Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 520 - 540)




  520. Do you mean like the introduction of leaded petrol for motor cars?
  (Andrew Flanagan) I think that would come about, not necessarily direct to the manufacturers; it may come about by more specific dates, definite dates, about digital-switch-over.

Derek Wyatt

  521. In the five years that we have been arguing about whether switch-off should be 2006 we have sold another five million TV sets. The research suggest that people buy a new TV set every eight years. The longer we delay, the longer we delay the inevitability of switch-over. Do you not think it is time that the Government said, "These are the rules. Get on with it"? Would not your share price go up as a result?
  (Andrew Flanagan) I think sometimes these things are easier when driven by consumers. If the consumers knew that there was time at which their televison would not work, because a modern television set now lasts for 20 years, and if they knew that their TV was going to be obsolete within five years or so, then they would make the decision themselves by buying a digital television, which exists now. I am not sure that it is necessarily the manufacturers that have an issue here. I think we have to convince the consumers of the desirability of digital television.

Rosemary McKenna

  522. Good morning—and, again, I appreciated very much your submission. You earlier on talked about internet access and I would like to take that a stage further—and I think I should tell people that we are a bit further forward and there are a couple of local pathfinder projects in Scotland, deliberately done in terms of a rural basis, because if we can get it right there it is easier to get it right in the cities, and we would certainly want to look at that as a committee. However, given all of that, and TV news' impartiality, the hundreds of digital channels and the BBC, what is the real level of risk that someone would be able to corner the market and influence it in a way that is unacceptable?
  (Mr Flanagan) I do not think there are the same issues that there used to be. The origins of the legislation were very much at the time when there were significant barriers to entry for new players to come into the market place, whether that was the spectrum for television, which was very limited, whether it was the capital cost of the printing presses and facilities needed to produce newspapers. Most of those barriers have now been blown away, so I think the dangers are far less than they used to be. The issues then, I think, come back to the issue of how you service your customers best. If you are not providing the service they want, whether that is on TV, or newspapers or whatever, the customers will drift away, and you will have to then change what you are doing or go out of business. If you take television—and I will ask Donald to comment on this—it is very important to them to play in the large UK market in order to derive a revenue, but if they do not accommodate the needs of their viewers they will not have the viewers to sell to the advertisers, so they have to reflect both.

  523. You are not concerned about a foreign national owning a huge part of the UK media.
  (Mr Flanagan) Ultimately, that is possible, but I think, as part of the EU, we cannot distinguish between a UK player and a European one. There is nothing we can do about that, apart from coming out of the European Union. There are foreign ownership rules beyond that which restrict foreign ownership, which I think should not be liberalised unless there is reciprocity in those countries—which does not seem likely.
  (Mr Emslie) If I can add to that, I think the issue about ownership is that certainly in television and to a certain extent in John's area, radio, the licence conditions dictate what you are able to do regardless of ownership. We strongly believe that there is a commercial imperative: in order to be able to drive our revenues through attracting an audience, we must play to that audience's needs and likes. It is very important that that should be able to continue.
  (Mr Hudson) If I could answer the question in the context, say, of online. I think we do recognise what I perceive to be the risk to which you refer, that if you look at, say, first mover advantage, so that Yahoo or MSN becomes the gatekeeper for access to a range of services, it becomes very difficult for a provider who might have a locally rich service actually to gain access to those consumers and those users. So we are concerned. In our context, to give you an example, we have established an online recruitment service and our major competitor is an American-owned organisation that is dominant in most other European countries apart from Scotland. So, yes, there is an issue and we are alive to that factor. I think it goes back to a question raised earlier: How on earth do you find a regulatory regime that perhaps protects plurality or whatever in that technological remit? It is a problem. I think we would probably argue that, since we see revenue as an omnipresent currency for measuring performance and activity, that may have a bearing in controlling that sort of activity. But it is, I think, particularly problematical in the example you are referring to.

  524. In a very competitive market place in Scotland you decided to have a Sunday quality newspaper, the Sunday Herald. Was that a big decision for you to take? I actually think it was a very good decision.
  (Mr Flanagan) It was a big decision because the start-up cost, relative to our size, was a heavy burden to take. That is one of the reasons we think that scale is important in this market because it can give you much more flexibility about launching new products. But I will let Des talk about the Sunday Herald more specifically.
  (Mr Hudson) I think that is right. If my publishing division were a stand-alone company, the likelihood of our being able to shoulder those start-up losses, the initial investment that was required, is really quite unlikely. That said, as part of the group we were able to face up to that challenge. We were taking a big decision because we were entering into what is probably the most competitive market for newspapers in the UK, if not Europe, and we recognised that there was going to be a relatively long period of losses to carry. We thought it was important to make that investment for the benefit of both our readers and for our daily newspaper the Herald. We saw the two as being an important aspect. We had an audience and a set of readers that we needed to provide a service for across seven days and effectively we were giving them up on the seventh day. So not having that paper was problematical but the decision to launch, as I say, was difficult, and, in particular, the decision that we would want to launch into the quality market rather than, say, going into mid-market or other sections was also problematical for us. We took the view that that was the best area for us and for our company to compete. It is a tough market and a hard slog but we would contend—and I would say that, wouldn't I?—that we have a very, very high quality product that would stand comparison with a newspaper in any part of the UK.

