UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1091-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

culture, media and sport committee

 

 

new media and the creative industries

 

 

Tuesday 6 June 2006

MR PETER JAMIESON, MS ROZ GROOME and MR MARK RICHARDSON

MS DEBORAH TONROE, MR TIM LORD, MR HAMISH MACLEOD, MR NICHOLAS LANSMAN, MS CAMILLE DE STEMPEL and MR JAMES BLESSING

MR DAN MARKS, MS EMMA LLOYD and MS MITA MITRA

Evidence heard in Public Questions 118 - 230

 

 

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 6 June 2006

Members present

Mr John Whittingdale, in the Chair

Janet Anderson

Philip Davies

Mr Nigel Evans

Mr Mike Hall

Alan Keen

Rosemary McKenna

Adam Price

Mr Adrian Sanders

Helen Southworth

________________

Memorandum submitted by British Phonographic Industry

 

Examination of Witnesses

 

Witnesses: Mr Peter Jamieson, Executive Chairman, Ms Roz Groome, General Counsel, and Mr Mark Richardson, Managing Director, Independiente Records, British Phonographic Industry, gave evidence.

Q118 Chairman: Good morning and welcome to the next part of our inquiry into new media and the challenges and opportunities of the creative industries. We are aiming to get through quite a lot of evidence this morning so could I ask our witnesses to be succinct in their answers. To begin this morning, can I welcome the BPI, representing the record companies, and in particular Peter Jamieson, the Chairman, Roz Groome and Mark Richardson. Can I apologise to Mark that I think you have been left off the little sheet here, so for those who do not know Mark he is Managing Director of Independiente Records; is that correct?

Mr Richardson: Yes; it is a South American football team as well. Yes, it is an independent record company in the UK.

Chairman: Thank you. I will ask Philip Davies to begin.

Q119 Philip Davies: Much of the evidence that we have received has focused on the copyright period of 50 years on sound recordings and whether or not that should be increased, and I know the BPI favours an extension. One of the reasons is that it will increase investment and distribution of new content; but the National Consumer Council said the vast majority of profits were made in the first years of release so it was very difficult to see how an extension would lead to any increase in investment. Could you explain to us exactly how an increase in copyright duration would allow an increase in investment and distribution of new content?

Mr Jamieson: Of course, the succinct answer is, the first question demands quite a long answer because it is a huge subject, but I will try to be very succinct. The Consumer Council is opposed to an extension mainly on the basis of price and availability, is my understanding, and our research, which we have given to Gowers, shows that 'out of copyright' recordings, be it the music copyright or the sound recording copyright, have never been a driver of price. Also we are in the dawn, and indeed the reality, of a digital music age where, notwithstanding the UK's current production, I think, and we have this wonderful music industry which produced last year 31,000 albums and some 9,000 singles, notwithstanding that quantity of production, the availability is going to be increased enormously because of the ability to store digitally and make available to the public on a far, far wider scale than ever before, because previously we have been restricted by retail physical price. In terms of whether we want music companies to be the owners of their recordings and marketing them and returning income to a company which is, at the same time, investing in new music, it is far preferable, in answer to your specific point, than having opportunistic traders, anywhere round the globe, simply profiting from Britain's crown jewels of music. If I can go back a little bit in history, the 50-year term was introduced at the turn of the 20th century when the average life expectancy was around 50 years, when sound recordings were scratchy things of very, very poor quality, they were not expected to last, public domain was established, really for rare and esoteric recordings, in the hope of enhanced preservation. It all changed in the fifties. The long-play was introduced, it expanded creativity, it enabled enduring popularity, increase in quality, it made music into a global market; music is the culture which is one of Britain's greatest ambassadors around the world now. Therefore, today, if you look at it, that 50‑year term - the average life expectancy, for example, is 78 years - is redolent of a much earlier age, and there is a danger, at the moment, if we simply lose control of our crown jewels of British recordings in the fifties and sixties, which are coming into the end of the current copyright period, I think we are going to turn a prime export into almost an import. I think we are going to be scattering the rights for these across the globe, money will never be remitted back to the UK, neither to the company nor to the artist, nor to the Exchequer, suddenly it is going to become a global domain of British music that they are all having the rights to reproduce and sell and not reinvest in music and not return money to the UK. This is why we wish to have the companies which have invested in the artists, and continue to invest, have the rights for longer.

Q120 Philip Davies: Do we know how much we are talking about, in terms of if it were increased from 50 years to 70 years, how much you estimate that will generate, how much increase in income and investment that might realise?

Mr Jamieson: We have submitted economic evidence to Gowers on this basis, but it is very, very difficult because it is so predictive. It is because of this explosion of British popular music in the fifties and the sixties it is very, very difficult to ascertain the economic impact of money not coming back to Britain, with people everywhere duplicating the recordings, it is very, very difficult to do that. The sort of economic evidence the Treasury require is very difficult to do, but our estimates are there, notwithstanding that.

Q121 Philip Davies: Will consumers continue to buy an album which comes out of copyright when it can be made available at little or no cost on the internet? How will that change things?

Mr Jamieson: I think that the album being made available on the internet is something of a red herring there. I think that what is at issue at term, first of all, is the availability, and the availability on the internet, in our view, is far more likely to come from the owner of the recording who is interested in it than a flurry of mixed-quality recordings made available by other people, which are difficult to trace, difficult to find and of varying quality. I do not think price here is an issue. I did not really understand the question, I am sorry.

Q122 Philip Davies: The Music Managers Forum pointed out that record companies continue to sell albums and earn higher profits at the end of the copyright because they do not have to pay the performer. The point is, will people continue to buy the album when it can be made available free of charge on the internet?

Mr Jamieson: It is not available free of charge, obviously, it would not be.

Q123 Philip Davies: Or at a low cost?

Mr Jamieson: I think that what you are facing here, what you are pointing out, is the moral dilemma that companies face currently. If an enduringly popular recording is about to go out of copyright, let us take, for example, a Vera Lynn recording, Vera Lynn would go to her record company of 50 years' standing, shall we say with 'We'll Meet Again', and the conversation will ensue. Now who is going to stand up and say "Vera, as of tomorrow we're going to carry on selling your recordings, we're not going to pay you a sou; the writers of the song will still get money, Bloggs round the corner is probably going to duplicate your records as well and sell them, and he won't pay you anything either," so this is the moral dilemma. At the moment it varies; not as a generality but some situations exist where companies will carry on paying their artists, and some exist where they do not. We do not think that public domain is suited for enduringly popular recordings because one of the ancillary reasons is this moral dilemma that companies face.

Ms Groome: There is another issue as well in relation to, for example, the artwork; the copyright on the artwork will continue beyond the length of the life of the copyright on the sound recording, and the artwork will attach to the physical album and not to the public domain copy that is available on the internet to which you were referring. I think people will continue to buy where they are interested; for example, in classic albums like 'Sergeant Pepper's' they want the artwork.

Mr Jamieson: It deals also to the main point that a sound recording ex gr at 50 years, which is the soonest expiry of all the creative copyrights, deals unfairly and discriminates against the recording artist, and the recording artist, in many ways, has made that song his own property by his interpretation. Suddenly, that song lives for another 50 years and he does not get anything from it, and the company has this dilemma as to whether to carry on paying him or not; also they have to compete with various other people who may decide to market the recording. It is not right that situation occurs with very popular works. That is why I was saying that 50 years ago that is when the change occurred, the global market happened and the longevity of the recording happened and the quality, and all these things make it far more appropriate today to extend that term of recording in line with other copyrights.

Q124 Chairman: A lot of the argument about the extension of copyright term has centred upon the rights of the artists to go on receiving income for their creation. It was suggested to us that perhaps the copyright term should remain with the record company for, say, 25 years, after which the artist would have the right to resign it to wherever he, or she, chose. How do you respond to that?

Mr Jamieson: Every single recording - and I have noted already that 31,000 albums are produced in this country every year - is a private contract between a recording artist and a company and, whereas there are some similarities, they are all different. It is very, very difficult to try to deal from this point of view, and a general point of view, between the individual contracts between the companies and the artists and I do not suggest it would be sensible to try to divide it up in any way. However, we would listen to, indeed discuss, as we are, all sorts of suggestions which may help, shall we say, make palatable or make more clear to the consumer why an extension of term should be introduced and make sure that, by codes of conduct, or anything else we can think of, companies treat their copyrights properly.

Q125 Helen Southworth: We have had evidence that royalties are going to be a very significant issue, in terms of distribution, in digital reproduction, and that a record company royalty which may be 20% of the dealer price for CDs is currently in place, and that in digital reproduction you are not going to have the same issues of production costs, distribution costs, storage costs. What are your proposals for how you could get an equitable distribution in digital, also bearing in mind that if somebody is selling a CD they have got a package of their product together and so they are getting the most popular songs plus a series of other songs for which they are getting royalties? If they are getting 79 pence to be distributed around digitally they can end up with just three to five pence as a creator royalty.

Mr Jamieson: Let us start off by saying that record companies, by and large, are purveyors of music. They invest with recording artists as their partners in a recording and, by and large, the manufacturing and distribution are outsourced, actually, as a cost from the current recording business. The costs that the record company, in partnership with its creator partner, has to bear are considerable, upfront costs. Let us hear from an independent practitioner, who will expand on that.

Mr Richardson: The carrier is a kind of final solution of getting the product to the customer, the listener, or whatever. The greatest expense is in making a record and marketing a record, providing people round artwork, and stuff like that. None of the costs of producing a record in the studio are going to change because it is distributed digitally. Producers and musicians are not going to discount their costs because we are selling it digitally, or via CD, or vinyl, or whatever. No‑one along the chain, in terms of advertising, from any of the TV stations or press, is going to discount because we are selling it in a digital format. Primarily, at the end of the day, whatever carrier it is, a lot of the basic costs of marketing and making the music and promoting the artist, which is the primary function of what we do, change because of the carrier. At the moment, I think, pretty broadly, I know it happens with us and I think for EMI, we are talking about 5% of our turnover is based in the digital area. I think, without a doubt, that is going to increase because we are in a new format, but at the moment you are doing CD as well as digital. In fact, our own distributor has a higher charge for distributing our digital products than it has for our physical product; we pay a couple of per cent more. That is purely I think because we are at the very early stages of a developing format, as we were with CDs when that took over from vinyl, and I think some of the savings will come through, some of the deal points will change, with that format. I think also the way that people consume music will change, because, as you pointed out, it has been an opportunity to develop a track-based culture, whereas before, with albums, you had a peep through the door with buying a single and if you wanted to get the album you had to buy it to hear it. I think now the digital age is fantastic because it makes music more sampleable, more listenable and increases the audience and changes the way that people take music. In terms of the costs associated with delivery to market, none of those are going to change, whether we put it on an omelette, or we put it on digital or a CD, because of the big investments actually to make the thing. Once it has gone to market, yes, if I sign something and make a record and then suddenly I sell 20 million copies around the world, digitally, the economies of scale of that affect me; but my investment, whether I sell 20 million or 100,000, in making the record are pretty much going to be the same. It is when I actually go to manufacture and advertising, things like this, that those can alter, but those initial investment costs, before you know whether it is going to sell, especially with the business which is built up with new artists, do not change and, in fact, in a moment, are higher, because it is just a new area. I think it is a positive new area but it is very early to say exactly, to make a sweeping statement that it is going to be cheaper.

