Examination of Witnesses (Questions 520
THURSDAY 20 JUNE 2002
Lord Pilkington of Oxenford
520. Meeting Mr Dyke's point, Professor Barendt
when he spoke to usand I absolutely accept dual regulation
and I can see what you mean about content regulatorfelt
the position ought to be described in legislation not the rather
vague statements of a Charter, and he thinks the time has arrived,
possibly not now but sometimes, when in detailed legislation it
should be defined what public service is and the whole relationship.
What do you think about that?
(Mr Dyke) The definition of public service in this
Bill is largely the definition that comes from the BBC Charter.
It is all there: it is fairly widely defined in the Charter and
in the letter of agreement, but that seems to me a discussion
to be heard at the time of Charter renewal when I think there
is a very valid discussion to be had about what is the best means
of the relationship between BBC and Government and how it should
be managed in the future, but it is not there now.
Baroness Cohen of Pimlico
521. Lord Pilkington has had a good shot at
asking my question!
(Mr Davies) Perhaps I could just say that, in a sense
you know, this is an issue between Parliament and the executive
rather than between the BBC on the one hand and the governing
process on the other. If we have a preference on this matter I
think it probably is to retain the Charter, which has worked well
in the past, but, as I say, it is mainly a matter between the
executive and Parliament.
522. Can I come at this one from a slightly
different angle? We had Dr Derek Morris, the Chairman of the Competition
Commission, giving evidence at an earlier stage and he said that
he expected to get a certain amount of hassle, appeals, from your
commercial rivals as to whether the BBC was infringing on their
territory or shutting them off or whatever, and he said that he
would find it very useful if there was a specific laying down
of what the public interest role of the BBC was against which
the various competition criteria could be arranged. Do you agree
a clear definition of the BBC's public service commitment would
assist in oversight, or do you just see that as a nuisance?
(Mr Davies) I do not see it as a nuisance. I think
it already exists in the Charter and the agreement to a considerable
extent. I would need to consult the evidence that Derek gave to
know exactly what he meant in terms of competition policy. In
terms of competition policy, incidentally, we are sometimes surprised
to read that the BBC is somehow not fully subject to competition
law because the BBC is, and should be, entirely subject to UK
law, to the OFCOM/OFT nexus in future and to European law, and
everything that we do, both in our public service role and in
our commercial subsidiaries, is subject to challenge under those
legal restrictions. I have to say that although there have been,
I would say, somewhere between several and many challenges about
BBC activity that have been examined by the OFT, the OFT has never
found against us on fair trading grounds.
523. No, I do not think that is what Dr Morris
was suggesting. He was just saying "Could I know very clearly
the public interest role of the BBC?"
(Mr Davies) Can I have a think about that and get
back to the Committee, because I would like to see what he has
in his mind.
524. There is a kind of supplementary on this
which is that I think several of us here see that the case for
including a definition in the Communications Bill is distinct
from the case for OFCOM control of the BBC: that this is not trying
to infringe upon the present position whereby the BBC is not subject
to tier 3 content regulation by OFCOM. Could you take that one
on board as well perhaps?
(Mr Davies) I will ask Caroline to come in in a minute
because I am not sure I am grasping the track correctly here,
but in the Bill there is a clear set of objectivesI think
the word is "requirements" although our view is that
"objectives" would be betterto be fulfilled by
public service broadcasters, and that set of objectives or requirements
is taken from the BBC agreement. Essentially, therefore, what
DCMS has done is broadly taken what applied to the BBC and said
that these are the objectives which should apply across all public
service broadcasters. It is not clear to me whether Derek and
yourself are suggesting we should do that better or differently.
Is that what you are suggesting?
525. I think he was suggesting that that had
to be done in a way which enabled the Competition Commission to
be very clear.
(Mr Davies) It may be a good idea. I do not know what
he has in his mind, though.
526. There is both a suspicion and occasional
evidence has been given to us that the BBC uses its very solid
base of public finance and public service commitment to push the
envelope of its commercial activities in every direction and that
there is not sufficient transparency about these activities.
(Mr Dyke) When Richard Whish was asked by the Government
and the governors to review those processes, he said, "I
am not aware of any organisation that is subject to as much scrutiny
internally and externally to ensure compliance with competition".
Having spent my life in the private sector before joining the
BBC, in the private sector I never remember discussing competition
policy. In the public sector we only discuss competition policy.
