Rebalancing the Economy: Trade and Investment

Written evidence from Pact

Executive summary

1) Total exports of UK television content have doubled since 2003, [1] helped by strong growth in the independent production sector (i.e. production companies that are not part of broadcasters). For example, the UK is a world leader in format exports (the sale of programme remake rights), [2] and independently-made programmes account for as much as 81% of such sales by volume. [3]

2) The success of the independent production sector in helping drive export growth is in large part down to the Codes of Practice set out in the 2003 Communications. Before the 2003 Communications Act, companies in the independent television production sector were constrained by the structure of the programme supply market from exploiting those programmes. The four public or state-licensed public-service broadcasters (PSBs) – the BBC, ITV1, Channel 4 and Five - controlled over 90% [4] of investment in new UK programmes, and were consequently able to demand all rights to programmes, including ones they did not use.

3) The 2003 Communications Act introduced the principle that producers should be able to re-use the IP rights to their programme. This created an IP market, enabling producers to sell those rights around the world.

4) The digital era is ushering in a structural shift in content delivery, as audiences increasingly take control of when and how they access content. This evolution creates challenges and opportunities. Investment in UK content from broadcasters is falling due to advertising fragmenting across the different services that are emerging with digital technology. Yet exploiting IP via emerging digital services opens up potential new revenue streams that can be used to fund the production of content and offset declining investment from UK broadcasters. Independents are already using the revenues generated from exploiting rights to reinvest in the production of UK content. The independent sector now invests up to £200m per year in the creation of UK television content – more than some of the UK’s major broadcasters. [5]

5) The key danger in our view is that, although there is likely to be a decline in broadcaster spend on UK content, the proportion of this spend controlled by the four public service broadcasters is not forecast to change. Ofcom’s most recent forecast predicts the PSBs will continue to account for more than 90% of UK commissioning through to 2020, comparable to 2003 levels. [6]

6) Without intervention, there is therefore a high risk that PSBs will be able to use their continuing market power to warehouse rights in the digital era. How we approach IP is key to whether the UK content sector becomes a leading global player in the digital age, or is left behind.

7) To create the conditions for growth, we must have a balance between the legitimate needs of broadcasters and producers, and we must not lose sight of the overriding goals of maximising economic growth, creating high quality UK content, and increasing consumer choice. We have therefore asked the Government, in its development of a new Communications Act, to ensure that there continues to be a healthy and competitive market for the exploitation of UK television content, with a range of players, including independent producers and broadcasters, competing to sell their programmes around the world. We ask the Committee to support this request.

8) In addition, Government support for exports has in our view often been fragmented. Grants are often spread across relatively small initiatives that are not necessarily coordinated. Also, under the current system, disparate national and regional development agencies use different criteria for making grants to support exports, and even compete against each other. We therefore believe support for companies to attend export markets should be part of a single, national strategy coordinated centrally. We have suggested to UKTI that trade associations within the creative sector should group to form a single group that could take strategic responsibility for helping UK exporters attend and promote their businesses at global trade fairs throughout the year. This group would administer the budgets set for all markets and festivals for the creative industries, with appropriate oversight by UKTI.

Introduction

1) Pact is the trade association that represents the commercial interests of the independent production sector. The sector produces and distributes half of all new UK television programmes, [1] as well as content in digital media and feature film.

2) The independent television sector contributes £4.3 billion per year to the UK economy (GVA), [2] and employs 20,950 people – more than the television divisions of the BBC, ITV, Channel 4 and Five combined. [3]

3) The sector has helped double exports of UK television since 2003, [4] and uses much of the resulting revenues to invest £200m per year in the development and production UK content.

4) For further information, please contact Pact’s director of policy, Adam Minns, at adam@pact.co.uk or on 020 7380 8232.

