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

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

CULTURE, MEDIA AND SPORT COMMITTEE

 

 

PUBLIC SERVICE MEDIA CONTENT

 

 

Tuesday 12 June 2007

MR GEOFF METZGER and MR IRWIN STELZER

Evidence heard in Public Questions 593 - 657

 

 

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 12 June 2007

Members present

Mr John Whittingdale, in the Chair

Philip Davies

Mr Nigel Evans

Paul Farrelly

Mr Mike Hall

Alan Keen

Rosemary McKenna

Adam Price

Mr Adrian Sanders

________________

Memorandum submitted by the Satellite and Cable Broadcasters' Group

Examination of Witnesses

 

Witnesses: Mr Geoff Metzger, Satellite and Cable Broadcasters' Group, and Mr Irwin Stelzer, gave evidence.

Q593 Chairman: Good morning. Could I welcome you to the penultimate session of the Committee into public service media content, and particularly welcome our witnesses this morning: Irwin Stelzer who is the Director of Economic Policy Studies at the Hudson Institute and a regular contributor to the Sunday Times; and Geoff Metzger who is Managing Director of the History Channel but is also appearing on behalf of the Satellite and Cable Broadcasters' Group. Can I start off by inviting you to comment on how exactly we should define public service broadcasting, and whether you agree with Ofcom's rather more general description of the criteria which should be used to define, or whether you think that we need to be more specific about what exactly we are talking about in this area?

Mr Stelzer: I think the hunt for definition is a feckless search. It is kind of looking for something that is as long as string. You can make it anything you want to be, and I think that is a mistake. I think you can let the market define public service broadcasting for you by seeing what it is that the market is not producing, and then go from there. The notion that you will be able to usefully have an organisation that views its mission as public service broadcasting, defines it in a way that has any limits, seems to me a search for something that is not there.

Mr Metzger: I largely agree. It is certainly much too broad and it is probably as long as a piece of string; it catches all things. I think in the old days, when there was spectrum scarcity, all things were public service broadcasting really - whether it was Kenneth Clark's Civilisation or a good movie on a Saturday night, because the spectrum was limited. We were all getting public service benefit from it. With spectrum abundance I think it is very difficult to talk about what is or what is not public service broadcasting. If you look at the BBC schedule and you look at the Ofcom definitions of purposes and characteristics it all fits; it all comes under that very broad definition. Just as Mr Stelzer said, what we need to decide is what we need, where the market has failed or, that is to say, where public service broadcasting has failed, and then let the democratic institutions decide how they want to fund it.

Mr Stelzer: Once you start with the notion of a definition that includes informing ourselves and increasing our understanding of the world that is an open ticket to do anything you choose. There is no policy you can build around that that makes any sense. What you are left with is what goes on now, the push and pull with the BBC and others pushing to expand it in terms of content and reach; and then politicians having something to say when it comes to funding and trying to pull it back a little without ever resolving what it is you should not be doing. If I were asking somebody from the BBC a question I would like to ask them, "What do you not think you should do?", and I suspect they would give a very short answer.

Chairman: I think we did ask them and we also got a very short answer!

Q594 Adam Price: If public service broadcasting, from what you are saying, is almost by definition indefinable, is it nevertheless a necessary and useful concept? Do we need the idea of public service broadcasting? Why do we need it?

Mr Stelzer: Firstly, you need it less and less, as you get the end of spectrum scarcity, as you get the commercial service filling more and more gaps. It ill-behooves an American to come to Britain and say, "You shouldn't have public service broadcasting", because then I am going to hear about the pornography and Fox News and everything else on our televisions, and I do not want to start that discussion. The answer is, yes, I would think given the preferences of British society, given the notion of the BBC as a kind of integrating social institution that is very important to Britain, there is a role. I think the easiest way to get at it is through your feeling for children's programming, for example, commercial-free and so on, but you are picking a group that is, first of all, very well served commercially but that arguably needs protection of some sort that apparently the helpless parents in the supermarket cannot provide. Yes, I think there is a role for public service broadcasting, but I do think that role is shrinking as the commercial sector provides more and more service. I think the real danger of the expansive notion of public service broadcasting, which is essentially "Let's do everything we can get enough money to do", is that it stifles innovation and creativity in the private sector.

Q595 Mr Evans: Irwin, you mentioned the United States' television and generally when anybody says, "Oh, my God, let's get rid of the BBC, it's very expensive", blah, blah, blah, they say, "Oh, you don't want to do that or you're going to end up like they are in America, where it's all drivel, it's all bland, it's the lowest common denominator. We don't want American television in Britain, do we?" What is your response to that?

Mr Stelzer: One of the things you learn if you are an American living here is that if you put the adjective "American-style" in front of anything you are in a lot of trouble! That could be McDonalds, it could be American-style airline deregulation, anything. That is why I did not want to come here actually, but the Chairman is so persuasive! That is just wrong. American television has a whole bunch of junk on it. So do you. Michael Gordon has a wonderful piece in The Times today about your problems and mine. The main thing is choice. The fact is that when you can control access by vulnerable groups, and when you have something called a "remote", and when you have multi-channel television, you can get anything you want. I have a wife who, unfortunately, can sit and watch opera on American television and has warned me not to attack BBC3 when I come here! I think there is junk on American television; there is great stuff on American television. I think what the BBC tries to do in terms of news, what people usually say is, "You've got all that biased news in America and we've got this unbiased news here". I think unbiased is not an achievable goal. I think conflicting biases is an achievable goal, and we have that in America. We have Fox News which comes at things from the conservative point of view; we have CCN the Clinton news network, which comes from a left point of view and that is fine. I just do not watch the junk, as I assume you do not watch a lot of the bad stuff that is on your television. You are going to get that if you have multi-channelled television. If you are going to have choice some people are going to make really appalling choices. That is the price of democracy. You can eliminate choice and then have you people deciding what they ought to see, and I do not think that is such a hot idea.

Q596 Mr Evans: I think where we are coming from as well is that people have been used to getting public service broadcasting free. In the United States with the PSB channels a lot of the stuff they get is from the BBC shows that they have sold onto the public service broadcasting channel.

Mr Metzger: There really is not any public service broadcasting in the United States any more to speak of.

Mr Stelzer: Everybody things of what we see on some of the channels as the equivalent of your public service broadcasting. You used a funny word there "free". You get the BBC free?

