Joint Committee on The Draft Communications Bill Minutes of Evidence

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 OFCOM—a specialist body that is at home with and understands the media market—this should bring many advantages and hopefully speed up the decision making process.

Content Board

  The logic for the Content Board is irrefutable—it 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 of them.

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 programming".

  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 Three broadcasters.

  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 and self-critical.

Triennial Reviews

  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 replicated.

  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 courts.

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 off".

  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.

  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 now.

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 renewal process".

  The introduction of digital rather than primarily analogue licences is probably a sensible step—although 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 this provision.

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.

Foreign Ownership

  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 Universal—French but based in New York—and 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 commercial broadcasters.

  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 sales house.

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 Group

  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 budget—as 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.

June 2002

  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.

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