Australia: Is David Gordon right? Are the media control rules in Australia redundant?

The rhetoric on reform of Australia's media ownership restrictions (Control Rules)¹ is hotting up, with David Gordon, the Chairman of Ten Network Holdings calling for their wholesale removal and the Communications Minister, Mitch Fifield, referring to them as "horse-and-buggy legislation in the 21st century".

The last twelve months in particular have seen significant changes to the structure of the industry with subscription video on demand (SVOD) services such as Netflix and Stan flourishing and both Seven and Nine announcing they will start live streaming their content online.

Amidst all this change, the silence of the Control Rules on internet-based services and subscription television is becoming deafening.

Cabinet is expected to discuss a proposal for reform of the Control Rules as early as next week.

The "reach rule", which prevents a person controlling television licences covering more than 75% of Australia's population seems certain to go and rightly so. It will be rendered almost completely redundant by Seven and Nine's move to achieve de facto national reach via their internet-based offerings.

But what of the remaining media Control Rules? Is David Gordon right to suggest they are no longer needed?

The historical rationale for media ownership restrictions has been to maintain diversity of control over the most influential media platforms² – television, radio and newspapers. However, the explosion in the variety of digital content delivery platforms has fragmented media markets and reduced the influence of traditional media.

The previous Labor government's Convergence review proposed extending regulation to internet-based platforms as a way to ensure the media Control Rules better reflect the current structure of the industry. However, is more regulation the right way forward?

In addition to the reach rule, the Control Rules prohibit:

• controlling more than one commercial television licence or more than two commercial radio licences in the same licence area;
• transactions that result in there being less than five independent "voices" (television, radio and newspaper) in a metropolitan licence area or four independent "voices" in a regional area; and
• controlling a commercial television licence, a commercial radio licence and an associated newspaper in the same licence area.

These rules aim to ensure there is a variety of independent "voices" in each licence area and that no single person or enterprise controls too many of those voices. However, the Control Rules look at each licence area in isolation, ignore media with national reach and, as a result, no longer reflect the many, diverse ways content is consumed.

The declining influence of traditional media is matched by the astonishing rise of SVOD and other digital services. Optus' willingness to spend more than $50 million on exclusive Australian broadcast rights to the English Premier League is emblematic of the structural change happening.

The question for government now is: do the current media control rules offer any better guarantee of media diversity than the general prohibition under section 50 of the Competition and Consumer Act (CCA) against acquisitions that would result in a substantial lessening of competition (SLC) in a market? The answer could well be "no".

While the CCA does not address the question of media diversity specifically, protecting competition in media markets can achieve much the same outcome.

The key tension points around media diversity tend to be regional diversity and local content, especially local news.

The Australian Competition and Consumer Commission (ACCC) has historically recognised the existence of separate regional markets for local content and local advertising³. This imposes a natural constraint upon significant regional consolidation, even in the context of wholesale repeal of the Control Rules.

The ACCC might accept more consolidation in capital cities (or other well serviced areas) where greater competition exists and/or between the major television networks and their regional affiliates. However, the SLC test would likely prevent structural market changes that resulted in common control of significant media enterprises.

It is also worth remembering that the contribution to media diversity from regional affiliates is limited by the fact they largely reproduce content from the major television networks. As a result, this kind of consolidation is unlikely to affect the media diversity ultimately experienced by consumers.

As media markets continue to converge, successful business models may require a presence in audio, video and print both online and over traditional platforms in order to compete effectively and drive further innovation. Ultimately, this may mean some level of consolidation is unavoidable going forward.

Footnotes

¹ Set out in the Broadcasting Services Act 1992 (Cth) (BSA).

² Explanatory Memorandum, Broadcasting Services Bill 1992, 41.

³See ACCC, Public Competition Assessment : Macquarie Media Group – proposed acquisition of Southern Cross Broadcasting (Australia) Ltd and nine regional radio stations owned by Fairfax Media Limited (27 November 2007) view link.

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