Memorandum submitted by Channel 5
During the last three years (which has also
included an OFCOM paving Bill), a consensus has been formed within
the industry on many of the key issues regarding the logic of
OFCOM. The arguments about technological convergence and for getting
rid of an alphabet soup of regulators with overlapping responsibilities,
have always seemed entirely logical. So it is not surprising that
there is much that is sensible and should be welcomed in the latest
plans for the new body. In particular we welcome the fact that
in future most competition issues will be dealt with by OFCOMa
specialist body that is at home with and understands the media
marketthis should bring many advantages and hopefully speed
up the decision making process.
The logic for the Content Board is irrefutableit
will clearly fulfil a role very similar to that already being
performed by the ITC, minus its economic functions. The Board
itself sounds remarkably similar to the present ITC Commission
with regional representation and the like. We presume it will
do much the same as the ITC does at present whilst the main OFCOM
Board's involvement in broadcasting issues will be limited to
strategic economic issues and decisions about mergers and takeovers.
The Consumer Panel
We believe that The Consumer Panel will perform
a sensible public interest function regarding service delivery
issues. It will be independent from OFCOM but in a strong position
to influence it on service delivery issues (important as this
will account for the work of far more than half of the total staff
of OFCOM). We agree with this remit as outlined in the draft Bill
and in particular that it should only be required to consider
broadcasting/content issues when instructed to do so by OFCOM.
We note that The National Consumer Council wishes
that the powers of the Consumer Panel should be extended to public
service broadcasting and to content regulation but we disagree
strongly with this view. We believe that it is the Content Board
(backed up by its own consultative processes with the viewers)
that should regulate broadcasting, not an additional body which
would be an additional form of double jeopardy for the broadcasters,
and serve to confuse the public as to who it really is that is
dealing with broadcasting policy.
The Cost of OFCOM
It appears from the Towers Perrin Report that
OFCOM is going to be very large and is likely to be expensive.
The ITC has been making efforts to stream-line itself over the
past couple of years but we are concerned that for example 631
people will be transferred into OFCOM from the Radiocommunications
Agency. There has been little indication as to how the costs of
OFCOM will be apportioned.
Channel 5 already pays nearly £1 million
per year as its share of the cost of regulation through the ITC
and the BSC. We find it disturbing that we have been given no
indication as to the basis on which payments will be calculated
and how much we will be required to pay for OFCOM in future. It
is reasonable for us to expect to get value for our money at least
once the new body has been set up. We understand that the regulator
will be taking on new duties eg with regard to competition issues,
but expect that as in the business world, a merger of this scale
should be implemented in such a way as to deliver substantial
efficiencies and cost savings.
Channel 5 welcomed the Government's original
commitment in the Communications White Paper published in December
2000, that public service broadcasting should continue to have
a key role to play in the digital future and we agreed with its
sentiments that public service broadcasting is:
"The best way we have found of creating
a wide range of UK made programmes of the kind people want"
and that "mixed schedule networks, free at the point of use,
funded through advertising or a licence fee, continue to be the
best way of funding the production of mass audience, high quality,
varied, UK-originated programmes".
Channel 5's public service commitment
Channel 5 is a committed public service broadcaster.
Without question we wish to retain our public service broadcaster
status into the foreseeable future. We are proud of our achievement
in launching a successful free-to-air channel in the face of ever
increasing competition. In 2001 we achieved an audience share
of viewing of 5.8 per cent despite our analogue coverage of only
82 per cent.
In the key public service genres of: news, current
affairs, documentaries, education, arts, children and drama we
aim to provide an alternative to the other public service channels.
In our Statement of Intent to the ITC for 2002 we are committed
to innovate, take risks, adopt strategic programme ambitions that
are practical and distinctive, and to reflect the diverse multicultural
nature of our society across all our programmes. We aim to originate
at least 10 per cent of our UK programmes from outside London.
In a typical week's schedule, we aim to have
a range of programmes that appeal to as wide a range of people
as possible. Arts in prime time, a new popular science series,
a first run movie, an original entertainment show, pre-school
programmes of distinction, news in abundance, complementary sports
coverage and alternative factual output in peak.
