Examination of Witnesses (Questions 360
- 376)
TUESDAY 20 JUNE 2006
PACT
Q360 Mr Sanders: The US 2D series
that are shown on UK television, the example of Lost, for
example; it is not just movies, is it?
Mr McVay: If you had British programming
which was original programming, which was acquired for US release,
it may be that you might want to look to synchronise those releases.
Most of the work for the UK independent producers is in formats,
so they make it for the American market based on a UK format.
That might not synchronise so well, because you have actually
got two different products, one a UK product and one a US product.
Mr Graham: It is a difficult one,
because I think the problem with that argument is that it depends
on the nature of the film, or the content that you are talking
about, so global synchronised release for Lord of the Rings
or Harry Potter might work where you have powerful global
brands, where everybody is going to want to go and see it on that
first weekend. For a lot of independently-produced movies, and
actually for a lot of television, they need the success in their
home market to build any kind of success overseas. Indeed, the
many independent British films and many successful British television
programmes which go on to be successful around the world, the
success has been built, first of all, by building and nurturing
those programmes in their home market and then gradually rolling
them out. I can see the argument; my concern is that it is going
to work only for a very narrow and blockbuster-type project, either
a blockbuster TV series, like Lost, or 24, or a
blockbuster movie, like Harry Potter. I think, for a lot
of television and a lot of movies, that is not going to be an
option, just because of the way the market works.
Q361 Mr Sanders: Were you aware,
for example, that in 2005 Top Gear and, believe it or not,
Tellytubbies were in the top 10 illegally downloaded programmes?
It is not just about series.
Mr Graham: I think what it does
illustrate is, absolutely, I think, and John explained it earlier,
that in a new media world holding back material from the market
increasingly does not work. I think the music business learned
the hard way the dangers of not giving consumers what they want,
and for me the lessons of the music industry are that, by and
large, I think there will always be a certain number of people
who want just to steal, or just want to download it for free because
it is there. I am not sure we will ever eliminate that, but there
is quite a lot of evidence now that for the vast majority of people,
if you provide them with a decent download service and decent
quality at a price that they want to pay then, by and large, people
will pay. The growth of illegal downloads in the last few years
has illustrated that and I think that television production companies,
television broadcasters, need to learn the lessons of the music
industry.
Q362 Alan Keen: I am sorry to go
back to the beginning again. I am always fascinated by what I
call the theatre effect. I watch television, I want to sit there,
old-fashioned, and what must be one end of the spectrum. I have
never watched anything that I have recorded, and I do not often
record anything. I would not watch a recorded football match.
What I am interested in, because I do not understand this, and
this is very, very complicated, and everybody else, I think, if
they do not understand what you have been telling us, will have
to watch it, like I do, the first time it comes out, but what
research have you done and can you give me a picture of how people
are viewing since the change and the easier recording?
Mr McVay: There have always been
a number of impacts of technology which have been proved to be
more convenient for how people live. It is a hackneyed phrase,
time poor, cash rich. I think you have got a number of devices
already in the home, PVRs and SkyPlus boxes, and probably more
PVRs coming in the next generation of Freeview, which will allow
people to shift their viewing to suit how they live their lives.
I think people see it just as that is what you get, whether you
record it or not, a PVR does it automatically. The new broadband
services, when you move on to broadband TV and subscription VOD,
will give you huge choice, so you do not have to record it, but
what you have is a huge, if you want, Amazon effect, where there
will be a lot more choice, a lot more content. I am a keen fisherman.
I can go home tonight and, instead of watching what a broadcaster
wants to give me, I can watch what I want, when the kids are not
bothering me and I have got half an hour to myself.
Q363 Alan Keen: What percentage of
people, because a lot of research must have been done?
Mr McVay: Most of the research,
unfortunately, is coming out of the States, in terms of how people
are using broadband there to watch the television, and that seems
to be increasing, if you look at HBO. HBO's experience is that
they are offering subscription broadband, and if you want a linear
schedule it is increasing the take-up, they are increasing their
viewers by offering choice, basically.
