Examination of Witness (Questions 143
- 159)
TUESDAY 23 NOVEMBER 1999
MRS ANGELA
MILLS, MR
DANNY MEADOWS-KLUE
MR AJAY
CHOWDHURY AND
MISS ALISON
CLARK
Chairman: Ladies and gentlemen, we are
very pleased indeed to see you here. I believe that the interests
you represent are fundamental to the future of audio-visual communications
and I am going to call people to ask questions right away in order
to use your time fruitfully.
Mr Fearn
143. Is the operation of websites now commercially
profitable or are most of your services still loss leaders?
(Mr Chowdhury) Most websites are still loss leaders.
The market is very much in its infancy at the moment and what
is happening is that significant media companies as well as very
small startups are putting lots of money into the service. I run
Line One which is a joint venture between United News & Media
and British Telecom and between them they have put tens of millions
of pounds into this. The concern we have is that although the
media companies are funding these websites because they see an
attractive future for these websites, there is a danger that they
and particularly small startups will get crowded out of this market
before it gets a chance to become profitable. I believe the crowding
out will happen by the BBC. If I might give a concrete example,
there was a small company called Winwheels, which was trying to
raise money for a motoring website and they had a very good business
plan, a very innovative business plan and they went to various
venture capitalists to raise the money. The message they got back
from all of them was that this was a very good plan, there were
no big motoring sites in the UK except Top Gear on beeb.com but
they believed it was going to be very, very difficult for them
to compete with Top Gear. If you look at Top Gear on beeb.com,
if you go to the BBC Online site, which is a publicly funded site,
within two clicks and five seconds, you can be on a commercial
site which is Top Gear. It is a good site; it is not particularly
innovative, but it builds on a very strong brand. As a result
companies like Winwheels have not been able to raise the funding
to go ahead and develop a site themselves. That is the kind of
crowding out that will happen, which will stop the profitability
of this business going forward.
144. In your submission you argue that if a
digital supplement is introduced it should only be used for digital
services. Is there any logic to a television levy supporting online
services?
(Mrs Mills) In our submission we said we were against
a digital licence supplement because we do not believe BBC has
actually yet made a compelling case for extra funds. We have insufficient
details about the sorts of digital services they are wishing to
fund with extra revenues. We think it would actually be a barrier
to take-up and it is patently unfair to those commercial organisations
who have already invested large amounts of money into their digital
services. Also, there is a fundamental difference between what
the BBC does with its digital broadcasting and what it is doing
on the Internet. This is something where we very much need your
help to make this distinction between what is Internet publishing
and what is digital broadcasting.
145. When you mention that large sums have been
invested, what are we talking about?
(Mrs Mills) On the commercial side?
(Mr Meadows-Klue) The key point which underlies a
lot of this is that the set of rules we need to achieve a very
healthy online publishing ecology are probably very different
from the set of rules which is needed to achieve a healthy broadcasting
ecology, the metaphor which Gavyn Davies wrestled with in the
review. The key success factors in online publishing are very
much down to a combination of brand, great content, a lot of marketing
and promotion and the right kind of operating resources. When
you start looking at the BBC's offerings by those four criteria,
against those of the commercial sector, you realise there very
clearly is an unlevel playing field. I suppose we come to you
saying that it is not simply a question of what is being spent
today in terms of operating resource, whether it is £20,
£40 or £60 million per year, but actually there are
a whole variety of intangibles to do with brand licensing, to
do with cross promotion from television and radio, from magazines,
which really does give any one particular BBC website a significant
head start against the commercial sector. One of the examples
which has been pointed out are Mr Chowdhury's colleagues in the
motoring industry but we expect, from what we have seen of the
online market, that there will be many, many more of these.
Derek Wyatt
146. How would you define a public service Internet
service?
(Mrs Mills) It is not really up to us to do that.
That is something which Gavyn Davies in his Report said ought
to be done at some stage, a root and branch review. We would very
much support that but we do not want to wait until the Charter
review, which is what he has said and this is something that really
ought to be done rather urgently, to look into exactly what the
BBC's online public service should be, what might be commercial
and, indeed, looking at the commercial side of the BBC and how
that ought to be regulated too.
