Examination of Witnesses (Questions 420
- 439)
TUESDAY 30 NOVEMBER 1999
MR TONY
BALL, MR
RAY GALLAGHER
AND MR
NICK POLLARD
420 That in a sense is at the root of some of
our concerns, that actually more money just means more bureaucracy.
Even though they claim they have saved hundreds of millions already,
we still feel perhaps you could still clear out £200 or £300
million and not notice any difference, but that is an opinion
on my side. Two weeks ago we had a group from the Internet community
who told us that the German Government have stopped the public
service channels from using public service money for the Internet.
I have had this debate before, I have not won it or lost it yet,
but it seems to me that the public service Internet provider which
is paid for by the licence fee would include maybe Which?,
Yellow Pages, maybe a news service. What is your view of licence
fee money being used for an Internet site which is not a public
service site?
(Mr Ball) I think it goes to the heart
of the commercial part of the BBC against the licence-funded part
of the BBC, and I am talking about BBC Worldwide. There are two
separate websites across those two parts of the business and indeed
there is cross-promotion to some extent from one to the other.
An information website of the BBC which was publicly funded which
highlights programmes in addition to the television experience,
I think is fine. When the BBC looks at creating "me-too"
ISP's that perhaps the market does not need, which is a pretty
similar debate as to creating News 24, channels which are already
serviced and there is no market failure in that area, we have
concerns. If it was all in the commercial arm of the BBC, it would
be much clearer to understand and also to support.
421 The Internet is a brand new channel of communications,
we were not given any consultation from the BBC they were going
to spend more money than any other commercial or public broadcaster
in the world on their website, and here they are saying they are
going to do it and now they are claiming it has all these wonderful
hits but actually we have not had a discussion about what a public
service website should be. I think that is my issue. Do you share
my concern?
(Mr Ball) We do, and it relates to this
proposed digital licence fee, what will that additional funding
be used for. As you said, with the website there was no consultation,
it just happened. I think it would be exactly the same with the
channels, we do not know what the plans are for the use of this
funding should it be approved.
Chairman
422 Mr Wyatt discussed with you BBC News 24 and
you, Mr Pollard, offered an explanation of why it was so much
more expensive than Sky News. Is there not an added factor which
seems to be inexplicable, namely that Sky News is a stand on its
own service, BBC News 24 shares with BBC News on BBC1 and BBC2
and BBC radio a network of correspondents, and therefore is it
not somewhat bewildering that even spreading the overheads between
all those services it is still costing £53.9 million?
(Mr Ball) I think that is an excellent
point. You can imagine the presentation for the creation of BBC
News 24, because it is such a terrific idea that you have this
fantastic news organisation, the BBC, across radio and television,
very well respected, terrific infrastructure, it is a pretty simple
leap to say, "We will create a 24 hour channel" and
there will be a very small marginal cost to do that. Fine. But
then, as you have just said, you are into a £53 million running
cost. We still do not understand how it could be that expensive.
We started at Sky News, which has been on the air now for ten
years, bottom-up, there was no worldwide news infrastructure which
we just bolted onto to create Sky News, we had to create the whole
thing. I totally agree with your point, it is very difficult to
explain why the marginal cost for that service is so high.
(Mr Gallagher) We noticed in the Davies Report that
Mr Davies also referred to some of the BBC new services as "distinctly
threadbare" and it is difficult to reconcile the threadbare
nature of that with the expenditure. It is not just BBC News 24
but BBC Choice, which I believe was funded at £36 million
last year for a channel which has a high proportion of repeats
of BBC1 and BBC2 programmes. So it is rather confusing where the
funding has gone.
423 You sent us during the last few days your
own analysis comparing the audience of Sky News and BBC News 24.
In those tables which you sent us the statistics that you provide
show that the audience for BBC News 24 is a fraction of 1 per
cent whereas the BBC, when they came before us last week, claimed
that over the spread of a week BBC News 24 gets 6 million viewers.
Are you able to reconcile those two offerings?
