Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

TUESDAY 25 MAY 2004

MR STUART COOKE, MR DAVID ELSTEIN, PROFESSOR JOHN NAUGHTON, PROFESSOR RICHARD TAIT AND DR DAMIAN TAMBINI

  Chairman: Good morning, gentlemen and welcome, in many cases not for the first time. We are delighted to see you here. As I am sure you know, this is the opening of what is going to be a marathon which will take us many months. Last time we did this the then government accepted our recommendations so we had better get our recommendations right on the off chance that this Government will pay some attention to us. Please, any of you or all of you, feel free to answer any or all of the questions.

  Q1  Derek Wyatt: Good morning, gentlemen. I wonder whether you have given any thought to the fact that the renewal of tenures is too long a period and whether it should be five years or seven years, not 10. As this is a blue-skies session can you tell us where you think the entertainment platform will be in 2012 and whether it will be different in terms of children to, say, couples to, say, older people? Would that influence, therefore, whether the BBC survives in the long term? It does not seem to have come out in the public domain, but everyone seems to assume it is 10 years. Is that reasonable given the phenomenal changes going on in entertainment?

  Mr Elstein: Ten years is assumed to be norm because nobody can bear the thought of doing three years of Charter Review every five years so that is probably why we have settled into the 10 year pattern. Also, it is fair to say, it gives the BBC room for planning which is quite important. If you look at 1996 to 2006 there has been a huge transformation in the broadcasting scene. Had anyone heard of Sky-Plus in 1994 when we were doing Charter Review last time? Had anyone heard of Andrew Gilligan when we were doing Charter Review last time? I think, though, the one reason why five years—or five to seven years—might be advantageous this time is that the biggest single factor in the organisation of broadcasting—which is the proposal to switch off the analogue transmission system—is going to reach its climax somewhere around 2008-09 and the way in which the BBC interacts with that process is pretty fundamental. If there are too few levers that government has in order to influence BBC behaviour at that stage, that may, in retrospect, be seen to have been a mistake. However, I am pretty sure that those can be accommodated in the language of Charter Renewal—assuming Charter is renewed—anyway and therefore I think that if you even take into account that one big issue and still think you can encompass its needs within a 10 year Charter, you have to have some other big reason for saying no, this time only five. It is possible to build in not a full Charter Review within the Charter after five years, but a set of key tests and key performance reviews which can be much more swiftly implemented but which are designed in advance.

  Q2  Chairman: Mr Elstein, you said that nobody can bear the idea of a Charter Review on a shorter period. However, if the BBC were on a statutory basis like Channel Four and the other public sector broadcasting organisations—you do not have a Channel Four Charter Review—it is just there on the statute. Would it meet both public concerns, plus end this continuing uncertainty if the BBC were not to have a Charter at all and it were put on a statutory basis like Channel Four?

  Mr Elstein: Chairman, I could not disagree.

  Q3  Derek Wyatt: Do any of the other panel have a view about the 2012 entertainment platform?

  Professor Naughton: May I make a comment on that in relation to on-line media? At the height of the dot-com boom some years ago—as you know, Mr Wyatt—there was a belief that one internet year equals seven chronological years. Who knows if that is correct or not, but if it has any credence at all then we are talking about 70 years in internet time. It is sometimes instructive to think, for example, back 10 years ago almost nobody in this country outside some specialist professions had an e-mail address. No advertisement on television had a URL at the foot of it; no radio station (including the BBC) said, "And you can check our website" at the end of the broadcast. Ten years on the world is unimaginably different and I think in that case anyone who wants to make predictions about 2012 needs to take a large dose of humility first because none of us know.

