Examination of Witnesses (Questions 100
- 119)
TUESDAY 29 JANUARY 2002
MR STUART
PREBBLE, MR
CLIVE JONES
AND MR
MICK DESMOND
100. Do you think ITV's problems would be over
if ITV were owned by a single corporation?
(Mr Prebble) No. That is probably better answered
by our shareholders, but no, it is part of an overall picture.
It is an obvious development in a more fragmented market-place
where ITV was at one time so dominant in an analogue environment
where there was a justification for the fragmented ownership.
The important thing for us in running ITV is to be able to put
the maximum proportion of our resources on the screen where it
matters and not be running companies behind that which are unnecessary
at this point. Having said which, the individual companies have
said and ITV have said that our commitment to the regional structure
and our regional obligations needs to remain absolutely firm.
It is and should continue to be at the root of what ITV is.
101. You mentioned ITV Digital. There are several
channels which are free-to-air on terrestrial television. One
of them is ITN which was a 24-hour service and is now just broadcasting
for three hours in the morning. Some might argue that ITV2 is
not a major contributor to original television and merely succeeds
in draining ITV1. How do you respond to that?
(Mr Prebble) The ITN channel is a matter for ITN,
which as you know has a number of different shareholders. They
have a longer broadcast on NTL where there are no limitations
of band width. Their problem for distribution on the DTT platform
has been a question of access to band width at an economic rate.
ITV2 is a relatively new channel. As we brought the digital platform
and ITV together in April last year, the channel has developed
enormously. It is now operating much more successfully as a complementary
channel to ITV so that when ITV, which for example on Saturday
night has a very successful programme called Pop Idol,
goes to the rest of its schedule ITV2 continues to serve the particular
needs of that audience. As a result of that strategy, it is becoming
much more successful. Obviously the resources one puts into a
channel of this kind is to some extent a function of its distribution
and revenue. It is a very significant investment for us hitherto.
We hope that as its distribution and success increase our ability
to invest more in it will increase.
Mr Bryant
102. You mentioned Pop Idol, so I shall
bring it up as well. Thank you very much for it. Everybody I know
in my constituency loves it and probably more people in the Rhondda
voted last Saturday than voted for me in the General Election—which
I know is very difficult to believe. I am going to be voting for
Will on Saturday. Do you make money out of the phonecalls which
are made?
(Mr Prebble) I think the answer to that is no, is
it not?
(Mr Desmond) The producing company, which is an independent
company, will make telecom revenue out of that.
103. Do you know how much?
(Mr Desmond) No.
(Mr Jones) It is usually marginal. The classic example
is Who Wants To Be A Millionaire where we use the premium
rate telephone income from people calling in to apply to go on
the programme to underwrite the prize fund. It is only an underwriting;
last year we had to top up Who Wants To Be A Millionaire
from shareholders' resources. We should write to you to be sure
that we are accurate about this. The point about Who Wants
To Be A Millionaire is that it is a premium rate in order
to fund the prizes. Pop Idol is a vote, so it is a completely
different rate. I think calls are ten pence or something of the
kind.
(Mr Desmond) The nature of the programme is to make
it an interactive experience and the live nature of the programme.
104. On more substantial financial issues, ITV1
now is on Sky Digital and everybody I know is delighted about
that. As I understand it, you are still pursuing your case against
Sky over the cost of conditional access and taking them to OFTEL.
Is that right?
(Mr Prebble) Yes, that is right. As you know, our
position is that public service broadcasters ought to benefit
from a must offer/must carry relationship with satellite in exactly
the same way as it effectively does with DTT and with cable and
as happens in a number of other European countries. The cost to
Sky of carrying our channel is incidental to their main business,
but we are paying what we regard as an extraordinarily large amount
of money which is about making a profit rather than covering the
cost of carrying the channel. We have asked OFTEL to arbitrate.
