House of COMMONS
MINUTES OF EVIDENCE
CULTURE, MEDIA AND SPORT COMMITTEE
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Taken before the Culture, Media and Sport Committee
Mr John Whittingdale, in the Chair
Mr Adrian Sanders
Mr Tom Watson
Memorandum submitted by Ofcom
John Fingleton, Chief Executive, and Mr
Alastair Mordaunt, Director of Mergers, Office of Fair Trading, and Mr Ed Richards, Chief Executive, and Mr Stewart Purvis
Q369 Chairman: Good morning, this is a further session of the Committee's inquiry into the future for local and regional media. I am pleased to welcome this morning John Fingleton and Alistair Mordaunt of the OFT, and Ed Richards and Stewart Purvis of Ofcom. You will be aware that the Committee has heard quite a lot of evidence about the difficulties which all forms of local and regional media are facing, particularly newspapers, and the evidence we have had from local newspapers is that they see it as almost inevitable that there will be further consolidation and mergers, and that the likely outcome is that in most areas, there may be one newspaper left. Can you just tell us a bit about your attitude, because you have said that in your view the current merger regime is fit for purpose, and does not need to be changed.
Mr Fingleton: Yes, thank you very much, Mr Chairman. The merger regime has seen six newspaper mergers in recent years, four of those mergers have been cleared by OFT at Phase I, one has been remedied and allowed to go ahead by OFT at Phase I, one has been referred to the Competition Commission, and that has been cleared. We have in the Digital Britain report set out for people in the industry our general view on issues in the industry going forward. In those cases where mergers raised concerns, they are to do with customer concerns, and in the newspaper industry, we have two types of customers who we are concerned with: readers and advertisers. When we think of advertisers, we think of the businesses, and in this case often local businesses, this is their means of getting to the market, so we have to ensure that we protect them. I would make the observation that we do offer parties to come in for confidential advice on mergers. We have not had an approach of that kind in this sector in the last three years. There are many problems facing the local newspaper and the newspaper industry generally. I am not convinced that the mergers regime and the way it operates is a particular problem. It has not blocked any mergers, and we are very open to giving people advice, guidance and whatever else is needed, but we must protect consumers and businesses who in turn compete to supply consumers as advertisers, and if we have ever had concerns, that is where we have raised them.
Q370 Chairman: You have said that you believe that competition is possible and should be promoted wherever it can be, but the evidence we have received suggests that the most likely outcome is that there will be almost no competition between local newspapers in any area of the country. Do you not think that you need perhaps to look again at a regime which is now six years old, and where there has been enormous change since it was first drawn up?
Mr Fingleton: It may be a question for Parliament, as to whether the mergers regime should allow anti-competitive outcomes. Certainly we do not have the discretion to decide that we should allow, for example, local monopolies. I would also make the point that when companies merge, they buy their competitors' customers on the stock market. They have the alternative of competing in the marketplace for those customers. So there should be a reasonably high threshold. If the outcome is that there will be one newspaper in each area, we would argue that the counterfactual is that that happens through whichever one best wins the demand locally, and not through whichever one happens to out manoeuvre on the stock market and buy customers in that way. Even if the outcome does end up, and we see lots of markets where inevitably there is one supplier, particularly in rural areas, and it is not just in the newspaper sector, but I think it is important that the competitive process operates efficiently. The final observation would be that the issues confronting the newspaper industry are typically around declining demand, and I am not sure, in any industry facing declining demand, that charging higher prices to consumers through having a monopoly is necessarily going to cure the problem. In actual fact, it may augment the decline in demand, and precipitate some other change rather more rapidly.
Q371 Chairman: To what extent do you take account when doing an assessment of cross-media issues of the competition that is provided by, for instance, the BBC, by local radio, et cetera?
Mr Fingleton: We absolutely do that. It is a very customer-focused analysis, looking at the options available to the customer, so we look across all media types.
Mr Mordaunt: That is absolutely right, we do not make any distinction between whether or not a competitor is publicly owned or privately owned. As John says, we look at what are the alternative options available to customers. I just wanted to add a point to your previous question, which was about whether or not the regime was fit for purpose. Certainly the evidence we received in relation to our review under the Digital Britain report was that publishers were not asking for actual legislative change to the regime; it was more that they wanted us to recognise these alternative constraints. So it certainly was not the message we were receiving that the regime needed to be changed through legislation. Going on to the point about us recognising alternative constraints is precisely the point that John has just made, we will look at all the options available to customers, and whether we think they are realistic.
Q372 Chairman: Ofcom now has a role in drawing up local media assessments; can you tell us a little bit about how that is going to work? Is there not a danger that is just going to make the whole thing even more laborious and time-consuming?
Mr Richards: There is clearly a risk of that, but I certainly do not expect that to happen. What we would do is work very, very closely with the OFT, as we do in any mergers which are affecting our sector, and we would want to do it and undertake the work, the local media assessment, in line with the timescale that the OFT set for the whole process. You cannot rule out the possibility that it might take longer than that, but I think we would expect not to do so, and we would expect to do it within that timeframe. So our very clear objective would be to ensure that work was done such that it did not prolong the process any more than it is currently set out at.
Mr Fingleton: It may lead to faster outcomes in the following sense, that across all of our mergers, one of the problems we see is with parties coming in in a merger situation without having thought through very clearly what data we will need to examine the merger. In the short period we have to do a Phase I review. If we feel there is a competitive issue in the market and the firms have not produced the data to show us that that is not a problem, it makes a reference to the Competition Commission more likely. That happens in some cases where parties are not particularly well-prepared. I think this would actually enable us to have a much better database to deal with the concerns at an earlier stage, so it may increase the likelihood that we can clear deals that are not anti-competitive Phase I. We face a higher hurdle at Phase I in clearing a merger than the Competition Commission does. Sometimes businesses do not always anticipate that, so we have done our best to try and point that out in our Digital Britain work, so people in the industry are very well aware of the need to come in well-prepared on deals.
Q373 Chairman: Ofcom this week have published revised guidelines for local cross-media ownership. Can you tell us a little bit about that, and how you envisage that helping the situation?
Mr Richards: This is the second report that we have done on this area. It is a statutory obligation. As the Committee probably recalls, we have to do a report to the Secretary of State every three years. This is the second one of these that we have done, and in both cases, we recommended some relaxation; we did in 2007, and we have done so again this time. We have proposed essentially the elimination of rules in relation to radio, to free up the ownership constraints in that area, and a significant relaxation in relation to cross-media local ownership, I am focusing very much on local here, with the one caveat that we recommend that there should not be joint ownership of all three of a dominant newspaper, a radio and Channel 3 licence. So that is, in a sense, a backstop position. It is worth saying that, as far as we are aware, there is simply nobody interested in pursuing such a strategy in the first place, so it may be literally one of those insurance policies which sits at the back and is never actually brought forward into a real situation. Our sense was that that was a backstop position, but obviously, these are recommendations, and as with all reports of this kind, Government and then Parliament needs to decide whether it accepts them. You could decide to sweep them all away, in which case, you would be left with the competition regime, and the questions around market definition and competition concerns in relation to the ownership of all three of those different media in any particular area.
Q374 Chairman: These changes you recommend, if they are to be brought in, does that require legislation?
Mr Richards: I do not think they do require legislation, but we can double check on that. I think there is freedom for the Secretary of State and we would have to go through Parliament, I am certain about that, I do not think it requires primary legislation though.
Q375 Chairman: So it could be done by statutory instrument?
Mr Richards: I think so, but we can double check that. So I think the nature of the system really is that we look at it analytically, we look to see if viewer/consumer/readership behaviour has changed over time, such that you may change your view about cross-media ownership rules. We have done that, it is a very analytical report, and we found that there have been some changes - and significant changes - locally. There were fewer changes nationally than we were expecting, in the sense that the significance of television news is still very, very strong as a first source of news, primary source of news, but there has been change locally. There has obviously been a lot of commercial change locally, and the economic pressures faced by organisations working in that area are, as everybody knows, very intense, and we think therefore that recommendations to relax those rules are the right thing to do. I do want to underline that we made similar recommendations in relation to radio in 2007, but they were not accepted, and the rules are as they were.
Q376 Paul Farrelly: I sat on the Joint Committee of the Commons and Lords that looked at the Communications Bill and the establishment of Ofcom, and actually the merger regime, particularly when it came to local media, was a matter of intense debate. Clearly, 2001 and 2002 was when times were good, and now times are not so good, and the question is whether you change the rules within a cycle, or you keep them robustly through a cycle but also recognise that there is some structural change going on as well. Could I just ask John whether you have had any instances coming to you where a local newspaper has said, "We are going to go bust, and the only way of saving the newspaper is for us to be able to sell out to a regionally or sub-regionally dominant competitor"?
Mr Mordaunt: No, we have not.
Q377 Paul Farrelly: Because some of the calls for change have come from people who have said is it better to let a newspaper go bust rather than sell to a competitor, and therefore reduce competition, or have no publication at all?
