Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by Channel 5

  1.  Channel 5 welcomed the Communications White Paper with its recognition of the speed of change in our industry as well as its intention of modernising the regulatory structure. We believe that any new rules should be framed within a flexible framework, well able to adapt to new circumstances be they economic or technological. The delay in progress towards the expected legislation has been disappointing but has been partially mitigated by the passage of the OFCOM paving legislation. One consequence has been the delay of reforms regarding the media ownership regulations, however in our view, it is likely that resolution of many of the ownership issues would in any case have faced delay through referral to the competition authorities.

  2.  In March 2002 the Channel will have been on air for five years. 27 million people tune into the Channel every week. Our share of viewing is 5.8 per cent. In terrestrial homes with good reception we are around two points behind Channel 4's share of viewing (10.5 against 12.6 per cent). We are operationally efficient with a third of the budget of BBC2 or Channel 4 and we are a committed public service broadcaster and are well aware of the responsibilities that this entails.

  3.  We will continue to be an increasingly significant cultural force in people's lives and achieve this with a strategy of putting new programmes and new talent at the heart of our commissioning strategy. Our documentary, factual and current affairs programmes are straightforward and informative. 5News is full of facts, upbeat in tone and less formal than its main rivals. We are the only terrestrial channel to offer viewers news on the hour seven days a week and our sense of social responsibility is well represented through our educational output.

  4.  In this written submission to the Culture Media and Sport Committee we are confining our comments to three of the subjects outlined within the scope of the inquiry, namely:— defining and providing public service broadcasting, progress towards analogue switch-off and cross-media ownership. The opinions expressed are those of Channel 5 and do not necessarily represent the views of our shareholders RTL and United Business Media.


  5.  We welcomed the commitment in the White Paper that public service broadcasting should continue to have a key role to play in the digital future and agree with its sentiments that public service broadcasting remains:

  6.  "The best way we have found of creating a wide range of UK-made programmes of the kind people want" and that "mixed schedule networks, free at the point of use, funded through advertising or a licence fee, continue to be the best way of funding the production of mass audience, high quality, varied, UK-originated programmes".


  7.  Channel 5 is a committed public service broadcaster. Without question we wish to retain our public service broadcaster status into the foreseeable future. We are proud of our achievement in launching a successful free-to-air channel in the face of increasing competition. In 2001 we achieved an audience share of viewing of 5.8 per cent despite our analogue coverage of 82 per cent.

  8.  In the key public service genres of: news, current affairs, documentaries, education, arts, children and drama, we aim to provide an alternative to the other public service channels. In our Statement of Intent to the ITC for 2002 we are committed to innovate, take risks, adopt strategic programme ambitions that are practical and distinctive, and to reflect the diverse multi-cultural nature of our society across all our programmes. We have committed to aim at originating 10 per cent of our UK programmes from outside London.

  9.  In a typical week's schedule, we aim to have a range of programmes that appeal to as wide a range of people as possible. Arts in prime time, a new popular science series, a first run movie, an original entertainment show, pre-school programmes of distinction, news in abundance, complementary sports coverage and alternative factual output in peak.


  10.  In our short history we have given an important boost to the UK production sector, having commissioned programmes from around 300 different independent production companies since our launch in 1996. We are committed to introducing new talent both on and off air and have achieved some notable successes with the likes of Kirsty Young and Graham Norton. In several cases we have been able to give independent production companies their first break on mainstream terrestrial television.


Channel 5 on DTT

  Channel 5 jointly shares Multiplex Three with S4C—the multiplex is operated by SDN and currently reaches around 74 per cent of households. We simulcast the main Channel 5 service on DTT and provide the ancillary services (subtitling, signing and audio description) as required by the 1996 Broadcasting Act.

Digital Action Plan—The Context

  Channel 5 supports the Government's aspiration that "every home should be able to enjoy the present and future benefits of digital television". We also agree that,

    "The terrestrial analogue broadcasting signal should be maintained until:

    (a)  Everyone who can currently get the main public service broadcasting channels in analogue form (BBC1 and 2, ITV, Channel 4/S4C and Channel 5) can receive them on digital systems;

    (b)  Switching to digital is an affordable option for the vast majority of people;

    (c)  As a target indicator of affordability, 95 per cent of consumers have access to digital equipment"

  11.  However we remain unconvinced that the Government's projected timetable of between 2006-10 for the switchover is realistic, especially if the market is expected to bear the lion's share of the work. It is our view that the growth in the take-up of multi-channel TV is slowing down. There was an average of about 90,000 new multi-channel homes per month over the last six months (July-December 2001) compared with the previous twelve months, which showed an average of 130,000 new multi-channel homes per month (BARB figures). It is our belief that it is unlikely in the present economic environment that the market will continue to be able to bear the cost of subsidising free digital equipment—satellite and terrestrial—indefinitely.

