CHAPTER 4: Promoting British television|
208. In this chapter we consider proposals to
promote British television. We give particular attention to proposals
aimed at supporting UK content and reversing the decline in investment
over the last five years. One route to reducing or reversing this
trend would be to find alternative sources of funding for UK content.
Possible sources include: use of the proceeds of the sale of spectrum;
use of the digital switchover portion of the licence fee; and
the use of other categories of fees. We outline the arguments
that were presented for and against each one. But before considering
those arguments, we consider a proposal that does not require
legislation or government action but could result in better distribution
of UK content, resulting in more money for production.
THE FUTURE OF BBC WORLDWIDE
209. As discussed in Chapter 3, exporting British
programmes, and developing media brands around the world brings
money back into the country for reinvestment in UK production.
This could and should grow further. If this were to happen, it
would have a beneficial effect on British made programmes as well
as employment in the industry.
210. The BBC, ITV and Channel 4 are all active
exporters. By far the biggest British company operating in this
area is BBC Worldwide, which in 2009, received the Queen's Award
for Enterprise in International Trade.
211. BBC Worldwide is the main commercial arm,
and a wholly owned subsidiary, of the BBC. Its mission is to create,
acquire, develop and exploit media content and brands beyond the
BBC around the world in order to maximise the value of the BBC's
assets for the benefit of the UK licence payer. The company has
an annual turnover of over £1bn, and profits of £150m.
The profits made by BBC Worldwide go to the BBC, and the Corporation
has a direct interest in ensuring that the maximum revenue is
earned in this way.
212. BBC Worldwide incorporates a number of separate
businesses, including DVD sales, licensing of BBC programmes and
formats (and also those of UK independent producers'), television
channels (such as BBC America) and magazine and book publishing.
It jointly owns, with Virgin Media, several television channels,
called UKTV. In 2007, BBC Worldwide acquired Lonely Planet, the
travel information group, to build a Lonely Planet franchise around
213. The BBC Trust outlined to us the important
role that BBC Worldwide plays in supporting the independent production
sector. They said "In addition to providing an effective
distribution service to independents for their output, BBC Worldwide
also offers a variety of ways in which independents can secure
up-front investment. These include first-look and development
deals and, more recently, "seed-funding" in the form
of small equity stakes where this suits the companies concerned
Worldwide allows these smaller independents to gain international
exposure which would otherwise not be open to them thanks to the
reach BBC Worldwide TV channels provide to almost 300 million
homes globally and its role as the largest exporter of TV programmes
Over the past four years, BBC Worldwide has generated
£200 million for independents from its commercial activities"
214. BBC Worldwide could undoubtedly expand further.
In an earlier report,
this Committee drew attention to the scope for BBC Worldwide to
become a vigorous and successful acquirer and exploiter of rights,
both domestically and globally. This would enable it to generate
greater revenue for the copyright holders, provide increased funding
for investment in UK content and have a beneficial impact on employment.
However, John Smith, Chief Executive of BBC Worldwide said,
"All companies grow by a mixture of organic means and acquisition.
Apart from a small number of acquisitions which have led us to
the debt position we have, I think the feeling is we probably
will not have much more, if any more, acquisitions in the future
because we cannot take on significant amounts of additional debt.
Our growth is limited to organic only" (Q 597). This
was confirmed subsequently, when the BBC Trust announced new limits
on acquisitions. Mr Smith went on to say that there was an
exciting opportunity to grow that might be missed: "I think
it is the only chance Britain has ever had and will ever get at
having a global media company" (Q 598).
215. We agree that BBC Worldwide is Britain's
only really global broadcasting distribution company and that
its potential expansion has key implications for UK content. It
would be capable of becoming a distributor of UK content on a
much greater scale.
216. Digital Britain advocated greater financial
and operational separation between the BBC and BBC Worldwide,
which could include the sale of a part of BBC Worldwide".
