COPYRIGHT TRIBUNAL OF AUSTRALIA

 

 

Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 4)
[2006] ACopyT 2

COPYRIGHT – equitable remuneration – retransmission of free to air (‘FTA’) television programs through Pay TV’s set top unit – application by collecting society declared under s 135ZZT of Copyright Act 1968 (Cth) (‘the Act’) for purpose of Pt VC of that Act for a determination of the amount of ‘equitable remuneration’ payable by the retransmitters for their retransmission of the FTA programs simultaneously with the broadcasting of those programs by FTA broadcasters, pursuant to the statutory licence granted to the retransmitters by s 135ZZK of the Act – contingent valuation survey conducted by the collecting society to establish how much subscribers would be prepared to pay to retain retransmission – admissibility and weight of evidence of the survey – admissibility and weight of evidence of rates charged for retransmission in overseas countries – meaning of ‘equitable remuneration’ – approaches taken by Tribunal – notional bargain – parties to, and circumstances of, notional bargain.

EVIDENCE – survey evidence – contingent valuation survey.

Copyright Act 1968 (Cth), ss 135ZZK, 135ZZL, 135ZZM, 135ZZT, 153M

AUDIO-VISUAL COPYRIGHT SOCIETY LTD v

FOXTEL MANAGEMENT PTY LTD & ORS

CT 3 of 2002

 

THE TRIBUNAL:  LINDGREN J (PRESIDENT), PROFESSOR

DENNIS PEARCE (MEMBER), MS ANGELA BOWNE (MEMBER)

3 MAY 2006

SYDNEY

COMMONWEALTH OF AUSTRALIA   Copyright Act 1968
IN THE COPYRIGHT TRIBUNAL		CT 3 OF 2002
APPLICATION BY:	AUDIO-VISUAL COPYRIGHT SOCIETY LIMITED
	FOXTEL MANAGEMENT PTY LIMITED FIRST RESPONDENT   OPTUS VISION MEDIA PTY LIMITED SECOND RESPONDENT   AUSTAR ENTERTAINMENT PTY LIMITED THIRD RESPONDENT

 

THE TRIBUNAL:	LINDGREN J (PRESIDENT) PROFESSOR DENNIS PEARCE (MEMBER) MS ANGELA BOWNE SC (MEMBER)
DATE OF ORDER:	3 MAY 2006
PLACE:	SYDNEY

THE TRIBUNAL DIRECTS THAT:

1.         The proceeding be stood over to 14 June 2006 at 9.30 am before the President for mention, and, if necessary, for the making of directions for the service of submissions in relation to the outstanding issues.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

COMMONWEALTH OF AUSTRALIA   Copyright Act 1968
IN THE COPYRIGHT TRIBUNAL		CT 3 OF 2002
APPLICATION BY:	AUDIO-VISUAL COPYRIGHT SOCIETY LIMITED
	FOXTEL MANAGEMENT PTY LIMITED FIRST RESPONDENT   OPTUS VISION MEDIA PTY LIMITED SECOND RESPONDENT   AUSTAR ENTERTAINMENT PTY LIMITED THIRD RESPONDENT

 

THE TRIBUNAL:	LINDGREN J (PRESIDENT) PROFESSOR DENNIS PEARCE (MEMBER) MS ANGELA BOWNE SC (MEMBER)
DATE:	3 MAY 2006
PLACE:	SYDNEY

REASONS FOR DETERMINATION (No. 4)

(Final Determination)

 

TABLE OF CONTENTS

A.	INTRODUCTION                                                                   A.1      This proceeding             General             The principal provisions of Part VC of the Act A.2      Legislative history and background	[1] [1] [18]
B.	THE PARTIES AND THEIR ACTIVITIES B.1     Screenrights                                                      B.2     THE FTA CHANNELS   B.3     The Retransmitters                                                   Foxtel            Optus            Austar            TransACT            Number of subscribers            Bundling of services            Submissions relating to the characterisation of the retransmitters’ business	[38] [38] [52] [54]
C.	TECHNICAL MATTERS                                                    C.1      Transmission of FTA channels by FTA Broadcasters   C.2      Transmission of pay TV channels by Pay TV Providers             Transmission of Pay TV channels by analogue cable 1                     Transmission of Pay TV channels by digital cable 2                     Transmission of Pay TV channels by Optus CI satellite 3                       C.3      Retransmission of FTA channels by Pay TV providers             Retransmission on FTA channels on the analogue cable platform             Retransmission of FTA channels on the digital cable platform             Retransmission by satellite             Conditional access system             Reception equipment             Digital receivers and digital set top boxes             Remote controls             Reception quality	[88] [89] [92] [98]
D.	RELEVANT PRINCIPLES D.1      Previous Tribunal approaches              D.2      Social gain/notional bargain approaches             ‘Social gain’             Are the FTA broadcasters parties to the hypothetical negotiation?             The ‘notional bargain’ – general considerations             Division of value of retransmission             Generation of additional profits to copyright owners D.3      Summary of the approaches contended for	[130] [130] [147] [176]
E.	THE SURVEY EVIDENCE E.1      The various surveys that have been carried out             Introduction             The Screenrights survey – the pilot, Sweeney 1, Sweeney 2             The Survey questionnaire             Responses to the Survey             The Retransmitters’ Newspoll survey             Criticisms of the Screenrights survey E.2      THE survey witnesses             Dr Henstridge             Professor Carson             Professor Borland             Professor Hausman             Dr Bock E.3      The alleged underlying flaws in the survey             E.4      Contingent valuation – the most             appropriate approach?   E.5      CRITICISMS OF THE QUESTIONS IN THE SCREENRIGHTS SURVEY 4                     Q7 5                     Failure to refer to substitutes for retransmission 6                     Demand curve for willingness to pay is upward sloping 7                     Testing by Professor Hausman 8                     Q9 9                     Q10 10                  Q11 11                  Other criticisms   E.6      CONCLUSION	[179] [179] [211] [225] [229] [239] [279]
F.	OVERSEAS RATES                                                             F.1      THE UNITED STATES OF AMERICA   F.2      CANADA   F.3      EUROPE   F.4      overview 12                  The United States of America 13                  Canada 14                  Europe 15                  Australia’s position internationally 16                  Conclusion	[284] [295] [303] [311] [340]
G.	APPROACHES OTHER THAN THE SURVEY APPROACH G.1      Effect of retransmission                                                (1)  Improved reception of FTA programs 17                  (2)  Convenience of a single remote control   G.2      Costs of retransmission             G.3      Benefits of retransmission             Effect of retransmission of FTA programs on number of subscribers 18                  Retransmission of FTA programs as a ‘subscription driver’ 19                  FTA as an aid to penetration of Pay TV into the marketplace 20                  Churn 21                  Submissions relating to the motivation of the Retransmitters 22                  Publicity on commencement of retransmission 23                  Publicity after commencement 24                  Program guides 25                  Reasons for continuing retransmission 26                    G.4      Comparable bargains	[351] [356] [371] [385] [462]
H.	SUBMISSIONS AS TO AMOUNT OF EQUITABLE REMUNERATION AND RELATED ISSUES                   H.1      Submissions as to amount             Screenrights’ submissions             Retransmitters’ submissions H.2      Remuneration for less than five channels             Screenrights’ submissions             Retransmitters’ submissions	[476] [476] [487]
I.	CONCLUSION	[491]

A.   INTRODUCTION

A.1      This proceeding

General

1                     The applicant, Audio-Visual Copyright Society Limited, trading as ‘Screenrights’ (‘Screenrights’), applies under s 135ZZM(1) of the Copyright Act 1968 (Cth) (‘the Act’ – unless otherwise stated, section references are references to sections of the Act) for a determination of the amount of equitable remuneration payable to it for the retransmission of free-to-air (‘FTA’) broadcasts under the ‘statutory licence’ created by Part VC of the Act.  (We will also use ‘FTA’ as a noun to mean FTA television, channels, programs or stations, as the context will make clear.)

2                     By notice published in the Gazette on 9 September 2001, the Attorney General, under s 135ZZT(1) of the Act, declared Screenrights to be the collecting society for all relevant copyright owners for the purposes of Part VC.   A ‘relevant copyright owner’ is the owner of the copyright in a work, a sound recording or a cinematograph film (s 135ZZI), but not of the copyright in a television broadcast or sound broadcast (cf ss 87 and 91 of the Act).

3                     Section 153M, within Pt VI of the Act, provides that the parties to an application of the present kind are the declared collecting society and the retransmitters.  Foxtel Management Pty Limited (‘Foxtel’), Optus Vision Media Pty Limited (‘Optus’) and Austar Entertainment Pty Limited (‘Austar’) (collectively ‘the Retransmitters’) retransmit FTA broadcasts.  On 31 October 2002 the Tribunal ordered that they be joined as respondents. 

4                     The Retransmitters gave to Screenrights remuneration notices pursuant to s 135ZZL of the Act, undertaking to pay equitable remuneration to Screenrights for the retransmission of FTA broadcasts by them as follows:

 

Austar Entertainment Pty Limited  (remuneration notice dated 25 October 2001)
Broadcaster
Territory Television Pty Ltd [Channel 9]
Info TV Pty Ltd
SBS
Regional Television Limited [Channel 7]
ABC [ABC and ABC Kids]

TransACT Capital Communications Pty Limited (‘TransACT’), Telstra Pay TV Ltd, Bright Telecommunications Pty Ltd and NC Cable Pty Ltd, each entities which also retransmit FTA broadcasts, also gave Screenrights remuneration notices.  These entities are not parties to this proceeding, and the Tribunal’s determination of the amount of equitable remuneration will not be binding as between them and Screenrights or the relevant copyright owners.  Neither Screenrights nor any of these entities have applied for a determination of the amount of equitable remuneration payable by them:  see s 135ZZM(1) of the Act.

5                     Screenrights’ application asserts that, over a period of some eight months from January to September 2002, it attempted to engage the Retransmitters in a process of discussion with the object of reaching agreement as to the amount to be paid as equitable remuneration, but without success.

The principal provisions of Part VC of the Act

6                     The statutory licence is found in s 135ZZK(1) within Part VC of the Act.   Subsections (1) and (2) of s 135ZZK are as follows:

‘(1)      The copyright in a work, sound recording or cinematograph film included in a free-to-air broadcast is not infringed by the retransmission of the broadcast if:

(a)   a remuneration notice given by, or on behalf of, the retransmitter to the relevant collecting society is in force; and

(b)   the free‑to‑air broadcast was made by a broadcaster specified in the remuneration notice; and

(c)    the retransmitter complies with section 135ZZN.

(2)       The copyright in a work, sound recording or cinematograph film included in a free-to-air broadcast is not infringed by the making of a copy of the broadcast for the sole purpose of enabling a delayed retransmission of the broadcast to be made.’  (emphasis added)

7                     The expression ‘retransmission’ is defined in s 10 as follows:

‘retransmission, in relation to a broadcast, means a retransmission of the broadcast, where:

(a)       the content of the broadcast is unaltered (even if the technique used to achieve retransmission is different to the technique used to achieve the original transmission); and

(b)       either:

(i)         in any case—the retransmission is simultaneous with the original transmission; or

(ii)       if the retransmission is in an area that has, wholly or partly, different local time to the area of the original transmission—the retransmission is delayed until no later than the equivalent local time.’

Section 10 defines ‘broadcast’ to mean ‘a communication to the public delivered by a broadcasting service within the meaning of the Broadcasting Services Act 1992’.  The Broadcasting Services Act 1992 (Cth) (‘the BS Act’) defines ‘broadcasting service’ to mean, subject to certain exclusions not presently relevant:

‘a service that delivers television programs or radio programs to persons having equipment appropriate for receiving that service, whether the delivery uses the radiofrequency spectrum, cable, optical fibre, satellite or any other means or a combination of those means ...’

8                     The expression ‘free-to-air broadcast’ is defined in s 135ZZI of the Act to mean a broadcast delivered by a national broadcasting service, a commercial broadcasting service, or a community broadcasting service, within the meaning of the BS Act. 

9                     ‘Transmission’ is not defined in s 135ZZI, but ‘delayed retransmission’, in relation to a FTA broadcast, is there defined to mean a retransmission of the broadcast in an area that has, wholly or partly, a different local time to the area of the original transmission, where the delay is until no later than the equivalent local time.   The effect of sub ss 135ZZK(2), (3) and (4) is, in general terms, that if, by reason of s 135ZZK(1), a retransmission of a broadcast would not infringe the copyright in it, the making of a copy of the broadcast for the sole purpose of enabling it to be retransmitted later in an area that has a different local time will not do so either, provided the delay is no greater than the difference between the two local times, and further provided the copy is destroyed within seven days after it is made.  Apart from this exception, the statutory licence operates only if retransmission occurs simultaneously with the original FTA transmission.

10                  Section 135ZZL provides for the giving of remuneration notices by retransmitters to the declared collecting society, by which the retransmitter undertakes to pay equitable remuneration to the society for retransmission of FTA broadcasts by specified broadcasters.

11                  A collecting society is declared under s 135ZZT ‘for all relevant copyright owners or for such classes of relevant copyright owners as are specified in the notice.’  As noted at [2], the expression ‘relevant copyright owner’ is defined in s 135ZZI to mean the owner of the copyright in a work, a sound recording or a cinematograph film.  This definition is consistent with s 135ZZK(1), which provides that the copyright in ‘a work, sound recording or cinematograph film’ is not infringed where the conditions of the statutory licence are met.

12                  A remuneration notice must specify that the amount is to be assessed on the basis of records to be kept by the retransmitter under s 135ZZN:  s 135ZZL(2).  Section 135ZZN requires a retransmitter which gives a remuneration notice to establish and maintain a system for recording the title of each program included in each retransmission.  The record system to be established must be determined by agreement between the retransmitter and the declared collecting society, or, failing agreement, by the Tribunal on application to it made by either of them.  We were informed that the parties have agreed upon a record keeping system.

13                  It will be noted that, by reason of s 135ZZK(1)(c) (set out at [6]), compliance with s 135ZZN is one of the conditions of ‘non-infringement’.  Accordingly, a retransmitter which has given a remuneration notice, provided it complies with s 135ZZN (see [12]), will not infringe copyright, even though the amount of equitable remuneration payable by it is not yet agreed or determined.

14                  Screenrights did not propound in its negotiations with the Retransmitters a particular amount but sought their agreement to a ‘contingent valuation survey’ to be conducted by the parties jointly.  However, the Retransmitters did not agree to participate, and Screenrights conducted its own contingent valuation survey.  A major issue in the case has related to the validity of that survey, and voluminous expert evidence was adduced relating to it.  That evidence is addressed principally in Part E below.

15                  The Tribunal is required by s 153M(2) to consider the application, and, after giving the parties an opportunity to present their cases, to make an order determining the amount which it considers to be equitable remuneration for the making of the retransmissions of FTA broadcasts.  Subsection 153M(3) provides that, in making an order, the Tribunal may have regard to such matters (if any) as are prescribed.  None have been prescribed.  Subsection 153M(4) provides that the Tribunal’s order may be expressed to have effect in relation to retransmissions made in reliance on s 135ZZK before the day on which the order is made.  This provision therefore permits retrospectivity back to the dates of the giving of the respective remuneration notices by the Retransmitters. 

16                  Without the statutory licence, retransmission would involve an infringement of copyright by reason of its being a communication to the public of the works (s 31(1)(a)(iv)), of the sound recordings (s 85(1)(c)), and of the cinematograph films (s 86(c)) involved. 

17                  Section 87(c) provides that copyright in relation to a television broadcast or sound broadcast includes the exclusive right ‘to re-broadcast it or communicate it to the public otherwise than by broadcasting it.’  As will appear below, the Retransmitters communicate FTA television broadcasts to the public otherwise than by broadcasting them, when they retransmit them to their subscribers.  They do not, however, infringe the broadcast copyright because of s 212(2) of the BS Act.

A.2      LEGISLATIVE HISTORY AND BACKGROUND

18                  Screenrights submits, and we accept, that a ‘main pillar of international copyright law is minimum standards’, and that without them, ‘signatories to treaty obligations could fashion widely divergent national copyright standards, often to cater for parochial interests’.  Since the Berne Convention for the Protection of Literary and Artistic Works of 1886 (‘Berne’), copyright treaty obligations have existed in the form of minimum standards to which member states are required to give effect in their national laws. 

19                  At the 1948 Brussels Revision Conference, Berne was amended to provide for a retransmission right as a minimum copyright standard.  Paragraph (ii) was inserted into Art 11bis(1):

‘(1)      Authors of literary and artistic works shall have the exclusive right of authorizing:

…

(ii)       any communication to the public, whether over wires or not, of the radio-diffusions of the work, when this communication is made by a body other than the original one.’

…

Screenrights submits that this right is correctly regarded as separate from the broadcasting right itself (expressed in Berne Art 11bis(1)(i)), and, in particular, that an exercise of the right is called for, irrespective of whether the retransmitter reaches a ‘new public’: all that matters is that the retransmitter is a party other than the holder of the broadcasting right itself.  Accordingly, the retransmission right should be recognised irrespective of whether the recipients of a retransmission fall inside or outside the intended area of the primary broadcast.  Part VC of the Act is consistent with this view: it provides for a remunerated exception to the copyright owner’s rights without discrimination as between local area retransmission on the one hand, and retransmission which reaches a ‘new public’ on the other.

20                  At the 1928 Rome Revision Conference, when the minimum standard for the broadcasting right itself was inserted into Berne as Art 11bis(1), the need for intervention on the part of public authorities in cultural and social interests was reconciled with the economic interests of authors by the making of the broadcasting right subject to Art 11bis(2):

‘The national legislations of the countries of the Union may regulate the conditions under which the right mentioned in the preceding paragraph shall be exercised, but the effect of those conditions will be strictly limited to the countries which have put them in force.  Such conditions shall not in any case prejudice the moral right (droit moral) of the author, nor the right which belongs to the author to obtain an equitable remunerationwhich shall be fixed, failing agreement, by the competent authority.’  (emphasis added)

 

21                  The retransmission right, added as para (ii) to Art 11bis(1) in 1948, was also made subject to Art 11bis(2), which was amended consequently.  As amended in 1948, Art 11bis(2) took its present form, which is:

‘It shall be a matter for legislation in the countries of the Union to determine the conditions under which the rights mentioned in the preceding paragraph may be exercised, but these conditions shall apply only in the countries where they have been prescribed.  They shall not in any circumstances be prejudicial to the moral right of the author, nor to his right to obtain equitable remuneration which, in the absence of agreement, shall be fixed by competent authority.’

Taken together, Arts 11bis(1)(ii) and 11bis(2) may be seen as constituting the ‘Berne retransmission régime’.

22                  The agreement on Trade-Related Aspects of Intellectual Property Rights dated 15 April 1994 (‘TRIPS’) which comprises Annex 1C of the Marrakesh Agreement establishing the World Trade Organisation (WTO) requires by Art 9(1) that contracting parties comply with Arts 1 to 21 of Berne, excluding only moral rights.  Subject to that exclusion, the Berne retransmission régime is imported into TRIPS by reference, and may be seen to be the ‘Berne‑in‑TRIPS retransmission régime.’  Screenrights submits that a failure of Australian law to afford equitable remuneration for retransmission would give rise to a violation of this regime.

23                  In 1988, ss 89DA to 89DE of the Broadcasting Act 1942 (‘the Broadcasting Act’) introduced a régime of ‘retransmission permits’: permits which authorised a person to retransmit FTA broadcasts.  Section 122 of the Broadcasting Act provided that, unless the person was also a licensee or multichannel service permit holder, ‘no action, suit or proceeding [lay] against a person who [was] a holder of a retransmission permit in respect of any matter transmitted by the person in accordance with the condition of the permit.’

24                  At the same time, the Broadcasting (Retransmission Permits and Temporary Transmission Permits) Fees Act 1988 (Cth) was passed.  Sections 4 and 5 of that Act provided for a tax by way of a fee payable upon the grant and renewal of a retransmission permit.  The tax was to be determined by regulations, but regulations were not made.

25                  The BS Act did not continue the permit/taxation approach to retransmission.  Rather, s  212 of the BS Act provided:

‘(1)      Subject to subsection (2), the regulatory regime established by this Act does not apply to a service that does no more than:

(a)     re-transmit programs that are transmitted by a national broadcasting service; or

(b)     re-transmit programs that are transmitted by a commercial broadcasting licensee or a community broadcasting licensee:

(i)       within the licence area of that licence; or

(ii)     outside the licence area of that licence in accordance with permission in writing given by the ABA [Australian Broadcasting Authority].

 (2)       No action, suit or proceeding lies against a person in respect of the re‑transmission by the person of programs as mentioned in sub‑section (1) unless, at the time of the re‑transmission, the person is also a licensee.’

 

26                  At that time, s 199(4) of the Act provided that a person who, by the reception of an authorised television broadcast or sound broadcast, caused a literary, dramatic or musical work or an adaptation of such a work, or a cinematograph film, to be transmitted to subscribers to a diffusion service, was to be treated in any proceeding for infringement of copyright as if the person had so acted with the licence of the copyright owner.  Subsection 26(1) of the Act defined the notion of transmission to subscribers to a diffusion service as transmission ‘over wires, or over other paths provided by a material substance, to the premises of subscribers to the service’.  The word ‘broadcast’ was defined  by s 10(1) of the Act to mean ‘transmit by wireless telegraphy to the public’.  Transmission to subscribers to a diffusion service therefore stood in contrast to broadcasting.

27                  Pay (or subscription) television (‘Pay TV’), at that time only in the form of cable TV, was introduced in Australia in 1995, but not without opposition from the broadcasters of FTA programs.  In Amalgamated Television Services Pty Limited v Foxtel Digital Cable Television Pty Ltd (1995) 60 FCR 483 (‘Amalgamated Television’), the owners of FTA broadcasting television stations in Sydney and Melbourne sought an injunction restraining Foxtel Digital Cable Television Pty Ltd and Foxtel Management Pty Ltd from retransmitting programs of Channels 7, 9 and 10.  Foxtel’s Pay TV service was planned to commence on Monday 23 October 1995.  Davies J heard the application for the injunction on 11 and 13 October 1995, and delivered judgment on 20 October 1995 (see [30]), three days before the planned commencement of retransmission by Foxtel (Optus had already commenced its Pay TV channels on 20 September 1995, but without the retransmission of FTA – see [61]).  On the day on which his Honour delivered judgment, Optus began retransmitting the FTA programs to its subscribers, while, as planned, three days later, on 23 October 1995, Foxtel launched its own Pay TV service, including the retransmission of channels 7, 9 and 10.

28                  The full text of s 199(4) of the Act, which Davies J had to consider, was as follows:

‘A person who, by the reception of an authorized television broadcast or sound broadcast, causes a literary, dramatic or musical work or an adaptation of such a work, an artistic work or a cinematograph film to be transmitted to subscribers to a diffusion service shall be treated, in any proceedings for infringement of the copyright, if any, in the work or film, as if the person had been the holder of a licence granted by the owner of that copyright to cause the work, adaptation or film to be transmitted by the person to subscribers to that service by the reception of the broadcast.’  (emphasis added)

29                  The definition in s 26(1) of the Act of the expression ‘transmission to subscribers to a diffusion service’ was noted at [26].  Clearly, the statutory licence created in favour of retransmitters by s 199(4) had no capacity to apply to retransmission by satellite, then a thing of the future.  The exclusive right to retransmit by satellite did not, however, form part of any form of copyright under the Act at that time.  Although the copyright in a work or cinematograph film included the exclusive right to cause it to be transmitted to subscribers to a diffusion service (more precisely, in the case of an artistic work, ‘to cause a television program that include[d] the work’ to be so transmitted) (ss 31(1)(a)(v), (b)(iv), 86(d)), and therefore a licence in those cases was called for, copyright in sound recordings (s 85) and in television broadcasts and sound broadcasts (s 87) did not include that exclusive right.  Accordingly, retransmission of a sound recording, television broadcast or sound broadcast to subscribers to a diffusion service was not an infringement of the copyright in those subject matters. 

30                  In Amalgamated Television, Davies J held that s 199(4) (set out at [28]) applied to the holders of the new licences to transmit to subscribers to a diffusion service.  An appeal against his Honour’s decision was dismissed: Amalgamated Television Services Pty Ltd v Foxtel Digital Cable Television Pty Ltd (1996) 66 FCR 75.  Moreover, since copyright in relation to sound recordings, television broadcasts and sound broadcasts did not include the exclusive right to cause them to be transmitted to subscribers to a diffusion service, the copyright in them presented no problem for the retransmission of FTA broadcasts. 

31                  Section 87 of the Act provided that the copyright in relation to a broadcast included the exclusive right ‘to re-broadcast’ the broadcast.  As already noted, ‘broadcast’ was defined in s 10(1) of the Act to mean ‘transmit by wireless telegraphy to the public’.  ‘Wireless telegraphy’ was defined in the same subsection to mean ‘the emitting or receiving, otherwise than over a path that is provided by a material substance, of electronic energy.’

32                  In Amalgamated Television, Davies J held that s 212(1) (set out at [25]) provided a defence to retransmitters in so far as the regulatory régime established by the BS Actwas concerned.  Accordingly, retransmission of FTA did not infringe the copyright in the works referred to in the section.

33                  Subsequently, there were various proposals for legislative change.  Ultimately, as from its commencement on 4 March 2001, the Copyright Amendment (Digital Agenda) Act 2000 (Cth) (‘the Digital Agenda Act’) repealed s 199(4), replaced it with the régime laid down in Part VC of the Act, and amended s 212 of the BS Act to read as follows:

‘(1)      Subject to this section, the regulatory regime established by this Act does not apply to a service that does no more than:

(a)     re-transmit programs that are transmitted by a national broadcasting service; or

(b)     re-transmit programs that are transmitted by a commercial broadcasting licensee or a community broadcasting licensee:

                                                           (i)      within the licence area of that licence; or

                                                         (ii)      outside the licence area of that licence in accordance with permission in writing given by the ABA.

(2)       No action, suit or proceeding lies against a person in respect of the re‑transmission by the person of programs as mentioned in subsection (1).

(2A)     However, the rule in subsection (2) does not prevent an action, suit or proceeding against a person under the Copyright Act 1968 for infringement of copyright subsisting in a work, a sound recording or a cinematograph film, where:

(a)     the infringement is in respect of the re-transmission by the person of programs as mentioned in subsection (1); and

(b)     the re-transmission is not provided by a self-help provider.

(3)       A reference in this section to a re-transmission does not include a reference to:

(a)     a re-transmission by a commercial broadcasting licensee of the programs transmitted by the licensee’s commercial broadcasting service; or

(b)     a re-transmission by a community broadcasting licensee of the programs transmitted by the licensee’s community broadcasting service; or

(c)      a re-transmission by the Australian Broadcasting Corporation of the programs transmitted by any of its national broadcasting services, being national broadcasting services covered by paragraph 13(1)(a); or

(d)     a re-transmission by the Special Broadcasting Service Corporation of the programs transmitted by any of its national broadcasting services.

(4)               In this section:

cinematograph film has the same meaning as in the Copyright Act 1968.

 

self-help provider has the meaning given by section 212A.

sound recording has the same meaning as in the Copyright Act 1968.

 

work has the same meaning as in the Copyright Act 1968.’

 

The expression ‘self help provider’ can be generally described as referring to small arrangements for the improvement of reception.

34                  Subsections (2) and (2A) of s 212 create a full and free exception in favour of the retransmission of programs from the broadcast signal copyright owned by broadcasters.

35                  In the result, s 212(1) of the BS Act now overcame any problem which the BS Act itself might have posed for retransmitters, and ss 212(2) and (2A) of that Act overcame any copyright problem for them in relation to other species of copyright, notably the copyright in television broadcasts and sound broadcasts, but it did not overcome, generally speaking, the problem posed for them by copyright subsisting in a work, a sound recording or a cinematograph film.  That problem for retransmission was left to be addressed in the new Pt VC of the Act described earlier.

36                  The Digital Agenda Act did not preserve the previous distinction between ‘diffusion’, that is to say, transmission over wires or other material path, on the one hand, and broadcasting, that is to say, transmission not over wires or other material path, on the other hand.  It replaced these concepts with that of ‘communication’.  An exclusive right to communicate to the public now forms part of the definition of copyright in works (s 31(1)(a)(iv), (b)(iii)), sound recordings (s 85(1)(c)), cinematograph films (s 86(c)), and television broadcasts and sound broadcasts (s 87(c)).  Subsection 10(1) of the Act defines ‘communicate’ to mean:

‘make available online or electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise) a work or other subject‑matter, including a performance or live performance within the meaning of this Act.’

37                  In summary, to retransmit an FTA broadcast is a form of communication to the public.  Communicating to the public poses no problem for the Retransmitters in relation to the copyright in television broadcasts and sound broadcasts by reason of s 212 of the BS Act, and the problem which it would otherwise pose for them in relation to the copyright in works, sound recordings and cinematograph films is overcome by Pt VC of the Act, subject to the liability to pay equitable remuneration previously discussed. 

B.   the parties and their activities

B.1      Screenrights

38                  Screenrights was incorporated as a company limited by guarantee on 8 January 1990.  It was formed for the purpose of being a declared collecting society under Pts VA and VB of the Act, which were introduced by the Copyright Amendment Act 1989 (Cth), with effect from 1990.  Screenrights has so operated since its incorporation.  On 4 May 2000 it was declared as a collecting society under s 153F for some classes of government copying (see Pt VII Div 2 of the Act).  As noted at [2], since 9 September 2001, Screenrights has been the declared collecting society, for the purposes of Pt VC of the Act, for all owners of copyright in the works, sound recordings and cinematograph films in FTA broadcasts that are retransmitted.

