Examination of Witnesses (Questions 200-218)
ITV
6 DECEMBER 2005
Q200 Mr Sanders: Has the idea not
always been that the regional network would be funded by regional
advertising, regional advertisers who could never afford to advertise
on a national basis?
Mr Jones: The amount of money
that regional news attracts I suspect will not be able to meet
the costs of a full regional news service. I may be wrong. I always
compare broadcasting to Maoist China: it is permanent revolution.
It is constantly changing. I could not confidently predict what
revenues regional news would bring in in 2012 but it is a close
equation. I doubt we could raise enough money in regional advertising
to meet the full costs of the complex regional structure we have.
Mr Swords: I think it is fair
to say that we are not sitting on our hands waiting for this to
happen. We are actively seeking forms of self-help, to develop
new revenue streams beyond broadcast television. For example,
we have launched the ITV local broadband service which builds
on our regional content and our regional news and is delivered
online to viewers on the South Coast. We are doing it as a pilot.
We are targeting new forms of advertising which broadcast television
has not been able to take advantage of traditionally, classified
advertising, more local advertising, and we hope, if that is a
success, that it will, in a sense, help us close that funding
gap. But, I think, as Clive has starkly put it, fundamentally
the problem is the quid pro quo: the costs and benefits
of PSB in an analogue world really do not apply once you get to
digital switchover and you have at least 30 channels in every
home, and, in many millions of them, several hundred. I think
there is a consensus that there is a problem there and that is
shared by government and certainly by Ofcom and beyond. It is
really a question of timing: When is the right time to address
that problem? The Government proposed a review of commercial public
service broadcasting towards the end of the switchover process
in 2011. Ofcom are conducting a review of Channel 4 funding, I
think, in 2006-07. Our view is this all needs to be brought forward
and we need to look at commercial public service broadcasting
in the round, well in advance of even starting the digital switchover
process, because, as Clive says, if you wait until 2011-2012 it
may well be too late.
Q201 Chairman: You will recall that
the relatively modest proposal by Ofcom to reduce the public service
obligation for non-news regional programming generated quite a
bit of controversy in this building. Do I take it therefore, if
you wish to see ITV maintain in large part its public service
broadcasting in the future, that, to meet the gap which you have
identified, the implication of what you are saying is that you
think you will need access to public funding, perhaps through
top-slicing the licence fee?
Mr Jones: We may; we may not.
There are various forms of help, as Christy has alluded, Chairman.
I think the first duty is upon ourselves: Can we diversify and
access new revenue streams by creating supporting services like
ITV Brighton and ITV Hastings which we are currently piloting?
If those services work in terms of provision of local needs, local
entertainment, local classified, local information, that could
open up new revenue streams right across the country which could
buttress our regional needs. It may be that over time we could
look to Ofcom to change some of the minutage rules in terms of
the advertising. I would not want to see a massive increase in
minutage in peak time because I think about eight minutes an hour
is as much as people want. But we currently optimise that minutage
in peak time and we have very little air time available in the
regional news between six and seven and the national news. That
may be another form of self-help which does not mean a call on
public funds. But it may be that at the end of the day there is
a gap which is unbridgeable by ourselves, or, indeed, our colleague
commercial broadcasters like Channel 4. They estimate that there
will be a gap. I think our desire and our emphasis initially is
on self-help, but there may be a point where some increased top-up
funding could be provided from some kind of public service plan,
which may be provided from the licence fee, or, as I say, through
a different mechanism which we or Ofcom or this house have yet
to think through.
Q202 Chairman: You have also referred
to the news as being one of the core activities of the public
service obligation. If we are moving into an age of multi-channel
television, would you not think therefore that in order to maintain
ITV's standing as a mainstream news provider, the argument for
continuing to have a 24-hour news channel becomes stronger not
weaker.
