Select Committee on BBC Charter Review Minutes of Evidence


Examination of Witnesses (Questions 1140 - 1159)

WEDNESDAY 7 DECEMBER 2005

Mr Andy Duncan and Mr David Scott

  Q1140  Chairman: So the spectrum charging would just be another cost.

  Mr Scott: For us.

  Q1141  Chairman: And for the BBC.

  Mr Scott: And for the BBC.

  Chairman: Having said all this, let us move on to what we are looking at now. Thank you for that précis of where we were. Let us go to sport.

  Q1142  Lord Maxton: I am tempted to ask you whether you would have been so disappointed at losing the test matches if Australia had hammered England last summer, but maybe I should not ask that. You did say in the evidence to the House of Commons Culture, Media and Sport Select Committee that you were disappointed that the English Cricket Board did not look at a partnership between you and Sky. Did you make that proposal? What was the proposal? Why do you think they turned it down?

  Mr Duncan: We were very disappointed to lose the cricket, regardless of whether we lost to Australia or beat Australia. The reality is that we covered cricket for seven years and I think Channel 4 did an excellent job in terms of the innovation of the coverage. A lot of money was invested in production, a lot of money was invested in marketing as well as the rights cost and it was basically a very successful partnership over those seven years between us and Sky together with the ECB. Having said that, we lost over £100 million over that seven-year period, so it had always been a significant loss-maker for us. The ECB had a very simple choice when the most recent contract negotiations came round. They could have driven the process to strive to continue that successful partnership and gone for sufficient money and a balance of exposure across both free-to-air broadcasters like ourselves and Sky, or they could have gone down a route of trying to maximise money by going for an exclusive contract. Clearly in Sky's case, and you only have to look at the football debate to understand that, exclusivity does attract a premium. We put in what we thought was a very full and fair bid. It would have meant us continuing to lose the best part of £15 million a year and it was a very full bid for the main test series of each summer. We were genuinely surprised and disappointed that the ECB did not try to pursue that more strongly as some sort of partnership approach.

  Q1143  Lord Maxton: Presumably Sky offered on the overseas, which you do not?

  Mr Duncan: Yes. The ECB are quoting very widely this £80 million figure as being the difference between what we effectively bid and what Sky bid as a joint bid, versus what Sky bid exclusively, but the reality is slightly different to that, or I should say that we have a different way of looking at it. Sky have for many years covered the international overseas cricket extremely well and for reasons of scheduling, and it varies by time of year and time of day, they have done a very good job with that through their specialist sports channels. We have covered the main test series of the summer and shared the minor test series of each summer. For example, we shared one test each with Bangladesh and that makes it more difficult in marketing terms because you cannot own that whole series. We only bid for the main test series, we bid just over £3 million a test, which was close to what we had been paying, but not quite as much. In total it would have meant about £5 million less from Channel 4 per year. The ECB had more rights to sell this time around because they had an extra one and a half tests on average to sell to somebody else, possibly Sky; they had more 20/20 internationals, they had more one-day internationals. If they had driven the process down and made it very clear up front they wanted a joint solution, my own view is that they could probably have had broadly the same amount of money going forward as they had been getting historically and, at worst, if Sky had been prepared to pay no more money, they would have only been £5 million worse off a year. What Sky did, once they knew that the ECB would potentially go for an exclusive contract, was to offer a lot less than they had been paying on the basis of sharing it with us and offer more on the basis of it being exclusive. I do not blame Sky: for Sky, it was a smart deal but in my view the ECB made a big mistake. The idea of having no live cricket coverage in any form, winter or summer, on British television for five years and effectively nearly three quarters of the country being unable to see any live cricket—most people in this country will probably never see Freddie Flintoff live again—is a bizarre decision for a sporting authority to take.

  Q1144  Lord Maxton: "Most people" is probably a slight exaggeration.

  Mr Duncan: He may not be playing cricket in five years' time.

  Q1145  Lord Maxton: I meant that people watch Sky in a variety of different ways, in pubs, in clubs and all the rest of it. I shall leave that one aside because our interest is the BBC. Did you not consider the BBC being involved in this partnership? I know they did not bid in any way.

