An issue unlikely to feature heavily in the deliberations of the Convergence Review is the sheer scale of the benefits commercial television networks obtain from governments, which translate into hundreds of millions of dollars of taxpayer-sanctioned largesse to the bottom lines of broadcasters.

As part of a submission to the Convergence Review, the subscription TV industry’s peak body ASTRA commissioned Access Economics to estimate the level of government support for free-to-air broadcasters, including the ABC and SBS, and the economic contribution of the subscription television sector. The consultants concluded the commercial TV broadcasters received about $792 million in taxpayer support in 2010-11, and a total of $2.7 billion from now through to 2015.

Like all commissioned consultants’ reports, however, the Access study needs detailed scrutiny to determine how plausible it is.

The study identifies four areas of taxpayer support for the big metro and regional free-to-air commercial broadcasters. The first is funding associated with digital switchover, worth $104 million in 2010-11.

In the past, regional broadcasters received substantial direct funding assistance from the government for the establishment of digital terrestrial broadcasting services, but those programs have either ended or are coming to an end. Assistance is now mostly provided in the form of the new satellite blackspots assistance program or the digital set-top box program. Both are aimed at ensuring that specific communities — those in regional and remote blackspots, and pensioners — don’t lose TV services once analog broadcasting is switched off.

Whether this strictly counts as support for the broadcasters is debatable. The main beneficiaries are viewers, rather than broadcasters, who most likely wouldn’t bother to service small regional communities without taxpayer support. Taxpayer support, of course, is readily forthcoming, given it’s an established principle of the communications policies of successive governments that no one shall live in televisual poverty.

The second area is access to spectrum, and in particular the additional spectrum the broadcasters received, in one of the greatest public policy rorts in Australian history, from the Howard government in the late 1990s, for broadcasting HD digital services. The spectrum could have been provided for new entrants, but instead was gifted to broadcasters for the provision of a format viewers had minimal interest in, after a deal brokered by Kerry Packer.

This trick worked so well once that the free-to-airs are trying it again — they’ve have already said that they want to hang on to that spectrum after analog switchoff so they can broadcast other “innovative” services such as 3D.

Valuing spectrum is a complex exercise, and the Access consultants agonise over which methodology to use. They eventually settle on a valuation based on overseas and domestic spectrum auction results, then use an ACCC model to determine an annual value of access to spectrum, determining the commercial broadcasters receive a benefit of about $505 million per annum, dropping to $235 million per annum once the broadcasters lose their additional spectrum after switchover.

But against this must be netted the cost to the broadcasters of television licence and apparatus fees. That was $231 million in 2010-11. That includes the licence fee rebate that, in an extraordinary election-year handout, was gifted to the free-to-airs by the government last year.

Then there’s the ongoing prohibition — no longer legislative, merely a ministerial discretion — against a fourth network. The value of a fourth network would now be significantly lower than a decade ago, courtesy of the proliferation of competing media, and the incumbent channels’ ability to multichannel — something against which they’ve fought ferociously since the late 1990s. Access adopts an extraordinarily conservative line, and doesn’t have a go at estimating the value of a fourth network or the benefits to the incumbents of the prohibition, declaring “it is difficult to put a quantitative value on the benefits of not having a fourth network”.

Given the networks still want to cling grimly to their additional spectrum, however, it is clear that they place a considerable value on not having a new entrant in the market.

The final area is the anti-siphoning scheme, the anti-competitive mechanism that enables the free-to-airs to pay sports rights holders considerably less than the value of the rights they own because of the prohibition on subscription television broadcasters carrying events — in effect a massive, direct and possibly unconstitutional shift of revenue from sports rights holders and subscription TV to free-to-air broadcasters.

Again, Access takes an extraordinarily conservative approach, and doesn’t value the benefit of the anti-siphoning scheme, but only the benefit derived by free-to-air broadcasters compared to a “use it or lose it” scheme, which Access costed in 2008. They conclude the free-to-airs get a benefit of $415 million a year from that. The total value of the anti-siphoning scheme, therefore, must be considerably greater.

Access’s final figure of $790 million, thus, looks very conservative. I’d remove the $104 million costs associated with digital switchover, reducing it to $690 million. But the benefit of protection against a fourth network must be hundreds of millions of dollars. In 2010-11, the commercial networks earned just short of $4 billion in revenue. A new entrant earning even 10% market share would represent a $400 million pa cost to the networks. And the benefit of full removal of the iniquitous anti-siphoning rort would be well north of $415 million. In contrast to the benefits of keeping a fourth network out, those benefits will only increase with the extension of the scheme to online by Stephen Conroy late last year.

The total benefit the free-to-airs get from governments must be well over $1 billion a year currently.

And that, of course is in addition to the approximately $1.3 billion in direct funding or spectrum access provided for the national broadcasters, who also benefit from the anti-siphoning scheme and, in SBS’s case, the prohibition on a new entrant.

In their defence, the networks insist they spend a huge amount on local content. In its submission to the Convergence Review, the commercial broadcasting cartel’s lobby group Free TV repeatedly — indeed, almost obsessively — repeats the claim that it invests $1.23 billion in Australian content in 2010-11. But only a fraction of this is the consequence of regulation. The bulk of Australian content on free-to-air television is programming broadcasters would run anyway, because of its popularity — particularly sports programming and light entertainment. The $1.23 billion figure is touted as a form of public service by the networks — “Free TV’s contribution to Australian content ($1.23 billion) was 4.5 times that of all state, territory and commonwealth film agencies’ investment combined”, the submission boasts — but in the event broadcasters get to the enjoy the “regulatory parity” with other media they now demand, they’d be showing very similar programming, because it makes money.

The simple fact is the commercial broadcasting industry benefits from industry protectionism bigger even than that handed out to the automotive industry. Unlike manufacturing industry protection, however, the assistance provided to the networks receives minimal scrutiny and little public debate or review. if the broadcasters want regulatory parity and a “level playing field” as the Free TV submissions suggests, a great place to start would be the $1 billion-plus worth of assistance they’re getting every year.

Peter Fray

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