Examination of Witnesses (Questions 520
- 540)
TUESDAY 5 MARCH 2002
ANDREW FLANAGAN,
DONALD EMSLIE,
DES HUDSON
AND JOHN
PEARSON
Chairman
520. Do you mean like the introduction of leaded
petrol for motor cars?
(Andrew Flanagan) I think that would come about, not
necessarily direct to the manufacturers; it may come about by
more specific dates, definite dates, about digital-switch-over.
Derek Wyatt
521. In the five years that we have been arguing
about whether switch-off should be 2006 we have sold another five
million TV sets. The research suggest that people buy a new TV
set every eight years. The longer we delay, the longer we delay
the inevitability of switch-over. Do you not think it is time
that the Government said, "These are the rules. Get on with
it"? Would not your share price go up as a result?
(Andrew Flanagan) I think sometimes these things are
easier when driven by consumers. If the consumers knew that there
was time at which their televison would not work, because a modern
television set now lasts for 20 years, and if they knew that their
TV was going to be obsolete within five years or so, then they
would make the decision themselves by buying a digital television,
which exists now. I am not sure that it is necessarily the manufacturers
that have an issue here. I think we have to convince the consumers
of the desirability of digital television.
Rosemary McKenna
522. Good morning—and, again, I appreciated
very much your submission. You earlier on talked about internet
access and I would like to take that a stage further—and
I think I should tell people that we are a bit further forward
and there are a couple of local pathfinder projects in Scotland,
deliberately done in terms of a rural basis, because if we can
get it right there it is easier to get it right in the cities,
and we would certainly want to look at that as a committee. However,
given all of that, and TV news' impartiality, the hundreds of
digital channels and the BBC, what is the real level of risk that
someone would be able to corner the market and influence it in
a way that is unacceptable?
(Mr Flanagan) I do not think there are the same issues
that there used to be. The origins of the legislation were very
much at the time when there were significant barriers to entry
for new players to come into the market place, whether that was
the spectrum for television, which was very limited, whether it
was the capital cost of the printing presses and facilities needed
to produce newspapers. Most of those barriers have now been blown
away, so I think the dangers are far less than they used to be.
The issues then, I think, come back to the issue of how you service
your customers best. If you are not providing the service they
want, whether that is on TV, or newspapers or whatever, the customers
will drift away, and you will have to then change what you are
doing or go out of business. If you take television—and
I will ask Donald to comment on this—it is very important
to them to play in the large UK market in order to derive a revenue,
but if they do not accommodate the needs of their viewers they
will not have the viewers to sell to the advertisers, so they
have to reflect both.
523. You are not concerned about a foreign national
owning a huge part of the UK media.
(Mr Flanagan) Ultimately, that is possible, but I
think, as part of the EU, we cannot distinguish between a UK player
and a European one. There is nothing we can do about that, apart
from coming out of the European Union. There are foreign ownership
rules beyond that which restrict foreign ownership, which I think
should not be liberalised unless there is reciprocity in those
countries—which does not seem likely.
(Mr Emslie) If I can add to that, I think the issue
about ownership is that certainly in television and to a certain
extent in John's area, radio, the licence conditions dictate what
you are able to do regardless of ownership. We strongly believe
that there is a commercial imperative: in order to be able to
drive our revenues through attracting an audience, we must play
to that audience's needs and likes. It is very important that
that should be able to continue.
(Mr Hudson) If I could answer the question in the
context, say, of online. I think we do recognise what I perceive
to be the risk to which you refer, that if you look at, say, first
mover advantage, so that Yahoo or MSN becomes the gatekeeper for
access to a range of services, it becomes very difficult for a
provider who might have a locally rich service actually to gain
access to those consumers and those users. So we are concerned.
In our context, to give you an example, we have established an
online recruitment service and our major competitor is an American-owned
organisation that is dominant in most other European countries
apart from Scotland. So, yes, there is an issue and we are alive
to that factor. I think it goes back to a question raised earlier:
How on earth do you find a regulatory regime that perhaps protects
plurality or whatever in that technological remit? It is a problem.
I think we would probably argue that, since we see revenue as
an omnipresent currency for measuring performance and activity,
that may have a bearing in controlling that sort of activity.
But it is, I think, particularly problematical in the example
you are referring to.
524. In a very competitive market place in Scotland
you decided to have a Sunday quality newspaper, the Sunday
Herald. Was that a big decision for you to take? I actually
think it was a very good decision.
(Mr Flanagan) It was a big decision because the start-up
cost, relative to our size, was a heavy burden to take. That is
one of the reasons we think that scale is important in this market
because it can give you much more flexibility about launching
new products. But I will let Des talk about the Sunday Herald
more specifically.
