174.Public service broadcasting underpins the success of TV production in the UK, but it faces unprecedented competition from global giants. In general, this competition has raised the standard of TV production and has been accompanied by significant investment into the UK. Nonetheless, the relevance of public service broadcasting is being challenged at a time when they are needed ever more to ensure the provision of trustworthy news and information and to guarantee a reliable supply of diverse, high quality programmes for UK audiences, available to all. There is also a longer-term risk that the boom in TV production cannot last forever. Andy Harries, Chief Executive of Left Bank Pictures which made The Crown for Netflix, asked: “How quickly do you think Netflix or, indeed, Amazon will roll back the spend in the UK if the world changes … ? We have no idea.”
175.The context of the wider media environment is also challenging. PSBs have faced headwinds from declining spending on TV advertising and general economic uncertainty. At the same time PSBs must spend more to ensure that their content is available on all major distribution platforms. As we discussed in Chapter 2, the BBC needs to do more to serve the full range of the public. However, some of our witnesses were concerned that it has been targeted for political reasons. Mr Harries, Chief Executive of Left Bank Pictures argued that certain newspapers had waged a “war”, which included scrutinising staff salaries. He said that this had had a detrimental effect on the BBC as it could no longer retain the best talent, who would “get more money if they are working in independent companies or in commercial television.” The BBC has been criticised for paying stars as much as £1.75 million a year.
176.Fragmentation also makes the media environment difficult to navigate. To some extent, emerging technology has been designed to help users by personalising content to their preferences. However, there is concern that such design locks consumers into filter bubbles and makes it harder to find PSB content, undermining the PSBs’ traditional privileges. In this chapter we consider ways to support public service broadcasting. Sustainable funding models are key to this but some policies risk undermining them. It is also necessary to consider the broader PSB compact of duties and privileges. Finally, we consider ways to level the playing field between PSBs and other content providers.
177.While the arrival of SVODs has created exciting opportunities for the creative sector and for audiences, particularly in drama, we are concerned by the unpredictability of future developments. PSBs provide a stable investment platform for a diverse range of content, made for UK audiences, and freely available on a reliable over the air platform. While ensuring that they are properly held to account for delivering PSB purposes, the Government should support PSBs in the new technological environment, and think very carefully before imposing any further regulatory or financial burdens which might impinge on their ability to fulfil their public service obligations to viewers.
178.Much of the regulation affecting the broadcasting and TV production dates from a time when the public service broadcasters were dominant. They remain the largest producers in the UK and regulation has enabled smaller players in the ecosystem to thrive. However, the sector is facing major changes because of the rising popularity of US-based SVODs, which are themselves likely to become consolidated. As we found, in our report Regulating in a digital world, regulation needs to become faster at reacting to changes in the digital economy.
179.An example of this was in the Competition Commission’s decision in 2009 to block the creation of Kangaroo, a joint venture of the PSBs to aggregate content from BBC Worldwide, ITV and Channel 4. In a report at the time, we strongly regretted the Government’s failure to intervene on public interest grounds and recommended that “if other similar UK-based video on demand projects are proposed, the Government will ensure that the implications for the British television industry are properly taken into account”. In 2018 Sharon White, the Chief Executive of Ofcom, said that the PSBs “will need to collaborate to compete” the new environment. We consider the development of BritBox, a new SVOD for BBC and ITV content, later in this chapter. It is notable, however, that the new service will face an enormous challenge in competing in the streaming market, and that Kangaroo can be regarded as a missed opportunity.
180.The BBC has called for greater deployment of ‘step-in’ powers—that is, regulators should only use their powers to intervene in the actions of PSBs “when there is actual evidence of harm, rather than based on hypothetical competition risk”. Sir David Clementi, Chairman of the BBC, criticised Ofcom for taking too long to approve the BBC’s proposals to extend the length of time programmes are available on BBC iPlayer to 12 months.
181.However, Kevin Bakhurst, Group Director for Content and Media Policy at Ofcom, told us:
“When the BBC came to us originally with their [iPlayer] proposal, we said, ‘Okay. That’s for 12 months. Can you show us a longer-term strategy?’ The answer was no. We said: ‘Can you tell us what the impact will be on the other UK public service broadcasters?’ The answer was ‘No, because we haven’t discussed it with them.’ … There needs to be transparency in what the BBC is doing here and the impact it will have on Channel 4, ITV and others. We feel that the process has given that.”
182.The Commercial Broadcasters Association also disputed the notion that regulation was overburdening the BBC: “Contrary to claims by the BBC Board, the BBC is perfectly able to carry out minor changes to the iPlayer or other services without delay or intervention by Ofcom.”
183.The BBC needs to have the power to innovate at speed without undue regulatory burdens or it risks becoming a minor player in the face of dynamic, well-resourced global competitors. Ofcom should ensure that regulation is sufficiently fast-paced while also protecting the rights of other broadcasters. In return, the BBC should be upfront and open with Ofcom about any proposed changes.
