Examination of Witnesses (Questions 664-709)|
Mr Mick Desmond, Mr Rob Woodward and Mr Bobby Hain
14 DECEMBER 2010
Q664 The Chairman: Good afternoon. Thank
you very much indeed for coming along. You will be pleased to
hear that you are the last of our witnesses, so you can always
overturn all our thoughts over the last two months quite easily,
I am sure. It is very good to see you. Would you like just to
introduce yourself one by one and then we will just fire a series
of questions at youI think we have 20 minutes to half an
hour or so to do it inand it is really up to you as to
which of you decides to answer the questions. They will be thrown
out in broad terms because each of you has very common interests,
basically. Mr Desmond.
Mr Desmond: I am Mick Desmond. I am the non-executive
chairman of Channel Television and I also act as Chairman of the
The Chairman: Thank you.
Mr Woodward: I am Rob Woodward. I'm the Chief
Executive of STV plc.
Mr Hain: I am Bobby Hain. I'm the Director of
Broadcasting & Regulatory Affairs at STV.
Q665The Chairman: In its written evidence, ITV
said that CRR had artificially depressed its revenue below the
market level and that of its peers in other countries. What impact
do you think CRR has had on the cost of television airtime, (a)
on ITV plc, and (b) on the independent licensees like you?
Mr Desmond: I think it has depressed ITV's revenue,
certainly against major European competitors, or indeed, competitors
in the US in terms of their networks. I think the quantum price
for ITV plc is probably in excess of £250 million over the
period, and I think that if you were to count us in as the minority
players, in effect it has probably hit us harder on the basis
that we don't share in the interests of ITV plc with the subsidiary
channels. So I think the quantum across the minority channels
is probably somewhere in the region of £30 million across
Q666 The Chairman: So do you think
you are disproportionately hit, in a sense?
Mr Desmond: On that basis, yes.
The Chairman: But you don't have the
Mr Desmond: ITV has the ability of taking some
of the loss that it suffered on the mainstream channel back on
to its subsidiary channels of ITV 2, 3 and 4. So in many ways,
because the minority licences don't share in those channels, our
loss has probably been more severe. Also, on that basis, we've
not shared in any of the merger benefits. So it is a bit of a
double whammy in some ways.
Mr Woodward: I think for us it is a key point
that ITV plc have benefited from a number of cost synergies in
being able to put its businesses together. We've not been able
to do that, yet at the same time we went from the position where
there was competition selling Channel 3 airtime to a position
where there is now a monopoly provider, and that is ITV plc. So
we have actually been caught by a remedy that was essentially
designed to protect us, and for that reason in our submission
we have made the very strong case for saying that you shouldn't
be looking simply at the CRR undertaking in isolation to the other
remedies that were put in place at the time that
The Chairman: Yes, I saw the other undertakings
that you were keen to have enforced, basically.
Q667 Lord Skelmersdale: Would you
make the same remarks as far as internet advertising is concerned?
Mr Woodward: No.
Q668 Lord Skelmersdale: You don't
think that has damaged you at all?
Mr Woodward: Certainly as far as STV is concerned,
we sell online advertising completely independently, so ITV does
not represent us as a sales house for digital salesfor
Q669 Lord Macdonald of Tradeston:
I declare an interest as a former chief executive and chairman
of STV. I have also worked quite closely with Mr Desmond in the
I just wonder if you could tell us to what extent
CRR has impacted on ITV's ability to invest in original programming
and how it might have affected the STV channel, and I suppose
by extension also UTV and Channel Television?
Mr Desmond: I shall take the first part of the
question on ITV, and again I declare an interest; up until the
end of 2005, I was the chief executive of the ITV broadcasting
business. I think it has made ITV play safe. I think it has made
ITV go for mostly populist formats and take less risk, to the
extent that certainly the amount of high-quality drama reduced.
Areas such as arts and documentary, which were in the scheduleand
which were propositions in the schedulediminished, I think,
because of it. So I think it made it play safe.
Q670 The Earl of Onslow: Yes. On
the effect on CRR on various people's advertising revenue, surely
this is almost a matter of just looking it up. You know what Channel
4's advertising revenue was in the year 2003 and you know what
ITV's revenues were in 2003. Presumably, you will know what they
are in 2007, and so if there is a disparity or a proportion between
those two numbers, you should then be able to say, "Perhaps
this is applicable to CRR". If there is no disparity, you
will not be able to make a judgment. Has there been a disparity,
in that context?
