Examination of Witnesses (Questions 1-19)
15 SEPTEMBER 2004
BBC
Q1 Chairman: Good afternoon, welcome
to the Committee of Public Accounts where we are looking at the
BBC's investment in Freeview. This hearing of the Committee of
Public Accounts is an important one and an historic one, because
for years this Committee has been arguing that the BBC should
be held to account to Parliament for this licence payers' money
which it spends; after all, the licence payer has very little
choice in these matters. I am delighted to say that in spring
2003, after years of resistance by the government, for some reason,
I know not why, the government suddenly started to accede to our
request. I am delighted to say that an agreement has now been
hammered out between the National Audit Office, this Committee
and the BBC that there will be a trial period of this type of
hearing where we will have a PAC hearing which to all intents
and purposes will be much like any other PAC hearing. We do have
Charter renewal coming up and this Committee has long campaigned
for a position where the BBC will be placed in the same position
as any other spender of large amounts of taxpayers' money. I just
want to emphasise, however, that we have made it clear all along
that this Committee has no intention in any way of interfering
in the editorial freedom of the BBC. We are simply interested
in value for money issues. This is by way of an experiment for
this Committee and I am sure it will be a very worthwhile one.
On that note, may I welcome the team which has come to speak to
us from the BBC: Dermot Gleeson is a governor and member of the
audit committee; Mark Thompson is of course the newly appointed
Director General; Carolyn Fairbairn is Director, Strategy and
Caroline Thomson is Director, Policy & Legal. I shall address
my questions initially to Mr Gleeson, but any of your team is
free to answer. It is very informal. We only want answers and
although, to abide by the constitutional niceties, it is perhaps
important that I start by addressing my questions to Mr Gleeson—any
of you may answer them. May I refer you to paragraph 3.19 which
you can find on page 36 of this Report from the National Audit
Office? Why do we have a situation where one in four licence fee
payers who cannot get Freeview is expected to pay for it?
BBC
Mr Gleeson: Before I answer that
question, may I very briefly say that we are, after all the debates
and discussions which have taken place, very pleased to have the
opportunity to talk to you today and we look forward to a new
and productive relationship between the PAC and the BBC in the
public interest. Coming to your specific question, the governors'
overriding concern in this area of policy is to enable as many
people as possible to benefit from the BBC's digital services.
We make all our digital services available on satellite, cable
and Freeview, so that our licence payers have a wide range of
options to choose from. What our audience research has shown is
that many non-digital viewers are not prepared to pay a subscription
for digital services, but they do find the idea of a free digital
service involving only a modest equipment cost appealing. Freeview
therefore fills, as its success has shown, a gap in the market:
currently 73% of viewers can get access to Freeview compared with
66% two years ago at the time of ITV's DTT coverage. Unfortunately
it is not possible, for technical reasons entirely outside the
control of the BBC, to achieve universal coverage for Freeview
until we get to analogue switch-off.
Q2 Chairman: You accept that for the
time being it may not be technically possible and I am sure you
are doing your best to right this, but the fact is that through
our licence fee we all have to pay for Freeview but one in four
of us cannot get it.
Mr Gleeson: I entirely accept
that is true and I accept that it is regrettable. If I may, I
should like to ask Mark to elaborate a little bit on the technical
constraints and also perhaps to talk about what we are trying
to do to ensure that viewers outside the Freeview area of coverage
will be able to enjoy, hopefully in the not too distant future,
a free digital satellite service.
Q3 Chairman: Perhaps Mr Thompson could
also answer this question. If he looks at paragraph 3.23 on page
39, he will see, as he knows already, that some people who want
to get Freeview have to pay £250 more than others because
of where they live. Is this fair or right?
Mr Thompson: Without claiming
any special engineering knowledge, may I begin with the technical
issue which essentially relates to paragraph 3.23 as well. Members
of the Committee will perhaps know that the reason it is difficult
to extend Freeview/DTT coverage beyond the present level is because
there are some parts of the country where we need to use multiple
analogue frequencies because of local topological difficulties.
