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Focus: Convergence Review recommends wide-ranging reforms

4 May 2012

In brief: The Convergence Review Committee's much-anticipated final report has been released. Partner Ian McGill (view CV) and Senior Associates Victoria Wark and Valeska Bloch, and a team of lawyers from the Allens Technology, Media and Telecommunications practice group, provide an overview of the report's key recommendations, and the potential implications for media and communications industry participants.

How does it affect you?

  • Who will be regulated? A flexibly defined platform-neutral group of producers of professional content known as content service enterprises will fall within the regulatory net. This will include all traditional media, and will extend to new Internet enterprises (such as Internet protocol television providers, and program aggregators and distributors) but only if they exceed yet-to-be determined thresholds of number of users and Australian sourced revenue. News and commentary services of those content service enterprises will be also be separately regulated.
  • Who will regulate? A new statutory regulator, intended to be independent of government and ministerial interference, to have flexible powers, including a power to forebear from regulatory intervention, and to be subject to judicial oversight and, possibly, parliamentary oversight. News and commentary services of content service enterprises will be regulated by an industry self-regulatory news standards body.
  • What are the major regulatory impacts for the content of content service enterprises? There is no change in relation to children's television content standards and no change to existing co-regulatory content codes but the new regulator will have more flexible powers to ensure compliance. It will have responsibility for the administration of the classification scheme proposed by the Australian Law Reform Commission (the ALRC). A significant change is the conferral of ex ante rule-making powers on the new regulator in relation to content-related competition issues, including exclusive content rights and bundling.
  • What are the major regulatory impacts for news content of content service enterprises? The new news standards body would have compulsory membership and credible sanctions, including the power to order publication of its findings.
  • What are the major regulatory impacts for Australian content of content service enterprises? Existing quotas would be repealed and replaced with a uniform content scheme, applicable to content service enterprises that cross a higher threshold of Australian-based revenue. The scheme would require a percentage of total revenue to be acquitted in the production of Australian content or, where that is not practicable, by contribution to a new converged content production fund.
  • What are the likely merger and acquisition outcomes of the new ownership rules? It is difficult to predict until the new regulator formulates new local ownership limits and establishes a register of nationally significant content service provider enterprises. However, subject to oversight by the new regulator and the Australian Competition and Consumer Commission (the ACCC), future industry consolidation is on the cards.

Background

The Convergence Review (the review) was established in early 2011 by the Federal Government, to assess the policy and regulatory frameworks that apply to the increasingly converged media and communications landscape in Australia. The review's scope was determined by Terms of Reference set by the Government.

The review's final report (the report) presents the review's findings, and provides recommendations to the Federal Government in relation to media and communications delivery platforms and content.

The report also considers the recommendations made by two other reviews that ran parallel to the Convergence Review and reported to the Federal Government in February this year: the Independent Inquiry into the Media and Media Regulation, undertaken by the Hon Ray Finkelstein QC (the Finkelstein Inquiry); and the National Classification Scheme Review, Classification Content Regulation and Convergent Media (the Classification Review), undertaken by the Australian Law Reform Commission.

Despite the broad scope of findings articulated in the report, there remain relevant areas to be integrated into a coherent convergent regulatory regime, particularly copyright reform and the anti-siphoning scheme. The report refers to the recent reforms to the anti-siphoning scheme, but falls short of any detailed recommendations on it, given that it was recently reviewed by the Government and that a Bill to amend the scheme is presently before Parliament (and before a Senate Committee due to report on 4 May 2012). However, the report does indicate that the new communications regulator would administer any future anti-siphoning scheme and recommends a full review on the scheme within five years.1

The review: a snapshot

The report makes 31 recommendations to the Government but the review does not have any immediate or binding effect on industry. A Government response and then implementing legislation are required.

The review is open for debate, and it is a serious, important and thoughtful step towards modernising Australia's antiquated media and communications law and policy. It deserves close consideration and constructive discussion.

