Defining the Future for Broadcasting

Good morning everyone.

I would like to start by acknowledging the traditional owners of the land on which we now stand – the Gadigal people of the Eora nation – and I would like to honour their elders past and present.

CHALLENGING TIMES

Only a very foolish person would stand before you today proclaiming to be able to predict the future for broadcasting in Australia.

This time last year we would have been talking about the challenges of digital switchover and audience fragmentation, but this year a whole raft of challenges have reared their heads which make the future even more uncertain.

While I do not believe the prognosis is terminal, undeniably there is a general air of pessimism about the prospects of media companies and broadcasters across the world.

Headlines scream ‘the death of newspapers’, Rupert Murdoch has declared the ‘recession is deeper than anyone predicted’ as he posted a $6.4 billion quarterly loss for News Corp; and Australian media companies have had massive profit downgrades or are currently valued at zero.

There is no shortage of stories about belt tightening, job cutting and the decline of advertising revenues.

While we all understand that a positive attitude is key to keeping our heads above water in this tough economic climate, it’s no surprise the strain is showing behind the public smiles of media proprietors.

Immunity from the impacts of the global financial crisis is elusive – if not impossible – for many industries and the Australian broadcasting industry will not escape its wrath.  Indicators are that we may not have seen the worst yet.

While profit downgrades are disturbing for shareholders, let me suggest the real impact will be felt by viewers and listeners. A downturn in advertising revenue has an immediate knock-on effect for content.   In television, the biggest discretionary budget is in programming.  When times are tough, this is the easy target for cost-cutting.

I wonder too whether private equity investors, who now have such a slice of the free to air market, will fully appreciate that while cutting program budgets may provide short term relief for the bottom line, such cuts will almost certainly destroy long term value.  

Commercial television owners will undoubtedly point out that it is easy for public broadcasters to assert that content and therefore audience should not be the victims of cost cutting.  We are, they would say, in a privileged and protected position.  I accept that, but only in part.

SBS, as a hybrid funded public broadcaster, is not immune to the global financial crisis.  We are dependent on both advertising and government revenue — exposing us to the twin risk of a contracting market and a more frugal Government.

We have been bruised by the advertising market downturn but unlike our commercial comrades, we have not been cut off at the knees.

And although we are cognisant and respectful of the Government’s budgetary dilemma, we are optimistic that they share our view that SBS’s contribution means more to the nation than the modest funding proposal we have submitted.

SBS has, for at least the last 12 years, been dealing with its own annual financial crisis which has equipped us not only to handle financial adversity with familiar ease but also to find ways to protect our content budgets in tough times as well as find creative ways to grow them.

The paucity of SBS’s funding was put into sharp relief last week when I was asked during Senate Estimates why SBS had sought a $15 million loan from the Government.  My answer had three parts.

First, SBS lives hand to mouth with no cash reserves to cover temporary cash flow issues.  Secondly, we were not prepared to cut program activity to cover the shortfall and thirdly, we were not prepared to ask the Government to bail us out with a grant because we wanted them to direct any additional government investment into new services for our audiences.

Of course, unlike the ABC, we do have the opportunity to raise our own revenue through limited advertising.  And it is an opportunity we are determined to make the most of.

Over recent years SBS has lifted revenue but it is, and probably always will be, a tiny slice of the television advertising market.  But even that small contribution makes a significant difference to our modest Australian production budget.

EFFECTS FELT ACROSS THE BOARD

And while we are a rarity in the Australian market in that we are still experiencing year on year growth in our advertising revenues, the growth is below our expectations and we are preparing for a demanding fourth quarter.
 
Which is why this year’s Federal Budget is so critical for SBS.  It’s when, together with the ABC, we will hear the outcome of our bid for increased funding over the next critical three years.

During Senate Estimates last week I was asked by a Senator why SBS was asking the Government for a not insignificant amount of additional funding if we were still increasing advertising revenue.

I tried to put into perspective the modest nature of this additional revenue and its important role in lifting our local production to barely acceptable levels.  

But what I wanted to say, but wasn’t bold enough, was this.  Imagine that SBS is a widow with small children in a Dickensian workhouse.  She barely feeds her family on a bowl of gruel a day and is grateful for it.  

One day she sells a posy of dried flowers for a penny and buys her children half a loaf of yesterday’s bread.  That afternoon the overseer inspects the workhouse and sees the children with the stale breadcrumbs around their mouths.  He peers over his round belly and says “I don’t imagine you’ll be needing your gruel this evening!”

