10.13 Efficiency of the public broadcasters

Background

The Australian Broadcasting Commission was established in 1932 and renamed the Australian Broadcasting Corporation (ABC) in 1983, although various forms of publically owned and funded broadcasting have existed in Australia since 1923. Today, the ABC has annual expenses of around $1.2 billion, of which government provides $1.1 billion (ABC, 2013). The ABC’s charter requires it to:

provide within Australia innovative and comprehensive broadcasting services of a high standard as part of the Australian broadcasting system consisting of national, commercial and community sectors and, without limiting the generality of the foregoing, to provide:

  1. broadcasting programs that contribute to a sense of national identity and inform and entertain, and reflect the cultural diversity of, the Australian community; and
  2.    broadcasting programs of an educational nature. (Australian Government, 1983).

The Special Broadcasting Service Corporation (SBS) was established in 1978, following a number of initiatives that began in 1975 to provide ethnic-specific broadcasting content to inform migrant populations about specific government policies. SBS has annual expenses of around $0.4 billion, of which $0.3 billion is provided by government (SBS, 2013). SBS’s charter requires it to:

provide multilingual and multicultural radio, television and digital media services that inform, educate and entertain all Australians, and, in doing so, reflect Australia’s multicultural society (Australian Government, 1991).

National Indigenous Television (NITV) is part of the SBS family of free-to-air channels broadcasting across Australia providing a nationwide Indigenous television service via cable, satellite and terrestrial transmission means and selected online audio visual content. The content for these services is primarily commissioned or acquired from the Indigenous production sector.

Rationale for government intervention

The traditional arguments for government funding of public broadcasting are:

  • universality, a form of media and content accessible by all, regardless of cost of provision;
  • independence from commercial and corporate influence, with sufficient safeguards to establish independence from political influence;
  • diversity, the delivery of content for which there is no incentive for commercial broadcasters to produce or distribute, such as localised, ethnic, cultural and educational forms of content; and
  • a mechanism with which to pursue government policy aims, especially concerning delivery of non-commercial content to achieve social and educational outcomes.

Media convergence, especially the availability and access of text, audio and video media via the internet, is increasingly eliminating the traditional arguments for public broadcasting. The need for government intervention or support has now been largely superseded by technology and commercial imperatives.

While historically, the ABC was the only broadcast service available in many communities, especially in regional and rural Australia, the availability of the internet and increased coverage by commercial broadcasters is diminishing this market failure. Indeed, the onset of digital broadcasting has seen the number of free-to-air television channels now available increase from five (including ABC and SBS) to over 20, depending on the location of the viewer.

Multicultural, ethnic, educational, children’s and informative content can be produced through other means, such as increased producer incentives, tax concessions and community service obligations, and do not necessarily require the existence of a sole-purpose public broadcaster. Furthermore, access to diverse multicultural programming is now readily available through new media platforms that do not require the costly fixed infrastructure of a broadcaster to support it. Similarly, government objectives can be pursued through grant and incentive arrangements.

In light of recent trends that have weakened the traditional arguments for public broadcasting, there is a strong case to review the level of government funding of public broadcasting for this purpose.

Current funding of the public broadcasters

The ABC and SBS are both statutory Commonwealth authorities, but have a significant degree of independence from government. The ABC and SBS receive 89 per cent and 73 per cent, respectively, of their total revenues from government, with the remainder coming from advertising (on SBS), programme sales and merchandising.

The funding of each broadcaster is broken down in to ‘transmission funding’ and ‘base funding’. Transmission relates to the costs of broadcasting the radio and television content of the ABC and SBS. These are delivered through long-term contracts with Broadcast Australia. Transmission costs are fully funded by government and cost around $200 million per year for the ABC and $80 million per year for SBS (ABC, 2013; SBS, 2013).

Base funding is the remainder and is used to conduct their television, radio and online content production, staff costs, asset management, retail operations and policy-specific operations.

The charters of the ABC and SBS do not set any specific operational requirements, such as hours of content produced, required quotas of Australian content, or channels to be broadcast. Instead, in practice the ABC and SBS are free to use the funding they receive from the government as they see fit.

As shown in Chart 10.13.1 below, there has been strong recent growth in the amount of base funding available for the ABC and SBS. Both organisations are also exempt from the efficiency dividend.

Chart 10.13.1: ABC and SBS non-transmission funding, 2012-13 dollars.

This chart shows ABC and SBS non-transmission funding over the period 2007-08 to 2016-17.  The decline in funding in the out years is due to terminating measures relating to news content and the digital delivery funding.

This chart shows ABC and SBS non-transmission funding over the period 2007-08 to 2016-17.  The decline in funding in the out years is due to terminating measures relating to news content and the digital delivery funding.

Source: Australian Government, 2013.
Note: The decrease in the ABC's 2016-17 funding is due to terminating measures relating to news content and digital delivery funding.

