Review of local content requirements for regional commercial radio Final report March 2011

Discussion

The regional commercial radio local content, local presence and local news and information provisions were introduced as a part of the Broadcasting Services Amendment (Media Ownership) Act 2006 (‘the 2006 legislation’), which amended Australia’s foreign and cross-media ownership rules and addressed concerns about a reduction in the level of local content in regional areas¹³.

Concerns about local content levels on television and radio are not new. The issue was considered by a House of Representatives Standing Committee in 2001¹⁴. Local Voices: an Inquiry into Regional Radio identified a decline in regional radio programming arising from increasing levels of consolidation of ownership, the loss of independently owned local stations and an increase in networked, pre-recorded, automated and syndicated programming.

The Explanatory Memorandum to the 2006 legislation suggested that the decline in local programming was a possible result of two broad developments within the radio and television industry:

ownership consolidation that had occurred in regional broadcasting markets, with new owners seeking cost efficiencies, and
the introduction of digital technology which allowed efficiencies by centralising news production.

Mandating levels of local content for regional radio was intended to provide an appropriate balance between allowing regional media companies to benefit from the scale and scope that mergers can deliver and protecting the public interest in maintaining diversity¹⁵. In introducing the provisions, the then government recognised that the capacity of the regional commercial radio sector to meet additional obligations was linked to its commercial viability. It also recognised that imposing additional regulatory requirements on regional licensees would involve additional costs¹⁶.

Since the 2006 amendments were introduced, the commercial radio industry peak body, Commercial Radio Australia (CRA), has called for changes to what it considers to be ‘burdensome’ requirements. The Productivity Commission has also criticised the requirements. In its 2009 report¹⁷, the Commission suggested that the inflexibility of the local content provisions limited the ability of licensees to tailor programming to their listeners’ needs and the administrative burden of the reporting requirements may reduce resources that could be used to produce local content. The Commission also argued that the need to maintain levels of staffing and use of local infrastructure after a trigger event could prevent licensees from responding to changing circumstances and threaten their viability. It questioned the rationale of imposing greater content obligations on some licensees and considered the trigger event reporting requirements excessively burdensome, particularly for smaller licensees.

The Commission recommended:

a more flexible regime for local content obligations, with quotas applying over a longer period (for example, weekly instead of daily)
the streamlining of local content reporting requirements and targeting those licensees at high risk of non-compliance, and
abolition of the trigger event provisions.

The ACMA has undertaken several investigations into the localism provisions, including the Local Content Levels Investigation Report in 2007 which identified a number of concerns such as the burden placed on licensees by the additional reporting and record-keeping requirements¹⁸.

Compliance with the obligations is monitored under a self-reporting regime under which each licensee retains records that demonstrate compliance with the material of local significance and trigger event-related requirements¹⁹. Licensees must provide this information to the ACMA—which monitors compliance with the localism requirements—by the reporting date.

Compliance data submitted by licensees to the ACMA indicates a high level of compliance with the local content licence condition, with many licensees indicating that they broadcast more than the minimum amount of material of local significance required²⁰. However, the ACMA also reported that 11.7 per cent did not submit compliance reports on time²¹. Non-network licensees reported a higher level of local content broadcast than licensees that are part of a radio network.

In September 2009, the ACMA received a complaint about the level of local content broadcast by three regional commercial radio licensees—2HC Coffs Harbour, 2EL Orange and 2PM Kempsey—owned by the Super Radio Network. The ACMA investigation found that the licensees breached a condition of their licences by failing to broadcast the required amount of material of local significance on 8 September 2009²². It also found that the licensees had breached the requirement in subsection 10(4) of the licence condition imposed by the ACMA to record specific program details in local content statements. The ACMA has conducted a broader audit to assess the compliance of regional commercial radio licensees with the local content requirements. Release of the outcomes of the audits is expected in the first half of 2011.

