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Changing the channel: Legislation changes could consolidate the FTA television industry

Free-to-air (FTA) television broadcasters have faced strong competition from online streaming and pay TV over the past five years. Consumers now have more choice than ever, which has split advertising revenue among more content providers. This trend has reduced the cost of advertising, negatively affecting the bottom line of FTA TV providers over the period. For example, Ten Network has come under recent financial difficulty, with a writedown of its television licence causing the firm to post a substantial loss in its half-year financial statements. Nine Entertainment and Seven West Media have also posted losses in recent years, having been hurt by the declining prominence of FTA TV. The cost of acquiring prime content, such as live sport, has skyrocketed over the past five years. This is due to live sport being one of the only shows left on FTA TV that is likely to generate high ratings. Dramas and sitcoms, once the staples of FTA TV, can now be easily viewed on-demand.

The Federal Government’s proposed changes to some of the media ownership laws could have a strong effect on media diversity and structure in Australia. If passed, the Broadcasting Legislation Amendment (Media Reform) Bill 2016 would change media ownership laws that have been in place since the Broadcasting Services Act 1992 was introduced. These changes would allow traditional media to better combat rising competition from new-age providers such as Netflix. Consolidation among pay TV, FTA and newspapers will also allow firms to remove duplicate advertising selling costs, administration expenses and other fixed costs, thereby improving profitability. In 2016-17, FTA TV profitability is expected to account for 3.4% of industry revenue, while radio broadcasting profit is anticipated to account for 11.2%. Internet publishing and broadcasting profit, meanwhile, is expected to account for 37.5% of revenue in the current year.

Changes would also make legislation more relevant to the current landscape, as most laws were introduced before the internet. Currently, the 75% audience reach rule prevents firms from controlling a commercial television broadcasting licence that reaches more than 75% of the population. FTA TV licensing laws were introduced in the 1950s, and TV networks have been advocating for their removal for decades. Historically, FTA operators were required to pay 9% of advertising revenue to the ACMA in license fees. After progressively reducing the fees, they were removed entirely in the 2017-18 Federal Budget. If passed as legislation, this should help relieve future cost pressures on FTA operators.

The two out of three rule prevents a firm from owning or holding controlling interests in more than two companies that operate TV broadcasting, radio broadcasting or newspaper publishing in the same region. This rule is considered outdated, as it does not take into account pay-TV subscription services, SVOD services or other forms of online media. However, the removal of this legislation is controversial, as News Corp and Fairfax already dominate the media. Removing the rule would allow News Corp to enter the FTA TV market, reducing Australian media diversity.

For a printable PDF of this release, click here.

Related industries:

Free-to-Air Television Broadcasting

Radio Broadcasting

Internet Publishing and Broadcasting

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