Memorandum submitted by ITN
Please find enclosed a copy of ITN's submission
to the Joint Committee on the Draft Communications Bill.
In addition to comments on the specific news
provisions contained in the draft Bill, ITN has outlined detailed
recommendations that we believe will deliver much enhanced accountability
and transparency into BBC corporate governance.
These recommendations stem from ITN's direct
experience of competing with publicly funded and commercial BBC
news services across a range of media platforms. We do not oppose
the BBC developing new public services or commercial ventures
in the digital environmentincluding BBC News 24 and BBC
Onlinebut we do believe that there needs to be greater
openness in the way in which such services are approved and operated.
As such, ITN's recommendations focus on the two key areas of BBC
corporate governance that impact most on the commercial sector:
enforcement of the BBC's Fair Trading Commitment and the approvals
process for new BBC public services.
ITN has evidence of a number of cases where
the BBC has been breaching its own set of rules governing BBC
commercial activitiesthe Fair Trading Commitmentand
where the BBC Board of Governors has failed to take action. We
are therefore urging that the Communications Bill should grant
OFCOM exclusive powers to enforce the Fair Trading Commitmenteffectively
taking responsibility for regulation of the BBC's commercial activities.
Attached to this submission is a set of private
between ourselves, the BBC, the OFT and DCMS. For the first time
this sets out categorically the lines of responsibility for enforcing
the Fair Trading Commitment and it reveals the current confusion
surrounding its enforcement.
It shows that seven years after the BBC published
the Fair Trading Commitment, four years after the Competition
Act became law and three years after ITN first raised this issue,
the BBC Board of Governors and the OFT cannot agree on the exact
boundaries of the two main policy regimes that apply to the BBC's
ITN believes that this regulatory uncertainty
can only be addressed if responsibility for both competition law
and the Fair Trading commitment is granted to OFCOM.
In addition, the lack of transparency and accountability
in the approvals process makes it increasingly difficult for the
BBC's commercial competitors to develop new media services in
competition with the BBC. The absence of a clear and precise remit
for all new BBC public servicesand particularly the outer
limits of BBC Online, means that the BBC's competitors cannot
develop new services with any certainty of business planning.
We are therefore calling for the approvals process to be opened
up to make it fully accountable and to provide much greater certainty
about the wider market. OFCOM would and should play a crucial
role in this reform.
ITN hopes that this submission, together with
the evidence contained in the accompanying correspondence, will
demonstrate to the Committee that there is an urgent need to address
the lack of transparency and accountability in the approvals process
and the enforcement of the Fair Trading Commitment.
The Committee is welcome to refer to or quote
from any of this material if it would prove useful during evidence
sessions, and of course, ITN would be happy to provide any further
information if this would be helpful to the Committee's inquiry.
1.1 ITN welcomes the publication of the
draft Communications Bill and the establishment of the Joint Committee
to scrutinise the Government's proposals. We are grateful for
this opportunity to submit evidence to the Committee's inquiry.
1.2 This paper concentrates on the main
public policy issues relating to broadcast news. In particular,
it examines how the high quality and competing news services that
have characterised the analogue world can be maintained in the
digital environment and whether or not the draft Communications
Bill meets this challenge.
1.3 However, before examining these issues
in more detail, this section gives Members a snapshot of ITN's
existing range of businesses and how the company fits into the
wider broadcasting ecology.
1.4 ITN is one of the largest news organisations
in the world, producing television, new media and radio news services
for a wide range of national and international customers. ITN's
output on UK television alone is watched by 65 per cent of the
British public each week.
1.5 ITN produces national and international
television and online news for all of the commercial terrestrial
television networks in the UKITV, Channel Four and Channel
Five. ITN also supplies UK news and facilities to Reuters and
GMT. The ITN News Channel was launched on 1 August 2000 and is
available on cable (NTL and Telewest), digital satellite and digital
terrestrial television. The channel broadcasts 24-hours a day,
seven days a week. ITN also produces Powerhouse, the topical
political discussion programme broadcast on Channel four.