(Mr Meadows-Klue) We are all striving to build a very
healthy e-commerce sector. It is very interesting in the Chairman's
foreword in the Report, that he mentions some form of market failure
must underlie the notion of any public service broadcasting, irrespective
of the medium. Online we are seeing a diversity of choice, a plurality
of interest and the opportunity for so many people to be able
to go out and create web publications. We would argue that there
simply are no demonstrable market failures. However, this debate
needs to be set within the context of the creation of a review
body who can look at the sector impartially and judge themselves
and we should be delighted to help and submit evidence.
147. Would you accept that a public service
Internet service might be yellow pages, the Central Office of
Information, Encyclopaedia Britannica, ITN News? We have not yet
had an argumentor a debate in public as to what a public service
Internet is.
(Mrs Mills) That is true. We find it rather odd that
the UK is the only country which has decided it needs a public
service broadcast to champion Internet take-up. If you look at
other countries like Germany, for example, where the public service
broadcasters started to seep into what was deemed to be the commercial
sector and there was an outcry from commercial publishers and
commercial broadcasters to the extent that the German Government
put a stop to this expansion online beyond programme-related sites
on the Internet of the publicly funded broadcasters. They have
also told the public broadcasters that they cannot take advertising
online. So the debate is happening in some countries but not here.
148. The BBC spent more money on their website
than any other website in the world—I think that is right—more
than Yahoo, which is a much bigger, much better, much more efficient
system. Who gives them the authority to spend this money?
(Miss Clark) Chris Smith has said this is the third
arm of broadcasting and there is carte blanche to move
into new services. The launch of the ISP was mentioned earlier
as something which it is very difficult to say is broadcasting
and hard to prove whether it is public service. They (the BBC)
seem to have to go through no proper procedure in order to make
these decisions. One of the things we call for in our evidence
is a structure which could be put in place to examine whether
or not these services are public service and whether or not they
are inside the BBC's remit.
(Mr Meadows-Klue) And by extension there is the question
of whether a public service broadcaster needs to be the organisation
who delivers the public service broadcast, or whether the commercial
sector, as in the examples you underlined earlier, has already
succeeded in delivering these privately.
Mr Maxton
149. I am someone who almost every morning down
here in London, where I have good fast access to the Internet
in my office, when I arrive, first clicks onto the BBC's Online
service because there I get news in writing, in picture form,
in a variety of different ways, backup things which I can watch
as well, but then I can also listen to Radio 4. I am actually
having great difficulty listening to Radio Scotland; I can listen
to Radio Ulster but I cannot listen to Radio Scotland at the present
time for some obscure reason. I can do that. What is the line
between Internet publishing and broadcasting?
(Mr Chowdhury) We are not saying at all that the BBC
should not be on the Internet. The Internet is here to stay, it
is going to grow and the BBC has a role to play on the Internet.
What we are saying is that there need to be clear barriers and
clear questions need to be asked about what the BBC does on the
Internet. In my mind personally, for the BBC to put up Radio 4
or Radio Scotland on the Internet is absolutely fine. It reaches
a larger audience, they have already created that programme and
that product and it is out there. The problem is that at the moment
the BBC is pretty unfettered on what they do on the Internet.
To give you an example again, a film site. BBC have Film 99 which
is a very good television programme. There is a role for Film
99 on the Internet. Is the role for Film 99 to become a complete
encyclopaedic film site, which basically goes far beyond the programme
and says we are going to create the best film site on the Internet
and as a result does not give a commercial company a role to create
its own film site? That is basically going to stop competition,
that is going to stop innovation and that is going to stop new
companies coming into the market. This market is going to be funded
ultimately by e-commerce and advertising. If the BBC is taking
a disproportionate amount of viewers and eyeballs, which they
are currently, there are going to be fewer people looking at commercial
sites and as a result they will fail. That is the biggest concern
here.
150. Surely the beauty of the Internet is that
it is anarchic, it is open to anybody basically. I can have my
own website and in fact I can broadcast music, though I might
get into some difficulties in terms of copyright and I would probably
tend to use music that may be out of copyright. I can play music
all day on it.
(Mr Chowdhury) Indeed; that is absolutely correct.
However, with respect, one thing you could not do is advertise
your website on a publicly funded television channel very, very
heavily. What you would not be able to do is use publicly funded
brands on your website and say you can do whatever you want with
these brands. That is the issue in my mind.
