Examination of Witnesses (Questions 440
- 459)
TUESDAY 17 OCTOBER 2006
OFCOM
Q440 Chairman: Can I just try out
one other potential intervention, the problem of illegal downloads
and copyright which we have been touching on. One of the groups
of people who play a key part in this is obviously the Internet
service providers, yet to date they have said that they have no
responsibility whatever, that they are merely a delivery mechanism
and cannot be required to police this at all. Do you accept that
or do you think maybe ISPs could and should be doing more to combat
illegal downloads?
Mr Graf: My understanding is that
the ISPs have a very clear legal position as common carriers.
You are suggesting that that position would be changed and they
would have additional responsibilities?
Q441 Chairman: I understand that
the ISPs have accepted that they have an ability, for instance,
to intervene to try and stop the dissemination of child pornography.
Having accepted a principle, one could argue that pirating material
is also damaging and they ought to take an active role.
Mr Graf: We certainly would encourage
a situation where, if there are legal issues such as that or worries
like that, there is an opportunity for ISPs, for example, as they
do perhaps with child pornography as you say, to get together
and look at this on a self-regulatory basis.
Q442 Paul Farrelly: I just wanted
to touch very briefly on television programme rights. You set
the industry a challenge to do a deal and a deal has been done,
negotiated between the broadcasters and PACT. They of course as
existing participants are very happy with the deal that was done.
We have heard some evidence from the Satellite and Cable Broadcasters'
Group, who represent some of the independent channels, that they
are not terribly happy. How do you view the deal that has been
done and are there any areas such as the operation of holdbacks
where you are going to look to see how the situation develops
and possibly make a case in the future for intervention?
Mr Suter: You are right, we did
set the industry, all parts of the industry, a challenge to come
up with a set of agreements that were within the framework that
I think was envisaged by the Communications Act, one where broadcasters
had access to the rights they needed in what you might define
as the primary market but were not allowed to foreclose future
markets either from exploitation on behalf of the independent
producer or from access to those rights by other players in the
secondary market. We were very pleased that all the broadcasters
rose to that challenge. There was a timetable and they have met
it. They have come up with agreements that are consistent with
that. It does mean that broadcasters have an exclusive (but brief)
window early on in the life of the programme and it is then released
into the secondary market for other players to get hold of. We
will have to see how it works out. We will have to see the operation
of the holdback, how long it is, how it works, does it genuinely
deliver product into the market. I have no doubt that that will
be something that we will keep under review. We are required anyway
to see how the operation of the independent production quota is
working every year. It is one of our statutory obligations to
look at that and this is clearly intimately related to it. However,
we also need to make sure, as indeed you are doing in the context
of this review, that broadcasters, who are after all the creators
of so much original and exciting content, are able to put that
across in a variety of different ways, ways that are legitimate
for them as public service broadcasters to do in reaching their
audiences through the new ways that the audiences are finding
content, without foreclosing the capacity of others to take advantage
of that content and develop other parts of the secondary market.
It is a balance. I think, where the broadcasters and the producers
have got to thus far is a good place to be.
Q443 Chairman: Can I ask you about
the Digital Dividend Review. You are obviously in the process
of considering allocation of spectrum between a variety of different
possible applications. There is quite a lot of uncertainty until
that is determined and at the moment we have no idea whether spectrum
is going to be made available to HDTV, to mobile television, to
wireless broadband. Are you content at the timetable of this because
industry is pressing for it to be perhaps accelerated?
Mr Graf: As you have indicated
Chairman, it is a complex area with a lot of competing interests
and therefore a lot of careful consideration has to be given to
the matter. We are quite close to producing a consultation document
on the use of the digital dividend. I think we hope to have it
out by the end of the year which we hope will deal with and highlight
the issues and help people look towards possible alternative solutions
to some of the challenges that obviously these competing interests
present.
Q444 Chairman: Can I raise a specific
with you. DVB-H, one of the potential mobile television technologies,
will require spectrum to be made available. Under the present
timetable it is suggested that DVB-H will not be available commercially
in this country until the time of the 2012 London Olympics, whereas
it will have been available at Beijing, since the Chinese are
rather further ahead on this than we are. Would it not be very
frustrating that the Chinese were able to broadcast their Olympics
via DVB-H and four years later we were still unable to because
we had not allocated the spectrum?
