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Australia – Convergence Review Culmination: The Final Report.

28 October, 2012

 

Legal News & Analysis – Asia Pacific – Australia – TMT

 

In brief

 

  • On 30 March 2012, the Convergence Review Committee released its Final Report into Australia’s existing media and communications regulation.
  • The Committee found that Australia’s existing system of regulation is out-dated and made numerous and far-reaching recommendations for substantive changes.
  • The Final Report is currently under consideration by the Minister for the Department of Broadband, Communications and the Digital Economy.

 

On 30 March 2012, the Minister for the Department of Broadband, Communications and the Digital Economy released the Final Report of the Convergence Review Committee (Committee). The Final Report includes detailed analysis of Australia’s existing media and communications regulation and its effectiveness in achieving policy objectives in a converged media landscape. The Committee found that the convergence of media content and technologies has made Australia’s existing system of regulation out-dated, and the Committee made numerous and far-reaching recommendations for substantive changes to the current regulatory framework.

 

The Committee adopted the concept of regulatory forbearance as one of its guiding principles. Principle 1 of the Committee’s Emerging Issues Paper provided that “Citizens and organisations should be able to communicate freely, and where regulation is required, it should be the minimum needed to achieve a clear public purpose” [emphasis added]. One of the criticisms of the Final Report, however, has been that the Committee’s recommendations will result in more, rather than less, regulation.

 

The Final Report has also not been welcomed by industry. The competing interests of industry groups across the diverse media and communications sectors mean that the Committee’s recommendations would inevitably be divisive. It will prove challenging for the Government to address these competing interests when assessing the Committee’s recommendations and their implementation.

 

Key recommendations Key among the Committee’s recommendations include:

 

1. The establishment of two new regulatory bodies

 

  • The Committee recommended a new statutory communications regulator to replace the Australian Communications and Media Authority (ACMA). The new regulator would have a much larger role in regulating media and communications than the ACMA and would operate under a “principles-based” and flexible approach. It would have responsibility for a wide range of matters, including for all compliance matters related to media content standards across all platforms (except for news and commentary). The new regulator would also determine several important threshold matters, such as the definition of a “content service enterprise” (discussed below) and have broad rule-making and enforcement powers. This breadth of responsibility and powers proposed for a regulator that is not independently accountable to the Australian public has raised concerns for industry.
  • The Committee also recommended a new industry-led and funded standards body to oversee journalistic standards in fairness, accuracy and transparency. This body would be responsible for managing news and commentary content standards across all platforms. The Committee preferred an industry-led body to a publicly funded statutory authority to manage news and commentary as recommended by the recent Independent Inquiry into the Media and Regulation (the “Finkelstein Report”).

 

2. The replacement of platform-specific content regulation with a technology-neutral approach to content regulation: the “content service enterprise”.

 

One of the key issues for the Committee to consider as part of the Final Report was the regulation of content and in particular, whether it is appropriate to continue to regulate content on a platform-specific basis as is currently the case.

 

The Committee was of the view that platform-specific regulation of content was no longer appropriate. It recommended that a new legislative framework should focus on significant enterprises controlling professional media content and should regulate them based on their size and scope, rather than on the platform they use to deliver content. The enterprises have been dubbed “content service enterprises” (CSEs) In this way, the Committee retains a modified approach to the “degree of influence” principle in the current Broadcasting Services Act; that regulation should apply to those with the greatest influence. The Committee proposed that a CSE would have the following features:

 

  • control over the professional content it delivers;
  • a high level of revenue derived from supplying professional content to Australians (the Committee considered an initial threshold of $50 million per year of Australian-sourced content service revenue); and
  • a large number of Australian users / audience (the Committee considered an initial threshold of 500,000 Australian users / viewers per month).

 

The proposed CSE construct raises a number of questions. Are the thresholds proposed by the Committee appropriate? Should regulation be restricted to those providing “professional content”, and if so, what is the criteria for determining what is “professional content”?

 

If the thresholds considered by the Committee were adopted, CSEs would appear to capture only traditional media organisations such as broadcasters and newspaper publishers.

 

Based on publicly available information located by the Committee, 15 existing media organisations (including the commercial free- to-air and subscription television broadcasters and major Australian newspapers) would meet the Committee’s proposed initial thresholds and would qualify as CSEs, but some notable existing technology companies would not, including, for example, Apple.

Importantly, the Committee proposed that the new regulator would be responsible for setting the qualifying thresholds based on market analysis, and that these thresholds could change over time in line with market changes. Accordingly, it is possible that the thresholds could be set lower than those proposed by the Committee.

 

It is clear that additional work is required to flesh out the various issues at play in relation to this proposal.

 

3. A new technology-neutral approach to content standards

 

The Committee also recommended that uniform prescribed content standards should apply to CSEs. This raises questions about how the proliferation of online content should be classified and regulated, who should be responsible for classifying it, and the potential inconsistencies in standards applicable to the same content that is published in different media.

