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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1091-vi House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE CULTURE, MEDIA AND SPORT COMMITTEE
NEW MEDIA AND THE CREATIVE INDUSTRIES
Tuesday 17 October 2006 MR PHILIP GRAF, MR TIM SUTER and MR PETER PHILLIPS MR IAN LIVINGSTONE OBE and MR PAUL JACKSON MR PATRICK BRADLEY Evidence heard in Public Questions 430 - 517
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Culture, Media and Sport Committee on Tuesday 17 October 2006 Members present Mr John Whittingdale, in the Chair Philip Davies Paul Farrelly Mr Mike Hall Alan Keen Rosemary McKenna Adam Price Mr Adrian Sanders
________________ Memoranda submitted by Ofcom, Entertainment & Leisure Software Publishers Association and Ingenious Media
Examination of Witnesses Witnesses: Mr Philip Graf, Deputy Chairman, Mr Tim Suter, Partner, Content and Standards, and Mr Peter Phillips, Senior Partner, Strategy & Market Developments, Ofcom, gave evidence. Q430 Chairman: Good morning everybody, and welcome to this which is a further session in the Committee's consideration of the opportunities and challenges for the creative industries from new media. Our first set of witnesses is from Ofcom. I would like to welcome the Deputy Chairman of Ofcom, Philip Graf; Tim Suter, Partner for Content and Standards; and Peter Phillips, Senior Partner for Strategy and Market Development. Part of the problem that we are faced with in this inquiry is that we have spent several months on it and some of the questions which we started off the inquiry by asking have now been answered and new questions have arisen during the course of our consideration, and that is a reflection of the speed at which things are changing. Perhaps I could begin by asking you whether or not there are any developments or changes that have taken place since you originally submitted your memorandum to us which you would draw our attention to? What do you see as the current creative challenges in this area? Mr Graf: Thank you Chairman, and thank you very much for giving us the opportunity to come before you today. I think, as you rightly said, we are faced with something that is changing at great speed. If you look at the underlying changes - the increasing personalisation, increasing inter-activity, increasing flexibility (mobile, fixed, on the move and at home) increasing disruption to business models - that is what we should see played out quite extensively, even since we submitted our evidence to you. Two particular transactions: News Co's acquisition of MySpace and Google's acquisition of YouTube have further illustrated, if you like, the whole development of social networking and the economic possibilities there. Ofcom's own communications market report in August highlighted the impact of these changes on 16 to 24 year olds where you were seeing, for example, 16 to 24 year olds spending 21 minutes more, something like 15% more per week on the Internet than the average and seven hours and nearly 25% less watching television than the average UK viewer. There was a report in yesterday's Guardian which some of you may have seen that showed, for example, that about 14% of people had downloaded a television or radio programme on the Internet; 31% had read a blog, which is encouraging for some MPs I guess, and 20% had downloaded a film. You will have seen also Mark Thompson and his description of the "Martini" generation. Encouraged, I believe, by Ofcom's policy on local loop unbundling, we have seen a number of other major transactions this year. We have seen this in Telefonica's acquisition of 02, the Virgin and NTL deal, Sky's acquisition of EasyNet, Carphone's launch of TalkTalk and then the acquisition of the AOL business, the launch of BT Romeo, the transformation, if you like, of a fixed-line operator such a France Télécom into Orange. France Télécom granted Wanadoo, a fixed-line business, the mobile network Orange, which was only developed ten or 15 years ago, as a grant (?). So what you see is the multiplicity of platforms, inter-platform competition, competition within platforms, trial platforms, competition across platforms, wider content choice coming from that, new services coming from that increasingly, increased opportunity for innovation, increased opportunity for development of economic wealth. All of these are posing twin challenges for us at Ofcom. One: a real challenge to make sure that our regulatory strategy allows the development and the flowering of the good economic potential, innovation and creativity and that at the same time we have a regulatory environment which seeks to protect the vulnerable and to make sure that those people who get left behind in this are properly catered for as well as making sure that strategy is geared to where we are going, not where we have come from. So that is the where I see the landscape at the moment, Chairman. Chairman: Rosemary McKenna? Q431 Rosemary McKenna: Good morning, gentlemen. Given what you have just said about regulation, you said in your original memorandum that piracy is a significant concern which is now being tackled by market mechanisms. Do you still believe that legislative and regulatory intervention is not necessary to protect the creators from unauthorised reproduction and the dissemination of creative content? Mr Graf: Fundamentally, opposition has not changed but, if I may, I will ask Peter to answer that question specifically for you. Mr Phillips: As I am sure the Committee will be aware, intellectual properly law is largely outside Ofcom's specific remit but it is central to the markets and the areas which we are responsible for, so it is something which we obviously take an interest in, not only through intellectual property protection of content but also in terms of the technology and IP which is required for many of the developments. There has been a transformation of the opportunities for media within our sectors as a result of changes like the development of the PC as a media platform. Also the ability to copy or edit material has changed out of all recognition over the last ten years. Taking music as an example, we saw from the mid-1990s the growth of illegal downloading and file-sharing. We believe that that was in large measure due to the absence of a legal market and so because the record companies were not providing the opportunity for legal downloading there was no opportunity, and yet there was significant consumer demand. What we have seen in recent years with the launch of things like Apple's iTunes is a massive growth of legal downloading because for consumers it is often much simpler and easier and requires much less knowledge of the technology to be able to do it. We believe that similarly in TV and film markets that the development of legal markets is one of the most important developments in dealing with all this. The second thing I would say, and Tim may want to add to this, is the importance to us of education and media literacy, for consumers to understand what the consequences of their actions are. As Philip said, our belief is that we are not keen on additional regulation being the next step. We think the development of markets and the education of consumers are the two most powerful ways of addressing the problem. Q432 Rosemary McKenna: What are you doing with the process of educating consumers about copyright? Mr Graf: I will let Tim answer that but if I may make two preliminary points on that. One is that we know from our work that something like over 80% of consumers are aware that material can be illegal or legal in terms of downloads can be legal or illegal, so people are aware at a very high level about this. On the other hand, over 50% of 16 to 24 year olds actually think that downloading should not be illegal. Therefore we are left with a situation, particularly amongst young people, where we are in danger, as one of my former colleagues said, of trying to regulate what teenagers do in their bedrooms with downloaded content so we recognise this in this context. Tim, do you want to pick up on this whole area? Mr Suter: Undoubtedly in future one of the principal ways in which we will deliver our objectives, and I think the objectives of the whole communications industry, is by ensuring that consumers and citizens have access to the information they need, not only to protect themselves from things that they do not particularly want to have but also to take full advantage of things they do want to have. One of the underlying issues there is understanding the nature and mechanics and business of the industries with which you are interacting in getting the content, and understanding why it is important to pay for content that you are going to use, and what the impact of that is on the sustainability of the industries you are talking to. So the first thing we have been doing in media literacy is getting a much better understanding of where issues arise, both in terms of protection and also in terms of knowledge and interaction, and then what we will be doing in future is putting in place publicity campaigns, working with industry and other partners, to get that information out there to those who are most likely to need it. We cannot, on our own, change people's opinions about what they do and do not want to do legally and illegally. What we can do is make sure that they understand both the borders of what is legal and the reasons for those legal instruments. Rosemary McKenna: Thank you very much. Q433 Mr Sanders: Given the figures you just gave, Philip, is it not really naive to think that it is the lack of legal downloads that leads to illegal downloads? Mr Graf: I am sorry, I am not quite sure I understand the thrust of your question. Q434 Mr Sanders: Given the attitudes of young people, it is not the lack of legal downloads that leads to illegal downloads, is it; that is part of their culture. Mr Graf: I think that certainly there is an issue about culture here, but I would again go back to what Peter has said, if you look at what has happened as a result of the provision of legal downloads, I think that young people are prepared to, if that provision is there, if the market is catering for it and catering for it at the right price --- Q435 Mr Sanders: Is it not more to do with the fact that there is choice and security and guarantee of supply with a legal download and that is what people are paying for now, that there are more legal downloads, whereas the culture would be "why do I have to pay for this"? The thing that turns people against an illegal site is more to do with fearing for the security of their computer system or not being able to get what they want; it is not this naive idea that it is to do with the lack of legal downloads? Mr Phillips: There are a couple of pieces of evidence which it may be worth just mentioning. One is that the best information that we have suggests that the growth of illegal downloading has tailed off and that there has been an absolute massive growth of legal downloading. I think there are also a couple of studies, one in Germany and the other one in Austria, which have highlighted falls of between 20% and 25% in the amount of illegal activity that has happened as a result of the growth of this market. I think the evidence would not suggest that it is naive. I think it would be naive to suggest that there will a complete end to illegal activity, but I think that the balance in the market is changing really dramatically and substantially. Mr Graf: The point you are making is a good one in the sense of the choice and security that the market will provide and the market by providing that will help, I think, discourage illegal downloads, I am sure of that. Q436 Chairman: I have considerable sympathy with your view that you should only intervene in the market where absolutely necessary but can I just ask you about two specifics. The first is that a lot of people are saying a crucial in the development of the protection of content will be digital rights management. Is Ofcom willing to allow DRM to be determined by the market or do you think there may be a role for Ofcom in setting a framework for the DRM or requiring common standards or some intervention? Mr Graf: My first reaction is that we are specifically excluded from copyright as part of our remit. By some people's standards, we do have a fairly wide remit already. I think where we certainly have a role to play is in competition law in relation to inter-operability and areas like that where we may be able to play a role in that sense, Chairman. Mr Phillips: Our fundamental belief is that the market is the most effective way for these kinds of new technology to develop. The circumstances in which we would be concerned would be if it was one player exerting inappropriate dominant behaviour within a market as a result of abuse of a strong market position. I think that is exactly the kind of circumstances that Philip is referring to. Q437 Chairman: Do you think that is not happening already with iTunes having 70% of the market? Could you not argue that they have a dominant position? Mr Phillips: I think it is a market which is in the early stages of its development. I think there are a number of other major players who are launching new services, we see Microsoft about to launch new services, and so I think it would be very early to say that there is an enduring dominant position for Apple within that market and one will be able to