The ACMA found that applying the local content licence condition to all licensees led to two section 40 licensees breaching the condition because they were not broadcasting at the time²³. It also concluded that the inflexibility of the provisions meant licensees would breach them if exceptional circumstances, such as natural disasters and technical and licensing issues, prevented the broadcast of local content.

Submissions from the commercial radio industry in response to the discussion paper²⁴ indicated a strong desire for amendment of the localism requirements. Two submissions received from the public and a submission from the Community Broadcasting Association of Australia (CBAA) expressed support for various elements of the requirements.

Challenges of regulating the commercial radio industry

The regional commercial radio industry is highly concentrated, with 33 entities owning the 222 regional licences. In the majority of regional licence areas (69.7 per cent), the same licensee owns two radio stations—usually an AM and an FM regional licence.

Regional radio is dominated by Southern Cross Media Australia, which owns 66 regional licences and is joint venture owner of two others. The five largest radio networks, including Southern Cross Media, own about 70 per cent of all regional radio licences (see Table 1). A further 29 regional licences are owned by eight smaller networks, and the remaining 37 licences are owned by 20 non-network licensees.

Table 1: The five largest regional commercial radio networks
Network	Number of regional radio licences
Southern Cross Media Australia²⁵	66 + 2²⁶
Super Radio Network	35
Grant Broadcasters	28
Ace Radio	13
Prime Radio	10
Total	154

While commercial radio stations continue to attract large audiences, the industry is facing a number of challenges including competition for audiences and advertisers, and increasing costs.

Regional licensees, particularly AM stations, are generally less profitable than their metropolitan counterparts. Regional commercial radio services had a total profit of about $84 million in 2008–09, with FM licensees making an average profit of $0.59 million per licence and AM licensees averaging $0.11 million per licence. Forty-one regional stations made a loss during the financial year²⁷.

The diversity of licence areas creates regulatory challenges as the relative impact of regulation may vary due to the characteristics of each licence area—such as its size, population density and proximity to major metropolitan markets. Licensees in the Newcastle RA1 licence area (522 222 people) are subject to the same regulatory and reporting requirements as those in a small market like Queenstown RA1 (5274 people)²⁸. Likewise the proximity of regional licence areas to major metropolitan markets impacts on the availability of information from other sources. This includes fortuitous reception from radio licensees in adjacent metropolitan areas that are not bound by the local content and trigger event obligations.

Key issues

1. Time period for local content requirements

The discussion paper asked whether licensees should have greater flexibility to provide local content under section 43C of the Act.

All submissions received from the commercial radio industry supported greater flexibility in delivering local content, indentifying two issues they considered problematic:

not allowing local content broadcast on weekends or public holidays to count towards their obligations, and
requiring the broadcast of local content 52 weeks of the year.

CRA said that, despite these issues, the industry remained committed to broadcasting three hours of local content five days a week (30 minutes for small markets) and was not seeking to reduce the level of the local content broadcast²⁹.

In contrast, the CBAA argued that greater flexibility would lead to an undesirable dilution of local content³⁰. Another submission called for a commitment from commercial radio licensees to provide at least eight hours a day of local programming, and four local news bulletins a day from Monday to Friday³¹.

Requirement to broadcast local content on business days

CRA and the majority of submissions from broadcasters argued for legislative amendments to allow material of local significance broadcast on any five days of the week to count towards their requirement, rather than only material broadcast on business days.

CRA noted that many licensees provided local content on weekends and public holidays, particularly local sports coverage which was popular with listeners, but the material did not count towards the local content requirements³². It argued that the distinction between broadcasting local content on business days and weekends was artificial.

Support was also expressed for an approach similar to that of the Productivity Commission under which licensees would need to broadcast a specified number of hours of local content per week (or month), instead of a minimum level per day³³.

One submission noted the lack of local sports coverage on regional radio and suggested that commercial licensees be required to give local sporting results in real-time. It also argued that broadcasters should provide this form of local programming in addition to existing local content requirements³⁴.

The Communications Law Centre at the University of Technology Sydney (CLC) opposed changing the requirements from business days to any five days of the week, arguing that licensees may abandon local programming on some weekdays and this could detrimentally effect the availability of news and current affairs content in regional areas³⁵.

