Pay TV = pay Packer?


By Peter Boyle

An Australian Broadcasting Authority survey conducted in June 1992 estimated that there are 5.8 to 6 million TV-watching households in Australia. Of these:

  • 77% watch more than two hours a day.

  • 54% leave their sets on after viewing the program of their choice.

  • 48% have dinner in front of the box.

  • 58% rely on the box as their primary source of news.

In short we are truly hooked. Now if just a sixth of these households subscribe to pay TV at $10 a week, $520 million a year is waiting to be collected.

The US has had pay TV for 28 years. Papua New Guinea, Indonesia and New Zealand have it already. Pay TV has been delayed in Australia by governments' determination to safeguard the profitability of media monopolies. Since the 1970s, the television companies have argued for a delay in pay TV on the grounds that their profits would be threatened. Liberal and then Labor governments went along with the television companies until Labor changed directions in 1991.

Driving the change was the government's sale of the Aussat satellite system to Optus, the new, privileged, private telecommunications company. Aussat, which was set up by the Fraser Liberal government at the behest of Kerry Packer, was debt-ridden and "space junk", according to Prime Minister Keating. But a condition of its sale to Optus was the government's promise that any pay TV operator would be forced to use Optus satellites to deliver their programs — a deal to make the satellites profitable "space junk".

Satellite-delivered pay TV rules out anyone but the biggest media monopolies because of the large investment required: at least $200 million in start-up costs, $25-45 million a year in satellite rental and several hundred million a year to buy programs. It also creates a technical limit on the number of channels. Until new digital compression technology is available (in about six months to a year), the satellite system can deliver only six channels.

Both local and international companies argued that an extended pay TV monopoly had to be offered to make the investment worthwhile. Packer asked for at least a seven-year monopoly and Time-Warner asked for 15 years!

As late as May 1992, Packer was publicly denouncing pay TV as "elitist". But behind the scenes he was getting ready to corner pay TV when it was introduced. When communications minister Graham Richardson went to the US to study the possibilities for pay TV, "Labor mate" Packer arranged for him to have a game of golf at the ultra-exclusive Augusta National Club in Georgia, Richardson later admitted. Richardson returned and put together a proposal for a monopoly pay TV licence to be issued for the first five years.

Under the Richardson plan, the existing commercial channels were to be allowed to own a maximum of 35% of the sole licence. According to investigative journalist Brian Toohey, this was not enough for Packer, who had a "blazing row" with Richardson.

Nevertheless, the five-year monopoly deal was too blatant. In June 1992 Keating announced an about turn. There would be two commercial licences. The first would be issued only to media players new in Australia — read overseas moguls. However, the second commercial licence, to be issued a year later, could be wholly owned by established local media players.

This was not as bad for Packer as it might seem at first glance. The Keating deal allowed Packer the chance of 100% ownership of a duopoly, compared to a one-third share of up to 35% of a monopoly. Next Packer began pushing for the right to control the billing system for all pay TV licensees (in the US there is single billing system for up to 30 channels). This would place Packer in the gatekeeper's role.

Last November yet another deal was announced. The ABC was to be given one satellite pay TV licence, and two commercial licences would be sold simultaneously to the highest bidders. One commercial licence would be reserved for "new players", while the second would be open to established players.

Each licensee would bill for their own services, so Packer did not get exclusive billing rights, but the one-year head start for new players was dropped.

In a further attempt to wipe out lingering suggestions of favouritism, Keating indicated that the new deal would be worked out in a "technologically neutral" way — i.e. that pay TV could be delivered by any means.

The ears of Steve Cosser, former owner of Channel Seven, pricked up. Cosser had been quietly buying up microwave "narrowcasting" TV licences, ostensibly to cater for limited transmission to specialist audiences, like educational institutions, ethnic groups and the tourist industry. But by linking many local microwave stations, Cosser announced at the beginning of this year, he could bring in pay TV before any satellite system was in operation.

Packer tried unsuccessfully to buy out Cosser's microwave interests. Time-Warner and other international media groups moved to enter deals with Cosser. Then in February, Bob Collins (who had replaced Richardson as communications minister) announced a ban on microwave systems until satellite pay TV was up and running. Cosser began legal proceedings against the government and ran expensive newspaper advertisements attacking Collins' decision. Collins countered with threats of libel action against

Using parliamentary immunity, National Party leader Tim Fischer accused Collins of acting on behalf of Packer. The Coalition promised to allow pay TV to be delivered by any technology, if it won office — a proposal consistent with the free-market rhetoric of the Coalition but which was probably laughed at by most of the media moguls.

Packer turned to preparing to bid for one of the satellite licences. He stitched together an amazing consortium, including Rupert Murdoch, Telecom, Channel Seven and Channel Ten. This united all significant local media groups with Telecom, which is well advanced in laying optical fibre networks in major cities.

The inclusion of Telecom would allow the consortium to move into cable-based pay TV in the future. Optical fibres will allow many more channels and interactive and high definition TV.

Time-Warner linked up with Cosser, and the US-based Continental Cablevision had its own consortium with undisclosed local partners.

But on April 30, two lightweight companies — UCOM and Hi Vision — upset the applecart and won the licences with bids up to five times the bids of the giants.

An avalanche of criticisms of the tendering process followed (bidders had only to put a deposit of $500 each, and UCOM and Hi Vision later admitted they had still to raise enough funds just to pay for the licences). Bizarre stories about the backgrounds of directors of the winning consortiums began to emerge. It also appeared that UCOM and Hi Vision might have lodged multiple tenders, which meant that sorting out the tenders could drag on for months.

While the politicians and the newspapers went into a dither, the Packer-Murdoch consortium remained amazingly calm. A spokesperson said that the consortium was confident that it would eventually be a provider of pay TV, whether by satellite, microwave or cable. What was the source of this confidence?

One doesn't have to find a conspiracy to realise that pay TV was only ever going to be open to the media monopolies — those with a billion dollars or more to invest for a few years before turning a profit. No group of small-time opportunists was going to be able to grab this market and keep it for long from the big players.

For Kerry Packer, things have turned out quite well. Pay TV has been delayed for a while longer, allowing him more time to prepare to take on the major cable TV operators from the US. Time might even spell the end for the idea of using the Aussat satellite. His arrangement with Telecom places him well to take advantage of the optic cable network with its greater potential.

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