Examination of Witnesses (Questions 120-139)
SIR MICHAEL
LYONS AND
MR MARK
THOMPSON
18 NOVEMBER 2008
Q120 Chairman: I would like to put
one final point to you. Last week it was announced by Radio 2
that Jonathan Ross would be back on air from 24 January next year.
Is it not somewhat premature to make that announcement before
you have had a chance to consider the report and decide whether
or not further action is needed?
Sir Michael Lyons: That is a straightforward
statement of when the period of suspension comes to an end. Let
me be clear, the Trust has not finished its deliberations and
all of these matters are subject to our final decisions.
Q121 Chairman: It was an announcement
by Radio 2 of the specific date when he will "be definitely
back for the show".
Sir Michael Lyons: Chairman, I
have heard that and I am giving you my answer that there is nothing
that is ruled out from the final deliberations of the BBC Trust.
That is what you need to hear from me today.
Q122 Chairman: Would you not agree
that it would have been better to have waited until after you
had had your meeting?
Sir Michael Lyons: I think it
would. There are many aspects of this affair which I would like
to have seen handled differently. That is the case we are exploring.
I hope we have left you with a very clear message of our intent
to get to the bottom of it and to make sure there is no recurrence.
Q123 Chairman: So even in the last
week the BBC has done something which in your view it should not
have done.
Sir Michael Lyons: Do you know,
I can go a little further than that: I am sure in the last week
the BBC has done a few things that I wish they had not. It is
a big organisation serving the whole country.
Q124 Chairman: We are discovering
more and more lessons to be learned by the minute. I think we
should now move on to the question of BBC Worldwide. You will
be aware of the evidence that we received two weeks ago and also
the more general concern that has been expressed about the increasingly
ambitious growth strategy of BBC Worldwide. It was previously
the case that commercial activities should plainly arise from
and support BBC programmes. That appears no longer to be the case.
Do you see any boundaries to BBC Worldwide's activities?
Sir Michael Lyons: Chairman, I
wrote to you, when you first announced that your Committee wanted
to look at this area of the BBC's activity, to make you aware
of the fact that the BBC Trust had in June of this year decided
to look very closely at the mission boundaries and governance
of BBC Worldwide and that we had charged the Director General
and the Executive Board, as the parent company, to do exactly
that. That debate is well advanced. Why did we decide to do that?
Because we were concerned, in part—let me not shrink from
that, but it was not the only issue—at public debate about
the risk to the BBC brand from a growing media collection of programmes,
stations, and media products. We had an interest to explore whether
there were adequate controls in place to avoid BBC branding being
damaged. We were interested in the relationship between the BBC's
commercial activities—and earlier questions from Mr Sanders
touched upon this—and the straightforward public service
activities of the BBC. We raised some big questions. Whilst I
am not able to go into detail on all of that here, I can say that
the Trust is already of the view that we need to tighten both
the mission and the guidelines around BBC Worldwide. But none
of this—none of this—detracts from an acknowledgment
that since 2004, led by Etienne De Villiers and John Smith, both
of whom you will be able to question later on, BBC Worldwide has
been remarkably successful in doing the job it was set up to do,
which was to exploit BBC intellectual property rights and to bring
a return to licence fee payers in terms of both a dividend (this
year of £117 million) but also a contribution back to the
programme making, so that the BBC is able to do programmes that
frankly it could not do without investment from Worldwide. I would
add to their achievements the fact that they have—I have
no doubts at all about this—helped the British economy substantially
in the promotion of British talent, not only in on-screen talent
but in technical skills as well. This is in the context of an
absolute and unequivocal commitment to the BBC being right to
seek to exploit its intellectual property rights for the benefit
of its licence fee payers and, second, an acknowledgement that
Worldwide since 2004 has been an extraordinary success story.
Nonetheless, it is now appropriate to review the boundaries. We
are of the view that they need to be modestly contained and the
detail of that we will make public once we have finished our inquiry.
Q125 Chairman: You have said that
BBC Worldwide should exploit the intellectual property rights
of the BBC, and I would not necessarily disagree with that, but
what BBC Worldwide is now doing goes way beyond the BBC's core
activities and a lot of its activities bear no relation to BBC
programmes at all.
