Select Committee on Culture, Media and Sport Written Evidence

Memorandum submitted by ITV


  1.1  ITV welcomes this opportunity to contribute to the Culture, Media and Sport Select Committee's inquiry on new media and the creative industries.

  1.2  The Committee's inquiry is timely, coinciding with a period of particularly intense new media development and rapid digital take up, which are raising fundamental questions about the ownership and exploitation of media rights in the digital world. Ofcom is also conducting its own review of the television production sector, a core focus of which is the use of new media rights beyond primary television broadcast. This is an issue of particular interest to ITV and one which we will discuss in more detail in this submission.


Changes in the market

  2.1  After a false dawn at the end of the 1990s, digital convergence has arrived and is starting to have a significant impact on the media industry. The UK is experiencing a period of rapid take up of digital television and the roll out and adoption of new digital technologies. These developments pose both threats and opportunities to broadcasters like ITV.

    —  Digital television penetration has already reached 70% and is rising fast, with Freeview predicted to shortly pass the 10 million box mark and digital satellite in over eight million homes. Greater competition in multi-channel homes puts pressure on established television channels. For ITV this is demonstrated by comparative viewing levels: 27% in an analogue home; 22% in a Freeview home; and 16% in a Sky home. The fragmentation of audiences has a direct impact on the ability of individual channels to maintain the advertising revenue that funds investment in programming.

    —  Personal video recorders are in 1.2 million mainly digital satellite homes with digital cable and DTT now starting to roll out their own PVR-capable boxes. On some forecasts, there may be as many as 10 million PVR homes in the UK by 2014. The impact of PVRs on advertising funded channels is difficult to predict with all commercial channels unlikely to be equally affected. However the potential reduction in advertising impacts PVR use may lead to (via ad-skipping) has led to consideration of alternative commercial revenue models and new means of financing programmes on commercial channels.

    —  Broadband/Video on Demand services allow viewers to both watch live streamed programming or to download selected programmes for viewing at a later time. ADSL broadband is now available to around 100% of the population, with take up currently at around 23%. It is thought that around two million people currently view TV via broadband on the PC, a number that is expected to rise considerably. It is also anticipated that broadband services will start to migrate from PC to TV, via new digital platforms, such as Homechoice or BT's planned hybrid DTT/broadband set top box.

    —  A further threat and opportunity comes from the entry to the video market of major international multi-media companies like Google, Microsoft and Yahoo. For example, Google has recently launched the Google Video Store, making available premium content to subscribers. Such developments allow new opportunities for established broadcasters and producers to deliver their content to audiences. However they may also mean greater competition for audiences and revenues from well-funded international competitors.

    —  Mobile phones are beginning to offer both live streamed programming and downloadable content. While questions remain about the viability of mobile telephony as a mass market model, a recent DVB-H trail in Oxford suggested potential viewer interest. However such services may depend on use of digital spectrum that might otherwise be deployed for equally compelling uses, such as enabling the launch of high definition services on DTT.

The impact on ITV

  2.2  The impact of such changes will be most acutely felt by established, analogue broadcasters.

  2.3  With the rapid expansion in the number of digital channels and the development of new digital platforms and services, ITV and other traditional broadcasters are facing inevitable fragmentation of audiences to their core TV channels. Where ITV was once one of four, we now compete with over 400 channels in Sky Digital and digital cable homes, and with some 30 channels in Freeview homes. As a result, ITV1 audience and advertising share is expected to decline further as the UK audience moves from analogue to digital.

  2.4  ITV invests around £1 billion per annum in programming and UK production every year. ITV's investment in programming is second only to the BBC in the UK and not matched by any other commercial channel in Europe. Around £800 million is invested in the ITV1 network schedule alone, with ITV ploughing back over 50% of its advertising income into programmes, up from around 30% in 2000.

  2.5  On ITV1 this contributes to a mixed schedule that comprises high quality, original programming across a broad range of genres, including national and international and regional news, current affairs, drama, children's, entertainment and factual programming, including documentary, religion and arts.

