Examination of Witnesses (Questions 1000-1019)
THE RT HON PATRICIA HEWITT MP AND THE RT HON TESSA JOWELL MP
MONDAY 8 JULY 2002
1000. Notwithstanding three plus one and three independent media voices, when you are talking about putting into practice schemes to give effect to this, you appear to use the words "local" and "regional" interchangeably. Would you agree that they are capable of different meaning and interpretation andand I talk from the perspective of a member of Parliament rather than someone elevated to the Lords - that it is important here when we mean "local" to say "local"?
(Tessa Jowell) Yes, I do, and I think perhaps the potential confusion is that we have a three plus one floor, if you like, for local radio but we also have a three plus one rule in relation to cross media at a regional level taking account for instance of regional newspaper ownership and regional television coverage, but defining local radio as "local" is extremely important and we have on the face of the Bill, as I referred to earlier, licence provisions to reinforce local radio in addition to provision for OFCOM to do "dipstick" investigations where there has been consolidation of local radio in order to be sure that there has not been a loss of voice. In developing these proposals we certainly thought long and hard about the local impact, and exactly the sort of representation that local members of Parliament would make about the position of their local radio stations which are a very important vehicle for local debate and, therefore, underpin local democracy in a very important way and we take that seriously.
1001. So you would see merit in having like with like, three plus one local for independent voices, rather than adopting a rather larger regional aspect to it?
(Tessa Jowell) It becomes complicated only by the definition of the market, which is why for newspapers the market may operate more on a regional basis whereas for local radio it operates on a more local basis as determined by the points system.
1002. Finally on radio ownership, and this is a question that might extend to OFCOM as a whole across other sectors of the industry, in the policy document there is specific provision for a grandfather clause on radios specifically, that is to say what is there stays irrespective of whether it breaches any future rule on ownership. Why have grandfather clauses? A lot of people have wanted to change the culture of regulation here, and think that we should have trust busters as in the US. Why shackle OFCOM in that way? Where divestment would be the norm against the new rules, why not allow OFCOM specific encouragement and power to get companies to divest, where the rules have been breached as they are now adopted?
(Tessa Jowell) I would be very interested to see what recommendations you make on this in relation to the evidence that you have received but our objective is to maintain stability and stability to promote investment and local radio is, as I have already said, a powerful and important sector but one that has suffered from this legacy of under investment, and we want to try to create incentives to reverse that trend. I think that the provisions that we have made will do that. Again, we have an open mind on any further amendments to the proposed regime that you may want to make, particularly in light of our willingness to examine the case that the Commercial Radio Association might want to make in relation to three plus one.
(Ms Hewitt) I would also just stress on a broader but directly related point that, of course, OFCOM is going to be required at least every three years to carry out a review of all the media ownership rules and come forward with proposals for change if it thinks those are necessary.
1003. You very helpfully provided us with these charts about what you would do with newspaper mergers. I do not want to go into the details of thatI have already said you should market it as a Christmas game because it has great potentialbut last Thursday we received evidence from Trinity Mirror, News International, Daily Mail and Associated Newspapers and in all innocence I, and I think another colleague, raised the idea that OFCOM would take a general overview of what was happening in the newspaper industry as part of being what they arean office of communications. The reaction we got was a rather shocked one that such a well-regulated, self-regulated, competitive, happy industry should be oversighted by OFCOM. Do you share this shock?
(Ms Hewitt) There is real concern amongst the newspaper proprietors and managers that what we intend is that OFCOM should be getting in there regulating the content of newspapers, and that is simply not the case. What we are doing here is reducing the regulatory burden of the special newspaper regime: we are removing, for instance, the criminal penalties for prior consent that apply in merger cases. In line with the Enterprise Bill, where there is a straightforward case that only falls to be determined on competition grounds, that will be dealt with entirely by the OFT and the Competition Commission without reference either to OFCOM or to the Secretary of State. OFCOM's role comes in in cases which raise public interest considerations, as you say illustrated in great and helpful detail in the flow charts: we explain there what would happen in a public interest case where the Secretary of State would, first of all, have to determine whether or not to make a public interest reference and then, if such a reference were made, to determine a response to it subsequently. In that situation we think it makes sense for OFCOM, rather than DTI officials who currently fulfil this function, to offer advice to the Secretary of State on the public interest considerations but those public interest considerationsfor instance, impartiality of news and so onare specified quite clearly; it is a limited role for OFCOM and a purely advisory one. So I think the fear that OFCOM is going to be in there, imposing content requirements or pre publication censorship or any other horrors that might arise in the mind of an editor, is completely wide of the mark and, in any case, our commitment to freedom of expression and publication has been underlined by the fact that of course we were the government that introduced the Human Rights Act and wrote the provisions of the European dimension on those and other matters into our law.