  Dr Tambini: I think that this broad question of governance structure over the 10 year period needs to be taken in the round because there are competing objectives here. We need to give providers the space to innovate but, particularly in the case of the BBC, we also need to guarantee their independence and accountability at the same time. That is quite a difficult thing to do. The problem with the Charter period at the moment is that because it is infrequent it leaves many new service permissions to the minister so therefore we have now a near-permanent approvals and review procedure for new services and that is something we have never had in the history of the BBC. One might even say that as a structure it compromises the independence of the BBC. I think we need to see the Charter and the new service reviews and decisions as part of the same package. I also think that there are some aspects of the over all regulatory structure relating to the value for money or financial audit which, in a sense, fall outside that governance structure which need to be looked at.

  Professor Tait: As somebody who, until quite recently, was a programme maker, I think I would have to speak up for the desirability of programme makers not working for an organisation that is continuously under review; it is a great distraction. There is a difficult balance here which you have clearly identified between being able to react to real, significant change both in technology and in the commercial environment in which the BBC also operates and the need for people to be able to plan and to innovate and to produce very good programmes. I suspect that a lot of the unhappiness about the BBC over the last two or three years is partly because this existing Charter period is coming to an end and has run out of road and is no longer appropriate in some ways to the environment in which we currently operate and in which we are going to operate further as we go forward. I would say that I think that the balance of advantage of giving people a reasonably stable environment in which to operate creatively in terms of delivering public service broadcasting outweighs any advantage of having a five year term.

  Mr Cooke: From a manufacturer's perspective we need clarity and certainty and we have not yet rolled out digital terrestrial television and that needs to continue. Looking at other platforms—the internet and mobiles, for example,—the BBC will have a strong role to play in that. That process, in terms of wireless planning, takes a long time. Even if the switch over did start in 2008 it would take a long time to convert and switch everybody off. Clarity and certainty is needed in order to get the investment right, get the conditions right, to guide the BBC through that process; not just that process but also the convergence process, of getting that content to other devices (PC's or mobile phones). For a long term view clarity is required.

  Q4  Chairman: Mr Cooke, you represent an organisation which is extraordinarily successful. One of the reasons it is extraordinarily successful is that it is able and ready to respond not instantly but very, very fast indeed to changes in the market, to public demand and public preferences where what we have in the BBC more than in any other broadcasting organisation is an adamantine structure which proceeds at its own pace. Is there not then an argument for saying that if you expose the BBC to the kind of commercial competition that you are exposed to, the BBC is likely to be able to respond not precisely in the same way as you do, but at least to be part of what is going on day by day in the country as distinct from seeking to set its own agenda to which we all have to conform?

  Mr Cooke: In terms of the planning, in our process we look five to 10 years ahead in terms of the technology that underpins both products and services so we have a very long time frame which in the investment side, to continue that process is key. The regulatory framework takes a long time to adapt and change. In terms of future products and services, for example, if you have a mobile phone and have a TV in it, it takes a long time to get those market conditions right and the content developed for those phones needs to be in place at the same time as the products. I think the BBC has played a major role in getting Freeview off the ground; that has been extremely successful and is one of the leading platforms in Europe in terms of digital television. The internet site is extremely successful. The next phase—the mobile world, if you like—I think the BBC will play a large role in that. The technology, the planning and the investment needs to start now on all of those areas. I think it is a long term process and only at the last minute do you see the products and the services.

  Q5  Derek Wyatt: Mr Cooke, I have visited Helsinki and I have been to Nokia in Helsinki; I have seen the wireless world that you have there which is substantially ahead of anything anywhere else in the world. Do you not think, in a sense, that the next big discussion on entertainment platforms is who controls the hub in the home and the office—and it could be a wireless hub—and therefore your own company will have to re-invent itself because you will not just be a technology player, you will have to be a software entertainment player. In some ways you have produced a phone that has got games on it, that is an experiment—I am not sure how well it has sold—you are dabbling at the edge of moving from just being a technology company to being a slightly different company in the same way that Sony with Playstation Three and Four will move exactly the same way to you. That is why Microsoft is nervous of iPod. You are all scared because someone is perhaps going to win the hub battle. Does that not change the rules of (a) how we receive entertainment, (b) give us more choice and (c) does that mean that the BBC would only need to be a software company as opposed to a broadcaster?

