Special interest television programs have been available, on payment of a fee, in the United States since the early 1970s, and in the United Kingdom since early 1989. The Australian government has declared a moratorium on the introduction of Pay TV before 1990, and is currently developing its Pay TV policy. The proposal to establish this new industry in Australia opens a Pandora's Box of economic and social issues, many of them of a complex and normative nature. This paper warns that the economic viability of Pay TV in Australia is uncertain. It also argues that the government should resist the economic rationalist approach being urged on it by the Department of Transport and Communications, and base its policy on a considered evaluation of the medium and long term social and economic implications of Pay TV.
In July 1980 the then Minister for Posts and Telecommunications, Tony Staley, announced that the government had decided that subscriber-supported television ('Pay TV') would be introduced to Australia by both cable and over-the-air technologies. Nine years later we are still debating the issue.
The Fraser government's error was not that it failed to establish Pay TV in the 1980s, but merely that its minister was over-anxious in publicising its introduction. The cost of a presumptuous ministerial announcement is much less than that of an unwise government decision, especially one involving public expenditure. The development of Pay TV operations and technologies since 1980 has endorsed the wisdom (or the luck) of the government delaying its Pay TV decision.
During the Fraser years a lengthy inquiry was conducted by the Australian Broadcasting Tribunal into Pay TV which culminated in the publication of an extensive report l This report was largely disregarded by the government at the time and in 1986 a moratorium was imposed on the introduction of Pay TV until at least September 1990.
The Pay TV issue now confronts the Hawke government. Three years into the four-year moratorium Pay TV is the subject of an inquiry both by the House of Representatives Standing Committee on Transport, Communications and Infrastructure, and by the Department of Transport and Communications (DOTAC). In January 1989 DOTAC produced a policy options review report on Pay TV. 2
Pay TV is not a technology, but the supply of television signals on a commercial basis different to that of traditional 'free' advertiser-supported television. Pay TV programs are available to viewers only upon payment of a fee, usually monthly, to the Pay TV system operators. The Pay TV viewer is also charged a connection fee to the system, and certain Pay TV channels may be accessible only by payment of an additional 'premium' fee. Furthermore, the technology now provides for special programs - for example, prize fights and live concerts - to be made available to viewers on a 'pay-per-view' basis.
Australia already has Pay TV by way of Video and Audio Entertainment and Information Services (VAEIS, or 'Sky Channel') which are mainly for the transmission of race meetings, other sporting events and music programs to non-domestic venues such as hotels and licensed clubs. VAEIS are financed by advertising revenues and the lease to VAEIS users of satellite-receiving equipment. The hire of video feature films for viewing on the domestic television set via a video cassette recorder can also be considered to be a form of Pay TV.
The economic relationships within a Pay TV industry are substantially different from those prevailing within traditional advertiser-supported television broadcasting. When television is financed by advertising revenues, television stations are the suppliers; advertisers are the buyers; and the products are the audiences which are sold by the stations to the advertisers. The programs transmitted simply serve the purpose of attracting the attention of audiences to the advertising messages. In contrast, with Pay TV, where viewers pay directly for programs, the 'stations' (Pay TV operators) arc still the suppliers; however, the viewers become the buyers, and the programs are the products which are sold to the viewers.
With advertiser-supported TV the programming preferences of minority audiences tend to be neglected. This can be alleviated by the direct payment by audiences for programs. Subscriber-supported television is able to take into account the intensity of audiences' preferences for programs, expressed in money terms. It has the potential, therefore, to generate the production and transmission of additional programs that cater to the tastes of audience groups whose size is sufficiently small that such programs would be unprofitable (or less profitable than other programs) under advertiser support.
Viewers who chose to subscribe to Pay TV would do so only if they considered that Pay TV programs contributed to their welfare. Viewers would be able to express their viewing preferences by 'voting with their dollars' and thus exercise a more direct influence over the provision of television programs. Pay TV may also give viewers the opportunity to pay for certain programs free of advertisements.