Sir Michael Lyons: I might quibble
with the scale of that, but there is a continuum which I absolutely
accept. It is, in part, why the BBC Trust was interested in exploring
matters at this stage.
Q126 Chairman: You think they might
have gone too far.
Sir Michael Lyons: I have said
already that the Trust is of the view, on the basis that this
work is not finished, that there is a case, and we intend to move
forward with tightening the boundaries around Worldwide activity.
The detail of that will be shared with you once we have finished
the inquiry.
Mr Thompson: First, should the
overwhelming majority of the activity of Worldwide be based around
BBC intellectual property? Yes, it should and it is.
Q127 Chairman: Why not all?
Mr Thompson: Let me give you an
example. We have a cable network in the United States called BBC
America. It is a showcase, and it really is the only British branded
showcase for high quality British content in US households. The
showcase is one of the reasons that artists like Ricky Gervais
and others began to get into American media. It has been a real
success for the BBC. The decision was taken some years ago, both
economically but also in terms of showcasing British talent, that
it would not necessarily be a problem if some Channel 4 and ITV
programmes were available to be seen on BBC America as well; indeed,
a proportion of the schedule of BBC America includes programming
made by Channel 4 and ITV. In terms of the four criteria set out
in the Charter and Agreement under which BBC Worldwide and everything
BBC Worldwide must operate—you will recall that the activities
must fit with the public purposes of the BBC; must be commercially
efficient; must not damage the brand and reputation of the BBC;
and must comply with all appropriate fair trading and competition
regulations and law—the idea of adding some high quality
programming made by other British broadcasters and BBC America
is reasonable. In other words, as Sir Michael said, there is a
continuum. The overwhelming majority is straightforward BBC IP.
If you look at the breakdown of the turnover and the profits of
BBC Worldwide, that is the case. But the idea that there are certain
occasions where you might go further, I would not knock out of
... That does not mean you cannot debate individual topics. It
does not mean that the particular project will necessarily be
BBC branded, but I think what is absolutely critical is that everything
fits in with the purposes. Sometimes that can mean working with
high quality programmes from other British broadcasters.
Q128 Chairman: Mark, with respect,
I think that is being a bit disingenuous. We are not talking about
making available ITV programmes or Channel 4 programmes on BBC
America.
Mr Thompson: Would that not be
an example of BBC Worldwide working with non BBC IP?
Q129 Chairman: It is one which I
think people would argue was pretty close to the core purpose
of the BBC, which is making available good programmes, but there
are other activities, such as publishing magazines or putting
up websites, which bear no relation to the BBC's programmes. Those
are the areas which are causing real concern.
Sir Michael Lyons: I think I can
help you because actually there is not a distance between us here.
The only thing I took exception to in your question—and
Mark has dealt with this, I think—was that you were suggesting
this was a bigger proportion of Worldwide's activities than I
believe it to be. But the question of where the boundaries are
in terms of going beyond BBC IP is a real question. It was included
in our June list of issues to be explored, and I can assure you
is going to be tested very fully and I do not think you will be
disappointed with the conclusions that are reached.
Q130 Mr Hall: You have said in evidence
already that in the Russell Brand and Jonathan Ross broadcast
there were serious editorial lapses. Does it not also shine a
very bright spotlight on a serious dichotomy at the heart of the
governance of the BBC? We have BBC Worldwide accountable to the
BBC Executive Board and the Executive Board accountable to the
Trust, and yet here, in evidence this morning, you are almost
indivisible.
Sir Michael Lyons: The art of
our presenting to you—and whether we have got it right or
not is probably for you to judge—is to show you that you
have in front of you the Chairman and the Chief Executive of the
BBC. There is no doubt about that at all. As a result of the last
Charter we have a quite sophisticated governance arrangement,
not a million miles from that being demanded by, for instance,
Sir Adrian Cadbury's report of many other companies: a clear separation
of governance and day-to-day management. That exists at the BBC
and you see that reflected in our comments. That has been added
to in the Charter by the requirement that the Trust, as the governing
body, should conduct its scrutiny and challenge in a transparent
and open way. What you get is the same sort of debate that you
should have in any organisation, but much more open and transparent
as a result of a governance decision that the BBC needs to be
fully accountable to licence fee payers. The short answer is that
we are both of the BBC, we have different jobs there. I would
hope that is reflected in our commentary and answers to you this
morning.