take a better judgment as a more settled pattern of competition develops over the coming period. Q438 Adam Price: In that context on the issue of competition are you concerned by the news that the BBC, who you predict could possibly be the only public service broadcaster in a few years' time, have signed a memorandum of understanding with Microsoft which has almost a monopoly position in many of the software platforms? Does that worry you? Mr Graf: My initial reaction is, number one, that we have made it very clear that we do believe in competition for quality, so from our perspective we believe that it is important that the BBC has competition going forward in the future. That is an important part. That is where we have a very clear role to play going forward in the future. I am not sure I am in a position to comment on the BBC's individual commercial negotiations with someone like Microsoft. Tim, do you have a view on that? Mr Suter: To the extent that that became a competition issue then it is an issue that will be dealt with by Ofcom in exactly the same way as it is dealt with for any other player in the market. Q439 Adam Price: With respect, it is not any co-operation agreement is it; it is an agreement between the biggest broadcaster in the UK and the dominant global software company that is obviously making a great play for its Internet-based future. Is that not disturbing at all in terms of competition? Mr Phillips: Going back to what the Chairman has just said about the position of other companies within this kind of area, we have seen the emergence of Apple in its iTune service. Microsoft, although it is a large organisation, is not de facto dominant in every market in which it is operating. Clearly it is a set of circumstances that we want to keep under review, as we would with all of our competition responsibilities. Q440 Chairman: Can I just try out one other potential intervention, the problem of illegal downloads and copyright which we have been touching on. One of the groups of people who play a key part in this is obviously the Internet service providers, yet to date they have said that they have no responsibility whatever, that they are merely a delivery mechanism and cannot be required to police this at all. Do you accept that or do you think maybe ISPs could and should be doing more to combat illegal downloads? Mr Graf: My understanding is that the ISPs have a very clear legal position as common carriers. You are suggesting that that position would be changed and they would have additional responsibilities? Q441 Chairman: I understand that the ISPs have accepted that they have an ability, for instance, to intervene to try and stop the dissemination of child pornography. Having accepted a principle, one could argue that pirating material is also damaging and they ought to take an active role. Mr Graf: We certainly would encourage a situation where if there are legal issues such as that or worries like that there is an opportunity for ISPs, for example, as they do perhaps with child pornography as you say, to get together and look at this on a self-regulatory basis. Q442 Paul Farrelly: I just wanted to touch very briefly on television programme rights. You set the industry a challenge to do a deal and a deal has been done, negotiated between the broadcasters and PACT. They of course as existing participants are very happy with the deal that was done. We have heard some evidence from the Satellite and Cable Broadcasters' Group, who represent some of the independent channels, that they are not terribly happy. How do you view the deal that has been done and are there any areas such as the operation of holdbacks where you are going to look to see how the situation develops and possibly make a case in the future for intervention? Mr Suter: You are right, we did set the industry, all parts of the industry, a challenge to come up with a set of agreements that were within the framework that I think was envisaged by the Communications Act, one where broadcasters had access to the rights they needed in what you might define as the primary market but were not allowed to foreclose future markets either from exploitation on behalf of the independent producer or from access to those rights by other players in the secondary market. We were very pleased that all the broadcasters rose to that challenge. There was a timetable and they have met it. They have come up with agreements that are consistent with that. It does mean that broadcasters have an exclusive (but brief) window early on in the life of the programme and it is then released into the secondary market for other players to get hold of. We will have to see how it works out. We will have to see the operation of the holdback, how long it is, how it works, does it genuinely deliver product into the market. I have no doubt that that will be something that we will keep under review. We are required anyway to see how the operation of the independent production quota is working every year. It is one of our statutory obligations to look at that and this is clearly intimately related to it. However, we also need to make sure, as indeed you are doing in the context of this review, that broadcasters, who are after all the creators of so much original and exciting content, are able to put that across in a variety of different ways, ways that are legitimate for them as public service broadcasters to do in reaching their audiences through the new ways that the audiences are finding content, without foreclosing the capacity of others to take advantage of that content and develop other parts of the secondary market. It is a balance. I think, where the broadcasters and the producers have got to thus far is a good place to be. Q443 Chairman: Can I ask you about the Digital Dividend Review. You are obviously in the process of considering allocation of spectrum between a variety of different possible applications. There is quite a lot of uncertainty until that is determined and at the moment we have no idea whether spectrum is going to be made available to HDTV, to mobile television, to wireless broadband. Are you content at the timetable of this because industry is pressing for it to be perhaps accelerated? Mr Graf: As you have indicated Chairman, it is a complex area with a lot of competing interests and therefore a lot of careful consideration has to be given to the matter. We are quite close to producing a consultation document on the use of the digital dividend. I think we hope to have it out by the end of the year which we hope will deal with and highlight the issues and help people look towards possible alternative solutions to some of the challenges that obviously these competing interests present. Q444 Chairman: Can I raise a specific with you. DVB-H, one of the potential mobile television technologies, will require spectrum to be made available. Under the present timetable it is suggested that DVB-H will not be available commercially in this country until the time of the 2012 London Olympics, whereas it will have been available at Beijing, since the Chinese are rather further ahead on this than we are. Would it not be very frustrating that the Chinese were able to broadcast their Olympics via DVB-H and four years later we were still unable to because we had not allocated the spectrum? Mr Phillips: I think, Chairman, it is worth saying that there are a number of different technologies which can allow mobile television. There are processes such as DMB which have been developed around the world. We have in our planning already a spectrum award process for a chunk of spectrum called L band which is well-suited to what DVB-H can achieve and that is planned to be released over the next couple of years. As far as the digital dividend spectrum is concerned, one of the things which we will need to make recommendations on and will be consulting on is the timetable on which that spectrum is released. It could either be released as a block at the end of the switchover process or released during the switchover process. Also there are elements of the spectrum being considered under the digital dividend process which could potentially be released early on a national basis. So we want to get spectrum released to the market rapidly but, as Philip has said, there are a number of competing applications which would like to use that spectrum and there are also social issues that we need to consider as well as simply market issues, which is why it is important, we feel, to do the analysis in a careful way. But our plan is to put the consultation out by the end of this calendar year. Q445 Chairman: So does that mean DVB-H applications should be brought to market in good time before 2012? Mr Phillips: We think there will be spectrum which is available for mobile television. One of the things which has characterised our approach to spectrum is that we are attempting for every aspect to be neutral between competing technologies, so it would not normally be our stance to favour one technology over another one. What we are committed to however is releasing spectrum rapidly and our spectrum award programme over the next two or three years will release something like 400 megahertz of spectrum, which is more than three times what was released in the 3G auction in 2000, so it is a very significant amount of new spectrum which is being made available. Q446 Mr Hall: On 27 July this year Ofcom announced their proposals for administered incentive pricing but they do not propose to charge until 2012 for digital radio multiplexes and 2013 for the television multiplexes. Does this mean that the £300 million in the BBC licence bid is unnecessary? Mr Phillips: I believe that Mark Thompson made a speech a few days ago where he said that he had revised his numbers and had excluded that amount from the BBC's proposed bid. Q447 Mr Hall: It is good news; it is certainly good news for the licence fee payers. Mr Phillips: Lower licence fee settlements for licence payers; I am sure there will be significant pleasure in that. Q448 Mr Hall: I know this is a broad angle shot but is there anything else in the BBC licence bid that you think is unnecessary? Mr Phillips: The licence fee bid is a matter between the Government and the BBC and we look forward to the swift conclusion of the licence fee discussions. Q449 Mr Hall: On the issue of administered incentive pricing there is some concern in the creative media however that the way it has been introduced, although it will not be charged until switchover, will adversely affect the creative content. Is there any foundation in that claim? Mr Phillips: I think it is worth giving a bit of context as to why it is we have gone down this route. I think the electro-magnetic spectrum is a finite resource of huge value to the UK, both socially and economically, and we have a duty to secure the optimum use of that spectrum. Analogue broadcasting has been a very hungry user of spectrum ever since it started. With the advent of digital broadcasting there are now opportunities for broadcasters to use far less to broadcast the same amount of services. However, broadcasting is now I think one of the only users of the spectrum which does not currently pay administered incentive pricing which is a mechanism that has been introduced now for all government uses of spectrum, the emergency services and the MoD and so on. The reason for putting it in place is because if someone is given something to use free they tend to use more of it than they would do if they were a paying for it and broadcasters, like other users of spectrum, have to make choices about the way in which they use it. We have seen over recent years the development of new compression technologies which enable spectrum to be used more effectively. Without administered incentive pricing there are fewer incentives on broadcasters to make sure they adopt the most efficient technologies in order to use that spectrum and to free up spectrum they no longer use for other users who can make effective use of it. So our belief is that it will create a very effective set of incentives. As far as the impact on content is concerned, there has been a lot of speculation - and you mentioned the BBC £300 million in the licence fee bid - about what kind of level that might be set at. What we have said in those documents you referred to in July was that the kind of level of charge for a channel like, say, ITV1 would be of the order of £3 million a year. That compares with the licence fee payment that ITV were making a couple of years ago of £80 million a year. So it is a relatively small amount compared to the total budget of channels and compared to the kind of regulatory burden that there has been on those channels in the past. Q450 Mr Hall: So you do not think this will adversely affect the ability to invest in creative content? Mr Phillips: Because of that and the fact that relative to the scale of total channel budgets, it is a small amount of money, no, we do not; we believe that it will create very significant economic incentives for broadcasters to behave more efficiently in the way they use spectrum than they would otherwise do. Q451 Mr Hall: Just in the interests of being even-handed can I talk to you about Channel 4. There is a financial review of Channel 4. It is a very well-regarded public service broadcaster, it is publicly owned but financed privately; has it got a future? Mr Phillips: Channel 4, like all of the other commercial broadcasters, faces