Project Timeline 2005–2010

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Proof of Concept Phase – Interview D

Categories: Interviews, Proof of Concept Interviews, Support Material
Date: 26 April 2005
Contributors:

Andy Lloyd James: Tell me what time you need to go.

Interviewee: Well it would be [xxxxx].

That’s fine, oh look I promise you I’ll be gone by 11.15, in fact you can just call the time.

All right, I’ll do that, so.

The first one, what I’m really looking at is content as much as technology. It’s really what television is going to look like. Television whatever it’s become, what it’s going to look like, but fundamentally what the influences are that get us from here to there. Politically, economically, socially, chronologically.

Yeah, let me just tell you how I divide the world up in, which is… it’s very simplistic but it’s obviously between content production and distribution. And there is a very famous Harvard graph, some people love it, some people hate it, which basically looks like this, which is content and distribution and what you need to do as a media company is decide where you are in this axis. And of course where you want to be is in the northeast quadrant, which is rich in content and rich in distribution and you know, when you look at a company like News, that’s exactly where they are. When you look at a company like Telstra, this is where they are. So, you know what we’re seeing now is everybody wanting to play in this quadrant, and that has a huge impact on how we develop content. The companies that work well in this scenario are the companies that can develop content and distribute it across multiple platforms. And so that has… that has huge, huge implications because what you have is the giant aggregators of content, and then what you have is the content makers needing to be able to speak to those giant aggregators of content. And if you can’t distribute through those giant aggregators, I think you have a very big struggle on your hands. And there is kind of the belief that the Internet makes distribution of content so much more easy and therefore the barriers to entry are low and anybody can distribute any content. It can, but the aggregation of eyeballs of course is where the concentration of content and distribution is.

Yeah.

And moving people’s eyeballs around on the tracks that join those individual platforms is something that is a huge infrastructure play and not many people can undertake that.

Yeah. Sure.

So, if I come back to what do therefore, I’m… if you look at the landscape in that way, then the key issues really I think for the future development of television are how do they deal with the fragmenting audience.

Yes.

There is no doubt that audience is fragmenting. How does the television industry reinvent itself for an on-demand environment? And then given those two things, how do they also deal with the portability of the distribution platform and the consumer devices that deal with that? So they’re the key issues I think for the television industry, because at the moment the television industry is somewhat protected by the lack of not a business model for on-demand content, but the ease with which a business model can be implemented, and that’s about billing systems. You know, when you look at the Wall Street Journal and you say, look, there’s an online subscription service that works. Why does it work? Because they differentiated what you got online from what you got in the newspaper. People say, well it doesn’t work when the News of the World tried to go online and charge for its content. News of the World is probably at the very bottom of the food chain in terms of value for money. So to charge for something online, where the perception is you only pay for something that you can’t get in any other environment, then that was a really… obviously not an astute move. So I think in… one of the key issues for the television industry is to ensure that the billing systems that are implemented for other distribution channels are supportive of, if you want, from a television broadcaster’s perspective, support their business models. Of course, there are people who would love to see the entrenched supremacy, if you want or dominance of the free-to-air industry challenged by that, and that’s probably not a bad thing either, to take some of this power away. In terms of that, the on-demand model of course needs that micro payment system, which doesn’t exist at the moment, the banks can’t provide it because the banks themselves have very manual back ends. Ten years time, that probably will have changed significantly. So if there is a payment system for on-demand content, and actually the mobile phone is proving that that is definitely a possibility…

As I said, the Telcos cost…

Absolutely. The Telcos are all working on improving their billing systems, but they’re in the same predicament as the banks, no matter how automated it is up in the front end, it is not automated at the backend. And so… but that’s – and that’s a significant investment and it’s a significant investment for a bank, which says, well the cost, the capital cost of developing that infrastructure is huge, will I get a return? And so, they can in many ways stifle that distribution channel because the banks are the natural people to provide that interconnection of transactions. Just as the Telcos now have interconnection with mobile telephone numbers and so on, and billing systems. So I mean that it could be that a Telco provides the micro payment system and certainly Telstra are well under way to build that micro payment system, but either way until that system is in place the free-to-airs are somewhat protected from fragmentation of the content on distribution channels. And they’re protected because everybody will go out of their way to ensure material can‘t be downloaded for free. But, what the tele… sorry, what the free-to-airs are doing at the moment is of course having to move their content to much more event driven blockbuster style. It’s ironically done and not just given as Hollywood itself, you know you have a lot of B grade movies, a lot of C grades never get released and so you have this whole genre of B grade movies and then you have your blockbusters, and the blockbusters actually carry the rest, in that kind of almost cross-subsidy model, but the issues for the free-to-airs is they must focus on a live audience, because I need to watch this program now, it won’t be the same program if I don’t watch it now, is a key factor for them.

Yeah.

And so, you know reality television, voting people out, it’s you know who wants to know if somebody got voted out… you know who’s been voted out already, you know there is no surprises in that.

Yeah, you actually want to be a part of it.

Yes, you want to be a part of it.

Yes.

And I think that, you know… but even live concerts, all of those sorts of things are now… they’re important for the free-to-air to have them and you’ll be the first to se them, there is an urgency about seeing them, you know nobody wants to see Cher’s last concert in 5 years time. They really want to see it now. And that’s just human nature. What that means for the television industry is that their runs now are also jeopardised.