  12.  We support some of the key initiatives in the Government's Digital Action Plan such as the appointment of a Digital TV Team Leader, guidance for public sector TV purchases and an information campaign to tackle retail and consumer confusion about selling and buying digital TVs but we do not believe that any of these however well executed will have a significant effect on overall digital take-up. The proposal to "investigate with industry and the European Commission issues surrounding the transition to exclusive sales of integrated digital TV's" would take several years to realise and is unlikely to be successful given the differing arrangements in member states.

  We believe that the speed of digital take-up will only accelerate significantly once the consumer is able to buy id TV sets in all sizes and at the right price. The availability of affordable converters for existing analogue receivers will also be a key issue

Spectrum Planning

  13.  It is our belief that the limits of DTT coverage should be based on economic grounds as in many cases digital satellite will be able to cover isolated areas more cost effectively than DTT.

  14.  The proposal in the action plan, to extend terrestrial digital coverage so that 72 per cent of households have the potential to access all channels, and 84 per cent could access the channels on Multiplexes One and Two will not have any great impact on Channel 5. Although we are keen to stress that along with S4C we are a committed public service broadcaster, Multiplex Three is currently capable of reaching around 74 per cent of households, and we agree that this is adequate coverage given the diminishing economic returns of increasing our DTT investment much further.

  15.  In order to achieve increased digital coverage, it should be acknowledged that satellite reception should be used to cover those areas not within the coverage area of the main transmitters. This would have the effect of speeding up the changeover, eradicating the need to build costly additional transmitters and be efficient in use of spectrum, as all the main channels are presently available on DSAT.

  16.  When defining how PSB will be delivered to non-DTT homes we would propose that, in order to ensure that public service broadcasters are protected against increased conditional access charges imposed by the satellite operators, OFCOM, the new regulatory body would be empowered to ensure that the public service broadcasters could gain access on terms that were "fair, reasonable and non-discriminatory".

Analogue Switch-off

  17.  In producing the final transition plan it will need to be recognised that a staged switch-off of analogue transmitters over a period of years will be difficult to manage from a political point of view (viewers will be unhappy if their TV ceases to work whilst in the neighbouring town people can continue to use their analogue sets). In addition to this, the Digital Action Plan does not have any real solution (apart from the imposition of idTVs which would need EU authority) to the problem of multi-set households.

  18.  It is not at all clear who benefits from ceasing analogue terrestrial transmissions in the UK. Whoever is ultimately going to gain from access to the spectrum should include in their business plan the cost of removing the original occupier, just as Channel 5 had to do in modifying domestic equipment in order to clear channels 35 and 37 for broadcast use.

  19.  If the broadcasters were to retain all or part of the current spectrum, allowing increased coverage and additional services to be introduced, then it might be reasonable to expect a contribution to the cost. Investment in clearing spectrum for another business to use is not acceptable.

  20.  A key question which has yet to be answered is what are these frequencies to be used for if not television broadcasting? The spectrum in question is not going to be vacated once analogue transmitters are switched off; 82 digital TV transmitters each using six channels will still be operating. In any location, the channels available for re-use will differ from an adjacent area, making the operation of mobile applications difficult. Since the UK is alone in re-allocating this spectrum, use near to the coast might be impaired by high power TV stations across the channel, and use of any proposed new mobile service will be therefore limited to the UK and even less attractive.

Marketing Plan

  21.  We agree with the objective of running a public information campaign aimed at raising the awareness and knowledge of digital TV. If there is a pan-industry campaign to promote digital TV then Channel 5 will play its part. However at present there are problems in getting the industry as a whole to agree on a common message, due to the differing commercial objectives of the various different market players. We believe that the best way of ensuring a consistent set of messages would be for the government to finance its own advertising campaign.


  22.  Overall we support the Government's stated objective in its Consultation on Media Ownership rules, to create a framework for media ownership, which will protect plurality of voice and encourage diversity of content whilst aiming to promote a competitive market for new businesses and attract new investment. The media sector is part of a rapidly changing market. Any new rules must be within a flexible framework, well able to adapt to new circumstances be they economic or technological.