Mr Fingleton: This time last year, with the financial crisis, we anticipated we would see failing firm mergers of that type across the economy generally, not just in this sector, and it has been the dog that has not barked. That is true internationally as well. Other agencies that do first phase merger review have not seen the incidence of failing firm mergers that we might have expected from previous downturns. We would look at that, and we re-issued our guidance on failing firms last December, and we said we would try to deal with these cases incredibly quickly. We were very concerned at that stage that if firms made the wrong judgment call with the first fire, that they would run out of time on the second one, so we were trying to basically get them to think in advance and come to us very early before they would make the wrong call, and then not have another option, if that turned out to be a very anti-competitive way of doing it. This type of situation has not arisen. Where we have had a problem is finding suitable alternative buyers in some of the assets in some of these cases, and we have developed a methodology which I think is becoming internationally accepted, it started with our Lloyds/HBOS merger, of looking at the failing firm as part of the relative counterfactual, what would happen in the market but for the merger, and that is increasingly the way we would look at this, so we would always look at that and say, well, what is going to happen in this market if this merger does not go ahead, but we have not had the cases.
Q378 Paul Farrelly: To take one instance, when Northcliffe Media had their on/off, on/off proposed sale of regional papers that they then decided not to carry through, were you consulted in advance on what your reaction would be in different local markets or not?
Mr Mordaunt: We were not consulted. I think John has already alluded to this, we do offer non-statutory informal advice, and no one has come forward in the newspaper market in the last three years. There are clearly caveats to the extent that we can advise on deals before we can go and talk to the marketplace, because typically these sorts of deals are still at the confidential stage, but nevertheless, we think it is a valuable tool or service that we offer, but as I said, no one has come forward in the newspaper sector yet. We think the Digital Britain report that we issued earlier this year gives some quite good guidance, and one of the complaints, as it were, from publishers was that the regime was not clear enough for businesses when considering investment decisions. We hope that that report is a useful piece of guidance, but also, as I said, when there are actual potential cases in the offing, then people can come to us and ask for our advice.
Q379 Paul Farrelly: Just before turning to Ofcom, in case the dog does bark, could you
just describe the approach that you would take towards local newspapers? Let me give you an example. In my area, the dominant newspaper in
Mr Mordaunt: It is probably worth just making the point at the outset that we approach each case with an open mind. The fact that we may have concluded, to give you an example, in a previous case that maybe the market for print media advertising is self-contained, and that these alternative options are not a constraint, that does not bind us in any way in any future cases. So we would come to the particular case with an open mind, and we would look and see what the options are available to customers, so to the extent that local radio, perhaps even local TV or other types of advertising options are available, whether it is direct mail or outdoor advertising, all these things we would look at, to see how close a constraint they are on the merging parties. What we are doing is looking at the scope of the market, how closely are the two print titles competing with each other, if that is what the merger is, and then considering how close all these alternatives are. We said in our Digital Britain report that in the particular areas that we were given evidence on, it seemed to be that alternative constraints, particularly the internet, is a likely sufficient constraint such that if two print titles were to merge in a particular area, then they would be constrained. We said that the evidence we received was broadly supportive of that proposition, but we did not go the step further and say, therefore, the market is clearly wider in all instances, because we do not think that would serve any purpose. We have a statutory duty to look at each case, and it may be that in different parts of the country, the constraints or these other alternatives are not as strong. For example, in the example you have given me, maybe local radio is, but in other areas it is not, so we need to look at these alternative options. That is the first argument, so your market definition argument is perhaps the best way of describing it. Then there are all these alternatives and this is why we say we think the regime is flexible, because you can look at the failing firm argument that John has already articulated, which is: is that title going to exit the local area in any event? So the loss of competition is not caused by the merger, because it would have happened otherwise. The second limb of that test is to consider whether there is an alternative outcome which is better for competition, and there we look at whether the competing title is the only person who is in a position to buy the title. If there is someone else out there who would create less of an impact on competition, and they are willing to buy the title, then the failing firm defence would not typically be allowed, but that is a sort of secondary argument. You have your market definition, your failing firm, and then the third line of argument can often be efficiencies, so that publishers will argue that actually merging two local titles will be able to create efficiencies that they can pass on to customers. So there is a whole line and range of arguments, it is not clear which one is going to be the potential silver bullet, if any of them, it will depend on the specific facts of the case, but there are certainly a number of options available when publishers are considering that type of merger.
Q380 Paul Farrelly: So in summary, in terms of the current rules and the legislation, would you describe it as robust, fit for purpose, sufficiently flexible, and in any event, the dog has not barked?
Mr Fingleton: And quite agile. We are very responsive, we do this work incredibly quickly. The type of issue that could come up in a case like this, we have to be very clear that we would not want to prejudge any decision in discussing hypotheticals, but the question of whether there are small businesses advertising locally who would have choices severely restricted, and protecting them in the process, but the law does allow us to approve mergers where the overall efficiencies would outweigh harm to consumers. This has not been a much used provision either of the law, but it does allow that. So there is quite a lot of flexibility built into the Enterprise Act, and even though it was signed to law in an economic upturn, it really did anticipate a range of scenarios in terms of the economy. That is because it is based on European law in part, which I think has worked well over a 20 or 30-year economic cycle, and a lot of the American best practice was imported into the Enterprise Act.
Q381 Paul Farrelly: There have been pilots and experiments with ultra local or city television, and I think they have not generally sort of bloomed, and I think there has been fair comment from some independent firms that actually until they know what the BBC can and cannot do, it is very difficult to know whether any initiative is going to be sustained. Again, I will just take it to my area, which is a sort of self-contained sub-region: Stoke Television might be a viable enterprise, but in reality, people might say that actually it is only going to happen if the BBC do it or the local newspaper. Now if the local newspaper, which is dominant in print, came forward with a proposal to set up a citywide television station, no doubt featuring our wonderful Premier League club time and time again, what would your attitude be, in terms of cross-media ownership in that instance?
Mr Richards: If the local newspaper wanted to start a service of that kind, I think we would not have a problem with that at all. I think the central issue there is not restrictions or responses by us, I think the central issue there is the one you began with, which is: is there a commercial model for this that anybody can identify? The record on that at the moment is very clear, it is extremely challenging, extremely challenging. A lot of people have tried very hard, and I take my hat off to a number of organisations and individuals up and down the country who have a passion for local information, local news, and who would really like to make it work. Some companies have invested millions of pounds in trying to make these work. We are instinctively very supportive of that, but the analysis that we have done, the evidence that we have seen on this is that it is really challenging, and I think to be fair, I think it is really challenging with or without the BBC. I think the economics have always been difficult, and they have become progressively more difficult because of the internet and the capability of the internet to absorb classified advertising and other forms of local advertising. So the local TV model, as it were, is, I think, a very difficult economic challenge. I do not think it is impossible, and I think people will keep experimenting, and as you know, we have made a spectrum available for that, and people have taken it up for that purpose, in Manchester and in Cardiff, but I think the economics of it are the central challenge, and I would add one rider to it, which is that I think there is a version of that kind of local information which you can definitely see flourishing, and you might call that ultra local, community, and in a sense, it is an internet or video-based version of the enormous success that we have seen through community radio, which is essentially not for profit, volunteer-based, and fantastic, given what it does, but what that is doing is not what people associate -- it is a different thing to what people associate with what one might call well-resourced, high quality local journalism that is routinely and authoritatively holding to account the holders of local power, whether they are politicians or businessmen and so on and so forth. It is a different thing, and one could be very welcoming and supportive of ultra local websites, community radio, and indeed we have pioneered the roll-out of community radio, we think it has been a huge success, but you have to recognise it is a different thing to well-resourced, authoritative, comprehensive journalism in any particular locality or area.
Mr Purvis: I just wanted to add to your specific, of course Channel M in Manchester, the local TV station for Manchester, is owned by the Guardian Media Group, owners of the Manchester Evening News, so there is no problem with cross-media in local TV.
Q382 Mr Watson: Just to follow on from what you said, I was encouraged to hear what you said about hyper local news and citizen journalists. Do you think bloggers should be regulated?
Mr Richards: My instinctive response to that is: by us, definitely not.
Q383 Mr Watson: The new chairman of the PCC seems to think they need dealing with.
Mr Richards: Well, the PCC is a self-regulatory body, it is working in the unregulated or unstatutorily regulated press. As I think is very well-known to everybody, we have a different tradition for the press than we have for television and radio. As we all also know, that is becoming blurred as a consequence of convergence, as newspapers go online, and so on and so forth. We can see how that is developing, and as a matter of fact, people sometimes ask me: when are you going to regulate the internet, are you going to, do you think you should? I have two answers to that. My first is we already do, and we always have, and that is the extent to which we regulate the networks over which the internet is provided; and secondly, the first significant move on that came with the Audiovisual Media Services Directive from Europe, where the regulation of television-like services, a co-regulation, as we have embraced it in this country, of television-like services on the internet, has begun, or it begins --
Mr Purvis: 19 December.
