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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 650-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE CULTURE, MEDIA AND SPORT COMMITTEE
Tuesday 15 November 2005 MS C THOMSON, MR T DAVIE and MR G PLUMB MR T JENKS, MR D CHURCHILL, MR L HARRISON and MR NORTHOVER-SMITH Evidence heard in Public Questions 93 - 191
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Culture, Media and Sport Committee on Tuesday 15 November 2005 Members present Mr John Whittingdale, in the Chair Paul Farrelly Mr Mike Hall Alan Keen Rosemary McKenna Adam Price Mr Adrian Sanders Helen Southworth Mr Tim Yeo ________________ Memorandum submitted by BBC
Examination of Witnesses
Witnesses: Ms Caroline Thomson, Director of Strategy, Mr Tim Davie, Director of Marketing, Communications and Audiences, and Mr Graham Plumb, Head of Technology, BBC Distribution, BBC, examined.
Q93 Chairman: Good morning. This is the second session of our inquiry into analogue switch-off. Since it appears as part of the Charter renewal settlement the BBC is going to be given prime responsibility for delivering analogue switch-off and for paying a lot of the associated costs, it is entirely right that we should have the BBC with us this morning. Can I welcome Caroline Thomson, the Director of Strategy, Tim Davie, the Director of Marketing, Communications and Audiences, and Graham Plumb, Head of Technology. Perhaps I could invite you to start off by saying, from the point of view of the BBC, why you think analogue switch-off is an important project for the BBC and the country. Ms Thomson: Thank you very much for the opportunity to come and talk to the Committee about this. The BBC absolutely supports the Government's policy of analogue switch-off and indeed the rolling programme with the dates attached to it. We do that for three reasons. We think it is good for consumers. We think digital provides consumers with a far greater range of channels. It provides many of them with better picture quality. It also, perhaps crucially from our point of view, provides them with a much deeper audience experience through the use of interactivity and so on. We think it is good for Britain because it enables Britain to have a broadcasting system fit for the 21st Century along with the rest of Europe, and our timetable runs roughly in parallel with that of the rest of Europe. It will enable more efficient use of spectrum, the freeing up of spectrum that is currently used to do the dual illumination and it will enable the use of digital technology for important areas like education. Although it has nothing to do with us as a broadcaster, government services and so on will benefit from it. Finally, it is good for the BBC. We have not just an obligation but a desire to be universally available. We currently have the difficulty that we broadcast digital services which on DTT are only available to 80% of our licence fee payers and that is not a comfortable position for us to be in. We have a strong interest in making the BBC services universally available. Q94 Chairman: Thank you. You concentrated on the benefits of digital television which I do not think anybody would argue with. Anybody who has seen it can see all the excellent choice and all the services available. Nevertheless, there are people who feel, for their own reasons, that they do not really want it as they are perfectly happy with the choice they have got at the moment. Why do you think they should be compelled to acquire digital? Ms Thomson: We do not think that you can achieve the full benefits of digital without having analogue switch-off. Perhaps I should take a moment to explain that. We believe that the way to achieve the full benefits of digital for the entire population, whatever their age and income group, is to make it available on a range of platforms which gives people a choice about what they should do. They should not be forced into one system as against another as far as is possible. DTT offers not just that range of platforms and an alternative to satellite and cable but offers it in a cheap form which enables second and third sets particularly to be converted much more easily. It is a familiar technology, so for the digital shy it is a relatively easy thing to do, it is a plug and play technology. It also offers a system of broadcasting they can trust. There is no possibility of a lot of aggressive up-selling to try and get them to take out subscriptions, for example, and it is familiar. We cannot get DTT universally available without doing analogue switch-off. We are currently at the maximum we can broadcast on DTT without affecting the existing analogue signal and so in order to achieve that we have to do analogue switch-off. Q95 Rosemary McKenna: Some of the industry analysts we had before us last week would say "Well, you would say that, wouldn't you?" since the BBC is one of the principal beneficiaries. Apart from the social arguments, how robust is the economic case for analogue switch-off? Ms Thomson: People do say "You would say that, wouldn't you?" about analogue switch-off. However, I would put it to you that it is not necessarily in the BBC's interest to have analogue switch-off. We currently have a lot of people who enjoy the analogue services. As you may recall from the presentation we did to the Committee earlier about the licence fee settlement, moving to digital terrestrial transmission for the whole country is actually going to cost us more money, but we do believe it is the right thing to do because the benefits outweigh the costs. Tim might like to say a bit more about the audience. Mr Davie: Our aim is to prioritise universality of reach over just share because in analogue homes we would have more share from a TV perspective. From our point of view, we are clearly prioritising universality of reach for all our services and that is absolutely central to what the BBC is about and how the licence fee mechanic works. I think that is an important driving factor behind our support. Q96 Rosemary McKenna: What is the BBC's role exactly in driving analogue switch-off and in what ways can you influence Digital UK? Ms Thomson: As you probably know, the Government in its Green Paper confirmed that the BBC should have a sixth public purpose, which was driving Digital Britain effectively, and said we should have a lead role in delivering digital switchover and we have been happy to embrace that. We have a number of roles in relation to that. First of all, we have the absolutely core roles of the BBC that we have been driving for the last five years of the BBC in providing, we hope, a good digital content through our digital television services. The new children's services have driven digital take-up dramatically. It is quite interesting that 80% of households with children aged under nine have digital television and that will be related to that. We have been using our services to drive digital take-up, but we will also have a role in the next Charter period of investing in our own transmitter network to get DTT available and in helping Digital UK do its marketing campaign and driving that. Q97 Rosemary McKenna: So you would not agree with those who said last week it would have been much easier if you had given everyone a satellite dish? Ms Thomson: No. I saw that. Having seen it, I asked my colleagues to go away and do the maths on that because I thought it would be quite interesting to find out. If we were to keep our transmitter network in its current state and give everyone else a satellite dish to cover the television sets they have so they could go fully digital, at the current publicly available offer for satellite it would cost us two to three times as much as we are budgeting for the full DTT switchover, so it is not more economic. Q98 Adam Price: I want to continue with this theme of the BBC's interest in driving analogue switch-off. It is true that you have a higher audience share with Freeview compared to the higher capacity platforms of cable and satellite, is it not? Mr Davie: Yes. Q99 Adam Price: You do have some self-interest in terms of audience share in driving Freeview forward as the means of people accessing digital television rather than the other platforms. Is that not the case? Ms Thomson: Our interest is in making sure licence fee payers are served fully and well and in making sure our services are available to them. In order to do that we will make our services available on all the platforms and we have done that with Sky, obviously and we have plans to launch Freesat, we hope, next year. It is not the case that we are only focusing on one because we think somehow this helps our competitive position, but we do feel it is very important that the maximum choice of platforms is available to our licence fee payers and that is why we are pursuing DTT. Mr Davie: It is quite straightforward in some ways because, based on our audience surveys, we know that people want choice and they want affordable options. Our overwhelming principle is universality of reach. We are supportive of keeping those options in the market so that people have the maximum number of affordable options and obviously Freeview is one of those. Q100 Chairman: In your evidence you say that you look forward to playing a central role in achieving switchover and then you say, "although clearly this will need to be reflected in any funding settlement". Do you see a very strong link between the BBC's role in switchover and the bid for 2.3% above RPI? Ms Thomson: Yes, we do. As the Committee will recall, our bid in the funding settlement is in two parts. It is 1.8% for the BBC's core costs, although they play a very important role in helping to deliver Digital Britain because in the end none of it is any good if you do not have decent programmes there and you do not have properly available services that people can find. In addition to that we have the 0.5% which is the costs that the Government is specifically asking us to meet in relation to funding the industry costs, so the costs of Digital UK and so on. As you may recall, the vexed issue of targeted help has not yet been factored into the bid. Q101 Mr Yeo: Just coming back to the free-to-view satellite platform that you envisage, can you say how you think the development of that will affect digital terrestrial? There may be some degree of competition between the two. Will you enlarge on that? Mr Davie: As the Committee is probably aware, the proposed launch of a Freesat service will continue to offer choice. When we talked to licence fee payers we found that people have different needs. Some people want more channels with more cost and there is absolutely no doubt that Sky's Freesat service at £150 gives you a benchmark cost for what a licence fee payer would have to pay to get those satellite services. In that context we are very much for offering choice in the satellite environment, but we are also seeing an overwhelming response in consumers for other platforms that offer affordable access. 