(Mr Hudson) I think that is right. If my publishing
division were a stand-alone company, the likelihood of our being
able to shoulder those start-up losses, the initial investment
that was required, is really quite unlikely. That said, as part
of the group we were able to face up to that challenge. We were
taking a big decision because we were entering into what is probably
the most competitive market for newspapers in the UK, if not Europe,
and we recognised that there was going to be a relatively long
period of losses to carry. We thought it was important to make
that investment for the benefit of both our readers and for our
daily newspaper the Herald. We saw the two as being an
important aspect. We had an audience and a set of readers that
we needed to provide a service for across seven days and effectively
we were giving them up on the seventh day. So not having that
paper was problematical but the decision to launch, as I say,
was difficult, and, in particular, the decision that we would
want to launch into the quality market rather than, say, going
into mid-market or other sections was also problematical for us.
We took the view that that was the best area for us and for our
company to compete. It is a tough market and a hard slog but we
would contend—and I would say that, wouldn't I?—that
we have a very, very high quality product that would stand comparison
with a newspaper in any part of the UK.
525. I would agree with that. I think you have
a problem with the television coverage of politics. We do get
comments from time to time about the quality and about the appropriateness
of the time that your television political programmes are on.
What kind of premium percentage audience are you getting?
(Mr Emslie) I think that the balancing of interests
and the coverage of certain genres of programme is very difficult.
We have to balance up the interests in terms of covering the political
agenda, while, at the same time, as a commercial broadcaster,
maximising our audience so that we can sell the air time to the
advertisers. Our political programming plays at half-past 11 at
night. Scottish and Grampian make more political programming than
most other regional ITV broadcasters. I think we certainly cover
the agenda very well both here at Westminster and, indeed, at
Holyrood. You will be aware that we have been recently in front
of the Scottish Affairs Select Committee to talk about our political
coverage. We still maintain our parliamentary correspondent down
here to cover the affairs of Westminster and we have a political
unit in Edinburgh covering the Scottish parliament. The shares
of audience that we get, typically, for the programmes that we
put out on a weekly basis, either a Platform or a Cross-fire,
play to an audience of just about 200,000 people and we have another
programme, The Week in Politics, which plays to about 150,000.
All of these are quite respectable audiences for that type of
programme. In future there may be some changes in the scheduling
of that, which is part and parcel of the discussions we are currently
having with the ITC about the standardisation of the schedule
which will see news and current affairs perhaps coming in a little
earlier to the schedule, but politics, I have to say, is not disadvantaged
compared to other genres of programming because a lot of our regional
programmes are playing now at the fringes of the schedule.
Mr Bryant
526. Do you worry about vertical integration
within the television market, in particular between the platform
operators and broadcasters?
(Mr Flanagan) Yes. I believe we do. It comes back
to the gatekeeper issue to which Des referred. I think that is
a principal one. I think also vertical integration allows a scale
and allows OFTEL(?) potentially to squeeze out some of the smaller
players, and that does become an issue. Also, in terms of, say,
production of content, that can be very difficult, as you were
hearing: independent producers complaining about the BBC, for
example. So there are issues about vertical integration.
527. And I presume you are now the number 3
button on Sky.
(Mr Flanagan) We are, yes.
528. When did that happen?
(Mr Flanagan) November.
529. Right. How much are you paying for that?
(Mr Flanagan) We pay as a share of what ITV pays,
so it costs us around £2 million a year specifically for
us to have Grampian and Scottish on the Sky platform.
530. Do you think you are subsidising the roll-out
of Sky set-top boxes?
(Mr Flanagan) The prices that are set by Sky are,
indeed, controlled by the regulator, so we are paying a price
that is—
531. That is not what we have been told by the
regulators. They have pointedly failed to answer any questions
at any point about the rate card and whether they regulate it.
They have said that they broadly regulate it but they never say
that they control it or that they have agreed it. Are you then
part of ITV Sport as well?
(Mr Flanagan) No, we are not. Even if the regulator
says they are not controlling it in fine detail, we did have a
situation where other broadcasters, already having gone up on
Sky, effectively had set a rate and therefore it was very difficult
for us to negotiate away from that.
532. But you are paying a lot more than the
other broadcasters.
(Mr Emslie) We believe so. Obviously these terms and
conditions of Sky's contract with other broadcasters is confidential
but we understand that ITV is paying above the rate that other
broadcasters are paying and ITV is currently discussing this whole
aspect with OFTEL. But to come back to Andrew's earlier point,
when we opened up negotiations with Sky, it was on the standard
terms and conditions that they would offer to anybody coming into
the market place, for fair and non-discriminatory access to their
platform and through their conditional access systems. So, while
there was an element of negotiation around about what we might
be able to pay or what we might be able to offer to them, the
rate card is the rate card and that is certainly how we entered
into negotiations.
533. How important do you think it is that digital
terrestrial television survive?
(Mr Flanagan) I think it is important. I think that,
despite the current difficulties of ITV digital, there has to
be a place for digital terrestrial if we are ever going to achieve
digital switch-over. The ITC's own research has indicated that
something like 40 per cent of the UK population does not want
to pay for additional TV services. I think that digital terrestrial
can offer a route for a low-cost entry into more channels but
without the heavy cost of satellite or cable. I think some of
the proposals that are being discussed, including with the BBC,
for free call, a sort of scaled down ITV digital that only carries
free-to-air channels, is actually a positive step forward. I think
the difficulties that ITV digital have at the moment indicate
that, as a normal commercial enterprise, that model will not work.