Anyway, at the risk of emulating Oliver Twist, we are asking for more, because we can barely survive on what little subsistence we get and because there are vital new challenges to be met.

The priorities we place on where additional investment needs to occur are reflective of the future directions of broadcasting in Australia.  More particularly they point to the important role SBS must play in that future.

BUDGET 2009

For the next triennium – 2009-2012 – SBS hopes to gain additional funding to launch a fully fledged SBS2 which would broadcast predominantly in-language content from across the world with a particular focus on the Asia-Pacific region.

We would deepen our commitment to showing the best world movies and expand our World Watch in-language news service.  Our content would be made accessible to all Australians by utilising our award-winning sub-titling unit which is an exemplar world-wide.

SBS would also introduce English-language tuition as part of SBS2 and for the first time would acquire and subtitle  in-language children’s programming to support Australia’s language communities as well as language learning in schools for all Australian children.

SBS1 – our main channel – with a modest injection of funds – would add a further 100 hours of original and distinctive Australian drama, documentary, comedy and entertainment to its schedule.

Consistent with our established practice, all of this content would be commissioned from the independent production sector.  

We would strengthen our commitment to quality news and current affairs as well as our free-to-air coverage of sports that have found both a home and following on SBS.   And we would expand our high definition programming to keep pace with industry and audience expectations.

SBS has also asked the Government to invest in our radio and online services. We would undertake a comprehensive review of our SBS Radio schedule to expand our services in the digital radio sphere.

This would mean SBS would simulcast and time shift its two national analogue networks on the digital radio platform, servicing more than 68 languages. We would introduce five new digital channels this triennium (increasing to seven after 2012) to help service new and existing language groups.

And digital radio has the immediate benefit of making the full range of SBS’s existing radio services available in Brisbane, Perth and Adelaide, something those communities have long called for.

We won’t be launching our digital radio services with our commercial colleagues in May.  The scale and timing of our roll out will depend on the budget outcome.

SBS television and radio content would also be made available online, for free, and we would add to our existing online services with original material including user generated content.

We could create online hubs for around 70 language communities, providing a unique platform for content, discussion and news in every language; strengthening communities and helping them participate more fully in Australian society.

But, again, these plans are contingent on SBS receiving additional funding in the May budget.

BROADCASTING AS ECONOMIC STIMULUS

At SBS we are optimistic that our fortunes are about to change, but again the GFC has made certainty difficult.

And while some may claim that investing in public broadcasting at a time of global financial crisis should fall to the bottom of the list of Governmental priorities, there are very real economic and social arguments to be made for investment in SBS.

SBS is a significant contributor to the independent production sector as we commission all of our content externally apart from news, current affairs and sport. We create jobs, invest money and foster skills while at the same time preserving and promoting our cultural identity.

Between 2005 and 2008, SBS invested more than $80 million with the independent production sector. When you add to that the funding leveraged from state and federal funding bodies, the 450 hours of television produced had a production value of $182 million.   

Our productions included the epic documentary series First Australians, The Circuit which was filmed in Broome, the Melbourne based Carla Cametti PD and East West 101 which was filmed in Sydney’s Western Suburbs.

This demonstrates the geographic spread of our productions and the distribution of their economic benefit. A case study of SBS’s successful drama The Circuit, shows the difference even a modest investment can make to the community in which a series is filmed.

Of the nearly $6 million investment made by SBS and our funding partners in the first series of The Circuit, almost 85 per cent of that money went directly into the West Australian economy.

This includes money that went to local businesses as well as direct employment. The Circuit had more than 100 crew, 50 cast and 1000 extras employed for series one.  

Using the ScreenWest economic multiplier of 3.05, series one of The Circuit generated around $13.7 million of activity in Western Australia, principally in Broome. Series two, which is currently in production, is expected to create even more jobs and investment.

Investment in the film and television industries in Australia is a proven stimulus for job creation. The Australian Cultural Ministers Council established that almost 31 jobs are created for every $1 million invested in these industries. Therefore, for every $20 million invested in new production over 600 people are employed full-time for one year.

Recent data shows there are more than 16,400 people employed in the film and video production industry in Australia and 45,000 people employed in the audiovisual industry.

This underscores my point that a lot of Australians are relying on the continued investment of Australian broadcasters for their livelihoods in these uncertain economic times.

