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ENVIRONMENT, COMMUNICATION, INFORMATION TECHNOLOGY AND THE ARTS
01/06/2000
Broadcasting Services Amendment (Digital Television and Datacasting) Bill 2000

CHAIR —Welcome. Do you have any comments to make on the capacity in which you appear?

Dr Varan —Yes. I head a research group which is exploring a range of applications associated with digital television technology, in particular digital television advertising, which we believe will become feasible in the new digital television environment.

CHAIR —The committee has before it submission No. 33 which it has authorised to be published. Do you wish to make any alterations or additions to your submission?

Dr Varan —No, thank you.

CHAIR —Would you like to make a brief opening statement?

Dr Varan —Sure. The submission I have put in recognises, as I am sure many of the people who have been testifying have indicated, that there are a number of potential problems with the legislation which, in meeting the original policy objectives of the legislation, may hamper the capacity to effectively address those objectives, particularly in terms of the uptake of the technology and the extent to which consumers will respond to that. The area that most concerns me, coming from a business faculty, is actually the business model and the potential business model which will be behind any efforts in digital television. I believe that the business model is not addressed adequately from a number of areas, and that is really the main purpose. Specifically, there are four points which I raise in the submission, as you will have seen.

My most immediate concern is with the prospects for advertisers. I think the advertising community really does not yet understand what the full implications of digital television and technology will mean for their industry. As a result, I do not think they have participated very actively in the debate and the discourse to date. There are some spill-over effects in a range of potential applications associated with digital television that will not be possible because of the legislation. I think this is an unintentional effect. I have recommended a specific remedy to that, which is to create a category C under the enhanced programming division of the legislation that will give a little wider latitude for advertising content. I believe that will be critical in ensuring that advertisers have the capacity to respond to many of the opportunities that will be at work in the United Kingdom in particular, but which will not be possible in Australia under the current legislation.

The other concern that I have is with the datacasting regime. It is a regime that will be tied up primarily in litigation, particularly given the ambiguity of the business model that will be there for potential datacasters, and I think that that ambiguity is going to make it very difficult for them to develop viable business plans in the long term. I have recommended a different approach to datacasting—that is, to treat it as a merit based approach rather than a free auction, which means that the government could set a fair market value for the licence and then ask for submissions and put the burden of defining how that service would differ from broadcasting on the prospective datacasters themselves and allow them to argue their case. Then, based on how many licences there would be in a given market, the government would pick the best proposition. That would be advantageous on a number of counts. The government would actually get greater revenue from that approach than it will from the current approach, which is based on a very uncertain model. It would also serve the public interest better because prospective datacasters would then try to come up with datacasting services that would have something to offer the public as well in the attempt to have the winning bid, as it were. It would also leave a much more stable and definitive business plan for prospective datacasters.

The other thing that I question is, again, the rationale underlying the whole triplecast regime which we have adopted. I believe that the down-conversion from high definition to standard can occur at the receiver level. I think the reason that that was not more apparent in December is because it was a new question which was essentially rushed, so I do not think that manufacturers really had adequate time to be able to respond to that need. But most of the major manufacturers in the world have adopted an agreement where by the year 2002 or 2003 they will all be working off the same chipset anyway. Given that environment, it is going to be a very short-lived policy, with a two-year life at best. It is a waste of spectrum which does not really have, in the long term, a viable rationale.

Finally, I address the role of public broadcasters, specifically the ABC and SBS in terms of their multichannelling plans. If you are interested, the capacity in which I might be able to assist in that discussion is in terms of the potential cultural impact associated with new technologies, which has been an area of research of mine. I am the original author of a model called the `cultural erosion model', which tries to understand how new media technologies impact on a society. I believe that in the near future it is going to be increasingly important to assert Australian identity with strong cultural institutions such as the ABC and SBS. For those reasons, I think it is absolutely imperative that we have strong public broadcasting institutions in the new media.

CHAIR —Thank you, Dr Varan. Do you have any questions, Senator Bishop?

Senator MARK BISHOP —I thank Dr Varan for his submission. It was very interesting, but I have no questions at this stage.

