Examination of Witnesses (Questions 580
THURSDAY 20 JUNE 2002
Lord Hussey of North Bradley
580. You argue that OFCOM's powers over broadcasters
are such that self-regulation could become a "meaningless
aspiration", a fairly challenging statement. Would you wish
to see annual reports on public service broadcasting as its main
(Mr Scott) We do think that OFCOM should have an annual
581. You think it should have an annual report
covering all broadcasting?
(Mr Scott) Looking at the whole ecology of public
service broadcasting, yes.
(Mr Gardam) If one looks at the experience of the
past two years the ITC has already brought in an annual statement
of promises. To our mind that has worked rather well because essentially
what the annual statement of promises does is it forces each broadcaster
to assert the best parts of themselves, so when subsequent pressures
come upon you in the course of the year it sets out ambitions
to which you have signed up. That is essentially a rolling dialogue
because inevitably fulfilling those promises and fulfilling ambitions
takes more than a year in some cases, so you need to have a regular
annual review and a report on that annual review. At the moment
I think it talks about a triennial review of public service broadcasting
as a whole but that seems to us to be too far apart. With the
annual review you will get a greater sense of purpose and a greater
sense of measurement.
(Mr Thompson) We would support the ITC in this area.
582. I see the argument which was put very clearly.
Do you think that self-regulation, therefore, will play a more
minor part than people currently hope it will?
(Mr Gardam) I think self-regulation will essentially
evolve out of the current system. At the moment there is underpinning
our statement of promises the numerical guarantees given in the
licences, the number of hours that we must fulfil both in peak
time and across the schedule as a whole in certain key areas like
education, schools, multicultural and so on. As we understand
it, that is going to be taken as the base line from which self-regulation
will grow. If there is a sudden abandonment of what we were doing
in the past under the previous system that will be something that
will be picked up upon. At the same time we need the flexibility
that as time changes so those areas of broadcasting which we should
prioritise in order to fulfil our public service responsibilities
will change, so we must be sufficiently flexible and if necessary
alter our priorities within our overall public service remit.
583. ITV in their oral evidence, which you were
probably here for, paid a very generous tribute to the role that
Channel 4 has played in fulfilling public service broadcasting
and I think a lot of people would agree with that, but a lot of
people are saying that this shake-up that is under way puts Channel
4 at its most vulnerable. Do you feel embattled by the changes
proposed by this Bill?
(Mr Gardam) We are going into a much more competitive
environment and one of the key public interest criteria applying
not just to Channel 4 but to the whole of public service broadcasting
is that the test of deregulation will be in the as great, if not
greater, diversity of voice and imagination, enriching programmes
available to the viewer across all platforms. If you think, the
greatest deregulatory achievement of probably the last 20 years
was the growth of competition in the programme supply market with
the establishment of the independent production sector which broke
apart the previous duopoly of programme supply with undoubtedly
huge benefits to television culture. One of the proposals that
we are looking to is that all licensed broadcasters, not just
the existing public service broadcasters, should be prepared to
be scrutinised for the proportion of UK original production which
they are obliged to put into their schedules. I think the strength
of Channel 4 and the strength of public service broadcasting will
be the greater the diversity of voice and diversity of production
that is available. If you look at the digital market as it has
emerged so far, there is not yet much evidence outside sport and
film that diversity of distribution has led to diversity of content;
on the contrary, it is a battle for attention, which is what the
digital marketplace is about. Increasingly new channels look to
more predictable, established, already well known brands in order
to stake their claim. One of the things that we are proposing
is that there is an incentive for the maintenance and increase
of UK production. I think this will help us in so far as the danger
otherwise may be that among our competitors, particularly a Channel
5 merger with Sky, we would find that it would be impossible for
us to compete and preserve our remit when faced with a competitor
who did not have the same commitment to UK content as we have.
(Mr Thompson) Can I just make a couple of points briefly.
