Potential licensee criticisms of averaging methodology

The specific example used demonstrates the application of the proposed averaging methodology. It also highlights the potential impacts of averaging licence renewals to licences with noticeably different population coverages: there can be very significant changes to the renewal prices. We recommend that, before any final decision is taken to apply averaging to renewal prices, the Ministry evaluate the extent to which prices change substantially. The use of the methodology can be expected to be supported by those who will gain from it (i.e. those who have paid most per/capita for their original licences) and attacked by those who will have to pay more. Potential criticisms of the approach include:

• Different businesses. Potentially very different businesses may be averaged. For instance, a speciality regional channel with a small audience could be averaged with a licence owned by a large-audience national channel. Even relatively similar businesses may also have different potential to grow and generate profit.
• Population growth rates. A regional population growth rate is applied to all licensees within an Averaging Group. It is possible that some licensees may have enjoyed faster population growth rates than others, within the region. A licensee could potentially prove this from the census data. This would not apply where population coverage was identical (for instance, for national licences).
• Relevance of population growth rates. It is possible that the area of a licensee's coverage may have very different population and employment growth rates. For instance, a commuter township might have rapidly growing population, but not provide a rapidly growing audience if the population works outside the coverage area. The reverse may hold true for a city centre.
• Calculation of regional z factors. Regional z factors are calculated by weighting the national z factor by regional population growth. This approach may exclude other effects such as changing average incomes within a region. Such changes would not show up at a national level, but could well be important at a regional or local level.
• Dating convention. Assuming all time periods are whole years is likely to mean that some V2 calculations may produce different results than would be the case if V2 were calculated on the basis the number of days of the original licence duration.