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CHAPTER 1

The Televisual Landscape Today

NICK HERD

We may have plenty to read and watch as audience members, but is it the kind of content that makes us informed citizens; that reveals what some people want concealed; that holds the powerful to account? That helps Australians understand each other better and the world in which we live? Where is the content that leaves us as not just sated audiences and primed consumers, but informed citizens?
Mark Scott,1 Managing Director, Australian Broadcasting Corporation

Introduction

Reports of the early death of free to air television are premature. A lot of attention has been paid to the changing digital landscape in television, particularly the arrival of Netflix to Australia early in 2015, and to what that might mean for the so-called ‘legacy’ television service providers, such as the national and commercial broadcasters. The impression one could get from some of this hype is that broadcast television has changed forever and that it is possibly on the way out, as these new forms of television enter the market and audiences are presented with new ways to access television programming. However, there is a danger that we are overestimating the short run impact of this disruption and underestimating the longer impacts of change.

While it is true that in 2015 the number of people watching free to air television did decline, there are still a lot of people watching broadcast television; the old fashioned ‘linear television’. This is demonstrated by the Australian Multi Screen Report, published every quarter by Oztam and Nielsen. In Quarter 2 of 2015, on average, Australians watched 90:53 hours of broadcast television per month, of which 8:11 hours was played back on a television set. They also watched 7:32 hours of video on a PC/laptop, 2:47 hours on a smartphone and 2:03 hours on a tablet. Not surprisingly teens watched the least amount of broadcast television and those over 60 the most. People aged 18–24 watched the most video on devices other than a television (26:41 hours per month).2 In 2015 the top ten programs on free to air television attracted an average of more than two million viewers.

These are not figures that suggest the imminent death of broadcast television. This is not to say there has been no change and the sector does not face some challenges, not least from new entrants to the market, which it is trying to address or will have to address. In this chapter I will be looking at some of these challenges and some of the significant events during 2015, with reference to free to air television and subscription television, including cable, satellite and IPTV, from the point of view of the changes to the business or the regulatory environment.

But first, a brief bit of context. In relation to free to air television Australia still maintains the dual system of national and commercial television that has been in place since television started in 1956. The national broadcasters – the ABC and the SBS – are statutory corporations, which receive direct funding from the Australian Government, but also earn revenue by other means, such as program sales and merchandising or in the case of the SBS from advertising. The commercial broadcasters are licensed under the Broadcasting Services Act (‘the Act’) to provide metropolitan and regional services and are supported by advertising. They are subject to various regulatory requirements including those relating to minimum levels of Australian content. Subscription television, delivered by cable and satellite, is also licensed under the Act and supported by revenue from subscribers and the sale of advertising time. Cable and satellite television providers are subject to lesser regulatory requirements, but still need to deliver minimum amounts of Australian drama content. IPTV, including services such as Netflix, Stan and YouTube are not regulated by the Act and do not need any government oversight to operate. Table 1 sets out the main television providers in Australia.

Table 1 – Main Television Providers in Australia – November 2015

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Change is Constant

Over the past two decades there has been the complete switch off of analogue television and the transition to digital terrestrial television for the free to air broadcasters. The transition took over a decade from 2001 up to the end of 2013. The transition was initiated and managed by the government so as to have the least amount of disruption to the existing business models of terrestrial broadcasters. This transition brought with it the introduction of free to air multi-channelling, and the launch of the Freeview brand in 2008, as the main incentive to convince Australian consumers to invest in the digital transition. The commercial and national broadcasters now provide at least two and, in some cases, three additional free television channels, all available on the same terrestrial platform. The result is that there is more free television available than ever before.

Television you pay for has been with us since the introduction of the VCR around 1980, but subscription television broadcasting commenced in Australia in 1995, utilising a mix of satellite, microwave and cable as delivery platforms; and with a number of competing providers, including Foxtel, Austar and Optus. Since that time competition has been rationalised so that today Foxtel is the sole provider of subscription television. The penetration of subscription television has been stuck around 30% for some years, but PwC predicts it will continue to rise (to around 37% by 2019).3

Catch up television started in 2008 when the ABC started its iView service, which is delivered over the internet and can be watched on a television set, a tablet or any mobile device. The other free to air broadcasters all now provide some form of catch up service free to viewers.