105. Last week we had the BBC and they were
talking about the possibility of having a digital terrestrial
box, which was a very basic box into which you could plug other
things but which would enable many people across the country to
take advantage of the free-to-air offer which has not been much
publicised. I understand that it is not really in the interest
of ITV Digital to advertise the free-to-air option very much,
but there is still an issue: nowhere in my constituency can anybody
enjoy access to digital terrestrial television and even when every
transmitter which covers 10,000 properties is covered, you might
get Porth and Tonypandy, but you are not going to be getting Blaen
Rhondda and Maerdy for some considerable time. How do you feel
we are going to be able to tackle these complicated areas of the
country?
(Mr Prebble) A lot of issues there. At the launch
of the digital terrestrial platform it was anticipated that the
attractiveness of the free-to-air channels, most particularly
of the BBC channels, would persuade a number of people to go and
buy their own receiving equipment. That did not happen, primarily
because the BBC waited for a number of years before getting down
to launching attractive digital channels. They are now about to
do so, so the imperative for people to be able to access them
as easily as possible is really greater than it has ever been:
since everybody is paying for these channels it is going to be
very important that everybody sees them. As a matter of fact it
is in ITV and ITV Digital's interests to support this initiative
and we absolutely will do so. We want to move as quickly as possible
towards digital switchover and very importantly, if people have
bought their own receiving equipment, we can make them a pay television
subscriber much more cost effectively because at that point we
are not sending them the set-top box, we are just sending them
a smart card which enables them to receive pay channels. We are
an active participant in this and we will support it hugely. In
answer to your last question, getting the signal to your constituency
is a very high priority for us, just as it is everywhere else
in the country. As I indicated in my opening remarks, the DTT
platform has really been dogged by this issue since day one. It
was believed that on day one we would be able to reach 70 per
cent of the country reliably with 81 transmitters. In fact it
was about 40 per cent and nobody could have foreseen that but
the things we need to do in order to expedite this distribution
have really not gone forward as quickly and efficiently as they
needed to, which is why the digital action plan is welcome and
really must have a momentum behind it. The imperative to do this
when the BBC's new free-to-air channels are understood, known
about, promoted, is really going to grow very considerably in
the next few months.
Chairman
106. The question of BBC's free-to-air digital
channels is one we looked at last week and shall no doubt look
at again. The BBC admitted to us last week that the number of
people who are gaining access to their digital channels without
paying a subscription to one of the commercial organisations is
minute and is going to go on being minute. Is it not a fact that
whatever the theoretical availability of access to digital transmissions
without paying a subscription to ITV Digital or cable or Sky,
most people find it much, much more convenient to get to it that
way because that is what suits the dealers as well? If you go
on to a dealer, they are going to offer you one deal or another.
Therefore in that sense, although it could be argued—far
be it for me to do so on this occasion—that BBC investment
in digital is seriously wasteful, it is not necessarily going
to be regarded as serious competition to you or anybody else.
(Mr Jones) That is why we are actively discussing
with the BBC the cheap set-top box, which can be retailed at under
£100. That price will fall over time simply because of the
scale of economy through chip manufacture. As we move towards
the switch-off date for analogue transmissions, the cost of that
box could be down to under £50, could be £20, could
be £15. That could be driven on very greatly by the free-to-air
coalition. Eighteen, 20, 21 channels become available to anyone
who is able to purchase a box. You also spur the development of
integrated digital television sets in the market.
107. If Sky were to see any prospect of additional
subscriptions seeping away in that direction, Sky is very likely,
is it not, to launch another loss leading exercise to get those
people back and to get more of them?