In December 2009, the Government announced
its desire for the BBC to consider selling off part or all of
BBC Worldwide. It said, "The government now expects the BBC
to look more widely at the options for greater financial and operational
separation, including a sale or partial sale. Alternatives to
sale or partial sale might also include other structures that
would potentially enable the introduction of external capital,
broadening ownership of the asset and yet retaining the link to
217. To date, the BBC Trust's attitude has been
either dismissive or lukewarm to the idea of a public private
partnership. In response to the Government's announcement, a BBC
Trust spokesman said "We note the Government's report. Worldwide
is not up for sale. The recent commercial review did not set out
to consider ownership, but to improve the operation of Worldwide
within its current ownership structure. However, any business
operates in a dynamic environment. We continue to keep an open
mind about the appropriate ownership structure for Worldwide."
We do not believe that this recognises the business opportunity
that has been presented.
218. We have discussed in this report how the
film industry in the UK suffered by being unable to support a
successful, sustainable, worldwide distribution company. BBC Worldwide
has the potential to fulfil this role for the UK television industry,
supporting independent production companies as well as broadcasters.
But it is now limited in its activity, earnings and export potential,
because of its exclusive ownership by the BBC. Inevitably there
is a limit to the licence fee funds that can be applied for developing
a commercial business. Private risk capital provides an escape
from that straight-jacket; and gives opportunities for other PSBs,
besides the BBC to take a stake. We see substantial advantage
for the British television industry as a whole in such a step.
219. Despite the BBC Trust's apparent intention
to prevent changes in BBC Worldwide ownership structure, we are
convinced that the growth of BBC Worldwide through introduction
of private capital will benefit UK content producers and UK exports.
220. We support the Government's intention
to sell a part of BBC Worldwide, creating a public private company.
We believe that such a company, with a continuing link to the
BBC, would be capable of becoming a major global brand for distributing
UK content, producing additional profits, employment and opportunities
for British production companies.
221. We believe that the action advocated above
for BBC Worldwide will have a beneficial effect, but further action
is also necessary. We now review some of the actions that were
put to us in the evidence provided to the Committee.
TAX CREDIT FOR TELEVISION CONTENT
222. In previous chapters, we saw how British
films face competition from countries around the world from governments
offering financial incentives to producers and how Britain has
countered with a tax credit of its own, within WTO and EU rules.
No such tax credit exists for television production in the UK,
although some other countries do support domestic television production
in this way.
223. Miles Bullough, Aardman Animations, explained
the impact this has on UK television companies. He said that "colleagues
in Canada, France, Belgium, Germany, Australia and Ireland all
enjoy a level of tax credit or subsidy that can provide them with
anything between 25 and 70 per cent of the budget of their productions.
When we as a British producer set out to raise finance for one
of our productions, be it Wallace & Gromit or Shaun
the Sheep, we would be looking at getting a maximum of 20
or 25 per cent of the budget out of the UK and that would be from
broadcast and up until recently DVD advances, so we start from
a position whereby we can sell premium products to the world's
leading broadcasters in the UK and still have only raised 25 per
cent of the budget. Our Canadian colleagues can do the same and
with the tax credits and various subsidies available to them they
can raise nearly 70 per cent of the budget" (Q 1427).
224. Mr Bullough added that his business
was being "challenged really quite dramatically by subsidised
overseas competitors, and this is something that we would like
see if the Government can help us address, and the tax
we would like to see that extended to animation,
especially for kids, which we fear is suffering particularly badly"
225. We believe there is a strong case for extending
the tax credit help to UK content made for television. As we saw
in Chapter 3, a number of programming genres are under particular
pressure. Among these are children's programmes, including animation.
The tax credit could enable support to be directed not only towards
British production but also to particular kinds of production.
It would then be possible to target help and to measure how effective
that proved to be.
226. We recommend the extension of the film
tax credit, on a pilot basis, to children's programmes and animation
productions made for television. This pilot, if successful, might
be extended to other genres.
227. In our report on Public Service Broadcasting
of April 2009, we
drew particular attention to the problems facing regional news
in the UK and the prospect that ITV would withdraw from regional
news production. This was one part of the problems facing public
service broadcasting generally. We recommended that "an element
of contestable funding should be introduced to fill some of the
gaps that might otherwise arise in public service broadcasting.
This would entail the setting up of a limited fund, to which broadcasters
and programme makers could apply."
We proposed that additional funding for public service broadcasting
in the advertising-funded television sector should be provided
first by the underspend on the digital switchover programme.