92,000 people are picking up Freeview boxes every week. We are seeing huge demands for Freeview. That is a 69% increase year-on-year. That is just one platform. I think it will be another choice but by no means will it be the only desired choice. Q102 Mr Yeo: In the memorandum you say that the BSkyB offer is not as attractive to many consumers. I was not quite sure why that was the case. Mr Davie: There are different attractions of satellite services and of a digital terrestrial service in terms of cost, simplicity and choice. Across those dimensions both services offer viable options for viewers. What you will see in our latest trials that are driving digital access is a clear explanation of the two options, ie a choice between DTT or a one-off payment satellite service. We are very supportive of keeping choice in the market. What we mean by that is that across a number of variables they do offer different things. Ms Thomson: There are two significant issues about the Sky offer which most consumer research shows. One is that people have an anxiety that it will be followed by some aggressive up-selling, ie people trying to persuade them that they do not want that. The second is that in order to receive the still encrypted services they need a viewing card and long term Sky has not got a commitment to carry on providing that for free, so there are issues about it. Q103 Mr Yeo: On the question of subscription, again I think in the memorandum there are statements about how it is undesirable for people to be pressed into paying subscriptions and I can see that point. To say it is undesirable to have people pressed into paying them is not quite the same as saying it should be impossible to do so. In your Freesat is it envisaged that they could incorporate a subscription element at some time in the future? Ms Thomson: The range of boxes available either for Freeview or Freesat will be determined by the market. Certainly in Freeview terms it is true that the cheap end of the boxes do not allow upgrades to subscription, they do not have the interface, but there are boxes available which do and we have not taken a view on which sort of box should be available. Mr Davie: It is too early to answer that question in that we are still at the planning stage. Many Freeview boxes are upgradeable. We have shown ourselves as supportive of that type of hardware. Ms Thomson: Our job is to make the service available. Q104 Mr Yeo: Given your very commendable commitment to encouraging choice, whatever one's view of the long-term future of the licence fee, which may well remain, it would be a disappointing limitation on the BBC's own capacity for growth if it ruled out the possibility of having subscription services on top of the licence fee funded range of services. Ms Thomson: We do not see long term the public service broadcasting being funded by subscription as a result of digital switchover. I believe - and I recognise other people do not always share this view - that the genius of British broadcasting is the BBC competes for audience but not for revenue. If you put the BBC public service channels in competition for subscription revenue with other subscription services you will get a service but it will not be the same BBC as you have got now. That is not to say that our commercial arm, BBC Worldwide, just as it runs UKTV as a joint venture, may want to run subscription services on a commercial basis, but they would not be as a substitute for the public service channels. Q105 Mr Yeo: If you take sport, however, where the BBC has some expertise, I think sports enthusiasts have benefited enormously from the competition on cricket with Channel 4. Given that there are virtually no protected events now, the concept of public service broadcasting in relation to sport seems to me to have been almost eliminated. The BBC could in fact have a sports subscription channel which could compete with other sports channels and build on its very considerable expertise in this area. Ms Thomson: I am not sure most licence fee payers would recognise the characterisation that sport has disappeared from public service broadcasting. In a year when we are looking at the World Cup being entirely available on free-to-air broadcasting I think I would challenge that. It is a very important part of our public service mix and it has proved to be more vibrant than it was five or ten years ago. Q106 Mr Yeo: It is a fraction of what it used to be. If you look at the list of protected events 15 years ago and those that are now guaranteed to be available on BBC, it is only a fraction of what it was, the role has been almost eliminated so that it does not exist at all, it is much smaller than it was. If the reason for saying we do not really want to go down the subscription route is because of the public service function, what you are really saying is we have got a very, very small role in sport in that case, which seems to me a pity given what we have seen done on sport in the past. Ms Thomson: If the BBC was to think about a sport subscription channel, that would be a commercial venture which would have to be run on the normal commercial models as UKTV is run, as a joint venture, it would not be a public service venture and it would have to be launched on the basis of a normal business plan that showed whether or not it could make money. We do not have plans for that at the moment. Q107 Mr Sanders: I want to go back to the free-to-view satellite platform and the fact that potentially up to 97% of the population could receive digital services through this free-to-view satellite platform. We already know up to half of the population can receive digital through some form of cable service. Why is there a need to switch off the analogue signal in order to get wider coverage of digital services? Ms Thomson: The need to switch off the analogue signal relates to the need to get to the Government's target of 98.5% of the country covered by DTT. Q108 Mr Sanders: You can achieve 97% of that through a satellite platform. Ms Thomson: The Government has asked us to achieve 98.5% through the digital terrestrial platform and we support that. Q109 Mr Sanders: Have they specified terrestrial or have they given you the task of digital coverage? Ms Thomson: They have not specified terrestrial to us but they have to ITV in their licences. We feel the Government, if we were not going to do it, would specify it to us. Q110 Mr Sanders: If they are specifying to ITV, why is the BBC interested? Why is the BBC just going for its satellite platform in order to reach that percentage of coverage? Ms Thomson: Because we believe that it is important to offer viewers a choice of platforms for how they consume us and we believe that in order to make digital switchover work for the whole population DTT has to be available to the whole population. Q111 Mr Sanders: Switching off an analogue signal is not offering somebody choice, it is taking choice away from a group of people who are quite happy to continue receiving their signal. Choice is about wanting a digital provider and range of services and the choice is there for somebody who wants that either through cable or satellite but it is not there through terrestrial broadcasting. Ms Thomson: In order to get DTT to the coverage that is required we have to switch off the analogue signal. Q112 Mr Sanders: You have just said that is required for ITV and not for the BBC. The BBC could get a higher percentage by simply focusing on its satellite platform. Ms Thomson: We could get to the whole of the country if we required people to have satellite instead of making DTT available to them all. As I said at the beginning, we believe it is important, in order to make digital work for the whole country, that DTT is available to the whole country because it is a familiar technology, it is cheap and it is the way of converting second and third sets easily. For people who have television sets with set-top aerials, it the only way of them getting a digital signal and we cannot achieve that without switching off the analogue signal. Q113 Mr Sanders: That is not strictly true. You can, if you receive satellite broadcast, have a feed to all the other television monitors in your household with the right technology. In terms of set-top boxes under a digital terrestrial broadcaster, you would still need extra cabling and a more sophisticated box at the point of entry than the ones that are being marketed at the moment. Why are you not focusing on a free-to-view satellite platform as a means of getting more people able to access digital than taking choice away from those people who do not want to lose an analogue signal because they do not want a box, they do not want the hassle and those who want to choose can choose? Mr Davie: I would take us back to our research with the licence fee payer. We are driven very much by this idea of universal access. The question then is how you deliver that. We are absolutely about a choice of options. We have announced we are going to look in partnership at the Freesat option. Of course we are interested in giving that choice to everybody. However, in the research we have seen it is clear that people are interested in lower cost options and you cannot ignore the value chain on both the options to see what pricing that delivers and at the moment DTT offers a much more affordable option. Also, in the context of plug and play, it is a simplified option for many people. If you look at the adoption of DTT across a number of parameters and I would pick something like age groups, older consumers are much more likely to be embracing digital technology through DTT. In that context it is absolutely appropriate that the BBC be supportive of maximum access options and DTT should form part of that. Q114 Paul Farrelly: The initial answer to my colleague's question was entirely circular. Last week we saw great doubt cast on the Government's net present value economic case for switching the signal off, not least because all the figures were not available and the suspicion is that the case will be made to support the case that has already been decided. This is a question about how sensible the target is. If you take 98.5% against 97%, with all the costs of conversion, how sensible is it to go the DTT route just for an extra 1.5%? Ms Thomson: The truth is that the vast majority of the cost is in the first 200 transmitters. Three-quarters of the cost of converting to DTT is in the first 200 transmitters. It is only a quarter of the costs, rather paradoxically and I know it is counter-intuitive, is in the last 1,000 transmitters. Having done the first big tranche, it seems to us to make sense to do the rest. Mr Plumb: There is very much a communications message here. We do find that there are people saying to us frequently, "Why can't I get digital terrestrial television on my current transmitter?" We get about 140,000 enquiries a month from people outside existing DTT coverage and within that 20% or so of people that cannot currently get the services on DTT. We get regular enquiries about when the service will go digital, so there is a big pent up demand. In rolling out digital most of the costs come in the first 200 transmitters. To go that extra leap and get the extra coverage and to get you up to 98.5% is only about a quarter of the cost. Q115 Paul Farrelly: I am also thinking of the forced cost of conversion from the consumer's point of view because the analogue signal is being switched off. We heard some pretty damming evidence last week. Ms Thomson: We have not done figures for consumers, the figures for consumers have been done by Ofcom and on average it is £132 per consumer for the cost, which I think is rather different from the figures you were given last week. Essentially the figures for consumers and indeed the reference you were making at the beginning of the economic benefit to the whole of the UK are work that is done by Ofcom and the Government and not by us. Q116 Chairman: Can I ask you about your plans for high definition? I understand the BBC's ambition is that in due course all BBC services will be broadcast in high definition. If that is to be achieved it will obviously require a lot more of the spectrum. If analogue switch-off occurs, will you need to take all of the spectrum which is released in order to be able to offer HDTV on all your services? Ms Thomson: You are absolutely right, we thought high definition was going to be an important technical development and we have already seen quite a lot of consumer interest in it and Sky are doing a pilot on it next year. All the terrestrial broadcasters will be hoping that once you get to digital switchover some of the released spectrum could be made available to us all to offer high definition services on DTT. Even if that happened, it would still leave some spectrum available for other purposes, like mobile TV and so on. Q117 Chairman: If all the existing channels which are on Freeview eventually went to HD, is that possible within the spectrum which is released? Mr Plumb: No. There is no current capacity for all the extra services on Freeview to go to HDTV. Ms Thomson: The figures I gave you were for the five main terrestrial channels. If they all went, which would be our priority, HD on DTT, then that would still leave released spectrum and that is what we would be asking for. Q118 Chairman: You said you want all BBC channels, including Three and Four, to be eventually broadcast on HDTV. Ms Thomson: Three and Four would certainly be broadcast initially on satellite in HD and cable because that would be technically possible. Graham knows much more about this than I do. The rate with which compression technology develops means that over time you would hope to have all the channels available on DTT, but at the moment, with the current state of compression, we think the realistic option is for the five terrestrial channels to be available. So our two, BBC One and Two, ITV, Channel 4 and Five to be available in HD on DTT is a realistic option and still leaves some of the spectrum free. Q119 Chairman: In the long term you could say that at best the released spectrum may allow all the channels to be broadcast in HD which then would leave nothing for alternative purposes, or, at worst, it may not be sufficient spectrum even after switch-off to allow a full HDTV of all future channels. Ms Thomson: I do not think I would say either at best or at worst on that. We have to hope and indeed expect that the developments in technology, which have allowed us already to do amazing things on DTT we