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Environment and Communications Legislation Committee

ANDERSON, Mr Paul, Chief Executive Officer, Network Ten

HERD, Ms Annabelle, Director, Corporate and Regulatory Affairs, Network Ten

HOWCROFT, Mr Russel, Executive General Manager, Melbourne, Network Ten

CHAIR: I now welcome Mr Paul Anderson, Mr Russel Howcroft and Ms Annabelle Herd from Network Ten. I understand that information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. I now invite you to make a brief opening statement, and then the committee will ask questions.

Mr Anderson : Thank you very much for the opportunity to appear before the committee today. Network Ten supports the bill because it is important step in dismantling a set of rules and regulations that are making Australian media companies less competitive and that are actively disadvantaging us in our attempt to respond to the changing market dynamics. In combination with a raft of other legislation that commercial free-to-air broadcasters are lumbered with, and in addition to the most onerous broadcasting tax in the world, these rules are threatening the ongoing viability of a strong Australian voice and are threatening diversity in this market.

Ten now directly competes for advertising dollars against the foreign online giants who continue to send billions of dollars in advertising revenue offshore without paying any meaningful corporate tax in Australia, without having to comply with any content regulation, without making any meaningful contribution to local production and, in some cases, without employing a single person in Australia. As we highlighted in our submission to this inquiry, these powerful companies individually have balance sheets and market capitalisations that dwarf the combined market capitalisation of the Australian media industry. Apple is now the world's most valuable company, with Google not far behind. In 2016 alone, Netflix will spend US$1 billion marketing its product. Apple will invest $800 million in technology, but, importantly, it will not invest one dollar in new Australian content, Australian employees, or Australian newsgathering or journalism.

Commercial free-to-air television is by far the biggest contributor to domestic content production. We spend over $1.5 billion annually on domestic programming, fund $6 in every $10 of local production and employ over 15,000 people directly and indirectly around the country. This bill ensures all media companies can access scale and capital in order to be in a stronger position to compete and in a stronger position to continue providing local content.

As we outlined in our submission, the reach and two-out-of-three rules, and, in fact, all media ownership rules, have been totally overtaken by technology. They belong in the days when a limited number of media companies operated through a single and clearly defined distribution platform. The rules do not even contemplate the existence of what the Prime Minister recently described as the most transformative piece of infrastructure ever credited—the internet. However, whilst we support the bill, the most pressing issue for the future of free-to-air television and local content production in this country is the abolition of the exorbitant licence fees that we pay. With three commercial free-to-air broadcasters and two national broadcasters all providing high-quality Australian entertainment, news and current affairs, drama, sport and children's programming for a population of 24 million, our free TV service is the envy of the world.

We are not asking for a handout and we are not asking you to throw out the Broadcasting Services Act in supporting this bill. We are simply asking you to level the playing field somewhat for Australian companies in our efforts to compete with overseas based online giants. We have now reached a point where policymakers and legislators must reboot old thinking about media regulation in this country and focus on how to maintain a viable, diverse local media industry, local journalism and Australian content production in the global converged media market.

Senator URQUHART: Were you consulted by the government in the development of this legislation?

Ms Herd : We have participated over the last several years in various discussion papers and conversations that have been had. We did not see the provisions of the bill before it was introduced.

Senator URQUHART: So you were not consulted prior to the development of this proposed legislation?

Ms Herd : I think we all made our views around what we thought should happen to the BSA known in wide and varied places.

Senator URQUHART: When were you consulted? Were you consulted or did you just happen to find out?

Ms Herd : What do you mean by 'happen to find out'?

Senator URQUHART: Did you read about it in the media? How did you find out about this bill if you were not consulted?

Ms Herd : I cannot remember exactly how we found out that the bill was going to be introduced. Obviously, these issues have been under consideration for several years.

Senator URQUHART: Foxtel has accused free-to-air providers of abusing the anti-siphoning list by buying events and not broadcasting them or buying events for onselling to subscription television providers. Do you have any comments to make on that?

Mr Anderson : All of the events that are on the anti-siphoning list now are broadcast by the free-to-air players, so, on that basis, the iconic sporting events on that list are all broadcast and 100 per cent of the population can see them for free.