Yes.

So again on-demand content is threatening the value of buying more than one run.

That’s interesting.

So, I buy, you know, my current television licences are usually 3 runs for 5 years, 3 runs for 7 years. What happens when that now it’s boxed in a DVD set or available online, is my back end runs are not worth anything.

Yeah, sure.

So, there’s a… there will be a tendency and a growing tendency for networks to use up their runs, in the way that you might in a time shifted environment. So you know, what you’re seeing is, instead of running ‘Lost’ or ‘Desperate Housewives’ as a 2 hour start to the season, you time shift it 3 times. Okay you’ve used up your 3 runs but you know what? It’s going to be available on DVD and chances are you are going to make more money from it being on DVD.

Yeah.

Than…

That’s actually what they’re doing with ‘Desperate Housewives’.

It is, yeah.

They’ve run it 3 times or something, 3 times…

They’ve run it 3 times. And you’ll see more and more and more of that. Building an audience quickly and really making sure you sustain that audience with series. There is also of course the whole distribution challenge to ensuring that the territories are not broken so, you know, not seeing ‘Friends’… I mean I could download the last episode of ‘Friends’ 9 months before it went to air in Sydney, and have watched it. Now, I didn’t because I wanted to see the build up and I didn’t want to spoil it for myself and I can’t… but that will go, and my generation are prepared to do that, the younger generations are not prepared to do that.

Yeah.

And that is the most significant threat to television is, I want to see it, I want to see it now, and I will choose my device on what I… the device I see it on.

If you downloaded ‘Friends’, would have got it free or would you have had to pay for it?

Yes, it was just pirated. It’s not that I am encouraging pirated copies but… I do actually just to demonstrate, actually at one of the PBL conferences I downloaded ‘Friends’, ‘Lord of the Rings’ before it was available on DVD or even in the… it was here on Beta, but that was it. And something else, it took me 12 minutes and it cost me $89 to buy a modification chip over the Internet. Stuck it into an X-Box and away I went.

Geez, this is [xxxxx].

Both of them in under 12 minutes. So I’m watching those things on television. I’m not watching them on a PC. And I think this is something the free-to-airs to some extent have been quite ostrich like in dealing with. You know, they say well nobody wants to watch this sort of stuff over their TV. Portability of devices needs now, but I’m going to play that out wherever I want and if I want to play it out of my plasma, I can.

Yeah.

And I think that’s something that they have not necessarily dealt with, I think they are starting to deal with it but that will be biggest threat.

What in that then… for the sort of traditional, classic traditional things which indeed this company has made a hell of a lot of long form drama, short form drama, that kind of thing, do they… documentary, documentary series, that sort of thing, are they in jeopardy in that kind of environment?

I don’t think so. I think that they will take on different form factors. So you’ve already seen documentary reinvent itself recently to docudrama, reality drama, you know all of those genres are now creeping into documentary. You know, it isn’t the kid and wife. You know all of those things, I think ‘Forensic Investigators’ is a classic example where factual and drama and reality all play, you know a huge part. So I think those things won’t disappear, but I think that they will have quite… take on different forms. And I think those forms would have evolved naturally but I think that also you’ll see… the best example of form factor changing is the mobi-sodes, which is the 3 minute, or 5 minute episode over a mobile phone, or a 1 minute episode over a mobile phone. Now do I really think people are going to watch drama on their mobile phone? No, I don’t. Do I think people are going to entertain themselves through content over their mobile phone? Absolutely.

Yes.

And mobi-sodes may well become something that young audiences go for, and you can’t ever say, well I wouldn’t want to watch… the resolution on a mobile phone at the moment is not great, that will change, you know so. So, I think those things will change form, and…

But mobisodes are stand alone, they’re not – or are they…

They can be fused.

Are they cut down versions of…

No.

… of whatever is on free-to-air?

No, and that’s the difference, I think that…

So it’s completely new?

Yeah, like any new genre, I think you have… it’s… sometimes it’s genesis is from existing content to begin with, and then someone says – gee, this is really working, I could write specifically for this form factor or I could write specifically for this device. And I think we’ve seen that in the early days of 3G, what they did was cut down clips from lifestyle programs and comedy shows and things like that, and now what we’re moving to is writing for those genres, and writing for… you know, PVA’s and mobiles and you know other devices that you would not have thought about.

Which must mean having a much… a much closer engagement with what your audience really wants there.

Yeah, and I look…

Because they’re going to be paying for it.

Yeah.

Pretty quickly.

I think that’s a really interesting point to make because up until now the audience on a free-to-air environment, or a television environment has been quite mute.

Yeah.

Of all the technology reasons, it’s one to many.

Yes.

And there will always be an opportunity to do that, one to many. Plus they’re will also be other audiences and I think, long-term real free-to-air revenues from advertising to client? Absolutely. Will the revenue pool decline? No.

It will pool across all the platforms?

Plus all the platforms will grow, but the revenue pool for content…

Yep.

… will grow. The revenue pool for free-to-airs will not.

Will it shrink?

I don’t know that it will necessarily shrink.

If it doesn’t grow… if it doesn’t grow and content, the price for production of content goes… well leave that aside. If it doesn’t grow, what does that mean in reality?

