House of Commons - Culture, Media and Sport Committee

BBC Commercial Operations - Culture, Media and Sport Committee Contents

Memorandum submitted by FremantleMedia

1. SUMMARY RESPONSES TO THE ISSUES RAISED BY THE SELECT COMMITTEE

(a) The benefits and opportunities offered by the BBC undertaking a range of commercial activities in the UK and abroad

FremantleMedia supports the BBC's attempts to maximise the value returned to UK licence fee payers from its publicly-funded intellectual property (IP) through commercial exploitation. However, the BBC must always ensure all its commercial activities meet the four criteria set out in its Agreement with the DCMS:[1] fit with Public Purposes, commercial efficiency, maintaining the BBC's reputation and avoiding market distortion.

The requirement to demonstrate commercial efficiency means that in each area of exploitation, BBC Worldwide needs constantly to justify its role against the alternative of a commercial relationship with an existing market player. The BBC should not automatically assume that a near-exclusive relationship with a wholly-owned commercial subsidiary will necessarily provide maximum commercial efficiency or be the most appropriate means of ensuring the public interest. Significant benefits can also be derived from the exploitation of BBC IP by other market players, with lower risk, potentially higher returns and greater consistency with other public interest objectives.

(b) The potential risks to the BBC, licence fee payers and other stakeholders

The BBC's commercial activities create a wide variety of risks both for the BBC itself and for other stakeholders (see 3(e) below):

— reputational risk for the BBC when BBC Worldwide acts as a producer without editorial supervision from the BBC itself (ie the risk of poor editorial decision-making, which can lead to major reputational problems for producers: see the problems experienced in the UK over the past year, with the abuse of premium rate telephony and "Queengate");

Joker Poker,

— risk for licence fee payers that the BBC's commercial activities will skew the BBC's public service output towards less UK-focused programming which will show a greater commercial return; and

— risk that the BBC is distorting the market by eliminating competition for valuable content rights, raising barriers to entry to the distribution business and increasing prices.

The chorus of exasperation at BBC Worldwide's activities which has motivated and informed the establishment of this Select Committee inquiry suggests that the BBC's reputation has already been put at risk, and that some stakeholders no longer have confidence that the BBC acts consistently in the public interest rather than pursuing its own institutional agenda.

The BBC's commercial activities do not meet the four criteria set out in the Agreement (see 3(d) below):

Fit with Public Purposes

Commercial efficiency

Reputational risk

Market distortion

(d) The appropriateness and effectiveness of the governance framework for the BBC's commercial activities

The existing governance framework has not been effective in ensuring that BBC Worldwide's activities meet the criteria required of them. As set out in (c) above, the BBC's commercial activities do not appear to fit with its Public Purposes, they do not unchallengeably exhibit commercial efficiency, they expose the BBC to reputational risk and the devaluing of the BBC brand, and they may well be distorting the market.

The governance framework continues to allow the BBC to contravene its own policy on fair trading, which forbids BBC Worldwide from deriving advantages not available to commercial competitors.[4] Yet BBC Worldwide's right of first refusal on BBC IP and the cross-directorships between BBC Worldwide and the BBC Executive Board (the CEO of BBC Worldwide sits on the BBC Executive Board, while the Director of BBC Vision and the BBC Group FD sit on the Board of BBC Worldwide) together provide very significant contractual and informational benefits unavailable to the BBC's commercial competitors.

The BBC Trust's remit for the BBC's commercial activities does not make clear how they are intended to fit with the BBC's Public Purposes, and the Trust has not in a transparent way demonstrated that it requires BBC Worldwide to deliver a commercial level of return on investment.

There is a potential for conflict between the Trust's role in setting the BBC's commercial strategy, and its role as regulator overseeing the BBC's detailed execution of that strategy.[5]

There is a lack of clarity about the Trust's role in strategy development, and the £50 million limit over which investments need to be referred to the Trust for approval seems by commercial standards extremely high, so it appears that very significant investments could be made without authorization from the Trust.

