Appendix: BBC Trust Response
1. On 7 April 2009, the Culture, Media and Sport
Committee published its report into the Commercial Operations
of the BBC. The Committee has asked the BBC Trust to respond by
the end of June. We hope that this response represents a useful
contribution to the Committee's work.
2. After a lengthy period through which the Trust
launched and then suspended its own review of BBC Worldwide, we
had hoped that the Government's final report on Digital Britain
would provide sufficient clarity and certainty for us to bring
our review to a close and set a clear strategic direction for
the business. Publication of the report has, however, left the
future of BBC Worldwide subject to ongoing public debate.
3. Although the Trust is still digesting the detail
of the Digital Britain report, there are apparent inconsistencies
between the potentially different models for the future of BBC
Worldwide considered in the paper.
4. Whilst being keen to bring to a close this period
of uncertainty for BBC Worldwide the Trust has concluded that
it cannot now reach firm conclusions in its own review whilst
these issues remain unresolved. It will take time for the Trust
to review carefully the alternative futures for BBC Worldwide
set out in the report.
5. Consequently we are not able to respond to all
the points in the Committee's report, and 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.
The Trust's review of BBC Worldwide
6. The new governance system for the BBC was introduced
as part of the latest Charter and Agreement, which came into force
on 1 January 2007. The Trust is the sovereign body of the BBC.
7. We work for the public which owns and pays for
the BBC and we act as guardians of the licence fee. We listen
to a wide range of voices, seeking to understand all opinions
and expectations to inform our judgements. We ensure the BBC is
independent, innovative and efficient: a creative and economic
force for good in the UK, and for the UK internationally.
8. In July 2008 the BBC Trust launched a review of
BBC Worldwide's mandate, strategy and governance arrangements.
The aim was twofold: to see if any changes were needed to reflect
the Trust's own experience since the present arrangements were
established in the current BBC Charter; and to consider concerns
expressed by others in the market about the impact of BBC Worldwide.
As the Committee's report notes, we are looking actively at many
of the same issues covered by the Committee.
9. In March 2009 the Trust issued an interim statement
(attached as annex 1). This noted that since we launched our review
the Digital Britain debate about BBC Worldwide had broadened to
take in the question of whether BBC Worldwide had a role to play
in sustaining a second public service broadcasting entity. The
Trust indicated an intention to complete its review once issues
raised by the Digital Britain review had been resolved.
10. In April 2009, the Trust issued an initial response
to the Committee's report on its website (attached as annex 2),
and the Chairman of the Trust wrote to the Chair of the Committee
on 8 April to clarify the context of some quotes used in the report
and to explain the progress made on the Trust's own review of
BBC Worldwide.
11. The Government's Digital Britain report was published
on 16 June. This leaves open various questions about BBC Worldwide
which the Trust is now considering. In our view it remains inappropriate
for the Trust to complete and take decisions based on its current
review of BBC Worldwide until issues raised in the Digital Britain
report have been resolved. Once these broader policy issues have
been resolved, and our own work is completed, we will publish
our findings.
CONTEXT
12. Successive governments have encouraged the BBC
to exploit the commercial value of its intellectual property and
to return this value to public service output. The Trust fully
supports this aim and, alongside the primacy of the public services,
welcomes BBC Worldwide's record of increasing profitability and
the benefits it brings to licence fee payers.
13. Our review has been driven by two concerns. The
first is to ensure that BBC Worldwide's strategy is properly aligned
with the BBC's public service interest and so has a positive impact
on the BBC's brand and reputation. The second is to ensure that
in its strategy and operations BBC Worldwide is duly sensitive
to the concerns of other commercial players in the market.
14. Emerging thinking as set out in the Trust's interim
statement is as follows:
- The Trust should bring greater
clarity to the direction, parameters and strategic priorities
of BBC Worldwide's commercial activities in the UK and overseas,
to ensure that they align properly with delivery of the BBC's
public purposes
- We should make changes to BBC Worldwide's detailed
control framework to establish a more contained focus for its
operations
- None of this cuts across our ambition that BBC
Worldwide should maintain and develop its commercial vigour and
strength. In our view this is perfectly compatible with a challenging
remit and clearer parameters for its operation and strategic focus
OTHER CONSIDERATIONS
15. As part of the review the Trust has considered
the rationale for the "first look" arrangements under
which BBC Worldwide has an opportunity to acquire most BBC rights
before they are offered to competitors. The Trust remains satisfied
that the rationale in favour of the first look arrangement within
existing structures remains strong. The Trust recognises that
the arrangement has allowed proper control of the BBC's brand
and reputation to be maintained as its content has been exploited
commercially. As the Government's Digital Britain report acknowledges,
care would need to be taken to preserve such outcomes under any
alternative structural models.
