Written evidence submitted by ITV plc
RESPONSE TO THE DCMS CONSULTATION ON SUSTAINABLE
INDEPENDENT AND IMPARTIAL NEWS; IN THE NATIONS, LOCALLY AND IN
THE REGIONS
EXECUTIVE SUMMARY
ITV plc welcomes this opportunity to respond
to the consultation following proposals in the Digital Britain
White Paper ("Digital Britain") to create sustainable,
independent and impartial news services beyond the BBC in the
Nations and regions of the UK.
Digital Britain represents the first really
coherent government statement about what needs to happen to take
Britain from the analogue to the digital age, spanning content,
networks, digital literacy and piracy. It recognises formally
that the old analogue regulatory framework has to go.
Underlying a number of the Government's policy
proposals in the final Digital Britain report is a clear recognition
of the strong case for the progressive liberalisation of the Channel
3 licensees to enable ITV to become a fully commercial network
serving the interests of its shareholders whilst continuing to
deliver a focussed, sustainable public service commitment centred
on original production and news. We strongly endorse this approach
and are willing to play a supportive role in solving the issue
of nations and regions news.
In this context, the proposal for IFNC's is
an imaginative, ground breaking policy proposal to bring a new
approach to local and regional news in the UK and is one which
ITV has consistently supported as an appropriate successor to
ITV's current high quality, successful regional news offering.
This response addresses important practical issues around implementation
which we are keen to resolve rather than points of principle.
In this response we seek to make six main points:
1. It is in the public interest that in future
the costs of ITV's PSB licences should not exceed the benefits
of those licences and we welcome the consensus on this issue.
2. It is clear that there is an increasingly
material gap between the costs and benefits of ITV's PSB licences
from the beginning of 2011 and this analysis is endorsed
by Ofcom.
3. ITV is entirely supportive of IFNCS in Wales
(and Scotland—though this is not an ITV plc region) beginning
in 2010 and will make slots available in the ITV1 schedule
for the successful consortium in Wales. We believe that a binding
commitment to such implementation should be made as soon as possible
facilitated by enabling legislation, if required, in the Digital
Economy Bill.
4. The position in the English regions is not
so clear cut. ITV remains supportive of the full roll out of IFNC's
in the English regions in 2010 with a fully competitive tender
process for a single main contractor. Again, we believe that a
binding commitment to such implementation should be made as soon
as possible facilitated by enabling legislation, if required,
in the Digital Economy Bill.
5. However, the current piecemeal implementation
plan for IFNCs in the English regions is unlikely to deliver an
efficient, high quality service to compete effectively with that
of the BBC and will not balance ITV's PSB licences in the short
to medium term. Ultimately, if it is not possible to expedite
the full introduction of the IFNC proposal in the English regions
with one contest for a Master Contractor in 2010, some other route
will need to be found to ensure the survival of regional news
in the English regions more rapidly than is currently proposed.
In this context ITV is keen to continue a constructive dialogue
with Ofcom and Government in relation to potential solutions.
6. ITV's support for the IFNC proposal is contingent
on additional advertising minutage on ITV not forming part of
the solution to the future funding of regional news since it would
reduce the existing advertising revenues of ITV1 (and all
commercial broadcasters) and the regional press.
We address each of these points in turn below.
1. It is in the public interest that the
costs of ITV's PSB licences should not exceed the benefits of
those licences and we welcome the consensus on this issue
Throughout the current review of Public Service
Broadcasting, ITV has made clear that its overriding priority
is a new regulatory structure, appropriate to the digital age,
in which the costs and benefits of the Channel 3 PSB licences
are balanced and ITV remains incentivised to continue to hold
its licences in the public interest. Accordingly, the Government
is right to recognise in Digital Britain that there will need
to be adjustment to ITV's PSB obligations up to and beyond DSO
in line with the diminishing value of the licences. We appreciate
the steps government and Ofcom are already making in this direction.
Indeed, in view of the government's very clear
position on the viability of ITV's PSB licences, ITV believes
that it would be in the public interest for the inclusion in the
Digital Economy Bill of a new statutory duty on Ofcom to ensure
that ITV's PSB licences balance cost and benefit. This would provide
reassurance that whoever ran ITV the public could be confident
that it would continue to be in the economic interests of the
company to hold the PSB licences thereby ensuring the provision
of much of the UK's most popular television content to the whole
of the UK on PSB DTT capacity reaching 98.5% of the population.
