Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 100-117)



  100. How much do you reckon it costs you to generate that?
  (Mr Smith) Turnover is £660 million so—
  (Mr Davies) It did not cost us anything. The BBC did not pay a cost in order to generate that. The commercial subsidiaries had revenue of £600 million—
  (Mr Smith) £660 million.
  (Mr Davies) And returned £100 million of that to the BBC in cash. There is no cost to the BBC.
  (Mr Dyke) I think the outstanding programme of the year was Blue Planet which I thought was quite magnificent. 50 per cent of that was being paid for from that.

  101. Tell me about this overall trading loss of £5.4 million, page 58.
  (Mr Smith) You have moved on to a different group of companies. There is a big distinction to be drawn between BBC Worldwide, whose job is to sell BBC programmes and merchandising and so on around the world and to run the commercial channels, and the newly forming BBC Ventures group. The aim of the latter is to take assets which have already been built up by the public service and use them, as far as we can, in commercial markets—for example, to sell studios in the downtime to people who want to hire studios. So the trading loss you are talking about of the Ventures group is not commercial. The key message about that, of course, is that in the world of facilities, resources, studios and so on the whole United Kingdom market place has had massive over-capacity for a long time. It has been a notoriously difficult business to make money out of and our aim has been to make sure that business becomes profitable as fast as possible, and you can see that the loss has come down from £9 million in the previous year to £5 million.
  (Mr Dyke) And we would expect it to be profitable this year.

  102. So this approval for incorporation of a holding company is important, is it, if you are going to wipe out these—
  (Mr Smith) Very. Yes.

  103. So how long have you been waiting for DCMS to come up with the answer?
  (Mr Smith) We had the approval this week.

  104. That is good. So you are all happy?
  (Mr Dyke) Yes. It means now that, for the different commercial organisations we have, all their profits or losses will go into this one holding company, and we will be able to tell you how much we have made or lost across the whole lot and we hope it will include BBC World as a separate figure.

  Ms Shipley: Thank you.

Mr Doran

  105. I am going to try and sweep up a few issues—everything except the spectacles of power. I am reminded what happened to John Major when his underpants became the underpants of office! I was interested to read pages 50 and 51 which is the environmental report, and it is obviously encouraging to see the progress being made in that, but I contrast that with what you said earlier about following industry practice or company best practice. It is becoming best practice in industry now to produce a social, ethical and environmental report which is much more wide-ranging than what you have in here. This seems a little bit narrow and does not really focus on the context in which the BBC operates.
  (Ms Abramsky) Firstly, in terms of the environment report which I believe we are publishing this week—

  106. That is your website version? The larger one?
  (Ms Abramsky) Yes, but we are publishing both simultaneously—is that we have made huge progress within the BBC in terms of collating exactly what we want to do, creating targets for every division which I think is extremely important, and also looking to the long term future, because we have a very important rebuilding programme going on, so that it is informing the whole way we are approaching our rebuilding programme. In terms of an ethical policy and a socially responsible one, that clearly will be an issue for Governors as to whether they feel it needs to be widened. I can tell you this has been a huge step forward to get to the point we are in terms of the environment, and it is a huge education job across the whole of the BBC in terms of our working practices, and also in relation to the other organisations that we relate to, to get them to start conforming to the standards we create.
  (Mr Smith) There are two paragraphs at the top of page 50, one is on the socially responsible investment policy and one is on ethical policy, both of which we follow.

  107. So this statement is intended to cover those topics as well, is it?
  (Dame Pauline Neville-Jones) I do not understand. The Audit Committee does operate according to the standards of the combined code. Also, although you did not utter the words, some of the thrust of your question was directed at social responsibility and the Director of Finance and I are engaged in dialogue on that very subject at the moment because it is important, and when I approached them on the subject I discovered there were things that were happening, and I am going to take that further because the BBC is a benchmark organisation and ought to have a good record in this area.

  108. Thank you. I did see that the report was extremely encouraging but one of the areas that concerns me, moving on to a different topic, is that you do devote a little bit of time in the environmental report to transport and travel, and as someone from the regions, particularly Scotland, I have been lobbied in the not-too-distant past by some of our local production companies who have been complaining a little that a lot of the BBC's regional and independent productions are put together by companies from either Glasgow in the case of Scotland or in the case of England, London, travelling to the regions. I am interested to know whether this is an issue which concerns you. The point which is made to me is that those production companies which do operate in the regions, and in my case I have come from Aberdeen, my own constituency, do work for the BBC but they tend to be in a box which they cannot get out of, and it is very difficult for these companies to develop because the larger contracts are never really tested and go to the Glasgow and the London companies, and if there is to be a real and genuine commitment to regional production, that needs to be looked at.
  (Mr Dyke) I do have some sympathy. Having visited our Aberdeen offices this year when I discovered that their relationship with Glasgow is about the same as Glasgow with London, which you do not think of down here, Scotland I think is one of our success stories. The amount of extra money and the extra network commissions we have spent going to Scotland is enormous, and we are very pleased with that. We also took a decision some time ago that we should allow much more flexibility to Scotland, Wales and Northern Ireland for the channel controllers to opt out of BBC1 and play regional programming which we are doing much more, and therefore in the coming year you will see the first ever BBC Scottish soap, which is a massive investment in Scotland. Also in the last twelve months we were terribly conscious that there had been a large amount of money spent in Scotland, Wales and Northern Ireland and we have increased it again, but that we had not done the same in the north of England, and we have had a big north of England initiative over the last year in all sorts of ways, one of which is about drama. One of our responsibilities must be to reflect the different parts of Britain to each other. In some ways there is no point in pouring production in to Scotland if in the end you make English programmes, it has to be something that reflects Scotland. We have put big investment into the North of England and you are beginning to see that, we have a lot of northern dramas coming through, we have big writer initiatives in the North of England and Radio 4 has gone back to Manchester.