Senator URQUHART: Foxtel has accused you of buying them but not broadcasting them.

Mr Anderson : I am not aware that we have done that with any of the sporting content that we have.

Senator URQUHART: Seven West told the committee at the previous hearing that the local content requirements will actually see a significant reduction in current levels of local news in large numbers of local markets due to the proposed increase to three points for locally produced material. Do you have any comment to make on that?

Mr Anderson : It is hard for us to comment on regional markets, if that is your question. For us, local news and all of our local markets are extremely important, and I think we have demonstrated that with some of the changes that we have been through in the past three or four years. We see local news in each of our local metro areas as incredibly important to our business.

Senator URQUHART: Do you believe that there will be a reduction?

Mr Anderson : For the same reason, I think that local news and local content full stop are incredibly important to our business model. Our business model survives on audience numbers and ratings, and that translates into revenue, and the content that is most popular is local content, whether that be domestically produced content or news and current affairs.

Senator McKENZIE: Thank you very much for your appearance here today. We have been talking a bit about competition law, and in your submission you state that it can deal with merger and acquisition issues. You are intimately involved. Could you indicate some issues that you might see our competition law running up against into the future if these changes are passed.

Mr Anderson : I think our overall position on the laws in terms of them being outdated is that the ACCC will deal with any future mergers that are proposed. We are acutely aware of that process through Foxtel's investment in Ten last year and our capital raising. We have been through that process and I think we proved through that that, basically, the structure that we have now is pro-competitive and is critical to our business surviving.

Senator McKENZIE: What is Network Ten's response to Mr Sims's statement? His statement is:

It may be that to compete in the world of media local players need to leverage their content across all media platforms, and if we don't allow them we may be holding them back in competition against international companies.

Do you agree with Mr Sims's assessment?

Mr Anderson : We do. I think our market is changing so rapidly. At the moment, the current laws we have constrain the three offline players—television, radio and newspapers—so we have to have the ability to configure our businesses in the changing market dynamics. We are competing, at the moment, against the Netflixes, the Googles and the YouTubes, effectively with one hand tied behind our back. What media consolidation looks like is anyone's guess, but we have to have a level playing field.

Senator McKENZIE: Who is your regional affiliate?

Mr Anderson : It is Southern Cross, primarily.

Senator McKENZIE: Are you happy with the level of local content Southern Cross provides to the regional areas it services?

Mr Anderson : I think that is hard for us to comment on. I think that is a question for them.

Senator McKENZIE: But surely they are streaming your brand, if you like, into those regional areas

Mr Anderson : Correct.

Senator McKENZIE: So the quality of their service provision has a flow-on effect, I would suggest, to the quality of your brand and how it is perceived in those areas.

Mr Anderson : Yes, I guess it does. To go back to my earlier comments, local content, whether it be in the metro markets or in the regional markets, is extremely important. More local content, whether that be news or other content, in each of these regions is important.

Senator McKENZIE: Have we got the settings right in the legislation around incentivising the production of local content?

Ms Herd : From our point of view, it looks like you are increasing the obligations on regional content players in the event that there is a trigger event. It is a protection against the concern that a merger will bring about efficiencies that could create a problem for regional news services. To us, it looks like it is actually strengthening the regional content provisions. Of course it is also strengthening, we would argue, the position of the regional players so that they have more funds to be able to invest in local news and current affairs.

Senator McKENZIE: You make very, very clear that the current regulatory environment that you are operating under is archaic in the 21st century media environment. Again, we are nodding. Let Hansard reflect there is broad agreement at the table. Would you also agree with the determination by the then minister for communications, Richard Alston, that anything put over the internet does not actually meet the definition of a broadcast service? I think we have heard from academics today. Mr Anderson, what is your view of that? That determination was made in 2000—16 years ago. I do not think I had internet on my phone back then. I think I only had one of those little Nokias that had the little Snake game.

Mr Anderson : I think our overall philosophy is that our content needs to be on as many platforms as possible. Just having a linear broadcast these days is not viable. We are now on more platforms than any of the other free-to-airs. The numbers that we generate through catch-up television through tenplay and the numbers that we have through our streaming device are still relatively small in comparison, but I think, overall, we need to provide our content to all of our viewers where they want it, on what device they want it and at any time.

