Joint Committee on Draft Communications Bill Report


315. The debate on the quality of broadcasting and the nature of public service broadcasting commitments in this country often focuses on the details and mechanics of qualitative regulation, which, in the Government's typology, is "tier three" regulation. There are a number of important issues relating to public service broadcasting remits that we consider in the next section of this Report. Nevertheless, what has become very apparent to us during our inquiry is that, in the future, it will become ever more crucial to focus on the very basis for the services whose output is so carefully examined and regulated - on the economics and regulation of content production.[613] We have considerable sympathy with the observation of the Producers Alliance for Cinema and Television (PACT):

    "The draft Bill is almost wholly concerned with the interests of broadcasters, channels and platform owners and has little to say about the need to create a competitive market producing high quality content which can appeal domestically and internationally".[614]

316. The aim of the recommendations we make in this section is to ensure that OFCOM can tackle as an early priority issues relating to the content production market so that firm foundations are in place for the elaborate architecture of public service television regulation under tier three.

317. The starting point for the production process is the creativity and talent of the workforce. We have already noted that OFCOM has a duty, under Clause 11 of the draft Bill, "to take all such steps as they consider appropriate for securing and promoting the development of opportunities for the training and retraining" of persons employed or engaged by broadcasters. Clause 224(3) enables OFCOM to establish licensing conditions to require the holder "to make arrangements for the training and retraining of persons whom he employs". We view this provision as inadequate. One of the fundamental characteristics of broadcasting in the United Kingdom is its dependence upon freelance staff, including many production staff as well as actors and journalists.[615] Skillset, the sector skills council for the audio-visual industries, has drawn attention to the case for broadcasters to be required to contribute to the training of freelancers as a licence condition, with different levels of contribution for public service broadcasters.[616] We consider current funding for training across broadcasting as inadequate and are sympathetic to this proposal. We recommend that Clause 224 be amended to enable licence conditions relating to training to be applied to broadcasters both in relation to their own employees and more generally in respect of the creative advancement of the sector as a whole.

318. Training is one area in which there is already close co-operation across the content creation sector, for radio, television, film, video and interactive media. In its evidence, the Film Council has noted the comparative weakness of current links between British broadcasters and the British film industry. Peter Woods, in our online forum, also expressed surprise that links between television and film were not covered in the draft Bill. The Film Council proposes that, alongside the regional and independent production requirements, there should be a mechanism for OFCOM to establish, in consultation with the broadcasters, effective means for supporting the British film industry.[617] In the time available to us, we have not been able to explore this matter as thoroughly as we would wish. We recommend that the Government, the ITC and the Film Council explore with broadcasters the current relationship between the broadcasting and film industries and the role that OFCOM might play in fostering and furthering the contribution of broadcasters to that relationship.

319. One of the most dramatic transformations in the broadcasting production landscape in the last decade or so has been the growth of the independent production sector. This development is recognised as owing a great deal to the creation of Channel 4 and to the establishment of quotas relating to independent production.[618] The Government considers that "the independent productions quota has helped maintain the diversity of British television, supported the development of creative and technical skills and helped create a thriving and innovative production industry".[619] Clause 189 and paragraphs 1 and 5 of Schedule 8 provide for a continuation of the quota of 25 per cent of total time for independent production for the public service broadcasters, although that percentage may be amended by order.[620]

320. Some evidence questioned whether the independent production quota was continuing to serve its original purpose effectively. According to PACT, "the quota has become a ceiling, rather than the floor that was intended".[621] There has been a downward trend in independent commissions.[622] Both the ITC and Chrysalis suggested that the quota should in future be measured in terms of value rather than time.[623] This proposal was not supported by PACT, which favoured a more radical solution.[624]

321. PACT's central argument was that the quota for independent production was necessary because of weaknesses in the operation of the production purchase market. If the programme supply market could be rendered fully transparent and competitive, then market intervention of the kind represented by the quota would no longer be necessary.[625] Their proposed device for achieving this aim was the amendment of Clause 189 (and presumably of paragraphs 1 and 5 of Schedule 8) to establish an enforceable code of practice relating to the commissioning of content by public service broadcasters, subject to oversight by OFCOM. The intentions of the code would be to ensure equal access to programme-making opportunities, ensure publication and monitoring of terms of trade, and otherwise regulate fairness in commercial dealings.[626]

322. Tessa Jowell indicated that she was willing to look very closely at ways in which independent producers might be disadvantaged or discriminated against. She reaffirmed her view of the BBC licence fee as "venture capital for the nation's creativity" and said that one important use of that money was "to drive a healthy independent sector". She said that she was studying the case for a code made by PACT.[627] David Liddiment, ITV's Director of Channels, made much the same point at a Westminster Media Forum event on 17 July when he argued that we should make the most of available talent by "maximising the benefit for the creative health of Britain with the billions of pounds of public money we'll be pouring into the BBC over the next decade. We can do this by opening up BBC production to the market, and by having common, sensible, flexible terms of trade for all producers, independent or in-house." If we really believe in the creative imperative then we could do far more to unleash the creative potential of the United Kingdom production sector.