Mr Jamieson: I think in the early days of any technology it is also going to be more difficult and more expensive to distribute via two or three different formats than the traditional one. Currently the industry is distributing via physical, via online and now via mobile format. All the new players in this particular music arena - the record companies, the music publishers, the artists, the mobile operators and the online service providers - are currently engaged in discussions in the run‑up to a government tribunal on how to set fair rates for this particular new method of distributing music. I hope, and believe, that there will be a voluntary settlement achieved with all parties together in these discussions prior to the need for a tribunal, but if it is not resolved the tribunal is a mechanism, a device, which has been set up by government to answer these questions for us.

Q126 Helen Southworth: Can I just clarify, are you saying that it costs more to distribute digitally than it does to manufacture and produce and transport CDs?

Mr Jamieson: I think, at this stage, we can say, unequivocally, yes, because of the costs of digitisation and because of the other ancillary costs which are part and parcel of distributing digital music. If we achieve this great opportunity which sits in front of the music industry, of achieving fantastic volumes through digital distribution, then the cost we believe will go down and it may enable the cake to be divided differently. At the moment, at this particular starting-point, we are saying, until the mechanics of the business model are made more certain let us sit with the formulae established under the physical distribution of music for the last 50 years and let us do a short-term arrangement until we are all more aware of the various costs involved. It is very much an experimental time.

Q127 Helen Southworth: Within your business model, what is the point at which you would expect that you would get a shift, so that digital became, as everybody would expect it to be, far cheaper than physically producing CDs and physically putting them into boxes and physically putting them into vans and physically taking them to places?

Mr Jamieson: I have to stress once again what my colleague said, which is, there are other costs in the digital arena and, in fact, the costs of distributing a CD, which costs pennies to manufacture, are hugely outweighed by the constantly escalating costs of creating recordings, marketing them and bring them to market. In our discussions with the other industry players, we have agreed, and this is part of a voluntary negotiation, that we should look to do an arrangement for three years which will take the industry that much further forward until such a time as we can all be more aware of the different costs involved.

Q128 Helen Southworth: Are you expecting that for the next three years it will remain more expensive to use digital reproduction than to use physical?

Mr Jamieson: I did not say that exactly, but I did say that parties are talking about the sense of creating a three-year agreement to enable everyone to be more aware of the new costs involved in the digital arena.

Q129 Helen Southworth: What about the other part of the discussion about the actual return to the creator from digital reproduction, the fact that the evidence we are getting is that it is going to starve the creators if they have such a low return?

Mr Richardson: As a general point, I do not think that varies from any other contract you make with your artists. You start at a point and various market forces of success, or whatever, on to the shape of the deal that you have with them, and that proportions the share of where they are. A young artist starting that has no platform gets a certain deal, which be it his lawyer, his manager or the desire or the competition to sign that artist dictates, and then, as it goes through, as we have seen with a very public case with Robbie Williams, the deal changes. Within the parameters of that, you will get a change between artist and record company. I think, between the aggregator and the record company there will be a change, between the digital retailer and the record company there will be a change, based upon who has got control and a share of dividing up the cake.

Mr Jamieson: I think we need to establish the difference between the creators we are talking about. Obviously, there is the recording artist creator that is in partnership with the record company, and that is governed by every company currently redoing contracts with their creative partners to ensure that digital rights are included, and they are the subject of private contract. The other creators are the composers and song-writers, to whom I suspect you are referring, who are quoting the pence rate that you refer to, and this is driven mostly by the low pence sale rate, if you see what I mean. We are suggesting that the percentages remain the same, but because of the lower selling price obviously the pence rate comes down. It is particularly important too to the record company and why I stress constantly that we have got to enter into an age of enormous volume, because with the lower prices currently at which music is selling, both in the physical and particularly digital formats, recouping the original cost of the recording and the marketing and promotion, in order to break and establish the artist, is taking longer and longer. This deals also to term extension, because if you are selling for less the return is a finite pence return, and every year for the last 20 years record companies have seen an increase in their costs, in terms of recording and marketing, and they have seen a downward price move over 20 years. If you have noticed, CDs today are somewhat less than they were 20 years ago and not even in real terms, in actual terms, and digital music is lower still, so that is why I have to say that volumes are going to be absolutely crucial if we are going to recoup the risk/reward investments that the record companies make.

Q130 Helen Southworth: So many people want to be within the record company industry?

Mr Jamieson: Sadly, at the moment, it is parts of the record industry outside the record companies that are seen as easier wins than inside record companies; hence the contraction of the majors and the difficulties being experienced by the independent sector, what my friend Mark was talking about.

Mr Richardson: The attraction of it is because it is fantastic. It is in the early stages like betting on horses because you are putting all your money up front and you do not know what is going to come in, hence probably the majority of the excitement about being in the business. Also it is wonderful when you do find that gem of an artist that goes on and continues to make great music and inspires other people. I think, one of the key things, the digital age brings greater access to sampling and hearing music before you purchase than anything else. With that stretching, it has elongated the development process, which personally I think is a good thing. When we had one radio station and a couple of shops that were selling it, the winners came out from it and you could control to a certain point, or certain record companies could, in terms of what got seen and what got heard. I think, with the elongation of the process, it makes more music accessible, and sampling, and things take longer to come through. I think also with the digital age it allows a lot of those great pieces of music to remain gettable. I think one of the things that we do, and I think we all do this, whether it be with books or anything else, once you start getting into something, you do tend to crawl back into history to find the root of where the inspiration came from. If you look at a lot of the music today, it leads back maybe to the Beatles or to Dylan and beyond there to Woody Guthrie, you can go far back, and being able to access that over a period of time is a valuable resource and also keeps the educative process of music and the inspiration and the wonder of it alive.

Mr Jamieson: Mark, you have the World Cup song, do you not?

Mr Richardson: Yes; but that could be a poisoned chalice.

Mr Jamieson: Let us not lose track of the fact that the British recorded music industry is so successful around the globe; it is the second most important music market in the world. It is very, very important culturally and economically to this country and despite its difficulties of transition from the physical to a digital age it is still enormously successful. I was in Germany just last week, at British Music Week, and the Ambassador kindly lent us his Embassy to use the launch of this week-long occasion to promote British music, and his Chargé d'Affaires kindly agreed to make a speech. I said, "Thank you so much for making a speech;" he said, "Of course I had to make the speech; because do you know the three most important things that Britain exports?" and I said, "No; what are they?" and he said, "Whisky, Formula One and Music, and, do you know what, of the three, music is the most important because it's a cultural as well as an economic export." We are doing occasions like this. British music is enduringly popular around the world and we are so proud to be part of it.

Q131 Helen Southworth: That is why the creators were making such strong evidence to us that they wanted to make sure they could still afford to do it?

Mr Jamieson: Yes; but we need the volume, in a digital age, absolutely.

Q132 Chairman: Although some creators have managed to use technology to bypass the record companies completely, and there have been lots of media stories of artists who record in their kitchens and then put it up on the web and do not actually need record companies any longer?

Mr Richardson: I think what they have done, actually, is they have used the internet to get themselves a better deal with the record companies, and I think the Arctic Monkeys, probably, and Sandi Thom currently are the key examples of that. The Arctic Monkeys were getting a lot of attention, probably more than anything because their music was great, but, again, used that and got a fantastic deal off their record company and actually got their remunerative success from being signed to a record company. Just to speak on behalf of my company, or the independent companies, I think you go into this game to promote and develop the career of an artist and his work, and the business of that process is to sell his music, or their music, in a carrier, but the primary focus, when you sign an artist, is to get in there and develop a career. For our company, I know we cannot really do that successfully by doing it on one album, so my nature, if you like, is to develop a career. What the internet has done for us, I think it makes it available, whereas the guy sending in a demo, or 'phoning up, saying "Please listen to my music," it makes that process easier for people at this stage to say, "Listen, there are other people who like my music; you should be taking note of this. Here is some sampling;" it makes the quality of their productions at home. I think, at the end of the day, their skills then are associated with people who have some expertise in marketing and distributing their music, not only domestically but globally, into that situation, and obviously there are qualities of that work throughout. What we have got is a great system at the moment where the internet is making it available for people to make a noise, if you like, to attract some of the business behind them, but I still think, the investment, producers are not going to discount because some guy is doing it himself, they are in the business as well. People who take their records to radio, people who advertise, TV advertisers are not going to discount it; there is a big fund that has to come before a record is sold. We do that off our own bat and that is our risk, if you like.

Q133 Mr Sanders: You are benefiting now from the income streams through the digital distribution of music. Which one offers you the best income stream, the single download of a piece of music or the 'all you can eat' subscription downloads?

Mr Jamieson: It is a developing market-place and obviously we have started with the strip download and the bundle download and at the moment subscription services are very, very much in their embryonic infancy and we are trying to work out ways in which the industry can ensure that creators are properly remunerated and compensated for subscription services. It is obviously more difficult than the sale of individual downloads, which are much, much easier to track. I think it is possible and I think there are economic projections accordingly which show that subscription services will begin to play a role in a year or two from now and gradually increase in importance, and these are our economic forecasts, but trying to compare which will be more beneficial is a difficult question at the moment. Roz, do you want to expand on that?

Ms Groome: I think it is difficult to predict at this stage.

Mr Jamieson: Both can play a role.

Mr Richardson: Personally, I think it is the consumers' choice. In general, you either like a song or you do not and, probably like stream TV, at the end of the day, you switch it on and watch that programme you want to watch; just because you have paid for the whole channel does not mean you sit there all day. I think people will still go in and buy the song that they want and if they buy a lot of music they might calculate that, overall, a subscription service is a better economic thing for them. I think, at the end of the day, it will work out even.

Mr Jamieson: I have to stress again the volumes that are needed to make all this work, because, at the moment, albeit that Britain is the most resilient market in the world, the recorded music industry market globally has taken an almost universal downturn of quite some significance in the last five years. We are still boasting that we are the best but we are only stand-alone, in terms of revenue. Huge amounts of volumes have to come still from the digital arena, in both the ways you mentioned, before we can have completed successfully this transition that we are in.

Q134 Mr Hall: I have got the extensive Rolling Stones collection on vinyl. If I wanted to copy that onto a CD to listen to it in my car, it is my private collection, British copyright law does not give me an exemption to do that, but in your evidence to the Committee you said you did not think there would be a need to change the law. Can you explain why?

