Examination of Witnesses (Questions 181
WEDNESDAY 31 JANUARY 2001
Chairman: Welcome, gentlemen, it is a
great pleasure to see you here this morning; and Mr Faber will
start the questioning.
181. Good morning. If you have been listening
to the proceedings earlier this morning, you will know that virtually
everything comes back to the BBC in this Committee, at some stage
or another. And when, as a Committee, we carried out our review
last year on the proposed increase in licence fee, the digital
licence fee, for the first time, really, we got into the detail
of the BBC's web site and their online plans. And now, for the
first time, really, we have before us you, today, who are, if
you like, the independent sector, the equivalent in broadcasting
of the independent companies. So I am very interested by what
you have written, and I would like to start with your paragraph
5, where I would like to come back to some of the details about
the BBC's web site, but you say: "The mere announcement of
such plans" which are plans which the BBC have to extend
and to augment their web site and their Online plans, "can
be sufficient to deter competition." Can you give us any
examples of how that competition might be deterred, or, indeed,
if there is any significant reticence in this country to invest,
because of what the BBC is doing?
(Mr Hersov) I think, in this environment
right now, where markets are very tough, where funding is scarce,
and where funding sources are being much more diligent about the
business plans they look at and which ones they fund, from an
independent perspective, and the existing media companies, publishing
companies, are being much more wary about extending their existing
brands onto the Internet, or a little more careful, budget-wise,
there is clearly a lot of concern about what competition exists
already in the market, and what the larger players are doing.
And it is enough for the BBC to hint that they may consider extending
their activities into a certain area to deter a start-up company
from seeking funding and a venture capitalist from providing that
182. Your own area, for instance, that of sport,
they have greatly increased, augmented the sports section, it
now has its own dedicated Online sport. Has that affected you
and similar businesses like yours?
(Mr Hersov) Much of the impact is not visible. The
BBC is not taking advertising on its web sites, and nor should
it. In the sports area, in particular, a lot of the traffic will
go to the BBC sports web site when it could come to the sites
like our own, and we survive on the scratchings of a very small,
online advertising market, and we survive with those monies, so
any traffic that is taken away from us and our comparables does
damage to our sector.
183. Does anyone else have any examples that
might be able to help us?
(Mr Drayton) Certainly, the Telegraph, for example,
is thinking about launching a new channel; the fact that the BBC
announces that it is about to take advertising on overseas audiences,
where 50 per cent of our online is outside of the UK, and, as
Robert has said, our revenues come primarily from advertising,
that is a big inhibiting factor, if we are to decide on launching
a new channel. So; absolutely.
184. We had another of your members in front
of us last week, News International, and their spokesman, as I
understood it, she very much played down the significance to them,
certainly in commercial terms, of their web site; she denied that
it was a loss-leader. But it was very much a question of building
their brand, The Times, and The Sunday Times, all
their newspapers, online, but that perhaps commercially it was
not as significant to them; clearly, not as significant as their
bread and butter of publishing newspapers. Would you agree with
(Mr Drayton) Yes, although they have a slightly different
model, and I think that they have explored less branded options,
with some of their web sites, so maybe they do not see themselves
as going head-to-head with the BBC's news and sports services.
185. One of the things we recommended, in the
course of our inquiry last year, was that the BBC should consider
incorporating Online into BBC Worldwide, how would you react to
that, really, to say that it was free to act commercially within
(Mr Drayton) I think it would be disastrous, absolutely
disastrous, for the whole sector.
(Mr Drayton) Because it would distort totally the
market-place that we are acting in, it would inhibit even further
what we are currently doing, and I think it would put a dampener,
if not a stop, to a lot of the-commercially-driven activities.
(Mr Withey) In fact, I have some parallels to draw
on this one, because this is not new ground we are treading on,
we have gone through this in the telecom sector, and a number
of years ago, when I was at News International, I did a lot of
work with Rupert Gavin, in his then role as head of new media
at BT, setting up Line One together, and it was clear to us, quite
clear, and made very clear, that BT was carefully regulated, its
then four operating divisions could not cross-subsidise their
activities, and, therefore, the parts of BT that were responsible
for the pipe-laying and the public access could not cross-subsidise
their commercial ventures, such as Line One. And, to a large extent,
I think that worked, and it certainly created, I do not think
anyone would argue that we do not have a very diverse and strong
telecoms sector in the UK, it is suffering a bit at the moment,
as all telecom sectors are, but it certainly released a lot of
competition into that market, putting those controls on BT from
1984 onwards. So we have some evidence that careful regulation,
through, if you like, Chinese walls, of a business's interests,
as it moves into commercial sectors, does work, and we do not
see that happening with the BBC.