As Ofcom note in their response to the current consultation:
"we believe it is desirable to take
steps to avoid licence hand back where there are undesirable policy
consequences" (page 9)
2. It is clear that there is an increasingly
material gap between the costs and benefits of ITV's PSB licences
from the beginning of 2011 and this analysis is endorsed
by Ofcom.
In making decisions about what PSB contribution
it is realistic to expect ITV to provide it is important to have
as robust and accurate an assessment as is possible of the costs
and benefits of PSB status for ITV over time. This will ensure
that any future PSB role for ITV is rooted in the real economics
of the PSB licences. In order to establish the value of the PSB
licences in 2007 ITV commissioned a sophisticated model of
the current and future economics of those licences which we have
continued to update. Moreover, in addition to having a detailed
and lengthy dialogue with Ofcom about the modelling of licence
value, we have also given Ofcom complete access to the model,
including to the underlying assumptions.
We set out below the summary of the cost benefit
analysis of ITV's PSB licences over the years 2009-14:
PSB costs to ITV (£m)
| 2008 | 2009 |
2010 | 2011 | 2012
| 2013 | 2014 |
Total costs | 201.7 |
143.0 | 129.4 | 120.8
| 119.8 | 120.4 | 123.1
|
| PSB benefits to ITV (£m) |
| | | |
| | |
| Total benefits | 232.2 | 155.5
| 123.2 | 76.5 | 42.6
| 38.8 | 40.3 |
| Value (benefits—burdens) | 30.5
| 12.5 | (6.2) | (44.3)
| (77.2) | (81.6) | (82.9)
|
| |
| | | |
| |
Ofcom has confirmed to ITV that, after a lengthy dialogue
(in the course of which ITV made adjustments to its approach and
assumptions in some areas), they regard our analysis of costs
and benefits as reasonable. Ofcom's own analysis, submitted to
DCMS as part of the response to the current consultation, also
shows an increasingly serious deficit in the Channel 3 licences
from 2011. The only areas of difference between ITV and Ofcom
on the PSB cost benefit figures concern:
1. the subsidy from ITV plc to the Non-consolidated licensees,
where we recognise that Ofcom is not in a position to give a final
view on the issue pending the outcome of the 2009 Networking
Arrangements Review which is looking at this issue and is underway;
2. the decision by Ofcom that a 25% independent quota is an
obligation that ITV would meet in any event and which therefore
does not impose an opportunity cost on ITV. On this point Ofcom
is seeking both to argue that the quota would be fulfilled at
its current level without compulsion and yet at the same time
maintaining that compulsion is still required ie that the quota
should be maintained at 25%. ITV continues to believe that the
quota does impose a PSB cost on ITV. If this is not the case,
then the only appropriate action on the part of government would
be eliminate an unnecessary piece of regulation via a reduction
of the independent quota to the minimum statutory level.
Ultimately regional news remains by far the greatest of ITV's
PSB costs. Accordingly, ITV welcomes the Government's proposals
to fund publicly the provision of news in the nations and regions
of the UK, carried on Channel 3.
3. ITV is entirely supportive of IFNCS in Wales (and Scotland—though
this is not an ITV plc region) beginning in 2010 and will
make slots available in the ITV1 schedule for the successful
consortium in Wales. We believe that a binding commitment to such
implementation should be made as soon as possible facilitated
by enabling legislation, if required, in the Digital Economy Bill.
We welcome the Government's recognition of the need for public
funding of nations and regions news before 2013 and in particular
the proposal for pilot IFNCs aiming to begin in 2010 in Scotland
and Wales. The proposal for IFNCs is an imaginative, ground breaking
policy proposal to bring a new approach to nations and regions
news in the UK and is one which ITV continues to support through
the offer of slots in the ITV schedule for the carriage of the
IFNC produced services.
It seems unarguable to ITV that, as a minimum, there is a
case for public funding of news in the nations of the UK to compete
with the BBC. In particular:
— Devolution has created a clear need for a serious
extended nightly bulletin in each nation.
— Ofcom's research for the PSB review showed the highest
levels of support for nations news and for plurality in its supply
(compared for instance to the English regions).
— The financial need is particularly pressing given
that the Channel 3 licences in the nations are in an even
worse position than at least some of those in the English regions.