  525. I would agree with that. I think you have a problem with the television coverage of politics. We do get comments from time to time about the quality and about the appropriateness of the time that your television political programmes are on. What kind of premium percentage audience are you getting?
  (Mr Emslie) I think that the balancing of interests and the coverage of certain genres of programme is very difficult. We have to balance up the interests in terms of covering the political agenda, while, at the same time, as a commercial broadcaster, maximising our audience so that we can sell the air time to the advertisers. Our political programming plays at half-past 11 at night. Scottish and Grampian make more political programming than most other regional ITV broadcasters. I think we certainly cover the agenda very well both here at Westminster and, indeed, at Holyrood. You will be aware that we have been recently in front of the Scottish Affairs Select Committee to talk about our political coverage. We still maintain our parliamentary correspondent down here to cover the affairs of Westminster and we have a political unit in Edinburgh covering the Scottish parliament. The shares of audience that we get, typically, for the programmes that we put out on a weekly basis, either a Platform or a Cross-fire, play to an audience of just about 200,000 people and we have another programme, The Week in Politics, which plays to about 150,000. All of these are quite respectable audiences for that type of programme. In future there may be some changes in the scheduling of that, which is part and parcel of the discussions we are currently having with the ITC about the standardisation of the schedule which will see news and current affairs perhaps coming in a little earlier to the schedule, but politics, I have to say, is not disadvantaged compared to other genres of programming because a lot of our regional programmes are playing now at the fringes of the schedule.

Mr Bryant

  526. Do you worry about vertical integration within the television market, in particular between the platform operators and broadcasters?
  (Mr Flanagan) Yes. I believe we do. It comes back to the gatekeeper issue to which Des referred. I think that is a principal one. I think also vertical integration allows a scale and allows OFTEL(?) potentially to squeeze out some of the smaller players, and that does become an issue. Also, in terms of, say, production of content, that can be very difficult, as you were hearing: independent producers complaining about the BBC, for example. So there are issues about vertical integration.

  527. And I presume you are now the number 3 button on Sky.
  (Mr Flanagan) We are, yes.

  528. When did that happen?
  (Mr Flanagan) November.

  529. Right. How much are you paying for that?
  (Mr Flanagan) We pay as a share of what ITV pays, so it costs us around £2 million a year specifically for us to have Grampian and Scottish on the Sky platform.

  530. Do you think you are subsidising the roll-out of Sky set-top boxes?
  (Mr Flanagan) The prices that are set by Sky are, indeed, controlled by the regulator, so we are paying a price that is—

  531. That is not what we have been told by the regulators. They have pointedly failed to answer any questions at any point about the rate card and whether they regulate it. They have said that they broadly regulate it but they never say that they control it or that they have agreed it. Are you then part of ITV Sport as well?
  (Mr Flanagan) No, we are not. Even if the regulator says they are not controlling it in fine detail, we did have a situation where other broadcasters, already having gone up on Sky, effectively had set a rate and therefore it was very difficult for us to negotiate away from that.

  532. But you are paying a lot more than the other broadcasters.
  (Mr Emslie) We believe so. Obviously these terms and conditions of Sky's contract with other broadcasters is confidential but we understand that ITV is paying above the rate that other broadcasters are paying and ITV is currently discussing this whole aspect with OFTEL. But to come back to Andrew's earlier point, when we opened up negotiations with Sky, it was on the standard terms and conditions that they would offer to anybody coming into the market place, for fair and non-discriminatory access to their platform and through their conditional access systems. So, while there was an element of negotiation around about what we might be able to pay or what we might be able to offer to them, the rate card is the rate card and that is certainly how we entered into negotiations.

  533. How important do you think it is that digital terrestrial television survive?
  (Mr Flanagan) I think it is important. I think that, despite the current difficulties of ITV digital, there has to be a place for digital terrestrial if we are ever going to achieve digital switch-over. The ITC's own research has indicated that something like 40 per cent of the UK population does not want to pay for additional TV services. I think that digital terrestrial can offer a route for a low-cost entry into more channels but without the heavy cost of satellite or cable. I think some of the proposals that are being discussed, including with the BBC, for free call, a sort of scaled down ITV digital that only carries free-to-air channels, is actually a positive step forward. I think the difficulties that ITV digital have at the moment indicate that, as a normal commercial enterprise, that model will not work.

