Statement of Reasons for the Preliminary Decision to Make Anexemption Orderfor Telstra

STATEMENT OF REASONS FOR THE PRELIMINARY DECISION TO MAKE ANEXEMPTION ORDERFOR TELSTRA PAY TV PTY LTD IN RESPECT OF THE SUBSCRIPTION TELEVISION SERVICE THE LIFESTYLE CHANNELPROVIDED THROUGH MOBILE FOXTEL

1. PRELIMINARY DECISION

1.1For the reasons set out below, the Australian Communications and Media Authority (ACMA) has made the preliminary decision to make an exemption orderin relation to the subscription television general entertainment service, The LifeStyle Channel, provided through Mobile Foxtel (the Service).

1.2The orderwould exempt Telstra Pay TV Pty Ltd (the Applicant) from the requirement to ensure that a captioning service was provided for at least 60 percent of the total number of hours of television programs transmitted on the Service in the financial year 1 July 2015 to 30 June 2016 (the Specified Eligible Period).

1. LEGISLATION

2.1Subsection 130ZV(1) of the Broadcasting Services Act 1992 (the BSA) provides that a subscription television licensee that provides a subscription television servicein a financial year must at least meet the annual captioning target for that financial year.

2.2Subsection 130ZV(2) of the BSA outlines how the applicable percentage for the annual captioning target for the relevant financial year is calculated. The annual captioning target differs according to the subscription television service category and increases by five percent each financial year until it reaches 100 percent.

2.3Paragraph 130ZY(1)(a) of the BSA provides that a subscription television licensee may apply to the ACMA foran order (an exemption order)that exempts from subsection 130ZV(1) of the BSA,a specified subscription television service provided by that licensee in a specified eligible period.

2.4Subsection 130ZY(3) of the BSA provides that if an application under subsection 130ZY(1)of the BSA has been made for an exemption order, the ACMA must, after considering the application, by writing, either make the exemption order or refuse to make the exemption order.

2.5Subsection 130ZY(4) of the BSA provides that the ACMA must not make the exemption order unless it is satisfied that a refusal to make the exemption order would impose an unjustifiable hardship on the applicant.

2.6Subsection 130ZY(5) of the BSA specifies the matters the ACMA must have regard to in determining whether a failure to make the exemption order would impose an unjustifiable hardship on the applicant. A copy of these matters is at Attachment A.

2.7Subsection 130ZY(6) of the BSA provides that, before making an exemption order under subsection 130ZY(3) of the BSA, the ACMA must:

a)within 50 days after receiving the application for an exemption order, publish on the ACMA’s website a notice:

(i)setting out the draft exemption order; and

(ii)inviting persons to make submissions to the ACMA about the draft exemption order within 30 days after the notice is published; and

b)consider any submissions received within the 30-day period mentioned in subparagraph 130ZY(6)(a)(ii) of the BSA.

1. BACKGROUND

3.1On 30 March 2016, the Applicant submitted an application seeking an exemption order under paragraph 130ZY(1)(a) of the BSAin relation to the Service for the Specified Eligible Period (the Order).

3.2The Applicant is a subscription television licensee. The Service is one of 34 channels provided by the Applicantknown as ‘Mobile Foxtel’ (Mobile Foxtel).Mobile Foxtel is exclusively available to mobile customers of the Applicant’s parent company, Telstra Corporation Limited (Telstra).

3.3Telstra has entered into a contractual arrangement with Foxtel Management Pty Limited (Foxtel), under which Foxtel supplies content to the Applicant for use on its Mobile Foxtel channels. The Applicant also retransmits free-to-air broadcast television services, the ‘AFL TV’ channel and the ‘Sportsfan’ channel as part of certain subscription packages (discussed below).Since at least 29 June 2015, Mobile Foxtel has been delivered to subscribers solely via a mobile application, ‘Mobile FOXTEL from Telstra’ (the Mobile Application), compatible with certain mobile devices.

3.4The Applicant offers three subscription packages through Mobile Foxtel: the ‘Value Pack’ (16 channels), the ‘Ultimate Pack’ (30 channels) and the ‘Ultimate Pack + Plus Sport’ (34 channels). Telstra pre-paid and plan-based mobile customers may subscribe to Mobile Foxtel on either a weekly or monthly basis. The Service is offered by the Applicant as part of the ‘Ultimate Pack’ and the ‘Ultimate Pack + Sports’ subscription packages.

3.5The Service provides lifestyle, cooking, decorating, gardening and health related series and shows. As a category-Asubscription television general entertainment service, the annual captioning target for the Specified Eligible Period is 60 percent. This means that the Applicant must ensure that a captioning service is provided for at least 60 percent of the total number of hours of television programs transmitted on the Service during the Specified Eligible Period.