— The current subsidy by ITV plc to the Non-consolidated
Channel 3 licensees is unsustainable as a means of enabling
the NCLs to provide their news services.
Clearly, however, the public funding of an IFNC in Wales
(the relevant ITV plc nations licence) from 2010 will not
by itself ensure that ITV's PSB licences balance in 2011 and
2012.
4. The position in the English regions is not so clear
cut. ITV remains supportive of the full roll out of IFNC's in
the English regions in 2010 with a fully competitive tender
process for a single main contractor. Again we believe that a
binding commitment to such implementation should be made as soon
as possible facilitated by enabling legislation, if required,
in the Digital Economy Bill.
ITV also recognises the significant level of public support
in the English regions for the continuation of regional news highlighted
most recently in both the Ofcom and DCMS market research. In this
context, ITV is fully supportive of a full roll out of IFNCs in
the English regions in 2010 with a single fully competitive
tender for a so-called "Master Contractor".
In our most recent submissions on regional news/PSB, including
the joint ITV/OC&C study on implementing IFNC's submitted
to Ofcom and government in April 2009, ITV has made clear its
support for a single English regions competition in 2010 for
a co-ordinating "Master Contractor" as the only practical
way to implement IFNCs. Our proposal is that in the English regions
(as in each nation) there would be a single overarching contractor—a
Master Contractor-—with whom ITV and Ofcom would deal and
who would be ultimately responsible for delivering the IFNC contract.
It would be the responsibility of the Master Contractor to co-ordinate
the provision of the service to ensure, as a minimum, that the
service across each nation was high quality, attractive to viewers
and compliant.
At the same time of course, it would be vital that the putative
Master Contractors are explicitly incentivised by bid conditions
to demonstrate local focus and commitment. This might be demonstrated,
for example, by investment in/maintenance of news hubs in localities
around England and/or through sub-contracting parts of the provision
of the service to others whilst still ensuring appropriate levels
of co-ordination and quality assurance. There are very significant
advantages for viewers, tax/licence fee payers, ITV and Ofcom
in only holding one contest for a single Master Contractor for
the news services in England:
— to ensure a smooth transition from one set of regional
news arrangements to another preventing the development of different
tiers of service in different English regions between 2011-13.
This will ensure continuity for the audience wherever they live
in England;
— to ensure a common approach across the English regions
to key issues such as quality, reliability, technical competence,
fit with ITV1 audience expectations etc which are vital in
maintaining the audience appeal of the service;
— to create synergies and reduce the risk of having
to fund multiple sets of overheads in each region thus maximising
the amount of public money spent on screen not on overheads;
— to minimise the transaction time and costs of eight
or more separate tenders for relatively small value English regions
news services as well as minimising the on-going co-ordination
problems for ITV of managing eight or more different English regions
services from different providers;
— to maintain schedule flexibility for ITV given the
risk (on a region by region approach) of a requirement to negotiate
and agree changes with multiple suppliers. Scheduling flexibility
has always been a condition of participation for ITV; and
— to avoid the serious risk that a trial contract for
a single English region in effect locks in the pattern of subsequent
tenders in the English regions because of a contract duration
to 2014.
— to avoid the sheer practical difficulty of attempting
to create a single seamless offer in the schedule from separate
simultaneous live programmes from a different provider in each
English region.
The final important advantage of a single implementation
of the IFNC scheme in the English regions in 2010 is that
it would place beyond doubt the future economics of the Channel
3 licences to 2014 ensuring that whoever ran ITV would
have a clear economic incentive to retain the PSB licences broadcasting
to 98.5% of the population.
5. However, the current piecemeal implementation plan
for IFNCs in the English regions is unlikely to deliver an efficient,
high quality service to compete effectively with that of the BBC
and will not balance ITV's PSB licences in the short to medium
term. Ultimately, if it is not possible to expedite the full introduction
of the IFNC proposal in the English regions with one contest for
a Master Contractor in 2010, some other route will need to be
found to ensure the survival of regional news in the English regions
more rapidly than is currently proposed. In this context ITV is
keen to continue a constructive dialogue with Ofcom and Government
in relation to potential solutions.