As a newcomer to Channel 4 it seems to me that one of Channel
4's strengths is that it is not frightened of competition. It
has been very successful at mixing competition with real creative
ambition. We are not afraid of competition itself which might
well flow from this Bill, the issue is whether all along the value
chain in the market for airtime sales, in the market for programme
rights and programme production, in the market for gateways and
platforms to reach viewers, whether these will be genuinely open
and fair competitive markets. We think that they should be, and
that is not just in the interests of Channel 4, it is in the interests
of viewers and all other broadcasters as well. Our anxieties are
not about issues like ownership per se but about whether
we can maintain competitive markets.
584. How should OFCOM actually use its power?
Should they be the licensing power, should they be the competition
power? How do you see OFCOM operating in that sphere?
(Mr Scott) I think it is important that OFCOM does
have powers to ensure that these markets are competitive. In the
advertising market the ITC already has powers there, perhaps not
used very often. I think it is important at the moment, for instance,
that there needs to be a separation of advertising sales houses
and in ITV that is a correct response to the market as it is.
I would have some concerns at the moment that that separation
is clearly enforced. Everyone is aware at the moment of the recently
announced £300 million ITV-Unilever deal and I wonder how
that can happen if there is clear separation of sales houses.
I think OFCOM needs to have powers in this area. As the advertising
market evolves it may need powers to enforce or pre-clear the
size and duration of advertising contracts. Certainly one can
see the trend in America which is for very large multi-year deals
which can be anti-competitive for other broadcasters. The scale
and size and the duration of deals is something that they should
look at. On the programme supply side, if we are going to have
vertical integration of American studios and broadcasters I think
OFCOM should have powers to examine intra-group trading rights
and we heard the suggestion this morning that there should be
a separation of pay and free, that is one way of doing it, and
also one could look at intra-group trading and make certain there
is a fair and open marketplace.
585. I have two questions. On the production
side have you looked at the European Union requirements when you
are talking about UK production rights? Have you put it in that
context or thought about it? You have talked entirely about UK
production but we are part of the European Union.
(Mr Gardam) There is an obligation that a certain
percentage of content should be of European origin. What I was
specifically referring to was the obligations that we have at
present in our licence that, for instance, in terms of originating
UK programming 70 per cent in peak time should be from the UK,
I think we did 82 per cent last year. What we are suggesting is
that those very specific requirements that already exist for public
service broadcasters should be considered for all licence holders
and as, for instance, some channels grow their share of national
advertising revenue it would be a good idea if the obligations
on them for enforcing UK production, increasing UK production,
586. My second question is one I have put to
a number of witnesses over the last two or three weeks. It takes
us back to the Bill because we talk about OFCOM having powers
or being given powers, or suggesting additional powers, but I
am not quite sure whether in some cases you are saying "they
have got the powers probably but they should do it, we would like
them to do it" or you are saying "we think that the
Bill is inadequately drafted and they need additional powers".
If it is the latter I think what we would like to have, not now
but in writing subsequently, is a very clear and specific analysis
of where you think that the Bill is inadequate to do the things
that you have been suggesting and we can then have a look at it
otherwise these are splendid generalisations but we are concerned
with the Bill, the Bill team is concerned with the Bill and I
suspect they would value a specific set of suggestions about what
you are saying so that they can be properly considered.
(Mr Thompson) Quite often the truth is a combination
of the two. If we take the issue of competition, clearly there
is underlying competition legislation which operated proactively,
expeditiously and effectively might well solve some of the issues
we are talking about. But if we take competition, the current
legislation, the 1990 Broadcasting Act, places on the regulator
a "duty" to ensure fair and effective competition in
the provision. In the current draft of the Bill, and I am talking
here about clauses 247, sections 1 and 6, and 248, section 3,
OFCOM now "shall be entitled to carry out investigations
and other functions". There is an issue there about the language
of the Bill. We can certainly come back to you.
587. I think rather than get involved in a drafting
session on an extremely long and complex Bill, it would be nice
to have a very succinct set of notes about specific points.
(Mr Thompson) I can assure you that on each of the
markets that we are talking about we have specific suggestions
either at least towards amendment or at least towards the thinking
that might lead to amendment.
