There has been plenty of cause for pessimism in the last few months.  Funding public broadcasters isn’t normally seen as a way of keeping blue collar workers in jobs, which is the government’s understandable preoccupation at the moment.

But the heads of our public broadcasters have not given hope, and I understand there is still a lot of push and pull going on between them and government, which means the cause is not dead.

In this context the Managing Director of SBS, Shaun Brown, made a speech this morning in which he pushed his own case, and used this rather touching (well…) metaphor on why the fact that SBS gets money from advertising should not be used as an excuse to cut public funding.

During Senate Estimates last week I was asked by a Senator why SBS was asking the Government for a not insignificant amount of additional funding if we were still increasing advertising revenue.
I tried to put into perspective the modest nature of this additional revenue and its important role in lifting our local production to barely acceptable levels.
But what I wanted to say, but wasn’t bold enough, was this. Imagine that SBS is a widow with small children in a Dickensian workhouse. She barely feeds her family on a bowl of gruel a day and is grateful for it.
One day she sells a posy of dried flowers for a penny and buys her children half a loaf of yesterday’s bread. That afternoon the overseer inspects the workhouse and sees the children with the stale breadcrumbs around their mouths. He peers over his round belly and says “I don’t imagine you’ll be needing your gruel this evening!”
Anyway, at the risk of emulating Oliver Twist, we are asking for more, because we can barely survive on what little subsistence we get and because there are vital new challenges to be met.

Brown reprised SBS’s funding submission, with its plans for a new SBS 2 digital channel and more radio services, and made the case for broadcastsing as economic stimulus:

“SBS is a significant contributor to the independent production sector as we commission all of our content externally apart from news, current affairs and sport. We create jobs, invest money and foster skills while at the same time preserving and promoting our cultural identity.
Between 2005 and 2008, SBS invested more than $80 million with the independent production sector. When you add to that the funding leveraged from state and federal funding bodies, the 450 hours of television produced had a production value of $182 million.

As for recent fusses about the possibility SBS and the ABC may merge, Brown restates his passionate opposition:

“SBS is a unique broadcaster with a distinctive Charter. It is imperative as Australia shifts into the digital environment that diversity and plurality is preserved in the media industry and that SBS’s contribution is not diminished or marginalised.
Multiculturalism and diversity cannot be left to become a mere footnote in Australian media.

It is surprising Conroy didn’t get more of a grilling about this. Like most things connected with his portfolio, it has taken forever.

So who has their name in the hat? I have wasted most of a morning trying to find out. The names, apparently presently in Kevin Rudd’s intray, are very tightly held.

I can report that one man who would have been excellent didn’t put himself forward because he was overseas at the time they called for nominations. Doh!

Doesn’t anyone in Conroy’s office think to pick up the phone to give people a nudge? Or is that improper?

If anybody knows anything and wants to whisper, my email is Margaret@MargaretSimons.com.au.

And no, I am not holding my breath.

In a nice piece of management-consultant euphemism, the report states that while the merger could be quite easily achieved from an organisational point of view, “legal, political and cultural issues are far more likely to be on the critical path”. In other words, where the shit fight happens.

I’ll say.

To get some idea of the explosive nature of this document, and the negligible amount of love lost between SBS Managing Director Shaun Brown and ABC Managing Director Mark Scott, read the response SBS gave when the document’s existence was revealed:

The ABC’s clandestine report simply confirms what we have long suspected – that ABC management has long harboured a desire to takeover SBS. It’s extraordinary they haven’t been willing to publicly engage on the matter – with either SBS, the Australian public or any stakeholders.

The consultants acknowledge that all costs are approximations and were not provided by SBS which casts serious doubts on the reality of any potential savings and the report’s recommendations.  The two organisations are so fundamentally and culturally different that it would hard to grasp those complexities simply by reading our Annual Report.