184.The BBC has a unique funding model based on the licence fee which is intended to safeguard its independence from the Government and the market. On 16 October 2019, Nicky Morgan MP, the newly appointed Secretary of State for Digital, Culture, Media and Sport, said that she would “listen to the evidence on all sides” about the BBC becoming a subscription service. However, in our inquiry we found very little support for this model. Sir David Clementi, Chairman of the BBC, told us that “the BBC might do very well under a subscription model, but it would not be the BBC that you and I know”.
185.He explained why the licence fee is essential to the BBC:
“The licence fee is at the heart of what we do. It establishes a direct relationship between us and the public and makes absolutely clear that our job is to serve them … We are independent of government, independent of any commercial interference and we are there to serve the public. The direct link with the licence fee is very fundamental to us at the BBC.”
186.The value of the licence fee has been disputed. One participant at the roundtable that we held in Glasgow felt that the licence fee should be abolished and that the BBC should be funded entirely by commercial means. Professor Patrick Barwise estimated that around 30 per cent of the public would say that it is not value for money. He argued, however, that there was a disconnect between perception and reality: in an experiment that he conducted, two-thirds of participants who had previously felt that the licence fee was poor value changed their minds after they were deprived of BBC services for nine days.
187.The Government and the BBC agree a ‘licence fee settlement’ to set the level of the licence fee for a specified period. Several witnesses felt that negotiations between the Government and BBC to agree settlements in 2010 and 2015 had not been conducted transparently or appropriately. The BBC told us that its funding for UK services was 24 per cent lower than if the licence had risen with inflation since 2010. Meanwhile, so-called ‘top-slicing’ had diverted about £250 million of licence fee funding “to a range of non-BBC activities, including broadband infrastructure and local TV”. The 2015 licence fee settlement made the BBC responsible for determining what concession there should be, if any, for TV licences for people over 75. Previously the Government had paid for free licences for this age group. The settlement also provided for the licence fee to rise in line with inflation each year until 2022.
188.Professor Patrick Barwise commented: “The 2015 BBC funding deal, like the previous funding deal in 2010, was based on no public or parliamentary consultation and no published analysis of the BBC’s funding needs or the likely impact on services … It puts the BBC in the invidious position of choosing between [options which are] likely to be unpopular, divisive, and exploited by its enemies”.
189.The full cost of funding free TV licences for over-75s would be £745 million per year, approximately 20 per cent of the BBC’s budget. The BBC said: “Were we to meet these costs, it would in practice mean the closures of BBC Two, BBC Four, the BBC News Channel, the BBC Scotland Channel and Radio 5live—in addition to a number of local radio stations and other cuts and reductions.”
190.Age UK noted the importance of public service broadcasting as a source of trusted news and information, and as a source of entertainment for older people. It argued:
“Removing or limiting the concession would have a major impact on the lives of many of our oldest citizens, particularly the most vulnerable who are living with some combination of disability, low income and loneliness.”
191.Age UK stressed that means-testing would not be a solution as it would be unfair on those with incomes just above the threshold. Moreover, 41 per cent of over-75s who are entitled to pension credit (currently for individuals with an income of less than £167.25 a week and couples less than £255.25) do not claim it.
192.After a consultation, the BBC decided to retain free TV licences only for those who receive pension credit from June 2020. A spokesperson for Theresa May MP, the then Prime Minister, said: “We are very disappointed with this decision. We have been clear that we expected the BBC to continue this concession.”
193.Nonetheless the reduced concession will cost the BBC £250 million a year, over 5 per cent of its annual income. The BBC said: “This will mean we have to continue to find significant savings, but we are confident that we will be able to protect the funding for services the public tell us that they enjoy.”
194.Notwithstanding the eventual determination of the concession, many witnesses felt that it was inappropriate in the first instance for the BBC to have been given the responsibility. Age UK wrote:
“It is not appropriate for a public service broadcaster to be involved in what are, in effect, tax and benefit decisions … We believe there are continuing strong arguments for keeping the free licence but that it is the role of Government to provide this support for our oldest citizens—not the BBC.”
195.Sir David Clementi, Chairman of the BBC, criticised the 2010 and 2015 negotiations: “It was done behind closed doors with very little input from the BBC and none at all from the public … We think in future it must be evidence based with proper consultation.”
196.In our report BBC Charter Review: Reith not Revolution, published shortly after the 2015 negotiations, we found that:
“it was inappropriate for the Government to propose, and for the BBC to accept, that the cost of funding free television licences for the over-75s should fall on a broadcasting organisation. In future there should be a transparent process in place which allows for consultation before such decisions are made.”
We proposed a process whereby a regulatory body would make a reasoned and evidence-based recommendation about the licence fee settlement, and the Secretary of State would have to give reasons if they declined to follow the recommendation.
197.The BBC said that this proposal merited further debate “to ensure we have no repeat of the settlements of 2010 and 2015”. Professor Jeanette Steemers, Professor of Culture, Media and Creative Industries, King’s College London, also suggested that the licence fee could be set by an independent body in future, as it is in Germany.