Mr Jamieson: This is a very key point and I think we should clarify it slightly, because we have moved on in our thinking since the written evidence. Traditionally the industry has turned a blind eye to private copying and used the strength of the law to pursue commercial pirates, and it has worked very well for all. There are two changes really which have caused us problems. One is, the quality of copying via digital is now so much better than ever it has been; and, secondly, the ability to disseminate a copy that is made illegally via the internet or any number of ways is so easy, including on a global scale, it is very, very damaging to music. We are having to rethink the distinction that we used to employ between a commercial pirate and a private copier, and I think it is quite correct to say that we are unhappy at the moment, that we think there needs to be a new distinction drawn between those who copy purchased music for their own private use and those who pass music on. We believe the latter must remain an infringement and we believe that we have to authorise the former; in other words, to make the consumer unequivocally clear that he has the right to copy any music that he buys for his own use, multiple, from format to format, anything at all that he wishes to do for his own use he is able to do. We are in discussions with other sectors of our industry at the moment, and indeed our own members, to try to get a consensus position on how best this can be achieved, to leave the consumer sure that he is allowed to copy, that you can copy your Rolling Stones collection, that Nigel Evans, who has just bought an iPod is able to take his CDs and put them on the iPod. You are correct in saying it is all technically illegal currently, but that is not right, because we are happy with it, we think it should be allowed and we think it is possible to do it via authorisation from the copyright owners and rights holders, rather than by rewriting the law. That is our current position, but it is still very, very much a matter of discussion and obviously it is something we are going to be taking to Gowers.

Q135 Mr Hall: The next part of that question is how do you actually distinguish between those things which are copied legally for personal use and those which are copied without authorisation and probably not for personal use? How are you going to distinguish between those two, using your example of an industry agreement rather than a change in the law?

Ms Groome: There are two answers to that. Firstly, in relation to digital copies which are bought from, for example, iTunes, DRM enables the purchaser to make copies of that download for their own private personal use, but it prevents that person from then dealing onwardly with that music file. DRM kicks in, if you like, at that point. In relation to a physical copy, if somebody copies privately and then decides to sell, the only way in which we can enforce against them is to go after them for the selling. If we have authorised to make the personal copy, the only wrong that they will be committing then is any further distribution of that copy, so a sale or, for example, distribution via an illegal peer-to-peer file-sharing network, so any kind of onward dealing with that copy would be the wrong that we would be seeking to stop.

Q136 Mr Hall: What would be the distinction? If I were on the internet and wanted to look at a remix of, say, Simon and Garfunkel's 'Bridge Over Troubled Water', did I know that came from CBS, then it is a legally copied piece of music, or if it is illegal, how would I know?

Ms Groome: If you were downloading it, you would need to be paying for it.

Q137 Mr Hall: If I have not paid for it, I am doing it illegally?

Ms Groome: In all likelihood.

Mr Jamieson: Unless it was an authorised download.

Ms Groome: Sometimes you can obtain free downloads, or clips, more likely, from the internet.

Q138 Mr Hall: That is a personal thing for me, so that is me and my conscience; is that the 79p? What about the producers in the industry, how would you distinguish between what was going on?

Ms Groome: We would have to look at the additional act. If we had authorised private copying, or if there was a private copying exception, for example, we would have to look then at the additional act, so what was being done with that copy. We look at the harm to the industry. If somebody is making a pile of copies in their bedroom for their car, that is one thing; if they are making those copies and then taking them to a car boot sale and selling them for a fiver a piece, that is another thing. We would look at the additional act.

Q139 Chairman: Is it not the case, however, that with DRM coming in it may actually prevent people from carrying out some copying which up until now you have been prepared to allow?

Mr Jamieson: Obviously, digital DRM has been pretty successful in enabling businesses like iTunes to happen even, and without DRM you could not have the monetisation of music online, which is what is going to take this industry so much further.

Q140 Chairman: How come then eMusic are making available downloads without DRM; they seem to be able to make money from it?

Ms Groome: There are different methods. For example, the subscription services to which Mr Sanders was referring, you cannot have a subscription service without DRM, there is no way of tracking, if it is a portable service. For example, I subscribe to Napster To Go and my creator ZEN Micro MP3 player is full of music that is tethered, if you like, so as soon as I stop paying my £15 a month my MP3 player is emptied of that music and STRM. Certain services rely on DRM and certain services do not.

Mr Jamieson: I think, Mr Chairman, you were also referring to copy control as opposed to DRM, which has been introduced somewhat unsuccessfully from time to time by record companies seeking to protect CDs, with a sort of DRM built into the CD, and, by and large, it has not been successful and the most problematic ones have been withdrawn. It has also never been employed in the UK.

Chairman: Thank you. We should move on.

Q141 Mr Evans: So, how is business?

Mr Jamieson: I think we are cautiously optimistic. We need to embrace constantly, every day, digital and technological changes. We are proven, as I said before, I think, to be the most resilient market in the world, but it is not time to break out the champagne. We have a lot of volume to achieve in a digital arena, and to do this we are going to need some help; copyright term is one of them, to try to redefine private copying, illegal and legal, is going to be another. We are going to need some help in the broadcast arena, in particular, because there is great danger to us from broadcast. If the broadcast quality diversity is increasing such that new types of technological hardware and machinery enable consumers - forget the internet, forget a computer - simply to convert to their own use from broadcast, this is a process called 'stream ripping', and things like this, it is one of the problems which will face us in the future in the digital age. There is a whole series of problems surrounding the British music industry in its search to get the volume back. Music has never been more popular, music is everywhere around us, it is ubiquitous. It continues to be this great ambassador for Britain, but we are not recouping the investments as fast as we should be. Revenues are still up, margins are down and difficulties still exist.

Q142 Mr Evans: To be quite bleak about it, about three or four years ago when you could see what was happening with downloading, but that bleakness is now going; now you see the prospect that the music industry not only will survive this revolution that is occurring but actually will prosper because of it?

Mr Jamieson: Yes. Digital, as always, was both a threat and an opportunity. I think we have gone clear of the major threat stage but there are still some issues; interoperability, for example, amongst download formats is another one that we are having difficulty with.

Q143 Mr Sanders: How realistic is that, given that iTunes is just so dominant, that actually you could increase interoperability?

Mr Jamieson: I think it is always difficult when one provider is occupying 80 per cent of the market, which it is currently, in the download market. As mere recorders of music, it is very difficult to have control over that sort of thing. We cannot control the retail of music, just as we could not control it in the physical arena. It is not particularly healthy. We would advocate that Apple became interoperable, but advocation is their business not ours, so we have got somewhat limited power to influence there. We hope and believe that there will be more entrants into that online field, that interoperability will occur across a broad scale, and that really will give digital business a huge boost.

Q144 Mr Evans: How big is the problem of people downloading illegally?

Mr Jamieson: It is vast and uncharted.

Q145 Mr Evans: How much is it costing the industry, if people do that?

Mr Jamieson: Have you got the statistics for that?

Ms Groome: We commissioned a study recently into the extent of the damage, by TNS, and they interviewed a selection of downloaders and their activity over a three-year period, and over the three-year period they estimated that the loss was about £1.1 billion, looking at their activity over the three years. The key harm is not so much in downloading, it is in uploading, so it is where individuals are acting like mini free retailers, by copying their entire CD collection onto their computer, that is the first act, and then making it available to the millions of other people around the world who are at that moment also uploading and file-sharing their illegal peer-to-peer file-sharing networks.

Q146 Mr Evans: Are there a lot of them around?

Ms Groome: Yes, there are still. Obviously, there has been an international litigation campaign by the record industry against the software providers in other jurisdictions, like in America, against Grokster, which you will have heard of, and against KaZaA, in Australia, and in the UK we have been suing those egregious uploaders, people who are uploading thousands and thousands of files at any one time, in an attempt to stem the tide.

Q147 Mr Evans: Is not part of the problem that people do not see downloading stuff for free as stealing?

Mr Jamieson: I think you are dealing to the crucial education question, and I was going to answer your original question by saying go to the schoolyard and you will find that people are beginning to believe that music is a voluntary purchase, in other words, you can buy it if you want but if you are clever you do not have to. There is an enormous amount of education needed. I think what I said earlier on private copying will help that considerably, because we must educate the consumer that to copy is okay, to give away is not okay. That is a campaign I think we would like to do together with the Consumer Council, with government, with us and generally begin to change that mindset.

Q148 Mr Evans: Really do you see that being effective, because people might see walking into Tesco and picking up CDs and running out with them as being stealing, but they have got a different concept about going on the internet and downloading stuff because they really do not think anybody is being damaged?

Mr Jamieson: This is an indication of the enormous task we have faced over recent years and which we still face, but we think we are making progress. We think that the litigation campaign that we conducted garnered headlines. Statistically it is difficult because it is a sort of global business, you cannot really get the statistics, but we believe that, at the very least, we managed to plateau what at that time was an exponential growth and really we have got some people. We get hundreds of inquiries a day, just "What can I do?" and "What can't I do?" and "Is my child doing the right thing?" or "Is my child doing the wrong thing?" MPs call us and say "Please tell me, what can I do and what can't I do?" It is an enormous education task.

Q149 Mr Evans: You are still talking about records, are you?

Mr Richardson: Probably not.

Q150 Mr Evans: Touché. Tell me then, how much damage did Robbie Williams do to the industry when he said that he supported youngsters downloading stuff for free?

Mr Jamieson: I do not think really I should comment publicly on a member of mine's artist, but I think you could surmise, if we did not identify a single person, that the more successful artists who make that sort of pronouncement are not helpful in any way to the industry. They do not really understand it. There is always, unfortunately, the ability to obtain publicity from making outrageous statements and some people seek to do that from time to time.

Q151 Mr Evans: Is not the only way you are going to get this message across to youngsters, other than saying to them "If the source of money dries up then how are we going to encourage creativity in the future, how are we going to bring on the new bands?", and they look at that and really they do not believe it, the only thing they would believe is the fear that they were going to get prosecuted if they were found in possession of stolen music? You mentioned my new iPod, which had on the front of it, "Do not steal music," it was a cellophane thing which you can peel off. Is not that exactly part of the problem, that as they peel off and discard it the message will be discarded as well and they cannot wait to get on the internet to download as much free stuff as they possibly can? It is an uphill battle, is it not?

Mr Jamieson: Yes, it is. Do remember that a long time ago, in the seventies, the industry invented a campaign called 'home taping is killing music' and that was condemned because of its ferocity, and that we are still trying to drive home the point you mentioned, that profligate copying makes it just far more difficult to create, but it was condemned out of hand. We are very, very cautious about doing anything overly aggressive, we are not even prosecuting at the moment, in terms of the individuals we are catching, who are egregious uploaders; we sue them simply in the civil courts. It is a costly procedure but it gets the message across in a far more cost-effective way than anything else we have tried to do; to try to educate by taking advertisements, for example, would cost millions of pounds. I think that the private copying thing I spoke about earlier will help that sort of education, if we can implant that to copy is okay, to give away is not, and help save music by doing this.

Q152 Mr Evans: In the last resort, if it is not working, will you prosecute individuals who are downloading stuff for free?

Mr Jamieson: We have to. We are careful of the word 'prosecute' but at the moment, yes, we are suing individuals who private copy and upload, i.e. disseminate globally, significant files of music and that process will have to continue. In all cases, we will try to educate rather than do that sort of thing.

Q153 Alan Keen: Could you just elaborate on statutory damages?

Ms Groome: Our position in relation to damages is that for IP infringement it is very difficult to obtain a deterrent effect in relation to damages. It is very difficult to obtain additional damages because of the way the legislation is, and we would like to see some statutory damages which would ensure that those who infringe copyright face a deterrent. At the moment, what happens in relation to damages is that simply they have to pay the licence they would have had to pay had they got a licence, so statutory damages would take you above that and act as a proper deterrent in the civil court.

