Examination of Witness (Questions 160
- 175)
TUESDAY 23 NOVEMBER 1999
MRS ANGELA
MILLS, MR
DANNY MEADOWS-KLUE
MR AJAY
CHOWDHURY AND
MISS ALISON
CLARK
Mr Keen
160. Can you give us some idea how much money
has been invested by venture capital companies and conventional
companies into Internet sites so far?
(Mr Chowdhury) I would not want to venture a guess.
Certainly our company, Line One, has put upwards of £30 million
into the one site. That is a lot of money. You are certainly talking
hundreds of millions of pounds over the last couple of years.
161. Who is making any profit?
(Mr Chowdhury) Virtually nobody at this point.
162. It seems astonishing to me that people
put half a billion pounds into this without making any profits.
Are you really saying to me that you want to restrain the BBC
from being adventurous? I pay £2 per week to the BBC and
get all the wonderful provisions we get through the BBC. I pay
Sky each month anywhere between £12 and £15 a week,
much more for not a great deal but I am contracted to that by
live football so I am happy. It is not my decision to spend £12
to £15, I could get the football for less than that. What
you are saying to me is that companies are willing to invest half
a billion pounds without making any profit at all. You want to
restrict the BBC and stop me getting what I get for a marvellous
£2 per week. You are really saying that despite the fact
we can get such great value, because everybody invests in the
BBC, the British public should be deprived of all of this so that
you can compete in the market and then I shall be paying you £15
per week instead of paying the BBC £2 per week for everything
we get. You are saying that the BBC are not really entitled to
do this, it is wrong to do it, they are corrupting the market.
I say, is it not true, that there is a place for an organisation
like the BBC which is not unrestricted, and that we are involved
here today scrutinising the BBC and how much it has spent so they
are restricted in a tremendous way? They have to face everybody.
We do not know what you are doing. Can you really justify asking
us to propose that the BBC is restricted and take away that wonderful
value for £2 per week?
(Mrs Mills) We are not asking you to remove the BBC,
kick them off the Internet, that would be completely illogical
and unreasonable. We are just suggesting that there have to be
clear boundaries as to what is publicly funded and how that part
of the Internet operates and what is in the commercial sector
and how you organise that Internet space which is currently attracting
investment from the commercial sector. Obviously it is an essential
extension of publishers' core business. We have to invest that
money to survive. It is our future viability and if we do not
we will not be in business. The fact is that we are not making
money at the moment, but this is a long-term long game.
(Mr Meadows-Klue) The commercial media groups are
instrumental in trying to kick start this electronic commerce
revolution. It is the online media companies who are building
the audiences and building the real demand which is taking people
online. We are all integrated into e-commerce operations to allow
people to be able to buy, sell and exchange online.
163. What you are trying to tell me is that
you are really the public service provider, you are doing all
of this in order to help the public buy goods. I have a feeling
that is not really the main reason. If you do not want to justify
it to me, how do I justify to my next-door neighbour that you
want to stop my next-door neighbour getting all the services they
get from the BBC for £2 per week? How could I possibly convince
my next-door neighbour it would be a good thing to say to the
BBC that they should not have gone into the Internet altogether,
they should withdraw and let these people come and charge £15
per week?
(Mr Chowdhury) I do not think people will be charging
£15 per week. The current economy on the Internet is that
people are not being charged for anything. You talked about half
a billion pounds, whatever the number is, going into the Internet
today. The big danger of allowing the BBC to continue unfettered—and
I emphasise we are not saying they should get off the Internet—is
that the next half a billion will not be forthcoming, because
people will see that the BBC has a lock on various sectors. Some
of the sectors which have not had the investment, motoring, kids,
where the BBC has a lock on the kids in the Internet at the moment,
people are not putting money in there because they say they are
not going to get the audience, the BBC has that audience already.
That is the huge danger. E-commerce is likely to be the main driver
of the Internet going forward, whether it is advertising or people
buying things. Is the BBC the right body to make e-commerce happen
on the Internet or is it commercial companies, is it start-ups,
is it innovative venture capital companies who are going to be
doing that? That is one of the core questions in our minds. It
is not the BBC's role to be the e-commerce champion.
