Memorandum submitted by SMG plc
EXECUTIVE SUMMARY
The key elements of SMG's submission on the
BBC Charter renewal are as follows:
1. The over-riding objective should be to
increase the BBC's focus on its core public service objectives.
In particular, where established, mature commercial markets now
provide services, the BBC should be operating differently, taking
more risks and championing innovation. Behaviour which amounts
to an abuse of market-dominance, overtly commercial non-core activity
and the distortion of commercial markets through the use of public
funds should be curbed.
2. A clear public service remit is required
for every individual BBC service across television, radio and
online. This levels the playing field between the BBC and commercial
operators, whose services are already characterised within their
licences, and allows transparent measurement of actual delivery
against stated objectives.
3. The licence fee should remain the primary
source of funding, but with a review at the earlier of the next
Charter review or analogue television switch-off, with the possible
advent of subscription funding added into the mix thereafter.
Consistent with other broadcasters, power and telecomms companies,
the increased use of new technology and efficiencies should facilitate
the application of a deflation index to future licence fee payments.
4. BBC Worldwide to be sold off with proceeds
used directly to reduce the licence fee, or returned to the Treasury.
The BBC should continue to benefit from secondary exploitation
of rights and licensing of programming for magazines etc, but
in future, external partners should be responsible for commercialising
content, not the Corporation directly.
5. The BBC should refrain from inflating
the market in rights for sports events and films by paying for
exclusive transmission when other universally available broadcasters
are prepared to bid; ie it should become a buyer of last resort.
The current position benefits rights holders much more than viewers
or listeners and artificially distorts the market by pushing such
events and films beyond commercially viable pricing.
6. Governance and regulation of the BBC should
be split. The role of the Governors, primarily as protectors and
ambassadors, should become more akin to non-executive directors
within a plc, similar to Channel 4's Board. In terms of regulation,
the BBC should fall in line with all other broadcasters and Ofcom
should assume full tier 1, 2 and 3 obligations.
7. Increased levels of accountability should
be required, with financial and programming performance against
stated objectives, remits and targets published annually. Failures,
such as not meeting the 25% quota of independent production over
the last three years, are unacceptable.
8. The BBC's guaranteed funding has given it
the security to invest in original high quality programmes with
excellent production values. However, SMG believes that the Corporation
must do more to nurture the UK's creative communities, particularly
outside of London. Currently, no decisions about national commissioning
are made anywhere other than the capital and this London-centric
bias is as unfair as it is irrelevant. Given the range and number
of individual television channels, we believe that at least one
should be based outside London. For example, BBC Scotland has
become a centre for production of children's programmes and there
is no reason why CBeebies or CBBC could not be based there.
9. In order to safeguard the future existence
of high quality jobs in the creative industries in Scotland, SMG's
network production business, SMG TV Productions, should be reclassified
as an independent producer outside of Scotland. This would help
to increase production levels in the important production centre
of Glasgow and act as a hub for other businesses within television
production and the creative industries in general. There is no
doubt that, with the combination of BBC Scotland, SMG TV Productions
and the Channel 3 licence of Scottish TV, Glasgow is recognised
as a major production centre within the UK. The recent merger
of Wark Clements and Ideal World has created the biggest independent
outside of London. Our classification as an independent producer
in a rapidly changing market can only help to build the critical
mass of production required to sustain these high quality jobs
in the long term.
10. Beyond digital switchover, ITV may require
to adopt a different business model where transferring their content
to the digital spectrum, as opposed to maintaining the current
protected position as a PSB, will be the key driver of future
revenues and viability. Consequently, without the continuation
of the network programmes supplied by ITV as part of a network,
it is unclear as to whether an independent broadcaster in Scotland
would be a viable concern. In order to safeguard our position
post-switchover, it is vital that our status as an independent
producer be recognised. This change in status would allow us to
build a vibrant production business based in Scotland and would
secure the long-term viability of jobs in Scotland and our continuing
contribution to the creative industries. It would also provide
the bedrock upon which an independent Channel 3 broadcaster would
exist in a digital market.
Q1. Given expected growth in digital TV and
likely developments in the Internet and other new media, what
scope and remit should the BBC have?
— It is essential that public service
broadcasting also lies at the heart of services provided by the
BBC on new methods of delivery such as interactive and broadband.
The BBC has already built an extensive portfolio of services which
complement its traditional broadcast services
— As technology changes and new methods
of delivery are available to viewers and listeners, universality
must remain a pivotal and over-riding aspect of the BBC's publicly
funded services.
— As with all the current television
and radio services provided by the BBC, SMG recommends that a
clear remit is established for each new proposed online strand
and that, where appropriate, Ofcom undertake a market impact analysis
to predict the commercial and competition effect of new BBCi launches.
— Original annual investment in BBCi
of £25 million has grown four fold to over £100 million
and whilst this unforeseen, unpredictable resource has resulted
in high quality digital services, it has also depressed the growth
of other commercial online activity.
— There should be a clear and demonstrable
link between all BBCi channels and core PSB services. The primary
focus should remain on the provision of services on publicly managed
broadcast spectrum, with online content a secondary and supporting
outlet.