Q154 Chairman: Presumably you would like to see that as part of some new copyright act, which you say that you have now come round to the idea is necessary?

Ms Groome: It could be done by an amendment to the current Act, and certainly there is a section in the current Copyright Act.

Q155 Chairman: The BPI's position now is that actually you would like to see a new Copyright Act?

Mr Jamieson: No. I think the BPI's position is that the Copyright Act is fit for purpose but it needs to be tweaked in certain areas; but, by and large, copyright is essential, it is in the Act a relevant legal mechanism in today's world.

Q156 Rosemary McKenna: Can I ask you about your views on the BBC's current, very aggressive approach to allowing access via the internet, in particular the Creative Archive message to "Find it. Mix it. Rip it. Come and get it." and their decision to aim to be the premier destination for unsigned bands?

Mr Jamieson: First of all, in terms of the latter, I think it is admirable that the BBC wish to become a destination for unsigned bands; that is absolutely their prerogative, notwithstanding their own arrangements with the Charter, with which I am not that familiar. For example, the BBC has decided to make every World Cup match available on the internet, which is something which I think, having paid for the rights to the World Cup, it is every bit entitled to do. I think we have to draw a big distinction between their policy with purchased programming; almost all of the output of the BBC is either funded by the taxpayer and paid for fully when it transmits or it is bought from an independent production company. The sole exception to this really is music, because music is given to the BBC free of charge by compulsory licence at the birth of a recording; therefore, music depends on ongoing sale and usage so the BBC do not pay for the music that we provide to them until such a time as they play it, at which point it is collected by PPL. Instead of that, if simply they find a way to provide the consumer with music free of charge, on the basis that they have got it and they would like to make the consumer have it, and so enable the consumer to convert BBC output to his own private collection, we have a serious problem. In that respect, we have a serious problem, as I referred to, with every broadcaster, but it is particularly in respect of the BBC because they are a publicly-funded body. When the BBC did its much-publicised Beethoven downloads, in terms of current copyright legislation they had every right to do so, but we mounted a legal complaint because enabling the free download of every Beethoven symphony had a huge commercial effect on the market-place. A non-state-funded body could not afford to do that and so we had to protest, and they took the protest on board and have not done it since. Sampling and teasing and stimulating interest is one thing, but providing a full solution to music ownership is a problem that we have.

Q157 Rosemary McKenna: There is a dilemma, is there not, because people see it that the BBC is publicly-funded, and if they produce programmes they have already paid for them and the public are entitled to have access to them whenever they want them? If you are a BBC licence-payer then you feel you have already paid, apart from recorded music. I am talking about the music that they generate themselves; they do so many concerts which encourage young musicians, therefore people feel they have the right to have access to that?

Mr Jamieson: That is fine. I think we are talking about, recorded music which is provided to them under our compulsory licence we have a problem with, but their own activities, other than the fact that if they use their publicly-funded position to mount unfair competition to the private sector investment then that is the Beethoven symphony one.

Q158 Adam Price: Returning briefly to the question which Nigel Evans asked, you have not taken action so far against illegal downloaders but have focused on the uploaders, but a BPI spokesperson is quoted in the Guardian today saying that you are not ruling out action against users of AllofMP3, a Russian site which it is claimed has now got 14% of UK downloads. That is a site where you do pay for the music, to meet Mike Hall's scenario, where people believe, because the site says, that it is complying with Russian law, operating within the law. Are you considering taking legal action against UK-based users of that site?

Ms Groome: Let me clarify our position in relation to AllofMP3.com. We have been looking at it for some time. It is Russian-based and we have had trouble in Russia closing the site down, but it is an illegal site, the music is out there illegally and unfortunately it is very popular in the UK because it is incredibly cheap. What we are looking at doing is obtaining a judgment against the site in the UK and then using that either to enforce in Russia, which is quite difficult, or in some other way, but we are going to be taking action now against not the users of the site but against the site itself in the UK.

Chairman: Thank you very much. We have taken up a lot of your time. It has been most helpful. Thank you.


Memorandum submitted by Mobile Broadband Group

Examination of Witnesses

 

Witnesses: Ms Deborah Tonroe, Head of TV, Video & Sports Products and Commercial Development, Orange UK, Mr Tim Lord, Regulatory Director, Hutchison 3G, and Mr Hamish MacLeod, Mobile Broadband Group, Mobile Broadband Group; and Mr Nicholas Lansman, Secretary General, Ms Camille de Stempel, Director, and Mr James Blessing, Director, Internet Service Providers' Association; gave evidence.

 

Chairman: We will move on now to the next session, where we have as witnesses, from the Mobile Broadband Group, Deborah Tonroe, of Orange, Tim Lord from Hutchison 3G and Hamish MacLeod, from the Mobile Broadband Group, and also the Internet Service Providers' Association, Nicholas Lansman, Secretary General, Camille de Stempel, Director, and James Blessing, Director. I am sorry to have delayed the start of the session. As you know, we are trying to cover a lot of ground so I would only say do not feel that all of you need to answer every single question. Can I invite Nigel Evans to start.

Q159 Mr Evans: How quickly is the usage of 3G going to be taken up, the television use of it?

Mr Lord: On familiar services that we can get the content for, which to date has been music, we are finding very rapid uptake. We are finding that, of our customer base, about 31/2 million customers every month, over a million downloads of video or audio tracks, and we have about 76% of all mobile music downloads, it is actually 17% of all music downloads in the market and it is about 4% of all downloads of the total music market, for the singles market. We have a lot of success in music. We do have some TV clips. We have Big Brother, we have some sports clips, we have some streamed channels, but we are finding it very frustrating in getting more TV content onto these networks; 3G networks, in our case, already cover nearly 90% of the UK population. A massive investment has taken place and continues to take place, and actually we would like more TV content. New services are doing well, we have got a million downloads of people downloading user-generated content, but we have not got a streamed version of BBC1, we have not got a streamed version of 24 Hour News. We think, at this stage in market development, really we want to have the TV companies - the BBC, the public service broadcasters - focusing more on mobile as a distribution mechanism and focusing on it in a more consistent manner. Today, I was reading in the FT that the BBC is going to provide streamed content to a DAB service but actually they have not done that for us yet, and we would be keen to encourage them. The comment I would make about it is that all new distribution platforms essentially need to have familiar content from the older distribution systems to take off and drive critical mass. It is an odd example, but, for example, the cable and satellite systems all started with rebroadcasting the main terrestrial channels. We would like to be in that sort of situation, and to date we have had a slightly frustrating discussion, certainly with the BBC, in terms of trying to encourage them.

Q160 Mr Evans: Why: what are they saying to you?

Mr Lord: It is complicated and they are under restrictions from the Government as to what they are and are not allowed to do, and how the licence fee is treated. We just note that in other areas they have managed to get round it, but for us it seems to be taking a really long time.

Ms Tonroe: There is enormous enthusiasm from the broadcasters. I have been working with mobile content now for over ten years and I have been selling the concept of mobile content and I have never been welcomed with so much enthusiasm for mobile TV, it really has struck a chord. There is enormous enthusiasm, but, as Tim says, the frustration is the actual delivery of the service, and there are two types of services that we are looking for over mobile television. One is a synchronous stream, live, as you have it at home, but you just take it away with you. The second phase of that is a more tailored-for-mobile service, it recognises that the consumer is on the move and provides them with a different type of entertainment. Ironically, we are starting to see that come out first from some of the smaller players, and the larger players, who have very warm words to say about mobile TV, have not taken the easy route of doing a synchronous stream, which we have seen in many other European countries.

Q161 Mr Evans: Do you think the picture is up to it?

Mr Lord: I am very confident on 3G that it is fantastic, of course.

Q162 Mr Evans: If too many people take it up though does not the picture degrade?

Mr Lord: Not really. What we would find eventually is that we might have to install more capacity as more people start subscribing. The beauty of 3G is that it is a very flexible technology, in terms of how it manages demand on the radio spectrum, and the fact that you can add multiple carriers to support it. We have got a lot of future technological enhancements which are available within the 3G standard, so we can go to HSDPA if we need more capacity. That is, already at one point, one megabit per second, and that technology will go to, we think, seven megabits per second, so we have got tremendous scope to deal with capacity issues.

Q163 Mr Evans: How long do you think it is going to be before all the other systems that you can get up there fade and everybody is on 3G, that they will only sell 3G and that will be it, or whatever comes after 3G; 4G, I guess?

Mr Lord: We think 46 million people globally have 3G 'phones; that went up by 147% last year: 20 million in Japan. We think, and it is not often understood, that there is a tremendous issue of global critical mass for the development of the handsets and the chipsets. Essentially, you can waste a lot of time with inter-technology competition, because the real benefits to consumers arise when you have a good technological standard which is adopted on a very wide scale. In GSN, for example, the fact that GSN handsets now are so cheap, the fact that this is a technology being deployed in Africa, is because so many GSN handsets are being manufactured that price per unit has gone very, very low. The same thing will happen with 3G. Obviously, Hutchison is a 3G-only player, we do buy in 2G services but essentially we are a 3G operator. I think, this year, at the GSN conference, it has now reached the stage that 3G is inevitable, it is a much more efficient use of spectrum, it supports multiple services; how quickly it will happen is a more difficult question.

Ms Tonroe: Consumers are changing their handsets every 18 months now, on average, so it is a fairly quick turnaround for customers who are particularly interested in using that 'phone for more than a 'phone call, which is becoming much more prevalent.

Q164 Mr Evans: Is the World Cup going to be a driver for 3G?

Ms Tonroe: Unfortunately, in the UK, it is not, in terms of a live-streamed match. There are going to be some clips available, so you could watch after the game a three-minute summary, which is disappointing actually.

Q165 Mr Evans: Can I switch to broadband: what is the take-up of broadband now in the UK?

Mr Blessing: Depending on how you define broadband, currently there are 11 million lines installed across the UK, eight million of those belong to BT, or various bits of BT, and the other three million down to cable companies' use, about 400,000 and something.

Q166 Mr Evans: Is it accelerating, or do you think that you are reaching a plateau?

Mr Lansman: The latest statistics which the National Office of Statistics have put out show that the trend is for growth in broadband, a consequent diminution of the amount of dial-up customers, on narrow-band, and the growth is continuing, and there is a variety of factors behind that. In fact, some of the comments which you were discussing earlier, in terms of the drivers for why people want broadband, not so long ago, a handful of years ago, a half meg connection would have been enough to surf the internet, to send e-mail, but now, with things such as rich content, video, film and indeed television, you are going to see a greater demand for services delivered via broadband.

Q167 Mr Evans: Do you think the content is good enough yet, as a driver, and indeed the speeds; what is the reality of the speeds that people can get these days, because it is very difficult, is it not, to download a movie or a TV programme and watch it in good quality?

Mr Blessing: Actually speeds are quite reasonable now. You can watch live television quite easily. The BBC's multicast streams are very high quality; at a distance, they are absolutely fine to watch on a large-screen TV. The problem is going to be that BT's underlying network, on which most of the country is still running, just was never designed to do multicast, so that, the bandwidth requirements which service providers are going to have to put in place, the services' needs are going to go through the roof, which means probably prices will rise, rather than fall, unless you use an LLU provider.

