Examination of Witnesses (Questions 780-792)|
THURSDAY 27 JUNE 2002
780. Can I bring you back to the Bill and ask
you what powers you think ought to be written into the Bill to
achieve what you want? Can I put to you a specific question which
relates to something that Channel 4 put to us? What would you
say to a ratchet on independent production quotas based on revenues
and/or audience share? Or, if the independence of the ITV network
centre would make that unworkable, would a power for OFCOM to
vary the individual remits of the commercial public sector broadcasters
in response to movements in audience or revenue share give you
what you want? That is a specific question about a ratchet and
a general question about what do you actually want altered to
get what you want to achieve. This is specifically about the Bill.
(Mr McVay) We actually have some amendments drafted
for specific clauses. In clause 3 on general duties we would like
to see that extended further so it was not just to promote competition
and make available services and facilities.
781. Perhaps you can let us have those.
(Mr McVay) We will let you have them but we have detailed
amendments which we have provided to government advisers and government
departments. We would like to see some more power put into the
general duties in terms of competition issues for OFCOM and we
would also like a specific code of practice to be included in
clause 189 which is the independent production sector, which is
really to outline OFCOM's powers to develop a code of practice.
We must stress the code of practice is not a detailed proposal
just now. It will be worked up and it will be a co-regulated code
of practice for the industry. We have looked at this carefully
and we want to have something which is flexible, light touch and
that reacts to market conditions in the future. What we do not
want is something that is not flexible.
(Mr Bazalgette) In a sentence, we think the danger
of the Bill as currently drafted is that it is almost exclusively
about broadcasting, distribution, about brokering between spectrum
owners and is not really about how do you get the best content
into people's homes. We think the viewers care about content and
that is in fact what drives the new technology like broadband
and digital television. It is content and ideas. The Bill as currently
drafted appears broadly to overlook that in its spirit and philosophy.
782. And a power for OFCOM to vary the individual
remits to the public sector broadcasters?
(Mr McVay) I think TO2 seems to have that power anyway
in negotiation with the broadcasters. It can vary the quota.
783. Are you satisfied with the existing power?
(Mr McVay) We are very happy that we have that security
in the Bill but we think it does not really take us to where we
want to get with our companies. We would like something which
specifically laid out a competition test and specific powers for
OFCOM so that we would have something which has a transparent
and open market concept for the future.
784. Correct me if I am wrong, but in effect
what you are saying is that you are content that the Bill has
powers to set a continuing floor for independent production and
other matters but past legislation, as you described the floor
has become a ceiling, and that is what tends to happen where you
have an intervention but not a market. The intervention becomes
normative in the market place. How do we get above the ceiling
is the question now. What I do not understand is why you want
the Bill specifically to make provision for a code whereas all
the things you are asking for and the argument you are presenting
is that if there were a fully competitive market these things
which you seek would be available anyway and the code would be
unnecessary. We can come on to the constraints on that but why
precisely does the Bill need a code rather than strengthening
further the ability of OFCOM to use competition powers to deliver
a competitive market in supply and content?
(Mr Bazalgette) Our first point would be that the
quota, as you rightly say, was brought in in 1988 and created
a ceiling. We believe we are economically and in terms of influence
a small part of the sector. We really would like to see stated
fairly specifically the direction OFCOM ought to go in to create
a competitive market place for programme supply. We would be concerned
were it merely given broad competition powers. We have seen competition
authorities before which we feel have not listened that sympathetically
to our arguments in the last 14 years so we are seeking something
more specific so that the Bill can lay down a specific direction
that everybody agrees the market ought to go in.
(Mr McVay) We welcome the competition powers that
have been given to OFCOM. We would like to see that go a little
bit further. We understand from the Enterprise Bill that there
will be more powers given to OFCOM. The reason we want a code
is that we have a range of voluntary agreements with various broadcasters,
most of which vary in terms of how transparently they are dealt
with and how fairly they are dealt with. We would like to have
something which would mean we had a legitimate area of appeals
so that you can go to OFCOM and discuss our concerns and also
be able to refer back to the competition authorities. We feel
that the code in legislation will give us an environment which
will be flexible which can react to market conditions but which
gives us some basic principles for our businesses to go forward
on rather than continually fighting vertically integrated broadcasters
in trying to extract some value from the system.
785. Can I put to you that in effect what you
are saying is that you want to have a competitive market but you
just do not think that OFCOM is going to take that up and that
you want the Bill to do something less than that by way of the
code. Let us face it: the analogy you have drawn at various points
is with the code drawn up by supermarkets after the OFT investigation.
