UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 43-iiiHouse of COMMONSMINUTES OF EVIDENCETAKEN BEFORECULTURE, MEDIA AND SPORT COMMITTEE
THE FUTURE FOR LOCAL AND REGIONAL MEDIA
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This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Transcribed by the Official Shorthand Writers to the Houses of Parliament: W B Gurney & Sons LLP, Hope House, Telephone Number: 020 7233 1935 |
Oral Evidence
Taken before the Culture, Media and Sport Committee
on
Mr John Whittingdale, in the Chair
Mr Peter Ainsworth
Philip Davies
Paul Farrelly
Mr Mike Hall
Rosemary McKenna
Adam Price
Mr Adrian Sanders
________________
Memorandum submitted by ITV plc
Examination of Witnesses
Witnesses:
Mr Michael Grade
Q515 Chairman: Good morning. This is a further session of the Committee's inquiry into the future for local and regional media. I would like to welcome - probably in your last appearance in your present capacity before this Committee - Michael Grade, the Executive Chairman of ITV, and Michael Jermey, Director of News, Current Affairs and Sport for ITV. Michael, could you perhaps begin by talking us through the economics for ITV of regional news production and why therefore you would reach the conclusion that ITV can no longer afford to provide it?
Mr Grade: Regional news is by far the
biggest element of our PSB obligations under our licence. It is currently running at around £50 million
a year. In addition to that we have
about £33 million a year subsidies to Scottish,
Q516 Chairman: You say it costs around £50 million for ITV to produce all of its regional news programming. How much does ITV get in terms of advertising revenue for that timeslot?
Mr Grade: Little or none.
Q517 Chairman: Little or none?
Mr Grade: None, no; because we do not put breaks around it because we are limited in the amount of airtime we can deploy for advertising; and the valuable audiences - valuable in terms of making up part of the constituency that enjoys ITV - is an audience that is available elsewhere in the schedule and is not attractive to advertisers.
Q518 Chairman: We may come back to that. Is it your view therefore that regional news cannot produce advertising revenue?
Mr Grade: There is a finite pot. I suppose you could ascribe advertising revenue around regional news but it would come from somewhere else; it would come from other parts of the ITV schedule.
Q519 Chairman: You have already cut back quite significantly the amount of regional news that you provide, do you intend to make further reductions?
Mr Grade: That depends on the outcome of the IFNC deliberations; the passage of the bill; it depends on Ofcom's deliberations and final resolution of the subsidy to the non-consolidated licences, Scottish and Ulster - if I can call them NCLs for the non-consolidated licences it will speed things up a bit - the resolution Ofcom is currently enquiring into, trying to establish what the subsidies, if any, are from ITV to the NCLs and vice-versa. When we know the outcome of that we will look at that in the round and we will have to sit down with Ofcom and, presumably, the government of the day to decide what the policymakers would like us to deliver in terms of value for the value of the licence, which is considerably reduced these days.
Q520 Chairman: Will you go on providing regional news at the present level until the IFNC project is launched?
Mr Grade: I do not think I can answer that directly at the moment because we do not know what the numbers will be. There is also a revue going on presently on the cash costs of our licence which Ofcom has undertaken; so you have to look at all the elements of the PSB requirements, including the cash costs of the licence, see where that comes out, look at the value of the licence and then decide what cuts you are going to have to make to get it back into line. I certainly would not rule out further cost-cutting in regional news but I do not think it is a foregone conclusion, depending on the outcome of those other deliberations.
Q521 Chairman: You will be aware that the proposal by IFNCs is not supported by the Opposition. Given that there is a possibility that there might be a change of Government, what will ITV do if it does not go ahead?
Mr Grade: If it does not go ahead - looking at the positive side of the Conservative Party's stated policy on regional news, which is to look to create a regime that will encourage entrepreneurial and innovative activity using new distribution platforms e.g. broadband et cetera, I think that is exciting; I think it is interesting; I think it might produce something; the market might find a way to make this pay; there might be a market solution to the problem; but of course, unless there is public money of some kind, you are never going to be able to guarantee it. So far as ITV is concerned, if a future Conservative Government decided to abandon the IFNC issue the quid pro quo is that we would have to be relieved of those PSB obligations which brought our licences into deficit.
Q522 Chairman: You mean you would drop regional news?
Mr Grade: There would have to be a package of measures to get ITV's costs and licence benefits back into kilter.
Q523 Chairman: That package would include dropping regional news?
Mr Grade: It would mean a considerable revision of regional news. It may indeed mean dropping regional news in its entirety but there may be a way to deliver it in a more efficient manner than we do presently, I do not know. It depends on the numbers; it depends what comes out of Ofcom's reviews of the networking arrangements; subsidies to the NCLs; the PQR and the rest of it; it is all part of a package really. Let us be absolutely clear here, it is impossible for ITV to deliver more than the intrinsic value of its broadcasting licence. I think there is broad political acceptance of that fact.
Q524 Chairman: What is your current estimate of value of your broadcasting licence?
Mr Grade: It changes as each region goes digital, but the overall calculation - which I think Ofcom would absolutely support - is that we are certainly in deficit in 2010. The licences are definitely in deficit in 2010.
Q525 Chairman: When analogue switch-off has been completed do you have a view as to how much it would be costing ITV to be maintaining its present public service obligations?
Mr Grade: If we carried on precisely as the licences are currently constituted - and there were no changes to what we did; we were still paying £33 million a year in subsidies to the NCLs; still paying £50 million a year; still paying the cash costs of the licence et cetera - by 2012 we would be £77 million in deficit.
Q526 Chairman: There is still some value to you from things like multi-carry?
Mr Grade: There are benefits. We calculate there is about £35-40 million of benefit in the licence going forward. We will provide £35-40 million of benefit whatever the policymakers of the day wish us to do: we will pay it in cash; we will pay it in cash in kind; you just tell us what you want for the £35-40 million you can have it; we will deliver it, but not a penny more.
Q527 Mr Sanders: Are you at all worried about the reputation and the brand of ITV if it is no longer a news provider?
Mr Grade: ITV will always continue as a PSB. I think probably in order to remain relevant and competitive with BBC1, which after all is the main competitor for viewers, we will always strive to do impartial international and national news. If regional news were to disappear in its entirety I think it would improve ITV's ability to compete commercially, and I think there would be a gain for viewers in our ability to go on investing at present levels in domestic production which is, after all, what the largest audiences wish us to do. They want to watch Doc Martin; they want to watch the X Factor; they want to watch I'm a Celebrity; they want to watch Coronation Street and Emmerdale. These are shows that attract, even in today's fragmented market, 10s, 12s, 15 millions of viewers; that is what people really want from ITV. Yes, it is nice to have that regional connection but it is unaffordable.
Q528 Mr Sanders: Was ITV not actually based on being a consortium of companies based in the regions and that regional identity came through its regional news?
Mr Grade: Unquestionably so, but of course this Committee will not need reminding that we were a monopoly in those days, and with the monopoly profits that ITV was able to earn in those days it was able to do all kinds of wonderful things, including regional news; but the world had changed; it is a much colder place; it is more competitive; we cannot afford to go on doing that.
Q529 Mr Sanders: It is true you were a monopoly in terms of providing advertising space for people who wanted to advertise on television, but you remain a monopoly commercial television regional news organisation - the only competition is the BBC for news in the regions via the cathode ray tube, or whatever the modern equivalent is?
Mr Grade: Unfortunately that monopoly as you have described it, which is perfectly accurate, does not translate into revenue, and that is where the problem lies, sadly.
Q530 Mr Sanders: In terms of how regional news has been cut back or where there have been mergers as in West Country and HTV, will ITV suffer any disadvantages from the loss of so many regional journalists?
