Joint Committee on The Draft Communications Bill Minutes of Evidence

Memorandum submitted by PACT (Producers Alliance for Cinema and Television)

  The draft Communications Bill fails to answer the most critical question that occupies the minds of ordinary viewers and consumers—``is there anything good on the TV that I want to watch?"

  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. PACT has specific proposals and amendments to address this gap.

  Recent consultation on digital switchover found that consumers have resisted moving to multichannel television because of the lack of compelling programme propositions. A more competitive market in rights and content would allow channels to compete for the best programming, leading to better quality services. The lack of distinctive, compelling programming was certainly one of the factors leading to ITV Digital's demise.

  The problem is that the production industry is dominated by vertically integrated, risk-averse broadcasting organisations. Presently the BBC and ITV have huge scale monopolies in the markets for production, broadcasting and secondary distribution. Over 75 per cent of all production is done in-house by the broadcasters. The BBC in particular has been able to use its position as the dominant broadcaster, the dominant production house, and the dominant distributor, to dictate terms of trade that are considerably worse than their commercial competitors. According to recent Merrill Lynch research, the BBC accounts for 49 per cent of the money spent on free-to-air programming—a clear sign of their dominance and market power.

  To address this problem, PACT is arguing that the bill should enshrine a Code of Practice to be enforced by OFCOM. This code would help to create—for the first time in the UK—a fair, transparent and equitable market for suppliers and purchasers of content.

  What we propose is not just intended to benefit independent producers, but all content providers. At present, without effective regulation, there is a danger that broadcasters—through their control of content rights—will be able to spread across all delivery platforms making it harder for new entrants to enter the market, and harder for others to compete. Effective competition requires that we not only have a wide range of content providers, but also a wide range of intellectual property holders.

  The Code of Practice would provide a modern and flexible regulatory tool that would assist in the promotion of competition. It would provide for a more transparent market and is sufficiently light-touch and self-regulatory to fit with the government's "better regulation" aims. It would not impose undue administrative burdens on broadcasters, but will provide for a better balance between the interests of broadcasters and their content suppliers.

  PACT recently commissioned independent economists to analyse competition in the television industry. They have concluded that while there is competition in the television channel market for advertising and subscription revenue, and competition in channel distribution (between Sky and the cable operators, for instance), in the case of programme production there is only limited competition. The in-house production teams of the vertically integrated broadcasters make the bulk of the main broadcasters' programmes.

  The economists concluded that lack of real competition reduces broadcasters' incentives to invest, innovate or increase efficiency. These factors ultimately result in a loss of value to UK television consumers.

  Independent producers only continue to exist at all by virtue of two acts of parliament from the 1980s: those that established Channel 4 and introduced the 25 per cent independent production quota. But the quota has become a ceiling, rather than the floor that was intended. Without the welcome commitment in the bill to retain the quota, one of the UK's most creative and dynamic sectors would disappear overnight. But by itself, the quota cannot create a competitive content market. Without the ability to retain some intellectual property rights, or share in the real value of content, the independent production sector will never fulfil its potential as a real industry, and will remain an army of freelancers.

  If we are to achieve the governments ambition to have a competitive and dynamic media and communications market then we need a well-capitalised content production sector, able to invest in its own research and development of new ideas.

  There are those who reacted to the Bill with dire warnings about foreign ownership of our media. We regard the establishment of a competitive and plural creative economy as a much more important issue. That said, if we are to allow even greater vertical integration, and invite investment from overseas, then the responsibility to protect and strengthen the UK's creativity becomes even more important.

  Peter Bazalgette, the Chairman of Endemol Entertainment UK, recently wrote in the Financial Times: "An impartial alien on the Clapham omnibus would conclude that we are, curiously, far more concerned about the distribution of programming than we are about the programmes themselves". Consumers may want innovative technology platforms, but mostly they want compelling content that entertains, enriches and engages them.

  PACT believes we have an answer to this critical question and ask that we have the opportunity to meet with the Joint Committee to expand on our ideas and explore the benefits they would bring.

  Please find attached our submission providing further details on our proposed Code of Practice.


  The Producers Alliance for Cinema and Television (PACT) is the UK trade association that represents the commercial interests of independent feature film, television, animation and new media production companies. PACT has over 1,000 members, making it the largest representative group of screen-based content producers in the UK and the largest trade association in the film and television sectors.

  1.  OFCOM is being established to promote competition in broadcasting and telecommunications for the benefit of consumers.

  2.  Ensuring ``effective'' competition in the production, distribution and supply of content is a key priority for PACT. What we propose is not just intended to benefit independent producers, but all content providers, including broadcasters like Carlton and Granada who supply programmes to the BBC.