I cannot remember a meeting I have been to at the BBC where at
some stage we did not discuss the Office of Fair Trading. Transparency
is about what people can take issue with us on, and they have
never taken us to the OFT and won. We have a whole system of compliance
on competition policyand I am interested you say "allegations
in evidence". We would very much like to see the evidence.
(Mr Davies) It is natural that people with whom we
are competing clearly have an interest in alleging that we are
using our licence fee somehow to subsidise our commercial activities,
but whenever anybody from the outsideand it has happened
on many occasionshas come in to look at either the procedures,
which Richard Whish did, or the way the procedures are implemented,
for which we have a British Standards kite mark and we are the
first organisation that has achieved that, when any external person
has come in from outside to look at this, they have found that
our processes are tougher than anybody else's.
527. You have an aggressively entrepreneurial
director general. Do you think the board of governors are up to
(Mr Davies) I quite like entrepreneurial people; I
am not sure I like aggressive ones. So far we are doing okay.
(Mr Dyke) Also, remember at the time of the last licence
fee settlement the Secretary of State at that stage said, "We
are looking to you for self help and we are challenging you to
find £1.2 billion over the next ten years in self help, i.e.
either by savings inside the organisation which we have been very
successful at, or by competition or commercial revenue",
so we cannot live both ways, but attracting that commercial revenue
has to be done within the constraints of competition policy, competition
law, that we abide by.
(Mr Davies) Absolutely. I spent most of the 1990s
with the opposite accusation being levelled at the BBC which was,
"You folks have got this magnificent archive, it must be
a treasure beyond all richness, and you are not taking advantage
of it commercially", so we were being pressed and have been
by Parliament and by Government and by external assessors to do
this for a long time but, as Greg says, it must not be done, and
in my view has not been, if it ever involves subsidy of private
commercial activities by the licence fee, and there has to be
a fire wall between the two of them. I honestly believe that we
are utterly transparent in how we do this. We publish our fair
trading guidelines and we implement them.
Chairman: We were very impressed, all of us,
by Dr Morris' evidence. He made some extremely constructive suggestions
and it would be helpful if you could look at them and come back
528. Pursuing this general area, we have now
got a definition in Clause 181 and very specific detail of public
sector broadcasting requirements for it in Subclause (5). What
proportion of your total output do you think is public sector
broadcasting in terms of that definition? I think the Culture,
Media and Sports Committee has already suggested that clearly
not all of it can be, so we seem to have a situation where, yes,
you have certain clear commercial things but, in fact, a large
part of your other output cannot really be described as public
sector broadcasting. Do you agree? What proportion of your output
do you really think is public sector broadcasting in that sense?
(Mr Davies) The first of the requirements mentioned
information, provision of education and entertainment.
529. I am referring particularly to Subclause
(5) that covers a much tighter set of definitions.
(Mr Davies) Subclause (5)(a) says that "... the
public service broadcasters (taken together) comprise a public
service for the dissemination of information and for the provision
of education and entertainment", and I think it is deliberate
that the word "entertainment" is in there to be a wider
definition of public service broadcasting than maybe some people
would like. We had a debate with Tim Yeo about this proposal,
and they centred a little bit around this subject. To narrow that
definition down has big disadvantages, and I set them out yesterday
in the debate with Tim Yeo.
530. I can see it had big disadvantages for
the BBC, and I should declare an interest as a former chairman
of a Channel 3 company but we were not allowed to act on that
assumption. We had a much tighter agreement for public sector
broadcasting and still have, so I do not see why the BBC should
get away with it. You have said a lot about complying so marvellously
with competition laws, and I feel slightly intrigued by your response
to the specific ITN criticisms in your paper where you refer again
and again to complying with the BBC's fair trading commitment
and your commercial policy guidelines. I am sure you comply with
your own guidelines but is that an adequate defence? Surely what
we need is an independent set of protections provided by someone
(Mr Davies) OFCOM will be enforcing the law in this
regard so I do not think there is necessarily a problem. Going
back to what you were saying about ITV, the requirements under
the Clause that you have pointed to will apply to public service
broadcasters, including the BBC, ITV and others. So I do not think
there will be a difference in the requirements as applied between
the BBC and ITV. Secondly, in Subclause (b) it specifically mentions,
apart from entertainment, drama, comedy and music, and that will
apply to everybody. Greg, do you want to comment on ITN?