a number of pressures. Clearly there is pressure on its audience share as a result of the progress towards digital switchover. There is also pressure because of increasing competition from a growing number of satellite and cable channels. Also there is competition from other kinds of ways of distributing what has previously been broadcast content, you have got video on demand - so it clearly has a number of challenges to face. At this point what we want to do is through the review gather the evidence and the analysis which will enable us to make an objective judgment about the extent to which those kind of challenges will get in the way of Channel 4 delivering on its public service remit in the future. What it would want to do is make sure that the debate is not simply about the high levels of emotion that we have seen in public exchanges over recent months, but that there is a shared body of evidence which we want to put out into the public domain to be the basis on which we can make recommendations. Q452 Mr Hall: Do you see a fundamental change in the public service broadcast remit of Channel 4 in the next five years? Mr Phillips: I think Channel 4's remit is a broad-ranging one. Q453 Mr Hall: Specifically about public service broadcasting. Mr Phillips: Its public service broadcasting remit is defined in a way that leaves it broad and able to react. Things like innovation and diversity and education are things which I would hope Channel 4 can continue to deliver on. The purpose of the review is to make sure we gather and interrogate the evidence to make sure there is an objective view rather than an off-the-cuff view. Mr Graf: The purpose of the review is not to question the remit but to question how the remit is being delivered. Q454 Mr Hall: Can it deliver its remit? Mr Graf: That is one of the things that we are clearly going to be looking at. There has been a lot of discussion, a lot of speculation, a lot of assertion about this. What we want to do is to take the evidence and look at the financial evidence and look at the delivery evidence and then be able to make a balanced judgement based on that evidence. Q455 Mr Hall: What is your initial reaction? Mr Graf: I do not think we have an initial reaction on this. We have got to look at the evidence and then have a reaction. Q456 Adam Price: In the light of the comments of the outgoing Chief Executive of ITV, can you say if you believe Channel 4 is meeting its public service remit now and could you give some specific examples of that, if you do? Mr Graf: I can only say that is precisely what we are seeking to determine, to look at that again. There have been a number of statements made by people who say it is not and a number of statements made by people who say it is meeting it. What we are seeking to do by looking at this in an evidence-based way is to evaluate that and our job, as Peter has said, is to gather the evidence on the financial side and the financial issues that are challenging them and to look at the evidence on the remit side to see how it is delivering its remit. It would be unfair and wrong of me before we had gathered that evidence and before we had undertaken that study to pass comment on it, however tempting it might be. Q457 Philip Davies: Following on from that, the challenges that you mentioned that Channel 4 were facing are presumably very similar to the challenges that ITV are going to be facing as well in terms of advertising revenue and things like that. What I am not quite sure about is where Ofcom stand on ITV's public service obligations because in the past you have released them from some of their obligations yet at a Royal Television Society speech that you make you bemoaned the fact that ITV had "a shareholder mindset ... that sees every public service obligation as a cost to hollowed out not an opportunity to be built on", so does Ofcom feel that ITV should be released from some of these public service obligations or do you think there should be more because they should be building on these things? Where does Ofcom stand? Mr Graf: If I may answer the generality in the context of what I was getting at at the RTS and perhaps Tim can answer some of the specifics in terms of the ways we are dealing with specific questions and specific issues. The point I was seeking to make at the RTS was that it seems to me not a very sensible way to adopt a shareholder mentality which is completely focused on cost-cutting but to adopt a mentality which says if you are looking to develop a business you want to look at the top line, and a sensible way for ITV to develop the top line is to develop content which is of interest to the audience and to advertisers. Simply looking at cost-cutting was not a very long-term view and was rather a short-term mentality and a particular sort of shareholder mentality. I simply wanted to encourage ITV and the incoming Chief Executive to look at this from the point of view of how they can develop value in that business by developing high-quality content using the PSB to develop higher quality content and therefore to develop audience and therefore value for shareholders in that context, rather than simply look at cost-cutting, which may be necessary but certainly is not sufficient in this context. In terms of the specifics, Tim, do you want to talk about some of the ways we are approaching some of the specifics? Mr Suter: I will very briefly touch on a couple. As you know, a couple of years ago when we published our review of public service broadcasting what we tried to do was to look at what would be a sustainable range of public service commitments going forward into digital switchover. We looked particularly at, for instance, the range of regional obligations that ITV had and how many of those would be sustainable, and we concluded on the basis of the audience research that we did and the analysis that we carried out that audiences were focused primarily on news and information about the areas they lived in and were less concerned about other kinds of non-news output which was attracting relatively smaller audiences, and it would be appropriate for ITV at switchover to rebalance therefore the nature of their public service commitment. Other kinds of commitments we do on a case-by-case basis when ITV, as it is invited to do every year to put forward a statement of programme policy, makes a request or puts forward a proposal that it would change the nature of its output to a significant degree, that is an assessment that we make in the context of all the other public service channels. Last year we looked at their obligations in relation to religious programmes. This year we have looked at their obligations in relation to children's programmes and come up with our answers on both of those. Q458 Philip Davies: You rejected their request to reduce children's programming. What sort of things in the future might allow you to agree to any reduction, the fact there is a more diverse media will that inevitably lead to you reducing their public service obligations, or perhaps the banning of advertising on TV of certain products at certain times, will that compel you to release them from some of their public service obligations? What do you see as being the challenges and what things will persuade you to release them from some of these in the future? Mr Suter: We clearly have to balance how we look at their public service obligations against what audiences are doing, what else is happening in the market, and how the financial as well as the audience climate is changing. Our obligation is to make sure that there is provision of public service content provided by public service broadcasters to a wide and diverse range of audiences. Our view on children's provision is not only that in advance of digital switchover are there significant numbers of children who are not actually receiving digital television who are reliant on the main public service channels for the totality of their television experience but also the contribution that is made by public service broadcasters specifically to creating original home grown content. That is a very important role. You raised the issue also of the interaction of that obligation with rules around the promotion of food, for instance, on television to children. Undoubtedly that is something that we will have to balance. No decisions have been made on that as yet but when they are I have no doubt that we will have to balance those interests in future. Q459 Philip Davies: Given the review you are making of Channel 4 at the moment is it sensible to undertake a review of Channel 4 without doing exactly the same in parallel for ITV and Five, which are clearly facing exactly the same pressures as Channel 4? Mr Suter: If I may just pick that up. We have a statutory obligation to review public service broadcasting at intervals of not greater than five years. The last was two years ago. There is quite a body of work that we are already doing in relation to public service broadcasting in the future, looking at the public service publisher, looking at the future of news provision in post digital switchover, the financial review of Channel 4, the annual process of looking at statements of programme policy for public service broadcasters. I think even in advance of the next review there is quite a lot of focus on how public service broadcasting is being delivered and will be delivered in the future. Q460 Paul Farrelly: Just to follow up a couple of those questions. Can I congratulate you on jumping off the fence and being totally impartial in what you said about ITV and public service broadcasting obligations in the speech that Philip has just referred to. Clearly ITV has been under siege for a long time, these old hyenas in the City who have been sniffing around ITV, and of course to satisfy its shareholders it is proposing to give back money and that clearly can come off its broadcasting budgets. Have you set any markers down and do you consider that you have any powers to be a player in any future takeover of ITV in terms of seeking conditions and guarantees on public service broadcasting from any acquirer? Mr Suter: If I may, I think it is important to separate out two different elements. One is ITV and the other is the Channel 3 licence. Our lock is on the Channel 3 licence; it is not on ITV or whoever acquires it, and nor would it be appropriate for us to do so. The lock is in the licence and the licence conditions and those licence conditions require a commitment to high levels of original production, a commitment to well-funded news that is regional, national and international, and a range of other public service broadcasting obligations. Now that is the cost, if you like, of holding a Channel 3 licence. It is there in the licence conditions. Anybody seeking to acquire a company that holds those licence conditions will need to look at those costs as well. Q461 Paul Farrelly: Would you ever seek to form a view and state a view publicly on the suitability of any acquirer in terms of your confidence that those conditions will be fulfilled or would you be totally neutral? Mr Graf: I do not think --- Mr Suter: If I may, the public interest test is a test that would need to be carried out and met and that is a test that is placed upon us in any merger situation but it would be, I think, inappropriate for us to form any views ahead of that. Mr Graf: As Tim says, we have a clear public interest test of the licence which is the mechanism, and beyond that I think it would be inappropriate for us to get involved in a discussion about individual potential buyers. Mr Phillips: Obviously we have a responsibility as a competition authority and therefore to the extent that any acquirer raised competition issues then that would obviously be something that we would need to take into account. Q462 Paul Farrelly: My second plaudit is can I congratulate you on turning down the request to reduce ITV's children's programming to, by all accounts, half of the time that is broadcast nightly on these stupid quiz shows that are now the fashion. Could I ask you on the record why that request was turned down? What was the rationale in turning down that request? Mr Graf: As Tim has said, there are two issues. One was the question that up until digital switchover there are a significant number of children whose only access to children's programmes in competition with the BBC would be ITV on its main channel and, secondly, ITV itself provides an opportunity for people who produce. It is a purchaser of children's programming and that is an important part of the production ecology. Those are both important issues for us and those are the two main reasons why we said no to this particular request. Q463 Paul Farrelly: Finally, Chairman, I was on holiday in the summer and it is possible on German satellite and cable to look at the full range of the variants of stupidity that can be produced with these quiz shows in these new media. In a sense, there is insufficient redefinition of interactivity: you call; you do not get through; you get charged. What are you doing in terms of reviewing the appropriateness of this sort of programming? Mr Graf: Let me say a number of things. First of all, obviously like any television programme where we get a complaint we investigate it, and we have a number of investigations underway in this area in terms of the content of these programmes. Secondly, you will be aware, I hope, that the Gambling Commission is