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Broadcasting (Foreign Ownership) Amendment Bill 1990

House: House of Representatives

Portfolio: Transport and Communications

Purpose

To make it a condition of a radio or television licence that at least 80% of the directors of a licensee are Australian citizens and provide a mechanism for calculating and tracing through a series of companies the level of foreign share and shareholding interests in a licensee. The Bill will also allow licensees who are in breach of the 20% foreign share and shareholding limit, as a consequence of the proposed mechanism for calculating and tracing the level of foreign share and shareholding interests in a licensee, till 22 May 1993 to organise there affairs to meet the 20% limit.

Background

Sections 90G(1) AND 92D(1) of the Broadcasting Act 1942 (the Principal Act) provide that it is a condition of each radio and television licence that foreign persons are not in a position to exercise control of the company holding the licence. A foreign person is defined to be a natural person who is not an Australian citizen or a company controlled by a non-Australian citizen (sections 90G(3) and 92D(3)). For the purposes of that definition, a company is deemed to be `controlled' by a foreign person if the foreign person or persons control 50% of the votes in the licensee company, or hold 50% of the shareholding interests of a licensee company (sections 90G(4) and 92D(4)). Sections 90G(2) and 92D(2) prohibit two or more foreign persons from being in a position to exercise control of more than 20% of the shares or shareholding interest of a licensee company.

The foreign ownership provisions of the Principal Act have recently been the focus of considerable media attention. In December 1989, the Australian Broadcasting Tribunal (ABT) held an inquiry into changes in the ownership of Northern Star Holdings (the previous owner of the Ten network). In the inquiry, the ABT had to consider the foreign ownership provisions of the Principal Act. In the Australian of 15 December 1989, the ABT is reported as having found:` A foreign person is defined in the Act as being a non-Australian citizen, or a company controlled by non-Australians. To be a foreign company, greater than 50% of the shares in the company, or greater than 50% of the votes or vote-carrying shares must be controlled by non-Australians. This means that, excluding a licensee company, the definition of control of a company is different depending on whether the test is for foreign or Australian control. The threshold for a foreign citizen is greater than 50%, whereas it is greater than 15% for an Australian citizen'. In the same report, a spokesperson for the ABT is reported as saying that the Northern Star finding means that a holding company with a major stake in a television licensee company could be 49% foreign owned.

On 4 January 1990, the then Minister for Transport and Communications issued a Media Release announcing that the Government would tighten the foreign ownership and control provisions of the Principal Act. The then Minister stated `...the Government is aware of concerns that it is possible for foreign investors to effectively hold more than the 20% aggregate through various corporate arrangements'. `We will ensure that this particular arrangement is prevented. We will also look at means of preventing any similar arrangement which may effectively result in more than 20% foreign interest owning and controlling a broadcasting licensee company'. On 3 May 1990, the current Minister for Transport and Communications reaffirmed Government plans to close the loophole in the Principal Act which allows broadcasting companies to be more than 50% foreign owned through holding companies. 1 On 22 May 1990, the Minister announced that Cabinet had decided to limit foreign ownership of broadcasters to 20%. 2

On 17 February 1990, the former leader of the Opposition issued a Press Release announcing that the Coalition's position on foreign ownership of television was that they supported the current 20% limit on foreign ownership of a licensee company. In the Sydney Morning Herald of 19 February 1990, the then Shadow Minister for Communications is reported as saying that the Coalition saw no need for a change (to the Principal Act), but that it would, if necessary, ensure there is no undue foreign influence in a licensee company. On 22 May 1990, the current Shadow Minister for Communications issued a News Release in which he said that the `...Opposition has also said many times that if it can be shown that there are loopholes allowing more than 50% foreign interest in holding companies, then it would support legislation to plug those loopholes. But it has not been demonstrated by anyone as yet that such loopholes exist'.

