The Australian screen: disrupted and transformed

New technologies has meant constant disruptions for the local TV industry. Photo by JESHOOTS.com from Pexels
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The influx of streaming services in the Australian market has disrupted local film and television industries, with widespread effects. Kevin Osvalds reports. This is the first of a four-part series on the changing Australian screen landscape.

The introduction of television in Australia in 1956 brought with it a host of economic and cultural dividends, aided by government incentives, regulations, and protection from international broadcasters because of Australia’s geographic isolation.

Commercial access to its TV market and the development of networks have been controlled by government in waves across decades, underpinned by an intention to safeguard national sovereignty over its institutions and perceived cultural nationalism.

Market restructures do not occur carelessly: the most recent television license granted was to Network 10 in 1964, and pay-TV was introduced in 1995 after years of inquiries.

The classic idea of television as central to the Australian household has always been fictional, many scholars argue. Instead, they see it as a medium that was constantly being disrupted by an array of continuously changing institutions, industries, cultural traditions, social customs, and technologies. 

The transition from analogue to digital television in 2013 enabled the sector to reach nearly all Australian households – more channels could be broadcast at improved quality through multimedia services that needed lower bandwidth.

The aim was to centralise the incumbent networks through future developments. Effectively, the government provided the free-to-air (FTA) television sector with the best chance to adjust to digital disruption.

However, industry observers argue that broadcasters became arrogant in their perception that they were the only version of television, and attempted to influence political outcomes in their favour. The Australian screen sector – spoiled by government incentives and shielded from external competition – was incapable of the innovation necessary to adapt to the radically transforming and fragmenting media environment.

The Australian screen: disrupted and transformed

The introduction of domestic and international subscription video-on-demand (SVOD) streaming services in 2015 disrupted the status quo, with complex tensions surfacing that entwine culture, economics, and politics.

For a fixed monthly fee, these services – including the dominant Netflix, Stan, Disney+ and Amazon Prime Video – offer consumers an alternative to linear FTA television in a way that is low cost, on demand, with unlimited streaming, no ads, and using a range of devices from any location.

Whereas pay-TV never managed to secure more than 30 per cent of the market, research by Roy Morgan shows that 82.1 per cent of the Australian population currently access an SVOD service, surpassing FTA viewership after a 16.2 per cent increase from 2019 to 2020. Netflix is the current market leader, reaching over 14 million Australian viewers. 

Industry research shows that FTA television audiences declined 6 per cent annually from 2014 to 2019 and revenue will decrease 4.7 per cent annually over the following five years. It also shows that the SVOD industry will experience annual revenue growth of 14.1 per cent over the same period.

For the years from 2011-12 to 2015-16, ABS figures show that the total economic value added by the subscription industry surged by 40.6 per cent while decreasing for FTA. Moreover, the total income of the subscription industry was 35.1 per cent higher than for the commercial FTA industry, which fell by 15 per cent. These trends should continue, with SVODs mostly attracting younger audiences, while FTA television viewers are usually older.

The Australian screen: disrupted and transformed

The long-term drop in demand for advertising timeslots on FTA and the rise of digital ads sees revenue increasingly funnelled to behemoths such as Facebook and Google. This squeezes the FTA channels, since 86 per cent of their total revenue comes from screening ads. Also, they compete for eyeballs with SVODs, where 79.2 per cent of total revenue comes from subscription fees.

Although FTA experienced a brief rise in viewers during the Covid-19 pandemic, a PwC media report says lockdowns also had a destructive effect, with reduced consumer spending and constricted marketing budgets.

To add insult to injury, since SVODs neither broadcast content nor seek licenses to operate as pay-TV, this classifies them as telecommunications companies. This interpretation implies they are not held responsible for the content they carry, allowing them to circumvent regulations for things like mandatory local content and expenditure quotas.

In support of a national cultural agenda and upholding public interest responsibilities, the introduction of the 1992 Broadcasting Services Act specifies that industries must screen locally produced content, including children’s programming, documentaries and drama. This applies to the commercial broadcast license holders of Seven Network, Nine Network, and Network 10 for at least 55 per cent of their annual transmission time.

Pay-TV services such as Foxtel must invest a minimum of 10 per cent of total program expenditure on new local content. Screen Australia states that the content quota aims to maintain television’s contribution of Australian screen content that “informs our sense of who we are, offers unique forms of cultural expression and provides culturally relevant experiences shared by millions of Australians”.

The difference results in an uneven playing field that significantly benefits the SVOD services.

This dynamic of unregulated competitors and migrating audiences reduces the value of government intervention. It means content protected under quotas is becoming less profitable, which affects FTA television’s capacity to deliver public policy objectives to a national audience.

The Australian Communications and Media Authority and Screen Australia argue that viewers are no longer guaranteed access to traditionally regulated and funded Australian stories because the globalising nature of SVODs accelerates content homogenisation. 10 Network have already ceded to international capital with its recent acquisition by American network CBS.

