Memorandum submitted by the British Internet
Publishers' Alliance
1. The British Internet Publishers' Alliance
was formed in December 1998. Its members represent a wide range
of businesses with significant commitment to the development of
the Internet by British commercial companies. A full list of members
is attached as Annex 1[33].
2. BIPA is grateful for the opportunity
afforded by the Committee's inquiry into the Funding of the BBC
to raise critical issues concerning the extent, purpose and consequences
of the Corporation's rapidly expanding presence on the Internet.
3. BIPA fully recognises that, in fulfilling
its public service role, the BBC has a responsibility to employ
all available distribution technologies to reach the licence-paying
public. We are greatly concerned, however, that, under the umbrella
of new digital technology, the BBC is entering markets which are
entirely inappropriate to its purposes, and seeking a substantially
increased public subsidy so to do.
4. The concerns can be summarised as follows:
4.1 While many of the BBC's services on
the Internet are proper extensions of its traditional broadcasting
activities, many more are much more akin to publishing, and entering
and competing in areas already well served by commercial publishers
like ourselves.
4.2 The BBC's presence on the Internet is
immeasurably enhanced by the use of the BBC brand, created over
decades by public funding.
4.3 The BBC further benefits from unfair
cross-promotional advantages as a result of the use of its existing
broadcast and print opportunities to promote its Internet services.
We have conservatively estimated this benefit at £20 million
per annum: this is many times more than the promotional spend
of the top 10 British commercial Internet publishers combined.
4.4 The BBC's attempt to distinguish between
"public service" sites (BBC Online) and its commercial
sites (Beeb.com) does not work in practice. The commercial sites
are a single click away from the advertising-free Online sites:
in consumer terms it is a seamless connection.
5. BIPA has extensive data, and a compilation
of illustrative screen-shots, which give clear evidence of the
ways in which the BBC's Internet services operate unfairly, and
to the detriment of its commercial competitors. We would be pleased
to arrange for a presentation of this material to the Committee.
6. We attach as Annex 2* a recent interview
with the newly appointed head of BBC Worldwide New Media, Mr Drew
Kaza. Mr Kaza anticipates an ambitious new programme of BBC commercial
web sites, "selling anything to do with the UK, from package
holidays, CDs and books to Scottish shortbread", and even
contemplating an online auction site. He states quite clearly
the intention to use the BBC "as a strong British brand"
to drive these ideas, which will include "anything that is
remotely connected" with them. In Mr Kaza's world the thin
distinction between public service and commercial websites is
secure because there is a "conscious decision" to click
through from the public service sites, which are the beneficiaries
of the BBC's overwhelming market advantages. As far as global
activities are concerned, even that theoretical distinction is
abandoned: "we're freer . . . we don't have to worry about
this dividing line". In other words, British commercial operators
will be obliged to have to compete against the full power of that
subsidised BBC brand abroad.
7. In its evidence to the Panel, BIPA raised
the issue that some licence fee funded Internet services are being
mainly patronised by overseas users. The suggested solution of
allowing advertising to be targeted at overseas users of BBC services
in their home countries is no help. It simply undercuts further
the prospective income of British commercial Internet publishers,
who also wish to raise revenue in these markets without unfair
state-funded competition from the BBC.
8. The combined effect of these factors
is enabling the BBC to use public money and public assets to build
up an unassailable domination of British Internet services, in
areas well beyond its normal broadcasting role. Commercial Internet
publishers, responsible to shareholders, cannot remotely match
the BBC's spend, its brand exploitation, its cross-promotional
opportunities. The BBC is therefore crowding out commercial suppliers
and daily building up a user-base to consolidate its dominating
position.
9. BBC Worldwide recently launched Freebeeb,
a free Internet access service provider, openly marketed in paid
newspaper advertisements in conjunction with some of BBC Television's
most popular programmes (see Annex 3)[34].
There is absolutely no public service need for yet another ISP,
with over 200 commercial providers in the market. For the BBC,
however, it offers yet another means of using its unrivalled cross-promotional
opportunities and publicly-funded programme brands resources to
attract even more users to a portal which leads straight into
its commercial sites.
10. In 1994 the Sadler Inquiry examined
the BBC's privileged use of its airwaves to promote its print
titles. It is clear that on the Internet the BBC has escaped from
the restriction that flowed from the Sadler Inquiry. Many of the
new websites directly feed off existing BBC broadcasting resources:
motoring sites based on Top Gear, music sites linked to
Top of the Pops. These highly effective connections and
exploitations make a nonsense of commercial publishers' attempts
to serve the same markets. There is urgent need for a new examination
of the BBC's cross-promotion of its Internet services, and the
commercial use within them of material paid for by the licence
fee.
11. We are aware of the argument that the
BBC is a "national champion", whose size, visibility
and resources are being usefully harnessed to give Britain a head
start on the Internet. We profoundly disagree with this view:
11.1 The BBC enjoys roughly a 40 per cent
share of the broadcasting market in the UK. This is justified
by its role in remedying the problem of market failure which tends
to occur in fully commercial broadcasting systems.
11.2 The Internet is an open digital space
whose benefits derive from the diversity of material which is
supplied to it. It is inherently more akin to publishing than
broadcasting.
11.3 It has never been suggested that we
should have a publicly-funded British Publishing Corporation,
with a 40 per cent share of the market for print. Unlike broadcasting,
there has been no "spectrum scarcity" in print, and
no need to use public money and public policy to add to market
provision. There is manifestly no spectrum scarcity on the Internet,
and no need for a publicly subsidised remedy for market failure.