39                  In its Pt VC role, Screenrights operates on a not-for-profit basis for the benefit of the holders of copyright in audio and audio-visual works, including producers, distributors, script writers, music publishers and composers, and visual artists.  Members of Screenrights are the owners of copyright in audio-visual material (film, television and video programs) and in the works used in such material, and their exclusive licensees and agents. 

40                  According to Simon Thomas Lake, the Chief Executive Officer of Screenrights, ‘Screenrights does not engage in licensing in respect of individual works in traditional markets; rather, it administers rights through a number of collective licensing services’.  Apart from the appointment by its members of Screenrights as their agent to collect  revenues in respect of retransmission or private copying in other countries, and a very small amount of voluntary licensing as non-exclusive agent for its members, Screenrights’ role has been confined to that of a ‘declared collecting society’: see [38].

41                  Screenrights is on the Board of the Association of International Collective Management of Audio-visual Works (‘AGICOA’).  AGICOA was established in 1981.  It is an international non-governmental organisation, which operates as a retransmission collecting society and represents other retransmission collecting societies: see [312].  Screenrights is not, however, involved in the day-to-day management of AGICOA.  Screenrights is also an associate member of the European Federation of Joint Management Societies of Producers for Private Audio-visual Copying (‘EUROCOPYA’), which represents private copying societies in Europe.

42                  As at 30 June 2003, Screenrights had 1 788 members from more than 48 countries worldwide, and over 30 000 titles in its rightsholders’ database.  Screenrights’ members include both corporate and individual members.  Some artists choose to be members directly while others are members of other collecting societies, such as the Australasian Performing Right Association Ltd (‘APRA’) or Viscopy, which are themselves members of Screenrights.  AGICOA is a member of Screenrights.  An example was given in evidence of a film, the producer of which is treated as the ‘rightsholder’ for present purposes.  The film title stands for numerous separate works, each of which may be linked to many countries, depending on the initial instructions given by the rightsholder.  Rights owners can also appoint Screenrights as their non-exclusive agent to register their titles with other collecting societies.

43                  Screenrights determines the total amount for distribution to its members after calculating collections (including interest) for the financial year and deducting expenses.

44                  Up to 9 September 2001, when Screenrights was declared the collecting society for the purposes of Pt VC, it was not entitled to collect or distribute money under Pt VC.  Prior to that time, Mr Lake negotiated with Deborah Shayne Richards, the Executive Director of the Australian Subscription Television and Radio Association (‘ASTRA’), the industry body representing subscription television operators, including the Retransmitters, in relation to questions of record keeping. 

45                  On 19 September 2001, the Attorney-General formally notified Screenrights of the declaration, and on the following day Mr Lake informed ASTRA and each of the Retransmitters, as well as TransACT, of the declaration.  From that time, the negotiations between Screenrights and ASTRA related to the amount of equitable remuneration payable and the carrying out of the contingent valuation survey proposed by Screenrights.  Those negotiations occupied the parties up to 30 August 2002.

46                  The Retransmitters submit that ‘Screenrights approaches the task of valuation of the rights it administers under Pt VC in a distinctly uncommercial manner’.  They suggest that this may be attributable to the fact that Screenrights, unlike other collecting societies, such as APRA, has had only very little experience in the negotiation and administration of voluntary licensing arrangements.  We do not understand the Retransmitters to suggest that Screenrights’ alleged lack of commercial experience in negotiating voluntary licensing arrangements should, in itself, somehow influence the amount of equitable remuneration to be determined.  It should not and does not in our reasoning below.

47                  The Retransmitters point to Mr Lake’s estimate of the likely cost of administering the scheme for the distribution of the payments to be received for retransmission.  Mr Lake stated  that, taking into account the cost of developing the ‘necessary broadcast register’ (which he says AGICOA has estimated at approximately $560 000) and ‘other costs associated with the allocation process’, Screenrights’ cost of the administration of retransmission payments is likely to be in the order of $1.1 to $1.2 million in the first year.  He then stated: ‘We envisage that this figure will be representative of subsequent years, subject to CPI and other external price increases’.  We do not find this generalised evidence very persuasive.  Evidence on the matter was not adduced from any officer of AGICOA.  Mr Lake gave only the global figures mentioned.  The cost of developing the broadcast register will not recur annually.  On the basis of $1.1 to $1.2 million, a deduction of $560 000 for the development of software would apparently leave $540 000 to $640 000 as the recurrent cost.  Evidence was not led as to how this figure was arrived at.

48                  Cross-examination of Mr Lake suggested that the figures were subject to the possibility of substantial adjustment.  Mr Lake said that Screenrights was trying to work out the best way to ‘work in with AGICOA who have obviously a huge works register and a huge rights information register to work in with’.  He said that Screenrights was in negotiation with AGICOA and that any system Screenrights might design must be ‘AGICOA compliant’.  He added that whatever system Screenrights ultimately adopted would be influenced by the outcome of this proceeding, and that Screenrights had received various quotes for the costs of getting ‘the enhanced data to be able to be AGICOA compliant’.  These quotes were not in evidence.  Later, Mr Lake said that Screenrights had ‘sought the quotes from three different suppliers as to the data that would be necessary to use the AGICOA system’.  He said that Screenrights’ requirements to enable distributions to be made were ‘largely driven by the AGICOA requirements since AGICOA have that massive works register’ (see [313]). 

49                  Mr Lake said that in order to ‘trigger’ the AGICOA system, information must be 100 percent compliant with AGICOA’s requirements, and that he thought that AGICOA requires about 16 or 17 pieces of information.  Later, however, Mr Lake said that whatever distribution scheme might come into existence would be ‘in part driven by the revenue so to speak; so that we would hope to be as compliant as we could with AGICOA’.  Mr Lake explained that Screenrights will be paying AGICOA both a fee for carrying out research for Screenrights and money representing AGICOA’s entitlement, as a member of Screenrights, as rights holder or representative of rights holders.

50                  In summary, the evidence concerning the cost of collection and distribution remains unclear.  Apparently there is a range of costs and degrees of ‘AGICOA compliance’.  Perhaps the global figures mentioned earlier are for a ‘Rolls Royce’ system.  Without more and detailed evidence, the Tribunal cannot be satisfied that any particular amount represents the minimum necessary to enable Screenrights to collect and distribute effectively.

51                  The Tribunal appreciates that the present issue is a complex one.  No doubt, a saving in AGICOA computer-related costs may signify an increase in costs of other kinds.  The Tribunal will take into account as best it can Mr Lake’s evidence in relation to the cost of collection and distribution.

b.2      the fta channels

52                  The FTA channels are ABC, SBS and Channels 7, 9 and 10.  The first two are national broadcasting services and the last three, commercial broadcasting licensees.  In addition, there are two ‘digital multichannels’, ABC 2 and SBS News.  ABC 2 is broadcast by the ABC, and SBS News is broadcast by SBS. 

53                  Operators of multichannels can broadcast two or more channels of television programs at the same time (because digital signals carry more data than analogue signals).  The ABC and SBS (but not the commercial broadcasters)are permitted to do this by clause 5A of Schedule 4 of the BS Act (which was added to the BS Act by the Broadcasting Services Amendment (Digital Television and Datacasting) Act 2000).  The ABC and SBS are thereby able to broadcast a large variety of programs, including regional news and current affairs, and educational, science, religious, health, arts, cultural, children's and foreign language programs.  The evidence was that subscribers cannot receive the multichannels via their terrestrial aerials without purchasing their own FTA digital set top box.

B.3      The RETRANSMITTERS

54                  The following description of the operations of the Retransmitters states the Tribunal’s understanding of the position as at the time of the hearing. Changes occur with some frequency in the Pay TV industry. However, the Tribunal has not been made aware of any post-hearing developments of substance that would affect the outcome of this proceeding.

Foxtel

55                  Foxtel commenced transmission on 23 October 1995, just three days after Davies J’s decision in Amalgamated Television (discussed at [27]-[30]).  At that time, Foxtel provided a ‘analogue cable’ service, consisting of 20 channels.  This included the retransmission of the five FTA channels.  Foxtel used the hybrid fibre coaxial cable (‘HFC’) network rolled out by Telstra Media Pty Limited, a part owner of Foxtel. 

56                  In March 1999, Foxtel commenced transmitting its service via satellite using digital technology, although referring to it as its ‘analogue satellite’ service because the service was identical in content to that received by analogue cable subscribers, except in one important respect.  Foxtel’s analogue satellite service has never included the retransmission of any FTA channel: it has been used only for the transmission of Pay TV channels.  The use of satellite meant that Foxtel’s service was available to subscribers who lived in areas where cable had not been laid.  Foxtel used Optus Networks Ltd’s B3 satellite for this service until December 2003, when it switched to using Optus’s more advanced C1 satellite. 

57                  As at January 2004, there were 46 channels, including the five FTAs, available on Foxtel’s analogue cable and analogue satellite services.  Whether a particular subscriber has access to a particular channel depends upon the ‘package’ subscribed to.  All subscribers must purchase the ‘basic package’, or ‘basic tier’, of 26 channels.  For analogue cable subscribers, this package includes the retransmission of all five FTA channels.  Subscribers may choose to pay additional fees for the transmission of channels not included in the basic package.  Some of these channels are available through the purchase of additional ‘tiers’ (suites of channels grouped together), such as ‘Movie Essentials’, ‘Movie Channels’ and ‘Entertainment Plus’.  Five other channels are available to be purchased individually by basic package subscribers.  Subscribers can also purchase ‘pay-per-view’ events, such as sporting events or concerts. 

58                  On 14 March 2004, following a digital upgrade of Telstra’s HFC cable, Foxtel launched its ‘digital cable’ service.  Digital transmission enabled Foxtel to provide better sound and picture quality, more channels, and enhanced ‘functionality’.  From its beginning, the digital cable service has included the retransmission of all the FTA channels. 

59                  Foxtel also provides a digital satellite service.  This is the same as Foxtel’s digital cable service, except that the retransmission of FTA channels is more limited.  Foxtel has retransmitted SBS and Channel 9 to its digital satellite subscribers since March 2004, and the ABC since February 2005, but not Channel 7 or Channel 10. 

60                  In total, the digital service comprises 109 channels, including 30 audio channels, 10 ‘time-shift’ channels (where certain popular Pay TV channels are re-broadcast two hours later), and 31 channels that provide ‘near video on demand’ services.  The digital service also allows for ‘interactivity’: viewers are able to access different camera angles (for example, on the ‘Sports Active’ channel), participate in surveys, and vote.  As in the case of Foxtel’s analogue service, subscribers must take a basic package, and may subscribe to additional tiers of channels or to specific channels individually, or purchase movies through the near video on demand services. 

Optus

61                  Optus commenced transmitting on 20 September 1995 without retransmitting FTA channels.  However, on 20 October 1995, the day on which Davies J delivered judgment in Amalgamated Television, Optus included the retransmission of the five FTA channels in its basic tier. 

62                  Optus’s subscription television service has always been provided by HFC cable, which is owned by entities related to Optus. Optus is essentially a cable only service. It has always transmitted in analogue format, not digital format, although it has under review the delivery of a digital subscription television service. 

63                  As a result of a content sharing agreement between Optus and Foxtel, which was approved by the Australian Competition and Consumer Commission in November 2002, subscribers to Optus’s Pay TV service have, since then, been able to receive the same channels as subscribers to Foxtel’s digital service receive.  All Optus subscribers must purchase a basic package of 36 channels, which includes six FTA channels (Channels 7, 9, 10, ABC and SBS, as well as ABC’s digital multichannel).  Subscribers may choose to purchase additional channels.

64                  Since 1999, Optus has offered its subscription television service in a ‘bundle’ with other Optus services, such as internet and telephone services. See further [76]-[79] on the ‘bundling’ of services. 

Austar

65                  Austar’s subscription television service is available to customers in rural and regional Australia.  It covers the rural and regional areas of New South Wales, the Northern Territory, Queensland, South Australia, Victoria and Tasmania.  It also services Darwin and Hobart.  Austar’s service is not available in the metropolitan areas of Brisbane, Sydney or Melbourne, or in any part of Western Australia. 

66                  Austar began transmitting to subscribers in August 1995.  Its service was originally provided to people who had been subscribers to the Galaxy service, Galaxy having gone into external administration.

67                  Originally, Austar’s service was transmitted using ‘cable wireless technology’, which is also known as microwave delivery service or ‘MDS’.  Because of the limited capacity of this technology, the Austar service comprised only 14 or 19 channels, depending on the location of the subscriber.  In 1997, Austar began using Optus’s B3 satellite to deliver its service to subscribers.  Existing Austar subscribers who were within the B3 satellite’s footprint were ‘migrated’ to the new delivery technology.  With the exception of its cable customers in Darwin, all of Austar’s subscribers were transferred to satellite delivery after the launch of Optus’s C1 satellite (in June 2003), which has a larger footprint.  At present, Austar delivers its service by satellite only.  Austar’s satellite subscription television service has always been in digital format. 

68                  Austar provides two digital services.  The ‘Old Austar Digital service’ was offered to persons subscribing in the period between early 2000 and March 2004.  It offers more than 40 channels and includes interactive features made possible by digital technology.  The ‘New Austar Digital service’, which has operated since March 2004, includes 22 additional channels and more packaging options.  All new subscribers are required to take the New Austar Digital service, but the Old Austar Digital service is still provided to those who commenced subscribing before March 2004 and have not ‘migrated’ to the New Austar Digital service. 

69                  Subscribers to both the Old Austar Digital service and the New Austar Digital service must purchase a basic package of channels, and can choose to add on tiers of channels, purchase specific channels individually, and purchase particular pay-per-view events. 

70                  On 1 November 2001, Austar commenced retransmission of the ABC, and on 1 December 2002, SBS.  It does not retransmit the other FTAs. 

TransACT

71                  Although TransACT is not a respondent to this proceeding, one of its employees, Dianne Kerri O’Hara, Company Secretary of all companies within the TransACT Group, gave evidence about its operations.  TransACT took no other part in the proceeding. 

72                  TransACT was described as a ‘full-service communications network provider in the Australian Capital Territory’.  TransACT’s ‘TransTV’ provision of subscription television, which commenced in 2001, included foreign language channels, special interest channels, video on demand, and retransmission of FTA.  In late 2001, TransACT and Foxtel entered into an agreement for the Foxtel analogue service to be provided over the TransACT network.  This service is called the ‘Foxtel on TransACT service’.   

73                  Since mid-2003, Trans ACT’s Pay TV service has not been available to consumers as a ‘stand-alone’ product:  subscribers could purchase the TransTV service only if they also purchased other TransACT products, such as internet and telephone services. 

74                  In May 2004, TransACT introduced a ‘refreshed’ digital service – ‘TransTV Digital’.  Since then, channels which are available to customers on the Foxtel on TransACT service, have been available to TransTV Digital customers.  The TransTV Digital service includes retransmission of all the FTA channels within the licence area. 

Number of subscribers

75                  The number of the subscribers to each Retransmitter was provided to the Tribunal but was said to be confidential, and a ‘confidentiality order’ was made.  However, it is possible for the Tribunal to say that the total number of subscribers to Pay TV at the end of 2004 exceeded 1 660 000. The number is increasing steadily.  It will be clear from what has already been said, however, that this is far from signifying that 1 660 000 subscribers receive retransmission of all five FTAs.

Bundling of services

76                  In some cases the Retransmitters’ Pay TV channels are ‘bundled’ with other communication services that they offer, either themselves or in conjunction with other companies. A person may subscribe to the whole of the bundle on terms that are usually more favourable than if the components were taken individually.

77                  In the case of Foxtel, Telstra (which is a 50% shareholder of Foxtel) provides the cable for the retransmission of FTA programs at no cost to Foxtel. Telstra markets a bundle of services to its customers, which includes Foxtel Pay TV, telephony and broadband (BigPond).

78                  Since 1999, Optus has offered bundled services of telephony, internet and Pay TV over the HFC cable network. This is referred to as ‘triple play’, that is, providing voice, data, and video over the one cable.

79                  Austar and TransACT also bundle their Pay TV with other services such as mobile telephony and internet. As noted above, since mid-2003, TransACT subscribers are required to subscribe to the bundle, and cannot take only the Pay TV component.

Submissions relating to the characterisation of the Retransmitters’ business

80                  The Retransmitters seek to emphasise that theirs ‘is a business of distributing subscription television ... not a business of retransmitting FTAs’.  In contrast, in describing the Retransmitters’ business, Screenrights submits (footnotes omitted):

‘The Respondents, Foxtel, Optus and Austar, together with TransACT, supply pay television (or subscription television) services by cable and satellite, as well as offering other services such as telephony and mobile and data (internet) services to their respective subscribers.  As part of their pay television services they each offer retransmissions of free-to-air television broadcasts, which are bundled with other pay television channels in order to maximise the number of subscribers to those particular “packages”.’

 

81                  In reply, the Retransmitters point out that Foxtel does not offer telephony, mobile and data services to its subscribers, and that while Austar does resell mobile services, ‘it is not its core business, and it has little to do with its television business.’.  The Retransmitters reject the suggestion that Foxtel’s business is an ‘integrated business’ that would or does offer cheaper subscription television if a customer also purchases Telstra telephone services.  If that were correct, they submit, Telstra, a company separate from, although a 50 percent owner of, Foxtel, would make a profit from the transaction and Foxtel would not.  The correct position, according to the submission, is that Telstra, not Foxtel, offers Foxtel’s services in a ‘package’ deal with its telephone and internet services. 

82                  The Retransmitters submit that further evidence in support of their contention that retransmission is not a ‘serious’, let alone ‘core’, part of their businesses can be found in the evidence of three witnesses:

·        Patrick Raymond Delany, Foxtel’s Executive Director Content, Produce Development and Delivery;

·        Deanne Evelyn Weir, General Counsel and Company Secretary of Austar; and

·        Christopher James Price Keely, General Manager, Business Affairs, of Optus.

These witnesses testified that the Retransmitters’ ‘primary business’ is to provide a product which is different from, and an alternative to, FTA television.  The Retransmitters submit that this was demonstrated to the Tribunal on its visit to Foxtel’s premises, where ‘minimal equipment’ was shown to be used for retransmission in contrast to the ‘enormous resources, energy and creativity devoted to the production of subscription channels’.  It was, indeed,clear to the Tribunal from that visit that almost all of Foxtel’s resources were devoted to the production and transmission of Pay TV channels, and that almost no additional technology or resources were required for the retransmission of the FTA channels:  it appeared that only a relatively small piece of unattended equipment was involved.

83                  In response, Screenrights submits that, regardless of how the Retransmitters describe themselves, they dodistribute FTA channels by retransmission, and do so ‘in a bundled fashion with their subscription services.’  Screenrights submits that how the Retransmitters choose to label themselves for the purposes of this proceeding is beside the point.

84                  Where services are bundled, Screenrights describes the Pay TV component of the bundle as a ‘portal’ to the bundle. It suggests that the availability of Pay TV is seen by each Retransmitter as the means of attracting persons to subscribe to the other services offered.

85                  A subscriber to Pay TV will undoubtedly be informed of other services that the Retransmitter or a commercial associate makes available. Access to these other services may be on terms that are more favourable to Pay TV subscribers. However, subject to the exception referred to below, Pay TV does not provide the entry point to the bundle of services, and, it is not a condition of subscription to other services offered by or through Foxtel and Austar that a person subscribe to their Pay TV service.  Optus said that initially it attempted to sell its services in this way but abandoned the attempt in the light of the poor subscription take up for its Pay TV.

86                  The exception is TransACT.  TransACT requires that a subscription be taken to the whole of its bundle of services, including Pay TV.

87                  The Tribunal concludes that, in so far as it is necessary to characterise the Retransmitters, they are engaged in the business of distributing subscription television services, but that, as a very minor or incidental part of that business, they also retransmit FTA broadcasts.

C.  TECHNICAL MATTERS

88                  The following paragraphs set out some technical details relating to retransmission.  The following abbreviations are used:

ABA:   Australian Broadcasting Authority

CAS:    conditional access system

DAC:   digital-to-analogue converter

HD:      high definition

HFC:    hybrid fibre coaxial

SD:      standard definition

STU:    set top unit

C.1      TRANSMISSION OF FTA CHANNELS BY FTA BROADCASTERS

89                  The metropolitan FTA broadcasters broadcast their services in Australia in analogue and digital format. Prior to 2001, all FTA television was broadcast only in analogue format.  The analogue signal is received by viewers' television receivers via an antenna and then converted (or demodulated) to a complex set of waveform components that recreate the original picture and sound.  At present, most television receivers in Australia are analogue receivers.

90                  FTA broadcasts in digital format began on 1 January 2001 in Sydney, Melbourne, Brisbane, Adelaide and Perth.  Some regional FTA broadcasters also broadcast in digital format. 

91                  FTA digital broadcasts are in two formats: Standard Definition (‘SD’) and High Definition (‘HD’).  HD can be viewed only on compatible digital equipment, such as a monitor, that is capable of displaying the additional amount of data that is transmitted and received.  HD broadcasts incorporate roughly 2 to 3 times more data than SD broadcasts, in order to support the improved picture quality. 

C.2      TRANSMISSION OF PAY TV CHANNELS BY PAY TV PROVIDERS

Transmission of Pay TV channels by analogue cable

92                  Until March 2004, the Pay TV providers' cable transmission was only via analogue cable.  Foxtel's analogue cable signal is received by the viewers’ television sets via the Foxtel set top unit (‘STU’) and converted (or demodulated) into a complex set of waveform components that recreate the original picture and sound.

93                  Optus transmits its Pay TV service in the same manner as Foxtel’s analogue cable service.

Transmission of Pay TV channels by digital cable

94                  To transmit Pay TV channels digitally, Foxtel follows the same process as is used by the FTA broadcasters in their digital transmission.  The digital cable transmission is currently in SD only, and is to materially the same technical standard as the FTA digital broadcasts.

95                  Foxtel’s digital cable transmission is via the Telstra HFC cable network; the network through which the analogue cable transmission is delivered. 

96                  Optus does not transmit cable programs in digital format.

Transmission of Pay TV channels by the Optus C1 satellite

97                  In the case of satellite transmission of Pay TV channels, the program signal is broadcast from the C1 satellite to satellite receiving dishes installed at subscribers’ homes and fed through cabling to the STU to be viewed on the subscribers’ television sets.  Austar’s and Foxtel’s satellite transmissions from the C1 satellite have always been via digital technology.

C.3      RETRANSMISSION OF FTA CHANNELS BY PAY TV PROVIDERS

Retransmission of FTA channels on the analogue cable platform

98                  Foxtel will serve as an example.  For the purpose of retransmitting FTA, Foxtel takes the FTA broadcaster’s analogue terrestrial signal off-air at a headend in each of Sydney, Melbourne, Brisbane, Perth and Adelaide.  Telstra, on Foxtel’s behalf, encodes and adds conditional access information to each FTA program in order to scramble the content for retransmission. The content of the retransmitted program is exactly the same as the content of the program terrestrially transmitted by the FTA broadcaster.

99                  The FTA broadcaster’s service distribution is limited to the geographic coverage of the HFC cable network within the relevant Australian Broadcasting Authority (‘ABA’) licence area for that broadcaster.  For example, subscribers in Sydney cannot receive by retransmission the FTA programs broadcast by Channel 9 Brisbane. This position is in contrast to that in many overseas countries where subscribers to Pay TV receive by retransmission distant and foreign FTA programs (see Part F below).

Retransmission of FTA channels on the digital cable platform

100               The process for retransmission of FTA channels on Foxtel’s digital cable platform is very similar to the process for the retransmission of the FTA analogue signal.  Again, Foxtel receives the terrestrial signal off-air and the signal is ‘multiplexed’ and ‘scrambled’, and information relating to access and service is added.

101               With respect to Channel 9 in Sydney, Melbourne and Brisbane, and the ABC and SBS nationwide, Foxtel takes the broadcaster’s terrestrial digital signal off air and retransmits it, using a technology that restricts reception to subscribers in the relevant licence area for that FTA broadcaster. The FTA broadcaster’s service distribution is also limited to the geographic coverage of the HFC cable network within the relevant ABA licence area for that broadcaster.  The Retransmitters claim that the quality of the signals for Channel 9 in Sydney, Melbourne and Brisbane, and the ABC and SBS nationwide, is identical, whether they are transmitted terrestrially or retransmitted via Foxtel’s digital cable service, because Foxtel simply takes the terrestrial digital signal off-air. 

102               With respect to Channels 7 and 10 nationwide, and Channel 9 in Adelaide and Perth, Foxtel takes the broadcaster’s analogue terrestrial signal off-air and converts it into a digital signal.  The Retransmitters claim that this results in the quality of the retransmitted signal being inferior to the terrestrial digital signal.

103               Screenrights sought to qualify the comments of the Retransmitters relating to comparative signal quality. It said that it is important to distinguish between the quality of the signal and the quality of the image on a subscriber’s screen. While the signal quality may be the same as between the different modes of delivery, actual picture quality is dependent on other factors such as the nature and placement of the subscriber’s aerial, the quality of the receiving equipment and the presence of external objects that may cause interference with reception.

104               Foxtel does not retransmit any FTA channels in HD format.  All retransmitted programs are limited to SD format. However, there was evidence that it is possible that, in the future, SBS and Channel 9 programs will be retransmitted in HD format.

105               Optus does not at present retransmit programs in digital format.  There is no evidence relating to Austar’s retransmission of FTA channels on its Darwin cable service.

Retransmission by satellite

106               Foxtel has the technical ability, both in terms of the system and of transponder capacity, to retransmit the programs of all FTA broadcasters via the C1 satellite.  However, Foxtel does not currently do so.  The position is as follows.

Foxtel retransmission of Channel 9 by satellite

107               Foxtel retransmits the Channel 9 programs under an agreement with Channel 9 which requires Foxtel to contract with the relevant Optus entity for the supply of the capacity required to retransmit the programs.

108               The agreement provides for Foxtel to retransmit Channel 9 with certain enhancements and interactive applications selected by Channel 9, subject to those enhancements and applications fitting within the capacity allocated to each program and being compatible with the Foxtel STU.   The enhancements could include multi-angle screens which may consist of a main screen, a parallel transmission of highlights, and a display of data, such as live scoring and historical scoring, which are all transmitted simultaneously.

109               The quality of the signal retransmitted by Foxtel will depend upon the quality of the signal delivered to the satellite interface point. 

Foxtel retransmission of SBS by satellite

110               Foxtel currently retransmits by satellite to Foxtel Digital subscribers:

(a)        an SBS national feed;

(b)        an SBS eastern seaboard feed; and

(c)        an SBS western  feed.

111               SBS has entered into its own arrangements for the supply of satellite capacity from Optus and a third party capacity aggregator. Foxtel has agreed to retransmit certain enhancements and interactive applications, as well as multichannels permitted under the BS Act, subject to the content falling within the satellite capacity constraints and being compatible with Foxtel's STU.  The quality of the SBS signal received by Foxtel subscribers depends upon the signal received by Foxtel as well as upon the satellite capacity allocated to a particular signal.

Austar's retransmission of the ABC and SBS by satellite

112               In November 2002, Foxtel and Austar entered into a Satellite Services Agreement in which Foxtel agreed to share the satellite capacity it obtained on the C1 satellite with Austar, and to provide certain managed services to Austar.

113               Austar currently retransmits by satellite five State feeds of the ABC, and the FTA broadcasts of SBS.  It also retransmits the multichannel, ABC 2.

Conditional access system

114               The Pay TV providers use a conditional access system (‘CAS’) to ensure that the subscription television video and audio signals transmitted or retransmitted via satellite and cable are received only by authorised subscribers, and that the content of what is received by each subscriber matches the subscriber's proper entitlement as recorded in the Pay TV provider’s subscriber management system.

Reception equipment

115               In order to receive and decrypt the encrypted signal transmitted by the Pay TV providers, a subscriber requires the following reception equipment:

(a)        an authorised smart card (which is a small plastic card about the size of a credit card, containing a microchip);

(b)        an STU; and

(c)        in the case of satellite subscribers, a satellite dish and a Low Noise Block Converter device attached to the satellite dish.

116               The CAS is embodied in software and hardware, including, at the subscriber end, smart cards and STUs.

Digital receivers and digital set top boxes

117               Analogue televisions cannot demodulate, and therefore do not ‘understand’, a digital signal.  A digital receiver demodulator and a decoder are required to receive a digital service.  This receiver will also include a digital-to-analogue converter (‘DAC’) which converts the digital signal into the complex set of waveform components that recreate the original picture and sound that the analogue television can understand. 

118               A digital receiver, including the DAC, can be located either inside a digital television set or in a separate digital set top box. Digital set top boxes are either SD or HD. They are sold by most electrical retailers.  There was evidence that, as at September 2004, although without ‘smartcard’ or CAS capability, they were priced between approximately $169 (an SD box) and $1 199 (an HD box, with other capabilities).  Prices for this equipment have steadily fallen since that date and are likely to fall further.

119               Digital television sets are now available that are able to receive and process the digital signal without the need for conversion.  There was evidence that these television sets tend to be at the upper end of the market and are relatively expensive.  They incorporate digital receivers, demodulators and decoders.

Remote controls

120               As Foxtel retransmits the programs broadcast by all five FTA broadcasters to all cable subscribers in Sydney, Melbourne, Brisbane, Perth and Adelaide, it is possible for its subscribers in those cities to switch between Foxtel Pay TV channels and the retransmitted FTA channels, using the single remote control unit which Foxtel provides to its subscribers.

