Examination of Witnesses (Questions 219-239)
CHANNEL 4, S4C
6 DECEMBER 2005
Q219 Chairman: Good morning. Could I
welcome Andy Duncan, Chief Executive of Channel 4 and David Scott
who is now a consultant to Channel 4, plus the new Chief Executive
of S4C Iona Jones and Mr Arshad Rasul. Perhaps we could start
off by asking each of you to give a general overview of how you
see the process of analogue switch-off and what it is likely to
mean to each of your respective channels.
Ms Jones: S4C regards the switchover
to digital as a great opportunity to extend the public service
provision in the Welsh language but also to address some of the
historic difficulties that we have faced as broadcasters in Wales,
namely the fact that Channel 4 and 5 have not been available on
the terrestrial network and we think this is an important improvement
in the choice available to viewers in Wales. We are also very
supportive of digital switchover in terms of the improvement in
quality of reception which it allows. We are also very positive
about switchover because it addresses the out-of-area viewing
to English-based transmitters and this is again an opportunity
to address that particular historic difficulty. In addition, of
course, the take-up in Wales is currently 73% of digital households
and therefore it is an irreversible trend which we feel it is
important for us to support. We do not of course underestimate
the challenges which it presents to us. In technical terms, we
are playing our part as a member of Digital UK and financially
we are facing a gap in 2009 which is the current date for switchover
in Wales. But maybe more of that later.
Mr Duncan: I think, rather similarly,
the broad process of trying to get to full switchover is something
we support. Totally from a citizen's point of view, I actually
think it is a good thing and we have a world-class broadcasting
system in this country and I think actually getting the whole
country to digital will help sustain that. I think from the individual's
point of view, the consumer level, whether it is through increased
choice or through picture quality and so on, there are significant
benefits as well, and we are obviously part of Digital UK as well
and I think that the clarity of the decision which has now been
made by the Secretary of State and the way the whole project has
been tackled over the last few years, I think, has been done properly
and well. Whilst it is a big logistical challenge, I think there
are good people in charge of what is going on and I think basically
it is being well managed. I think our overriding issue or overriding
concern is actually the impact it will have on Channel 4 and our
ability to deliver our remit. It clearly puts a pressure on commercial
broadcasters generally, but I think with our unique role, as a
public corporation with a public purpose, we have to earn our
money as a means to the end, but our end game is about the public
remit. What is quite clear from all the debates of the last two
or three years around the future of the BBC and the future of
PSB is that everybody wants plurality, which I think is absolutely
right, we want a strong BBC, but we want strong plurality as well,
and Channel 4, I think, is going to be absolutely critical in
that because inevitably ITV and Five, whilst they make a contribution,
are pulling back somewhat from that and the commercial pressures
and the need to carry on making profits for shareholders. We want
to make sure we do not weaken our remit, but we have fairly fundamental
issues around our business model and I think the outstanding issue
for us, and I guess probably similar to S4C in a way, is that
there is a clear government policy on switchover which has been
announced, there are clear government intentions to finalise the
Charter for the BBC next year, no doubt with some sort of proper
level of funding, and there is at the moment the lack of a plan
for Channel 4 and how we can be sustained for the longer term.
We are doing everything we can ourselves, but it is quite a significant
outstanding issue and our big plea really which we are talking
to at the moment is that we need certainty now to plan. Both ITV
and Five have got reduced licence fee payments and they have some
ability to plan over the next few years, but we do not have that
ability, so, for us, we are supportive of switchover, but we are
quite worried about the specific future business model for Channel
4.
Q220 Chairman: Thank you, and we
might return to that in detail, but David Elstein, who plays the
part of Banquo's ghost in this inquiry to some extent, he said
that the reason terrestrial broadcasters were so much in favour
of Freeview was because they were likely to have a higher market
share than in a multi-channel household with access to satellite,
for instance. He said specifically that Channel 4 recently revealed
that they captured a 14% share in five-channel homes, 11% in Freeview
and 7% in homes with access to 400 channels and that for Channel
4, 11% is survivable whereas 7% is not. Would you accept that?
