The cost of code interventions on commercial broadcasters
Australian Communications and Media Authority
March2014
Executive summary
Executive summary
Research overview
In 2013, the Australian Communications and Media Authority (the ACMA) commenced an inquiry into contemporary community safeguards to explore and establish the matters that should be addressed in contemporary broadcasting codes of practice.
To inform its inquiry, the ACMA commissioned PwC to explore the costs imposed by the industry codes of practice on commercial television and radio broadcasters.[1] The primary goal of our research is to identify the code requirements that are reported by broadcasters as having the greatest impact on themselves, and understanding the nature and magnitude of these impacts.
Our research project has three main elements:
- An analysis of the market for audio and audiovisual content in Australia.
- An analysis of the financial performance of commercial television and radio broadcasters.
- An analysis of the financial impacts of the current industry codes of practice on commercial television and radio broadcasters.
Appendix A outlines the full terms of reference for our research project.
Market for content in Australia
The market for audio and audiovisual content has expanded and fragmented over the past decade. The amount of content available to the average Australian has increased dramatically (driven primarily by the growth in broadband penetration). People can now access this content across a growing number of platforms and from a growing number of providers (traditional and non-traditional; Australian and international).
Broadcast television remains the dominant source of audiovisual content. Consumer engagement with television content, however, is changing. Australians are increasingly time-shifting live programming, multi-tasking while watching television, and consuming ‘television’ content over the internet through catch-up or internet protocol television services.
Commercial radio remains a key source of audio content. While the reach of commercial radio has not kept pace with population growth over the past decade, the sector is strengthening its position through the introduction of digital radio, simulcast broadcasts over the internet and the use of catch-up listening services.
More broadly, the past decade has witnessed the gradual shift from physical to digital consumption of audio and audiovisual content and the growing popularity of over the top delivery services.
The financial performance of commercial television broadcasters
The cost of acquiring content represents the single largest expenditure item for commercial television broadcasters, accounting for approximately one third of their total costs. Programming costs increased over the past decade, largely driven by the rising cost of producing and acquiring Australian content.
Although revenue growth for commercial television broadcasters was positive in 2009-10 and 2010-11, the overall trend since 2005-06 has been negative, reflecting the structural shift in the market for advertising (driven by the emergence of the internet) and significant macroeconomic shocks (such as the global financial crisis and the European sovereign debt crisis).
Notwithstanding the above trends, the profitability of commercial television broadcasters has been steady over the past decade (with the exception of 2007-08 and 2008-09) – reflecting the efforts of the broadcasters to control their non-programming costs over this period.
Over the next five years, commercial television broadcasters will continue to contend with:
- the shift of advertising revenue to the internet – noting that the television broadcasters will be in a position to exploit this shift (if only in part) through their catch-up television services
- time-shifting and ad-skipping – consumer behaviour that will increase the attractiveness of program material that people are more likely to watch live (such as sport) and product placement.
The financial performance of commercial radio broadcasters
Both expenditure and revenue for commercial radio broadcasters increased steadily from 1994-95 to 2003-04 as the number of licensees expanded (from 165 to 254). Expenditure has declined since 2008-09 as a result of cost controls applied across the industry, particularly by regional broadcasters.
Revenue growth has slackened since the mid-2000s due to the impact of macroeconomic shocks and the structural shift of advertising to the internet – though commercial radio has enjoyed a more stable revenue stream than commercial television. This is a reflection of commercial radio’s greater reliance on local advertising sales, which are more stable than global and national advertising buyers.
The profitability of commercial radio broadcasters increased from 1994-95 to 2007-08 before declining during the global financial crisis. Profits rebounded in 2009-10 due to expenditure reductions and an uplift in revenue before decreasing revenues reduced profits in 2010-11.
Although the financial performance of commercial radio broadcasters have thus far remained relatively resilient to the structural shift in media consumption preferences and hence advertising revenue to the internet, this is expected to change in the near future. The main financial trend for commercial radio over the next five years is expected to be a reduction in revenue as broadcasters face an increasing fragmented market with competition coming from the internet and new music streaming services – some of which are ad-supported.
The costs of the codes of practice on commercial broadcasters
To collect information for our impact analysis, we engaged with broadcasters through two online surveys (one for commercial radio broadcasters, the other for commercial television broadcasters). We also conducted a series of targeted interviews with radio and television networksincluding, where relevant, their network affiliates (collectively described as ‘network entities’ in this report).
Compliance costs
The compliance burden associated with the commercial television code of practice[2] (Television Code) and commercial radio code of practice[3] (Radio Code) includes both general costs (i.e. costs that relate to the codes in their entirety) and costs that are attributable to individual code requirements.