121               However, to view Foxtel channels, a subscriber will usually still require at least two remote controls: one to switch on the television and to select between FTA and the channel to which the Foxtel STU is configured, and another to operate the Foxtel STU. (It is possible to avoid use of the first remote control by using the button on the set to turn on the television.)  Generally, a third remote control is required to operate a video cassette recorder (‘VCR’) and a digital video disc (‘DVD’) player. 

122               Since 1999, Foxtel satellite subscribers have been using two remote controls to view terrestrial (FTA) and satellite (Pay TV) services. 

123               It is possible to purchase an intelligent or self-learning remote control which will operate most components (for example, television, VCR, DVD players, CD players, etc).  The Tribunal was provided with examples of universal or programmable remote controls, including one pre-programmed to Australian cable TV. 

124               In relation to the universal remote control, Mr Delany said:

‘Subscribers to Foxtel Digital receive a remote control that is different from the remote control provided by Foxtel to analogue subscribers.  The Foxtel Digital remote control has a universal and learning capability, which allows it to operate as a universal remote control.  It can be programmed to perform the functions currently performed by subscribers’ television, VCR, DVD and stereo remote controls, in addition to operating the Foxtel Digital STU’.

That universal and learning capability exists in all Foxtel Digital remote controls (including those already issued to some subscribers), but not all subscribers are aware of this feature.  The remote control’s capability allows subscribers to use it to operate both their Foxtel STU and their television set.  As a result, Foxtel Digital subscribers can switch between watching Foxtel and watching an FTA channel using a single remote control, even if they do not receive that FTA channel by retransmission through Pay TV.

125               Austar's remote control for its New Austar Digital subscribers does not have universal programming functionality.  When Austar was designing its remote control, it was able to elect to have this functionality to allow switching between the retransmitted channels and its own programming.  However, Austar considered that there was more value in enabling subscribers to switch between its television and radio channels, and, therefore, Austar's remote controls have this feature instead.  The remote control did not permit both features to be incorporated. 

126               TransACT’s remote control is capable of being programmed to have a universal capacity. 

127               Optus subscribers and Foxtel analogue subscribers need to purchase an intelligent or self-learning remote control if they wish to avoid using multiple remote controls.

Reception quality

128               Screenrights stressed that the quality of picture and sound of retransmitted FTA programs is superior on Pay TV. It is generally accepted that there are certain places, including in the Sydney metropolitan area, where there is poor terrestrial television reception quality. This is particularly pronounced in what are known as ‘black spots’.  In 2000 the Commonwealth government commenced the ‘Television Black Spots Program’ with the objective of ameliorating the position. Funding is provided under the Program to local government authorities and incorporated community organisations for the establishment of new services and the replacement of obsolete equipment.

129               The Retransmitters maintain that this Program has assisted and continues to assist in overcoming reception problems for many FTA viewers. They also assert that reception of FTA programs via the terrestrial aerial can be improved without resorting to Pay TV, by installing better reception equipment and by changing to digital television where it is available.

D.        relevant principles

D.1      Previous Tribunal approaches

130               The expression ‘equitable remuneration’ is used in many sections of the Act to describe amounts payable to copyright owners, often through their collecting societies, where the Act provides for ‘statutory licences’. 

131               In its previous considerations of the expression ‘equitable remuneration’, and the possible approaches to the determination of such an amount, the Tribunal has discussed various approaches.  They can be analysed in different ways and some instances there is overlap between them:

·        ‘market rate’, that is, the rate actually being charged for the same licence in the same market in similar circumstances;

·        ‘comparable bargains’, that is, bargains not in the same market but sufficiently similar to the notional bargain next mentioned to provide guidance to the Tribunal;

·        ‘notional bargain rate’, that is, the rate on which the Tribunal considers the parties would agree in a hypothetical negotiation;

·        the rate which the Tribunal determines as a result of what, for want of a better term, has been called ‘judicial estimation’.

132               There is no market (or ‘normal’ or ‘going’) rate in Australia for licence fees charged to Pay TV providers for a licence to retransmit FTA broadcasts, or, more precisely, to retransmit the works, sound recordings and cinematograph films comprised in such broadcasts (cf  Copyright Agency Ltd v Department of Education of New South Wales (1985) 4 IPR 5 (Sheppard P) (‘First Schools Case’) at 15-16;  Fair Fitness Music Association v Australasian Performing Right Association Ltd (1998) 43 IPR 67 (‘Fair Fitness v APRA’)).  There is evidence of bargains made between collecting societies and retransmitters in overseas countries which is discussed in Part F below, but that is not an Australian market.

133               Nor is there in Australia any completely comparable bargain to the notional bargain between Screenrights and the Retransmitters with which we are concerned.  We address two bargains in Australia which have been suggested to be comparable at [462]-[475].  In addition, there is before the Tribunal a substantial body of evidence of rates that have been negotiated between retransmitters and a collecting society overseas.  We discuss this evidence in Part F below. 

134               The ‘notional’ (or ‘hypothetical’) bargain between ‘a willing, but not anxious, licensor and a willing, but not anxious, licensee’ is an approach with which the Tribunal is familiar (First Schools Case at 15; and see WEA Records Pty Ltd v Stereo FM Pty Ltd (1983) 1 IPR 6 at 25-27).  However, where the Tribunal has thought the notional bargain approach not entirely appropriate, it has resorted to ‘judicial estimation’ (see, for example, the First Schools Case at 15-16;  University of Newcastle v Audio-Visual Copyright Society Ltd (1999) 43 IPR 505 at [30]).  Perhaps the expression ‘judicial estimation’ appropriately describes the Tribunal’s approach to its task in all cases, any comparable bargain, notional bargain and perhaps even any market rate being but particular useful tools of judicial estimation.

135               Report of the Inquiry by the Copyright Tribunal into the Royalty Payable in Respect of Records Generally, published on 24 December 1979, was the result of the first case decided by the Tribunal.  It concerned the licence given by the then s 55, subject to the conditions set out in that section, to manufacture for retail sale a record of a musical work, once a recording of it had been made in, or imported into, Australia, or into any of the countries adhering to Berne or the Universal Copyright Convention.  Under the provisions of the Act then in force, the Tribunal was required to make a report to the Attorney-General as to the amount of royalty that was ‘equitable’.  For present purposes, the expression ‘equitable royalty’ may be treated as having the same meaning as ‘equitable remuneration’.

136               The Tribunal expressed the opinion (at 4.24 (p25)) that an ‘equitable’ royalty for the purposes of s 58 was one that represented fair and just remuneration to the copyright owner for the rights acquired by means of the compulsory licence.  The Tribunal said (at 4.32, p26) that ‘[w]hile it may be relevant to have regard to the interest [of] the public generally or as consumers in particular, … the basic question is what rate of royalty would provide equitable remuneration to the copyright owner’, and that it was ‘not relevant to ask whether the rate is “equitable to the public”’, although it was relevant to consider whether any price increase that might flow from a royalty increase ‘could adversely affect the market because of consumer resistance’.  It would not be equitable remuneration to the copyright owner if, as a result of consumer resistance to an excessively high rate, sales fell right away:  in the absence of special circumstances, the amount that will provide equitable remuneration to the copyright owner will require that the consumer have access on reasonable terms and at a reasonable price.

137               The First Schools Case concerned 15 applications by Copyright Agency Ltd (‘CAL’) pursuant to the then s 53B and s 149A.  The relevant licence was that conferred on educational institutions to make copies of material for their educational purposes.  The amount payable by the institution to the copyright owner was identified as ‘equitable remuneration’.  (Part VB, Div 2 of the Act now contains the régime governing the statutory licence given to educational institutions to reproduce copyright works for their educational purposes, the amount payable by them being still identified as ‘equitable remuneration’).

138               Sheppard P paraphrased the expression ‘equitable remuneration’ as ‘fair remuneration’ (at 27).  His Honour confessed to having found the exercise of determining an amount of equitable remuneration ‘extremely difficult’, and said (at 34) that what was involved was ‘judicial estimation’.  Sheppard P indicated, however, that ‘judicial estimation’ should be resorted to only where:

·        there was no normal actual rate being charged in comparable circumstances; and

·        the notional bargain approach was not available or was thought to be fallible in the circumstances of the case.

139               In Copyright Agency Ltd v University of Adelaide (1999) 42 IPR 529 (‘Universities Case’), CAL sought a determination of the ‘equitable remuneration’ payable by the respondent universities in relation to their statutory licence to make copies of literary, dramatic, musical and artistic works, such as articles appearing in periodical publications, and literary and dramatic works appearing in anthologies.  Burchett P agreed with Sheppard P’s statement in the First Schools Case that ‘judicial estimation’ was required. 

140               In Copyright Agency Ltd v Queensland Department of Education (2002) 54 IPR 19 (‘Second Schools Case’), CAL applied under Pt VB of the Act for a determination of the amount of equitable remuneration payable by schools.  CAL sought to have the rate that had been fixed in 1985 in the First Schools Case increased to the present day, and further increased in view of changes in teaching methods and other considerations, which, CAL contended, increased the value of the works.

141               Finkelstein DP said (at [14]–[16]):

‘[14]   It is notorious that ascertaining equitable remuneration is a difficult task in almost all cases.  The cases I have mentioned suggest various inquiries that can be undertaken, the result of which may be of assistance to the tribunal in carrying out its statutory task.  One inquiry is to see whether there is a normal rate of royalty charged by the copyright owner in relatively similar circumstances.  The theory is that where there is a market for goods or services, rational people will not sell or provide a thing for less than its worth to them, nor buy it for more than its worth.  Obviously one would need to be careful before adopting a so-called “market rate”.  First, it would need to be shown that the market in which the rate was struck was a competitive market, and that there were sufficient transactions in that market to provide a reliable indicator of value.  Second, it must be shown that the circumstances in which the market operates are the same as, or at least comparable with, those in which the equitable remuneration is to be fixed.  If these conditions are satisfied, the market rate (if there is one) will provide the best guide to equitable remuneration. 

[15]    Usually there will be no market rate, given the nature of the statutory licence.  Another possible line of inquiry is to determine whether there is evidence which would enable the tribunal objectively to determine the notional remuneration that would be agreed in a hypothetical bargain.  In many cases, and this case is no exception, there will be some evidence that will be of assistance in that regard.  ... [S]trictly speaking, a notional bargain approach would require separate examination of the notional bargain that would be reached between CAL and each respondent, or perhaps between CAL and each educational institution that is administered by a respondent, because there will be differences between the institutions that may result in a different rate.  It is not suggested, however, that there should be such a detailed examination of the respondents, and the schools they represent are content to have a uniform rate applied to them.  In any event, the evidence does not descend to the required level of detail.

[16]    Sometimes there will be no market rate and no, or very few, signposts to guide the tribunal to the appropriate rate of remuneration. What does the tribunal then do?  The answer is that the tribunal must do the best it can.  The nature of the task may be such that the determination will really be a matter of guesswork ...’  (emphasis added)

 

142               In its report, Jurisdiction and Procedures of the Copyright Tribunal (December 2000) at 115, the Copyright Law Review Committee summarised the factors that the Tribunal has taken into account in the process of ‘judicial estimation’, as follows (footnotes and citations to them omitted):

   ‘  ●    previous agreements between parties;

·        negotiations between the parties preceding the application to the Tribunal;

·        comparison of determinations under similar legislative régimes in other jurisdictions;

·        comparison between royalties set by other licensors/collecting societies;

·        the capacity of the  licensee to pay;

·        the value to the licensee of the use of the copyright material;

·        the general public interest and the interests of consumers; and

·        the administrative costs of a licensing body.’

143               The Tribunal has not adopted any single factor as being of universal application.

144               The Tribunal has been prepared to take into account overseas comparisons, as it has been invited to do here (see Part F below), but usually there is not a perfect match between the overseas circumstances and those in Australia.  In the First Schools Case, Sheppard P considered evidence of overseas practices but concluded that there was no helpful overseas experience to be drawn upon (First Schools Case at 35-6).  In Australasian Performing Right Association Ltd; re Australian Broadcasting Corporation (1985) 5 IPR 449, the Tribunal noted that the overseas material in evidence had been of assistance, despite differences between the Australian circumstances and those in the other countries (at 466).  In Fair Fitness v APRA at 72, the Tribunal noted that, despite the variation in overseas rates, the rate payable under the licensing scheme considered in that case was broadly similar in effect to rates applying in comparable countries, such as the United States.  In Australasian Performing Right Association Ltd v Federation of Australian Radio Broadcasters Ltd (1999) 46 IPR 20 (‘APRA v FARB’) the Tribunal considered overseas rates and noted that a broad comparison may provide guidance as to what rates are reasonable in Australia, particularly where the industry in question has international ramifications (at 28).

145               In the Universities Case, which concerned the Part VB licence, Burchett P noted (at [15]) that the value of comparisons with charges made to universities under the schemes in Great Britain and Canada was reduced by reason of the differences between those schemes and the régime established by Pt VB of the Act.  Difficulties in overseas comparisons were also noted by the Tribunal in Reference by Australasian Performing Right Association under s 154 of the Copyright Act 1968 (1992) 25 IPR 257 at 268.

146               In the present case, the Retransmitters rely on what they characterise as the ‘low’ rates paid for retransmission of FTA broadcasts in overseas countries (see Part F below).

D.2      Social gain/notional bargain approaches

‘Social gain’

147               Screenrights invited the Tribunal to take an approach that was, at least nominally, different from those described above.

148               Professor Borland (see [216]), an expert economist called by Screenrights, advanced a ‘social gain’ theory by reference to which, he contended, ‘equitable remuneration’ should be determined.  The Retransmitters, on the other hand, supported the ‘notional bargain’ approach.  They noted that Professor Borland’s ‘social gain’ approach had not previously been used by the Tribunal, and submitted that there was no call for a departure from the Tribunal’s previous course.

149               In October 2001, Professor Borland wrote for Screenrights a paper entitled ‘Retransmission of free to air TV on pay-TV:  Analysis of the value to society and payments to content providers’ (‘Value Analysis paper’).  In that paper he defined ‘social gain’ as ‘the difference in aggregate welfare in society between situations where retransmission occurs and where it does not’ (emphasis added).  He concluded that retransmission of FTA causes an increase in social value, stating:

‘The existence of some positive social gain from retransmission seems a necessary condition for remuneration of rights holders. Only where retransmission raises aggregate welfare is it appropriate that compensation should be paid to rights holders.’  (Value Analysis paper, p1)

In its terms, at least, this passage seems to emphasise aggregate social gain rather than remuneration to the copyright owner. 

150               Professor Borland thought that the value placed by consumers on retransmission was the measure of the social value, and provided the data required for a determination of ‘equitable remuneration’.  He set out the respective notional bargaining positions of the Retransmitters and the copyright owners in terms of the ‘reserve price’ they would respectively place on retransmission.  The reserve price is the price above which (in the case of the Retransmitters) or below which (in the case of the copyright owners) the party would not be prepared to trade.  The difference between the two reserve prices, the area within which negotiation is possible, is called by economists the ‘surplus’.  Professor Hausman (see [218]), an expert economist called by the Retransmitters, and Professor Carson (see [214]), an expert economist called by Screenrights, both agreed with this conventional economic model.

151               Novelty should not be equated with inappropriateness, or past practice with merit, but we do not derive particular assistance from Professor Borland’s social gain theory (see, however, [157]).  Professor Borland stated: ‘The social gain approach is equivalent to the notional bargains approach in its implications for calculation of equitable remuneration’.  Moreover, Screenrights submits that Professor Borland noted that the social gain approach and the notional bargain approach are ‘essentially equivalent’, because, whichever approach is used, the value of transmission to consumers must be ascertained.  Professor Borland stated:

‘At the core of both approaches is that retransmission will increase the value that pay-TV subscribers obtain by watching pay-TV.  This is a necessary condition for pay-TV suppliers to have a reserve price above the reserve price of copyright owners, and is a necessary condition for social gain to exist.’

In final submissions, counsel for Screenrights conceded that Professor Borland had said that ‘he had moved from social gain or social value into the notional bargain lexicon’.

152               The Retransmitters commissioned Professor Philip Williams of ‘Frontier Economics’ to report on Professor Borland’s model.  His report dated 14 June 2002 was entitled ‘Critique of Papers by Professor Jeff Borland on the Valuation of Retransmission Rights’.  It analysed, not only the Value Analysis paper, but also a further paper which Professor Borland wrote for Screenrights, entitled ‘Doing a contingent valuation survey – Issues in choosing a methodology’.  This further paper supported the carrying out of a contingent valuation survey as a means of ascertaining the value that consumers place on retransmission.  The Frontier Economics report argued that Professor Borland is wrong in suggesting that an estimated net social benefit would be ‘a useful first step to the determination of equitable remuneration’.  The report also concludes that, even if this should be wrong, Frontier Economics ‘would be reluctant to agree that a contingent valuation survey was the best method to estimate net social benefit’ (at 10–11).  We address the Screenrights contingent valuation survey in Part E of these reasons.

153               We agree that it is beside the point to attempt to justify the use of a hypothetical bargaining process to quantify equitable remuneration by reference to some more fundamental social good, as Professor Borland appeared, at least initially, to do.  The Act imposes the obligation to pay equitable remuneration as a quid pro quo for its excision of the exclusive right to retransmit from copyright, whether or not, we suggest, retransmission can be seen to yield a net social benefit.  Subject to a comment we make at [157]–[159], it is difficult to imagine circumstances in which the Tribunal would be justified in modifying the result of the hypothetical bargain by reference to a general concept of ‘social benefit’.

Are the FTA broadcasters parties to the hypothetical negotiation?

154               The Frontier Economics paper prepared for the Retransmitters proposed a three-party hypothetical negotiation, between Screenrights representing the underlying rights holders, the Retransmitters, and the FTA broadcasters.  Screenrights’ model, on the other hand, envisages a bargain between only Screenrights representing the underlying rights holders and the Retransmitters.  Screenrights submits that the FTA broadcasters should be ignored because of s 212 of the BS Act.  As noted at [34], that provision deprives the FTA broadcasters of any claim against the Retransmitters for infringement of the broadcast copyright arising from their retransmission of FTA programs.  Screenrights submits that it follows that the FTA broadcasters are not entitled to a ‘share’ of the notional bargain (other than in any capacity they may have as owners of underlying copyrights).

155               We agree with Screenrights. The fact that the immunity from suit accorded to the Retransmitters in respect of what would otherwise be an infringement of the FTA broadcasters’ broadcast copyright is found, not in the Act, but in s 212 of the BS Act, is irrelevant.  Section 212 has been intimately connected with the treatment of retransmission in the Act, leading up to the enactment of Pt VC (see [18]–[37]).  The amendment to s 212 which created the Retransmitters’ present immunity from suit in relation to broadcast copyright commenced immediately after the commencement of the Digital Agenda Act, which introduced Pt VC into the Act: Broadcasting Services Amendment Act (No 1) 1999 (Cth) s 23 and Pt 2 of Sch 3.  Section 212 of BS Act and Pt VC of the Act are complementary parts of a single regulatory régime.  That régime maintains an unremunerated exception for broadcast copyright, while ensuring that retransmission which would otherwise infringe the copyright in the underlying works, sound recordings and cinematograph films, enlivens an obligation to pay equitable remuneration.

156               In constructing the circumstances in which the hypothetical bargain takes place, we are required to assume that the Pt VC licence in favour of the Retransmitters does not exist so that they must (successfully) bargain, in the world as it is, with Screenrights for a licence.

157               There may, however, be in the world as it is, a factor which would prevent the hypothetical bargaining process from yielding a price that could fairly be regarded as equitable.  For example, if a party to the hypothetical bargain was misusing a substantial degree of power in a market and the result of the hypothetical bargain would be a price which would drive the other party from the market in which it competed, it seems that the Tribunal would be entitled to reconstruct the background to the hypothetical bargaining process, in order not to frustrate the legislative policy underlying s 46 of the Trade Practices Act 1976 (Cth). 

158               In such a special case, the Tribunal would be taking into account a legislatively expressed policy relevant to the supposed market in which the hypothetical bargaining process took place.  If this is to be described as some kind of ‘social gain approach’, so be it.

159               It has not been suggested that the present is such a case.  We should accept the real world as the background to the hypothetical transaction, including the fact that, by reason of s 212 of the BS Act, the FTA broadcasters have nothing to sell to the Retransmitters.

The ‘notional bargain’ – general considerations

160               The notional bargain is one between Screenrights (representing copyright owners) and the Retransmitters, and assumes that the statutory licence does not exist.  What is the amount of licence fee at which the parties would arrive?  The amount will be commensurate with or at least closely related to,the amount arrived at as the result of another notional bargain – one between the Retransmitters and their subscribers or prospective subscribers.  How much would subscribers be prepared to pay for the benefits of being able to view retransmitted FTA via the Pay TV STU?  How much would the Retransmitters insist on being paid for doing that which they are not required by law to do, namely, to retransmit FTA to subscribers?

161               The structure of the notional bargain is unusual.  The benefits of retransmission of FTA channels to Pay TV subscribers that have occupied attention in the case are those of a ‘better reception’ and the use of a ‘single remote control’ rather than multiple remote controls.  These are benefits, not to the Retransmitters, but to their subscribers.  The subscribers, however, are not parties to the notional bargain, although the notional bargain will result in the Retransmitters having something to sell to them.  Unless the notional bargain succeeds, they cannot retransmit FTA because to do so would infringe the copyright in the works, sound recordings and cinematograph films in question.  Since the cost to the Retransmitters of retransmitting FTA is virtually nil (see [82]), they will be prepared to pay for a licence an amount virtually equal to the value that subscribers place on having FTA retransmitted to them (there would have to be some discount for the broadcast copyright owned by the FTA stations).

162               Generally speaking, and for the purposes of the notional bargain between the Retransmitters and Screenrights, the value of retransmission to the Retransmitters is equal to its value to their customers, the subscribers, and the Retransmitters’ reserve price is their reserve price. 

163               In considering the position of subscribers, we must assume only that retransmission of FTA is absent, that is, we must assume: 

·        that the individual is already a Pay TV subscriber or is contemplating becoming one;

·        that the individual can already view FTA programs via the terrestrial aerial;

·        that, generally speaking, the reception quality via the terrestrial aerial is satisfactory unless the location is in a black spot; and

·        that, without retransmission, the subscriber must use two remote controls: one for the FTA channels and another for the Pay TV channels.

Division of value of retransmission

164               The parties disagreed as to how the value of retransmission of FTAs, once quantified, is to be divided between the licensor (Screenrights representing the copyright owners) and the licensees (the Retransmitters).  Screenrights’ expert economist witnesses, Professors Borland and Carson, assumed an equal split, although Professor Carson said only:  ‘Two parties with equal bargaining power will generally split the extra profit ...’ (emphasis added).  Professor Hausman, on the other hand, said that the Retransmitters had ‘a significantly stronger bargaining position than the copyright owners’, because they were at liberty not to retransmit and to cease retransmitting.

165               Against the possibility that ceasing to retransmit would cause a falling off in subscriptions to Pay TV because some subscribers depended on retransmission for good quality reception of FTA, Professor Hausman suggested that the Retransmitters could subsidise the purchase by subscribers of digital terrestrial TV set top boxes as reception improvers.  The idea would be to circumvent subscribers’ reliance on retransmission for their better reception of FTA.  Professors Borland and Carson, however, said that such a strategy would be prohibitively expensive for the Retransmitters, and Mr Delany of Foxtel also cast some doubt upon whether Foxtel would subsidise the purchase of set top boxes.

166               Screenrights submits that Professor Hausman’s position is contradicted by the Frontier Economics report.  However, we do not think that this is so.  Frontier Economics’ assumptions, for the purpose of the hypothetical bargain, are only that the statutory licence is absent, that the Retransmitters desire to retransmit FTA, and that Screenrights is entitled to refuse them a licence unless a fee is agreed upon.

167               Whether the Retransmitters would be prepared to subsidise the purchase of set top boxes would depend on:

·        whether retransmission is a subscription driver for Pay TV;

·        the level of payment the Retransmitters would have to pay to Screenrights as a result of the present determination; and

·        the level of subsidy involved.

While the Retransmitters do find some advantage in continuing to provide to their subscribers the benefit of retransmission of FTA, we think that retransmission would have to be a strong subscription driver, and the rate of equitable remuneration would have to be quite high, before the Retransmitters would prefer to cease retransmitting and subsidise the acquisition of set top boxes by subscribers rather than pay the equitable remuneration determined.

168               We think that the parties’ positions in the real world are to be accepted as the background to the hypothetical negotiation, except, of course, for the removal of the Pt VC licence.  Accordingly, just as Screenrights is entitled to refuse a licence, the Retransmitters are free not to retransmit.  Contrary to the suggestion of Professors Borland and Carson noted at [164], we do not accept that an equal split is dictated.  The question is:  what amount would the negotiating parties agree that the Retransmitters are to pay, having regard to the parties’ respective actual bargaining positions?

Generation of additional profits to copyright owners

169               Another point of disagreement relates to the question of any benefit which retransmission gives to the copyright owners.  Extra revenue to them might arise if retransmission increased the number of viewers of FTA programs, and therefore yielded an increase in advertising revenue to the FTA operators in which the copyright owners could reasonably expect to share.  In his Value Analysis paper, Professor Borland estimated that such an effect, if it existed at all, was likely to be very small, as viewers’ primary interest was the content of the FTA programs, not the quality of the signal or the convenience of a single remote control.  He said that ‘the extra amount of revenue earned by copyright owners due to retransmission is likely to be negligible’. 

170               Professor Hausman said that Professor Borland was making a ‘highly implausible’ assumption not based on any real world evidence.  He cited in support the ‘premise’ of the Screenrights survey, namely, an assumption that subscribers value retransmission.

171               Professor Borland made three points in reply.  First, he challenged Professor Hausman’s suggestion that the Retransmitters might subsidise the purchase of digital receivers by subscribers.  He said that, in the light of the cost of digital receivers and of the fact that the subsidy would have to be offered to all Pay TV subscribers, ‘it is difficult to know how such an offer could ever be preferred to making remuneration payments at the levels proposed [by Screenrights]’.

172               Secondly, Professor Borland cited an OzTAM report on audience share of Pay TV households for August 2003, which, he said, showed that in two related Pay TV markets where one group of subscribers was provided with a full suite of retransmission (Foxtel cable Pay TV), and another was provided with no retransmission (Foxtel analogue satellite Pay TV), the percentage of viewing of FTA was 52.53 percent and 51.75 percent respectively.  He added that in terms of viewing hours per person, the amount of FTA viewing in the households with retransmission was actually less by 0.2 hours.

173               Thirdly, Professor Borland dealt with Professor Hausman’s argument that the fact that Foxtel satellite does not provide all FTA channels proves that it is not necessary for Pay TV providers to retransmit all FTA channels in order to succeed.  He pointed out that no data on the financial performance of Foxtel satellite was presented to support Professor Hausman’s argument.

174               Screenrights submits that the evidence referred to confirms Professor Borland’s position that retransmission is unlikely to contribute positively to the viewing of FTA, and that, accordingly, any indirect effect of retransmission in increasing the rewards to copyright owners through advertising revenue is non-existent or insubstantial, although it is theoretically relevant.

175               We think that the benefits of retransmission to the copyright owners are likely to be very small:  the evidence does not establish that Pay TV, and the associated retransmission of FTA, increases significantly the viewing of FTA.

D.3      SUMMARY OF The approaches contended for

176               Screenrights relies heavily on its contingent valuation survey as showing the value that subscribers place on the retransmission of FTA.  It submits that the Retransmitters made ‘virtually no positive case based on economic theory’ to support the amount of equitable remuneration they proposed should be determined.  Rather, they based their case primarily on overseas rates (discussed in Part F) and the expired ‘APRA/ASTRA agreement’ (discussed in Part G).  Screenrights submits that it and the Retransmitters would have equal bargaining power in the notional bargaining situation and would reach an agreement on an equal split of the surplus.  Screenrights also submits that the indirect benefit to copyright holders from retransmission, in terms of an increase in the payments to them resulting from an increase in advertising revenue to the FTA operators, is relevant but not substantial, and we have already indicated our acceptance of this submission.

177               The Retransmitters urge the Tribunal not to rely at all on the contingent valuation survey.  They submit that, in the notional bargaining process, they would have greater bargaining power than Screenrights because any benefit they would otherwise get from a licence to retransmit would be reduced by the availability of inexpensive alternatives which would enable them to achieve the same result at less cost.  They could, for example, ‘invent around’ the improved quality of reception.  They submit that, if they ceased to retransmit, nonetheless their business as Pay TV operators would remain and their business would not become a different business because, for them, retransmission is not a commercial necessity but an option.  The Retransmitters submit that the Tribunal should apply a process of ‘judicial estimation’ based on ‘near bargains or comparable bargains, international experience and common sense’. 

178               As in so many cases that have come before the Tribunal, we do not find it conducive to arriving at an amount of equitable remuneration to commit ourselves to a single formula.  In our view, we should take into account a notional bargaining process as between Screenrights representing the rights owners and the Retransmitters (as that process would operate in the real world) overseas rates (if the circumstances make it appropriate to be guided by them) and by our sense of whether an amount is not an affront to common sense.  As will appear, we place no weight on Screenrights’ contingent valuation survey.

