Search Engines, Concentration Indices (2001-2010)

Main Cross-Media Groups (2010)

The figure reflects the situation in 2010, some four years after the abolition of cross-media ownership restrictions. Although there have been some changes in the ownership of traditional media assets since the abolition of the cross-media rules, they have not been extensive. Combinations of media assets that would have been prohibited by the cross-media rules include the recent acquisition of the Western Australian (Perth daily newspaper) by Seven Network Limited (metropolitan TV network), the acquisition of the Southern Cross TV regional network by the former Macquarie Media Group which owned a regional radio network with a similar coverage area, and APN News and Media (owned by the Irish magnate O’Reilly) common ownership of regional radio and regional newspapers in the same market. All the other combinations illustrated in the figure would have been permitted by the previous cross-media rules as they did not involve common ownership of daily newspapers, television and radio entities with common geographical coverage areas.

Traditionally, four key corporations have dominated the Australian media landscape. The first was the Herald and Weekly Times, which until 1986 was the largest of the newspaper companies. It had been founded by Sir Keith Murdoch, father of Rupert, and was the first to extend newspaper ownership into several capital cities. It had the biggest circulation newspapers in every state capital city, except Sydney where it had no presence. In 1987 Rupert Murdoch (News Limited), who had not inherited the company, successfully mounted a daring raid, announced in anticipation of the coming changes in media ownership laws. The introduction of those laws was widely seen as the last chance to buy into television, and there was a frenzy of takeovers with TV stations commanding prices which before would have seemed impossible (Tiffen 1994). News Limited subsequently became one of the world’s biggest media companies.

Apart from the Herald and Weekly Times, the other three companies were unusual in the modern corporate world in that they were dominated by a central proprietor. The Packer organisation (PBL Media) — led by Frank from the 1930s to his death in the 1970s, then by Kerry until his death in 2005, and since by James — owned only one daily newspaper, the Sydney Daily Telegraph, sold in 1972 to Rupert Murdoch, but also was the largest magazine group in the country, and crucially was the first television network to own the crucial Sydney-Melbourne axis of channels. Packer was the largest TV operator in the country, until in the post 1987 actions he sold to Alan Bond, but a few years later regained control of the network. Later PBL Media acquired one quarter of the dominant Foxtel pay TV operator, in partnership with News Limited and Telstra.

The Fairfax company owned most of Australia’s leading ‘quality’ newspapers, had two TV channels in Brisbane and Sydney, plus a stable of magazines and radio stations. After the post-1987 shakeout, the company was well placed but then a disastrous internal division in the family left it much reduced. It remained strong in newspapers, but no longer had a presence in television.

Currently, the two most prominent cross-media conglomerates are News Corporation which has relocated its headquarters from Australia to the United States, and Nine Entertainment Company (formerly PBL Media). While News corporation’s assets include newspapers, magazines, book publishing, subscription television (25 per cent share of Foxtel) and film production studios, they do not extend to broadcast media. Although Murdoch did own some television stations before the introduction of cross-media ownership restrictions, he sold those assets on becoming a US citizen to avoid conflict with the then prevailing prohibitions of foreign ownership

Kerry Packer never hid his ambition to broaden his interests in television and magazines to daily newspapers but was frustrated by the cross-media rules. Except for a brief period in the late 1980s PBL Media, was the owner of Australia’s consistently highest rating television network (Nine Network) with stations in all the largest metropolitan cities and consequently was barred from owning a daily newspaper or radio services in any of those cities. PBL Media assets therefore have been largely concentrated on television, magazines and subscription television (25 per cent of Foxtel). In 2006, PBL media’s television and magazine interests were hived off into the Nine Entertainment Company with James Packer selling off a 50 per cent share of the new entity to a private equity company (CVC Capital Partners). The interest in Foxtel was retained by Packer. Subsequently, CVC acquired all the capital in Nine Entertainment Company. .

A third Australian media mogul, Kerry Stokes, controls the Seven Network (television) which has recently acquired a daily newspaper, the Western Australian in Perth. This would not have been possible under the former cross-media regime. Before acquiring a strategic interest in the Seven Network in 1996, at various times Stokes owned several broadcast and newspaper assets including concurrently a television station and a daily newspaper in Canberra, but sold those assets at the onset of cross-media regulation regime in 1987. The Seven Network also owns Pacific Magazines (second largest Australian magazine publisher), Yahoo!7 (a joint venture combining Yahoo! search and online capabilities with the Seven Network’s content) as well as interests in wireless broadband and in a voice over internet protocol (VOIP) telephony operator.

