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TERRY LANE - PRESENTER:

The Productivity Commission is inquiring into the broadcasting laws and this week the chief executive of Fairfax, Professor Fred Hilmer, made a submission to the Commission. And in a nutshell Professor Hilmer told the Commission that Fairfax wants all foreign ownership and cross media ownership laws abolished and at the same time, they want some new rules made to give Fairfax a leg up into the digital information transmission business.

And I spoke to Professor Fred Hilmer on Friday afternoon about his submission. And I asked him to explain first of all why he wants an end to cross media and foreign ownership restrictions.

FRED HILMER - CEO OF FAIRFAX:

Well, that’s one point of, you know, what is not a simple subject. What I’d like to see is a gradual and sensible evolution towards a free market, away from a regulation which affects both ownership, as well as the access to those scarce resources - the pipes and the spectrum that at the end of they day determine who gets to see what and how easily.

LANE:

Well, we’ll come back to the details of that and what the implications are but to look at it from the point of view of Fairfax, on whose behalf you were making the submission, you say that the present media rules prevent Fairfax from growing - these are your words - in any significant way in a number of areas. So, how is Fairfax disadvantaged?

HILMER:

Well, under the present rules we are disadvantaged in a couple of respects, firstly because of what if it’s still uncertain access to digital, and related to that, if there is a significant shift, as we expect, to broadband on the Internet, we may well be disadvantaged because of the lack of an access regime with respect to the pipes. So, we’re disadvantaged in those two areas immediately.

In the longer term, as those areas develop, and you find that in order to have effective content in those areas, you need access to the kinds of skills, expertise that you get on television, then we don’t have and can’t have access to television because we’re not allowed to own anything in that market. You know, or our ownership in that market, I should say, is very tightly constrained.

So we are pretty well kept either out of those new areas or we’re allowed into the areas but with one hand tied behind our backs, against competitors not so constrained. And what that does is it ultimately constrains the growth of our revenue base, which in turn limits our ability to afford the quality and quantum of journalism that, you know, underpins us because, at the end of the day, we’re a content company and we’ve got to leverage our content.

LANE:

When you talk about access to pipes, what does this mean? You want some sort of regulation that would compel Foxtel or Optus to give you access to their cable?

HILMER:

Well, we would like to see, just as ... the same way as if I’m an electricity generator and I want to sell electricity to you that the transmission authority, for a fair price, has to take my power. I would like to know that when a home is connected via a set top box, that I am not disadvantaged in being able to go into the home and that I’m not disadvantaged in the way the set top box is programmed or accessed, so that, in ... as I say ... often say, so that you don’t need a PhD in computer science in order to be able to find the Fairfax content. Because ...

LANE:

Although ...

HILMER:

... that would be ... I want to be, you know, no more than one click away for any consumer in terms of the transmission of this material into peoples’ homes.

LANE:

I don’t understand how Fairfax is excluded from, if we’re talking now about cable transmission of television programs, as I understand it, anybody can come to Optus or Foxtel and buy a channel for their program?

HILMER:

We’re not talking about the regular television at this point. We’re talking about digital broadband content which, at this stage, and the ACCC’s still thinking about this, these issues, I think, since we’ve done our submission, are becoming very live, not just here but around the world.

But we’re talking about the digital access and that area hasn’t ... you can’t just go along and buy a channel. You can’t just go and ... or, if you do buy a channel and you’re given a price, it’s take it or leave it, which is, you know, the whole point of an access regime, when you have an essential linkage between a producer and a consumer.

LANE:

Well, the prob... I guess that I can’t envisage what it is that you’re talking about, when you talk about providing content digitally on, say, a cable or by satellite transmission. Because, at the moment, anybody who wants to have access to the Internet can do so, I mean, I even have a personal web page. And of course, so does Fairfax, so ...

HILMER:

Let me try and put it to you in more graphic terms. It’s a difficult thing to talk about. It’s best if you see it. But, if you think about, you know, your access to the Internet, you’re still, you know, driving a steam engine with a very clunky gearbox. It’s slow, moving pictures are terrible. You know, people say, oh, one ... they’re nearly as good as television but, you know, why can’t they be as good or better than television?

So, you know, we’re still in the very early stages. If you look at the technologies that are coming at us and that we will need these pipes for, you’ll be able to move at speeds, hundred, hundred plus times faster in terms of downloading information. The whole experience becomes a different experience.