Mr Richards: Thank you, 19 December. We are already in discussion with different organisations about who falls which side of the line; are they in, regulated by this form of statute, or are they not? That is going to be an interesting debate. We have set out where we think the line should be drawn.
Q384 Paul Farrelly: Tom's question begs another point that we are considering in another report, I think in The Guardian on Monday, the chair of the Society of Editors called the Press Complaints Commission not a regulator at all. To what extent do you think it might be logical or sensible to bring the PCC under your comforting wing?
Mr Richards: Well, I think that is unequivocally a matter for Parliament and not for us. I think you consider that in the context of these very, very strong traditions of the separation between a formally regulated television and radio environment, which I think people are comfortable with, I think the companies are comfortable with it, comfortable with the history and reasons for it, and I think viewers and listeners are comfortable with it and expect it; and in contrast, the history and tradition and culture and expectations of people, as well as the companies, in relation to the press. So that kind of issue is, I think, an enormous step, and one which is unequivocally a matter for Parliament, and one which would have to be considered extremely carefully.
Q385 Chairman: Can I just come back to the OFT? You have covered this ground to some extent, but I just want to be absolutely clear. When you carry out an assessment of the state of competition in the local market, you talked earlier about the local business and the various opportunities available for advertising. The biggest complaint I think we have had from the newspaper industry is that essentially, you are too narrow, you are not taking account of particularly the opportunities for online advertising, both national and local, freesheets, and that by focusing on paid-for local newspapers, actually you are creating a competitive position which is not really an accurate one.
Mr Fingleton: I think
it is difficult to point to a transaction that we have blocked or inhibited on
that basis. We do look at these issues,
we consider them. Very often, we find
that people come in and wave their hands about the fact, oh well, the internet
is a very strong competitive force, but they do not have a good story to tell
us about why this particular group of advertisers, for example, is
protected. We would have to make sure,
for example, that if local businesses could only advertise through a particular
medium, but, for example, national retailers had much wider options available,
the ability of national retailers to have online and to be able to switch
between online and internet-based, as opposed to local print media, would not
necessarily protect the local person who is trying to get to the market. So you could end up with quite big
distortions of competition at the retail level, whereby you say, well, we do
not care about the small local business whose only means to the market is
through these publications. So we are
very centred on the customer, who in this case is the advertiser, who acts as a
proxy for the final consumer, but I think we are very open to listening to
these arguments, in the Digital
Q386 Chairman: But you would accept that part of the reason, in fact one of the major causes of difficulties facing local newspapers is the fact that their advertising is leaving them and going online. So I mean clearly, advertisers see that as in some cases a better platform to advertise on.
Mr Fingleton: By way of example, the existence of electricity, when it started, did not mean that people who did not have access to the electricity network could be exploited in the production of candles or other forms of lighting. We have to worry about the consumers, the buyers who get left behind in that process. That is the delicate balancing act. I did mention that we have a de minimis condition, and we have increased enormously our de minimis in recent years, and we have the ability to allow some consumer harm, if we think the overall efficiencies on behalf of consumers generally outweigh that. So we have those provisions in there. The difficulty is of course it is very difficult, it is a risky activity for businesses to bring transactions that bang up against that margin, and one of the benefits of the confidential advice is not so much that we can tell them how the deal would turn out, because I think that depends on the market testing of it which we have to do, but actually us giving them some steer on what data we need to clear at Phase I, if we think the deal could be cleared at Phase I. Very often, it is about how to manage the process that is as important for the firms. So some of the deals that were referred to the Competition Commission have more to do with the fact that the firms walked into the process without having thought that out very clearly in advance, and in order for us to give a quick answer at Phase I, we do need the firms to engage in that process a bit earlier, and we are willing to help them do that.
Q387 Mr Sanders: Turning to local newspapers and advertising revenues there, do you think it is appropriate for local authorities to be diverting advertising revenue away from local newspapers at such a critical time? That question is for the OFT.
Mr Fingleton: The local authorities question breaks down into two issues: let me call one of them self-supply, which is supplying their own information, their own advertisements; and the other is competing for third party advertising, so we separate out those two issues. I think it is quite difficult to be critical of the self-supply argument if the local authorities feel they can do that better. Whether local authorities should be in the business of competing with commercial enterprises is something we would view, and we would have to view that under the law as being neutral as to whether somebody is publicly owned or somebody is privately owned in the marketplace. That would also apply to a local authority based publication. There is, of course, a provision, if there is a legal state aid implicit in it, that tends to operate better at a European level, so it is not necessarily going to translate into a local level. The extent to which this is a really harmful problem in the market is something we have struggled to understand. The local newspaper market is about £3 billion a year. Our estimate is that there is about £50 million of local authority expenditure in this area, so that might be a measure of the size of the self-supply, and the decline last year I think was close to half a billion in the local newspaper advertising, and about a billion over the last five years, so that decline is quite rapid. So I think there is a risk that the issue about what local authorities are doing in this space, while contributing to the problem, is not in fact as big an issue as the internet and the decline in demand generally facing newspapers.
Q388 Mr Sanders: I think there are two sides on this. There is the local authority that goes into direct competition with a newspaper, the example we saw was Hammersmith & Fulham, with a complete weekly newspaper, advertising homes and local businesses. The only difference between it and a local newspaper was that the only politicians who appear are the ones in the ruling group, so it was more like Pravda than a local newspaper. The other thing is that when you get local publications produced by local authorities, that perhaps take public sector advertising from their partners, be it the police and some of the statutory advertising or information or infotorial that they have to do, or the health authority or other public bodies, who have to from time to time make reports, and they are making them through the local authority publication, whereas before, that would have gone into local newspapers.
Mr Fingleton: There may very well be a problem in terms of harm to the democratic process resulting from that; I think the problem is it is quite difficult for us to link that to a competition problem which affects the customer, which is the statutory mandate we have. We would have to look at whether readers are harmed, or on the other side, whether advertisers are harmed. It seems here that the harm is to competitors. The type of case that we would have to find is one in which, as a result of doing that, the local authority is able to monopolise the local newspaper market and raise prices to advertisers. We have not been presented with a case like that. We cannot invoke our investigative section 25 powers unless we have a case where we think there is a threat to competition at that level. So we are in the position that I think absent any example where that is what is happening, we would not be able to investigate an abuse of dominance type claim, and abuse of dominance is really the only way we could get at something like that. I think there is a broader question for politicians as to what local authorities should and should not be doing in this space that has to do with the democratic process and democratic accountability, but it is not something that is necessarily correlated with the work we do, and we would not have a mandate to opine on that.
Mr Richards: Can I just add, I very much agree with what John has said, and it is, of course, beyond our remit, which is newspapers, but I think the connection is with the comments I made earlier about the importance and significance of authoritative, independent local journalism. I think if there is a harm that we are concerned about here, it may or may not be competition issues, in relation to consumers, but John has all the powers he needs to address those. It is more likely that the harm we are concerned about is the loss of or the impact on independent authoritative journalism in the way that was implied at the start of the question.
Q389 Mr Sanders: As John mentioned, I think you gave a figure of £50 million, but that could be, in every newspaper, a journalist who in the past used to cover the council meetings and is not there covering the council meetings, so there is a loss of accountability in that. Is it not an area that perhaps the OFT could issue some guidelines to local authorities, or is that outwith your remit?
Mr Fingleton: It is outside our remit. I mean, with national media, the way, for example, in a media merger and another situation, there is a separate actually view taken on plurality by Ofcom, recognising that, for example, in a media merger, we can analyse the competition aspects but we do not opine on the plurality aspects. In the Lloyds/HBOS merger, in the legislation that went through Parliament for that, the FSA, the Bank of England and the Treasury gave us their view on financial stability, which is the non-competition criterion that has to be balanced there. So that is how it works in other areas, but in local newspapers, there is not any provision to do that. We could spend more time looking at the issue; at the end of the day, we would have no power to act, so there is nothing we could do that, for example, the Government could not decide to issue guidance to local authorities themselves, or to decide to deal with this through legislation. I think we are very happy to contribute whatever we can through the analysis of competition in this case, and I think if we did see predatory pricing cases in this sector, we have been very committed to looking at predatory pricing at a local level, we have examined previous predatory pricing cases in the newspaper industry that have gone right through the court system, and we have done predatory pricing in Cardiff, again a local market issue, so we are quite interested in predatory pricing cases at a local level, and it is important to state that, because people sometimes think we are not interested in small local markets, and we are very much interested in them, because they set an example. So if we did see a predatory pricing case, we would be very interested in it, but that is going to be probably the best contribution we can make in the area, other than contributing to the debate as we are doing now.
Q390 Mr Sanders: Final question: a local authority produces an information leaflet that some might consider was more propaganda or advertising than news. Is there a definition between what is advertising and what is news, and who adjudicates?
