BBC Annual Report 2008-09 - Culture, Media and Sport Committee Contents

2  BBC Annual Report and Accounts 2008-09

8. The BBC has a public service remit and also commercial interests in the UK and abroad. Our oral evidence session was wide-ranging, covering many aspects of the BBC's work, as well as the role of the BBC Trust as the body that oversees the BBC. We now consider a number of issues raised at our oral evidence session, and in written follow-up questions, in more detail.

The allocation of the licence fee

9. One important issue that we discussed with the BBC was the idea of allocating some of the television licence fee to organisations other than the BBC. This is often referred to as "top-slicing", and has been a matter of some concern to the organisation.

10. Following the publication of the Digital Britain: Final Report in June 2009,[9] the Department for Culture, Media and Sport (DCMS) published a consultation document seeking views on the proposal to provide public funding for regional news consortia through a contained, contestable element to be introduced in 2013 as part of the next licence fee settlement.[10]

11. In the BBC's Annual Report 2008-09, Mark Thompson, BBC Director General, stated that "unique receipt of the licence fee is critical to maintain the BBC's political and editorial independence."[11] In evidence to us Sir Michael Lyons, Chairman of the BBC Trust, described top-slicing as "a matter potentially of constitutional significance to the BBC"[12] and said he believed "top-slicing was not in the interests of licence fee payers."[13]

12. We asked Sir Michael whether he accepted that the setting of the licence fee and the use to which it is put was a matter for Parliament and not the BBC. He replied: "Absolutely."[14] However, he added the following caveat:

    "It is a matter of some public moment, I think, if, after 50 years of the licence fee having been collected solely on the premise that it is to fund the BBC and nothing else, that any change in that is a matter that the public need to be very clear about the pros and cons of and the risks that might flow from it."[15]

13. Sir Michael went on to say that "the terms explicitly used in the Charter are that the Trust should be the guardians of the licence fee."[16] We put it to Sir Michael that this was not strictly accurate,[17] as the Charter in fact states: "The Trust is the guardian of the licence fee revenue and the public interest in the BBC".[18] It does not say that the Trust is the guardian of the licence fee in totality. Sir Michael Lyons implied to us that this was merely a matter of interpretation:

    "I can see how you interpret it that way, Chairman. For 50 years the licence fee and the BBC have been indivisible and I can only say that it seems to me that was drafted in the context of 50 years of history of the licence fee being used entirely for the BBC, but I take your point."[19]

14. We also discussed with Sir Michael the fact that the BBC licence fee is already used for other purposes. For instance, money from the licence fee is supporting the digital switchover help scheme. The BBC also uses licence fee money, for instance, to support S4C.[20]

15. Shortly after our oral evidence session, the Financial Times published an article stating that there was archival evidence that the BBC had shared the licence fee in the past.[21] The article revealed that from the inception of the licence fee in 1928 until 1962 up to 12.5 % of the licence fee went straight to the Treasury as part of its general revenue. It also quoted Richard Collins, Professor of Media Studies at the Open University, who said that, in addition to the Treasury's share of the fee, 8 or 9% was kept by the Post Office and that this was "almost certainly more than it actually cost the Post Office and represented a concealed subsidy to a government department".[22] Professor Collins went on to suggest that the BBC was also ordered to pay additional amounts to the Independent Television Authority (which regulated ITV), although it appears that no such sums were ever paid.

16. The fact that the BBC did not historically receive all of the licence fee was also discussed by our predecessor Committee. In its Report A public BBC, the Committee noted that in 1928 the BBC effectively received just 71.5% of the licence fee, as the Post Office took 12.5% to cover administration, and the Treasury took 10% of the first million licences, 20% of the second million and 30% from the third million in excise duty.[23]

17. The Government's position is clear. Its consultation document on the proposal to provide public funding for regional news consortia through a contained, contestable element to be introduced to the next licence fee settlement in 2013, states:

    "The Television Licence Fee is not the "BBC" licence fee. In principle the BBC has no exclusive right to the Television Licence Fee. This is a matter of historical practice. This device levy is paid into the Consolidated Fund like any other tax, for the government of the day to determine how it should be used."[24]

18. Sir Michael sought to assure us that he understood the role of Parliament in decisions on licence fee allocation, but that he wanted to ensure that the Trust had a voice before changes were made:

    "We have established unequivocally that Parliament has the power to decide and if it did decide I should not seek in any way to do anything other than follow what Parliament has decided, but we are in a period of debate in which the Trust should be allowed to voice its concerns."[25]

19. We agree with the Government that the licence fee is not as of right the "BBC" licence fee. However, it is important that there is clarity about the pros and cons of licence fee being used exclusively for the BBC or shared with others, and the BBC Trust should be able to voice its views on the licence fee's allocation.

