Senator the Hon Helen Coonan
Minister for Communications,
Information Technology and the Arts
Deputy Leader of the Government in the Senate

Address to the Millennium Forum

Sydney
3 October 2006

Thank you Graham [Jaeschke – State Director NSW Division Liberal Party].

To my colleagues the Hon Jim Lloyd and the Hon Sharman Stone, the Hon Pat Farmer and the Hon Bronwyn Bishop, ladies and gentleman.

Introduction

I always seem to be remarking at events such as these that it is an interesting time to be involved in my portfolio. Well, the times just keep getting more and more interesting.

This morning I would like to focus on the media reform package which will be debated in Parliament next week. This is one of the remaining legacy issues for the Howard Government.

It has been our policy to reform the cross media rules and relax the foreign ownership restrictions since 1996. Of course, I would never overstate the prospects of getting legislation through the Senate and take none of my colleagues for granted.

As the Prime Minister has remarked previously – we only have the majority in the Senate on a good day. But I do feel believe there is a general consensus that the time has come for reform – that the relentless march of technology and innovation has simply made these reforms at this stage critical for industry, consumers and the broader economy.

A case for change

You only have to look at recent announcements such as those made by Google to see the looming challenges for the media industry. Google Video Australia will draw content from its global video service but it will also distribute short and long-form media from local providers such as the ABC, Network 10 and Fairfax Digital.

Google has also formed partnerships with the Australian Film, Television and Radio School, Film Australia and Sony BMG. This is the way of the future - where the focus is on finding new distribution channels for content and harnessing the distribution power of mediums such as the Internet.

Why? Because, if you reflect for a moment, the pressures are coming from all angles. For instance, media players are now facing even more competition from amateur content. These days young people are more interested in creating their own content and showing it on forums such as YouTube than just taking what is on offer on traditional television.

When a young Tasmanian girl called Emmalina can have her video watched by 187,000 people in a day and a rapping teen from the suburbs of Brisbane called Caitlin Hill can have a video that has been watched more than four million times, you can begin to understand the challenge for traditional media.

You Tube is now reportedly being eyed off by everyone from News Corp to Viacom and Disney with a reported $1.5 billion price tag. If the price is true, then this is testament to its sheer market power.

Innovations such as YouTube are just one of many reasons why technology and time are making a nonsense of the current media rules.

The rise and rise of the Internet

While traditional media are constantly on the lookout for new media to invest in – think Rupert Murdoch and MySpace or PBL in Australia with ninemsn and Channel 7 and Yahoo’s recent partnering, the rise of citizen journalism is challenging even these evolved business models.

While perhaps still a fringe element lacking the credibility of traditional news outlets, blogs and the like are a powerful medium. They are even becoming a marketing tool with large multi-nationals desperate to crack the code that will get them the lucrative Generation Y audience and subsequent dollars.

And those who dismiss the impact of blogs and online communities as a source of diversity miss the point. Their illegitimacy is their strength. The mass market for media is changing and the cost of not adapting will mean a generation lost to the Internet.

But the key here is that no amount of diversity of ownership on old platforms will help.

It is all about adapting to the new. This is the argument for change, this is the reason why we must allow Australia’s media industry to move on.

After all, our current media rules were designed for another era – one where the architect was single mindedly focused on a regulatory straight-jacket and relegating all media players to being a queen of the screen or a prince of print.

But I am not interested in my media reform legacy being seen to be standing in the way of reform. By not embracing reform we would relegate Australia to the status of an analogue backwater and we would sentence the businesses of the current ‘old media’ players to a slow death.

Without change the media industry would continue to watch other platforms encroach on their traditional business and not be able to move while they watch voracious consumers of new media ‘eat their lunch’.

In contrast, I want my legacy to be the new services that emerge for Australian consumers – whether it is new digital channels, digital multi-channels or mobile TV.

I want to transition the media industry in Australia from the old industry settings to the new digital world by achieving digital switchover expeditiously and then getting out of the way as new and innovative services reshape the media landscape.

But as I mentioned, one should never overstate the prospects of success with large and important reform packages. I acknowledge that there are differing views about how media reform should be approached.

And I acknowledge that there are concerns about reduced diversity of both content and ownership structures in the media sector, particularly in rural and regional Australia. I will deal with both of these issues in turn.

The most interesting of the differing approaches is the suggestion that the Government should deregulate the entire industry – this is the policy version of ‘let it rip’.

Effects of total deregulation

As a matter of principle the idea of the least regulation or ‘light touch’ is a very good starting point. Let market forces sort the industry out and let commercial imperatives deliver consumers what they want and what they will pay for.