SBS has proactively and publicly engaged with the ABC on the issue of potential efficiencies. I personally raised the matter at the Prime Minister’s 20/20 Summit.

The ABC had every opportunity to disclose this report in their public submission to the Government’s public broadcasting review – but chose not to. Considering 2400 Australians and organisations felt strongly enough about the SBS and ABC to make a public submission, this seemed like a natural forum to publicly state that the ABC had been pursuing the issue of a merger.

Ultimately the proposal results in no significant cost savings to the Australian taxpayer, a loss of more than 125 jobs at the ABC and SBS and a real threat to investment in the independent production sector. Not to mention multiculturalism and diversity becoming a mere footnote in the Australian media landscape.

“Clandestine”! Brown is effectively accusing Scott of scheming. The ABC, meanwhile, insists it is not “pursuing or promoting” a merger, while talking about the potential for “operational efficiencies”.

Here, I suspect, we have part of the answer to the strange disparity in responses to the issue of merging back office functions, particularly transmission, that I drew attention to in a post last week. The ABC, while insisting that it isn’t pushing the idea of a merger, clearly  has a broader agenda, about which it seems to have been less than completely transparent. And the levels of trust between SBS and ABC around the issue seem to be close to zero.

As SBS points out, there is no mention of the BCG report or recommendation in the ABC’s submission to the Government’s review of public broadcasting,  despite the fact that integration of the back offices is one of the issues raised in the discussion paper and despite the fact that it was the existence of the discussion paper that prompted the ABC ask BCG to do the work.

Surely the public submission process on the review would have been better informed had the BCG report been released earlier? The document is dated October 2008. It could have been in the public realm for months now, and the public could have commented on it.

Instead the BCG document came to light as the result of a question on notice (Number 113) before Senate Estimates about whether there had been any work done on a merger. SBS was asked exactly the same question, and responded that it was not aware of any such work. The ABC, on the other hand, yielded up “Project W” – the name of the BCG review – and a draft report that canvassed a number of options for back office integration and came down on the side of  the “high integration” option, which it estimates could  save $41 million per year.

Some key paragraphs from the BCG Report:

• The Low integration scenario focuses on the integration of facilities such as
studios, transmission and distribution services and delivers an estimated annual
benefit of $11m.
• The Medium integration scenario also integrates the HR, Finance and IT support
services and delivers an estimated annual benefit of $21m.
• The High integration scenario envisages a combined organisation with integrated
strategic direction, TV Production, Marketing and Sales. In effect, this means
forming a single organisation with two programming groups focusing on the ABC
and SBS brands. It delivers an estimated annual benefit of $41m.
• The Very High integration scenario manages the separate brands through an
integrated functional organisation and brings an estimated annual benefit of $45m.
The High scenario is recommended as it provides the most attractive trade-off between
cost savings and the value perceived in maintaining the different programming cultures of
ABC and SBS. In addition, political sensitivities notwithstanding, it is relatively
straightforward to implement.

The benefits of the High scenario represent 17% of SBS’s $248m cost base and are
within the 10-35% range from BCG experience with similar types of mergers and
published figures for integrations with medium to high cost base overlap.
In addition to the annual operating cost benefits, asset disposals are estimated to deliver a
further $52m, primarily due to the disposal of excess studio and office space.
Qualitative benefits of integration have also been identified, and range from clarifying the
strategies for relative brand positioning and programming, through to sharing knowledge
and expertise on multiculturalism and commissioning models.
A governance model has been described which will enable the appropriate balance
between operational efficiency and the independence of the existing entities. This model
outlines the role of legal and Editorial Committees and the roles of senior managers, and
provides illustrative key reporting lines within the integrated organisation.

