Examination of witnesses (Questions 60
- 79)
THURSDAY 13 JULY 2000
SIR CHRISTOPHER
BLAND, DAME
PAULINE NEVILLE-JONES,
MR GREG
DYKE, MR
MARK THOMPSON
and MR JOHN
SMITH
60. Both of them are very interesting but unless
I missed something neither of you mentioned anything about cost
or value for money for the licence fee payer, or about how that
fits in with your role within the general market of production
and broadcasting in what is now becoming an increasingly commercial
area.
(Sir Christopher Bland) I was restricted, I thought,
by the length of the answer. It was a pretty long sentence. As
part of our public service responsibility, we have a clear responsibility
to do our best to ensure that we deliver value for money for the
licence fee. We should never forget, and I hope we never do, that
the licence fee is an immense privilege. It is unique. It is a
very considerable sum of money in terms of individual payments
and some people's ability to pay. It is our job to make sure that
we deliver value. We think it is terrific value. For £104,
you get two national television analogue services; you get more
on digital; you get five national ratio stations; you get over
40 regional and local radio stations and you get BBC Online. We
think it is fantastic value for money. If you compare it with
Sky, which you have quoted often in relation to news, at a subscription
fee for the basic package of well over £300, £104 for
the BBC's services, its range, its quality and its independence
is fantastic value.
61. Where you go for the future is probably
the most important thing facing the BBC. I was interested to note
in Mr Thompson's speech in Banff he said, "In addition to
a continued commitment to music and arts on our main channels,
we should devote an entire digital channel to serious music and
the arts, to the world of ideas, science, politics and philosophy."
Would you accept that many of those areas, particularly music
and science—and to some extent the world of ideas—are
already catered for within the commercial market and that it is
not the job of the BBC to put more money into expanding its range
of services where they are already catered for within the commercial
sector?
(Mr Thompson) Can I emphasise that, as I presented
it in my speech in Banff, I presented it as a possible proposal,
one which is not BBC policy but one of the ideas which we are
currently exploring. Before we could even consider offering it
or presenting it to the outside world, we would need to convince
the BBC Board of Governors that it was a good idea. I personally
believe that although of course there are many music channels
on, for example, the Sky EPG or the other EPGs, there is a swathe
of classical music performance which, for example, the BBC currently
offers listeners and indeed invests heavily in the events in the
orchestras and concerts, which it would be wonderful to be able
to offer to television viewers as well but which we currently
do not offer as much as we would like and which is not available
elsewhere in the television market. I do not believe that serious
debate about political thought is widely available or is likely
to be widely available in the commercial market. Philosophy, still
sometimes discussed on BBC Radio—nowhere else in the radio
spectrum—is something which does not have a big place in
the television spectrum. The area I am talking about of serious
music, debate about scientific thought, philosophy and political
thought, which you will find on BBC Radio, is not being provided
and is unlikely to be provided in the future by the television
market. One of the many things the BBC has to do, in my view,
is to guarantee in the future that there is a place for the most
ambitious, the most uncompromising, output in the television spectrum.
Unless we do it, it is unlikely it will be provided elsewhere.
(Dame Pauline Neville-Jones) It is probably right
to compare like with like. It is perfectly right to say that there
are good programmes in the commercial sector on all these subjects,
but we are talking about subscription channels to a very large
extent. What the BBC does is provide it on a universal basis and
I think that is the difference. It is free at the point of access.
We think that there is more of a market there for more quality
programmes of that kind. That does not in any way detract from
the fact that the market is providing it on a pay per view basis
or subscription. I would not try to argue that the commercial
terrestrial channels do not provide some of this, but we believe
there is a good market for more of that.
(Mr Dyke) You have to look forward. If it is the policy
of this government—I understand it is the policy of the
Opposition—everybody wants to get to the stage of analogue
switch-off as quickly as they can presumably because there are
very large sums of money to be gained from the spectrum as well.
When that happens, there will be a number of free services going
into it. What we are looking at is a portfolio of channels. What
should be the cross section of the portfolio of channels that
the BBC is delivering free to every home in Britain? It could
be some time in the next decade. That is what we are looking at
long term. What is being delivered free? I think it is free to
the point of delivery, which is important. It comes back to some
of the people Mrs Golding has been talking about already, the
people who cannot afford to pay for subscription television. What
are we going to deliver free into those homes?
