APPENDIX 2
BBC RESPONSE TO THE NINTH REPORT FROM
THE CULTURE, MEDIA AND SPORT COMMITTEE ON THE REPORT AND ACCOUNTS
OF THE BBC FOR 1999-2000
Introduction
The BBC welcomes this opportunity to respond to the
Select Committee's Report on the BBC's Annual Report and Accounts
1999-2000. It was the BBC's suggestion in 1997 that, as part of
its accountability to Parliament and the public, there should
be an annual scrutiny session following the publication of its
Annual Report and Accounts undertaken by the Culture, Media and
Sport Select Committee. We are therefore pleased that the Committee
took time to hold a session with BBC Governors and management
on 13 July 2000.
The Committee's Report on 31 July sets out fifteen
main conclusions and recommendations. Two of these (one of two
recommendations under number xiii and all of xv) are addressed
specifically at the Government and it is for DCMS to respond to
the Committee on those points. The BBC's response to the other
13 recommendations is set out below.
Recommendations and BBC responses
(i) We welcome
the renewed commitment by the BBC to its core television services—BBC
One and BBC Two—and to the flagship role of BBC One in particular.
We consider, however, that the weaknesses that the BBC Governors
note in the recent performance of BBC One are issues for which
they themselves hold the ultimate responsibility.
The BBC acknowledges the Select Committee's support
for the BBC's plans to invest additional funds in BBC One and
BBC Two. Since publication of the Committee's Report, the Director-General
in his MacTaggart lecture set out the BBC's plans for a new line-up
of digital television channels, in the light of the recent licence
fee settlement. In announcing those plans, the Director-General
made it clear that the lion's share of the new investment would
be in our two core services, available in virtually every home.
This will ensure that all our viewers will enjoy an improved service
from the BBC and that BBC One in particular will build on its
position as the BBC's flagship service, containing the very best
British content across a wide range of programming.
The Board of Governors is ultimately responsible
for ensuring that the BBC delivers its public service remit and
that, through its services, the BBC meets the needs and interests
of its audiences. That responsibility is delivered by approving
objectives for the BBC as a whole, setting strategies designed
to meet those objectives, and allocating the BBC's budget as necessary.
The Board of Governors delegates day to day management of the
BBC, including the commissioning, scheduling and production of
programmes, to the Director-General and his management team. Each
year the Governors monitor and report on the BBC's performance
in the Annual Report. Their objective assessment of the BBC's
performance sometimes leads to criticisms that they are avoiding
responsibility. In fact the public nature of that assessment demonstrates
that the Governors are both cognisant of their ultimate responsibility
and prepared to be judged on their record of tackling under-performance.
The Board of Governors recently approved additional
investment in BBC One and BBC Two which is already feeding through
into new high quality programming from Autumn 2000. From April
2001, the BBC will spend an extra £95 million across the
two channels, with additional investment of £140 million
from April 2002. The Board of Governors believes that these very
significant sums of new money will help deliver the necessary
strengthening of the BBC's core television services which they
called for in the Annual Report. The Board will continue to monitor
the impact of the new investment on the performance of these services.
(ii) It is undeniable
that the technological environment in which the BBC operates is
changing, and changing fast. The BBC's remit, however, has not
changed and the BBC has not sought a change to the Royal Charter
that underpins that remit prior to 2006. A generalised offer by
Sir Christopher Bland for "public debate and discussion"
is simply not good enough. While the BBC remains a State Corporation
funded by a hypothecated tax, it has public service obligations
that it must continue to meet in full. If BBC One were to become
ITV without the commercials and BBC Two were to become Channel
4 without the controversy, then this would affect the justification
for the BBC as at present constituted and funded.
The BBC understands very clearly that although technology
is changing, the remit and the charter remain the same. The BBC's
remit in the digital age will therefore stay as it ever has been:
to serve the public by providing diverse, high quality programmes
which entertain, educate and inform the whole audience. History
shows that the means by which the BBC fulfils its role is affected
by changes in broadcasting technology, but the role itself is
not. We therefore agree with the Committee that new digital technologies
in television, radio and online offer opportunities for the BBC
to deliver even greater value to many licence payers, within its
existing remit. The Charter stipulates that it is for the Governors
to interpret how best the BBC should fulfil its remit, subject
to Secretary of State consent for the launch of new public services
or material changes in existing services.