As I said, a good theoretical approach. But in practice, the reality would be markedly different and I believe would not meet the needs and interests of consumers.

Simply deregulating the industry would primarily involve abandoning traditional licence categories and numbers for current broadcasters – both television and radio.

This would almost certainly devalue the assets of current free-to-air broadcasters and potentially open the Government up to massive compensation.

It would also ensure that Australians stood a chance of losing the current free-to-air services they value except those provided by the ABC and SBS.

Anybody with sufficient capital, access to programs and transmission could then provide a service. While there would be more available spectrum, with no spectrum planning to minimise interference, the quality of the service would undoubtedly diminish.

Stations could be owned by anybody for any purpose (porn, promotion of radical causes, gambling). There would be no rules about Australian content, sport being shown on free-to-air, children’s content, undesirable content, tobacco advertising or any advertising standards.

While the quantity of content may increase – the quality would almost certainly suffer. While the market may well be able to sort out some of these issues and come to some arrangement via a survival of the economically-fittest test I doubt this would make any of the current nay-sayers happy.

After all, this would deliver the ultimate power to any player that could afford to tie up as much spectrum as possible with little regard for protecting consumers.

Clearly, some regulation is essential in order to provide the services consumers want and demand and the safeguards to ensure content standards. The critical question then is what regulation is required to transition old media to take advantage of all that digital innovation has to offer?

A case for transition

I have never claimed that the proposed package that has been under discussion now for some months is the only way to achieve reform of the media industry settings.

However, I will say today that I believe the package as a whole is the most balanced, considered, strategic and sensible way to achieve reform.

It is a transitional strategy. It is designed to avoid the wholesale destruction of the current industry and provide an achievable plan to transition Australia to digital switchover.

Getting to digital switchover and facilitating new services for consumers are at the heart of the package. We are providing new services for consumers via the allocation of two currently unallocated lots of spectrum, freeing up the national broadcasters to show a wider range of content on their multi-channels and allowing the commercial free-to-air broadcasters to show multi-channels from next year.

New services over the vacant spectrum could facilitate the emergence of a new in-home digital service supporting up to eight channels as well as innovative new services such as mobile TV which under some models could generate up to 30 channels.

As well as new services now, the package provides for reconsideration of a range of industry settings at digital switchover.

Digital switchover, due to commence in 2010-2012 region by region, frees up valuable amounts of new spectrum in the congested Broadcasting Services Bands and provides a natural end point for restrictions on full multi-channelling and the end of high definition TV quotas.

It is also the point at which we can have a serious look at other industry settings such as the anti-siphoning scheme, while always recognising the desire of Australian viewers to continue to be able to watch significant sporting events on free-to-air television.

A full review of the anti-siphoning scheme will be held in 2009, before the current list expires. In the interim the Government will introduce a ‘use it or lose it’ scheme to monitor the coverage of events on the anti-siphoning list and consider de-listing events that are not shown.

The push for new services for consumers is a fundamental element of the media reform package and the success of these new services is paramount.

New services

I recently announced details of the new digital services and immediately came under fire for not restricting who can bid for Channel B – or the spectrum that will be used for innovative services such as mobile television.

Oddly, the move has been criticised by some for not excluding others.

Current incumbent free-to-air broadcasters cannot bid for the in-home service (or Channel A) consistent with the Government’s view that this should be open to new players and not simply replicate a service that already exists.

However, Channel B represents an opportunity for innovative new services to emerge. Much interest has been shown in this spectrum by current media and telecommunications players, content aggregators and infrastructure companies and so the Government has adopted a highest and best use approach to its auction.

I took the view that in order to secure the success of this service, there needed to be an open and competitive playing field. I want the service to be a success and to be sustainable.

I think the Government can now acknowledge that too many restrictions were placed on the datacasting spectrum in 2000 to the point where it became unattractive to potential bidders.

Further, it was before the proliferation of user-created content that we have seen online in recent years demonstrated there is a business model in more flexible forms of audio-visual material.

This time around we are aiming for as many bidders as we can possibly encourage and as few restrictions as possible to ensure that exciting new services emerge for consumers.

Obviously the normal competition rules will apply and the ACCC will have a role to play.

Both of the channels will be auctioned next year to introduce new services around the time that the relaxation of media ownership laws and foreign ownership restrictions come into effect.

The Government has made it very clear that we are not interested in media reform without the potential for new services for consumers and new players in the industry.
This is critically important, particularly for those concerned about the potential impact of the reforms on diversity.