Q597 Mr Evans: Once it is paid for it is free. It is there.

Mr Stelzer: That is true of almost anything!

Q598 Mr Evans: Once you have paid your tax you have got access to £3.5 billion worth of public service broadcasting.

Mr Stelzer: The marginal cost of what is handed on is then zero, which is the problem that commercial broadcasters have. In other words, it is free to the user to get still another BBC offering. Someone has to compete with that, and it is very hard to compete with that.

Q599 Mr Evans: It begs the question, although you have broached it and then backed off from it: do you think the BBC does a good job of providing public service broadcasting?

Mr Stelzer: I think some of the things it does are really quite good. I do not think there is any question about that; but why a lot of what it does is some sort of public service broadcasting, in the sense that it was originally understood, I am not at all clear. That is why I would like to see government get out of the business of trying to decided, "Gee, this movie really elevates people; and that movie really degrades them", and instead say, "What will the market produce? What the market is not producing do we feel that, as a political matter, a political decision, has a high social value? It is not being produced and we think taxpayers should pay for that". First, clear the notion that you need this all-encompassing definition of anything that is good for you; see what the commercial sector is producing; and then start to address the gaps.

Q600 Chairman: Geoff, can I ask you, you in your submission have pointed out that the satellite and cable channels are not, according to the definition, public service broadcasters but, nevertheless, provide a lot of public service content, according to the kind of definitions we have been discussing. Have you ever attempted to quantify that, to actually try and measure the amount of public service content that is provided by the market?

Mr Metzger: We have commissioned David Graham Associates, who are the Rolls Royce of research in the UK, to look at the amounts of public service broadcasting we provide. In fact, even without looking at the research, because there are so many digital channels and because the BBC, Channel4 and ITV all have digital channels now, it goes without saying we are the largest distributor of public service broadcasting in this country; that is to say, that which is paid for either by free spectrum or the licence fee. If I recall, we provide something like 79% of the arts programming - I will get back to you on the figures on that; a similar figure for children's programming; a great deal of the news; and quite a high proportion of the documentaries. I think the only category where we do not provide more public service broadcasting is current affairs. In terms of a pound figure, we spend about £150 million a year in, shall we say, the British creative industry, the production industry. It is quite a substantial number.

Q601 Chairman: The criticism that has been made to us is that an awful lot of the content is actually imported. Considering the number of channels you represent, the amount that is being invested in UK content is relatively small, is it not?

Mr Metzger: Surely by comparison with the 3.5 billion that is spent on the BBC, yes, I would say that is true.

Q602 Paul Farrelly: I have got a section here entitled, "Has Ofcom got it right?" It rehearses Ofcom's evidence that there should be more intervention to encourage public service media content. Chairman, I am just going to go off-script if I might. Should Ofcom exist?

Mr Stelzer: I gave a talk there at their request and I opened by asking them what they do? It was unclear. There are a lot of them, but I do think so. Media are different. Media are different from the steel industry when you are talking about a democratic society. I think in Britain, where you do not have a First Amendment, because society has decided that it wants some control over content (which is a decision that, as an American, I would not take but I understand and respect) where you have the feeling that the ordinary application of competition criteria to mergers is not adequate when you are dealing with the media, that there is something out there called plurality, which I cannot define but which people think is a good thing to have in the media, yes, I think it should exist. However, it runs a very big danger of what we in economics call "regulatory capture"; that is, there is this free interchange between the regulated and the regulator in terms of personnel. A lot of the people at Ofcom come out of the BBC; that does not mean they are corrupt it just means they have a world view that is formed in the people they are regulating. Also regulators generally have the notion that they are smarter than markets. It is very hard for them to restrain this revelation which has come to them. There are very few regulators that can do that. So when they stray into things like proposing this kind of new BBC I think they go beyond the line. I do think they have a regulatory function, especially given the predilections that seem to exist in British society.

Q603 Paul Farrelly: What do you think then if there is a case for a regulator to exist: what should be the limits; what should be the lines?

Mr Stelzer: You have this convoluted structure of control at the BBC, so it is very hard to figure out who fits in where. I think partly the convoluted structure is erected to make certain that nobody can figure out how to control this thing. I do think they should have review function of mergers, in addition to the competition authorities. I did not used to think so, but the more I see the sensitivity of Britain to the structure of its media industries, the more I have come to think that that is kind of a useful function. A sector regulator in addition to the general competition regulators - I believe, given the predilections of British society, they have a role in content review.

Q604 Paul Farrelly: Can you say what you mean by "the predilections of British society"?

Mr Stelzer: Because we have a First Amendment in America, we have the notion that almost anything goes, at least on cable and satellite. We would not legally be able to do some of the content review that you do here.

Q605 Mr Sanders: They do not have a First Amendment in many European countries and they do not have any predilections to wanting to ------

Mr Stelzer: All I know is when I talk about content regulation in America - the FCC. You want to talk about content regulation - Ofcom. Ofcom feels much more justified and much safer in setting watersheds and doing things like that that American regulators would not be comfortable doing. I do not think I should bring those values here. There are some I think I should be - market values and things like that - but those kinds of social values I think should be -----

Q606 Mr Sanders: But there are all sorts of things you cannot do on American television, words that can be used that are quite freely used on British television?

Mr Stelzer: We are priggish about different things. That is, we are more priggish about sex and less priggish about violence, for example. All I am trying to say is there are differences, and I think Ofcom has a role in expressing --- You are trying to push me in my libertarian direction and that is a pretty easy thing to do, I might add. You can get me to change my mind with one more question! I do think that Ofcom has a legitimate role, as I understand what you people want out of your media, in saying something about content. Am I comfortable with that? No, but I understand it. As I say, I think they have something to say about competition. I think there is a kind of useful thinking about media that Ofcom does; this kind of groping tour of what we mean by "market failure", and that sort of thing. I do not think they should be straying into suggesting whole new subsidised structures for what you call public service; I think that is going too far. Regulators are restless; they tend to expand

Q607 Paul Farrelly: Geoff could I ask the same question in a different way. Has this Parliament given Ofcom too many powers? Has it created a monster?