In our short history we have given an important
boost to the UK production sector, having commissioned programmes
from around 300 different independent production companies since
our launch in 1997. In several cases we have been able to give
independent production companies their first break on mainstream
terrestrial television. We are committed to introducing new talent
both on and off air and have achieved some notable successes with
the likes of Kirsty Young and Graham Norton.
Light Touch Regulation
Channel 5 believes that the proposed new structures
will provide an adequate framework for the overall provision of
public service broadcasting by the Commercial PSBs. They have
evolved over a long period of consultation. And although they
are not imposing a system of self-regulation upon the broadcasters
they will be rigorous.
We welcome the requirement on OFCOM (Clause
5) to endeavour to secure light touch regulation. However we are
not convinced that the 50 clauses on public service broadcasting
entitled "regulatory provisions" (chapter 4), together
with the powers given to OFCOM and to the Secretary of State are
particularly "light touch".
We are concerned that the bill as currently
drafted provides for the Secretary of State to be able to amend
(on the advice of OFCOM) any aspect of the public service remits
at any time. We fear that this will not help in providing any
certainty to broadcasters and their shareholders as to what future
levels of public service broadcasting commitments will be required
The Three-Tier Structure
Channel 5 broadly welcomes the proposed three
tier approach to regulation, and will carry out its public service
broadcasting responsibilities as outlined in the draft Bill. The
proposed new regulations should provide more leeway to allow for
changing tastes and interests on the part of the viewer and to
allow for public service broadcasting to be more contemporary
rather than "stuck in tablets of stone" as in the past.
We support The First Tier of basic requirements
to cover all standards, advertising standards and issues such
as sub-titling. We welcome the extension of this tier to all broadcasters
including the BBC.
The Second Tier requirements will be measured
objectively and for Channel 5 will result in quotas for independent
and original production as well as for news and current affairs
in peak time. The obligation for current affairs programming in
peak will be a new requirement for Channel 5.
These duties together with the list of Third
Tier genres outlined in clause 181 of the bill:children's
programmes, drama, education, entertainment, arts and religion
as well as coverage of visual and the performing arts, should
result in the commercial PSBs, taken as a whole, delivering a
service that will "provide a range of high quality and diverse
We believe it would not be an efficient use
of resources for each of the commercial PSBs to be required to
cover every genre and it is clearly more desirable for each of
us to be able to play to our own strengths (for example, in the
present market Channel 5 shows a great deal more children's programmes
than Channel Four). We note that the ITC are asking for more clarity
of direction in apportioning genre responsibility. We understand
their concern but are anxious that by this they do actually mean
clarity and not a return to mechanical quotas for all genres,
that would harm our ability to respond to the changing tastes
and interests of our viewers.
Statements of Programme Policy
The draft bill requires the public service broadcasters
to commit to annual statements of programme policy and annual
reviews in which we will measure our own performance. OFCOM will
conduct regular reviews as to how the broadcasters "as a
whole" are delivering the overall programme remit.
It is our view that these proposals do not in
fact amount to self-regulation (as is the case for example with
newspapers and the Press Complaints Commission) but are in fact
a system of co-regulation. Making co-regulation work, through
the Statements of Programme Policy and the self-assessments will
be the key challenge for the Content Board along with the Tier
Over the last couple of years the broadcasters
together with the ITC have begun to practice a form of co-regulation
although it still has some way to go.
Channel 5 welcomes the proposed new system and
realises that together with the regulator, we need to nurture
an environment in which our programme aspirations and self-assessments
become the up-front primary documents. The self-assessment in
particular must be developed into part of an overall meaningful
process in which we the broadcasters are not afraid of being honest
We agree with points that have been made by
the ITC about the need for the Content Board to be able to conduct
regular annual reviews rather than triennial reviews as proposed
in the bill. We think that annual reviews would better facilitate
a practical dialogue, and we are concerned that three yearly reviews
would become huge events with raised expectation for big changes.
They could become yet another source of uncertainty for shareholders.
Furthermore if it is intended that these reviews
should provide a regulatory overview of the overall ecology of
public service broadcasting, a review which takes place only once
every three years will mean that any comment on the role of the
BBC is likely to be out of date by the time it is published.
