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Part 2: Quotas, expenditure requirements and other TV matters

It’s only fair that Australian content rules are applied more evenly to more platforms; what happens to quotas is the big question.

The existing situation

Australian content rules are an example of the Government using force to get a desired outcome, but they only use it on the commercial free-to-air (FTA) television broadcasting licensees and subscription television licensees. The commercial FTAs include Seven, Nine and Ten; Foxtel is a subscription service.

The relevant legislation is the Broadcasting Services Act 1992 (BSA).

Commercial FTAs are subject to:

  • A Transmission Quota. It means no less than 55% of all the programming shown on a primary television service between 6am and midnight across a year has to be Australian. On non-primary services, 1,460 hours of Australian programming has to be shown.
  • Drama, Documentary and Children’s Sub-Quotas. They’re complicated. The drama sub-quota is based on a points system under which each licensee has to show enough first-release (new) drama in primetime to amass 860 points over three years. Series and serials produced at the rate of more than one hour per week are at one end of the scale and earn one point per hour; features and telemovies are at the other end and are worth four points. This is stipulated in Part 6 of the Broadcasting Services (Australian Content) Standard 2016 (ACS). At least 20 hours of first-release documentary also has to be shown per year, as per Part 9 of the ACS. Part 7 of the ACS and also the Children’s Television Standards 2009 (CTS) provide the rules on how much children’s programming has to be screened, when, and how much of it has to be Australian.
  • A minimum advertising quota and specific rules relevant to regional broadcasters.

Australian subscription television is subject to:

  • An expenditure requirement. It applies only to subscription television licensees that offer drama channels and stipulates that at least 10 per cent of the total amount spent on programming for those channels must be spent on new Australian drama. It comes without any obligations to screen the programs produced.

The television channels exceeded the 55% transmission quota on their primary services in 2016. Network Ten’s various state-based channels screened 65% Australian programming and Nine and Seven’s recorded between 70 and 75%. All the non-primary channels exceeded their obligations. The sub-quotas were also complied with, each channel screening: 104 to 157 hours of drama; 29 to 84 hours of documentary; 26 to 33.5 hours of children’s drama; and 130 to 133 hours of children’s programs. For full details go here.

The Australian Communications and Media Authority’s (ACMA) submission (64) to the House Inquiry provides an excellent summary of quotas, compliance and the latest statistics on how people get their television from a broad range of sources but also how the networks still dominate.

The subscription television industry spent $51.2m on Australian and New Zealand drama in 2015/16, a record high.

If quotas were abolished and an expenditure requirement applied across all distribution platforms, each could spend all their money on one show. The total number of hours would be a drop in the ocean as a result.

Anomaly 1: No local content rules of any kind apply to: domestic or foreign-based subscription video on demand (SVOD) services such as Stan and Netflix; TVOD services such as iTunes; worldwide user-generated content platforms such as YouTube and Facebook; and the catch up offerings of Australia’s broadcasters.

Anomaly 2: The objective of the ACS is to “promote the role of commercial television broadcasting services in developing and reflecting a sense of Australian identity, character and cultural diversity by supporting the community’s continued access to television programs produced under Australian creative control”. Yet drama from New Zealand has been counted towards the Australian drama quota since a series of court cases exploring whether the rules were consistent with the Australia New Zealand Closer Economic Relations Trade Agreement. ACMA (64.2) noted this: “As a proportion of all Australian content on the primary channel, it (NZ content) is less than one per cent on Seven, Nine and Ten. In terms of the multichannel quota, Seven provides just under two per cent, and Nine and Ten provide under one per cent. As we go into the genre-specific quotas that the ACS regulates or requires, it increases. So, Nine provided over 40 per cent of the drama programming, and Ten provided just under 20 per cent.”

Key recommendation: extend obligations to SVODs and others

A large number of submissions argue that it is an absolute necessity to apply local content quotas and/or expenditure rules of some kind to all new players.

Few stipulate what any new obligations would look like although many submitters refer to the platform agnostic approach taken by the 2012 Convergence Review. This review recommended the establishment of a content fund that would harvest money from any platform providing “TV-like content”, once a platform reached minimum revenue and audience thresholds. The size of the contributions would be a proportion of revenue not of programming expenditure.

The consultation paper of the current Review says any regulation should be: platform agnostic; clear, simple and transparent; and flexible enough to cope with changing environments. It is not an easy ask.

Quotas gave Australian drama the chance to be the ratings winner it is now on commercial FTA television. Whether quotas can be applied to a platform that’s not a linear service – a pick-your-own SVOD, for example – is arguable because viewers program their own viewing. Perhaps the Government could insist that a proportion of everything that’s on offer to customers is Australian.

If quotas were abolished and an expenditure requirement applied across all significant distribution platforms, each could spend all their money on one show. The total number of hours would be a drop in the ocean as a result. On the other hand, assuming big budget equates to high quality, more shows might become international hits which would bring benefits to all.

This question has to be asked: is it possible to regulate Google, YouTube and sites such as Facebook given they’re not beholden to Government? And even if they were, every user’s experience is different which makes the creation of effective local content regulation challenging. One of them could well be the biggest provider of television-like content within five years.

The Media, Entertainment and Arts Alliance (MEAA) is disdainful in its submission (125) of the willingness of these sites to monetise content with no respect for copyright or the cost of making film and television.