E.         the survey evidence

E.1      THE VARIOUS SURVEYS THAT HAVE BEEN CARRIED OUT

Introduction

179               ‘Contingent valuation’ is a ‘stated preference’ methodology for measuring the willingness of consumers to pay for goods or services.  Stated preference methodology relies upon data derived from survey responses in which persons describe how they would act in given circumstances, as opposed to ‘revealed preference’ methodology which relies upon data derived from the actual actions of persons based on choices they have in fact made.  Screenrights’ expert witness, Professor Borland, who was one of the architects of the Screenrights survey, said of contingent valuation:

‘This valuation method uses surveys to elicit the willingness of survey respondents to pay for some goods or service, or program.  The term ‘contingent’ is used as valuations revealed by respondents depend on the constructed or simulated market that is described in the survey.  Generally, what respondents are being asked to value is a hypothetical good, service, or program – that is, it is a good that is not currently produced or a service not currently provided.  The main use of the contingent valuation method has been to obtain valuations of goods, services or programs that will not or cannot be traded on markets, such as public goods.’

180               Screenrights unsuccessfully asked the Retransmitters to participate with Screenrights in a survey using contingent valuation methodology.  The Retransmitters declined, on the basis that such a survey was inappropriate, at least in part because contingent valuation surveys were untried and untested in this area, widely criticised, and not widely used in commerce.  Not only did the Retransmitters not agree: on 24 November 2003, well in advance of the hearing, they sought a direction that Screenrights’ proposed survey not be admitted into evidence.  The Tribunal declined to make the direction, holding that the admissibility of the survey evidence should be decided on the hearing (Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 1) (2003) 176 FLR 448).

181               In order to support their contention that the Screenrights survey should not be admitted or should carry no weight, the Retransmitters conducted a survey of their own, ‘the Newspoll survey’, purportedly in accordance with the protocols, scenarios, form and methodology of the Screenrights survey.  The Retransmitters’ purpose in doing so was to demonstrate, from the implausibility of the results obtained, that the methodology of the Screenrights survey must be defective.

182               The Retransmitters submitted that the Screenrights survey evidence should not be admitted, or, in the alternative, should be given no weight.  Counsel for the Retransmitters acknowledged that the issue of admissibility would have necessitated the same detailed evidence, submissions and consideration as would be required on the final hearing.  Accordingly, while he objected to the admission of the Screenrights survey, he did not address submissions to its admissibility or weight at that time.  We admitted the Screenrights survey into evidence, reserving the question whether any, and if so what, weight is to be given to it:  and see Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 3) (2005) 64 IPR 560 at [6].

The Screenrights survey – the pilot survey, Sweeney 1 and Sweeney 2

183               Screenrights engaged Sweeney Research to conduct its survey, according to which interviewers would obtain from cable TV subscribers, randomly selected, answers to survey questions with a view to establishing the value they placed upon having the five FTA channels retransmitted through their cable Pay TV service.  We will refer to the survey questions by the abbreviation ‘Q’.  As will be seen below, Q7 and Q9, in particular, have proved controversial, but so has the general survey methodology.

184               Sweeney Research first conducted a pilot survey, then what was intended to be the final survey (‘Sweeney 1’).  Sweeney 1 was conducted in February and March 2004.  Its design was the result of collaboration between Sweeney Research, Screenrights and certain experts, and took into account the pilot survey.  However, interviewer ‘call backs’ failed to comply with the survey design, and Sweeney 1 had a low response rate.  Since Sweeney 1 had not been carried out strictly in accordance with the prescribed protocol, another survey was conducted between October and November 2004.  This was the survey which, with the response data generated by it, was relied on by Screenrights.  We will refer to it as ‘Sweeney 2’ or ‘the Screenrights survey’ or simply ‘the Survey’.

185               Sweeney 2 comprised 2 373 door-to-door interviews with cable TV subscribers in 239 locations across Australia.  Respondents were required to reside in a household that subscribed to cable TV, in which all five FTA channels (ABC, Channel 7, Channel 9, Channel 10 and SBS) were retransmitted, and to be one of the adults in the household who decided whether to subscribe.  Respondents were advised that the main survey questionnaire would take only 10 minutes to complete and that they would receive a movie pass at the end.  The interview was conducted by means of oral questions, with information being provided by the interviewer both orally and by the showing of ‘show cards’ to respondents.

The Survey questionnaire

186               The Survey questionnaire comprised 20 questions.  There were five versions of the questionnaire which differed only in the price point identified in Q7.  Q7 asked respondents if they would pay a particular monthly amount in addition to their regular Pay TV subscription in order to continue to receive the FTA channels retransmitted through their Pay TV, the particular amount being one of the five price points.  For each respondent, Q7 contained only the one price point.  The five price points were randomly assigned as between respondents.  In version 1, the price point in Q7 was $1.00 and in versions 2 to 5 it was $2.50, $5.00, $7.50 and $10 respectively.  Accordingly, version 1 of Q7 was:

‘Q7.     If you had the choice of paying $1 extra per month to continue receiving the regular TV channels through your cable TV service or paying what you do now and losing this part of the service, in which case you would have to receive the regular channels through a TV aerial, would you …?

Pay $1 extra per month to continue receiving the regular channels through your cable TV, which amounts to $12 per year and you would not have this money to spend on other things …

Not pay $1 extra per month and lose access to the regular channels through your cable TV …

(Don’t know)’

187               According to the instructions to the interviewers, before being posed Q7 respondents were to be handed Show Card 2(i), which the interviewer was required to read out to the respondent.  Show Card 2(i) was as follows:

‘Show Card 2(i)

As you know, you currently receive the regular TV channels (that is Channel 7, Channel 9, Channel 10, SBS and ABC) through your cable TV.  This has the following consequences ...

188               Respondents were then to be handed Show Card 2(ii) which the interviewer was to read to the respondent.  Show Card 2(ii) stated:

‘Show Card 2(ii)

If the regular TV channels (that is Channel 7, Channel 9, Channel 10, SBS and ABC) were no longer available through your Cable TV, you would still have access to these channels through a TV aerial.

Also ...

189               The interviewer was then required to say:

‘As a result of recent changes in Australian law, Cable TV providers may be required to make payments to the owners of the programs in order to continue transmitting via cable the regular channels  (that is, ABC, Channel 7, Channel 9, Channel 10 and SBS).

If that happens, one possibility is that the Cable TV providers would remove transmission of the regular channels from the Pay TV service.  Provided subscriber demand was sufficient, Pay TV may then offer the transmission of the regular channels as a separate service for an additional fee.  This would mean that Cable TV subscribers would pay a monthly fee to receive Pay TV channels and an extra monthly fee to continue receiving the regular TV channels through cable.

Please remember that if the regular TV channels were no longer available through your Cable TV, you could still have access to these channels through a TV aerial.

We are now going to ask you some questions about whether or not you would be prepared to pay to continue to receive the regular TV channels through your cable service.’

It was then that Q7 was put.

190               Q9 sought to ascertain the proportion of  Pay TV subscribers who would cease to subscribe if retransmission of the FTAs ceased:

‘Q9.     If the regular TV channels were no longer available through your cable TV at the current subscription price, nor offered by your Cable TV provider as a separate service, would you …?

Continue your Cable TV subscription ….

Stop your Cable TV subscription ….

Don’t know …’

As can be seen, Q9 is a freestanding question in the sense that it is not expressed to be related to the dollar amount of Q7.

191               Questions 10a, 10b and 11 were freestanding questions in the same sense:

‘10a.    What, for you, are the main benefits of receiving the regular TV channels through your cable TV service?’

10b.     Anything else?’

Q10b was to be asked after the interviewer has recorded the responses to Q10a.

192               In order to answer Q11, the respondent was handed Show Card 4A to read.  That Show Card listed the ‘gradings’ set out below.  The interviewer then asked the respondent Q11, which was:

‘How would you assess the quality of reception for the regular TV channels if you did not have Cable TV – that is using a TV aerial?’:

 

The gradings on Show Card 4A were:

 

 

‘Excellent Very good Fairly good About average Fairly poor Very poor Terrible’

Responses to the Survey

193               The responses to the Survey were set out in a report made in December 2004 by Sweeney Research (‘the Sweeney Report’).  The responses to Q7 were stated to be that:

·        59.2 percent of the respondents who were asked if they would pay an extra $1 per month to continue receiving the FTA channels through their cable TV service said that they would;

·        41.7 percent of those asked if they would pay an extra $2.50 per month said that they would;

·        32.2 percent of those asked if they would pay an extra $5.00 per month said that they would;

·        18.6 percent of those asked if they would pay an extra $7.50 per month said that they would; and

·        19.9 percent of those asked if they would pay an extra $10 per month said that they would.

It is notable that a slightly higher percentage were prepared to pay $10 than were prepared to pay $7.50.  The Sweeney report observed that respondents who said that their reception of the FTA channels was poor via their aerials showed a relatively high preparedness to pay to maintain access through cable Pay TV.

194               In response to Q9, 68 percent of respondents said that they would continue their cable TV subscription if the FTAs were no longer available, 25 percent said that they would discontinue their subscription, and 7 percent said that they did not know.

195               In response to Q10, 52 percent of all respondents said that using one remote control for cable and FTA channels was a ‘main benefit’ of receiving the FTAs through cable, and 44 percent said that better reception/picture/sound quality for FTAs was such a ‘main benefit’.  Five percent said that cable enabled them to receive FTAs that they would not otherwise receive.

196               In response to Q11, 64 percent of respondents said that the quality of reception of the FTAs through their TV aerials was ‘Fairly good’, ‘Very good’ or ‘Excellent’, with 12 percent rating it as excellent. About 15 percent described it as ‘About average’ and  around the same proportion rated it as ‘Fairly poor’, ‘Very poor’ or ‘Terrible’.

197               Screenrights’ expert witnesses, Professors Carson and Borland, analysed the responses to the Survey. They deduced that the responses indicated an estimate of between $1.99 and $10 as the extra value per month to each Pay TV subscriber of receiving transmission of the five FTAs.  Based on the answers to Q7 only, the most conservative estimates were $1.99 (Borland) and $2.00 (Carson).  When the responses to Q9 were taken into account, they both increased their most conservative estimates to $5.15 per subscriber per month (‘pspm’).

198               In order to calculate the mean willingness to pay,  Professor Borland applied a method known as the ‘Turnbull Lower Bound’ which, he said, had general acceptance as a valid summary measure of average value in contingent valuation analysis.  The result of his calculation was a mean willingness to pay $2.98 pspm.  Professor Borland’s view was that, since there was a random assignment of respondents to price points, it was possible to treat the responses in respect of each price as coming from ‘independent and identical’ samples, and to combine the responses given in respect of different price points.  He also applied this method to the results of the Retransmitters’ Newspoll survey (see below) and calculated a mean willingness to pay based on them of $2.81 pspm.

The Retransmitters’ Newspoll survey

199               In August 2004, the Retransmitters engaged Newspoll Market Research (‘Newspoll’) to conduct a survey.  Subject to a modification of Q7 (referred to below), the Newspoll Survey was intended to replicate the methodology and fieldwork implementation processes used in the Screenrights survey and to demonstrate that the results derived from it were implausible.  Mr Davis of Newspoll designed the test in conjunction with Professor Hausman and Dr Bock (see [221]), both of whom were called by the Retransmitters as expert witnesses. 

200               In the Newspoll survey, respondents were not only randomly assigned one of the Screenrights survey’s five price points of $1, $2.50, $5, $7.50 or $10:  they were also randomly assigned one of three different ‘versions of Q7’. These were:

·        Version 1 – ‘Imagine that Channel 9, ABC and SBS continue to be transmitted through your cable TV with no extra monthly fee, but Channel 7 and Channel 10 are only transmitted if you  pay an additional fee.

 

If you had the choice of paying $[x] extra per month to continue receiving Channels 7 and 10 through your cable TV service, or paying what you do now and losing this part of the service, in which case you would have to receive Channels 7 and 10 through a TV aerial, would you pay an extra $[x] per month to continue receiving Channel 7 and Channel 10 through your cable TV …’

 

·        Version 2 – ‘Imagine that Channel 7 and Channel 10 will not be transmitted through your cable TV service at all, and that you can only get Channel 9, ABC and SBS through your cable service if you pay an additional fee.

 

If you had the choice of paying $[x] extra per month to continue receiving Channel 9, ABC and SBS through your cable TV service, or paying what you do now and losing all the regular channels from the service, in which case you would have to receive all the regular channels through a TV aerial, would you pay an extra $[x] per month to continue receiving Channel 9, ABC and SBS through your cable TV …’

 

·        Version 3 – ‘Imagine that none of the regular TV channels are retransmitted through your cable TV.

 

If you had the choice of paying $[x] extra per month to continue receiving the regular TV channels through your cable TV service or paying what you do now and losing this part of the service, in which case you would have to receive the regular channels through a TV aerial, would you pay an extra $[x] per month to continue receiving the regular channels through your cable TV …’

For any particular price point, Version 3 was identical to Q7 in the Screenrights survey, whereas Versions 1 and 2 were variants of it, relating, as they did, to only three and two FTA channels respectively.  Since there were three versions for each price point and there were five price points, there were 15 versions in all, but each respondent responded to only one of the fifteen.

201               The responses to the Newspoll survey’s Version 3 may be compared to the responses to the Screenrights survey’s identical Q7, as follows:

Far from finding the general similarity in the results disconcerting, the Retransmitters welcomed it.  Their point is that both surveys suffered from identical fundamental flaws (see below), and that similar, but similarly flawed, results were to be expected.

202               The following were the results of all three Versions of Q7 in the Newspoll survey:

Criticisms of the Screenrights survey

203               The evidence in relation to the Survey was voluminous.   The Retransmitters criticised the Survey’s methodology, the conduct of the Survey, its results, and the analysis of those results.   In relation to the methodology, they contend that stated preference studies almost always result in over-estimates of consumer demand; that contingent valuation was not the most appropriate stated preference method to use; and that the particular wording of the Survey detracted from its reliability.  They also contend that particular questions, introductory ‘scenario’ statements or instructions were wrong, confusing, complex and misleading, and that the controls used in the interrogation process were inadequate.  To support these contentions, they relied upon the evidence of Professor Hausman and Dr Bock. 

204               Screenrights, on the other hand, submits that the design of the Survey met all the requirements of best practice;  that the methodology was developed following an extensive literature review;  and that the design took account of the recommendations of the United States National Oceanic and Atmospheric Administration Panel’s report on contingent valuation chaired by two Nobel prize winning economists.  Screenrights submits that the design was conservative, and consistent with measuring a lower bound of demand, and took into account all relevant matters raised by the Retransmitters through the survey notice procedure under Federal Court Practice Note 11, which Screenrights followed.

205               Practice Note 11 states that the Federal Court expects a party who proposes to have a survey conducted to give particulars of the proposal to the other party, and expects the parties to attempt to resolve any disagreement over the proposed survey.  The Practice Note is not a Tribunal document but Screenrights submits that it reflects sound forensic practice, and the practice that Screenrights in fact followed in relation to its own survey.  Screenrights informed the Retransmitters of its proposal to have its survey conducted and submits that it was incumbent on the Retransmitters to raise all of their objections at that time, and not to raise new objections on the hearing.

206               The Tribunal will consider the Retransmitters’ criticisms of the Survey on their merits.  A valid criticism of it cannot properly be put to one side just because the Retransmitters did not notify it before the Survey was conducted.  To hold otherwise would be to penalise the Retransmitters for their failure to notify by depriving them of a hearing, and, potentially, of a result, to which they would otherwise be entitled.  However, an unreasonable failure to notify an objection may have other consequences, including costs consequences (see s 174 of the Act).

207               Screenrights was critical of the Newspoll survey and of what it characterised as the Retransmitters’ failure to comply with Federal Court Practice Note 11 in respect of it.  So far as the Newspoll survey is concerned, the position is unusual: the Retransmitters procured that survey as a response to the Screenrights survey and in order to establish the latter’s unreliability.  Screenrights’ argument must be that Screenrights should have been given the opportunity of suggesting to the Retransmitters reasons why the proposed Newspoll survey would fail in that purpose.  However, the terms of Practice Note 11 do not make it inapplicable to such a situation and we do not see why it should be.  Again, however, we will consider the Newspoll survey on its merits.  The Retransmitters’ failure to notify Screenrights of its intention to carry out the Newspoll survey could also have costs consequences (see, again, s 174 of the Act).

208               To support the validity of the Survey and to answer the Retransmitters’ criticisms, Screenrights called Dr Henstridge, Professor Carson and Professor Borland.  As noted earlier, the Retransmitters called Professor Hausman and Dr Bock.

209               There was very little, if any, agreement between the respective parties’ expert witnesses on any aspect of the Survey, its methodology, the application of statistical methods to the resulting data, and the conclusions appropriate to be drawn from the Survey. 

210               We have set out below what we understand to be the major criticisms made of the Survey and the responses to them, without addressing in detail every criticism and response.

E.2      the survey WITNESSES

Dr Henstridge

211               Dr John Henstridge, a consultant statistician of Data Analysis Australia Pty Ltd (‘DAA’), gave evidence concerning how the Survey was carried out.  Screenrights engaged DAA to implement and audit the Survey (in consultation with Sweeney Research), to review the interviewer instructions, to supervise interviewer briefings, to audit the ‘contact sheets’ that were completed by interviewers, and to conduct a validation survey.  Dr Henstridge’s view was that the Survey ‘achieved a higher standard than is common in market research’, and that the resulting data was ‘of a satisfactorily high quality and representative nature for a contingent valuation analysis.’

212               Dr Henstridge agreed in cross‑examination that it was ‘imperative’ that interviewers follow the instructions in every respect, but conceded that it is not unknown for interviewers to record wrong responses or even to complete a survey questionnaire when no survey interview took place.  A typographical error in one interviewer instruction as to which Show Card was to be handed to respondents for them to read at a certain stage was, he said, apparently corrected in the interview briefings.  He said that the written instructions did not explain what the interviewer was to do with the show cards after they had been read, and agreed that one could not tell from the interviewer instructions or from the Survey itself what was happening with the show cards at any point.  Apparently this problem was also addressed at the interviewer briefing sessions, although those sessions did not necessarily involve prescriptive instructions as to how the show cards were to be dealt with.  Rather, interviewers were told how they ‘might deal with them’.

213               Dr Henstridge agreed that the Survey questions were detailed and, in some cases, ‘relatively complex’.  He said, however, that the face-to-face interview method used was a distinct advantage in this respect because it gave interviewers the opportunity to give a longer and more detailed explanation.  This was an advantage because the amount of information contained in Q7 was ‘too much to be readily comprehended verbally’.  He said that a subsequent validation survey that was carried out tested only whether a person had participated in the Survey, not whether he or she had understood the questions.

Professor Carson

214               Professor Carson, who was also called by Screenrights, is the Chair of the Department of Economics at the University of California, San Diego, USA.  He has extensive experience in the assessment of the benefits and costs of environmental policies, and specialises in valuing non-marketed goods and new goods, using various techniques, including contingent valuation.  He co-authored the leading text on contingent valuation and a manual on the use of ‘stated preference’ methods.  He played a role in the design of the Screenrights survey and reviewed the draft survey instruments. 

215               His evidence dealt with the concept of economic value as applied to the retransmission of FTA, and the potential role of economic value in the determination of equitable remuneration; the appropriateness of contingent valuation surveys as a means of estimating the economic value of retransmission; how stated preference/contingent valuation methodology may be used to measure the economic value of retransmission; contingent valuation ‘best practice’; and the methodology, fieldwork materials and results of the Survey.  Using those results, he provided estimates of the economic value of retransmission and an opinion on what might be the outcome of a notional bargain between the providers of Pay TV and relevant rights holders in respect of retransmission.

Professor Borland

216               Professor Borland, the Head of the Department of Economics at the University of Melbourne, was called by Screenrights.  He has considerable expertise in the application of microeconomic theory, the core principles of data analysis and statistical methods, the application of advanced empirical methods, and survey methodology and design.  He is a recognised author in these areas.  As noted above, he prepared two papers for Screenrights on the value of the retransmission of FTA broadcasts and on contingent valuation.

217               His evidence dealt with the concept of economic value as applied to the retransmission of FTA and its potential for determining an amount of equitable remuneration, as well as the appropriateness of contingent valuation surveys and their methodology as a means of estimating the economic value of retransmission.  He also used the results of the Survey to provide estimates of the economic value of retransmission and an opinion on the possible outcome of a notional bargain.

Professor Hausman

218               Professor Hausman, the MacDonald Professor of Economics at Massachusetts Institute of Technology in the United States, was called by the Retransmitters.  His academic specialties are econometrics and applied microeconomics.  He has published numerous academic papers relating to choices by individuals in real world market situations, stated preference techniques, contingent valuation, and issues relevant to the Pay TV industry, and has edited a book of critical assessments of contingent valuation.  It was at his suggestion that the Retransmitters caused the Newspoll survey to be conducted.

219               Professor Hausman expressed serious doubts about whether contingent valuation surveys could accurately predict future consumer behaviour.  He considered that the hypothetical situation given to respondents in the Screenrights survey was not adequate because it failed to refer to available alternatives to retransmission of FTAs, such as low-cost digital TV and a low-cost universal remote control. He said that such inadequacies in the decision-making scenario could lead to significant biases in responses because respondents did not have all the information necessary to enable them to make an informed choice.  He also considered that there was significant statistical evidence of bias in the Screenrights survey and that ‘validity’ or ‘plausibility’ tests undertaken by Professors Borland and Carson to check the effect of a higher price or higher household income on answers were inappropriate and insufficient.  He undertook his own validity testing for monotonic patterns in responses (whether the answers show that respondents will pay more for receiving more and will pay less for receiving less), for exogeneity (whether the answers were influenced by information conveyed in the survey itself), and for the internal economic rationality of the responses (the ‘Hausman adding up test’, which tests whether the amounts given in answer to Versions 1 and 2 of the Newspoll survey, when added together, are approximately equal to the amount given in answer to Version 3, as they should be if respondents are responding rationally).

220               Professor Hausman found significant biases in Qs 7, 9, 10a, and 11.  He considered that the Survey results were unreliable when compared across different price levels because, as price increased, respondents did not indicate the increased sensitivity to further price increases that is required by economic theory.  In summary, he concluded that the Survey contained fundamental problems which led to upward bias and that its results could not be used to provide reliable estimates of future behaviour or real world outcomes.

Dr Bock

221               Dr Bock also gave evidence on behalf of the Retransmitters.  He is a director of Numbers International Pty Ltd, a market research consultancy specialising in complicated quantitative research, and a professional researcher with expertise in survey research methods used in the pricing of goods and product modifications. 

222               Dr Bock considered that the Screenrights survey had a number of strengths but also a variety of flaws which ensured that the data it generated would not be reliable.  The strengths were that the data reflected the types of relationships that would be expected in a well-administered study;  that the fieldwork met and in some areas exceeded standards commonly employed in the commercial research market;  and that the Survey did not use a ‘repeated measures design’ (that is, each respondent was not asked to respond to multiple price points).

223               Dr Bock identified several general weaknesses:  the Survey lacked ecological validity because there was no congruence between the tasks asked of respondents and activities that occur in the real world; the questions themselves did not conform to best practice for hypothetical behaviour questions; respondents should have been given time to consider their responses; and the geographically based cluster sampling was questionable because location is likely to be a prime determinant of the quality of television reception.   He said that the prevailing view among commercial and academic pricing researchers is that direct questions to consumers as to whether or not they would buy a product at a specified price does not yield accurate data.

224               Dr Bock identified five underlying flaws (see [226]), any one of which alone would lead him to recommend against relying on the Survey.  He also saw problems in particular questions.  Dr Bock concluded that the Survey was seriously flawed and should not provide a basis for determining the value of retransmission to Pay TV operators or their subscribers.

e.3      THE ALLEGED underlying FLAWS IN THE SURVEY

225               Professor Hausman made some of the criticisms that Dr Bock made.  The five underlying flaws identified by Dr Bock were as follows. 

226               First, the Survey was said to be designed to estimate the social gain generated by retransmission when it should have identified the value that Pay TV subscribers place on retransmission.   Secondly, the great discrepancy between different estimates derived by Professors Borland and Carson from the one study (see [197]) is unusual, and suggests that the measure is unreliable.  Thirdly, the evidence in the literature suggests that the contingent valuation technique may be biased when used in environmental economics and will almost certainly be biased when applied to commercial questions.  Fourthly, even if contingent valuation methodology was appropriate, its implementation here did not conform to standards that have been developed for the design of such studies (for example, it failed to present respondents with appropriate substitutes for retransmission that provide its benefits).  Fifthly, Professors Borland and Carson assumed that the data had a higher level of accuracy than market researchers commonly assume when they interpret the results of similar studies.

227               In response, Screenrights submits:

(1)        that it was a matter for the Tribunal, what the proper approach is;

(2)        that Professors Borland and Carson should be seen to have advanced alternative, but not competing, analyses based on the Survey;

(3)        that Dr Bock conceded that his objection was not to the use of a contingent valuation survey in principle, but to the methodology of, and conclusions drawn from, the Survey in particular;

(4)        that Dr Bock was mistaken in relation to the use of substitutes, and ‘unenthusiastic about’ the adding up test; and

(5)        that it was a matter for the Tribunal, what level of accuracy should be attributed to the Survey.

228               The Retransmitters submit that before any reliance can be placed on the Survey, all of the serious criticisms made by Dr Bock and Professor Hausman about the unreliability of the data must be resolved.   They submit that the Tribunal is unable, without the assistance of experts, to determine whether the Survey results are accurate or not, and cannot resolve all of those serious criticisms.  They say, therefore, that the Tribunal should not rely on what is, on any view, a highly controversial technique.   

E.4      CONTINGENT valuation – the most appropriate approach?

229               We described contingent valuation at [179].  Professor Hausman’s strong doubts as to whether a survey such as the Screenrights survey can accurately predict future consumer behaviour were based on his own experience and on the academic literature in economics and marketing. The literature has seriously questioned the accuracy of surveys that ask consumers to predict their future actions, especially in situations that they have not previously encountered, and has repeatedly concluded that stated preference intentions are almost always upwardly biased. 

230               Professor Hausman preferred the ‘revealed preferences’ methodology which records and analyses the courses of actions that consumers and firms have actually taken in the real world.  He asserted that the results of the Screenrights survey are inconsistent with current real world behaviour of the Pay TV operators.  For example, the Survey responses indicate that the revenue or profit-maximising response for the Pay TV providers would be to charge an extra $10 pspm, yet none of them in fact offers retransmission of FTAs as an add on bundle for purchase.  We see some force in this submission.

231               Dr Bock’s view was that contingent valuation is a ‘non-standard’ approach, a ‘controversial technique primarily used in environmental economics’; that the results almost always overstate consumer demand; and that even a well worded contingent valuation modelquestion could not avoid the biases experienced by other researchers who have used hypothetical behaviour questionsover the past 60 years.  He said that a different type of survey design should have been used: a ‘choice based conjoint analysis method’, which requires the creation of alternative bundles of ‘substitutes’ for retransmission, between which respondents are asked to choose. 

232               Professor Carson agreed with Professor Hausman that revealed preference data is clearly preferable to stated preference data, but thought that the former did not exist in Australia in relation to the retransmission of FTA, other than an example that may be derived from the dealings of TransACT.

233               At its commencement in 2001, TransACT offered a package for $19.95 per month, consisting of twelve channels including the five FTAs.  Ms O’Hara said that the subscription price would have been the same even without retransmission of the FTAs.  She said that the price of $19.95 was largely directed to recovering the cost of the STUs provided to TransACT customers.  She also said that at no time did Transact contemplate that its services would consist predominantly of the retransmission of local FTA broadcasts.

234               We do not accept that the evidence relating to the TransACT dealings reveals a value placed by subscribers or potential subscribers upon the retransmission of FTA channels.

235               The Retransmitters criticised Professor Carson for ignoring the information that could have been derived by asking subscribers to Foxtel’s analogue satellite service (which does not include the retransmission of FTAs) how much they would be prepared to pay for retransmission of FTAs, as an add-on tier.  Strictly speaking, however, that exercise would not yield revealed preference data.  Rather, it would be another contingent valuation survey (‘How much would you be willing to pay if the five FTAs were available to be purchased as an add-on tier?’).  It would, however, present respondents with a simpler scenario than the Screenrights survey did.

236               Screenrights submits that the view that stated preference studies almost always overstate consumer demand is not universally accepted, and that, at the highest, there is vigorous debate on the point.  It submits that the literature generally supports the use of stated preference methodology provided the survey is properly designed and conducted.  Screenrights accepts, however, that the warning is commonly given in the literature that a stated preference survey may well overstate consumer willingness to purchase.

237               Screenrights submits that it would be inappropriate to make a discount for the same consideration more than once.  It gives as an example, applying a discount to the range suggested by Professor Borland, and then, without more, choosing the bottom of the discounted range.

238               In relation to Dr Bock’s choice based conjoint analysis method involving alternative bundles of ‘substitutes’ for retransmission, Screenrights submits that Dr Bock’s view is based on a mistaken understanding of what proper substitutes are.

E.5      CRITICISMS of the questions in the screenrights survey

Q7

239               The Retransmitters contend that there are serious problems in relation to Q7 (set out at [186]).

240               Dr Bock said that both Q7 and Q9 had poor ecological validity because there is no congruence between the tasks asked of a respondent and what happens in the ‘real world’; that such questions are not regarded as best practice by researchers specialising in the use of hypothetical behaviour questions; and that choice based conjoint analysis is generally regarded as the best practice approach for problems of this type.  He said that there is a substantial body of evidence suggesting that answers to questions like Q7 will overstate the market’s willingness to pay, and that it is important to down-weight the forecast.