Channel 5 agrees with the principle that certain
complaints should be subject to consideration by a single independent
body in the form of OFCOM. Complaints must be dealt with fairly
and openly ensuring compliance with the Human Rights Act 1998.
In particular OFCOM must comply with formal written procedures,
which properly reflect the principles of Article 6 (the right
to a fair trial) including, where a serious matter is under consideration,
a right of appeal. This is fundamental where OFCOM has considerable
powers to sanction a broadcaster.
While much of this will no doubt be dealt with
by OFCOM under its delegated powers, great care should be taken
to ensure that any practices of the existing regulators which
may not meet the principles of fairness and openness, are not
We see no justification for providing OFCOM
with additional statutory powers to call for such things as it
deems appropriate in the consideration of a fairness complaint
(Clause 219 (3)). We believe that this would be an excessive power
for a non-judicial regulatory body considering complaints of unfairness,
which in many circumstances would go beyond the powers of the
Distribution of Public Service Broadcasting Channels
(Must Offer/Must Carry)
The policy statement reiterates the Government's:
"strong commitment to ensuring that PSBs
are available on all main platforms both before and after switch
There is also recognition that the "must
offer" obligation on PSBs should be offset by a reciprocal
"must carry". However whilst it is difficult to judge,
due to the fact that we do not yet have the draft clauses, it
appears that the provisions being proposed will not go far enough
to deliver the Government's policy goals with regard to the satellite
platform. It appears that they are proposing that only once analogue
switch-off has occurred will the "must carry" obligations
that already exist for cable platforms and DTT, be extended to
Satellite is now the overwhelming platform of
choice for most digital consumers. We are concerned that the Government
is proposing to wait until switch off before the "must carry"
obligation are extended to satellite and believe that in order
to ensure equality of treatment, this issue should be addressed
Digital and Public Service Broadcasting Licences
for ITV and 5
The draft bill gives OFCOM the power to offer
existing licence holders the opportunity to exchange the current
analogue licences for a new digital public service broadcasting
licence. OFCOM will offer terms substantially similar to the old
licences however the digital licences will be valid only until
2014, following which there will, "no longer be an automatic
The introduction of digital rather than primarily
analogue licences is probably a sensible stepalthough the
immediate necessity for this will need to be viewed in the light
of the viability (or otherwise) of a DTT platform. However we
are extremely concerned by the proposed cut off date for licences
in 2014. This we believe will herald a return to the much-discredited
auctions arising for the 1990 Act. It will deprive shareholders
of any certainty regarding the value of their TV businesses and
would act as a disincentive to investment, which would harm Channel
5 in the first place.
A rigorous process of licence renewal already
exists. It is one whereby licence payments can be increased as
well as decreased. There are also strict obligations that can
be imposed on licensees for continual failure to comply, which
could result in fines or the shortening or confiscation of a licence.
We believe that these measures provide the appropriate means of
protection to ensure a robust and efficient system of spectrum
allocation. We strongly request the joint committee to oppose
Provision of News by Public Service Broadcasters
We note that the provision of news by public
service broadcaster will continue to be closely regulated. As
a Tier Two commitment there will be a requirement for all PSBs
to show news in peak and this output will rightly be subject to
strict rules concerning due accuracy and impartiality. A nominated
news provider system will continue to be retained for ITV along
with a new proposal for the Channel 3 service to, "provide
adequate financial support to the news provider to make sure the
service is of high quality".
In addition it is proposed that the Secretary
of State should be given the power to introduce a nominated news
provider system for Channel 5, " if it becomes clear that
Channel 5 has gained a significant amount of the free-to-air audience".
The Secretary of State will be given further power to revoke the
entire nominated news provider system if it becomes clear that,
"a wide range of news services will still exist without it".
Channel 5 recognises that in the event of it
successfully competing with ITV for a similar body of audience
it would be unreasonable to expect that the nominated news provider
system should be applied only to ITV. However we also welcome
the provision whereby OFCOM/Secretary of State could revoke the
whole system if necessary, as we believe that the nominated news
provider system is a heavy-handed way of aiming to ensure a plurality
of TV news ownership in the UK. In addition, we are opposed to
the imposition of compulsory spending levels as we believe that
the broadcaster should, subject always to complying with its licence
obligations as to the quality and accuracy of its news output,
have the freedom to negotiate their own financial arrangements
with the news provider.