On 22 May 1990, the Australian Democrats introduced a Bill which basically sought to reduce from 50% to 20% the shares and shareholding interests a foreigner may have in a company holding a television licence before they are deemed to be in control of that company. The stated reasons for the Bills introduction included: the undesirability of foreign control of television networks; that foreign control of television networks poses a threat to Australia's integrity and sovereignty; and to close a loophole in the Principal Act which allowed holding companies with a major stake in television licensees to be 50% foreign owned .

New Zealand, Canada and the United States all have laws which limit foreign ownership. Under New Zealand law an `overseas person' (i.e. a person not ordinarily resident in New Zealand, a company incorporated outside New Zealand, a subsidiary of such a company, or a company in which at least 25% of votes are controlled by overseas persons) is prohibited from holding a private television warrant, or a television programmed warrant, or controlling the operations, management, or selection or provision of programs under such warrants. Overseas persons are also limited to a maximum of 5% of voting and shareholding interests in a warrant holder, subject to the approval of the Broadcasting Tribunal. 3 Under Canadian law, a broadcasting licence may not be issued to persons who are not Canadian citizens or `eligible Canadian corporations', or to foreign governments or their agents. An `eligible Canadian corporation' is defined to be a corporation which is incorporated in Canada, has Canadian directors, and in which at least 80% of the shares have full voting rights, and shares representing at least 80% of the paid-up capital, are beneficially owned by Canadian citizens or Canadian-controlled corporations. A corporation may also be denied eligibility if, in the opinion of the Canadian Radio-Television and Telecommunications Commission, the corporation is effectively owned or controlled either directly or indirectly and either through the holding of shares of the corporation or any other corporation or through the holding of a significant portion of the outstanding debt of the corporation or in any other manner whatever, by or on behalf of any person, body or authority which is itself not a Canadian citizen or eligible Canadian corporation. 4 The United States Communications Act 1934 prohibits the holding of a broadcasting licence by: (a) an alien (i.e. any person not a citizen or national of the United States); (b) a foreign government; (c) a foreign corporation; (d) or any other corporation which has - an officer or director who is an alien, of which more than 20% of capital stock or votes is owned or voted by any of the prohibited categories in (a)-(c) above, or which is directly or indirectly controlled by any other corporation of which an officer or more than a quarter of the directors are aliens, or of which more than 25% of capital stock or votes is owned or voted by any of the prohibited categories in (a)-(c) above. 5

Main Provisions

Clauses 6 and 9 provide that it will be a condition of a radio or television licence that at least 80% of the directors of a licensee are Australian citizens. This condition will not be breached where a breach does not last longer than 28 days after the day the licensee became aware, or should have became aware, of the breach. The ABT may extend the 28 day period. The ABT may only grant an extension where it has received an application for an extension and the application was made within the 28 day period; and the grant of extension was by written notice served on the applicant. The ABT is not to grant an extension unless it is satisfied that it is in the public interest to do so having regard to the desirability of having at least 80% of the directors of a licensee being Australian citizens; and any other matters the ABT considers relevant. Clauses 6 and 9 will have effect from 22 May 1991 (clause 2).

New subsections 90G(7)-(11) and 92D(7)-(11), which deal with the effect of breaches of the foreign share and shareholding limits, will be inserted into the Principal Act by clauses 7 and 10. Proposed subsections 90G(7) and 92D(7) provides that the foreign share and shareholding limits will not be breached where a breach does not last longer than 28 days after the day the licensee became aware, or should have become aware, of the breach. Proposed subsections 90G(8) and 92D(8) provide that the ABT may extend the 28 day period. The ABT may only grant an extension where it has received an application for an extension and the application was made within the 28 day period; and the grant of extension was by written notice served on the applicant (proposed subsection 90G(9) and 92D(9)). The ABT is not to grant an extension unless it is satisfied that it is in the public interest to do so having regard to the desirability of having the foreign share and shareholding limits complied with; and any other matters the ABT considers relevant (proposed subsection 90G(10) and 92D(10)). The ABT is not to grant an extension unless it is satisfied that the licensee made reasonable efforts to ensure that the foreign share and shareholding limit would be complied with at the end of the 28 day period (proposed subsection 90G(11) and 92D(11)).

