Further written evidence from Ofcom
PUBLIC SERVICE
BROADCASTING ON
CHANNEL 3—BACKGROUND
Evening regional news on Channel 3 attracts
an average audience of over 3 million during the week, representing
19% of the available audience. This service delivers significant
reach and impact and choice beyond the BBC's regional news output,
which itself reaches over 5 million viewers.
In the case of Northern Ireland the appetite
for regional news is even greater and the audience for UTV's regional
news at 6pm is the highest across the whole of the Channel 3 network
with a share of 36%, whilst that for BBC NI is also high—in
line with the national average at 28%.
Despite the popularity of Channel 3 regional
news, there is substantial commercial pressure on the Channel
3 network's ability to continue current levels of provision.
Ofcom's PSB Review found that while there is
currently a net benefit from public service broadcaster status
across the portfolio of regional licences owned by ITV plc, this
will become a net deficit before 2012, and before the digital
switchover process completes. In Scotland and Northern Ireland,
STV and UTV are also facing deficits on their respective licences.
The Final Statement of the PSB Review confirmed
a number of changes to the regulatory obligations on the Channel
3 licensees from the start of 2009 (and Five and Teletext). These
were designed to deliver a sustainable level of public service
content in the transition to digital switchover.
However, we said that these decisions did not
represent a permanent solution to the mounting pressures on commercial
PSBs. Since the publication of the PSB Review Final Statement
in January, these pressures have intensified with a steeper than
expected downturn in advertising revenues.
Since then we have updated the Cost Benefit
Analysis (CBA) for the Channel 3 network to reflect the impact
of the reduction in regulatory obligations made as a result of
the PSB Review. The methodology behind a CBA is based on best
estimates of the benefits and costs of PSB status—which
are difficult to calculate as they are, in part, opportunity costs
as well as direct costs. There are also a number of intangible
benefits that are much harder to quantify, and can vary depending
on who holds a particular licence.
For these reasons, it is important to note that
the results of this analysis need to be treated as indicative
only. They are shown below in the form of a higher and lower set
of ranges for both the costs and benefits of PSB status.
However, the calculated timing of when the licences
will fall into deficit and the scale of the deficit are considered
a reasonable estimate based on the analysis we have undertaken.
Our approach and analysis have also been discussed with the Channel
3 regional licensees, although they believe that in some cases
the costs of PSB status are higher than we have estimated.
REGIONAL NEWS
REPRESENTS THE
SINGLE BIGGEST
COST TO
THE CHANNEL
3 NETWORK
As we set out in figure 2 below, we estimate
that the Channel 3 network is likely to be in deficit by 2011,
and the deficit will reach £38-64 million in 2012.
The single biggest PSB cost attributable to
the Channel 3 network is the production cost of regional news
which is estimated at £68 million in 2010, and projected
to be £72 million in 2012, based on current production costs.
These costs are after the regulatory changes made in the PSB Review.
It is notable that the production cost of regional
news is very similar to the scale of the opportunity cost deficit
across the Channel 3 network.
ITV'S LICENCE
FEE PAYMENTS
CONTRIBUTE TOWARDS
THE DEFICIT
ALTHOUGH THEY
ARE FORECAST
TO DECLINE
AS SWITCHOVER
APPROACHES
The Channel 3 network as a whole is currently
expected to pay £13million in licence fee payments in 2010,
falling to around £5million in 2013 and 2014 as digital penetration
levels increase and the analogue signal is switched off. The imposition
of "Must Offer" obligations by Government on all the
public service broadcasters means that the Channel 3 licensees
have the opportunity to approach Ofcom for a revaluation of their
licences. If licensees seek a revaluation then any revised terms
could apply from 2010 onwards.
However, even if a revaluation of the licences
led to a reduction in the Channel 3 licence payments, this would
still, on our current analysis, leave an overall deficit, owing
to the remaining costs of PSB status for the Channel 3 licensees.
A NEW INTERVENTION
IS REQUIRED
TO SUSTAIN
PLURALITY IN
REGIONAL NEWS
The commercial PSBs are obliged to continue
to broadcast their services until the end of their licences. However,
if in practice they ceased to broadcast their services on a public
service basis, or at all, their licences would be revoked and
they would avoid their public service obligations.
ITV plc has the scale and "must have"
content to become a purely commercial broadcaster. If it considers
that the costs of PSB status outweigh the benefits it could choose
to surrender its PSB status and end its participation in the network.
Any possible surrender of PSB status by ITV
plc could also put the independent licensees at serious risk in
Northern Ireland, Scotland and the Channel Islands and end the
provision of regional news across the UK. We believe it is desirable
to take steps to avoid licence hand back where there are undesirable
public policy consequences. Rebalancing regional news costs is
more than an accounting exercise. It meets citizens' and consumers'
needs for regional news and supports wider PSB provision.
The PSB Review identified that the Channel 3
network would continue to be the most effective carrier for nations
and regions news owing to its existing reach and impact. However
the Channel 3 licensees are only one option for broadcasting a
regional television news service. Other means include Channel
4 or a replacement Channel 3 licensee following any licence retendering
process.
The Government's Digital Britain Final Report
has proposed that the Channel 3 licensees' regional news be replaced
with provision by independently funded news consortia (IFNCs).
These news consortia could include, but not
be limited to, existing television news providers (including the
Channel 3 licensees which provide the existing services), newspaper
groups or other newsgathering agencies. They could be chosen against
a range of public criteria, including the ability to achieve reach
and impact, high production and editorial standards and the financial
strength to deliver a quality service. News consortia would also
need to be accompanied by suitable governance arrangements to
ensure they deliver value for money and are properly accountable
for their use of public funds—as recognised in the Digital
Britain Final Report.
October 2009
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