323. However, the principal controller of the purse strings of the generous "venture capital for the nation's creativity" was equally robust in his thoughts: Greg Dyke contended that the risks run by the independent sector were not great and, without bearing the full risks, they could not expect the full rights. He said that "we follow the law on independent producers", but posed the question: " is it really our job to make large numbers of independent producers extremely rich?"[628] Whilst recognising the continuing value of a strong in-house production capability for the BBC, we believe this is a dramatic underestimation of the difficulties facing the average independent producer and one of the objects of the Bill must be to sustain this increasingly important component of content creation.

324. The recent trend for broadcasters to comply with the requirements of independent production quotas with remarkable precision provides grounds for questioning whether a fair and open market in programme supply is truly operating. These doubts are compounded by very recent evidence both that the BBC has failed to meet its 25 per cent requirement in the most recent financial year and that the value of independent production purchased by the BBC is less in percentage terms than the time. We recommend that Clause 189 and paragraphs 1 and 5 of Schedule 8 be amended to provide that OFCOM should monitor levels both for the time allocated to independent productions and for the value of such independent productions in line with the Secretary of State's declared intention in evidence to us that the licence fee should be "venture capital for the nation's creativity".

325. The precise operation and impact of quotas depends to a considerable extent upon the definition of independent productions. Clause 189(2) gives the Secretary of State power by order to define independent productions. This replaces an existing power under section 16(5)(a) of the Broadcasting Act 1990. Two issues have arisen relating to the current definition. First, it excludes independent producers owned by a foreign company with broadcast interests. Second, it excludes ITV companies from independent status, even when seeking commissions on channels other than ITV. Granada have argued that this penalises regional production. We recommend that the Government, in its response to this Report, set out its views on the merits of defining independent productions to include all programmes commissioned by a broadcaster from whom the producer is independent in ownership terms.

326. Despite our recommendation about the operation of quotas, we share the view of PACT that the need for a quota system is itself an indication of market failure. We are concerned that the draft Bill makes no provision for moving the independent sector beyond this outmoded form of intervention. We recommend that Clause 189 and paragraphs 1 and 5 of Schedule 8 be amended so as to require OFCOM periodically to review the whole of the programme supply market, together with its associated intellectual property and other rights, including the role of the BBC in that market, with a view to determining whether the market is operating in a fair, transparent and non-discriminatory manner. We further recommend that OFCOM be required under the terms of the final Bill to undertake the first such review immediately after the coming into force of the Act. Finally, we recommend that, having undertaken the first such review, OFCOM consider whether it would be appropriate to refer the operation of the programme supply market to the Competition Commission for market investigation under the terms of the Enterprise Bill.

327. The overall health of the programme supply market in future will depend a great deal on the maintenance of strong demand for domestic original production. Clause 190 gives OFCOM a power to impose on the public service channels quotas for original production, with the proportion of time allocated to such production being such "as OFCOM consider appropriate for ensuring that the channel is consistently of a high quality". This measure is welcome in principle, but we have identified two areas of weakness in the provision as it stands.

328. The first area of weakness relates to the definitions in the Clause. Original productions are defined as "programmes which were commissioned or produced with a view to their first showing in the United Kingdom" being on the relevant channel. As the ITC notes, this contains no requirement for the commissioned programme to be made in Europe. The ITC proposes that Clause 190(3) be amended to require that original productions are either produced within the EEA or are a co-production in which a significant element of the production is within the EEA. The ITC also points to another weakness to which all such quotas are prone: a broadcaster could comply with the letter but not the spirit of the quota through cheap original productions not intended to serve mass audiences. The ITC propose that specific quotas ought to be imposed for peak viewing times.[629] We agree. We recommend that Clause 190 be amended to define original productions as programmes commissioned with a view to their first showing in the United Kingdom on the relevant channel and which were also either produced in the European Economic Area or were a co-production in which a significant element of the production was within the European Economic Area. We further recommend that the same Clause be amended to permit OFCOM to establish specified levels for original productions in peak viewing times.