198.In 2017 Lord Best, the then chairman of our committee, moved amendments to the Digital Economy Bill (now the Digital Economy Act 2017) which would have created a BBC Licence Fee Commission to make the process of setting the licence fee more transparent. The Government opposed the amendments on the ground that the licence fee was a tax and as a matter of principle the Government did not consult on taxation. The House agreed the amendments at report stage, but they were rejected during wash-up. Some have questioned whether the licence fee should be defined as a tax as it is specifically intended to be a distinct form of income to ensure the BBC’s impartiality. During the debate Lord Inglewood (another former chairman of the committee) pointed out that, even if this definition was accepted, it was a unique hypothecated tax and so unique rules might apply. We also note that, while the Government does not consult on taxes, it does consult on spending reviews, such as the Strategic Defence and Security Review, funding for which comes from the Treasury. It would seem odd if the Government could use the licence fee to justify having a less transparent and more coercive process for funding the BBC than other areas of spending.
199.Margot James MP, the then Minister for Digital and the Creative Industries, agreed that there was “clearly a case for greater transparency and the BBC should of course be a fundamental partner in the process”.
200.In October 2019, the Commons Select Committee on Digital, Culture, Media and Sport found that there were serious failings in governance at the BBC which allowed the funding settlement to be agreed without significant scrutiny.
201.The licence fee is the guarantor of the BBC’s financial independence and underpins its unique quality. A subscription model would undermine the fundamental principle of universality that the BBC should be free-to-air.
202.We are concerned that the integrity of the licence fee has been undermined by a succession of settlements which were carried out in secret and which have tended to disadvantage the BBC. The decision on whether to provide free licences to the over-75s is a matter of welfare policy. The BBC should not have been asked to take on this decision, and the BBC should not have accepted it. Responsibility for licences for over-75s should be off the table in future licence fee negotiations.
203.We reaffirm our recommendation that there should be an independent and transparent process for setting the licence fee. To this end, we recommend that the Government should establish an independent body, which we would call the BBC Funding Commission, to oversee the process for setting the licence fee. In the current competitive and fast-moving environment the BBC needs to be properly funded. The BBC Funding Commission should consult widely on the BBC’s role and functions, taking account of all its duties and privileges, and public expectations, before making a recommendation to the Secretary of State. The BBC’s responsibilities to serve both young and old audiences, to compete with big tech and to remain a source of soft power, require a generous settlement.
204.This should be implemented by 2021, in time for the mid-Charter review and the next round of negotiations on the licence fee. We do not propose any changes to the current settlement in the meantime, but we expect that any deficits incurred would be considered by the Funding Commission as part of its review.
205.Commercial PSBs, such as ITV, STV and Channel 4, rely on advertising for funding. TV advertising declined following the EU referendum. In 2018 net broadcast advertising revenue declined 4.4 per cent across PSB channels. However, the advertising market is cyclical and it is not clear to what extent this decline can be expected to continue. The Producers Alliance for Cinema and Television (Pact) argued that overall TV advertising has proved resilient: Pact cited a 2018 report from the Advertising Association and WARC which forecast growth of 5.8 per cent in 2018 and 2019.
206.Online advertising has taken a growing share of advertising spending in the UK for several years. This is attributed more to the growth of online advertising than the decline of TV. Yet, fragmentation of the media means that commercial broadcasters do not enjoy the same extensive reach, particularly for the most popular programmes, that they used to. Pact argued that reach remained high for commercial PSBs at 94.9 per cent of the population and 92.5 per cent of 16–34-year-olds. However, as the trend away from linear TV continues, the value of advertising decreases. Ebiquity, an analyst, predicted that broadcast advertising would lose its current advantage in return on investment (estimated to be approximately 40 per cent greater than for other forms of advertising) by 2024. The cost of advertising to 16–34-year-olds is at the forefront of this trend. Ebiquity said that to run a TV advertising campaign seen by half of 16–34-year-olds cost £560,000 in 2013. This increased to £1.07 million in 2018 and it predicted that the cost would rise to over £2.6 million by 2022.
207.Dame Carolyn McCall, Chief Executive Officer of ITV, acknowledged concerns that advertising was moving online. ITV has addressed this challenge by investing more in on-demand service. PSB on-demand services are responsible for much of the growth in advertising income accruing to PSBs. ITV and Channel 4 are investing in developing addressable advertising to compete with global tech companies. They are also diversifying their revenue sources. Dame Carolyn told us that ITV was relying more on ITV Studios to develop intellectual property. ITV Studios accounted for 30 per cent of ITV’s profits in 2018.
