Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witness (Questions 140 - 150)



Mr Fraser

  140. You talk about the issue of local television being sort of a prospect, and obviously that you would like to see it. What is local television, how do you define what local television is?
  (Mr Hochhauser) Local television, for us, has been the ability for people locally to make their own programmes, to film or have filmed their own issues, to debate those issues and to make them available cheaply, efficiently, to people who are interested, either geographically or because they are interested in that particular issue. One of the problems you have in multi-channel, purely multi-channel, television is that each channel will be dedicated to that which can earn the most, so you will tend to look at ratings as the major driver. In a world that we are moving towards, where there really is no spectrum scarcity whatsoever, the world that we play in, where we really can provide anything to anybody, we are able, and we have done this. We have done this in our trials when we were working up in Hull and we intend to implement it here. We are able to let local programme-makers, or people, make programmes about very, very localised issues, in the case of Hull we did this in a very, very small location, the Hessle suburb of Hull.

  141. One thing I could not get my mind around is how you get a balance of view if it is a local issue; because, in effect, I could come along and tell you that I do not want something happening in my village, and my next-door neighbour would tell you quite a different story? You get into a very sort of political position, do you not, which clearly is something you would not want to be in?
  (Mr Hochhauser) We would not want to be in that position, but people do debate things, people have different methods of debating things, and television should be no exception; they can debate things through newspapers, they can debate things through public meetings, and we believe that television should be open, as a debating medium, for people to go through these issues. We would not impose a view, we are not there as a gatekeeper to impose views, we just want to make our platforms open and available to all to debate these issues.

  142. So how should Government, OFCOM, help promote this concept?
  (Mr Hochhauser) There are two ways. First of all, the availability of these networks, because, as I mentioned earlier, if people can only get access to this form of television, to the network that provides it, and I think that is the critical issue. On other methods, I think it is a matter of just seeing that the regulation of what is made available to people should be as light as possible, people should be free to debate issues, even if they are difficult issues, in the public arena. And, frankly, with access and with the costs being so low, in making this television available, we do believe that that will open up television to democracy.

  143. And you think there is a real prospect that Government, OFCOM, will come in behind this and say, "It's a tremendous idea and we'll support it"?
  (Mr Hochhauser) I am convinced that the Government should come in behind it, because the Government should believe truly in democracy. Television has always been the television of the blockbuster, of the major movie, of the major television programme; what is happening now is, and we have seen this on the Internet, that we are able to use these new forms of distribution to take it down to the micro level, and that is really what drives the allegiance to these forms of television.

  144. Under this sort of category of local television, is there anything you would choose not to cover, or is it a free-for-all, totally?
  (Mr Hochhauser) As far as we are concerned, we would allow people to use our system as a free-for-all; it is not for us to determine what is and what is not covered. We do not own channels, we make our system and our platform available to all.

Mr Keen

  145. Obviously, access to archives, as you mention in your submission, is very important to you. Can you tell us a little bit about how you are getting on; the BBC, for instance, has massive archives and so does ITV, ITN, now, how are you progressing with access to those?

  (Mr Hochhauser) We are the most advanced company actually in the world, in this particular area. We have been particularly lucky, because we have a good association with the BBC. The BBC provides, and we purchase programmes from the BBC, a lot of their archive drama programmes, their children's programmes, especially their wildlife programmes, and a large proportion of our 2,500 hours of available television programming today is provided by the BBC, either on an archive basis or, in some cases, such as soaps, the news bulletins, programmes like Newsnight, these sorts of programmes are available on a time-shift basis from the time of broadcast. So the relationship with the BBC has been good, although we do have to purchase the programmes from the BBC, so there is an issue there about the BBC making what is, effectively, a national asset generally available to the population in the easiest possible way. We do purchase from Independent Television and their production companies; the problem we have there is the so-called "hold back", there are a number of years for which programmes will not be available outside the ITV networks themselves. I think there is an issue here, in public service broadcasting, of the need to provide to our customers issues like time-shifted television or archive programmes of a nature that have been broadcast recently. Our archives are very extensive, we have the largest library of Hollywood titles, we now take more than 60 per cent of all Hollywood's output and a lot of their television material, which is exceedingly popular in this country. Last week, when I was in the United States, I was at a major convention, in Las Vegas, on the whole area of trading of television and movie rights, and video-on-demand, in its wider sense, not just in the narrow sense of being able to watch a movie, in its wider sense, of changing the way we watch television, is top of everybody's agenda; we get access to all the archive product.

  146. Do you see, for instance, therefore, the video shops disappearing, in five, six years' time, as there is more universal access to your delivery system?
  (Mr Hochhauser) I see the alternative methods of distribution, including video shops and other forms of television, continuing for many years to come; but, indeed, many of the players in that area have recognised the need to get into the online world, and one of the major players, the largest player, in the video rental business itself, is doing some trialing of video-on-demand in the United States and has plans to do so here in the United Kingdom. So I think it is recognised that there is a movement going on in the industry for distribution; but let us not look at video-on-demand in the very narrow sense of just providing movies, it truly changes the way we all are going to be watching television, or the medium of television changes.

