Project Timeline 2005–2010

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Proof of Concept Phase – Interview N

Categories: Interviews, Proof of Concept Interviews, Support Material
Date: 14 April 2005
Contributors:

Andy Lloyd James: …right throughout the interview you can’t be named… you can’t be sourced.

Interviewee: Okay, and now that’s important. Because I don’t want… so this is just simply…

Absolutely.

You use this…

Yes.

As you…

Some of the things you say may appear in documentation but it won’t be sourced to you and it won‘t be there in such a way that people can say, oh well that’s [xxxxx].

Right.

And it’s the same rules for everybody. The only person who actually… well, the only people who will actually know who the individuals in the interviews are, are the people who [xxxxx]. So when they go for transcription, they just go [xxxxx]. And I absolutely understand that there are things that you don’t want to talk about, the conversation can be as wide as want to make it. Okay?

Right, well you lead it the way you would like to go.

These really are the key questions. The first one is – what do you see as the key issues for the development of television… why hasn’t television made the [xxxxx]?

Well I mean I think you’ve got to learn from history to look… and one of the issues I think that gets lost in… lost might be to strong but ignored in many respect in terms of the success we’ve had to date and making sure we build on that going forward with the technology changes, but also as a result of technology changes, content changes.

Yeah.

I mean one of our biggest challenges is what do the viewers want? And how can we afford to keep producing it? Because if you look at the last 40 years of television, we started with predominantly an American product, a U.K product. And we have pretty successfully, not just individuals but as an industry. developed a lot of local content, there has always been arguments along the way as to how and why and more and less, but if you sit back and look at it right now, you know all of the networks are – for a country this size –producing a lot of Australian content and the quality of that generally isn’t [xxxxx]. The issue is as you sort of start to see Pay TV develop and other forms of new technology being used, how do you maintain and keep that momentum and not lose it because, you know, largely Pay TV is a reprogramming of overseas product, and the only local content they are doing is because they’ve got some pseudo 10% for all that says there must be an X, so they spend it. And you know the economics of the argument with multiple channels, so that they haven’t got a serious producer of local content, so the balance in it is as much a… you know, part of the free-to-air networks sort of issue as much as more broadly, what we do? I mean, we can keep developing local products and we are going to take the current year’s ratings for example, for us, yes dominated by a couple of particular shows on Seven that could change your fortunes. But you know, that’s sort of at the top end, the amount of good American product for our market, for the way tastes have been developing is shrinking.

Free-to-air?

Free-to-air. Free-to-air movies are now a… you know 5 years ago free-to-air movies, prime time schedule for all 3 commercials, and even the ABC to some extent, going back 5 years. What’s the actual limit? Now with DVD’s at home you know, over 50% of people have got DVD’s at home, and some of them two. They [xxxxx] too, Pay TV as well, and we basically almost got out of actually including movies in their schedule.

Yeah.

So then what do you replace it with? So there’s a real strain for all 3 networks, you know it’s the age-old dilemma, local costs more and if it fails – doubly costs you more. You know?

That’s true.

So there’s the risk factor involved, and the American product is… that good stuff is always going to be part of the mix, but there’s less of it so therefore we have got to keep developing.

There’s less of it because they’re making less or because…

Oh, they’re making more…

…the take here has changed.

I think we’re more discerning.

Yeah.

I mean, so the good stuff against the height our viewers go for, but other than that they say, oh you know, I’ve seen 5 of those or… you know, I mean it will go in waves, you know at the moment we have massive dramas everywhere, a few years ago you still had infotainment type products, but you know… you take a case of what I’m going through now with rebadging, you know, we went through with trying to rebadge “Queer Eye For The Straight Guy”, you know we only did 6 because we were pretty sure this… and again we did them because we had to do them, because part of getting the American show was a commitment to do a local version. I mean that’s… you know and America over the years they’ve had you know the Hollywood output deals, and they have different ways of getting money out of us, put it that way. You know they… and now that we’re dropping out of movies, you know the pricing [xxxxx] is, you know the good ones are starting to get priced through the roof.

Yeah.

That’s just the way it works.

Yeah.

But… sort of trying to see the bubble, so one of the challenges over the next, you know, we’ve only had a free-to-air industry going back over the last 20 years and we’ve had… we’ve had ‘quotas’ for want of a better description…

Yeah.

…to be honest to force us down that path.

Yes.

But it’s probably in the last 5 or 7 years, they… we wouldn’t have done too much differently if those quotas hadn’t been there. Because the pressure is on all of us to find local programming that works.

I think having said what you said earlier about the [xxxxx] does local programming actually have a premium value towards [xxxxx] matters, and does it matter to audiences whether it’s Australian or American or British? I mean certainly from the ABC’s experience [xxxxx] whether it’s Australian or British or [xxxxx]?

Oh, look I think… yeah on an individual program, do they watch it because it’s Australian versus American? Probably not. In a collective basis, I mean moving away is the drift, which I think has been one of the massive successes of our industry collectively, is that in the, you know 40 odd years or whatever it is, we are now… there is now a substantial amount of Australian product on our screens and our people like it.

Yeah.