Mr Desmond: I think the Achilles' heel in the
argument of CRR when it was introducedand I don't know
whether people are aware of thisthere was an almost last-minute
change in the process of CRR where the form should have been ITV's
share of commercial viewing versus share of commercial impacts,
and there is a fundamental difference. If it was commercial viewing,
then I think ITV would have prospered more, because after CRR
was introduced you had a plethora of channels that did two things:
one, they weren't selling all their airtime out, and suddenly
they decided the best thing to do was to open all their airtime
up even if they weren't selling it, because it just withdrew money
away from ITV. Secondly, you had more channels that were just
as simply introduced into the system where again, their share
of viewing wasn't necessarily strong, so they may not have had
as many people watching, but just by putting those channels into
the system they created more commercial impact. I think there
is a huge disparity between the former when it was introduced,
and I think we have now seen how that has fundamentally changed
the loss of revenue.
The Chairman: That is an interesting
Q671 Lord Macdonald of Tradeston:
I suppose the more general point is that there is a suspicion
that, were ITV to prosper more, the benefits would go to the shareholders
rather than the viewers in original content production. Is there
any way in which we could ensure that they were directed towards
the onscreen industry?
Mr Woodward: You would have to end up with a
more directive approach in the licence.
There is also a further point in answer to your
question. There is an assumption that there is currently transparency
within the Channel 3 system. Our challenge is that actually there
isn't transparency in the current system.
The Chairman: Because of these other
Mr Woodward: Because of the other channels.
The committee will be aware that wethat is, STV plcare
involved in two current High Court actions, one of which includes
the performance of the ITV sales function. On top of that, we
are currently in the midst of an external audit of ITV plc's sales
function. So I think it is important that the committee understands
that the current structure within Channel 3 is not transparent.
Certainly the setting up of further channels has added to that
lack of transparency.
The Chairman: Making it sort of too sort
of team and ladle, and so on.
Q672 Lord Macdonald of Tradeston:
Well, what is the broad thrust of your complaint then?
Mr Woodward: We have a number of issues, but
the key issue is that a number of merger undertakings were put
in place at the time of the Carlton/Granada merger to ensure the
safeguard position of the three non-consolidated licensees, and
one of the most important of those was that similar terms had
to be offered to the non-consolidated licensees, but there were
also agreements about the transparency that had to be provided
to those licensees. So in answer to that very specific question,
it is ensuring that there is sufficient transparency within the
current system. If the CRR was to be removed or if there was to
be a change to the CRR, one of the key points that we would want
to see addressed is to ensure that there is sufficient transparency
for us to see how ITV plc represents and sells ITV1 in isolation
from the other family of channels.
The Chairman: That is an interesting
point that we might want to come back to on sharing commercial
viewing as well.
Q673 The Lord Bishop of Liverpool: You
say, "if CRR should be removed". Do you think that CRR
should be removed? If so, why? If not, do you see some sort of
revision to CRR?
Mr Desmond: I think CRR should be removed. I
think that the world has turned quite dramatically since it was
introduced. Certainly, on the strength of the advertising agencies
and of the new rating agencies placing airtime, when this was
put in place, the prediction was that four or five major media
buying groups would buy airtime, and that has come true, where
nearly 85% of ITV's revenue comes from five buying points. If
one of those buying points removed airtime from ITV for a period
of three months, it would wipe out the whole of ITV's profit.
So as a mechanism it is probably past its sell-by date. As Rob
said, I think we have given conditional support to ITV for removing
CRR from their lobbying on the basis that the other merger undertakings
Q674 The Chairman: Can I just clarify?
Is "buying point" a media buying point?
Mr Desmond: A media buying point. For example,
The Chairman: One of the big four or
Mr Desmond:probably accounts for nearly
25% to 30% of ITV's advertising.
Q675 The Lord Bishop of Liverpool:
When the Minister was here last week, the point was put to him.
He seemed to brush it off and to say that the introduction of
CRR had not in fact had that sort of impact. I think you are saying
now that 85% belongs to five media buyers. We were saying, "Look,
the market has shrunk for the small player", and he said,
"Oh, well, you know, it's not a monopoly situation".
But you are telling us that there is.
