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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