(Mr Prebble) Possibly, but whereas it is possible
to equip yourself with an opportunity to receive the BBC free-to-air
channels and some other free-to-air channels such as ITV2 for
£99—or will be shortly—via digital terrestrial,
Sky have just moved the free-to-air installation offer for satellite
equipment to just over £300. It is perfectly plausible that
people will say, "Interesting new channels from BBC3, BBC4",
particularly if they are heavily promoted, "I keep on hearing
about ITV2. Is it worth a one-off payment of £100 to enable
me to see it?". That sounds a plausible proposition and from
our point of view, it then costs us less to acquire them as a
DTT pay customer. For Sky, you would have to pay £300 to
install this equipment in the first place. Sky could subsidise
that. They would then have to believe that person would become
a paying customer at a much higher level in order to get back
their investment of £200 or £300.
108. That may very well be, but it is a fact
today, is it not, that 25 per cent of all households subscribe
to Sky? It is a fact also that one of the reasons for that is
that although the individual audience to any digital channel is
not large, the incremental total of people who want specialised
channels, whether it be sport, whether it be film, whether it
be Discovery and Biography, is cumulatively quite high, whereas,
let us be brutal about this, who really would wish on an individual
basis to have access to any of the BBC digital channels, with
the possible exception of a very small number of arts followers
who like Knowledge? What identity does ITV2 have sufficient to
make me feel I have to have that regardless of whatever else I
want?
(Mr Prebble) With great respect to you, you may not
be the target for ITV2 in particular.
109. That is all very well. I am not a target
for E4 either, but we all know where E4 is coming from, we all
know what E4 does and it has its audience which does not include
me. Nevertheless, we know what it is about. I do not know what
ITV2 is for.
(Mr Prebble) It is interesting to note that ITV2 already
out-rates E4 by a significant margin. We do not know how attractive
BBC3 and BBC4 would be. However, if today you try to sell somebody
a television set which can only receive BBC1 and ITV, but you
say that for £100 more it can also receive BBC2 and Channel
4, people would wonder why you were asking them the question because
obviously they would pay another £100; they know all sorts
of people who are seeing these services, they have heard about
them, they are seeing them promoted on television. Particularly
at the point of purchase, when people go and buy a television,
an idTV, at that point they understand that with this set they
can get five channels but with this set which costs £50,
£100, £150 more they can get 20 channels and they keep
on hearing about them. We do not know how attractive they will
be and we do not know how successful BBC will be at promoting
them, but we wish them well and we hope they are very successful.
Mr Bryant
110. One other question which will sound old
fashioned. One of the great strengths of ITV has always been its
regional commitment and the fact that most people want to watch
television programmes which reflect their own lives and their
passions and their interests. In Wales there is a particular interest
because we want to see Welsh programming—not all the time.
How would that commitment remain if there were a single ITV?
(Mr Jones) Our commitment to regionalism is total.
We see it as the very cornerstone of our public service broadcasting
remit. We shall be going into the next Bill giving an absolute
pledge that we shall maintain our 27 regional and sub-regional
news services, we shall maintain regional centres of production.
The bulk of ITV's network production is currently made outside
the M25; we see that continuing. We have no plans to move Coronation
Street to Hastings or even Sittingbourne. Peak Practice
continues to be made in the Peak District. We are very proud of
both our regional programmes made in the regions for the regions,
for the English regions as well as the national regions and we
are very proud of the fact that we make network programmes outside
London. It is the cornerstone of ITV. It is where we want to be.
It is our USP and we see it continuing.
(Mr Desmond) That is exactly where Granada comes from
as well. We are committed to strong regional production for network
programming. Certainly for our advertisers that is a very clear
USP in terms of reflecting home produced programming which reflects
the nation: rather than London broadcasting to the UK it is the
UK broadcasting to the UK.
Alan Keen
111. May I say that Pop Idol is excellent?
There is a lot of professionalism in it and that is why people
like it. It is not just somebody impersonating somebody else.
