— There should be no change to BBC Radio's
source of funding in the short to medium term. The BBC should
remain publicly funded through a compulsory licence fee. However,
there should be more transparency about the quantum of funds,
application of funds, public accountability, and proper value-for-money
evaluation.
— The BBC should be set up similarly to
commercial companies, with the Management and Governors between
them mirroring the roles that an executive and Board of Directors
would have in other corporate entities. Governors should be responsible
for proper governance but not take on the role of regulator.
Their existing regulatory functions should be done externally
by the Secretary of State, Ofcom and the National Audit Office.
The ex ante competition powers Ofcom has in relation to
Broadcasting Act licensed services should be extended to the BBC,
and the BBC's accounts should be subject to full audit (including
value for money audits) by the NAO.
— Given the rapid changes which are occurring
in the media environment through technological developments, growth
of on-line services, demographic changes, and—coupled by
the prospect of television digital switchover before 2016—there
should be a review of the Charter every five years.
— There is a need for more effective regulation
of programme formats, spectrum allocation and use and application
of funds.
1.1 Although the Select Committee's question
was primarily directed at BBC television services, the Committee
may also be interested in examining this question with respect
to radio.
1.2 BBC Radio is currently the dominant player
in UK radio, with over 50% of radio audiences. While the commercial
sector would certainly wish to see a reduction in the BBC's share,
this should come about through improving our own services to make
them more attractive to listeners, rather than by forcing the
BBC to become less popular. However, what commercial radio does
seek is more equitable treatment through regulation to enable
us to compete fairly and effectively and for the
scope and remit of the BBC to be clearly defined and monitored.
1.3 The three areas where we believe there is
a need for more effective regulation are programme formats, spectrum
allocation and use, and the proper audit of the application of
public funds (including value-for-money).
1.4.1 Commercial radio stations are subject to
strict format regulation by Ofcom, under the terms of the Broadcasting
Act 1990. This is the "quid pro quo" for the use of
a valuable public resource, namely spectrum, by the commercial
sector. Ofcom can monitor compliance with formats, or follow up
on complaints. If a commercial operator is found not to be broadcasting
within the terms of its format, it will be in breach of its licence
and face statutory penalties (a fine, shortening of a licence,
or revocation).
1.4.2 By contrast, BBC Radio's analogue services
(that is, Radios 1 to 5 and local BBC radio) are not subject to
any external format regulation whatsoever. This contrasts to the
BBC's new digital radio services where formats were agreed by
the Secretary of State for Culture, Media and Sport. This also
contrasts with the new arrangements for BBC television. Under
the terms of the revised Agreement, the BBC will have its delivery
against its statements of programme policy reviewed by Ofcom as
part of Ofcom's regular review of public service television. There
is no provision for any external review of BBC Radio services.
1.4.3 The revised Agreement provides that each
year the BBC must prepare and publish statements of programme
policy for each service. For radio, the BBC is responsible for
monitoring its own performance and reporting on this in the Annual
Report. There is no external validation of the BBC's evaluation,
and no sanctions if the BBC does not meet its promises. So, in
contrast to the commercial sector, the "quid pro quo"
for the BBC's use of two valuable public resources—spectrum
and the licence fee—is a complete self-regulatory regime
for programming.
1.4.4 It might be helpful for the Committee to
see how the detail of self-regulated formats compares to statutory
regulation.
1.4.5 Radio 1's remit, as set out in the statement
of programme policy for 2003-04 is:
BBC Radio 1 aims to offer a high-quality service
that is relevant to its young target audience and their lives.
Music is at its core but this is augmented by other distinctive
public service elements including original news, features and
informative advice campaigns on the issues that matter to the
audience. The network aims to deliver the best new music, with
a music policy covering all the relevant genres.
Commitments: BBC Radio 1 will play a key role
in British music, with a range of support for home-grown talent.
At least 35% of the playlist will be made up of UK artists.
We will broadcast 2,700 hours a year of specialist
music—about 40% of the output—covering all the appropriate
youth genres.
