Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 400 - 411)

THURSDAY 8 FEBRUARY 2001

MR LESLIE HILL, MS KATE STROSS, MR NIGEL WALMSLEY AND MR STUART BUTTERFIELD

  400. Given that a government of any political colour will be brave to take that plunge when the day comes, what do you believe can be done in the meantime to encourage both take-up of the hardware and make people more technologically aware of what is available?
  (Mr Walmsley) The Government can do three things. First, in collaboration with the broadcasters, which I sense are more than willing to take part, a public information campaign is needed. Although ITV, ONdigital, BSkyB and the cable companies are doing their bit, it is evident that understanding of what digital is and can provide by way of services is limited. I believe that public information is very important. Secondly, kitemarking is important. When members of the public buy new receiving equipment they should clearly understand what it is. Is it genuinely digital or not? That would be a very helpful step. I suspect that today a great number of television sets are bought in the belief that they have digital capability when they have not, or it is limited. Thirdly, we must make sure that retailers, manufacturers and the public realise that as a concept the switch-off date is a real one and will happen, not something that is a long way in the middle distance and there is no need to act on the assumption that it will happen. There must be greater emphasis on that, and government is uniquely placed to do that.

  401. For example, as independent broadcasters you frequently complain about the level of plugs—some may call it advertising—that the BBC carries on its channels for its own services, whether it be its web site or programmes. Would you be happy to see the BBC enter into some kind of programme or project to promote digital take-up?
  (Mr Walmsley) I would. I can tell you that ITV is ready, willing and able to do that. As we speak we have scripts and plans for promotions that we would run on ITV to do just the sort of thing about which you are asking. There is a problem in that area, in that ITV is unable to mention the expression "ONdigital" as part of such an information campaign for recondite regulatory reasons which even today I do not entirely understand. It seems to me to be very odd that we can communicate to the public that digital services are available but cannot mention by name one of the principal platforms and mechanisms by which they can receive it. I note that the BBC has an appetite to do more, and we have been in dialogue with it. Therefore, generally speaking broadcasters are ready to collaborate, and a lead and contribution from government in that area would be very welcome.

  402. I do not know whether you heard Sky's evidence. I asked it about ITV's absence from Sky's platform. The figure which you have given in your evidence is about £20 million. I was slightly confused by how that figure came about. Perhaps you can explain it.
  (Ms Stross) Sky publishes a rate card for conditional access services. If ITV went onto the Sky platform it would require something called automatic entitlement which, put simply, means that our services would be received only within the United Kingdom and Northern Ireland. The system is designed to stop overspill of the picture signal into France, the Netherlands and so on where we do not have rights. The published conditional access charge for automatic entitlement with the rate card is 30p per subscribing home per month. If one multiplies 30p per month by the number of Sky subscribers, plus that limited number of homes with a Sky box but are not Sky subscribers but also need a card, one comes to a figure in excess of £20 million a year.

  403. Can you make a stab at what you believe the BBC may be paying?
  (Ms Stross) I do not know what the BBC is paying but it negotiated its arrangements with Sky at a point when the rate card for conditional access was considerably lower than it is today. I believe that the rate card figure was in the region of 10p to 15p when the BBC did the deal. It has at least doubled since then. Surprisingly, the rate card rose from 20p to 30p last October when nothing had happened which, in our view, would have led to the need to raise the figure in that way.

Chairman

  404. On the question of access to the Sky platform, a long time ago a complaint was made—for example, I think back to the time when Mr Dyke was with LWT—about the way in which Sky exploited its ownership of gateways to the detriment of other broadcasters. From your point of view, do you take the view that that is still the case; for example, that the rate card is being changed in order to suit Sky not simply in terms of trying to get money out of you, or anybody else, but in seeking to maintain the primacy of Sky programmes on the Sky platform? I remember that the BBC was very worried that the electronic programme guide would be arranged in such a way as to downgrade access to the BBC, though that did not turn out to be so. The electronic programme guide places the two BBC channels ahead of everybody else.
  (Ms Stross) It is an area that concerns us. We are particularly concerned that in its current form the White Paper significantly increases the risk that Sky will be able to use its position as a gateway to extract very high returns from the public service broadcasters. At the moment, the White Paper plans to place a must-offer obligation on the public service broadcasters to all platforms. We are very happy with the notion of delivering our service on a universal basis on a number of platforms, but in general on other platforms we have protection from being charged extremely high rates to do so. We get access to the cable platform free, and we have access to DTT because we have been gifted that capacity. In the particular case of satellite, the suggestion in the White Paper appears to be to place a must-offer obligation onto public service broadcasters without imposing any reciprocal obligation on Sky to deal with us on fair and reasonable terms. There is a further problem in that the Oftel guidelines as they are currently set out specifically prohibit Sky from discriminating in favour of public service broadcasters by reason of their status as public service providers. We should like to see those guidelines changed so that if there is a must-offer obligation placed on public service broadcasters there is a reciprocal obligation to offer fair and reasonable terms to us. That could be done either by changing the Oftel guidelines or perhaps allowing some other body to decide on what are fair and reasonable terms for access to the Sky gateway.

