Scrutiny of value for money at the BBC - Public Accounts Committee Contents

Examination of Witnesses (Questions 1-133)

BBC TRUST AND BRITISH BROADCASTING CORPORATION

8 FEBRUARY 2010

  Q1  Chairman: Good afternoon, welcome to the Committee of Public Accounts where today we are considering the Comptroller and Auditor General's Report The BBC's management of its coverage of major sporting and music events. We welcome back to our Committee Jeremy Peat, who is a BBC Trustee, and Mark Thompson, who is the BBC's Director-General. Mr Thompson, would you mind introducing your two colleagues with whom we are not so familiar?

  Mr Thompson: I have with me Tim Davie, who is the Director of the BBC's Audio and Music Department, and Roger Mosey, who is a former director of BBC Sport but is currently in charge of our planning for the 2012 London Olympic Games.

  Q2  Chairman: You will be expecting me to ask this question because it was widely covered in the press when the NAO published their initial Report. It is dealt with in paragraph 42 on page 20. I do not want to spend too much time on this, but the only reason I ask is it is because it illustrates what we would consider to be a lack of attention to value for money. We are talking about Euro 2008 and unfortunately there were no home nations there, but the BBC " ... paid an additional £250,000 for the construction and operation of its local studio in Vienna" because the studio they would otherwise have had did not have a view. Most people would consider this to be extravagance. Without wasting a lot of time on this, can you perhaps give a reply?

  Mr Thompson: I must say I am very grateful to have an opportunity to talk about this. We took a decision firstly that we should broadcast coverage of Euro 2008 locally, that is from where the games were taking place rather than from London. If you look at the statistics, we believe the public overwhelmingly prefer coverage of sporting events on the BBC than on other broadcasters when they can see the same event. One of the reasons we believe they do that is because we try to bring the sense of occasion and the place to life and to report what is happening from on the ground. Decision one was not to broadcast coverage from London but from Vienna. Had we elected to build a studio in the International Broadcasting Centre in Vienna, it would have perhaps saved us something like €50,000 as compared to building one in the centre of Vienna. We believed that it was better to build it in the centre. So the difference between what it would have cost to do it from the International Broadcasting Centre and the centre of Vienna was around £50,000. That is the difference, not £250,000 but £50,000; actually €50,000 rather than pounds. The key point is that 39 million people watched our coverage; 39 million people watched coverage of Euro 2008 on the BBC. They told us that they thought the coverage was extremely good and they gave us a much higher score for quality than they gave the equivalent matches on our partner, ITV. We believe that the placement of the broadcasting in this studio contributed to that and we believe that to spend an additional €50,000 for 39 million people, in the context of coverage which cost inevitably many tens of millions of pounds, did represent good value for money.

  Q3  Chairman: I do not want to go on about that.

  Mr Morse: I think we have some conflicting information. We understood that this costing was, in fact, incremental and not substitutional. I apologise for contradicting you, Mr Thompson, but I have to state our understanding.

  Q4  Chairman: What we were told was that it was £250,000. This is why we want agreed reports. The NAO did tell me that it was £250,000. You say it is £50,000.

  Mr Thompson: Because, had we elected to build a studio in the International Broadcasting Centre, we estimate that would have cost us £200,000, in other words, once you had taken the decision to broadcast from Vienna as opposed to London. Had we elected to broadcast from London, we would have had to have hired a studio in London, again at cost. So the £250,000 is not the correct incremental figure.

  Q5  Chairman: Perhaps we can have a note to resolve this between you. We go by the Report and I am going to use this as an example, because I do not want to spend the whole of my time on this one tiny point, not in money terms but compared with everything else. All it says is: "The BBC therefore paid an additional £250,000 for the construction and operation of its local studio in Vienna". I should like to get to the bottom of this in a note.

  Mr Thompson: If I may say so, it is very important to say that it seems to me this is not an example of excess, not least because the figure is wrong.

  Q6  Chairman: You should agree these reports together.

  Mr Thompson: We do our best to help them.

  Q7  Chairman: That is precisely why we want you or the government department to agree these reports with the Comptroller and Auditor General beforehand so we do not waste a lot of time arguing about the figures.

  Mr McDougall: The Report was agreed. The words were "an additional £250,000". The BBC spent north of €300,000 hiring this studio in the centre of Vienna and that was additional money that would not have been paid otherwise.

  Mr Thompson: To state the obvious, if you are going to have a studio you have to hire one. It is true that the studio cost €300,000 but the question of the additional cost is not that number, it is that number less what it would have cost to have a studio in the International Broadcasting Centre in Vienna or to have hired a studio, let us say, in Shepherd's Bush in London. The incremental cost is the difference between the two different studios. You cannot ascribe the whole of the studio cost and say that is incremental.

  Mr Mosey: Just to be clear about this, we did have facilities in the International Broadcasting Centre but that was office space. We were not allocated studio space, nor did we pay for studio space in the International Broadcasting Centre. The difference is between the cost of the rent in central Vienna and the cost of the rent at the IBC which we did not pay. So it is an incremental cost not a completely new cost.

  Mr Thompson: All of this was made clear to the NAO.

  Mr McDougall: I am sorry, that was not our understanding. We played the understanding back to the BBC and that was not our understanding. There were numbers that did change in the same paragraph around the cost of the studios for Beijing. The numbers we had for the additional costs in Vienna were not played to us.

  Mr Peat: May we take up your suggestion? We will get together with the NAO and produce a note for you.[1]

  Q8  Chairman: Yes, I accept that; for our Report. Thank you. When we meet instances like this which we say might be extravagant and you say are not, and we have had a useful discussion, you defend yourself again and again on the ground that this is editorial policy. The trouble is that this can cover everything. Can we get this right? I understand editorial policy as being the content of programmes. It does not apply to the cost of programmes or of studios or, indeed, of presenters, otherwise it is rather like a government department saying "PAC you cannot look at this because it's policy" and they just use the defence of "it's policy" for everything. We have to get this right if these hearings are going to mean something. You cannot just stop us investigating something because you say it is editorial policy.

  Mr Thompson: If I may say so, I think this conversation about the relative cost of studios is an entirely legitimate and appropriate conversation and I would not suggest for a second that we could not discuss this. However, manifestly there are examples where the amount you spend on something relates to programme quality and editorial decisions about quality. For example, a decision to shoot a drama on location, let us say a classical adaptation on location, rather than shoot it indoors in a television studio adds greatly to cost but also might add greatly to the editorial merit of the drama you are shooting. I would absolutely accept that it is not a general sort of get-out-of-jail card to say, "I'm sorry that is editorial decision-making". However, clearly some editorial decisions we take do affect and in my view properly affect this. One other example is that most news organisations around the world are cutting back on international news reporting because it is very expensive and it is very expensive to have bureaux around the world with journalists covering events. It is much easier if you just base all that on wire services and on material provided by AP and Reuters. We believe that we will deliver a better news service to the public by actually having BBC journalists around the world. That significantly adds to the cost of news gathering, but we believe it also adds to the BBC's delivery of its public purposes.

  Q9  Chairman: Others may come back on that if they wish. May I look at the review performance? This is dealt with in paragraphs 60 and 62. What concerns me is that you do not seem to set detailed objectives in advance. What you seem to rely on is backward-looking reviews after the event. Is this not just an expensive exercise in self-congratulation, Mr Thompson?

  Mr Thompson: No, I do not believe it is. Firstly, what is the broader context? Every single major event, a commitment by the BBC to invest in major events, sits in the context of our overall strategies, in this case for sport and audio music. Those strategies are carefully constructed; they have and include performance metrics for these divisions which are reported on quarterly and become part of the annual performance review cycle. Every budget is set and RQIV targets are set for the departments. We began in 2009 to set individual event-by-event targets across audio music; in sport we have started setting individual targets with indicative objectives for different sport. Formula One and Wimbledon would be examples of the sports and the Winter Olympics which are starting just now. Do we believe that it makes sense to have individual event-by-event targets? Yes, but you should not think that because we are only just beginning to develop those now that we have not been looking in great detail at all of the metrics for these events and making quite sure that we are pushing the departments in question hard to improve their performance where they can.

  Q10  Chairman: All we want is normal business practices, a business plan, costed options, detailed objectives, so presumably we are moving in that direction.

  Mr Thompson: Yes.