Audience reach

20. During the 2007-08 BBC Annual Report session, we asked if the BBC set a reach target for each of its television channels. Mark Thompson told us: "we do and we can lay them out for you. I think we have met or exceeded our reach targets […] for pretty much every channel."[26] However, when we asked in a written follow-up question what the individual channel targets were, the BBC Executive did not provide the target for any individual BBC television service. Instead it referred to an overall target by the Trust for all BBC services to reach 90% of the population's target and for the BBC Executive to "maintain the maximum reach consistent with its purposes and values."[27]

21. This meant that it was impossible for us to verify the BBC's claims that reach targets do exist for each of its television services, or that these targets were "met or exceeded" in 2007-08. We commented in our Report of that session: "it is a significant failing of the BBC Executive to have sidestepped the question of reach targets, and for the Trust not to have commented on, let alone rectified, this deficiency."[28]

22. We returned to the issue of reach in follow-up questions to the 2008-09 Annual Report session, asking what reach targets had been set for each individual channel in 2008-09, and for the current year (2009-10). The Trust told us that it did not set reach targets for individual channels, but that targets were set by the BBC Executive for internal use:

    "In line with our role setting the strategic direction for the BBC, the BBC Trust has set an overall target for all BBC services to reach 90% of the population. The Trust does not itself set reach targets for individual services, as we believe the BBC Executive are best placed to judge how to achieve the overall reach target across the portfolio of BBC services. The BBC Executive does however produce some reach targets for its own internal use. Copies of these for 2008-09 are included elsewhere in this submission and the Executive would be able to supply earlier sets of data if required.

    Whilst it is a matter for BBC management to ensure that the overall target is met, and to establish the relative contribution each service should make, the Trust maintains an ongoing interest in the performance of all BBC services (including reach) and their contribution towards the delivery of the BBC's public purposes.

    As well as commissioning our own research on the delivery of the BBC's public purposes, the Trust also carries out regular in-depth service reviews and other work including a quarterly performance dashboard in order to measure the performance of individual services, and track trends in usage."[29]

23. The Trust's assurances have not dispelled our concerns over the audience reach of the BBC's television channels. The figures provided indicate that in 2008/09 there was a decrease in reach from the prior year for each of BBC One (-0.6%), BBC Two (-0.2%), CBBC (-2.2% amongst its target audience), CBeebies (-1.5% amongst its target audience)and BBC Red Button (-1.3%) services.[30] Indeed, this detailed channel by channel information suggests that the first three of those channels may be failing to fulfil the reach aims contained in their Service Licences.

24. We are disappointed that the BBC Trust and the BBC Executive took so long to provide to us information on reach targets. We are further concerned that BBC services may be failing to fulfil the reach aims in some of their Service Licences, something that does not appear to have been addressed by either the Trust or the Executive in the Annual Report or in its oral or follow-up evidence to us.

25. During our evidence session on the 2008-09 Annual Report we discussed other aspects and implications of reach. We noted that the BBC's overall weekly reach figure of 93% in 2008/09 indicated that 7% did not use any BBC service on that basis. With regard to television alone, the BBC's weekly reach figure (84.6%) showed that 15% did not watch any BBC television service on that measurement basis.[31] Sir Michael Lyons told us:

    "Can we get our definitions absolutely right because, again, I think this is important? The reach figures that we use are 15 minutes' usage in a week, so it would not be right to say that we know that the 7%, in the case of all BBC services, never use BBC services, and that would be a dangerous thing to suggest, but what we do know is that they did not use it for 15 minutes or more in that week period looked at.[32]

26. Sir Michael's definition could be taken to represent any aggregate of 15 minutes viewing or listening to a BBC television or radio service in a week; in fact, there must be at least 15 or more consecutive minutes of viewing or listening to be counted. In the case of most BBC television programmes, therefore, which are typically scheduled for 30 or 60 minutes, the 15-minute reach figure does not even indicate whether an entire programme has been watched.

27. The 2008-09 Annual Report figures indicate that 7% of the public did not use any individual BBC service for more than 15 consecutive minutes weekly on average in 2008/09. On the same measurement basis, more than a fifth of the population did not watch BBC1 (76.7% reach, down from 78.2% last year), a channel for which the Executive stated last year "almost everyone in the UK has a direct relationship with" and offered "something for everyone";[33] more than 40% of the population did not watch BBC Two (57.4% reach v 57.6% last year); and more than 80% of the population did not watch BBC Three (18.7% reach, up from 17.3% last year). In the case of BBC Three, some three-quarters of its own target audience did not watch the channel on the reach measure.

28. Sir Michael told us that the BBC sought to get the fullest possible understanding of the use of its services and the value the public places upon them, and that:

    "Reach is a good figure to use as part of this equation; it is not the whole story but it is a good figure to use because of the Trust's absolutely unequivocal view that if you raise a universal charge in the form of a licence fee then it is a direct obligation for the BBC to show that it demonstrates value to all fee payers, and so it is the right indicator in that respect."[34]

29. Mark Thompson also told us:

    [the BBC has] Developed a new way of looking at media usage across the platform - television, radio, the web and mobile, and although we have kept to the same methodologies in the annual report, we think the 93% reach figure understates usage of the BBC. We think the truer figure is about 98% of the population.[35]

30. While 15-minute reach may be a good measure for advertising-funded services (where viewing of commercials, which will normally be placed within a 15-minute period, is an aim of those funding the content), it may not be appropriate as a key indicator for a public service channel with no adverts. Here, alternative or additional metrics, such as 30-minute or 60-minute weekly reach figures, might provide a more meaningful measure of the consumption of public service content. The BBC has provided us with information on 30-minute and 60-minute reach on a confidential basis only; it does not make such figures publicly available.