Q364 Alan Keen: You are saying that
no research is being done here before these decisions are being
made?
Mr McVay: That is absolutely one
of the difficulties that Ofcom, ourselves and the broadcasters
face, that these services are not to the market yet. We have agreed
with the broadcasters that we will review these arrangements in
two years' time, so that when we do have the data and some knowledge
and we do see it run commercially, how it is operating, or how
audiences are using it, we will be in a better position.
Mr Graham: There has been some
consumer behaviour research, not a great deal but there has been
some. Of course, one of the difficulties with consumer behaviour
research is knowing whether or not to believe what people tell
you. I have always felt that if you believed most surveys about
what people watch on television then Panorama would regularly
have 20 million viewers, because everybody says that they like
to watch it. Whenever anyone asks in a survey, "What do you
watch on television?" it is always "I really like documentaries
and current affairs," so you are left wondering, if that
is the case, why documentaries and current affairs are not watched
much more. I think that there has been a certain amount, and we
have done some of our own research, and that seems to suggest,
for example, that there is quite a lot of appetite for both catch-up
television, on-demand television and, indeed, commercial downloads.
Although, interestingly, and perhaps you are an example of this,
not necessarily at the expense of good, old-fashioned, linear
TV; and, if it is of any comfort to you, I suspect there will
be, for the foreseeable future, when you get home at night, good,
old-fashioned, linear television. You will not necessarily have
to go down this on-demand route if you do not want to, it will
still be there.
Q365 Alan Keen: I am asking the question
because there is a tremendous peak in viewing when a film is first
released at the cinema, and lots of people go; once it is past
that first week, or so, the viewing figures drop off. We seem
to be going the opposite way with television and yet there still
must be the theatre effect left there. That is why I am interested
in what research has been done?
Mr Graham: I think it is very
complicated. Everyone predicted that the growth of DVD, for example,
even with video before that and then DVD, was going to destroy
the cinema. Actually, quite the opposite happened; people rediscovered
cinema and rediscovered it through DVD, and people started going
back to the cinema. It is a curious fact that, at the time that
we are discussing all this broadband, on-demand, different ways
of delivering, nonetheless, the BBC brings back Dr Who
and regularly 10 million people sit down to watch. Actually, with
Dr Who and Strictly Come Dancing, the BBC seems
to have discovered the trick of family viewing, people all sitting
around watching television. This is what we were all told, every
survey told you that family viewing was there, that everybody
was going to be watching television in rooms in different parts
of the house. The truth is, and I understand completely what you
are saying, actually, as John says, it has been one of the most
difficult things, trying to negotiate these deals, which are predicated
on certain assumptions about consumer behaviour, and none of us
really knows. Who would have guessed that texting would become
the most powerful driver of mobile 'phone use; nobody saw that
coming. It is one of the joys and sorrows of this business, nobody
really knows how people are going to use this in the future.
Q366 Alan Keen: Coming now to the
BBC's creative future, like some people, are you horrified about
the prospect, or will it give your members wonderful, new opportunities?
That is a very extreme view of the question I am putting; it must
be somewhere right across the spectrum, presumably. What is going
to happen?
Mr McVay: With the Creative Future,
the arrangements we have reached with the BBC allows them to use
our programming, effectively, in the Creative Future; ie it is
an enhanced window, it gives licence fee-payers more use in their
access to BBC programmes. I think there is a broader issue around
the public value test and the market impact assessment will have
to be done on basically the BBC going into a broadband delivery
market and offering programme for free, and I think that is a
legitimate question there which should be answered through the
public value test and the market impact assessment. When the BBC
moves into any area of business it does have a distorting effect,
particularly because it is going to give away content for free.
Indeed, because it gives away content for free, it may drive the
other, commercial broadcasters into more free models as well,
where basically free VOD models are funded through advertising
rather than through commercial revenues, and that is something
we would want to have further discussions about when they move
to that. I think there are real issues around that. At this point,
we really do not know exactly how WIMP is going to be rolled out,
at what point, over what services. I think the Trust has got some
tricky questions to answer.