  Mr Peat: Yes. We entirely accept the NAO's recommendation that there should be better identification of potential benefits in advance, there should be clarification of how those may change due to external events which may change the context in which it operates and that will provide a much better environment against which the performance of the events can be evaluated after the event. We are fully accepting the recommendations from the NAO, these will be included in the action plan which we will of course talk to the NAO about and we will be following up to make sure what is already happening is pursued rigorously.

  Q11  Chairman: All is sweetness and light now. This next one we may not agree so much on. The cost of presenters. We read in paragraph 47 on page 21 that you spent 20% of the coverage budget on presenters for one sporting event. Mr Thompson, what was that sporting event?

  Mr Peat: I think it is better that I answer that one, if I may. As the NAO have briefly explained in this Report, unfortunately we are not in a position where we can reveal the split between talent and staff by each individual event because the legal advice we have received tells us that if we did that then it would be possible for people, on the basis of information that is available or could be made available, to get a very good approximation of the cost of some individual talent for some of these events.

  Q12  Chairman: Yes, that is exactly what we do want.

  Mr Peat: That would be against the terms of the Data Protection Act and the confidentiality agreements.

  Q13  Chairman: This is nonsense. This is why this half-way house with the NAO is completely unsatisfactory. If the NAO had full access, there would be no question of this kind of defence under the Data Protection Act.

  Mr Peat: But they have this information.

  Q14  Chairman: A government department cannot come back to us and say they cannot tell us a bit of information. I questioned the NAO beforehand. The officer here actually seems to know the answer but he cannot tell me. The three events in question are Wimbledon, Euro 2008 and the Olympics. At Wimbledon the lead presenter is Sue Barker, for Euro 2008 the lead presenter is Gary Lineker, for the Olympics the lead presenter is Gabby Logan. Do you not think that we, on behalf of taxpayers who are paying for all this, would be quite interested to know the event in question and how much these people have been paid?

  Mr Peat: May I just repeat—

  Q15  Chairman: Just forget about data protection. Do you not think the public has some right to know where their licence fee is going, especially as I suspect tens of thousands of pounds are being paid to individuals. This is not Dan Maskell presenting Wimbledon for, in today's money, £1,000 or something. These people are being paid huge amounts of public money, I think because of your obsession with celebrities, and as we pay for this as taxpayers we would like to know. If you can justify it, like you attempted to justify your studio, fine, justify it, but do not shelter behind data protection which, by the way, is a protection which you yourself create because you will not let them have full access rights.

  Mr Peat: Just to clarify, they have had access to this information, it was made available to them and they made use of the information throughout the Report.

  Q16  Chairman: But not to us. Do you accept that they are not allowed to tell us?

  Mr Peat: If you would wish this information I could write in confidence to you with the information.[2]

  Q17  Chairman: Good, we are making progress. Shall we move on? BBC Sport missed over half its targets. It did not test value for money through options. Are you doing a good job in the Trust in overseeing this corporation?

  Mr Peat: One way we are doing our job is by having this type of report and by taking the findings extremely seriously. We do receive regular quarterly reports to the Trust on a whole battery of performance measures and achievements which are looked at very thoroughly by the Audience and Performance Committee, so we are aware of what is going on. We have found out as a result of this Report that there are improvements which could be made, for example, in looking at perhaps including impact as one of the measures which is included in sport in looking at value for money along with others. All the recommendations in this Report are accepted, all will be followed up and we will be using the Report and the follow-up in order to make sure that we enhance value for money for licence-fee payers.

  Q18  Chairman: Thank you. One last question. Under the Royal Charter you can appoint the Comptroller and Auditor General as your auditor. Will you?

  Mr Peat: At the moment we are not following that route; we have our own external auditors.

  Q19  Mr Bacon: When you say that at the moment you are not following that route, does that mean that in future, when you next review who your auditors will be, you will continue not to follow that route? Is that what you meant by that answer?

  Mr Peat: That is my expectation. What we have done is had a further exchange of letters between my chairman and the Comptroller and Auditor General offering further information to be made available to him and his colleagues in order to help him to determine where they can best work with us to enhance value for money.

  Q20  Mr Bacon: Who is your auditor at the moment?

  Mr Peat: KPMG.

  Q21  Mr Bacon: The old Peat Marwick.

  Mr Peat: It is KPMG.

  Q22  Mr Bacon: Your surname is Peat. Are you related to the Peat Marwick family?

  Mr Peat: Sadly not.

  Q23  Mr Bacon: I just wondered.

  Mr Peat: My forebears came from Midlothian; very poor.

  Q24  Mr Bacon: In the heart of, no doubt. I should just like to pursue this question for a second. What is the objection? I understand that you are using KPMG and your present view is that you should continue to use KPMG and not the National Audit Office as your auditor, although you could. What is the objection to switching to using the National Audit Office?

  Mr Peat: The view we have taken is that KPMG or an alternative from that profession are best placed to undertake the major audit for us and NAO are best placed to work very closely with us on enhancing value for money and we are working as closely as we can with NAO to that end. We believe our relationship is improving, is deepening and that we are achieving more and more benefits from their work with us.

  Mr Thompson: If I could just add, simply as a statement of fact, that the BBC is an organisation with fairly large-scale and complex international commercial operations and historically the view has been taken that a large internationally based auditor with experience of the audit environment in many different countries around the world was valuable in terms of getting an overall perspective and the right risk management around our operations.

  Q25  Mr Bacon: Moving on to the question of talent, can you explain why it is that the BBC has taken the view that it is better not to divulge the costs of talent?

  Mr Thompson: Jeremy has already talked about data protection, but in addition—

  Q26  Mr Bacon: Hang on a second. At the end of the day data protection is a bit of a red herring. You have entered into a contractual agreement with these folk that you will not reveal their salaries. What I am saying is that if you had entered into a contractual arrangement with them which said, "By the way your salary will be revealed", which you could have done, then data protection would not be an issue. I really want to get to the heart of the question as to why you have decided it is better not to reveal the cost of talent.

  Mr Thompson: Firstly, in the matter of senior officers of the BBC, there is no question that the public have every right to see the expenses, the salaries, the remuneration.

  Q27  Mr Bacon: Can you just remind us? Each time I have asked about your salary on the last three occasions you have given a different answer and the answers you gave me were £420,000, £620,000 and £640,000. Could you just remind us for the record what your salary is at the moment?

  Mr Thompson: I knew you were going to ask this so I brought a sheet of paper with me.

  Q28  Mr Bacon: Excellent. It is just that it keeps on changing.

  Mr Thompson: Sadly, actually, it does not keep on changing; it stays exactly the same and will be staying the same for quite a while. The basic salary is £664,000.

  Q29  Mr Bacon: The last time I asked that question it was £640,000 and the time before it was £620,000 and the time before that it was £420,000, so it does keep changing.

  Mr Thompson: If I may say so, there was a freeze last year. In the financial year 2007-08 and in 2008-09 small increases were given to all BBC staff members and my pay went up in line with that general staff increase; in both cases slightly below CPI and RPI inflation by the way. So the basic fee there is £664,000 in the most recent annual report.

  Q30  Mr Bacon: Then there is your bonus on top, if you get it.

  Mr Thompson: To be clear, we suspended bonuses two years ago. I have been entitled to a bonus since I became Director-General in 2004. I have waived my right to be considered for a bonus every year I have been Director-General, so I have never received a bonus as Director-General.

  The Committee suspended from 4.54pm to 4.59pm for a division in the House.

  Q31  Mr Bacon: The issue I was really trying to get to was the rationale. Let me ask a slightly different question. I take it you think the payments you make to your talent are justified. Is that correct? Yes or no, are they justified?

  Mr Thompson: Across the piece I believe we get good value for money out of our talent deals. We have said that we believe, partly because of the external current climate, that over this period we are going to be able to drive them down further, but yes, overall I think we get good value for money and the Oliver & Ohlbaum Report, which the Trust commissioned into this very question, also suggested that is the case across the BBC.

  Q32  Mr Bacon: So you think you get value for money and you think you can justify the money you are expending on your talent. The question then is why you feel that it is necessary to keep those costs confidential.

