Examination of Witnesses (Questions 200-219)
MR JOHN
SMITH, MR
ETIENNE DE
VILLIERS, MS
ZARIN PATEL
AND MS
CAROLINE THOMSON
18 NOVEMBER 2008
Q200 Paul Farrelly: I want to come
back now to Lonely Planet, first on the tack that we have just
been pursuing. Lonely Planet, the company, I presume is
a 75%-owned subsidiary.
Mr Smith: Yes.
Q201 Paul Farrelly: It is one holding
company with a number of subsidiaries in the Lonely Planet Group,
is it? It can be treated as a 75% subsidiary?
Mr Smith: Yes.
Q202 Paul Farrelly: How does the
Lonely Planet magazine fit into that arrangement? Will
the Lonely Planet magazine be vested in BBC Worldwide or
the 75% subsidiary?
Mr Smith: The only way of answering
that is just to explain that in the decision to buy the company
in the first place, to get the 75% stake—and it has already
been mentioned earlier on today—the key part of it was the
fact that in the travel space we have a lot of programming. We
think we have about 3,000 hours of TV programming that is in that
zone of pure travel, Palin Goes Around Europe[27]
or whatever, or travel-based, like Coast or Britain
from Above and things like that. We as a distributor primarily
are concerned with getting that material sold to other people
or, indeed, into our own channels. When you do not have a uniting
brand, when you do not have a big resonant brand to gear up that
sale, you are essentially selling individual programmes in the
spotlight.
Q203 Paul Farrelly: I understand that.
Mr Smith: It is very important
though. Forgive me, it will sound longwinded, but it is important.
The idea of Lonely Planet gives us the ability to have the number
one globally respected brand in travel guide books, which is Lonely
Planet, as a lever, if you like, from which to leverage up our
sales of the rest of what BBC Worldwide does—of which whole
TV programmes is the most important, followed by sale of clips
(of which we think we have about 15,000). In addition to that,
there are websites, there is the lonelyplanet.com website,
and magazines. We have a division that I have already mentioned
which publishes 60 magazines. Part of the decision-making in buying
Lonely Planet in the first place was the certain knowledge that,
unusually, here was a respected brand which shared almost identically
the brand values of the BBC that would give us a chance of unlocking
our TV archive but, in addition, would benefit each one of our
other six divisions—DVDS, magazines and so on, and magazines
being one. The way it will work in practice, having taken the
decision to make the investment and looking at the economics of
the commission in terms of the effect on the entire BBC Worldwide
Group, is the magazine division will then develop the magazine
using their skills and expertise in running magazines. I am sure
you know, a lot of their magazines are number one in their little
market sector, but not all of them, but they use their expertise
and creativity to develop the idea of a magazine, the proposition
for it, and develop the price point and the exact positioning
in that sector and so on. Then we will start writing and creating
the editorial. They will commission writers, many of whom are
BBC presenters—Stephen Fry is a good example: somebody who
will appear in the first edition, who is currently on TV with
his American programme—and other people who are Lonely Planet
authors, independent people and so on. The magazine gets put together,
and the magazine division will make the profit and they will pay
to the people who are contributing to that—for example,
brand or editorial or clips or other material—an appropriate
market rate on exactly fair market terms within the Group.
Q204 Paul Farrelly: What will remain
within the 75% subsidiary that you have bought? The guides it
produces now. It will receive a fee.
Mr Smith: Yes. The guides will
remain in there, the lonelyplanet.com—I do not know
whether you have visited lonelyplanet.com, but one of our
key other reasons for buying is because we think we can significantly
improve the Lonely Planet website. Indeed, it re-launched last
week, in a series of re-launches that are going to come for it
over the next few months—it has just started really—because
we think that we can build what are currently six million unique
users to that site into an even bigger number and make more money
out of it. But that is something that sits within Lonely Planet,
the company. Those two things crucially stay there. There is also
a television production unit within Lonely Planet which will stay
there, and there is a stills and picture images business which
will stay there. Most other activities will probably—and
this is not a hard and fast answer because we might change that—stay
in other parts of Worldwide but using the same brand. The effect
of the acquisition has an effect not just within the Lonely Planet
company but also across the whole Group.
