Australia: Government announces media ownership law changes

Last Updated: 22 March 2016
Article by Adam Foreman and Kate Jordan

Key Points:

The changes recognise that traditional media platforms need greater freedom to restructure and rescale the ownership of their businesses to respond to competition from new forms of media.

The Turnbull Government announced on 1 March 2016 its proposed package of changes to Australia's media ownership laws including, as was widely anticipated, the repeal of the 75% reach rule and "2/3" cross-media ownership rule.

The announcement follows a long period of speculation about when and what changes would be made at least since changes were first recommended by Malcolm Turnbull as Minister for the Department of Communications and the Arts in March 2015.

The Government said that the changes recognise the growing importance of online and other digital forms of media as compared with traditional media platforms. There is increasing evidence to support this shift although many regulators, including the ACCC, have been slow to recognise this.

More fundamentally, the Government said that the changes recognise that traditional media platforms need to have greater freedom to restructure and rescale the ownership of their businesses to respond to competition from these new forms of media, which is having an increasing impact on advertising revenues, particularly in regional areas.

However, in most cases, the key media owners, excluding perhaps the regional broadcasting affiliates, have already taken steps to respond to this threat and are pursuing their own digital strategies, focusing on the content including news which is then used online. It is not clear that the changes are required to help these businesses compete. They are likely to be of greater importance to the regional broadcasters.

Any consolidation in the sector will continue to be subject to the other remaining media ownership laws as well as the existing competition rules and the interaction of the two sets of laws will impact upon the structuring of any transaction which seeks to take advantage of the change in laws. These laws, particularly the '5/4' media diversity rule, are likely to limit the extent to which the changes result in any meaningful cross-media consolidation as distinct from the merger of metropolitan and regional networks.

The one new element announced this month is the introduction of additional local content protections for regional television to address concerns about the continued provision of local content in regional areas following any consolidation with the metropolitan networks.

Legislation was introduced into Parliament this month to implement the changes. However, the legislation has been referred to the Senate Environment and Communications Legislation Committee for inquiry and report, with submissions due by 21 March 2015 and the committee not due to report until 12 May 2016. Accordingly, the changes are not expected to pass through Parliament until late May at the earliest.

The existing laws

The existing media ownership laws are set out in the Broadcasting Services Act 1992 (Cth) and comprise the following five key rules:

Media ownership rule

Requirement

"5/4" media diversity rule

Must be at least five media "voices" in metropolitan licence areas and four media "voices" in regional licence areas - if there are already less than the minimum "voices" in a particular area, then the number of "voices" cannot be reduced further. 1

"2 out of 3" rule

A person must not be in a position to exercise control over more than two out of the following three types of media operations in a given licence area:

  • a commercial television broadcasting licence;
  • a commercial radio broadcasting licence; and
  • an "associated newspaper" (essentially a significant local newspaper).

"75% audience reach" rule

A person, either in their own right or as a director of one or more companies, must not be in a position to exercise control of commercial television broadcasting licences whose aggregate licence area population exceeds 75% of the Australian population.

"One television licence" rule

A person, either in their own right or as a director of one or more companies, must not be in a position to exercise control of more than one commercial television broadcasting licence in a licence area.

"Two radio licence" rule

A person, either in their own right or as a director of one or more companies, must not be in a position to exercise control of more than two commercial radio broadcasting licences in a licence area.

Importantly, each of these rules apply only to commercial television licences, commercial radio licences, and significant local newspapers. They do not apply to subscription television licences (eg. Foxtel), national newspapers (eg. The Australian or The Australian Financial Review) or other local regional or community newspapers, or any other media assets, including online media.

The rules are weighted towards the three "traditional media" platforms - television, radio and print - reflecting the importance of these forms of media when the rules were first introduced.

However, as the Government has argued in previous policy papers, the growing importance of online and other digital forms of media raises questions about the ongoing relevance of the rules.

The proposed changes

The changes announced by the Turnbull Government are to:

  • repeal the "2 out of 3" rule;
  • repeal the "75% audience" rule; and
  • strengthen local content requirements for regional television broadcasters including by offering new incentives to film content locally.

