The British Film and Television Industries - Communications Committee Contents

Examination of Witness (Questions 1798-1893)

Mr Michael Grade CBE

14 OCTOBER 2009

  Q1798  Chairman: Welcome. Thank you very much for coming. As you know, we are looking at the film and television industries, trying to see what more can be done by governments to help in their development. You, with your very extensive experience, should be in a good position to advise us on that. Apart from your television experience, of course, you are still Chairman of Pinewood, are you not?

  Mr Grade: Indeed, yes, My Lord Chairman.

  Q1799  Chairman: Thank you for your evidence and we will come to that evidence in a moment. Bring us up to date, will you, on your own position? When we first interviewed you, you were Chairman of the BBC. You resigned from that. Now you have resigned as Chairman of ITV. Why have you done that?

  Mr Grade: I have not resigned. I have indicated to the board that I think it is time for them to find a successor as CEO and a successor as Chairman, because I have been combining, on a temporary basis, the two roles and, at my age, I do not think I am the great, long-term future of ITV. The reason I came in as Chairman and Chief Executive was that the previous process to find a CEO successor had run into the ground. The shareholders supported my appointment; I have done just about three years, and I think it is time to clear the decks and leave it for the next generation to take it on from here. That is the story. I am still here, until we find a Chairman.

  Q1800  Chairman: We will come to that as well. You were Executive Chairman, were you not—which you have just said?

  Mr Grade: Correct.

  Q1801  Chairman: Against most of the guidance on corporate governance. Do you think that underlines the wisdom of that guidance: that Executive Chairman is not a good position to be in any more?

  Mr Grade: I think the only basis upon which you can create such a structure is with the support of shareholders, which is exactly what happened on my appointment.

  Q1802  Chairman: Then what happened afterwards? Was it the perception of shareholders that the Executive Chairman role was not working out?

  Mr Grade: No. I was initially going to do both jobs for three years. The board, with the full knowledge and approval of the shareholders, asked me to do an extra year, so that we did not go through a disruptive succession process before the new team that I had recruited had had a chance to settle in and show what they could do. In the event, because of the timetable for various huge strategic decisions that we were going to have to make as a company, I went to the board and said, "I think we should bring this succession process forward", and that is how it came to be brought forward.

  Q1803  Chairman: Then your intention was to become the non-executive Chairman, was it not?

  Mr Grade: That was certainly the intention at the outset. I do not think that will work now. I think that probably I have to move on and leave a clean sheet for a new team to come in.

  Q1804  Chairman: Because one of the people who might have become the Chief Executive apparently made it a condition that he would have a great say in who was the Chairman, reversing the normal roles in these things.

  Mr Grade: The process is being run by the non-executive directors of the company under the senior independent director. I am not part of that process; I am not part of the conversations that may or may not go on with prospective candidates. If the nominations committee wants me to meet candidates in order that I can brief them and give them a deeper understanding of the issues and so on, I obviously do that, but I am not part of the appointments process.

  Q1805  Chairman: And you are leaving with no hard feelings?

  Mr Grade: Not at all. I feel that I will be leaving on the basis that the business, provided we get a recovery, is in exceptionally good operational health on every front, in terms of audiences, in terms of advertisers' support, in terms of our content creation—our content business is booming, particularly in the United States; we are moving forward with some great plans online. I think that we are in very good shape to take full advantage of the advertising recovery. The biggest agenda item for me for the last three yeas has been the regulatory issues, which are stifling the ability of ITV to grow.

  Q1806  Chairman: We will certainly come on to those. When exactly do you leave?

  Mr Grade: I will leave when a new Chairman is identified and actually in post.

  Q1807  Chairman: It sounds to me, from reading the press on the negotiations that are taking place, that may be some time.

  Mr Grade: It will take however long it takes to identify the right candidate and secure the right candidate.

  Q1808  Chairman: Are you surprised it is taking—

  Mr Grade: No. What surprises me is the extent to which this is being played out in the public arena, which is unfortunate. We are certainly not short of advice from our colleagues in the Fourth Estate. I have to say, coming in to work each day as I do, I feel as if I am inhabiting a parallel universe. There is the ITV business, which is going extremely well—and certainly the markets were very pleased with our statements yesterday and the work that we have done to manage this business through, I repeat, the worst recession in the history of ITV. Operationally, the business is booming. We have never had bigger audiences for years. ITV even has a comedy hit in Benidorm, which has not happened since Mafeking was relieved!

  Q1809  Chairman: So why is there so much difficulty in finding a Chairman?

  Mr Grade: There is not. In all companies, in any succession process, you go through all kinds of ups and downs in the process; people change their minds; we change their minds; something goes wrong. This is no different to anybody's process. What is different is that there is a sort of round-by-round commentary going on in the media, because the media, as I am sure this Committee will not need me to tell it, is utterly self-obsessed. We get more ink than we should get really, but that is a fact of life.

  Q1810  Chairman: Whose fault is that?

  Mr Grade: Nobody's fault. It is just a fact of life. Fortunately, the most important thing for us is that all this febrile speculation, upon hypothesis upon rumour, presented as fact, that one reads every day in the newspaper, is passing our viewers by as a non-event; because 15 million of them are turning up at the weekends to watch ITV.

  Q1811  Chairman: So all those stories about ITV being in crisis—and I have numerous cuttings, which doubtless you have seen—you would deny that?

  Mr Grade: The business certainly is not in crisis by any stretch of the imagination. The business is performing operationally as well as it has performed for many, many years. By any KPI, by any key performance indicator, this is a business that is being managed extremely well by the team I recruited.

  Q1812  Chairman: So you see a future for ITV as the company it now is?

  Mr Grade: If ITV is left to run as a business, then it will be very successful. By "successful" I mean it will attract viewers; it will attract advertising revenues; and, most important, will be able to show a return for its shareholders, which it cannot do at the moment because of all the issues that you understand well—about the value of our licences and the regulatory constraints that are put upon us.

  Q1813  Chairman: When it comes to it, you are really standing by this evidence? I ask this because the evidence you sent in is dated 27 March, but basically you are saying that that evidence is still very much up to date.

  Mr Grade: I think it pretty much is. There are some subsequent publications by Ofcom and the Digital Britain report, which have put dates and sums of money and verified a lot of the things that we have said; so, by and large, yes, My Lord Chairman.

