Screen Australia's report, Convergence 2011: Australian Content State of Play, examines the state of local content across the $6.3 billion free-to-air and subscription television sectors. It finds that Australian material is dwindling. "Audiences are fragmenting away from the main FTA channels to multi-channels that have no Australian content requirements and this has resulted in a significant decline in the diet of Australian content," Screen Australia’s Fiona Cameron said yesterday, when launching the report in Canberra. And the reason? Australian content is more expensive. Or, more accurately, foreign content remains very cheap. The report breaks down the indicative costs of local and overseas content for the broadcasters. It's broadly what you might expect: US budgets are higher, but their costs to local broadcasters are much lower. In raw figures, US production budgets for new release drama can be anything from $2 million up to $5 million an hour (sumptuous HBO's drama Mad Men, for instance, had a budget of $2.3 million an hour in 2008), but the license fees for Australian broadcasters are more like $100,000-400,000 an hour. In contrast, Australian drama costs from $400,000 to $1.8 million an hour, of which local broadcasters can expect to contribute between $350,000 to $1.4 million an hour in the form of licence fees, pre-sales, equity investments and the rest. All this we knew. America has long been able to dump cheap television on our screens for a fraction of the cost of its production, owing to the vast cross-subsidies and global markets that US content can attract. As a result, our television networks only screen Australian content because they have to. It's pretty much all due to the local content mandates enforced by regulation -- the so-called "Australian Content Standard". What's changed? Well, in the last three years the broadcasters have all introduced their new digital channels like One, Go, 7Mate, ABC2 and the rest. These digital channels don't have any local content requirements. None. Unsurprisingly, foreign content hours rose by by 154% between 2008 and 2011, while Australian programming increased by only 59% over the same period. The report says this is "a watering down of local content across free-to-air programming and a fall in share of viewers". Australian content across all the free-to-air networks has plunged from 52% to 38% in just three years. Well, duh. What did we expect? The "no requirement for Australian content" standard for the new digital channels presents the networks with a compelling business proposition: buy cheap overseas content, no questions asked. Given the financial incentives and the regulatory requirement  for Australian content on their main channels, it's a wonder they screen any Australian content on their subsidiary channels at all. Foxtel is not much better. It has a different set of regulations, which mandates a relatively weak 10% Australian drama expenditure requirement, but only for those pay-TV channels that broadcast drama channels, as classified by ACMA. Even better for Foxtel, sponsorships to film festivals like TropFest can also be counted towards the quota. Subscription television spent an anaemic $32 million on new Australian drama in 2009-10. Of course, if Foxtel is stingy, YouTube and the rest of the online environment is almost non-existent in terms of support for Australian screen production. In fact, Screen Australia freely admits that in terms of hard data, it doesn't really know. “There is no aggregated data available on financial contributions of content aggregators to the production of Australian online video content,” the report states. Understandably, but perhaps not particularly rigorously, the report therefore argues that "it is the traditional media sector, dominated by commercial television and feature films, who are the only significant investors in Australian stories at this time". New media proponents and low-budget producers working outside of the established production houses may of course beg to differ here. But it is a melancholy fact that whatever the audience share of online screen content, the amount of money trickling back to Australian talent is miniscule. So what's the answer? Given the well-documented special treatment meted out to the free-to-air sector by successive federal governments, including this one, it's foolish to think that stricter regulation is on Communications Minister Stephen Conroy's agenda. Nor could regulation do much about the internet, in any case. (Perhaps the ISP-level mandatory internet filters can be set up to block overseas content? Just kidding). Which pretty much leaves us with subsidy. As the ABC's Kim Dalton told Lateline last night: "The critical thing in Australia is to make sure that we have the systems in place, whether it's the broadcasting systems or the subsidy systems in place, to make sure that we're still able to tell our own stories." Leaving aside the hypocrisy of a call for more subsidy from an executive who has just killed off a number of local television shows, the fact that local producers want more taxpayers money should surprise no-one. In fact, there is a way through the convergence impasse: better targeting of the existing funding pool. Production subsidies should certainly form part of the mix, but given the limited dollars available, the way those subsidies are spent is critical. Screen Australia's current priorities -- especially in regards to multi-million dollar investments in feature films -- remain weighted towards the interests of the bigger local screen producers, rather than the broader interests of the screen sector as a whole. Perhaps it's time to start looking at supporting individual creative talents directly, so that emerging and mid-career screenwriters and directors can actually afford to pay the rent. Of course, one way to address the cost imbalance between local and foreign content is to make foreign content more expensive, for instance by imposing a tariff. Better yet, the proceeds from the tariff could be directed to Australian production at zero net cost to the taxpayer. Cultural tariffs, I hear you say? Expect that idea to attract exactly zero supporters.