241               Dr Bock identified eight causes of upward bias of the value of retransmission in Q7:  (i) Q7 fails to present consumers with appropriate substitutes to the purchasing of FTA retransmission; (ii) the wording is complex and confusing; (iii) respondents may want to impress interviewers or ‘yea-saying’ (apparently, in the present case, tending to give an impression of generosity, positiveness and optimism);  (iv) the selection of ‘high’ price points may have convinced some respondents that the valuation of retransmission should be higher than they would otherwise have thought;  (v) the wording encourages respondents to choose to ‘pay’ for retransmission; (vi) respondents may agree to ‘pay’ because the amount appears insignificant rather than fair; (vii) the absence of evaluation time may increase the likelihood of guessing and lead to bias; and (viii) the question fails to recognise that consumers will be aware that ‘the actual costs of retransmission should be very low compared to the costs of provision of the cable channels’. 

242               Screenrights dismisses the criticisms at (ii), and (v) to (viii) as not significant.  In relation to (i) (failure to present appropriate substitutes), it submits that Dr Bock misunderstood the correct substitutes. In relation to (iii) (a desire to impress the interviewer by ‘yea-saying’), it submits that this phenomenon has more application in cases where questions are asked about social (eg, environmental) issues, and that in the present context it is unlikely to be significant, although Screenrights concedes that the Tribunal is entitled to take it into account in a qualitative way.  In relation to (iv) (the ‘lift’ influence of the inclusion of ‘high’ price points), Screenrights points out that Dr Bock’s testimony was that he would have used more price points, adding (higher) $15 and $20 price points.

243               Professor Hausman referred to the fact that, before asking Q7, the Survey noted that reception of FTA channels via Pay TV might well be better (see Show Cards 2(i) and 2(ii) at [187] and [188]).  He noted that such prompting could lead to bias by creating an emphasis that respondents would pick up.  Like Dr Bock, he criticised the Survey for its failure to provide respondents with information about substitutes for the retransmission of FTAs, and said that such inadequacies in the decision‑making scenario can often lead to significant bias in responses.

244               Professor Hausman noted that the answers to Q7 did not make economic sense because more respondents said they would pay an extra $10 per month than those who said they would pay an extra $7.50 per month.  Demand curves slope downwards, or at least do not slope upwards (the higher the price, the lower the demand), yet the result was the opposite in the case of Q7.

Failure to refer to substitutes for retransmission

245               Screenrights accepts that the inclusion of information about relevant substitutes is an important feature of a well designed survey, but submits that the failure to mention the availability of digital TV in the scenarios is of little significance.  It noted that, in any event, the mere availability of equipment such as digital receivers does not mean that subscribers have a substitute for retransmission.  Quality of reception may still be an issue, and there may be practical or technical difficulties for subscribers in getting the equipment to function properly or at full capacity.

246               Screenrights submits that the Survey included all relevant information about substitutes, the most important one being simply the availability of FTAs through the respondents’ own television aerials itself.  This is mentioned several times in the Survey instrument, including in the scenario preceding Q7, in the Show Cards, and in Q7 itself.  Other less important relevant substitutes, such as the availability of universal remote controls and signal boosters, were referred to in the Show Cards and were included at the suggestion of the Retransmitters.  Screenrights further submits that if the information on substitutes proposed by Professor Hausman and Dr Bock had been included, it would have confused respondents because it would have been irrelevant and would potentially have biased the outcome upwards. 

Demand curve for willingness to pay is upward sloping

247               It was common ground that demand curves do not generally slope upwards, that flat and inelastic parts of a demand curve represent opportunities for firms to charge a higher price without losing customers (that is, to increase profits), and that the demand curve reflecting responses to Q7 was inelastic between $7.50 and $10.  Screenrights submits that the small increase in the percentage of respondents who would pay $10 (from 18.6 percent to 19.9 percent) is not statistically significant.  The Retransmitters concede that it is not statistically significant but say that its economic significance is important – an increase in price of 33 percent from $7.50 to $10 leads to an upward-sloping demand curve, a result which is counter intuitive and contrary to economic theory. At least, it is a non-downwards slopingdemand curve, and this should have led to further exploration of the issue of the revenue-maximising price. Yet neither Professor Carson nor Professor Borland commented on this anomaly.

248               The Retransmitters submit further that Q7 did not reveal the profit-maximising price for an add-on tier of retransmitted FTAs, noting thatProfessor Carson accepted that the results meant that the profit-maximising price for an add-on tier of retransmitted FTAs could be any number above $10 and could possibly be $100.  The Retransmitters submit that we should infer that the designers of the Survey did not select a price point above $10 because they knew that a higher price point would be likely produce a result that would demonstrate that the worthlessness of the Survey.  Screenrights responds by asserting that the designers did not do so because they made a ‘conservative’ decision not to include them.  The subjective motivation of the designers is irrelevant, and speculation about it unhelpful, in our view.

Testing by Professor Hausman

249               Professors Borland and Carson undertook validity or plausibility tests to check:

·        whether a higher price would decrease the probability of consumers answering ‘yes’ to the question whether they would pay extra for retransmission of FTA; and

·        whether a higher household income would increase that probability.

Professor Hausman considered that these tests were only a preliminary and extremely weak form of testing, and therefore undertook his own validity testing. 

250               It was common ground that all econometric models must rely on an ‘exogeneity’ assumption, that is, the data must be generated externally to the model for the results to be valid.  Accordingly, the Survey assumed, for example, that the respondents’ statements of the quality of their FTA reception was not being influenced by anything in the Survey itself.  Professor Hausman carried out an exogeneity test called ‘the Hausman specification test’ and concluded that the Survey failed it.

251               Professor Hausman also applied the Diamond-Hausman ‘adding-up test’ to the Survey.  This test is based on the premise that the sum of the answers to the Newspoll Versions 1 and 2 of Q7 should (approximately) equal the answers to its Version 3, because, overall, Versions 1 and 2 provide the same outcome as Version 3 does: retransmission of all five FTA channels.  The data arising from the Newspoll survey Versions 1, 2 and 3 was set out at [202].  The adding up test applied to the data gives the following results:

Clearly the totals of the various Versions 1 and 2 percentages cannot be said, over all, to be approximately equal to the respective Version 3 percentages.

252               Professor Hausman’s research into contingent valuation surveys generally had shown that in fact  the amounts yielded in answer to questions of the kind included as Versions 1 and 2 in the Newspoll survey ordinarily exceed the amount yielded by the Version 3 type questions.  This common phenomenon implies that respondents to contingent valuation surveys are unfamiliar with the choices offered and that their responses are not economically rational.

253               Professor Hausman also said the answer to Newspoll Version 3 should exceed the answer to either Version 1 or Version 2 alone, an outcome known as ‘monotonicity’ in economic analysis, that is, consumers should be willing to pay more for receiving more.  The answers to Version 2, however, exceeded the answers to Version 3 at the $1.00, $7.50 and $10 price points, and equalled it at the $5.00 price point.  For example, the Newspoll results at $10 were that 20 percent of respondents said they would pay $10 to receive Channel 7 and Channel 10, while only 15 percent said they would pay $10 to receive all five FTA channels.  It is not economically rational that more subscribers would pay $10 to have two FTA channels retransmitted than would pay that amount to have five FTA channels retransmitted.

254               Professor Hausman concluded, on the basis of the exogeneity, adding up, and monotonicity tests, that the Screenrights survey gave biased results and would not provide a reliable guide as to how subscribers or potential subscribers would act in the real world.

255               Screenrights makes various criticisms of Professor Hausman’s evidence and submits that the asserted failures in respect of exogeneity and monotonicity did not exist.

256               We accept that there are difficulties with some of the Survey questions.  For example, the inclusion of the alternatives in Q7 may have confused respondents, particularly after they had been subjected to the lengthy proceeding scenario.

257               We note Professor Borland’s frank concession that the answers to questions after Q7 may have been influenced by the asking of Q7 and that one must be cautious in using Q9 to estimate profits.  As a consequence, Professor Borland conservatively relied on Q7 alone for his primary valuation.  It appears to us that the answers to Q9, Q10 and Q11 also at times related, as Professor Hausman pointed out, to the price version of Q7 that had been given to the respondent. 

Q9

258               Q9 (set out at [190]) asked subscribers whether they would cease subscribing if retransmission of FTAs were to cease.  Some of the calculations of Professors Borland and Carson were based on the responses to this question.

259               Dr Bock thought that Q9 was highly unreliable and that it almost certainly over-estimated the number who would cease subscribing.  Professor Hausmanfound that the answers to Q9 did not make sense.  For example, 22 percent of those respondents who had been asked Q7 at the $2.50 price point said that they would discontinue their cable TV subscription if FTA were no longer offered, while 32 percent of those respondents who had been asked Q7 at the $5 price point said that they would do so.  As Q9 was not conditioned on any payment being made for the retransmission, there should have been no significant difference in the percentages if the test was appropriately randomly conducted.  Dr Bock thought that the difference demonstrated bias.

260               Professor Carson agreed that there were problems with Q9, including the possibility of upward bias.  Professor Borland frankly conceded that all questions after Q7 were influenced by the asking of Q7.   He saw a problem with ‘framing or order effects’ (that is, that there was a ‘feedback effect’ which Q7 had on the answering of Q9).  He agreed that concern is expressed in the literature about this kind of phenomenon.  He conceded that Q9 was problematic, and that one would have to exercise caution in using it to estimate the extra profits to be derived from additional subscriptions to the basic service.  He said he had placed less weight on it than on Q7.

261               We do not have sufficient confidence in Q9 and the responses to it to give them any weight.

Q10

262               Q10 (set out at [191]) asked subscribers what they perceived to be the main benefits of receiving FTA through cable Pay TV.  The most frequent response to Q10a was the single remote control.  The next most frequent response was better quality of reception.  Professor Hausman noted that the answers should be the same across the various price points, yet 39 percent of those respondents who were asked Q7 at the $1 price point stated that the single remote control was the main benefit, while 46 percent of those who were asked Q7 at the $10 price point gave that answer.   He concluded that the discrepancy demonstrated significant sample bias arising from Q7.  The Retransmitters submit that this conclusion is consistent with Professor Borland’s concession that ‘framing’ or ‘feedback’ effects cause problems in relation to every question subsequent to Q7.

263               The Retransmitters submit that it was not surprising that those two benefits were the ones that respondents gave in answer to Q10, as they had been suggested to them as the benefits of retransmission earlier in the questionnaire.  Professor Carson agreed that the reason why the single remote control would have been the first thing to come to a respondent’s mind in answering Q10, was that he or she had been told about it earlier in the questionnaire.  He agreed too that one could not tell whether respondents were giving their answer because they did value those benefits or because they been suggested to them.

264               Screenrights submits that the Retransmitters’ submissions concerning Q10 reflect a ‘fundamental misunderstanding’ of the nature and purpose of the question.  The question was included as a check, to confirm that the respondents correctly understood the scenario.  This is a standard aspect of the design of such surveys.  Respondents were expected to nominate benefits that were included in the scenario, and, by doing so, to demonstrate that they had understood it.  It would be a matter for concern if they nominated factors not included in the scenario.  The fact that some but not all respondents nominated the benefits from the scenario suggests that they were properly considering which, if any, of the scenario benefits were relevant to them in their particular circumstances.

265               In our view, the responses to Q10 were heavily influenced by Q7 and by the information that was provided to respondents in the lengthy scenario preceding the answering of Q7.  So much seems to have been conceded by Screenrights.  We are not assisted by Q10.

Q11

266               Dr Bock considered that Q11 (set out at [192]), which asked about the quality of reception of FTAs without retransmission over cable Pay TV, was irrelevant to the issue of the value of retransmission, and that the flaw was so great that the question should ‘not be used to draw any inference’.

267               The Retransmitters submit that Professor Carson used self-reported reception quality data from Q11 to conclude that poor reception quality is associated with higher cable Pay TV penetration, but that the flaws in Q11 as a measure of reception quality are such as to make his conclusion dubious.  In particular, Professor Hausman found that the Survey caused self-reported reception quality to be not exogenous (instead, it was ‘jointly endogenous’) with the result of bias.  This finding of a lack of exogeneity led Professor Hausman to conclude that Professor Carson’s statistical approach was invalid.

268               Professor Hausman noted that the responses were again related to the dollar version asked in Q7:  approximately 21 percent more respondents who were asked Q7 at the $10 price point thought their reception was poor than those who were asked Q7 at the $5 price point.  Professor Hausman’s statistical tests indicated to him that Q11 should not be used in a decision making process with respect to consumer evaluation or future conduct.

269               Again, the responses to Q11 appear to us to have been influenced by the earlier Q7.  We accept, of course, that a person whose reception of FTA via the terrestrial aerial is poor will place a greater value on cable retransmission of FTA than a person whose reception of FTA via the terrestrial aerial is good will do.  We therefore accept that residents in a geographical area where reception of FTA via the terrestrial aerial is poor will likewise place a higher value on retransmission than residents in other geographical areas will do.  However, we have reservations as to whether the data derived from Q11 satisfactorily contribute to such a conclusion.

Other criticisms

270               The Retransmitters attacked Professor Carson’s evidence on the following further bases.  First, he made several factual assumptions in his affidavits concerning the Retransmitters’ commercial activities.  He did not ask for any information about those activities, and none was provided to him.  He was ‘drip-fed’ some information from Mr Delany’s affidavit, and some information about TransACT, and proceeded to express views about that information without ever seeking additional information or ascertaining if evidence on those topics had been filed in the proceeding.

271               Secondly, Professor Carson failed to consider what was offered in satellite Pay TV packages in Australia.  The Retransmitters submit that satellite Pay TV allows a number of relevant comparisons to be drawn because:

·        Austar’s principal business is the delivery of Pay TV via satellite;

·        Austar has cable customers in Darwin (who receive retransmission of all FTAs) and satellite customers elsewhere (who receive retransmission of only two FTAs);

·        satellite delivery of Pay TV to MDUs sometimes does not include retransmission of FTAs because of technical reasons (but nonetheless the same price is charged);

·        Foxtel provides Pay TV by both cable and satellite, and

(a)  the analogue satellite service is more expensive than the analogue cable service, even though there is no retransmission of FTAs on analogue satellite; and

(b)  Foxtel’s digital cable service is the same price as its digital satellite service, even though only three FTAs are retransmitted on the digital satellite service.

272               Screenrights submits that it did not survey satellite subscribers for practical reasons, such as the cost of doing so and its inability to identify in advance the location of satellite subscribers’ homes (in contrast to cabled homes, which must lie in areas known to be cabled).  Screenrights noted that information as to the location of satellite subscribers’ homes would have been in the possession of Foxtel, but Foxtel and the other Retransmitters had refused to participate in the Survey.  Professor Borland’s view was that the Survey could not have included satellite subscribers without the active participation of the Retransmitters.

273               Screenrights noted further that after it had served its survey notice in accordance with Federal Court Practice Note 11, the Retransmitters did not raise the issue of surveying satellite subscribers as a potential means of improving the Survey.  Screenrights submits that, in these circumstances, the Retransmitters’ complaint that satellite subscribers were not surveyed is a hollow one.

274               This may be so, but the question for the Tribunal is what to make of the Retransmitters’ submission (see [206]).  While it may have been useful to have data in relation to satellite subscribers, it is not clear to us on the evidence that the failure to survey satellite subscribers was a flaw in the Survey itself.  We note, however, that of the more than 1 660 000 subscribers to Pay TV in Australia, 48% subscribe to cable and 52% to satellite, and the Survey was administered only to cable subscribers.

275               Screenrights submits that it is proper for an expert to rely upon factual information given to him as the basis for his assumptions, and that an expert is not required to engage in a wide-ranging factual inquiry in order to test those assumptions, particularly where, as here, the inquiry would be extensive.  If the expert’s factual assumptions are not borne out by the evidence, this will go to the relevance and weight of his or her opinion (cf Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705at [64]), but does not necessarily indicate a failing on the expert’s part.  We agree with Screenrights’ submission in this respect.

276               The Retransmitters further criticised Professor Carson for not having disclosed many of the materials he had seen and relied on.  In particular, he revealed for the first time in cross-examination that he had looked at the Foxtel, Optus and TransACT websites, that he had relied upon information gained from them, and that he had been provided with other reports and studies.

277               Screenrights’ response is to point out that paragraph 2.7 of the Federal Court of Australia’s Guidelines for Expert Witnesses (‘the Guidelines’) does not require an expert to list every document provided to him or her over the course of a proceeding, but only ‘the documents and other materials which the expert has been instructed to consider’ in preparing the report.  Screenrights agrees that it is also appropriate for an expert to disclose materials which the expert relied upon, even though the expert was not ‘instructed to consider’ them, but Screenrights insists that Professor Carson made appropriate disclosure. We note that the Retransmitters’ own expert witness, Professor Hausman, identified in oral evidence documents and information that he had not disclosed in his report.

278               The Guidelines are not a Tribunal document, but nonetheless represent a counsel as to sound forensic practice.  We would have expected each of the experts to disclose in his report all documents or other materials with which he had been provided for the purpose of making his report, and also to identify at least any other materials which he had directly taken into account in making his report.  We say ‘directly taken into account’ in order to exclude any suggestion that an expert must disclose all those materials, familiarity with which provides the expert with the general background knowledge qualifying him or her as an expert at all.  In this particular case, there does not appear to have been any prejudice flowing to either party from any inadequacy of disclosure.

E.6      conclusion

279               While courts and tribunals have to a limited degree over the last twenty years or so admitted survey results into evidence (see the cases cited in Kellogg Company v PB Foods Ltd [1999] FCA 1610 at [107]), they have done so with caution.  Examples are evidence of properly conducted surveys exploring issues such as reputation, market or consumer confusion.  We note that these are matters of existing fact.  Courts and tribunals have been concerned to be satisfied that there has not been inappropriate prompting or the creation of artificial circumstances in which a survey respondent’s true state of mind is unlikely to be discerned.

280               The primary issues for the Tribunal are those of the relevance of, and weight to be accorded to, the Survey:  see the comprehensive review of the authorities by the Full Court of the Federal Court in Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 358–365.

281               Factors that are to be considered are whether there are ambiguities in the Survey questions, and whether any positive conclusions can be safely drawn about the likely behaviour of the respondents and of the general population (see State Government Insurance Corporation v Government Insurance Office of New South Wales (1991) 28 FCR 511 at 542‑544).   It is also important to consider whether the utility of the results is limited by the fact that the survey seeks to elicit responses in a context removed from that of consumer decision making in the real world. 

282               The academic literature and the evidence of the Retransmitters’ expert witnesses cast considerable doubt on the reliability of stated preference surveys as an accurate indicator of what people will do, and on the reliability of the Screenrights survey in particular.  It is common ground that a revealed preference provides a more reliable indicator of likely behaviour than a stated preference.

283               We express our conclusions concerning the Survey at [507]–[512].

F.         overseas rates

284               The Retransmitters led evidence of the rates paid by retransmitters in the United States, Canada and the United Kingdom.  Apparently in anticipation of a submission by the Retransmitters that this evidence showed that there was no payment for retransmission in these countries, Screenrights led evidence of rates payable in continental European countries.  However, the Retransmitters rely on that evidence relating to continental Europe, as well as on the evidence they led.  Screenrights, on the other hand, submits that none of the evidence relating to overseas countries is useful, and, in particular, that none of it discloses a comparable bargain, that is, a bargain comparable to the notional bargain between Screenrights and the Retransmitters with which we are concerned.

285               It will be recalled that in that notional bargain, Screenrights is not obliged to grant the Retransmitters a licence to retransmit the FTA channels, and the Retransmitters are not obliged to retransmit them.  They Retransmitters submit (footnotes omitted):

‘The Tribunal has almost invariably at least reviewed the overseas position.  On occasion it has found that highly relevant and, to a significant degree, a determining factor in the task of rate setting.  On other occasions, it must be accepted, it has found the overseas position less informative.

In the present case the overseas position is very powerful.  Retransmission is, in general terms, an activity conducted in much the same way all over the world.’

286               Screenrights, on the other hand, submits that:

‘…the legislative, cultural, geographic, linguistic and many other factors make it impossible for the Tribunal to draw any meaningful guidance – a fortiori any “comparable bargains” – from the Overseas rates.’

 

and that:

‘In summary, the overseas regimes are not comparable to the Australian regime and should not be relied upon for the purposes of determining equitable remuneration under Part VC of the Act.’ 

 

287               We referred to previous statements made by the Tribunal concerning overseas comparisons at [144]-[145].  APRA v FARB, on which the Retransmitters rely, concerned an application to the Tribunal under s 154 of the Act for confirmation of a licence scheme in respect of the licensing of commercial radio broadcast stations to broadcast copyright music.  The Tribunal observed (at [18]):

‘Despite the difficulty in comparing rates as between different countries, a broad comparison may provide a helpful pointer to what may be reasonable, particularly in an industry with international ramifications.’

288               The relevance of overseas rates in the circumstances of APRA v FARB is perhaps more obvious than it is in the present case.  The rates that were considered in APRA v FARB were all negotiated rates (in the United States, Canada and the United Kingdom) in respect of the radio broadcast of music.  In the present case, the rates are in respect of the retransmission of FTA.  As will appear, however, the circumstances in which FTA is retransmitted over Pay TV in overseas countries, and the ways in which the amounts, if any, payable by the Pay TV providers are arrived at, vary greatly and differ from the position in Australia.

289               Screenrights submits that, if the Retransmitters had desired to rely on comparable overseas rates, they should have retained an expert or experts to make the comparisons.  In our view the witnesses on whom the Retransmitters relied had the expertise required to give the limited evidence which they gave, relating, as it did, to the factual matters of the applicable legislation and other elements of the foreign régimes in question.  There is an issue, however, whether their evidence went far enough.  It is perhaps rather optimistic to think that one person would be able to provide evidence, in the required detail, as to the relevant practice in every European country, for example, and to be in a position to exclude the possibility of influence by every factor that may be suggested.

290               The evidence on overseas rates was voluminous and detailed.  The Retransmitters provided the rates pspm (converted into Australian dollar terms) that are charged to retransmitters in the overseas countries.  The rates were also converted to a five channel basis to enable comparison with a full suite of five FTA channels in Australia.  The frequent reference to ‘5 channels’ in the material below does not signify that five channels are in fact retransmitted in the country in question.  The Retransmitters’ submissions include, in an appendix, the detailed calculations which they made to arrive at the rates, accompanied by references to the supporting evidence, including extracts from the legislation in the overseas jurisdictions. 

291               We have found the Retransmitters’ summary useful, and will set out the relevant paragraphs of that summary.  Screenrights submits, however, that the picture is far more complex than the Retransmitters’ summary would suggest.

292               A feature which distinguishes overseas countries from that in Australia is the retransmission of distant signals as well as local ones.  A ‘local’ signal is a signal that is also available FTA in the area where the television set is located.  A reference to a ‘distant’ signal is a reference to an FTA signal, emanating elsewhere, which is not available FTA where the television set is located.  In some countries, the distant signals that are retransmitted are foreign ones in foreign languages.

293               In Australia, there are only local FTA signals.  That is to say, retransmission is always of an FTA signal which the subscriber is entitled to receive by the use of a standard television set in the subscriber’s area, being the legal transmission area of the original transmitter.  In overseas countries where distant (including foreign) FTA signals are retransmitted over Pay TV, that retransmission is the only means by which they can be received in the area local to the subscriber.

294               Another distinguishing feature is that in some countries retransmitters are required by law to retransmit local signals (a ‘must-carry’ régime), although they are never required to retransmit distant signals.  Even in the absence of a must-carry régime, retransmitters in some countries do not pay to retransmit local signals; in other countries where they do pay to retransmit local signals, the rate is less than that which they pay to retransmit distant signals (exceptionally, in Norway the position is reversed).  Retransmitters always pay to retransmit distant signals.

F.1      the United States of America

295               Affidavit evidence concerning the payments made for retransmission in the United States of America was given by Daniel Brenner, Senior Vice President of Law and Regulatory Policy at the National Cable & Telecommunications Association.  Mr Brenner was not cross-examined.  In their submissions, the Retransmitters summarised the effect of his evidence as follows (footnotes omitted):

‘Cable

338.     There is no requirement for cable operators to make copyright payments in respect of the retransmission of local signals.  This stems from the fact that the 1976 US Copyright Act limits copyright payments to programming transmitted “beyond the local service area of” the primary transmitter. ie. non-local or distant signals.

339.     The law does compensate underlying copyright holders when distant signals are retransmitted by cable systems. The level of remuneration is based on a complex formula that relies on the cable operator’s gross receipts from the basic tier.  Mr Brenner gives an example of how the formula works resulting (using the figures used in that example) in a figure of US$0.11 per subscriber per month.

Satellite

340.     The US Copyright Act provides that there is no requirement for satellite operators to make copyright payments in respect of the retransmission of local signals.

341.     The law does compensate underlying copyright holders when distant signals are retransmitted by satellite systems.  Those figures are set out in the instrument entitled Adjustment of Royalty Fee for Secondary Transmissions by Satellite Carriers.’

296               In the United States, exceptions to the copyright owner’s rights and the rates payable are largely prescribed by law.  Cable retransmission and satellite retransmission are treated discretely.  The statutory licence for cable retransmission of FTA was first enacted in 1976, and that for satellite retransmission in 1988.

297               A long standing (since 1966) aspect of US communications law has been the requirement for cable television operators to retransmit local broadcast stations within those stations’ local areas.  Must-carry regulations were enforced throughout the period in which the cable retransmission statutory licence was formulated, and were in force when that licence was first enacted in 1976 as s 111 of the US Copyright Act.  Must-carry regulatory compliance has been a condition of the s 111 statutory licence since its inception.

298               When the statutory licence for satellite retransmission was first enacted in 1988, it did not seem to be feasible to restrict the new form of retransmission to the local area of the primary station or network-affiliated station.  Accordingly, royalty rates were not discounted in respect of local area retransmission.

299               The ability to limit satellite retransmission to a local area became possible by new technology referred to as ‘spot beaming’ which emerged in the late 1990s.  In 1999 a free exception for local area retransmission was introduced in s 122 of the US Copyright Act, coupled with (for the first time) the imposition of must-carry obligations on satellite systems.  Public policy justification offered for this policy included the competitive neutrality of the satellite retransmission licence with the cable retransmission licence, and the fostering of the policy of localism.

300               The cable retransmission royalty rate for distant signal retransmission is set under s 111 of the US Copyright Act.  The compulsory licence ‘substitutes an administratively-set fee for a market price, and there is no link between the value of any particular program to the cable operator and the amount of the compulsory licence fee’ payable (Federal Communications Commission Report, in the Matter of Compulsory Copyright Licence for Cable Retransmission, 4 FCC Rcd 6711, [67] (1989)).  The US Copyright Royalty Tribunal has described the statutory rates as ‘arbitrary, and … intended to require only a minimum payment on the part of cable operators’ (Copyright Royalty Tribunal determination, Adjustment of the Royalty Rate for Cable Systems: Federal Communications Commission’s Deregulation of the Cable Industry, 47 FR 52146, 14 (1982)).

301               The quantum of each statutory royalty rate for satellite retransmission was based upon that for the cable retransmission statutory licence.  When the satellite retransmission licence was first enacted in 1988, the rate was 12 cents per signal pspm for non‑network signals and 3 cents per signal pspm for network signals.  In 1994, the rates were adjusted to achieve royalty fees ‘that most clearly represent the fair market value’ of retransmission.  An arbitral rate adjustment by a 1997 Copyright Arbitration Royalty Tribunal (CART) under this criterion gave a rate of at least 27 cents pspm per channel for the twelve basic cable networks.  Legislative reform in 1999 removed CART rate adjustment jurisdiction and substantially reduced the 27 cents rate.  A reason given was the objective of competitive neutrality with the cable rates.

302               In his affidavit sworn 28 September 2004, Mr Brenner stated, concerning cable retransmission remuneration rates (for distant signals):

‘43.      Section 111 of the US Copyright Act sets out how remuneration rates must be calculated.

44.       Short form SA1-2 General Instructions, page vi and Long Form SA3 General Instructions, page vii provides guidance on how those semi-annual calculations should be made.

45.       In summary, the position is as follows:

(a)        If semi-annual gross receipts are US$98,601 or less:

remuneration is a flat fee of US$37 for the 6 months (ie, US$74 per year).  Under section 256.2(b)(1) of the US Code of Federal Regulations, this amount applies irrespective of whether distant signals are retransmitted.

(b)        If semi-annual gross receipts are greater than US$98,601 but less than US$189,800:

The formula (easier done than recited) requires subtracting the semi-annual gross receipts (GR) from US$189,800.  This difference is then subtracted from GR and the difference is multiplied by 0.5%.  This formula leads to a number higher than US$37 in every instance.  Under section 256.2(b)(1) of the US Code of Federal Regulations, this amount applies irrespective of whether distant signals are retransmitted.

(c)        If semi-annual gross receipts are greater than US$189,800 but less than US$379,600:

remuneration is:

(i)         0.5% of gross receipts up to US$189,800; and

(ii)        1% of gross receipts in excess of US$189,800 but less than US$379,600.

Under section 256.2(b)(2) of the US Code of Federal Regulations, this amount applies irrespective of whether the distant signals are retransmitted.

(d)        If semi-annual gross receipts are greater than US$379,600:

remuneration is:

(i)         0.956% of semi-annual gross receipts; AND

(ii)        an additional percentage of semi-annual receipts for each distant signal equivalent in accordance with the percentages set out in section 256.2(a)(2)-(4) of the US Code of Federal Regulations:

(a)       for the first distant signal equivalent (DSE) – 0.956% of gross receipts;

(b)       for the second, third and fourth DSE – 9.630% of gross receipts;

(c)       for the firth and each additional DSE – 0.296% of gross receipts.’

