Support for the creative economy

Written evidence submitted by the Commercial Broadcasters Association [SCE 040]

· Commercial Broadcasters Association ( COBA ) represents UK digital, cable and satellite broadcasters . Our members operate without public intervention or support via the licence fee or Public Service Broadcasting ( PSB ) licences.

· COBA members invest £624m a year in UK television content, up 27.9% on 2009 levels, and contribute more than £4 billion a year to the UK economy. COBA members invest nearly ten times more in the UK than across the rest of Europe combined. This investment has helped drive overall growth in UK TV production in recent years , despite relatively flat spending by PSBs.

· The legislative and regulatory regime developed by successive Governments has supported this growth, encouraging a competitive market that is demonstrably delivering increased investment and responding to consumer demand. We therefore see no case for large scale changes.

· We believe that the UK copyright regime has also helped support growth and investment by providing flexibility to develop new services, while enabling rights owners to generate a return. We are concerned that the Digital Economy Act is still to be implemented.

· Multichannel broadcasters operate in a sector dominated by the PSB networks, with the three commercial PSB networks accounting for nearly 60% of all UK advertising revenues. Growth therefore cannot be taken be granted.

· We have identified a range of threats, including proposed changes to the regime governing the Electronic Programme Guide (EPG); changes in payments between pay TV platforms and PSBs that could damage non PSB channels; and ensuring PSBs are accountable in delivering statutory duties.

· We also set out two possible ways to increase competition and innovation: considering the case for a competitive market for EPG positions; and offering flexibility and consumer protection through pin protected channels.

Executive summary

1. The UK multichannel sector is a growth success story. Broadcasters in the sector are now investing £624m per annum in UK television content, up 27.9% on 2009 levels. COBA members contribute more than £4 billion a year to the UK economy , and invest nearly ten times more in the UK than across the rest of Europe combined. [1]

2. T his has helped drive an overall increase in funding for new UK television production in recent years. Investment in first-run UK network production has increased from £2.7 billion in 2009 to £2.9 billion last year, even once relatively flat investment at Public Service Broadcasters (PSBs) is factored in. [2]

3. This means i nvestment for creating UK content is coming from a greater range of sources than ever before. The PSBs continue to account for the majority of commi ssioning, but non PSB sources- i.e. the multichannel sector, PSB portfolio channels and the independent production sector - now account for 37% of first-run network originations, and this figure is growing. [3]

4. We welcome this inquiry by the Culture, Media and Sport Committee. We believe the legislative and regulatory regime that has been developed over the last two decades by successive Governments has supported this growth by encouraging an open and competitive market. Digital satellite and digital cable are now in more than 13m homes, around double the corresponding figure for 2001. Over the same period, the digital terrestrial platform has grown from around 2m homes to 12m. [4] As a result, the multichannel sector is increasingly able to risk investing in relatively high cost first-run original content.

5. We therefore see no case for large scale legislative or regulatory changes. In our response to the DCMS’ Communications Review we have asked that the Government broadly maintains a regime that allows for competition and, wherever possible, takes a ‘light touch’ approach.

6. Given a legislative and regulatory framework that continues to allow for competition, we believe the UK has an exceptional opportunity to build on this success story. The UK has long-standing advantages in its language, skills base, infrastructure, and strong content supply sector. The multichannel sector’s investment in UK content is producing notable successes, including NBCUniversal’s global success with Downton Abbey, Turner’s first Bafta win with The Amazing World of Gumball, and UKTV’s award winning hit Dynamo: Magician Impossible. This success can only encourage further risk taking, providing incentives to do so remain in place.

7. This growth cannot be taken for granted, however. Multichannel broadcasters operate in a sector that is dominated by the PSB networks, with the three commercial PSB networks alone accounting for nearly 60% of all UK advertising revenues. [5] At the same time, investment in first-run UK content remains a high risk proposition compared to repeats and acquisitions-arguably more so than for non PSBs than for PSBs, who have relatively guaranteed access to larger audiences through their privileged spectrum and positioning on the Electronic Programme Guide in order to generate returns.

8. In this submission we outline specific areas where we see a risk of dampening competition and investment. Amongst these, proposals to link a channel’s position on the EPG directly to its UK content investment would create significant uncertainty for broadcasters and risk destabilizing the sector. Ultimately, this would be likely to lead to channels reducing expenditure in order to operate on a prudent basis.