  Q1814  Chairman: One factual question. I am not asking you to comment on a market position or what might or might not happen, but could you confirm one point as a matter of fact? Since the Communications Act 2003, ITV can now actually be taken over by an American company, although there are no reciprocal arrangements for ITV to do the same in the United States.

  Mr Grade: I believe that the statutes allow that, yes.

  Q1815  Lord Macdonald of Tradeston: The Committee obviously has a particularly interest in the future of the programme production business in the United Kingdom. I wonder if you could look back over the last three years and tell us what the average spend was, and perhaps share with us what your business plan might be for, say, the three years ahead in terms of original content of production spend in the UK.

  Mr Grade: I think as a whole, across all the ITV channels, we have probably spent an average—I will check this number and if my number is incorrect at this point we will write to you and give you a precise figure—I think we have spent around £750 million to £800 million a year on original production across all our channels: both our public service channel and our digital channels. That is being reduced at the moment because of the sudden reduction in the advertising revenue, and we will be saving about 15 to 20 per cent on our programme spend over the next two to three years, on an annualised basis.

  Q1816  Lord Macdonald of Tradeston: Is that reduction influenced by what was your declared policy of taking work in-house and investing in UK production for sale abroad? Has that been bunched a bit in the last year or two and, if you are going, will it mean the production business will run down?

  Mr Grade: It all depends on the state of the advertising market. Eighty per cent of our revenues comes from spot advertising. I could not tell you what December is going to be in terms of ad revenue. You tell me what the ad market is going to do over the next three years and I will tell you what we can afford to spend on programming. It is a simple equation. We have the three to five year plan, but obviously that is subject always to the vicissitudes of the advertising market.

  Q1817  Lord Macdonald of Tradeston: What about the split between your investment and programmes for ITV1 and the investment being made in the other portfolio channels that ITV is investing in?

  Mr Grade: We have increased investment in ITV2. ITV3 is essentially an archive channel which runs narrative drama from our archives and from recent offerings on ITV1. ITV4 has a lot of original commissions, some sport, some movies and so on; but, compared to what we spend on ITV1, it is a much smaller proportion. I think we increased our spend on the digital channels by £20 million last year, and that has paid off because those three digital channels are one of the great success stories of ITV in the last few years. They are growing at a considerable rate.

  Q1818  Lord Maxton: You describe this as UK content, but at the present time some of that content is not available to people using terrestrial television in Scotland. I wonder if you could update us on the dispute you are having with STV and the threat that this might pose to STV in Scotland.

  Mr Grade: There were two issues in that question. Perhaps I may separate them, because they are not really related. We have a commercial dispute with STV, which is extremely regrettable. We are shareholders in STV and we are also partners with them in the ITV network. You do not like to sue your partners, but we have a fiduciary responsibility to our shareholders. If we think people owe us money, we cannot treat them any differently from how we would any trade debtor. We therefore have to pursue that, which is a great shame. We tried everything to reach a settlement with them but we were unable to. The other issue is that STV, for different publicly stated reasons, has been denying Scottish viewers some of the best programmes on ITV—Doc Martin—

  Q1819  Lord Maxton: The Bill?

  Mr Grade: The Bill and a number of others. I am desperately sorry for Scottish viewers, who expect to see the full panoply of ITV schedule on STV. I think that originally STV were on record as saying that they wanted to make STV more reflective of Scottish culture and Scottish creativity; but, looking at how they have replaced some of the ITV shows with American cartoons and other things, I think that they have finally had to say that it is for economic reasons. I think it is a great shame and I am really sorry for Scottish viewers. We do everything we can to make those programmes available on our digital channels, to make sure that Scottish viewers are not denied access to some of the best programmes on British television.

  Q1820  Lord Maxton: Negotiations are continuing?

  Mr Grade: There is a review by Ofcom presently of what we call the networking arrangements, which is what governs our relationship with the two licences in Scotland, with Ulster and with Channel television. That is being reviewed by Ofcom and hopefully we will find a way through this. It is clear, however, that the old federal system, of which this is the last remnants—these networking arrangements between the consolidated ITV and what we call the non-consolidated licences, Scottish, Ulster and Channel—is a system that is now in deep disrepair and needs fixing. It is not difficult to fix; it should just be fixed on the basis of a business/commercial arrangement between us all.

  Q1821  Baroness McIntosh of Hudnall: Mr Grade, could we go back to the question about how the quantum of spend on UK-originated programming is divided up as between types of programming? You have talked about an investment of upwards of £800 million, although you say that it is likely to be scaled back by quite a significant amount.

  Mr Grade: It is being scaled back.

  Q1822  Baroness McIntosh of Hudnall: It is being scaled back, so we will be talking more around £700 million—

  Mr Grade: We will give you the exact figure. I am rather nervous about giving guesswork.

  Q1823  Baroness McIntosh of Hudnall: I understand, but the implication of that is there will be some cuts.

  Mr Grade: Yes. No question.

  Q1824  Baroness McIntosh of Hudnall: In your evidence you talk about the contribution that ITV makes, and I am quoting now. "ITV1 makes a vital contribution to reflecting and strengthening the UK's cultural identity, bringing a substantial part of the UK together. For example, the X Factor and Britain's Got Talent finals were the two most watched Saturday night shows in 2008 on any channel"—which is great and an achievement not to be overlooked. However, it would be open to us to imagine that, of that £700 million or £800 million that you are spending, it is not evenly shared out between different genres of programming; that a lot of it probably is being spent on the things which will attract or have been proved to attract high audiences; and that some things, which are either or both too expensive and do not attract high audiences, will slip away. In terms of cultural identity, however, they may well be very significant. I am talking about original drama and I am also talking about children's programming, from which I know you have largely retreated except in very limited circumstances. Can you talk to us a bit about how you see the portfolio of programme type within ITV in the future and what responsibility you think ITV still has to some of those significant but perhaps quite expensive forms of programming?