By contrast, however, the current proposed partial introduction
of IFNCs in only one English region in 2010 does not go far
enough, soon enough, to be a solution to the problem of the continued
provision of an attractive and efficient nations and regions news
service given ITV's future licence economics. As Ofcom's analysis
in the PSB Review (recently updated by Ofcom for the purposes
of the current consultation) anticipated, the pressures on ITV's
licences are such that the timetable and staged introduction of
IFNCs as currently proposed, will cause ITV considerable difficulties.
Moreover, the proposed piecemeal implementation of IFNCs in the
English regions will have none of the advantages for viewers or
tax/licence fee payers of the single tender for a master contractor
described above.
The two key issues raised by the current proposed partial
implementation of IFNCs are:
— First, the IFNCs in Wales and one English region in
2011 and 2012 would save ITV around £10 million.
Even if ITV's licence payments are abolished in their entirety
from 2010 (following the impending Ofcom review) which is
far from certain, a partial IFNC implementation will be far from
sufficient to ensure that the cost and benefit of ITV's PSB licences
balance in those years something which is confirmed in Ofcom's
own response to the current consultation. The assumption that
the costs and benefits of ITV's licences will balance in future
underwrites ITV's commitment to make available slots in its schedule
to accommodate the English and Welsh IFNC produced news services.
— Secondly, a trial IFNC implementation in only one
English region in 2011 and 2012 (followed presumably
by a region by region roll out of IFNCs in the English regions
in 2013) are likely to prove much less workable as well as more
bureaucratic and more expensive. It will also result in an uneven
and less attractive service for viewers than a full IFNC roll
out in the English regions in 2010 with a single tender for
a Master Contractor to oversee the provision of the English regions
service.
Accordingly, there is clearly a challenge in the English
regions to devise future arrangements for IFNCs that can deliver
a high quality, efficient service as well as giving ITV the reassurance
it needs that the costs and benefits of its licences will balance
over the next few years.
Pressing ahead with a partial roll out of IFNCs in the English
regions risks perhaps the worst outcome from the present process—namely
that the proposed trial in an English region is launched but is
followed either by (a) implementation elsewhere region by region
in 2013 resulting in the patchwork quilt of services the
disadvantages of which are set out above or (b) is not followed
up at all after the general election with the trial contracted
to 2014 with messy alternative arrangements built around
it in other regions resulting in a highly unsatisfactory two tier
offering to viewers on ITV1 in England. Neither of these
outcomes would seem to be in the public interest.
In this context ITV is keen to continue a constructive dialogue
with Ofcom and Government in relation to potential solutions.
6. ITV's support for the IFNC proposal is contingent on
additional advertising minutage on ITV not forming part of the
solution to the future funding of regional news since it would
reduce the existing advertising revenues of ITV1 (and all
commercial broadcasters) and the regional press.
Finally, whatever solution is chosen for the future of nations
and regions news, ITV does not believe that it is reasonable to
suppose that there are substantial sums of alternative commercial
revenue which might reduce substantially the need for public funding
for a nations and regions news service without creating serious
consequences elsewhere. Of course, it may be that a master contractor
and its venture partners are able to find synergies and cost savings
with existing regional news activity which might reduce the amount
of public subsidy required but the opportunity for incremental
revenue from the provision of nations and regions news programming
to ITV is very limited.
In particular, we believe that additional advertising minutage
should not be part of the solution to the future funding of regional
news. Additional minutage could raise some revenue for the regional
news provider, but this revenue would be very limited and it would
cannibalise the existing advertising revenues of ITV1 (and
all commercial broadcasters) and the regional press. Indeed, any
proposal for extra minutage would be self-defeating, since it
would in effect be top slicing of ITV (and quite possibly of the
regional press).
CONSULTATION QUESTIONS
1. Do you agree that securing plural sources of impartial
news for the nations, locally and in the regions should be a key
priority?
In general this issue is a matter of public policy which
is best determined by the public and their elected representatives
rather than commercial businesses such as ITV. However, it seems
unarguable to ITV that, as a minimum, there is a case for public
funding of news in the nations of the UK to compete with the BBC.
In particular:
— Devolution has created a clear need for a serious
extended nightly bulletin in each nation.
— Ofcom's research for the PSB review showed the highest
levels of support for nations news and for plurality in its supply
(compared for instance to the English regions).
— The financial need is particularly pressing given
that the Channel 3 licences in the nations are in an even
worse position than at least some of those in the English regions.