(Mr Dyke) Just taking this week's broadcast, you had
the last of "The History of Britain", an absolutely
magnificent seriespublic service to the core. You had last
night a "Panorama" investigation at 9.00 pm into what
happened in Ireland in the 1970sagain, absolutely central
to the public service core. You had a third part on BBC 2 of a
series about paedophilia which again absolutely central to the
531. But no one is questioning that you do a
lot of extremely good public sector broadcasting. My question
is all your output public sector broadcasting
(Mr Dyke) At a time when the commercial sector is
going through commercial difficulties, it is inevitable that the
commercial sector will try to push us into a much more restrictive
definition of public service broadcasting. You have to ask whether
that is in the interests of Britain as a whole. Would the public
service broadcasters have done the Jubilee as we did the Jubilee
and spent many millions of pounds which in commercial terms would
have made no sense? Would they have covered the last Olympics,
which they could have done but opted not to? I could give you
numerous examples where there is not a contradiction between public
service broadcasting and being popular.
(Mr Davies) I do not think we should let ITN
(Mr Dyke) These allegations constantly come from ITN
that somehow suggest that ITN is straightforward, profit and loss,
open market company. That is not the history of ITN at all, and
you know it as well as I do. The 1990 Broadcasting Act gave the
ITC powers to appoint nominated news providers. As a result of
the 1990 Broadcasting Act ITN were the only nominated news broadcaster
and, as you remember, every person bidding for the franchises
was virtually told how much to put in to pay ITN, so therefore
they got a guaranteed amount from the ITV companies upon which
it has built a business, and it has built that business by, on
the margin, selling to Channel 4, Channel 5 and all sorts of others.
So let us not pretend that this is in any way a straightforward
market based, profit and loss company: it was a regulated organisation
with a price imposed which this Bill again allows you to do.
532. Again, you are not answering my question.
My specific criticism, which is very specific, is that in your
response you simply turn to your own commercial policy guidelines
of the fair trading commitment, and I am asking whether that is
an adequate response?
(Mr Davies) ITN in some ways here is quite typical
of what we sometimes get. A commercial broadcaster alleges that
we are acting either outside competition law or outside our own
fair trading regulations which are tougher than competition law;
they are voluntarily imposed by the governors on the organisation.
There are many more allegations than upheld allegations, I can
tell you, and they are in two stages. The governors examine whether
the allegations are valid relative to our own guidelines which
are tougher than competition law, and the courts and the OFT and,
in future, OFCOM will be fully and absolutely able to enforce
(Ms Thomson) First of all, just on that specific point,
the fair trading guidelines are imposing something that goes further
than competition lawthat is the crucial issue about thatbut
their compliance with them is not only being sanctioned by Professor
Whish and the ISO kite mark but is audited every year by a separate
set of auditors, and that report is made available in the annual
report. With your forebearance, could I go back to the point about
ITV versus BBC remits because I think what you are referring to,
Lord Crickhowell, are the licence provisions in the ITC licences.
Under the new OFCOM in the Communications Bill Clause 182(2) the
ITV remit is now only described as being "the provision of
a range of high quality and diverse programming", whereas
the BBC in its agreement has every single element of 181(5) written
in its agreement as something it has to fulfil, so whatever the
history of regulation and remits I do not think there is any argument
that, moving forward, the BBC is going to be subject to a much
tighter remit than ITV.
(Mr Dyke) And should be, because we are now living
in a world where it is going to be much tougher for all the commercial
companies, where competition is getting greater, and it is right
that they should live under a lighter touch regulatory system.
We have no problem with that; that does not apply to us.
(Mr Davies) However, we do not want to do the same
as them. Sometimes in debates like this I feel I am in a corner,
because it is assumed that the BBC is trying to "get away
with" duplicating ITV and others. We do not want to do what
they are doing; we want to do things that are distinctive and
533. Before we leave this, there is one clarification
on the ITN point. Are you saying that, once OFCOM is in being,
a complainant like ITN would go to OFCOM and OFCOM would have
(Mr Davies) It would have the ability to do that,
absolutely, without any equivocation.
534. And there would be no matter of saying
"This is a matter for the governors"?