This does not constitute an argument, however, for the replacement of traditional advertiser-financed television with an all-Pay TV system. A television program is almost a perfect example of a 'public good' in that the marginal cost of transmitting a program to an additional viewer is, in effect, zero. A positive price for programs would exclude some viewers, but it would not conserve any resources. To the extent that program patterns remained unchanged, under an all-Pay TV system, from those under advertiser-support, viewers would be charged for programs which previously they received without payment. An exclusive Pay TV system, therefore, would bring about a massive income transfer from consumers to the Pay TV industry which would be socially undesirable.
Nevertheless, because Pay TV has the potential to respond more directly than traditional television to the demands of audiences for programs there exists a prima facie case for the government to allow Pay TV to be introduced in addition to the existing advertiser-supported television industry.
Pay TV has the potential, however, to have a detrimental impact upon the quantity and quality of traditional advertiser-supported television. This could come about in cither of two ways. First, if the operation of Pay TV reduced the size of the audience and, consequently, the revenues of advertiser-supported TV, this could conceivably adversely affect the number and quality of advertiser-supported programs. Secondly, if any programs normally provided on advertiser-supported TV are 'siphoned' to Pay TV, non-Pay TV subscribers will be deprived of such programs, and Pay TV subscribers will be charged for programs which previously they received, as viewers of advertiser-supported TV, without direct payment.
The types of programs susceptible to siphoning are those which would be more profitable for Pay TV operators to transmit than conventional television broadcasters. They would be programs for which there was a relatively inelastic demand by mass audiences. These would include certain national sports events (for example, Melbourne Cup, football finals), international sports events (prize fights, Olympic Games), and other 'one off' special events (Federation centenary celebrations, international variety concerts).
The benefits to be derived from the introduction of Pay TV, therefore, will be reduced to the extent that it is responsible for diminishing either the quantity or quality of traditional advertiser-supported television. 3
The introduction of Pay TV in Australia will have some adverse economic effect upon traditional commercial television in the sense that the revenues and profit levels of advertiser-supported TV stations will be lower with Pay TV in operation than without. Pay TV will reduce to some extent the audience sizes for traditional TV programs which will tend to reduce the rates charged for advertising on those programs. The extent of audience diversion from traditional television will depend upon the number of Pay TV channels which, in turn, will be influenced by the technology (or technologies) used for Pay TV operation.
Further, it is possible that the additional demand by Pay TV operators for programs will force up the price of television programming material, thus adversely affecting the profitability of advertiser-supported television. Revenues may also be diverted from traditional television if Pay TV programs carry advertising.
Essentially, however, Pay TV is a different industry and will not be in direct competition with advertiser-supported television. In particular, the commercial incentives of Pay TV are quite different from those of advertiser-supported television. Generally, traditional commercial television broadcasters endeavour to maximise their audience, and hence advertising revenues, for each program transmitted. In contrast, Pay TV operators are primarily concerned to maximise the number of subscribers to their systems.
They do this, not by maximising audiences for individual programs, but by offering a selection of programs of sufficient quality and interest to satisfy existing subscribers, and to attract new ones. Pay TV operators, therefore, are more concerned with the size of their cumulative audience than with the absolute number of viewers for individual programs. 4
Taking another perspective, advertiser-supported television, which is able to derive its income by providing programs without a direct charge to viewers would seem, intuitively, always to be in an advantageous position relative to Pay TV, which by its very nature must rely on direct payment from viewers for the bulk of its income.