Mr Desmond: Absolutely. I think the dynamics
have changed fundamentally since 2003. At that stage, as I say,
I was there at ITV, and there were probably 10 buying points accounting
for about 70% of ITV's income.
Q676 The Chairman: And you experienced
that in the marketplacethat market power that they now
Mr Desmond: And I think the other changes are
now to the selling points. Sky is a much bigger beast, having
now taken over Virgin's assets, and Channel 4 is a lot bigger
beast, having taken over UKTV, so the selling points are much
stronger as well. So you see they are shrinking both the buying
and selling models.
Q677 The Earl of Onslow: Would you
accept, therefore, with these media companies sitting like a great
bloated wodge between the person who wants to advertise their
product and the person who wants to do the advertising for them,
that these people are not necessarily acting in the interests
of either one or the other, but both, and consequently that is
not having an effect on the market but it is inherently unhealthy?
Mr Desmond: I don't, actually. I think in the
last 12 months in particular we have seen more business move between
major agency buying points than at any given time. The major clients
are moving in order to get best value, and those major buying
points are delivering that value. So I think, if anything, they
are working harder to deliver to the clients than they were five
to 10 years ago.
Q678 The Chairman: Why would that
Mr Desmond: Because, basically, they derive
revenue from those clients. I think you're seeing a big fight
now between those agency groupings.
Q679 The Chairman: So the competition
between them is creating that?
Mr Desmond: They're pitching very aggressively
to win clients' business, and in order to do that are guaranteeing
delivery of price and ratings.
Q680 Lord Gordon of Strathblane: My
question is specific to STV, but perhaps should be related to
other non-consolidated licensees as well. You mention that you
contract with ITV for your sales. Why don't you just do it yourself?
Mr Woodward: Well, we're currently tied into
a sales contract that takes us through to the end of 2011, so
certainly during my tenure in the company, taking business away
from ITV has not been a possibility.
Q681 Lord Gordon of Strathblane:
Would you wish it to be possible?
Mr Woodward: We would wish to have the freedom
to be able to review who represents us in the market, yes.
Q682 Lord Gordon of Strathblane:
Sure, but why don't you just represent yourselves? You used to.
Mr Woodward: No, I would include representing
ourselves as one of those alternatives.
Q683 Lord Gordon of Strathblane:
In a way, why did your predecessors not stick out for that? After
all, you decided not to be consolidated as part of ITV. Presumably
that required some control over your revenue as well as your expenditure,
yet you have apparently signed away control over your revenue.
Mr Woodward: Bobby, you were there at that time.
Mr Hain: One of the parts of the undertakings,
which is in fact part of those undertakings that we wish to continue,
is that the competitive tension that used to lead to competition
for our sales agency business continues. In other words, in the
days where there was Carlton and Granada, STV's business, as represented
for national sales, could switch freely between them, and at the
point at which the merger happened and ITV plc was created included
a merger undertaking that we would be able to get similar terms
on the last competitively fought battle with our sales agency.
So in that sense, we had a contract in place; we absolutely signed
up to that contract. We wish to have the same contract, similar
terms as before, but alsoand equallyto have the
freedom to go elsewhere.
But there is another issue here, which is that
as part of Channel 3, if an advertiser wants to buy "Coronation
Street" around the UK, it actually wants to do that as easily
and as efficiently as possible. So it doesn't want to have to
have lots of different conversations, and on that basis we see
the power and the value in being part of a national cell.
Lord Macdonald of Tradeston: I in fact
gave up the independence of the sales house in my timeI've
been out of it for about 13 years. Mr Desmond will remember the
times. We had to give it up because with only 5% of the market,
you were bullied mercilessly and left at the end of every queue.
Given that you are smaller now in a bigger universe, you might
be lucky to get some of the meetings from the people involved.
But Mr Desmond knows how that works.
Mr Desmond: I don't disagree with you. It is
very different at Channel Television and I don't have some of
the issues that Mr Woodward has pointed out. Channel is a very
small revenue-generating proposition and we are sold actually
as part of the formula of Meridian Television, so we couldn't
theoretically sell ourselves anyway. Probably my issue with ITV
and advertising revenue is more the potential shift of monies
between channels, unless we had the protection that we currently
The Chairman: Right. I understand.
Q684 Lord Gordon of Strathblane:
Just so that we are clear on this and to sign off on it, it wouldn't
be practical for you to sell yourselves. Is that what you are
Mr Woodward: We have not come to that conclusion
because we don't have the freedom to consider it, but we would
welcome the freedom to be able to consider it.
