Supplementary written evidence from STV Group plc (FLM 60)

 

RE: Evidence by Michael Grade, Executive Chairman, ITV plc given 8 December 2009

 

Further to my letter of 11 December 2009, I am pleased to have the opportunity to present further evidence from STV Group plc to the Committee. We acknowledge and agree that this further evidence will be made public.

 

STV's additional submission is made in light of Michael Grade's evidence of 8 December 2009. His remarks about STV were factually incorrect, misleading and damaging to STV.

 

For ease of reference we have identified in the Appendix the relevant individual questions by number and reproduced the specific comments from Mr Grade's evidence to which we are responding.

 

Membership of the Channel 3 network entails collaboration and collective activity in the interests of all members, and their viewers. It is an ethos which has imbued the federal system from its inception. In that regard, we consider the most damaging comments of all amongst Mr Grade's evidence are the repeated assertions that STV enjoys a "subsidy" from ITV, and that we have "a cash problem", and have "renege[d] on a contract". These comments are typical of ITV's recent inappropriate and openly aggressive stance towards STV and are simply wrong.

 

Further, the suggestion that ITV had been "trying to settle this (dispute) with Scottish for well over a year" before it launched legal proceedings for recovery of the gross sum of £38m is also misleading and false. ITV well knew that there were amounts owing by both parties, some of which were agreed and some which not. When the agreed amounts are netted off it gives a much smaller figure than that which ITV publicised when it issued the proceedings. Despite that knowledge ITV issued its claim for the gross amount leaving STV to have to counterclaim in respect of the amounts which were agreed as well as those that were not. Netting off on ledgers is a recognised network process and as in the past, considerable work was ongoing to do so (most of it, this year, at the instigation of STV) right up until the ITV claim was filed You should also be clear that STV has an absolute right to opt out of the network schedule within certain parameters. ITV has alternatively recognised and denied this right, but has not engaged substantively at all to try to find any workable solution to how this opt-out process should best operate despite STV's offers to do so.

 

I trust this submission is useful. The Channel 3 network remains the UK's pre-eminent commercial public broadcasting service in which there is significant public interest. It is vital that any debate around the licensees is fully and accurately informed, and that an outgoing executive chairman of ITV plc should not be afforded an unchallenged platform from which to deliver inaccurate and misleading remarks to discredit the commercial broadcaster for Scotland.

 

I would be happy to expand on any areas as required, in person or in writing and if you have any further questions, please come back to me.

 

Rob Woodward

Chief Executive

 

December 2009

 

Appendix

 

STV Group plc, additional evidence to the Culture, Media and Sport Committee in response to comments made by Michael Grade, ITV plc

 

Q515

"we have about £33 million a year subsidies to Scottish, Ulster and, to a far lesser extent, Channel;"

 

STV vehemently disputes Michael Grade's claim that there is any "subsidy" flowing from ITV plc to the non consolidated licensees. The methodology ITV has employed in arriving at this number is entirely flawed in that it takes no account of the additional value ITV plc derives from network-related activities funded by all licensees but where STV, UTV and Channel receive no benefit.

 

Q565

"they get to approve the network budget"

 

This is not true - through its 92% majority position in the network, ITV has complete control over the annual network budget. STV has no power to influence this, no right of approval and no say in what is commissioned. Moreover, even after the network budget is set for a particular year, ITV plc manipulates the amount without any reference to STV and the other non consolidated licensees. In 2008, it retrospectively inflated the price paid for Coronation Street and Emmerdale in order to meet the Ofcom quota for out-of-London production targets. Although this increase was not passed on to STV, UTV & Channel, we object to it being carried forward into subsequent years. Also in 2008, as in previous years, ITV Network wrote off £28m (excluding FA cup/England sports rights) of programmes without notice or consultation, the effect being simply to raise the network programme budget at the end of the year without due process.