62. I agree that it is an area that has to be
considered in the future. I am just concerned about where you
balance the funding against that range of channels, many of which
can be provided within the commercial sector far more cost effectively
than the BBC can and the BBC needs to find where its boundaries
to public service broadcasting are. I am still not clear that
you have done that in many areas.
(Mr Dyke) We would not disagree that the BBC cannot
be aiming to compete in every area, in every market. I do not
think anybody here would disagree. In the world that is emerging,
we have to say, "This is what the BBC is going to deliver.
We are not going into that area or that area using licence fee
payers' money." The implication in your report last year
suggested that we were spreading the money too thinly. I do not
think we would disagree. We have to say that we have a significant
sum of money that comes in from the licence fee. We have some
commercial income which we are hoping to increase. We are going
to continue to make significant savings in the costs of the BBC.
Where should we spend that money? Over which channels? Over how
long? There is a time coming when all our evidence suggests that
35 per cent of the population of this country are not going to
pay for television. They are not going to pay for subscription
channels either because they cannot or they do not want to. Into
every home by the end of this decade, there will be a spectrum
of three television services. What should the BBC be doing and
supplying to those homes?
Miss Kirkbride
63. In the start of your report you describe
your licence fee settlement as "satisfactory". Do you
not think that is a rather ungenerous view of the public who have
given you an over inflation increase in the licence fee?
(Sir Christopher Bland) It certainly was not designed
to be an ungenerous recognition. It was a licence fee settlement
that we can absolutely live with and we believe we can deliver
really good public service value for money in broadcasting terms.
It was not meant to be grudging. The strengths of the licence
fee settlement are, first of all, it is for six and a half years
from where we sit now, which gives us enough time to plan. We
know our income absolutely within two per cent up or down during
that period. We know also that as part of that we have to help
ourselves and achieve pretty substantial savings during that period.
We believe we can do that; we are confident about that. 1.5 per
cent above the rate of inflation is not to be grumbled about and
we are not grumbling. It is a good place to be but, given that
the rate of broadcasting inflation is as high as it is, given
that sports rights have gone up 800 per cent in four years and
have increased our sports budget by 30 per cent in two years,
that money has to come from somewhere. Those figures do not tally
with 1.5 per cent, but we absolutely think it is a fair settlement.
We are grateful to everybody who pays £104. We believe that
we will deliver good value.
64. Are you still in the public sector? Whether
or not the private sector is showing greater inflation, you are
a public sector organisation and the rest of the public sector,
including pensioners and a lot of other people, are expected to
live with inflation. Yet, we are told that you find your settlement
satisfactory in that you are not begrudged by it. I find that
a rather shocking response to a question that I would have thought
would have shown a little humility on your part.
(Sir Christopher Bland) I am sorry that I did not
appear appropriately humble and I would like to do this. I have
said it is a great privilege to have the licence fee and it is.
I can only emphasise that there are two sides to the equation.
You say we are a public sector organisation. We are in the sense
that we are a public service organisation, but we also operate
in very tough and commercially competitive markets. Therefore,
I was pointing out, I hope in as humble a way as is appropriate,
the fact that we are competing in markets for talent and for rights
that are not obeying the ordinary dictats of inflation. They are
rising very, very much higher than that and we are competing against
our competitors in ITV whose income is rising at least at the
moment very significantly faster than ours, but when all is said
and done, you are quite right. We are a public service organisation.
We ought to be and we are grateful for that settlement.
65. In answering that question you have identified
the heart of the dilemma for the BBC, both now and in the future,
which is how do you make yourself relevant and publicly acceptable
in a world that has massive competition from the private sector
for you and which arguably, in many ways, does it as well, sometimes
perhaps even better, and does it from the ITV point of view to
the public perspective for free. You are not just competing with
Sky. I wonder therefore why you tell us you have failed so badly
in your commercial income which increased, according to your report,
£81 million in 1998-1999, £82 million in 1999-2000.
That simply is not good enough, is it? Why has that happened?
