Statement of Reasons for the Preliminary Decision to Make an Exemption Order for Telstra

STATEMENT OF REASONS FOR THE PRELIMINARY DECISION TO MAKE AN EXEMPTION ORDER FOR TELSTRA PAY TV PTY LTD IN RESPECT OF THE SUBSCRIPTION TELEVISION SERVICE FX PROVIDED THROUGH MOBILE FOXTEL

1.  PRELIMINARY DECISION

1.1  For the reasons set out below, the Australian Communications and Media Authority (ACMA) has made the preliminary decision to make an exemption order in relation to the subscription television general entertainment service, FX, provided through Mobile Foxtel (the Service).

1.2  The order would exempt Telstra Pay TV Pty Ltd (the Applicant) from the requirement to ensure that a captioning service was provided for at least 60 per cent of the total number of hours of television programs transmitted on the Service in the financial year 1 July 2015 to 30 June 2016 (the Specified Eligible Period).

2.  LEGISLATION

2.1  Subsection 130ZV(1) of the Broadcasting Services Act 1992 (the BSA) provides that a subscription television licensee that provides a subscription television service in a financial year must at least meet the annual captioning target for that financial year.

2.2  Subsection 130ZV(2) of the BSA outlines how the applicable percentage for the annual captioning target for the relevant financial year is calculated. The annual captioning target differs according to the subscription television service category and increases by five per cent each financial year until it reaches 100 per cent.

2.3  Paragraph 130ZY(1)(a) of the BSA provides that a subscription television licensee may apply to the ACMA for an order (an exemption order) that exempts from subsection 130ZV(1) of the BSA, a specified subscription television service provided by that licensee in a specified eligible period.

2.4  Subsection 130ZY(3) of the BSA provides that if an application under subsection 130ZY(1) of the BSA has been made for an exemption order, the ACMA must, after considering the application, by writing, either make the exemption order or refuse to make the exemption order.

2.5  Subsection 130ZY(4) of the BSA provides that the ACMA must not make the exemption order unless it is satisfied that a refusal to make the exemption order would impose an unjustifiable hardship on the applicant.

2.6  Subsection 130ZY(5) of the BSA specifies the matters the ACMA must have regard to in determining whether a failure to make the exemption order would impose an unjustifiable hardship on the applicant. A copy of these matters is at Attachment A.

2.7  Subsection 130ZY(6) of the BSA provides that, before making an exemption order under subsection 130ZY(3) of the BSA, the ACMA must:

a)  within 50 days after receiving the application for an exemption order, publish on the ACMA’s website a notice:

(i)  setting out the draft exemption order; and

(ii)  inviting persons to make submissions to the ACMA about the draft exemption order within 30 days after the notice is published; and

b)  consider any submissions received within the 30-day period mentioned in subparagraph 130ZY(6)(a)(ii) of the BSA.

3.  BACKGROUND

3.1  On 30 March 2016, the Applicant submitted an application seeking an exemption order under paragraph 130ZY(1)(a) of the BSA in relation to the Service for the Specified Eligible Period (the Order).

3.2  The Applicant is a subscription television licensee. The Service is one of 34 channels provided by the Applicant known as ‘Mobile Foxtel’ (Mobile Foxtel). Mobile Foxtel is exclusively available to mobile customers of the Applicant’s parent company, Telstra Corporation Limited (Telstra).

3.3  Telstra has entered into a contractual arrangement with Foxtel Management Pty Limited (Foxtel), under which Foxtel supplies content to the Applicant for use on its Mobile Foxtel channels. The Applicant also retransmits free-to-air broadcast television services, the ‘AFL TV’ channel and the ‘Sportsfan’ channel as part of certain subscription packages (discussed below). Since at least 29 June 2015, Mobile Foxtel has been delivered to subscribers solely via a mobile application, ‘Mobile FOXTEL from Telstra’ (the Mobile Application), compatible with certain mobile devices.

3.4  The Applicant offers three subscription packages through Mobile Foxtel: the ‘Value Pack’ (16 channels), the ‘Ultimate Pack’ (30 channels) and the ‘Ultimate Pack + Plus Sport’ (34 channels). Telstra pre-paid and plan-based mobile customers may subscribe to Mobile Foxtel on either a weekly or monthly basis. The Service is offered by the Applicant as part of the ‘Ultimate Pack’ and the ‘Ultimate Pack + Sports’ subscription packages.

