Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. Do you think ITV's problems would be over if ITV were owned by a single corporation?
  (Mr Prebble) No. That is probably better answered by our shareholders, but no, it is part of an overall picture. It is an obvious development in a more fragmented market-place where ITV was at one time so dominant in an analogue environment where there was a justification for the fragmented ownership. The important thing for us in running ITV is to be able to put the maximum proportion of our resources on the screen where it matters and not be running companies behind that which are unnecessary at this point. Having said which, the individual companies have said and ITV have said that our commitment to the regional structure and our regional obligations needs to remain absolutely firm. It is and should continue to be at the root of what ITV is.

  101. You mentioned ITV Digital. There are several channels which are free-to-air on terrestrial television. One of them is ITN which was a 24-hour service and is now just broadcasting for three hours in the morning. Some might argue that ITV2 is not a major contributor to original television and merely succeeds in draining ITV1. How do you respond to that?
  (Mr Prebble) The ITN channel is a matter for ITN, which as you know has a number of different shareholders. They have a longer broadcast on NTL where there are no limitations of band width. Their problem for distribution on the DTT platform has been a question of access to band width at an economic rate. ITV2 is a relatively new channel. As we brought the digital platform and ITV together in April last year, the channel has developed enormously. It is now operating much more successfully as a complementary channel to ITV so that when ITV, which for example on Saturday night has a very successful programme called Pop Idol, goes to the rest of its schedule ITV2 continues to serve the particular needs of that audience. As a result of that strategy, it is becoming much more successful. Obviously the resources one puts into a channel of this kind is to some extent a function of its distribution and revenue. It is a very significant investment for us hitherto. We hope that as its distribution and success increase our ability to invest more in it will increase.

Mr Bryant

  102. You mentioned Pop Idol, so I shall bring it up as well. Thank you very much for it. Everybody I know in my constituency loves it and probably more people in the Rhondda voted last Saturday than voted for me in the General Election—which I know is very difficult to believe. I am going to be voting for Will on Saturday. Do you make money out of the phonecalls which are made?
  (Mr Prebble) I think the answer to that is no, is it not?
  (Mr Desmond) The producing company, which is an independent company, will make telecom revenue out of that.

  103. Do you know how much?
  (Mr Desmond) No.
  (Mr Jones) It is usually marginal. The classic example is Who Wants To Be A Millionaire where we use the premium rate telephone income from people calling in to apply to go on the programme to underwrite the prize fund. It is only an underwriting; last year we had to top up Who Wants To Be A Millionaire from shareholders' resources. We should write to you to be sure that we are accurate about this. The point about Who Wants To Be A Millionaire is that it is a premium rate in order to fund the prizes. Pop Idol is a vote, so it is a completely different rate. I think calls are ten pence or something of the kind.
  (Mr Desmond) The nature of the programme is to make it an interactive experience and the live nature of the programme.

  104. On more substantial financial issues, ITV1 now is on Sky Digital and everybody I know is delighted about that. As I understand it, you are still pursuing your case against Sky over the cost of conditional access and taking them to OFTEL. Is that right?
  (Mr Prebble) Yes, that is right. As you know, our position is that public service broadcasters ought to benefit from a must offer/must carry relationship with satellite in exactly the same way as it effectively does with DTT and with cable and as happens in a number of other European countries. The cost to Sky of carrying our channel is incidental to their main business, but we are paying what we regard as an extraordinarily large amount of money which is about making a profit rather than covering the cost of carrying the channel. We have asked OFTEL to arbitrate.