Q685 Lord Gordon of Strathblane:
I mean, you must have weighed up whether it was a good idea if
you had the freedom.
Mr Woodward: We have not. We can't come to a
definitive conclusion. All I'm saying is that we would welcome
the possibility of having the freedom to decide who best represents
us in the market, and because that contract comes up for renewal
at the end of next year that will be a discussion in 2011.
Q686 Lord St John of Bletso: Many
would argue that CRR should be scrapped, because the whole television
market has completely changed since 2002 when it was introduced.
If CRR were to be removed, what impact would this have on your
national advertising revenues?
Mr Desmond: ITV's national advertising revenue?
Lord St John of Bletso: Yes.
Mr Desmond: This year would be a very good example.
ITV's share of impacts is more or less static; you can buy them
in different demographics. As a result, ITV has enjoyed an increase
in its share of the market. Witness what is happening in nearly
every national newspaper at the moment. People are talking about
advertisers desperately wanting to buy things like "X Factor"
and all those other things. Like any market, there should be a
Q687 The Chairman: Just to get a
direct answer to the question, would CRR removal increase the
advertising revenue in those circumstances?
Mr Desmond: I think there would less constraint
on the markets and I think advertising major groupings may well
decide to place airtime trading in a different way, which would
improve ITV's fortunes.
Q688 Lord Stevenson of Balmacara: On
the assumption that that means you would therefore have a higher
amount of money and you would get more money out of that dealCRR
having been removed, uplifts having been in place and more money
disburseddoes that mean that you would be able to invest
more in original content after that?
Mr Desmond: I think as we have said in our submission
that we as the minority companies represent around 8% of the voting
within ITV plc and therefore we have no influence on the schedule.
We sit around the ITV council table. I've chaired the ITV council
now for three and a half years, and my view of the current management
is that they would actually invest more money. I think there will
be a greater investment in the schedule if they believed they
could take more money out of the schedule.
Q689 The Chairman: You use the third
person though, "they". You mean ITV itself? What about
your own company?
Mr Desmond: Channel Television simply produces
regional programmes. We don't produce any national programmes.
The Scottish are obviously in a slightly different position, but
I can only talk about what I witness. I think the current management
realise that if they want to drive their fortunes forward, they
have to invest more money in the schedule and deliver a better
performance. Without the restriction of CRR, I think they would
probably take more risk as well.
Mr Woodward: I would add that in Scotland we
have made a decision, which is to invest in more original programmes,
and we will provide around about 400 hours a year of peak-time
programming that is largely home-produced in Scotland. That was
a commercial decision that we undertook some two years ago. Clearly,
if there was more money in the system, we could look again at
that decision and hopefully even increase the amount of home-grown
Lord Stevenson of Balmacara: Could you
just rephrase that? You said something rather sensitive. Would
you increase that programming?
Mr Woodward: Well, we've more than doubled the
amount of home-grown programming over the last three years, so
we've gone on a trajectory that is completely the opposite.
The Chairman: What, even in the middle
of a recession, in terms of advertising revenue?
Mr Woodward: Yes, we have.
Q690 The Earl of Onslow: So would
you say the only influence on viewing figures is the content and
quality of the programme?
Mr Woodward: Our share of viewing is absolutely
on par with the rest of the ITV network.
The Earl of Onslow: But surely people
only watch what they want to watch. If it's good, they'll watch
it, and if it's rubbish, they won'tor is that a novel idea?
Mr Woodward: In a sense it's a very fair idea,
and one that our own experience would absolutely endorse.
Lord Stevenson of Balmacara: And they
might watch original rubbish more than light rubbish.
The Earl of Onslow: Good quality rubbish.
The Chairman: Let's move on from that.
Q691 Lord Stevenson of Balmacara:
We heard last week about the story of ITV and insufficient training.
Do you think that if CRR was removed and you got more money, that
might set you back into plentiful training?
Mr Woodward: Yes, as a company we have reached
out particularly to the higher education sector and the further
education sector, and we've launched training partnerships with
a number of the Scottish universities and further education institutions.
If there was yet more money in the system, then yes, we would
be happy and delighted to contribute more to the training, particularly
Q692 Lord Bragg: If you did get CRR
removed, do you think you would have to review the airtime sales
Mr Desmond: Sorry, reduce the airtime sales
Lord Bragg: sales rules if you
had the CRR removed?