  Mr Thompson: There are three reasons. There is the issue of individual confidentiality. There is the second issue which is that we work in an industry where no other broadcaster has to reveal these facts and most artists do not believe that these facts should be released. The danger is that if you insist that the BBC uniquely, or the public service broadcasters uniquely reveal star or celebrity or top talent salaries and no other broadcasters do, there will be many people who choose not to work for the public broadcasters and we are unable to get all the talent we want. Thirdly, our experience on those occasions where talent costs have leaked—and this is something the Chairman of the BBC Trust talked about in this morning's Guardian—is that because we try to pay less than the market where we can, the effect of leaks has been inflationary not deflationary. I should say that the Information Commissioner, in a matter of freedom of information on this topic, has accepted these arguments and in a number of such cases has recognised that whereas with senior managers at the BBC the balance of argument is in favour of disclosure, in the case of on-air talent the balance of argument is against.

  Q33  Mr Bacon: Thank you; you put that very clearly. May I ask you about the criteria for achieving success? On page 25 it states that a post-implementation review: " ... reported successful achievement of objectives ... using quantified assessments of actual performance even though the objectives had not been quantified and a baseline against which success could be measured had not been established". My question is how can you say that it has been successful when you have not established criteria against which such a judgment can be made?

  Mr Davie: Perhaps I might give you a flavour of how it works on the ground in terms of the Audio and Music group, because that is relevant. Your question is valid. The comment around commercial plan robustness was interesting and I have to say, having been 20 years in the commercial sector, my annual planning against the service licences is absolutely robust against clear objectives set previously. We had a situation where events did not have individual metrics against them prior to 2009, so when we looked at the post-implementation review, as the general manager in effect, I would look at progress versus historic years. Unlike a one-off event, these events tend to have a long series, a record and we can look at performance versus history, so you had a clear track of historical metrics to assess against. Taking the NAO's points, which were helpful actually, we have increased the robustness of that process, which you have to say in 2008 we were still delivering on budget and the events were effective and the Report says that. But in 2009, what we were able to do was add the Reach Quality Impact Value targets and believe me there is a fairly long list of metrics which we then put against the individual events. In 2009 I assessed against those metrics which are developed for the individual year and that is where we are at the moment.

  Mr Thompson: So in prior years he had overall objectives for his division and was judged against his performance and delivery of those metrics. What we have moved to is now looking at the contributory major event within those overall targets and we are going to and have set targets for those individually.

  Q34  Mr Bacon: This takes me rather neatly on to paragraph 31 where it talks about consideration of various options allowing those approving expenditure to consider whether there is more than one way of covering an event and to see what trade-offs may be available. It goes on to say that the budget submissions the NAO examined had an iterative consideration of different cost elements and there was no structured consideration of distinct budget options or cost and quality trade-offs as part of the approvals document. Only the preferred coverage option is presented for approval. Would you not be wiser to have a structured approach which enabled you to look at different options and the cost and quality implications of each of those options rather than just incrementally producing one preferred option budget?

  Mr Thompson: I want to say in general that it is worth saying that quite a few of these major events, arguably all of the ones covered by the Report, are essentially business as usual for these parts of the BBC, in other words they are things we have covered for many years, for example we started covering Wimbledon in 1927 on radio and 1937 on television, and they are absolutely part of the stock-in-trade of the BBC. You can see, given many, many years, for example of covering Wimbledon, that what you do not want to do is spend too long looking at parallel universe, theoretical alternatives of having the main base for covering Wimbledon in New York or Wrexham. There is a way of doing Wimbledon that we know. What we do is track very carefully core parameters like the cost per user hour and public satisfaction and work on those. Of course, what is interesting is the discussion about the studio options in Euro 2008 is a good example of a process which did look at alternatives. Again, I would say it is useful for the NAO to point out that it might well be that this kind of process of looking at cost options should be more structured than it has been in the past.

  Q35  Mr Bacon: This brings me on to one further point and that is the way, according to paragraph 28, you do not: "prepare a single budget for individual events that gathers together the total cost of coverage across platforms". You have sprouted platforms like Topsy in recent years and one would have thought that a very good way of assessing the overall effect, the overall impact, the overall value for money, the overall cost-effectiveness would be indeed to look at the total budget across all platforms against various metrics. This seems to say you do not do that. Is that correct?

  Mr Mosey: In sport we do. We are responsible for TV, radio and online.

  Q36  Mr Bacon: I am talking about paragraph 28 where it says you do not. Is this paragraph correct that you do not prepare a single budget for individual events that gathers together the total cost of coverage across platforms?

  Mr Thompson: It depends on the event is the answer. For example, for the Beijing 2008 Games there were essentially two substantive budgets: there was the BBC Sport budget for the main coverage and then there was a component in the BBC News budget for the news coverage. Both those budgets would have been cross-platform.

  Q37  Mr Bacon: Which are the ones for which you do not do it?

  Mr Peat: Just to be clear, each of the points you have raised is an example of improvements of the procedures that have in part been brought in and in future will be brought in in line with these recommendations.

  Q38  Mr Bacon: Basically you think this is a good suggestion.

  Mr Peat: We accept all these recommendations and in most instances there is a good answer that one of my executive friends can give. The principles are not fully endorsed in all instances. From 2008 those options were set out in full but we accept each of the recommendations and we will make sure they are implemented fully and appropriately from now on.

  Q39  Keith Hill: I want to ask a series of perhaps rather more routine questions which will slightly lower the temperature of our exchanges. However, there is one issue which has occurred to me before I go into those and that is this. You argue against an audit of the BBC by the National Audit Office on the grounds, it seems to me, primarily of commercial confidentiality. But the fact is that the NAO are used to dealing with secrets and, for example, it audits the Ministry of Defence, audits the Secret Service. Are you saying the BBC has more important secrets than the Secret Service or MoD?

  Mr Thompson: No, I would not argue that the NAO should not be able to audit the BBC, be the BBC's auditor, on the basis of confidentiality. Those are not the grounds.

  Q40  Keith Hill: What are the grounds? What has the BBC got to lose then by having a full audit by the NAO?

  Mr Thompson: Historically the BBC has tendered from time to time for auditing and to date has chosen to award the audit to large international commercial auditors. The only argument I adduced in this afternoon's hearing was the fact that the BBC has complex international commercial operations which those companies, which are set up in many parts of the world, are familiar with handling.

  Q41  Keith Hill: Are you not aware that the NAO audits government departments all over the world and has that international experience? What is the argument about international experience which precludes the NAO?

  Mr Thompson: The substantive point I was trying to make to you—and we could debate the international expertise of the NAO versus KPMG, I suppose, but what I do want to be clear about—is that I am not suggesting for a second that there is an issue about confidentiality which would prevent the NAO from being the BBC's auditor.

  Q42  Keith Hill: So it is international experience which precludes the NAO.

  Mr Thompson: There have been several reasons why.

  Q43  Keith Hill: Let us have a few more then. It is not commercial confidentiality and it is not international experience. What is it that prevents the NAO doing a full and proper audit of the BBC?

  Mr Peat: I do not think anyone is suggesting that the NAO is wholly incapable of undertaking a full and proper audit. We believe that the international companies which we utilise and have utilised in the past undertake it very fully and we bring in the NAO for a range of value-for-money work. We are asking them to come in and look at the efficiencies achieved as a whole over the efficiency programme which is in place. We believe that they play a very valuable role in those contexts. At this stage we continue using KPMG as our external auditor because of the experience they have in dealing with other large complex multinational organisations. That is the position we are in.

  Q44  Keith Hill: Government departments are huge spending departments, even huger than the BBC.

  Mr Peat: Indeed.

  Q45  Keith Hill: The NAO is perfectly capable of dealing with the audits of those departments. Why not the BBC?

  Mr Thompson: KPMG, for example, deals with many broadcasters and many other media companies around the world. As with any other big broadcaster, they deal with many organisations in our sector, which is broadcasting.

  Q46  Keith Hill: Are the principles of audit not fundamentally the same across all essentially taxpayer-funded institutions?

  Mr Thompson: Yes, but where you could find an auditor who has sectoral experience is potentially a benefit clearly.

  Q47  Keith Hill: They have wide experience of many official and semi-official organisations. I take your point that there is a certain broadcasting expertise, but you are essentially accountable to the taxpayer and your accounts ought to be fully exposed to the taxpayer within the parameters of confidentiality.

  Mr Thompson: Of course. Let us agree the point. I would say, of course, that in our annual accounts, which the executive board and the executive board audit committee take responsibility for, we absolutely try to meet all of the appropriate standards for disclosure and accuracy for a public company and with our auditors only signing off on those accounts when they are completely satisfied. What I would say is the fact we are using a private auditor rather than the National Audit Office should not lead you to believe that in a sense there is a less complete audit taking place or there is less disclosure than there would be with the NAO doing it. There might be other arguments you might want to put forward why it should be the NAO rather than KPMG, but I do not believe the public will learn less about the BBC's accounts or its operations because the audit is done by KPMG rather than by the NAO.

