Policies for New Media

CHAPTER SEVEN

The government has always exercised extensive and detailed control over the development of broadcasting services.  Such controls can confer benefits such as uniformity in transmission and reception technologies and the setting of community priorities rather than those reflecting short-term commercial interests of suppliers.  On the other hand, the same controls can clearly reduce the responsiveness of the industry to changing demand and supply opportunities and delay structural change.  There is also the risk that they can be used to mandate inappropriate technologies and to protect incumbent operators from the introduction of competitive new products and services.  As has been detailed in the previous two chapters, the history of broadcasting in Australia is littered with examples of misguided use of politically-expedient, technically-specific, policy instruments resulting in substantial reductions in net benefits to society.  This chapter considers the policy challenges presented by technological change.

RECORD ON MANAGEMENT OF TECHNOLOGICAL CHANGE

Conscious of the dangers of rigid, technologically-specific rules, the Broadcasting Services Act 1992 sought to establish a technologically-neutral framework for the ongoing development of broadcasting.  Section 4(2) of the BSA declares Parliament's intention for flexible regulation of broadcasting services including in a manner that:

(b) will readily accommodate technological change;  and

(c) encourages:

the development of broadcasting technologies and their application;  and

the provision of services made practicable by those technologies to the Australian community.

The Explanatory Memorandum gives a more detailed explanation of the provisions of section 4 as follows:

Paragraphs (b) and (c) aim for accommodation of technological change (particularly in the provision and reception of broadcasting services) without the need for regular amendment of the Act, wherever possible.  This paragraph recognises that in recent years there has been an acceleration in the development of technologies for delivering communications services.  It is intended, as much as the regime set out in the Act will allow, that as those technologies come on-stream for general application, they be accommodated within the regulatory regime provided by the Act without the need for patch-up amendments as has been the case with the 1942 Act.

In practice, the concept of technological neutrality appears to have been ignored on a number of occasions since 1992.  The government's decisions on the introduction of subscription television and digital broadcasting are the two most important recent developments where the concept of technological neutrality appears to have been cast aside.  Both of these decisions have major implications for the structure of the broadcasting industry.  For different reasons, both have imposed technologically-prescriptive solutions favouring particular interest groups rather than orderly market developments.  Both initiatives also involved special amendments of the Act.  The following is a brief summary of the two decisions.

Pay Television

The introduction of pay television "as soon as practicable" was recommended by the ABT in 1982.  After lengthy delays the government eventually decided to impose a four-year moratorium on the introduction of pay television (from September 1986 to September 1990).  According to the government, the moratorium was needed to facilitate further investigation of the issue and to protect the investments required by commercial broadcasters in response to the policy of introducing three competing commercial television services in regional markets.  The issue was subsequently examined by reports prepared by the Department of Transport and Communications (DTC, 1989) and by the House of Representatives Standing Committee on Transport, Communications and Infrastructure (1989).  The matter was further complicated by the financial difficulties then encumbering the three commercial television networks and AUSSAT (a government-owned domestic communications satellite and a potential pay television carrier) and by the decision to deregulate the telecommunications industry.

As part of the package of telecommunications industry reforms in 1992, the government decided to dispose of the financially troubled AUSSAT.  In order to make the sale more attractive, it decided that pay television would be introduced using the satellite as the carrier.  Appropriate standards for digital broadcasting from the satellite were to be developed and agreed to by 1 March 1994.  The BSA restricted licensing of satellite pay television to the three licences approved for the AUSSAT system.  As a further protection of incumbent free-to-air broadcasters, the Act also prohibited pay television operators from selling advertising until 1997.  A watered-down version of this latter protection continues today with pay television operators being required to raise their revenue predominantly from subscriptions.

No restrictions were initially imposed on the use of other technologies to deliver pay television services.  Indeed, the Act provided a simple procedure for the ABA to issue non-satellite licences "on application in writing" (s 97).  Following the accumulation of Multipoint Distribution System (MDS) spectrum licences by an entrepreneur with the intention of delivering pay television services, the government moved an amendment to the BSA prohibiting such services until after the start of satellite services.  The prohibition, however, did not extend beyond 31 December 1994.  In the event, problems with the development of appropriate technical standards for satellite delivery delayed the start of satellite services until 1995.  Another development undermining the "approved" satellite pay television services was the roll-out of broadband communication cables by the rival telecommunications carriers, Telstra and Optus.  According to a newspaper report, a former government minister stated that the cable rollout had not been anticipated by the government whose focus in 1992 had been solely on the satellite services (Maiden & Simpson, 1997).