Mr Grade: Nobody likes to lose anything that we have done so well for so many years but, sadly, economic necessity says that it is no longer affordable; and there are lots of things in our lives that are no longer affordable which we mourn the passing of but we move on and something will replace it. What is essential for ITV and the future health of broadcasting and the production industry in this country is that ITV is sufficiently viable economically that it is able to go on delivering what the public wants from us in the main. Yes, there are lots of other things they would like from us but, in the main, what they want from us is to deliver hugely popular drama, entertainment, programming made by British producers for British audiences at a level that sustains ITV going forward. If we have to denude the network schedule in order to pay for loss-making regional news I think overall you would have to say that the viewers would suffer.
Q531 Mr Sanders: I think a lot of people would find this difficult to understand, in that you were formed very much as a regional commercial broadcaster; you could not describe yourself as that if you have jettisoned regional news; in fact you are just another broadcaster competing with other broadcasters. What is going to be the unique selling point of ITV without its regional links?
Mr Grade: Nearly £1 billion of investment in
Chairman: I think that is an appropriate cue for Rosemary McKenna!
Q532 Rosemary McKenna: I am not going to take that bait right just now! Maybe later on. We will stick to the route that we are on at the moment. When you were at the BBC, Michael, you told us that you thought there was a real opportunity for the BBC to pick up the regional news band. Do you still feel that?
Mr Grade: More than simply regional news. I was a great advocate, when I was fortunate
enough to be at the BBC, of the BBC picking up ITV's regional mantel and
moving. The way I used to describe it
was: as the ITV vans with all the kit
and everything were moving to
Q533 Rosemary McKenna: They are incredibly strong in the regions, you are right. What does that do to the plurality of provision? That concerns me, that there will be one regional broadcaster with one view and no other view being heard?
Mr Grade: As a citizen or a subject of the
Q534 Rosemary McKenna: You cannot see any other way round it?
Mr Grade: Not to guarantee it, no. Broadcasting is so competitive today; it is not just us versus Channel 4, 5 and Sky; it is all of us against Google; against all the international brilliant businesses that have grown up driven by the internet and so on. We are in a huge, huge battle internationally, not just domestically, so that is the problem.
Q535 Chairman: The three pilot projects that are envisaged, do you anticipate that ITV will be participating in all three of them?
Mr Grade: We will not participate, no. If our staff wish to be part of outside independent consortia bidding where there is a kind of Chinese wall, we are happy for them to take that opportunity; but ITV itself will not be bidding.
Q536 Chairman: ITV will not have any part within any of the IFNCs?
Mr Grade: No, that is correct.
Mr Jermey: No. We would have no narrow commercial interest, no desire to bid. If our staff work with a consortium, fine. We will want to engage with DCMS on making the pilots a success, but as the broadcaster and not as somebody looking for funding.
Q537 Chairman: All of your regional journalists will have to leave ITV and seek employment with the new IFNC?
Mr Jermey: That is correct, yes.
Q538 Chairman: The full rollout is not anticipated to take place until 2013. Is that soon enough?
Mr Grade: As in our evidence to DCMS, which I am sure the Committee has seen, we favoured a Big Bang approach; we felt that would be the most efficient, the most effective and the most practical way of proceeding. That argument did not hold sway and we are going to have three pilots. We are deep into working out the details and discussing the details with DCMS and so on. We would have preferred a Big Bang but we are faced with three pilots which is, I suspect, better than none, but we will have to make it practical. Our biggest concern is, the object of putting public money into regional news plurality is to create serious competition for the BBC so that they do not end up with a monopoly, as we have just rehearsed; that means that the regional news provision has to be of a quality that it is competitive with the BBC. Our major concern as an organisation, as a broadcaster, is to have as much influence on it as possible to ensure that what appears on the screen is at least competitive in terms of quality with the BBC, otherwise it is a fruitless exercise.
Q539 Chairman: You have said that the benefit will no longer outweigh the cost of your public service obligations from essentially next year. IFNCs do not arrive until 2013 - what is going to happen in the intervening three years?
Mr Grade: We will have to look at our cost base again, certainly.
Q540 Chairman: If IFNCs are the answer and they cannot arrive until 2013 are you envisaging there could be a gap with no regional news provision?
Mr Grade: There will be a gap but there are other potential reliefs on the way; namely, the subsidies to the NCLs, and the cash payments to the Treasury for the licence which are under review; so hopefully there may be some other relief.
Q541 Chairman: So essentially you are looking for public support or at least some public help to get you through that period?
Mr Grade: When you say "public help", I do not think a
subsidy to Scottish and
Q542 Chairman: Could Treasury help?
Mr Grade: Yes. Ofcom is charged with the process. The process has been triggered by the Government through a technicality and it is for Ofcom now to decide and determine what those payments should be.
Q543 Chairman: Other help, such as the amendments to the CRR regime?
Mr Grade: That is underway. The CRR merger remedy, which was imposed and voluntarily agreed to by ITV, is the subject of review presently; it is in the final chapters of the competition regulators' processes. We think there is an overwhelming case for abolition. We have had a provisional decision from the CC. There is a further consultation going on. The CRR benefit to ITV is more about - horrible jargon, I am afraid - the dynamic efficiencies of ITV. The unnecessary cost - and the inefficiencies that ITV has to incur through investment decisions that it would not make if it were not under CRR - is a serious cost to us; and we are busy discussing that with the CC presently and we will see where they come out at the end. It is a serious impediment to our business in so many different ways and I think it has really outlasted its usefulness. ITV is entirely substitutable now for advertisers. You can buy around ITV in a way that you could not at the time of the merger. Digital penetration is very close to 95% now. Advertisers do not have to buy ITV; they can buy around it.
Q544 Chairman: On the other hand, I have heard you sit in that chair and argue that ITV's great strength is that it is still the only place where an advertiser can go to hit 10 million people simultaneously?
Mr Grade: Yes, but that does not mean to say that we have any pricing power as a result of that, because you can still reach those 10 million people; it might take you two days to get to them and it might be slightly more expensive to buy it in terms of you having to buy lots of slots on different channels, but it is easily doable, which it was not at the time of the merger.
Q545 Mr Ainsworth: On the IFNCs, you appear to be very enthusiastic about these, having said that as a policy "... it is imaginative, groundbreaking and brings a new approach to local and regional news". You have got some sort of conditions attached to your enthusiasm with IFNCs, have you not?
Mr Grade: Yes.
Q546 Mr Ainsworth: Such as?
Mr Grade: We are obviously concerned about the quality; we are concerned that we do not end up paying for it again through advertising minutage. Those are the substantive conditions.
Mr Jermey: I think those are the two substantive conditions.
Q547 Mr Ainsworth: The BBC has suggested partnerships in advance of the actual introduction of the IFNCs. What is your response to that?
Mr Grade: It was a very promising offer at the beginning. The BBC Director General I think was on record as saying that partnerships with free-to-air PSBs could be worth £120 million, and that the regional news element of that could be worth £20 million or so. After tortuous negotiations with a host of serried ranks of BBC apparatchiks -----
Q548 Mr Ainsworth: The ones you did not get rid of!
Mr Grade: ----- what it all boiled down to was maybe £6 million in 2015 was where it ended up. The promise was not there in the delivery.
Q549 Mr Ainsworth: So that is off, is it, as far as you are concerned?
Mr Grade: We are happy to partner with the BBC if it is meaningful. If there is £6 million available in 2015, if ITV is still a PSB at that point in time it might be worth having, but it certainly was not game-changing. It did not change the economics in any way, shape or form, and it was a very, very, very disappointing result, that negotiation.
Q550 Mr Ainsworth: Do you have any qualms at all about the use of public funds to support commercial regional news, either around the possible impact on content or in terms of the principle of the commercial sector being, as it were, invaded by public money?
Mr Grade: I do not really have a view, other than we
were very clear from the beginning that we had no interest in directly taking
public money into ITV with all that that entails in terms of, quite rightly,
accountability, transparency and so on.
We are trying to get out of regulation and prescription, rather than get
deeper into it, so we had no interest.