9. Additionally, COBA members that operate children’s channels are concerned that automatically grant ing the BBC children’s channels the top position s i n the children’s section on the Sky EPG would damage their ability to inve st in UK children’s programmes. I nvestment by COBA members in UK children’s content has increased by 60% since 2009 and is now worth nearly £30m per year . [6] T he BBC children’s channels already achieve strong audiences on Sky , and have privileged EPG positions through their public service status (which means they have leapfrogged older channels such as Nick Jr., which broadcasts around 50% UK shows). Perhaps uniquely, though, the BBC channels do not depend on EPG positioning to determine their levels of investment in British content - for our members, however, this is a major factor in setting programme budgets.

10. In addition, proposals outlined in the recent Mediatique report for the DCMS to adjust the regime for payments between pay TV platforms and PSBs could damage the ability of the multichannel sector to sustain its investment in UK content, were they to lead to reduced payments by pay TV platforms to non PSB channels-a scenario envisaged in the report.

11. We also outline areas where we believe the commercial PSBs may not be being held fully to account in the delivery of their statutory duties. This is important in order to ensure that public assets-i.e. the PSB licences-deliver maximum benefit for the public, as well as to avoid a risk of crowding out the multichannel sector through unfair competition.

12. In the section on IP and copyright, we note that the current regime provides the flexibility to develop new services and, through ensuring the ability to generate a return, the incentive for rights owners to invest in creating content in the first place. The tone of recent debates around the Hargreaves review, where it was suggested that the copyright regime is not fit for purpose in the digital era, has not strengthened industry confidence in the UK’s IP regime. In addition, we are concerned that implementation of the Digital Economy Act has been delayed.

13. Finally, we suggest two areas where we would welcome further thinking to ensure that the UK market continues to be as competitive as possible. Firstly, the secondary market for EPG slots on the Sky platform (where channels are able to sell their channel numbers directly to each other) has helped encourage new entrants and ensure a competitive market, and we support consideration of whether it is desirable and practicable to encourage this on other platforms.

14. Secondly, we suggest that Government and Ofcom should look at the potential for enabling a wider range of linear channels to show content rated up to 15-certifciate before the watershed providing this is with pin protection. This is currently allowed for premium film channels and pay-per-view and, with the development of robust and widespread pin technology, we believe such an approach would offer at least as much protection for consumers as the watershed, as well as increased flexibility for industry.

15. In summary, with a legislative and regulatory approach that continues to encourage growth through competition, the UK has the ideal scenario for future growth: a vibrant, mixed ecology with a genuine range of players investing in domestic content and developing new services.

Introduction

1. The Commercial Broadcasters Association (COBA) is the industry body for multichannel broadcasters in the UK. Our members operate without public intervention or support via the licence fee or PSB licences.

2. Our members include: Discovery Networks (chair) , BSkyB, Chinese Channel, Fox International Channels, NBCUniversal, QVC, SBS Broadcasting Network, Sony Pictures Television, Turner Broadcasting System, UKTV, Viacom International Media Networks, and T he Walt Disney Company .

3. Throughout this submission, we make reference to COBA’s 2012 Economic Impact Report, a new independent report we have commissioned from Oliver & Ohlbaum Associates to analyse the economic contribution of the multichannel sector to the UK. This is available on request.

Issue 1 How best to develop the legacy of the Olympics and Paralympics of the display of UK talent

1.1 COBA members provide opportunities for a range of talent. As we outline in the later section on skills in this submission, we invest in skills development in a number of ways .

1.2 In addition, COBA members increase the range of opportunities available to UK talent in terms of TV programme commissioning. We commission a relatively high level of television programmes from smaller companies in the independent production sector-investing around 34% of total expenditure on independent UK commissions on companies with turnovers of £25m or less. This compares to 16% at the BBC, 8% at Channel 4, 19% at Five and 11% at ITV. [7]

1.3 COBA members also have an important role in helping that talent reach audiences in the UK and the rest of the world. Domestically, UK commissions by COBA members are increasingly ‘punching through’ to find bigger audiences. Dynamo: Magician Impossible exemplifies how a broadcaster like UKTV is willing to take a leap of faith on new British talent. Dynamo is, as the Guardian put it, "a skinny kid from Bradford", whose father was in and out of prison and who grew up on some tough housing estates. When UKTV first started talking to him, he had already taken his idea around various broadcasters and not managed to secure a commission. UKTV took a risk in giving him a major commission and the result has been a phenomenon, with the first episode of the second season reaching 4.15m people across its first week, and making headlines from China to North America.

1.4 In terms of promoting UK talent on a global level, o ne of the most striking example s in recent years is Downto n Abbe y, which was co-financed by NBC Uni versal. The investment from NBC Universal helped ITV take a risk on an original script in a high cost genre . NBC Universal has promoted the show around the world, showcasing British talent on a genuinely global level.