Mr Jones: I think this is a complex
area. One of the realities of the move towards digital switchover
is fragmentation of audiences. In the case of ITV, fragmentation
of audiences inevitably means fragmentation of revenue streams
as well. We will still be one of the major broadcasters in the
UK post digital-switchover but our audience will be lower. Hopefully,
we have made up for some of that loss with ITV 2, ITV 3 and ITV
4 and maybe other channels. But the main audience for ITV 1 will
fall. It has done over time. We are already up to 62% digital
penetration in the UK and there could be a further 10% of the
population switching over to digital in the next year or 15 months.
When you have fragmenting revenue streams, you have to work out
your investment priorities. We have ambitious plans for ITV 1.
We want to open up some new bureau around the world. We currently
do not have a bureau in Beijing, for instance, where we think
we should be not only because of the impending Olympics but because
of the fact that this is the fastest growing economy in the world.
We are going to have to balance our investment. We are currently
investing very heavily in regional news—we are in the midst
of a £45 million investment campaign—and we are going
to have to work these issues through in terms of where we get
the best return on our investment. The average audience for news
channels, even the all powerful Sky News, is 75,000 an hour. More
people watch Meridian News or Central News in a week than watch
Sky News. If you look at that crucial news hour between six and
seven, the audience across BBC One and ITV 1 is around 11 million
people. Do we invest in rolling news services going forwards—this
is applicable to the BBC and Sky, I guess—which deliver
quite small audiences—or do we put our major investment
into the big news programmes which still attract audiences in
their millions? I think it is going to be a continuing debate
about public service broadcasting and the nature of our commitment.
Our national news and our regional news are major licence commitments:
they are public service broadcasting commitments that we have
made. Our news channel is not. Our news channel is a commercial
venture. The cost of video streams on Freeview which only a year
ago was £3-£5 million, this year is £12 million.
That is what Channel 4 has paid for the latest video stream. That
is a big cost before you even start paying for the journalists
and for the infrastructure of the channel. It is going to be quite
a daunting task for us going forward, but it is something that
we are going to debate actively as we want to continue our investment
in news
Q203 Mr Yeo: I warmly welcome what
you say about regional news, which I am sure has a very, very
important function. But, from what you have just said, it sounds
a bit as though you are writing the death sentence for the ITV
rolling news channel, so we are going to be reducing from three
to two. That is obviously a reduction of choice in the market
but it did not sound to me as if there was any phrase in what
was quite a long answer that can be regarded as reassuring for
the future of ITV's 24-hour news.
Mr Jones: I would like to keep
the news channel going. I think it is a good channel. I think
we have worked incredibly hard since we have owned the channel.
(We did not begin it, ITN began it: it was a joint venture with
one of the cable operators.) Since we have taken it over, we have
invested quite heavily in it to try to make it a going concern,
a going venture, and I would like to maintain the service. But
I can only refer to my previous answer: we began as part of a
duopoly and we had a monopoly of British television advertising;
we are now one of 200 channels and we have to make our way in
a highly competitive commercial world, and I am not about to become
the beneficiary of a major increase in my licence fee.
Q204 Mr Yeo: That is a fair point
to make, certainly. Are you saying that you do not think the marketplace
is really big enough for three rolling news channels?
Mr Jones: I do not know. It may
not be. You are talking about, as I said, very small sections
of the population who watch news channels. They grow at times
of crisis—when there is a 7/7 or when there is a Beslan—but
when those terrible events happen, we switch, as we did on 7/7,
as we did with Beslan, to rolling coverage on the main ITV 1 service,
and that would always continue. Whether it is tsunami, whether
it is any of these terrible events, the public expect to see major
breaking news on the main channel, so we would continue to do
that whatever might happen.
Mr Swords: It is worth adding
that the ITV News channel has had to fight its corner without
any of the benefits clearly of licence fee funding but also of
the PSB benefits that apply to the commercial public service broadcasters
such as gifted analogue spectrum, gifted DTT spectrum, due prominence
on electronic programme guides. If you go to the Sky programme
guide, the first name you will see is Sky News. I think the ITV
News channel is way down that list and that has had a big impact
on it. As I say, it has had to fight its corner as a purely commercial
venture without any of the benefits of public service status.