I think what… I think that we should probably take a little more look at in-depth at what I mean when we say, it won’t grow. Will I get more revenue for my 30-second slot than I’m currently getting? Yes. Is there more minutes available to me than there are now? No. It has a finite. It has 24-hour cycle. There are only so many minutes in that cycle that it can shove advertising into. Can it increase slightly that, you know the actual yield? Yes, it can. But can it actually create more revenue opportunity? Product placement? It’s not going to do it. Sponsorship, it’s taking it from its second slot, so you know, its ad breaks. So, the issue for them is they have a finite ability to drive revenue. If I am an on-demand service sitting on a website, and I’ve got a SONY, so its SAMSONY and I’ve got a bank full of movies, which I have. I also have a games console out there, PC-2, PC-3, presumably 4, 5, etcetera, all of which are capable of broadband connectivity. Suddenly I have the pipes, and I have the device in the home, what do I need? A billing system. How big is my revenue pool? It’s as much as I can drive an audience to that. It’s a per consumer revenue.

And we’re back to billing again?

And we’re back to billing. And that’s where you know, now that’s I think 10 years time. I think it’s already happening, but I think it’s a 15 year growth certainly.

It’s interesting because if you look at… I mean I keep talking, not you. I keep coming back to the question of just how much a consumer is prepared to pay, but then if you look at what they’re prepared to pay even for a mobile phone. Even sitting in a room when there is a landline with three people waiting.

Mm, hmm.

Yeah, it’s fascinating.

Mm, hmm, and I think people’s quest, if you want, for content won’t diminish. And you see that in the… particularly west, in Western Sydney for example, biggest uptake of home theatre systems. So people’s expectations of production values are that they will get better and better and better.

Yeah.

And people can discern the difference in watching 4 by 3, on a vertical blanking interval versus a wide screen plasma or home theatre assistant experience. And they want content in forms that deal with those devices, so they’re not… you know their expectations of how you manage them, if you say this is a mobile phone and therefore the… you know, at the moment the resolution is not great, they’ll accept that. But if you put something in low res, on a home theatre system, they won’t!

Yeah.

So, that has an impact as well on what the cost of this creating content so, and how you distribute it.

Yeah. You’d know much better than me the sets of formal and informal relationships that have existed between free-to-air and government.

Mm, hmm.

And government in this country both for… both in terms of commercial and public broadcasting, has played an unusually large role I think around the world in the shape, structure and delivery of television and this is not necessarily… and I don’t mean that’s the majority, I mean it just has. Politically, they’ve done a large chunk of that through the business of regulation. If the revenue models for advertising on commercial television, leave aside the public broadcasters, comes to a sort of slowing down, does that have ramifications for regulating Australian content on the commercials, do you see that as something that is likely to diminish anyway? Or do you see it as…

Really interesting question. I think the one thing that astounded me during the late 90s, when all of that fracas was going on about pornography on the Internet.

Yeah.

Was the government declined to inter… to regulate the Internet, apart from pornography.

Yes.

And you know I’m sure that legislation will have to be reviewed in the future, because the television experience will be also an Internet experience.

Yeah.

And I’m not a great believer in lots of regulation.

Sure.

But I also think that no regulation. When you have two mediums co-existing, providing exactly the same service, and one is regulated and one is not, you have to ask yourself the question – why?

Yeah.

So, you either see a lobbying by the television industry to deregulate a lot of the current policy or to at least argue that the Internet should be on a level playing field. That I think has… that debate will be played out and I think that debate will start probably in a few year’s time, particularly when the super regulator is formed and functioning and has settled in.

Yeah.

The interesting thing is that no matter which way you go, whether you regulate the Internet, or you kind of deregulate to some extent the free-to-air industry. What you have is consumers… you have a disaggregation of eyeballs. Because you no longer have one. So I want to watch ‘Friends’, and this is going to be true of both… of any distributor of content is time shifting. When I want to watch when I want to watch, and I don’t care when you broadcast it, I now have multiple devices at my disposal that will enable me to watch it when I’m ready and I can either certainly use a PVR to delay real time, or I can save it and store it effectively and efficiently and easily retrievable on like a video. So I can do all of those things, you are not able to stop me. No regulation will be able to prevent that. So suddenly you have a significant loss of mass audience, you have it for the big events.

That’s understood.

But even then, it will have to be an aggregation of audience.

Using the other platforms?

Look at what happened with ‘Desperate Housewives’ you know, it was an aggregated audience because it went to market 4.5 million over 3 viewings. That’s the future.

Yep.

So suddenly, you know the incumbent stuff, the incumbent politicians, whether they are opposition or in government, have a new mass media to deal with. It’s not… and let’s face it, we all know, media make or break a politician. And if… you know, if the media moguls wanted to get together and ruin Howard, they could do it overnight. And that’s why politicians spend a lot of time making sure they listen to the media organisations. So, how’s… what’s the power play long-term of that, when audiences are no longer aggregated at one point in one time? And that… it doesn’t mean that the current media organisations lose their power, it means that the aggregators, the distributor, the aggregators of content, the distributors become even more powerful.