I am always disturbed about the cost of telephone calls. I am
surprised that you say you do not make a profit for the whole
programme from the telephone calls. I was delighted to hear that
it is just ten pence for Pop Idol and that is how it should
be. I am surprised you do not make a profit overall on the telephone
calls to Who Wants To Be A Millionaire. I am very disturbed
about the programmes on radio where the questions are so easy
for the listeners they are obviously trying to encourage people
to pick up the phone and you know they are going to make money
out of it. Do you agree with me that there should be some open
reporting on that, maybe just once a year? Are you worried about
that?
(Mr Prebble) We would be willing to make open reporting
on that. It is not surprising we do not make a profit because
Who Wants To Be A Millionaire is successful because it
gives away some very large sums of money.
112. Coming to football and regulation of competition.
I know there is a problem with getting your digital Football League
on the Sky platform. Is there anything you would like to tell
us about the up-to-date position?
(Mr Prebble) You have taken a lot of interest in this
for which we are grateful. As you know, the Football League rights
were, until the last negotiating round, held by Sky and retailed
to its subscribers through Sky Sports2. ITV Digital obtained those
rights last time around. Unfortunately we have not been able to
reach satisfactory commercial terms for distributing the ITV Sport
Channel, which now contains those rights and the Champions League,
to Sky subscribers. That is unfortunate because it means that
Sky subscribers have been deprived of the service that they had
previously. There have been good faith commercial negotiations
on our side, but we are a very long way from reaching a commercial
agreement.
113. We have one of the most difficult problems
with sport. I am full of praise for what Sky have done for my
favourite sport, football, not just increasing the coverage but
the technical side of it as well. They have done a great job.
Usually on TV it is BBC which takes the lead and others follow;
sometimes ITV leads, I agree. With football Sky has led the way.
Obviously we need competition. I have worked all of my life in
the private sector and we need competition. I am very concerned
about the future of my game, because TV is very difficult to regulate.
We have the OFCOM Bill coming up next year sometime. How do you
think we can do better than we are doing at the moment on regulation?
(Mr Prebble) We need a regulatory environment which
is more likely to underpin free and fair competition in this difficult
market-place where, in particular in the sport area you are referring
to, one party was able, through having been first in the market,
to obtain a very, very dominant position, both in the provision
of sports rights and the distribution of them. It is like owning
the vast majority of the supermarkets and owning most of the products
which are on supermarket shelves. The fact that you own most of
the supermarkets gives you the ability to stifle competition from
other places. The fact that the Football League rights were available
to Sky viewers when they were owned by Sky but are not available
to Sky viewers now that they are owned by a competitor is obviously
in our view anti-competitive. We have complained about the terms
in which the Premier League's Sky Sports and Movie Channels were
wholesaled to us two years ago. We still do not have an outcome.
We have a preliminary outcome from the OFT. That is subject to
a further round and then a further appeal process. This process
will last the best part of three years but these things move much
more quickly than that. I agree with you that this is very important
and moving very quickly. This matters a lot to ordinary people
out there. We do need to find a way in which these matters can
be arbitrated in a more expeditious manner.
Derek Wyatt
114. This is a question on whether you think
the Government understands what it is doing. If you want to have
a smart economy, you want people to go to digital tomorrow. Why
has the Government not come forward saying you should give this
new digital terrestrial box away tomorrow and fund it over three
years so that you scale the money in the second and third year
but overnight you make this economy the best and smartest in the
world? What discussions have you had about that proposal with
the Government Ministers?
(Mr Prebble) We were very taken at the outset of this
project by the vision that the Government had about a digital
society and sharing information and education much more widely
and the benefits. When Chris Smith first announced a target day
for analogue switch-off more than two years ago of 2006-2010,
we envisaged a process in which we would all move forward to achieve
that. When I gave evidence here last year, we talked about the
collective social, economic, political benefit of a digital society.
Obviously we cannot answer for why the Government has not done
what you said. We are disappointed by the collective pace of the
move towards analogue switch-off. Having been the first country
in the world to launch this technology we will be overtaken by
others and others will get to analogue switch-off before us unless
we see a step change in the way that we are approaching it. If
we believed it was a serious Government priority, we would be
putting much more resource collectively as Government and business
working together into achieving this objective and we are not.
