5 "Compete or compare" |
130. In the previous chapter we considered the scope
and scale of the BBC and ways in which it might reduce its scale
and get "more for less" in the next Charter period,
including through engaging others in its work and partnership
arrangements, and through stepping back from areas that were already
well catered for by others. In this chapter, we consider further
issues that impact on the size of the BBC and areas where it could
also increase engagement with others in the pursuit of the best
content, in local journalism, in the sale and distribution of
content, and in the development of technology. There is often
an uncertain balance to be struck in all of these areas and even
where the BBC has a good record of doing things itself, there
may be opportunities for obtaining better value for money through
commissioning, or greater creativity achieved where it willingly
collaborates with others in meeting its public purposes.
131. A few days before giving evidence to our inquiry,
the BBC announced plans for a fundamental change to its production
supply arrangements. As part of the next Charter Review, Lord
Hall has proposed that the BBC should remove its in-house production
guarantees, establish BBC Production as a standalone subsidiary
operating on a commercial footing, and allow it to make shows
for rival broadcasters in the UK and others abroad for the first
time in the BBC's history. However, news, sports and children's
programming are not expected to be open to competitive tender.
The BBC explained that increasing competition in this way
would ensure it always commissioned the very best ideas wherever
they came from.
Lord Hall also saw increasing competition in supply of content
as being an important element of contestability of the BBC's funding.
The BBC content supply quotas
· Currently, 25% of BBC television commissioning hours is guaranteed to independent producers, 50% is guaranteed to BBC in-house producers, and 25% is available to both in open competition under the Window of Creative Competition (WoCC), first introduced in 2007 as part of the last charter review.
· For radio, under separate requirements, at least 10% of hours must be commissioned from independent suppliers, with a further ten per cent open to competition between the BBC and independent sector.
· For online, 25% of content spend must be commissioned from independent suppliers.
· The radio and online quotas are not statutory requirements, unlike the 25% independent production quota for television. The latter applies to all UK public service broadcasters.
132. Over the last few decades the growth of the UK's independent
TV production sector has been impressive; in 2013 the industry
contributed over £3 billion to the British economy.
The establishment of independent commissioning quotas in the 1990s
and the agreement of terms of trade between PSBs and independent
producers contributed to this success. The aim of the independent
productions quota was threefold: to promote cultural diversity,
opening up the production system to new energies and voices; to
stimulate the growth of small and medium-sized enterprises; and
to tackle vertical integration within the UK programme supplier
133. The sector has almost doubled in size since new terms of
trade were agreed in 2004.
Another contributory factor to the industry's growth has been
the diverse mix of funding in the UK television industry: a combination
of the licence fee, advertising and subscription revenue supports
In the case of the BBC, in 2013, it spent £476 million on
commissioning content from external producers, making it the biggest
buyer of content in the UK market.
2004 'Terms of Trade'
Among other things, the terms of trade between PSBs and indies, has allowed independent producers an equitable production fee and control of distribution of their shows after first transmission, including international rights, format rights, video and DVD royalties and merchandising, although PSBs take a 15% share of net profits. The rationale for the agreement was to counter-balance the PSB's power as broadcasters.
WINDOW OF CREATIVE COMPETITION
134. Patrick Younge, a former chief creative director of BBC Production,
told us that without the in-house guarantee, the BBC would not
have been able to build a strong network of production bases in
Bristol, Cardiff, Glasgow and Salford, and would not have made
a meaningful contribution in Belfast.
In the last few years there has been significant acquisition
and consolidation activity in the UK production sector, with several
independent producers having been taken over by other production
companies or by global studio groups, to create what have become
known as "super indies". According to Ofcom, seven of
the biggest 12 UK independent production companies are now vertically
integrated with broadcaster-owned companies that have significant
This consolidation in the industry has led to some companies losing
their qualifying indie status: this has occurred where a parent
company has a greater than 25% share interest in a UK broadcaster
or a UK broadcaster has more than 25% shareholding in the production
company. Where this has happened, and the producer has been a
supplier of a returning show or series to the BBC, the commissioned
hours have had to be attributed to the Window of Creative Competition
(WoCC), despite there being no competition.
Mr Younge explained the position as being less about creative
competition and more about accounting.
Danny Cohen, BBC Director of Television, told us there was
now less and less room for small indies, and for BBC Production
itself, to win commissions in the WoCC.
|Summary of BBC television production supply
Proportion of all hours produced by:
Percentage of WoCC won by:
|BBC in-house ||26%
Hours of qualifying programmes produced by independent producers
BBC Performance against public commitments 2013/14
135. Against that background, the BBC Trust remains open-minded
over the make-up of the BBC's supply arrangements. The Trust told
us that its overriding concern was for audiences and the BBC providing
them the highest quality and creative output.
The Trust has announced a wide-ranging review looking at
the way programmes and content are made and supplied to the BBC
by either independent production companies or BBC in-house production.
The review will consider the changes to the BBC's approach
to content supply proposed by the BBC Executive and the potential
impact on quotas and targets. Following a full consultation, the
Trust plans to publish a final report by summer 2015, with the
conclusions forming proposals to Government ahead of Charter Review.
In its consultation on its third review of public service broadcasting,
Ofcom has also identified key areas for further consideration
including "rebalancing the relationship between PSBs and
the production sector".
It notes that any change in regulatory intervention that influences
the relations between the PSBs and the independent production
sector will need to be tested against a number of questions including:
"will it increase investment in UK content, how might it
improve the delivery of the [public service] purposes and characteristics,
and can it be achieved without undermining the current success
of the UK production sector?".
