A fourth commercial free-to-air TV network? Should be a no-brainer

Talk is again in the air about whether a fourth licence should be made available for a commercial free-to-air network. John Singleton and his Macquarie Media consortium have recently indicated that they would be willing to bid for such a network, and pay up to $1 billion for the licence.

In addition, the Shadow Communications Minister, Lindsay Tanner, has indicated that a future Labor government could be well disposed to lifting the current moratorium on additional commercial free-to-air TV licences, as it comes up for review prior to 31 December 2006, as required under the Broadcasting Services Act. The reasons why there is any legislation prohibiting the establishment of new commercial television networks have always been hard to explain to anyone who is not a TV broadcasting insider.

The reasons for change are broadly similar worldwide: new digital technologies and delivery platforms; media convergence; the impact of multi-channel pay TV; globalisation; the need to free up spectrum for other uses; and more demanding consumers.

Moreover, if they were to take a snapshot of the rest of the Australian economy, they would observe deregulation of large parts of the economy, new competitors for once-dominant public and private sector providers, and national competition policy, having an impact upon everything from aviation to telecommunications, child care to education, and sugar pricing to shop trading hours.

The arguments given by incumbent broadcasters for protecting a highly profitable oligopoly in Australian commercial TV – an industry with average profit margins of 20-25 per cent from the mid-1990s to the present – are threefold.

First, it is argued that such high profits and market protection are a necessary quid pro quo for continued network investment in Australian content, particularly in cost-sensitive areas that generate a broader social and cultural dividend such as local drama and children’s programming, which would be threatened in a more competitive environment.

Second, it is argued that if new providers were permitted to enter the market, there would be a decline in the overall quality of programs broadcast, as the result of a “tragedy of the commons”, where too many commercial interests were permitted to operate on the same limited space. In particular, it is argued that there would be a fragmentation of advertising revenues that would affect investment in new local programming.

Finally, as the transition from analog to fully digital broadcasting looms, incumbent broadcasters have successfully argued that restrictions on new entrants are a necessary condition for them to have both the capital and the “breathing space” to invest in the digital upgrade, and manage the transition to digital in ways that take all Australian TV consumers with them. None of these arguments hold up, either in principle or on the basis of overseas experience, although this has not prevented their adherents from putting very persuasive cases to various government ministers in order to preserve the broadcasting status quo.

On the quid pro quo, it has been estimated that the current oligopoly generates surplus profits to the incumbent broadcasters in the range of $600 million to $1 billion annually, whereas about $120 million a year is invested by the commercial free-to-air TV networks in local programming in the sensitive areas of local drama and children’s programming. In other word, the benefits of the quid pro quo operate far more to the licensees than to the local producers.

Moreover, since any new licensee would be required to meet existing local content quotas, any attempts to reduce investment in local production by the incumbents would be met by new capital being invested by the new provider. While the claims of Singleton’s group that they would accept a 100% Australian content requirement as a condition for a new licence are probably hyperbolic, it has long been a truism in Australian TV that local audiences prefer local content when it is available and of a reasonable standard, and advertising dollars could well be attracted to a new broadcaster that prioritised locally-produced programs.

The “tragedy of the commons” claim is bogus on many levels. It assumes, as the Productivity Commission noted in its study into Australian broadcasting in 2000, that the advertising expenditure pie is fixed, which it is demonstrably not. After a dip in the early 2000s, which was primarily to do with uncertainty about long-established industry models in a convergent global media environment, the sector is now booming both in Australia and worldwide.

“Too much competition” arguments also ignore the substantial evidence that we have in Australia of new competitors forcing the incumbents to lift their game in terms of quality of service and responsiveness to consumers. We can think of how the entry of Optus, Vodafone etc. has forced Telstra to adapt its telecommunications strategies, or the impact of Virgin Blue’s entry into domestic aviation on the behaviour of QANTAS.