and Melissa Doyle (Seven)

But a cynic can’t help but wonder: what exactly would the government expect in return for such generosity?

Previously of course, such discounts have tended to draw fire from media companies such as News Corp, whose pay TV assets Fox Sports and Foxtel receive no such state assistance. Now though, News Corp holds a stake in Ten, and is part owner of Ten’s sales house MCN.

One argument that the TV networks make is that such discounts allow them to continue to invest in local programming. Except, the government rather trustingly hasn’t imposed any new content quotas as part of the deal. Rather, they’ve been loosened in recent years.

The TV networks might also argue that although revenues may have broadly held up (not that you’d get that impressions from their pleas for help), they might not in the future. In which case of course, because the licence fee is based on a percentage of revenue, it would have dropped anyway.

And they’d also be correct to point to growing costs. AFL for Seven and NRL for Nine are indeed seriously expensive.

But of course there’s another sweet deal for the free-to-air players which protects most major live sport from being sold to a pay TV broadcaster.

NRL and AFL rights have mainly gone up because of internal competition between the three networks. It’s nice (for the rights holders, anyway) that the tax payer is indirectly funding that.

The networks, however, are still arguing for further licence fee cuts, comparing the regime to the UK, where fees have indeed dropped.

There is though, once major difference. In the UK, the government renews the licences for ten years as a time. if it wants to, in six or seven years time it could run an auction and issue them to the highest bidder offering a service of sufficient minimum quality. In the past, this has seen networks lose their licences to new players.

I’ve always wondered why a capitalism-loving, market-led Liberal government doesn’t take a similar approach here.

If the value of being able to use a licence to write nearly $4bn a year isn’t worth a fee of $130m a year, then nobody would bid that amount. But I suspect that it would actually be worth a lot more on the open market.

After all, the Australian Communication and Media Authority’s 2013 digital dividend spectrum auction (mainly created by switching from analogue to digital TV broadcasting) raised about $4bn. And there’s more spectrum about to go under the hammer next year.

Not, by the way, that I think this outcome would automatically be good policy. A winner of a competitive bidding process would find it remarkably tough to meet their financial obligations, and would be under huge pressure to deliver their content obligations in the cheapest possible way.

And it would also take a brave – by which I mean politically suicidal – communications minister to effectively declare war on the networks with such a policy. Which of course is more likely to be the reason for this current cosy arrangement. Having the people who talk to your voters at 6pm every night all owing you one is good politics.

But something that reeks of behind-the-scenes deal making is also bad public policy.

And if it isn’t, then why does the government want to bury it?

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