(Mrs Mills) There is also a huge difference between
BBC Online News and statements which have been made by head of
BBC Worldwide recently who talked about leveraging BBC brands
across all commercial activity as far as possible, to retail Scottish
shortbread and smoked salmon and chocolate dinosaurs. That is
far removed from providing a high quality news service online.
164. May I put it to you that what you are really
saying is that the BBC is a broadcaster? If we did not have BBC
doing it because you say that is not part of broadcasting, you
are really saying then that the Government should not encourage
another organisation to be funded in the same way as the BBC so
we can get all of these services for £2 per week instead
of £15 per week. That is what you are saying. You are saying
that there should not be any organisation, there is no place for
any organisation where everybody pays £2 per week and gets
a wonderful service instead of us all paying individually to other
companies in the competitive market where we end up paying £15
instead of £2. Are you saying that there is no place in the
market for this sort of organisation?
(Mr Chowdhury) I would say so. The issue of market
failure is crucial here. There is a role for an organisation which
is publicly funded if there is market failure. If commercial companies
are happy to provide it at an affordable price, and at the moment
on the Internet it is all free, where is the market failure?
165. Why do I pay Sky £15 per week and
BBC £2 per week?
(Mr Chowdhury) You would not on the Internet.
166. No, I am talking about broadcasting.
(Mr Chowdhury) You may be right in the broadcasting
arena but that is not my area of speciality. It is the Internet,
where it is all free anyway.
(Miss Clark) It is a global market here. If we go
down the way you are suggesting, are we going to end up with the
UK having the publicly funded Internet business and everywhere
else in the world having an amazing, competitive, productive industry
taking place on the net?
Mr Keen
167. I put it to you again. If we can get it
for £2 per week, why should we pay £15?
(Miss Clark) You are not paying anything for content
on the Internet from anybody else. I do not understand your analogy.
Sky are giving evidence next week and you can obviously talk to
them about charging but on the Internet most content is free.
168. The point I am making is that if BBC can
produce this good service on the net and it can all be done within
this £2, £2.20, £2.25 if it is increased to the
level previous people have suggested it should be increased, is
that not a wonderful thing for the public? Why should we disrupt
that?
(Mr Meadows-Klue) If as a consequence it destroys
the type of choice and diversity of interest and the plurality
of voices which are already on the Internet then I would probably
argue from a public service perspective it is not actually a good
deal for the public either. One of the problems we have with the
Internet is that this is an incredibly exciting medium, it is
incredibly young, it is moving incredibly fast. We are moving
into areas now, as today's session demonstrates, where clearly
there is a need for urgent action to try to give all of us in
the commercial sector the confidence to go ahead and develop our
investments and build the type of e-commerce future that we all
want to see. They are not easy issues to wrestle with, we appreciate.
They are cross-territory issues, they are issues of mixed funding
and all sorts of things but fundamentally we would just argue
that there needs to be some type of independent review, leading
on from what was said in the Davies Report, which analyses exactly
where there is market failure and on the back of that justifies
public service broadcaster involvement or public funding.
Miss Kirkbride
169. Are you anticipating that anything we have
talked about here this morning will be in the Government's new
E-Commerce Bill? Do you think it fits the prospect of actually
curtailing the activities of the BBC, given that legislation is
coming up in this session of Parliament? Or have you not looked
at it?
(Mrs Mills) The legislation primarily focuses on the
transactional side of e-commerce, enabling companies to transact,
to conclude contracts and so on and provide electronic signatures.
This is an aspect we are raising because we think it is part of
the total regulatory mix for e-commerce. If you look at what is
happening in Brussels, where they are developing new framework
legislation for electronic communications, they are looking at
the whole range of activities from the content providers right
through to the transactional side of electronic commerce. Yes,
we do think it ought to be looked at and we realise it is not
in the current E-Commerce Bill, but it could be presumably. Internet
publishing falls within the scope of e-commerce; it is just not
there specifically at the moment.
