Emperor Rupert’s not at war with the NBN: It’s democracy he has a problem with

opinion/analysis Put your soy latte down. Stop glaring at the front page of the Daily Telegraph. Breathe slowly and deeply, and listen to me closely: News Corporation chief executive Rupert Murdoch has not sent a political assassin Down Under specifically to kill Labor’s evil National Broadband Network project so it doesn’t wipe out Foxtel’s revenues. No, it’s the people’s right to choose which frustrates Murdoch, not Labor’s little side project.

If you are at all active in following the constantly shifting, poisoned morass which we know as Australia’s techno-political mediasphere, you’ll be aware that one of the most insidious thought bubbles which has floated to the top of the nation’s public consciousness over the past several days has been the idea that News Corporation — and specifically its much-reviled chief executive Rupert Murdoch — is trying to kill the National Broadband Network. Or, perhaps more accurately, as the project still hasn’t really gotten out of the gates in terms of its rollout, feed its parents the wrong meds so their genius offspring never makes it into the real world.

If you’ve been a long-time follower of the NBN debate, this idea is an extremely seductive one. How better, after all, to explain the constant and virulent attacks which major News Corporation newspapers such as the Daily Telegraph and The Australian have waged on the NBN project over the past several years? How better to explain the failed attempt to impugn the character of its chief executive, Mike Quigley? How better to explain the constant wave of misleading or even factually incorrect articles that have been at pains to point out microscopic faults in the NBN plan? How better to explain the fact that those same newspapers have levelled almost precisely zero criticism at the rival NBN policy promoted by the Opposition, despite the fact that it shares many elements with Labor’s own vision?

Yes, the argument that the preservation of Foxtel is behind News Corp’s frenzied, almost spastic, attack on the NBN over the years is a potent one.

After all, at this stage, despite his upbringing in Melbourne, it must be said that Australian would probably be prepared to believe almost anything about Murdoch. His US megalith Fox News is generally regarded in Australia as the worst kind of right-wing propaganda machine, pandering to the fears of the ignorant and ill-informed with the underhanded aim of feathering the nest of the rich; Murdoch’s UK operations have been forever tainted by The News of the World’s phone hacking and police bribery operations, and many locals are even suspicious of the slanted coverage which they’ve come to expect from The Australian’s climate change coverage.

In this context, Murdoch more or less has an aura that reminds one of Star Wars’ Senator Palpatine … in his latter years. It hardly seems a stretch, given Foxtel’s penchant for locking up content in a way that makes it impossible for non-subscribers to access, that its ultimate owner would stoop to requesting his vast publishing business to try and destroy a national infrastructure project, to ensure the open nature of the burgeoning Internet platform fuelled by the NBN didn’t result in Foxtel’s coveted crown jewels being stolen.

Australians’ suspicions appeared to be confirmed over the weekend when respected journalist Paul Sheehan claimed in a comment piece for The Age that Murdoch had sent a key executive, Col Allan (known as ‘Col Pot’ after the Cambodian dictator) to Australia to take Kevin Rudd’s head and return it to the Great Lord in a little black carry bag. Such an image would usually be accompanied by a little side shot of Opposition Leader Tony Abbott simpering ingratiatingly.

Wrote Sheehan: “Rudd’s greatest failing, in the eyes of News Corp management, and the greatest threat he poses, is his $45 billion NBN, a massive project announced without any serious costing. News Corp has formed a view it represents a threat to Foxtel … Foxtel’s co-parent, News Corp, is engaging in a more structural response. It wants to kill the NBN threat at its ultimate source – Kevin Rudd.” And there’s a great deal more, along those lines.

And, as if on queue, News Corp delivered. The Daily Telegraph’s front page the day after Sheehan published his article, the day after Rudd announced the election date in September, appeared perfectly targeted along the lines The Age journalist had suggested. “Finally”, the Tele soberly informed its readers, “you now have the chance to KICK THIS MOB OUT”. Rudd, at his dictatorial best, looms over the caption, his head oddly disconnected from the rest of his body, as though his neck was already under Murdoch’s guillotine.

