On 27 November 2020, the Australian government released its Media Reform Green Paper (Green Paper) which offers insights into the extent of digital disruption affecting the Australian television broadcasting industry and, among other things, proposes a new local content investment obligation for online Subscription Video On Demand (SVOD) and Ad-supported Video On Demand (AVOD) platforms.

This follows on from previously announced changes to local content obligations for the broadcasting sector in Australia, which included a request for the major streaming platforms to commence reporting to the Australian media regulator on their investment in Australian content. That reporting is due to commence at the start of 2021.

This article breaks down the key elements of the new investment expectation proposed in the Green Paper and its implications for international SVOD and AVOD platforms providing services to the Australian market in the context of an increasingly complex international tapestry of country-specific investment obligations for SVOD and AVOD service providers to navigate. It also identifies key questions for international SVOD and AVOD service providers to consider addressing in their response to the Green Paper consultation.

Submissions about the proposed reform can be made until Sunday, 7 March 2021.

Key details of the suggested Australian content investment obligation

The Green Paper proposes a formal expectation that SVOD and AVOD service providers invest a percentage of their Australian revenue in new Australian content.

What is the proposed investment expectation amount?

  • The Green Paper refers to a figure of 5% of Australian revenue as a guide to the potentially appropriate minimum level of expenditure on new Australian content for SVOD and AVOD service providers. This figure aligns with the new eligible drama expenditure obligation that will apply to local pay television services under the recently announced reforms. However, as part of the current consultation, the Australian government is seeking feedback as to whether this is an appropriate figure for SVOD and AVOD services in the Australian market.
  • SVOD and AVOD service providers may wish to comment on this figure in their submissions to the consultation, with reference to:
    • emerging benchmarks in international investment obligation frameworks;
    • the scope of eligible investments that count toward the investment expectation (the broader the scope of eligible investments, the more achievable a specified percentage of investment is likely to be for service providers in practice); and
    • the sustainability of the investment expectation for existing service providers and new entrants.

What would constitute a qualifying / eligible investment?

  • SVOD and AVOD service providers would need to invest in content that is "Australian" and is characterised as "new" content. In particular, the Green Paper:
    • suggests that the definition of "Australian programs" will be tied to creative control by Australians as currently used in the television broadcasting context, rather than the more flexible significant Australian content test used for the purposes of the Producer Offset; and
    • proposes that content could be characterised as "new" if the whole or a substantial part of the program has not been televised in Australia or New Zealand on a broadcasting service at any time before the expenditure is incurred. However, the Green Paper suggests that this definition could be adapted for SVOD and AVOD services to accommodate their approach to production and acquisition of Australian content, and this is a point that service providers may wish to address in their submissions to the consultation.
  • The Green Paper refers to eligible investments falling into the categories of "commissions, co-productions and acquisitions" of new Australian content as well as "licensed" content, but does not clearly delineate the scope of these concepts. Service providers are encouraged to provide input as part of the consultation as to:
    • the categories of investment that should be permitted to satisfy the requirements; or
    • whether the proposed categories should be broadened to capture additional categories of investment, such as pre- and post-production costs.
  • In their submissions, service providers may also wish to explore the potential eligibility of other ancillary investments they intend to make in the Australian industry, including in training of new talent and local promotional and distribution activities, which may be costly for service providers and seen as essential elements in the content development lifecycle.

What if it is not practical for a service provider to meet the investment expectation by investing in new Australian content?

  • The Green Paper suggests that, as an alternative to meeting their Australian investment expectation by spending the required amount on producing or acquiring new Australian content, service providers could choose to contribute an equivalent amount of money to a proposed new Create Australian Screen Trust (CAST).
  • The option to contribute to a local film fund as an alternative to direct local investment is a feature of many emerging frameworks internationally. It can be seen as an important mechanism to afford SVOD and AVOD service providers some flexibility in the way they implement their international production strategy while still making an important contribution to the local film industry. However, service providers may consider suggesting in their consultation responses that a reduced investment amount should apply in relation to local film fund contributions (as compared to a primary investment expectation), since such contributions do not provide any return on investment for service providers.
  • On this point, the general interrelationship between the proposed investment regime and the availability of CAST (including the extent to which international SVOD and AVOD service providers may be eligible for funding from CAST) is currently unclear but is an important issue that some service providers may wish to address in their submissions.

Timing for implementation of the investment expectation and compliance by service providers

  • The Green Paper suggests that SVOD and AVOD businesses will be required to report to ACMA each year on performance against the investment expectation, but also suggests that a SVOD or AVOD service which does not meet the expectation will not immediately be subject to any regulatory sanction or penalty. However, legislation would provide powers to implement formal regulatory requirements on service providers that fail to meet expenditure expectations for two consecutive years. This is a relatively unusual construct compared to most overseas frameworks, which tend to frame specified investment rates as an absolute requirement for service providers to achieve from the outset.
  • The Australian government will require time to consult on the design of the investment obligation and prepare and establish relevant legislation, and will do so by considering and drawing upon data from submissions to the consultation as well as the voluntary reporting obligation for SVOD and AVOD service providers, which will apply from 1 January 2021.
  • Based on the current timeframe for legislative development and implementation, this would mean that the formal expectation may be in place for the 2022-2023 financial year but if an SVOD or AVOD service failed to meet the investment expectation, it could potentially face a formal regulatory obligation no earlier than 1 July 2024. This gives service providers time to prepare for compliance with the investment obligation, which is important considering that the production of quality original content tends to be a capital-intensive and time consuming process.