What we said was, if it is a matter of public policy that there should
be plurality in regional news provision, it should be on ITV, we said, "We'll
make the airtime. We'll be helpful. We understand the kind of democratic deficit
issue that's at stake here. We'll make
the airtime available but leave it to somebody else to worry about". Given the choice, given the present economics
on the present weight of costs of the PSB licences, we would not do regional
news; we would not pay a subsidy to Scottish or
Q551 Mr Ainsworth: What is it about news that is such a turn-off to advertisers? You said today exactly what STV told us the other day which is that they cannot make money out of doing this?
Mr Grade: They cannot.
Q552 Mr Ainsworth: What is it about it?
Mr Grade: The audience that really enjoys and is a mainstay of ITV - that really enjoys regional news - is an audience that is available in every other part of the schedule; therefore, it has no special value to advertisers. We do not sell audiences; we sell any number of sub-demographics within an audience profile at different prices; and the audience that watches regional news by and large - and these are sweeping generalisations but I think I am pretty accurate - is the least desirable audience for advertisers.
Q553 Mr Ainsworth: I am just trying to work out in my own mind whether the conversation around the provision of regional news on commercial television is really a conversation that happens here in Westminster, and maybe in the Scottish Parliament and so on because it is of interest to people involved in politics, but it is not really a conversation that is very interesting to the general public; because, if it were, regional news would be financiable in the commercial sector in a way that evidently it is not?
Mr Grade: That may well be the case, but ITV is trying to make a transition from having a very privileged position and a licence to broadcast on a very rare and valuable spectrum to being a fully fledged commercial business operating on spectrum which is now much more freely available as a result of the switch to digital; and we are just trying to be a business. We are not in the business of social engineering; we are not in the business of being told where we should make programmes; who should make our programmes; what the terms of trade should be with the people who make our programmes. There is more intervention in the broadcasting commercial market than is healthy for the broadcasting market; and it is not in the interests of the viewers because, at the end of the day, all that happens is we have to take more and more money off the screen to do things that belong to a monopoly analogue past. It is absolute nonsense.
Q554 Mr Ainsworth: We have been watching with a certain amount of interest, and indeed awe in view of some of the numbers involved, the struggle you have been having over your successor, the absence of a chief executive and the long-running saga of who is going to run this show after you have gone. Archie Norman has obviously been appointed and is due to take up position; yet to appoint a chief executive, I think?
Mr Grade: He is yet to start as chairman.
Q555 Mr Ainsworth: What sort of sense do you have that your departure will herald a different approach on the part of ITV management to the issues we have been talking about?
Mr Grade: I think it is much too early to say. I am working very closely with Archie, somebody I have known for many years, and was absolutely thrilled when he accepted the chalice!
Q556 Mr Ainsworth: What is in the chalice?
Mr Grade: I do not know if it is "the vessel with the pestle" or "the chalice from the palace" or "the flagon with the dragon" - those of you who remember "the brew that is true"! For those who do not know, that is a reference to The Court Jester with Danny Kaye which is on YouTube. It is well worth showing your kids! Archie is an extremely, more than able, thoughtful person who will think his way through the problems and the issues facing ITV. I have absolutely no doubt in my mind that whatever legacy I have left he will build on and will not undo it. As a former Member of Parliament I am sure he is well aware of the importance of regional news; but he will make his own mind up. He has got some big decisions to make which is, in a sense, why we needed to do the succession quicker than might have been otherwise expected, because there are some long-term decisions going to be made in the next year or so, and I certainly was not going to stick around with ITV for five or ten years, which is what the next person will hopefully do.
Q557 Adam Price: Just coming back to this issue of whether it is possible to make any money at all out of regional news, is there any evidence that regional news possibly anchors an audience in from the beginning of the evening? They may be the same people who go on to watch the later programming but you have got them there, because they know the regional news is part of the evening schedule; it is part of the way some people organise their lives, I am sure, around ITV's schedule?
Mr Grade: If regional news were to disappear from the ITV screens it would be in the commercial interests of ITV to create something to fill the slot; the screen is not going to go blank for half an hour; it would have to put something in there that is going to delight that audience, and that is going to perform the same job in audience terms but, at the same time, hopefully something that will have a positive rate of return on that investment. That is our job.
Q558 Adam
Price: Television in
Mr Grade: The market is ten times bigger than it is in
the
Q559 Adam
Price: Can I take it that maybe what
you are arguing is that possibly the nations,
Mr Grade: Absolutely.
Q560 Adam
Price: ------ because there is a
well grounded sense of the nation et cetera; whereas in
Mr Grade: Very artificial, yes, and bear no relation to the way people see themselves in their communities and the way they live.
Q561 Adam Price: In the possibly more deregulated future, that maybe the Conservative Party are proposing, city TV that could work in the UK on a commercial basis?
Mr Grade: If we can free-up the regulatory regime to allow all kinds of consortia, regional newspapers, local newspapers, local TV, local radio, all the people who have an interest in that market if they are allowed to come together and consolidate and try a few things out, why not.
Q562 Adam Price: Do you still sell advertising on a regional basis as well as nationwide?
Mr Grade: Yes, we do.
Q563 Adam Price: Has that fallen off over time?
Mr Grade: It is volatile. It is doing better at the moment than it was at the beginning of the year. It is doing a lot better and that suggests that the regional economy, particularly in retail, has picked up a bit from where it was at the beginning of the year. We are pleased with the performance of regional retail. Many of our national advertisers, some of our biggest advertisers today, started off with one or two slots in Yorkshire Television. DFS, Lord Kirkwood, started with a few slots on Yorkshire Television; he is now one of our biggest advertisers and a very, very important customer and he has built a fantastic business on the back of advertising on television, not just on ITV but on other channels as well. The development of regional businesses and the opportunity is very important to ITV.
Q564 Rosemary McKenna: I am not going to intrude in your legal battle with Scottish Television.
Mr Grade: Thank you.
Q565 Rosemary McKenna: Scottish Television opted out of the ITV drama schedule purely and simply for financial reasons. In a time of recession is that not acceptable?
Mr Grade: The federal system still operates on the basis of arrangements that have been put in place that have operated very successfully since the Carlton/Granada merger in 2003; and those arrangements have been honoured by Scottish, by Ulster and by Channel and they have operated very, very successfully. We are required to make commitments on behalf of the network on an approved budget - they get to approve the network budget. We have to make commitments to series for the network maybe a year ahead, sometimes two or three years ahead, and to opt out at the last minute is not acceptable behaviour.
Q566 Rosemary
McKenna: It is a different situation
with devolution to
Mr Grade: Broadcasting is not a devolved matter. Rather than pick away at the scab of the past, it is much more interesting to think, "What's the way ahead? What's the solution to this tension". The federal system has broken down, clearly. The answer in the end has to be a commercial arrangement between Scottish. Scottish has to decide what it wants. It has to settle its debts and then decide how it wants to operate in future. It is not a matter for me; it is a matter between Scottish Television and the regulator Ofcom and possibly the Scottish Parliament and certainly the Westminster Parliament at the moment because it is not a devolved matter. The way forward it seems to me, the only risk-free, conflict-free way forward, is to have a simple commercial arrangement, where there are no subsidies either way; they are free to do what they want to do; the rules of the game are clear; but the rules of the game are based on a commercial contract, which they are not at the moment; there is the basis of a commercial contract but it is supported by subsidy and it is regulated.
Q567 Rosemary
McKenna: You earlier on said that the
delivery of television was in a state of turmoil. People in
Mr Grade: Free-to-air is free-to-air. Watching ITV1 in
Q568 Rosemary McKenna: But people think it is.
Mr Grade: The basis of ITV is that it is free at the point of consumption; it is absolutely free to the audience at the point of consumption. For STV, ITV, UTV and the others, that is the basis of our relationship with the audience. If the only way you can get some of the great programmes that have been denied Scottish viewers is through Sky why should Scottish have to pay to get stuff that is free?