  Mr Grade: First of all, ITV's stock in trade, our business model, is based on high investment in high-quality programmes, UK-produced. That is what we do. There are no—presently and there have not been for some time—I think in my three years at ITV we have had one short American series in prime time; and if you go back to the so-called golden age of broadcasting, pre-digital, pre-Sky, the BBC1 schedules, the ITV1 schedules, were packed with American material. Hawaii Five-0, Kojak, Starsky and Hutch, Six Million Dollar Man, Dynasty, Dallas, et cetera—these were the lynchpins of the schedule. You do not see them on the main channels today, because Doc Martin, Benidorm, The Fixer, The Bill—these are programmes that are more popular than American material. That is our stock in trade. We have a huge commitment, because our business depends on our ability to invest. Given the competitive nature of broadcasting today—where we face competition not just from Channel 4, Sky, Five, and the digital channels in terms of TV advertising, but we face huge competition from the internet and so on, who are trying to chip away at our revenue base—we have to be absolutely free to make the programme choices, the genre choices, the investment decisions that suit our business. We are no longer a monopoly: far from it. In the days when we were a monopoly it seemed to me perfectly proper for Parliament to decide that, in return for this monopoly, we should do certain good things, good works, but that age has passed; we are still left with remnants of it. We must be absolutely left free to run our business as a business, in order to protect the investment we make in British production. We cannot be told what programmes to make; nor should we be told who should make them; nor should we be told where to make them—which is the case at the moment.

  Q1825  Baroness McIntosh of Hudnall: On the question of who makes them, for example, can you talk a little about your relationship with independent producers and what proportion of your spend goes out of house and what stays in-house in creating your programming?

  Mr Grade: Our track record presently is that around 50 per cent of our original commissions go to the independent sector. We have a 25 per cent minimum quota. We have regulated terms of trade with suppliers, which seems to me to be an absolutely anomalous and iniquitous situation. However, we are very happy to do business with independents. The network is charged with getting the best programmes from whatever source, whether it is ITV Production's share of the network, our own production business; their share of our ITV network commissions has been dropping over the last three years. It is an absolute meritocracy. What I find iniquitous is that we have regulated terms of trade with independent producers. We must be the only business in the world that pays 100 per cent for something and does not own it at the end of it.

  Q1826  Baroness McIntosh of Hudnall: We may come on to that later, but can I ask you one other question about—

  Mr Grade: I am happy to do so.

  Q1827  Baroness McIntosh of Hudnall: I am sure. Some of the programming that you are creating, some of which is indeed extremely popular, is formatted; that is to say, it can be replicated elsewhere.

  Mr Grade: Yes.

  Q1828  Baroness McIntosh of Hudnall: As a matter of interest, can you tell us how much of that selling-on of format is done by ITV itself and how much is done through the independent companies who make the programmes?

  Mr Grade: The fastest-growing segment of our business presently in revenue terms is our international production business. You may have seen in the cuttings recently that our team went to the United States and sold an American-formatted version of Prime Suspect. We have just co-produced with Americans a new version of The Prisoner—which you are all far too young to remember! Patrick McGoohan and the bouncing ball.

  Q1829  Chairman: Speak for yourself!

  Mr Grade: We have just re-made that. It is a fast-growing and a very important part of our business.

  Q1830  Baroness McIntosh of Hudnall: Would it be fair to say that the things it is possible to do that with are on the whole of a more generic nature?

  Mr Grade: You never know what is going to sell. The market changes very fast. If Prime Suspect is the hit I hope it will be and I think it will be in America, suddenly every American door will be open for British drama formats. The American market is very much fad-driven. As soon as you have a success in a certain genre, the doors are opened again. However, we are having great success with our international production business. I am very pleased about that.

  Q1831  Lord King of Bridgwater: You have fairly said that it is not for somebody else to tell you how to share out the completely different genre that you produce. However, this is an inquiry into the British film and television industries, and you make plain in your submission the amount of UK content that there is in there. I can find no distinction in there between a quiz show and things like the X Factor moving up, when a lot of people may instinctively feel—we are talking about film and television and we are talking about UK content—that perhaps drama and that end of it is a more interesting area, in terms of developing British content. What actually is the proportion of UK content that you segregate out? I am not trying to tell you what it should be; what are you actually doing?

  Mr Grade: I do not have the numbers in my head.

  Q1832  Lord King of Bridgwater: Would I be right in thinking it is 75:25?

  Mr Grade: I do not know.

  Q1833  Lord King of Bridgwater: Is that wildly wrong?

  Mr Grade: Seventy-five ... ?

  Q1834  Lord King of Bridgwater: Seventy-five per cent in what I call the quiz shows, the X Factor

  Mr Grade: Entertainment.

  Q1835  Lord King of Bridgwater: In other words, non-drama. Popular shows—nothing wrong with that, but—

  Mr Grade: I am not evading the question. I honestly have never looked at that as a segment, but we will certainly give you the answer.

  Q1836  Lord King of Bridgwater: Let me put it another way round. You talked about probably reducing your budget this year to perhaps £600 million; possibly a cut of £150 million, if I have got it right, from the figures you gave. You said 15 to 20 per cent.

  Mr Grade: It is over three years.

  Q1837  Lord King of Bridgwater: It is an annual figure, is it not?

  Mr Grade: Yes. It escalates up, because the shows that you see on the screen this year were committed a year or more ago, many of them; so it takes time to reach that target, for that to unwind.

  Q1838  Lord King of Bridgwater: So how much do you think you are actually putting into drama and film?

  Mr Grade: We do not make movies; we do not invest in movies. For historic reasons we did have an investment in the movie The Queen, which the Granada unit produced. We have reduced our drama output, under the current economic hardships, from eight hours a week of original drama to seven hours. This has been portrayed as the end of drama as we know it. The fact is that there has been more original drama in the ITV schedule this autumn, from Wuthering Heights to The Fixer to Benidorm to Doc Martin, et cetera. So we have reduced drama by one hour a week, of origination.

  Q1839  Lord King of Bridgwater: Can I repeat the question? You gave us a figure of £750 million to £800 million, coming down by 15 to 20 per cent, and that is UK-produced content. How much of that is drama?

  Mr Grade: Can I consult colleagues to see if anyone has the number in their head? Drama in 2008, we spent 50 per cent of our total programme budget on drama. In 2009, I think probably 47½ per cent.

  Q1840  Lord King of Bridgwater: You mean about £400 million was spent on drama?

  Mr Grade: No, because the total origination budget will include things that are not on my list, which includes regional news, regional programming and so on. I include that in the total of original spend.

  Q1841  Lord King of Bridgwater: I do not want to trap you in any way. We are just trying to get a picture of what the ITV contribution is to the British film and television industries in terms of UK production—it is a commercial matter—in terms of the capacity of the UK to earn overseas and to be an asset in that way.

  Mr Grade: Perhaps I can help you a little bit here. We will give you some greater detail but, looking at the figures that are in front of me, in 2009, on drama, entertainment and comedy, we will spend around half a billion pounds. That is excluding factual news, religion, arts, children, daytime and regional. I am sorry, but I am not used to looking at those figures in that way.