Which services would be covered by the investment expectation?

The Green Paper suggests that the new investment expectation should only apply to SVOD and AVOD platforms that meet applicable eligibility criteria, which may include one or a combination of the following:

  • meeting a "purpose" test (e.g. a content service whose primary purpose is the provision of professionally produced scripted content delivered over the internet to Australians);
  • having an Australian "presence" (i.e. offering an SVOD or AVOD service in Australia for the purpose of serving Australian audiences). It is unclear how the concept of "presence" referred to in the Green Paper would be interpreted in practice. However, it seems likely that a broad interpretation would be adopted which does not require a physical presence in Australia but merely a service offering to Australians, given there is a clear intention for the investment obligation to apply to international SVOD and AVOD platforms;
  • having a minimum number of subscribers (e.g. paid Australian SVOD subscribers or AVOD registered users, with a threshold of one million subscribers or registered users mentioned in the Green Paper as a possibility); and
  • having a minimum amount of gross Australian revenue (the Green Paper contemplates an A$100 million per annum threshold of gross revenue earned from operations in Australia including commercial content, total advertising revenue and other activities directly related to SVOD and AVOD functions).

Service providers may wish to comment in their submissions on the relevance of the above eligibility criteria and appropriateness of particular thresholds referred to in the Green Paper.

Potential introduction of discoverability obligations for streaming platforms

In addition to the investment regime described above, the Green Paper also proposes introducing an obligation on SVOD and AVOD providers to make Australian content discoverable to Australian audiences. The exact form of this discoverability obligation is yet to be determined and service providers may wish to comment on potential options as part of their submission.

Further local and international context

Service providers should carefully consider the local and international context before making their submissions to the Green Paper consultation.

The Australian government is seeking to address identified inconsistency and imbalance in the current regulatory framework, as commercial free-to-air and subscription television broadcasters established in Australia are currently obliged to screen or invest in Australian screen content, whereas international streaming services targeting Australian audiences are not. In this respect, the Green Paper acknowledges that most SVOD and AVOD service providers already contribute to the Australian content production sector in various ways including by commissioning new content, buying or licensing existing Australian content, post-production work and skills transfer to the Australian screen industry. However, the Green Paper also notes that these online services "provide relatively modest levels of Australian content as a proportion of their overall catalogues", a "large proportion" of which "tends to be older content", and the "commissioning of new Australian content by SVODs is low by international standards".

There appears to be particular concern that, without the adoption of an enforceable local content investment expectation, the Australian film industry may be left behind. SVOD and AVOD service providers are becoming an increasingly dominant force in new content production but may be incentivised to focus their limited resources on complying with the competing local content investment frameworks that are rapidly developing internationally. Indeed, if implemented, Australia's investment obligation will form part of an increasingly complex international tapestry of country-specific investment requirements for SVOD and AVOD service providers to navigate.

This Australian consultation follows similar consultations across Europe, including recently in Slovenia and the Netherlands, as European Union Member States evaluate whether, and in what form, to implement local investment obligations pursuant to the revised European Audiovisual Media Services Directive. The Green Paper acknowledges that such international implementations may provide relevant context for Australia, with examples of France and Germany cited in the Green Paper.

In this increasingly complex international context, it is particularly important for any Australian local investment obligation to strike a balance that will encourage appropriate types and levels of investment in the local content industry on a sustainable basis for existing service providers and new entrants alike. SVOD and AVOD service providers are encouraged to contribute to the consultation to support this objective.

Consultation questions for international streaming platforms to consider addressing in their submission (as set out in Chapter Six: harmonising Australian content obligations of the Green Paper):

  1. Should the investment obligation apply to all types of SVOD, BVOD (Broadcast-Video-on-Demand) and AVOD services, including those that specialise in content such as sport?
  2. Would a rate of investment of five per cent of Australian revenue be reasonable? Is there an alternative rate that is more appropriate?
  3. Should alternative models, such as a percentage of overall programming expenditure, be considered?
  4. Is the proposed revenue threshold of A$100 million reasonable?
  5. Should the investment obligation be able to be fulfilled with any genre of Australian content, or genres such as drama, children’s programming or documentaries?
  6. Should the investment obligation be geared to commissioned content, or broadened to permit the acquisition of Australian content that would satisfy the first release requirement?
  7. Should the investment obligation capture broader categories of content investment, such as pre and post production?