Examination of Witnesses (Questions 400
THURSDAY 8 FEBRUARY 2001
400. Given that a government of any political
colour will be brave to take that plunge when the day comes, what
do you believe can be done in the meantime to encourage both take-up
of the hardware and make people more technologically aware of
what is available?
(Mr Walmsley) The Government can do three things.
First, in collaboration with the broadcasters, which I sense are
more than willing to take part, a public information campaign
is needed. Although ITV, ONdigital, BSkyB and the cable companies
are doing their bit, it is evident that understanding of what
digital is and can provide by way of services is limited. I believe
that public information is very important. Secondly, kitemarking
is important. When members of the public buy new receiving equipment
they should clearly understand what it is. Is it genuinely digital
or not? That would be a very helpful step. I suspect that today
a great number of television sets are bought in the belief that
they have digital capability when they have not, or it is limited.
Thirdly, we must make sure that retailers, manufacturers and the
public realise that as a concept the switch-off date is a real
one and will happen, not something that is a long way in the middle
distance and there is no need to act on the assumption that it
will happen. There must be greater emphasis on that, and government
is uniquely placed to do that.
401. For example, as independent broadcasters
you frequently complain about the level of plugssome may
call it advertisingthat the BBC carries on its channels
for its own services, whether it be its web site or programmes.
Would you be happy to see the BBC enter into some kind of programme
or project to promote digital take-up?
(Mr Walmsley) I would. I can tell you that ITV is
ready, willing and able to do that. As we speak we have scripts
and plans for promotions that we would run on ITV to do just the
sort of thing about which you are asking. There is a problem in
that area, in that ITV is unable to mention the expression "ONdigital"
as part of such an information campaign for recondite regulatory
reasons which even today I do not entirely understand. It seems
to me to be very odd that we can communicate to the public that
digital services are available but cannot mention by name one
of the principal platforms and mechanisms by which they can receive
it. I note that the BBC has an appetite to do more, and we have
been in dialogue with it. Therefore, generally speaking broadcasters
are ready to collaborate, and a lead and contribution from government
in that area would be very welcome.
402. I do not know whether you heard Sky's evidence.
I asked it about ITV's absence from Sky's platform. The figure
which you have given in your evidence is about £20 million.
I was slightly confused by how that figure came about. Perhaps
you can explain it.
(Ms Stross) Sky publishes a rate card for conditional
access services. If ITV went onto the Sky platform it would require
something called automatic entitlement which, put simply, means
that our services would be received only within the United Kingdom
and Northern Ireland. The system is designed to stop overspill
of the picture signal into France, the Netherlands and so on where
we do not have rights. The published conditional access charge
for automatic entitlement with the rate card is 30p per subscribing
home per month. If one multiplies 30p per month by the number
of Sky subscribers, plus that limited number of homes with a Sky
box but are not Sky subscribers but also need a card, one comes
to a figure in excess of £20 million a year.
403. Can you make a stab at what you believe
the BBC may be paying?
(Ms Stross) I do not know what the BBC is paying but
it negotiated its arrangements with Sky at a point when the rate
card for conditional access was considerably lower than it is
today. I believe that the rate card figure was in the region of
10p to 15p when the BBC did the deal. It has at least doubled
since then. Surprisingly, the rate card rose from 20p to 30p last
October when nothing had happened which, in our view, would have
led to the need to raise the figure in that way.
404. On the question of access to the Sky platform,
a long time ago a complaint was madefor example, I think
back to the time when Mr Dyke was with LWTabout the way
in which Sky exploited its ownership of gateways to the detriment
of other broadcasters. From your point of view, do you take the
view that that is still the case; for example, that the rate card
is being changed in order to suit Sky not simply in terms of trying
to get money out of you, or anybody else, but in seeking to maintain
the primacy of Sky programmes on the Sky platform? I remember
that the BBC was very worried that the electronic programme guide
would be arranged in such a way as to downgrade access to the
BBC, though that did not turn out to be so. The electronic programme
guide places the two BBC channels ahead of everybody else.
(Ms Stross) It is an area that concerns us. We are
particularly concerned that in its current form the White Paper
significantly increases the risk that Sky will be able to use
its position as a gateway to extract very high returns from the
public service broadcasters. At the moment, the White Paper plans
to place a must-offer obligation on the public service broadcasters
to all platforms. We are very happy with the notion of delivering
our service on a universal basis on a number of platforms, but
in general on other platforms we have protection from being charged
extremely high rates to do so. We get access to the cable platform
free, and we have access to DTT because we have been gifted that
capacity. In the particular case of satellite, the suggestion
in the White Paper appears to be to place a must-offer obligation
onto public service broadcasters without imposing any reciprocal
obligation on Sky to deal with us on fair and reasonable terms.