Mr Metzger: I do not know. I think there are some powers it does not have that I would like to see it have. I do not see why it should not police the BBC. The BBC sets its own rules and the new Trust has been created in order to make sure they obey their own rules - the rules on competition, fair trading and things like that. When the Communications Act came through the Lords there was in fact a clause introduced which said that Ofcom should actually be allowed to police the BBC in this regard too if there was a conflict of interest and, hence, the Trust was created. I am not sure if it has solved the problem or not, quite honestly. I agree generally - I think there is a role for Ofcom: I think review of economic matters; certainly content matters; enforcing the PSB obligations that the commercial broadcasters have, those sorts of things. I agree with Irwin though, I do not think they should be in the business of setting up other public service broadcasting functions, as it were, things like the PSB. Someone said to me the other day the PSB is a cure with no known disease and I think that is sort of true actually. At least if you read the Ofcom documents there has been no analysis to identify any sort of gap in public service broadcasting. Failing that, the SCBG is not in favour of the Public Service Publisher.

Q608 Paul Farrelly: Sky One is an absolutely fantastic channel: 24, The Simpsons. In fact if my wife was not an architect and a style fascist I should have a satellite dish outside my house to get it. I would have it on cable if she did not want to ration what the kids had in terms of programmes. Do you both think Sky One could be so good if it did not have to keep up with the neighbours, like the BBC which have a public service broadcasting influence?

Mr Stelzer: You introduced me as being from the Hudson Institute, which is true, but the record ought to show that some years ago, I think five or six, I was a consultant to Sky and am currently a consultant to News Corporation and News International. When I answer questions about Sky I want that clear. The answer is, I do not know because I do not watch Sky One. I am a sports fan and I watch sports all the time and news all the time. I am a news freak and a sports fan. Would Sky One be less good if it did not have competition from the BBC? Yes, competition is good, so I suspect that is true, but it has lots of competition from commercial broadcasters. Whether the diminution by one of its competitors would adversely affect it I do not really know.

Mr Metzger: I think what is interesting about Sky One and the BBC is this: actually Sky One set itself apart. We do have a lot of American television and much of it is on Sky One, and much of it is very good as you say. In fact there is a lot of good American television here; it is one of the things that the Americans do well. I think what is really interesting is that the BBC has come to a Sky One position by and large. They have just bid for a programme called Heroes and they outbid Sky One for it, and they paid a staggering sum of money per episode for it; I am not sure what it was.

Q609 Chairman: Did you say the BBC?

Mr Metzger: Yes.

Q610 Chairman: This is Heroes that is currently out on the Sci-Fi channel?

Mr Metzger: Exactly

Q611 Chairman: It is very good. I have been watching it.

Mr Metzger: The second season has been taken by the BBC, and I think they have spent more than half a million an episode, quite a bit of money.

Q612 Chairman: So the BBC is spending public money to purchase an American show that has already been screened in the UK on the Sci-Fi channel?

Mr Metzger: This is the second season, so you will be able to watch it on the BBC. My point is this: the BBC is derivative in that way. In a world of spectrum scarcity there was a good argument for buying that kind of content. It was a public service. In a world where the market provides lots and lots of it, I think that sort of thing should be considered very carefully.

Q613 Paul Farrelly: One of the real concerns which has been expressed in the debate about children's TV is that the more channels you have the fewer the audience each channel has and, therefore, the less able each channel is to commission its own original content; and so you get a proliferation of, for example, Australian stuff where they have a great industry in churning this out. Do you think there is a role for a domestic channel like the BBC that sets out to say, "We will commission original content and use the licence fee to do it and do the country a service", or is that too French a view, do you think?

Mr Stelzer: We are talking now exclusively about children's television?

Q614 Paul Farrelly: Generally about competition and proliferation and the lowest common denominator. Is there a role for a particular type of regulation, or a particular service to stand out against the rest and say, "We will do this for our country"?

Mr Stelzer: We are starting here with a leaky fountain pen and we are trying to find a pair of rubber gloves that will enable us to use this leaky fountain pen. You have got the BBC sitting with £3 billion plus and the question is: if you are going to have that, what is the best way to use it? That ducks the question of whether you should really get a new fountain pen. Let us assume you have got this leaky fountain pen and we are going to find rubber gloves, and the rubber gloves would be competitive bidding for these resources so that you could get the best offers on how to use them. Whether the person who himself is producing stuff is the best judge of what competitors can do with the same money I leave to you. I think the self-evident answer is, no. Sure, given this, you want as much competition within that framework as possible, since you have locked yourself in now for, what, five or seven years, to not changing the framework.

Mr Metzger: If there was a gap in the market, yes, there would be every justification for that sort of thing. When CBBeebies and BBC Kids launched there was an enormous furore by the commercial channels and it hurt their business, there is no doubt about it. I agree with Irwin - competition is good; it incentivises us to do things to innovate, to give good value for money. We are also probably the best distributors of that content service bid, because kids have gravitated towards the internet; they have gravitated, slowly, towards digital channels; we are specialists in these things. I do not agree with the argument that fragmentation is actually hurting public service broadcasting. I think it is actually making it easier to get to the groups of people that you want to. So if you want to foster democratic values, for instance, or multicultural values, or to give good communication about sexually transmitted diseases the best place to do it these days is in the fragmented digital world. As we know, the share of the publishers as broadcasters is coming down and down and down. You cannot really make people watch. If they want to, they want to.

Q615 Paul Farrelly: Just one final question, Chairman, if you will indulge me. When I first came into Parliament in 2001 I came from a newspaper and I spent my first few months on this horrible thing called a Joint Committee for Commons and Lords and met some fantastic people when we were looking at whether we should set up Ofcom and what the Communications Act should say. To a man and woman everyone there, including the late and great Duke Hussey, wanted to resist the "Foxisation" of British news. Do you think it would add to anything in this country if we had a news channel that should say the day after a General Election "It was Sky what won it; or the BBC what won it"?