You know and we’re moving away from sort of that control of Hollywood in free-to-air television, you know but the actual movies are still going to be seen, I don’t think that’s an issue, that’s fragment… that’s part of the whole fragmentation game that all these new technologies bring. You know you’ve got to roll it forward to 2015 you are going to have… you are going to have broadband offering video at the moment in homes. Telstra always… are already trying to do it now in competition with Foxtel even. But free-to-air won’t be using that form of content, so… it’s sort of an each way answer there but I mean I think in a whole of sense, I think it’s one of the fundamental things that we’ve got to make sure that we do is that we keep advancing the Australianness of our industry while we have all these changes to come. I mean… there would be… it would be a shame to throw that, the progress that we’ve made over the last 40 years, you know hard earned and that… generally out the window, and I know that gets into individual arguments. So somehow with all these new technologies, and the overwriting part for all of this, you know this is what gets lost with a lot of people is… less than 20 million people.

Yeah.

And you know.. that’s an issue. Hollywood goes off and makes these dramas, on the basis that they know they can stuff them into everybody’s budgets all around the world. Deficit finance, I mean that’s their model. We actually produce a product that on the whole, we know that no-one else wants to watch, and that’s a… that is when you compare us to, as you do in the debates that have been going on recently over whether we should have multi channelling or forward licensing or all of the above, [xxxxx] multi channelling should cover those because in the U.K as I said, it’s successful.

We notice [xxxxx].

But what… on top of 3 types of [xxxxx], completely and utterly funded by the BBC, funded by the U.K taxpayer who pays a holders fee. You know, now if the whole question was addressed here and they said, well okay we’ll have multi channelling and we’ll ask every Australian now to pay a 300 or whatever it is, $300 a year licence fee, it would still only be a third of the size of the U.K’s, and that would fund a local content to drive it, they’d [xxxxx] an argument! If you come along and say, are you going to do it because technology says it’s there, and the licences are available, you have no comprehension of what of cause and effect that that may have over the time period you are looking at, and you’d go … aaah! Because it would be disastrous. Because it could just you know completely ruin that whole part of the [xxxxx]. You know understandably you run this argument over [xxxxx] using, you know they all use the catchphrase, ah, the free-to-air are just protecting their patch and all the rest of it. But, I look at this and in say, the debate is really hard to get up, you have got a 40 something year old free-to-air industry that is bloody successful.

Yeah.

It’s also bloody competitive in a market size of Australia. Now we’ve got Pay TV that’s coming along at the moment. You know, we’re… in our wonderful wisdom we’ve done everything, we’ve brought competition into it… sent a whole pile of people broke, and developed no content, people have lost a whole heap of money, Australians are probably paying, you know on any basis more for Pay TV that anywhere else around the world, and… and you know what’s it done? It’s done… there’s nothing new come along. But try and get that story out, you can’t at the moment, because it is involved in the process, I mean every time I stick my head up I get a – ‘the lunatic is at it again’. So you can’t get a debate up.

And that’s absolutely right, I’ve found that over and over again, nobody is…

It’s… it’s… They just close down!

I know the interests are directly [xxxxx]. But actually I’m hoping that this process is going to give that more…

But you know it is… it is… it is a monopoly. So, you’ve got the debate of this running at the moment is, oh well we have more licences, we can do this because we can. Technology says we can.

Yeah.

But over here we’ve got multi… the whole argument goes well, we’ll look at multi channelling, but we won’t make a subscription to multi channelling, and I said to the agent we’ll see, recently when I was asked to go down and talk to the Commission about it, and I said, okay, one of the things that I find, you know when I look at things, really, really strange, is that the timing created Foxtel. And as former director of Australis and Foxtel, the time where for 3 years we lived in this country where you told the consumers that 3 into 2 of Pay TV operators was absolutely shocking, the consumer all of a sudden he woke up one day and said, 3 into 1 is a really good thing for the consumer and in the consumer’s interest. I said, don’t forget it’s really hard for me to understand that, and I said at the same time as you were doing that, creating this monopoly, you gave a report to the then Minister that said free-to-air industry needs to have a fourth licence multi channelling and get rid of site [xxxxx]. I said let’s just analyse, if we get rid of the site [xxxxx], and all the sport goes from free TV to Pay TV, by definition.

Yeah.

How you are protecting the consumer in that argument, I’m not sure. Why when you’ve got on the one hand basically competitive like anyone’s sort of test, the one thing they at least say about the Australian free-to-air industry is we compete like hell! You know the argument is… is a 6th licence in the free-to-air space, something that we should have or not?

Yes.

Whereas on the other side of the fence we’ve got Pay TV, which is a monopoly, and you are going to enshrine that, you’re going to make it more of a monopoly. And they just sit there, they just sit and don’t say…

This is the ACCC thing?.

They don’t response. That was just me lecturing them so I said, you know – yes, vested interest in the free TV. You know for me I say we should be proud of the success of our free-to-air industry, and we should make sure that we get competition into the Pay TV industry over time, and all the new channels that come along. So that we actually get better product, and we do it in a way that we actually start to develop local content. I mean Australians are paying a fortune, the ones that want to pay, basically to Hollywood for rebadged product, I mean what good is it doing anybody? [xxxxx] say, oh the people want more choice, and I said, if you went out and asked someone if they don’t want to pay taxes, they’ll say, yes.

Yes.

I’ll bet you 100% of people will say yes. But you have to show them what’s the consequences of that, and it doesn’t get them far.

When you… I mean when you add to that list, all the stuff that’s coming down in the last [xxxxx], in terms of ADL command, in terms of you know delivery, [xxxxx] versus all of those, what’s that going to do to the revenue? What’s it going to do to advertising?