31. Overall, we are concerned at the interpretation presented by the BBC of its figures on reach, particularly taking into account other reach figures, such as 30-minute and 60-minute reach, which we believe are likely to provide a better measure of viewership of entire BBC television programmes. The Trust has a strategic objective that the BBC should "maintain the maximum reach consistent with its purposes and values". We agree that it should not simply maximise reach "as this could create a perverse incentive that might work against the high-quality output audiences expect from the BBC."[36]

32. However, as long as there is a compulsory licence fee from which the BBC benefits, the BBC should be providing value to all payers, and that should include their consumption of content consistent with public service purposes and values. From some of the figures it is not clear that this is currently the case; nor is it clear from the BBC's transparency failings whether every service is making a sufficient contribution towards the delivery of the BBC's public purposes. It is difficult, for instance, to reconcile the reach figures for BBC Three with success when the overwhelming majority of its own target audience, or of licence fee payers generally, do not watch it even for 15 consecutive minutes a week.

33. We agree with Sir Michael Lyons that there is a direct obligation for the BBC to show that it demonstrates value to all licence fee payers and that measuring audience reach is a useful component of that. However, the proportion of those who do not use any BBC television or radio service for at least 15 minutes per week, and the figures for some services which are used only by a minority of their own target audiences, indicates to us that this value is not being delivered to enough people.

34. The BBC should be more transparent in setting out its reach targets, including the figures for minimum level of reach considered necessary to serve its target audiences. It should also consider publishing additional measures of reach likely to provide a better indicator of the proportion of the public watching entire BBC television programmes, and the time licence fee payers spend on individual services each week, rather than just 15-minute reach figures.

Audience share

35. References to share (the proportion of an individual's total viewing or listening time spent on a particular service) are absent from the 2008-09 Annual Report. This is in contrast to previous Annual Reports. The 2006-07 BBC Annual Report contained a detailed table providing figures on the percentage of viewing or listening in an average week - not only for each BBC television and radio service, but also comparison figures for other broadcasters - alongside comparative figures for the previous year. A year later, in the Annual Report 2007-08, two brief share tables were presented for the BBC's television and audio/radio services, and no competitor figures. The 2008-09 Annual Report did not appear to contain any share information on individual BBC services (or competitors) whatsoever.

36. We raised this with Mark Thompson. He told us:

    "The story of share is one of a fairly high level of stability, with small declines in television in BBC1 and 2, increases in share for our digital television channels, a slight increase in share of BBC radio, a significant increase in usage of weekly users up by a third year on year and a doubling of the number of people who use the BBC iPlayer over the year."[37]

37. We subsequently asked the BBC to provide the audience share of each of its television and radio channels in 2008-09. This and comparative figures for the previous two years, along with figures for its competitors, are included in their response to one of our follow-up questions.[38] The figures show that the BBC's average weekly share of the UK television audience declined from 34.3% to 33.4% between 2006-07 and 2008-09, a fairly small decline, while its total radio share increased slightly from 54.9% to 55.5% in the same period.[39]

38. The figures that the BBC provided for its competitors, however, do not add up. Under the heading "Other Television", the figures for the channel portfolios of ITV (23.2%), Channel 4 (11.8%), Five (6.0%), and Sky (6.2%) should total 47.2%; however, the summary figure of "Total other channels" in fact reads 39.3%.[40] Were the figure for "Total other channels" (39.3%) intended to refer to additional channels, other than those provided by the BBC, ITV, Channel 4, Five or Sky (i.e. other multichannel TV services) , the figures still do not add up. The sum total of the BBC, ITV, Channel 4, Five, Sky and "Total other channels" as a separate and additional category of broadcasters would add up to a market total of 120%.

39. While the share figures provided by the BBC for the period 2006-07 to 2008-09 show a fairly small decline for the BBC's television portfolio, we note that figures contained in the 2008 Channel 4 Annual Report indicated a more significant decline over a longer period. The last page of the Channel 4 Annual Report shows audience share figures for its own, and the BBC's, core and portfolio services. This indicates that the BBC's television channels had a total 33.5% share in calendar year 2008 - one-third of all UK television viewing - while the share of the BBC's portfolio was closer to 40% only five years earlier (1983 share: 38.3%). The BBC therefore appears to have had a loss of 5% of all television viewing between 2003 and 2008 (and a loss of nearly 13% of its own previous portfolio share), despite the addition and growth of new BBC digital channels.

40. The BBC's figures seem to us to have been presented in a somewhat cavalier manner. Mark Thompson's description to us of "the story of share" as "one of a fairly high level of stability" does not seem an accurate assessment for television, when considered on a five-year rather than two-year basis.