  23.  In general terms we would favour the introduction of an enhanced version of Competition Law under which preserving the plurality of the media and the right of free expression of opinions are treated as exceptional public interest issues to be determined by the Director General of Fair Trading and the Competition Commission with advice from OFCOM and subject to approval of the Secretary of State.

Foreign Ownership

  24.  We support the Government's working assumption that the current prohibition on non-EEA ownership of broadcasters should be retained. It seems reasonable that this prohibition remains in place until there are reciprocal arrangements that would allow EEA companies to expand into the markets of key trading partners/competitors such as the US and Australia.

  25.  However as a matter of principle, foreign ownership restrictions should be considered incompatible with an open market economy and with free trade. They should therefore be progressively abolished. In order to create scope for liberalisation in international trade in services, in particular during the current WTO/GATS negotiations, we suggest that the current prohibition could be attenuated by a reciprocity clause, ie that it would apply only to countries which do not (yet) allow direct or indirect ownership by EEA broadcasters, and only to the extent as the foreign ownership restrictions in these countries apply.

TV Ownership

  26.  It is the Government's stated intention to remove the 15 per cent limit on share of TV ownership as well as to revoke the rule that prohibits single ownership of the two London ITV licences, thus paving the way for a single ITV company, subject to the decision of the competition authorities.

  27.  We agree that plurality of ownership should preferably be determined through competition law rather than by statutory regulation. But we wish to state our concern that the creation of a single ITV company will further consolidate ITV's already dominant commercial terrestrial television trading position. Such market dominance of ITV already accounts for about 57 per cent of all air-time sales and this from only two sales points. We believe that it is vital that the competition authorities are robust in their assessment of any ITV merger and that their decision-making takes into account the, in our view, adverse long-term implications for viewers, advertisers, other commercial broadcasters and the market as a whole, of the creation of a dominant player with very strong market power, able to influence the market as a whole. Whilst ITV retains its current dominant position, we believe that these adverse implications should preclude the creation of a single ITV company.

  28.  Similarly, Channel 5 would strongly recommend that any merger leading to the creation of a single dominant sales house with a NAR in excess of 50 per cent in the United Kingdom market be submitted to the review of competition authorities. Any sales house with a NAR in excess of 50 per cent would be able to distort the market to the detriment of advertisers and the other commercial broadcasters. We would also expect the existing regulations to be relaxed to enable the other "non-ITV" broadcasters to be allowed to consolidate into one sales house with up to 50 per cent of NAR.

Single ownership of London ITV licences

  29.  Channel 5 believes that the competition authorities should veto the joint sale of advertising for the two London ITV franchises. Historically, London has provided the only real competition within ITV as buyers try to secure coverage of one of the most powerful markets in Europe. It will be critical to the maintenance of fair competition that London remains separated and that a 50 per cent limit of NAR applies to any one sales house.

The 15 per cent limit on share of TV audience

  30.  As stated above, despite our own serious reservations about the potentially anti-competitive nature of a singly-owned ITV, Channel 5 prefers that these matters should be determined under competition law and by the competition authorities rather than through the statutory imposition of a 15 per cent limit on share of audience.

Joint ownership of ITV and Channel 5

  31.  The Government's consultation paper on media ownership recommends ensuring the existence of at least four separately controlled broadcasters providing free-to-air analogue television services, by preventing the joint ownership of ITV and Channel 5.

  32.  We believe that the decision as to whether the Channel 5 licence and ITV licences may be held by the same operator should be determined by the competition authorities under the competition laws and by reference to all appropriate circumstances at the time in question. It is impossible to predict the future commercial and economic environment. Statutory regulation of this nature would reduce the flexibility to respond to currently unknown circumstances.

Cross-media ownership

  33.  We recognise the complexity of legislating for plurality of media ownership in times of fast changing markets and technological convergence. As previously stated our preferred approach to this issue would be to leave as much of the decision-making process as possible to OFCOM and to the competition authorities.

  34.  In order to achieve maximum flexibility we believe that along with a general liberalisation of the thresholds themselves, the concept of "permeable" thresholds able to be exceeded on satisfaction of a plurality test, could be a good way forward. This approach would increase the ability of the framework to react to change and might allow companies to grow organically without needing to divest.

Review of ownership rules

  35.  We believe that it is vital that any new legislation laying down the new framework for media ownership is not "set in concrete" requiring primary legislation in order for it to be amended. As the Government itself recognises, the media market is going through a period of swift and extensive change and it is not possible to predict with any certainty how the market will look in ten or even five years time. We would favour making the new legislation subject to modification on the recommendation of OFCOM by secondary legislation and approval of both Houses of Parliament.

11 January 2002

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