Issue 2: Barriers to growth, including access to private finance and lack of co-ordination between government departments

2.1 The UK is successfully moving towards a more mixed broadcasting ecology, with investment for UK content coming from a greater range of sources than ever before. While the Public Service Broadcasters (PSBs) remain dominant, non PSB sources (the multichannel sector, PSB’s portfolio channels and the production sector) now account for 37% of investment in first-run network originations (i.e. new UK shows that are shown at national level) . [8]

2.2 Taking into account all of these sources, the UK has seen an increase in investment in first-run network originations since 2009 (excluding sports rights costs) . Spending rose from £2.6 billion to £2.7 billion, as shown below.

Investment in network first-run UK TV content

2.3 As shown above, the multichannel sector is the single biggest source of investment from emerging, non PSB sources. The sector has grown to considerable scale, contributing more than £4 billion to the UK economy in GVA last year. [9]

2.4 In terms of investment in UK television content, the multichannel sector accounted for £624m last year, up 27.9% on 2009. Of this, nearly £500m was on first-run UK production (excluding payments for sport rights ) . [10]

2.5 We believe the legislative and regulatory regime that has been developed over the last two decades by successive Governments has underpinned this growth by encouraging an open and competitive market . Digital satellite and digital cable are now in 13m homes, around double the corresponding figures for 2001. Over the same period, the digital terrestrial platform has grown from around 2m homes to 12m. [11] As a result, many broadcasters in the multichannel sector are starting to generate audiences and revenues that can justify the risk of investing in UK content on a greater level.

2.6 At the same time, this growth has seen the development of a range of new services responding to changing consumer demands. Consumers are able to access the most recent creative content, including films and other TV content, through multiple channels and platforms in a variety of different way s and at different price points .

2.7 We therefore see no case for large scale changes to a legislative and regulatory regime that broadly allows for competition and has supported growth .

2.8 This is not to suggest, however, that this growth can be taken for granted. M ultichannel broadcasters operate in a sector that i s dominated by the PSB networks , with the three commercial PSB channels account ing for nearly 60% of all UK advertising revenues. [12] In 2010, the Competition Commission’s review of the CRR mechanism confirmed ITV’s continuing power in the advertising market. [13]

2.9 At the same time, i nvestment in first-run UK content remains a high risk proposition compared to lower cost repeats and acquisitions. Commissioning first run original content is arguably more of a risk for non PSBs than for PSBs, who have relatively guaranteed access to larger audiences through their privileged spectrum and EPG positioning in order to generate returns on their investment.

2.10 More specifically, in terms of potential threats, we would like to raise a number of concerns:

a. We are concerned about some of the options outlined in the report by Technologia for the DCMS. Proposals to link EPG positions to UK content investment would create significant uncertainty for broadcasters, destabilizing the sector and potentially leading to channels cutting back their investment in order to run their businesses on reasonable basis.

b. COBA members that operate children’s channels are concerned that proposals to grant the BBC children’s channels automatic top positions in the children’s section on the Sky EPG would impact on their ability to invest in UK children’s programmes. Investment in UK children’s content by COBA members has grown by 60% on 2009 levels and is worth nearly £30m a year. [14] The BBC children’s channels enjoy strong audience shares on the Sky platform, and they already have privileged positioning from their public service status, which has meant that they have leap frogged older channels such as Nick Jr (which shows around 50% UK content). EPG position does not affect the BBC’s income and therefore has no direct relationship to its investment in content. For COBA members, however, EPG ranking is one of the key parts of their business model. While the original intention of giving the BBC privileged EPG status may have been to ensure that its channels were readily available, this does not have to mean they are top. In addition, the market for UK children’s content has changed dramatically since this intervention in the 2003 Act, with commercial PSBs’ provision of UK children’s content falling sharply. [15] This makes the need to bear in mind the impact on other providers all the more important.

c. Proposals to adjust the regime governing payments between PSBs and pay TV platforms could also damage the ability of the multichannel sector to sustain its investment in UK content, were they to lead to reduced payments by pay TV platforms to non PSB channels – a scenario envisaged in the Mediatique report for the DCMS.

