AustLit

PAY TELEVISION

The seeds of pay (or subscription) television in Australia were planted in the early 1970s, when a small regional television service, Murrumbidgee Television, decided to trial a multi-channel service similar to the US cable networks. After Murrumbidgee’s parent company, Henry Jones (IXL), was taken over by a young management consultant, John Elliott, in 1972, Murrumbidgee’s manager, Ray Gamble, convinced his new owners—who would rise to the pinnacle of Australian corporate power a decade later—that pay TV made commercial sense.

Australia lagged most developed countries by decades in developing multi-channel pay TV because it was opposed so effectively by the three commercial television networks, Seven, Nine and later Ten. Ultimately, the irresistible force of commercial imperative and a government greedy for money opened the floodgates. What followed was a stampede of money, rushed and at times foolish decision-making, corporate confrontation and political ineptitude on a scale that has never been seen before in Australia.

Elliott became increasingly influential in Liberal Party politics, and from 1975 lobbied the incoming Fraser Coalition government to legalise pay TV. That it was illegal in Australia was a tribute to the power of the networks. Despite assurances from government ministers and a favourable recommendation from the media regulator, the networks—led by Nine’s Kerry Packer—frustrated all attempts to have pay TV legalised.

With the election of the Hawke Labor government in 1983, Elliott gave up and told Ray Gamble to sell the media assets. However, Gamble decided he would buy Murrumbidgee Television, arranging the buyout funding through Hill Samuel (later Macquarie Bank) and the subsequent float of the media business on the stockmarket under the name of Broadcast and Communications (later Broadcom). Gamble’s next move was to buy the piped music business of a young former television presenter, Steve Cosser.

Cosser suggested using a microwave technology called MDS. It would be five years before this would happen, and in the meantime Cosser and Broadcom carved out a reputation for themselves as opportunistic players, snaring the broadcast rights to VFL football (later the AFL) in 1986. They found themselves the owners of Network Ten in 1989 after its previous owner, Westfield Capital Corporation, decided it could no longer stand the losses and loaned Broadcom the $22 million purchase price of the network.

The networks were struggling for survival after having all changed hands in the frantic deal-making of the 1980s and then succumbing to receivership or, in the case of Nine, falling back into the hands of the previous owner, Kerry Packer. Just over a year after Broadcom took control of Ten, it too was put in receivership. Cosser saw the period of chaos for the networks as a window of opportunity that he would exploit as quickly as the regulatory environment would allow.

During this period, three important developments occurred that would influence the timing and force with which commercial interests would press for pay TV. They were the fast-approaching development in the United States of digital technology that would allow multi-channel broadcasting using a fraction of the spectrum consumed by analogue; the emergence of two powerful potential pay TV players driven by commercial imperative to invest heavily on a pay TV service that even the politicians couldn’t resist—the merged government-owned telco that would be renamed Telstra, and a new phone company controlled by the UK’s Cable & Wireless group, called Optus; and the sale by the Labor government of its two AUSSAT satellites to Optus for $800 million. These events made a multi-channel pay TV industry inevitable, particularly after Optus’s demand that, in return for the high price it had paid, it must be allowed to use the satellites to broadcast a pay TV service.

In the meantime, Steve Cosser started buying up MDS licences in Sydney and Melbourne to ‘narrowcast’ a news service rebroadcasting the CNN, NBC, BBC and Financial Times television services to corporate clients in Sydney. Cosser could see larger corporate players entering the field only when there was some certainty about the technology that would prevail. However, events were moving far quicker than Cosser realised. Having acquired 24 MDS licences in Sydney and Melbourne by early 1993, Cosser believed he had sufficient infrastructure to form a business and renamed his company Australis Media.

The federal government, meanwhile, had to stick with its promise to Optus to sell licences to broadcast a multi-channel television service using the Optus satellite. A former computer salesman named Albert Hadid succeeded in winning the two licences (one very restricted with little or no value) with a series of bids that cascaded down to a level at which he attracted the interest of a serious US cable operator who could pay the deposit. This was Lenfest Communications, a subsidiary of TeleCommunications Inc. Lenfest had access to a huge range of US programming, but more importantly money, and had the capacity to build a national pay TV business that would quickly overwhelm Australis’s small operation. Cosser and his backers, Richard Wiesener and Peter Scanlon, had a rethink about satellite. Out of the swirl of backroom activity that followed, Lenfest ended up buying out Hadid for $13 million and the same day sold one of the licences to Australis Media for $138 million in shares.

Suddenly, Australis was a serious contender in terms of its ability to reach a mass audience, but it walked straight into an auction with the newly formed Optus Vision consortium, consisting of Optus, US cable group Continental CableVision and all three commercial networks. The Hollywood studios could see a once-in-a-generation opportunity, and there were rumours of a third pay TV operator, so they were in no hurry to do any deals.

Although the networks had teamed with Optus Vision, their main concern was for their core businesses: their free-to-air television interests. Nine’s David Leckie and Seven’s Bob Campbell drew up a list of about 30 sporting events the pay TV industry would not be allowed to ‘siphon’ from the networks. Between them, Australis and Optus Vision had locked up most of the programming they could access that wasn’t subject to anti-siphoning rules.

Arguably the two most powerful players—Telstra and News Corporation—remained uncommitted, and by the time they finally decided to form a partnership, Foxtel, there was precious little programming available, with the Foxtel launch scheduled for September 1995. News Corporation and the head of its UK-based Sky TV pay TV business, Sam Chisholm, moved quickly to try to get what they could of sport and movie programming. With sport blocked by anti-siphoning legislation, News Corporation started its own sporting competitions, Super 12 Rugby and Super League, backed by Telstra’s money.

Movies were tougher: Chisholm ended up negotiating a crushing 50-year, multi-billion-dollar agreement to take Australis’s movie channels. Along with News Corporation’s Fox Studios, this gave Foxtel a superior movie package to Optus Vision. Rivals they may have been, but the three operators joined forces to form the Australian Subscription Television and Radio Association (ASTRA) to promote the pay TV industry and lobby in Canberra to rectify the lopsided playing field the commercial networks had created.

Ultimately, the story of pay TV is how Telstra and News Corporation hesitated before making their entry to pay TV, and then used their muscle and money to climb over the top of their rivals to emerge the monopoly provider. The cost incurred by all players is estimated to be at least $5 billion, with the biggest losses being incurred in the eventual collapse of Australis, and $600 million or so lost by News Corporation and Telstra on their Super League rebel competition. There were ongoing losses and writedowns by Foxtel and Optus Vision that finally forced Optus Vision to close its operations in 2003 and take the Foxtel feed.

After losing more than a billion dollars over the first decade of its 18 years in operation, Foxtel is now the most profitable media business in Australia, lifting operating profit in the 2013 financial year 22 per cent to $944 million. It is an advertisers’ dream, with 200 channels aimed at every conceivable demographic.

More than 7 million Australians, in 2.4 million households, are getting used to ‘paying for the footy’, something Kerry Packer had doubted they would be willing to do. At least they get to see it.

REF: M. Westfield, The Gatekeepers (2000).

MARK WESTFIELD