Quality and distinctiveness of the BBC's output

41. A key strategic objective of the BBC is that it "should increase the distinctiveness and quality of its output."[41] Mark Thompson told us:

    "Those who give the BBC the highest score for quality, eight, nine or ten out of ten, that number has gone up over the year. For those who give us high scores for producing and delivering original and different programming, distinctive programming, it has also gone up significantly over the year. Those who score us most lowly for quality, a score of four out of ten or below, which was 13% last year, have gone down. The quality measures are definitely heading in the right direction."[42]

42. We pointed out that the movement was small, to which Mr Thompson replied that "these may seem fairly subtle but we are talking about movement over a vast number of people, over 26 million households in this country. Believe me, statistically these are significant shifts."[43]

43. Mark Thompson's claims of a "significant" shift in the figures contrasts with the Trust's presentation in the Annual Report of a "slight improvement across all metrics" and "headline measures" that "show a small positive trend."[44] While the proportion who agreed strongly that BBC Television is 'original and different' rose from 32% to 36%, the other figures given suggest that the "positive trend" is indeed small: the average score out of 10 for 'High Quality' rose from 6.3 to 6.4; the proportion who agree strongly the BBC is High Quality has risen from 32% to 34%; the proportion of those who agree that the BBC is High Quality has remained stable at 66%; the "average appreciation index (AI) score" for BBC Television rose to 79 to 80; and the average AI score for BBC Radio rose to 78 to 79 in the year.[45]

44. Nor is it clear, without further information on the research methodology, whether this reflects movement over the "vast number of people, over 26 million households" suggested. In the case of the average appreciation index (AI) scores, for instance, the relevant footnote states that the survey gives the weighted average for programmes across all hours "with minimum 50+ respondents per programme". A further footnote, relating to AI scores and to the figure for the proportion "who agree strongly that BBC Television is 'original and different'" - the figure that Mark Thompson stressed had "gone up significantly" - states that "Changes to the BBC Pulse panel may have had some impact on trends from 2007/08 to 2008/09."

45. We fully support the BBC's objective to increase the distinctiveness and quality of its output. However we are not convinced that the claim of statistically significant positive shifts in perceptions of the distinctiveness and quality of BBC output is supported by the information contained in the BBC's Annual Report. We agree with the Trust's assessment that there has been a slight improvement, although we note that changes in the measurement system may be responsible for some of this shift. Appropriate and reliable measurement is essential and we look forward to seeing continual improvement of this year-on-year.

Spending in nations and regions

46. Licence fee spending in the nations and regions increased significantly in 2007-08 but decreased by £40m in 2008-09.[46] In evidence to us Sir Michael Lyons said that the BBC Trust had set "some new and very demanding targets to be achieved by 2016,"[47] in terms of 50% of the BBC's network output to be produced out of London with new targets set for the amount to be achieved in Scotland, Wales and Northern Ireland. He told us:

    "What we see here is the progress already made in changes, although inevitably as you start to move things around you get some perverse results if at the same time you are looking for efficiency savings. In terms of where we are going to, I am very clear on the targets that have been set and they are demanding."[48]

47. Mark Thompson told us that "the efficiency programme in the BBC is reducing some of the absolute numbers being spent on services".[49] He explained that he believed that quality had been maintained: "As we divert money for example to pay for the analogue to digital television switchover, we are still delivering high quality but we are squeezing the money. Some of the absolute numbers have gone down across the board."[50]

48. The Director General also noted that, "although the total cake has been getting a bit smaller because of this efficiency programme, the share of the cake that has been spent outside London has been growing."[51] This is supported by written evidence which we have received. For example, the total spend in television in the nations and regions which was 32.6% in 2007-08 in 2008-09 had risen to 34.9%, and the proportion of spend on network production in Scotland, Wales and Northern Ireland had gone up from 6.4% to 7.9%.[52] The share of network commissioning from Scotland, Wales and Northern Ireland has also been growing. By 2016, the BBC expects that more than 50% of all its spend will be outside London and more than half of all the BBC staff will be based in the nations and regions of the UK.[53]

49. We commend the BBC on its increased targets for the proportion of network output to be produced in Scotland, Wales and Northern Ireland, and note that the proportion of spend in television in the nations and regions has generally been rising. However, the fact remains that the BBC is spending less now than before. After rising by £100m to £984m in 2007/08, licence fee spend in the nations and regions decreased by £40m to £948m in 2008/09.[54]

Acquired and imported programming

50. Spending on acquired and imported programming has increased from £88m in 2006/07 and £90m in 2007/08 to £101m in 2008/09. This is despite previous BBC statements of intent to reduce the amount of money and airtime it devotes to such programmes.

51. Mark Thompson suggested to us that the £11m (12%) year-on-year increase represented a "slight increase" and attributed this to "a slightly more expensive year in Christmas films [...] and slightly more in the current year on acquired programmes."[55] He told us that in 2009-10 "that number will go back to around 90 million". His view was that "the direction of travel for acquisition is likely to continue to be downward over time."[56] The Director General said that overall, the entire category of acquired programming "now represents really quite a small proportion of total spend" and "well under 10% of our spend in the creative economy."[57]

52. We noted in our recent Report on Channel 4[58] that, in May 2009, the then Chief Executive of Channel 4, Andy Duncan, told us that the BBC outbid it for the series Harper's Island, a horror thriller series first broadcast on CBS America, in which one or more characters was killed in each episode.[59] Mark Thompson disputed the outbidding claim, stating that "Channel 4 ultimately decided for editorial grounds that they did not want to pursue this particular programme and withdrew for editorial rather than economic grounds."[60] He also suggested that competition law was a factor in its acquisitions decisions:

