Examination of Witnesses (Question Numbers
302-319)
MR GORDON
MACMILLAN
AND MR
BOBBY HAIN
10 NOVEMBER 2009
Q302 Chairman: Good morning. This
is a further session of the Committee's inquiry into the future
for local and regional media. Can I welcome Gordon MacMillan,
Head of News at STV, and Bobby Hain, Director of Broadcast Services
and Regulatory Affairs. All of the commercial stations are looking
pretty bleak in economic outlook, and you have reported a pre-tax
drop in profits of 84% in the first half of this year. Can you
tell us whether you are seeing any sign of improvement or whether
it is continuing to decline?
Mr Hain: Yes. We
issued a trading statement to the markets last week and, I think,
overall, we would describe our approach remaining very cautious,
although we are seeing some signs of improvement in the market
towards the end of this year. On the one hand, that is very welcome
and we may see some growth in our business in terms of revenue
on a year-on-year basis in December, but it is slightly cold comfort
because the comparators get much easier as we move into December
2009 and into 2010. I think, beyond that, there is still a lot
of late money around. It is very difficult to see very much further:
visibility is very unclear. Our overall approach is that, as I
say, we remain cautious, although we are seeing signs of the decrease
in revenue having slowed down, which is encouraging.
Q303 Chairman: The other commercial
broadcasters we have talked to about this over a long period of
time have pointed at the fact that there is a structural shift
going on with advertising migrating online, and whilst, obviously,
that has been exacerbated by the recession, there is a general
pessimism that you are ever going to recover back to the days
pre recession. Would you share that pessimism?
Mr Hain: Yes, I think it is unlikely
we will see advertising revenues returning to the quantum and
the magnitude that they were at pre recession, certainly in the
short to medium term. The future visibility is extremely poor,
and it is difficult to say with any certainty. One thing I would
say is that STV has taken pre-emptive action over the last couple
of years to prepare our business for a different commercial future,
one which is based around a digital age, and I think that has
involved us making sure our cost base is appropriate for the environment
and, also, diversifying into online and other new areas of business
ourselves.
Q304 Chairman: Do you remain confident
that you can continue as a stand-alone Scottish broadcaster given
the economic tsunami that is hitting your industry?
Mr Hain: Yes, I think the actions
that I just referred to, the way in which we have repositioned
and rebuilt the business in the last couple of years and prepared
it for a digital future, stand us in excellent stead to weather
the storm, and we are very confident that when we start to come
out of recession, because we are largely a fixed cost business,
as revenues start to return, there will be a return to profitability
fairly briskly thereafter and a return to greater profitability.
One of the things to note is that, although we published smaller
profits in the first half of this year, we still did make a profit.
Going forward, I think there are three legs to our strategy: as
a free-to-air commercial broadcaster using commercial advertising
sponsorship and other advertising revenues, together with a production
business, that we see great growth potential for, and our online
new business development, which will take us into areas where
in the past we have not received any revenues. That is a growth
area for us going forward.
Q305 Chairman: Finally, obviously,
talking to ITV, they are very concerned about a number of additional
costs they have to bear—things like the public service obligations—and
they have been seeking to lift at least some of those. Is that
something that you agree with them about?
Mr Hain: I think there is a lot
of common ground. In addition to the cyclical downturn economically,
there is a structural issue around the delivery of public service
obligations which is based around the move to digital. Licences
in a digital world are worth less than those in 1955 when the
analogue network started and it was relatively easy to compel
broadcasters to deliver obligations of some of size and scale.
We are at the point now where the delivery of those obligations,
particularly in regional news, is costing more than the value
of the licence itself, and that is why our focus has been around
the delivery of news and trying to sustain regional news in putting
the case for having some public funding applied towards it.
Q306 Mr Watson: You have invested
very heavily in your web presence. Can out outline how that investment
is going and how your strategy is progressing?
Mr Hain: It is going extremely
well. Actually, I would characterise our investment in the web
as smart. It is not a huge quantum of money, but I think we have
applied what level of investment we have placed extremely smartly.
