BBC Annual Report and Accounts 2007-08 - Culture, Media and Sport Committee Contents


1.  On 8 July 2008, the Committee held an oral evidence session with the BBC on its Annual Report and Accounts for 2007-08. This was the second BBC Annual Report and Accounts to be published under the new Royal Charter ("the Charter") and Agreement between the Secretary of State for Culture, Media and Sport and the BBC ("the Agreement"). The Charter and Agreement set out governance arrangements for the BBC, including the establishment of an independent BBC Trust, which has responsibility for setting the overall strategic direction of the BBC, and a separate Executive Board with responsibility for delivering the BBC's services in accordance with the priorities set by the BBC Trust. We took evidence from Sir Michael Lyons, Chairman of the BBC Trust, and from Mark Thompson, Director General, and Zarin Patel, Director of Finance, BBC Executive.

2.  On 23 July 2008, we wrote to the BBC with further questions about its Annual Report and Accounts, and matters raised at the oral evidence session. On 29 September 2008, the BBC submitted its response to our follow-up questions.[1]

3.  We carried out a similar scrutiny exercise on the previous BBC Annual Report and Accounts and published a short report on 22 January 2008.[2] This raised concerns about the structure and content of the BBC's response to the Committee's written questions. For instance, while the BBC did indicate whether answers to individual questions were provided by the BBC Trust or by the BBC Executive, the rationale behind the allocation of questions between the two bodies was unclear. In some cases it would have been helpful to have included a view from both the BBC Trust and the Executive. We noted that it might also have been more helpful if the BBC Trust, as the body with ultimate responsibility for strategy, had identified whether it was not responding to certain questions because it believed those matters were entirely for the Executive, or because it simply had no opinion on the matters. We also outlined a number of specific concerns with the content of some of the BBC's answers.

4.  Overall, we expressed disappointment at the manner in which the BBC approached its response to our follow-up questions to its 2006-07 Annual Report and Accounts. We hoped for a more robust response from the BBC in future years which made clear where accountability lay for particular issues. We believed that the BBC needed to take advantage of its new governance arrangements to engage more constructively with Parliamentary scrutiny.

5.  We are therefore pleased to note a marked improvement in the BBC's approach to our questions this time around. The BBC Trust has: made it clear that it has coordinated the overall response; indicated which responses were provided by the BBC Executive and which were provided by the BBC Trust; and given its views in addition to that of the BBC Executive more often than in the previous year. Overall, the quality and thoroughness of the BBC's responses are substantially improved.

6.  Nonetheless, the BBC has not addressed some of our follow-up questions as fully as we would have liked. We briefly outline these below. The final section of this report, concerning editorial control over offensive content, does not relate specifically to the BBC's Annual Report, but rather to the subsequent controversial broadcast of an edition of The Russell Brand Show.

BBC Three

7.  In its oral evidence the BBC claimed that BBC Three was an important instrument "to encourage [young] people to move more actively to digital take-up".[3] We asked the BBC for evidence that BBC Three had indeed encouraged digital take-up amongst young people, and how many had done so. Neither the replies of the BBC Executive nor the BBC Trust were able to substantiate this claim.

8.  The BBC Executive, for instance, noted: an increase in reach for BBC Three from 14% (7.8 million viewers) to 17.3% (9.7 million) in 2007-08; that the channel had the highest share of any non-terrestrial channel in the hours that it transmits; and increased digital take-up amongst 16-34-year-olds from 83% to 87% between 2007 and 2008, "a higher percentage increase than in the population as a whole".[4]

9.  However, neither the reach or share references constitute evidence that the increase in digital take-up amongst 16-34-year-olds is due to BBC Three. No actual share figure was provided for BBC Three or its peers—just the claim that it has "the highest share of any non-terrestrial channel in the hours that it transmits".[5] The channel's availability and content may or may not be a factor in this. A large number and variety of other digital multi-channels are also targeted at younger audiences, and no evidence has been presented to us that any particular channel has had more or less influence on digital take-up itself. We also note that Channel 4, during the Committee's recent session on its 2007 Annual Report, stated that a lot of the BBC's share of younger audiences "comes from the repeats of EastEnders that they run on BBC Three" (i.e. as opposed to original content on the channel).[6] We also note that the reach figures for BBC Three indicate that, nearly six years after the channel's launch, it is still the case that fewer than 2 in 10 viewers watch BBC Three, a service which cost £125m in 2007-08.

10.  The BBC Trust told us that it would be reviewing BBC Three in-depth as part of the review of service and content for younger audiences, a review which has now begun.[7] Despite this, we would have expected the Trust to have addressed our question more directly, or noted the deficiency in the BBC Executive's response.


