Memorandum submitted by the Department
for Culture, Media and Sport (DCMS)
BACKGROUND
1. The history of the BBC's commercial activities
goes back a very long time and it is a long accepted principle
that these activities are in the interests of licence fee payers.
2. The commercial operations and the issues
surrounding them were considered recently in the course of the
last Charter Review process. The Government took into account
the concerns expressed about the commercial activities (see paragraph
5) and balanced these against the underlying principle, backed
up by consultation and research, that the BBC should continue
to operate commercial services in order to return value to the
licence fee payer. The outcome was the approach set out in the
2006 Charter and Agreement, which allows the BBC to continue with
its commercial operations but with various measures in place to
address the concerns raised. The clauses primarily relevant to
the commercial services are 68-74 of the Agreement.
ROLE OF
THE BBC TRUST
3. In relation to the commercial services,
the BBC Trust has several roles. The Trust will:
(i) hold the Executive Board to account for ensuring
that the BBC's commercial services are operated according to the
four criteria which the commercial services must meet (ie the
services must fit with the BBC's Public Purpose activities; must
exhibit commercial efficiency; must not jeopardise the good reputation
of the BBC or the value of the BBC brand; and must comply with
the BBC's fair trading guidelines and in particular avoid distorting
the market);
(ii) set and apply the commercial service approval
guidelines, including the approval or rejection of proposed transactions
as required under the guidelines; and
(iii) approve the BBC's commercial strategy and
hold the Executive Board to account for delivering it.
ROLE OF
THE BBC EXECUTIVE
4. The Executive Board is responsible for:
(i) overseeing the activities of the BBC's commercial
arm and exercising the BBC's functions in relation to the commercial
subsidiaries;
(ii) approving targets and budgets, subject to
the commercial strategy approved by the Trust;
(iii) ensuring that the business of the commercial
arm is compatible with (a) the requirements of the Charter and
Agreement and (b) high standards of financial management and control;
and
(iv) securing publication of an annual report
and accounts relating to the BBC's commercial services.
5. The evidence is set out by reference
to the specific matters which the Committee is proposing to examine.
The benefits and opportunities offered by the
BBC undertaking a range of commercial activities in the UK and
abroad
6. Much of what the BBC produces has continuing
value which can be exploited in the interests of licence fee payers.
That is why the BBC has been allowed for many years to run commercial
services with a view to returning value to licence fee payers—for
example, by reinvesting in programmes, thereby reducing pressure
on the licence fee. The Government believes that it is entirely
right for the BBC to maximise commercial revenue, in appropriate
areas, to reinvest in programming and talent to the benefit of
licence fee payers.
7. This policy is supported by the outcome
of consultation undertaken during the Charter Review. 90% of people
surveyed agreed that "the BBC should raise as much money
as it can from selling its programmes and other products"
The potential risks to the BBC, licence fee payers
and other stakeholders
8. The risks to the BBC and its stakeholders
were fully examined during the Charter Review. Such risks included:
— the commercial services being sold
or structured in a way that might give them an unfair advantage
over competitors, leading to market distortion;
— commercial services being prioritised
at the expense of the core duties of public service;
— the commercial activities having
no relation to the BBC's publicly-funded services;
— an absence of fairness and transparency
in how the commercial operations were run;
— cross-subsidy from licence-fee funded
activities;
— too much cross promotion of the commercial
services by the public services;
— whether the income received was being
spent in the best way;
— whether the arrangements would deliver
the best value for money. It could be the case that a sale or
licensing of the asset creates better value for money for the
licence fee payer; and
— a negative implication for the BBC's
brand or values;
9. The Charter and Agreement include several
provisions to address these risks. They encompass:
— an obligation on the BBC Trust to
have regard to the competitive impact of the BBC's activities
on the wider market;
— the four criteria which the commercial
services must meet (ie. the services must fit with the BBC's Public
Purpose activities; must exhibit commercial efficiency; must not
jeopardise the good reputation of the BBC or the value of the
BBC brand; and must comply with the BBC's fair trading guidelines
and in particular avoid distorting the market);
— an obligation on the Executive to
submit a full and open assessment of the performance of the commercial
services, including a statement of compliance with the four criteria;
— an obligation on the Trust to adopt
a statement of policy on fair trading and hold the Executive Board
to account for compliance with it; and
— an obligation on the Executive to
have a commercial strategy which has been approved by the Trust.
10. The BBC is, of course, subject to competition
law, including State aid law.
The extent to which the BBC's commercial activities
meet the criteria required of them
11. Clause 69(5) of the Agreement specifically
vests sole responsibility in the Trust for holding the Executive
Board to account in ensuring that the commercial services criteria
are satisfied.
The appropriateness and effectiveness of the governance
framework for the BBC's commercial activities
12. The Government remains of the view that
the governance framework embodied in the Charter and Agreement
is the right one. It is not, however, appropriate for the Government
to undertake an on-going assessment of how well the arrangements
are working now that the Charter is in force.
The future of BBC Worldwide and other BBC commercial
subsidiaries
13. Clause 72 of the Agreement gives the
Trust the approval powers for the BBC's commercial strategy generally
(which must include the future of BBC Worldwide and other BBC
commercial subsidiaries).
How the money returned to the BBC by its commercial
operations is invested
14. Under the terms of the Charter and Agreement,
this is a matter for the BBC.
October 2008
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