1.6 ITN Radio supplies news to the Independent
Radio News (IRN) network, providing national and international
news bulletins to more than 250 commercial radio stations.
1.7 The ITN Archive is the world's largest
commercial new archive, containing some 250,000 hours of footagewhich
grows by 10 hours a day. It comprises all ITN output since 1955,
the Reuters TV Archive and historic newsreels, including British
Paramount News, Empire News Bulletin, Universal News, Gaumont
Graphic and Gaumont British and represents the French Pathé
Library in the UK. In 2002, ITN Archive made its first move into
the wider broadcast archive market, taking on management of the
entire Channel four clips archive.
1.8 ITN Factual is a dedicated documentary
programme-making division. It has produced factual programmes
foramongst othersthe BBC, ITV, Channel Four, Channel
Five and Discovery. Visual Voodoo is a subsidiary of ITN Factual,
making quirky, innovative factual programming aimed at a youth
1.9 ITN International sells UK and foreign
news footage to a wide range of international customers. With
an extensive newsgathering machine, including 12 satellite newsgathering
trucks, ITN offers immediate news from the UK as a "core
feed". Subscribers include Reuters, CNN, NBC and ZDF. ITN
also supplies finished reporter packages to international customers,
including PBS in the US and Channel Nine in Australia.
1.10 ITN is also 49 per cent shareholder
in pan-European news channel, EuroNews. Based in Lyon, the channel
broadcasts simultaneously in eight languages, available to over
115 million households worldwide in 76 countries. In 2001, Euronews
became the first news channel to launch in Russian.
1.11 ITN is currently owned by five shareholders,
each owning 20 per cent of the company: Carlton, Daily Mail and
General Trust, Granada, Reuters and United Business Media.
2.1 In devising legislation for the UK's
broadcast news services, Government and Parliament have always
had a primary concern: to ensure a plurality of high quality,
competing "news voices" from a range of companies with
different proprietors, which in turn helps underpin a healthy
2.2 ITN believes thatlike the 1990
and 1996 Acts before itthe broadcast news provisions in
the draft Communications Bill fulfil this objective, establishing
a clear public policy framework that will ensure that a range
of competing, high-quality broadcast news services continue to
be delivered in the digital environment.
2.3 However, the means by which the Government
intends to achieve this policy objective differs sharply from
the proposals first recommended by ITN. The remainder of this
section sets out how the existing policy works, ITN's original
policy position and why we believe the Government has chosen a
different path to secure the same policy objective.
The Status Quo
2.4 The 1990 and 1996 Acts set out policies
that aimed to protect diversity of ownership amongst news organisations
and to uphold the quality of the news services they produce. The
central plank of this policy was twofold.
2.5 First, all three commercial free-to-air
networksChannel Three, Channel Four and Channel Fivewere
statutorily obligated to carry high-quality news services on their
networks, including at peak viewing times, as part of their public
2.6 Second, as operators of Britain's most-watched
commercial network (with an audience reach that exceeded that
of BBC1) the Channel Three licensees were obliged to take their
news service from a Nominated News Provider (NNP). The ITC was
empowered to ensure that no individual could own more than 20
per cent of the company holding NNP status, and that the company
had to be adequately resourced and equipped to deliver a high-quality
ITV News service. The NNP licence would be awarded for a period
of 10 years and has been held by ITN since January 1993.
ITN's Original Policy Position
2.7 Whilst ITN continues to support the
basic statutory obligation for all three commercial networks to
carry high quality news services, we did not argue for the retention
of the NNP system for ITV News (or the introduction of a separate
NNP for Channel Five), or the 20 per cent ownership cap.
2.8 As last year's competitive bidding process
for the ITV News contract amply demonstrated, the NNP system effectively
institutionalised competition for the ITV News contract. This
in turn allowed ITN's competitors to pitch at a price that could
not guarantee a high-quality service, but which forced ITN to
cut its priceand therefore news resources. The ITC could
not intervene, because it is a post-hoc regulator.