  Mr Cooke: I think you have now the traditional content from broadcaster, the broadcast network and you have the internet and the computer; you also have the mobile phone operators and the mobile device. That is changing so that in the future you will have a PC that can also be a television and vice versa; you will have a mobile device that can also be a television. Various players will all compete for segments within that. In terms of the content, the content can now be delivered to the TV and the PC and the mobile device so I think that needs to be examined: whether we should separate the content creation from the actual delivery. For example, as you mentioned Finland, the content creation is now separated from the actual delivery of that content. The delivery is in private hands and the public services for the content creation. In terms of the manufacturers, yes, there are the Sonys looking to move into this converged world; there are the Nokias, and underpinning that is the software that supports that. I would not say that the wireless hub in the home is the only way; the broadcast network will still be there, the internet will still be there and the mobile networks will still be there.

  Q6  Derek Wyatt: Given the success of Freeview, do you feel that that is actually the big change coming, that Freeview will actually overtake subscription television and therefore create a brand new model? Or do you think it is just another part of the same game?

  Professor Naughton: Could I have a shot at that? First of all, Mr Wyatt, I am sure you did not mean what you said: "who controls the hub in the home" because surely the answer is the consumer controls the hub?

  Q7  Derek Wyatt: Yes, but at the end of the day there is a technology company which delivers that.

  Professor Naughton: I see. My own feeling about a lot of this debate is that it is in a sense rooted in the past. That is to say, we have all grown up and been conditioned in a media ecology in which broadcast television was the dominant medium. My feeling is that that dominance is eroding. We have no idea what the ecology will be like in 20 years' time, but I am pretty certain that broadcasting one to many is going to be a much smaller part of it than it ever has been in our lifetimes. In those circumstances I think what one has to realise is that discussions about Freeview or anything else are all conditioned by this idea that broadcasting is the only reality. My feeling is that that is ending. It affects an organisation, for example, which is actually called the British Broadcasting Corporation.

  Q8  Derek Wyatt: A hypothesis that I have had explained to me is that the next stage is that the Hollywood film companies will ask you to subscribe to a monthly DVD and on the monthly DVD will be 24 episodes of Cheers or 70 episodes of Friends or whatever are the current hits, plus a couple of films. The only thing that television does that no-one else can do currently is live news and live sport—live, anyway—and therefore people will pay differently because they can have widescreen at home, they can have their own plasma screens (plasma technology is changing phenomenally) and this is a very different way for Hollywood to sell itself, but also sell itself on subscription in a far, far different way. Do you think that is a mad idea, or do you think that is the interim stage that we are going to before 2012?

  Dr Tambini: We are not at an either/or crossroads here. I think it is a question of both. Live, linear one-to-many audiovisual services are something that broadcasting does very well and does very efficiently. Attempts to webcast on a very large mass market model—I think the most striking example is the Eurovision Song Contest—have been very problematic simply because it is not a very efficient way of distributing audio visual content on a live, mass, basis. I agree that broadcasting technology is appropriate for that task. However, there are a number of things happening on the on-demand and interactive space which I think go alongside that continuing broadcast role. What I would be worried about is any kind of implication that somehow that on-demand interactive space is a space which is somehow more appropriate for commercial provision. I think the creative archive proposals, for example, of the BBC are an excellent example of developing new ideas of what public service broadcasting should be doing in this on-line, interactive, on-demand space. They also outline what might be in some ways some of the new thinking about the role of public service broadcasters in this next Charter period.

