UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 316-iv

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CULTURE, MEDIA AND SPORT COMMITTEE

 

 

PUBLIC SERVICE MEDIA CONTENT

 

 

Tuesday 24 April 2007

MR MARK THOMPSON and MS CAROLINE THOMSON

MS IONA JONES, MR BOBBY HAIN and MR DAVE RUSHTON

Evidence heard in Public Questions 302 - 385

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 24 April 2007

Members present

Mr John Whittingdale, in the Chair

Philip Davies

Mr Nigel Evans

Paul Farrelly

Mr Mike Hall

Alan Keen

Rosemary McKenna

Mr Adrian Sanders

Helen Southworth

________________

Witnesses: Mr Mark Thompson, Director General, and Ms Caroline Thomson, Chief Operating Officer, BBC, gave evidence.

Q302 Chairman: Good morning, everybody. This is a further session in the Committee's inquiry into the future of public service media content. We are beginning this morning's session by taking evidence from the BBC. I would like to welcome the Director General, Mark Thompson, and the Chief Operating Officer, Caroline Thomson. Before we move to the main area of our inquiry - this is obviously off topic but nonetheless a matter of great interest both to you and ourselves, - I wonder if you would might be able to tell us a little on the present position regarding Alan Johnston, your journalist who has been captured in Gaza?

Mr Thompson: Thank you, Chairman. This is the 43rd day since Alan Johnston was abducted in Gaza City on his way from the BBC Bureau there to his home. Since then the BBC has had no direct contact from those holding him, nor have we had, as it were, completely rock solid information about his status and whereabouts. I and my colleagues are satisfied from our couple of conversations with the Foreign Secretary and others that the British Government is doing everything in its power to try and secure Alan's safe return as quickly as possible. I have had, and I know the Government has also had, assurances from the Palestinian President, Mahmoud Abbas, that the Palestinian authorities are doing everything they can to secure Alan's release. We had, as you may know, nine days ago a claim sent to the BBC and other news organisations that Alan had been killed by a particular group. There has been absolutely no confirmation of that claim. However, it is worth emphasising that we do not have firm information about his whereabouts or his state of health and Alan's family, and the BBC, remain increasingly concerned that such a long period has gone by without any firm word.

Q303 Chairman: Thank you. I think the Committee join you in praying for his safe return.

Mr Thompson: Thank you.

Chairman: Can I invite Nigel Evans to begin.

Q304 Mr Evans: This is the first time you have come before the Committee since the new governance arrangements have come into effect, how is it going?

Mr Thompson: Perhaps I can begin and Caroline may want to comment as well. I would say in the first few months we have got off to a good start. We have now got the BBC Trust in place. We have had Dr Chitra Bharucha as acting Chair of the Trust, the substantive new Chair, Sir Michael Lyons, arrives in May. The meetings of the Trust have felt to me very well organised and the Trust has access to much more independent information than the BBC Governors historically had. It means that their scrutiny feels different from that of the traditional BBC Governors. Frequently when we are making a proposal to them they will have sought independent advice and their questioning and their point will be based on much more solid independent evidence, as it were, than would have been true of the Governors. So far I think the process is working well. On my side of the fence, at the beginning of January after 80 years of the BBC having a senior management group which was entirely based on insiders, full-time executives, we had the first meeting of the Executive Board very early in January with five non-executive directors, heavy-hitters. Marcus Agius, the Chairman of Barclays plc, is the senior non-exec. We have a formidable bunch of non-execs who I think are making a real difference to the decision making and the debate at the management level.

Ms Thomson: It is perhaps just worth adding one thing. The other part of the arrangement, apart from the Trust, is the far greater scrutiny of the market impact of services we have got. We have had the first Public Value Test going through the Trust, and we do not yet know the final results of that, the Trust is going to announce that at the beginning of May. Certainly from the management point of view it is a very different experience. For the iPlayer on-demand service, we had o make a case and justify it in terms of the public value and Ofcom did its market impact assessment, changes have been made and we are having to respond again, all of it done transparently, publicly and openly. It is slightly uncomfortable from our point of view, to be honest, but as someone who helped construct the new Charter one has got to accept that it has got to be uncomfortable and it is beginning to settle down.

Q305 Mr Evans: So they are making life uncomfortable for you. I just want to know how hands-on they are on perhaps even a day-to-day basis and from issue to issue. To give one example, the appalling decision to sack Moira Stuart as a newsreader, for instance. There was huge public reaction. Did anybody from the Trust or Executive Board phone you, Mark, or Caroline, and say, "What are you doing?"

Mr Thompson: I think at the next meeting of the BBC Trust, which indeed is tomorrow, I would expect to report to the Trust on all of the, as it were, notable developments of the last month or so and at that point it will be open to members of the Trust to question me about any or all matters that have either caught their attention in the press or they have had complaints about.

Q306 Mr Evans: Have any of them phoned you, Mark, to say, "Listen, are you mad? Moira Stuart is one of the most popular newsreaders we have got and we are reading comments that you have got an ageist policy against women newsreaders at the BBC"? This is what we have read. Has nobody phoned you from the Trust or the Executive Board?

Mr Thompson: I would like to respond to some of the points you have made or, more precisely, you said you have read about about Moira Stuart. Firstly, under the Charter there is meant to be a much clearer separation between the operational responsibilities of the BBC led by the Executive Board and this broader point of oversight in the public interest of the BBC Trust. In my reading of the White Paper and the Charter and Agreement, it is intended that the Trust should not get involved particularly before the event in management and operational decisions. This answers the criticism that historically the Governors tended to get too embroiled in management decisions and, therefore, in retrospect could not stand back and reach a judgment about whether the management had made the right decision or not. Once you start getting trustees involved in deciding whether individual members of staff should be treated in a particular way they become managers themselves. I think it is appropriate, all the more so when there is a point of controversy, that the Trust should stand back, keep its powder dry and then be in a position objectively after the facts to weigh up whether or not management has made the right decision. I do not want to say a great deal about Moira Stuart, she is a member of BBC staff and a very valued and much loved member of BBC staff by her colleagues as well as the public, and the question of what happens to Moira in the future is something we are still discussing with Moira and I would rather keep that conversation privileged between her and us at this stage. However, I would simply want to refute the suggestions I have read in some papers that there is ageism, sexism or racism, that any of these things are a factor in the present discussion. The one simple thing I can point to is that BBC News, BBC News on News 24, on our radio networks but also in our programmes on our main BBC channels, BBC One and BBC Two, has changed somewhat over the years and the traditional role of a newsreader as opposed to a correspondent or a news presenter, who also does interviews, has virtually died out across the BBC services. We tend to use journalists to present News 24, our news programmes like the 10 o'clock News and, indeed, to read news headlines. If you take the example of Breakfast News it would once have had main presenters and a newsreader, now we have presenters who also tell you the news. I think the right thing for us to do is to continue to talk to Moira herself about her future. I would want to agree with you that Moira Stuart is a very valued and much loved BBC colleague, by us and by the public. Indeed, when she does programmes beyond the news, and I think of her recent, rather brilliant programme about William Wilberforce, again she shows the range of her talents. I am hoping that talking to her we can reach a really satisfactory answer to what is next for Moira Stuart.

Q307 Mr Evans: If this is how you treat someone who is valued and much loved, I hate to think how you would treat somebody you do not like. Has the public reaction surprised you and does it mean anything to you?

Mr Thompson: I am not surprised to hear how strongly the public feel about Moira because she has been a trusted and familiar face and voice for the British public for many years. Does it mean that I think we should ensure that she is treated properly and we find the right answer to what she should do next? Yes, I do. What I also want to say is if I believed that we were actually treating Moira in the way that has been expressed in the newspapers I would feel very differently about it. That is not the way she has been treated and what you are reading in the press is not true. The right thing for us to do, as, I hope, a good employer, is to work out with Moira what is right for her, and I cannot say much more than that.

Q308 Chairman: Just returning to the relationship you have with the new Trust, is there anything that you have disagreed about so far with the Trust or where they have stepped in and told you that you should not be doing something that you wanted to do?

Mr Thompson: I think a really good example would be the iPlayer, the on-demand application where the Trust in its preliminary indicative conclusion on the Public Value Test, which is now currently out to consultation with the public, took a different view from BBC management about the length of windowing that should be available and also believed that there should be certain exclusions, for example an exclusion from effectively pod casting of music, including classical music and readings. The Trust in looking at the BBC management proposals is minded currently to accept the broad proposal that the BBC should launch an on-demand application but has introduced a number of changes to the proposal because of their own assessment of Ofcom's market impact assessment and their own assessment of the public value of the proposal.

Q309 Alan Keen: I have raised this on a number of occasions and I am pleased to see that the Trust is completely separate now and I would have thought if there is ageism that is a policy issue that you would raise quite separately from the individual Nigel has talked about. I am also pleased that you have got lay members on the Board itself but I have argued before that the previous problem when Gavyn and Greg were there, acting as Executive Chair and Director General, as they did, was there was not anybody as a backstop. How is it working with the non-executive members? Do they play a proactive part? You have not got a chairman, are you the chairman and the chief executive? Lots of companies have both a chairman and a chief executive.

Mr Thompson: I think that is a fair question. Under the new constitution I am the Chairman of the Executive Board. I should be very clear that my view as Chairman, and I think it would be true of my successors as chairmen, is the non-executive directors as a group, led by a senior non-executive, should have enormous sway over the Executive Board. What I mean by that is, to be honest, I think it is virtually unimaginable that I would wish as Chair to support anything coming through that Board which the non-executives as a group were opposed to. People worried during the Charter renewal process about whether the fact that the non-executives did not have a majority on the Board was going to mean that they were going to be powerless and the executives would fold their arms and force things through irrespective of the non-executive directors' wishes. I would say in practice that is just unimaginable. You have got very weighty people who have, quite rightly, their own line of contact to the BBC Trust. There is regular contact, and in my view there should be, between the senior non-executive and the Chair of the Trust. I feel my responsibility as Chair of the Executive Board is to make sure that the Board collectively is comfortable with decisions that have been made. This is a proper decision-making body and the non-execs have enormous influence. To be honest, they are very lively characters and are making their presence felt, and have made it felt from the first meeting.

Ms Thomson: Absolutely.

Q310 Alan Keen: How often does that management board meet?

Mr Thompson: Monthly.

Q311 Alan Keen: Can you remind us who is on that Executive Board, apart from the non-executive directors?

Mr Thompson: Yes. Let us hope I can remember them all. I am there as Chair. There is the Deputy Director General, Mark Byford, who is also head of our journalism. The major services of the BBC representative is Jana Bennett as Director of Vision, which includes television and much of our multimedia output. There is Jenny Abramsky, who is Director of Audio and Music, which is BBC Radio but again now audio on all platforms, Ashley Highfield, who is Director of Future Media and Technology, with particular responsibility for the web, bbc.co.uk, and also for future projects, Caroline as Chief Operating Officer is on the Board with extensive responsibilities for many of our big infrastructure projects, for property, for strategy, for public policy and so forth, Zarin Patel is Group Finance Director and she is on the Board, Stephen Kelly is Director of BBC People, in other words human resources, Tim Davie is Director of Marketing and Communications and Audiences, the marketing and coms function of the BBC, and John Smith is Chief Executive of BBC Worldwide, the BBC's commercial arm. In other words, myself, nine executive directors and currently five non-executive directors, although we are hoping to make one more appointment so there will be six non-executive directors.