Broadcasting local content 52 weeks a year

The commercial radio industry has proposed a reduction from 52 to 46 in the number of weeks per year for which the local content obligations apply. Submissions from the industry argued that the current requirement was unduly onerous and made no allowance for staff leave or the effects of staff turnover. Additionally, under the Broadcasting and Entertainment Award 2010, journalists are entitled to six weeks’ annual leave per year. Radio announcers are entitled to more than four weeks’ annual leave in exchange for working on Sundays or public holidays. These industry working arrangements are not reflected in the localism obligations.

Some commercial licensees argued that engaging qualified production and on-air staff for short periods was difficult and costly. They said regional licensees often operated with fewer staff than metropolitan services, and engaging temporary employees or relocating staff from another office each time someone was on leave was not practicable or cost-effective. Broadcasters also argued that the licence condition does not consider the time required to replace staff.

Several broadcasters asserted that the licence condition was detrimental to listeners’ experiences. One respondent said small licensees previously met listeners’ expectations over holiday periods by broadcasting quality network programming and pre-recorded special shows, but this could no longer occur due to the local content requirements.

While a non-industry submission expressed concern that local news was not broadcast in December and January³⁶, the industry argued that the lack of qualified staff in regional areas meant that licensees were unable to produce quality local programming when staff were on leave.

2. Applying localism requirements to different categories of broadcasters

Remote commercial radio service licences were introduced in the 1980s to provide people living in remote regions with access to commercial radio services. While remote area service licences were converted to normal commercial broadcasting licences in 1992, the three remote zones—Western, Central and North East—remain. There are five commercial radio licences operating in the remote areas. These licensees are not required to establish transmission facilities at any particular site, services are often networked from outside the broadcast area and licensees often provide the same programming across their entire licence area.

Regional racing radio broadcasters predominantly relay racing programming from capital cities and regional centres and do not always have a physical presence within their licence areas.

Section 40 licensees provide niche broadcasting services to relatively modest audiences and operate outside the normal broadcasting bands.

The requirement for remote commercial radio broadcasters and regional commercial radio broadcasters that primarily provide racing services to comply with the localism provisions has been a contentious issue since the requirements were introduced. This is partly because providing local content has a disproportionate effect on the licensees. For example, a requirement to provide five minutes per day of local content may provide little benefit to audiences while placing additional administrative obligations on licensees and requiring a change in business practices.

Local content

Remote area and racing services are required to provide five minutes of material of local significance on each business day, while section 40 licensees must provide a minimum of 30 minutes³⁷. The requirements reflect that these categories of licensees have a limited capacity to produce a significant amount of local content³⁸. This limited capacity was also recognised by the ACMA in its 2007 investigation into the local content levels. It found that it was not appropriate to require remote area services and racing radio services to provide local content due to the potential impact on their viability³⁹.

Redwave Media, which operates two remote commercial radio services, offered an insight into the difficulties experienced by licensees providing services to a large geographic area. Its remote licence areas stretch from Kununurra in far north Western Australia to Bremer Bay in the south and from Christmas/Cocos Islands to the South Australian border. Redwave Media noted the difficulty in defining ‘local’ for its licence areas and the financial burden of providing local news for different areas within its large and sparsely-populated licence areas⁴⁰.

Other submissions expressed the view that local content may not be readily available in large licence areas. However, the CLC argued that the importance of local news and information to remote audiences should remain paramount. It proposed that remote licensees provide five minutes per day of local news and current affairs to audiences in different geographic zones within their licence area, with the additional costs offset by abolishing other local content requirements⁴¹.

Respondents maintained that racing service providers operated in a similar way to licensees in remote areas, often having limited staff and providing content supplied by services outside the licence area. The CLC noted that racing radio provided a service for a special interest audience that did not expect local content. It argued for the regulation of the four regional commercial radio racing services as narrowcasters, along with section 40 licensees, whose services are also limited in some way⁴². Section 40 licensees are restricted in part by the need to have equipment capable of receiving the services.

