Examination of Witnesses (Questions 280-299)
Mr Jonathan Simon, Mr Martin Stott and Mr Magnus
Brooke
30 OCTOBER 2006
Q280 Chairman: We are going on to
content now, but I presume that you—as businesses you probably
already do—could clearly run your programmes on the internet
as well as conventional televisions and that internet services
could have a variety of non-linear services attached to it. In
other words, you could run a business that is not just a television
type business, just as some newspapers now are increasingly shifting
to the internet and a service where when you access them they
are a lot different from the newspaper hard copy.
Mr Stott: Indeed. We all recognise that even
though we may be in the old world of television we also need to
be in the new world of new media, and therefore currently, and
increasingly in the future, we will be providing a range of services,
some of those services and maybe our core business, will be a
linear service which needs to be regulated as a linear service,
some of them will be on-demand or non-linear services where it
will be appropriate for them to be regulated differently. We recognise
that it is in our business interest to be present in both worlds.
Q281 Baroness Eccles of Moulton:
Can you tell us where your main revenue will come from with your
non-linear internet exposure?
Mr Stott: The new media world is, in many ways,
still developing and the business models are still developing.
If you go to the Five website you can download a new episode of
the most popular programme in the world, CSI, for the price
of £2.50, 15 episodes, whether that is a business model which
proves successful, because it has only been up there a matter
of weeks, into next year and the year after, we do not know. We
are trying these things out and seeing what will work.
Q282 Baroness Eccles of Moulton:
You switch on the television, you have your credit card in your
hand and you give them the number before you can watch it?
Mr Stott: This service is available over the
internet, so it will be available through your PC rather than
through you television.
Mr Simon: Perhaps the easiest way to answer
that is to say there are three different models which are already
being experimented with. One is with the pay-as-you-go model where
you pay for one episode or whatever. Another thing which is being
done now with the cable companies, which Channel 4 launched weeks
ago, is if you are a cable subscriber you now get Channel 4's
video-on-demand service for free, or at least it is bundled in
with your cable subscription, so that is effectively a subscription
but it is still a pay model. We are also seeing experiments in
the US with a model where you can get on-demand content for free
with the adverts still in it, and they are developing technologies
to try and stop you skipping the adverts. Again, even in the States
it is very new and nobody knows what is going to work but we are
all going to experiment with different things and see what consumers
will accept.
Q283 Chairman: We are going on to
content now. Would that last example be linear or non-linear?
Mr Simon: Definitely non-linear because it is
on-demand.
Chairman: I do urge you to read the Minister's
evidence to us of last week because in my view that is very clearly
caught in the TV like production.
Q284 Lord Geddes: Effectively the
last page of your very impressive written evidence was entirely
on advertising and particularly on the 35-minute rule. Since I
know that at least two of you were sitting behind when we were
talking to the last witnesses, could you put on the record your
definition of the 35-minute rule because I still do not get it.
Although you spell it out quite nicely there, I still have not
got it 100 per cent.
Mr Stott: The 35-minute rule is a restriction
on how many commercial breaks you can take in certain genres of
programmes. The three genres are: news, children's and films,
and what it says in essence is you can take one advertising break
every 35 minutes. If you take a film, for example, that would
run for 105 minutes, which is three times 35, we would be able
to take three advertising breaks in the film. Obviously for news
programmes and children's programmes they are rarely of that length
and that is one of our major complaints about the draft Directive.
News and children's programmes tend to be 30 minutes typically,
sometimes shorter, and the effective new Directive would mean
it would be impossible to have a commercial break in such programmes
because they are less than 35 minutes long.
Mr Brooke: We are talking about interruptions
to the programme here rather crucially, so the beginning break
before the programme starts and the end break do not count. It
is just interruptions in the programmes, so centre breaks.
Q285 Lord Swinfen: Effectively you
can only have two breaks in a programme of 105 minutes?
Mr Stott: You can have three, one for 35, one
for 70 and one for 105.
Q286 Lord Swinfen: If you count the
105 you are still within that period?
Mr Brooke: Just.
Q287 Lord Geddes: That is really
helpful. Clearly, and I am sure the whole Committee understands
this, in the business which you three represent advertising is
absolutely crucial to your commercial well-being, I understand
the 35-minute rule and your very strong objection to what we are
really talking about, the 30 minute rule. Would it be even worse
if it came down to 30 or is it slightly better?
Mr Brooke: Thirty minutes would be slightly
better on the basis that programmes on the whole tend to be 30
minutes long. If you can interrupt once for a period of 30 minutes
you could at least run a break in the News at Ten or whatever
else.
Q288 Lord Geddes: All of which is
understood. Again the evidence we have had so far is an increasing
tendency to go towards placement rather than what I would call
"direct advertising", what are you views on that?
Mr Brooke: On product placement?
Q289 Lord Geddes: Yes.
