Letter from Sir Michael Lyons, Chairman,
BBC Trust to Paul Farrelly MP
BBC ANNUAL REPORT
AND ACCOUNTS
At the Culture, Media and Sport Select Committee
hearing last Tuesday you raised the issue of BBC Worldwide's acquisition
of a stake in Lonely Planet. I thought it would be helpful to
explain in more detail the Trust's remit in relation to the approval
of commercial services and how this was applied in this case.
Under the BBC Agreement all commercial services
must comply with the following criteria:
— they must fit with the BBC's public
purpose activities (more specifically, they must be appropriate,
and they must be connected (otherwise than in merely financial
terms) with the ways in which the BBC promotes its public purposes;
— they must exhibit commercial efficiency;
— they must not jeopardise the good
reputation of the BBC or the value of the BBC brand; and
— they must comply with the BBC's fair
trading guidelines and in particular avoid distorting the market.
The Trust has put in place a framework for ensuring
that all new or changed services are assessed against these criteria.
In most cases the assessment is conducted within the BBC Executive
with appropriate input from specialist advisers independent of
BBC Worldwide (eg on compliance with fair trading requirements).
For projects involving investment in excess of £2 million,
decisions are taken by the Board of BBC Worldwide. This Board
is chaired by a non-executive Chairman and includes five further
non-executives who focus closely on compliance with the four criteria
set out above.
Trust approval is required for any projects
involving investment in excess of £50 million, falling outside
the strategy for the BBC's commercial services as approved by
the Trust, or representing entry into a wholly new market sector
for the BBC's commercial services. In addition, the BBC Executive
Board must consider referring any proposal for consideration by
the Trust where matters of wider strategic significance for the
BBC may be raised or the good reputation of the BBC may be jeopardised.
In the case of the proposal to acquire a 75%
stake in Lonely Planet, Trust approval was required on grounds
of scale. BBC Worldwide submitted proposals, approved by the BBC
Executive, to the Trust in July 2007. The proposals included a
business case and a detailed assessment of the proposition against
the four criteria. The Trust was satisfied that the proposal was
likely to comply with the four criteria, but noted that further
work was needed to finalise the proposition. It made its approval
of the proposed acquisition conditional on four conditions being
met:
— a further assessment of the proposal
against the "four criteria" for commercial activities,
including more detail on how the purchase would exploit BBC rights;
— confirmation that the due diligence
work being undertaken was completed and was acceptable;
— confirmation that external counsel
had given final clearance on merger control issues; and
— confirmation that the BBC Executive's
Controller of Fair Trading had given final clearance on compliance
with the BBC's Fair Trading Guidelines.
In addition, the Trust asked for additional
evidence to demonstrate the proposal's fit with the BBC's public
purposes—specifically to show how the proposal would help
to leverage extra value from the BBC's intellectual property that
BBC Worldwide exists to exploit.
The Trust then considered further material provided
by the BBC Executive, including a final assessment against the
four criteria and further information showing how BBC Worldwide
intended to use Lonely Planet to draw new audiences to BBC content
and leverage increased value from the BBC's intellectual property.
The Trust was satisfied that the conditions it set had been met.
In particular it wanted to be satisfied that BBC Worldwide had
clear plans to make use of synergies with its existing activities
to develop the Lonely Planet business, enrich the experience for
audiences for BBC programmes in those genres associated with travel,
and enable BBC Worldwide to leverage extra value from its existing
assets.
The Trust was satisfied with the further assurance
provided on these issues and confirmed its approval to proceed.
It asked for a further report from BBC Worldwide on the extent
to which the acquisition of Lonely Planet is fulfilling these
expectations in practice and has received two progress reports
this year as implementation plans have progressed.
I hope this is helpful in explaining the Trust's
oversight of the BBC's commercial activity and the procedures
it followed in the case of Lonely Planet. If you would like to
know more about these arrangements and the fair trading controls
that Trust has put in place, I would be happy to arrange a briefing
from Christopher Woolard, Deputy Director at the Trust who has
responsibility for these matters.
15 July 2008
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