More recently there has been the introduction of Subscription Video on Demand (SVOD) services, of which more below.

Commercial Television

The Seven Network ended the ratings year at number one for the ninth year in a row. The Nine Network won in the key advertising demographic of 18–49 year olds. TEN also saw its ratings increase after some bad years. However, despite this good news for the commercial sector, the number of people watching the three commercial networks in prime time (6–12pm) declined by 11.2% over the year.4 The results are set out in Table 2 below.

Table 2 – Prime Time Ratings (6pm–12midnight) – Live and Catch Up, Including All Channels5

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The reasons for this decline are not simple. For those that believe in the impact of digital disruption the cause is seen as the new SVOD services, like Netflix, that are presenting consumers with more choice. Peter Ryan of Carat media said of the audience: “They are now finding bespoke media content for themselves and not just accepting what is on TV. They are chasing their own content to suit their own needs and their own interests”.6 On the other hand the networks made mistakes with programming during the year, such as putting programs of similar genres up against each other in the same timeslots e.g. Reno Rumble against House Rules. It certainly is the case that that innovation in programming was not a strong suit in 2015 and some formats have been around for some time. All the prime time reality formats, except for MasterChef and The Bachelor, lost audience share during the year.7

In terms of what was most watched in 2015, as in other years, sport and reality style programming dominate the list shown in Table 3. This indicates the extent to which commercial television differentiates itself through live programming that cannot be sourced through any other platform. The strength of free to air television will continue to be the provision of live events which are mostly sport.

Table 3 – Top 10 Single Programs8

Top 10 Single Programs: All people five, capitals, live and catch up
AFL Grand Final
State of Origin Rugby League – second match
Rugby League Grand Final
ICC Cricket World Cup – Final Session
State of Origin Rugby League– Match 1
State of Origin Rugby League– Match 3
AFL Grand Final – Presentations
MasterChef – Winner Announced
My Kitchen Rules - Winner Announced
My Kitchen Rules – Final

The importance of live sport for commercial television was dramatically illustrated in August when the AFL signed a new deal with existing broadcasters Seven, Foxtel and Telstra for the period 2017 to 2022 worth $2.5 billion. Previously the partners had been paying $250 million a year for these rights, but in future will be paying $418 million.9 It was not revealed how much of that will be paid for by Seven, but they face escalating costs in a future where revenue will not be growing.

PwC in their annual Australian Entertainment and Media Outlook predict that in the five years to 2019 the advertising revenue for commercial television will stagnate, with little or no growth. In 2014 commercial television advertising revenue was worth $3.8 billion. In comparison internet advertising revenue amounted to $4.4 billion in 2014 and is predicted by PwC to grow to $8.2 billion by 2019. Put another way, the prospect for commercial television is that over the next five years the total advertising market in Australia will grow healthily, but the share attributed to commercial television will decline.10

Measurement has been a problem as new devices and platforms spring up for watching television. Audience measurement is crucial to the business of advertiser supported television since it is on the basis of reported viewers that advertising time is sold. Oztam, the company owned by the broadcasters, which undertakes the ratings research, has at the time of writing been working on a new measurement service that will track viewing across all the platforms and which it hopes to launch in late 2015 or early 2016.

Ownership Rule Changes

The biggest change to the ownership of Australian media occurred in the late 80s as a result of changes to media ownership law in 1986 which prevented cross media ownership and abolished the two station rule in favour of the audience reach rule. At the same time the policy of equalisation through aggregation of regional licence areas meant that the majority of the population had access to three commercial television services. The immediate impact was that the power of the Sydney and Melbourne stations was reinforced as they became the centre of national networks and gained power over regional television programming and access to some of their revenue streams. Aggregation was initially an economic disaster for regional television, which took at least five years to adjust and required the government to grant rebates on licence fees to assist with the transition.