For example, in the Rhondda Valley we have five or six different
repeater stations, all using different frequencies so that they
do not interfere with each other. The effect of this is that there
are significant challenges ahead before analogue switchover. At
the point of analogue switchover we can then use frequencies to
deliver a complete digital terrestrial coverage as good as the
historic analogue television coverage across the whole of the
UK, but only at that point. We are working against physical constraints
to do with the nature of the analogue transmission network, which
is very complex and has thus left us so far with digital terrestrial
coverage which is incomplete and indeed is incomplete, as it were,
in the manner of a Swiss cheese: there are pockets across the
country where, for topological and analogue reasons we cannot
reach people. I would say two things about this: one is that we
are pursuing a piece of policy in television broadcasting which
is absolutely that of the government and indeed, to my knowledge,
that of the other parties about moving Britain towards digital
terrestrial television. We are one of the leaders in that but
we are working against the constraints I have mentioned. We believe
it will take in excess of 1,000 transmitters to build out the
chain and even having built those transmitters, it is at the point
of switch-off that we can deliver complete coverage. Because we
recognise that we are in a situation where some households are
disadvantaged because they cannot receive the signal at all because
their receiving equipment costs much, much more than it does in
other households, we are trying to do two different things. One
is that with other broadcasters we are pursuing the opportunity
for a clear standard for a low cost free satellite service, which
can be delivered very quickly. If you go to Europe right now you
can walk into a Carrefour in France and buy a free digital
satellite receiver, dish, box, everything for as little as
80, very much the same sort of cost band as Freeview.
Secondly, we are also trying very hard to make sure that analogue
households which are unable to see Freeview currently do get to
see some of the best programming we are putting on our digital
channels. For example, one example at random, the Alan Clark
Diaries, commissioned for BBC4, was subsequently shown on
BBC so that licence payers in analogue households, even if they
cannot receive the full digital services, are seeing some of the
most valuable high value programming on the digital services.
Q4 Chairman: On that point, would you
like to look at page 28 and Figure 18. We know that one of the
reasons for investing in Freeview was to try to encourage people
to spend more time watching your digital services, but if you
look at Figure 18, you will see right at the bottom the vast numbers
watching BBC1 and ITV1, but once you go up the list you will see
that tiny numbers are involved. You are not having much success
are you? This is why you are having to feed Alan Clark Diaries
into the main terrestrial services, is it not?
Mr Thompson: One of the reasons
for showing Alan Clark on BBC1 and BBC2 is that it is something
which analogue viewers want us to do so that they can enjoy it
as well. You have to accept that brand new services, using new
technology, will take time to penetrate; in fact digital television
as a whole, now available in 53% of UK households has had a faster
take-up here than in any other country in the world, partly because
we have offered some high value programming on additional BBC
digital services. The Alan Clark case is an interesting
one: half a million people watched that on BBC4 and what we are
beginning to see now is individual programmes on these services
breaking through. I can tell you that although the absolute numbers
may be relatively small, the impact of the BBC's new digital children's
services is extraordinarily marked. I know from my postbag and
from audience research that these, in my view, high quality children's
channels without advertising have been warmly welcomed by licence
payers with children.
Q5 Chairman: If you look at Figure 22
on page 32, you can see that the public is still very confused
about Freeview. More than half of them still do not understand
that they can get BBC's digital channels free on Freeview. Do
you accept that?
Mr Gleeson: There is still a high
level of confusion; nonetheless our promotional campaigns have
had a tremendous effect. Over two million people have contacted
the BBC following those campaigns. There is still a great deal
of work to do and it is going to get more difficult as the proportion
of homes without digital television reduces, because by definition
the people who are left in the non-digital category are going
to be the people who are particularly unaware of the digital possibilities.
I am very confident that as long as we continue to do our market
research as effectively as we have been doing and continue to
adapt and evolve our promotional campaigns in the light of changing
circumstances and where we are proposing a major new promotional
campaign in the autumn, I am very confident that we will be able
to continue to make a substantial impact.
Q6 Chairman: I want to ask about the
constitutional point, which I think is a very important one. In
this Committee we constantly question public bodies, spending
public money, which are taking creative risks. Why should the
BBC be any different? Why should this Committee not have a right
to question you in full, as other public bodies, on your economy
and efficiency? Perhaps you do think we should have the right.