Response to questions

The role of BIS in providing support for exports and investment

1) We deal with funding for companies to reach export markets in the question below relating to UKTI. In broader terms, we would like to highlight in this answer how the UK television production sector has become one of the creative industries’ export success stories over recent years, and Government and Parliament’s role in this.

2) Total exports of UK television content have doubled since 2003, [1] helped by strong growth in the independent production sector (i.e. production companies that are not part of broadcasters). For example, the UK is a world leader in format exports (the sale of programme remake rights), [2] and independently-made programmes account for as much as 81% of such sales by volume. [3] Leading independents now generate up to half of total profits from making programmes directly for the US television networks.

3) The success of the independent production sector in helping drive export growth is in large part down to the Codes of Practice set out in the 2003 Communications. Before the 2003 Communications Act, companies in the independent television production sector were constrained by the structure of the programme supply market from exploiting those programmes. The four public or state-licensed public-service broadcasters (PSBs) – the BBC, ITV1, Channel 4 and Five - controlled over 90% [4] of investment in new UK programmes, and were consequently able to demand all rights to programmes, including ones they did not use, with independent suppliers working for hire.

4) The 2003 Communications Act introduced the principle that producers should be able to re-use the IP rights to their programme. The Act enshrined Codes of Practice for producers and commissioners, whereby a broadcaster licensed certain rights from the producer, but the producer retained secondary and overseas rights. This created an IP market, enabling producers to sell those rights around the world, as well as to new digital services at home, and build globally successful businesses on the back of that exploitation.

5) The growth of the independent sector has in part been characterised by the emergence of companies of some scale, which are able to attract private investment and establish a genuinely global presence – for some UK-based independents, for example, more revenues are now generated by production through their US offices for US television networks than from the UK. In addition, the UK production sector now has a mixed economy, with some companies owned by overseas companies and others wholly UK-owned. Pact’s view is that it is a mistake to impose restrictions on foreign ownership in this area as a mixed economy is proving healthy, bringing in production investment from overseas companies while allowing UK companies to grow and flourish. The Codes of Practice introduced by the Communications Act have helped create the conditions for UK companies to develop in a range of ways, taking advantage of different opportunities in terms of attracting investment or exploiting digital media.

6) At the same time, however, the vast majority of companies in the independent sector remain relatively small. As a whole, the sector is therefore able to ensure that commissioners at UK broadcasters are offered a wide range of ideas and viewpoints in many different genres, alongside different funding models for production and flexibility in pricing.

7) The digital era is ushering in a structural shift in content delivery, as audiences increasingly take control of when and how they access content. This evolution creates challenges and opportunities. Investment in UK content from broadcasters is falling due to advertising fragmenting across the different services that are emerging with digital technology. Ofcom predicts a decline in investment in UK content by broadcasters of up to £235m per annum by 2012. [5] Yet these digital services also offer choice and creative innovation for audiences. Licensing re-use rights to such services, so they can make UK content available, can help them develop.

8) In addition, exploiting IP via emerging digital services opens up potential new revenue streams that can be used to fund the production of content and offset declining investment from UK broadcasters. Independents are already using the revenues generated from exploiting rights to reinvest in the production of UK content. The independent sector now invests up to £200m per year in the creation of UK television content – more than some of the UK’s major broadcasters. [6]

9) The key danger in our view is that, although there is likely to be a decline in broadcaster spend on UK content, the proportion of this spend controlled by the four public service broadcasters is not forecast to change. Ofcom’s most recent forecast predicts the PSBs will continue to account for more than 90% of UK commissioning through to 2020, comparable to 2003 levels. [7] This spend may be spread across more channels and platforms, but it will ultimately be controlled by the same four PSB groups.

10) Without intervention, there is therefore a high risk that PSBs will be able to use their continuing market power to warehouse rights in the digital era. How we approach IP is key to whether the UK content sector becomes a leading global player in the digital age, or is left behind. Ensuring that there is a competitive market for IP exports will be all the more important in taking advantage of different opportunities for exploiting content that are emerging in the digital era.