ARTS AND ADVOCACY

In the US, a campaign by arts supporters in the House and Senate recently salvaged $50 million out of the $787 billion stimulus package to support the National Endowment Fund for the Arts.

A fervent lobbying campaign was mounted arguing that a job in the arts was just as valuable as any other job and that the arts made a significant economic contribution to both the US tax coffers and the broader economy.

The president of arts venue the Lincoln Center made the point that: ‘an employed dancer is as important as an employed construction worker’ because ‘his or her family has many needs, owns a home, buys a car and makes an impact on the economy’.

This argument is just as salient in Australia when we are talking about investment in the Australian production sector.

A job is not just a job. Investment creates production, production creates jobs, production also creates a potential export product while at the same time giving Australian consumers what they want from broadcasters – content that helps create and sustain our national identity as well as informs, educates and entertains them.

These are arguments that SBS has been making to the Australian Government in our bid to continue (and hopefully increase) our levels of investment in Australian content and the local production sector.

There has never been a more important time for public broadcasting to be recognised and appropriately funded to make a proper contribution to Australian story telling.  To all the previous arguments add this one.

The current Australian content requirements of the commercial broadcasters are certain to be re-evaluated in future years and there’s every possibility those quotas will be substantially modified, or even abandoned.  

First, the commercial free-to-air broadcasters are going to find it increasingly difficult to maintain their local production slates, particularly at the high cost end.

Even before the GFC, their economic model was being challenged — the financial tsunami we are now bracing ourselves for will dramatically hasten that.

Secondly, the Government will find it increasingly difficult to justify a regulatory regime that applies to free to air broadcasters when existing and emerging competitors on other platforms are not or cannot be regulated in the same way.

The responsibility will and should fall on SBS and the ABC to maintain the Australian voice and the Australian experience on television, radio and online.

I invite the Government to extend and even expand the commercial broadcasters’ quota obligations on to the shoulders of the public broadcasters.

The other critical element of the free to air model is, of course, acquisition.  All five networks have been heavily reliant on overseas sourced content at a fraction of the cost of locally produced.  And all of the networks, with the exception of SBS, have built a high level of dependency on output or first option deals with individual studios and distributors.

For those four networks these relationships have been the foundation on which their success has been built.  But the cracks are starting to appear in those foundations.

Let me take a recent example.  Cranford, a five-part BBC period drama, has just finished its run on ABC1 in the prestigious 8.30 Sunday night slot.  Nothing surprising in that — this is traditional ABC fare central to the long term relationship between the ABC and BBC.

But Cranford’s first exposure to Australian audiences was on the BBC itself, through its own branded HD channel on the Foxtel platform.  Its second showing was on the BBC’s as yet unbranded channel, UKTV, with a heavy run of repeats some of which were showing at the same time as the ABC’s broadcast.

What is significant about this is not that Pay TV generically obtained the first windows — there are quite a few examples of that around.  No, it is the emergence of studio or distributor branded channels such as BBC HD which are in a position to control the windows.

I have two questions:  if the BBC is doing it, what are the opportunities for Warner Bros, Fox and Disney offering full service channels with premiere content?

Secondly, while Pay TV is the beneficiary of that move now, what’s to stop the BBC moving to a direct relationship with Australian audiences through a subscription on-line on-demand service that by-passes all transmission platforms?

I know many of you are already contemplating such scenarios.  Perhaps the Cranford example has brought them a bit closer.

THE KNOWN UNKNOWNS

While the foreseeable future for the Australian media industry is likely to be focused on survival, we cannot ignore many of the other challenges the industry is already facing.

The biggest of these remains the switch to digital. Ambitious targets have been set for switchover, commencing in 2010 and concluding in 2013.

The industry has been working with the Government’s Digital Switchover Taskforce to understand and help overcome the hurdles that stand in the way of a smooth transition.

Thankfully, Australia is not alone in facing the challenge of digital switchover. Our status as a small market enables us to watch and learn from the strategies, successes and failures of other markets including Europe and the US.

While the focus of world leaders is justifiably on stimulating their economies and safe-guarding jobs, analogue switch off is looming or has begun.

And the reality of analogue switch off was too close for some. One of the first acts undertaken by newly elected President Barack Obama was to extend the analogue switch off deadline from February to June.

A subsidy scheme for set-top boxes had run out of money and around 6.5 million households in the US were deemed to be unready for switch off. This really underscores the enormity of the task and the importance of getting it right.

While the economy may be going from gloom to utter doom, imagine compounding the problem by having millions of television sets fading to black.