1004. So the newspaper publishers can sleep easy in their beds?
(Ms Hewitt) Absolutely, and welcome the fact that, as I say, prior notice requirements and criminal penalties will disappear under the new regime.
1005. Do you think the public should sleep equally easy in their beds? The serious point here is that the reactionI thought the overreactionof those representatives of the newspaper industry really did not take on board the legitimate public concern that those very newspaper publishers that you say may sleep easy in their beds may be abusers of power against the public interest, and that therefore an office of communications should have the power to advise the Secretary of State when such abuses take place.
(Ms Hewitt) I certainly want to avoid any suggestion that we are trying to set up here some kind of state licensing of newspapers or whatever. There is a long and honourable tradition within newspapers of fighting for freedom of expression and getting shot of state licensing powers some centuries ago, and we are certainly not going back there. What I think is important here is that we have resisted the quite intense lobbying we were getting particularly from newspaper interests for newspaper mergers to be dealt with purely on a competition test where effectively the market that the Competition Commission and the OFT look at is the market for advertising, and we resisted it because we take the view, and I hope the Committee will share this view, that newspapers are not like other products that can quite properly be dealt with where a merger is taking place purely on competition grounds. Newspapers, as a hugely important source of news and information as well as entertainment, play a very important part in our democratic life and our life as a community, and therefore while on the one hand setting our face against statutory licensing control and all the rest of it of newspapers that would certainly infringe freedom of expression principles, we think it is absolutely right that in a merger there should be a public interest test alongside the competition test and we certainly take the view that OFCOM, which will have considerable expertise in these broader issues to do with access to news and information, the broad health of our democracy and so on, should be the people not to make the decision but to advise the Secretary of State on those public interest considerations.
1006. The objective of policy is not to extend regulation into the internet. I want to be sure to what extent you feel that you can ensure that that policy is going to be carried out in practice. One of the particular examples of that, of course, is video on demand where you have opened the possibility to secondary legislation already even before we have got to the primary legislation to bring it in, but is it not necessarily the case that trying to amend the definitions of the Bill to bring video on demand in will widen the scope of regulation on the internet in a way that conflicts with your policy?
(Ms Hewitt) Let me make a general statement about the internet: the internet is evolving incredibly rapidly and we have been clear all along that we do not, through this Bill or through OFCOM, want to create new regulation or content that is accessible and accessed through the internet. We take the view that the self-regulatory approach is the right one and that the general law of the land, whether it is libel or obscenity or whatever, will continue to apply to content that is accessed through the internet although the enforcement issues may be very different and sometimes more difficult. In a sense the other part of what people tend to refer to as the internet is the infrastructure of networks and access to networks where our very clear policy aim is to widen access primarily through the means of greater competition, and that is set out very clearly in the Bill. But I think it is the content side you are concerned about and of course there are difficulties there because, as the technology changes and as internet meets broadcasting in a digital world, we may find that the definition of licensable content which we think we have got right in the current circumstance may create anomalies in the future and we will have to look at it, and it is why in the Bill we have given ourselves, quite deliberately, significant freedom to amend that definition without having to come back to the House with new primary legislation, but nonetheless ensuring there is parliamentary accountability for that change.
1007. Can I interrupt before you move on because it is precisely about content which I realise is a culture, media and sport responsibility, but is not the issue really about starting with a minimum definition and then going beyond it if there is proven abuse, because the way it is structured at the moment essentially under Clause 238 is not straightforward. Broadcasting is about pushing material to people on established channels; the internet is about people pulling material off, and it is not about that. Basically web-casting under Clause 238 is television licensable content even though it is passing over the internet. Would it not be better to start with the first two conditions under Clause 238 and not put in a third one, which effectively brings web-casting in unless it is demonstrated that there is some mischief occurring on web-casting on the internet?
(Ms Hewitt) I think we have achieved in the Bill as drafted the purpose that we set out. Because this is such a difficult area and one that we looked at in great detail to ensure that we were not catching internet content which, of course, increasingly includes web-castingmoving picturesand not simply the more static content that the internet began with, we think we have got that right but because it is so difficult this is an area where we want particularly to look both at your conclusions on the subject on the drafting of the Bill and on the responses we get in the consultation.