The other three existing media ownership rules - the "5/4" media diversity rule, "one television licence" rule and "two radio licence" rule - will continue to apply.

The strengthened local content requirements will apply to commercial television broadcasting licences in regional areas following a change in control "trigger event" which results in the licence becoming part of a group that has an aggregate licence area population exceeding 75%.

The new requirements will take effect six months following the relevant "trigger event".

A summary of the changes is set out below:

Existing requirement

New requirement

Obligations for licences in Regional Queensland, Northern New South Wales, Southern New South Wales, Regional Victoria and Tasmania

Must broadcast 720 points of material of local significance per 6 week period:

  • average of 120 points per week
  • minimum of 90 points per week

Must broadcast 900 points of material of local significant per 6 week period:

  • average of 150 points per week
  • minimum of 120 points per week

Obligations for other regional licences including Darwin, Mildura, Griffith, Broken Hill, South Australia and Western Australia 2

No local content obligations

Must broadcast 360 points of material of local significant per 6 week period:

  • average of 60 points per week
  • minimum of 45 points per week

Definition of points system

1 point ? 1 minute of material of local significance

2 points ? 1 minute of local news

1 point ? 1 minute of material of local significance

2 points ? 1 minute of local news

3 points ? 1 minute of local news that is filmed locally

Implications of the proposed changes to media ownership laws

The changes are likely to trigger some level of consolidation in the media industry. In fact, this was contemplated by the Government which intended that the changes would allow traditional media companies to access greater scale and efficiency benefits through mergers by removing impediments to those companies restructuring and rescaling their operations.

In particular, the repeal of the two ownership rules will remove an existing impediment to:

  • the common ownership of the three television, radio and newspaper platforms within the same merged group; and
  • the metropolitan commercial television networks merging with their regional television network counterparts.

However, except perhaps for the merger of metropolitan and regional networks, it is not clear whether any material synergies will actually result from any further consolidation, particularly across different cross-media platforms with the repeal of the '2/3' rule.

Furthermore, most of the existing media groups now in practice own a number of different assets which operate across a range of different overlapping licence areas.

A number of limitations will continue to apply which will be relevant to any mergers of these groups in particular licence areas including the other three media ownership laws and our existing competition laws. For example, the "5/4" media diversity rule will limit any further consolidation in some of the regional areas as well as the smaller metropolitan areas, so any overlap in these areas will need to be carefully considered. An overlap between the radio licences or television licences of two groups might also raise issues under the "two radio licence" rule and the "one television licence" rule.

Potential mergers of groups and assets may therefore in many cases require divestments in particular areas to comply with the above rules and may need to be structured with the prior approval of temporary breaches by the relevant regulator being the Australian Communications and Media Authority (ACMA).

Industry participants will want to consider:

  • what opportunities the changes provide them to access greater economies of scale and scope including through mergers and acquisitions;
  • how any agreements in relation to a proposed merger with, or acquisition of an interest in, another media operation might be structured in way which complies with the rules in advance of the changes taking effect;
  • an analysis of what issues may arise for any transaction under the other media ownership laws and the competition laws as well as what divestments may be required by those laws;
  • whether prior approval of any potential breaches can be obtained and how to get that approval and ensure priority on the register of media groups maintained by ACMA; and
  • how the new local content rules will in practice impact upon the regional television businesses that form part of any transaction.

It is interesting to note that two other items which had been discussed in the context of changes to the media ownership laws, being a proposed reduction in broadcasting licence fees and a reduction in the scope of the anti-siphoning list, have not been proposed as part of this reform package. It remains to be seen whether these changes are still being considered or a positive decision has been made to not pursue these in the short to medium term.

Footnotes

1Generally speaking, a "voice" is a commercial television broadcasting licence, a commercial radio broadcasting licence or an associated newspaper, a group of two or more such operations under common control. A standalone operation and a separate media group each counts as one "point".

2Certain remote areas and areas where there are not currently three independent broadcasters will not be subject to these new content protections.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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