Without federal government action, the commercial free-to-air television industry serving regional Australians is likely to become "consistently unprofitable" within three years resulting in the "elimination of all local production and journalism".
That's the grim forecast of a new study which describes the government as "highly exposed to any crisis", such as the collapse of one of the companies broadcasting to regional Australia's 3.5 million households.
"The government is no bystander," the research commissioned by Swinburne University of Technology concludes.
"It is the government's long-term insistence that regional viewers get every channel available to metropolitan viewers that has exacerbated the structural problems of the regional industry.
"Given the declining revenue base of the regional television industry, this exposes the government to considerable risk if it fails to achieve structural change that puts the industry on a viable (or at least more viable) footing."
Prepared by David Kennedy and Poornima Pai of research firm Venture Insights and overseen by Swinburne Professor of Media and Communications Jock Given, the new report does not mince words about the future of regional TV, or the government's role.
"It is difficult to foresee ongoing viability for the regional commercial television industry on current regulatory, technological and commercial settings," the authors warn.
They calculate that competition for audiences from global streaming giants like Netflix and Disney+ and the online video-on-demand "catch-up" services of the metropolitan networks that provide the bulk of their programming will erode the revenues of regional TV companies by about 33 per cent between 2021 and 2026.
"Venture Insights estimates that at the current rate of viewing decline, the regional commercial television industry as a whole will move into an EBITDA-negative position around 2024, and their situation will worsen thereafter," Mr Kennedy and Ms Pai write.
"The initial result would be the elimination of all local production and journalism, followed by growing difficulties in paying transmission and content costs."
Funded through the Australian Research Council, the "Regional commercial TV in Australia: challenges and opportunities" report is part of a Swinburne study of how Australia's broadcast spectrum could be freed up for future technologies.
It outlines five options for regional TV and warns that it is "difficult to envision a scenario" in which the federal government is not required to heavily subsidise regional services.
"The industry faces structural problems that require structural solutions," the report states. "These problems cannot be ignored."
The Morrison government is yet to respond to pleas from regional media companies for reform of outdated broadcasting legislation which fails to recognise the existence of internet competitors like YouTube, Netflix and Facebook.
Last year the bosses of Prime Media Group, WIN Corp and Southern Cross Austereo wrote to Communications Minister Paul Fletcher to warn their industry was "destined for market failure" and local news would disappear unless rules were changed to allow them to merge.
This year Australian Community Media, publisher of this masthead, called for an overhaul of ownership rules which permit metropolitan networks like Nine to own TV, radio and daily newspapers in Sydney and Melbourne but restrict similar cross-media tie-ups in regional markets.
Led by executive chairman Antony Catalano, ACM has grown its stake in Prime to almost 23 per cent but its ambitions to build what Mr Catalano calls "a vibrant regional media company that serves Australian communities beyond the big capital cities" are constrained by the current regulations.
Ian Audsley, the CEO of Prime which shows Network Seven programs in regional areas, said his industry was in a "parlous state" and regional communities were paying the price of the failure of successive governments to "keep pace with the realities of the modern media landscape - one which is becoming increasingly dominated by international players".
While he hadn't seen the calculations of Venture Insights, Mr Audlsey said "the evidence is clear that some of the smaller commercial television services in regional Australia are already commercially and financially unviable with their owners pouring in cash to keep them alive".
"The failure of any one of those licensees would see one of the three metropolitan TV networks' programming turned off in those parts of Australia," he said. "The fallout from that is public policy failure and a reduction in services to people living in regional Australia - the complete antithesis of the federal government's equalisation strategy that created aggregated regional commercial television over 30 years ago."
If no action is taken to support regional TV, the "most orderly" scenario would involve TV services shrinking to cover only higher-density markets like Canberra, Newcastle and Wollongong, leaving many regional audiences dependent on national broadcasters ABC and SBS. Another scenario would see the closure or collapse of one of the existing operators, with their transmission "going dark". The report notes that "it is inconceivable that this 'do nothing' outcome would be politically acceptable, as availability of commercial television services has been a policy objective of successive governments for decades".
Subsidised status quo
This scenario has the federal government propping up regional TV services with subsidies increasing as the sector's revenue is eroded. The report estimates the costs would begin at $160 million a year in 2026 and ultimately grow to be "comparable to running another SBS" - potentially squeezing the budgets of the ABC and SBS.
Shift to satellite delivery
If the NBN could be relied upon to replace terrestrial delivery of free TV with the online streaming of regional channels, the report estimates 800,000 households with no broadband access would need to get TV via satellite. Equipment costs alone for an expansion of the VAST satellite program to reach those homes would start at $320 million, and local news and advertising would be replaced by state-wide content.
Acquisition by metro networks
Removal of the national "reach" rule in 2017 cleared the way for the Seven, Nine and Ten networks to swallow their regional affiliates, but the report warns such acquisitions would "place regional news coverage under a cloud" as networks sought operational savings or government subsidies to cover the cost of serving "uneconomic areas". Metro takeovers were "the lowest-risk option for the government" but as "regional revenues decline, the attractiveness of acquisition declines as well".
Regional media merger
Regional commercial broadcasters merging into one entity to transmit all of the current free TV channels would create "an integrated operational and editorial structure that could realise efficiencies in premises, broadcast infrastructure, and news gathering and production" while also gaining some bargaining power with metro networks over programming costs. The report notes: "An alternative version of this approach widens the net to include regional print and radio as potential consolidation partners. This is the ambition of ACM".
Regulatory hurdles in this scenario include legislative change to relax the one-TV-licence-to-a-market rule and the four-voice ownership limits in regional markets, and sign-off from the ACCC under competition law.
The regional TV networks have previously partnered with ACM under the Save Our Voices banner for a campaign, fronted by veteran TV journalist Ray Martin, to raise public awareness of the need for such reforms.
Prime's Mr Audsley said his company had consistently advocated for a regional TV merger "to preserve an independent regional voice for the 9 million Australians who chose to live and work outside the five main capital cities".
"The regulatory framework has demonstrably failed to keep pace with the dramatic changes in the market - evidenced by the loss of local TV newsrooms and bulletins throughout Queensland, NSW and Victoria, the closure of local newspapers, and the loss of many highly-skilled local media jobs over the past few years," he said.
Legislation had also failed to provide "an environment where Australian-built and -owned companies can compete and flourish against international interlopers who are largely free of the regulatory burdens that commercial TV operators must abide by".
It is regional communities that are paying the price for the failure of successive governments to keep pace with the realities of the modern media landscape.Prime CEO Ian Audsley
Mr Audsley pointed to moves by the US regulator, the Federal Communications Commission, to relax rules preventing mergers in local media markets which was empowering regional companies "to chart their own course, to grow, create more media jobs, invest in local programming and local news and give back to local communities".
"Responsibility for the parlous state of Australia's regional media industry will ultimately reside in someone's lap, but it is regional communities that are paying the price for the failure of successive governments to keep pace with the realities of the modern media landscape," he said.
The research for Swinburne says proposals in the Morrison government's November 2020 Green Paper on media reform could help eliminate broadcast spectrum taxes and generate funds from spectrum sales to pay for industry support, including news production.
"But these are one-off interventions that lack the scale and decisiveness needed to fill the steadily declining regional revenue gap," the report says.
A Senate Communications and Environment Committee inquiry on media diversity regulation is expected to report next month and Mr Kennedy and Ms Pai say the government's response to the inquiry may determine whether mergers between regional TV companies becomes a "live option".
- James Joyce is ACM executive editor.