(Tessa Jowell) Can I give a very specific example of where the dilemma that you have identified is playing out day-by-day? You can watch a web-cast of Big Brother on the internet: you can watch continual broadcast of Big Brother on E4 but with some editing because obviously it then becomes a licensable content, and then there is Big Brother at 10.00 every night which is again, because of the delay in broadcasting, subject to further editing. That is a very good example of how, if you like, a single entity is subject to different treatment and Patricia is absolutely right: this is one of the most difficult areas. We have in the legislation on the one hand arguably quite tough content regulation for broadcast material, where in relation to video on demand we will rely, unless it is proved to be ineffective, on self-regulation and then internet content which, as Patricia has said, is not regulated and we do not intend to.
1008. You are not currently licensing the web-cast for Big Brother?
(Tessa Jowell) No, and do not intend to.
1009. I think Clause 238 says you would want to license it in future, but perhaps we can come back to that.
(Ms Hewitt) That is not the policy intention.
1010. I know it is not the policy intention but it is the effect.
(Tessa Jowell) If you think the effect of Clause 238 is to do that then we will look at the drafting of that because the policy is absolutely clear. No regulation of the internet; self-regulation of video on demand; and then content regulation of broadcast material.
Lord Hussey of North Bradley
1011. If I may just make a comment on what you said about the newspapers: I absolutely agree that newspapers are not quite like other products, but I also agree very strongly that there is a public interest which should be faced in newspapers that has not recently or frequently been faced with as much courage as it ought to have been, so I totally support that statement.
(Ms Hewitt) Thank you.
1012. We have had some reference to ratcheting up of possible contents provisions and change of ownership. Could I give you two or three ideas that have been put to us? One idea was that quotas regarding original productions should maybe apply not just across the board but in prime time: that you should have to meet the percentage of original production in prime time which might meet some of the points that have been raised with us. Another suggestion was that there would be a danger, particularly if you get a big consolidated groupshall we say for the sake of argument BSkyBowning Channel 5, of the rights market being distorted, for example pay-per-view rights and subscription rights being confused with free-to-air rights, and perhaps there might be some provision for OFCOM in those circumstances to unbundle those rights. The third provision that has been suggested to us is that in Clauses 234 and 235 of the Bill there is a specific suggestion that, if Channel 3 services change control, their licence should be examined and possibly strengthened particularly regarding regional production, and should this principle be extended maybe to when other services, maybe Channel 5, change hands or maybe when they increase audience share or advertising share? So we have had a number of suggestions about ratcheting up, and I wondered if you had any comments on any of them.
(Tessa Jowell) If I can just deal very quickly with the last point, we have made absolutely clear that we see the continuation of network services of ITV and, therefore, the specific regional characteristic of ITV as critical, and that is reflected both on the face of the Bill in relation to the remit but also in the tier 2 obligations for ITV. In relation to the broader position of the independent producers, we would look very closely at ways in which independent producers would be disadvantaged or discriminated against. I have said on many occasions that I see, for instance, one of the functions of the licence fee, the £2.5 billion which is available to the BBC, as being in a sense venture capital for the nation's creativity, and the use of certainly part of that resource to drive a healthy independent sector is very important indeed. That said, I know that you have received representations from PACT and we are studying the case for a code, as PACT proposed, very closely indeed but it has to be said that in the context of that willingness to consider their case there is no evidence that competition law has failed. I know this is an issue about which you have received passionate representation: it is a matter on which we will take considered judgment in light of consideration of the PACT proposals and in light of the effectiveness of competition law that should in effect really be the arbiter: and the third part of our objective is to make sure we create the right kind of environment for a flourishing independent sector in the United Kingdom for all the reasons we were discussing earlier in the context of increased investment coming potentially from America and elsewhere. We would like that money to go into United Kingdom production.
1013. On that point, it is not just PACT but other parts of the creative industry that feel hard done by. I thought I heard in an earlier reply a glimmer of uncertainty about whether a triennial review was the right period for public service broadcasting.
