Australian Innovation

Kim Williams - Operating in the New Digital Age

I can remember a time – and I am in some ways sad to admit it as it shows my age – when radios were as big as pieces of furniture.  I remember ours from when I was very young.  It was about as tall as I was, made of lovely shiny wood, with a strip of gold banding at the top and a great big dial you turned causing it to crackle and hiss.  There seemed to be acres of crackle and hiss as you turned the dial looking for those frustratingly elusive stations you could pick up.

Around this time television arrived on our shores.  And when Bruce Gyngell introduced it to us in 1956 with that marvellously memorable line, ‘Good evening and welcome to television’ he was introducing the most powerful medium ever invented into Australian homes.  It was new, quite revolutionary, and something so much more than just “lights in a box”. Television was to change the way we saw our selves, our society, and our politics.

Its arrival was profound and - for someone who believes in the expansive possibility of television to entertain, inform, and do good - its introduction remains one of the thrilling and uplifting moments of the 20 Century.  

But as new as it was, some of the things about its arrival were familiar and followed a pattern set down since at least Federation on the ways to organise such things.  Its introduction was strictly controlled by Government and over time a deal was struck where Government agreed to offer the broadcasting networks access to public spectrum and during the late 60’s a compact with operators evolved - lavish protections in return for broadcasting certain amounts of Australian content.

It is not, perhaps, surprising that this was the approach taken. Television was introduced into Australia before Hawke and Keating kicked-off their great project of modernising the Australian economy - a process continued by their successors.  It was a time where it was seen as perfectly natural that the success of companies was mediated by Governments.  Benefits were conferred by Government, patronage reigned and regulation was not designed to ensure how well companies met Australian’s needs and wants and competed in the interests of good public outcomes.

For instance, the idea that Governments anywhere would use market mechanisms to allocate finite public resources like spectrum (which is an essential input to running a broadcasting network) was seen as strange and as unlikely as Black Swans once were.  When the famous British economist Professor Ronald Coase argued in testimony in 1959 to the US Federal Communications Commission that it should use the now common method of auctioning off the rights to spectrum his testimony was greeted with barely disguised contempt.  The first question put by Commissioner Philip Cross in response was, "Tell us, Professor, is this all a big joke?"

Since this time – and particularly over the last 10 to 20 years – there have been three profound changes of relevance to media business models – technological changes; consumer changes and changes in our general approach to public policy.  Each of these has had profound implications for the media sector and our business models. I would like to explore these technical and consumer changes and the implications that they have for my business model as well as media policy settings in this country.

Profound technical and consumer changes

In thinking about the rise of the digital economy, we at FOXTEL have taken advice from – among many others including our customers – Philip Evans, the author of a fine book entitled Blown to Bits: How the New Economics of Information Transforms Strategy.  On one of his visits he told us an alarming and prophetic story about a German Encyclopaedia company.

The company – which he did not name – had a long and proud history of supplying the German market with Encyclopaedias.  In the late 1980s it was advised that it was imperative that it develop a digital strategy to counter the rise of CD-ROM (then a new way of storing and distributing information).  The response of the company was that it had a strong brand, an extraordinary distribution system (in the form of door to door salesmen) and contributors who were experts in their field and that it would see off the CD-ROM.  Sometime in the 1990s the company filed for bankruptcy.

Its business model – as is the case for all printed encyclopaedias – had been undermined by the CD-ROM and then killed by the arrival of the internet and sites like Wikipedia.  This was all part of a broader phenomenon – the rise of the digital economy in which text, images and video have all been ‘digitised’ and can now be sent to a dazzling array of widely available devices – televisions, personal video recorders, personal computers, lap tops, PDAs, mobile phones and many others.  All of these things have helped create a new economy.  Some people call it the ‘information economy’.

Stories such as the one about the German Encyclopaedia, and other cautionary tales like the way the music industry monumentally mismanaged their transition to the digital economy, are what keeps thinking media executives awake at night.  For the rise of the digital economy has been profoundly disruptive to many traditional media models.  It has liberated and empowered consumers in a way that has never before occurred.  

What it means for my business?

On one analysis I should be extremely sleep deprived – as various digital evangelists have long predicted the demise of television brought about by the digital economy.  For instance, as The Economist recently noted, “In 1990 George Gilder, an American writer, claimed that by the end of the 20th century traditional television would be extinct because technology would enable consumers to track down programs that catered to their particularly interests”.  But to paraphrase Mark Twain, one of my favourite American authors, “reports of television’s death have been greatly exaggerated”.

There are, I believe, three critical things that explain the on-going health and longevity of television and in particular of subscription television.

First, television caters for a deeply felt human need to share and enjoy stories together.  Despite the rise of technology that allows people to watch television precisely when they want to, ratings figures from across the world show much television viewing still happens at the scheduled time. As one of my subscription television colleagues in the UK put it, “People want to watch ‘Pop Idol’ when everyone else is watching it”.  We find exactly the same thing with popular local shows such as Australia’s Next Top Model, Project Runway, Selling Houses Australia, and dramas like Love my Way and Tangle.