Clauses 8 and 11 deal with the tracing of foreign interests in companies holding radio and television licences. Basically, clauses 8 and 11 provide a mechanism whereby the level of foreign interests in radio and television licensees can be calculated and traced through a series of holding companies. The effect of clauses 8 and 11 will be to ensure that the current rule prohibiting two or more foreign persons from being in a position to exercise control of more than 20% of the shares or shareholding interests of a licensee company cannot be circumvented or diluted through the use of holding companies. Minor foreign interests in a licensee may be disregarded for the purposes of calculating foreign shareholding interests in a licensee. `Minor interest' is defined to be foreign shareholding interests in a licensee which do not exceed 2% of the total amounts paid on all the share or voting shares in the licensee. Minor foreign interests will be taken into account where the ABT requires that they be, because it suspects that if they were taken into account the foreign share or shareholding interests in a licensee would exceed the 20% limit.

The effect of clause 12 will be to give companies holding radio or television licences who are in breach of the 20% foreign share and shareholding limit, as a consequence of proposed clauses 7, 8, 10 and 11 (see above), till 22 May 1993 to organise their affairs to meet the limit. The ABT may extend the period ending on 22 May 1993 in relation to a particular licence. The ABT may only grant an extension where it has received an application for an extension and the application was made before 22 May 1993, or within a period of extension granted earlier; and the grant of extension was by written notice served on the applicant. The ABT is not to grant an extension unless satisfied that it is in the public interest to do so having regard to the need to ensure that the licensee is able to provide an adequate and comprehensive service; any relevant government policy statements of which the ABT has been notified by the Minister; and any other matters the ABT considers relevant. The ABT is not to grant an extension unless it is satisfied that the licensee made reasonable efforts to ensure that the foreign share and shareholding limit would be complied with at the end of an extension period.

Remarks

Limiting foreign interests in Australian companies holding radio or television licences raises a question of why should foreign interests be limited. One way of answering this question is through examining what advantages or disadvantages may accrue from foreign interests. Benefits may include:

*attract investment to the industry that would otherwise not be there;

*access to foreign capital;

*foreign equity investment can also provide access to foreign management;

*entry of foreign firms may stimulate competition and lead to greater productivity;

*the level of foreign ownership should make little difference to the cultural contribution of the industry due to ABT controls on licenses and Australian content; and

*a wealthy network with a strong capital base should be able to make better quality Australian programs.

Disadvantages may include:

*concentrated foreign ownership in particular industries or areas may lead to market distortions and anti-competitive practices;

*concentrated foreign ownership may be accompanied by undesirable foreign political influence; and

*vertical integration in the international media industry will see Australian networks `tied' to international companies as a distributor of their `product';

*regional television may be affected by an increase in foreign ownership due to aggregation;

*over time there may be a decrease in the number and quality of Australian productions;

*foreign influence in the Australian television industry was allegedly demonstrated in 1989 when the ABT lowered its draft Australian content rules from 50% to 35% following protests from the US government and US television producers, as well as the Australian television networks; and

*there may be undesirable cultural consequences of foreign media ownership and marketing practices 6.

References

1. Parliamentary News Service, Beazley Rules Out Foreign Saviours For Broadcasters, 3 May 1990.

2. Parliamentary News Service, Seven Nine Begin Search For Local Equity, 23 May 1990

3. Butterworths, Communications Law and Policy in Australia, Vol. 1, p. 2832.

4. Ibid., p. 2831.

5. Ibid.

6. S. Joske, Notes on the Benefits and Drawbacks of Foreign Investment, October 1990, Parliamentary Research Service and P. Mackey, Brief Notes: Arguments For and Against an Increased Level of Foreign Ownership of Australia's Broadcast Media, October 1990, Parliamentary Research Service.

Bills Digest Service 21 August 1990

Parliamentary Research Service

For further information, if required, contact the Economics and Commerce Group on 06 2772460 or the Education and Welfare Group on 06 2772412.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Commonwealth of Australia 1990

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1990.