Office of the Minister of Broadcasting Chair Economic Development Committee DIGITAL TELEVISION: MAINTENANCE OF ANALOGUE TRANSMISSION IN REMOTE AREAS PAPER E Purpose 1. This paper is in response to a Cabinet requirement to report on the continued funding of analogue terrestrial television transmission in outlying areas (CAB Min (02) 33/4 of 9 December 2002 refers). Executive Summary 2. A Crown Law opinion of 11 July 2003 sought by NZ On Air after consultation with the Ministry for Culture and Heritage advises that, given the current 100 percent nationwide broadcast coverage of Television New Zealand (TVNZ) channels (and others) via satellite by Sky television, NZ On Air no longer has a statutory mandate to make payments to extend or maintain the continuity of terrestrial television transmission. 3. This paper seeks agreement that in the absence of an overall plan for digital television transmission, analogue terrestrial transmission of TVNZ channels to remote areas should continue to be funded and maintained for the time being, and notes options for effecting this. It is recommended that Cabinet agree that the Vote Minister re-allocate an amount within the 2003/04 Main Estimates for Vote Arts, Culture and Heritage Non-departmental Output Class appropriation for Public Broadcasting Funding to TVNZ instead of NZ On Air for this purpose, upon negotiation of an appropriate memorandum of understanding between the Minister of Broadcasting and TVNZ. Background 4. Section 36(b) of the Broadcasting Act 1989 requires the Broadcasting Commission (NZ On Air) to: maintain, and where appropriate, extend the coverage of television and sound radio broadcasting to New Zealand communities that would otherwise not receive a commercially viable signal. 5. In addition to this statutory mandate, NZ On Air has also been following a Ministerial direction of June 1989 issued under section 44 of the Act requiring the agency to have regard to government policy in exercising its powers. Relevant parts of the notice, which is still in force, include that it is part of the general policy of government in relation to broadcasting:
2 that coverage of television broadcasting should be maintained at least at the level achieved by the Broadcasting Corporation of New Zealand on 1 April 1988. 6. Under the contract between NZ On Air and TVNZ which expired 30 June 2003, NZ On Air had provided funding of $1.15 million (GST excl.) per annum for the maintenance of TV One and TV2 transmitters at transmission sites owned by Broadcast Communications Limited (BCL). In previous years NZ On Air had also contributed to the spectrum licence costs of community-maintained private transmitters that were mostly established prior to the creation of NZ On Air ($12,808 per annum). NZ On Air had also budgeted $30,000 per annum for capital replacement contingencies, but this fund was not drawn upon. 7. Over the years, NZ On Air has also contributed funding toward the extension of TV3's coverage, but through capital grants rather than ongoing subsidies or, in the remotest areas, one-off grants to assist communities to establish transmitters that would then be maintained without further NZ On Air assistance. This "community self-help" project is now complete, and funding has ceased. 8. Since January 2002, TVNZ and Sky television have broadcast TV One and TV2 via digital satellite transmission. The satellite coverage footprint covers 100 percent of New Zealand making the signal potentially receivable by almost all New Zealand households according to Sky. Whereas Sky signals are encrypted and require the use of a decoder before they can be viewed, TVNZ signals are not encrypted and can be viewed free of charge by anyone with access to the appropriate generic reception equipment. Crown Law Opinion 9. The question of whether NZ On Air should continue to fund analogue transmission in remote areas where a satellite service is now available has been raised by NZ On Air itself. In December 2002, Cabinet sought a report on this issue (CAB Min (02) 33/4 refers). Given the nationwide availability of TV One and TV2 via satellite transmission, the agency has been of the view that provision of further funding for terrestrial transmission of these channels under section 36(b) of the Broadcasting Act 1989 is no longer necessary or appropriate. 10. Accordingly, NZ On Air consulted with the Ministry for Culture and Heritage in seeking a Crown Law opinion on NZ On Air s obligations under section 36(b), in particular, whether cessation of funding for the maintenance and extension of terrestrial transmitters would be a breach of the Act. NZ On Air also sought advice on the applicability of the 1989 Ministerial direction concerning maintenance of coverage, and on a number of scenarios for a phased withdrawal of funding for the maintenance of terrestrial television transmission. 11. In summary, the Crown Law opinion advised that NZ On Air: can make payments to maintain a signal to remote communities only where there is no commercially viable signal. Now that both Sky Network Television Limited ( Sky ) and Television New Zealand Limited
