Select Committee on Culture, Media and Sport Fifth Special Report




The BBC welcomes this opportunity to respond to the Select Committee's Report on the BBC's Annual Report and Accounts 1999-2000. It was the BBC's suggestion in 1997 that, as part of its accountability to Parliament and the public, there should be an annual scrutiny session following the publication of its Annual Report and Accounts undertaken by the Culture, Media and Sport Select Committee. We are therefore pleased that the Committee took time to hold a session with BBC Governors and management on 13 July 2000.

The Committee's Report on 31 July sets out fifteen main conclusions and recommendations. Two of these (one of two recommendations under number xiii and all of xv) are addressed specifically at the Government and it is for DCMS to respond to the Committee on those points. The BBC's response to the other 13 recommendations is set out below.

Recommendations and BBC responses

    (i)  We welcome the renewed commitment by the BBC to its core television services—BBC One and BBC Two—and to the flagship role of BBC One in particular. We consider, however, that the weaknesses that the BBC Governors note in the recent performance of BBC One are issues for which they themselves hold the ultimate responsibility.

The BBC acknowledges the Select Committee's support for the BBC's plans to invest additional funds in BBC One and BBC Two. Since publication of the Committee's Report, the Director-General in his MacTaggart lecture set out the BBC's plans for a new line-up of digital television channels, in the light of the recent licence fee settlement. In announcing those plans, the Director-General made it clear that the lion's share of the new investment would be in our two core services, available in virtually every home. This will ensure that all our viewers will enjoy an improved service from the BBC and that BBC One in particular will build on its position as the BBC's flagship service, containing the very best British content across a wide range of programming.

The Board of Governors is ultimately responsible for ensuring that the BBC delivers its public service remit and that, through its services, the BBC meets the needs and interests of its audiences. That responsibility is delivered by approving objectives for the BBC as a whole, setting strategies designed to meet those objectives, and allocating the BBC's budget as necessary. The Board of Governors delegates day to day management of the BBC, including the commissioning, scheduling and production of programmes, to the Director-General and his management team. Each year the Governors monitor and report on the BBC's performance in the Annual Report. Their objective assessment of the BBC's performance sometimes leads to criticisms that they are avoiding responsibility. In fact the public nature of that assessment demonstrates that the Governors are both cognisant of their ultimate responsibility and prepared to be judged on their record of tackling under-performance.

The Board of Governors recently approved additional investment in BBC One and BBC Two which is already feeding through into new high quality programming from Autumn 2000. From April 2001, the BBC will spend an extra £95 million across the two channels, with additional investment of £140 million from April 2002. The Board of Governors believes that these very significant sums of new money will help deliver the necessary strengthening of the BBC's core television services which they called for in the Annual Report. The Board will continue to monitor the impact of the new investment on the performance of these services.

    (ii)  It is undeniable that the technological environment in which the BBC operates is changing, and changing fast. The BBC's remit, however, has not changed and the BBC has not sought a change to the Royal Charter that underpins that remit prior to 2006. A generalised offer by Sir Christopher Bland for "public debate and discussion" is simply not good enough. While the BBC remains a State Corporation funded by a hypothecated tax, it has public service obligations that it must continue to meet in full. If BBC One were to become ITV without the commercials and BBC Two were to become Channel 4 without the controversy, then this would affect the justification for the BBC as at present constituted and funded.

The BBC understands very clearly that although technology is changing, the remit and the charter remain the same. The BBC's remit in the digital age will therefore stay as it ever has been: to serve the public by providing diverse, high quality programmes which entertain, educate and inform the whole audience. History shows that the means by which the BBC fulfils its role is affected by changes in broadcasting technology, but the role itself is not. We therefore agree with the Committee that new digital technologies in television, radio and online offer opportunities for the BBC to deliver even greater value to many licence payers, within its existing remit. The Charter stipulates that it is for the Governors to interpret how best the BBC should fulfil its remit, subject to Secretary of State consent for the launch of new public services or material changes in existing services.

On every channel, no matter what audience interests it serves, the BBC must be truly distinctive from the commercial alternatives. That distinctiveness will flow from the high and increasing level of investment in original UK programmes; from a quest for innovation and support for new talent; and from the constant aim that, in all areas of programming, the BBC should provide the very best. The Governors will continue to monitor all the BBC's services, including BBC One and Two to ensure that they are distinctive. In the case of BBC One, this means being the gold standard—containing many of the programmes which audiences cannot afford to miss, across a wide range of programmes including news and factual. BBC Two will also maintain a wide-ranging remit, focusing on serious factual programming as well as being the test bed for ground-breaking new drama, comedy and entertainment.