Mr Stelzer: That is an interesting question. I think it is not a question of saying it. The BBC does not have to say, "It's the BBC what won it", because the BBC won it, the BBC sets the agenda that people talk about. The notion that there is this great impartial thing sitting out there that just informs the public ----- You cannot be a thinking person and be impartial on the kinds of things that the BBC reports on. That is not possible. That is why I think you should abandon this crazed idea that there are some wonderful people sitting out there completely impartial, reporting on social events and politics. If you are an American watching the BBC you really just want to go home; which may be what they want you to do. I think you should have conflicting biases on television. What worries people about Fox is that it is an offset to a uniformly liberal reporting of news in America. The notion that somehow Fox is biased but those are not is wrong. I think everything is biased. I would like to see competing biases. For instance, television programmes in America always invite thinking people to comment on Iran, Iraq, some teenage pregnancy and so on; and if you take CNN which is the liberal counterpart, 85% of the people they invite are from Left leading think-tanks; at Fox it is 50:50. I am not so sure that the Foxisation that you worry about is not simply a further extension of some antipathy to Rupert Murdoch that exists in the country. That is a handier thing for a politician than to attack the Sun, because the Sun might do something back to you in return. I do not worry too much. I am sitting there with 200 channels. What do I care if a channel is biased? Let it be biased; I will not watch it. When you looking for impartiality you are not looking for a black hat in a dark room; you are in a dark empty room; there is no black hat in it and you are not going to find it. What you should do is figure out how you could have competing biases on television and do not worry if some guy is biased in this direction and some guy is biased in that direction. People are pretty smart. They know which newspaper suits them. They would know which news programme suits them. If it is the BBC then that is fine. Sky News I think is a very good channel. I think BBC24 is a very good channel; I watch them depending upon what they are covering at the moment. I would not worry too much about that issue.

Paul Farrelly: I come from a background where I was working for Reuters and -----

Chairman: I think we are not just off-piste, we are off-mountain!

Q616 Paul Farrelly: This is my final question. At Reuters we still call the IRA "guerrillas". I wanted to call them "murdering terrorists"; so I feel the BBC is quite a liberation. It is quite a good thing that most governments complain about the BBC, that it is against them. Geoff, do you think that Sky News, which is fantastic, would be as good if it did not feel it should follow the public service ethos that we have regulated?

Mr Metzger: Before I answer that, just a couple of things. I think everybody is biased. I agree with Irwin there. The thought of the BBC does not make me want to run back to the United States at all. I think it is a very good news service; I think it is among the best; but I do agree with Irwin that we should have opinions. I think all news services should be entitled to have opinions as long as the laws on accuracy are well enforced. Newspapers have opinions. They get to say what they want to, and they are very large deliverers of messages. I do not see any problem with that. I am not against Fox and I am not against CNN, but they are entitled to have their opinions. I think that is a good thing.

Mr Stelzer: Sky News has the appealing characteristic of what you would think of as lack of bias because that was a good decision to get people to watch it. The notion that it is better because it was put on in competition with the BBC I do not think is quite right, since the BBC did not have any such service. Sky innovated and created a service which the BBC copied. The decision to have it not in the Fox manner, other than because of the laws, was a reading of what the public wanted to see, and apparently a quite successful reading.

Q617 Alan Keen: I am sorry to stick slightly on the same subject initially but Irwin has talked our predilection and I think there is a difference between the US, the BBC and Sky News here. I think the public can see the difference here; they want to trust the facts that are put to them, and then they are quite happy. When people are making the comments about what the Prime Minister has just said, they know then that is an opinion. They know the difference between what is news and what is an opinion. They do not want news presented in a slanted way; they want to know that it is fact. I have asked this question over a number of years on this Committee and times have changed and my views have changed: we have seen the BBC being restricted in the amount of money it was allowed to charge the public by government, because the government thought they were asking for too much and the government gets the blame from the electorate. The BBC has not got a free hand to raise whatever money it wants to, which is different from what private companies have said in the past, so there is good proof of it. Also proof was given recently when the BBC have lost more sport to Sky; so it shows that the BBC cannot dominate the markets as people have accused them of. Would you agree with me, or discus the fact, we have now reached the point with so much choice that we should just say, "The BBC, let it raise as much money as it can, that the government will allow it raise, and then operate quite freely within that, but with certain public service broadcast inclusion in that"? What about that?

Mr Metzger: When you say, "let it raise as much money as it can", that the public decides how much money it wants to give to the BBC?

Q618 Alan Keen: No, I am saying that the government decides how much money; the government knows it would get thrown out of power if it doubled the BBC licence fee.

Mr Metzger: Indirectly through the democratic process?

Q619 Alan Keen: Yes, it is part of the democratic process is what I am saying.

Mr Stelzer: I have trouble with the notion that the last settlement was somehow constraining. You have an organisation that got a gigantic increase in the amount of money it is getting, with the people paying it having nothing to say about how much they are going to pay. In an industry where the technology is changing at a rate that is mind-numbing, it gets a guaranteed essentially inflation-proof increase for, what, five years or seven years (I forget what it is), to worry that somehow that constrains this organisation, there are other things to worry about in the world and that is not one of them. The notion that you should get concerned because the BBC has lost sporting events, for instance, to Sky; Sky has lost sporting events to this new Irish consortium; it seems to me that the money from this bidding process has enlivened British sport and has enormously increased the range of sport that people can see on television. If you look at the supply curve of sport since Sky, satellite and cable came into being, it has enormously increased. That has got to be a plus from viewers' point of view. If, on the other hand, you are saying that what you would like to do is allow the BBC to raise as much money as it can by, say, becoming a subscription service - I did not think you meant that but it is something you might want to think about - that would really free it to raise as much money as it could get its hand on, to get people to watch it. I do not think that is what you are after. Number one, I would not worry about the past settlement constraining them. Everybody who gets money from the government says it is not enough. You are going to hear that in the energy sector very soon. I think you can relax about that. If they lose some sporting events - people will watch the sporting events, and there is a lot more sport. I remember when the BBC with Wimbledon would show you an occasional match; you can watch all of Wimbledon if you choose to on a variety of stations.

Q620 Alan Keen: I am completely relaxed about the BBC losing sport. I am a great fan of Sky Sport. I am Chairman of the All Party Football Group and I am a great fan of Sky Sport. It has done a massive amount for football. It is our money and we are willing to pay, but we are happy to pay it because Sky make such a good job of it. What I am saying is should the BBC not be freer? Should the private sector not complain too much when the BBC innovates, like BBC online; they have done a great job on that. It is the duty of the private sector to try and restrict the BBC and government from giving them a free hand. Do you not think the whole thing should be freed up much more; and we should just recognise the BBC is an entity restricted by this government getting the blame if the fee goes too high? It is just a different sort of ownership. What about that?