2.9 Moreover, the NNP ownership cap institutionalised
a minimum of five shareholders in the company holding the licencein
this case ITN. This prevented existing shareholders and customers
either taking or consolidating a stake in the company, which in
turn would have delivered substantial managerial benefits.
2.10 ITN therefore advocate the retention
of basic news obligations for Channels Three, Four and Five, but
the abolition of all NNP provisions, including any ownership cap.
This would have allowed those shareholders and customers who wanted
to take a greater stake in ITN to do so, and would simultaneously
scrap the institutionalised form of competitive tender for the
ITV News contract.
New Proposals in the Draft Communications Bill
2.11 The Government has opted to retain
some ownership limits on ITV's NNP. The new draft media ownership
clauses, published on 31 May, raise the maximum limit on individual
shareholdings in the ITV news provider from 20 per cent to 40
2.12 The new NNP system carries over the
explicit requirement contained in the 1996 Broadcasting Act that
the ITV news service must be able to compete effectively with
other broadcast news services in the UK. It also requires the
news service to cover a range of national and international matters.
2.13 The new NNP provides OFCOM with enhanced
powers to approve the financing of the ITV news provider at the
point at which any new contract is agreed. In the Government's
words this is designed to:
"prevent the price of future ITV news contracts
being negotiated down to a point where it affects the standard
2.14 This suggests that the Government has
acknowledged that the current NNP system does not work. However,
rather than opting to abolish the NNP structure, as proposed by
ITN for the reasons described above, it has created an alternative
framework to safeguard the quality and diversity of news.
2.15 In the draft Communications Bill the
Government was much more deregulatory than had been anticipated,
allowing the possibility of non-European owners buying into ITV
and Channel Five, ownership of Channel Five by a newspaper proprietor,
as well as the consolidation of ITV.
2.16 The liberalisation of ownership rules
seems to explain the Government's decision to retain the NNP.
A number of concerns have been voicedincluding by Government
and regulatorsthat liberalisation of media ownership rules
and the ensuing consolidation of ownership would have an adverse
effect on the funding and quality of broadcast news provision.
The Government therefore seems to have counterbalanced the deregulation
of media ownership restrictions with the retention of the resource-related
and ownership requirements in the NNP structure.
3. THE BBC
3.1 While Government has sought to safeguard
the quality and diversity of commercial news, legislation must
also work to ensure that commercial news operators are able to
compete fairly with the BBCone of the most privileged and
well-funded news organisations in the world.
3.2 Unlike many commercial competitors,
ITN does not dispute the development of new BBC news services
in itself. After all, if the BBC cannot invest in news, then what
should the UK's main public service broadcasters be doing in the
digital environment? However, difficulties arise in relation to
two key areas of BBC corporate governance:
the approval of proposed new BBC
the enforcement of the BBC Fair Trading
3.4 Rather than entering into the "theological"
debate about whether or not OFCOM should assume full responsibility
for the BBC, ITN has identified those areas where we believe existing
weaknesses in the BBC's corporate governance can be addressed
by the legislationand in doing soeliminate the bulk
of concerns expressed by the commercial sector and by consumer
4. APPROVAL OF
NEW BBC PUBLIC
4.1 The approvals process for new BBC public
services provides the check and balance on the BBC's use of licence
fee funding and the impact of the BBC's services on its commercial
competitors. When new public services are approved the exact nature
of the service should be detailed, giving the BBC's competitors
a clear idea of the exact remit of the new service. This enables
the rest of the market to know what it is competing with and provides
a set of measurable criteria against which each new BBC public
service can be assessed once it has been launched.
4.2 However, the current approvals process
is inadequate. It lacks transparency and does not allow BBC services
to be held properly to account. Commercial competitors have no
clear idea what they are competing against and licence fee-payers
have no idea what they are funding.
