Joint Committee on The Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 580 - 596)



Lord Hussey of North Bradley

  580. You argue that OFCOM's powers over broadcasters are such that self-regulation could become a "meaningless aspiration", a fairly challenging statement. Would you wish to see annual reports on public service broadcasting as its main regulatory mechanism?
  (Mr Scott) We do think that OFCOM should have an annual report, yes.

  581. You think it should have an annual report covering all broadcasting?
  (Mr Scott) Looking at the whole ecology of public service broadcasting, yes.
  (Mr Gardam) If one looks at the experience of the past two years the ITC has already brought in an annual statement of promises. To our mind that has worked rather well because essentially what the annual statement of promises does is it forces each broadcaster to assert the best parts of themselves, so when subsequent pressures come upon you in the course of the year it sets out ambitions to which you have signed up. That is essentially a rolling dialogue because inevitably fulfilling those promises and fulfilling ambitions takes more than a year in some cases, so you need to have a regular annual review and a report on that annual review. At the moment I think it talks about a triennial review of public service broadcasting as a whole but that seems to us to be too far apart. With the annual review you will get a greater sense of purpose and a greater sense of measurement.
  (Mr Thompson) We would support the ITC in this area.

  582. I see the argument which was put very clearly. Do you think that self-regulation, therefore, will play a more minor part than people currently hope it will?
  (Mr Gardam) I think self-regulation will essentially evolve out of the current system. At the moment there is underpinning our statement of promises the numerical guarantees given in the licences, the number of hours that we must fulfil both in peak time and across the schedule as a whole in certain key areas like education, schools, multicultural and so on. As we understand it, that is going to be taken as the base line from which self-regulation will grow. If there is a sudden abandonment of what we were doing in the past under the previous system that will be something that will be picked up upon. At the same time we need the flexibility that as time changes so those areas of broadcasting which we should prioritise in order to fulfil our public service responsibilities will change, so we must be sufficiently flexible and if necessary alter our priorities within our overall public service remit.

Lord McNally

  583. ITV in their oral evidence, which you were probably here for, paid a very generous tribute to the role that Channel 4 has played in fulfilling public service broadcasting and I think a lot of people would agree with that, but a lot of people are saying that this shake-up that is under way puts Channel 4 at its most vulnerable. Do you feel embattled by the changes proposed by this Bill?
  (Mr Gardam) We are going into a much more competitive environment and one of the key public interest criteria applying not just to Channel 4 but to the whole of public service broadcasting is that the test of deregulation will be in the as great, if not greater, diversity of voice and imagination, enriching programmes available to the viewer across all platforms. If you think, the greatest deregulatory achievement of probably the last 20 years was the growth of competition in the programme supply market with the establishment of the independent production sector which broke apart the previous duopoly of programme supply with undoubtedly huge benefits to television culture. One of the proposals that we are looking to is that all licensed broadcasters, not just the existing public service broadcasters, should be prepared to be scrutinised for the proportion of UK original production which they are obliged to put into their schedules. I think the strength of Channel 4 and the strength of public service broadcasting will be the greater the diversity of voice and diversity of production that is available. If you look at the digital market as it has emerged so far, there is not yet much evidence outside sport and film that diversity of distribution has led to diversity of content; on the contrary, it is a battle for attention, which is what the digital marketplace is about. Increasingly new channels look to more predictable, established, already well known brands in order to stake their claim. One of the things that we are proposing is that there is an incentive for the maintenance and increase of UK production. I think this will help us in so far as the danger otherwise may be that among our competitors, particularly a Channel 5 merger with Sky, we would find that it would be impossible for us to compete and preserve our remit when faced with a competitor who did not have the same commitment to UK content as we have.
  (Mr Thompson) Can I just make a couple of points briefly. As a newcomer to Channel 4 it seems to me that one of Channel 4's strengths is that it is not frightened of competition. It has been very successful at mixing competition with real creative ambition. We are not afraid of competition itself which might well flow from this Bill, the issue is whether all along the value chain in the market for airtime sales, in the market for programme rights and programme production, in the market for gateways and platforms to reach viewers, whether these will be genuinely open and fair competitive markets. We think that they should be, and that is not just in the interests of Channel 4, it is in the interests of viewers and all other broadcasters as well. Our anxieties are not about issues like ownership per se but about whether we can maintain competitive markets.