Yes, yes, yes. You can see the narrative unfolding right before your eyes. It has everything. The dark forces of evil (Murdoch and News Corp) are closing in, trying to kill fast broadband and take schoolboy Kevin’s toys, in an effort to shore up a failing business model which the Internet has made irrelevant. And of course, Fairfax is here to make sure we’re informed of the Evil Empire’s dastardly plans, flush with the success of holding corrupt NSW politicians to account …

The only problem is the gross inaccuracy of the whole thing. In its rush to create a scandal, what everyone involved in commenting on this situation has forgotten is that Murdoch and his clutch of News Corp executives don’t hate the NBN and want to destroy it. In fact, they have many reasons to welcome it, and generally have been doing so.

Take Murdoch’s comments last time it looked very likely that there was going to be a change of Government in Australia. The date was November 14, 2006, John Howard’s Coalition administration was on its last legs and Mr Rudd was about to become Kevin ’07. The Australian itself tells us what Murdoch said about broadband:

“It is a disgrace,” said Mr Murdoch, who was guest of honour at a function attended by the Prime Minister and Telstra chief Sol Trujillo last night. “I think we should be spending – the government with Telstra should be spending – $10 billion or $12 billion on it (so it gets to) every town in Australia – they do it in Japan, they do it in South Korea, we should be able to do it here. We are being left behind and we will pay for it.”

At the time, Labor hadn’t even launched its NBN vision yet. Murdoch’s target was (gasp!) the Coalition. Senator Helen Coonan, Communications Minister at the time, was forced to defend the Government’s honour and Australian broadband speeds. The Sydney Morning Herald tells us: “Mark Armstrong, head of Sydney’s Network Insight Institute, a non-profit technology lobby group, said only someone with the power of Mr Murdoch could put broadband speed and access on the national agenda.”

But it didn’t stop there.

Those with long memories will recall that two years later, in November 2008, Murdoch gave a series of speeches as part of the Boyer Lectures. The title of the series was “A Golden Age of Freedom”, and in one of the lectures Murdoch went on what I can only describe as an absolute rant against Luddites and anyone who stands in the way against technological change. I thought these paragraphs particularly pertinent to today’s debate:

“… whinging about the technology will get you nowhere. The only way to deal with new technology that up-ends your job or your business model is to get out in front of it. Otherwise it will get out in front of you.

The challenge is clear. But so is history. Each improvement in information technology we have seen in the past—beginning with Gutenberg’s press and continuing with radio and television—has opened up access to more news and entertainment for millions more people who previously couldn’t get or afford it. There is no reason to think the trend will be different this time. Except that this time, the access will be universal—and the impact will be more profound.

History also shows that with each new advance, existing businesses are forced to become more creative and relevant to their customers. Once upon a time, the media and entertainment companies could count on the huge, up-front investments that discouraged competitors from entering the business. But, in many sectors, the barriers to entry have never been lower—and the opportunities for the energetic and the creative have never been greater.

This competition is becoming more intense every day. Because technology now allows the little guy to do what once required a huge corporation.”

Murdoch’s attitude towards the NBN and the development of new technology continues today. Only yesterday the News Corp mogul tweeted: “Oz politics! We all like ideal of NBN, especially perfect for Foxtel. But first how can it be financed in present situation?”

What we’re seeing here is not an executive who is anti-technology, a Dark Lord enshrined in a tower on the slopes of a volcano plotting the demise of Australia’s favourite broadband project. What we see is an intelligent, articulate, and yes, highly ruthless, businessman, who is both frustrated by the current state of affairs regarding broadband in Australia, but also sees opportunities to develop his company’s assets further if that situation should change. Murdoch does, of course, have other flaws; but more on that later.

Further evidence of the fact that News Corp does not hate the NBN comes from similar comments made by senior News Corp and Foxtel executives over the past several years. Kim Williams, chief executive of Foxtel for a decade up until 2011, when he became chief executive of News Corporation in Australia, said in an article published by rural media outlet The Land in October 2011: “The NBN will be a very useful and exciting development for entertainment especially in regional Australia. It equalises the transaction between rural and city communities and will bridge that digital divide”.

