Introduction

CONTENTS

Abbreviations

Preface

Chapter One:  Introduction

• Social Responsibility and Paternalism
• Private Interest Politics
• Plan of the Book

Chapter Two:  Australian Media and Its Regulation

• Role of Media
• Snapshot of Media Industries
• Subscription Broadcasting
• Regulation of Broadcasting Media
• Summary

Chapter Three:  Media Competition

• Characteristics of Media Markets
• Aspects of Competition
• Competition for Advertising
• Competition for Inputs
• Management and Distribution Skills
• Networking
• Conclusion

Chapter Four:  Market Failure in Media Industries

• Public Good
• Natural Monopoly
• Lack of Nexus between Supply and Demand
• Conclusion

Chapter Five:  Planning and Licensing

• Frequency Planning
• Licensing
• Conclusion

Chapter Six:  Restrictions on Ownership

• Regulation of Ownership and Control
• Media Ownership Provisions
• Impact of Ownership Restrictions
• Efficiency Effects of Ownership Restrictions
• Conclusion

Chapter Seven:  Policies for New Media

• Record on Management of Technological Change
• Converging Technologies
• Impact of Convergence on Media Industries
• Impact on Competition
• Implications for Media Regulation
• Conclusion

Chapter Eight:  Improving Media Regulation

• Specific Policy Implications
• Overall Conclusion

Appendix:  Historical Outline of Media Regulation

• Early Development of Radio
• Gibson Committee
• The Australian Broadcasting Control Board
• Introduction of Television
• Turmoil in the 1970s
• The 1980s and Beyond
• Broadcasting Services Act 1992
• Current Regulatory Structure
• References

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ABBREVIATIONS

ABA = Australian Broadcasting Authority
ABC = Australian Broadcasting Corporation
ABCB = Australian Broadcasting Control Board
ABT = Australian Broadcasting Tribunal
ACCC = Australian Competition and Consumer Commission
AM = Amplitude modulation
BSA = Broadcasting Services Act 1992
BTCE = Bureau of Transport and Communications Economics
CEASA = Commercial Economic Advisory Service of Australia
DTC = Department of Transport and Communications
DTTB = Digital television terrestrial broadcasting
FM = Frequency modulation
FTA = Free-to-air television operator
HDTV = High definition television
kHz = Kilohertz
MDS = Multipoint Distribution System
MF = Medium Frequency
MHz = Megahertz
SBS = Special Broadcasting Service
UHF = Ultra high frequency
VHF = Very high frequency

PREFACE

Much of the history of media regulation in Australia would make an excellent case study of the pursuit of private interests by powerful individuals and of the failure of governments to protect the public interest.  Media policy-making has never been an easy task.  Mixing together, as it does, potent ingredients such as powerful vested interests, political influence, social responsibility, rapidly changing technologies and market failures, debate on the issue is invariably explosive and constantly results in front-page headlines in morning newspapers and lead stories in main evening television news bulletins.

In this book, I adopt both a retrospective and a prospective approach to assess how well past and present policies have served the public interest.  My analysis was guided by the fundamental principle that regulatory intervention should be entertained only in situations where the market fails to deliver an efficient outcome and the benefits of intervention exceed its costs.  My conclusion is that many media regulations do not pass this simple test and that, more often than not, policy decisions have been driven by narrow considerations that tend to focus on the protection of private interests rather than safeguarding the wider public interest.

The effectiveness of traditional regulatory mechanisms is increasingly being challenged by rapid technological change.  Because of convergence, what used to be distinct services with different delivery platforms are becoming indistinguishable in terms of their attributes and delivery.  The Internet and other delivery platforms, such as satellites, are beyond the reach of national regulations.  In such circumstances, great care should be exercised to ensure that regulatory mechanisms do not distort market incentives or hinder maximisation of economic and social benefits.  I make several suggestions for alternative policy directions that avoid some of the shortcomings I have identified and propose four guiding principles for the development of efficient regulation.

I am grateful to the Department of Communications, Information Technology and the Arts (DCITA) for consenting to Franco Papandrea's participation in this study, in a private capacity and in his own time.  It goes without saying that the views presented in this book should be attributed only to the author and should not necessarily be construed to represent those of DCITA or any other organisation.  Finally, I thank my family for their love and unwavering support.

CHAPTER ONE

Media industries play an indispensable role in the life of modern societies.  For most people, the products of media industries are the main source of information and entertainment.  Because of their central and pervasive role, media industries have attracted and continue to attract much attention from policy-makers.  For the electronic media, in particular, regulatory policy has been the main determinant of the historical structure and performance of the industry.  Technological developments, however, are beginning to challenge traditional structures and policies and are likely to bring about fundamental changes to the future media landscape.  It is important, therefore, that the development of future policies, although cognisant of the past, should not be bound by it, but should focus on approaches likely to guarantee efficient structures that best serve the public interest.