  Q48  Keith Hill: If I might say so, the very contents of this Report, which looks at only certain aspects of the BBC's operation, demonstrate that the National Audit Office is able to identify a series of shortcomings in terms of process which obviously they are capable of identifying, you have accepted in part and presumably KPMG have not identified for you in the past. Is that not a clear benefit of the NAO being involved in your procedures?

  Mr Peat: I totally agree about the huge benefit that we obtain from this Report and similar reports that are undertaken. However, there is a difference between the type of work an external auditor can do across the piece and the detailed in-depth work that NAO can do on particular elements of BBC activities that they undertake at least twice a year for us. What we do try to ensure is that the NAO have full access to sufficient information and sufficient contacts across the BBC so that they can help us to identify where next to go for this type of study so we obtain more information on improvements that can be made. We are working very hard on opening up information to the Comptroller and Auditor General—a recent exchange of letters with my Chairman—trying to give them more and more access so they can work with us to determine where to go next for further value-for-money studies. That process and the in-depth studies which come are done over a period of months not weeks and the in-depth work is hugely valuable. We want to know where to go next and over the five years I have been doing this we must have had ten studies from the NAO, each of which has been very valuable. That process continues and the in-depth work is of huge value. That is very different from overarching external auditor work which is equally valuable and the NAO work in this instance really does yield benefits.

  Q49  Keith Hill: Let me ask the Comptroller whether he thinks the NAO would be capable of delivering this overarching analysis of the BBC?

  Mr Morse: Yes.

  Keith Hill: There you go. Chairman, I was going to ask about benchmarking and post-implementation reviews but I have had so much fun on this I am prepared to draw a line and pass the baton over to my colleagues.

  Q50  Chairman: May I just ask one question? Why not just tell the truth? The reason why you do not want the NAO to have full access is nothing to do with international experience or the fact that they cannot cover the whole organisation, such as the MoD which they do cover. The reason is that you do not want poxy parliamentarians like us crawling all over your programmes. It is quite an understandable point of view. Just tell the truth.

  Mr Peat: That is not the reason.

  Mr Thompson: If I may say so, there is a distinction as well between "full access" for the purposes of these kinds of studies and the overarching issue of the general audit of the BBC. They are both topics we have discussed but I would say they are actually slightly different topics.

  Q51  Mr Williams: We have this argument time and again and you can never ever give us any sound reason. You have accepted that NAO is as competent as your existing auditor, have you? Or are you saying they are not as competent?

  Mr Peat: No, I would never doubt NAO's competence.

  Q52  Mr Williams: So it is not a matter of competence. If it is not competence, what is it?

  Mr Peat: I have attempted to explain why I believe the arrangements we have are best in providing value for money for licence-fee payers.

  Q53  Mr Williams: That is not an answer, that is an obfuscation. What is the one factor in your mind that says, "Over my dead body. They are not going to get at our accounts"? Tell us what it is.

  Mr Peat: It is not "Over my dead body" and the reason is that my view is that NAO in their present role are very effective and very valuable and KPMG are doing an excellent job and they can continue for the time being as our external auditor.

  Q54  Mr Williams: Can you not see that this does look, in the present circumstances of openness about finances, at the very least evasive, inexplicably evasive, and self-indulgent.

  Mr Peat: I think we have been extremely open in a large number of instances and ever since the Trust was formed transparency has been a watchword that the Trust has operated to. The amount of external consultation and the amount of transparency is of substance. We happen to have a disagreement on this particular issue, but I believe that we do generally operate in an extremely open way as per the terms of the charter.

  Q55  Mr Williams: You see, from where we are sitting, we listen to this every time—every time—and all that comes through—and it must come through to the audience as well—is that you are sitting there and what you are saying to us is, "I can stop it so I am going to stop it but I cannot give a good reason why I am going to stop it".

  Mr Peat: I am very sorry you see it that way. What I am trying to say is how much we value this work.

  Q56  Mr Williams: Do not be sorry, mean it.

  Mr Peat: I am sorry because I genuinely believe the NAO work on value for money is of huge importance and that we are making every effort to enhance the extent to which we provide and give them access to information so the work can be even more valuable for the licence-fee payer.

  Q57  Mr Williams: That is information you want to give them. You want to choose where they can go. We want to know where you do not want them to go. That is the important part, which are the areas you will not let them look at? You are only picking the nice bits which suit you.

  Mr Thompson: To be quite clear, if any auditor, and this would absolutely go for KPMG at the moment, felt that in any way they were being prevented from seeing any part of the BBC's financial operations, they would not be able to perform their role and they would have to tell the BBC Trust that they were unable to perform their role.

  Q58  Mr Williams: You are not the obstacle here, Mr Thompson; Mr Peat is, so you stay out of it. Mr Peat is the one who is being bloody-minded; absolutely, regularly, consistently bloody-minded about it. You have reached a situation where you have virtually had to accept that almost the only reason which can be put forward is that you want to limit the NAO from going to areas which might be dangerous to you. Is that not so?

  Mr Peat: I think the discussion on NAO as external auditors—

  Q59  Mr Williams: Answer the question, please. Answer the question, please. Is it not that there are areas you do not want them to look at?

  Mr Peat: No.

  Q60  Mr Williams: No? Then what is the problem?

  Mr Peat: The only limitation I have stressed throughout my appearances before the Committee of Public Accounts is that I wish to reserve the right to say where I believe NAO seeking information would risk the editorial and total independence of the BBC. Other than that I am totally—

  Q61  Mr Williams: That is absolute rubbish. The overseas broadcasting has been covered by them ever since it was set up and I specifically asked the head the last time they were here whether they had ever run into any problems that caused them embarrassment with the National Audit Office and they said no, they had never tried to interfere in editorial matters. If they did you could complain and refuse to give it.

  Mr Peat: I have said in the past that I have never had any evidence of them attempting to interfere.

  Q62  Mr Williams: Because you will not allow them to.

  Mr Peat: I reserve the right to inhibit their access where I believe there is such a risk. We are working very hard to make sure the NAO have sufficient information to do their job to help improve efficiency for licence-fee payers. That is our view.

  Q63  Mr Williams: I have about ten weeks to retirement. How long do you have to retirement?

  Mr Peat: To the end of this year.

  Mr Williams: So there is hope next year.

  Q64  Mr Carswell: The Report shows that the BBC are spending quite a lot of money on some big sporting and music events. Do you not think the fact that you have all this money to draw on from the licence fee perhaps gives the BBC an unfair advantage? I know your Royal Charter says you have a duty to inform and educate, but are you basically not eating into something that others could be doing better?

  Mr Thompson: The Government White Paper in relation to the BBC also went out of its way to emphasise that the public expected and had a right to expect major sporting events from the BBC. I should say that by and large, in terms of my postbag, I get many, many more letters asking us to consider extending our portfolio of sporting events, for example to include television cricket, than traducers . When we talk to the public at large, they are very clear that they expect outstanding sport free at the point of use from the BBC on television, radio, the web and so forth. Although the BBC does have to have regard to market impact, I would say to you that if you look at the current broadcasting environment, particularly if you care about free-to-air sport, sport which you do not need a subscription to enjoy, the role of the BBC as a guarantor that some high quality sport will be available to the public at large, if anything, is growing stronger at the moment.

  Q65  Mr Carswell: When you go out to buy the rights, yes, of course once you have bought the rights you can show it free-to-air so that means people are not having to pay for it because they get access to it through the licence fee, but on the whole in fact you are inflating the cost so that the cost of broadcasting those events in the round will be higher than if you were not bidding against other broadcasters.

  Mr Thompson: You say that. Frequently the BBC fails to secure rights or loses rights. In one recent example, the 2012 Paralympics, we were substantially outbid. Channel Four may have bid as much as double our bid for the Paralympics. We recently lost the FA Cup and England home international rights, again to a much larger bid from the market. The answer is that we are frequently outbid for rights so we take great care, and the BBC Trust monitors what we do very closely, to make sure that we do not overbid. I believe, to be honest, that what the BBC does, as it tries to do with top talent, is to make the case to sporting bodies that the totality of what the BBC can do and also the fact that audiences in particular like to see many sports uninterrupted by advertising means that we can underbid the market somewhat.

