Select Committee on Culture, Media and Sport Written Evidence


Memorandum submitted by the Office of Communications (Ofcom)

INTRODUCTION

  Ofcom has been asked to provide a submission to the Culture, Media and Sport Select Committee Inquiry in relation to BBC's Charter Renewal. Our submission is set out in two parts:

    —  Part 1 sets out the regulatory functions that Ofcom carries out in relation to the BBC, and the functions that Ofcom has in relation to commercial broadcasters that do not apply to the BBC.

    —  Part 2 provides a summary of recommendations that Ofcom has made in recent public documents which relate to the review of the BBC's Royal Charter.

  The BBC plays a central role in our society, with a reach and influence envied by many private companies and public institutions. As we enter a fully digital world, the BBC has the opportunity to reinforce its importance and its value in an increasingly fragmented market. It is therefore important for Parliament, the Government and the BBC to ensure the Corporation can operate within effective governance and regulatory arrangements.

  Ofcom, as a statutory corporate body, has no preference for any one system of governance or regulation of the BBC, regarding these as a matter for Government and Parliament.

PART 1: OFCOM's REGULATORY ROLE IN RELATION TO THE BBC

AREAS IN WHICH OFCOM HAS A REGULATORY ROLE IN RELATION TO THE BBC

  Regulation of broadcasting content can broadly is split into three tiers: tier1 regulations apply to all broadcasters and relate to avoidance of harm and offence, impartiality, subliminal messages and fairness and privacy; tier 2 regulations apply to designated public service broadcasters and consist of quotas for certain programmes; and tier 3 regulations comprise the public service remit of designated public service broadcasters.

  Section 198 of the Communications Act 2003 requires that Ofcom shall carry out such regulatory functions in relation to the BBC as are specified in the Act or in the BBC Charter and Agreement. The Agreement was amended in December 2003 for this purpose.

  In each case below, where a power stems directly from the Act, or where the Agreement has the effect of applying that section to the BBC, the relevant section is stated.

  Section 198 gives Ofcom the power to impose a fine of up to £250,000 on the BBC for a breach of any of the requirements below (except listed events) if, after giving the BBC reasonable opportunity to make representations, it believes such a fine would be warranted. (In the case of listed events, Ofcom can only report the matter to the Secretary of State under section 103 of the 1996 Broadcasting Act.) Ofcom can also direct the BBC to take remedial action, including broadcast of a correction or a statement of findings and/or a direction not to repeat a programme.

TIER 1 ("NEGATIVE" MINIMUM CONTENT STANDARDS AND COMPLAINTS HANDLING)

  The following requirements apply to all BBC Public Broadcasting (ie licence fee funded) Services, including radio, in the same way as they apply to commercial broadcasters.

    —  Observance of the Ofcom code dealing with fairness and privacy for those involved in programmes (Act S327)

    —  Observance of the Ofcom code dealing with programme standards concerning:

    —  Protection of those under the age of 18 (Act S319(2)(a))

    —  Exclusion of material likely to encourage or incite crime or lead to disorder (S319(2)(b))

    —  Exercise of a proper degree of responsibility with respect to religious content (S319(2)(e))

    —  Application of generally accepted standards to provide adequate protection from offensive and harmful material (S319(2)(f))

    —  Subliminal messages (319(2)(l))

TIER 2 (QUOTAS FOR TELEVISION PROGRAMMES)

  The Agreement provides for Ofcom to agree or be consulted by the BBC's Governors about quotas for the BBC of a similar kind to those for commercial PSB channels and services. These cover:

    —  News at intervals on BBC1

    —  Peaktime news on BBC1

    —  Current affairs on BBC1&2 taken together

    —  Peaktime current affairs on BBC1&2 taken together

    —  Original productions on BBC1&2 and BBC digital services

    —  Original productions in peaktime on BBC 1&2 and BBC digital services (note: in practice peaktime quotas have only been set for BBC1-4)

    —  Regional news on BBC1

    —  Other regional programmes on BBC1&2 taken together

    —  Regional programmes made in region

    —  Regional news and other programmes in peaktime and immediately preceding or following peaktime

    —  Production of network programmes made outside the M25 across BBC1&2 and BBC digital services taken together, by hours and expenditure

