1 Introduction
1. In July 2008 the Committee announced a new inquiry
into the commercial operations of the BBC.[1]
The BBC has engaged in commercial activities since the launch
of The Radio Times in 1923 and its commercial arm has become
an established part of the BBC's business model.[2]
In recent years the BBC's commercial activities have undergone
a marked expansion, with the Corporation seeking both to maximise
income from traditional sources and diversify into other areas.
It was this growth in the scope and value of the BBC's commercial
activities, and the implications for the media industry and general
public, that instigated our inquiry. We announced our terms of
reference as follows:
- The benefits and opportunities
offered by the BBC undertaking a range of commercial activities
in the UK and abroad;
- The potential risks to the BBC, licence fee payers
and other stakeholders;
- The extent to which the BBC's commercial activities
meet the criteria required of them;
- The appropriateness and effectiveness of the
governance framework for the BBC's commercial activities;
- The future of BBC Worldwide and other BBC commercial
subsidiaries;
- How the money returned to the BBC by its commercial
operations is invested.
2. The principle that the BBC should undertake commercial
activities has enjoyed strong support from licence fee payers.
In research by the Department for Culture, Media and Sport (DCMS)
in 2005, 90% of those surveyed agreed that the BBC should raise
as much money as it can from selling its programmes and other
products.[3] The principle
has commanded consistent support from successive governments as
a means to lessen the reliance on the licence fee and supplement
the BBC's budget. In 1996, the then Secretary of State for National
Heritage, the Rt. Hon Virginia Bottomley MP, encouraged the BBC
to "take full advantage of the new commercial opportunities
which are now available".[4]
Similar support has continued, as signified by comments from the
current Parliamentary Under-Secretary of State in DCMS, the Rt.
Hon Gerry Sutcliffe MP. He told the House last year that "the
BBC should seek to maximise commercial revenue in appropriate
areas and reinvest it in programming and talent to the benefit
of licence fee payers".[5]
3. The new Minister for Communications, Technology
and Broadcasting, Lord Carter of Barnes, reiterated to us the
view that it was legitimate for the BBC to seek to maximise its
commercial returns.[6]
However, his support for this principle was not unqualified: he
added that the BBC is "on the horns of a dilemma".[7]
Set against the benefits that might be reaped from an unchecked
expansion in the BBC's commercial operations was, he told us,
the potential unfairly to distort the market, chill competition,
and chill innovation.[8]
4. The BBC has three commercial subsidiaries:
- BBC Worldwide, a wholly owned
commercial subsidiary of the BBC formed in 1995 as a result of
a restructuring of its predecessor, BBC Enterprises;
- BBC World News, a commercially funded, international
24-hour news channel;
- BBC Resources, parts of which were sold off
during 2007-08, but which still retains the commercial arms of
BBC Studios and BBC Post Production.[9]
5. The Committee's inquiry focused almost exclusively
on BBC Worldwide, as this subsidiary accounts for the vast majority
of the BBC's commercial income. Worldwide's core business is,
according to the BBC, "the commercial exploitation and export
of the BBC brand and BBC content".[10]
However, in recent years Worldwide has also sought to use its
capabilities as a global media business to distribute non-BBC
content. Such a move was encouraged by the latest BBC Charter
Review, published in 2005:
"The BBC should not restrict itself to the
sale of BBC programmes. It should look to work closely in partnership
with other UK broadcasters in developing its programme sales strategy.
It should use the scale and power of BBC Worldwide to showcase
the widest possible array of UK talent and secure the best possible
deal for UK plc".[11]
6. As a result, in 2007, BBC Worldwide announced
five objectives as part of a new five year growth plan:
- Increase overseas revenue towards
two-thirds of total revenue;
- Grow online revenues to more than 10%;
- Roll out of BBC-branded channels overseas;
- Create a global production business;
- Acquire businesses to help achieve the overall
plan.[12]
7. Worldwide now operates seven different divisions,
with the collective aim of meeting these objectives. The divisions
span the operation of overseas television channels and the distribution
of television programmes, to the publication of magazines, development
of commercial websites, and DVD sales.[13]
Its newest division, called "Global Brands", was formed
to "manage properties that have global reach", such
as the newly acquired Lonely Planet business.[14]
Worldwide has a total staff of 2480, and in 2007-08 generated
a profit of 118 million.[15]
In 2003-04, profit was just £37 million with a staff of 2143,
indicating the rapid growth that Worldwide has undergone in recent
years.[16]
8. The BBC is not permitted simply to undertake any
commercial activity it chooses. Its commercial operations are
governed by a set of requirements set out in the BBC's Agreement
with the Secretary of State.[17]
These requirements are designed to guard against the possibility
that the BBC's reputation could be damaged, or that markets could
be unfairly distorted by its presence. They also require that
the BBC's commercial functions exhibit commercial efficiency,
and fit with the BBC's core values or purposes.
9. In February 2008, the BBC Trust instigated a review
of the BBC's commercial activities. The Trust told us that the
aim of the review was "to reassess BBC Worldwide's strategy
and governance arrangements".[18]
The BBC Executive was conducting the review in the first instance,
and planned to report its findings to the Trust in November 2008.
On 4 March 2009, the Trust published an interim statement which
sets out its "emerging thoughts" on the BBC's commercial
activities.[19] However,
it has opted to delay making final decisions on the strategy and
governance of Worldwide due to the prospect of a possible partnership
between Worldwide and Channel 4. The BBC and Channel 4 are in
discussions over a possible deal that Channel 4 hopes will help
to close its current funding gap. We make reference to the Trust's
ongoing review in this report, and we consider the prospect of
a partnership between Worldwide and Channel 4 in Chapter 7.
1 The Committee is grateful to Martin Le Jeune, who
acted as Specialist Advisor on this inquiry. Back
2
Ev 79 Back
3
Department for Culture, Media and Sport, Review of the BBC's
Royal Charter: What you said about the BBC, July 2004, p 29 Back
4
Rt Hon Virginia Bottomley MP, Secretary of State for National
Heritage, letter to Marmaduke Hussey, BBC Chairman, 1 April 1996
(see Ev 79) Back
5
HC Deb, 20 May 2008, col 51WH Back
6
Q 254 Back
7
Q 254 Back
8
Q 254 Back
9
Ev 95 Back
10
Ev 79 Back
11
Department for Culture, Media and Sport, Review of the BBC's
Royal Charter: A strong BBC, independent of government, March
2005, p 44 Back
12
BBC Worldwide: Annual Review 2007-08, July 2008, p 9-10 Back
13
BBC Worldwide: Annual Review 2007-08, July 2008, p 16-17 Back
14
Ev 85 Back
15
BBC Worldwide: Annual Review 2007-08, July 2008, p 9. Profit
refers to profit before interest and taxation including prior
year exceptional items. The staff figure was provided by the BBC
for the Committee Back
16
Information provided to the Committee by the BBC Back
17
Department for Culture, Media and Sport, Broadcasting: An Agreement
between Her Majesty's Secretary of State for Culture, Media and
Sport and the British Broadcasting Corporation, Cm 6872, July
2006, p 37-39 Back
18
Ev 76 Back
19
"BBC Trust review of the commercial activities of the BBC-interim
statement", BBC Trust press release, 4 March 2009 Back
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