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Environment and Communications Legislation Committee - 29/04/2016 - Broadcasting Legislation Amendment (Media Reform) Bill 2016

HYWOOD, Mr Greg, Chief Executive and Managing Director, Fairfax Media Limited

[13:28]

CHAIR: Good afternoon and thank you very much for appearing here today. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you.

Mr Hywood : Yes.

CHAIR: Thank you. I invite you to provide a brief opening statement and then we will open up for questions.

Mr Hywood : I welcome the opportunity to make a short opening statement today supplementing the written submission Fairfax has made to the committee. Fairfax's position is clear. We have consistently supported the repeal of the outdated, irrelevant and artificially restrictive sections of the Australian Broadcasting Services Act—namely, the two-out-of-three rule and the 75 per cent reach rule.

In our view, the current laws are unfit for the modern global media environment that we operate in. The act is a disincentive to investment in the industry and is a significant advantage for foreign companies operating here without the burden of such restrictions and without the onus of providing local media content. It is important that the local media companies have a level playing field in the industry so that they can have the flexibility and optionality to evolve their businesses in accordance with technology. Artificial restrictions around this are clearly irrelevant in today's age. These restrictions disadvantage Australian consumers who need strong local media players to deliver strong local content. These regulatory burdens reduce the value of our companies and therefore the ability to invest and attract capital.

As the committee is well aware, technology and consumer demand are revolutionising the consumption and distribution of all forms of information and entertainment, well beyond the scope and intent of the present legislative regulation. To that extent, the issues around diversity are no longer relevant. We impress upon the committee that the provision of local media content is expensive, particularly of the at-scale kind that Fairfax provides, spanning investigative reporting, analysis, news gathering and video. Combined with the loss of print revenues and the wider fragmentation of audiences across non-news digital sites, the reality is a lower economic return on producing local news content. But the continued provision of high-quality at-scale journalism for our local audience, our local consumers, remains the core commitment of this company. Fairfax strongly believes that the removal of these outdated restrictions would assist the local media industry to continue to provide the highest quality journalism that is the hallmark of the Australian media.

I take this opportunity to endorse the comments made by the Minister for Communications, Senator Mitch Fifield, at the National Press Club in Canberra on 18 March 2016, where he said that the reform is necessary to afford Australian domestic media organisations the opportunity to compete against global media giants that operate without the constraints of the regulation that is imposed on the local industry and also do not invest in the creation of local journalism content for Australian audiences.

In summary, Fairfax Media is supportive of operating in a less restricted regulatory environment. We believe this would ensure at least a more level playing field and provide strategic optionality for the future. Such optionality is essential if the Australian media is to compete in a highly competitive global market. It would also ensure the widest possible choice of local media voices for Australian consumers. Doing nothing—continuing with the status quo—we believe would be detrimental to the local media industry and to Australian consumers.

CHAIR: Thank you very much, Mr Hywood.

Senator URQUHART: I want to know whether your company was consulted by the government in the development of this legislation.

Mr Hywood : In terms of the debate around whether or not the legislation should come into being, certainly we had discussions with ministers' officials over a period of time, but, in terms of the actual writing of the legislation, we were not consulted on what it would contain.

Senator URQUHART: You said that you agree with the two-out-of-three and reach rules being abolished. We have heard quite a bit of evidence throughout this inquiry, in the hearings we have had so far, that that is a good start, effectively—I do not think I am putting words in anyone's mouth there—but that it needs to be much broader. Do you have an opinion on that?

Mr Hywood : We just have this opinion: let's get cracking and get something done now. We are not against further consideration of further reform—not at all.

Senator URQUHART: I do not want to put words in other witnesses' mouths, but I think the sort of comment they were making was that this is probably a good start but it needs to be much broader and there needs to be a really good look at the rules around media, because the landscape has changed significantly.

Mr Hywood : As I outlined here and as we outlined in our submission, clearly the economic landscape has been absolutely revolutionised in recent years, and the economic return that media companies can make from the provision of news, information and entertainment in this market is considerably lower than it has been. So business like ours clearly have to adjust to that, and that has involved significant cost reduction and a significant focus on developing new businesses. But what we also need to do is make sure that the gathering of news and information is economically viable in its own right, and that involves having a level playing field so that, as technology changes—and who knows where it is going to go?—you have the freedom to act and take economic advantage of those developments rather than being restricted, because what happens is that people who want to invest in the media look at media companies with regulatory restrictions around them and there is a disincentive to invest, because they know that they cannot maximise the economic value of their content.