  105. Last week we had the BBC and they were talking about the possibility of having a digital terrestrial box, which was a very basic box into which you could plug other things but which would enable many people across the country to take advantage of the free-to-air offer which has not been much publicised. I understand that it is not really in the interest of ITV Digital to advertise the free-to-air option very much, but there is still an issue: nowhere in my constituency can anybody enjoy access to digital terrestrial television and even when every transmitter which covers 10,000 properties is covered, you might get Porth and Tonypandy, but you are not going to be getting Blaen Rhondda and Maerdy for some considerable time. How do you feel we are going to be able to tackle these complicated areas of the country?
  (Mr Prebble) A lot of issues there. At the launch of the digital terrestrial platform it was anticipated that the attractiveness of the free-to-air channels, most particularly of the BBC channels, would persuade a number of people to go and buy their own receiving equipment. That did not happen, primarily because the BBC waited for a number of years before getting down to launching attractive digital channels. They are now about to do so, so the imperative for people to be able to access them as easily as possible is really greater than it has ever been: since everybody is paying for these channels it is going to be very important that everybody sees them. As a matter of fact it is in ITV and ITV Digital's interests to support this initiative and we absolutely will do so. We want to move as quickly as possible towards digital switchover and very importantly, if people have bought their own receiving equipment, we can make them a pay television subscriber much more cost effectively because at that point we are not sending them the set-top box, we are just sending them a smart card which enables them to receive pay channels. We are an active participant in this and we will support it hugely. In answer to your last question, getting the signal to your constituency is a very high priority for us, just as it is everywhere else in the country. As I indicated in my opening remarks, the DTT platform has really been dogged by this issue since day one. It was believed that on day one we would be able to reach 70 per cent of the country reliably with 81 transmitters. In fact it was about 40 per cent and nobody could have foreseen that but the things we need to do in order to expedite this distribution have really not gone forward as quickly and efficiently as they needed to, which is why the digital action plan is welcome and really must have a momentum behind it. The imperative to do this when the BBC's new free-to-air channels are understood, known about, promoted, is really going to grow very considerably in the next few months.


  106. The question of BBC's free-to-air digital channels is one we looked at last week and shall no doubt look at again. The BBC admitted to us last week that the number of people who are gaining access to their digital channels without paying a subscription to one of the commercial organisations is minute and is going to go on being minute. Is it not a fact that whatever the theoretical availability of access to digital transmissions without paying a subscription to ITV Digital or cable or Sky, most people find it much, much more convenient to get to it that way because that is what suits the dealers as well? If you go on to a dealer, they are going to offer you one deal or another. Therefore in that sense, although it could be argued—far be it for me to do so on this occasion—that BBC investment in digital is seriously wasteful, it is not necessarily going to be regarded as serious competition to you or anybody else.
  (Mr Jones) That is why we are actively discussing with the BBC the cheap set-top box, which can be retailed at under £100. That price will fall over time simply because of the scale of economy through chip manufacture. As we move towards the switch-off date for analogue transmissions, the cost of that box could be down to under £50, could be £20, could be £15. That could be driven on very greatly by the free-to-air coalition. Eighteen, 20, 21 channels become available to anyone who is able to purchase a box. You also spur the development of integrated digital television sets in the market.

  107. If Sky were to see any prospect of additional subscriptions seeping away in that direction, Sky is very likely, is it not, to launch another loss leading exercise to get those people back and to get more of them?
  (Mr Prebble) Possibly, but whereas it is possible to equip yourself with an opportunity to receive the BBC free-to-air channels and some other free-to-air channels such as ITV2 for £99—or will be shortly—via digital terrestrial, Sky have just moved the free-to-air installation offer for satellite equipment to just over £300. It is perfectly plausible that people will say, "Interesting new channels from BBC3, BBC4", particularly if they are heavily promoted, "I keep on hearing about ITV2. Is it worth a one-off payment of £100 to enable me to see it?". That sounds a plausible proposition and from our point of view, it then costs us less to acquire them as a DTT pay customer. For Sky, you would have to pay £300 to install this equipment in the first place. Sky could subsidise that. They would then have to believe that person would become a paying customer at a much higher level in order to get back their investment of £200 or £300.

  108. That may very well be, but it is a fact today, is it not, that 25 per cent of all households subscribe to Sky? It is a fact also that one of the reasons for that is that although the individual audience to any digital channel is not large, the incremental total of people who want specialised channels, whether it be sport, whether it be film, whether it be Discovery and Biography, is cumulatively quite high, whereas, let us be brutal about this, who really would wish on an individual basis to have access to any of the BBC digital channels, with the possible exception of a very small number of arts followers who like Knowledge? What identity does ITV2 have sufficient to make me feel I have to have that regardless of whatever else I want?
  (Mr Prebble) With great respect to you, you may not be the target for ITV2 in particular.