The way I put a page up, when I can put moving pictures, sound, compression of parts of the page, expansion of parts of the page, graphics, tables, click-on buttons and get something instantly, the way I do that is quite different. And that ... this already exists. I mean, you can go and see it in Silicon Valley. The prototypes are there.

People are working on it and it’s not the Internet as we know it today, it’s the Internet that is coming and, you know, the company, looking ahead, trying to map a future where we don’t become obsolete, it’s the Internet that we want to play in.

LANE:

And the thing that is stopping you playing in it is that you can’t get access to the cables?

HILMER:

There’s a regulatory environment and it’s deeper, Terry, than just the cables. It’s the cable, it’s the standards around the set top box, it’s the programming of your controller, because the way most people will end up driving this kind of picture is not sitting in front, you know, of a complicated keyboard with their home keys and their insert keys and delete keys and all ... and their F1s and F5s.

What they’ll do is they’ll have a TV controller, with five or six coloured buttons and they’ll drive this thing, with a program guide, with the coloured buttons. Now, if you want to do that, then you’ve got to have a program that is universal, that doesn’t give any one player a particular advantage over another and that allows everybody at least easy and equivalent access to the consumers. And that’s ... that’s what this argument’s really about.

LANE:

What is the content going to be?

HILMER:

Well, the content, from our point of view, I mean, different people will have different con... our view of content, because of the kind of company we are, is that we are, at the moment, thinking around three streams of digital material.

One will be news, rolling half hours or hours, with a mixture of video, with a mixture of text, commentary, ability of consumer to interact with it, in a way that the Internet’s giving you a hint of but at speeds and with an attractiveness of data that actually makes sense when you look at a TV set, as opposed to when you’ve got your face in a screen.

So that’s one thing. The second stream, which again is a natural for us, is financial data. And financial information and financial updates. And we could do that around our markets, where we have tremendous content, that we want to leverage into that environment.

And the third area, that builds off our strong position with advertisers, in classifieds, in display, is shopping interaction. So, we could have at least three streams of digital programming coming to you, off content we now have and then, you know, who knows where this will go? But, you know, this is all ... all of those ideas are tangible in our minds and are at the ... at test point, right now.

And that’s why I think this is a, you know, relatively urgent debate. Why it’s not something we want to wait ‘til 2006, because by that time it’s over and why for the health of our company, for us to stay, you know, a strong, fertile fourth player in the media market in Australia, we want this kind of access. That’s what this debate’s about.

LANE:

And how is the ... well, getting back to this question then of transmission - are you talking about cable transmission, ether transmission, satellite transmission?

HILMER:

Well, we ... it ... at the moment, I mean, unless some other satellites go up, it won’t be satellites because the so-called hot bird, which is the Optus B3 satellite’s full and you’re not going to have multiple satellites because you and I, as consumers, aren’t going to have multiple dishes pointing in multiple directions. We’re just not going to spend that kind of money. So, it’s more likely to come into our homes on a cable. And it may be the broadband cable ...

LANE:

That’s the existing cable?

HILMER:

Yes. Or it may be through new technologies that allow it to come through the existing Telstra phone network. Technologies that allow that network to be used in ways that I think four or five years ago, people didn’t think were possible but now, through compression of data and really being clever with the whole transmission, things are possible now, in terms of very high speeds. Now, it’s an evolving area but it seems to us however it evolves, it ends up in a pipe and we want to get access to the pipe that wins.

LANE:

And at the moment, the pipes are owned and controlled by Telstra or Foxtel ...

HILMER:

Telstra or Optus.

LANE:

... and Optus, which is cable and ...

HILMER:

Which has one of the cables and has the satellite.

LANE:

Right. And so, what you want, is a law that compels those companies to open up their cables.

HILMER:

Well, we actually have a law that deals with this and we want that law extended to the broadcasting area. And that’s what we say when we say in our submission we want to extend ... we want broadcasting to be regulated according to general competition principles.

So at the moment, if you, if you ... you’re in other industries where there are pipes, gas pipelines, electricity pipelines or when ... where there’s a common carrier element that all people want to use the rail bed, we have a legal structure.

I mean, I personally developed it, so I’m reasonably familiar with it Terry, when I wear my competition policy hat. We have a legal structure that deals with access to essential facilities that link consumers and producers where those essential facilities are either natural monopolies or rest on legislative rights and it seemed to us that it’s no different here and that this is a framework that is, is very good policy because it’s going to allow not just us, but the myriad of inventors and producers who are already emerging in the Internet world - it’s going to allow them to transist into the broadband world.

