Examination of Witnesses
(Questions 1 - 19)
TUESDAY 20 OCTOBER 1998
SIR CHRISTOPHER
BLAND, SIR
JOHN BIRT,
MR WILL
WYATT MR
RUPERT GAVIN,
MR JOHN
SMITH AND
MS PATRICIA
HODGSON
Chairman
1. Sir Christopher, I would like to welcome
your colleagues and yourself to this evidence session this morning.
As you, of course, know, this arises from a very kind offer that
you and your colleagues should appear before the Committee to
discuss your Annual Report; and we proceed from not only the Annual
Report and the Annual Report of the BBC Worldwide, but also the
Statement of Promises that you have sent us, which obviously provide
us with a very substantial agenda. You supplied us with a great
deal of material but, of course, if you care to make a brief opening
statement the Committee will be delighted to hear it.
(Sir Christopher Bland) Thank you, Chairman.
Can I start by introducing my colleagues: Sir John Birt, Director
General of the BBC on my right; Patricia Hodgson on his right,
who is our Director of Policy and Planning; and on the outside
right, Mr John Smith, who is our Director of Finance. On my left
is Bill Wyatt, who is our Chief Executive of Broadcast, and on
his left, Rupert Gavin, who is the Chief Executive of Worldwide.
I will be brief as the purpose of this morning's meeting is to
give your Committee an opportunity to ask me and my colleagues
questions about our Annual Report and about our stewardship of
the BBC 1997-1998 financial year. This is the first such meeting,
part of our attempt, and it is an objective in which I know you
and your Committee share, to make the BBC properly and effectively
accountable to Parliament and the licence payer. This is the first
year in which we have published our Annual Report and Accounts
on the Internet, held the equivalent of an annual general meeting,
and published Worldwide's accounts separately and in considerable
detail. Let me briefly characterise the year by quoting from the
Governors' assessment of the BBC as: "creatively strong,
innovative and efficient in an increasingly competitive market
place." Financially we made a healthy surplus. We ended a
year in which licence income exceeded £2 billion for the
first time, with a strong balance sheet, and the evasion and costs
of collection continued to fall. Above all, although we did note
a number of areas which need improvement, it was a year of outstanding
programmes both on television and radio. Programmes like Our
Mutual Friend, Tom Jones, Holding On, The
Nazis, I am Alan Partridge; and on the radio, The
Dream of Gerontius and A Winter's Tale; were as good
as anything in the BBC's history and were marked by a record number
of awards. It is by our programmes that we seek to be judged.
By any standard we think that 1997-1998 was a good year for the
BBC.
Chairman: Thank you, Sir Christopher.
Mr Fearn.
Mr Fearn
2. You say that the BBC, and I quote: "will
need a dynamically growing income if it is to continue to fulfil
its key role in broadcasting in future years." Does this
mean that you want the licence fee to increase after the year
2000?
(Sir Christopher Bland) We are coming into a year,
Mr Chairman, that involves a detailed review of the licence fee.
It would be premature for us to set levels. It is, after all,
Parliament who decides this. I think our job is to set out the
purposes of the BBC in the next ten and 20 years. To show what
the BBC can achieve in terms of informing, educating, entertaining,
and to show what effect differing levels of licence fee would
have in terms of achieving those objectives. It would be premature
for us to fix a figure now but within the current five years,
as you know, we are broadly in line with inflation. As we have
seen with things like test cricket, broadcasting expenses run
way ahead of the rate of inflation so there is a squeeze within
our budget. We need to recognise that. We need to recognise what
we can do by efficiency and we have to identify, if there is a
gap, what that gap should be. However, in the end it is a political
decision of: what kind of BBC does the nation want and deserve?
What kind of BBC should it be funding?
3. If there were no licence fee would that be
the end of the BBC?
(Sir Christopher Bland) It would certainly be the
end of the BBC as we know it. It would not be the end of the British
Broadcasting Corporation but that, of course, is quite a different
thing. You could fund the BBC by subscription and pay per view,
but you would have a quite different BBC and a totally different
broadcasting environment in the United Kingdom. It would be very
obvious. There would be a complete loss of one of the BBC's prime
roles which is a universality in terms of radio and television
broadcasting. That would be, I think, a very, very fundamental
and regrettable change in the BBC's role and responsibility.
4. It is the aim of the BBC Worldwide to quadruple
the cash—and I am taking this from the accounts now—which
returns to the BBC by 2006. If we look at the net benefits from
the commercial activities at the moment, which have increased
by less than a third over the last five years, does that not mean
that you have a hopeless proposition before you?
(Sir Christopher Bland) Not hopeless, Chairman, but
ambitious. Perhaps I could turn to Rupert Gavin, who is the relatively
new Chief Executive of Worldwide, to respond. It is his target.
Chairman
5. Sir Christopher, could I thank you for calling
on Mr Gavin. Could I say, although I think you have accepted this
already, that as and when any of your other colleagues wish to
intervene we would be happy to hear them.
(Sir Christopher Bland) Thank you, Chairman.