Q205 Mr Yeo: I do not think ITV can
complain about the EPG, given its early involvement in that. Sky
clearly are making a determined effort to sustain their news channel.
Surely they do not have the advantage of the licence fee money.
They are also having to operate in a competitive commercial environment.
Mr Jones: I suspect they will
lose a great deal of money on Sky News as a pure channel. It is
the only form of public service broadcasting they do. They do
not carry any news services on Sky 1 or on any of the other range
of channels. They are a platform operator, they are a channel
operator. We do, as I said, £250 million worth of public
service broadcasting on ITV 1 alone and we deliver a news channel.
They obviously feel that it serves a role for them and has done
over time, but it is the only form of public service broadcasting
they do.
Q206 Helen Southworth: You were mentioning
local television programmes. What plans do you have to bring in
a new world of local television?
Mr Jones: We are currently running
a pilot in both Brighton and Hastings which is a broadband delivered
service to each of those homes. It provides local news. You can
get the news for the whole of the South from Meridian but you
can also get individual stories for Brighton. It provides what
is on; it provides local information; it provides local documentaries
that we have made about that region. It could provide, over time,
a television form of classified advertisements, in terms of houses
and cars. We are offering a facility called My Brighton
wherein local residents can upload video reports. It might be
their own take on living in the region or it might be their own
account of local history or it might be their own account of the
activities of a local school or a local group. We think it is
an interesting area. We have never really done local television
in that sense before, in terms of a micro area—we normally
deal with millions of people in a region. We hope it can work
and, more importantly, we hope we can monetise it. We do not know
whether we can monetise it at the moment, but we see this as a
potential way forward, as I was referring earlier, to open up
new revenue supplies and create a strong alliance between local
news delivery and regional news delivery and to be able to supplement
our existing regional revenues with local revenues. If this experiment,
this pilot, works on the South Coast, we would hope to roll out
local television services across the UK quite rapidly. I think
it might well have to be on the basis of different funding models.
In major urban centres and major cities, it could probably work
as a stand-alone commercial proposition, but I think in other
areas, where there may not be the weight of population or the
concentration of industry—and I am thinking possibly of
the West Country or areas of Central Wales or possibly the Highlands
of Scotland—it might be that we would do this in partnership
with local firms or possibly councils or RDAs, to ensure that
other people in parts of the country receive that, and that provides
challenges in terms of editorial independence. But I am sure we
can work these things through. As with the BBC, there seems to
be a desire for local information, local news, and there seems
to be a movement steadily, as we go into digital Britain, to take
more and more information via the PC and, indeed, the convergence
of PCs and televisions. So this is an area we want to explore.
Q207 Helen Southworth: Do you see
it as just an information-sharing vehicle, or are you looking
at relationships with creative industries and opportunities for
young people coming into the industry in production and all those
sorts of things?
Mr Jones: I think it could provide
both of those things. We have already, with ITV Brighton and ITV
Hastings, struck a showcase agreement with a local screen agency
on the South Coast. Short films that are being made by young film-makers
down there are already being showcased, so you can click onto
the website—www.localtv.itv, if you want to go and see it—and
see short films being which have been made by young film-makers
going to colleges and universities down on the South Coast. In
terms of training, potentially, yes, this could be an adjunct.
We have about 20 young journalists a year—either through
sponsoring them through postgraduate courses, or ten people a
year we actually take straight into our news rooms. Local TV could
provide an additional way of training and supporting an opening
of employment to young journalists, young video-makers across
the country. It has not worked yet, and I cannot guarantee that
this pilot is going to be successful.
Q208 Helen Southworth: That is really
what I am asking you: rather than this being theoretically possible,
is this something at which you are going to be looking and into
which you are going to be putting some investment to make it happen?
Because somebody has to do it.
Mr Jones: We are putting many
hundreds of thousands into our experiment now. If it can work,
we will discuss it at some length with the main plc board. If
it can be monetised, if it opens up a new revenue stream, we will
be getting into this part of the business very, very quickly.