And otherwise what we’re going to do is have, you know, the Internet fire is starting to burn and it’ll just go out.

LANE:

In the National Interest today I’m talking to Professor Fred Hilmer who is the Chief Executive Officer of Fairfax and who this week made a submission to the Productivity Commission, which is inquiring into the broadcasting laws and in his submission Professor Hilmer said that Fairfax supports an end to cross-media and foreign ownership restrictions on the electronic media.

Professor Hilmer why? What is the connection between ... here you are on the one hand asking for regulations that will give you enforced access and on the other hand you’re asking for the abolition of regulations that at the present moment perform a certain social and cultural function?

HILMER:

Well, as you move in the directions that I’ve just out lined to you Terry, the line between the various forms of media becomes extremely blurred. And it makes absolutely no sense to have ownership restrictions. We may want to buy ... as much as people may want to buy us, and these ownership restrictions just become, you know, fences without wire between them any more. So, why keep them there?

It just adds to the whole cost. It creates artificiality. The submission we made is for a gradual change ... change the access rules, allow a number of competitors including ourselves to strengthen our position in these new areas and then as that develops, change the ownership rules.

LANE:

When you ...

HILMER:

We’re not asking ... we’re not arguing for, in our submission, a big bang.

LANE:

Well, you know as well as I do and everybody listening that usually the assumption is that if we abolish cross-media ownership laws then the inevitable consequence will be that Mr Packer will take over Fairfax and the country will be left with a newspaper duopoly. Now, is that a desirable outcome or is it indeed an inevitable outcome?

HILMER:

Well, you speak of it as if it’s inevitable and I don’t really turn my mind to it. What I turn my mind to is strengthening the company and, you know, every one has been looking at our company as if it were a weak or wounded company because it was wounded. It’s a lot stronger now then it was a year ago and it certainly is immeasurably stronger than it was five years ago.

And if we’re given the legislative ground rules that allow us to build the strengths we have, to allow us to do in these new areas what we’ve done in the Internet then I think we ... we have a terrific future. And, you know, being anchored in the past and spending your life looking over your shoulder is to me, no way to get ahead.

LANE:

But you know there is a very good reason why everybody’s looking over their shoulder - Mr Packer has probed in every way so far that he can within the law, to acquire a significant ownership of Fairfax. It does look as though the only obstacle to his owning the company are the cross-media laws.

HILMER:

Well, again, you know, you have ... you have to draw your own conclusions but what I’m looking at is a future where we continue to get stronger and I’m saying if we sit in a walled garden that’s closing in on us that is a fairly bleak future for this company. Why is everyone concerned ... people are concerned and I am concerned because of issues about diversity, we’re concerned because people believe that having a number of players is important in the market.

If we sit behind cross-media rules forever then we won’t get any deregulation and what will happen is people will come at our advertising streams which is what supports our ability to add diversity to the media landscape. They come at our advertising streams and we are trying to protect and move out with one hand behind our back.

So we want to shape our own destiny ... we don’t want to sit there, you know, protected on the one hand but really confined and you know, to be preoccupied with history means we’ll never go forward and we’ve got to go forward, I think it’s in the country’s interests. All of the people I talk to want to go forward.

LANE:

Yeah ... it’s not Fairfax that’s been protected, it’s a community interest which is being protected. That is that in one market it is not desirable that one or two men control all of the flow of information in that market. I think that that’s concern and indeed that was a concern raised by one of the Productivity Commissioners questioning you the other day, who said, take for example the Melbourne market.

Is it a desirable state of affairs that Mr Packer should be able to take over The Melbourne Age, the only commercial medium in Melbourne which maintains a consistent critical scrutiny of the Melbourne Casino when Mr Packer is the owner of the Melbourne Casino? It does not look like a desirable state of affairs.

HILMER:

Well, you know, as I explained when I was asked that question and I think as I explained correctly, it, it’s really a poor and a misguided question ... because it presumes you know, an infallibility on the one hand of one player and you know, a stumble bum approach on the hand ... on the side of the other.

That these kinds of moves where, you know, everybody ties every thing up and, inevitably, you know, the world ends ... it ... work ... markets don’t work that way. What we believe - and if you look at our proposal in a ... not even too carefully, if you just read the first page - what we’re arguing for is a phased implementation that we believe gives us both the opportunity and the prospects of growth and strengthening the company.