The likely impact of Pay TV upon advertiser-supported television in Australia has now been considered by both the Broadcasting Tribunal and consultants to DOTAC. In its 1982 CSTV Report the Broadcasting Tribunal argued that if CTV (cable TV) and/or RSTV (radiated [over-the-air] subscription TV) were introduced to Australia, traditional commercial TV broadcasting would continue to attract mass audiences. The sizes of the audiences for advertiser-supported TV may be somewhat smaller but, the Tribunal explained, there is no strict, direct relationship between audience sizes and advertising rates. Consequently, "a moderate decline in the size of stations' audiences need not necessarily bring about a fall in their advertising rates or in their revenues". 5 The Tribunal concluded that:
... the introduction of CTV and/or RSTV to Australia need not unduly threaten the economic viability of the existing television and radio broadcasting industries. 6
The consultants' report for the 1988-89 review of Pay TV by DOTAC was generally consistent with the conclusions of the Broadcasting Tribunal on this issue. The consultants noted that although the cable television industry in the US is increasingly turning to advertising as a source of revenue, the advertiser-supported networks still earned over 90 per cent of total TV advertising revenue: "The total revenue pie has been increasing so fast in the US that both the networks and cable have been winners". 7
There are significant constraints upon Pay TV as an advertising medium. With viewers paying directly to receive programs Pay TV is unlikely to be able to carry the same proportion of advertising content as conventional TV without discouraging existing and potential subscribers. Similarly, advertising on Pay TV will need to be presented less 'obtrusively' than on conventional commercial television, possibly in 'blocks' between programs. These constraints will be compounded by the probability of a much smaller audience for Pay TV than for advertiser-supported TV. For these reasons the consultants to DOTAC's review considered that the impact of Pay TV on the advertising revenue of conventional television broadcasters "would not be substantial for a number of years". 8
The consultants also pointed out that the types of programming for which there is likely to be increased competition from Pay TV operators do not constitute the major part of programming expenditure by conventional TV broadcasters, 9 and that it was "unlikely that there would be any strong long term general upward pressure upon the programming costs of existing [television] broadcasters". 10
The economic effect that Pay TV in Australia will have upon conventional advertiser-supported television broadcasters will be partly determined by the regulatory arrangements that are adopted in relation to Pay TV, in particular, the number of Pay TV channels licensed to operate, and whether Pay TV will be permitted to carry advertising. Nevertheless, the weight of evidence on this issue - from consideration of the existing operation of Pay TV in the US, and its potential operation in this country - suggests that the effect will not be significant.
The cost of programs to traditional TV broadcasters is likely to be affected more by fluctuations in the value of the Australian dollar than by a Pay TV industry. Moreover, any adverse effect of Pay TV upon advertiser-supported television will be at least partly offset by the continued growth of the Australian population and economy.
There are significant political and administrative reasons for the government to be concerned with the economic viability of Pay TV services. First, the operation of Pay TV will involve using either parts of the radio spectrum, AUSSAT satellite transformers, or the Telecom terrestrial network. The government can be expected to want to avoid allocating scarce public resources (the radio spectrum) or public financed infrastructure (the AUSSAT satellite, Telecom cables) to commercial activities which prove to be economically unviable.
Secondly, the nature and scope of regulations to be applied to Pay TV operations will be significantly influenced by an assessment of their economic viability. Government decisions regarding the geographic size of Pay TV service areas, the multiple ownership of Pay TV licences, advertising on Pay TV, and anti-siphoning regulations, are all economic issues affecting the potential viability of Pay TV services.
In general terms, the major factors affecting the economic viability of a Pay TV operation will be:
the costs of obtaining a licence and establishing the system;
costs of capital;
operating costs, including the cost of programs;
costs to subscribers;
the level of consumer demand; and
the regulatory arrangements adopted.
System costs will depend largely upon the technology employed, and the proportion of the market area required to be serviced. Consumer demand will be determined by the initial and recurring costs of receiving Pay TV, and the quality of Pay TV programs. Regulatory arrangements affecting viability will include Australian content requirements, siphoning provisions, whether or not advertising is allowed, and the taxation policy applied to the Pay TV industry. (Some of these regulatory issues are considered below.)
There are a number of studies and opinions on the potential economic viability of Pay TV in Australia. Nevertheless, the results differ and opinions conflict. The major study conducted for the Tribunal's CSTV inquiry occupies all 266 pages of Volume 4 of the 1982 report, and concerns the potential demand for cable and radiated subscription television. However, information on the level of demand for Pay TV is of limited value in assessing economic viability unless it is related to the cost of operating the service.