(Mr Hersov) Also, if I may, it sets a terrible and
very dangerous precedent, where the BBC can incubate new services,
funded by the licence fee, and then, when they are mature enough,
transfer them to the commercial side.
187. That is what you accuse them of doing already,
in your document, basically, you suggest that that is what they
have been doing, and you are almost implying that the White Paper
is closing the stable door after the horse has bolted, the Government
is only now taking an interest in how this money is being spent.
Would you say that, in some ways, the BBC have been quite crafty,
that they have been building up like this, and now, really, in
your eyes, anyway, they have achieved what they wanted to achieve?
(Mr Brown) From the point of view of broadcasters,
they were extremely skilful in the way they referred to the Internet
as being the `third arm of broadcasting', when, actually, it is
not, it is partly that, it is partly publishing, it is more complicated
than that. You asked earlier on about specific examples. Let me
give you an example from radio, which is excellent, and which
is happening now. There is a Classic FM web site, as you would
expect, it is becoming increasingly successful, I am able to report
that it has two million monthly hits, it has an extraordinarily
high retention rate, people stay with that site, on average, 20
minutes a month, which, in Internet terms, is high. We are aware
that the BBC are thinking very seriously not only of launching
its own classical web site but also making that a commercial venture;
there is nothing to stop them doing that, and that is one of the
things that causes us concern.
188. That is very interesting. You also say
in your document that, understandably, not surprisingly, you think
that OFCOM would be a fairer basis for regulating the BBC and
its commercial interests. We will have the broadcasters before
us probably next week, or the week after, and, obviously, the
independent sector will be saying exactly the same thing. Given
the overtly, as you see it, commercial nature of BBC Online, would
you, as an organisation, be prepared, say, to break ranks with
the broadcasters and say that you would be happy for OFCOM to
deal, for the online aspect of the BBC to come under OFCOM, even
if the Government were to decide that the Governors should continue
to regulate the television output?
(Mr Hersov) I think the answer is, yes. We must stand
for the British Internet publishers, and I believe that the horse
really has bolted and the Internet side really must be scrutinised
as quickly as possible, there must be transparency, and the regulatory
framework put in place, as quickly as possible.
189. What do you think that OFCOM can do that
the Governors, under the auspices of the Secretary of State, cannot
do, at the moment?
(Mr Withey) I think it can scrutinise impartially
the activities of the BBC, and comment on them and steer them,
in the light of what is happening elsewhere in the market, which
the BBC Governors just are not able to do.
190. Good morning. Can I also compliment you
on the nature of your report that you have sent us; it is very
stimulating to read it. Can I just ask for clarification, as I
am a bit stupid: when you said the BBC might take advertising
on its news service from people who access it overseas, do you
mean that a BBC server in America, that will deliver advertising,
as opposed to something in the United Kingdom, physically, or
do you mean something else?
(Mr Drayton) You are right to raise the question.
The announcement that was put out was unclear, it was ambiguous,
but, technically, of course, there is nothing to distinguish between
those two services; anything which is published on the Internet
is accessible anywhere in the world, so it would be an artificial
separation, it would not be clear. They are suggesting they provide
a channel which would be, as it were, expat. world, and effectively
a World Service type, directed at people who are outside of the
UK, but there is no way technically to stop people within the
UK accessing that channel.
191. And 85 per cent of the servers are in America
anyway, although there is a growing server community in Europe?
(Mr Drayton) Yes, but that is not really relevant
to the consumer.
192. It is not, but it is just, in law, if the
BBC are deciding that, "The servers are in America, we'll
come under American law," it is how far they are stretching
what are public services. Can I ask a separate question. What
was disappointing about the White Paper to me was, there is no
definition of what a public service, online service, should be,
and you have not actually stretched this either, so you have got
a chance now to tell us what it might be?
(Mr Withey) In terms of a free-to-air?
193. What should it be then, a free-to-air,
online service, what should its constituency be?
(Mr Withey) Of course, one of the difficulties of
answering that question is, the way the Internet has developed,
everything is free-to-air, virtually, that is one of the difficulties
that the online industry faces in carving up revenues for the
services that we all very expensively provide. Particularly, I
come from a newspaper background and providing the content that
we put online is not merely a question of getting a few journalists
to hack it out, we translate into online all of the resources
that we have produced for print, which is a very expensive process.
Getting people to pay for that has not seemed to be a possibility,
so far, some people have tried it, with varying degrees of success.