Mr Stelzer: You have a problem when you say, should they be restricted from expanding here and there? This is not a commercial enterprise that has won its spurs by satisfying consumer demand. It has won its spurs by filling a politically defined niche in society. Every expansion at the BBC, every announcement of an intention to expand stifles innovation in the private sector. IBM for instance, for a long time when it had monopoly power, used to scare away competitors by saying, "Two years from now we're going to have a better something", and so everybody would go home. Microsoft does that all the time and scares away venture capitalists from funding competitors. While you are quite right, you do not want to straitjacket this organisation that you have decided is necessary. I think you should consider that when it expands into other areas this is not costless to you. This is freezing out someone else who might expand into those areas. Just as Sky has brought innovation in sport that is valuable --- I think when you do a 24 hour news channel like Sky did, and then a "free" competitor comes along, that is a warning to somebody that the next time you have a great idea you had better think again; not just, is my idea any good; but is somebody going to come along with huge resources and offer it to the public at no additional charge to the public? That is a cost you pay. As long as you recognise that, and balance that in the consideration of where you want to let the BBC roam that is fine, but do not ignore it. Geoff can speak more on that than I can because it is his people who get scared away.

Mr Metzger: I agree entirely. I think you mentioned the online business the BBC has gone into. We have all gone into the online business. We all have websites. That is an extremely important part of the next stage of development for the media in the private sector. You have to be very careful about the impact on the market and what that does to stifle competition; what that does to stifle plurality. We are certainly in favour of plurality, but there is a real disincentive to invest if we think that the 600lb gorilla is going to drive us away.

Q621 Alan Keen: I recall having the Chairman of Arts World, when it was independent, complaining that the BBC should be restricted because it was difficult for Arts World to cope, and I said, "Look, you charge me. I can't afford to pay for it. You charge me £72 a year for Arts World yet at that time the whole of the BBC only cost me £121 a year". In the end I was delighted that Sky bought Arts World and I could watch it as part of the subscription I very happily already paid for football. Sometimes government needs to intervene, does it not? Lots of people who have cable complain that they now cannot get Sky One and some of the other Sky channels and that has suddenly happened and people are unhappy about it. I know it is part of competition, but I am such an admirer of Sky because of the sports content and it is unfair for Sky to suddenly be interfered with after the great ambition and risk they took, and it seems wrong that suddenly they should be restricted. On the other hand, a fault has arisen and the public are unhappy. I know you will say they could switch from cable to Sky, but what should happen?

Mr Metzger: I am quite concerned actually. I hope Sky and cable patch it up quite quickly, because cable is important to us as a platform. We do not want to get caught in this disagreement at all. The sooner they patch it up the better it is. I think the notion that Arts World is an expensive channel, it is not any more; that was a response to a gap in the market, the fact that the BC was not doing the same thing with arts programming that it used to. Arts programming comes classically under that PSB sort of banner, does it not. The fact that the private sector came in there and saw a gap in the market, and a gap in the market which they wanted to exploit for commercial purposes, make no mistake about it, turns out to be a good thing. Everybody gets arts television all of a sudden. This is effectively the point that we have been making. I do find it ironic in fact that as we got closer to the Charter again that arts programming was rediscovered for a moment on the BBC. I think there is an awful lot of that kind of derivative opportunistic strategy on the part of the BBC in that regard.

Mr Stelzer: That dispute should be a public concern if there was a monopoly of programming. If there is no monopoly of programming there is a commercial dispute over the price of intellectual property, and those disputes seem to me best resolved commercially. If there was a monopoly of this stuff then you would need a regulator to set the price that would be charged by Sky for this programming. You have got a commercial dispute going on overlaid by, shall we say, very strong personalities. I would just let that wind down. I do not think that is a proper area for public intervention.

Mr Metzger: You are not going to make the seller take a price. I think that would be most unusual if the Competition Commission decided that was a good thing to do. You must accept this price.

Q622 Mr Evans: Ofcom says there is no evidence to suggest because the BBC are spending £3.5 billion on public service television that they are chasing it out of the commercial sector. Are they right?

Mr Metzger: That they are actually stifling competition?

Q623 Mr Evans: Yes. There is no evidence that the BBC is stifling competition on the commercial channel.

Mr Stelzer: How do they know that?

Q624 Mr Evans: I do not know.

Mr Stelzer: In other words, they are somehow tabulating all of the people who did not put any money into television because the BBC is there? They cannot possibly know that. That is a ridiculous statement for anybody to make. I am surprised that they would make it.

Q625 Chairman: Their statement in support of it is, "despite the presence of the BBC, despite the presence of Channel 4, you will see that the [spending in this country on subscription and pay TV] is as high in this country than in any other country", therefore the willingness to pay does not appear to be affected.

Mr Stelzer: If that is what passes for regulatory logic I really worry. What they are trying to guess is how much it would be in the absence of this subsidised competition. The fact that people are paying X does not mean that that is the socially optimal amount; it just means that is what it is. To link those two things in a single sentence is not becoming for a regulatory agency to do that.

Q626 Mr Evans: One of the argument that you hear more regularly is that the BBC get £3.5 billion, which as you quite rightly say is a huge sum of money, with the confidence that they know what they are going to get, unlike the commercial channels who rely on subscription and advertising; and yet they do some programming clearly, and you have just given one example of it Heroes, where people would say, "Is that public service television?" Looking at what the BBC provide, do you believe there are things they are spending licence payers' money that they should not be spending money on?

Mr Stelzer: Yes, I do, but there is a complicated problem here. Again, because you are starting with the notion of public service broadcasting, it is easy then to morph into the notion that if we do not do some popular things nobody will watch the other things, as if people do not know when a programme ends and then can change the channel. Sure they are doing a lot of things they should not do. Organisations do that. If you know anything about the economic theory, organisations do not just go away, any more than government agencies do, and say, "Oops, we've finished our job; we now want to give back £2 billion of our £3.5 billion because the commercial sector is so brilliant". That is not going to happen. That is for political constraint to do. Sure they are doing stuff that commercial people gladly do - moves, Heroes, whatever. That is why you go down a slippery slope when you look for some definition of what is worthy, and instead I think you should look for some situation where programmes that demonstrably cannot get commercial backing can be reviewed for the propriety of spending on them taxpayers' money. That would be a much better way of getting a handle on what the BBC should be doing. I would doubt very much if that came to £3.5 billion a year.