As opposed to two years ago, when we had virtually no online traffic,
this year we have seen visitors of over a million unique hits
every month and, in a market size of just five million in Scotland,
that is a considerable amount of people, that is a considerable
traffic base. Our strategy is to develop a traffic base footfall,
if you like, people coming to the site because it is delivering
video and stories and then being able to monetise that traffic
through additional advertising revenue, sponsorship, and so on.
There has been very strong growth in the value of online catch-up,
for example, using the programmes and the features that we make
and that we are broadcasting to attract visitors online. Encouragingly,
a very large number of our unique visitors are Scottish, and that
is a very important factor in determining what the value of that
audience is to potential audiences. It is relatively straightforward
to attract large audiences from around the world; it is much more
difficult thereafter to try and monetise them. I think when you
link that consumer facing business, which is really an online
manifestation of our broadcasting business, together with new
areas such as an online job service that we have just launched
this year, which is classified revenue that we are taking for
the first time with more plans in that area, together with the
roll-out that was announced last week of up to 300 websites which
provide local information, local listings, user generated content
for different areas in Scotland, we are in beta test at the moment,
but we know that there is a very strong attraction in that kind
of content and we think that is a market that we can really enter
in a strong way.
Q307 Mr Watson: What income are you
deriving from the websites at the moment?
Mr Hain: The income is not hugely
significant compared with our broadcast revenue. It is in line
with our city KPIs published in summer 2007 and extending out
to 2010.
Q308 Mr Watson: Are you going to
be solely reliant on advertising, or are you going to try and
sell your customers things and develop different revenue streams
using the web presence?
Mr Hain: Just now the entire model
is based around free content for users and using advertising and
other advertising-like revenues, sponsorship and so on. In the
longer-term we have no plans, as yet, to introduce charging, but
we will keep that under review, obviously.
Q309 Rosemary McKenna: Good morning,
gentlemen. You say in your written evidence to the committee that
STV does not want to take a drastic step of reducing its news
offering, and is highlighting with urgency the need for direct
funding. You spend seven million pounds per year. Is your news
programming suffering at the moment in the current economic climate?
Mr MacMillan: We spend around
seven million pounds a year on our news programme budgets, up
to ten million if you count the overheads supporting that news
service. Money is tight at the moment, as you would expect in
the environment, and so we are looking to spend the money we have
wisely. We have had some savings in news. I am pleased to say
that I do not think that has come on to the screen: I think the
viewers would not have seen any significant impact in the quality
of the news that we provide. So we work very hard to control our
costs but, I think, not at the expense of quality.
Q310 Rosemary McKenna: Does that
apply to your political coverage as well?
Mr MacMillan: We still have our
dedicated teams at Westminster and at Holyrood, and we still produce
our weekly Politics Now programme, and we continue to invest
in a significant resource to cover politics, not only in London,
but in Scotland as well.
Mr Hain: I think it is worth also
saying that, even through difficult times, we have invested and
used our news team outwith bulletins. So, where major news events
have happened—I am thinking of two recent examples: a helicopter
crash off the north coast of Scotland and the release of Abdul
Megrahi from prison—in both those cases, we ran an extended
news service throughout the day and broke into our daytime schedule
to offer additional news programming. We have also extended the
Politics Now programme in the lead up to the Glasgow North
East by election, and that kind of scheduling and that use of
our news base, I think, is a very smart way of ensuring that the
coverage on air is as extensive as it can be.
Q311 Rosemary McKenna: You are saying
that in the future you are looking to get some money from the
top-slicing towards public sector broadcasting. Currently you
are still continuing to deliver the service, despite the economic
downturn?
Mr MacMillan: As I say, we have
been having to make some savings, like most of the broadcasters,
but I think that is not evidenced in terms of quality that the
viewers would notice on screen.
Q312 Rosemary McKenna: Can we move
on now to the opting out issue and the dispute with ITV. We are
not talking at the moment about the legal side of it. How convinced
are you that people in Scotland do not want to look at the kind
of programmes that you were previously showing?
