Media convergence - Communications Committee Contents


Chapter 5: Content creation

Public Service Broadcasting and convergence

148.  Media convergence is bringing many benefits to UK audiences in terms of increased innovation, competition, consumer choice and value—from the impact of social media and the advances in interactivity to the availability of a huge range of information and other content over the internet. It has, however, become clear to us that convergence is putting some strain on content creation in two areas: the role, effectiveness and funding of public service content, and investment more generally in UK originated content. As convergence continues apace, measures to address these potential risks will assume greater importance.

149.  It has been put to us that the narrow economic 'market failure' argument for PSB may weaken in a converged world. Some witnesses explained that in the past, the (economic) case for PSB rested on the fact that broadcasting was a 'public good' (a non-excludable good, with zero marginal cost for each extra consumer) and also, in some forms, created wider social benefits beyond its value to individual consumers. Left to itself, the broadcasting market would result in an under-supply of this type of content. On account of new technologies, however, audiences can increasingly pay for content on a pay-per-view/subscription basis and many new providers of 'public service' type content have emerged and prospered. It is therefore suggested that such a functioning market for content diminishes the (economic) case for PSB.[67]

150.  In isolation, the economic argument may have weakened the case for PSB, but in our view this is too reductive. As Professor Tommaso Valletti put it to us:

    "This [economic] case, which was the past case for having PSBs, has diminished precisely because people can pay for what they want … Having said that … You have the BBC, which is something that the entire world envies. Why break it?"[68]

151.  James Heath, Controller of Public Policy, BBC, reflected on the continuing importance of the role of PSB:

    "The central public policy question is whether this new world will deliver a range and breadth of content, with social, cultural and demographic values to meet everyone's expectations without intervention. I struggle to understand why that would be the case in the new world when it is not the case in this world. With the public policy, social and culture argument, it is difficult to see how market forces alone will deliver all that the research tells us everyone wants, despite convergence."[69]

152.  We endorse this argument. It is our view that while PSB may need to change in some respects, the importance of a public contribution will not decline: creating quality benchmarks, setting standards, ensuring (internal and external) plurality and investing in high quality content and culture for a wide variety of UK audiences. PSB facilitates a nationwide discussion; it supports our democratic processes, and its universal provision is of great enduring importance. So, the values of PSB and the importance of its universality will remain undiminished and absolutely central to the success of the UK in maintaining a rich and healthy media ecology. In fact, in these respects, the contribution of PSB is likely to become, if anything, more important. This is not to say that more PSB is necessarily required, or that it does not need to change or adapt, only that its broad role may be more important than ever. As IPPR suggested:

    "In a converged world which may see the rise of opinionated video news services and a vast wealth of on-demand content of varying quality and reliability, citizens in the UK will benefit from having a strong core of brands and services with which they are familiar and in which they can continue to trust."[70]

153.  As well as its social and cultural contribution, PSB plays, and will continue to play, a key economic role in supporting a high level of investment in UK content—both directly, and by setting market benchmarks for high production values. The five public service broadcasters and their spin-off channels currently represent 90% of UK broadcaster spend on first-run originated output despite welcome new investment in UK content from commercial providers such as Sky and Discovery. New players have entered the market—and though their contribution is increasing, it is still relatively small, as illustrated in the figure below.

FIGURE 4

UK spend on content[71]

154.  In this context, it is important to understand the 'virtuous circle' of content investment. Ofcom explained it in the following terms:

    "To understand the impact that convergence has and may have on the creation of UK content, it is worth exploring how the system has historically operated. Incentives to invest in content are based on a 'virtuous circle' that was originally rooted in an analogue environment. In the past, significant reach and large audience share drove scale advertising revenue which in turn produced scale investment in high quality UK content."[72]

FIGURE 5

Virtuous circle of content investment[73]

155.  A risk of convergence is that it is leading to fragmentation of audiences and revenues, which could impact adversely on investment in high production value content. Ofcom also noted that, while linear viewing still predominates, new 'non-linear' ways of finding content (searching, time-shifting), may gradually reduce the significance of the linear EPG (Electronic Programme Guide), whose code currently gives prominence to PSBs—the most significant investors in UK originated content. This creates a possible threat to investment in UK originated content:

    "If consumers do begin to discover content in different ways en masse, the consequential fragmentation of audience could in turn impact on the prominence of UK content and the virtuous circle of commercial content investment."[74]

156.  So, PSB is of paramount importance, both socially and economically, and must remain at the heart of the nation's media. However, the changing media environment will raise questions about the nature, scope, organisation and funding of PSB. Exactly how PSB is provided, by whom, and how contestable the process of allocating public money is, deserve further debate. As Professor Tommaso Valletti explained:

    while "you may want still to subsidise some type of programming. The next question is how to do it. Do you just want to give it to the BBC or do you want to introduce more contestability in order to provide such programming?"[75]

157.  In particular, we believe that plurality of supply of PSB is an important feature of the UK PSB ecology, and should as far as possible be preserved in the future. This is especially important for the provision of news and current affairs. We will consider these matters as part of our next inquiry. Any future consideration of PSB needs to take into account the various means by which it can be delivered, and the role of all the PSB players in delivering overall PSB goals.