  Mr Peat: May I just add that following a fair trading appeal that came to the Trust, we are about to go out to tender for a study on value for money for sports rights to make sure that the processes and procedures are appropriate to gain full value for money. We will be sharing the terms of reference with the NAO and the report will be published and made available to this Committee later this year.

  Q66  Mr Carswell: Sure, but it is the quangos deciding what is value for money again.

  Mr Peat: External.

  Mr Thompson: Also there are some straightforward methods. How much does it cost per viewer or per listener to achieve a given right? Often sports are split between the BBC and other broadcasters and you can see to what extent the public rate BBC coverage of, let us say, Euro 2008 versus ITV coverage. Again, there is good evidence that in terms of cost per viewer hour and in terms of audience appreciation the outturn of our rights benchmarks very well.

  Q67  Mr Carswell: I do not want to dig up the rich vein of conversation that was going on before but, in layman's terms, my constituents are forced to pay for you and the BBC. Why will you not tell them which presenters are being paid and what? Let me put it another way. Listening to some of the justification that you give for not doing so reminds me of the arguments put forward by the "Duck House Gang" in this place as to why there should not be disclosure and transparency. Any institution can find exceptions that they believe justify why they should not disclose. In layman's terms, my constituents want to know why they should not know.

  Mr Thompson: Should the public have a good sense of how much the BBC spends as a whole on talent and on top talent? Secondly, should the public and, indeed, this Committee and Parliament be able to track what the BBC is spending? We have said we want to reduce what we spend on top talent. Are we achieving that? I think you should and we will very shortly publish numbers for the total amount the BBC spends on talent and what we spend on top talent and each year, in each annual report, we will repeat that so people can see what the trends are. If I may say so, I think it is absolutely appropriate that the public should have a good sense of what is going on. Is it going up? Is it going down? How much of my licence fee goes here? I am not persuaded, though I am sure the public would be very interested, that there is a public interest argument for divulging individual artists' fees.

  Q68  Mr Carswell: That is not what it says here.

  Mr Thompson: Crucially you will not find it for ITV or for Channel Four or any other broadcaster in the world except in one or two European countries.

  Q69  Mr Carswell: Not every broadcaster around the world is given a vast subsidy on pain of imprisonment by each household.

  Mr Thompson: To be clear about it, we are trying to go essentially into the labour market to get the best talent for the British public, the best entertainers and the best sports presenters. We do not want to have one arm tied behind our back because actually what the public tell us is they do want the best presenters and the best stars on the BBC.

  Q70  Mr Carswell: Quite often the Committee of Public Accounts gets people who appear before it who invoke the idea of confidentiality and contractual obligations as the reason for non-disclosure. You are saying that it is not simply your contractual obligations to these multi-million-pounds-a-year presenters who are presenting for you; you actively do not want to disclose it even if you were in a position to do so.

  Mr Thompson: We think it would be commercially, in terms of our ability to attract and retain the best talent, deleterious and we think it would have the effect of putting the prices up. So we think there are practical reasons for being against it. We made this case to the Information Commissioner, who, in the context of freedom of information, has accepted the arguments.

  Q71  Mr Carswell: We keep hearing that you are on a mega salary because you are worth it and because you could draw a comparable figure in the private sector. Which private sector companies organise individual projects on the scale that you do without knowing the total cost first and without the clear objectives first?

  Mr Thompson: May I say I believe that in all of the cases we are talking about we have known the total costs first. One thing in the Report which is just worth explaining is that at the point when we are securing or thinking about securing the rights to broadcast a particular event—and this moment is sometimes many, many years before the event itself is broadcast—we put in indicative costs of production so that my committee, as the decision-making body, can get a sense in the round of how much this is likely to cost, but we fine tune production budgets closer to the event, not least because technology changes. We secured the Beijing Olympic Games in the 1990s in an age before we had anything like our current operations, for example, on the web and before high definition. What happens in the case of sporting events is the precise line-up of artists and, therefore, the fees involved in a music event may not be completely clear until—

  Q72  Mr Carswell: So you are saying there are huge variables.

  Mr Thompson: The point is that there is a process. London 2012 is a good example at the moment. We secured the rights many years ago, we have recently taken the core budget through the system two years in advance, but we will go on refining that budget over the next 18 months in the light of learning more about the event and more detailed creative plans. What we do not do is we do not broadcast events without knowing how much they are going to cost.

  Q73  Mr Carswell: A lot of this debate hinges on the question of accountability and you receive billions of pounds of public money from a dedicated tax source, the licence fee. Sky receives billions of pounds but the difference is that they have to get that money by persuading every punter to part with their money of their own freewill. Are you satisfied—I think the BBC even made a programme about it—given the digital revolution is forcing a new system of accountability, it is forcing hyper accountability rather than corporatist accountability, that the BBC Trust model is sustainable?

  Mr Thompson: Firstly, I am in a sense the chief poacher in this relationship; I lead the organisation which the Trust is there to oversee. I have to say that on the ground I believe the Trust, from my point of view, has been a much more challenging—much more challenging—much more focused governing body than the governors who came before it. They have taken the lead in commissioning value-for-money reports from the National Audit Office and also other value-for-money reports. They have been more assiduous in holding me and my colleagues to account. In my view, on the ground—and I appreciate there is a large public policy debate about this—from where I am sitting it has felt like a very effective organisation.

  Mr Carswell: I am very interested in freebies and lobbying and making sure there is transparency. Could you let the Committee have a list of all the free tickets and free access that you have given to all elected officials and regulators?

  Chairman: This is going to be a bit of a long list.

  Q74  Mr Carswell: I should like to put it on my blog, if I may. If you could let us know who is going to Glyndebourne, who is going to Glastonbury, because some people could say you are buying influence with taxpayers' money to maintain the status quo. I think the public has the right to know which elected officials and unelected officials are benefiting from these arrangements.

  Mr Thompson: We will look at the data requirements and do our best to satisfy you in that regard.

  Chairman: We want to know how many times you have been to Wimbledon and all that sort of stuff.

  Q75  Mr Mitchell: It always struck me, in those dim and distant days when I worked for ITV, that when you were comparing outside broadcast costs ITV crews consumed more in beer but the BBC crews were bigger and more efficient. Have you compared your costs on these major events with the costs of the competition, ITV, Sky and international ones, ABC and CBS?

  Mr Thompson: It is very interesting. Firstly, both we and, indeed, if you look at the Report, the National Audit Office have found it very hard to get access to other UK broadcasters for benchmarking purposes. We are in favour of open benchmarking with all the UK's other broadcasters to establish what we can learn about value for money. I have to say that our experience, particularly in recent years, is that other broadcasters have been very unwilling to enter into that and I think the NAO would have had a similar experience. However, we are able to benchmark with some international broadcasters. There was much fuss in the British press about the numbers of BBC people, somewhat under 500, who went to Beijing. NBC, which is a unit of General Electric, is a purely commercial company who broadcast about the same number of hours from Beijing and sent over 3,000 people. There were articles in the German papers, because the German public broadcasters sent more people than we did, asking why their broadcasters could not be as efficient as the BBC. So we have this particular piquancy that we are often used by other international broadcasters as a benchmark for efficiency, even though, as it were in the domestic market, what are considered internationally very small production teams, given the scale of the undertaking, are written up as though they are very large.

  Q76  Mr Mitchell: Coming back to the accusation of being over manned, I see from figure four on page 22 that when it comes to Wimbledon, which is just down the road, you have 358 people there. Presumably some of those might be freeloaders just dropping in to see a game; I do not know, but it is a huge number, whereas when it comes to the Proms, which is a fantastic event and you do broadcast from Northern Ireland and Scotland and all over the place and is very impressive you are making do with 145. Why the discrepancy?

  Mr Mosey: For Wimbledon we are the host broadcaster so we have to cover nine courts minimum at any point. Also those figures include people who go to rig, put technical equipment in, the cameramen, the guys in the camera hoists and so on.

  Mr Thompson: Somebody who comes onto the site for two hours to rig something and then leaves, he is there for two hours and is counted in this number.

  Mr Mosey: The maximum number we ever had on any one day was 232. It is interesting that I saw a commercial broadcaster advertising how many they had for one Premier League match and that was 130 people doing one Premier League match, so that gives a bit of context with Wimbledon and 232 on a day for nine courts.

  Mr Thompson: The problem is obviously a very lean operation, but the Proms are a very different animal.

  Q77  Mr Mitchell: It is a big event and lots of coordinating. You have musicians and all sorts trundled in.