11.  We asked the BBC what reach targets were set for each BBC television service in 2007-08 and what reach was achieved in that year. The Director General had stated that the BBC sets a reach target for each of its television services and that "we can lay them out for you. I think we have met or exceeded our reach targets this year for pretty much every channel across BBC television".[8]

12.  However, in its written reply, the BBC Executive did not provide the reach target for any individual BBC television service. Instead, it referred to the "Trust's target[…]that all BBC services work towards the BBC maintaining overall 90% reach" and the Trust's overall objective for the Executive "to maintain the maximum reach consistent with its purposes and values".[9] While figures were given for actual reach of each BBC television service in 2007-08 (along with comparative figures for 2006-07), it has been impossible to verify the BBC's claims that reach targets do exist for each of its television services, or that these targets were "met or exceeded" in 2007-08. Nor did the BBC Trust offer any response to this question.

13.  We believe it is a significant failing of the BBC Executive to have sidestepped the question of reach targets, and for the BBC Trust not to have commented on, let alone rectified, this deficiency.

Kangaroo (joint venture video on demand service)

14.  We asked the BBC whether it was appropriate that the Competition Commission should be undertaking a detailed and presumably costly inquiry into Kangaroo (the joint venture video on demand service in which the BBC has partnered with ITV and Channel 4), in light of the statement by the Chairman of the BBC Trust in oral evidence that "the Trust has not finished, or even started, its appraisal of the Kangaroo proposition".[10] The Trust went on to tell us that approval was far from guaranteed: "for what we can see of this proposition, we have authorised the Executive to talk to other players in the industry, to talk to those who have already been identified as co-operators. In no way does that constrain the Trust when the day comes that it has a detailed proposition in front of it".[11]

15.  In its reply, the Trust stated that "it is solely a matter for the Competition Commission as to whether it holds an enquiry or not" and set out why it believed it was appropriate to reach its view on the Kangaroo proposal only when a fully developed proposal was submitted for assessment and after the outcome of the Competition Commission's work.[12]

16.  We acknowledge that it may be appropriate for the Trust to reach its final views on the Kangaroo proposal only when such a proposal is more fully developed. It is a requirement for the Trust to have regard to the competitive impact of the BBC's activities on the wider market. Indeed, it is a particular requirement of the criteria for the assessment of BBC's commercial services (as the Trust states in its response) that they "must avoid distorting the market".[13]

17.  However, the Trust's limited authorisation for the Executive to "talk to other players" to develop proposals does not seem consistent with reports of the development of Kangaroo over the last year, and with other information in the Competition Commission's provisional reports. For instance:

  • On 14 April 2008 BBC Worldwide announced the appointment of BBC Executive Board member and Director of Future Media and Technology Ashley Highfield as the new CEO of Kangaroo.[14] This was also reported to the BBC Trust by the Director General at the Trust's meeting of 17 April 2008, at which Trust Members "expressed their gratitude" for his and another departing executive's leadership and service to the BBC.[15]
  • On 17 November 2008 it was reported that Kangaroo had a staff of 50 and its own London offices.[16]

18.  According to the Competition Commission, "the BBC Trust has reviewed BBC Worldwide proposals for the joint venture at a number of stages from both a strategic perspective and in order to ensure compliance with the Agreement. The initial review was on 20 June 2007 where agreement in principle was given to the joint venture. A detailed review, in light of the OFT [Office of Fair Trading] findings and negotiations around the long-form agreements, took place on 19 June 2008".[17] On 3 December 2008 the Competition Commission published and invited comment on its "Notice of provisional findings" on Kangaroo, which indicated that "the joint venture would be likely to lead to a loss of rivalry between the parties, amounting to a substantial lessening of competition in the supply of TV VOD [video on demand] content in the UK at the wholesale and retail levels".[18] The Competition Commission also published a "Notice of possible remedies", which set out the actions that might be taken in order to remedy the substantial lessening of competition and any resulting adverse effects identified in the provisional findings.[19] We find it difficult to reconcile the BBC Trust's claim to have given only limited authorisation for the Executive to "talk to other players in the industry" with information on the subsequent development of Kangaroo and statements in the provisional findings of the Competition Commission. It is apparent that the Trust reviewed proposals for the joint venture at a number of stages, including a detailed review on 19 June 2008, in advance of our oral evidence session. The statements by the BBC Trust Chairman to the Committee therefore appear, at best, incomplete and, as a result, potentially misleading.

19.  We also find it odd that the BBC Trust chose not to give any indication of its initial views on the merits of the Kangaroo proposal in advance of the launch of a Competition Commission investigation. The BBC's participation in the Kangaroo joint venture cannot proceed in any circumstance without the approval of the BBC Trust, and the Trust could decide not to grant any such approval even if competition issues were not a concern or are fully addressed. In effect, a detailed and costly Competition Commission investigation has taken place for a venture that might never have seen the light of day in any event. We believe that it would have been more appropriate, in the first instance, for the BBC Trust to have given further consideration to the Kangaroo proposal and a preliminary indication of its approval or rejection of fundamental aspects in principle—subject to amendment and compliance with competition law as appropriate—before the launch of a full scale investigation by the competition authorities.