d. T he PSBs should be held to the fulfillment of their statutory duties so as not to confer an unfair a dvantage on the licence holders , as well as to extract maximum value from public assets . As Ofcom highlighted in a recent report for the Secretary of State, frequent pressure from the licence holders to dilute their duties means that PSB provision is "inevitably subject to a high degree of uncertainty." [16] Even where Ofcom has resisted PSBs diluting their duties, it has not always been able to prevent such moves. Consequently, ITV1 has managed to substantially reduce its annual investment in UK children’s content, with first-run original hours dropping from 158 in 2006 to 60 in 2011. [17]

e. PSB licences should contain a genuine balance between duties and benefits that, again, does not give their holders an unfair advantage. W e believe that the PSB licence regime fails to take into account the true value of PSB licences, as it ignores benefits such as the cross-promotional value for PSB portfolio channels. In addition, we have ask ed the DCMS to clarify with Ofcom whether the recent reduction in payments by commercial PSBs to pay TV platforms has been factored into Ofcom’s analysis of the value of the new PSB licences. Even without taking into account any additional benefits, O fcom concluded in its recent report for the Secretary of State that the PSB lic ences for Channels 3 and 5 were commercially sustain ab le for the next period , an d that any additional benefits should be in return for additional duties rather than preserving the status quo.

f. We are concerned about proposals in the paper tabled by the DCMS on Competition as part of the Communications Review. In our view, companies operating in the broadcasting and/or telecoms sectors are subject to traditional competition laws and therefore any differences between the broadcasting and telecoms regimes do not, by default, allow anti-competitive behaviour. We have seen a range of channels enter the market and develop over the last two decades and our view is that no changes to the broadcasting competition regime are necessary.

2.11 We have, however, suggested furth er consideration of two ways to potentially promote competition and innovation, namely:

a. T he secondary market for EPG positions on the Sky platform, which is based purely on commercial transactions between the owners of those positions and buyers, has increased competition and innovation , encouraging the launch of new channels . [18] We su pport the policy option in the Technologia report for the DCMS for exploring whether opening up other EPG platforms to a market mec hanism is feasible or desirable . [19]

b. We have also put forward a proposal to enable broadcasters, at their discretion, to show linear channels pre-watershed using pin protection (up to 15-rated programming) . Currently, this is an option available for premium film channels and pay-per-view only, but the system of pin protection is well established now . Extending this option to other appropriate services under Ofcom’s Broadcasting Code would encourage innovation and consumer choice, while providing protection that is arguably more robust than the watershed.

Issue 3: The impact of the Hargreaves Review; the failure to implement the Digital Economy Act; and proposals to change copyright law without primary legislation

3.1 A wealth of innovative new services have launched on a variety of platforms over recent years, making content available across PCs, tablets, mobiles, games consoles and connected TVs. Investment in UK content by the multichannel sector has risen 27% since 2009, and the UK is the leading European hub for investment by COBA members. [20]

3.2 The copyright and the Intellectual Property (IP) regime has helped underpin these developments , providing a flexibility that has enabled the market to develop new ways to re-use rights to content at home and abroad. Just as importantly, the copyright regime has enabled the market to generate a financial return on this re-use - a crucial factor in attracting the investment which is necessary to create content in the first place .

Hargreaves

3.3 The Hargreaves Review’s suggestion that the UK IP regime was not fit for purpose in the digital era weakened the confidence of many rights owners in the UK’s legis lative and regu la tory processes . As we have outlined, we believe the IP regime has un derpinned growth and innovation .

E nterprise and Regulatory Reform Bill

3.4 The Enterprise and Regulatory Reform Bill also risks damaging rights owner confidence by introducing measures that would allow changes to copyright exceptions by Statutory Instrument. This risks such changes being made without full scrutiny.

Digital Economy Act

3.5 It is a matter of concern that the Digital Economy Act has not been fully impl emented. The Act is a signific an t step forward in IP protection , and the ongoing illegal use of IP is highly damagaing to the audiovisual sector .

Issue 4: The role of taxation and whether it would be desirable to extend tax reliefs

4.1 COBA members are amongst the world’s leading investors in animation and high-end television content, and we view the current proposals for tax credits to stimulate UK production in these genres as significant and welcome interventions. While the UK has many competitive advantages, a lack of public incentives for television production (beyond the significant benefits afforded to PSB broadcasters) has been a weakness compared to other markets.

4.2 We would welcome consideration of tax reliefs for other areas but believe the UK must first focus on finalizing and implementing the current proposals, including ensuring that they are compliant with European State Aid rules.

Issue 5: Ways to establish a strong skills base

5.1 The UK has an exceptional skills base and infrastructure, gi ving it a competitive advantage . COBA members make an important contribution right across the skills agenda.

5.2 At school age, B Sky B recently launched a dedicated schools production facility titled Sky Skills Studios. Planned around five national curriculum areas, the initiative sees up to 12,000 school pupils per year write, shoot and edit their own television report in simulated studio environments. The aim is to inspire young people to learn about television production, as well as develop and build life skills.

5.3 In the production sector, multichannel broadcasters are amongst the key contributors to the Creative Skillset TV Skills Fund, which provides training for freelancers in the television sector.