208.Several witnesses argued that commercial PSBs were disadvantaged by the lack of a ‘level playing field’ in advertising regulation. It is not accurate, however, to say that there is no regulation of online advertising. The Advertising Standards Authority (ASA) regulates all advertising in the UK to ensure that it is “legal, decent, honest and truthful”. However, broadcast advertising is subject to special rules (see Box 5). According to the ASA, the Broadcasting Code (BCAP) has only a few additional prohibitions which are not found in CAP Code, notably on political advertising, but also prohibitions against advertising gun clubs and escort agencies. Dame Carolyn McCall told us that this prohibition on political advertising had cost ITV money, for example, when an ad for the supermarket Iceland was not allowed to be shown on ITV but went viral online.
The Advertising Standards Authority (ASA) is the UK’s independent advertising regulator. It has administered the non-broadcast Advertising Code (written and maintained by CAP) for 56 years and the broadcast Advertising Code (written and maintained by BCAP) for 14. Its remit was extended in 2011 to include companies’ advertising claims on their own websites and in social media spaces under their control.
Ofcom regulates the volume of TV advertising through its Code on the Scheduling of TV Advertising. The ASA is a self-regulatory industry-funded body. Ofcom is the backstop regulator for all broadcast and video on demand advertising.
209.We noted in our report UK advertising in a digital age that regardless of regulation, in practice online advertising often side-stepped the normal rules. Viacom explained that broadcasters maintain control and responsibility for the adverts they offer to ensure compliance with the rules. By contrast online platforms such as YouTube are not responsible for ensuring compliance, which rests primarily with the advertiser. Viacom added that there was “an effective system of pre-transmission compliance of broadcast advertising through Clearcast, but the open nature of online platforms means that video content tends to go live the instant it is uploaded with no pre-clearance scrutiny.”
210.The revised Audio-visual Media Services Directive (AVMSD) will extend rules on ‘TV-like’ content to video-sharing platforms such as YouTube. Member states must transpose the provisions of the revised directive into national law by 19 September 2020. Under the Withdrawal Agreement, the UK would be required to do so, as that date is within the Implementation Period. If the UK leaves the European Union without a deal, however, it will not be bound to transpose the AVMSD into UK law. Both the ASA and Viacom note that the AVMSD will not change advertising regulation as the CAP Code will continue to apply to YouTube and on-demand services.
211.We recommend that Ofcom should review the adequacy of the broadcast and non-broadcast codes in respect of video advertising with a view to making recommendations to reduce the difference of regulatory burdens between broadcasters and on-demand services. Following the UK’s departure from the EU, the Government should implement provisions of the Audio-visual Media Services Directive on advertising to ensure a level playing field. In doing so, it should make video-sharing platforms responsible for the advertising that they display.
212.Concerns around the sustainability of TV advertising and the lack of a level playing field have converged around the Government’s proposal to impose a 9pm watershed for advertising junk food—known as products which are high in fat, salt and sugar (HFSS). Between March and June 2019 the Department of Health and Social Care ran a consultation on restricting advertising of HFSS foods and drinks. At the time of writing the Government has not responded to the consultation.
213.Reducing childhood obesity is a priority for public health policy. Cancer Research UK told us: “Around a third (34 per cent) of children aged 2–15 in the UK are overweight or obese and, if trends continue, it is predicted that half of all children will be obese or overweight by 2020.” Obese children are five times more likely to be obese in adulthood. Preventing childhood obesity can therefore prevent a lifetime of ill-health. Obesity is linked to 13 types of cancer and is the biggest preventable cause of cancer after smoking. The Government has set itself the ambition to halve childhood obesity by 2030 and to reduce the gap in obesity between children from the most and least deprived areas.
214.Campaigners argue that advertising is a major factor in the prevalence of childhood obesity. It has the short-term effect of ‘pester power’—children pester parents to buy unhealthy foods—and in the long-term tastes acquired in childhood endure in adulthood. Advertising HFSS products during children’s TV programmes, and programmes with a high proportion of children viewers, has been banned since 2007. The Government’s current proposal is to ban all HFSS advertising before 9pm regardless of the content of programming. This follows evidence that children often watch TV with their family.
215.All our witnesses agreed that tackling childhood obesity was an important policy objective. However, many witnesses (including several directly affected by the proposal) argued that it would be disproportionate: (1) there was no evidence that a ban on showing HFSS advertising before 9pm would have any more than a marginal impact on childhood obesity; and (2) the cost to broadcasters would be significant. Channel 4 told us:
“The Government’s own figures suggest a 9pm ban would result in a reduction of just 1.7 calories each day for children—less than one Tic Tac. This is because, as Ofcom concluded in its 2007 review “advertising has modest direct effect on children’s food choices” and because children’s exposure to HFSS advertising on TV has declined dramatically—analysis from O&O commissioned by the broadcasters measured a 62 per cent decrease in the amount of advertising for HFSS products seen by children before 9pm and found that children now see less than 1 HFSS ad per day pre 9pm.”
Meanwhile the cost to commercial broadcasters was estimated to be to £200 million per year which would have a significant impact on programming budgets.
