Joint Committee on The Draft Communications Bill Appendices to the Minutes of Evidence


APPENDIX 38

Memorandum submitted by ITN

  Please find enclosed a copy of ITN's submission to the Joint Committee on the Draft Communications Bill.

  In addition to comments on the specific news provisions contained in the draft Bill, ITN has outlined detailed recommendations that we believe will deliver much enhanced accountability and transparency into BBC corporate governance.

  These recommendations stem from ITN's direct experience of competing with publicly funded and commercial BBC news services across a range of media platforms. We do not oppose the BBC developing new public services or commercial ventures in the digital environment—including BBC News 24 and BBC Online—but we do believe that there needs to be greater openness in the way in which such services are approved and operated. As such, ITN's recommendations focus on the two key areas of BBC corporate governance that impact most on the commercial sector: enforcement of the BBC's Fair Trading Commitment and the approvals process for new BBC public services.

  ITN has evidence of a number of cases where the BBC has been breaching its own set of rules governing BBC commercial activities—the Fair Trading Commitment—and where the BBC Board of Governors has failed to take action. We are therefore urging that the Communications Bill should grant OFCOM exclusive powers to enforce the Fair Trading Commitment—effectively taking responsibility for regulation of the BBC's commercial activities.

  Attached to this submission is a set of private correspondence[67] between ourselves, the BBC, the OFT and DCMS. For the first time this sets out categorically the lines of responsibility for enforcing the Fair Trading Commitment and it reveals the current confusion surrounding its enforcement.

  It shows that seven years after the BBC published the Fair Trading Commitment, four years after the Competition Act became law and three years after ITN first raised this issue, the BBC Board of Governors and the OFT cannot agree on the exact boundaries of the two main policy regimes that apply to the BBC's commercial activities.

  ITN believes that this regulatory uncertainty can only be addressed if responsibility for both competition law and the Fair Trading commitment is granted to OFCOM.

  In addition, the lack of transparency and accountability in the approvals process makes it increasingly difficult for the BBC's commercial competitors to develop new media services in competition with the BBC. The absence of a clear and precise remit for all new BBC public services—and particularly the outer limits of BBC Online, means that the BBC's competitors cannot develop new services with any certainty of business planning. We are therefore calling for the approvals process to be opened up to make it fully accountable and to provide much greater certainty about the wider market. OFCOM would and should play a crucial role in this reform.

  ITN hopes that this submission, together with the evidence contained in the accompanying correspondence, will demonstrate to the Committee that there is an urgent need to address the lack of transparency and accountability in the approvals process and the enforcement of the Fair Trading Commitment.

  The Committee is welcome to refer to or quote from any of this material if it would prove useful during evidence sessions, and of course, ITN would be happy to provide any further information if this would be helpful to the Committee's inquiry.

June 2002

Annex

1.  INTRODUCTION

  1.1  ITN welcomes the publication of the draft Communications Bill and the establishment of the Joint Committee to scrutinise the Government's proposals. We are grateful for this opportunity to submit evidence to the Committee's inquiry.

  1.2  This paper concentrates on the main public policy issues relating to broadcast news. In particular, it examines how the high quality and competing news services that have characterised the analogue world can be maintained in the digital environment and whether or not the draft Communications Bill meets this challenge.

  1.3  However, before examining these issues in more detail, this section gives Members a snapshot of ITN's existing range of businesses and how the company fits into the wider broadcasting ecology.

About ITN

  1.4  ITN is one of the largest news organisations in the world, producing television, new media and radio news services for a wide range of national and international customers. ITN's output on UK television alone is watched by 65 per cent of the British public each week.

  1.5  ITN produces national and international television and online news for all of the commercial terrestrial television networks in the UK—ITV, Channel Four and Channel Five. ITN also supplies UK news and facilities to Reuters and GMT. The ITN News Channel was launched on 1 August 2000 and is available on cable (NTL and Telewest), digital satellite and digital terrestrial television. The channel broadcasts 24-hours a day, seven days a week. ITN also produces Powerhouse, the topical political discussion programme broadcast on Channel four.

