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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 598-iv House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE CULTURE, MEDIA AND SPORT COMMITTEE
Tuesday 29 June 2004 MR RICHARD FREUDENSTEIN, MR MIKE DARCEY, MS LISA OPIE, MR HOWARD WATSON, MR HUGO DRAYTON, MR ROGER DARLINGTON, Evidence heard in Public Questions 178 - 277
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Culture, Media and Sport Committee on Tuesday 29 June 2004 Members present Sir Gerald Kaufman, in the Chair Chris Bryant Mr Frank Doran Michael Fabricant Alan Keen Rosemary McKenna John Thurso Derek Wyatt ________________ Witnesses: Mr Richard Freudenstein, Chief Operating Officer, Mr Mike Darcey, Director of Strategy, Mr Mike Rhodes, Head of Regulatory Affairs and Mr Ray Gallagher, Director of Public Affairs, BSkyB, examined Chairman: Good Morning, gentleman. It is very nice indeed to see you, as always. We are going to launch straight into the questioning. John Thurso. Q178 John Thurso: Can I begin with a pretty straightforward question. From your perspective, is there really any need for a BBC? Should the BBC actually exist? Mr Freudenstein: A big question to start with! I think you really need to look at why you want a BBC and what it is there to achieve; and I think in that ... We probably agree with some of the things that witnesses to this Committee have said before, such as Sir Christopher Bland earlier in the month said, I think in general terms, "the BBC is there to provide a quality and range of programmes that will not always or frequently have been provided by commercial television and commercial radio". So I think there is a role for the BBC in terms of providing high quality programming that would not be provided by the commercial stations. I think there is also a role for them to lead the way in innovation and risk, if that is what society thinks is important. Q179 John Thurso: If one looks at the BBC and the way it has developed, it has moved into a lot of areas which might be considered the province of the commercial operators and clearly the boundary between what it is appropriate for the BBC to do and how far they go is one that needs to be debated. In your view where should that boundary be drawn? What is the preserve of the BBC and adds the value that you have just described, and where is it that they trespass into the areas you would really like them to keep out of? Mr Freudenstein: I think you keep bringing it back to what does society want to see? What programming and content does society want to see provided? Is that being provided by the market? If it is not being provided by the market, then the BBC should provide it, then you have to have a debate about how much money they need to do that and then you can have a debate about how you fund it. The one thing that is clear is that, however that is decided, you need to set a pretty clear remit for what you want the BBC to do. An example is what has happened with BBC 3. For the first time there has been a remit and some rules laid down about what the channel should be, and the emphasis is on being distinctive from what commercial channels provide, and then you need someone to make sure they live by the rules. Q180 John Thurso: Do you believe that BSkyB delivers any public service in its broadcasting? Mr Freudenstein: It depends how you define "public service broadcasting". Clearly Sky provides a lot of high quality entertainment and information which is of a public service. We do it for commercial reasons. So it does not fit within the narrow definition of "public service broadcasting", but clearly a lot of what we do is public service. Q181 John Thurso: If I have got your definition right, what you are suggesting is that the BBC should primarily take care of those areas which the commercial sector will not be able to do on its own, and that is effectively to be there to - if you like, it is where there is market failure, where the market does not support the activity. Is that a fair summation of your view? Mr Freudenstein: The words "market failure" tend to be a bit emotive and tend to send people off and get excited, but I think that is generally right. It is the view of a number of witnesses before this Committee - I quoted Sir Christopher Bland, I think Lord Burns said something similar. What type of programming do people want? Is it likely to be provided by the market place? If not, what kind of intervention do you need to bring it about? So I think, yes, that is basically right. Q182 John Thurso: Ideally, from a commercial point of view, the less the BBC does to compete the better? Mr Freudenstein: Sky is certainly not afraid of competition, but what you are talking about here us using public money and what you want to use that public money for. Q183 John Thurso: Do you not then end up with the danger that if you have a very narrow remit and a public service broadcasting that is confined to very narrow limits and therefore does not have the viewer figures to actually fulfil its role, the argument being that the BBC, by being in other areas, has sufficient viewers to be able to deliver the public service content across a wider spectrum? Mr Freudenstein: No, I think there is a lot that can be - there is a lot the BBC can do within that sort of general not being done by commercial broadcasting that gives them a fairly wide scope to do things; it gives them a scope to innovate and to take risks that commercial broadcasters may not want to and it gives them the remit to push the commercial broadcasters as well. An example might be comedy. The BBC has a role in investing in innovative and risky comedies which the commercial sector may not do. I also think if that is the role of the BBC, then you should not get too hung up on audience figures: because if it is providing a role that society thinks is important, I do not think audience figures are the be all and end all. Q184 John Thurso: Let me ask a last question, Chairman. If, therefore, the BBC were removed and you were free to act without the BBC there, you would see that as a negative rather than a positive in commercial terms? Mr Freudenstein: I do not think we have ever thought about a world without the BBC being there. Q185 John Thurso: I have invited you to think about it? Mr Freudenstein: I think there would be... The market would be very different. There would be opportunities for commercial broadcasters, because clearly the BBC - anything the BBC does has an impact on the market; even if it is for a good reason. It has an impact on the way the commercial sector will invest, it has an impact on strategies for the commercial broadcasters. So, clearly, if it was not there, there would be more opportunities, yes, but I do not think that is something that Sky is advocating. Q186 Derek Wyatt: Good morning. I apologise, I have to go after I have finished questioning you just for an hour to see a minister, so do not take that as a slight. In trying to work out whether the BBC should be as it is in 2017 it is quite a gamble, from my perspective, that the entertainment platform would be the same as it is currently. You are a fast-moving company. What is your view of where the entertainment platform will be, say, in 2012, halfway through a 10-year license fee? Mr Freudenstein: I think one thing that is certain is that there is uncertainty. I think in 2012, for example, even in 2017, broadcast television will still be far and away the most popular way people receive entertainment. I think channels and multi-channel platforms will still be very, very popular. Clearly there will be fragmentation, there will be more broadband, there will be more ways in the home: mobile, internet, broadband, and so on and so forth. I think another factor which will be very interesting how the whole landscape develops is that there will be PVRs, our Sky Plus and other similar versions will be very, very popular by 2012 and even more so by 2017. So there will be a lot of change; it is hard to predict exactly how it will pan out. Q187 Derek Wyatt: But if the statistics show that people under 18 watch much less television now, that the next generation will watch a lot less again and again, is it not a development that there will be less interest in television per se as the next generations inherit different forms of platforms? I suppose my question is: do you think we should just pay the licence fee for ever and ever, or, if we are going to say it is 10 years, should we say, "It is 10 years, but we are going pay you less over the 10 years because less people will come into your systems"? Mr Freudenstein: I think there are a couple of issues there. The first is I think there is still uncertainty about what children will do as they grow up, and, when they reach a certain age, will they continue to consume media in the same way as they do when they are 15 or will they become more like we are: flop at home in front of the television after a hard day at work? I think that is still a bit uncertain. Clearly there will be fragmentation. I am not quite sure to what extent it will happen. As to the second part of your question, I think it does come back to what you see as the BBC's role, and, once you have worked that out, how much money do you need to fund that, and not necessarily get hung up then on how many people will be consuming it. Q188 Chairman: Could I come in at this point, Derek, following what you have been saying? You are in a very enviable position, taking into account that you have the issue of winning and retaining the subscribers, which you have been very good at. You can do what you like within the variables, within Sky. You can launch new channels whenever you want to, you can, as you are doing, proceed with interactivity. Taking into account your commercial business, whose main objective - and I do not criticise you in any way for this - is to make money, which all commercial operations have as their main objective, you are very, very flexible. Could I put a devils advocate question to you simply in order to get your reaction, namely this. You are flexible. Heaven only knows what your flexibility will have led you to be by the year 2016. Twelve years from now would a monolithic, relatively inflexible organisation whose new plans have got to be approved of by a government be the most appropriate form of public sector, public service television in this country? Mr Freudenstein: I suppose it depends how quickly you think things will change. It also depends... You say the presumption that presumably the BBC is incredibly inflexible and slow-moving, which can be true in some areas, but I think in other areas they move very quickly. I mean, when we, together with the BBC, launched Free View quite recently that was very quick on our part (Crown Castle and the BBC). We all moved very quickly to re-launch that platform. So, I think, somehow, you have to come up with a governing regime for them that allows them to move quickly if that is, again, what society thinks needs to be done. Chairman: When the previous government decided on a 10-year charter to the year 2006, the kind of ways in which people behave now in terms of access to visual and audio entertainment and communication were practically unimaginable. The explosion of the use of mobile phones and the increasing amplification for what you can use a mobile phone for. Things like Ipod, which have taken over now, etcetera, etcetera, were not even imagined when the previous government decided on the 10-year charter. Is there an argument for saying that, in view of the almost utter incalculability of where we are going to be in 12 years' time, that a 10-year charter might be too long, or, on the other hand, because of the incalculability, a 10-year charter might be too short? Chris Bryant: Hear! Hear! Q189 Chairman: I do not want you to approve of me, Chris; it puts me off! Mr Freudenstein: Plainly it is very difficult, and the other thing you have got coming up obviously is the potential for digital switch-over as well in that time, which adds another level of complexity. I do not think we know the answer. Maybe you need a review point around about the time of digital switch over might be a way to look at it. Q190 Derek Wyatt: Just a last question. It seems to me that in the public sector system there are two channels the BBC will not do: one is a UK film