By the end of 2015 the Government had all but decided that the ownership laws needed to be changed because they were outdated. The four regional television broadcasters – Prime, WIN, Southern Cross and Imparja – had put the case that they no longer made sense when there was so much competition from internet delivered services, including, most importantly, the catch up services of free-to-air competitors, perhaps the biggest threats to the advertising revenue and financial base of these regional broadcasters. They argued that the ownership laws restricted them from growing and achieving economies of scale, so that with rising cost pressures their ability to provide local programming would likely be affected. They launched a public campaign, fronted by ex-Deputy Prime Minister Tim Fischer, called Save our Voices, which highlighted the threat to regional news and current affairs. Legislative change will likely happen in 2016 and result in a round of mergers and acquisitions.

The National Broadcasters

The ABC and the SBS of course provide both television and radio services. The SBS operates one national radio network and the ABC six. Both operate four television channels and a catch up service. In addition the SBS is a partner in two subscription television channels. While the ABC broadcasts in only English the SBS provides programming in 74 languages. The ABC has 12 international news bureaux and is also in the retail business with ABC Shops around the country. Table 4 provides a snapshot comparison of the relative size of the two national broadcasters.

The ABC has also developed an extensive online presence and has been a pioneer amongst all broadcasters in utilising online as a means of extending its national presence and increasing access to its programming. The success of this strategy has caused some concern to commercial rivals, who see the ABC as a competitor.

Table 4 – Comparison Between the ABC and SBS11

ABC SBS
Cost of Services $1215m $377.5m
Own Revenue $175.5m $103.9m
Government Funding $1244.6m $351.7m
Staff 4,580 1084
Australian content TV 64% 39%
Average weekly TV reach 14 million people 7 million people

Cuts to the ABC budget

Going into the 2013 election the Abbott government promised that there would be no cuts to the ABC or to the SBS if they were elected. However, following the election then Minister for Communications, Malcolm Turnbull, announced that his department, with the assistance of Peter Lewis, ex-CFO of Seven West Media, would undertake an efficiency review of both national broadcasters. The review was completed before the 2014 Budget, but not released until later in the year.

In that budget the announcement was made that the ABC and SBS would get an immediate budget cut of 1% as a “down payment” on further cuts to be identified in the efficiency review. At the time it was reported that Minister Turnbull had resisted larger cuts, including the imposition of an efficiency dividend of the kind that applies to other government agencies.12

The Government also cancelled the contract the ABC had with the Department of Foreign Affairs and Trade to deliver the Australia Network, the Asia-Pacific television service, which was worth $220 million over ten years to the ABC. This cancellation was not unexpected, as the Government had been highly critical in opposition of the way the Gillard government had handled the awarding of the contract to the ABC over private interests bidding for it.

When the efficiency review was released in November 2014 it identified the following areas where efficiencies could be achieved:

Greater operational co-operation between the ABC and SBS

Use of new technologies

Better integration of the national broadcasters with the wider broadcasting and production sectors

Earning additional revenue

Better resource allocation

In November 2014 Minister Turnbull announced the outcome of the review would be a cut to the ABC budget of $254 million over five years, or 4.6% of the total budget. The SBS would receive a cut of $25.2 million or 1.7% over the same period.

In making the announcement of the cuts Minister Turnbull warned the ABC:

There is a temptation for management to blame the Government for some of these program changes. That would be cowardly. The ABC management know that they can meet these savings without reducing the resources available to programming – furthermore they know that the Government and their board know too.13

The response of the ABC was announced by ABC Managing Director Mark Scott and included closing the Adelaide television production studio and winding back remaining production activities in the smaller states, closing five regional radio posts, ceasing state-based local sports coverage and rationalising the use of television outside broadcast vans. Four hundred staff, or 10% of the workforce, would be made redundant. Programming changes in television included moving to a national end of week version of The 7.30 Report and shifting Lateline to News 24 from 2016.

In a move probably unrelated to the Budget cuts in July 2015 the ABC announced that there would be a phased closure of its ABC retail shops as the corporation moved to an entirely online retail strategy.

