Examination of Witnesses (Questions 100-117)
MR GAVYN
DAVIES, LORD
RYDER OF
WENSUM, DAME
PAULINE NEVILLE-JONES,
MR GREG
DYKE, MS
JENNY ABRAMSKY
AND MR
JOHN SMITH
WEDNESDAY 17 JULY 2002
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.
Chairman
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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