Nevertheless, the demand study carried out for the 1982 CSTV Report was detailed and provided quantitative results. This contrasts with the two-page, non-quantitative discussion of demand for Pay TV in DOTAC's Pay TV Report. 11 In addition, DOTAC's consideration of estimated demand for Pay TV in Australia shares the same deficiency as the Tribunal's 1982 study, namely, that the revenues to be generated from the presently unmet demand for Pay TV in Australia are not related to estimates of the costs of providing Pay TV services.
As well as the demand study, in the last few months of the 1982 CSTV inquiry the Tribunal commissioned a financial investigation of the economic viability of cable and radiated subscription television. However, the study was much too ambitious for the time and resources devoted to it, and its analysis was inadequate. 12 This situation led the Broadcasting Tribunal to admit in its report: "In the case of CTV [cable] systems, the Tribunal concluded that it could not make a general determination regarding probable financial outcomes". 13 Recently, however, a less guarded opinion was expressed concerning the potential economic viability of cable TV. In August 1988, Mr Rick Michaels, chairman of the US based Communications Equity Associates media investment and broking company, asserted that cable television would not be economically viable in Australia. 14
The Tribunal concluded in 1982 that radiated subscription TV would be economically viable "within a relatively short period". 15 However, this view too has recently been challenged. In November 1988 Sydney based media consultant, Mr Peter Cox, argued that the economic viability of even a monopoly-owned single channel 'RSTV-type' Pay TV operation was questionable because of the high cost of feature films and the assumed unwillingness of Australian viewers to pay more than twenty dollars a month for subscription to a Pay TV service. 16
Unfortunately, the overseas experience with Pay TV provides no clearer an indication of its potential economic viability in Australia. The technical and marketing environment for Pay TV services in overseas countries is so dissimilar from those in Australia that their financial results may not be indicative of their potential economic viability in this country. For example, the demand for cable subscriptions in the US has been strongly influenced by the relatively poor quality of over-the-air television signals; the demand for cable in Canada, by the desire to pick up signals from US television; and the cost of the many US cable systems built above the ground may not be comparable with that of Australian cable systems which may be required to be entirely underground.
Moreover, pay cable and radiated subscription television services have had mixed success in the United States, and three of the six Pay TV operators licensed in Canada in 1983 have been unprofitable. Pay TV in United Kingdom and Western Europe has not been in operation for a sufficiently long period for its financial condition to be assessed.
There are five technologies which can be employed for the transmission of Pay TV signals: Very High Frequency (VHF); Ultra High Frequency (UHF); Multipoint Distribution Systems (MDS); Direct Broadcast Satellite (DBS); and cable. VHF is not available for Pay TV in Australia as all VHF channels in the major metropolitan markets are occupied by existing commercial and non-commercial television stations. MDS has been virtually dismissed by the Pay TV Report, mainly because it relics on line-of-sight transmission. This leaves UHF, DBS and cable as the major options considered in the Pay TV Report. If the government allows Pay TV to be introduced it could choose either of these technologies. It could also, conceivably, allow more than one technology to be used for Pay TV concurrently, or decide that one technology will be employed for Pay TV initially, and be replaced by an alternative means of distribution at some future time.
The delivery of Pay TV via UHF requires the encoding ('scrambling') of the signal to prevent it being received by households without payment. A decoder is rented by subscribers from the Pay TV operator and attached to the set to allow reception of the signal. Unfortunately, there remains only one UHF channel available in the capital cities of Australia, which severely restricts the potential program diversity of Pay TV delivered by this means. UHF is the only technology, however, which is available immediately for Pay TV, and its early adoption, with the explicit intention of later transferring to an alternative technology, may provide useful experience concerning Pay TV operation, viability and regulation.