SBS Advertising

SBS Television is allowed to broadcast 120 minutes of advertising in a day and no more than 5 minutes in any one hour. In comparison commercial television broadcasters may screen over 300 minutes of advertising and non-program matter in a day and up to 13 minutes an hour in prime time. To offset some of the cuts the Government had planned to raise $28 million in additional revenue for SBS by increasing the limit on advertising to 10 minutes in the hour. This required a legislative amendment to the SBS Act, but in June 2015 the ALP and the Greens combined in the Senate to defeat the legislation. The SBS said at the time that it had exhausted all efficiency measures and that “… this funding cut is unable to be absorbed without impacting programs and services”.14 Free TV, the association representing commercial television, saw the defeat as a positive move for their sector.

The Q&A Incident

The editorial independence of the ABC came under serious scrutiny in June 2015 and faced heated criticism from elements of the Abbott Government. Zaky Mallah, who had been tried and acquitted of terrorism charges in 2005, was part of the audience for Q&A and participated in an exchange with the Parliamentary Secretary to the Foreign Affairs Minister, Steven Ciobo. Parts of Mallah’s remarks were interpreted as being an incitement to join ISIS. Prime Minister Abbott reacted angrily to the incident, asking the ABC “whose side are you on?”

ABC Managing Director, Mark Scott, responded: “At times, free speech principles mean giving platforms to those with whom we fundamentally disagree …”15 However, the ABC did apologise for the incident and transfer the program from the current affairs division to the news division. Late in 2015 an independent survey of the program chaired by former Managing Director of SBS Shaun Brown and journalist Ray Martin reported no evidence of left bias.

Subscription Television

Foxtel

Foxtel continues to be a joint venture between Telstra Corporation and 20th Century Fox, a News Ltd company. It is delivered by cable and satellite, has been completely digital since 2007 and has the potential to reach about 70% of television households. The platform carries nearly 300 channels; including HD versions of channels, time delayed movies and the rebroadcast of free to air channels. Subscribers are offered channels in bundles, access to a personal video recorder (Foxtel IQ ), on demand movies and television, pay per view events and an SVOD service, Presto. Some of the channels are owned and operated by Foxtel, but most are packaged for the platform by other providers.

In early 2015 Foxtel rolled out its new ‘triple play’ bundle, in which it offers internet, phone and subscription television in one bundle. Shortly after, it dropped its entry level price to $25 a month; by adding sport, which is the service’s most watched product, the cost rises to $50 a month. In early December 2015 Foxtel reported that it had recorded an 8.6% increase in subscribers for the year, to around 2,850,000 subscribers, but this included an unspecified number of subscribers to Presto. Revenue also increased for the 2015 financial year by just under 2%, to $3.15 billion.16

The increase in subscribers will likely make advertising a more important part of the revenue mix for Foxtel. Multi-Channel Network, which is a joint venture between Foxtel and Fox Sports, has since 2014 offered advertisers access to consumers based on their actual purchasing behavior rather than standard demographics. However, the biggest inhibitors to subscriber growth are the lack of exclusive access to live sport and the high cost of the service, compared to subscription television in the USA and UK. The profitability of Foxtel is actually built on the willingness of many subscribers to pay as much as $100 a month for the service.

In June 2015 Foxtel announced that it was acquiring 15% of the shares in Ten Network Holdings, owner of the TEN Network, worth about $77 million. At the same time Ten Network Holdings acquired a 25% share of Multi-Channel Network, which took over all advertising sales for TEN.

SVOD

The SVOD providers in Australia as of November 2015 are Apple TV, T-Box (Telstra), Fetch TV, Presto, Stan, Quickflix and Netflix. A study by research company Edentify showed an increase in the number of Australians watching IPTV. For the purposes of the study IPTV includes the broadcast networks catch up services, SVOD and free services like YouTube. Published in November it showed that 48% of Australians had watched television programming or film online in the previous month and that the audience is growing, with the figure being higher, at 59%, for people under 50.17 The most popular services were YouTube and the catch up services, but there was also strong growth for Netflix.

