Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 1-19)


2 MAY 2006

  Q1 Chairman: Good morning, and may I welcome you to the first of what I hope will be a regular joint session of the Trade and Industry Committee and the Culture, Media and Sport Select Committee to take evidence from Ofcom. I believe it is going to be a concurrent meeting of the two committees. Although I know that you are keen on convergence, we have actually split it into two halves. I shall be handing over to my co-Chairman approximately halfway through. At the time when the Communications Bill was being debated, I was certainly concerned that there was not going to be sufficient parliamentary scrutiny or accountability of Ofcom. I have talked about this with both Lord Currie and Stephen Carter. I think it is worth putting on record that the idea of this session, at least in part, came from Lord Currie and Stephen Carter, and I think that that is very welcome. Can I begin by focusing on the broadcasting side? I invite Alan Keen to start the questions.

  Lord Currie of Marylebone: Might I, by way of introduction, say a word? We have certainly welcomed the initiative of the select committees in holding this joint session on our Annual Plan. As you have said, we were established in recognition of the very convergence of the communications sector and I think the need for a single body to regulate electronic communications and the broadcast media. It is our hope that this joint session between the two committees will become an important component of our parliamentary accountability. The communications sector is at a hugely exciting and dynamic stage. New technology and new investment in the market is bringing huge new opportunities and new services at ever keener prices. At the same time, it is creating new opportunities for Britain's creative industries, something this country does naturally very well indeed. We have new outlets therefore for those talents. This dynamism creates new challenges, both for legislators and for regulators, and therefore we very much welcome the opportunity to talk about those challenges here today and at future sessions of the committees separately, but also I hope annually with both of you together. Thank you very much.

  Chairman: It certainly is our intention I think that this should perhaps become an annual session, perhaps to coincide with your forward look.

  Q2  Alan Keen: Could I start with the BBC? I wonder if you could give us your views on the difference it is going to make having the new Trust rather than Governors that we are dealing with, and the changes as well?

  Lord Currie of Marylebone: The new arrangements with the new Trust do introduce a separation between the management of the BBC and its governance. We have been charged to make the new arrangements work. There is quite a complicated set of arrangements between Ofcom and the BBC. Just as we have worked hard to make them work in the past, we will certainly be working hard to make the new arrangements work. We have meetings in train with the Trust to make sure that happens.

  Q3  Alan Keen: Previously of course I always felt that the Chair of the Governors was like an executive chairman and was very close to the Director-General, who is the equivalent of the chief executive in a normal commercial company. You have mentioned separation already. You will deal only with the Trust rather than the executive, as it were?

  Mr Carter: No, we will deal with both. We will have a co-regulatory relationship with the Trust because there are aspects of BBC regulation for which we are singularly responsible. There are aspects of regulation for which the Trust will be singularly responsible. There are aspects where we are jointly responsible. We will also have a relationship with the executive because, in those areas of regulation where we are the regulator, we are regulating the executive, not the Trust. So there is a matrix of relationships to be worked out. If you read the White Paper, one of the things that comes through quite clearly is that there is quite a bit of work in the detail of administration and responsibility that needs to be done. We are in the process of doing that with the Trust. We are approaching that task because we need to make it work as effectively as possible.

  Q4  Alan Keen: Could I then move on to Channel 4? How strongly coupled will the review of Channel 4 and the Public Service Publisher idea be? Are those coupled closely? How do you see that working?

  Mr Carter: We think that all of these questions essentially start from the same source question, which is: how much money, as a country, do we want to spend on public service broadcasting? That is the first question. We have to answer that question, which is a question, as I understand the protocols, largely for Government rather than for Parliament: where do we want that money to go; do we want it to go singularly to the BBC for the next five or 10 years or do we wish it to go to other parties? If we do want it to go to other parties, which other parties? We have proposed the notion of a Public Service Publisher. Then of course, once you have answered all those questions, you then need to ask how you regulate that and hold it to account. That slightly goes back to your first question about how do you divvy up the responsibilities, in this instance between the Trust and ourselves or between ourselves and the board of Channel 4? The first question is: do we want competition; do we want a range of providers? We believe that we would like both of those things. We think the viewer, the listener, the surfer, are well served by competition in public service broadcasting and have been over the period. We see no reason why you would not want to maintain that. We accept that there are voices, we would describe them largely as siren voices, that say this is a route to top-slicing the BBC. We do not see it that way. We think it is perfectly feasible for Government to make the decision to fully fund the BBC at whatever level they think is appropriate, and then make alternative provision for alternative providers of public service broadcasting.