Lord Crickhowell: I am asking that you let us
588. What I think would be helpful is if the
points you made were the result of real world scenarios. There
is a danger in this Bill that it is built on a theoretical construct
of what regulation ought to be able to achieve and there is a
clash there. I think what we desperately need is a sense of how
does the market operate and what will the impact of these changes
(Mr Thompson) There are one or two markets, for example
the programme in market rights for the free and pay rights for
US television series, where there is a great deal of evidence
and case study, so we can absolutely supply you with not just,
as it were, real world scenarios but real world experience about
how the world works in these markets.
Chairman: That would be very welcome.
589. All three of you have talked about the
importance of independent production, production outside London
and David was hinting at concerns about American ownership and
vertical integration. Although Channel 4 itself is not directly
affected, do you think that the Government's proposals relating
to media ownership and in particular foreign ownership were drawn
up in a way that reflects a full understanding of the likely long-term
impact on the quality of broadcasting in this country?
(Mr Scott) I think we were surprised perhaps at the
extent of the change. I personally was surprised at the distinction
which has been drawn between Channel 5 and Channel 3. I think
the reasoning which was given that Channel 5 does not have full
national coverage and is smaller than ITV is a distinction I find
quite hard to take in as we approach digital switch-over which
will give Channel 5 the same coverage. I think this Bill does
put in place the foundations on which potentially Channel 5 could
become bigger than Channel 3. I really do not quite understand
that distinction. I think that it would be appropriate to keep
the 20/20 ownership regulation applying to Channel 3 and applying
that to Channel 5 as will. I was surprised by that. I think that
on the notion of international takeovers of ITV, that does not
surprise me hugely. I think there need to be some protections
which may run that but obviously ITV, as they have expressed themselves,
will need under their licences to have a lot of original UK production.
Whether it will deliver significant new investment into their
services I doubt. I think the history is that the more people
have paid to buy a company, the more profit they wish to extract
from it. Certainly the history of the takeovers within ITV in
the last decade, huge sums of money have been paid but I do not
think that has led to increased investment or increased production.
590. I note the remarks that you make on treating
Channel 5 differently from Channel 3 and those points have been
made by other people quite forcefully. Some people might say,
and indeed substantially have said, that to drop all foreign ownership
restrictions outside the EU would leave us in future negotiations
in the conference chamber naked. The reasoning behind dropping
foreign ownership rules is interesting. If I can just quote the
Secretary of State and I would like to ask you a question I have
asked before. What evidence is there in respect of US ownership
in particular of Channel 3 and Channel 5 that it would encourage
innovationChannel 4 has been very innovativeand
allow the UK to benefit from new ideas and technology or, indeed,
give our tv industry an edge? What evidence is there do you think?
(Mr Thompson) I do not think there is any evidence.
We do not know what will happen. Clearly it is possible that an
ownership position taken by a US major with a big chunk of British
television might add to more exchange of talent than has previously
existed. There is a great deal of sharing of talent and ideas
and collaboration between US producers and British companies,
including Channel 4. There is a great deal already, the issue
is whether there will be more. I cannot see evidence, and I am
not aware of evidence from other countries, of this leading to
investment in production. I think channels and the management
of channels is a different issue. It is certainly true that as
channels have rolled out around the world American investment
in branded channels like MTV has created jobs and expertise around
the world. In terms of core production, Greg talked jokingly earlier
about the British car industry and it seems to me if there was
a model whereby the car industry was reinvented with inward investment
and if the names were changed and the design was not as British
as a couple of generations ago, nonetheless there would be real
jobs and real value being created here. I do not think there is
any evidence that television production would follow that model
and, as it were, there would be new factories of British production
paid for by US majors, I think it is much more likely they would
see ways of exploiting US created globally valuable intellectual
content in this market.
(Mr Gardam) It could be an unintended consequence
that in a strange way the production world of 2010 could have
strange similarities to that of 1980 because if the experience
of the past 20 years has been the energy and the diversity of
different producers coming on to the market, you could see a return
to the world of megalith vertically integrated producer-broadcasters
holding on to rights because of their exploitation across platforms,
which in a modern version would be the BBC/ITV domination of that
market, and in that market the ability for independent producers
to get the full value for the rights of their programmes would
591. If I am not mistaken the ownership position
of Channel 4 can only change by Act of Parliament, is that correct?
