Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by Video Networks Limited


  Video Networks is grateful for the opportunity to comment on the content of the Government's Communications White Paper in relation to this Committee inquiry.

  Video Networks is the leading UK service provider for broadband interactive TV services including video-on-demand (VOD), and recognised as a world leader in this field. Our interactive services, branded HomeChoice, empower our customers to fully control their own viewing experience—to see whatever they want when they want. This move to VOD is a worldwide development and Britain is at its head because of its leadership in the development of digital television. The regulatory environment needs to reflect that worldwide leadership position. The nature of regulation can influence Britain's lead in either a positive or negative direction.

  Video Networks welcomes the publication of this Communications White Paper, which sets as its main objective the fostering of a dynamic and competitive communications and media market. Video Networks also fully shares the Government's priorities of extending choice, enriching entertainment and enabling learning matched by a strong and firm commitment to secure the highest quality content and value for consumers.

  Video Networks is also pleased to see that the Government is prepared to embrace the changes brought about by the new interactive television companies and to sustain their potential developments. New opportunities are opening up to use broadcasting and related interactivity media, for example in delivering education in flexible ways to institutions and to independent learners alike.

  Ultimately, the Government seems to acknowledge that there clearly exists a role for innovative interactive media companies like Video Networks in contributing to a more democratic media environment in which viewers have full control of what/when/and where to watch.

  The upgrade and unbundling of the local loop are key factors for us. Central to the implementation of our strategy is that BT allows alternative network operators to access and upgrade the lines. This will result in greater competition and lower tariffs for consumers. To the best of our knowledge we make more use of ADSL technology than any other company in the UK, and have been using ADSL technology longer than anyone else in the UK.

  Our submission will touch upon the key issues identified by the Committee and that we believe are central to the future development of the media industry. First, we explain Video Networks and its HomeChoice service; then we address the role of OFCOM, the importance of local loop unbundling, and the right level of regulation in the area of new media; we will then turn to the importance of new media in the evolution of traditional television and the necessity to re-discuss and re-invent traditional concepts like public service broadcasting (PSB), including regional and educational programming; we will then conclude with a brief summary of Video Network's commitments.


1.1  How we started and where we are now

  We have been delivering VOD and interactive television services continuously since 1996 (first pilot in Hull from December 1996 to July 1999).

  In September 2000, we launched our commercial interactive broadband service HomeChoice in London, at prices competitive with other pay television offerings on cable and satellite.

  HomeChoice is delivered over BT's local telephone lines once they have been upgraded to a broadband delivery channel using ADSL technology. In the future, we may also seek to utilise other broadband delivery channels such as cable or fixed wireless networks.

  We currently have approximately 10,000 customers, with HomeChoice available to approximately two million households in the Greater London Area. Take-up is constrained by the availability of lines from BT. Our own estimates of current take-up, were we not subject to such constraints, would be that it would be nearer 40-50,000. Our pilot in North London achieved take-up of 3 per cent in four months without the benefit of any television advertising to promote it. This would be the equivalent of 750,000 homes nationally. Our own research shows that:

    —  our services are popular amongst all sections of the population; and

    —  65 per cent of our customers have never bought any form of pay-TV before: Video Networks is therefore reaching a new section of the population and enhancing the opportunities for digital roll-out and take-up.

1.2  What services do we provide?

  Our HomeChoice service is a real video-on-demand (VOD) service, offering an intelligent home system whose key factors are interactivity and personalisation and the widest range of video-on-demand content services:

    —  Unparalleled range of programme content, including FilmChoice, the largest VOD library of films in the UK, which offers more than 1,000 movies on a pay-per-view basis. We have a wide range of agreements in place with key rights-owners including film studios such as Warner Bros, Buena Vista International (including Disney pictures) and Sony Columbia Tristar, broadcasters such as the BBC and Channel Four, and independent TV producers, and independent distributors such as Kenwray, Carlton International and specialised "Bollywood" distributors and music producers like Video Performance Ltd and BMG. We also have rights to a number of films from the pre-1956 RKO library.

    —  Television programmes and music videos are available to subscribers in packages. We currently offer:

      —  NewsChoice offers daily news on a time shift basis from the BBC, ITN, ABC, CNBC and Bloomberg.

      —  HighStreetChoice is a new home shopping service featuring SHOP! the popular TV shopping channel. It will allow customers to order products and services from featured retailers.

      —  SportsChoice—major sporting events past and present a wide range of sporting events, including Wimbledon; we offered coverage on a time-shift basis of every soccer match in the recent Euro 2000 tournament.