Q312 Philip Davies: Following up on Nigel's questions, I was reflecting on the irony of the most politically correct organisation in the country being accused of ageism, sexism and racism, it must fill you with absolute horror to be accused of that.

Mr Thompson: Can I just say that I do not believe that we should think of ourselves or we should be a "politically correct" organisation. We should be a good employer and an open minded reflector of British society, but I do not see it as any kind of badge of honour to be described as being in some extreme way politically correct.

Chairman: I am not sure Philip intended it in that way.

Q313 Philip Davies: Do not be so sure! If we could just move on to the licence fee settlement. You received a licence fee settlement well below your bid. What public service content are you not going to be able to deliver based on what you have received against what you bid for?

Mr Thompson: What we are doing at the moment is looking at the range of the BBC's current services but also looking at all of the things that we, as the BBC, said we would like to do in our proposal to the Charter renewal, some of which are captured in the White Paper, Charter and Agreement. There are three questions we are asking. What money can we liberate by becoming more efficient? We put a range of proposals for efficiency, so-called value for money productivity savings, in our licence fee bid. The Government, when they announced the licence fee settlement, said they believed the BBC could go further, so how much further can we go to pay for our future ambitions by becoming more efficient. Secondly, of the things we said we would like to do, the potential for extension of services or new services, are there some things on that list which in the light of the licence fee settlement we should just cross off the list and say we have got to cut our cloth to fit the money we have now got? Thirdly, as we look at what we currently do, is there any money that we can transfer from some part of our current operations to pay for something new? The different divisions of the BBC are weighing that up at the moment. Each of these divisions has lots of good ideas, great ideas, for new services but what we are asking each of them to do is to look at ways in which those ideas could be paid for. That will be gathered together through the course of the spring and the early summer by management into a set of proposals, recommendations, but then there will be a process across the summer of talking to the BBC Trust and the Trust doing its own scrutiny to look at whether this proposal package of efficiencies, new investment proposals and also this switching of money from existing resources to new ideas, in their view, and they are the people who have to make the decision, is going to give the BBC the best chance of delivering the Charter, in other words fulfilling the public purposes set out in the Charter.

Q314 Philip Davies: Are you saying that you do not know?

Mr Thompson: I am saying that the right group of people to make the final decisions about the BBC's priorities is the BBC Trust. My job in this process is to co-ordinate and to gather and to lead the process of coming up with recommendations, but this is a really good example of our new system where the people who should decide finally whether the money should be here or here are the BBC Trust and they will take some months and may well do their own research before reaching that conclusion.

Q315 Philip Davies: Did you not cover every eventuality and say, "This is what we want to deliver and this is our bid, but if we only get this, this is what we will deliver and if we only get this, then this is what we will deliver"? You must have an idea as to what things are nice to have and what things are absolutely essential.

Mr Thompson: I can certainly give you some broad indications of my own view, and I will do that. I believe that the most important thing of all is that the BBC spends as much money as it can on really outstanding distinctive content. The more that we can find further ways of reducing what we spend on non-content, on overhead and bureaucracy, and put into content, the better. The more of the licence we can give to content, the better. Secondly, this next period for the BBC, and of course there will be debates about what precisely this means, and you may all have your own views about precisely what is in and what is out of this particular definition, I believe the right thing for the BBC is to concentrate as far as we can on high quality, distinctive content. Although it is a matter of regret for us that we were unable to continue to secure the FA Cup and England Home International rights, which as you may have heard recently after the present period will go to ITV and Setanta, those rights went for a 42% increase on the current contract and at a moment when we have got a licence fee which is going up 3%, 3%, 2%, 2%, 2%, we have to think very hard about whether the best use of that money is to go into very high levels of sports rights inflation. I am very committed to spending a significant amount of the licence fee on sport, it is what licence fee payers expect from the BBC, but in a period of very constrained resources it is appropriate that we should be realistic about what we can and cannot afford. Those are a couple of indications.

Q316 Philip Davies: David Elstein told the Committee that a sound test for looking at public service content was to ask will the market provide it or will it not provide it. What are the things that the BBC provides that the market would not otherwise deliver?

Mr Thompson: Although I think market failure in the broadest sense is a reasonable test to apply to public service broadcasting, it is quite important not to take the next step, which I think some people do - David sometimes does and sometimes does not - which is to say there is a very narrow set of genres which the market as a whole will not provide. To some extent, but not entirely, you can say the American system is to say that public broadcasting in America is there to provide a very small number of genres, typically serious factual genres, and everything else should be left to the market. I would say if you look at the BBC's output and take British comedy as an example, British comedy is an entertainment format and successful comedies are fantastically commercially value and, indeed, one of the great pleasures of the last years has been seeing some of the great British comedies, and I think of the BBC programmes The Office and Extras doing well around the world and being sold in many markets. Comedy is very difficult to launch in modern fragmented media markets. It is pretty expensive to make and the strike rate of hit programmes per numbers of new programmes launched is relatively low and as a result of that the British television market, commercial market broadly, a very broad generalisation, does not invest significantly in comedy, particularly narrative comedy. The BBC tries to use its radio networks and its TV networks, not just BBC One and BBC Two but BBC Three and BBC Four, so potentially on radio, BBC Seven, Radio Four, Radio Two, Radio One, on television, BBC Four, BBC Three, BBC Two and BBC One, to try and create a nursery for new comedy talent and new comedy titles. A programme like Little Britain, which became a very big success on BBC One, was developed across Radio Four and BBC Three. Although on the face of it in this comedy market you would say is that not exactly the kind of commercial genre which the market will provide, the reality is I do not think that is the case and I think there is a lot of evidence that it is not the case. Comedy comes from the BBC. There is some comedy on Channel 4 but, again, Channel 4 would now regard that very much as part of their public service remit. There is a little bit on ITV, none on Five, none on Sky, virtually nothing going on, some specials and bits and bobs, and of course repeats, but that is rather different, virtually nothing else on any of the other hundreds of channels available now. I would say let us by all means accept that market failure is the broad category we should be looking at, but be very careful assuming that market failure boils down to a handful of genres. I think if you look at British drama origination, British children's programmes, British comedy, even in some respects British format entertainment, there is good evidence that not just the BBC but public service intervention creates a better platform for British talent, creates formats that potentially can be sold around the world and improves the overall quality and innovation available to the British public.

Q317 Philip Davies: Are they not doing things because you are doing them? Are you saying that if you were not there doing them nobody would be doing them, they would not shift what they did and they are trying to creep into the few bits that you are not doing, is it not that way round?

Mr Thompson: It is quite difficult to disprove a counterfactual. That is not the universe we are living in. It is quite hard to prove that if we were living in that universe that it would not be as you say. I would say look at other markets around the world. There is one market, the United States' television market, that is very large, probably financially more than ten times larger than the UK market, and in that market very small segments of the market can be very valuable. For example, the United States will support a subscription model like Home Box Office, HBO, and even one or 2%, a particularly affluent one or 2%, of the US population watching a programme can be enough to generate enough income to pay for extremely expensive originations. I believe that is not true of the UK television market. Although subscription television has been very successful in the UK, it is fair to say in terms of content it has largely worked around proven propositions, highly desirable premium sport, particularly football, and feature films. In my view, it is by no means demonstrable that even in the absence of the BBC that subscription models could be found in the UK which would support British comedy at half a million pounds per hour, drama at half a million to a million pounds per hour, I do not see how the business models can be made to fund that. I would say around the world the experience of advertising funded television would be that for reasons you will understand without significant intervention in the end it tends to make sense for the shareholders and managers of commercial television channels to go for the kind of content where the margins are at their best. An hour of high quality drama at £500,000 to £600,000 may not get a bigger audience than an hour of reality television, which might only cost £100,000 or less, yet reality television might get a very similar demographic and therefore drive as many commercial impacts and as much revenue. So the margin on an hour of reality television compared to an hour of drama can be fantastically better. It is not obvious to me that if you take away intervention as a whole, take away the licence fee, take away the kinds of content controls that ITV, Channel 4 and others have lived with, that you will get a sudden flowering of drama, comedy and all the rest of it. If you go to continental Europe you can see what mass audience advertising funded television provides.

Q318 Paul Farrelly: I just want to pick up further on David Elstein's question, "Will the market provide it or not?" That sounds to me more like a sound bite than a test of public service broadcasting. If I can take an example. I am one of the people who accepts that the BBC should have a presence on the Internet, although other people would object to that. If I can take the case of your suspension of BBC Jam, which I originally thought was a dedicated channel to Paul Weller until I was told it was a children's online learning service that kids like mine might use, clearly that has been suspended and that is not ideal but there were teething troubles in your new governance arrangements. One of the issues about being online with some of the learning services is that it can often be like the kids who have new trainers or old trainers, a two-tier issue amongst children, "Are you a member or not?" There is a limited amount that is provided free and then there is a kudos value in being a member and that is a question of household income. To what extent are you and the Trust grappling with the issue of whether the public test should be whether the market will provide it at either no cost or reasonable cost, or whether the test recast in a similar way should be whether the BBC is adding more value than the market is already adding? To what extent does the provision of it free to lower income households play a part in those considerations?

Mr Thompson: I will have a go but Caroline might come in on BBC Jam. The general point to make is I think right at the centre of the idea of the BBC is the idea of a universal broadcaster where the public as a whole pool investment to pay for the content and the content is available to everyone freely at the point of use in our public services. This is not meant in any sense as a criticism, I think BSkyB has added an awful lot of innovation and originality to British television and is a real commercial success story, and good luck to them. Sky News, which has been a good and effective service, it is quite interesting that is regarded by Sky as part of its subscription offering and when it makes sense for Sky News to be restricted to subscribers that is a business decision which has been taken, and that is exactly what they have done recently. Our news, in a parallel example to Sky News is News 24, is available and will always be available to as many people as we can distribute it to. At digital switchover that will be the UK population. You will not need an extra subscription, you will not need anything other than your eyes, your ears and a receiver to be able to get News 24. The same goes for Five Live and Radio Four. For me, I would say it is absolutely essentially part of what the BBC is about that we can reach and broadcast to everyone. Behind the idea of BBC Jam is the idea that outstanding educational materials should be available to any child, any student in this country, irrespective of their ability or their parents' ability to pay, or indeed the particular circumstances of their local education authority.

Ms Thomson: It is worth adding that these principles that Mark has been outlining are really important in the context of digital switchover. One of the things that we found and the Graf Report found into BBC Online was that the BBC's presence as a big content provider in digital, in online, helped drive online take-up because we are a trusted provider. It helped us reach into groups of people who would not otherwise have gone online. As we move towards digital switchover that role, building on Freeview and so on and looking at things like the targeted help scheme and so on, are going to be increasingly important in encouraging people into a digital world. Jam, indeed our educational services as a whole, GCSE Bitesize, are enormously successful and very important for children. Being freely available at the point of use is a crucial part of making digital Britain work for everyone.

Q319 Paul Farrelly: When do you expect the issues around BBC Jam to be resolved and an explanation given as to how it has been resolved so that is a guide to how you see your public service broadcasting remit? It would be a terrible shame, given I am of the generation that remembers the BBC not only being involved in education but through BBC Acorn promoting the take-up of the use of the computers, if the BBC was so harried by the commercial sector that it took the view, or the Trust took the view, that there are plenty of subscription-based services out there and, therefore, they should not do this.