228. In his Second Reading speech on the Digital
Economy Bill, in the House of Lords on 2 December 2009, the Secretary
of State for Business, Innovation and Skills, Lord Mandelson,
said "Market pressures and structural changes are putting
pressure on commercially provided news in the nations, regionally
and locally. Some element of public support is needed if this
provision is to be preserved."
Accordingly, the Bill proposes that Ofcom should support independently
funded news consortia to provide regional and local services.
This is clearly in line with our recommendation.
229. We welcome the provisions in the Digital
Economy Bill on support for independently funded news consortia
to provide regional and local services.
230. But the use of the underspend on digital
switchover will not support additional funding for public service
broadcasting indefinitely. The scheme itself is due to come to
an end in 2012. Something more will be needed and here there are
two main options:-
PROCEEDS OF THE SALE OF SPECTRUM
231. In our report on Public Service Broadcasting,
we recommended that one way of providing funding for public service
broadcasting would be through the use of at least part of the
revenue the Government will make from the sale of analogue spectrum
after 2012. Part of the receipts which would otherwise go totally
to the Treasury could be used for public service broadcasting.
232. Ofcom has proposed the introduction in 2014
of a system of charging broadcasters' for the use of digital spectrum,
called administered incentive pricing (AIP). AIP would involve
charging broadcasters an annual fee that reflects the opportunity
cost of holding spectrum. From 2014, Digital Terrestrial Television
multiplex licensees, including the BBC, would be asked to pay
this annual fee for their use of the spectrum,
which they have previously been given free. However, as Ofcom
has recognised, this represents a transfer of funds from the broadcasting
sector to the Exchequer. Further reduction in revenue of broadcasters
is likely to lead to a further reduction in potential investment
in UK content.
233. A report commissioned by the BBC
suggested that Ofcom's existing plans for spectrum pricing for
broadcasting could be adapted to deliver funding for UK content.
The report proposed that, rather than being diverted from the
broadcasting sector, this money could be channelled into a new
Public Service Content Fund, which would support the provision
of news and other public service content by providers other than
the BBC. Funding could be allocated via a contestable process,
which would be open to existing commercial broadcasters and to
new players. Mark Thompson, Director-General of the BBC said that
use of AIP for broadcasting use of spectrum "could, potentially,
form the basis of a long-term flow of revenue", and that
the use of the sale of spectrum "would not have some of the
disadvantages which we believe are associated with top-slicing"
234. The Secretary of State for Culture, Media
and Sport, Ben Bradshaw, argued against the use of spectrum pricing
for funding UK content. He said "I think there are a number
of potential problems
One is that, if you accept that the
whole point of a spectrum tax is to encourage efficient use of
the spectrum, the consequence of that is that it raises less and
less revenue as that spectrum is used more efficiently. The second
problem is that it is a tax. It does not belong to us. It belongs
to the Treasury" (Q 2339).
235. We do not believe that the Secretary of
State's argument is conclusive. As we have pointed out, the process
of spectrum allocation provided support for public service broadcasting.
PSB broadcasters benefited from limited competition and from preferential
placement on the Electronic Programming Guide. Making funding
available from the sale of analogue spectrum would continue a
longstanding policy of support.
USE OF THE BBC LICENCE FEE
236. A second possible source of funding is the
BBC licence fee. This Committee recommended in April 2009
that "Consideration may ultimately need to be given to redirecting
an element of the licence fee to support public service content
provision outside of the BBC". Digital Britain kept the door
open for this to happen. It said that the Government would "consult
openly on the option of a Contained Contestable Element of the
Television Licence Fee (primarily for news), carrying forward
the current ring-fenced element for the Digital Switchover Help
Scheme and Marketing (about 3.5 per cent of the Licence Fee) after
2013. This would be independent of the level at which the Licence
Fee would be set from 2013" (p 19).
237. Ben Bradshaw told us that, one of the reasons
that the Government left open the door to the use of a contained,
contestable element of the licence fee was a recognition that
there might be justified calls on that support from other public
service and publicly-valued areas like children's programming.
He said "The reason that we are prioritising regional news
is because we believe that the economics there are really
very urgent and that, if we do not do something quite rapidly,
the future of a plural provision of high-quality regional news
would come under threat. I think that would be something that
would be very bad for our democracy" (Q 2317).