Trigger event provisions

The majority of submissions to the review expressed concern that trigger event-related obligations did not take into consideration the unique nature of remote area and racing radio services, including the difficulty in defining ‘local’ for large and sparsely-populated licence areas. Some argued that the cost of complying with the provisions could force broadcasters out of business.

Respondents that opposed the requirements applying to remote areas and racing services licensees argued that the local news and information obligation increased the logistical, financial and administrative burden on licensees. For example, the requirement for 12.5 minutes of local news has a disproportionate effect on small, remote area and racing service licensees which are otherwise only required to provide five minutes of local content each business day under the ‘material of local significance’ requirement.

The CLC also supported abolishing the obligation for remote area, racing services and section 40 broadcasters because it provided little or no benefit for listeners⁴³. This position was also supported by CRA, while another submission supported retaining the trigger event requirements for remote licensees⁴⁴. The impact of the local presence condition on licensees is considered in Issue 4.

3. Scope of trigger event

The discussion paper asked whether the trigger event definition should be modified, including to ensure consistency with the media control principles of the Act.

Radio industry submissions strongly supported repealing all trigger event provisions. Respondents put forward a range of rationales for this position, including that the definition was too broad, had unintended consequences and was counterproductive.

Industry respondents considered that any change to the provision would broaden its application and increase the burden on licensees. CRA argued that, if the provisions were not repealed, the definition of trigger event should be narrowed to include only instances where a cross-media merger occurred, and should specifically rule out certain types of events⁴⁵.

Canberra FM, which has had four trigger events, argued for the exclusion from the requirements of any trigger events that do not affect the programming or operation of a licence⁴⁶. Other industry submissions called for the trigger event definition to exempt intergenerational change, partner buyout, radio-to-radio sales and changes to licence areas. A further suggestion was for the trigger event provisions to apply only where there was a reduction in the number of independent media groups⁴⁷. Austereo and its subsidiary Canberra FM also argued for exemption of large regional markets from the trigger event obligations because competition ensured licensees had a strong local focus.

In its submission, Grant Broadcasters said government intervention in the daily operations of private enterprises, including regional radio, should be restricted to the most extreme situations. It said the trigger event provisions were damaging to its business and employees, forcing it to retain staff in licence areas with limited career opportunities and to limit new facilities in areas affected by, or at risk of, a trigger event⁴⁸.

An alternative regulatory approach put forward by the CLC supported the trigger event definition applying to changes in ownership and control that may influence programming and operational decisions of a radio station⁴⁹. The CLC noted that the approach would not exclude any particular type of event, such as internal restructures, which may lead to a change in control. Instead, it focused on the potential effect of changes on listeners, rather than on the structure or control of a media company.

The ACMA has identified a number of potential difficulties with the scope of the trigger event definition. It considers that the broad definition currently captures events such as the formation of a registrable media group that is created only due to geographic or demographic changes in a licence area, internal corporate restructures where the ultimate controller does not change, and intergenerational transactions that do not involve a sale of shares in a licensee company for a regional commercial radio licence. The ACMA also highlighted the complexity of the trigger event definition and difficulty identifying trigger events.

4. Length of time for which trigger event requirements should apply

Local presence requirements

The indefinite nature of the local presence obligations is a key concern for industry, which says the requirements force an unsustainable business model onto regional licensees and have a negative impact on competition within licence areas.

Submissions to the review argued that the current regulatory obligations may lead regional licensees to refrain from employing staff in buoyant economic periods due to fears they will be unable to reduce numbers in tough economic times should a trigger event affect them. Licensees that temporarily employ additional staff during a busy period such as Christmas may face similar disadvantage. If a trigger event occurs during or just after this period, the provisions require the licensee to maintain the higher staffing level in perpetuity.