    —  Subtitling, sign language and audio description for sight/hearing impaired people—BBC must observe the Ofcom code on this

    —  Independent productions (Schedule 12 Part 1 of the Act and Agreement)

OTHER

  The BBC is also required to:  

    —  Produce a code on programme commissioning in accordance with Ofcom guidance;

    —  Comply with international obligations notified to the BBC by Ofcom;

    —  Retain and produce recordings of television and radio programmes;

    —  Publicise Ofcom's functions in relation to handling complaints (Schedule 12 Part 1 of the Act);

    —  Observe Ofcom's code containing rules on coverage of major events (Part IV of the Broadcasting Act 1996 as amended by the Television Broadcasting Regulations 2000 and sections 299-302 of the Communications Act 2003)

    —  Co-operate with Ofcom and produce information to Ofcom in connection with

        —  Annual factual and statistical report

        —  Report on fulfilment of public service remit

OFCOM'S FUNCTIONS UNDER COMPETITION LEGISLATION

  Part 5 of the Communications Act sets out Ofcom's functions under competition legislation, and in particular, the areas where Ofcom can concurrently apply general competition law alongside the OFT. To date the issue of the application by Ofcom of competition law to the BBC has not arisen.

AREAS IN WHICH OFCOM HAS NO REGULATORY ROLE IN RELATION TO THE BBC

  The sections of the Communications Act listed below apply to commercial PSB channels, but have no application to BBC Public Broadcasting Services. These are currently the responsibility of the BBC Governors.

TIER 1 ("NEGATIVE" MINIMUM CONTENT STANDARDS AND COMPLAINT HANDLING)

    —  Programme standards concerning:

    —  Due impartiality

    —  Due accuracy in news

    —  Commercial products within programmes.

TIER 2 (QUOTAS)

    —  Party political, election and referendum broadcasts

TIER 3 (PUBLIC SERVICE REMIT)

    —  The BBC is only obliged to "consider . . . anything of relevance" in Ofcom guidance on annual reviews and statements of programme policy and Ofcom's annual reports and PSB reviews, and it is itself responsible for assessing the quality and effectiveness of its services, not Ofcom. In the case of commercial PSB channels, any "significant change" in programme policy must be approved by Ofcom, which also has backstop powers to impose detailed regulation in the case of serious failures. For the BBC, backstop powers rest, in effect, with government through the Charter, Agreement and government's power to approve and set conditions for new digital services.

OTHER

    —  Making arrangements for training and equal opportunities in employment

    —  Contributions to a National Television Archive

COMPETITION FUNCTIONS

  Under Section 316 of the Communications Act Ofcom may include in all broadcast licences any conditions that it considers appropriate to ensure fair and effective competition in the provision of licensed services or of connected services. All broadcast licences currently include a provision stating that the licence holder must not:

    (a)  Enter into or maintain any arrangements, or

    (b)  Engage in any practice

that Ofcom considers, or would consider to be prejudicial to fair and effective competition. This allows Ofcom to impose ex ante conditions on broadcast licensees where Ofcom has concerns that the licensee is or is likely to harm competition.

  Currently Ofcom has four Codes that set out detailed rules in specific areas on the types of behaviour that we would consider to be prejudicial to fair and effective competition. These cover the areas of:

    —  Advertising sales arrangements;

    —  Cross promotion;

    —  Minimum carriage requirements; and

    —  EPGs (excluding access and pricing arrangements which are covered under the Access Directives).

  If a licensee were to breach the rules set out in these Codes, Ofcom would consider that the licensee was acting in a manner prejudicial to fair and effective competition and would be able to impose sanctions as set out in Schedule 13 of the Communications Act.

  Clearly, since Section 316 is only applicable to Ofcom's licensees, the BBC is not covered under any of these ex ante regulations.

PART 2: OFCOM's PUBLISHED RECOMMENDATIONS CONCERNING THE BBC

  In many areas of our statutory responsibilities, Ofcom must consider the BBC's activities, since the Corporation is such a large and important part of the UK broadcasting market. In two recent documents, Driving Digital Switchover: a report to the Secretary of State and Ofcom's review of public service television broadcasting "Is Television Special?", for example, the issues could not be discussed without reference to the role of the BBC. In both documents, Ofcom made some firm recommendations and put forward some propositions, which relate to the Government's review of its Royal Charter. Below is a list of our recommendations and propositions.