  109. That is all very well. I am not a target for E4 either, but we all know where E4 is coming from, we all know what E4 does and it has its audience which does not include me. Nevertheless, we know what it is about. I do not know what ITV2 is for.
  (Mr Prebble) It is interesting to note that ITV2 already out-rates E4 by a significant margin. We do not know how attractive BBC3 and BBC4 would be. However, if today you try to sell somebody a television set which can only receive BBC1 and ITV, but you say that for £100 more it can also receive BBC2 and Channel 4, people would wonder why you were asking them the question because obviously they would pay another £100; they know all sorts of people who are seeing these services, they have heard about them, they are seeing them promoted on television. Particularly at the point of purchase, when people go and buy a television, an idTV, at that point they understand that with this set they can get five channels but with this set which costs £50, £100, £150 more they can get 20 channels and they keep on hearing about them. We do not know how attractive they will be and we do not know how successful BBC will be at promoting them, but we wish them well and we hope they are very successful.

Mr Bryant

  110. One other question which will sound old fashioned. One of the great strengths of ITV has always been its regional commitment and the fact that most people want to watch television programmes which reflect their own lives and their passions and their interests. In Wales there is a particular interest because we want to see Welsh programming—not all the time. How would that commitment remain if there were a single ITV?
  (Mr Jones) Our commitment to regionalism is total. We see it as the very cornerstone of our public service broadcasting remit. We shall be going into the next Bill giving an absolute pledge that we shall maintain our 27 regional and sub-regional news services, we shall maintain regional centres of production. The bulk of ITV's network production is currently made outside the M25; we see that continuing. We have no plans to move Coronation Street to Hastings or even Sittingbourne. Peak Practice continues to be made in the Peak District. We are very proud of both our regional programmes made in the regions for the regions, for the English regions as well as the national regions and we are very proud of the fact that we make network programmes outside London. It is the cornerstone of ITV. It is where we want to be. It is our USP and we see it continuing.
  (Mr Desmond) That is exactly where Granada comes from as well. We are committed to strong regional production for network programming. Certainly for our advertisers that is a very clear USP in terms of reflecting home produced programming which reflects the nation: rather than London broadcasting to the UK it is the UK broadcasting to the UK.

Alan Keen

  111. May I say that Pop Idol is excellent? There is a lot of professionalism in it and that is why people like it. It is not just somebody impersonating somebody else. I am always disturbed about the cost of telephone calls. I am surprised that you say you do not make a profit for the whole programme from the telephone calls. I was delighted to hear that it is just ten pence for Pop Idol and that is how it should be. I am surprised you do not make a profit overall on the telephone calls to Who Wants To Be A Millionaire. I am very disturbed about the programmes on radio where the questions are so easy for the listeners they are obviously trying to encourage people to pick up the phone and you know they are going to make money out of it. Do you agree with me that there should be some open reporting on that, maybe just once a year? Are you worried about that?
  (Mr Prebble) We would be willing to make open reporting on that. It is not surprising we do not make a profit because Who Wants To Be A Millionaire is successful because it gives away some very large sums of money.

  112. Coming to football and regulation of competition. I know there is a problem with getting your digital Football League on the Sky platform. Is there anything you would like to tell us about the up-to-date position?
  (Mr Prebble) You have taken a lot of interest in this for which we are grateful. As you know, the Football League rights were, until the last negotiating round, held by Sky and retailed to its subscribers through Sky Sports2. ITV Digital obtained those rights last time around. Unfortunately we have not been able to reach satisfactory commercial terms for distributing the ITV Sport Channel, which now contains those rights and the Champions League, to Sky subscribers. That is unfortunate because it means that Sky subscribers have been deprived of the service that they had previously. There have been good faith commercial negotiations on our side, but we are a very long way from reaching a commercial agreement.

  113. We have one of the most difficult problems with sport. I am full of praise for what Sky have done for my favourite sport, football, not just increasing the coverage but the technical side of it as well. They have done a great job. Usually on TV it is BBC which takes the lead and others follow; sometimes ITV leads, I agree. With football Sky has led the way. Obviously we need competition. I have worked all of my life in the private sector and we need competition. I am very concerned about the future of my game, because TV is very difficult to regulate. We have the OFCOM Bill coming up next year sometime. How do you think we can do better than we are doing at the moment on regulation?
  (Mr Prebble) We need a regulatory environment which is more likely to underpin free and fair competition in this difficult market-place where, in particular in the sport area you are referring to, one party was able, through having been first in the market, to obtain a very, very dominant position, both in the provision of sports rights and the distribution of them. It is like owning the vast majority of the supermarkets and owning most of the products which are on supermarket shelves. The fact that you own most of the supermarkets gives you the ability to stifle competition from other places. The fact that the Football League rights were available to Sky viewers when they were owned by Sky but are not available to Sky viewers now that they are owned by a competitor is obviously in our view anti-competitive. We have complained about the terms in which the Premier League's Sky Sports and Movie Channels were wholesaled to us two years ago. We still do not have an outcome. We have a preliminary outcome from the OFT. That is subject to a further round and then a further appeal process. This process will last the best part of three years but these things move much more quickly than that. I agree with you that this is very important and moving very quickly. This matters a lot to ordinary people out there. We do need to find a way in which these matters can be arbitrated in a more expeditious manner.