never thought were possible, will enable it to become a much more flexible medium than it currently is. Q120 Alan Keen: You have already touched on the fact that the people last week even used the word shocked at one point and you have said you disagree with the figures they gave. We were a little bit disturbed by that. What is the BBC's main part in the whole process? Somebody should be driving the thing along. Could you tell us more about where the BBC's responsibility is going to work? Ms Thomson: Perhaps I could say initially, in response to the comments last week, that digital switchover or analogue switch-off is a very complex project. It is easy to get a bit daunted by it, but it is very important to remember that without any compulsion two-thirds of the population has willingly embraced digital technology and it has given them enormous pleasure and has brought great benefits. Equally, the figures that we see in our audience research show that the number of people who feel they will never want to get digital and completely resist it is coming down all the time and is currently only at 13% having come down dramatically, so we would expect that to decline further. It is easy in a sense to let the technological and organisational problems of it daunt you and to lose sight of the prize that is there at the end. The BBC sees its role as being to lead Digital Britain, as the Government has asked us to do in the Green Paper, but that has two components to it. First of all, there is the role in building up the technology and providing the services which is a key part of the licence fee bid and, secondly, there is support for the industry ventures and Digital UK and the marketing of a public information campaign. Mr Davie: The figure was 35% three years ago for digital resistance. The question is about not planning to get digital in the next 12 months, so it is not an absolute refusal to get digital and that is now down to 13% and we are seeing it fall rapidly. I think you have to look at the timescale in the context of those trend lines. Q121 Alan Keen: Last week I complimented the people who were representing consumers and I said that they should be driving the thing forward and they had not even got an effective executive part. Do you think they should have more of a part? Do you think the consumers are being ignored to a certain extent? Ms Thomson: I think the consumer groups and the other voluntary groups will be completely essential to delivering it. I know you are going to be seeing Digital UK who will be the primary people in building those relationships. There is no doubt that this will not happen happily if it is simply people like me sitting around pontificating about the policy issues. It is an on-the-ground project and Digital UK is already working with people in Border at establishing links with voluntary groups, Help the Aged and other groups who will be absolutely key to delivering it. One of the things we will be doing as the BBC is using our local network of local radio stations, our buses that we are hoping to get as part of our licence fee settlement, as part of the way we ourselves help with that process on the ground, but it will only work if it is on-the-ground working with consumer groups and in partnership with voluntary organisations. Q122 Alan Keen: DSG said that they have to stick to the digital tick criteria whereas the BBC has been released from that and it is to do with training. I cannot imagine the BBC not carrying out what it should do in training. DSG accused someone of letting that slip. Mr Davie: I think there has been a fair debate about this digital tick logo. We are working with Digital UK and the guidelines now in place are very robust, they work across the industry, so I think that issue is solved. I think you will see good application of the digital tick logo. From a communication point of view, we have a voice within Digital UK which is the industry consortium which is leading this. The last thing, as a marketeer who has worked in the commercial sector, we want to do is a big 100,000 foot marketing plan which does not have a connection with the fact that this is a region by region, postcode by postcode job and we need to spend at least as much time as possible in that area with voluntary organisations, with our local and extensive network, getting very close to the ground in terms of the communication with retailers, with voluntary groups, etcetera. We are very active in that area and that is the job in the next few years as we go into region by region switchover. Q123 Alan Keen: The BBC has always been accused that the licence fee is a regressive tax and yet last week I heard some people asking why the BBC should have to pay to help those in the end who cannot afford to switch. Would you agree with me that it is a good way of redressing the regressive tax accusation you have carried in the past and it is only right now that you do help those that have paid a bigger proportion of their income over the years than people who are well off? Ms Thomson: We are very keen to ensure that everyone gets digital, including most vulnerable groups and that is one of the reasons why we have agreed in principle with the Government's request to take part in the targeted help scheme funded from the licence fee. We are content to go along with that on the basis of four criteria: that the licence fee is not being used as a substitute for social security payments, which clearly would be totally inappropriate, that any scheme meets all the state aid requirements and is platform neutral, that it does not in the end, partly because of the flat rate nature of the licence fee, put an unreasonable burden on the licence fee payers that would put the long-term future of the licence fee at risk, and that it is not at the expense of our core services. With those provisos, we have been content to agree with the Government's request that in principle we should do this. Q124 Chairman: The whole rationale for this great project is in the main to extend DTT and to give people the choice of DTT right across the country but at the same time you are required to be platform neutral. Is it not rather difficult to say, "We're doing all of this in order to give you the chance to acquire Freeview, but you don't have to have to pay for Freeview, there are other alternative providers and we are completely neutral between them"? Ms Thomson: I think you are right to point out the apparent contradiction, but it is an apparent contradiction based on history and the only way you get the DTT systems is by the broadcasters building it out, whereas the other platforms are obviously run by other operators. The only way we can offer that as an option is for us to do it. However, that does not mean, as you know, that we are not making ourselves absolutely available on other platforms, including launching Freesat, and we are delighted that people are accessing us that way. Obviously different platforms have a different range of suitability for different audiences. Q125 Chairman: But platform neutrality is not just making yourselves available, it is also in promotions not suggesting that any one platform is superior to another platform. Mr Davie: In the latest trails that we are running equal prominence is given to Freeview and to Freesat. I think we are absolutely driven by universality of access. We focus nearly all of our money in terms of content and the output and the programmes we deliver and we want maximum reach and that is what is driving us. In that context we have clearly been interested in those platforms, offering a one-off payment that people can get into and get access to those services. We believe that is important and we have seen satellite in that position and we will be absolutely up there showing people all the options. If you dial our numbers or go to our website I think you will see that and that is what we are about. Q126 Paul Farrelly: Going back to last week's evidence, if there is no testing, you just switch the signal off, there are going to be lots of bugs to iron out afterwards, but after that 45% of people may not be able to receive any TV signal whatsoever in Scotland. I have not looked at who is covered by the Border area of Grampian, but I know that 2008 is also the date that the press has pencilled in for Labour's switchover and 45% of people may not be able to look at the news of that. What are your best and worst case estimates of people who might not be able to get any signal at all after switchover? Ms Thomson: The broad picture is we expect DTT coverage to reach 98.5% of the population, which is the same percentage of the population approximately as analogue. It is not the case that the reach to individual homes exactly replicates each other. So there will be some people who cannot currently get analogue who will be able to get digital and there will be some who can currently get analogue who will not be able to get digital, but they will be at the margins and they will have the other means of transmission available to them, either satellite or broadband. If the 45% figure represented the process of switch-off, I think Graham could talk about how we expect that to work. If it ends up with 45% not being able to get a signal it will not have worked successfully. Q127 Chairman: It came from a Ferryside trial. It was a proportion of households that required some upgrading of their aerial or cable and therefore simply putting a digital box on top of their set was not going to be sufficient for them to get access. Mr Plumb: The Ferryside situation was a very special case. There was a lot of focus on the community. There were a number of steps that we had to go through with the Ferryside community in terms of there was a simulcast period and then there was a switchover period. Those figures sound alarmist, but in terms of actual numbers of aerials needing replacing, I believe the number was significantly smaller than that number, but I am afraid I would have to come back to you on that. Q128 Paul Farrelly: Do you have a best and worst case estimate for the poor guinea pigs of the Border region as to who might not be able to receive the signals? Mr Plumb: The best estimates around at the moment are from the Ofcom study, which say that at the time of switchover up to 10% of homes might need to have some kind of work done on their aerial installation or the down leads or whatever and that is mainly because a lot of the aerials around there now are twenty years old plus, full of water and rusting away and falling down and so forth. Inevitably there might have to be up to that level of work done. Q129 Paul Farrelly: Have you made any estimates of how long it would take to iron out all these bugs? Ms Thomson: Clearly one of Digital UK's roles is to make sure that those aerial upgrades are done before the switchover or that people are at least aware that they need to get their aerial checked before switchover so that we do not end up with 10% not receiving the signal. Mr Davie: Central to the marketing effort is a three-year plan. We have to see this in the context of 63% are digital, but that figure is increasing all the time. You have got that base of people who are already there and that number will continue to grow anyway by the natural momentum in terms of us showing the digital channels and the options available. The marketing plan is very significant over the three year time-frame. We have been supporting Digital UK in terms of building a three-year plan that will allow for very simple and pretty heavyweight communication of the options, how the process takes place, how you can get help and that stretches across the obvious media like TV, but it is also by doing door drops. Every household will get two door drops. We want to minimise the number of people who are unclear. We have signed up to a pretty heavyweight marketing campaign to deliver that. Ms Thomson: It is the case that Digital UK has figures which show that in Border already, just on the basis of the current announcement, it is 75% of the population know digital switchover is taking place and know when it is happening. Q130 Paul Farrelly: I think some of my colleagues are itching to tackle aerial categories later so I will switch over to some of the costs now. Caroline, you said that voluntarily up to around two-thirds of people in some fashion are already taking up digital services and technologies, so the question then would be why compel people through switching off a signal? One argument you could put is that with the voluntary take-up the cost of running two systems is not in the public interest. I wonder whether you could tell us how much you will save if you are allowed to switch off the analogue signal. Ms Thomson: We will not save money by switching off the analogue