The government proposes to scrap rules that:
prevent single ownership of ITV;
prevent ownership of more than one
national commercial radio licence;
prevent the joint ownership of a
national TV licence and a national radio station;
prevent newspaper groups with more
than 20 per cent of the market from acquiring Channel 5, or radio
licences. (Although they will not be allowed to own a significant
stake in ITV.)
prevent non-EEA ownership of UK broadcasters;
prevent the joint ownership of a
national ITV licence and the Channel 5 licence; and
prevent the ownership of broadcasting
licences by advertising agencies.
Channel 5 welcomes the proposed liberalisation
of the foreign ownership rule. In our submission to the DTI/DCMS
Media Ownership Consultation earlier on this year, we argued for
reciprocity. However we are persuaded by the Government's case
about the problems distinguishing between a large global media
companies such as Vivendi UniversalFrench but based in
New Yorkand Disney. We believe that the liberalisation
of this rule should open up the sector to further investment to
the ultimate benefit of viewers. We also consider that those US
conglomerates most likely to enter our broadcasting market are
those who already sell their best programmes to the UK. If a US
owned company did buy into the UK market, the viewers would be
unlikely to see any radical differences to the range and diversity
of the programmes on offer.
Single Ownership of ITV
The Government intends to remove the 15 per
cent limit on share of TV audience as well as to revoke the rule
that prohibits single ownership of the two London ITV licences
thus potentially paving the way for a single ITV company, subject
to the decision of the competition authorities.
In principle we agree that it is better that
plurality of ownership should be determined through competition
law rather than by statutory regulation. But we remain concerned
that the creation of a single ITV company will further consolidate
ITV's dominant commercial terrestrial television trading position.
ITV market dominance already accounts for about 56 per cent of
all airtime sales and this from only two sales points.
We will continue to argue that the competition
authorities must be robust in their assessment of a proposed ITV
merger. They will need to take into account the adverse long-term
implications for advertisers, commercial broadcasters and ultimately
viewers of the creation of such a dominant player.
Channel 5 would strongly recommend that any
merger leading to the creation of a single dominant sales house
with a NAR in excess of 50 per cent in the UK market be submitted
to the review of competition authorities. We believe that any
sales house with a NAR in excess of 50 per cent would seriously
distort the market to the detriment of advertisers and the other
In addition Channel 5 believes that the competition
authorities should veto the joint sale of advertising for the
two London ITV franchises. Historically, London has provided the
only real competition within ITV as buyers try to secure coverage
of one of the most powerful markets in Europe. It will be critical
to the maintenance of fair competition that London remains separated
and that a maximum 50 per cent limit of NAR applies to any one
Single Ownership of ITV and Channel 5
We welcome the proposal to scrap the statutory
prohibition preventing the joint ownership of a national ITV licence
and the Channel 5 licence. Clearly an acquisition of this scale
would face reference to the competition authorities due to the
issues (outlined above) concerning the advertising market.
Acquisition of Channel 5 by a large newspaper
Channel 5 has an excellent relationship with
its existing shareholders (RTL and United Business Media). So
far they have not made a return on their investment and are behind
business plan to do so, due mainly to the high cost of retuning
and the current advertising recession. However in spite of this,
they have continued to increase our programme budgetas
they have done each year since our launch in 1997.
We have always said that we would welcome any
new owner who sought to provide additional investment and add
value to our business. We welcome the proposed relaxation of the
ownership rules and believe that it is right that these issues
should be for the competition authorities to determine.
As far as the arguments for and against any
specific future owners are concerned, we believe that these are
issues for our shareholders not for Channel 5. Our focus will
be to continue to grow and expand the channel as we have done
so successfully over the last five years.
NOTE: The opinions
expressed in this document are those of Channel 5, as such, they
do not necessarily reflect the views of our shareholders; RTL
and United Business Media.