136. Some are calling for change. According to the Producers Alliance
for Cinema and Television (Pact), the BBC should become a publisher-broadcaster
like Channel 4.
In their opinion, all BBC demand for programmes could be filled
and supplied by the market, which would drive efficiency savings
in the BBC, releasing more funds for new content. Prior to Lord
Hall's 'compete or compare' speech, the Radio Independent Group,
who represent radio production companies, told us they would like
parity with the television indie quotas, where there is a minimum
25% quota and a 25% WoCC. In 2010, following a review of radio
independent supply, the BBC Trust concluded that it had not been
provided with a convincing case that increasing the 10% supply
quota for radio would deliver greater public value to listeners
of the BBC's radio services. The basis of its conclusion rested
on a case that the fixed costs of the BBC's radio studio provision
and technology meant a reduction in internal provision was unlikely
to make BBC radio any less expensive. Instead, the Trust recommended
the creation of a 10% WoCC for radio on top of the 10% (voluntary)
independent supply quota that was already in place.
137. A report prepared for Pact has projected that a move of television
production outside the BBC could involve a reduction in BBC staff
of between 3,000 to 4,000, along with a decrease in the BBC's
corporate overheads and support services.
Oliver & Ohlbaum estimate that through a combination
of winding down BBC in-house production, contracting out, transferring
some genres to BBC Worldwide, and management buyouts of some long-running,
existing BBC Production strands, the policy could realise £575
million in benefits for the creative sector and £30 million
a year of savings for the BBC licence fee payer, as well as dealing
with the BBC's major competitive and PSB concerns.
138. Lord Grade shares Pact's stance on the BBC going to
the market for content and other ancillary services. He has suggested
that all BBC production processes and facilities could be outsourced
to "a private sector more capable of absorbing the work".
This could release the BBC's "capital expenditure, resource
management, headcount, investment capital and much more besides".
In its early days [the BBC] had to do [everything] because
there were no electronics manufacturers. It had to design and
build cameras, it had to do everything for itself. It had to build
its own studios. All that exists in the private sector today and
the BBC is now into property and into post-production businesses.
It is into everything and it has become far too big in areas that
it does not need to be in. It has not kept pace with the growth
of the private sector service industries that now exist. That
relates also to programme making.
OPEN AND FAIR COMPETITION
139. At present BBC producers are able to pitch ideas for programmes
only to BBC channel.
BBC Production operating commercially could open up a variety
of opportunities and profit potential which could be to the BBC's
benefit. Nonetheless, there are potential risks associated with
the BBC adopting a publisher-broadcaster model, or indeed with
BBC Production becoming a commercial entity, in that its PSB programme-making
values could diminish. If the BBC did not have control over its
own production departments (or companies), then over time a shortage
of external suppliers of key PSB genres, such as children's programming,
could occur. On the other hand, if public funding were made available
for others for the production of children's programmes this could
grow the supply of such content.
140. In a similar way, if BBC Production became commercially
focused, it might concentrate on producing material which had
export potential rather than catering for the needs of licence
fee payers. A problem in the medium-term could be the BBC's ability
to achieve its out of London production quotas, and its commitments
to the Nations, if there were insufficient content producers spread
around the country, and it was obliged to wind down its own regional
141. If BBC Production were permitted to compete
for commissions from other broadcasters then there would have
to be a transparency in costs and fairness of commissioning decisions
as well as robust safeguards against licence fee revenue cross-subsidising
BBC's commercial supply activity. Lord Hall reassured us that
the BBC understood that it had to demonstrate that there would
be an absolute level playing field in commissioning processes
and the BBC was working through the fair trading guidelines to
make sure that this would be clear to everyone.
Despite this, Pact told us that so far they had been unable to
obtain information from the BBC on its programmes' cost per hour.
Although we accept that there is a case for commercial confidentiality
on some specific costs, benchmarking and transparency of decision
making processes will be essential if the BBC is to take an even-handed
approach to commissioning.
142. Pact's inclusion on a working group looking
at the BBC's plans for its new supply model should afford them
opportunity to engage with the BBC over such matters. For a commercial
BBC Production subsidiary to be successful, the BBC would have
to overcome any suspicions that old ties between its commissioners
and producers could lead to preferential treatment, even if arms-length
arrangements were established. This could only be achieved with
wholly transparent trading arrangements which were open to independent
audit and scrutiny. We discuss the BBC's auditing arrangements
in a later chapter.
143. ITV predicted that an end to the BBC in-house
guarantee could deliver something akin to a 'big bang' for the
UK creative economy, liberating talented BBC programme makers,
driving value for money and maximising the opportunity for the
UK to exploit programming in secondary markets.
Channel 4 believed that the BBC needed to retain a strong
in-house production presence so that there would continue to be
a healthy mix of both in-house production and externally produced
content. They also pointed out that the BBC's in-house production
departments were the training and development hub for the wider
LOSS OF TRAINING GROUND?
144. A switch to a publisher-broadcaster model could
put at risk the BBC's longer-term investment in people and shift
its training role to the commercial sector. As we have set out
above, there is wide support for the BBC's training function.
Yet if the BBC had no significant production capacity of
its own, it is hard to see how it could offer apprenticeships
in production and on-the-job training for the industry. In addition,
the BBC Academy would lose a training ground. A report by Deloitte's
estimated that the value BBC training offered to other media organisations
in 2008/09 benefited the creative industries by £59 million
a year through improved productivity.
Yet, the BBC's own investment in training has been declining as
result of its Delivering Quality First savings programme: a 35%
cut was imposed to the activities of the BBC Academy over three
in 2014/15 the BBC will increase its apprenticeships to 170 placements.