channel dedicated to UK film from, say, 1918 to the present day, and, secondly, a sport and health education channel to look at sport psychology, sport medicine, sport development, school curricula, and so on. Yet these are two things that (a) the schools tell us they would like, and (b) aficionados of film would like. In fact, they will not get very high ratings, but they are a public service, yet we cannot persuade the BBC of the efficacy of that; they have already decided that their current digital platform is it for the next 12-year; they do not wish to extend that. Would you, in principle, be for the top-slicing of the licence fee so that those groups of people in our communities that would like public sector broadcasting and cannot get it from the BBC at least could have funding, much like the community radio. The BBC does not want to do community radio. It is a big growth area in Britain. Where are we going to get the funding for it unless we top-slice the licence fee? Mr Freudenstein: I think there is always a bit of confusion about what top-slicing actually means. One concern of ours is that top-slicing means taking public money and giving it to commercial broadcasters to do what they would have done anyway. In your example, there are lot of British films on the Sky platform already, both on Sky and on channels like Film Four, so I am not sure whether that is a gap that needs to be filled by public money; and similarly with sport, I am not sure whether that is a gap that needs to be filled by public money either. Sky does a range of minority sports. We do a range of youth sports. So I am not convinced there is an argument for either of those channels particularly, or I am uncertain about what top-slicing actually would mean. Q191 Alan Keen: I am a great fan of Sky as Chair of the All-Party Football Group! It is a magnificent presentation, and when I spent years travelling around the country watching opponents' tactics before we played, TV produced nothing that analysed games. I also found the BBC... I remember asking a series of questions to them a couple of years ago, and we ended up almost agreeing, I think, that Sky News, Sky Sports News, and football was all public service broadcasting really. So much of Sky's output really is public service broadcasting. I think, as a fan of both the BBC and Sky, do you not agree, you do tend to take too hard a line as if you want to get rid of the BBC's entertainment? You said that audience figures are not important to the BBC. You are about the only person that I have heard say that, because others say the BBC should justify their existence by producing decent audience figures? Mr Freudenstein: It is not the be all and end all: it should not be the determining factor. If the BBC is spending the money in the way society wants that is purely to a group of people that it is important to provide programming to, I do not think it necessarily matters whether it is a 30% share, a 20% share, 15%. I do not think that is the determining factor. Q192 Alan Keen: I do not watch it, but are you saying that the BBC should not produce something like Eastenders? You think they should be restricted? Mr Freudenstein: No, I did not say that either. I think just because the BBC makes a popular programme it does not mean it is not public service broadcasting. You have got to start from the premise about why are they investing? What they are doing? If it turns out to be a popular programme, that is great, but they should not just do copycat programming or programming that the commercial sector would do. Q193 Alan Keen: One thing we have been finding out in the last couple of weeks of this inquiry is that some people say that Sky Plus, for instance, means that people can select the programmes and watch them when they want to. On the other hand, I have not been convinced myself. I wonder if you can convince me from statistics maybe, as you are learning from Sky Plus. I like to sit in front of the television and be entertained and see a show. It might be a series of three programmes, three different programmes. It is not that I do not look to see what is going to be on, but I like in a way to be surprised, and it seems an immediate thing to me, like going to the theatre. What is Sky Plus showing? Is it showing that people are going over to that sort of thing? Mr Freudenstein: I can give you some statistics. I think 62% of viewing in Sky Plus homes is to live television, 38% is to recorded. 85% of people check what is on live before they go to the recorded programming. So there is still a majority of live programming. That is partly because of the way we have set up our Sky Plus system. If you turn on our electronic programme guide, the live programmes are on first and the recordings are at the bottom, which is, for example, different from the way TIBO does it in the United States, which is the first thing you get is the recorded programming, which could tend to throw you more to recorded, whereas we are quite happy to throw people to live first. So there is a lot of viewing to live television, but, as I said, 38% of viewing is recorded programming. Within those statistics people are watching more movies, more sport, more basic channels, as a general rule less terrestrial television in Sky Plus homes as well. Overall they are watching more television, and it goes up from 23 hours to 27 hours on average. Mr Darcey: One other comment about the recorded programming. Some people tend to think of this as being about watching something from a week ago or a month ago. Some of the recorded programming viewing could just be time-shifting it by 20 minutes. It would still come up as recorded viewing, obviously, and people find that functionality very attractive. It helps them cope with the complications of their life and they are able to watch a television programme when they are ready rather than when it happens to be on; so even time-shifting by 20 minutes can be pretty valuable. Q194 Alan Keen: Following on from that, one last question. Do you foresee, for instance, in 10 years that somebody like me will not sit in front of the television set thinking, "Now I will watch this and then watch this"? Do you think all of this virtually will be choosing and drawing down the programmes you want to see, or do you still think there will be what I call the theatre effect of sitting in an armchair and being entertained? Mr Freudenstein: I think a lot of people will have the Sky Plus or PVR devices in their homes. I think there will always be event television which people will want to watch live, but I think there will be more use of recorded time-shifting programme. As Mike said, it might only be by 20 minutes, it might be by one night if you happen to be out on the night and you want to watch a programme, but there will still be a place for event television, live sport being an obvious example and things like the big soaps, and things like that, clearly people will want to watch them live or very close to live. Q195 Chris Bryant: Many congratulations on your "Freesat" package, which I know a lot of people will be looking forward to. When is it going to start? Mr Freudenstein: We have not announced a definite date, but we did announce that it would be this year, this calendar year. Q196 Chris Bryant: You do not want to announce a date? Mr Freudenstein: Not today. Q197 Chris Bryant: Let me check. On funding of the BBC, you are not in favour of the BBC being funded by subscription? Mr Freudenstein: I do not think we have--. We have not said, we have not made a comment on that. I think again it comes back to the principle: decide what you want it to do, decide how much money you think it needs to do that and then have a debate about how you are going to fund that. Q198 Chris Bryant: Do you think it should be funded by subscription? Mr Freudenstein: I think once you have gone through that analysis, I think at the moment you might find that the licence fee is probably is the least worst way to fund the BBC at the moment. Q199 Chris Bryant: So "Sky Sports Licence Fee" - that is the headline today? Mr Freudenstein: No, as I said, I think we have not come to a definite conclusion. I think you need to go through that analysis first: what you want to do, how much money you think it needs, and then have a debate about-- Q200 Chris Bryant: Let's say it needs roughly £2.5 billion a year. Should it be funded by subscription, should it be funded by advertising or should it be funded by the licence fee? Mr Rhodes: I think, as Richard said, it depends on what it is doing. If for that £2.5 billion it is providing a service for, by and large, the population, then probably the population should be contributing to the funding; and it may well be that the most efficient way to do that is through a licence fee. That is something you would have to look at once you have identified the role it is going to perform. If the role it is going to be performing is, for example, to provide very much a niche service, like the one that Derek Wyatt mentioned earlier, this sport psychology, then it may be that there is a very small part of the population which would wish to consume that service, and it may be more appropriate that that part of the population looks to funding it. I do not think you can say in the abstract: is the licence fee right? Should it be subscription? It really does very much depend upon the activity being undertaken? Q201 Chris Bryant: But we know what the BBC looks like. It has got BBC1, BBC2, all the radio, all of that kind of stuff. We know what it does. I am a bit worried if you are so shy of saying anything about the license fee, because in the past Sky has always been rather publicly opposed to it; and we have had people on behalf Sky sit in that chair and say the licence fee is nonsense. Mr Rhodes: I am not sure we have said that, but our position today is that it very much depends upon the function that it has been performing. Q202 Chris Bryant: But you challenged the licence fee as being state aid, for instance, in Europe? Mr Rhodes: That was a question to do with News 24, whether it was appropriate that public money should be given to the BBC to perform that task given the effect it was having on commercial operators such as Sky News. So that was a very specific issue: should that money be given to the BBC for that task? It is not a general, "We challenge the licence fee." That is not our position. Q203 Chris Bryant: Do you still believe that News 24, BBC News 24 should be stopped, that in the new charter it should not be allowed to do News 24? Mr Rhodes: I do not believe we have given that any consideration recently. Certainly there has been an adverse effect on Sky News, and it is difficult to envisage yet another entrant who is providing news, given the BBC's position. ITV was able to grow a 24-hour news channel off the back of its existing news provision, but it is difficult to see anyone else doing that. So there is clearly a market effect which we have some concerns over. Q204 Chris Bryant: Hang on. We are talking about a new charter for another 12 years in which presumably there will be laid out what channels the BBC can and cannot do; and you are saying today that you have no view as to whether News 24 should be part of that package into the future. Is that right? Mr Freudenstein: If it is, I think it needs to perform some public service function which needs to be distinctive from what commercial broadcasters are doing. Q205 Chris Bryant: It is, because it is not as good as yours! Mr Freudenstein: I think my comment echoes what the Lambert Report said as well. It is no good just copying what we do or what ITV News does. It needs to be distinctive. It needs to do something that justifies the public money. Q206 Chris Bryant: I am still a bit perplexed, because it seems to me that basically you are accepting the BBC as it is and into the future, which has not being traditionally your position; and I just wonder whether that is because the BBC, with BBC3, BBC4, these new channels, has driven up take-up of digital, which has put you into an awful lot of homes in the country? Mr Freudenstein: I would not over-emphasise the effect that BBC3 and BBC4 have on driving take up. What has driven take-up, to some extent, has been the BBC's cross-promotion, which is a big issue in making sure that they are platform neutral and they cross promotions. Every