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Broadcasting Amendment Bill 1991



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House: House of Representatives

Portfolio: Transport and Communications

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Purpose

To require people who propose to acquire an interest that is controlled under the Broadcasting Act 1942 in relation to cross media ownership and foreign control to notify the Australian Broadcasting Tribunal (ABT) of their intention.

Background

The amendments contained in this Bill are largely the result of the sale of media interests formerly held by the Fairfax Group and which are now available for sale by the financial institutions which financed the attempted take- over of the Group by Warwick Fairfax. The titles involved include The Sydney Morning Herald, The Age and The Australian Financial Review. There are three bidders for the media assets of the Fairfax Group, and each will be briefly examined in turn.

The Tourang consortium

This group consists, among others, of Mr Kerry Packer and Mr Conrad Black, who is a Canadian publisher. The main advantage for this group is its ability to raise significant amounts of capital and it should have no difficulty in raising the funds necessary for the purchase. The main disadvantages are associated with the facts that Mr Packer owns and controls a television network (Channel 9) that transmits in the areas in which the newspapers sell - thus causing difficulties with the cross- media ownership rules - and that Mr Black is not an Australian, which raises difficulties with foreign investment rules. These matters will be discussed below.

The O'Reilly group

This group is headed by Dr. O'Reilly who is an Irish businessman. It has been reported that this bid has the support of John Fairfax. The group will not have any difficulties with the cross media ownership rules but may face difficulties with foreign control restrictions. The main difficulty facing this group is the need to raise Australian capital to ensure a sufficient Australian ownership, which has been made more difficult by the backing given to the final bidder, dealt with below, by the major Australian investment organisations.

Australian Independent Newspapers

AIN was established to bid for the Fairfax titles and is a consortium of Melbourne businessmen. It has been reported that this group has the support of the major investment institutions and that 35 of these bodies, representing 90% of the available investment funds, are supporting AIN. As AIN is an Australian group without any current media holdings, there will be no problems with foreign investment or cross media control rules. The bid also has support from employees of the Fairfax group. There has been much speculation in the media that the largest difficulty faced by AIN is the attitude of the government, which is reported to be hostile towards members of the group which has been described as `uptown' and representing the views of the Melbourne establishment and the Liberals. 1 The Minister's response has been that recent discussions, particularly as to the level of foreign capital, (see below) have been to encourage competition in the bid and to ensure that no party is excluded.

Cross media ownership

While the Commonwealth has no direct power over newspapers, such as it has with broadcasting, the rules on the ownership of broadcasting licenses contain provisions preventing a person from holding a prescribed interest in a commercial television license and a newspaper that is associated with the service area of the television license. Under the cross media ownership rules, a person is taken to have a prescribed interest in a newspaper if they are the publisher, have control of the newspaper or, where the owner of the newspaper is a company, they hold 15% of the paid up shares of the company or can exercise control of more than 15% of the votes at a general meeting. As noted above, this restriction is relevant for the Tourang consortium, and in particular Mr Packer as the Channel 9 network and the Fairfax papers will be in the same service areas. The consortium's plans are therefore for Mr Packer to hold 14.9% of the shares of the company owning the papers. There may also be problems with the control issue, as there have been constant allegations that the consortium will be effectively controlled by Mr Packer even if he is not the largest single investor. In a recent visit to Australia Mr Black denied that this would be the case. He stated `No one with 14.9% is all powerful. I mean, he's a powerful man, but he is not under the illusion that he is going to be running these newspapers in the event that our bids successful, any more than I'm under that illusion myself.' 2 Ultimately, it will be the ABT that must determine if there is control of the newspaper so as to breach the cross media ownership rules.

Foreign ownership

Unlike the above section, the rules concerning foreign ownership of newspapers are not contained in, or linked to, the broadcasting rules. They are part of the general policy regarding foreign investment and are enforced by the Foreign Investment Review Board (FIRB). The FIRB acts in accordance with government policy to recommend whether a proposal for foreign investment in Australia should be allowed to proceed. The ultimate decision of whether to allow the investment rests with the Treasurer. The media is a special category and foreign ownership and control have been stringently controlled. For example, the Broadcasting Act 1942 limits the foreign ownership of the holders of radio and television licenses to 20% of the voting rights or the paid up shares. The question of foreign investment is particularly important for the Tourang and O'Reilly bids as both will involve foreign capital. The level of foreign capital involved is uncertain at the moment, as each bid is likely to be framed to fall within government policy, which is currently uncertain.

The current government position in regard to foreign investment in newspapers has received much media coverage recently. It was thought that the rules would be substantially the same as under the Broadcasting Act 1942, i.e. a 20% maximum, but this was made uncertain by a recent decision by the Caucus Transport and Communications Committee which reportedly made major changes to the level of foreign investment allowed. The proposal was for a limit of 20% of the voting shares of a company with no limit on foreign investment that did not carry voting rights. This would allow the Tourang consortium and O'Reilly to use overseas funds to finance the purchase of a large proportion of the equity in the bidding company providing such equity did not effect the control of the company and would have removed one of the major problems facing these two bidders, i.e. the need to raise sufficient funds in Australia when the major investors favoured the AIN bid. However, there is some doubt as to whether all members of the Committee actually realised what the Committee was endorsing. The major commentator on this point has been John Langmore who presented a Media Release on 13 September claiming that the motion agreed to would limit foreign ownership of the print media to 20%. He proposed that if confusion about the intent of the motion passed continued, he would move another motion when the Committee next meets to clarify the situation and impose the 20% limit. The original decision received much attention in the media and has often been labelled as `moving the goal posts' to favour the Tourang and O'Reilly bids and reducing the chances of the AIN bid. If the limit imposed is 20% total foreign investment, the AIN group would appear to be favourites in the bidding as they have no cross media control or foreign ownership problems and have access to the major Australian investment institutions. It should also be noted that the decision is being made by the Transport and Communications Committee while the power to enforce the restriction rests with the Treasurer rather than the Minister for Transport and Communications.