The ABC and SBS also have access to a moderate amount of own-source funding. The ABC receives around $160 million per year, primarily through the sales of goods and services, which include both retail sales to consumers and the enterprise selling of programmes and ABC professional services. SBS receives around $90 million per year in own-source revenue, of which $60 million is from advertising and sponsorship (ABC, 2013; SBS, 2013).

Trends and drivers

Media convergence

The existing economic models of the broadcasting and media industries are changing because of media convergence. Simply put, convergence refers to the phenomenon where the method of distribution of content is becoming increasingly unimportant when compared to the consumption of content. Much of Australia’s broadcasting and media industry’s distribution practices are restricted and regulated, leaving them it to respond effectively to changing consumer behaviour (Australian Government, 2012).

As stated above, the ABC and SBS are not bound by specific production or distribution requirements as a condition of their broadcasting licences. Given this, the public broadcasters have benefitted, relative to the commercial broadcasters, in responding to media convergence. Indications of that benefit may be drawn from the increasing audience share of the ABC and the significant efficiency in cost-per-broadcast-hour of SBS.

Digital television

The introduction of digital television and, in particular, the ability for multiple digital signal television channels to be broadcast in the same amount of spectrum as a single analogue television channel, has also placed cost pressures on the ABC and SBS. Whereas previously each broadcaster produced only a single channel, there are now seven distinct channels across the ABC and SBS, with a rise in content acquisition and production costs, albeit at a relatively marginal cost.

Digital television has also sharply reduced the ability of SBS to raise advertising revenue. Previously, SBS had served as a channel of last resort for those advertisers unable to secure space on one of the three commercial channels. With the proliferation of digital multichannels across the three commercial networks, there is now a much greater supply of televised advertising space, with the potential consequence of less need to resort to SBS. This has caused SBS to seek supplementary funding from government in the last two budgets to make good the missed advertising revenue forecasts.

Changing consumer demand

The public broadcasters respond to changing consumer demand – most evident in the development of the ABC and SBS online delivery portals, iView and ON DEMAND respectively – and the resulting cost pressures. SBS has also faced sharply declining advertising revenues.

Issues

The charters and enabling legislation of the ABC and SBS allow the broadcasters significant freedom in deciding how their operations should be structured and impose no obligations to produce specific amounts or types of content. This is in significant contrast to both free-to-air and subscription access broadcasting companies, which are subject to significant regulation in the content they are allowed and required to produce in exchange for their operating licences.

The level of funding to provide to the public broadcasters is a value-decision for the government of the day.

Independence of the ABC and SBS in achieving programme-specific savings

The legislation of both the ABC and SBS grants them a significant degree of independence through restricting the ability of the government to give directions with relation to the content and scheduling of online, radio and television activities.

In practice, the ABC and SBS have used this independence to actively pursue new programmes and service offerings funded by internal savings, such as the SBS ON DEMAND online portal and ABC News24. Government is limited in its ability to halt or moderate this activity. For example, reducing the appropriation provided to the ABC by an amount equivalent to the cost of, say, running ABC News24, would still allow the ABC to choose to continue running the service and absorb the reduced funding in other areas of operation.

Future of SBS

There are concerns about the ongoing financial viability of SBS. As discussed above, SBS advertising revenues in recent years have failed to reach estimated levels, resulting in the SBS seeking additional funding from government in the past two Budgets. Still, rather than reduce services in response to declining own-source revenue, SBS has continued to expand its service offering.

Potential areas for reform

There is no ‘right’ level of funding that should be provided to the ABC and SBS, or ‘right’ level of services that should be provided by the public broadcasters.

Increased efficiency

The Commonwealth has no powers to target specific services of the ABC and SBS. Nor can efficiencies be harvested from the public broadcasters where they find more effective and efficient ways to deliver services.

The Commission proposes that the ABC and SBS be benchmarked against each other and the commercial broadcasters. This exercise should provide a sense of the savings that could be achieved without compromising the capacity of the public broadcasters to deliver services including to remote and regional Australia.

References

Australian Broadcasting Corporation (ABC) 2013, Annual Report 2012-13, ABC, Sydney.

Australian Government 1983, Australian Broadcasting Corporation Act 1983, Australian Government, Canberra.

Australian Government 1991, Special Broadcasting Corporation Act 1991 Australian Government, Canberra.

Australian Government 2012, Convergence Review - Final Report, Australian Government, Canberra.

Australian Government 2013, Mid-Year Economic and Fiscal Outlook 2013-14, Australian Government, Canberra.

Department of Broadband, Communications and the Digital Economy 2012, Report of the Independent Inquiry into the Media and Media Regulation, Canberra.

Special Broadcasting Service Corporation (SBS) 2013, Annual Report 2012-13, SBS, Sydney.