On every channel, no matter what audience interests
it serves, the BBC must be truly distinctive from the commercial
alternatives. That distinctiveness will flow from the high and
increasing level of investment in original UK programmes; from
a quest for innovation and support for new talent; and from the
constant aim that, in all areas of programming, the BBC should
provide the very best. The Governors will continue to monitor
all the BBC's services, including BBC One and Two to ensure that
they are distinctive. In the case of BBC One, this means being
the gold standard—containing many of the programmes which
audiences cannot afford to miss, across a wide range of programmes
including news and factual. BBC Two will also maintain a wide-ranging
remit, focusing on serious factual programming as well as being
the test bed for ground-breaking new drama, comedy and entertainment.
(iii) It is right
that the BBC is seeking to develop an effective policy for sports
coverage, but it is regrettable that the wording of the new objective
reinforces the impression that the BBC has lacked such an effective
policy in recent times. We expect the main elements of the BBC's
policy for sports coverage and the criteria by which its effectiveness
will be measured to be included in the BBC's Report for 2000-01.
Sport has become the most commercially competitive
area in broadcasting. The BBC is not alone in facing the challenge
of significantly increased competition for sports rights from
other media players. However, despite this challenge, the BBC
still commands a wealth of rights to major sporting events including—the
Olympics; Wimbledon; Grand National; 6 Nations and the European
Rugby Cup; Open Golf and US Masters; World and UK Athletics; Euro
2000; and, from next season, live England home football internationals
and the FA Cup (including the final).
The sports rights marketplace is a rapidly moving
market as well as being increasingly competitive. The BBC therefore
needs a flexible sports strategy to ensure it continues to deliver
value for money to the licence fee payer from all our sports output
across Radio, TV and Online. A single BBC Sport division has been
created for the first time in recent history. This has given us
a new opportunity to develop a more coherent sports strategy across
all media which will now be taken forward by the BBC's new Director
of Sport, Peter Salmon who will sit on the Executive Committee.
We will ensure that the general principles of our
policy for sports coverage are included in the BBC's Report for
2000-01. The success of that strategy will be assessed by measuring
audience satisfaction, in terms of both the numbers of viewers
and listeners, but also qualitative assessment of how well audiences
appreciate our coverage of individual events and the mix of sports
and events available through the BBC.
(iv) We are heartened
to learn of Radio 3's increased audience and encouraged by the
restoration to a considerable degree of its former high quality,
but we consider it a matter for regret that neither the Chairman
of the BBC nor its Director-General was able to give any account
in oral evidence of the performance of Radio 3. This strengthens
the impression that radio is seen within the BBC as a Cinderella
service.
BBC Radio is not a Cinderella service. It is a central
and vital element of the delivery of our public service remit
to serve all audiences. Radios 1-5 Live, the Radio networks in
the Nations and the network of Local Radio stations are highly
valued both within the BBC and by the audience. Radio provides
52 per cent of the total consumption of BBC services, and the
BBC has over 50 per cent of the total UK radio market.
Radio in general is flourishing: figures published
by the industry body RAJAR for the three months to June 2000 show
that 91 per cent of UK adults listen to radio—more than
43 million people. BBC Radio reaches nearly 31 million people
a week, with listeners staying over an hour longer (on average
17 hours a week) than a year ago.
To ensure this healthy performance continues in the
digital age, the BBC is investing considerable sums of money in
preparing radio for the transition from analogue to digital. Plans
for the launch of new radio services were announced in late September
and the BBC is currently consulting on them.
Funds are also being invested in a programme of improvements
to the Local Radio network, reflecting its importance as part
of the BBC's offering to licence fee payers.
As far as Radio 3 is concerned, we welcome the Select
Committee's interest in the performance of the service. Radio
3 combines an unrivalled commitment to live classical music with
a pace-setting contemporary editorial mix which unites jazz and
world music with long-form drama and serious arts discussion and
reporting. The network's target audience has been redefined and
broadened and the schedule began to be recast to move towards
this during 1999. There are early signs of success: reach and
share remain stable at around 2 million and 1.2 per cent respectively.
(v) We recommend
that, when the methods of collection of statistics given in series
for successive years in the Annual Report and Accounts of the
BBC are changed, the likely effects of the change on the relevant
statistical series be set out in the Report. Where such statistics
are collected by an outside organisation, the explanation of the
change and its effects should be checked and verified by that
outside organisation before inclusion in the Annual Report and
Accounts.
We understand that this recommendation refers to
specific questions at the Committee hearing regarding RAJAR figures
for radio listening.
We agree that we could have added more detail to
explain the likely effects of the change in the radio industry
measurement system (RAJAR) on the radio statistics contained in
the Annual Report. However, as we explained in our written evidence,
RAJAR and the BBC worked together to understand the effect of
the change on statistics and were aware from pilots that the BBC
Radio 3 figures would be adversely affected by the change in methodology.