  Mr Duncan: Essentially the way the partnership worked very well was the free-to-air terrestrial broadcaster offering the exposure and the coverage to all homes and then the specialist pay/sports broadcaster, sports channel was able to offer all the coverage including some of the county coverage as well. The BBC were in many ways replicating what we have been doing and so a joint Channel 4/BBC thing would not really have covered some of the other matches, if that is what you mean. They would have been presenting an alternative to us to partner Sky; that might have been a different option. My understanding is they did not make a serious bid at all.

  Q1146  Lord Maxton: The whole problem with cricket is that it is a long day and it disrupts every other form of scheduling you have to do during the day and, of course, there is no guarantee that it will not finish early, it will not be put off because of bad light, that it will not rain, whatever. Did you have some form of deal with the BBC to use archive material when you had breaks of that nature? If so, did you have to pay them for it and what did you pay them for it?

  Mr Scott: I am afraid I cannot recall the answer to that question.

  Q1147  Lord Maxton: Obviously, if you wanted, in the interval or when it was rained off at some point, to show Ian Botham playing in a great test match, you would have had to obtain that material from the BBC. You presumably could not have obtained it from anywhere else.

  Mr Scott: We have gradually built our archive across the seven years of our coverage.

  Q1148  Lord Maxton: You just use your own archive?

  Mr Scott: Yes.

  Q1149  Lord King of Bridgwater: How much did you say you lost over the period?

  Mr Duncan: Over £100 million.

  Q1150  Lord King of Bridgwater: Is that in lost advertising?

  Mr Duncan: Essentially there are three blocks of cost. The rights cost is the biggest chunk of cost and then there is about a further £5 million pa for production, £5 million pa for marketing. We were spending around £25 million a year and the income we were generating from our advertising was only about £10 million, so it was actually a net cost of about a £15 million pa. The actual opportunity cost was potentially even bigger, because we could have run much cheaper programming during that time and generated bigger audiences, but the pure factual loss that we made per year on average was about £15 million.

  Q1151  Lord King of Bridgwater: This thing about the tragedy for the great British public and how much of the audience cannot see cricket is that quite a lot of the public would actually hate the idea of having to watch any cricket at all. What percentage of the Channel 4 audience are actually cricket watchers? This is what I am trying to get to. There is this point when you say only so many people can get Sky. We were talking to Sky yesterday who made a big pitch. Obviously they use sport to sell packages to people and obviously the sport lovers tended to sign up to that and people who are keen on bringing up their children to be interested in sport would tend to sign up to that. I am trying to get a feel for what the truth really is about it being awful because most people cannot watch it. What percentage of people interested in sport actually will get it on Sky?

  Mr Duncan: Our average audiences for test matches in the first six years of showing them were just over one million throughout the entire test match, but of course at key moments, when England were batting or towards the end of the day when perhaps there were more people around, you might get figures of three or four million in some cases. This summer was obviously an exceptional series, a once-in-a-generation series in many ways, and the average audience was over two million, but at various points along the way it peaked at seven or eight million. There is a difference between the hard-core cricket lover, assuming they can afford it, who might be a sports lover and subscribe to Sky Sport, and those people who love cricket but either cannot afford to pay for subscription or who are occasional cricket lovers. This summer in particular we saw a lot of people who were perhaps on the fringes who came in to watch the sport. The simple facts are that Sky Sport is only available in a quarter of homes. I am sure a disproportionate number of cricket lovers have Sky Sport but there are many, many cricket fans, people who would have watched cricket on Channel 4, who are either unable or unwilling to afford or do not want to subscribe to Sky in order to get that cricket.

  Q1152  Lord King of Bridgwater: In a population of 60 million, what is your audience for cricket?

  Mr Duncan: On average we had around two million with peaks of seven or eight million. We could go back and try and do some sort of cross-analysis, though it is quite difficult, but our sense is at least well over half and probably two thirds of that audience is coming from non-Sky homes.

  Q1153  Chairman: The £100 million loss was over how many years?

  Mr Duncan: Seven years.