We will broadcast 270 hours a year of news and
current affairs.
We will continue to commission features and
documentaries on a wide range of subjects, including music and
other issues of importance to a young audience.
1.4.6 The Committee may wish to compare that
with the format, regulated by Ofcom, for Capital FM, the current
chart hits service in London:
Capital FM is a predominantly contemporary/chart
music LED service for under 40s in London
Music programming will be predominantly (up
to 100%) current chart hits, new releases, and hits less than
10 years old.
No more than 20% will be hits over 10 years
old.
Specialist programmes for the target audience,
which complement the main music mix, may be broadcast in non-daytime
for up to 15 hours a week.
Speech must account for at least 15% daytime
weekdays (10% at weekends) or 5% non-daytime.
News bulletins containing local/regional news
must be broadcast at least during peaktime weekdays and breakfast
at weekends. National news will feature at other times.
Other information, including entertainment news,
travel news, whats-ons, leisure activities and so on should be
balanced across each day.
1.4.7 Or indeed, the format for Xfm, Capital
Radio Group's service playing "alternative rock" music
in London:
Xfm will be targeted at 15-34 year-old London
listeners, providing a specialist music format of "Alternative
Rock", best defined as modern rock with attitude, featuring
artists generally outside the mainstream.
Tracks and artists featured will generally be
groundbreaking "alternative" artists, innovative, youthful,
generally guitar-led. Output will not be expected to have much
overlap with other, more mainstream stations, or become chart-hit
oriented (whether past or present charts).
Up to 50% of the output will be current popular
alternatives (from the last two months), with the rest of programming
made up of breakthrough tracks from the previous fortnight, classic
alternatives and "roots" tracks which played a part
in alternative evolution. None of those categories should exceed
30% of the output.
Daily programming will contain whats-on information,
news about bands, a full weekly alternative rock review programme,
and at least three weekly "live" sessions (each at least
15 minutes) commissioned for Xfm. At least four bulletins a day
weekdays and three weekends should contain relevant local/regional
news tailored to the tastes of the target audience. National news
will feature at other times. Sport is seen as a key interest to
the target audience and a music/sport mix on Saturdays may be
aired.
1.4.8 The Committee may note that, unlike for
the commercial sector, neither the music remit nor the target
age demographics of BBC Radio 1 is defined, thereby enabling the
BBC to shift its music policy to aim at whatever audiences it
wishes. Nor is there any clarity or distinctiveness about BBC
Radio 1's public service remit. This results in unfair competition
against the commercial radio sector, as we are strictly bound
by our remits and target demographics.
1.4.9 Radio 2's remit is similarly unspecific
about music:
"BBC Radio 2 aims to bring a wide range
of popular and specialist music, news, current affairs, comedy,
readings and social action campaigns to a mainstream audience.
In addition, we are committed to offering a variety of religious
output catering for the diverse beliefs of our audience."
1.4.10 This would account for BBC Radio 2's ability
to shift to a younger target audience over the past few years,
competing directly with the commercial sector. BBC Radio 2 is
now the most listened to radio station in the UK and can shift
and adapt its output at whim.
Spectrum Allocation and Use
1.5.1 Commercial radio is currently assigned
8MHz of the FM waveband, whereas the BBC is assigned 11.5MHz.
Commercial radio has a 46% share of FM radio listening with the
BBC having a 54% share. A crude assessment of the ratio of audience
delivery to spectrum occupation, indicates that commercial radio
is 23% more efficient at delivering audience per spectrum allocation
despite having only one national FM service (Classic FM) in contrast
to the BBC's four national FM licences.
1.5.2 The BBC broadcasts many radio services
in triplicate on the AM, FM and digital wavebands and is guaranteed
space on digital radio multiplexes. Commercial radio services
are not guaranteed digital multiplex spaces. Of the BBC's 46 analogue
radio stations in the nations and regions, half are simulcast
on both AM and FM with Asian Network programming on seven of the
AM frequencies in selected evening and weekend slots.
1.5.3 The allocation of valuable spectrum space
between the BBC and commercial sector should be reviewed.