Yeah, I was going to say it must to some extent shift then the traditional model, which was one’s loyalty was to… give or taken, one’s loyalty was to 1 or 2 free-to-air channels. They were free-to-air networks. Does the… is the half of what you’re really saying that the loyalty then shift to the content?

The loyalty, no, I think shifts to the distributor. Oh, of the consumer? The loyalty of the consumer?

Yes, the consumer’s loyalty.

It does. It shifts with the content.

Which then changes obviously, it actually changes the balance between the distributors and the exhibitors, yeah.

And that’s why News is up here.

Yeah.

Because it knew it couldn’t be here, just having distribution, and it knew it couldn’t be here just having content.

Sure.

The challenge for media organisations, and News has met this challenge, is brand. So if I’m now time shifting, I’m stripping ads out, I’m saving content, I don’t see the network promos. What brand am I following? Am I a Sky person, am I a Nine person, where is my branding? That is imperative in an aggregated market that you have to solve that issue. And they have, because you know look at… and we fought very hard for this with Ninemsn, you know, Microsoft wanted to give it some other silly name, and we were like – No, Nine is one of the strongest brands in the marketplace, it has to be Ninemsn, and there was some joke about MSNNine at some stage which we pooh hooed, but the point is what has Fox done around the world is use that brand Fox. The Internet, so whatever it is doing, you know. Virgin is another example of it in somewhat disparate markets it’s in, but you know, you have to have a brand that can go across any platform, otherwise you are a local play, and your cross base must be very low. So, you know, where you see someone where… in the Australian marketplace you know, PBL probably is about here, but what’s really interesting is you have people like Ten and Seven sitting here, and where’s Ten? Well it’s got very little distribution.

Yeah.

It’s got one free-to-air network. It’s got no web presence really, let’s be honest.

Yes.

What it does have is some content. But even that content is bought in. And what that means is if I have no distribution, then I must keep a very low cost base. And that means that most of my programming will be brought in. What does that mean? I probably can’t exploit other formats. And it will be interesting to see where they end up.

And Seven?

Well Seven is an interesting one, because Seven… and I mean this is a bit of a comment really isn’t it? And I think that this is the tail a little bit here, Seven realise they have to get their cost base down but they cannot… because they don’t have multiple distribution platforms, they cannot sustain their current cost base. Well you know, it depends, I mean they’ve got PMP; they’ve got no real significant web presence, although they’ve tried to attain one. I think that Seven will get bought, personally I think they will be the most serious take-over target in any relaxation of the foreign and cross. And it’s likely that whoever buys it will have a significant web presence.

I would imagine that. It’s what always interested me and I don’t propose to ask you about it [xxxxx] but it’s what always interests me about Southern Cross.

Mm, hmm.

Buying in.

Yeah.

Because it’s…. I mean you must be the only group like that in the country…

Yeah.

… which is starting to have legs in other camps.

Yeah.

Yeah.

Yeah, and look we’ll definitely do that. We’ll definitely start to look at all the form… you know we’re concentrating on content rather than platforms. We’re looking at form factors at the moment, and saying how can we make sure we’re there with those sorts of things? I mean I think it’s a… and there’s no doubt that Southern Cross and Tony Bellham in particular, has an appetite for acquisition.

Yeah, sure.

Whether we’ve bought a network I’m not sure, that’s really not a question that I could answer, but certainly the landscape will look very different I think, later this year.

Mm, hmm, that’s fascinating. Down the line, what’s the best out… the most realistic, best outcome?

One of the things I think that even the Telcos have not envisaged is the ability of wireless broadband.

Mm, hmm.

So, what is truly the best outcome in Australia, particularly in Australia where you know we have difficult terrain and vast distances, is wireless. And it’s interesting to see that the 80211 and the 80216, or 80216 spectrum. That auction was held some time ago. Telstra bought it, China Telecom bought it, and I think the other was Vodafone. And it was an interesting auction because that spectrum is probably the most powerful spectrum in the world and yet it attracted very little… any interest really. And I think that the best outcome for Australia down the line is to stop putting… laying infrastructure in pipes and cable, which to some extent, we’ve done.

Yeah.

And copper pair and to start really building a robust wireless infrastructure, which is significantly cheaper to do and also long term, provides very lost cost distribution and that would be ideal.

Because the maintenance is low?

The maintenance is low. Coverage is high. You know, you can get broadcast quality, wireless broadband around the country. The thing about the 80216 spectrum is that leverage is off the 15 terrestrial televisions towers structure.

Yeah.

And so you don’t have a massive infrastructure burden, it’s already there and its strength of signal then reaches almost every home.

Yeah.

And you don’t have this issue of the country – you know country areas not being able to participate.

Does it… so, what you‘d… it’s an-add on to the current actual transmitters [xxxxx]?

It is. It is actually an add-on to the towers, yeah. You just add a bit… it… my understanding is that the spectrum itself actually is not dissimilar to satellite, in that it takes a signal and distributes it, in a given area.

Oh, okay.

And as long as you have line of sight, you can, which of course that infrastructure is already there. So.

Yeah.

And of course it’s broadband quality. So it can broadcast anything you want it… you know, unlike the current broadband and ADSL infrastructure, which struggles to get 4-megabytes per second and if you’re on cable you’re sharing with a whole lot of other people and if you’re on ADSL it’s a little bit better, but you’re still not getting 7 or 8 megabytes…

Yeah.

