Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 380 - 392)

THURSDAY 8 FEBRUARY 2001

MR TONY BALL, MR RAY GALLAGHER AND MR MICHAEL RHODES

  380. It says that it will not pay it because it is pure profit to you?
  (Mr Rhodes) That cannot be correct because the conditional access régime is based on cost recovery. The régime which Oftel regulates entitles us to earn a reasonable return on the costs that we have incurred in putting in place the platform. To describe it as pure profit cannot be correct.

  381. How much is the BBC paying you to be on your platform?
  (Mr Rhodes) That is governed by a confidentiality clause in our agreement with it. I am content to write to you privately about that.

  382. It is quite significant. We do not deny you the right to make a profit, but the BBC is effectively paying a great deal of licence fee money for the privilege of appearing on your platform?
  (Mr Rhodes) At the time that the BBC signed the deal with us it publicly stated that satellite distribution was cheaper than DTT distribution.

  383. What does it pay to be on the various cable networks?
  (Mr Rhodes) I am not sure what it pays for its new channels, but its two universally available channels are must-carry channels.

  384. So, they do not pay anything?
  (Mr Rhodes) There is no payment for those.

  385. Therefore, it pays you. For example, it does not have to pay anything to ntl?
  (Mr Rhodes) But it is not taking a conditional access service from ntl. It takes a specific technical service from us, and we are required by European legislation to charge people for that service on a non-discriminatory basis.

  386. I do not argue with your right to make a profit.
  (Mr Ball) It is not to make a profit; it is to recover the investment in the platform.

Mrs Organ

  387. You argue that the new BBC services should not duplicate commercial services. Would that not mean that the commercial sector could prevent the BBC being able to develop into any new market regardless of the kind of product that is put up against it?
  (Mr Ball) We are not saying that. We would be happy if the BBC was subject to scrutiny by OFCOM as far as any new channels that it might launch. The concept of market failure is the one that we should like to see applied to the question whether there is a need for a public service broadcaster to go into new areas which are already satisfied by commercial channels.

  388. Who is to say that they are satisfied? Who makes that decision—you as a commercial company?
  (Mr Ball) OFCOM could be the vehicle that scrutinised these new channels and decided whether there was a need to spend licence-payers' money on them. BBC News 24 is an example. There are already 24-hour news channels, for example Sky News, CNN and ITV's 24-hour news channel. The BBC is now providing one. I do not believe that there was any test to see if there was market failure in the provision of news. It may be a good thing for the BBC to have a news channel. It does not rate particularly well and costs a fair bit. But we argue that the new proposed regulator OFCOM should have power to scrutinise any plans that the BBC might have to go into new digital channels.

  389. It was suggested to us yesterday that in some of these areas the problem might be that the commercial services offered particularly in niche areas could be driven out by the ability of the BBC to come in, mirror it and then push them out of the market. The argument the other way is that there is a particular role for public service broadcasters in new services to provide those niche areas because the commercial market will not do it?
  (Mr Ball) I totally agree that if the commercial market does not satisfy those areas the BBC should provide those channels. However, I do not believe that that is the BBC's plan. To give you an example, the BBC launched News 24. We have a 24-hour news channel which has been in existence for 11 years. A number of operators to whom we supplied that channel on commercial terms dropped it because the BBC was giving away a news service. Therefore, we took a commercial loss because of it or had to renegotiate. There is less plurality or availability of 24-hour news coverage in the home. There was not a market failure in the first place. I should like to see that kind of area being addressed by OFCOM. I should like OFCOM to have the ability to test the need for any service that the BBC intends to launch.

  390. Do you say that if the BBC's 24-hour news service had been set up prior to your service which was set up 11 years ago you would not now go into that market place?
  (Mr Ball) I am not sure that I am saying that. We might have other reasons for deciding to have a go at it. For example, ITN has come into the market later. But it would certainly have been a tougher decision to make. I cannot say that we certainly would not have decided to go in.
  (Mr Gallagher) ITN has also come in at marginal cost on the back of its existing news operation. The cost was reported to be about £15 million for the new channel. It is difficult to see new entrants coming into the news market and assuming the full cost, so in a way that can limit plurality and foreclose entry to additional voices in the market.

  391. Obviously, you have done quite a good deal of market research into your age profiling and what channels people are taking up. Have you done any work as to whether people have found satisfaction with digital because of the quality or the services or channels on offer?
  (Mr Ball) What drives the business is, first, the availability of additional channels and so greater choice; and, secondly, the ease with which one can navigate through the channels using an electronic programme guide. People like that very much. The third factor is perhaps the quality improvements in digital. The fourth factor would be the kinds of services that can be wrapped around digital. Earlier we were asked how we appealed to an older audience. The e-mail and e-commerce services through the television set will eventually play to the older demographic profile. But choice still comes first.

  392. Do you see it developing slightly differently? We have been talking about the possibility of obtaining new passports and driving licences and sorting out benefits, child support matters and so on. That might alter the priorities of how people look at it.
  (Mr Ball) It could. There would also be phenomenal savings to both government and companies if those services could be provided through the television. This year Sky is launching bill settlement of the Sky account through the television, which is obviously a benefit to us. We are speaking to various telecommunication providers about telephone bill settlement over the television. We are still on the nursery slopes in that respect, but eventually the television will become a means of running the household, as much as one uses it for entertainment.

  Chairman: Gentlemen, thank you very much indeed. It is always a pleasure to see you. We are grateful to you for your answers.





 
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Prepared 23 February 2001