As a result, the Trust is perceived as failing in its regulatory role by commercial players and does not yet appear to act as a fully independent and impartial regulator between the BBC and the commercial sector (see 3(g) below).

(e) The future of BBC Worldwide and other BBC commercial subsidiaries

FremantleMedia would like to see (see 4 below):

— the introduction of independent market impact assessments for new BBC commercial initiatives and the revision of the BBC Trust's Fair Trading guidelines to take into account the ways in which BBC Worldwide can distort the market by using its privileged access to BBC IP and BBC capital;

— the elimination of BBC Worldwide's first option on BBC programmes and formats and the introduction of competitive bidding for the right to exploit BBC IP;

— the removal of the CEO of BBC Worldwide from the BBC Executive Board and the Director of BBC Vision and the BBC Group FD from the Board of BBC Worldwide to eliminate the informational advantages these management links provide over commercial competitors;

— the sale of BBC Worldwide stakes in production companies, particularly overseas, to ensure fit with the BBC's Public Purposes and to avoid financial and reputational risk to the BBC;

— the development and implementation of more defined and transparent guidelines on the required fit with Public Purposes for the BBC's commercial activities, and how these activities must be connected, other than merely in financial ways, with the ways in which the BBC promotes its Public Purposes;

— the publication of the BBC's Fair Trading audit, and the establishment of a transparent transfer pricing regime:

— between the BBC as a seller and BBC Worldwide as a buyer of programme format and distribution rights,

— within BBC Worldwide, between its roles as programme distributor and as purchaser of programming for its overseas channels, to ensure that the BBC cannot compete on an unfair basis for distribution rights, and that the true return to the BBC of income from the exploitation of its IP is shown in BBC Worldwide's accounts separate from the results for BBC Worldwide's channel and other interests, and

— the impartial and effective regulation of the BBC's commercial activities by the BBC Trust and greater clarity about the Trust's involvement in the setting and assessment of commercial strategy.

It has recently been suggested that BBC Worldwide should be gifted to Channel 4 in order to help address the shortfall in resources to support public service broadcasting. Given the arguments set out above, this appears an extremely difficult and impractical proposition, but if it is pursued it is all the more important that there should be transparency about its role and effective safeguards against market distortion.

(f) How the money returned to the BBC by its commercial operations is invested

Subject to the comments above, FremantleMedia believes it is a matter for the BBC to determine how its commercial funds are reinvested in its public service activities.

2. INTRODUCTION

Grand Designs, The Bill, X Factor,

QI, The Apprentice, Never Mind the Buzzcocks, Got Talent,

Neighbours

The Apprentice

BBC Worldwide

(c) FremantleMedia is strongly supportive of the BBC. We acknowledge the high standard of public service broadcasting the BBC has provided for the UK for more than 60 years, and we recognise the importance of the role the BBC has played in the current global creative success of the UK production sector. We believe the BBC can and should continue to play a vitally important role in British broadcasting. However we do not believe that BBC Worldwide, the BBC's commercial arm, is necessary in its current form and with its current remit to maximise the benefit to UK licence fee payers of the commercial potential of the BBC's programming. The market can do this as or more effectively.

3. PROBLEMS CREATED BY BBC WORLDWIDE'S CURRENT STRATEGY AND SYSTEM OF GOVERNANCE

(a) Lack of transparency in the relationship between the BBC and BBC Worldwide

There is a lack of transparency in the relationship between the BBC and BBC Worldwide. BBC Worldwide appears to have both an exclusive first look[9] and matching[10] right to the BBC's IP, but the precise nature of the relationship is unclear. Although the BBC Trust places great emphasis on the importance of transfer pricing (ie the price BBC Worldwide pays for rights secured from the BBC Commercial Agency, which represents all IP created in-house at the BBC) in ensuring compliance with its Policy on Fair Trading, there is no publicly available information on the level at which transfer prices between the BBC and BBC Worldwide are set.