undertaking an investigation into exactly this area in terms of what is a lottery and what is not. We certainly welcome that very much indeed. Any clarity in that area from our perspective will be extremely welcome. Thirdly, of course we work very closely with Icstis, our co-regulator in this area on the whole question of the telephone call and what happens during the call itself rather than the content of the programmes. Fourthly, we are currently contemplating, and I think will bring forward in the near future, an examination of whether these channels are advertising channels rather than simply editorial channels, whether they are simply (and they are not simply quiz shows, this incorporates other sorts of channels) ways of raising premium rate funded revenue, and in fact there is no editorial. That is an area where we will have to go through a formal process and we intend to bring that formal process forward in the very near future. Q464 Paul Farrelly: So we are seeing some serious joined-up regulation? Mr Graf: We work very close with Icstis. I think it is very important to say that. This is an area where there is a joined-up regulation. It is an area where we see a boundary line between ourselves and Icstis and a boundary line between advertising and editorial as being sorely tested. On the Icstis we are working very well together and on the advertising and editorial boundary line that is one we intend to explore in the near future to gain clarity. Q465 Adam Price: It is about two years since (?) floated PSP as opposed to PSB and most of us have been confused ever since! You have said that without the creation of a public service publisher some £300 million of public service content will disappear by switchover. Do you still stand by that? Mr Graf: I think in the £300 million it is important to distinguish between what will disappear and what will reappear, in a sense. There has been some confusion in people's minds that the £300 million is what a PSP might cost. That is not necessarily the case. Our estimate of the current value of PSP is around £300 million and that is what we see in danger of disappearing. The question is how is that content to be replaced, as it were, in the digital world and we have just been talking about the challenges which face public service broadcasters and our belief in the competition for quality. That is what the public service publisher is about, as to whether this is a potentially suitable mechanism with real potential for replacing the content. If for example - and this is a for example - it was placed around Internet and new media content, the cost of this could be really much, much less than £300 million. I would not want people to get fixed on the fact it is a £300 million cost to replace it. It is a £300 million cost we are replacing, as it were. Q466 Adam Price: Given the digital context which, as you outlined earlier is inherently fragmented and competitive, do you envisage PSB being delivered through a single, branded core institution or would you see it being delivered through commissioning across existing commercial platforms? Mr Graf: I would like to ask Peter to answer that because we have been exploring this and there is some quite interesting stuff we are doing to explore some of that stuff at present. Mr Phillips: Our proposal was that the public service publisher would be the commissioner but it would be doing that in order to create content that could be distributed across a wide range platforms rather than simply through linear television. The context for our ideas was not only the declining value of investment in public service broadcasting post switchover but also the behaviour of audiences is changing and we see, particularly for the younger audiences, a shift from linear television to the Internet and mobile services and so on and also the fact that it is now possible to distribute across a wide range of platforms. Taking those three things together, we felt that there was a good case for exploring in more detail a body of that kind. We think a commissioning kind of approach is one that is likely to be most helpful in promoting innovation and giving wider benefits to the creative industries. Q467 Alan Keen: On the on-going BBC market impact assessments I was highly amused when we last had the Director-General and Chairman in front of us because a few of my colleagues were integrating them and the BBC was bending over backwards to say how reasonable they were going to be. I then said tongue in cheek are you not being unfair the licence fee payers by not being hard-nosed and not driving forward on behalf of licence fee payers and producing what you want to produce. Can you tell us first of all in broad terms how you view currently the situation and that overall balance, before I get down to something more specific? Mr Graf: In terms of the balance between? Q468 Alan Keen: The balance between the licence fee payer deserving the BBC to produce what it thinks it should produce. Its website, first of all, has been brilliant all the way along and is now and we do not hold the BBC back too much. What are your current feelings about getting that balance right, just in general terms? Mr Graf: I have a little bit of history as regards the BBC website which I had perhaps better not go into here now that my role has changed. What I would say is I believe that we at Ofcom have a role to play in that overall balance in terms of the MIA and there is a real opportunity for us to provide something which is independent, which is transparent, which is rigorous, which will help in that balancing question that you are talking about. I think that is where our role fits in. Through the MIA structure and joint steering group structure we have got set up we have a way into providing both for the licence fee payer and for the public in general a much clearer view of the impact of these services and the opportunities that they may either provide or potentially cut off in that context. Q469 Alan Keen: On the current MIA is the BBC being transparent enough to allow people to really assess the situation properly? What about the current timetable, is it going as you would hope? Mr Graf: I will ask Tim to comment in detail because he actually sits on the joint steering group with the BBC. Let me just say that what we recognise fundamentally is that this is the start of something. There is a genuine learning process that has to go on at the BBC. They have got some learning to do, the stakeholders have got some learning to do, and we certainly have got some learning to do. This is a new concept and both in terms of the complexity and the time involved in this process I think we all recognise that and also in terms of the type of information that needs to provided, I think we are getting a better grip and a better understanding of that too. Tim, do you wish to comment? Mr Suter: Yes, thank you. We always knew that the timetable would be tight. I think there was a general recognition (and it is right) that the timetable should be tight because we are talking about developments in a fast-moving world, and the Chairman started by reflecting on how much it had changed in the few months that you have been working. So it is right that we should not let the grass grow under our feet. Equally, it is essential that all players in the market have enough information on which to respond to the questions which they are being asked. So I am very pleased that the deadline for consultation responses was extended and that the whole process of this MIA will now be completed in the new year rather than before Christmas as we had originally been working to. Is there enough information there? We will see when we get the responses back. I think there is now enough information for people to respond to the questions that they are being asked and we will see what those responses generate. Q470 Alan Keen: Already, as Philip said, you are learning lessons day-by-day I suppose. Are you able to tell us the main changes you would like to make that you did not realise were necessary before the process started? What has been the most obvious? Is it time? Mr Suter: I think the critical issues will be time, access to information, and sufficient information to be able to respond sensibly to the questions that are being asked. I suspect that in all of that we will feel our way to finding the right balance between giving people enough time and cracking on with this and doing the job. Mr Graf: I also think from informal conversations that stakeholders themselves and the players are having to learn and be geared up in a particular way they may not have been geared up before to deal with this information and to deal with these issues and to learn. I think they are learning some lessons about how they are going to manage responding to the information effectively. Q471 Chairman: Some of us regard it as slightly curious that the joint steering group overseeing the market impact assessment should include people from the BBC. Are you confident that the BBC are going to be happy to be as open and transparent as possible and make available information? Do you believe that you are going to be able to work with the BBC on that steering group? Mr Suter: The broad answer to your question is yes; so why do I think that? Because the market impact assessment is the responsibility of Ofcom. It is an Ofcom market impact assessment that is delivered. It is delivered to terms of reference that are agreed by the joint steering group. That joint steering group has an obligation to include within those terms of reference any market that any member of the joint steering group believes should be included both for current impacts and future possible impacts. So we have the opportunity through the joint steering group to ensure that we can look as broadly as we feel we need to to make sure that the Ofcom market impact assessment is delivered in accordance with all of the same principles with which we look at any other impact in the market. I feel confident that it is an Ofcom impact assessment done to terms of reference that are agreed by the joint steering group but which can be broad enough to make sure that we cover all of the ground that we need to. It is then for the Trust to make the final decision as to where it is appropriate to spend public money. That seems to me to be the right way round. I would feel nervous were it not an Ofcom market impact assessment, but it is. Q472 Alan Keen: You are not learning a lesson, are you, that it is over-regulation? Should we not just treat the BBC as a different type of ownership and let them battle away in the best way they can for licence fee payers? On regulation and competition, really the problem is with politicians who have to decide how much money the BBC can have and really within that decision why not let the BBC battle as hard as they can and win, if it is a case of competition? Mr Suter: If I may, it does seem to me that one of the things that has changed is the recognition that you do need greater accountability for how and where that money is going and greater transparency in how those decisions are being taken. I think that is the most important thing that has changed, that these are decisions that will be taken publicly and transparently on the basis of assessment of the public value which the BBC will do and of the market impact which we will do, and then the decision is to be taken publicly. That seems to me to be an advantage. As far as I see it, it does not prevent the BBC from arguing very strongly for a new service that it wants to do, but it will need to do so on the basis of all the evidence that is presented. Alan Keen: You have got a difficult job. Q473 Chairman: I think it is fair to say that there are differences of view on this particular subject. Mr Graf: Surely not, Chairman! Q474 Chairman: Can I ask you one very specific regulatory question quickly. The downloading of content onto different platforms. As I understand it, the downloading of premium content on to mobile devices Ofcom is arguing should be covered by the Icstis rules and requirements whereas the downloading of content (at presumably much the same price) through the Internet through for instance iTunes is not regulated. Does this not seem unbalanced to say the very least? Mr Graf: Chairman, can I come back to you on that because unless either of my colleagues can give you a specific answer I would prefer to come back to you on that particular one rather than speculate or give you an inaccurate answer. Q475 Chairman: Okay, it is an issue which is causing concerns and it may be that other bits of your organisation are addressing it. Mr Graf: I understand the question very well and I will get back to you. Q476 Adam Price: We have read in the last few weeks that the European Commission and some Member States are determined to extend regulation to new media platforms. What is your view of the likelihood of this being the outcome of the current deliberations and what steps are you taking to counter it if you disagree with it? Mr Graf: Tim has been deeply involved with this exercise both with the Commission and with the Council and working alongside the HMG on this. In overall terms it is fair to say that we are much more encouraged than we would have been six months ago, but I will let Tim take you through the specifics of where we believe we are at and what needs to happen. Mr Suter: We support the Government rather than negotiate directly, so