Q569 Rosemary McKenna: Most people are already paying it so they are quite happy to say, "Ah, I can watch it here". Why did not you accept Ofcom's offer to arbitrate?
Mr Grade: I think the courts are the right place to
resolve a commercial issue of this kind.
If there were to be any idea of arbitration that should be through a
judicial process and not through the process of the industry regulator who has
conflicting statutory requirements to ensure the health of PSB and so on and so
on. I do not think Ofcom could possibly be
regarded - for good statutory reasons; it is not a criticism of Ofcom - as an
honest broker in that situation, because they are required by statute to have
regard for the delivery of PSB in the
Q570 Rosemary McKenna: They thought it was acceptable. They thought they could do it.
Mr Grade: Ofcom did, yes, but we are the victims of this. I think we have a say in it. When contracts go wrong somewhere or somebody reneges on a contract the court is the right place to settle it; not in the office of the regulators - it is not acceptable.
Q571 Rosemary McKenna: Are you concerned that Scottish is leading the way and that the others will follow?
Mr Grade: No, we are just concerned to get our money that is owned to us; that is our concern. I have a duty to my shareholders to treat all debtors on the same basis. We have actually been very, very patient. We have been trying to settle this with Scottish for well over a year and we have failed. We did not decide blithely to sue them; we tried for a year to settle it and reach agreement with them but we failed and so we have no option. We have a fiduciary responsibility to our shareholders. The money that is owing to us we have a duty to pursue it. It is very, very sad. Look, what is driving this in Scotland - it is not about Scottish production; if you look at the schedule that they produced that replaces these programmes, it has got nothing to do whatsoever with the Scottish broadcaster for the Scottish audience - it is about saving cash.
Q572 Rosemary McKenna: To be fair, some of it is. It is not all movies; they have put on some reasonable -----
Mr Grade: South Park, the American cartoon: the American cartoons and American movies.
Q573 Rosemary McKenna: They have put on some very good Scottish programmes - not a lot but they are working towards it. I am not defending them but do not say that they are not trying.
Mr Jermey: Thunderball
replaced Doc Martin; Wild Wild West, a 1999
Q574 Rosemary McKenna: There are some very good Scottish programmes that they have produced so it does balance out and they have to work it up.
Mr Grade: It is just a shame that if they have got a cash problem - if they have - they did not sit down with us at the beginning, as you would do. If you have an "onerous contract" you go and talk to the people. We are partners in the business and we should have sat down --
Q575 Rosemary McKenna: Is that not the bottom line - that the contract was badly drawn?
Mr Grade: No. No, it has not been adhered to.
Q576 Chairman: Michael, could I invite you perhaps to make one or two valedictory comments. Let me put a couple of questions to you. First of all, you are a former Chairman of the BBC Trust, do you think the present Chairman of the BCC Trust is right to be fighting and top-slicing as hard as he is?
Mr Grade: Let me start by saying I think the Trust in many instances is a breath of fresh air versus the old governors. I think many of the decisions that the Trust has made coming out against proposals from the Executive, in the old days that would have gone through with the port, cheese, claret and silver service; and in the old days it would not have touched the sides. Full marks for patrolling the boundaries with the private sector in a way that that was really what the Trust was set up to do. In respect of the top-slicing issue/debate/argument - whatever you like to call it - I thought the Trust got the choreography very wrong at the beginning. I would never want to see the Chairman of the Trust and the Director General sitting on platforms in a sort of choreographed, public campaign, campaigning on an issue together. I thought the Trust was far too quick to come out against top-slicing. The Trust is there to represent the interests of the licence fee payers; and they are interested in the BBC and their interests as consumers of wider media; that is what the Trust is there to do. I quite understand the Director General and Executive of the BBC coming out of the silos firing in every direction against top-slicing. Their job is to come to work, spend the public's money as best they possibly can to great effect, which they do day in and day out across all the BBC services. It is the Trust's role to stand back and represent the licence fee payers' interests. It may be that, having informed themselves of strands of opinion amongst the licence fee payers, that they would have come to the conclusion that the licence fee payers, by and large, did not want top-slicing; in which case they would have had a very, very strong position in which to argue against it. I think they came out a bit too quick against that.
Q577 Chairman: Given that the Chairman appeared to be Tweedledum to the Director General's Tweedledee, do you think that has fatally undermined the Trust?
Mr Grade: Your phrase not mine, Chairman, with respect. I do not think it has in any way, shape or form. I think there is so much good work that the Trust has done. We had an issue with them over sponsorship of Sports Personality of the Year, which management defended and which the Trust absolutely came down on like a ton of bricks. They acted very speedily over the Ross/Brand affair. It took Ofcom, because of their processes, some many, many months. The Trust was able, being inside the BBC, to send for the Director General and say, "What's going on? This is not satisfactory", blah, blah, blah. They were able to act very effectively. They stopped the BBC's growth and expansion into local media, which I think was a very, very good decision. They have made a lot of very, very difficult decisions; they have made the right decisions, in my view; and they have shown themselves to be absolutely there to do what was originally intended, which is to independently weigh the proposals from the management against the wider interests of the licence; that they have done extremely well. With the top-slicing, I think there are lessons to be learned. I have no doubt, given the calibre of people on the Trust, not least the Chairman himself, I am sure they will look back on that and feel they were a little bit precipitous. I have to say, I think it is early days for the Trust; and let us not judge the Trust after just three years.
Q578 Chairman: Two other quick points. Children -----
Mr Grade: I am in favour of them, Chairman!
Q579 Chairman: ----- we
have spent a lot of time talking about regional news, but
Mr Grade: I have an 11-year old - he was 11 yesterday -
Samuel, and he enjoys television. He
enjoys digital television and, since he has got beyond the Tweenies and those programmes, he has a very rich diet indeed of
television watching after he has done his homework for an hour and a half. Yes, he watches The Simpsons; he watches the History Channel; he watches Discovery;
he watches junior Discovery. He has a
fantastic diet of programmes; he is watching all kinds of history programmes
and education programmes that would never have been available in the old
days. I think this is special pleading
by programme-makers who have a long tradition of making wonderful kids'
programmes in the
Q580 Chairman: You are not concerned that he is not going to be watching children's programmes on ITV?
Mr Grade: No, not at all, because he watches the X Factor and Britain's Got Talent; Doc Martin he loves, which we have to watch because it is after nine o'clock for him and he is not allowed to watch at nine o'clock but we PVR it and watch it later.
Q581 Chairman: Finally, a lot of people have queued up to write the obituary of ITV. Do you think ITV will still be successful, independent, in five years' time?
Mr Grade: I think it will be successful, unquestionably. We are able still to create programming and deliver programming across all our four networks that absolutely delights British audiences in increasing numbers, which everybody said was impossible, that is almost defying gravity in a fragmenting world. It has a great future; it is more efficient now than it ever has been; by the end of next year we will have taken £250 million of fixed costs out of the business beyond what came out as a result of the merger. It is a very efficient business; we still have the knack; Peter Fincham and his team still have the brilliant knack of picking winners and delighting the British public. We need regulatory relief; we need a competition regime which is allowed to understand - this is no criticism of the competition regulators - that we are all in a knock-down, drag-out fight with Google and everybody else, and that the narrow statutory remit of the competition authorities has to understand and they have to be allowed to take account of the public interest in the British creative industries and British investment and British production, which is the cornerstone of British broadcasting. Some of the decisions that have come out, which are perfectly in keeping with their remit, for example the Kangaroo decision, mean that much of the value that we create, because of competition regulation, is going to leak to America; and that is unacceptable and I am really hoping that the next Parliament is going to address this issue. Absolutely no criticism of the competition regime; they are just not allowed in their remit to take account of the public interest in the programming, and the viewers' interests; and this is not acceptable and it is going to be very, very, very destructive for the industry going forward.
Q582 Chairman: You did not comment on Independent?