signal. It will cost us more to cover the country with DTT than it does on the current system. It is part of our licence fee bid, as you may recall, that we have included £70 million per annum to cover the digital costs of building up the transmitter network and running it. Q131 Paul Farrelly: How much will you save by not having to run two systems at once? Ms Thomson: I think the answer is the same, actually. The £70 million figure we have asked for takes account of the money we will save - it is a net figure - by not having to run the analogue system. It is the case that were the Government to decide not to switch-off, to require us to carry on broadcasting beyond 2012 in analogue, we would then have to invest in upgrading the analogue network which is at the end of its life; we are using sticking plasters to keep it going. It can keep going to 2012, but were we to have to carry on until 2020/2030, we would have to invest more in analogue, but we have not done those figures yet. Q132 Paul Farrelly: Can you remind the Committee of how much digital switchover is going to cost the BBC in total? Ms Thomson: Our transmission costs as opposed to any programming or any other costs to drive take-up are around £500 million over a seven-year period. Q133 Paul Farrelly: I want to finish with two curiosity questions. Although we are talking about the BBC's role in leading digital switchover, the switch-off is going to occur by ITV region. I just wondered whether that process is adding any extra complexities for the BBC where your regions and transmissions do not entirely overlap with ITV. Mr Plumb: It is worth saying that inevitably that gives us some issues with on-air marketing, promotion and so forth of the process. When you look across the whole piece at the whole of the switch over, although it is described by ITV region, the process that happens is you will switch off mains transmitter by mains transmitter going around the country. When you take the main transmitter off all the relapses follow. If you do a roll-out plan based on ITV regions in the current roll-out order and then you try and look at it based on BBC regions, the windows over which it happens and the communications happen are different but it is much the same, so it does not create any insurmountable problems for us. Q134 Paul Farrelly: Presumably with digital switchover you are going to have to switch over your fleet of detector vans. How much is that going to cost you? Ms Thomson: I do not know about that. We could write to you with those details. Q135 Mr Sanders: Will it be expensive to simulcast, ie broadcast both in high definition and in the existing definition, or should we start worrying now about a standard definition switch-off date? Ms Thomson: There are absolutely no plans for a standard definition switch-off date. Although we do believe high definition will take off as a new technology, it is important to say that we have not even had a trial of it yet. Sky is doing the trial next summer. We are hoping to participate in that trial and indeed do a very limited trial on DTT from the Crystal Palace transmitter. We will have a much better sense then of how it will work. Our plans at the moment are limited in terms of the licence fee bid and so on to making sure that by 2010 we can produce all our output in high definition so that it could be available for transmission if Sky were running a full network on it and if we got the spectrum on DTT, but it is also key to being able to export our programmes, particularly to the United States and to the Far East, because those are the standards they expect now. Q136 Mr Sanders: In one of your earlier answers you hinted that there was more spectrum for high definition through satellite rather than through terrestrial. Is that not another argument for a satellite platform rather than a terrestrial platform in that you can broadcast more high definition channels through satellite than you can with present technology through terrestrial? Mr Plumb: I think it is an often held belief that there are limitless supplies of spectrum available for satellite broadcasting when in fact that is not the case. We recently acquired access to a seventh transponder to add to the existing six that we have to make way for Freesat and HDTV. There are no new transponders available in the satellite footprint from Astra. At the moment if someone wants to introduce high definition television services they can either look for any spare capacity that anyone has sitting around - and there is not a lot of that - or take down existing standard definition services. It is true that there are lots and lots and lots of services up on satellite and lots of them are time shifted so there is some flexibility in that, but it is not like there is a limitless capacity up on satellite. Q137 Mr Sanders: I did not say limitless, there is just more capacity through satellite. Mr Plumb: Undoubtedly there are a lot more channels up there at the moment, there is a lot more capacity there, but you have to reallocate capacity in the same way as you will need to do in the future for Freeview. Q138 Mr Sanders: Should the BBC pay what might be termed as a spectrum tax, particularly in view of its plans to move into high definition broadcasts and the frequency space they would occupy? Ms Thomson: As the Committee may know, we are not enthusiastic about paying a spectrum tax. We have argued, both at the time of the Wireless and Telegraphy Act when it was first muted and then during the inquiry by Martin Cave into it, that it was wrong to be charging the BBC, which is required to have universal access and therefore has no options really about how it uses spectrum, to pay a tax like this and it would effectively end up as a transfer from the licence fee payer to the Exchequer. Q139 Mr Hall: If the BBC should not pay a spectrum tax, should everybody else that is going to go into high definition broadcasting, which is going to occupy more spectrum space in space, pay a spectrum tax? Ms Thomson: I think there are particular issues for public service broadcasters about a spectrum tax because we are required to do certain things in terms of making our services universally available which do not apply with the same force to commercial players. There may be arguments for commercial players paying for the spectrum they use, but my arguments would apply absolutely to Channel 4, ITV and Five. Q140 Mr Hall: I assume there is a finite amount of space that can be used for this high definition broadcasting and if the demand becomes such, would that be a way of regulating that demand? Ms Thomson: There are arguments for a spectrum tax which are to do with encouraging the most efficient use of spectrum, yes. Q141 Mr Yeo: Why are those not going to apply to the BBC? Ms Thomson: Because we are required to make our services universally available. Q142 Mr Yeo: But you should still use the spectrum that you are using in the most efficient way and that would be an incentive to do so. Ms Thomson: Yes, we are required to use our spectrum in the most efficient way, but effectively what you are doing is penalising the licence fee payer by requiring the BBC to pay this. There ought to be other mechanisms for ensuring that we use spectrum efficiently. Q143 Chairman: Perhaps you can answer a slight puzzle for me. The Treasury told me in a written answer that there were no proposals for a spectrum tax, but in your licence fee bid you have put a very precise figure on exactly how much you think you are going to have to pay. How did you arrive at that figure? Ms Thomson: I was slightly surprised by the answer you got which I noted. The ability to charge for spectrum was in the Wireless and Telegraphy Act 1998 and there was then the Cave Report which looked at the principles behind charging for it and it said it should be charged on an opportunity cost basis. Subsequent to that a group called Indepen did some analysis for Ofcom about what might be a realistic cost and they came up with a figure which was £58/59 million per multiplex for digital. We have the figure in the licence fee bid as £60 million on the basis that that was rounding it up. Ofcom has issued a consultation on spectrum without quarrelling with either the principle of charging or that figure so it seemed realistic for us to plan on it. Obviously if we do not have to pay it that is money that will simply come off the bid. Q144 Paul Farrelly: With respect to the use of spectrum, the satellite broadcasters get a freer ride. Looking ahead, do you think that in order to encourage efficiency we should be making Europe-wide moves and have Europe-wide agreements on taxing satellite broadcasters so there is a level playing field? Should any spectrum tax be introduced in countries like ours? Mr Plumb: I think it is a bit of a challenge because satellite transmissions go across country borders, they are not always constrained. Certainly there are moves from Ofcom to look at what will be possible to encourage the efficient use of spectrum. There is a term called "recognise spectrum access" which is looking at trying to protect reception of your service within your country and therefore having to pay a certain amount in order to do that and that would then probably drive some efficiencies. Those are very early proposals and we do not know whether they are going to come to anything at all, but that is really a matter for Ofcom. Q145 Paul Farrelly: Surely it must be possible on a Europe-wide basis to reach agreements. Mr Plumb: The whole process of allocation of frequencies across Europe is done on a negotiation basis. Yes, potentially in the future it is possible but that is a matter for Europe. Q146 Helen Southworth: I want to focus some attention on vulnerable individuals within the switch-off process. Does the BBC have a view on the Government's support package for vulnerable groups, and what role did you play in identifying the detail of it? Ms Thomson: The plan for supporting the vulnerable groups, sometimes called targeted help, is a Government plan and the Government drew up the groups that would be helped, not the BBC. We have considered it and it is an unusual thing for the BBC to be doing, but we felt comfortable with agreeing to the request to do it on the basis that we do have this particular - at the risk of sounding as though I am stuck in a groove here - obligation on universality and to make sure the most vulnerable are helped through this difficult process for them. We are setting the four criteria for it. Q147 Helen Southworth: The focus on public service is essential, I am sure we all agree, in this particular part of the process. Vulnerable individuals more than any other group of people need to be able to have advocates to speak for them. How is the BBC going to work with those organisations that are advocates on behalf of people with disabilities or older people or particularly vulnerable groups? What are you going to do? Ms Thomson: We have a long history of working with groups like the blind and the deaf. Our technologists have worked a lot on developing technology which will help them benefit from digital technology. Our research people have developed audio description technology and one of the big benefits of digital switchover is it makes TV much more accessible to groups with disabilities and we would seek to build on that and work with them. Digital UK will have a key role in working with groups to help the vulnerable. I would expect our local radio network and our network of digital buses and so on equally to have a key role because people trust the BBC. We have yet to know exactly what it is we will need to do, but we will be using all the means at our disposal to make sure that these people find it as easy a process as possible. Q148 Helen Southworth: You mentioned the audio description boxes, but I understand at the moment the cheapest of these boxes is £99. What are you going to do to help encourage the market to develop in that? We are talking about people who are statistically likely to be less financially well off. We have got to work sure to make sure these things happen rather than just leaving it to happen. Ms Thomson: I agree entirely. Over the last few years we have been working hard not just with the RNIB but with the manufacturers and the DCMS to try and encourage the provision of those boxes and they have come down in price. I do not know the exact price at the moment, but if it is £99 then that is already an improvement on where they were. However, I think it is the case that it is up to the Government to sort out the criteria of who is assisted, but they are going to look at some special assistance for the partially sighted to help them get these slightly more expensive boxes. Q149 Helen Southworth: It might be up to the Government to make