House of Commons - BBC Commercial Operations - Culture, Media and Sport Committee

BBC Commercial Operations - Culture, Media and Sport Committee Contents

6 Magazines and Websites

79. BBC Worldwide is the third largest consumer magazine publisher in the UK. It reported a "strong year" in 2007-08 "despite turbulence in the UK [magazine] industry and continuing challenges in the advertising market".[158] Worldwide's BBC Magazines division delivered sales of £177.9 million in 2007-08, up 3.9% on the previous year, but profits fell by 15.5% to £16.7 million which, according to Worldwide's annual report, was due to the cost of new launches and investment overseas.[159] BBC Magazines recently announced that its strong performance had continued in the latter half of 2008, with subscriptions now at an all time high.[160] BBC Magazines has over 50 publications in the UK—with a particular prominence in the children's magazine sector[161]—and links to a number of international operations.

80. In the future, BBC Magazines plans to "progress its strategy of driving international growth, developing richer and deeper relationships with its consumers, including through subscriptions, and launching print magazines and online sites that exploit the BBC's programming and, internationally, other content".[162] Worldwide has already developed a joint venture with The Times of India, called the Worldwide Media Group, jointly to publish the magazines Grazia and Hello in India.[163] Pact questioned whether such a share-holding "has got anything to do with the BBC's public purposes in any way, shape or form".[164]

81. We received evidence demonstrating the privileged position BBC Magazines occupies in the marketplace, thanks to several advantages it holds over its commercial competitors. Most BBC magazines feature the BBC brand on the front cover, often in a prominent position adjacent to the magazine title. Signature Publishing, an independent consumer magazine publishing company, told us that this was a major advantage: "No other publisher has the luxury of being able to establish credibility, authority, and the instant understanding of an internationally recognisable and familiar brand".[165] The BBC brand has, of course, been established over many decades and, as Signature Publishing points out, is instantly and freely available to BBC Magazines at no transfer cost. While BBC Worldwide recognises the value of the BBC brand to its operations, it does not include the value of its exclusive right to use it in its accounts.[166] In contrast, an independent commercial publisher "has to progressively build up their brand and Intellectual Property assets through, firstly creating, and then re-investing its company income, generally over a long time period".[167] Signature Publishing therefore argues that BBC Magazines has a "distinct, unfair advantage over other magazines" in three key areas:

BBC Magazines is not subject to the true cost of producing and marketing a magazine;
Major retailers are more receptive to stocking BBC branded magazines;
A new title carrying the BBC logo will inevitably gain a "preferred" status over a comparable new but unknown title from another publisher, particularly one from a smaller independent company.[168]

82. BBC Magazines also has access to an enviable range of current and popular TV characters and cartoons. Signature Publishing allege that these characters are "given" to BBC Magazines, "without the real cost of acquiring them".[169] As a result, it argues that BBC Magazines is able to price its publications at a level its competitors struggle to match. Finally, BBC Magazines has the advantage of owning a 23% stake in Frontline, the UK's largest distributor of magazines.[170] However, it is worth noting that two other publishers, Haymarket and Bauer, own the remainder of the company.

MARKET IMPACT

83. Despite these apparent advantages, BBC Worldwide argues that its presence in the magazine market does not adversely impact upon its commercial competitors. Indeed, Worldwide's Chief Executive suggested that the contrary was in fact the case. He told us that "what tends to happen […] is that the overall market in [a particular magazine sector] grows as a result of our arrival, rather than shrinking".[171] In a subsequent submission to us, the BBC presented evidence which it claims supports this assertion. It offers an analysis of some of the major magazine sectors in the UK: food, homes, motoring, gardening and children's. In each of these sectors it contends that the launch of a BBC branded magazine, for instance Top Gear magazine or Gardener's World magazine, has led to an increase in both the number of titles and the total circulation of the sector. The BBC concludes that its presence "does not block out other publishers or lead to an overall decline in the number of titles".[172]

84. The views offered to the Committee by BBC Magazines' competitors were rather different. In 2003, Seven Publishing beat competition from BBC Magazines to acquire the licence to publish Delicious magazine, a food publication which had previously been published in Australia. The magazine was launched in the UK later that year. Having missed out on Delicious, BBC Magazines instead developed its own magazine, Olive. It launched this at the same time as Delicious, with, according to Seven Publishing, "the same editorial proposition into the same market sector".[173] The two magazines also retail at exactly the same price. The BBC launched Olive despite already publishing the market leader, BBC Good Food. Seven Publishing stated that sales figures showed that its launch of Delicious posed no threat to BBC Good Food, and that Olive was launched "simply as a spoiler" by the BBC.[174]