3 ( TVNZ ) broadcast by satellite a signal that is available to all New Zealand homes, the Commission [NZ On Air] no longer has a statutory mandate to make payments to ensure continuity of a terrestrially-broadcast signal. 12. This advice hinges upon the terms commercially viable signal in the Act. It is the view of Crown Law that however a commercially viable signal is defined, there is now, through satellite transmission, a commercially viable signal available to all New Zealand communities. Given that the Act does not distinguish between terrestrial and satellite transmission, the opinion concludes that the condition of a commercially viable signal has been met in view of the existing nationwide satellite transmission of TVNZ and other television programming. 13. The Crown Law opinion also advised that the Ministerial direction of June 1989 must be read in light of section 36 of the Act and be taken to refer to the maintenance of coverage available to communities that would not otherwise receive a commercially viable signal. It must therefore be concluded that the relevant parts of the directive no longer mandate NZ On Air to continue to provide funding for this purpose. Implications of Crown Law Opinion 14. Based on the Crown Law opinion advising NZ On Air that it no longer has a statutory mandate to fund the extension or maintenance of terrestrial television transmission to remote areas, NZ On Air has not renewed its contract with TVNZ. No further payments for the maintenance of terrestrial television transmission have been made. By implication, none of NZ On Air s scenarios for a phased withdrawal of funding was considered to be consistent with its powers and functions under the Act. 15. Immediate consequences of the Crown Law determination in terms of funding include: i. money budgeted by NZ On Air for transmission maintenance in remote areas, associated capital replacement contingencies, and payment of licence fees can no longer be directed to that purpose; ii. no funding arrangement is in place for TVNZ s maintenance of TV One and TV2 transmitters in non-commercial remote areas ($1.15 million, GST excl.); iii. no funding is in place for frequency licence fees for private/community transmitters used for the broadcast of TVNZ channels in non-commercial remote areas ($12,808 GST excl.); and iv. there are implications for BCL's income where its existing arrangements with TVNZ regarding transmission sites are affected. 16. Should transmitters fall into disuse, approximately 1.5 percent of the New Zealand population would lose access to free-to-air terrestrial television broadcast of
4 TVNZ channels. While viewers in affected areas would be able to receive television programming via either Sky or TVNZ satellite transmissions, this requires either the rental of a Sky decoder or purchase of a generic decoder. Although that would be consistent with the principle that where content is publicly funded it should continue to be available free-to-air, there is a question of fairness given that viewers in affected areas would face additional costs not faced by other viewers in order to maintain their access to TVNZ free-to-air channels (assuming they do not already have access to or possess such equipment). 1 17. Furthermore, there may also be implications for other areas of government policy, such as broadband and terrestrial digital television, if maintenance of existing remote terrestrial transmission sites were to cease now. BCL has advised that the opportunity to use the sites for other purposes might be lost if they became disused, in particular if it was not in receipt of revenue to meet the costs of re-establishing those sites. The lease arrangements for affected BCL transmission sites, some of which involved securing resource consents, may be difficult to replicate in some areas. 18. In the absence of an overall plan for digital television transmission, it is important that future choices between terrestrial and satellite platforms in remote areas are kept open at this stage. Accordingly, it is recommended that analogue terrestrial transmission of TVNZ channels to remote areas should continue to be funded and maintained for the time being, pending detailed consideration of future options. Options 19. For the immediate future, it is essential that a mechanism be adopted to ensure that analogue terrestrial transmission is maintained in non-commercial remote areas which: i. delivers sufficient assurance and appropriate accountability on the implementation of the policy; ii. is transparent; and iii. is consistent with statutory and regulatory requirements, and with the Crown Law opinion. 20. Other key considerations in evaluating the options include: i. that there are no additional un-funded operational costs imposed on TVNZ; ii. that there are no additional funding costs to government; iii. that there is consistency with existing government broadcasting policies, principles, and approaches; 1 One of the possible options raised by NZ On Air involved subsidising the purchase by households of set top boxes to receive satellite transmission, but in Crown Law s view this would be outside NZ On Air's statutory functions and powers.
