The British Film and Television Industries - Communications Committee Contents


Examination of Witnesses (Questions 1894-2025)

Ms Sophie Turner Laing and Mr David Wheeldon

21 OCTOBER 2009

  Q1894  Chairman: Welcome and thank you very much for coming; we are very grateful. I want to begin with an issue which has come up a great deal in the evidence that has been given to this Committee and that is the issue of piracy. A whole range of people have expressed their concerns about it and a whole number of film-related organisations have expressed concern about enforcing protection of copyright and the growing threat from illegal file sharing and other forms of online piracy. What is the view of BSkyB on this?

Mr Wheeldon: As you know, we are both a significant investor and owner of content, as well as an internet service provider, so we look at this from both sides. There is no doubt that illegal file sharing, peer-to-peer file sharing, is a very significant problem for the content industries and, if nothing is done about it, it will impact the ability for the content industries to continue to invest and, in the end, content needs to be paid for. We take it very seriously. We are broadly supportive of the direction of travel that the Government are proposing to go in with their legislative consultation, Obviously, we are looking forward to seeing the precise detail in the Bill, but certainly we believe that matching obligations on ISPs to send letters, to collect data—

  Q1895  Chairman: Before you go on to the detail, which we obviously will, how has it affected you financially?

  Mr Wheeldon: It is difficult to put an absolute number on it but, if you look for instance at the report that came out in the summer by BigChampagne, a media research company, four out of the top five illegally downloaded television shows are exclusive to Sky in the UK. These are shows that we invest in very heavily, that we want our customers to experience on the Sky platform because that is what they have paid for and, if it is being illegally downloaded, then that can affect our entire business model. If you then look at the way the movie studios are being impacted and the kind of piracy that is now beginning to move from digital music to digital audiovisual and movies, their ability to monetise and invest in film impacts us in the sense this is content that we want to acquire.

  Q1896  Chairman: But you cannot put a figure on loss?

  Mr Wheeldon: I think it is very difficult. There have been attempts to put a figure on loss and the BPI estimated £180 million for the music industry and I have seen figures of £150 million for movies and TV but, to be frank, I think it is very, very difficult and of course, knowing what is the net loss, because not every bit of piracy would have resulted in a financial transaction to buy the content, it is quite difficult.

  Q1897  Chairman: Your general attitude was expressed quite forcefully by James Murdoch in his MacTaggart lecture and perhaps, as he said so many other things, this part of it did not quite get the attention that it perhaps deserved. He said, "We don't even have the basics in place to protect creative work. Whether it is shoplifting at HMV or pirating the same movie online, theft is theft. They are both crimes and should be treated accordingly. The Government dithers, dimly aware of what it has to do but afraid to do it". Is that a fair summing-up of the BSkyB position?

  Mr Wheeldon: It has certainly taken quite a long time to get to where we have got to in respect of the Government proposing a legislative solution. I was involved in all of those MOU voluntary agreement discussions going back almost two years now and we do seem to have taken an awful long time to get to the point at which we have realised there is not going to be a solution here unless there is some kind of legal obligation on all parties to take action.

  Q1898  Chairman: Why does Mr Murdoch say the Government "is dimly away of what it has to do", okay, "but afraid to do it"? Why "afraid to do it"?

  Mr Wheeldon: I am not going to comment on whether the Government are afraid or not, but I certainly think there is a sense that there could be a consumer backlash from those who have enjoyed that access to content for free. There is certainly a strong campaign by certain groups out there that believe that somehow it is a human right to have access to all this content without paying for it and that the internet somehow changes the rules of the game. I have to say that I find that a slightly bizarre and illogical position to take.

  Q1899  Chairman: What would be your solution? What would be your proposal? What would you do to counter piracy?

  Mr Wheeldon: As an ISP, we want to take action but we also recognise, as an ISP, that it is very difficult for us to take action unilaterally. If one internet service provider does it, that does not solve the problem. We have a competitive market; it will just go to others.

  Q1900  Chairman: And you might lose some custom.

  Mr Wheeldon: And you would lose custom, absolutely. We recognised that fact some time ago. We have always said that, if there is going to be a solution, it has to be a whole industry solution. If that cannot be achieved voluntarily, then there have to be obligations on ISPs to take action and obligations on rights owners to follow that action up.

  Q1901  Chairman: Can it be achieved voluntarily?

  Mr Wheeldon: No. I think we have come to that conclusion. We attempted to reach a voluntary agreement last summer and it was very clear that the ISPs and the content industry had very different motives and incentives behind this and that it was going to be pretty much impossible to achieve that.

  Ms Turner Laing: I think it is fair to say we are one of the only ISPs who are fully involved in the content provision business as well. We have a slightly different view on it than, say, Charlie Dunstone at TalkTalk.

  Q1902  Chairman: As a generalisation, it would be the ISPs who would be opposed to action in this area.

  Mr Wheeldon: As a generalisation, that is probably true, yes.

  Q1903  Chairman: The only people who can actually cut through this would be the Government.

  Mr Wheeldon: Yes.

  Q1904  Chairman: I mean legislation of some kind.

  Mr Wheeldon: Yes.

  Q1905  Lord Inglewood: One small point. You use the phrase "take action". Is that a euphemism for "cut off", as in cutting off the gas or cutting off the electricity? What exactly do you mean?

  Mr Wheeldon: We certainly believe that, if all ISPs have an obligation to send letters to those they have identified as being potential infringers, that is identified by rights owners, that would have a significant effect. The fact that letters are being sent out to the account owner, not necessarily to the user, will draw attention within households to what is going on. If you can combine that with an effective sanctions regime with a threat of a consequence if this continues, which I think does—

  Q1906  Lord Inglewood: What consequence?

  Mr Wheeldon: I think that does require, in the first instance, rights owners being prepared to take the very worst offenders to court because, in the end, we do believe this is an illegal action and it should be prosecuted. If that does not work, then there are a range of technical measures which the Government have set out in their consultation which could be applied. The latest iteration certainly includes account suspension. We do not believe it is right to rule any of those in and any of those out right now. What you should do is go through a proper test to decide which are likely to work and which are going to be most proportionate. If you have done that test and if you have assessed whether the letter writing has worked or not, then it seems to be fair enough to decide that it may well be that one or two of these are the right sanctions to apply in certain circumstances. But there needs to be that provision and there also needs—and let us be clear about this—the right of appeal to customers. You cannot do this without that.