(Mr Davies) The law will be applied. The governors
will do their best to apply the law insofar as we can understand
it and apply it. If we do not do this adequately, there is absolutely
no question that ITN can go to OFCOM and get the law appliedas
it can now, by the way, with the OFT and has not been able to,
incidentally. Our own fair trading regulations which we impose
voluntarily and which are in addition to what is required by the
law are a matter for the BBC, and I do not think it is right to
have an external body, whether OFCOM or the OFT, that would have
somehow to enforce a set of regulations which are imposed by the
535. But the whole thrust of an external regulator
is that they are the regulator and that there is not this twin
(Mr Davies) No. I absolutely have to say this: I come
from the city, Goldman. Goldman had a ton of regulations which
the management of Goldman Sachs imposed on us, the staff of Goldman
Sachs. They were way outside what the law was imposing and what
the regulator should do as well. So any entity can have a good
custom and practice of its own in our view setting the public
interest in this case which is outwith and above the requirements
set by the law.
(Ms Thomson) Chairman, I promise this will close down
the issue. Would it be helpful if we wrote to the Committee outlining
the provisions of the fair trading commitment, which bits are
applied basically of the law and therefore are applied by OFCOM,
and which extra bits are applied by the BBC, because I think that
would clarify it for you?
Chairman: It would, particularly if you parallel
them with what is the law and what you would do. If I had thought
of that ten minutes ago it would have been really good idea!
536. On the Content Board, all the evidence
we have received so far suggests that its remit should be strengthened
rather than weakened. Yet you appear to argue that it should only
concentrate on tier 1 standards regulation. Would you not expect
it to take the lead in tier 3 regulation of the public service
(Mr Davies) I think the Content Board, which of course
is there to advise the full board of OFCOM and is an advisory
body, should give advice on the areas where OFCOM has jurisdiction,
and that makes perfect sense to me. Now, insofar as it relates
to the BBC that is tiers 1 and 2. I am not sure about tier 2 but
tier 1 which is the basic standard would appear to me to be the
obvious place where the Content Board's advice is needed to the
board of OFCOM. To involve the Content Board or any part of OFCOM
in tier 3 brings us back to the argument we had earlier about
the public service remit and where the ultimate jurisdiction on
that should be, so I think to give tier 3 to the Content Board
vis-a-vis the BBC brings us into the double regulation argument
we had before. We need to be logical about this: if OFCOM has
a set of responsibilities then its advisory Content Board needs
to relate to that set of responsibilities.
537. The Content Board is statutory.
(Mr Davies) Yes, but I think its statutory requirements
are to advise the Content Board of OFCOM.
538. But most of the evidence we have heard
suggests that the Content Board's role needs to be strengthened.
For example, it should have some ability to report directly to
Parliament, because it would be possible to have a deregulatory
regime at OFCOM which is only interested in the economic issues
and shows little or no interest in the cultural and content area.
Therefore if you are to chair a Content Board, what access do
you have to make, as it were, your complaint?
(Mr Davies) I have not thought in detail about those
issues. At first blush I am perfectly sympathetic to the line
but I do not think it is a directly relevant question to the BBC.
It is about how OFCOM should function in the future. One of the
fears about OFCOM and always has been is that somehow the telecom
regulation would be the dominant and moving force within OFCOM,
and fears about that are a clear disadvantage of setting up OFCOM
in the first place which is why we have the Content Board. Whether
or not the Content Board has enough power and visibility within
OFCOM I am not expert on.
(Mr Dyke) I would say again that we have to be very
careful about setting up a system where you have dual regulation.
The experience of dual regulation is that one regulator tends
to fight with the other.
539. I want to follow up on content. Some people
would say that some of the most exciting content in recent years
has come from independent production companies and they provided
us with evidence suggesting that they should get a better crack
at the whip, if you like, from the BBC and independent companies,
and perhaps there should be a code of practice for the commissioning
process. How would the BBC react to that?
(Mr Dyke) This is probably the last market in the
world where independent producers expect to be paid the full cost
of the programme and a profit and own the rights, and some of
them still do achieve that but that does not make sense. If you
go to America or any other market in the world that does not happen.
The idea that an independent producer is guaranteed a profit but
owns the whole thing is rather bizarre. In the United States,
where I used to run a production company, as did the Chairman,
the risks taken by the producers are enormous. We in this country
set up an independent sector where the risks are not great. I
am not sure, therefore, they should be entitled to own all the
rights. We follow the law on independent producers. Remember the
Independent Producers' Organisation is only a trade organisation
of people trying to make money and, therefore, you should not
believe all people say as Gospel. These are people looking for
the best interests of their businesses which is perfectly valid,
but you have to set it in that perspective and, therefore, their
aim is to maximise both the income and the rights ownership they
can get, and the House's is to look after the public interest,
so is it really our job to make large numbers of independent producers