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Estimates & Committees
Scott Ludlam 20 Oct 2010

Special Broadcasting Service Corporation
Tuesday 19 October 2010

Senator LUDLAM-You mentioned the SBS corporate plan 2010 to 2013 in your opening statement. I want to ask some questions about that, particularly the forecast revenue and expenditure figures on page 13 of the PDF. The government appropriations, 2010 to 2014-15, I have not had time to cross-reference this against your annual report or your budget portfolio statement, but are they the same as in the budget forecast? Is there any reason we would expect them to be different?

Mr Torpy-No, they should be the same.

Senator LUDLAM-In order to fund the entire budget operations of SBS over a four-year period, does government decide on its appropriations based on your estimates of advertising and sponsorship or is it the other way around? Does the government give you an amount of money and then you set an advertising target to meet the shortfall?

Mr Brown-Probably neither. The government sets its appropriation independent of any revenue expectations we have but it is not possible to set a target in advertising to cover costs. You set a target for the best possible outcome that enables you to provide the services you can and if you fail to secure that advertising revenue, then you are not able to provide some of those services.

Senator LUDLAM-So the basic operation of the station is funded out of government appropriations and then you do the best you can with advertising, to do the other things you want to do.

Mr Brown-Yes. Historically, advertising has become embedded into part of our profile. Obviously, the FIFA World Cup was fully funded out of commercial revenue. It is not as clear cut, like the cream on a cake, for instance. It has become over recent years a means of us funding a number of activities like SBS2. Closed captioning is funded out of commercial dollars.

Senator LUDLAM-It is about 30 per cent of the cake; so it is a lot more than the cream.

Mr Brown-Yes, it is a lot more than the cream.

Senator LUDLAM-The spike in projected ad revenues in 2013-14, that is FIFA?

Mr Brown-That is FIFA World Cup, yes.

Senator LUDLAM-What is that estimate based on?

Mr Brown-That estimate is based on our performance in the last FIFA World Cup when television advertising revenue was around $19 million, projecting that forward four years with an increase that reflects what we would believe the market to do in that period.

Senator LUDLAM-What I am seeking really is for you, probably on notice, if you can take these requests away, is to disaggregate the advertising in sponsorship breakdown. For example, can you tell us the forecast figures for revenue from television-only advertising for those forward estimates? If you can do it now, that would be great; otherwise, I am happy for you to take it on notice.

Mr Brown-I will have to take that question on notice. This year it is about $56 million, but I will find the rest out.

Senator LUDLAM-Out of 86-am I reading that right?

Mr Brown-That would be right, yes.

Senator LUDLAM-Can you quickly describe what the balance is made up of. So 56-ish out of 86 comes from television advertising. Where is the rest coming from?

Mr Torpy-In addition to that we have some online revenue, in language revenue also, that is language services, and there is a little bit of world cup money still in there this financial year.

Mr Brown-Sorry, I should have made clear that the 55 excluded about $3 million, so it is more like $58 total television revenue this year.

Senator LUDLAM-In any given year?

Mr Brown-Yes.

Mr Torpy-The other thing that is in there is some subscription television revenue.

Senator LUDLAM-Could you provide on notice for us, for the four years in the forward estimates, a disaggregation of where you think your ad revenues are going to come from? Specifically I am looking for the
TV, as you have just given us, but any more detail you can provide as to where you think it might come from. In retrospect, when you look back at projections-and I should offer my congratulations for getting through 30 years, with the celebrations coming up next week, so you must be getting reasonably good at this-how accurate have your forecasts of future ad revenues been in the past? Are these reasonably reliable estimates?

Mr Brown-The global financial crisis and the arrival of multichannels impacted our forward projections, so they are lower now than they would have been prior to the GFC. Certainly we are experiencing some revenue pressure, which I think I talked about last time, from the arrival of multichannels. Even since I last appeared we have got another wave of multichannels. So the available commercial inventory was doubled and now has tripled.

Senator LUDLAM-There still does not seem to be very much worth watching. Thank goodness for SBS.

Mr Brown-I am glad you said that.

Senator LUDLAM-In theory, then, you have lowered your forecasts from what they would have been if I had asked you this a year or two ago.

Mr Brown-We lowered our forecasts a year ago. I think they are probably in line roughly with where we were a year ago, during the GFC. It is possible, given the recent arrival of the new multichannels, that there may be further adjustments in the out years. We will find that out this year, on the basis of experience.