it is for them to decide the position. I think all of us were alarmed that despite some of the more encouraging words that were being said, the words on the page this time last year looked as though they would capture a very wide range of the sorts of media that you have been looking at and bring them within a framework of essentially the statutory regulations that we apply to broadcasters, and although people might have said that was not what they intended it was nevertheless the likely consequence of where we were going. I think there is first of all a wider recognition now across our partners in Europe and the Commission that this is a real danger and not a mythical one and, secondly, there are practical ways in which this can be dealt with: firstly by limiting any extension of scope - and I have to say we are not convinced there are grounds for any extension of scope but if there were to be an extension of scope it needs to be under two conditions. Firstly that it is genuinely limited to material that looks, feels, sounds and is essentially substitutable for television and, secondly, that we can use self and co-regulatory mechanisms to ensure the outcomes of the Directive. It seems to me that without those two locks we are indeed in danger of extending the footprint of the statutory regulation far too far, with all of the adverse consequences that have been widely reported of attaching regulation to hundreds and millions of sites, of stifling innovation and growth, and essentially forcing stuff overseas that we do not want. Q477 Adam Price: Why are you more encouraged now than you would have been six months ago? Mr Suter: I think because the intellectual case has been well fought and well argued. I think around the Council table and some parts of the European Parliament that intellectual argument has been heard, but there is a long way to go. I think there is still every danger that we might still not end up with a solution that is workable. The trouble with unworkable solutions is that they are just that, and they will argue against where we want to be, which is an environment where consumers are genuinely protected. My greatest fear of extending the footprint of statutory regulation is that it provides the apparent security to consumers that there is somebody there whose job it is to protect you from this material. The fundamental message is that the primary responsibility in so many of these environments will lie with the consumer. It is our opportunity to educate them and to make sure they have the tools available to them to make sure that they know what is there. If we pretend to them that we can solve it we will be doing them and ourselves a disservice. Q478 Chairman: Can I thank you very much. Mr Graf: Thank you very much, Chairman. Memorandum submitted by Entertainment & Leisure Software Publishers Association Examination of Witnesses
Witnesses: Mr Ian Livingston OBE, Product Acquisition Director, Eidos Interactive UK; and Mr Paul Jackson, Director-General, Entertainment & Leisure Software Publishers Association, gave evidence. Q479 Chairman: We now turn to a specific sector of the creative industries being the electronic games industry, which is of growing importance to the UK. Can I welcome Ian Livingston of Eidos Interactive UK, who seems to have been responsible for many of the best-known games. I do not think you were actually responsible for Lara Croft? Mr Livingstone: I have been a father perhaps; I found her! Q480 Chairman: And also I think was the founder of the Games Workshop where my children seem to spend an inordinate amount of money. Mr Livingstone: That was in 1975, yes. Q481 Chairman: And also Paul Jackson, the Director General of the Entertainment & Leisure Software Publishers Association, which I think is the umbrella group for the industry? Mr Jackson: That is right, the trade body. Chairman: Adam Price? Q482 Adam Price: The UK games industry has a formidable reputation, both in terms of its market share and also the quality of its output but the Committee was in Korea and I think Mr Livingstone you have returned from China recently --- Mr Livingstone: That is right and I have been to Korea as well. Q483 Adam Price: Are you looking forward to the future? Are you confident that the UK games sector will be able to withstand the growing competition and particularly expansion from Korean firms and maybe Chinese into the European market? Mr Livingstone: My experience having visited Korea is that government in particular took a very early interest and viewed the industry very positively. In fact, there are three government agencies that support the industry and they offer support in trade shows, in education, and in helping change the perception of games, which has always been fundamentally negative, in this country particularly. They also work with the telephone companies in the mobile games sector to make sure that they understand their role, which is a pipeline rather than a content owner. In fact, you can pay micro payments on the mobile phone network in Korea using your social security number for very small amounts of money. There has been a very positive reaction from the government in Korea, much more so than there has been in this country. They have also invested heavily in broadband infrastructure for video on demand and everything on demand, including games. They have a desire for it to succeed and, of course, they are now exporting their content worldwide, primarily through on-line distribution. Massively multiplayer on-line games have been very successful in Korea and in the whole of Asia. The world is a small place when it is linked by broadband. There is a threat from Korea but we can withstand it because we are very good at creating content, but we have never had the support I think we should have had. Q484 Adam Price: To what extent is there some degree of offshoring happening in the UK industry? Are you concentrating on the core content development but seeking to outsource some of the elements of production? Is that the phenomenon? Mr Jackson: I think we are starting to see an amount of outsourcing and we have seen some of the major publishers trans-locate to other locations, primarily to Switzerland, but fundamentally I think your question is about competitiveness, can we remain competitive in this global environment, and I think there are two key things that could damage our ability to remain competitive going forward. The first is education. We need constant more and better graduates; we need better courses in our universities to ensure that we can continue to create the wonderful content we are creating. The second thing is we need better protection of the products that we are making, better protection of the IP so that it is not constantly stolen from us, which causes problems for us and does not allow us to reinvest. So I think those two things might damage our ability to be fully competitive going forward. Q485 Mr Hall: I am pleased to meet you, Mr Livingstone. My son is an avid Games Workshop enthusiast and has recently competed in an international in Nottingham and he is 26! It is a fantastic thing. There is some genuine concern within the industry that video games are affecting teenage development and personality development and there is a genuine concern about some of the nastier aspects of some of the more violent games. What is the potential for moving this market more educationally based and bringing it into schools? We could clearly use clearly the techniques that are there in games manufacture for educational use. Mr Livingstone: I think games have long been misunderstood. People do view the negatives with sensationalist headlines. They do not look at the positives because we are in the entertainment industry. The fact that games are creative, these people learn about community, they learn about puzzle solving, they learn about problem solving, choice and consequence, they learn by trial and error how to solve problems, and these things often ignored. Just playing a game, even a football game, you do learn about manual dexterity if nothing else. Not all games are violent games. In fact, a minority of games are violent. If you look at a game like Grand Theft Auto, which has received a lot of negative press, it is rather like judging the whole of the games industry on that game whereas you would not judge the whole of the film industry on the back of the Texas Chainsaw Massacre. It is a very broad church that would appeal to many people. The average age of a Playstation user for example is in his late 20s rather like your son playing Warhammer at aged 26. Games are moving through society. Whether people like it or not, they are important economically and culturally as much as music, films and television. There are many devices now that deal with music, movies and games on one device, mainly portable devices. Games are to my mind educational and they can be used as is. If you set out to make games purely educational then you are going to lose a lot of the appeal, but you can use the mechanics of what we do in education and if you play a game like The Sims or Championship Manager or Tetris or Dr Kawashima's Brain Training, you are in fact stimulating your brain, you are improving your learning processes. For me games have been a wonderfully interesting thing because it is an interactive experience rather than a passive experience. The fact that you are interacting, you are the central character in a game rather than sitting like a couch potato soaking up whatever TV or film to me is a much more compelling and entertaining media. Q486 Mr Hall: So you do not particularly take the view that you can design games that would aid the National Curriculum? Mr Livingstone: I think that would be fantastic. I am all for that. The trouble is as publishers of mainline content it is not particularly economic but for smaller concerns I am sure there should be a way. If there is an initiative by government to create an environment in which to say yes, we love games and we will have them as part of the curriculum that would be fantastic. My own children adore playing games and they get a lot of benefit positively out of it. Mr Jackson: Could I just say that while I was at Electronic Arts we put a project into schools in the Medway towns that worked incredibly well based around city planning, like Sim City, and that was applauded by teachers. We then found that we had no way of taking that to the rest of the educational market. We really did not know what to do with it next so the project foundered and when I look back it is one of the things I regret the most because I think it could have been something useful. It was the route to market that stopped us being able to take that any further. Q487 Mr Hall: I am sorry, the what? Mr Jackson: The route to market, being able to get it to the schools effectively and to get the schools to purchase it. That was a failure I think on our part. Q488 Chairman: The market in this country for consol games, particularly one player and two player, is pretty well established and indeed it is very sizeable. The Committee was in Korea and we visited Nexon where we saw demonstrations of massively multiplayer on-line gaming, which is enormous in Korea. We were told of one game which had an average of 200,000 people playing it at any one time. They are about to launch in this country. Do you believe that there is an equal market here or is there a mindset that may not translate to the UK? Mr Jackson: I think we do not yet know the answer to that question. There has been more than one but a highly successful massively multiplayer on-line game was launched about 18 months ago called World of Warcraft. I do not know the numbers but a significant proportion of people are playing that game in the games community. However, we have not seen, I do not think, the traditional, if you might call it that, games playing fall off particularly because of that. So we do not really know. The type of Western-style game playing that currently persists here does seem to be quite resilient at the moment to those types of games coming in even though there is quite a large market. Mr Livingstone: I think they will take off in future. Korea has had a history of on-line games brought on partly by piracy and the fact that there is no retail market. Secondly, the culture, they have about 25,000 of these PC baangs which are Internet cafes in Korea so they are used to playing games on-line. There are massively multiplayer on-line games which consist of thousands of people playing as a character. I think the game you are talking about is Car Rider, which is simply a game of racing cars around where they give that product away and they monetise it by customisation and personalisation of the driver and the car to give incremental benefits when you are playing to win. That is where they get all their revenues from and it has been a very successful business model. In fact it has moved in Korea from a subscription-based model to a free download of content, and as we become more Internet-savvy in this country and in Europe I think there will be a great increase in that way of playing games definitely. Chairman: That brings me neatly on to Alan Keen. Q489 Alan Keen: Yes, that was the question I was going to ask. Can I ask you about the next stage. I have no knowledge about this and when we went to Korea I could not believe that people did this sort of thing. What is the next stage, will it be where people will wear something and be affected physically by what they play? How far away is that? Mr Livingstone: I do not think they will actually get to wearing stuff. They might take a digital image of themselves and have their avatars, their "mini-me" in the game world and connect with their friends via the Internet and play collectively in a virtual world and because the technology expands at such an amazing rate and the horsepower machines and broadband available to content providers allows you to display yourself realistically in 3D. Remember, this is still a relatively new industry. 