The long delays in the introduction of pay television services deprived Australian consumers of a service that consumers in other countries had enjoyed for many years.  The protection of the interests of incumbent broadcasters by delaying potential competition did nothing to prevent other factors from taking their toll of the financial viability of the three major networks at the end of the 1980s.  Major ownership changes and other operational factors unrelated to changes in competitive pressures saw two of the networks go into receivership and a "fire sale" of the third.  All three networks subsequently returned to sound financial management and profitability, thus demonstrating the power of the market to resolve competition problems satisfactorily without government intervention.  Those changes were of a much greater magnitude than those that would have been associated with earlier introduction of pay television services.  They suggest that the industry is likely to have been able to absorb the impact of earlier introduction of pay television without major difficulty.

Digital Broadcasting

The digital broadcasting decision announced in March 1998 followed a period of concerted lobbying by incumbent free-to-air operators (FTAs), pay television interests and other groups seeking to enter the market for datacasting and other services.  As acknowledged by the Minister for Communications in various media comments, the government's decision endeavoured to find a balance among the competing private and public interests as well as ensure a smooth transition from analog to digital services without undesirable disruptions to either broadcasters or consumers.  The decision provided for the introduction of digital television, datacasting services and digital radio.  The main elements pertaining to commercial broadcasters are as follows:

• FTAs are required to commence digital terrestrial television broadcasting (DTTB) in metropolitan areas by 1 January 2001, and in regional areas within the three years thereafter.
• FTAs will be loaned 7 MHz of spectrum free of upfront charge to simulcast their service in both analog and digital format for at least eight years.
• DTTB with minimum levels of high definition television (HDTV) must begin by the designated start date for the FTAs to avoid the risk of losing their loaned spectrum.
• FTAs are prohibited from using their digital spectrum to provide multichannelling or subscription television services (to be reviewed in 2005), but may use the spectrum to provide programme enhancements, such as separate broadcasts of different camera angles of the same sporting event.
• Available spectrum not required by the FTAs for digital conversion will be allocated competitively for the transmission of datacasting services starting concurrently with DTTB.
• Existing FTAs are precluded from bidding for the additional datacasting spectrum, but may use a portion of their loaned spectrum for datacasting and will be charged fees for providing the services.
• The existing prohibition on new commercial FTA entrants was extended to 31 December 2006.
• Planning processes have been put in place to allow the start up of digital radio services in 2001.
• A departmental review will be conducted in 2005 to assess whether the simulcast provisions, and the related multi-channelling prohibitions, should be revised.

In announcing the decision, the Minister for Communications argued that while the government "would normally welcome additional competition, in any industry, as healthy and likely to lead to benefits for the consumer", because of the special circumstances facing them, Australia's free-to-air and pay television industries "deserve a degree of special treatment, and the Government makes no apologies for [the] decision" (Alston, 1998).  The special circumstances cited by the Minister were as follows:

Australia has a world class TV system, with a strong local content component and a highly skilled production sector.  This could be threatened if the existing networks had to battle a new competitor at the same time as paying huge sums to transfer to digital broadcasting, or if the Pay TV networks found themselves faced with significantly stronger free-to-air opponents while still trying to find their feet.

If amended in the Senate, the Television Broadcasting Services (Digital Conversion) Act 1998 requires the Minister to formulate a "Regional Equalisation Plan" to facilitate the provision of digital television and datacasting services by commercial broadcasters in regional areas.  The plan is required to have regard to several objectives, including:

• maximising diversity of choice of television services;
• offering a range of television services similar to that available in metropolitan areas;
• maintaining the financial viability of the commercial broadcasting industry in regional areas;
• providing services relevant to local needs;  and
• discouraging concentration of media ownership.