Mr Lansman: This might be an issue that you will come on to, but there is a great amount of investment going into the broadband infrastructure. Obviously, BT have swung a lot of that with their 21st century networks, I am sure they will talk about that later, but there is going to be a big investment across the board in the internet, to make sure that it can cope, and indeed deliver, for all the future elements of content, whether that is film or TV, and so forth.

Q168 Helen Southworth: How much are you expecting that consumers will be prepared to pay for mobile television?

Ms Tonroe: Mobile television is currently on the market for in the region of £10 a month; there are different variations on that from different networks, depending on how much content, channels are in the package that you buy. On average, it is £10 a month.

Q169 Helen Southworth: Are you confident that is going to be affordable, when you add in the cost of the handset and the fact that people are very likely to be paying for services at home as well?

Ms Tonroe: The primary reason why people buy a mobile 'phone handset is still based on the fact that they want to make telephone calls, so their primary reason for buying a handset, and a handset that they choose to buy, is based on that reason. Then the additional services that they add, £10 a month has been chosen, has been selected, because of the customer research that we did. It is also interesting, across Europe it seems to be about the same level as well, €10 is slightly cheaper, but €10 or US$10 in America, so it is all about the same price, globally.

Q170 Helen Southworth: There is rather a difference, is there not, between US$10 or €10 and £10?

Ms Tonroe: The content that you get varies as well, so you get less content, and at the end of the day you are getting the same amount of content for the same comparative price.

Q171 Helen Southworth: I do not know what the percentage of that difference is, but it is quite a substantial one, is it not; it is about 60 pence?

Mr MacLeod: It is a very dynamic situation and the situation gets more competitive.

Mr Lord: Because we are a 3G operator, we have had to push ahead faster with that, I think we are already a bit cheaper. What we are doing, television is an experience good, your valuation of television often is not known until you have seen the programme, so actually upfront or per transaction charges are not very customer-friendly. It is actually probably better, and we are doing this more and more now, to bundle and say, "Well, here is our, hopefully, very competitive tariff for a thousand minutes of 'phone calls and included in that is this many downloads and this many streams of television," so that people can try it. Essentially, we need to start building this market and you do not do that by charging people in advance of experiencing it. We are doing quite a lot with that now.

Q172 Helen Southworth: What about handset costs?

Mr Lord: In the UK markets, the UK consumer does very well on that issue, because handsets are quite heavily subsidised. Essentially, what mobile does is it gives a much lower cost entry price to the broadband. It is much cheaper to, say, get a 'pay as you go' 'phone than it is to buy a PC, so, essentially, consumers are getting a very good deal, we feel, from the mobile operators at the moment.

Q173 Helen Southworth: What is the comparator then for UK handsets as against the rest of the world handsets?

Mr Lord: It tends to be on the structure of the subsidy mechanism for the handset, so in a very competitive market, as in the UK, there are five operators, it is very competitive, people are buying handsets on 'pay as you go' for £10 or £20.

Ms Tonroe: You can get them for nothing, so you can get them as part of your package, if you sign a contract.

Q174 Alan Keen: This is a PDA which I got because I was due an upgrade; it is O2. The previous one actually I bought, costing me hundreds of pounds. What is going to happen next, and it is a dynamic market, as you have just mentioned, and what would you like us to say, how can we contribute to the industry, what would make you very happy if you read in the report that this was what MPs were saying?

Mr Lord: I think there are two things. One is that the migration from 2G to 3G is probably the biggest infrastructure project in telecoms, it may be even the biggest infrastructure project, full stop, in the UK; it is a massive degree of investment, both in the network and in the roll‑out of new handsets. The first thing I think we would like to see from the Government is an understanding of 3G; 3G was created by the 2000 3G spectrum auction, which we considered to be a very intelligent piece of industrial policy, where, basically, by licensing a new entrant, the Government has ensured that there is at least one operator which has very large incentives to roll out the new technology and bring it very quickly to consumers. I think that is very effective; understanding 3G, talking about 3G and maybe doing something about our content issues on 3G, because at the moment we would like more.

Mr MacLeod: In terms of what is happening next, an additional comment is that, to date, really it has been primarily a communications device, for talking, texting, e‑mailing is coming in; what we are seeing the beginnings of is the mobile as an entertainment device, and that is where the experience is going to be much, much richer. You have got music and TV, you have got your user-generated contents, where people are using it as a camera facility and uploading to their blogs, and the whole sort of mail-blogging, video-blogging type world, where the consumer actually becomes a producer, and even is able to commercialise that activity.

Mr Lord: Yes, but we are not always proud of it. A million people a month are downloading user-generated content. We have launched a service where basically citizen-journalists can uplink video to a server and then anybody who wants to watch it can find it and actually see stuff. It is going to have a wider effect on the way people participate in their communities, which we think will be a good thing. One thing I did not mention is that I think there is a tremendous role for these new technologies in the public sector, which we have started to engage with local government on now, on how local government employees can quickly have access to mobile data. The opportunities in mobile broadband are limited not just to the commercial opportunities, there are very obvious opportunities for more efficient government.

Q175 Alan Keen: With these MPs we will hardly ever need to go home at all, will we?

Mr MacLeod: I do not know whether one is allowed to quote Bill Gates within these walls, but at a recent conference in London he stated that the current mobile 'phone has only scratched the surface of its potential, and we agree with that strongly.

Q176 Chairman: We would agree with that too, since we have been to Korea recently, as a Committee, where we looked at mobile television, which clearly is widely available there, in Korea. Of course, in Korea, mobile television is provided through digital multimedia broadcasting using the DAB spectrum; that is launching in this country as a UK-Korea trial, and I attended the launch yesterday. That claims to offer everything, and more, which 3G is capable of offering. You have spent a huge amount of money on this 3G spectrum; are you worried that a rival technology, which appears to be able to offer just as much, if not more, is going to be available, and is that going to threaten your investment in 3G?

Mr Lord: DAB is a broadcast technology, you cannot make a 'phone call with it, so I do not think really it offers a significant threat to 3G. The most likely role for DAB, if it is successful, is that, as mobile operators, we might include DAB receivers in handsets, should handsets become available. I think we are likely to be the customer, if it is a better way of delivering streamed television, it is not clear to us that it is yet, but we would be able to use it. I would not really position it as a competitive threat. I mentioned earlier this issue about handset availability; for handsets to be cheap you need to have global scale and I am not yet convinced that DAB variant will become available across Europe and across enough people for all the handsets or chipsets to become inexpensive. We would not think of it as a threat, but if it is something that customers want we will add it to our handset portfolio.

Mr MacLeod: The whole spectrum thing is quite fragmented and confused at the moment. I think there are just a few points of principle to make there, but I do not think you can make any definitive statements. One is that, as Tim said, as much as you can do globally to harmonise what other people are doing in other parts of the world, you bring the economies of scale to the handset, and that is absolutely key. I think, secondly, we have got the digital dividend review going on at the moment, and you had your analogue inquiry a few months ago and pointed out that Ofcom really need to get on with it and not lag behind other European countries in getting that spectrum released. When that spectrum is released, I think there needs to be a fair contest for those interested parties that want to acquire that spectrum, for whatever use; we do not want to see some special pleading from various quarters. I think Ofcom are developing a good spectrum policy, in terms of fairness and openness and good economic use of it, and we would like to see that continue. The other point just to come back to is actually that what is really going to drive this market is the content, and that, I think, is a great contribution that the Committee can make.

Ms Tonroe: Even on that trial there are the same arguments, that because it has got mobile appended to it somewhere there is a limitation on the content which has been made available to that trial, to the BT Movio service, they have the same issues that we faced. Even though it has been classed as broadcast, the broadcasters are having to provide the content which is needed for that, so, to that extent, it has been limited. Its commercial launch this summer, it will be difficult to judge whether it is the sort of service a consumer really is looking for, because it is limited, I think, to four or five TV channels and an enormous amount of radio, which is a good thing, so they have suffered the same issues.

Mr Lord: They have got the Cartoon Network and Teachers' TV and not BBC1.

Ms Tonroe: To clarify, actually it is not the Cartoon Network that you get at home, it is a mobile version of the Cartoon Network, which is the same service that we are doing over 3G.

Q177 Chairman: The Managing Director is following you as a witness; no doubt we will hear more from her about it. Just to press the point. I was told by the DAB enthusiasts - and, obviously, you having made this huge investment in 3G you are bound to be a 3G enthusiast - that because 3G is essentially a one-to-one connection actually there is a limit to the number of people who can be trying to watch different things over 3G at one time, and that if your subscriber numbers go on increasing you are going to hit that limit sooner or later?

Mr Lord: 3G has within it a specification for a broadcast extension, which we can deploy probably within a year or two, when we need to; so actually we can do, say, a broadcast when we need to of at least four channels, using just our spectrum, and other mobile operators can do the same. I am not convinced that it is such a problem. The other thing you notice, obviously, with mobile usage is that the way people watch TV is different, in that they are tending to 'snack' on content. We would like to include BBC1, but if you are on a train or a bus and you get interrupted you would miss part of the programming, so this linear programming actually may be difficult in a mobile environment, it is just not really clear. More of this content, ultimately, may always be delivered on an 'on demand' basis, which you can do only with a 3G network, so I think we have got plenty of room to play.

Mr MacLeod: Also, I think, when you say you are 3G and 3G, 3G, it sort of implies that they are technology companies; in fact, that is not the case at all. We are multimedia service companies and we will deploy the technology that customers want at the cheapest possible price that we can achieve.

Mr Lord: Our Italian sister company is deploying DVB-H, because it is available and it seems like quite a good technology.

Q178 Chairman: Having spent an awful lot of money on 3G frequencies, presumably you are quite keen that they are usefully deployed?

Mr Lord: There is a thing called a sunk cost, is there not; it does not really govern your future behaviour. We will use the technologies which are most efficient for delivering the services we want to deliver. At the moment we can deliver an enormous amount technically using our 3G network, with 90% coverage of the UK, with mobile broadband. If we feel that we need to deploy other technologies, we will, but at the moment what we really need is more content.

Mr MacLeod: Also, slightly more clarity, on the whole; bytes.

Chairman: We may well come on to that.

Q179 Mr Hall: You have alluded to part of my question already, which is the decision that Ofcom have got to take about freeing up the spectrum. When that competition takes place, Hamish, you have already said you want a fair competition, therefore you are not asking for exclusive rights to any of the freed‑up spectrum?

Mr Lord: There are three things that are going to happen on spectrum. The first is refarm, which is the reuse of the 2G spectrum and allowing it for 3G use, and certainly, briefly, our position has always been probably that should happen but it has to happen in a way that treats all five mobile operators fairly. That is probably the first one. There is then a proposed auction of the expansion bands, which was capacity which previously was indicated by the Government would be available for 3G expansion, and we believe the Government should stick to that commitment. The digital dividend, it is not clear that those lower frequencies which currently are used for analogue broadcast would be appropriate for cellular use; probably they are best used for broadcast services. If at that time there is a demand for it, people will bid for it. I suspect that people may have overestimated the demand for that spectrum. There is a lot of talk about a huge amount of money being released on that auction, but I just do not know if that is true.

