HC 743 Support for the creative economy

Supplementary written evidence submitted by the Commercial Broadcasters Association (COBA) [SCE 040a]

In response to the request of the Culture Select Committee during oral evidence and to comments made in oral evidence by third parties, COBA would like to provide further written evidence to the Inquiry into Support for the Creative Industries on two matters:

· As requested by the Committee, figures on UK television content commissioning across the broadcasting sector as a whole, illustrating relative levels of investment by PSBs and non PSBs; and

· How proposals from commercial PSBs in oral evidence to re-open the debate about adjusting rules regarding the number of permitted advertising minutes are flawed and would be highly likely to seriously damage investment in UK content from commercial broadcasters in the multichannel sector.

We would be very happy to discuss any of these matters with the committee.

An overview of UK television content commissioning

1. COBA last year commissioned independent consultants Oliver & Ohlbaum Associates (O&O) to analyse not just its own members’ growing investment in UK content, but to put this in context across the broadcasting and television production sector as whole. O&O looked at the three main sources of investment in UK content: the PSB channels (and their portfolio channels); non PSB broadcasters in the multichannel sector (i.e. for the most part COBA members); and the independent production sector itself. The analysis covered 2009-2011 and focused on original first-run national network programming (i.e. new, UK programming commissioned for national networks), and excludes payments for sports rights from all broadcasters and programming commissioned solely for the devolved Nations and specific English regions. We have separately briefed Ofcom on the findings.

2. We have attached the analysis, UK Commissioning Trends, as a separate document, but the key findings are:

· Overall investment in new UK programming from all sources increased from £2.8 billion to more than £2.9 billion from 2009-2011.

· This was primarily driven by increased investment in UK content by the non PSB sector, i.e. multichannel broadcasters, which rose 25% to nearly £500m. PSB investment was flat over the period.

· Total spending from non PSB sources – i.e. commercial multichannel broadcasters and the independent production sector itself – now accounts for 27% of investment in new UK content for network broadcast. Of the remaining 73%, 10% of this comes from PSB portfolio channels, meaning that actual PSB investment represents 63% of the total market.

3. It was argued in earlier oral evidence to the Committee that PSBs accounted for 90% of investment in UK content. We believe this may refer to analysis by Ofcom in its last Review of Public Service Broadcasting, carried out in 2008. In that review, the figure of 90% was included as an estimate for the year 2009. [1]

4. While we do not dispute that figure for investment at the time, we believe O&O’s more recent study evidences how the UK is moving towards a more mixed ecology in terms of raising investment for domestic production. As mentioned above, we have presented this research to Ofcom.

The flawed case advertising minutage harmonisation

5. In response to comments made by Channel 4 and ITV representatives in oral evidence to the inquiry, COBA would like to clarify its position on proposals to harmonise advertising minutage between PSB and non PSB broadcasters.

6. Firstly, we note that Ofcom concluded an extensive review of precisely this issue no less than 15 months ago, publishing its final statement in December 2011. Having weighed up consumer, competition and public service broadcasting issues, the regulator found no basis on which to proceed with any changes to the current regime. Ofcom stated:

"We believe that the interests of consumers are delivered effectively through the rules as currently set out. We have not found or been presented with evidence that suggests a change to the existing rules would necessarily better deliver against these interests and the overall goals of regulation in this area." [2]

7. COBA welcomed this conclusion. We previously commissioned independent analysis that indicated that harmonisation could reduce advertising revenues for non PSBs by around £80m per year – revenues which support broadcasters’ commissioning strategies and which have a direct relation to levels of investment in UK content. We are happy to supply a copy of this analysis on request.

8. As we have outlined to the committee in written and oral evidence, COBA members are increasing their investment in UK content, and the UK generally, significantly. According to our recent independent report on the matter, COBA members have increased investment in UK content by 27% over the last three years, an increase which has helped grow overall investment from all sources in new UK content over that period, despite relatively flat spending by PSBs. Advertising revenues are critical to this investment. The loss of £80m per year in advertising income would represent a clear and significant blow to our ability to invest in new UK content, and would create a risk of substantially reducing future growth.