The reception of Pay TV via DBS also requires a decoder. In addition, the subscriber must have an earth receive station ('dish') to capture the signal from the satellite. Recent technological advances have enabled the size and cost of the satellite receiving dishes to be greatly reduced. Nevertheless, the likely cost of around $A500 for dish and decoder still constitutes a considerable financial disincentive to Pay TV subscription. The major advantage of DBS is that satellite delivery provides coverage over a large area, with associated economies of scale in transmission as cost is indifferent to distance. DBS also allows multiple services with AUSSAT's new generation of satellites, scheduled to be in operation by late 1991, planned for up to six Pay TV channels.
Technically, cable is easily the superior means of Pay TV delivery. Optical fibre cable has the capacity for a large number of channels (40 or more), provides a better quality signal than UHF and DBS, makes no demand on the radio spectrum, does not require decoders for its signal, and has the capability for interactive (two-way) services. The disadvantages of cable, however, are its huge costs, especially in small and isolated population areas, and the long time frame for its widespread establishment. Telecom is committed to replacing its existing cable network with optical fibre from the mid 1990s, but advises that "it is unlikely that widescale optical fibre replacement of copper cables would occur before the late 1990s, early 2000s". 17
Even AUSSAT admits that in the long term " ... the ultimate solution could lie in a full optic fibre network". 18 Nevertheless, the AUSSAT DBS option could be attractive for the short to medium term during the establishment of the Telecom optical fibre network in the major population areas. This would delay the introduction of Pay TV by about three years, but has the advantage of avoiding the allocation of public resources, in the form of UHF radio frequencies, to Pay TV.
In practice this issue is more concerned with Pay TV delivered by cable than by MDS, UHF or DBS. Any UHF Pay TV system will be a local monopoly in each service area, and the benefits of separating content and carriage will be largely (although not entirely) lost. With DBS there will be automatic separation of content and carriage because AUSSAT will own and operate the satellite system.
Pay TV delivered by cable would be what economists call a 'natural monopoly'. This means that, because of the substantial economies of scale involved in the laying of the cable, the lowest per subscriber cost in any given local area is attained when only a single system is established: "Like electric, gas, telephone and water utilities, it appears economically inefficient for two cable companies to run parallel cables down the same street and compete against each other for subscriber hookups". 19 Moreover, unregulated competition among Pay TV cable companies in the same areas would eventually lead to the elimination of all but the remaining monopoly operator.
The Pay TV Report presents, in Chapter 9, a strong case for the legislative separation of content and carriage in any Australian cable Pay TV system - that is, the separation of the ownership of the delivery system for Pay TV from the provision of programs and other video services.
If there is no separation of carriage and content on cable systems there is the potential danger to the public interest from the exercise of monopoly power by the cable operator. In the words of the Pay TV Report, " ... one company could own all pay television services in a geographic area, and could alone determine their use". 20 This danger, of course, is greater if cable operators come to own and control more than one cable system, and increases with an expansion in the role and functions of the cable network.
To avoid this potential danger cable systems could be organised on a 'common carrier' basis. 21 By this means, the owner and operator of the cable network would not provide programs and video services for transmission by cable, but would lease out channels to others. The lessees would supply the programs and/or video services, and would pay the cable utility for the use of the reticulation system. Lessees would also determine their own method of charging, and rates to subscribers, for the provision of programs and video services:
What is proposed here is in effect the vertical disintegration of message sources from message carriers, allowing the carrier to take advantage of economies of scale in the transmission process, and at the same time providing an opportunity for considerable competition among message sources ... The medium would thus be divorced from the message. 22
In its 1982 CSTV Report the Broadcasting Tribunal recommended against Telecom being given the exclusive right to own and operate cable TV systems. While finding no specific objection to the concept of a separation between ownership of cable reticulation systems and the provision of TV and other services on those systems, the Tribunal was of the opinion that the issue should be decided on an individual system basis as part of the cable licensing process. The Tribunal adopted what it termed a "flexible policy" whereby "public authorities and organisations (including Telecom) and the private sector would have the opportunity to own, either individually or jointly, CTV reticulation systems". 23 An arrangement was envisaged whereby a licence would be granted "which authorises a person to operate a CTV system rather than persons being licensed to operate or provide services on individual channels that form part of the system". 24
It is interesting to note in this context that in its submission to the Tribunal's cable inquiry the Australian Labor Party (then in opposition) argued that cable systems in Australia should be publicly owned by a government monopoly and that there should be strict separation of the role of cable owner and program provider. 25
The findings and recommendations of the Davidson Report, 26 brought down immediately following the release of the Tribunal's CSTV Report, conflicted with those of the Tribunal on the common carrier issue. The Davidson Report argued that "Telecom's involvement as network provider would ensure the separation of 'carriage' and 'content' and avoids any monopolistic dominance of telecommunications traffic carried through such systems". It added that access to Telecom plant by third parties would "only lead to gross damage to the telecommunications infrastructure", and warned that a regulatory framework for cable systems based only on CTV program priorities would be "a gross national communications planning error". 27
The merits of the issue, supported by the conclusions of the Davidson Report and the tradition of public ownership of telecommunications reticulation networks in Australia, seem to provide an overwhelming case for the separation of carriage and content in any future Australian Pay TV system utilising the cable transmission medium.
