Today’s gathering of 25 media executives in Canberra, designed to lobby politicians to approve the removal of most of the remaining media ownership restrictions and yet another cut to their licence fees, is everything that’s wrong with not merely the media industry but Australian big business.
Australia’s domestic economy is only 24 million people strong; it is prone to oligopoly, cartels and rent-seeking by business. And the gathering in Canberra is a perfect embodiment of the Australian business mentality of heading to Canberra and asking for a handout. Rather than innovating in the face of a secular change in their industry and the challenge of new technology, media execs think their problems will be fixed with a change to the rules and a cut to their taxes, giving them a windfall and freeing them up to pursue consolidation and restructuring — despite history showing that every round of mergers following a change to the media ownership rules has led to huge shareholder losses.
None of the attendees or major companies represented tonight can pose as successful businesses. Seven West Media, 45% owned by Kerry Stokes, started as a $4.1 billion business in 2011 after he merged Seven Network into West Australian Newspapers. It is now worth just $1.03 billion. The Ten Network has chewed through more than a $1 billion in capital and assets and is now worth just $68 million. Fairfax Media took over Rural Press in 2006 for $2.3 billion, plus bought hundreds of millions in other assets. Two possible takeover bids have boosted the value of the company to $2.9 billion, most of that down to the perceived value of the company’s Domain property website. The value of News Corp Australia has been cut by around US$1.5 billion since 2013, and Foxtel’s value has been cut by around A$310 million, with up to US$500 million at risk in Fox News Australia.
Tonight’s shindig is reminiscent of a similar gathering by the free-to-air networks in 2000 to pressure the Howard government and the Senate crossbench into anti-competitive and highly restrictive rules for digital television, which gave the free-to-air cartel vast amounts of spectrum with zero additional benefits for consumers. That do was hosted by Nine’s Ray Martin; this one by Seven personality (and chairman of the Port Adelaide AFL club) David Koch. The regulatory framework might have changed but the goal is the same — Australia’s major media companies demanding gifts from government while consumers get ignored and diversity is lucky to even get lip service.
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Tonight’s merry gathering of rent-seekers will doubtless complain, as they regularly do, about the impact of Google and Facebook, and the loss of revenue caused by file-sharing — never admitting their own culpability via their cavalier treatment of consumers, whom they thought were in effect a captive market and would never be able to switch off or stop buying the product. For decades the Australian media was shaped by a coterie of moguls — mainly the free-to-air TV owners — doing deals with each other and with governments of the day to preserve their oligopoly and stave off innovation. Pay TV was kept out. Digital multi-channelling was banned (instead we got the farce of “data-casting”). Sports rights holders were told they could only sell to the free-to-airs. And the internet has been fought every inch of the way — there was even a short-lived attempt by Richard Alston to deem streamed audio-visual content to be a broadcasting service, so it could be subjected to regulation and strangled.
Consumers responded by moving to the internet as soon as they could — and even that has been delayed by Malcolm Turnbull’s NBN debacle. More recently, the government (aided and abetted by Labor) has handed the networks an internet censorship scheme to stop file-sharing, and both sides have given the free-to-airs big cuts in their spectrum licence fees, costing hundreds of millions of dollars in revenue.
But here they are, back yet again, demanding yet more help.
In a sense, it’s not the fault of Australian business that they behave this way. As we’ve seen repeatedly in recent years — the private health insurance industry under Howard, Kevin Rudd’s emissions trading scheme, the mining tax, online retailing and until recently the big banks — Australian politicians on both sides can be poor at refusing pleas from powerful business interests, while small firms — not to mention the average taxpayer — miss out on the opportunity to negotiate the regulation and taxes they’ll be subject to. Television is more powerful than most — they are crucial to what gets reported during election campaigns, and they can deploy well-known “personalities” in their cause — but the same mindset occurs across other influential sectors, with innovation and agility devoted to ways to influence decision-makers.
The best example of the lack of innovation is the creation of Netflix — a US$70 billion steaming video giant with more than 100 million subscribers around the world. Rival media and most journalists see the company as it is now: a global innovator/threat/danger. But it started as a video rental company pioneering the use of the internet to rent DVDs. In 2007, it started streaming video, while retaining its DVD and Blu-ray rental service, It now makes more than US$10 billion a year and is worth US$20 billion or 40% more than 21st Century Fox, and nearly seven times more valuable than the Murdoch’s News Corp.
Why couldn’t Netflix have been created in Australia? Because for years we allowed the interests of Telstra to dominate our broadband policy (to the extent we even had one under the Howard government) and because the local media mindset is about blocking competition with help from governments, or buying out smaller competitors and destroying their value.
For decades, Australia’s media moguls had governments build them a powerful fortress against any possible threat. Now that fortress has become a prison. Other large business in Australia would be wise to take note. But they never will.