Senator LUDLAM-Does government raise its appropriations based on those kinds of shortfalls or do you go back and ask for such a thing? Or is that all rolled up in triennial funding arrangements?

Mr Brown-It is all rolled up in triennial funding. As I said earlier, setting of the government appropriation is independent of any consideration of our commercial activities.

Senator LUDLAM-What I am interested to know-and, again, this is further disaggregation of the advertising and sponsorship bracket there-is what your television advertising revenues are for the in-program advertising. You are no doubt aware I have what I think is a one-line amendment private senator's bill in process at the moment. I am wondering if you can tell us, were that bill to be passed and that funding not made up somewhere else, what that would cost if the in-program advertising was abolished on SBS.

Mr Brown-It will be difficult to do anything exact about that because, of course, the whole market response changes when you change your model. What I have previously said is that in fiscal 2006 we were looking at a revenue of about $30 million, but an external advice and our own internal assessment was that that revenue would decrease because the model of putting ads between programs was being rejected by the market.
So it would not be unreasonable in my view to say that if we had not changed the model that revenue would be around $20 million now and therefore, if we pull in $56 million, I guess that gives you a $36 million shortfall on this year.

Senator LUDLAM-Thirty-six out of 56-so more than half of your estimated revenues from advertising and sponsorship, just from the television, you believe you are making up at the moment, roughly, from the inprogram advertising?

Mr Brown-It would be much more than half because we have very little between-program advertising now. But if your bill were to succeed, then the minutage that would be placed inside a program presumably would be moved to between programs-so there would be a five-minute break between programs.

Senator LUDLAM-Yes. From a programming point of view, is that time worth less to you selling to an advertiser?

Mr Brown-Yes, significantly-it is close to unsaleable. It is so heavily discounted. Five-minute breaks between programs was the issue that we confronted-

Senator LUDLAM-People just go and make a cup of tea.

Mr Brown-That, or they change channels out of frustration. Whatever the reason is, the market's response is to say, ‘We don't want to be part of 10 successive commercial messages in a row where we're lost not only in adverse conditions in terms of viewership but we're in amongst a cluttered environment for our message to get through.' The evidence we had in fiscal 2006 was the rejection of that. And it was anticipated, and verified by external advisers, that that would get worse not better.

Senator LUDLAM-Okay, but your guess for today-and I have not given you any notice of this so I understand that you are just giving us rough numbers-is that it would be worth about $36 million, less what you could sell some of that time for when it shifted back into the top of the hour.

Mr Brown-Yes. It would be worth about $20 million, so if you take that off those forward projections will give you a year-to-year variation that is approximate.

Senator LUDLAM-That is helpful. Thanks very much. I have asked you already for the forward estimates, but could you also provide for us, looking back over the last three years, the percentage of advertising revenue. You have just given us the information for financial year 2009-10. Could you give us that number for television revenues for 2007-08 and 2008-09? We are going to have a five- or seven-year span.

Mr Brown-I understand-broken down by commercial activity: television, radio, online, et cetera.

Senator LUDLAM-Yes, if you can, that would be great. I am interested to dig in briefly, if we have got time, into how important the advertising in the sports programs is relative to the rest of your programming.
You have shifted into the domain quite seriously around live sports or global sports broadcasting. How important as an advertising market is that? Can you give us numbers on that?

Mr Brown-I think the easiest way to look at it is to compare us with the ABC, where they have no ability to commercially offset their sports activities. The fact that we do the Tour de France, we did the Ashes and we have done Olympics and we do the Fifa World Cup is solely due to our ability to fund them in whole or in part through commercial revenue. If you look at the BBC, they have withdrawn significantly from sport, but they are still quite active. If you look at the ABC, they have abandoned many of the mainstream sports that they previously did.

Senator LUDLAM-All right, but are you able to give us a percentage of your advertising revenues that accrue directly from sports broadcasting-not now, necessarily, but is that easy enough to dig out?

Mr Brown-It would be a revenue figure related to a specific event rather than, ‘This is how much sports earns us each year.' The Ashes was-off the top of my head-$5 million and I have already told you the World Cup was $19 million. The Tour de France is a consistent one.

Senator LUDLAM-So there is no such thing as an average year, but maybe if you could just break out some figures for us from the financial year just gone, that would be great. I think I will leave it at that. I might put in one or two more questions on notice, but I will leave it at that. Thanks for your help.

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