There is a further problem in that the Oftel guidelines as they
are currently set out specifically prohibit Sky from discriminating
in favour of public service broadcasters by reason of their status
as public service providers. We should like to see those guidelines
changed so that if there is a must-offer obligation placed on
public service broadcasters there is a reciprocal obligation to
offer fair and reasonable terms to us. That could be done either
by changing the Oftel guidelines or perhaps allowing some other
body to decide on what are fair and reasonable terms for access
to the Sky gateway.
405. In the context of what you have been saying,
to what extent do you think that Sky faces the problem encountered
by Microsoft; namely, at what point is an organisation which has
taken risks, made major investment and innovated, and therefore
believes that it has the right to expect a return on all of those
aspects of its ventures, to be regarded as exploitingunfairly
in the view of its competitorsthe advantages that it has
gained, which is what the anti-trust measures against Microsoft
in the United States allege?
(Ms Stross) If one looks at the recent price rise
for automatic entitlement from 20p to 30p per subscribing home,
that occurred at a point when the number of subscribing homes
was increasing. Therefore, had the figure stayed at 20p Sky's
returns would have increased from providing conditional access
services, because it would be receiving more 20p's. We have not
seen any evidence of changes in Sky's cost base that make a 50
per cent rise in the charge appropriate. Clearly, Sky's returns
are prospectively increasing very significantly just at the point
where perhaps they were expecting a must-offer obligation to be
imposed in the White Paper.
(Mr Walmsley) If I may make a brief supplementary
point, the purpose of conditional access is primarily to provide
the mechanism by which a television subscription business can
be operated; ie, a person can get access as a consumer to the
signal only if he is prepared to pay for it. That is its fundamental
purpose. The question deals with the situation in which if someone
comes along and says that he too wants to run a subscription service
on the Sky platform he should be treated on all fours with anybody
else, including Sky itself which is running a subscription service.
But ITV and other free-to-air broadcasters' requirements for conditional
access are not in order to elicit subscription revenue but to
ensure that the signal is delivered only within the territory
of the UK. Many of the rights for the services that they broadcast
can be used only in the UK and there is no right to deliver a
signal into northern France, Belgium and so on. Therefore, the
requirement for conditional access is quite a limited free-to-air
obligation, and on those grounds alone it seems to us that there
is a public service case for the access charge being significantly
406. Mr Walmsley, you had exchanges with Mr
Faber following the evidence which we obtained from ONdigital
yesterday about access to digital programmes in households with
a number of sets. Yesterday, Mr Prebble told us that if one subscribed
to ONdigital one had one box and the only way to watch programmes
on one's other television sets was to move the box about. I do
not know what the situation is with cable because I do not subscribe
to it, in spite of great attempts to do so but to no avail. But
with a Sky subscription one has one box with which one can watch
the programmes on any set in the house without moving it around.
The dealer makes the necessary arrangements and it just happens.
To what extent do you believe that we are now in a situation in
which not only do you have a kind of kaleidoscopic menu from which
to choose but also a kaleidoscopic access to services? Do you
concur with me that it is very important to people who are to
spend a lot of money on all these things to know much more clearly
what is available to them from the different platforms that they
(Mr Walmsley) I believe that that is very important.
It takes me back to my earlier point that there is still a great
deal of misunderstanding, or total absence of understanding, about
exactly what is available in terms of both content and, of equal
importance, access and the technical functionality of the different
devices. I believe that a great deal more work must be done. Quite
apart from the need for short-term work that the question implies,
we repose some confidence in the ultimate arrival in quantity
of the integrated digital television receiver. Because it encompasses
within it so much core functionality the viewer will basically
have a lot of his problems solved at a single stroke. It is very
important for the whole migration to digital that we see manufacturers
manufacturing in larger volumes, which in turn will decrease the
cost of that equipment to the consumer.
407. Who would provide that information? Obviously,
one cannot expect Sky to say what people can get with ONdigital,
or vice versa, and the same applies to the cable companies.
Is that information that you believe it is appropriate for the
Government to provide as a public service, or is there some other
organisation which you believe ought to do it? Clearly, the viewer
is being asked to spend a large sum of money and he has a right
to complete information about what to do?