9. It should be noted that the current arrangements partly reflect the dominant position of the PSB broadcasters in the advertising sector, where the three commercial PSB channels control 60% of advertising income. The mass reach of commercial PSBs via their privileged access to spectrum and guaranteed carriage remains an attractive selling point to advertisers and such broadcasters are able to command a premium that reflects this.

10. This dominance was confirmed in the Competition Commission’s 2010 investigation into ITV’s Contracts Rights Renewal (CRR) undertakings, which concluded that ITV1 continues to have a dominant position and stated that:

"We found that, as in 2003, ITV1 continues to have unique features which limit its substitutability…Media buyers continued to believe that ITV1 was able to offer unique benefits in terms of the size of its audiences and the ‘quality’ of its impacts. We found that, as in 2003, difficulties remain in switching advertising expenditure away from ITV1." [3]

11. It is also important to bear in mind that minutage restrictions are a clear opportunity cost that PSBs accept when taking a PSB licence, which of course provides them with a range of advantages such as spectrum, EPG prominence and the ability to cross promote to portfolio channels. These advantages reinforce their dominant market position.

12. Furthermore, the maximum permitted minutage under European rules is 12 minutes per hour, a maximum that is allowed in certain Member States. COBA members in the UK therefore already operate in a stricter regime than some other European markets.

13. We believe that events since Ofcom’s decision not to proceed with any changes to the current rule mean there is even less of a case now for changing the advertising minutes regime than there was at the time. Our independent report detailing COBA members’ increasing investment in UK content was published the year after Ofcom’s decision, so the level of our investment in UK content is even clearer, as is the potential damage to UK content investment. In addition, both ITV and Five have recorded healthy profits, suggesting that the PSB model is robust.

14. We also caution against easy assumptions that PSB investment in UK content is guaranteed, while that of non PSB services is not. As we outlined to the Committee in oral evidence, there is every indication that, given the continuation of a reasonable legislative and regulatory framework, investment by the multichannel sector will continue to grow. The UK has strong underlying factors that make investing in domestic content attractive: a renowned production sector, a high level of skills, a large domestic market, the English language and, more recently, the introduction of tax credits for television production. In addition, current investment in UK content is coming from a diverse range of players in a wide variety of genres. Highlighting their commitment, many COBA members have now invested not just in UK content, by in UK production companies themselves.

15. Conversely, PSB investment has declined by around £600m over the last decade. [4] Despite statutory commitments and the concerns of Ofcom, ITV1 has dramatically cut back its new UK children’s programming from 158 hours in 2006 to 60 in 2011, [5] and was recently fulfilling 40% of its Out of London hours with just one show, a late night listings service. [6] Five’s recent arrangement with the Secretary of State to maintain a children’s strand has, to our knowledge, no oversight by Ofcom, and it is unclear how this will be enforced. Ofcom recently stated in its Section 229 report to the Secretary of State that the repeated revisions that have been made to the commercial PSB licences, at the behest of the licence holders, over the last licence period were not "in the public interest". [7] However, we are unaware of any legislative means to stop this occurring again during the next licence period.

16. As a matter of policy therefore, it is not as simple as saying that one PSB investment is guaranteed and non PSB is not. In COBA’s view, the UK benefits greatly from having a mixed ecology where both sectors can thrive.

March 2013

[1] Ofcom, PSB Review Phase 1: The Digital Opportunity, figure 26, page 56

[2] http://stakeholders.ofcom.org.uk/broadcasting/broadcast-codes/advert-code/ad-minutage

[3] Competition Commission, Review of ITV’s Contracts Rights Renewal Undertakings, Final Report, May 2010

[4] Ofcom, Public Service Broadcasting Annual Report 2012, Figure 3

[5] Ibid, Annex B, Figure 33

[6] http://stakeholders.ofcom.org.uk/binaries/broadcast/tv-ops/c3_c5_licensing.pdf

[7] Ibid

Prepared 25th April 2013