Q367 Helen Southworth: What is your
view of the state of the industry at the moment, the state of
the health of the industry; are there opportunities to develop
creative skills? What does the Government need to do, what does
the industry itself need to do to develop a really vibrant economy
in the industry?
Mr McVay: I can answer a little
bit about the skills and maybe Alex and Malcolm, as entrepreneurs
working in the industry, can answer a bit more about what they
feel are the business opportunities. In terms of the skills, through
Skillset, we have just been working on a new TV Skills Strategy,
which will be launched later this year, with the Secretary of
State, Tessa Jowell, which is a combined strategy which involves
all the broadcasters, and includes cable and satellite, Sky, the
trade shows, the producers. That is an integrated Skills Strategy,
which will look to address not only the existing needs in the
labour market but also new entrants coming to that, with a particular
focus on all the new issues about multipart form, digital technologies,
they do impact on production there, so bringing the opportunities
in production. HD is going to be launched in the next 12 to 18
months in the UK; again, that has impacts, skills for existing
craft personnel and also new entrants. I think the industry, through
Skillset, thankfully we have got a Sector Skills Council for our
industry, I think through having that strategic body, to bring
us all together, to say what we need to do, how we are going to
fund it, and there is a funding formula in place now for the industry
to make contributions. Pact does not come under that legislation,
we make our own voluntary contributions to a fund, which Skillset
administers and which I chair, and we have been doing that for
15 years, we have been taking a voluntary levy from producers
and putting that into skills for particularly freelance employees.
Mr Graham: I think John is right.
The way I see it is, I think the context in the UK, in terms of
content creation, I have been an independent television producer
for just under 20 years and I cannot recall a more exciting and
stimulating time to be an independent producer. First of all,
within the UK, in terms of digital penetration, in terms of digital
television, two-thirds of households have digital television and
more than half of adults now buy goods online. I think there are
legitimate concerns about the digital divide but, nonetheless,
the combination of those technologies in the UK I think is a unique
spread. I think the growth of the independent sector has meant
that, internationally, we now lead the way, in terms of international
programme sales. We are a long way ahead of any competitors, other
than the US, we are second only to the US in terms of international
sales, our share is 10% compared with, I think, Canada, which
is next, with 4%. On formats, the UK producers have 45% of the
international formats market, compared with 20% for the US producers.
We are incredibly well placed, I think. The lesson for me, as
a producer, is that all of these debates we are having, all these
painful negotiations around new media rights, all the agonising
that we are doing here, about jargon and VOD and SVOD and pay-per-view,
and so on, is pretty meaningless unless there is really great
content to drive it. I think the significance of the codes of
practice actually in giving independent producers the chance to
build real businesses, to deliver to a UK market but also internationally.
I do think John is right, that the challenge now, for all of us,
is to make sure that the opportunities are there for us to bring
on the next generation of really great, innovative, exciting,
programme-makers, and I guess that is our job really, together
with the broadcasters, that is a challenge we have to meet.
Mr Brinkworth: I think also, if
I can take that one stage further, the codes of practice have
made a fundamental difference to your ability to build a business,
a fundamental difference, and that transformation has opened up
a distribution market worldwide, also within the secondary market
here in the UK. It has allowed us to export our programmes and
gain genuine revenue so you can build a business there. I think
there are issues which we need to face, in terms of the geography
of production being still in the UK, which I think is a real issue,
and I think that is a key one which will happen over the next
12 months. I think the overall settlement that we have got, in
terms of the new media rights, actually, for the first time, strikes
a very good balance between getting new programmes into the market
and allowing independent producers genuinely to exploit them in
a new media space. That has not existed before.
Q368 Helen Southworth: As I am a
Member of Parliament for Warrington, you will not be surprised
that I am particularly interested in the BBC moving out of London
and up to Greater Manchester.
Mr McVay: Salford; yes.
Q369 Helen Southworth: Absolutely.