Mr Duncan: I think he was quoting
me when I went to go and talk to one of the groups that he chairs.
I think specifically the analysis is correct, that we do have
a 14% share in analogue homes. In fact, our share of analogue
has never been higher. It is currently about 10% in terms of DTT
and for Channel 4 it is slightly bigger for the portfolio and
it drops sometimes to as low as 5% or 6% in pay homes. I think
our point of view is that we are being very selfish about it and
a four-channel or a five-channel world is a lot easier for us
than the multi-channel world, so, going back to what I was saying
earlier on, the best thing for us, frankly, is not to have switchover
at all because we then sustain a much better share position and,
frankly, more of a limited competition position. However, recognising
that switchover is happening and is broadly a good thing, I think
there is a slightly different driver for us which is that we want
our channels to be available on all platforms and, in particular,
certainly over the last couple of years, we have taken steps to
make sure that what we are doing is available free. I think that
when you look at the characteristics of public service broadcasting,
and Ofcom did a rather good piece of work on this a year or so
ago, one of the characteristics was the ability to offer things
free to air, so, taking not just Channel 4, but E4 free to air
earlier this year and launching More4 as a broadly free-to-air
channel, we think that is very much part of our remit going forward,
so, whether it is Freeview or the possibility of some sort of
free satellite service as well as being available on pay, we think
it is very important. Then I think our point of view is: let the
audiences decide. Those that want to go for pay, go for pay and
those that want to go for a Freeview-type route or a Freesat-type
route, go that route. Our role is to make sure we are there on
all those platforms.
Q221 Chairman: And you think you
can keep your market share up as long as you are producing high-quality,
imaginative programming?
Mr Duncan: I think we are doing
actually a very good job at the moment of actually sort of beating
the curve. Going back to my earlier comment, I do not think we
can completely compensate for the whole of the switchover process
and the fact that a third of the UK homes in which we have 14%
share will switch. We also have a particular problem around second
sets. Channel 4 has over 20% share of second-set viewing and obviously
not that many homes at this stage have switched second or third
sets, so there is a big hidden impact to switchover for us there.
I think we can do a lot to try and protect our position, but,
without some form of external help, I really fear that we will
not be able to deliver our remit to the same level as we do today.
Q222 Adam Price: I was wondering
if I could touch on a few issues to do with coverage which may
be specific to Wales. One of them, firstly, is in terms of the
topography of Wales and, of the 1.5% that currently do not get
the analogue signal, many of them are concentrated in west and
in north Wales. Do you agree with Ofcom's position that 98.5%
is sufficient in light of the fact that that will mean that even
post-switchover many Welsh-speaking households will not be able
to receive DTT?
Ms Jones: Well, I will ask Arshad
to give you some technical information.
Mr Rasul: Yes, in actual fact
the figure of 98.5% is a UK figure, so, because the topography
in Wales is rather more difficult for transmitter coverage, we
actually have a lower figure than that in Wales and we would welcome
the possibility of improving on the deficit fundamentally during
switchover. In terms of the roll-out and the other issues which
are to do with coverage, I think perhaps we will come on to that
later, but basically we do have issues of adequate coverage and
the services that people will be receiving. When we move from
analogue to the digital switchover, whereas people will tolerate
what one would call average to poor pictures on analogue, in the
digital world these become intolerable because you end up with
break-up and it is not a service that you want to watch, so it
is very important that during that switchover period we actually
get the message across that, if you actually do want to get a
robust, good-quality signal, you need to actually watch the transmitter
that is intended to provide the service in your area, so that
is part of the whole process.
Q223 Adam Price: Is there another
issue as well with DTT because most Welsh-speakers live in linguistically
mixed households? Thinking of my own family, my Welsh-speaking
father is banished to my former bedroom to watch S4C on the portable,
whereas my mother watches Freeview in the living room, so the
issue of second and third televisions, does that have a specific
linguistic dimension in Wales as well?