  Q1907  Chairman: The Motion Picture Association take the view that the initial first and essential first stage in tackling this problem is an obligation for ISPs to notify customers whose internet accounts have been used to download or upload copyright content and you would agree with that.

  Mr Wheeldon: We would.

  Q1908  Lord Maxton: Where do you draw lines in this, which is the real problem? If I download a film from Sky films, copy it on to a CD or DVD, give it to my son and he then gives it to somebody else, where do you start prosecuting because no money is actually changing hands, almost certainly? That is a free operation from all of us.

  Mr Wheeldon: What you are describing there is format shifting which, in the UK, is not strictly legal but people tend to turn a blind eye to it—it is legal in many other countries—the principle being that the content has been paid for and then, once the owner has that, they should be allowed to transfer it to whatever device they choose. I am not going to comment on whether that should be made legal or not, but what we are talking about in respect of file sharing is actually accessing that content in the first instance without paying anything and that is a big difference.

  Q1909  Lord Maxton: Somebody is paying for you to provide the ISP service. You do not give your Sky Broadband for nothing and neither do any other providers.

  Mr Wheeldon: You are paying for access to the internet but you are not paying for the content if you are accessing it via a peer-to-peer file sharing site. That content has got on to that site often illegally itself.

  Q1910  Lord Maxton: That is the file sharing site. I can access Sky because I am a Sky subscriber and I can access your Sky site online. There are hundreds of films there and I can download one of those on to my hard disk and then copy it on to a DVD and give it away. That is not file sharing in the strict sense of the word, but I presume that I can do that and I can do it with a whole range of other files too.

  Mr Wheeldon: I certainly think through the television you would probably struggle to be able to physically do that because, through the television box, there is no mechanism to record that.

  Q1911  Lord Maxton: I am not talking about the television box, I am talking about the internet.

  Mr Wheeldon: If you were to break the encryptions and you knew what you were doing, then you could do that. I am afraid I would regard that as piracy.

  Ms Turner Laing: I think it is fair to say the films that are available on Sky Movies via Sky Player are encrypted. First of all, there is a conditional access there that shows that you have to be a Sky Movies subscriber and equally, you cannot take it off the system and transfer it because that is our—

  Q1912  Lord Maxton: It is quite interesting that Apple, however, with their iPlayer have got into some public difficulty because they have not allowed people to use and play their content on other devices and, as a result, they have had to change the rules on that.

  Ms Turner Laing: But that is under the contracts we are under with the MPAA Studios who do not prohibit because obviously they are in the business of protecting their other revenue streams in the form of DVD, et cetera.

  Q1913  Lord Maxton: Is this not an international problem? To be honest, we could do all we want but, if the content is coming on the internet from somewhere else in the world, which may have different copyright laws, how do you deal with that?

  Mr Wheeldon: With the system as proposed, the onus would be on the owner of the content, the rights owner, to identify what content is being accessed illegally and they can do that. They have ways of looking at particularly the illegal file sharing sites, they will identify the content which is not distributed free—some content is but a lot of it is not—and they will then take action to notify the ISPs that that content has been accessed illegally. There have to be obligations on rights owners to want to enforce their own rights, absolutely. You cannot say whatever you download is potentially illegal.

  Q1914  Chairman: Is it not also the case that a warning would actually have quite a big effect on many, many people? The pure issue of a warning would have that impact. I am not saying it is going to have that impact upon serial offenders, if I may put it that way, but it would have an impact upon many, many people.

  Mr Wheeldon: I think you are absolutely right. I do think that the sending of a notification that this is going on to an account owner, who may not know it is going on, will have a significant effect, yes.

  Q1915  Chairman: There is no rule written down where the public have a right to free access/free downloading of anyone's films, I would have thought.

  Mr Wheeldon: Absolutely not.

  Q1916  Lord Inglewood: That is fine, but I go to you and I get this warning and I then immediately change to somebody else. There are a number of internet service providers out there.

  Mr Wheeldon: That is why the obligations have to be on all internet service providers. That is why, in the end, a voluntary agreement was never going to work because you cannot have just two or three signing up and then the rest of them not. Everybody has to be party to this. So, you must know that, if you go to another internet service provider, not only will the same thing happen again, but actually the likelihood is that the data will be collected by the rights owners that will know you have already done it once, so the consequences that you might suffer are ...

  Q1917  Chairman: One last question on this. You have a disagreement with Virgin Media; what is that on? It is not on this, I think.

  Mr Wheeldon: They can speak for themselves on illegal file sharing.

  Q1918  Chairman: But it is not on that issue.

  Mr Wheeldon: No.

  Lord Maxton: It is on price, is it not, or it was on price?

  Chairman: We can follow that up. Let us move on. Let us go back and start with the performance of BSkyB and the trends.

  Q1919  Lord King of Bridgwater: We now start turning to people who actually pay and how that is affecting your business. I have some very quick questions just to set the scene. Turnover and then the breakdown of that turnover, that is the breakdown between subscription revenues, advertising sponsorship and whatever you get from charging those using the BSkyB platform.

  Ms Turner Laing: Our annual revenue now exceeds £5 billion. Almost 80 per cent of the group revenue was from subscription, with the remaining revenues being apportioned to wholesale subscription revenue, installation and service revenue; and our advertising revenue makes up approximately six per cent of overall revenue. It is a relatively small part of our business. I think what is important to understand is that we are, having just had the conversation on ISPs, in the triple-play business, so we are not strictly a broadcaster-based only business anymore.

  Q1920  Lord King of Bridgwater: Dealing with the smaller before the larger, Michael Grade said some pretty horrific things about what has happened to advertising revenue in the last year. Has that been reflected in your figures?

  Ms Turner Laing: Absolutely. We are definitely not immune to the advertising downturn and we have seen a significant loss. However, there are some optimistic small green shoots coming back into the marketplace, but we are not complacent on that because one cannot foresee what unemployment numbers will do in the early part of next year.

  Q1921  Lord King of Bridgwater: Can you give a figure for how much it has dropped?

  Ms Turner Laing: The market itself is down 15 points.

  Q1922  Lord King of Bridgwater: Fifteen per cent?