— The current subsidy by ITV plc to the Non-consolidated
Channel 3 licensees is unsustainable as a means of enabling
the NCLs to provide their news services.
The position in the English regions is perhaps a little less
clear cut and it does appear from Ofcom's own research for the
PSB Review that opinions within England toward regional news vary
considerably, particularly compared to opinion in the nations.
In this context, whilst Ofcom's research showed high levels of
support for regional news overall it did show slightly less support
for plurality of supply in regional news in England compared to
the other nations of the UK. Nonetheless, in absolute terms the
support for plurality of supply of regional news in England was
still very significant.
2. Do you agree that sustainable, impartial news in the
Nations, locally and in the regions is likely to require some
top-up public funding?
In view of the significant PSB cost of nations and regions
news, ITV welcomes the government's constructive proposals to
continue to publicly fund the provision of news in the nations
and regions of the UK, carried on Channel 3 from 2013. In
addition, we also welcome the government's recognition of the
need for public funding of nations and regions news before 2013 with
the proposal for pilot IFNCs aiming to begin in 2010 in Scotland,
Wales. More generally, the proposal for IFNC's is an imaginative,
ground breaking, policy proposal to bring a new approach to local
and regional news in the UK and is one which ITV has consistently
supported as an appropriate successor to ITV's current high quality,
successful regional news offering.
For the reasons set out above, we believe that the case for
implementing the IFNC proposal in Scotland and Wales as soon as
possible in 2010 is unarguable.
However, whilst warmly welcoming the government's proposed
approach in relation to the implementation prior to 2013 we
have two key concerns over the timing and approach to this initial
phase of implementation. These concerns are:
— The partial implementation of IFNCs (in Scotland,
Wales and an English region only) in 2011 and 2012 will
be far from sufficient to ensure that the cost and benefit of
ITV's PSB licences balance. The balancing of the costs and benefits
of ITV's licences has always been the critical component of ITV's
support for any future PSB role for Channel 3 and underlies
ITV's commitment to make available slots in its schedule to accommodate
the English and Welsh IFNC produced news services; and
— A trial IFNC implementation in only one English region
in 2011 and 2012 (followed presumably by a region by
region roll out of IFNCs in the English regions in 2013) are likely
to prove much less workable as well as more bureaucratic and more
expensive with greater uncertainty over the quality of service
for viewers than a full IFNC roll out in the English regions from
the beginning of 2011 with a single master contractor.
We deal with these concerns in turn below.
The Economics of ITV's PSB licences in 2011 and 2012
In a number of submissions to government and Ofcom over the
past 18 months ITV has made clear that its overriding priority
is to be free from analogue regulation with sustainable PSB licences
which, through balancing cost and benefit, continue to incentivise
ITV to hold the licences in the public interest. This continues
to be an overriding concern for ITV and our support for new approaches
to the provision of nations and regions news on Channel 3 (via
slots in ITV's schedule) is contingent on the costs and benefits
of ITV's licences at least balancing out.
In this context we have been encouraged by the recognition
by government, in the final Digital Britain report, of the strong
case for the liberalisation of the Channel 3 licensees so
that we can move towards becoming a fully commercial network serving
the interests of our shareholders whilst continuing to deliver
a focussed, sustainable public service commitment centred on original
production and news. In particular, the government recognises
that there may well need to be adjustment to ITV's PSB obligations
up to and beyond DSO in line with the diminishing value of the
licences, and we appreciate the steps government and Ofcom are
already making in this direction of which the proposal for a trial
of IFNCs are part.
Indeed, in view of the government's very clear position on
the viability of ITV's PSB licences, ITV believes that it would
be in the public interest for the inclusion in the Digital Economy
Bill of a new statutory duty on Ofcom to ensure that ITV's PSB
licences balance cost and benefit. This would provide reassurance
that whoever ran ITV the public could be confident that it would
continue to be in the economic interests of the company to hold
the PSB licences thereby ensuring the provision of much of the
UK's most popular television content to the whole of the UK on
PSB DTT capacity reaching 98.5% of the population.
Against this backdrop, and in order to ensure a sound economic
basis for decision making, over the past 18 months or so
ITV has had an extensive and detailed dialogue with Ofcom in relation
to the future costs and benefits of ITV's PSB licences. In order
to establish the value of the licences ITV commissioned a very
sophisticated model of the current and future economics of the
PSB licences which we have continued to update. In addition to
the detailed dialogue with Ofcom we have also given them complete
access to the model including to the underlying assumptions. Following
detailed scrutiny by Ofcom we have also made a number of changes
to parts of the model and to the underlying assumptions.