85. Evidence we have received from the magazine industry suggests that it is not only the smaller publishers who are competitively affected by the BBC's presence in the marketplace. BBC Worldwide recently launched BBC Match of the Day magazine into the football sector, targeting a pre-teen audience, rather than the older age demographic of the television programme of the same name.[175] A long established youth football title, Shoot!, from the major publisher IPC Media, was, according to Signature Publishing, "effectively closed as a result of the BBC's launch into this sector of magazines".[176] The BBC again claims that early assessments suggest that its new launch has grown this particular market by 89.5%[177], but, even if this is an accurate appraisal, it is clear that Shoot! did not derive any benefits. According to the British Internet Publishers Alliance, BBC Match of the Day magazine is now targeting the market of another major publication in the football sector, Match magazine.[178]

86. The Editor-in-chief of a travel magazine, Wanderlust, argued that BBC Magazines are now making a "deliberately aggressive" move into the travel sector of the magazine market.[179] The launch of BBC Lonely Planet magazine, originally set to launch on 20 November, the same day as Wanderlust's 100th issue (a move subsequently revised—it was instead launched on 28 November 2008) drew strong criticism from the panel of publishers from which the Committee heard evidence. For instance, Wanderlust told us that BBC Lonely Planet magazine was undercutting its advertising rates to such an extent that it struggled to see how the new magazine could possibly make any profit.[180] Another major complaint centred around the allegation that there is no clear link between the BBC Lonely Planet magazine and BBC programming, an issue to which we now turn.

87. "Predominantly aimed at frequent travellers with the time and means to indulge their passion", Worldwide states that the BBC Lonely Planet magazine "will combine inspirational ideas for future trips—from short breaks in the UK to long-haul journeys—with outstanding journalism and photography".[181] However, according to the Government's 2005 Green Paper, the remit of Worldwide's magazine business is to produce titles that are brand extensions of existing programming, leveraging the content that the programme produces (e.g. BBC Countryfile and BBC Top Gear magazines):

182

88. Travel publishers, such as Wanderlust and Create Publishing, contend that the BBC's travel programming has neither been extensive nor germane to the kind of independent back-packing approach associated with the Lonely Planet brand. They argue that BBC programming has instead focused on family package holidays and therefore there is no natural extension of the BBC brand in this area.[183] They conclude that the BBC has acquired a bridgehead in an entirely new area because it seemed attractive, will use its considerable resources to start a magazine which it will cross-promote with a TV series, and the result will be to drive the independent publishers currently active in the area out of business.[184]

89. The BBC rejected the accusation that there was no strong link between the Lonely Planet magazine and BBC programming. In fact, the Chairman of the BBC Trust told us that the primary reason for the proposition coming forward in the first place, and the primary reason for the Trust granting approval, "was that it was seen to be a clear opportunity to explore a very considerable amount of intellectual property the BBC holds within its archive and within current programmes which relate to travel and international affairs".[185] Worldwide estimates that it has "about 3,000 hours of TV programming that is in that zone of pure travel", citing Coast, Britain from Above, and the various Michael Palin travel documentaries.[186] It strikes us as odd, therefore, the newly launched Lonely Planet magazine does not carry the BBC brand or logo prominently on its front page.

90. Worldwide has previously been forced to dispose of some of its magazines due to a lack of connectivity with BBC programming. Four years ago, Eve, a women's interest publication, and Cross Stitch Crazy, were sold off because, as Worldwide itself admits, "there were not really any cross-stitching programmes on BBC television, and, similarly, there were not any general women's interest programmes on BBC television at the time".[187] The Chief Executive of Worldwide confirmed that "there has to be that connectivity but it does not have to be directly a programme to a magazine".[188]

91. It is right that the BBC should exploit its intellectual property, including by allowing the publication of magazines using the BBC brand, in order to generate returns for the licence fee payer. However, the BBC must take due care not to distort the market, and it should not buy new brands—as it did with Lonely Planet—to enter new markets. The BBC's assertion that its presence in the magazine market has grown sectors and benefited commercial rivals is highly counter-intuitive. If that were the case, we should expect commercial rivals to welcome BBC innovations in their markets. They do not. Rather than benefiting commercial competitors, the inherent advantages that BBC Magazines has over its rivals means that it can dominate markets at the expense of others. The closure of the long-established Shoot! magazine shortly after the launch of BBC Match of the Day magazine was perhaps an example of this.

92. There is no reason in principle why the BBC should produce its own magazines in-house, and there is certainly no justification for its stakes in overseas publications. New BBC magazines should only be launched if there is a clear link with core BBC programming, and where the public value of launching a magazine outweighs any adverse impact on the existing marketplace. This could be assessed using a public value test similar to that applied to other BBC services.