Senator URQUHART: If this reform were to be put into law, do you see an increase or a decrease in journalists as a result of that?

Mr Hywood : I think that the greater the value of media companies and the more they can—this is a new word, of course, but it was an old rule—monetise that content, the more economic value you can extract from your content, the better the environment to expand employment. That goes without saying. But the more restrictive that environment, the more pressure comes on to restrict employment.

Senator URQUHART: What about reach into regional areas? What does that mean? Will this have any issues with that?

Mr Hywood : If you look at our regional business, our regional business is seeing the same sort of structural change which first impacted upon our metropolitan business some years ago. So there is no geographical advantage in this. The global players, who were extracting an enormous amount of economic value out of display advertising, are impacting upon regional environments just as much as the metro environment. In fact, just to give you the dimensions of the issue, if you look at the first quarter in the US this year, Google and Facebook took 85 per cent of the increase or the growth of display advertising in that market, across the US. So you are seeing the other players in there are really playing in a much smaller area. To have regulatory restrictions around that, on top of the competition of the global players, just puts local media players in a really tight, difficult position.

Senator URQUHART: I asked this of the previous witness, and so I will ask you. They were not aware of the Public Interest Journalism Foundation, but are you aware of the foundation?

Mr Hywood : I have heard of it.

Senator URQUHART: You have heard of it—okay, great. It has said that, as a business model, being independent becomes increasingly stressed, and there would be value in creating an independent journalism fund to support public interest journalism. What are your thoughts on that?

Mr Hywood : I think what we are talking about here is that the way that journalism will thrive is in a robust economic environment, within business models that adapt to the realities that we have been talking about. I do not think that to have a level of subsidy over there is the way of the future. I think what we need to do is make sure that we adapt. We have no problems—the economic situation is the economic situation. We will adapt to that. We are committed to at-scale journalism, but the way for it to thrive and grow is through a robust economic environment.

Senator URQUHART: In terms of the challenges that, say, your organisation is facing at the moment, what will these changes mean for your business in particular?

Mr Hywood : What does it mean? I have said publicly that, in terms of merger and acquisition activity, it is probably more that this legislation would have been more relevant 10 years ago. What we are doing is really looking at the future and saying, 'Look, we don't know where technology's going to be going in the future, but we don't want to have a level of restriction that precludes us from taking advantage of those developments.' It just advantages, as I say, global players, who do not deliver any local media content. They are extracting the economic value out of the system but not putting anything back into local communities other than the provision of their commercial services.

Senator URQUHART: Thanks very much.

CHAIR: I just want to pick up that point you just talked about in terms of not just legislation's ability in this area—because obviously it is very acute—but its ability to keep up with a very rapidly changing digital environment. Is the answer—again, it is not completely relevant to this today—to really look for a new form of legislation that is more content specific rather than trying to be more platform specific, because obviously this current legislation is very platform specific? Is that the sort of thing that you are looking at in terms of where we need to go so that, as technology changes, we do not have to keep changing legislation every year to allow you to keep competing and transforming?

Mr Hywood : I do not have any specific view about the way that legislation should be shaped in the future other than the fact that minimal regulation is better. I remember from my days in Canberra—I was a political reporter back there in the eighties—talking to communications ministers at the time, and they conceded that in writing communications legislation you just could not keep up with what technology was delivering. You just could not do it. And that was in the eighties, in the pre-internet age, let alone the postinternet age. It is extremely difficult to provide a regulatory framework around this because you can see that, the more you try to do that, other players can get advantage from it, and it does—

CHAIR: And, at the moment, for some considerable period of time.

Mr Hywood : Yes, exactly. Exactly.

CHAIR: Thank you.

Senator PATERSON: Mr Hywood, how significant is the passage of this legislation for Fairfax? How important is it?

Mr Hywood : I think it is very important. As I said, there are two key points. This restricts the value of our business because investors who want to invest in the media, including us, look at these restrictions and say it reduces our optionality. That is the first point. Leading from that first point, the optionality is important for the management team to make decisions about where we put our capital, where we put our effort and where we put our resources so that we can grow the business. And, as I said, the more we grow the business, the more jobs there are and the deeper we can deliver our journalism.

Senator PATERSON: What would the likely consequences be then if this legislation did not proceed and there was a hiatus, at least, or a halt in media reform?