The second reason for television’s longevity – particularly subscription television’s– is that it is getting better and better.  If you compare, for instance, the scripts, acting, characterisation and plot development of shows such as The Wire, Mad Men, John Adams or our local productions such as Love My Way and Tangle with sitcoms from early American television they appear to belong to a different medium.  Today’s fare is, frankly, so very much better.

The third reason for television prospering in the face of the digital economy is that it has been very good at adapting to, and in many cases driving, consumer changes driven by the digital economy.  For instance, in the 1990s US cable companies introduced personal video recorders (PVRs) that catered perfectly for consumer’s new digital requirement for personalised viewing. The PVR allows you to easily and simply record and store a vast digital library of the shows you love and to replay them at a time that suites you.

Making the digital ‘trend our friend’ is deep within FOXTEL’s DNA.  We have always taken the view that the only way of prospering is to offer Australian digital consumers what they want.  And what Australians want is choice and control over their television viewing.  They want to be able to watch what they want, when they want to, and over a receiving device of their choice.

FOXTEL has spent over $1.6 billion developing a digital platform. We now offer a full digital service, the choice of over 200 quality channels, the most comprehensive HD offering in Australia, and the FOXTEL iQ (our PVR) which allows you to build up a library of your favourite shows. All of this is accessible through a simple and easy to use electronic program guide which wraps together all of this choice and control over your television viewing.

We have also recently announced a range of exciting product initiatives to deliver FOXTEL over broadband. These will allow us to expand our customers’ choice and control over their viewing and enable FOXTEL to offer our product on new price points to customer segments not traditionally open to FOXTEL. These initiatives include: offering FOXTEL by Xbox – where we will offer around 30 FOXTEL channels to customers’ television sets via Microsoft’s Xbox Live; our broadband iQ offering – where we will offer On Demand movies, shows and series via broadband to around 780,000 broadband enabled iQs later this year; and FOXTEL over Telstra’s T-Box.

What it all means for media policy settings?

But in the face of all this change – in technology, consumer behaviour and general approaches to policy – media policy settings have remained damagingly unchanged.  The much discredited approach of Governments on both sides offering favourable access to scarce public resources (in this case spectrum) and protecting the major broadcasters has held sway through this long march of radically changing technology and consumer behaviour and changes elsewhere in public policy approaches.  As the Productivity Commission said media policy remains, “inward looking, anti-competitive and restrictive”.

In fact, we have one of the most protected free to air television sectors in the world.  The networks benefit from: a prohibition on a 4th commercial network setting up in Australia; the gifting by Government of large swathes of valuable spectrum for no additional charge; large licence rebates with no public policy rewards; and the protection of the longest and most restrictive sports rights list in the world. This list is made up of over 1300 sports event in a non-Olympic year – events which the FTA networks have a monopoly first right to.

To its credit the current Government has recognised that media policy settings need renovation.  Sensibly, it has proposed a review of media policy.  The review offers Australia with a great opportunity to update our media settings so that they encourage and underpin the development of digital jobs and industries of the 21 Century (such as mobile broadband) rather than harmfully protecting the old broadcaster of the last half of last century. I believe that some key principles and areas for focus for any review are as follows.

First, it should put the consumer front and centre, be technologically natural, and remove protections of the commercial networks.

Second, the review must look at how we best deliver the billion dollar 'digital dividend' by redeploying unused broadcast spectrum for the wireless broadband products of the future.  We must make sure we use this finite resource as efficiently as possible.  The Government has made some very welcome steps in this direction by announcing it will re-deploy spectrum the FTA networks do not need for the new mobile services of the future.

Third, the review must examine the role of the ABC in our media ecology.  While Australians love much about the ABC, it should not be seen as the answer to every perceived problem.  For instance, the ABC has, breathtakingly, recently argued it is should be the only solution to providing Government funded Australian content by saying the national broadcasters should be the sole recipients of funding for all Australian content currently made available through Screen Australia to all television companies.  Such an approach is totally at odds with the digital economy - which is all about  'letting a thousand flowers bloom' rather than Government anointing one winner. The days of ‘picking winners’ have long passed and the approach is widely discredited as a basis for any coherent public policy formulation.

Fourth, the review needs to look beyond Australian content quotas as a way of securing Australian content on television.  Such quotas are increasingly a crude instrument that is out-of-step with the digital economy.

Finally, the review must include a thorough examination of the fees that the commercial networks pay for their licences.  These licences are a licence to print money because they give the broadcasters privileged access to public spectrum, coverage of virtually 100% of the population as well as a long list of industrial protections found no-where else in the economy.

Like the economic reforms of the last 10-20 years - which recognised profound changes in technology, consumer expectations and approaches to public policy meant we needed to change our regulatory setting - such pro consumer approaches to media policy will set us up for the next 25 years.

This article will be featured in The New Economy publication.

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