238. There is no doubt that real options do exist
after 2012 for the support of public service broadcasters, and
for particular UK-originated programming. Funding would not come
from new taxes or charges but from using some of the proceeds
from the sale of analogue spectrum or from a small contribution
from the BBC licence fee.
239. Given the continuing decline in funding
for UK content provision, we recommend that the Government should
consider use of the proceeds of the sale of spectrum and a part
of the BBC licence fee.
QUOTAS FOR UK CONTENT
240. Another approach to supporting production
of UK content, would be to set quotas for transmission of UK content,
in those genres most under threat. This would increase demand
and funding for UK content.
241. PSB channels in the UK must currently comply
with UK content quotas, in accordance with s.273 of the Communications
Act 2003. Beyond news and current affairs, Ofcom has no powers
to mandate any other genres, such as children's programming.
242. The genres where gaps are emerging extend
beyond news and current affairs. Prior to the Communications Act
2003, the commercial PSBs were required to transmit specific amounts
of children's programmes. Some witnesses regretted the current
lack of quotas for these programmes.
243. Save Kids' TV's told us (p 335), "In
1996, the then ITC required the commercial PSB broadcasters to
transmit a minimum number of hours of original production with
quotas for particular genres. So for example ITV had to provide
77 hours per annum of Pre-school, 52 hours per annum of Factual/Information
and 70 hours per annum of Drama". It went on to say that,
following the introduction of the Communications Act 2003, "With
children's television placed in 'tier 3' ... Ofcom's resultant
'light touch' regulation left the broadcasters to their own devices,
in terms of hours and content commitments". Save Kids' TV
went on to recommend that quotas should be reintroduced for children's
244. Peter Phillips, Partner for Strategy and
Market Developments, Ofcom, said that the Communications Act 2003
had decided that "children's programming is a tier three
where broadcasters have to hear what our advice
is but where they can take their own decisions about what level
of that programming they choose to put in place. That was a conscious
decision that Parliament took, but clearly if you and your colleagues
in Parliament took a different view then, obviously, we would
give effect to that" (Q 2250).
245. Other witnesses opposed quotas for specific
genres. Michael Grade, Executive Chairman of ITV, said, "There
is £3.6 billion of public intervention in the broadcasting
market of this country, called the BBC. Channel 4 has a hidden
subsidy. It has no cost of capital; it has no shareholders to
pay; it does not pay for spectrum; so there is a hidden subsidy
at Channel 4. We make a huge contribution as a nation, willingly,
into the broadcasting sector. It is the job of the public sector
to meet these objectives not the private sector, which can no
longer afford to do it" (Q 1875).
246. Luke Crawley, Assistant General Secretary
of BECTU, said UK content quotas were difficult to enforce across
all channels and were "something that we would support generally,
but it is not something that we are prepared to put forward as
a solid idea. We think that it is a good idea in principle, but
it is not very clear. For example, how would it work with a channel
like Nickelodeon? Clearly that is not UK-originated. However,
we think it is quite important that there is some kind of encouragement.
Whether or not a quota is the right way to encourage broadcasters
to carry UK-originated children's programmes, I think it would
be one way of putting pressure upon them to do so" (Q 214).
247. As we have made clear, we are anxious to
encourage increases in children's programming and UK drama. We
believe, however, that the other measures we have proposed are
more hopeful than quotas, particularly at a time when the commercially-funded
PSBs face particular and practical difficulties.
248. Given the current financial constraints
on the commercially-funded PSBs, we do not think it is realistic
to introduce quotas on specific genres of television programming.
REGULATION OF EU CONTENT
249. As discussed in Chapter 3, television broadcasters
(including multichannel) are subject to the obligations of the
European Union Audiovisual Media Services Directive (AVMS). The
AVMS Directive requires that, "where practicable", more
than half of all programming on television channels should consist
of content produced in EU countries. In practice, for most UK
channels this means UK content. Ofcom provides guidance for broadcasters
on implementing articles 4 and 5 of the Directive,
250. It is not clear to what extent channels
currently meet the obligations of the Directive. Stewart Purvis,
Partner for Content and Standards, Ofcom, told us that, in 2005-2006,
about half of the 419 channels that Ofcom regulate met this requirement.