Mr Hywood : I think it just continues the status quo, which provides significant economic advantage to global players who do not provide any local content and disadvantages local media businesses.

Senator PATERSON: What does that mean for Fairfax specifically?

Mr Hywood : Our management team are absolutely devoted to delivering at-scale journalism, and we are focused on that. It just makes the job harder. It makes it potentially harder—not immediately harder but potentially harder.

Senator PATERSON: I want to ask about some of the other competitive pressures that you face, particularly as your business becomes more online based and particularly as the ABC, alongside that, invests very aggressively in its online offerings. So, in a way that ABC television and radio might never have competed with The Age newspaper before, now they directly compete for eyeballs. How significant is that for you?

Mr Hywood : Audience is dollars. To the degree to which the ABC takes audience from commercial players, it restricts the numbers of dollars that are there, so I think absolutely the ABC has an impact upon the commercial players. There is one issue that I think certainly the ABC has to be careful about and certainly legislators need to be aware of. It is that, when the ABC uses taxpayers' funds to create content and then onsells it to players at relatively cheap rates, again that adds competition against the commercial players who are providing the at-scale journalism that I think everybody agrees is important to a cohesive, transparent community. So, while no-one is denying the right of the ABC to exist—no-one is going to be tilting at that windmill—in terms of its activities in the future, it is important that they deliver their charter and do not go beyond that to give commercial advantage to other players at very cheap rates using taxpayers' funds.

Senator PATERSON: How appropriate do you think it is for the ABC to invest in products and services that are pretty well catered for by existing private providers? One example that comes to mind for me is the ABC's The Drum website, which provides online opinion and commentary. That seems to me to be an area of the market that is very well provided for by private and other players.

Mr Hywood : There is this argument: does the market serve? There is the other issue around the charter of the ABC to provide news and information. There was, as I understand, no technological restriction upon that. The ABC moved from radio into television, and clearly you would expect it to use the internet to distribute its news and information. But how far it goes along that route is a matter of reasonable public debate.

Senator PATERSON: Do you think it is appropriate that the ABC is, in effect, exempt from media ownership laws? So, if they were regulated like a private company, they would be in breach of the reach rule, and I would argue, in effect, they would be in breach of the two-out-of-three rule, because many of their online offerings ape exactly what a newspaper does.

Mr Hywood : I am not familiar enough with the exact nature of the charter to make a call on that. My understanding is that, by definition, the ABC has a right to connect with all Australians.

Senator PATERSON: Thank you.

CHAIR: Would you say that the proposed changes to the media reform bill, in the broader context of need for additional reform, allow you to create a greater and more secure footprint for regional media in Australia?

Mr Hywood : I think that any restrictions that are removed give us the ability to broaden distribution platforms for our content and get more economic value out of that. The degree to which we can do that will, by definition, improve the circumstances not just in the bush and in regional areas but also in metropolitan areas. I do not really distinguish between metro and regional in that sense.

CHAIR: We have had some evidence before the committee suggesting that the removal of the two-out-of-three rule will reduce the diversity of voices in the media in metropolitan areas but particularly in rural and regional Australia. From your testimony and from your submission, you seem to say that it is pretty much the opposite—that that will help you sustain and maintain diversity.

Mr Hywood : I agree. I think the diversity issue has bolted a long time ago—the moment people could connect effectively to the internet. Everybody in this room and beyond understands that, if you want to know what is happening in any part of the world through any publication or any blog site, it is just a tap away. I think diversity as an issue is no longer relevant, because people have all the voices. To the degree to which regional Australia has access to broadband and effective internet connection, everyone in regional Australia has that capacity.

CHAIR: I think you put this particular point more succinctly than any other person who has given evidence so far: audience equals dollars. That was, I think, the clearest and most succinct, logical summary. What do you see as the key drivers for organisations such as yours to keep providing local news in regional areas?

Mr Hywood : It is really our ability to make sure that we can provide advertisers and subscribers the service that they pay for. That is the bottom line. The degree to which we can use additional platforms to do that is important for us in the future. As I said, this is all around optionality and potential choice as we move forward. It is not about anything immediate right now. If you are involved in managing a media company, you have to have a sense of not just what is happening next year but also in three or five years, and you have to plan for that. There is a lot of that, given the rapidity which technology is operating, that you cannot plan for, but you know that you need to have the freedom to act.

CHAIR: On behalf of the committee, thank you very much, Mr Hywood, for coming here today and for your submission. We greatly appreciate your time.