While the government ponders how much further ABC’s and SBS’ programming budgets can be cut — a decision said to be imminent — Communications Minister Malcolm Turnbull has also been contemplating how competition and new, more efficient broadcasting technologies might be used to reduce the huge transmission costs the national broadcasters face. These include encouraging ABC and SBS to share spectrum after moving to the new, compressed MPEG4 standard. This could save the government millions of dollars a year, but the structure of the transmission market in Australia means any savings wouldn’t been seen for some time.
It’s a tradition for Coalition communications ministers to insist that the national broadcasters, and the ABC in particular, have plenty of room to cut costs without affecting program quality. Richard Alston used to talk vaguely about “back office” costs that could be slashed without cutting programming — and in particular, expensive, little-watched regional TV and radio programming, the cutting of which would send Nationals MPs into a blind rage.
For much of the Howard era, however, the government was actually increasing national broadcaster funding not for content, but for transmission, as digital television was rolled out first in metropolitan areas, then in regional areas, while analog broadcasts were continued. With the last analog switch-off in December 2013, TV is now digital-only, while radio is both analog and digital. But that still means that this year more than $190 million will go to the ABC and around $90 million to SBS to get their TV and radio content to Australians — the great bulk of it for digital TV.
But that money only pauses briefly with the broadcasters before flowing to Broadcast Australia, the transmission infrastructure company now owned by Canadian pension funds that provides transmission services for the ABC and SBS. Even though the contracts are negotiated by ABC and SBS, the government foots the bill. This creates the classic “agency dilemma”: the broadcasters negotiate with BA with little incentive to play hardball because savings will flow not to them, to fund extra content, but back to the Department of Finance. The perennial question in the industry is whether this has led the two broadcasters to pay inflated rates for transmission.
The government in October last year commissioned LEK consulting to examine how these costs could be reduced. In August, secretary of the Department of Communications, Drew Clarke, told Senate estimates that he wouldn’t comment on the review, but that it was now with the managing directors of ABC and SBS. Crikey understands that the LEK report makes clear BA has used its monopoly position to increase prices.
A long time ago, BA was the government-owned National Transmission Authority, before it was sold off by the Howard government. It was sold as a single entity, in order to maximise the sale price, but as a result BA was always in the box seat to win the tenders for the vast rollout of ABC and SBS digital TV services that began in metropolitan areas in 2001. The Howard government laboured hard to try to ensure BA was not taking advantage of its virtual monopoly status, but it was very difficult — no foreign players other than Crown Castle ever expressed interest in entering the market, and even when SBS broke up its digital rollouts into bite-sized chunks to try to encourage small players to tender for individual groups of regional services, it got nowhere. BA got the lot.
But it’s not clear there was ever an alternative — splitting up the original NTA into two or three entities and then flogging them might have created the appearance of competitive tension, but it’s likely they would have bought each other after the sale or, if blocked from merging, acted as a duopoly. And even if they competed, once one secured the first round of metro digital TV contracts, the other would have been at a potentially fatal competitive disadvantage.
So the task of reducing national broadcaster transmission costs has traditionally been hampered by BA’s strong market position. There is one other major transmission provider, TX Australia, owned by Seven, Nine and Ten, which provides transmission services for the metropolitan commercial broadcasters but never expressed interest in the digital roll-out. Now, however, industry sources have told Crikey that TXA is interested in ABC and SBS services and lobbying in Canberra for them, having hired Endeavour Consulting — which includes the respected former senior Nationals staffer Paul Chamberlin — to represent it. TXA’s interest would finally introduce some real competition for the digital TV contracts as they come up, with the end of the first 15-year metro contracts, which commenced back in 2001, now in sight.
BA’s other potential weakness is its need for certainty — it has always, especially when it was listed on the ASX and part-owned by Macquarie Bank, wanted to secure long-term contracts and obtain commitments to renew them. Turnbull has made a point of talking about distributing content via non-broadcast means, like online, most obviously, and mobile spectrum, and wants to shunt community TV off the air and online. Doing the same to the national broadcasters would in effect be a death sentence for them at this point, given the dominance free-to-air TV still commands in viewing habits, but the ABC is already delivering services such as boutique radio channels and its a la carte content service, iView, online, and the threat to move more services to online-only is potentially serious for a company that relies so heavily on contractual certainty for its revenue stream — thus potentially encouraging BA to cut prices.
And the MPEG-4 digital broadcasting standard offers another possibility for reducing broadcast costs, as it can enable significantly greater signal compression, allowing more channels to be broadcast in the same amount of spectrum and potentially using less transmission infrastructure. Turnbull made a point of flagging this in his speech a fortnight ago to the Australian Communications and Media Authority’s RadComms conference. “We are also keen to encourage commercial and national broadcasters to commence their transition to MPEG-4 only broadcasting, with the aim that every service would move to an MPEG-4 standard,” Turnbull told the conference, adding pointedly, “following a move to an MPEG-4 standard, in order to continue our drive to achieve maximum spectrum efficiency the government will encourage spectrum sharing between television broadcasters. We expect the national broadcasters to lead the way in this regard, with the commercials to follow.”
That is, whatever ABC and SBS might do content and management-wise, the government wants them to start sharing spectrum to provide the same number of services — which means sharing transmission infrastructure, and thus lower costs. The national broadcasters already share facilities and spectrum in their digital radio broadcasts — digital radio has had nothing like the success of digital TV, and there’s a good case for simply dumping it in favour of online distribution, but at the moment it’s a trivial cost, less than $6 million a year, for the national broadcasters.
With competition from TXA and a possible transition to lower-cost MPEG-4 driven infrastructure sharing, Turnbull has a chance of seriously reducing the cost of digital TV transmission — but it will take a long time, given most of SBS’ digital TV contracts in regional areas have years to run — the last one doesn’t finish until around 2026. And none of these measures will really help reduce the huge cost — over $70 million a year — of broadcasting the ABC’s full suite of radio networks across Australia, especially given the importance of ABC radio to so many communities.
Bernard Keane is a former Department of Communications officer from 2000-08 who inter alia handled national broadcaster transmission issues.
*Additional reporting by Myriam Robin