 

The Committee also supported the majority of the recommendations of the Australian Law Reform Commission (ALRC) in its report into the National Classification Scheme, including that a common classification scheme should apply to all media content. See our article “Classification overhaul” in this edition on page 14.

 

4. A detailed new uniform Australian content scheme

 

The Committee emphasised the need to protect Australian content on the basis that convergence will result in the dilution of Australian content. A criticism of the Final Report has been the lack of evidence presented by the Committee to demonstrate any current or likely future dilution of Australian content in the context of an increased number and availability of platforms via which Australians can access content.

 

The Committee recommended a detailed new uniform content scheme for free-to-air and subscription television, including transitional arrangements from the current quota and minimum expenditure obligations. The Committee recommended that enterprises that meet defined service and audience scale thresholds would be required to either:

 

  • invest a percentage of their total revenue from professional television-like content in the production of Australia drama, documentary or children’s content; or
  • contribute to a new “converged content production fund” for reinvestment in traditional and innovative Australian content.

 

The Committee also recommended new mechanisms to promote Australian content, including:

 

  • imposing Australian content quotas on the national broadcasters (ABC and SBS) for the first time;
  • making a 40% offset available under the Producer Offset scheme to certain premium television content; and
  • establishing an interactive entertainment offset to provide an incentive for the production of interactive content (eg games) in Australia.

 

5. A new uniform spectrum licensing scheme and the removal of content and broadcasting licences

 

The Committee recommended the simplification of existing licensing schemes by removing all content and broadcasting licences.

 

The Committee also agreed with many public submissions that the existing spectrum licensing scheme does not encourage the efficient or effective use of spectrum for the public benefit. The Committee recommended breaking the nexus between the licensing of broadcasting spectrum and the content-related obligations placed on broadcasters by introducing a uniform approach to the planning, allocation and management of broadcasting and non-broadcasting spectrum and a market-based pricing approach for the use of spectrum.

 

The Committee also recommended allocating capacity on the “sixth channel” of spectrum to new and innovative services (which do not replicate existing free-to-air channels) with the aim of increasing diversity. This opens up the possibility for the sixth channel to be used for various new and innovative services such as community-based or thematic-based programming.

 

6. A simplification of existing media ownership rules and the introduction of a new “public interest” test

 

The Committee recommended a simplification of existing media ownership rules under the guiding principle of ensuring media diversity and diversity of voices. The Committee recommended that:

 

  • the existing “75% audience reach” rule, “2 out of 3 rule”, “two-to-a-market” rule and “one to a market rule” should be removed;
  • ownership of local media be regulated by a new “minimum number of owners rule”, which would apply to all CSEs that provide news and commentary services in a local market; and
  • ownership of CSEs of “national significance” should be regulated by a new “public interest” test which might apply to transactions involving a change of control in such CSEs. The introduction of a “public interest” test is one of the Committee’s most contentious recommendations as it adds an additional layer of competition regulation and would give the new regulator the ability to prevent a merger if the regulator considered the merge not to be in the “public interest”.

 

The “public interest” test appears to have been modelled in part on the public interest test introduced in the UK under the Communications Act 2003 (UK). A widespread criticism of the Committee’s recommendation is that the UK “public interest” test operates in a different statutory and media landscape than Australia. For example, in the UK, it is only in exceptional circumstances that the public interest test applies to media transactions other than those involving broadcasting services and newspapers; whereas the Committee’s proposed Australian test would have potentially much broader application as it would apply to CSEs of “national significance”.

 

Industry groups have also criticised the proposed “public interest” test on the basis that it is subjective and introduces commercial uncertainty as to industry regulation, which may result in reduced foreign and domestic investment in the Australian media and communications industries.

 

While the Committee addressed many significant issues, it did not make recommendations in relation to a number of contentious issues on the basis that they are subject to other ongoing reviews. For example, the Committee did not make recommendations regarding retransmission of broadcasts under the Copyright Act, on the basis that this would be a subject of the ALRC’s review of copyright law, nor regarding the anti-siphoning scheme, in light of the current Bill before Parliament to amend the scheme. See our article on “Ground gained by Pay TV Service providers: Anti-Siphoning Bill” introduced in this edition on page 11.

 

Next steps

 

The Committee proposed a three-stage approach to implement its recommendations. Stand-alone changes would be made first and in the short term (including the establishment of a new regulator). These would be followed by new content service legislation to replace the Broadcasting Services Act and then a complete reform of media and communications legislation in the long term.

 

The Government has a difficult task ahead in seeking to strike the right balance between stakeholders’ competing interests, particularly given the detailed legislative and operational reform required to implement the Committee’s recommendations and if the principle of regulatory forbearance is to be honoured.

 

Whether the Committee’s recommendations will be taken up is a question currently before the Minister for Broadband, Communications and the Digital Economy. It also remains to be seen whether the Government will be willing to undertake such an overhaul of Australian media and communications regulation before the next federal election.

 

 

For further information, please contact:

 

Anita Cade, Partner, Ashurst

anita.cade@ashurst.com

 

Maya Port, Ashurst

maya.port@ashurst.com 

 

 

 

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