Examination of Witnesses (Questions 460
- 478)
TUESDAY 17 OCTOBER 2006
OFCOM
Q460 Paul Farrelly: Just to follow
up a couple of those questions. Can I congratulate you on jumping
off the fence and being totally impartial in what you said about
ITV and public service broadcasting obligations in the speech
that Philip has just referred to. Clearly ITV has been under siege
for a long time, these old hyenas in the City who have been sniffing
around ITV, and of course to satisfy its shareholders it is proposing
to give back money and that clearly can come off its broadcasting
budgets. Have you set any markers down and do you consider that
you have any powers to be a player in any future takeover of ITV
in terms of seeking conditions and guarantees on public service
broadcasting from any acquirer?
Mr Suter: If I may, I think it
is important to separate out two different elements. One is ITV
and the other is the Channel 3 licence. Our lock is on the Channel
3 licence; it is not on ITV or whoever acquires it, and nor would
it be appropriate for us to do so. The lock is in the licence
and the licence conditions and those licence conditions require
a commitment to high levels of original production, a commitment
to well-funded news that is regional, national and international,
and a range of other public service broadcasting obligations.
Now that is the cost, if you like, of holding a Channel 3 licence.
It is there in the licence conditions. Anybody seeking to acquire
a company that holds those licence conditions will need to look
at those costs as well.
Q461 Paul Farrelly: Would you ever
seek to form a view and state a view publicly on the suitability
of any acquirer in terms of your confidence that those conditions
will be fulfilled or would you be totally neutral?
Mr Graf: I do not think—
Mr Suter: If I may, the public
interest test is a test that would need to be carried out and
met and that is a test that is placed upon us in any merger situation
but it would be, I think, inappropriate for us to form any views
ahead of that.
Mr Graf: As Tim says, we have
a clear public interest test of the licence which is the mechanism,
and beyond that I think it would be inappropriate for us to get
involved in a discussion about individual potential buyers.
Mr Phillips: Obviously we have
a responsibility as a competition authority and therefore to the
extent that any acquirer raised competition issues then that would
obviously be something that we would need to take into account.
Q462 Paul Farrelly: My second plaudit
is can I congratulate you on turning down the request to reduce
ITV's children's programming to, by all accounts, half of the
time that is broadcast nightly on these stupid quiz shows that
are now the fashion. Could I ask you on the record why that request
was turned down? What was the rationale in turning down that request?
Mr Graf: As Tim has said, there
are two issues. One was the question that up until digital switchover
there are a significant number of children whose only access to
children's programmes in competition with the BBC would be ITV
on its main channel and, secondly, ITV itself provides an opportunity
for people who produce. It is a purchaser of children's programming
and that is an important part of the production ecology. Those
are both important issues for us and those are the two main reasons
why we said no to this particular request.
Q463 Paul Farrelly: Finally, Chairman,
I was on holiday in the summer and it is possible on German satellite
and cable to look at the full range of the variants of stupidity
that can be produced with these quiz shows in these new media.
In a sense, there is insufficient redefinition of interactivity:
you call; you do not get through; you get charged. What are you
doing in terms of reviewing the appropriateness of this sort of
programming?
Mr Graf: Let me say a number of
things. First of all, obviously like any television programme
where we get a complaint we investigate it, and we have a number
of investigations underway in this area in terms of the content
of these programmes. Secondly, you will be aware, I hope, that
the Gambling Commission is undertaking an investigation into exactly
this area in terms of what is a lottery and what is not. We certainly
welcome that very much indeed. Any clarity in that area from our
perspective will be extremely welcome. Thirdly, of course we work
very closely with Icstis, our co-regulator in this area on the
whole question of the telephone call and what happens during the
call itself rather than the content of the programmes. Fourthly,
we are currently contemplating, and I think will bring forward
in the near future, an examination of whether these channels are
advertising channels rather than simply editorial channels, whether
they are simply (and they are not simply quiz shows, this incorporates
other sorts of channels) ways of raising premium rate funded revenue,
and in fact there is no editorial. That is an area where we will
have to go through a formal process and we intend to bring that
formal process forward in the very near future.
