Background to reform of media ownership rules

In early May 2017, the Government announced a consolidated package of reforms for the Australian media sector (see here). A key element of the media reform package is the repeal of two of the five media ownership rules that are currently contained in the Broadcasting Services Act 1992 (Cth) (BSA), that is, the so called “75% reach” and the “2 out of 3” rules. The 75% reach rule prevents a broadcaster broadcasting to more than 75% of Australia’s population and the “2 out of 3” rule prevents one media company or group owning more than two of a commercial television broadcaster, commercial radio broadcaster and an associated newspaper in the one area. It is proposed that these two rules will be repealed by the Broadcasting Legislation Amendment (Broadcasting Reform) Bill 2017 (Reform Bill).

Passage of legislation

The Reform Bill passed the Senate on 14 September 2017 (with amendments) and is expected to sail through the House of Representatives when Parliament re-convenes in mid-October. Subject to obtaining Royal Assent, the Reform Bill should therefore take effect before the end of October 2017.

It has taken a long time for this legislation to be passed by the Australian Parliament. An earlier version of the Reform Bill was first introduced in March 2016 but did not pass before the 2016 election. The Reform Bill itself was introduced on 15 June 2017. The delay in progress of the Reform Bill has arisen from the opposition of the Australian Labor Party and the Greens to the repeal of the 2 out of 3 rule. As the Government does not have a majority in the Senate, it was therefore necessary for the Government to negotiate with the minor parties and the independents in the Senate to ensure the bill was passed.

What consolidation may happen?

The Government believes that the repeal of the two media ownership rules is necessary to ensure that media regulation in Australia better reflects the contemporary digital media environment. The repeal will, it is thought, enable some media mergers to occur, allowing the consolidated entities to structure their businesses more efficiently or to achieve the necessary scale to adapt and compete[i].

Although there is a constant stream of market rumours, it remains unclear what consolidation – if any – will now occur. For example, investors had considered that, if the Reform Bill became law, an early candidate for acquisition would be Prime Media. Prime Media is a listed regional commercial television broadcaster which has a long term affiliation agreement in place with Channel 7. The expectation that Prime Media would be acquired by Seven West Media (the owner of Channel 7) had been reflected in Prime Media’s share price, which had increased markedly over the past 12 months. However, one might question the benefits to Seven West Media of acquiring the company – Channel 7 can, via streaming, be directly accessed in those areas where Prime Media broadcasts and presumably Seven West Media is satisfied with the revenue it earns from its affiliation agreement with Prime Media. Perhaps then it is not surprising that on 22 September 2017 the companies announced that they had not been able to reach a deal. Prime Media’s share price dropped sharply on that date and, interestingly, the share price of Seven West Media rose. Only time will tell if merger discussions between the two companies will recommence or if other merger discussions are more successful.

Of course, it should also be remembered that the repealed rules are not the only Australian regulation governing merger activity in the media sector. A proposed acquisition could not breach the remaining media ownership restrictions in the BSA, could not result in a breach of section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) and, where foreign interests were involved, could potentially require approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth).

Section 50 of the CCA prohibits any acquisition that has the effect, or is likely to have the effect, of substantially lessening competition in any relevant market in Australia. The Australian Competition and Consumer Commission (ACCC) issued draft guidelines on media mergers in 2016 which indicate that it will carefully scrutinise any potential acquisitions which may now occur to consider whether section 50 might be breached.

Conditions imposed on consent

The two minor parties in the Senate extracted a number of concessions from the Government as a condition of providing support for the Reform Bill. The key concessions were:

  • A $60 million regional package, including a $50 million “Regional and Small Publishers Innovation Fund”, together with a cadetship and regional journalism scholarship program
  • An agreement to introduce legislation to:
    • Establish a public register of foreign owned media assets
    • Provide for the 2 national broadcasters, the ABC and SBS, to make additional information publicly available
    • To require the ABC to be “fair” and “balanced” in presenting news and information
  • The Government will instruct the ACCC to investigate, in some fashion, the activities of Google and Facebook and the impact that these companies have had on advertising revenue (the details of that proposed investigation have not been released). The investigation is due to begin no later than 1 December 2017.

The Chair of the ACCC, Rod Sims, has indicated his support for the inquiry into Google and Facebook, noting that the dominance of the two companies has implications for the viability of journalism in Australia (as it does globally). His view is that the study will provide important information to inform the debate in Australia.

Where to now?

The communications sector continues to undergo significant change as technology and consumer preferences evolve. It is of course too early to say whether passage of the Reform Bill will assist Australian media companies, either with or without the other elements of the Government’s media reform package, to compete with international content providers and technology companies for Australian consumers. It is likely that more reform – both by Parliament and by the media companies themselves – will be required.