Q209 Helen Southworth: What about
high definition television.
Mr Jones: HDTV! We are planning
a pilot with the BBC next year, probably around the World Cup.
HDTV is quite phenomenal, if you have been able to see the difference.
Despite the quality of the panel pictures here in the UK, HDTV
is a leap again. The pictures are absolutely stunning. However,
it is spectrum hungry: it uses a lot of spectrum. The current
spectrum available on DDT will not be enough to support. We only
have half a multiplex and we would not be able to run our different
channels and do HDTV at the same time. I think that is one of
the things we would hope to achieve at the point of analogue switch-off.
There will be more spectrum released, and I would hope that Ofcom
and Government decide to release some of this additional spectrum
to the traditional mainstream broadcasters so that we could deliver
HDTV services.
Mr Swords: I think it is worth
nothing that DTT will be the UK default digital platform, in that
a lot of even cable and satellite homes will have DTT on their
second and third set. We are very focused and agree with the BBC
that if DDT is perceived or becomes a sort of second-class service
because of its inability to offer DTT, it will be a massive wasted
opportunity. Ofcom are currently looking at the so-called digital
dividend and what should be done with some of the released spectrum
once we get switch-off. Using some of it and redeploying it for
DTT and HDTV we think is something that should really be looked
at seriously.
Q210 Chairman: You have talked about
the millions you are going to have to spend to convert the transmitter
network for DTT. You have also obviously got the cost of being
on the Sky platform. Why, therefore, are you also going to pay
to go onto a Freesat service?
Mr Jones: We are a free-to-air
broadcaster and always have been. Our additional channels that
we are currently providing are also free-to-air. We make our money
and always have made our money out of advertising. Digital is
inevitable. Yes, our market will fragment; yes, our share of the
market will diminish; but digital switchover is now going to happen.
We do better in DTT homes in terms of share than we do in either
Sky homes or cable homes, therefore free-to-air platforms are
better for ITV in terms of its advertising revenue. We think DTT
will be the major deliverer to the 38% of the population and 18%
of the population in Wales that have yet to become digital households.
But there are going to be pockets of the country which cannot
get DTT. In that context, our share will be higher, we believe,
in a Freesat home than it will be in a 200-channel pay home, whether
it be receiving those pay services via satellite or by cable,
so it is an instinctive financial opportunity for us.
Mr Swords: I think there is also—and
we alluded to it earlier—the transitional issue of the limitation
of DTT coverage in the run-up to switchover: the fact that a quarter
of the population, even if they wanted to, could not get DTT.
We believe that no-strings Freesat, which is not regarded as a
sort of Trojan horse to a pay service, may have a role to play
in that. That is what we are currently discussing with the BBC.
Q211 Adam Price: In response to an
earlier question, I think you said that the coverage map for DTT
post-switchover would broadly replicate the current analogue coverage.
I think Digital UK used the phrase "substantially replicate".
Could you give a sense of where the existing gaps are in coverage
and why the map will be different post-switchover?
Mr Jones: I am not very good at
the technical side of this, so please forgive me if I sort of
fudge this answer a little bit. As I understand it, the digital
signal operates in a slightly different way from the analogue
signal. The Isle of Man takes its regional news service from Border
and, because of the way that we would need to re-engineer the
transmitters as a group, as a whole—meaning BBC, ITV, Channel
4, Channel 5—it looked likely that we would have to switch
the Isle of Man through to the main Granada transmitter, but,
in fact, I think we have resolved this now. There are still problems
in some of the other areas. The Berwick on Tweed transmitter,
it is difficult to relate that to the new digital map of the Borders,
and that might have to switch to the Tyne Tees service. Some of
this, hopefully, we can tidy up and improve. There is a problem
in Wales about Wrexham Maelor, for instance, which I think is
the only major borough in Wales which does not take the ITV Wales
service—which is odd, given that there is obviously a devolved
assembly in Wales—and it largely takes signals from Granada
and Central because of the nature of the analogue service. We
may be able to resolve some of those issues. The London region,
the traditional Carlton/LWT region, is likely to shrink a little
bit and Meridian, Anglia, Central South will grow a little. These
will be marginal changes, but it is the nature of what happens
through the ether and happens through the airwaves.
