State of a free media 5.1Megan Brownlow15

5.State of a free media

5.1Megan Brownlow¹⁵

I should probably explain why I have been asked to talk today because I’m not a lawyer, I’m not an academic, I’m not a government employee nor government funded and I’m not funded by a specific sector. I’m not even an accountant, even though I work at PricewwaterhouseCoopers (PwC).

I’m a former journalist who moved into an internet investment company, and now I am in an industry advisory and research role at PwC. Jana outlined some of the work we do.

I have been asked to answer this question of whether the media is a level playing field, and the answer of course is no. As soon as you add regulation you change a market’s structure and players do not operate by the same rules. The answer is clearly no, but should the media be regulated? Actually, yes.

The media holds a very distinct place, a unique place in the hearts and minds of Australians. It is very powerful, particularly mass media, even though it is less mass than it used to be. Some of you may remember that Paul Keating famously said, ‘If you speak to John Laws you speak to middle Australia’.

The media can shift election outcomes. It’s why journalists are courted by politicians and that influence still holds. That is the reason media needs to be regulated.

Is the current suite of regulations correct? That would be a resounding no from everybody, even the regulators.

When we look at the long list of complaints by the media about the nature of their regulation however, they are generally more excited about regulation that constrains their ability to commercialise, rather than freedom of speech. Freedom of speech is in there but further down the list. Let’s look quickly at the main regulatory issues affecting them.

If you are a subscription TV company, you feel life is unfair. The anti-siphoning rules restrict your access to exclusive sports rights. If you are free to air television – a heavily regulated sector – you are restricted geographically because of the 75% ‘reach’ rule and you have content obligations regarding content that is hard to monetise, such as children’s shows. Also, there are limits on the amount of advertising you can show.

Radio has strict rules about the provision of local news and current affairs. They have rules about how they handle complaints.

Newspaper publishers can’t own radio stations and television networks in the same market.

So it seems most media sectors have some regulatory constraint they find onerous and are vocal about it. What about the internet? They stay mum and just quietly count their cash.

Media regulation is such a big issue now because of money. Let me explain with numbers. Here are the revenues we are forecasting for media businesses over the next five years.

First up let’s look at the advertising pie altogether – what it is now and what we expect it to be by 2018.

The important thing to notice is the sluggish growth rate. We are expecting only a 3.1% compound annual growth rate, that is, the advertising market will grow by only 3.1% on average each year over the next five years.

You can see the big section at the bottom is the growth in internet. The proportion of advertising revenue going to the internet will grow to be 40% of the overall market by 2018.

If we drill down and look at specific sectors and how we expect them to do, you can see things are a little bit flat, if not negative.

We expect newspapers to continue to go backwards in revenue, both in circulation and advertising. If you think our -3.2% annual decline seems kind, I have to tell you this includes digital revenues as well.

These forecasts are not adjusted for inflation. Once you factor in inflation, some sectors – including the powerful free-to-air television sector – will be going backwards over the next five years. So you can see why there is such sensitivity around media regulation.

The strip at the bottom is internet advertising. Yes, Australian media businesses are in this market too. In fact, newspaper publishers developed a very strong, early footprint in the internet. They now have enormous online audiences, which are not monetised adequately.

In internet we have a sector that is taking the lion’s share of the advertising dollars and is expected to grow at nearly double-digit figures each year over the next five years.

Australian media’s active involvement in the internet is a good thing, but if we drill down into the internet advertising pie, it’s not divided equally. The line at the top is search. In Australia about 95% of dollars going to search advertising go to Google.

Where Facebook plays is in display advertising, alongside the Australian media companies. The bottom line is online video advertising. Online video advertising is what you see when you watch ‘catch up TV’ on your tablet or laptop and you are served advertisements, sometimes the same ad three times in a row (they haven't quite got that right yet). This is a big growth area for internet revenues.

Currently the media companies are competing for online video advertising revenue against amateur content on YouTube; so 55% of the online video advertising market is also Google’s.

A trend we are witnessing in many countries, except perhaps China, is the globalisation of the media market. The migration of advertising revenue towards the internet and away from traditional media properties is essentially the movement of dollars from Australian media companies to big, global media companies, most of them U.S. based.

These companies behave differently from Australian businesses. They invest in and build their knowledge economy while we have been focused on cost-cutting. Cost-cutting is fine if the money you save is redirected into growth areas but that is not what’s happening in Australia.

Our view at PwC is that we – Australian businesses – have become very good at cost-cutting and it is getting in the way of our ability to strategise. Cost-cutting is not strategy. You cannot cut costs to greatness.

If we are not to become a society of worker bees – sales outposts for global internet businesses – we are going to have to rethink and adjust many things.

We cannot make those adjustments through regulatory levers alone. Today we have heard many fine examples of unintended and negative consequences of regulation. We cannot just reach for regulation. Here’s a good example why.

Have you been watching Spain and the so-called ‘Google Tax’ they’ve just brought in? It’s a reform to their intellectual property laws that allows news publishers to charge any business that links to their content.

It puts Google, Facebook and Twitter in the firing line. The law is largely unenforceable however because these companies sit outside Spanish jurisdiction.

What is more likely is that these companies will encourage their millions of users not to link to the Spanish publishers. Spanish viewers and readers will look for alternate news sources. One truism about the media now – scarcity is not a problem.

You can see why media regulation is such a touchy subject at the moment. You can see why there are strong and voluble expectations from media businesses for reform.

It is summed up by that old saying: ‘when things are good, business does business, and when things are bad, business does government’. That’s what we are seeing now.