And in a speech to the 2011 Aastra conference: “For us broadband, including the coming NBN, presents two substantial opportunities. First, it allows us to expand out the choice, control and the personalisation we offer Australians through our core presentation.

Late last year we started to activate the internet connection into over 900,000 deployed iQ set top units. Foxtel On Demand offers customers access to thousands of TV episodes and hundreds of movies. It signifies the direction of our investment. This is to provide that which we know consumers are seeking in a way that provides a contemporary solution with simplicity at its heart which represents exceptional competitive value. This enhances the utility of Foxtel, expands our value proposition and accordingly enhances our customer retention.

The second opportunity broadband provides us is an effective, increasingly ubiquitous and affordable distribution mechanism. This enables new, flexible packages to fresh market segments not traditionally open to Foxtel. That explains why late last year we launched Foxtel on Xbox 360 – where we provide 30 channels of Foxtel over the internet, directly to televisions via Microsoft’s remarkable Xbox 360 console. We signed an agreement with Telstra in February to provide a similarly strong offering to Telstra’s T-box which will be available in a couple of months. Other new products are in the development wings. All will be delivered via broadband direct to your television set and if you are a BigPond customer they will be zero rated.”

Current Foxtel chief executive Richard Freudenstein has also defended the potential impact of the NBN on Foxtel, although he’s less enthusiastic in general about its opportunities. An article published by The Australian in March, 2012, states: “Mr Freudenstein denied the NBN or faster broadband would harm Foxtel. ‘I don’t see it having any particular impact on Foxtel in the short term. The most cost-effective way to deliver video into someone’s home will always be satellite or even terrestrial signals. The NBN pricing model does not make it a particularly effective way to deliver video into your home.'”

So why isn’t Foxtel afraid of the NBN? Why would it view it as an opportunity?

As Williams told the Aastra conference, the first thing to realise is that the rollout of the NBN will significantly enhance the reach of Foxtel’s services. Even with Austar under its wing, Foxtel currently only has around 1.7 million subscribers in Australia. The issue is that historically, pay television has only been able to be delivered through HFC cable platforms (operated in Australia by Telstra and Optus) as well as satellite dishes. Both of these mechanisms are clunky and difficult to deal with — HFC cable because its spread is limited to certain areas in Australia’s capital cities, and it specifically doesn’t go into many apartment blocks, and satellite because it requires a hunking great dish to be put somewhere on your property.

In comparison, the NBN will run into every home and business premise in Australia by default. As long as a few deals are struck with retail ISPs to facilitate data quota not being blown for customers through online video streaming, Foxtel will have a much larger captive audience for its product.

And what a product it is and will be.

Right now, when it comes to premium content in Australia, Foxtel enjoys an unprecedented level of control over the top parcels of content which Australians want to access. It regularly locks up shows like Game of Thrones, True Blood, the Newsroom and others in Australia, buying exclusive rights from content makers such as HBO, and it also regularly buys out the top sports rights — as long as the Government allows it to do so.

The reason Foxtel can do this is because it has the financial muscle to bring to the table. If you’re a company like HBO, the key concept you’re grappling with, in terms of a high-budget show like Game of Thrones, is the idea of risk. If you’re going to spend tens of millions of dollars on a TV blockbuster (Game of Thrones reportedly costs between $50 million and $60 million a season to make), then you want to know you have guaranteed distribution partners in major countries, so you can recoup that loss. In addition, you have to be conscious that not all shows will do well with audiences — meaning that profits from your top shows will sometimes subsidise losses from lesser shows.

Where Foxtel comes into that chain is that, because it offers a massed subscription model, it can step in earlier in the negotiation process to licence premium content and lock out local rights, compared with smaller companies such as Quickflix and FetchTV, which are attempting to do the same thing but don’t have as much financial muscle. Doing so shores up HBO’s own risk in terms of distribution and gets Foxtel the best content, every year.