Much has been made of the disruptive impact of these new services on broadcast television and its traditional business model.18 But the business that has really been disrupted by SVOD is retail sales of DVDs and the DVD rental market. These markets have declined from revenue of $1.6 billion in 2010 to just on $1 billion, with the rental market being particularly hard hit. PwC predicts continuing shrinkage of revenues through to 2019.

ABC Managing Director Mark Scott was among those who suggested SVOD services be required to spend a certain amount of their revenue on local content. There is presently no Australian content regulation for these kinds of services, as there is for commercial and subscription television. Subscription television has been required to spend a percentage of their program expenditure on drama channels on new Australian drama.

Assuming there was the political will to achieve such an outcome the Australian Government ceded some of its flexibility to act in relation to these kinds of services when it entered into the Australia US Free Trade Agreement over a decade ago. Whereas the US was perfectly amenable to grandfathering existing content regulation on commercial and subscription television, as long as it was never increased, they were not happy about assuming future services would be subject to similar regulation.

The Agreement states that if the Australian Government finds that Australian content on such channels is ‘not readily available to Australian consumers’ it can act to ensure that ‘access to such programming on interactive audio and/or video services is not unreasonably denied to Australian consumers’. Such regulation must not be burdensome, more trade restrictive than is necessary or applied to a business operating outside of Australia. Consultation with affected parties, which would include the service providers and most likely also the US government, would also be required.

Television Production

The Australian independent screen production sector relies heavily upon television for the viability of the sector. At the 2015 Screen Producers Conference in November, veteran producer John Edwards (Love Child, Love My Way, The Secret Life of Us) delivered the Hector Crawford memorial lecture, in which he lamented the state of Australian television drama production. He saw it as characterised by fewer series, the same writers and directors, increased costs with no increase in quality, and declining audiences: “All the openness and excitement and bringing through of new talent, of new work, has certainly dissipated, and the area that has historically been the largest and most productive sector (long form series drama) of the broadcast industry has all but disappeared”.19

As Table 5 indicates Australian television drama expenditure decreased in 2014–15 by 13% while the number of hours broadcast decreased by 14%. In the ten years to 2014–15 the number of hours of drama broadcast has decreased by 17%, while the total spending increased by 32%. As Edwards indicated that is more money being spent for fewer hours of drama, which is of increasing concern to the production sector.

Table 5 – Australian Television Drama Production20

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However, if this poses an issue for the creative and financial viability of the independent production sector, it is not being reflected in what people watch. In 2015 the most popular drama programs on television were telemovies, miniseries or short run series, as indicated by Table 6. For the most part they were Australian, with very few foreign dramas attracting large audiences.

Table 6 – Top 10 Drama Programs21

Top 10 Drama Programs
All people, five capitals, live and catch up
House of Hancock
Peter Allen: Not the Boy Next Door
Gallipoli – Launch
800 Words
The Doctor Blake Mysteries
The Big Bang Theory (US)
New Tricks (UK)
Love Child
Winter
Foyle’s War (UK)

Thirty years ago Australia launched the first of its domestic communications satellites. It was the dawn of the current revolution in information and communications technologies, but the best use that could be found for the satellite was basic telephony and broadcast television. The result was the facilitation of national networking, which truly bound Australia in both space and time and handed to the television networks significantly increased control over content production.

That power is being undermined by the rise of the internet as a service platform and as a new means of distributing and creating content. As argued above, this does not mean the death of broadcast television. In Australia the audiovisual production sector is still very dependent upon broadcast television, but that will have to change. The biggest challenge facing the production sector is how to absorb the internet into production and business strategies. This is more than having a strategy for a web presence; it means understanding how the web can extend both productivity and revenue. The YouTube generation are the future consumers of audiovisual.

 

1Mark Scott, ‘The Future of the Australian Story’, Inaugural Brian Johns Lecture, Macquarie University, 15 September 2015, http://about.abc.net.au/speeches/the-future-of-the-australian-story/.

2Oztam, Regional TAM & Nielsen, 2015, Australian Multiscreen Report: Quarter 2 2015, www.oztam.com.au/documents/Other/Australian%20Multi%20Screen%20Report%20Q2%202015%20FINAL.pdf, p.7.