151. The other thing about it is that you do
say the Internet is more akin to publishing than broadcasting.
Is that not very short term? Radio is already truly existent on
the Internet. I listened to jazz from the Lincoln Centre late
last night coming from New York on the Internet and it was almost
as clear—once or twice it did break down—as listening
to it on a radio anywhere else. Will that not be true of television
once we get cable modems in?
(Mrs Mills) It will in future.
152. The future is very close, is it not?
(Mrs Mills) Once the technology is in place and there
is broad band then you will be able to deliver high quality audio-visual
material and there is nothing to say that is not what the BBC
should be investing in. What we are talking about now is something
which we believe is more akin to publishing. That is where the
dividing line has to be between their proper function in developing
public service broadcasting, which inevitably will migrate at
least in part to the Internet, and what we believe is something
slightly different.
(Mr Meadows-Klue) Also closer to publishing in terms
of the fact that there are no issues of scarcity and spectrum
and frequency. The frameworks against which broadcasting regulation
and funding are set do not necessarily transfer online. We are
much more in an environment which is more akin to traditional
consumer publishing in terms of how our businesses work on the
web and for that reason we tried to use the publishing metaphor
quite strongly in our submission, really partly to challenge this
notion that it is automatically an extension of the broadcasting
model. We do not deny that these are incredibly complicated issues.
Among the BIPA members you have the people who literally pioneered
this entire sector. From my own company, Electronic Telegraph
this week celebrates its fifth anniversary. Five years ago there
were hardly any commercial websites out there. We have all really
championed the development of these business environments in this
drive towards electronic commerce. Now I suppose we come before
you because we feel that potentially there is an extremely strong
threat in dozens of the sectors and it needs the kind of scrutiny
and the kind of independent regulation to be able to look at this
and make some judgement calls which are beyond the frameworks
which exist at the moment.
153. Has BBC not been one of the pioneers as
well?
(Miss Clark) It has been and it is great that they
put on some of their public service content. However, perhaps
you should look at an analogy. If Caxton invented his printing
press today, would the Committee and the Government be in favour
of a state aided entity migrating onto it and possibly dominating
it? If that had happened, would we today enjoy the vast plurality
of published books, magazines, newspapers we have in this country?
Mr Maxton: Interesting.
Chairman
154. What Mr Maxton has brought out and what
your replies are bringing out is that the boundaries are going,
they are going absolutely, which is one of the reasons why in
my view, which may not turn out to be the view of the Committee,
the BBC application for this digital licence is so anomalous.
You spoke of a number of things. Mr Maxton talks of listening
to jazz from the Lincoln Centre. You talk about the fifth anniversary
of the Electronic Telegraph. I read the Daily Telegraph on a laptop
computer in an Israeli kibbutz last month but it is going farther
than that. Miss Clark's organisation has film interests as well.
I was sent a cutting from the Yorkshire Evening Post in Leeds
telling me that a small neighbourhood cinema in Leeds which has
managed to survive is planning to have films screened digitally
by satellite into its cinema. All these boundaries are going.
The world is in fact the computer's oyster, or the converged box's
oyster as soon as we get them and I am very disappointed that
it is so slow in coming. What I want to ask is whereas there is
a lot in your document with which I agree, it seems to me that
your complaints are only justified if the BBC goes on pleading
some kind of public service remit which it is no longer able to
define.
(Mrs Mills) You cannot have it both ways. They are
either going to be a publicly funded public service broadcaster-cum-new-age-electronic-communicator
or they are not. That is why there needs to be a proper enquiry
into what exactly they will do, how they will be funded and if
they are going to be playing in a mixed market, they have to play
fair and they have to be playing to fair and transparent and open
rules.
(Miss Clark) The OFT did look into the BBC's commercial
activities in print in the early 1990s and a set of guidelines
was drawn up about how they can cross promote. Maybe this area
should be looked at again to ascertain how the BBC are now cross
promoting onto their electronic publishing arms.
Mr Maxton
155. The BBC do have a project whereby they
are digitalising all their hi-fi material. That could be available
on their Internet service. To be fair, the licence payer has paid
both for the production of all that archive material and has also
paid for the digitalising of it. Why therefore should the licence
payer not be able to get it for nothing?
(Miss Clark) The other option is that it is sold off
and the licence payer actually gets some revenue that way or it
is put out to licence through commercial tender.