  Mr Davie: We have. The reason why we can make the Proms so effective in terms of staff costs is obviously the Proms in the Park night and other nights. Beyond this the Proms themselves obviously work in the Albert Hall and the other minor venues so you can be quite concentrated. We are not there to staff up. People like myself are really pushing this number down, but it makes the Proms very lean in terms of staff numbers, whereas at Glastonbury, where you are covering all those stages in a quite intensive period, there is just a different dynamic. We are pretty robust in terms of benchmarking these, looking at these, versus what we see as an effective number of people. Clearly we get well analysed in that regard as well.

  Q78  Mr Mitchell: I see from the summary, page four, paragraph two, that in 2008-09 you spent £246 million on procuring rights to broadcast sporting and music events and only £111 million on coverage. Why are you paying so much for rights? You are now in an overwhelmingly dominant position; ITV is bust, Sky is mean and stingy, you dominate the field. Why are you coughing up so much?

  Mr Thompson: Firstly, our portfolio of sports rights—and I think this is what the public wants from us—is very extensive. There are some sports rights which in recent years have reduced in value; we have been able to get the same or better rights for less. Other rights in fact I have to say remain very competitive.

  Mr Mosey: Some rights. Because it is a regulated process the one figure that ends up being published is the Premier League and the Premier League rights, it is no secret, have gone from £35 million to £57 million or more a year for highlights on Match of the Day. Sky pays about £4.8 million per game on Sunday at four o'clock. The market is incredibly lively in parts of the sports rights.

  Mr Thompson: It is more than £4 million for one game on a Saturday afternoon.

  Q79  Mr Mitchell: You are not bidding for rights for everything in a competition. For some you are in a position actually to dictate what you are going to pay. Why do you not get the costs down?

  Mr Thompson: Where we can, where there is less commercial interest, obviously we try to achieve a much, much lower price than we would for something which is contested.

  Mr Peat: The Trust is commissioning a study of the sports rights processes from an external body which will be published and will be available to this Committee later this year. Given the sums that are involved, we feel it is appropriate to attempt to ensure the most appropriate events are secured at the best price.

  Q80  Mr Mitchell: If you want an example of economy, I can give you Pennine Radio where Roger Mosey was our sole broadcasting correspondent working from a telephone box in Bradford.

  Mr Mosey: For ten shillings and sixpence a week.

  Q81  Mr Mitchell: That was very efficient.

  Mr Mosey: I should declare an interest. I was employed by Mr Mitchell.

  Q82  Mr Mitchell: Take Glastonbury, what rights are you paying for there? The rights to the music or the rights to cover the festival?

  Mr Davie: To cover the festival.

  Q83  Mr Mitchell: Why do you need to pay so much? You could come to a joint deal to merchandise products.

  Mr Davie: Actually the figures for the rights are a small proportion within the £1.7 million budget. The relationship in sport is very different from music, but those rights actually represent extraordinarily good value versus what others would pay, and others would pay. I could name companies, music, television companies and video companies.

  Q84  Mr Mitchell: But nobody is bidding against you.

  Mr Davie: I am not aware of what the other bidders pay.

  Q85  Mr Mitchell: So you overpaid.

  Mr Davie: No. We would look at what we pay and see the cost per listener and viewer and absolutely see that was well within the metrics. In fact, Glastonbury is particularly good value for money.

  Mr Thompson: Glastonbury used to be on Channel Four but came to the BBC. It has been built up as an event on broadcasting and we tried to use television, radio and the web to bring it to life. They are now pretty valuable rights actually because of what we have done with them and because Glastonbury itself has grown as a festival. There is a handful of major sports—and you all know what they are—where the rights are competitive and the costs are pretty high. For minority sport and most music events rights are a smaller proportion of the mix. You have heard that. One fifth of this entire budget is going on premiership highlights.

  Mr Davie: We will adjust rights to market conditions. I do not want to get into the details of negotiations with the Eavis family, but I absolutely would be looking for value based on the context of the market. The idea that we just roll forward budgets does not represent the practice.

  Mr Thompson: Each time we consider investing in major sports rights, we see a complete market analysis. We look at what the cost per viewer or per listener will be. We look at the historic track record of this right in terms of the audience it can achieve and we try to make sure we pitch our offers always so that they do not inflate prices. The point made earlier is absolutely right, that one danger for the BBC would be that if we did not have regard to that, we would inflate prices. We try extremely hard to make sure we under spend.

  Q86  Mr Mitchell: Why can you not use your dominance in the market in respect of talent? It is interesting to see that costs of talent are 20% in some sporting events and 6% in other sporting events. Surely you can pick and choose what talent you are using and drive the price down.

  Mr Thompson: Yes, but obviously you have to be careful about apples and oranges, that the presentation of a classical music concert from the Proms might be very different from a really major, mainstream sporting event. We intend to and already in the current financial year we have had some success in driving down top talent costs. The critical point, both about sports rights and about talent costs, is the economic climate is very different now than it was two or three years ago and the opportunity to drive down costs is there.

  Q87  Mr Mitchell: Let us take BBC Sport. BBC Sport is more likely to fail in achieving its targets than other sections of the major events market. Why is that? First of all, figure two, page 13, who sets the targets? Some of them seem daft: "Best for great presenters" "Best for expert opinions". These are futile targets.

  Mr Thompson: The way those targets work is that they are questions we ask the audience. These are trying to set targets for audience reaction to what BBC Sport does.

  Q88  Mr Mitchell: So you set a target saying this is the best for great presenters and then you ask them whether BBC was best for great presenters?

  Mr Thompson: Yes.

  Mr Peat: Yes.

  Mr Thompson: What I would say about this particular pair of targets is that they were set—

  Q89  Mr Mitchell: If you pay too much for talent, you are bound to get the best presenters.

  Mr Thompson: A broader point about these targets, a number of which were missed, as was made clear earlier, is that these were a very, very ambitious set of stretched targets. We absolutely want to increase the impact and the value of BBC Sport. If you look at these targets individually, in almost every case BBC Sport did really well if you compare it year-on-year. I will give you one example. One of the targets was that the number of people using BBC Sport on mobile telephones should increase. In the previous year it had been 1.2 million and the target which was set by Sport and which we agreed with Sport was to move it from 1.2 million to 1.9 million in a year, an increase of 700,000. They actually achieved 1.84, so they achieved 640,000 out of the 700,000 increase. That was a "missed" target, but these targets are not a minimum statutory that you must hit. These were because we wanted Sport to develop and grow and if you look at the actual change in the impact of sport and the increase in approval, this was a very strong performance by Sport even though yes, it is true, these stretching targets were not met in some cases.

  Q90  Dr Pugh: I attended the Open Golf last year at Royal Birkdale and I was shown round by the BBC. I rush to add that I was not a guest of the BBC. I was actually surprised by the complexity and the size and the cabling and the lengths of wiring and the enormous number of vans there were. I was a little taken aback when I looked at paragraph 43 on page 20 which suggests that a private sector company provides the bulk of the outside technical facilities for the BBC. These vans I saw all had BBC written all over them. Am I right in thinking that?

  Mr Thompson: Yes, you are. We sold our Outside Broadcast division to a company called SIS who provide these services at the Open Golf, for example. Part of the sale was a multi-year contract which is a bulk contract with SIS which guarantees that the BBC will get a big discount on SIS's overall charges.

  Q91  Dr Pugh: But you get financially penalised if you do not give them enough work, is that right?

  Mr Thompson: This is in addition obviously to getting a fairly large sum in respect of the actual purchase. There is a commitment to use SIS for a number of years. That commitment tapers over those years and we are guaranteed a significant discount on their normal rate card and we also believe we are achieving a good discount against the market. In my view, the arrangement, in terms of value for money and in terms of quality, is a good one.

  Q92  Dr Pugh: I understand that. If they get 84% of the work though and the rest of the companies get 16% that raises the question of how many other companies are out there pitching for this sort of work.

  Mr Mosey: I could not give you a precise number but clearly there is a market in that 16%.

  Q93  Dr Pugh: Can any of these companies bid for any of the big events or are they just picking up the small pieces?

  Mr Mosey: Clearly there will be a longer-term strategy post-2012. Part of the reason for the SIS deal was to guarantee we do have the right number of outside broadcasts available for major events like London 2012 or for state funerals or any other events that come up along the way. Whether the market liberalises after that is unknown.

