5 Production Houses|
68. Part of the agreed strategy of BBC Worldwide
is to create a global production business.
This has included in practice opening production facilities in
the USA, India and Australia, taking stakes in overseas-based
companies (such as Freehand in Australia, Mir Reality in Russia
and Temple Street in Canada), as well as taking stakes in UK independent
producers, such as Left Bank Pictures Ltd, Cliffhanger Productions,
Baby Cow and others.
69. The BBC argued that these investments were important
for BBC Worldwide in a variety of ways. In the UK, they were
a means of supporting domestic production capacity and ensuring
that the BBC had a source of quality programming that met public
purposes and was based on a close working relationship with individual
Internationally, the BBC summarised its approach as follows:
"In some limited cases, BBC Worldwide has sought to build
the BBC's reputation internationally by partnering local companies
as a means of securing both value and market presence in key markets.
In all cases BBC Worldwide retains full control over the BBC
advantages of this approach, the BBC argued, were that taking
control over production moved the BBC up the value chain and generated
revenues that merely licensing formats would not secure.
The BBC added that this was an approach which was followed by
international competitors such as Disney-ABC, Fremantle and ITV
to the BBC, the investment supported the BBC's public purpose
of "bringing the UK to the world".
70. The BBC also justified the investments which
it had made in small UK production companies as being both good
business and good for the UK creative industries: "the case
for BBC Worldwide's investment has been driven by the excellence
of the production talent, the modest sums involved in BBC Worldwide's
investment and the resulting prospect of considerable financial
and "cultural" returns for the licence fee payer at
manageable levels of risk".
Although no precise figure was given, the BBC said that its investment
in UK production was "tiny" compared to the total sum
of £350-400 million invested in the sector.
71. The companies which have received inward investments
from Worldwide were understandably in favour of the BBC's continued
presence in this market. As a representative example, Left Bank
that they had received a £1 million investment from the BBC
in exchange for a 25% stake in the business in 2007.
The Chief Executive said that BBC Worldwide had provided "brilliant
The result had been that the company had been helped to move quickly
to a forecast turnover of £20 million, without, Left Bank
Pictures claimed, undue risk to BBC Worldwide. A similar stake
has been taken by BBC Worldwide in Baby Cow Productions Ltd, with
comparably positive feedback coming from that company too.
72. The Chairman of the BBC Trust said to us that:
"the primary purpose of BBC Worldwide existing at all is
to exploit the rights generated by the BBC's work in the United
Building on that characterisation, other witnesses questioned
whether there was a justification for the international aspects
of these activities. These critics included Pact, who stated that
"we cannot see how several of BBC Worldwide's current activities
] its acquisition of ownership stakes in production
companies overseas, bear any meaningful relation to its public
Pact was also highly critical of the way in which Worldwide's
investment in Freehand Group (an Australian production company)
had led to the appearance of the BBC logo next to a still for
an Australian comedy gambling game called Joker Poker displaying
the logo of a casino company.
In reply, BBC Worldwide said that the programme in question, although
misleadingly named, was in fact a charitable comedy production.
Nonetheless, this example does serve to demonstrate the issues
that may arise through such investments, and the potential damage
to the BBC's reputation which might occur.
73. Pact also questioned the rationale behind investments
of this nature in overseas companies. Such equity investments
might (as we understand is the case in Australia) require BBC
Worldwide to offer a "first look" arrangement to its
overseas partner, rather than selling its programme rights on
the open market with the possibility of a higher return. As the
Chief Executive of Fremantle put it to us: "It is not necessary
for the BBC to take stakes in production companies in order to
get the best commercial return from its programming and its formats".
That is particularly the case with high-value popular formats
such as Strictly Come Dancing, which has been remade in
many countries. Pact disagreed with the argument that such investments
allowed the BBC to protect its brand, suggesting that brand protection
could easily be done through contractual conditions rather than
by minority stakes.
74. Other critics, particularly Fremantle, also argued
that the BBC Worldwide policy exposed the UK licence fee-payer
to unacceptable levels of risk. They noted that the independent
television production sector is highly volatile. Whether these
investments were made from debt financing or from profits, the
ultimate cost in both cases would be carried by the licence fee-payer
in the form of a poorer return to the BBC.