(Mr Gallagher) The BBC has given different
figures to the Committee in the past about reach versus share
and they have somewhat different purposes. For the total audience
reach the BBC aggregated the overnight broadcasts on BBC1 and
weekend broadcasts on BBC2 of some bits of News 24. So it was
simulcast on BBC terrestrial services, and we cannot accept that
simulcasting on a universally available analogue terrestrial network
is a like-for-like comparison with Sky News, which is limited
to a cable and satellite base. In the figures we provided to the
Committee we have taken a like-for-like comparison in cable homes
showing Sky News has a significantly greater reach than BBC News
24. Also in audience share, looking at cable homes, Sky News has
consistently had a higher share than BBC News 24. The BBC mentioned
the other day that in October, for the first time ever, they had
achieved a higher share than Sky News in cable homes and that
is true—the marginal increase over all cable homes was three
hundredths of 1 per cent of viewing. However, the BBC's viewing
figure counts its availability in almost every cable home in the
country, 96 per cent of cable homes. Sky News is only available
in 76 per cent. So within homes which have both, the research
does conclusively show that the Sky News' share is higher. We
have also provided the figures which the ITC publishes on a regular
basis—it is a requirement of the Broadcasting Act to look
at audience shares—of total UK viewing which shows that
over the last 12 month period BBC News 24 has one-tenth of 1 per
cent of total UK viewing, Sky News has four times that.
Chairman: If one looks at terrestrial
channels, ITV provides a 24 hour service. If people watching BBC1
or BBC2 want a 24 hour service then they are quite likely, simply
through doing that, to drop in on BBC News 24 because it fills
in gaps on BBC1 and BBC2.
Mr Faber
424 Why did you take the decision to start giving
away set-top boxes?
(Mr Ball) We launched back in October
last year charging for the box. It was really to accelerate the
roll-out. I think we had rolled out to about 550,000 or so before
we introduced the free offer back in June. From our point of view
there are big wins both for Sky and the industry as soon as analogue
is switched off and there are big savings for us to switch over
from our analogue satellite service, and giving the free offer
helps with this. It also helps roll out all the other services
which we now offer on the digital platform—interactivity
and so forth.
425 So there was clear price resistance to paying
for the hardware?
(Mr Ball) I think the roll-out was probably
on plan, it was just that we saw an opportunity in the market
place to accelerate. Once we announced it within a day one of
our competitors, ONdigital, had also after long consideration
come up with the same idea and offered the free box as well. But
the cable industry, as I am sure you are aware, has historically
given the box away, in fact they lend the box. We are the only
business which gives it away. Therefore there is already a precedent
there.
426 I think you were here earlier when Mr Jones
of Carlton made his point to Mr Wyatt that he did not feel there
was price sensitivity to having more than one platform in a home.
I was a bit surprised by that. Do you, as the largest digital
platform, find that people have more than one platform?
(Mr Ball) I cannot give you statistics
on how many people have both services. I think most of the new
subscribers we have—as far as we are trying to gather research
and some of it is anecdotal—are taking just one service.
As to the price sensitivity, if you were to take both the ONdigital
service and the Sky service, other than the installation cost,
there is no real price barrier there, it is when you start subscribing,
and there is a lot of duplication on what those services are.
For example, most of what you will find on ONdigital you will
find on Sky, with the notable exception of the ITV service which
is withheld from us at the moment.
427 I was going to ask you about that. Carry
on. What is the current status of your on-going dispute, shall
we say, with ONdigital?
(Mr Ball) It is not really with ONdigital,
it is with ITV. We are still trying to come up with a business
case and we feel there is a massive win for them, several hundred
million pounds, to come on to our platform. They are not convinced
of that yet. My view is, to make digital roll-out quicker for
everybody there should be a "life-line service" of channels,
all the channels you would currently receive off-air, terrestrially,
should be available on platforms, just as there are "must
carry" life-line channels in the United States where you
have to receive all your local services, for example. I think
that would stop some confusion in the market place with the average
potential subscriber who walks into Dixons or Currys and gets
confused and asks, "Do I get my Coronation Street
on that one or whatever?"
(Mr Gallagher) Every other public service broadcaster
has made the decision to be on all platforms and that includes
the Welsh fourth channel, S4C.
428 You made the point earlier that Sky News
has been built from a standing start over the past ten years.