BEYOND THE BBC
16. The debate about BBC Worldwide has become significantly
more complex since the launch of our review. The Digital Britain
report has stimulated a broader debate about the future of public
service broadcasting in the UK which may have implications for
BBC Worldwide.
17. Work remains ongoing between BBC Worldwide and
Channel 4 to develop potential new partnerships that build on
the different strengths both sides can bring to the table and
create new value. However, it is important to re-emphasise that
the Trust will not support proposals that simply transfer value
from the BBC to other players in the market. That would weaken
the BBC's ability to continue to deliver the public purposes it
is mandated to deliver by its Charter. It would damage licence
fee payers' interests.
Trust response to the Committee's report
OVERALL DIRECTION OF TRAVEL
18. The Committee states that it believes "…it
is in the interests of the UK's creative economy as a whole that
BBC Worldwide's activities are reined back."
19. The Trust has noted the wider concerns of industry
over the past two years. This was one of the drivers of our own
review of BBC Worldwide. We indicated in our interim statement
that the Trust was of the view that BBC Worldwide's activities
should be more contained. This is a view that we will need to
keep under review as we examine alternative options in the context
of the ongoing public policy debate.
20. There are a number of important areas where the
Trust agrees with the Committee's findings:
BENEFITS OF THE BBC'S COMMERCIAL OPERATIONS
21. The Committee found "…that significant
benefits are realised from the BBC undertaking commercial activities."
22. The Trust agrees that commercial operations are
of clear benefit to the BBC and to licence fee payers who benefit
from BBC Worldwide's investment in the form of better public service
programming from the BBC. We also believe there are benefits to
wider industry. For instance, BBC Worldwide was recently identified
in a poll by Broadcast magazine as the favourite distributor in
their annual survey of industry.
THE IMPORTANCE OF OPENNESS AND TRANSPARENCY
23. The Committee recommended "…that the
Trust…considers, and reports back on the Committee's and
the industry's concerns about disclosure and transparency."
24. The Trust recognises that BBC Worldwide, in its
operations, and the Trust in its oversight and appeal body roles
must operate with openness and transparency consistent with commercial
interests and contractual obligations.
THE NEED FOR ROBUST OVERSIGHT AND GOVERNANCE
25. The Committee suggests "…there is clearly
a balance to be drawn, between Worldwide generating a return for
the BBC, and limiting Worldwide's operations in order to ensure
it upholds the BBC's reputation and does not damage its commercial
competitors."
26. The Trust agrees that appropriate oversight of
BBC Worldwide is essential. The Trust requires the BBC to comply
with competition law when carrying out its Commercial Activities.
In keeping with the Charter and Agreement, the Trust also requires
the BBC's Commercial Activities to fit with the BBC's Public Purpose
activities, exhibit commercial efficiency, maintain the BBC's
reputation and brand and comply with the Fair Trading Policy and
Fair Trading Guidelines, and in particular, avoid distorting the
market.
THE LOCAL VIDEO PUBLIC VALUE TEST DECISION
27. The Committee "…welcome[d] the Trust's
decision to reject the [Executive's local video] plans…"
28. The local video proposals were brought to the
Trust in response to the performance gaps indentified by us in
earlier research, and were the subject of a Public Value Test.
However, in its final conclusion the Trust was not satisfied that
any likely adverse impact on the market was justified by the likely
public value of the local video proposal.
29. The Trust concluded that, while local video had
potential to deliver some public value, it did not represent the
most efficient use of licence fee funds, especially given access
issues for non-broadband users and limited reach to key audience
groups. We also recognised the negative market impact that might
result from BBC expansion at a local level at a time when some
commercial providers face structural and cyclical pressure.