Mr Gleeson: I have very real sympathy
with this Committee's concerns. I should like to stress that the
BBC governors' objectives are in all essentials, in my view, the
same as the Committee's. The governors are determined that the
licence fee payers' money should be spent as cost effectively
as possible. We are determined that the management of the BBC's
finances should be transparent. We are determined that the BBC
should be accountable for its stewardship of public funds. What
is more, we believe and believe very genuinely, that the involvement
of the NAO will help the governors to govern more effectively.
May I explain a bit more why we see that? As you are probably
aware, the governors are now committed to ensuring that henceforth
they are more independent and seen to be more independent of management
than they have perhaps been in the past. For that purpose, they
propose not only to establish a substantial internal governance
unit which reports only to them, but they also propose to make
much greater use of outside experts. Commissioning the NAO to
undertake value for money studies, value for money studies which
will always be laid before parliament, fits in and supports the
governors' new agenda extremely effectively. As I said, I think
you will actually help us to govern better than we have sometimes
in the past. However, although the BBC is publicly funded, as
you rightly highlight, it is not a government department, nor
is it a state broadcaster. Moreover it is a creative and risk-taking
organisation, operating in a mainly commercial marketplace. We
therefore do not feel that the relationship between the NAO and
the PAC on one side and the BBC on the other should be exactly
the same relationship as your relationships with departments of
state. The independence of the BBC is a very valuable national
asset. It is greatly valued by the British people and successive
governments have recognised that maintaining the BBC's independence
means not only guaranteeing its editorial freedom, but also giving
it the right to manage its own affairs free from political or
other external interference.
Q7 Chairman: That is fine; I think we
understand that. Put it this way: we in Parliament require television
viewers to finance their viewing through the licence fee. We give
them no choice. We effectively impose a poll tax on every television
viewer in this country. How do you suggest we in Parliament hold
you responsible for all this public expenditure except through
a process like this?
Mr Gleeson: I welcome, and welcome
genuinely, the compromise agreement within which we are now all
working. It seems to me that it offers a pragmatic balance between
on the one hand the independence of the BBC and the duty of the
governors, amongst other things, to achieve proper value for money,
a duty which is laid on us in the charter, a pragmatic balance
between those considerations and on the other side the need for
independent scrutiny and parliamentary accountability. We have
now an arrangement which I believe can achieve both those objectives
and I think what is needed now is for all the parties to that
agreement, all the parties to this new procedure, to work together
in good faith to make it succeed. It is an arrangement in its
infancy, but so far I think it is working quite well and it should
surely be allowed to mature rather than abort it at this stage.
Chairman: Thank you very much. You have
made your point very clearly.
Q8 Mrs Browning: On 12 July Michael Grade
sent me a copy of your annual report and accounts and in the covering
letter he stated that the report evaluates the performance of
the BBC against publicly stated objectives and commitments. If
I look on page 23 of that report, I see the Governors' objectives,
of which item 4 is to drive digital, drive the market for free-to-air
digital television, digital radio and new media, focusing on improvement
in awareness, availability and take-up. It is a rather nebulous
objective, is it not? It does not appear to be very focused or
to set any particular targets and it deals specifically with the
area we are discussing this afternoon. Why is it so nebulous?
Mr Gleeson: The first point to
make is that we agreed at the time of the last licence fee settlement
with government that we, the BBC, would do what we could to promote
digital take-up in order to help the government achieve its objective
of analogue switch-off as soon as possible. This objective is
essentially articulating that purpose. Within that overall objective
we have a number of very specific objectives indeed with respect
to the increased availability specifically of our own services.
Freeview has been an important instrument in relation to the attainment
of those objectives and indeed the NAO Report itself lists the
objectives we set ourselves and gives us a fairly good bill of
health with respect to achieving them. Perhaps I could ask Carolyn
to supplement that.
Mr Thompson: Just before she does
that, if we turn to page 6 of the NAO Report, paragraph 2 "Our
overall conclusion, against the background of the Government's
intention to switch from analogue to digital transmission, is
that the BBC had clear and sound reasons for investing in Freeview
and that the BBC contributed significantly to the quick and successful
launch". You will appreciate that there are multiple objectives
in the organisation, inside the BBC, and moreover we are also
key parties to a broader process with government and with other
broadcasters in setting clear objectives in, in my view, the very
complex task of turning Britain into a digital nation both in
respect of television and in respect of radio. There is no shortage
of targets and objectives. The fundamental objective we are still
trying to finalise with other broadcasters and with government
is the appropriate date to set for digital switchover in DTT.