The High integration scenario merges all functions other than TV Programming, News
and Radio (Exhibit 4). The two broadcasters would effectively integrate into a single
organisation, managed by a single CEO with full strategic responsibility for both brands.
The separate ABC and SBS Boards of Directors (Board) would be integrated into a single
Board for Australian public broadcasting. The Board would be the primary forum to
address issues affecting both organisations and would have ultimate responsibility for the
delivery of both broadcasters’ Charters. Separate Editorial Committees for ABC and SBS
would be established. These committees would be given specific responsibility for
ensuring that program output and programming decisions were made in line with the
respective distinctive charters of the two organisations.

Now, what are we to make of all this? To be truthful, the BCG document – only 20 pages long – is a bit light on. It is described as a draft and work in progress. There are clearly far more issues to be sorted through than it addresses. For one thing it mentions only television, news and radio as content divisions. There is no mention of online.

The Report also does a once-over-very-lightly attempt at addressing the predictable objections to a merger of the organisations.

It states that rather than reducing multicultural broadcasting, a merger with separate editorial committees might clarify the “brand positions” of the two broadcasters. The implication is that this is less than ideally clear at the moment. I think this is probably true. If SBS and ABC were one organisation, it would be harder for SBS to justify doing broad-ranging programming with no clear relationship to its charter.

On the other hand, a merger would surely also allow the Big Questions to be asked by those hostile to public broadcasting’s claim on the public purse. Such people would say why should either part of the organisation  – SBS or ABC – do anything other than clear “charter” content, with a narrow interpretation of the charter. This is exactly the kind of argument raised by the pay television sector in its submission to the review, as I have written elsewhere.

If we followed that logic, then the ABC/SBS organisation would be small, niche and much less influential.

The other risk is that, given that SBS takes advertising, a merger would be a Trojan horse, by which ads would be introduced to the ABC. BCG says the charter guidelines of the ABC would be enough to prevent this. I find this a much less than satisfying response. If the financial “back ends” were integrated, it would be at best awkward to have one part of the broadcasting organisation heavily reliant on ad revenue, and the other not. The immense pressures that can be brought to bear by advertisers on media would surely be felt throughout the merged entity.

Nevertheless, it would be silly to reject the idea of a partial merger out of hand. It is worth remembering that it was initially envisaged that SBS would be part of the ABC. Arguments between the Fraser Government and the ABC on the amount of extra money needed to pick up responsibilities for the new service led to the creation of the ethnic broadcaster under a separate umbrella.

But we have moved on a long way since then. SBS takes ads. Whether you think that is a good or bad thing,  it means that SBS has adopted an entirely different public broadcasting model from the ABC.

That alone, i would have thought, would make the “High Level” BCG option difficult to implement sensibly, unless SBS stopped taking advertising or the ABC began to do so. Neither is likely to happen.

On the other hand, you would have to be stupid not to see that there may be cost savings in back office integration. Why have two Human Resources Departments, two Legal Departments and so on and so forth?

On the crucial issue of the transmission contracts with the Macquarie Bank owned Broadcast Australia, BCG anticipates a $2.2 million saving from “leveraging increased scale in renegotiation of broadcast contracts”. Unless there is something I don’t know, that seems optimistic. Why would the Bank want to renegotiate or cut a deal when SBS and ABC have nowhere else to go?

The key question, of course, is where the Government sits on this. While Communications Minister Stephen Conroy is not expressing a strong view, I find it hard to believe a shrewd man like Mark Scott would have commissioned this report without some idea that it might be favourably received or play into some larger political aims.

I also doubt that the BCG recommendation for a virtually complete merger will be followed. Rather, this looks to me like an ambit claim, a way of opening up the topic.

I suspect the question is how much will be merged, and when. How much of our public broadcasters is “back end”, and how much essential to their personality and raison d’etre?

I spent Australia Day reading through some of the more than 2400 submissions to the Government’s review of public broadcasting. I could dress this up as patriotism, I suppose. No. It’s just sad.

Anyway, the result is a short news story for Crikey later today, plus a longer piece for the online periodical Inside Story, which should be published later this week. The main point of the longer piece is that the threats to public broadcasting are as potent as ever, but most of the supporters of Auntie and SBS are fighting the wrong battles.