30. The Trust's view was that series of smaller,
targeted interventions, focused particularly on improving the
quality and depth of its television offering, could increase public
value and contribute to the relevant public purposes. We therefore
invited the Executive to return with new proposals designed to
close or narrow the purpose gap and improve nations and regions
provision.
31. Notwithstanding these important areas of general
agreement, there are certain aspects where the Trust's emerging
thinking is not completely aligned with the views of the Committee.
We now need to reflect on the Committee's views in these areas
as we bring our own work to a conclusion. There are also a number
of substantive issues raised by the Committee in its report, around
BBC Worldwide's strategy and scope, governance and accountability,
regulatory and legal framework, and compliance that are subject
to the Trust's ongoing review.
SUGGESTED CHANGES TO THE REGULATORY REGIME
32. The Committee recommends "…that the
commercial criteria and fair trading guidelines should be returned
to the pre-2007 position, whereby all commercial activity must
have a clear link with core BBC programming."
33. The Committee's report references the (then)
BBC Governors' Fair Trading Commitment which provided the framework
in which the BBC carried out its commercial activities prior to
the formation of the BBC Trust in 2007 and goes on to conclude
that the current rules have since been loosened.
34. Whilst it is early to make a fully informed assessment,
the Trust's experience so far is that the new regulatory regime
for the BBC's commercial services is in practice more stringent
than the regime it replaced. The Trust replaced the Fair Trading
Commitment with a new Fair Trading Policy in June 2007. The new
policy incorporated the four commercial criteria set out in the
BBC's Charter and Agreement. Although we are considering as part
of our review whether our guidance on the application of the four
criteria might be refined in the light of experience, we believe
that they provide greater clarity on the scope and nature of the
BBC's commercial activities than was previously available to commercial
competitors. We will consider the Committee's recommendation in
the light of our own review.
LACK OF TRANSPARENCY OVER THE PURCHASE OF LONELY
PLANET
35. The Committee's report states that "the
BBC has also been less than transparent about its commercial investments,
notably Lonely Planet."
36. The Trust's rationale for its decision to approve
the acquisition of Lonely Planet was published fully on our website
in October 2007 and remains publicly available there.
37. The Trust was satisfied that the proposal was
likely to comply with the four criteria, but noted that further
work was needed to finalise the proposition and made the proposed
acquisition subject a number of conditions. In addition, the Trust
asked for additional evidence to demonstrate the proposal's fit
with the BBC's public purposes - specifically to show how the
proposal would help to leverage extra value from the BBC's intellectual
property.
38. Subsequently, the Trust considered further material
provided by the BBC Executive. It was satisfied that the conditions
set in July 2007 had been met and confirmed its approval to proceed
with the acquisition.
39. Of course, the Trust retains an ongoing oversight
role of this acquisition, as it does with all the BBC's commercial
operations. We keep under review the compliance of BBC Worldwide's
activities with the commercial criteria through the formal annual
reporting to the Trust.
40. We acknowledge the issues raised by the Committee
in respect of disclosure made by BBC Worldwide in respect of Lonely
Planet. We will continue to keep issues of disclosure by BBC Worldwide
under consideration in the context of our ongoing review.
CALL FOR THE INTRODUCTION OF PUBLIC SERVICE REGULATORY
MECHANISMS TO OVERSEE THE BBC'S COMMERCIAL ACTIVITIES
41. The Committee's report recommends the introduction
of public service regulatory mechanisms to the oversight of the
BBC's commercial activities. Specifically, the Committee suggests
that "new BBC magazines should only be launched if there
is a clear link with core BBC programming, and where the public
value of launching a magazine outweighs any adverse impact on
the existing marketplace. This could be assessed using a public
value test similar to that applied to other BBC services"
and "that it undertakes thorough market impact assessments
prior to launching new websites or services on existing sites"
in a commercial manner.
42. 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. The four criteria assessment applied in the
case of commercial services already includes a rigorous assessment
of compliance with fair trading requirements and an explicit requirement
that such activities should not distort the market.
THE LIMITATIONS OF A CHANNEL 4/BBC WORLDWIDE PARTNERSHIP
IN SUSTAINING PSB BEYOND THE BBC
43. The Committee said that it was "…sceptical
as to whether a wide-ranging partnership or even merger with BBC
Worldwide would be the best solution for Channel 4, for the licence
fee payer, or for the media industry as a whole."
