Amid all of the controversy surrounding cuts to the ABC, some have suggested allowing the ABC to take ads. An ABC free to accept advertising would decimate the free-to-air TV commercial sector, sending Ten into receivership and crippling Seven, Nine and even Foxtel, forcing them toward painful cost-cutting measures of their own.

The free-to-air TV industry and its supporters in business have already pilloried the Abbott government and Communications Minister Malcolm Turnbull for allowing SBS to average out their ad slots to allow more advertising in prime time. An ABC able to take advertising would be far more dangerous to commercial TV operators. Quite simply, Senator Cory Bernardi, commentators Andrew Bolt and Gerard Henderson and the trogs of the Institute of Public Affairs have no idea of the damage to be caused by allowing the ABC to accept advertising. It would be a disaster for the commercial TV sector — both free-to-air and subscription — and would cause widespread cost cuts and job losses within the networks, at the independent production companies and among the fleet of independent contractors now working in the sector.

If ABC radio were allowed to take ads, a similar impact would hit the commercial radio sector, with the impact felt especially hard by morning talkback radio in Sydney, Melbourne and Brisbane, and in regional markets, where companies such as APN and Fairfax Media and their local papers would feel the heat.

One person well-qualified to gauge the potential impact is Sydney media consultant and analyst Steve Allen. He told Crikey last week that in the extremely unlikely event the ABC were privatised, it would be a “disaster for the sector”. Allen said: “Approximately 85% to 90% of TV ad dollars occur in various demographics somewhere in the 16-54 age group. Of this, the ABC group in peak night occupies half of the share of Ten Group.

“Even with unique programming premium, ABC could not remotely write in the advertising revenue what Ten writes, which is about $600 million annually,” he said. “[But] the ABC’s entry would lower advertising unit costs and yield, flooding the market with too much inventory for demand, turning it significantly further than now into a buyer’s market.”

The ABC’s audience is often older, and advertisers are not, by and large, interested in those over 55. But the ABC has some strengths demographically the other networks do not. Its children’s programming, for example, is very popular, and Allen thinks it could be “very valuable” given commercial television networks have largely abandoned much of their children’s content (apart from that which they are regulated to provide).

All up — adding potential revenues in radio, television and digital — Allen believes the ABC could write around $300-$400 million a year in advertising. With fairly flat growth in ad land, it’s unlikely the market would expand to accommodate this. Instead it would cause advertising rates to tumble. Of this figure, Allen estimates the revenue from advertising in children’s programming (always a sensitive issue) has the potential to raise 10%-15% of the total.

The commercial TV market is where the impact would be hardest felt. At the moment ad revenues are running slightly down on a year ago, so the free-to-air TV industry industry is looking at reporting total revenues of around $3.9 billion in the year to next June 30, instead of close to, or just over, $4 billion. In other words, by June 30 next year the free-to-air industry’s revenue could be unchanged from 2013-14’s figure of almost $3.9 billion, or a bit less. Foxtel (pay TV) has around $650 million a year in ad revenues across its more than 200 channels.

Without considering an ABC with ads, this is very painful for the sector, but especially the Ten Network, which is going to struggle to get a lift in ad revenues if the sector as a whole isn’t growing, or is going backwards. That’s why a takeover for Ten is imperative — it has to find an exit. The slowly tightening noose of the $200 million revolving credit from the Commonwealth Bank (with its interest bill capitalised and rising by the month) will eventually strangle Ten and force it either into receivership, or the three guaranteeing shareholders will need to find more than $300 million to pay it out and take control of Ten as a result. A year ago the CBA loan looked a clever way of getting new money, because shareholders had been used and abused several times in the previous three years. A year later, Ten’s position hasn’t improved and TV sector ad revenues have stalled, and there’s no way it can find the money to repay it, even three years away.

Allowing the ABC to broadcast advertising, even in a truncated form would seriously damage all TV broadcasters, whether they are free or subscription. Not only would the ABC take revenue from the existing players in the market, but it would also force down the money the four networks, plus SBS and pay TV, receive as advertisers used the oversupply of advertising slots (referred to by Steve Allen) to drive down the cost of those slots. Ad rates would settle at lower levels for the entire sector.

It’s amazing all the right-wing ideologues in the Abbott government and all those think tanks don’t get this simple point of how a market works. Is that why some want to shut the ABC completely?

Peter Fray

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