Mr Grade: Independent is a matter for the market. Our shares were at 18p not that long ago; it is 50p-odd today. Everybody knows we are there. Will it be independent? I sincerely hope so. I think its consolidation is coming in one form or another. I cannot see a huge long-term future for Channel 5; that has to be consolidated in some way.
Q583 Chairman: Do you think an ITV/Channel 5 merger makes sense?
Mr Grade: It depends on the terms. It is hard to see the competition regime allowing it at present; and would probably rather see it go under than actually merge with somebody and survive; but that is a function of the remit that they have. That is where it is so counterproductive as a matter of public policy.
Q584 Chairman: Can I thank you very much and, on behalf of the Committee, wish you every success wherever you go next.
Mr Grade: Thank you very much, Chairman.
Memorandum submitted by Department for Culture, Media and Sport
Examination of Witnesses
Witnesses: Mr Siôn Simon MP, Minister for the Creative Industries, and Mr Keith Smith, Deputy Director of Media, Department for Culture, Media and Sport, gave evidence.
Chairman: For the second part of this morning's session can I welcome the Minister for the Creative Industries, Siôn Simon, and the Deputy Director of Media at the DCMS, Keith Smith. Adrian Sanders is going to start.
Q585 Mr Sanders: Good morning. We have been told in this inquiry that up to half of local newspapers could be closed in five years' time. What impact do you think that will have on the scrutiny of local democracy?
Mr Simon: My personal view is that it is probably unlikely that half of local newspapers would close in five years' time. Clearly, nobody knows what will happen to the newspaper market over the next five years; nobody knows what will happen to specific local newspapers. It is clear that it is a sector under a lot of pressure; it is clear that a lot of local newspapers have closed in the last few years, and we are quite clear that local news is a public good; it is important for our democracy. All our research shows that people value local news and plural sources of local news in our democracy. So if half of local newspapers were to close, I think that would be a shame. We should be clear, though, that it is news that is the public good rather than newspapers. What is important is that people get access to plural sources of news across platforms as this market changes. It is not for the Government to determine the shape of the future in terms of what percentage of the news market goes on to what platform, although we are quite clear that local news is important, local newspapers are important in their communities and, where we can, the Government wants to support local newspapers.
Q586 Mr Sanders: So you do not see it as the Government's role to intervene to support local newspapers and local journalists?
Mr Simon: It is the Government's role to make sure that local newspapers have every reasonable opportunity to prosper and to continue to prosper. We should be clear that there are many local newspapers up and down the country who continue to make a good living doing local news. It is not a redundant model; local newspapers still work and, clearly, the combination of the migration of lots of advertising (particularly classified advertising) online, which was a core part of the recent revenue streams of local newspapers, at the same time as the global crisis exacerbating and speeding up that trend, has put local newspapers under massive pressure, but this is still a significant sector with significant strength. As you say, it is not the Government's job to intervene directly to prop up particular newspapers; it is our job, as far as possible, to make sure that people have a reasonable opportunity to carry on doing what many of them have been doing very successfully.
Q587 Mr Sanders: You seem to be saying: "Crisis - what crisis?" because that is the terminology that has been used in the evidence that we have been given, that the local newspaper industry is in crisis. Clare Enders came up with a figure of half of the 1,300 local and regional newspapers closing, and the Chief Executives of Trinity Mirror and Johnston Press both insisted that it is the worst crisis they have ever faced. I feel as if there is an air of complacency ----
Mr Simon: There is no complacency. I am quite clear that local newspapers have
suffered some drastic declines and are under a lot of pressure. That is not a matter for dispute. The structure of the market in response to
technological change has radically altered, and local newspapers are having to
radically alter. In
Q588 Mr Sanders: My question was about the scrutiny of local democracy. If you have a newspaper that has gone to weekly, who is now going every day into the council meetings? Who is going in every day to scrutinise what is happening in the local court? Who is keeping an eye out for what is happening in the business world in a local community? It cannot be done one day a week as well as it could have been done six days a week.
Mr Simon: The answer to that, in the
specific case of
Q589 Mr Sanders: When does news become tittle-tattle, which is what you seem to be describing as the alternative to the Stoke Sentinel, which I think is good?
Mr Simon: Have you read Pits n Pots?
Q590 Mr Sanders: No.
Mr Simon: It is, frankly, a bit rich of you to dismiss it as "tittle-tattle" if you do not know anything about it.
Q591 Mr Sanders: It is a website.
Mr Simon: Do you think that anything that is online is tittle-tattle?
Q592 Mr Sanders: Most of it.
Mr Simon: I think that is a ridiculous view.
Q593 Mr Sanders: Most of what is online is indeed tittle-tattle.
Mr Simon: That is just nonsense. That is a ridiculous view.
Q594 Mr Sanders: It is as ridiculous as being complacent about newspapers being ----
Mr Simon: I am not being complacent. If you think that everything that is on the internet is tittle-tattle, it is not a serious discussion. Pits n Pots is a very serious community website that does a really good job; done by volunteers, not for money, taking it very seriously, doing very impressive product, and you should find out about it before you criticise it adversely.
Q595 Rosemary McKenna: So you seem unconcerned that we might be losing half of the local newspapers in the country.
Mr Simon: How can you possibly deduce from what I have said that I am unconcerned? I have made it very clear that the local newspaper industry is under a lot of pressure; it has gone through a torrid time, for reasons that I have discussed. It is a very serious issue for that industry. What I do not have is a solution whereby the Government rides to the rescue with a massive injection of capital or some other deus ex machina - I am just providing some balance. I am saying what we are talking about is change and it is change that is very difficult for the newspaper industry, locally and in the regions, but I am saying do not write them off because there are actually still plenty of companies making money doing local and regional news and there are plenty of people still doing really good work on local and regional news.
Q596 Rosemary McKenna: So you are saying it is a natural process, given that we now have the internet and all the different ways that people access information?
Mr Simon: One of the things that has happened is that a process, some of which, clearly, was inevitable - the migration of, particularly, classified advertising revenue to online - is something that was going to happen that was going to seriously compress the margins of local and regional news, which had been for the previous couple of decades very healthy and very successful. They were always going to be hit by this. In that sense, that was inevitable. What has happened, partly, is that the effect of the global economic pressures on that market has meant that huge, crucial chunks of classified - particularly jobs and property - have all but vanished, and the process therefore has been very greatly compressed and speeded up. So things that, in a more natural way of things, might have happened over the course of the next - well, starting two years ago but three to five years gradually - have happened very, very quickly, and that has created an immediate pressure and a sense in the industry of crisis.
Q597 Rosemary McKenna: One of the things that concerns the Committee is that if we lose different voices in the media, including television, and if ITV are no longer going to be regional broadcasters of news and the BBC are going to be the only voice, do you have a view of how much plurality is necessary in local and regional media?
Mr Simon: Exactly what you have just described is exactly what we do not want to happen, and that is why we are piloting independently funded news consortia which are and will be the major government intervention to support local and regional news, and news in the nations. To be clear, IFNCs will fill the existing Channel 3 news slots but they will be a multiplatform product which will include newspapers, online, possibly radio, hopefully community radio, and are an intervention of government money which will be investment - direct cash - into each of those sectors, not just TV, but not an intervention which is intended, eventually, to be a second strand of publicly funded news but an intervention which is intended to stimulate private sector provision in different ways. We want to see new products across all platforms with synergies between companies and different kinds of companies and operators to get benefits for everybody in new ways. It is not an attempt to do anything that has been done before; it is an attempt to do new things for a new environment.
Q598 Chairman: Does the Government recognise the concept of public service reporting in the same way that public service broadcasting is regarded as a public good which the market cannot supply?
Mr Simon: Kind of public service journalism?
Q599 Chairman: Yes.
Mr Simon: I would say that we recognise and we are clear that people value impartial, high quality journalism as a public good, yes; a public good, on the one hand, of itself but, also, in the sense of being something which is valuable, which people value and which is important to our democracy which the market, left entirely to its own devices, will not necessarily provide.