Mr Desmond: I don't think so. I don't think
the airtime sales rules are particularly broken. They reflect
a market that allows the market to flow both upwards and downwards,
depending on demand. I think the only thing that has happened
is that CRR has probably restricted the premium discount that
should exist in any natural marketplace. And again, if you look
at the rest of Europe, or certainly the States, where you've got
networks competing against each other, it goes back to the point
I've made that if the programming isn't very good and you don't
get the ratings, you're not going to take the revenue, in which
case your premium will fall.
The Chairman: I think the aspect that
Lord Bragg was thinking of particularly is this obligation to
sell all your airtime, basically.
Mr Desmond: From a personal perspective, having
been a salesman for a long time, I don't think you should be obliged
to sell all your airtime, no. I can't think of many media worldwide
that are obliged to sell all their media or their minutage.
Q693 Lord Bragg: So you don't this
is going to be an issue.
Mr Desmond: I don't think the station average
price as a mechanism should be abolished or got rid of, because
I think it's a good clearing system for the market to work. I
also don't believe that any broadcaster should be obliged to sell
out all their airtime.
Mr Hain: Can I just add that the airtime sales
rules would concern us as to conditional selling, because at the
moment there is no conditional selling by ITV by virtue of the
fact that it would cut across the CRR contracts, which are ruled
on a different basis, and that may affect the connection in revenue
between ITV digital channels, from which we share no revenue,
and ITV1, which is absolutely at the heart of this. I think the
wider concern for us is that were CRR to be removed, there could
be greater obfuscation as to what value ITV1 represents in any
sale inclusive of digital channels. So you have the rather awkward
situation potentiallyand hypothetically at leastthat
if CRR was removed, more money could come into the ITV system,
but there might be just the same or even less for the minority
The Chairman: Because they could create
a conditionality in the contract?
Mr Hain: Correct, yes.
The Chairman: So that is another safeguard
that in a sense you would be asking for. That was in the original
undertaking, presumably, or did not need to be in the original
Mr Woodward: Correct. It didn't need to be in
the original undertaking, which is why we have a slight nervousness
about it and why we're not sitting here being totally enthusiastic
about CRR potentially being removed. If it is simply removed and
ITV is not forced to provide sufficient transparency and sufficient
assurance over non-conditional selling in the future, we would
be no better off. All the benefit would accrue to ITV plc and
not the non-consolidated licences.
Q694 Baroness Deech: I have a much
broader question for you. We have heard a lot about the economy
of this and how it might affect you at Channel 3, a minority shareholding,
but what is your view of the public interest with the removal
of CRR or its retention? Which way would the public interest be
most benefited? By public interest, I mean everybody. What effect
might it have either way on the cost of advertising and what that
means to the publicbetter quality, or indeed worse quality,
but very popular programming and so on? I don't think the Competition
Commission have really come to grips with this. So forget you
are who you are; you're someone who is representing the public.
What about CRR from that point of view?
Mr Hain: I think one of the most immediate and
great benefits to removing CRR, leaving aside value, which is
a separate issue, would be a move away from having to stuff popular
programmes as full of commercials as they currently are. The reason
goes to the point Mick made earlier on, around having to maximise
your commercial impact share and optimise your airtime, which
is why you can watch a programme in mid-evening that has 12 minutes
of commercials in it, followed by programmes that have zero minutes
of commercials. I think the public equates, even implicitly, an
amount of commercial value next to a programme with its worth,
and if people are watching a programme that has a break with no
ads in it, they go, "This can't be terribly commercial or
popular". So I actually think that in helping to smooth out
the schedule and create a better experience for people, a move
away from a dependency on a CRR ratchet that is driven off sale
or share of commercial impacts would be immediately beneficial
to people. Perhaps Mick is better placed on the detail.
Q695 Baroness Deech: But are you
suggesting that if there are no ads, they will switch over to
something else where there were ads?
Mr Hain: No, no, what I'm saying is that the
experience of watching commercial television, particularly on
Channel 3, is extremely lumpy. You watch popular programmes, which
are stuffed full of ads by necessity and the need to optimise
your breaks and your ratings, and then you wander into territory
where there are no commercials at all.