    (iii)  It is right that the BBC is seeking to develop an effective policy for sports coverage, but it is regrettable that the wording of the new objective reinforces the impression that the BBC has lacked such an effective policy in recent times. We expect the main elements of the BBC's policy for sports coverage and the criteria by which its effectiveness will be measured to be included in the BBC's Report for 2000-01.

Sport has become the most commercially competitive area in broadcasting. The BBC is not alone in facing the challenge of significantly increased competition for sports rights from other media players. However, despite this challenge, the BBC still commands a wealth of rights to major sporting events including—the Olympics; Wimbledon; Grand National; 6 Nations and the European Rugby Cup; Open Golf and US Masters; World and UK Athletics; Euro 2000; and, from next season, live England home football internationals and the FA Cup (including the final).

The sports rights marketplace is a rapidly moving market as well as being increasingly competitive. The BBC therefore needs a flexible sports strategy to ensure it continues to deliver value for money to the licence fee payer from all our sports output across Radio, TV and Online. A single BBC Sport division has been created for the first time in recent history. This has given us a new opportunity to develop a more coherent sports strategy across all media which will now be taken forward by the BBC's new Director of Sport, Peter Salmon who will sit on the Executive Committee.

We will ensure that the general principles of our policy for sports coverage are included in the BBC's Report for 2000-01. The success of that strategy will be assessed by measuring audience satisfaction, in terms of both the numbers of viewers and listeners, but also qualitative assessment of how well audiences appreciate our coverage of individual events and the mix of sports and events available through the BBC.

    (iv)  We are heartened to learn of Radio 3's increased audience and encouraged by the restoration to a considerable degree of its former high quality, but we consider it a matter for regret that neither the Chairman of the BBC nor its Director-General was able to give any account in oral evidence of the performance of Radio 3. This strengthens the impression that radio is seen within the BBC as a Cinderella service.

BBC Radio is not a Cinderella service. It is a central and vital element of the delivery of our public service remit to serve all audiences. Radios 1-5 Live, the Radio networks in the Nations and the network of Local Radio stations are highly valued both within the BBC and by the audience. Radio provides 52 per cent of the total consumption of BBC services, and the BBC has over 50 per cent of the total UK radio market.

Radio in general is flourishing: figures published by the industry body RAJAR for the three months to June 2000 show that 91 per cent of UK adults listen to radio—more than 43 million people. BBC Radio reaches nearly 31 million people a week, with listeners staying over an hour longer (on average 17 hours a week) than a year ago.

To ensure this healthy performance continues in the digital age, the BBC is investing considerable sums of money in preparing radio for the transition from analogue to digital. Plans for the launch of new radio services were announced in late September and the BBC is currently consulting on them.

Funds are also being invested in a programme of improvements to the Local Radio network, reflecting its importance as part of the BBC's offering to licence fee payers.

As far as Radio 3 is concerned, we welcome the Select Committee's interest in the performance of the service. Radio 3 combines an unrivalled commitment to live classical music with a pace-setting contemporary editorial mix which unites jazz and world music with long-form drama and serious arts discussion and reporting. The network's target audience has been redefined and broadened and the schedule began to be recast to move towards this during 1999. There are early signs of success: reach and share remain stable at around 2 million and 1.2 per cent respectively.

    (v)  We recommend that, when the methods of collection of statistics given in series for successive years in the Annual Report and Accounts of the BBC are changed, the likely effects of the change on the relevant statistical series be set out in the Report. Where such statistics are collected by an outside organisation, the explanation of the change and its effects should be checked and verified by that outside organisation before inclusion in the Annual Report and Accounts.

We understand that this recommendation refers to specific questions at the Committee hearing regarding RAJAR figures for radio listening.

We agree that we could have added more detail to explain the likely effects of the change in the radio industry measurement system (RAJAR) on the radio statistics contained in the Annual Report. However, as we explained in our written evidence, RAJAR and the BBC worked together to understand the effect of the change on statistics and were aware from pilots that the BBC Radio 3 figures would be adversely affected by the change in methodology. We have therefore focused in the Annual Report on the latest consistent data for BBC Radio 3, ie that for the last four quarters.