He went on to say "That shows that a large number are not
but in that you have to fit in all the news channels and the sports
channels, all the specialist channels which are not showing European
content" (Q 2274).
251. PSB channels comfortably meet this obligation:
the issue is for the non-PSBs. Kerry Neilson, Executive Director,
Satellite and Cable Broadcasters' Group, said, "All of our
members, in conjunction with Ofcom, with whom we work very closely,
are very careful to do what the Directive says and to stick to
what the rules of the Directive are. You have to remember that
some of the wording says "where practicable" (Q 1610).
252. Dr Carole Tongue, Chair of the UK Coalition
for Cultural Diversity, suggested that the AVMS Directive was
a way of increasing the EU (and thus UK) content of the cable
and satellite channels, as it does in countries such as Spain,
France and Italy, but went on to say that Ofcom could do more
to encourage these channels to comply with the Directive. She
said, "So far, Ofcom has not, as it were, engaged with the
non-terrestrial broadcasters in this country to encourage them,
over time, in a proportional wayfor example according to
longevity, audience and turnoverto increase the domestic
programmes they broadcast" (Q 438).
253. We recommend that Ofcom should work more
closely with cable and satellite channels based in the UK, to
explore ways of ensuring that the aim of the rule on European
content, as set out in the EU Audiovisual Media Services Directive,
POTENTIAL FOR FUNDING BY FEES
254. Four specific types of fees could be considered
as a means of raising additional funding for UK content. These
are: reuse fees; retransmission fees; search engine fees; and
broadband fees derived from Internet Service Providers (ISPs)
and phone operators.
255. Reuse fees are a tax on recording devices
that are used for recording copyright material. The purchaser
pays a small fee for the right to copy and retain a recording
of the material, thus allowing some value from the original copyright
to flow back to the creators of the material. In other words,
copyright holders are compensated for legally made copies of television
256. The UK Government does not impose reuse
fees. Currently, the revenue from the sale or rental of recording
devices goes to the manufacturer of the recording device. Although
it is the availability of content to record which makes the devices
attractive to consumers, no part of the revenue goes to copyright
holders. The UK is one of only a handful of EU countries that
do not use reuse fees. Steve Morrison, Chief Executive of All3Media,
said that, "The only countries that do not do it are Malta,
Luxembourg and Cypruswhich I believe are all too small
to run such a systemand the UK and Ireland who have not
yet seen the need to run such a system" (Q 637).
257. The system of reuse fees that already exists
in Europe (across the 22 EU states) generated 568m in 2004,
with most of the income being recycled back to copyright holders.
Ofcom told us (Q 2272) that they have not done any work on
the amount that reuse fees might raise in the UK, but one study
estimates that that they could generate around £175m per
annum by 2012 in the UK.
258. The Government does not favour the introduction
of reuse fees. Digital Britain states that, as broadcasters in
the UK already benefit from substantial public intervention, such
as the licence fee and spectrum allocation, the Government is
not persuaded to introduce such fees, particularly in the current
economic climate. However it will keep the situation under review.
259. Ben Bradshaw, Secretary of State for Culture,
Media and Sport, told us, "We have left the door open to
reuse fees in future. We have asked Ofcom to keep this under review,
but we felt that the current time with the state of the market
was not the time to think about introducing them now. It is certainly
not something that we would rule out in the future. However,
a lot of people who look at other models in other countries and
suggest levies sometimes ignore the fact
, that we already
have the biggest intervention in the market of any country in
Europe through the licence fee" (Q 2344).
260. Lord Carter of Barnes, then Minister for
Communications, Technology & Broadcasting, also told us that
part of the reason why there is no use of fees and levies in the
UK is "because we do have a big intervention in this market.
We have £3.6 billion a year of taxpayers' money
whilst there are countries in Europe which do use such mechanisms
for raising money they do not have anything approaching that level
of intervention of public funding
It would be quite difficult,
I think, to argue the case that we should do both" (Q 1781).
However, the argument that the UK has the highest level of public
intervention is not supported by Europe-wide data, which show
that the UK's licence fee revenue comes seventh out of 13 countries
on a per capita basis (behind Germany, Austria and the Scandinavian
countries, all of which have reuse fees). Denmark raises the highest
revenue per capita from the television licence fee.