DIGITAL SWITCHOVER

    —  In the context that it is important for all broadcasters to have clear and unambiguous incentives to drive digital switchover for it to happen, Ofcom made the following recommendations regarding the BBC.

    —  "Ofcom recommends that as part of the BBC's Royal Charter review, the Government adds specific obligations to the BBC's current general obligations to promote digital TV. They should include obligations on rolling-out digital transmission nationwide, providing public information, continuing to provide its channels on the free-to-view satellite platform, and providing on-air marketing of digital TV on a platform-neutral basis."

    —  In a discussion of which institutions should manage the process towards switchover, Ofcom recommended the establishment of a body, termed SwitchCo, which would have sufficient independence of broadcasters and the government. We recommended:

    "Many interested parties—the Government, the broadcasters, Ofcom, manufacturers and retailers—will continue to have important roles to play in delivering switchover. They must agree to SwitchCo's role and remit, and would be part of its governance arrangements. However, neither the Government, nor the BBC, nor a consortium of broadcasters, nor Ofcom should run SwitchCo because their interests are diverse. Instead, SwitchCo should have sufficient independence so it can represent the national interest effectively, ensure platform neutrality and avoid conflicts of interest."

PUBLIC SERVICE BROADCASTING REVIEW

    —  Ofcom recognised the "strong case for the BBC to continue to undertake a wide range of activities to underpin the delivery of public purposes and characteristics of public service broadcasting.

    —  In relation to the BBC's impact on audiences, we noted that audiences had fallen across the main terrestrial TV channels. Also, the reach of terrestrial channels had fallen. We noted:

    "In 2003, BBC One reached 80% of audiences in cable and satellite homes for 15 minutes or more each week, compared with 84% in 1998; the same channel reached only 75% of 16-34 year-olds in 2003."

    —  In relation to attitudes of the public to the BBC, we noted:

    "The BBC was assumed by the public to have the most programming obligations, Channel 5 the least. Audiences gave ITV1 some leave to pursue mass audiences with popular drama and entertainment."

    —  In relation to the programming on BBC television over the past five years, we noted:

    "Broadcasting professionals felt that the BBC had taken a more aggressive approach to winning audiences in recent years and was less different from other channels than it should be."

    —  The changing environment of the television market is likely to pose further challenges to the BBC. We noted:

    "The TV licence fee is already questioned by viewers whose use of the BBC's services is declining. Dissatisfaction with the BBC's method of funding may increase and there is an additional question about whether the BBC's income will keep pace with rising viewer expectations for high quality content."

    —  When evaluating the immediate consequences of our phase 1 research, we concluded:

    "In parallel, the BBC needs to reaffirm its position as the standard setter for delivering the highest quality PSB. The BBC Governors should take the lead in ensuring the BBC addresses concerns about derivative formats, aggressive scheduling, competition for acquired programming and a balanced schedule in peak hours."

    —  Our first proposition which had consequences for BBC was:

    "We need to examine the prospects for PSB funding and the case for seeking alternative resources. The existing funding base for PSB is being eroded. The traditional obligations on commercial broadcasters, set by the regulator, are being undermined by increased competition, falling audiences and declining advertising revenue. The BBC faces a similar problem: popular support for the TV licence fee may be jeopardised by the same development. So, new forms of explicit or implicit funding or support for PSB need to be considered for the longer term. These should include areas such as EPG positioning, digital multiplex access, commercial TV's payments to the Treasury and other possible incentives."

    —  Our sixth proposition for public service broadcasting was:

    "Notwithstanding developments in the market, there is a strong case for the BBC to continue to undertake a wide range of activities to underpin the delivery of the public purposes and characteristics of PSB. But its range of activities needs to be reviewed periodically in relation to core PSB purposes.

    —  Where a high cost of delivery is associated with low viewing figures, it will be harder to justify continued public intervention. Alternative means of funding, such as subscription, should be considered for these services.

    —  Other activities, including secondary market distribution, studio and other production resources, and indeed production should be reviewed carefully against their distinctive contribution to PSB purposes.

    —  Our seventh proposition was:

    "In the case of the BBC, with its unique and privileged funding status, programmes should always strive to reflect the broad purposes and character of PSB to some degree."

26 May 2004





 
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