156. That is a once-off payment.
(Miss Clark) Not necessarily, not if it is commercial
tender.
(Mr Chowdhury) There are certainly opportunities to
licence. I can give you another example. The BBC sells Teletubby
bed sheets. They do not make them themselves, they license that
on be sold. If for instance at Line One we wished to do a Top
Gear website, we would not have the opportunity to go and bid
for a Top Gear website. One option could be to put these out to
tender and if beeb.com wins it in a fair tender in an even marketplace,
that gives value to the BBC, in that it values the brand, it values
the product itself and it allows other commercial companies an
even playing field to tender for them. That is an option.
Chairman
157. Even there, there is an anomaly, is there
not? When we had our debate in the House of Commons a couple of
weeks ago, a colleague of mine intervened in my speech in which
I was advocating that BBC Online take advertising, saying that
BBC Online should remain pristine, but that it should be used
to advertise beeb.com. If it did that, then licence fee payers'
money would be being used to promote a commercial service which
is in competition with you, although BBC Online is also in competition
with you.
(Mrs Mills) Yes.
(Mr Meadows-Klue) Absolutely; you are absolutely correct.
The whole notion of there being a separation between on the one
hand a public sector service in the form of BBC.co.uk and another
service which is commercial beeb.com is completely disingenuous
when you actually look at the websites and realise that everything
is just a click away and that the promotion of a commercial service
is juxtaposed against the promotion of the public service. There
is actually a lot of extra evidence we should like to submit through
the Clerk later, if we may, of typical examples of how the consumer
proposition for beeb.com (the advertising funded service may use
BBC brand, BBC celebrities, BBC programmes to endorse take-up
of its own environment and then actually when you get there, as
in the case of Freebeeb, the new access product they have launched),
has BBC public sector content everywhere. The whole notion of
commercial and public service as being distinct elements is untenable
in this environment, particularly from the consumer's perspective
because at the end of the day all of our markets are dual facing.
We primarily face an audience market, for which we have to provide
content free to generate large volumes of traffic and once we
have that traffic we can convert it into commercial revenues,
pay back our shareholders and our investors. When we look at this
in the context of what the BBC are doing, there are clearly very
significant questions.
158. Conversely, people in TV and commercial
radio are paranoid about the BBC accepting advertising because
they believe there is a limited advertising pot and if the BBC
take some of it, then they will lose some of it. I put to you
that does not necessarily apply on online services. Half the hits
on BBC Online are from abroad. They are getting a free service
funded by our constituents which they get completely free in the
United States because local telephone calls are free. Yet there
are all kinds of international companies, forget British companies,
but Barnes & Noble would love to be able to have a spot on
BBC Online in order to get all those book readers all over the
world. I am not going to say why on earth should they not do it,
because you will simply agree with me, but I do put that question
all the same.
(Mr Chowdhury) I do not think I would agree with you,
because you cannot put aside the British companies. It is split
into two parts. One is BBC Online taking advertising in the UK.
The UK advertising market this year is worth £50 million.
That is it. It will double next year, it will grow again more
than that. Eighty per cent of that £50 million goes to 20
or 30 sites. If the BBC in the UK were to take advertising they
would take a vast proportion of that advertising and most of the
other sites would go out of business. You then look at the US
side or the overseas traffic which comes in. My suspicion would
be that if the BBC took advertising for perhaps expatriate Britons
to look at the site over here, it would be a lot of British companies
advertising to reach those markets and again that money would
come out of the British advertising pot. There is not necessarily
an overseas advertising pot which will purely fund that. Some
of it will certainly come from overseas. I am sure Barnes &
Noble would be happy to do it, but there is a huge danger that
the advertising market in Britain, which is nascent, which is
very small, which has been funding a lot of very good innovative
sites, will be taken up by the BBC, not leaving much for the other
side at all.
(Mr Meadows-Klue) If part of the BBC service were
allowed to take advertising from the US or other territories it
would have a catastrophic effect on the British online publishing
sector. Actually all of our business models are geared to being
able to tap into that non-UK advertising market. The effect would
be catastrophic.
Mr Maxton
159. And we do not know who these overseas hits
are. I would make a guess that large numbers of them are British
business people abroad who are actually paying a licence fee in
this country.
(Mr Chowdhury) Exactly.
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