Ms Jones: We believe that the
fact that we have a disproportionate amount of viewing on the
second set can be accounted for by the fact that we have one third
of households which are mixed-language homes in Wales and, very
much as Andy was saying earlier, the second set issue is very
important to us. We believe that is one of the advantages that
DTT has over Dsat in that DTT can actually reach all the sets
in the house without necessitating a separate contract which is
what I believe Sky requires the consumer to do if you want to
watch more than one channel at the same time within the same home,
so that is one of the reasons why we are in favour of DTT, although
we also have a multi-platform strategy.
Q224 Chairman: But that is potentially
bad news for you because the Government has concentrated all of
its attention on the proportion of households which are digital
and, by that, they have talked about the first set.
Ms Jones: Indeed.
Q225 Chairman: I am not aware of
any figure as to the proportion of households where the second
set is also digital, but it clearly is going to be a long way
below 65%.
Ms Jones: Indeed, and we would
actually ask for some guidance on this particular issue, that
it be addressed by Digital UK as part of their planning.
Q226 Chairman: Yes, both to find
out the information and to encourage people to convert not just
one set in their household?
Ms Jones: Absolutely.
Q227 Chairman: Can I ask you about
one other aspect. You referred a little bit earlier, and I think
I would agree, that it is obviously a benefit to the people of
Wales that they have access to English-language Channel 4 as well
as Welsh-language S4C in terms of extension of choice. But that
has implications for you because at the moment you get part of
your funding from the sale of advertising time when Channel 4
is being broadcast because you are off air. You will clearly lose
that when we get to the point where Channel 4 is on a separate
channel. What does that mean for you?
Ms Jones: Well, the advantages
of digital, I think, are great in terms of promoting creativity
and allowing our creative sector to develop and take advantage
of new platforms to deliver their services. However, you are quite
right to say that, by promoting the switchover, I am also at the
same time sacrificing millions of pounds worth of advertising
revenue which we derive from Channel 4 which obviously goes to
support our ability to invest in content, so it is a strange position
to be in, but again we would be looking, as part of revisiting
our financial model, to take account of the fact that that actually
presents us with a funding gap. It is one of a number of items
on our list of unknowns at the moment which include the cost of
carriage on the BBC multiplex and the way in which the costs of
roll-out will be apportioned. Coupled with the airtime loss as
well, it presents us with an immediate problem in terms of our
ability to plan, as Andy was saying is the case for Channel 4.
Q228 Adam Price: Presumably the loss
of Channel 4's output provides an opportunity for you to expand
your Welsh language programming, but does it also provide an opportunity
to produce English language programming in Wales, maybe as ITV
for a variety of reasons reduces its output of public service
programming for Wales?
Ms Jones: The funding model at
the moment is based on the provision of a Welsh-language service,
so any additional obligation on S4C, as you say, in the area of
English-language programming would require a different funding
model. I am also keen to allow the BBC, given their enormous resources
relative to S4C's and their access to capacity, and ITV, to allow
them the opportunity to state, in the BBC's case, during the Charter
review process what their intentions are as far as their regional
services are concerned and, until such time as that is made known,
I will say no more on that matter.
Q229 Mr Sanders: Channel 4's written
evidence referred to concerns over the possible impact of switchover
policy on your ability to fulfil your public service remit. How
can these concerns best be allayed?
