Regulation of Television Advertising - Communications Committee Contents


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 you—I think we have 20 minutes to half an hour or so to do it in—and 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 ITV Council.

  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 the period.

  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 other digital—

  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 sales—for online sales.

  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 past.

  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 schedule—and which were propositions in the schedule—diminished, 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 introduced—and I don't know whether people are aware of this—there 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 point.

  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 channels?

  Mr Woodward: Because of the other channels. The committee will be aware that we—that is, STV plc—are 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 are withheld.

  Q674  The Chairman: Can I just clarify? Is "buying point" a media buying point?

  Mr Desmond: A media buying point. For example, WPP Group—

  The Chairman: One of the big four or five, yes.

  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 marketplace—that market power that they now have?

  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 be?

  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 also—and equally—to 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 time—I'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 enjoy.

  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 telling me?

  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 premium price.

  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 deal—CRR having been removed, uplifts having been in place and more money disbursed—does 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 programming.

  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't—or 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 in Scotland.

  Q692  Lord Bragg: If you did get CRR removed, do you think you would have to review the airtime sales rules?

  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 potentially—and hypothetically at least—that 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 shareholders.

  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 undertaking.

  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 public—better 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 is removed?

  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 mechanism—I 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 me—not just for ITV, but for the industry—that 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 the job?

  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 broader tasks—

  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 it?

  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 point.

  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.





 
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