It is the responsibility of any incoming Government to look carefully at the range of activities that taxpayers fund, and ask the tough questions. Is an expenditure serving the public interest? Does it represent good value for taxpayers? Can the objective be achieved more cost-effectively, or a better outcome be delivered at the same cost?
In every portfolio, across every spending program, we've had to look closely at what we do and how we do it. In my own portfolio that includes our national broadcasters—the ABC and SBS, which receive $1.4 billion every year from the Government.
After working closely with the broadcasters for the last 8 or 9 months it is clear that there is a great opportunity for them to modernise their businesses without reducing the resources they have available for programming; in other words without reducing the quantity or quality of what Australians view and listen to on ABC or SBS.
This is what productivity is all about - getting the same, or ideally, a bigger bang for a smaller buck.
Running the ABC, or indeed SBS, is not easy. The ABC, for example, is required by its charter to provide a balance between programmes of wide appeal and specialised programs. This is the conundrum. If the ABC simply goes for ratings and emulates the approach of the commercials, people will ask why we need it at all; if its programming is too arcane - Sophocles in the original Greek perhaps - people will ask why we are wasting taxpayers' dollars on elitist entertainment.
The commercial broadcaster's revenues are a function of its ratings - simple. The ABC's are a function of its ability to persuade the Government of the day to give it money. The commercial broadcaster's core KPI, like any private sector firm, is its profitability. The ABC's KPIs - set out in its charter, are much more subjective than a line in an income statement.
All of this makes it much harder to run a public broadcaster. There simply isn't the same relentless, daily pressure to innovate, to cut costs, to lift productivity that there is in the private sector. Now despite that I must acknowledge that there has been real innovation at both of the public broadcasters - especially in digital media which, as you know, is within the charter of both the ABC and SBS.
Equally, I should acknowledge that the SBS has always been a leader in doing more with less - in no small part because it has never had much money to play around with. When we restructured the bankrupt TEN network more than twenty years ago, we learned a great deal from SBS' lean operating model and it is still in many respects a good example today.
Finding efficiencies and delivering new services are not mutually exclusive pursuits. With the right reforms and leadership the ABC and the SBS will emerge from this process much stronger organisations, capable of generating even better value from the money Australians invest in their operation.
The budget situation
As you know, the Abbott Government inherited a growing mountain of debt and, despite numerous promises to the contrary from Wayne Swan, a budget deeply in deficit and, without big policy changes, certain to remain in deficit.
The melancholy consequence of spending more than you receive in income is more and more debt and the fundamental inescapable fact is this: if we let things go on as they were, we were on track to record deficits forever, and pile up a mountain of debt – six hundred billion dollars or more.
So we had to raise more revenue and/or cut spending. None of that is popular.
Labor and the Greens dispute the need for the Government to take any action. Bill Shorten has offered no alternative plan. Unless you've got an alternative plan to repair the Budget, what you're really saying is: "Don't worry – keep spending, keep borrowing, hope for the best and let our kids and grandkids sort it out."
So we have made savings across the board and that includes the ABC and SBS. Is it seriously argued that the public broadcasters should be exempt from the spending cuts that apply to almost all other government departments and services?
Some have pointed to a statement made by Tony Abbott on the eve of the election that there would be "no cuts to the ABC or SBS."
These remarks need to be understood in context. Prior to the election many people (including competing media groups) urged the Coalition to take an axe to the ABC in order to curtail their on-air and online activities.
Both Joe Hockey and I made it quite clear we had no plans to make cuts of that nature at the public broadcasters – but if there were to be savings made across the board, the ABC and SBS could not expect to be exempt from the obligation to contribute by eliminating waste and inefficiencies.
Unless you believe that Mr Abbott was, in that one line, intending to contradict and over rule the very careful statements of intention made by Mr Hockey and myself, his remarks can only be understood in the same context, which left open savings of a kind which would not diminish the effective resources the ABC and SBS had available to produce content.
At the national broadcasters, I saw an important first step was reforming the procurement of (and funding arrangements for) transmission services for the ABC and SBS.
