Inside Story

The public interest in public broadcasting

The accountability of the ABC and SBS should be a two-way street, writes Geoff Heriot. A pattern of erratic government scrutiny fails the public-interest test

Geoff Heriot 6 March 2014 3669 words

Accountabilities: ABC managing director Mark Scott responds to questions at a Senate committee hearing in 2001.
Alan Porritt/ AAP

ACCOUNTABILITY is the price of statutory independence, and the price is considerable, especially for the kind of editorial and creative independence exercised by the ABC and SBS. As the Australian National Audit Office once observed dryly of the ABC, a national public broadcaster is subject to “more diverse” expectations of accountability than a private sector operator driven principally by the need to achieve a commercial profit. Having offered this self-evident truth about the national broadcasters, the Audit Office was silent on the reciprocal accountability of government.

To survive, the public broadcaster must win and retain the endorsement of the community at large, including those who don’t frequently use its services yet support them through taxation. The public broadcaster must compete for a critical mass of listeners and viewers while also serving specialist audiences; it must retain credibility within a ratings-driven industry while adhering to public sector principles and values; it must serve parliament, not the government; and it must demonstrate leadership through innovation. Inevitably, public broadcasting operates in a politically contested zone where – as demonstrated again in recent months – the discourse is often combative and careless.

Too often a gap exists between government assertions and community perception or the findings of external inquiries. Although the gap extends across party lines, among sections of the Liberal-National Coalition it can seem wide enough to be visible from space. It is time to make government engagement with national public broadcasting more accountable and transparent, and genuinely in the public interest.

TWO RELATED decisions provide a starting point for discussing these issues. The first is the possible closure of the international television service, Australia Network – or, at least, the cessation of the ABC’s role in delivering this service – as foreshadowed recently by the Abbott government. The second is the decision of the communications minister, Malcolm Turnbull, to commission an efficiency review of the ABC and SBS, reporting by April this year, a month before the federal Budget.

The future of Australia Network is a legitimate public policy issue, and raises important questions about the role, rules of engagement and effectiveness of cultural diplomacy. Of relevance here is the inconsistency – or perhaps the ineptitude – of the former Labor government in establishing and later cancelling a public tender process for its operation. Rather than awarding a ten-year contract to the national broadcaster’s rival, Sky News Australia, which is one-third owned by Rupert Murdoch’s BSkyB, the government overrode the tender panel’s recommendation and decided that the ABC would continue operating the service in perpetuity.

Although the Audit Office confirmed that cabinet was entitled to take that action, it said the matter “brought into question the government’s ability to deliver such a sensitive process fairly and effectively” (notwithstanding that it had managed routinely many other tender processes). Whatever your opinion of Sky News Australia and its ownership structure, this clumsy affair demonstrated the intensity with which governments and power elites wrestle over issues of media domination.

The commissioning of the efficiency review of the ABC and SBS inevitably invites speculation as to whether this is a prelude to budget cuts, some kind of ABC–SBS rationalisation or a hunt for evidence that the ABC uses funding intended for a particular purpose to subsidise other operations. It also has a precedent under an earlier Coalition government. In 1996, soon after taking office, the Howard government commissioned an extensive review of the ABC while going ahead with two phases of budget reduction – first, a cut of 2 per cent ($11 million per year) and then a cut of 10 per cent ($55 million). The so-called Mansfield review, nonetheless, produced a strong affirmation of the ABC’s value to Australia.

The Turnbull review has a much narrower focus. It will examine “input costs” in order to determine whether the ABC and SBS are making efficient use of the funding they receive. Specifically excluded are the broadcasters’ legislative charters, questions of program quality, and whether the ABC should be allowed to accept commercial advertising.

Time will tell whether the findings about the ABC, in particular, differ from a series of less well-known reviews over the decade and a half since Mansfield reported. For a time, in fact, external reviews and audits, commissioned by the government or by the ABC itself, seemed to just keep on coming. These reviews, which required the ABC to justify its role, its performance and its need for particular levels of funding, included a major assessment by the financial consulting firm KPMG in 2006, another by the Macquarie Bank in 2002 and others by the Audit Office in 2002 and 2004. Of these, only the Audit Office’s reviews of ABC corporate governance and its conversion to digital broadcasting were made public. Often commissioned in the heat of political battle, the likelihood of such reviews being released publicly depends very much on their conclusions.