158.  To date, decisions about each type of PSB (BBC, Channel 4, channels 3 and 5) have largely been made independently of each other. In future, given the paramount importance of sustainable and sensible funding in order to safeguard PSB as the new converged world unfolds, we think it is crucial that the future of PSB is now considered in the round by the Government so as to secure a stable future for the system as a whole, not just for each individual player within that system. Such a review would include, in advance of the next BBC Charter Review, consideration of the position of Channel 4, the longer term role of other public service broadcasters like ITV, and any other potential providers, as well as the BBC itself. The Government would be well-advised to get ahead of the curve, rather than waiting for difficulties to arise.

159.  We recommend that as preparation for the next BBC Charter Review, the Government consider fundamental strategic questions surrounding the PSB system as an interconnected whole and the potential impact of convergence: what is the right scale and scope of PSB, what purposes should it serve and how can it be best sustained in a converged world? Such consideration could be informed by the work of Ofcom's periodic reviews of the current state of PSB, and should include the role not just of the BBC but of other providers such as Channel 4.

160.  In addition to recommending this broad, over-arching look at PSB, a number of more immediate, but very important, specific issues have come to our attention. Incremental interventions in these areas could be of value in supporting the overall PSB ecology as it faces market challenges ahead. We shall take these in turn.

Visibility of PSB content: Prominence

161.  One of the conventional privileges for all providers of PSB, electronic programming guide (EPG) prominence, may become less effective in the digital on demand world and it has been suggested to us that new forms of prominence regulation may be required. Research carried out for the BBC reveals that the EPG is currently the most common way for people to find out what they want to watch; PSBs typically hold the slots at the beginning of the EPG and audiences frequently access them first when deciding what to watch.[76] If viewers, however, move towards different methods of consumption and navigation, a public policy goal must be to ensure that public service content can still be easily discovered and accessed by viewers.

162.  A number of submissions we received underlined the enduring importance of EPG prominence for PSB. Channel 4 suggested that:

    "… the Government and Ofcom should also consider ways of securing prominence for public service content in non-linear environments such as connected devices, video on-demand, catch-up services, or non-TV devices such as mobile . For example, in YouView's published User Interface plans, the on-demand services of existing PSBs are given prominence, and Channel 4 believes that this could be an instructive example for how to ensure prominence in future. A new method for ensuring prominence for public service content provided online or accessed via connected devices would ensure that this content reaches a wide audience, thus generating revenues that could be re-invested in original UK content."[77]

163.  Simon Pitts, Director of Strategy and Transformation, ITV, reinforced this analysis and alluded to the way in which manufacturers of connected TV sets can control what appears on the home screen of connected TVs:

    "We can will the means necessary to maintain a large investment in UK-originated content but if, for whatever reason, we are relegated to a second or third screen on a connected television because those providers are unregulated, the regime guaranteeing investment in UK production is rendered almost futile. With reference to the global electronics fair that goes on every year in Vegas and finished just last week, there are large television manufacturers out there with the latest connected televisions on which the screen that a viewer will be pointed to first is not an electronic programme guide but a home screen controlled by the television manufacturer that gives access to a range of content, gaming and other services—not necessarily long-form PSB content but deals that they may have struck with global video-on-demand aggregators that could have the effect of relegating strong content from national broadcasters to the second tier."[78]

164.  The Committee also received evidence about whether there may be an argument for regulatory intervention to ensure online delivery of content providing a specific public purpose. Public service broadcasters are currently able to ensure delivery of their content over traditional TV platforms, through provision of 'must carry' obligations placed on some platforms. In their publication, Ofcom's approach to net neutrality, the regulator considered whether there might be a case for similar provisions to be applied to public service content delivered online.[79] Ofcom regard this ultimately as a matter of public policy to be decided by the Government. We endorse this view.

165.  We recommend that the Government consider the implications of changes in the way that public service content will be discovered and accessed by viewers on new connected TVs and other converged devices, and specifically what interventions on prominence and 'must carry online' obligations may be appropriate in non-linear environments.