Whilst precision in future predictions is clearly difficult,
Ofcom has confirmed to ITV that, after a lengthy dialogue, it
regards our analysis of costs and benefits as reasonable. The
only areas of difference between ITV and Ofcom on the PSB cost
benefit figures concern:
(a) the subsidy from ITV plc to the Non-consolidated licensees
where we recognise that Ofcom is not in a position to give a final
view on the issue pending the outcome of the 2009 Networking
Arrangements Review which is looking at this issue and is underway;
(b) the decision by Ofcom that a 25% independent quota is
an obligation that ITV would meet in any event and which therefore
does not impose an opportunity cost on ITV. On this point we are
concerned that Ofcom is seeking both to argue that the quota would
be fulfilled at its current level without compulsion and yet at
the same time to argue that compulsion is still required ie that
the quota should be maintained at 25%. ITV continues to believe
that even at 25% the quota does impose a PSB cost on ITV though
if this is not the case then the only appropriate action on the
part of government would be eliminate an unnecessary piece of
regulation via a reduction of the independent quota to 15% or
lower.
As can be seen from the table below, which summarises the
overall cost benefit position for ITV's PSB licences, it is clear
that they will be significantly in deficit in 2011 and 2012 and
Ofcom itself has highlighted this issue in its own response to
the current consultation saying that:
"there are likely to be transitional financial issues
for the Channel 3 licensees until the funding for a full
roll out of news consortia is secured".(Ofcom response p11)
Against this backdrop, even assuming:
— that no licence fees are payable at all from 2010 (following
Ofcom's review of our licence payments which will begin imminently)
saving ITV around £7.3 million in 2011 and
— the public funding of an IFNC news service in Wales
and a service in one English region in 2011 and 2012 (relieving
us of PSB costs of around £10 million)
our licences would still be in significant deficit in 2011 and
in 2012.
In short, whilst the pilot, publicly funded, IFNC proposals
in an English region and Wales from 2010 will make some difference
to the economics of ITV's licences they will not balance cost
and benefit in 2011 and 2012 and it is not obvious at
present how such a balance will be achieved without full implementation
of the IFNC proposal in the English regions in 2011.
Costs and Benefits of PSB status for ITV plc
PSB costs to ITV (£m) |
2008 | 2009 | 2010
| 2011 | 2012 |
2013 | 2014 |
Total costs | 201.7 |
143.0 | 129.4 | 120.8
| 119.8 | 120.4 | 123.1
|
| PSB benefits to ITV (£m) |
| | | |
| | |
| Total benefits | 232.2 | 155.5
| 123.2 | 76.5 | 42.6
| 38.8 | 40.3 |
| Value (benefits—burdens) | 30.5
| 12.5 | (6.2) | (44.3)
| (77.2) | (81.6) | (82.9)
|
| |
| | | |
| |
The practicality and ultimate cost of a piecemeal IFNC implementation
in the English regions
In the light of the clear wish of both Ofcom and government
to maintain plurality in nations and regions news in the UK, ITV
has for some time been a supporter of the proposal for IFNCs paid
for from public funds with the resulting news service carried
on Channel 3. In particular, in partnership with OC&C, we
produced a significant report exploring how a publicly funded
solution for nations and regions news might work in April this
year which we submitted to both government and Ofcom. We do not
intend to repeat the content of that report in this submission
though we would reiterate that ITV's overriding priority, in the
public interest, is to carry a high quality nations and regions
news service which is attractive to viewers and which looks and
feels part of the ITV1 service. In addition, we would particularly
draw the government's attention again to the key principles around
ITV participation in any IFNC project namely:
— That there are clear on going mechanisms to ensure
delivery and a high quality service which fits editorially and
presentationally with the ITV1 schedule as it evolves;
— That ITV should not bear the consequences of compliance
failure and associated reputational risk;
— That there is no increase in nations and regions news
volume obligations and a commitment to continued scheduling flexibility;
— That there continues to be access to facilities and
pictures for the Channel 3 and Channel 4 Network news
provider;
— Any solution should not involve incremental cost or
loss to ITV beyond the provision of airtime for carriage of the
ITV1 service.