Mr Phillips: I think, Chairman,
it is worth saying that there are a number of different technologies
which can allow mobile television. There are technologies such
as DMB which have been developed around the world. We have in
our planning already a spectrum award process for a chunk of spectrum
called L band which is well-suited to what DMB can achieve and
that is planned to be released over the next couple of years.
As far as the digital dividend spectrum is concerned, one of the
things which we will need to make recommendations on and will
be consulting on is the timetable on which that spectrum is released.
It could either be released as a block at the end of the switchover
process or released during the switchover process. Also there
are elements of the spectrum being considered under the digital
dividend process which could potentially be released early on
a national basis. So we want to get spectrum released to the market
rapidly but, as Philip has said, there are a number of competing
applications which would like to use that spectrum and there are
also social issues that we need to consider as well as simply
market issues, which is why it is important, we feel, to do the
analysis in a careful way. But our plan is to put the consultation
out by the end of this calendar year.
Q445 Chairman: So does that mean
DVB-H applications should be brought to market in good time before
2012?
Mr Phillips: We think there will
be spectrum which is available for mobile television. One of the
things which has characterised our approach to spectrum is that
we are attempting for every aspect to be neutral between competing
technologies, so it would not normally be our stance to favour
one technology over another one. What we are committed to however
is releasing spectrum rapidly and our spectrum award programme
over the next two or three years will release something like 400
megahertz of spectrum, which is more than three times what was
released in the 3G auction in 2000, so it is a very significant
amount of new spectrum which is being made available.
Q446 Mr Hall: On 27 July this year
Ofcom announced their proposals for administered incentive pricing
but they do not propose to charge until 2012 for digital radio
multiplexes and 2013 for the television multiplexes. Does this
mean that the £300 million in the BBC licence bid is unnecessary?
Mr Phillips: I believe that Mark
Thompson made a speech a few days ago where he said that he had
revised his numbers and had excluded that amount from the BBC's
proposed bid.
Q447 Mr Hall: It is good news; it
is certainly good news for the licence fee payers.
Mr Phillips: Lower licence fee
settlements for licence payers; I am sure there will be significant
pleasure in that.
Q448 Mr Hall: I know this is a broad
angle shot but is there anything else in the BBC licence bid that
you think is unnecessary?
Mr Phillips: The licence fee bid
is a matter between the Government and the BBC and we look forward
to the swift conclusion of the licence fee discussions.
Q449 Mr Hall: On the issue of administered
incentive pricing there is some concern in the creative media
however that the way it has been introduced, although it will
not be charged until switchover, will adversely affect the creative
content. Is there any foundation in that claim?
Mr Phillips: I think it is worth
giving a bit of context as to why it is we have gone down this
route. The electro-magnetic spectrum is a finite resource of huge
value to the UK, both socially and economically, and we have a
duty to secure the optimum use of that spectrum. Analogue broadcasting
has been a very hungry user of spectrum ever since it started.
With the advent of digital broadcasting there are now opportunities
for broadcasters to use far less to broadcast the same amount
of services. However, broadcasting is now I think one of the only
users of the spectrum which does not currently pay administered
incentive pricing which is a mechanism that has been introduced
now for all government uses of spectrum, the emergency services
and the MoD and so on. The reason for putting it in place is because
if someone is given something to use for free they tend to use
more of it than they would do if they were paying for it and broadcasters,
like other users of spectrum, have to make choices about the way
in which they use it. We have seen over recent years the development
of new compression technologies which enable spectrum to be used
more effectively. Without administered incentive pricing there
are fewer incentives on broadcasters to make sure they adopt the
most efficient technologies in order to use that spectrum and
to free up spectrum they no longer use for other users who can
make effective use of it. So our belief is that it will create
a very effective set of incentives. As far as the impact on content
is concerned, there has been a lot of speculation—and you
mentioned the BBC £300 million in the licence fee bid—about
what kind of level that might be set at. What we have said in
those documents you referred to in July was that the kind of level
of charge for a channel like, say, ITV1 would be of the order
of £3 million a year. That compares with the licence fee
payment that ITV were making a couple of years ago of £80
million a year. So it is a relatively small amount compared to
the total budget of channels and compared to the kind of regulatory
burden that there has been on those channels in the past.