The Treasurer stated on the 7.30 Report of 26 September that `I will consult Caucus, but that does not necessarily bind me when I have to take that decision, if there is a foreign investor involved.' He went on to comment that the decision would be one from a Caucus Committee and that if it were a decision of the full Caucus `we'll have to go to the Cabinet itself, but I do believe in Cabinet government.' Regarding the limit to be set, the Treasurer appeared to have a flexible attitude. Asked about the appropriate limit, the response was `Oh, I think 20% has some association with the broadcasting area, and that seems to make some sense, seeing you have cross media ownership in this country, but if a bid was accepted by the owners, and advised by the receivers at 22%, it would be a rather moot decision.' When asked about a 49% level, the Treasurer responded `Oh, that would be very hard to make up in my own mind. I think that goes.. in my terms, that goes a bit beyond what I think, but I'd have to examine it very carefully and I'd be taking the advice of my department.' 3

Main Provisions

Clause 5 will insert a number of sections into the Broadcasting Act 1942 (Principal Act) dealing with the notification of proposals to acquire certain interests. The proposed sections will be inserted into the Part of the Principal Act dealing with cross media ownership. Proposed section 90HA will, generally, require the ABT to be notified 10 days in advance when certain people propose to conduct certain transactions. The proposed section will apply to people who:

* hold a prescribed interest in a licence;

* propose to acquire an interest that would result in their holding a prescribed interest;

* are foreigners and the transaction would result in their holding more than 20% of a company;

* hold or plan to acquire an interest that would breach the cross media ownership rules;

* together with an associate would hold a prescribed interest (the meaning of associate will be dealt with below);

* are foreigners and their interest, combined with the interest of associates, would result in their holding an interest in excess of that allowed for foreigners; or

* hold, or proposes to acquire, an interest and that interest, together with interests held, or proposed to be held, by an associate would amount to a breach of the cross media ownership rules;

Where a person is in such a position and is aware of this, they are to notify the ABT at least 10 days before the acquisition takes place. If the person becomes aware of the acquisition after this time the ABT is to be notified as soon as practicable after the acquisition.

For the purposes of proposed section 90HA, a person will be taken to be an associate of another if:

* they are related by blood or marriage;

* they are the de facto spouse of the other or is related to such a spouse;

* is currently, or has been during the last five years,:

a partner, employer or employee of the other;

an officer of the company where the other party is a company;

the holder of a prescribed interest in a company which holds a license;

a legal, financial or accounting adviser to the other;

a beneficiary under a trust where the other person is a trustee or beneficiary of the trust;

accustomed at act in accordance with the directions of the other;

a related company; or

the person is an associate of the associate.

The ABT is to have regard to the associates of a person when exercising its powers in respect of proposed section 90HA (proposed section 90HB).

(N.B. Although the expanded definition of associate contained above is to be used when determining if a proposed acquisition is to be notified, the current provisions in the Principal Act are to be used in determining if there is any breach of the Principal Act.)

Proposed section 90HC will allow the ABT to determine that specified classes of associates are to be disregarded for the purposes proposed sections 90HA and 90HB. This is not to be done unless the ABT is satisfied that such associates are not likely to contribute to a breach of the Principal Act.

Clause 6 will insert a number of sections into the Part of the Principal Act which deals with limits on foreign ownership. The proposed sections are substantially the same as those described above and complement those provisions.

The above provisions will replace current section 92JC, which will be repealed by clause 7. That section requires licence holders to notify the ABT of a proposal to acquire a prescribed interest in a newspaper that has a common service area with a licence.

Section 92P of the Principal Act deals with the powers of the Federal Court in relation to the Principal Act. It will be amended by clause 9 to give the Court power to make orders to prevent people from doing any act or thing that would have an adverse effect on the ability of a licensee to comply with the conditions of a licence.

If an acquisition that would be subject to these amendments has commenced within the 10 day notification period before this Bill comes into effect, the 10 day notification requirement is to be read as requiring notification as early as practicable before the acquisition takes place (clause 11).

When the ABT receives information about a proposed acquisition, it is to treat the information as confidential unless disclosure is necessary for an inquiry or a court proceeding. It may also be disclosed where the ABT is satisfied that the information is so widely known that its disclosure would not amount to a breach of confidence (clause 3).

References

1. Kenneth Davidson and Michelle Grattan, The Age, 14 September 1991.

2. The Age, 18 July 1991.

3. Taken from a transcript of the interview prepared by the Department of the Parliamentary Library and available on the ISR system.

Bills Digest Service 27 September 1991

Parliamentary Research Service

For further information, if required, contact the Education and Welfare Group on 06 2772410.

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 1991

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, 1991.