The 1989 Pay TV Report includes as Appendix E a paper prepared by the Bureau of Transport and Communication Economics (BTCE) which considers various options for issuing Pay TV licences and charging licence fees on Pay TV operations. Some evaluation of the options is carried out, especially in terms of their relative ability to transfer the economic rent from future Pay TV operations to the government. The four options examined are auctions, lotteries, fixed annual licence fees and resource rent taxes. On balance, the BTCE "tended to favour the application of resource rent taxes as a means of determining licence fees". 28
The analysis in the BTCE paper is significant in that it implicitly questions the traditional method of charging licence fees to Australian commercial broadcasters based on a percentage of gross advertising revenues - up to a maximum of 6.5 per cent for radio, and 7.5 per cent for television. This approach could be considered to recoup too small a proportion of the economic rent from commercial broadcasting, and the BTCE paper seen as an examination of options to improve on this situation for Pay TV.
The advantage to the government of collecting its economic rent by means of a relatively simple process, and in advance of it being earned by the Pay TV operator, supports the option of issuing Pay TV licences on a competitive tender process. This would also be consistent with the method recently adopted by the government for the planned establishment of new metropolitan commercial FM radio stations.
The BTCE paper is a welcome contribution to the debate on options for methods of licensing Pay TV services and the imposition of licence fees. It is a starting point, however, rather than the definitive word on this complex issue. In particular, its apparently preferred option of a resource rent tax on Pay TV has significant problems including its tendency to encourage economic inefficiencies within commercial organisations (as acknowledged by the BTCE).29 A similar tax imposed on commercial broadcasters in the United Kingdom, known as the 'levy', was abolished in the 1988 wave of broadcasting deregulation in that country.
As the DOTAC review points out the foreign ownership of Australian Pay TV operations concerns factors such as our national culture and identity, the influence of Pay TV on social and political life, and the desire for domestic control of significant industries. 30 The fact that the press in this country in the last three years has changed from a position of no foreign ownership to majority foreign ownership, supports the case for Australian Pay TV services to be substantially locally owned and controlled.
One of the main arguments advanced for the introduction of Pay TV to Australia is the opportunity it presents to increase the diversity of the commercial media. Diversity of media outlets and diversity of media ownership can both be promoted with the introduction of Pay TV. This would be accomplished by cross-media provisions restricting the common ownership of Pay TV and the other major media - advertiser-supported television, commercial radio and newspapers. The adoption of such provisions would be consistent with the cross-media limitations introduced into the Broadcasting Act in 1988, and are necessary to offset, at least partly, the increased ownership concentration in each of the three major media since 1986.
There will unequal and unfair competition among the three metropolitan television networks if only one or two of them come to hold a Pay TV licence. Common ownership of Pay TV and an advertiser-supported TV network will also increase the likelihood of the exercise of monopoly power over program producers. Common ownership of Pay TV and advertiser-supported TV could also be expected to increase the incidence of program siphoning.