So the model that has developed, in fact, is an advertising- or
sponsorship-supported model, and, of course, that plays very much
into the BBC's interest, because they are already operating in
that market and in that way. For them then to announce that they
are going to use, essentially, news as a key driver for advertising
commerce, globally, competes head-on with what we are all trying
to do, because news is very much a commodity that we produce,
as I say, expensively, that brings people to our sites, for other
purposes, too, and that then attracts advertisers, sponsors and
people who want to sell things to those people. So there is not
an easy answer to your question, Mr Wyatt, it is difficult to
define what a public service Internet broadcast should be. It
is easier, therefore, I think, to say that anyone operating in
this territory should operate on the same level playing-field,
for example, not be able to use publicly-funded content to drive
advertising revenue, because we have to pay expensively for our
content, either directly or to third parties.
194. But if I were a citizen, sitting at home,
what would I ask of a public service web site; it would be all
the things the Consumers' Association publishes, if we are allowed
to use that information, it would be everything the Government
does, because I need access, it would probably need some educational
material, because that is very important, I would not mind Whitaker's
Almanack and Pears Encyclopaedia, a bit of the Stationery Office,
and, frankly, that is enough. But that is not what we have got.
Actually, they have slipped out, as you say, they have slipped
out very carefully; now they just want to take the world. So should
not the Government, any Government, perhaps Mr Faber might want
to privatise it, I actually wonder if the best thing would be
to say no Online from the BBC, it is all private, put it out into
the market. You probably would not like that, but then you might
be able to bid for the sport bit, or whatever. What should we
(Mr Drayton) My understanding is that one of the prime
purposes of a public service broadcaster is to provide quality
to the consumer, where the commercial sector is unable to do so,
and, clearly, this is where we are most aggrieved that the BBC
has trodden into areas where it simply did not need to. In the
area of education, that you mentioned, with the last session,
that is one area, for example, where we could see the BBC providing
a very useful, valid service. I think the other areas you mentioned
are absolutely right.
(Mr Brown) I think it also boils down to being a matter
of public funding, rather than public service, and whether, under
OFCOM's aegis, supposing they have the power to look at this,
OFCOM can decide whether it is worth the money that is being planned
on being spent on it, and if, on spending that public money, on
whatever venture it is, it is going to have an adverse effect
on the market-place. Those are a few judgements, it would seem
to me, that OFCOM, for example, could take.
195. I have argued, and I am arguing, in fact
I wrote to the Secretary of State yesterday about this, if the
BBC does not want to accept there should be an educational channel,
conventionally, on digital television, or a sports channel, or
an ethnic television channel, then we, as citizens, should have
the right to go to OFCOM, to say, "Well, we'd like to run
it," and they should annex some of the money from the licence
fee. So, in other words, not 100 per cent of the licence fee would
go to the BBC, it would first go to OFCOM, and there would be
a discussion about what public service was for the next two or
three years, and if the BBC said no, there would be perhaps as
much as 10 per cent available, available for you lot, because
you could say, "Classic FM fulfils, it's absolutely a brilliant
web site, what it does for school-kids is so exciting," and
it seems wrong that the BBC should now come and just take it.
So are you arguing, in your own submissions elsewhere, that the
licence fee should not go necessarily to the BBC, per se?
(Mr Brown) I think we are probably arguing in the
realms of the possible.
(Mr Hersov) It is very difficult for the BBC, having
launched its Internet services already, to roll them back, and
that is not what we are saying, right now. But what we are asking
for is a regulator that looks at the whole converged world, and
all players fall under that regulator, OFCOM; and I think where
the White Paper has really disappointed us is that the BBC, once
again, has escaped that net.
196. What you and Mr Wyatt, between you, have
disclosed is an insoluble muddle, and it will get more insoluble
and more of a muddle as time goes on, because of technological
developments. I can see no conceivable reason why, if there is
a BBC, it should not have online services, and I believe it would
be an intolerable limitation for the BBC not to have online services;
on the other hand, by having such services, it competes on extremely
unfair terms with you, and that is the dilemma. BBC terrestrial
services, funded by the licence, basically are available only
to people living in this country, okay, you can get them in the
Republic of Ireland, you can get them on the western European
littoral area, as it were, by chance, but they are not directed
to them, anybody in the world can get any BBC Online services.
And that is why we recommended, and why Mr Faber mentioned it,
that the Online services be hived off into a commercial segment
not funded by the licence. But the question of the existence of
the licence is always going to cause controversy, is it not, because,
unless the BBC is totally transparent, what is funded by the licence
and what is not really is never going to be clear? And, therefore,
it seems to me that there are only two solutions for this, neither
of which is on the agenda at the moment, but I believe both of
them will come forward. One is the abolition of the licence, and
two is the privatisation of the BBC; and, in that way, the BBC
would be competing with you on fair terms, though, of course,
it would have a heritage, which would give it some advantage?