  Ms Turner Laing: Fifteen points, yes.

  Q1923  Lord King of Bridgwater: What, the advertising revenue?

  Ms Turner Laing: Yes. What has been significant is the total exit of significant genres from the advertising industry, like the alcohol trade, car trade et cetera which have literally disappeared overnight and moved to a more in-store promotion with supermarkets.

  Q1924  Lord King of Bridgwater: What about your direct customers, in other words the subscriptions? What has happened there?

  Ms Turner Laing: We have our quarterly results on Friday, so I can give you our last quoted numbers, which are 9.4 million subscribers. At the moment that is holding strong, although we have to obviously keep a keen eye on churn which is the amount of people who come out of subscription.

  Q1925  Lord King of Bridgwater: You have 462,000 additional customers. If you say that it is holding strong, do you mean that you have lost 462,000 somewhere else?

  Mr Wheeldon: Last fiscal year, we gained 462,000 net customers, so that is taking into account those who leave.

  Ms Turner Laing: So, we grew.

  Q1926  Lord King of Bridgwater: You are still growing in the recession.

  Mr Wheeldon: That is correct.

  Ms Turner Laing: So far.

  Q1927  Lord King of Bridgwater: How about profitability? Have you had to spend more to get it?

  Ms Turner Laing: Yes, because obviously the subscriber acquisition costs, or SAC as they are known, are very extensive. The amount of money that we have actually put into our marketing budgets to remain customers, bundled offers, et cetera, has increased.

  Q1928  Lord King of Bridgwater: What effect has that had on profitability?

  Ms Turner Laing: What emphasis?

  Q1929  Lord King of Bridgwater: On profitability.

  Ms Turner Laing: Profitability has held strong, but what we have done is had a severe review of costs. We have reduced our overheads significantly and thus we continue with our marketing costs.

  Mr Wheeldon: I think it is important to understand that profitability is obviously not just about the subscriber numbers and the increase in subscriber numbers. For instance, looking at advertising, approximately six per cent of revenue is generated by advertising, but that is disproportionate in the contribution to direct profit because it falls straight to the bottom line. We have had to deal with that headwind and have managed to continue to grow profit despite that.

  Q1930  Lord King of Bridgwater: How much churn do you get in your subscribers?

  Ms Turner Laing: We average about 10.4 at the moment; 10.4 per cent of our customers churn.

  Q1931  Lord King of Bridgwater: Turnover?

  Ms Turner Laing: Yes. So, the number to focus strongly on is our net adds number.

  Q1932  Lord King of Bridgwater: Some of the figures and the change in your share of viewers are pretty dramatically down, are they not? The entertainment channels contracted by 50 per cent over five years.

  Ms Turner Laing: That is true, there is a trend down in overall share of viewing anyway, but you also have to look on the amount of channels that now exist in the marketplace compared with five years ago.

  Q1933  Lord King of Bridgwater: You are a major player and a number of these channels are watched by a man and a dog, are they not?

  Ms Turner Laing: I think that you have to debate whether the man or the dog would be very happy watching a small channel. For example, Sky Arts, those who watched our live opera from Glyndebourne was about 30,000 people. That is tiny in respect of a BBC 1 audience, but that is 30,000 very satisfied subscribers that it is actually on air. Share viewing is a very small metric for us. Also, I am not sure which of you have Sky Anytime at home in your Sky boxes, which is where we push the highlights of the week, which is not measured by BARB, so we have a totally different form of driving satisfaction from audiences.

  Q1934  Lord King of Bridgwater: When you said that it is over a number of more channels and that is why your shares have gone down, do you have an idea of what share of the viewing has been taken by all the additional channels? Is that an adequate explanation for your fall?

  Ms Turner Laing: No, it is not. We are in a very competitive market. As Freeview has grown, the growth of the diginets from the terrestrial channels in the form of ITV2, 3 and 4 have grown enormously. If you look at the audience that comes off X Factor and goes straight on to ITV2, that is enormous, but also they do have the centre break in the middle of Coronation Street to promote movies or content, whereas we do not. Regarding share overall, Sky1 probably will do about 3.46 per cent share overall. That is not a huge drop from the late threes and fours that it was doing five years ago, and Sky Sports continues to deliver and we are breaking audiences in a lot of areas.

  Q1935  Lord King of Bridgwater: I thought Sky Sports was marching on, but it seems to have fallen about 50 per cent or nearly 50 per cent. I have a figure here that it was 3.7 per cent and you are down to 2.6 per cent.

  Ms Turner Laing: I think it depends on when that data has been done.

  Q1936  Lord King of Bridgwater: It is 2003 to 2008.

  Ms Turner Laing: The question is whether that takes into account the restart of the Premier League seasons because obviously the audience flexes up and down depending on whether football is available.

  Q1937  Lord King of Bridgwater: What effect has Setanta and its activities had on that figure?

  Ms Turner Laing: Setanta obviously had a pack which has now gone to ESPN and, whilst they had some extremely strong matches, it was not an overall factor in the decline in Sky Sports.

  Q1938  Lord King of Bridgwater: It was not a factor in the decline?

  Ms Turner Laing: It is a small element because, at the end of the day, the amount of matches they actually broadcast was relatively small, but obviously they had other things, like golf and boxing as well.

  Q1939  Lord King of Bridgwater: So, less people are watching sport?

  Ms Turner Laing: Yes.

  Q1940  Lord King of Bridgwater: Really! Yet you have added cricket which you did not have in the earlier part of that period. Is that right?

  Ms Turner Laing: Yes.

  Q1941  Lord King of Bridgwater: You still end up with a lower share?

  Ms Turner Laing: Share is not the only driver for us. I think that is a metric which has been used for terrestrial television and is not really a valuable marker for us in subscription television. What we do we deliver extremely well. We put an awful lot of investment into our sport, all our programming, and what we are trying to deliver is the best of it. I am not sure this metric that it has to be seen by millions of people is a true arbiter of quality.

  Q1942  Lord King of Bridgwater: I understand that. We are dealing in percentages, but do the percentages reflect the actual numbers or is there a change in the overall total by which the percentages look rather different? In other words, what is 2.6?

  Ms Turner Laing: In real terms?

  Q1943  Lord King of Bridgwater: What is the number that 2.6 represents?