  3.  We propose that OFCOM is active in using in it's powers to ``promote'' competition. It would not be sufficient for it to look for specific abuses and remedy them—it needs to be able to make the markets more open and competitive.

  4.  In addition to the general powers to promote competition, we consider it essential that public service broadcasters should be subject to a Code of Practice on the commissioning of content.

  5.  The terms offered by broadcasters have frustrated the development of the independent production sector and left it heavily under-capitalised. If we are to have a competitive and dynamic media and communications market then we need a well-capitalised independent sector that invest in its own research and development for new programme ideas.

  6.  Presently the BBC and ITV have huge scale monopolies in the markets for production, broadcasting and secondary distribution. The BBC have been able to use their position as the dominant broadcaster, the dominant production house, and the dominant distributor, to dictate terms of trade that disadvantage its suppliers. Even where producers have been willing to contribute to budgets in exchange for retaining some rights, they have been frustrated by the BBC's refusal to entertain such terms.

  7.  ITV however, is in a different position because its Networking Arrangements are regulated by the ITC in consultation with the OFT under the provisions of section 39 of the 1990 Act and Schedule 4. As a result independent producers benefit from much more favourable terms of trade and have access to the Network Centre on the same basis as licensees own production arms.

  8.  If ITV becomes a single entity then there is a danger that independents will lose the benefits of the regulated Networking Arrangements. We therefore propose a Code of Practice that would apply to all public service broadcasters, not just ITV.

  9.  PACT proposes that a Code of Practice to be introduced to provide a check against the dominance of public service broadcasters in commissioning content and bring some balance to the tensions that exist between those broadcasters and their suppliers.

  10.  The Code of Practice is intended as a modern and light touch form of co-regulation that would assist in promoting competition. It need only apply to public service broadcasters because of their privileged position in the market. Market forces should then ensure a more fair equitable system of programme commissioning and terms of trade across the board.


  11.  PACT believes the Bill should include provision for a Code, but the actual legislative provisions should be kept simple, to allow OFCOM full flexibility to review and amend the Code as necessary, to reflect changing market circumstances.

  12.  The proposed Code should cover commissioning structures as well as terms of trade. It might echo some elements in the ITV Networking Arrangements as well as some of the elements in Good Behaviour Code for Supermarkets and Suppliers.

  13.  It might simply provide that a broadcaster (or a broadcaster having a certain market share) should send its proposals for commissioning content to OFCOM for approval. Before approving such arrangements OFCOM should have regard to its general duties to protect and promote the interests of consumers, including the promotion of competition.

  14.  OFCOM might publish general guidance to broadcasters on what issues their proposals for commissioning content should address.


  15.  Ensure equal access to programme-making opportunities.

  In-house producers, independent producers and others, should all have equal access to programme commissioners, and the structures broadcasters' have in place should provide for this. The Independent Production Order provides independent producers with a share of the market, however, with broadcasters like the BBC treating the quota as a ceiling and not a floor, it does not guarantee equal access.

  16.  Ensure publication and monitoring of terms of trade.

  As with the Supermarket Code, the proposed Code of Practice should provide that terms of business are available in writing. The operation of those terms should be subject to monitoring by OFCOM in the same way as the ITV Networking Arrangements are monitored.

  17.  Ensure fair dealing.

  Broadcasters should not be able to exploit the fact that a producer has started production to enhance their negotiating position. Nor should they be able to operate any other arrangements, such as the terms on which they will enter into licensing deals that have the effect of being anti-competitive.

  18.  Ensure no undue delay in payments.

  Broadcasters should be required to pay producers promptly, both for commissions and any profit shares from secondary sales.

  19.  Regulate third party dealings.

  In commissioning content, broadcasters should not be able to insist that the producer uses certain suppliers or distributors. In particular, it should not be a condition of a contract that a producer must use the broadcasters' own distribution arm, and producers should be able to freely enter into any negotiations with any distributor.

  20.  Provide for a disputes resolution procedure.

  The Code should provide for a disputes resolution procedure. This might involve a senior person within the relevant broadcaster, followed by a mediator, with OFCOM as the ultimate body to whom an aggrieved party could complain.

  21.  Provide a right of appeal to Competition Commission.

  Interested parties might be entitled to appeal to the Competition Commission if it believes the Code of Practice is being applied in a way that does not satisfy the competition test. This would echo the provisions in Schedule 4 to the 1990 Act.

  22.  PACT has drafted clauses for a Code of Practice which will form part of its fuller response on the Communications Bill.

May 2002

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