new channel or service the BBC launches has an effect on commercial broadcasters, and people have to be aware of what that effect is. We may make decisions to approve and launch new channels, but we are not coming here today with a definite view on what channels should or should not exist. It depends a lot on what comes up. Q207 Chris Bryant: It is interesting, because last time we debated issues around broadcasting in advance of the Communications Act, there was a much more ferocious debate about the BBC and about ITV, everybody was rowing, and it feels as if all the heat has gone out of that debate. It feels as if basically the status quo is what you are quite happy with. You support the licence fee now. You support the BBC's broad package of channels? Mr Freudenstein: No. I think what we are saying is you need to go through the process of analysing what you want the BBC to be. We are not saying one way or the other emotively what it should or should not be. I think the people who decide this need to go through the process of what you want the BBC to be, then decide how much money you need and then decide how you are going to spend it. It does not need to be emotive; it needs to be: what does society want from public service broadcasting? Q208 Chris Bryant: What do you think it wants? That is what I am trying to tease out of you. Mr Freudenstein: I will go back to what I said at the beginning, which is echoing what other people have said to this Committee, which is that you want a quality and range of programming that is not provided by commercial broadcasters, and then you work out the best way to achieve that. Q209 Chairman: Before I call on Rosemary, could I follow up on something that Mr Rhodes said? Mr Rhodes talked about "niche broadcasting". Sky is a large conglomeration of niches. So is Channel 4. So is Channel 5. They are the niches. Chris Bryant was asking you about how you felt about the BBC as it is now. The BBC as it is now, whether that will be so in another 10 years who can tell, is based upon having audiences, certainly for BBC1 and BBC2, which are far bigger than anything you aspire to for any of your channels. They are looking to have for BBC1 something like 20% of the people in the country sitting down together and watching some programme, whether it is Eastenders, Panorama, or whatever it might be. Is that the scenario that you envisage is still viable for the year 2016? Mr Darcey: Can I have a go at that one? I think this goes back to the point that Richard was making earlier about the issues with share of viewing. We have some sort of sympathy with the BBC on this point - may be that is going to be your headline - that share of viewing is sort of used in both ways. If sharer viewing for the BBC is too high they are criticised for being too populous, and if it is too low they are criticised for wasting public money. Share of viewing is a very imperfect device, and I do wonder if we should try and pay more attention to some sort of concept of audience appreciation, because I think there is quite an important difference between somebody sitting down in front of a BBC programme because it is the best of a bad lot that is on and they sit there and they find it a thoroughly unmemorable experience, and contrast that situation with one in which they sit down in front of a BBC programme and it is the highlight of their week, they find it very entertaining, they are very exited about it and they come away thinking, "I am really pleased I devoted an hour of my life to that." Unfortunately, those sorts of distinctions do not really get picked up in straight viewing share numbers, and I think the important thing for the BBC going forward is to make sure that it is doing more of the latter, to the extent, whatever its overall viewing share is, it is comprised of people perceiving that they are getting a few real gems from the BBC that they find memorable and, when they look back, they think, "Yes, I am really pleased with what the BBC has given me." Because that is more important than lots of people just watching a lot of stuff that they find fairly unmemorable. Q210 Chairman: Last Thursday evening many millions of people parked themselves in front of their television sets to watch the England/Portugal match. It was on BBC1, but they would have watched it on whatever channel it was, provided they had access to it. They were not saying, "I must us watch BBC1", they were saying, "I must watch the match"? Mr Darcey: Yes. Mr Freudenstein: That is correct, yes. Q211 Rosemary McKenna: I do not quite know where the Chairman is going with that question, but can I probe a bit further. I wanted to ask about audience share, the question that you have given, because I believe, and I wonder if you would agree, that the BBC should not be concerned about audience share as its primary concern. What it should be doing is producing high quality programmes, a bit of experimentation. Would anyone else have produced "The Office", for example? Should they get their audience share by that effort of producing really high quality programmes and not be concerned about audience share in terms of what time they put something on to channel whatever. What would your view on that be? Mr Darcey: We have seen a number of comments by some of the other terrestrial broadcasters where they had some concerns about counter-scheduling and things like that, and I think we understand where they are coming from. I think we tend to agree that the BBC should focus its efforts on high quality programming. People sometimes then take that and say, "So what you are saying is they should go down a sort of Shakespearean ghetto", and I do not think that is what is being implied, that high quality can also be highly popular, and I think this issue of risk is very important. It is very easy after the fact to say, "Oh, well, 'The Office' was a very popular programme, so perhaps the BBC should not have done that." I think the real issue is that most of the terrestrial broadcasters find comedy a very challenging genre to invest a lot of money in because it is very risky; but when we ask the BBC to take on risk because they are well placed to do so, we should accept that sometimes risk will pay off and they will produce something very popular and very successful; and we cannot criticise them for that; but we also have to accept that sometimes they will bear a risk and it will not come off and they will produce something which is not very popular, and that is part of the game. Q212 Rosemary McKenna: Your idea about just looking simply at audience share - it would be difficult to analyse that deeper, would it not, rather than just -- Mr Darcey: Yes, I do not think we would go as far as to say you should abandon all audience share, because I think there is a certain inevitability that those pieces of information are produced on a daily basis and people will look at them and they will draw conclusions from them. I think all I would say is there are other aspects that are just as important and they should be - or the industry as a whole should try and look at those as well. Audience appreciation is, I think, an important concept, it just happens to be quite hard to get a handle on. Q213 Rosemary McKenna: One other question, Chairman. There is a common thread running through evidence that has come from either programme producers or the carriers that provide the path for people. Everyone has said that the BBC is important, that it should continue to be funded. Is that simply because they set a standard but they also do most of the training in the UK? Is it simply because of that that the other companies recognise that would not be done, or the standards would not be as high if the BBC was not there and not doing the job that it is funded to do? Mr Darcey: I think clearly part of the BBC's role is to help set standards. I do not think they are the only people who set standards either in programming or in training, and you cannot look at training too narrowly because Sky does a lot of training in areas that the BBC does not operate, such as call centres and a whole range of installation, a role range of areas, but, yes, the BBC plays an important role in that area. Q214 Rosemary McKenna: On a different tack, Derek Wyatt, I think, earlier on said that young people are not watching television as much as they used to, but that was said about film ten to 15 years go and now many, many more young people are watching film because the film people have recognised they have to provide it in a different way. Is that very much on your horizon, the BBC's horizon, do you think, that they have to find a different way of attracting younger audiences? Mr Freudenstein: We do a pretty good job in attracting younger audiences. I think 60% cent of UK homes with children have Sky. There is a great deal if programming on the Sky platform that appeals to children of all ages, and it is very important for us. I think you are right: children do consume media in many, many different ways and it is worthwhile seeing how that is going to develop and will they continue for ever or will they revert to more, dare I say, normal habits as they get older. Q215 Mr Doran: In the market in which you operate, how do you see the BBC? Are they simply competitors, or are they something else? Mr Freudenstein: They certainly are competitors, and we compete with them in a number of ways for rights, programme rights, clearly audience share. We have an interesting relationship with the BBC. We are partners in Free View, so we work with them on the promotion of the Free View platform. We are in discussions will them about working together on the Free to Air Satellite Platform, and we will see where that one leads, but clearly whatever they do has a big impact on us and the other commercial broadcasters. Q216 Mr Doran: You are competitors and partners at the same time? Mr Freudenstein: Yes. Q217 Mr Doran: You gritted your teeth when you said that? Mr Freudenstein: No, not at all, as are lots of different players in the television industry. Q218 Mr Doran: In relation to Free View, on the one hand you have said you are partners and that is clear. At the same time, it seems to have had an impact on your business? Mr Freudenstein: Free View--. It is questionable whether Free View has had an impact on our business. Free View is doing very well, and on the back of BBC promotion Free View is growing quickly. Sky is continuing to grow. Q219 Mr Doran: But not as quickly as it was before Free View? Mr Freudenstein: Perhaps not, but we will see what happens in the future. Early indications are that people who have taken Free View have been very much people that are often BBC watchers who, so far, have been disinclined to take pay TV. So we see Free View as very much an introduction to digital television, an introduction to multi-channel television. I think you will find over time that, as people get a taste for more television, work out there are other channels other than the big five, many of these will then be attracted by the superior content on pay television and to move either Sky or Cable. So I think over time you will see Free View continue to grow and then perhaps over time the number of homes that have only Free View will start to decline as those people move and take pay television services. Q220 Mr Doran: So you see Free View as a sort of hook? Mr Freudenstein: Yes; it is a nursery slope. Q221 Mr Doran: On Freesat, we know the BBC were looking at their own idea of a free satellite service. Are you saying that now you are working together on that? Mr Freudenstein: No, what I am saying is that I think the BBC are still looking at their own service, but we are in discussions with them as well as to how much support they will give to our service and whether they need to do their own. One thing to note is our service for £150 you will receive a box, an installation and a card, and the card allows you to receive all the terrestrial broadcasters: ITV, Channel 4, Channel 5, as well as the correct regional versions of BBC and ITV and Channel 4. The BBC's service, you would only receive the BBC channels and other free to air channels, but not ITV, Channel 4, Channel 5. So I am not quite sure what they think they are going to achieve out of their service, and that is why we are talking about working together in our service. Q222 Mr Doran: Picking up