Q450 Mr Hall: So you do not think
this will adversely affect the ability to invest in creative content?
Mr Phillips: Because of that and
the fact that relative to the scale of total channel budgets,
it is a small amount of money, no, we do not; we believe that
it will create very significant economic incentives for broadcasters
to behave more efficiently in the way they use spectrum than they
would otherwise do.
Q451 Mr Hall: Just in the interests
of being even-handed can I talk to you about Channel 4. There
is a financial review of Channel 4. It is a very well-regarded
public service broadcaster, it is publicly owned but financed
privately; has it got a future?
Mr Phillips: Channel 4, like all
of the other commercial broadcasters, faces a number of pressures.
Clearly there is pressure on its audience share as a result of
the progress towards digital switchover. There is also pressure
because of increasing competition from a growing number of satellite
and cable channels. Also there is competition from other kinds
of ways of distributing what has previously been broadcast content,
you have got video on demand—so it clearly has a number
of challenges to face. At this point what we want to do is through
the review gather the evidence and the analysis which will enable
us to make an objective judgment about the extent to which those
kind of challenges will get in the way of Channel 4 delivering
on its public service remit in the future. What it would want
to do is make sure that the debate is not simply about the high
levels of emotion that we have seen in public exchanges over recent
months, but that there is a shared body of evidence which we want
to put out into the public domain to be the basis on which we
can make recommendations.
Q452 Mr Hall: Do you see a fundamental
change in the public service broadcast remit of Channel 4 in the
next five years?
Mr Phillips: I think Channel 4's
remit is a broad-ranging one.
Q453 Mr Hall: Specifically about
public service broadcasting.
Mr Phillips: Its public service
broadcasting remit is defined in a way that leaves it broad and
able to react. Things like innovation and diversity and education
are things which I would hope Channel 4 can continue to deliver
on. The purpose of the review is to make sure we gather and interrogate
the evidence to make sure there is an objective view rather than
an off-the-cuff view.
Mr Graf: The purpose of the review
is not to question the remit but to question how the remit is
being delivered.
Q454 Mr Hall: Can it deliver its
remit?
Mr Graf: That is one of the things
that we are clearly going to be looking at. There has been a lot
of discussion, a lot of speculation, a lot of assertion about
this. What we want to do is to take the evidence and look at the
financial evidence and look at the delivery evidence and then
be able to make a balanced judgement based on that evidence.
Q455 Mr Hall: What is your initial
reaction?
Mr Graf: I do not think we have
an initial reaction on this. We have got to look at the evidence
and then have a reaction.
Q456 Adam Price: In the light of
the comments of the outgoing Chief Executive of ITV, can you say
if you believe Channel 4 is meeting its public service remit now
and could you give some specific examples of that, if you do?
Mr Graf: I can only say that is
precisely what we are seeking to determine, to look at that again.
There have been a number of statements made by people who say
it is not and a number of statements made by people who say it
is meeting it. What we are seeking to do by looking at this in
an evidence-based way is to evaluate that and our job, as Peter
has said, is to gather the evidence on the financial side and
the financial issues that are challenging them and to look at
the evidence on the remit side to see how it is delivering its
remit. It would be unfair and wrong of me before we had gathered
that evidence and before we had undertaken that study to pass
comment on it, however tempting it might be.
Q457 Philip Davies: Following on
from that, the challenges that you mentioned that Channel 4 were
facing are presumably very similar to the challenges that ITV
are going to be facing as well in terms of advertising revenue
and things like that. What I am not quite sure about is where
Ofcom stand on ITV's public service obligations because in the
past you have released them from some of their obligations yet
at a Royal Television Society speech that you make you bemoaned
the fact that ITV had "a shareholder mindset . . . that sees
every public service obligation as a cost to be hollowed out not
an opportunity to be built on", so does Ofcom feel that ITV
should be released from some of these public service obligations
or do you think there should be more because they should be building
on these things? Where does Ofcom stand?