(Tessa Jowell) No, I do not think so. There will be two reviews that OFCOM will carry out and, again, I think it is important to remember that three of the public service broadcasters will be directly under OFCOM for all their regulationChannels 3, 4 and 5whereas the BBC will in some respects be regulated by OFCOM but will be substantially at tier 3 regulated by the governors. That is the proposal on the face of the Bill and that is the government's approach. I think it is important, therefore, to draw a distinction between if you like the two reports that OFCOM will develop on public service broadcasters. The triennial report will be a strategic review of the performance of the sector as a wholeperhaps looking at particular issues: perhaps looking at the role of independent production in public service broadcasting: perhaps looking at current affairs coverage in public service broadcastingand in that triennial view they will look at the role of the BBC along with the role of Channels 3, 4 and 5. In relation to the annual reviews, OFCOM will focus very particularly on its tier 3 regulatory responsibility in relation to Channels 3, 4 and 5, so there is an important distinction. The triennial review will be more strategic, more unconstrained, by the year-by-year regulatory responsibility that will be discharged in relation to tier 3 for Channels 3, 4 and 5.
1014. Clause 188 gives you the power to amend the remits of 3, 4 and 5 following a recommendation from OFCOM. Might it not be better to give OFCOM a power to vary licence terms and even, indeed, licence payments from time to time either in an upward or, indeed, downward directionperhaps a mid-licence review or something of that sortrather than opening up the possibility, for example, of ITV's regional commitment being transferred or taken away with the stroke of a pen?
(Tessa Jowell) As you will see from the intention behind this it is sensible that there should be provision for remits to be amended, both the general remit and the individual remit, in the event of changing circumstances and it is important, because we are looking to this legislation to stand the passage of time and to have the necessary flexibility, that that power exists. I think it is a power that will be exercised in proper balance with the need for certainty in relation to investment and so forth, so OFCOM will have the power and that is important for the reasons I have made clear, but it is a power that I hope it will use with due regard to the necessity and the possible impact of investment decisions and the kind of stability that large companies need which are largely provided by the licence conditions.
1015. On the financial point specifically, if licences are going to run, and we are hearing the suggestion that they are going to be reviewed in 2014, a market can change hugely in that time, as can technology and the advertising revenues. Would the idea of the terms of the licence being reviewed, clearly not annually because that would create a lot of uncertainty but at some point or other at that time, make sense?
(Tessa Jowell) We have provision on the face of the Bill to renew all public service broadcast licences in 2014, and obviously the price of the licence will be part of the negotiation and the decision-making at that time, but again I come back to the point about the importance of stability: the terms of the licence are set with due regard to the best available prediction of the pattern of the economy and so forth and, if you take the position of ITV now, ITV have had ten good years but ITV and the other commercial public service broadcasters are certainly suffering now from the advertising downturn. When they have come to us to say, "But we should be compensated for the loss of income arising from the advertising downturn", the response is, "Yes, but you do not come and give us a cheque when your income exceeds expectation", so I think there is a degree of swings and roundabouts which is inevitable.
1016. Can we turn to the agreement between the BBC and the Secretary of State? Given that OFCOM will be the main source of regulatory expertise on broadcasting, why is it not to be a party to the agreement between you and the BBC about OFCOM's regulation of the BBC, and why is OFCOM not to determine whether the BBC can introduce new public service channels and services?
(Tessa Jowell) This is an issue that sits at the heart of what I think will be a contentious part of the legislation when the Bill makes its passage through the Commons and the Lords, but I think it is important to start with our basic position which is that the BBC will be regulated in relation to tier 3, the agreement, and impartiality and accuracy by the governors rather than by OFCOM. It will, however, be subject to standards set by OFCOM in relation to tiers 1 and 2. All the BBC's commercial services will be subject to regulation by OFCOM, and it is very important to remember that. Also, in relation to new services, OFCOM will provide the Secretary of State with advice, and you are probably aware that I have pre-empted this. In considering the BBC's request for approval for BBC 3, a new digital channel targeted particularly at younger people, I have sought ITC advice on the market impact of that approval, were I to give it, so OFCOM will have a very important partand I think this is crucial as the BBC develops new servicesin assessing the market impact but I think OFCOM not being a party to the agreement is absolutely fundamental to the architecture of the BBC's regulation which is the governors and the BBC but with the Secretary of State as back stop. You will be well aware of the arguments as to how we got here but principally it is because the BBC is funded differently through the licence fee, from any of the other public service broadcasters.
(Ms Hewitt) I would just like to underline that point which is hugely important about the fact that the BBC will be subject to OFCOM in terms of its commercial ventures so that the economic regulation that OFCOM is responsible for will apply to the BBC along with the other broadcasters and the other companies. I think sometimes that point gets overlooked.