Brian White

  584. How should OFCOM actually use its power? Should they be the licensing power, should they be the competition power? How do you see OFCOM operating in that sphere?
  (Mr Scott) I think it is important that OFCOM does have powers to ensure that these markets are competitive. In the advertising market the ITC already has powers there, perhaps not used very often. I think it is important at the moment, for instance, that there needs to be a separation of advertising sales houses and in ITV that is a correct response to the market as it is. I would have some concerns at the moment that that separation is clearly enforced. Everyone is aware at the moment of the recently announced £300 million ITV-Unilever deal and I wonder how that can happen if there is clear separation of sales houses. I think OFCOM needs to have powers in this area. As the advertising market evolves it may need powers to enforce or pre-clear the size and duration of advertising contracts. Certainly one can see the trend in America which is for very large multi-year deals which can be anti-competitive for other broadcasters. The scale and size and the duration of deals is something that they should look at. On the programme supply side, if we are going to have vertical integration of American studios and broadcasters I think OFCOM should have powers to examine intra-group trading rights and we heard the suggestion this morning that there should be a separation of pay and free, that is one way of doing it, and also one could look at intra-group trading and make certain there is a fair and open marketplace.

Lord Crickhowell

  585. I have two questions. On the production side have you looked at the European Union requirements when you are talking about UK production rights? Have you put it in that context or thought about it? You have talked entirely about UK production but we are part of the European Union.
  (Mr Gardam) There is an obligation that a certain percentage of content should be of European origin. What I was specifically referring to was the obligations that we have at present in our licence that, for instance, in terms of originating UK programming 70 per cent in peak time should be from the UK, I think we did 82 per cent last year. What we are suggesting is that those very specific requirements that already exist for public service broadcasters should be considered for all licence holders and as, for instance, some channels grow their share of national advertising revenue it would be a good idea if the obligations on them for enforcing UK production, increasing UK production, should increase.

  586. My second question is one I have put to a number of witnesses over the last two or three weeks. It takes us back to the Bill because we talk about OFCOM having powers or being given powers, or suggesting additional powers, but I am not quite sure whether in some cases you are saying "they have got the powers probably but they should do it, we would like them to do it" or you are saying "we think that the Bill is inadequately drafted and they need additional powers". If it is the latter I think what we would like to have, not now but in writing subsequently, is a very clear and specific analysis of where you think that the Bill is inadequate to do the things that you have been suggesting and we can then have a look at it otherwise these are splendid generalisations but we are concerned with the Bill, the Bill team is concerned with the Bill and I suspect they would value a specific set of suggestions about what you are saying so that they can be properly considered.
  (Mr Thompson) Quite often the truth is a combination of the two. If we take the issue of competition, clearly there is underlying competition legislation which operated proactively, expeditiously and effectively might well solve some of the issues we are talking about. But if we take competition, the current legislation, the 1990 Broadcasting Act, places on the regulator a "duty" to ensure fair and effective competition in the provision. In the current draft of the Bill, and I am talking here about clauses 247, sections 1 and 6, and 248, section 3, OFCOM now "shall be entitled to carry out investigations and other functions". There is an issue there about the language of the Bill. We can certainly come back to you.

  587. I think rather than get involved in a drafting session on an extremely long and complex Bill, it would be nice to have a very succinct set of notes about specific points.
  (Mr Thompson) I can assure you that on each of the markets that we are talking about we have specific suggestions either at least towards amendment or at least towards the thinking that might lead to amendment.

  Lord Crickhowell: I am asking that you let us have them.