329. The second area of possible weakness relates to the capacity of OFCOM to ensure that these levels reflect the changing market positions of particular channels. We welcome and support suggestions that required levels of original production ought to be linked to changes in revenue or audience share.[630] Tessa Jowell also seemed sympathetic to this notion when she spoke of being "perfectly open to racking up the quantitative aspects of regulation under tier two".[631] We envisage the system operating as a ratchet, with required levels of original production being varied in a transparent way in response to changes in revenue or audience share. We note that there are particular problems in applying such a system to ITV because of the networking system and we have sought to take account of this in making our proposals.[632] OFCOM already has power to review Channel 3 licences and require changes in licence conditions in the event of changes of control under Clauses 234 and 235. We recommend that OFCOM be empowered to review production commitments of public service channels and Channel 3 licensees in response to any significant change in the revenue or audience share of the relevant channel. We further recommend that OFCOM be required to issue guidance on the changes that would trigger such reviews and give an indication of likely alterations to requirements for original production arising from such changes.

330. The domestic production sector is and can be supported not only by public service broadcasters, but also by other broadcasters providing licensed services. Article 4 of the EC "Television without Frontiers" Directive requires Member States to "ensure, where practicable and by appropriate means, that broadcasters reserve for European works ... a majority proportion of their transmission time".[633] At present, the Department for Culture, Media and Sport is responsible for meeting this obligation. Giving effect to this obligation, and interpreting the phrase "where practicable", has proved far from straightforward, as both Commissioner Reding and BSkyB told us.[634] The Government proposes to pass responsibility for this matter to OFCOM.[635] Clause 222 enables OFCOM to set conditions on licensees in relation to international obligations. We welcome the Government's decision to give OFCOM responsibility for United Kingdom compliance with obligations under the EC "Television without Frontiers" Directive and support the provision for licence conditions to secure such compliance in Clause 222. We believe that these powers provide OFCOM with a valuable tool for strengthening the contribution of all licensed broadcasters to the European production base.

331. The final component of the quantitative regulation of public service channels relates to production in the nations and regions of the United Kingdom. Clause 193 gives OFCOM powers to establish conditions for Channel 3 services to ensure that "suitable" proportions of programming made in the United Kingdom are made outside the M25 area in "a range of production centres in different parts of the United Kingdom". Clause 194 requires regional Channel 3 services to comply with conditions relating to high quality regional programming, including that a proportion is to be broadcast in peak viewing times and that a proportion is to be produced in the relevant region. These last two aspects are new.[636] Requirements on Channel 4 are set out in Clause 195.

332. ITV expressed concern that the power for OFCOM to set conditions on investment in production centres across the United Kingdom was unduly prescriptive and cut across the principle of commissioning on merit under the networking arrangement.[637] BECTU argued that the provisions ought to be strengthened by the inclusion of percentages that match the current proportions and by a requirement for quotas to be "substantial and significant".[638] Both ITV and the ITC noted that Channel 5, which currently has a voluntary commitment to out-of-London production, was not going to be subject to statutory quotas.[639] We recommend that the word "suitable", where it appears in Clause 193, be altered to "substantial". We also recommend that the same Clause be amended to make it clear that Channel 3's regional production requirements apply equally to network and regional programmes. We further recommend that OFCOM be granted a power to include conditions relating to regional programme-making in the regulatory regime for Channel 5. Finally, we recommend that the review provisions linked to audience and revenue changes that we have earlier recommended in respect of original production levels apply also to regional production levels.

613   QQ 3, 32. Back

614   Ev 289. Back

615   Ev 617, para 4; Q 858. Back

616   Ev 617, para 7. Back

617   Ev 578, paras 16-18. Back

618   Ev 289. Back

619   Policy, para 8.6.4. Back

620   Q 991. Back

621   Ev 289. Back

622   Q 774. Back

623   Ev 572; Appendix 107. Back

624   Q 769. Back

625   QQ 768-769, 772, 783, 784. Back

626   Q 781; Ev 289, passimBack

627   Q 1012. Back

628   Q 539. Back

629   Appendix 107. Back

630   Ev 439, para 4(iii); Ev 202, section 4.4. Back

631   Q 988. Back

632   Ev 1. Back

633   Council Directive 89/552/EEC of 3 October 1989 on the co-ordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities. Back

634   QQ 199, 639-640. Back

635   Policy, para Back

636   EN, para 334. Back

637   Ev 439, para 38; Q 550. Back

638   Ev 331, para 19. Back

639   Ev 4, para 30; Ev 439, para 40. Back

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