  Ms Turner Laing: It is very hard to say exactly because you may get a viewing share of two million for a big football game and then you may get a share of 20,000 for women's netball. What you are doing is aggregating all those different events up—

  Q1944  Lord King of Bridgwater: Someone has managed to produce these figures saying 3.7 down to 2.6. We can bandy around percentages, but what I am trying to get at is, what that actually adds up to?

  Mr Wheeldon: What, in terms of total numbers of viewing?

  Q1945  Lord King of Bridgwater: Well, 2.6 of what?

  Ms Turner Laing: Overall share that is distributed—

  Q1946  Lord King of Bridgwater: It is 2.6 of a global figure?

  Ms Turner Laing: Of all television share in the UK.

  Q1947  Lord King of Bridgwater: What is that figure? Do you understand the point I am making?

  Mr Wheeldon: You are talking about the numbers of people watching for the numbers of hours?

  Q1948  Lord King of Bridgwater: Yes.

  Mr Wheeldon: I think you can broadly say that has not significantly changed over time. People still watch lots of television.

  Q1949  Lord King of Bridgwater: Someone has produced this precise 2.6 per cent figure and, when you actually ask what that means, what it is, 2.6 per cent of what ... It may be that is an impossible question to answer.

  Ms Turner Laing: I think that we can get you the numbers very easily from BARB. I would not have the correct figures with me.

  Lord King of Bridgwater: Perhaps you could.

  Lord Gordon of Strathblane: I think the point obviously is if the universe has increased hugely, then 2.6 might be as big as 3.7 of a previously smaller universe.

  Q1950  Lord King of Bridgwater: Thank you very much.

  Mr Wheeldon: Your question is, are more people watching more television?

  Lord King of Bridgwater: I am trying to see whether 2.6 and 3.7 are actually indicative of less people watching Sky Sports.

  Q1951  Chairman: I think in essence it is 2.6 of what and 3.7 of what. It is the "what" we want to know.

  Mr Wheeldon: BARB are the people who can give the definitive answer on that one in respect of the numbers.

  Lord King of Bridgwater: Through My Lord Chairman, if you would like to give us the figure, that would be helpful.

  Chairman: Thank you very much. Let us go on to investment and original content.

  Q1952  Lord Inglewood: You may disagree with the distinction but, of the total UK content that you produce, how much of that is news and sport and how much is other?

  Ms Turner Laing: Of our £1.75 billion that we invest in content every year, we spend £1 billion of that in the UK. We spend approximately £944 million on sport, just under £300 million on movies, just over £200 million on entertainment and, our third party channels, we spend just over £300 million. Of the news part of that, we spend about £40 million.

  Q1953  Lord Inglewood: Sometimes you are criticised that you say you are producing an awful lot of material in this country and yet, particularly in the case of sport, an awful lot of it is not created by you. It may be enhanced by your cash. Is it right, from a public policy perspective, to see that as being UK originated content?

  Mr Wheeldon: It depends whether you see sport as a creative industry or not.

  Q1954  Lord Inglewood: I am asking the question. I am not saying you are wrong.

  Mr Wheeldon: The people who do that will tend to say Sky does not spend very much money on content if you exclude all the content that it does spend money on! I find that slightly frustrating.

  Q1955  Lord Inglewood: It is a question really of the definition of content. It is whether it is material or whether it is something new.

  Ms Turner Laing: I think it is quite important to look at our investment in content in the whole. Obviously, there are hours and hours and hours of sport that we actually create and put on air. Equally, the investment that we put into whatever sporting body where we are acquiring the rights, a large element of that investment is going into grass roots. For example, in cricket, a huge amount of money is going into the ECB, county cricket, getting more children into cricket, girls into cricket and whatever, and the same for football. I think it is also important to look at our investment in arts, because although our overall programming investment in arts is relatively small compared with that of the BBC, what we actually invest in other art's content as far as ... For example, Antony Gormley's One Another which we did with them on the fourth plinth in Trafalgar Square or the fact that we are going to Durham to do Lumiere with Artichoke, which is about light installations with artists and things like that. I think that it is not always quantifiable investment in content that necessarily ends up as a programme.

  Q1956  Lord Inglewood: In a sense, what you are saying is the virtue of what you are doing is creating a lot of stuff which does not appear on television that is done by people in the outside world more widely.

  Ms Turner Laing: That is correct.

  Mr Wheeldon: If you look at the model of Sky News for instance, which is essentially about disintermediating the people who try to filter news, Sky News is about presenting it as it happens, when it happens and without creating too much of a filter. In many ways, Sky Arts is the same. It is about offering an opportunity for events that are happening, where there are high production values, to have access to a wider audience. I would argue that is of huge value to the customer and to the public.

  Q1957  Lord Inglewood: You can also argue it I think from a commercial perspective, that a lot of these relatively niche programmes are a form of loss-leader, in the same way as supermarkets sell milk cheap because it draws them in and, given the bundling portfolio, the way you bundle your programmes, you are actually sucking people into all the other ones.

  Ms Turner Laing: I am not sure that sucking in is what we are hoping to do. What we absolutely believe in is choice in content and, therefore, we offer hundreds of different channels. I think it is quite important to remember we are putting £300 million into other people's channels, whether that is National Geographic, the History Channel or whatever. National Geographic spend over £12 million a year with UK producers.

  Q1958  Lord Inglewood: I accept all that and I am not trying to deny the good that is done, but the Sky brand is not necessarily known for its pure philanthropy; there are other motives behind it.

  Ms Turner Laing: What we are doing is enhancing that content because content can be consumed in so many different ways now, whether it is online, on your phone or on air. We want to obviously provide satisfaction and value to our subscribers, so we use that content in a million different ways in reaching them. For example, with the Glyndebourne opera, we actually ran a satellite feed to Chester and ran it live, a concert-in-a-field, to give value to those subscribers who could not go to Chester, a bit like what the National Theatre is doing.

  Q1959  Lord Inglewood: What you are really saying is, in the digital world, the old-fashioned idea of creating content as if, as it were, you were putting on a theatre production is old hat, out of date, irrelevant and it is not the way you should look at it.

  Ms Turner Laing: Correct.

  Q1960  Lord Inglewood: I am not saying this is a proposition which is absurd.

  Ms Turner Laing: It is how we look at it.