  Q9  Michael Fabricant: There are three areas that I am particularly interested in and I do not know whether we are going to have time to get through them all. One is, what is the BBC? What is it there for? (I might come to that first of all.) Secondly, there is the question of the future governance structure of the BBC. Finally, of course, there is the $64,000 question—actually it is rather more than $64,000—which is how the BBC could be funded or ought to be funded. Let us talk about what is the BBC and what it is there for first of all, as a public service broadcaster. We have heard from Derek Wyatt about different platforms that may or may not be used in the future for the BBC and some of you will be aware of video networks (a useful use of broadband) to deliver television programming and I suspect that might well be the future for how television is created. However, I put it to you that the platform is actually irrelevant. All we know is that there is going to be a lot more competition in the future however television is delivered. The first question is this: the BBC started off as a radio broadcaster, then as a television broadcaster; now it has gone into the internet—very successfully—but should it be in the internet even though the BBC website—BBCi—is the most hit upon (if there is such an expression) website in Europe? The BBC also produces magazines, operating in a commercial environment; the BBC also sells programmes and I suspect that is a good thing. It has many other ventures—some commercial, some not—it now has BBC News 24, BBC3, BBC4, digital audio broadcasting. Where should it stop? Should it have gone into those ventures? Ought there to be a limit into what the BBC does in the future?

  Mr Elstein: I do not want to do a quick trot though the report which was published in February and which addressed some of these issues. I do not think it matters much where we came from, the issue is which way we go forward. A key issue that the Broadcasting Policy Group identified was that the core function of the BBC is broadcasting—it is the British Broadcasting Corporation, not the British Production Corporation or the British Distribution Corporation—and we get hung up on a lot of these issues because of the way the BBC is funded. If there were a more rational way of funding BBC entertainment and BBC commercial activities we would have fewer hang-ups and we would see much more clearly that which requires direct public funding through licence fees or whatever, and that which the public is well able to fund for itself. We have a public broadcaster—a very successful public broadcaster—called Channel Four which does not produce a single programme itself. There is no essential requirement for a broadcaster, a public broadcaster, a public service broadcaster or a high quality broadcaster to make a single programme. The fact that BBC Production under some other ownership structure would undoubtedly carry on producing very high quality programmes in response hopefully to many more broadcast outlets than just the BBC, suggests that the structure we have at the moment is not the optimal one and it may not be the best one for the creative economy. Likewise, in terms of distribution, owning your own distribution business which is the dominant one in the UK does create the opportunity for substantial distortion of the value chain and the creative economy. I think if you do look at the Ofcom review of public service television and particularly focus on the back end of the review which is kind of looking to the digital age, they do not see any particular reason why a broadcaster should have a production arm at all. That vertical integration is probably an outdated model and it builds in a large number of inefficiencies and blockages in the creative economy that ought to be disposed of. When you ask, "What kind of BBC do we want?" I would suggest to you that we want a BBC that is focused, that is accountable, that is transparent in its operations and that is funded in a rational way.

  Q10  Chairman: That is not this BBC, is it? Not one of those criteria that you have just set out applies to the BBC as it is today.

  Mr Elstein: Correct.

  Michael Fabricant: After the Chairman gave his particular point of view.

  Chairman: Mr Elstein, who is a far greater expert than I will ever be, has just endorsed the view.

  Mr Elstein: Which is voice and which is echo, I leave to you to decide.

  Q11  Michael Fabricant: Moving aside for a moment from the internal structures of the Corporation—which we will perhaps come on to later—what about the delivery of services? Are there services that the BBC ought not to be in? Or, in fact, do you feel that the BBC has now reached its optimal level and it should not expand any further and should not get into other services? Or are you reasonably content with the various BBC channels that are being offered on radio and television, in publication, satellite and website?

  Dr Tambini: I do think that our customary way of looking at these questions which is the idea of market failure—a very ill-defined idea as far as I can see—does miss a lot, and particularly with regard to the challenges and changes we were speaking about a few moments ago. We do need to have a close look at, if you like, the public interest and public value of providing new forms of services. I also think that we should do that in a pro-active way; rather than waiting to see what the market provides and waiting to see how the market develops and then try to fill in the gaps, this is the time to say, "What is the role of a public communications provider on-line?" I think you can have some very broad arguments about communications rights, what is the basic amount of information citizens should have; those kinds of arguments are relevant. I also think that looking at values like creativity and how the market has failed to provide for new forms of culture like peer to peer or re-use of content (and I refer to the creative archive I mentioned previously). Another area which I think is fundamental to that re-thinking of the justifications of public service and communications is the traditional democratic and civic role of communications. Over the past 10 years we have had very healthy experimentation in on-line provision of government information, Citizens' Space, UK On-Line, et cetera. Alongside that we have had very fragmented provision by communication providers such as the BBC. I think the time is right for a broader debate about what Professor Stephen Coleman calls The Civic Commons. I do think that there are natural monopoly arguments you can make for the role of a single communications provider to bring together into one kind of portal, if you like, those kinds of services. That is something that I would say is fundamental to the re-thinking of what the BBC should provide and what we would be uncomfortable with leaving to commercial providers.