The provisions also have a disproportionate impact on smaller licensees. For example, if one person leaves a radio station that has three staff, a material reduction in the staffing level (defined by the ACMA as five per cent) will have occurred, thus triggering a breach of the requirements. However, if a regional station with 16 staff loses one employee the reduction is only 2.5 per cent.

Redwave Media submitted that it had recently decided not to increase staff numbers despite needing an additional employee in its Geraldton office. The licensee feared it would be unable to decrease staff levels if necessary⁵⁰.

Another submitter, Grant Broadcasters, said the requirement had forced it to hire staff unnecessarily. This occurred because, despite the lack of interest and suitable candidates for a sales position in a remote area, the local presence obligations required employment of an additional worker to maintain staffing levels. This resulted in the radio station engaging someone who was unable to satisfactorily perform the sales role and, combined with the loss of advertising revenue, led to the station making a loss for the period⁵¹.

Submissions also said the trigger event requirements to maintain production facilities had practical and financial effects on their businesses. Independent Regional Radio (IRR), an association of licensees of 95 regional commercial radio stations, contends that the local presence requirements prevent the efficient use of resources and, in a multi-station market, place the affected radio station at a serious competitive disadvantage⁵². This was supported by Redwave Media, which provided the example of a redundant studio at its Karratha office which it was required to retain⁵³, and Smart Radio Group, which outlined the financial impact on its business:

Trigger events place restrictive impositions on the ability of regional commercial radio stations to perform efficiently and to react to changing market circumstances. During the recent global financial crisis, many of our rural advertisers heavily restricted their spending, yet we were forbidden to take normal commercial steps to reduce our losses and protect our company from this change in business sentiment⁵⁴.

A number of regional licensees also criticised the obligations for stifling the ability of some licensees to innovate. These included Canberra FM, which submitted that the indefinite nature of the requirements risked ‘fossilising’ regional services at a time of rapid technology advancement and was contrary to the regulatory policy of the Act to readily accommodate technological change⁵⁵.

CRA said the burden created by the provisions was an unreasonable intervention in the industry and threatened the long term viability of regional commercial radio⁵⁶. It argued that regional licensees must have scope to implement changes aimed at improving productivity—including changes to staffing levels—particularly in difficult economic times or when technological improvements led to operational efficiencies.

CRA indicated that while repealing the provisions was the industry’s preferred solution, it would support a ‘sunset clause’ to limit the duration of the provisions to 12 months. A sunset clause was also supported by the CLC, Productivity Commission and a number of submissions from the commercial radio industry.

However, repealing the local presence requirements or reducing the length of time for which they applied was not supported by all respondents. A member of the public said radio licensees had an obligation to give something back to their communities⁵⁷, while the CLC argued that public interest objectives made it incumbent on licensees to maintain some level of local presence⁵⁸.

Local news and information requirement

The requirement to provide specified amounts of local news and information after a trigger event was criticized by broadcasters as unnecessary. Submissions to the review argued that there was no threat to localism as a result of a trigger event.

The ACMA reported that, despite confusion about the interpretation of the provisions, self-reporting from licensees indicates that they generally exceeded the requirement to provide a specific number of local news and information bulletins after a trigger event. However, it suggested that small licensees were disproportionately affected by the requirement. Compliance data from the ACMA shows that small licensees did not broadcast local news and information during the benchmark year, however, after a trigger event they are required to comply with the same requirements as large licences.

Some broadcasters argued that rather than protecting localism, the local presence requirements could discourage a higher level and quality of local content. Grant Broadcasters noted that if licensees exceeded the minimum local news requirement, they would have to maintain the higher level indefinitely⁵⁹.

A further concern regarding the requirements is the cost of producing relevant local material. In the Local Content Levels Investigation Report, the ACMA estimated that the cost of complying with the local news bulletin requirement could reach 15–26 per cent of the profit of some licensees, which represented a ‘significant financial impost’⁶⁰.

This was supported by Redwave Media which said it was reluctant to broadcast local content that exceeded the minimum requirement because the organisation may not be able to fund it indefinitely⁶¹.