…in and out, which is what you would want to achieve.

It’s still not widely stable.

No, it’s still not widely stable. So I think that infrastructure play is very, very important for the future of content I think.

Yeah, how much do you think the audience will drive in there? How much will they see…? I mean, traditionally they’ve been the recipients of technology, but from what you were saying earlier on, it’s actually, particularly younger generations who are actually starting to force rethinking.

Mm, hmm. Yeah.

So there’s content deliverers, distributors, all of those things.

Mm, hmm. I think, I think what you find is… the I mean someone like… if you take someone like wired, unwired and Steve Cosser. You know they went out with their wireless broadband offering before Christmas.

Yeah.

And they were flooded, with people wanting it. Why? No wires in the house. People are more transient. I can buy this house. I can rent this house knowing I can more my infrastructure.

Yeah, that’s true.

I can, you know I don’t have the issue of which room do I want to work in. I can have devices In every room and they all talk to each other. So the convenience of that will be driven by the consumer, the demand, and of course they let people down because they couldn’t meet the demand.

Yeah.

But I think that you know, I think that the Telcos, particularly Telstra, underestimate the frustration that consumers have with them, but there ‘s a point where you don’t even pick-up the phone, because you know they will not be able to deal with the issue and so I think that… where things work best is always where there’s a problem. If you’re solving a problem in a consumer offering, it has far greater chance of being up taken… taken up, than if you’re not solving a problem. And that’s the problem with digital television. You know, why do I need a new television? It’s working, I’m used to it, it doesn’t… you know when people start to see digital television on a proper monitor, with a proper digital set top box that works, that’s stable and they go, oh okay, but there is really not a problem with what they currently have. With the current Telco infrastructure, there is a problem. You know you can’t get more than 3 cable connections into your home, so if you have 2 Pay TV and a broadband connection, that’s it. So you have no option other than to go wireless. And then you think, well why do I need any cables into my home? Why don’t I just go wireless completely you know? So I think it’s… I think it will be the way. I think there’s still a lot of work to be done on security and firewalls and all of those things. I hear all those things but I think that it’s… long term is for wireless today.

Yeah. Just on Pay TV…

Wireless satellite, say.

Just on Pay TV, I mean they’re already in the business of building, they’re already in the business of consumer to… I mean the distributor to consumer relationship, all of that kind of thing.

Mm, hmm.

Do you see that world growing? Particularly in the sense of I suppose looking 10 years ahead. But more than any… sorry more than any current television deliverer in this country, they’ve got an opportunity to provide in quotes, a nicely profiled wall garden for me.

I think two things. I think there’s a hit on that which is very important about the Pay TV environment is that in the Pay TV environment, somebody else takes care of the technology.

Yeah.

And that… never underestimate how fearful people are of technology, of our generation.

Yeah.

And you really don’t… once you hit anyone below 30, they don’t have a problem with it. I mean you know I’ve got a 10 year old. We’ve all got young children who just – you know you do this mum, connect it into… oh well, how am I’m supposed to know about this stuff! But so I think that that is changing and I think that’s just growing up in an incredibly sophisticated world.

Yes.

Where they’ve already connected their Play Stations or their X-Box or… they’re used to mobile phones. They don’t have to see wires to think that something would work. Whereas for us, it’s like where are the wires, you know. So I think that…. but I think it is an issue of managing, you know on a… PVR Sky in the U.K learned very quickly that people want their hard drives managed. They don’t want to have to clean it up and…. that can be automated eventually.

Yeah.

I think the Pay TV scenario is an interesting one. And I think that the way to look at Pay TV is to look at what happened to Sky and Free View, and I think that that pattern, will emerge here as well, and that is I think Pay TV has room to grow in this market, but I think there’ll be so many other competing media services, they won’t grow as much as we had once thought it might, and I’ll give you an example, when Free View launched in the U.K, it’s not an infrastructure play. The towers… the digital spectrum was provided by Crown Castle. And it was… there was plenty of spectrum because it was like a satellite in the U.K. So there was absolutely no kind of problem in getting access to having a channel. The BBC made sure it had its content there and basically, what then happened was they spoke to every manufacturer and said, as long as you build your box to accommodate these things, they’ll be able to see Free View. And you can advertise, if you want that they can receive Free View, and we’ll market, we’ll guarantee we’ll do some marketing. The kind of marketing that would set any content channel to do. So of course Free View took off, and then there was no cost to anyone, but spectrum guys were being paid by the channel providers. The channel providers were getting their audience. The set top box manufacturers were having a field day because they were building not to a spec, that was a closed spec, but an open spec. As long as it included those things to add other things to it, and have to add other things, etcetera, the perfect model and of course it’s gone gangbusters and within you know, 12 months of Free View being there, it had 4 million subscribers, 4 million boxes out there. Now that took Sky several years to get to 4 million, now of course it’s 7 or 8 million.

Yeah.