Ms Fairbairn: This objective focuses
on a specific part of digital take-up, which is the free-to-view
market which is quite new. One of the reasons for the objective
being phrased in this way was to encourage management, to encourage
us, to focus on the development of a market without a subscription.
Two years ago the digital market was entirely a pay market and
was beginning to stall. This is perhaps a slightly more focused
objective than it may look to be at first reading.
Q9 Mrs Browning: So in your mission statement—if
I may describe it as such—for the forthcoming year how have
you assessed the competition you will face from the BSkyB new
subscription-free service?
Ms Fairbairn: I do not think we
see that as competition. We should like to work with BSkyB on
helping their free satellite service to develop. We should absolutely
see that as being possibly one of the ways we can deliver this
objective.
Q10 Mrs Browning: Could you tell me a
little bit about that? I represent a seat in Devon where I
receive letters—I had one this week from somebody—suggesting
that MPs are totally out of touch with the fact that we cannot
get all these extra free channels in Devon. I pointed out that
it was nothing of the sort; it was because we work an 80-hour
week and we do not have too much time to watch. I am concerned
because it seems to me that you are investing a lot of taxpayers'
money. We have seen the figures the Chairman pointed out to you
in terms of the fact that even when people have it, the amount
of time they spend watching those Freeview channels is quite way
down compared with the normal four or five channels people tend
to watch the most. In areas like mine where we cannot get BBC
Freeview, are you saying that by providing this service BSkyB
will substitute for the BBC? Is that not in the longer term something
you should be concerned about, or are you just going to let them
provide it in areas where you have difficulty at the moment?
Ms Fairbairn: The point about
the Sky service is that it will carry BBC channels for free. In
a sense this is our objective. We do not regard them as competing
with us in that way: it is a very valuable way of the BBC services
being made available free to air in those areas.
Mr Thompson: May I draw an analogy
with Freeview? Freeview is a standard and it is a clear standard
for receiving digital terrestrial television, but you can buy
your box from Pace, or Toshiba, or Panasonic or many other box
manufacturers. Our vision is of a free satellite service where
there will be a number of different possible providers of which
BSkyB could actually be one. It is not for us to dictate the receiver
market: our mission is to try to make sure that our services are
freely available to licence payers with reasonable choice between
digital platforms and with a fundamental presumption of platform
neutrality. We are also very, very happy for the cable companies,
whether on digital or analogue, to carry BBC services for free
as well.
Q11 Mrs Browning: You ran a television
and radio advertising campaign on the launch, which I personally
liked and thought was quite effective, with the various faces,
although I have to say that it became so fascinating that one
was trying to anticipate the face rather than reading the message
and phone number, so there is perhaps a little bit of over-hype
on those. I did think it was a good campaign and it did get the
message across very well; it was very good. How have you evaluated
that campaign in terms of the money you spent on it and the outcome
of the take-up?
Mr Thompson: One simple fact is
that at the moment Freeview boxes are leaving the shops at in
excess of 100,000 units a month; 100,000 households are getting
these boxes a month. Just for comparison's sake, that is probably
10 or 15 times the growth rate of Sky Digital currently. This
is an enormously successful launch by any standard of consumer
product.
Ms Fairbairn: We are assessing
our information campaigns in a number of ways: one is just in
numbers of boxes sold and after every campaign we run there is
an increase in take-up which we monitor. Secondly, on the confusion
figure which has been brought to your attention already, we do
keep track of that and it goes down again after the campaigns
and to some extent follows that track. The third is people's satisfaction
with the product: eight out of 10 people would recommend it to
a friend. We are keeping very close track of the effectiveness
of those campaigns and believe that they have indeed helped to
drive the market quite a bit.
Q12 Mrs Browning: Can you just tell me
what your thoughts are at the moment? If it is a question of a
collaboration with others such as BSkyB to roll out and make the
provision universal, do you not have any warning sounds about
the fact that the consumers' perception may be that the time has
now come for the TV licence no longer to be funded in the way
it is at present, but that all television should be pay-as-you-go?
