Australian Media Ownership Controls:Where To Now?DriViartyr; Taylor examines the recommendations made by the AUSti'ajianConvergence Review Committee in relation to the ownership and controlof media entities.

The Final Report of the Australian Convergence Review Committee(ACRq recommended substantive reforms to AustraliaS media own-ership controls. The proposed reforms involve the repeal of Australia'sexisting media diversity rules and their replacement with simpler testsbased on local media diversity and the national public interest

Australia's media ownership controlsAustralian media ownership is currently subject to four key controls,each with a different policy obieerive:. Merger rules: Acquisitions are prohibited ifthey have the likely

effect of substantially lessening competition in an Australianmarket. The merger rules apply to all sectors of the Australianeconomy and protect against excessive concentration of marketpower, such power potentially capable of use to raise prices tothe detriment of consumers

. Foreign investment rules: Foreign persons must seekapprovalformed Ia investmentsof5% or more. The CommonwealthTrea-

surer can block foreign acquisitions that are not in the nationalinterest. The foreign investment rules proted against foreigncontTol of strategic domestic assets, such control potentiallyexercisable in a manner contrary to Australia^; national interest.

. Media diversity rules: The existing media diversity rules arecomplex and are set out in the Broadcasting Services Act 1992(Cth)(BSA). The media diversity rules are more onerous than themerger rules, effective Iy trading-off economic efficiency for theperceived social benefits of diverse media ownership. The mediadiversity rules protect against excessive concentration of mediainfluence, such influence potentially capable of use to inariipu-late public opinion and restrict freedom of expression.

. Suitability rules: The suitability rules are also set out in the BSAand are a weaker variant of the fit and proper person' tests ofother jurisdictions. The suitability rules ensure that ownership ofcertain media assets can be prevented if there is a significant riskthat the owner may contravene the BSA.

In its Final Report, the ACRC considered whether the media diversityrules and suitability rules should be amended to reflect changes intechnology and business models associated with the convergence ofmedia content and delivery platforms

Concerns with the existing media diversity rulesAustraliat; existing media diversity rules are complex. Generally, noperson may exercise control of:. commercial television broadcasting (CT\/B)licences in multiple

CryB licence areas, if the combined population of those areasexceeds 75% of Australia's population;

. more than one CT\/B licence in the same CryB licence area;

. more than two commercial radio broadcasting (CRB)licences inthe same CRB licence area; or

. more than two of three specified media platforms in a CRBlicence area, such platforms being CTl/B, CRB, and any substan-tiallocal newspaper.

Similar rules exist for directorships in Australian media companies.

Under a complex points-based system, no fewer than five indepen-dent media operators are also permitted in a metropolitan CRB licencearea and no fewer than four in a reqbnalCRB licence area. This ruleis known colloquialIy as the '4/5 rule'.

The ACRC identified two principal concerns with these existing rules:. First, the rules focus on local broadcasting licence areas, yetthis

measure of media diversity is historic and decreasing in relevanceMany alternative media platforms exist beyond broadcastinginvolving content delivery at a national, even global, scale. Theexisting rules may impede realisation of greater efficiencies thatcould arise by consolidating some of these historic media plat-forms

. Second, the existing rules do not recognise the diversity flow-ing from new media platforms, particularly Internet delivery. Therules similarly fail to recognise the important role of nationalnewspapers and subscription television services. The in equitabletreatment of these platforms may distort investment in favour ofnew media and may permit excessive consolidation that couldbe adverse to media diversity.

To address these concerns, the ACRC recommended various reformsto the media diversity rules.

the ACRC proposed the simplificationof the media diversity rules rather thantheir outright repealReform of the media diversity rulesThe ACRC recognised that media diversity Tules are vital in ensuringthe free flow of news, commentary and debate in a democratic SOCi-ety. Accordingly, the ACRC proposed the simplification of the mediadiversity rules rather than their outright repeal.The ACRC recommended the adoption of two new rules applying atthe national and local levels:

. National public interest test: While media delivery platformshave diversified, the underlying news and information contentis often sourced from the same traditional national media out-

lets. The ACRC therefore proposed a new public interest test topreserve national media diversity. Only the most influential andnationally significant media content providers would be regu-lated.

. Specifically, a new Communications Regulator (replacing theAustralian Communications and Media Authority) would beempowered to block any 'change in control' of a content ser-vice enterprise (CSE) of national significance that was not in thepublic interest. A CSE would be defined as a media organisationsuppling professional content in its control to a large number ofAustralian users (>500,000 per month) and receiving a high levelof Australian-sourced revenue from that supply (>$50 million perannum). A CSE would be of national significance if it suppliedcontent services in multiple markets across more than one Stateor Territory.

. Local minimum number of owners (MNO)rule: The greateravailability of national and global content can crowd-out locallysourced news and information. The ACRC therefore proposedthe MNO rule to preserve local media diversity. Only the mostinfluential CSE in local markets would be regulated.

Specifically, no influential local CSE would be permitted to have adominant influence in a local market, subjectto public benefit exemp-tions. Different dominance thresholds would apply to metropolitan

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and regional local markets, based on a minimum number of ownersover all media platforms. An influential local CSE would be a mediaoperator that had editorial control over news and commentary sup-plied either to a minimum number of users, or reaching a minimumpopulation percentage, in that local market.