75. Fremantle also pointed out that, in its view,
the analogy made by the BBC between Worldwide creating an international
network and those of commercial companies was flawed. It told
us that international production companies expand across territories
in order to develop and sell internationally attractive formats:
that was their purpose. The task of the BBC, as Fremantle asserted,
was not to produce programming which would be internationally
attractive: it was to serve the interests of the British viewer.
As the Director General of the BBC put it in his evidence to us:
"We must not be in a position where, through lack of co-ordination
or an understanding of what commercial operations are, you end
up with the commercial interests of BBC Worldwide becoming more
important now or overtaking or becoming divergent from the absolute
clarity of our central mission, which is to do with serving the
British public with the right services and the right programmes".
76. In our view, the idea that the BBC should take
responsibility for promoting the UK creative industries, including
supporting independent UK production, is clear and unarguable.
It is however debatable whether that is best achieved by a series
of selective equity investments in UK independent production companies.
As an overall strategy it seems to us to be deficient in five
- It distorts the investment
market. BBC commercial activities should avoid such distortion,
according to the 'four Cs';
- The most efficient method of supporting independent
production is not by equity investment but by commissioning programmes
from a wide range of independent companies, to spread the impact
of the BBC's money much more widely and act as a financial support
enabling independent producers to build a track record and therefore
attract commissions from other programme commissioners and channels;
- Taking minority stakes in production companies
in the UK by its very nature has to be a highly-selective process.
The BBC cannot invest in anything other than a tiny proportion
of companies in the market and is in the position of acting as
a venture capitalist with licence-fee payers' money;
- Minority stakes do not by definition give the
BBC control. Indeed, it is difficult to see what advantage they
do give to a public sector investor, particularly given the levels
of risk in the sector.
- It exposes the BBC, by virtue of being highly
selective, to potential reputational risk. For instance, none
of the independent companiesas far as we are awarehas
yet been sold. Were such sales to occur, they may leave the BBC
open to questioning about the balance of risk and reward accruing
to the outside shareholders and licence fee payer.
77. It is true that the BBC's investments do boost
parts of the UK creative sector. In today's economic climate that
might be an important source of funding to keep companies afloat
and prevent the loss of creative resources (although that is not
the justification argued by BBC Worldwide itself, which views
these largely as normal commercial investments). We therefore
recognise that, in the short-term, there may a case for Worldwide
to retain some of its minority equity stakes in UK production
companies. However, we believe that in the medium term it is in
the interests of the UK creative industries as a whole that this
practice is discontinued. We recommend that Worldwide should exit
existing investments as soon as is feasible, and without damage
to the viability of the production companies concerned.
78. Whatever the arguments for UK investment,
it is very difficult to make a case for BBC Worldwide's investments
in overseas production houses. We were convinced by the arguments
of those who demonstrated that the risks, both financial and reputational,
far outweighed the possible return to the BBC. More importantly,
the attempt to create an international BBC Worldwide business
creates the clear risk that it is this business, rather than the
core public service remit, that will increasingly drive BBC programming.
That is not a risk that licence fee payers should have to bear.
We therefore recommend that the strategy of overseas investment
is brought to an end. Investments already made should be disposed
of when market conditions permit a profitable (or at least loss-minimising)
136 BBC Worldwide, Annual Review 2007-08, July
2008, p 10 Back
BBC Worldwide, Annual Review 2007-08, July 2008, pp 12-13;
Ev 5, 82, 171 Back
Ev 81-82 Back
Ev 83 Back
Ev 87, 135-136 Back
Ev 82 Back
Ev 135 Back
Ev 82 Back
Ev 82 Back
The producers of television programmes such as Wallander,
and films such as The Damned United Back
Ev 171 Back
Ev 172 Back
Ev 159-160 Back
Q 155 Back
Ev 11 Back
Ev 11; Q 4 Back
Letter from the BBC to the Chairman of the Committee, John Whittingdale
MP, 11 November 2008 Back
Q 30 Back
Q 4 Back
Ev 6 Back
Ev 8, 203 Back
Q 134 Back