261. Retransmission fees are paid to the copyright
owners by those who own channel distribution systems or "platforms"
in return for the right to replay programmes on their systems.
These were advocated by BECTU
and Steve Morrison, who told us that they are used in 30 countries
in Europe (Q 638). Luke Crawley, Assistant General Secretary,
BECTU, said that retransmission fees are applied "just about
everywhere in Europe and in some ways we are, surprisingly, a
rather anomalous country for not doing it. The re-transmission
could bring in as much as £63 million a year" (Q 208).
In the US, this principle of obtaining "fair compensation"
was recently endorsed by News Corporation's chairman Rupert Murdoch
in respect of his company's Fox television network: "we will
be seeking retransmission dollars from our distributors. Asking
cable companies and other distribution partners to pay a small
portion of the profits they make by reselling broadcast channels
will help to ensure the health of the over-the-air industry
262. BSkyB, however, argued against, saying "You
would be robbing Peter to pay Paul. If you restrict our ability
to invest in programming, we will do less of it and that is the
effect that a levy would have" (Q 1998). This was also
the view of the Satellite and Cable Broadcasters' Group (Q 1601).
Digital Britain stated that the Government "remains unconvinced"
that such a fee would "generate the necessary future revenues
to fund content creation in the UK, without unacceptably adverse
263. Ben Bradshaw, Secretary of State for Culture,
Media and Sport, told us that the Government does not favour retransmission
fees (Q 2345). He said, "The work we did during the
preparation of the White Paper showed that the current arrangements
on satellite transfer no value to PSBs, because the retransmission
fees are offset by the carriage fee. This might be different from
other European countries" (p 528).
264. Search Engine Fees. Another possible funding
mechanism would be a fee on search engines such as Google and
Yahoo! which routinely use copyright material from other organisations
and content creators to drive their own page impressions and thus
generate significant advertising revenue. A recent proposal along
these lines in France estimated that such a levy would raise 10-20
million a year.
265. Broadband/mobile fees. A final suggestion
was fees derived from ISPs and mobile phone operators which increasingly
benefit from the use of third party creative content but pay nothing
towards it. Both France and Spain have recently decided to impose
such levies, which can work either as a small annual fee paid
by each subscriber or as a percentage tax of annual revenue. These
have not been employed in many countries because most governments
are, as in the UK, keen to encourage broadband take-up.
266. Dr Carole Tongue, Chair of the UK Coalition
for Cultural Diversity, said that "The report by the NUJ
and BECTU, written by the IPPR,
says that if you levied one per cent on mobile phone operators
or internet service providers, that would produce a revenue to
drama/film/documentary, depending on where you directed it, of
£210m. If you levied one per cent on video-on-demand providers/Virgin
Media and BSkyB, that would produce £70m" (Q 438).
267. Commenting on the general applicability
of fees, Luke Crawley, Assistant General Secretary of BECTU, said,
"There is no doubt that these are used as mechanisms for
raising funds in other countries, which are then used to subsidise
one form or another of public service broadcasting, and we think
they could be used here and could produce the kind of money that
is necessary" (Q 208). Jocelyn Hay, Honorary President,
Voice of the Listener and Viewer, agreed, "We, again, were
very disappointed last year when Ofcom produced its review of
public service broadcasting that it did not take more notice of
a suggestion put forward particularly by Steve Morrison from All3Media,
that levies on a range of different providershardware,
software, equipment manufacturers, all kinds of thingsshould
be looked at as an alternative source of funding". (Q 1533)
268. Although we do not favour the introduction
of industry fees in the current economic climate, we believe that
the Government should ask Ofcom to assess research already done
on possible use of fees in the UK, and commission them to conduct
further research to reach firm conclusions on the likely costs
and benefits of such fees. This would provide a firm basis on
which Parliament might make any future decisions.
INDEPENDENT PRODUCTION COMPANIES
AND UK CONTENTTERMS OF TRADE
269. The Terms of Trade enable independents to
retain control of a share of intellectual property rights when
they create programmes for broadcastersdiscussed in Chapter
3. Following their introduction, the sale of primary TV rights
continues to be the main source of revenue for the independent
sector. This income grew both absolutely and as a proportion of
the independent sector's total television income.