216.The proposed watershed is intending to be part of a ‘whole system’ approach including bans on price promotions, the regulation of HFSS products within stores and other measures. In particular, the Government consulted on analogous advertising restrictions for online content. However, there is no obvious analogue to a watershed online. Many witnesses therefore argued that a 9pm HFSS watershed would lead food and drink companies to divert advertising spending to “less regulated advertising mediums, including online where children are increasingly spending more of their screen time, and importantly to price promotions—making HFSS food and drink cheaper.”
217.ITV said that it was “spurious” to suggest that the ban should be accepted as part of a package. Magnus Brooke, Director of Policy and Regulatory Affairs, suggested that every intervention needed considered on its own merits: “You need to ask whether each intervention will work, and whether the benefits of doing it outweigh any disbenefit”. Dame Carolyn McCall, Chief Executive Officer of ITV, agreed:
“It sounds great to say that there are eight or nine things that we can do, but they do not have to live with the consequences of what that would mean for a programme budget that is already under pressure for all the reasons you know—we would have to cut into something we do that is highly valuable to us as a PSB.”
218.We wrote to the Department of Health and Social Care expressing concern about the evidence base for the consultation. Margot James MP, the then Minister for Digital and the Creative Industries, assured us that the Department for Digital, Culture, Media and Sport had fed into the consultation. She said that she had taken a position along with Matt Hancock MP, the Secretary of State for Health and Social Care, that the review should be led by evidence, adding: “We have not yet seen the evidence for a direct link between advertising and obesity levels. If evidence is provided, we would act equally in the online and offline environments.”
219.Children’s health is of the utmost importance and we share concerns that more needs to be done to reduce childhood obesity. We note the role public service broadcasters play in promoting healthy living and feel that consideration should be given to enhancing this role, including looking at evidence from other countries. However, we do not think that there is sufficient evidence that the proposed ban on high in fat, salt and sugar advertising before the 9pm watershed would significantly reduce childhood obesity. We are concerned that such a blanket ban could undermine the funding model of commercial broadcasting in the UK without delivering significant benefits to children’s health. A ban might also be counterproductive if manufacturers divert advertising spending to fund price promotions. There would be a further risk if the ban is not sufficiently targeted at what would normally be considered ‘junk food’ but it indiscriminately includes products such as olive oil that are part of a healthy diet.
220.However, if evidence emerges to the contrary, the Government should act quickly to implement a ban. In doing so, it should ensure a level playing field between broadcast and online advertising. Any broadcast ban must be matched by measures which have equivalent effect online and the Department for Digital, Culture, Media and Sport should be consulted at all stages of policy development on this issue.
221.The PSBs are also seeking to increase their revenue from their existing intellectual property. The BBC and ITV have announced that they will launch an SVOD, BritBox. The service will include archive series from both broadcasters as well as exclusive original content. It is expected to launch by the end of 2019 and cost £5.99 a month.
222.Lord Hall of Birkenhead, the Director General of the BBC, that while the terms of the BritBox are yet to be fully settled, this would be an extension of work that the PSBs are already doing in the United States:
“We have 600,000 people and we would like to take it elsewhere around the world. If others join us, I think this is a great way in a secondary market. In a way, BritBox is what the DVD was before, and we paid for DVDs and now is a chance to pay in a secondary market and give value back to people in that way.”
223.Several witnesses were equivocal about BritBox’s prospects for success, feeling that it was unlikely to become a major player in the SVOD market although it would do no harm to the BBC and ITV. Claire Enders, founder of Enders Analysis described it as “whistling while Rome burns”. Ampere Analysis forecast that the service would have around 1.5 million subscribers by 2023.
224.Clintons Solicitors suggested that BritBox would struggle to acquire content as the Terms of Trade give independent production companies the right to sell secondary rights to another service. We also heard that viewers might not be willing to ‘pay again’ for content, particularly if it had been on BBC iPlayer for 12 months.
225.Several witnesses said that BritBox was incompatible with the current public service broadcasting regime Catherine Johnson, Professor of Media and Communications at the University of Huddersfield, worried that it would undermine “the fundamental public service value that broadcasting should be universally available. “
226.The Institute for Practitioners in Advertising predicted that BritBox could give rise to renewed scrutiny of the licence fee model and could give broadcasters an incentive to make less content available free to air. It said: “If BritBox is showing archived material from the BBC and ITV this may impact programme content available for ITV2, ITV4, ITV Be etc. Can those channels survive alongside BritBox?” Directors UK predicted that BritBox could be a precursor to a split model whereby the most popular content would be available via subscription.
227.In Chapters 2 and 3 we considered some of the duties of PSBs with respect to the production and provision of content, which are part of the PSB compact. In addition to the content obligations, the compact comprises the following rights and obligations that relate to distribution:
228.ITV warned that: “Policy makers increasingly appear to want more from PSB—more investment out of London, more children’s content, more comprehensive access services etc. Paradoxically, in the case of the commercial PSBs in particular, these requests for a bigger contribution come at a time when the value of the PSB licences which pay for otherwise uneconomic PSB obligations is declining”.