How would a national public interest test beapplied?The use of a public interest test can involve challenges due to theinherent subjectivity of any such test. To mitigate such issues, theACRC has recommended that guidance be provided as to how thetest would be prertically implemented:

. The test would focus on maintaining diverse content at thenational level. Key factors would in dude whether a transac-tion would diminish the number of unique owners providingcontent or diminish the number of content services.

Second, the existing suitability rules would be repealed andinstead conflated into the new national public interest test.Another key factor would therefore be whether there was asignificant risk that an owner of a CSE could not comply withits obligations.

We would expecta regulatorto give greater weighttosuitabilitywherea market was more concentrated. To some extent, media diversity isa safeguard against the need for a more pervasive suitability test. Ifmedia ownership is diverse, there is less ability for any individual tohave any disproportionate influence over public opinion. Accordingly,in a diverse market there is less need to screen for suitability becauseany media owner that is 'unsuitable' will have little influence.

The use of a public interest test caninvolve challenges due to the inherentsubjectivity of any such testHowwould a local market be defined?A key issue in the application of the new MNO rule 15the definition ofa local market. A list of local markets will ultimately be determined bythe new Communications Regulator and updated from time to time.

The 'local market' concept proposed by the ACRC is conceptualIy dif-forent from the 'market' concept used in competition law. For themedia diversity rules, the relevant concept is media influence not manket power:

. The product scope of a local market is straightforward to pre-did. The ACRC implicitly assumes that all forms of news andcommentary exert influence, hence co-exist in the same market,irrespective of the media platform. A local market therefore CDV-ers all media delivery platforms.

. The geographicscope of a local marketis more difficultto predict.The ACRC recommends adoption of the historic planning criteriaused to determine broadcasting licence areas. While these criteriagive significant discretion to ACMA, this discretion has normallybeen exercised in favour of the geographic status quo. A statusquo approach would mean that the new local marketswould bestrongly influenced by existing broadcast licensing boundaries. Akey issue would be how the new regulator would recondle the(many) CRB licence areas with the (few) CT\/B licence areas. Ulti-mately, we would expect local markets to reflect a geographiccompromise between CRB and CTVB licence areas.

Can media diversity be addressed by merger rulesalone?

One argument directed at the ACRC during its reviewwasthat mediadiversity rules should be repealed entirely and merger rules aloneshould be relied on to ensure sufficient media diversity.In most instances, merger rules do indeed ensure continued mediadiversity. An acquisition in a concentrated media market may lead toboth excessive market power and media influence, hence may be pre-vented by both merger rules and media diversity rules. However, the

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different policy obiettives of merger rules and media diversity rulesmean that they do riot always pertertly align.

When applying the merger rules, the ACCC is normally restricted toconsidering market power effects. Media diversity and suitability areirrelevant considerations in most merger analysis. Accordingly, theACCC could permit an acquisition because it did not substantiallylessen competition, even though it removed an important indepen-dent voice.

By way of example, a large media outlet may seek to acquire a smallmedia outlet that is also an important and independent voice. Thesmall outlet may not materialIy constrain the market power of thelarger outlet. The ACCC may permitthe acquisition, notwithstandingthat the larger outlet subsequently exercises editorial control over thesmaller outlet and removes its independent voice.

What is the likely practical impact of the reforms?If the proposed changes to the media diversity rules were imple-merited, we would expect the level of regulation imposed on 'tradi-tional media' to decrease, while the level of regulation imposed on'new media' would increase.

The removal of the existing diversity rules will generally have four keyeffects on traditional media:

. First, -greater aggregation of commercial radio stations will bepermitted.

. Second, common ownership of commercial television stationsmay be permitted, subject to the merger rules and the nationalpublic interest test(involving considerations whether other mediaplatforms are sufficient to ensure continued media diversity).

. Third, greater cross-media ownership of radio, television andlocal newspapers will be permitted, particularly if the geographicparameters of a "local market" are increased

. Fourth, metropolitan television stationsmaymergewith regionaltelevision stations to achieve greater national population coveFage.

The enactment of new diversity rules will in theory increase the levelof regulation applied to 'new media' (such as Internet delivery andsubscription television), but the prerticalimpact of any such increasein regulation is lessened by the simultaneous regulatory recognition ofa much greater diversity of different media owners and platforms:

. A "new media' provider will become subject to regulation if ithas editorial control over news and commentary supplied to aminimum number of users, or reaching a minimum populationpercentage, in a local market. In such circumstances, the newmedia provider could be restricted from acquiring too manyother independent sources of news and commentary in thatlocal market

. A 'newmedia' provider may also become regulated ifit becamea CSE that supplied contentservices across multiple States or Ter-rimries. In such circumstances, the CSE would become subject tothe national public interest test, involving potential considerationsof suitability as well as restrictions from acquiring too many othersources of nationwide content, news or commentary.

However, in both cases restrictions may only arise in practice if the rel-evant local or national market already has concentrated cross-mediaownership and insufficient media diversity

Conclusions

While the proposed reforms to the media diversity rules have beencriticised by some quarters, the reforms are widely recognised as longoverdue. While some key issues remain to be resolved, the proposedreforms are sensible and appear to strike an appropriate balancebetween efficiency and media diversity. If implemented, the reformsshould ensure Australia is better placed to appropriate Iy regulate con-vergent media content in a 21st century broadband world.

DrMa, tyn I^ylorisa Partner at Norton Rose.

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