5 iv. that future choices between terrestrial and satellite platforms in remote areas are kept open in the absence of an overall plan for digital television; and v. that other areas of government policy, such as broadband and terrestrial digital television, are not limited. 21. The following options have been considered: i. amend NZ On Air's statutory functions to enable it to continue to subsidise remote terrestrial transmission, despite the availability of satellite transmission of the free-to-air channels; ii. in separate agreements, (a) TVNZ undertakes to government that it will meet the costs of maintaining terrestrial analogue transmission in remote areas; and (b) NZ On Air agrees to redirect the funds it would have allocated to transmission funding to a reserved fund which TVNZ can access for additional programme funding, in recognition of the shortfall in revenue which TVNZ would otherwise have devoted to programming (NZ On Air s proposal); and iii. direct Crown funding for extending or maintaining analogue terrestrial television transmission in remote areas to another agency, such as TVNZ (TVNZ s proposal) or Transmission Holdings Limited (THL) following its separation from TVNZ, upon negotiation of an appropriate memorandum of understanding between the Minister of Broadcasting and TVNZ (or THL). 22. Although the first option, to amend legislation, would require relatively minor changes to the Broadcasting Act, the process would take several months at least to be effected, making it impossible as a solution to the immediate situation. 23. In regard to the second option, it is unclear whether agreement between the TVNZ and NZ On Air for TVNZ to access additional programme funding is possible. Assuming that NZ On Air and TVNZ were to reach agreement on a mutually acceptable proposal, that proposal would need to be rigorously assessed against the criteria outlined above (paragraphs 19 and 20) before it could be agreed by the government. It is questionable whether this option would satisfy the criteria outlined and, if it did so, it is not likely to be more consistent with these considerations than option three. Furthermore, any such agreed proposal would not in itself provide security for TVNZ or government on continued funding for terrestrial analogue transmission in non-commercial remote areas, but would require the negotiation of a separate agreement between the Minister of Broadcasting and TVNZ. There is also some risk to the implementation of government s proposed policies should a transmission or financial problem arise before a solution is concluded. 24. The third option, of transferring the function to another agency such as TVNZ (or, following its separation from TVNZ, THL), would be relatively straightforward. Although BCL (which following separation from TVNZ will be a subsidiary of THL)
6 owns many of the transmissions sites, direct funding of TVNZ may be more appropriate given that the transmitters concerned are used by TVNZ for TV One and TV2 broadcasts, and are owned either by TVNZ or private/community organisations. TVNZ would be in a position to continue to contract with BCL for transmission maintenance. Given that TVNZ and NZ On Air are both providers within the 2003/04 Main Estimates for Vote Arts, Culture and Heritage Non-departmental Output Class appropriation for Public Broadcasting Funding, an amount of funding for transmission maintenance could be reallocated by the Vote Minister directly to TVNZ or THL for this purpose, instead of to NZ On Air, upon negotiation of an appropriate memorandum of understanding between the Minister of Broadcasting and TVNZ. This option is the simplest and most direct mechanism for implementing the recommended policy, and would be most consistent with each of the key criteria outlined. 25. It is recommended that Cabinet agree that the Vote Minister re-allocate an amount within the 2003/04 Main Estimates for Vote Arts, Culture and Heritage Nondepartmental Output Class appropriation for Public Broadcasting Funding to TVNZ instead of NZ On Air for this purpose, upon negotiation of an appropriate memorandum of understanding between the Minister of Broadcasting and TVNZ. Consultation 26. This paper has been prepared in consultation with the Ministry of Economic Development, Treasury, the Crown Company Monitoring Advisory Unit, and the Department of the Prime Minister and Cabinet. NZ On Air, TVNZ, and BCL have been consulted on aspects of this paper. Fiscal Implications 27. There are no fiscal implications arising from the recommendations in this paper. Human Rights, Gender Implications, and Disabilities Perspective 28. There are no implications for these areas arising from the recommendations in this paper. Legislative Implications 29. There are no legislative implications arising directly from the recommendations in this paper. Regulatory Impact and Compliance Cost Statement 30. Not required.
7 Publicity 31. No publicity is proposed arising directly from the paper. Recommendations 32. I recommend that the Committee: 1. note that a Crown Law opinion concludes that NZ On Air no longer has a statutory mandate to make payments to ensure continuity of terrestrial television transmission in remote areas; 2. agree that in the absence of an overall plan for digital television transmission, analogue terrestrial transmission of TVNZ channels to remote areas should continue to be funded and maintained for the time being, pending detailed consideration of future options; 3. agree that the Vote Minister re-allocate an amount within the 2003/04 Main Estimates for Vote Arts, Culture and Heritage Non-departmental Output Class appropriation for Public Broadcasting Funding to TVNZ instead of NZ On Air for this purpose, upon negotiation of an appropriate memorandum of understanding between the Minister of Broadcasting and TVNZ. Steve Maharey Minister of Broadcasting