  1.6  ITN Radio supplies news to the Independent Radio News (IRN) network, providing national and international news bulletins to more than 250 commercial radio stations.

  1.7  The ITN Archive is the world's largest commercial new archive, containing some 250,000 hours of footage—which grows by 10 hours a day. It comprises all ITN output since 1955, the Reuters TV Archive and historic newsreels, including British Paramount News, Empire News Bulletin, Universal News, Gaumont Graphic and Gaumont British and represents the French Pathé Library in the UK. In 2002, ITN Archive made its first move into the wider broadcast archive market, taking on management of the entire Channel four clips archive.

  1.8  ITN Factual is a dedicated documentary programme-making division. It has produced factual programmes for—amongst others—the BBC, ITV, Channel Four, Channel Five and Discovery. Visual Voodoo is a subsidiary of ITN Factual, making quirky, innovative factual programming aimed at a youth audience.

  1.9  ITN International sells UK and foreign news footage to a wide range of international customers. With an extensive newsgathering machine, including 12 satellite newsgathering trucks, ITN offers immediate news from the UK as a "core feed". Subscribers include Reuters, CNN, NBC and ZDF. ITN also supplies finished reporter packages to international customers, including PBS in the US and Channel Nine in Australia.

  1.10  ITN is also 49 per cent shareholder in pan-European news channel, EuroNews. Based in Lyon, the channel broadcasts simultaneously in eight languages, available to over 115 million households worldwide in 76 countries. In 2001, Euronews became the first news channel to launch in Russian.

  1.11  ITN is currently owned by five shareholders, each owning 20 per cent of the company: Carlton, Daily Mail and General Trust, Granada, Reuters and United Business Media.


2.  BROADCAST NEWS PROVISIONS

  2.1  In devising legislation for the UK's broadcast news services, Government and Parliament have always had a primary concern: to ensure a plurality of high quality, competing "news voices" from a range of companies with different proprietors, which in turn helps underpin a healthy democracy.

  2.2  ITN believes that—like the 1990 and 1996 Acts before it—the broadcast news provisions in the draft Communications Bill fulfil this objective, establishing a clear public policy framework that will ensure that a range of competing, high-quality broadcast news services continue to be delivered in the digital environment.

  2.3  However, the means by which the Government intends to achieve this policy objective differs sharply from the proposals first recommended by ITN. The remainder of this section sets out how the existing policy works, ITN's original policy position and why we believe the Government has chosen a different path to secure the same policy objective.

The Status Quo

  2.4  The 1990 and 1996 Acts set out policies that aimed to protect diversity of ownership amongst news organisations and to uphold the quality of the news services they produce. The central plank of this policy was twofold.

  2.5  First, all three commercial free-to-air networks—Channel Three, Channel Four and Channel Five—were statutorily obligated to carry high-quality news services on their networks, including at peak viewing times, as part of their public service offering.

  2.6  Second, as operators of Britain's most-watched commercial network (with an audience reach that exceeded that of BBC1) the Channel Three licensees were obliged to take their news service from a Nominated News Provider (NNP). The ITC was empowered to ensure that no individual could own more than 20 per cent of the company holding NNP status, and that the company had to be adequately resourced and equipped to deliver a high-quality ITV News service. The NNP licence would be awarded for a period of 10 years and has been held by ITN since January 1993.

ITN's Original Policy Position

  2.7  Whilst ITN continues to support the basic statutory obligation for all three commercial networks to carry high quality news services, we did not argue for the retention of the NNP system for ITV News (or the introduction of a separate NNP for Channel Five), or the 20 per cent ownership cap.

  2.8  As last year's competitive bidding process for the ITV News contract amply demonstrated, the NNP system effectively institutionalised competition for the ITV News contract. This in turn allowed ITN's competitors to pitch at a price that could not guarantee a high-quality service, but which forced ITN to cut its price—and therefore news resources. The ITC could not intervene, because it is a post-hoc regulator.