11.4 Indeed, far from remedying market failure—its
proper role in broadcasting—the BBC is more likely to be
the cause of market failure in Internet publishing. Instead of
a healthy range of British commercial publishers supplying the
market (as they have in print) the BBC's activities will restrict
market diversity, and inevitably limit the choices available to
British consumers.
12. We are disappointed that the Davies
Report on the Future Funding of the BBC failed to recognise, in
labelling digital space as the "fourth broadcasting revolution",
that there is a fundamental distinction between broadcasting and
publishing. The members of BIPA seek immediate recognition that
policies appropriate to broadcasting are not appropriate to Internet
publishing.
13. We oppose the Report's proposal for
a new digital licence supplement on several grounds:
13.1 We do not believe that the BBC has
made a compelling case that it will suffer a shortfall in funds
between now and 2006;
13.2 the BBC has given insufficient details
of the new digital services it wishes to fund with the extra revenue
it seeks;
13.3 A digital supplement would inevitably
be a barrier to digital take-up, postponing the date of digital
switch-over. It would thereby disadvantage those commercial broadcasters
who have invested shareholder funds in digital ventures;
13.4 Increased BBC spend on Internet services,
either directly or through the use of licence-funded assets and
cross-promotional resources, will further distort that market
to the detriment of our members; and
13.5 If the Government does decide to impose
a digital supplement, it should only raise such sums as are judged
necessary for new BBC digital services, and should not be diverted
for any other purpose.
14. We endorse the Review Panel's recommendation
that the BBC should not be permitted to launch new public services
without a new and transparent process of consultation and examination,
followed by formal approval or rejection by the Secretary of State.
We would go further, and urge that any new BBC service be subject
to such a procedure, and judged against criteria evaluating its
value to the public and its effect on the existing market.
15. It is essential that the process should
not simply give blanket approval to the use of new distribution
technologies. DCMS endorsement of the Internet as the "third
arm of broadcasting" in November 1998 has led to many of
the abuses to which we refer. In future it would be appropriate
for new ventures and services to be submitted for approval on
a case-by-case basis.
16. We also warmly endorse the recommendation
that the adequacy of the BBC's fair trading policy be submitted
to the OFT for review within the next 12 months. We are however
worried that the speed of the BBC's expansion on the Internet
is such that—as the interview with Mr Kaza so eloquently
attests—new facts are being established on the ground at
a very rapid rate. We are also concerned by the statement by the
Secretary of State, in answer to questions at the Royal Television
Society Symposium in Cambridge in September, that he is prepared
to accept "some degree of market distortion" as the
price for supporting the BBC. It would be helpful to know what
degree of distortion the DCMS has in mind; whether this view represents
wider Government policy; and which commercial enterprises are
expected to pay the price of such a policy.
17. BIPA also wishes to alert the members
of the Committee to its serious concerns about the regulatory
precedent set by the recent European Commission decision to approve
the public funding of the BBC's News 24. If the BBC decided to
make available any of its publicly funded content free of charge
to any one of the Internet service providers currently under contract
to private media companies who provide content under licence for
a fee, serious commercial damage would be suffered by such commercial
companies. BIPA wants to ensure that there is an effective regulatory
mechanism to review such initiatives prior to launch to ensure
fair competition for Internet publishers. This is currently not
the case as has been proved by the inadequate review of the launch
of the BBC's free Internet access service, Freebeeb.
18. BIPA, on 5 October 1999, submitted legal
evidence to the European Commission Directorate General for Competition,
asking for a review of the BBC's activities on the Internet. Our
evidence is attached at Annex 4[35].
19. The European Commission is currently
undertaking a review of the Regulation which requires financial
transparency of undertakings in receipt of state aid. BIPA would
urge the Committee to ensure that Government does not seek exemption
for the BBC from the scope of this Regulation".
20. We are agnostic about the recommendation
to sell 49 per cent of BBC Worldwide into private ownership. This
may result in a better return to licence payers, but it is unclear
just how this would benefit the wider market, and the development
of a fairer competitive regime. It is also unclear how the minority
shareholding could be assured that its interests were not taking
second place to those of the BBC. It might be appropriate for
DCMS and the DTI to undertake a joint study of the options, with
particular reference to the BBC and the wider-market place.
21. CONCLUSION
The BBC is moving into the digital age on many
fronts and at a rapid pace. The question of increasing the BBC's
income to meet these ambitions cannot be dealt with unless and
until a proper framework is established to set proper boundaries
for the BBC's digital activities. Some, like digital broadcasting,
are clearly extensions of its familiar role. Others, like the
commercial websites, are out-and-out retailing enterprises, trading
on the BBC's name, brand and resources. In between are publishing
activities, some justified as public service, some clearly not,
which are impacting heavily on commercial publishing competitors.
Existing regulatory structures and procedures
are not tackling this problem. The free Internet access service
fulfilled the letter of the DCMS's requirements which could not
remotely have envisaged the impact of such a move. We believe
that there is an urgent need for comprehensive examination of
the BBC's roles and responsibilities, in broadcasting and on the
Internet. Among other measures we would like to see:
(a) An inquiry on the lines of Sadler, to
examine the BBC's use of licence-funded assets and cross-promotional
resources to attract custom to its websites.
(b) Immediate OFT scrutiny of the BBC's trading
policies with specific references to the inter-penetration of
the BBC's public service and commercial Internet services.
(c) New DCMS procedures, culminating in Secretary
of State approval or rejection, to evaluate all new BBC services,
on a case-by-case basis, prior to launch.
November 1999
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