Essentially what you are asking for is a market investigation
into competition in the supply of programme material to broadcasters
and arising from a market investigation a set of undertakings
entered into by dominant purchasers in that market. Why should
we write into the Bill those undertakings rather than have those
undertakings springing from a proper market investigation? Yes,
you have had independent economies but surely that is the job
of the Competition Commission to undertake that market investigation
and the responsibility of OFCOM to initiate it if there is, as
you assert, a lack of competition in this market?
(Mr McVay) We have a long standing complaint in the
OFT about the BBC's position in the market which has been at the
OFT for three years.
786. That is the past. We are talking now about
OFCOM and what OFCOM will do. There is nothing legislatively speaking
which prevents OFCOM doing the thing you want it to do.
(Mr McVay) No, there is not. What we are concerned
about are all the other issues that may arise as OFCOM
787. You are moving to a Christmas tree argument,
that all the things you want OFCOM to do in using the powers,
we have got to write into the Bill now rather than OFCOM actually
using its powers and moving towards competitive markets applying
competition powers. Why should we write into the Bill some prior
assumption that OFCOM will not do its job properly?
(Mr Bazalgette) I understand the question. If you
have been fighting the battles we have been fighting for as long
as we have been fighting them we would be sitting here and saying
to you please lay down a framework that recognises that there
are things here to be addressed. That does not say we do not trust
OFCOM. It merely gives it guidance and sets it in the direction.
We are not asking for a tablet of stone. We are asking for a framework
and direction. We have not had it up to now and we are seeking
it because the Bill is if you like a significant watershed.
788. Can I ask you something which I thought
would be part of your answer to my question, which is that it
is all very well talking about what OFCOM can do but actually
the way the BBC works is that it has this public service remit
which gives it a degree of protection and whether it is an accurate
representation of what the BBC does to deliver its objectives
or not, it uses the cover of the licence fee, charter and all
the rest of it to embrace its in-house production. In effect you
gave them that argument. You said that the BBC has to have its
strong in-house production. Why? Its job is to deliver public
service broadcasting and channels and programme content in order
to do that. There is nothing in logic that says it has to do it
by in-house production.
(Mr Zein) But the market is inefficient at a commercial
level. Public service remits are commercially inefficient, so
that is why we are supportive of the BBC having an in-house production
arm because it will make public service decisions based on the
public service agreement rather than economically. The two issues,
our concern and how we want the Bill to deal with them, are similar
to the way the broadcasters have asked you for protection to ensure
access to platforms. OFCOM will have the capability to do it but
everybody wants to know that it is a consideration that has been
looked at and a direct obligation of that. The arguments about
fair and transparent dealing and the openness to platforms are
very similar to the ones that the BBC and ITV have already put.
789. It would be reasonable to say that in so
far as the BBC is exposed to competition regulation directly you
do not need the BBC to be required to have a separate
(Mr Zein) Regulators have consistently failed to extend
the BBC's expansion
790. Regulators hitherto have not achieved the
objective but in so far as the BBC is protected from competition
it should have been the subject of what in the front part of the
Bill we would call conditional access, access for you to the BBC
as a substantial part of the market place for your product: yes?
(Mr Zein) Yes, and not just our access to it but also
the way it acts in the market place and whether that is distorting
the children's market, the video market or the magazine market.
All these things should be looked at by the regulator.
791. John, you can help us if you would write
to the Committee setting out the past history of dealing through
the present regulatory process. The one absolutely consistent
theme in the last several weeks has been the failure of existing
regulators to deal with dominant players in the market. I think
that is what you are suggesting and it would help us a lot because
we are looking for exemplars and we are making damn sure that
the new regulatory body does not fail in the same way.
(Mr McVay) We will be delighted to.
792. Thank you very much. On the code of practice,
the Secretary of State has had an opportunity to look at this.
I cannot ask you to comment on her behalf but in principle are
you attracted to the code of practice because it would be quite
easy for us to suggest that it does get written in to the Bill's
(Ms Ager) I do not think I can go as far as to say
yes or no to that. I will say that I think PACT have made some
interesting proposals and we want to give them proper consideration.
In particular we will want to look at whether ex-ante regulation
is necessary in this area in view of OFCOM's existing competition
powers and we will want to be sure that any new measures will
be in the public interest. I am not sure there is much more I
can say at this stage because the Minister has not made any decisions.