Value of the BBC

20.  The Trust has set the BBC a high-level objective to "increase perceived value among middle and low approvers", noting that there is "clear evidence[…]that significant parts of the audience feel the BBC is not serving them as well as it should".[20] We asked the BBC how it planned to increase the value of the BBC to those people that currently give it a low approval rating.

21.  In its response, the BBC Executive states that "Older and C2DE[21] audiences also value the BBC's local and regional content". It argues that "the proposals for closing the BBC's purpose gap in localness [via its proposed local video services, a proposal which has been subsequently rejected by the Trust] will have an impact here".[22] The internet universe, while currently dominated by ABC1s,[23] is itself changing over time and that "while ABC1 reach increased 22% over the last year, C2DE reach was up 39%. As this continues to change, the BBC's internet-delivered services will increasingly deliver value to all audiences".[24]

22.  While the BBC has indicated the relative increase of C2DE internet users over ABC1s over the last year, it has not given the absolute figures enabling us to consider the actual number of users involved and the merits of the BBC's claim that the C2DE audience would have benefited from the proposed local video services.

Transparency of salaries

23.  We welcome the efforts made by the BBC to increase transparency through the publication of the numbers of senior management in various different salary bands.[25] However, we continue to believe that the same requirement should be applied to BBC "talent", whether they are employed directly or under contract. We welcome the undertaking by the Chairman of the Trust to give this further consideration.[26]

Ofcom fees

24.  The BBC Trust's figures for what it pays Ofcom are set out in the table on page 38 of the Annual Report, but these fail to add up correctly. We asked why the individual figures given for Ofcom regulatory and market impact assessment fees total £3.7m while the figure listed in the table is over £4.2m. The BBC Trust replied that the individual figures are correct and the total Ofcom fees are £3.7 million but "unfortunately, despite proof reading by ourselves and the external auditors this printing error was not spotted until after the report had been distributed".[27]

25.  We are pleased that the BBC Trust has acknowledged this error but remain concerned that a material figure in the Annual Report and Accounts was misrepresented, despite proof reading by both the BBC Trust and its external auditors. Nor is it clear that this error was identified until the Committee brought it to the BBC's attention.


26.  The deficiencies outlined in this report should not detract from the overall improvement in the BBC's response compared to its approach in the previous year. While there remains room for further improvement, we are generally satisfied with the quality and detail of the responses received this year. We hope that in future years the BBC will continue to strive to provide accurate and thorough responses to our scrutiny.

Editorial control over offensive content

27.  Since we held our session with the BBC on its annual report, the BBC has been at the centre of a major controversy which has raised questions relating to its editorial control over offensive content. On 18 October 2008, BBC Radio 2 broadcast a pre-recorded episode of The Russell Brand Show, on which Russell Brand and Jonathan Ross left lewd messages on the voicemail of actor Andrew Sachs. In the aftermath of this incident, Russell Brand resigned from his BBC employment, Jonathan Ross was suspended without pay for three months, and the BBC Trust called the broadcast a "deplorable intrusion […] without editorial justification".[28] The Trust has recommended tougher penalties for staff who do not comply with editorial guidelines, and tighter controls on shows made by companies owned by their performers.[29]

28.  Shortly before the Trust made this statement, we held a further oral evidence session with the BBC's Director General, Mark Thompson, and the Chairman of the Trust, Sir Michael Lyons. The session had initially been arranged to question the Executive and Trust on the operations of the BBC's commercial arm, BBC Worldwide. In light of the unfolding public controversy, we took the opportunity to question the BBC on this broadcast.[30]

29.  Sir Michael Lyons stressed that the "material was unacceptable, should never have been broadcast and should never have been recorded".[31] The broadcast was, according to the Director General of the BBC, "a very serious editorial lapse".[32] He went on to say that it constituted both an invasion of privacy and a lapse of a duty of care to Andrew Sachs and his granddaughter. He admitted that "quite senior people with a specific responsibility for editorial standards and compliance made errors of judgement in relation to this programme".[33]

30.  Although the programme was broadcast on 18 October, it was not until the publication of an article relating to it appeared in The Mail on Sunday on 26 October that it became a major national news story. Indeed, Sir Michael said that it was not until the publication of this article that the Trust and senior management of the BBC had any idea that the incident had taken place.[34] The Trust and the Executive issued apologies the next day—27 October—but this meant that nine days had passed since the show had been broadcast. The Trust and the Executive have rejected allegations that they were slow in responding to the incident, with the Chairman of the Trust claiming that "there was no lack of speed following the publication, but much to account for in the preceding week".[35]

