BBC Commercial Operations: Further Report - Culture, Media and Sport Committee Contents

1  Report

1. On 7 April 2009, we published our Report into the Commercial Operations of the BBC.[1] We have received two responses to our Report, the first of which was from the Government.[2] However, the majority of our recommendations were for the BBC, rather than the Government. For that reason, the Government responded to only five of our recommendations, and only three in any depth.

2. On 1 July 2009 we received the response from the BBC Trust. It is this response, published as an Appendix,[3] upon which we have chosen to comment.

3. We note the BBC Trust's statement that as a result of continuing uncertainty over the models for the future of BBC Worldwide, which it had hoped would be reconciled as part of the Digital Britain Report, it is not able to respond to all of the Committee's recommendations: "our response is, of necessity, less definitive than we would have wished. Whilst we have sought to share with the Committee the broad direction of our thinking, this remains subject to further work as the Digital Britain agenda evolves and should not be taken to be the Trust's final position".[4]

4. We recognise that this reservation [the continuing review being undertaken by the BBC Trust] applies to the discussion in our Report of the relationship between BBC Worldwide and Channel 4, and the future of the licence fee. However, we are disappointed that the BBC Trust appears to have used this as an excuse to avoid responding to a number of our wider recommendations. As a consequence, the BBC Trust's response cannot be regarded as a coherent response to the Committee's Report.

5. In view of its important statutory functions, we naturally assumed that the BBC Trust, in recognition of those functions, would have responded in more detail and with greater diligence to a select committee report.

Commercial Criteria

6. The BBC Trust rejects our view that the commercial criteria used by BBC Worldwide should be returned to the pre-2007 position whereby all commercial activity must have a clear link with core BBC programming. It claims that the present system is more stringent.[5]

7. We do not accept that the present system is more stringent, nor do those commercial parties affected by BBC Worldwide's activities who gave evidence to us. The Trust's assertion that the guidelines are now more stringent is not justified by a comparison of the two sets of guidelines themselves.

Lonely Planet

8. The BBC Trust claims that the decision to purchase the Lonely Planet business was made in an open and transparent way according to the four commercial criteria applicable to BBC Worldwide's activities.[6] We disagree. The purchase of Lonely Planet remains the most egregious example of the nature of BBC Worldwide's expansion into areas where the BBC has no, or very limited existing interests. Had the BBC Trust been a more responsible oversight body, it would have given more serious consideration to the likely impact on the commercial sector. We can only speculate as to why it did not.

9. Our report demonstrated that, in terms of public disclosure of the financial details of the Lonely Planet purchase, the BBC was certainly not as transparent as it claimed to us to have been. The BBC's arrogance demonstrated in much that it presented in its case to us in this respect, and in the way that it ignored this aspect in its response, is self-defeating in terms of the preservation of its public reputation.

Magazines

10. The BBC Trust does not touch upon our recommendations in relation to Worldwide's magazines in any depth. However, we were partially reassured by the answer given to us in relation to the specific point of the Lonely Planet magazine by John Smith, the Chief Executive of Worldwide. When we challenged him on the forthcoming launch of this magazine, he assured us that it was not the BBC's intention to crowd out existing operators in the same marketplace, notably the magazine Wanderlust. Specifically, he said that the editorial content of Lonely Planet magazine would be very different to that of Wanderlust, and that the two magazines would also look very different.[7]

11. However, as we noted in our recent evidence session with the BBC on its Annual Report and Accounts 2008-09, the evidence does not bear this out.[8] In a letter to the Chairman of the Committee, Wanderlust Publications told us that it has had a difficult year and has had to reduce headcount by around 25%. It states that "having the Lonely Planet magazine in direct competition, devaluing the market by offering cut-price advertising rates and challenging us editorially is a factor that we could well do without".[9] We are disappointed to find that, despite the earlier assurances from BBC Worldwide, Lonely Planet magazine seems to have occupied very similar editorial grounds to an existing commercial competitor and is therefore having an adverse effect on the marketplace as a result.

Use of a Public Value Test

12. The BBC Trust rejects our view that such decisions should be subject to a Public Value Test (PVT) as used for new licence fee-funded services. The Trust states: "We take the view that different regulatory regimes for the public and commercial services are necessary and appropriate to reflect the fact that the former use licence fee funding but the latter do not".[10]

13. The Committee believes that this misses the point. There is considerable concern in the commercial sector about BBC Worldwide's activities. Such activities may be funded commercially but their impact on the businesses and jobs of the commercial sector are real, and generating income for the BBC should not be an end in itself. The Trust should welcome the opportunity to impose a tighter regime on these activities, and the PVT system is an ideal way to achieve that.

Other issues

14. We made a number of specific recommendations which the BBC Trust has simply ignored. These include:

• A revision downwards of the £50 million threshold for referring commercial decisions to the Trust;
• Specific governance recommendations including the removal of the BBC Worldwide Chief Executive form the BBC Executive Board;
• A withdrawal from speculative minority investments in UK and overseas production companies; and
• The end of the practice of launching commercial websites in areas already served by existing commercial players.

15. We are disappointed that the BBC Trust has failed to respond in full to our recommendations, most particularly as the BBC receives such a substantial amount of public funding. We were especially concerned about the apparent arrogance of the BBC Trust who appeared to believe that they had no case to answer. We consider that the BBC has a duty and responsibility to properly account for exactly how its commercial activities benefit the licence fee payer.

---

1   Culture, Media and Sport Committee, Fifth Report of 2008-09, BBC Commercial Operations, HC 24 Back

2   Department for Culture, Media and Sport, Government Response to House of Commons Select Committee on Culture, Media and Sport 5th Report of Session 2008-09, Cm 7634, June 2009 Back

3   See Appendix, page 7 Back

4   Appendix, para 5 Back

5   Appendix, para 34 and Annex 3 Back

6   Appendix, para 35 Back

7   Oral evidence taken before the Culture, Media and Sport Committee on 18 November 2008, HC (2008-09) 24, Qq 244-246 Back

8   Uncorrected transcript of oral evidence taken before the Culture, Media and Sport Committee on 16 July 2009, Q118 Back

9   Letter from Wanderlust Publications Ltd to John Whittingdale MP, 25 June 2009 (unpublished) Back

10   Appendix, para 42 Back

---

Prepared 23 September 2009