  Q1842  Chairman: We might try to get all that agreed afterwards perhaps.

  Mr Grade: Certainly.

  Q1843  Chairman: You mentioned Wuthering Heights. I watched Wuthering Heights and I thought it was extremely good. Will Wuthering Heights cover its costs?

  Mr Grade: No.

  Q1844  Chairman: So you are doing it really as a service, are you?

  Mr Grade: No. It will cover its costs and it will make a small profit. Will it get a proper return on the investment? Probably not.

  Q1845  Chairman: So why are you doing it?

  Mr Grade: Because you do not know that ahead of time. You think it will.

  Q1846  Chairman: You actually thought that it would do better commercially?

  Mr Grade: Yes. It is very possible—and I am not up to date on how well it is doing in the export market—I may well get a surprise and find that it has sold exceedingly well, because of the British reputation for producing series of that quality. We are the only country in the world that produces that kind of material and there is a good demand for it. We will have made a small amount of money on it, but we would not have got a proper return on the investment.

  Q1847  Baroness Bonham-Carter of Yarnbury: I read an interesting article that, because of the popularity of Twilight and the fact that Wuthering Heights had a certain vampire element to it, it is going to do very well in America.

  Mr Grade: I hope you are right.

  Q1848  Baroness Bonham-Carter of Yarnbury: As a nurturer of talent in your career in television, I think we have got a sense that people out there are finding it difficult—new people, new talent are finding it difficult—to get their ideas onto the main channels. How easy it is for new talent or different ideas to find their way onto ITV?

  Mr Grade: I think it has always been difficult for young talent to establish itself in the industry. I think it was more difficult in the old days, when every broadcaster had its own captive production industry, production factory, and relied 100 per cent for its programmes on its own producers. It was incredibly difficult. The way through that was that people became freelance. In the old days, you did not work for the BBC unless you were on the staff. Then when ITV came along, people decided that they would like to work for ITV and the BBC, so they became freelancers. That then developed into what is now a very successful and invaluable independent sector. So there are hundreds of sources of work for young people to get into. The points of entry have multiplied exponentially because of the advent of independent production. At the moment it is tough, because everybody is cutting back on production because the money is not there; so that does make it a bit harder. But as the purse strings are eased a bit, if we get a recovery, then so it will get easier to find work.

  Q1849  Baroness Bonham-Carter of Yarnbury: And you do go looking for new talent?

  Mr Grade: We certainly do, yes.

  Q1850  Chairman: I want to move on to regulation, but could I just ask one question on what you were talking about—international sales of your programmes? Will it be of any assistance, can it be of any assistance, if BBC Worldwide can give you help in that area? Is there any virtue in the companies coming together to sell—

  Mr Grade: We have looked at this from time to time. We have never found a model that creates value for our shareholders in such an arrangement. Would it be a good thing if there were great consolidation in the international distribution of programming? I think it would be a good thing, but it has to be on a basis that makes economic sense for us. We have a very successful business. We have a low cost base model. I think our cost base is probably lower than the BBC's. I do not know for sure, but I would guess that in most things it is. It would make sense, but in the conversations and discussions, and sometimes even negotiations we have had with the BBC over some years, we have never found a model that really works. It is also very difficult to negotiate with the BBC. It does take a long time. I think that Channel 4 is still negotiating with BBC Worldwide.

  Q1851  Chairman: Reading between the lines, or not even doing that, what is really standing in the way is the BBC?

  Mr Grade: No, I would not characterise it in that way. They must look after the interests of the licence fee payers in doing the best deal that they can do, which would be proper. There is not really a model. BBC Worldwide is a very big distribution operation. Our business is smaller because we do not have the output that the BBC does. There is always a danger that, if you somehow fold into an organisation that is that much bigger than yours, your product gets lost; so you need all kinds of protections and so on. It is quite a complex and difficult thing. I would not lay any blame on the BBC on this.

  Q1852  Lord Macdonald of Tradeston: There was a lot of talk about partnership between the BBC and ITV earlier, particularly in areas like regional news. However, my impression is that the benefits have been minimal for ITV. Is that right?

  Mr Grade: I think that "minimal" is an exaggeration, given where they started. The Director-General was on record as saying that the value of these partnerships was something between £100 million and £120 million. After six months of negotiation with them on sharing regional news facilities—not editorial but below-the-line hardware, facilities, maintenance, trucks, kit and so on—we got to a point where it might possibly be worth £6½ million by 2016; but in the meantime we would have to record the news and run it outside of peak time. It was just a non-starter. It was very unfortunate that they came out with that £100 million figure to begin with; it kind of set up an expectation, which was not sustainable as a result of the negotiations. I thought it was unfortunate.

  Q1853  Chairman: On present plans, therefore, ITV regional news is going to go, unless some new initiative can be brought forward?

  Mr Grade: We are very mindful of the fact that we operate under licences. All the different regions operate under licences from Ofcom until the end of 2014, and we are not in the business of not meeting those commitments. It is clear from what Digital Britain, Ofcom and indeed this Committee have said that there is a serious issue for ITV in the provision of regional news. We can no longer afford it. Ofcom now says, pretty definitively, that our licences go negative—that is to say, the costs and benefits of our licences go negative—in 2011. There are two big pieces in that deficit. One is the subsidies to Scottish and Ulster; the second is our provision of regional news on the present basis. We can no longer sustain that. That is why we made the offer, if the policymakers could find some other pot of money to pay for it, to make the airtime available. Clearly, in terms of democratic value, it is important that there is equivalent reach as well as quality in the provision of regional news; that the BBC should not have a monopoly of regional news—which I am sure the BBC itself does not want.

  Chairman: Let us move on to regulation.

  Q1854  Lord Inglewood: I would first like to ask a rather general question. You have already referred to the regulatory burden on ITV and, in the evidence we have had from you, you have spelt out the details of the legacy regulations to which you are subject. If nothing is done and the world proceeds as it is now, what will the consequence be for you?

  Mr Grade: A spiral of decline in investment. That is all you can do.

  Q1855  Lord Inglewood: Which will lead you where in 2014?

  Mr Grade: Hopefully, with our ingenuity and creativity, we would still manage to be ahead of Channel 4 and Five, but it would start to look like a very close race between the three commercial PSB networks. I think we would have very great difficulty sustaining our level of investment in production.

  Q1856  Lord Inglewood: So the business would be degraded, the offering to the public would be degraded, you would not be the company you are today.