3.6This is the fourth application by the Applicant for an exemption order under paragraph 130ZY(1)(a) of the BSA relating to the Service. The ACMA has already made three exemption orders for the Service. The first exemption order for the Service (ST/EO-86) was made on 13 March 2013 and covers the financial year 1 July 2012 to 30 June 2013. The second exemption order for the Service (ST/EO-143) was made on 12 March 2014 and covers the financial year 1 July 2013 to 30 June 2014. The third exemption order for the Service (ST/EO-216) was made on 12 March 2015 and covers the financial year 1 July 2014 to 30 June 2015.

1. EVIDENCE AND REASONS FOR PRELIMINARY DECISION

4.1In making the preliminary decision to make the Order, the ACMA assessed firstly, whether a refusal and/or failure to make the Order would impose hardship on the Applicant and secondly, whether such hardship would be unjustifiablein light of the objects and purposes of the BSA.In making this assessment, the ACMA had regard to the matters specified in subsection 130ZY(5) of the BSA.

4.2The ACMA has relied upon written representations and supporting evidence submitted by the Applicant in its application and in response to further enquiries. The ACMA has also relied upon written representations and supporting evidence submitted by the Applicant as part of previous exemption order applications for the Service, outlined in paragraph 3.6 above, as well as publicly available information.Information provided to the ACMA on a confidential basis has not been reproduced.

Paragraph 130ZY(5)(a) of the BSA – the nature of the detriment likely to be suffered by the applicant

4.3The Applicant submitted that, if the Order is not made by the ACMA, the detriment likely to be suffered by the Applicant would include significant brand damage and significant financial commitments.

Significant brand damage

4.4The Applicant submits that it has made genuine efforts and invested significant resources in a program to implement closed captioning capability for Mobile Foxtel. Details of the Applicant’s efforts to implement captioning capability are contained in paragraphs4.34 to 4.41 below.

4.5The Applicant submits that despite its genuine efforts, it encountered technical difficulties that prevented it from introducing captioning capability for Mobile Foxtel, including the Service. Details of the Applicant’s submissions relating to technical difficulties are contained in paragraphs 4.42 to 4.49 below.

4.6The ACMA acknowledges the Applicant’s genuine efforts. However, the ACMA does not consider that ‘brand damage’ is, in itself, grounds for unjustifiable hardship. In exercising its functions, the ACMA is required to engage in a public consultation process and publish information on its website where relevant. This may necessitate the publication of information, the making of findings or the making of a decision which, although adverse to an Applicant’s reputation, is in the public interest. If an applicant wishes to benefit from the exemptions afforded by section 130ZY of the BSA, it would appear illogical to claim that the process by which the ACMA must reach its decision is in some way adverse to the applicant’s brand.

4.7Furthermore, subsection 130ZY(10) of the BSA provides that if the ACMA decides to make an exemption order, it must publish a copy of the exemption order on its website. Paragraph 130ZY(9)(b) of the BSAprovides that if the ACMA decides to refuse to make an exemption order, it must give written notice of its decision to the applicant. There isno requirement that the ACMA publish its decision to refuse an exemption order and the ACMA does not do this in practice. It is unclear from the Applicant’s submissionshow it might suffer ‘brand damage’ when the ACMA’s final decision is only made public where an exemption order is granted. The Applicant has not provided any evidence to substantiate or clarify how it alleges that it is likely to suffer ‘brand damage’.

4.8The ACMA is not satisfied, therefore, that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant on the basis of detriment due to ‘brand damage’.

Significant financial commitments

4.9The Applicant submitted that, if the Order is not made by the ACMA, the detriment likely to be suffered by the Applicant would include significant financial commitments associated with implementing captioning capability for Mobile Foxtel during the Specified Eligible Period, including for the Service.

4.10The Applicant previously submitted thatthe only potential technical solution to provide closed captioning capability during the Specified Eligible Periodwould be to create duplicate Mobile Foxtel channels, including for the Service. Duplicate channels would require the Applicant to stream two versions of each channel, one encoded with open captions and one without.

4.11The Applicant previously submitted that providing duplicate channels would involve significant financial commitments which would be extremely cost prohibitive such that providing the Mobile Foxtel service would not be financially viable. The Applicant submits that Mobile Foxtel would, as a result, likely be discontinuedas the cost of providing duplicate channels would be far greater than the annual profit generated from Mobile Foxtel.

4.12The Applicant submits the following costs would be associated with duplicating Mobile Foxtel channels:

(a)initial start-up costs associated for duplicating Mobile Foxtel channels (including hardware, software licences, racking space and redundancy);

(b)running costs associated with duplicated programming for Mobile Foxtel channels;

(c)one-off cost to change the loop preparation process for 10 looped channels;

(d)costs to build, test and implement closed captions for live channels, including the Service;

(e)costs to build, test and implement closed captions for looped channels; and

(f)costs associated with the actual provision of closed captioning.