If you pay close attention today you may well hear the sounds of exasperation and anxiety about this latest probe emanating from the corridors of national public broadcasting. “We’re already the most scrutinised organisation in the country,” some staffers will argue. Performance reviews are certainly no fun. But they need to occur regularly, in the public interest, to ensure that the broadcasters deliver high value for money and fulfil the roles defined for them by parliament, and to pre-empt the arrogance that commonly accompanies media profile or an entrenched sense of institutional entitlement.

For me, the pertinent question is not whether Minister Turnbull should have commissioned another review or what options it might canvass; rather, it is the question of how he has chosen to conduct it and what he will reveal publicly about its findings.

The process is being kept close to the minister’s office. Turnbull commissioned the Department of Communications to undertake the task, assisted by Peter Lewis, a former chief finance officer of Seven West Media Ltd. Regardless of its professional expertise and personal integrity, the department exists to advise and serve the lawful policy agenda of the minister; inevitably, the outcome of the review will be associated directly with Turnbull and the policy intent of his government.

The review’s terms of reference are prefaced with the claim that “there is limited transparency to the Australian public, the government and the parliament of the breakdown ofs cost of delivering the ABC and SBS Charter responsibilities.” No mention is made of the existing web of accountability requirements: a high-level corporate plan, performance data in the annual portfolio budget statements in the government’s Budget Papers, the acquittal of performance targets through the ABC annual report, the yearly sign-off on the Corporation’s financial statements by the Audit Office, appearances before Senate estimates committees, and the published outcomes of adjudicated complaints and numerous public opinion surveys. Every three years, on top of all that, the broadcasters make detailed submissions to the government about their proposed activities in the next triennial funding period.

Of course, the decision to invoke transparency as a principle tends to be a matter of convenience rather than the norm. A government may require it of others but not of itself. The Howard government chose not to publish KPMG’s voluminous ABC Funding Adequacy and Efficiency Review, for instance, which concluded that the ABC was operating efficiently, suffered from a “structural funding deficiency” and bore costs that weren’t faced by commercial operators. KPMG also raised a number of matters regarding the efficiency of the Corporation’s use of capital assets such as outside broadcast vans. Among its recommendations were that funding be increased by about $126 million over three years, and that the funding mechanism be reviewed.

It was a significant result for the ABC and probably not the outcome anticipated by the government. Without intending disrespect to the big consultancies, clients employ them with a purpose, and part of that purpose can be to influence the terms of the analysis. If a preferred outcome is in doubt, the client may remonstrate with the consultant. I have witnessed such exchanges, and more than once have had a role to “assist” consultants with their investigations.

ALTHOUGH there are few absolutes in public sector governance or in media policy, there is much to defend in the public interest. And, at the moment, the stakes are high.

For most of the ABC’s history, it has operated as a complementary and, in terms of its share of available audiences, a lesser presence in the mixed economy of Australian broadcasting. Generally (but not always) the ABC’s market presence didn’t threaten – and wasn’t even seen to be threatening – the commercial wellbeing of private corporations.

Unlike in Europe, where public broadcasters operated for decades as monopolies or near-monopolies, commercial broadcasting arrived first in Australia and the ABC came into being only when parliament responded to a failure in the broadcasting market. The federal government had licensed a private entity, the Australian Broadcasting Company, to operate a national radio broadcasting service. Parliament recognised the potential of broadcasting to link widely dispersed communities and help nurture a sense of common nation-building endeavour. When that struggling commercial radio network handed back its licence in 1932, parliament established what was then called the Australian Broadcasting Commission. By design and circumstance, the ABC has evolved into a highly distinctive and – many would argue – indispensible part of Australian society that acts partly as a guarantor of media diversity in a highly concentrated industry.

Today’s ABC has greater presence and more influence than ever, and that hasn’t gone unnoticed among the commercial media. The ABC has successfully exploited the potential of the many-channel digital and online environment while key commercial operators have struggled to adopt sustainable new business models. Even by 2006, KPMG reported, the range and scale of its operations, in Australia and overseas, were unmatched by any other Australian media organisation.

Like the rise of a geopolitical superpower, the present strength of national public broadcasting has the potential to seed its future vulnerability. That vulnerability may arise from the broadcaster’s own hubris as much as from the lobbying of vested interests such as News Corporation or Canberra’s own neo-liberal zealots. More broadly, of course, all established media enterprises are vulnerable to the disruptive impact of the borderless digital economy.