Mr Hain: Our programme strategy
has emerged from being at a crossroads, if you like. This was
a business which was taking largely all of its content from ITV,
from a single supplier, and was paying up to £50 million
a year for content which was commissioned in London by the ITV
network, over which we had absolutely no say, and we had very
little visibility about what was being commissioned and what would
come down the line. I think there is one road that we could have
gone down, which is to accept that situation and simply become
a pass-through of ITV for all the content to go to viewers in
Scotland. We have gone down a different road, which I think is
a more appropriate road for where we are as a business, and also
for our audience, which is to retain some of the money that we
would have previously spent with ITV for supplying programmes,
as is our right under the devolution contract, and to invest that
money in content. I admit that we have very difficult choices
to make. We have a single service and we have a single schedule
and we have to make our choice as a business, as a commercial
operator, to get the best return for our money. There are difficult
decisions and, I think, for viewers it can be unsettling when
material they would have seen over a long period of time is no
longer on the schedule. However, I think the pattern that has
emerged is very encouraging. Where we are replacing programming
with material that we have invested in and produced ourselves,
we are scoring generally higher than the ITV network would have
done in the same slot; where we have moved material from elsewhere
on the schedule or used repeats—the best example is Sunday
nights, for example, where instead of drama we have used some
film—that has not been successful. We are learning that
as we go along and, I think, we are in the very early stages of
a long-term format and a long-term strategy and we are adjusting
our scheduling and adjusting our commissioning as we move forward.
Q313 Rosemary McKenna: You have lost
viewing figures. There is no doubt about that. Overall you have
lost viewing figures when you have opted out of, say, The Bill,
Doc Martin, programmes like that. Does that not affect
your revenue from advertising?
Mr Hain: It is more a curate's
egg than that suggests actually. If you take Scotland Revealed,
for example, Scotland Revealed, which was a high definition
shot travelogue from the air around Scotland, performed better
than The Bill. Made in Scotland, which was an examination
of Scottish culture and Scottish cultural icons, performed better
than The Bill. Where we have run the story of Susan Boyle's
phenomenal rise to fame or, on the eve of the Champions League
final, the Story of Alex Ferguson, those are programmes
which have done better than the schedule. Those are areas where
we have improved our audience.
Q314 Rosemary McKenna: But are you
going to have the income to produce enough of them to cover what
you have opted out of?
Mr Hain: Absolutely, because the
opt-out strategy or the programme strategy is not reliant purely
on creating our own programmes, we have also acquired some programming.
In fact, we ran a very successful series from Ireland, which was
called Proof, and a second one called Damage, which
has just finished; we have just acquired a series from Australia
called Underbelly, which is one of the most successful
Australian dramas ever made; and I think what we are seeing is
that there are other places and other ways that we can acquire
material that will be successful and will attract audiences just
as much as being reliant on a single supplier for everything.
Q315 Rosemary McKenna: Do you know
how many people in Scotland are watching ITV on cable and Sky?
Mr Hain: It is not a significant
number. The numbers I have seen most recently say it is around
less than 10% of the audiences that we would get for our programmes
at the same time. I think it is a very small number overall.
Q316 Mr Sanders: Have you done that
analysis within an area that is fully digital because not all
of Scotland is digital yet?
Mr Hain: There are no areas in
Scotland yet that are fully digital.
Q317 Mr Sanders: The Borders?
Mr Hain: The Borders area is part
of ITV Border, which is not our schedule in any case.
Q318 Mr Sanders: Even though there
are Scottish viewers there?
Mr Hain: Yes. This is one of the
anomalies of the 1955 map, where the very south of Scotland is
actually half of the ITV bordered area that straddles the south
of Scotland and the north of England, but there is no fully switched
over part of either STV Central or STV North's region.
Q319 Mr Sanders: Because I think
you might get a different picture then than the one that you are
describing.
Mr Hain: Yes, I think the thing
to remember is that the option for people to choose channels and
to access ITV1 only exists for satellite and cable customers,
it is not available on digital terrestrial, which is likely to
remain the way by which the vast majority of people receive their
television signals. In a landscape on Sky, for example, where
there are 500 channels, there are many more channels that we have
to be worried about than a single relay of ITV London which is
up at the end of the dial. I think the evidence is that the numbers
watching is not particularly significant.
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