Q464 Paul Farrelly: So we are seeing
some serious joined-up regulation?
Mr Graf: We work very close with
Icstis. I think it is very important to say that. This is an area
where there is a joined-up regulation. It is an area where we
see a boundary line between ourselves and Icstis and a boundary
line between advertising and editorial as being sorely tested.
With Icstis we are working very well together and on the advertising
and editorial boundary line that is one we intend to explore in
the near future to gain clarity.
Q465 Adam Price: It is about two
years since Ofcom floated PSP as opposed to PSB and most of us
have been confused ever since! You have said that without the
creation of a public service publisher some £300 million
of public service content will disappear by switchover. Do you
still stand by that?
Mr Graf: I think in the £300
million it is important to distinguish between what will disappear
and what will reappear, in a sense. There has been some confusion
in people's minds that the £300 million is what a PSP might
cost. That is not necessarily the case. Our estimate of the current
value of PSP is around £300 million and that is what we see
in danger of disappearing. The question is how is that content
to be replaced, as it were, in the digital world and we have just
been talking about the challenges which face public service broadcasters
and our belief in the competition for quality. That is what the
public service publisher is about, as to whether this is a potentially
suitable mechanism with real potential for replacing the content.
If for example—and this is a for example—it was placed
around Internet and new media content, the cost of this could
be really much, much less than £300 million. I would not
want people to get fixed on the fact it is a £300 million
cost to replace it. It is a £300 million cost we are replacing,
as it were.
Q466 Adam Price: Given the digital
context which, as you outlined earlier is inherently fragmented
and competitive, do you envisage PSB being delivered through a
single, branded core institution or would you see it being delivered
through commissioning across existing commercial platforms?
Mr Graf: I would like to ask Peter
to answer that because we have been exploring this and there is
some quite interesting stuff we are at present.
Mr Phillips: Our proposal was
that the public service publisher would be the commissioner but
it would be doing that in order to create content that could be
distributed across a wide range platforms rather than simply through
linear television. The context for our ideas was not only the
declining value of investment in public service broadcasting post
switchover but also the behaviour of audiences is changing and
we see, particularly for the younger audiences, a shift from linear
television to the Internet and mobile services and so on and also
the fact that it is now possible to distribute across a wide range
of platforms. Taking those three things together, we felt that
there was a good case for exploring in more detail a body of that
kind. We think a commissioning kind of approach is one that is
likely to be most helpful in promoting innovation and giving wider
benefits to the creative industries.
Q467 Alan Keen: On the on-going BBC
market impact assessments I was highly amused when we last had
the Director-General and Chairman in front of us because a few
of my colleagues were denigrating them and the BBC was bending
over backwards to say how reasonable they were going to be. I
then said tongue in cheek are you not being unfair to the licence
fee payers by not being hard-nosed and not driving forward on
behalf of licence fee payers and producing what you want to produce?
Can you tell us first of all in broad terms how you view currently
the situation and that overall balance, before I get down to something
more specific?
Mr Graf: In terms of the balance
between?
Q468 Alan Keen: The balance between
the licence fee payer deserving the BBC to produce what it thinks
it should produce. Its website, first of all, has been brilliant
all the way along and is now and we do not hold the BBC back too
much. What are your current feelings about getting that balance
right, just in general terms?
Mr Graf: I have a little bit of
history as regards the BBC website which I had perhaps better
not go into here now that my role has changed. What I would say
is I believe that we at Ofcom have a role to play in that overall
balance in terms of the MIA and there is a real opportunity for
us to provide something which is independent, which is transparent,
which is rigorous, which will help in that balancing question
that you are talking about. I think that is where our role fits
in. Through the MIA structure and joint steering group structure
we have got set up we have a way into providing both for the licence
fee payer and for the public in general a much clearer view of
the impact of these services and the opportunities that they may
either provide or potentially cut off in that context.