  Mr Grade: The public interest in ITV is in our ability to compete with Sky and the BBC. The last figure I saw was about £1.3 billion spent on BBC1. We have to compete with that. Our model, as presently regulated, is not sustainable. It is absolutely not sustainable. You would end up with Sky and the BBC as two giant players and a lot of struggling commercial broadcasters. Unfortunately, in the competition regulatory field there appears to be no longer any public interest test for the Competition Commission. The Competition Commission acts absolutely correctly, honourably, and with the greatest integrity within the remit contained in its statute, but that statute no longer requires it to look at the public interest. For example, the issues that we have had with the Competition Commission—and one is ongoing over the advertising remedy. Take Kangaroo, for example, which was the working title for a proposed venture between the BBC, Channel 4 and ITV, to put all our catch-up content and archive onto a single portal on the internet, after the free window for the BBC to meet its public service obligations—the Competition Commission turned that down. I guarantee this Committee 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. It was an absolutely horrible example of where the remit for the CC—and I am in no way criticising the CC here, but it is their remit—does not allow for the public interest to be taken account of. It is a serious issue going forward in broadcasting, and I would be very happy, offline perhaps, to give the Committee further thoughts on that. If we may, we would like to submit a paper, because this is a very, very serious issue.

  Q1857  Chairman: Is it too late to reverse that?

  Mr Grade: I do not think it can be reversed. We could have appealed to the Competition Appeals Tribunal. We took the view that, with the time that would take, we had better get on with our lives. Getting a position on the internet is so important to us all that we could not hang around for nine months or a year, with an uncertain outcome. It is such a fast-developing, fast-moving market, we had to make other plans. Inevitably, those other plans will include Americans. You will find that the Americans will be here, taking money out of the creative industries because of a decision of the Competition Commission—a decision that in their terms, in terms of their statutory responsibilities, was perfectly proper and correct, but it is a deep flaw in the legislation that there is no longer a public interest test in cases like this.

  Q1858  Lord Macdonald of Tradeston: Which American companies might take the money out?

  Mr Grade: The obvious ones are Google, and I am sure that Hulu are looking to come into the UK—which is a combination of Disney, Universal, NBC and Fox. They have done it in the States. Hulu is very successful in the States; it is overtaking Google. They are looking to launch here in the UK. The usual suspects have all the content, so we will probably all have to do business with them. I do not know. But inevitably, as a result of that, none of that money that goes to America will get reinvested in the UK.

  Q1859  Chairman: Perhaps you could send us further information on that. We have taken evidence on that in passing before, but we would be very interested to see the detail.

  Mr Grade: I cannot overemphasise the importance of that issue for the creative industries in the UK.

  Q1860  Chairman: You might like to think at the same time about whether, even at this late stage, there is anything that can be done.

  Mr Grade: Thank you, My Lord Chairman.

  Q1861  Lord Inglewood: I will focus on two specifics: first, contract right renewal and, secondly, the terms of trade debate. As far as CRR is concerned, I think we know how it works but it would be helpful if you could describe it in a couple of sentences.

  Mr Grade: Do you mind if I do that first?

  Q1862  Lord Inglewood: No.

  Mr Grade: The contract rights renewal, which is what CRR stands for, was a remedy that was agreed at the time of the merger of Carlton and Granada. It was deemed at the time that the merger would represent a lessening of competition in the advertising market and that a remedy was required, and the CRR mechanism was agreed; indeed, it was suggested by ITV. What the remedy does, in effect, is give any advertiser who had a deal—any agency, because the way that air time is traded is on share of agency spend, the agencies who buy the air time for their clients, the advertisers—anybody who had a deal in 2003 with ITV had the right to renew that deal under CRR every year.

  Q1863  Lord Inglewood: Forever?

  Mr Grade: Forever. For example, the arguments in 2002 were—I am making this up completely—let us say you were Unilever, and you said to me, "We're going to spend £50 million on television next year. What volume discount do I get?", and again I am making up numbers, I say, "If you're going to spend £50 million, I'll give you 10 per cent discount". We shake hands and that is a deal. In comes CRR. In subsequent years you reduce your spend to £10 million or £5 million and you are still getting a 10 per cent discount; so the thing has ratcheted down the ITV revenues. In addition to that, nobody foresaw the enthusiasm and speed with which audiences would take up digital multi-channel. Digital has moved so fast. We are now at 90 per cent digital penetration multi-channel. That means the supply of air time for sale has grown exponentially. No matter how well we do as a network we cannot keep pace with the overall growth in supply. Embedded into the CRR mechanism—and here we are getting quite technical—is a thing called the SOCI ratchet, which is the share of commercial impacts, total commercial impacts. That universe of impacts has been growing and growing, so our share has gone down. As our share of commercial impacts goes down, so the price that advertisers are paying is less and less to get the same each year, because of the SOCI ratchet. It is a mechanism that has nasty side effects; it means we have to chase volume rather than quality of audiences all round the schedule, all times of day and night, irrespective of their intrinsic commercial value. It is a nightmare.

  Q1864  Lord Inglewood: So what you are basically saying is that you would like it scrapped and let the market work?

  Mr Grade: Yes, of course we would. We think, and we have made this case, and it has been published to the Competition Commission, that ITV is eminently substitutable now, because of the sheer volume of impacts that are available in the market. You do not have to have ITV on your schedule any more if you are an advertiser. We think we are substitutable and, as such, we think that this is a disproportionate remedy. That debate is going on now with the CC, as a result of their provisional findings. We are in conversations with them; they will be taking further evidence; we go through the process—but it is not helping our business.

  Q1865  Lord Inglewood: Perhaps we can turn to review the terms of trade. You have touched on this. Again, what do you want to see happen here to protect your interests?

  Mr Grade: I cannot see any reason to have regulated terms of trade with suppliers. No other sectors in this country, other than perhaps where there is a genuine monopoly, are there regulated terms of trade between a buyer and a seller. I do not think that Tesco, who have a considerable market position, have terms of trade with the people who supply them with root vegetables.

  Q1866  Lord Inglewood: As a dairy farmer, I can assure you that we feel very strongly about this sort of issue.

  Mr Grade: Through My Lord Chairman, would you care to have regulated terms of trade in your dealings with Tesco?

  Lord Inglewood: If they were prepared to pay a bit more, I would bite their hand off!

  Q1867  Chairman: At this point you are declaring an interest I think, are you not, Lord Inglewood?

