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Wednesday, 11 November 1964

Senator ANDERSON (New South Wales) (Minister for Customs and Excise) . - I move -

That the Bill be now read a second time.

The purpose of this Bill is to provide for the payment of fees in respect of licences for commercial television stations. I will later introduce Bills to provide for the payment of fees in respect of licences for commercial broadcasting stations; to repeal the existing Broadcasting and Television Stations Licence Fees Act 1956; and to amend, inter aiia, section 106. of the Broadcasting and Television Act 1942-1963, as amended by the Broadcasting and Television Act 1964. The fees payable for licences in respect of both broadcasting and television stations are at present laid down in the Broadcasting and Television Stations Licence Fees Act 1956, which it is now proposed to repeal. The annual fee payable by a licensee is £25 in the case of a broadcasting station and £100 in the case of a television station plus, in each case, 1% of the gross earnings of the station " in respect of the broadcasting or televising of advertisements or other matter ".

The provisions of the Act of 1956, the year in which television was introduced, were, of necessity, framed in the light of experience with the broadcasting services and the manner in which, at that time, it was envisaged that the television station licensees would conduct their operations. Experience has, however, since shown that it is virtually impossible to assess properly the licence fee in respect of television stations on the basis now prescribed - that is, on the basis of the " sale of station time ".

I should here explain to the Senate that broadcasting and television stations earn revenue in two ways - (a) in the case of sessions sponsored by an advertiser, partly by selling the programme itself to the advertiser and partly, but as a separate transaction, by selling the advertiser station time to put the programme on the air; and (b) in the case of unsponsored sessions, by selling station time to spot advertisers, the station itself meeting the cost of the programme, but taking this into account in fixing the price to advertisers for spots during the session. Licensees of commercial television stations have, in arriving at their gross earnings for licence fee purposes, adopted the practice of excluding not only the amounts paid by advertisers for programmes in sponsored sessions, but also an estimated amount of the revenue received from spot advertising in unsponsored programmes, as representing the cost of programmes with which the spot advertising is associated. The deductions from spot advertising revenue are being made on the basis of arbitrary and varying proportions which the Board has no way of controlling.

Honorable senator will, no doubt, agree that it is desirable, from all points of view, that the basts of assessment of licence fees should be clearly defined and capable of ready determination. After considering the various possibilities it has been decided to adopt what may be termed an " advertising receipts " basis of assessment, the view being taken that the fee should be assessed on a station's turnover and be a first charge on revenue. Such a basis is, also, directly related to thc main business activity deriving from the grant of the licence, that is, the selling of advertising. On this basis of assessment the licence fee would be payable on all revenue received from advertisers by a licensee with respect to the broadcasting or televising of advertisements, extending to cover both station time and payments for programmes. In clause 4 of the Bill, " gross earnings " are defined accordingly. It follows that all revenue, both from spot advertising and from sponsored advertising, would be subject to licence fee including revenue from the sale of station time and from programme sales. I direct the attention of honorable senators to the fact that the definition of " gross earnings " specifically excludes earnings from the production of filmed advertisements. It is known that some organisations closely related to licensee companies perform such work on behalf of advertisers as a commercial activity separate from the licensees' normal business of operating a television station. If this exclusion were not made, licensees' earnings from this source could be subject to licence fees, pursuant to clause 7 of the Bill relating to the diversion of revenue to related organisations. This did not seem appropriate.

I turn now to the question of the scale of rates to be imposed. This is probably the most important aspect of the proposed legislation, as it is the rates pf the levy which determine its impact. I would like to preface my remarks in this regard by a brief account of the financial progress and position of the commercial television stations based on the last annual accounts available. From £1.2 million in 1956-57 the gross revenue of the stations had risen to £18.8 million in 1962-63 with profits in that year of £3 million before income tax and licence fees. The profit figure was somewhat reduced by the fact that some country stations in their early years of operation had incurred losses. The gross revenue of the 10 metropolitan stations for 1962-63 was £16.8 million with profits, before tax and licence fees, of about £3.5 million - a profit margin of the order of 20 per cent. The gross revenue of the four stations in Sydney and Melbourne rose to about £11.2 million in 1962-63 with profits, before tax and licence fees, of £2.3 million approximately, representing an overall profit margin of 20 per cent. The overall return on issued capital of these four stations, before tax and licence fees, was of the order of 48 per cent, while, after tax and licence fees, it was of the order of 28 per cent. These figures illustrate a remarkable increase in the revenue and profitability of the services since they were established in 1956.

The country television stations derived a gross revenue in 1962-63 of £1,978,000, incurring losses of £415,000. It should be mentioned, however, that all these stations have been established only a short time and that such losses are a normal result in the early stages of operation. In fact, most country television stations have reported that they are ahead of budget figures. Although the increase in the financial results of broadcasting stations has not been so marked as in the case of television stations, income and profits have increased from £7.5 million and £1.5 million respectively in 1956-57, when the present Licence Fees Act came into force, to £12 million and £2.5 million respectively in 1962-63, with a profit margin of some 21 per cent.

Whilst there has been a great increase in the earnings of both television and broadcasting stations, the rates of licence fees have remained unchanged since 1956. The fees paid for 1962-63 in respect of television stations amounted to only £112,896 notwithstanding that their gross earnings were £18.8 million with profits of £3 million. So far as broadcasting stations are concerned, the fees paid were £109,544 as against gross earnings of £12 million and profits of £2.5 million. I believe honorable senators will agree that there is complete justification for the new scale of licence fees which is proposed in clause 6 of the Bill. This clause provides for application of the following rates of licence fees on gross earnings from advertising receipts; 1 per cent, up to £500,000; 2 per cent. from £500,001 to £1 million; 3 per cent, from £1,000,001 to £ 2 million; and 4 per cent, over £2 million.

Based on the financial results for the year 1962-63, the effect would be to increase the total licence fees payable by all television stations from £112,896 to £400,000 and in the case of broadcasting stations from £109,544 to about £125,000. Only the four metropolitan television stations in Sydney and Melbourne earn in excess of £2,000,000 and thus they will be the only stations which will be subject to the 4 per cent, rate on revenue in excess of £2 million. All of the other metropolitan television stations except Hobart are earning either a little more or a little less than £1 million. Three of these stations earned over £1 million for the first time in 1962-63 and would be subject to the 3 per cent, rate on the excess over £1 million. None of the country television stations would pay more than 1 per cent, on their present earnings but some of these stations will enter the 2 per cent, area in the. years to come. Only three broadcasting stations earn over £500,000 at present and only these three stations will be subject to the higher rate of 2 per cent, on revenue in excess of £500,000. Clause 7 of the Bill gives the Minister a discretionary power, in certain circumstances, to treat as gross earnings of a licensee, advertising receipts collected by related organisations. This provision is necessary to ensure that all income properly attributable to the licensee is included in his gross earnings. I commend the Bill to the Senate.

Debate (on motion by Senator Cohen) adjourned.

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