31.  The broadcast of The Russell Brand Show on 18 October was a serious editorial lapse which exposed major failings in the BBC's system of editorial control. These failings must be addressed and such a lapse must not be repeated. The broadcast of the show was bad enough, but the BBC's failure to respond quickly exacerbated the situation. It seems extraordinary that BBC senior management were not aware of the broadcast until some eight days after it went on air. We find it inexplicable that an apology was not issued until 27 October. Even then, the BBC failed to check the wording of its apology with the main victim of the broadcast, Andrew Sachs.[36]

32.  Radio 2 announced on 13 November that Jonathan Ross would return from his suspension, and be back on air from 24 January 2009. This announcement was made prior to the Trust's final consideration on 21 November of the BBC's report on the matter. Despite this announcement, the Chairman of the Trust insisted on 18 November that "there is nothing that is ruled out from the final deliberations of the BBC Trust".[37] He accepted that it would have been more appropriate for Radio 2 to have delayed its announcement until after the Trust's conclusions had been published.[38] However, later the same day, the Trust issued a statement indicating that it did not expect to conclude that any further sanction against Jonathan Ross should be imposed. In doing so, it appeared to pre-empt its own consideration and to contradict the statement made by the Trust Chairman just a few hours previously. When the Trust did issue its ruling on 21 November, it confirmed that it did not seek to alter Ross' suspension, and his return date remained unchanged.[39]

33.  The decision by the BBC to announce on Radio 2 that Jonathan Ross would be back on air immediately after his three month suspension, despite the fact that the Trust had yet to approve the BBC's action, was premature and wholly inappropriate. It suggests to us an arrogance on the part of the BBC in apparently assuming that the Trust would not seek to alter the BBC's ruling. As the Chairman of the Trust himself accepted, the announcement should not have been made until after the Trust had approved the action. We also find it bizarre that the Trust should then issue its own statement suggesting that Jonathan Ross would face no further sanction ahead of its own meeting to consider the matter. This was the last in a series of major errors of judgement from the BBC relating to this matter, which started with the broadcast itself and was compounded by the unacceptable delay in acknowledging its inappropriateness and issuing apologies. We trust that all concerned will learn the appropriate lessons and that the Trust Chairman's declared intention to make sure that there is no recurrence is fulfilled.

1   Ev 24 Back

2   Culture, Media and Sport Committee, Fourth Report from Session 2007-08, BBC Annual Report and Accounts, HC 235 Back

3   Q 3 Back

4   Ev 24 Back

5   Ev 24 Back

6   Culture, Media and Sport Committee, Third Report of Session 2008-09, Channel 4 Annual Report, HC 189 Back

7   Ev 25 Back

8   Q 5 Back

9   Ev 25 Back

10   Q 108 Back

11   Q 108 Back

12   Ev 26 Back

13   Ev 26 Back

14   "Ashley Highfield appointed as CEO of Kangaroo", BBC Worldwide press release, 14 April 2008, Back

15   Minutes of the BBC Trust meeting, 17 April 2008, Back

16   "How Kangaroo lost its bounce", The Guardian, 17 November 2008 Back

17   Competition Commission inquiry into Kangaroo, Notice of Provisional Findings, Appendix D, "Strategic rationale and business plan", December 2008, Back

18   Competition Commission inquiry into Kangaroo, Notice of provisional findings, December 2008, Back

19   Competition Commission inquiry into Kangaroo, Notice of possible remedies, December 2008, Back

20   Page 17 of Part One of the BBC Annual Report and Accounts 2007/08 Back

21   The social grade C2 represents skilled manual workers. Grade D is semi and unskilled manual workers. Grade E is casual or lowest grade workers, pensioners and others who depend on the state for their income Back

22   Ev 27 Back

23   The social grade A represents higher managerial, administrative or professional workers. Grade B is intermediate managerial, administrative or professional. Grade C1 is supervisory or clerical and junior managerial, administrative or professional Back

24   Ev 27 Back

25   Page 59 of Part Two of the BBC Annual Report and Accounts 2007/08 Back

26   Q 65 Back

27   Ev 27 Back

28   BBC Trust, Editorial Standards Findings, November 2008 Back

29   BBC Trust, Editorial Standards Findings, November 2008 Back

30   Uncorrected transcript of oral evidence taken before the Culture, Media and Sport Committee on 18 November 2008. HC (2007-08) 1166-ii  Back

31   Ibid., Q 90 Back

32   Ibid., Q 90 Back

33   Ibid., Q 94 Back

34   Ibid., Q 92 Back

35   Ibid., Q 96 Back

36   Ibid., Q 104 Back

37   Uncorrected transcript of oral evidence taken before the Culture, Media and Sport Committee on 18 November 2008, Q 121 Back

38   Ibid., Q 122 Back

39   BBC Trust, Editorial Standards Findings, November 2008 Back

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Prepared 28 January 2009