Ms Thomson: I can go into as much or as little detail about Jam as the Committee wants. Education was part of the Reithian trilogy that set up the BBC and it is absolutely central to our public purposes now, it is one of our public purposes and, indeed, we have a requirement in the Charter not just to do education in the sense of knowledge building but to have a role in formal education, and we are determined to do this. The truth around Jam, as many Members of the Committee know, is that we launched at the Government's initial request and with Government and European Union approval a service which we believe, had it had a chance to properly get up and running, would have proved to be enormously valuable to children in homes, which is where it was targeted rather than schools, and would have extended into services in Gaelic and Welsh and for children with sight and hearing impairments. Unfortunately, the history of Jam was that we failed, I think, to build a consensus with the industry about what the appropriate role was for the public service provider against the industry provider in the way that we have done with most of the rest of our digital services. Essentially, that is where the issues have arisen. We have taken it back and we are going back to the drawing board. We will be seeking to present to the Trust a new vision for how we will fulfil this commitment to education, which we are determined to do, during the summer. We will also be doing some work led by Mark on trying to build more of a consensus because the last thing we want to do is have another service which has similar problems, even if it gets proper Trust consent. We hope to have something up and running but it will not be before next year now, partly because it will need separate European Union consent again.

Mr Thompson: Any such future proposal will be subject to a full Ofcom driven market impact assessment in which all of the parties, those people who think the proposal might inhibit or damage the market but also those people, and we have many independent suppliers to Jam who are very, very keen that the BBC should continue to be active in this area because it is investment for jobs and innovation in educational software, everyone will have a chance to contribute to that market impact assessment which will be independently published. What I hope is that the new, far more open and transparent way of assessing market impact and the public value of services means we can have a proper open debate about it and ultimately the Trust will have to decide whether it wants to proceed with that new proposal or not.

Q320 Chairman: Can I ask a general question. We have moved to a situation where I think it is 70% of the population now have access to multi-channel television and we are shortly going to switchover which will result in 100%, so there has been a huge increase in the choice available and in the variety of programming which the market is providing. Is there any area which as a result of that the BBC has decided it no longer needs to provide a service because the market is now doing so?

Mr Thompson: You can see in successive annual reports that the amount of money and proportion of money the BBC devotes, for example, to acquired programmes and to feature films has been steadily falling. I will not say the BBC will not ever decide, we do sometimes decide either because licence fee payers expect a big feature film on Christmas Day or because we think a particular piece will work well in the schedule and we will continue to buy some programmes as well as originating. As recently as a decade ago acquired programmes played a central role in BBC schedules and people who grew up in the 1960s and 1970s will remember that most days of the week a big American piece was in the middle of the BBC schedule. That has changed and it has mainly changed because you do not need the BBC generally to show you American programming, there are lots and lots of other ways of seeing it. What we have tried to do is progressively reduce the amount of money and amount of airtime we devote to acquired programmes. That will be an example of the BBC trying to exit. There are other examples. There is less entertainment as such on the BBC than there once was and fewer quiz shows than there once was. The BBC has consciously decided to take a much smaller position in reality formats than other broadcasters, and so on, again because there is lots of choice out there.

Q321 Chairman: Less reality formats is not something that I recognise as being a feature of the BBC particularly, there seem to be reality formats every day.

Mr Thompson: Let me slightly amend that. What I was trying to say about reality was that whereas many other broadcasters have gone very, very extensively into reality television, the BBC has not gone into reality television to anything like the same degree as our commercial rivals.

Q322 Chairman: You would hope that we will no longer have the absurdity of the BBC competing with ITV and the commercial channels for American films and series which merely benefits the producers in the United States?

Mr Thompson: Although I cannot rule out individual examples, it is already true of the market after the LA screenings and the market for feature film packages that the BBC is less often involved in the bidding and it is much rarer for us to be involved in aggressive bidding, as it were. I cannot rule out that there will not be a particular piece which, for whatever reason, we believe is important. There was a watershed moment when the BBC decided not to pursue the bidding for the renewal of The Simpsons which ultimately was sold to Channel 4. What we now try and do in our investment committees, but also with our channel controllers involved as well, is try and look quite closely always at what we are spending on acquired programming and in particular what it might cost to make a programme. By and large where the BBC can originate a new British programme instead of buying one, we think it is better to spend the money on origination.

Q323 Mr Evans: Do you watch a lot of television yourself, Mark?

Mr Thompson: I am afraid that a professor talking about children would be rather worried about my consumption which is rather more than the advice is for three-year-olds. I do not watch as much as I should, but I try and watch as much as I can.

Q324 Mr Evans: Is that a lot or not?

Mr Thompson: I suppose I am probably watching 20 hours a week.

Q325 Mr Evans: For how much of that do you watch the other side, ITV, Five, Channel 4?

Mr Thompson: I would watch probably significantly more BBC than the other channels, but probably I am watching five or six hours at least a week of Channel 4, Five, ITV, Sky and so forth.

Q326 Mr Evans: As far as the public service content that the other channels are now providing is concerned, have you got any favourites amongst those where you think, "Gosh, why hasn't the BBC done that?"?

Mr Thompson: I think that in news terms, if you are talking about the other public service channels, news on ITV, Channel 4 and Five, so talking about network news, it continues to be, and is, in different ways a very strong offering. I think ITN does a very good job, I think Channel 4 News is an outstanding news and current affairs programme, but when I catch the ITV News, I am also impressed, and I catch the news on Five less frequently.

Q327 Mr Evans: As far as Sky is concerned, have you noticed that the number of viewers now for BBC24 has gone up dramatically since Sky News has gone to subscription or since it is going to subscription?

Ms Thomson: Yes, I think Sky News has not yet gone to subscription on Freeview, but we would obviously expect it to mean that News 24 audiences would rise. News 24 audiences are now generally exceeding Sky News' anyway across all platforms.

Mr Thompson: Even before this change, News 24's reach has continued to grow and the cost per viewer hour, the actual cost per person reach on News 24 has continued to fall.

Ms Thomson: I think the general answer to your question is that we would prefer Sky News to be freely available because actually competition is very good for our news services and obviously particularly subscription restricts that competition, although in general Sky's move to launch a subscription service on Freeview, I think, is quite an interesting one for the future of Freeview platforms and particularly because they are going to use this new compression technology, MPG4, which is quite an interesting development in the market and may help the market for other things like high-definition television, so as a whole their move is, I think, just an interesting one from our point of view, but obviously, although it will benefit our news audiences, competition is better for us.

Mr Thompson: So we would prefer News 24 to be available freely, but I would be the first person to say that you cannot look to Sky News to be available to everyone, but I would also be the first to say that you cannot compel them, I simply do not see how you can compel Sky to make it available to everyone. I certainly think, as to those people who believe that Sky News is a natural answer to the issue of plurality of news, that this step of editing Freeview suggests that you cannot rely on that.

Q328 Mr Evans: Do you think though, because of the pressure on the independent sector, particularly public sector television costing so much money and advertising revenues going down, that the belief is that maybe there are going to be fewer public service broadcasts now on the independent sector and do you see the BBC taking up any of that slack?

Mr Thompson: I think in areas like news, people who look at the wider ecology, if you want to call it that, of public service broadcasting worry most about the plurality and whether there will be voices other than the BBC's, and that is not something that we can fully address. We try to encourage a fair amount of plurality within the BBC, but, if your concern is that there should be other voices and other perspectives available for network and regional news, that is not something we can readily address by increasing the amount of our news. In fact the amount of news and current affairs on BBC Television is growing somewhat, but it is not something where I think we cannot address the plurality issues and I am certainly someone who believes that, although I am sure there will be fully commercially available news in Britain, and Sky News is a good example of that, I am one of those who believe that it is strongly still desirable on television that there should be a plurality of public service news provision.

Q329 Paul Farrelly: If ITV decided to move Trevor McDonald back to News at Ten, would you be doing a public service in broadcasting by moving your news to another slot so that viewers would have a choice of times to watch the news?

Mr Thompson: No. I think that the experience of the last few years is that moving the news all over the place is not a great public service to the public. We moved our news once from nine o'clock to ten o'clock at a time when the ITV News was on a sort of open-ended journey around the schedule and the public have got used to the ten o'clock news, it is a convenient time for watching, and I think that we have used the airtime at nine o'clock in a way which has been very useful actually. If you look at the programming we have put into the schedule at nine o'clock in particular, the current generation of BBC dramas, Spooks, Life on Mars, Hustle, The Street and so on, we have come up with some stronger peak-time and, actually in a way, more distinctive peak-time drama than we have had before, and I think that the current BBC One schedule is very strong. I believe that it is a matter for ITV what it does with its news. I think the idea that ITV should have a fixed and recognisable time for its news though is probably not good for the public and it is probably not a good idea for them in terms of running a schedule.

Ms Thomson: Also, it is just important to say that patterns of news consumption are changing probably quicker than patterns of any other consumption and with continuous news available online and on-demand and so on, the importance of the big, scheduled bulletins, you still get big audiences, but it is diminishing over time.

Q330 Mr Hall: The BBC so far has not submitted any written evidence to this inquiry, yet you have had an awful lot to say so far about it. Why is that?

Mr Thompson: Well, two things. Firstly, we have over the last couple of years in the Charter renewal process destroyed many trees in providing from Building Public Value onwards with hundreds of pages of closely argued and brilliantly expressed language about the BBC, its public objectives and its view about the emerging media market, and we rather thought that on this topic, the future of public service broadcasting, the Committee might feel they have heard quite a lot from us in the last couple of years. However, what I would absolutely say is that, if there is any area of this topic where you feel or any of the Committee feels that they have not, as it were, over this last very intense period of public debate, heard enough from the BBC or would like any more facts or figures or other evidence from us, we would be only too happy to put on our lumberjack shirts and go out and chop down a few more trees.

Q331 Mr Hall: Well, you could do it by email and save all of that of course. There is a worry that with digital switch-on and analogue switch-off some of the commercial broadcaster are now actually going to find it really difficult in the new environment, and the Government has indicated quite clearly that it would look at extending the use of the licence fee for non-BBC purposes. What is your view on that?

Mr Thompson: I think what I want to say is this: firstly, you have just heard me say that I believe that plurality of public service news provision is important and I think it would be good for the British public and for the national debate if there was a range of different public service providers ----

Q332 Mr Hall: I do not think there is any threat to the way that news is going to be broadcast. I do not think that is under threat through digital switchover, in fact I think that is probably going to be enhanced.

Mr Thompson: More broadly, I think the idea that there should be a strong public service ecology, certainly in television, is something I would, and I think the BBC would, support. It is a bit of a jump to say that the only way of providing that is by splitting up the licence fee, and the danger of that argument, I think, is two-fold: one, that you end up with something which is rather rare in the public services which is a lot of clarity in the minds of the public about what they pay and what they pay it for, so a licence fee which you can relate directly to the quality, good or bad, of the services you get from the BBC, and that clarity potentially, if you split up the licence fee, you lose; and, secondly and manifestly, there is a danger that you start weakening the one bit of the system which still looks relatively strong. Therefore, I think there are quite powerful arguments against it and that is why I think it is quite important that you do two things: firstly, that you become very clear about precisely what is the extent of the public service plurality you want to secure, what are the programme types, what are the areas that you want to ensure you have secured; and, secondly, that you get to exactly the bottom of what are the alternative ways of paying for that and ensuring it happens. I would say that I do not think you can rule out, and the Government clearly has not ruled out, the possibility of using the licence fee, I think there are some quite significant advantages to doing that, and I do not think we have yet got to the point of being absolutely clear about what precisely the problem is that we are trying to solve.