International owners have substantial stakes in Australian media. Indeed Australia is probably unique not only in having one company controlling papers which constitute such a large share of daily circulation, but in that company being foreign. Reflecting its origins as an Australian corporation, Rupert Murdoch’s News Corporation is the dominant player in Australia’s newspaper industry controlling a combined daily newspapers circulation of 57 per cent and has significant investments in magazines, book publishing, subscription television and film production. The corporation was relocated to the US in 2004 but has maintained its Australian interests. Previously, Murdoch also had interests in broadcast TV, but had to dispose of them on taking up US citizenship in 1985 because of the then ruling regulation which prohibited foreign control of Australian television licences. This meant the timing of the 1987 changes was perfect for Murdoch as his TV holdings sold for much more than they would have done if he had been forced to sell immediately.

As discussed in earlier sections, the acquisition of a controlling interest in the broadcasting sector was specifically prohibited until 1992 in relation to radio and 2006 in relation to television. Since those dates, foreign investment in radio and TV is governed by the provisions of general foreign investment policy which is broadly encouraging of foreign investment consistent with the national interest. Broadcast TV, radio and newspapers are defined as sensitive industries within that policy and all foreign investment proposals involving five per cent or more of a company’s stock regardless of the value of the investment must be notified to the Government and get prior approval before they can proceed (Treasurer, 2011). In most recent cases, approval has been granted subject to conditions regarding Australian residency of the CEO, retention of Australian incorporation and headquarters and inclusion of a majority of Australian directors on the board of a corporation; see for example, Costello (2007a and 2007b). Foreign investment proposals in other media industries, except for the special case applied to privatisation of Telstra (former government-owned telecommunications carrier) are subject only to the broader generally applicable thresholds to non-sensitive foreign investment. In the case of Telstra, ‘aggregate foreign ownership … is limited to 35 per cent of the privatised equity and individual foreign investors are only allowed to own up to 5 per cent’ (Treasurer, 2011).

Two of the three main commercial television networks are controlled by foreign entities. The Canadian corporation Canwest (Izzy Asper) acquired a majority (50.1%) economic interest in the TEN Network in 1992 when the network was in receivership. To get around the then ruling prohibition of foreign control, the network was formally acquired by a corporation in which Canwest owned marginally less than the 15 per cent share of the prescribed foreign control threshold and held the remainder of majority economic interest in the form of subordinated debentures and convertible debentures which were not captured by the legislated definition of ‘company interests’. Following abolition of the restrictions on foreign ownership of television in 2006, the Government approved Canwest’s conversion of all its debentures into stock giving the company formal control of the network (Costello, 2007a). Foreign control of the Network ended in September 2009 when Canwest faced with financial difficulties, sold its stock to Australian institutional investors. Also in 2007, the government approved the purchase of the Nine Network (owned by PBL Media) by CVC Capital Partners, an international private equity and investment corporation. The transaction also included the purchase of ACP magazines, the largest magazine publisher in Australia but the latter did not require government approval.

In telecommunications, the special foreign investment rules relating to Telstra (mentioned above) have ensured its status as an Australian controlled carrier. The three other major carriers operating in Australia, however, are all foreign controlled. Optus, the second major carrier operating both wireline and wireless networks in competition with Telstra is currently a subsidiary of Singtel (Singapore Telecommunications) and was formerly owned by Cable and Wireless (UK). The other two, both major wireless carriers are Vodafone Australia, owned by Vodafone Group PLC (UK) and Hutchison Telecommunications (Australia), a subsidiary of the Hong Kong based Hutchison Whampoa Ltd. The latter two carriers have recently combined their Australian operations in a joint venture. Other foreign investments in telecommunication carriers include Telecom New Zealand, Primus Telecom (US), and Reach Networks (Hong Kong).

In film, overseas features are a major component of film production activity in Australia contributing on average over 40 per cent of annual production revenue. A major producer of television programming, Endemol Southern Star, became a wholly-owned subsidiary of Endemol, the Nederland based producer/distributor of popular TV programs in 2009 (formerly it was a joint venture between Endemol and the Australian TV producer Southern Star). Film distribution is dominated by the large US based international distributors. Box office revenue is also predominantly accruing to the international distributors. In search engines, Google is the dominant operator with over 90 per cent of the market in terms of searches.