Mr Richards: There is in the broadcast arena, I am not aware of one in the newspaper or freesheet arena at all. I think that is completely unregulated. Of course, in broadcasting, we do have rules about separation of advertising and editorial, and those are well established, they are currently under review in the context of product placement and sponsorship, but those are UK laws, they are European laws, and are well understood and have been tested and examined and the boundaries have been interrogated and stretched in broadcasting, but not in newspapers.
Mr Purvis: I just feel there is a missing area, which is the regulation, if that is the right word, of what local authorities do and do not do. I am reminded of the case of the former Mayor of London who, if I remember, got into trouble with some supervisory body over what he should or should not have said to an Evening Standard reporter. If I give you another example, which goes to the fact that this is not really a competition issue, in our review of the local and regional media in the UK, it was brought to our attention by the Scottish newspaper industry that advertising, whether job advertising or statutory notice advertising, that would normally be put in their newspapers, was now being put in online sites run by local authorities or by other, for instance, the National Health Service in Scotland, and they saw that as a kind of taking away of revenue that was reasonably theirs. Whether that is the right or wrong thing to do for local authorities is, I do not think, for competition authorities or for broadcast regulators, but I have a feeling there is probably somebody out there whose job it is.
Q391 Mr Sanders: That is a slightly different issue. I am more interested in if a local authority is using taxpayers' money to effectively push the policies of an elected administration that goes beyond just informing the public of what services are available and what they are doing, and enters the realm of political propaganda, and who is there to stop that from happening.
Mr Fingleton: That is not, I contend, a competition issue. That is an issue about what local authorities are doing.
Mr Richards: The answer to the question is nobody. The answer to the question is we have no remit on that, the OFT has no remit on that, and as I think Stewart was trying to suggest, this is a lacuna. If this is a serious issue from the perspective of (a) the use of taxpayers' money and (b) the consequences for independent journalism in any given locality, I think it is something that Parliament has to decide what it wants to do about. Either the Government needs to give some guidance, or give somebody else the responsibility to look at it, but at the moment, we certainly do not, and nor do the OFT.
Mr Fingleton: I mean, DCLG does have a code covering some aspects of this, but it does not deal with this issue.
Farrelly: Just on this point, to be parochial
again, in my area, The Sentinel newspaper, which has a fine tradition of
Philip Davies: Yes, he has.
Q392 Paul Farrelly: But it has become a political issue. Is there no other avenue to control this than actually the local electorates, or should there be?
Mr Fingleton: The local electorate might not check the problem, if there really is a problem of democratic accountability, so I am not sure that I would just say, well, the local electorate will solve the problem. I mean, of the two reasons why local authorities might be doing this, one is it could be a very efficient way of them reaching their target audience in a more cost-effective way than advertising through third party publications, and if that is the case, there certainly could not really be a competition issue, in that if it is an efficient way, it is going to be good for consumers, good for them as a self-supply of advertising and so forth. The other is that there is a darker side, which is whether this is about subverting processes of accountability and so forth. If that is the case, it is unlikely to show up particularly as a breach of competition law in any sense, it is much more likely to show up as a much wider problem, but then, I think if that is the problem, there may be a policy trade-off, which is we want to limit certain efficient activities of local authorities in the interests of preserving democratic accountability. That type of trade-off is a trade-off that must be made at a political level, and I would say is probably more efficiently made at a national level rather than requiring it to be made at 196 or whatever it is local authority levels, where the incentives might not be correctly aligned.
Q393 Chairman: I think we have strayed quite a long way from the remit of the OFT and Ofcom.
Mr Fingleton: I am sorry.
Chairman: It is not your fault. Let us return to the matters in hand.
Q394 Mr Watson: If I could get you back to the proposals for independently financed news consortia, before I ask you a couple of detailed questions, can I ask, is there a reason why there is not a pilot in Northern Ireland, which seemed to vex a number of Northern Ireland representatives?
Mr Richards: The decision about the pilots is a decision for the Government, so we do not know, you will have to ask the Secretary of State or the Minister as to where the pilots are going to be.
Mr Purvis: As Ed said, it is a matter for the Government, but there are a number of factors which are different in Northern Ireland, and one is that the existing licence holder for the Channel 3 licence in Northern Ireland, Ulster Television, says it does not require funding for its new service, which I think is the only licensee saying that. So that may be part of the explanation.
Mr Richards: The
Q395 Mr Watson: Can I just ask you about the estimates of costs? Your costs require an additional sum of public money, you think, is that right, compared to what the existing regional TV news costs are?
Mr Richards: What we have done on the cost side is a series of steps. The first thing that we have done exhaustively and repeatedly is analysed the value of the licences, and whether they are in deficit or not. We have done a lot of work on that, and we can talk about that by all means in more detail. What we did when we looked at that was say, what is by far the biggest element of cost that takes you into deficit? The answer is it is regional news by a country mile. What we then did was to say, well, what is the cost of provision of that? You can debate this, because of cost allocation issues, but it is roughly at the moment £68-70 million. One needs to remember that that is after a period in which those costs have been reduced and chipped away at over many, many years, but let us take that as a starting point. What we then did was say, look, what we need to have is some kind of range against which you could say, if you wanted to create a new service or offer a new service which partly replaced this, but moved it on as well, what financial area would you be in? What we said was somewhere between 40 and 100 million, and we said that because clearly, you could offer a lower spec service, you could offer fewer regions, you could consolidate, offer less journalism, and take it down below the 68 to 40, or you could have a more ambitious view, and say let us start with the window on Channel 3, and make sure we provide what is that standard there at the moment, but let us also make sure it is online. Let us make sure it is cross-media. Let us make sure it is offered on demand. Let us make it more local, rather than just regional, in those areas where a regional service is not what people really want. So in other words, you can clearly enhance the service, and that is a choice. So what we did in the end was say, look, there is a range here, and you can decide where you want to pitch it, if you want to have it at all, but clearly, the more money you spend, the more localisation you can get, the more cross-media service you can get, the more forward looking it can be, and so on and so forth. So that is how we approached it.
Q396 Mr Watson: Do you have any concerns about big state funding interfering with the objectivity of independent journalism?
Mr Richards: Of
course, you must never lose sight of that risk, but it is worth saying that
that already exists, and is managed in a number of areas. It is managed on a day-to-day basis by the
BBC World Service, it is managed on a day-to-day basis by S4C in
Q397 Mr Watson: Could I just ask you a quick supplementary question on the Digital Economy Bill? The original consultation said that they would consult on proposals to legislate to give you the duty to take measures to reduce copyright infringement, and Lord Mandelson appears to be removing you from that onerous task, and taking the full responsibility on to his own shoulders. Have you any views on that?
Mr Richards: I thought you were going to ask me exactly how pleased I was about that! I would make three general points about this. The first is we have kept completely out of this issue, other than on a very technical background basis, because I think it is very highly charged, as everybody knows, and therefore again it is one of those issues that politicians need to decide, and organisations like ourselves need to implement. So I am not going to express a strong view about the substance of the policy, other than to say two other things, I think. One is that I think we are concerned about the evolution of the content economy, and how in this period of structural change, because that is definitely taking place, alongside the cyclical challenges, how the range and vibrancy and diversity of content that we have historically enjoyed in this country adapts to this new set of economic structures. It is important in that context that we make good decisions about the regulatory and institutional and legal framework. Where that takes me to on this is that at the moment, I think it is extremely important that a decision is made on this, and the reason I say that is because what we see is a lot of the companies involved being reticent to strike commercial deals, because they think the regulatory or the legal framework is going to come and solve the problem. Until Parliament takes a view on it, I think they will all hold back, but we all know that commercial deals have to be part of the solution. So we have a strong sense that one will follow the other, and I would urge you therefore to make sure a clear decision is taken, which does not send it over to Ofcom or anybody else for three or four years' more worth of consultation in which there is no progress.
Q398 Mr Watson: There is a proposal that the Secretary of State under delegated powers can amend the 1988 Copyright Act. Do you think it is healthy that such a general amorphous responsibility should be carried by one individual, who may be subject to the usual pressures from media publishers, or if you are talking about giving politicians a regulatory role in copyright, should there not be some kind of body independent of a politician doing that? The impression I get is that you do not want to do it.
Mr Richards: I think those sort of relatively open-ended powers are the stuff of Parliamentary debate, and I think it is a matter for all of you to decide what powers a Secretary of State should or should not have. I did not want to infer that we do not want to do it. We are very happy to do it, and indeed we think it is an issue at the heart of the relationship between electronic networks and electronic content, so we are very happy to do it, and indeed I anticipated two or three years ago that this is where we would end up. What we do not want to have is our own open-ended power, because all that will happen then is we will have to make judgments which are probably more correctly taken by politicians, we will have to consult on them, they will get challenged, we will be litigated, and in three or four years' time, we will be no further forward. So we are very happy to do it, but we would like as much precision as possible from Parliament about what they do want us to do and what they do not want us to do.
Q399 Mr Watson: Presumably that is the position you are in with cross-media ownership and all the responsibilities you have now. There is no difference if you are regulating on copyright to other areas, is there? You can have as precise an authority, but you cannot have total definition.