Derek Wyatt

  114. This is a question on whether you think the Government understands what it is doing. If you want to have a smart economy, you want people to go to digital tomorrow. Why has the Government not come forward saying you should give this new digital terrestrial box away tomorrow and fund it over three years so that you scale the money in the second and third year but overnight you make this economy the best and smartest in the world? What discussions have you had about that proposal with the Government Ministers?
  (Mr Prebble) We were very taken at the outset of this project by the vision that the Government had about a digital society and sharing information and education much more widely and the benefits. When Chris Smith first announced a target day for analogue switch-off more than two years ago of 2006-2010, we envisaged a process in which we would all move forward to achieve that. When I gave evidence here last year, we talked about the collective social, economic, political benefit of a digital society. Obviously we cannot answer for why the Government has not done what you said. We are disappointed by the collective pace of the move towards analogue switch-off. Having been the first country in the world to launch this technology we will be overtaken by others and others will get to analogue switch-off before us unless we see a step change in the way that we are approaching it. If we believed it was a serious Government priority, we would be putting much more resource collectively as Government and business working together into achieving this objective and we are not.

  115. There is lots of talk about a single company for ITV. If there is a single ITV company, more or less Carlton and Granada merging, though I am not sure that is the only model, does this mean that the OFT will have an issue with you over advertising? Does that mean that the BBC would be compelled or would be persuaded that they should take advertising as an alternative market? The second question is: whilst you have been dithering, as it were—not your fault but OFT—Vivendi, which was a utilities company in France and England and round the rest of the world, has now become perhaps the second or third largest media company in the world, whereas Granada and Carlton are tiny companies by comparison. Do you really think the DTI and the regulator understand the business of media?
  (Mr Desmond) May I take the first question on the consolidation? Eighteen months ago we went through the process of consolidating to two larger groups within ITV and the whole issue of advertising came up then with the Competition Commission. At the time there was a view from advertisers that a move from three sales houses to two larger sales houses would be detrimental to them, whereas over the last 18 months what we have seen is that ITV's revenue has fallen, some of it because of our product having fallen as well. Effectively we are in a supply and demand market-place within television and we do see monies move with audience. Secondly, we are also in a very vibrant total advertising market-place where television is still barely over 30 per cent of total advertising expenditure in this country with a very strong national press, radio, cinema, poster industry. It is a very competitive market-place. We believe that a consolidated ITV would allow us to take duplicated costs from within the system and strengthen our schedule, which in turn would create a virtuous circle for advertisers having a stronger proposition, delivering better audiences for advertisers, and then we would hope to draw more of their money in by them supporting our audience.
  (Mr Jones) We do accept that we are currently taking 57.5 per cent of advertising revenue in the UK, so whatever the legislature decides in terms of allowing one ITV, which Carlton supports, we recognise the competition authorities will have to take a view on whether we would have a dominant position and I am sure they will set some kind of test and it will be allowed once we pass that test. Coming on to your other question about BBC and advertising, the BBC taking advertising would destroy ITV. Even one minute advertised on the BBC would have such a potent force that that delicate ecology, that balance between two mass market channels plus a number of major and then niche channels would be largely destroyed by the BBC taking advertising. It would just upset the complete apple cart. Your Vivendi point: yes, it is true. We have actually been held back by being a divided set of commercial companies and we cannot compete on the world stage. The only opportunity for ITV to become a European broadcaster and ultimately an international broadcaster is for it to become one, then we can trade and operate in the same way. We are a long way behind the pace now.