(Mr Walmsley) I believe that the Government have a
role. I do not suggest that the role should fall entirely on the
Government. However, everybody in the supply chain through to
the consumer has a contribution to make. All broadcasters, manufacturers
of the equipment and retailers have an important contribution
to make. Certainly, it has been in contemplation or discussed
that government should undertake a co-ordinating and promotional
role to ensure that everybody in the supply chain contributes
to getting that message into the market quickly.
408. I have a question specifically for ITV.
I have indicated both publicly and privately to ITV that I might
have taken a very different view from the wish of ITV to remove
the main news from 10 pm if ITV had campaigned during the passage
of the Broadcasting Bill 1996 for changes in the legislative rules
affecting Channel 3. Perhaps next year we shall have a broadcasting
Bill. What will ITV campaign for in terms of legislation that
affects Channel 3 when that Bill comes forward?
(Mr Butterfield) As ITV goes forward I believe that
its main lobbying position will be about ownership and the clarification
of it, the removal of restrictions in terms of ownership and the
clear establishment of a remit for the public service elements
of ITV which, as discussed earlier, would be about the unique
regional structure and UK production commitment. It would include
the need to find the opportunity for less prescriptive regulation
and the ability to work in a more competitive environment with
less regulatory controls. Often regulatory controls are based
on a structure and attitude that is 30 or 40 years out of date.
We believe that if we have the commercial freedom to evolve and
operate in a competitive environment so that we can be ourselves,
but be sure as to the remit, identity and distinctiveness of ITV,
it will be a very good business for the next decade or more.
409. You have answered what was to be my next
question. Can you make clear exactly what you seek in terms of
(Mr Butterfield) Clearly, at the moment the ownership
restrictions are capped by the 15 per cent audience rule which
was designed in 1996 to introduce or protect the element of plurality.
It seems to me that to remove that, as suggested in the White
Paper, allows ITV then to have one owner, or one structure of
ownership, and to move from the rather hobbled federal system
which has existed for the past 40 years to a unitary structure
which we believe is the only way to compete both domestically
and internationally. It should make for a strong competitive commercial
environment in the UK and, hopefully, a strong British player
on the worldwide scene, which does not exist at this moment. Therefore,
the freedom of ITV not to be restricted by a 15 per cent audience
rule and, therefore, to provide the changes in the ownership structure
as commercial operators wish, is the ambition in the next three
to four years.
(Mr Hill) We need a much more flexible regulatory
system so that as the years go by OFCOM can make changes which
reflect what happens in the marketplace. The other very important
point is that at the moment ITV has the most detailed regulation
of all the television channels. We believe that that is quite
wrong. The objectives in the White Paper suggest that that should
change. However, when one looks at the detail one is unsure that
it will change in the way one hopes. We believe that the most
regulated channel should be the BBC. It is the BBC, with its reliance
on licence-payers and a regular income, that should be subject
to most public service broadcasting requirements. Because of its
particular method of funding, Channel 4 should be next in line,
and then ITV and Channel 5. In a general sense, those are perhaps
the objectives in the White Paper, but when one looks at the detail
they are not there. The BBC will not come under the auspices of
OFCOM in the same way as the commercial public service broadcasting
channels. That is a very important point to get right.
410. Therefore, you want the BBC to be subject
to the same regulatory régime as the rest of you?
(Mr Hill) We do, so that someone looks at the broadcasting
ecology across all channels and we get the best from each one.
Each channel has a distinctive function that can be looked at
by one regulator who can decide what each one can do and whether
it is doing it properly.
411. Do you believe that the Secretary of State
has been nobbled by the BBC?
(Mr Hill) The White Paper talks about the role and
remit of the BBC being within its Charter, but if that is so it
is so general that it is not very effective. To go back to a former
question, yesterday the BBC talked about one of its arts programmes
being moved from BBC1 to BBC2. The BBC is perfectly entitled to
move its news in a way that we are not. There is an awful lot
of detail missing from the BBC's remit.
(Mr Butterfield) Mr Hill's comment about
the ecology of television is key to the whole discussion about
how we move into a multi-channel world. It is crazy to believe
that the BBC can make decisions which affect only itself in a
world where all television channels are interdependent. We need
a regulatory structure which allows an even playing field of regulation
and instruction, ideally for the public good, to ensure that all
the pieces of the interdependent television world work together.
Chairman: Thank you very much, gentlemen.
We are grateful for a most interesting session.