(Sir Christopher Bland) I am shocked and dismayed
that you think we have failed. We did not. We succeeded. We generated
£82 million of cash on a turnover of half a billion, both
of which are record figures for BBC Worldwide. We are well on
our way, exactly on track, to achieve our targets of £200
million of commercial cash generated by BBC Worldwide and we are
really pleased with that. We think it is disappointing if this
Committee does not recognise those achievements because they are
very considerable, very hard won, won in really tough, international
markets. The reason that perhaps you are disappointed in the figures
is that, in the previous year with which you are comparing this
year's excellent results, there was a one-off profit achieved
from the sale of shares in Flextech which is not recurring income.
If you take that out, you will see that we achieved a really good
result. Not only that. We are expecting to grow by 15 per cent
per annum compound which is a demanding target by commercial standards,
at a time when inflation does not carry you along at that rate,
and it is worth pointing out that Pannell Kerr Forster regarded
that target of £200 million as extremely ambitious and demanding.
They, frankly, were sceptical about our ability to achieve it.
I think we will.
66. Your income in one financial year has gone
up by £1 million, 81 to 82 million. You are telling me that
you are on course in the next five or six years to increase that
to £200 million. That does not seem to me to be terribly
on course.
(Mr Smith) In the previous year, in the £81 million
figure—by the way, that is net cash contribution rather
than income—there is eight million one-off, unique, from
the sale of shares and therefore not to do with the underlying
cash flow generated by the business. This year, there is none
of that so the £82 million is entirely from operating and
we are on track to meet the 15 per cent compound annual growth
rate which will get Worldwide to a position where they have quadrupled
their cash flow back to the BBC during the Charter, which is the
target they were working to.
Chairman
67. You have £200 million and you have
rather over £2.25 billion licence revenue, which is rather
below ten per cent. I was reprimanded by Patricia Hodgson, who
is no longer at that table, when I said that the now Lord Birt
had imposed a limit of 15 per cent as net commercial income. I
was reprimanded for saying that it would be as low as 15 per cent
and you are now confirming that it remains below ten per cent.
(Sir Christopher Bland) I am not as brave as Patricia
Hodgson and therefore I would not reprimand you for anything really.
68. Give us both time, Sir Christopher.
(Sir Christopher Bland) First of all, there is no
limit. We would like it to be as high as possible. We think that
£200 million is both achievable and stretching. It will not
be easy to get to that £200 million in the period and we
believe we will have to run very fast to get there but we are
on track to do it.
(Dame Neville-Jones) We are operating in a market
obviously that we do not control. To give you an example of the
variation we face from year to year, the Asian market dropped
away very considerably, for reasons that you can imagine. You
are up against variable market conditions. We have more than made
that up in other areas. We are operating against the competition
in a normal market way. I think on the whole, when you say that
we are not travelling very fast, those targets are quite stretching.
Miss Kirkbride
69. I do not think it is necessarily a bad lesson
for you to have some of the restrictions that the independent
broadcasters face when they put their own money into ventures,
whereas you put the taxpayers' money in. Mr Dyke, having had extensive
private sector experience, in answer to my colleague Claire, you
said that there should be broader plans for the BBC and you rather
gave the impression that they might be more exclusive than the
present boundaries are. Could you give us any idea as to what
you think that might be in the future in terms of what the BBC
does now which it might as well not do and concentrate on other
things.
(Mr Dyke) My view is that within the terms of the
law we should try to maximise our commercial income, within the
terms of the Charter, within the terms of the law and within competition
policy, because if we can get additional money we will spend it
upon our services. That is the major aim. If we can raise further
commercial income to spend on our services, that seems to me to
be for the good of all. It will not be for me to decide if we
are going to shift the boundaries. It will clearly be for the
Government, but there is no doubt there are possible opportunities
in this world that the BBC should look at. What we must not do
under any circumstances is use public licence payers' money to
do it. There has been remarkable success in getting quite considerable
assets without putting in any licence fee money at all.
70. Are you saying you see that as being more
competition with the private sector rather than restraining what
the BBC does and concentrating more on a core product in the plethora
of other platforms which become available?