John Thurso

  116. I want to explore the suggestion you made both in your opening statement and in your evidence about the role of the regulator with regard to the licence fee and the suggestion that you should be able to go along and say, "Please, Sir, can we have some money back?", or, "Can you take some money off?" which is obviously superficially quite attractive. I just want to understand that it has been thought through. There is a counter-argument which says that you have had a licence to print money for decades, you have shareholders who have been extremely greedy and taken as much as they can lay their hands on. They then made some quite seriously bad decisions about the future of what they should do and when they have had to pay the price for those decisions they now want to come up with a new idea that the regulator should give them some money. So there is a counter argument. Also, if you do have a situation where the regulator can be approached to have a lowering of the cost of the licence, presumably the counter to that is in a good year yes, you can come back and ask for more, or, as with other regulators he can regulate the price you charge. Has that all really genuinely been thought through?
  (Mr Prebble) For the first 30-40 years of public service broadcasting the ecology we have all talked about more or less sustained a system where resources were allocated which achieved a certain kind of balance. Things are now moving so quickly in this environment. We would not introduce Channel 4 without introducing a mechanism for protecting the revenue of ITV at the time, because we were asking ITV to deliver a wide range of public service commitments. Up to a certain point we would never introduce a new service until we knew that the existing service was not going to be endangered. We have now entered an environment where the economic situation is changing week by week, but the regulatory environment has not changed, our regulations and our public service obligations and requirements have not changed. What we are looking for is a more flexible situation which will be more suitable to the much more quickly changing environment. It seems to us to be mad to be locked into an environment where what we pay—this is not asking the Government to give us money, by the way, just to pay a bit less in lean years—what we are investing is £1 billion in rolling out the digital terrestrial platform which is a public proposition. It is a public policy objective to help us to get towards analogue switch-off. It is not all one-way traffic.

  117. The second point, which rather flows on from what you have said about the regulator, is that in your opening statement you criticise the Government for showing a lack of leadership and in your evidence there is a portion in bold which says basically that the Government needs to get a move on. If ten years ago we were setting out to put together a Bill or legislation to regulate the communications industry, we would probably have got it hopelessly wrong in that what we are discussing now would certainly not have been what we were discussing ten years ago. Is there not an inherent problem in this in that we are probably already getting it wrong for what we need in ten years' time? Should the Government indeed be giving the leadership you ask but be doing it through lighter touch regulation based on first principles rather than attempting to dot every i and cross every t?
  (Mr Prebble) That perfectly summarises our view. It would be helpful to reach a consensus on what we are all trying to achieve collectively among the broadcasters and look at individual ways in which these are funded. We believe that because the BBC has guaranteed funding and much more reliability over a long period that its part of the remit should be one kind of thing. We have indicated the areas of public service broadcasting that ITV thinks it would be most suitable to commit to, but within that general light touch framework we should like to see a flexible environment in which we can take account of the very fast changes you are talking about.

  118. Do you think first principles have actually been established or does that work remain to be done?
  (Mr Prebble) It remains to be done. Everybody you ask for a definition of public service broadcasting will give you a slight variation on the answer and it seems to me that we have been trying to define it for the last 40 years. Mostly what it is, is whatever the BBC says it is at any particular moment. No doubt we shall have many fascinating hours going forward discussing what it is between now and the Bill.

Mr Doran

  119. You give a very strong commitment to the regional dimension which is extremely important, particularly to people like myself, a member from Scotland. My own experience of the regional commitment was when our two regional broadcasters merged two years ago. One of the first things which seemed to suffer was the regional commitment and it was not until the regulators came in and forced them to adhere to the licence requirements that we saw them get back to where they should have been. In a period of what may be consolidation in very difficult economic circumstances, can you amplify your guarantees on your regional commitment? As a separate thing, which is probably an observation, reading through all of the evidence we have had, including your own, we seem to have a rag bag of commercial interests which are setting out their stalls to defend their own vested interest but no sense of vision about where we are going in what is probably the most exciting industry in the country. Can you say a little about that?
  (Mr Prebble) I am not sure how we can go beyond what we have said. The regional structure of ITV is not something that we have to do as the price of being the broadcaster, it is in the root and branch. Most of the people running ITV today started out in one of the regional companies producing regional programmes. It is inevitable in any business that when times are difficult and when there is consolidation people will look at costs and people will say they used to enjoy that particular service but it is going away. These things will be subject to change. However, there is a dynamic and rigorous relationship between ITV and the ITC which enforces our obligations which we freely give, but it is monitored in a way which is absolutely incomparable. Nothing of its kind happens to any other broadcaster, insofar as I am aware, in any other country. We are absolutely aware that as a function of the further consolidation which we seek, these commitments will need to be underpinned and understood and our commitments will need to be believed and delivered. I am sorry that you feel there is a lack of vision in our evidence. We certainly share your view.

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