Some of these objectives appear to be in potential conflict with each other.  For example, demand for information and entertainment services in regional areas may not be sufficient to support a range of services similar to that available in metropolitan areas.  Yet such a range of services is to be pursued concurrently with maintenance of the financial viability of the industry in regional areas.  It would seem, therefore, that where demand is insufficient to support a wide range of services a trade-off between these objectives will be necessary.

In addition to the loan of the necessary spectrum, the regional FTAs are seeking an extensive range of assistance to convert their facilities to digital broadcasting.  The assistance measures they are seeking from the government include rebates of licence fees for the implementation period to help fund infrastructure and equipment costs, exemptions from custom duties and sales tax on digital broadcasting equipment, and assistance to defray operational costs during the mandated simulcast period when both analog and digital signals have to be broadcast.

The government's decision was criticised by the media and commentators generally (e.g., Given, 1998;  Jones 1998).  In a strongly worded editorial, the Australian Financial Review (1998a) was of the view that the decision "shackled the new information economy in the familiar old world of heavy government regulation and media-mogul politics".  It argued that the decision was designed to protect the interests of incumbent media operators by granting free use of spectrum to free-to-air operators as well as protecting them and pay television operators from potential competition. ⁽⁷⁾

Some weeks later, another editorial in the Australian Financial Review (1998b) claimed that the decision was inconsistent with the alleged advice of government bureaucrats contained in a leaked cabinet submission.  According to the editorial, key departmental advisers had argued the decision was inconsistent with "the non interventionist approach which the Government had endorsed for developing the information economy", would "result in inefficient use of valuable spectrum", would "restrict consumer benefits from a wider range and flexibility of services", conferred benefits to commercial interests that "already enjoy significant private benefits at public and community expense", and "inadequately deals with a complex and important new technology which could have far-reaching implications for the future of Australia's communications sector and its impact on the community".

The requirement to broadcast minimum levels of HDTV appears to be an implicit acceptance of the argument by FTAs that the availability of HDTV programmes would accelerate the take-up of digital television by consumers.  However, apart from a view expressed by the ABA's Digital Terrestrial Television Broadcasting Specialist Group that "consumer demand for high definition programming will grow rapidly once this becomes available" (ABA, 1997), there are no detailed studies to suggest that consumers are ready to embrace HDTV.  Indications from overseas suggests that HDTV sets are costly (currently more than $5000) and the available systems are not yet fully tested in mass markets.

Whether Australian consumers are ready to embrace HDTV remains to be seen.  In terms of benefits, consumers may have been better served by increased programme diversity, likely to result from an expansion of television services that would have been made possible by digital conversion.  HDTV requires a full 7 MHz channel for transmission, as is currently required by analogue transmission.  Alternatively, a 7 MHz channel is capable of supporting several standard definition digital services, of a higher quality than current analogue services, but not of the "cinema-like" quality of HDTV.

The Australian decision to mandate at least a minimum level of HDTV differs from approaches taken in other countries.  Closest to the Australian approach is the model adopted by the US for the introduction of digital television.  There, television operators have been lent a full digital channel for use during the transition from analog broadcasting.  However, while the broadcasters are expected to provide HDTV services, they are not compelled to do so.  The choice of whether the channel is used to provide a single HDTV service or several multiplexed standard definition television services or a combination of television and other services, such as datacasting, is left to the operators.

In the United Kingdom, each of the existing free-to-air broadcasters is being provided with digital capacity to simulcast a standard definition signal.  The additional digital capacity has been made available for additional standard definition services by new entrants.  No provisions have been made for the introduction of HDTV services.

The Australian Government's decision prescribes the range and type of services that can be provided in the new digital environment rather than allow market processes to respond to consumer demand.  A market-based approach would have led to a different outcome.  Given that digital conversion is being mandated by the government, a reasonable case would exist for the allocation of a standard digital service capacity to incumbent broadcasters to enable them to transmit in both analog and digital formats during the transition period.  The allocation of the additional spectrum capacity could then have been decided by the market on the basis of actual demand for particular services.  Auctioning of the available spectrum would have allowed bidders to make their own commercial judgements about the best combination of HDTV and standard usage television services and bid for the capacity accordingly.  Not only would this have been likely to raise substantial revenue for the government but it would also have avoided the inherent danger that a prescriptive solution may not maximise social welfare.