So too, effectively, although it was easier to buy in, were the
film channels and the sports channels. The point I have made to
everyone who has come before us is that the early adopters of
those channels, the people who drove pay TV originally, premium
television originally, because they wanted the sport and the films,
are going to be the very people who will be penalised by the digital
licence fee. They have gone out initially to buy those premium
channels and they are now very possibly going to be asked to pay
for a digital licence fee for channels they may not want. Do you
agree with that?
(Mr Ball) I think that is an excellent
point. Everybody is penalised but the early adopters, as you put
it, have made a judgment on what this package is going to cost
them without any idea that there is potentially a digital poll
tax to be slapped on top of it.
429 You mentioned earlier page 10 of the Davies
Report and the quotation which I have wheeled out a couple of
times, "We know a public service broadcaster when we see
it". ITV when they were here a moment ago said they thought
there were various numbers of ways in which they could be called
a public service broadcaster, would you describe Sky News as public
service broadcasting?
(Mr Ball) I think it is a public service.
It is interesting to think that BBC News 24, as one of the effects
of the market distortion of giving services away, is crowding
out Sky News. Ray has given the share we have and he mentioned
that Sky News is in just over 70 per cent of Cable homes versus
the BBC at 96 per cent. We used to be in 90 per cent, we have
been crowded out because this free service is available and cable
operators would rather take a free service than pay for Sky News.
If you were to relate that back to public service, that is not
a public service, a public service is to have a choice of news
and the market distortion has actually crowded Sky News out. That
is my opening address! Yes, I think Sky News is a public service.
430 I would agree. Finally, over the past year
I have constantly asked the BBC about their coverage of sport
and clearly it is very much Sky which has forced them largely
into the position where they claim they are losing rights to certain
sporting events. Greg Dyke, when he was sitting here a few days
ago, effectively said they would have in future to ration their
bidding for sports rights. Could you tell us a little, not revealing
anything commercially sensitive, about how you see the world of
bidding for sporting rights going over the next few years?
(Mr Ball) The only certainty is that
everything gets more expensive. I think BBC Sport has lost a number
of very big events over the last few years but, curiously, it
has not lost them to Sky. If you look at a couple of examples,
it lost Formula 1 racing to the ITV network, the cricket it lost
to Channel 4.
431 And not always because of price either.
(Mr Ball) Indeed, not always because
of price. The interesting thing is that they are all terrestrial
channels, so getting back to this argument about market failure,
it is not market failure, those sports are still available free-to-air
but it just happens to be on commercial channels. So although
Sky has made a big play for sport, and we were lucky enough to
get the rights for the Premier League when it first began and
it has been an important sport and an important component of Sky,
the whole sports landscape on television in Britain has changed
completely over the last five to seven years. I can remember back
that long ago and there was very little sports coverage on terrestrial
television. In fact there was one season when there was no football
coverage on terrestrial television. The world has changed somewhat
and I think the BBC has been affected by that because the free-to-air
commercial channels have seen the benefit of sports as a powerful
scheduling component and that is where most of the BBC losses
have gone.
Miss Kirkbride
432 Do you think it is possible that we will
get analogue switch-off in the timetable the Secretary of State
has suggested, given the present environment we are operating
in?
(Mr Ball) I would not call it a particularly
aggressive target. I will ask Ray Gallagher to comment but we
had some research from NERA which suggested that adding the digital
licence fee will probably make his target more difficult because
there will be some slow-down of the take-up of digital.
(Mr Gallagher) The target figure that NERA pointed
to was a delay of three years and 5 million homes in the analogue
switch-off time, and that would have a cost to the Treasury as
well because of the value of the spectrum which is intended to
be realised. £680 million was the projected loss. NERA used
economic modelling which it had previously developed for the DCMS
for this project, it was not something which was cooked up specifically
for commercial broadcasters as a rebuttal to the Davies Report.
433 Even if we do not have an added digital licence
fee, do you think as commercial broadcasters there is the possibility
of getting anything like the saturation levels we need before
the Government takes courage in both hands and tells some of its
pensioners they have to have a new television or at least a box?
(Mr Gallagher) I do not think anyone
knows what the limits of pay TV penetration are going to be—we
will see over the next few years but there has been a very healthy
take-up so far. What Sky has done uniquely is opened up the possibility
of the lower income groups obtaining digital television because
of the free set-top box and the ability to keep that property
if they do not subscribe, or those who subscribe later choose
to turn off and stick to the free-to-air channels. So there are
attractive services in the market place. There is free technology
which is available. And we have to see how other technology develops
over the next few years because there are things like ADSL broadcasting
through the telephone lines and Internet broadcasting, which Mr
Maxton is quite interested in, which could accelerate this.