  2.9  Moreover, the NNP ownership cap institutionalised a minimum of five shareholders in the company holding the licence—in this case ITN. This prevented existing shareholders and customers either taking or consolidating a stake in the company, which in turn would have delivered substantial managerial benefits.

  2.10  ITN therefore advocate the retention of basic news obligations for Channels Three, Four and Five, but the abolition of all NNP provisions, including any ownership cap. This would have allowed those shareholders and customers who wanted to take a greater stake in ITN to do so, and would simultaneously scrap the institutionalised form of competitive tender for the ITV News contract.

New Proposals in the Draft Communications Bill

  2.11  The Government has opted to retain some ownership limits on ITV's NNP. The new draft media ownership clauses, published on 31 May, raise the maximum limit on individual shareholdings in the ITV news provider from 20 per cent to 40 per cent.

  2.12  The new NNP system carries over the explicit requirement contained in the 1996 Broadcasting Act that the ITV news service must be able to compete effectively with other broadcast news services in the UK. It also requires the news service to cover a range of national and international matters.

  2.13  The new NNP provides OFCOM with enhanced powers to approve the financing of the ITV news provider at the point at which any new contract is agreed. In the Government's words this is designed to:

    "prevent the price of future ITV news contracts being negotiated down to a point where it affects the standard of coverage".

  2.14  This suggests that the Government has acknowledged that the current NNP system does not work. However, rather than opting to abolish the NNP structure, as proposed by ITN for the reasons described above, it has created an alternative framework to safeguard the quality and diversity of news.

  2.15  In the draft Communications Bill the Government was much more deregulatory than had been anticipated, allowing the possibility of non-European owners buying into ITV and Channel Five, ownership of Channel Five by a newspaper proprietor, as well as the consolidation of ITV.

  2.16  The liberalisation of ownership rules seems to explain the Government's decision to retain the NNP. A number of concerns have been voiced—including by Government and regulators—that liberalisation of media ownership rules and the ensuing consolidation of ownership would have an adverse effect on the funding and quality of broadcast news provision. The Government therefore seems to have counterbalanced the deregulation of media ownership restrictions with the retention of the resource-related and ownership requirements in the NNP structure.


3.  THE BBC

  3.1  While Government has sought to safeguard the quality and diversity of commercial news, legislation must also work to ensure that commercial news operators are able to compete fairly with the BBC—one of the most privileged and well-funded news organisations in the world.

  3.2  Unlike many commercial competitors, ITN does not dispute the development of new BBC news services in itself. After all, if the BBC cannot invest in news, then what should the UK's main public service broadcasters be doing in the digital environment? However, difficulties arise in relation to two key areas of BBC corporate governance:

    —  the approval of proposed new BBC services

    —  the enforcement of the BBC Fair Trading Commitment.

  3.4  Rather than entering into the "theological" debate about whether or not OFCOM should assume full responsibility for the BBC, ITN has identified those areas where we believe existing weaknesses in the BBC's corporate governance can be addressed by the legislation—and in doing so—eliminate the bulk of concerns expressed by the commercial sector and by consumer groups.

4.  APPROVAL OF NEW BBC PUBLIC SERVICES

  4.1  The approvals process for new BBC public services provides the check and balance on the BBC's use of licence fee funding and the impact of the BBC's services on its commercial competitors. When new public services are approved the exact nature of the service should be detailed, giving the BBC's competitors a clear idea of the exact remit of the new service. This enables the rest of the market to know what it is competing with and provides a set of measurable criteria against which each new BBC public service can be assessed once it has been launched.

  4.2  However, the current approvals process is inadequate. It lacks transparency and does not allow BBC services to be held properly to account. Commercial competitors have no clear idea what they are competing against and licence fee-payers have no idea what they are funding.

  4.3  For example, the BBC was granted permission to launch BBC Online in 1997. Despite frequent requests, the terms of approval for the service have never been published. Since then, the BBC has launched numerous licence fee-funded new media services, which compete head-on with commercial operators. However, without having ever seen the terms of approval for BBC Online, the BBC's competitors have no idea whether such public services have been given approval. This means that we are unable to plan our own new media ventures with any certainty of business planning. This in turn creates market uncertainty and threatens to stifle competition between news services on new media platforms.