115. There is lots of talk about a single company
for ITV. If there is a single ITV company, more or less Carlton
and Granada merging, though I am not sure that is the only model,
does this mean that the OFT will have an issue with you over advertising?
Does that mean that the BBC would be compelled or would be persuaded
that they should take advertising as an alternative market? The
second question is: whilst you have been dithering, as it were—not
your fault but OFT—Vivendi, which was a utilities company
in France and England and round the rest of the world, has now
become perhaps the second or third largest media company in the
world, whereas Granada and Carlton are tiny companies by comparison.
Do you really think the DTI and the regulator understand the business
of media?
(Mr Desmond) May I take the first question on the
consolidation? Eighteen months ago we went through the process
of consolidating to two larger groups within ITV and the whole
issue of advertising came up then with the Competition Commission.
At the time there was a view from advertisers that a move from
three sales houses to two larger sales houses would be detrimental
to them, whereas over the last 18 months what we have seen is
that ITV's revenue has fallen, some of it because of our product
having fallen as well. Effectively we are in a supply and demand
market-place within television and we do see monies move with
audience. Secondly, we are also in a very vibrant total advertising
market-place where television is still barely over 30 per cent
of total advertising expenditure in this country with a very strong
national press, radio, cinema, poster industry. It is a very competitive
market-place. We believe that a consolidated ITV would allow us
to take duplicated costs from within the system and strengthen
our schedule, which in turn would create a virtuous circle for
advertisers having a stronger proposition, delivering better audiences
for advertisers, and then we would hope to draw more of their
money in by them supporting our audience.
(Mr Jones) We do accept that we are currently taking
57.5 per cent of advertising revenue in the UK, so whatever the
legislature decides in terms of allowing one ITV, which Carlton
supports, we recognise the competition authorities will have to
take a view on whether we would have a dominant position and I
am sure they will set some kind of test and it will be allowed
once we pass that test. Coming on to your other question about
BBC and advertising, the BBC taking advertising would destroy
ITV. Even one minute advertised on the BBC would have such a potent
force that that delicate ecology, that balance between two mass
market channels plus a number of major and then niche channels
would be largely destroyed by the BBC taking advertising. It would
just upset the complete apple cart. Your Vivendi point: yes, it
is true. We have actually been held back by being a divided set
of commercial companies and we cannot compete on the world stage.
The only opportunity for ITV to become a European broadcaster
and ultimately an international broadcaster is for it to become
one, then we can trade and operate in the same way. We are a long
way behind the pace now.
John Thurso
116. I want to explore the suggestion you made
both in your opening statement and in your evidence about the
role of the regulator with regard to the licence fee and the suggestion
that you should be able to go along and say, "Please, Sir,
can we have some money back?", or, "Can you take some
money off?" which is obviously superficially quite attractive.
I just want to understand that it has been thought through. There
is a counter-argument which says that you have had a licence to
print money for decades, you have shareholders who have been extremely
greedy and taken as much as they can lay their hands on. They
then made some quite seriously bad decisions about the future
of what they should do and when they have had to pay the price
for those decisions they now want to come up with a new idea that
the regulator should give them some money. So there is a counter
argument. Also, if you do have a situation where the regulator
can be approached to have a lowering of the cost of the licence,
presumably the counter to that is in a good year yes, you can
come back and ask for more, or, as with other regulators he can
regulate the price you charge. Has that all really genuinely been
thought through?
(Mr Prebble) For the first 30-40 years of public service
broadcasting the ecology we have all talked about more or less
sustained a system where resources were allocated which achieved
a certain kind of balance. Things are now moving so quickly in
this environment. We would not introduce Channel 4 without introducing
a mechanism for protecting the revenue of ITV at the time, because
we were asking ITV to deliver a wide range of public service commitments.