CONVERGING TECHNOLOGIES

Ongoing developments in digital technology and computer software applications are rapidly changing the nature of information services, including those of media industries.  Increasing adoption and use of the same technology by traditionally distinctly different services is rapidly eroding the boundaries between them.  This means that previously dedicated platforms for the delivery of a single service are rapidly acquiring the capacity to deliver different services simultaneously.  New delivery platforms are also emerging.  The most prominent example of convergence in service delivery is the Internet, which can deliver information and entertainment services in a variety of forms, including audio, video and data.

Convergence has far-reaching implications for regulatory policy and for the development of innovative information services for the advancement of the economic and social well-being of society.  Traditional technology-based regulation of what were essentially distinct services is ineffective and inefficient in an environment where essentially the same service can be delivered by a variety of means or simultaneously with other services that do not necessarily have similar attributes.  Different regulatory treatment of essentially the same services on the basis of differences in delivery technologies can distort economic development and opportunities.  Under these circumstances, while licensing is likely to remain a key tool for regulatory control of media industries, its aim should be to facilitate efficient development of services without endangering progress and innovation.

Convergence is also increasingly challenging national approaches to regulation.  The global nature of Internet services, for example, means that national controls are virtually impossible to enforce.  Internet users can source their services from almost anywhere in the world and can easily get around any restrictions or controls that are national rather than global.  Satellite delivery of broadcast programmes is another example where national controls such as domestic content regulations of television programmes cannot be enforced.  The increasingly global nature of media industries can have major implications for economic development.  National regulation that tends to be more restrictive than that applying in other countries may prove to be a significant incentive for media industries to migrate to countries with less restrictive regulation.

IMPACT OF CONVERGENCE ON MEDIA INDUSTRIES

There are several elements of technological convergence that impact on the development and growth of media industries.

First, the development of the microchip has greatly facilitated ownership and use of personal computers.  Combined with the growth of the Internet, this has brought access to a large range of information and entertainment services to large sections of the community.  For example, the Internet is becoming an important platform for the delivery of audio and video broadcasting services (webcast radio and television).  Traditional media services are thus finding their predominant position in the home being eroded and that they have to compete strongly with new services for the consumer's time and attention.

Second, the establishment of fibre optic cable networks with a capacity to deliver hundreds of television channels to the home spells the end of spectrum capacity constraints that have restricted the number of television channels that could be made available in any one locality.  The availability of numerous channels erodes the potential influence of individual television channels and, thus, one of the principal bases for licensing of services and regulation of programming.

Third, another important technological development from the point of view of content regulation is the digitisation of information signals.  The process reduces all forms of information content to electromagnetic pulses, which greatly facilitates the storage, processing, transmission and retrieval of signals.  The process permits rapid processing and exchange of information.  Coupled with advances in computer technology and the ease of access to computer networks, consumers can avail themselves of remote access to diverse services and products.  This means that individuals will increasingly be able to enjoy greater flexibility in sourcing information and entertainment products that best meet their needs and bypass traditional services and associated regulations.  Most of the new services will be delivered by electronic means.

Fourth, the print media industry has also experienced extensive technological changes in the past three decades and these have had a substantial impact on production processes.  Although the primary effect has been on production and printing activities, advances in electronic information services are also having a major impact on the nature and function of newspapers and magazines.  Copy and advertising material can be prepared electronically and can be transferred from one end of the world to the other in seconds.  The simplification of production and printing by eliminating typesetting and other time-consuming functions has shortened the printing timeframe of newspapers considerably and has improved their ability to compete with other media in providing timely in-depth coverage of breaking news stories.

Although improvements in newspaper production technology are expected to continue, the major challenges for newspapers are expected to come from other sources.  With the growth of online information services the character of the newspaper of the future is likely to change.  Some commentators are even forecasting the disappearance of printing.  If printing is essentially the transmission medium for the carriage of newspaper content, more efficient carriage by electronic means may indeed supplant it.  Furthermore, electronic carriage is more conducive to sorting automatically the stories of interest to an individual.  If a hard copy of the stories of interest is required, it could be printed locally.