Diversity

I understand that localism and diversity are important issues, particularly for rural and regional Australia. No-one wants to hear news that isn’t relevant to their local communities or weather from a centre far away.

And no-one wants to see local media services that they enjoy disappear from the local landscape. By the same token rural and regional Australia is a sophisticated audience and an unrestricted diet of local events is unlikely to suffice and satisfy all a listener’s needs.

The package already contains significant safeguards to ensure diversity of news and opinion will remain regardless of any consolidations that may occur.

And this has been complemented by local content measures that will ensure rural and regional communities have access to minimum levels of local content.

The four voices test, enforced by a strengthened media regulator, will set a floor under which the number of independent media groups in a market cannot fall.

This is a robust test chosen because it limits the number of mergers that could take place as opposed to the type. And it means that in the majority of regional markets little or no changes could occur.

It is important to remember that the 5/4 diversity test presents a floor under which the number of independent media groups could not go. It is a protection, not a target.

Whether or not a merger could proceed would be subject to this test as well as the normal competition rules that any proposed merger must not substantially lessen competition in a market that are enforced by the ACCC.

As part of the current legislative package, any proposed three way mergers in rural and regional Australia have the additional safeguard of requiring explicit ACCC approval prior to proceeding with any proposal.

Few media mergers will even be possible under the threshold set by the four voices test, because most regional markets are already either at or close to the threshold of four voices.

For instance, no mergers could take place in 63 per cent of regional markets and 18 per cent of regional markets have five voices and so one merger could potentially occur.

This means that in 81 per cent of regional markets, no mergers or only one merger could potentially occur.

In the small number of regional markets where a three-way merger could be theoretically possible, mergers between these companies would be considered on a company-wide basis rather than occurring in a single licence area.

This would be the case for any mergers of the major regional media players such as Macquarie Regional Radio, Southern Cross Broadcasting, APN or Rural Press, WIN and Prime.

Rather than simply being assessed on the one particular market where the merger was proposed, the ACCC would look at all of the markets where the parties jointly operated.

This would require a larger company for instance to divest themselves of a significant number of licences in various locations in order to comply with the four voices requirement.

Under some scenarios, a merged media company would have to dispose of assets in 15-20 areas.

This would make mergers less commercially attractive, particularly when they turn radio markets from monopolies into competitive markets.

The ACCC has published further guidance on its proposed approach to media mergers and noted that it will focus more on control of content and other market indicators such as advertising as opposed to solely looking at the number of platforms and who controls them.

ACCC Chairman Graeme Samuel has said that he is particularly conscious of the issues facing regional and rural markets.

Consumers in these areas rely heavily on local sources of news and information and may have less access to new media technologies, and Mr Samuel has said that competition in these markets may be more vulnerable than in metropolitan markets.

In such markets, it is quite likely that the ACCC would block a three-way merger on the basis that it would substantially reduce competition in a market.

However, it is important that the ACCC retains the capacity to at least consider a proposed three-way merger in a particular market. This is because it is not possible to anticipate every possible scenario that may arise.

For example a newspaper may become unviable and could be lost to a local community if there are not opportunities to merge. I have said previously that I do not support attempts to legislate for every outcome and I certainly do not support regulation for regulation’s sake.

However, if a case can be made for additional safeguards – such as the 2 out of 3 in regional markets that has received an airing in the Senate Committee last week – then I will consider them.]

I believe my colleagues from both the Liberal and National parties are genuine in their concern to retain localism in rural and regional areas.

I have said before and will repeat today that I don’t believe their concerns are insurmountable.

By the same token I believe that any amendments to the package would need to demonstrate some real and tangible benefits rather than imposing more restrictions that could threaten the viability of smaller organisations by restricting their access to capital.

When the Committee reports later this week I will consider any recommendations made that would strengthen the already considerable safeguards contained in the Bill.

Conclusion

This is the third time the Government has attempted to implement reform of Australia’s media sector. Each time we have attempted this we have seen a vastly different media landscape because of the pace of technological change.

This time around we need to increase digital take-up by implementing new services for consumers and transition the traditional industry settings to the new digital age.

Measures to achieve this are at the core of the package. As a nation we will pay the price for policy paralysis if we cannot move the current settings which have largely become obsolete.

The media landscape has changed so much it makes a mockery of the current media settings.

It restricts current media players from making any new investments while allowing new players on other platforms to compete unrestricted. How can this be fair?
I believe the time has come for reform.

While it is a difficult intellectual exercise, I am grateful for the support of many Liberal colleagues who have followed this debate and have been able to see the bigger picture.

This time around the prospects are good and the arguments for change are compelling, This time we must do it. Thank you.