    "What we cannot do, as some publishers and broadcasters have sometimes suggested, is collude with them or agree with them to withdraw from markets. Quite rightly, we are not allowed by law to interfere with the proper workings of markets for rights, including acquired rights."[61]

53. The Director General further stated that there was not a single American-acquired programme in peak hours on BBC1 and that elsewhere "we believe they can add to the richness and flavour of the network,"[62] citing Mad Men (as a programme which no other British broadcaster was interested in) and The Wire (for showing to a broader audience - it had been on commercial multichannel TV). He said that:

    "Occasionally we will find ourselves wanting a programme which other broadcasters want as well. I have to say the rights' holders understandably would expect a reasonable and lawful market to take place in that case. Although I think you would have every right to be concerned if this was a very large amount of the licence fee and you could see it going up steadily, year on year, any long-term view will show that this is an area where the BBC has been withdrawing rather than increasing its spend. Our concentration has been as far as possible to invest the licence fee in original UK production…The main use for the licence fee is to make programmes here with British talent and then, as far as we can, get them to audiences around the rest of the world."[63]

54. We were not convinced by the BBC's arguments on acquired programming. While there may be cases where the justification for acquiring high-quality programmes or series from overseas is strong, justification on bona fide public service content grounds is likely to prove relatively rare. Over the last three years the BBC has spent £279m on acquired programmes. Taking into account the Mark Thompson's estimate of £90m for the current year this will have risen to a total expenditure of nearly £370m for the period 2006-07 to 2009-10. We therefore welcome the commitment by the BBC, contained in its Strategy Review, that it will reduce spending on programming from abroad by 20%, to £80m by 2013, and thereafter cap spend to 2.5p in every licence fee pound.[64]

BBC Three and younger audiences

55. During our session on the 2007-08 Annual Report the BBC told us that it would review BBC Three in-depth as part of its review of services and content for younger audiences.[65] This report was published in June 2009. Among other things, the review concluded that "BBC Three's effectiveness in reaching young people makes it an important part of the BBC television portfolio."[66]

56. Sir Michael Lyons has praised progress with BBC3. He told us:

    I think it is very important that the Trust flags when it feels progress has been made. One of the reasons why we are confident progress has been made is we have just completed our review of services for young people which showed a very strong audience support for BBC3 and progress against our key issue of more distinctive television.[67]

57. In its service review the Trust states that "BBC's value for money appears to be improving, although we are unable to make a definite assessment because usage and cost allocations are becoming more complex." Mark Thompson told us that BBC Three's budget (£115m in 2008-09) was actually slightly declining in relation to the others with, for example, a slight movement of resource away to BBC Four.[68] He also told us that the cost per viewer hour of BBC Three is coming down as the channel becomes more popular.[69] According to the Annual Report, "Cost per viewer hour for the year was 10.6p (down from 12.9p in 2007-08)".[70] The Director General confirmed, however, that this figure ascribes no cost to BBC Three for the programmes transferred from BBC One and BBC Two, which account for a substantial proportion of BBC Three viewing.

58. Thus, it appears that BBC Three has been receiving a "free ride" to date with no costs allocated to the channel for some of the most expensive and popular BBC One and Two content (such as Eastenders and Doctor Who) which it broadcasts. Although Mark Thompson noted that this "cuts both ways", so that when BBC Three programmes such as Little Britain move to BBC Two or BBC One, the current accounting approach ascribes the full cost to the "originating" network, BBC Three has been significantly more reliant on repeats from other BBC channels for its audience figures than the other way around.[71]

59. Moreover, the BBC includes the hours viewed of the repeated BBC One and BBC Two programming in BBC Three's cost per user hour figure. Given that the cost to BBC Three of this content is nil but the viewing hours significant, this substantially lowers the cost per user hour for the channel.

60. We therefore asked the BBC to provide the cost per user hour for BBC Three excluding both the hours viewed of acquired imported programming and transfers from BBC One and BBC Two, in order to have a measure of the cost per user hour of BBC Three's UK originated output. Adjusted to remove the costs and viewer hours of acquisitions and transfers from other channels, the per user hour was 19.1p, nearly double the 10.6p figure stated in the Annual Report. This was reduced to 17.0p after taking into account the costs and user hours of BBC Three programmes transferred to other channels (e.g. BBC Three programmes repeated on BBC One and BBC Two), but still reflected a significant increase (+60%) on the cost per user measure used in the Annual Report. Whether the Trust considers that BBC Three offers value for money on this basis remains to be seen.

61. At the Annual Report session Mark Thompson also told us that "if you look at young people's viewing of television, actually the presumption […] that young people are 'turning away' from television is not really based on the data. The fact of the matter is, despite video games and everything else, overall television viewing is increasing."[72] He then noted, in apparent contradiction: "Although it is not true that young people's viewing of TV is increasing, it is not declining as quickly as many people would argue".[73]

62. The data supplied by the BBC in response to our follow-up questions confirms there is some 'turning away' from television by younger audiences, at least in respect of the BBC's own services. This indicates that, despite increased reach among 16 to 34 year olds by the BBC Three and BBC Four, reach of BBC television overall among that audience has fell by over 7% between 2003 and 2008, from 82.6% to 75.4%.[74] The data provided by the BBC also shows the amount of BBC television viewing by teenagers has fallen from 39 minutes a day in 2003 to 24 minutes a day in 2008, a decline of nearly 40%.[75]

63. We consider that some of the claims regarding BBC Three made by the BBC Trust and Executive are not fully supported by the evidence. The BBC has been more ready to highlight favourable over unfavourable information and its implications. In particular, we note that the Trust's claim of "BBC Three's effectiveness in reaching young people" is not supported by its audience reach. We are also surprised that the test of the value of BBC 6 Music and the Asian Network in the latest strategy review appears not to have been applied to BBC Three.

