Memorandum submitted by ITV
1. INTRODUCTION
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.
2. THE IMPACT
UPON CREATIVE
INDUSTRIES OF
RECENT AND
FUTURE DEVELOPMENTS
IN DIGITAL
CONVERGENCE AND
MEDIA TECHNOLOGY
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. THE EXTENT
TO WHICH
A REGULATORY
ENVIRONMENT SHOULD
BE APPLIED
TO CREATIVE
CONTENT ACCESSED
USING NON-TRADITIONAL
MEDIA PLATFORMS
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. THE EFFECTS
UPON CREATIVE
INDUSTRIES OF
UNAUTHORISED REPRODUCTION
AND DISSEMINATION
OF CREATIVE
CONTENT, PARTICULARLY
USING NEW
TECHNOLOGY; AND
WHAT STEPS
CAN OR
SHOULD BE
TAKEN—USING
NEW TECHNOLOGY,
STATUTORY PROTECTION
OR OTHER
MEANS—TO
PROTECT CREATORS
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. WHERE THE
BALANCE SHOULD
LIE BETWEEN
THE RIGHTS
OF CREATORS
AND THE
EXPECTATIONS OF
CONSUMERS IN
THE CONTEXT
OF THE
BBC'S CREATIVE
ARCHIVE AND
OTHER DEVELOPMENTS
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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