25 years ago it was single pixel moving across a black and white screen in Pong and now we have come to near TV quality imagery. There is a great chance of virtual worlds because people need to escape. When I was a child I could run out of the door, leave the door open, into the street and play football or go on to the playing fields and play cops and robbers. The fact that that is less available to children today, they need those adventures and they can get them interactively through playing games and they can create these virtual worlds. They should not be a threat; they should be embraced. People are scared of games, rather like my parents were scared of my Superman comics and Rolling Stones records, but if you have grown up with games you are not threatened by them. The powers that be running this country in 20 years' time will be so games-savvy there will be a new evil on the horizon rather than games. Q490 Alan Keen: What about the business models? We saw in Korea where people paid extra money, you called it incremental benefits, to get certain customisation on the car that they were driving in races. How is it moving in this country? What is going to happen next with business models? What will the industry be aiming at? Mr Livingstone: It is rather like model railways of yesteryear where you liked to buy bits and pieces for your hobby. You are not obliged to do it but if you want to do so, the avatars that you create, you want to make them look better, you want some sort of bragging rights. You are creating your own virtual world and you want to customise it and make it better than somebody else's virtual world, so there was a lot of monetisation of things like that. Plus people like finding things that other people have not got. In places in China there are people who play games for a full-time living to find virtual items which they will then sell for real money to other players for their virtual world. So there are many ways of monetising virtual objects. Perhaps that is an area where you need to look at the impact on the law of selling virtual objects around the world. Q491 Paul Farrelly: At the risk of turning this from an evidence session to a series of personal anecdotes, I have just succumbed to pester power and bought my seven year old son a subscription to an on-line game called Club Penguin. Fortunately, he is not going round crashing cars or shooting policemen. In this game you waddle around the world and make new friends and you buy yourself a better igloo or more little pets called puffles. In that sense it is really harmless which is why I have paid for it but, boy, is it addictive. Morning, noon and night, it causes more rows in the house with "Can I use your computer?" Is there a level of use that the industry does consider excessive or addictive and what can you do about it? Mr Livingstone: Games are addictive in the sense that anything you enjoy doing you want to repeat endlessly. It is a question of balance and parental control. People probably complain now that their children do not watch enough television whereas ten years ago they were watching far too much television. There are always things that people enjoy doing and it is a matter of getting a balance. Parents have to take the responsibility. I would probably play golf all day given the chance but you have got to have a balance in life, and most people do. If you look at the distribution curve of any activity there are people who do things for a normal amount of time and there are some people who do them extreme or not enough, and games are no different to the huge entertainment industry. So if children feel they are enjoying themselves you have to say, "That is enough, you have to do something else." Mr Jackson: I think the industry takes it very seriously. We have set up a programme Ask About Games. There is a website, there are leaflets that go out with the games, we have advertised it, and you can go on to that website and they give you advice about age ranges, what that means, the sensible use of games and the sensible use of computers. So I think we do take that seriously as an issue. Q492 Paul Farrelly: I appreciate the practical point. It is really in the lap of the parents. A related matter: I can enforce age restrictions by what I pay for, such as waddling around the world rather than crashing cars, so I can enforce that age restriction in what I choose my son or daughter to be involved in, but how in your experience does the industry approach enforcing age restrictions and how easy or difficult is it? Mr Jackson: It depends what you mean by enforcing age restrictions. It is very easy for us to ensure that every game that is sold in the UK is properly age-rated and it is something we take incredibly seriously. We have a European system called PEGI which rates all games business in Europe. That is backed up by both the VSC, the Video Standards Council, and the BBFC, so that if anything is of adult content it has to go through the BBFC as well. So we have that well covered. In terms of enforcement at shop level, most games are now sold in very professional environments and all retailers understand how the age ratings should be used. If we have a problem, it is potentially in the theft area where car boot sales can sell anything unrated and unregulated to anyone they want, but I think in terms of the formal, legal commercial industry we are in good shape. Q493 Paul Farrelly: I am thinking more on-line. Mr Jackson: On-line we are still in relatively early stages. PEGI are working on a European age-rating scheme and I am more than happy to give the Committee more information about that in the future. Q494 Chairman: Just while we are on that point, you will be aware of the concern that has been expressed in the House by some Members about the effect that particular games have had. I am thinking of Manhunter and Bully. To what extent does the industry believe or accept that games can have a damaging effect on the psychology of young people who are exposed to inappropriate content? Mr Jackson: Well, I am not the best person to talk about the evidential basis for those sorts of issues, but I would say that it is inappropriate for young people to see inappropriate material and they should not, and we do everything possible, given the entertainment nature of our industry (like other entertainment industries) to ensure that does not happen. What I would say is that we take incredibly seriously those issues and we think age rating is incredibly important and it is something we spend an enormous amount of time ensuring that it is done properly. It is straightforward; inappropriate material should not be seen and used by underage consumers. Mr Livingstone: PEGI and the BBFC are robust systems and we do take our publisher responsibilities very sincerely. We try our best to educate people, but from my awareness and knowledge there is absolutely no evidence whatsoever that playing a game can affect how you behave in real life. If I could play a football game and get better at football I would love to do that. Q495 Chairman: The other side of the coin, it has been suggested to me that the manufacturers are quite keen that some games should be certificated 18 because your prime market is the early twenties and they will regard that as something that makes the game more attractive rather than puts them off. Mr Jackson: I think that if they were thinking that that would be pretty cynical of them. In my career at EA I would insist that certain games were put forward to be age-rated to ensure that they were properly rated to ensure that there was no question mark over them. Now that normally got me rebuffed and I got told it just is not by the rating bodies, which was fine, but I think we were very serious in making sure that we did not put inappropriate material into the wrong hands, and that can sometimes lead to a bit of jitteriness. Mr Livingstone: It seems to me also it is always the games industry that is singled out with this sort of problem whereas it is fine for the film industry and for TV and for music to be sold with mature content. As long as we have got mature people buying mature content they should be able to act responsibly. Q496 Chairman: Paul Jackson, you have said the other big challenge to the industry, as well as maintaining creativity in this country, is protection of intellectual property, which clearly is a theme running throughout our inquiry affecting all the creative industries. Can you tell us how the games industry is tackling that and in particular what role you think digital rights management has to play? Mr Jackson: Over the last 15 years ELSPA has had an anti-piracy unit working very closely with trading standards organisations and the police to encourage the enforcement of anti-theft activities, what has historically been called piracy. Theft is a major issue for us in two ways really and that is why this is so important. Firstly, it obviously deprives us of revenues that we can reinvest in that creative content. Secondly because in a more subliminal way if what we do is not valued, if what we spend all our time and energy in creating is not protected, it knocks back the whole energy within the industry, and if that gets out of control it leads to the things that have happened in the Far East where they do not even bother to produce some of the creative things we have produced. So we have worked very closely to try and fix this issue of theft. I have to say probably the most important thing we can do is to come here and talk to you about what government can do to help us deal with this. I am reminded particularly of the issue of the Copyright, Design and Patents Act and section 107(a) which has not been implemented. I only recently joined the trade body, I was in commerce until a couple of months ago. If I understand things correctly, this law was implemented over a decade ago and this section, which would be so helpful to us in that it would empower and enforce the dealing of this issue much more vigorously, has not been implemented. I must admit as a relative outsider I do not understand how that can be. I am bemused by that, to be honest, and we would very much like to see that enacted. Mr Livingstone: And the other thing for me is I would like government to change the perception of theft, which is effectively what piracy is. If you go into a store and take something and steal it in a physical format and then try and sell it, people say that is wrong, but if you then have something like file sharing, because it is an ethereal product and does not have any physical properties about it, that is somehow seen as not stealing and yet it is the same cost to us having created that content from the intellectual property that we produce, and the copyright is needed to unpin our industry. We are moving more and more to digital distribution and it would be even more important to us to have our copyright protected. Also the Government loses huge tax revenues because we will not be getting the revenues that we should have been getting. It is a lot of lost revenue to the companies that produce these games and also a lot of lost revenue in VAT and in income tax, so a change in perception for me is one thing that would really help. Q497 Chairman: I think we would share that view. Can I also just ask you about the way in which the industry will develop which also has a bearing on copyright. The record industry has moved a long way towards distribution digitally over the net and some people have predicted that CDs will disappear. The film industry is now moving down that same path, a little behind but that may eventually lead to the disappearance of DVDs. Your industry at the moment is still, in the main, physical products sold through retail outlets in the high street. Do you see it also moving towards digital distribution? If that is the case, how are you going to protect copyright then? Mr Jackson: We are definitely seeing a move in that direction. We would be third in line because our products are generally larger than the music and film industries, or they are getting larger, and because the technologies have not settled down yet there is some disparity because the technology is constantly changing and it could lead to dysfunction there. I think that going forward, digital rights management will be very important to us being able to protect our products. Because again the technologies have not settled down, the issue of DRM has not settled down for us yet. We have a number of different platforms and how are they going to physically manage the digital rights is not settled yet, but I think we are heading in that direction. I do not think we have got anything particularly constructive we can say yet because there is still such a lot of flux in terms of hardware platforms. Chairman: If my colleagues do not have any other questions, could I thank you very much.