Every industry group has its peculiarities, and the media industry is no exception.  The industry (principally free-to-air and pay television, radio, newspapers and magazines) uses a diverse range of electronic and physical means to deliver an even more diverse range of products (news, sitcoms, movies, feature articles, etc.).  Economies of scale and scope are common in the production of media outputs, and most products have public-good characteristics.  Some media, like free-to-air television and suburban newspapers, are delivered free of charge, and suppliers make their money by selling advertising.  Commercial broadcasting and publishing are essentially profit-making activities.  Two national broadcasting services are operated largely on a non-commercial basis and are funded by the Commonwealth.

The means adopted to finance broadcasting services may have the effect of changing the nature of the final product produced by them.  All broadcasters, irrespective of their funding mechanism, deliver programmes for consumption by audiences.  Commercial broadcasters, however, are also engaged in the delivery of advertising messages to audiences.  For such broadcasters, programmes are intermediate products that they use to attract potential audiences for paid advertising messages.

Competition occurs within each medium and, in some cases, between different media.  Commercial radio (or television) services compete for audiences with each other and with non-commercial services operating in the same area.  The level of competition is highest between commercial services whose programmes are directed to the same target audiences (in terms of demographic characteristics) but is less intense between commercial and non-commercial services.  Commercial operators also compete with each other in the sale of access to audience to advertisers (advertising market).  There is some competition between parts of the electronic media and parts of the print media.  For example, both produce special-interest outputs such as fishing programmes and fishing magazines, and television news is reputed to have been the major cause of the demise of afternoon newspapers.

It is not surprising that such a complex and important industry has given rise to many public-policy issues.  The current set of interventions reflects a variety of factors.  In addition to typical policy interventions in response to genuine failings in the market, media policies have been influenced considerably by and reflect "social responsibility" or paternalistic considerations as well as private interest politics.

SOCIAL RESPONSIBILITY AND PATERNALISM

Australia's traditional approach to broadcasting was strongly influenced by the British "social responsibility" model, which sought to ensure that a medium with substantial power over public opinion was used for "the collective good of society".  Because of its immediacy and mass coverage, broadcasting was thought to have a powerful influence on society, an influence that conservative governments wanted to harness to foster cultural and educational values and to reinforce desirable social standards and traditional models of moral behaviour.  This was thought to be particularly necessary because the limited number of available channels concentrated influence in the hands of a few people who could use it to pursue their own interests rather than the well-being of society.

Unlike the more liberal approach of allowing broadcasters to respond to individual preferences and choice, the social responsibility model prescribes reinforcement of established practices and exposure to the best practices in culture, education and tradition.  To promote this goal, the right to broadcast was assigned to national organisations operating in the public interest or to private individuals who were licensed to operate their stations as "public trustees" of social ideals.  However, as noted by the Bureau of Transport and Communications Economics (1991a:8-9):  "With commercial broadcasting, in particular, there may be some conflict between programming which responds to the tastes of the general audience and the controls which are designed to give the audiences what they 'need' rather than what they 'want'."  Thus, extensive control and scrutiny by a public body was deemed to be necessary to ensure that private broadcasters lived up to their public trustee status.

Cultural enhancement and protection of good taste were the dominant concerns of government action related to programmes in the early days of Australian broadcasting (see Postmaster-General's Department, 1931).  In 1942, the Joint Parliamentary Committee on Wireless Broadcasting (Gibson Committee) expressed the need for control of broadcasting to ensure that its powerful influence was used for the good of society.  In the Committee's view, there was a need to regulate "for at least some measure of public control of programmes in the general interests of the community, not only to prevent the service from being used for improper purposes, but to ensure that it will exercise a positive influence for good on the individual and national character" (Gibson, 1942:10).

The 1954 Royal Commission on Television adopted a similar approach for the preservation of good taste through positive programme standards "in order to provide not only for the entertainment and enjoyment of viewers, but also for their education ... and enlightenment.  The use of this new medium of communication must, in my view, be regarded, by commercial as well as national stations, as in the nature of a public trust for the benefit of all members of society" (Royal Commission on Television, 1954:144).

The public interest was also invoked to justify prohibition of foreign control of broadcasting licences on the ground that foreign interests are likely to diverge from the national interest of Australians.  Many countries cite risk to national security as the reason for prohibiting foreign control of broadcasting.  Such considerations were also prominent in Australia and were the main motivation for a Joint Resolution of both Houses of Parliament in 1951 that:  "In the opinion of this House, it is undesirable that any person not an Australian should have any substantial measure of ownership or control over any Australian commercial broadcasting station, whether such ownership or control be exercisable directly or indirectly" (House of Representatives, 1951:2915).