Where advertising is allowed on Pay TV the provision of programs is partially supported by advertising revenues - in the same way that newspapers and magazines are supported by both advertising and copy sales.
Countries have taken different approaches to the issue of advertising on Pay TV from prohibiting it altogether (Canada and the Scandinavian countries), allowing it with restrictions (United Kingdom and most Western European countries), and allowing it without restrictions (United States). 31
It could be argued that income from advertising would compromise the financial relationship between subscribers and operators which is a major justification for the establishment of Pay TV. On the other hand, there is an inherent incentive for operators to minimise the 'intrusiveness' of advertising on Pay TV to retain subscribers. It is likely, therefore, that most advertising on Pay TV will take the form of sponsorship, name association and strip messages, and may be relatively unobjectionable to subscribers.
It was mentioned earlier that the welfare benefits of the introduction of Pay TV will be reduced to the extent that programs traditionally provided on advertiser-supported television are siphoned to Pay TV.
As is the case with Australian content, there are problems in implementing and enforcing regulatory provisions designed to prevent program siphoning. One method to minimise this practice may be for the regulatory authority to draw up a schedule of programs and/or major events for which no exclusive Pay TV rights could be granted. The ongoing decision making in maintaining such a schedule, however, is likely to involve both subjectivity and controversy.
Advertiser-supported television stations in Australia are subject to minimum requirements regarding the transmission of Australian produced programs. The purpose of this regulation is to preserve and enhance the nation's cultural heritage by the presentation of Australian programs on television, and the perceived need for the regulation arises from the high cost of producing Australian programs relative to the cost of purchasing 'similar' material from overseas, especially the United Kingdom and United States.
While there is a desire to prevent further 'cultural imperialism' which might be caused by a large proportion of non-Australian programming on Pay TV, there are difficulties in applying Australian content requirements to Pay TV, especially in relation to specialised movie channels. It can also be argued that local content provisions are not appropriate in relation to programs for which viewers are making direct payment.
In the medium to long term this is likely to be a major issue in the regulation of Pay TV. As already mentioned, Pay TV, especially delivered by cable, has the potential to increase substantially the number of channels of television and, consequently, the demand for television programming. With the small size of the Australian market, however, and the availability of relatively cheap programming material produced overseas, economic pressures will develop for an increasing proportion of this demand to be satisfied from non-Australian sources. These pressures will be exacerbated by the technology of international satellites which already has the capability of allowing 24-hour television programming to be transmitted directly to Australian viewers from a number of overseas countries.
Moreover, if Australian content regulation for Pay TV is any less stringent than that currently in force for traditional television, it will be politically difficult to increase, or even maintain, the existing Australian content requirements for advertiser-supported television. This point was implied in the Pay TV Report. 32 Inadequate regulation of Australian content on Pay TV thus has the potential to confine Australian produced television programming to a minority of transmission time on a minority of channels.
DOTAC's report strictly applies economic rationalism to the issue of Pay TV. In particular, it argues that the approach of the government should simply be to provide the technological and administrative environment for Pay TV, and not to be concerned with its potential economic viability. This approach is likely to be impractical, however.
The economic viability of Pay TV cannot be assumed. It is clear that the studies and opinions on this issue are far from unanimous. More particularly, a properly structured, comprehensive study of the potential economic viability of Pay TV in Australia has yet to be undertaken. The difficulty and complexity of the problem may necessitate cautious interpretation of the results, but should not be an excuse for avoiding the task.
More generally, economic rationalism is likely to be less suitable an approach for policy formulation in broadcasting than in most areas of government decision making. The pervasive social and political importance of television prevents it being considered by government solely from an economic perspective. The initial financial outlay on receiving equipment to be incurred by subscribers adds further to the government's political responsibility in relation to Pay TV.
The Remote Commercial Television Service (RCTS) experience is instructive in this regard. No proper economic viability study was conducted of RCTS before the scheme was approved. Nevertheless, licences were granted, AUSSAT transponders were leased for RCTS transmissions, and substantial investment was made by viewers in RCTS receiving equipment. Three RCTS services have now been on air for over a year. (A fourth licence was surrendered before the service commenced.) Each of the three has proven to be economically nonviable, however, and relies upon a government subsidy in excess of $2 million annually for its continued operation.