The BBC does have guidelines about the process to be used in setting transfer pricing levels. These establish that transfer prices "should broadly be in line with the overall market context",[11] and sets out the parameters for the benchmarking process to be used in establishing market value. We are aware of a small number of BBC programmes whose rights have been acquired by distributors other than BBC Worldwide, but these are all programmes of relatively limited commercial potential. Values vary enormously according to the popularity of the product; any benchmarking process based on this material will severely underestimate the overall value of the BBC's output. The bulk of revenues will derive from a small number of exceptional programmes like Strictly Come Dancing, a hugely successful TV entertainment format produced by BBC America for US network TV as Dancing with the Stars. The deals for this top level of material are commercially confidential and not open to benchmarking exercises; the only way to establish the real value of these properties is through a proper bidding process.

The BBC's guidelines contemplate the use of indicators such as the incremental cost of production as an alternative to benchmarking, but these provide little guidance because production costs will in most cases have already been covered by original production budgets, and incremental costs will be close to zero.

(b) Underpaying for BBC public service-funded programmes and IP

As a result, it is very possible the BBC may be subsidising BBC Worldwide because BBC Worldwide is not paying the market rate for the programmes and formats developed and produced by the BBC in its catalogue. In any event, it is clear that benchmarking processes are a totally inadequate substitute for a proper tendering process when it comes to the most valuable properties. The first right BBC Worldwide has over BBC IP means that there is little incentive or opportunity to establish the competitive market rate.

Individual programme benchmarking will also fail to capture the very substantial value of BBC Worldwide's exclusive first right to the BBC's IP.

(c) Overpaying for programmes and formats from third parties

BBC Worldwide may be overpaying to acquire third party rights (ie rights owned by independent producers) in order to maintain its market-leading position. We believe that it may be overpaying for the right to distribute programmes acquired from independent producers, to ensure it acquires the rights to independently produced programmes originally broadcast by the BBC in the UK. Its motivation for this is both to drive sales of its catalogue (new high profile programmes are essential to a distributor) and to ensure that high profile programming broadcast by the BBC is not distributed by anyone else. These programmes can then be sold onto the BBC's overseas channels (whether at or above market rates is again unclear). Commercial competitors are forced out of the market because they cannot compete with the uneconomic rates BBC Worldwide may be paying. Distribution rights are in theory controlled by independent producers, but in reality the BBC has significant leverage because of its power over commissioning decisions. FremantleMedia is aware of reports of overpaying and of reports by producers that they were threatened by the loss of a commission if they did not give rights to BBC Worldwide. This fear of reprisals makes independent producers and distributors who are heavily reliant on business with the BBC unwilling to go on the record.

(d) Exceeding the remit for the BBC's commercial activities

The remit for the BBC's commercial activities makes clear that they must "fit with the BBC's Public Purpose activities" and that this requires them to be "connected, otherwise than merely in financial terms, with the ways in which the BBC promotes its Public Purposes".[12] Over the past couple of years, BBC Worldwide has embarked on an aggressive acquisition strategy in the production sector. It is not easy to see how this strategy fits within the remit.

In 2007, BBC Worldwide bought a 25% stake in Freehand Productions, an Australian independent production company. We understand that under the terms of the deal, Freehand now has a first look option in Australia and New Zealand to produce all BBC and independent formats to which BBC Worldwide has rights. Freehand also has all its formats distributed through BBC Worldwide. These purely commercial productions may never be seen on British screens, so BBC Worldwide's activities are going far beyond selling the BBC's existing programmes abroad. BBC Worldwide has also just done a similar deal with production company Temple Street in Canada and very recently with production company Mir Reality in Russia. It is also setting up, or has already set up, its own production companies in America, France, Germany and India.