The BBC sometimes likes to keep us hanging on threads over these
sorts of things, and we are not particularly keen to see that
happen. To the industry, how important is it that these sorts
of development opportunities are spread out, geographically, across
the nation?
Mr McVay: As I said earlier on,
our view has always been that the BBC particularly should make
sure that it commissions a broad range of production from across
the UK. Whether it needs a big facility to do that, or not, is
a question for Parliament, I think, in terms of the Charter settlement.
We want to see sustainable production centres across the UK, in
Belfast, Glasgow, Manchester, Bristol, because that gives an opportunity
for people to build up their businesses but also gives cultural
diversity, it gives different views. We think it is actually through
commissioning that you build up a diversity of programming on
the BBC, maybe not always through just a large facility.
Mr Graham: I think you can tell
from our accents that we are not solely metropolitan in our consensus.
I think it is really important, and, to be honest, this is not
the first time we have been here with the BBC. My sense is that
the BBC is more genuine about opening up to independent voices
rather more and it is committed to its regional production, but
we have had these debates before about significant shifts into
the regions and we need to be convinced that this is genuine.
Mr Brinkworth: To have a genuinely
creative industry in the UK, it is a vital part of any strategy
that the BBC commits a substantial amount of its production outside
of London. Geography is no barrier to creativity, it never should
be and never will be, and the point is that independent producers
outside of London are still producing some of the most innovative
shows outside, and the BBC, as part of its responsibility, needs
to keep up to the plate and step up to it.
Q370 Helen Southworth: Are you content
with the current ratio?
Mr McVay: No.
Mr Brinkworth: No.
Q371 Helen Southworth: What do you
think it should be?
Mr McVay: We would like to see
the BBC moving towards 50% of production outside of London. That
was in our submission to the Charter Review.
Q372 Philip Davies: Can I ask you
about advertising; do you think that traditional television advertising
will decline and therefore that commercial broadcasters increasingly
will have to rely on other streams of revenue?
Mr Graham: I think it is difficult
to tell right now. There is evidence that advertising is shifting
out of television and towards the internet. I think there are
genuine grounds for broadcasters to be concerned. Indeed, one
of the reasons why we were anxious to press the commercial broadcasters
into a commercial approach to new media was not just because we
felt it in our own members' interests but also because we felt
that actually it was in their interests too, that actually they
need to be moving towards broadening the revenue base, that their
systems cannot continue to rely solely on advertising revenue.
Having said that, the evidence is that the decline is not necessarily
precipitous and there is quite a lot of evidence there. Ofcom
were fairly clear, when they set us the task of negotiating this,
that they did not believe that new media was a zero sum game in
that way. We talk about advertising solely, but if you look at
the figures in relation to what people are spending now on media,
spending on television, those numbers have increased dramatically.
Obviously, there has been a huge shift towards subscription, which
is now the largest source of funding. My sense is that probably
there will be a long-term decline in advertising revenue, although
I think the broadcasters are very innovative and I think probably
they will work hard to find ways, and we have just seen the launch
of Thinkbox. Tess Alps is one of the more dynamic and outspoken
people in the advertising industry, who has taken the job of Chief
Executive of Thinkbox, which is an organisation designed specifically
to tackle this. Broadcasters are not just sitting there watching
this happen and I think they have shown in the past innovative
ways of attracting advertising. I do not think it is going to
be a precipitous decline, but I do think that, over time, we will
see a shift, a gradual shift probably, less advertising going
into television and more advertising going into the internet,
and more people paying directly for television in the form of
subscription, in the form of downloads and several of the ways
that we are seeing it happen now.
Mr McVay: We do not think it is
terminal.
Q373 Philip Davies: You do not think
that any reduction in advertising revenue is going to lead to
a reduction in the amount of money that they have to commission
people like you to produce programmes then?