  Q5  Alan Keen: How will you assess the public's view? The change at the BBC did not introduce any direct democracy. I know it would have been very complicated to do, but it did not introduce any direct democracy. How will you take account of the public's views on this yourselves? Government has to take account of that when it is setting the licence fee for the BBC, but how do you see it?

  Lord Currie of Marylebone: If you look back to the Review of Public Service Broadcasting, which we completed last year, we used a number of ways of finding out what the public thought. We consulted very widely, but we also engaged in very significant market research to see what people actually thought about what they saw on the screen and what they were prepared to pay. That type of research very much informed what we did in that review. I have no doubt we will be applying the same methodology of finding out what people actually think through research in the review of Channel 4 going forward.

  Q6  Alan Keen: Would it be part of your remit perhaps to recommend that there should be some more direct democracy so that the public were involved more directly rather than just market research?

  Mr Carter: I suppose the great thing about running a broadcasting business is that the ultimate form of democracy is whether or not people watch, listen or use what it is you do. It is still the case that our public service broadcasters across the piece, whether it be the BBC or Channel 4, or indeed the commercial broadcasters—ITV and Channel 5—are successful in viewing share or listening share on radio, or indeed on hits on line. There is equally no doubt that the market is changing very fast now. You see the take-up of new services changing very fast. That is one of the reasons why we have said, publicly and privately, that whatever the financial settlement for the BBC, there should be a review in five years' time to see quite what the public appetite and the public position is at that stage. I think you are seeing so many changes that to set something in stone now for 10 years, or 11 or 12 years once you get to the end of the debating process, is a very long period of time. I am not sure it would be feasible to introduce direct democracy in the parliamentary sense, or in the plebiscite sense, into the running of a broadcasting business—and the BBC is a broadcasting business—but more measured accountability we think definitely is feasible.

  Q7  Alan Keen: Can we move on to ITV and Channel 5? What public service content should there be and what are your thoughts on promoting public service content?

  Lord Currie of Marylebone: ITV and Channel 5 have clearly made a significant contribution to public service broadcasting. We will do all that we can to ensure that that continues. Having said that, we have to recognise that as we move into the digital age, as the pressure of fragmentation of audiences happens, the traditional model that we have had for commercial public service broadcasting is coming under great pressure. The traditional deal was that in return for relatively cheaper spectrum, the regulator could demand public service broadcasting obligations. As spectrum becomes more plentiful, as audience share fragments, the ability of the regulator to extract that part of the bargain is undoubtedly under pressure. We have seen some of that in the changes that we have made already in our arrangements with ITV. ITV has very considerable public service broadcast obligations but, over time, some of those likely to diminish somewhat because of those commercial pressures.

  Alan Keen: This is fascinating. It is very difficult to ask you questions that require predicting what is going to happen. Thank you very much.

  Q8  Chairman: Can I press you a little on your new responsibilities in relation to the BBC? The big change is the role of Ofcom in carrying out market impact assessments of proposed BBC new services. Who will decide whether or not a particular BBC service should be subject to a market impact assessment?

  Lord Currie of Marylebone: Ultimately, as I understand it, it is a matter for the Trust to determine whether a service should be subject to that scrutiny, though clearly Ofcom would have a final vote on those questions.