the point that Chris Bryant made, it is quite obvious to us over the periods that we have been looking at the various aspects of the industry that the attacks on the BBC have tempered quite a bit. Is that because the industry, like yourself, is seeing that there is an advantage in the size and the capacity of the BBC as potential partners and pushing broadcasting further and creating new opportunities in what seems a much more flexible market? Mr Freudenstein: I would not necessarily say that. We at Sky think it is better to take an unemotional approach to this. This is a long process, this review. It is going to go on for a long time. I think you just need to be analytical look at what you want out of this, and being emotional about it does not help the debate at all. I think there is an acceptance that Sky and the BBC will continue to exist, will continue presumably to be a large player and it is just how that all fits into the landscape that needs to be worked out. Q223 Chairman: Could I ask you one final question. At the National Theatre there is a play about football called "Sing your Heart out for the Lads", and the central part of the set, there is a huge green on which they are showing Sky TV coverage of a football match. Viewing patterns have changed a great deal, have they not? I talked before, after something Mr Rhodes said, about the old concept which we all grew up with of a family sitting in a room watching television programmes together. We have now reached a very different stage in many ways, perhaps pioneered by the way that you have promoted yourselves, in which people watching, say, sporting events on television do not really want to sit at home and watch it with a six-pack of beer in the way that they might have done a few years ago, they want to make it a community event, they want to share it, and viewing patterns are changing in that way as well, are they not? So, again, to what extent will that affect the way in which public sector, public service broadcast... To what extent are our viewing patterns changing in relation to evolving social patterns? Mr Freudenstein: On your example, I think live sport is always something that people have wanted to watch, often wanted to watch in the community; so the pubs have always done very well out of live sport; people watching it together at home has always done quite well, and I am sure that will continue. I think it is an issue that there is probably less of the whole family sitting down and watching television together. The average household has a number of televisions now and people sometimes tend to watch their own programme in their own room, and that is probably happening more. I do not know what the answer is. I do not know what you do about that. Q224 Chairman: If you do not know, nobody knows? Gentleman, thank you very much indeed. Mr Freudenstein: Thank you.
Memoranda submitted by Telewest and NTL Examination of Witnesses Witnesses: Ms Lisa Opie, Managing Director, Flextech, Mr Howard Watson, Managing Director, Network Division, Telewest; Dr Keith Monserrat, Director of Communications and Policy, and Dr Steve Upton, Managing Director, Networks, NTL, examined. Chairman: Lady and gentlemen, thank you very much indeed for coming to see us. Could I just make a point that what is going on on the floor of the House later on this morning, within the next few minutes, is going to affect attendance. It is not in any way a reflection on you it is just the way in which our beloved House of Commons organises itself these days. Chris Bryant: Thank you, Chairman, and I apologise that that is partly referring to me; I am going to have to go and do something in a couple of minutes. Can I just ask one very narrow question, first, which is to NTL, about NTL Westminster. When is it going to be digital? Chairman: I am sorry, Chris, relate it to BBC charter renewal. Q225 Chris Bryant: Bearing in mind that BBC3 and BBC4 are channels which are only available in digital, when do you think it will be possible for NTL Westminster viewers to be able to see these channels? Dr Upton: It is a fairly short answer, I am afraid, in that we do not have a planned date for the upgrade of the Westminster network. We do have a substantial amount of work going on in other areas of London, however, to bring both digital television and broadband services where they are not currently available, but just at the moment Westminster is not part of that programme. Q226 Chris Bryant: I raise the question because, obviously, access to BBC channels is a significant issue as we look forward into the future. Do you think the BBC, as part of its charter, should spend more time, energy and money on getting programmes to people? Should they be sharing in some of this investment that you are talking about, or should they be spending as much of their money as possible on production? Mr Watson: I think that is an interesting question in the sense that where does the licence fee money go, in terms of the various elements of the BBC? I think the point that you are picking up on, which is ensuring that all of the population has access to the digital media by whatever means, is an area that does warrant further looking at. I think what is clear is that there is a variety of digital platforms available and so there is a choice for consumers, and I think it would be wrong to look at large sweeping ways of subsidising one platform versus another. I think that looking at where investment could be directed and ways of increasing for the UK the availability of digital is something that is certainly worthy of government as a whole. Q227 Chris Bryant: Let me just tease that out. Does that mean that you think that the Government should insist, by the charter, that part of what has to be guaranteed is a choice of digital platforms for every household? Or is that just not achievable because some people live in areas where they are never going to have cable? Mr Watson: I think that will come, ultimately, as a consequence of the market. I think attempting to regulate to insist upon that is not necessarily the best method to do that. Q228 Chris Bryant: Will it come? You are not going to roll out new cables over anywhere else in the country, are you? Mr Watson: We have talked about free satellite with Sky, and the reach of digital terrestrial continues to increase. There are certain technological limitations which may never be overcome there, and I think there are also the other media by which digital content will be consumed, for example broadband, and certainly if you look at the availability of broadband to the UK population that has increased dramatically over the last three years. Q229 Chris Bryant: How do you think the BBC should be funded? Mr Watson: I think we feel that the existing method of funding has worked and is right going forward. I think the key point - and I think if Derek was here he would ask the question - is how long should the charter be renewed for? I think we, certainly, are of the opinion, from what we have seen, that technology is absolutely moving so quickly that the adage from Bill Gates - which is that it is really hard to see a change in a year but you are always absolutely amazed at what happens in ten years - is absolutely true for this industry, and I do think, as a result of that, some review after five years, particularly as that will be shortly, hopefully, before the analogue switch off time ---- Q230 Chris Bryant: I wonder about that argument. I used to write speeches for Greg Dyke and John Birt and they used to predict all sorts of things were going to change - the whole world was going to change - and actually things are remarkably similar to what they were five years ago. The pace of change has not been as dramatic. You could use your argument, if there is going to be change, to say that the charter should be a very thin document, that really just states the basic principles of what the BBC should be about rather than anything that is too prescriptive. I suspect most people are urging the Chancellor to be rather more prescriptive. Mr Watson: My experience is the world has changed dramatically in five years. Five years ago I would not have had a house with five mobile phones in it, one for each individual; I would not have been using a personal video recorder and, potentially, watching Eastenders three times in an evening for different members of the family. So I think that pace of change has been dramatic over the past five years. Whether that means you should have a less prescriptive or more prescriptive charter, I am not sure. I think the important point is to have, as I said earlier, a review earlier than ten years, so that at least you can take stock of what may have changed over that period. Q231 Rosemary McKenna: Can I ask the question I asked the previous group: there is a common thread running through all the submissions by both the carriers and the producers, which is that the BBC is crucial, must be funded properly and must continue. Is that, to be cynical, because they set high standards or is it because they do a lot of the training? Ms Opie: I think without a doubt they do provide a great deal of training into the industry, and that is beyond dispute and we should appreciate them for doing that. I think there are a growing number of other broadcasters that provide a very different kind and a very valuable source of training as well, and I would say that within Flextech and Multichanel there is a very specific and distinct kind of broadcaster being developed and taught, and an ability to multi-skill and take a very broad view of the market that on-going will be very valuable. I think the value of the BBC and the need for it to continue to provide quality content is because it effectively lifts the bar for all other broadcasters in the market, and I think that can only be a good thing as far as the consumer, the viewer and the citizen is concerned, and also provides a very important contribution to our standards. I think we would all agree with that. Q232 Rosemary McKenna: Why have you concerns, then, about the amount of "must carry" that you have to provide? Dr Monserrat: I think the issue comes down to the fact that the tradition has been that the BBC has got to its customers through the ether and the technology is blurring all that and a lot of the BBC content can go through cable. What you are trying to do then, in that circumstance, is have a definition for what is public sector broadcasting. In that circumstance we would be delighted to carry that because it is part of the nation's heritage, it is part of the nation's life and we would carry that. Where the BBC - and I refer to the comments made by Derek Wyatt - begins to move into areas which are more niche or are more specialised, then in that circumstance the model that we would like to see then is to carry that which we must carry because it is part of the nation's life, and when it is a more commercial activity there should be a conversation on how do you fund the carriage of that content. Q233 Rosemary McKenna: What you are saying is it takes up too much of the band width. Dr Monserrat: It does take up band width. There is an economic case to be discussed. Q234 Rosemary McKenna: Yet in certain circumstances, and I know this because of where I live and the access I have, I can have every single BBC television and radio channel at the flick of a switch, including BBC Radio Gale in Scotland. It is nice to be able to watch BBC television in the morning and find out what is going on, but do you do that easily and provide that generally? Dr Monserrat: Can I introduce something slightly different, which is there is a phrase that has been used which is that there is the "lean forward" type of information and there is the "lean back" type of information, so when you want to be entertained in the way you have just talked about you are leaning back, it is a community experience, you are receiving information. If, however, in that circumstance, where you are now receiving specific information, niche information, you are learning forward to receive it, it is a different method of receiving it and in that circumstance what you are receiving is information on public service, on government services, and if the BBC is delivering that under its charter as a "must-carry" obligation, then the volume of that information is going to change dramatically