BBC Worldwide has also bought stakes in UK production companies in order to guarantee a flow of distribution rights. For example, in January of this year it bought a 24.9% stake in Left Bank (a producer that has made programmes such as the feature film The Queen and Longford). As a result, BBC Worldwide will be the sole worldwide distributor of all the programmes produced by Left Bank. It has also bought a 24.9% stake in drama start-up Cliffhanger Productions, and recently purchased 24.9% stakes in Baby Cow, the production company part-owned by comedian Steve Coogan, and Big Talk, the company responsible for Simon Pegg's TV and feature projects.

It is hard to see how the acquisition of a stake in a purely commercial production company in Russia, Australia or Canada fits with the BBC's Public Purposes. One of these Purposes is to bring "the UK to the world and the world to the UK",[13] but this broad requirement needs to be interpreted in a way that links to clearly identifiable public benefits, otherwise the requirement is effectively meaningless, and gives the BBC the green light to pursue almost any activity involving the export or import of programming material. This cannot be the intention of the legislation setting out the BBC's remit.

It is clearly not the case that the BBC has to have a stake in a production company in Australia or Canada in order to enable successful BBC formats to be sold and shown there. There are thriving production markets in these countries, with many local and international companies eager to compete to acquire the BBC's formats and able to produce them to the highest levels of quality. It is competition between producers which will provide the clearest guarantee that the BBC is maximising the value of its IP and generating the highest return for the licence fee payer.

The BBC may argue that it has greater control over the way formats are produced by owning a stake in the production company; however, the logical conclusion of this argument is that the BBC has to own production companies in all territories to which it exports formats, which is clearly impractical. In fact the BBC has successfully licensed its formats to third parties for many years without acquiring production assets. As we will argue (see 3(e) below), we believe the BBC is taking more rather than less risk by building overseas production capability. Since 2000, the market for formats which travel successfully from country to country has developed dramatically in both size and refinement: the leading commercial players now have sophisticated mechanisms in place to ensure the integrity and success of hit formats as they are remade for different national tastes. The commercial sector can perform this task very effectively. It is arguable that by taking 25% stakes in overseas production companies, the BBC has the worst of both worlds: it does not directly control these companies and their output, but it is exposed to damage to the BBC's brand and reputation if editorial mistakes are made;

The BBC may argue it is merely pursuing the strategy that the largest and most successful international production companies like FremantleMedia and Endemol are following themselves. If it is the right strategy for them, why not for the BBC? However, there is a crucial difference between the BBC's objectives and those of the commercial players. Commercial enterprises like FremantleMedia maximise returns by focusing development on programming which has the potential to succeed in as many markets as possible. Owning operations in the main broadcast markets makes sure the company has the widest possible market in mind as it undertakes development activity. The BBC is under no such requirement; indeed, its development focus should be on the needs of UK licence fee payers who fund it, not on the international market. Building an international network only makes commercial sense if there is a constant flow of internationally attractive programmes and formats; the BBC should not be under pressure to compromise the requirements of UK licence fee payers and to deliver programming which will perform well in international markets. BBC Worldwide's primary goal is to maximise the value of the BBC's IP within the four criteria of fit with Public Purpose, commercial efficiency, maintenance of the BBC's reputation, and avoidance of market distortion, as laid down in its constitution; building an international production network is not necessarily the best way to achieve this, and as we shall argue below, exposes the BBC to a high level of risk.

(e) Taking unnecessary financial and reputational risks

BBC Worldwide is exposing itself to significant financial risk through its ownership of BBC production operations and global BBC-branded channels such as BBC Knowledge and BBC America. It is entirely liable for these businesses. If these investments suffer losses, it directly impacts the BBC by reducing the amount of money returned to the public service parent. Recently BBC Worldwide has acquired a minority stake in a production company in Russia, which must be regarded as a very high risk territory in which to invest.

