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.
PUBLIC SERVICE
BROADCASTING
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".
CHANNEL 5'S
PUBLIC SERVICE
OBLIGATIONS
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.
INDEPENDENT PRODUCTION
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.
PROGRESS TOWARDS
ANALOGUE TV SWITCH-OFF
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.
MEDIA OWNERSHIP
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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