(Mr Dyke) What we can do in competition with the private
sector in terms of commercial income is heavily limited because
of all sorts of competition policies. That is quite right. I do
not disagree with that at all. If we can raise more money through
that and with that money spend it upon our services, that seems
to me a win win situation and for the good of all.
71. But you are not thinking of restricting
your services that you have presently or that there might be added
to in the future?
(Sir Christopher Bland) You may ask that question
and so have a number of other members of the Committee, both today
and in the past. Historically, the BBC has tended to do everything
and historically the BBC has been funded to do everything. That
has not been true increasingly in the last five years. It is plainly
not going to be true for the period of this licence fee and beyond.
The BBC needs to take a deep breath, concentrate on what it is
doing, be very careful about new services and only embark on those—first
of all, it needs permission; secondly, it needs to be sure that
they are adequately funded. It is not always clear that in the
past the BBC has done that. It is absolutely essential. We now
have a planning framework in financial terms that enables us,
particularly by the autumn. We will have a very clear fix on the
likely internal savings that we can generate in addition to our
commercial income. We have to live within that. Rather than do
anything new that is not quite adequately funded, we should restrict
ourselves if that is the choice.
(Mr Dyke) There are sections in the commercial market
place that are encouraging us to do more, for instance, in digital
radio. The commercial market place, the Government and everybody
else who is trying to encourage the take-up of digital radio are
encouraging the BBC to do more. We are saying we would like to
but there is a limit because we cannot afford to do that much.
We cannot spread ourselves too thinly because for a long time
we are going to be judged by most of the licence fee payers on
what they see on BBC 1, what they listen to on Radio 1, 2 and
3. It is a dilemma for the BBC. How do you prepare yourself for
the new world without damaging yourself in the existing world
and actually providing a lesser service for the people who only
have analogue? That time will end. We believe that, of the new
money coming into the BBC through the additional licence fee and
the money we are saving, a disproportionate amount should go on
our traditional services.
72. As savings have come up, I think there will
be some interest in what they are likely to be. Can you be more
clear about staff cuts and maybe perks cuts as well which have
been in the public eye quite recently?
(Mr Dyke) We believe the actions we have taken now—we
have announced in the last week and a half in two areas, one in
resources, two in the establishment of BBC technology and three
in fairly significant changes in the way we run the BBC. Over
the period of the licence fee we have been generating in additional
income something like £750 million.
73. That is savings on staff cuts?
(Mr Dyke) Not only on staff. Some of it is on staff.
74. How much?
(Mr Dyke) We estimate at the moment that the total
staff cuts will probably be 1,100 or 1,200.
75. What kind of jobs will they be?
(Mr Dyke) They are disproportionately administrative
and back office jobs.
76. Will they also be management jobs?
(Mr Dyke) Yes.
77. When you say "disproportionately"—?
(Mr Dyke) 70 per cent.
78. The other savings are from where?
(Mr Dyke) We think we can get smarter with buying
once we have a new software system that is going in this autumn.
We are a very large buyer of services. We think we can save sums
there but our aim, as I keep saying to all of our staff—it
is a difficult time; it is not easy making people redundant. The
aim is that all that money we save will be spent on programmes
and our services. Our aim is to get to a position where the percentage
of our income that is spent on our services and programmes is
85 per cent. At the moment it is 76. We think we can get there
in three to four years, but probably in three.
79. How did you find the BBC compares to the
private sector in terms of its management structure?
(Mr Dyke) All organisations constantly change. The
BBC has been changing over a considerable period of time. When
you change structures in organisations, you change them to gain
certain advantages. Often, you gain those advantages and then
you discover some disadvantages that went with them. We have tried
to take out some of the disadvantages, but I have no doubt at
all that in five or six years' time someone else will sit in my
job and will change the structures we have put in place. In my
last organisation which I set up almost from nothing, one of the
biggest independent production companies in the world, when it
came to me to leave, one of the reasons I needed to leave was
it actually needed changing again. If you are the person who started
it, it is a very difficult thing to do. As you know, there is
no optimum organisation. Whichever organisational structure you
have, there are up sides to it and down sides to it. How did I
find it? I have never worked in a place where people work so hard,
if you want my honest opinion. It is the hardest working organisation
I have ever worked in. What we need to do is make sure that all
of that is constructive.
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