5.4 COBA members are also active in developing skills amongst their UK employees of all experience levels. Discovery’s mentor programme has up to 40 pairings in the UK, while managers at all levels can attend courses from the Discovery Masters Programme, which include developing management skills, coaching and UK employment law. In addition, Discovery is soon to launch its first Creative Summit in Colorado, an initiative aimed at developing the skills and encouraging new ideas from 44 participants from around the globe, including the UK.

Issue 6: The importance of clusters and hubs

6.1 At a national level, COBA members, who include many of the world’s leading multichannel broadcasters, invest nearly ten times more in the UK than across the rest of Europe combined. [21] We believe this means they have a crucial role in ensuring that the UK is a leading European media hub .

6.2 W ithin the UK, we believe creative clusters have strengths and weaknesses. There is some benefit in developing centre s, such as the ability to encourage the development of local support services and infrastructure . However, this policy does not necessarily promote commissioning fro m other parts o f the country - it is , for example , of limited use to a production company in other parts of the country if a commissioner moves from London to Glasgow or Manchester.

6.3 What is of most importance is that the UK has a commissioning network that is competitive and open to a range of ideas on a meritocratic basis through a range of gatekeepers. We believe COBA mem bers ha ve an increasingly important ro le in providing opportuni ti es for commissions and production across the UK. This is a result not only of our increased investment levels in UK content in general, but also from growth in multi-channel commissioning in key public service genres such as children’s, and rel ati v ely high levels of investment in content from smaller produc ers.

6.4 As part of this, COBA members commission from a range of independent producers in the nations and regions . At SpiderEye Productions in Cornwall, an ongoing commission from The Walt Disney Company, for animation series Jungle Junction , is helping sustain more than 50 jobs. In Bath, factual producer Touch Productions has commissions from Discovery and Nat Geo, while Lime in Liverpool and North One in Birmingham also have commissions from COBA members.

6.5 In terms of the broader production sector outside London , HBO’s Game of Thrones, filmed in Be lfast’s ‘Titanic Quarter’ , has delivered sustained investment into the Northern Ire la n d production sector, an area that has historica lly st ruggled to attract investment. M TV’s European Media Awards , held last year in Belfast, also de l i ver e d £22m for the loc al economy. We believe this represents one of the biggest stimuli that the Northern Ireland television production sector has had over recent decades.

November 2012


[1] COBA 2012 Economic Impact Report, Oliver & Ohlbaum Associates for COBA, September 2012. Copy available on request.

[2] Ibid

[3] UK Commissioning Trends, O&O for COBA, August 2012. Figures excludes regional spending and sports rights costs. Copy available on request.

[4] Communications Market Report 2012, Ofcom, July 2012, Figure 2.4

[5] Ofcom Communications Market Report 2012, Figure 2.3

[6] COBA 2012 Economic Impact Report, Oliver & Ohlbaum Associates for COBA, September 2012. Copy available on request.

[7] Independent Production Sector Financial Census and Survey, O&O for Pact, June 2012 , page 14

[8] UK Commissioning Trends, O&O for COBA, August 2012. Copy available on request. Figures include UK sports production investment but exclude sports rights payments for both PSBs and non PSBs.

[9] COBA 2012 Economic Impact Report, Oliver & Ohlbaum Associates for COBA, September 2012. For the avoidance of doubt, this figure refers to broadcast activities only and excludes other areas such as studio facilities and ISP interests.

[10] Ibid

[11] Communications Market Report 2012, Ofcom, July 2012, Figure 2.4

[12] Ofcom Communications Market Report 2012, Figure 2.3

[13] ITV Contract Rights Renewal, Final Report, Competition Commission, December 2010

[14] The Contribution of the Multichannel Sector to the UK Economy, Oliver & Ohlbaum Associates for COBA, September 2012

[15] ITV1 first-run original hours of children’s content fell from 158 in 2006 to 60 in 2011, according to Ofcom’s 2012 PSB Report, Annex B: PSB Output and Spend, Figure 33.

[16] Licensing of Channel 3 and Channel 5, A Report from Ofcom to the Secretary of State, September 2011,, 5.8

[17] Ofcom PSB Report, Annex B: PSB Output and Spend, Figure 33

[18] The value and optimal management of channel position on electronic programme guides, Technologia for DCMS, July 2012, page 65

[19] Ibid, page 48

[20] COBA 2012 Economic Impact Report, Oliver & Ohlbaum Associates for COBA, September 2012. Copy available on request.

[21] COBA 2012 Economic Impact Report, Oliver & Ohlbaum Associates for COBA, September 2012. Copy available on request.

Prepared 17th November 2012