3Price Waterhouse Coopers, Australian Media and Entertainment Outlook 2015–19, Sydney, 2015.

4N. Christensen, ‘Were there any real winners in the last TV ratings year?’, Mumbrella, 2015, http://mumbrella.com.au/were-there-any-real-winners-in-the-last-tv-ratings-year-333035?utm_medium=email&utm_campaign=Mumbrella%20daily%20newsletter%20December%202%202015&utm_content=Mumbrella%20daily%20newsletter%20December%202%202015+CID_f4166dd417c36060141c11c0067e3491&utm_source=Campaign%20Monitor&utm_term=Continue%20Reading.

5Don Groves, ‘Strong year for Australian TV drama’, IF Magazine, http://if.com.au/2015/11/29/article/Strong-year-for-Australian-TV-drama/KPYSCKFBJZ.html 30/11/2015 and Seven West Media http://www.sevenwestmedia.com.au/docs/default-source/business-unit-news/2015-survey-release.pdf?sfvrsn=4, 30 November 2015.

6Christensen, op cit.

7P. Kalina, 2015, ‘Networks can all cheer in TV ratings war’, Sun-Herald, 29 November, p.30.

8P. Kalina, ‘SBS and Ten are the winners in a sea of red ink’, The Guide, Sydney Morning Herald, 7 December 2015, p.5.

9Australian Football League, ‘AFL signs new six-year, $2.5 billion broadcast rights deal’, 18 August 2015, www.afl.com.au/news/2015-08-18/afl-on-the-verge-of-signing-new-tv-deal.

10PwC, op cit.

11Department of Communications, 2014, ABC and SBS Efficiency Study, Draft Report, www.communications.gov.au/sites/g/files/net301/f/ABC_and_SBS_efficiency_report_Redacted.pdf.

12L. Metherill, ‘Budget 2014: ABC, SBS funding cut, Australia Network contract cancelled’, ABC Online, www.abc.net.au/news/2014-05-13/budget-2014-abc,-sbs-funding-cut,-ausnet-contract-cancelled/5450932.

13ABC Online, ‘ABC funding to be cut by $254 million over five years, Communications Minister Malcolm Turnbull says’, www.abc.net.au/news/2014-11-19/abc-funding-cuts-announced-by-malcolm-turnbull/5902774, 20 November 2014.

14Mumbrella, ‘Senate defeats proposed legislation to allow SBS to double advertising in prime time’, http://mumbrella.com.au/senate-defeats-proposed-legislation-to-allow-sbs-to-double-advertising-in-prime-time-301676, 24 June 2015.

15Matthew Knott, ‘Q&A: Mark Scott fires back at Tony Abbott, saying ABC is not “a state broadcaster”’, Sydney Morning Herald, 26 June2015, www.smh.com.au/federal-politics/political-news/qa-mark-scott-fires-back-at-tony-abbott-saying-abc-is-not-a-state-broadcaster-20150625-ghxr9g.html#ixzz3tbkS1zXN.

16Mumbrella, ‘Foxtel admits subscriber figures include Presto users but claims cable still biggest growth driver’, 8 December 2015, http://mumbrella.com.au/foxtel-admits-subscriber-figures-include-presto-users-but-claims-cable-still-biggest-growth-driver-311968.

17‘More Aussies watching IPTV’, B&T, http://www.bandt.com.au/media/aussies-watching-iptv.

18See for example Michael Mullins, ‘Netflix and Fairfax in an uncaring new media environment’, Eureka Street, Vol. 25, No. 6, 2015, pp.36–37.

19D. Groves, ‘Edwards laments lack of new drama and talent’, If Magazine, http://if.com.au/2015/11/17/article/Edwards-laments-lack-of-new-dramas-and-talent/SLHLABONBA.html.

20Screen Australia, Drama report: Production of feature films and TV drama in Australia 2014–15.

21P. Kalina, ‘SBS and Ten are the winners in a sea of red ink’, The Guide, Sydney Morning Herald, 7 December 2015, p.5.

Small Screens

   by Michelle Arrow, Jeannine Baker and Clare Monagle