Mr Brooke: In the UK at the moment product placement
is not technically allowed, and the UK takes the view that the
current Directive does not allow product placement, per se, for
example the paid inclusion of particular products or particular
brands in programmes. That is not a view which is universally
shared, I have to say, and the Austrians, for example, take the
view that product placement within programmes is allowed under
the current Directive. Frankly, our objective is to try and get
some clarity in Europe and ideally to free up the rules on product
placement so that we are free to take carefully regulated product
placement within some genres of programming. We would certainly
support a carefully regulated relaxation of the rules on product
placement. There are a number of caveats and, in particular, safeguarding
the editorial integrity of our programmes is absolutely fundamental,
and to that extent we would certainly support a rule on undue
prominence. We would also support appropriate identification obligations
as it is fundamental that viewers are aware of the existence of
product placement within particular programmes. We also support
the Commission's proposed proscription of certain genres where
product placement would not be allowed, such as news and current
affairs and so on. To pick up your more general point, I think
product placement is one—it is not an enormous contributor
to revenue—potential way of us developing new sources of
income and potentially retaining advertisers in a world which
is becoming very competitive, where competition for advertising
is becoming quite profound and, as Jonathan alluded to, the technological
possibility of skipping adverts is quite considerable. We would
certainly support a carefully regulated liberalisation of product
placement.
Q290 Lord Geddes: What is your understanding
of what the present draft Directive says on product placement?
Mr Brooke: Is this the Commission draft Directive?
Q291 Lord Geddes: Yes.
Mr Brooke: My understanding is that it would
allow product placement in all genres of programming except the
proscribed genres, in other words news and current affairs, children's
programmes, documentaries and possibly religious programmes, subject
to the various rules on sponsorship and product placement which
are set out in the Directive, so appropriate identification at
the beginning and end of the programme. There are rules on editorial
integrity, a prohibition on specific calls to action, so no specific
promotional references, as it were, so it is just the inclusion
of the product in the programme. That is my understanding of the
way the Directive works. One of our concerns about the drafting
of that—we have got a number of concerns—is it would
catch what is known as "prop placement", which is an
activity that takes place at the moment in the UK, and to some
extent all broadcasters take props for free for inclusion in programmes.
Where a producer says, "I have got a scene where this particular
character would in character drive a Land Rover—or whatever
it happens to be—because they live in a rural area",
from time to time broadcasters will, instead of having to pay
hundreds and hundreds of pounds to hire a Land Rover, go to a
prop placement agency and a prop will be provided. My understanding
is that is a practice which goes across most broadcasters and
in the end it is simply an inclusion which would happen anyway.
What we are proposing in relation to product placement is that
this editorially justified inclusion of a particular product,
which frankly is included only to bring realism to what is going
on, should at least give us the possibility of earning some revenue
from it. However, my understanding is that the Commission would
catch even prop placement that as product placement, so that would
be classified as product placement even where there was no money
in return and no contractual obligation to inclusion. The thing
about prop placements at the moment is if you are the Land Rover
provider there is no contractual obligation that your product
will be included in the programme. The second area which we have
got some difficulty with is acquired programming where the Commission
is proposing that acquired programmes, films or other programmes
that are acquired from abroad, should also be subject to the laws
on product placement, so effectively where we acquire a programme
from America, France, Germany or anywhere else, if that programme
contains product placement we would have to treat it in the same
way as if we produced a programme and received some money for
the inclusion of a particular product in that programme. That
is an issue particularly and it is an issue for all UK broadcasters
because the current Ofcom definition of product placement excludes
acquired programming. Effectively, where you see an acquired programme,
for example American Idol, which is one of our programmes,
it is an American programme, that includes some product placement
and we are allowed to show that programme.
The Committee suspended from 6.17pm to 6.26pm
for a division in the House
Q292 Lord Swinfen: If I may, I would
like to stay with the 35-minute rule for the moment. If this was
to be enforced on documentaries and children's programmes—it
would probably be impractical for the news—would this make
that sort of programme totally unviable?
Mr Stott: Perhaps if I can talk about children's
programmes, it does not affect documentaries, it affects news,
children's and films. As far as children's programming is concerned,
the fact of the matter is the economics of children's programming
are fairly fragile already and it is quite difficult to make a
profit on a commercial channel by broadcasting children's programmes.
Five has a slot of between six hours of children's programming
a week and we are very proud to do so, but it is not the most
profitable part of our business. There are going to be some restrictions
on food advertising to children and that will make the economics
even more fragile. If there is now a 35-minute rule, which means
you are not able to take a centre break in a 30 minute programme
anymore, that will put even more pressure on the economics of
children's programming. That would mean either that, sadly, we
will make less children's programming or we are likely to have
less original kids' programming and we will have to buy in cheaper
imports. All other things being equal, the effects of such regulation
would be far from protecting children's programming, which might
appear to be its objective, it would make it less likely that
you would see well funded children's programming on television.