Mr Graf: If I may answer the generality
in the context of what I was getting at at the RTS and perhaps
Tim can answer some of the specifics in terms of the ways we are
dealing with specific questions and specific issues. The point
I was seeking to make at the RTS was that it seems to me not a
very sensible way to adopt a shareholder mentality which is completely
focused on cost-cutting but to adopt a mentality which says if
you are looking to develop a business you want to look at the
top line, and a sensible way for ITV to develop the top line is
to develop content which is of interest to the audience and to
advertisers. Simply looking at cost-cutting was not a very long-term
view and was rather a short-term mentality and a particular sort
of shareholder mentality. I simply wanted to encourage ITV and
the incoming Chief Executive to look at this from the point of
view of how they can develop value in that business by developing
high-quality content using the PSB to develop higher quality content
and therefore to develop audience and therefore value for shareholders
in that context, rather than simply look at cost-cutting, which
may be necessary but certainly is not sufficient in this context.
In terms of the specifics, Tim, do you want to talk about some
of the ways we are approaching some of the specifics?
Mr Suter: I will very briefly
touch on a couple. As you know, a couple of years ago when we
published our review of public service broadcasting what we tried
to do was to look at what would be a sustainable range of public
service commitments going forward into digital switchover. We
looked particularly at, for instance, the range of regional obligations
that ITV had and how many of those would be sustainable, and we
concluded on the basis of the audience research that we did and
the analysis that we carried out that audiences were focused primarily
on news and information about the areas they lived in and were
less concerned about other kinds of non-news output which was
attracting relatively smaller audiences, and it would be appropriate
for ITV at switchover to rebalance therefore the nature of their
public service commitment. Other kinds of commitments we do on
a case-by-case basis when ITV, as it is invited to do every year
to put forward a statement of programme policy, makes a request
or puts forward a proposal that it would change the nature of
its output to a significant degree, that is an assessment that
we make in the context of all the other public service channels.
Last year we looked at their obligations in relation to religious
programmes. This year we have looked at their obligations in relation
to children's programmes and come up with our answers on both
of those.
Q458 Philip Davies: You rejected
their request to reduce children's programming. What sort of things
in the future might allow you to agree to any reduction, the fact
there is a more diverse media, will that inevitably lead to you
reducing their public service obligations, or perhaps the banning
of advertising on TV of certain products at certain times, will
that compel you to release them from some of their public service
obligations? What do you see as being the challenges and what
things will persuade you to release them from some of these in
the future?
Mr Suter: We clearly have to balance
how we look at their public service obligations against what audiences
are doing, what else is happening in the market, and how the financial
as well as the audience climate is changing. Our obligation is
to make sure that there is provision of public service content
provided by public service broadcasters to a wide and diverse
range of audiences. Our view on children's provision is not only
that in advance of digital switchover are there significant numbers
of children who are not actually receiving digital television
who are reliant on the main public service channels for the totality
of their television experience but also the contribution that
is made by public service broadcasters specifically to creating
original home grown content. That is a very important role. You
raised the issue also of the interaction of that obligation with
rules around the promotion of food, for instance, on television
to children. Undoubtedly that is something that we will have to
balance. No decisions have been made on that as yet but when they
are I have no doubt that we will have to balance those interests
in future.
Q459 Philip Davies: Given the review
you are making of Channel 4 at the moment is it sensible to undertake
a review of Channel 4 without doing exactly the same in parallel
for ITV and Five, which are clearly facing exactly the same pressures
as Channel 4?
Mr Suter: If I may just pick that
up. We have a statutory obligation to review public service broadcasting
at intervals of not greater than five years. The last was two
years ago. There is quite a body of work that we are already doing
in relation to public service broadcasting in the future, looking
at the public service publisher, looking at the future of news
provision in post digital switchover, the financial review of
Channel 4, the annual process of looking at statements of programme
policy for public service broadcasters. I think even in advance
of the next review there is quite a lot of focus on how public
service broadcasting is being delivered and will be delivered
in the future.
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