  4.4  ITN was therefore disappointed to note that neither the draft Bill nor the proposed amendments to the BBC Agreement contain any commitments to improving the accountability and transparency of the BBC's activities. In order to address these shortfalls, ITN proposes the following additions to the draft Bill:

Marking impact test

  The Communications White Paper (s. 5.8.7) proposed that OFCOM should be granted a new power to give formal advice to the Secretary of State on the market impact of new BBC public services. This extra layer of independence has already been tested by the ITC as part of the approval process for BBC3 as has been seen to work well.

  ITN was therefore disappointed to see that the proposal has not been written explicitly into the draft Bill or the amendments to the BBC Agreement. We believe this should be introduced to the Bill, as set out in the Communications White Paper.

Viewer consultations

  The existing approvals process requires viewers to be consulted on proposed new BBC public services. This consultation is currently drafted and executed by the BBC itself, which leaves the exercise lacking in the objectivity and rigour it requires.

  ITN believes that OFCOM should be granted responsibility to conduct the viewer consultation for new BBC public services.

Industry consultation

  The industry consultation is currently conducted by DCMS. However, ITN believes that OFCOM—as an expert and independent regulatory body—should be tasked with carrying out the industry consultation on proposed new BBC public services.

  Furthermore:

    —  OFCOM should be required to publish in full the findings of all three consultations, as they are submitted to the Secretary of State.

    —  Based on the findings of all three consultations OFCOM should be empowered to publish simultaneously its own recommendation to the Secretary of State about whether or not a proposed new public service should be approved.

    —  The Secretary of State should be required to state how and why her decision was reached on whether or not to approve a proposed new service.

    —  The BBC should be required to publish in full any proposal submitted to Government and OFCOM.

5.  REGULATING THE BBC'S COMMERCIAL ACTIVITIES

  5.1  Commercial news providers, including ITN, compete with a growing number of BBC commercial services. In order to deliver fair competition, the BBC's commercial ventures must be rigorously and objectively regulated. The BBC is subject to both UK and EU competition law and—separately—to the BBC's Fair Trading Commitment.

  5.2  The Fair Trading Commitment establishes a set of additional requirements to which the BBC must adhere, reflecting its privileged position in the broadcasting ecology. It requires the BBC's commercial arm to pay fair charges for goods or services received from the public service arm of the BBC and to charge prices in the commercial market that are a fair reflection of both costs incurred and market practice. It effectively underlines the very existence of the BBC's commercial division—to deliver a return to the licence fee arm of the BBC.

  5.3  As the main commercial competitor to the BBC in the news market, ITN has had direct experience of cases where the BBC has failed to adhere to the Fair Trading Commitment. However, at no point have our complaints been addressed or the terms of the Fair Trading Commitment enforced. Details of such breaches of the Fair Trading Commitment are attached in Appendix 1.

  5.4  There has been some confusion about who has responsibility for enforcing the Fair Trading Commitment. The attached correspondence (Appendix 2) between ITN, the OFT, the BBC and DCMS explains the current framework. It clarifies that while the OFT—and in future OFCOM—has responsibility for enforcing competition law, the BBC Board of Governors has sole responsibility for enforcement of the Fair Trading Commitment.

  5.5  As the evidence and Appendices 1 and 2 demonstrate, the BBC Governors have shown themselves to be ineffective regulators of the BBC's commercial division, which in turn has caused distortion in the news market. If there is to continue to be competition between news providers in the digital age, the regulation of the BBC's commercial activities needs to be more forcefully and independently regulated. OFCOM should therefore be granted full and exclusive responsibility for enforcement of the BBC Fair Trading Commitment.

6.  CONCLUSION

  6.1  ITN hopes that the attached evidence is of use to the members of the Committee. We stand ready to submit further evidence, would members request it.


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