Further to our written evidence we should explain that changes in the RAJAR sampling methodology resulted from market growth, not from any initiative of the BBC. With so many new stations coming on air, the number of possible station titles could no longer fit in a pre-printed RAJAR diary, so the card sort mechanism was brought in to give the respondent a customized version of stations in the questionnaire. This in turn made the interviewer's task more complex, so rather than attempt to cover all members of a household, it was decided that they should restrict the diaries to one person per household. The new methodology did pick up lighter listeners, increasing the reach figures for the more speech based services, as respondents took more account of all the stations they had heard than they might have previously. However, the BBC and RAJAR found from the pilots that BBC Radio 3 and similar small, specialized stations saw a fall in "official" reach, largely as a result of smaller sample sizes.

We will endeavour to add improved explanations for the effects of methodology changes on statistical time series in future Annual Reports. As far as data collected by outside agencies such as RAJAR is concerned, we would always aim to carry out a rigorous joint review of the likely impact of any such changes before they are made. There should therefore be no need to refer back to the agency before including an explanation of any such impact in our Annual Report.

    (vi)  We consider that the BBC's attempts to conflate viewing figures from News 24 as a channel and those for News 24 as a service on other channels—namely BBC One and BBC Two—are misguided and misleading. We recommend that BBC Annual Reports distinguish clearly between the audience for News 24 as a channel in multi-channel households and the audience for News 24 services broadcast on BBC One and BBC Two and cease to combine audience figures for News 24 as a channel and News 24 as a service on other channels.

We do not agree that it is misleading to combine these figures. The BBC chose to put BBC News 24 on BBC One's frequency overnight to increase the value for money from the licence fee by making BBC News 24 programming available to viewers in analogue terrestrial homes. Its content includes "World Business Report" and the award-winning "Hard Talk" with Tim Sebastian.

We have always been open about the fact that we count BBC News 24's viewers across all platforms. The BBC's Annual Report clearly states that we include viewers to the overnight service carried by BBC One and Weekend 24 on BBC Two.

The BBC believes that it is right to count these viewers in measuring the audience for BBC News 24. The programming they are watching is paid for from BBC News 24's budget. Part-hours distribution, as a measure of a channel's overall audience, is a valid and common measurement, and not unique to BBC News 24. ITN do exactly the same thing when they include their morning-only slot on OnDigital as part of the channel's overall availability. Nickelodeon (a kids channel) shares its airwaves on some cable systems with CNBC (the business and news channel), with Nickelodeon broadcasting between 6am and 6pm and CNBC between 6pm and 6am. The BBC World Service English language service is broadcast in the UK overnight on Radio 4. In each case, the broadcaster counts every viewer or listener, irrespective of how they accessed the service. It is therefore also the practice employed by BBC News 24. As the audience to the overnight analogue transmission is watching a service that is distinctly BBC News 24, the channel counts these viewers in their audience.

For the sake of clarity, however, we will when it is possible and appropriate in future separate the two sources of viewers.

    (vii)  We recommend that, for 2001-02 and succeeding years, the BBC formulate a specific objective of seeking to ensure that its digital services drive take-up of digital television. We further recommend that the BBC identify consistent measures for monitoring progress against this objective that are open to external scrutiny.

The BBC firmly believes that there is a vital role for high-quality free-to-air channels in driving take-up of digital television. For the full benefits of the digital revolution—the creation of a truly inclusive e-society—to be realised, every television viewer in the country must be persuaded to make the switch to digital. For the sizeable minority who say they have no intention of buying extra pay services, the BBC must offer the incentive to make the switch, in terms of new free-to-air services of the highest quality, which entertain, educate and inform in the best traditions of the BBC. In its proposals for new digital services, on which it is now consulting the public, the BBC believes that it is offering such incentives to the widest possible audience.

All the BBC's public services, including its new digital channels, will be measured against the Governors' public service criteria set out in this year's Annual Report. These include a requirement to demonstrate public value or appeal to licence payers.

