Satellite farm on the rooftop of SBS TV. Generic Television, satellites, free to air. Monday 31st May 2010 AFR photo Louie Douvis job# 129997 Photo: Louie DouvisAnalysis
Television broadcast licence fees are top of mind in the media industry this week as the federal budget approaches and Network Ten readies for what are expected to be stormy half-year results.
But would cuts in licence fees be enough to save the industry?
Last budget the government announced a permanent 25 per cent discount in licence fees to 3.375 per cent of gross revenue, down from 4.5 per cent of gross revenue.
This means the government will receive about $108 million in fees, down from $154 million the year before.
Effectively, the discount reduces Network Ten’s fees to about $23 million, down from about $30 million on their 2015-16 revenues of $676 million. Nine’s fees drop from about $58 million to $43 million, and Seven’s from $77 million to about $58 million.
But the networks want more cuts, arguing licence fees are lower overseas and they repay the public through licence obligations and economic stimulation. For example, UK broadcasters only pay 0.18 per cent of revenue in fees, Seven told a parliamentary committee. (For companies with revenue the size of Ten, Seven, and Nine the fees would be about 0.27 per cent).
More recently they have asked for fee cuts to compensate for a proposed ban on gambling ads screening during live sport. However, one analyst estimates this law cost a network like Nine, which screens rugby and cricket, less than $10 million in lost revenue.
So if fees were slashed to UK levels of less than one per cent, Network Ten’s licence fee would drop to about $1.2 million, Nine’s to $2.3 million and Seven’s to $3.1 million.
Given that Ten has warned it could see losses of up to $30 million this year, the saving of $21.8 million would help, but it wouldn’t reverse fortunes.
Still, in the declining world of traditional media every little bit helps and every cost reduction saves jobs.
But on the other hand, should television get a free ride on spectrum? The broadcast licence fee is how television networks pay for making money out of publicly-owned spectrum, as well as through their corporate taxes.
Acting chief executive of Free TV Australia, Pamela Longstaff, says television does not get spectrum for free.
“Fees need to recognise that there are stringent obligations on how [networks] use spectrum, including spending $1.5 billion per annum on local content,” she says.
Networks provide free live sports, news, current affairs and fulfil important public policy obligations, she added.
But Australia’s spectrum is worth billions to the public purse, just ask the telecommunications industry.
TPG recently paid an international record high price of $1.2 billion for a 12-year licence on a modest chunk of spectrum in the 700 megahertz (MHz) frequency to so its new mobile network can reach just 80 per cent of the population.
Telco spectrum licences are usually issued for 15 years at a time. In 2012 former communications minister Stephen Conroy decided to reissue Telstra, Optus and Vodafone’s licences in the 2000 MHz range for a collective $1.4 billion, or about $90 million per year.
The television networks are sitting on billions of dollars worth of spectrum, but only pay an annual transmission fee of less than $100 a year plus licence fees.
It is unlikely the federal government would drop the fee to the same level as the UK, where the communications regulator collected just ??18 million ($30.5 million) in television broadcasting licence and administration fees in 2015-16, and ??1.1 million ($1.8 million) for the cost of managing television broadcasting spectrum.
And bear in mind the UK also charges every household with a television set an annual fee of ??147 ($A250). This levy reaped ??3.7 billion ($6.3 billion) last year, which went straight towards ??4 billion ($6.8 billion) in BBC operating costs. (Locally the ABC receives $1 billion in government funding to cover its $1.2 billion operating costs).
The commercial networks haven’t publicly suggested how the government should make up for the revenue shortfall if and when licence fees are cut.
But annual levies or subscription fees would not go down well in the electorate and in the digital era would push more people away from free-to-air broadcasting and into streaming services, which pay no licence fees and often no tax in Australia.