Mr Duncan: I think there are three
very specific issues here. There is currently a proposal to have
the transmission build-out costs paid for by the licence fee for
the BBC. That is something we strongly support and which we have
been in discussions with both DCMS and the BBC about and we are
hopeful that a formal notification will be sent to Brussels at
some point in terms of the EU. It both makes sense for us from
a pragmatic point of view, but also kind of as an in-principle
issue of being a public service corporation, publicly owned as
well, and the BBC initially put the idea forward in their Public
Value paper of last year. I think, secondly, for us, there
is historically the very important indirect subsidy of Channel
4. Essentially, Channel 4 has worked, I think, extremely well
for the last 23 years because it has had free spectrum and, secondly,
because any surplus we make we are able to reinvest back either
in terms of programmes, whether that is news or Dispatches or
whatever we might happen to do, or indeed more latterly with new
services, like More4. I think it is a really important area to
say what forms of indirect support could be found going forward
that would continue to allow us to deliver the public remit that
we deliver today and there is a range of things we are currently
in discussions about again with DCMS and Ofcom, probably most
notably capacity. We think the single, most important thing that
could be done to help us is to find more capacity which we are
currently short of and having to buy at very expensive rates on
the open market, which again is an extension of the way we have
been subsidised historically. I think, thirdly, it is absolutely
not a preferred route for us, and I double-stress that. We would
prefer not to go this route, but eventually if you could not find
the appropriate forms of indirect support, and none of us quite
knows how the next few years are going to unfold, so if it actually
ends up being much tougher than we are even predicting, the possibility
of direct public funding, and again possibly not for programmes,
but perhaps for some of the infrastructure costs of running the
business, I think the two most important things in the short term
are the confirmation of the transmission build-out costs, which
are clearly linked to the BBC licence settlement, and, secondly,
other forms of indirect support, most notably capacity.
Q230 Chairman: You have got five
Freeview channels now. Are you going to apply for some more as
well?
Mr Duncan: We have half a multiplex
which we share with ITV on which we have four channels and recently
we bought access to two further channels via National Grid Wireless,
so we actually have a total of six, but they are fully utilised.
Most recently we have obviously added More4 which we have positioned
as a public service channel, we are voluntarily running a new
service at 8 o'clock, a late-night discussion programme, £20-odd
million of regional programming, and in fact, interestingly enough,
More4 News, I think I am right in saying, is the most successful
digital channel news service, in fact virtually the only one,
that has managed to establish itself, apart from the big main
players of Sky and BBC and, when it is on air at 8 o'clock, it
has a bigger audience than Sky News, ITV News, BBC News, bigger
than BBC4 News and has a very young profile. It is a very good
example, I think, that if you have the proposition right, and
we have with More4 really interesting public remit programming
to work in the digital environment, but the truth is that all
of those slots are taken, it acts either as a mechanism to allow
us to do further things, and we have further channel ideas we
have planned, or as a mechanism to avoid having to pay effectively
very expensive open market rates, and the other attraction of
the idea is an extension of the way we have been subsidised historically,
albeit interpreted for a digital age.
Q231 Chairman: And you may also face
the prospect of having to pay some kind of spectrum tax in the
future as well.
Mr Duncan: Correct, and there
are a couple of issues there. Clearly, one of the key drivers
behind a spectrum tax is spectrum efficiency and use of the spectrum
efficiently. We are using our spectrum very efficiently and we
are squeezing all the channels on that we possibly can, but I
think it is a very straightforward point, that if the spectrum
tax was introduced for public service broadcasters, in the case
of the BBC, they are assuming they get funding via the licence
fee, so effectively it is a way for the public to pay a tax. In
our case, you would either have to find the mechanism to give
us the money to pay for it or we would simply have to take it
out of the programming budget and diminish what we are delivering.
Our own view is that it is a rather pointless exercise in our
case because, frankly, we are using spectrum completely efficiently
anyway.
Mr Scott: I absolutely agree with
that. Most of the decisions on spectrum allocation are technical
decisions taken by government and the regulator and how the released
spectrum is used at the point of switchover is a matter for Ofcom.
By putting a tax on the broadcaster, it is not going to affect
the decision about how the spectrum is used, so it does not achieve
the objective.
Q232 Chairman: Does S4C take much
the same view?
Ms Jones: Yes, indeed, as far
as the spectrum tax is concerned, we would put that on our list
of more costs, but it would be a circular route really, would
it not?
Q233 Chairman: And you may be going
on to the BBC multiplex in future?
