2 BBC Annual Report and Accounts
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
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,
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.
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
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"
and said he believed "top-slicing was not in the interests
of licence fee payers."
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."
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."
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."
We put it to Sir Michael that this was not strictly accurate,
as the Charter in fact states: "The Trust is the guardian
of the licence fee revenue and the public interest in the BBC".
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."
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.
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. 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".
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
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.
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
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."
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.
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."
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
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."
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
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."
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%)
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
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.
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
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
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
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
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."
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.
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
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 BBC.co.uk 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. 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.
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.
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%. 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
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
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. 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. 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
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.
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. 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,"
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
47. Mark Thompson told us that "the efficiency
programme in the BBC is reducing some of the absolute numbers
being spent on services".
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."
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."
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%.
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.
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.
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
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."
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."
52. We noted in our recent Report on Channel 4
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.
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."
He also suggested that competition law was a factor in its acquisitions
"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."
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,"
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
"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."
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
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.
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
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.
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.
He also told us that the cost per viewer hour of BBC Three is
coming down as the channel becomes more popular.
According to the Annual Report, "Cost per viewer hour for
the year was 10.6p (down from 12.9p in 2007-08)".
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
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
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."
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".
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%.
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%.
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.
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."
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."
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.
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,
and a reported staff of 50 at its own London offices.
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
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"
and that "Project Kangaroo became Project Roadkill before
the Trust managed to consider it fully".
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
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.
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"
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
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.
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."
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"
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."
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",
referring to Mark Thompson's "commitment to publishing details
of all top salaries and all the expenses associated with them".
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."
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.
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."
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
"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."
80. Nor is it clear, as Sir Michael Lyons has
claimed, that other public service broadcasters are paying higher
reward packages than the BBC.
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.
We also note the recent statement of the former BBC Director General
Greg Dyke that the BBC "doesn't have to pay its director
and that the current Director General "earns more than twice
what I earned when I was doing it".
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.
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.
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."
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
Department for Culture, Media and Sport, Sustainable independent
and impartial news; in the Nations, locally and in the regions,
June 2009 Back
BBC Annual Report and Accounts 2008-09: Part Two, The BBC Executive's
review and assessment, p11 Back
Q 3 Back
Q 4 Back
Q 4 Back
Q 5 Back
Department for Culture, Media and Sport, Broadcasting - Copy of
Royal Charter for the continuance of the British Broadcasting
Company, October 2006 Back
Q 5 Back
Q 6 Back
"Archives reveal BBC shared its fee", Financial Times,
18 July 2009 Back
"Archives reveal BBC shared its fee", Financial Times,
18 July 2009 Back
Culture, Media and Sport Committee, First Report of Session 2004-05,
A public BBC, HC 82, para 122 Back
Department for Culture, Media and Sport, Sustainable independent
and impartial news; in the Nations, locally and in the regions,
June 2009, para 18 Back
Q 6 Back
Culture, Media and Sport Committee, Fourth report of session 2008-09,
BBC Annual Report and Accounts 2007-08 HC 190, Q 5 Back
Culture, Media and Sport Committee, Fourth Report of session 2008-09,
BBC Annual Report and Accounts 2007-08 HC 190, Ev 25 Back
Ibid., para 13 Back
Ev 26 Back
Ev 31 Back
Q 20 Back
BBC Annual Report and Accounts 2007/08: Part Two, The BBC Executive's
review and assessment, p33 Back
Q 21 Back
Q 21 Back
BBC Annual Report and Accounts 2007/08: Part One, The BBC Trust's
review and assessment, p9 Back
Q 24 Back
Ev 29 Back
BBC Annual Report 2008/09: Part One, The BBC
Trust's review and assessment, p 6 Back
Q 21 Back
Q 22 Back
BBC Annual Report 2008/09: Part One, p 6 Back
Q 25 Back
Ibid., [Lyons] Back
Ibid., [Thompson] Back
Q 25 Back
Q 25 Back
BBC Annual Report 2008/09: Part One, p 9. Back
Q 54 Back
Culture, Media and Sport Committee, Third Report of Session 2009-10,
Channel 4 Annual Report, HC 415 Back
Ibid., para 59 Back
Q 55 Back
Q 55 Back
BBC Trust, BBC Strategy Review, p56 Back
Q 70 Back
BBC Trust, Service Review Younger Audiences: BBC Three, Radio
1 and 1Extra, June 2009, p3 Back
Q 60 Back
Q 63 Back
BBC Annual Report 2008/09: Part Two, p 35 Back
Q 61 Back
Q 67 Back
Ev 34 Back
Culture, Media and Sport Committee, BBC Annual Report and Accounts
2007-08, para 18 Back
"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
BBC Annual Report 2008/09: Part One, p 9; BBC, Full
Financial and Governance Statements 2008/09, p F31 Back
"Ashley Highfield appointed as CEO of Kangaroo", BBC
Worldwide press release, 14 April 2008; Minutes of BBC Trust
meeting 17 April 2008 Back
"Project Kangaroo: 50 jobs to go as broadcasters rule out
appeal", Guardian Online, 4 February 2009, www.guardian.co.uk
Q 121 Back
Ev 34 Back
Ev 27 Back
Culture, Media and Sport Committee, Fourth Report of Session 2007-08,
BBC Annual Report and Accounts 2006-07, HC 235, Q 21 Back
Ibid, Ev 20 Back
Culture, Media and Sport Committee, Fourth Report of Session 2007-08,
BBC Annual Report and Accounts 2006-07, HC 235, Q 64 Back
Ibid, Q 65 Back
Q 42 Back
"BBC disclosure: April to June 2009", BBC press release,
12 November 2009 Back
"BBC disclosure: July to September 2009", BBC press
release, 9 February 2010 Back
Q 42 Back
Q 51 Back
Q 42 Back
Channel 4, Channel Four Television Corporation Report and Financial
Statements 2008, p 129 Back
"What do we want from the BBC?", The Guardian, 1
March 2010 Back
"Trust agrees 25 per cent cut in BBC senior management pay
bill", BBC Trust press release, 29 October 2009 Back