145. In theory, the licence fee could be used to
fund training bursaries across the BBC's supplier base. In Lord
Grade's opinion, the key thing was the funding, not the institution
doing the training.
It has been suggested that indies are already spending approximately
£40 million a year on training.
TERMS OF TRADE
146. The BBC has indicated that the terms of trade
need looking at again, given the changes that have taken place
in industry players since 2003.
While the BBC owns all the rights to content produced in-house,
the current terms of trade prevent the BBC and other PSBs from
owning secondary rights on acquired content from qualifying indies.
When purchasing from a qualifying indie, the downside is that
the potential earnings of the BBC reduce from 100% of revenues
post the 30-day broadcast window to 15% under the terms of trade.
So while the BBC and PSBs carry most of the production cost they
have only a small stake in the potential for royalties from the
material purchased from qualifying indies. Lord Grade considered
that the terms of trade were now uncommercial and that they had
been designed to encourage a fledgling sector. He remarked:
I do not know any industry in the world or any
commercial transaction anywhere in the world where you pay 100%
for something and you do not own it at the end of it. The terms
of trade are very much skewed towards the independents. If the
BBC were to follow the Channel 4 model then the terms of trade
would have to be reflective of the investment that the licence
fee payer is putting in. In other words, if you put in 80% of
the cost of the programme you should get 80% of the upside. It
is as simple as that.
147. Nonetheless, the BBC and other PSBs are free
to negotiate better commercial terms with external producers who
do not qualify as an indie under the statutory provision. Despite
this, Pact told us that the BBC, ITV and Channel 5 choose not
to do so as they had worked out that the terms of trade did not
necessarily damage them and were an attractive proposition for
Pact has led several renegotiations of the terms of trade since
2003. The last had allowed the BBC extended rights for content
to be shown via the iPlayer for up to 30 days after transmission
and in Channel 4's case for its re-run channel, 4Seven.
148. Pact also explained how independent production
financing worked. Producers generally did not get fully paid for
the cost of a programme they were making for a broadcaster; instead
they had to pre-sell the rights of content to the international
market in order to secure their budget, as under a deficit-financing
arrangement. As a result, a production company would not recoup
all its costs until after a show had been broadcast and sales
revenues came in.
Ofcom has noted that even though the independent production
sector has been consistently profitable since 2003, the overall
margins are not particularly high and have fallen in recent years.
149. A significant change since 2003, of course,
has been the increase in channel supply with the growth of multi-channel
services and digital switchover, and other content delivery platforms
and services including iTunes, Netflix and Amazon Prime Instant
Video. This increased competition has meant that power has transferred
from the broadcasters and channel owners to the content providers,
who are able to exploit the rights to content, generating in some
cases significant earnings in global sales.
150. In respect of indie production companies, seven
of the biggest 12 are now vertically integrated with broadcaster-owning
groups that have significant global scale. According to Ofcom,
there are only four remaining "super indies" whose commissions
qualify for the terms of trade, although many smaller and medium
sized companies continue to qualify.
Qualifying and non-qualifying super indies
||Parent company||Parent's UK channel
||Parent's EU channel
|All3Media ||Discovery, Liberty Global
|Endemol ||Apollo Management/
21st Century Fox
|Sky channels||Fox International Channels
||No (if acquired by 21st Century Fox)
|Fremantle Media||RTL Group
||Turner, CNN etc||Turner, CNN etc
|Shine||21st Century Fox
||Sky and Fox channels
||Sky and Fox channels||No
|Zodiak Media ||De Agostini
||None ||Antena 3 (Spain)
Disqualification is where a production group or company is connected to a UK broadcaster. Qualification allows a company to qualify for the "terms of trade" and to count towards indie quotas.
151. In a speech to the Royal Television Society last autumn,
the Rt Hon. Sajid Javid, the Secretary of State for Culture, Media
and Sport, indicated that the terms of trade and the related legislation
on qualifying indies needed to be reviewed ahead of Charter Review.
Ed Richards, as chief executive of Ofcom, also believed the time
was right for a review. He explained:
[The terms of trade] were established, as was the quota, for
a time when the independent production company was independent
and typically pretty small, sometimes two or three people operating
in an office at the end of the garden.
There has clearly
been such change to the nature of those companies, particularly
at the big end where you have some very substantial bodies now
integrated into very big companies. It feels to me like the right
time to have a thorough look at that.
152. Whilst we welcome the concept
of removing the BBC's in-house production guarantees and opening
up the majority of BBC commissioning to competition, it is important
that commissioning decisions are not simply made on the basis
of cost but also on quality. Clearly there would be a benefit
to licence fee payers in the BBC producing content for others
on a commercial basis given the financial return it could make.
However, we believe there is a risk that such commercial motives
could over time distract BBC producers from their principal role
in meeting the BBC's public purposes. The BBC must remember the
concerns expressed and previous overreach of BBC Worldwide. It
must not allow commercial gain to trump the BBC's main purpose
as a public service broadcaster.
153. We are
sceptical of the suggestion that the BBC should become solely
a publisher-broadcaster and retreat from producing any content
itself. Given the BBC's long successful tradition of making high-quality
television programmes, it should continue to produce content itself
where its output is distinctive from the market and where it makes
economic sense to do so. In future, when the BBC is commissioning
content it will have to give careful consideration to the value
of long-term ownership of intellectual property, as well as initial
production costs. Where particular types of content can be provided
by the market more easily and cheaply, and have less long-term
value, the BBC must be willing to withdraw from these areas.
