Australia’s media reform – removing two hurdles in a complex obstacle course

On 14 September 2017, the Broadcasting Legislation Amendment (Broadcasting Reform) Bill 2017 (Cth) (Bill) was passed by the Senate, with amendments moved by Senator Nick Xenophon. The Bill includes a number of substantive amendments to the Broadcasting Services Act 1992 (Cth) (BSA) and is a part of the Australian Federal government’s comprehensive broadcast and content reform package announced on 6 May 2017. 

The Bill, with Senator Xenophon’s amendments, will now need to be voted on by the House of Representatives before it can become law.  The House of Representatives does not sit again until 16 October 2017.  However, as we expect that vote will be an exercise of rubber-stamping, it is opportune to now overview the reforms and consider their implications for corporate transactional activity in the media sector.    

While the reforms under the Bill will free up certain restrictions under Australia’s media ownership laws, investments in the media sector will remain subject to a complex regulatory environment. 

Media ownership and control

The BSA currently includes five key restrictions on media ownership as set out in the table below.  The Bill will repeal both the “75 per cent audience reach rule” and the “two-out-of-three cross-media control rule”.  Per the explanatory memorandum to the Bill, these rules are viewed by the government as “outdated” ownership and control laws which no longer reflect the “contemporary digital media environment”. 

Abolition of the 75 per cent audience reach rule

The key rationale behind the “75 per cent audience reach rule” was to prevent the merger of large commercial television licensees. Repeal of this rule will permit consolidation of the commercial television sector and present opportunities through economies of scale for commercial television broadcasters to compete with online broadcasters. 

In his second reading speech, Minister of Urban Infrastructure, Paul Fletcher MP noted that this rule is “redundant and does little to support media diversity” given many metropolitan television licensees and regional television licensees have affiliation agreements to share broadcast content and because online streaming of television content has meant that most viewers across Australia receive essentially the same broadcast content.

Most of Australia’s large political parties support the abolition of the “75 per cent audience reach rule”.

Abolition of the “two-out-of-three cross-media ownership rule”

The “two-out-of-three rule” is aimed at prohibiting a person from controlling two out of the three regulated media platforms (commercial television, commercial radio and an associated newspaper) in any one commercial radio licence area. 

Again, the Government’s rationale for the abolition of this rule is that it does little to encourage media diversity in the current digital media environment. The explanatory memorandum to the Bill states that the rule does not account for the modern reality that “consumers access news and other content from alternative sources, such as online”.  It is also arguable that the rule also has little utility in supporting media diversity in a regional area if it has no associated newspaper.  Minister Paul Fletcher MP argues that any consolidation from the removal of this rule “would therefore be limited to the metropolitan and larger regional markets, where diversity issues are unlikely to arise given the greater numbers of media outlets in operation”.

The abolition of the “two-out-of-three rule” was the most contentious element of the Government’s proposed media reforms.

Effect on mergers and acquisitions activity

The abolition of the “75 per cent audience reach rule” and “two-out-of-three cross-media control rule” will see greater consolidation of the media sector in Australia. Proponents argue that this will facilitate greater competitiveness of traditional media companies in a changing media environment, where they are competing with online players.

It is important to note that there continue to be substantive limitations on consolidation of, and investment in, the Australian media sector. Notably, the remaining three current media control and ownership laws, colloquially known as the “five-four media diversity rule”, “one-to-a-market rule” and “two-to-a-market rule” (see table above), will not be repealed under the Bill. 

In addition, investment in the media sector is often subject to greater regulatory thresholds and scrutiny in Australia, as discussed below.   

Additional reforms

Further to media ownership law reform, the Bill also contains a number of other amendments to the BSA and related legislation, including amendments to:

• Anti-siphoning: extend the automatic delisting period under the BSA, providing subscription television broadcasters with greater opportunities to acquire rights to broadcast events that free-to-air broadcasters have not acquired by a certain time, and removing the multi-channelling rule to reflect the realities of digital television; and
• Broadcast licence fees: abolish broadcast licensing fees and datacasting charges, recognising the increased competition of online data content providers.

As part of its broader broadcast and content reform package, the Government is also proposing to introduce further restrictions on gambling advertising during live sporting events, review of Australian and children’s content and additional government funding to support the broadcasting of underrepresented, niche and women’s sport.

Status of the Bill

The Bill was introduced to the House of Representatives on 15 June 2017 and was passed by the Senate on 14 September 2017, with two amendments moved by Senator Nick Xenophon in relation to local programming requirements.

The Bill, with Senator Xenophon’s amendments, will need to be voted on by the House of Representatives before it can become law. As the Australian Federal government has a majority in the House of Representatives, we expect this will be an exercise of rubber-stamping. The House does not sit again until 16 October 2017.    

In exchange for the support of the Nick Xenophon Team, the Australian Federal government pledged to implement a $60.4 million regional and small publishers jobs and innovation package, which will include funds for 200 cadetships and grants for small publishers, and to launch an ACCC inquiry into the impact of online media organisations such as Google and Facebook on the media industry.      

The Australian Labor Party and the Australian Greens opposed the Bill primarily due to their opposition to the repeal of the “two-out-of-three rule”.   

Dynamic and complex regulatory and transactional environment

The reform package will present its own challenges for media players as they confront a period of accelerated transactional activity. As well as understanding the new changes and evaluating the opportunities presented by the reform, which amend specific controls regarding media ownership, corporations will have to deal with existing general controls on investments in, and acquisitions of, organisations in the media sector.

Principally, where a media entity is listed on the ASX, acquisitions of its securities are subject to restrictions under Chapter 6 of the Corporations Act 2001 (Cth). These provisions include a prohibition on acquiring a relevant interest in the voting securities of a listed entity where, because of that transaction, a person’s voting power in the entity increases from 20 per cent or below, to more than 20 per cent, or from a starting point that is above 20 per cent and below 90 per cent, except where the acquisition occurs through certain limited exceptions (such as a takeover bid or a scheme of arrangement).

Under Australia’s foreign investment regime, principally the Foreign Acquisitions and Takeovers Act 1975 (Cth) and the Foreign Acquisitions and Takeovers Regulations 2015 (Cth), any acquisition by a foreign person of an interest of 5 per cent or more in an entity or business that wholly or partly carries on an Australian media business is a notifiable action that must obtain foreign investment approval, regardless of the value of the investment. An “Australian media business” broadly means an Australian business involved in the publishing of daily newspapers, or broadcasting television or radio, in Australia. If a foreign investment approval is not sought for such a transaction, civil and criminal penalties apply.

Organisations acquiring shares of companies or assets in the media sector will also need to comply with Australia’s competition laws, namely the Competition and Consumer Act 2010 (Cth) (CCA), and may need to seek regulatory clearance from the Australian Competition and Consumer Commission (ACCC). Under the CCA, a corporation must not directly or indirectly acquire shares in the capital of a body corporate if it would have the effect, or be likely to have the effect, of substantially lessening competition in any market.  Notably, there is no statutory turnover or “bright line” threshold that determines when ACCC clearance is required for a proposed merger.  As a result, there is a well-developed practice of “voluntarily” seeking informal clearance from the ACCC for proposed transactions that may raise competition concerns. Regulatory clearance provides parties with sufficient comfort that the ACCC will not take legal action. If parties complete a transaction that contravenes the CCA but have not obtained regulatory clearance, the ACCC may seek pecuniary penalties and divestment orders.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).