(Mr Gavin) The target is challenging but in my view—I
am relatively new to the organisation—it is achievable.
In the last year alone we have increased our cash flow benefit
to the BBC by some 40 per cent, which underlines our ability to
make significant changes in the contribution. Looking at the strength
of the brands that we hold within the BBC which are potential
for exploitation, whether it is Teletubbies or a landmark series
such as Vanity Fair, one can see that through sound commercial
practices we will be able to make very substantial increases to
the commercial contributions that are made not just within the
United Kingdom but also internationally. Currently only one third
of our commercial revenues come internationally, which gives us
very considerable scope for increasing revenue.
Mr Fearn
6. If I may add a little one at the end, looking
at the accounts and not the licence fee itself, in the non-broadcast
part it has a title of Restructuring and Corporate Centre,
which amount to £90,000. What are those? Restructuring
and Corporate Centre?
(Mr Smith) It is £90 million. It is essentially
the BBC's Head Office, the corporate centre, which is split down
later in the document. It is about £65 million of that total.
The balance is on restructuring costs. Now, what do we mean by
restructuring costs? We mean the spend that we need to make in
order to rationalise the organisation, in order to help us deliver
the efficiency savings which we have been doing over several years.
As the document also says, we have been very successful in that
over the last few years. If you looked at the report done for
the Government by Braxton Associates over the three years that
ended 1996-1997, you can see that we made efficiency savings of
about £281 million. Those efficiency savings arise as a result
of making investment in restructuring in our organisation and,
of course, redundancies. All those things were in order to enable
the organisation to continue to make its efficiency savings. If
I may just add one point. At the moment we are in a very strong
financial shape, as the Chairman has said, with our strong balance
sheet, but that does not mean that in the future we must stop
the programme of reform which involves us continuing to search
for efficiencies. Part of that cost is indeed an investment in
restructuring; an investment to deliver further efficiency savings.
Mr Wyatt
7. Mr Chairman, I am looking at Governing
Today's BBC. Broadcasting and Public Interests and Accountability.
On page 4 it says, right at the top in bold: "One of the
objectives of the Governors is to ensure that the BBC is properly
accountable to Parliament." Could you explain why you objected,
or the Governors objected, (or whoever it was who objected), to
questions going on the Order Paper in the House of Commons about
the BBC's accounts.
(Sir Christopher Bland) Chairman, it was, of course,
not us who objected to questions going on the Order Paper. My
understanding was that it was the Clerk of the House of Commons
who decides that. If those questions turn up, then it is certainly
not for us to do other than make sure that they are answered.
We had no input into that decision. We had no responsibility for
it. That is entirely a matter for the House of Commons.
Mr Wyatt: But the Speaker has said it
is a matter for the Secretary of State and the Governors. I have
the letter. I wrote and asked if it was the Governors, who wrote
and said that it was a matter for the Secretary of State. I am
asking whether you personally or the Governors had any objection
to questions going on the Order Paper about the accounts.
Chairman: Could I just intervene here.
I am perfectly happy for you, Mr Wyatt, to pursue your line of
questioning but Sir Christopher is right. Answers as the acceptance
of questions rather than giving them answers are matters (a) for
the House of Commons authorities and (b) for Ministers. The BBC
is not involved in any way whatsoever in whether questions can
be accepted for answer. I presume if your question is about the
accounts, fine, but Sir Christopher has made his position perfectly
clear.
8. May I then turn to page 67 of last year's
Annual Report and Accounts, 1996/1997, to corporate Governors
and to your Remuneration Committee. The current Governor of the
Bank of England is paid £227,000 a year. The current Prime
Minister only takes a salary of £60,000. The Housing Corporation
Chief Executive takes a salary of £110,000 a year. How do
you justify 7 salaries over £200,000?
(Sir Christopher Bland) Very simply, Mr Chairman.
The policy of the BBC is to pay—and this applies from the
top to the bottom—salaries and benefits broadly in line
with the market and in line with the middle of the market. We
do not seek to be in the top 25 per cent. We hope to avoid being
in the bottom quarter. That applies to the senior executives of
the BBC, as it does throughout the organisation. The Remuneration
Committee check every so often, roughly every three to four years,
the competitive levels of salaries within the broadcasting industry
and within comparable organisations, and set salary levels accordingly.
I would not comment on those other organisations. They are not
directly comparable but if you take a look at the Chief Executive
of Channel 4, who came from the BBC to take that job, he is paid
considerably in excess of the Director General's salary for an
organisation that has about a quarter of the turnover and, I would
guess, rather less than that in terms of complexity and sensitivity.
The BBC is one of the most complicated, difficult, demanding organisations
in the United Kingdom to run. I think our salaries, to some extent
but by no means fully, reflect that.
9. I wonder if you could, to help me in the
flow chart of organisations, let me know who is the director or
in charge of BBC Online at an executive level. Mr Wyatt, may I
ask you why the Web-site is the most expensive in the world.