and that will have an economic impact on how much we carry. So in this blurred world of information going to the customer or the consumer, be it entertainment or information for life, then there needs to be a consideration of that which is in the interests of the nation and that which is the information that the individual requires. Q235 Rosemary McKenna: You are only interested in doing it where you have a huge number of consumers? There are areas throughout the country where you do not provide any access at all. Dr Monserrat: Currently, and I will speak now for NTL specifically, we will deliver that kind of service - "on net" is the jargon we use - but the aspiration is to try and provide that on a national basis, but that is where Local Loop Unbundling, which comes under the BT and the Ofcom remit, becomes so crucial for us, and the nature of the playing field becomes so important. Q236 Rosemary McKenna: You cannot carry the BBC to those areas until that is ---- Dr Upton: Yes, that is right. The extent of the current cable network is about two-thirds of the homes that we were licensed to build a network to, and clearly as you move out of the more densely populated areas the costs of providing dedicated infrastructure for that can escalate significantly. The current opportunities to run those services across BT's network are really restricted to broadband internet access, and running television services across a BT-managed infrastructure is not really technically possible today. The vehicle to do that would be unbundled BT local loops. The previous kind of regulatory regime really did not make that an economically possible opportunity. What we are looking at now are some of the recent BT announcements about unbundled open loops to try and explore whether that does provide us with a vehicle to provide some further geographic coverage and, therefore, provide the sort of services that we are talking about. Q237 Michael Fabricant: I just want to pursue, if I may, the line of questioning that Chris Bryant was asking. Chris Bryant was saying that in his view there had not been huge amounts of change in five years, and in some respects I agree with him. Although Mr Howard Watson said he had seen a lot of changes - and of course from a technology point of view there have been huge changes - the actual manner by which people watch television has not changed much over five years. So, in connection with the licence renewal, I just wonder whether you see a convergence, if you like, over the coming years of the platform by which BBC television and indeed other broadcasters will be received. Mr Watson: I think with that clarification, in the sense that I think the way in which we view television has not changed in the sense that we lean back in front of a piece of glass that we call the television and we have not yet seen viewing of TV by leaning forward in front of a personal computer or, indeed, on a mobile phone or an iPod ---- Q238 Michael Fabricant: Can I just ask? That is technically possible, but do you think it will ever happen? For years Casio have had a little two-inches by one-inch television screen, and the reason why it has never been that popular (no doubt I will get letters from Casio if I say something that is wrong) is because we are human beings and human beings find it quite a strain looking at something quite close for any length of time. Can I put it to you - and please correct me if I am getting it wrong - that the ergonomics of a human being mean that yes, you use a computer close up just as you write close up, but for relaxed entertainment you need something where your eyes are more focused on infinity, so something has to be about eight or ten feet away. Will that not always be the case, whatever the technology? Mr Watson: I think we are actually in agreement on this point. Newspapers are still here, we still read books and we still listen to the radio despite predictions centuries ago. I think what we will see is just a continued divergence in the range of possible ways of receiving digital content, and I think it is very difficult to sit here and predict that in 2017 we shall be the most dominant means by which we get that. I think it goes back to the point the Chairman was making earlier, which is as viewing in a family fragments to being more of an individual experience, rather than a collective experience for the family, and if we really believe that that trend is happening then I do think the "lean-forward-look-at-your-mobile-phone" type of viewing may indeed increase. I personally would not see it taking over from the television as the main viewing or broadcast media in the home. Q239 Michael Fabricant: I was reading that NRK, a former client of mine, in Norway are now providing stream television to Norwegian mobile handsets. The interesting thing will be whether people actually watch it. Given that you have got satellite, which can produce some degree of interactivity, cable - which certainly brings interactivity - and it was mentioned that Local Loop Unbundling is now becoming cheaper and cheaper, do you think solutions like Video Networks, who we are going to be speaking to later on, is going to be the answer by which people watch television? It will all be television on demand? Mr Watson: I think that will radically change over the coming five to ten years. We have just heard that in homes of a PVR 38 per cent of viewing is done from the content that is stored on the PVR. The key point about that is that you have had to plan in most cases to record that content, so it has required you to look through the schedule, decide "I want to watch that" and, potentially, series link it, so it records each time. One of the advantages that on demand TV gives you is if you have missed something. There is this water-cooler phrase, whereby you are chatting in the office by the water-cooler, "Did you see the episode of X last night?", and you have then got the opportunity of on demand television to go home and catch up with that. I think that type of change to the way we view, recent life television, we will see as on demand and Video On Demand type technologies go wider. Q240 Michael Fabricant: Let us just fast forward for a moment; let us assume that on demand television is available here and now. If that were the case, it could be argued that the individual becomes his or her own programmer. I have got two questions following on from that. If that were the case, is there a role for a broadcaster like the BBC? Or will there always be a significant proportion of the population who, after a hard day's work slaving over the computer or whatever, just want to get home and get what the BBC or ITV or any other broadcaster throws at them? Mr Watson: I think they will absolutely co-exist. The concept which I know was mentioned some years ago of an enormous internet search engine equivalent with access to a library of a billion titles is probably quite hard to actually manage for the ability to go back and view any content that was ever produced. I think we will see, as I said, the viewer having far more choice about when they want to watch a particular piece of content, but I also think we will see still the strength of broadcasters, such as the BBC or, in our case, such as Flextech being able to lay out a schedule of viewing for a majority of customers. Q241 Michael Fabricant: Does Flextech ever envisage providing more programming on Freeview, which was mentioned earlier? You have got UK History, but do you see others? You do a lot of cross-promotion, just like the BBC successfully cross-promotes BBC3 and BBC4. Are you cross-promoting your other UK services because you want people to eventually see them on Freeview or is it a means to wean them off Freeview to watch it on another viewing platform? Ms Opie: Between our relationship with UK TV, with whom we obviously have a 50 per cent share, Flextech wholly owns four pay channels and also has one free-to-air channel called FTN, which is currently a collection of the content that we produce. We spend about 50 per cent of our budget on originally commissioned programming from the independent sector. Yes, Freeview, for us, is an opportunity to attract as many eyeballs as we possibly can because we are funded 50 per cent from our subscription revenue but also 50 per cent from advertising revenue, so distribution and reach remains important to us, and yes it is an opportunity to cross-promote our channels that exist in the home market at the same time. Q242 Michael Fabricant: But you do not imagine any more channels being made available on Freeview or, indeed, the free Sky Satellite channel that is becoming available? Ms Opie: No, not for the time being, although at some stage we would assume that Freeview would have a capacity to carry more than the 30 channels that it does currently carry. Q243 Michael Fabricant: One final question, if I may, Mr Chairman. Given, as I said right at the very beginning, that I believe there is convergence and eventually one platform will become pre-eminent, is it going to be cable, is it going to be satellite or is it going to be a sort of hybrid between cable operators such as yourselves and telephone operators such as BT, who are introducing internet protocol telephony and so on and so forth and upgrading? If that is the case, what is the future for companies like yours? Mr Watson: I do not think we will see total convergence on to a single monopoly platform. I am not quite sure that would be good for us, either. I think that the real advantage of cable is that we can offer a multiple of products and solutions to a household, be that telephony, broadband or, indeed, TV, and we can essentially do that over the same physical infrastructure. The great advantage of our technology is as demand for consumption continues to increase there are not really any physical limits to the amount of bandwidth we can deliver to meet that. One of the things I think we will see quite soon is high definition television coming along which requires something like four times the amount of bandwidth that existing television signals do. So I think cable is in a great place in terms of having the capacity to fulfil that need. I think there will continue to be the other platforms as well. Q244 Alan Keen: Can I ask NTL to expand on where, in your submission, you say, "In NTL's view, a question which needs to be addressed is whether the BBC should have a broader remit to support and encourage other digital services through the provision of access to its key content."