Independents used the resulting revenues to contribute £126m
in UK content in 2008, to the overall £3.5bn UK television
content sector (p 78). Recent estimates
indicate that the independent production sector creates 49 per
cent of all new UK television programmes each year across the
270. Digital Britain
states that "The Terms of Trade have benefited both broadcaster
and producer: they recognise the producer's ownership of the creative
property but also oblige the broadcaster to pay only for that
element they actually wish to usea feature that has reduced
by more than a quarter the previous production costs to broadcasters".
This point was made to us by John McVay, Chief Executive, PACT
who said that the Terms of Trade "created a more shared risk
and more shared value and reward for the investment and the exploitation
of British content. So, I would not say that either party is dominant".
He added that the Communications Act introduced codes of practice
which "do not dictate the terms that are subsequently negotiated.
Those terms are negotiated between ourselves and the four regulated
broadcaster concernedBBC, Channel 4, ITV and Five. So,
it is a market negotiation and that market negotiation reflects
the differences/changes in the market. I would say that, like
any negotiation, you win something out of that and you lose something
out of that but, at the end of the negotiation, by and large,
most people have walked away reasonably satisfied that the terms
they achieved were equitable" (Q 335).
271. However, some broadcasters thought that
the pendulum had swung too far. Since 2006, when the television
industry felt the effects of worsening economic conditions and
falling advertising revenues, the situation has changed appreciably.
Andy Duncan, Chief Executive, Channel 4, said, "Broadcast
terms of trade have been incredibly helpful for the independent
sector and many companies have benefited enormously from that.
They came from a time when the broadcasters were in a much more
dominant position than arguably they are today. The Channel 4
position is broadly supportive, that they should sustain at least
for the foreseeable future. My own personal view
when you take a step back now it is rather bizarre that the four
or five big super indie groups who now represent some 70 per cent
of the market, and some bigger than Channel 4, have intervention
to help them" (Q 2223).
272. Digital Britain
concludes that the Terms of Trade have worked well but, as there
have been changes such as new entrants to the market and the evolution
of large independent producers, it proposes a review of the relationship
between independent producers and broadcasters.
273. We welcome the positive impact that the
Terms of Trade have had on the growth of the independent production
sector, and the benefits this has had on the sector's contribution
to UK content. We support the Government's proposal to review
the Terms of Trade, in the light of changes in the independent
production sector and the impact they can have on the commercial
'PROJECT KANGAROO' AND ITS IMPLICATIONS
274. A further way of British television companies
generating additional revenueto the potential benefit of
investment in UK contentis through the development of online
video on demand.
275. 'Project Kangaroo' was a proposed video
on demand joint venture between BBC Worldwide, ITV and Channel
4. It was originally devised as a joint operation amongst the
PSBs to enable the UK to recoup the online value of its content.
This would have been supported by advertising, but with the potential
of payment for downloads of older material. It would have owned
its own material, and derived revenue (and profits) from making
that material available via the Kangaroo platform.
276. The project was blocked by the Competition
Commission in 2009, as it felt it would be too much of a threat
to competition in a developing market. In a joint statement, the
partners in the project said that the decision was "an unwelcome
finding for the shareholders" and that "the real losers
from this decision are British consumers".
277. A number of other witnesses, including the
Voice of the Listener and Viewer, also regretted the Competition
Commission's decision to prevent Kangaroo from proceeding, as
they all felt that the outcome was against the public interest.
Andy Duncan, Chief Executive, Channel 4, said, "
Kangaroo decision is a big mistake in defining markets so narrowly.
In my view, they did not see the bigger picture" (Q 2226).
The only witness who was in favour of the Competition Commission's
decision was BskyB, because they felt that the involvement of
the BBC, with its dominant position in terms of content production,
would be problematic (Q 2009).
278. Whilst it is rare for the Competition Commission
to consider the public interest in most investigations, the Enterprise
Act 2002 provides a mechanism for the Secretary of State to intervene
where he considers there may be public interest issues relating
to media ownership, in order, amongst other things, to protect
the availability of a wide range of high quality broadcasting.
However, in this case the Secretary of State did not intervene
as "it was judged at the time that there was no evidence
that the projected joint venture would give rise to serious public
interest concerns" (p 528). Therefore, the Competition
Commission was only able to assess it on competition grounds and
did not consider the public interest.
