Media ownership reform back in the spotlight

In brief

The Federal Government has introduced a narrow package of media ownership reform which, if enacted, will reduce the restrictions imposed by the Broadcasting Services Act 1992 (Cth) on the ownership of media assets across platforms and markets. Partner Ian McGill and Lawyer Ben Murphy report on these deregulatory changes that have the potential to spark consolidation among traditional media operators.

Background

Australia's media ownership rules were introduced by the Hawke Government in 1987 to limit the concentration of media ownership, support local ownership, promote access to content in regional areas and encourage a diversity of views. The current rules largely reflect the nature of the industry at that time, focusing on traditional media forms – commercial television, commercial radio and printed daily newspapers associated with a local area – without extending to online media, subscription television or national newspapers. As the media landscape has changed over time – particularly through the introduction of online media and now streaming video services – there has been a growing sense that these platform specific ownership laws do not reflect the reality of the market and impose undue restrictions on the operations of traditional outlets.

The Federal Government first floated repeal of these rules in early 2014, when the Department of Communications released a policy background paper on media control and ownership canvassing potential deregulation.¹ The department's work picked up from the ultimately unsuccessful attempts at media reform proposed by the former Labor government, which stalled amidst significant stakeholder opposition ². Whilst the reforms canvassed by Malcolm Turnbull – then Communications Minister – were vastly different to those put forward by his predecessor Stephen Conroy, they ultimately suffered the same fate and were shelved following significant push-back from regional MPs and industry stakeholders. Two years later, the Government has overcome some (although not all) of this opposition and introduced a narrow reform package that seeks to reduce the scope of media ownership regulation, while bolstering local content requirements for regional areas.

What does the Media Reform Bill do?

The Media Reform Bill is focused on the repeal of two out of the five media-specific ownership requirements in the BSA:

• the '2 out of 3 rule' which prevents a single person controlling more than two out of the three regulated media platforms (newspapers, commercial television and commercial radio) in any one market; and
• the '75 per cent audience reach rule' which prevents a person from controlling commercial television broadcasting licences that reach more than 75 per cent of the Australian population (along with a supporting directorship limit).

The removal of each rule would allow media organisations, and particularly television broadcasters, to consolidate and achieve greater scale across platforms and licence areas. The repeal of the 2 out of 3 rule has the potential (subject to the possible application of the 5/4 rule and ACCC review – see below) to permit some consolidation between traditional media platforms. The repeal of the reach rule would allow predominantly metropolitan television broadcasters to consolidate with regional broadcasters.

In response to concerns that the repeal of these ownership restrictions, particularly the reach rule, would reduce the availability of local content in regional areas, the Media Reform Bill also:

• transfers the local content obligations currently imposed by way of a licence condition by the Australian Communications and Media Authority (ACMA) under the Broadcasting Services (Additional Television Licence Condition) Notice 2014 (the Local Content Licence Condition) into the BSA; and
• introduces additional local content requirements that will be imposed where a commercial television licence holder reaches more than 75 per cent of the Australian population.

The local content requirements proposed in the Media Reform Bill mirror the requirements in the current Local Content Licence Condition. This requires licence holders who broadcast to specified areas in rural New South Wales, Victoria, Queensland and Tasmania to broadcast 720 'points' of local content every six weeks and a minimum of 90 'points' in each week. A point is accumulated for every minute of local content aired during specified times that meets the ACMA's definition of 'material of local significance', while two points are accumulated for news that relates directly to a local area. In practice, this requirement can be met by broadcasting 24 minutes of local content per week day – or less if some of that local content is news relating to the local area – which has generally been accomplished through news bulletins and update services.

The current local content requirements will continue to apply to existing regional broadcasters, provided they do not gain control of, or become part of a group that controls, television licences reaching more than 75 per cent of the Australian population – a situation that would not currently be permissible under the BSA. Any licence holder who passes this threshold will trigger additional local content obligations that, after a six month transition period from the date of the trigger event, will require it to:

• broadcast 900 'points' of local content every six weeks – at most an additional 30 minutes per week day – into any local area it broadcasts to that is currently subject to the Local Content Licence Condition;
• 360 'points' of local content every six weeks into any local area it broadcasts to that is within a number of additional regional areas not currently the subject of the Local Content Licence Condition³; and
• submit reports to the ACMA in respect of its compliance with local content obligations for two years after the conclusion of the six month transition period.

The impact of these changes will be somewhat offset by the ability of a broadcaster that has triggered additional local content obligations to accumulate three points for every minute of local news it films and broadcasts that depicts people, places or things in a relevant local area. This will provide an incentive for regional licence holders to maintain local production of news following consolidation with metropolitan broadcasters. Some, but not all, existing regional broadcasters already broadcast more than enough local content to meet these more stringent standards. Nevertheless, the costs and commercial impact of triggering these additional obligations will need to be considered as part of any media transaction that results in the consolidation of metropolitan and regional broadcasting licences.