But that was just a high point.

[xxxxx] upper end of this thing.

Yeah, if you let the things, they’re adding now more… simple channels I mean, more… a fourth licence which I think is largely on the way, would be… would serve no useful purpose given the argument I’ve just put in from both sides of the fence. I mean both sides don’t want it; if you ask the consumers, do we want it? They… of course they’re going to say, oh 4 is better than… 6 is better than 5. But I think that argument is pretty much gone away. Free-to-air multi channelling again, where are we going to get the content from?

Yeah.

If all we end up with is free-to-air multi channelling using repurposed… repurposed American product for competition for Pay, and the money ends up going to Hollywood and the advertising of your product doesn’t grow, what have we done?

Yeah.

So, you know we just sort of say, that’s not much point. We also say well… you know if you are going to have multi channelling, because that’s what the government wants to do, why just [xxxxx]… why would there be subscription on it?

Yeah.

So actually for the first time you get some competition on that side of the fence. Oh I’m not allowed to talk about that. I said to the ACCC, your whole report [xxxxx] did not mention multi channelling, did not mention subscription multi channelling, yet it was on the government’s agenda as part of their review process. I said, explain to me why not. You know he [xxxxx] me. It just defies logic. Why did we… I mean, [xxxxx] was told not to put it on air, it just [xxxxx]. I said you know I understand the politics and the power of this industry but for a independent body to not even put it up as a… or we’ll keep it as… as a possible option to be discussed, it just leaves me sort a little bit cynical. So… you know in all of that, coming back to your question originally, that is the challenge, I mean there is no doubt that free-to-air industry, successful as it’s been, changing it’s had to in the last 5 years of content is facing fragmentation. And you know, that’s in a multiplicative way, I mean people don’t talk about it that much, because the… the DVD is probably having more effect on us than Pay TV.

I bet.

Because it takes time away from watching a product and it’s more… it’s in more homes than Pay TV is, and more homes than Pay TV will probably ever will be in this country. Because one of the problems with Pay TV in this country is its been priced in such a way that probably 70% of Australians will never buy it.

I was going to say 30% certainly you would think must be the [xxxxx].

I’ve always said that. I’ve said that years ago when I was on the Foxtel board.

Did you? Yeah.

You know and that becomes, you know if you look at the configuration that’s come out of all the history, and how regurgitating it is, you know, all we read about is, oh poor Pay TV they’re losing money. But they just make a fortune out of it.

[xxxxx]

That’s because… the way it’s figured is making money out of all the content, is American content and forcing Telstra who are you know, are not smart in these matters, to fund them all. So they then talk about Foxtel losing money, and just [xxxxx] times, [xxxxx] making a fortune out of it. And unfortunately that structure in our case unfortunately, that structure will mean that it never gets in the market.

Yeah.

Because price is the determining factor.

Do you think subscription multi channelling will come?

No.

For the [xxxxx]?

No. I mean it’s got about one in a million zillion chance of that happening. You know we’re at… on sort of… that’s what we argued, if there was going to be change in that area, and we’re not saying there should be. but if there was, it had to be in that direction rather than any other direction.

Yeah.

Because you know… and even if they did say to people to do it, I’m not sure… I’m still not sure there is a business model in a market this size that yet makes sense.

Yeah.

But if you are going to have multi channelling for the life of it why you wouldn’t at least make people have the opportunity to charge for some of it, you wouldn’t have to charge for all of it. You know, you might end up with a sort of – competitor is probably too strong a word but an alternative, cheap version of Pay TV, where someone for $20 a month might be prepared to buy whatever. So that it would be….

That’s a very different price.

It is. But you wouldn’t… I mean… the market can’t sustain competition [xxxxx], I mean the biggest mistake in my opinion the ABC made, you know actually ending up with a monopoly Pay TV provider, probably wasn’t the end of the world on a market this size, so same [xxxxx]. It’s a problem, they’ve got this access… haven’t got an access regime, they say they have, but it demonstrably expensive and unworkable that it basically may as well not exist.

Yeah.

And therefore the concept of going digital, the concept of using technology to have multiple services, is now being tied up in this monopoly, that says if you and I have the smartest idea for a niche bit of content to be seen by 100 Australians, or 100,000 Australians, but no more, there is no way it can get up… get on the distribution system.

Yes, I know.

And it never will. And that’s a real shame because that’s… we’ve effectively thrown out all the potential benefits of what digital and an open access regime might have meant. The trouble is, given who is in control of that process, given the history of how things work in this country, I think the chances of that changing are almost zero.

If Telstra changes hands, Telstra becomes completely public, does that change some of that balance in terms of access regimes?

[xxxxx] potentially but…

But not really?

No, I mean Telstra is… you know my view anyway, is that conundrum of wanting to be in… in these wider businesses to offer different services to their customers going forward, which from the outside you can understand why they want to do it.

Yeah.