The report adopts the following structure:

  • an analysis of the changing media landscape, where users are increasingly at the centre of content service delivery, and the need for a new policy and regulatory framework;
  • discussion of a new 'technology-neutral' framework based on the regulatory touchstone of a 'content service enterprise', which will regulate significant media enterprises based on size and scope, rather than means of delivery of content;
  • a proposal for new media ownership and control rules, including a local market 'minimum number of owners' test and a national 'public interest' test, focused on maintaining the diversity of content services at both a local and national level;
  • incorporation of the ALRC's classification review, including the broad recommendation for a common classification scheme applying to media content;
  • discussion of the Independent Media Inquiry's findings. The report ultimately departs from these findings, opting for an industry-led body for news standards rather than a statutory body;
  • a proposal for a 'uniform content scheme', which will require qualifying content service enterprises to invest a percentage of revenue in Australian programs, or contribute to a 'converged' content production fund;
  • the building of a case for a new communications regulator to replace the Australian Communications and Media Authority (the ACMA), and a new industry-led body to oversee standards for news and commentary;
  • a proposal for a new market-based approach to pricing the broadcasting spectrum, which would replace the current radio and television licence fees with an annual spectrum access fee based on the value of the spectrum as planned for broadcasting use;
  • discussion of the important role played by public and community broadcasting, and the need for updated SBS and ABC charters; and
  • a staged approach to implementation of the recommendations, ranging from short-term policy changes to long-term legislative reform.

The review: in more detail

Regulatory focus

In contrast to the existing regulatory regime, the report considers that the focus of regulation should be on significant enterprises that control professional media content, irrespective of the platform that they use to deliver such content. The report, accordingly, proposes a concept of content service enterprises (CSEs), which would broadly refer to organisations that have:

  • control of professional content they deliver;
  • a large number of Australian users; and
  • a high level of Australian-based revenue derived from supplying that professional content to Australians.

The precise thresholds applicable to CSEs would be set by the new statutory regulator, though the report recommends that the initial threshold for users be 500,000 per month and that the threshold for revenue be $50 million a year of Australian-sourced content revenue only. Although existing online providers (such as Telstra, Google and Apple) are unlikely at present to meet these thresholds, this may not be the case in the future.

The report has added the requirement of 'professional' content to the criteria specified in the interim report and confirms that it does not intend to focus on user-generated content published on social media sites. The report did note, however, that platforms that host user-generated content could be classified as a CSE where they have financial arrangements with professional content providers; for example, revenue-sharing advertising arrangements. Even though the platform operator does not have direct editorial control over the program, the report proposes that the financial arrangement may constitute control over the content.2

Who would regulate?

The report recommends the establishment of two new bodies that will regulate the media and communications industry:

  • a new statutory regulator that would replace the ACMA; and
  • an industry-led body to oversee journalistic standards for news and commentary (the news standards body).
A new statutory regulator

The report recommends that a new statutory regulator (the regulator) be established immediately that enabling legislation is passed. The regulator would commence work on the concepts that will underpin the framework. Once the proposed phasing out of the broadcasting licence regime has been completed, the regulator will replace and assume the remaining functions of the ACMA.

The regulator would be independent and operate at arm's length from the Government. Significantly, ministerial control of the regulator would be only through disallowable legislative instruments, not general directions. This differs from the existing framework, which gives the Minister an unfettered power to give the ACMA directions in relation to its non-broadcasting and non-online content functions.3

The report recommends that the regulator take the form of a statutory corporation managed by a board that has full power to act within the constraints of the law. The regulator would have broad powers to make rules (subject to ministerial direction in limited cases only). The regulator would, nonetheless, be held accountable for its decisions under existing parliamentary, judicial and administrative arrangements; for example, disallowance by Parliament, merits review by the Administrative Appeals Tribunal and judicial review. The report floats the suggestion that the regulator could also be supervised by a joint parliamentary committee, which would operate in a similar manner to the Parliamentary Joint Committee on Corporations and Financial Services.

The report also recommends that the existing practice of cross-appointments on a part-time basis between the regulator's and the ACCC's boards continue.

Following the Classification Review's recommendations, the regulator would be responsible for the new national classification scheme for media content standards applying across all platforms, and also incorporate a new Classification Board.4

The regulator would also be granted specific new powers in relation to:

  • CSEs responsibility for threshold classifications, administering the media ownership tests, and monitoring compliance with Australian and local content standards;
  • content standards discretion to determine standards, complaints and investigation proceedings, as well as direct enforcement powers in response to breach of codes or standards; and
  • competition rule-making and investigative powers where content-related competition issues are identified, complementing ACCC functions and powers.
News standards body

The report recommends the establishment of an independent self-regulatory news standards body with responsibility for the content standards that apply to news and commentary across all platforms (not just traditional print media). The news standards body would develop and enforce a code aimed at promoting fairness, accuracy and transparency in professional news and commentary.5 The body would absorb the functions currently performed by the Australian Press Council and also the ACMA (but only in relation to news and commentary).6

CSEs would be required to be members of the body, though other professional news and commentary providers would be encouraged to opt in to membership. National broadcasters would not be required to join the news standards body but should take into account the standards and procedures developed by this body in formulating their own codes.