Project Kangaroo

64. In our Report on the 2007-08 BBC Annual Report we discussed concerns regarding the BBC Trust's oversight of Project Kangaroo, its now-defunct proposed joint venture video-on-demand (VOD) service with ITV and Channel 4. We concluded:

    "We find it difficult to reconcile the BBC Trust's claim to have given only limited authorisation for the Executive to "talk to other players in the industry" with information on the subsequent development of Kangaroo and statements in the provisional findings of the Competition Commission. It is apparent that the Trust reviewed proposals for the joint venture at a number of stages, including a detailed review on 19 June 2008, in advance of our oral evidence session. The statements by the BBC Trust Chairman to the Committee therefore appear, at best, incomplete and, as a result, potentially misleading."[76]

65. As discussed earlier (paragraph 5), on publication of our Report the Trust immediately issued a rebuttal of our conclusions. The Trust stated that it did:

    "not accept the committee's findings on the Trust's consideration of Project Kangaroo. [...]As would be expected for a project of this nature, the BBC Executive updated the Trust on progress (in June and October 2008). At these meetings, the Trust made clear to the BBC Executive that this proposition would still need to go through the Trust's formal regulatory processes."[77]

66. We returned to the issue of Project Kangaroo during the 2008-09 Annual Report session. In the 2008-09 Annual Report the BBC disclosed a substantial write-off, of £9.1m, on Project Kangaroo.[78] Amongst other things, costs for the project included the appointment by the joint venture partners (announced by BBC Worldwide and reported to the Trust) of the BBC's Director of Future Media and Technology, Ashley Highfield, as CEO of the venture,[79] and a reported staff of 50 at its own London offices.[80]

67. We questioned whether, in light of the limited level of authorisation which the Trust claimed it had given to the BBC Executive, a spend of £9.1m was appropriate. Mark Thompson told us that there had been no direct use of the licence fee to fund Project Kangaroo, and that:

    "expenditure took place within the controls of appropriate financial and other conditions which are set up for our commercial subsidiary where there is an understanding that sometimes [BBC] Worldwide will take commercial risks to build its business."[81]

68. He argued that it was necessary "to get the proposal to a level of precision so that the competition authorities should consider it properly"[82] and that "Project Kangaroo became Project Roadkill before the Trust managed to consider it fully".[83] He added the risks involved in the project were, in his view, commensurate to the potential gain: "it is not inappropriate that an amount of money should be spent on a new project which, had it been successful, could have potentially delivered very large revenues and a very high return back to the licence fee payer."[84]

69. Instead of bringing a profit to the licence fee payer, Project Kangaroo has resulted in considerable cost. We note the potential return which Project Kangaroo, if it had been approved by the Competition Commission, might have offered. We also note the BBC Trust's suggestion to us in follow-up written evidence that the cost of the project will be mitigated to some extent by the subsequent sale of its technology assets, and that the additional write-off does not mean that no value can be secured by BBC Worldwide from these investments.[85]

70. Nevertheless the level of expenditure on a project for which there would clearly be regulatory hurdles seems to us excessive. We are alarmed by the Trust's statement that it "did not set any specific limits on development costs"[86] for Project Kangaroo, and that the Trust did not intervene to halt such excessive spend and development despite, by its own account, being involved in and updated on the project at regular intervals.

BBC staff and talent costs

71. For some time this Committee has led calls for significantly greater transparency of BBC employee and talent costs, an aim to which the BBC has at times appeared resistant. For instance, during our oral evidence session on the 2006-07 BBC Annual Report, Mark Thompson told us that it was necessary to preserve confidentiality regarding individuals' salaries (including presenters) at the BBC, other than normal disclosure of senior executive employees such as those on the Executive Board.[87]

72. We subsequently asked if the Trust would be prepared to publish figures that were not attributed to named individuals, in the form of tables disclosing the number of employees per salary bracket - for example, the number of employees earning £1m-£5m, £750k-£1m, £500k-£750k, £250k-£500 - and to do so on a separate basis for programme talent and other employees, and in a way which makes payments via third party companies transparent. In its response, the Trust told us that it accepted the BBC Executive's position that:

    "disclosing talent costs, even if grouped in bands, is likely to cause commercial prejudice to the BBC. It could provide the BBC's competitors with valuable pricing information, inflate costs, and deter individuals from working with the BBC as against other broadcasters. Disclosure may also expose the BBC to actions for breach of confidence. The Trust is also mindful of legal advice regarding protecting personal data and is therefore not seeking a change in the BBC's publication policy at this time. The Trust will be publishing the findings of its value for money review in spring 2008 and will take a view then as to what ongoing reporting may be appropriate."[88]

73. Regarding other employee costs, the Trust asked the Executive to give consideration to publishing additional information about employee remuneration, including by salary bracket, to improve transparency to licence fee payers. However, in our Report on the BBC Annual Report 2006-07, we concluded that it was not clear why the Trust took different views on transparency of employee costs and on transparency of talent costs, and why grouping of payments in bands for one but not the other presents data protection or breach of confidence issues.