  Q1961  Chairman: This is an inquiry into the film and television industry. It is not an inquiry into the merits of Sky's coverage of sport, news and other things. That is the key question. It is, in some way, in what ways you are going to be able to do more, or ways in which the creative content in film and television, the UK industry, can be enhanced by Sky's activities.

  Ms Turner Laing: For example, we produce sport and news within Sky, but all our entertainment channels have no production teams or a very small amount. All our productions are commissioned by independent production companies, as is Channel 4's. We are a publisher/broadcaster in that respect. Our intention is obviously to increase our investment in entertainment. You may have noticed that we have recently started off on a drama strategy, where we are taking well-known books or novels within the UK and turning that into drama. This is a relatively new move; it started off by our dramatisation of The Pratchetts and that is the start of a long journey. We have recently hired Stuart Murphy, who ran BBC 3, and also Lucy Lumsden, who ran BBC Comedy, and we will be investing tens of millions into the comedy genre as she arrives next November.

  Q1962  Baroness Eccles of Moulton: We are straying into my area, as it were. Has investment in Sky Arts changed very much over the last few years?

  Ms Turner Laing: Absolutely. We were the joint venture holder of it originally and we have increased the pure content investment by 50 per cent. Obviously, that is a relatively small amount of hours. We look on arts as not purely just television programming; it is one of our CSR strands.

  Q1963  Baroness Eccles of Moulton: You have given us some examples of plans for the future. Do you have any other plans for generating UK originated content?

  Ms Turner Laing: Absolutely. For example, with arts, as we are on that now, we have just finished doing a run of what we called Theatre Live, which was working with six authors who had never written for television before and then actually shooting those and performing those live in our studios in Osterley. We are about to start a new season of that. We are doing short films with Hilary Bevan Jones, who is Richard Curtis's producer, for Sky 1. We are looking at investing in specialist factual for the first time and have some very interesting conversations that are ongoing, which link into our rainforest campaign which we announced today, where we have teamed up with the WWF to raise a large amount of money to save three billion hectares. That is following on from the success that we had with Ross Kemp going to Afghanistan. Ross will be going to the Amazon for us. There is very much a will and an interest to continue to increase our investment in the entertainment genres because I think it goes without saying that we have put a lot of money into news and sport already.

  Q1964  Baroness Eccles of Moulton: Things like the Ross Kemp project and the rainforest --

  Ms Turner Laing: They will continue.

  Q1965  Baroness Eccles of Moulton: You classify them as entertainment, but it is a little more than that, is it not?

  Ms Turner Laing: It is factual entertainment, if you want. It is mainly because Sky1 is known as an entertainment channel, but obviously we like to deliver challenging documentaries as well as light entertainment or comedy.

  Q1966  Baroness Eccles of Moulton: Would you think of putting a greater emphasis on the more serious side of entertainment?

  Ms Turner Laing: No, because we hope to offer a balanced diet and we are an entertainment channel. The platform itself carries a larger number of factual channels that do it extremely well, whether that is Discovery or National Geographic. There are a myriad of different routes which can deliver that kind of programming to the channel, but we are part-funding that indirectly.

  Q1967  Baroness Eccles of Moulton: They, Discovery et cetera, would also come under the category of UK originated content.

  Ms Turner Laing: That is correct.

  Q1968  Baroness Eccles of Moulton: What plans for the future do you have for them?

  Ms Turner Laing: We are in joint ventures with some of those channels. Obviously not in something like Discovery, but they tend to operate their programming budget on a global basis. The UK is a very significant part of that because it is obviously one of the most mature markets outside of the US. There is no doubt that the money that is put in from the UK elements of those channels is quite significant in making it happen.

  Q1969  Baroness Eccles of Moulton: You would have an influence over that?

  Ms Turner Laing: On some of the channels that we are in joint ventures with, not necessarily Discovery.

  Q1970  Baroness Eccles of Moulton: Maybe it would be interesting to know a little more about that, not now but generally.

  Ms Turner Laing: Absolutely. We can get their plans.

  Q1971  Chairman: Thank you very much. We are in slight danger of figures tripping us all up at the moment, but I just wonder if you are aware of these figures. Ofcom figures show that the main PSB channels spent £2.5 billion in UK originated programmes in 2007—that is £2.5 billion—and, in the same year, according to figures given in evidence by the Cable and Satellite Broadcasters Group, investment for all non-PSB channels was just £120 million. Are you aware of those figures?

  Mr Wheeldon: Yes, I am certainly aware of the Ofcom figures. That includes BBC spend, the terrestrial channel spend, and Ofcom, in their public service broadcasting review, went into those in some detail. I have to say that, again, they obviously exclude the spending that Sky makes on genres which do not fit into Ofcom's view of what is public service broadcasting, although interestingly include the BBC's spending on sport, which is slightly odd.

  Q1972  Lord Maxton: The BBC spend on news or not?

  Mr Wheeldon: It will include the BBC spend on news, yes.

  Q1973  Chairman: As a generalisation, why is BSkyB's investment in original content so low as these figures appear to indicate?

  Ms Turner Laing: I think it is fair to point out those are 2007 figures and we have increased our budgets quite enormously since then. Sky was very, very focused on sport and movies as being the major drivers of its subscription business. As the businesses matured and also as we found relative success in delivering admittedly small audiences to niche channels, but they are highly valued by our subscribers, the continuation is to carry on putting what is seen as relatively small numbers against those, so that you can deliver specialist programming.

  Q1974  Chairman: On the face of it, UK originated programmes for UK audience must make a great deal of sense because people probably most naturally go to them. Would tax breaks or any other kinds of incentives be of help to an organisation like BSkyB?

  Mr Wheeldon: You do have to ask the question whether this is a market that needs more intervention. It already has £3.6 billion a year, which is essentially state intervention in the market to produce content and it is called the BBC. We would question whether there is a need for any further intervention. In fact, we would argue there is already far too much. If you look at investment in content and you look at where we came from, what we saw were areas of the market that were underserved—movies, sport and news were underserved. We went into them to provide for customers who did not have that. The opportunity to invest from an organisation like us is always going to be most obvious where the market is underserved by others. If the state is already there, it is very hard to make a return.

  Q1975  Chairman: I notice a very interesting change in the way you talk about public service broadcasting. You are now talking about the state as if it is some sort of East German organisation.