Mr Richards: Definitely not, and there will definitely be scope for discretion, and we live with that every day, and in some cases, it may be better to punt it over to us and say, can you do us a review, and make some recommendations? That is what we do on cross-media ownership. On illegal downloading, I think one of the proposals is for us to do a review on the efficacy of the proposals, and we would be very, very well placed to do that. Of course, you cannot eliminate discretion, and we are not uncomfortable with discretion, I think though there is a point at which you are asking us to make decisions which are fundamentally highly political, and we have always felt that we want to stay the right side of that line; politicians should make political decisions, and we should make regulatory decisions about implementation following the framework that we are set by Parliament.
Watson: Just on that, the European telecoms
package that is being discussed in
Mr Richards: We may well have in terms of the experience as it develops but in relation to individual cases where it is going to be most challenging - has someone illegally downloaded, were they responsible, can that be identified and so on, there needs to be a court procedure in relation to that and those judgments are most likely to be made by a court or a tribunal rather than us and they will build up over time. There is no doubt that some of those issues are going to be very challenging.
Q401 Mr Watson: It is for a tier one tribunal through case law to define what fair and impartial is going forward.
Mr Richards: In relation to allegations of individual infringement, yes, I think that is how it will work. It is better that than that we are put in the position of becoming a general enforcement body. You are very familiar with the fact that some of these cases will be quite difficult if people can access other people's connections through wi-fi, if there is a question of a large family and who is doing the illegal downloading. All those sorts of questions will need to be bottomed out if Parliament passes these laws.
Chairman: We have got Ofcom coming back in two weeks so we can return to this issue then.
Paul Farrelly: Tom's line of questioning begs a much wider question, slightly outside the remit of this session but I will ask it anyway. One of the tests for the existence of a regulator or any quango set by the Leader of the Opposition is that if there is a highly technical area that demands expertise and therefore regulations ---
Chairman: This is way outside. We have got a full session with Ofcom in one week's time.
Q402 Paul Farrelly: Yet at the same time the Shadow Culture, Media and Sports Secretary has come out and said "We are going to abolish Ofcom." How do the two reconcile each other because if you do not exist you cannot adjudicate on all these matters we are questioning you about?
Mr Richards: You will have to ask the individuals involved but nobody has said they are going to abolish Ofcom to my knowledge and if you did do that you would have to get somebody else to do what we do. It is an interesting debate which we are very comfortable to be part of and we are very happy to welcome it, but there are activities that we do which somebody is going to have to do. If we were doing things which do not have to be done we would stop doing them tomorrow.
Q403 Paul Farrelly: Is the uncertainty having any impacts on your organisation at the moment?
Mr Richards: There is always uncertainty in our line of work and it is obviously going to be a little bit more uncertain in the period before and immediately after an election but, frankly, we live with that, we get on with it and the organisation is confident in what it does, why it does it and the quality to which it does it, so we will get on with that.
Q404 Chairman: These are issues which we will want to explore in greater depth but not today; we can do so next week. Before the OFT leave there is one body which has featured in the complaints that we have received from a wide range of media organisations, and the difficulty that they have faced in monetising particularly on-line activity. They complain about the dominant position of Google. Can you say whether or not the OFT has concerns about the dominance of Google and whether or not you can do anything about it?
Mr Fingleton: We certainly are aware of the size and impact of Google. The complaints that have come to us thus far
about Google have been competitor complaints, competitors who are not pleased
with the fact that Google makes a better offering to their customers. That type of concern in principle is not
something that would precipitate an investigation by us. We certainly talk to our colleagues at the
Federal Trade Commission, the US Department of Justice and in DG Comp. Typically in markets like this those agencies
would be the ones that would take the lead in any investigation of that
kind. It is unlikely that there would be
an issue about Google's size in the UK that was not replicated outside the UK
as well and the issues that have come up in the United States have been more on
the consumer protection side and the privacy side which is an issue, for
example, for the Information Commissioner's office and that network within the
European Union. That is where we have
seen more activity in the
Mr Mordaunt: From the mergers perspective we are not aware that Google's size has been created through a series of anti-competitive mergers with its major search engine competitors or through any mergers with its major search engine competitors, so it has clearly created this position. I am sure it has undertaken acquisitions but we are not aware of problematic ones.
Q405 Chairman: It does not have to be just acquisitions. The same complaint can be made against Sky and Sky has not acquired anyone, it has just become the dominant player in the market.
Mr Fingleton: We will always be on the lookout for customer complaints saying we think that either the listing price is very high for us or now we do not have an alternative because competitors have been driven out of the market, but we would like to see that coming from customers. In fact, some rather large corporations themselves, with dominant positions in other markets, have been very keen to rush in and complain to us, not just directly but indirectly, and that is part of the commercial fighting it out in the marketplace that we do not want to necessarily dampen down because it has brought enormous benefits to consumers to have companies vying to make better offers, to innovate in various ways. We are very conscious of the chilling effect on the innovative process that intervention could have, but we certainly keep markets like that under review and we talk to our international enforcement partners about those and related issues on a regular basis.
Q406 Chairman: The fact that of the total spend on on-line advertising such a significant proportion is going to one company, is that not a matter of some concern to you?
Mr Fingleton: It could be a matter of concern but we always look at why that is the case. If a significant share of expenditure goes on one company and that company previously inherited that position from state ownership or from some feature of the market that means that consumers cannot switch, we would be concerned. Where a company achieves that position through superior innovation, foresight or better targeting of its customers we would be very wary about intervening. While in principle the existence of a dominant position could be seen as illegal under European and UK law in practice there is very little case law on that, one has to look for an activity that actually abuses or strengthens or maintains that dominant position by excluding others from the market to the detriment of consumers. Thus far, while lots of people have come and talked to us about harm to competitors, nobody has articulated to us harm to the customer around this or related companies in this market. Not this particular company but another company we certainly examined for a number of months over a possible issue and eventually we decided really there was not clear, even in theory let alone evidenced, harm to the customer emerging from the complaint we got. We are certainly alive to the issue, interested in it, we talk to stakeholders about it on a regular basis but nobody has brought us a good, convincing case around these types of issues and we see a lot of customer benefit and benefit to the economy from what is happening in this marketplace and from a very high pace of innovation that is good for the British economy at a general level. We would not want to send a negative signal about that.
Q407 Mr Sanders: On the fact that we have, as part of this inquiry, learnt about a number of newspapers that are no longer publishing or newspapers publishing fewer days a week, it seems that there is an opportunity there to perhaps roll out community radio more quickly. Is that something that has crossed your desk?
Mr Purvis: Yes, it actually crossed my desk yesterday because we had the
latest list of applications. We are
doing it region by region and we have now moved on to
Mr Richards: I think they are fantastic and I have visited a number of
them. I was in Wythenshawe in
Q408 Chairman: Finally, we had evidence two weeks ago from STV who obviously are in dispute with ITV. Is it correct that you did offer to try and arbitrate in that dispute and that offer was rejected?
Mr Richards: It is. We saw these problems coming some time ago. We are obviously in contact with both companies and we did make an offer to try and arbitrate in some form, both for the existing disputes between the two companies and in relation to future disputes. That offer was made but it obviously requires both parties to accept it and that did not happen, so we have not done it. It is obviously a regrettable set of circumstances, I do not think anybody wants to end up in court in this kind of position but I feel we explored a number of avenues to try and help avoid it, but that is where they are. We have got some ideas about the future. Stewart.
Mr Purvis: On the past and the matter that is going to presumably come to court it is very much an issue about the interpretation of a commercial contract, so that is a past activity and an argument to be had there. Looking forward, we have got a role in what is called the networking arrangements which we review regularly and so we are beginning discussions with ITV Plc and with STV and the other Channel 3 licence-holders about the future of the networking arrangements, which are essentially the commercial arrangements between them which they reach but we oversee. One would not want to be unduly optimistic against a background of people ending up in court but there is an opportunity to take this issue forward rather than just revisit the past.
Mr Richards: The background to this is of course relevant and the background is that it was designed as a federal structure, as we all recall, and the reality is that we have now moved to a position where you have one overwhelmingly dominant member of that federation and three very significantly smaller ones, one being very small. What you are seeing is the tensions in the evolution of those relationships unfold. Of course we would like to see them out of court, we would like to see dispute resolution done quickly and efficiently. Sometimes that is not possible and it looks like that is the case on this occasion.
Q409 Chairman: But you do not see any further role for Ofcom.
Mr Richards: We are willing to help in whatever way we can, if it is useful and productive, but it is one of those situations where both parties have got to want us to help and want us to help find a solution, otherwise we would be wasting our time. We would be very happy to do that and we are very happy, as Stewart has said, to help think ahead about how we can avoid future disagreements of this kind and, also, think beyond that to 2014 which is when the licence period concludes to ask ourselves what form of agreement and what form of licence regime will ensure that, for example, dispute resolution is built in if you are still working with that federal structure.