170. Given that I am a bit new to this Committee
and do not have the experience of some of my colleagues on what
goes on on the Internet, can you put to us what your vision of
what should happen is? If you had your own perfect world, how
you would see things operating, which presumably would be in your
own commercial interest but perhaps would have a wider public
interest? How would it operate? How would this new medium be set
up in a fair and proper way?
(Miss Clark) Everyone has an interest in getting more
and more people to use the Internet, but one of the arguments
we have to be careful with is saying that the BBC has been doing
this almost exclusively—making them sound like a quasi-government
department. What drives Internet take-up is the cost of the equipment
and the cost of the connection. Anything which can be done to
lower these costs to make it easier for people to get connected
is great. The Internet and e-commerce is the future, and this
is one of the reasons we are looking at migrating some of our
publishing business, especially in classified advertising, as
that is obviously where the market is going.
171. That is more a telephone charge, is it
not?
(Miss Clark) Yes.
172. What about within the context of what we
have been talking about which is you versus the BBC? If you could
draw up the spec what do you think should be the limits on what
they can do and how you operate?
(Mrs Mills) There is definitely a role for a public
service on the Internet and possibly the BBC providing it, but
that has to be within a clear boundary of regulation. At the moment
we just feel that it is not clear.
173. What is that boundary?
(Mrs Mills) You have first of all to define what is
public service and fund it accordingly. Then you have a commercial
market which operates in parallel and you have to make sure that
if the BBC is participating in that commercial market they are
playing by the same rules as the rest of us and that they pay
correct amounts for uses of brands, cross promotion and so on.
It is really just to try to balance what is happening on the public
service side with what is happening in the commercial sector.
We are not saying they should be kicked off at all, but that the
boundaries should be more clearly defined.
174. Are you saying then that their own brands
are something they should bid for themselves? You might have a
difficulty here in so far as at the moment there is no review
of BBC services until 2006 when the Charter comes up. That is
a terribly long time away for you. Without a vision yourselves
of what you think ought to be happening then it does not help
us that you are not coming to us and saying this is the way it
ought to be done, because you are the experts in your own field.
Without that idea of what it would be right and proper to go forward
with, it makes it more difficult for us to come up with our own
ideas of perhaps how the BBC should be curtailed.
(Miss Clark) You are completely right. It is slightly
worrying. The Secretary of State, Chris Smith, said at a symposium
in Cambridge earlier this year that he was prepared to see a certain
degree of distortion of the market (as a result of the BBC activities).
Who measures this distortion of the market? Who decides when it
is too much? We do see it as a problem and I assume the Secretary
of State does have the powers himself to decide whether or not
the BBC's activities are within their public service remit. Just
to give them carte blanche to move onto the Internet without
looking whether or not they are selling dinosaurs of whether they
are producing good quality public service content should be something
DCMS is able to do.
(Mr Meadows-Klue) What we can offer in terms of our
solution is to urge the creation of some sort of framework which
can financially analyse and look at this in detail and then maybe
even on a case by case basis pick up on the things which Gavyn
Davies outlined in terms of demonstrating market failure and then
justifying public service involvement.
(Mr Chowdhury) The German model is not a bad one to
start looking at. I believe the German state broadcasters were
told they can do stuff on the Internet as long as it is very directly
related to the programming they are providing. The issue of broadcasting
on the Internet is a very good one and it must be seen what they
can do vis-a"-vis broadcasting on the Internet versus publishing
on the Internet and getting that boundary right is another important
area to be looked at.
175. In which case how would the German model
affect your Top Gear story?
(Mr Chowdhury) It would be an issue of what they can
do vis-a"-vis Top Gear. If it is a site to promote
the Top Gear programming which is being shown, at one extreme
here is what is on tonight and here is what you will be able to
see tonight, it is one thing. If at the other extreme it is, let
us create the biggest motoring site which tells you where to buy
second-hand cars, links you to dealers, takes a commission when
you buy a car, it is a very different kettle of fish and it is
that area in between we need to look at.
Chairman: Thank you very much indeed.
I said at the beginning that I regard this as an extremely important
session and I am most grateful to you.
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