  Mr Bryant: How easy do you find it to get network audiences across the whole of the UK for programmes that you make? I asked this question of Mr Kim Howells in relation to Welsh programmes and he said that one of the difficulties is that we just make miserable programmes in Wales and why should we expect people to be miserable watching them. But Scotland seems to be rather better at this.

Rosemary McKenna

  534. Absolutely.
  (Mr Flanagan) We have a production arm that pitches ideas to the ITV Network Centre as well as to other broadcasters and we have quite a successful track record in selling programmes. I think you have to distinguish between regional programming which is made for a specific Scottish audience and programmes that we make for a national audience. I mean, we have had a good track record with things like Taggart which have been very successful on a UK-wide basis, but we do not want to have ourselves pigeon-holed or stereotyped as only capable of making Scottish programmes. I think that would be wrong. We want to make generic programmes for a UK-wide audience but based on the skills and talents in Scotland. I think that is a very important consideration, because there is a continual drift of skills and resources into the south-east of England.


  535. You said, Mr Flanagan, that people do not want to pay for digital service. Is not everybody paying for digital service through the increase in the licence fee following the Gavin Davis report, even though the specific Gavin Davis recommendation was rejected?
  (Mr Flanagan) That is very true. I was referring primarily to the concept that they have to pay for a specific channel rather than the indirect rate that they are paying, whether it is through the BBC's licence payment or the heavy investment that is going on through ITV, through radio companies, who are bearing quite a substantial proportion too.

  536. Is the difference not that the 40 per cent of householders who are paying for digital channels want to watch digital channels, whereas the 100 per cent of the population who are paying the digital supplement on the licence include 60 per cent of the population who do not, at present at any rate, want to watch digital channels.
  (Mr Emslie) Or they might not have access to them, which is a separate issue. They might want to watch them but they do not have access to an integrated television set or they are not prepared to pay for a subscription service—which comes back to the idea of a black box digital receiver which might be commercially viable at under £100 or integrated television sets.

  537. The fact is that all of our constituents and I do not know how many of my colleagues, subscribe to one digital service or another, but all of us who do subscribe to digital services, as I do, are being subsidised by the majority of our constituents who do not subscribe to digital services.
  (Mr Flanagan) That is a statement I cannot argue with.

Mr Doran

  538. The issue of regulation. We both have experience of ITC as a regulator. You are a genuine cross-media company. Clearly we are moving into new territory with a regulator who will cover the territory. I am interested in your views on how you see that operating in practice. I can see, for example, that there may be some uniformity because your radio people will be regulated more or less the same way in which the television people will be regulated. On the other hand, I think there are serious concerns about how the hierarchy will work in the new system. To take your own proposals as to how it would operate on the basis of value, we have telecommunications at the top, television next and then radio at the bottom. I am interested in your views as to how that will work in practice.
  (Mr Flanagan) Do you mean within the organisational structure of OFCOM?

  539. How is it going to affect you as a company?
  (Mr Flanagan) I think the major issue for us is that the regulators adopt a lighter touch in respect of that and not be as prescriptive. There are bold principles that I do not think should be moved away from: taste, decency, impartiality in TV news. Those are key factors. What I would like to see is a less prescriptive way that says, "This programme has to be scheduled at this time" or whatever. I think that is where some movement could happen which would be beneficial. I think, in addition, there are issues surrounding the BBC. I think what we would like to see is a level playing field. There are certainly things going on at the moment with the BBC that we in the private sector would not be allowed to do—in terms of cross-promotion of services, in terms of promotion of merchandising and things like that. I think either the rules have to be tightened up for the BBC towards the commercial sector or vice versa. I think the rules have to be liberated or reduced for the commercial sector.

  540. From the radio sense, I do not know if Mr Pearson wants to say anything about how you think this new conglomerate regulator is likely to affect the way you operate.
  (Mr Pearson) I amplify Andrew's view about regulation of the BBC, that there is some format for it. In the radio sector, we have content formats on the character of services and we would see those being maintained. The one thing we would be very guarded against is some sort of radio like the Towers Perrin report suggested, where radio would be put into one horizontal pitch within OFCOM. We think radio should be fully within OFCOM and its sectors.
  (Mr Flanagan) If I could just add to that, I think we would be against OFCOM just being an umbrella organisation that collectively put all of the existing regulators together. I think this is an opportunity for change and I think that should be effected.

  Chairman: Gentlemen, I would like to thank you very much. Your appearances are always welcome here. You will have noted the admiration the members of the Committee have for the document you submitted to us. Thank you very much.

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