      —  SoundChoice—music videos and karaoke.

      —  Life&StyleChoice—food, travel, home and garden and performing arts.

      —  ComedyChoice—contemporary and classic comedy.

      —  KidsChoice—drama, cartoon and animation.

      —  History&NatureChoice—historical and wildlife programmes.

      —  DramaChoice—popular, modern, and period drama.

      —  ClubZebra—interactive lifestyle club covering aerobics, relaxation, healthy eating.

  Other key features of the service include:

    —  time shift functionality: we provide broadcast content with time shift functionality allowing customers to view a programme only minutes after its live broadcast has ended, with the ability to fast-forward, skip to any point and pause during the programme;

    —  full control of viewing experience: customers' choice is genuinely expanded; customers can, for instance, watch News at 10 not just at 10 pm but at 11, 12 or whenever they like;

    —  family friendly viewing: each member of the family has different access codes and therefore children are protected from adult viewing at any time; and

    —  tailored content: each viewer can create his/her own portfolio according to personal requirements and preferences.

  At present, cable operators in the UK offer their customers "near" VOD which, unlike our "real" VOD, allows customers access to a very narrow range of films and other content only at scheduled times and without the full VCR functionality we provide. Other digital PAY-TV operators (both terrestrial and satellite) offer interactive services that lag behind our level interactive functionality. However, we expect competition in the market for VOD to intensify and increase in the near future.

  HomeChoice also offers a fast "always-on" Internet access. E-mail to television services are also planned.


  We embrace the Government's proposal for the creation of a single regulatory body, which will cover both telecommunications and media. We compete directly with Internet-based services and we believe that the basis of regulation should be the light-touch afforded to the Internet.

  We particularly welcome this proposal because, being ourselves a company that provides neither a traditional broadcast service nor a classic telephony service, we in fact operate on the border of telecommunications and broadcasting. Companies like us are presently facing high administrative costs in complying with a complicated and disproportionate regulatory regime. As set out in the White Paper the current system carries a double jeopardy problem and the same issue could be examined in parallel by different regulators (paragraph 8.3 of the White Paper).

  At present, we hold the following licences:

    —  A Telecommunications Service Licence, a class licence under the Telecommunications Act 1984, for Video Networks Ltd. Should we wish to effect widespread deployment of telecommunications network infrastructure, we would need a fixed public telecommunications operator licence under the Act.

    —  A Local Delivery Licence from the ITC, to provide broadcast television services, which might require us to carry (under the "must carry" rules) digital versions of BBC 1 and 2 and Channels 3, 4 and 5 and certain teletext services.

  Oftel has also granted us "Schedule 2 Operator Status" which allows us to interconnect with BT's network at BT's cost based rates and to take advantage of BT's unbundling obligations by obtaining services from BT once available.

  Consequently, we strongly feel the need for a simplification of the regulatory environment in which we operate and, in particular, we call for a review of the current licensing regime to take into account new services such as our own. We believe in a system of general authorisation rather than a system based on individual licences.

2.1  Unbundling: a number one priority

  Video Networks is concerned for the future of unbundling. In recent months, local loop unbundling has, at last, taken off. What we fear is that the impetus that the process of unbundling has gained recently will slow down as a consequence of the time necessary to establish OFCOM. We do understand that there has to be a transition period but we would like to ensure this would not have a negative effect on the future of the process.

  To the best of our knowledge, we make more use of ADSL technology than any other company in the UK, and have been using ADSL technology longer than anyone else in the UK. Vigorous action to complete the unbundling of BT's local loop is still needed and we want the Government to fully commit itself to thoroughly carry out such process. Supervision will be needed, for example, in sorting out the logistics of co-location sites and their related problems. Many of these issues have been well-publicised. We believe however, that there are basic flaws in the method of unbundling which need to be addressed.

  If the Government really wants to avoid the creation of "communication ghettos" it has to grant to new entrants like Video Networks national coverage as soon as possible and make the completion of unbundling its number one priority.

2.2  Regulation at the minimum necessary level

  We also fully share the view expressed by the Government in the White Paper (see paragraph 1.3.9) of keeping regulation at the minimum necessary level in order to ensure that the interests of citizens and consumers are fully safeguarded.

  It is in this respect that we believe that the regulatory regimes to be applied to advertising and sponsorship in new interactive services should be limited to the minimum. Advertising and sponsorship provide significant revenue opportunities for VOD and interactive services as well as programme-makers. It will be very important to ensure that these revenue sources are not choked off by heavy-handed regulation that was more relevant to the age of spectrum scarcity.