Finally, and above all in the present context, in our submissions
on IFNC's to date we have consistently made clear the importance
of one tender for a single co-called "master contractor"
to oversee or itself provide the services in the English regions.
It would be the responsibility of the Master Contractor to co-ordinate
the provision of the service to ensure, as a minimum, that the
service across each nation was high quality, attractive to viewers
and compliant.
There are very significant advantages for viewers, tax/licence
fee payers, ITV and Ofcom in only holding one contest for a single
provider/overall contractor for the news services in the English
regions. In particular, a single England wide contest for the
provision of services in the English regions from the beginning
of 2011 would:
— ensure a smooth transition from one set of regional
news arrangements to another as opposed to the development of
different tiers of service in different English regions between
2011-13. A smooth transition will ensure continuity for the audience
and ensure that regional news does not disappear from Channel
3 at any point;
— help to ensure a common approach across the English
regions to key issues such as quality, reliability, technical
competence, fit with ITV1 audience expectations etc which
are vital in maintaining the audience appeal of the service;
— maximise synergies and reduce the risk of having to
fund multiple sets of overheads in each region;
— significantly reduce the transaction time and costs
of eight or more separate tenders for English regions news services.
The burden of such tenders and the resulting contract management
(set alongside the relatively low annual contract value) should
not be underestimated. In particular, the creation of separate
transactional relationships between each English regions news
provider and both ITV and Ofcom is hard to justify in relation
to the delivery of a relatively small amount of programming each
day;
— significantly reduce the co-ordination problems for
ITV of managing eight or more different services from different
providers. By contrast, a region by region approach might well
result in a diminution of on screen quality/continuity as well
as risking an incoherent and unreliable approach to compliance
across different regions;
— help ITV to maintain schedule flexibility given the
risk (on a region by region approach) of a requirement to negotiate
and agree changes with multiple suppliers. We have set out very
clearly in the OC&C report that a condition of our participation
would be continuing scheduling flexibility in order to meet the
expectations of the audience in relation to the ITV1 schedule;
— avoid the serious risk that a trial contract for a
single English region in effect locks in the pattern of subsequent
tenders in the English regions. This might well be the outcome
of a trial based approach in a single English region since if
such a modest contract is to be attractive it is likely to need
to give certainty to potential bidders for a significant duration;
and
— to avoid the sheer practical difficulty of attempting
to create a single seamless offer in the schedule from separate
simultaneous live programmes from a different provider in each
English region.
At the same time of course, it would be vital that the putative
Master Contractors are explicitly incentivised by bid conditions
to demonstrate local focus and commitment. This might be demonstrated,
for example, by investment in/maintenance of news hubs in localities
around England and/or through sub-contracting parts of the provision
of the service to others whilst still ensuring appropriate levels
of co-ordination and quality assurance. In this context we would
draw the government's attention to, for instance, para 4.1.3 of
the ITV/OC&C report for a further discussion of the possible
different types of bidding consortia. In ITV's view a single tender
for a single master contractor for English regions news services
from the beginning of 2011 would be a far better solution
than a piecemeal region by region roll out over a number of years.
In short, against this backdrop, we have significant practical,
editorial and economic concerns in relation to the government's
proposal to pilot an IFNC in only one English region from 2010 with
full implementation delayed until 2013. We believe this approach
risks creating a more bureaucratic and expensive set of processes,
with greater uncertainty over the quality of service for viewers,
and without fully addressing the shortfall in the value of ITV's
licences in 2011 and 2012. Accordingly, the decision as to
whether there is a single contest for a master contractor for
the English regions services or a series of regional tenders is
likely to determine whether the scheme is deliverable, practical
and makes economic sense.
Apart from public funds are there other potential sources of
funding for nations and regions news?
ITV does not believe that it is reasonable to suppose that
there are substantial sums of alternative commercial revenue which
might reduce substantially the need for public funding for a nations
and regions news service without creating serious consequences
elsewhere. Of course, it may be that a master contractor and its
venture partners are able to find synergies and cost savings with
existing regional news activity which might reduce the amount
of public subsidy required but the opportunity for incremental
revenue from the provision of nations and regions news programming
to ITV is very limited.