The trouble is that with Foxtel they’ve got themselves into debt with a couple of partners, they’ve got a complete and utterly [xxxxx]. I mean… fairly good idea of that because I was of them for a period of time. You know… and here you go, you read in the papers at the moment, so I don’t know the inside story on this but 2 years after the Foxtel offer [xxxxx], which is why Telstra ever agreed to do it? And I was sort of out there saying, you shouldn’t, why they actually did that, it will always remind me, because all they did was help Optus, relieved Optus from yeah, it helped Optus become more competitive and pay through the nose on behalf of their two partners, I mean they lost on both fronts. And now Optus is back and the prop is saying, oh well, give us some more please. And these two [xxxxx] are saying, oh big bad Telstra, you know and in this case I would say.. [xxxxx] they’ve just been played off the ground. I mean they obviously don’t want to, but politically everyone jumps on, beats up on Telstra. A lot of which they deserve. I’m not being overly [xxxxx], but in this specific instance, absolutely. [xxxxx] for [xxxxx]. So I’m just not sure how they get out of that. It’s… but the sad part of all of that without [xxxxx] is the opportunity of using that platform has been lost. You know we argue… one of the instances, I mean is the question of people understanding the technology. I argue and said to the government 3 or 4 years ago, lost it, lost out, just to give you an example when Pay TV was going digital. We went in and said, okay, you know, they wanted to retransmit at our signal, which we still haven’t agreed with but for other reasons. I went in and said, technology now in the greater world, [xxxxx] another you know, Murdoch and other parts of the world are doing this subscription [xxxxx]. Putting a simple thing called a ‘Dual Tuner,’ into their set top boxes. We went off and [xxxxx] didn’t want to do that, we got the major box suppliers to price it. It was like $25 a piece, [xxxxx] competitive. If they had it in… the digital role now already well underway, done that at the outset, and we actually offered a free-to-air network [xxxxx] funded, then we would not have to pay forever more, which we now do for an annual satellite transponder to get back into the homes. So we’re in a situation when we… because we’ll have to… when we end up doing a retransmission deal like the ABC has done, or what Nine has already done.

Yeah.

This is how dumb people are. We, as a free-to-air industry, get into 100% of Australian homes, give or take [xxxxx]. Using [xxxxx] technology for our one channel [xxxxx]. We are now going to have to pay Optus millions of dollars a year, per year forever more, to get back into those same homes with the same content, on the Pay TV platform. And you go, ha ha, it’s our pay back, you know not just for us commercial operations, but for the government on behalf of the ABC or the SBS.. was like one year for the upfront cost of having Foxtel, in rolling out its digital platform, have a dual tuner. Couldn’t do it, like dual tuners, oh can’t do that, all the normal excuses. They’re now out there, with their PBR box which has dual tuners in it.

Is that right?

Of course it does. Not the same dual tuners but to do other… for other purposes. You know… it’s mind-boggling stupid. And the simple reasons… the simple reasons, because they’re not silly people at Foxtel, or at News Limited, for them not wanting to do that was once there was a dual tuner in that set top box, and once you know Pay TV got to a certain level of penetration, an ACCC or a government agency would have made it pretty easy for access through that business. Whereas you see now they can’t, because no one can get through it. So, it was 1000% of [xxxxx].

Okay.

Maintaining a monopoly. And we had an ACCC that just absolutely played ball with them, and we’ve got a government at the time, you know, we went down and showed the Minister, we mocked up a dual tuner on a set top box, and we all just got there and said well it’s the manufacturing [xxxxx] buy it. It was explicitly securing it, and said there is a way . And there is the cost and we’ll help plug it. Didn’t even get past [xxxxx], didn‘t even get past phase one. So now as an industry, in this round, and it will change when Foxtel have to go to the next platform and another step at some stage in the future, but now it’s too late.

Yeah.

But the multiple technology is there. We’re up for going off and paying million of dollars, wasting millions. Other [xxxxx]…

As well as facing those revenues…

Yeah, and… so you’re in that… an issue where you’ve got technology change, which would enable us to do things. You’ve got the history of an industry that has been successful… as a free… as a service, it’s competitive and it’s developing content. We’ve just got to make sure that as we go forward we don’t throw that baby out with the bath water, and end up going backwards. And that’s why I’m so vocal about it.

Yeah.

Those sorts of arguments, there is no absolute right and wrong answer, because technology is changing, choices will change, for us fragmentation is certainly out there, we’re going to face fragmentation as a reality, so there is some interesting challenges there.

Fragmentation from a network sense, leave aside the ACCC for a second, fragmentation for free networks, is it necessary – and stop me if I’m asking questions that you don’t want to talk about – is the necessary indication of that then that the free networks will start to invent and engage into whatever in a whole heap of ways of distribution opportunities, in terms of the on demand, in terms of [xxxxx], or are there other ways that that [xxxxx] and revenue will get, in itself [xxxxx]?

Oh I mean there’s no secret of the fact that it went through public. We do see as a company, to grow and expand, in the [xxxxx] world otherwise there’s some issues somewhere down the track. Whether that… see I think if you look at things in isolation, there is no reason why in a fragmenting world with new technology, that free-to-air component of that can’t be a successful model, it will lose eyeballs, which it’s already doing, with the DVD and Pay TV to i-Pods to everything… you know it not just competing eyeballs, it’s competing for time, it’s competing for all these new things that…

It’s not going to kill it?

I don’t think it’s going to kill it.

No.