    (viii)  We wholeheartedly endorse the notion that the BBC should not develop additional public service channels that duplicate those already provided by the commercial sector or that unduly threaten the development of a more diverse market in future, but we consider that the potential for a free-to-air BBC sports channel—providing distinctive services of public benefit relating, for example, to sports training and development and to minority sports and women's sport which are currently neglected by broadcasters, as well as possibly contributing to digital take-up—should be further explored by the BBC and sympathetically considered by the Secretary of State for Culture, Media and Sport rather than being prematurely ruled out.

The BBC's proposals for new digital services include the launch of a new dedicated radio outlet for sports coverage, to supplement coverage on BBC Radio 5 Live and allow the breadth and richness of sporting rights available to the BBC to be exploited more fully, offering audiences even greater choice of free-to-air sports coverage from the BBC.

The range of digital television channels which the BBC can offer is limited both by the spectrum and by the funding available to the BBC for the provision of such services. We must ensure that across our output as a whole, we are serving the widest audience with services which are adequately funded to provide the highest quality on every channel and in every genre. Within the portfolio of new digital services on which the BBC is now consulting, the BBC is not proposing to include a new dedicated sports channel. The BBC will carefully consider the public's comments on its proposals.

Free-to-air sports coverage will however remain a key part of the BBC's television output, across the widest range of sports, including minority interests not well-served by the commercial sector. That coverage has a central place on our two core, universally available channels. We already cover minority sports such as rowing, hockey, women's golf and equestrian events. The BBC intends that this breadth of coverage and accessibility should be maintained, and the place of sport across our whole network underpinned. The new Director of Sport will re-evaluate the BBC's sport policy to ensure that these objectives are delivered as effectively as possible.

    (ix)  In view of the fact that the increases in the television licence fee in 2000-01 and 2001-02 overturn the five year settlement originally intended to cover the period up to 2002, we welcome Sir Christopher Bland's confirmation that the BBC will not seek additional increases in the level of the licence fee prior to 2006.

The BBC has noted the Committee's comment.

    (x)  If the public and Parliament are to be convinced that the target of increasing the percentage spent on content from 76 per cent to 85 per cent will genuinely be met, it will be necessary for the BBC to be a good deal more open about its accounting procedures. We recommend that the Report and Accounts of the BBC for 2000-01 include annual targets for the percentage of total expenditure committed to programmes in each coming year in order that progress towards the objective of increasing the percentage spent on content from 76 per cent to 85 per cent can be monitored. In this context, we welcome Mr Dyke's drive to reduce management perks and his campaign to slash bureaucracy.

The BBC aims to be as open and accountable as possible about how we spend the licence fee and we believe we have gone a long way to delivering this. This has been confirmed by the independent review by Pannell Kerr Forster (PKF) who were appointed by the Government to examine the transparency of the BBC's financial reporting as a condition of the licence fee settlement. PKF's report has now been published and validates our statements that we comply with all legal and other statutory requirements, and often go further.

In our Annual Report and Accounts for 1999-00 we published a target of increasing the amount we spend on content from 76 per cent to 85 per cent over the next five years (highlighted as an operational priority on page 20). In response to the Select Committee's recommendation above we are proposing that as part of our Annual Statement of Promises and in our Annual Report we will provide details of progress towards the 85 per cent target. We will also provide details on how progress is being achieved.

    (xi)  We expect performance against these targets for cashflow from BBC Worldwide in each future year to be subject to close scrutiny to ascertain whether the targets for the latter part of the period are sufficiently stretching.

The BBC believes that it has set BBC Worldwide very challenging cashflow targets.

The projection to 2006-07 was reviewed by Pannell Kerr Forster (PKF) as part of their overall review of the BBC's financial projections for the DCMS. In their report in January 2000 they said:

    "BBC Worldwide plans comprise a stretching target for creating commercial benefit from the BBC brand to deliver increasing income streams to the BBC. There are high risks in the delivery of this challenging target. This has been recognised in the overall BBC funding model by a discount having been applied to the forecast cashflows."

PKF agreed that the BBC should retain a significant discount against the projected target to reflect the associated challenge and risk.

The historical trend shows compound growth of nearly 25 per cent per annum in the two years to 1999-00, after adjusting for one-off exceptional items. The BBC has provided the Select Committee with a year-by-year target projection to 2006-07 of Worldwide's cash contribution. It shows a compound annual growth rate of nearly 15 per cent per annum to 2006-07, to a level which will provide the BBC with a sustainable contribution thereafter.