Senator McKENZIE: Where does that leave Southern Cross, then, in your negotiations of their affiliation agreement? If you are putting all that on all their platforms into all of their towns and the back pockets of young people—your target audience—in regional areas, are you going to consider that and account for that in your affiliation agreement with them?

Mr Anderson : Yes, those negotiations are currently underway given both the Network Ten and the Nine Network affiliative agreements.

Senator McKENZIE: How have you taken that into account?

Mr Anderson : They are commercial, confidential negotiations that we are—

Senator McKENZIE: We can move into in-confidence if that would be easier.

Mr Anderson : What we are saying is that we will take that into account when we are negotiating our affiliation arrangement with them. But, having said that, we know the numbers are extremely small at the moment.

Ms Herd : We are not actually streaming 24-7, either. We stream selectively, so we are not streaming 24-7 like the other networks are. We stream selectively where we think that it makes commercial sense. We stream something like the majority, probably, of our prime time schedule and some morning content, but not 24-7. But, as Paul said, the numbers are very small in terms of viewership of those streams.

Mr Anderson : They are very small overall and, if you look at the Southern Cross component of that, you will see it becomes miniscule.

Senator McKENZIE: But you are obviously doing it because you expect the trend would be for that to increase over time.

Mr Anderson : Correct.

Senator LUDLAM: Were you folks in the room for the previous witnesses?

Mr Anderson : Most of it.

Senator LUDLAM: And you have got a bit of a sense of previous evidence that we have taken about these two rules? The parliament will do what it will do, and these two rules were lifted. Cases have been made in different ways that they are outdated, they are being kind of made obsolete by what technology and what overseas markets are doing. Does this get you guys out of the jam that you are in, or does it seem like a partial fix? I suppose I am trying to look for what is actually happening here.

Mr Anderson : As I said before, I think that what it does is level the playing field.

Senator LUDLAM: They are still not going to be taxing Apple or Facebook; they are still not going to have any local content provision; you are still going to be chasing a shrinking ad market that is being swallowed up by overseas platforms that pay no tax.

Mr Anderson : Correct.

Senator LUDLAM: Nothing in this bill helps you out.

Mr Anderson : I guess the discussion is around whether or not the overall pie continues to grow, or how that pie is divided up. I think that pie is divided up in different ways—it is divided up in terms of where the revenue goes across the various forms of media but, more importantly, it goes to the point of how is that pie divided up between the local content providers in this country and the overseas players that are now targeting our advertising dollars. We have to get better at innovating and attracting those advertising dollars, but we need to be able to play so that we have the ability to have cross-platform options in order to generate more revenue.

Senator LUDLAM: I get that. I am not unsympathetic to it.

Ms Herd : I would also disagree that nothing in this bill helps us in that situation because, as Paul said, we need to be investing in innovation and in content in order to be able to maintain some sort of ability to compete against these players. One of the things that this bill could potentially do is allow the 10 board to have access to other sources of capital and scale that we do not have at the moment. That capital is essential in being able to invest in the product, and that is why we are supportive of it.

Senator LUDLAM: What do you folks think of the analysis that was done by a couple of the academics who presented and some of the evidence we took a few weeks ago—that if you lift the two-out-of-three rule, leaving the reach rule aside for a sec, you get one brief wave of consolidation and then it jams up again against competition law and some of the other rules in the market? Is this really going to make a huge difference?

Mr Anderson : Firstly, our position has always been that both rules need to go together. In terms of what that consolidation looks like, I think that is highly theoretical. But what we have to have is a level playing field for a start so that you do have the options; you do not configure business as you see fit, because this market is changing extraordinarily fast.

Senator LUDLAM: I am not trying to pick a fight; you know your industry way better than me. I still feel like we could pass this bill word-for-word and your playing field is going to be substantially not level at the end of that process.