Media remains regulated

The Media Reform Bill will not affect the continuing application of the three remaining ownership and control rules in the BSA:

• the '5/4 rule', which seeks to maintain media diversity by requiring that at least five independent media voices be present in metropolitan commercial radio licence areas and at least four in regional commercial radio licence areas;
• the 'one to a market TV rule', which prevents a person controlling more than one commercial television broadcasting licence in a licence area; and
• the 'two to a market radio rule', which prevents a person controlling more than two commercial radio broadcasting licences in a licence area.

The ACMA can, however, give prior approval to a temporary breach of these rules and accept an enforceable undertaking in relation to the maintenance of diversity under the 5/4 rule. This may allow transactions, which would otherwise breach the rules in the BSA, to proceed on the condition of ACMA approval and subject to an undertaking to divest the offending interest within the period of time permitted by the ACMA.

Foreign investment in Australian media

Since 1 December 2015, foreign investments in the Australian media sector – previously only regulated under Australia's foreign investment policy and not legislation – are regulated under the Foreign Acquisitions and Takeovers Act 2015 (Cth) (the FATA) and the Foreign Acquisitions and Takeovers Regulation 2015.

The acquisition by a foreign person and their associates (irrespective of the country) of an interest of 5 per cent or more in an Australian business that publishes daily newspapers or broadcasts television or radio (an Australian media business) requires notification and prior approval by the Foreign Investment Review Board (FIRB) regardless of the monetary value of the investment. Such an action is both a 'significant action' and a 'notifiable action' under the FATA. A relevant 5 per cent interest may be in the capital (securities) of an Australian media business or the assets of such a business.

The Treasurer may also make various orders in relation to any such acquisition and, if the Treasurer determines that the significant action is not in the national interest, may prohibit the acquisition or impose certain conditions on its completion. If the action has already been taken, the Treasurer may make an order that the acquired interest be disposed of within a specified period to one or more persons approved by the Treasurer.

Most merger transactions are conditional, and any foreign acquisition of an Australian media business will likely become conditional on the receipt of a 'no objection' notification from the Treasurer. Once the Treasurer has been given a notice that a significant action is proposed to be taken, the Treasurer must generally make a decision within 30 days of receiving the notice (unless an interim order is made, which may extend the period for consideration for up to 90 days). The proposed acquisition cannot be made during the period of an interim order unless a 'no objection' notification is issued by the Treasurer.

Competition regulation

Any transaction that becomes possible as a result of the Media Reform Bill will remain subject to the operation of the Competition and Consumer Act 2010 (the CCA) and the oversight of the ACCC. Particularly, transactions will need to be assessed under section 50 of the CCA, which restricts actions that are likely to cause a substantial lessening of competition in any relevant market.

There is no threshold shareholding for the purposes of s50 of the CCA and any acquisition of an interest in any Australian media business, particularly one that only becomes possible due to the Media Reform Bill, could be restricted by the CCA and might be of interest to the ACCC. The ACCC has the ability to examine minority shareholdings and, by way of example, has previously investigated the impact of the acquisition an 11 per cent stake in a media organisation.

The ACCC has flagged an ongoing interest in competition in the media market and has previously shown its willingness to oppose media consolidation that it considers would have the effect of lessening competition. The ACCC will, however, examine proposals on a case-by-case basis and consider technological and market developments as they arise.

Comment

There is a strong case that media specific ownership rules, focused principally on traditional broadcasting, do not adequately reflect the functional reality of the Australian media market. The extensive background work completed as part of numerous government reviews and experience in other jurisdictions suggests that the sky will not fall in if existing ownership rules are wound back.

However, the Media Reform Bill must still work its way through the Senate and in the current political climate its passage cannot be taken for granted. The Government has already made compromises in the scope of the reform proposed and accepted the reintroduction (at least temporarily) of reporting obligations for local content. Further changes – potentially including the retention of the 2 out of 3 rule – could be required for the Media Reform Bill to become law.

There is also reason to be sceptical of the impact of the reforms proposed in the Media Reform Bill, despite the raft of speculation as to the potential mergers and acquisitions of media assets that may occur if it is enacted. Transactions will continue to be limited by the ongoing role of the ACCC, FIRB and the three remaining media control rules under the BSA. More generally, media operators in Australia continue to be subject to a range of government regulation that impact their structure and operations. Media reform will remain on the agenda while ownership regulations, content restrictions, broadcast licence fees and anti-siphoning regulations continue to have an asymmetric impact on traditional media outlets.

Ultimately, the Media Reform Bill reflects a commonsense first step towards modernising Australia's outdated media laws. There remains, however, much work to be done to implement this proposal and to broadly update Australian regulation to reflect the reality of a technologically agile, global and converged media market.