Q469 Alan Keen: On the current MIA
is the BBC being transparent enough to allow people to really
assess the situation properly? What about the current timetable,
is it going as you would hope?
Mr Graf: I will ask Tim to comment
in detail because he actually sits on the joint steering group
with the BBC. Let me just say that what we recognise fundamentally
is that this is the start of something. There is a genuine learning
process that has to go on at the BBC. They have got some learning
to do, the stakeholders have got some learning to do, and we certainly
have got some learning to do. This is a new concept and both in
terms of the complexity and the time involved in this process
I think we all recognise that and also in terms of the type of
information that needs to provided, I think we are getting a better
grip and a better understanding of that too. Tim, do you wish
to comment?
Mr Suter: Yes, thank you. We always
knew that the timetable would be tight. I think there was a general
recognition (and it is right) that the timetable should be tight
because we are talking about developments in a fast-moving world,
and the Chairman started by reflecting on how much it had changed
in the few months that you have been working. So it is right that
we should not let the grass grow under our feet. Equally, it is
essential that all players in the market have enough information
on which to respond to the questions which they are being asked.
So I am very pleased that the deadline for consultation responses
was extended and that the whole process of this MIA will now be
completed in the new year rather than before Christmas as we had
originally been working to. Is there enough information there?
We will see when we get the responses back. I think there is now
enough information for people to respond to the questions that
they are being asked and we will see what those responses generate.
Q470 Alan Keen: Already, as Philip
said, you are learning lessons day-by-day I suppose. Are you able
to tell us the main changes you would like to make that you did
not realise were necessary before the process started? What has
been the most obvious? Is it time?
Mr Suter: I think the critical
issues will be time, access to information, and sufficient information
to be able to respond sensibly to the questions that are being
asked. I suspect that in all of that we will feel our way to finding
the right balance between giving people enough time and cracking
on with this and doing the job.
Mr Graf: I also think from informal
conversations that stakeholders themselves and the players are
having to learn and be geared up in a particular way they may
not have been geared up before to deal with this information and
to deal with these issues and to learn. I think they are learning
some lessons about how they are going to manage responding to
the information effectively.
Q471 Chairman: Some of us regard
it as slightly curious that the joint steering group overseeing
the market impact assessment should include people from the BBC.
Are you confident that the BBC are going to be happy to be as
open and transparent as possible and make available information?
Do you believe that you are going to be able to work with the
BBC on that steering group?
Mr Suter: The broad answer to
your question is yes; so why do I think that? Because the market
impact assessment is the responsibility of Ofcom. It is an Ofcom
market impact assessment that is delivered. It is delivered to
terms of reference that are agreed by the joint steering group.
That joint steering group has an obligation to include within
those terms of reference any market that any member of the joint
steering group believes should be included both for current impacts
and future possible impacts. So we have the opportunity through
the joint steering group to ensure that we can look as broadly
as we feel we need to to make sure that the Ofcom market impact
assessment is delivered in accordance with all of the same principles
with which we look at any other impact in the market. I feel confident
that it is an Ofcom impact assessment done to terms of reference
that are agreed by the joint steering group but which can be broad
enough to make sure that we cover all of the ground that we need
to. It is then for the Trust to make the final decision as to
where it is appropriate to spend public money. That seems to me
to be the right way round. I would feel nervous were it not an
Ofcom market impact assessment, but it is.
Q472 Alan Keen: You are not learning
a lesson, are you, that it is over-regulation? Should we not just
treat the BBC as a different type of ownership and let them battle
away in the best way they can for licence fee payers? On regulation
and competition, really the problem is with politicians who have
to decide how much money the BBC can have and really within that
decision why not let the BBC battle as hard as they can and win,
if it is a case of competition?