Television is more than just a means to entertain people. Like radio, it is a valuable lifeline to information. You only have to look at the extreme conditions that have been facing many Australians over recent weeks to understand the importance of having up to date weather, news and public affairs information.

A NEW ERA  

Switchover for Australia signals the beginning of a new era, not just because of the improvements and enhancements it brings to television services.

Switchover will bring with it the digital dividend of freed-up spectrum and an end to the expensive simulcast period for the national broadcasters.

It will also be the point at which a policy decision will need to be made about whether the Australian market can support a fourth, free to air broadcaster in Australia and it will trigger the lifting of the restrictions on multichannelling.

No doubt in the lead-up to switchover there will be a heated debate in the Australian broadcasting community about who should receive any spectrum freed up by the switch to digital. I not only welcome that debate, I call for it.

In Europe, telecommunications companies are conducting a vigorous campaign to have the spectrum used for mobile broadband services. The British regulator Ofcom is also trying to broker a solution about spectrum with its longstanding mobile phone providers.

New players in both the online and broadcasting space may emerge in Australia to claim their stake on spectrum and the Government will need to consider how much spectrum is really necessary to enable the complete digital replication of the analogue signal in Australia.

Community broadcasters, as well as NITV, are sure to have a view on the spectrum needs of their services. Clearly there are many considerations to be given to what to do with the digital dividend.

SBS will most certainly be mounting an argument for a better allocation of spectrum so that we receive the same amount and quality of spectrum afforded the other free-to-air broadcasters, including the ABC.

SBS has already indicated we would like to deepen our range of services at switchover and launch SBS3 and SBS4 – both services would be dependent on available funds but also available spectrum or an improved compression regime.

I am delighted that MPEG2/MPEG4 dual tuners have been adopted as the standard for Freeview which will launch later this year, so that consumers switching to digital will not have to face the issue of making a further switch if MPEG4 compression technology is adopted by broadcasters down the track.

All of these questions around spectrum will ultimately be policy questions determined by the Government of the day, but these decisions will have a lasting impact on the operation of the Australian broadcasting sector.

CLOSER COOPERATION?

As part of my address today I was invited to comment on whether there is a need for closer cooperation in the Australian broadcasting industry.

The vested interests of the commercial broadcasters and the pay television sector in Australia will always make it difficult for successful collaboration. But the same could be said of competitors in any industry.

Recent examples, such as Freeview, have demonstrated that the free to air sector can collaborate and nut out solutions for the common good, despite our competing interests.

Previously, many would have thought it unthinkable but the only way we are going to meet the challenges that digital switchover will bring is if we tackle them collectively as an industry.

Ultimately, competitive tension is a good thing if it results in better outcomes for consumers. SBS, as a public broadcaster, is always willing to work with any of the broadcasters to negotiate rights or broadcast deals, share information, achieve outcomes for the industry or reduce cost burdens.

But we would never enter into any arrangements that would be detrimental to our services or undermined our Charter.  It is why I am passionately opposed to any talks of a merger between the ABC and SBS.  The distinctive voice of SBS must remain an integral and independent part of the Australian broadcasting landscape.

SBS is a unique broadcaster with a distinctive Charter. It is imperative as Australia shifts into the digital environment that diversity and plurality is preserved in the media industry and that SBS’s contribution is not diminished or marginalised.

Multiculturalism and diversity cannot be left to become a mere footnote in Australian media.

At times of global crisis, it is more important than ever to remain cohesive and inclusive as a society. Left unchecked, uncertainty and unease can fester into social unrest.

The head of the International Monetary Fund warned at the end of last year that violent unrest was a potential consequence of a protracted global recession if Governments were not quick to act to ease the economic crisis.

I do not want to overstate the case, however, there is evidence that overseas the GFC is beginning to stress the fabrics of nations and communities.  The pursuit of narrow self interest, the temptation of tribal economy and the search for scapegoats are all ugly attendants of this crisis.  If you live in France, China or even the UK, the threat of social unrest is more openly acknowledged than is the case here.

Perhaps the robust nature of our multicultural society fostered, in part, by the existence of institutions like SBS, will see us through this additional threat.  I certainly hope so.  But the inclusiveness that SBS so clearly symbolises should not be taken for granted.

SBS makes a demonstrable contribution to harmony in the Australian community as well as a clear contribution to an important sector of the Australian economy. We want that contribution to strengthen and grow during these uncertain times.