That was very scary for them. And I’m not sure if you know how Pay TV works in the U.K., but basically Sky had several kinds of subscribers, you have your every week subscribers who pay, and they pay for Sky offering. And they have people who turn. The people who turn have 2 offers. They have: I turn off and keep my box, and just get my free-to-air BBC channels, or I can… I could turn off and give the box back and basically get my money back. The… of course people who turn off are called solar stealers and not as in solar, as in solar but… and those solar stealers, of course began to number quite significant numbers. And I think they were up to about 2 million, don’t quote me but it was quite significant, who get a BBC card, put it in the box and get all their BBC and free-to-air channels. Up until then, they’ve been called solar stealers by Sky. We don’t own them. We don’t care about them. When Free View became Free View and it started to take off, what did Sky do? They suddenly changed tactic and called them their Free Fat viewers. Suddenly they were important. And why are they important? Because Sky has the box in the home.

It’s already in there, yes.

Exactly and I think the future for Pay TV is about getting a box in the home.

Yeah.

It’s not about whether or not I’m a Foxtel subscriber, it’s about whether I’ve got that Foxtel box. And I think that’s going to be a big issue for them. A huge issue. As it is for Sky.

The only thing I’m never understood about Free View is… is how the BBC pays for its rights in it? It’s actually the content rights. I mean I know it owns them, but presumably it’s got residuals and a whole lot of other things, which it’s trying to deal with at the same time.

It’s a simultaneous broadcast. Off the BBC channels.

Ah, got you.

Its not a…

It’s [xxxxx]. Yeah…

Yeah.

It’s not an extra run?

No.

Okay.

It is if they time shifted it, but they don’t. So the residuals, there are really no residuals for them.

Yeah.

So I think that Pay TV – I feel like I’m droning on, but…

No, you’re not.

But Pay TV industry here is going to have some struggles, because as soon as you have decent software running a media centre, who cares whether it’s Hewlett Packard’s or whether it’s Toshiba’s or whether it’s Sony’s.

Yeah.

The likelihood is it’s going to be Microsoft software.

Yeah.

And, then you have a real competitor, or it could be a Play Station.

Yep.

And it’s like how does Pay TV, how does it become THE box in the home. Now moving to a PVR strategy is very wise. Because suddenly it’s not just a box to receive television on. But, does it play my music? Does it save my photos? Does it do all the other things that I currently now need my media station to do? And unless they make that leap very, very quickly, I think they will face similar problems to what Sky has faced.

That’s interesting.

And they’re, you see… the U.K. and Sky Italia, of course have their thought. And you can’t get…

Absolutely.

Premier league football on any… That’s the… and Murdoch knows that and the… his best wire here is of course the anti syphoning list. And I think it’s important for the government, not to change that because I think that distribution of that needs to be across all platforms in the future and the minute you enable one person to purchase it, it’s gone. And you know there are significantly different issues between Australia and the U.K and particularly time zones.

Yeah.

You know being able to watch sport at a time that is convenient is important, and also being able to access it from any device.

Yes.

So I would be interested to see where that goes.

The worst outcome?

Hmm…

Status quo.

Well the worst outcome is the status quo. I mean the… there is no doubt you know the digital legislation was disappointing from a consumer perspective because it’s… it just… it protected the networks and it’s… it actually stifled any uptake of digital television.

Yeah.

And I think the government has recognised that and I think whether we have a multi channel environment, whether we have another network, I think one of those two things is a given. But I think the worst outcome of all, would be for the infrastructure not to be able to keep up with what technology is available. And I think that the other worst outcome would be the stifling of a micro payment system. And the reason I think that would be a huge disaster is because piracy would be rife. And nobody wins in a piracy environment.

Oh absolutely.

So, you know I think you can… and the more the free-to-airs are protected, and I’m not keen in this market to see a free for all but the more we protect our incumbence, the Telstras and the free-to-airs, the more we are likely to encourage piracy.

When you … stepping back from the piracy just for one second the… when you talk about the infrastructure keeping up with the technology. Is that something that actually gets enhanced, if you open up cross media ownership, you presumably, along with all of the new platforms coming in, it can presumably increase competition? Is competition something that is going to drive the content keeping up with the technology? Sorry, the infrastructure.

The infrastructure. It’s an interesting question.

I mean given that there’s a real competition, or hasn’t been real competition.

I think that there are a number of issues that need to be looked at in that context. The first thing is, who is the competitor? And where we have stifled is particularly in the existing infrastructure players, not just Telcos but utilities, banks, you know, if… how…. How much more competition would there have been for example on more significant offering on the Internet, if banking licences had been more available? You know, how… and I’m not one for not regulating the banks, but I also think that we need to encourage competition in infrastructure, not just in media.

Yes.

To deal with the technology. What is really important to remember with content is that there is now a huge raft of embedded content. That is itself needing to get to market.

Why?

Look at Sydney Water. Fantastic website on how to conserve water. Water resources, climate, weather, etcetera. It’s a government utility; it needs to educate people about the use of water. Fantastic website. How do people get access to that? And at the moment how do you find out about that? There is all this content, that could be on channels, but the economics of those channels are tied up by a Telco not wanting to release its spectrum for broadband, because it’s got it tied up in Foxtel. Disaster. And it’s a disaster, not for the free-to-air networks. It’s not a disaster for them. They’re fine. It’s not a disaster for independent producers. It’s a disaster for all the people that have embedded content that could be being utilised by school students, or by other users, as purely even educational. So, we’re… by tying up ourselves in knots in our media sector, we’ve actually stifled other businesses and other industries. Which is…

That’s a real access…

Yeah.