Significantly, the report considers that membership could be a condition of retaining legal privileges currently provided for news and commentary in federal legislation. The board of the new body would comprise a majority of directors who are independent of members.7

The recommended formulation of an industry body to oversee the development and application of the news and commentary standards sits in contrast to the Finkelstein Inquiry, which recommended a statutory authority as the appropriate body for these purposes. The report considers that a statutory authority should be an option of 'last resort'.8

Although industry-led, the new body would nonetheless have a range of remedies and credible sanctions available to it, including requiring members to publish findings on particular media platforms.9 It would also be able to refer serious breaches of the code to the regulator.10 Likewise, the regulator would be able to refer matters for investigation to the news standards body.11

The majority of funding for the body should be contributed by its members; however, the Government would also contribute funding to meet a shortfall or to fund specific projects.

Media ownership

The report recommends the following three key changes in relation to media ownership.

Reformulation of 4/5 rule

The existing 'minimum number of voices' or '4/5' rule, which requires there to be no fewer than five media operators or groups in a metropolitan commercial radio licence area, and no fewer than four in a regional area, should be amended to 'minimum number of owners'.12

The regulator would administer the rule and be able to provide exemption in circumstances in the public interest (which would generally be in relation to availability of services and content). The existing concept of a 'commercial radio licence area' would be removed and the scope of the new local areas determined by the regulator.

New public interest test

The report recommends the introduction of a public interest test to apply to proposed changes in control of CSEs that are of national significance.13 The regulator would have the power to block such transactions that are not in the public interest.

The regulator would define the criteria for 'national significance', but a minimum threshold should be provision of content service in multiple markets and more than one state or territory.14 Other likely determinants would be a minimum audience threshold (also to be determined by the regulator), and whether the content service enterprise has a controlling interest in one or more prominent media operations on different platforms.

The public interest test is intended sit alongside, rather than cut across, the role and powers of the ACCC in relation to changes of control.15

Abolition of existing rules

The report recommends the abolition of the following rules:16

  • the '2 out of 3' rule applying to commercial television, radio, newspapers;
  • the 'one-to-a-market' rule applying to commercial television;
  • the 'two-to-a-market' rule applying to commercial radio; and
  • the '75 per cent audience reach' rule for commercial television.

Content

Content-related competition issues

The report considers that, without regulatory intervention, there is a risk that content could become a 'new competition bottleneck' for the industry.17 Particular areas of risk identified in the report include exclusive access to premium content, the bundling of carriage and content services, network neutrality, the provision of unmetered content and the re-transmission of free-to-air signals.

The report accordingly recommends that the regulator be given the power to conduct market investigations where potential content-related competition issues are identified. The report envisages that the regulator's powers in relation to the promotion of competition in content markets would complement the ACCC's existing powers to deal with anti-competitive conduct. Such powers would only be exercisable following a public inquiry.

Production and distribution of Australian and local content

The report highlights the need for continued support for Australian programs. In line with this objective, the report recommends a new uniform content scheme that abolishes the existing set of measures based on quotas and minimum expenditure. Under the proposed scheme, CSEs that offer professional television-like drama, documentary or children's content, and meet certain audience and revenue thresholds, would be required to contribute to the production of Australian content by either investing a percentage of their Australian market revenue in those genres or contributing to a central converged content production fund.18

The converged fund is a key production support measure and would also be funded by government appropriations and spectrum fees paid by broadcasters.19 The existence of the investment and contribution options recognises that content providers should be able to choose whether they support Australian content directly or indirectly.

The report also addresses the need for continued provision of local content services for the benefit of people living in regional and rural Australia.20 In particular, commercial free-to-air television and radio broadcasters will be required to devote a specified amount of programming to material of local significance. To assist with these obligations, the report recommends that a more flexible reporting regime be implemented and the removal of current radio 'trigger event' rules.21

The report recommends transitional arrangements that should apply in the run-up to the commencement of the uniform content scheme, including a 50 per cent increase in Australian sub-quota obligations for drama, documentary and children's content to reflect their digital multichannels.

The report argues that this increased obligation to invest during the transition period recognises the existing concessions granted to the free-to-air sector, including an ongoing option to access spectrum, access to the higher 40 per cent producer offset, no full fourth commercial television broadcasting network and the protection of sports rights in the anti-siphoning list.22

Content standards

The report recommends a technology-neutral and flexible approach to media content standards, which would be administered by the regulator. CSEs would be subject to children's television content standards and content standards in relation to other areas where regulatory intervention is required, with existing codes registered under the Broadcasting Services Act 1992 (the BSA) to be used as a starting point.