  405. In the context of what you have been saying, to what extent do you think that Sky faces the problem encountered by Microsoft; namely, at what point is an organisation which has taken risks, made major investment and innovated, and therefore believes that it has the right to expect a return on all of those aspects of its ventures, to be regarded as exploiting—unfairly in the view of its competitors—the advantages that it has gained, which is what the anti-trust measures against Microsoft in the United States allege?
  (Ms Stross) If one looks at the recent price rise for automatic entitlement from 20p to 30p per subscribing home, that occurred at a point when the number of subscribing homes was increasing. Therefore, had the figure stayed at 20p Sky's returns would have increased from providing conditional access services, because it would be receiving more 20p's. We have not seen any evidence of changes in Sky's cost base that make a 50 per cent rise in the charge appropriate. Clearly, Sky's returns are prospectively increasing very significantly just at the point where perhaps they were expecting a must-offer obligation to be imposed in the White Paper.
  (Mr Walmsley) If I may make a brief supplementary point, the purpose of conditional access is primarily to provide the mechanism by which a television subscription business can be operated; ie, a person can get access as a consumer to the signal only if he is prepared to pay for it. That is its fundamental purpose. The question deals with the situation in which if someone comes along and says that he too wants to run a subscription service on the Sky platform he should be treated on all fours with anybody else, including Sky itself which is running a subscription service. But ITV and other free-to-air broadcasters' requirements for conditional access are not in order to elicit subscription revenue but to ensure that the signal is delivered only within the territory of the UK. Many of the rights for the services that they broadcast can be used only in the UK and there is no right to deliver a signal into northern France, Belgium and so on. Therefore, the requirement for conditional access is quite a limited free-to-air obligation, and on those grounds alone it seems to us that there is a public service case for the access charge being significantly lower.

  406. Mr Walmsley, you had exchanges with Mr Faber following the evidence which we obtained from ONdigital yesterday about access to digital programmes in households with a number of sets. Yesterday, Mr Prebble told us that if one subscribed to ONdigital one had one box and the only way to watch programmes on one's other television sets was to move the box about. I do not know what the situation is with cable because I do not subscribe to it, in spite of great attempts to do so but to no avail. But with a Sky subscription one has one box with which one can watch the programmes on any set in the house without moving it around. The dealer makes the necessary arrangements and it just happens. To what extent do you believe that we are now in a situation in which not only do you have a kind of kaleidoscopic menu from which to choose but also a kaleidoscopic access to services? Do you concur with me that it is very important to people who are to spend a lot of money on all these things to know much more clearly what is available to them from the different platforms that they choose?
  (Mr Walmsley) I believe that that is very important. It takes me back to my earlier point that there is still a great deal of misunderstanding, or total absence of understanding, about exactly what is available in terms of both content and, of equal importance, access and the technical functionality of the different devices. I believe that a great deal more work must be done. Quite apart from the need for short-term work that the question implies, we repose some confidence in the ultimate arrival in quantity of the integrated digital television receiver. Because it encompasses within it so much core functionality the viewer will basically have a lot of his problems solved at a single stroke. It is very important for the whole migration to digital that we see manufacturers manufacturing in larger volumes, which in turn will decrease the cost of that equipment to the consumer.