Q212 Adam Price: It has been suggested
to us that there is some kind of trade-off between geographical
coverage and higher channel capacity. Is that correct?
The Committee responded to a fire alarm
and suspended from 11.10 am to 11.28 am
Chairman: May I apologise for that. Those
who work in this building will know that it is a regular occurrence,
but one day there might be a fire so one has to take it seriously.
Adam, you were in mid flow.
Q213 Adam Price: I was just asking
about the potential trade off between channel capacity and coverage.
Mr Swords: I think that is right.
Broadly there are three variables at play here which input into
coverage. There is the number of sites; the level of power; and
the transmission mode. Various different combinations of those
have been looked at by the regulator and the broadcasters and
the transmission providers. In terms of rolling out to all of
the 1,150 sites currently covered by analogue, committing to higher
power levels at the 64 QAM mode will get you to predictive coverage
98.5% in line with current analogue coverage. You can play with
those three variables and arrive at different percentages, but
we are meeting the requirement that we need to.
Q214 Chairman: In your view is it
sensible to spend the large amount of money necessary on that
last 5%? You are talking about having to convert a lot of transmitters
to extend the coverage by quite a small amount at the margin.
It has been suggested it would be rather more sensible to give
them all satellite dishes. Would you have any sympathy with that?
Mr Jones: I think the debate is
over, Chairman. There was a time when we were negotiating these
issues through with Ofcom and Government but Government have decided
and I think the debate has now become academic whether the last
few transmitters should be switchover or not. I think the important
thing now is to get it done as quickly as possible. Now the decision
has been made, now the Secretary of State has announced the timetable
from 2008 until 2012, I think it is in our interests and in the
interests of all broadcasters and the general population to get
this done now. I think going back and trying to reopen those arguments
would not be particularly useful. I think it is much better in
the interests of both the consumer and the citizen that we get
this done now as quickly as we possibly can.
Q215 Rosemary McKenna: A very appropriate
point to come in with this question. In his written evidence,
David Elstein said that you were very enthusiastic about it because
you had had an unnecessary bribe to induce you to participate
in digital television. How do you respond to that?
Mr Jones: I think David missed
the point somewhat. The reality is that in an analogue home which
currently receives four or five channels, in peak time we take
a 30% share of the audience—although last night, when a
Thatcher was again winning the public vote, we took considerably
more than that! I think it was about a 48% share! In a DTT home,
the share of ITV 1 in peak times falls to about 23%. In a Sky
home, it can fall as low as 19%. Therefore, it was inevitable
that we would need some help or some assistance in going through
this process. So I do not think in any way it was a bribe, and,
whatever the level of inducement, it is going to be quite small,
given the ground-shifting nature of the change in our business
that we are having to go through this. It is offset on one side.
As I said ITV 1 will come down a little, but we have the opportunity
to launch ITV 2, ITV 3, ITV 4 and ITV News, so we can offset it
in other ways, but we, along with other broadcasters, are being
ushered into a new digital age, therefore it was inevitable that
some kind of process needed to be brought through here because
we are moving from an era of gifted free spectrum to a world of
multi-channel and probably us and others paying spectrum taxes.
Q216 Rosemary McKenna: There is a
problem in your funding model based on advertising, given not
just digital switchover but how people are viewing television
now. There are recording possibilities; they will fastforward
through the adverts; or they will just not record the adverts.
All of that technology is available to some and is going to be
available. What does that do to your funding model based on advertising?
Mr Jones: We do not know yet.