the decision but you are very key players in this process, you have got a lot of information and a lot of contacts with people and a lot of experience. Are you going to be a little bit more proactive in that process? Ms Thomson: We are very proactive. We have developed the technology, we have worked with manufacturers to help them install it and we will be proactive in encouraging and helping people to install the equipment. The issue of specific financial help has to be a matter of government policy in the end. Q150 Mr Hall: One of the most important services that the BBC provides for people certainly that are in vulnerable groups is the Ceefax service. I have a digital box and it is a great picture on digital but I have to switch on to terrestrial to read Ceefax. What is the BBC going to do about this problem? Will it still remain free? Mr Plumb: You mean not having to pay for it, do you? Q151 Mr Hall: Yes. Mr Plumb: Yes indeed. We believe the BBC service should be available free at the point of access. As far as the Ceefax service goes, we consider that to be an analogue technology. The replacement for that is the digital text service. We think that offers a lot of fantastic advantages in terms of the visibility of the characters, in terms of the different types of content you can offer, in terms of being able to offer pictures alongside the video and if you want to you can download extra still pictures and so forth. There is a much broader type of proposition that you can offer by the digital text service. We see that as the future for text on platforms. Q152 Mr Hall: And that is going to be available with the cheapest digital box machines, is it? Mr Plumb: Indeed. That was one of the things we have lobbied very, very strongly for right from the early days of Freeview, that we believe that every box that came to the country that was associated with the Freeview brand should have full interactivity available to it and that full interactivity does include a full digital text service. Q153 Mr Hall: What is the cost of the package? The government is going to put together a package as agreed with the BBC and the BBC will have to implement it. What is the actual cost of that package for making people in vulnerable groups have availability for digital? Ms Thomson: For the targeted help scheme we do not know the costs yet. There is a pilot going on in Bolton at the moment which will help us bring that to DCMS and will help us all work out what it will cost. We will then have a discussion with DCMS and work it out, but at the moment we do not know, that is why it is not in the licence fee bid. Q154 Mr Hall: It is not in the licence fee bid? Ms Thomson: No. Chairman: There are no more questions, can I thank you very much for your time. Memoranda submitted by Confederation of Aerial Industries Limited, Intellect and DSG International
Examination of Witnesses
Witnesses: Mr Tim Jenks, Technical Executive, Confederation of Aerial Industries Limited, Mr Danny Churchill, representing DSG International, Mr Laurence Harrison, Director of Consumer Electronics, Intellect, and Mr Adrian Northover-Smith, Digital Development Manager, Sony UK Digital, examined. Q155 Chairman: Can I welcome our witnesses to the next part of this session. When switchover requires, you four gentlemen, plus the industries you represent, have the job of making sure that the consumer has the equipment in the home which is going to work to allow them actually to have access to digital television. Let me first introduce the four: we have Mr Tim Jenks of the Confederation of Aerial Industries, we have Danny Churchill of DSG International, Laurence Harrison of Intellect and Adrian Northover-Smith from Sony UK, thank you for coming to join us this morning. Do you think that an effective business plan is in place to bring about digital switchover, and who should have ownership of that plan? Mr Harrison: First and foremost I think it is worth saying on behalf of the manufacturers that we have been working on the digital TV project for the last six years, and our view is very much that we will be able to support our consumers through the switchover process, given the correct environment, and that the business plan, as you put it, is one integral part of that. Within the supply chain group which we have set up, which includes manufacturers, retailers, aerial installers, now that we are into the implementation phase - we have got the announcement and the certainty that we are going to do the switch - we are now working on a supply chain business plan which we hope will give us some of the information concerned with each individual region, first of all a high level outlook in terms of what we are selling now and where we need to be come switchover, but also some more detailed information on a regional basis based on existing penetration, number of retailers, number of aerial installers etc, which would give us more of a detailed plan in terms of what we need to do. In terms of the project management and the business plan within Digital UK, certainly over the last few months and now that we have moved into implementation, we see that going on and they have got the appropriate structures in place. So it is something that we are working towards. Mr Churchill: As far as the business plan is concerned, it is about conversions. We all know what we have got to do, we have got to convert a number of products per household in the UK to receive digital technology to be able to turn off the analogue effectively. We have an idea of what that should be, approximately three products per household, and there are, rounding up, 26 million households in the UK, so we have a target of 78 million items to convert. So far we have converted between 18 and 20 million of them, so we have still got circa 60 million products to convert and we have approximately seven years to do it. If we look at where we are today, we are selling in the UK around 5.4 to 5.5 million digital items. I am not going to go into what they are, they are boxes, they are televisions etc, but there are around 5.4 million items. We have to get that up to around 8.5 million on a static growth plan through the next seven years, so that in effect is the business plan. Are we addressing those issues as well as we could be at the moment? Probably not, but they are very much on the agenda to ensure that we are. Q156 Alan Keen: What changes would you make to improve what is missing? I understand that you have not got briefing notes on Digital UK, is that right? Mr Churchill: The first thing is that the broadcast industry in the UK - taking radio as well - is probably the last to change. Virtually every consumer product has gone digital and the analogue has almost disappeared. We are still going through it with photography, perhaps, but audio we have gone through twice: we have changed everybody from vinyl to CD and now we are changing them to MP3. As we go through it, the old technology goes, it is as simple as that, and we are now looking at television. Under its own steam, without any switchover pressures, we are selling digital equipment into the marketplace quite effectively, so much so that Sky have now got whatever penetration levels they have and we have all got increasing penetration levels on the products that we sell. With switchover now being the target, we are going to have to bring forward some of those sales. Under its normal steam the market would progress. We are this year 5.4 million, next year we think all our top end televisions are going to be digital, from £300 up, and you are probably going to get somewhere around 7.5 million next year, but what we want is 8.5. We are going to have to get there quickly and we are going to have to maintain that level of sales through to 2012 to achieve switchover. What we need, therefore, is for industry to be allowed to get on and do what it does well, which it is doing, allow the consumer to make their choice but inform the consumer. At the moment we are all communicating amongst ourselves, but the consumer is not getting the level of information that they require. Q157 Alan Keen: That is one thing that needs dishing out. Mr Churchill: That is the most important. Mr Northover-Smith: Could I just add to Danny's comments as well because switchover has to be delivered by the consumer because they actually have to go out and purchase the pieces of kit in order to achieve this. Actually what the consumer is doing at the moment, however, is buying analogue television sets at a vast rate. If you add it up, basically 5.8 million analogue TV sets are being sold every single year; add to that some 2.4 million analogue VCRs, so 8.2 million analogue bits of kit are being sold into the marketplace every single year. This year the set-top box market for Freeview is something like 3.2 or 3.3 million units, so we are actually going backwards as we stand today, not forwards, in terms of the analogue equipment going into the marketplace, and that challenge is going to increase, frankly, over the next few years unless we stem the flow of customers going in and buying analogue equipment, which we know full well will not work through switchover. Q158 Alan Keen: Obviously you must be delighted at switchover because it is bringing business that would not come as quickly if it was not forced by the switchover dates. I can recall buying a box for ITV Digital and the person who sold it to me did not know anything about it, I took it home, I did not know anything about it, so I phoned up the telephone number I was given and they did not know anything about it; it did not work and I threw it away in the end. Hopefully, the education side of it from you as the suppliers to the public is improving. I do not know if you heard mention earlier on of the digital tick criteria; what are you doing to improve the education of your staff, the people that we, the public, are relying on? Mr Churchill: The staff training that goes on within Dixons Group is quite extensive, but one has to remember that four years ago people used to walk into our stores and buy televisions - and there were approximately 6 million that year - and not one of them asked what channels it received, because everybody accepted that it was five analogue channels and text, and if you wanted anything else you plugged the box into it, so everybody came in and bought what was available. Commercially speaking, it is absolutely critical that we make sure that the people who are trained to sell the equipment are trained on what we are selling them. Of course, we train, in addition, to digital; if you look at that today we have got something like 80 digitally-integrated products in our ranges and the staff are trained on those products. Q159 Alan Keen: What effective links are there between you as the retailer of the product and the people who make sure it works, the people who install the aerials? I got a Freeview box and I could only get four channels on it, and now my next-door neighbour has cut one of my plants and pulled the whole thing down so I cannot get any channels. What formal links are there? You are experts on installing aerials and, in a way, you are the people who matter more than the retailers. It is easy to sell the stuff to people and you do not have to worry if it does not work too much, it is the aerial industry. How do you link with the retailers and make sure their staff understand that there are more problems than just taking the box home and plugging it in, which I have tried twice? Mr Jenks: I am extremely grateful that the industry, my colleagues sitting here with me, have always given us the opportunity since 1999 when you bought your first box to be involved in trying to plan a strategy for dealing with the aerial situations that arose then. If we want to bandy figures and percentages around, when ITV Digital was running the replacement for aerials was running as high as 30% at that time, but of course we have been gradually beavering away at that figure and awareness is very high in the aerial industry by forming partnerships with people like Dixons and Sony and everyone else they recognise as a body are important. Broadcasters as well spend millions on putting together the whole process of broadcasting this choice of programming and we expect the consumers to spend millions in the stores, and somehow in between all this is a piece of co-axial wire which can be overlooked. I have heard incredible figures bandied around on how many people need to do what if we switch off analogue but, thankfully, we have been on the case for a good while now informing our membership, the guys who are at the sharp end, confronted with a box that is not going to work unless we do something, and we have got considerable training in place now, without what we have got planned on