General compliance costs
The television and radio network entities we interviewed incur compliance costs in providing compliance training to staff. In the absence of their respective codes, the television network entities and radio networks indicated that they would still provide some form of compliance training, but expected it to be less costly than what they currently provide.
The television network entities we interviewed raised the view that the complexity of the Television Code can generate a degree of wasteful ‘churn’ in the form of back-and-forth conversations as staff from across the organisation double-check whether activities or content is compliant with the Television Code.
Commercial Radio Australia indicated that it undertakes a range of activities to assist commercial radio broadcasters in complying with the Radio Code (including the provision of advice and training, and the compiling of reports). Though we did not interview Free TV Australia, it is likely that they also undertake similar activities.
Compliance costs associated with individual code requirements
Respondents to the surveys and our interview subjects all identified complaints handling as the code requirement that imposes the greatest compliance burden on their organisation. The radio and television network entities we interviewed stated that the compliance costs associated with complaints handling:
- are driven by the effort required to provide complainants with a ‘substantive’ response, and to respond to investigations by the ACMA
- have increased over the past five years as both the number of complaints and investigations by the ACMA havegrown.
In the absence of codes of practice, our interview subjects maintained that they would still have some form of complaints handling process, but expected this process would be between 40 per cent and 80 per cent less costly than the status quo (as they would not be required to respond to code-related investigations by the ACMA, and they would exercise more discretion in how they responded to complaints).
- After complaints handling, respondents to the television survey identified the scheduling-related code requirements (i.e. classification, program promotions, time occupied by non-program matter and classification and placement of commercials and community service announcements) as imposing the greatest compliance burden on television broadcasters. The television network entities we interviewed had a similar view, identifying section 2 of the Television Code) as being the next most burdensome code requirement after complaints handling. In the absence of the Television Code, the television network entities stated that some form of classification would continue to exist.
After complaints handling, respondents to the radio survey identified Australian music (Code4 of the Radio Code), news and current affairs programs (Code 2 of the Radio Code) and compliance with the codes (Code7 of the Radio Code) as imposing the greatest compliance burden on radio broadcasters.With the exception of complaints handling, there was little consensus amongst the radio network entities we interviewed about the compliance burden associated with individual code requirements. One network saw programs unsuitable for broadcast (Code 1 of the Radio Code) and Australian music (Code 4 of the Radio Code) as being burdensome from a compliance perspective. Other network entities either:
- identified particular code requirements as being burdensome – such as news and current affairs programs (Code 2 of the Radio Code) – because these requirements were referenced in complaints to the network
- felt that, besides complaints handling, the compliance burden associated with the other code requirements is marginal.
Relative compliance burden of the codes of practice
The television network entities we interviewed viewed the Television Code as being costly, but less costly than other regulatory requirements with which they have to comply. Conversely, the radio network entities we interviewed saw the Radio Code as being a significant source of compliance burden relative to the other regulatory requirements with which they have to comply.
Opportunity costs
Respondents to the television survey identified time occupied by non-program matter (section 5 of the Television Code) as imposing the greatest opportunity cost on their operations as a broadcaster, followed by program promotions (section 3 of the Television Code), classification and placement of commercials and community service announcements (section 6 of the Television Code) and classification (section 2 of the Television Code).
The television network entitieswe interviewed also identified time occupied by non-program matter (section 5 of the Television Code) as imposing the greatest opportunity cost burden on their organisations. The key issue raised by television network entities was that, while the average length of program material is 42-44 minutes, the Television Code restricts the amount of advertisements that the commercial television licensees can broadcast in prime time to 13 minutes per hour – leaving a gap of between three to five minutes every prime time hour that the network entities are unable to monetise.
The television network entitieswe interviewed also identified the following code requirements as also imposing an opportunity cost burden on their organisations, including:
- Classification zones (otherwise known as time zones) (section 2 of the Television Code) – our interview subjects noted that the Television Code is preventing their network entities from meeting latent demand for greater PG and M rated content, and highlighted the difficulty of securing sufficient G rated programming for broadcast during the day.
- Complaints handling (section 7 of the Television Code) – the network entities noted that they are losing out on advertising revenue due to the requirement that they publicise the Television Code and its complaints procedures through 360 on-air spots each calendar year.
Respondents to the radio survey identified advertising (Code 3 of the Radio Code) as imposing the greatest opportunity cost on their operations as a broadcaster, followed by complaints (Code 5 of the Radio Code), and Australian music (Code 4 of the Radio Code).