  Mr Wheeldon: I am sorry, this is simply shorthand reference to the BBC.

  Q1976  Chairman: I did notice Mr Murdoch, referring to the BBC, referred to and I quote "state-funded intervention" and "state-sponsored journalism". Do we take this as being a new house style as far as BSkyB is concerned?

  Mr Wheeldon: It is indisputably funded via a compulsory levy which is raised by the state. I think the description is entirely accurate. What connotations you choose to put on depends on your perspective.

  Q1977  Chairman: Do you believe in public service broadcasting?

  Mr Wheeldon: I believe that public service broadcasting as a concept exists. I would question whether the definitions of what is public service broadcasting are particularly helpful.

  Q1978  Chairman: Would you like to see public service broadcasting reduced?

  Mr Wheeldon: We believe that the market can produce an awful lot more of the kind of content that has previously been produced as a result of interventions in the market.

  Q1979  Chairman: Let me put it another way. Do you think the BBC has too much power, too must finance and too much muscle in this area?

  Mr Wheeldon: If I were to say "yes,", I would simply be echoing what a vast swathe of the industry is currently saying.

  Q1980  Chairman: Are you saying "yes"?

  Mr Wheeldon: I broadly would agree with that proposition in that at the moment, in terms of the ability for others to invest in the kind of content that you are all talking about today, the BBC is disproportionate and that is affecting other people's ability to invest in that content.

  Q1981  Chairman: Therefore, what would by your role for the BBC? Would you like to see it doing programmes that others could not do?

  Mr Wheeldon: I certainly think the BBC needs to think about what is distinctive and what is not, as too often what the BBC does is not distinctive.

  Q1982  Chairman: It would obviously be to your commercial advantage if the BBC came out of particular areas, would it not?

  Mr Wheeldon: Not just to our commercial advantage, but I suspect you will find to the commercial advantage of virtually every other commercial broadcaster.

  Q1983  Chairman: Although not necessarily UK plc.

  Mr Wheeldon: It depends on whether you want to have an alternative to the BBC that is not funded via by some form of government intervention.

  Q1984  Chairman: Sophie, you actually worked for the BBC.

  Ms Turner Laing: I did.

  Q1985  Chairman: For how long did you work for the BBC?

  Ms Turner Laing: Six years.

  Q1986  Chairman: Did you feel at the time you were working for a state-funded organisation?

  Ms Turner Laing: Yes.

  Q1987  Chairman: In what way did you feel that?

  Ms Turner Laing: Because the way that the funding is received means there is very little reality in delivering and operating under a PNL. You do not have to deliver shareholder value necessarily—the aim is obviously to do that—and your funding is secure over a set period of time. No commercial business has that security. I fundamentally believe that the BBC is capable of great creative innovation. I feel it has become very distracted in what it has been doing and, if it continued to make great content, it would be worth paying for but it has strayed very much into all sorts of other areas which commercial businesses are—

  Q1988  Chairman: Compete with you?

  Ms Turner Laing: No, commercial businesses, whether it is on the online world, whether it is the Lonely Planet example, which is always trotted out, or whatever. There are businesses that we are definitely not in but the BBC are in.

  Q1989  Chairman: Did you feel, when you were working there, that the Government were breathing down your neck, which is a normal feeling about state-run organisations?

  Ms Turner Laing: You have to remember, I was working for Greg Dyke, so I think the answer would be "yes" on that.

  Q1990  Chairman: I am not quite sure I totally understand that. Was Greg Dyke breathing down your neck or was it the Government?

  Ms Turner Laing: It was at the stage of Hutton, et cetera, and there were obviously quite a lot of problems.

  Q1991  Chairman: Did you leave at the time of Hutton, in fact?

  Ms Turner Laing: I left just before the inquiry started

  Q1992  Chairman: On that occasion, you did actually feel at the time of Hutton that the Government were actually breathing down your neck?

  Ms Turner Laing: Very definitely.

  Chairman: There may be some sympathy with that particular view.

  Q1993  Lord Gordon of Strathblane: Obviously, the term `public service broadcasting' covers a multitude of virtues, but do you think that original UK originated children's programming is an important ingredient in it, for example?

  Ms Turner Laing: Nobody has been able to truly define what public service broadcasting has been for the last 20 or 30 years.

  Q1994  Chairman: I thought we did rather well in our report on it!

  Ms Turner Laing: Apologies! I think children's programming is a very important part. The BBC, obviously with two channels dedicated to children's programming, provide a large swathe of that. We are a joint venture holder with Nickelodeon in their children's channel. Children's programming has had a great tradition in the UK, mainly because we have a very vibrant literature basis. My background is in children's programming, so I very much feel that should be part of it.

  Q1995  Lord Gordon of Strathblane: If we leave the BBC to one side, would you also accept that the terrestrial public service broadcasters, who are advertising dependent, have less money than they used to have and are certainly cutting their investment in, for example, children's programming?

  Ms Turner Laing: Then I think it does goes back to the argument that, if the BBC are funded in the way that they are, does one need a great plurality of voices in children's programming or is it sufficient, given that linear content is one way children consume and, quite frankly, a whole generation now have moved on to video games or online or whatever, so is the direct investment in linear content really viable for all the terrestrial broadcasters to be in as a market?

  Q1996  Lord Gordon of Strathblane: I am surprised that you think it is acceptable that the BBC should have a monopoly of UK production of, for example, children's programming.

  Ms Turner Laing: They do not. We have a number of commercial children's channels, Disney being an example, Cartoon Network, Nickelodeon, et cetera, who all produce here in the UK, so there is a vibrant market there. They just cannot compete on the investment in hours of drama, or whatever it is, like that because that is very expensive programming.

  Q1997  Lord Gordon of Strathblane: Can you give us any figure for, for example, Nickelodeon spend in the UK?

  Ms Turner Laing: I will have to come back to you on that; I do not have that with me.

  Q1998  Lord Gordon of Strathblane: I think it would be helpful to have that. Granted that some people feel it is desirable that there should be more UK origination from other than the BBC, people have been offering evidence to us on methods of funding it because they recognise the market itself might not generate it. Somebody suggested retransmission fees. You are broadcasting terrestrial channels and you should pay a small levy for that privilege. Your reaction I think I can predict, but I would like to have it.