Q600 Chairman: So if the evidence becomes clear that the market is no longer able to provide it, there may be a case for some kind of public support?
Mr Simon: Our research clearly shows that people want plurality in provision of local and regional news, particularly broadcasted news. It is clear that the market, left to its own devices entirely, will not provide that at the moment. What we are already doing, therefore, is an intervention in order to meet a gap with respect to the plural provision of public service news broadcasting, in particular, but across all platforms, which the market will not necessarily meet. We do not envision that being entirely publicly funded in perpetuity; the idea is that we find new ways for the private sector to fund this, but this is the Government stepping in where the market is not providing enough choice of public good.
Chairman: I would like to come back to that shortly, but before I do can I bring in Adam Price.
Q601 Adam Price: Minister, I am sure you accept that in many of our communities the local newspaper is an important part in creating that sense of a town or a county's identity. The local paper in my own home town, The South Wales Guardian, is, like many local newspapers, in a difficulty at the moment. How is the IFNC idea going to help a newspaper like that? Is any of that money going to trickle down to local newspapers?
Mr Simon: Yes. As to how, the IFNC idea is based on consortia, and the concept is that the consortium will include (this is not rigidly prescribed) a broadcaster, probably a newspaper group or a newspaper, people who are doing stuff online locally - perhaps, hopefully, we will be specifying hyper-locally online - and we would also, ideally, like to see radio (I am keen to see community radio), and the most successful bidders will be the ones who put forward the broadest-based consortia which promise to do the most innovative work in this space.
Q602 Adam Price: You have acknowledged the depth and the breadth of the crisis that the local and regional newspaper industry, in particular, is facing because, as you mentioned, for example, of the fall-off in classified revenue. Because of that, is it appropriate, is it fair, that local authority free sheets are diverting so much revenue away from local newspapers who are already fighting so many battles on so many different fronts?
Mr Simon: The real answer to that is that nobody knows properly what the situation is with respect to local authority free sheets and local newspapers; we have not got good information on exactly what is happening and exactly what effect it is having. The Audit Commission did say in the summer that they would do a study into this, and they are the only body that can do it - the OFT cannot, Ofcom cannot - it is an Audit Commission responsibility. I did try and meet the Audit Commission to discuss this in advance of coming to this Committee because I thought it very likely that you would ask about this. Unfortunately, they were not able to meet me, and indeed they were not even able to have a telephone call with me to discuss it in advance of the Committee, even with a couple of weeks' notice.
Q603 Chairman: They would not take your call?
Mr Simon: They refused to return my call, I think.
Q604 Chairman: Quite surprising.
Mr Simon: I noticed that you have had the OFT and Ofcom, but not the Audit Commission. I believe that they are supposed to be meeting next week or the week after, at which their board - I think for the second or third time - is due to confirm that they will indeed go ahead with the study that they have promised to do. I cannot give you any more details on that, for those reasons. We all understand why it is an issue; it can get, indeed, heated; some people understandably get very annoyed by these local free sheets. In order to have a proper discussion we really do need some proper information which the Audit Commission is supposed to be doing. The only thing I would say in mitigation of the irritation that many people experience is that, clearly, local authorities do have a duty to communicate with their citizens what they are doing, and clearly they also have a duty to do that in the way that gets the best value and the best price for the taxpayer. That does not mean that they should be given carte blanche to do it in a way that distorts and destructs the market and undermines local newspapers, and certainly they should not be doing it in a way which is propagandist in tone. There is already DCLG guidance on the quality of the content of what they produce which should really cover that. In summary - and forgive me for what has been a bit of a rambling answer - it would be nice if the Audit Commission get on and do their report that they promised.
Q605 Adam Price: Thank you for being so open with us on your difficulties in getting them to speak to you. What their Chief Executive has said on the record, I think, is that they do not intend to examine the impact on local newspapers of local authority free sheets. So precisely the bit that actually is of most public interest is the bit that they are not going to look at, which begs the question: what is the point of their inquiry then?
Mr Simon: I think the answer to that is that if we could get the Audit Commission to do their bit, which is looking at the free sheets, we could then see if we could get somebody else, like the OFT or Ofcom (probably, I think, the OFT) to examine the impact on the local newspaper market. Currently, the OFT cannot examine the impact on the local newspaper market because they do not have a piece of work from the Audit Commission that tells them the impact of what. We have to have the work on what the thing is first before we can have some more work on the impact of it.
Q606 Adam Price: A bit of joined-up government - to use an old-fashioned phrase.
Mr Simon: I do not know what the phrase is for interlocking quangos.
Q607 Adam Price: It sounds painful. I have heard a few examples of local authorities that have used official notices, for examples, adverts, with the possibility of starting a free sheet if the paper did not change its political line - "We will take your revenue away". That is completely unacceptable in a democracy. Is it not?
Mr Simon: Yes, that is completely unacceptable in a democracy. The problem is it is anecdotal. What we need is some proper research.
Q608 Adam Price: I do not mean to be parochial but seeing as we are discussing local newspapers, my own local county council even criticised the local paper for criticising the free sheet, so it can get slightly involved. Surely, local newspapers have a right to express their opinion - it is part of their remit - and this should not be used in any way as a carrot or a stick to actually influence them.
Mr Simon: Absolutely not.
Q609 Adam Price: Is that kind of thing covered as well in the DCLG advice that you mentioned?
Mr Simon: Obviously, it is a DCLG matter but I believe so, yes. That is the kind of thing that the advice covers.
Q610 Adam Price: If we can get the Audit Commission together in the room with the OFT and we have an inquiry which looks holistically at this whole issue, then what will the Government do then when it receives the evidence?
Mr Simon: I hope it does not sound like a prevaricatory answer but, obviously, it will depend on what they find. If it turns out that there is a problem then the Government would have to look at whether it was a problem that government could address. We need to know whether and how big there is a problem and what kind of a problem. Currently, there are significant numbers of people getting cross about this. What we need is some information and some facts.
Q611 Adam Price: Could you simply say that, as far as official notices are concerned, that should not be in a free sheet? The whole purpose of official notices is that you get as wide dissemination as possible, yes, but actually the council is using, in some way, to pay for the free sheet - taking advertising as well from commercial organisations. Surely, that should not be accepted because they are competing with local newspapers. Could we not have rules about those things?
Mr Simon: On those two questions, the Killian Pretty review from DCLG has just looked into things including whether planning notices should still be statutorily required to go into local newspapers. That has reported and the DCLG are just about to say what they are going to do about that, I think, fairly imminently. Let us see what that says. Newspaper people are hopeful that they might get some succour from that. On the advertising question, that is exactly the kind of thing that somebody needs to look at properly. The counterbalance to what you said is that the council taxpayers in the local area, it is right, want to get the best value from the council, and the council argument (which, on the face of it, also has a certain validity) is: "We want to communicate with our constituents but we want to do so as cheaply as possible because it is they who are going to end up paying, so if we can take some advertising so that the taxpayer is not so burdened then ---". If that is true, and actually the research reveals that the impact on the newspaper market is negligible, then that is different to if research revealed that the impact was very serious and damaging. We just do not know.
Mr Smith: If it is helpful to the Committee, the CLG's guidance, the statutory code on local authority publicity, covers costs, content and style, dissemination, advertising, recruitment advertising, councillors, elections and assistance to others for publicity.
Q612 Mr Sanders: That is guidance, is it not?
Mr Smith: That is guidance.
Q613 Philip Davies: If the Audit Commission does not want to talk perhaps you could use our report as the basis to shape the Government's view on these matters. Just a thought.
Mr Simon: Let me say that your report will be influential in no uncertain terms in the Government, as it always is.
Q614 Philip Davies: We have heard evidence from a number of local media groups, all of whom claim that the merger regime for local papers is out of date and is jeopardising their future. Does the Government have any plans to re-examine these merger regimes?