Q333 Mr Hall: I think the general public's view is that they have to pay a licence fee because they have got a television in the house and just the fact that the money goes exclusively to the BBC is quite an irritation to quite a lot of them. If I give you one specific example, if Channel 4 is in real difficulty because of digital switchover, is there a case for the Government saying to the BBC, "You've got to help out Channel 4 with specific amounts of money to meet their switchover costs"?

Ms Thomson: First of all, to take you up on your licence fee-payer point, it is certainly not the experience of the BBC, and the BBC Trust could answer this better than me because they are there to represent the licence fee-payers, that there is massive resentment about paying the licence fee, and indeed the work we did as part of the licence fee bid showed that 80% of the population is prepared to pay the existing level of the licence fee or more for the BBC ----

Q334 Mr Hall: I read that.

Ms Thomson: The association with the BBC is, I think, quite strong, in our experience -----

Q335 Mr Hall: Well, that was not really the question which was asked.

Mr Thompson: You will notice that when the DCMS did its research it came up with the same answer.

Ms Thomson: It was a very similar answer.

Q336 Mr Hall: They asked the same question.

Ms Thomson: The business of supporting Channel 4, I think, is a very interesting one. We have already agreed, as part of the Charter, that, if the Government deems it necessary that Channel 4 has help with its switchover costs, they will paid for from the licence fee, and I think Tessa Jowell, the Secretary of State, is going to make an announcement about that in the summer, depending a bit on a study of further work that Ofcom's advisers have done. What I think is the interesting question about how you support plurality of public service broadcasting is that there are a number of levers still at the Government's and Ofcom's disposal, I think, to help support public service broadcasting. For example, the argument always used to be with digital switchover that spectrum scarcity was dead and there was masses of spectrum and everyone could broadcast. Actually, we are switching over the country on to DDT, on to terrestrial spectrum, which is very scarce and it is an enormously valuable asset. Now, one of the levers, which is absolutely at the regulator's disposal, is to offer someone like Channel 4 free or subsidised spectrum not just for their core public service, but so that they could have enough to broadcast their other services which could make a profit to help support them, and that would be a significant benefit to Channel 4. I notice that ITV are beginning to come round to this view as well, that actually in return for free spectrum, ITV would be prepared to accept some continuing public service obligations, so I think that, whilst the challenges are undoubtedly great and we may run into serious problems with the financial viability of Channel 4, there are other things you can do in terms of regulation in order to help them and in order to create a viable alternative.

Q337 Mr Hall: Normally that would rule out of course the direct transfer of some of the licence fee to Channel 4, but that is another lever that could be looked at.

Mr Thompson: It is clearly another possibility.

Ms Thomson: It is clearly another possibility. As Mark said, no one in their right mind would completely rule out the licence fee going to support either Channel 4 or other forms of broadcasting, whether it is children's or news services or whatever it is that everyone thinks is going to be endangered, but there are significant disadvantages to top-slicing the licence fee in that way and there are other levers at their disposal which could be used before you had to do that. It should be said just on the spectrum point that of course at the moment the current proposal is not just not to give free spectrum, it is actually to charge public service broadcasters for their use of spectrum, so actually to increase the financial pressures on public service broadcasters, like Channel 4, rather than to decrease them and help them.

Mr Thompson: In my experience, many of the people who are in favour, or who say they are in favour, of top-slicing the licence fee are also people who do not believe that the licence fee should exist or will exist, so I do not see how they can see it as a long-term solution given that they do not actually believe it should exist.

Q338 Chairman: Can you just tell us your attitude towards another of the options which has been floated on the table, the one which Ofcom appears to be particularly keen on which is the establishment of the public service publisher?

Ms Thomson: I think it is an innovative and bold idea, the public service publisher. It may be a very good one, but it is a bit difficult from our perspective at the moment to see quite what the problem is designed to solve, if I can put it that way. As we have been saying, we believe enthusiastically and energetically in the plurality of public service broadcasting and we want to see Channel 4, in particular, carry on. It is bad for the BBC to have no competition, we would be better with it and it is better for the public to have pluralism. Whether the public service publisher is the right way to solve that problem, personally I think the jury is out on that. I am not saying it is the wrong way, but it is difficult to see, if that is the main problem, quite how it solves it. We would hope, before any moves were made to launch such a thing, that the sort of public value test principles, which we are using in relation to our public services, were used in relation to it as well.

Q339 Chairman: The public service publisher appears to be evolving into primarily a new media activity now, providing online contact. You, I think, have pointed out that there are very low barriers to entry and low cost of content production and that has meant that valuable content can already be found from many thousands, if not millions, of sources. If that is the case, why is the BBC having to spend so much time on the online content?

Mr Thompson: I think you have to go down to, as it were, one greater layer of complexity there. There are not many sources, there are quite a few and many which come from newspapers, but there are not, in my view, so many sources of, for example, very thoroughly resourced journalism about international events from a British perspective. They exist, but there are not so many that it does not make sense for the BBC to get its journalists to provide, as it were, news content about the world on the web as well as through the World Service and indeed through our UK radio and television.

Q340 Chairman: But every newspaper is investing huge amounts in going online.

Mr Thompson: In my view, if you actually look at what is available on the BBC News website in terms of global coverage of news around the world, my contention, and you may disagree, would be that there is still a strong case for the BBC providing that service, but, if you say to me, "Should the BBC provide an online encyclopaedia?", I would say that, in addition to any commercial offerings that are available, with the existence of something like Wikipedia, which is quite an interesting category of publicly minded, universally available content on the web, you would say that the BBC should not provide an online encyclopaedia. I would say that the task of the BBC, first of all, on the web is to look at those areas, and I would make the case that journalism is one of them, where we can do something which is distinctive and which adds to the richness available on the web, but for the BBC, firstly, not itself to assume that it should do everything on the web, we should not and we do not and we will not, but again in a sense I think you have to apply the same kinds of tests in the context of the PSP and, rather like Channel 4, it seems to me clarity about what is the remit, what are the public purposes which are being set here for the PSP, how will they be governed and how will the performance of it be judged against its objectives. Now, you may or may not support them, but, if you look at the White Paper, the Charter and Agreement, the public purposes of the BBC are laid out there and there is an entire regulatory mechanism set in place to try and hold the BBC to account against those public services and, in a way, that kind of process, it seems to me, is something that you want to go through at the start before you start throwing money or throwing your cap in the air about an idea like the PSP.

Q341 Helen Southworth: I was fairly astonished to find out that with digital television there are now 23 dedicated channels providing programmes for children, yet that is not necessarily making people feel particularly comfortable about the quality of the provision that is available to children. Can you tell us just a bit about what you think is happening to the market at the moment and then about what the BBC is going to do as a leader in this process?

Mr Thompson: I think there are two or three things happening and it is worth noting them all. Continuous channels work very well for children and young parents so that they can watch whenever it is convenient to them, and we are seeing, and have seen over time, a shift from viewing of children's programmes in general networks like ITV1, BBC One, towards continuous channels. Secondly, on those channels, children's appetite for animation, for cartoons, particularly American cartoons, is very high. The products, the cartoons, are relatively cheap to buy and you can run them on very high repeat cycles, so running such a network is a relatively lean operation, as a result of which there are a very large number of such networks and, because of that, because of the elementary supply and demand issues, the value of the commercial impact, the actual value to advertisers of such channels is quite low, so the money available to go ahead to, for example, make original British children's content is very low which is why, although there is some on Disney and elsewhere, there is very, very little indeed. Most recently, the Ofcom decision in the matter of the advertising of unhealthy foods in advertising slots where children are likely to be watching is going to have a further depressing effect on the amount of money available for investing in original British programmes. Therefore, the BBC's position, I think, goes like this: that we believe that our principal mission, and we run some cartoons, some animations, in our schedules and that is partly because that is a way of getting children to watch programmes like Newsround and Blue Peter, but our view is that we remain committed to providing mixed schedules of high-quality, British programming for British children, so a programme which, in various ways, reflects our national children's literature and the best of modern writing for children which, with programmes like Newsround, tries to bring journalism to children and so on, that is what we want to try and do and it is a matter of concern to us that the market as a whole does seem to be closing in at the moment.

Q342 Helen Southworth: There have been suggestions that the market is getting critical. What do you think?

Mr Thompson: I think that, because of the factors I have talked about taken together, my own view is that plurality of supply of British children's programming is not quite as critical as plurality in the context of news, but it is clearly desirable that there should be a range of providers of British programming not least because, if you are a maker or if you are, for example, an independent producer making children's programmes, it is nice to have more than one organisation to sell your wares to, so I am not sure whether the term "going critical" is perhaps overstating it, but I think there are some really quite serious concerns about how much original children's commissioning and production there will be beyond the BBC.

Q343 Helen Southworth: Are you setting specific targets for the work that you are going to be doing to commission for children's television over the next period?

Mr Thompson: Well, the children's networks will have, under this new regime, service licences and agreements with targets for the origination, for the minimum proportion of independent commissions in that mix and all the rest of it. We are also looking at ways of more effectively linking what we do on television, the radio and the web together, but our ambition is that, where we can, we want, in a sense, to work well with parents to deliver the best possible services that work in Britain's households. For example, we do not make programmes for very small children, two and under, and, when we do make programmes for younger children on CBeebies, wherever possible we try and make sure that it is done with expert advice on child development, linguistic development and so forth, so programmes like Teletubbies are intended actually to be useful in child development. We would not recommend that children watch many, many hours of television every day. For older children, we are very focused on helping them find ways of using the Internet safely, for example, so safety on the Internet and, more broadly, media literacy are a big part of what we try and do. We try and make sure that, for children in the classroom, there are opportunities to use our news website and our news programmes to learn more about citizenship and about society, and we have recently done a very big thing called School Report, inviting thousands of schoolchildren to effectively take part in making their own news programmes, so we are trying, where we can, to work with parents, with teachers and with children themselves to produce environments for children which have got decent, valuable content which are safe and where both children and parents know what to expect and when.

Q344 Helen Southworth: You spoke earlier about the public service concept as, in your view, being not just about plugging a gap in the market, but also about quality and standard-setting and sort of ratcheting up expectations that viewers could see could be achieved. How important, do you think, is the role the BBC has in children's television in that area?

Mr Thompson: I think it is an incredibly important example actually. I would say that it is incredibly important which is why, when we have the problem we have had recently on Blue Peter, it feels like such a very serious mistake to us, and it has been so mortifying for everyone who works on that programme because we try and set ourselves high standards everywhere, but, in our children's programmes, we know that one of the good things about the BBC at its best is that the public have learnt to trust the BBC and what it stands for and we must not abuse that trust.

Q345 Helen Southworth: We have been told that quite basically, without further intervention, the BBC is likely to become the only supplier of UK-originated children's television. Do you think that that is a reasonable statement and, if so, what, do you think, needs to be done?

Mr Thompson: I think that my prediction would be that you will continue to see some entertainment and music-related programming and probably some factual programming being made for the commercial children's channels. In fact, already today it is true that we are, I think, almost on our own in terms of children's drama. We think that providing drama for children, whether adapted from classics or contemporary drama, is very important and we also are now trying to produce rather more family-orientated drama, and programmes like Doctor Who and Robin Hood are an attempt to provide programming which children can enjoy in a family context. Already I think we are today pretty much on our own in making drama for children.

Q346 Helen Southworth: What about teenagers? How significant is the BBC in terms of that very, very important group of children?