  Mr Wheeldon: As we have already described, we are investing considerably in UK content and that is growing. You would be robbing Peter to pay Paul. If you restrict our ability to invest in programming, we will do less of it and that is the effect that a levy would have. The other point I would make is the terrestrial PSBs get very significant advantages from being carried on platforms such as ours and, indeed, they also have regulatory advantages which are valuable to them, such as due prominence on the electronic programme guide. That is pretty significant for the likes of ITV. Frankly, I think retransmission levies are just a way of taking from an organisation which actually already has an incentive to invest in content. I am not sure why you would want to do that.

  Q1999  Lord Gordon of Strathblane: Would your reaction be the same if somebody suggested a levy on the equivalent of Sky + digital recorders, because of the reuse?

  Mr Wheeldon: Again, this is a market that has a £3.6 billion a year intervention and you want to increase it. I just cannot conceive—

  Q2000  Lord Gordon of Strathblane: What people are looking at are ways of perhaps increasing it, not giving it to the BBC but giving it to other people.

  Mr Wheeldon: What I do not understand is why the assumption is always that the only way to get more people to do more investment in content is to fund it via some form of intervention. Actually, if perhaps there was less intervention there in the first place, more people would invest because they could make a return. Unfortunately, that starting point never seems to be arrived at, which is slightly odd.

  Q2001  Lord Gordon of Strathblane: I would like to come back to a point you made, Sophie, on film. Was there not way back a Sky Film channel?

  Ms Turner Laing: No. We had a production company called Sky Films that existed pre me, so about six or seven years ago, which lost a considerable amount of money. It was a good investment, they put a healthy investment in, but it had no real return for it. It was felt better that we went into long-form programming, such as dramas, factual and pieces like that. I think it is important to understand how our movie deals work with the studios because obviously we take a set amount of films from each studio each year and not a high percentage but a percentage is British films. For example, Universal's films, which owns Working Title in the UK, flow through us and our licence fees that we pay to the studios are integral in them green lighting films. Without that comfort of our output deals, they would not green light that. We have been working closely with John Woodward to see what more we can do to enhance studio investment in film because, that way it is a natural progression of investment rather than forcing one down a route of producing relatively small films that in the end get small audiences because, at the end of the day, we are a mass market movie service, not Film 4.

  Q2002  Lord Gordon of Strathblane: You do not have any plans to go back into the film business?

  Ms Turner Laing: No. I would thoroughly prefer to put whatever investment I am lucky enough to get from my Chief Executive into drama.

  Q2003  Baroness Howe of Idlicote: There is clear audience evidence that they are very concerned to have a high proportion of UK originated content. Before I go on to a slightly broader question, I am not certain whether we have got what proportion of programming on your entertainment and arts channels is, in fact, UK content.

  Ms Turner Laing: All of our originated content is UK produced.

  Q2004  Baroness Howe of Idlicote: All of it?

  Ms Turner Laing: All of it. The percentage of original spend is all spent with UK companies.

  Q2005  Baroness Howe of Idlicote: Let us look at the effect of the AVMS directive, which actually requires 50 per cent of the output of European broadcasters, that is excluding sport obviously, to be EU content. What effect would that have on your work if it was enforced rigorously because, in fact, we had evidence from Carole Tongue that it was not being enforced as fully as it should be?

  Ms Turner Laing: Is that spend or hours?

  Q2006  Baroness Howe of Idlicote: Output.

  Ms Turner Laing: It does not define it. Therefore, what we prefer to do is smaller, bigger, better, so that we make sure what we invest in we do extremely well. As far as hours, we probably would not qualify for that but, as far as investment in actual spend, there is definitely the intention that we should be reaching those types of figures.

  Q2007  Baroness Howe of Idlicote: It would have an adverse effect?

  Ms Turner Laing: I think we should be able to do it, yes.

  Q2008  Lord Inglewood: A week ago when Michael Grade was sitting where you are both sitting now, he was, in his usual trenchant way, extremely critical of the Competition Commission's rulings about Kangaroo and arguing that, by effectively making it impossible to have a single portal for video on demand with the television channels involved, we were condemning this country to an American dominance in that part of the business. Do you agree and do you think it is important that there is a kind of UK single portal for watching British TV on a video-on-demand basis? I am using layman's words.

  Mr Wheeldon: We would argue that the market should be allowed to find the right means of delivery.

  Q2009  Lord Inglewood: The market had found a means of delivery and it was the Competition Commission that stopped it.

  Mr Wheeldon: The problem is that the market had not entirely. The big problem with all of this was the involvement of the BBC. When you have such a dominant player in terms of content involved in such a deal, it was always going to cause a problem.

  Q2010  Lord Inglewood: What you are really saying is the domestic TV market in Britain is completely dominated by one player that is abusing an economic dominant position in respect of the whole marketplace, full stop.

  Mr Wheeldon: I am not saying it is abusing its position, I am simply saying that it is self-evident that it is a dominant player.

  Q2011  Lord Inglewood: Yes, but it is where you get abuse of the dominant position that is the problem, is it not, not the fact that you may have somebody who is in a dominant position.

  Ms Turner Laing: Surely the debate on Kangaroo was that, if you are an aggregator of content and this was a platform that was being set up, you usually would take content from everywhere. For example, our platform is an aggregator of content. We do not decide on taste and decency terms who comes on the platform, Ofcom do. The issue with Kangaroo was a closed wall environment, so that it would only be public service broadcasting there. It is debatable whether the true full force of UK content could actually end up on Kangaroo.

  Q2012  Lord Inglewood: Would you want to be on Kangaroo if Kangaroo existed?

  Ms Turner Laing: We are involved in the consultation on Canvas. Last week, we did a deal with an IP TV company called Fetch. Our feeling is that, for IP TV delivery, we are looking to be on all sorts of platforms.

  Mr Wheeldon: It is in our economic interest to distribute our content as widely as we possibly can.

  Q2013  Lord Inglewood: Do you think that it is in the UK's interest to have what I call a UK portal rather than have somebody like Hulu dominating the marketplace here?

  Ms Turner Laing: I am not sure whether a UK platform is really who owns the platform. I think it is what content is accessed there and how independent producers can get their content on the platform and available. Channel 4 have recently done their deal with YouTube, so all their content is going to be available on an existing platform. I do not think that probability precludes them from doing a deal with Fetch or with anybody else who might come up. You want to get your content as widely distributed as possible. The consensus of needing to have a British Hulu I think is debatable.