Mr Simon: No. The OFT have relatively recently looked into it. Their report makes clear that they consider their regime to be fit for purpose and for there not to be any need for change at the moment. There have been half-a-dozen cases in the last three years or so, only one of which was referred. Ultimately, it is a matter for the OFT, and they are quite clear that the regime is fit for purpose.
Q615 Philip Davies: John Fry, the Chief Executive of Johnston Press, told the Committee that in applying the rules the OFT look too narrowly at just newspapers and regard everything else as outside the scope, whereas, as he pointed out to us and you pointed out at the start today, everybody knows that newspapers are now competing with a wide range of media; it is not just newspaper-versus-newspaper battles. Do you not think that this is actually out of date and we need to look at the current climate in which they operate and who they compete with?
Mr Simon: No, we have changed the regime such that the OFT now co-operates closely with Ofcom when looking at mergers, and Ofcom considers and informs the OFT about the whole market - the communications market.
Q616 Philip Davies: So all of these media groups are wrong, are they, in what they say? They literally think that this is one of the few things where you get a unified voice from media groups? They are all wrong as far as the Government is concerned?
Mr Simon: I do not think that there are, perhaps, that few things on which you get a unified voice; I think if you ask most businesses or most people whether they want to pay less tax ----
Q617 Philip Davies: They never get that opportunity!
Mr Simon: You will probably get a unified voice, but it does not necessarily mean it is the best policy. So, no, clearly, the OFT is an impartial operator with no axe to grind, and they are quite clear that the regime is fit for purpose. The best way for the Government to act is to take advice from the OFT, and I think that is what we will continue to do.
Q618 Philip Davies: What is your reaction to Ofcom's recent proposed changes to media ownership rules?
Mr Simon: We are going to announce our formal response to their report pretty shortly. I can say, in the interim, I thought it was a typically good and robust report and another good piece of work by Ofcom, and the Government will announce its response after Christmas.
Q619 Philip Davies: Can you not give us a sort of a taster of what might be in there or the direction in which it might be going?
Mr Simon: I think by saying I thought it was a good piece of work ----
Q620 Philip Davies: Everybody always says that! I have never yet come across any report that has ever been produced by anybody about anything where the Government Minister has not stood up and said: "It was a very good report and we are very grateful", and all the rest of it, and "Isn't it marvellous".
Mr Simon: I have not said that about the Audit Commission report.
Q621 Philip Davies: They have not done one yet, that is why.
Mr Simon: That is why, yes!
Q622 Philip Davies: Rather than the ministerial guff that we always get about reports, can we have a bit of meat on the bone? Do you agree with them or not?
Mr Simon: They have only published their report a fortnight ago. The correct way for me to behave is to respond properly and formally, in due course, rather than to make stuff up on the wing. If you want to have an informal chat about it we can have an informal chat about it another time. If it is an informal chat that you want.
Q623 Chairman: Can I turn to IFNCs? How much are you intending to spend on them?
Mr Simon: We are intending to spend £20 million per annum across the three pilots for a minimum of two years with an option to extend to three.
Q624 Chairman: Each will, therefore ----
Mr Simon: Each will, therefore, get approximately £7 million a year.
Q625 Chairman: How much of that is going to be on providing regional news on television?
Mr Simon: We certainly have not broken that down. I think it unlikely that we will specify in the procurement documents; I think that will be a matter for the consortia. So we will specify the kind of outputs that we will require in terms of different platforms, and so on, but how the cost is apportioned between each of the platforms, I think, will probably be a matter for the consortia themselves.
Q626 Chairman: When you talk about the different platforms, you suggested, I think, that radio was going to be one of those as well as television and online.
Mr Simon: I hope that it will be. I think the approach that we will take to procuring these pilots is that we will want to avoid being inflexible and dirigiste but we will want to send very clear signals that plurality of consortia member, of platforms, of provision, will be the watchword of what we are looking for. So it is unlikely that the procurement specifications will include an absolute requirement for radio but I would expect the documents to make it clear that bids that included, for instance, radio and community radio were much more likely to be stronger bids than those that did not.
Q627 Chairman: In terms of the composition of the IFNCs, you spoke earlier about your hope that they would include a broadcaster. Before you arrived Michael Grade told us categorically that ITV had no interest in participating in any IFNCs at all. Who do you, therefore, see as the broadcaster in this?
Mr Simon: By a broadcaster, clearly, we do not mean a current ITV licence holder. Perhaps "broadcaster" is not the best word - a television company. Who knows who it might be? There is a whole list of operators who have expressed an interest. It could be, for instance, a company which is currently principally a radio broadcaster which is minded to take more of an interest in television; it could be a radio broadcaster plus a television production company, and so on. There is no shortage of interest for any of the pilots.
Q628 Chairman: How do you see these various players coming together? Who is going to co-ordinate this?
Mr Simon: The formation of the consortia will be a commercial process that happens in the mysterious, organic way that commercial consortia form themselves. It is already happening and has been happening, and one of the reasons that we wanted and, indeed, have succeeded in announcing the pilot regions very quickly was that we were conscious that this process was happening all over the country, and we did not want too many people in an already hard-pressed sector to waste too much time putting together bids for regions that were not going to be selected. I feel that we have done that pretty successfully. A certain amount of people have invested a certain amount of work in putting together nascent consortia in regions that have not been selected, but not too much in too many cases, and the people in the areas that have been selected are, I am told, at a couple of steps removed, kind of vigorously doing this.
Q629 Chairman: You would anticipate - or hope at least - that there will be more than one consortia bidding for the opportunity in each region?
Mr Simon: Yes. I think it likely; I would be very surprised if there were not multiple bidders in each region.
Q630 Chairman: In terms of the conditions that are imposed on the content produced by IFNCs, Ofcom has a specific requirement regarding, I think, its form, character and content to determine the quality. How do you see those conditions operating?
Mr Simon: I think that is something that, as we draw up the specifications and as the consortia are formed and bids come in, we will refine over the course of the next months. I think it would be a mistake to set that in stone now.
Q631 Chairman: It is intended that the consortia will not really be up and running until 2013 across the country. ITV told us that they were going to deficit in terms of the benefit to them of their public service obligation against the cost next year, and that if they were to continue providing regional programming they would have to have some kind of assistance. Are you going to support them until the IFNCs are put in place?
Mr Simon: Firstly, obviously, you are right that the national roll-out will not occur until 2012/13, but we will have pilots in two ITV regions - actually, three because one of the pilot areas is Borders & Tyne Tees. ITV will get some relief from next year in those areas.
Q632 Chairman:
It is
pretty small; Borders & Tyne Tees and
Mr Simon: It is not a huge proportion but it is not nothing. It all helps. There is also provision in the Digital Economy Bill for the Secretary of State to - much more flexibly than Ofcom is currently able to do - vary or suspend the different bits of any broadcaster's public service licence obligations. So that gives the Government the possibility, in the event that ITV found itself absolutely unable to meet its obligations, more flexibly, to vary their obligations if there were a crisis point reached before the pilots were rolled out nationally.
Q633 Chairman: However, it is the determination of Government that there should be a continuation of regional news from today through until the IFNCs are in a position to take over?
Mr Simon: Yes. On Channel 3. Let us not forget the BBC is always there. A plural, yes. Those Channel 3 slots should continue to carry regional news.
Q634 Chairman: If ITV come to you in 2011 and say: "We are dropping it tomorrow because it is no longer economically viable for us to continue", you will provide support to ensure that does not happen?
Mr Simon: I would like to think it was unlikely that they just turned up one day and said: "We're dropping it tomorrow". Obviously, what would really happen would be a long process of dialogue and negotiation whereby between all the various parties we would work out some kind of solution. The point I am making is that if it came to a crisis point, assuming the passage of the Digital Economy Bill, the Government would have the provision to vary the obligations. It is the obligations that cost the money, and the Secretary of State would have the possibility to relax the obligations.