Q627 Mr Evans: Do we need the BBC?

Mr Stelzer: It ill-behooves an American to come and tell you that you do not.

Q628 Mr Evans: That is what Americans do! Do we need the BBC?

Mr Metzger: I think we do need the BBC. Certainly we need the BBC until switchover is complete; there is no doubt about that. There are still quite a few analogue viewers in this country who pay a licence fee and pay it for the BBC. In that respect it is part of the deal, yes, absolutely.

Q629 Mr Sanders: Is it not also part of the satellite or cable deal that you can also get BBC programming as part of that package?

Mr Metzger: You can but the licence fee does not pay for that.

Q630 Mr Sanders: Is it not a fact that actually the BBC licence fee is cheaper than the subscriptions most people pay to Sky, Virgin or any other provider?

Mr Metzger: Is it cheaper, I do not know. You can get some pretty cheap packages on satellite and cable these days. You can pay £7.99 a month for quite a few more channels than you can get on the BBC.

Q631 Mr Sanders: That would include the BBC?

Mr Metzger: It would include the BBC.

Q632 Mr Evans: You need the BBC until about 2012 or thereabouts, is that what you are saying?

Mr Metzger: If switchover is successful you mean?

Q633 Mr Evans: Yes.

Mr Metzger: I think the BBC is bound to wither through market forces. We mentioned funding before - I find it remarkable we pay more for subscription now than we do for the licence fee so it has gone beyond that boundary. That is to say, that people have leapt over that £143, whatever we pay for the licence, and pay a lot more for a subscription. The private sector has access to the markets as well. As the BBC share withers, and it will - it will continue to wither because that is a function of fragmentation, unless of course the DCMS allows it to launch many, many more channels - yes, the licence fee will be in jeopardy eventually. I think the BBC knows this. The BBC is one of the biggest competitors in the market. You have to remember it owns a half interest in UKTV, which is one of the very largest providers of commercial television and subscription television in the UK; and it is a very successful business for them as well. I think the writing is on the wall.

Q634 Paul Farrelly: Could I put the same question to Mr Stelzer. Taking into account all economic theory, does state subsidisation of a national champion always damage its own economic self-interest?

Mr Stelzer: No. I think of national defence. I am nervous, if you guys decided to get your weaponry from Russia I would rather see you pay more and do it yourselves. When you ask an economist a question with the word "always" in it you are going to get the answer I just gave you, because we immediately think of exceptions to the rule. To your question - I think it depends what you mean by "wither". I think that its role, its importance, the function it performs will wither; whether the organisation will wither is a separate political question. That is a very resilient, I do not want to say "virus" but that is what leaps to mind, operation which has withstood so far, and managed to grow as an organisation, as its market share has collapsed. Jaguar wishes it could do that. It is very hard. When you say "wither", yes, I agree, the more channels you are going to get the more, when you digitalise this country, the importance of the BBC as a source of information and programming will decline. Whether the organisation will decline with it I am not so certain. That is a pretty astute political animal you are dealing with.

Mr Metzger: I think one of the areas where we probably disagree is that I think there is a role for public service broadcasting. As Irwin says, institutions have a tendency to self-preservation; but I think the UK is very different from the US in this way and it is my belief that it is a good thing that the democratic institution decide what we want. If we want to pay for public service broadcasting we want to foster the values of the society; and we want to do whatever Parliament decides we want to do, then we should continue to do that. I do believe it has made for very good quality television in this country - there is no doubt about that.

Chairman: We are running out of time. I am going to move us on because there are one or two specific areas we want to address, in particular one area where there may be some evidence of market value, which is in children's programming.

Q635 Rosemary McKenna: Despite the fact that British children now have access to more television than ever before some people are concerned about the production of high quality UK-produced content. What contribution do satellite and cable broadcasters make to UK-produced content for children?

Mr Metzger: Irwin has just shown me very kindly the passage I was looking for before and, in fact, satellite and cable television provides 79 per cent of children's programming in this country at the moment in terms of broadcast hours.

Q636 Rosemary McKenna: But United Kingdom produced content is separate. You provide more content but what proportion of it is produced in the United Kingdom?

Mr Metzger: I do not have the figures in front of me but I can certainly provide those to the Committee in terms of pounds spent.

Q637 Rosemary McKenna: You see, one of the issues is that the BBC have reduced their locally produced content and so there is a real concern around that in terms of developing the skills and keeping the skills within the country of independent production.

Mr Metzger: Has there been a reduction?

Q638 Rosemary McKenna: Yes, there has been, and ITV as well. Both have reduced their locally produced content.

Mr Metzger: I was not aware of that.

Q639 Chairman: I think our concern is that the commercial public service broadcasters are all backing out of children's television as fast as they are being allowed to do so, which is leaving the BBC as really the sole provider of United Kingdom's commissioned children's programming, which even the BBC say they are not very happy with. One of the suggestions which was made was that the satellite and cable channels might be encouraged, at the least, perhaps to produce simply, the suggestion was to us I think, an hour of United Kingdom children's content a week, but do you see any way in which UK content can be supported more by satellite broadcasters?

Mr Metzger: Well, I think there are some disincentives at the moment. One of those I think is probably the BBC because it does have two rather substantial channels for children. I know there is certainly a debate going on right now about food advertising, for instance.

Q640 Rosemary McKenna: Would that have an impact? Obviously that would have a substantial impact on cable and satellite.

Mr Metzger: It would, because it is advertiser-funded.

Q641 Rosemary McKenna: So how do you balance the demand of parents to have less advertising in children's programming with the cable and satellite broadcasters?

Mr Metzger: I think it is a balancing act, there is no doubt about it, but if you deny them the ability to accept advertising from some of their larger supporters, companies like Procter & Gamble and Unilever talking about sweets and things like that it is going to make it a lot harder for them to produce local content, and certainly channels like Nickleodeon do produce local content. They certainly cannot compete at the level of the BBC, clearly, but it is going to make it even harder for them.

Q642 Rosemary McKenna: Do you think it is important, though, that there is competition for BBC for children's programming? To be honest, BBC children's programming is superb, but should there be competition?