Mr Thompson: Well, teenagers and, in particular, looking at younger teenagers and, in particular, younger girls, 12 to 15, was one of the things that we said we wanted to find some more output in our licence fee bid. They are obviously a very important group, they bump into the BBC in the classroom and, if they are interested in music, they might well bump into us on Radio One, but there is not, for someone like BBC Television, much drama and in fact, if you take British television, there is not much drama, particularly for younger teenagers, which speaks to them and sees the world from their perspective, but it is a good example of something we have to weigh up against all the other priorities that we see in front of us.

Q347 Helen Southworth: Is the Board going to be taking this very seriously, the entire issue of children's television?

Mr Thompson: Yes, I think that certainly the Management Board does and I would expect the Trust, just as the Governors historically have done, to regard, in the broadest sense, our service to young people as being particularly important to them, but also crucial to their parents. It is one of the things that the British public look to the BBC to do really well.

Ms Thomson: Just as a supplementary on what could be done to help provide more production, children's programmes production, in the UK or indeed in the EU, one of the interesting things is of course that the Television Without Frontiers Directive has suggestions for quotas of EU production for television channels, but says that they apply "only where practical", or something, so traditionally they are not applied to the satellite channels. Actually, if each of the commercial satellite children's channels was just encouraged to make half an hour of original content every week, so only one half-hour a week per channel, you would pretty well have as much commissioning of content in the UK as you get from the whole of ITV Children at the moment, so there are ways of at least moral persuasion perhaps for some of the channels which are operating big in the British market for children where a lot of them will have corporate social responsibility programmes and so on, and one half-hour a week of production, if they all did it, would help the production base a lot.

Mr Thompson: When it comes back to the idea of top-slicing the licence fee, what we have got though in CBBC and our children's department is a kind of critical mass of people who are passionate about making programmes and content for children and who often will start in one area of entertainment or factual programming and go into drama and all the rest of it. If you split that up, split up the investment, I am not sure you could keep that college going, I am not sure you would keep that sense of critical mass going. It is recognised around the world as being the strongest, single kind of critical mass of this kind of talent and, in a way, although I can understand the arguments for splitting the BBC's resources, I think you would end up in the end again probably undermining the one last piece of really strong children's production.

Chairman: We need to move on to our next session, but, before we do, there is one other issue which we have already touched on which impacts upon our next session.

Q348 Paul Farrelly: Last year, you piloted what has come to be known as 'ultra local TV' and that, on my patch, included Staffordshire TV which, I am afraid, rather passed me by and I never saw it. I was invited to go and see it being made, but actually fitting that in was difficult and I was never dragged out to College Green while down here or called up locally and asked to appear on it, so it fizzled out, as far as I was concerned. That briefly said, Chairman, on paper I am quite keen on that sort of local television because what we find around the country is that a lot of news is delivered by local newspaper monopolies and quite often we, as politicians, think, "Thank heaven for BBC radio", but, particularly as a former journalist, I believe that competition actually increases standards in journalism and more competition would be healthy, so after the pilot scheme and after the licence fee settlement, which means you have got to order your priorities, what is the future for the BBC in providing that sort of local form of television?

Mr Thompson: I think that the pilot as a whole, and I am sorry that we missed at least one star during the pilot ----

Q349 Paul Farrelly: Maybe it was very good editorial judgment!

Mr Thompson: I think the pilot was quite interesting and has raised some quite big questions for us, in particular, what is the best way of getting such a service to the public. We tried broadband, we also tried a wheel on satellite so that you could get news from Staffordshire at ten minutes past the hour, sort of thing, every hour. I think there are some quite big questions about, in particular, satellite distribution. I think there are two more things I would say. Firstly, listening quite carefully to the anxieties and objections of the local and regional newspaper lobby, in a way, one of the things I would like to try and do as we think about local television is again engage more closely with, if you like, our critics and try and work out whether there are ways of addressing their concerns in the eventual proposal we make. The brutal thing to say is that this is a really good example of effectively a new commitment which I think inevitably you have to put a big question mark against, given the settlement that we have got, and I certainly cannot today give you an undertaking that we are going to proceed with it. I can see the benefits of it, I think it would complement what we do with local radio and on our Where I Live sites, but, I have to say, in a tight licence fee settlement it is a good example where you might have to say, "Well, we can do something, but we certainly perhaps can't do the original vision", so we will just have to look at it and line it up against the other priorities we have got.

Q350 Paul Farrelly: Is one of the options you are considering possibly launching in selected areas in the future in co-operation with local newspapers and, if so, how would you address the competition point of view?

Mr Thompson: I think that, whatever happened, such a service would have a roll-out over time. BBC English local radio began in the late 1960s and some would argue that the roll-out is not yet complete and there are one or two areas which are still underserved by local radio, so there would be a roll-out over time and, as a corporation, as I have said, what we need to do is to figure out, after the pilot, but also listening to the local and regional newspaper groups, whether there is a way in which, if we do propose something in this area, we can do it in a way which does the best it can to allay their fears. I have to say, there will always be some people who, in a sense, will say that, no matter how little, frankly, practical reality there is behind it, in theory, they might at some point wish to do this and, therefore, it would be quite wrong for the BBC to come in and foreclose the market. I think that the dialogue that we have had with the newspaper groups actually has been so far a constructive one, I take their concerns seriously and, as we develop the proposal, if we do decide we can develop it given our funding, I hope we can do something which, as far as possible, goes at least a long way to allay the fears which have been expressed about the service.

Paul Farrelly: I was going to move on, but have been instructed not to because of time, to show platform prejudice to distinguish between the news which is a free on PCs against news delivered through mobile telephones which people pay for, but we will move on to that and the impact of the market when we see the Trust. I only mention it now so that my old Reuters colleague, Mark Wood at ITN, knows we have not forgotten him!

Chairman: We will be seeing you again in July, I believe, so we will return to some of these things.

Q351 Mr Sanders: On this question of local television, is this not precisely the area that you should not be involved in? If there is a demand for local television, leave it to the marketplace.

Mr Thompson: I think what I want to say to Mr Sanders is that the BBC is already present in media up and down the country with local radio stations and with local websites. To some extent, this debate, when you get right down to it, is not fundamentally about a completely new service, but to what extent the websites should include rich audiovisual content, reports from our reporters with lightweight cameras as well as with microphones for the radio and so on; it is about an evolution of local provision which you can see happening in many other parts of the world already. What I would say is that my presumption, if you look at a couple of things and, firstly, if you look at the local radio environment, by and large actually, the path of BBC local radio and independent local radio editorially has been diverging. In other words, I think BBC local radio is today more distinctive, more focused around speech, debate, news and information and in most markets, not in all, but in most markets actually local radio is moving towards a much more music-driven package and we have seen one or two, and I can think of Saga, for example, speech-based models actually moving more towards music. It is not obvious to me that this is an area of market convergence necessarily around a particular editorial proposition. The second thing, I think, to say is that it depends on what we actually propose. There are very big categories of local media, for example, class ad advertising, for example, information about local entertainment and a click-through to buying tickets, where the BBC again should not be involved. That is absolutely appropriately left to the market and indeed my view is that we should actually link from our sites to places where people, if they want to do those things, can find us, and I see much more of a partnership model where the BBC, if you look, for example, at our pilot in the West Midlands, we were at every count of last year's local elections, every single count. Now, we have never been able to do that in our history. We can bring the detail and the texture of local democracy to the audience in pictures as well as sound in a way we have never done before. Honestly, nobody else in the market is going to do that, so I would say, "What can the BBC do which is going to be useful and valuable and what can the market do?", and let us see if there is a way in which we can co-exist.

Chairman: I think that is a good note on which to end. Thank you very much.

Memorandum submitted by S4C and the Institute of Local Television

Examination of Witnesses

Witnesses: Ms Iona Jones, Chief Executive, S4C; Mr Bobby Hain, Managing Director, STV; and Mr Dave Rushton, Director, Institute of Local Television, gave evidence.

Chairman: We now move to the second part of the session and can I welcome Iona Jones, the Chief Executive of S4C, Bobby Hain, who is the Managing Director of STV, and Dave Rushton, who is appearing on behalf of the Institute of Local TV. I think our questions will be fairly clearly directed specifically at individual members, so we will make that clear, and I think we start off with Wales.

Q352 Mr Evans: For some reason or another, they have asked me to do it! Iona, how are things going with (?)?

Ms Jones: We are making considerable progress in our strategy towards digital switchover which, as you know, happens in Wales in 2009/10. The primary focus has been on building up our content and that content is to be in the creative excellence sphere, so it has taken quite a lot of work, together with our partners in the independent sector, to raise the creativity in terms of content. We have also adopted a new regime in relation to rights which means that the producers, for the first time, have the capability to exploit the intellectual property, and that is part of the role that we have adopted as a channel which is to see whether it is possible to further develop the creative industries, particularly in Wales, given the opportunities which other broadcasters are now presenting in terms of production from the nations and regions. In terms of measuring success, the focus on the content and, in particular, in peak has delivered an increase in our audience in terms of share and reach which is obviously very satisfying, given the efforts of everybody involved. The next development is really in relation to platforms where we have been quite progressive in our use of the web, for example. We have a 35-day window to actually show content on broadband and, as of today, we will be screening the channel live and, subject to rights, it will be available throughout the world, so that is part of building up the availability and accessibility of content which is original UK production of high quality in genre which others are not as engaged in as we are. The other area which is occupying our minds at present is the provision for children, so I was obviously very interested in hearing the last session. As you know, children and young people are very important for any public service broadcaster, but uniquely for us. This is a growth market because of the requirement for all children in Wales up to the age of 16 to learn Welsh and we are aware of the huge increase which the last Census demonstrated, so we have a changing audience profile which we need to address, and we also know that their habits in terms of the use of television are very similar to other children. They are looking for discrete channels listed on an EPG which are readily accessed, and that is the area which we are proposing to move into, the area of a dedicated children's channel, hopefully within the next 12 months.

Q353 Mr Evans: That is very exciting about the screening, subject to rights. For instance, when you do the rugby, does that mean that the rugby will be available for people living in Patagonia if they want to watch it?

Ms Jones: Yes. In fact, we have been providing some rugby coverage on our broadband service as it currently stands and this is the next step to actually making the channel available so that you can watch it on your PC or TV at the same time and get the same service, but rugby has been available to date.

Q354 Mr Evans: A good driver, I would have thought. What is the percentage of your audience that is within Wales and the percentage, therefore, outside of Wales?

Ms Jones: I will do it in hundreds of thousands, if that is okay, because I will not be able to work out the percentages. We are currently reaching over a million individuals a week and the split is roughly 200,000 outside and 800,000 within Wales, but obviously that changes from month to month, depending on the kind of content that we are providing at any given time. Rugby is obviously a fairly big driver in terms of the UK market, but we have also adopted a strategy whereby we are going to be the leading provider of live events and we are going to be in the creative excellence categories as far as music is concerned which is actually part of engaging with an audience which may not necessarily even speak Welsh, but it is just that they are music-lovers and they want to see Bryn Terfyl singing in German, the flying Dutchman from the Wales Millennium Centre, which I think would resonate with people.

Q355 Mr Evans: With Welsh subtitles!

Ms Jones: And English subtitles; we provide both.

Q356 Mr Evans: You do not seem to be so concerned about asking for any extra financial subsidies for the Channel Cymru. You are doing all of this within the budget that you have currently got?