With about $2.2 billion a year in revenue, Foxtel even dwarfs the revenues pulled in by Australia’s major free to air television networks. Wondering why premium shows like True Blood don’t show through the free to air channels? Yeah. Foxtel is willing to pay more for them. And under an NBN model, Foxtel will be able to target more Australians, more easily, with less up-front costs, with its fantastic content.

Yes, it’s possible to argue, as Shadow Communications Minister Malcolm Turnbull has argued very well this week, that Foxtel is worried about stand-alone IPTV providers such as Netflix coming to Australia and eating its lunch by offering TV and movies to Australians in the same way it is very successfully doing in the US.

However, I would also point out that there’s nothing to stop Foxtel, with its highly entrenched model and customer base in Australia, matching its rivals play for play. And, in fact, it already is. Just last month Foxtel launched its Play IPTV service, which offers not only ‘channels’ of the kind which Foxtel offers through traditional pay TV platforms, but also pay per view content on demand.

While Netflix is focused overseas and local players such as FetchTV and Quickflix are still getting their technology and licensing deals in place, Foxtel already has it all — massive market power, massive revenues, the ability to gain exclusive content deals, and technology in place to take advantage of the Internet.

Sure, Australians’ love of IPTV services such as YouTube will chip away at that, and so will the smaller online content players. Turnbull even points out that sports organisations such as the AFL and NRL may even start their own IPTV services over the NBN in a way which may eventually challenge Foxtel’s dominance of live sports broadcasting.

However, right now, all of that change looks a long way off, and meanwhile Foxtel has to be looking at the development of the NBN as a government-funded infrastructure expansion effort which will allow it to target a hugely larger audience. This is one company which is not coming from a standing start, and remains, as Murdoch said on Twitter, ideally positioned to take advantage of the NBN. It’s also possible in the long-term that the construction of the NBN will cause the whole content pie will grow, including Foxtel’s share of it — rather than seeing value destruction of the type many people predict. The only way Foxtel can lose through the rollout of the NBN is if it ignores the situation or gets its model wrong. As I wrote last week about Foxtel’s IPTV service Play:

“I haven’t really checked out Play in any depth, but what I will say initially is that it appears to represent something close of a straight port of Foxtel’s existing subscription television service across to IPTV. It should be obvious by now that this isn’t really what customers want — if that’s what they wanted, then they probably would have already subscribed to Foxtel’s infrastructure-based platform. Some customers want a smorgasboard, but what the evolving generation of younger customers want — and bear in mind when I say “younger”, what I’m really talking about is the generation of people below about 45 — is on-demand content. They don’t want a category of sci-fi/fantasy television shows, they want Game of Thrones. They don’t want a sport category. They want the English Premier League specifically. And so on.”

In short, if Foxtel evolves its current model to handle the broadband new world order, as US giants such as Netflix have clearly been able to do, then it will very likely emerge from the broadband revolution with the very vast majority of its market power intact. It just need to keep evolving its model along the lines that customers clearly want. Foxtel can kill Foxtel — but its rivals probably can’t.

There is also the fact, as Turnbull points out, that it’s not as if the Coalition’s rival NBN strategy is all that different from Labor’s vision anyway. Getting broadcast-quality television into people’s homes requires only a few Mbps. Many of us do it right now, using current broadband platforms such as ADSL2+, HFC cable and even 3G/4G mobile broadband. As FetchTV chief executive Scott Lorson said recently with regard to the Coalition’s NBN policy: “There is very little difference for us between 20 megabits per second and 100 megabits per second in terms of our ability to deliver the service. One element we do like in the Coalition’s proposal is that it will roll out faster and cheaper.”

In short, the Internet television revolution, to the extent that it’s not here already, is coming inevitably (no matter who wins the election), and Murdoch and his executives are highly aware of this fact and already moving to intersect. As the News Corp chief executive said in his Boyer Lecture: ” … whinging about the technology will get you nowhere. The only way to deal with new technology that up-ends your job or your business model is to get out in front of it. Otherwise it will get out in front of you.” That’s what Foxtel is doing right now with its Play service. And it will keep pushing along these lines, to ensure its power is maintained, even though the medium its products are delivered on changes.