 

Q569

"I do not think Ofcom could possibly be regarded [...] as an honest broker in that situation"

 

STV continues to fail to understand why ITV has refused the arbitration process offered by Ofcom; Michael Grade's allegation that the regulator could not be regarded as "an honest broker" is disingenuous, particularly since the offer was rejected out of hand without any understanding or investigation of how the process might actually work and who would undertake the arbitration itself.

 

Q570

"we are the victims of this."

 

This is a remarkable assertion from Michael Grade which is completely untrue. STV has exercised its right to opt out of network programmes and be excluded from paying for same through the terms of the Devolution Contract. That contract is included within the Channel 3 networking arrangements which, at Q.565, Michael Grade suggests have operated "very, very well". ITV has no right of veto in this regard, yet has chosen to deny STV its rights to the point of now pursuing STV through the courts for sums it disputes. Details of its litigation were publicised by ITV prior to being served on STV and ITV admits the actual sum it is disputing is far less than the £38m figure it has used as a headline claim. Separately, STV has been forced to seek legal redress over ITV's abuse of our new media rights, which have been included within deals done by ITV for video-on-demand services without our consent and we may be forced to bring further proceedings to address significant acts of prejudice we experience within ITV network. Any suggestion that ITV is a "victim" here is entirely wrong.

 

Q571

"We have actually been very, very patient. We have been trying to settle this with Scottish for well over a year and we have failed. We did not decide blithely to sue them; we tried for a year to settle it and reach agreement with them but we failed and so we have no option."

 

This is not true. ITV has made no attempt to engage substantively with STV in that time around reaching any form of agreement or common understanding about our right to opt out of network programming under the Devolution contract, preferring instead to pursue the court action which has now ensued.

 

Q571

"Look, what is driving this in Scotland - it is not about Scottish production; if you look at the schedule that they produced that replaces these programmes, it has got nothing to do whatsoever with the Scottish broadcaster for the Scottish audience - it is about saving cash."

 

This is factually incorrect. STV's programming strategy is predicated entirely around building a relevant and affordable schedule for Scotland. During 2009 we have produced a significant amount of high quality content for inclusion in our schedule, particularly during peak time. From The Hour, a daily, live magazine, through factual series such as Scots Who Fought Franco, Scotland Revealed and Made In Scotland to extended news coverage of important events such as the release of the Lockerbie bomber, Abdul Megrahi, STV has demonstrated a tangible commitment to serving Scottish audiences. We have been open and honest about shortcomings in our scheduling, particularly around replacing drama with film on Sunday evenings. However, we are in the early stages of a long term strategy and our schedule for 2010 builds on our experience and contains hundreds of hours of Scottish content, from sport to comedy and current affairs and including drama in Taggart, which we have committed to produce even without a commission from ITV.

 

Q574

"It is just a shame that if they have got a cash problem - if they have - they did not sit down with us at the beginning, as you would do. If you have an "onerous contract" you go and talk to the people. We are partners in the business and we should have sat down"

 

STV believes these comments from Michael Grade to be actionable had they been made outside the confines of Parliamentary privilege. This serious allegation is mischief-making aimed only at discrediting STV. The suggestion that we have "a cash problem" and that we should "sit down ... and talk to [ITV]" is completely inaccurate, highly patronising and damaging to STV's reputation. In fact, STV now makes a fixed monthly payment to ITV, and we have just received a £2m rebate for overpayments across the summer so our cashflow is such that we have, in fact, been able to overpay ITV and have received a balancing payment back, without interest.

 

The Committee should be in no doubt that at the heart of this dispute lies a disagreement over the terms of STV's opt out rights and not, as suggested by Michael Grade, an unwillingness or inability on STV's part to pay legitimate sums due. STV has been part of the federal Channel 3 network for over 50 years, we pay our share in return for access to network content. We have called for the networking arrangements to be streamlined and modernised in light of a single company now exercising effective control of the network (through its 92% shareholding), a very different situation from when 15 separate licensees co-existed. However, we will not permit our clear and unequivocal right of opt out to be vetoed in the way ITV is attempting to do so.