44. With encouragement from the Trust, the BBC is
currently engaged in a wide range of partnership talks with the
other UK PSBs, developing imaginative ways, through joint ventures
and sharing of resources and knowledge, to help them increase
their income or reduce their costs.
45. Through its Digital Britain agenda the Government
has encouraged discussions between BBC Worldwide and Channel 4
which have identified significant value-creating potential for
both sides.
46. We await the outcome of these discussions. Any
specific proposals would be subject to Trust approval. It is important
to underline here that the distinguishing factor of these initiatives
is that they enhance value for audiences. From the Trust perspective
it is vital that there should be no transfer of value away from
the BBC and that nothing we do should in any way compromise the
BBC's own offer to licence fee payers.
THE LICENCE FEE AS AN APPROPRIATE MECHANISM FOR SUSTAINING
PSB PROVISION BEYOND THE BBC
47. The Committee recommends "…a proportion
of the licence fee should be made available to Channel 4, in order
for it to sustain its public service programming."
48. The BBC's Charter gave the Trust the responsibility
of being "guardians of the licence fee" and we take
that role seriously. On behalf of licence fee payers, the BBC
Trust opposes top-slicing. The licence fee has a clear aim, clear
benefits, is clearly understood and has stood the test of time.
Top-slicing would damage BBC output, reduce accountability and
compromise independence. The licence fee must not become a slush
fund to be dipped into at will, leading to spiralling demands
on licence fee payers to help fund the political or commercial
concerns of the day. This would lead to the licence fee being
seen as another form of general taxation.
Next steps
49. Rather than reach final decisions on the strategic
priorities for BBC Worldwide ahead of the broader public policy
debate, we are working with the BBC Executive to assess more fully
the potential benefits for audiences emerging from partnership
options. We will remain fully engaged in the public debate, and
will return to the question of BBC Worldwide strategy as soon
as there is sufficient clarity around the nature of the partnership
options for the Trust to reach fully informed decisions.
50. Once we have reached conclusions it remains our
intention to make public our findings.
Annex 1
BBC Trust review of the commercial activities
of the BBC - interim statement
4 March 2009
BBC Worldwide is the commercial arm of the BBC. Last
July the BBC Trust launched a review of BBC Worldwide's mandate,
strategy and governance arrangements. The aim was twofold: to
see if any changes were needed to reflect experience since the
present arrangements were established in the current BBC Charter;
and to consider concerns expressed by others in the market about
the impact of BBC Worldwide.
Since then, however, the public policy debate about
BBC Worldwide has broadened to take in the new question of whether
it has a role to play in sustaining a second public service broadcasting
entity. In our view it would be wrong for the Trust to take decisions
based on its current review until this new question about BBC
Worldwide has been resolved.
The Trust does, however, believe that much of the
analysis in its review is relevant to the current policy debate.
We have therefore decided to publish this interim statement setting
out our emerging thinking.
Strategy and remit
Successive governments have encouraged the BBC to
exploit the commercial value of its intellectual property and
to return this value to public service output. The Trust fully
supports this aim, and alongside the primacy of the public services
welcomes BBC Worldwide's record of increasing profitability and
the benefits it brings to licence fee payers.
Our review has been driven by two concerns. The first
is to ensure that BBC Worldwide's strategy is properly aligned
with the BBC's public service interest and so has a positive impact
on the BBC's brand and reputation. The second is to ensure that
in its strategy and operations BBC Worldwide is duly sensitive
to the concerns of other commercial players in the market.
OUR EMERGING THINKING CAN BE SUMMARISED AS FOLLOWS:
- The Trust should bring greater
clarity to the direction, parameters and strategic priorities
of BBC Worldwide's commercial activities in the UK and overseas,
to ensure that they align properly with delivery of the BBC's
public purposes
- We should make changes to BBC Worldwide's detailed
control framework to establish a more contained focus for its
operations
- None of this cuts across our ambition that BBC
Worldwide should maintain and develop its commercial vigour and
strength. In our view this is perfectly compatible with a challenging
remit and clearer parameters for its operation and strategic focus
Other considerations
As part of the review the Trust has considered the
rationale for the "first look" arrangements under which
BBC Worldwide has an opportunity to acquire most BBC rights before
they are offered to competitors. The Trust remains satisfied that
the rationale in favour of the first look arrangement within existing
structures remains strong. In particular it enables proper control
of the BBC's brand and reputation to be maintained as its content
is exploited commercially. The Trust is also mindful of the economies
of scale it creates and has noted that many other content producers
use similar 'vertically integrated' approaches.