Up to a certain point we would never introduce a new service until
we knew that the existing service was not going to be endangered.
We have now entered an environment where the economic situation
is changing week by week, but the regulatory environment has not
changed, our regulations and our public service obligations and
requirements have not changed. What we are looking for is a more
flexible situation which will be more suitable to the much more
quickly changing environment. It seems to us to be mad to be locked
into an environment where what we pay—this is not asking
the Government to give us money, by the way, just to pay a bit
less in lean years—what we are investing is £1 billion
in rolling out the digital terrestrial platform which is a public
proposition. It is a public policy objective to help us to get
towards analogue switch-off. It is not all one-way traffic.
117. The second point, which rather flows on
from what you have said about the regulator, is that in your opening
statement you criticise the Government for showing a lack of leadership
and in your evidence there is a portion in bold which says basically
that the Government needs to get a move on. If ten years ago we
were setting out to put together a Bill or legislation to regulate
the communications industry, we would probably have got it hopelessly
wrong in that what we are discussing now would certainly not have
been what we were discussing ten years ago. Is there not an inherent
problem in this in that we are probably already getting it wrong
for what we need in ten years' time? Should the Government indeed
be giving the leadership you ask but be doing it through lighter
touch regulation based on first principles rather than attempting
to dot every i and cross every t?
(Mr Prebble) That perfectly summarises our view. It
would be helpful to reach a consensus on what we are all trying
to achieve collectively among the broadcasters and look at individual
ways in which these are funded. We believe that because the BBC
has guaranteed funding and much more reliability over a long period
that its part of the remit should be one kind of thing. We have
indicated the areas of public service broadcasting that ITV thinks
it would be most suitable to commit to, but within that general
light touch framework we should like to see a flexible environment
in which we can take account of the very fast changes you are
talking about.
118. Do you think first principles have actually
been established or does that work remain to be done?
(Mr Prebble) It remains to be done. Everybody you
ask for a definition of public service broadcasting will give
you a slight variation on the answer and it seems to me that we
have been trying to define it for the last 40 years. Mostly what
it is, is whatever the BBC says it is at any particular moment.
No doubt we shall have many fascinating hours going forward discussing
what it is between now and the Bill.
Mr Doran
119. You give a very strong commitment to the
regional dimension which is extremely important, particularly
to people like myself, a member from Scotland. My own experience
of the regional commitment was when our two regional broadcasters
merged two years ago. One of the first things which seemed to
suffer was the regional commitment and it was not until the regulators
came in and forced them to adhere to the licence requirements
that we saw them get back to where they should have been. In a
period of what may be consolidation in very difficult economic
circumstances, can you amplify your guarantees on your regional
commitment? As a separate thing, which is probably an observation,
reading through all of the evidence we have had, including your
own, we seem to have a rag bag of commercial interests which are
setting out their stalls to defend their own vested interest but
no sense of vision about where we are going in what is probably
the most exciting industry in the country. Can you say a little
about that?
(Mr Prebble) I am not sure how we can go beyond what
we have said. The regional structure of ITV is not something that
we have to do as the price of being the broadcaster, it is in
the root and branch. Most of the people running ITV today started
out in one of the regional companies producing regional programmes.
It is inevitable in any business that when times are difficult
and when there is consolidation people will look at costs and
people will say they used to enjoy that particular service but
it is going away. These things will be subject to change. However,
there is a dynamic and rigorous relationship between ITV and the
ITC which enforces our obligations which we freely give, but it
is monitored in a way which is absolutely incomparable. Nothing
of its kind happens to any other broadcaster, insofar as I am
aware, in any other country. We are absolutely aware that as a
function of the further consolidation which we seek, these commitments
will need to be underpinned and understood and our commitments
will need to be believed and delivered. I am sorry that you feel
there is a lack of vision in our evidence. We certainly share
your view.
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