Mr Thompson: There is absolutely
no evidence whatsoever, either in our audience research or in
the extensive public consultation done this year by Ofcom, that
that is in the public's mind. On the contrary, Ofcom's 6,000 respondent
research suggests that support for free-to-air public service
broadcasting is very, very high indeed. Having said that, we have
to accept that we live in a very different environment: BSkyB
has been a very successful operator of a largely pay satellite
service; they used to have a free offering which they withdrew
and they are now proposing to offer another one. That is something
we welcome. The key thing for us is ensuring that licence payers
who pay for BBC services, including digital services, are able
to receive them and that we achieve universal coverage so that
all of the licence payers can receive them as quickly as possible.
For example, in areas like Tiverton and Honiton, as quickly as
we can we find a cost-effective way in which your constituents
can get these services.
Q13 Mr Allan: I want to speak as a happy
consumer of the Freeview product, because I think it is a very
good product, but start by looking at the potential risk that
there is to it. The Report acknowledges that the collapse of ITV
Digital was disastrous for the development of digital TV. What
confidence can we have that a joint venture which you have with
your biggest competitor, BSkyB, is not similarly going to collapse
in the future?
Ms Fairbairn: A number of things.
Firstly, the technology is working much better. One of the reasons
that ITV Digital failed was that there were many problems with
the technology which at the time of Freeview's launch were largely
fixed. It no longer breaks up when the fridge door closes and
things like that and coverage is better. That is one thing. Secondly,
our experience so far in working in a joint venture with Sky has
been very positive. They do have call centre experience, they
are interested in the free-to-view market, as the launch of their
new service shows and they do have some channels on it. It does
surprise people to hear it, but actually the joint venture is
working very well.
Q14 Mr Allan: In terms of the 100,000
boxes flying out every week, if somebody out there goes and buys
one today, will that box in 10 years' time be able to receive
BBC services at least? Are you saying those services are pretty
much guaranteed.
Mr Thompson: Yes.
Ms Fairbairn: Absolutely.
Q15 Mr Allan: Over your multiplexes people
will still keep getting them.
Ms Fairbairn: Absolutely; yes.
Mr Thompson: It is a fundamentally
different economic model. The ITV Digital model was based on taking
risks on buying expensive rights and hoping to get subscribers
to subscribe. This is fundamentally based on box manufacturers
in an open market selling to consumers. We, with government and
other broadcasters, have absolutely got a responsibility in terms
of building out the transmitter chain and ensuring transmission,
but it is much more like converting Britain to colour television
than it is like trying to re-do ITV Digital.
Q16 Mr Allan: The other side is that
having established this is technically a good platform and can
go forward from that point of view, from the value for money point
of view, which we are interested in here, may I ask whether you
have looked at the cost comparisons for delivering your digital
services over the satellite platform, the digital terrestrial
television platform, increasingly as well by wire, the TV over
the telephone lines, platforms which are starting to become available?
Have you done cost comparisons per person for getting your services
out there? Have you?
Ms Fairbairn: We have. May I just
give you some headline numbers as we go into them all the time?
For an analogue household it is about £2 per household per
year. For a satellite household it is about £3 per household
per year.
Q17 Mr Allan: Which you pay to BSkyB
to chuck it over their satellite.
Ms Fairbairn: We actually pay
that to Astra to stick it up on the satellite and a small amount
to BSkyB for EPG services. For DTT it is still twice that; it
is round about £7 per household, but that is coming down.
Our costs are now fixed. For every new household which subscribes
that cost will come down.
Q18 Mr Allan: The other question, thinking
of the public out there, is this question of reach, which has
already been raised. What is the eventual reach you can get with
DTT? I think Mr Thompson said earlier that you could reach the
same as analogue? Is it correct that everybody who can currently
get analogue TV, once you switch off analogue will be able to
get DTT?
Mr Thompson: It is well in excess
of 99%-99.7%; a very, very high number in terms of universal reach.
Q19 Mr Allan: So the big question then
is: when does that analogue switch-off take place, the digital
switchover take place? Do you have a view of when is realistic?
Mr Thompson: We believe that 2012
is and we are confident about achieving digital switchover by
2012, depending on participation from all of the players. The
government would still like to see 2010 as the date and if it
can be achieved by 2010 we would be absolutely up for playing
our part in achieving it. That is the range of dates we are talking
about at the moment.
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