  The regulatory regime that needs to apply to these services must parallel that of the liberal environment of the Internet rather than the more restrictive regime traditionally applied to television advertising, since ultimately in the future all services are likely to be received by broadband Internet.


  We support the Government's stance of identifying diversity and plurality as pivotal priorities in an era in which the boundaries of communications industries are blurring.

  As we have pointed out to the DTI and DCMS, Video Networks is ready to take on a facilitating role in the delivery of PSB in order to meet regional, local and cultural interests. In particular, Video Networks is committed to explore all the potentials of VOD, and to elaborate on an offer which goes beyond entertainment, to promote interactive educational content and local culture.

3.1  PBS is the era of new media and the importance of a non-discriminatory access to archives by new media companies

  We welcome the view taken by the Government which sees a key role for PBS in the digital future and "potentially an even more important role than it has now" (paragraph 5.3 of the White Paper). This is exactly the view that we have taken in representations to the DTI and DCMS. Interactive television opens new opportunities to deliver the public service remit tailored to different audiences and it can thus play a greater role in increasing the reach of public service programming.

  VOD has the potential to increase the value of every publicly funded programme made for television by making it available whenever a viewer wishes to see it. It is important that the licensing arrangements which VOD suppliers make for these programmes are seen to be fair and reasonable given the level of public subsidy the programmes already receive.

  In order to fulfil their role, companies like Video Networks need to be granted access to archives and content providers at a price that is non-discriminatory. At present, we are working closely with broadcasters like the BBC and Channel Four.

  In conclusion, we believe it is essential that the public service obligations that certain channels enjoy mean that they continue to make their archives available to new service providers who wish to develop new products and services on a commercial basis. For example, the ITV Network Centre currently operates a five-year network holdback on the licensing of programmes to other suppliers: in effect warehousing content which consumers would like to see.

3.2  Regional Programming and new media

  Real local television has never existed in the UK, since regional television services have been determined by the structure of transmission systems rather than the geographies of local communities. Local television has been inhibited by issues of spectrum scarcity which no longer apply. It is of the utmost importance that broadcasting meets the needs of different communities and cultural interests (see paragraph 3.3 of the White Paper). Niche and local services can be supplied at low cost over broadband services using technology such as our own. Television needs to appeal to a wide range of tastes and interests, as well as to people of different ages and backgrounds. The regional dimension of programming is a fundamental contributor to diversity.

  The Government specifically commits to ensure that the value of regional television is properly taken into account in planning the digital future. In this respect, we welcome the opportunity of participating in an open debate among broadcasters, independent production companies and citizen groups at local and regional level about how regional programming could be further developed. We would like the Government to go a step further and present media companies with supporting initiatives that will speed up the delivery of new programmes in this important area of broadcasting.

  HomeChoice offers a highly personal stream into the home, which enables truly local programming to be delivered. In our pilot in Hull, in an experiment with the Hull Daily Mail, we equipped journalists with video cameras to enable a truly local TV news service to be developed. We believe that such a service can be developed, funded potentially by local advertising.

3.3  Educational Programming

  As we have already pointed out to DTI and DCMS, VOD has the unique attraction of enabling viewers to customise their learning experience, so adults can "attend" vocational courses at their convenience and children can work at their own pace. We intend to link up schools as soon as we can expand our coverage. There is no reason why online learning initiatives like Learndirect and others could not take advantage of our service.

  We will keep you informed of our progress in this area and in particular of our progress in commissioning educational programming from established production companies. To date, we have reached agreements with both BBC Worldwide and Pearson Television. We have also had initial discussion with the DfEE to explore the educational potential of VOD.


  The Government acknowledges that with convergence, many communications companies have begun to invest in new and original content production for the first time. Thus, diversity needs now to be measured not only between genres but also within genres. It is beyond question that consumers will benefit from a diversity and plurality of communications services.

  Compilations of material can easily be assembled on VOD, for example. Content would be packaged according to customers' preferences.


  In conclusion, Video Networks is ready to commit to safeguard diversity and promote services that would meet different geographical, cultural and linguistic needs and interests.

  In order to take on such a role there are reforms, which are needed to enable a more optimum regulatory regime for VOD. Interactive television is something entirely new, and requires reform that opens up access to archives, lighter-touch regulation of advertising and sponsorship, and possibly a new service licensing framework.

January 2001

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