Ms Herd : I do not think anyone is saying it is a magic bullet or a silver bullet or whatever—I wish it was. What we are looking at doing is removing one of the obstructions, or one of the things that is hampering Australian media companies at the moment from being able to compete. Obviously, licence fees is another massive issue for us, and there are many others. But we are presented with this bill, and that is an important first step in dismantling that set of rules and regulations that are no longer producing a good public policy outcome.

Senator PATERSON: I just want to put on the record at the outset my sadness that a great piece of Ten programming has recently gone to Sky News—TheBolt Report. Any reforms that allow that to stay on free-to-air would have my support. Just stepping back to the beginning: given the line of questioning that Senator Ludlam was just pursuing, is the passage of this bill important to Channel 10, yes or no?

Mr Anderson : It is. As Annabelle said, I think the single most important thing for us at the moment is the abolition of the licence fees.

Senator PATERSON: But the passage of this bill will assist Ten to be in a stronger financial position?

Mr Anderson : That is debatable. I think what Annabelle said was that this is an important first step in dismantling a set of rules that do not create a level playing field at the moment.

Senator PATERSON: So I gather then that there are other media ownership restrictions that you also think should go—so the four/five rule, for example?

Mr Anderson : Correct.

Senator PATERSON: You have my support in that. I think that would be desirable too, but I do not think that looks like it is very politically palatable at this point. Given that, you appreciate and accept that this is a good step in the right direction?

Mr Anderson : Correct, yes.

Senator PATERSON: What would the consequences be for your business if this legislation did not pass and that signalled a bit of a halt to media reform?

Mr Anderson : It is hard to say. I think we go back to this just being a step in the right direction of bringing our media regulation in line with what is happening out there in the market. So for it not to happen is a backward step. We keep on talking about having a level playing field or fighting with one hand behind our back, so these bills need to be passed so that we have a range of other options that are open to us.

Senator PATERSON: Yes.

Ms Herd : The other thing about this legislation is that the fact that it is so technologically obsolete means that inevitably people are just going to get around it. The streaming point is a demonstration of that already. As we have said in our submission, if the weekly newspapers stop printing physical copies of their newspapers they are no longer covered by these rules. It is completely ridiculous. When you look at the practical application of these rules, it is completely insane that we are still even talking about keeping them. If you want to have a discussion about diversity then look at what is going to keep Australian media companies profitable, viable and able to make local news, not how we can keep applying rules from 2006—by the way, before Facebook was even launched—onto some limited number of media companies.

Senator PATERSON: It seems to me that there are some things that government can help you with and some things we cannot. We cannot do much about technology and international competition, and in my view that would not be desirable anyway because it is good that they are providing extra services, choices and alternatives to Australians. But it does seem to me quite unreasonable that you have your hands tied behind your back with a series of restrictions on media ownership that do not apply to any of your competitors. I think you made a strong case on that. Thank you.

Senator McALLISTER: You are one of the largest news organisations in the country and I do not doubt at all the evidence you have provided about the significance of local content for your business model and I suspect more broadly for your brand. I wonder if you have any remarks about the nature of diversity and independence and in particular securing public interest journalism in this evolving marketplace that you have been talking about this morning.

Mr Anderson : We talked a little bit before about how important news is to the business and how important the local element of that news is in each of the metro markets that we operate in. I think Ten is very different with shows like The Project, whichwe believe does have a very different take on the news. It is something that we are very proud of. We have seen significant interest in some of the editorials that Waleed Aly has done over the past six months where this has really taken off. Our view is that the way that we provide our news in all forms, from our 5 pm bulletin to The Project and more recently The Bolt Report on Sundays, is actually very different from our competitors.

Senator McALLISTER: One of our earlier witnesses this morning talked about evolving business models that see content providers move from having their own access to audience to a model that focuses more on providing content to an audience curated by another party. Are those options relevant to the large media organisations in Australia?

Mr Anderson : That is a hard question. I guess there are lots of different ways now that content is being curated, whether that be on YouTube—there are a range of intermediaries now that procure content through that online community, and individuals are making a lot of money out of that.

Senator McALLISTER: I suppose the question is whether there is a commercial benefit available to large organisations like yours in participating in that dynamic.