  Mr Thompson: The other logic behind the sale was that SIS were prepared to do something we felt was not a good use of the BBC's fairly limited capital resources, which was to invest significantly in new technology for the outside broadcast fleet. This is also part about making sure the fleet is ready for high definition and some of the needs we are going to have as a broadcaster in years to come.

  Q94  Dr Pugh: I am questioning whether there is a genuinely competitive market out there. I really want to know how many people are pitching for this work, what their size is and, in fact, how many of the contracts do they bid for? Can you give me that information?

  Mr Mosey: We can write to you.[3]

  Mr Thompson: We can certainly write to you with details. I should say overall that the outside broadcast market, which is not just a UK market but also is a European market and frequently you will see trucks from other European countries working in this country, from everything I know is a lively and functioning market.

  Q95  Dr Pugh: Broadly speaking, on the 16% of contracts they have won did they win them by a substantial margin or by a normal commercial margin?

  Mr Mosey: You understand that in terms of the commercial tendering of the outside broadcast sector, that is something handled by our head of production.

  Q96  Dr Pugh: Could you provide us with some data? Just convince me that there is a competitive market out there.

  Mr Mosey: Yes.[4]

  Q97  Dr Pugh: The NAO criticised you for having no formal cost benefit consideration of different coverage options and limited use of potential internal benchmarking. I had the impression when reading this Report—which is not the most lucid report I have ever read—that to some extent this area is a bit like knitting fog because all events are slightly different, are they not, sui generis? Not many other comparable organisations do these events, so you do not have a benchmark there and there is a continual technical uplift going on all the time.

  Mr Mosey: Yes.

  Mr Peat: The Report that NAO did for us last year on radio again suggested internal and, if possible, external benchmarking. We have run into the same problem on external benchmarking as Mr Thompson mentioned with regard to sports rights, which is the confidentiality of information, but we also had the same position of fog with the suggestion that different genres of radio are very different and it is difficult to make comparisons. Since then a lot of work has been done by Mr Davie and his team and a huge amount of internal benchmarking has been undertaken. I would expect progress to be made on internal benchmarking as appropriate as a follow-up to this meeting.

  Mr Davie: Very clearly the process was good and is improving in terms of internal benchmarking, ensuring we are cost effective. We could provide lists of suppliers in the OB area.[5] External benchmarking is an issue. External benchmarking the Proms is not an easy brief. It is something we have discussed with the NAO. We would like to do more. We can look at costs of concerts covered elsewhere but when you are going for events like Radio One's Big Weekend or the Proms where you construct events which generate unique value and actually go to unique venues and deliver something different, you have a genuine issue. We are interested in progressing external benchmarking and that is something we want to continue the discussion on. The idea that it is a fog is not right. That particular area is something we are keen to develop.

  Q98  Dr Pugh: If you have enhanced technical production costs every year and production does change quite rapidly, it is changing quite rapidly and has changed over the last decade, is it not rather difficult to establish what the budget should be?

  Mr Davie: But it is not all cost. If I look at the OB technology we are now putting in, we have just put in a more efficient in-house fleet which can deliver better value for money. Technology does not just drive up costs; it drives down costs as well. We are getting puts and takes on the technology side.

  Q99  Dr Pugh: So the accusation in the Report that you are rolling forward budgets from year to year—

  Mr Davie: We historically use them as a start point. That does not mean we just take them.

  Mr Thompson: It is worth saying that these are divisional budgets which are rolling forward but with pretty aggressive value-for-money targets in the departmental budgets. Across the television outputs, for example, 5% net per year as a value-for-money target. So there is a presumption each year that it rolls over but, depending on the area of the BBC, minus three or minus five, in other words progressively squeezing because we need to extract money from existing output to put to things like digital switchover. There is also a progressive process which is a different process, top down, of trying to get as many savings as we can out of our existing services so we can invest in other things.

  Q100  Dr Pugh: If we analyse an individual event in your overall costs and we try to get a value-for-money assessment, you are fairly confident that you would know the cost of user hours, you are fairly confident you would know the split between various platforms.

  Mr Thompson: Yes.

  Mr Davie: Yes.

  Q101  Dr Pugh: Do you know what each element, say, for example, technical costs and other costs make up the overall figure for the production?

  Mr Thompson: Yes.

  Q102  Dr Pugh: You may not reveal them to us but you know them internally.

  Mr Thompson: Yes.

  Q103  Dr Pugh: Do you know how each individual element is valued or do you just assess the whole production?

  Mr Mosey: The useful thing in the NAO Report is to say that we should formalise our cost benefit analysis. We do it all the time. It is what we do every single day. When you are talking to the head of football and the production executive on Vienna, they are looking at options all the time for a range of studio options and cost options. What we do not do is formalise it or bring it to our finance committee. I think it is a good recommendation that we should do that.

  Q104  Dr Pugh: Say, for example, you are talking about Match of the Day, you know what it costs you to do the irritating computer graphics which you get all the time with rings round the players and things like that?

  Mr Thompson: Yes, of course.

  Q105  Dr Pugh: You also know, presumably, how they are valued by the viewers, do you?

  Mr Thompson: Yes.

  Q106  Dr Pugh: You always have a fine-grained analysis of the programme.

  Mr Thompson: Yes. The point about the way viewers in particular think about sport is quite complicated. By and large, to give you two examples, Andy Murray having a good run at Wimbledon is transformational in terms of the metrics for Wimbledon. The average audience for Wimbledon can vary by many millions depending on whether there is a British hopeful. Rain is a very big factor for quite a few sports, notably tennis, certainly before the new roof in the centre court and, again, a rainy Wimbledon can significantly affect the way the public views and thinks about that year's Wimbledon. Of course, the point about all of these events is these are strategic choices which the BBC has made, in many cases over many years and in some cases over decades, to commit to them and we look at performance over many years.

  Q107  Dr Pugh: My last question takes us back to editorial policy which is the subject we started on. If it is the case that you come across an element in production which appears to be of high cost but of low value so far as the general public are concerned, is it ever the case that editorial policy intervenes in order to say that should go ahead because you think it is a sport worth supporting or there is a minority very interested in that, even though on a purely commercial basis you cannot justify it?

  Mr Mosey: Yes.

  Mr Peat: We would go back and ask the Director-General to go back to the public purposes as set out in the charter and make a view as to how the particular example you are quoting related against the public purposes. If it fitted in with those purposes, then that is something which should be considered because of the public purposes which govern the way we operate.

  Q108  Dr Pugh: But it would not necessarily please the NAO.

  Mr Peat: I hope it would, because that is the charter.

  Mr Thompson: To be fair, the NAO Report is rather good in recognising there is some complexity here. Because of the BBC's public purposes, for example, investing in minority sport which nobody else would cover could itself represent actually not just a proper delivery of the public purposes but also something which, if you have RQIV, the reach, quality, impact, value metrics configured properly, it should rate highly with RQIV, but it is a very different animal from something like Euro 2008 which is going to be watched by nearly 40 million people. Having said that—we are back to the Chairman's remarks at the beginning—we must not use that as an argument for never stopping doing anything. Sometimes we have to say "Actually, you know what, this is neither fish nor fowl; it neither hits a particular market failure out there nor is it quite delivering and therefore perhaps we should do something else". We do have to interrogate these things as well.

  Mr Davie: These discussions are pretty robust in the finance committee. For instance, I have the proposal for the Radio 1's Big Weekend. It goes down to a few thousand pounds per item. We will look at it and discuss, for instance, the BBC Introducing stage, which is for new acts, just to bring this alive. We would say perhaps it does not give the right cost per viewer/hour versus putting it on. If I want to get the cost per viewer/hour I just get the biggest act on the biggest stage and then I will get to millions of people and drive the cost down. There is clearly a benefit there. Having said that, the NAO Report is helpful; it helps set a cultural tone in which we can start stopping things if they are not delivering value. The idea that we are not having robust conversations, having been in the commercial world running pretty hard P&Ls for a while, the conversations are comparable in terms of running through these line economics. That is the reality of our conversations.

  Q109  Mr Bacon: If I might ask a couple of quick questions, one about the World Cup this summer in South Africa with 32 teams playing in 10 different venues. There is a chart which describes in figure three a breakdown into talent and other staff, outside broadcast infrastructure, technology and studios, travel and accommodation and miscellaneous for a variety of events including Euro 2008 and the Beijing Olympics. Do you have such an indicative budget that you expect to be spending for the World Cup?

  Mr Thompson: Yes.

