Examination of Witnesses (Questions 1
TUESDAY 25 MAY 2004
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 yearsor five to
seven yearsmight be advantageous this time is that the
biggest single factor in the organisation of broadcastingwhich
is the proposal to switch off the analogue transmission systemis
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 Renewalassuming
Charter is renewedanyway 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 organisationsyou
do not have a Channel Four Charter Reviewit 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
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 agoas you know, Mr Wyattthere
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 platformsthe 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
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 phasethe mobile world, if you likeI 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 officeand it
could be a wireless huband 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 experimentI am not sure how well it has soldyou
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
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 sportlive,
anywayand 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 modelI think the most striking
example is the Eurovision Song Contesthave 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
questionactually it is rather more than $64,000which
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 internetvery
successfullybut should it be in the internet even though
the BBC websiteBBCiis 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 venturessome commercial, some notit 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 broadcastingit is
the British Broadcasting Corporation, not the British Production
Corporation or the British Distribution Corporationand
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
broadcastera very successful public broadcastercalled
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 Corporationwhich
we will perhaps come on to laterwhat 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 failurea very ill-defined idea as far as I can
seedoes 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 megabytewhatever it needs to get a decent
picture down broadbanda 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 governsand I use the word "governs"
advisedlyother 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
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
regulatorsthe ITCand 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 BBCas I said beforeis 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 backfor
those who are interestedas 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
Ofcomas the Chairman has notedregulates 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
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
aboutthe last eight to 10 yearsthe 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.