The British Film and Television Industries - Communications Committee Contents


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 the world.

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 in Europe … Over the past four years, BBC Worldwide has generated £200 million for independents from its commercial activities" (p 347).

214.  BBC Worldwide could undoubtedly expand further. In an earlier report[72], 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"[73]. In December 2009, the Government announced[74] 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 the BBC."

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."[75] 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 to … see if the Government can help us address, and the tax credit system … we would like to see that extended to animation, especially for kids, which we fear is suffering particularly badly" (Q 1425).

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.

REGIONAL NEWS

227.  In our report on Public Service Broadcasting of April 2009[76], 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."[77] 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[78].

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."[79] 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[80], 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[81], 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[82] 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" (Q 2085).

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[83] 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 programmes.

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 obligation … 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 way—for example according to longevity, audience and turnover—to 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, is met.

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[84] 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 programmes.

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 Cyprus—which I believe are all too small to run such a system—and 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[85]. 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[86] 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[87].

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 … and 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[88].

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[89] 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 in America."[90]

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 consequences"[91].

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.[92]

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[93], 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 providers—hardware, software, equipment manufacturers, all kinds of things—should 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 CONTENT—TERMS OF TRADE

269.  The Terms of Trade enable independents to retain control of a share of intellectual property rights when they create programmes for broadcasters—discussed 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.[94] 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[95] indicate that the independent production sector creates 49 per cent of all new UK television programmes each year across the PSB channels.

270.  Digital Britain[96] 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 use—a 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 concerned—BBC, 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 … is that 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[97] 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 PSBs.

'PROJECT KANGAROO' AND ITS IMPLICATIONS

274.  A further way of British television companies generating additional revenue—to the potential benefit of investment in UK content—is 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"[98].

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, "… the 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[99]. 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[100]. The specific risk is that the market is now open to US video on demand ventures such as Hulu[101]. Michael Grade, Chairman of ITV told the Committee that he guaranteed "that the net result of that Competition Commission decision—which in their own terms I am sure was the correct decision from the way they look at it—will 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

73   Paragraph 24, p.141 Back

74   HM Government 'Operational Efficiency Programme: Asset Portfolio', 7 December 2009 Back

75   Guardian article, 'Government urges BBC to consider Worldwide sell-off', 8 December 2009 Back

76   Public Service Broadcasting: short-term crisis, long-term future? Second Report of Session 2008-09, HL Paper 61  Back

77   Ibid, p 17 Back

78   Ibid, p 18 Back

79   House of Lords Official Report, Column 746, 2 December 2009 Back

80   Public Service Broadcasting: short-term crisis, long-term future. Second Report of Session 2008-09, HL Paper 61 Back

81   Ofcom: Future pricing of spectrum used for terrestrial broadcasting-A Statement, June 2007 Back

82   Paying for Public Service Content-a role for spectrum pricing. A report by Human Capital for the BBC, September 2009 Back

83   House of Lords Communications Committee report, Public service broadcasting: short-term crisis, long-term future? (HL 61) Session 2008-09 Back

84   These include: Hard disk recorders; Video Cassette Recorders; blank DVDs; DVD Recorders. Back

85   Digital Britain, Final Report, June 2009, p.119 Back

86   Ibid, Paragraph 65 Back

87   Ibid, Paragraph 66 Back

88   European Audiovisual Observatory Yearbook Online Premium Service 2008 Back

89   Broadcasting, Entertainment, Cinematograph and Theatre Union Back

90   The Times, 17 October 2009, http://business.timesonline.co.uk/tol/business/industry_sectors/media/article6878611.ece Back

91   Digital Britain, Final Report, June 2009, Paragraph 61 Back

92   Guardian 8 January 2010, http://www.guardian.co.uk/technology/2010/jan/08/google-tax-ad-revenue-france Back

93   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

94   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

95   Ofcom Communications Market Report 2008 Back

96   Paragraph 99, Digital Britain, Final Report, June 2009 Back

97   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

98   Guardian article, "Project Kangaroo blocked by Competition Commission", 4 February 2009 Back

99   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

100   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

101   Hulu offers a mix of advertising-funded British and American programmes Back


 
previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2010