  2.6  Consistent with our core PSB contribution, ITV provides the most comprehensive regional news service in the UK, with 27 regional and sub-regional services. ITV also invests over £300 million in UK drama, more than three times the expenditure of its nearest commercial competitor, Channel 4. ITV also has a strong track record in sourcing original programming from a diverse production base. We consistently exceed the 25% independent production quota: in 2005 around 33% of the ITV1 schedule came from the independent sector. From this year, ITV is committed to producing at least 50% of original network commissions, by hours and spend, from outside the M25—a higher commitment than any other broadcaster, including the BBC. Together these commitments provide significant support of a strong production sector around the UK and a major contribution to the UK PSB ecology.

  2.7 ITV is also starting to build its investment in the schedule of its digital channels, ITV2, ITV3 and ITV4. The ITV family of digital channels are growing their audience and revenues on the back of ever-strengthening and complementary programme schedules, offering a strong alternative to viewers.

Confronting the challenge—opportunities beyond ITV1

  2.8  ITV is seeking to maintain and expand its investment in high quality UK produced programming across a wide range of genres. However, in an increasingly competitive and fragmented market, ITV needs to find new ways to maintain programme investment and expand its presence across the widening range of delivery platforms that are increasingly being used to access content.

  2.9  If we are unable to diversify our revenue streams beyond ITV1 and traditional spot advertising, it will be difficult for ITV to maintain its investment in programming. Ultimately, in such a scenario, it would be UK viewers who would lose out.

  2.10  ITV has already embarked on a programme of growth and development with the launch of a number of new services and a focus on the opportunities beyond ITV1. This not only enables us to broaden our revenue base, but also to ensure that ITV remains attractive and relevant to the broadest possible range of viewers beyond the core ITV1 audience. While ITV1 will remain the most significant single part of our business, more and more of ITV's revenues will be generated outside the main channel.

  2.11  Over the last few years ITV has launched a family of digital channels aimed at growing our presence in the digital world and offering an opportunity to target specific audience groups. ITV2, aimed at younger adult viewers and with a focus on entertainment, is now the UK's leading digital channel, having overtaken Sky One in 2005 in all key audience groups; ITV3 has established itself as a popular channel appealing to an older age group with a mix of classic drama and films; ITV4 launched in late 2005 with an emphasis on classy drama, film and sports designed to appeal to younger, male viewers who are traditionally light ITV viewers. In 2006, ITV will also launch a dedicated children's channel. ITV Play will also launch offering interactive and participation programming and new revenue opportunities. Together the channels are helping to maintain ITV's overall TV share and in turn to support the advertising revenue base.

  2.12  Beyond linear TV channels ITV has launched a range of new media services, which are also underpinning our presence in the digital world and presenting significant new revenue opportunities. In 2005 ITV established ITV Consumer (ITVC) to explore, develop and launch new services. These include:

    —  Mobiles: ITV offers content to mobile phones users, featuring major ITV programming such as Coronation Street, X-Factor and I'm a Celebrity, Get Me Out of Here. Users pay for the content accessed depending on the type of service they have opted to receive.

    —  Interactive/online: ITV's growing interactive offering provides additional programme information and participation, as well as additional revenue opportunities. ITV is looking to develop its broadband offering and is currently running a local TV broadband trial in Brighton and Hastings, which seeks to tap the potential of the classified advertising market.

    —  Friends Reunited: In 2005 ITV acquired Friends Reunited, one of the UK's leading websites. The partnership significantly enhances ITV's online presence, making ITV the UK's eighth largest commercial online presence, with access to a database of some 15 million people, of which one million are paying subscribers.

  2.13  Through this programme of diversification and development, it is clear that one of ITV's strongest cards is the quality and popularity of its content and brands. As viewers move beyond conventional television channels, the single most important thing for them is access to content they want to watch, wherever and whenever they want it. For ITV to generate a sufficient return on investment to maintain its investment in original and high quality content, it is vital that revenue opportunities beyond the traditional TV advertising model are not closed off.


  3.1  In order for ITV to be able to exploit the opportunities presented by digital technology and convergence and, in turn, to maintain its investment in high quality content, a framework is needed that ensures that broadcasters have sufficient access to control and exploit rights to the content they commission on new media services. The issue of new media rights and the extent to which this area should be regulated is one of the key themes of Ofcom's review of the television production sector.

  3.2  ITV welcomed the approach taken by Ofcom in its consultation document that the issue of new media rights should be left to broadcasters and producers to find a resolution in the first instance. Commercial negotiation is preferable to the imposition of a regulatory solution.