3.5  The Service provides a channel dedicated to shows based on science fiction and fantasy. As a category-A subscription television general entertainment service, the annual captioning target for the Specified Eligible Period is 60 per cent. This means that the Applicant must ensure that a captioning service is provided for at least 60 per cent of the total number of hours of television programs transmitted on the Service during the Specified Eligible Period.

3.6  This is the second application by the Applicant for an exemption order under paragraph 130ZY(1)(a) of the BSA relating to the Service. The ACMA has already made one exemption order for the Service. The previous exemption order for the Service (ST/EO-185) was made on 11 March 2015 and covers the financial year 1 July 2014 to 30 June 2015.

4.  EVIDENCE AND REASONS FOR PRELIMINARY DECISION

4.1  In making the preliminary decision to make the Order, the ACMA assessed firstly, whether a refusal and/or failure to make the Order would impose hardship on the Applicant and secondly, whether such hardship would be unjustifiable in light of the objects and purposes of the BSA. In making this assessment, the ACMA had regard to the matters specified in subsection 130ZY(5) of the BSA.

4.2  The ACMA has relied upon written representations and supporting evidence submitted by the Applicant in its application and in response to further enquiries. The ACMA has also relied upon written representations and supporting evidence submitted by the Applicant as part of previous exemption order applications for the Service, outlined in paragraph 3.6 above, as well as publicly available information. Information provided to the ACMA on a confidential basis has not been reproduced.

Paragraph 130ZY(5)(a) of the BSA – the nature of the detriment likely to be suffered by the applicant

4.3  The Applicant submitted that, if the Order is not made by the ACMA, the detriment likely to be suffered by the Applicant would include significant brand damage and significant financial commitments.

Significant brand damage

4.4  The Applicant submits that it has made genuine efforts and invested significant resources in a program to implement closed captioning capability for Mobile Foxtel. Details of the Applicant’s efforts to implement captioning capability are contained in paragraphs 4.34 to 4.41 below.

4.5  The Applicant submits that despite its genuine efforts, it encountered technical difficulties that prevented it from introducing captioning capability for Mobile Foxtel, including the Service. Details of the Applicant’s submissions relating to technical difficulties are contained in paragraphs 4.42 to 4.49 below.

4.6  The ACMA acknowledges the Applicant’s genuine efforts. However, the ACMA does not consider that ‘brand damage’ is, in itself, grounds for unjustifiable hardship. In exercising its functions, the ACMA is required to engage in a public consultation process and publish information on its website where relevant. This may necessitate the publication of information, the making of findings or the making of a decision which, although adverse to an Applicant’s reputation, is in the public interest. If an applicant wishes to benefit from the exemptions afforded by section 130ZY of the BSA, it would appear illogical to claim that the process by which the ACMA must reach its decision is in some way adverse to the applicant’s brand.

4.7  Furthermore, subsection 130ZY(10) of the BSA provides that if the ACMA decides to make an exemption order, it must publish a copy of the exemption order on its website. Paragraph 130ZY(9)(b) of the BSA provides that if the ACMA decides to refuse to make an exemption order, it must give written notice of its decision to the applicant. There is no requirement that the ACMA publish its decision to refuse an exemption order and the ACMA does not do this in practice. It is unclear from the Applicant’s submissions how it might suffer ‘brand damage’ when the ACMA’s final decision is only made public where an exemption order is granted. The Applicant has not provided any evidence to substantiate or clarify how it alleges that it is likely to suffer ‘brand damage’.

4.8  The ACMA is not satisfied, therefore, that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant on the basis of detriment due to ‘brand damage’.

Significant financial commitments

4.9  The Applicant submitted that, if the Order is not made by the ACMA, the detriment likely to be suffered by the Applicant would include significant financial commitments associated with implementing captioning capability for Mobile Foxtel during the Specified Eligible Period, including for the Service.

4.10  The Applicant previously submitted that the only potential technical solution to provide closed captioning capability during the Specified Eligible Period would be to create duplicate Mobile Foxtel channels, including for the Service. Duplicate channels would require the Applicant to stream two versions of each channel, one encoded with open captions and one without.

