Pay-TV industry had a long gestation and difficult birth

The creation of Australia’s pay-TV industry became a messy affair.

The master control room at Foxtel, which dominates the pay-TV industry. Picture: Rohan Kelly

The creation of Australia’s pay-TV industry was orchestrated in 1992 when the Keating government began a tender process for a single satellite network offering four channels that was later ­expanded to include three satellite licences.

The government didn’t know it at the time but the birth of the industry, which had had a 10-year gestation period, would be a messy affair.

Cabinet documents released by the National Archives of Australia show the government agreed that “tenders be called for a block of four pay TV channels to be delivered via AUSSAT (Australia’s then government-owned domestic telecommunications satellite service) on a national basis”.

The February 1992 cabinet-in-confidence document detailing the policy noted that other technologies could be used for “niche” markets, but provided no other detail on the tender process.

The memo, prepared by the departments of prime minister and cabinet, treasury, finance, transport and communications, noted that pay TV would increase diversity of choice for in-home entertainment.

“Pay TV will be a catalyst in the upgrading of the nation’s communications infrastructure,’’ the memo says. “Pay TV also provides for a new high technology industry, which could provide jobs and create manufacturing industry for Australian industry, with export ­potential.”

As it happened, although the laws creating the framework for a pay TV industry passed in November 1992, it would be almost three years before the first subscription TV broadcast took place.

Rapidly changing technology and the bungled handling of the satellite TV licensing process contributed to policy confusion and a flood of emerging players.

When it became clear that ­microwave distribution systems could also deliver pay TV, the government had to terminate a bidding process for this spectrum to preserve the value of the satellite licence bids, which sold for a combined total of almost $400 million.

“Another source of difficulty lay in the terms of the tenders for the satellite licences, which required a deposit of only $500 with each bid. This led to a large number of speculative bids and a lengthy process of cascading bids as tenderers failed to meet the· deadlines for the required payment of five per cent of their bids,’’ a parliamentary background paper by Kim Jackson notes.

Meanwhile, Optus and Telstra began rolling out fibre-optic cable capable of delivering pay TV and broadband services, and the satellite tender for a single service became a three-licence auction, which saw hitherto unknown operators UCOM and Hi Vision outbid a combined pitch from media moguls Rupert Murdoch and Kerry Packer.

By November 1994, according to Dr Jackson’s research, another 390 licences had been issued to operators that envisaged using alternative non-satellite technologies to deliver a pay TV service. A year later the industry had come to be dominated by the cable-based providers Australis, Foxtel (a News Corp and Telstra joint venture) and Optus Vision, along with regional operator Austar. The market condensed to three key players with the collapse of Australis in 1998.

In November 2002, the Australian Competition and Consumer Commission agreed to a content-sharing arrangement between Foxtel and Optus, allowing the rival companies to show each other’s programs. And in 2012, Foxtel acquired Austar, effectively creating the shape of the industry that exists today.