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Feb 7, 2014

ABC efficiency -- how well does it stack up against its rivals?

One of the ABC's problems may be that it is too efficient in competing with commercial broadcasters, some of which it outrates consistently, write Crikey commentators Glenn Dyer and Bernard Keane.

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If you are going to have an efficiency audit of the ABC, on what basis do you assess its efficiency? Communications Minister Malcolm Turnbull in his terms of reference hasn’t explained the basis for how former Seven CFO Peter Lewis, who is getting $75,000 for his efforts, will assess the national broadcaster.

There are a couple of methods you could use. One is to determine the cost of individual programs produced by the ABC — how much does Four Corners or AM cost, for example — and compare those numbers to similar commercial programs.

Three problems arise with that, firstly that the ABC’s internal bureaucracy might not know exactly how much all of its programs cost, because it hasn’t spent taxpayers’ money on systems that keep track of how much each program uses shared resources — that’s the kind of “back-office” cost that governments are always telling the ABC it should cut.

The second problem is finding what similar programs exist among commercial broadcasters. The ABC is rightly held to a higher standard on news and current affairs, given it is spending taxpayers’ money. As a result, it has far higher levels of trust than commercial television or radio. Four Corners is not comparable to 60 Minutes; 7.30 not comparable to Today Tonight, AM not comparable to Ray Hadley. You might try to compare Triple J to FM radio, but even then Triple J is required to promote Australian music in a way that commercial broadcasters aren’t.

Third, much of the ABC’s programming is content commercial broadcasters don’t do at all, like high-quality children’s programming (particularly, programs that aren’t vehicles for toy advertising) and regional radio. The commercial radio sector has abandoned regional communities over the last 20 years, cutting jobs, networking programming and dumping news bulletins. The ABC has picked up the slack — under former managing director Jonathan Shier it opened up several new ABC Local Radio studios in regional centres, so it now has well over 50 Local Radio services, all of which also provide emergency information services during times of natural disaster.

Alternatively, you could look at the overall size of the organisation and compare it to its commercial rivals.

In 2012-13, total ABC expenditure fell $12 million to $1.17 billion; revenue from the government was $1.023 billion (up from $997 million in 2012), and $158 million was received from commercial operations (down from $173 million the year before). Net cost of service was $1.009 billion, up from $1.006 billion in 2012.

The four listed companies with TV businesses in their portfolios — Seven West Media, Nine, Ten and Southern Cross — could be used as a comparison. In the year to June 30, 2013, Seven West Media’s total revenue was $1.882 billion, down 3.6% from the year before. Nine’s revenue in 2013 was $1.492 billion, up $100 million from the year before. Ten and Southern Cross Austereo are too small for meaningful comparison. But none of those have the range and complexity of the ABC’s operations, and neither do other, more diverse media companies.

Companies such as APN (with its print, outdoor advertising and 50% share of a major national radio business), Fairfax Media (with its websites and radio businesses, as well as print), or News Corp’s Australian business with pay TV (Foxtel and Fox Sports), newspapers, and magazines, do not provide the basis for meaningful comparison. The ABC provides four television channels, five national radio networks on analog, more channels on digital and a large number of radio channels online as well as Radio Australia. It has a massive online presence covering news, current affairs, entertainment, kids’ content and commentary, while the most popular TV replay centre in Australia is the ABC’s iView, which will be joined this year by a version for radio.

“If anything, the ABC is too efficient in the eyes of its competitors, given it manages to compete effectively with them on such a small budget.”

Still, some general comparisons can be made. Somehow the ABC’s main channel has managed to regularly out-rate the Lachlan Murdoch-chaired (and partly owned) Ten Network since August 2012. In that time Ten has wasted over $400 million in capital, two CEOs and dozens of staff and senior executives in trying to finds the right mix of programming, with ad revenues diminishing all the while. That is far more than the ABC has at its disposal to run its four TV channels. ABC News 24 reaches about 14% of metropolitan audiences a week, far ahead of the pay-TV service Sky News.

ABC Radio is estimated to have a 25% share of the national radio audience, which is far higher than its TV share. It also competes directly with Lachlan Murdoch’s DMG radio network, which cost him around $220 million to acquire, in each state capital; currently Nova FM only beats the ABC’s metropolitan local stations in Brisbane and Perth.

The ABC’s news websites were also ranked the fifth most popular in the country in the most recent Nielsen ratings, ahead of sites like those of The Age, The Daily Telegraph and The Australian, and they also had the strongest year-on-year growth in the top 10.

And finally, Nine, Ten, Seven West Media, Fairfax and News Corp have been forced to write down the value of their assets in recent years by more than $10 billion. Fairfax wasted billions on a Fairfax family shuffle in the Rural Press takeover. News Corp wasted $US3 billion on its Dow Jones takeover, and then more than $US4 billion in write-downs in the value of its Australian and UK papers. Ten has lost millions of dollars — as well as wiping out two capital raisings totalling more than $400 million. Seven West has written down the value of its assets in the same time by a couple of hundred million dollars, including the value of its magazines last year.

Some would argue that this is all private capital. But the capital and loan funds raised to buy these now cheaper assets all cost taxpayers revenue, in that the interest costs are tax deductible. And the losses from the write-downs and impairments, as well as trading losses, also cost taxpayer revenue from company tax. And some of the write-downs by TV networks have happened at the same time as the commercial TV industry had its licence fees permanently halved to 4.5% from 9% (the TV industry now wants them abolished completely), thanks of the generosity of the former Labor government. That’s a cost to taxpayers of more than $400 million so far since 2010-11.

If anything, the ABC is too efficient in the eyes of its competitors, given it manages to compete effectively with them on such a small budget.

The efficiency audit and the cost of employing Peter Lewis (was he found by a sympathetic senior executive in a commercial network?) could end up being the best non-investment the ABC has made. Indeed, it could well be the result of a sympathetic minister protecting the national broadcaster against the anti-ABC hordes in his party by announcing the audit without telling the rest of the government, especially as it will be led by a TV executive who knows more about the realities of cost allocation in TV than anyone else.

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