a national vocational level, to see that the guys out there in the vans installing are up to speed with what we need to do. Q160 Alan Keen: Can I just come to another point which is connected very closely with it. It is the switchover date that we are all scared of, and I am sure you read some of the comments that the Panel made last week. There are some things that can be done now, are there not? It is city centres and not the rural areas that really have a massive problem, the people in blocks of flats cannot get a terrestrial signal sometimes and it is true, I know, that the cable companies still have a lot of conversions to do in central London, conversions of equipment from analogue to digital - they have to do some work, do they not? Should that not be pushed along faster than it is being done at the moment, or is that something that you do not realise? Mr Jenks: I will start that one off from the aerial industry point of view, but I cannot comment on cable, I do not represent the cable industry, but from what I know about it that has got some restrictions on geographical constraints, whereas obviously signal broadcasts from a satellite or even terrestrially can cover the nation quite adequately, as we have already heard argued. However, what we have not seen mobilised fully yet is a strategy to convince the landlords and the management agencies of all these blocks of flats you mention that they have got to make investment to convert their properties, to upgrade them to digital. Technically, we have everything in place. There are issues raised in our industry about capacity, but I am sure that with the proper drivers in place to mobilise us - and we are a very mobile industry, we are in vans, we are not tied to workbenches - we can move wherever the needs arise, and we do that quite effectively when broadcasters present us with an issue - I am thinking back to the launch of Channel 5 and the launch of satellite way back in the early Nineties when we mobilised large numbers of guys to address installation issues. We can do that again, as long as the drivers are in place to make people want to do that upgrade. Q161 Alan Keen: Can I come right back to the beginning and the first question the Chairman asked of you: is it being co-ordinated well enough, this is my concern? Mr Churchill: Every consumer that comes into a Dixons store or a bona fide retailer's store is given the opportunity to postcode-check to see where they are in terms of catchment and availability of the different systems that are available. Once they have had that postcode-check they are told what is available to them and they are told that they may well have to do something about their aerial. We have affiliation with CIA members etc so we can direct our customers to the aerial installer if it is necessary, but the consumer is not just being left. That postcode check is something they can do themselves on line or they can get it in-store and our staff will check it out for them, so they are not just being left. The important thing to remember, as I talked about from the business plan, we need to get this 8.8 million. We are currently selling, if we take set-top boxes out of the mix, over 8 million television reception items per year through the retail infrastructure of this country. When you put boxes onto it, you are up to 11.5 million. What we have to do is get the customer to buy the right product; they are already, under their own volition, with their own money and their own pockets, with no subsidies, coming out and buying this equipment. If we communicate with them early and show them the benefits of digital versus analogue, an awful lot of the task we face is going to be carried out. It is as simple as that. Q162 Rosemary McKenna: That is exactly the point I wanted to follow up on, the point that Adrian made about the fact that there are still three million people going in and buying analogue. Mr Northover-Smith: Analogue kit came to 8.2 million and the Freeview set-top box sales are 3.2 million, so you have an excess of 5 million analogue pieces of equipment being sold every year, over and above the digital products that we are selling to convert them. Q163 Rosemary McKenna: There are two things. First of all, you said, Danny, and it was said by the voluntary sector last week, that we are talking among ourselves and that the people out there are really not getting the message out that this is going to happen, it is a good thing and what do we do to encourage people. Why are people still buying that old kit; is it the retailers, should the retailers be doing something about it? Should the manufacturers be doing something about it? Mr Northover-Smith: First of all I think it is important to say that I think all of us unanimously support the digital tick logo, and that is absolutely fantastic. Of course, it is being used by the BBC as a tail-end to their advertisement, which is great, but actually the advertisement explains all about how to get the BBC channels and then you get flicked up the digital tick right at the end. Frankly, when we go into stores it is very well represented in stores, but what does it mean and who has actually explained this to the customer? Nobody, yet, and that is obviously down to Ford and his colleagues in order to make that happen. The very important thing that we have to do though is to realise where the consumers are at the moment, and it is not good enough waiting to look at putting our advertising campaigns towards the back end of switchover, it is absolutely essential that we do it from the front end so that we can stem the flow of people buying the wrong sort of kit. That will then enable us to sort out the problem people, because actually the number of problem people will be much lower as a result of the activity that we have taken very much earlier on. Mr Churchill: It is not, if I can say, all wrong kit. Every analogue set that is sold today is probably replacing something else there now, so all we are doing is talking about the same number of conversions that we make. If we look at the 5.4 million conversions and convert that to eight, then one of these analogue televisions walking out with a set top box achieves our objective. One of these analogue televisions walking out with a PVR with a digital receiver in it achieves our objectives, so these products are not all going to be obsolete, just because they are buying them now. If you look at television sets as monitors, they are all equipped with the connectivity to be able to turn that set into a digital monitor or a digital reception device, so we have to get into the habit of separating total market, analogue sets etc from the actual task of the digital conversions we have to make. We can make that digital conversion in-store if we sell an analogue television with a box or with a PVR or whatever, and price will come into it of course. Mr Northover-Smith: If I could just add to Danny's point in terms of usability, because this is something that I love to stick on, if you have an analogue TV set, a digital set top box and an analogue VCR - for a normal consumer, if you ask them to record a digital programme using that combination of equipment, frankly is almost impossible, and I would urge you to try it yourselves if you do not believe me. This is why, again, we are really encouraging consumers to look for the right sort of equipment that they can use and can actually enjoy the benefits of digital through. Q164 Helen Southworth: Can I ask about the aerial aspect of these things? Alan described very succinctly his issues around trying to get things to work and some of the pilots are suggesting that there are going to be an awful lot of people who are going to need aerial amendments to make stuff work. That message is going to be going out to people and it is going to be going out to people who have no idea what they are asking for when they are actually getting somebody to come in and do the job for them. There seems to be tremendous potential there for the reputation of the aerial industry to suffer some serious narks, when you match up people who do not know what they are asking for and a very mobile industry that turns up in a van and does the job for you, and you perhaps do not quite know who they are or what you are asking for. What are you going to do about that, are you discussing things with trading standards people? What are you doing within the industry to make it easier for us to buy from you and to make sure we get what we need and what we want? Mr Jenks: We are always talking to trading standards over aerial issues, but thankfully it is good news. Actually, we have been given a harder task from the qualification point of view for the digital tick that we are all in support of, in that we have to now have a national vocational scheme in place to assess the competence of our installers to see that they are going to do the job right. So as from a few weeks back we launched a registered digital installer scheme whereby our engineers, when they have proved their competence, will carry an identification card to say this man is the man for the job and he is going to tell you exactly what you need. It is interesting, and I have evidence, that nearly 80% of the product we are selling now is going to be "digitally compatible" so people are being steered now and have been for quite a while down the right path to go, as we are in a replacement market anyway, albeit as a distress purchase. Nobody wants us, we are horrible people, we are aerials - they are a bit like tyres on your car, you only do it when you have to, nobody wants an aerial - but when we get to the job if we are competent and can prove we are, and can be identifiable, which is what we have put in place, then we think that this problem is not going to materialise as people fear it will. Q165 Helen Southworth: What are you going to do to make sure people know what to ask for, for the digital tick? Is it going to be on the white vans? Mr Jenks: When Digital UK do what we know they are going to do, with the promotion that is rolling out now, the registered digital installer scheme will be right upfront and if you need something doing with your aerial, these are the people you need to look for to do the job. Q166 Paul Farrelly: I hope that not only is there going to be in this respect the proper accreditation schemes, but actually public service broadcasters do the public a service in advertising this scheme so that we do not get people running around and, frankly, give cowboys a bad name, because there is all sorts of scope for that in the future. I just wanted to come back to a point that my colleague Alan made earlier. Alan said it was obvious almost that the digital switchover was good commercially for you guys because it advanced demand for digital kit, but is it commercially good for you? Would it not be much easier if the market decided and drove the take-up? Is this switchover daft commercially? Mr Northover-Smith: This is a commonly-held misconception that amongst the manufacturers we are delighted about switchover; to us it does not make a great deal of difference one way or the other, it is a government policy. The interesting thing is what will happen throughout this, and the reason we take such an interest and we are here and attend all of these meetings is because we make products that consumers want. Switchover is happening as a result of government policy, therefore we will make the products throughout switchover that consumers want. Our investment in terms of the factories to make the products and the silicon, even further back, has to be managed, based upon government policy and not consumer demand, as you so rightly pointed out. Planning through this process from our point of view is, frankly, going to be a nightmare, and if we vary in any way from the timeframes that we have already had laid-out to us in terms of the region by region switchover, we are going to be making front-line investments in order to make the products for those regions, and if there is any slip then it will cause a catastrophic nightmare to the supply chain. Q167 Paul Farrelly: Clearly, because analogue can be converted it would be daft to criminalise sellers or buyers of analogue equipment, you cannot go down that route. Mr Churchill: You have to remember that the consumer - it is the consumer mindset we are trying to manage here really - is used to walking into a store and buying something that they take home, plug in and play, and they have been used to buying televisions with television receivers built into them, and that is what they want to continue to do. That is why they buy six million a year versus three and a half million boxes when we are all going digital. The key issue for us as an industry is that digital is absolutely the