But you’ll want to make sure that you don’t do something stupid that adds on top of all of those changes and kills it, that’s all I’m saying. Meanwhile, all these other things will develop, will… for the moment one of our subscriptions is multi channelling, at the moment you’re not allowed to use, by legislation, the airwaves to do it, and I don’t think that is going to change despite, you know the argument, the logic for arguing just simply because politics is politics, and so without going any further there, so… but I don’t think the free-to-air industry per se is therefore going to [xxxxx] disappear. It’s going to change and if you take a look at the U.S networks, and that’s not a perfect example, but it’s a reasonable one. The U.S networks in the last decade, or it’s actually more than that, with cable now is 90% penetration of all homes, not only is it cable, there’s now satellite as another competitor, in competition in that market. The dealership of free TV collectively, it was 100% I think 12 years ago, it’s now down to 40% or something percent, below 40. And it’s still if you look at it, it’s still a successful model because for advertisers, which is what free-to-air is about, they still need to get the scale and all these fragmentation markets, are all tiny pieces. So, so it’s still survived. Whether that completely overlays here time will tell, because we’re such a… again if you look at it, we’re such a small market. On one hand that means that all the niches here, will be even smaller niches, and less effective, from an advertiser’s point of view and I think that’s a fact. But you know if we lose too much of our viewers you know, no one quite knows that cause and effect but right now you know it’s out there, in the 20% something percent of Pay TV market, our viewership of free TV and no sales, it’s already gone to 100%, it goes up and down depending on when we’re in and out of surveys.

Yes, I know.

But that’s a significant number.

Yes it is.

If you think it, that’s already happening right now.

Yeah, I know.

So, hey there’s lots of changes out there. And there is going to be lots of new technology but You don’t want to miss… you don’t want to… you want to make sure that we keep building and developing content. And I mean the reason we’ve got all these quotas, and what have you in the free-to-air industry, is it’s some sort of social aspect of what television provides and to say to some people, oh we don’t need that now because we’ve got all this technology [xxxxx], anyone can see it… they just don’t understand where we’ve come from and where we’ve been and where we’re going.

And yet the thing that’s missing in that whole thing is that, well I mean you could argue about it, but the thing that seems to me [xxxxx] is in fact [xxxxx] public broadcast.

I think we have got it, I think the ABC is a powerful public broadcaster.

It is, but it’s not particularly powerful in Australia with content [xxxxx], well sorry, in top end Australian content. In docos… I mean it’s patchy, it comes and goes, but there doesn’t seem to be a will for this.

But again, and I don’t think this will change, you know in the U.K where the BBC is a powerful player, it’s massive kafuffle, so people often write in certain newspapers about how free-to-air industry protects the beast that doesn’t pay for anything. The free-to-air industry is paying the government, you know well in excess of $200 million every year, for its licences.

Yes.

Plus it’s got this quota at the moment in meeting those social responsibilities as you grow.

Yep.

Yeah, right now the free-to-air industry can’t accept [xxxxx], because we’re doing pretty damned well. I mean the ABC is on a different funding, and if you looked at it, and they don’t actually look at it this way but the amount of money that the government spends on the ABC and the SBS, is probably partially 40% or 50%, funded by the licence fees that the free-to-air industry pays to the government. And it costs the Australian consumer zero for their five free-to-air channels.

Yes.

And five free-to-airs channels is pretty competitive for anywhere around the world, for free. You go to the U.S, the U.S networks don’t pay… I mean they pay a licence fee which is, you know ten bob, not related to revenue just to have a licence. They don‘t pay anything for the frequency. You go to the U.K and it’s the other way around. The consumer pays hundreds of pounds per year which gets funnelled through to the BBC to produce content. So you… we’ve got to be careful, I mean there is a size argument, not size of market that often gets pushed up, but there’s completely different model. We’ve got a model here where the Australian consumer doesn’t pay for anything and we actually fund a lot of the public broadcaster indirectly through the license fees.

Yeah.

So look… it’s a completely different model. I don’t think that’s going to change, so I don’t think all of a sudden the government’s going to, this is one thing I can say with even more certainty than when we get the subscription multi channelling, the government is not going to give more money to the public broadcasters [xxxxx].

Yeah. I understand what you’re saying but potentially the difference is that, in this country, the free-to-air networks are delivering about 55% give or take [xxxxx] around there. The public broadcasters are doing it now, and the United States and the U.K now really [xxxxx]. What I was thinking about was the notion that they did in fact, suppose that that fragmentation becomes… fragmentation of revenue becomes a slightly more serious issue down across time, which then makes the method of regulation sitting on top of or [xxxxx] try and meet those [xxxxx]. And I’m looking at what OffCom is doing in England at the moment, and they’re actually [xxxxx] when they talk about this proposal of establishing a second [xxxxx] broadcast free-to-air commercial, [xxxxx].

Mm, hmm.

And it would seem to me that there is actually quite a good argument to be made about that here.

We have a [xxxxx] already.

Yes.

I mean for a market this size, I honestly don’t see how that would… I mean we… I mean because of our [xxxxx] nature, you know this is public broadcasting the way I look at it.

Yeah.

I think it’s a… I think the whole sentiment of governments is not going to be faced with new technologies and faced with hiring people to do this…

To us…

It’s not believable, I don’t think it’s going to go in that direction.

I understand that but if the pressure is on the free-to-airs, in terms of revenue the government is more [xxxxx]… That might be a considerable advantage to everybody to in fact [xxxxx] if in fact the funding went to the public broadcast to drive further into Australian production levels, 55% which the ABC doesn’t [xxxxx].