Q131 Mr Hall: Correct me if I am
wrong, the BBC Trust are charged with two things: they set the
strategic direction for the BBC and they are also the regulator
for the BBC. There is clearly a dichotomy there.
Sir Michael Lyons: I absolutely
agree with you that this is a complicated process. First, the
BBC has the same regulators for taste and decency as any other
broadcaster. It has the same regulators governing any matters
of competition. It has the same regulators in terms of fair trading.
Parliament decided issues of accuracy and impartiality should
remain within the BBC. Why did Parliament decide that? It decided
that because it felt that if you had external regulation it would
not be long before the external regulator became an influence
on the editorial decisions of the BBC. It is quite a complicated
model but it is one carefully determined by Parliament to reflect
the status of the BBC as an organisation which is funded by universal
levy, the licence fee, but where the most important principle
was to protect its editorial independence
Q132 Mr Hall: Could I put it to you
in a slightly different way. What is your primary task? Is your
primary task just to regulate the BBC or to speak up on its behalf?
Sir Michael Lyons: My primary
task is to represent licence fee payers, to make sure that the
BBC is focused on their interests and delivers against those interests.
There is a series of aspects to that. It is to hold the Director
General to account, it is to discharge such regulatory functions
as exist, and it is also to give the licence fee payers an assurance
not only when the BBC has got things wrong but when after careful
reflection the Trust is convinced that it got things right.
Q133 Janet Anderson: The BBC's Fair
Trading Guidelines state that the BBC's commercial services
must maintain clear and separate management structure from the
BBC's public service activities. How do you therefore defend the
fact that the Chief Executive Officer of BBC Worldwide sits on
the BBC Executive Board? Do you not think that that kind of cross-directorship
gives an unfair advantage to BBC Worldwide over other commercial
competitors?
Sir Michael Lyons: Perhaps I could
answer that question in two parts and Mark may want to say something
about how it works in practice. How has that cross-membership
come about? It has come about in an attempt to balance both the
commercial imperative for Worldwide against those four tests that
Mark mentioned. Perhaps the most important one is the fact that
the BBC's reputation should not be damaged. This cross-membership
is about how you manage editorial control over what is done through
Worldwide. That is the first part of my answer: it is a rational
attempt to respond to these tensions. Is it right? Should it continue
into the future? Again I would like to give you an assurance that
this is on the list of issues which the Trust has set for the
Director General and the Executive Board to explore and we are
well advanced in our thinking on this. I am not going to disclose
our decision today, because the Trust has not yet reached formal
decisions, but I can assure you that this will be included amongst
the matters that we address and we will make our findings public
in the not too distant future.
Q134 Janet Anderson: So one of the
options that may be considered is a clear separation of the two.
Sir Michael Lyons: Maybe. But
I do want you to be alert to the tension: you might say commercially
and in fair trading terms there should be clearer separation,
but then you come back to the fact that brand management and protection
of reputation requires very close working. That is the dilemma.
Mr Thompson: What is the most
important thing? The most important thing for the BBC is the delivery
of its public services and public service mission to the UK licence
payer and then the world service round the world. We must not
be in a position where, through a 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. That
argues for quite close co-ordination, which is why we have public
service Directors on the Worldwide Board and why certainly today
I believe it will make sense to have the Chief Executive of Worldwide
there co-ordinating, to make sure that we have the commercial
operations of the organisation seen in the context of the total
mission of the organisation. Our current system is intended to
try to make sure that the actual trading interface, where rights
from the public service are acquired by Worldwide, is fair and
objective and can work. I would say two or three things about
that. First, this is not the only potential conflict that we have
to manage. I believe that over the last four years, despite the
fact that we have a powerful in-house production arm, we have
succeeded in convincing the independent sector that we can run
a completely fair commissioning process because of the arm's length
way in which in-house production is held and the fact that the
commissioners genuinely decide freely, programme by programme,
whatever the source. We have attempted to get the fair trading
boundary between Worldwide and the public services BBC to work
in exactly the same way, so there is strategic alignment but within
that boundary—and as I am sure you know from evidence so
far, BBC Worldwide does not get all the rights the BBC offers.