Q180 Mr Hall: Why are you sceptical about that?

Mr Lord: Because at that time there will already be many ways of delivering content to a mobile device, so you might get demand for high-definition television.

Mr MacLeod: Exactly, and it is a long way away; well, it is not a long way away, but really we need to focus on what we are doing today, and when the time comes we want it to be a fair and open process. I think that is all we are asking for.

Q181 Mr Hall: What about bringing the timescale forward, because there is a worry that people will be watching mobile televisions in 2012 around the rest of the world but we will not be watching the Olympics here in London, in the Olympic zone?

Ms Tonroe: We are already watching mobile TV; we can watch it on 3G. If we had the content available for the Olympics, I would more than gladly put that over the Orange network. The only thing that is hampering the development of mobile TV is content. We do not have to be the only country in Europe not able to watch the Olympics.

Q182 Mr Hall: Basically, would you like to see Ofcom bring forward the timescale for decisions on the spectrum?

Mr Lord: As I said, we can only deliver it to users.

Q183 Mr Hall: You are relaxed about this?

Mr Lord: We are quite indifferent to that actually, other than the fact that I think it is going to torture a lot of people who find technology difficult to make them move to digital television services quickly, and that is a serious problem.

Mr MacLeod: I do not think we have a common industry position on that one, but they have set out their timescale, let us not lag anyway.

Q184 Mr Hall: You would not want to see any slippage?

Mr Lord: In Europe, DVB-H spectrum in those areas is going to become available quite soon, so it is going to be a bit embarrassing and difficult because you will see the launch in other parts of Europe of DVB-H on the current analogue, terrestrial broadcast spectrum, so you will be able to watch it from afar. I think the reality of it is that there is just not any space in the UK until you do switch-off, and because the switch-off is staged geographically it is very unlikely to be commercially acceptable to do a partial geographic service. I think that will be a difficult thing in the UK, as you watch those things happen elsewhere, but it is not clear to me that we have not actually got alternatives.

Q185 Philip Davies: Can I ask you what your position is on the proposed revision of the Television without Frontiers Directive?

Mr MacLeod: I think we are very much in line with what Ofcom has said, concerning the Television without Frontiers Directive, in that the European Commission are trying to extend the scope way, way beyond what they need to or what is appropriate. It is going to set Ofcom, I think, an impossible task, as far as regulation is concerned, and I just think that the approach is wrong; that is for what they call the non-linear side, the online environment. I think in the linear environment broadly we are happy with the relaxations that are happening. I think there are some tweaks to think about, because some of the rules of advertising around broadcasts may not quite read across into mobile, I think this one about you cannot put out an advert, the thirty-five minutes rule, but mobile users, on the whole, are not watching a programme for thirty-five minutes; so those sorts of things you can tinker with around the edges.

Q186 Philip Davies: How confident are you that the Commission will take note of your concerns, of these concerns, and actually respond to them; or is your feeling that they are going to press ahead anyway? Have you got a feeling for that?

Mr MacLeod: It is hard to say at the moment. Obviously, the Government are at the forefront of doing the negotiation and they do indicate to us that they have set out their position very clearly and there are other countries which are starting to see what they mean. In many instances we are much further ahead in the development of the new media platform, so it is more real for us. They do indicate that there are signs of change but we will just have to see, I think.

Q187 Philip Davies: Are you happy that the Government is doing enough to represent your particular concerns?

Mr MacLeod: Yes, I think they are, and Ofcom, so it would be good if the Committee could support them.

Q188 Chairman: This is an issue which affects you in certain ways, obviously it affects the ISPA in different ways, but equally very important ways; what is your attitude?

Ms de Stempel: Actually, we have a pretty similar position. We were very supportive of the UK Government's position, and the UK Government officials have also asked us to reach out to our international partners to highlight maybe some of the concerns that we have, because I understand that in other countries, including my own, it might not have been taken as seriously as it might have. Our main concern is that we do not understand why there should be an extension, the definitions are terribly vague, we have a lot in place already for the protection of children, protection of minors, and it seems that it is not practicable to implement such a Directive.

Mr Lansman: Actually, industry at a European level has been working closely together; certainly EuroISPA, which is the European Federation of ISP Associations, has been working, indeed mobile organisations, GSN, and so forth, in Brussels. We have been putting these arguments very effectively to the Commission, but to a certain extent there is a little bit of a brick wall facing us, despite the UK being very much supportive of trying to counter these proposals, certainly the DTI, DCMS, Ofcom, but we are lacking support from other Member States, and that is the big problem at the moment. I think Slovakia, and one other small country, also is not convinced. If I give you just one example of the type of level of detail that this could impact on, you may be aware of things like animated images in the internet, they are called animated gifts, that is the detailed type of thing that would now be regulated. It is getting into such a level of detail that there is a danger it could slow down development of the internet, e-commerce, on the mobile side and the internet side. Normally the UK can see it actually as being an enhancer; indeed, as my colleague Camille said, generally the concerns, things like protecting children and minors, are already in place, so support from your Committee would be very useful.

Q189 Chairman: Recently I heard Commissioner Reding give a speech on this matter, where she began by emphasising how she had absolutely no wish or intention to regulate the internet; she then spent the next 20 minutes describing precisely how she intended to regulate the internet. The UK Government is absolutely at one with you on this, but having been to the Liverpool Audiovisual Conference we appear to be in something of a minority. What happens if we lose this battle, which it appears we may well?

Mr Lansman: I think, obviously, it would be nice to go out firstly with a policy of continuing to fight the battle, so that this Directive is not required. There is some time away, obviously there is a whole lot of negotiations based in the European Parliament, under the Council of Ministers level, and I think, before we start admitting defeat, we have to keep arguing the case. I think the cases that we are putting forward are very cogent, and hopefully will be heard and understood by the other Member States, but I think it is one of education. I do not think the other Member States are actually against, I just think they have not got to grips with the technology in the same way as in the UK perhaps we have.

Chairman: The rest of Europe does not understand it yet.

Q190 Rosemary McKenna: We will leave that one. Can we move on to copyright infringement, please: what steps do you take to discourage this, and do you take any steps to educate your customers about illegal downloading?

Ms de Stempel: Yes, we do. I work for AOL and, for example, we launched a campaign called Play Legal, where we were actually showing people what it is, where is the legal music, where it is, how they should consume music, why it is important that they should consume music that they pay for. We try to facilitate the availability of music to our consumer by having deals with the music recording industry and making sure that we direct people to legitimate content. A while back, it was very easy to find illegal content and not so easy to find legal content to consume, and I think that we have worked very hard to try to direct people to where they can consume legitimate content.

Mr Blessing: A lot of ISPs make sure that if they get any notices from copyright holders it is forwarded to the responsible contact for that particular connection. In a lot of cases you get a worried parent on the line, saying, "Are you taking me to court?" That is a good point for the education, saying, "No, we're just telling you, somebody using your connection has been doing this; you need to investigate," and we tend to see very few repeat offenders when that happens.

Q191 Rosemary McKenna: There is such a lot of work going on in stopping access to child pornography; cannot that technology be used to assist in preventing copyright infringement?

Ms de Stempel: Blocking technology does exist and it is possible to block websites. What it is not possible to do is decide what is legal and what is not legal. As ISPs, we cannot decide "This website is legal," or "This website is not legal." It is very clear in the case of child abuse images that it is an illegal image, and the ISPs are not deciding whether it is illegal or not, the IWF decides that a particular website contains illegal content which is illegal for us as well to possess, which is quite a different position.

Mr Lansman: Can I make just a couple of points. The ISPA is a self-regulatory body; it represents the industry and has a code of practice and part of its raison d'être is to promote the internet industry but also encourage our members to not condone any illegal activity. Infringing copyright is not supported by ISPA in any shape or form; however, there are problems if those companies which are providing internet connectivity then have to police the internet. I think my colleague Camille was right in saying there is a big difference between the Internet Watch Foundation being able to interpret the law, the Child Protection Act, and what is illegal in terms of child images. It is much harder to decide if something is infringing copyright, and it can take courts' and judges' time to make the decisions. However, it has to be said that as soon as a UK ISP, certainly a member of ISPA, receives a court order, saying "This particular content is an infringement," it will be removed, and that does happen on a regular basis.

Q192 Chairman: The example that we heard about, 45 minutes ago, of the site in Russia, which is now making available large amounts of music illegally to people in this country, you would bar access to that if asked to do so by a court?

Mr Lansman: If a court told us to bar access to it, I think that would be a very different thing from a letter, which we do get, from solicitors, maybe in the US, saying "We think this is infringing contents on your network." I think if it can be proved that the content is on an ISP's network and a court order comes in then it can be removed. I think it has complicated the situation for all content which is not hosted, and this is where we rely on the E-Commerce Directive, and indeed the UK regulations, to help grow the e-commerce area but also give a clear guide to internet service providers about what you can and cannot do. Within these regulations are elements to say that if you have control over that content, in other words, if it is on your network, or you host it, and you are made aware of it then you have to remove it. Therefore, it does give ISPs a defence for content which is not under their control, in other words, it goes between, say, a customer of an ISP and a third party that is something outside of the control of ISPs.

Q193 Chairman: If it is a case where very plainly a site, like the Russian one, is making available material which is quite obviously in breach of copyright, you do not feel that you have any responsibility to take action unless a court should intervene and tell you to do so?

Mr Blessing: There is a slight problem there, that actually it has not yet been decided by a court that it is illegal. Some people are saying one thing, the owners of the site are saying the other, so as an ISP we do not know which side to believe. There are cases where this happens a lot.

Q194 Chairman: Would you go to the owner of the site though, let us say, the site in Russia, if you had a complaint that this is simply a way of distributing illegal material, would you go to the owners of the site and say, "Can you show us that this is not the case?"?

Mr Blessing: No. We would forward it to the internet service provider which provides service to that company.

Mr Lansman: I think part of the problem that the Music Rights has explained is dealing and finding who is the culprit, which is the organisation or company in Russia, for one; getting assistance from the Russian authorities to take this as a very serious issue is quite complicated. It has to be said that the ISPs would face the same complications if they were part of the equation; but ISPA is very strong on saying that if there is illegal content or infringing copyright that is in the UK and we receive a court order it will be removed.

Q195 Mr Evans: Why do you not just do it? You know that this site is distributing illegal stuff: just do it?

Mr Lansman: You say that. I am not going to dispute whether this is very clear or not. There is a whole range of different content that someone might decide is illegal or not, or infringing or not, and I think it would be very difficult to make a decision on one example. There are lots of complaints which come in from very different audiences saying that certain content is illegal, but also it depends on jurisdiction, it depends on the interpretation, but I cannot comment on this particular case as I really do not know very much about it. You are saying that indeed it is very clear, and I am sure you are right, but you have to rely on courts. It is not for ISPs to act as judge and jury, or indeed I am sure my colleagues from the mobile sector will make the same claim, that it is not up to the intermediaries to decide what is legal or not illegal.

Q196 Chairman: But you do in the case of child pornography?