Memorandum submitted by Ingenious Media
Examination of Witness
Witness: Mr Patrick Bradley, Director, Ingenious Media, gave evidence.
Chairman: For our final session, could I welcome Patrick Bradley, Director of Ingenious Media which is one of the main investment companies in this sector and, therefore, represents another very important element. Could I ask Paul Farrelly to begin. Q498 Paul Farrelly: Thank you very much for coming along, and I hope we can tease out some of your trade secrets so that we can spot the next Google or YouTube before you do. In your submission you quite rightly draw attention to the change that is happening in the industry which has been driven by new technology. How are investors reacting to that? What do you look for as an investor? Where is your money flowing round? Mr Bradley: I think the key element that we always look for, being an investor who is primarily interested in content as opposed to technology, is the quality of the management team and the quality of the creative excellence of that team. Where we are sitting now is we see opportunities for investment being created by the impact of changes in technology, changes in regulation and changing consumer habits of consumption and media. From our point of view as an investor, and I think this goes for most other investors in this sector, what we see is a breakdown of the existing business models, the existing forms of funding into those businesses and an opportunity for high-growth investment. That is really the potential we are looking for and that is where money is flowing at the moment. We see investment moving towards mobile opportunities, IPTV platforms, content aggregators, new ways of digital marketing or digital advertising and also to digital film and digital music. Old media's growth has now flattened and will decline and from an investment point of view, these changes in different drivers in the media market are creating a perceived opportunity for high growth. Q499 Paul Farrelly: When you say content is king, and it is content rather than technology per se, how do you define content from a range of original production to content through to aggregation? Mr Bradley: I think primarily what we are looking at is production in the sense of the production of content, the actual programme, record or game. That is where we see value being created because, ultimately, consumers choose to go to a particular delivery system because it will provide them with the content that they are seeking. I think a very good example of this was last year when I was driving my daughter to school and there was a huge hoarding up on the side of the road which said, "If you want 24, get Sky". Some of you may be familiar with that particular programme. What that told me was here was compelling, quality content that was being used by a delivery platform to drive new subscriptions. Our view is always that quality content, demanded content, is the thing that will drive consumer revenues and will drive uptake of particular platforms to deliver them. Q500 Paul Farrelly: There has been a lot of comment surrounding the Google takeover of YouTube on copyright in particular. There was no point suing YouTube because it had no money but now it is Google, which has bundles of cash, it is fair game. How important, if at all, is that issue of copyright when you look at an investment opportunity? Mr Bradley: I think copyright is extremely important. To make a general point, investors are in the media space because they think they can make high returns from investing in that particular area. They are not necessarily wedded to coming into the media; if they can find higher returns in other sectors of industry, they will go there. What they do not want to do is to see themselves investing in a company, a production of some programming or a game that cannot be protected in the sense that they cannot see a way or a period in which they can recoup their investment. From our point of view, key to us is to see that our investment in the content is monetised, ie that we can get a return from it. I think the experience of user-generated content though does tell us that there are other ways of monetising content in the sense that YouTube, MySpace and the other community sites are beginning to create some form of advertising revenue. Now that is around non‑copyrighted material, effectively non‑professional material, so there is another business model that is forming but, ultimately, our view is that without copyright it would be very difficult to create a sustainable and consistent flow of investment into the sector. Q501 Paul Farrelly: I was a City editor of a national newspaper during the dotcom bubble and I was shaking my head until, generally, it all fell apart. Clearly, there has been a lot of head-shaking at the sort of price that Google has paid for the likes of YouTube - okay, it is in shares, it is not hard cash and someone has paid for the site by the rise in valuation - but in terms of valuation, how would you rationalise a valuation such as that on a place in a company that is not really making any money and that is just over 18 months in business? Mr Bradley: Personally, I could not rationalise those sorts of valuations and in terms of what is happening to valuations in the market at the moment, they are certainly very high for those hot spots in the sector. Investors are paying high, almost auction prices to enter that market in the expectation that there will still be very significant value growth in that sector. It is difficult to justify those valuations from where I sit, but Google obviously has strategic reasons why it has done that, which may not appeal to a private equity investor or a venture capital investor. I think what is important to realise is the difference between where we were in the dotcom boom and where we are now. We did not make any investments at that time because we could not see where the value was. The difference is now there is true economic relevance to the models. You can see that they are beginning to be monetised, you can see the consumers are migrating to those new platforms and are beginning to spend money on those platforms and you can also see that sponsorship and advertising revenue is beginning to be generated through those new means of delivery. I think that is the difference. You can see transparency over new revenue beginning to come through. Q502 Adam Price: I would just like to challenge the content is king view of the world because it seems to me - and you are more of an expert than I am obviously - that context is king in the new phase, in a web 2.0, because you have got the rise of these social networking sites, where it is not so much about content, it is about interactivity. Even with user-generated content there is a lot of rubbish on YouTube, is there not? You do not go on to YouTube or Google Video because you want to see a specific thing necessarily, you go on there because you are bored, you want to do a bit of virtual daydreaming. Are we not entering into a new phase where it is interactivity and context that are more important rather than the programme or the bit of music that you want? Mr Bradley: I think YouTube, user-generated content, is complementary to professional content. I do not think it is going to replace it. You see some of the videos that come out of YouTube that have become popular around the world. I do not know if you know the example of the two Chinese boys mimicking which went around the world? Why did that go around the world? It entertained people. I do not think that changes our view that content is king, it is a certain type of content. If you look at what is sitting behind the main page of YouTube, you probably have got hundreds of thousands of videos that no-one ever watches because they are not entertaining, they are not compelling and no-one wants them. I agree with you that we have created a new way of entertainment through YouTube and MySpace, but I would disagree with a view that would lead to the conclusion that in some way would replace professional content or make it decline in importance. For example, if Robbie Williams made his next album exclusively available on YouTube or exclusively available in digital form, I think you would see that consumers who like Robbie Williams would go to that destination to get it. It would not be the platform that would be driving that, it would be the content. Q503 Chairman: There is obviously a migration to social networking and these alternative forms which is having quite a severe impact on traditional broadcasters. Whilst I accept the advertising market, for instance, can grow a bit, at the end of the day advertising shares are more widely used by YouTube and MySpace and become interesting to advertisers. What is that going to do to a traditional broadcaster like ITV? Would you invest in ITV now? Mr Bradley: I would not like to comment on any specific investment opportunities at the moment. I think what is true to say is that, absolutely, you see a migration of advertising away from traditional media into digital media. I think your question is: is that a zero-sum gain? I think to some extent it is, that there is an advertising cake which is currently being shared between these two areas. In many ways, I think that brands which are advertising may well be able to reduce the amount they are spending because the performance and the return of their advertising in a digital scenario is sometimes much better than general advertising because through digital means they can collect data as to who is watching a particular piece of content, what are their interests, what is their age group and what is their location. In many ways, they can make smaller amounts of advertising unit spend more effective because they are targeting in a more rifle shot manner towards the audience which wants to hear about their product. Q504 Chairman: If you are right that the advertising cake is pretty much defined, then that does suggest that the outlook for traditional broadcasters is not great, would you accept that? Mr Bradley: It depends what you consider to be a traditional broadcaster. ITV, for example, has its main channel, ITV 1, but it also has a successful digital strategy through ITV 2 and ITV 3. I was listening to Les Moonves, who runs CBS in America, speaking the other day and his view of the world was effectively that networks, wherever they are broadcasting, rely on compelling, premium content to drive advertising. Advertisers have to know the audiences are there and I think if you look at the ITV situation, that is what is impacting at the moment in terms of how the ratings are then flowing through to the advertising span. Q505 Chairman: If we are dealing with content which may only be 30 seconds or two minutes, which is very short, do you think there are still going to be ways in which that can be advertised in advance? Mr Bradley: Yes. We are seeing in terms of the opportunities coming to us in terms of younger companies, mobile content, IPTV, and even user-generated content sites, what they are looking to do is to integrate advertising and sponsorship into the content itself so that when you download a video on your phone or on the internet, you will have a pre‑roll of advertising that is already inserted and put round that video block. We are already seeing that model beginning to form. Q506 Alan Keen: It is all moving so fast, is it not? Your job would be a horror if you were advising people where to invest. I cannot see where the money is coming from or where it is going to come back to. I am speaking as someone who knows absolutely nothing about it. I am trying to quickly understand and move on from what has been said. Is it not the people providing the platforms that really control the advertising and control the income on it, and yet the rest of it seems so ephemeral, it seems to be hard to get a grip on it. Try and help me out a little bit, you can see I am struggling. Mr Bradley: I do not think it necessarily will be the platforms that control the advertising. That is a commercial negotiation between the content supplier and the platform as to who retains the advertising revenue and who retains the right to sell that advertising. We see a tension at the moment between the mobile operators, the aggregators and the content producers who are delivering content on to those platforms. From the point of view of the mobile content producers, advertising revenue is obviously very important in terms of creating a new source of funding to produce more content, because the current business model for content on mobile is that in most cases the mobile operator will take 50% of the revenue off the top and then pay the balance through to the content producer who will then pay his royalties and pay his production costs. It is quite a low margin business for content producers at the moment, so they are looking around for other revenue streams to support their content production budget. Q507 Alan Keen: Obviously, we are representing Parliament here. Is there anything that we should be doing to help