  Mr Grade: It is a nonsense that there are regulated terms of trade between two commercial organisations. If you are an independent producer, you have plenty of places you can sell your wares to. It should be a free market discussion, free market negotiation, and—

  Q1868  Lord Inglewood: You do not think that there is a disproportion in the bargaining strength of the two sides?

  Mr Grade: Yes, there is. There is a huge disproportion and the disproportion is now weighted so heavily in favour of the independent producers that we cannot get a return on our investment. I notice that PACT, giving evidence recently, said that they share the risk. Yes, they do share the risk. PACT quoted £190 million of investment that independent producers make in original production. That is seven per cent of the total, for which they get an 85 per cent return of the upside. Not a bad deal if you can get it, and it is a completely distorted market now as a result of regulation.

  Q1869  Baroness McIntosh of Hudnall: I did not want to let your observation, that there are many places that independent producers can take their offer, go by without asking you whether you really believe that is true. In terms of developing product that will be seen by a large audience, there is a relatively small number of places to which an independent producer can go. Is that not so?

  Mr Grade: Regulated terms of trade grew out of the monopoly that Channel 4 had when it was born. Channel 4 was the first broadcaster in this country to be a publisher/broadcaster and was the monopoly buyer. At that time ITV did not buy from independent producers and the BBC certainly did not buy from independent producers. They therefore had a monopoly of purchasing power over the independent producers. It was deemed at that time, quite rightly, that there should be terms of trade. The independent production sector is very smart politically and they have parleyed that into terms of trade. They now have 25 per cent quota; they have quotas and terms of trade. This is market insanity. It is a nonsense. It is complete and utter nonsense. It is iniquitous—though I do not feel strongly about it, My Lord Chairman!

  Chairman: I think that we have probably got the point!

  Q1870  Baroness Howe of Idlicote: It is a fairly grim picture that you are painting. I seem to have read somewhere that the advertising side has actually had a bit of an up flip recently.

  Mr Grade: I would not call minus-three, which was greeted by the market as good news yesterday, as an up flip really.

  Q1871  Baroness Howe of Idlicote: Obviously it has now gone the other way, but I did read something about it. Just thinking of another area which is now being talked about, the previous Secretary of State seemed to have been very anti product placement, but this one clearly made his views known at the Royal Television Society's do. How much difference would this make? I know that you rather favour this area. Are we talking significant sums that could make a difference?

  Mr Grade: The truth is nobody knows. We have the experience in the United States, which is a very under-regulated and far less regulated regime, where I have seen estimates of five per cent of the total of revenue is from product placement; I have seen that as high as eight per cent. The rules are very lax there. I suspect that we will end up with tighter rules governing it. I take the view that, whatever amount, it will be incremental revenue. It will do two things. If it enables us to create more original programming, even if it adds up to one more 13-part UK drama series a year—it will be more than that, but if it does that—it is a hugely important step forward. Secondly, it enables us to compete a little more effectively with the complete unregulated Wild West that is the internet. It is as simple as that really. It will be a help. Advertisers will welcome it; it will make television more efficient and more effective for advertisers, which can only be good for business at the end of the day.

  Q1872  Baroness Howe of Idlicote: And good on the internet too?

  Mr Grade: Yes. There is nothing to stop you doing it on the internet now but, in any event, I am sure it will not have escaped this Committee that product placement is all over our screens now. Any American film or series that you watch is full of product placement. You only have to look at the James Bond film, it is full of product placement—undisclosed, I hasten to add. It did seem to me an odd position for the previous Secretary of State to have taken, and he and I had a good debate over this issue, as you could imagine.

  Q1873  Baroness Howe of Idlicote: If you were looking at the programming you are doing now, and you are saying that it would perhaps produce enough to make one good series as it were, could you put an actual figure on the amount?

  Mr Grade: We do not know. It will grow slowly to begin with, as advertisers learn how to use it effectively. We certainly do not want to upset viewers. One of the other advantages, of course, is that scenes will start to look more real. Rather than having made-up products on the breakfast table in Coronation Street or in The Cabin in Coronation Street—these made-up brands with the tins all turned round, it is all completely unreal and a sort of make-believe world—it will make our dramas more realistic.

  Q1874  Baroness Howe of Idlicote: Though presumably not, if you have to give too much space to describing the actual product?

  Mr Grade: There is a separate rule about undue prominence—the undue prominence clause in the producers' code. Ofcom's statutory code prevents you from doing that anyway. To be honest, with this product placement argument, at the end of the day, if we get it wrong, viewers will switch off. They will resent it; they will stop watching the show. The viewers are perfectly capable of deciding that they are prepared to watch a James Bond film, they are prepared to watch Desperate Housewives, Lost, 24, any of the American shows, full of product placement, and I have not noticed any civil unrest in the country as a result. This is a case where viewers, who have more choice than they have ever had before, are more than capable of switching off; so the market will actually determine what is acceptable and what is not acceptable, and we do not need any more regulation.

  Q1875  Baroness Scott of Needham Market: You have just said that the last thing you want is any more regulation, and you also said earlier "We can't be told what to make and who should make it", but if you are a UK policymaker you are probably pretty concerned about the predictions that children's programming, original drama, factual programmes, will all decrease in future years. If you were given the proposition, "We will relax some of these other, more onerous obligations, in effect in return for a quota on some of these other genres that are under threat", how would you respond?

  Mr Grade: The logic of that position is, "We will give you a pound back for that but we will want you to spend a pound". It does not add up. 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.

  Q1876  Baroness Scott of Needham Market: Your view then is that ITV, if necessary, could just withdraw from those areas if it felt that it was not commercially viable?

  Mr Grade: We will deliver in cash or kind the exact value that Ofcom places on our licences. If Ofcom says our licences are worth £30 million a year, we will give the nation £30 million of value in cash or kind. Not a penny more, not a penny less. It is a simple equation. Costs and benefits of the ITV licences have to be brought into line. Otherwise we do not have a sustainable business model. If you want us to spend £30 million on children's programmes in return for that, then we will not do regional news, we will not do national news; lots of things that we would not do. These are all choices. You tell us what you want us to do in return for the value of the licences and we will do it, but not more than that.

  Q1877  Baroness Scott of Needham Market: Moving on to another aspect of regulation, the UK production quotas, you are currently exceeding by quite a margin that which is required of you. Is it cheaper to buy programmes from abroad and is that therefore an option to you, so that you could still remain within your quota but do that, or is there an issue about the quality of what is available?