74. Prompted by the Committee's request, BBC introduced a table in the 2007-08 Annual Report listing senior BBC managers' headcount by salary band. We welcomed this move to increase transparency but stated that "the same requirement should be applied to BBC 'talent', whether they are employed or under contract". We further welcomed the undertaking by the Chairman of the Trust to give this further consideration, although his position at the oral evidence session was that the publication of top talent salaries in detail "will almost certainly lead to worse value"[89] for the BBC. He said that he did not wish his agreeing to consider our request to be "leaving any suggestion that I think it might be in the licence fee payer's interest for us to move in that direction."[90]

75. At the 2008-09 Annual Report session, Sir Michael Lyons told us that the BBC had "gone further this year and that is reflected in the decisions to be completely transparent",[91] referring to Mark Thompson's "commitment to publishing details of all top salaries and all the expenses associated with them".[92] We note that in November 2009 the BBC subsequently began to publish details on a quarterly basis regarding the precise salaries and business-related expenses of 107 senior decision-makers in the Corporation. This was billed as "a direct response to the public who have indicated that they would like more information about how the BBC is run in a way which marks a step change in openness, simplicity and accountability."[93]

76. In February 2010 the BBC disclosed the total amount it paid to "artists, presenters, musicians and other contributors across its services for the year ended 31 March 2009" (£229m), and a breakdown of the total amount paid in four bands: "To £50,000" (£115m); "£50,000 to £100,000" (£44m); "£100,000 to £150,000" (£16m); and "£150,000 plus" (£54m). It further stated that the total amount would be published each year in the Annual Report. However, the BBC statement did not disclose the numbers of individuals in each band.[94]

77. We welcome the BBC's move towards greater transparency regarding its staff and talent costs, including the disclosure of senior BBC managers' headcount and payments to talent in bands. However, the BBC's commitment to this level of transparency is long overdue. This Committee has been one of a number of voices pushing for some time for greater openness. We believe that the information released by the BBC should be expanded, at minimum, to include a breakdown of headcount by salary band not just for senior managers but all BBC employees, and the number of individuals in each payment band for talent. We further recommend that additional payment bands for talent should be introduced, disclosing the number of individuals and total payments for those earning £250,000 to £500,000; £500,000 to £750,000; £750,000 to £1m; £1m to £5m; and £5m plus. We do not expect to see any entries in the £5m plus category.

78. During the 2008-09 Annual Report session Sir Michael Lyons told us that

    "even after reductions in bonuses and incentive payment [...] the payment for the Director General does not look out of line with the sorts of areas that we would have to look to if we were to recruit a new Director General [...] if you just look at what is being paid by other public service broadcasters, although it is not always easy to be sure of the comparable package and it is not always as transparent as we might want, they are paying higher reward packages than the BBC pays."[95]

79. We do not agree. Qualified applicants might be willing to undertake the job for substantially less than the current incumbent in light of the prestige, public service ethos and potential benefits in post-BBC employment. As Mark Thompson told us,

    "People come to the BBC accepting they will get paid less to move to the BBC [...]. People come from the private sector expecting that they will have to take a pay cut to come to the BBC. When they leave and go back to the private sector they typically are going for more pay. That is the pattern, of a reduction of pay when you come to the BBC and then an increase when you go out of the BBC again."[96]

80. Nor is it clear, as Sir Michael Lyons has claimed, that other public service broadcasters are paying higher reward packages than the BBC.[97] The only appropriate comparator for a publicly owned public service broadcaster is that of Channel 4. The 2008 Channel 4 Annual Report indicated that Andy Duncan's total earnings in the year were £683,000, down from £1.2m in 2007.[98] We also note the recent statement of the former BBC Director General Greg Dyke that the BBC "doesn't have to pay its director general £800,000"[99] and that the current Director General "earns more than twice what I earned when I was doing it".[100]

81. In October 2009, the BBC announced plans to cut the amount it spent on senior managers by 25% and to seek to reduce the total number of its senior managers by 18% by 31 July 2013.[101] It further announced that senior management salaries would be frozen until at least August 2011, and the salaries of Executive Directors, members of the BBC Direction Group and the Director General would be frozen for a further three years on top of that.[102] The Trust also undertook that the BBC's remuneration policy would set out "a clear and explicit discount against the private sector when setting senior manager pay."[103]

82. The reward packages of the Director General and senior management of the BBC are seen to be out of step with the current economic climate and the need for public sector pay restraint. The BBC must look to cutting its costs, and leadership on this should come from the top of the organisation. We therefore welcome the BBC's commitment to making a 25% cut in the BBC senior management pay bill by 31 July 2013. However we recommend that the BBC's remuneration policy should include benchmarks not only with the private sector but also with senior management pay scales in the public sector.