Mr Bryant: How easy do you find it to get network
audiences across the whole of the UK for programmes that you make?
I asked this question of Mr Kim Howells in relation to Welsh programmes
and he said that one of the difficulties is that we just make
miserable programmes in Wales and why should we expect people
to be miserable watching them. But Scotland seems to be rather
better at this.
Rosemary McKenna
534. Absolutely.
(Mr Flanagan) We have a production arm that pitches
ideas to the ITV Network Centre as well as to other broadcasters
and we have quite a successful track record in selling programmes.
I think you have to distinguish between regional programming which
is made for a specific Scottish audience and programmes that we
make for a national audience. I mean, we have had a good track
record with things like Taggart which have been very successful
on a UK-wide basis, but we do not want to have ourselves pigeon-holed
or stereotyped as only capable of making Scottish programmes.
I think that would be wrong. We want to make generic programmes
for a UK-wide audience but based on the skills and talents in
Scotland. I think that is a very important consideration, because
there is a continual drift of skills and resources into the south-east
of England.
Chairman
535. You said, Mr Flanagan, that people do not
want to pay for digital service. Is not everybody paying for digital
service through the increase in the licence fee following the
Gavin Davis report, even though the specific Gavin Davis recommendation
was rejected?
(Mr Flanagan) That is very true. I was referring primarily
to the concept that they have to pay for a specific channel rather
than the indirect rate that they are paying, whether it is through
the BBC's licence payment or the heavy investment that is going
on through ITV, through radio companies, who are bearing quite
a substantial proportion too.
536. Is the difference not that the 40 per cent
of householders who are paying for digital channels want to watch
digital channels, whereas the 100 per cent of the population who
are paying the digital supplement on the licence include 60 per
cent of the population who do not, at present at any rate, want
to watch digital channels.
(Mr Emslie) Or they might not have access to them,
which is a separate issue. They might want to watch them but they
do not have access to an integrated television set or they are
not prepared to pay for a subscription service—which comes
back to the idea of a black box digital receiver which might be
commercially viable at under £100 or integrated television
sets.
537. The fact is that all of our constituents
and I do not know how many of my colleagues, subscribe to one
digital service or another, but all of us who do subscribe to
digital services, as I do, are being subsidised by the majority
of our constituents who do not subscribe to digital services.
(Mr Flanagan) That is a statement I cannot argue with.
Mr Doran
538. The issue of regulation. We both have experience
of ITC as a regulator. You are a genuine cross-media company.
Clearly we are moving into new territory with a regulator who
will cover the territory. I am interested in your views on how
you see that operating in practice. I can see, for example, that
there may be some uniformity because your radio people will be
regulated more or less the same way in which the television people
will be regulated. On the other hand, I think there are serious
concerns about how the hierarchy will work in the new system.
To take your own proposals as to how it would operate on the basis
of value, we have telecommunications at the top, television next
and then radio at the bottom. I am interested in your views as
to how that will work in practice.
(Mr Flanagan) Do you mean within the organisational
structure of OFCOM?
539. How is it going to affect you as a company?
(Mr Flanagan) I think the major issue for us is that
the regulators adopt a lighter touch in respect of that and not
be as prescriptive. There are bold principles that I do not think
should be moved away from: taste, decency, impartiality in TV
news. Those are key factors. What I would like to see is a less
prescriptive way that says, "This programme has to be scheduled
at this time" or whatever. I think that is where some movement
could happen which would be beneficial. I think, in addition,
there are issues surrounding the BBC. I think what we would like
to see is a level playing field. There are certainly things going
on at the moment with the BBC that we in the private sector would
not be allowed to do—in terms of cross-promotion of services,
in terms of promotion of merchandising and things like that. I
think either the rules have to be tightened up for the BBC towards
the commercial sector or vice versa. I think the rules have to
be liberated or reduced for the commercial sector.
540. From the radio sense, I do not know if
Mr Pearson wants to say anything about how you think this new
conglomerate regulator is likely to affect the way you operate.
(Mr Pearson) I amplify Andrew's view about regulation
of the BBC, that there is some format for it. In the radio sector,
we have content formats on the character of services and we would
see those being maintained. The one thing we would be very guarded
against is some sort of radio like the Towers Perrin report suggested,
where radio would be put into one horizontal pitch within OFCOM.
We think radio should be fully within OFCOM and its sectors.
(Mr Flanagan) If I could just add to that, I think
we would be against OFCOM just being an umbrella organisation
that collectively put all of the existing regulators together.
I think this is an opportunity for change and I think that should
be effected.
Chairman: Gentlemen, I would like to
thank you very much. Your appearances are always welcome here.
You will have noted the admiration the members of the Committee
have for the document you submitted to us. Thank you very much.
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