229.The value of prominence and free spectrum are declining as technology develops. Many witnesses believed that this compact needed updating. BT argued that this could be best achieved by looking at the whole package of benefits and obligations. It argued that the Government’s piecemeal approach risked “extending support for PSBs in one area which end up having a negative impact on another area of the ecosystem”.
230.A central limb of the PSB compact is that the PSBs should be listed in a prominent position on any TV platform. The current regime is entirely based around linear TV, for which channels are listed in an electronic programme guides (EPG). The intention is that it should be easy to find PSBs, which raises their profile and makes viewers more likely to watch them. The BBC noted that nearly all viewers wanted and expected the main channels to be in the top slots of the EPG. However, the emergence of non-linear TV means that an increasing proportion of viewing falls outside the scope of the prominence rules.
231.Connected TVs allow viewers to access content through different user interfaces, including EPG, digital video recorders (such as TiVo), video on-demand players (such as Netflix or BBC iPlayer) or TV platforms which display programming from different channels according to genre, personalisation preferences or other curation processes. In this report, we refer to the latter process as ‘disaggregation’ as the programming is separated from source (though it is sometimes considered a form of ‘aggregation’ as it brings programming together). Hardware has evolved, such as buttons on remote controls which direct users to certain interfaces. Search functions are expected to develop further, for example with greater voice controls. These developments raise different challenges for prominence. Yet Age UK argued that prominence “becomes more important, not less, in the face of greater personalisation”.
232.All the PSBs recommended that the prominence regime should be updated to ensure that PSB content was prominent across platforms. Witnesses who operated TV platforms, commercial broadcasters and hardware developers argued that transposing the principle of prominence to non-linear contexts was overly complicated and unnecessary and that it would stifle innovation. Craig Melson, Programme Manager at techUK, said that PSB catch-up players were already prominent on smart TV interfaces in the UK: “They will be front and centre, because they are so important to UK viewers. It is just that if you try to mandate regulation or prominence in those environments, you remove the flexibility to innovate in those areas.”
233.Professor Patrick Barwise of the London School for Business suggested that the UK should work with other countries “to force set manufacturers to have EPGs with rankings specified by national regulators rather than determined by whichever of the FAANGs has paid them the most”.
234.Ofcom published a statutory review on PSB prominence in July 2019. It called for new legislation to keep PSB content prominent on both linear and on-demand. It suggested a new regulatory framework which should be flexible so that the new rules could be adapted as technology and behaviour changed. Ofcom’s initial focus was on connected TVs. It recommended that PSB players should receive prominence if they were “clearly delivering PSB content”. Ofcom also proposed that disaggregated PSB programming should be prominent in recommendations and search results.
235.Sir David Clementi, Chairman of the BBC, welcomed Ofcom’s recommendation that PSB prominence rules should be updated for the digital and on-demand world.
236.Disaggregation of PSB content has raised several additional concerns. The PSBs currently have different agreements with TV platforms about how their content should be disaggregated. The BBC has not allowed its catch-up content to be disaggregated on TV platforms, requiring that such content be accessed only through its iPlayer. David Bouchier, Chief Entertainment Officer at Virgin Media, criticised this decision, saying that the BBC was forgoing prominence among catch-up content for “immersion”. This worsened the experience of users who could not find BBC content without entering iPlayer and made the BBC less competitive against the FAANGs.
237.However, the BBC argued that this was essential to maintaining a direct relationship with viewers. The BBC told us that it was exploring how to deliver public value by personalising services through a ‘public service algorithm’:
“On some other major online destinations, personalisation means proceeding down an ever-narrowing range of choice, as algorithms hone the choices available based on what audiences have just watched, or actions (such as searches) they have performed elsewhere online. The rationale for this is commercial. The BBC, driven by its public service values, aspires to broaden, not narrow, our audience’s horizons. The BBC is exploring how to develop systems that are, like their commercial counterparts, shaped by audience interest, but which do not create filter bubbles or echo chambers. This could involve designing content recommendation algorithms to offer both logical next steps through the BBC’s output, but also provide recommendations that challenge, represent a diverse range of views and ideas, and which occasionally surprise.”
238.The right to be displayed prominently is a key privilege of public service broadcasters. The current regime is centred on linear TV, which will increasingly devalue over time. We believe that it is more important that PSBs are easy to find in a fragmented media environment, not less. We welcome and endorse Ofcom’s recommendation that the prominence regime be updated for the digital age to reflect new ways of accessing content. The Government should introduce legislation to implement a new prominence framework in line with Ofcom’s recommendations. The regime should be based on principles so that it can adapt as technology changes.
239.PSBs must be enabled to maintain a direct relationship with viewers in an on-demand world. PSBs should not be forced to disaggregate programmes if they do not consider it a useful way to reach viewers and their content is not clearly attributed to them. We welcome the BBC’s interest in using artificial intelligence for its public service algorithm.
