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 notwhich
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
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
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 creationour 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 welland 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 crisisand I have numerous cuttings,
which doubtless you have seenyou 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 wellabout 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
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
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 averageI will check
this number and if my number is incorrect at this point we will
write to you and give you a precise figureI 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
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
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 ITVDoc 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
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 remnantsthese
networking arrangements between the consolidated ITV and what
we call the non-consolidated licences, Scottish, Ulster and Channelis
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
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
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 nopresently
and there have not been for some timeI 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 ceterathese were the lynchpins of the
schedule. You do not see them on the main channels today, because
Doc Martin, Benidorm, The Fixer, The Billthese
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 todaywhere 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 basewe
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 themwhich 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
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 Prisonerwhich you
are all far too young to remember! Patrick McGoohan and the bouncing
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 feelwe
are talking about film and television and we are talking about
UK contentthat 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
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 showsnothing wrong with
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
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 productionit is
a commercial matterin 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
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?
Q1845 Chairman: So why are you doing
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 possibleand
I am not up to date on how well it is doing in the export marketI
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
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 difficultnew
people, new talent are finding it difficultto 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 aboutinternational 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 facilitiesnot
editorial but below-the-line hardware, facilities, maintenance,
trucks, kit and so onwe 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 negativethat is to say, the costs
and benefits of our licences go negativein 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 newswhich
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 Commissionand 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 obligationsthe Competition
Commission turned that down. I guarantee this Committee that the
net result of that Competition Commission decisionwhich
in their own terms I am sure was the correct decision from the
way they look at itwill be that the Americans will take
the lion's share of the internet value in our content in this
country very soon. It was an absolutely horrible example of where
the remit for the CCand I am in no way criticising the
CC here, but it is their remitdoes 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
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 Commissiona 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 UKwhich
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
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 dealany
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 advertisersanybody 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 wereI am making this up completelylet 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 mechanismand
here we are getting quite technicalis 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 processbut it is not helping
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
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 iniquitousthough
I do not feel strongly about it, My Lord Chairman!
Chairman: I think that we have probably got
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
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 yearit will be more than that, but if it
does thatit 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 placementundisclosed,
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
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 Streetthese
made-up brands with the tins all turned round, it is all completely
unreal and a sort of make-believe worldit 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
prominencethe 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 $250,000I 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 togetherand I am
sure that Lord Macdonald will remember those dayswe 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 canas 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
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 sometimesthey 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
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
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 movingbecause 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
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 Americaand I have worked in Hollywoodis
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 countrywith
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
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: Piracydoes
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
contributorsthe authors, the writers, the creatorsshare
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
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
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 ITV.com 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.