right thing for us to be doing. You will see the stores full today of HD-ready product; HD is only possible because we are going digital. Digital is about capacity: for every one analogue channel that we have got at the moment you can have two high definition channels or eight sports channels or film channels, the capacity and the choice that it offers to the consumer is massive, as every other digital market has proven, so it is absolutely the right thing for us to be doing. Are there going to be complications in a switchover situation? Of course there are and we are very happy to take on our share of that headache, despite it being a headache - and nobody is going to hide the fact - because we are all very, very much in favour of the end-game which is that the consumer has got more choice, better quality products, we can use the capacity that is now available and the condensation of the spectrum to deliver better services. It is good for the industry and it is good for the consumer, that is where we are going. Mr Harrison: I would just add to that and say that fundamentally we are where we are. Adrian is right in that as manufacturers we were fairly agnostic, but what we did call for consistently was the certainty of a date, if it is going to happen, let us have a government announcement. Now we have that, everybody is planning towards switchover and any sort of change or shift in that timetable would be detrimental, so the key to everything here is communication and education and getting behind the digital tick logo. Mr Northover-Smith: From my previous comments all I wanted to do was simply to highlight the issues that would surround us, I was not trying to be in any way negative about the opportunities or the kind of technologies that would come out as a result. Q168 Paul Farrelly: It is not clear-cut. Just thinking of the poor guinea-pigs of Border again in 2008, you can foreseeably look ahead and not find a digital piece of kit in Newcastle-upon-Tyne, for example, because there is a shortage in Border, so the good people of Newcastle-upon-Tyne drive committedly to the Border area, but obviously it would defeat the object to allow them to buy the digital kit so you have to show your new ID cards to prove that you live in the Border area and can buy the kit. There are these nightmare complication scenarios and clearly it would be quite wrong to expect you guys to hold commercially unviable stockpiles of digital kit because you cannot accurately predict the timing of demand, so how are these issues being addressed at the moment? Mr Churchill: Borders is only a 300,000 home area and I think the rest of the country is going to be more than happy to support Border in this situation. The problem gets bigger when you get down to Granada and you are talking about several million homes, and that is something that we have got to address. It is an issue that we recognise and it is something we have got to address, but my plea is that we get the communication as early as possible. Whenever one goes into a marketing campaign one looks at launching it and then keeping it going with customer recall and reminders to people about what it is all about. For this campaign we need upfront to get in there and communicate to the consumer so that we get the growth curve as flat as possible, otherwise we will have problems, there is no question, there will be shortages of stock, staff, resource if we get to a situation where all the demand is at the back end of each turn. Mr Harrison: Central to that is the supply chain business plan and I alluded to it at the start. Once we put some of the numbers into that model and we can see where we are going in terms of take-up and demand, if, for example, that shows that we are not going to reach the penetration we need to at a given point in time with regards to a specific region, the challenge will then be at Digital UK level with regard to actually moving, for example, communication budgets to actually prime regions before we go ahead. That will be the challenge that we face going forward. Q169 Paul Farrelly: One last question. I am personally terribly boring, I am a follower not a trendsetter, I do not buy the new albums, I wait for the greatest hits, and likewise in technology I do not buy the up to date digital cameras, I wait for them to drop in price and buy them a year or so later. In this scenario of the digital switchover, where there are four states, I am already sceptical about the £132 per home, and we have heard quoted by the BBC the costs of replacing kit when we are looking at replacing VC recorders and televisions, but with switchover are the costs to the consumer going to be higher because there is not that incentive for the industry to reduce prices? Mr Churchill: I think the only reason prices might harden is when there is a shortage of supply it tends to be component supply, and any manufacturer of equipment will use components in the most cost-effective products that he produces. So if I only had 80% of the components I needed I might be tempted not to put those into the bottom end product and put them into the higher priced product, because for me it is more commercially viable to do so. So when you get into markets of shortage, the hardening of prices that I would foresee is where component shortages mean the product has got to be used economically and effectively for the companies concerned. At the moment there is no indication there will be a shortage, there are products coming in from the Far East and around, it is not just local manufacture, and we are already producing 10 million to 11.5 million sales a year, what we need is 8.5 million for seven years: we ought to be able to meet it but we have got to get communication out there immediately. Q170 Chairman: Can I press you on that. You say we have got to get to 8.5 million for seven years; how long do we have if we are to avoid serious problems? If we are to avoid people living in the Granada region queuing down the street outside Dixons stores to get set top boxes which are not in the stores because you have sold out, how long have we got in order to get the demand up to the level to avoid problems at the back end? Mr Churchill: We have the next six months to start getting the curve to grow. This Christmas is put to bed now, it is too late, but if we could have had this Christmas - if we were talking here in July or August I would have said now for this Christmas to get that curve up as quickly as possible. All we are looking to achieve is that customers walking into the store with money in their pockets to buy a television are making the right decisions in terms of what they are buying and having in the mind the life span of the purchase they are making and what they are likely to need to have in place during that life span; that is where we have got to make the investment. There are a lot of things being sold, technology today is vast; people are talking about broadband, they are talking about flat panel TVs, they are talking about HD-ready, they are talking about new cameras and how many pixels, they are talking about new mini pods and iPods and everything else, and within that quagmire of technology communication, we have to get digital high and we have to get them to understand what it means. Q171 Chairman: Do you believe that on the present plans of Digital UK they are going to achieve that upturn in six months? Mr Churchill: I am very impressed with their enthusiasm and their commitment so far, yes. Q172 Chairman: You think the six months target is achievable on present plans. Mr Churchill: It depends what their budgets are like, I am not privy to that, but there is no question that the effort is being made there. Q173 Mr Sanders: We heard last week that some set top boxes were badly constructed and one consequence of this is actually high electricity consumption; what can be done about this? Mr Harrison: First and foremost, manufacturers have actually made - this is in a recent Defra report which I think has been highlighted either in the first session or at the recent Westminster Media Forum event - over the last six years 60% energy efficiency gains on terrestrial receivers, and that trend will continue. We do have a code of conduct and that sets certain standards for us, and I have to say that with regard to integrated digital televisions the standard there in standby, which is a real issue, is at three watts and business as usual average for RDTVs is two watts, so we are meeting and beating that standard. At the moment, they are currently by far the most energy-efficient products in the marketplace. With regard to set top boxes, there are specific challenges for manufacturers, in the current price-driven market, to introduce the more sophisticated products which are more energy efficient, and that is because of cost and requiring to compete at a certain price point. Mr Northover-Smith: Could I just perhaps add to that from our own perspective because, fortunately or unfortunately, we are not in the part of the market that you just described because, as Laurence just said, we do have from Sony's perspective very energy-efficient set top boxes and IDTV sets. It is interesting that actually there are two different perspectives here because from the consumer's point of view and possibly from the Government's and the BBC's point of view, what they want to do is promote cheap price points, which is fantastic of course because it shows to consumers that in fact there is a whole range of products out there for them, and an entry price point is established in their mind, if you like. Of course, we do have to accept that the products at those entry price points do have limitations, both in terms of usability and environmental efficiency as well. Of course, you then, on the other hand, have the broadcasters, who are constantly talking about these lower price products, and if we want to make products that do satisfy the demands of the elderly and the special needs groups within the community, then actually we as manufacturers need to be investing more in R&D, more in creating a good user experience for our consumers and, unfortunately, promoting very cheap prices does not help us. Q174 Mr Sanders: What information is actually available to the consumer who is looking at a product, and thinking in terms of cost, about what the running cost of that box would be in terms of increased electricity charges, which ought to be part of the equation in deciding which piece of equipment to purchase? Mr Harrison: I know that the current set top boxes will show on the packaging or in the information within it what consumption levels there are for the standby, for example. Coming back to IDTVs, we are now working with the Energy Savings Trust who are actually going to endorse IDTVs with the Energy Savings Trust labelling, and that will give the consumer some indication as to the level of energy efficiency they will be getting when they buy that product. Q175 Mr Sanders: That is probably more important than just being told the energy consumption, because I would not be able to convert what that energy consumption was into what my unit cost was from my electricity supplier, so that is actually quite encouraging. Will that be across a whole range of products, or will it only be certain manufacturers or certain retailers? Mr Harrison: Currently that would be for IDTVs because, as I said before, they are meeting and beating the code of conduct energy efficiency levels. Q176 Mr Sanders: So not for other electronic products. Mr Harrison: Currently, no, the initial scheme will be for IDTVs. Q177 Mr Sanders: Will the market deliver an adequate range of affordable digital TV equipment, suitable for people with sensory, learning or physical disabilities? Mr Harrison: There is one thing that I wanted to say on the energy efficiency, which I think is quite important, and then I will come back to the question. One of the things that we are involved in with Intellect is working on something called the Energy Efficiency Commitment. This is an Ofgem-sponsored scheme whereby energy suppliers are required by the Treasury to give a certain percentage of turnover to improving domestic household efficiency. To date, that scheme has not applied to the brown goods sector, but we are now working on a proposal and hope to include that for the brown goods sector, and that would extend beyond IDTVs. What would happen within the scheme is that when, for example, a set top box beats the business as usual average, then the manufacturer would receive a subsidy from the energy suppliers for doing that, and we believe that would create a good incentive for manufacturers to actually get nearer those targets. That is an important point to make. With regards to accessibility, certainly on the standard