The CLC suggested that the costs for licensees could reduce by defining local news and information more broadly to include repeat bulletins. It has also suggested modifying the obligations to ensure licensees could choose to broadcast additional news and information without penalty⁶².

Reporting requirements

The requirement for licences affected by a trigger event to comply with additional reporting obligations was strongly criticised by the commercial radio industry as unnecessary, onerous and expensive. A number of submissions expressed concern about the volume of reporting as well as the requirement to comply with the obligations indefinitely⁶³.

The obligations are additional to the annual reporting requirements for all commercial radio licensees and those for all regional licensees⁶⁴.

To fulfil the trigger event related reporting requirements, licensees must retain specific types of records. All licensees, including those not affected by a trigger event, must keep records sufficient to allow the ACMA to calculate minimum local presence and local news and information requirements in case the licence is affected by a trigger event⁶⁵.

IRR submitted that the reporting obligations were disproportionate to the benefits derived from the provisions⁶⁶. For example, Canberra FM spent more than 35 hours completing the trigger event annual compliance report⁶⁷, while Bathurst Broadcasters said the compliance burden was affecting the ability of key staff to carry out its core service of radio broadcasting⁶⁸.

In its submission to the Productivity Commission review, CRA said the external legal costs of compliance with the requirements were estimated by one station to be around $50 000 per year for each affected licence⁶⁹. CRA argued it was unreasonable to expect regional licensees to maintain the current level of compliance reporting indefinitely⁷⁰.

[13] Broadcasting Services Amendment (Media Ownership) Bill 2006 Revised Explanatory Memorandum, Regulation Impact Statement. http://scaleplus.law.gov.au/ComLaw/legislation/bills1.nsf/0/69E446D84342176ECA25727D000365CF/$file/06132rEM.pdf.

[14] Local Voices: an Inquiry into Regional Radio, by the House of Representatives Standing Committee on Communications, Transport and the Arts, which reported in September 2001.

[15] http://scaleplus.law.gov.au/ComLaw/legislation/bills1.nsf/0/69E446D84342176ECA25727D000365CF/$file/06132rEM.pdf.

[16] http://scaleplus.law.gov.au/ComLaw/legislation/bills1.nsf/0/69E446D84342176ECA25727D000365CF/$file/06132rEM.pdf.

[17] Productivity Commission, Annual Review of Regulatory Burdens on Business: Social and Economic Infrastructure Services, page 165, 2009.

[18] ACMA, Local Content Levels Investigation Report, 2007.

[19] Broadcasting Services (Additional Regional Commercial Radio Licence Condition—Local Presence) Notice 22 March 2007; Broadcasting Services (Additional Regional Commercial Radio Licence Condition—Material of Local Significance) Notice 19 December 2007.

[20] Broadcasting Services (Additional Regional Commercial Radio Licence Condition—Material of Local Significance) Notice 19 December 2007.

[21] ACMA, 2009 Regional radio local content report—compliance, analysis and findings, November 2009.

[22] The ACMA investigation reports are available at www.acma.gov.au/WEB/STANDARD/pc=PC_310230#2335.

[23] ACMA, 2009 Regional radio local content report—compliance, analysis and findings, November 2009.

[24] Local content requirements for regional commercial radio, www.dbcde.gov.au/radio/commercial_radio.

[25] Formerly Macquarie Southern Cross Media, which was renamed Southern Cross Media Australia on 17 December 2009.

[26] Southern Cross Media Australia interests include two Austereo Network joint ventures.

[27] ACMA, Broadcasting Financial Results report for 2008–09.

[28] Population figures sourced from ABS 2006 Census of Population and Housing.

[29] www.dbcde.gov.au/__data/assets/pdf_file/0007/127789/Commercial_Radio_Australia_CRA_March_2010.pdf.

[30] www.dbcde.gov.au/__data/assets/pdf_file/0008/127790/CommunityBroadcastingAssociationofAustralia_CBAA.pdf.

[31] www.dbcde.gov.au/__data/assets/pdf_file/0009/127791/Craig_Wilson.pdf.