Ms Jones: Yes, that is a proposal
and we have responded to the BBC with our capacity requirements
and we wait to see whether they can actually accommodate our requirements.
Q234 Chairman: Do you have ambitions
for greater capacity, like Channel 4 do?
Ms Jones: Well, we currently have
guaranteed capacity of half a multiplex which we consider to be
sufficient for our needs.
Q235 Adam Price: I have seen a figure
of 100 million deficit which Channel 4 are predicting if further
financial assistance is not forthcoming. Is there a similar figure
for S4C as well? Have you worked out the broad cost?
Ms Jones: We do not have a figure
because we are waiting on others to provide us with information
about the likely costs, as I mentioned earlier, of roll-out of
coverage. We have some predictions of decline in airtime, but
they are not confirmed because we are obviously looking at four
years out.
Q236 Adam Price: But you have said
in The Guardian this morning that the jobs in the Welsh
media sector will go if substantial assistance is not forthcoming.
Ms Jones: The important thing
to have, as far as promoting the creative industry sector in Wales
is concerned, is that I retain the ability to invest in content
at the level which I am currently able to do and with the ambitions
that we have for digital and our multi-platform strategy, including
broadband and mobile phone provision which we are already involved
with, that that level of investment needs to be sustained in order
to invest in the sector and allow the sector to grow in a way
in which government policy and Assembly policy requires of us.
Q237 Helen Southworth: What is your
opinion on the desirability of the launch of Freesat?
Mr Duncan: I think we are watching
with great interest. My own view is that the free Sky offer is
not necessarily what it seems on the surface of it, so in reality
I think it comes with a significance of incentive to try and upgrade
and, from Sky's point of view, you can see how it is an interesting
sort of starter kit, but really what they want is homes to come
in and end up with their pay model. I think actually the idea
of a competitive service is broadly a good thing because generally
competition is good and, secondly, I think the phrase was used
earlier of "no strings attached", and I think a free
satellite offer is absolutely that for those that want it. I think,
rather like with Freeview, the majority of homes have gone on
and decided just to take the Freeview, but, if you want to, you
have got the top-up TV option and it is not forced down your throat.
I think broadly it is an interesting development and we are obviously
watching with interest to see when BBC and ITV get going with
it, but I think we are broadly supportive because it is a very
clear consumer proposition and it will just help add another option
for viewers.
Mr Scott: We saw a little example
last year or a few months ago when Sky had a card swap-out that
it does disadvantage homes who have previously been Sky subscribers
or have got a Sky card and suddenly find it does not work, so
I think for the BBC and ITV Freesat route, not using a card is
a good way forward for some people, otherwise they are going to
have to buy new cards from time to time, every five years or whatever.
Q238 Chairman: So will you be on
Freesat when it launches?
Mr Duncan: Not at the moment,
as we have contracts in place with Sky for the next few years.
I think it is clearly something which we will look at very hard
at the point when our contracts are coming up for renewal, but
I think our broad prediction is that we aspire to be on all platforms,
so if a new platform comes along, a new service comes along and
makes a success, eventually we want to find a way to offer all
of our channels on all platforms.
Q239 Helen Southworth: Can you explain
why More4 is unavailable in Sky's Freesat package?
Mr Duncan: Yes, in a nutshell,
it is a matter for Sky. We have positioned it as a free-to-air
service and in our minds it is very much a little sister public
service channel to Channel 4. We are not charging Sky any money
for the channel. Because of an existing contract that we have
with them, they have the right to decide either to put it on all
their services, including their free Sky service, or the right
to put it on their minimum subscription package. We would prefer
them to put it on to all of their homes and, from their point
of view, I think it is a hard-nosed business decision, which is
that if they offer it as a free channel, it is one less reason
to go for their minimum subscription service and one more reason
to simply go for free Sky. It is an anomaly I would hope we would
be able to tidy up the next time the contract renewal comes around
which is at the end of 2007-early 2008, but certainly if Sky were
prepared to offer it to all of their homes meanwhile, we would
be delighted.
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