Chairman: Thank you; that is all we have for you.
Witnesses: Mr Mark Byford, Deputy Director-General, BBC, and Ms Helen Boaden, Director, BBC News, gave evidence.
Chairman: We now turn to the second part of this morning's session, taking evidence from the BBC; can I welcome the Deputy Director-General, Mark Byford, and the Head of News, Helen Boaden. Tom Watson is going to start.
Q410 Mr Watson: Good morning. An open-ended question to start with: how do your proposals for media partnerships open up and enhance plurality in local media?
Mr Byford: The first thing to say is we absolutely believe in plurality; we
believe that is good for audiences across the
Q411 Mr Watson: The Press Association is probably the organisation that is most worried about these proposals; they think that there is some infringement in their territory in that sense. They have actually made the argument that it would reduce diversity; do you reject that?
Mr Byford: The proposals in connection with embedded video to the newspapers?
Q412 Mr Watson: Yes.
Mr Byford: We have been very, very sensitive to that. One of the things that the BBC has been encouraged to be is more open, more sharing, more enabling and we have been in liaison with newspapers who have asked us: "You generate this video material for your own site, can you not share it?" yet we have also wanted to be balanced with the potential to PA or ITN in market impact terms so we narrowed the subject areas in which we would offer that embedded video to politics, business, health and science and technology, not on the day for the day hard news, not sport, not entertainment, areas where PA would want to pursue that development obviously. I have met with Tony Watson and liaised with him about the plans, so they are very restricted by genre and it is up to the newspapers themselves to take them on board. In the first instance there were four national newspapers that took this partnership forward using very limited video themselves - the Guardian, Independent, Telegraph and the Mail but we do not force it; if they want to do it they can have it. The interesting evidence of the first three months is that that has expanded now to around 18 but the use of our material is very, very limited.
Ms Boaden: Just to reinforce what Mark says, the fact that we are not using as it were on the day material - this is material that has already been on our website which means we are not fighting them where they are strongest. You have to remember that we have contracts with PA and AP and Reuters anyway; we have had partnerships with them over many, many years so we do absolutely understand their business. We are slightly between a rock and a hard place on this one because we want to be sensitive to them but, equally, we do want to share the value of the licence fee with other players who are having a difficult time.
Q413 Mr Watson: PA seem to make some quite technical but nonetheless very important proposals to do with the way you do on-line stuff and if you have invested £1 billion since 1994 in on-line you have got some learning there. They asked you to look at sharing some of your audience and usability research, some of your on-line usage data and some of the open standards with which moving content is tagged and the taxonomy of that. Have you responded to that, are there any proposals to try and be a little bit more open? It might be too technical a question.
Mr Byford: When I met with Mr Watson and Mr Angeli from PA that was not raised in my own meeting but we will share what we can share. As I say, the BBC wants to be open, wants to be enabling and if it is technical data we can share or audience research and learning we will do so.
Ms Boaden: There is a whole push at the moment for more common standards about audience measurement on-line anyway because there are very different measures and it is frustrating for everybody, not least the advertisers, so some of that will be solved when there is a common standard.
Mr Byford: The key thing to stress, Mr Watson, is that the material that we share we have already generated for our website, we are doing no bespoke work for any newspaper at all. It is work that is already sitting on our own website that can then be shared by them.
Q414 Mr Watson: On the website I think it was the last Charter where for the first time you included your on-line public service commitments within the Charter. Have you received any representations that that should change, that you should not have a role for on-line at all?
Mr Byford: No.
Q415 Mr Watson: Are there any proposals in the system to consider charging for on-line news at any point in the future?
Mr Byford: No. Obviously we understand and appreciate the fundamental debate now around business models and the potential for charging and the different potential charging methods, but the BBC as you have rightly said recognise now that it is enshrined in the Charter for our activities across not just radio and television but on-line. We would see it as a fundamental public purpose of the BBC to provide news and information to support our public purpose of citizenship. The licence fee payer pays the £142.50 and through that fee they then get free access on radio, television and to our on-line materials.
Q416 Mr Watson: I might be drawing you into too political a position so feel free to body swerve this if you want but Rupert Murdoch has recently said that news aggregators are destroying the news industry, and that people are stealing content for free and that he intends to move his organisation into a pay model for news. Obviously the gorilla that is BBC News gets relatively bigger and bigger in that jungle when people start to pay; are you concerned that there will be pressure on you to reduce your news content in the on-line space?
Mr Byford: There will be, certainly, pressure or sensitivity in that we are aware of the market impact of the whole BBC on-line activity which fundamentally is there to fulfil the BBC's public purposes, but in news we have made it perfectly clear that that is an absolute core public purpose with universal access to free and trusted news and information at the point of access, and in the same way that we have provided that in radio for 80 years and in television since the 1940s and 1950s, so too over the last ten years we have been developing it in on-line. Just by the very fact of the embedded video partnerships we have shown sensitivity in market impact terms but actual access to it - universal access at the point of entry - we believe is fundamental in the BBC's role of news and information. On the role of aggregators, obviously again I am aware of the arguments that have been put forward by Newscorp and others about the role of aggregators. We ourselves have to think how do we get to our audiences that want to utilise BBC information, and in the main that is through direct access on the BBC site, but obviously BBC stories can be accessed through aggregators as well and they are growing rapidly. You talk of the gorilla: actually the biggest growth is in those areas.
Q417 Mr Watson: That would not surprise me. You would see it as the ability for people to find your content through search engines and news aggregators as part and parcel of your public service obligations.
Mr Byford: It is part and parcel of the way that people are accessing information in 2010. Clearly the primary focus for us is the establishing of bbc.co.uk and you using the news site through the BBC but stories are accessed through aggregators as well, yes.
Ms Boaden: One of the interesting things we have discovered with the audience recently is that increasingly they are using mobile devices and they are actually spending less time in the home, so the idea of going onto a computer and going to the BBC website, they will very often just put in a name of someone they are interested in a story about or a date or a tag word. The search engine is obviously the place that will then drive them to us or to anybody else.
Q418 Mr Watson: That is the PA point, that because you are very good at search engine optimisation and people finding you on the web, if they come to you at number one ...
Ms Boaden: We would actually regard ourselves as less good than others on our search engine optimisation. It is a skill that all of us in the news business are learning. The Guardian is seen as well ahead of anybody.
Q419 Mr Watson: The Telegraph is probably big on any one particular story.
Ms Boaden: The Telegraph is probably very good.
Mr Watson: Thank you very much.
Q420 Chairman: It has been suggested that there is a certain type of news content which really does not need to be collected by more than one organisation, the basic core background footage or whatever, and that therefore you might consider outsourcing some of that. Is that something you would consider?
Mr Byford: No. What we have done within the regional news and the suggested partnership initially with ITV and then with the independent consortia if and when they develop is that primarily the partnerships would be around facilities, studios and technical facilities, but there is a core amount of content there that is indisputable between us - an interview outside a council chamber possibly - where we can do one camera crew and one report, but the regional distinctive journalism would be done by the different teams because the whole point is to secure plurality.
Q421 Chairman: Sure. Obviously with things like interviews it is important that there should be plurality but if it is just basic, something like the Prime Minister leaving Number 10 Downing Street ---
Mr Byford: We do that now of course. There are pooled arrangements all the time.
Q422 Chairman: There are pooled arrangements for particular events of that kind ---
Mr Byford: It is taking forward that principle, Chairman, to a greater extent and yet at the same time balancing that with securing plurality. The whole thing is for the BBC not to be doing both. Where that material, particularly by the supplier on the independent consortia are happy that that is done as well jointly, in order to reduce costs, we look at that as part of the memorandum of understanding but original work - distinctive work - is obviously done by others.
Q423 Chairman: But the suggestion was perhaps, actually, that you might no longer use your own staff for that but that you might commission an outside organisation and buy in that material.
Mr Byford: Primarily the BBC at network and at local level has an in-house capability of reporters and correspondents. We already have agency agreements such as with PA for stories and agencies across the country and we would always look, if it is for the benefit of the licence payer alone, that we can also get sources of material from other areas too; we are not doing all our work just by ourselves both at international and at local level, but primarily we are an operation that produces BBC material and then publishes it.
Q424 Chairman: Can I move on to the proposed local video service which was then vetoed? You will be aware of the enormous concern that was expressed by local newspapers at the time that that proposal was under consideration, which was one of the major reasons why it did not go ahead. Have you now withdrawn from that idea completely or are you looking at alternative ways in which the BBC might provide very local services?
Mr Byford: We have withdrawn from it. We put forward the proposals, as you know, for that local video initiative to build the capability of being more local with greater video material on the broadband offer. That was rejected by the Trust, firstly on the priorities of the audiences themselves and, secondly, the sensitivity to market impact. They asked us to look at ways that we could continue to strengthen and commit to a strong regional and local offer but more in linear work on radio and television. We are strengthening local government correspondents, we are strengthening some local news-gathering in areas across the United Kingdom, we are doing some work around specialist state of the region reports once a year that we have been able to secure some investment for but primarily the building of bespoke local video at a greater local level than in our local radio network we are not doing.