We have therefore focused in the Annual Report on the latest consistent
data for BBC Radio 3, ie that for the last four quarters.
Further to our written evidence we should explain
that changes in the RAJAR sampling methodology resulted from market
growth, not from any initiative of the BBC. With so many new stations
coming on air, the number of possible station titles could no
longer fit in a pre-printed RAJAR diary, so the card sort mechanism
was brought in to give the respondent a customized version of
stations in the questionnaire. This in turn made the interviewer's
task more complex, so rather than attempt to cover all members
of a household, it was decided that they should restrict the diaries
to one person per household. The new methodology did pick up lighter
listeners, increasing the reach figures for the more speech based
services, as respondents took more account of all the stations
they had heard than they might have previously. However, the BBC
and RAJAR found from the pilots that BBC Radio 3 and similar small,
specialized stations saw a fall in "official" reach,
largely as a result of smaller sample sizes.
We will endeavour to add improved explanations for
the effects of methodology changes on statistical time series
in future Annual Reports. As far as data collected by outside
agencies such as RAJAR is concerned, we would always aim to carry
out a rigorous joint review of the likely impact of any such changes
before they are made. There should therefore be no need to refer
back to the agency before including an explanation of any such
impact in our Annual Report.
(vi) We consider
that the BBC's attempts to conflate viewing figures from News
24 as a channel and those for News 24 as a service on other channels—namely
BBC One and BBC Two—are misguided and misleading. We recommend
that BBC Annual Reports distinguish clearly between the audience
for News 24 as a channel in multi-channel households and the audience
for News 24 services broadcast on BBC One and BBC Two and cease
to combine audience figures for News 24 as a channel and News
24 as a service on other channels.
We do not agree that it is misleading to combine
these figures. The BBC chose to put BBC News 24 on BBC One's frequency
overnight to increase the value for money from the licence fee
by making BBC News 24 programming available to viewers in analogue
terrestrial homes. Its content includes "World Business
Report" and the award-winning "Hard Talk"
with Tim Sebastian.
We have always been open about the fact that we count
BBC News 24's viewers across all platforms. The BBC's Annual
Report clearly states that we include viewers to the overnight
service carried by BBC One and Weekend 24 on BBC Two.
The BBC believes that it is right to count these
viewers in measuring the audience for BBC News 24. The programming
they are watching is paid for from BBC News 24's budget. Part-hours
distribution, as a measure of a channel's overall audience, is
a valid and common measurement, and not unique to BBC News 24.
ITN do exactly the same thing when they include their morning-only
slot on OnDigital as part of the channel's overall availability.
Nickelodeon (a kids channel) shares its airwaves on some cable
systems with CNBC (the business and news channel), with Nickelodeon
broadcasting between 6am and 6pm and CNBC between 6pm and 6am.
The BBC World Service English language service is broadcast in
the UK overnight on Radio 4. In each case, the broadcaster counts
every viewer or listener, irrespective of how they accessed the
service. It is therefore also the practice employed by BBC News
24. As the audience to the overnight analogue transmission is
watching a service that is distinctly BBC News 24, the channel
counts these viewers in their audience.
For the sake of clarity, however, we will when it
is possible and appropriate in future separate the two sources
of viewers.
(vii) We recommend
that, for 2001-02 and succeeding years, the BBC formulate a specific
objective of seeking to ensure that its digital services drive
take-up of digital television. We further recommend that the BBC
identify consistent measures for monitoring progress against this
objective that are open to external scrutiny.
The BBC firmly believes that there is a vital role
for high-quality free-to-air channels in driving take-up of digital
television. For the full benefits of the digital revolution—the
creation of a truly inclusive e-society—to be realised,
every television viewer in the country must be persuaded to make
the switch to digital. For the sizeable minority who say they
have no intention of buying extra pay services, the BBC must offer
the incentive to make the switch, in terms of new free-to-air
services of the highest quality, which entertain, educate and
inform in the best traditions of the BBC. In its proposals for
new digital services, on which it is now consulting the public,
the BBC believes that it is offering such incentives to the widest
possible audience.
All the BBC's public services, including its new
digital channels, will be measured against the Governors' public
service criteria set out in this year's Annual Report. These include
a requirement to demonstrate public value or appeal to licence
payers.