In addition to additional financial risk, the BBC is also taking on significant reputational risk by pursuing a strategy of building production capability overseas. BBC Worldwide does not have the sophisticated editorial and creative quality control and compliance structures the BBC production operation has evolved in the UK. Yet BBC Worldwide now must stand behind and take responsibility for any editorial or production problems created by its new partly-owned commercial subsidiaries like Freehand or Temple Street. The BBC's status means it is held to the very highest editorial standards everywhere in the world, yet these companies have no history of public service production and the elevated standards it demands even when making programmes which will never be seen on British screens.

This reputational risk extends to the production of BBC formats overseas. If the BBC licenses a programme to a third party, it may not have complete control over its production, but it also does not bear responsibility for any problems encountered in its making. Now these programmes are made by local BBC subsidiaries or associate companies, these risks are borne by BBC Worldwide, but without the support of the BBC's extensive experience in editorial quality control and compliance. BBC Worldwide appears to be running a complete "parallel" editorial operation away from experienced UK supervision and entirely free from proper senior creative risk control. This does not mean the BBC should divert key editorial resources away from its public service activities in the UK; the point is that this additional editorial risk and responsibility is a distraction from the BBC's core public service purpose.

BBC Worldwide's strategy of acquiring stakes in UK independents inevitably raises suspicions that these companies both have preferred access to BBC slots and are being used to meet independent and WOCC[14] quota targets in a way which ensures BBC Worldwide holds onto programme rights. Whether or not this proves to be the case, the acquisition strategy exposes the BBC to reputational risk.

The lack of transparency in the relationship between the BBC and BBC Worldwide, and the lack of confidence in the impartiality and effectiveness of the Trust in its regulatory role, continue to create further reputational risk for the BBC. This comes at a time when the BBC has already suffered a number of significant blows to the level of public trust it commands. The stress on the BBC's public profile will continue until remedial steps are taken.

(f) Distorting the market for talent and programme rights

The BBC's programme of acquiring companies and rights both in the UK and overseas distorts the market and drives up prices for resources and talent in otherwise fully functioning production markets.

It is not clear that the BBC operates to the same required rates of investment return as its commercial competitors. Although the BBC is tasked to exhibit commercial efficiency, the range of measures used to define this more closely is very broad.[15] Return on investment is merely one of a range of measures the BBC can refer to as it applies a "basket of ratios"[16] to assess the commercial efficiency of a new proposal. The BBC does not reveal whether the "basket of ratios" used is judged in the same way as a commercial company or whether the level of risk that BBC Worldwide is able to take on is higher because it has the backing of the BBC. It is not clear that BBC Worldwide has to achieve the same return on investment as commercial companies with shareholders, and it seems likely that their cost of capital will be lower than any commercial entity because they are de facto guaranteed by a state owned corporation, so it is very likely that BBC Worldwide has easier access to capital than its commercial competitors.

If the rates of return required by the BBC are lower than its commercial competitors, it will be able to bid more aggressively and undermine market pricing structures. Ultimately this will lead to a loss of competition in key production and distribution markets.

(g) Ineffective regulation by the BBC Trust

It is ultimately the Trust's responsibility to ensure that the BBC interprets the remit for its commercial activities in the most appropriate way and follows a strategy that falls within that remit. It seems to be failing to do so, by appearing to allow BBC executive management to define its own course with insufficient reference to the uniqueness of the BBC's position and insufficient regard for its potential impact on the commercial market.