166.  We recommend that existing prominence regulation is updated, to include these new forms of access, and their electronic guides, and to ensure in particular, as far as possible, that the on demand services offered by PSBs gain due prominence on any relevant "home" screen or guide used by those devices to direct users to content.

167.  Deploying these interventions immediately may prove to be unnecessary, but it would be wise to prepare possible interventions such that a policy response may be ready if required.

Broadcast spectrum and Administered Incentive Pricing (AIP)

168.  The importance of broadcast spectrum policy was also brought to our attention during this inquiry. To date, spectrum has been provided free of charge to PSBs. For commercial PSBs in particular, this has effectively been granted in return for a commitment to meet public service obligations. As such, free spectrum can be seen as a means of supporting PSBs and reducing the need for other funding streams. However, spectrum is a resource which can support many types of wireless communications, and as new technologies and applications emerge, so the squeeze on spectrum increases and the efficient use of spectrum becomes ever more important.

169.  Ofcom is currently consulting on the long-term future of the UHF (ultra high frequency) spectrum used to deliver Digital Terrestrial Television (DTT). In short, the proposal is to shift the DTT content previously carried in the 700 MHz band to the 600 MHz band—freed up following analogue switch-off—in order to support mobile broadband. However this is unlikely to be a quick process and may not begin until 2018. We heard strong calls from the PSBs that the Government and Ofcom should ensure that spectrum allocation for DTT takes into account "the significant competitive, social and cultural value the platform delivers for consumers."[80] More specifically, concern has been expressed about such a move to the extent that it might impose costs on viewers and broadcasters, or result in an insufficient amount of spectrum for a sustainable DTT platform in future:

    "Clearance would involve significant costs and disruption for the DTT platform and for the millions of UK households who have selected it to access digital television services, often as a direct result of the Government's switchover programme …

    In the event that it is decided to transfer the 700 MHz band to mobile, it is vital to ensure that the consumer and public benefits delivered by Freeview are maintained for the long term—in a way which means that all Freeview viewers continue to receive the range of services they can access today, and also are able to receive more HD services over time."[81]

170.  Securing the future of DTT is of paramount importance and it must be a key policy goal that all citizens can access public service content on the DTT platform. If this were not to be the case, then a key element of PSB—universality—would be undermined. It also occurs to us that it may well be the case that what might be termed the second digital switch-over is endured with far less equanimity by the public than was broadly the case the first time around.

171.  We recommend that, as part of its current work in re-planning the UHF spectrum, Ofcom helps secure the future of DTT by making available sufficient spectrum to support a sustainable DTT platform for the future, capable of delivering a sufficient range of services to remain attractive to audiences, and provide a competitive broadcast platform. The Government and Ofcom should also consider how best to manage the costs of any transition to the new spectrum, especially those costs which might be incurred by audiences if they need to acquire new receivers and antenna as part of the change.

172.  Consideration is also being given by Ofcom to the introduction of Administered Incentive Pricing (AIP) for broadcasting. It was put to us that the planned introduction of AIP should be waived for public service broadcasters as a means of supporting public service provision in the future.[82]

173.  Ofcom CEO, Ed Richards, discussed the reasons for spectrum for broadcasters to be priced in the following terms.

    "To broadcast, you need an office, you need electricity, you need people and you need spectrum. You pay for the first three, and the reason you pay for the first three is because, if they were free, you would just consume as much as you want. It [spectrum] is an input and, therefore, it is important in principle to have a price. Whether that should at this point in time manifest itself in pricing for broadcasters, particularly PSBs, because of the risk in relation to their programme schedule and their risk in relation to the way they like to behave and incentives and so on, that is something we are looking at at the moment."[83]

174.  On the other hand, we heard from some witnesses that AIP would have little or no impact on the efficiency with which spectrum is used for DTT, because of the constraints placed on multiplex operators by their licences, which determine coverage, transmission power and quality in some detail. We also heard, as alluded to above, that spectrum prices, whatever their merits in encouraging efficient spectrum use, would divert money from investment in public service content:

    "In September 2008, as part of its second review of PSB Ofcom noted that 'the potential charges applicable to current commercial PSB spectrum allocations could be in the range of £16 million to £34 million', equating to 'around 15-30% of the projected value of spectrum to the commercial PSBs'. While these figures have not been recently updated, it is clear that the introduction of AIP payments for spectrum used for DTT will reduce the amount of money available for investment in public service content."[84]

175.  Late in this inquiry, however, Ofcom issued a consultation on its proposals for spectrum pricing for terrestrial broadcasting. Its main proposals are:

·  In the short term to introduce charges to cover its spectrum management costs;

·  By 2020, to introduce AIP based on the full opportunity cost of the spectrum (2014 had previously been proposed).

