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Hawke-era ‘aggregation’ brings regional broadcasters to their knees

Two regional broadcasters, Bruce Gordon’s WIN Corp and Southern Cross Austereo, are preparing to renegotiate their affiliate deals with metropolitan partners Network Ten and Nine Entertainment Co (owner of this masthead) which could lead them to switch places. But a larger question mark remains over whether regional broadcasters have a viable future at all.

Mr Hawke’s equalisation policy was enforced through aggregation – merging regional markets to allow more than one commercial license to operate in the same area. As regional areas aggregated, the stations began to organise affiliations with metro networks.

The original benefits of affiliating with a metro network were two-fold. Regional broadcasters had access to a metropolitan station’s programming which enticed advertisers. For the metropolitan broadcasters, Seven, Nine and Ten, the deal gave them a cut of regional advertising revenue.

Bob Hawke was passionate about ensuring regional Australians had as much choice as those in capital cities.

Bob Hawke was passionate about ensuring regional Australians had as much choice as those in capital cities.Credit:Paul Mathews

Industry sources familiar with the original deals said the regional broadcasters gave anywhere between 18 per cent and 29 percent of revenue to their metro partners. But that revenue share split has nearly doubled over the last 30 years as expensive sports broadcasting rights deals and large investments in reality shows and drama gave metro broadcasters leverage to push for more advertising revenue from regional markets.

“Affiliation fees became a critical source of revenue,” Tony Forrest, former GM of Southern Cross Broadcasting and television industry consultant, said. “Because there were some watertight deals, all of the three metros started to work out ways to put levies on the regionals. The obvious one was the Olympic Games.”

As this occurred, regional advertising dollars started to dry up.

“Where it’s failed is that now the affiliates are all paying a grossly disproportionate amount of money for their costs,” Mr Forrest said. “A gradual erosion to such a point that it is so high now that it doesn’t give the affiliates anywhere to go.”

Regional broadcasters are now trying to balance costs with a rapidly deteriorating advertising market. It’s a situation that has been made worse by the coronavirus pandemic. Once recognised for local news coverage and exclusive television shows, regional broadcasters are now synonymous with cost cuts and newsroom closures. Mr Hawke’s policy led to more choice for viewers, but as resources become stretch the quality of news stories started to diminish.

The rollout of the national broadband network (NBN) over the past decade has also given regional communities better internet and with it more access to commercial broadcasters’ free online streaming services such as 9Now, 7Plus and 10Play.

One of the biggest disputes over costs was in 2015, when Mr Gordon was renegotiating his long-standing affiliate deal with Nine. At that time, Mr Gordon had multiple investments in Australian media. Through his investment vehicle Birketu, Mr Gordon owned a 14.9 per cent stake in Nine and Ten.

With a major investment in Nine Entertainment Co, it is likely that Bruce Gordon will try to strike a deal with his old affiliate partner.

With a major investment in Nine Entertainment Co, it is likely that Bruce Gordon will try to strike a deal with his old affiliate partner.Credit:Rob Homer

Discussions about the portion of revenue he would give to Nine turned sour. Nine, which was at the time receiving about 30 percent of WIN’s revenue, wanted closer to 50 per cent. The pair landed a six-month affiliate deal at the eleventh hour and reportedly began exploratory talks about a merger. WIN then took Nine to the NSW Supreme Court where it argued that streaming website 9Now needed to be included in the affiliate agreement as the content it received was no longer exclusive.

“The case should also serve to remind regional broadcasters entering into affiliation agreements that the value of these agreements is decreasing as metro broadcasters set out to erode regional broadcaster value by directly competing with their affiliates for viewers and revenue in regional Australia,” Mr Lancaster said at the time. WIN lost the case.

By April 2016 Nine had ended its affiliate deal with WIN and announced Southern Cross Austereo as its new affiliate partner. WIN later struck a deal with Network Ten. Nine chief executive Hugh Marks said at the time that the broadcaster would receive 50 percent of Southern Cross Austereo’s revenue, a deal expected to generate $500 million in revenue. The deal also required Nine to produce its regional news on behalf of Southern Cross. Industry sources said that Southern Cross never generated its $100 million a year revenue goal. WIN’s deal with Network Ten gave the metro broadcaster more than 35 percent of its advertising revenue.

In 2020, Ten is owned by ViacomCBS and Mr Gordon’s metro investment interests are solely with Nine (he holds a 14.9 per cent stake). Multiple regional and metropolitan television sources expect Mr Gordon to secure a new affiliate deal with his former partner Nine, which would return Southern Cross Austereo (Nine’s affiliate partner) back to Network Ten. Both deals will expire by July 1 2021. Prime and Seven’s affiliate deal expires in 2023.

WIN has more reach than other affiliate partners and there are still some areas where Nine continues to work with the broadcaster as it’s the only operator. Nine’s revenue split with WIN is quite small in markets such as Tasmania and Mildura, but if this were improved a deal between the two broadcasters could be struck.

But increased financial pressure has also forced the regional broadcasters to look for alternative solutions. Seven West Media tried to take over its regional partner Prime Media Group last year, but the plans were thwarted by shareholders Mr Gordon and Antony Catalano, who did not believe the deal was fair or reasonable.

The regional broadcasting industry has also made no secret of its efforts to lobby government and discuss regulatory reform. But Mr Forrest isn’t convinced they will ever succeed.

“The government is in the pocket of the major networks and the regionals do not have a say anymore,” Mr Forrest said. “Going into the future…there isn’t a model that really works for anybody unless it’s a tear-it-all-up and start again.”

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