  Mr Grade: It is not about the quality. I would be hard-pressed personally, after 60 years of viewing television, to find a show the equal of Mad Men, which gets 200,000 viewers on BBC4. It is probably one of the finest television shows I have ever seen. It is up there with the greatest shows I have ever seen. It has very limited appeal. Because it has limited appeal does not mean that it is not high quality: it is extremely high quality. There are two issues. The first is the appeal of American shows. We find that Doc Martin, The Bill, these shows, do better for us than the American shows. They have a much greater appeal for the British audiences and we are pleased about that. The second is economics. Yes, you can buy a first series of an American show. If you say the average cost of drama is about £650,000 to £700,000 an hour, you could probably buy a new series on the basis of the pilot that you see in America for around $250,000—I am sorry to confuse the currency here. But, as we have seen with Lost and 24, once they are established on the terrestrial network, you only have a one or two-year contract with the distributor. If the show is a hit, then it is a free-for-all. Sky paid £1 million, or so it is reported, for 24 and Lost; Channel 4, in order to keep Desperate Housewives, had to start paying £1 million an episode. So actually the economics do not work like they used to. It was a wonderful cartel we used to operate in the old days, where we would all work together—and I am sure that Lord Macdonald will remember those days—we would all go to America, carve it all up, and we would pay $10,000 or $15,000 an hour for Hawaii Five-0; there would be a gentlemen's agreement that nobody would bid for the other shows, and that was the market. You would put Hawaii Five-0 in prime time, which would enable you to make Brideshead Revisited or Upstairs, Downstairs, because they were more expensive. That is how the economy worked. It does not work like that any more. If we get the same audience for an American show at $250,000 that we can get for Kingdom, Doc Martin, Whitechapel and all the shows that we make, we would have to think about it; but at the moment those shows do not command the appeal that a British production does.

  Q1878  Baroness Bonham-Carter of Yarnbury: Can I move on to the matter of training, because obviously the future of British content is dependent on a continuing flow of talent. Perhaps I could roll two questions into one. What investment does ITV make in training, and why did ITV withdraw its contribution to Skillset core funding?

  Mr Grade: With great regret, with great reluctance. I have been a huge supporter of Skillset from the beginning.

  Q1879  Baroness Bonham-Carter of Yarnbury: So it was a financial decision?

  Mr Grade: A purely financial decision. We have exceptionally limited resources at the moment because of the economy and the collapse in advertising, worsened by the regulatory regime. We have made the decision that whatever resources we have we need to spend on internal training and development of our own people first. Those resources are also needed, sadly, to benefit people who have been made redundant in ITV over the last few years, preparing them for finding their next jobs and so on. That has been where we have had to put the resources. We have had to cut the investment. It is not in our long-term interests for there to be an even greater skill shortage in the sector, not in our interests at all, and we have to get back to our previous levels of investment as fast as we can—as fast as the economy will allow.

  Q1880  Baroness Bonham-Carter of Yarnbury: It seems to me to be an extraordinary decision to cut funding into training people for the future. We have been hearing from so many people that there is a real skill shortage.

  Mr Grade: Sadly, when you lose 15 per cent of your revenue overnight, you have to make some very fast, short-term decisions. You do not want to make them but you have to; you have no choice.

  Q1881  Chairman: We have had a number of comments from people as we have gone round that the universities are not producing the kind of people, the trained people, who would be fit to work almost straightaway in television or films. Is that an experience you have or not?

  Mr Grade: Not at all, My Lord Chairman. There are no barriers to entry in this business. You do not have to have a university education, as I will be testament to. There are no barriers to entry—

  Q1882  Chairman: It was not the barrier to entry; it was really the skills that they have to get in.

  Mr Grade: I understand. People with flair, talent and determination will always get into the industry. There are lots of entry points. I think the idea that any single academy will train all the people ready for work that you want is a nonsense. A lot of people fall by the wayside because they do not have enough talent, no matter what their training; they do not have the flair; they do not have the drive sometimes—they give up very easily. I always think that getting into television is like being an actor: it is very hard. The ones who make it are the ones who are so determined to make it that they do not take no for an answer, and they might get a hundred rejections before they actually get in.

  Q1883  Bishop of Manchester: In your written evidence you said that ITV "has the highest proportion of original content spend of any public service broadcaster outside the M25 (concentrated particularly in the north of England)". What are the current plans of ITV for the site in the City of Manchester?

  Mr Grade: We have, pre the crash, a very valuable site in Manchester at Quay Street, where we produce Coronation Street. We have studios and do a lot of things there. The development at Salford is an exciting development, but it is one that, as yet, makes no economic sense to us. If it made economic sense, we would be happy to go there; but we just cannot make the numbers work at present.

  Q1884  Bishop of Manchester: I did hear at Media City the other day it being said, "Once we are up and running and ITV see the quality that is offered here, they will be coming over from Manchester to Salford". The other aspect, which is not irrelevant to where we have just been a moment ago, is of course the training aspects, which the University of Salford in particular is setting up there. Would you not want to be in with all that?

  Mr Grade: I think the vision at Salford is very exciting. In a way it is a bit like Canary Wharf: the vision is fantastic; it will take a time for it to get itself into a shape where it is economic. I was certainly part of the decision at the BBC to go to Salford. I do not think it is an issue of quality. I have no doubt the facilities will be first-class. I have no doubt that they will find someone who will know how to run the studios and so on. It is purely economics for us. If we are going to move Coronation Street, there is a £20 million or £30 million bill for moving—because you rebuild the sets, the whole thing has to be rebuilt, the studios, et cetera. At the moment it does not make any kind of economic sense to us. We are still open to it and I have regular conversations with the people at Salford, but it just does not make economic sense to us at the moment.

  Q1885  Bishop of Manchester: Would you have any contact with the training facilities that are going to be there or will you have some of your own in the Manchester site?

  Mr Grade: I am sure we are plugged in. I know we certainly are in Yorkshire, to a lot of the training initiatives going on in Yorkshire. I do not know for a fact about the North West and Manchester, but I would be very surprised if those initiatives are not mirrored in Manchester, because essentially it is the same people running those.

  Q1886  Baroness Eccles of Moulton: Mr Grade, I have two quick questions which have a link but they are not really closely related and then Lady McIntosh has another one, though I think we are running out of time. The first one is about film tax credits and whether you would support the extension of them. If they were extended, would this make a significant difference to the level of UK content produced by all four ITV channels? I will ask you the other question at the same time. That is, whether the skills or the range of skills needed for television and film vary very much, and whether the UK industry is fully exploiting the synergies between the film and television industries or whether much more could be done in this direction.