279. In our view, the decision to block Kangaroo
will inhibit the opportunity for UK content producers to create
a stream of revenue, which might have been used for investment
in UK content.
The specific risk is that the market is now open to US video on
demand ventures such as Hulu.
Michael Grade, Chairman of ITV told the Committee that he guaranteed
"that the net result of that Competition Commission decisionwhich
in their own terms I am sure was the correct decision from the
way they look at itwill be that the Americans will take
the lion's share of the internet value in our content in this
country very soon" (Q 1856). It appears to us likely
that the Government did not understand the full implications of
the failure to intervene in the Competition Commission's investigation.
280. There is a serious risk that the UK will
lose out by the decision to block Project Kangaroo and we strongly
regret the Government's failure to intervene in the Competition
Commission's investigation. We urge that, if other similar UK-based
video on demand projects are proposed, the Government will ensure
that the implications for the British television industry are
properly taken into account.
72 House of Lords Communications Committee Report on
Public Service Broadcasting: Short-Term Crisis, Long-Term
Future? (HL 61) Session 2008-09 Back
Paragraph 24, p.141 Back
HM Government 'Operational Efficiency Programme: Asset Portfolio',
7 December 2009 Back
Guardian article, 'Government urges BBC to consider Worldwide
sell-off', 8 December 2009 Back
Public Service Broadcasting: short-term crisis, long-term future?
Second Report of Session 2008-09, HL Paper 61 Back
Ibid, p 17 Back
Ibid, p 18 Back
House of Lords Official Report, Column 746, 2 December 2009 Back
Public Service Broadcasting: short-term crisis, long-term future.
Second Report of Session 2008-09, HL Paper 61 Back
Ofcom: Future pricing of spectrum used for terrestrial broadcasting-A
Statement, June 2007 Back
Paying for Public Service Content-a role for spectrum pricing.
A report by Human Capital for the BBC, September 2009 Back
House of Lords Communications Committee report, Public service
broadcasting: short-term crisis, long-term future? (HL 61) Session
These include: Hard disk recorders; Video Cassette Recorders;
blank DVDs; DVD Recorders. Back
Digital Britain, Final Report, June 2009, p.119 Back
Ibid, Paragraph 65 Back
Ibid, Paragraph 66 Back
European Audiovisual Observatory Yearbook Online Premium Service
Broadcasting, Entertainment, Cinematograph and Theatre Union Back
The Times, 17 October 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/media/article6878611.ece Back
Digital Britain, Final Report, June 2009, Paragraph 61 Back
Guardian 8 January 2010, http://www.guardian.co.uk/technology/2010/jan/08/google-tax-ad-revenue-france Back
Mind the Funding Gap: The potential of industry levies for continued
funding of public service broadcasting, An IPPR report for BECTU
and the NUJ, March 2009 Back
TV rights income grew from £1.1 bn in 2004 to £1.4 bn
in 2008, while total indie income grew from £1.5 bn in 2004
to £1.9 bn in 2008. 2009 PACT census Back
Ofcom Communications Market Report 2008 Back
Paragraph 99, Digital Britain, Final Report, June 2009 Back
Action 15-In light of new entrants to the market, new business
models and new distribution channels, it makes sense to have a
forward look at how the relationship between independent producers
and those who commission their ideas could evolve. Back
Guardian article, "Project Kangaroo blocked by Competition
Commission", 4 February 2009 Back
There has only been one use of the Public Interest Test by the
Competition Commission since the Enterprise Act 2002 came into
force-Acquisition by British Sky Broadcasting Group plc of
17.9 per cent of the shares of ITV plc, Competition Commission
report, December 2007.This case was referred to in the House of
Lords Communications Committee report, The Ownership of the
News, HL 122, 2007-08 Back
Another joint venture currently under consideration is Project
Canvas, an example of internet protocol television (IPTV), in
which the BBC, ITV and BT (and more partners to be included) are
developing a broadband Freeview service that could see on-demand
programming, made available via television sets. Project Canvas
is not of direct relevance to our inquiry, as it would not generate
a stream of revenue which might be invested in UK content. Back
Hulu offers a mix of advertising-funded British and American programmes Back