240.In line with Ofcom’s recommendation, PSB content hubs should be given prominence on platforms provided that PSBs ensure that public value content, such as news, current affairs, and children’s content, are given prominence within their hubs. This reflects the current situation in which PSBs are required to broadcast news during peak times.
241.The ‘must offer, must carry’ regime requires public service broadcasters to make their channels available across all TV platforms, such as Sky and Virgin, and platforms to carry them at no charge. In a report published in 2013 the Government explained how the regime is founded on reciprocal benefit: “Platforms benefit from having must-see content distributed across their services, while broadcasters benefit from having access to mass market audiences.” At the time PSBs paid Sky to carry their content. The Government said that it wanted to see “zero net charges” such that “the fees for access to the main platforms and for PSB channels cancel each other out”. In the year following the report Sky agreed to drop the charge. However, some have argued that the regime still benefits platforms more than the PSBs. They argue that the platforms should pay ‘retransmission fees’.
242.Between 2015 and 2016 the Government consulted on whether the ‘must offer, must carry’ regime should be amended or removed to create freer negotiations between PSBs and platforms. ITV and Channel 4 submitted analysis which estimated if regulation were rebalanced in their favour ITV could expect to receive £121 million from Sky and Virgin, while Channel 4 could make £75 million. However, the Government considered these figures unrealistic as they did not take account of the “strong incentives for PSBs to negotiate carriage terms”. The Government therefore opted not to introduce retransmission fees.
243.However, Professor Des Freedman of the Media Reform Coalition told us that the benefits for the PSBs were not equivalent to those for the platforms. He participated in an inquiry chaired by Lord Puttnam in 2016 which recommended that “Retransmission fees should be paid by pay-TV platforms to public service television operators to address the current undervaluation of public service content by these distributors”.
244.ITV presented two arguments that public service broadcasters should receive retransmission fees to compensate them for lost value: first, TV platforms were facilitating and encouraging viewers to skip adverts; and second, TV platforms were preventing the development of direct-to-consumer relationships (as discussed above). The first argument is that personal video recorder (PVR) technology is incorporated as standard in platform service packages. This encourages viewers to record programmes and then to skip adverts. Magnus Brooke, Director of Policy and Regulation at ITV, said that ITV had lost £1 million on ad-skipping for the three-part January 2019 drama Manhunt.
245.In a supplementary submission, Sky disputed these arguments. It noted that PVR has been a standard feature of the market for some time and is included on platforms in which ITV is itself a shareholder—Freeview, Freesat and Youview. It disputed the calculation of a £1 million loss on Manhunt and stated that on this measure ITV would have lost £600,000 from ad-skipping on Freeview as 30 per cent of Freeview viewers did not watch the programme live. Sky added that even where TV is recorded, adverts are not always skipped and commercial impacts are close to half the level of live viewing. Regardless, live viewing remains the dominant way to watch TV—representing 80 per cent of weekly commercial TV viewing, leading Sky to conclude: “It is not apparent viewing habits are changing at such a rapid rate so as to make ad skipping a fundamental threat to ITV’s revenue streams”. Sky maintained that the PSBs derive value from the current regime which is based on a set of obligations, such as universal and free at the point of use availability, and privileges such as EPG prominence. It argued: “In seeking to charge for its main channel, ITV is effectively arguing that it be released from its PSB obligation of free universal availability”.
246.In our view, however, the universality principle is intended to benefit viewers, not private companies who apply a charge themselves. While linear TV remains resilient, the trend is clearly moving towards non-linear and in this context the balance of benefits between platforms and broadcasters must be reconsidered.
247.Free to air and free at the point of use are key attributes of public service broadcasting. PSBs should continue to be required to offer their content across all TV platforms. But we are concerned that the way in which technology can be used to deprive PSBs of advertising revenue suggests a lack of balance in the arrangement. To counter that imbalance, we recommend that Ofcom should be empowered to review the ‘must offer, must carry’ regime to ensure that it is adequate as TV moves online. In particular, it should consider whether TV platforms should be required to pay a reasonable retransmission fee to compensate commercial public service broadcasters. If so, the quantum of the fee should be determined by Ofcom on a periodic basis.
248.Digital terrestrial television (DTT) is the distribution mechanism for linear television. Commercial PSBs have preferential access to spectrum capacity for DTT only until 2022. ITV and Professor Patrick Barwise stressed the importance of maintaining access to the spectrum in the long-term. Professor Barwise argued that DTT is especially important for poorer households. He noted that the Government faced pressure to auction rights to spectrum and that mobile network operators had more money to buy this. This pressure should be resisted as it fails to take account of public value.
249.Magnus Brooke, Director of Policy and Regulation at ITV, told us: “It is important for the future of Freeview that we get long-term certainty about that spectrum.” He also warned: “There is still a proposal on the table to effectively charge the broadcasters for the use of that spectrum, even though the value of that spectrum is going down.”