Mr Desmond: I think that is probably more prevalent
now that a lot of programmes are recorded, which is still part
of the currency. A good example would be "The X Factor"
this weekend, where nearly 10% of its ratings are recorded. I
suspect most people would have fast-forwarded through the commercials.
There are 12 minutes of commercials sitting in a programme and
now you can fast forward.
Going back to your point in terms of absolute
cost: because of the station-added price mechanism that exists
across all broadcasters and across all sales points and selling
points, the cost of television wouldn't go up. The differential
within the price of different channels may well change. I don't
think it would be a huge fundamental change, but the cost of television
as a medium wouldn't increase. You would still have so many channels;
you would still have as much minutage. It may well change if people
can reduce their minutage.
Q696 Baroness Deech: That is if CRR
Mr Desmond: No, they are two different things.
If you apply the sales and reduce their minutage, then that would
change the balance in terms of the actual cost.
Q697 Baroness Deech: I am still trying
to think a bit broader than that. What would it do to, say, cost
of advertising and then the cost of goods being advertised, the
quality of programming and so on?
Mr Desmond: I think, in terms of cost of advertising,
it would not be a fundamental change in terms of the cost of television
advertising or advertising per se. In terms of programming, I
think there would be more risk-taking by ITV, but if we're being
candid as well, if a sudden downturn appeared in 2012 then ITV,
probably along with every other commercial broadcaster, would
seek to take some money out of their schedule. That's just the
fact of economics, I guess.
Q698 Lord Skelmersdale: Yes, one
of the things that has been put to us is that prices could be
determined by an online auction if we recommend the removal of
CRR. Does that make you shudder? That is point one. Point two:
would that produce a price differential to come down?
Mr Desmond: I think if you take price differential
for specific programmes, I suspect
Mr Desmond: I think that if you took programmes
like a major Champions League football game or "Downton Abbey"
returning next year or "The X Factor", I suspect that
a broadcaster like ITV could sell that 10 times over. So on one
hand, you would do very well on your auction. I suspect they will
then be left with an awful lot of airtime they can't sell to anybody.
So I think the whole idea
Q699 Lord Skelmersdale: So you think
it might balance out, do you?
Mr Desmond: Sorry?
Lord Skelmersdale: You think it might
balance out on that basis?
Mr Desmond: I think technically both the advertiser
and the media owner would lose a degree of control, because most
advertisers are trying to achieve a campaign over a certain period.
If you're advertising this week and you want to get 10 peak spots
away and some of those prime spots, and you miss the auction,
that's it, you can't access it, whereas in the current system
the objective is to try and sell all your airtime out but at the
same time ensure that advertisers meet their communication objectives
by delivering those campaigns when they need them and the type
of airtime they need aimed at the demographics they're trying
to hit. So there is a shared objective between both the buying
point on behalf of the advertisers and the selling point to meet
those shared communication objectives.
Q700 The Chairman: Are you saying
you don't see much wrong with the current trading system?
Mr Desmond: I don't, and I've seen a lot of
trading systems around the world. I think it recognises value.
I think the difference is the cap that has now come on it. I saw
some of the work that has been produced on behalf of ITV in terms
of ITV's decline of shared impacts and its decline of premium.
It's probably easy to sell though, just because of the formula
based on a share of impacts versus a share of view.
The Chairman: Any other thoughts on this
particular point about trading system? No.
Q701 Lord Dixon-Smith: We've heard
that ITV takes a pretty robust approach to these plans but despite
that it seems as though the atmosphere is pretty peaceful. Why
do you think that there have been no formal complaints to the
CRR adjudicator against ITV in the last couple of years, if they
are taking this very robust approach?
Mr Desmond: Like anything, I think that if you
put an adjudicator in place then people want to test the adjudicator;
they want to sort of test different formula. I think what has
happened over the last two or three years probably is that people
now kind of understand exactly the mechanismI mean, it
wasn't an easy mechanism to understand when it was introduced.
I think the media buying companies understood it. I think the
average advertiser found it counterintuitive, and therefore I
think it took a couple of years to understand the mechanism.
Having said that, I think that having an adjudicator,
whether with the CRR or not, is a good thing for the industry.
I think most industries, when in dispute, want to go somewhere
for some kind of unbiased resolution. I think an adjudicator is
probably a good thing for all parties. I mean, we would respect
having an adjudicator to go to if we had an issue, which we currently
can't do at the moment. To be able to go along to an adjudicator
who could take an objective view on something would be good. So
I think even going forward, having some kind of adjudicator is
probably not too bad a thing.