Something like 15 and 20% is acquired by other distributors. BBC
Worldwide sometimes, to fill out its catalogue, is also acquiring
rights from other broadcasters, and we can look at the market
rates it is paying when it is acquiring rights from other broadcasters
or other independent producers. BBC Worldwide has repeatedly been
voted the distributor of choice by the industry. In relation to
the idea that there is some kind of funny business at the heart
of this, I do not see how Worldwide would be so successful in
acquiring other rights, nor why they would be voted so frequently
the distributor of choice by the industry, if the system was not
working in practice. But, of course, part of the practice of review
should look at whether these systems are adequate and whether
they could be strengthened.
Q135 Chairman: I would merely point
out that the body representing the industry gave evidence to us
two weeks ago, PACT, and they did make it clear that they had
quite a lot of concerns.
Mr Thompson: A survey is published
every year which includes many, many PACT members. Officials of
PACT are absolutely entitled to their view. I will send you a
copy of the survey. PACT members, comparing the BBC as a distributor
with all the other distributors in the UK market, repeatedly say
it is their favourite distributor.
Q136 Janet Anderson: Surely you can
understand why people do consider that this kind of cross-directorship
gives Worldwide a commercial advantage over their competitors,
because they are clearly going to have, in advance, information
that others will not have.
Sir Michael Lyons: Let me say
again that we have heard that criticism and we are looking at
that issue amongst others. I would ask you to recognise from my
earlier comments that there are two sets of tensions here. We
have to balance both those tensions. I do hear your comment that
this appears to look a little too close. I am clear that the Trust,
since it was created in 2007, has taken a number of steps to strengthen
the fair trading process that operates both at the level of the
Trust and at the level of the Executive Board. On the issue of
transparent fair trading processes: absolutely, the Trust is committed
to that. Is this an issue that we should look at? Yes, it is.
Are we looking at it? Yes, we are.
Mr Thompson: A final postscript
is to assure you that the kind of detailed programme information—"So-and-so
is making a programme about X"—never ever occurs inside
the Executive Board. In other words, I do not believe there is,
as it were, market sensitive programming or talent specific information
to which John Smith, as Chief Executive of Worldwide, has access
in the Executive Board, bluntly because the discussions in the
Executive Board are strategic ones, which do not involve the kind
of fine-grained intelligence that you would need, even if you
were minded to get some competitive advantage.
Q137 Chairman: There are lower bodies.
I understand every public service contract division has a commercial
board attached to it, where public service representatives meet
with commercial representatives. It is not just at the Executive
Board that this kind of dialogue is taking place.
Mr Thompson: Sure. Of course those
boards will often meet with other distributors and other commercial
interests as well.
Q138 Chairman: BBC Worldwide has
no advantage.
Mr Thompson: I think this has
been tested in this review process, but the current arrangements
are designed to ensure there is a level playing field given the
particular context at the BBC. This review process is testing
two things: could the system be made stronger and could the way
the system works be made clearer? Is there a way of building confidence
by explaining and setting out the system more effectively as well?
That is another possibility.
Sir Michael Lyons: Chairman, perhaps
I could offer you one comment to elevate this to the most strategic
level. There is a real set of challenges here. As we reflect on
the job that Worldwide has done very effectively since 2004, not
only for the BBC but for the British economy, I think we do need
to reflect on the part that it might play in cooperation with
other organisations into the future. The tension between a transparent
fair trading process but co-operation with some parties will always
be a tension, so I just want to recognise that you cannot wish
away some of these tensions.
Chairman: I understand that.
Q139 Helen Southworth: Can you give
us an assurance that there is no cross-subsidy within BBC Worldwide
because BBC Worldwide is paying less for its BBC entitlement to
programmes and is therefore able to bid higher in the open market?
Sir Michael Lyons: I can give
you a categorical assurance of the framework in which it works.
There is a statutory prohibition on any subsidy to the commercial
arm from the licence fee payer income. In the complicated world
of negotiations, of rights and how they are exploited, this is
quite a complicated area. This is why the Trust has strengthened
the fair trading arrangements and is at this moment looking at
whether they might be strengthened further—particularly
the issue of wanting to assure ourselves that the BBC does get
the very best value from its rights through the current arrangements,
particularly the first-call proposition. These are all matters
that are being explored in this review. Let me say that at the
moment we have no reason to be anxious that the BBC is not getting
fair value.
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