  Mr Mosey: Yes.

  Q110  Mr Bacon: Can you write to us with it, please?[6]

  Mr Thompson: I do not see why, if it is done on the appropriate confidential basis, it cannot be done. Generally you will understand why at this stage some months before transmission it would be highly unusual for us to release a budget for a programme not yet transmitted, but if we may can we take that under advisement.

  Q111  Mr Bacon: What it would be interesting to do, and I am sure it can be done confidentially, would be to compare it with the outturn; these numbers in figure three of the Report are outturn figures. It would be interesting to compare what you currently have—and perhaps the NAO can review this to make sure that you are not sending us unduly tweaked numbers—basically your current indicative numbers and we can compare them later with what your actual outturn is. That is what I would like to see, please.

  Mr Thompson: I do not see why not in this case, with many of these parameters, including the number of people we send. The challenge is to send fewer people than we sent to the last World Cup.

  Mr Morse: I am sure we can work out something.

  Q112  Mr Bacon: That would be very helpful. The second question is about the Olympics. I know it is some years away still but you spent just under £16 million in Beijing. Do you have some idea yet of roughly what you are going to be spending in London 2012?

  Mr Mosey: Rough ideas, yes. Budgets are being gone through at the moment and we are working on those. Clearly the scale of the Olympic Games in London, the Cultural Olympiad and the Torch Relay and all the other events around it will make it the biggest event the BBC has done and those budgets are being finalised at the moment.

  Q113  Mr Bacon: Do you get revenue out of it?

  Mr Mosey: No, not really.

  Q114  Mr Bacon: Are you obliged to provide your feeds, your images to other broadcasters?

  Mr Mosey: The feed is provided by an international consortium of broadcasters of which the BBC is part. That is actually a transaction between the London organisers and the International Olympic Committee and host broadcast organisation.

  Q115  Mr Bacon: Can you tell us roughly, indicatively, what you think you will be spending or not yet?

  Mr Mosey: Not yet. We will do and, like Mr Carswell, I like blogging so I think that may be something we come to in a few months.

  Mr Peat: May we discuss with the Comptroller and Auditor the best way to deal with your questions?[7]

  Q116  Mr Bacon: Yes.

  Mr Thompson: It is worth saying that this will probably be the biggest peacetime event covered by the BBC in its history.

  Q117  Mr Bacon: Even bigger than the Proms?

  Mr Thompson: Bigger than the Proms.

  Mr Bacon: By the way, I was actually once a guest of the BBC at the Proms and it was very good too.

  Chairman: This explains an exceptionally soft line of questioning.

  Q118  Keith Hill: I have never been a guest of the BBC. Mr Peat, do you think the BBC gives value for money?

  Mr Peat: Yes, I do. I believe it has given increasing value for money but I do not think we should in any way be complacent.

  Q119  Keith Hill: Let me ask you then how do you know that it gives value for money.

  Mr Peat: From the work that we do in a whole host of areas. We carry out reviews of all services on a periodic basis. We set service licences with targets and look at each of them.

  Q120  Keith Hill: Who does that work?

  Mr Peat: It is done by the BBC Trust and the Trust Unit. We publish and consult fully on each of those service licence reviews. We look at each proposal which comes to us and carry out full public value tests, again with consultation and again in the public domain, involving Ofcom to assist us.

  Q121  Keith Hill: But you do not have an independent assessment of that value for money.

  Mr Peat: We put it all in the public domain and are open to comment and observation.

  Q122  Keith Hill: But you do not have independent assessment of that value for money.

  Mr Thompson: The point is that the BBC Trust is independent; it is itself an independent body.

  Mr Peat: Apologies if I did not make that point myself. Essentially we are charged under the charter with delivering value for money to licence-fee payers. We consider that to be our role and I take that role, as do my colleagues, very, very seriously.

  Q123  Keith Hill: Are you equipped with a support body which gives you independent auditing advice?

  Mr Peat: We have a very strong support body with very good skills. Unlike the governors when I joined, who had a handful of people, we now have a strong team in the Trust Unit who support us with different disciplines and I believe we, with their help, do a very good job of holding the executive to account. We do not agree with the executive on everything. We challenge them in different areas. We have challenged them on talent costs. We want to see talent costs going down, particularly for high talent. We want to see more talent developed. We have demanded that the pay for senior management declines. We have challenged on a whole host of fronts. I really do ask you to take our views very seriously, that we take this very seriously. We look at value for money regularly.

  Q124  Keith Hill: Are these specialists in value-for-money analysis?

  Mr Peat: I have been doing it for the last 30-odd years in different fora in public and private sectors. I believe I have a degree of expertise, but I believe also that the NAO add tremendous expertise, which is why we work so closely with them.

  Q125  Keith Hill: Particularly you would agree in the area not only of auditing the accuracy of accounts but especially in the area of value-for-money where I think it would be acknowledged as a market leader.

  Mr Peat: That is why we so much value their work and why I want to see them focusing on that area because that is their expertise and that is where we make use of them.

  Keith Hill: I think that is a cue for you, Chairman.

  Q126  Chairman: When the budget for Wimbledon exceeded that agreed by the Finance Committee by £700,000 you were on top of them like a ton of bricks, were you.

  Mr Peat: The information would have been made available and, if you look at the other events, you will see that they were very much within budget.

  Q127  Chairman: I asked about that particular event. The budget was exceeded by £700,000. We think you are a bit sloppy. Did you demand that you had to approve this additional expenditure?

  Mr Peat: That would not have been a specific budget which was signed off by us.

  Q128  Chairman: Over budget by £700,000 is quite a lot for one event.

  Mr Peat: If they go over any licence for individual services, then we have the right to require a public value test of what has gone on.

  Q129  Chairman: So you do nothing.

  Mr Peat: We do monitor them very, very seriously.

  Mr Mosey: May I offer clarification on the budget? The indicative budget in 2003, when we acquired the rights, was £700,000 lower than the outturn in 2008. The budget process in 2007-08 was spot on; in fact we came in slightly under budget. The point is that between 2003 and 2008 high definition, broadband streaming and increased courts coverage happened. That was why the outturn was over budget.

  Mr Thompson: This is quite an important point. The early budget was an indicative production budget—indicative—five years earlier to try to inform the decision about the other important part which was the purchase of the rights. If we buy these rights, roughly how much will it cost to make the programme?

  Q130  Chairman: We are back at the same arguments. All I can do is read the Report in front of us and coverage for Wimbledon was £0.7 million above the budget.

  Mr Thompson: The actual final agreed budget was not exceeded.

  Mr Mosey: There is no dispute with the NAO over this.

  Q131  Chairman: May I ask one last question? You are not going to tell me what the sporting event was where 20% of the budget went on presenters, but there was one sporting event where they took 20%. There was another major sporting event which only took 6%. What was the added value of the 20% compared to the 6%? What could Gary Lineker give, say, that Sue Barker could not give, just for the sake of argument?

  Mr Thompson: We have tried to say that different events have a different profile.

  Q132  Chairman: Why? It is a huge difference when one took 20% and the other 6%.

  Mr Thompson: We talked about the golf, the Open. The point about golf is that because there are 18 holes, it is colossally expensive in terms of OB trucks to cover the entire sport. If you look at golf, there is an enormous expenditure on OBs. Each of these events is different and they have a different profile and that, I am afraid, also includes the numbers of commentators you need, for example, the numbers of presenters you might need in different locations. It is not just the rate; it is also the numbers of people you need. Each one varies.

  Q133  Chairman: I thought in this case we were talking about Euro 2008 and Wimbledon. Were we talking about golf?

  Mr Peat: No, golf was not included.

  Mr Mosey: The proportion of talent does depend on the overall spend. Beijing is almost four times the cost of Wimbledon because doing a big OB from China does cost a lot more than SW19.

  Mr Thompson: Each of them varies. I was not trying to suggest that golf was one of the top ones; I was just saying that golf was an example of a sport where the outside broadcast costs are much greater because of the nature of the sport.

  Mr Peat: Just to clarify, we did make the information available to the NAO and we did say they could make it available on a confidential basis to this Committee. They did not make that offer and I have repeated it to you.

  Chairman: Thank you very much. That concludes our hearing.

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1   Ev 31 Back

2   Ev 31 Back

3   Ev 31 Back

4   Ev 31 Back

5   Ev 31 Back

6   Ev 31 Back

7   Ev 31 Back

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Prepared 7 April 2010