Mr Woodward: Indeed, we actually employed the
first CRR adjudicator as a member of our staff, so he was able
to educate us in some of the kind of bedding down of the system,
and I think Mr Desmond was right in that the world has got kind
of used to the current system. We would endorse what Mr Desmond
said. We would absolutely welcome the opportunity of having an
adjudicator that we could actually use within the system, as opposed
it being adjudicated outside the system.
Q702 Lord Dixon-Smith: So you are
really saying that in fact there is one that exists acts as a
sort of lubricant in the system, so you don't actually need
Mr Desmond: I think in many ways, in nearly
every other part of our industry where we are regulated by Ofcom,
we have an expert on a particular area of discipline. I think
that within Ofcom, there isn't that kind of expert sitting there
who can take an objective view on airtime trading, and it would
seem to menot just for ITV, but for the industrythat
if there was something that was seen as being unfair or malpractice
then somebody who would be respected and have the right kind of
research resource behind them making a decision, I think, would
be a good thing.
Q703 Lord Skelmersdale: Yes, but
couldn't Ofcom do the job?
Mr Desmond: Sorry?
Lord Skelmersdale: Couldn't Ofcom do
Mr Desmond: I think the point is one of expertise,
so Ofcom doesn't have that level of very specific
Lord Skelmersdale: But nor does the adjudicator,
when you say
Mr Desmond: But they would employ that person,
yes. They can employ that person and that person could be given
The Chairman: Yes, it is possible.
Mr Desmond:within Ofcom.
Q704 Baroness Fookes: I take it from
what you have said already that you can still see a role for an
adjudicator, even if CRR were removed?
Mr Woodward: Yes. From what we have said, I
think that to have a high level of expertise around the main commercial
generator of our industry and have that expertise sitting within
the regulator would seem to be a very sensible model, going forward.
Q705 Baroness Fookes: Yes, and you
mentioned the possibility of a wider remit or wider powers. Would
you like to expand on that?
Mr Woodward: Rather than just being the CRR
adjudicator, it would give them broader powers sitting within
Ofcom so that they could engage with any component of the industry
in terms of sales and commercial practice.
Q706 The Earl of Onslow: Do you think
that Ofcom is robust enough?
Mr Desmond: I think it is robust in a lot of
areas. I think in this area it is probably not, because it simply
doesn't have that area of expertise sitting within its structure.
I mean, it plays a role with the adjudicator, but as a third party.
Q707 The Earl of Onslow: So if CRR
were to be abolished, and ITV were to get up to some shenanigans
of Adam Smith-onian malpractice, Ofcom would not notice and would
not jump on it in time?
Mr Desmond: If the complaint was taken to them,
I can't identify anybody who would be able to resolve that issue
within an area of expertise, no.
Q708 Baroness Fookes: Would you find
it helpful if the adjudicator came within the direct remit of
Ofcom with that expertise, or is there value in him standing outside
Mr Desmond: Bearing in mind that Ofcom are there
to govern across the commercial sector, I think it would make
sense for that person to reside within Ofcom and have the powers
not just to technically adjudicate across ITV, but to adjudicate
across the industry.
Q709 The Chairman: Thank you very
much. One final question: you referred earlier to the original
intention of CRR being related to ITV's share of commercial viewing.
What would your preference be for a CRR that related to share
of commercial viewing, ie some of CRR or, in a sense, abolition
of CRR plus the safeguards that you were talking about earlier?
Mr Desmond: Talking from a Channel perspective,
I would like to see the abolition of CRR but ensure that the merger
undertakings that were put in place at the time of the merger
are protected, taking on board Mr Woodward's point that there
is some protection for minority channels in terms of money between
ITV1 and ITV plc subsidiary channels.
The Chairman: Yes, that transparency
Mr Woodward: And to ensuring that conditional
selling is not permitted in the market going forward, and at the
same time we would urge you not to just look at a remedy for CRR
in isolation to the other merger undertakings. They were put together
as a package at the time of the merger, and if they are to be
reviewed, we would argue strongly that they should be reviewed
as a package and not take a particular one that someone's cherrypicked
for review on its own.
The Chairman: Thank you very much. That
was a very illuminating session.