Joint Committee on Draft Communications Bill Report


239. At present, non-European Economic Area (EEA) individuals and bodies are disqualified from holding broadcasting licences (except licences to provide television multiplex services, national or local radio multiplex services, digital additional services, local delivery services, non-domestic satellite or radio services, licensable programme services and licensable sound programme services).[443] Paragraph (a) of subsection (1) of Clause 264 of the draft Bill proposes to give effect to the Government's policy to lift all restrictions on the foreign (in other words, non-EEA) ownership of broadcast licences.[444] The Government considers that "it makes no sense that a French, German or Italian company can buy any TV or radio licence in the United Kingdom, but that American, Australian or Canadian companies, for example, cannot do so".[445] The Government's wider case for its proposal is that it would support its aims "to encourage inward investment from non-EEA sources, to allow the United Kingdom to benefit rapidly from new ideas and technological developments, aiding efficiency and productivity".[446] Patricia Hewitt referred to the "huge benefits" to many sectors from foreign direct investment, and from the innovation and different management approaches that sometimes flow from such investment.[447] The Government has quoted one industry study which found that "multi-nationals (especially US-owned) are far more productive than domestic firms".[448]

240. Some witnesses welcomed these proposals. Commissioner Viviane Reding saw no case for restricting nationality of ownership when "public policy objectives can be achieved in a less restrictive and more effective way". She welcomed the fact that the British Government was proposing to carry through the principle of non-discrimination enshrined in the EU Treaties to its logical conclusion.[449] News International welcomed the proposal and pointed to the newspaper industry as one that had clearly benefited from foreign investment and expertise without losing its distinct national character.[450]

241. Both ITV and Channel 5 saw foreign investment as a potentially beneficial process. Dawn Airey of Channel 5 said that her German shareholders understood the need for domestic product and did not try to second-guess her programming decisions.[451] Clive Jones of ITV observed that original production for ITV delivered far larger audiences than even the best American content. Any American owner that sought to ignore this reality would be killing the goose that, at least historically, laid the golden eggs.[452] In summing up his argument, Clive Jones said:

    "Would American ownership re-invigorate ITV? It could. America is one of the most vibrant and creative film and television environments in the world; they do make very good television programmes and very good movies; there is a host of creative talent there and they are willing to invest in creativity, but there is no guarantee one way or the other that they could come in and improve ITV or improve Channel 5."[453]

242. A number of those giving evidence and contributors to our online forum opposed outright the lifting of the restriction on foreign ownership or argued that its potential negative consequences had not been fully considered or appreciated by the Government. It was suggested that ownership of British commercial public service television licences by a major US network would be used principally to deliver essentially domestic, US-based objectives, a valuable "platform" for enhancing the value of American-produced programming. More generally, a return on investment would be gained by the opportunity for "dumping" American programmes on a British audience. There would be little incentive to make a major new investment in British production, since British revenue was limited by advertising markets.[454] This argument was summed up by Mark Thompson, Chief Executive of Channel 4:

    "If there was a model whereby the car industry was reinvented with investment and if the names were changed and the design was not as a couple of generations ago, nonetheless there would be real jobs and real value being created here. I do not think there is any evidence that television production would follow that model and, as it were, there would be new factories of British production paid for by US majors; I think it is much more likely they would see ways of exploiting US-created, globally valuable intellectual content in this market."[455]

243. Not only was it argued that the particular characteristics of broadcasting would limit the economic gains to British production from US investment, it was also suggested that it would have other effects, both economic and cultural. The programme supply market would become less open, with rights from a US network with a British subsidiary effectively only available to that subsidiary.[456] There would be a cultural loss, with greater priority given to American programmes and less regard being had to the genuine commitment to public service broadcasting that had informed content production and made effective content regulation possible.[457] Independent television producers, indeed - already greatly concerned at the dominance of in-house production at ITV and the BBC - argued strongly that further vertical integration through US ownership of United Kingdom broadcasters might have further detrimental effects on British production. Furthermore, several parties argued, the international success of British-produced programmes - be it by broadcasters or independent producers - might be compromised if international sales operations were merged and played "second fiddle" to their American counterparts.

244. An additional factor that informs the debate on foreign ownership is that of reciprocity. As recently as November 2001 the Government stated: "Without reciprocal arrangements with other nations that would allow our own companies to expand into their markets, we do not feel we could justify lifting our ban at the present time".[458] A number of witnesses, including the BBC and the Radio Authority, saw merit in this former Government position. The BBC argued that "it will be impossible for United Kingdom companies to become global players in key markets until they have achieved comparable open access to that which the Government proposes for the United Kingdom".[459] It was questioned why the United Kingdom should give up a negotiating tool without some sign of movement by others.[460]

245. Tessa Jowell told us that the decision to lift restrictions was itself being used as a negotiating tool in discussions with US authorities. She characterised reciprocity as "a negotiation in train", but saw "no case for holding out for reciprocal agreement", in part because no change in US policy appeared in prospect.[461] Commissioner Reding saw advantage in being able to point to the British example in future negotiations with the United States, while accepting a change in US policy was not likely in the near future.[462] It was also suggested that there was not at present a British capacity or desire to become a key player in media markets in the United States.[463]

246. Tessa Jowell told us that, during the consultation on media ownership that preceded the draft Bill, "there was a general support for lifting the restriction on foreign ownership". She added that she and Patricia Hewitt "felt that there was no intellectual or indeed economic case for maintaining the ban on non-EEA ownership, particularly against the background of the diversification of newspaper ownership".[464] We have considered with great care both sides of the case for the lifting of all restrictions on non-EEA ownership of broadcast licences. In addition to our formal evidence, we held a seminar dealing with this issue, an account of which has been published as an Annex. We found the level of support for this change, and the relative merits of the case, to be more balanced than the Secretaries of State asserted.