Research on catalogue content of SVODs by RMIT academics Ramon Lobato and Alexa Scarlata show that while all SVOD services stock some local content, it varies drastically in terms of quantity, genre, and production age.

While Australia represents one of the highest adoption countries for Netflix, their Australian library has the least local content among competitors with 1.7 per cent Australian content in its catalogue, while Stan has the highest proportion of Australian titles with 9 per cent local content.

However, Stan and Netflix balance this by having dedicated categories for Australian content, making it easier to find, while discovering local content on Disney+ and Amazon Prime Video is difficult.

The Australian screen: disrupted and transformed

Netflix CEO Reed Hastings portrays SVODs as platforms of “mutual sharing” that equally serve international consumers instead of spreading American values.

The Australian Government acknowledges that the FTA television business model is vulnerable. But the withdrawal of FTA television would disproportionately affect regional and remote areas, older Australians, and consumers with fewer financial resources. Moreover, public policy objectives – such as the broad accessibility of news services – rely on the reach of FTA television.

If the current trajectory continues, the impact on the broader industry means some networks will fold. These effects would extend to rights holders and producers as lower rates of digital content mean lost revenue from physical media sales replaced by cheaper streaming license fees.

Netflix’s enduring refusal to release data regarding viewers and content results in ratings have little value for producers, positioning them at a significant disadvantage against SVODs. SVODs, having initially entered the market as content distributors, are now producing original content exclusive to their platforms. For example, Amazon and Netflix invest billions of dollars in creating original TV shows, which decreases their dependence on third-party content and allows them to bypass distributors. 

SVODs are now circumventing the traditional screen industry by integrating both chains of supply and distribution to achieve control over the value chain, while broadcasters continue to be restricted as they spend more on local content than online platforms.

This move to commission original programming has brought SVODs closer to competition with broadcast networks. Producers face challenges such as choosing appropriate content formats valued by SVOD services, selecting the right platform for their products, negotiating equally beneficial rates, and being aware of the limited visibility their production could face on a large platform. 

In a special report on the industry, former ACMA senior executive Giles Tanner and Professor of Media and Communications at Swinburne University Jock Given say that the government initially heeded the two principal media voices of commercial TV and metropolitan newspapers before the turn of the century but is now faced with increasingly noisier stakeholders in media and communications affected by the power balance shift.

The Australian screen: disrupted and transformed
Promotion for the Make It Australian campaign.

In addition to pressure from industry groups, including Screen Producers Australia and the Australian Directors’ Guild, hundreds of Australian screenwriters, producers, directors, actors, and production crews joined forces under the “Make it Australian” campaign. They are lobbying the government to intervene with increased urgency to protect “Australian stories told on Australian screens by us, to us, about us” since the arrival of SVODs. As stakeholders fight to keep pace with digital disruption, concerns have grown that SVODs hinder rather than support Australia’s local screen industry. 

Industry spectators say these stakeholders are irritated by their inability to compete commercially with high-end drama production values due to the regulations and public policy obligations imposed on them – but not their competitors. 

Nine Network chief executive Hugh Marks warned that “things are getting hairy amid increasing competition from overseas entrants” and that Australian jobs and local programming hinge on changes to Australian media laws. 

Stakeholders view the traditional framework of regulatory intervention and funding support as outdated in a disrupted industry. That is why we need to “Make it Australian”, they argue, but stakeholders have varying opinions about what intervention is needed. 

Many see increased tax incentives and funding to broadcasters and screen agencies as crucial, while others want local content to be more discoverable on international SVODs. The common ground is the demand for local content quotas on SVODs as a way to establish parity between competitors. As an example, the 2018 Audiovisual Media Services Directive currently implemented across Europe requires SVOD providers to abide by a 30 per cent European content quota. 

However, the perception of what constitutes Australian culture and diversity is subject to what fits their economic interests. Australia’s complex society is far from adequately reflected on screen, and is instead heavily framed around outdated notions of our community – a remnant of the White Australia policy.

While 49 per cent of Australians are either born overseas or have at least one parent born overseas, diversity research by PwC establishes that the average Australian screen industry employee is a young, white male. A diversity report by Screen Australia found that 82 per cent of main TV characters between 2011-15 were of Anglo-Celtic heritage, compared to 67 per cent of the population. Producers and screenwriters point to broadcasters’ anxieties about audience backlash and weak program reception, which impedes the expansion of truly diverse storylines and casting.

Race Discrimination Commissioner Dr Tim Soutphommasane said “few would be surprised by the report’s findings. Australian television doesn’t remotely reflect our multicultural society”.

The Australian screen: disrupted and transformed

Investment increased by 6 per cent in local production compared to 139 per cent in foreign productions between 1997 and 2002.

In the paper Australian feature film production: a zero sum game, film writer and developer Glenda Hambly wrote that independent producers trying make features that expressed an Australian sensibility faced “huge obstacles”.

“The challenges begin in script development, continue through financing and end in a distribution and exhibition system that stymies profitability and access to Australian audiences. Since it was founded in 2007, Screen Australia, the country’s premier film funding agency, has played an instrumental role in systematizing and entrenching these obstacles with policies and programs that promote global and commercial goals,” she wrote in December 2020.