Newspapers are already accessible electronically on the Internet.  Newspapers use their Internet accessibility as a complement to their printed outputs.  It also provides them greater exposure to their advertisements.

IMPACT ON COMPETITION

Availability of a vast range of interactive information and entertainment products will generate new competitive pressures on traditional media.  Services based on mass audiences are likely to suffer most as there will be an increasing tendency for the new products to appeal to niche markets by providing services that match more closely the needs of consumers in those markets.  Traditional mass media, therefore, are likely to see increasing fragmentation of their audiences.

Erosion of free-to-air television's audience will not only reduce its influence in the community, but will also reduce its earnings capacity.  Advertising will become more competitive with the entry of new services.  Online advertising can be much more targeted than that of mass media.  The demographics of Internet users, for example, are attractive to many advertisers.  The placing of advertisements at popular Internet sites is increasing.  It can also provide a tangible measure of the effectiveness of the advertisement for the advertisers.  For example, Procter & Gamble is reported to have negotiated a deal with Yahoo! to pay only for the number of hits it gets on its home page via the Yahoo! site (Carveth, Owers & Alexander, 1998).  Furthermore, as advertising is sold primarily on the basis of audience size, the erosion of traditional television audiences will lead to a commensurate decline in advertising revenue.  The entry of new services will also result in increased competition and increased costs for the available programming.  The twin pressures of reduced revenues and increased programming costs will weaken the capacity of traditional operators to sustain the continuing cost of programming regulation.

The way consumers use the media is also changing.  The Internet, with its capacity to act as a major source of information, is both a potential competitor to established media as a source of information and entertainment and a potential ally in providing greater access to the established media.  Newspapers, for example, may be accessed through the Internet;  they thus extend their primary readership and provide a new vehicle for the delivery of advertisements to readers.

IMPLICATIONS FOR MEDIA REGULATION

Historically, the broadcasting and communications industries supplied distinct services that facilitated the application of different regulations for different services.  With changing technology, the same service can now be provided by a variety of means (such as over-the-air broadcasting, cable, microwave, satellite, etc.).  The activities of firms also tended to be confined within one industry.  This is changing particularly with telecommunication carriers increasingly expanding their interests in supplying content services such as pay television, and video, rather than just confining their activities to carriage of information.  These and other potential changes to the structure and nature of media industries are likely to erode the effectiveness of current regulatory mechanisms.

The BSA was intended to be technologically neutral in its application to the delivery of services.  Yet it still relies on different rules for different media or for differently defined elements of the same medium.  Narrowcasting and broadcasting essentially perform the same functions but have a different degree of technical or audience reach.  Online information services are being integrated with newspapers, and subscription television services share many of their characteristics with point-to-multipoint services.  As the boundaries between services become increasingly blurred, the application of different rules will become increasingly unsustainable and will increasingly distort industry structures and competition.

Technological change is also likely to generate new services that may be beyond the reach of domestic regulation.  Satellite services originating overseas can be accessed in Australia.  Similarly, video images and entertainment services are accessible through the Internet, and may originate anywhere in the world.  Thus, the use of domestic regulation to achieve social objectives will become decreasingly effective over time, since it can be applied only to services originating in areas within the jurisdiction of domestic governments.

CONCLUSION

Traditional media industries are undergoing extensive restructuring as a result of rapid technological changes.  These changes are not only expanding the availability of existing services, but are also generating a massive expansion of new services likely to compete with or supplant traditional services.  The changes are also blurring the boundaries between previously well-defined industries and services.

As recognised by the BSA, a necessary condition for efficient, non-distorting regulation is that its treatment of a service should be independent of the process by which the service is produced or delivered.  Such equal treatment ensures that investment decisions are driven by market incentives and not by regulatory impact.  The need for regulatory policy to avoid unequal impact on different versions of the same service is particularly important in an environment of rapid technological change when both services and delivery platforms are no longer confined to traditional and distinct structures.  In such a situation, regulatory approaches that are not neutral in their effect on both delivery technologies and on substitutable services can greatly distort incentive structures, economic efficiency and development.

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ENDNOTES

7.  It should be noted that the Fairfax Group, the owners of the Australian Financial Review, had been lobbying for a decision more favourable to its own private interests.