But I don’t [xxxxx]… I know it doesn’t go directly but as I was saying to you, the government funds the ABC and the SBS to a certain level and it collects from them in the commercial product [xxxxx].

Yeah.

I mean if the government increases, it could just as easily have the money go part funding and it’s just in one hole and out the other in my mind, so we’re partially funded in this country. So… now the taxpayer is getting its five free-to-air services… for free, pretty competitive by any test model around the world, and the amount of government subsidy I mean for the ABC and SBS compared to any of the other countries is minimal. Now, in the States obviously there is no public broadcaster per se, if you compare it to the U.K. where a fraction… New Zealand just to go to the other extreme, and get some idea about what I’m talking about with fragmentation and capability to produce its own funding. They hardly produce any. I mean their percentage of local content is down around 20% compared to our 60%, and most of that 20% is directly funded through a funding body from the government. I mean… so you know, I’ve had… all we’re saying is, be aware, listen to what some of these people are saying and have multi channels with no subscription model, have [xxxxx] licences, that’s where you’re headed. I mean and it’s as clear as for people like me who have been in the industry for a while, it’s as clear as night follows day. But see that would be great, if you were a monopoly owner of Pay TV because that will drive down the effectiveness of your competition of the free model and drive up subscriptions of the pay model. So, if that was allowed to happen, what ultimately you’ll have is Australians then paying for Pay TV. And the money just going straight into the pockets of certain people. I mean we’ll throw the whole system that we’ve built up over the kind of period that you’re looking at, if that was to happen.

Yep.

Out the window.

And that’s the risk.

And that’s the real risk, and then what will we end up with? We’ll end up back having inferior local content again. And on both scores, the free-to-air industry, well it’s financially viable now, will come under pressure, and the Pay guys will say, oh well, it’s great, as long as I’m getting my subscription and no one else… I mean well, I think we’re in danger of sort of wasting the opportunity of digital.

If that’s the worse outcome, what’s the best outcome? What realistically how in 10 years time, what will the best outcome be? I don’t just, for a moment I don’t mean content, I actually mean what sort of structural relations can exist across the television industry as it is, assuming that it’s got on board at that stage, that whole range of alternatives [xxxxx]?

Oh look, I mean, I think… that’s why I think the whole sort of access, or the failure of an access regime on the subscription model was probably the biggest mistake that we’ve allowed to happen simply because it won’t allow… you know, we’re a country as I keep saying of 20 million people, you know it won’t allow the smart young people of the future to develop bits of content that can get through a distribution system to consumers, for a cheap amount of money. And that opportunity, the way we configure it at the moment has disappeared. Now, people will argue against that, and say – well it will come again because broadband will now provide that access, so in other words as the technology improves and broadband has pictures now, whether that… technically that happens, I know it’s technically possible and people keep talking about pictures, pictures down your cable, I mean so that… and as I said before, the lost opportunity on the model between Pay and Free, will get revisited in the next round of upgrading of set top box, I think the government… I mean if it’s going to happen, the government has to play a role in that quite frankly. So I’m wondering what we’ll achieve out of this. But because while all of that is going on, you’re going to have, as we see now, you’re going to have personal video recorders and computing power on the top of every TV set as it becomes affordable, and that’s going to take a long time and it will miss, as with all technologies, it will get cheaper and it will be there so people will have more choice, more personalisation. So, you’re going to have more personalisation, you’re going to have more choices, with the on demand through whether it’s in the main going to be through, going to have to come through broadband because I think the current structure of Pay TV is what… 30% of the population as we said earlier. But all of those things are upcoming. And we have just got to make sure that policies that we set, make sure that we embrace them but don’t… I mean the danger is you do things for technology because technology is there, and throw the baby out with the bath water; the other side of that coin is you don’t do things that stop the natural development of what you’ve become, and that’s the balancing.

Does it mean a different relationship with your audience?

Well, arguably…

The internet end of it is a much more person to person, consumer to [xxxxx] direct.

That’s quite right, I mean on the internet you know, the internet is a bubble and everyone’s got hopes, and the markets all got carried away, and no one wanted to talk about the internet for the last few years, I think the internet is growing quite nicely.

Yeah.

And the players that have set themselves on the Internet have got some, you know, it’s like any other business model, you get enough scale, you grow, but I think it’s an excellent opportunity to play an important role.

Yeah.

And obviously is another of the challenges that we face about going forward, just looking at the simple free-to-air model. So there is a lot of changes coming.

Yeah.

But you know too often the debate ends up being, oh technology, technology, technology, without saying actually, what do we want! And then people forget the fact that the industry has existed here for the last 45 years, has been dictated to by government policies, I mean social as well as business, and I don’t think that can change. In fact, I think it’s more important here going forward than ever before, otherwise you know in 2015, we’ll run the risk of throwing out everything we developed again and go backwards.

But to go back to where you started from too, the reality is [xxxxx] except in little bits, there isn’t a debate. The government… in all the time I’ve been involved with broadcasting, at least across the last 10 years also, I mean, yes, yes you can say that their thoughts are comprehensive legislation to [xxxxx], but in reality I’ve never heard their last public debate about what broadcasting might be [xxxxx].

Female: And I think [xxxxx] they’re not very happy, they get what they want and it’s just not an issue that raises, well it raises people’s ire in saying that they don’t like the way the programming, they’ll feel very open to tell you that they’re in a relationship with you, but lately there was not a great deal of [xxxxx] in relation to [xxxxx].