F.2      Canada

303               Affidavit evidence of the payments made for retransmission in Canada was given by Gerald L Kerr-Wilson, a barrister and solicitor in Ontario, who has been employed since October 1999 by the Canadian Cable Television Association.  His current title is Vice-President, Legal Affairs.  Mr Kerr-Wilson was not cross-examined.  The Retransmitters’ submissions summarised the effect of his evidence as follows (footnotes omitted):

‘344.    The Copyright Act (Can.) establishes a compulsory licence regime under which a retransmitter is granted a compulsory licence to retransmit copyright works carried in free-to-air local and distant television signals.  Each cable provider must carry all free-to-air signals local to it as part of its basic service.

345.     Under s. 31 of the Copyright Act (Can.), only distant signals attract an obligation to pay remuneration for retransmission.  The number of distant signals retransmitted by the various pay TV carriers varies from 90 to fewer than 10.  The same amount is payable regardless of the number of distant signals retransmitted (with an exception relating to a French language channel).  The payment made for retransmission of all distant signals with respect to most cable subscribers and all satellite DTH subscribers is CAN$0.70 pspm.’ (emphasis in original)

304               Under the Canadian Copyright Act, R.S. 1927, c 32, until its amendment in 1988 (and similarly to the position in the United States prior to 1976), cable retransmission had been held to fall outside the exclusive right of the copyright owner to communicate a work by ‘radio communication’.  The reason was that this exclusive right had been interpreted to be confined to communication by means of Herzian waves.  The existence from 1976 of the elaborate US retransmission schemes described above led to concern in the United States over Canada’s failure to treat retransmission similarly.  Moreover, a decision in 1983 of the Canadian broadcasting regulatory body, the Canadian Radio‑television and Telecommunications Commission (‘CRTC’), to permit a satellite company to retransmit major US television networks into Canada highlighted the inconsistency between the two countries’ régimes.

305               The absence of royalty payments in Canada in respect of distant signals was in sharp contrast to the position under US law.  The 1976 cable retransmission régime in the United States obliged cable retransmitters there to pay copyright royalties in relation to their retransmission in the United States of certain Canadian and Mexican signals.

306               The dissymmetry between the Canadian and US positions was resolved in the Canada-US Free Trade Agreement of 1988.  Article 2006(1), which is inscribed into the North American Free Trade Agreement of 1992 by Annex 2106, provides:

‘Each Party’s copyright law shall provide a copyright holder of the other Party with a right of equitable and non‑discriminatory remuneration for any retransmission to the public of the copyright holder’s program where the original transmission of the program is carried in distant signals intended for free, over-the-air reception by the general public.  Each party may determine the conditions under which the right shall be exercised.  For Canada, the date on which a remuneration system shall be in place, and from which remuneration shall accrue, shall be twelve months after the amendment of Canada’s Copyright Act implementing Canada’s obligations under this paragraph, and in any case no later than January 1, 1990.’ (emphasis added)

 

By this Article, the United States exported its retransmission model to Canada.  The obligation placed on Canada mirrored US retransmission law.  The obligation to remunerate was only in relation to ‘distant signals’.  Implicitly, the status quo in relation to local area retransmission could be maintained, now to be expressed as a free exception to copyright.

307               The 1988 Canadian legislative reform which implemented the obligation created by Article 2006 of the Canada-US Free Trade Agreement entailed the replacement in the Copyright Act R.S. 1985, c C-42, of the right ‘to communicate the work to the public by radio communication’, with the broader right ‘to communicate the work to the public by telecommunication’.  The broader right encompassed, inter alia, both cable and satellite retransmission.  Contemporaneously, there was inserted into the Canadian Act, s 28.01 (now s 31) which created both the free exception for local signal retransmission and a remunerated exception for distant signal retransmission.

308               Screenrights submits that the copyright treatment of local area retransmission in Canada can be understood only in the historical context of a concern on the part of Canadian policy makers to preserve Canadian culture against a dominance by its neighbour to the south.  This concern was expressed in the earliest regulation of cable television in Canada.  En masse cable retransmission of US broadcast signals threatened to undermine the policy objective of the Canadian Broadcasting Act 1958, that there should be ‘a varied and comprehensive broadcasting service of high standard that is basically Canadian in content and character’: Broadcasting Act 1958, s 10.  Must-carry licence conditions imposed on cable television services by the Department of Transport in the 1960s required that all local FTA stations be carried.  In 1968, the CRTC was created to license and regulate the operators of broadcasting undertakings, including cable television systems: Broadcasting Act 1968, Part II.  The CRTC pursued a policy objective that programming should use ‘predominantly Canadian creative and other resources’.

309               In 1975 the CRTC promulgated its first Cable Television Regulations, CRC 1978, c 374 (‘the 1975 Regulations’), which continued to reflect a policy of protecting Canadian broadcasting.  Subsection 6(1) of these regulations required that each cable broadcasting licensee retransmit on its ‘basic service’ certain channels of local stations in order of priority.

310               In 1986 the CRTC promulgated a revised régime in the form of the Cable Television Regulations 1986.  These were the regulations in place at the time of the negotiation of the Canada-US Free Trade Agreement and the introduction of the reforms, in particular Art 2006, required by that agreement.  The regulations continued to require retransmission of essentially the same local Canadian stations as had been required by the 1975 Regulations.

F.3      EUROPE

311               Affidavit evidence in relation to the United Kingdom was given by Ian Crichton Starr, a partner in Ashurst, a London firm of solicitors, who specialises in United Kingdom and international intellectual property advice and litigation.  He was not cross-examined.

312               The European material is otherwise drawn from Helmut Koszuzeck’s evidence.  Mr Koszuzeck is the Legal and Business Director of AGICOA (see [41]), and has been employed by AGICOA since 1991.  He was cross-examined.  According to Mr Koszuzeck, AGICOA is an international non-governmental, non-profit organisation that was established in 1981 ‘to preserve audiovisual producers’ copyrights, chiefly in the area of cable television and similar retransmission means’.  AGICOA’s members are producers’ associations from all over the world.

313               AGICOA maintains a database of the works it represents and the rights it controls.  This is ‘a unified international repertoire of audiovisual works belonging to more than 5 600 companies from 42 countries’.  At the date of Mr Koszuzeck’s affidavit (14 October 2004), the database comprised 552 828 audiovisual works, and AGICOA controlled 5 305 130 separate rights in relation to those audiovisual works.  In order to monitor the use of the audiovisual works contained in its database, AGICOA monitors 47 television channels all over Europe.  Mr Koszuzeck stated that, since television channels were retransmitted ‘by cable or satellite bouquets in several countries’, AGICOA was operating with respect to ‘119 channels in various countries of retransmission’.

314               The Retransmitters’ submissions purported to summarise the position in overseas countries as follows (footnotes omitted):

‘Germany

308.     The pspm rate per channel payable for retransmission under the Agreement applicable in Germany between 1985 and December 2002 is AUD $0.0000834 (or $0.00042 pspm for 5 channels).

309.     The pspm rate per channel payable for retransmission under the Agreement applicable in Germany since 1 January 2003 is AUD $0.0107 (or $0.0535 pspm for 5 channels).

310.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

 

Netherlands

311.     In the Netherlands, no remuneration is payable for local signals. 

312.     The pspm rate per channel payable for retransmission of distant signals is $AUD0.18385 […].  This amount is based on an agreement struck between the relevant parties.

313.     Mr Koszuzeck’s evidence was that on a “de jure” basis the broadcasters divide their share (of 45.5% […]) 90/10 between foreign and local broadcasters.  Therefore, on a de jure basis, 10% of 45.5% of $AUD0.18385 is, in practice, paid in respect of retransmission of local signals.  This amounts to 0.008372 pspm per originating broadcast (ie. 10 % x 45.5% x $AUD 0.18385) (or $0.0042 pspm for 5 originating broadcasts).

Switzerland

314.     The rate per originating broadcast payable for retransmission in Switzerland is $AUD0.055 (or $0.27 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

315.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

Austria

316.          In Austria, the rate per originating broadcast payable for retransmission is $AUD0.027 (or $0.136 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

317.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

Sweden

318.     The rate per originating broadcast payable for retransmission in Sweden is $AUD0.230 (or $1.15 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

319.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

Norway

320.     In Norway, the rate per originating broadcast payable for retransmission is $AUD0.098 (or $0.49 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

321.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

Belgium

322.     The rate per originating broadcast payable for retransmission in Belgium is $AUD0.0425 (or $0.22 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

323.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

France

324.     In France, the rate per originating broadcast payable for retransmission of local signals is $AUD0.03 (or $0.15 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

325.     The rate per originating broadcast payable for retransmission of distant signals is $AUD0.0288 (or $0.144 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

Eire

326.     In Eire, there is no payment for local signals.

327.     The rate per originating broadcast payable for retransmission of distant BBC originating broadcasts is $AUD0.172 (or $0.86 pspm for 5 originating broadcasts). 

328.     The rate per originating broadcast payable for retransmission of distant ITV/Channel 4 originating broadcasts is $AUD0.0.516 […] (or $2.58 pspm for 5 originating broadcasts).

329.     These amounts are based on an agreement struck between the relevant parties.

Spain

330.     The rate per originating broadcast payable for retransmission in Spain is $AUD0.015 (or $0.07 pspm for 5 originating broadcasts).  This amount is based on an agreement struck between the relevant parties.

331.     These figures include payments for both local and distant signals as there is no separate treatment for local and distant signals.

UK

332.     ...

Cable

333.     Section 73(2) of the Copyright, Designs and Patents Act 1977 (UK) provides that copyright in any work included in a retransmitted broadcast is not infringed if the broadcast is made for reception in the area in which it is retransmitted by cable. 

334.     This means the broadcaster and underlying rights holders cannot withhold consent to a retransmission in the local area and there is no statutory entitlement to a payment to the underlying rights holders for the retransmission.

335.     Retransmission of distant signals is subject to a payment of a royalty to the underlying rights holders.  However, given that the broadcast area of the FTAs is basically UK-wide, this requirement is of no practical significance.

Satellite

336.        There [are] no provisions akin to s 73 of the UK Copyright, Designs and Patents Act regulating the retransmission by satellite of free-to-air broadcasts.  However, there is currently no retransmission by satellite in the United Kingdom.’  (emphasis in original)

315               The Retransmitters acknowledge that the position in Europe is different from that in Australia because:

·        retransmission there is undertaken by firms which are in the retransmission business; and

·        retransmission provides a means by which residents in country A can receive programs that are FTA in country B.

316               Screenrights attacks the Retransmitters’ calculations, and, more fundamentally, the relevance of the European rates in view of what it submits are features distinguishing the circumstances in which the European rates have been arrived at and those of the notional bargain between Screenrights and the Retransmitters with which we are concerned.

317               So far as the calculations are concerned, Screenrights has set out in the following table a comparison between its calculations and those of the Retransmitters (Screenrights addresses the United Kingdom separately):

As can be seen, Screenrights agrees with the Retransmitters’ calculation only in the case of Sweden.  Otherwise, there are large discrepancies between Screenrights’ figures and those of the Retransmitters.

318               We have considered the parties’ submissions supporting their respective calculations.  We can see force in them but will not embark on the sizeable task of determining which calculation is the more likely to be correct.  For one thing, there are evidentiary gaps (which could probably have been filled only by a person from the country concerned).  Secondly, we have concluded, in any event, that the circumstances in the European countries are not sufficiently like those in Australia to make the exercise useful.

319               Screenrights distinguishes the circumstances in Europe on the following general bases. 

320               First, in each of the European territories, except Norway, there is a ‘must-carry’ régime broadly similar to that in the USA and Canada.  That is to say, retransmitters are required by law to retransmit certain or all local (national) FTA channels.  In Australia, however, the Retransmitters choose to retransmit the FTA channels only if they perceive it to be in their own interests to do so.

321               Secondly, retransmission in Europe typically involves large numbers of foreign FTA channels, often in languages other than that principally spoken locally in the territory.  Screenrights submits that such channels will be of little commercial value in comparison to channels in the local language, and are retransmitted as part of a large package of channels.

322               Thirdly, rights are treated very differently as between European countries and Australia.  Screenrights elaborates as follows:

‘For example, broadcaster shares are not in relation to the broadcast per se, in the sense of broadcast signal copyright that applies in Australia.  Rather, broadcasters are remunerated as the owners of the underlying rights: (a) in the programs that they own as their producers; (b) in those cases where they have taken the rights as assignees; and (c) in the neighbouring rights of broadcasting organisations which is analogous to the Australian concept of broadcast signal copyright.  Never has any attempt been made to define the weight or respective value of each aspect (a), (b) and (c) which taken together go to make up the broadcasters’ share.’

323               Fourthly, the local area/distant signal dichotomy of the United States and Canada is not relevant to Europe.  European agreements tend to distinguish between local and foreign broadcasters, such as between German (local) and non-German (foreign) broadcasters.  This does not necessarily mean, however, that a foreign signal is not able to be locally received, particularly in cases of geographically proximate territories.

324               Screenrights points out that, in most European territories, local area and foreign FTA signals are not treated differently, and that the rate of remuneration for retransmission is the same for both.  Local area FTA signals are treated separately only in France, the Netherlands, the United Kingdom and Eire.  Screenrights submits that, in most European countries (Germany, Switzerland, Austria, Sweden, Norway, Belgium and Portugal), remuneration rates do not give any discount based on the origin of the signal.  It submits that remuneration paid for the retransmission of local FTA channels is as high as, and in the case of Norway higher than, the remuneration paid for the retransmission of foreign FTA channels.

325               While not accepting that the Retransmitters’ approach is in any sense valid, Screenrights addresses the positions in Europe, country by country.  Its analysis is intended to demonstrate what it calls the ‘more manifest errors’ involved in reliance on the rates being paid in Europe.  We will not summarise those country by country submissions, but will refer to four of them.

326               In the case of Sweden, as noted at [317], the parties agree that as a matter of calculation the rate is $1.15 pspm for five channels.  Sweden has a must-carry régime of five local FTA channels for analogue retransmitters and three local FTA channels for digital retransmitters.  The amount of $0.23 per channel represents an average arrived at on the basis of the five local channels and two foreign channels.  Multiplying by seven, the amount for all seven channels is $1.61 pspm.  Was this figure based exclusively on the two foreign FTAs?

327               The thrust of Screenrights’ ‘averaging’ submission is that the averaging exercise performed by the Retransmitters fails to recognise the depreciating effect of the ‘must-carry local FTAs’ régime.  Screenrights would apparently have us accept that, but for that régime, retransmission of the five local FTAs would give rise to a figure higher than $0.23 per local channel (higher than $1.15 for five).

328               An alternative view, however, is that the availability of local FTAs through the terrestrial aerial would lead to little value being ascribed to them in any negotiation, and that the Swedish retransmitters were, indeed, willing to pay virtually the entire $1.61 pspm for the two foreign FTAs.

329               We turn now to Norway.  Screenrights submits that the Norwegian comparison is more relevant to the notional bargain with which the Tribunal is concerned than are the other European countries in one respect:  Norway does not have a ‘must-carry local FTAs’ régime.  We noted the discrepancy between the parties’ calculations at [317].  The Retransmitters submit that since the question of the correct interpretation of the Norwegian formula is not something that the Tribunal can resolve, ‘the Norwegian figures are not particularly useful’.  It is noteworthy, however, that the Retransmitters’ own figure is $0.49 pspm for five channels.

330               Spain has the lowest rate, according to the Retransmitters’ figures: $0.07 pspm for five channels.  Screenrights points out that Spain has a very extensive ‘must-carry local FTAs’ régime.  According to Mr Koszuzeck, Spanish retransmitters must carry ‘two public service channels of RTVE, three commercial channels, the public service channels of the autonomous regions and finally local television channels’.  The evidence as to how many must-carry channels this signifies is unclear.  Mr Koszuzeck adopted a figure of over 60 percent of all retransmitted channels.

331               The Retransmitters relied on Mr Koszuzeck’s evidence that 40–60 channels were retransmitted, and selected the mid point of 50, on which they calculated that their average of a little over one cent per channel pspm (they acknowledged that music was not included).

332               Screenrights submits that the Retransmitters’ approach is also invalidated by ‘the averaging problem’ – the assumption that all retransmitted FTA channels are of the same value, and, in particular, that the channels the subject of the ‘must-carry local FTAs’ régime have the same value as the other channels that were the subject of the negotiation.

333               In relation to France, firstly, there is a must-carry régime under which retransmitters must carry both public and commercial channels.  Secondly, the local channel rate calculated by the retransmitters is based on an agreement negotiated with one public cable operator, the national French TV channel.  It is a case of one publicly owned cable operator retransmitting a publicly owned channel.  Thirdly, the rate covers only producers’ rights.  Fourthly, again, Screenrights attacks the Retransmitters’ calculations, and the discrepancy between the figures arrived at by Screenrights and the Retransmitters appears in the table set out at [317] (Retransmitters $0.15, Screenrights $1.52).

334               In supplementary submissions, the Retransmitters state, after acknowledging the difficulties in arriving at a truly comparable figure:

‘Accordingly, the local retransmission rate for France that emerges from the one contract, which the respondents accept is in the order of $0.3375 pspm for five channels (including an unidentified amount for the broadcast signal) is not an appropriate guide.’ (emphasis in original)

In sum, from submitting that a French local rate of $0.15 pspm should be treated by the Tribunal as representing a ceiling, the Retransmitters now submit that the rate is something less than $0.3375 pspm and should not be relied upon.

335               We turn now to certain more general considerations concerning Europe.  Articles 8, 9 and 10 of the Council Directive 93/83/EEC of 27 September 1993 ‘on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission reflect’ a policy of encouraging voluntary contractual arrangements in relation to retransmission in Europe.  Except in the case of rights controlled by the broadcasters themselves, those Articles require European Member States to ensure that copyright arrangements for retransmission represent collective agreements between rightsholders and cable operators.

336               Accordingly, price differences between various European countries reflect differences in market and bargaining positions.  The same circumstances also explain some differences in the way in which local area retransmission is treated vis-a-vis foreign retransmission.

337               In most European territories, no distinction is made between local and foreign retransmission in relation to the distribution of royalties received.  Even in certain territories such as Eire and Austria, where exceptions are created in favour of certain local area retransmissions, the royalty distribution policy of AGICOA does not distinguish between local and foreign retransmission.

338               So far as the evidence before the Tribunal goes, the United Kingdom is a ‘special case’ because of the collection of licence fees from the owners of television sets.  In the United Kingdom, payment-for-use was the basis upon which FTA broadcasting developed.  From the inception of broadcasting there, the Wireless Telegraphy Act 1904 (UK) required owners of broadcast reception equipment to pay an annual fee for a ‘wireless licence’.  The fees were collected by the Postmaster-General and were first used to fund the private conglomerate, the British Broadcasting Company, which operated from 1922 to 1926, prior to its nationalisation in 1927.  From 1927, the nationalised British Broadcasting Corporation (BBC) was (and still is) funded by the same licence fees, which are now levied annually upon television receiving sets.

339               While virtually all retransmission in the United Kingdom is local area retransmission under a free statutory exception to the exclusive rights of the copyright owner, that exception must be considered in the light of the television licence fee.  (Mr Koszuzeck said that the only retransmission of a foreign channel in the United Kingdom was the retransmission of RTE (Eire) to about 100,000 households in Northern Ireland.)

F.4      OVERVIEW

The United States of America

340               The approach taken under US law in relation to local area retransmission and the fixing of retransmission rates has not been followed by the Australian Parliament, and, according to Screenrights, should not be followed by the Tribunal.  The imperative of ‘localism’ in US broadcast policy has dictated the favourable treatment of local area retransmission in the form of a ‘must-carry local FTA free of charge’ régime, but a policy of fostering local broadcasting does not exist to the same extent in Australia.  Compliance with a must-carry régime seems to have been regarded in the USA as, in effect, the price paid by Pay TV providers for their licence to retransmit local FTAs.

341               In summary, in the USA retransmission of local signals is mandatory for, but free of charge to, the retransmitters, whether by cable or by satellite.  The rates payable for retransmission of distant signals are largely legislatively or administratively prescribed.  We derive no assistance from the United States comparison in determining the value placed on the licence to retransmit local FTA signals in a bargaining situation.

Canada

342               The treatment of local area retransmission in Canada can be explained partly by the concern of Canada to preserve a cultural identity distinct from that of the United States.  This policy imperative, related to the policy of ‘localism’ in the USA, has been a reason for the imposition since the 1960s of must-carry obligations on Canadian Pay TV providers.  The current treatment of retransmission in Canada of United States FTA channels was dictated by the terms of the NAFTA of 1988, which mandated a statutory scheme in Canada similar to that operating in the USA, in relation to distant FTA signals.

343               In summary, the Canadian ‘must-carry local FTAs free of charge’ régime and the assimilation pursuant to the Canada-US Free Trade Agreement of the treatment of non-local Canadian FTA signals to the treatment of FTA signals emanating from the USA, makes the position in Canada so different from that in Australia that we do not find the Canadian comparison useful.

Europe

344               In Australia, broadcast reception licence fees have not existed for decades.  Although virtually all retransmission in the United Kingdom is local only, the fact that it is a free statutory exception to the rights of the copyright owner must be understood in the light of the imposition of television licence fees.  The position is different from that in Australia in this respect.

345               In no other European country is all retransmission entirely local, whereas it is entirely local in Australia, that is, confined to the local area of the original FTA transmission.  The notion of retransmission of distant, let alone foreign, signals has no place in Australia.  Except in Norway, the other European countries have ‘must-carry local FTAs’ régimes.  Even where free exceptions exist for local area retransmission, the distribution policy of AGICOA is not to distinguish between local and non-local signal retransmission.  There is a problem in averaging to arrive at a pspm figure for a local FTA channel when the local FTA channels were not the subject of the bargaining process:  it cannot necessarily be assumed that they have the same value as the foreign FTA channels that were the subject of that process.

Australia’s position internationally

346               As a member of Berne and of the WTO, Australia is subject to the obligation to provide equitable remuneration to copyright owners for retransmission of their copyright works and other subject matter, if the retransmission right is made the subject of a compulsory or statutory licence.  Screenrights submits that to the extent permitted by its language, Part VC of the Act should be interpreted and applied in such a way as to ensure compliance with Australia’s obligations under the Berne‑in‑TRIPS retransmission régime.

Conclusion

347               The Tribunal does not derive assistance from the USA or Canadian comparisons.  A rate fixed legislatively or administratively in order to achieve a public policy objective cannot be taken as necessarily indicating an amount of ‘equitable remuneration’ to copyright owners.

348               Since the Tribunal takes as its starting point the notional bargain approach, the question arises whether there is any other country in which there is only local retransmission and the rate payable for it has been arrived at as the result of negotiation.  So far as the evidence reveals, there is none.

349               As we have considered the circumstances that exist in the various European countries, we have become increasingly doubtful of the extent to which the negotiated rates in those countries represent truly comparable bargains for present purposes.  We are not confident that any of them are so similar to Australia that we should place any reliance on the remuneration paid for retransmission in them.

350               We elaborate on this conclusion in relation to Europe at [514]–[518].

g.        approaches other than the survey approach

351               Screenrights suggested other methods by which a value might be placed on the advantages to the Retransmitters of retransmitting FTAs, and called two expert witnesses, Robert Wayne Peters and Ian Alexander McGarrity, in support.

352               Mr Peters is the managing director of Global Media Analysis Pty Ltd, a company that provides financial and strategic consultancy services to the media, entertainment, telecommunications and technology industries.

353               Mr McGarrity is a director of IMW Media Services Pty Ltd, a company that provides consultancy services, primarily in relation to the broadcasting industry and transmission matters.  He is also chairman of Digital Broadcasting Australia, an organisation that provides industry information and consumer education regarding digital terrestrial television broadcasting.

354               Both witnesses had extensive experience in the television and communications industry.  However, Mr Peters had no Pay TV experience and Mr McGarrity’s Pay TV experience was limited.  The Retransmitters attacked their evidence on this basis.

355               We accept that both witnesses were qualified to speak about the general effect of retransmission of FTA on the Retransmitters’ activities.

G.1      Effect of retransmission

(1)        Improved reception of FTA programs

356               Screenrights contends that a major incentive for persons to subscribe to Pay TV is that the picture reproduction quality of FTA programs is greatly improved when received by means of the Retransmitters’ cable and satellite services.

357               The expert witnesses for both Screenrights and the Retransmitters agreed that, in certain areas of Australia, including parts of the Sydney metropolitan area, the quality of television reception through terrestrial aerials is poor, primarily where the line of sight to the FTA broadcasters’ aerials is blocked, or where there are adverse weather conditions.  The problem has resulted in the Commonwealth Government’s institution of a ‘black spot’ program intended to overcome or lessen the difficulty.

358               The Retransmitters did not dispute that viewers were willing to spend large sums of money on technical equipment directed to improving reception.

359               The Retransmitters’ witnesses said that digital broadcasting produced an improvement in FTA viewing quality similar to that obtained through Pay TV.  They contend that the cost of equipment capable of receiving digital broadcasts, a cost that is decreasing rapidly, should be seen as the value placed on the retransmission of FTA over Pay TV, by a person who has poor FTA reception by the terrestrial aerial.  A person faced with the choice of improving FTA reception quality by upgrading equipment or subscribing to Pay TV would prefer to make the one-off outlay for a digital upgrade rather than an ongoing subscription to Pay TV, unless the person also wanted access to the Pay TV channels.  Digital TV, however, is not available in all areas of Australia.

360               There was no evidence before us indicating that the take-up rate for Pay TV is higher in areas where reception of FTA through the terrestrial aerial is poor.  Screenrights, however, pointed out that, in answer to Q10 of the Survey, 44 percent of all respondents (that is, across all price points) had said that achieving better reception/picture quality/sound quality was a ‘main benefit’ for them of receiving FTA channels through their cable TV.  This figure rose to 77 percent when only those respondents who categorised their terrestrial aerial reception as being poor were considered.  The Retransmitters attack the value of these responses on the basis that the answers were induced by the form of the questions and the manner in which they were posed.  As noted in [265], we have found that the responses to Q10 were heavily influenced by Q7 and the scenario which preceded it.

361               Mr Peters referred to four confidential surveys carried out on behalf of some of the Retransmitters which indicated that improved viewing of FTA programs was a significant factor affecting the take-up or continuance of subscriptions.  However, half of those surveys were conducted before the commencement of the Commonwealth Government’s black spot program in 2000, and all but one were conducted before the advent of digital FTA transmission, which commenced on 1 January 2001.  The Retransmitters also rejected their relevance to this issue on the basis that the questions asked did not refer to all options available to subscribers, and that the surveys were undertaken to test consumer interest in issues broadly relating to Pay TV.

362               Despite the lack of conclusive evidence, we accept that the prospect of improved reception of FTA may influence some people to subscribe to Pay TV.  While regard may be had to that fact when we determine the value to the Retransmitters of the right to retransmit FTA programs, the problem is that we do not know what number or proportion of subscribers have been or are likely to be so influenced, or the degree of influence.  We note that increasing digital terrestrial transmission means that the factor will be of decreasing importance in the future.  (FTA broadcasters are required to match their analogue coverage area with digital coverage as soon as practicable.) 

363               The Retransmitters submit that, if retransmission improves the reception of FTA for Pay TV subscribers, it necessarily follows that the number of viewers of FTA programs will be increased, their ratings will rise, and their value to the FTA providers in terms of advertising revenue will rise.  There is some force in this argument.  Again, however, quantification is a problem.

(2)        Convenience of a single remote control

364               Screenrights also contends that persons are influenced to subscribe to Pay TV by the fact that they will need only one remote control to move between FTA and Pay TV channels.  Of course, a person does not subscribe in order to be able to move between FTA and Pay TV viewing with a single remote rather than two.  Perhaps the better way of expressing the position is to say that a person who already has or who wishes to have Pay TV channels may take into account that, because FTAs are retransmitted through the Pay TV STU, he or she does not or will not suffer the disadvantage of needing two remote controls, one for the FTA channels and the other for the Pay TV channels.

365               Screenrights points to the Survey results, according to which 52 percent of respondents perceived having a single remote control as a ‘main benefit’ of receiving FTA programs retransmitted over Pay TV.  Nearly all respondents in one of the Retransmitters’ confidential surveys described the prospect of not being able to use a single remote control as ‘inconvenient’ or ‘very inconvenient’.  The Retransmitters attacked the cogency of these results on the same grounds as those on which they attacked the responses relating to improved reception.

366               Screenrights led evidence showing that the Retransmitters themselves had sometimes referred to the ‘seamless’ movement between FTA and Pay channels as an advantage.

367               Screenrights also pointed to a further advantage that the single remote control offered the Retransmitters – its ‘sticky’ effect.  A person watching a retransmitted FTA program is more likely to watch a Pay TV channel if he or she can do so without having to change remote controls.

368               The Retransmitters respond that a viewer must still use more than one remote control because the Pay TV remote control will not turn on the television set.  They also say that, in any event, viewers are used to handling a number of remote controls, because, unless they have a universal remote control (see below), they must use separate controls when using VCR or DVD players.

369               The Retransmitters further submit that, if we were to accept that the single remote control is a valuable benefit, its value could not be greater than the cost of a universal remote control.  The evidence is that such devices are on the market at a range of prices between $30 and over $100, depending on the features included. 

370               We are not persuaded that a significant number of people would be influenced in their decision to subscribe or continue to subscribe to Pay TV by the fact that only a single remote control is needed to change between FTA and Pay TV programs.  We accept that multiple remote controls are often used and that there will be increasing availability and use of universal remote controls.  Once persons subscribe, the ability to access both FTA and Pay TV channels using the one remote control is undoubtedly a convenience to some extent, and to that extent adds to the attractiveness of Pay TV.  There may also be some ‘sticky effect’ but this argument assumes that the viewer has subscribed to Pay TV primarily in order to watch the FTAs.  It is our firm view that subscribers subscribe in order to watch the Pay TV channels.