154. If BBC
production is opened further and the BBC were to be permitted
to compete for commissions from other broadcasters then it must
be able to demonstrate a transparency of costs and a fairness
in its commissioning decisions and processes with robust safeguards
against licence fee revenue cross-subsidising BBC's commercial
supply activity. This will not be easily achieved.
155. In taking
on production work for others, BBC Production would become one
of the largest production companies trading in the UK market.
As such, the Government would need to consider what impact its
commercial endeavours would have on smaller and medium-sized production
companies operating in the UK market and consider what, if any,
bearing this should have on any review of the terms of trade and
other legislation in respect of independent content production.
156. While the terms of trade have successfully achieved
their original aims of supporting and growing a diverse supply
of content production in the UK, we recognise claims that there
is now too much of an imbalance in the industry in respect of
the size and influence of production groups following the recent
consolidation and growth in foreign ownership of providers. As
well as there being a need for continued support for small and
medium-sized independent production companies, we recognise the
increasing importance that ownership of content is playing for
broadcasters given the rise in on-demand viewing and download-to-own
services. Such change means the traditional public service broadcasters'
business models are changing.
We recommend that the terms of trade should be reviewed as part
of the Charter Review process. Among other things, consideration
must be given as to how the terms of trade might have to change
in respect of the BBC if it became a commercial provider of content
to others. As the terms of trade apply to all PSBs, Ofcom should
have a lead role in this review. However, any changes to the terms
of trade must not introduce any unintended consequences. For example,
limiting the retention of rights to content to only smaller production
companies could create incentives for broadcasters to deal with
larger producers where preferential terms could be applied.
Provision of local news and online
157. There has been a running debate about whether
the BBC's share of news output and its online presence is too
dominant and whether it is posing too much of a competitive threat
to regional journalism, as well as if the BBC potentially could
have a key position in helping to sustain local media organisations
through a more collaborative approach to the industry. The BBC's
local output is provided through regional news on television,
local and nations' radio services, and local websites. The service
licence for BBC Online stipulates that it should provide content
for licence fee payers in the different nations and local communities
across the UK and that at the core of the offering there should
news, sports, weather and travel, alongside content
in other areas which reflects the particular characteristics of
each nation or locality and supports broader BBC initiatives,
programmes and services.
The BBC's online content may be syndicated to
other providers in line with the BBC's syndication policy
[and that The Service] should actively seek to form partnerships
with external organisations, particularly where these can help
to promote the BBC's public purposes more effectively.
158. Local newspapers are a vital component of our
democracy as are their community-based journalists who keep a
watchful eye over local government and other agencies and provide
coverage of events that would otherwise go unreported. As of 1
January 2014, the regional and local press provided local news
and information across 1,100 daily and weekly titles and 1,700
in the last decade the sector has suffered a steady decline in
traditional paper circulations, owing to people moving online.
Since the financial crisis of 2008, 150 local newspaper titles
have closed with many more reducing the frequency of publication
or the range of locally-specific news coverage.
In an effort to counter this, many regional newspaper groups have
diversified by growing their own web audiences to allow them to
compete with new media organisations online.
159. A decade ago, Philip Graf CBE, a former Trinity
Mirror chief executive and later Ofcom Deputy Chair, conducted
a review of the BBC's online services on behalf of the then Government.
At that time, he called for a "precautionary approach"
to BBC Online investment and for at least 25% of the BBC's online
content (excluding news) to be supplied by external suppliers.
He also recommended that BBC Online must include "more consistent
and transparent links" to all relevant commercial and public
sources, and not only link to BBC pages. These recommendations
were incorporated as conditions in the Trust's service licence
for BBC Online.
The licence specifies that the service should:
at least 25% (by value) of eligible content and services from
external suppliers; and
to increase the volume of click-throughs to external sites from
all parts of BBC Online year-on-year.
160. With local newspaper businesses now running
their own websites, we were told that they were much more sensitive
to coverage of local news by BBC Online, as they were now competing
for the same audiences. Nevertheless, Geraldine Allinson, Chairman
of the KM Group, told us that she was sure there was a way for
the BBC to provide local services in a manner where the local
press and the BBC could coexist:
We can do the commercial side and they can also
provide local services but in a way where we are supportive of
each other rather than actually in direct competition and fighting.
I do believe we can coexist for the best of each other
and for the best of UK plc rather than just competing head-on.
Nonetheless, there was concern that an unconstrained
BBC through its non-commercial expenditure could wipe out the
local press and eliminate all competition.
Yet Ian Murray, President of the Society of Editors, told us:
I do not think that the BBC genuinely wishes
to trample on everyone and destroy us all and become one voice
in the country. It does not want to do that. It can see the value
as has been said of having newsrooms competing against each other,
and I believe it understands. But I think it just treads in a
little bit like a dinosaur from time to time and, "Oh I didn't
mean to squash you. I'm sorry I have."
161. The regional press have two principal concerns
in relation to BBC's online activity which impacts on their businesses
and ability to compete fairly. First, they find that the scale
of BBC investment in its regional websites is too high and that
this is thwarting their efforts to build digital audiences.
Second that the BBC takes stories from them without properly attributing
the content or linking a news item to the media website from where
the story originated. While there is recognition that the BBC
is starting to improve in this regard, in terms of referrals,
we were surprised when the KM Group and Archant told us that only
a tiny percentage of traffic to their sites came from the BBC's.