The majority of the radio network entities we interviewed also identified advertising (Code 3 of the Radio Code) as imposing the greatest opportunity cost burden on their organisations. They maintained that the advertising code is preventing them from meeting latent demand for integrated advertising, and the value of this opportunity cost is equal to millions of dollars a year in lost revenue.[4]
In addition to advertising, some of the radio network entities identified Australian music (Code 4 of the Radio Code) and programs unsuitable for broadcast (Code 1 of the Radio Code) as imposing an opportunity cost on their organisations – in the sense that both requirements can restrict the ability of radio broadcasters to deliver programs that match the demand and tastes of their target audiences.
Absence of the codes
Respondents to the television survey identified news and current affairs programs (section4), broadcast of emergency information (clause 1.27-1.31 of the Television Code) and proscribed material (clause1.9-1.10 of the Television Code) as the code requirements that they would most likely achieve the objectives of anyway, if the Television Code did not exist.
Respondents to the radio survey identified news and current affairs programs (Code 2 of the Radio Code), programs unsuitable for broadcast (Code 1 of the Radio Code),[5] and broadcast of emergency information (Code 8 of the Radio Code) as the code requirements thatthey would most likely achieve the objectives of anyway, if the Radio Code did not exist.
Australian Communications and Media Authority
PwC1
The market for content in Australia
Contents
Executive summary
1The market for content in Australia
2Market for content – historic and projected revenue trends
3Financial performance of the television industry
4Financial performance of the radio industry
5Cost of the codes of practice on broadcasters
Appendix ATerms of reference
Appendix BOutlook definitions
Disclaimer
This report has been prepared by PricewaterhouseCoopers Australia (PwC) at the request of the Australian Communications and Media Authority (the ACMA) in our capacity as advisors in accordance with the Terms of Reference.
This document is not intended to be utilised or relied upon by any other persons other than the ACMA, nor to be used for any purpose other than that articulated above. Accordingly, PwC accepts no responsibility in any way whatsoever for the use of this report by any other persons or for any other purpose.
The information, statements, statistics and commentary (together the “Information”) contained in this report have been prepared by PwC from publicly available material and material supplied by the ACMA and stakeholders. PwC has not sought any independent confirmation of the reliability, accuracy or completeness of this information. It should not be construed that PwC has carried out any form of audit of the information that has been relied upon.
Accordingly, whilst the statements made in this report are given in good faith, PwC accepts no responsibility for any errors in the information or the effect of any such error on our analysis, suggestions or report.
Australian Communications and Media Authority
PwC1
The market for content in Australia
1The market for content in Australia
Chapter summary
Historic trends – the general market for content in Australia
A defining trend over the past decade has been the growth of audio and audiovisual content available to the average consumer. Factors that have driven this trend include: growth in broadband penetration and connection speeds; device proliferation (most notably smart devices, but also personal video recorders, internet-enabled televisions and DAB+ radios); media convergence; growth in user-generated content; and the introduction of digital television and radio.
Historic trends – audiovisual content
Broadcast television (both free-to-air and subscription) remains the predominant source of audiovisual content for Australian consumers. Nonetheless, a number of trends have emerged over the past decade that present challenges and opportunities to television broadcasters. These include the growing popularity of time-shifting (and ad-skipping), multi-tasking, catch-up television and IPTV, as well as changes in how different age groups watch television.
The broader market for audiovisual content has witnessed the gradual decline of physical consumption and the dramatic growth in digital consumption. These trends have been accompanied by increasing fragmentation and competition. Australians are now consuming audiovisual content not just from traditional sources (e.g. broadcast television services, cinemas and video/DVD hire outlets), but also from non-traditional sources – including old media players (e.g. audiovisual content on the websites of newspapers and commercial radio broadcasters) and new media players (such as Google, VEVO and Apple).
Historic trends – audio content
Commercial radio remains a key source of audio content for Australian consumers. While the reach of commercial radio has not kept pace with population growth over the past decade, the sector is strengthening its position through the introduction of digital radio, simulcast broadcasts over the internet and the use of catch-up listening services (such as providing consumers access to podcasts, music downloads and streamed music on their websites).
Beyond commercial radio, the market for audio content since 2003 has witnessed the dramatic growth in digital music sales (and the steady decline of physical music sales), the expansion of audio streaming services (both free and subscription), and the continuing popularity of music piracy. These trends present challenges and opportunities to commercial radio, as they indicate there is a significant proportion of consumers that prefer to consume audio content on-demand, and that a key plank in the value proposition of commercial radio (i.e. access to free audio content) is being eroded by alternatives that are also free or at least price competitive.