Q2. In the context of scope and remit how
should the BBC be funded?
— SMG believes that the licence fee
remains the most appropriate method of funding the BBC for this
Charter renewal period. We do believe there is merit in considering
part-subscription funding at the time of the next Charter renewal
or analogue switch-off (whichever is earlier), since a degree
of choice in what to watch (and therefore pay for) will become
a more prominent and expected feature of multi-channel television.
— In contrast to the free-to-air, advertiser-funded
sector's recent passage through one of the most difficult downturns
in advertising revenue, the BBC has enjoyed above-inflationary
increases in funding, boosting its annual income from £2
billion to £2.8 billion in just three years and a projected
£3.1 billion by the end of this Charter period.
— This rise in funding has occurred
against a backdrop of hardware production costs decreasing and
a deflationary cost ratecard being applied by major suppliers
such as telecom and power operators.
— This disparity needs to be addressed
and the most appropriate way of doing so is by a deflationary
index being applied to future licence fee payments. The £3.1
billion of projected income is almost £1 billion more than
was anticipated at the beginning of the 10-year Charter in 1996.
— We believe savings can be made in
a way that will not result in either the quality or quantity of
production being reduced.
— One example where savings can be
made is the acquisition of sports rights. The BBC has just committed
to paying £2 million per season for four years for exclusive
Scottish Premier League football coverage on radio. Previously,
commercial stations had paid c£800,000 per season for non-exclusive
rights and shared the rights with the BBC. We fail to see how
exclusivity for the BBC at such an inflated price is of any benefit
whatsoever to listeners, since they will now have no choice in
coverage, no plurality of voice, and no diversity of provider.
The BBC, in wishing not only to broadcast but to dominate Scottish
football reporting in a manner which has no public interest objective,
has not efficiently disbursed its privileged funds.
— The same is true of the BBC's purchasing
of films such as Harry Potter, which do not require licence payers'
funds to bring them to a universal platform.
— As a general rule, we recommend that
the BBC be discouraged and even prevented from acquiring exclusive
sports or film rights, since this amounts to unnecessary publicly
funded expenditure that benefits rights holders far more than
viewers/listeners and distorts market pricing beyond the reach
of commercially-funded operators.
Q3. How should the BBC be governed and/or
regulated and what role should be played by Ofcom?
— The current arrangement whereby the
BBC regulates itself poses a basic conflict of interest: the Board
of Governors act both as protectors and ambassadors for the Corporation,
whilst also regulating its output.
— The UK has just completed one of
the most comprehensive reviews of broadcasting regulation, leading
to the vesting in Ofcom of powers under the 2003 Communications
Act. In this context, we believe it is both desirable and necessary
to also position Ofcom as the backstop regulator for the BBC.
— Recent events have highlighted the
shortcomings of a self-regulatory regime, where the BBC Board
of Governors, as a single body corporate, are simply not equipped
to discharge the duties they have to the Corporation, its management,
the market and citizen-consumers.
— Under the BBC Agreement, there is
a form of regulation through a requirement to publicly consult
prior to making any material change to the nature of the Home
Services, provided always that such consultation shall not require
the BBC to disclose commercially sensitive matters relating to
programme services. This is wholly deficient as a means of regulation.
The BBC remains free to make decisions unilaterally and without
prior approval of the regulator. There is no transparency as to
the approval process (if any) exercised by the Secretary of State—granting
a party a right simply to be consulted offers little control or
regulation of outcome.
— It is clear that citizen-consumers
who fund the BBC need to be reassured that it is an institution
independent of the Government. However, it is SMG's recommendation
that the economic direction of the BBC be subject to regulation
to prevent unfair practices and distortion of the market. SMG
proposes a solution where the Governors sit in a position akin
to a plc Board of Directors, within an environment ultimately
regulated by Ofcom, similar to the structure of Channel 4.
— Historically, the BBC's independence
from Government has underpinned its editorial integrity and we
believe it is vital that this aspect of the Corporation's character
be preserved. Our proposal allows the Governors to guide and support
the BBC's senior management, whilst matters of regulation are
reserved to Ofcom, itself established by Act of Parliament as
the independent regulator.
— Transparent and accountable governance
of the BBC is aided by many of the recommendations submitted in
this document. In particular:
a clear remit for each service provided;
setting of clear quantitative objectives;
greater accountability in reaching quotas
such as 25% independent production;
separation of Governors and Regulator role;
detailed annual reports showing financial
and programming achievements against targets.
Q4. In a changing communications environment
does a 10-year Royal Charter and Agreement with the Secretary
of State provide the most appropriate regime for the BBC?
— We do not believe it is necessary
to seek to change the BBC's status as incorporated by Royal Charter,
although this places the BBC at odds with other broadcasters who
operate under statute. Whilst Royal Charter is one form of conferring
legal status, others are available. Change as advocated in this
document can be introduced through Royal Charter as well as through
any other means. SMG believes that the priority in the short-
to medium- term must be to curb the BBC's commercial and expansionist
behaviour first, secure its funding via the licence fee, and bring
it under the regulation of Ofcom. If this was achieved, then the
status of the Royal Charter can be looked at in the future as
part of the next Charter review.
April 2004
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