247. The case for allowing foreign ownership is based on four linked considerations: British broadcasting - and the privately-owned public service broadcasters in particular - suffer from a lack of investment and could benefit from the managerial strength and approach shown by global multi-media corporations; foreign investment will benefit broadcasting because it has benefited other industries; foreign investment in broadcasting is generally a benign influence, as evidenced by European investment in Channel 5; audience preference for domestically originated programming and the tough control regime in this country together represent adequate safeguards against the impact of any less benign motivations for foreign investment.

248. We have found each of these considerations variously lacking in force. The potential of ITV consolidation and continued European investment to strengthen or maintain the position of ITV and Channel 5 remains relatively unexplored. We have received much persuasive evidence that broadcasting is distinct from other industries; a US investor with a broadcasting background would have a level of incentive to utilise pre-existing material in a way that simply does not apply in other sectors. In broadcasting, unlike many other markets, the US investor has an advantage over a German, French or Italian investor on language grounds. We would not wish to characterise this as "dumping": rather, what is more likely is a determined and sophisticated attempt, backed by enormous marketing expertise, to shift the balance of audience and regulatory expectations away from domestic content produced primarily with a British audience in mind, towards a more US or internationally focused product mix. The inescapable reality is that a US media company investing in the United Kingdom will be concerned every bit as much with enhancing the wider market value of its domestic content as with increasing its return on an investment in the British-based marketplace. These same considerations, however, may illustrate the extent to which foreign, particularly US, direct investment may increase the competitive intensity in United Kingdom broadcasting, to the extent that United Kingdom producers will produce content which is not only preferred by British audiences, but which may well then also find increased markets in the USA and elsewhere.

249. We agree in principle with Commissioner Reding that restrictions on the nationality of ownership should not be imposed when "public policy objectives can be achieved in a less restrictive and more effective way". However, we are not convinced that more effective means are yet in place. We recognise that reciprocity is an important way to widen market access and increase economic opportunities. Nevertheless, as matters stand, we do not view the argument on reciprocity as pivotal. If the economic case for permitting US investment emerged as compelling, we would see no impediment in principle in the form of waiting for reciprocal developments. But that case has yet to be established. OFCOM will face an enormous range of challenges immediately after it assumes its regulatory functions. We do not feel that it should face the additional pressure that would arise from the lifting of restrictions on non-EEA ownership until it has established itself as an effective regulator that commands market and public confidence. The lifting of existing restrictions on non-EEA ownership of broadcasting licences should not take place until after a review by OFCOM, and the competition authorities if appropriate, of the programme supply market in British broadcasting (a matter to which we return) and until OFCOM has established itself as an authoritative regulator of, and commentator on, commercial public service broadcasting in the United Kingdom. In the light of its experience, OFCOM would be able to facilitate a decision by Parliament based on evidence, rather than a decision based on largely unproven expectations as would be the case at present. Accordingly, we recommend that primary legislation to lift existing restrictions on non-EEA ownership of certain broadcasting licences should not be brought forward until OFCOM recommends such a change, should it do so following any of its formal, periodic reviews of media ownership.

443   Cm 5010, p 98. Back

444   Broadcasting Act 1990, Schedule 2, para 1 (1) (a) and (b) and (2). Back

445   Policy, p 4. Back

446   Policy, para 9.3.1. Back

447   Q 988. Back

448   RIA, paras D12-D16. Back

449   Q 205. Back

450   Ev 361, section 2; QQ 915-930. Back

451   Q 712. Back

452   QQ 551-555. Back

453   Q 552. Back

454   Ev 156, section 2; Ev 484, paras 1.2-1.3; QQ 546, 589; contributions to online forum from Carole Tongue, Grant Mason, John Clark (Voice of the Listener and Viewer), Martin Wragg, Sheila Duncan. Back

455   Q 590. Back

456   Ev 204, para 4.33. Back

457   Ev 332, para 9; QQ 833, 843; contributions to online forum from Graham Lester-George, David Catherall, Carole Tongue, Carole Solazzo, Sheila Duncan. Back

458   Media Ownership Rules,, para 6.1.5. Back

459   Ev 178, paras 6.5-6.6; Appendix 106, para 2; QQ 73, 546. Back

460   Ev 270, para 2.3.2; Ev 484, para 1.1. Back

461   QQ 992, 988. Back

462   Q 205. Back

463   Q 712. Back

464   Q 988. Back

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