Ms Jones: We are, yes. We have reprioritised and I think there is an issue around how much range and diversity we can actually manage over time, but we have actually commissioned fewer programmes in order to invest at a higher level within the peak-time schedule, and it is actually, I think, about identifying a place for S4C in this new market which actually makes us as relevant, both culturally, linguistically and socially, as we have been for the past 25 years. There has also been a considerable change within the organisation. We have restructured, we have established a new Board of Directors, we are currently in the process of reducing our staff levels and our overheads currently stand at 4.3% which, I am sure you are aware, compares very favourably with some of our colleagues in other broadcasting organisations.

Q357 Mr Evans: You mean better than?

Ms Jones: Significantly better, yes.

Chairman: Could we move on to Scotland.

Q358 Rosemary McKenna: Good morning. Bobby, there has been a substantial shake-up at Scottish Television since SMG made their submission.

Mr Hain: Yes.

Q359 Rosemary McKenna: Have you discussed, have the Board discussed your submission and did they agree with the submission that you made on public service broadcasting?

Mr Hain: Yes, I think that the difference in the Board composition and the shareholder composition really does not change the fundamentals of what we had submitted in January of this year, and I have had discussions with our new Chief Executive about the evidence that we gave at that time and the kinds of things that we would be saying today and there is no real change in what we had said and the identifying of issues that we made to the Committee in writing. I think there is a great optimism and a desire to be absolutely at the heart of public service broadcasting and I think that the focus on television, which is really the change which has happened at Board and strategy level, is to be welcomed because it means that we will not be distracted, if you like, by our other media businesses - we have announced the flotation of Virgin Radio, for example - and really we see an opportunity which I am very glad that the Board has now underwritten to develop the television business within Scotland, and I think there are two separate workstreams to that. I think that we can play a very strong role in the delivery of public service broadcasting, notwithstanding the particular issues about the landscape and the financial impact of switchover and so on, and I think that that will build on the success that we have with our viewers that we have established over a long period of time which goes back far beyond the change in the Board more recently. I think the other area that is a growth area for us and where we see an opportunity is to deliver more public service broadcasting and high-quality content into the UK system as a whole, and I think that, with network commissions for Scotland still running around the 2% mark, we see a big opportunity in trying to persuade and convince commissioners that this is an area where Scotland, in general, and SMG, in particular, can play a strong role. I think that the submission which really says that we are looking for recognition of our particular place as a public service broadcaster in Scotland, the fact that we are, if you like, in a regulatory sense considered as part of the ITV network, as the English regions are, in actual fact we are something very different from that; we are a broadcaster for the nation of Scotland. That is something that we really want to get across and I think that we also look to the regulatory devices to ensure that, where people have a commitment to increasing their out-of-London and their nation's commissioning, actually that is followed through because that to date is not really our experience.

Q360 Rosemary McKenna: You will know that there has been some concern earlier on this year when the political broadcasting, as the rumour mill had it, was all going and, I have to say, I am delighted that the coverage of the Scottish elections and the local elections just now has been very, very good and much more than you have ever done in the past, so that is a real plus and I think people are looking forward to the further development of SMG's Scottish Television side. ITV have already given us their view and they represent most of the channel 3 providers, but where does your submission differ from theirs? Where do your views on public service broadcasting differ from ITV's?

Mr Hain: Well, our starting point is that, having not been consolidated into the 11 licences of ITV plc, we need to always stand up and say, "Actually the ITV network, as it was, is not mapped directly on to what we now call ITV1 in large parts of the country", because in Scotland STV is still the ITV network and we deliver the network properties to people insofar as the drama properties, like the new drama on Sunday night, alongside material that we will make, whether it is Taggart or Rebus, we have the X Factor, we have all those properties, but actually it is our sovereign schedule and it is our responsibility to take that network material and to enhance it and to make it relevant for the people of Scotland by introducing our own regional programmes, and you mentioned the current affairs offering, the regional news offering which has actually been a very big success since we invested quite heavily behind it last year. Only last week we got to a position where STV's news was actually head and shoulders above the BBC's news at six o'clock and at six-thirty in terms of ratings and that is a steady growth that we have seen since we revamped our news product and also introduced a more localised service. Now, those enhancements in public service broadcasting, I think, give us quite a different perspective from ITV. I can understand the business rationale behind trying to reduce the regional commitments of ITV, even though that is where its roots have come from, but actually in Scotland I think we absolutely need to have a reflection of the national difference, if you like, a reflection of the differences, the sense of nation that we have, and that we need to have a regulatory framework within the ITV network which allows us to do that.

Q361 Rosemary McKenna: In your submission, you are a bit bleak about maintaining an appropriate level of public service broadcasting, but Scottish Screen, for example, do not see that problem.

Mr Hain: I have not seen the Scottish Screen proposal. I think if you look at the economics of the ITV network as a whole, which includes ITV1 and STV, UTV Channel and so on, then when you consider the effect that CRR has had, for example, in depressing revenues, not just for us, but I think for television as a whole because the money which has come out of the ITV system is difficult to reintroduce into other broadcasters and there simply is not the audience real estate to be able to handle that kind of money, so I think that that is a challenge for us, the fragmenting audiences are a challenge for us and maintaining a level of investment in public service broadcasting. We spend, for example, just on news, between what we contribute to ITN for national and international news and what we spend on regional news, the best part of £10 million a year. That is a considerable investment to make when your revenues are reducing through CRR and declining audiences are at the rate that they are, so I am not sure of the economics of the Scottish Screen proposal, but I do know our own business and it certainly underlines what we said in writing to you in January.

Q362 Paul Farrelly: This is to Dave and, as I read from the biography, you have long been struggling to bring ultra-local television to our screens in England. You were one of the few people who managed to get a seat that was not filled by the mass ranks of the BBC earlier, so you heard my comments about Staffordshire TV just completely passing me by and maybe that was good editorial judgment on their part, but it did not really make much of an impact, so what evidence have you got, given that sort of perception of what the BBC was doing, that this local TV service or content is actually wanted by people and actually provides such wider benefits that it justifies giving voluntary organisations of the sort you might want to encourage free spectrum?

Mr Rushton: I think it goes back to 1974/75, the period when the IBA was looking at what viewers wanted from regional television and the Crawford Report came out in 1977 actually suggesting that ITV might be divided into smaller, localised areas. The effect was that this was to some extent put to one side largely because the expectations of cable would be that they would cover a city-based service across up to 180/200 cities and communities across the country. If you recall, the 1984 Broadcasting Act made provision for local provision of services other than by the owner of the cable operation as well as by citizens and by community voluntary organisations, but, because cable was unsuccessful largely until the late 1980s/early 1990s, many of the, shall we say, community obligations that were placed on the companies in their applications, all of which made these obligations, were rescinded by the Cable Authority and they were let off the requirement to deliver things. We had other opportunities in 1988 with NPDS with Channel Six as an additional service to Channel Five. The Channel Six frequency spectrum got rolled into Channel Five. The ITC described Channel Five as being essentially a national service, even though we contested that legally, and only two months before the applications had to be in did they realise that they should not have said that it had to be essentially national, it could have been local. Therefore, we have had a series of stumbling and faulting moves in the direction of regulation and in the same period, when you look at the analysis of regional provision as far as viewers are concerned, there is always an echo of them describing their local area as being something smaller than regional television's area. We got choosy with Channel Five and you had an opportunity to deliver services to what we call the 'second city' of each region and we developed proposals around that, Edinburgh to Glasgow, Sheffield to Leeds, Liverpool to Manchester, Nottingham to Birmingham, so you would actually give that second larger community an opportunity to have its say, and there was work done around that period where, it is suggested, there was a very strong interest in services that would provide a sense of location and a sense of dynamic to that. More recently, we have had Pride of Place research by the ITC in 2003 which also explored the introduction of the RSLs, the only piece of work that has been done by the ITC or Ofcom on that which actually was specific. Looking at the North West, the suggestion was that, if the regional ITV companies were to withdraw progressively from regional programming, the viewers felt that local television should come in, step in, and replace that. Similarly, on a general basis, the recent Ofcom research of 2006 also found that the top priority as far as viewers are concerned from new services from the digital dividend are essentially local news delivered on TV and local services providing information and a greater sense of enhancement of the community. When you look back at that 2006 mirror, you can almost see a reflection of the 1970s/1980s requirement that there is too little programming that enhances a sense of where you live, and the ramifications of that of course fall into culture, to the representation in political terms as well as into a sense of engagement and participation, so the fundamental thing that local television will offer is an opportunity to see faces like your own, to hear voices like your own and be encouraged to participate because this is not strange, these are people down the street, these are people around the corner and, therefore, enabling people to become more engaged with broadcasting and the delivery of news, information and cultural activity.

Q363 Paul Farrelly: So we have long politically shunted Nottingham off into the East Midlands, so let us take Stoke, Birmingham, shall we, which is my local city. What is the biggest impediment to having Stoke TV, in your view?

Mr Rushton: Well, the biggest impediment at the moment is that the option offered by Ofcom for the use of interlead spectrum falls fairly haphazardly across the country and it will not necessarily provide the piece of spectrum that would coincide with either Stoke, Birmingham or with other large parts of the country. Twenty-nine areas have been identified and that is far too few. The problem with television, which is very often not realised, is that it is really dependent upon the way in which you receive the signal. You have got to get the new television signals out so that they go into people's aerials on their houses. You do not expect them to go out and buy a new TV receiver to pick up a local service, it is one additional service amongst 40 or 50, so you have to go with the grain of the distribution system which means you have got to insert local television into the digital multiplexes in such a way as to arrive at as many homes as possible. Also, one of the fundamental problems for some parts of the community is that they are reliant on relays and not on the main transmitter sites, so any service which does not send a signal down the relays is going to find that those in the more remote geographic parts of the community, virtually all of those north of Cardiff, in the valleys, for example, receive their signal from relays and it is the same kind of situation across the rest of the country. You really need to have a service that is delivered for everybody, so I would underwrite Mark Thompson's view of public service broadcasting, that fundamentally what underwrites it is its universal availability, and the same applies for a local television service, that it has to be universally available in the local area which it is addressing for it to be able to say, "We are a public service, we have a public purpose and we are reflecting the overall balance of views within our community and everyone has an opportunity to take part in this to receive it and to participate in that area". It cannot be delivered on anything other than a platform or a multiple of platforms that will arrive in every home without any additional expense.

Q364 Paul Farrelly: So now let us assume that Ofcom sees the light, you are the guru that they follow and offers these opportunities. Presumably you would want to see, for reasons of quality and diversity, a competition between different groups to get this bit of free spectrum and provide a local service. If we can keep the BBC out of it for one moment, are there any restrictions you would like to see Ofcom putting on who can compete for these things? My concern is that my local newspaper, which is owned by the Daily Mail and General Trust which does not have the political complexion that is mine, has long since gobbled up all the free sheets and the local newspapers and might see this as an opportunity, as well as a threat, and might put in a bid which, on quality grounds alone, might, drawing on its resources, knock everybody else out of the water.