? Dr Monserrat: As I said in the answer to Rosemary McKenna, the BBC is the custodian of the nation's heritage, to a large extent, and there is content there which could be used either in streaming technologies or VOD on demand access to its libraries, or its archives. What we were alluding to there is that that has been paid for by the consumer in the licence fee; the suggestion being that that should be made available on whatever platform it is to the consumer going forward. Q245 Alan Keen: I referred the earlier panel to this and Howard Watson has been talking about it now, which is what I refer to, in the best way I can, as the theatre aspect of television, where we just sit there and be entertained and are not interested in searching through and looking at certain programmes. In my case there is a very small percentage of programmes I would want to watch in that way. Newsnight I could watch after the pub shut, for instance. If you had to have a stab, and were really forced to have a stab at it, in ten year's time what percentage of that theatre aspect would remain, as we always used to watch television, ten or 15 years ago? What would the percentage be in ten years' time? It is almost impossible but somebody has to try. Ms Opie: Interestingly, broadcasters have begun to adapt the market that they are in and there is no doubt that the dominance of event-driven television and its growth over the last couple of years - from Big Brother and I'm a Celebrity, Get Me Out of Here!, Pop Idol - all build the sense of occasion and theatre around that style of content. I think you will see broadcasters doing more of that in order to hold on to the identity of their channels and the signposting that their channels provide to consumers, but also to that real-time enthusiasm and engagement with the broadcast stream - with the understanding that there will be a degree of programming that will be viewed out of real-time. As a percentage stab, that is a really difficult question. Q246 Alan Keen: We are really talking about evening television, when people get home from work. Ms Opie: A view of a world where there was simply a library of content that you could either dip into or not, I think that would not be a particularly exciting world for a viewer. I think broadcasters do provide signposting; their brands depict the kind of content that they will show; they introduce new content. The power of talked-about television is that it opens our brains to new content. If we were simply to find and navigate our own way around libraries of content then I think we would be much less able to trial anything new and there would be very little excitement involved in what our diet and content would be. I think there is a very important role for all broadcasters going forward in signposting what is new, what is fresh, what stretches and what is challenging the viewers. Q247 Alan Keen: Have you got views on this theatre aspect of it? Dr Monserrat: We tend to agree very much with what Lisa Opie said, which is that it is, first of all, very difficult to predict the entertainment side versus the "lean forward" group of customers. I would tackle the question in a slightly different way, which is that I believe that a programme like, for example, that which the BBC did for D-Day was a landmark: it educated, it entertained and it informed a different generation of what had happened X-years ago. That is a very valuable thing to do. In those circumstances, I think all of us want to be entertained, want to pick. If, on the other hand, you want to address the kind of conversation that you were alluding to, which is coming home from work and collapsing and it does not matter what there is on you will watch it because it is a form of relaxation, then you go for the event-driven thing. There is a huge role to be played where someone's mind - yes, it is tired but it also needs to be stimulated, be it a play from the theatre or be it opera, or be it something. How do you divide between the different sets of customers? I think it is a challenge to try and answer that question. Q248 Alan Keen: The reason I am asking the question is that a few weeks ago we seemed to being led by the techies who were saying "Nobody is going to sit and watch, they are all going to draw the programmes down whenever they feel like it", and I am really happy to establish the fact that it is not only me that likes to ---- Dr Monserrat: One thing I have learnt over the years is that to say "No change will happen" is a dangerous statement and to try and predict the level and rate of change is an equally dangerous statement. I think, yes, we know that technology will deliver different things but how, where and how it will be used by people is difficult to predict. A case in point would be how the 16-24 year-olds have started using text messaging, downloads of music tunes, and the method and the manner of communication - they have even invented their own language to talk to each other. Q249 Alan Keen: We were misled a few years ago on the convergence, and I could never understand why people were saying that soon television would become something we could keep asking questions of and finding out which other films the actor has been in. If somebody is about to get shot when they come round the corner I do not want to know how many other films the same actor has been in, I just want to sit there. Personally, I do not even want to think about "who dunnit", I just want to sit there and find out in the end who did it. I was proved right on that convergence thing, I said people do not want to mix the two; they will go in a separate room and look at the internet and statistics. It is a very simple question I am asking but it is important, particularly when we look at the BBC, where we always regard that as the station that provides the entertainment. Ms Opie: One of the interesting things that has happened in the vast amount of change that, I would agree with Howard, has happened over the last five years is that as the number of channels available has exploded into the market the portfolio of channels that individuals view has also grown. We would estimate most viewers will watch about 11 channels within their repertoire at any given time, and they will go to different channels for different kinds of entertainment. One of the ways that we have successfully engaged young people - 13 to 19s - in the market is by creating communities around that channel brand (a channel called Trouble, in this case), which enables young people to have multiple touch-points with their television brand. So it is not something that they just view in a passive way, it is something they can log onto online, that they can text their answers to, that they can interact with and that they can have conversations and dialogues with. So that it is television, if you like, breaking out of the boundary of what is just a passive event and becoming an awful lot more in consumers' lives. I certainly see that, for young people, as being a way that we will see continue as they grow up through their adult lives - the community that can be built up behind channels. Q250 Chairman: One of the things (I think Mr Watson made this point) is this: when in 1995 the then Government decided to give the BBC a ten-year charter with funding by the licence, the broadcasting environment, on the whole, even taking into account the fact that cable had come in, that Sky started and so on, was very little different from what it was in 1922 when the British Broadcasting Company started broadcasting on the wireless and 1948 when we got the post-war resumption of television transmissions. The assumption by everybody was that people sat at home and listened to the wireless or, when it came, watched television, taking whatever was doled out to them - end of story. Ten years ago we were still very, very much in that position. What has happened, partly through your own work, partly through that of Sky, but partly also through loads and loads of technological developments, many of which were not anticipated ten years ago, is that we are not in a position any more where most people sit down at home and watch whatever is being doled out to them; the market prevails. You were talking about newspapers. We may well be reaching a point where there will be no more national broadsheet newspapers. The Independent has gone tabloid, The Times is going tabloid, The Guardian is thinking about going sort of tabloid. That is because the market has decided what is wanted in newspapers. The title of Michael Moore's new film is stolen from a film about where there will be no more books any more. People still want books; they have decided that that is what they want. They do want books, they do want text messages. They want iPod. I saw a guy on the tube the other day actually having earphones attached to a cassette player; it was like watching something out of prehistory. The point I am trying to make in order to ask your views about it is this: that we no longer live in a world where nobody does get everything any more. People choose according to preference, and according to their pocket, what their audio-visual entertainment is going to be. In ten years from now, since ten years ago we had no idea that we would be in this amazing environment, this amazing environment will probably seem extremely primitive. Where does that, in your view, with your experience and insight, leave us with regard to BBC charter review? Does it mean that you give the BBC a chance to adapt itself, which is what this Select Committee recommended ten years ago, to the environment and, therefore, you give it a long charter and you buttress it by the licence, or does it mean that you are making an assumption which is, perhaps, unacceptable to the consumer, namely that it is an imposition on them to force them to pay for another ten years of BBC on the licence? Everybody's opinion, who is in the world you are in, is valid and interesting, and I would be very interested to know what your opinions are. Mr Watson: One thing I would say on that is that the BBC, through its funding, are actually pretty innovative and quite a lot of the interaction that I have with them around - they pushed widescreen television through digital TV and in terms of interactive television - is probably the richest content that is provided by the BBC, and, I think, also, in terms of the investment that they are making in bbc.co.uk. So we are seeing the BBC in themselves pushing forward the technologies. I think that is a positive point. I think, also, that they are pretty good at doing that at the rate of pace that the consumer wants to consume it rather than, as was mentioned earlier, the technology fails and we try and force it upon an unsuspecting customer. I do think, though, that there needs to be some mechanism of reviewing mid-term (coming back to the five-year point) what is this amount of money going in this direction, given the changes that may have happened over that period, and is that still the right way of the UK public funding public sector broadcasting. Q251 Chairman: A few weeks ago this Committee went and looked at what the BBC, presumably, thought would impress us, in terms of their technological development. Frankly, it was like watching a coal-fired steam engine. Last week we went to Dublin to the media lab and there we were really shown what is now the cutting edge. So that being so, is it perhaps being over-generous, Mr Watson, to say what you have just said? Namely, implicitly, the BBC knows what it is doing? If media lab tells us where we are going the BBC does not seem to be in that game at all. Mr Watson: I think, Chairman, there is a difference. The fantastic things that are in that media lab in Dublin, which is, in essence, giving a directional view and a vision of what might be possible, I think, put a challenge on all of us who have the responsibility of delivering entertainment and information into a consumer's home, and in really making sure that we can constrain that into what is probable in market terms over the next 12, 18, 24 or 36 months. I think that is where there is a difference. Chairman: Thank you very much indeed. Your insights have been very valuable to us. Memoranda submitted by British Internet Publishers Alliance and Video Networks Examination of Witnesses Witnesses: Mr Hugo Drayton, Chairman, British Internet Publishers Alliance; Mr Roger Darlington, Chairman, Internet Watch Foundation; Mr Bob Schmitz, Chairman, Two Way TV and Mr Roger Lynch, Chairman and CEO, Video Networks, examined. Chairman: Welcome. Thank you very much indeed for coming to see us. Michael Fabricant will start the questions. Q252 Michael Fabricant: We heard earlier that Local Loop Unbundling may or may not be of benefit to people providing video down telephone lines. I would like to ask Roger Lynch whether the recent announcement by BT is actually, in practice, going to help the provision of such services. Mr Lynch: I think it will help it immensely. It has already been done now. Mr Bryant asked earlier about when the Westminster cable system was going to be upgraded. In fact, that whole area now is upgraded to the telephone to be able to receive 60 channels of digital television and on demand television. What Local Loop Unbundling and the announcement from BT does is makes it economically viable to roll that out in a large area. Q253 Michael Fabricant: Given that Video On Demand is potentially here and now and, certainly in certain parts of London, provided by Video Networks, and given that you were listening to the debate earlier on when we were talking to NTL and Telewest, do you think that Video On Demand is the future, and broadcasting, in its traditional sense, is dead, and therefore it follows the BBC is dead? Or do you see the two co-existing? Mr Lynch: I see the two melding together , frankly. That is what we attempt to do on our service now. We offer broadcast television, a large array of broadcast channels, including all the BBC channels, as well as currently about 5,000 different programmes on demand. Where it melds together is things like on BBC1 currently, or BBC2 or Channel 4, where you can look at what is on but you can also scroll back in the