There is a question-mark at the end of that, really.
(Mr Hersov) The answer is, yes.
(Mr Withey) Yes. You have described the nub of the
question though, in that, yes, the BBC is a powerful brand and
a powerful set of content, and, indeed, a great service, whatever
it does, and it should be; but, the fact is, it is in the market
and we need to deal with that problem. One hesitates to use this
word, but the subterfuge the BBC might have employed, were it
up to such things, is, as Paul said, to describe this as the third
arm of broadcasting, and it seemed to get away with that. It is
not broadcasting, it is more like publishing than broadcasting,
but, in fact, it is a fusion of both, it is a fusion of media,
and therefore has different sets of criteria attached to it. I
described earlier how it has developed basically as a free service;
my view is, it will continue to be largely free-to-air, and so
I think the Government has to deal with the problem of the BBC,
in this market, in the way it is, and not neglect it.
Chairman: I think, from your point of
view, you are pessimistic, because I believe that the Government,
inadvertently, has blundered into starting the solution of this.
The free television licence for 75-year-olds is going to lead,
in my view, inevitably, inexorably, to free television licences
for millions of other people, because they will demand it and
it will be politically appropriate to provide it. And once you
have got many millions of people getting a free licence, the case
for the BBC being funded by a licence, which a very high proportion
of the population is not paying, will collapse, and the day cannot
come too soon for me.
197. Your main contention, listening so far,
is that the Internet should be regarded as a publishing medium
rather than a broadcasting medium. Do you not accept that, in
the end, the Internet will be used increasingly as a broadcasting
(Mr Hersov) Not in the medium term; it is much more
akin to publishing than it is to broadcasting, there is no spectrum
scarcity, barriers to entry are very low, it is very much a many-to-many
situation, with numerous inputs and numerous outputs, which is
very much like the publishing world. The broadcasting world, there
is spectrum scarcity, there is territorial separation, where a
licence extends to a certain geographic boundary, and it is very
much few-to-many. So, at this point in time, and for the foreseeable
future, it is much more akin to publishing.
(Mr Drayton) The underlying view, and it was underlined
in your discussion with ntl at the beginning of the day, is that
broadcasting is becoming less like broadcasting, that what we
have known as broadcasting, over the last ten, 20 years, is actually
disappearing, and the opportunities to diversify and to do many
different things, through what were broadcasting channels, now
means that we are all in a much more complex game, but that we
are not in a simple broadcast mode, whichever of the technologies
we are using.
(Mr Brown) And I think, also, as a broadcaster, I
would say it does not matter, what you are saying does not matter;
if it transpires eventually that people watch television, or watch
the programmes they have selected and listen to the audio they
have selected, via the Internet, it does not really matter, and
it is not really relevant to the case we are trying to make for
what we are trying to do on the Internet.
198. Thank you. Can I come to a specific point
on a group of people now; those that are deaf and hard of hearing
mainly use the Internet, 29 per cent of them at the moment use
it anyway, and that is increasing, obviously. What is BIPA doing
to promote accessibility for this particular group? It does not
appear, at the moment, that you are doing the right thing; audio-only
is a barrier to them, rather than a help?
(Mr Hersov) Much of the use of the Internet, right
now, remains-text-based, and, as an extension of the publishing
world, it remains so, at least for the foreseeable future. Audio
and video is growing, but slowly, on the Internet.
(Mr Withey) We have all been waiting for bandwidth,
and still are, basically; when bandwidth does emerge and becomes
not a problem, in other words, ubiquitous, always on broadband
access to the Internet, then, believe me, there will be a good
number of players who want to take advantage of that, new players
and existing ones, to provide services to people, and indeed to
make money out of it. One of the difficulties we have now is that,
the way the market is emerging and with the role of the BBC, to
some extent, we are stifling that competition coming through.
Mr Faber asked the question earlier about whether we have any
practical examples, and mentioned that News International see
this as a loss-leader; well that may be true for the bigger players,
but there are many, many small players out there in the market,
struggling to make an existence, or start an existence, on the
Internet. And who knows how many of those are being prevented
from entering this market, and what long-term effect that is going
to have on the diversity and provision of services in it when
we do have broadband.
199. So you say we are all waiting; when do
you expect it to happen then?
(Mr Withey) One sees different prognostications. I
have seen BT say that ADSL will be in 75 per cent of UK homes
in five years. I have heard other people say that in five years
only 20 per cent, or 28 per cent, of homes will have ADSL. It
will come, it will take longer than we all anticipate, it always
has done, but when it comes we need a diverse, commercially-driven
market sector to exploit it.