Mr Rushton: Yes, I think there are two criteria which should be applied. One is that the licence itself should direct, shall we say, the advertising and also the reception issues in terms of delivery of public service programming to the community that the licensee wishes to address and not a much bigger community, so that is the fundamental one. Secondly, I think that in terms of preserving plurality, there might well be a criterion, a necessity to say that you cannot own three out of the local media, that you cannot own the radio station, you cannot own the local TV and you cannot own the local press. Whether one says that you can only own one of those three is up for debate, but certainly perhaps you should not own more than two, so there has to be some degree of plurality. Whether the BBC becomes involved obviously will add another equation to that, so you might be able to relax slightly on the criterion as to whether the newspaper could own the radio, the commercial telly and the newspaper if the BBC were involved, so that partly depends, I think, and it needs to be reasonably flexible as to how you resolve that. The other issue is that the point at which the cost should come in as a fee, I suspect, is at the point of issuing the licence and not to gain the spectrum because, if the spectrum were packaged in such a way, the fear would be that one or more, maybe a few, large existing media players would opt to look for large areas across the country and acquire spectrum for those and be less interested in the spectrum that would reach the rural communities which, I suggest, would be delivered probably best by municipal services or community services. Therefore, our view has been to say that we have to take a balanced view between commercial and municipal, and councils now have the possibility of licences and what else would they use them for if not local radio or community television in some form, and also the community itself. There are two good, strong community television services, one running in Belfast and one running on the Isle of Wight, funded on a non-commercial basis, so those models also should have a right of access to the spectrum.

Q365 Paul Farrelly: So, given your particular engagement in this topic, this is a no-brainer question really, not least because ITV has been reducing its local news coverage, do you think there is a valid market in which people will be interested for Stoke TV, a sort of Stoke Today sitting alongside Midlands Today?

Mr Rushton: Yes. The thing about the ITV regions was that they were an accident of commercial scale, as anticipated in the early 1950s, and geography. We are still stuck with the geography, so we have to make the best of that because that is the way television is distributed, but I think we can focus now much more on to the smaller community than the West Midlands. People do not think they live necessarily, or they certainly do not live in Granadaland; they live in Liverpool or Manchester, Lancashire, Preston or wherever. Your association, in spite of television, has remained very strongly with the community, by and large, in which you have a relationship with the hospital, with the school, with the communities that are involved with going to the theatre, going to the cinema, and reflecting that pool of cultural and political interest and involvement is fundamentally important, I think, to reengage people with the political process at the local level, which is why I think there is a political dimension to this, which is why I think this House should take an interest in local television as a contribution to public service broadcasting and its renewal. It should not be seen as a monopoly, nationally or regionally; this should be something that public service broadcasting is allowed to develop at a local level where the localness is identified with relatively well-known civic and accepted areas of activity that people can become better involved with.

Q366 Paul Farrelly: Iona, can I turn to you. I am one of the 200,000 who deliberately turns his aerial across the Cheshire Plain to Wales and north Staffordshire to pick up the rugby, so thank you very much. You would consider yourselves as being a local broadcaster in Wales and you might have a different perspective about the impact of your business and the sorts of ultra-local TV that we have been talking about in England where ITV and the BBC have lodged national creations, but what sort of impact do you think it would have on your business? Would it be a threat or an opportunity?

Ms Jones: From our perspective, we are kind of working the other way, we are going Wales, UK, global, and obviously what Dave is doing is kind of coming the other way. We are actually quite excited about the prospects of getting more platforms, new services which could make use of the content which originates from S4C's commissioning process, and that is why we have taken a very different view to rights management from other broadcasters in that not only have we given back the rights since the 2003 Comms Act where it was a requirement, but we have also offered the rights in all programmes commissioned by S4C since 1982 to the producers with a view actually to giving them the opportunity to exploit the kinds of opportunities which Dave and others in the area of local TV might want to promote. Therefore, the role of S4C as a broadcaster is very much about developing audiences within and outside Wales and globally, but at the same time ensuring that all of the opportunities which may come through different services can be exploited primarily by our producers who will now have the rights in order to make those opportunities realistic for them.

Q367 Paul Farrelly: Bobby, your group has not given up the ghost and sold out to national ITV and you have made it quite clear that you see that your job is to bring that different flavour to different parts of Scotland, so again the same question to you: would this gifting of spectrum to ultra-local TV operations be a disadvantage to you? Would it be more of a threat than an opportunity?

Mr Hain: I think you need to contextualise how this is being done because it would seem to me slightly eccentric to abandon the existing forms of public service broadcasting, particularly within Scotland where there is a very strong connection from STV to viewers and we have regionalised that and actually localised it to a degree in the past year or so and it has been very successful with our news offering which, as you say, has travelled in the opposite direction from other ITV regions where there has been consolidation. It would seem to me to be slightly eccentric to abandon that and move straight towards a system of trying to deliver public service broadcasting and news and community information at a local level because I suspect that you could see a case where you reduce reliance on one established method and it is a long time before you have any traction and scale and penetration universality and some the real common themes of public service broadcasting, it may never happen. I think that it is a very interesting concept and I think that the local nature that Dave has been talking about in terms of its touchstones of the hospital and the area where you live and go to work and so on, that has very identifiable resonance with people. However, I am not sure what the business model is behind it, but I have not been convinced that there is a business model that would make it work, so I think in that sense it is a significant risk and our focus is much more on trying to maintain, and enhance, what is already in existence.

Q368 Chairman: Can we just examine the general question of funding which obviously applies in different ways to each of you. Starting with Iona, you actually benefit from a pretty significant direct subsidy from the Government. Now, others who went with that possibility of it being raised have expressed huge concern that this will lead to all sorts of political interference, lack of editorial independence, et cetera. Has that been your experience at all or have you any concerns about that?

Ms Jones: No, I think you quite rightly say that it is a direct subsidy, but, because it is actually set in primary legislation, it is not subject to a kind of annual discussion which others may or may not face or even a slightly longer time period, so we have the visibility and the stability of funding, but I think the fact that it is in primary legislation actually means that there is a distance between the annual scrutiny which we may be subjected to, so we are quite happy with that position. We have of course got commercial freedoms and the airtime sales and sponsorship obviously costs too, it is a very important part of our mixed funding model which, I think, gives us a kind of commercial edge and a slightly different view of the way in which we schedule and commission. I should also add that, since we last appeared before this Committee, there is a new strategic partnership with the BBC which is another very important part of S4C's funding model going forward in that, for the first time, we have an allocation from the licence fee of £72 million over the next three years which, in the first instance, supports S4C's Welsh language commitment, but is also a way of the BBC delivering on its obligations to the indigenous languages of the UK, so those are the kind of three areas of funding that we now enjoy.

Q369 Chairman: But you also receive programming from the BBC, do you not?

Ms Jones: Yes, the Act states that they have to provide us with a minimum of ten hours. What the strategic partnership has done is to translate those hours into financial terms and the agreement of how that money is spent is done in partnership with S4C with a view to delivering on S4C's programme strategy as opposed to any particular BBC programming objectives on their other channels.

Q370 Chairman: Clearly the general thrust of our inquiry is to look at ways in which we can support public service content outside the BBC. Do you see this as potentially a model which could be applied elsewhere?

Ms Jones: It may well be, but obviously it is a partnership which means it is working for S4C and it is working for the BBC, and that may prove to be slightly more complicated for others, but I think the secret of the success of this partnership is that it does indeed support, as Professor Roger Laughton and others have said, Welsh language broadcasting going forward into digital, but it does not in any way diminish the BBC's accountability to its licence-payers and it does not contradict any of the public purpose values that the Charter has adopted, so there is a synergy which we have identified between the partnership which is, I think, a blueprint, as far as we are concerned and there are probably some very interesting principles which may be worth exploring elsewhere, but it is not top-slicing and I think that is the key.

Q371 Mr Evans: You say it is not top-slicing, so do you mean that the BBC do not actually write you a cheque even though you have had a negotiation, let us say?

Ms Jones: They do not hand over licence fee money to S4C, but all the other components of the partnership mean that the way in which that is spent is very much in line with S4C's programme strategy.

Q372 Mr Evans: Of the ten hours, after Pobol y Cwm and the news services, how much have you got left then to be creative with that?

Ms Jones: There is some factual programming which actually meets our landmark programming test and they are still a contributor in sport. The other element which may best illustrate the changing nature of this relationship is that the BBC will become an increasingly important player in the field of children's programming and we very much hope that, if the Secretary of State allows us to set up a children's channel, the BBC will be a very important part of that provision, so that is the way in which we have been able to discuss with the BBC things which are of importance to S4C and to amend the contribution and the investment accordingly, so it works very well for us.

Q373 Chairman: Turning to Bobby Hain, SMG have indicated that you think there is a "strong case" for some kind of public funding for Scottish content. Would you see that as being taken from the licence fee?

Mr Hain: I would not rule it out. I think that the example of S4C is interesting where there is a BBC apportionment of resources which goes to S4C. Now, actually that, to my mind, is an indirect top-slicing of the licence fee. I think that it may be that we would prefer a more direct version of that, going forward. I do not think it is the only way that we could look at additional funding and I think that the public service publisher is also aware that we should be looking to play actually a key role because I think in our position, being so far out of London and being very established as a broadcaster, this is an area where we could work with other related parties within Scotland. We could use our building, for example, as a centre for incubating ideas and getting other ideas for content to a position where they could be more readily pitched to whoever was making a decision. I think one of the key factors behind any additional funding that we would be making a claim for would be actually that this drives value for viewers and that this enhances our offering and it takes us into the online world, I think, where the commercial barrier to entry, because of the dominance of the BBC, is actually quite high. I know that public service content, as opposed to public service broadcasting, features very high on the agenda and that the digitised and online world is a place where people are spending more time and there is a real sense that they want to find the kind of content that they have seen on their televisions delivered through broadband and other areas. I think that that is a key, pivotal area into which to introduce funding for getting material to a new audience.

Q374 Chairman: David, you are principally asking for gifted spectrum rather than direct subsidy. Is that correct?

Mr Rushton: Yes. I think we are also not looking at the digital dividend. At the moment, the preference would be for some of the benefit of the changeover from 16 to 64 quals, which is taking place on the public service muxes, that some of that benefit which would release spectrum to provide two or three extra channels on those public service broadcasting networks be allocated to local television, the reason being that those are the only muxes that at the moment are going to reach the 1,152 transmitter sites across the country. We are very concerned that, in terms of taking a historical overview, there could well be pressure on the ITV companies at some point in the future to come back to the 81 transmitter sites and not to support the continuation of those 1,152. I think our concern is to maintain universality in the delivery of services and it is particularly important in different local communities, where relay is very, very preponderant, to ensure that we are arriving in the homes of those people who are further out of the main cities, so those are the people who are also not at the end of a switch, so they do not get broadband or they do not get broadband at high capacity. Therefore, our concern at the moment is to deliver television on DTT and to then use that as a barker channel for delivery of web access for those who have access to the Internet for local city councils, for health service information and so on and, in the same way that the BBC and Channel 4 particularly have provided a portal, if you like, and a reason to go up to your bedroom and have a look at your computer, this is what local television can do; it has to be in that framework, available for everybody. Our argument with the PSP is that, in between the PSB review when local television was identified as a possible candidate for receiving funding, it shifted across to being kind of a broadband media service. We have put our foot down on that, as far as we have a foot to put down at the moment, and said quite straightforwardly, "No, something like £70 million of the identified £300 million across the UK as a whole was really in the expected reduction of regional programme content over that period, and that money should go straight back in to support the introduction of local television to replace effectively face-to-face public service debate and participation in a television form which people recognise and still wish to receive their local content in".