We have drawn attention to the way in which BBC Worldwide appears to be exceeding its remit in pursuing its overseas investment strategy, setting up channels and acquiring production subsidiaries (see 3(d) above). In setting the framework for the BBC's commercial activities, there is a lack of clarity when the Trust comes to consider the issue of "fit" with the BBC's Public Purposes which goes to the heart of the definition of the remit.[17] When it does pronounce on the interpretation of "fit", it does so in a statement so convoluted and elliptical as to be meaningless: "The requirement for a connection, otherwise than merely in financial terms, with the ways in which the BBC promotes its Public Purposes should be assessed in relation to the activities that the BBC undertakes to fulfil its Public Purposes. This need not be at the level of the individual commercial services (eg demonstrating that a proposed Commercial Activity is connected with a specific BBC channel, such as BBC3) but the activity must link clearly with the way in which the BBC promotes its Public Purposes (for example, promoting innovative British content and talent aimed primarily at younger audiences)."[18]

The Trust is also explicitly responsible for ensuring that the BBC's commercial activities "comply with fair trading guidelines [...] and in particular avoid distorting the market".[19] The way in which the Trust has chosen to interpret this requirement shows a limited appreciation of the BBC's potential market impact. In the Trust's view as stated in their Policy on Fair Trading, the BBC's commercial activities cannot by definition negatively impact the market as long as the BBC fulfils two conditions:

(a) it does not use the licence fee to fund commercial activities; and

This interpretation is erroneous and inadequate. Firstly, the transfer pricing regime cannot be fair given the lack of competitive bidding. Secondly, this policy fails to take into account further ways in which the BBC can distort the markets in which it operates. If the BBC operates to less stringent commercial criteria than its competitors, it can undermine market pricing and commercial returns. It will also raise barriers to entry for new players and ultimately reduce the level of competition for valuable programming and distribution rights.

The Trust also fails to take notice of flaws in the structure of the relationship between the BBC's public service operations and its commercial activities which lead to clear contraventions of its fair trading policy. The policy states that: "The BBC's Commercial Services should not receive from its Public Service Activities, an advantage which is not available to its commercial competitors."[21] Yet the relationship between the BBC and BBC Worldwide offers BBC Worldwide major advantages clearly not available to its competitors:

(a) BBC Worldwide's right of first refusal on and matching rights to BBC IP gives BBC Worldwide an overwhelming advantage in securing exploitation rights; and

The overall impression is that the Trust interprets the remit with which the BBC carries out its commercial activities in a way which gives maximum flexibility to BBC management, and which gives little consideration to ways in which the BBC can distort effective and efficient markets. Under the Trust's loose interpretation of the Charter obligations, it is hard to see what areas of activity in the TV production and distribution markets would be rendered off-limits to BBC Worldwide. The parameters for referring investment decisions to the Trust underline the latitude the regulatory regime gives to the BBC's management: below £50 million, investments do not have to be referred to the Trust.[23] The referral level would be very much lower in a commercial organization of comparable size. Although the BBC's constitution gives the Trust comprehensive and effective control over the strategic direction of the BBC's commercial activities, the Trust appears too far removed from the development and execution of commercial strategy to be effective. Other elements of BBC Worldwide's governance structure closer to operational management are unable to provide an effective or publicly credible regulatory restraint on BBC Worldwide management's interpretation of its remit: BBC Worldwide's non-executive Directors because they are inevitably too heavily focused on the need to generate commercial returns, and the BBC Executive Board because it has too great an interest in BBC Worldwide's contribution to BBC budgets.

4. PROPOSALS FOR CHANGE

(a) Review the remit for the BBC's commercial activities to eliminate the potential for market distortion and introduce independent market impact assessments for new commercial initiatives

The discussion above illustrates the importance of a clear definition for the remit for the BBC's commercial activities. The BBC should be able to exploit the value of its intellectual property as far as possible to offset the burden of the licence fee, but not at the expense of the other criteria to which it is required to adhere. It is clearly not intended that the BBC should become entirely driven by the commercial imperative. At present, the balance between the two is struck at a point which appears to allow the BBC, through BBC Worldwide, to use the bridgehead of its privileged funding and programme supply to annex new commercial territory unrelated to its core purposes. The wording of the remit for the BBC's commercial activity is broad and imprecise; in its capacity as regulator the Trust needs to take responsibility for defining the boundaries. These have to provide the BBC with clear direction and commercial rigour while leaving the commercial sector satisfied it is not competing with a player whose privileges give it significant, market-distorting competitive advantages. Until now the Trust's Fair Trading guidelines have inadequately represented the BBC's potential to distort the market; the Trust needs to revise these guidelines to recognise how the BBC's commanding position and privileged access to rights and capital can distort the markets in which it operates.