As part of our annual strategy and budgeting process we review Worldwide's targets in the light of the latest developments and competitive conditions and we will keep re-examining whether the targets for the latter part of the period to 2006-07 are sufficiently stretching. In our Annual Statement of Promises we will publish our latest target projections, and in our Annual Report and Accounts for 2000-01 onwards we will outline how the target is being met.

    (xii)  Under the Quarterly Budget Scheme the first payment is not made in arrears and the statements of the BBC in oral evidence and of the Government in its reply to our earlier recommendation are accordingly inaccurate.

We apologise if during the course of a lengthy debate on this point we inadvertently gave the Committee the wrong impression about how this detail of the scheme operates.

However, three of the four quarterly payments—representing the bulk of the licence fee—are made in arrears and as a result the BBC's cashflow is adversely affected when payments under this scheme are compared with payment in full on the due date.

    (xiii)  We recommend that the Government introduce secondary legislation to amend the Wireless Telegraphy (Television Licence Fees) Regulations 1997 so as to abolish the current £5 surcharge on the licence fee under the Quarterly Budget Scheme with effect from 1 April 2001.

This is a matter for Government but the BBC's income would be adversely affected if the Committee's recommendation were accepted.

    (xiii)  We further recommend that a leaflet explaining all budget schemes and making clear their financial implications be made available at all Post Offices.

Every Post Office already has leaflets explaining the ways in which one can choose to pay one's television licence, and TV Licence application forms also give the TV Licensing helpline number, 08705 763 763, for anyone seeking further information on any of the Budget Instalment Schemes. The helpline number is also included in TV Licence renewal notices, reminders and enquiry letters, and is publicised in BBC Trails. Following an enquiry, a leaflet explaining the various budget schemes, called 'Easy Ways To Pay For Your TV Licence', is dispatched the following day. This leaflet, and renewal notices, describe the premium charge for QBS.

In addition, the BBC proposes to address the Select Committee's concerns by telling each member of the Quarterly Budget Scheme next year in their annual renewal letter that there is the opportunity to transfer to either of the other two other direct debit schemes, with a payment plan relevant to the particular customer. The letter will also highlight the £5 premium for paying by QBS.

    (xiv)  Having taken oral evidence from the BBC during this inquiry, we are concerned that, even with a new and potentially innovative Director-General, the views and roles of management and of the Governors appear indistinguishable. In future, it must be for the BBC's managers to manage the BBC and for an independent regulator to regulate the BBC.

The BBC's Royal Charter places a broad range of responsibilities on the Board of Governors, including approving objectives and promises and monitoring progress against them, determining the strategy for the Home Services so as to reflect the needs and interests of the public, monitoring fulfilment of the BBC's legal and regulatory obligations, and appointing senior management. Those responsibilities are different to and clearly distinct from those of management.

The role of the Governors is much broader than simply that of "the regulator". They have the ultimate responsibility for ensuring that the BBC delivers its remit, is independent from political or commercial influence, remaining wholly focused on the public interest.

An external regulator, concerned principally with what can be counted, able to will the ends but unlike the Board of Governors unable to will the means, and incapable of enforcing its decisions, would be nothing like as effective.

    (xv)  We consider it a matter for regret that the Secretary of State for Culture, Media and Sport rejected the proposals that elements of the BBC's finances be subject to scrutiny by the National Audit Office. We expect this Committee and its successor in the next Parliament to continue with annual scrutiny of the Report and Accounts of the BBC, but this does not mean that we consider current arrangements for the accountability of the BBC to be anything other than incomplete and unsatisfactory.

The BBC has noted these comments, which are a matter for Government. We are however determined to build a greater confidence in our procedures to ensure accountability to licence payers and we acknowledge the need to put in place more transparent and effective checks and balances that will secure the trust of the public and Parliament. The Committee's recommendation did not appear to take account of a range of improvements and new initiatives which the BBC is putting in place, many as a result of the Licence Fee settlement earlier this year and some in place for longer. On fair trading, these include: separate financial and Fair Trading auditors; the publication of a quarterly fair trading bulletin and an Annual Review by the Governors' Fair Trading Compliance Committee; and the appointment of an independent expert to review fair trading policies. On wider accountability, they include periodic reviews of the BBC's efficiency and effectiveness by auditors appointed by DCMS, the most recent of which was this year (PKF); and the publication by the Governors in this year's Annual Report of public service criteria against which all the BBC's public services will be judged.

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