That leaves just one aspect from the submissions to mention here. It intrigues me, and I suspect there is a bigger story behind it that I’m not getting to.

One of the issues the review is looking at is the potential to merge some of the “back office” functions of the ABC and SBS, and in particular transmission services.

Now I know this isn’t the sort of thing that gets most people’s juices flowing, but it is important to the future of the public broadcasters. At the moment, ABC and SBS are the captive clients of Broadcast Australia, owned by the Macquarie Bank. There is little or no competition for their custom, and they are on long term contracts.

I know the Government is keenly interested in the swathes of taxpayyer money that goes straight to the Macquarie Bank. Each year SBS spends almost $80 million out of total government funding of $188 million on transmission. SBS estimates the ABC spends about $170 million out of $850 million in Government funding. In other words, if these costs could be cut both organisations would be much better off at no net cost to the taxpayer.

SBS suggested at the 2020 Summit that the two public broadcasters look at amalgamating their transmission and distribution. A working party was formed to look at  the issue, but the two organisations seem to have come to curiously different views of what that working party concluded.

The ABC submission says:

Unfortunately, the working group concluded that, as a result of the ways in which the two organisations’ contracts with their transmission services provider are structured, there are few, if any, efficiencies to be gained from merging the services highlighted in the SBS paper.

The ABC reckons it is worth looking at other back office functions, but not at transmission.

But SBS has a quite different view of what is possible:

Transmission and distribution services could be provided to the SBS and ABC on a fee for service basis funded by government appropriation. They could also be made available to Indigenous and community broadcasters. Individual service agreements with the joint venture could ensure that services did not need to be one size fits all and the broadcasters could be free to acquire specialised services, outside the service agreement, from other players, if this made sense.
In this way SBS and the ABC would retain editorial control of their content offerings, maintain their distinct Charters and personalities and management could focus on content rather than on infrastructure management or engineering issues. SBS is willing to explore opportunities for operational synergies with the ABC.

So, is it possible to combine and save money on transmission services, or isn’t it? Should the Macquarie Bank be worried, or are our public broadcasters shackled hand and foot to the existing arrangements?

A number of questions follow from this. What exactly is the nature of the current contracts? What are their terms? Is either SBS or the ABC getting a better deal?

These are pretty important questions involving $250 million of public money, yet the arrangements concerned seem to be opaque – and even SBS and ABC don’t seem to to agree on whether or not they can be rearranged.

It would be nice to have some clarity on this. Somebody must know the inside story. Tips appreciated.

Now, enough. I’m off to bang my head against a brick wall instead. It might be more fun.

A different view emerges from a submissions from the pay television sector to the Government review of public broadcasting. They complain that the ABC and SBS are being too aggressive in buying up rights to keep the shows away from Pay TV.

Mumbrella has the wrap-up. He got to read the submissions before me, and I thank him for the tip.

Once again we see that the battle of the small screen is now about pay TV versus free to air, and when it comes to free to air multi-channels, the ABC is in the front line, ahead of the commercials, who have no good reason to embrace audience fragmentation.

The pay-TV folks also reckon that the ABC shouldn’t get a public affairs channel or a children’s channel, since both are already available on pay.

This is the same battleground as the A-pac spectrum stoush I reported on in Crikey earlier this week.

The pay tv sector is challenging the ABC to justify its claim on the taxpayer purse. Meanwhile the federal government seems to be playing Foxtel and the ABC off against each other.

This will be a fundamental and long lasting battle.

I haven’t had a chance to look at them yet, and today is a busy day. Crowd sourcing welcome – if anyone wants to point me to something that should be looked at, my e-mail address is Margaret@MargaretSimons.com.au or DM me on Twitter. Otherwise, I’ll do the reading over the weekend.

I haven’t had a chance to read it yet. I am told that in all around 2400 submissions have been received.