  Q2014  Lord Inglewood: I am not trying to put critical words at you, but the argument is that nationality does not really matter in all this.

  Mr Wheeldon: Is it not more important where the revenue is going? If Channel 4 can get revenue streams from—

  Q2015  Lord Inglewood: That also may be important. I am trying to tease out what your thinking on that is.

  Mr Wheeldon: There are not many industries anymore where we deliberately try to create national champions. That was seen to be a failure of industrial planning.

  Q2016  Lord Inglewood: There is in the widest possible sense a feeling that it is part of British culture—I think you almost touched on it yourselves earlier—that it belongs to this country rather than the world as a whole and we want to encourage it. For example—and you may disagree with it—if you look at the European legislation, there is clearly a concept of the value of the distinctiveness of a European component in this wider world market.

  Mr Wheeldon: I am not sure how a platform aggregator makes a big difference to any of that.

  Ms Turner Laing: I think it would be fabulous to have one if it provided universality of access.

  Chairman: We have run out of time but can we get in a question on training.

  Q2017  Baroness Howe of Idlicote: Do you run any in-house training schemes and, if so, for what sort of programmes?

  Ms Turner Laing: We have a variety of apprenticeships in our various content divisions. We have also just started up a school leavers' scheme where we take 18-year olds into the business because, if we are looking for people to produce promos or be cameramen, they do not necessarily need to go to university and we would rather give them the training on the spot. One of the areas obviously that we lead the light in is in HD. We are the leading carrier of HD channels and we provide a lot of help and input to the industry generally. When we introduced HD, we worked with tons of small independent companies to get them up to speed on what they needed to do, provided access to our HD suites, bedded suites, et cetera, and we are just about to start—you probably saw our announcement—in 3D. We are working with the Film Council at the moment to work out how we could help get professionals in the industry around the 3D idea because, quite frankly, there is nobody in the UK who knows very much about it.

  Q2018  Baroness Howe of Idlicote: You are working in partnership, as you have said, with another organisation, but what about contributions like Skillset?

  Ms Turner Laing: We are not part of Skillset for a myriad of reasons but we prefer to be very proactive in our own apprenticeship scheme. I think it is important to add that we are a large corporate sponsor of the National Film and Television School—I am a governor there—where we support on an annual basis and have done for many years and will continue to do so.

  Q2019  Baroness Howe of Idlicote: Are you happy with the amount of training that goes on in those places? Is it, in fact, sufficient? Are there particular areas in which current skills are inadequate and what would you propose should be done about them?

  Ms Turner Laing: I think it would be helpful if we were not sending hundreds of children to media studies courses at university where they are not particularly brilliantly taught and then we have to retrain them as soon as they come out.

  Q2020  Baroness Howe of Idlicote: Higher education is not one of the areas you—

  Ms Turner Laing: Some more vocational work would be much appreciated.

  Q2021  Chairman: That is a complaint which has come out from a number of people in the industry. What can one do about it?

  Ms Turner Laing: I think the issue is that it goes back to the whole way the education system is run about how many grades you can get through your students and media studies is seen as a very soft option, so you either have to cut that down or ... The problem is that we are in an industry where the technology changes minute by minute, not year on year even, so it is quite hard. I think having a greater degree of practical experience, whether it is internships, as they do in America, or even engineering courses, would be much more helpful than what we have at the moment.

  Q2022  Baroness Howe of Idlicote: You have mentioned apprenticeships. Do you think this is one of the areas where you could advocate rather more towards women in this respect because there are very few women who take up apprenticeships and I would have thought this was an area which would be quite interesting for them?

  Ms Turner Laing: We have quite a well thought through diversity plan which covers both gender and ethnicity because, as you may know, I was Chair of the CDN for the last couple of years. For me, it is both gender and ethnicity, because television as a whole is pretty white and middleclass, hence providing our school leavers' schemes. We only take pupils from our local schools in Hounslow, so we draw them from our local community. I think gender is an issue with technology.

  Q2023  Baroness Howe of Idlicote: Given the emphasis that the Government are placing on apprenticeships, surely there is an area here where you could encourage them to do rather more.

  Ms Turner Laing: We have a very open policy on work experience. We take part in the 11 million takeover day, which was a government-run initiative where we get everybody from primary schools into Sky to come and see what it is about. Our volunteering work that we do, whether it is planting trees or whatever, is done in co-operation with local schools, so that they have an understanding of the jobs which are available in television. School children predominantly see it as either you are a presenter or a cameraman and there are obviously a million other roles there to play.

  Q2024  Chairman: We must be careful not to offend our Specialist Adviser on media courses—"too late" he says and he is probably right—and, even if we do, we probably do not mind! Would it be fair to say—and I am trying to shorthand it—that you would like to see a bigger element of vocational training in some of the media courses? This point that you and others have made that people are coming out of such courses, even when there are vocational parts in it, and simply need to be retrained right from the beginning. It seems a terrible negation of everything that has happened before.

  Ms Turner Laing: I think that it is also supply and demand. As an industry, there is a certain percentage of people who work in the industry and the amount of students who are going into media studies far outstrips any of the intake that one would take on a natural turnover and, in a recession, people are not moving as frequently as they were before. You are pushing everybody down a very, very narrow funnel and basically you start really at the bottom. I started as a secretary, people start as a runner, and that is how you learn the business because it is very much by experience. If there was a greater degree of practical experience on the job where people literally went for six months or a year, just like when you are learning languages, you go and live in whatever country you are learning the language of, it would be much, much more useful because we would be able to put people quicker into positions of responsibility rather than needing to baby-sit for a year.

  Q2025  Chairman: Would the media industry, particularly the television industry, I suppose, co-operate in that sort of scheme?

  Ms Turner Laing: I do not see why they should not, because there is a very large freelance part of the creative industries. Who is to say you could not make up some of that freelance basis with internships.

  Chairman: That is very interesting. Thank you very much indeed for the evidence. I think there are some issues we might like to clarify, if we might, in post so that everyone knows what figures we are talking about, because this area does very easily become confused. Thank you very much for the way in which you have given your evidence and we are very grateful for it.


 
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