Q205 Paul Farrelly: But it is only
a 75% subsidiary.
Mr Smith: Yes.
Q206 Paul Farrelly: Will the Lonely
Planet group of companies pay any fees for access to any BBC material?
Mr Smith: Yes, absolutely.
Q207 Paul Farrelly: Can you give
us some examples?
Mr Smith: At the moment there
is not any BBC material appearing on our Lonely Planet service,
apart from the new website which just launched, where there are
only clips, but they are paying market rates for those clips.[28]
Q208 Paul Farrelly: Particularly at the
time of the credit crunch, the BBC is privileged in terms of its
access effectively to public finance. Other people for acquisitions
may find it difficult, particularly in these times, to gain access
to that finance. Again there will be self-interested moans that
the BBC is in a privileged position, which will grow if you make
more acquisitions. You will appreciate that.
Mr Smith: It is not true, of course,
Mr Farrelly.
Q209 Paul Farrelly: But that is the
perception.
Mr Smith: The money is borrowed
from the commercial money markets at commercial rates and has
no BBC guarantee nor government guarantee.
Q210 Paul Farrelly: But that will
be the perception, so we need some transparency. You have heard
me say before that the note in your accounts is not the level
of disclosure that I would expect to see—
Mr Smith: I am surprised at that.
Q211 Paul Farrelly: -- from a public—
Ms Patel: May I pick that up?
First of all, the BBC Annual Report and Accounts at note 19 has
full disclosure, as required by plc type accounts, of the Lonely
Planet acquisition. Worldwide produces detailed financial statements
which are also publicly available. That is a summary set of financial
statements. It is all fully available.
Q212 Paul Farrelly: Okay. Would you
just give me some basic figures and facts to work on? Where is
the Lonely Planet Group incorporated?
Mr De Villiers: In Australia.
Ms Patel: In Australia.
Q213 Paul Farrelly: What was its
turnover at the time of acquisition?
Mr Smith: In dollars or pounds?
Paul Farrelly: You can choose.
Q214 Chairman: Which would you prefer?
Mr Smith: It is about £50
million.
Q215 Paul Farrelly: On whichever
relevant measure of profitability that was relevant to you, how
profitable was it?
Mr Smith: I am slightly loathe,
Chairman, to be giving very detailed commercial information out
in public, although patently the Committee know it. I wonder whether
it might be—
Q216 Chairman: We are happy to receive
evidence in private.
Mr Smith: Would you mind if we
gave it that way. We have it but it does not feel right—
Q217 Paul Farrelly: For an acquisition
of this size, were you a public limited company, you would disclose
the level of profitability.
Mr Smith: In our own note, to
be fair, Mr Farrelly, the acquisition price and the profitability
is there. As Zarin has already mentioned, in the BBC Group report
there is more. As Mark said earlier, we should look into this
suggestion that the level of disclosure is not of a plc. It is
certainly not intended that way; it is intended to be exactly
the same.
Q218 Paul Farrelly: I have just asked
for the figure.
Mr Smith: Yes, but I am just worried
about ...
Ms Patel: It is public.
Q219 Paul Farrelly: You can adjust
it in whichever way you want.
Ms Patel: Perhaps I could give
you the figures. In the BBC 2007-08 Annual Report and Accounts,
in note 19, we disclose the performance of Lonely Planet. For
the period up to acquisition, 1 July to 30 September, we had made
turnover of £10.6 million, and at that stage it was making
a very small loss. Within the Annual Report and Accounts you will
see the summary of financial statement there. We then showed performance
post acquisition. If you would bear with me a moment—
27 Note by witness: Not an actual programme
title. Back
28
Note by witness: The clips will not appear on the website
until the new year. Back
| 