Yeah, and yet…

Female: And it raises all the other things, bits of policy as well, there are very few [xxxxx] I think which are [xxxxx] for the Internet into the [xxxxx], then [xxxxx] fed up, they don’t understanding it, so…

Andy: But as you were saying the danger does sit there, in fact it’s going to go out and [xxxxx].

It could… And because you know some of the decisions will be made very shortly. It won’t happen tomorrow and it won’t happen the day after.

Yeah, sure.

It will set a train, a trend that will have a 10 year impact, I mean it’s… and one of the difficulties is you won’t hear me speak as candidly as I am now, publicly. Because you know we’re all charged with duties, and as I said, some of the things I’m saying publicly then might affect my share price, because people misunderstand. See I’m not a believer as I said earlier, but despite all these challenges the free-to-air model is… if anything other than the right steering, it can play a very important hard game for long term.

Yep.

The theory is if something silly happens, where it cuts off the ability to do that, you know for some sort of technology reason, I mean we’re getting bashed up at the moment over the fact that digital has not been successful in the free-to-air model become pet to Pay TV model. And people say that, and people believe that. But they don’t understand what they’re talking about. I mean they come along and say, right, I have the previous minister see, you has said to me, but you’re doing a set top box the same as Pay TV is doing. And I keep saying, we’re talking about apples and oranges. I mean Pay TV set top box, the model of Pay TV as a set top box, it has an inter relationship, one to one with the consumer at the other end. Ours is simply a box. So.. it’s… ours is simply a box to enable someone to see something that’s in digital, the exact same thing that was in analogue. I mean you’re talking about completely different things, but no one really understood that. For a year and a half, the debate was about that. I mean that’s…

Oh yeah.

And you couldn’t… you couldn’t cut through that. because people don’t understand those technologies. So, we’re at the stage where the government and I thought they were pretty smart to do it, and that’s not just from a vested interest point of view, basically said when they introduced digital free-to-air, we don’t want the consumers to have to go out and buy one of these expensive set top boxes, you certainly get the same thing that they’re getting now in a slightly better form but digital, we will enable them to do that if they want to, but the ones that want to wait until they’re old analogue TV set… you know grinds out over the next 5 or 10 years, they can wait because by then the digital TV set that they want to buy is going to be a fraction of the price and be much better. And that’s actually what’s happened. We’re actually starting to get quite a pick up in digital now, where prices are coming off the wall and technology is for them through the floor and the consumers… we in the industry have already spent and paid hundreds of millions of dollars, and we’re not putting it out all of it a signal in the old analogue format and in digital. And on top of that… so our government gets criticised for, we’re actually right at the forefront of high definition. I mean when you talk with the OffCom guy because I did when he was there last night, they went down a different model in the U.K. He’s sitting there now saying to himself, is it a content [xxxxx]… it’s not our problem, in the U.K it’s all the producers and product and our producers are starting to produce in high definition because of the content [xxxxx] around the world, that’s where they think it’s going. And we haven’t configured our whole broadcasting model for high definition. And now, you know, he said, that’s not… that’s an issue that we already see on the horizon. We might have got the timing slightly wrong, but we’re at least on that model, where hopefully we can transition and relatively easy. Those sorts of things are pretty important. So we actually got it pretty… I mean I think it’s… as an industry, we nearly got it perfectly right. Because if we had the dual tuner between Pay and Satellite, we would have been transitioning across to digital, Pay would have been… we would have… we, the free-to-air industry would have transitioned with the Pay model.

Yeah.

You would have got more analogue onto digital faster, and that’s what it’s… you wouldn’t have wasted a whole lot of money on the way through. Whereas at the moment, we’re wasting a whole pile of money and having to pay when we do our retransmission, having to pay to get back into the same market, that we’re getting for free. So we’re no longer a free-to-air model if that’s the case, we’re paying a satellite broadcast to get you know a fair chunk of that signal back into the same [xxxxx]. It borders on stupidity. You know, that’s what… that’s not… But they are the sort of things the government needs…

Is that only digital?

Well yeah, because the technology has moved, it can be fixed on the next round but that might be… I don’t know when, as Foxtel upgrade their next lot of technology, the way technology is going that’s probably 3 to 5 year timeframe, but they’ll plan for it, so that it can be revisited but it’s not going to [xxxxx].

So, it’s really the last question, the… in order to preserve the kind of quality and content that you’ve got, across the whole system, a system which is directly [xxxxx] a whole lot of reasons revenues are taking on, what actually needs to happen early up, because to ensure that that preservation actually can [xxxxx]?

I mean I think we need, I mean I think at some point, at the moment the debate on Pay TV is fought because they’re very successful at getting the message out, poor Pay TV is broke, therefore we need to keep helping Pay TV.

Yep.

My view of it is it’s one thousand percent the opposite. It’s actually making money, it’s actually the most expensive service anywhere in the world to the consumer. And it’s making money now on the side, and it’s all heading overseas, and they’re paying… they‘re putting nothing back into the local content side. They’ll need… at some point the government will have to address that question, because unfortunately the monopoly is rolling out, that’s the hardest question for the government because of who is on the other side of that fence.

Yeah, sure.

I mean… and you know the development of media industry has its history where there’s a couple of influential players, and I don’t think that’s going to change in the short term. So, it’s a difficult debate to get up. And you know it’s…

But that’s where, if you could, that’s where you’d start.