access areas, manufacturers have actually made very good improvements with regards to subtitling now being the norm on most digital products and also included within the criteria of the digital tick logo. We also have a situation where you can now see on the electronic programme guide which programmes have access facilities. Where it has been more challenging is in the area, for example, of audio description, and that has simply come down to the fact that it has been very hard for manufacturers to make a commercially viable business case to introduce some of that technology into the marketplace. We do have, as you are aware, the Netgem box, which is on the market at the moment and has audio description, and I did see Netgem speak recently at an EU conference on the accessibility and they said at the conference that they had actually completely under-estimated the level, for example, of consumer support they would have to provide with introducing audio description. It has been challenging, therefore, and I know a number of manufacturers have looked at introducing AD but because they have been unable to make a business case, they have not been able to do it. Q178 Mr Sanders: All Members of Parliament have within their constituencies hotels and residential care homes; some of us have more than others, so I am particularly interested in knowing about what equipment or technical solutions are available for upgrading multiple dwelling units in order to go digital, and what promotional work has been done in that area to alert the people running those establishments that they have got a big problem coming down the track if they do not wake up to this? Mr Harrison: At the moment there are very obvious promotions being done, for example by satellite and cable providers to landlords and those in multiple dwelling units. Currently we have, within Digital UK, a number of work streams set up which will eventually have specific aims and objectives at addressing some of these key issues, and there is one of those work streams looking at multiple dwelling units. Certainly, the supply chain would play an active role in that, and I think the key within this has got to be communication and education, and that has got to be driven by Digital UK. Landlords have to know what they need to be doing, what action they need to be taking and, again, that has to be driven by Digital UK. Q179 Mr Yeo: Have you got an estimate of how many people who can currently receive analogue will simply not be able to receive digital terrestrial? Mr Churchill: Currently 98.9% is analogue and they are talking about 95% or 96% plus on terrestrial after switchover. Q180 Mr Yeo: On the basis of your experience that is a perfectly attainable figure. Mr Churchill: Yes, that is an attainable figure. Q181 Mr Yeo: What about the problem that you refer to in the memorandum about kit that does not stand up to the changeover? Mr Churchill: There is not kit that is not going to stand up to the changeover on sale in our stores. Q182 Mr Yeo: No, but people who have already got stuff at home and they find, on the point of switchover, it does not work any more. Mr Churchill: Anything that is in the marketplace that is on digital - I am not sure whether in fact they would not work, but everything that we sell in the stores at the moment, from £25 to whatever is tested and it will deliver, after switchover, the service it delivers now. Q183 Mr Yeo: What about someone who has got an existing aerial which is working perfectly alright at the moment? Mr Churchill: Anybody who buys digital satellite, 100% of people are quite happy to put a dish up. When you buy digital anything there are things that you have to consider; if you want digital communications for your computer you have to upgrade to broadband, and it is an unfortunate fact of life that some aerials are going to need to be changed, it is as simple as that. I do not think we should be so defensive about it, I think we should be open and very clear with people about it. Of course there will be the unfortunates and what have you that we have to address, and whatever we do we are going to have those, but it is not the issue that people are making it out to be, the consumers in the main are quite happy to accept that there are costs associated with improving quality. Q184 Mr Yeo: And there will not be a difficulty about a sudden spike in demand for upgrading aerials, you will be able to cope with that. Mr Churchill: I will give that to Tim. Mr Jenks: Can I just say that statistically the aerial industry is a nightmare to put your finger on, and where people's aerials are and where they are pointing. It is one of the most complex things we have, the United Kingdom's terrestrial transmitter network is a wonder of the modern world and people look at it as something special. I alluded earlier to when we started the on-digital thing, when we knew from figures coming back for subscription televisions through terrestrial that there was a 30% aerial replacement rate. We have been going at that for quite a while now, five years nearly, and we can take some heart from the Lanstephan-Ferryside trial in the percentages bandied around, in that there was a community with a certain number of households that were switched to digital and we found out that for 20% of that population the household had to do something with the aerial that was on the chimney or on the wall. That is not counting co-ax plugs that had been chewed by the dog or whatever had happened in the household itself, but that was the replacement figure. With laudable efforts at telling the nation about what you are alluding to on aerial replacement, if their aerial blows down next February when the bad weather comes and they are educated in that we are going digital, we need to be digitally ready, then we can fit a digitally compatible aerial now and when the storms hit in the bad weather and eat away at this percentage, which I reckon is going to be 10% to 15%, if you want a guestimate. Q185 Mr Yeo: Right. Equipment that gets returned after it has been purchased that you referred to, does that point towards any particular problems that might arise and which might be local to that particular area? Mr Churchill: It is invariably no fault found when we get the equipment back. It goes through tests and we find there is nothing wrong with the equipment, which does indicate that the customer has either had a problem installing it, or has had a problem in getting the signal to drive it. We accept that as a fact of life at the moment because a lot of people are not able to get a signal, even though they might be within the postcode-check area that says they should be available; they might be in a particular area where they cannot get the signal, in which case we refund them and we give them something else. Q186 Mr Yeo: Eventually that something else solves the problem, would it? Mr Churchill: That something else would solve the problem, or they will wait until the signal is available to them and then they will come back to it. That will disappear as the signal strength is increased, that problem. Q187 Chairman: Can I come back to this question of aerials? As I understand it, the households that currently are unable to obtain Freeview are being assured that when switchover occurs the strength of the DTT signal will be increased and therefore suddenly they can get Freeview. However, that depends on them having a robust enough aerial. Those households are not going to know if their aerial is robust enough until switchover begins, and as I understand it the Digital UK plan is that one channel goes off and then a month later the rest follows. Essentially, if they discover when the first channel goes off that their aerial is not good enough, they have got a month in which to get a new aerial fitted before the whole thing goes off. Are you going to be able to have enough aerial installers to be able to install the necessary aerials in that short space of time so that nobody actually finds they get a blank screen when switch-off occurs? Mr Jenks: Can I just say this before I answer that, which is a good political way to start. I understand technically that the broadcasters will put more detail on this when they take the stand here, but we are hoping broadcast-wise to be able to put something in a signal that goes out to warn people that their aerial might not be up to scratch now. So before your scenario occurs and we end up at switch day when the switch gets thrown on BBC 2, for example, we hope that a large percentage of households will be made aware that they should be doing something with their aerial before this moment arrives. Q188 Chairman: But they are analogue now so how can you do that? Mr Jenks: I do not know, it is a technical problem that broadcasters are working on and I think you are going to hear more about that in evidence to come later on. It is a broadcast issue, I am not up on all broadcast techniques and the technicalities as Graham was previously sitting in this seat, but what I can say is this: if the message was to go out now on the capacity we have in the aerial industry and the ability to ramp up from vans that can achieve - I think the average is 1300 installs in a year - by simply covering the geographical distances we know of that can be as high as 2000 jobs in the year with a man on a van equipped, there should not be the problem we think there is going to be. In other words, I think we are equipped to deal with the problem you describe as long as the message is out there. Q189 Chairman: But that depends on people upgrading their aerials now, before switchover, even though they are on analogue and cannot get digital. Mr Jenks: Now we know that the transmitter rollout is going to be, apart from the main transmitters relay stations as well, to ensure coverage of public service broadcasting, and we know where these transmitters are and the type of aerials that are needed on them. When the plan originally rolled out we did not quite know where we were going with transmitter coverage and which transmitters were to be switched, if they were. Now we know where the aerials are, as aerial installers, and where they are pointing, it is not rocket science so to speak to say that if someone asks us for a digitally compatible aerial because they need to replace it anyway, it has fallen down for whatever reason, then we can put one up that will be ready. Going back to your question about would there be a bottleneck if everybody decided to wait and see what happens, yes, of course there would be, but we think if we put the plans in place that we have been working on for a long while now, we avoid that. Q190 Chairman: It sounds to me as if you are relying on strong winds to blow down lots of aerials in advance of switchover. Mr Jenks: No, but we have more or less had them every year I can remember being in this industry, around about January and February and, on a serious note, it is part of how we operate and manufacture according to the demand in our industry. For example, we do not ramp up in the middle of July and August, nobody buys aerials in the summer holidays, that is just a fact of broadcasting, but we do prepare for an autumn sales push from the broadcasters over Christmas and then we prepare again for the February and the March winds. That is a fact, yes. Q191 Chairman: It is the case, therefore, going to all of you, that the 20% plus of the population who cannot get DTT at the moment should, nevertheless, go out and buy digital equipment, upgrade their aerials and do all these things a year or maybe two years in advance of actually being able to benefit from it, if you want to avoid supply problems in the future. Mr Northover-Smith: Absolutely. I would certainly say to any customer living in the Border area if you cannot get a signal today you should still, absolutely, buy an integrated digital TV because that TV set will see you through switchover, it will give you the usability advantages through switchover, it will give you the environmental advantages through switchover and, frankly, it is easy to use, you have one remote control, etc etc. The message from both of us, certainly from me as a manufacturer and from Tim as an aerial installer, is that actually, as we have said before, there are nearly 6.4 million people going into the shops every year to buy a TV set. That replacement cycle is happening anyway, regardless of our discussions within this room. Tim is also facing the same situation, where his aerials are getting knocked over in the storms every single year, and that is also a replacement cycle that is happening anyway. What we have to do is pull the two together so that those replacement cycles are selling the right products. Chairman: We have no more questions, thank you very much indeed. |