  Q12  Michael Fabricant: Would that mean you would be comfortable if, say, in a few years' time, the Corporation decided with the ability of broadband providing two megabyte, four megabyte—whatever it needs to get a decent picture down broadband—a service where I, as a consumer or a licence payer still, could call up episodes of Dr Who or Panorama of 20 years ago which are held on archive and have it fed down to my television set via a broadband link, you think that new service would be acceptable as an additional service being provided by the Corporation.

  Dr Tambini: Yes.

  Q13  Michael Fabricant: On the question of governance of the BBC, it has been argued that there could be an increased role for Ofcom so that it governs the Corporation in the same way that it governs—and I use the word "governs" advisedly—other public service broadcasters such as Channel Four and others? The NUJ are concerned; they are running a campaign at the moment: "Save our BBC". What is your view about that? Not so much the NUJ campaign but whether Ofcom is a likely candidate to provide external governance of the Corporation?

  Professor Naughton: First of all, I think governance is a big issue not just because of recent developments, but there is a fundamental difficulty that I see which is that there is this question of how do we define public service broadcasting? The effective answer seems to have been for the last 50 years that public sector broadcasting is what the BBC does, broadly speaking. I do not think we can continue with a system that allows a single organisation to define what it does as being public service broadcasting. In the first instance, there is a need for some sort of external accountable, transparent mechanism, some agency, some institution, something which will, in a sense, be publicly responsible for defining what we mean by public service broadcasting and making sure that it is provided for the British public. That clearly has bearings on the way the BBC is governed. In relation to Ofcom there is a difference between regulation and governance. Ofcom is there to regulate, to ensure compliance with standards and requirements and so on that are laid down in other ways. Governance is, I think, different and the difficulty with the BBC governance in its present form is that the Board of Governors is constitutionally incapable of doing the conflicting things that it is required to do. That has to change.

  Q14  Michael Fabricant: What would you change it to?

  Professor Naughton: I think I would move the Board of Governors towards a body which was more independent of the management, which had a different kind of external representation and which was comprised of people who had more time and energy to devote to it and were not necessarily chosen on the basis of geographical or other representation. I think it used once to be a requirement for being a member of the Board of Governors of the BBC that you had never worked in broadcasting and knew nothing about it. That is not necessarily a good way to proceed.

  Q15  Michael Fabricant: Who would you have appoint the Board of Governors?

  Professor Naughton: I would have a Public Service Broadcasting Authority.

  Q16  Michael Fabricant: Another organisation? In parallel with Ofcom?

  Professor Naughton: Yes.

  Q17  Michael Fabricant: How do others feel about that?

  Professor Tait: I would be cautious about giving Ofcom anything more to do at present until we have a better idea of how they are coping with the very many tasks they have already been given. I would also be a bit cautious about handing over regulation of a public body to a commercial regulator which has a rather different remit. I have been to this Committee before when we talked about the stewardship of the previous commercial regulators—the ITC—and the mess they made in many ways of news provision over the last 10 years on the commercial network, ITV. I do not think that commercial regulators have a particularly good track record at running public bodies. I think Ofcom does have a role. I think it already does have in regulating some pan-commercial public issues like harm and offence, taste and decency (as we used to call it). I think Ofcom already has a role in regulating BBC and I do not think there is any problem with that. I agree with Professor Naughton; I think if you are looking for better regulation of the BBC you want to go for a different structure and a structure that has much clearer differentiation between the governors and the executive.

