BBC Commercial Operations - Culture, Media and Sport Committee Contents

8  BBC Local Video Proposal (not a commercial activity)

106. In May 2008 the BBC submitted plans to the BBC Trust to provide a new, on-demand, local video service, delivered via fixed and mobile broadband internet connections. It came about from a challenge from the Trust for "BBC management to respond to licence fee payers wanting better local services".[207] The proposal would have provided local news and video content on 65 existing local BBC websites in England and Wales, at a cost of £68 million over four years. It would not have been a commercial activity: it would have been funded by the licence fee, without advertising or any other form of income generation.[208] However, the proposal was rejected by the BBC Trust in November 2008 "because it would not improve services for the public enough to justify either the investment of licence fee funds or the negative impact on commercial media".[209] Following a three month public consultation on its findings, the Trust confirmed its rejection of the proposal on 23 February 2009.[210]

107. The Trust's decision came after a Public Value Test (PVT), which incorporated a Market Impact Assessment (MIA; commissioned by the Trust but undertaken by Ofcom). The decision also came shortly after the Committee had itself investigated the merits and drawbacks of the proposal. In November 2008, during our oral evidence sessions in relation to the BBC's commercial operations, we took the opportunity to discuss the local video proposal with the newspaper and radio industries, and the BBC Trust and Executive.

108. The BBC's Director General told us that the local video proposal had been four years in the making, and had the potential to provide an enhanced local service—in particular an improved local news provision—for licence fee payers.[211] However, Ofcom concluded in its MIA that "the launch of the proposal would have a significant negative market impact on commercial providers".[212] This finding was reflected in the evidence we heard from the local media industry. Sly Bailey, the Chief Executive of Trinity Mirror plc, one of the UK's largest newspaper publishers, told us that the resources of the BBC would dwarf the budgets that the local press has to maintain their own websites, forcing many of them out of business. She informed us that the local press is already "absolutely inundated with competition".[213] Trinity Mirror closed 44 local newspapers in 2008 (140 of its local newspapers continue to operate).[214]

109. Meanwhile, RadioCentre, the industry body for commercial radio, told us that the proposed service would have a "devastating" impact on local radio stations. Its Chief Executive said last July that 40% of local radio stations are already unprofitable and that some are beginning to hand their licences back.[215] Despite this, RadioCentre report that the local news market is already well served, with the average commercial radio station broadcasting 22 news bulletins per day.[216]

110. A total of £1.32 million was spent developing and assessing the local video proposals, although this does not include the cost of the time spent on the project by BBC staff, which the BBC was unable to accurately estimate.[217] However, it does include £814,604 charged by Ofcom for its role in the PVT, the Market Impact Assessment. This cost was substantially more than a "usual" MIA, "due to the complexity introduced by the need to assess multiple markets" (i.e. the need to assess the impact in several of the local geographic markets that the 65 new services would cover).[218]

111. We recognise the benefits that the proposed local online video service could have brought to consumers, but agree with the Trust's conclusion that these were insufficient to warrant the very significant adverse impact on commercial competitors. At a time when local commercial media services are under extreme pressure, the BBC should be looking to help rather than hinder local newspapers and radio stations. We therefore welcome the Trust's decision to reject the plans, and we hope that this example sets a precedent whereby the BBC gives necessary consideration to its impact on the rest of the marketplace. Indeed, it is apparent that this decision does not necessarily spell the end of the BBC's ambitions in this area, and the Trust must continue to exercise caution when reviewing any revised plans. At the same time, we encourage the commercial media sector to continue to seek to raise its game in spite of the difficult economic circumstances, and continually improve the products aimed at local audiences.

207   "BBC Trust begins public value test of BBC local video proposal", BBC Trust press release, 24 June 2008 Back

208   Q 162 Back

209   "BBC Trust rejects local video proposals", BBC Trust press release, 21 November 2008 Back

210   "BBC Trust rejects local video proposals", BBC Trust press release, 23 February 2009 Back

211   Q 162 Back

212   Ofcom, Market Impact Assessment of the BBC's Local Video Service, 21 November 2008 Back

213   Q 81 Back

214   Q 72; Trinity Mirror plc, Back

215   "Commercial radio attacks BBC local online video plans", The Guardian, 16 July 2008 Back

216   Radio Centre, Action Stations: The Output and Impact of Commercial Radio, July 2008, p 38 Back

217   Ev 137-138. The evidence provided by the BBC in January did not represent the final cost as the process was ongoing. However, the BBC subsequently confirmed that the final cost was £1,317,278.  Back

218   Ev 138 Back

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Prepared 7 April 2009