Yeah I mean… I think the answer, I mean I think that’s why we argue that the rules need to be changed, the foreign and the cross rules need to be changed. I mean from a pure [xxxxx] perspective people are going to say, but gee the rules have changed, and Packer could do this and Murdoch could do that, will that be bad for them? The answer is potentially, yes. But see the trouble is siting here at the moment, getting these rules in place where we can’t really do anything, and meanwhile their monopoly with [xxxxx] is just getting stronger and stronger, and there are also the big players have said, we’ll face the same problem only we’ll be in a worse position in 5 years or 10 years time. And they will eventually change, so our view is to change them so that you can then start getting, you know, not… the debate is not so much about Packer and Murdoch all the time, but it’s nice to become about having other players, I mean we could be one of those.

I think it’s really interesting… of all the people I’ve spoken to in the last month or so, I haven’t heard anybody argue [xxxxx] change the rules.

I mean that’s the rules, it’s too…

But I mean 5 years ago I would have expected to hear a big part of the people I’ve talked to, but again…

Five years ago the debate was all about… the debate was all about compatibility and control of the airwaves. It wasn’t about what’s smart for the business. And there is still fear of that in the current debate. But it’s sort of… people are sort of moving on. Vested interest also can mean, vested interest in companies like us, saying hey give us an opportunity to grow, [xxxxx] now in that position. There will still be people out there, the old journos of the world saying look, you know be careful of this and that and they’ll… but if you analyse it for [xxxxx] what have we got? We’ve got foreign ownership of course. When half our media for the last decade has been by definition controlled by… I mean we’re not controlled, but we’ve got a 57%, you know Conrad Black at Fairfax and Rupert has got… I mean, please.

Yeah.

You know we can’t have… we’ve got cross media rules, that… that don’t pick up magazines, but do pick up radio, but don’t pick up Pay TV, which is a growing monopoly you know. You go back and have a look, I mean… when 20% foreign ownership of television sort of came about, [xxxxx] the first term came about under a certain government of the day – it was the same [xxxxx] as this one – you know, and basically brought it in when Kerry Packer was trying to get back control of Channel Nine. That’s what’s happened. You know it didn’t have any far flung sort of ideological sort of background to it, so they’ve never been real from the start and they’ve just… they’ve just dragged on and on for years and doing nobody [xxxxx]. So I’d be surprised if anyone argues anything to say. Someone might argue that when they change them, you’ve got to then make sure that certain things are protected, I guess that’s probably right. But the rules of [xxxxx].

Do you think they will disappear before Telstra is already privatised, before that decision is made?

I think so. I mean I think the government is in a position where they just… I’m pretty hopeful that the government will push it through, you know some time soon after July, no certainty to that, but they should, I mean they’ve talked about it for so damned long.

Yeah true.

It will just grow another set of conflicts from all the different interested parties, [xxxxx] they don’t. They passed it through the Lower House, got blocked in the Senate, upset… gone to an election saying they’re going to do it. They’re going to have control of the Senate, what’s changed? So I…

Free election… [xxxxx].

Free election, so I mean… I mean it would be hard to imagine why, I mean I could imagine why, I won’t go into it but you know that they will change their view.

Sure.

These real interesting issue should be what’s going to happen, and what is going to be allowed to happen and, you know but theoretically that sort of comes back an ACCC type thing, which fortunately I don’t think the media industry has been served too well by that body in recent times. I mean I actually think that the only justification for what I talked about earlier on that was simply telecommunications has sort of somewhat failed in its deregulations, so all of a sudden they said, well, in the overall interest, if we get some… if we prop up the telecommunication industry we’ll worry about, we’ll worry about the problem we’re causing over here and [xxxxx]. So that’s about the only justification I can think of to think of why they did what they did.

If you can’t get those…

Female: It’s going to quite a long one as well.

Telstra?

Female: The Telstra process, even if they put the bill through, they still probably will have to wait until they actually give them [xxxxx] and it’s going to be tough.

Andy: No the only reason I asked the questions whether they will actually… whether Telstra will actually want to be a player in the ownership.

Interviewee: I’m not sure they do but the reality is Telstra. The reality is Telstra for the last 5 years or probably forever, has been one of the potential players, they could have played in the media because it’s not court by cross media and its not court by foreigners, so… but now that it’s so close to tier three, the political pressure is what’s going to stop it, but I mean it can… it’s had the opportunity to do that right the way through this process, it’s probably the only part that has come out of the company. So, you know my sense of the government, my sense is – and I’m sure Telstra might think that and probably should think that – but I don’t think it’s going to get in the way of the process.

Female: I don’t think everybody [xxxxx].

We don’t think it is, but I can understand the question.

Yeah, no, I mean it’s just interesting, I should jump out of your hair.

Look I hope I sort of went around and I hope that we…

Thank you very much. No, it was really lovely. It was really great. Do you want a copy of that?

That would be good, yeah. That would be good, yeah. But as you say if you could, I mean I was pretty candid there so… it needs to be treated with… most of that, our scheduled competitors and the government know how I feel, because I’ve said it fairly often but…

If it appears… one it’s absolutely [xxxxx], two if it appears anywhere, it’s extremely unlikely to appear in quotation marks, it will appear as issues raised.

Excellent. Good luck.

Thank you very much. And thank you for the tape recorder too.

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