  Mr Grade: As far as film tax credits are concerned, obviously we would welcome anything that helped us to create more production; but we have been there before and there was considerable abuse of the system previously. I think it was the sale and leaseback scheme. There were rumours that some companies were doing sale and leasebacks on the weather forecast. I am not quite sure how that worked, but that was the rumour at the time, and that was closed down. I also think that, in these economic times, it would be hard to see that this was a high priority for the Treasury, given the difficulties they face in the demands on the public purse going forward. Would we welcome it? We certainly would. Would it make a big difference? It certainly would. However, I would not want to pin my future strategy on tax credits for TV production, much as we would welcome it. On your second point, I think it depends on the interchangeability of skills between film and television. It depends on the job. Directors can move easily; writers move easily; actors move easily. As you go through the different levels of skills, some are interchangeable and some are not. I think it is unlikely that a lighting director would move easily from film to television. Television is essentially lit from the ceiling; films are lit from the floor. I am oversimplifying a technical point. Film is single-camera; most television is multi-camera. You tell me what the job is and I will tell you whether it is interchangeable. However, one great thing about the UK, which you do not get in America—and I have worked in Hollywood—is that there is a real prejudice in America. If you work in film you work in film, and you turn your nose up at working in television. There is almost a Berlin Wall between film and television. That does not exist here. If it is applicable, people do not feel that if they have made a film last week they must keep it very quiet, or change their name if they are going to work in television next week. It does not work that way. There is not that prejudice here, because we are very proud of our TV in this country—with good reason.

  Q1887  Baroness McIntosh of Hudnall: Can we take advantage of your being here to ask you a question that is more about your Pinewood connection than your ITV connection? It is to do with tax credit. Whether or not it will be possible or even advantageous to extend the tax credit into television, there is an issue about whether the current tax credit regime is appropriate for the film industry. What we have encountered as we have been investigating this is a slight division between, I suppose, to put it very crudely, on the one hand the providers of facilities and, on the other, the producers. The producers are keen to revise the tax credit system so that producing outside the UK, using UK technicians, would be eligible for tax credit. You know this story. It appears that the facilities providers, of whom obviously Pinewood are the biggest and the most significant, are not so keen on that because they see it potentially as a threat to their own business. Given that you speak for Pinewood, I suppose I should not be surprised if you take that view; but could you give us a quick heads-up on that?

  Mr Grade: I think it is very hard to justify using taxpayers' money to be invested overseas.

  Q1888  Baroness McIntosh of Hudnall: Even when UK actors, directors, technicians, are in fact making the work?

  Mr Grade: Yes, but you are using tax money to create economic activity in other countries. That is not the purpose of it. Public intervention in a market of this kind is to encourage spend in the UK. When an American film comes here to be produced in the UK, it is not just the actors and the technicians that do well: there are the laundries; the cab firms; the restaurants; the hotels; transport; catering. There are so many businesses that benefit, which ultimately benefits the Exchequer because they are all paying VAT, tax and so on. It is the economic activity around a film that is so important; and the actual, intrinsic spend, the tax credit, is a great stimulus. This is the argument that won the day with the Treasury. In the light of experience, they are able to calculate what the benefit is, what return the taxpayer is getting on that investment, which is the right way they should look at it. I cannot see how you can invest taxpayers' money overseas and expect to get a return.

  Q1889  Baroness McIntosh of Hudnall: Fair point. Would you have any further refinements that you would like to see from the point of view of the UK film industry in the tax credit system as it sits at present?

  Mr Grade: I have not talked to the Chief Executive at Pinewood about this in any detail, so pace what Mr Dunleavy might be saying to you or has said to you, I think the regime that the Government has put in place presently has been effective in making us competitive in the international market for attracting inward investment in the UK. I think it works. Let us not rewrite a hit, as they say in Hollywood. It is working.

  Q1890  Lord King of Bridgwater: Piracy—does it have a big impact for you? Do you have views on what should be done? We hear horror stories about it.

  Mr Grade: Our lifeblood is our intellectual property and we have to protect it. It is our copyright and the contributors—the authors, the writers, the creators—share in the upside. If there is a Wild West, free-for-all in copyright, it is the end of the creative industries in the UK. It is absolutely the end. You are unable then to monetise your content. People are stealing it. We have seen what has happened in the music business. We cannot let that happen. We have the advantage that we are free at the point of consumption to begin with, so piracy is less of an issue in television; but it is a serious issue.

  Q1891  Lord King of Bridgwater: The interesting thing is that we have heard some people expressing exactly what you have said about the real threat that it poses; though apparently there is some academic paper that says it has not had much financial impact at all, and it has been grossly overrated.

  Mr Grade: Do we have to wait until it does have an impact before we act?

  Q1892  Lord King of Bridgwater: Absolutely. As you say, you are free anyway and so there is not a financial advantage in pirating in your sense. From your point of view, therefore, you do not think at the moment it has yet had major financial implications but you see that the threat could be very substantial.

  Mr Grade: It is going to, yes. Streamed video on the web is quite a new phenomenon. It is a huge phenomenon. The traffic that BBC's iPlayer and are driving to the web is phenomenal, and that will be monetised. There will be those people who will try to steal our content and monetise it through advertising, subscription or whatever.

  Q1893  Lord King of Bridgwater: And the remedy ... ?

  Mr Grade: More difficult. I think it is extremely difficult. There are, as memory serves, a number of legislative tweaks which would create a greater deterrent to those thinking about piracy. You will never stop it. They are shoplifting. It is built into the economics of a store that you will get X per cent of shoplifting every year; you are going to lose X amount of stock to people who put it under their raincoats and slip out. It is an inevitable part of life, sadly, that people steal things. However, I really believe piracy is one of the biggest threats to the creative industries in the UK, and you have to act early. I do not see how you can lose by acting early. All you are doing is stopping people stealing. That is basically what it is, and that must be a good thing in any democracy or any country which operates under the rule of law. Stopping people stealing seems to me to be quite an important, good thing to do. I cannot see any downside from imposing a regime which protects people who invest and own copyright and deters people from stealing it.

  Chairman: Mr Grade, you have been extremely patient. We have gone on longer than the time that we warned you about. We may have other questions and there are a few things to pick up from the evidence, but thank you very much indeed for coming today and for giving the evidence in the way that you have.

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