4.13Under the current legislative framework, it is a priority that subscription television services be broadcastwith captions where possible.[1] However, if meeting the captioning obligation for a subscription television service would resultin a subscription television licensee being unable to show the service, then the captioning obligation itself may be seen as an unjustifiable hardship.[2]

4.14Based on the information provided, the ACMA is satisfied that the cost of duplicating Mobile Foxtel channels is likely to exceed the annual income earned from Mobile Foxtel, which in turn would likely result in Mobile Foxtel, including the Service, being discontinued. The ACMA is satisfied therefore that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant, given the significant financial commitments associated with duplicating its Mobile Foxtel channels, including the Service, duringthe Specified Eligible Period(see paragraphs 4.9 to 4.12).

Paragraph130ZY(5)(b) of the BSA – the impact of making the exemption order on deaf or hearing impaired viewers, or potential viewers, of the subscription television service concerned;

4.15The Applicant submits that if the ACMA made the Order, it would have no impact on deaf or hearing impaired viewers as the Applicant has,to date,not provided any captioned content for Mobile Foxtel, including the Service.

4.16The ACMA notes that if the Order were made, the Applicant would be exempt from meeting the annual captioning target for the Service forthe Specified Eligible Period. It would also result in the Applicant being exempt from its captioning obligations for the Service for a four year period from 1 July 2012 to 30 June 2016 inclusive.

4.17The ACMA considers that although no captioned content has been provided for the Service to date, it is still possible that deaf or hearing impaired viewers or potential viewers may have used, currently use or will use the Service. Deaf or hearing impaired viewers or potential viewers may, for example, haveacquired a mobile service from Telstra and/or subscribed to Mobile Foxtel in reliance upon representations made in the Applicant’s previous exemption order that Mobile Foxtel would have captioning capability in FY2015 – 2016.[3]

4.18The ACMA is not satisfied, therefore, that making the Order would not have a detrimental impact on deaf or hearing impaired viewers, or potential viewers, of Mobile Foxtel, including the Service.

Paragraph130ZY(5)(c) of the BSA – the number of people who subscribe to the subscription television service concerned;

4.19The Applicant submitted information about the number of people that subscribe to Mobile Foxtel, including the Service, as well as average viewer numbers, on a commercial-in-confidence basis.

4.20Based on the information provided, the ACMA is satisfied that, based on the number of subscribers, it would be a disproportionate administrative burden on the Applicant to meet its captioning obligations for the Service for the Specified Eligible Period. The ACMA is satisfied, therefore, that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant.

Paragraph130ZY(5)(d) of the BSA – the financial circumstances of the applicant

4.21The Applicant hassubmitted information about its financial circumstances, including profit and loss statements, expenditure on closed captioning capability and estimated expenditure on closed captioning services, on a commercial-in-confidence basis.

4.22The Applicant previously submitted that the additional cost of duplicating Mobile Foxtel channels and creating open captions, including for the Service, would render Mobile Foxtel commercially unviable. The Applicant submits that Mobile Foxtel would likely be discontinued as the cost of providing duplicated channels would be far greater than its annual profit from providing the service.

4.23From its examination of the financial information provided by the Applicant on a commercial-in-confidence basis, the ACMA is satisfied that a refusal and/or failure to make the Order would impose financial costs that would make Mobile Foxtel commercially unviable and would likely result in Mobile Foxtel, including the Service, being discontinued.

Paragraph130ZY(5)(e) of the BSA – the estimated amount of expenditure that the applicant would be required to make if there was a failure to make the exemption order

4.24The Applicant submits that, if there was a failure to make the Order, it would be required to make at least the following expenditure to implement captioning capability on its current video platform for Mobile Foxtel, Ooyala:

(a)costs to build, test and implement closed captions for live channels;

(b)costs to build, test and implement closed captions for looped channels;

(c)one-off cost to change the loop preparation process for 10 looped channels;

(d)costs to upgrade features of Ooyala to allow the Android mobile operating system to display captions without causing the Mobile Application to crash;

(e)costs to upgrade features of Ooyala to allow the iOS mobile operating system to display captions on the Mobile Application; and

(f)costs associated with the actual provision of closed captioning.

4.25The Applicant submitsthat several costs are unknown until the above steps are implemented and that it would not be feasible to implement the above changes within the Specified Eligible Period.

4.26The Applicant submits that, if there was a failure to make the Order, the only technical solution would be to duplicate Mobile Foxtel channels. The expenditure required to duplicate Mobile Foxtel channels is outlined in paragraph 4.12 above.