To minimise the risk of abuse of their public trust, it was determined that broadcasters should be "fit and proper persons".  Particularly, they were not to favour one political view over others and were to provide equitable access to all political parties.  The magnitude of such power and of the consequential danger of any abuse grew rapidly with increasing concentration of ownership or control of broadcasting.  It was argued, therefore, that the public interest would be better served by the diversity of views likely to ensue from diversified ownership of licences.  The Gibson Committee, for example, was opposed to the idea that broadcasting should have the same freedom as the press because "commercial broadcasting can be more easily controlled than newspapers and, in any case, there is no reason why the public should be asked to accept anything less than the highest possible ethical standard that can be attained by those who hold commercial broadcasting licences.  Furthermore, broadcasting is a virtual monopoly, whereas the publication of newspapers is not" (Gibson, 1942:60).

The concept of the public interest continues to influence current media policy-making.  In addition to concerns about excessive concentration of media power and influence, foreign control and cultural influence, current policies are also influenced by the concept of universal service and equitable provision of media services throughout the country.  However, this traditional social responsibility role of broadcasting has come under steadily increasing scrutiny and has been found difficult to sustain in the face of, in particular, technological change, greater public accountability and more assertive consumers.

The expansion of broadcasting (including like services) is leading gradually to a private relationship between the programme supplier and the audience, where the exchange of programmes is similar to the exchange of other private services.  Such developments are eroding largely, if not totally, the public-good nature of broadcasting and with it the justification for most of the traditional regulatory controls.

PRIVATE INTEREST POLITICS

The public interest alone does not sufficiently explain the need for media regulation.  As implied by the above discussion, a more realistic approach would seek to explain media regulation by politics as well as economics.  For example, in his discussion of Australian media regulation, Chris Trengove questioned the role of "genuine paternalistic sentiment" and suggested an alternative explanation for regional monopolies, the failure to issue new licences, local content rules and various other restrictive practices.  He argued that these sprang more from "effective lobbying of particular producer groups" (Trengove, 1983:88) in pursuit of their private interests.

The private-interest approach to the political mechanism would cast much of the regulatory process in terms of the relative strength of consumer and producer interests.  Whereas consumers are relatively weak with small individual interests and high costs of organisation, producers have large individual interests and, being few in numbers, low costs of organisation.  Producer and other interests operate in a "market for regulation".  To some extent governments and regulatory bodies can be captured by these interests.

In Australia's case, the early preoccupation with natural monopoly led to high concentration and high profits.  Incumbents had much to protect, and existing operators have fought hard to protect their privileged positions from the threat of new licences and new technologies.

The history of Australian commercial broadcasting is littered with policies and regulatory actions designed to protect the commercial viability of incumbent broadcasters.  Although no longer a major element of legislation or expressed regulatory policy, commercial viability of incumbents is often a primary consideration in government decision-making.  The decision to ban new commercial television networks to facilitate the introduction of digital television by existing broadcasters is the most recent example of the continued application of this policy.

The justification for this anti-competitive policy instrument has often been seen as a quid pro quo for the obligations imposed by the "public trustee" position of broadcasters and as a way of ensuring uninterrupted supply of services to consumers.  Overzealous application of this instrument was the primary reason for the small increase in the number of radio services nationally and no increases in Sydney and Melbourne for more than four decades preceding 1976.  It was also the primary reason for the moratorium on the introduction of pay television and for banning advertising on pay television when it was eventually introduced, ⁽¹⁾ the ban on use of the sixth high-powered channel for commercial television, and the long-delayed introduction of FM radio services.

The high and rising value of broadcasting licences has been one of the more visible consequences of protecting the commercial viability of incumbent broadcasters.  Commercial licences have always been eagerly sought and for many years they were seen as "licences to print money".  Although new licences are now auctioned, continuing protection of the commercial interests of existing licensees provides them with further windfall gains.  For example, the recent unexpectedly high auction price of $36 million for a second regional television licence for Western Australia was thought to reflect the increased value of licences brought about by the ban on new networks imposed by the decision on the introduction of digital television.

PLAN OF THE BOOK

Although recent legislative changes have reduced significantly the level of regulation impinging on the industry, many aspects continue to be subject to regulation and broadcasting continues to be one of Australia's most regulated industries.  The aim of this book is to describe, explain and evaluate Australian media regulation and offer some observations on potential improvements.  The evaluation is undertaken on the basis of economic efficiency criteria augmented by broader considerations of the public interest.

My evaluation begins with a discussion of the nature and development of Australian media regulation.  This is done primarily in Chapter 2, but is complemented by the historical outline of media regulation presented in the Appendix.  Chapter 3 describes the current structure of the Australian media industries and the factors that underlie intra- and inter-media competition.  The issue and occurrence of market failure in media industries is discussed in Chapter 4.  The discussion up to this point is intended to provide the background and context for the subsequent consideration and evaluation of the principal mechanisms employed to regulate Australian media.  Licensing and media concentration issues are considered in Chapter 5 and ownership and control issues are taken up in Chapter 6.  The challenges that technological developments pose to traditional regulatory mechanisms are addressed in Chapter 7.  The book concludes in Chapter 8 with a discussion of proposals for more efficient media regulation.

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ENDNOTES

1.  Although now permitted to carry advertising, subscription television broadcasting licences are subject to the condition that subscription fees will be the predominant source of revenue.