(viii) We wholeheartedly
endorse the notion that the BBC should not develop additional
public service channels that duplicate those already provided
by the commercial sector or that unduly threaten the development
of a more diverse market in future, but we consider that the potential
for a free-to-air BBC sports channel—providing distinctive
services of public benefit relating, for example, to sports training
and development and to minority sports and women's sport which
are currently neglected by broadcasters, as well as possibly contributing
to digital take-up—should be further explored by the BBC
and sympathetically considered by the Secretary of State for Culture,
Media and Sport rather than being prematurely ruled out.
The BBC's proposals for new digital services include
the launch of a new dedicated radio outlet for sports coverage,
to supplement coverage on BBC Radio 5 Live and allow the breadth
and richness of sporting rights available to the BBC to be exploited
more fully, offering audiences even greater choice of free-to-air
sports coverage from the BBC.
The range of digital television channels which the
BBC can offer is limited both by the spectrum and by the funding
available to the BBC for the provision of such services. We must
ensure that across our output as a whole, we are serving the widest
audience with services which are adequately funded to provide
the highest quality on every channel and in every genre. Within
the portfolio of new digital services on which the BBC is now
consulting, the BBC is not proposing to include a new dedicated
sports channel. The BBC will carefully consider the public's comments
on its proposals.
Free-to-air sports coverage will however remain a
key part of the BBC's television output, across the widest range
of sports, including minority interests not well-served by the
commercial sector. That coverage has a central place on our two
core, universally available channels. We already cover minority
sports such as rowing, hockey, women's golf and equestrian events.
The BBC intends that this breadth of coverage and accessibility
should be maintained, and the place of sport across our whole
network underpinned. The new Director of Sport will re-evaluate
the BBC's sport policy to ensure that these objectives are delivered
as effectively as possible.
(ix) In view of
the fact that the increases in the television licence fee in 2000-01
and 2001-02 overturn the five year settlement originally intended
to cover the period up to 2002, we welcome Sir Christopher Bland's
confirmation that the BBC will not seek additional increases in
the level of the licence fee prior to 2006.
The BBC has noted the Committee's comment.
(x) If the public
and Parliament are to be convinced that the target of increasing
the percentage spent on content from 76 per cent to 85 per cent
will genuinely be met, it will be necessary for the BBC to be
a good deal more open about its accounting procedures. We recommend
that the Report and Accounts of the BBC for 2000-01 include annual
targets for the percentage of total expenditure committed to programmes
in each coming year in order that progress towards the objective
of increasing the percentage spent on content from 76 per cent
to 85 per cent can be monitored. In this context, we welcome Mr
Dyke's drive to reduce management perks and his campaign to slash
bureaucracy.
The BBC aims to be as open and accountable as possible
about how we spend the licence fee and we believe we have gone
a long way to delivering this. This has been confirmed by the
independent review by Pannell Kerr Forster (PKF) who were appointed
by the Government to examine the transparency of the BBC's financial
reporting as a condition of the licence fee settlement. PKF's
report has now been published and validates our statements that
we comply with all legal and other statutory requirements, and
often go further.
In our Annual Report and Accounts for 1999-00 we
published a target of increasing the amount we spend on content
from 76 per cent to 85 per cent over the next five years (highlighted
as an operational priority on page 20). In response to the Select
Committee's recommendation above we are proposing that as part
of our Annual Statement of Promises and in our Annual Report we
will provide details of progress towards the 85 per cent target.
We will also provide details on how progress is being achieved.
(xi) We expect
performance against these targets for cashflow from BBC Worldwide
in each future year to be subject to close scrutiny to ascertain
whether the targets for the latter part of the period are sufficiently
stretching.
The BBC believes that it has set BBC Worldwide very
challenging cashflow targets.
The projection to 2006-07 was reviewed by Pannell
Kerr Forster (PKF) as part of their overall review of the BBC's
financial projections for the DCMS. In their report in January
2000 they said:
"BBC Worldwide plans
comprise a stretching target for creating commercial benefit from
the BBC brand to deliver increasing income streams to the BBC.
There are high risks in the delivery of this challenging target.
This has been recognised in the overall BBC funding model by a
discount having been applied to the forecast cashflows."
PKF agreed that the BBC should retain a significant
discount against the projected target to reflect the associated
challenge and risk.
The historical trend shows compound growth of nearly
25 per cent per annum in the two years to 1999-00, after adjusting
for one-off exceptional items. The BBC has provided the Select
Committee with a year-by-year target projection to 2006-07 of
Worldwide's cash contribution. It shows a compound annual growth
rate of nearly 15 per cent per annum to 2006-07, to a level which
will provide the BBC with a sustainable contribution thereafter.