Mr Anderson : It is hard to say. I think free-to-air television, by its nature, commissions programming for a broad audience, which is very different from subscription television, which is very different from curated content, which is very niche, which is YouTube and Facebook and so forth. There are elements of some programming, I guess, that could be beneficial to us, but the broad business model for free-to-airs at the moment I think is about broad content for all Australians and providing that content across all platforms as well. The short-form curated content is a difficult one for a free-to-air broadcaster to make a major difference to your business model.

Senator McALLISTER: That leads me to my last question. You have talked about the significance of your news content for your own business. Looking back in the other direction, do you have any views about free-to-air and its significance for public interest journalism and I guess the broader public good derived from a free-to-air business model?

Mr Anderson : In relation to news specifically?

Senator McALLISTER: Yes.

Mr Anderson : I think internally and with our board we are very clear that news is a really important part of our model as a free-to-air broadcaster. It is the start of our evening at five o'clock. We invest so much money into that news, which sits outside prime time, so it is not counted as ratings. It is one of the highest rating programs in terms of share across the night. Then what we have continued to do is invest in The Project going forward. So we think we are very different from the others, and that is a really vital part of the way our business operates.

Senator McALLISTER: Thank you.

Senator McKENZIE: I just wanted to follow up on a question. You did recognise that streaming into a licensed area does have an effect on affiliation fees and the value of that arrangement, and I appreciate that those conversations you are having at the moment around how you choose to account for that are confidential. But over time you can see that the devaluing of that arrangement with your regional affiliates, of your content, is only going to increase as the streaming increases.

Mr Anderson : I guess that remains to be seen. We absolutely acknowledge with streaming that part of that audience does it in the regional licensed areas. We have acknowledged that in the start of those discussions we are having with the various parties. As to the value of that long term, who knows? How long affiliate agreements are negotiated this time around is also a factor.

Senator McKENZIE: Mr Anderson, how quickly do you think we will get to a trigger event?

Mr Anderson : I have no idea.

Senator McKENZIE: Honestly?

Mr Anderson : No, I actually do not.

Senator McKENZIE: Thank you.

CHAIR: I have one final question. Can you explain the importance of doing both of these recommendations— removing the 75 per cent rule and also the two-three rule—simultaneously? We have had various discussions about the relative merits of both. Do you have an opinion about whether they should be done together?

Mr Anderson : We have been very clear that we believe they have to be done together. We have also said we believe the voices test and the one-to-a-market rule and the two-to-a-market rule are redundant. We feel very strongly that removing one rule without the other has the ability to favour some companies over others.

Ms Herd : We have not actually heard anybody argue that the two-out-of-three rule is serving a purpose. There does not seem to be any different level of urgency for getting rid of the reach rule than the two-out-of-three rule. They are both equally redundant and equally overtaken by technology. Given that, it would be crazy to do one without the other.

Senator McKENZIE: Do you have a view on anti-siphoning and would you put it on the record?

Mr Anderson : We have said on the record before that we believe the anti-siphoning list should stay. We feel strongly that it should stay as it is now. We believe that all of the sports that are on that list are being shown by the free-to-airs in the spirit that the list has been put together, so that is our position.

Senator McKENZIE: On licence fee relief, how confident are you that the government actually understands—given that we still have that 2000 definition of what broadcast is—the changed technological environment you are operating in and will account for that in negotiations with you?

Mr Anderson : We have been very clear in terms of our position on how licence fees impact on us. There is an inequity in what we pay. We have to fight hard for all those advertising dollars against international online buyers who do not have the same regulations as we do around local content—drama, children's programs and news and current affairs—and then we have to pay away 4½ per cent. I think we have made our case very clearly.

Ms Herd : It was described very beautifully yesterday or the day before as being the most expensive market in the world for a free-to-air broadcaster to operate in because our licence fees are so much higher than elsewhere.

CHAIR: And that is money you could be putting back into local content.

Ms Herd : Absolutely. And, to date, the cut has been reinvested in local content and in providing better services for our viewers across different platforms. That is absolutely what would happen to those dollars if we were to receive a cut—or abolition.

CHAIR: Thank you very much for appearing here today. The committee greatly appreciates your testimony.