Q635 Chairman: Are you intending that IFNCs should be able to sell advertising within their slot?
Mr Simon: We are thinking about it. Again, it is something one would have to discuss.
Q636 Chairman: ITV have expressed some concern about that.
Mr Simon: Clearly, they would have a strong view in the negative, and I understand that view and it may be that view that prevails; I am just saying that as the IFNC process unfolds that is something important that will have to be worked out. Clearly, consortia will be bound to take a contrary view, although they will already be getting what is known in some circles, I believe, as a wodge of cash.
Q637 Chairman: ITV, basically, told us that there was not any significant money available from advertising in that slot anyway.
Mr Simon: It is funny that they are so categorical about, it in which case.
Q638 Peter Ainsworth: It is interesting how STV made exactly the same point, that their regional news service is not well supported by advertisers and actually does not make them any money. So there is something to take account of there, I would suggest to you; there is something commercially unattractive about regional television news, which begs the question as to why you are spending so much time and there is so much debate about how to keep something like that going.
Mr Simon: It goes back to the Chairman's question of whether this is a public good. I am a great advocate of the market as an extraordinarily powerful engine of growth and prosperity, but it is not perfect and it does not deliver everything we need as a society. The fact that it might not be very economically attractive does not necessarily mean it is no use to us as a society.
Q639 Peter
Ainsworth: The economic unattractiveness of regional
television news in England (it is different in Scotland and Wales and Northern
Ireland, maybe) is based on its cultural unattractiveness, because, as Michael
Grade again was saying earlier today, the regional television we get is based
on where the transmitter happens to be, which is, essentially, a historic
accident. There is very little cultural
cohesion in the places that are served by this news. They are very big these regions; I can get
regional news in
Mr Simon: I think that is a point well made and I do take it. If you look at the three pilots that we have picked, I think, one of the reasons that we picked the English region that we did was that we hope it will enable the Scottish pilot to be an all-Scotland pilot, which I think we can all agree is a coherent regional unit, Scotland (not regional, but you know what I mean), and the same for Wales; that is a nation that makes sense as a broadcast area. In the Borders/Tyne Tees region, one of the attractive things about that region, as well as they are very heavy consumers of TV, very heavy consumers of regional TV, there has also been a lot of controversy and debate in the last few years about where the news comes from - whether it is Carlisle or Gateshead or Newcastle, and this pilot gives an opportunity directly to address that. I am quite clear that although the driving imperative is filling the Channel 3 news slots, we are also trying to do, in this multiplatform offering, something which is explicitly not just regional but which is local, via a local newspaper, which at the online level becomes hyper-local. The issue that you raise about the potential incongruence of regional TV areas is clearly a valid question, and these pilots and these IFNCs are not going to answer it at a stroke but it is one of the questions that I hope they will be addressing, and hopefully they will take us some way down the road to doing a bit better.
Q640 Peter Ainsworth: Can we just touch on the role of the BBC in all of this? It could well be argued that - coming back to your point about market failure - the BBC was created in order to deal exactly with the market failure that you are now trying to plug in a different way. Who came up with the notion that the television licence fee is not the BBC's?
Mr Simon: It is not and it never has been.
Q641 Peter Ainsworth: What was it set up to do?
Mr Simon: It is not a notion. As you said, it is not the BBC licence fee it is the television licence fee.
Q642 Peter Ainsworth: It is an accident of nomenclature. What was the television licence fee set up to achieve?
Mr Simon: It is also the way that the licence fee works in government. The licence fee does not accrue to the BBC; the licence fee accrues to the Exchequer and is then by tradition, until recently, given entirely to the BBC. So the licence fee was set up to underwrite public service broadcasting, which is what it has always been for.
Q643 Peter Ainsworth: Theoretically, the whole of the licence fee could go to somebody else.
Mr Simon: Well, theoretically we could spend the whole of the public purse in Safeways, but it is not very likely.
Q644 Peter Ainsworth: I just think this is an interesting twist in the language around the BBC that has crept into government-speak recently.
Mr Simon: Perhaps it is something that has always been true but which, in a dialogue the character of which has probably tended to be shaped by the BBC, has never been very well articulated before. Since the changes which came over when a top-up to the licence fee was introduced to fund the digital switchover, it has become more relevant that actually the licence fee was always intended to fund public service broadcasting, which has always been magnificently delivered by the BBC. However, it has never been the case that it was exclusively of right the BBC's or that it could never be used to support public service broadcasting elsewhere.
Q645 Peter Ainsworth: Do you not think it is a bit curious, though, the concept of using the licence fee, which has historically always been entirely associated with the BBC, to fund commercial activities which, are in the words of the commercial television sector, not at all commercial and actually not very popular either?
Mr Simon: Did you not just express the point then - they are not at all commercial? Not that the BBC itself is not commercial ----
Q646 Peter Ainsworth: The BBC is addressing market failures, I would suggest.
Mr Simon: People are very clear that they want regional, local and in the nations broadcast news which is not the BBC; they want the BBC and more; they want at least two sources of their local broadcast news. They are also very clear that they are happy for the licence fee to be used for that purpose. The overwhelming majority of people in the serious piece of research that we did were quite clear that spending the licence fee on public service broadcasting news provision by people other than the BBC was a good thing.
Q647 Rosemary McKenna: Do you think people understand that the money is not going straight to the BBC but going straight to the Exchequer?
Mr Simon: Do I think that most people know that the licence fee does not accrue directly to the BBC?
Q648 Rosemary McKenna: Yes.
Mr Simon: I certainly did not know that until I came into this job, so I doubt it.
Q649 Rosemary McKenna: So the research that you did, you actually had to advise people that the money did not go directly to the BBC, so therefore would they find it acceptable?
Mr Simon: I cannot remember exactly what the question was, but I do not think we even did need to advise them of that; I think we just asked people: "Would you be happy for a proportion of the licence fee to be spent on providing public service broadcast news provided by somebody, not the BBC.
Q650 Chairman: You say that was a serious piece of research. Do you therefore suggest that the BBC's research, which showed precisely the opposite, was an unserious bit of research?
Mr Simon: I do not know if "unserious" would be quite fair; I would not like to impugn the integrity of the people that did it, but the question they asked was not really a very serious question. What we asked them was what I just said we asked them; what the BBC asked them was: "Would you prefer to have a cheque in the post or would you prefer to spend the money on broadcast news?" Lo and behold, a slight majority - even then only a slight majority - of people opted for the cheque in the post option. Obviously, if you offer people a cheque in the post then the thing that you are balancing against that is not really getting a fair crack, whereas what we asked them is: "Is it okay to spend some of the licence fee on public service news broadcasting that is not provided by the BBC?", and 65% said yes.
Q651 Peter Ainsworth: In your research, did you give people the choice about ----
Mr Simon: A cheque in the post?
Q652 Peter Ainsworth: Did you offer cash back?
Mr Simon: No.
Q653 Peter Ainsworth: Did you say to them: "If there is money hanging around in the BBC that ----
Mr Simon: There is not.
Q654 Peter Ainsworth: ---- is not actually being spent on programmes, for various reasons, would you like some of it back?"
Mr Simon: No, we did not ask them that because I do not think that is likely to come up with ----
Q655 Peter Ainsworth: The answer that you wanted?
Mr Simon: No, I just do not think that is credible as a question, because in the real world, as we all know perfectly well, it is not going to happen; what would really happen would be if there were surplus money it would be returned to the Exchequer, whereas the BBC question actually offered them a cheque in the post. It is not surprising. What is surprising is that, still, almost half of people declined the cheque in the post and still chose to spend the money on non-BBC broadcast news.
Q656 Peter Ainsworth: Which they will not watch.
Mr Simon: Which they do watch. The overwhelming majority of people get their news from the television, and some of most popular television news programmes are regional television news.
Q657 Chairman: I think that is all we have. Thank you very much.
Mr Simon: Thank you.