Mr Lansman: In the case of child pornography, the self-regulatory body, ISPA, has helped, with other bodies as well in the industry, including the mobile organisations, to set up the Internet Watch Foundation. It is a self-regulatory body, it is funded by the industry and we rely on the knowledge and expertise of the Internet Watch Foundation to send out notices to the ISPs to say, "This is illegal." The differences are two-fold. One is that it is easier to interpret what is illegal in terms of child abuse images than lots of other areas, including defamation and racism, and so forth, that is very clear, and we do rely on the Internet Watch Foundation to do that.

Q197 Chairman: Would you consider setting up a copyright watch foundation, as a self-regulatory body?

Mr Lansman: That has been tried and it did not succeed, for a variety of different reasons, partly because of how to interpret, without a court and a judge having to spend a lot of time dealing with it and going through the minutiae of the detail, to make that decision. Again, it is very difficult for ISPs just to accept the view of a body like that on issues like copyright, and it is not just copyright, it is also defamation, because you have two voices, you have someone saying "I have been defamed," and someone saying "No, that was a fair comment." The same applies for copyright. There are cases where copyright is clear, and I think Camille has spoken about cases where ISPs are in dialogue with rights holders to try to sort out these problems. This is a new area for the rights holders, as they admitted, it is also an area that is very complicated for ISPs, because they do not want to take on this pretty onerous liability; but I think what we will see is more and more dialogue, and hopefully innovative ways to solve these issues.

Q198 Chairman: Just before we finish, I promised Hamish that we would come back to the issue of new media rights; it is clearly of great concern, but in the argument which is raging between where the rights should lie, broadcasters or producers, is that something which matters to you, or do you just want it resolved one way or another?

Mr Blessing: As long as it is legal.

Q199 Chairman: It affects both of you; let us start with mobiles?

Mr Lord: It has genuinely impacted a number of times on our negotiations, that we have done a lot of work to, say, put up a new bit of content that we are very excited about, that we think consumers will like, and at the last minute we have to pull it because some broadcaster, or somebody, goes "Oh, we're not sure we've got this cleared." It is a real problem and it is a real barrier to new services and to kick-starting this market. We have not come down on one side or the other, we have just said "We'd like it resolved clearly, so that we can get on and do our job," as it were. It is depressing, because I think that while this fight goes on an opportunity is being missed.

Mr MacLeod: I think one other point is to try to avoid false distinctions between we are putting it out over cable or putting it out over satellite, we are putting it out over the internet. Essentially we are putting out the same programming over a mobile platform; why you are suddenly carving this out and treating it differently seems odd.

Mr Lord: A lot of the distinctions do not really add up. Sky has bought the rights for all simultaneous transmission on television and mobile, and it does not matter, and they need that and we understand why they need it, and yet we have not got the same kind of clarity for all we need to buy.

Ms Tonroe: I will correct myself on the World Cup. If you want to watch the World Cup on your mobile 'phone, you have to buy a data card and put it in your laptop, or then mobile, and watching the World Cup over the internet, so you can do it but just not with a 'phone like you have got. It is a false distinction.

Mr Blessing: I agree completely. We are not really too much involved in it. It comes down to is it legal content or not; if it is legal then the problem is solved. We would like someone else to solve the argument between the broadcaster and the publisher, and so on.

Chairman: We have the producers and the broadcasters appearing two weeks today, so we will try to do it for you. Thank you very much indeed.


Memorandum submitted by BT

Examination of Witnesses

 

Witnesses: Mr Dan Marks, Chief Executive, BT Vision, Ms Emma Lloyd, Managing Director, BT Movio, and Ms Mita Mitra, Manager, Internet & New Media Regulation, BT, gave evidence.

 

Chairman: Can I welcome British Telecom (BT), Dan Marks, Emma Lloyd and Mita Mitra. I apologise that you have been kept waiting, although you may have found the previous session of perhaps some interest. Can I invite Nigel Evans to begin.

Q200 Mr Evans: Can you tell us how your trial went recently? You are launching the service this summer, are you not?

Ms Lloyd: The BT Movio trial; yes. We undertook a six-month trial at the end of 2005 which completed in December, the first component of which was technical, to prove that television could be delivered successfully over the DAB platform to a standard which consumers would find acceptable and indeed would pay for. The second aspect of the trial was understanding what kind of TV content and other content people were interested in consuming, when they were using it, how they were using it, and then their propensity to pay for it. Just to run you through some of the key findings of that; first of all, in terms of the outcome of the technology, the technology pilot did prove that the DAB technology, and indeed the internet protocol version of delivering multimedia over the DAB network, was successfully proved, as was the application of digital rights management to protect the content of the broadcasters and the owners of that content on that network. That was obviously key to ensuring the commercial success of this, because content providers would put their content on this platform only if we could ensure that it was protected. Moving on then to the second aspect, in terms of the more commercial aspect of the trial, we undertook two phases of research; one about a couple of weeks into the pilot, this was with 1,000 users, the second was very close towards the end of the six months, so two waves of quantitative research undertaken by a third party agency. The headlines of that were that 59% of those partaking in the pilot found the TV and radio service to be either appealing or very appealing. They watched on average 66 minutes of television per week, and, on average, 95 minutes of radio listened to, and watched, because there is a visual aspect to digital radio. In total, two hours and 41 minutes was the average across this 1,000 users which represented a very broad cross-section, from 16 year olds up to 50 year olds, with mobile spend from £10 up to over £40, a 50-50 gender split, etc. At the very highest level, we found those results commercially to be very attractive and certainly gave us a good degree of confidence to move forward from investing in the pilot to investing in the commercial launch.

Q201 Mr Evans: Can you tell us what the biggest complaint was from the 1,000 people about the service, what did they complain about most?

Ms Lloyd: We asked them what the main inhibitors were to them using the service and there were about ten areas actually that we directed them to, in terms of a check-list, and then they were asked to add others. About 80% of the reasons why people said they were either not using it more or did not use it at all were around some of the technical issues. For example, during the pilot we had a limited number of additional DAB transmitters in the London area, so reception was not as reliable as we would have liked, so reception challenges were one of the big reasons. The fact that, obviously, people are wanting primarily to use mobile TV in the London area on their commute meant that some of the modern trains, the metallised trains in which you cannot even get a mobile signal, we were also having challenges getting the DAB signal into those. By far the majority of complaints were around reception quality.

Q202 Mr Evans: What about the paucity of the number of channels?

Ms Lloyd: Because we have a limited amount of capacity, we have 20% of the digital one, multiplex, and currently that is the regulated maximum, we have deployed the DAB technology in a way which really utilises that very efficiently. Certainly compared to the Korean version of DAB which John saw, where probably you will get one or two TV channels per multiplex; we have got three TV channels and 20% of the multiplex. A lot of work has been done by BT and Microsoft and other technology partners really to optimise the quality, the video, down at that level. That is one aspect. We were very keen to understand whether three channels were going to be sufficient as a launch proposition and what we found was that actually 58% of the pilot users felt that five channels was the optimum number for them. We believe, over time, that is going to change, so over time people will become accustomed to getting more and more content, so five channels at the start might be sufficient, over time they are going to expect more. We do not believe that DAB has to deliver all of those channels, going back to the comments made by the mobile operators earlier; certainly we do not see DAB as competing with 3G. We see DAB to deliver TV as a very complementary technology in commercial service alongside 3G. Indeed, the work that BT Movio has done on the device side and the application side is very focused on creating one consumer experience for them to get access to TV content from multiple sources, from 3G, from DAB, in the future from DVB-H and indeed through plugging your 'phone into a PC and side-loading TV content as well. Consumers will get content from all of those sources, and what we are looking to do, from the BT Movio side at the moment, is make sure we are future-proofing what we are doing to enable consumers to do that very easily.

Q203 Mr Evans: Which is the better technology, 3G or DAB?

Ms Lloyd: That question needs to be qualified, because if you are making a voice call or any kind of point-to-point, for you to get your e‑mail there is only one option, it is 3G. DAB is a broadcast technology and, by definition, therefore, you have a limited amount of capacity, you always will have a limit on that one-way broadcast. DAB is ideal for delivering content that is very data-rich, so large numbers of megabytes, and which lots and lots of people are going to want. You would not use DAB technology to deliver Teachers' TV because there is a limited audience for Teachers' TV; you would use DAB technology to deliver one of the big terrestrial channels because we know that there is a bit audience for that.

Q204 Mr Evans: Are you in discussions with the BBC?

Ms Lloyd: We are, but we have not reached any agreement with the BBC. Just to clarify the point from earlier, there has been a misunderstanding between the trial that was launched yesterday, which is a technical trial, which we have agreed to participate in and contribute our technology to, between the Korean Government and some activity that the DTI have facilitated, which does have Teachers' TV and the BBC on it. That is nothing to do with the BT Movio commercial national service which is launching this summer, for which we are in commercial negotiations with a number of potential providers, including the BBC, but no agreement has been reached and so I cannot say today whose those channels are going to be.

Q205 Mr Evans: Why is there such a problem with the BBC?

Ms Lloyd: There is not a problem with the BBC, as far as I am concerned. We are in negotiations with them; we have not reached agreement. One of the angles, certainly, from our side, with the BBC, is that this is broadcast technology, so it is scalable. Certainly there are issues for delivering potentially that kind of content over 3G networks which are not encountered on a DAB network, and paying for carriage versus paying for content is an issue, and that is something which is not encountered on the DAB network.

Q206 Mr Evans: Are you confident that we will have the Olympics in a DAB version, come 2012?

Ms Lloyd: I am, yes. I think it will be a hybrid scenario; multiple technologies will be delivering the Olympics to us in the mobile environment. I think DAB will be one of the formats. I think, at that stage, some of the country will have DVB-H and 3G will also play an important role, because there will be some personalised services for downloads and catch‑up Olympics highlights, etc., which will be delivered over 3G, so all three technologies will play an important role, as will radio. Radio 5 Live and Talksport have millions of listeners and they deliver a compelling sports service, and that will be important as well.

Q207 Mr Hall: Can you tell us something. I have just been reading the brief on this, which says that because of the speed of broadband and the digital video compression we can now get television via the telephone cable and that BT have got plans for a hybrid box which brings in terrestrial television and television through the telephone line; there is huge potential then for viewing Freeview, pausing live television, recording stuff for future use. When is this hybrid box actually going to be launched and how much will it cost?

Mr Marks: We have said that we will launch the service, which is called BT Vision, in the autumn and, although there are parts which are very complicated technically, very complicated enterprises that are not entirely under our control, so far we feel that we are on track for that launch. We have not announced the price for the box but we are going to price it - - -

Q208 Mr Hall: You can do it now, if you want.

Mr Marks: Thank you for the opportunity.

Q209 Mr Hall: We are live on close-circuit television.

Mr Marks: We have said it is going to be modestly priced. The principle of BT Vision is that we are making these services, and I can talk more about exactly what is in them, available to people on a completely flexible basis. Whereas, up till now, you have had pay television, additional television to free broadcast, so too in a bundle, a very significant bundle, and on a subscription basis, we are making these services available to people on any basis, 'pay per view' or subscription, 'on demand', we are making it available to people pre-pay or post-pay, so really you can have complete flexibility about the way in which you consume those services. In other words, we are handing a very nuanced version of control to customers. If you want only to pay for what you use, that is fine; if you wish to use subscriptions as a means of capping your bill, we encourage that too. The box is a one-off payment which allows you access to these services; after that it is entirely your choice how you wish to pay for them.