4.11  The Applicant previously submitted that providing duplicate channels would involve significant financial commitments which would be extremely cost prohibitive such that providing the Mobile Foxtel service would not be financially viable. The Applicant submits that Mobile Foxtel would, as a result, likely be discontinued as the cost of providing duplicate channels would be far greater than the annual profit generated from Mobile Foxtel.

4.12  The Applicant submits the following costs would be associated with duplicating Mobile Foxtel channels:

(a)  initial start-up costs associated for duplicating Mobile Foxtel channels (including hardware, software licences, racking space and redundancy);

(b)  running costs associated with duplicated programming for Mobile Foxtel channels;

(c)  one-off cost to change the loop preparation process for 10 looped channels;

(d)  costs to build, test and implement closed captions for live channels, including the Service;

(e)  costs to build, test and implement closed captions for looped channels; and

(f)  costs associated with the actual provision of closed captioning.

4.13  Under the current legislative framework, it is a priority that subscription television services be broadcast with captions where possible.[1] However, if meeting the captioning obligation for a subscription television service would result in a subscription television licensee being unable to show the service, then the captioning obligation itself may be seen as an unjustifiable hardship.[2]

4.14  Based on the information provided, the ACMA is satisfied that the cost of duplicating Mobile Foxtel channels is likely to exceed the annual income earned from Mobile Foxtel, which in turn would likely result in Mobile Foxtel, including the Service, being discontinued. The ACMA is satisfied therefore that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant, given the significant financial commitments associated with duplicating its Mobile Foxtel channels, including the Service, during the Specified Eligible Period (see paragraphs 4.9 to 4.12).

Paragraph 130ZY(5)(b) of the BSA – the impact of making the exemption order on deaf or hearing impaired viewers, or potential viewers, of the subscription television service concerned;

4.15  The Applicant submits that if the ACMA made the Order, it would have no impact on deaf or hearing impaired viewers as the Applicant has, to date, not provided any captioned content for Mobile Foxtel, including the Service.

4.16  The ACMA notes that if the Order were made, the Applicant would be exempt from meeting the annual captioning target for the Service for the Specified Eligible Period. It would also result in the Applicant being exempt from its captioning obligations for the Service for a four year period from 1 July 2012 to 30 June 2016 inclusive.

4.17  The ACMA considers that although no captioned content has been provided for the Service to date, it is still possible that deaf or hearing impaired viewers or potential viewers may have used, currently use or will use the Service. Deaf or hearing impaired viewers or potential viewers may, for example, have acquired a mobile service from Telstra and/or subscribed to Mobile Foxtel in reliance upon representations made in the Applicant’s previous exemption order that Mobile Foxtel would have captioning capability in FY2015 – 2016.[3]

4.18  The ACMA is not satisfied, therefore, that making the Order would not have a detrimental impact on deaf or hearing impaired viewers, or potential viewers, of Mobile Foxtel, including the Service.

Paragraph 130ZY(5)(c) of the BSA – the number of people who subscribe to the subscription television service concerned;

4.19  The Applicant submitted information about the number of people that subscribe to Mobile Foxtel, including the Service, as well as average viewer numbers, on a commercial-in-confidence basis.

4.20  Based on the information provided, the ACMA is satisfied that, based on the number of subscribers, it would be a disproportionate administrative burden on the Applicant to meet its captioning obligations for the Service for the Specified Eligible Period. The ACMA is satisfied, therefore, that a refusal and/or failure to make the Order would impose an unjustifiable hardship on the Applicant.

Paragraph 130ZY(5)(d) of the BSA – the financial circumstances of the applicant

4.21  The Applicant has submitted information about its financial circumstances, including profit and loss statements, expenditure on closed captioning capability and estimated expenditure on closed captioning services, on a commercial-in-confidence basis.

4.22  The Applicant previously submitted that the additional cost of duplicating Mobile Foxtel channels and creating open captions, including for the Service, would render Mobile Foxtel commercially unviable. The Applicant submits that Mobile Foxtel would likely be discontinued as the cost of providing duplicated channels would be far greater than its annual profit from providing the service.

4.23  From its examination of the financial information provided by the Applicant on a commercial-in-confidence basis, the ACMA is satisfied that a refusal and/or failure to make the Order would impose financial costs that would make Mobile Foxtel commercially unviable and would likely result in Mobile Foxtel, including the Service, being discontinued.