The Trust and the BBC Executive have also been considering
whether any adjustments to the current governance arrangements
for the BBC's commercial activities might be necessary to ensure
that the mechanics underpinning the controls are both streamlined
and effective. This work is closely linked to the current public
policy debate about BBC Worldwide and is ongoing.
Next steps
Rather than reach final decisions on the strategic
priorities for BBC Worldwide ahead of the broader public policy
debate, we will now work with the BBC Executive to assess more
fully the potential benefits for audiences emerging from partnership
options that the BBC and Channel 4 are currently developing. We
will remain fully engaged in the public debate. We will return
to the question of BBC Worldwide strategy as soon as there is
sufficient clarity around the nature of the partnership options
for the Trust to reach fully informed decisions.
Annex 2
Trust response to the select committee report
on the commercial operations of BBC Worldwide
7 April 2009
The BBC Trust notes the Culture Media and Sport Committee's
findings and will give them careful consideration. The Trust
believes that through its own review of BBC Worldwide it already
has in hand most of the issues the committee raises.
The Trust has already published an interim statement
on its review and concluded that there should be greater clarity
to the direction, parameters, and strategic priorities of Worldwide's
operations in the UK. The Trust also concluded that there should
be changes to Worldwide's detailed control framework to establish
a more contained focus for its operations. The Trust will expand
on these emerging conclusions when it finalises its review, following
the outcome of any negotiations involving BBC Worldwide and Channel
4.
The BBC has been charged by successive Governments
with maximising the commercial value that it can realise from
investment by licence fee payers. The purpose of BBC Worldwide
is to do just that. Through its work it delivers the equivalent
of around £9 for every licence fee payer in value created
for the BBC.
The Trust believes the BBC should continue to ensure
maximum value is derived from its intellectual property, whilst
taking into careful consideration the four commercial criteria
set out in the Charter, including compliance with fair trading
law and the need to protect the BBC's brand and reputation. In
its work the Trust will take due account of the views of commercial
competitors.
On the suggestion that a proportion of the licence
fee should be made available to Channel 4, the Trust believes
that solutions to the challenges facing public service broadcasting must
find new sources of value, rather than simply reallocate existing
funds. Partnerships, such as the one proposed with Channel 4,
have a role to play in sustaining the wider UK broadcasting industry.
If carried out successfully the BBC's partnership plans can deliver
better value not only to the industry, but also to licence fee
payers. Because of this, it would be premature to pre-judge the
outcome of any partnership discussions when there is the potential
for benefits to accrue to all parties.
The Trust has also previously stated that there is
still a strong rationale in favour of the 'first look' arrangements.
The 'first look' allows for 'vertical integration' in the production
process, which is common to many broadcasters, to return greater
value to the BBC and licence fee payers. Through the 'first look'
the BBC can also exercise greater control over the BBC's brand
and reputation.
Annex 3: Pre-2007 Fair Trading Guidelines
- "Commercial activities
must be consistent with, and supportive of, the BBC's purpose
as a public service broadcaster" (paragraph 1.11)
- "The core motivation behind a commercial
activity will typically be that the activity has a clear synergy
with existing activities" (paragraph 2.5)
- "It will also be considered appropriate
commercial activity and consistent with the BBC's purpose for
BBC Worldwide Ltd to own shares resulting in an interest in a
wide range of companies…Any equity stake must be consistent
with BBC Worldwide Ltd's pre-agreed strategy and subject to the
prior approval of the BBC's Commercial Board" (paragraph
2.12)
- "BBC Worldwide Ltd sells to other broadcasters
and may distribute non-BBC programmes which are compatible with
its portfolio" (paragraph 2.12)
- "BBC Worldwide Ltd may distribute the published
work of others which complements its core portfolio, and makes
optimal use of its resources" (paragraph 2.12)
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