Content providers that do not meet the threshold requirements of CSEs would be encouraged to opt in to compliance with such codes, or to develop their own codes.

The report also includes the findings from the review of Schedule 7 to the BSA, which is required under a statutory review provision in that Act. The key recommendation based on these findings is that, consistent with the review and the Classification Review, Schedule 7 to the BSA should be replaced by a new national classification scheme that would harmonise the regulation of content across all media platforms.

Spectrum issues

The report recognises that the existing approach to the provision of broadcasting licences is inconsistent with the principle that 'the government should seek to maximise the overall public benefit derived from the use of spectrum assigned for the delivery of media content and communications services'.23

The report accordingly recommends the removal of the broadcasting licence regime. Existing apparatus licences would be replaced by renewable, fully tradeable 15-year spectrum licences, to be administered under the Radiocommunications Act 1992 (Cth). The spectrum licence would be conditional on the provision (using that spectrum) of digital TV on one or more channels. There would be no other restrictions on the kinds of services that could be provided over the spectrum.

Consistent with the trend towards market-based approaches to spectrum, these spectrum licences would be fully tradable; that is, multi-channels could be leased or sold to a new content service provider. Licences would be subject to market-based pricing an annual spectrum access fee would be payable based on the value of the spectrum as planned for broadcasting use.

Interestingly, the report recommends a degree of competition protection in relation to the sixth 'multiplex' (previously known as the sixth channel), which it suggests should not be allocated to a commercial broadcaster but be used for new and innovative services. The sixth multiplex could be operated as a consortium under similar arrangements already operating for digital radio services.

The report also recommends that there would be ministerial powers to reserve and allocate spectrum for policy objectives considered important by the Government and the Australian community.

Next steps

The Federal Government is not required to accept and introduce into legislation the recommendations proposed in the report.

Senator Stephen Conroy, the Federal Minister for Broadband Communications and the Digital Economy, has said 'the Government will respond to the report in due course'.24 The Australian Financial Review reports the Government's response is expected mid-year.25

The Federal Opposition has said it will carefully examine the report and participate in public debate about the changes it proposes.26

At this stage, the Government has not confirmed if there will be a formal opportunity to make submissions in response to the report. Senator Conroy did, however, confirm he expected there to be 'robust public debate' about the recommendations.27

Footnotes
  1. Commonwealth of Australia, Convergence Review Final Report, p. 35.
  2. Convergence Review Final Report, p.11.
  3. The report notes that, rather than increasing the resources required to regulate the industry, the arrangements proposed, including the removal of the broadcast licensing regime and duplication in the classification scheme, should free up existing regulatory resources. (Convergence Review Final Report, page xiii).
  4. Convergence Review Final Report, p.38.
  5. Convergence Review Final Report, p.30.
  6. Convergence Review Final Report, p. xiv.
  7. Convergence Review Final Report, p. 51.
  8. Convergence Review Final Report, p. 37.
  9. Convergence Review Final Report, p. 51.
  10. Convergence Review Final Report, p.38.
  11. Convergence Review Final Report, p.37.
  12. Convergence Review Final Report, p.18.
  13. Convergence Review Final Report, p. xvi.
  14. Convergence Review Final Report, p.24.
  15. Ibid.
  16. Convergence Review Final Report, p.xvii.
  17. Convergence Review Final Report, p.28.
  18. Convergence Review Final Report, p.66.
  19. Convergence Review Final Report, p.72.
  20. Convergence Review Final Report, p.79.
  21. Ibid.
  22. Convergence Review Final Report, p.70.
  23. Convergence Review Final Report, p.90.
  24. Senator Stephen Conroy, 30 April 2012, Minister for Broadband, Communications and the Digital Economy, Government releases Convergence Review final report http://www.minister.dbcde.gov.au/media/media_releases/2012/055.
  25. Ben Holgate, 1 May 2012, The Australian Financial Review, Networks slam new media rules http://www.afr.com/p/national/networks_slam_new_media_rules_qYQUY4bZ6M0NvdIcQUT55N.
  26. Malcolm Turnbull, 30 April 2012, Convergence Review: More Regulation & Government Intrusion http://www.malcolmturnbull.com.au/media/convergence-review-more-regulation-government-intrusion/.
  27. Senator Stephen Conroy, 30 April 2012.

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