434 Going back to a discussion we have had with
almost all of the people who have given evidence, which is that
it is very difficult to offer the BBC an extra licence fee until
we know what its public service broadcasting remit is, what do
you think it should be?
(Mr Ball) What should its remit be?
435 Yes, what should the public service remit
be?
(Mr Ball) As it relates to multi-channel
digital television, it really is market failure, which is what
Davies used as an example, where there is an area which is not
serviced commercially that is something the BBC, a publicly-funded
broadcaster, should go into. I am not against the BBC having digital
channels, I am just against them having them on an unsound commercial
footing. The BBC's commercial arm, BBC Worldwide, can supply digital
channels which people can subscribe to, so they have the choice,
just as they have the choice to take channels from ONdigital,
NTL or BSkyB. What we have here is no choice, you are subscribing
whether you use it or not. If it was through the commercial arm,
that would be a more equitable way of providing those channels.
436 So you are basically saying the current set
up of BBC1 and BBC2 continues but the digital phase, the wider
choice and diversity phase, should be on a commercial basis?
(Mr Ball) Unless there is a market failure.
437 How do you assess that though? At what point
do you assess the market has failed? Give me an example.
(Mr Ball) BBC Parliament.
438 That is probably a very valuable one, yes!
Any others?
(Mr Gallagher) We have heard all of the
other witnesses call for some kind of independent review or mechanism
to assess market failure. This is something I believe Mr Davies
said in his oral evidence was a substantial chapter in their Report,
but I think it is about six pages and it is a limited treatment
of the subject and it is something which really needs to be developed
much further. There should be some independent means to look at
where the deficiencies are, then assess if commercial channels
are not providing it and whether that is a short-term or long-term
problem. We are approached constantly by companies with proposals
for arts and education and a range of services which one would
have felt were traditionally the province of public service broadcasting,
and they are looking to put these in the market place on a commercial
basis. So one should look at whether the new services are likely
to bring those as well. I think we have gone one step further
in our comments to the Committee, which is that if new public
funding is going to be allocated—and the BBC has clearly
said they want new public funding to fulfil their vision—and
we think there should be a process of tendering in which commercial
broadcasters as well as the BBC and other parties can make proposals
or have the opportunity to make proposals to provide a service.
In some cases it may be the BBC which has the best proposal but
in other cases there may be partnerships or other companies which
have a better idea or a more efficient means of delivering that.
439 When we consider what the BBC future should
be, despite some of my views about the BBC I am constantly reminded
of the fact it is still potentially, and probably certainly is,
the best brand name we have in Britain and to that extent there
is an element of loss to the public purse and GB plc if we denude
it too much or we do not let it come into the new world. One of
their arguments, for example, is that if they are going to be
a big player in the world as it will be in the future they have
to have a 24 hour news channel. We can argue about the cost of
it but they would argue they have to have a 24 hour news channel.
What do you see as being the merit of the argument that the BBC
is a big brand name that somehow needs to be able to expand into
a brave new world?
(Mr Ball) I think it comes back to my
earlier point, I think the BBC is a terrific brand and they have
the potential to exploit that brand in the multi-channel digital
arena, and people who value that brand will subscribe to those
channels instead of having them forced on to them.
(Mr Pollard) Could I add two points about News 24
in response to the points you have made? We do not have any problem
at all with News 24 existing and competing with them. We are used
to that now and we feel we compete very effectively with them.
What we do have a problem with is effectively that they are creating
market failure rather than meeting a need because of market failure.
They are more likely to cause market failure because they are
able to constantly and indefinitely undercut us. They can spend
a very large amount of money on their product, give it away free
to the people we also supply, and inevitably undercut us, and
not only undercut us but undercut anybody else who might come
into that market. So we are happy and relaxed about competition,
we compete not only in the UK but the world over with the likes
of CNN, Bloomberg, MSNBC and BBC World, but we do because it is
such a competitive environment believe there should be an element
of fairness and crucially part of it is that we should not be
constantly undercut by their commercial standing.
| 