  588. What I think would be helpful is if the points you made were the result of real world scenarios. There is a danger in this Bill that it is built on a theoretical construct of what regulation ought to be able to achieve and there is a clash there. I think what we desperately need is a sense of how does the market operate and what will the impact of these changes be.
  (Mr Thompson) There are one or two markets, for example the programme in market rights for the free and pay rights for US television series, where there is a great deal of evidence and case study, so we can absolutely supply you with not just, as it were, real world scenarios but real world experience about how the world works in these markets.

  Chairman: That would be very welcome.

Nick Harvey

  589. All three of you have talked about the importance of independent production, production outside London and David was hinting at concerns about American ownership and vertical integration. Although Channel 4 itself is not directly affected, do you think that the Government's proposals relating to media ownership and in particular foreign ownership were drawn up in a way that reflects a full understanding of the likely long-term impact on the quality of broadcasting in this country?
  (Mr Scott) I think we were surprised perhaps at the extent of the change. I personally was surprised at the distinction which has been drawn between Channel 5 and Channel 3. I think the reasoning which was given that Channel 5 does not have full national coverage and is smaller than ITV is a distinction I find quite hard to take in as we approach digital switch-over which will give Channel 5 the same coverage. I think this Bill does put in place the foundations on which potentially Channel 5 could become bigger than Channel 3. I really do not quite understand that distinction. I think that it would be appropriate to keep the 20/20 ownership regulation applying to Channel 3 and applying that to Channel 5 as will. I was surprised by that. I think that on the notion of international takeovers of ITV, that does not surprise me hugely. I think there need to be some protections which may run that but obviously ITV, as they have expressed themselves, will need under their licences to have a lot of original UK production. Whether it will deliver significant new investment into their services I doubt. I think the history is that the more people have paid to buy a company, the more profit they wish to extract from it. Certainly the history of the takeovers within ITV in the last decade, huge sums of money have been paid but I do not think that has led to increased investment or increased production.

Paul Farrelly

  590. I note the remarks that you make on treating Channel 5 differently from Channel 3 and those points have been made by other people quite forcefully. Some people might say, and indeed substantially have said, that to drop all foreign ownership restrictions outside the EU would leave us in future negotiations in the conference chamber naked. The reasoning behind dropping foreign ownership rules is interesting. If I can just quote the Secretary of State and I would like to ask you a question I have asked before. What evidence is there in respect of US ownership in particular of Channel 3 and Channel 5 that it would encourage innovation—Channel 4 has been very innovative—and allow the UK to benefit from new ideas and technology or, indeed, give our tv industry an edge? What evidence is there do you think?
  (Mr Thompson) I do not think there is any evidence. We do not know what will happen. Clearly it is possible that an ownership position taken by a US major with a big chunk of British television might add to more exchange of talent than has previously existed. There is a great deal of sharing of talent and ideas and collaboration between US producers and British companies, including Channel 4. There is a great deal already, the issue is whether there will be more. I cannot see evidence, and I am not aware of evidence from other countries, of this leading to investment in production. I think channels and the management of channels is a different issue. It is certainly true that as channels have rolled out around the world American investment in branded channels like MTV has created jobs and expertise around the world. In terms of core production, Greg talked jokingly earlier about the British car industry and it seems to me if there was a model whereby the car industry was reinvented with inward investment and if the names were changed and the design was not as British as a couple of generations ago, nonetheless there would be real jobs and real value being created here. I do not think there is any evidence that television production would follow that model and, as it were, there would be new factories of British production paid for by US majors, I think it is much more likely they would see ways of exploiting US created globally valuable intellectual content in this market.
  (Mr Gardam) It could be an unintended consequence that in a strange way the production world of 2010 could have strange similarities to that of 1980 because if the experience of the past 20 years has been the energy and the diversity of different producers coming on to the market, you could see a return to the world of megalith vertically integrated producer-broadcasters holding on to rights because of their exploitation across platforms, which in a modern version would be the BBC/ITV domination of that market, and in that market the ability for independent producers to get the full value for the rights of their programmes would be significant.