So what’s the deal? Why have News Corp newspapers taken an antagonistic approach to the NBN, if it’s not about Foxtel? Pure and simple: It’s about regime change.

It should be obvious by now that News Corp’s Australian newspapers are quite conservative. They always tend to support the Coalition more than they do Labor. They are broadly pro-national security, pro-law and order and pro-business, and against the recognition of climate change, against the relaxation of social norms and, most of all, against any kind of societal or economic change they see as dangerous. Rudd, with his ambitious policy reform agenda, has always frightened many on the conservative side of the fence (just as Abbott, with his minimalist, conservative, policy approach, has always frightened progressives).

In the US, through outlets such as Fox News, News Corp has for many, many years taken an activist stance in the political arena, rather than a journalistic one. Observers of the Tea Party phenomenon in the US will be aware that without with the stimulus of a major media outlet such as Fox, the conservative organisation would not have gained the prominence which it has. In the UK, News Corp has used its media influence along similar lines, with mastheads such as The Sun and The Times pushing hard for changes in government when Murdoch and his executives have seen fit. And of course, in Australia, The Australian and the Daily Telegraph, as well as other News Corp newspapers, have waged a constant campaign against Labor, especially ex-Prime Minister Julia Gillard, for some time.

The degree of each media outlet’s rabidity varies. In the US, Fox News is probably at the extreme end of the scale; whereas in the UK and in Australia, News Corp publications will occasionally support Labor parties if there is substantial appetite for change, such as when Kevin Rudd swept to power in 2007, or when the News Corp empire supported Tony Blair back in 1997. But in general, these outlets have represented forces against substantive societal change — not for it. In this sense, the NBN is only one high-profile target for News Corporation. It was a Rudd-backed idea from the start, and now, with the project demonstrably late and not yet delivering on its aims, it represents an avenue of attack for the Murdoch press. Rudd himself clearly realises this. “I think he’s made it fairly clear through one of his editors the other day that he doesn’t really like us and would like to give us the old heave-ho and get his mate Mr Abbott in,” Rudd said of Murdoch this week.

Now, in a certain sense, much of this is not a bad thing. Because for all that the News Corp newspapers scream about Rudd, there are other options for readers — Fairfax newspapers, for one, or the ABC, or independent media outlets such as Crikey, Mumbrella, Delimiter, New Matilda, and so on. The list grows every year. Whether News Corp’s conservative values come from Murdoch personally, or whether they represent a cynical attempt to sell more newspaper and bump up TV viewing, they are still a worthwhile part of the wider media millieu.

However, in a different sense, Murdoch’s attacks on Labor and Rudd personally, feel a fair bit off to many Australians due to the media concentration issue here. Australia is not the UK, where the media regularly takes a political angle and has open biases for different causes. Neither is it the US, where fact has been thrown out the window in the war for television ratings. Murdoch’s attack on Labor is not journalism; but an attempt to force the hand of democracy, to change the electorate’s mind artificially; reflective of an arrogance which does not inform the public, but attempts to persuade it the rightness of one view. This sort of activity, conducted by one or a handful of journalists or commentators, is not an issue. But people don’t like it when all the resources of a giant empire like News Corp, with its dominance of the Australian media, are directed towards making one point. It feels like we’re being preached to.

The problem is, Australians still, by and large, expect ethical journalism to be practiced, and for major media outlets to maintain at least a modicum of objectivity. In this sense, Murdoch’s extraordinary intervention in the election campaign (and its likely lack of impact) will be seen as evidence that the newspaper medium itself is desperate and dying. As Fairfax columnist John Birmingham wrote this week:

“There is one possible real world outcome from the hilarious comedy stylings of every journalist taking the Murdoch coin at the moment, however. It’s the further contraction of the newspaper reading audience as even more punters abandon the format in disgust.”

And they certainly don’t need the National Broadband Network to do that.