11) To create the conditions for growth, we must have a balance between the legitimate needs of broadcasters and producers, and we must not lose sight of the overriding goals of maximising economic growth, creating high quality UK content, and increasing consumer choice. It will be critical to ensure that the UK has a healthy range of agents that are able to own and exploit rights globally. As noted above, the 2003 Communications Act was fundamental to delivering this, and we have therefore asked the Government, in its development of a new Communications Act, to ensure that there continues to be a healthy and competitive market for the exploitation of UK television content, with a range of players, including independent producers and broadcasters, competing to sell their programmes around the world. We ask the Committee to support this request.

How the Government measures success in its support for trade and investment

1) UKTI part funds an annual review of UK television exports which is commissioned by Pact, with match-funding from industry (Pact, BBC Worldwide and ITV Global). This review is carried out by an established media research firm, TRP, and successfully provides a snapshot of sector-specific performance.

2) We have looked at all other available figures for annual exports of UK television content by Government, including ONS data, and are concerned that their usefulness is limited, as the definition of activities tends to be too broad.

The Government Trade White Paper

1) We have responded separately to the Government White Paper and can provide a copy on request.

The role of UKTI with regard to identifying opportunities in established markets, emerging markets, key sectors and working with businesses both large and small to take advantage of these opportunities

1) Government support for exports has in our view often been fragmented. Grants are often spread across relatively small initiatives that are not necessarily coordinated. Also, under the current system, disparate national and regional development agencies use different criteria for making grants to support exports, and even compete against each other.

2) Although a level of flexibility is important, the current approach in our view wastes resources, is often not effective or joined up, and creates a postcode lottery for funding that disadvantages certain companies purely on where they are based. For example, only two English regions currently provide funding for companies to attend the leading global trade fair for television content, MIP TV, disadvantaging producers in other regions in terms of reaching global markets.

3) We therefore believe support for companies to attend export markets should be part of a single, national strategy coordinated centrally. We have suggested to UKTI that trade associations within the creative sector should group to form a single group that could take strategic responsibility for helping UK exporters attend and promote their businesses at global trade fairs throughout the year. This group would administer the budgets set for all markets and festivals for the creative industries, with appropriate oversight by UKTI.

4) In addition, budgets need to be in place for planning over three year periods and not awarded market by market as this stifles industry’s ability to develop its exports business on a strategic basis.

5) Our reasoning for creating a genuinely empowered industry group is that:

· Trade associations understand the industries they represent and the key events and markets for UK exports, and, as membership organisations, mean that industry would be having direct input into decision making.

· Trade associations can provide support strategies for our members for long term growth.

· We have a proven track record in providing credible platforms and structured support for each market. For example, UK companies generated record revenues of more than £18m at this year's Mipcom market in Cannes, where Pact ran the UK Indies Pavilion with support from UKTI.

· Such a group would offer the potential to create a uniformed export brand that could give a the UK a stronger presence in the global market.

· The group would be able to share intelligence across sectors.

· As a group, companies and trade associations would have greater buying and negotiating power when booking stands and facilities at international events on behalf of UK companies, delivering potential cost-efficiency savings for the Government.

· Trade associations are better placed to market to their member and access member databases to ensure that UK companies are aware of opportunities.

The effectiveness of the Export Credit Guarantee Department and the flow of trade credit;

1) Pact has not had any direct involvement with the Export Credit Guarantee Department and therefore we are not able to comment.

How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything from them

1) One noteworthy example is Canada, whose state-funded Telefilm pays for an umbrella stand at leading global export markets in full, instead of charging companies to attend the stand, as the UK does. Although companies are able to attend the Canadian stand free in charge, only those that meet certain criteria are able to qualify. In our view, this lowers barriers to market for businesses and incentivises more companies to develop exports strategies.

The role of the British Business Ambassadors

1) Again, we do not have experience in this area and so cannot comment.

January 2011