Mr Metzger: I think there should always be competition. Certainly it holds the BBC to task in delivering value and innovation. We always talk about the BBC being the standard; I think there are many areas in which the agenda has been set by the commercial sector and, if you are talking about animation, for instance, the commercial sector certainly provides some of the best animation, the most artistic, the most creative, that there is in the world, really. So yes, I think competition is good.

Q643 Rosemary McKenna: Irwin, you made an aside earlier on about the advertising issue in supermarkets. Do you want to expand on that?

Mr Stelzer: I do not think I can usefully, so I will just be brief. The question of children's programmes seems to be separate from the others simply because it is a protected class, in a certain sense. The fear of advertising to children I have always had difficulty understanding since the children do not have any purchasing power that their parents do not possess. When we went into a supermarket if my son wanted something I did not want him to have he did not get it; it seemed to me rather a simple process, and I recognise that in current society that is not necessarily the model, and there are exposed groups of children that are susceptible to advertising. I do not see that as a threat but, again, everything has a cost. If you want to eliminate that on commercial children's programmes you are going to get less commercial children's programming. That is your problem as politicians - you have trade-offs all the time, there is very little black and white, so if you say: "We do not want sweet cereals advertised on children's programming" you are going to get less children's programming. You may say: "That is fine, I will do with less, I have the BBC out there, they are doing a pretty good job". I also do not worry as much about domestic content because I think the superb international animation that you see around that the children love is really quite good and if it is not domestic it does not matter to me. Now, there is this question of culture and acculturation which I guess is important, but you have a pretty good balance. You have some very good children's programming on BBC; you have some very good children's programming in the commercial sector; it is always interesting to me that everybody wants to have more and more children's programming but they also do not want children to watch television. That is a whole other contradiction that you have to resolve. You do not have a bad balance now and I would hesitate - and maybe I am very conservative - to interfere with the current balance.

Q644 Mike Hall: All this session has been more or less dominated by the BBC so I will just read out the opening line to our context of today's session. "The focus of today's session is the provision of public service media content by private broadcasters, outside the traditional system of public service broadcasting institutions and subsidies". So can I get right to the hub of this particular thing? What do you think about the licence fee? Is it fine as it goes?

Mr Stelzer: I think the licence fee has several things wrong with it, other than compulsion. One is it is inequitable in terms of it has no means testing component to it. Now, I am not for means testing when you come to pensions, they do not make the transfer, but the fact is that you have a system that cannot accommodate the multiple-set user versus the single-set user. I think that could be more easily handled with a tax on the set itself when it is sold, so that is one reason. Another is it is unrelated to the use of the system. The third is the intrusive and expensive means of enforcement. It defies everything Adam Smith said about a tax. You have spies roaming loose in trucks listening in on people's houses at great expense to haul anyone before them, including lots of people who do not have television sets at all. So if you want to fund public broadcasting this is not an efficient way to do it and it is not an equitable way to do it, and if you want to do that I think you should think about a different system which might be related to the number of television sets. What you do is you jigger it so you introduce means testing if you are very old or if you are blind or you try to introduce different offsets to the inequitable nature of the system, but I think if you are going to be thinking about this for the next four or five years and if you are going to have some sort of subsidy for public service broadcasting, either roll it into the tax system or find a fairer, more efficient way to collect the money.

Q645 Mike Hall: So you would replace it by subscription?

Mr Stelzer: But subscription does not do the job you want to do for public service broadcasting. It does the job I want to do for introducing market forces but if you want to go down the route of having some funding not related to what people want to see because you think it should be out there and you think there is some social good to having something out there, find a different way to fund it. This is not an equitable means of funding.

Q646 Mike Hall: I do not want to try to put words in your mouth but basically I think you are making the case for it to come out of general taxation.

Mr Stelzer: General taxation seems to me would be fairer in the sense that it would at least introduce means testing, number one, of some sort because you have a progressive tax system but, number two, it would force the politicians to trade off for their constituents this expenditure against other expenditures. Right now you have this sort of ring-fenced thing which it has been decided is more important than garbage collection. Now, I wonder, if you put that to a vote what would happen. So if you had it in the tax system you would at least force decisions about priorities which now you do not have to do. So if you are going to have it I just do not think the funding is being done in an optimally efficient way.

Mr Metzger: I largely agree, certainly in terms of the inequities and the inefficiency of the system. Should the BBC be funded out of public taxation? Well, certainly for as long as we have analogue television sets, I think, and people who are dependent upon that, yes. I am not sure about the digital channels, however. I think there might even be a case for them to go to subscription. I think public service broadcasting should be funded out of taxation, though. I think Parliament should decide what we need and the Treasury should fund it.

Q647 Mike Hall: In the interim we still have the licence fee exclusively funding the BBC. Do you think there is a case for it to be used further afield beyond the BBC to other programme providers?

Mr Metzger: Top slicing, you mean?

Q648 Mike Hall: Yes.

Mr Metzger: I think if you do top slice the BBC is going to compete even more fiercely. The justification for the licence fee is very much connected to the use and to share, and if you do top slice there is a risk they are going to do less of the good things, quite honestly.

Mr Stelzer: I do not know; I have not thought that one through. I would like to see some sort of competitive bidding for these funds by programme providers, but I have not thought through the implications of what Geoff has been discussing.

Q649 Mike Hall: One of the implications, of course, is that if you provide the licence fee to a commercial organisation you might feel that they lose their independence.

Mr Stelzer: Well, you would certainly create a larger constituency for the perpetuation of this system, which would make me a little nervous. I am trying to guess which rubber glove I want to buy to handle this, and I have not thought that one through!

Q650 Paul Farrelly: I would hate Mr Stelzer to go away with having a monopoly of Adam Smith. He might disagree and say: "Actually, by all measures of taxation the licence fee is simple, easy to collect and very efficient because it is very difficult, like any property tax, to avoid".

Mr Stelzer: First of all, it is not easy to collect; it is a very expensive collection system. Second, Adam Smith came out for progressive taxation, remember? He said the people who can afford it the most should pay the most. You do not have that with this. In fact, you have almost an inverse situation. You have the people who cannot afford to go to the theatre and the opera and so on who are more reliant on television paying a larger portion of their income for this than people who have higher income. I had a debate at the University of Edinburgh with your Chancellor on the tax principles of Adam Smith - he picked the venue, I did not realise how hostile they would be to me, but I think I did alright! - so I happen to have read it recently and I do not think this is consistent. But I will look it up again.