(Mr Thompson) Yes.
592. We are having a lot of debate on media
ownership questions here, yet in this draft Bill if you look at
the new media ownership clauses it gives the power to the Secretary
of State by order to repeal all these provisions, which is quite
a strong power. To what extent do you think whatever ownership
clauses are decided by Parliament should only be changed in the
future by an Act of Parliament?
(Mr Thompson) I think our view certainly would be
that an ownership change to Channel 4 would be a matter of such
particular public debate and interest that it would only be appropriate
to be changed by Act of Parliament.
593. There are other provisions regarding media
ownership here that could be repealed by the Secretary of State
by order. Clearly the constellation of media ownership is very
important for Channel 4, do you think that any changes to what
is decided should again be changed by Act of Parliament rather
than by the Secretary of State, by OFCOM or by anybody else?
(Mr Scott) I guess I would not like to be an expert
on the constitutional mechanisms of your Houses. The difficulty
of an Act of Parliament is they come rather infrequently. I guess
the advantage of interim powers by order is you can do things
more quickly. I think it is a matter for the House to decide where
to find that line. Presumably if it is done by order it still
requires votes by both Houses.
594. You say some pretty robust things about
platform ownership and I think rightly say that it is a form of
media ownership. Having said some robust things you do pull up
short of recommending that platform and provider should be separated
but is that the way your mind is going? Do you think that the
OFCOM powers contained in the Bill being able to examine significant
market powers is sufficient for them actually to examine this
issue when they are in place?
(Mr Thompson) Perhaps I will start and if David can
come in. The broad point is we have not, and I am not sure that
anyone has yet, done sufficient research into the inter-relationship
between the pay tv platforms and the free-to-air platforms to
be certain about what the correct remedy is, if any remedy is
required, to mitigate the issues of dominance. I think we are
right to point to the danger but I think it is also proven and
it is fair to say this is an area we think should be explored
without us jumping to make a recommendation. It is possible that
splitting platform from content is the right solution but it may
(Mr Scott) That is right. I think we do see that this
gateway is a form of ownership which should be looked at alongside
newspapers, television and radio. It is a market which needs to
be looked at but it is not for us to find either there is a problem
or there is a solution, I think it is a matter which OFCOM should
have the power to look at.
595. I will ask you the question which the Chairman
in his ruthlessness prevented me asking the BBC. Would you hope
that OFCOM as an on-the-ball regulator would show due concern
when the biggest single pay-per-view provider, the biggest platform
owner and our largest public service broadcaster get into bed
(Mr Thompson) Yes.
Lord McNally: Thank you.
596. Thank you very much indeed, good answer.
Do the Bill team have anything they would like to raise? You heard
previously we had extensive discussion about ITN and it would
be quite welcome if, having listened to that discussion, you could
send us some supplementary thoughts on ownership of ITN.
(Mr Thompson) Yes, indeed, but if I could say two
or three things now. In our view ITN is a superb provider of news
to Channel 4, an outstanding provider. Secondly, we believe that
we pay a very fair price for the news provision from ITN. In my
view there is no evidence at all of cross-subsidy from Channel
3 to Channel 4 or, indeed, to Channel 5 in the operation. Most
importantly, I do not believe that ITN can provide the service
to Channel 4, or provide its role as a powerful third provider
of news alongside the BBC and Sky in the television market, without
its current scale. Channel 4 spends a great deal more money on
ITN now than it did ten years ago, I think the figures have gone
from £10 million to more than £20 million a year on
ITN whereas, despite earlier remarks this morning's, ITV's investment
in ITN has fallen significantly over the same period. I think
if you want plurality of the news provision in this country and
you want a strong news provider, in my view protection of the
current mechanism as set out in the draft Bill is an important
protection to that.
Chairman: Thank you. Again, I apologise for
the late hour.