Currently ABC and SBS receive tied funding earmarked exclusively for transmission costs. Much of this funding is provided on a 'no-win, no-lose' basis – the Government funds the actual costs of these services each year, with any unspent funding returned to the Budget.
This arrangement removes any incentive for the broadcasters to aggressively negotiate for lower prices for services, other than of course the patriotic interest shared by all Australians have in ensuring the Commonwealth's resources are prudently spent.
A review of transmission found that there are material savings available from changing the way the Government funds the broadcasters' transmission costs.
As of this year's MYEFO transmission funding will be rolled into the ABC and SBS's broader operational funding, encouraging the broadcasters to manage their transmission costs within their total budget allocation and adopt more efficient practices. So if less is spent on transmission, more can be spent on something else, including distribution over the Internet, if not required to fund the savings I will outline in more detail in a moment.
The Lewis Efficiency Study
I asked the Department of Communications to undertake an Efficiency Study to identify savings that could be made by improving efficiencies in the back of house departments of the ABC, in other words savings that could be made without reducing the resources available for programming.
This was a very deliberate move on my part. The easiest way to cut costs in a television network is simply to cancel programmes - and replace them with cheaper ones. More difficult is to go through the way the business operates, line by line and ask can we do this more efficiently, with fewer people, with fewer fixed assets or other expensive resources.
A commercial broadcaster is always going to look for savings that do not impact on programming quality - because that is the key to its ratings and hence to its revenues. A public broadcaster, which like the ABC does not carry advertising, is not so clearly constrained.
In other words, it was obvious the ABC and SBS were going to have to contribute to the overall Budget repair strategy, but I wanted to make sure those savings would be made in the most intelligent and business like fashion.
The Department was assisted by Mr Peter Lewis, for many years the Chief Financial Officer of the Seven Network, as well as senior executives from both broadcasters.
The study was provided to the ABC and SBS in April to assist their boards and management in identifying areas they may not have previously explored in their efforts to improve efficiency. It highlighted outdated business and administrative practices where they could pursue savings without affecting programming or services.
Given the findings of the Efficiency Study, we announced a 1 per cent reduction in funding to the ABC and SBS in the 2014-15 Budget. This contributed savings over four years of $38.3 million for the ABC and $8.5 million for SBS.
This was not an ongoing efficiency dividend, but as I stated at the time, a down-payment on larger savings to be made following consultation with the broadcasters on how they could best implement the findings of the Efficiency Study and progress their own savings initiatives.
I record again the Government's thanks to Mr Lewis, the team from my Department and of course the management of ABC and SBS in preparing that efficiency study.
What the Efficiency Study found
In its 146 pages the Lewis Efficiency Study discusses 48 operational activities across the ABC and the SBS. It identifies five key areas where significant efficiencies and savings can be achieved:
- Working together—efficiencies from greater operational cooperation between the ABC and SBS, while preserving their separate and unique programming identities.
- Harnessing new technologies—efficiencies gained from using the latest technologies in the businesses and retiring older technology.
- Modernising the business—efficiencies from better alignment of the national broadcasters with the wider broadcasting and content production sector, in keeping with contemporary business practice.
- Improved resource allocation—efficiencies from better matching supply and demand in service delivery.
- Financial transparency and governance—is the level of transparency of financial and operational decision-making adequate for the Parliament and taxpayers?
What about Programme Cuts and Changes?
Ever since the prospect of these savings has been raised the ABC, or people claiming to speak for the ABC, has suggested that this or that programme will be a casualty.
At one point even the beloved Peppa Pig was said to be facing the axe! And then when that strained credulity, Tony Jones and Lateline were substituted for the pig only to be followed by the Stateline versions of 730 on Friday evenings.
Let me be quite clear. The savings announced today are not of a scale that requires any particular change to programming. All of the savings can be found within operational efficiencies of the kind canvassed in the Lewis Efficiency Study.
Now while money is one scarce resource a linear television broadcaster has to manage, another scarce resource is time in the schedule. And broadcasters will make changes to programmes all the time.