Senator CALVERT —I am hiding behind a microphone here; you probably cannot see me. I have a question on the comments you made about your different proposal for bidders. Couldn't they promise one thing and do another—in other words, they could get the bid under false pretences?

Dr Varan —Of course, the principle of promise versus performance is a classic regulatory principle in broadcasting and it is also the principle which is used currently by the ABA in regulating community broadcasters. The notion is that we would return to some extent to the model that we had prior to 1992, with public hearings and regular reviews. The rationale for abandoning that was that the scarcity principle was no longer applicable in the new digital future. But what we see is the government actually intervening in this case to create, essentially, that scarcity principle at work. So, in that environment, I would think that the tested model, the model which most regulators have experience with, of holding broadcasters or datacasters to their promises would probably work well. There will undoubtedly be challenges and it is not all smooth sailing, but I would suggest that it is a much more certain path than the path that we are going down now, which would have much more litigation tied to it than the notion of holding people to the promises they make would have. But, undoubtedly, that is a classic problem with promise versus performance.

Senator CALVERT —I have not been at the entire hearings today and yesterday, but I am interested in your comments on HDTV being capable of down-conversion. We have heard a lot about up-conversion, with super 16 films and 35 millimetre films up-converting to HDTV. Could you explain a bit more about how that would work?

Dr Varan —With the standard which Standards Australia has adopted for digital television, if you look inside the box to see the different components that have been put in the Australian standard—irrespective of whether it is standard definition or high definition—the high definition chip is actually inside that box. It may be that some people may choose not to comply with the standard, but anybody who will be complying with the Australian standard for standard definition television will actually have a high definition chip sitting unused inside their receiver box. That is one of the incongruities in the decision that the government has made, in terms of what Standards Australia is saying and what the legislation is proposing.

In actual fact, at some stage the cost of producing that box with the high definition chip in it is actually lower than the cost of producing it without that chip in it. The reason for that, of course, is standardisation. This is why the manufacturers are anticipating that by roughly the year 2002-03 they will have resolved a lot of the incompatibilities between the different standards in the world—so this is the American standard and the Japanese standard as well as the European DVD, which is what our system is based on—so that there will be a common chip set. That does not mean that the data algorithms will be the same or what the TV set does with that will be the same, but at least the chip set will be common. The actual cost of the chip is not, in fact, that large. What is expensive in high definition television is actually the cost of displaying that. So the chip is probably, on the current market value for the manufacturers, only about $US30. There are some problems in that the computer software drivers for that still need to be developed and that will take time. I would think that, especially because the standard which we have adopted in Australia requiring both is a new standard, we would have to allow manufacturers 12 to 18 months to really come to terms with that. But, again, in principle and in theory there is no reason why all of that down-conversion could not occur in people's TV sets. From a spectrum point of view, it makes a lot more sense than tying up a quarter of the spectrum for the triplecast. Of course, for broadcasters it also makes the task easier because essentially what they will be doing with high definition content anyway is doing the down-conversion at the head end and transmitting that as a standard signal anyway. So it makes more sense really, I think, to do that down-conversion inside people's TV sets.

Senator CALVERT —Why are they going to be so expensive? We have had figures of between $6,000 and $30,000 each.

Dr Varan —Most of those figures do not relate to the process of decoding it; they actually relate to the cost of displaying it. The cost of displaying high definition is expensive, so it is at that stage. It is not at the box stage that it is expensive; it is actually being able to get that signal out of the box and onto a TV set, so it is the cost of the TV set that is expensive, not the cost of decoding. The actual difference, I believe, in the cost of a high definition receiver versus the cost of a standard definition receiver—not the display side but just the signal coming to the TV set—is not actually radically that different. So we are not talking about an enormous price difference at the point of reception; the big price difference is when we try to take that signal and do something with it.

Senator CALVERT —Thank you, Doctor.

CHAIR —As there are no further questions, we thank you, Dr Varan, for appearing. It is very interesting evidence that you have given, and the committee thanks you for your submission.

Proceedings suspended from 5.53 p.m. to 7.07 p.m.