the industry? It is a very important industry and fascinates a lot of people. What should we be doing? Mr Bradley: I think what is key to understand is that Britain currently has a creative reputation in the worldwide market; that the creative industries are globalising very, very rapidly but that we cannot be complacent about what we have done to-date. I have just come back from MIPCOM, which is the international television festival down in Cannes and all of the hoardings around town have been up by the Government of Singapore, which is putting quite significant capital behind attracting creative talent into Singapore to support their creative face. I brought this along just to show you an example, which is: "I made it in Singapore". When you look in this flyer in terms of the production that they have funded so far what is also significant is that the language used in all of this production is English. English, in many ways, has become almost like the US dollar; it is the international currency of content creation. I think there is a real risk that if we do not get this right in terms of being able to get the right framework for our creative industries, the threat from the Far East and from India will grow and we will not be able to create a sustainable creative economy here; we will not be able to have consistent flows of investment here because investment will flow to those other countries. What is important to recognise, also, is that in those new emerging creative economies this is not about people just doing animation - actually doing the job in animation - this is about real creativity, the origination of ideas, which is the equal to anything that we are doing here. So that is really what I would flag up to you, which is that it is important now that we get this right, that we realise the market is globalising and that we cannot be complacent about what we have done so far in this area. Q508 Alan Keen: Whenever we watch a programme or listen to a discussion about education - and the last time I heard it was on the film History Boys - we hear about media studies. Media studies, which used to be the source of all that, was further education teaching people how to make TV programmes and we end up with 50,000 people trained to do it and 1,000 people having the opportunity to do it. There is no way you can specifically train people for this sort of industry, is there? Mr Bradley: I think what is important here is business education. I think that is where we have been failing. The Americans call it "show business", and they call it "show business" for a reason, which is you have to have the show and you have to have the creativity, but on the other side you have to have business; you have to understand how to monetise that product, how to capture those revenues and how to do the right deals. I think we are seeing in this country more courses - MBA courses, for example - to encourage people who are going into media to actually get the right sort of business knowledge to go forward on that basis. What we also need to do is we need to encourage entrepreneurs who, in my view, are born not made by having the right environment for them to go out and try to succeed. I think education is key for them as well in terms of trying to give them an idea about how businesses do work and the business structure that they are actually operating in because when young teams come through the door to see us one of our key questions is what have they done in the past and how much do they understand about the business sector that they are operating in. When you look at their business plans sometimes, some of them are really smart; they have done their research and they are really displaying to you the fact that they understand how all the numbers go together, but many come through who are naïve and have not actually been given the right advice and do not quite know where to go and find it. So I think there is an important role to play in terms of business education and business networking for those teams so they understand where all the pieces of the value chain actually come together: who are venture capitalists, who are major corporations, who are in film production, how they are funded and how do they make money. Q509 Alan Keen: We are a scrutiny Committee but is Government itself asking the right questions and are they listening, if you are telling them? Mr Bradley: I think they are asking the right questions. I do not know whether they are listening. I very much hope they are. I very much hope that they are listening to the fact that we have a real opportunity in this country but we do not have very long. Digital media is breaking down intra barriers (?). It means that someone sitting in America or India or wherever can access the consumer view, and the consumer can find that as well. Things are changing very rapidly, so we need to make sure that we have got the right environment so that investment stays here and is consistent and creates a content industry here. Alan Keen: Thank you very much. Q510 Chairman: Just following on and going back to Singapore, the challenge of maintaining the industry in this country and creating industries here, is it a question of skills, is it a question of tax incentives? Is it the legal framework for protection? What are the key things which will make investors continue to invest here and not in Singapore? Mr Bradley: Skills are, obviously, key but I think we have got those aplenty. Tax is important. It is one of those drivers in terms of encouraging investment into the sector. I think VCT has been quite successful in that. However, I think it is also risk capital. I think that is key. It is the balance between private and public risk capital. How much risk does the private sector take in early stage companies and how much does the public sector take? I think there is a discussion to be had around that, which is that very early stage companies - those that do not necessarily have a great track record and who cannot necessarily attract investment from the larger investment funds - find it very difficult to find the capital. When I look at what the Singaporeans are doing, what they are saying is: "We will give you risk capital, we will invest on an equity basis in your production as long as you come to Singapore to make that film or that television programme". So they are using the availability of risk capital - public money, if you like - to attract creative producers into their territory. Q511 Chairman: You are suggesting the Government should be investing in small firms, so we are back to the National Enterprise Board? Mr Bradley: I am not suggesting that; what I am saying is that I think there is a balance to be achieved between private and public in terms of attracting private money into the early stage sector but having an element of public money that is present, if you like, almost on a match basis, that can share some of that risk. I think for private investors, looking at very early stage media companies, it is a very difficult one for them to get their head round to invest in that because the risk is just too high. Q512 Chairman: You would accept that the track record of the Government investing in private companies has not been terribly successful. Mr Bradley: I would agree with that. I think that it has to be done within an industry framework, so the industries themselves need to partner with government and the investment companies to find the best way of structuring that sharing of risk, at that early stage. Q513 Philip Davies: What proportion of your investments are in the UK and do you see that proportion increasing or decreasing over the next few years? Mr Bradley: Our first fund which we established in 2001 was wholly invested in the UK. We invested in "19" which was the company behind Pop Idol and the investor behind Lionhead, which was a gains developer based in Guildford which was bought by Microsoft at the beginning of this year. However, 100% of our investments in our first fund was aimed at the UK. In terms of our new fund we are primarily focused on the UK but we are looking outside the UK as well for about, I would say, 25% at this time, just because with the new digital media environment and the fact that media talent is mobile opportunities for investment are also occurring outside Britain. Q514 Philip Davies: Which do you see as giving the most growth potential, your investment within the UK or your investment outside the UK? Mr Bradley: I think that depends on the individual opportunities and the individual sub-sectors. I think there are high growth opportunities in the UK at the moment, and we have certainly got significant deal flow coming through the door in terms of opportunities for us to look at. So, at the moment, we have not made any investments outside the UK. We may have sufficient opportunities within this country to invest the entire fund here. Q515 Paul Farrelly: Something that has always helped investors like yourselves to mitigate against risk is the availability of tax breaks as an alternative to direct government investment. In this country in media terms tax breaks are focused on encouraging film production but, of course, the danger of the tax break is that it opens the door to widespread abuse, and we have seen changes in the regime for film production. Is the approach to media too narrow? Clearly, if we give you free money from the taxpayer you are going to say: "Yes, we should have it", but is there more that the Government can do, and are there any particular examples you might want to cite where you feel that this would encourage the industry but would not open doors to widespread abuse? Things that other countries are doing that we are not, in this sense. Mr Bradley: I think that is difficult for me to comment on. I can certainly come back to you on that. I think our view is that certainly the VCT structure in terms of the raising of the relief, and the margin of the rate is good because it encourages more money not just into media but into general end-stage businesses, and that was a very useful break in terms of that sharing of risk reward between, if you like, the Government and the private sector; that private investors coming in there had their risk mitigated. So tax is clearly important but I think equally as important is the regulatory system. I think that what has happened in television production in terms of the rights flowing back to TV production has been very important in attracting new investment into that sector, because those companies are moving from being producers who are wholly reliant on a production fee from the major broadcasters to rights-owners with the ability to monetise their content both in the UK and internationally. So I think tax is important but, also, the effect of regulation is equally important. Q516 Chairman: Can I just ask you to say a word about copyright. Presumably, as an investor, in order to obtain a return from your investment in creative industries copyright is fairly important to you. I think that came out in the evidence you presented. There is this debate about the extent to which we should be strengthening copyright protection against those who argue that, somehow, this prevents artistic enterprise and creation and actually we should have less copyright protection. Can you give us an idea of your point of view and the way you see it? Mr Bradley: My point of view is firmly with copyright protection. I think that if you want to maintain consistent flows of investment into either media companies or single projects that is going to be very difficult without copyright protection because investors will then ask: "How do we get a return on our money if this property is not capable of defence within the market?" So we are unequivocally a supporter of copyright protection. Q517 Chairman: And, therefore, digital rights management as well? Mr Bradley: Digital rights management, obviously, is important. Obviously, there have been some issues raised recently in terms of the attraction between i-tunes and i-pod and DVDs or CDs provided with copyright technology but then integrates itself into people's computers or whatever. DRM is important for us because it is another mechanism by which we can ensure that revenues are secured, and copyright can be monetised. However, what I would say, in terms of those examples I just gave is this is a cycle that has continued for many decades. I remember when I was working in the news industry the battle between minidisk and CD. In those circumstances, if minidisk had won out then that would have driven the uptake of Sony minidisk players in the same way as i-tunes right now is driving the uptake of i-pod. At the end of the day I think it is a competition issue what happens when a player becomes dominant in the market. At the moment you can see that there are other means that consumers can access content - either through other MP3 players, CD, music DVDs - so they do not have to go to i-tunes; there are other means of obtaining that content. Chairman: I do not think we have any more questions. Thank you very much. |