Put that into perspective.

Yes, it is. Completely.

Consumer and the content owner.

So you know in terms of the broadband environment, you know here is a site that could actually be a broadband offering. And could be big, so you know where is all of that community benefit stuff? Australia has none. You know it is very had to do anything on a ‘not for profit’ basis.

Yes.

In this country because of the distribution. And we have distribution issues that are unique, huge desert in the middle. No times… you know 2 time zones that are any time, so more than anyone else we should be opening up access and ensuring distribution is more easy than it is in the country now. So I think you know the embedded content issue is something that has not had much attention. And is significant. I mean if you look at the number of websites in this country offering information, and their distribution channel is woeful.

Mm, hmm.

So I think that… you know that that’s a significant thing that we need to do definitely encourage, in terms of… competition would have encouraged that. It would have said, I’ve got all these pipes, and how do I fill them?

Yeah.

But in fact what the real status quo is, I‘ve got all these pipes, and I’m not going to share them.

Yeah.

Not even for money. Which is ironic.

It is.

It’s really ironic!

It is and I suppose one of the issues would be whether a privatised Telstra would be more or less likely to do any of those things.

Well the problem I think, you know, that the whole Telstra issue is one that always just makes me want to weep. Because you can’t undo it. The problem is you can’t undo it. You know you…

It’s far too hard.

There is nothing you can do to undo it. Privatising it won’t help. You know taking it back as a public utility, you can’t do it. You know, so that it’s completely stuffed. You know it’s one decision that… and I don’t know if you have read Beasley’s biography, but it’s worth reading. It’s just that decision. It was just a pure play off between Keating and Beasley over their egos. And had the… they had the whole of the country’s future in their hands, in terms of content and education. And they couldn’t…

It was a personal brawl.

It was a personal brawl. And you know… I mean so you can’t undo that, and that means that the worst outcome in 10 years time is that nobody else comes in to compete. So you … we must stimulate competition.

Yes.

We must stimulate it.

Which leads me nicely to the fifth question. What would you do first? I mean what are the high priority numbers? You’ve talked about billing – micro billing.

Yeah.

Opening up competition.

Yeah.

Are they the keys of…?

I think there’s one other key that is again our worst outcome and that is to see our national broadcaster continue to be seen as the last port of call for content. And I think that… I think, you know it’s unfortunate but I think the government needs to understand that the national broadcaster is not there to make it look good or bad. And that punishing it because its politics might not be that of its… is not helping anyone. I look at national… the BBC and I look at the resources they have and the way in which they are stimulating new business models, new content models, and it makes you want to weep. And you think, we must stop seeing our national broadcaster as a voice for the government, or for opposition against the government. It really has to be a place of innovation. And I think that until the government bites that bullet and provides it with innovation grants, for want of a better word, I think we are losing out tremendously. When I look at what the BBC does.

Really.

And when I look at how well the BBC educates its industry and stimulates its industry, it’s a very, very sad state of affairs.

A bit like Telstra, that’s going to be a huge unpicking of the ball of wool, because… I mean that now… they have now such, so carefully grew the board.

Mm, hmm.

That it… I mean the ABC itself, leave SBS aside, the ABC itself is not fighting for its own future.

Mm, hmm.

In any public sense at all.

No, no.

Or leave aside the word fighting, because that’s a negative in some ways, it’s not proposing a future.

No.

Publicly.

No. No it’s something I could weep about every day and I honestly think that, you know look, it needs good strategic vision and it needs someone to work with the government, in not talking to the government, you know, saying, look, you know and it’s… I know it’s a political beast, but this could be something that is a flagship for the government…

Yes.

It could you know… You know if those two…

If nothing else, it could certainly be a global if you like, a global flagship for Australian content.

Mm, hmm. It’s one of the areas that I think… it’s not a sexy area for people to go to and yet it is so vitally important in the development of content in this country.

Do you think it’s conceivable that it might, in the governments eyes, come back into play as and when they have to look at future with not the free-to-air industry and other Australian content, in other words you know like OFFCOM in the United Kingdom is looking at promotion of beefing up public broadcasting in order to be able to take the reins off, the public service reins off commercial broadcasting. Do you see that as any kind of potential here? Or is that… is that beyond where government thinks?

I don’t know what the government really thinks in terms of where they see the ABC going. I think the ABC is viewed, there seems to be a view that the ABC is something we have to have. You know for all those poor bastards who can’t abide by free-to-air television. And I think that the ABC itself responds to the cosiness of politics, but you know particularly the government with the free-to-airs, and the regulatory environment, by being, you know… well you know, left of centre.

Mm, hmm.

I don’t think that that should ever come into play, I think it should be… the government should look at the ABC as a content producer. And if it could stimulate the ABC to focus on developing content and new business models for content, not new business models as in profit generator…

Generator, yes.

… but just as in… as a sort of… or an idea statutory for the industry.

Well even that would be… would be underpinning other people’s business models.

That’s right.

Yeah.

And I’m just not sure it doesn’t see it that way.

Yeah.

And I think that both parties need to take a look at…

Yeah.

But I mean, look, you know, when you’ve got an accountant running with great respect to Russell Balding, I mean he… what would Russell Balding have a clue about innovative content, or… or…

Or his board.