And that ... as that as occurs, and as the landscape unfolds, there’s time for regulators to move on other aspects of deregulation and ... and create a market that will make diversity much better entrenched, much better protected from communities’ interests, than is the case today.

At the moment, you know, it’s like many other areas - we’re looking to regulation to do something that in time it will be unable to do and the unintended consequences of what you and other, I think, many well-meaning people are saying, the unintended consequences could well be a withering away of this company.

LANE:

But, I mean, you ... you make it sound as though ... those of us who are afraid of the consequences of the abolition of cross-media and foreign ownership rules, are somehow or other speculating about an unhappy future. What we’re doing is we’re extrapolating from an unhappy past. Every relaxation of media ownership rules in the past has led to a greater and greater concentration of media ownership in fewer and fewer hands.

We’d have to be stupid not to say that the final step - the total abolition of media ownership rules - wouldn’t, in the end lead to at the very best in this country, a duopoly of media ownership.

HILMER:

Well, let me go back to the example you gave to me - which was the Internet. The Internet is the least regulated part of the media landscape and it is the most diverse. There’s no monopoly, duopoly, oligopoly or any opoly of any kind. What there is in the Internet is low barriers to entry, people popping up all over the place, a capital market hungry to give them the opportunity to grow and, you know, it’s been a tremendous area, not just for the media companies, but for entrepreneurs, for young people wanting to get out there and do things.

And, you know, this ... this victim mentality of the past is, I think, very harmful, when you look at what can be. You should go over to Silicon Valley and have a look at, you know, the thousands of kids and I guess I say that, showing my age, but kids my kids’ age, who, you know, are seeing their future not as part of bureaucracies but as getting things going.

Doing trade, getting up net sites, getting capital. Doing things. And, you know, it ... what we’re going to end up doing is regulating ourselves out of this because we’re worried about a past from which we extrapolate and that isn’t the way the future’s developed, it seems to me. The way the future’s developed is by people being bold enough to take some risks.

And there are no guarantees, Terry, but these are risks that I believe are much more consistent with the technological future that we have in this country and should have in this country and that’s why I’ve taken the position that I have.

LANE:

Well, looked at in one way, you’re right. The barrier to playing on the Internet is extremely low. But, looked at in another way, the barrier to becoming a significant content provider on the Internet is as high as it is on television or newspapers.

That is, for ... for a company to be able to provide reliable, trustworthy news and information on the Internet, is going to require the same sort of capital as if you were going to provide it via television. So you’re still ... you’re not really talking about a medium in which every Tom, Dick and Harry has got the money to play. So ...

HILMER:

Terry, Terry, the money is the least scarce resource. Just have a look at the stock market. Have a look at the stock market in the US, have a look at the stock market here. There’s ... money is not the scarce resource. The scarce thing is ideas. If you’ve got the ideas, you can get ... you can get as many reporters as we have on The Fin in a site called thestreet.com from nothing.

Funded on the stock markets. So, you know, I think what ... we’re still talking about is very much an anchored in the past view. And my message at Fairfax is we should take the offensive and that’s a message that is being well received. It is a message that requires us to change the way we’ve been thinking, but we need to do that or we’ll be left behind.

LANE:

Well, one last question. Be prophetic. In ten years’ time, will we still be reading newspapers?

HILMER:

Absolutely. Because ...

LANE:

Well, what will be the relationship between newspapers and on line content?

HILMER:

I wish I knew precisely, but we will have core staff who will be journalistic staff who will be producing content and we’ll be using their content in the newspapers. We’re going to be reading newspapers for a long time and we’re going to also be reading or seeing or watching that material or versions of that material, in different formats, as well.

Because, what’s the story of media? The TV didn’t knock out the cinema. The video didn’t knock out the cinema. The radio didn’t knock out the newspaper. As communities ... as modern communities, we want more ways to talk to each other and to get information and we ... Fairfax want to be part of that. We don’t want to be just anchored in one section.

LANE:

Professor Hilmer, thank you very much for your time.

HILMER:

Thank you, Terry.

LANE:

Professor Fred Hilmer. And I was speaking to him on Friday. Professor Hilmer is the chief executive officer of Fairfax and I should say that I spend part of my time working for Fairfax, as a contributor to The Age.

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