  Q18  Michael Fabricant: Do you agree with Professor Naughton's Public Service Broadcasting Authority being set up?

  Professor Tait: No, I am opposed to setting up many more bodies, really. I think what we need is clarity and then you need the right people to carry out whatever clear remits they have been given. I think part of the problem we have with the BBC—as I said before—is that at the end of a Charter inevitably problems come up which people had not entirely anticipated and I think that has put the existing regulatory structure under a pressure which it has not been able to sustain and that is why we are now looking for a new approach. I would agree that greater separation is a way forward rather than to put everybody into Ofcom.

  Mr Elstein: Unfortunately the problem with these interesting tinkerings with the relationship of the governors to the executive which actually date back—for those who are interested—as far back as 1949 when the Beveridge Committee then recommended that there should be formal separation of the governors from the executive; it should have its own secretariat, own building, et cetera. The BBC Executive fought bitterly to destroy those proposals and succeeded. You have to look at specifics. For the last three years the BBC has dramatically failed to meet its obligations in terms of independent commissioning. It has a 25% quota that it acceded to and agreed to, and each year for the last three years it has actually failed by a larger and larger margin. You have to think through, how does that happen? To whom are the managers accountable? The governors. How come the governors, after the first year of failure, did not implement a system to ensure there was not a second year of failure? After two years of failure, how come there was not a system to make sure it did not happen in the third year? You have to accept that the governors actually have no authority. What could they do? Fine their own management? Fire their own management? They only appoint the Director General. Professor Tait correctly points out that the ITC was not a shining example of exceptional regulatory capacity, but Ofcom—as the Chairman has noted—regulates a publicly owned broadcaster called Channel Four. It has the right to impose fines on Channel Four for non-compliance, breaches of codes, all kinds of things. I do not believe that Ofcom would have tolerated a second year of failure to meet the independent quota in the way the BBC governors did.

  Chairman: We need to move on now; I will come back to Mr Fabricant if there is time.

  Q19  Alan Keen: Taking a blue-skies look at this was a great idea; we have just proved that because it is so wide-ranging. Derek Wyatt is always right at the cutting edge of new technology, but when we are looking at the BBC are we really saying that people are changing? Most of us who watch television, do we not want to just sit in a chair, nod off to sleep, wake up again and watch a bit more? We are not going to go to the Lake District and watch drama on a mobile phone. Are you saying that this generation is changing? I do not think I will change.

  Mr Elstein: Technology does change you. There is quite a lot of evidence that in homes that have Sky-Plus less than 30% of viewing is of live TV as compared with homes that do not have Sky-Plus where it is 98%. In homes with Sky-Plus I think the viewership of advertisements is round about 2% of adverts are actually viewed because the rest are fast forwarded. You do not have to be a 14 year old geek with full knowledge of every bit and byte in the universe to be able to operate a PVR; it is actually rather simpler than an old-fashioned video. People do change their behaviour if they have superior technology put in front of them. People who have multi-channel choice spend less time watching the core five terrestrial channels. In multi-channel homes their share of viewership drops to a little above 50%; obviously in five-channel homes it is 100%. Choice and technology do affect behaviour. As several of my colleagues have already said, it is fruitless to anticipate exactly how new technology will change behaviour. I noticed that a supermarket chain is offering you videos by post, as many as you want to view, and they turn up by snail mail, but it looks like it is a viable business model, and why not? You do not have to be connected to the information superhighway to take advantage of ingenuity in creating new forms of distribution. All you can say for certain is whether or not the volume and quality of content remains constant, the way in which people access that content will change and the way in which they use that content will change. One of the most remarkable statistics is that through the entire period that we are talking about—the last eight to 10 years—the total viewing of television on average in each household for each person has not changed at all. They are viewing different things in different ways on different platforms, but they are still viewing.


 
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