The application of economic rationalism consistent with that adopted in the Pay TV Report would see the withdrawal of subsidies, and the probable termination of the RCTS services. This option seems politically untenable, however, because of the federal government's strong identification with the RCTS scheme, and the likely adverse reaction from RCTS viewers who have invested in special RCTS receiving equipment. Having been licensed without an adequate viability study, RCTS operations now face the prospect of indefinite subsidisation from public funds.
At this stage the potential economic viability of Pay TV in Australia is unclear. What is clear, however, is that if Pay TV licences are issued, the federal government will be strongly identified with the new industry, and that once Pay TV operations commence, subscribers who invest in special costly receiving equipment will expect them to continue. The RCTS experience carries a message for Pay TV.
Economic rationalism relies substantially on the benevolent operation of market forces. This faith can well be misplaced, however, in relation to television broadcasting. The current financial difficulties of the major Australian networks, stemming from grossly inflated prices which were paid for broadcasting licences, suggest that entrepreneurs can be seriously in error in their assessment of the profit-earning potential of television. In view of the uncertainty concerning the economic viability of Pay TV, this would seem to be no less of a problem for the new proposed industry of subscriber-supported television than for traditional advertiser-supported TV.
In its decision concerning Pay TV the government must not simply invoke the creed of economic rationalism as the Pay TV Report suggests that it should. Responsible policy making in broadcasting, and with Pay TV in particular, requires a cautious evaluation of the medium and long term social implications of the available options, rather than blind faith in the vagaries of market forces.
1. Australian Broadcasting Tribunal, Cable and Subscription Television Services for Australia, (5 vols) (Canberra: AGPS, 1982) - the 'CSTV Report'.
2. Department of Transport and Communications, Future Directions for Pay Television in Australia, (2 vols), (Canberra: AGPS, 1989) - the 'Pay TV Report'.
3. See further, Allan Brown, CommerciaI Media in Australia: Economics, Ownership Technology and Regulation (St Lucia: University of Queensland Press, 1986), pp.70-73.
4. CSTV Report, vol.1, page 7.17.
5. CSTV Report, vol.1, page 7.19.
7. Pay TV Report, vol.2, p. 184.
8. Pay TV Report, vol.1, p.46.
10. Ibid, p.49.
11. Ibid, pp. 54-55.
12. CSTV Report, vol.5, pp.7-70.
13. CSTV Report, vol.2, page 11.22.
14. Australian Financial Review, 9/8/1988, p.52.
15. CSTV Report, vol.2, page 11.22.
16. Australian Financial Review, 15/11/1988, p.85.
17. Pay TV Report, vol.2, p.285.
18. Pay TV Report, vol.2, p.269.
19. Walter S. Baer, Henry Geller, Joseph A. Grundfest and Karen B. Possner, 1974, Concentration of Mass Media Ownership: Assessing the State of Current Knowledge (Santa Monica: Rand, 1974), p.52.
20. Pay TV Report, vol.1, p.86.
21. Sec Brown, 1986, pp.173-79.
22. Bruce M. Owen, "Public Policy and Emerging Technology in the Media", Public Policy, (1970), p. 18.
23. CSTV Report, Recommendation 5.
24. CSTV Report, Recommendation 8.
25. CSTV Report, vol.2, pages 10.32-10.33.
26. Committee of Inquiry into Telecommunications Services in Australia Report, (3 vols) (Canberra: AGPS, 1982) - the 'Davidson Report'.
27. Davidson Report, vol.1, pp.75-77, 111.
28. Pay TV Report, vol.1, p.106.
29. Pay TV Report, vol.2, p.143.
30. Pay TV Report, vol.1, p.100.
31. Pay TV Report, vol.1, p.129.
32. Pay TV Report, vol.1, p.124.
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