162. The chief executive of Johnston Press, Mr Ashley
Highfield (the BBC's former Director of New Media and Technology
from 2000 to 2008), has called upon the BBC to introduce quotas
on web traffic sharing, and asked for a more general commitment
from the BBC to supporting regional papers. He has argued that
the regional press should be allowed to take content, such as
video, from the BBC and republish it on their websites, in effect
reversing the traditional content flow, so long as local sites
properly attributed the material to the BBC and were mindful of
not juxtaposing inappropriate advertising. He explained:
A lot of local stories would benefit from having
BBC content, particularly video, on our websites, and in return
we could help bring a much bigger audience to the BBC
if [the BBC] is going to use our content, then properly attribute
us and link back to us so the traffic flows two ways.
163. Some see a paradox in the BBC Trust being there
both to cheerlead the BBC and to constrain it. Ms Allinson told
us despite attempts to contain the BBC, the Trust had encouraged
BBC management to make BBC online services more local.
In 2013, the Trust's review of BBC Online had recommended that
the BBC should develop and implement initiatives to improve its
local online offer, particularly news, alongside broader actions
to improve navigation and personalisation of the BBC's local sites.
In light of this, Mr Adrian Jeakings, President of the Newspaper
Society, remarked that the industry was "girding its loins"
for the same battle all over again.
164. Several representatives of the local press
see potential for a mechanism whereby local and regional press
are appropriately rewarded for creating content which is shared
with the BBC. The previous Government developed policy to introduce
Independently Funded News Consortia (IFNCs), which could have
been funded through a share of the licence fee, to fill any gap
due to reductions in regional news coverage by Channel 3 licensees.
However, these plans were dropped by the incoming coalition Government,
which instead proposed new commercial local TV in towns and cities,
with funding for the IFNC pilots used to support the rollout of
165. In line with this ambition for local TV, as
part of the 2010 licence fee settlement, the BBC is obliged to
earmark up to £5 million of funding per year (for three years)
for the acquisition of local news content from the new local television
so far only a few local TV services have been launched, of which
London Live is probably the best known. It appears this channel
has got off to a slow start since launch, as it has only attracted
small audiences. Another new TV station for Birmingham went into
administration before it had launched; its licence has been passed
to another media group.
last two years, Ofcom has awarded 30 licences for local TV services
and 15 stations have gone live. So far these services do not appear
to have had any significant impact among audiences nor have they
made a meaningful contribution to the provision of local news
and content and as such their viability remains in doubt.
166. The BBC's funding of local TV prompts questions
of whether a similar model could be adopted to support regional
news. Ms Allinson believed it could be possible for the BBC to
support local journalism by commissioning content from third parties
on a commercial basis where independent journalists and media
groups bid for work. She envisaged local BBC newsrooms potentially
identifying subjects that their local audience would be interested
in, and possibly investigative journalism that might be unaffordable
for local media to do by themselves, and pay them for doing this
work. There could be framework agreements put in place to facilitate
the sub-contracting of such work. However, Ms Allinson was at
pains to stress to us that regional media groups, such as the
Kent Messenger, were very much independent organisations and wanted
to remain as such. She remarked: "any idea of any sort of
subsidy I think would fill all of us with horror".
167. A similar idea was expressed by SWNS (South
West News Service), who pointed out that very little news content
is bought-in by the BBC, as opposed to areas such as drama.
SWNS explained that local news agencies should be treated like
"qualifying" independent producers where the BBC allocated
25% of its budget to buying content from local media organisations.
In their opinion such outsourcing arrangements could gain better
value for money as well as acting as an economic stimulus in local
communities. SWNS highlighted that the BBC already had such arrangements
in place with an independent news agency in Wales, which established
a proof of concept.
168. Moreover, SWNS believed that the BBC should
not expect to receive content or leads from services like its
own free of charge. Support in this way could help keep journalists
'on the ground' in communities. Against this background, SWNS
proposed setting up public service reporting schemes where a percentage
of the BBC's regional budgets could be made available for court
reporting, but where the BBC did not control the process. They
suggested that such public funding could be open to bidders via
an independent source on a non-profit basis for "qualified
independent providers". Providers would be expected to maintain
high journalistic standards. Such work could help train new journalists
in local communities.
169. The BBC has recently sounded receptive and encouraging
to proposals being put forward by the industry to foster partnerships
between the BBC and local news groups. In November 2014, James
Harding, BBC director of news and current affairs, told the Newspaper
Society that he believed there was a revival underway in local
journalism and that the BBC wanted to be a part of it.
He explained that the BBC would look to see what it could do with
local organisations of all kinds to make it happen. The BBC has
agreed to pilot BBC syndication of content to other local news
providers in the north-east of England where the BBC would share
its most popular pieces of content with local news providers.
There were mixed views on the BBC paying others for content. However,
the BBC was examining activity in the regions to see how many
new stories were sourced by the BBC and what kind of funding streams
might be made. In addition, the BBC had also discussed the idea
of a fund to ensure local courts were covered in a more comprehensive
way. Conversations have also been underway between the BBC, the
Press Association and the Ministry of Justice.
170. Introducing competitive funding for local journalism
would be challenging. A disadvantage of such public funding could
be that it had the perverse consequence of discouraging investment
by local media in their newsgathering. At present, there appears
to be considerable variation across the country in both the quantity
of local news provision and the quality of local journalism. Whilst
some areas are well-served, others are devoid of proper local
coverage and it is not at all clear how a fair and effective allocation
of funding could be made. We look at the case for contestable
funding of the licence fee for public service content in our next
171. We believe
there must be a more symbiotic relationship between local media
and the BBC, where each benefits from the other. The BBC as the
dominant partner must always be mindful of the effect of its activities
on regional media groups and their ability to turn a profit, given
the greater certainty resulting from its publicly-funded position.