“Ultimately, our members believe that community and government views that companies like Google are essentially benign, if not altruistic, are misleading. Unless addressed, a billion further damaging algorithms will bloom and with it, an escalation of what Professor Julieann Schultz has labelled ‘a massive redistribution of wealth from the cultural sector to the technology sector’.”

The Ten Network’s submission (130) had this to say: “Google is more than 2200 times the size of Ten based on market capitalisation. Facebook and Amazon are respectively more than 1500 (times) the size of Ten. They do not employ local journalists or publicists. In some cases they do not have a single employee in Australia. However, they are taking a rapidly growing share of advertising dollars out of the Australian market”.

Content will have to be protected during any transition time if a big shakeup of the rules does happen.

But now that the Government-sanctioned monopoly of commercial FTA television is feeling the effects of digital disruption it can cry “unfair!” with a leg to stand on.

Quotas could be in danger if all platforms are regulated

There are many figures contained in the submissions that illustrate how the broadcasters no longer have exclusive access to lounge rooms. Quoting various sources, Screen Producers Australia (SPA) says: “Australians on average watch 21 hours of broadcast TV a week and watch 3.42 hours a week of catch up TV. Foxtel has 27 per cent market share, SVOD services have a 28 per cent market share and Netflix has 2.23 million Australian subscriptions”.

MEAA says, quoting research company Roy Morgan, that in the six months to August 2016, 9.8 million Australians more than 14 years of age had access to one or more paid TV services in their home and, “for the first time, more Australians have SVOD than linear pay TV: 5.6 million to 5.3 million”.

The more audiences the commercial FTAs lose, the stronger their case against quotas. But program makers and their representatives predict doom and gloom if quotas are messed with.

“The industry will collapse like a pack of cards,” says producer Monica O’Brien (69).

“It is likely that Australian content would completely disappear from our screens,” says the Australian Writers’ Guild (AWG) submission (96), referring to scripted television.

“The base on which the Australian production industry is built is independent television production which, in turn, depends solely on the Australian content rules and it is imperative these are maintained or even increased as any reduction could precipitate the end of the film and television industry in Australia,” says Ian Kirk of White Hot Productions.

But now that the Government-sanctioned monopoly of commercial FTA television is feeling the effects of digital disruption it can cry “unfair!” with a leg to stand on. The networks have already successfully argued for license fees reductions – possibly removal – and are making headway on media ownership “reform”.

Seven West Media (128) says abolishing broadcast licence fees was critical to enabling the television industry to “continue to transform our businesses to compete with new foreign multi-national competitors, while maintaining our central role in underpinning the Australian production sector. The cost of production is escalating due to increased competition, and market demand for increasing high quality. At the same time we are facing an advertising market that is flat and the transfer of advertising dollars to digital platforms which are unregulated and which pay little or no tax in Australia.”

Many submissions not written by the networks argue that any money saved from license fees should be quarantined for local production.

The commercial FTAs could next push back hard on quotas: they’re already saying that the children’s sub-quotas should be abolished because they’re not meeting objectives and children are getting their content elsewhere. The other quotas should be subject to an “in-depth” review, says representative body FreeTV Australia (135), which says its members are the largest investors in Australian content, contributing $1.5bn annually. This figure includes news, sport and reality.

They are not alone in thinking the current local content regulations are inadequate in today’s landscape. The rules are “woefully out of date and recent proposals for reform have been piecemeal and incoherent” says SPA (86). Rebooting the system might spit out a whole range of new shows that audiences embrace enthusiastically. Or it might be a case of be careful what you wish for.

In theory at least, Australian content now has the potential to more easily reach vast audiences and this provides more opportunity – Netflix intends to spend US$6bn on content this year worldwide, many submissions note. Perhaps there’s a way that the Government could insist that international platforms don’t just offer Australian content locally but also abroad to get brand Australia out there.

Series and mini-series that have premiered on cable or satellite services can’t count towards quota on the commercial FTA channels but can if they first appeared on an SVOD platform. Says the Ten Network (130) co-operation between subscription and commercial FTAs on drama would “deliver a more diverse slate overall with broadcasters able to commit more resources to higher-quality and edgier content … (and) bring high quality pay TV dramas to a wider audience on FTA TV.”

If quota obligations are loosened, it is understood that such an action can’t be reversed under the Australia-US Free Trade Agreement. For many, that’s a big red flag.

And a note about ABC and SBS

The Federal Government supports two public broadcasters, ABC and SBS, with base funding of $3.1bn and $814.2m respectively over three years. Both directly and indirectly contribute to the production of Australian content. Both have suffered cuts.

Most of the discussion about the public broadcasters in the submissions falls into two camps: program makers ask that the funding cuts stop or call for the restoration of funding to pre-2014 levels; the commercial networks say the public sector is encroaching on their territory and eroding their business model. The Nine Entertainment Co (134) is very vocal about SBS: “content acquisitions appear to be based on chasing commercial ratings and revenue while not servicing its charter or target audience.”

Both camps want quotas applied on the public broadcasters (British regulator Ofcom recently gained responsibility for the BBC and is proposing quotas). SBS (133) notes that its schedule has less than 10% Australian content (excluding news, current affairs and sport) and it would be “open” to the implementation of a content quota on its primary channel if it got additional funding.