Audit
1.6.1 Unlike other publicly funded bodies, the
BBC is not subject to the financial controls of the Comptroller
and Auditor General, nor audited by the National Audit Office
("NAO"). The BBC, as far as Capital Radio is aware uniquely
among public bodies, is independently audited (currently by KPMG).
Although the BBC publishes financial information as part of its
Annual Report, much detail remains hidden and unavailable for
public scrutiny. For example, according to the 2002-03 Annual
Report, the cost per hour of originated programming on Radio 1
is £2,700, and on Radio 2 it is £4,200. Nowhere are
these costs broken down or explained. The BBC has claimed that
its programming budget for digital radio alone is £200 million.
This is double the turnover of the entire Capital Radio Group.
What has been lacking to date is any evaluation of whether the
additional costs of BBC Radio services represents value for money
for the licence fee.
1.6.2 Paragraph 4 of the Schedule to the amendment
to the BBC Agreement dated 4 December 2003 requires the BBC Audit
Committee to examine the value for money achieved by the Corporation
in using the licence fee. In doing this, they must consult with
the Comptroller and Auditor General over the possible scope of
an audit programme and consider which individual reviews under
that programme might best be conducted by the NAO.
1.6.3 Capital Radio does not believe this arrangement
properly addresses the requirements of a full value for money
audit.
1.6.4 Significantly:
— although reports will be done by independent
bodies, including the NAO, the factual content of any report is
to be agreed by the BBC;
— there is no requirement for any public
consultation, either on the audit programme itself, or on individual
reports;
— while the reports (and any BBC response
to them) are to be laid before Parliament, there is no other arrangement
for them to be made public; and
— the Audit Committee may make recommendations
to the Governors following on from the report (and indeed, the
report itself may include recommendations), but there is no requirement
for these recommendations to be made public, or indeed be reported
to Parliament.
1.6.5 We believe these arrangements remain unsatisfactory
and that, as part of Charter Renewal, the BBC's accounts and practices
should be subject fully to scrutiny by the NAO.
QUESTION 2: HOW
SHOULD THE
BBC BE FUNDED?
2.1 We believe there should be no change to BBC
Radio's source of funding and it should remain publicly funded
through a compulsory licence fee in the short to medium term.
However, there should be more transparency about the application
of funds, public accountability, and proper value-for-money evaluation.
Public Funding
2.2.1 Although television has seen the successful
growth of funding through subscription, no equivalent model of
success exists for radio. The only subscription-funded radio service
in the UK, Music Choice, is a music-only (i.e. no speech) service
aimed primarily at providing background music in commercial venues.
We do not believe it would be valid to extrapolate anything from
this one example.
2.2.3 In the UK, therefore, there are two models
for radio funding: advertising and public funding. Although successful
in building advertising revenue and growth over the past 28 years,
commercial radio attracts only 6% of all display advertising revenue.
If BBC Radio were to compete for this narrow market, we believe
it would be to the detriment of all radio services and to the
benefit of none. Should radio's share of advertising revenue grow
substantially over the coming years, there may be scope for considering
the privatisation of Radios 1 and 2. But to do so now would introduce
an unacceptable level of new competition into the commercial radio
market.
2.2.4 The BBC has recently undertaken a number
of commercial "partnerships" including association with
the Radio 1 chart show and local and national events which directly
affect revenue opportunities for commercial radio. We believe
that these commercial activities should be reviewed and curtailed.
Transparency and Accountability
2.3 As stated in paragraph 1.6.1 above, the BBC's
published accounts are noteworthy for their lack of transparency.
We believe, as the receiver of over £2 billion a year, the
BBC should be far more accountable for its spending policies and
practice. There is no justification for a public body hiding behind
the excuse of "commercial confidentiality".
QUESTION 3: HOW
SHOULD THE
BBC BE GOVERNED
AND/OR
REGULATED AND
WHAT ROLE
SHOULD BE
PLAYED BY
OFCOM?