The BBC Trust's conclusions from its 2013 review of BBC Online,
where it called on the BBC management to make sites more local,
demonstrated a disregard for the health of local journalism.
the BBC appears to make the right gestures in supporting local
and regional media organisations in the run-up to Charter Reviews,
we believe more definite commitments in respect of its interactions
with the press must be codified into any future Charter framework.
173. The BBC
must not expect to receive others' news content without providing
something in return. We are attracted by the idea of exchanges
of content and information, where the BBC local websites link
to the source of local material they have used, and in return
the BBC allows others to use its content and embed BBC clips on
their sites, where these would be of local interest, under a licence
agreement. There need not be a financial transaction. However,
we also see the case for the BBC outsourcing the supply of some
local content on a commercial basis, where there is an ongoing
requirement for such material, and it is a more cost-effective
way of meeting this need. We recommend this be ensured by extending
the BBC's independent production quota to cover local news.
174. Over the past couple of decades successive Governments
have encouraged the BBC to engage in commercial activity, in part
to relieve pressure on the licence fee. This is achieved principally
through BBC Worldwide, a wholly-owned subsidiary and the main
commercial arm of the BBC. Worldwide exists to support the BBC's
public service mission and to maximise profits on its behalf.
It does so through investing in programmes and commercialising
and showing content from the BBC around the world, in a way expected
to be consistent with BBC standards and values. The business also
builds the reach and reputation of the BBC brand overseas and
champions British creativity.
175. Worldwide is the largest programme distributor
in the world outside the US major studios, selling programmes
and formats produced by the BBC and by over 200 UK independent
addition, it generates advertising and subscription income through
running channels, some part-owned, on a commercial basis both
at home and overseas.
In order to supplement traditional DVD sales, Worldwide will soon
launch BBC Store, an online commercial service for audiences to
buy and keep BBC programmes from its archive. Profits and commercial
income from these activities are returned to the BBC through dividends
to the BBC's public service arm, as well as Worldwide's own direct
investments in BBC co-productions.
Worldwide's financial performance in 2013/14
Last year, Worldwide generated headline profits of £157.4 million, through (headline) sales of £1,042.3 million. It returned £173.8 million to the BBC, of which it invested £88.9 million in BBC commissioned productions. Worldwide's net profit, after tax and other adjustments, was £98.1 million.
176. The BBC Executive told us that, despite limited access to
capital, BBC Worldwide had delivered a strong financial performance,
and that it now provided up to 75% of the funding for some of
the BBC programmes to which it contributed.
Since 2007 Worldwide has returned nearly £1.2 billion to
the BBC, including £467 million in dividend payments and
£650 million of content investment. Looking beyond 2016,
the BBC Trust has, however, forecast that sustaining the level
of returns generated for the BBC by Worldwide over recent years
will be challenging, and that it expects these returns will continue
to represent only a small part of the BBC's overall funding.
177. Some have argued that Worldwide should be privatised to allow
it more operational independence. In 2004, a report by the Broadcast
Policy Group, chaired by David Elstein, recommended that divestment
of Worldwide from the BBC would allow it greater efficiency and
access to capital markets to finance its activities.
The Group argued that separation from the BBC would give independent
producers greater confidence in its distribution skills and independence
of function. They believed that a divested business could flourish
as organisations with "social objectives" were rarely
"the best parents" for commercial ventures.
178. The Charter sets a framework for the BBC's commercial activities;
they must comply with all the following criteria:
with the BBC's public purposes;
jeopardise the BBC's good reputation or the value of the BBC brand;
with the BBC's fair trading guidelines, in particular avoiding
To enable transparency, the BBC is required to report
publicly each year on compliance with these requirements.
179. A very costly mistake by the BBC was the purchase
of the Lonely Planet publishing business in 2007: a transaction
that led to a loss of £100 million when it was sold in 2013.
It was the BBC's diversification into areas that were not closely
aligned to its public remit and core programme making, and which
risked an adverse impact on other market players, that troubled
our predecessor Committee and led them to hold an inquiry into
the BBC's commercial operations.
In 2008, the Committee strongly disagreed with BBC's management
and the Trust in their persistence in claiming that the purchase
of the travel guide publishing business was in accordance with
the BBC's commercial criteria.
It was the Committee's view that the acquisition represented the
"most egregious example" of BBC Worldwide's expansion
into areas where the BBC had no, or limited, interests. Furthermore,
the Committee was especially critical of BBC's management and
the Trust's "apparent arrogance" in its dealings with
them with both at the time appearing to believe they had no case
180. There are
major benefits from the BBC undertaking commercial activities
as the profits generated by the exploitation of the BBC's intellectual
property can be reinvested in the BBC's public services, to the
benefit of licence fee payers. However, BBC Worldwide's activities
must not risk jeopardising the reputation of the BBC or be allowed
to have an adverse impact on its commercial competitors. We continue
to believe that the approach of BBC's commercial activities should
be limited to those closely linked to its programmes and its public
181. There is
a potential risk that BBC dependence on returns from BBC Worldwide
to fund UK public service content, as a co-producer of new content
or through dividends to bolster the finance of the BBC's PSB operations,
could lead to UK PSB content focused more on global commercial
appeal and return rather than primarily aimed at serving domestic
audiences in the first instance. We believe that investing in
public service content for UK audiences must remain the priority
for BBC Worldwide beyond 2016.