Q375 Chairman: But you would not accept that local TV might actually be more appropriately delivered via broadband than via ----

Mr Rushton: Not at this stage, no. Because the roll-out of the digital switchover is actually taking place across the rural areas where broadband is not so readily available to those communities and because those communities tend to be older, Lord McIntosh has identified local digital terrestrial television as being the fundamental form that he thought television should move forward in at the local level, and it is something that we have agreed with for the last two or three years. At some point in the future when broadband has caught up so that IPTV is available across the country, we think it would be a fantastic opportunity for what we call 'neighbourhood television' on a smaller scale, community or local, where you actually are having debates on the hustings in your local area on a very, very small footprint, but IPTV at this stage is, I think, estimated to be available for three million households across the country out of whatever, 21 million, so it is not something at this stage we could deliver local television on because it is unevenly available.

Q376 Rosemary McKenna: Can I ask that question of Bobby Hain. You have said in your submission that there are difficulties involved in trying to provide content specific to Scotland via traditional broadcast media. Would broadband not be a really good answer in an area like Scotland?

Mr Hain: I think the point that Dave has made actually similarly applies to our network because, when you consider that the universality and the scale and reach of public service broadcasting has some of the prime characteristics it needs to have, at this moment where you have STV, for example, reaching about four million out of five million people in Scotland every single week, then yes, you can make content available and it is a convenient place to park it and to get extra distribution channels. It may be a long time before you get anything approaching the kind of impact, scale and reach that you already have, and our point on broadband is that there is no universality compulsion. In the build-out of transmitters that we are currently undertaking to provide DTT across Scotland, we will get to a UK figure which is the same as the analogue services now, 98.5%. That is absolutely fixed as something that we need to do and there will be universality, there will be freely available material via STV and I think that really is our primary focus. That is not to say it is not important to have additional content which can be made available via broadband and via mobile and via other means ---

Q377 Rosemary McKenna: But it is an add-on?

Mr Hain: ---- but it is absolutely an add-on. Our experience with broadband is that we launched an online service last year which is very well used and we also started a Scotland on TV service which is really for expats which takes our Scottish programming around the world. Now, there is a lot of interest in that, but we are really running it as a trial. I think you are a long way off being able to support anything like the production values of STV as it exists now in terms of high-quality news and current affairs with a commercial model that you could derive from the Internet because I think people's expectation is content on the Internet is free and, until you can get a subscription or some kind of pay per view or some kind of advertiser-funded model which really gives you some scale to commission programmes, you are going to see a very different kind of content on the Internet. The other thing to bear in mind is that it is in our interests in having a brand as STV to make sure that our Internet content fits the brand values of our regulated service, that it has editorial independence, that it is impartial, but it is high quality, and that actually for other operators where there is no regulatory compulsion to do so, it is much more difficult to achieve that objective just by leaving it to the market.

Q378 Chairman: Can I quickly touch on the PSP which has featured already, but just to clarify. Iona, S4C's attitude to the proposal of the public service publisher, although you have made a return to Ofcom, it was not absolutely clear to us whether or not you did support its creation, so can you just clarify a little?

Ms Jones: I think that was the impression we were trying to convey! Obviously there is a need to address the deficiencies of the PSP going forward as far as commercially funded operators are concerned. The reason why we probably lacked some clarity was that we are not sure that this actually addresses the question in hand, and as to the focus on developing something in new media, I think this is an opportunity to use, in our case, the public investment in TV content primarily to be developing new services. We readily acknowledge that, even though ITV have been quite innovative in online terms, innovation at the kind of levels proposed by Ofcom are not being delivered at present, so there is quite a lot of discussion to be had around that, but it may be there needs to be more focus on the way in which they are training the sector, that skills should become more transferable as far as different platforms are concerned, so we are interested.

Q379 Chairman: Whereas SMG are positively enthusiastic about it.

Mr Hain: We are, and I think that the caveat is only that we do not see it as an either/or situation. I do not think you can take the existing public service broadcasting certainly within Scotland that STV delivers and say, "Right, instead of that, we are going to have this public service publisher", which, judging by the kinds of examples I have seen, pushes at the fringes of innovation and really takes to the limit what you can do in new media. I think that is very commendable and it is very interesting, but I do not think that is in any way a replacement for high-quality news and current affairs. I think they are different flavours and I think there is a place for both of them. My interest and, I think, STV's interest is: where is the crossover and could you actually use the public service publisher if it is trying to extract some value and reinvest it from the digital dividend into our existing audiences for the benefit of our existing audiences, and then there comes a point when public service publisher money may be used to subsidise existing forms of public service content? I am not sure that is all you would want them to do. You would want them to be made available in new forms and on new platforms, but I think there is a bit of a crossover here, and I go back to my earlier answer where one of the dangers in only having as the preserve of public service publisher content an online destination is that you do not have any regulatory levers to pull to make sure that that is absolutely high quality and that it has scale and impact and reach and it is available to a vast majority of the audience. Therefore, I think there are some caveats and I think, on balance, we are very enthusiastic about it because we do see that it has a role to play in extending public service content, but I think it could also be argued that it also has a role to play in maintaining, and enhancing, existing forms of PSB.

Q380 Chairman: So your enthusiasm is in the hope that actually STV might play a part as a PSB in Scotland?

Mr Hain: Yes, and I think, as I said earlier, we are very well placed to do that. I think we are outside of the traditional loop of the BBC and Channel 4, we are a natural destination within Scotland, we play a lead role in the creative community already and a lot of the programmes that we make use production teams which will make other forms of content either for the BBC, for Channel 4 or for the film industry, so there is a real cluster of creativity which I think this would be a great benefit to, and that would be the case we would make.

Q381 Chairman: It will not supply local TV, in your view? That is something that you believe should be left to the market, as long as the market is given a hand with spectrum?

Mr Rushton: No, no, I think that an element of the public service publisher should be allocated to local TV, and £70 million out of the original £300,000 was identified for regional television and that possibly could contribute to the infrastructure if there is indeed a cost for spectrum and some of it might be going to pay for that or to offset it and possibly to support public service programming in those areas where a commercial service is not able to be provided because the community is too diffuse and there is no central commercial player, such as a newspaper or radio or any other commercial organisation, to supply that content to the quality that we would all like to see. I have to echo the point that I think, without at the moment having television as a way of bringing a sufficient audience together to create either advertising or public service programming to provide to a large audience, you are not going to get the content to a quality where original creation just for broadband would be there, but you do need the television audience. Particularly, I think, the innovation of local television which has not been discussed is that communities of interest across the country do not coincide with the national map of where everybody is. If we want to talk about Grimsby and fishing, we might also want to talk about Peterhead and it may be that a group in Peterhead and a group in Grimsby make a great programme about fishing on the east coast which otherwise would never be made and never be seen because the communities that are interested in that are located across just one part of the country, so local to local is probably as important as just the individual local programming in the way of creating a critical mass of production and developing funding for sponsorship and so on for those programmes across the country.

Q382 Paul Farrelly: Bobby, Iona described her rather more collaborative arrangements these days with the BBC, but in Scotland it is out-and-out competitiveness and it is right in your face all the time. To what extent in Scotland is the BBC the elephant in the room and in which respects would you say it unfairly impedes the commercial sector in a way which is not to the benefit of the consumer?

Mr Hain: I think that our experience is that you tend to see the word "plurality" in regulatory documents and actually in Scotland there is real plurality and actually that is where it exists; I think that we provide different services. Actually I do not think there is any animosity between us at all and I think that there is a very collaborative working arrangement. We are now neighbours at Pacific Quay and there is a use of each other's resources, they use our OBs and I hope that we will use their studios, so actually there is a great deal of collaboration. The services that we provide are very different and I think our sense of it is that, were we not such a strong counterpoint to the BBC in Scotland and if we did not deliver two regions worth of news, as we have done, and latterly four sub-regions of news centred on the biggest cities in Scotland across Glasgow, Edinburgh, Dundee and Aberdeen, then I think it is questionable to the degree that the BBC would continue to invest in Scotland. Scotland in BBC terms, for example, is without the kind of local radio network that the rest of the UK enjoys, particularly in England, so I think that there is a very different flavour to the kind of broadcasters that we are. I think in our terms, and this is where we are hoping that the regulatory framework will recognise where we exist and the kind of animal that we are, our most recent experience with the BBC is a disappointing one because in terms of the WOCC, the window of creative competition, as a non-qualifying independent, our production company, because of its association with STV, has been applying for BBC commissions. Now, they got past the first post, the commissioner was interested and then the BBC turned round and said, "Actually this is a commission which is not going to be WOCC-able". Therefore, in that sense we are being disadvantaged not because of the quality of our idea or any suggestion that we would not be able to deliver on it, but we are being discounted as a producer to the BBC purely on the basis of our regulatory stance, if you like, and I think that that is an issue that the BBC has. I think we have said it in the submission, and I think we still believe, that the way to fix that is to look at our independent status because, as it comes directly from our involvement and our closeness to the ITV network, it is simply assumed that we are part of the ITV network when in fact we have got no power at the heart of the federal system to help make commissioning decisions and, therefore, we get to that rather odd situation with the BBC where we want to work with them and actually they want to work with us, but there is this rather artificial regulatory barrier which stops us from getting on. I think the other thing I would say with reference to what the BBC does in Scotland, and I think it is a general point about the degree to which they have invested behind the online space, I know that there was some disappointment that the licence fee settlement was not greater than it was, but, when you live in the commercial world and you are looking at RPI minus ten as a commercial reality from advertising, it becomes very difficult to think about how you can be such a counterpoint to the BBC and deliver online plurality in the way that you manage to do so within your regulated service.

Q383 Paul Farrelly: So that is an example of what, you feel, the BBC might actually be doing less of so as not to crowd you out, but is there an example of what, more generously, the BBC should be doing more of in Scotland?

Mr Hain: I think that the BBC really needs to look at its own news and current affairs in terms of its local delivery, and we heard Mark Thompson earlier on talk about the degree to which the broadband extension may or may not happen because of the current settlement. I think that is an area where the BBC has some catching up to do, if you like, and, although I would not necessarily blame the BBC for being in the position they are in, I think it just remains an example where commercially delivered PSB can match, and we are not alone in doing this, I know that there are other ITV examples around the country and particularly in Ulster and elsewhere, but actually from a nation's point of view what we can do commercially at this point outstrips and surpasses what the BBC can do and I think that commercially continuing to make that work is important. It is obviously up to the BBC whether they decide to go down that road either on broadband or within their own television service, but as much as they have a single BBC Scotland identity, I do not think they are the national broadcaster. I think that absolutely is a name and a position that we can claim and I think that is why we are passionate about continuing to deliver it.

Paul Farrelly: Iona, you have described the dance that you have had over time with the BBC and some of your hopes for collaboration with them with things such as children's programming, but you must still feel a bit like Angelina the Ballerina, sort of the mouse traipsing out of Baba the Elephant really. I am in tune with youth culture, Chairman!

Chairman: Very impressive!

Q384 Paul Farrelly: Are there areas which you feel the BBC is doing too much of in Wales and it is crowding out people which is not to the benefit of the consumer or the viewer?

Ms Jones: Firstly, I should say that Angelina is a very good dancer! BBC Wales's contribution particularly, and obviously we are not an English language broadcaster, is significant and very important. You alluded earlier on to the fact that there is a considerable monopoly in newspaper provision in your area, and the same goes for Wales as a nation, and a strong BBC and a successful BBC is very important for all of us, but particularly because of the lack of plurality which our audiences currently have.

Q385 Paul Farrelly: Are there things which the BBC should be doing more of in Wales?

Ms Jones: No, it is fine as it is.

Chairman: I think we are going to have to call a halt. Can I thank the three of you very much.