  Mr Carter: If it is a new service, it will be evident because it did not exist before. I think where there will be grey areas are where there are changes to existing services. One of the things that the Trust is required to do, early doors, is to establish what the baseline of the existing services is. They are going through that at the moment. As the service licences are issued for all the existing services, those service licences will say, "For service X, here are the following components of that service". There will still be room for debate around what is a material change to an existing service. As my chairman makes clear, ultimately that is a matter for the Trust and the White Paper is very clear on that. There is an administrative intention to have a clear baseline established as to what the current services are and what they are licensed to do.

  Q9  Chairman: That does not seem to me entirely satisfactory because there will be some new services which, quite plainly, are significant departures from anything the BBC has done before, but there will be others where it may be a change in the nature of the distribution, and there you are saying that it will be the BBC that will be able to turn round and say, "No, this is not really any significant change; there is no need for Ofcom to become involved", and you cannot challenge that.

  Mr Carter: We could choose to challenge it but the White Paper is creating a new self-regulatory structure called the BBC Trust. In that instance, the BBC Trust will be exercising a regulatory responsibility. My observation would be that if they consistently flout their responsibilities in the way you describe, then that will call a relatively new regime into disrepute rather quickly. I am sure there will be grey areas.

  Q10  Chairman: Will you publish your market impact assessments?

  Mr Carter: We will.

  Q11  Chairman: With the fact that the BBC, even though you may decide that a new service has a significantly damaging effect on the market, is still in a position to decide to go ahead on the basis of public value, what would you see as your reaction, should that happen?

  Lord Currie of Marylebone: I think it depends very much on how the BBC Trust sets out the case for the public value considerations. Clearly, the Trust has to balance these concerns. I would expect that if it goes against the analysis in terms of the market impact assessment, it would have to have well justified reasons for so doing. I would expect those to be in the public domain.

  Q12  Chairman: You could appeal to the Secretary of State essentially if you really felt that something was not in the public interest?

  Lord Currie of Marylebone: Is that within our powers? I am not sure.

  Mr Carter: It is a technical question to which I do not know the answer, Chairman. It is an interesting one. We should look into that. If the dispute was playing out in the public manner that you describe, I am not sure that we would need to make an appeal. I think she would notice.

  Q13  Chairman: Let us leave it as a theoretical question. Can I very quickly ask you about, and forgive the pun, a particular hot potato in your lap, and that is food advertising? Obviously you are aware that you have been tasked with drawing up proposals for the regulation of food advertising. The timetable for that has slipped pretty badly. The original consultation was supposed to be completed by now, but you have now asked the industry to try to come up with its own proposals. Is it realistic to believe that these new regulations will be in place by the beginning of next year or is that likely to slip as well?

  Lord Currie of Marylebone: Can I be clear on the reasons why we have been careful and considered in the way we have approached this question? We are dealing with quite significant commercial interests. It is very important that we go through a process that in our view is not liable to be challenged legally, because that would set the timetable back even more. So we have been considered and careful in what we have done, very much researched based and very much evidence based. We expect, at the end of the consultation process, to form a view. There is a timing question about the introduction of new regulations on advertising, but I would expect us to have reached a decision to be on the timetable you are talking about, subject to my chief executive confirming that that is our expectation.

  Mr Carter: I would never contradict my chairman, certainly not in front of a joint select committee. The chairman is absolutely right. The timetable we will meet. The slippage, as you describe it, Chairman, has been for a variety of reasons, some of them so that we do pursue the necessary processes. There are multiple interests in this. If you do not mind me saying so, it would not be accurate to characterise our current consultation as: we have now asked the industry to come up with an answer. We have said, "Here are three options. Absent a co-regulatory solution from industry, we will choose one of the three of them". We have laid out very clearly what the alternative options will be. Those range across different restrictions, some of them more severe than others, and the severest is substantial. Rather going back to the opening questions about public service broadcasting on the commercial broadcasters, if you took the total investment in children's programming on broadcasting today, even if you included the BBC, it probably would not be more than £200 million. That is a lot of money. If you were to take the most severe proposals that are being talked about for the banning of advertising of any of those products, it would remove more than that from the commercial broadcasting food chain. That may not be the wrong decision. We are not saying ipso facto there are not other issues. There are; there are significant social issues here. Ultimately, our job is to balance the communications issues with the social issues. There are other parties that can take a more singular view just of the social issues. That is not our responsibility.