Ms Boaden: You have to remember that our localness is actually county-wide by and large, big cities and counties, which is very, very different from local newspapers, so in the English regions which I am responsible for you have 40 local radio stations and their websites which are very modest by comparison with the 1,100 local newspapers that you have across the UK who would be able to dig down into far more localness. Our localness has always been county-wide which is really rather different from most local newspapers.
Q425 Chairman: Indeed, although that was the argument you deployed when you were trying to sell local video services.
Ms Boaden: Of course and we did feel there was an audience need there, but we entirely accept what the Trust has said and we have no ambitions in that direction.
Q426 Mr Sanders: Do you feel that the BBC has a duty to assist other public service broadcasters in these difficult times?
Mr Byford: Yes, in securing plurality of provision, as we said right at the start of the session. Clearly the licence fee itself has been focused on generating material for licence-payers through the BBC but where we can offer support, whether it is through technical facilities and supporting arrangements through the memorandum of understanding, through training, through the examples we have given about sharing our video, yes.
Q427 Mr Sanders: There was a report this morning in the Western Morning News about BBC Radio Devon axing four presenters because the station is losing listeners to Heart FM and Radio 4. It strikes me as odd that the BBC would be worried about losing audience share to another part of the BBC but Heart FM has a very narrow focus in terms of who its listeners are and I wonder why the BBC would want to be competing with a commercial organisation rather than tracing the listeners that Heart FM is not aimed at and does not reach.
Ms Boaden: The axing of presenters may not be anything to do with the competitive position, we refresh our presenter line-up on a semi-regular basis and that may be an interpretation given to that move. You are absolutely right, we have to be competitive up to a point because, clearly, we want as many people as possible to consume what we are offering, particularly our news offering, but if we are in head-to-head competition with commercial players that is not the right place to be. I suspect Radio Devon are actually refreshing, as we often refresh, the presenter line-up to make sure that the audiences that they have get the best possible service.
Mr Byford: What I would say as well is that BBC local radio, whether Radio
Devon or any of the others across
Ms Boaden: What they want of course is the distinctive service of local news and sport, but the localness is absolutely critical to them, the speech-led localness.
Q428 Mr Sanders: You are absolutely clear that there is no dichotomy between wanting to assist other public service broadcasters but, at the same time, competing with them for audience.
Mr Byford: The first and foremost of any BBC activity is to fulfil the public purposes as laid out in the Charter of the BBC; that is why we are here, so the driving force of any BBC output - local radio, network news - is to fulfil public purposes on citizenship, trusted news and information, taking people to account, the coverage of democratic institutions and also the clear public purpose of celebrating a sense of place and the diversity of the UK at a local level. Radio Devon and Radio 4's Today programme are both fulfilling those roles but they absolutely have to recognise that they are in a marketplace with other players, other BBC services, commercial players and then in the wider sense of people coming for information in print as well. They need to see which audiences they are going for, so there needs to be a discipline rather than an absolute rigidity. Local radio is primarily an older audience that it is trying to attract and it is trying to offer a distinctive offer, as Helen said, through high quality local news, information and debate. It plays some records during the day but the primary reason for it being there is not to play music.
Davies: You have said on a number of
occasions today that you believe in plurality and you have also said in answer
Mr Byford: Because we feel that the accountability of the licence fee itself to licence fee payers is critical. When they pay the £142.50 they know they are paying it for BBC services and that clarity of accountability is critical. Secondly, there is an issue around independence and if this fee was being used for other priorities, political priorities, that could be damaging there but primarily it is the clarity that the licence fee itself is being used for BBC content and, therefore, we feel accountable to the licence payers themselves. When asked during the summer as you will know through the independent research that was the view of the licence fee payers themselves.
Q430 Philip Davies: What is the big difference in principle between the BBC using the licence fee to help other public service broadcasters and the licence fee just going directly to public service broadcasters?
Mr Byford: The licence fee itself is being used to support BBC content and BBC services such that the licence fee payer knows that we are wholly accountable for that. We have said though are there ways in our activities, additional to the BBC fulfilling its public purposes, where we can be open and supportive? For instance, if there is a studio or technology or desk space that can be used that saves those independent consortia costs in them setting it up themselves free-standing, then we are willing to explore that and discuss it. Obviously there would have to be a charge for it but that would support their ability to be able to fulfil the plurality of a second source of news more than just ourselves. So it is not the direct use of the licence fee, it is the BBC's activities being able to support them.
Q431 Philip Davies: In the recent consultation document the Government said quite clearly really that the television licence fee is not the BBC licence fee. Do you accept that or do you disagree with that?
Mr Byford: I accept that it is the TV licence fee but I also believe that because it is used for BBC content and BBC services the licence fee payers themselves know in accountability terms what they are spending their money for and therefore we are accountable to them because they own the BBC.
Q432 Philip Davies: You are not saying in any shape or form that the reason why there should not be any top slicing of the BBC licence fee as you see it is nothing to do with the fact that you think the BBC is strapped for cash and it could not afford to manage on less; that is not in any shape or form your argument.
Mr Byford: No, it is a principle.
Q433 Philip Davies: It is a principle, so the BBC could manage with less money.
Mr Byford: The BBC will manage with the money that it is given through the licence fee to provide the wide range of services that licence payers expect.
Q434 Philip Davies: As I mentioned at the start you have said time and time again today that you absolutely believe in plurality. What do you say to those people who raise an eyebrow at that, when ITV have an incredibly successful, popular income stream called the X Factor and the BBC go and put Strictly Come Dancing on at a very similar time? What do you say to people who see that as a clear attempt at the BBC to try and deprive ITV of some much needed income?
Mr Byford: I say that ITV are getting absolute record audiences for the X Factor, 15 million on a Sunday and 14 or 15 million on a Saturday. There seems no evidence of anything that Strictly Come Dancing is doing on a Saturday evening which damages that.
Q435 Philip Davies: That might be because they have got a better programme than you have but the issue is that nobody was to know that at the time. The issue that people raise is that you were deliberately trying to put on a very popular BBC programme at the same time as ITV's X Factor programme in order to try and deny them some much needed advertising revenue which does not have the hallmarks of an organisation that has an absolute belief in plurality.
Mr Byford: It is not true Mr Davies. Firstly, Strictly Come Dancing is not on a Sunday evening any more, ITV schedule X Factor both on the Saturday and on the Sunday. On the Saturday evening the BBC has to serve licence payers with the programming that they expect. There is a major family drama, Merlin, early in the evening, we have contractual obligations on Match of the Day with the Premier League later in the evening and, therefore, between those two we also schedule Strictly Come Dancing and Casualty. Actually this is not the first year where there has been a time overlap between Strictly Come Dancing and the X Factor, this has happened over years, but by us not being there on a Sunday, by us explaining about the early evening family drama and Strictly Come Dancing being in its traditional place we have shown that we are absolutely clear on our public purposes and sensitive.
Q436 Chairman: I am advised by my expert on Strictly Come Dancing that there are reports that it is going to be broadcast on a Sunday.
Mr Byford: It was certainly not in the initial weeks that I have been watching.
Q437 Chairman: No, in future I am told there are plans for a Sunday show.
Mr Byford: I am not aware of that as I speak now but I am aware that one of the things that ITV have been able to have this run is the show over two days, obviously, and that Strictly Come Dancing has been scheduled, driven by the public purposes of the BBC to provide high quality, distinctive entertainment alongside the sport, the drama and the news that we have, on a Saturday night.
Q438 Philip Davies: My final question is given your absolute belief in plurality, which I accept, if the only way that ITV could continue to produce their own regional news programme in competition with the BBC, if the only way that that was financially viable, was through the top slicing of the licence fee in order to pay for them to do that, which would be your biggest priority your defence of the BBC having exclusive rights to the licence fee or your absolute belief in plurality?
Mr Byford: Firstly ITV, as I understand, have said that they do not want to produce the ITV regional news, hence why the independent consortia proposition has been put forward by the present government, they have said they do not want to continue producing it. The BBC's obligations must be to fulfil its public purposes and its obligations to its licence fee payers, that is why we are there. I hope I have explained to you why we think that the licence fee itself and its relationship of BBC services and content to licence fee payers is a critical principle that the BBC has explained. For me the most important thing is for the BBC to fulfil its public purposes but also in any way that it can, through partnerships and support, secure plurality without breaking that principle.
Q439 Philip Davies: You are slightly dodging the question if you do not mind me saying so. If I could ask you directly and try if you can to give a direct answer, which to you is the most important: exclusivity of the licence fee to the BBC or an absolute belief in plurality? If the two ever come into conflict which is your absolute most important priority?
Mr Byford: I am sorry, Mr Davies, but my answer may not satisfy you in being
absolutely one. The clear priority for
the BBC is to fulfil its public purposes but the BBC also recognises that the
Philip Davies: I got the answer to the question.