Australian media investments in other countries are not extensive. Although News Corporation originated in Australia and its founder Rupert Murdoch is still often identified as Australian despite his acquisition of US citizenship, the corporation is effectively US based.

Telstra has several significant investments in telecommunications services in other countries. These include TelstraClear the third ranked telecommunication carrier in New Zealand, and CSL New World Mobility Group, the largest wireless operator in Hong Kong. Another significant Australian related venture overseas is the Los Angeles-based diversified Village Roadshow Entertainment Group formed from a merger of the Australian Village Roadshow Pictures with Concord Music Group.

3.9.Overall Interpretation

Concentration of ownership in broadcast television was influenced strongly by major changes to ownership regulation in the period immediately preceding that reviewed in this paper. Before 1987, prohibition of common ownership of more than two television stations ensured a low level of concentration. Its replacement in 1987 with a population reach limit, which in effect allowed common ownership of a television station in each of the five major metropolitan cities in Australia, had an immediate impact on concentration. Prior to that, the three main commercial operators controlled two stations, one each in the two largest metropolitan markets of Sydney and Melbourne. The removal of the two stations limit was quickly followed by changes in ownership of the three major commercial operators, with the new owners moving quickly to acquire properties in other metropolitan markets. This is reflected by the gradual rise in both the C4 and HHI in the period 1988-2000. Although concentration increased, the impact was attenuated by other ongoing ownership controls preventing ownership of more than one television station in any local market and prohibitions of entry into the industry by new players. Concentration peaked in 2000 when one of the three main networks was temporarily in excess of the population reach limits following an acquisition of a group of stations. That year was also a time of considerable turmoil in the industry with all three major commercial networks experiencing financial difficulties which subsequently forced them into receivership. The slight subsequent decline in the concentration ratio is due to the mandated divestiture of assets to ensure new owners remained within the population reach limits.

The situation in broadcast radio was much more fluid. Like broadcast television, broadcast radio had been subject to considerable change in ownership controls immediately prior to the period under review. Entry of new players in to the broadcast radio industry, although strictly controlled by licensing, was not prohibited as was the case for television. In particular, during the decade preceding 1988 several new FM radio broadcasters established themselves in the main metropolitan and regional markets. These, combined with the changes to the pre-existing controls of ownership, brought about extensive changes in the industry. However, the combined effect of the prevailing limit of common ownership of no more than two stations in any one local market and the licensing of up to 12 new large FM stations in the main metropolitan areas, in addition to the prominence of the national public broadcaster, seem to have averted undue concentration. Both C4 and HHI indicate low to moderate concentration in the broadcast radio industry.

While the initial establishment of multicast (subscription) television in Australia was delayed and marred by government regulation, subsequent development of the industry has not been subject to regulatory restrictions of ownership. However, entry into the industry faces considerable barriers particularly in securing content. While some independent content aggregators are available to all multichannel providers, there is a significant level of exclusivity in the movie output of some Hollywood studios and popular sports programs. Foxtel was able to exploit a degree of vertical integration with its partial owners — Telstra (Australia’s dominant telecommunications) with regard to cable distribution in major cities and News Limited with regard to exclusive Hollywood movie output — to become the dominant player. Apart from a couple of very small operators, the Australian subscription TV market is subdivided into two exclusive submarkets each served by a single (monopoly) supplier of the same programming, Foxtel in major metropolitan areas, and Austar in regional areas. The high values of both C4 and HHI reflect the high level of concentration in the market.

Liberalisation of the telecommunications sector, as would be expected, has had a major impact on industry concentration. With competition from new carriers and many smaller service providers, the market share of the incumbent carrier has been declining gradually over the years. However, the incumbent enjoys substantial economic advantages over its competitors not the least of which is its ownership of the wireline CAN throughout the country. After almost two decades of competition Telstra still controls more than 70 per cent of industry revenue. The position is unlikely to change significantly into the foreseeable future. However, the Government has recently embarked on the building of a national broadband fibre-optic network including the CAN (fibre-to-the home) with the intention of providing access to all carriers on an equal basis. When completed, it will do away with Telstra’s monopoly control of the CAN and is likely to intensify competition in the market with consequential reductions in industry concentration.

In the wireless sector liberalisation has produced more intense market competition. The wireless sector was still in an early development stage when liberalisation was put in place giving the new entrant carriers a more balanced basis to compete with the incumbent. Consequently, Telstra’s market share has declined significantly during the review period. Nonetheless, Telstra remains the largest operator with market share of around 43 per cent. However, as the market has grown considerably, the current market shares of Telstra and its competitors relate to a much larger pie that was the case when completion was first introduced in the early 1990s.