4.27Based on the information provided, the ACMA is satisfied that the expenditure required by the Applicant if there was a failure to make the exemption order would impose hardship on the Applicant. Such hardship would be unjustifiable in light of technical difficulties and genuine efforts made by the Applicant to provide captioning capability for Mobile Foxtel, including the Service, during the Specified Eligible Period.

Paragraph130ZY(5)(f) of the BSA – the extent to which captioning services are provided by the applicant for television programs transmitted on subscription television services provided by the applicant

4.28The Applicant submits that it is not currently streaming any captioned content on Mobile Foxtel, including the Service. A refusal and/or failure to make the Order would, therefore, result in the Applicant being required to meet its entire annual captioning target for the Service in the remainder of the Specified Eligible Period.

Paragraph130ZY(5)(g) of the BSA – the likely impact of a failure to make the exemption order on the quantity and quality of television programs transmitted on subscription television services provided by the applicant

4.29The Applicant submits that a failure to make the Order would have an impact on the commercial viability of Mobile Foxtel which would likely result in Mobile Foxtel, including the Service, being discontinued. This would result in the quantity of television programs transmitted on Mobile Foxtel, including the Service, being reduced to zero. The impact on the quality of television programs transmitted on Mobile Foxtel, including the Service, would therefore no longer be relevant.

4.30The ACMA is satisfiedthat a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant on the basis that it would likely result in Mobile Foxtel being discontinued and therefore no television programs would be transmitted on the Service.

Paragraph130ZY(5)(h) of the BSA – whether the applicant has applied, or has proposed to apply, for exemption orders or target reduction orders under this section in relation to any other subscription television services provided by the applicant;

Exemption Order Applications

4.31On 30 March 2016, the Applicant applied for exemption orders for 34 channels provided by the Applicant as part of Mobile Foxtel, including the Service. Each exemption order application is made for the Specified Eligible Period. Details are contained in the table below:

Channel No. / Channel Name / Channel Service Provider / Annual Captioning Target / Looped / Live service
1 / ABC1 / Australian Broadcasting Corporation / 50% / Live
2 / SBS1 / Special Broadcasting Service / 50% / Live
3 / Sky News Headlines / Australian News Channel Pty Limited / 20% / Live
4 / Sky News Business / Australian News Channel Pty Limited / 20% / Live
5 / BBC World News / BBC World Distribution Ltd and BBC World (Australia) Pty Ltd / 20% / Live
6 / CNN / Turner Broadcasting System Asia Pacific, Inc. / 20% / Live
7 / Fox Sports News TV / FOX SPORT Australia Pty Ltd / 20% / Live
8 / Cartoon Network / Turner Broadcasting System Asia Pacific, Inc. / 60% / Live
9 / National Geographic Channel / NGC Network (Australia) Pty Limited / 60% / Live
10 / Sky News Weather / Australian News Channel Pty Limited / 60% / Live
11 / MTV / MTV Networks Australia Pty Ltd / Looped
12 / Nickelodeon Mobile / Nickelodeon Australia Management Pty Ltd / 60% / Live
13 / TVHits / TV1 General Entertainment Partnership / 60% / Looped
14 / Discovery Mobile / Discovery Asia, Inc. / 60% / Live
15 / Channel [V] / Foxtel / 10% / Looped
16 / MAX / Foxtel / 10% / Looped
17 / Eurosport News / EUROSPORT Societe Anonyme / 20% / Live
18 / Disney Channel / The Walt Disney Company (Australia) Pty Ltd / 60% / Live
19 / Disney Junior / The Walt Disney Company (Australia) Pty Ltd / 60% / Live
20 / Nick Jr. / Nickelodeon Australia Management Pty Ltd / 60% / Live
21 / E! Entertainment / E! Entertainment Television, Inc. / 60% / Live
22 / FOX8 / Foxtel / 60% / Looped
23 / The Comedy Channel / Foxtel / 60% / Looped
24 / Channel [V] Hits / Foxtel / 10% / Live
25 / Nat Geo People / NGC Network (Australia) Pty Limited / 60% / Live
26 / Arena / Foxtel / 60% / Looped
27 / The LifeStyle Channel / Foxtel / 60% / Looped
28 / LifeStyle YOU / Foxtel / 60% / Live
29 / A&E / Foxtel / 60% / Looped
30 / FX / TV1 General Entertainment Partnership / 60% / Looped
31 / AFL TV / Chief Entertainment Australia / 50% / Live
32 / SportsFan / Chief Entertainment Australia / 20% / Live
33 / Fox Sports / FOX SPORT Australia Pty Ltd / 20% / Live
34 / Eurosport / EUROSPORT Societe / 20% / Live

Foxtel Smooth