DESPITE the tendency to view the ABC and SBS through the prism of a media-saturated and consumerist society, a fundamental principle needs to be acknowledged when considering their roles. As the High Court determined in a key decision in 1997, the national broadcasters constitute elements of Australia’s executive government. Our system of government is founded on the division of accountabilities between the legislature, the executive and the judiciary. According to the High Court, the executive is not just made up of government ministers and the public service but also includes the affairs of statutory authorities and public utilities that are obliged to report to parliament, or to a minister who is responsible to parliament.

Most Commonwealth departments and agencies of executive government, including Malcolm Turnbull’s Department of Communications, are subject to the direction of the government. A small number – including the Audit Office, the Australian Federal Police and the national public broadcasters – operate at arms length from government on the basis of statutory independence. The ABC Act, for example, gives the Corporation both editorial and administrative independence from government. Ministers can only direct these independent bodies on carefully prescribed matters. This is essential in order to protect the integrity of Australia’s political system.

The point is that national public broadcasting exists formally within the constitutional framework of Australian democracy. The Audit Office, likewise, has an express duty to apply independent scrutiny and analysis of the performance of public sector organisations, such as the ABC and SBS (employing experts to offer industry-specific advice, as required). Fundamentally, the Audit Office is concerned to ensure that a public sector organisation fulfils its legislated purpose in an efficient and effective manner.

The Audit Office’s mission doesn’t necessarily coincide with a government’s short-term political agenda, and nor does it conduct a performance review solely with reference to the business environment. It is more encompassing of both enterprise governance and underlying civic purpose. In my experience, the Audit Office’s forensic doggedness can rub against the inclinations of broadcasting managers, absorbed as they are in the business of media rather than the crosscutting influences of legislation and public policy. But, to borrow from the language of the prime minister, this is not a vocation for wimps and more is required of those executive officers with custody of the national broadcasters.

In 2002, for example, an Audit Office report on ABC corporate governance noted that a number of senior executives had recently been recruited from the private sector. According to the report, their understanding of their responsibilities appeared to be focused exclusively on line relationships with the managing director (and, in turn, the ABC board). At the time, according to the Audit Office, these new executives lacked a sufficient understanding of their own public accountabilities – in my words, they had yet to achieve a sufficient balance of perspective between the imperatives of industry performance and community obligation. Theirs ultimately was a responsibility to serve people not only as consumers but also as citizens; and not only to operate in markets but also to serve the Australian federation.

Like every major media institution, the ABC (and SBS, no doubt) pursues self-interest, empowers and privileges star power and occasionally oversteps accepted editorial boundaries. Each time there is an external inquiry, hostile or not, the frontline warriors of corporate management renew their efforts to enhance performance and plug weaknesses in corporate governance – whether in strategy settings, policies and procedures, monitoring and compliance processes, or in forms of external reporting. It is not the glamorous end of public broadcasting but it is fundamental to the health and hygiene of the whole.

Australia is subject to accelerating forces of unprecedented change. Amid this, Australian citizens respond consistently to opinion surveys by expressing their high degree of trust in the relevance and integrity of the ABC relative to other media and public institutions. Both the ABC and SBS contribute diversity to the media landscape and thus to the democratic fabric. Together, and across the whole spread of their offerings, they provide uniquely for a range of geographical and cultural communities of interest. But they may not always remain essential to the nation’s social and democratic wellbeing.

The public interest would be better served if both national broadcasters underwent rigorous performance appraisals, not in ad hoc political circumstances, but at regular intervals using criteria that remain consistent over time. These reviews might be scheduled, say, every five years (ten at the most). Opportunities for citizen input would help to mitigate the baseness of tribal politics, compensate for the leverage of cashed-up rent-seekers and transcend fads of marketing management. The national broadcasters already generate most of the performance data that would be required for presentation in this context.

These reviews would not eliminate political gamesmanship or struggles of ideology. But they could serve to establish a “drumbeat” of enhanced public accountability and expectation. Their very existence would serve to draw attention to the effort of any government – regardless of which was the governing party or coalition – that sought to mount ad hoc or, to be blunt, capricious inquiries to suit their partisan agendas.

If governments were sincere about respecting the public interest, they would commission such appraisals to take place at arm’s length. They would utilise, if not the Audit Office as an independent agency of executive government, then an entity of comparable rigour and stature. The findings would be tabled in parliament and therefore open to public scrutiny.

MEANWHILE, the Turnbull review takes its course within the cloisters of the Department of Communications.

About eight years ago, when KPMG had completed its ABC Funding Adequacy and Efficiency Review on behalf of the then Department of Communications, Information Technology and the Arts, the Howard government chose not to release its findings. It would be reasonable to expect the current review team to refer to the 2006 report – a short summary of which was eventually leaked – and evaluate the changes that have occurred in the intervening period.