Or taking strategic vision to the government and saying, here’s where you know, the industry ideas can stem from, you know.

Or the board. I mean as I said there is a shocking lack of [xxxxx] anyway.

But anyhow, so that… I think we can’t discount that…

Those will be your three priorities.

Yeah. I also think that we must also address the Windows Media 9 Mpeg 4 Issue, but I don’t think that’s a government issue. I think…

The what?

The current player through your television set is a Mpeg 2 format.

Yes, and this is getting an Mpeg 4 licence? All of that?

Getting, I think getting, and I don’t have any position on whether it’s Windows Media 9 or Mpeg 4 or if it’s either. But you have to have a decoder in the box. So, but I think that there needs to be some mandate now on manufacturers to start including those decoders in the box. Because by the time that decision is made, it is going to be 2 years hence. And the manipulation of content and the development of content and its ability to be distributed will be very dependent on whether it deals with either of those two formats. And I think that that’s, you know, that debate is emerging and will become to the fore, but it’s important because people are buying new television sets with Mpeg 2 decoder, and… the only thing I’ve got…

It’s not an issue you hear at all.

No it’s not an issue you hear at all, and it should have been done at the time of going digital.

Yeah.

Because that’s when people were swapping out their equipment, but I… you know it’s not a disaster, by any means. But it is something that I think they need to turn their minds to.

Yeah.

You… you know, if the disaggregation between the receiver and the monitor. It’s probably a buffer from that being a potential disaster.

Yes.

Because the swap out won’t be as big, but I can see, in 15 years the government saying, ‘you must swap over your receiver by this stage’. Because otherwise the flexibility of the content isn’t there.

That’s a government with a short future. I’m going to let you go, I’ve got one last question. If you ruled the world, beyond the things that you’ve talked about, if you could actually mandate an outcome, is there anything you’d add to the issues you’ve talked about?

I honestly I don’t think it is one of the most difficult and political industries in which one could ever hope to play really.

Yeah.

And I wish I had, I knew what I would do. But I don’t. And, I think that one of the things, I think there needs to be is greater flexibility. I think government needs to keep out of technology change, for a start. And I think that the public interest in access, is where they should be…

Yes.

Playing all the time. So I…

Like a public service?

Yes.

Yeah.

I think they shouldn’t mandate any particular technologies, I even think that 8it was silly to think digital at this point in time, I think that could have waited. I think it was just purely that they saw the ability of the…. You know the Free-to-airs. If you think… if you step back, and say let’s take digital out of this equation. What would the Free-to-airs have done to go up against Pay TV? They would have multi channelled. What’s the most efficient way to multi channel? Digital. What would they do? Convert to digital, go to government and say we want to do this, here’s how we want to do it. That’s the ideal world. Of course it didn’t happen that way. So, I think you know I think government should keep out of technology change and I think they should really focus on ensuring, that the incumbents, have the infrastructure to enable access. And I… you know the Telstra issue is just one you can’t unpick now.

Yeah.

I mean if you didn’t have Foxtel, in the play, you could unpick it. And I suspect in a naive kind of way that’s where… the opposition keep going with sell Foxtel sets. Sell Foxtel.

Yeah.

Because then you could keep it as the public utility., and let any body play on their pipe.

Yes.

And that would have been the ideal, is get rid of all the retail sides of Telstra.

Yes.

And just have it purely as an infrastructure type. These are the pipes in Australia, if you want to get content out, you just have to rent space on this.

Yes.

It would be an ideal revenue earner for them and everybody, it would have been a level playing field.

Yes.

And all the consumers would have benefited, and you would have had real competition.

So you, and don’t worry as you know, you are not being quoted on this, but you’ve mandated Telstra out of Foxtel, in order to be able to resolve the much more profound issue.

I don’t think you can.

No I understand that, but I mean that would be an ideal world.

The ideal world would never have been to tie up the broadband cable, in the way that they did. Now luckily, there is some light at the end of the tunnel, because the broadband cable is not as valuable, in a wireless world. It is just not as valuable, and so… I don’t think the government or opposition should interfere in that now. I think they’ve made their bed, they have to lie in it. But I think that, watch this space, because the point of… the point originally was, News and PBL tying up the infrastructure so as no one else could get access, cutting out the competition. The irony of that, is that in a wireless world, it means…

Nothing.

Nothing! So what you have now is a complete reverse of attitude. You have Telstra desperately trying to hang onto Foxtel for its relationship with News and PBL, because they have content. And so the irony…

There is a God!

There is a God! And what goes around, comes around. But nevertheless, what that has done is it took Telstra’s eye off the infrastructure ball, the company could have been cleaned up, it has a terrible culture everybody knows that. Instead of focussing on reinventing that company for a wireless world, and focussed on all of the senior management and there is not one of them that you could discount in this statement, the eyeing content as the Holy Grail because it has the media profile that they wanted.

Yeah.

And then, you know Jonathan – what’s his name – Shar might be a mini-me, but my God, there is about 10 of them in Telstra.

Yeah, sure..

And they took their eye off that ball.

Yeah.

And we can’t do anything about that.

Simply the wireless market.

Well I think wireless will. I think wireless will. It absolutely should. Thank God.

I’m going to get killed if I don’t let you out.

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