For example, Australian producers must secure a cinema release to be eligible for the 40 per cent Production Offset film funding from Screen Australia, benefiting large-scale, high budget, internationally financed “Australian” films while eliminating opportunities for small-scale cultural productions and SVOD releases.

The Location and PDV Offsets support the production and post-production of foreign films in Australia with a 30 per cent rebate. The government gave a $400 million lift to the Location Offset to entice Hollywood productions throughout the Covid-19 pandemic while steadily decreasing funding to Screen Australia.

The Shadow Minister for the Arts, Tony Burke, asked: “Why is the government more committed to supporting Hollywood than it is to supporting Australia’s own creative community?”

The role of successive governments has been to providing support and regulation to ensure an equal playing field. In addition to contributing $1.046 billion to the ABC and $282 million to SBS in 2018–19, the government’s key funding body, Screen Australia, received $81.8 million in 2018–19 to support the creation of Australian content with “cultural value”.

Similarly, the government provided tax rebates of $383.7 million for Australian content via different offsets in 2018–19. Altogether, industry research shows that the government has contributed to a financing average of 24 per cent for TV drama productions and 47 per cent for film over the past five years. The funding is complemented by regulation overseen by the Australian Communications and Media Authority (ACMA), which issues broadcasting licenses and guarantees the broadcast of Australian content.

While industry changes are few and far between, the 2017 Broadcasting Reform Bill deregulated restrictions on audience reach and cross-media ownership while replacing licence fees for FTA networks with reduced spectrum usage fees. In response to industry pressures anxious about the effects of Covid-19, the government suspended content quotas during the 2020 calendar year. These have since been restored. 

At the government’s request, an options paper co-authored by the ACMA and Screen Australia in March 2020 considered how to best support Australian stories. In response, Netflix, Stan, Amazon, and Disney+ banded together to argue that to boost investment, regulations should be reformed for legacy media, rather than adding restrictive regulation to emerging technologies.

They maintain that the array of different SVOD business models should be acknowledged when regulatory frameworks are considered. If necessary, the government should provide a broad set of guiding principles asking streaming services to make meaningful contributions to Australian screen content across numerous categories, at the providers’ discretion. 

The Australian screen: disrupted and transformed
Netflix is Australia’s most popular streaming service. Picture: Photo by Mollie Sivaram on Unsplash

The government reacted with their Media Reform Green Paper in November 2020, proposing that obligations on reinvesting local revenue in local production could be imposed on SVODs – and the need to make that content discoverable.

The industry request for a “cultural uplift” has not been heeded. Although the government increased flexibility in how the FTA networks can fulfil quota requirements, any reduction in their quota is unlikely, while the pay-TV content expenditure requirement drops from 10 per cent of revenue to 5 per cent. SVODs continue to avoid local content quotas, though since January 1 this year they are required to report to ACMA on performance against their expenditure on local content.

Lobato and Scarlata demonstrate that SVODs’ local content figures arguably align with other screen industry sectors, including pay-TV services and the national cinema box office, as local films traditionally constitute about 9 per cent of screenings and 4 per cent of revenue.

QUT Professor of media studies Amanda Lotz says the FTA business model of advertising reliance inherently prioritises certain audiences over others and condenses culture when content is aggregated through a national lens. Considering this reality and the policies spearheaded by Screen Australia that obstruct local content production, the screen industry disguises the fear of losing its grip on the industry behind the façade of cultural relevance.

The government continues to overlook cultural disparities within an industry where cultural values were replaced by government and stakeholder commercial interests long before the arrival of SVODs. The screen industry’s failure to adequately represent content concerning diverse demographics reflects a disconnect with audiences, which may have originally driven them to SVODs’ more diverse content.

The extraordinary success of SVODs in the Australian market is largely fuelled by access to exclusive high-quality content that could trigger expansion and deliver Australian stories to the world.

SVODs presents opportunities for international exposure for content unlikely to appear on national FTA television. Additionally, SVOD commissions for “original” content largely depend on contracting local production companies, which plays a factor in the expenditure on Australian stories reaching record heights of $768 million in 2018-19, according to Screen Australia.

The relationship between national and global should be regarded as complementary rather than substitutive, as both FTA television and SVODs are desirable.

Clearly, some form of regulation is required, but the regulations should be customised. It seems unrealistic to expect SVODs to shoulder the role of FTA television of delivering public policy objectives to a national audience via a content quota. This could be fulfilled by purchasing old, licensed content which would further stymie the local industry.

However, there is an opportunity to use potential local expenditure quotas similarly applied to pay-TV of reinvesting revenue into co-productions to benefit the broader screen ecology. But the merits should stand on their own two feet, and not be implemented because of pressures from an industry with a commercial agenda.

The trick is not to view SVODs as something detrimental, but as an opportunity to grow the local industry, as demonstrated by Screen Queensland. The digital transformation did not end Australian television, and it is not ending with SVODs, it is simply experiencing transformational growing pains yet again.