The nature of the Australian film and video production industry is not conducive to a high degree of concentration. The industry is largely made up of medium and small enterprises, with many very small establishments engaged in the provision of freelance services to larger production houses. This structure lends itself to the ‘project nature’ of much of the industry’s main production activity for which specialist skills and services are typically brought together for the duration of a project. A large proportion of the industry output is made to order for television internally by television networks themselves or commissioned from other producers. More than two thirds of all establishments are engaged in production of outputs for television.

In contrast, film distribution is dominated by the major international distributors. During the period under review, the HHI ratio for film distribution has declined from just above the high concentration threshold to lower levels in the moderate concentration band. C4 ratio shows a similar declined from 82 to 63 per cent. The decline in the industry concentration indices during the period under review is largely a reflection of the combined effect of the splitting of United International Pictures into Paramount and Universal in 2006. While the doubling of the share of the market held some 30 independent specialist distributors also made a small contribution to the decline, it is unlikely that their market share will grow sufficiently to pose a threat to the majors in the foreseeable future.

Concentration in the Australian cinema exhibition industry has changed very little during the review period. The share of the market held by each of the three major cinema chains remained relatively stable. While there appears to be some ongoing slow rationalisation among the smaller operators in the industry, the resultant minor gains in market share are being made by medium size operators.

In the period from 1998-2008 concentration in the Australian ISP market increased considerably, with the transformation of a relatively unconcentrated market to a highly concentrated one. The period coincides with extensive growth in the household internet access. In 1998, only 16 per cent of Australian household had access to the internet, by 2008 the proportion of households with internet access had quadrupled to 72 per cent (ABS, 2009). During the same period there was also a transformation of household internet connections telephone dial-up to largely ADSL broadband. The growth of the internet household market provided a significant advantage to incumbent telecommunications carriers over whose network the services were delivered. Unsurprisingly, the dominant incumbent telecommunications carrier, Telstra, was able to exploit this advantage to secure the lion’s share of the market. Other telecommunications carriers, despite deregulation of the telecommunications industry, were largely dependent on access to Telstra’s network to deliver their services. Consequently, both their appeal to customers and market growth were relatively constrained.

The Australian Internet Search Engines market has always been highly concentrated and dominated by global operators. The situation in Australia largely reflects international developments. While there are several specialised Australian search engines they command only very small market shares. During the period under review the rise of Google at the expense of other previously popular global engines has resulted in dramatic increases in the already high industry concentration ratios.

The analysis indicates a tendency for increased market concentration in all the electronic media markets. While regulation has constrained high levels of concentration in mass media markets, such as broadcast television and radio, the inherent economies of scale continue to provide incentives for greater concentration. In television, for example, there are major economies of scale in both programming and the supply of national advertising. In both of these areas, major broadcasters were able to increase their market power through commercial agreements that are not constrained by ownership regulation.

The tendency towards concentration is also evident in the new media. As for all information services once content is created the cost of making it available to larger numbers of users are very small. Increased popularity of a service enables providers to exploit a virtuous circle by increasing investment in content and thus increase its appeal to users. Less popular services face a vicious circle fed by the loss of users and reduced capacity to invest in improvements. Bigpond in the ISP market and Google in the search engine market display some of these characteristics. Bigpond, for example, is one of the most popular websites in Australia and offers its ISP subscribers unmetered access to its own content. Subscribers to rival ISPs incur a usage charge to download the same content via their ISPs, which in turn do not have as much capacity as Bigpond in providing matching or better content on their websites for unmetered access by their subscribers.

The measures of concentration used in the research discussed above are based on traditional industry definitions. While convergence brought about by the development and rapid growth of online information services may have eroded traditional industry boundaries the resultant impact on industry concentration does not appear to have been significant. Traditional media not only continue to dominate in the domestic market via traditional distribution platforms but have also extended their presence into the online world. Various indicators suggest that in Australia at least the most popular online news services are associated with traditional media including daily newspapers and television networks. Indeed it would appear that among the ‘thousands of voices’ accessible online, most have little following and very few have the capacity to challenge the influence of traditional media on public opinion.

Australian Bureau of Statistics (2001), Motion Picture Exhibition, Australia, 1999-2000, (cat. No 8654.0).

Printing Office, Canberra.