The more recent research on PVRs—and I think a million homes
now have Sky Plus and it obviously is going to grow over time
as PVRs extend through cable and through DTT—shows that
actually rumours of PVRs destroying the advertising business are
somewhat overstated. Research done in America and research being
done by BARB shows that the recall of advertising is still remarkably
high—and because some advertising is made to incredibly
high standards they even stop and go back to see their favourite
ads. We are not necessarily convinced that the onset of PVR is
going to kill free-to-air commercial channels.
Mr Swords: But, in so far as there
are challenges, I think there are also opportunities, and, in
particular, with some regulatory relaxations regarding advertising,
sponsorship—which becomes more important in a PVR universe
because people use the sponsorship break as a sort of guide—but
also other forms of potentially embedded advertising and looking
at the whole area of product placement, on which Ofcom is shortly
launching a consultation, this kind of opportunity for commercial
funding beyond spot advertising.
Q217 Rosemary McKenna: I think it
is very important that there is a public service broadcaster which
is in direct competition with the BBC, if you like. I think that
is important in terms of equity and fairness. Will you be able
to sustain that?
Mr Swords: We talked about the
challenges earlier, the broader challenges as we move towards
switchover, and that really brings into focus a whole host of
areas of analogue regulation which I think does need to be looked
at again, not just in terms of the genre specific obligations
but also advertising regulation and other forms of content regulation.
I think it all needs to be looked at and we would be supportive
of that being addressed as soon as possible.
Mr Jones: There are key issues,
as I alluded earlier in my evidence, about support for commercial
public service broadcasting going forward. Our concern—and
I think this will be shared by our colleagues in 4 and 5—is:
Let's have the debate now. This Committee, the broader House for
Government, the departments concerned, I think it is vital we
start debating these issues and deciding the priorities for plurality
before the first transmitter is switched off, because there are
various trigger points. When the first transmitter is turned off,
there are changes again to our PSB requirement and the number
of non-news hours we make are due to fall. There are challenges
that are going to come up as we move digital switchover for the
general funding of ITV for 4 and 5 as they relate to public service
broadcasting. So I think it is absolutely vital that as a nation
we debate these issues now and decide. It is bizarre that the
most powerful broadcaster in the land, the BBC, is going through
a process now where its charter is being decided and its licence
is being decided yet public service broadcasting on which it will
directly impact, on ITV 4 and 5, are not being debated. I truly
believe that this should be a debate conducted in the round, which
does not mean that I want the BBC in any way diminished or I would
wish to see an end to the licence fee—I do not: I think
the BBC is one of our most important cultural institutions and
should be maintained and supported—but I cannot and do not
believe that you can discuss public service broadcasting on the
BBC in isolation while not having a broader debate about the public
services that we would wish to be provided by the commercial broadcasters.
Q218 Alan Keen: ITV and NTL's sudden
incursion or attempted incursion into the Premier League shocked
the football world and there was some scepticism. We heard the
news yesterday about NTL and Virgin getting together. Does that
mean the end of ITV's effort with NTL?
Mr Jones: Our concern always has
been to ensure that there can be major football events available
on terrestrial television as well as on pay television. The lobbying
that we have done over the last few years with the European Commission
and within the European Union generally has been around the liberalisation
of the market, so that those viewers who want to see major sport,
whether it be football or cricket, can have the opportunity to
watch them on terrestrial television and they should not be subject
to an overall purchase by one broadcaster. We are fortunate enough
because of the Listed Events Legislation that we will be showing
the World Cup next year with the BBC—and we will be absolutely
delighted if England do particularly well—in the same way
as we now share the Champions League with Sky. So our concern
with the Premier League process was to ensure that there was an
open and transparent market and there was a level playing field,
so that we could bid in the same way that other broadcasters could
bid. We never went into the process knowing that actually we could
guarantee that we would get a number of Premier League games,
either with NTL as a partner or with someone else. So we will
have to see when the Premier League unveil their packages, and
we will the consider whether we can afford the many billions of
pounds that no doubt the Premier League are seeking for us to
secure some games. But our concern was liberalisation of the market,
not an inside track in getting a limited number of games.
Chairman: Thank you very much indeed.
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