As part of our annual strategy and budgeting process
we review Worldwide's targets in the light of the latest developments
and competitive conditions and we will keep re-examining whether
the targets for the latter part of the period to 2006-07 are sufficiently
stretching. In our Annual Statement of Promises we will publish
our latest target projections, and in our Annual Report and Accounts
for 2000-01 onwards we will outline how the target is being met.
(xii) Under the
Quarterly Budget Scheme the first payment is not made in arrears
and the statements of the BBC in oral evidence and of the Government
in its reply to our earlier recommendation are accordingly inaccurate.
We apologise if during the course of a lengthy debate
on this point we inadvertently gave the Committee the wrong impression
about how this detail of the scheme operates.
However, three of the four quarterly payments—representing
the bulk of the licence fee—are made in arrears and as a
result the BBC's cashflow is adversely affected when payments
under this scheme are compared with payment in full on the due
date.
(xiii) We recommend
that the Government introduce secondary legislation to amend the
Wireless Telegraphy (Television Licence Fees) Regulations 1997
so as to abolish the current £5 surcharge on the licence
fee under the Quarterly Budget Scheme with effect from 1 April
2001.
This is a matter for Government but the BBC's income
would be adversely affected if the Committee's recommendation
were accepted.
(xiii) We further
recommend that a leaflet explaining all budget schemes and making
clear their financial implications be made available at all Post
Offices.
Every Post Office already has leaflets explaining
the ways in which one can choose to pay one's television licence,
and TV Licence application forms also give the TV Licensing helpline
number, 08705 763 763, for anyone seeking further information
on any of the Budget Instalment Schemes. The helpline number is
also included in TV Licence renewal notices, reminders and enquiry
letters, and is publicised in BBC Trails. Following an enquiry,
a leaflet explaining the various budget schemes, called 'Easy
Ways To Pay For Your TV Licence', is dispatched the following
day. This leaflet, and renewal notices, describe the premium charge
for QBS.
In addition, the BBC proposes to address the Select
Committee's concerns by telling each member of the Quarterly Budget
Scheme next year in their annual renewal letter that there is
the opportunity to transfer to either of the other two other direct
debit schemes, with a payment plan relevant to the particular
customer. The letter will also highlight the £5 premium for
paying by QBS.
(xiv) Having taken
oral evidence from the BBC during this inquiry, we are concerned
that, even with a new and potentially innovative Director-General,
the views and roles of management and of the Governors appear
indistinguishable. In future, it must be for the BBC's managers
to manage the BBC and for an independent regulator to regulate
the BBC.
The BBC's Royal Charter places a broad range of responsibilities
on the Board of Governors, including approving objectives and
promises and monitoring progress against them, determining the
strategy for the Home Services so as to reflect the needs and
interests of the public, monitoring fulfilment of the BBC's legal
and regulatory obligations, and appointing senior management.
Those responsibilities are different to and clearly distinct from
those of management.
The role of the Governors is much broader than simply
that of "the regulator". They have the ultimate responsibility
for ensuring that the BBC delivers its remit, is independent from
political or commercial influence, remaining wholly focused on
the public interest.
An external regulator, concerned principally with
what can be counted, able to will the ends but unlike the Board
of Governors unable to will the means, and incapable of enforcing
its decisions, would be nothing like as effective.
(xv) We consider
it a matter for regret that the Secretary of State for Culture,
Media and Sport rejected the proposals that elements of the BBC's
finances be subject to scrutiny by the National Audit Office.
We expect this Committee and its successor in the next Parliament
to continue with annual scrutiny of the Report and Accounts of
the BBC, but this does not mean that we consider current arrangements
for the accountability of the BBC to be anything other than incomplete
and unsatisfactory.
The BBC has noted these comments, which are a matter
for Government. We are however determined to build a greater confidence
in our procedures to ensure accountability to licence payers and
we acknowledge the need to put in place more transparent and effective
checks and balances that will secure the trust of the public and
Parliament. The Committee's recommendation did not appear to take
account of a range of improvements and new initiatives which the
BBC is putting in place, many as a result of the Licence Fee settlement
earlier this year and some in place for longer. On fair trading,
these include: separate financial and Fair Trading auditors; the
publication of a quarterly fair trading bulletin and an Annual
Review by the Governors' Fair Trading Compliance Committee; and
the appointment of an independent expert to review fair trading
policies. On wider accountability, they include periodic reviews
of the BBC's efficiency and effectiveness by auditors appointed
by DCMS, the most recent of which was this year (PKF); and the
publication by the Governors in this year's Annual Report of public
service criteria against which all the BBC's public services will
be judged.
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