Q651 Alan Keen: On progressive taxation, it is very unscientific but in a way what worries me if the BBC goes is the very opposite. I think the people with less money with kids who get less benefit through the family get, inversely, more benefit from the BBC in the way of education. I have said many times I have been educated by the BBC. I escaped from education as fast as I could. I left grammar school at 16, I did not want to go on to further education - I did not frankly ever understand what universities were, I am getting on a bit now - and I have said many times that I have been educated by the BBC, and I feel for the working class kids, if you like, who would lose out more than anyone else if the BBC went.

Mr Stelzer: It is a reasonable fear.

Q652 Chairman: Can I put to you the core question of this inquiry that we are conducting at present? Up until now we have managed to sustain plurality in public service broadcasting through what Ofcom describes as the compact, that commercial broadcasters agree to provide public service programming in return for access to limited spectrum. That cannot continue. Digital switchover means that the advantages to the commercial broadcasters disappear and they are not going to do something which is not in their interests any longer. The two questions are: does it matter if we see a reduction in plurality in public service broadcasting and, if we consider that it does matter, how do we sustain it?

Mr Stelzer: And you measure plurality how?

Q653 Chairman: Well, by having some public service content on channels other than the BBC, however we define public service content.

Mr Stelzer: I fail to see why that would start to wither under the scenario you are suggesting. People will want to see it. The nice thing about all these channels is you can dice and slice. It used to be if you did a programme you had to appeal to a mass audience and you do not have to do that any more.

Q654 Chairman: So your answer is the market is going to do it?

Mr Stelzer: Yes, I think the market will provide sufficient plurality. There are circumstances where that might not be true but I do not see it here. You have, especially in Britain, enormous creative talent. You have conquered the American magazine industry, the American advertising industry, and the American music industry with British creativity and more power to you, so to worry that somehow you are not going to get this flowering of creative expression, these choice multipliers, I think is misplaced.

Mr Metzger: I agree. If there is reduction in PSB and a plurality of PSB then I think that there are ways in which to sustain it. I think the Burns Committee had a pretty good idea, actually, a kind of contestable funding idea. We as commercial broadcasters would all be interested in competing for funding and playing according to the rules as well. If they decided that there was not enough - I do not know, history of South Asia for instance, for the South Asian population to this country and they wanted to create programmes about that, we would very happily compete for that funding or find production partners who wanted to go into that business. Also they might, for instance, set quotas for how many impacts, how many times that programme had to be seen, for instance, and we are the best providers in distribution terms and the market is the best provider in distribution terms of precisely that kind of sustainability.

Q655 Adam Price: I think you have already indicated that you are unconvinced by Ofcom's case for a new institution, a public service publisher, but do you still think there is a role for public funding of new media content, either through the BBC's on-line activity or, indeed, the commissioning of new media content by others?

Mr Stelzer: I worry that that will stifle private sector initiative in creativity. Remember, you are not dealing here with an organisation that has won its funds in a commercial market by satisfying consumer demand and is now looking to find other ways of satisfying consumer demand; you are dealing with somebody that has been given a huge pile of money and all bureaucracies - and this is not to criticise the BBC - as they get bigger get less creative and tend to rely on muscle rather than on creative innovation, speed and the other virtues of a private sector. So just as with any other dominant firm in competition terms, if you are dealing with the Competition Commission, you would view with greater suspicion the expansion into cognate areas of a firm that is dominant in one area and I would not say no but I would be very careful about allowing - because it would be doing it by muscle rather than talent - that expansion because the trade-off is very high and, as the exchange with the Chairman showed, very difficult to measure. Ofcom cannot sit there and say: "Who would have appeared had we not done this?" That is not an answerable question. So I think you need somebody with kind of a bias in favour of asking hard questions about the dangers to efficiency and public welfare of this kind of expansion. I would view it with considerable suspicion.

Q656 Adam Price: Is that not an argument, though, in favour of the public service publisher idea instead of the BBC, through its on-line activity, dominating the public service activity in the new media environment, creating a different institution which is more of a commissioning model, encouraging providers within the market and detached from the BBC as a monolith?

Mr Stelzer: But why would you want to do that? If there is any sector that has an enormous creative ferment going on and enormous availability to it of risk capital, this is it. I have great regard for Ed Richards but I do not think he is as good at this as thousands of private entrepreneurs would be so no, this groping around for the big organisation that is going to fix things is just taking public policy in a very wrong direction. There is no failure out there of innovation. Steve Jobs does not need Ed Richards to help him develop the iPod or the iPhone. He is pretty competent to do it himself.

Mr Metzger: I do not have a lot to add. On-line content is content; it is like all the other content really, I think, so I do not really make too much of a distinction there. I do think the PSP is kind of in search of a mission. What it started out as was something different to what it is now, which has kind of switched into a kind of on-line role and that sort of thing. The 100 million they have set aside, I am not sure how they have reached that number but it does not make a dent by comparison with the £3.5 billion, for instance, spent on the BBC. We are not wild also about the idea of placing it under some sort of umbrella. You described it as a commissioning body. In fact, I think there is a risk that if you do create this other figure you are just creating another sort of institution of privilege, so to speak, and you are not really creating plurality, I do not think. I certainly agree with Irwin that this is a sector that we are extremely active in. Without trumpeting our own website if you go to the History Channel's website it is the second best referenced history site in the UK, second only to the BBC, and the BBC recommends it highly as well, so there is no kind of plurality gap here, certainly on the web.

Q657 Adam Price: Are you saying there is no market failure at all in new media?

Mr Metzger: What comes to mind here is, if you look at the COI, it spends a lot of money every year and it spends money providing public service messages. And what does it do? Where it spends its money is in the commercial sector, of course, because that is the best place to deliver its messages, as it were, and this is by and large the same sort of thing. If there is a gap, whether it is on-line or on air or whatever, then I would be in favour of a Burns Committee type organisation which says: "We need to spend money in this way", and it may not be on content; it may be in the way the COI does in buying referencing on the Google search engine, because a man in Aldershot cannot find sufficient information about how to make a good democratic choice, for instance, because he cannot find his local council's website, as an example. But I do not think that creating another institution is a solution here.

Chairman: We have ranged far and wide this morning! Thank you both very much.