  Chairman: Seven years; so £100 million over seven years.

  Q1154  Lord Peston: My questions are generalisations of those. You have public service broadcasting obligations and of course the BBC is a public service broadcaster. I take it you would interpret the loss on cricket and any other losses you make on other sporting events as fulfilling your public service obligations. Therefore in a sense what you are telling us is that the ECB does not regard itself as having any public service obligations at all; they are simply going for the most remunerative package they can sell. Is that not a bit bizarre? They are in charge of an asset which actually really belongs to the public.

  Mr Duncan: My personal view is that they took a strange decision. At the end of the day, as a sporting authority, they have to make their choices. One can understand why they made the decision.

  Q1155  Lord Peston: They wanted the money.

  Mr Duncan: Clearly cricket is struggling financially. There is a county structure which probably needs a radical overhaul, but my slight fear is that the money will largely be dissipated around county ground building projects and overseas players inflation and so on and although they plan to put a few million into grass-roots development, it cannot possibly make up for the fact that a lot of people will not be watching and seeing cricket any more. For a sporting authority to put its entire rights throughout the year for live cricket away from the majority of the British public is a strange decision, but that is their judgment call.

  Q1156  Lord Peston: I understand that; I just wanted you to get it on record explicitly in that way. Looking more broadly at sporting rights, they are clearly becoming mostly more expensive. The point the Chairman has led us towards is whether it would be a good idea in other areas if you and the BBC cooperated. You both have a public service obligation. It seems a bit bizarre if you two are bidding against each other to fulfil a public service obligation.

  Mr Duncan: The reality, to be honest, is that sport is probably now our most difficult genre to compete in effectively. Channel 4 has a fantastic tradition as a sort of multi-genre channel and we aspire to deliver our public remit whether it is through drama, through news, through current affairs, through the innovative way we did the cricket. Obviously we have horse racing, but in reality it is very hard and the reason is basically Sky and the BBC. Firstly, with Sky, sport more than anything drives their business model; they are prepared to pay huge amounts of money.

  Q1157  Lord King of Bridgwater: That is not what they said.

  Mr Duncan: I am sure it does drive their business model. My perception is that it drives their business model, but they ought to know better than I do. On the surface it looks as though it drives their business model. They are certainly prepared to pay a lot of money for it. The BBC changed tack on sport a few years ago. I was obviously there when Greg Dyke was Director-General, but prior to that they had exited sport and not fought that hard when Sky and others had come in. There was quite a level of disappointment from licence fee payers, particularly younger males who did not feel that their sporting interests had been catered for, so the BBC actually massively reinvested back into sport, did long-term deals on tennis and rugby and so on, which broadly was a good thing. It means a combination of Sky who are able to pay a lot of money because of the business effectiveness for them and the BBC who have the licence fee, which actually means that sports rights inflation has been very high and it is very difficult for us to get sport at sensible levels.

  Q1158  Lord Peston: I speak as someone who regards himself as very strongly pro the BBC for the sports traditions and the BBC. However I get the feeling, though I cannot quite put my finger on precise evidence, that the BBC do not like cooperating. Would I be mistaken in saying that they would typically, whatever they are doing, really like to do it on their own if they possibly could? There is less cooperation in sport for example than I would have predicted a priori.

  Mr Duncan: Culturally that is exactly true. I think the BBC are an incredibly important and good institution, but they tend to operate best when they are able to do everything themselves. Where they do share things, and they have to share things like the World Cup with ITV, there is a reasonable sense of cooperation, but it is very much about the BBC doing their coverage and ITV doing their coverage and the BBC do not have many good examples of sharing activities. My understanding is that both Michael Grade and Mark Thompson have talked a lot about partnership during the Charter process. It will be interesting to see whether that then comes through once the Charter is agreed.

  Q1159  Chairman: To whom have they talked about the partnership process? To the Government?

  Mr Duncan: A lot to the Government and other people. It is fine to talk about it, but it would be quite hard; the BBC would need to demonstrate some action. Funnily enough, on some of the digital platforms emerging now, there is a chance for cooperation in a way which is easier than it was historically.


 
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