Q440 Paul Farrelly: The only argument we have about the BBC in our household is the scheduling of Top Gear at - it causes an awful lot of argument about kids' bedtimes.
Mr Byford: Not just in your own household!
Ms Boaden: You need the i-Player.
Q441 Paul Farrelly: That is my answer and I am sure lots of people would love you to show the test card on Saturday evenings, but may I urge you to resist that. One other way that you have been looking at supporting or propping up plurality is not so much by top slicing as filleting BBC Worldwide in a discussion about a partnership with Channel 4. Can you tell us where those discussions stand at the moment?
Mr Byford: They are ongoing as I understand it between the BBC and Channel 4.
Q442 Paul Farrelly: When do you anticipate a conclusion?
Mr Byford: I do not know the precise date for that. I know they are on-going and being pursued by BBC Worldwide with Channel 4.
Q443 Paul Farrelly: One of the questions we asked the Director-General when he last appeared was whether splitting off all or part of BBC Worldwide was under consideration and he replied categorically "No". Then some weeks later I was quite surprised to read in the Media Guardian an interview where the Director-General said there was no necessity for the BBC to own 100% of BBC Worldwide. What is the current situation in the BBC's thinking on that?
Mr Byford: There is an on-going strategy review being conducted by the Director-General and his team that will report to the Trust in the New Year. That will look at all BBC services and BBC activities in the digital age but there is absolutely no specific plan to hive off Worldwide or any part of it at this stage today.
Q444 Paul Farrelly: When will that review conclude?
Mr Byford: In the New Year.
Q445 Paul Farrelly: When in the New Year?
Mr Byford: Between January and Easter is my understanding of the time that the Director-General will put forward the overarching proposals to the Trust for their consideration.
Q446 Paul Farrelly: What is the purpose of that review?
Mr Byford: The purpose of that review is to look at the BBC's fundamental public purposes in a world of growing convergence, in a world where digital switchover will have happened in 2012 in the overall scale and scope of the BBC and its priorities. We look at what we do today, how we are fulfilling that and if there is any need for change adaptation that can be put forward for the Trust's consideration.
Q447 Paul Farrelly: Finally with respect to plurality there were lots of people vociferously saying as part of our last report that it was not best served by paying an enormous price for Lonely Planet. Recently we have read that the option that the founders had to sell the remaining stake to the BBC had not been exercised and had been extended. Can you just shed some light on that situation as well?
Mr Byford: I have no further details that I can give you about the put or the plans with regard to Lonely Planet and the ownership by them. What I can say, and I think Mr Whittingdale is aware of this, is that the Trust themselves are, in the light of your own work as well as their own, publishing the commercial review findings and there will be an engagement with yourselves about that, I am sure.
Q448 Paul Farrelly: Why can you shed no light on that situation?
Mr Byford: Because I have no precise information to your question which is what is happening on their option on the put. I do not have any information today on it myself.
Q449 Paul Farrelly: That is clear; could you perhaps follow up and explain the situation in writing because on the face of media reports it is rather strange that an option that is not exercised is extended, particularly when the BBC is being criticised for the price it paid and has not, according to press reports, used the position to negotiate a keener price.
Mr Byford: You in your own report made comments on that and when the right time would be. There are certainly no plans at this stage that I know of to sell or to exercise that but we will get you a file note on it.
Chairman: Thank you; that would be helpful. Tom Watson.
Q450 Mr Watson: Before I ask my question can I say there are a number of BBC lovers who quite like the fact that you clash with X Factor because it means that the family only have to watch one of them rather than both of them, but let me stretch the plurality question a bit further. It is about citizens having to change their Freeview box to receive HD content going forward and there was a recent very quick Ofcom review that is actually to review your approach on the way that people can access that content because there was a form of digital rights management within the boxes. Have you responded to Ofcom on that? It might not be your area, Mark.
Mr Byford: I will have to provide you with a note.
Q451 Mr Watson: That is fine, do not worry.
Mr Byford: Forgive me on that but if there are ways that we need to be making it easier for people to be able to access BBC HD in time through a Freeview box then I am sure we will be, but I can get you a more detailed answer.
Mr Watson: That is very reassuring; thank you.
Q452 Chairman: I have two specific issues which were put to us in evidence we received in this inquiry relating to complaints about the activity of the BBC. The first came from the Radio Centre who, in talking about the partnership discussions, described it as "at the moment they are long on rhetoric and short on delivery". They then made a very specific proposal which related to the BBC bidding for exclusive sports rights and in particular they pointed out that actually since most matches take place on a Saturday afternoon at three o'clock the number of matches that could be broadcast by the BBC is quite limited and so quite a large number of these matches are not broadcast as a result of the BBC having exclusive rights. They suggested that you should be, perhaps, in partnership and not trying to obtain exclusive rights. How do you respond?
Mr Byford: The first thing to say is that at regional and local level we do not have exclusive licences.
Q453 Chairman: They were particularly talking about it in terms of national.
Mr Byford: In a Committee looking at regional and local media I thought that was worth emphasising, that we do not within the local radio network. At network level obviously there is a commercial dimension to the BBC's approach to sports rights that obviously you will appreciate, I know, but we hear that about the radio rights and the exclusivity and that is one of the areas we will be looking at as part of the overall going forward of the BBC in its strategy review.
Q454 Chairman: Do you at the moment still defend exclusive rights for sports matches on radio?
Mr Byford: We absolutely support the fact that we were able to secure those rights and broadcast them through Five Live but we also understand the sensitivity of what is being said to us about the possibility for other matches being used by others such that the exclusive rights will not allow that to happen. We will look at that as part of our future sports rights policy.
Q455 Chairman: When is that likely to happen?
Mr Byford: On-going.
Q456 Chairman: The other issue which was raised with us by the Press Association was the operation of the digital pool and the fact that the content from the digital pool is made available to the three main broadcasters but not to the Press Association for dissemination to their customers or on-line websites.
Ms Boaden: This is an area of on-going debate because a pool requires everyone to contribute to it and some of the other players in the pool - because it is not just us, it is also ITN and Sky - have reservations about what the PA can contribute in a pooled sense, so this is an area of on-going debate between all members of the pool.
Q457 Chairman: Let us take the example that was given to us which was a press conference about swine flu where the Press Association were not able to obtain the footage of that press conference which obviously would have been of considerable interest to local newspapers who wished to carry it on their sites. Surely the people losing out are actually firstly the Government, who will want to have that information made available as widely as possible, and also the local newspapers.
Ms Boaden: What I am saying is that a pool is made up not just of the BBC and other partners in the pool have a rather fierce approach to this in terms of what everyone contributes to it. The BBC is not in a position in a pool to impose conditions on other players in that pool.
Q458 Chairman: Are you saying that the BBC would be very happy for them to have it?
Ms Boaden: The BBC tries to be as flexible as possible in these situations but a pool is made up of several players. We have had negotiations and talks with the other parts of the pool on this very issue and not everyone is as flexible as we are.
Q459 Chairman: You are trying to persuade ITN and Sky.
Ms Boaden: I would not say we are trying to persuade, we are having an on-going discussion with them because we do recognise it is an issue.
Q460 Chairman: But you are essentially in favour of allowing content to be made available.
Ms Boaden: I am essentially in favour of us being as flexible as possible as long as the pool is a genuine pool where people bring, as it were, equal properties to it.
Q461 Chairman: That is not the same thing.
Ms Boaden: The argument here is that the PA does not actually bring enough in terms of people and resource to contribute to the pool; that is the debate and that is what we are looking at at the moment with the other partners in the pool.
Q462 Chairman: Surely the purpose actually is that if the Government is giving a press conference the Government wants that information to be as widely available as possible; it should not be a case of certain broadcasters saying "We are not going to share."
Mr Byford: That would be different to a pool. If there were only certain crews that were in there but it was wanted to be widely accessible then it would be provided; this is different, it is who shoots it that is part of this pool arrangement. It is not about the information being available, it is more the arrangements for who shoots it and then shares it among that pool. We talked about this with Mr Watson and Mr Angeli when I met them; my understanding on it is that as Ms Boaden said there are certain things about the criteria of cameras and being able capability-wise to provide the obligations in that pool. Remember pools are very limited; the swine flu example you give, I would be surprised if that ever became part of that core pool, there would be different organisations there filming the same thing with Mr Donaldson or whoever, but where the pool arrangements are understood and are between the three broadcasters the BBC has got to make sure that it gets the right material for its services and that is the same with ITN and Sky, and we will co-operate with anyone who should be part of that pool in my view. If there are areas of concern by others within it about commitment and quality we would have to look at those alongside them.
Ms Boaden: It is not all in our gift is the point I was making because of the nature of the pool.
Q463 Chairman: I understand it is not solely within your gift as long as we can be assured that you are doing your best to be helpful.
Ms Boaden: We are.
Q464 Chairman: That is all we have for you; thank you.
Mr Byford: Thank you very much indeed.
Ms Boaden: Thank you.