93. This Report is critical of the acquisition of the Lonely Planet brand, its exploitation through the recent launch of Lonely Planet magazine and the market-distorting effects of those initiatives. We recognise, however, that a forced sale of the business may well lead to a substantial loss to Worldwide, the BBC and ultimately, therefore, the licence fee payer. We do not, therefore, recommend such a step, but urge the Trust to take account of the criticisms in this Report and moderate Worldwide's behaviour accordingly in the future. Given the relative size of the acquisition—and its considerable effects on Worldwide's balance sheet—we also ask the BBC to disclose further details of the deal and of the performance of the Lonely Planet business, both before and since the acquisition.

Websites

94. The BBC's public service website, bbc.co.uk, is the most popular content site in the UK: 44% of UK adult internet users use the site on at least a weekly basis.[189] Less familiar, at least for UK audiences, are the BBC's additional commercial websites. BBC Worldwide's magazines and digital media divisions have launched several commercial websites in recent years. Examples include topgear.com and gardenersworld.com, together with bbc.com, the international version of bbc.co.uk. These BBC Worldwide websites provide news, entertainment and services much like bbc.co.uk but, unlike the public service site, they contain advertising. The Guardian Media Group argued that some of the advertisements appearing on these sites were inappropriate, citing a McDonalds advert on Worldwide's environment website, BBC Green.[190] However, the BBC strongly refuted this suggestion, and we are satisfied that this particular allegation was mistaken.[191]

95. Of greater concern to us is the general expansion in Worldwide's online operations. The Guardian Media Group reports that the BBC Magazines division of Worldwide has "moved from extending existing programming brands to creating entirely new, often multiplatform media brands".[192] This has resulted in the launch of new "passion" websites which the Guardian Media Group claims "have no direct link to existing programming brands and have a significant negative impact on existing operators in their respective markets".[193] The example that both the Guardian Media Group and the British Internet Publishers Alliance (BIPA) cited was BBC Green. According to the Guardian Media Group, this site was launched despite there being "at least eight [commercial] websites already struggling to see where the return is going to come in the area of environment" (e.g. Treehugger, Telegraph Earth, New Scientist, as well as the science and nature site on bbc.co.uk which includes all the BBC's public service natural history, nature and environmental content).[194] The BBC informed us in November that for commercial reasons the site would close on or before 20 November 2008 (unless a buyer could be found), although we note that the website was not actually closed until February 2009.[195] Press reports provided further clarity on the reasons for the closure, with a BBC Worldwide spokesperson quoted as saying "we are a commercial business and in difficult times we have to look at our portfolio".[196]

96. Nevertheless, BIPA concludes that "through superior technology and marketing power the BBC dominates the UK's online market".[197] It claims that BBC Worldwide's commercial sites use the same technology that was developed for the licence fee funded bbc.co.uk site. This, combined with "unrivalled, privileged access to un-regulated cross-promotional opportunities, cross-subsidised access to content production and assets", creates, according to BIPA, "unfair competition" with commercial websites.[198] For instance, Shoot Gardening, an "online gardening diary" and commercial competitor of the BBC, has submitted a complaint to the BBC that Worldwide has violated its fair trading guidelines. It reports that some of the content on Worldwide's gardenersworld.com site has been copied directly from the public service site bbc.co.uk/gardening. Shoot Gardening's founder argues that "even if [Worldwide] paid a fair market price [for the information], which I am not certain they did, the fact they have it at all gives them a significant leap forward in competing with us".[199] The Guardian Media Group concluded that "the 'passion sites' take eyeballs and advertising income away from existing commercial sites […] private investment is crowded out by an expanded public service".[200]

97. We believe that there is little justification for Worldwide to launch commercial websites in markets that are already well served by commercial competitors, or where a clear link to BBC programming is absent. We therefore welcome the closure of the BBC Green website, which was clearly operating in a crowded marketplace and was not directly linked to a specific BBC programme. We hope that this sets a precedent and represents an end to such online expansion by Worldwide, although we note the BBC's insistence that this decision was taken purely for commercial reasons, rather than due to any adverse impact on competitor sites. We believe the BBC should exhibit extreme caution before launching any further commercial websites. In particular, we recommend that it undertakes thorough market impact assessments prior to launching new websites or services on existing sites.

158 BBC Worldwide, Annual Review 2007-08, July 2008, p 29 Back

159 BBC Worldwide, Annual Review 2007-08, July 2008, p 29 Back

160 "BBC Magazines delivers robust ABCs for July-Dec 08", BBC Worldwide press release, 12 February 2009 Back

161 BBC Worldwide, Annual Review 2007-08, July 2008, p 29. BBC Worldwide is estimated to own around 40% of the children's magazine market (Q 35) Back

162 BBC Worldwide, Annual Review 2007-08, July 2008, p 30 Back

163 Qq 29, 37 Back

164 Q 29 Back

165 Ev 160 Back

166 Ev 47 Back

167 Ev 160 Back

168 Ev 161 Back

169 Ev 161 Back