  109. The point of my question was, who is making these regional productions, is it big companies coming from London or are local companies going to get a slice of the action?
  (Mr Dyke) There is a problem that we have all seen over the last decade, which is as ITV changed the production industry increased, there is no doubt about that. We are fighting that trend, there is no doubt about that. I can see the problem if you are a small current affairs producer in Aberdeen that it is quite difficult to break into drama, I can see that.

  110. It is necessarily drama. In some respects you are a victim of your own success because there are local companies who have received these commissions. They now feel there is a platform there which they can move forward on, but there is not an opportunity to move forward, partly because of what we said about the ITV companies, but the encouragement ends at the point when they are ready to expand.
  (Mr Dyke) Also, there is always the problem that if everybody who leaves film school who does not want to work for us sets up an independent production company in a sense there is a never-ending supply from the bottom end.

  111. These are tried and tested companies, not new companies.
  (Mr Dyke) I can see that particular point, especially in Aberdeen. I am happy to go away and look at that. I can see that problem.

  112. Can I move on a little, the copyright for this question comes from my colleague John Thurso, who is much more acute in these issues than I am. It is one really for Dame Pauline, in the fallout from the Enron and WorldCom affairs has the audit committee met to discuss the implications for the BBC?
  (Dame Pauline Neville-Jones) There has been dialogue on precisely the issues Enron gave rise to. We have taken each of those aspects and gone through it and satisfied ourselves that neither the auditors are doing things they should not nor are the BBC that can give rise to those problems. We have been through that agenda.

  113. You have a clean bill of health and there are no changes in the practice required
  (Dame Pauline Neville-Jones) The audit committee are always trying to increase the scrutiny that we give to the affairs of the BBC. I would not say everything is perfect but I can assure you that in that area we are satisfied of the probity of our auditors and the correctness of our own procedures.

  114. Have I time to squeeze one more question in? A letter from a disgruntled former BBC employee—it was not Lord Birt you will be pleased to know—triggered off a thought in my mind, I will read this very quickly, "Greg Dyke has declared that he believes the advertising slump affecting ITV, Channel 4 and Channel 5 to be bad for the health of the industry. If he truly believes this will he concede that the licence fee should be reduced by at least 10 per cent to enable competition on a fair footing"?
  (Mr Davies) No.
  (Mr Dyke) I think you have to look at the previous 10 years, you cannot just take one year.

  115. I guessed that would be your response. There is a problem, as the industry fragments and technology takes over the BBC is going to become more and more exposed as the Goliath in the industry, publicly funded, and for many of these smaller companies who have inevitably come into the market you will be enemy number one. How are you going to deal with that? It may not be a problem for you, but I think it could be a problem.
  (Mr Dyke) I think that is inevitably an issue that emerges. The downturn in advertising revenue I suspect is not cyclical but actually where there has been an incredible rise over a comparatively short period of time I suspect there has been clear readjustment and you have a new base and you have to work from there. The market will sort that out in the end. However, if you then combine that with the fragmentation of what is happening in the market, ie as more people go digital and get multi channels they will watch a range of channels rather than just two or three. If that happens I think the problem gets bigger. When I did the McTaggart lecture a couple of years ago in Edinburgh one of the arguments I made then was it probably means that the BBC's role becomes more important, not less important, particularly in relation to the production industry. If you look at the history, remember early ITV a lot of American programming, the BBC quickly changed its position and invented what is British popular programming today, and that is by and large what has gone on for 40 years. I suspect it will be more incumbent on the BBC to make sure it can do that given the fragmentation of the market place.

  Mr Doran: Thank you very much.


  116. Frank Doran referred to a disgruntled BBC former employee. I note on page six that in two years you will reduce the proportion of your income spent on running the BBC from 24 per cent to 15 per cent, what does that say about former gruntled BBC employees?
  (Mr Dyke) Disgruntled or gruntled!

  117. Thank you Mr Dyke, thank you Mr Davies, Lord Ryder, Dame Pauline, Ms Abramsky and Mr Smith. We look forward to seeing you again next year.
  (Mr Davies) Chairman, thank you very much for doing this with us.

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Prepared 9 August 2002