3.1 We believe that the BBC should be set up
similarly to commercial companies, with the management and Governors
between them mirroring the roles that an executive and Board of
Directors would have in other corporate entities. Governors should
be responsible for proper governance but not take on the
role of regulator. Regulation should be external, and divided
between the Secretary of State, Ofcom and the National Audit Office.
Role of BBC Management
3.2 The number and structure of BBC management
is a decision for the Director General, with the approval of the
Governors. The role of management, vis a" vis the
Governors, is ultimately a matter for decision by the Governors.
However, we believe the arrangements should be modelled on that
of other corporations, with staff management having responsibility
for the day-to-day operational running of BBC services, under
the strategic guidance of the Governors.
Role of BBC Governors
3.3.1 The functions of the Governors as set out
in the BBC Charter read as a blueprint for the duties of a responsible
corporate board. Under the Charter, the Governors are to:
— Approve and monitor performance of the
BBC's programme objectives;
— Ensure the terms of the Agreement are
satisfied;
— Satisfy themselves that the BBC is complying
with its fair trading commitments;
— Satisfy themselves that the BBC is providing
value for money in the use of public funds;
— Determine overall strategy;
— Ensure proper liaison with the BBC's
National Councils;
— Ensure complaints are properly handled;
— Monitor and supervise the fulfilment
of legal and contractual obligations, including compliance with
codes and guidelines of programme content;
— Determine strategy for and oversee the
provision of the commercial services;
— Determine strategy for the World Service;
and
— Appoint an audit committee, the Director
General, and Senior Staff.
3.3.2 Many of these functions are to do with
oversight and governance and are properly the remit of the Governors.
However, some functions also have a regulatory perspective (compliance
with programme objectives and content codes, compliance with fair
trading obligations, value for money, complaints handling). Until
the commencement of the Communications Act 2003 and the most recent
changes to the Agreement, the Governors were the back-stop body
for all of these functions; they were responsible for both proper
governance, and—ultimately—for regulation. This has
led to an unacceptable confusion of roles. The Governors are not
only expected to act as judge and jury, but as Counsel for the
defence as well.
3.3.3 Under the terms of the revised Agreement,
Ofcom is now the competent regulator for certain programme-related
functions (as described below). We recommend that the Governors'
remaining regulatory functions be redistributed, leaving the Governors
responsible for ensuring proper governance of the BBC,
without any potential confusion of their role. We further recommend
that the Secretary of State reconsider the range of competencies
required by the Board of Governors and seek to appoint Governors
with relevant expertise. The remuneration for the Governors should
also be reviewed to reflect their level of responsibility, including
ensuring the proper application of over £2 billion of public
money.
Role of Ofcom
3.4.1 Under the terms of the revised Agreement,
Ofcom is now the responsible regulator for the BBC's obligations
to comply with television quotas (Tier 2), and programme standards
(except for accuracy and impartiality) and fairness and privacy
(Tier 1). Ofcom is also now able to review and consider complaints
about BBC services. In addition Ofcom will review the BBC's television
output as part of its regular analysis of public service television.
3.4.2 In order to clarify the role of the Governors,
and to ensure consistent regulation with other broadcast services,
Ofcom should also have responsibility for ensuring the BBC's output
is impartial and that news is presented with due accuracy.
3.4.3 In section 1 above we set out our concerns
about the lack of formal regulation of BBC's radio formats, and
the unfairness of the flexibility afforded by their self-regulation.
Charter Renewal offers the opportunity to address this inequity
and to make the BBC accountable to proper and full external scrutiny.
3.4.4 The arrangement would also work to ensure
that the BBC concentrates on providing a truly public service,
and not one which competed directly with the commercial sector
for the most popular programming. Ofcom's recent Public Service
Television Review demonstrates that audiences do not want the
BBC to broadcast copycat popular programming which is already
well provided by licensed services. Although the research only
looked at television, the same principles apply to radio: listeners
will value The Archers, and the distinctiveness of Radios 3 and
4. But it does not benefit listeners to Radios 1 and 2 to hear—at
least during daytime peak—identical material to that available
on commercial stations. Listeners want—and deserve—something
different.