Mr Suter: If I may, it does seem
to me that one of the things that has changed is the recognition
that you do need greater accountability for how and where that
money is going and greater transparency in how those decisions
are being taken. I think that is the most important thing that
has changed, that these are decisions that will be taken publicly
and transparently on the basis of assessment of the public value
which the BBC will do and of the market impact which we will do,
and then the decision is to be taken publicly. That seems to me
to be an advantage. As far as I see it, it does not prevent the
BBC from arguing very strongly for a new service that it wants
to do, but it will need to do so on the basis of all the evidence
that is presented.
Alan Keen: You have got a difficult job.
Q473 Chairman: I think it is fair
to say that there are differences of view on this particular subject.
Mr Graf: Surely not, Chairman!
Q474 Chairman: Can I ask you one
very specific regulatory question quickly. The downloading of
content onto different platforms. As I understand it, the downloading
of premium content on to mobile devices Ofcom is arguing should
be covered by the Icstis rules and requirements whereas the downloading
of content (at presumably much the same price) through the Internet
through for instance iTunes is not regulated. Does this not seem
unbalanced to say the very least?
Mr Graf: Chairman, can I come
back to you on that because unless either of my colleagues can
give you a specific answer I would prefer to come back to you
on that particular one rather than speculate or give you an inaccurate
answer.
Q475 Chairman: Okay, it is an issue
which is causing concerns and it may be that other bits of your
organisation are addressing it.
Mr Graf: I understand the question
very well and I will get back to you.
Q476 Adam Price: We have read in
the last few weeks that the European Commission and some Member
States are determined to extend regulation to new media platforms.
What is your view of the likelihood of this being the outcome
of the current deliberations and what steps are you taking to
counter it if you disagree with it?
Mr Graf: Tim has been deeply involved
with this exercise both with the Commission and with the Council
and working alongside the HMG on this. In overall terms it is
fair to say that we are much more encouraged than we would have
been six months ago, but I will let Tim take you through the specifics
of where we believe we are at and what needs to happen.
Mr Suter: We support the Government
rather than negotiate directly, so it is for them to decide the
position. I think all of us were alarmed that despite some of
the more encouraging words that were being said, the words on
the page this time last year looked as though they would capture
a very wide range of the sorts of media that you have been looking
at and bring them within a framework of essentially the statutory
regulations that we apply to broadcasters, and although people
might have said that was not what they intended it was nevertheless
the likely consequence of where we were going. I think there is
first of all a wider recognition now across our partners in Europe
and the Commission that this is a real danger and not a mythical
one and, secondly, there are practical ways in which this can
be dealt with: firstly by limiting any extension of scope—and
I have to say we are not convinced there are grounds for any extension
of scope but if there were to be an extension of scope it needs
to be under two conditions. Firstly that it is genuinely limited
to material that looks, feels, sounds and is essentially substitutable
for television and, secondly, that we can use self and co-regulatory
mechanisms to ensure the outcomes of the Directive. It seems to
me that without those two locks we are indeed in danger of extending
the footprint of the statutory regulation far too far, with all
of the adverse consequences that have been widely reported of
attaching regulation to hundreds and millions of sites, of stifling
innovation and growth, and essentially forcing stuff overseas
that we do not want.
Q477 Adam Price: Why are you more
encouraged now than you would have been six months ago?
Mr Suter: I think because the
intellectual case has been well fought and well argued. I think
around the Council table and some parts of the European Parliament
that intellectual argument has been heard, but there is a long
way to go. I think there is still every danger that we might still
not end up with a solution that is workable. The trouble with
unworkable solutions is that they are just that, and they will
argue against where we want to be, which is an environment where
consumers are genuinely protected. My greatest fear of extending
the footprint of statutory regulation is that it provides the
apparent security to consumers that there is somebody there whose
job it is to protect you from this material. The fundamental message
is that the primary responsibility in so many of these environments
will lie with the consumer. It is our opportunity to educate them
and to make sure they have the tools available to them to make
sure that they know what is there. If we pretend to them that
we can solve it we will be doing them and ourselves a disservice.
Q478 Chairman: Can I thank you very
much.
Mr Graf: Thank you very much,
Chairman.
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