Q210 Mr Hall: The only way this will work, with any real interest to people, is that there will be a huge amount of programmes available, which means that you will have to sign up those particular programme providers and producers. How far along the line have you got with that?

Mr Marks: I think we are doing pretty well. Yesterday we announced a licensing deal with VPL/PPL, who represent the 900-plus independent music companies in the UK. Previously we concluded a deal with Warner Music and we expect to be announcing further deals with music companies as we go along. We have a very significant 'on demand' deal with the BBC and we are engaged in conversations with a whole raft of independents and broadcasters. In the television space we have signed deals with Nirvana Hit, Cartoon Network, Turner and National Geographic. In the movie space we have agreed deals with Paramount and Dreamworks; we have further studio deals coming out, we are talking to the independents. We have, we think, a very significant line-up. A couple of weeks ago I announced that we had bid successfully for 'on demand' Premiership football rights, so from the 2007-08 season we will be offering our customers 242 Premiership games per season, on an 'on demand' basis, available from ten o'clock on match day for 50 hours, all paid for by 'pay per view' or subscription, whichever way customers wish to take their programming. The other programming that we think is perfectly suited to an 'on demand' platform such as ours, and we have not made announcements in this area but we will do shortly, is niche programming, and I suppose you could broadly categorise the niche programming into two blocks. One is the more commercial niche; line-dancing, for instance, would be a good example of that. There are very large numbers of niche activities whose participants are passionately engaged in those activities, who want to see video content, who are motivated to go and find it, who cannot get it anywhere else, it is not available on broadcast, who want to communicate with one another, who are ready to subscribe to clubs or magazines, and those kinds of services are perfectly placed to move on to an 'on demand' service such as ours, particularly when associated with the kinds of communication functions that BT can offer with the service, like Instant Messenger, like video-telephony.

Q211 Mr Hall: The one thing that everybody is going to need for this technology to work is to contract with BT for a telephone line?

Mr Marks: The one thing that everybody is going to need is a BT broadband subscription; that is right.

Q212 Chairman: So they are paying a subscription but as a BT broadband subscriber?

Mr Marks: Indeed; that is right.

Q213 Rosemary McKenna: That is important. It is necessary to have the BT broadband connection and a subscription paid, but once that is paid people can have access to Freeview without any additional payment, is that correct?

Mr Marks: That is correct: Freeview and also to the PVR, the digital video-recorder, which will allow them to stop and pause and store broadcast streams, and also, very likely, to a certain amount of catch-up television, subject to rights being made available.

Q214 Rosemary McKenna: BT therefore could fill the gap that is going to come at analogue switch-off. You can fill that gap because we know there are going to be areas of the country which are not going to have access at that time. BT would cover, I would think, 100% of the country, and by that time would you expect to be in a position to cover 100% of the country with broadband?

Mr Marks: This service is based on two meg access to the box, and at the moment I believe, I checked earlier, that BT offers two meg access to 93% of the UK population, so it is likely that it will be ubiquitous, or near ubiquitous, fairly shortly; in any case, broadband speeds are moving up from two meg. It is important to note that this is a hybrid service at the moment, where the broadcast signals are carried over Freeview, and so if you are not in an area which has Freeview reception we are not proposing to deliver those Freeview signals down the DSL line. We are using the DSL line only for 'on demand' services and for communications and other kinds of services. So if you did not live in a Freeview area you could still have the box and you could still have the 'on demand' services but you would not be able to get Freeview, today.

Q215 Rosemary McKenna: Surely with the advances in technology, will there be a necessity for terrestrial television at all in ten years' time?

Mr Marks: Ten years is too far, I am afraid. It is certainly true that compression rates are coming down, we are only at the beginning of the curve of efficiency which, characteristically, compression goes through, each compression technology; we are just starting on the one that we are using now, which is MPEG4, and broadband speeds certainly are going up. The point at which broadband speeds go up sufficiently and compression comes down sufficiently to allow BT's network to be used for multicasting, rather than point-to-point use, which is how we are using it at the moment, one assumes that is at some point in the future but it is not on our immediate road-map.

Q216 Chairman: Do you think it is possible that BT Vision could evolve into a service which does not use Freeview for the live reception but actually might stream everything down your cable?

Mr Marks: I think it is technically possible, that in the future the network will be engineered for those kinds of capacities. I am really not making a comment about BT Vision's intentions in that area.

Q217 Rosemary McKenna: Recently we did the analogue switch-off report. It is an interest that we have, in looking at those areas where there are going to be difficulties when analogue switch-off happens and they will not have access; it is of interest to the Committee.

Mr Marks: I appreciate that. I think that there are other ways in which BT can be helpful, in driving towards analogue switch-off. This is a service where BT has got a very profound reach into the UK and it can provide the kind of support that many customers will need in order to get them from the analogue into the digital world.

Q218 Chairman: As we put to the previous witnesses, questionable rights: generally do you take the same attitude, that you do not mind too much where the rights should lie, you just want it settled as soon as possible so you have clarity and an ability to reach an agreement? Is that fair?

Mr Marks: Yes, principally, that is a fair summary of our position, with respect to Ofcom's review, or the independence of the broadcasters, yes.

Q219 Chairman: Are you concerned about the proposals for windows, so that certain programmes would not be available for a defined period before they would be made available for, say, mobile broadcast, or indeed on your BT Vision?

Mr Marks: We encourage an active market in those rights and we think that we are perfectly able to participate in that rights market. It is of less concern to us how the rights are carved into windows than it is that there is a market in those rights and that we have fair access to those on commercial terms.

Ms Lloyd: From the BT Movio perspective, our current strategy is sourcing simulcast channels and so at the moment we are not looking at effectively using broadcast for catch‑up TV, which therefore does not impact on the window.

Chairman: Yes, I understand.

Q220 Mr Evans: Have you announced a pay structure for Movio yet; how much a month will it cost subscribers? I know you said what they were prepared to pay; have you worked out what you are prepared to charge?

Ms Lloyd: We set our wholesale tariff and we offer that to the mobile operators. They then set the retail tariff, and indeed they could either add a margin to that or they could absorb that cost as part of a bundle, so we will have to wait and see what Virgin come out with this summer, and other operators.

Q221 Chairman: Do you expect, in due course, all the mobile operators to take up the BT Movio service?

Ms Lloyd: We would like them all to; we do not expect, in the short term, that they all will.

Q222 Chairman: Are they all expressing interest, or are some more enthusiastic than others?

Ms Lloyd: Some are more enthusiastic than others.

Q223 Chairman: Would you like to elaborate?

Ms Lloyd: I think it is fair to say that there is still some debate in the industry about whether a broadcast technology is required, and you clearly heard some of that earlier today. Other countries, Italy, for example, have gone down a broadcast route, Korea has; certainly we believe very strongly that this hybrid, it is not either broadcast or 3G, you have got to use the most appropriate technology for delivering the most appropriate services, and broadcast makes sense. Why would you send a simulcast TV programme to millions of people over their own little bit of spectrum; it just does not make sense commercially, and indeed practically. There is a limitation, whether it is 3G, HSDPA, they are point-to-point networks. Cell broadcast has huge constraints and is still essentially a cell-based structure.

Q224 Chairman: So you do not agree with what was said about the opportunity to expand 3G, which said that will not be a problem?

Ms Lloyd: Obviously, 3G operators are moving from 3G to HSDPA; the technical input, which is in the public domain, is that 3G can support around seven simultaneous TV or video users per cell, HSDPA potentially would double that. There is the possibility, which is still under development, of technical standards which could add true broadcast to the unpaired spectrum which some of the operators have in their existing 3G area. That will be a very expensive operation, so our argument is, why would you spend a billion pounds enhancing your network to build broadcast capability to run the same channels that Orange, Vodafone, O2, Virgin, are all going to want; why do you not take a shared infrastructure model from a third party. I expect there to be competition, but BT at the moment has entered that wholesale space, so we have invested heavily in one broadcast network to bring on the popular TV channels and make those available on a white label, wholesale basis to all the operators. If you believe that there is a lot of differentiation needed in TV then potentially you could be in a scenario where it makes commercial sense for each operator to build their own broadcast network. Our argument is very much that is at the fringes and maybe 3G is going to be more than capable of delivering that, but the mainstream TV channels are going to be common across all the operators; all consumers are going to want the big programmes and the big channels.

Q225 Chairman: The big live channels will be on DAB and the niche ones will be on 3G?

Ms Lloyd: Yes, and also catch-up, so if you missed last night's EastEnders then, depending on the rights situation, you could download that whenever you wanted over 3G, or side-load it from your PC.

Q226 Mr Evans: How many channels do they have on DAB in Italy?

Ms Lloyd: Actually, Italy is using another broadcast technology that is using DVB-H. They have got around eight channels at the moment. They have done it with quite a different model, so they are actually selling capacity on that network rather than the model that BT Movio has done, which was to say, actually, we will put all of the mainstream TV channels on it and then sell the channels. They are actually allowing the operators to take capacity and put what they want on it, so the number of channels still is not clear, because all of their services still have not rolled out. The Korean service is based on DAB, so these are the two options that are dependent on spectrum. DVB-H is suitable in some countries from today, DAB is suitable in some countries from today; in the future we see that you are going to need both because you are never going to put a fantastic array of DAB digital radio stations on a DVB-H network, it is not cost-effective. Technology has developed to the extent that there is already a range of silicon providers that have one chip, it does DAB and DVB-H, that can go into a mobile 'phone at a very low incremental cost. I think that issue is going to go away and then it is down to spectrum availability, and these technologies will co-exist.

Q227 Chairman: How important is it that the 20% ceiling is lifted in the immediate future?

Ms Lloyd: We would like very much to be able to run five channels for launch. We have two constraints for that. One is securing that additional capacity from Digital One; the second then is the regulatory constraint. The regulatory constraint is, on average, a 24-hour period, so one of our options, if we do not secure the change to 30%, will be to run five channels but for less than 24 hours a day, so to have dark time overnight, in the middle of the night. That is a possibility. As you will see from our response to the current consultation, we believe that because you can maintain the same number of digital radio stations and have 30% allocated for multimedia that enables the UK to continue down this path of leading DAB, digital radio and this mobile TV revolution.

Q228 Chairman: And you would like that change to have taken place before Parliament rises for the summer recess?

Ms Lloyd: We would. The one which is more critical for us is the legal technicality, which is absolutely, I cannot stress enough how important that is for us. There is a huge amount of investment that has gone into making this service available for this summer, not only by BT but by all those parties involved, and Ofcom, DCMS and DTI have committed to this over the last 12 months, and now we are very, very tight, as you know.

Q229 Chairman: Ofcom would not allow you to proceed unless that change in the law had actually taken place?

Ms Lloyd: They cannot, because, technically, because of this legal issue, the Digital One multiplex would become a TV multiplex and that cannot happen because then they would have to turn off the radio stations. Unfortunately, it has to happen.

Q230 Chairman: We will see what we can do.

Ms Lloyd: Thank you very much.

Chairman: Thank you very much.