programme guide and watch programmes that have been broadcast already that are available on our server. So it is broadcast in the sense that these are programmes that the BBC decided to commission or produce and schedule but it is made available on demand much like a PVR would do, except in this case you do not have to plan it, it is available on the server. Q254 Michael Fabricant: Of course the BBC are talking about providing their own video archive in due course. Have you spoken to them at all, because presumably the technology that Video Networks is employing is similar sort of technology to that which the BBC uses? Mr Lynch: We have spent a lot of time with the BBC on this issue. I think the technology would be different in the sense that what we deliver is television, whether it is on demand or broadcast. That implies a completely different quality level than what is delivered on the internet. The infrastructure that we build to do on demand television, I think, will be very different from what the BBC would do to enable the creative archive through the internet or through their interactive media player. What we want to do, as the BBC frees up its archive, is to make it available over our platform and, indeed, it should be available over any other platforms that could carry it to the licence fee payers. Q255 Michael Fabricant: Let us get this absolutely clear: Video Networks are not paid advertising from Video Networks (?), but I think you are one of the first in the UK to do this, if not the first. Video Networks is providing broadcast television down an ordinary telephone line (correct me if I am wrong) and what I can do through some form of remote control or whatever is get your server, your computer, based wherever it is - presumably in London - to feed the programmes that I want in real time down the telephone line and I look at a picture which is every bit as good as broadcast television, by cable or by satellite. Is that right? Mr Lynch: That is correct. You would not know any different, looking at the picture. Q256 Michael Fabricant: Let us just pursue this a little further. What future is there for cable or satellite in the conventional sense, given that presumably it is more difficult for a satellite footprint to actually target an individual home? Is there a future? Mr Lynch: I think, in particular in this country, where you have such a strong and dominant satellite provider there will be a future because they are very innovative. They are just scratching the surface about what they will be able to do with the SkyPlus box. I think what they will attempt to do is continue to expand the capacity of that to capture more and more of the broadcast signal and be able to store it so that you can create your own on demand library. Where it will get difficult is in relation to what you have been talking about, the creative archive. Today we already have hundreds of archive BBC programmes that are available on demand on our servers. We are already doing that commercially with the BBC. We would like to expand that very, very significantly. That is going to be very difficult for satellite to be able to do. Q257 Michael Fabricant: I think SkyPlus can store about 18 hours at any one time. Of course, with a main server, how long is a piece of string? You can have as many drives as you want. Could I ask of Video Networks: how many hours right now, with the equipment you have, are you capable of storing? Mr Lynch: Our servers today store 10,000 hours of content. Q258 Michael Fabricant: Which I could access at any time? Mr Lynch: Yes. Currently, I believe, there are 7,000 items of content available on our servers, of which 5,000 are entertainment, movies, television programmes and music videos, and the others are more informational, such as we have an information service with the Borough of Newham that has probably 20 hours of content about local housing, benefits, health and schooling. Q259 Michael Fabricant: Presumably you need sufficient bandwidth to deliver this to the consumer. What bandwidth is it that you require and what are the constraints to panning out your service throughout the United Kingdom, or similar services by competitors throughout the United Kingdom? Mr Lynch: Today we use about four megabytes in total but we deliver not only the television service with that, we deliver a one megabyte broadband internet service for the PC. As we expand outside of London, the distance from the telephone exchanges to the home gets greater and the amount of bandwidth that is available reduces correspondingly. There are newer technologies coming along, the first of which is encoding the standard, such as Mpeg 4, of which we may well be the first operator anywhere in the world to roll out this year, which will reduce in half the amount of bandwidth that we require to transmit a given video quality. There are also new standards coming out in ADSL which will have the impact of doubling the amount of bandwidth that can be delivered over a copper wire. So the compounding effect of these technologies means that as we roll out our service to larger and larger areas around the UK we will be able to deliver very high quality pictures to a very high percentage of the population. Q260 Michael Fabricant: Your company is new to the UK but your accent gives your origins away. I wonder if you could give us any insights at all into how long this service has been available in parts of the US and how that has affected, if at all, viewing habits to existing broadcasters CBS, NBC, ABC and Fox? Mr Lynch: There is actually not a service like this anywhere in the world; London is the only place in the world that has a service this extensive. In the US the issue is that the telephone networks there are not as robust as the telephone networks that BT build here. Part of it is just the geographical density of the conurbations, and part of it is the architecture of the telephone networks - the way they were built. There are other areas in Europe where people are starting to roll out services like this, in France and Italy, and this has all been done on the back of Local Loop Unbundling regulation there, which remains very, very cost-effective. These are primarily broadcast services; they do not really get into the heart of the on demand services that we have developed. Q261 Michael Fabricant: Five or six years ago our Committee visited the United States and scientists (I think I would call them scientists more than engineers) - visionaries - were talking about this sort of service becoming available eventually, and now it seems that Britain is the first - and I did not realise Britain was the first - country in the world to have this service. So whither goes the BBC then? Do you still see a role for the BBC just as a programme provider, or still as a broadcaster? Mr Lynch: I think that is the heart of the issue right there. Is the BBC a programme provider or a broadcaster, and what is the difference between the two? I think there is a critical role for the BBC as a programme provider. In fact, a lot of the content that is watched on our service on demand is BBC content - whether it is captured through the broadcast stream, like Eastenders, so that you can watch it for up to a week after it is broadcast, or it is documentaries that we have put together in documentary on demand channels. People want to watch BBC content, and the real issue for them is how can they get access to the archive. I think there is a very strong role for the BBC as a content creator/producer; what is less clear is what it means for the BBC as a broadcaster. Q262 Michael Fabricant: Do you think Chris Bryant's thesis is an attractive one, which says give the BBC stability and give it a ten-year charter, but make it a very thin charter so that the BBC can move and innovate as required as technology moves on? Mr Lynch: Ten years is going to seem like a very long time in what is going to happen over the next decade. I think there was a discussion earlier about what has changed over the last five years. A lot has changed but not much has changed in relation to how people watch television. That, I believe, will fundamentally change. It changes already with our subscribers. If you look at how people use television on our platform it is completely different from how they watch on Sky or cable. Q263 Michael Fabricant: Just expand that. How are viewing habits changing? Mr Lynch: Subscribers to our platform, for instance, spend a disproportionate amount of their time watching on demand content that is not available on a broadcast channel. The reason for that is because the functionality combined with the programming means that the choice that you have is far greater. The problem with providing so much choice - and this goes back to another discussion - is people want someone to exercise some editorial control. They want to be told "This is a good programme to watch". If you put 10,000 hours of content in front of someone and say "Go choose what you want" they will be confused and they will turn off. That, I think, is the essence of the role for someone like the BBC where their editorial control and judgment is valued by people, and if they can be presented in an on demand environment where you can say "I am interested in documentaries" and the BBC has suggested documentaries you can watch right now, that is of value to people. Michael Fabricant: Thank you, Chairman. Q264 Mr Doran: A question for Mr Drayton. In your evidence you are fairly critical of the lack of control over the funding and scope of BBC's online services. I may be a bit naïve but I have always seen the internet as a fairly unfettered medium. Why do you think the BBC should be fettered? Mr Drayton: We are not really suggesting fettering, we are suggesting that the market failure test ought to be applied a bit more rigorously. The problem was at the beginning, back in 1997, when many of us publishers had already invested heavily in exploring digital and delivering services, the BBC came in and has had totally unfettered access to the community. It has almost limitless funding, no shareholders, obviously (we are, supposedly, the stakeholders), and it has almost zero regulation. There has been no remit, it did not stick to even the original ideas that it set out to the DCMS and its voluntary code is "We are going to focus on education, we are going to cap spending at £25 million." None of these pledges were maintained. They have ridden on this very spurious argument that the internet is another arm of broadcasting, which clearly it is not; it is a very different medium. I think we are all big supporters of the BBC in many of the things it does, we are great fans of the BBC, but where it is clearly preventing the commercial sector from developing, that is negative for the British public, for the consumer and the wrong use of the public's money. Q265 Mr Doran: A lot of people will say that the BBC's news site is the best around. Mr Drayton: You would not expect the managing director of The Telegraph to agree with that surely. Q266 Mr Doran: A lot of people would say that and I am one of them, I use it quite regularly. Are you complaining that they are too good? Mr Drayton: No, I think the BBC does news very well. What it does not do is what newspapers do, which is put it into more context. It does not have the writing, that is not its skill. It is good at frontline news. The Guardian, The Telegraph and others do different things. I think there is room for all of that. Nobody is suggesting that the BBC news feed should not be available on-line, what we are suggesting is that they should not be running holiday sites up against commercial users with the public's money, nor should they be developing on-line car magazines because the commercial sector does that very well. Q267 Mr Doran: If we accept the thesis that the BBC should be controlled, who should be controlling them? Mr Drayton: Ideally a better type of Governor. We think that the current judge and jury are the Governors - this is not just a BIPA issue but across all the media - and we think it is a completely untenable situation. I think it has to be Ofcom who determines whether or not the BBC is having an adverse effect on the commercial market because that ought to be a role of Ofcom. That is something which to date the Governors and the BBC have been left to decide for themselves and I think