  591. If I am not mistaken the ownership position of Channel 4 can only change by Act of Parliament, is that correct?
  (Mr Thompson) Yes.

  592. We are having a lot of debate on media ownership questions here, yet in this draft Bill if you look at the new media ownership clauses it gives the power to the Secretary of State by order to repeal all these provisions, which is quite a strong power. To what extent do you think whatever ownership clauses are decided by Parliament should only be changed in the future by an Act of Parliament?
  (Mr Thompson) I think our view certainly would be that an ownership change to Channel 4 would be a matter of such particular public debate and interest that it would only be appropriate to be changed by Act of Parliament.

  593. There are other provisions regarding media ownership here that could be repealed by the Secretary of State by order. Clearly the constellation of media ownership is very important for Channel 4, do you think that any changes to what is decided should again be changed by Act of Parliament rather than by the Secretary of State, by OFCOM or by anybody else?
  (Mr Scott) I guess I would not like to be an expert on the constitutional mechanisms of your Houses. The difficulty of an Act of Parliament is they come rather infrequently. I guess the advantage of interim powers by order is you can do things more quickly. I think it is a matter for the House to decide where to find that line. Presumably if it is done by order it still requires votes by both Houses.

Lord McNally

  594. You say some pretty robust things about platform ownership and I think rightly say that it is a form of media ownership. Having said some robust things you do pull up short of recommending that platform and provider should be separated but is that the way your mind is going? Do you think that the OFCOM powers contained in the Bill being able to examine significant market powers is sufficient for them actually to examine this issue when they are in place?
  (Mr Thompson) Perhaps I will start and if David can come in. The broad point is we have not, and I am not sure that anyone has yet, done sufficient research into the inter-relationship between the pay tv platforms and the free-to-air platforms to be certain about what the correct remedy is, if any remedy is required, to mitigate the issues of dominance. I think we are right to point to the danger but I think it is also proven and it is fair to say this is an area we think should be explored without us jumping to make a recommendation. It is possible that splitting platform from content is the right solution but it may not be.
  (Mr Scott) That is right. I think we do see that this gateway is a form of ownership which should be looked at alongside newspapers, television and radio. It is a market which needs to be looked at but it is not for us to find either there is a problem or there is a solution, I think it is a matter which OFCOM should have the power to look at.

  595. I will ask you the question which the Chairman in his ruthlessness prevented me asking the BBC. Would you hope that OFCOM as an on-the-ball regulator would show due concern when the biggest single pay-per-view provider, the biggest platform owner and our largest public service broadcaster get into bed together?
  (Mr Thompson) Yes.

  Lord McNally: Thank you.


  596. Thank you very much indeed, good answer. Do the Bill team have anything they would like to raise? You heard previously we had extensive discussion about ITN and it would be quite welcome if, having listened to that discussion, you could send us some supplementary thoughts on ownership of ITN.
  (Mr Thompson) Yes, indeed, but if I could say two or three things now. In our view ITN is a superb provider of news to Channel 4, an outstanding provider. Secondly, we believe that we pay a very fair price for the news provision from ITN. In my view there is no evidence at all of cross-subsidy from Channel 3 to Channel 4 or, indeed, to Channel 5 in the operation. Most importantly, I do not believe that ITN can provide the service to Channel 4, or provide its role as a powerful third provider of news alongside the BBC and Sky in the television market, without its current scale. Channel 4 spends a great deal more money on ITN now than it did ten years ago, I think the figures have gone from £10 million to more than £20 million a year on ITN whereas, despite earlier remarks this morning's, ITV's investment in ITN has fallen significantly over the same period. I think if you want plurality of the news provision in this country and you want a strong news provider, in my view protection of the current mechanism as set out in the draft Bill is an important protection to that.

  Chairman: Thank you. Again, I apologise for the late hour.

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