G.2      Cost of retransmission

371               Mr McGarrity suggested that a method of measuring the value to the Retransmitters of the retransmission of FTA is to look at the cost in terms of the capital and running costs that they were prepared to pay in order to retransmit.  The parties agreed that the value of the benefit of retransmission to the Retransmitters must be at least equal to the costs they have incurred or do incur in order to retransmit.  However, there was no agreement as to how those costs should be identified and calculated.

372               Mr McGarrity asserted that the costs should be derived as a proportion of the full cost of a Retransmitter’s operation, that is, its original establishment costs and the cost of maintaining its operations  He referred to the costs so calculated as ‘average’ or ‘fully distributed’ costs.  He said that a person seeking access to the supply of a limited service should be able to obtain it, not at the current or marginal cost, but at a cost which recognised the capital and other expenditure that those first in the field had spent to establish the service.

373               Mr McGarrity applied this method of calculation to the costs incurred by the Retransmitters, and arrived at very substantial figures as the cost of retransmitting FTA programs.

374               Mr McGarrity’s approach was rejected by witnesses called by the Retransmitters, principally Moya Dodd.  Ms Dodd is Vice-President of Charles River Associates (Asia Pacific) Pty Ltd (‘CRA’) and has been employed by that company or its subsidiary since 2003.  She states that ‘CRA is an economics, regulatory and business consulting firm’, and that its services include ‘economic and financial analysis, regulatory support, policy analysis and litigation support to clients particularly in telecommunications, energy, transport and related industries’.  Ms Dodd is a solicitor and holds university degrees of LLB (Hons) and MBA.  She has fifteen years’ experience in the media and telecommunications industries.

375               Ms Dodds’s view was that the cost of FTA retransmission should be measured only as marginal or opportunity cost, and that the question to be asked is what is the cost of retransmitting one additional FTA channel as against the marginal benefit of doing so.  If marginal benefit does not exceed marginal cost, the Retransmitter will not retransmit the additional channel.  A Retransmitter would pose this question to itself and ask to what other use its available facilities might be put.  Ms Dodd was not asked to give monetary amounts.

376               Ms Dodd disagreed that her approach could not be applied to costs incurred at the commencement of the Retransmitters’ businesses, because retransmission of FTA was part of their activities from the start and the cost of retransmission was a part of their establishment costs.  Ms Dodd said that the correct method depended upon the purpose for which costs were being calculated – a decision about whether to include particular channels in a package would be made on the basis of marginal cost.

377               As indicated below, there is some evidence to suggest that at the commencement of Pay TV in Australia, the Pay TV operators saw retransmission as one inducement to subscribe.  However, the fact that its value was limited is demonstrated by the fact that the delivery of Pay TV by Foxtel by satellite did not originally include the FTA programs because of the cost involved.  Austar included retransmission of the ABC in November 2001 and SBS in December 2002, but Austar had special confidential arrangements with them as to costs.

378               Since additional satellite broadcasting capacity has become available, it has become  practicable to retransmit FTA by satellite, but there have been complex costing arrangements between the Retransmitters and the FTA stations.  We note, however, that the arrangements have been arrived at on a marginal cost basis.

379               We consider that we should take into account the fact that there was, at the commencement of Pay TV, some value to the Retransmitters in retransmitting FTA programs.  This is shown by the fact that, at that time, they incurred capital costs to enable them to retransmit FTA.  In relation to one Retransmitter, the start-up cost of cable Pay TV retransmission, amortised over the life of the equipment, would be represented by a sum in the very low cents pspm.

380               Ascertaining the set-up cost of retransmission is also complicated by the fact that there are complex confidential contractual arrangements involving cross-subsidies between some FTA providers and the Retransmitters.  Foxtel’s arrangement with Channel 9 is affected by the fact that Channel 9 is a part owner of Foxtel.  It is not possible, on the evidence, for us to determine precisely what the establishment costs were.

381               The Retransmitters do not dispute that the decision to continue retransmitting FTA is based on an opportunity cost analysis.  This was recognised by their indication that they would cease retransmission if they considered the level of equitable remuneration to be too high.  If the Retransmitters thought that they would be better served by transmitting more Pay TV channels and allowing for any subscriber adverse reaction from the termination of the retransmission of the FTA channels, presumably they would follow that course.  The marginal cost to them of the retransmission of FTA is therefore some guide to its value in a notional bargain.  At least, that value must be greater than that cost.  However, the Retransmitters claimed that that marginal cost was minimal, and it appears to us that it is.

382               Unfortunately, the evidence on costs was not very explicit.  Foxtel’s evidence was that the ongoing retransmission costs on cable were only ‘nominal’.  Ms O’Hara said that TransACT incurred ‘modest headend costs in the retransmission of [FTA] signals when compared with subscription television and video on demand services’.  The confidential figure she provided was less than half the similar confidential figure she provided in respect of the Pay TV channels.

383               The cost of retransmission by satellite is also probably very low if the amount paid for access to the satellite is treated as a capital cost. As to this, see the comments at [456] relating to the complex contractual arrangements between the Retransmitters and the FTA providers.  Further, there are fixed charges for using the satellite, whether the whole of the capacity is used or not.

384               There was evidence, which we directed remain confidential, of the amounts of money relevant to the arrangements between the Retransmitters and the FTA providers.  However, the various bargains between them are so complex that this information does not assist us greatly to determine the costs actually incurred by the Retransmitters in retransmitting FTA programs.  The Retransmitters concede that the value of FTA retransmission to them is at least the marginal cost they incur in retransmitting the FTA signals, but contend that those marginal costs are ‘minimal’.  Mr McGarrity concluded from his analysis of various documents discovered by the Retransmitters that they had expended ‘significant sums’ on the retransmission of FTA channels.  We do not find his analysis persuasive, however, because we do not accept his full cost approach; rather, we think the marginal cost appropriate.  However, we do take into account the fact that there is such a marginal cost that the Retransmitters have chosen to incur in order to retransmit FTA. 

G.3      Benefits of retransmission

Effect of retransmission of FTA programs on number of subscribers

385               Mr Peters and Mr McGarrity asserted that the inclusion of retransmission of FTA programs in the suite of channels available to subscribers to Pay TV was an advantage to the Retransmitters.  In Mr Peters’ terminology, it constituted a ‘subscription driver’, that is, it increased the likelihood of persons subscribing.  Mr McGarrity put its effect in terms of increasing the ‘penetration’ of Pay TV in the market place. Both witnesses also considered that the availability of the FTA programs to subscribers reduced ‘churn’, that is, the rate of cancellation and non-renewal of subscriptions.

386               The evidence of these two witnesses relating to these methods of approaching the value of retransmission overlaps, as do the concepts they used.  The fact that something drives the taking up of subscriptions signifies that it will increase the penetration of Pay TV.  However, the two concepts can conveniently be considered under the labels used by the witnesses.

Retransmission of FTA programs as a ‘subscription driver’.

387               OzTAM manages and markets television ratings data covering all channels for the five city metropolitan areas (Hobart is omitted), and nationally for subscription television, and publishes the ‘ratings’ (that is, the percentage of viewers watching) in respect of all programs shown on Australian television.  The ratings are further divided into categories, including time of viewing and gender and age of audience. The ratings have particular significance for the sale of advertising.  

388               Mr Peters used standard OzTAM ratings to arrive at the percentage of viewing of FTA through the Pay TV STU.  These statistics revealed that Pay TV householders divide their television viewing almost equally between FTA and Pay TV channels.  Mr Peters deduced that they used their Pay TV STU for viewing FTA channels for half of their TV watching time.

389               Mr Peters conceded, however, that the OzTAM statistics did not differentiate between the viewing of FTA through the Pay TV STU and the viewing of FTA through the terrestrial aerial.  The statistics related only to the amount of viewing of FTA programs in homes that had Pay TV:  they did not distinguish between viewers of FTA through a Pay TV STU and viewers of it via the terrestrial aerial.  Further qualifying the utility of the statistics is the fact that, where the Pay TV was received via satellite, the viewing of FTA must, until recently, have been via the terrestrial aerial, because it was only recently that FTA began to be retransmitted via satellite, and even then not all FTA channels have been so retransmitted.  This distinction was not reflected in the global figure that Mr Peters derived from the OzTAM statistics.

390               The deficiencies in Mr Peters’ analysis just mentioned were in the end not of great moment as the Retransmitters conceded that a substantial percentage of the persons viewing television  through Pay TV STUs were viewing FTA channels.

391               Mr Peters referred to the four confidential surveys conducted on behalf of the Retransmitters between March 1998 and January 2003 (see [361]).  They are all confidential to the companies to which they were provided.  Mr Peters’ expertise to comment on the merit of the methodology used in the preparation of one of the reports was questioned, and he accepted that there was substance in the challenge to his expertise in that particular respect.

392               Mr Peters pointed to one report which suggested that the inability to view FTA programs would result in a loss of some 7–8 percent of subscribers. A similar difference was recorded between the numbers of persons who indicated an interest in subscribing to Pay TV, according to whether FTA programs were or were not available.  Another report observed that for many subscribers the access to retransmitted FTA was a fundamental pre-requisite for the uptake of Pay TV.

393               The Retransmitters’ witnesses questioned the value that could be placed on these reports.  They pointed out that the context in which the questions relating to the retention of access to FTA were asked, and the failure to point out to respondents that access to FTA programs would still be possible through the terrestrial aerial, cast doubt on the value of the responses.  Mr Keely also commented that he would have expected the answers that were in fact given, as the question indicated removal of a service without any return by way of reduction in subscription price or the supply of an alternative service.

394               Dr Bock noted that one of the reports was directed to the value of the FTA programs themselves, not the value of the retransmission of them.

395               The conclusion is open to be drawn from Mr Peters’ evidence and the reports to which he referred that the ability to watch FTA through the Pay TV box is a factor in the take up and maintenance of subscriptions. It is a different question how influential a factor it is.

396               Having determined that retransmission of FTA was a subscription driver as he defined it, Mr Peters then attempted to quantify its value to the Retransmitters.

397               He first endeavoured to do this ‘by reference to the relative importance of free-to-air channels and pay channels as subscription drivers for pay television applied to the net cost of pay channel programming incurred by pay television operators’.  He said that this relativity was to be assessed ‘qualitatively or intuitively’.  He conceded in cross-examination that his was a ‘simplistic starting point’ and ‘a bit arbitrary’.

398               Mr Peters’ attempt to ascribe a mathematical figure to this relativity in order to calculate the value to the Retransmitters of retransmission of FTA was unconvincing.  In cross-examination, he said that the figures he had used were largely indicative of a method of calculation, as distinct from the placement of a value on the inducing effect of retransmission.  There was no evidence that would have enabled us to derive the relativity in question, assuming that we considered this to be a legitimate way in which to evaluate the retransmission of FTAs.  We do not find the method of valuation proposed by Mr Peters to be of assistance.

399               Mr Peters then examined the matter from what he termed a ‘costs per rating share’ analysis.  Under this method, the cost to a Retransmitter of the programming of a particular Pay TV channel is ascertained. That figure is then related to the average viewing share of that channel in order to determine the channel’s cost per rating share per subscriber. An average of the cost per rating share for a group of those Pay TV channels most nearly comparable to the FTAs is then derived.  This figure is then applied to the ratings of each of the FTA channels in order to determine a comparable value for each of them.  (All of the FTA channels except SBS have a much higher rating than any of the Pay TV channels.)  The amount derived by Mr Peters was based on costs figures that are confidential to the Retransmitters concerned. However, it can be said that the amount lay between $50–100 million per annum for one of the Retransmitters.

400               This approach of Mr Peters is founded upon the premise that the ability of a Retransmitter to retransmit high quality FTA programs is as much an inducement to subscribe as is the availability of the Pay TV channels. This, he says, is reflected in the amount of viewer watching that is revealed by the ratings.

401               This approach may have a superficial attraction.  If subscribers watch more FTA than Pay TV channels, the FTA programs must have substantial value to them and therefore also to the Retransmitters.  There are, however, problems.  First, the question of concern to us is not the value of FTA to subscribers (and therefore to the Retransmitters) but the value of retransmission of FTA to subscribers (and therefore to the Retransmitters), in circumstances in which FTA is already available via the terrestrial aerial.

402               Secondly, the Retransmitters do not wish to encourage the viewing of FTA programs by their subscribers.  An increase in ratings for FTA programs as against Pay TV programs represents a loss for the Retransmitters.

403               A third problem flowing from the method of calculation referred to in [399] concerns the method of arriving at the cost per Pay TV channel.  It was on the public record at the time of the hearing, that only one of the Retransmitters had made a profit and that it had done so only in the previous year.  Moreover, the real cost per Pay TV channel would have to take into account the capital and other costs that have gone into establishing the Pay TV industry.  These considerations suggest a much higher figure than Mr Peters allowed for.  Conversely, if the cost per Pay TV channel were to fall, for example, as a result of a devaluation in the US dollar, the amount payable to the FTA providers would similarly fall.  This casts doubt on the method suggested as representing the value of retransmitting the FTA programs to the Retransmitters.

404               The ratings approach may have significance to the issue of penetration which is discussed below.  We do not, however, consider that it can be used as a method of calculating the value of retransmission of FTA, as Mr Peters seems to have suggested.

FTA as an aid to penetration of Pay TV in the marketplace

405               Mr McGarrity defined ‘penetration’ as ‘the number of subscribers a pay television operator has at any one time as a proportion of the potential number of subscribers who could access that service’.  He said:

‘Pay television providers benefit directly from increasing the penetration level of their services. Generally, the higher the penetration, the greater the gross revenue and the quicker the passage to profitability for the pay television business’.

Mr McGarrity concluded, after an examination of the subscription take up of the various Retransmitters and having regard to their different modes of delivery of Pay TV, that:

‘…the availability of a full suite of high quality picture and sound retransmitted local free to air services is a significant factor in the higher penetration for the pay television platforms carrying such services that I have examined vis a vis the penetration for pay television services I have examined which carry only a few or no such retransmitted services.’

406               The subscriber numbers are confidential. Mr McGarrity expressed the opinion that the penetration rate of cable Pay TV (on which FTA channels were retransmitted) is some 4-6% higher than satellite Pay TV (on which no or not all FTA channels were retransmitted).

407               If the retransmission of FTA programs was the only difference between cable and satellite Pay TV, the confidential figures referred to would support Mr McGarrity’s argument.  However, the Retransmitters challenged his assumption that a particular level of penetration could be attributed to one factor, the retransmission of FTA.

408               Mr McGarrity conceded that there were differences in the terms on which Pay TV was provided as between the various Retransmitters and also as between the kinds of service they provided.  The differences related to subscription fees, installation fees (in relation to both of which satellite Pay TV was higher), methods of advertising, minimum length of contract for which a service could be subscribed for, and date of commencement of the service.  Mr McGarrity indicated that he was aware of these matters, but explained: ‘I did not consider them to be as significant as [the provision of a suite of FTA broadcasts]’.

409               In contrast, Professor Carson thought that the higher price charged by Foxtel for satellite Pay TV ‘likely’ accounted for its lesser penetration. 

410               In support of his assessment of the significance of the retransmission of FTA, Mr McGarrity also referred to the penetration of TransACT.  He characterised this as an example of the offering of retransmission of a full suite of FTA channels, with only a small number of Pay TV channels, but with significant penetration, which he attributed to the retransmission of the FTA channels.  However, an alternative view is that subscribers were induced to subscribe by the Pay TV channels, although few in number, and the level of price charged.

411               Mr McGarrity indicated that he had taken into account the various other factors referred to at [408] that might have had an impact on penetration, but had made a value judgment based on his experience in the industry of the relative significance of the retransmission of FTA programs.  We do not find this conclusion particularly persuasive, in the absence of some discussion of all the factors and the reason why, for example, price was not as significant as the retransmission of FTA.

412               Mr Delany of Foxtel rejected the suggestion that the retransmission of FTA was a ‘subscription driver’ and increased penetration of Pay TV. He defined ‘subscription driver’ as the thing that will motivate a person to sign up for Pay TV.  In his view, the availability of retransmitted FTA programs did not meet this definition. He contrasted it with the offering by a Retransmitter of extra sports or movie channels which he did regard as subscription drivers.  Mr Delany described the availability of FTA programs on Pay TV as a ‘convenience’ to subscribers. He emphasised that it would be self-defeating for Foxtel if its subscribers were to watch too many FTA programs, as it wants them to view its Pay TV channels

413               Mr Delany also pointed to two other significant factors in measuring the greater take up of Pay TV by cable than by satellite. First, in what are termed ‘multiple dwelling units’ (MDUs), that is, blocks of apartments and groups of townhouses, cabling is the preferred means of supply of Pay TV, and each apartment counts as one house for the purpose of measuring penetration.  Secondly, Foxtel has a cable preference rule: if a house can be serviced by cable or satellite, cable is used.  Both of these factors, he said, inflated the penetration of cable, but were independent of the retransmission of FTA programs.

414               Deanne Evelyn Weir, General Counsel and Company Secretary of the parent company of Austar, and a director of Austar, asserted that the ability to receive retransmitted FTA was not a significant subscription driver. She said that there was no evidence that the introduction of the retransmission of SBS and ABC broadcasts on Austar increased subscriptions.

415               Ms O’Hara referred to research undertaken for TransACT that indicated that retransmission of FTA was the least important consideration for a person contemplating whether to subscribe to Pay TV. Cross-examination revealed that this conclusion might be subject to some qualifications.  However, it is at least apparent from the research that there were other considerations that assumed greater importance in the minds of prospective subscribers.

416               Both Mr Keely and Ms O’Hara referred to the fact that persons subscribe for a bundle of services from Optus and TransACT, respectively, as reducing the significance of television generally, and of FTA retransmission in particular, as a subscription driver.  Mr Keely made the additional point that while the television side of Optus’s offerings had initially been seen as a gateway or portal to the take up of other products, that approach had not produced the results expected and was no longer followed.

417               The evidence from these witnesses for the Retransmitters serves to qualify Mr McGarrity’s analysis of the effect of retransmission of FTA programs as an aid to penetration.  However, it should be acknowledged that Mr McGarrity did no more than assert that the retransmission of FTA channels is a significant factor in explaining levels of penetration.  There is some evidence to support the correlation that he claims.  However, where that correlation stands in the order of importance of factors affecting penetration is not possible for us to say on the evidence.  No attempt was made to repeat the correlation process for the other variables referred to, such as the different services provided, differences in their cost, and the ways in which they are delivered.

418               We conclude that the inclusion of a suite of retransmitted FTA channels probably has some positive effect on penetration.  Foxtel and Optus apparently thought so when they initially chose to include retransmission of FTA programs in their package.  TransACT chose, when implementing its strategy of providing a complete range of communications services, to retransmit FTA programs. The marketing practices of all Retransmitters have recognised the fact that their prospective and existing subscribers now expect them to retransmit FTA.

419               These practices probably do not indicate that retransmission of FTA is a subscription driver in the sense used by Mr Delany, except in the case of persons who have poor reception of FTA through their terrestrial aerial.  For these people, the chance of receiving a substantially better picture through the Pay TV STU would very likely be a motive for subscribing.  The evidence does not establish the proportion of subscribers that fall into this category.  There is also likely to be a shading of its influence as a subscription driver across a spectrum, from those who have very poor reception, to those whose picture is a little unclear or less than perfect.

420               If one takes Mr Peters’ lesser test of a subscription driver, namely, a factor that increases the likelihood of persons subscribing, the availability of retransmitted FTA seems to fall within this description and hence to contribute to the penetration of Pay TV.  However, as noted previously, the extent of that influence is probably impossible to identify.  There are many other factors that influence comparative penetration rates, such as those relating to MDUs, the cable preference practice referred to above, and the comparative cost of the services.

421               Screenrights chose not to put into evidence Mr McGarrity’s attempt to place a number on the increase in subscriptions that the adoption of his approach to penetration would reveal, and to assess how much that increase would be worth to the Retransmitters.  Obviously, it would be a difficult figure to determine. The most that the Tribunal can do is to note Mr McGarrity’s opinion that it is a ‘significant’ factor.

422               We conclude that, in assessing the value of retransmission of FTA programs to the Retransmitters, its effect in increasing penetration must be given some weight. However, the evidence does not support it as having the impact that Screenrights’ witnesses suggest. On the evidence before us, we do not consider it a major subscription driver or aid to penetration, except where the quality of reception of the FTA signal through the terrestrial aerial is poor.

Churn

423               ‘Churn’ is the generic name given to cessation of subscription.  It is usually expressed as a percentage of the total number of subscribers at a given time.  So a 20 percent churn means that 20 percent of subscribers have ceased being subscribers in the preceding 12 months.  Churn occurs as a result of three circumstances that need to be considered separately: cancellation by a subscriber; non-renewal of subscription; and termination of access by the provider as a result of non-payment of subscription.

424               It is in the interests of Retransmitters to keep churn as low as possible. Information relating to the percentage of churn applicable to each Retransmitter is regarded as ‘commercial-in-confidence’, and we will not mention the actual churn for a Retransmitter, except for Austar which has publicly stated its churn rate.

425               Screenrights argued that the availability of retransmission of FTA programs reduces churn and is therefore of value to Retransmitters.  This claim was said to be supported by statistical evidence for the period 2002–03 for Foxtel.  The evidence was said to establish a connection between increases and decreases in churn and the times when retransmission of FTA was not or was available. It was asserted that churn in respect of cable Pay TV was lower than that for satellite Pay TV, and that the difference was attributable to the fact that the satellite service at that time did not retransmit FTA.  This proposition was strongly challenged by the Retransmitters.

426               There are problems with making good the correlation. As noted above in relation to the penetration of Pay TV, there are other differences between the supply of Pay TV by cable and by satellite.  These differences make it difficult to isolate any one reason for differences in subscriber behaviour.  The range of programs able to be received may be one explanation for any difference in churn, but so also may the levels of subscription fees and the lengths of subscription contracts.

427               There is also a further factor that goes to both Mr McGarrity’s analysis of churn and the explanation for differences in churn as between Foxtel’s cable and satellite services. Persons may cease to be subscribers voluntarily or involuntarily. In the latter case their access will be terminated because they have not paid their subscription.  It cannot be assumed in relation to this group of subscribers that they do not wish to continue receiving Pay TV.  Rather, apparently, they can no longer afford it.  The same may apply to some cases of non-renewal:  while some non-renewers may not wish to receive Pay TV any more, others may simply not be able to afford it.

428               Mr McGarrity’s assertion of a correlation between the absence of retransmitted FTA programs and churn was based on a comparison between the churn for Foxtel cable and satellite services in the period 2002–03.  Total churn figures support his comparison.  However, during this period, if regard is had only to voluntary discontinuance of subscriptions, the position is reversed: the rate of voluntary discontinuance of subscriptions was actually higher for the cable subscribers than for the satellite subscribers.

429               It seems to us that if churn is to be taken into account in assessing the impact of retransmission of FTA on subscriptions, it is only the rate of voluntary churn to which regard should be had.  Involuntary churn cannot be taken into account in determining subscriber choice.  Even voluntary churn will be affected by many factors, unavailability of FTA being only one of them.

430               Somewhat curiously, in the period from October 2003, that is to say, largely after the period on which Mr McGarrity relied, the position is as he described it, in that the churn based on cancellation of subscription, that is, voluntary churn, was higher for satellite subscribers than for cable subscribers.  (The voluntary churn for the digital service, which commenced in March 2004, is close to the same for both cable and satellite services, but the rate of voluntary cancellation was higher for analogue services received by satellite than for analogue services received by cable.)

431               In the period prior to that relied upon by Mr McGarrity the comparative rates of churn between cable and satellite services were variable with a slight bias towards the higher rate relating to the cable service.

432               In short, if churn numbers are to be derived from those subscribers who voluntarily cancel their subscriptions, as, in our view they should be, the availability of FTA retransmission has no correlation with a lower churn. If anything, it correlates to a higher churn.

433               Mr Delany of Foxtel gave evidence relating to the churn as between cable and satellite service subscribers for a period of four months in 2004.  The figures, which we directed remain confidential, indicate that the rate of voluntary discontinuance of subscription was about the same as between the two modes of delivery.  However, involuntary discontinuance was some 60 percent higher for satellite subscribers.  Mr Delany attributed this to differences in the economic circumstances of the different groups of subscribers.  He derived this conclusion from the cable preference policy applied by Foxtel, and the fact that the cable was laid in the geographical areas that Foxtel considered were more likely to take up Pay TV. These were economically more affluent areas. Thus it was more likely that satellite subscribers would be found in economically ‘disadvantaged’ areas.  However, no formal research was conducted to support Mr Delany’s assertion.

434               Ms Weir of Austar, said that following concerns about an increase in churn, Austar adopted a program called ‘Churnbreakers’ in October 2002.  It has been successful in reducing Austar’s churn to less than 2 percent since April 2003.  Ms Weir observed that the identification of the reasons for churn that emerged in the course of implementation of the Churnbreakers program did not include the unavailability on Austar of retransmitted commercial FTA channels.  She said that, similarly, Austar’s retransmission of the ABC and SBS was not seen as an inhibitor of churn.

435               Ms Weir conceded that the research undertaken in the Churnbreakers program did not specifically address the issue of the impact of retransmitted FTA on subscription take up or churn.  However, she said that this was because it was not seen as an issue.  She rejected the suggestion that an increase in the number of subscribers after the introduction of retransmission of SBS resulted from that introduction.  Rather, she said that it resulted from better management processes adopted as a result of the Churnbreakers program.

436               TransACT and Optus provided no churn statistics.  Ms O’Hara of TransACT indicated that the retransmission of FTA had no impact on TransACT’s churn because its bundling of services provided a different basis on which subscribers view the value of their subscription. Mr Keely of Optus also referred to the impact of the bundling of products on the take up by, and retention of, subscribers.

437               In any consideration of the impact of retransmission of FTA on churn, it is again necessary to distinguish between those persons who have poor reception through the terrestrial aerial and those who do not.

438               For the first group, the availability of FTA through the Pay TV STU will be a major inducement to continue a subscription.  For the second group, the availability of FTA will probably have some, but a much smaller, effect on reducing churn.  FTA retransmission will be seen as part of the package offered by the Pay TV provider.  It will be convenient for the subscriber to watch FTA programs through the Pay TV STU.  In the overall assessment by a subscriber of whether it is worthwhile continuing his or her subscription, the availability of retransmitted FTA will presumably carry some weight.  On the other hand, the person will know that discontinuance or non-renewal will not cause loss of access to the FTA programs, as they will remain available through the terrestrial aerial.  The question they will really be asking themselves is whether the Pay TV channels themselves warrant the subscription.

439               The evidence does not persuade us that it is possible to spell out a direct correlation between the availability of retransmitted FTA and churn. The evidence is either neutral, or, if anything, points the other way.  However, we recognise that, for persons who have poor reception of FTA channels through the terrestrial aerial, the ability to obtain a better picture by subscribing to Pay TV will inhibit churn to some extent.

440               Again, it is difficult to put a monetary value on any reduction in churn that results from the retransmission of FTA.  As noted at [421], Mr McGarrity’s attempt to do so was not put in evidence by Screenrights.  As a subscriber knows that he or she is not giving up access to FTA by discontinuing or not renewing a subscription, we think that the effect on churn must be slight.

Submissions relating to the motivation of the Retransmitters 

441               The Retransmitters refer to Amalgamated Television, where commercial FTA broadcasters unsuccessfully attempted to prevent retransmission. They concede that ‘[t]here was, plainly, some advantage to the subscription TV operators in establishing their rights to retransmit the FTAs by cable’, and that the respondents in that case ‘plainly … preferred to be able to retransmit (without payment and without permission) if possible’.  However, the Retransmitters go on to submit:

‘…what is clear is that even if Foxtel had been unsuccessful in the 1995 litigation, it would still have gone ahead with its launch of its subscription channels, precisely as scheduled and precisely as advertised.  To suggest otherwise is fanciful.’

 

442               The Retransmitters submit that Foxtel’s decision not to retransmit FTAs via satellite is an indication of the low value it placed on doing so as a means of ‘attracting and retaining subscribers’.  In the context of the limited transponder capacity available for the transmission of Foxtel’s service via satellite, they submit (footnotes omitted):

‘Foxtel had other channels that it could have removed from its channel line-up in order to accommodate the national broadcasters and selected highly-rating metropolitan-based broadcasters.  Had retransmission been delivering anything like the financial benefits claimed by Screenrights and its witnesses in these proceedings, it would clearly have been in Foxtel’s interests to do so.’

443               Screenrights contends that the Retransmitters have ‘significantly overplayed’ the fact that Foxtel did not retransmit FTAs to its satellite subscribers until March 2004, pointing out that the ‘plain fact’ is that, prior to then, there was insufficient transponder capacity to retransmit the ABC, SBS and the various versions of the commercial FTAs.  We note that it would also have been necessary for the Retransmitters to have obtained the agreement of the FTA providers, because, unlike the position with respect to cable retransmission, no statutory licence permitted retransmission of FTA by satellite.

444               The Retransmitters submit that there was no evidence that Foxtel’s satellite subscribers, who would have been aware that cable subscribers received retransmission, ‘pressured and pestered’ Foxtel to retransmit FTAs via satellite.  They also point to the ‘steady uptake’ of satellite subscriptions as evidence that the retransmission of FTAs is not the kind of subscription driver contended for by Screenrights.  The Retransmitters point out that when transmitting via the smaller-capacity B3 satellite, Foxtel declined to remove poorly performing Pay TV channels in order to have room to retransmit FTAs, and that when Foxtel began utilising the larger-capacity C1 satellite, it declined to pay for additional transponder capacity in order to add the FTAs to its channel line-up.  These decisions, the Retransmitters submit, ‘confirm the low value that [Foxtel] places on the retransmission of FTAs’. 