that is wholly unsatisfactory. Q268 Mr Doran: A tougher set of Governors with a remit, which is possible in the new Charter, might do the job? Mr Drayton: I think it might do the job. It does not have to be Ofcom; it just has to be somebody who can give an independent view. Our very clear view is that in the current and recent regime the Governors have not had that independence of view, nor the spirit to challenge it. In our particular case, we have been challenging the BBC's activities now for seven years and it is only with the Graf Report, after a long, long time in anticipation of Charter renewal, that we have had some kind of monitoring. Nothing has happened under the current Governors' regime. Q269 Mr Doran: Just going back to something you said earlier. You said that the BBC was treating the internet as a form of broadcasting but I think everything that we hear about the technological advances suggests that the internet, certainly in the future, will be part of the broadcast territory. Mr Drayton: It is very different in the sheer sense that it is acknowledged that the barriers to entry are much lower. The fact is that for me to set up a television channel would be extremely costly. To broadcast television, firstly it would involve me in getting licences but also involve a huge investment. Similarly, that is the case with traditional, conventional radio. The internet is not like that, it is not that type of broadcast medium, and it does not require that type of infrastructure. The infrastructure is provided by the networks. Q270 Mr Doran: I am still a little bit confused because the BBC is our prime broadcaster and it is moving into a number of new territories, some of them have different forms of approval and internet clearly is not one of them. You heard the debate from earlier witnesses about the way in which the quality which the BBC provides and produces is a spur, an incentive, for other broadcasters. We were discussing earlier with Sky witnesses, for example, that their completely hostile approach to the BBC seems to have changed quite dramatically over the last year or two. Clearly there are business opportunities and improvements to business being presented by the quality that the BBC represents and which it brings to the whole area. Why is that not likely to be seen as the case on the internet? Mr Drayton: I think it has improved. The very existence of the Graf Report and that inquiry has helped. BBCi has understood that it has overstepped the market in many commercially viable areas. The remit needs to be clearer. If, as they have purported to do from the beginning, the BBC is to be this trusted guide then it should also be co-operating with the wider market. If the BBC made a better effort to include other trusted sources of information linked to them, firstly it would be using the technology much more effectively and using the web the way that people outside the BBC use it, but also it would be providing a public service which is presumably at the heart of what the BBC is there to do for us. Q271 Derek Wyatt: I am sorry I am late, I had to go and see a minister. Can I ask Mr Drayton, the BBC has said that it is happy with its digital channels and its digital radio channels, it does not want to do any more, it just wants to hone in on what it has got. What if another broadcaster or another media player announces five broadband channels in the next two years, one of which might be a UK film channel, one could be a sport and health channel, because that is the way you should do it, and the BBC then says, "Oh, we missed it. We need to do it"? What would be your reaction as a publisher? Mr Drayton: I think they would have to first justify in that or any other area why they would have to do it. There seems to be this thought amongst some of the BBC internally that they have to be doing everything, that they have to cover every inch of the waterfront, and that is a totally wrong use of public money. Why would they have to provide something just because somebody else proves successful at it? Q272 Derek Wyatt: Mr Lynch, I am sorry I was not here for your earlier piece, but we have met previously. Mr Lynch: Yes. Q273 Derek Wyatt: Is it your view that the entertainment platform - this is something I keep asking witnesses - is going to move beyond television to broadband? Do you think there is a stage where broadband will overtake conventional television in the next five or ten years? Mr Lynch: If I make a distinction between the delivery mechanism and how you view it for a second. In our case we use broadband but we use broadband to deliver it to the television. Our viewers watch television, maybe it is a broadcast channel or on-demand programme but it is through a television set, but the functionality that they get is somewhat akin to the internet in that they can choose what they want to watch, search through menus or programme guides and find exactly what they want. That will change significantly. I do not think that the convergence of PCs and TVs is necessarily something that is going to happen because how you view a television is very different from a PC and the things that you do on a PC will remain different from what you do on a television. If you are working on a spreadsheet or typing out something it is just a very different experience from watching a film and I do not see that convergence will necessarily take place. What will take place is a convergence of the distribution media that delivers the content either to a television or to a PC. Q274 Derek Wyatt: If there is a shift towards broadband delivery as the broadband gets better and better, does it become harder to detect who is watching the BBC? These little men go around in their little white uniforms saying "You have not paid", but how do you detect that on broadband? Mr Lynch: I think it is an issue for the BBC that if more and more of the content is delivered via means like the internet, yet the licence fee is tied to a television set, is there a match of the funding to how people are actually enjoying the content. In our case we deliver it via broadband but we have measurement capabilities that are far in excess of what a broadcast platform can provide. We know everything that people watch, how they watch it, when they watch it, from what channel they came from. In our case, the measurement capabilities are significantly in excess of what a broadcaster can do on their platform but that is not true of the internet in general though. Q275 Derek Wyatt: Anybody can answer this question. It seems to us that some of the evidence we heard in Dublin at the MIT lab last Monday was that people are coming from the MTV generation, it is two minutes, three and a half minutes or four minutes, it is off and on, but the formal nature of television makes you come in on the hour or half hour normally and that goes against the grain of the younger generation, as it were, who do not want that. It seems to me that you cannot deliver television any other way conventionally. How do you deliver to the MTV generation, if that is what they want, three and four minutes, they do not want programmes of half an hour, an hour or 45 minutes? That is a huge cultural shift. Will that not affect the whole of the way in which the economy and the ecology of television is going to move in the next ten years? Mr Schmietz: We have addressed that, being in the interactive business. I would not argue that we will replace or totally satisfy that need but clearly our business is one of providing what I would call a different experience than the normal broadcast experience by allowing viewers to either interact in the obvious but perhaps trivial application such as the voting, we also broadcast games on special channels that are available so that it is the TV experience but it is providing what we view as bite-sized amounts of information and entertainment that clearly is popular with that age group. When you look at what they are doing in other medium, like the game consuls and internet, the way in which they get involved with the entertainment as opposed to what we heard earlier, the sitting back, the conventional television broadcast, is clearly there and we believe it will come over more significantly to television as we and others overcome some of the technical difficulties of providing that interactive capability through the television set. Q276 Chairman: Could I just put this to any or all of you, depending on whether you wish to reply. I think it was Alan Keen in his questioning who talked about the way in which when we were looking at communications we were told by authoritative figures who appeared to know all about it on the West Coast of the United States that the converged box was the thing, convergence was the thing. It has not worked out that way at all but still one sees the elements of convergence, one sees advertisements in the papers whereby you can get a huge package of different films if you subscribe through your computer, for example. Lots of people watch DVD on their computer. Are we getting convergence under a different name and in a different form than was anticipated, and how does that affect the future of the BBC? Mr Drayton, you were saying that if anybody does anything there is a feeling that the BBC is going to have a go at it. Should not the BBC, in fact, be pioneering some of these things which others do not do in view of the fact that it is buttressed by the licence revenue? Is there not an argument for saying that it ought to be at the cutting edge of these developments rather than sitting back, waiting for what is happening and then trying to get a part of it? Mr Drayton: I think there is a role, and certainly your previous witnesses talked about the innovation of the BBC and that is undeniable, they have got some great brains and they have, of course, an unrivalled resource. I think the issue from the BIPA perspective is that we would like to see that controlled a bit better. I do not think we have any objection to the BBC experimenting on a modest scale but it should not be to the exclusion of all the potential commercial players who could come in and provide equally good services and a diversity of choice for the consumer, which is the pattern that has happened in several things that have affected our publishing community. Mr Lynch: I think that the BBC absolutely should be on the cutting edge of this, but what they should be doing is looking at it from a programming perspective. How do they do what they do best, which is take the television content that they create, or radio content or internet, and make it available using cutting edge technologies? That does not mean that the BBC has to go out and develop it because the private sector is happy and willing to do so and, in fact, is willing to invest significant sums to do it. The main thing the BBC should be doing is embracing that, working with those partners who are willing to make the investment to make their content available on cutting edge services. Q277 Chairman: Is there not a problem that if it is going to work with partners, the boundary of the licence becomes fuzzy and then people like Mr Drayton would have a right to say that the BBC is having commercial partnerships, as it does now on some of the specialised channels, using licence payers' money whose accounting is very, very opaque so you do not know where cross-subsidy is and, therefore, Mr Drayton would say it is not fair? It seems a possibility that the farther the BBC gets along the cutting edge, the more the BBC throws itself into the market, some people would say the less it has the right to use licence money to do it. Mr Drayton: With great transparency and a clear remit that can be happily monitored and I think people would be satisfied. I think what the BBC has to do is refrain from exaggerated cross-promotion. It has this unrivalled opportunity across its own media to cross-promote and compete with the commercial market and that is where the problem lies. Also, if the BBC gets into new markets and opens new markets and it becomes clear that the commercial sector can offer diversity and can operate clearly then the BBC should be happy enough to doff its hat and retire from that market and move on to other things, which is a trend we have yet to experience. Chairman: That is very helpful indeed, we are most grateful to you. Thank you very much. |