Future for local and regional media - Culture, Media and Sport Committee Contents

Examination of Witnesses (Question Numbers 302-319)


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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