250.Digital UK argued that DTT was necessary to safeguard the universal free availability of public service broadcasting. It noted that the future delivery of all TV through the internet was “conceivable” but it highlighted a number of challenges for this prospect. Broadband is still not universal: 13 per cent of adults do not have it. Broadband is associated with a monthly subscription contract which undermines the notion of ‘free TV’. It is also not as reliable or secure, and the internet TV industry is still developing.
251.Digital terrestrial television (DTT) will remain a major way for people to access linear television. The Government and Ofcom must ensure the continued provision of free spectrum for PSB output through DTT.
235 Written evidence from BT ()
237 ‘BBC’s highest-paid presenter Gary Lineker who earns £1.75m a year is slammed for joking he “must be due a pay rise” as he celebrates 20 years fronting Match Of The Day’, Daily Mail (5 August 2019): [accessed 1 November 2019]
238 Select Committee on Communications, (2nd Report, Session 2017–19, HL Paper 299)
239 Select Committee on Communications, (1st Report, Session 2009–10, HL Paper 37)
240 Ofcom, British TV can collaborate to compete in the digital age (8 March 2018): [accessed 1 November 2019]
241 Written evidence from the BBC ()
244 Written evidence from COBA ()
245 As noted in the previous chapter, it also receives income from the licensing of intellectual property internationally and other commercial means.
246 Oral evidence taken before the Digital, Culture, Media and Sport Committee, 16 October 2019 (Session 2019), (Rt Hon Nicky Morgan MP)
250 Written evidence from the BBC ()
252 Digital Economy Act 2017, .
253 Written evidence from Professor Patrick Barwise ()
254 Lord Hall of Birkenhead and Sir David Clement, ‘The future of free television licences for over 75s’, About the BBC Blog (10 June 2019): [accessed 9 August 2019]
255 Written evidence from Age UK ()
256 Digital TV Europe, BBC to start charging over-75s for licence fee (11 June 2019): [accessed 9 August 2019]
257 Tony Hall and David Clementi, ‘The future of free television licences for over 75s’, About the BBC Blog (10 June 2019) [accessed 1 November 2019]
258 Written evidence from Age UK ()
260 Select Committee on Communications, (1st Report, Session 2015–16, HL Paper 96)
261 Written evidence from the BBC ()
262 Written evidence from Professor Jeanette Steemers ()
263 HL Deb, 29 March 2017, ; Digital Economy Act 2017
265 See Select Committee on Communications, (1st Report, Session 2015–16, HL Paper 96) p 56.
266 Ofcom, Media nations: UK 2019 (7 August 2019) p 43: [accessed 31 October 2019]
267 Written evidence from Pact (). This included revenue for commercial broadcasters and on-demand services.
268 Ebiquity, Looking forward: TV in 2022—TV at the Tipping Point (February 2019): [accessed 4 November 2019]
271 Enders Analysis, Britbox’s muted arrival: ITV FY 2018 results (18 March 2019): [accessed 4 November 2019]
272 Written evidence from the Advertising Standards Authority ()
274 Select Committee on Communications, (1st Report, Session 2017–19, HL Paper 116)
275 Written evidence from Viacom International Media Networks ()
276 The scope of foods which fall within this term has not been defined.
277 Written evidence from Cancer Research UK ()
278 Written evidence from Channel 4 ()
280 Written evidence from Channel 4 ()
281 (Dame Carolyn McCall)
283 BBC, ‘BritBox: ITV and BBC set out plans for new streaming service’ (19 July 2019): [accessed 7 October 2019]
285 For example, (Professor Patrick Barwise)
287 Ampere Analysis, The UK VoD market (2019) p 25: [accessed 31 October 2019]
288 Written evidence from Clintons Solicitors ()
290 Written evidence from Professor Catherine Johnson ()
291 Written evidence from the Institute for Practitioners in Advertising ()
292 Written evidence from Directors UK ()
293 Written evidence from ITV ()
294 Written evidence from BT ()
295 Written evidence from the BBC ()
296 Platforms might be provided through Smart TV sets, streaming sticks or pay-TV services.
297 Written evidence from Age UK ()
299 Written evidence from Professor Patrick Barwise ()
300 Ofcom, Review of prominence for public service broadcasting: Recommendations to Government for a new framework to keep PSB TV prominent in an online world (4 July 2019): [accessed 7 August 2019]
301 Supplementary written evidence from Sir David Clementi ()
302 (Kevin Bakhurst)
304 Supplementary written evidence from Sir David Clementi ()
305 DCMS, Connectivity, Content and Consumers: Britain’s digital platform for growth (July 2013) p 26: [accessed 22 August 2019]
306 Written evidence from BT ()
307 DCMS, The balance of payments between television platforms and public service broadcasters consultation report: Government response (5 July 2016) p 9: [accessed 22 August 2019]
310 Goldsmiths University of London, A Future For Public Service Television: Content And Platforms In A Digital World (June 2016) p 155: [accessed 22 August 2019]
311 Written evidence from ITV ()
312 Supplementary written evidence from Sky ()
314 Written evidence from Professor Patrick Barwise ()