The ABC, I know, is particularly concerned that the median age for its television audience is 61. I find this reassuring. It means I am still one of ABC TV's younger viewers.
The ABC will change programmes because it thinks something else will rate better, or it might think that the money spent on programme A can better spent on programme B. Or it might think that money spent on television can be better spent on online. This is the normal business of a media company. The alternative (which some might like I grant you) is that nothing ever changes - a recipe for eventual irrelevance.
There is a temptation for management to blame the Government for some of these programme changes. That would be cowardly.
The ABC management know that they can meet these savings without reducing the resources available to programming - furthermore they know that the Government and their Board know too.
Rural and Regional Australia
The ABC has the most extensive broadcasting network in rural and regional Australia—this is one of the ABC's greatest strengths. The efficiency study noted that in the absence of commercial providers, the ABCs Local Radio service, particularly in regional and rural Australia, is relied upon for local news and the essential emergency broadcaster function.
The study notes this requires a physical presence at the local level, with its associated staff, operating and capital expenses. While the Study also suggests that the ABC should review the size and location of radio stations so that they match changing population sizes, it did not recommend any changes to the level of radio coverage in rural and regional areas.
There is nothing more clearly within the letter and spirit of the ABC's charter than its local radio services in regional and rural Australia. With the enormous flexibility offered by the Internet and digital technologies coupled with the enthusiasm for story telling of their local news teams, without further expense we should see more local news with pictures on the air and on the net.
In total, including the 1 per cent down payment announced in the May Budget, the full savings the broadcasters will return to the Budget amounts to $308 million over 5 years.
For the ABC this means it will receive $5.2 billion over 5 years rather than $5.5 billion, a saving of $254 million or 4.6%. The ABC expects that it will have implementation costs over this period of $41 million in order to achieve the savings.
For the SBS this means its operating budget will be reduced by $25.2 million over the 5 year period or 1.7%. A legislative change to allow SBS to generate further revenue by changes to its advertising arrangements brings SBS's total savings returned to the budget to $53.7 million or 3.7% . As you will deduce we are, after extensive discussions with SBS, assuming that the additional revenue to the SBS from the advertising changes amounts to $28.5 million over five years.
To put this in context, the funding proposal will reduce aggregate Government funding to both national broadcasters over the five years from 2014-15 to 2019-20 from $6.9 billion to $6.6 billion. A total reduction in Commonwealth expenditure of 4.4%
The Government provides the ABC and SBS with the majority of their funding but it has no power to direct the broadcasters in relation to operational matters. Decisions regarding which efficiencies will be implemented, and when, are matters for the ABC and SBS Boards.
SBS currently has a strict limit of five minutes of ads per hour. In line with a recommendation from the Efficiency Study, the Government intends to introduce legislation into the Parliament to allow for a more flexible approach allowing the network to average the five minutes per hour across the day, but run no more than 10 minutes in any given hour.
This means the the existing daily limit of 120 minutes will be maintained – which is well below the 350 minutes per day commercial broadcasters can devote to advertising.
Take the fact that, the two highest television revenue results for SBS since it started to carry advertising in 2003 were $72.3 million in 2009-10 and $73.4 million in 2013-14 and those were in small part due to the FIFA World Cup.
Compare this to the 2013-14 advertising revenue earned by commercial broadcasters of $3.9 Billion: we are talking about less than 2 per cent of that commercial television advertising pie.
SBS maintain that from this change they will receive $8-9 million per annum of additional revenue. Their costing model is robust, although there are some who dispute it.
The efficiency review thought the most optimistic level of earning would be $20 million per annum. Whichever way you look at it, the additional revenue SBS could collect from this change is not material compared to the revenues of the commercial broadcasters.
As I said this change will require legislation, like other media reforms the Government is considering. The Government intends to put this amendment to Parliament in Q1 next year.
Financial transparency and governance
The focus of the Efficiency Study and the work I've undertaken with both broadcasters is about more than repairing the Budget, it is also about reform that will modernise both organisations, pave the way for productivity gains and ensure our national broadcasters are focused on good business practices for the long term. In this vein I've looked at the budgeting and decision-making structures of the broadcasters and at mechanisms to improve transparency of their operations.