  147. I see you would very much like to provide educational programmes, and we discussed this a couple of weeks ago with witnesses. The BBC have always provided education free, in a way, unless you define it more broadly; is there any reason why the BBC should continue to do that, should they not just do it in competition with people like yourselves?
  (Mr Hochhauser) We aggregate content from a number of different sources, including the BBC, and the other aspect is, we make it available to people whenever they want. And one of the issues of education is that it must be made convenient to people, they should not have to put their VCR machine on, or they should not have to be up at three o'clock in the morning to listen to a particular programme, and anyway how much can be squeezed down a particular channel and even over 24 hours. The library that we can make available, and perhaps, more specifically, to people on a syllabus; one of the areas we are exploring at the moment with the BBC is GCSE syllabus-related material, made available on demand to people taking the examinations. So it goes more than the generality of just general learning programmes, it is specific education, specific skills training; we believe it is one of the most exciting areas for video-on-demand, to see whatever you want, whenever you want, because it is convenient.

  148. Finally, Mr Chairman, could I ask you just to expand on the final paragraph in your submission: "In order to take on such a role there are reforms, which are needed to enable a more optimum regulatory régime for VOD. Interactive television is something entirely new, and requires reform . . .", etc; would you like to expand, just briefly, on that?
  (Mr Hochhauser) It is a more aggressive opening up of networks. We talked about DSL and local loop unbundling, there will be other networks that will have to be opened up, such as third generation, mobile wireless local loops, and, of course, we have to tackle, at some stage, the issue of open access to cable networks. So that is one area where we believe we need to readdress how do we open up access to this new form of television, in which Britain is truly the leader. The other area is to look at traditional forms of regulation, such as content and advertising regulation, and see that in the context of how it was developed historically, within a spectrum-scarce world, and see whether in this new world we need perhaps to re-examine some of those issues, such as advertising, sponsorship, do we need to have such a heavy hand in a world where there is so little spectrum scarcity. Maybe we should look at, as we heard earlier, the issue of comparing it more with the print world, where there has been no spectrum scarcity, over the years, because its sponsorship, its placing products, it is the sort of thing which is very much going to drive the economics of programme-making in the future, in this world where there is competition between programmes rather than channels.


  149. In your memorandum, you talk about the scope of take-up and you say that the number of customers that you have got could be multiplied by up to five times your current number, if it were not for the lack of availability of lines from BT. What is wrong with BT? We are not any longer in the age of austerity, where provision of telephone lines is something you have to queue up for, and possibly offer a bribe for.
  (Mr Hochhauser) I am not here to dump on BT, to be honest, because, frankly, there is a difficulty in establishing a new form of network. It is not easy, when you start out, to put in the capacity, where we need a lot of optical fibre capacity to the telephone exchange besides the DSL modems themselves. Secondly, perhaps more importantly, the business processes, this is a new way of doing business, the public does not buy DSL direct from BT, it buys services that incorporate DSL, therefore, the public deal with companies like us and we deal with BT; this is a new way of working. And that means exchange of information processes, our systems need to be compatible with their systems, and, as you start to move into the mass market, it begins to test those systems greatly. So those two issues, capacity and the systems themselves, in the early days, have held up our ability to grow; we believe this is a temporary period. And actually we are working very well, operationally, with BT, because, as we mention, we are the largest users of DSL, and the only users of DSL for television services. I think that test will now come; the critical element for us is competition, and that moves us into the other area, of hold back, for us. We are paying an enormous sum of money to BT to provide that access, and we do not pass it on to our customers; we pay £625 to connect a line and £60 a month to run that line, whereas a customer of ours can actually take service for a minimum of £6 a month, most of them spend more, most of them spend £17, but nothing like the prices that we pay BT, and remember we have other costs. And the reason we do this is because we understand ADSL, we have been working with it for so many years, we know that the true economics will not sustain those high prices, given competition. But, at the moment, because we are, in effect, subsidising our customers so heavily, we are bounded by the number of lines we are prepared to take on, whilst this high-price régime remains. So there are those two factors, the actual practicalities, which have been the major practical limitation, in the last quarter, when we have really launched out, commercially, because we have been working commercially for three months, that has been our main limitation, but, going forward, we will be maintaining limitation until we are able to either get better pricing from BT or the areas we are working with, with alternative network operators.

  150. You are very generous in what you say about BT, but how long do you estimate it is going to be before they sort out their problems, so that you can expand your customer range and, presumably, are able to make the kind of money that would compensate you for the subsidising of your customers that you are doing now?
  (Mr Hochhauser) Given the work we are doing not just with BT but with alternative network operators, we would expect to start making money, as a company, within three or four years; so, clearly, we are going in loss-making. But there are other reasons why we lose money, it is not just because of the network, obviously, we are putting in major systems, we are building nine big operation centres around the United Kingdom, and we are just about to construct our fourth, so these are big, upfront costs that we have to spend. We are buying a lot in programming, and, as you know, the programme providers, especially Hollywood studios, they take a lot of money upfront, in terms of guarantee, we have to pay for these. But the biggest cost to us is the network, and we would expect, given proper competition, and this is the critical area, given proper competition in provision of ADSL, that both BT and its competitors will bring their prices down sufficiently for us to make money within that period.

  Chairman: Thank you very much, Mr Hochhauser, most interesting; and good luck.

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