3.4.5 Ideally, we would like BBC radio to be
subject to similar format obligations as the commercial sector.
However, if the BBC is to be permitted to write its own promises
of programme performance, Ofcom ought to be responsible for ensuring
the BBC's compliance, with the same back-stop powers to enforce
format obligations as exists for PSB television licensees.
3.4.6 The commercial radio sector has regularly
complained about anti-competitive behaviour by the BBC, ranging
from its ability to cross-promote its services across platforms,
to raising the price of radio sports rights and talent without
regard for market prices; from introducing new digital radio services
backed by generous public funds in direct competition with existing
(but struggling) commercial digital services, to arranging commercial
sponsorships of spurious "events" and thereby detracting
advertising revenue from licensed services. The OFT has been unable
to pursue complaints under the Competition Act for the simple
reason that the BBC is not advertiser-funded and therefore, under
the terms of the Act, not operating in the same "market".
The same problems would face Ofcom under the Competition Act.
3.4.7 However, Ofcom is empowered under the Communications
Act to apply ex ante competition obligations on its Broadcasting
Act licensees. This power is potentially far more flexible and
wide-ranging than its Competition Act ex post powers. The
power (set out in section 316 of the Communications Act) enables
Ofcom to include licence conditions appropriate for ensuring fair
and effective competition in the provision of licensed services.
The conditions can include provisions to ensure that service providers
do not enter into or maintain any arrangements or engage in any
practice which Ofcom considers would be prejudicial to fair and
effective competition. Licensees are required to comply with any
Code that Ofcom issues in this regard.
3.4.8 We recommend that, as part of Charter Renewal,
Ofcom is empowered to apply these competition considerations to
the BBC, and that the BBC should also be subject to any Ofcom
Code. While we do not wish to prejudge the outcome of any investigation
Ofcom might undertake under these competition obligations, this
would provide additional oversight of the BBC's compliance with
its fair trading requirements and enable proper examination of
the effect of the BBC's behaviour on the rest of the broadcast
sector.
Role of Secretary of State
3.5.1 As the recipient of substantial public
funds for the provision of public services, there ought to remain
some mechanism to ensure accountability to Parliament (over and
above the laying of the Annual Report). We therefore consider
that the Secretary of State ought to retain her role in this regard
with specific reference to the appointment of Governors, changes
to the licence fee, Charter and Agreement, and the approval of
new services. However, as indicated in section 3.4 above, Ofcom
ought to take formal responsibility for ensuring the BBC's compliance
with the programming conditions for new (and existing) services.
3.5.2 We see no reason to change the current
arrangements for the World Service.
Role of National Audit Office
3.6 We have set out in section 1.6 above why
the BBC should be subject to the same degree of scrutiny of its
accounts as other public bodies and should therefore be fully
accountable to the NAO. The NAO should also take over the regulatory
functions of the Governors in relation to evaluating value for
money. It is impossible to see how the Governors can adequately
consider value for money without access to comparable industry
data. Unlike the Governors, the NAO is in a position to compare
and analyse costs and spending across the broadcasting sector.
QUESTION 4: DOES
A 10-YEAR
ROYAL CHARTER
AND AGREEMENT
WITH THE
SECRETARY OF
STATE, TOGETHER,
PROVIDE THE
MOST APPROPRIATE
REGIME?
4.1 On the assumption that the BBC will continue
to receive a substantial amount from public funds levied by way
of a compulsory licence fee, then the decision as to the BBC's
continuing arrangements should be made by someone with direct
accountability to Parliament, namely the Secretary of State. Given
the rapid changes which are occurring in the media environment
through technological developments, growth of on-line services,
demographic changes, and—coupled by the prospect of television
digital switchover before 2016, there should be a review of the
Charter every 5 years. There may be scope for retaining a major
review only every 10 years, not least given the amount of resource
both internally at the BBC and outside is devoted to each Charter
Review, but there should be some opportunity at lesser intervals
to review whether the assumptions and criteria applied at the
last major review continue to be appropriate.