The ABC and SBS are independent corporations created under their respective charter Acts and under the Public Governance, Performance and Accountability Act.
As the Minister I'm accountable to Parliament for the performance of agencies within my Portfolio. Performance relates to many aspects of their operations that are distinct from programming decisions.
An interesting insight from the Efficiency Study was that the ABC and SBS Boards would benefit from a clearer understanding of the Government's Budget priorities, and the outcomes the government is seeking from its annual investment of taxpayers' money. This needs to be carefully balanced against the statutory independence of both organisations.
Parliament included provisions in the broadcasters' establishing legislation that provides the government of the day with the right to offer formal advice on operational and financial matters to each of the Boards - section 8 of the ABC Act and section 11 of the SBS Act.
This advice must be considered by the Boards but can, of course be ignored. Importantly it would be a very transparent way of providing advice to the broadcasters on matters that do not affect their independence.
Let me set out some of the matters I intend to raise with the ABC.
For reasons I frankly do not understand, the ABC does not have an independent Chief Financial Officer. That role is undertaken by Mr David Pendleton the Chief Operating Officer who, in that role, is responsible for most of the resources and cost base of the ABC.
A company like the ABC should have a qualified CFO who reports directly to the Board as well as the CEO and is fearlessly independent, ensuring that the management and board understand precisely where and how funds are being spent and what everything costs.
Equally I propose to recommend to the Board that the position of Editor in Chief no longer be combined with that of Managing Director. It creates the impression that the Managing Director is directly in charge of ABC News and Current Affairs which he is not, and given the wide range of his responsibilities, could not be.
The Board should expect the head of news and current affairs, like the CFO, to report directly to the Board as well as to the managing director thus enabling the Board to discharge its statutory obligation referred to below.
Another matter is providing more granular detail on where the ABC, and SBS, spend their money and how it relates to their charter obligations.
In my view the ABC and SBS should so far as possible seek to be as transparent as a public listed company. The best cure for suspicion is sunlight.
Other matters I propose to include are to co-operate closely (between broadcasters) to maximize the efficiency of public broadcasting in Australia (as identified in the SBS Act) and to set out each year the steps the Board has taken to meet its statutory obligations including that in section 8(1)(c) of the ABC Act " to ensure that the gathering and presentation by the Corporation of news and information is accurate and impartial according to the recognised standards of objective journalism."
This last point is a very important one, and I acknowledge Mr Spigelman's recent reviews of the ABC's news coverage of certain issues.
But it is widely thought (including by many people who either write to me or write about me) that the Minister is responsible for ensuring that the ABC's news and current affairs is accurate and impartial.
The Government does not and should never have any control over the news and current affairs of the ABC or SBS. Mr Putin's model of media management is no more admirable than his foreign policy.
But their boards are responsible for their objectivity and accuracy. I have on occasions heard directors say "they do not want to get involved" Well if they do not want to get involved they should resign. The Board of each broadcaster has that responsibility and must discharge it, and be seen diligently to discharge it.
We all expect a lot from our national broadcasters. We have every right to – projected expenditure of $6.6 billion over the next five years, after the proposed savings I've outlined today, represents a significant commitment by taxpayers to these two organisations by any reasonable measure.
It is the Australian people who will judge whether or not they are getting value for money. It is the millions of citizens who tune in to ABC or SBS each week who will decide whether the Government should continue to invest billions of dollars in these two great national institutions on their behalf.
To their credit the ABC and SBS are well loved and well trusted – certainly much more so than any political party, minister or furious columnist. And as I've noted before, the role of the public broadcasters in our national life today is more important than ever, as the business model of the newspapers in particular is under threat and newsrooms dwindle.
With this growing importance comes pressure for both ABC and SBS to uphold even higher standards of balance and integrity in their coverage - and, as I've discussed today, to demonstrate even greater professionalism, transparency and efficiency in their handling of scarce public resources.
If the management of the ABC think they cannot find a 5% saving through efficiencies, they are selling themselves short and letting down the people of whose resources and trust they are the custodians.