  Q14  Chairman: How do you intend to carry out your review of the effectiveness of new regulations? How do you measure whether or not they are effective?

  Mr Carter: There is a detailed regulatory impact assessment, which is has been done by the Food Standards Agency and they are far more expert in this field than we are. They have laid out a whole series of analyses which look at the social externalities, the health benefits and the economic benefits. In truth, the approach that we have taken is that it would be highly unlikely that we would be able to do a regulatory impact assessment that would be more technically informed in that area than theirs, and so we have largely been led by the work done by the FSA on that question.

  Q15  Mr Evans: Do you think that the BBC internet news services are so extensive that they act as a barrier to commercial competition entering the market?

  Mr Carter: I heard you very early this morning in rather punchy form. I thought at that point that your opening question might a tricky one! I do not think we know the answer to that question, if you are talking about the proposed services that the Director-General laid out last week in his Fleming Lecture. Clearly, the BBC, as a contemporary broadcasting organisation, rightly sees that it needs to take its services on to every platform. The Director-General, rightly in my view, talks about reach rather than old-fashioned `viewing share' because increasingly that is the way in which you need to engage with your audiences, if you can even call them that in the world we live in today. As the BBC extends its reach, its distribution and delivery, you do have to go through some quite rigorous processes. If you compare what they are planning to do on-line by comparison with what they have done on television, there was not a market impact assessment regime when the multi-channel television process at the BBC worked; there was not a BBC Trust; there was not an Ofcom. I am not saying necessarily that all three of those things will act as a barrier to progress for the BBC but they should act as a filter for that progress. That is what they are designed to be. Over the next two or three years, we will see their proposals go through those filtering processes and we will see what comes out. I have no doubt that you will see the BBC's position and reach on those new distribution services increasing, and it should do.

  Q16  Mr Evans: You understand the fear as well of local newspapers that if the BBC goes into local television in such a big way, it could damage the sales of regional newspapers?

  Mr Carter: I think we understand the fear of multiple parties' reactions to the BBC's decisions better than almost anyone else because we deal with all of their various competitors and suppliers—and they are often the same thing in many instances—on a regular basis across multiple sectors and multiple platforms. Equally, we recognise that the BBC has a significant role and is the pre-eminent public service provider of news, information, entertainment and content. Those are balances and we will go through the assessment process and see what our judgments are.

  Q17  Mr Evans: Did you take a view as to why the ITN News Channel folded?

  Mr Carter: We did not take a view on that. That was a commercial matter for ITV in the main, although clearly it was a commercial contract with ITN. ITN was not a public service broadcasting channel in the same sense the BBC News 24 is. That was a matter for the management of ITV.

  Q18  Mr Evans: You do not think the BBC were partly responsible?

  Mr Carter: There is no doubt that the 24-hour news channel market is a busy market, and the ITV News Channel was having to compete. The costs of competition are high. I think it would be inaccurate, from what I know of the commercials which is not 100%, to characterise that commercial decision to close that channel as a casualty of the BBC's involvement in the market. The sums of money involved were not sufficient to lay the blame solely at the door of the BBC.

  Q19  Mr Evans: Finally, can I ask you about the internet. I know you are not responsible for the internet, but you would very much like to be the regulator. Is that right?

  Lord Currie of Marylebone: No, that is not our position. As you may know, there are some discussions around this question in Brussels, with the extension of the `Television Without Frontiers' Directive. Our concern is that up till now we have relied on self- and co-regulatory mechanisms to handle questions of regulation of the internet, with some success. Our worry is that we may extend statutory regulations at a European level in a way that provides responsibilities to national regulators but that they are unable to deliver on those objectives because the mechanisms are not in place. We certainly share the objectives of Commissioner Redding in wishing to be concerned about content on the internet, but we are concerned to get the right approach to tackling those questions. We are not sure that what is being proposed currently is the right one.

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