1017. We could have great fun late into the night I suspect on debating the BBC and, as you say, both Houses are going to no doubt return to it with a vengeance so I will not pursue it, but on this question that has just been raised about the examination of the impact of the BBC on the commercial world, there is some evidence that has been given to us that, in fact, the BBC has considerable power with its resources to compete in practice with the commercial world and some criticism has been madeI cannot remember what the Clause is nownot least by ITV, of the BBC's own condition of this matter which is in fact a sort of self-administered, self-determined rule about how they behave, and many people feel that is not a very satisfactory way of controlling matters. I speak as a former Chairman of a Channel 3 company and I think we all felt we were up against a form of competition which was not adequately policed and this is an area which I suspect others will want to come back on. Would you comment at all on that particular aspect?
(Tessa Jowell) I think it is very important that the BBC's potential competitive impact is kept under close scrutiny, and it is also very important that the BBC develops a public service broadcasting role, as I believe it is, which is distinctive from its commercial rivals. One of the ways in which I as Secretary of State enforce this is through the conditions that attach to new services and, if you look at the conditions that we attached to the approval of BBC 4 and the two children's channels last year, they were very specifically designed to constrain the competitive impact of these new channels on the existing market place. That is an approach that I would continue and would hope Secretaries of State would continue in the approval of any new service by the BBC, but in relation to the present complaint of ITV in a sense the balance of the scales has shifted. Ten years ago ITV was in a much stronger position than the BBC; the BBC is at the moment the beneficiary of a very favourable licence fee settlement, and it is in part because of that I believe that its contribution to the health of the broader creative broadcasting industry is very important indeed, hence the important contribution that the BBC itself can make by investment in training and in independent productionbenefits paid for by the BBC but which are of benefit to the broadcasting ecology as a whole.
(Ms Hewitt) If I could just supplement that, certainly when we are looking beyond simply other broadcasters, when I was e-commerce Minister I started getting various complaints from quite a range of companies about what they saw as unfair competition from the BBC through its commercial operations. For instance, I have not looked at the BBC's commercial website recently but certainly in those days, they were leveraging brands, Top Gear for instance, in order to run a commercially-based motoring website, and there are many other examples. I raised that at the time and also spent some time investigating exactly what was happening, and I was quite clear that the principle that had to be applied there, and that was being applied, was one of transparencytransparency in the accounting and proper accounting for the benefit the commercial operation was getting from the BBC as a public service broadcaster. That must, of course, continue to be the case. Similarly, when the government and Estelle Morris in particular came to consider issues about the curricula, where you have the BBC whose public service remit includes the provision of education but where you also have a flourishing British-based educational publishing industry, there are real considerations and all of that has gone out to consultation to ensure that, in the decisions that are made on the digital curriculum and the role of the BBC within that, we do not inadvertently or otherwise create a situation where we throttle the competition and the innovation that can also come not only from the BBC but also from the commercial education publishers.
Lord Crickhowell: I think you have made some quite important statements and I think at 8.31 pm I will not continue with the debate now because I am confident it will be continued later in other places.
1018. What about the BBC's treatment of independent producers, and we have heard from musicians and composers on their copyright issues. You said earlier on that you do not think there is any evidence that there is any abuse of market position but certainly that is not what they have been saying to us. We believe that the BBC uses its position as a dominant production house to dictate terms of trade that are from their point of view considerably worse than those they get from the independent broadcasters, and of course with a very commercial driven director general at the helm of the BBC it may be that these things will become even more problematic in the future. If you do not think that codes of practice are the way to do it, if we are going to fulfil your vision of the licence fee being venture capital for creativity, might we have to end up considering something more prescriptive, perhaps along the lines of the American Fin-Syn rules?
(Tessa Jowell) I do not think I have got anything to add to what I have already said on this save to say that I will study your evidence and your argument on this very carefully indeed, but I think it is also important to remember that it is a matter of fact whether or not there has been a breach of the competition rules and so far no case has been proved against the BBC. But it is important that this very important part of the creative industry sector operates in a climate which is fair and in which independent production is enabled to flourish, so I hope I have made the position as clear as I can at this point. We are open to the evidence that you provide, and the objectives that we want to achieve are clear.
1019. Should OFCOM have a duty to be looking at the supply of content as well as the content itself?
(Tessa Jowell) I think they may well do that because looking at the supply of content will be part of OFCOM's role in looking at the market more generally.