Among the findings of KPMG were the following:

• Even with indexed funding, the ABC faced cost pressures that were industry-driven, and ABC Television in particular could not sustain its range, quantity and mix of outputs without additional funding.

• The ABC provided a “high volume of outputs and quality, relative to the level of funding it received” and performed well in relation to “many types and levels of benchmarks and external points of reference.”

• The ABC appeared to be “a broadly efficient organisation” although the consultants identified a number of areas where further (meaning, I think, incremental) improvements could be made or further analyses undertaken.

• Labour-related costs in the previous five years increased from 56 per cent to almost 60 per cent of total costs notwithstanding that the ABC managed such costs “as well as, if not better than,” most comparable organisations.

• While KPMG approved of the ABC’s focus on using labour effectively, it urged greater effort to improve the efficiency of capital utilisation (by minimising the cost and maximising the use of assets such as production facilities and outside broadcast vans). It urged the Corporation to overcome a mindset of having to retain assets in perpetuity rather than outsourcing or sharing some resources (especially OB vans).

• Expansion into new media areas was consistent with the initiatives of most other public broadcasters in the world, undertaken with very limited funds and well supported across the Corporation.

• Consultants encountered “good examples of leadership and innovation” across the ABC and “many talented, diligent professionals” who were committed to quality output.

Significantly, KPMG drew attention to a “deficiency” in the ABC funding mechanism. Well-known to the Corporation’s management, this deficiency caused them to deal with what might be described as a funding crisis about every five to seven years. Successive Labor and Coalition governments had applied a particular indexation formula, known as WCI6, to certain agencies including the ABC. Forty per cent of the formula reflected movements in the price of labour and 60 per cent the underlying consumer price index. At the time, though, ABC staff-related costs represented 60 per cent of the total and general expenses made up only 40 per cent, an inversion of the formula.

In effect, WCI6 operates as a kind of productivity or efficiency dividend, forcing the ABC to deal with a cumulative reduction in real levels of operational funding. Each year of a triennial funding period, a gap opens between real costs and available funding. In time, the gap can become unmanageable without a reduction of staffing and/or service levels. KPMG recommended that the formula be reviewed. (At the time of writing, WCI6 continues to apply although, following funding increases awarded by the former Labor government, the indexation formula presumably has not had a material impact on the sustainability of ABC services over the past few years.)

The KPMG report acknowledged that there were “significant costs associated with ‘being the ABC,’” that is, fulfilling certain community obligations that would not otherwise apply to a broadcaster: maintaining a federal presence throughout Australia, rather than withdrawing to Sydney or Melbourne; supporting a substantial audience response and complaints management function; fulfilling national archive and library responsibilities, and so on.

Although KPMG disagreed with certain ABC calculations, it concluded that the Corporation needed additional capital funding of $73.8 million over three years to replenish or replace ageing technical assets (that is, on top of the normal funding, indexed for inflation). It also needed additional funding for operations to a total of $52 million over the three years of the funding triennium 2006–07 to 2008–09. “We stress,” said the KPMG report, that these recommendations would be sufficient to maintain the ABC’s “present level of outputs in the same broad structure” but not to reverse previous declines or to provide for new policy proposals.

By this time, John Howard had been prime minister for a decade, perhaps long enough for his government and the ABC to reach some kind of accommodation after years of complaints about the latter’s alleged editorial bias and following a succession of highly partisan appointments to the board. The government’s response to KPMG addressed different constituencies. Rather than the recommended $73.8 million for capital, the government provided $45 million. Instead of $52 million in funding for general operations, the government allowed $30 million tied to the commissioning of TV drama and documentaries from external producers, with another $13.2 million for content tied to regional (non-metropolitan) activities. ABC chairman Donald McDonald declared that it had been the best funding outcome in more than twenty years.

It was a qualifiedly good outcome for the ABC (though some people oppose the concept of tied funding, which can limit the future prerogatives of the board and managing director in responding to evolving circumstances). At another time, in a different political mood, the outcome may have been otherwise. Regardless, the Australian community had no opportunity to review the evidence.

One wonders what has changed since 2006 in the efficiency and effectiveness of the national public broadcasters. What will be learned about the efficacy and underlying motives of Malcolm Turnbull’s departmental review? And what will the government choose to tell us? •

discusses this essay with Richard Aedy on ABC Radio National’s Media Report.