9   Department for Culture, Media and Sport and Department for Business, Innovation and Skills, Digital Britain: Final Report, Cm 7650, June 2009 Back

10   Department for Culture, Media and Sport, Sustainable independent and impartial news; in the Nations, locally and in the regions, June 2009 Back

11   BBC Annual Report and Accounts 2008-09: Part Two, The BBC Executive's review and assessment, p11 Back

12   Q 3 Back

13   Q 4 Back

14   Ibid. Back

15   Q 4 Back

16   Ibid. Back

17   Q 5 Back

18   Department for Culture, Media and Sport, Broadcasting - Copy of Royal Charter for the continuance of the British Broadcasting Company, October 2006 Back

19   Q 5 Back

20   Q 6 Back

21   "Archives reveal BBC shared its fee", Financial Times, 18 July 2009 Back

22   "Archives reveal BBC shared its fee", Financial Times, 18 July 2009 Back

23   Culture, Media and Sport Committee, First Report of Session 2004-05, A public BBC, HC 82, para 122 Back

24   Department for Culture, Media and Sport, Sustainable independent and impartial news; in the Nations, locally and in the regions, June 2009, para 18 Back

25   Q 6 Back

26   Culture, Media and Sport Committee, Fourth report of session 2008-09, BBC Annual Report and Accounts 2007-08 HC 190, Q 5 Back

27   Culture, Media and Sport Committee, Fourth Report of session 2008-09, BBC Annual Report and Accounts 2007-08 HC 190, Ev 25 Back

28   Ibid., para 13 Back

29   Ev 26 Back

30   Ev 31 Back

31   Q 20 Back

32   Ibid. Back

33   BBC Annual Report and Accounts 2007/08: Part Two, The BBC Executive's review and assessment, p33 Back

34   Q 21 Back

35   Q 21 Back

36   BBC Annual Report and Accounts 2007/08: Part One, The BBC Trust's review and assessment, p9 Back

37   Q 24 Back

38   Ev 29 Back

39   Ibid. Back

40   Ibid. Back

41   BBC Annual Report 2008/09: Part One, The BBC Trust's review and assessment, p 6 Back

42   Q 21 Back

43   Q 22 Back

44   BBC Annual Report 2008/09: Part One, p 6 Back

45   Ibid. Back

46   Q 25 Back

47   Ibid. Back

48   Ibid., [Lyons] Back

49   Ibid., [Thompson] Back

50   Ibid. Back

51   Q 25 Back

52   Ibid. Back

53   Q 25 Back

54   BBC Annual Report 2008/09: Part One, p 9. Back

55   Q 54 Back

56   Ibid. Back

57   Ibid. Back

58   Culture, Media and Sport Committee, Third Report of Session 2009-10, Channel 4 Annual Report, HC 415 Back

59   Ibid., para 59 Back

60   Q 55 Back

61   Q 55 Back

62   Ibid. Back

63   Ibid. Back

64   BBC Trust, BBC Strategy Review, p56 Back

65   Q 70 Back

66   BBC Trust, Service Review Younger Audiences: BBC Three, Radio 1 and 1Extra, June 2009, p3 Back

67   Q 60 Back

68   Ibid. Back

69   Q 63 Back

70   BBC Annual Report 2008/09: Part Two, p 35 Back

71   Q 61 Back

72   Q 67 Back

73   Ibid. Back

74   Ev 34 Back

75   Ibid. Back

76   Culture, Media and Sport Committee, BBC Annual Report and Accounts 2007-08, para 18 Back

77   "Statement from the BBC Trust in response to the Culture, Media and Sport Select Committee's report into the BBC's Annual Report 2007-8", BBC Trust press release, 28 January 2009 Back

78   BBC Annual Report 2008/09: Part One, p 9; BBC, Full Financial and Governance Statements 2008/09, p F31 Back

79   "Ashley Highfield appointed as CEO of Kangaroo", BBC Worldwide press release, 14 April 2008; Minutes of BBC Trust meeting 17 April 2008 Back

80   "Project Kangaroo: 50 jobs to go as broadcasters rule out appeal", Guardian Online, 4 February 2009,  Back

81   Q 121 Back

82   Ibid. Back

83   Ibid. Back

84   Ibid. Back

85   Ev 34 Back

86   Ev 27 Back

87   Culture, Media and Sport Committee, Fourth Report of Session 2007-08, BBC Annual Report and Accounts 2006-07, HC 235, Q 21 Back

88   Ibid, Ev 20 Back

89   Culture, Media and Sport Committee, Fourth Report of Session 2007-08, BBC Annual Report and Accounts 2006-07, HC 235, Q 64 Back

90   Ibid, Q 65 Back

91   Q 42 Back

92   Ibid. Back

93   "BBC disclosure: April to June 2009", BBC press release, 12 November 2009  Back

94   "BBC disclosure: July to September 2009", BBC press release, 9 February 2010  Back

95   Q 42 Back

96   Q 51 Back

97   Q 42 Back

98   Channel 4, Channel Four Television Corporation Report and Financial Statements 2008, p 129 Back

99   "What do we want from the BBC?", The Guardian, 1 March 2010  Back

100   Ibid.  Back

101   "Trust agrees 25 per cent cut in BBC senior management pay bill", BBC Trust press release, 29 October 2009 Back

102   Ibid. Back

103   Ibid. Back

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