4.3 For example, the BBC was granted permission
to launch BBC Online in 1997. Despite frequent requests, the terms
of approval for the service have never been published. Since then,
the BBC has launched numerous licence fee-funded new media services,
which compete head-on with commercial operators. However, without
having ever seen the terms of approval for BBC Online, the BBC's
competitors have no idea whether such public services have been
given approval. This means that we are unable to plan our own
new media ventures with any certainty of business planning. This
in turn creates market uncertainty and threatens to stifle competition
between news services on new media platforms.
4.4 ITN was therefore disappointed to note
that neither the draft Bill nor the proposed amendments to the
BBC Agreement contain any commitments to improving the accountability
and transparency of the BBC's activities. In order to address
these shortfalls, ITN proposes the following additions to the
Marking impact test
The Communications White Paper (s. 5.8.7) proposed
that OFCOM should be granted a new power to give formal advice
to the Secretary of State on the market impact of new BBC public
services. This extra layer of independence has already been tested
by the ITC as part of the approval process for BBC3 as has been
seen to work well.
ITN was therefore disappointed to see that the
proposal has not been written explicitly into the draft Bill or
the amendments to the BBC Agreement. We believe this should be
introduced to the Bill, as set out in the Communications White
The existing approvals process requires viewers
to be consulted on proposed new BBC public services. This consultation
is currently drafted and executed by the BBC itself, which leaves
the exercise lacking in the objectivity and rigour it requires.
ITN believes that OFCOM should be granted responsibility
to conduct the viewer consultation for new BBC public services.
The industry consultation is currently conducted
by DCMS. However, ITN believes that OFCOMas an expert and
independent regulatory bodyshould be tasked with carrying
out the industry consultation on proposed new BBC public services.
OFCOM should be required to publish
in full the findings of all three consultations, as they are submitted
to the Secretary of State.
Based on the findings of all three
consultations OFCOM should be empowered to publish simultaneously
its own recommendation to the Secretary of State about whether
or not a proposed new public service should be approved.
The Secretary of State should be
required to state how and why her decision was reached on whether
or not to approve a proposed new service.
The BBC should be required to publish
in full any proposal submitted to Government and OFCOM.
5.1 Commercial news providers, including
ITN, compete with a growing number of BBC commercial services.
In order to deliver fair competition, the BBC's commercial ventures
must be rigorously and objectively regulated. The BBC is subject
to both UK and EU competition law andseparatelyto
the BBC's Fair Trading Commitment.
5.2 The Fair Trading Commitment establishes
a set of additional requirements to which the BBC must adhere,
reflecting its privileged position in the broadcasting ecology.
It requires the BBC's commercial arm to pay fair charges for goods
or services received from the public service arm of the BBC and
to charge prices in the commercial market that are a fair reflection
of both costs incurred and market practice. It effectively underlines
the very existence of the BBC's commercial divisionto deliver
a return to the licence fee arm of the BBC.
5.3 As the main commercial competitor to
the BBC in the news market, ITN has had direct experience of cases
where the BBC has failed to adhere to the Fair Trading Commitment.
However, at no point have our complaints been addressed or the
terms of the Fair Trading Commitment enforced. Details of such
breaches of the Fair Trading Commitment are attached in Appendix
5.4 There has been some confusion about
who has responsibility for enforcing the Fair Trading Commitment.
The attached correspondence (Appendix 2) between ITN, the OFT,
the BBC and DCMS explains the current framework. It clarifies
that while the OFTand in future OFCOMhas responsibility
for enforcing competition law, the BBC Board of Governors has
sole responsibility for enforcement of the Fair Trading Commitment.
5.5 As the evidence and Appendices 1 and
2 demonstrate, the BBC Governors have shown themselves to be ineffective
regulators of the BBC's commercial division, which in turn has
caused distortion in the news market. If there is to continue
to be competition between news providers in the digital age, the
regulation of the BBC's commercial activities needs to be more
forcefully and independently regulated. OFCOM should therefore
be granted full and exclusive responsibility for enforcement of
the BBC Fair Trading Commitment.
6.1 ITN hopes that the attached evidence
is of use to the members of the Committee. We stand ready to submit
further evidence, would members request it.
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