182. BBC Worldwide
has an important role in marketing the BBC brand and the UK's
creativity overseas, even if its financial contribution to domestic
PSB remains reasonably modest. We recommend that the independent
panel and Charter Review process consider whether changes are
needed to existing oversight provisions in the Charter and Framework
Agreement for BBC Worldwide and for the BBC's other commercial
BBC's technology development,
standard setting and championing role
183. In setting out his vision for the BBC, Lord
Hall identified innovation as being a part of the BBC from its
Since its formation in 1920s, the BBC has had a role in
developing technology and promoting its use. The BBC was the first
broadcaster in Europe to transmit programmes in colour on television
and arguably it was the BBC in the UK that popularised home computing
in the 1970s and more recently catch-up TV through its development
of the iPlayer. In its early days the BBC had little choice but
to develop its own equipment by itself as there were no others
to turn to. The question today is whether the BBC still needs
to be taking a key role in research and development on behalf
of the industry or whether this work could now be left largely
or wholly to others. Fiona Philpott, Director of Exhibitions &
Design, National Museums of Liverpool, argued:
The BBC is full of some of the most creative
and technical talent which exists in the UK today. It would be
madness for the BBC not to channel this into developing new ways
of delivering and distributing content.
184. The BBC was widely credited in 2002 for leading
a coalition of industry participants in rebuilding a free-to-air
digital terrestrial television platform and launching Freeview
following the collapse of ITV Digital and its predecessor ONdigital.
Freeview is now watched in almost 20 million homes (75 per cent
of all TV homes) and is the sole television platform in almost
11 million homes.
Yet there have been failures, too. The Digital Media Initiative
(DMI), an IT project that attempted to develop a fully digital,
tapeless in-house production workflow system for BBC staff, was
cancelled having delivered very few tangible benefits at a cost
of £100 million. In the case of DMI, it has been suggested
that while the BBC insisted on developing its own system there
were existing industry-standard options that could have met the
BBC's needs. During
a visit to the BT Sports studios at Queen Elizabeth Olympic Park,
we were told that BT had acquired an off-the-shelf production
system which was similar to the one the BBC had been seeking to
develop and which had met its needs well.
185. The 'sixth public purpose' of the BBC is "Delivering
to the public the benefit of emerging communications technologies
and services". In the box below are the priorities the Trust
aligned with this purpose.
Purpose priorities as set by the Trust:
· Make engaging digital content and services available on a wide range of digital platforms and devices.
· Work with the industry to deliver a UK-wide network of digital television.
· Increase coverage of DAB (Digital Audio Broadcasting).
· Support Digital UK's communications activity to build awareness of, and readiness for, digital switchover.
· Work in partnership with other organisations to help all audiences understand and adopt emerging communications technologies and services.
· Support the Government's targeted help scheme to help the most vulnerable during digital switchover.
In line with this purpose, the Framework Agreement with the Secretary
of State requires the BBC to aim to maintain the BBC's position
as a centre of excellence for research and development in broadcasting
Wherever the BBC is involved in the development of new technologies,
the Agreement requires it to consider doing so on the basis of
'open standards'. This means balancing the commercial exploitation
of new intellectual property with the value that might be delivered
to licence fee payers and the UK economy by making new developments
widely and openly available. The BBC explained that its research
activity provided value to the broadcast industry by:
risk capital for technological development as it could work on
technology concepts well before they are commercially viable;
a strong voice for the broadcast industry; and
a training ground for broadcast technologists.
186. Most industry players support a continuation
of the BBC's research and development activity, as part of its
remit. Nonetheless, there was general agreement, even among those
more tentative about its role and record, that its public funding
meant it had to work collaboratively and openly with the industry.
Phil Redmond, a television producer and screenwriter, believed
that, while much of what the BBC needed technically was probably
available commercially; innovation always required a move away
from the norm when the acquisition of custom-built technology
could be both commercially and creatively sensitive, as well as
more costly. In
his opinion, the BBC should be allowed to continue its traditional
role of technological innovation arising from its role as a public
service provider. He saw potential revenue opportunities through
licensing such technology. Shed Media believed that if the BBC
did invest in new technologies, such as in devices like the iPlayer,
then they should be commercialised as fully as possible.
187. During the present Charter period the BBC developed
YouView, an internet TV service, as a joint venture with ITV,
Channel 4 and Channel 5, BT, TalkTalk and Arqiva. YouView allows
TV sets to access television services through a broadband connection.
The development started as Project Canvas in December 2008 as
a partnership between the BBC, BT and ITV plc, with further partner
joining later. Despite several delays, the consortium released
a set-top box just in time for the London Olympic Games in July
2012. The YouView service is now mainly used by customers of telecom
companies offering TV services which include access to the PSB
188. Channel 4 explained that if the BBC were to
partner with other PSBs and share technology it would doubtless
save PSBs significant amounts of time and money which could be
reinvested back into content budgets, benefiting viewers, the
production sector and the PSBs.
Yet Global believed that the evolution of the internet services
market had matured in the past decade and the need for a publicly-funded
intervention from the BBC had been reduced.
They noted that even though the iPlayer was first of its kind,
there were now many versions of catch-up television and for that
reason the BBC no longer needed to keep financing such innovation.
189. It is vital
that BBC works in partnership when developing technology and broadcasting
platforms, through joint ventures such as Freeview and Freesat,
and through working with standards organisations and equipment
manufacturers to sustain and improve the availability of its services.
Wherever possible the BBC must turn to the market for its technology
needs rather than attempting to do things itself if it is to avoid
future costly mistakes, as was the case with the Digital Media
Initiative. Where solutions are not available to meet the BBC's
future needs, then it should take the lead in developing new solutions
but in conjunction with others so that the BBC's counterparts
contribute and to ensure their needs may also be met.
190. We recommend
that the BBC's sixth public purpose on communications technologies
should be retained, but the means to achieve it should be clarified.