  407. Who would provide that information? Obviously, one cannot expect Sky to say what people can get with ONdigital, or vice versa, and the same applies to the cable companies. Is that information that you believe it is appropriate for the Government to provide as a public service, or is there some other organisation which you believe ought to do it? Clearly, the viewer is being asked to spend a large sum of money and he has a right to complete information about what to do?
  (Mr Walmsley) I believe that the Government have a role. I do not suggest that the role should fall entirely on the Government. However, everybody in the supply chain through to the consumer has a contribution to make. All broadcasters, manufacturers of the equipment and retailers have an important contribution to make. Certainly, it has been in contemplation or discussed that government should undertake a co-ordinating and promotional role to ensure that everybody in the supply chain contributes to getting that message into the market quickly.

  408. I have a question specifically for ITV. I have indicated both publicly and privately to ITV that I might have taken a very different view from the wish of ITV to remove the main news from 10 pm if ITV had campaigned during the passage of the Broadcasting Bill 1996 for changes in the legislative rules affecting Channel 3. Perhaps next year we shall have a broadcasting Bill. What will ITV campaign for in terms of legislation that affects Channel 3 when that Bill comes forward?
  (Mr Butterfield) As ITV goes forward I believe that its main lobbying position will be about ownership and the clarification of it, the removal of restrictions in terms of ownership and the clear establishment of a remit for the public service elements of ITV which, as discussed earlier, would be about the unique regional structure and UK production commitment. It would include the need to find the opportunity for less prescriptive regulation and the ability to work in a more competitive environment with less regulatory controls. Often regulatory controls are based on a structure and attitude that is 30 or 40 years out of date. We believe that if we have the commercial freedom to evolve and operate in a competitive environment so that we can be ourselves, but be sure as to the remit, identity and distinctiveness of ITV, it will be a very good business for the next decade or more.

Miss Kirkbride

  409. You have answered what was to be my next question. Can you make clear exactly what you seek in terms of ownership?
  (Mr Butterfield) Clearly, at the moment the ownership restrictions are capped by the 15 per cent audience rule which was designed in 1996 to introduce or protect the element of plurality. It seems to me that to remove that, as suggested in the White Paper, allows ITV then to have one owner, or one structure of ownership, and to move from the rather hobbled federal system which has existed for the past 40 years to a unitary structure which we believe is the only way to compete both domestically and internationally. It should make for a strong competitive commercial environment in the UK and, hopefully, a strong British player on the worldwide scene, which does not exist at this moment. Therefore, the freedom of ITV not to be restricted by a 15 per cent audience rule and, therefore, to provide the changes in the ownership structure as commercial operators wish, is the ambition in the next three to four years.
  (Mr Hill) We need a much more flexible regulatory system so that as the years go by OFCOM can make changes which reflect what happens in the marketplace. The other very important point is that at the moment ITV has the most detailed regulation of all the television channels. We believe that that is quite wrong. The objectives in the White Paper suggest that that should change. However, when one looks at the detail one is unsure that it will change in the way one hopes. We believe that the most regulated channel should be the BBC. It is the BBC, with its reliance on licence-payers and a regular income, that should be subject to most public service broadcasting requirements. Because of its particular method of funding, Channel 4 should be next in line, and then ITV and Channel 5. In a general sense, those are perhaps the objectives in the White Paper, but when one looks at the detail they are not there. The BBC will not come under the auspices of OFCOM in the same way as the commercial public service broadcasting channels. That is a very important point to get right.

  410. Therefore, you want the BBC to be subject to the same regulatory régime as the rest of you?
  (Mr Hill) We do, so that someone looks at the broadcasting ecology across all channels and we get the best from each one. Each channel has a distinctive function that can be looked at by one regulator who can decide what each one can do and whether it is doing it properly.

  411. Do you believe that the Secretary of State has been nobbled by the BBC?
  (Mr Hill) The White Paper talks about the role and remit of the BBC being within its Charter, but if that is so it is so general that it is not very effective. To go back to a former question, yesterday the BBC talked about one of its arts programmes being moved from BBC1 to BBC2. The BBC is perfectly entitled to move its news in a way that we are not. There is an awful lot of detail missing from the BBC's remit.

  (Mr Butterfield) Mr Hill's comment about the ecology of television is key to the whole discussion about how we move into a multi-channel world. It is crazy to believe that the BBC can make decisions which affect only itself in a world where all television channels are interdependent. We need a regulatory structure which allows an even playing field of regulation and instruction, ideally for the public good, to ensure that all the pieces of the interdependent television world work together.

  Chairman: Thank you very much, gentlemen. We are grateful for a most interesting session.





 
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