Ofcom suggests that those opportunity costs could mean prices of £40m a year per multiplex, if DTT still occupies the 700MHz band, and £10m a year per multiplex in the 600 MHz band.

176.  While we welcome the proposals to delay the introduction of AIP until 2020, we are still concerned that its longer term introduction at "full opportunity cost" will reduce funding for PSB, while the anticipated efficiency benefits are highly uncertain. We think, therefore, that Ofcom should consider fully the impact of AIP on high quality PSB before proceeding with its longer term proposals.

177.  While welcoming Ofcom's proposal to delay introduction of AIP for DTT until 2020, we recommend that, following the current consultation process and before any move is made to full AIP, Ofcom should consider further the risks and benefits involved in introducing AIP for DTT. As part of that analysis, Ofcom should be asked fully to assess the impact that spectrum pricing will have on the funding available for high quality PSB. If any adverse effect seems likely, we recommend that AIP is only introduced once the Government has proposed alternative funding or other plans for offsetting that impact.

The window of creative competition

178.  We heard calls during this inquiry for the independent production quota and terms of trade for the public service broadcasters to be protected, as these have proven to be a major source of strength and growth in the UK content production sector since their introduction. Regarding the BBC, however, it has been argued that consideration should be given to the merits of extending what is called the window of creative competition (WoCC) to the benefit of the independent production sector, a potential source of growth. The success of the independent production sector so far suggests that more economic value could be generated if the BBC were to commission a greater proportion of its output from external suppliers.

179.  Currently, the BBC's original content is commissioned according to the following formula (50% in-house guarantee, 25% independent production quota, 25% WoCC which is contestable by both). It is arguable as to whether as much as a 50% in-house guarantee is necessary or appropriate. Jane Turton, Chief Operating Officer, All3Media, and PACT Council Member, put it to us that:

    "there is this funny thing called the WoCC … we would love to increase our opportunity on the BBC even beyond the 50% point. That would be a fabulous outcome of any discussion."[85]

180.  The BBC, understandably, wishes to retain a production capability and not become a publisher-broadcaster:

    "We are keen that, as a principle, the BBC never becomes a so-called publisher broadcaster … Could we go beyond the present split? Of course, technically you can, but I would be careful not to read too much into the present arrangement of the indies winning the lion's share. It goes up and down, and I would not criticise the mechanism for the fact that it has seen the independents winning a lot of business. That is part of what you have to accept, if you accept open competition. I would not leap to the changing of the WoCC just yet. I would l let it play out to the end of the charter and then review it within the charter renewal—or whatever Parliament decides to do with the charter."[86]

181.  We also note that the BBC Trust has very recently published the conclusions of its third biennial review of the WoCC, finding that the WoCC is operating well.[87] This is to be welcomed. However, the review is concerned with the working of the WoCC in terms of its operation and compliance. It is our view that there should be a fundamental evaluation of the WoCC and the formula which is currently used. This is not to say that we believe that the WoCC should necessarily be extended as an article of faith, but given the potential economic value, it merits consideration.

  1. We endorse the view that the BBC should not become a publisher broadcaster, and cannot support an arbitrary change to the BBC's WoCC. However, given its importance to the creative sector as a whole, we recommend that the costs and benefits of further extending the BBC's external commissioning quota should be assessed by the Government as part of the next Charter Review: how large can the window of creative competition grow (how slim can the in-house guarantee become) while retaining an optimal and sustainable level of in house production at the BBC?



67   Q 89 Back

68   Q 89 Back

69   Q 390 Back

70   IPPR Back

71   PACT Back

72   Ofcom Back

73   Ofcom Back

74   Ofcom Back

75   Q 90 Back

76   Robin Foster and Tom Broughton, PSB prominence in a converged media world, December 2012. Available online:
http://downloads.bbc.co.uk/aboutthebbc/insidethebbc/howwework/reports/pdf/bbc_psb_prominence.pdf  
Back

77   Channel 4 Back

78   Q 539 Back

79   Ofcom, Ofcom's approach to net neutrality, November 2011, para 4.51. Available online: http://stakeholders.ofcom.org.uk/binaries/consultations/net-neutrality/statement/statement.pdf  Back

80   Channel 4 Back

81   BBC Back

82   BBC and Channel 4 Back

83   Q 603 Back

84   Channel 4 Back

85   Q 273 Back

86   Q 395 Back

87   BBC Trust's third biennial review of the Window of Creative Competition (WoCC), 6 March 2013. Available online:
http://www.bbc.co.uk/bbctrust/our_work/services/programme_supply/wocc.html  
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