The remit and priorities of the purpose should be revised and
updated. They should, for instance, strengthen the requirement
on the BBC to look first to the market for technology solutions
and to ensure any development it undertakes is done in partnership
with others, but where the market is not yet delivering innovation,
the BBC should be required to take a leading role in pushing development
in line with people's expectations.
180 Q631 Back
Q619 (Danny Cohen) Back
Independent Production Sector Financial Census and Survey
2014, published July 2014 Back
See: First Delegated Legislation Committee, Draft Broadcasting
(Independent Productions) (Amendment) Order 2014, 30 October 2014,
col. 3 Back
A New Age of UK TV Content Creation and a New Role for the
BBC, a report prepared for Pact by Oliver & Ohlbaum Ltd,
August 2014, page 9 Back
Q130 (Lord Birt) Back
Independent Production Sector Financial Census and Survey
2014, published July 2014 Back
Patrick Younge, former Chief Creative Officer, BBC Production
2010-2014 (FBB0130), para 2 Back
Ofcom consultation paper on its third review of public service
For example, So Television, makers of the Graham Norton Show
for the BBC, no longer qualify for the terms of trade since the
company was bought by ITV Studios. Back
BBC Trust (FBB0096), para 32 Back
BBC Trust announcement, Review of the BBC's content supply arrangements,
12 August 2014 Back
Ofcom Consultation on its third review of public service broadcasting,
December 2014, para 1.38.3 Back
BBC Trust, Review of Radio Independent Supply, published
August 2010, page 5 Back
A New Age of UK TV Content Creation and a New Role for the
BBC, a report prepared for Pact by Oliver & Ohlbaum Ltd,
August 2014, page 16 Back
Ibid, page 97 Back
"Wither the BBC", Is the BBC in Crisis?, published
by Abramis academic publishing, 2014, page 2 Back
ITV plc (FBB0066), para 26 Back
Channel 4 (FBB0067) Back
See paras 45-49 Back
Creative Skillset (FBB0084), para 2.9 Back
In 2013/14, the BBC funding of the BBC Academy was £17.3m Back
BBC Annual Report and Accounts 2013/14, page 80 Back
Study by Redshift Strategy Consulting for Pact, 2014 Back
Enders Analysis (FBB0098), para 15 Back
Q413 (John McVay) Back
Ofcom-Public Service Content in a Connected Society: Ofcom's
third review of public service broadcasting-Consultation,
15 December 2014, para 3.219 Back
Sajid Javid's speech at the Royal Television Society conference,
9 September 2014 Back
See: BBC Online and Red Button service licence, April
2014, page 3 Back
Figures taken from the Newspaper Society website, May 2014 Back
Early Day Motion 585, Closure of local newspapers, tabled 1 December
Report of the Independent Review of BBC Online, DCMS, 8 May 2004 Back
See: http://www.bbc.co.uk/bbctrust/our_work/services/online/service_licences/online_red_button.html Back
Q193 (Adrian Jeakings) Back
BBC must introduce quotas on web traffic sharing, The Telegraph,
6 August 2014 Back
Torin Douglas interviews the CEO of Johnston Press, Ashley Highfield,
5 November 2014 Back
Service review of BBC Online and Red Button, BBC Trust, 25 May
Independently Funded News Consortia (IFNC) were proposed as independently
set-up groups providing local and regional news within various
regions of the United Kingdom. Back
The 2010 settlement also provided for up to £25 million
in capital costs for local television Back
Kaleidoscope given Birmingham local TV licence, BBC News,
24 November 2014 Back
SWNS (South West News Service), (FBB0145) Back
Speech by James Harding, Director of BBC News and Current Affairs,
to the Society of Editors conference in Southampton, 11 November
See: Supporting the creative economy, Third Report of
Session 2013-14, HC 674, Ev 320 (BBC) Back
For example, UKTV is a multi-channel broadcaster, supported by
advertising revenue, jointly owned by BBC Worldwide and Scripps
Networks Interactive Back
BBC Worldwide Annual Report, 2013/14 Back
BBC (FBB0097), para 381 Back
The Trust indicated that (leaving aside investment in content
production) Worldwide's annual dividend was equivalent to around
4 per cent of the total cost of running the BBC in 2012/13. See
BBC Trust (FBB0096), para 40 Back
Beyond the Charter-the BBC After 2006, Broadcasting Policy
Group, published February 2004, para 7.4 Back
Ibid, page 9.4 Back
An Agreement Between Her Majesty's Secretary of State for Culture,
Media and Sport and the British Broadcasting Corporation, Cm 6872,
schedule 69 Back
For example see: BBC Annual Report and Accounts 2013/14,
page 112 Back
BBC Commercial Operations, Fifth Report of Session 2008-09,
HC 24, para 1 Back
Ibid, para 8 Back
BBC Commercial Operations: Further Report, Seventh
Report of 2008-09, HC 968, para 15 Back
Speech given by Lord Hall, BBC Director General, at the BBC Radio
Theatre in London, Tuesday 8 October 2013 Back
Fiona Philpott, (FBB0065) Back
That is, homes without cable or satellite services. Freeview
homes with broadband connections are able to receive television
services by this means as well. Back
See: Professor Barwise (FBB0128) Back
Committee visit to BT Sports Studios, Queen Elizabeth Olympic
Park, 2013 Back
An Agreement Between Her Majesty's Secretary of State for Culture,
Media and Sport and the British Broadcasting Corporation, July
2006, schedule 87 (1) Back
BBC (FBB0140) Back
Professor Phil Redmond (FBB0076), para 33 Back
Channel 4 (FBB0067) Back
Global Radio (FBB0091) Back