445               As to Austar’s motivation for commencing retransmission of the ABC in 2001 and SBS in 2002, the Retransmitters submit: 

‘Plainly Austar’s retransmission was influenced by the fact that its legal ability to do so on a satellite platform arose by reason of the 2001 amendments.  Also Austar had formed the view that retransmission would attract either no, or only a nominal amount of equitable remuneration, at least to the extent for local retransmission (all Austar’s retransmission has been the equivalent of “local” retransmission, as neither the ABC nor the SBS has a geographically limited licence area).’

 

It can thus be seen that the Retransmitters reject the argument that they retransmit FTA in order to induce persons to subscribe to Pay TV (and to inhibit churn). However, they continue to retransmit FTA and in some cases advertise that they do so.  This indicates that, despite their protests to the contrary, they see retransmission of FTA as being of some advantage to them.  The position warrants examination under several headings.

Publicity on commencement of transmission

446               Foxtel and TransACT retransmitted FTA programs from the beginning of their respective operations.  Optus commenced doing so as soon as it became clear that to do so would not infringe copyright (see [61]).  In all cases the publicity directed to prospective subscribers mentioned the availability of the FTA programs. Foxtel and Optus counted the FTA programs in their statement of the number of channels available to subscribers.

447               In its Product Plan of March 1995, Optus described the making available of FTA programs as giving it the ‘automatic tune in factor’.  Mr Delany of Foxtel gave five reasons for Foxtel’s retransmitting the FTAs at the start up of its subscription service:

• Optus was retransmitting FTA programs and including them in its channel count, and Foxtel would give the appearance of providing less services if it did not retransmit them;
• retransmission of FTA programs by Pay TV providers was common overseas, and Australian consumers would expect a like treatment;
• retransmission of that with which consumers were familiar (FTA channels) would ease their acceptance of Pay TV;
• retransmission provided a convenience to subscribers;
• the cost of retransmission was very low.

448               It seems probable that these reasons were applicable to varying degrees to the decisions made by the other Retransmitters to retransmit the FTA channels.

449               Except on its cable network in Darwin, where it retransmits the programs of all the local FTA channels by cable, Austar has only ever retransmitted by satellite the ABC and SBS.  It has always publicised its retransmission of them.

Publicity after commencement

450               Optus, TransACT and Austar continue to publicise the availability of FTA in their subscription literature and advertisements.  TransACT makes particular mention of the fact that the FTA programs are available in digital format ‘without outlay of a digital set top box’.

451               Foxtel included the availability of access to FTA programs in its advertisements from 1996 to 1999, but does not now do so, at least generally speaking. However, from time to time reference to it appears. For example, at the time of the launch of digital transmission the Chief Executive Officer of Foxtel, Kim Williams, referred to consumers being able to watch ‘open broadcast channels seamlessly using one remote control’.  Foxtel Call Centre staff, while being instructed not to promote the retransmission of FTA programs, were nevertheless given a script for satellite customers that referred to newly available access to some FTA programs as ‘Great news’.

Program guides

452               All Retransmitters include details of the FTA programs, where those details are made available to them, in their electronic program guides (but not in their printed guides).  The listing in the electronic guide is not, however, solely an initiative of the Retransmitters.  In its agreement with Foxtel relating to satellite retransmission, Channel 9 required the listing of its programs and also chose the channel number that was to be allotted to it.  In their agreements, the ABC and Channels 7 and 10 also required the listing of their programs in the electronic guide.

Reasons for continuing retransmission

453               Mr Delany of Foxtel did not believe that the factors that justified the retransmission of FTA programs when Pay TV was first transmitted apply today.  He said that the increase in the number of Pay TV channels and the greater familiarity of consumers with Pay TV (referred to as the ‘maturity’ of the market) meant that the FTA programs were now of less value to Pay TV providers.

454               Why, then, do they continue to retransmit FTA?  The principal reason given by Mr Delany was that a service once provided to subscribers cannot readily be withdrawn.  Withdrawal would be possible only if something were substituted and an explanation were provided to subscribers.  (A similar view was expressed by Mr Keely of Optus.)

455               This explanation of the reason for continuing the retransmission of FTA programs does not fit comfortably with the fact that Foxtel is endeavouring to reach an agreement with Channels 7 and 10 to enable the retransmission of their programs on satellite Pay TV.  Apparently Foxtel sees an advantage in this.  Nor does the desire to add these channels to its menu fit comfortably with the suggestion referred to above that the previous absence of FTA programs from satellite transmission indicated that they were not significant to subscribers or to the Retransmitters.

456               There was evidence, which we ordered remain confidential, relating to the agreements between some Retransmitters and some FTA stations which indicated that there were complex cross funding arrangements relating to the bases on which the FTA channels would be retransmitted by satellite.  Screenrights claimed that these arrangements indicated that retransmission was of value to the Retransmitters, in that they were prepared to subsidise some of the costs incurred by the FTA providers in using the satellite for transmission of their programs.  A close examination of the arrangements show them to be very complex and to have been influenced by considerations other than a desire on the part of the Retransmitters to have the FTA programs available for retransmission.  Little assistance in determining the remuneration to be paid can be derived from these contractual arrangements.

457               Mr Delany conceded that retransmission of FTA programs must be taken to have some value to subscribers. He also provided as additional reasons for continuing retransmission of FTA, the facts that a decision to cease retransmission would give rise to adverse publicity, and that it might attract political intervention and legislation introducing a ‘must-carry’ régime.  He also said that it was desirable from Foxtel’s marketing viewpoint for the cable and satellite subscription packages to achieve parity.  He agreed that it would not have been possible for the FTA programs to have been retransmitted by satellite at the time when satellite broadcasting commenced, as there was not sufficient capacity on the satellite.

458               Ms O’Hara said that a key objective of TransACT was to deliver a wide range of content and services without duplication of infrastructure. She agreed that this included the delivery of FTA programs to subscribers and the capacity to use the Pay TV STU to receive those programs. TransACT saw the provision of video services, including retransmission of FTA, as part of its maximisation of the use of the cable network.  She also described TransACT as a ‘triple player’ providing a ‘triple pay service’, by which she meant that TransACT supplied the full communication package of telephony, data and video services. Optus made like statements in regard to its services.

459               It would seem from Ms O’Hara’s evidence that TransACT views the retransmission of FTA programs as an integral part of its service to subscribers.

460               We are satisfied that upon the establishment of the Pay TV industry, the availability of FTA as part of the subscription package was viewed as a significant part of the new service.  The Retransmitters set up their equipment to enable retransmission as part of their package, even though they did not know until very nearly the day of first broadcast whether they would be entitled to retransmit the FTA programs at all.  Since that time they have, to varying degrees, publicised the availability of the FTA programs as part of their offerings.

461               We accept that there could be circumstances in the future in which the Retransmitters might choose to discontinue retransmitting FTA.  However, for present purposes we find that they see an advantage to themselves in continuing to do so, and, indeed, adding to the number of FTA channels retransmitted in the case of satellite transmission.

G.4      Comparable Bargains

462               As noted at [131]-[132], in fixing rates under the various licences provided for under the Act, the Tribunal has sought guidance from bargains that have been entered into by the parties or others.

463               The parties made submissions that there are two particular bargains to which we might have regard.

464               The first related to the amounts paid by Pay TV providers to the owners of the rights in the programs broadcast on their Pay channels. This was urged fairly weakly as a guide, and it does not seem to provide a useful comparison.  The negotiation at arm’s length with producers of programs for first viewing on Pay TV channels is very different from the negotiation that would take place in respect of the retransmission of programs that are already being shown simultaneously on available FTA channels.

465               The second bargain is perhaps more to the point.  An agreement was made in 2000 between the Australasian Performing Rights Association (APRA) and ASTRA, representing all Pay TV providers (‘the APRA/ASTRA agreement’).  It replaced an earlier agreement made in 1996 (shortly after the introduction of Pay TV in Australia) between the same parties.  APRA is the collecting society for music copyright owners in respect of, relevantly, their broadcasting right.

466               Brett Cottle, Chief Executive of APRA, negotiated the APRA/ASTRA agreement on APRA’s behalf, and gave affidavit evidence.

467               The APRA/ASTRA agreement related to all music broadcast by Pay TV providers.  It included music broadcast over audio channels.  Mr Cottle said that at the time he gave no particular thought to the commercial value of the then proposed retransmission right.  He said that the agreement ‘provided for payment of blanket licence fees expressly calculated as a percentage of each station’s gross advertising revenue’.  He said that, ‘rightly or wrongly’, he considered that the advertising revenue derived by an FTA station would effectively include the value to an advertiser of an audience reached through retransmission by an ASTRA member.  Mr Cottle said he felt that it would have been difficult to negotiate with ASTRA an additional commercial value to be attributed to the right of its members, the Pay TV providers, to retransmit the music in respect of which the FTA stations were already paying APRA.

468               In February 2002, APRA reached agreement with the Federation of Australian Commercial Television Stations on a new licence scheme covering the broadcasting of musical works by the FTA stations.

469               In December 2004, APRA gave notice of termination of the APRA/ASTRA agreement, with effect from 31 March 2005.  APRA is negotiating a new licence agreement with ASTRA, but in view of Screenrights’ status as the declared collecting society under Pt VC of the Act and the pendency of this proceeding before the Tribunal, the retransmission right will not be included in the new licence offered by APRA.  It was not disputed by the parties that APRA would be entitled to 7.4 percent of the total amount of equitable remuneration paid by the Retransmitters to Screenrights pursuant to the determination to be made in this proceeding.

470               The Retransmitters submit that Mr Cottle’s evidence in relation to the negotiation of the APRA/ASTRA agreement indicates that APRA placed no value on the broadcasting of music on the retransmitted FTA programs.

471               Mr Cottle said that ‘the negotiations were complex and difficult’, while counsel for Screenrights characterised the APRA/ASTRA Agreement as ‘a bad deal’, a fact borne out by confidential evidence as to the cost of making programs given by Steven Tomsic, Strategic Planning Manager of Foxtel.

472               The Retransmitters provided us with amounts derived from the APRA/ASTRA Agreement suggesting the value of the retransmission of the FTAs.  Screenrights attacked the validity of these calculations.  We do not find them to be of particular value as they were  too speculative to provide a sound basis for reaching a conclusion on what the present parties might have agreed upon as the remuneration to be paid.

473               We are in no position to judge the merits of the APRA/ASTRA agreement bargain from APRA’s viewpoint, but note that Mr Cottle is a very competent copyright lawyer and executive with long experience in bargaining the value of the product that APRA sells.  The low value that he accorded to the broadcast of music on the retransmitted FTA channels can be seen as indicative of an assessment of its value by one of the bodies that will receive payment from the amount of equitable remuneration to be fixed by the Tribunal.

474               The APRA/ASTRA agreement was concerned with broader issues than those which are the subject of the notional bargain that we must postulate.  The desirability of reaching an outcome across a range of matters may induce parties to agree to resolve a particular matter differently from the way in which they would do if that matter were the sole subject of the bargain.

475               APRA and ASTRA were bargaining over one type of use (public broadcasting) of one type of copyright work (music) with which the present application is concerned.  The amount that can be said to be ascribable under the APRA/ASTRA agreement to the broadcasting of music on the FTA channels can only be based on estimation, as it was not addressed discretely in the agreement.  It is drawing a long bow to extrapolate from the APRA/ASTRA agreement a figure that can be used in fixing the equitable remuneration across the range of works and uses for which Screenrights is entitled to receive equitable remuneration from the Retransmitters.  We do not find the APRA/ASTRA agreement particularly useful as a comparable bargain.

H.        SUBMISSIONS AS TO amount of equitable remuneration
AND RELATED ISSUES

h.1      Submissions as to amount

Screenrights’ submissions

Amount of equitable remuneration

476               Screenrights’ primary submission is that an amount between $2.00 and $10.00 pspm should be accepted as the ‘retail’ value to consumers of retransmission of all five FTA channels (ABC, SBS, 7, 9 and 10).  Screenrights relies on the results of the Survey and other evidence, including evidence of the inhibition on churn.  Screenrights submits that the amount should be split equally between the copyright owners and the Retransmitters, so that the amount of equitable remuneration lies between $1.00 and $5.00 pspm, and Screenrights settles upon $2.50 pspm, which includes the multichannels, ABC 2 and SBS News.

477               Screenrights also refers to the approaches of Professors Borland and Carson supporting the inclusion of some element for indirect revenue generated to the Retransmitters because, according to the submission, retransmission of FTAs increases subscriptions to Pay TV. 

478               Screenrights submits that the amount of $2.50 pspm is conservative because:

·        it does not allow for Screenrights’ administrative costs;

·        it represents half the Retransmitters’ ‘profit maximising point’ ($10.00) as revealed by the Survey;

·        it includes no special allowance for the FTA digital multichannels.

479               Screenrights submits that an amount of $1.00 pspm is equitable remuneration if the Tribunal considers that Screenrights is not entitled to credit for indirect revenues generated to the Retransmitters by retransmission.  This amount of $1.00 represents 50% of the ‘conservative lower bound of equitable remuneration’ identified by Professor Borland, and the ‘strictest definition of the revenue from retransmission’ identified by Professor Carson, and the most conservative application of the Survey results, relying on data from Question 7 rather than Question 9 (because of the possibility of bias in Q9).

480               Screenrights submits that a reduction of 2 percent, which is in line with Screenrights’ Distribution Policy, should be applied if the Tribunal should determine that a discount for the copyright in the broadcast signal is appropriate.  Screenrights argues, however, that this would be unfairly prejudicial to the copyright owners, due to the ‘extreme conservativeness’ of the base amount.

481               If, however, the discount of 2 percent for the broadcast signal copyright is applied (and if a share of indirect revenue generated is not included in Screenrights’ favour) the amount of $0.98 pspm would be the amount of equitable remuneration for the full suite of five channels.

Timing of payment

482               Screenrights notified the Retransmitters under s 135ZZK that the amount determined by the Tribunal would be due on and from the dates of their respective remuneration notices (see [4]), and therefore opposes the Retransmitters’ suggestion of a phasing in of payments in respect of the period preceding the date of the Tribunal’s determination.  Screenrights also opposes their submission that they should be allowed to adduce evidence on the issue of retrospectivity payments.  Screenrights submits that this would re-open the issue of the amount of equitable remuneration itself, and points out that the Retransmitters did not lead evidence from their executives as to the impact that a determination would have on the Retransmitters.  

483               Screenrights seeks indexation by reference to the Consumer Price Index for all years after calendar 2005, in order to preserve for the future the full value of the amount now determined.

Retransmitters’ submissions

Amount of equitable remuneration

484               The Retransmitters propose an amount of 10 cents pspm for the retransmission of all five FTA channels.  They say that they recognise the Act’s requirement that they pay some amount that is more than nominal.  They submit that this figure represents a ‘realistic maximum in all the circumstances of this case’.  Those circumstances include the following:

·        the fact that retransmission is a secondary use, similar to local retransmission in a wide range of markets such as the United States, Canada and Europe (including the United Kingdom);

·        the fact that retransmission involves the supply of something that is conveniently available to consumers completely free of charge;

·        the fact, according to the submission, that a lower bound of zero dollars is supported by the APRA/ASTRA agreement.

485               The Retransmitters submit that the Tribunal should give no weight to the Survey.  They submit that the Newspoll survey demonstrated that contingent valuation cannot be applied reliably in the circumstances of this case.  They would also dismiss the evidence of Mr McGarrity and Mr Peters and their expert calculations as ‘arithmetical representation of guesswork’, and characterise comparisons such as those between the cost of a bundle of Pay TV programs and a bundle of FTA programs as fundamentally flawed. 

Timing of payment

486               The Retransmitters submit that the amount payable should be calculated from the first day of the month immediately following the date of the Tribunal’s determination, not from the dates of the giving of the remuneration notices in 2001, and that the parties should be heard by the Tribunal on the issue of retrospectivity.  Originally, Screenrights did not specify any amount, and this fact, and the delays caused by the Survey, are reasons why, according to the Retransmitters, the Tribunal should allow submissions to be made on retrospectivity.

H.2      Remuneration for less than five channels

Screenrights’ submissions

487               In two instances, something less than the full suite of ABC, SBS, 7, 9 and 10 is retransmitted. Foxtel digital satellite retransmits only three: ABC, SBS and 9.  Austar satellite retransmits only two: ABC and SBS.  Screenrights proposes two possible solutions to the ‘partial bundle’ issue:

·        Splitting the equitable remuneration for a full bundle of five channels equally between the five, then applying the resulting per channel amount to each channel included in the particular partial bundle (the ‘Equal Split Approach’ – ‘ESA’); and

·        Splitting the equitable remuneration for a full bundle of five channels on the basis of FTA audience share (ratings), so that for each of the five there is a share based on its share of the FTA audience (the ‘Audience Share Approach’ – ‘ASA’).

488               Screenrights submits that consumer demand for retransmission is more complex than the ESA allows for, and that the ASA is more reliable.  It proposes, first, a formula ‘based primarily on audience share’, and then one which combines both ESA and ASA by providing for 33% of the amount to be arrived at by the ESA, and for 67% of it to be arrived at by the ASA.

Retransmitters’ submissions

489               The Retransmitters reject both formulas proposed by Screenrights.  They ask that, if the Tribunal fixes an amount higher than 10 cents pspm for the full bundle of five FTAs, they (the Retransmitters) be given an opportunity to be heard further on the question of the calculation of an amount for retransmission of less than the full five, because ‘[w]hether that amount should be calculated as Screenrights proposes, or whether some other calculation is appropriate, is linked to the quantum of equitable remuneration.’ 

490               In summary, the Retransmitters ask to be heard further in relation to:

·        the amount to be paid where less than the five FTAs are retransmitted (unless the Tribunal determines an amount not exceeding 10 cents pspm for all five);

·        retrospectivity;

·        the phasing in of payments; and

·        indexation by reference to the Consumer Price Index for years after calendar 2005.

 

I.   conclusion

491               The hypothetical bargain approach requires us to assume the absence of the statutory licence and to inquire what amount Screenrights, representing the relevant copyright owners, and the Retransmitters would agree upon for the Retransmitters to have a licence to retransmit FTA programs simultaneously with the original FTA transmission of those programs.

492               In that hypothetical bargain, the Retransmitters are the only potential buyers of a licence to retransmit;  there is no alternative buyer with whom Screenrights can deal or threaten to deal.  Australia does not have a must-carry régime:  the Retransmitters can cease retransmission and threaten to cease retransmission.

493               A licence to retransmit is, however, of some benefit to the Retransmitters.  It gives them something to sell to subscribers.  Without it, the copyright owners could compel them to end retransmission.  The only source of the licence to retransmit is the copyright owners, represented by Screenrights.  In the hypothetical bargain, the copyright owners may refuse, and threaten to refuse, to grant a licence to the Retransmitters.

494               The value to the Retransmitters of the licence to retransmit is generally commensurate with the value placed on retransmission by subscribers.  The value of retransmission to subscribers, as the Retransmitters perceive that value to be, will govern the amount of licence fee the Retransmitters will be prepared to offer in their hypothetical negotiation with Screenrights.

495               Screenrights submits, however, that there are also some benefits to the Retransmitters themselves.  First, they submit that there is a ‘sticky’ factor.  The argument is that, once a subscriber views FTA via the Pay TV facility, he or she may be inclined to remain with the Pay TV channels and explore viewing them or some of them.  In this way, so the argument goes, the Retransmitters acquire a viewing public for their Pay TV channels which they would not otherwise have.  The argument assumes that the viewer is watching FTA programs via the STU in the first place, so that the change to Pay TV channels is adventitious.

496               We do not accept, however, that retransmission of FTA is today a significant subscription driver or that more people switch on their television sets in order to watch FTA through the STU than do so in order to watch Pay TV channels.  There is arguably a neutralising ‘sticky’ factor operating in the opposite direction.  There are people who switch on their television sets in order to watch a Pay TV channel or channels and who casually move to a retransmitted FTA channel and stay with it for the night.  In this respect, retransmission may be seen to give the FTA stations viewers for the night that they might not otherwise have had.

497               The second benefit to the Retransmitters which Screenrights suggests is a more general version of the first:  the contention is that people subscribe in order to be able to watch FTA programs via the STU, and so the Retransmitters get a viewing audience for their Pay TV channels that they would not otherwise have.  We reject the argument.  The benefit of a better reception of FTA programs may operate on the minds of some people who have poor FTA reception and take FTA to some additional viewers, but in the absence of persuasive evidence, we do not accept that anything more than a small number of people are involved.  We proceed on the basis that people subscribe in order to access the Pay TV channels.

498               In the result, we put to one side both of the small unquantifiable benefits to the Retransmitters that Screenrights has suggested.

499               The only two benefits to subscribers that have featured in the proceeding are those of the single remote control and an improved reception of FTA.

500               When Pay TV was introduced, retransmission of FTA was promoted by the Pay TV providers as an attraction for viewers.  For TransACT, the retransmitted FTA channels represent a significant proportion of the subscription package it sells (initially five in a basic package of twelve, and now five in a basic package of twenty).  Although Foxtel claims that FTA is now an irrelevancy, it still publicises the availability of FTA via Pay TV, and refers to FTA in its program guides.

501               In the hypothetical bargaining situation, the FTA providers are in a weak position:

·        they are not incurring costs on account of retransmission for which they would insist on being reimbursed;

·        their viewing audience is increased, albeit to some very small extent;

·        they do not lose viewers, who would otherwise watch FTA via their terrestrial aerial.

502               On the other hand, the Retransmitters must think they derive some value from retransmitting FTA, otherwise they would not incur even the small cost involved in doing so, and would not refer to the availability of FTA in their program guides.

503               We find it hard to accept that subscribers or prospective subscribers would place a high value on the convenience of being able to move between Pay TV channels and FTA channels by the use of a single remote control.  A separate remote control is usually needed to turn on the television set.  Moreover, nearly all people who have a DVD or VCR player have a separate remote control for each of them.  Both factors have led people to become familiar with the use of multiple remote controls.

504               The benefit of improved reception of FTA channels presents a difficulty.  What number or proportion of viewers of FTA via the terrestrial aerial have a poor quality reception and how poor is their reception?  The evidence does not provide answers to these questions.  The value that people would place on this benefit must surely vary greatly.  For many, the value would be likely to be nil or close to nil, because the quality of reception of FTA via the terrestrial aerial is quite satisfactory.  For viewers who have an unsatisfactory reception, there would be a wide range of values, according to the quality of their reception.

505               Again, however, we find it hard to accept that a substantial proportion of viewers have such a poor reception via their terrestrial aerial that they would value retransmission highly, though there may be some people who would do so.

506               Screenrights attempted to quantify the value of the retransmission of FTA by the Survey.  The Retransmitters attempted to do so by leading evidence of overseas rates.

507               We addressed the Survey in some detail in Section E, and expressed some conclusions in that section at [279]–[282].  We have numerous difficulties with the Survey.  Contingent valuation surveys represent a controversial subclass of the controversial stated preference methodology.  Eminent experts were called to support and to attack the merit of the methodology in general, and of the Survey in particular.  All were in agreement that stated preferences are inferior to revealed preferences as predictors of what people will do in the real world.  We accept the evidence that contingent valuation surveys are prone to an upward bias, although we acknowledge that this may be more pronounced in the case of surveys directed to environmental and social issues.

508               We put to one side all questions subsequent to Q7, as Professor Borland did, for the reasons given in Section E.  We also lack confidence, however, in Q7 itself, for all the reasons given in Section E, including the following reasons:

1.         the complexity of the scenario that preceded the putting of Q7;

2.         the complexity of Q7 itself;

3.         the flatness of the demand curve between price points $7.50 and $10 (see [244], [247]);

4.         the Survey’s failure of the monotonicity and exogeneity tests (see [249]-[253]);

5.         the omission of any price points below $1; and

6.         the failure to include any reference to alternative ways of getting the benefits of retransmission.

We do not find the Survey’s failure of the adding up test so persuasive:  we would expect that subscribers may be prepared to pay for two parts of a whole, amounts which total more than the amount that they would be prepared to pay for the whole as an entity.

509               The evidence shows that Screenrights took great care in the design of the Survey, obtaining the assistance of several experts, taking account of such comments as were made by the Retransmitters, and conducting Sweeney 2 when problems arose with the execution of Sweeney 1.  We are not convinced, however, that the Survey is reliable or accurate as a predictor of how much Pay TV subscribers are prepared to pay for the retransmission of FTAs.

510               There is an important difference between the use able to be made of stated preference surveys by courts and tribunals on the one hand, and the use that businesses and others may choose to make of them on the other hand.  There are legal principles that constrain the decisionmaking of courts and tribunals.  Courts and tribunals must proceed on the basis of probative evidence, not speculation.

511               In Reasons for Judgment (No 3) published in this proceeding (Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd & Ors (No 3) (2005) 64 IPR 560), we discussed the relevance of the rules of evidence to the admission of evidence by the Tribunal.  The present question goes to the weight, if any, to be given to the Survey evidence.  We consider that we should apply a principle analogous to an evidential onus in relation to that evidence:  it is Screenrights, not the Retransmitters that suffers if we are not persuaded that the Survey reliably predicts people’s behaviour in the real world.  Such an approach would not necessarily apply to the use that businesses and others may make of a stated preference survey.

512               We find applicable the following statement by Diplock LJ in R v Deputy Industrial Injuries Commissioner; Ex parte Moore [1965] 1 QB 456 at 488:

‘The requirement that a person exercising quasi-judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant.  It means that he must not spin a coin or consult an astrologer, but he may take into account any material which, as a matter of reason, has some probative value in the sense mentioned above.  If it is capable of having any probative value, the weight to be attached to it is a matter for the person to whom Parliament has entrusted the responsibility of deciding the issue.’

We have such a level of doubt about the Survey that we attach no weight to it.

513               Our own appreciation of the benefits that retransmission of FTA offers to subscribers is that they are minor and would be viewed by subscribers and prospective subscribers as minor.

514               We addressed the overseas rates evidence in Section F and expressed some conclusions in that section at [349]–[349].  We put to one side the United States, Canadian and United Kingdom comparisons for the reasons given in Section F.

515               There are many difficulties in extrapolating from Europe to Australia.  The following issues arise in addition to those that were raised by Screenrights and mentioned Section F:

(1)        The number and nature of the local channels being retransmitted (averaging to a per channel basis may not be reliable – in Australia, there is a full suite of five channels of which two are ‘public’ and three are ‘commercial’);

(2)        The number and nature of the ‘competing’ Pay TV channels supplied;

(3)        The number of competing Pay TV providers/retransmitters;

(4)        The relative importance to the respective publics of television viewing (perhaps the colder climate of Europe makes television viewing generally, whether FTA or Pay TV, more highly valued than it is in Australia);

(5)        Whether the number and proportion of households in European countries that have poor quality terrestrial reception is different from that in Australia;

(6)        The size of the population of subscribers to Pay TV as between the various European countries and Australia.

516               The Retransmitters do not suggest that any overseas rate can dictate a figure.  Counsel for the Retransmitters submits, however:

‘What we did is explore the overseas rates to see what they tell us about benchmarks and goal posts.’  

 

517               We have come to the conclusion that what we have said above in relation to the Survey applies also to the rates that are being paid in Europe:  we simply do not have sufficient confidence in the comparability of the circumstances to regard those negotiated rates as providing truly comparable bargains.

518               There is no overseas country in which the relevant circumstances are on all fours with those in Australia.  Nor do we think we can derive guidance by simply making an adjustment for one or two identifiable differences. 

519               There is no firm evidence guiding us to a particular figure in any way remotely resembling a mathematical calculation.  Taking into account all the evidence and recognising that a substantial degree of estimation is involved, and basing ourselves on our own appreciation of the likely value that subscribers, taken as a whole, would see in the benefits of better reception and the single remote control, we have reached the conclusion that the amount of equitable remuneration payable by the Retransmitters in respect of the retransmission of all five FTA channels (including the multichannels) is 22.5 cents pspm.

520               It will be obvious, from what we have already said, that, notwithstanding the apparent precision of this amount, it has not been arrived at by a process of mathematical calculation and remains the result of a careful estimation and evaluation.

521               In arriving at the amount mentioned, we have allowed for the contribution that the Retransmitters make to the value of retransmission to subscribers, and for the broadcast signal copyright.  The figure is net to Screenrights.  The figure takes into account the multichannels.  We have also taken into account the submission that retransmission enlarges the FTA audience (and the submission that the viewing of retransmitted FTA leads on to the viewing of Pay TV channels), and there is no reduction (or addition) on this account.

522               The parties should have the opportunity of making further submissions on the four issues noted at [490].

523               The proceeding will be stood over to a date for mention.  If the parties reach agreement on the outstanding issues, they should advise the Associate to the President so that the determination can be made on that date.  If they fail to do so, directions will be made on that date for the making of submissions on those outstanding issues.

I certify that the preceding five hundred and twenty-three (523) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Tribunal.

Associate:

Dated:              3 May 2006

Counsel for the Applicant:	Mr D K Catterns QC and Mr C Dimitriadis
Solicitors for the Applicant:	Banki Haddock Fiora
Counsel for the Respondent:	Mr R Cobden and Ms K M Richardson
Solicitors for the Respondent:	Minter Ellison
Dates of Hearing:	18, 19, 21 October 2004; 11-15, 19-22, 26 and 27 April; 3 June 2005
Date last submission received:	8 June 2005
Date of Judgment:	3 May 2006