(Mr Wyatt) I do not believe it is the most expensive
in the world. It is one of the richest in content. Most sites
on the Web are aggregators of other people's content. They do
not actually put on much themselves. What they do is put together
what is there, give people direction of where to go, and so on.
What is different and unique about the BBC site is that it has
a massive content from education through to news, through to sport
and other genres of information, which is created within the BBC
and provided by the BBC. That would explain why it is the most
used content site in Europe; over 30 million hits per month at
the last measure.
10. My information says that there is not another
Web-site which has cost as much as 30 million. Perhaps you can
confirm it did cost £30 million.
(Mr Wyatt) No, it does not cost £30 million.
It costs around £20 million.
11. So the fact that it showed £30 million
in the accounts—
(Sir Christopher Bland) That is our total Online activity.
It consists of all our Web-sites. We have a great and increasing
range. They are outstanding. In terms of our Online activity,
dare I say it, in response to some views of this Committee which,
if anything, felt that we were behind the game in terms of our
Online exploitation, the truth is that we put a great deal of
resources—but in relation to £2 billion total budget
what is a sensible allocation of resources—into what is
now, as you pointed out, the third broadcast medium and rapidly,
rapidly expanding. I think that is right. It is an outstanding
Web-site.
12. Could we turn to page 53 of the BBC Annual
Report and Accounts for 1997-1998. I notice that the chartered
accountants to the home accounts are KPMG. Who are the chartered
accountants to BBC Worldwide?
(Mr Smith) Also KPMG.
13. Is that a wise thing? You are trying to
separate out accounts and you have the same chartered accountants.
(Sir Christopher Bland) It is normal, Chairman, in
the case of major corporations with substantial subsidiaries,
for the auditors to be the same. I do not think it implies any
lack of control or objectivity but particularly when there is
a great deal of interchange of information between the two organisations,
which are interlocked in many respects, it is entirely appropriate
that you would have a single firm of auditors. I know no major
FTSE 100 company which would not adopt the same process.
14. Can I ask for clarification on BBC Worldwide.
Would I be right in thinking that you are now regulated by the
ITC?
(Mr Gavin) Certain channels that we either own wholly
or are in co-venture as commercial channels are all under the
ITC jurisdiction.
15. As such, does that mean that those channels
could be acquired or bought by third parties?
(Mr Gavin) In as far as they are set up as joint ventures
they already have third party shareholding within them, specifically
within the United Kingdom. Our UKTV channels are owned 50 per
cent by BBC Worldwide and 50 per cent by Flextec.
16. If Murdoch bought TCI, or came to an agreement
with TCI, that would make that vulnerable?
(Sir Christopher Bland) It would make Flextec vulnerable
but there is a change of control clause. We have absolute control
over the destination, should control of Flextec change, which
we felt was inequitable to our interests.
17. Could I go back to what Mr Fearn said. On
page 62 he was referring in the 1997/1998 Accounts. The 90 million
corporate centre needs restructuring. My community could build
ten community hospitals. £90 million is a hell of a lot of
money. I wonder whether we could have a breakdown of the number
of people employed and the cost of these departments within the
corporate centre. I wonder if these could be made available to
us.
(Sir Christopher Bland) Chairman, could we undertake
to send that to you under the usual rules of your Committee. We
are very happy to part with that detailed breakdown.
Chairman: Thank you.
18. Finally, on the Annual Report and Accounts
of BBC Worldwide on page 40. We had a statement at the top of
the page which says amongst other things: "Profits from this
activity reduced by 36 per cent to £6.8 million as a result
of a change in the level of programme amortisation charge and
the change to sterling." Could you tell us what exactly you
mean by programme amortisation and why is it different in the
accounts this year to last year's accounts.
(Mr Gavin) Programme amortisation is the recognition
within our accounts of the investment that we are placing on the
programming, the rights for which we acquire. As you will see
from our accounts, we have invested substantial amounts of money
in BBC programmes. The amortisation is the way that we, in effect,
depreciate that investment. We changed the rules for depreciation
for amortisation last year, from advice from our auditors and
accountants, to recognise fully the proper life cycle of a programme
and sales. As a result we currently write around 50 per cent of
the programme investment in the first year, which evidence shows
is consistent both within industry practice and also with our
rate of sale in the programme.
Mr Maxton
19. On the Web-site—which I am happy to
agree with you is excellent—as far as I understand it, at
the moment, you are only broadcasting live, however, either in
sound or digital, your new service and the Radio 5. Have you any
plans to extend that and to make other programmes live on the
Net as well as just being broadcast?
(Mr Wyatt) We are looking very hard at this. Clearly
the quality of the video is not good at the moment but it is still
worth having, particularly when it is a news story. I do not know
whether you saw on the evening of the German elections, we took
the live feed from BBC World on the Web-site—indeed, I used
it myself—and you had a continuous coverage of what was
happening in Germany on that evening. So we are looking at many
ways in which we could do this. We believe that audio clips may
be even more attractive in the short term because the quality
of the audio on the Web is already extremely good. Yes, in time
we will look at more clips and who knows what beyond.
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