  3.3  It also needs to be recognised that any imposed solution by the regulator would only apply to the main established terrestrial channels. Ofcom needs to avoid perpetuating and, indeed, exacerbating the regulatory disadvantages faced by the analogue terrestrial channels as they seek to compete with much more lightly regulated digital channels. Ofcom should be looking to move towards a level regulatory playing field for all UK channels.

  3.4  ITV believes it should be possible to find a win-win solution that works in the interests of both broadcasters and producers—and ultimately viewers—without regulatory intervention. It is important that broadcasters are not denied a proportionate share in the value generated by the programmes they fund and the brands that they make famous and valuable. Broadcasters should be able to exploit the content they have paid through new media services to help maintain programme investment in future. However this is not to say that producers should not get an appropriate return from the programmes that they create.

  3.5  ITV therefore welcomes Ofcom's proposal that there should be a new approach to the definition of `primary rights' which would include new media usage. Under Ofcom's model broadcasters would be able to exploit content across a range of platforms within an agreed timeframe. After this, the rights would revert to the producer. ITV believes that this approach should enable broadcasters and producers to work towards an agreement that provides benefit to the producer as well as providing sufficient return on investment for the broadcaster.


  4.1  With the increasing amount of content being made available on relatively open and unregulated platforms, such as the internet, ITV is conscious of the risks posed by piracy and unauthorised exploitation and dissemination of content.

  4.2  ITV is working with an informal association of broadcasters, distributors, studios and other interested parties to discuss and keep each other abreast of piracy issues. ITV is looking at appropriate monitoring exercises and are combining to help lobby and educate on piracy. Conscious of the experiences of the film and music industry, the group is keen to be as pre-emptive as possible and seek to avoid the same problems occurring in the TV sector.

  4.3  In terms of protection of our content from unauthorised reproduction and dissemination, ITV is looking at Digital Rights Management systems for paid-for content services, such as paid-for broadband or mobile services, some of which already have DRM built in to them.

  4.4  ITV also runs a successful international business, selling programmes and formats to overseas customers. The trans-border nature of new media platforms makes protections such as DRM particularly important as additional safeguards beyond those provided for by UK and EU copyright law. Such mechanisms will help protect our ability to sell programmes to secondary broadcasters and through DVDs etc to consumers.

  4.5  We will continue to monitor these issues closely and take appropriate steps to protect our content for unauthorised usage and take preventative action where possible.


  5.1  As explained, it is important for ITV that we are able to make the most of the opportunities offered by new media platforms. Increasingly consumers expect to be able to access content when and where they want it. As such, like many broadcasters, the BBC has sought to make its content available across new media platforms to consumers in a number of ways.

  5.2  The Creative Archive is one such planned BBC service, which would allow the public to access sections of the BBC's archive for personal use. The BBC is also planning to launch MyBBCPlayer, which would make all BBC programmes, both TV and Radio, available for free for seven days after first transmission. Recently the BBC has offered free music downloads as part of the Beethoven season, and has also announced plans to roll out mobile telephone and further online interactive services. However, the BBC's proposals raise some serious concerns.

  5.3  The BBC is planning to offer all these services to consumers for free. In order for commercial broadcasters to be able to gain maximum return on investment and derive the benefits of new media platforms, we will have to find sustainable commercial models to do so. The only way to achieve this is for consumers to pay for content on such platforms either by subscription or one-off charges.

  5.4  If the BBC is offering parallel services but at no cost to the consumer there is a very real danger that they could alter public perception of how content will be made available on new media platforms and undermine the viability of commercial models.

  5.5  The music industry has expressed its concerns about the effect of the BBC's Beethoven downloads (and the BBC appears to have accepted the argument in part). We can envisage similar issues arising if the BBC launches a full no cost programme download service.

  5.6  An overly dominant BBC in these areas would have the effect of minimising consumer choice and limiting choice and competition. Therefore, before each proposed new BBC service is launched we believe there needs to be a full public value test, including a market impact assessment. Each activity within the BBC's new media offering should be assessed individually given the specific impact every platform and proposed service can have. This will help to ensure that viewers, broadcasters and producers can benefit from a competitive and vibrant digital media environment.

28 February 2006

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