This revision of the guidelines needs to be supplemented by market impact assessments for new commercial initiatives carried out by an independent third party, as is the case with the BBC's public service initiatives.

(b) End BBC Worldwide's first option on BBC output and open up BBC IP to competitive bidding

It is time to end BBC Worldwide's first right to the BBC's IP. This relationship is preventing the establishment of a transparent pricing structure between the BBC and BBC Worldwide, and is likely to under-represent the full value of the BBC's output. The distribution rights to BBC programmes and formats should be opened up for bidding across the commercial sector.

The CEO of BBC Worldwide should no longer sit on the BBC Executive Board, and the Director of BBC Vision and the BBC Group FD should no longer sit on the BBC Worldwide Board, giving BBC Worldwide privileged access to BBC strategy and programme plans.

(d) Sell off BBC Worldwide stakes in production companies

The stakes that BBC Worldwide has built up in production companies both in the UK and overseas should be sold off, and the returns reinvested in programming for the UK licence fee payer.

(e) Develop clearer guidelines for fit with Public Purposes

The Trust needs to develop more defined and transparent guidelines on the required fit with Public Purposes for the BBC's commercial activities, spelling out clearly how these activities must be connected, other than merely financially, with the ways in which the BBC promotes its Public Purposes.

(f) Establish transparent transfer pricing between BBC & BBC Worldwide and publish the BBC's Fair Trading audit report

There should be transparency about the amount BBC Worldwide pays the BBC for distribution rights. The transfer pricing scheme should be open to public scrutiny.

The Fair Trading audit the BBC commissions each year from PwC should be publicly available. The BBC's Annual Report has for the last two years announced that details of the audit and opinion are available on the BBC's website, but they are not to be found.

The remit for the Fair Trading audit should be revised. At present, the audit is tasked: "to determine whether BBC management has established and applied a system of internal controls which provide reasonable assurance that it has complied with the Fair Trading Policy".[24] As we have argued, the Fair Trading policy fails to take account of ways in which the BBC's commercial activity can distort the market. The auditors should be asked to give their opinion on the adequacy of the Fair Trading Policy itself.

(g) Ensure the external credibility of the regulatory regime

The Trust appears so far to have taken a laissez-faire approach to its responsibilities as regulator of the BBC's commercial activities, with the result that there is now widespread concern among the commercial sector (including publishers and newspapers as well as television producers) about the nature and scope of BBC Worldwide's ambitions. The Trust needs to demonstrate a much stronger appreciation of the limitations imposed by the BBC's unique position, and a much greater public willingness to establish clear guidelines for the BBC's commercial management. It also needs to occupy a more impartial position between the BBC and the commercial sector, and to show the commercial sector that it is ready to listen to its concerns.

The Trust needs to acknowledge it is the only element in the BBC's governance structure which is able to act effectively to ensure BBC Worldwide continues to act within its governing criteria. Neither BBC Worldwide's non-executive Directors nor the BBC Executive Board can or should fulfil this function.

The process for raising complaints over fair trading issues needs reform. At present complaints about BBC Worldwide have to be taken first to a member of the BBC's executive team[25] (ie an executive reporting to the BBC Executive Board), which is unsatisfactory. It is difficult to have faith in the impartiality and independence of an executive of the enterprise against whom a complaint is being raised. Given that most companies will want to continue to do business with the BBC there is inevitably a reluctance to knock on the front door and complain. This process also assumes that the fair trading rules themselves are satisfactory; we have argued here that there are many instances where they require further thought.

October 2008