Mr Graham: No, I do not. I am
not convinced; broadcasters historically have operated on very
healthy margins and the work that we have done shows that we do
not see any immediate threat to that business model. In fact,
I think, if they are clever about it, actually there are probably
new opportunities for them. Such evidence as there is, from America,
suggests that actually quite a lot of the on-demand revenue is
incremental rather than entirely substitutional. This is part
of the debate we were having earlier about it; no-one really knows
until actually we see these markets. One of the things that we
did as part of our agreement with the broadcasters, we have agreed
to sit down with Channel 4 and ITV within 12 months jointly to
assess where we think the market has gone, so nobody knows. The
evidence that I have seen suggests that actually there is new
money to be found out there, provided the content is really good.
I think people will pay for premium content and I think they will
pay good money.
Q374 Philip Davies: Can I ask you
about the Television Without Frontiers Directive and the proposed
changes to it; perhaps you would like to tell us what you think
generally about the proposed revisions to it? Specifically, there
is a proposal to liberalise and also allow product placement,
and I was wondering if you thought there would be a direct benefit
to independent producers if product placement was allowed?
Mr McVay: Pact is the Chairman
of SEPE, which is the pan-European trade association for TV producers,
and we have been very active in Brussels on TVWF. There are a
number of issues around revision which we would like to see addressed.
The first one is, we would like all the Member States to remove
the definition of `where practicable', ie there is a 10% quota;
we would like that to be rigorously enforced, which the Commissioners
have failed to do since it was introduced. That means, not so
much in the UK but certainly across the rest of Europe, that a
lot of Member States basically snubbed their nose at that, meaning
that the independent production sector elsewhere is marginal,
to say the least. We support the liberalisation of sponsorship
and product placement, and we agree with Ofcom, and our submission
to the Commission, and indeed to Ofcom, on this is that we would
like to see some degree of liberalisation but we think how that
will then be interpreted should be down to the Member States as
well. Certainly there should be a role for Ofcom, so how does
that happen and in what way does that happen. We do think that
the Commission, under this, actually should allow it to be a lot
more liberal. I think that goes back to your earlier point about
ad revenue; if you do allow a degree of liberalisation then that
will help protect ad revenue to the broadcasters, which then will
be invested in content, and so on, and hopefully there is a more
virtuous circle there. The way we have got to do it, from talking
to friends in Italy, where Italian broadcasters have got a more
liberal regime, basically what happens there is that the broadcaster
does a deal with Fiat and then goes to the producer and says,
"Right, you have got to have 10 Fiat cars in this drama."
That is completely the wrong way to do it. I think this should
be done creatively, to make sure that the content is still fantastic
content. There are some good examples, 24 and some of the
American examples are quite good examples of how to have a more
liberal regime but to make sure, creatively, in terms of rewarding
an audience for giving up their time to view this, that it is
not just a coke can rammed in their face, but actually there is
something in there which it is possible to do. I do think that
has got to be negotiated within each Member State, in terms of
the cultural issues that you have and other issues as well.
Mr Graham: Also, I think the reason
it has to be culturally specific in that way is because there
needs to be a degree of sensitivity with genre as well. It is
clearly the case that there are certain genres of television—sport,
entertainment, and so on—where product placement is easier
to achieve without getting in the way of the content; whereas
with drama and documentary it is much more difficult, so I think
it is important that it is done creatively and sensitively.
Mr McVay: Our point is that we
think producers are best placed, because they are the ones who
are creating the content, and they are the ones who should be
able to have relationships with sponsors and advertisers to bring
that to the broadcasters, in order to deliver great content but
probably at less cost to the broadcaster. Broadcasters have a
role but we think producers and creators should have a role now
as well.
Q375 Mr Hall: Just one question about
product placement: what about branded cigarettes?
Mr McVay: Again, our view is that
this is a matter for Member States, in terms of what the regulator
would think would be reasonable, in terms of what products and
brands should be included, if you do liberalise it. I think it
is a matter for Ofcom, in terms of what they would allow to be
in the programme.
Q376 Mr Hall: What would be your
view?
Mr McVay: We would always want
to work within the regulatory framework that is set down by the
regulator.
Chairman: I do not think we have any
more questions. Thank you very much.
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