Mr Brooke: That is an ironic consequence of
taking the most commercially vulnerable genres and subjecting
them to additional rules, so the 35-minute rule. In the case of
news, for example, it is an extremely expensive genre of programming
and there has been a centre break in the Ten o'clock News
since 1967, I think, with no obvious viewer detriment or complaint,
and obviously to some extent that helps fund the programme and
helps us provide an international news service at no cost to the
viewer at all. It is slightly odd that we have got these insertion
rules which, in effect, penalise the provision of core public
service content and make it much harder to generate any revenue
at all from providing that content. It is a very strange thing
to us.
Mr Simon: Also, in terms of film, and this includes
documentary film as well as fiction film, there is a general point
that people like watching films on TV and any kind of restriction
will limit the amount of films that can be shown. There is a particularly
perverse incentive in that in terms of film, the 35-minute rule
would replace what is currently a 45 minute rule which applies
to films, although, in fact, it is indistinguishable. This rule
was brought in after lobbying originally by certain Member States
who wanted to protect the integrity of films as being somehow
a higher form of art. There is a real irony here where if you
look, for example, at the Film4 channels Channel 4 took free to
air this year, this used to be a subscription channel and it had
about 300,000 subscribers and by going free-to-air it is now in
18 million additional homes. This is a great platform to promote
British and, indeed, other kinds of European films. We have made
a commitment to dedicate 40 per cent of the schedule to British,
European and world films. British films have been getting ratings
of over half a million, which is incredible for a small digital
channel. Ironically, this rule could have major detrimental impacts
on this channel because it takes out a substantial amount of advertising
across the whole channel because it is now funded only by advertising,
so a rule that was somehow intended to protect European films
could be counterproductive and work against it. If we do not get
any liberalisation of the 35-minute rule, the Film 4 channel could
end up having to show more American movies because they generate
more money, which would be a real shame for the European film
industry.
Q293 Lord Swinfen: That is very interesting,
thank you. You have given an indication as to why it is in the
draft and a number of countries are lobbying for it, do you know
of any other reasons why you think it might have been in the draft?
Were any of your organisations asked about this when the draft
was in preparation?
Mr Simon: The 35 minutes specifically?
Q294 Lord Swinfen: Yes.
Mr Simon: Our understanding is there was last
minute horse-trading. We have been making a lot of trips to Brussels
jointly and speaking to a lot of MEPs. Absolutely nobody has come
up with a justification for how the 35-minute rule was arrived
at, everyone says it got agreed last minute as various people
were bartering over different things. We have not heard anyone
speak out in defence of it.
Q295 Lord Swinfen: Were you asked
on the drafting of it?
Mr Simon: We were not asked.
Mr Stott: Not as far as I know.
Q296 Lord Geddes: Does that apply
to all three of you?
Mr Brooke: As far as I know, I have only been
with ITV since July, but we can certainly confirm that in writing
if that would be helpful.
Q297 Chairman: You do not want the
35-minute rule, which I am sure the Committee can well understand,
but what do you want for children's programmes?
Mr Simon: The ideal would be that there would
be no rule at all at the European level. Every Member State has
their own pet topics, for example in Germany it could be product
placement, in Scandinavia they do not want any adverts in children's
programmes at all, that is fine for them but allow Member State
level, national governments and regulators, to set their rules
just as Ofcom in the UK and DCMS set rules in Britain. We do not
see any need for this kind of micro-management to be made at the
European level.
Q298 Chairman: If the Country of
Origin principle is to remain, presumably if some country objects
to regular advertisements in children's programmes which are emanating
from this country, then they will stop showing your programmes
in their region. Will you be able to broadcast your programmes
to them?
Mr Stott: Not if there is a Country of Origin
principle under the internal market because that says you abide
by the rules of the country in which you are based. I think all
three of us are very strong supporters of the Country of Origin
principle. The question as to whether there should be special
rules for children's programming, news programming and films,
we would argue there should not be, that in a more competitive
environment these types of programmes have to compete against
entertainment programmes, comedy programmes, drama, all other
sorts of programming. If you restrict how many commercial breaks
you can take in those programmes you will make it more difficult
to make those programmes, therefore we do not see the justification
for any set of rules specific to those three types of programmes.
Q299 Lord Walpole: Personally I watch
the ITN News in favour of another one and I do not even
notice the advertisements. I am not saying I do not know what
they are but it does not affect me in the slightest. I am slightly
worried about product placement. Before that, if you advertise
too much you are going to put people off the channel anyway, are
you not?
Mr Brooke: I agree, and I do not think any of
us would necessarily propose that what was referred to before
as the 20 per cent rule should increase, in other words, that
the total volume of advertising in any one hour, the total threshold,
should increase. Indeed, we are subject to stricter rules than
the 20 per cent threshold at the moment in UK law.
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