In particular, ITV's support for the IFNC proposal is contingent
on additional advertising minutage not forming part of the solution
to the future funding of regional news. Additional minutage could
raise some revenue for the regional news provider, but this revenue
would be very limited and it would reduce the existing advertising
revenues of ITV1 and the regional press. Indeed, any proposal
for extra minutage would be self-defeating, since it would in
effect be top slicing of ITV (and quite possibly of the regional
press):
— Under the Station Average Price (SAP) mechanism, any
increase in advertising minutage—even if such additional
minutage were hypothecated for ITV1 regional news—would
lead to a reduction in the price of advertising on ITV1.
— All the major stakeholders responding to the recent
Ofcom review on the RADA rules agreed that a reduction in the
price of advertising would not be offset by an increase in demand—as
there are neither capacity constraints nor latent demand for TV
advertising. Therefore, any advertising revenue generated for
the news provider would inherently cannibalise existing ITV1 revenues.
— Any increase in minutage would therefore contribute
further to the problem of over-supply of impacts identified by
Government in the Digital Britain process. As the Digital Britain
interim report noted: "The huge growth of advertising inventory
has produced a parallel reduction in the value of advertising
impacts and their ability to fund professional long-form content."[137]
Adding further to this supply of advertising minutes will only
exacerbate the problem.
— This idea would therefore amount to top-slicing of
ITV in order to pay for regional news—this would be a perverse
proposal, which would undermine ITV's ability to sustain investment
in other key areas of public service content.
— The risk of top-slicing continues to exist even if
the additional minutage were sold outside the SAP mechanism—as
any additional "spot" minutage might well be sold to
existing ITV1 advertisers, who would divert advertising spend
from elsewhere in the ITV1 schedule.
— It is theoretically possible to target any additional
minutage to small local advertisers—but the revenue opportunities
afforded by such advertisers are minimal. Moreover, even some
of these businesses already buy airtime on ITV1; and those that
do not advertise on ITV1 will purchase advertising space
in the regional press—meaning that additional advertising
minutage would necessarily divert revenues from ITV and/or from
the regional press.
Therefore, additional advertising minutage would not be part
of the solution to the future funding of regional news. Indeed,
if ITV believed that hypothecated minutage or similar commercial
opportunities could improve our ability to sustain regional news,
we would have already argued that Ofcom and Government should
make such minutage available for ITV. However, we have not argued
for such minutage precisely for the reasons set out above.
Finally, however, although unlikely to be very substantial,
it is possible that a new news provider might be able to strike
some commercial agreements to generate some revenue, for instance:
— To provide footage to ITV Network eg for early round
FA cup coverage.
— To provide regional news material for GMTV.
— To allow the commercial exploitation of footage by
ITN other than for the C3 and C4 news contracts.
— To continue to provide office space for ITV's regional
sales teams (and potentially other programme makers in Wales).
3. Do you agree that the Television Licence Fee should
be used to support impartial news in the Nations, locally and
in the regions in addition to BBC services?
ITV does not have a view as to the most appropriate source
of public funding for a nations and regions news service—that
is a matter for policy makers and politicians to decide informed
by the views and interests of the public.
4. Do you agree that any funding within a contained contestable
element of the television licence fee not required for impartial
news should potentially be available to fund other forms of essential
public service content, or should such funding be limited to news?
Again, ITV does not have a view on this matter which is for
policy makers and politicians to decide informed by the views
and interests of the public.
5. Are there alternative funding mechanisms that you believe
would deliver the above objectives more effectively?
We have set out above the potential for meeting the costs
of a nations and regions news service from ITV's residual licence
value or from commercial revenue. Against that backdrop it is
for policy makers and politicians to decide what sort of nations
and regions news service is required (which clearly impacts on
cost) and therefore how such a service is most appropriately funded
bearing in mind the limitations of funding sources other than
those guaranteed from public resources.
6. Do you agree with the proposal to set a maximum percentage
of the Television Licence Fee revenue which could be set aside
as a contained contestable element?
7. Do you agree that amending the BBC Agreement could
provide the necessary protection to the BBC's future funding and
independence?
8. Do you agree that the use of any constrained contestable
element within the Television Licence Fee should be restricted
to the public purposes set out in the BBC Charter?
We believe that these are matters which are best decided
by policymakers and politicians informed by the views and interests
of the public.
November 2009
137
Digital Britain interim report, page 45. Back
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