Examination of Witnesses (Questions 700-717)|
MONDAY 24 JUNE 2002
700. But Parliament does exist presumably to
keep an eye on these things. Affirmative resolutions have to be
(Ms Airey) Absolutely.
(Ms Robertson) And that is the procedure we would
701. You want an affirmative resolution?
(Ms Airey) As opposed to what is being proposed.
702. You would not be satisfied with just questions
to the Secretary of State to put a motion down in either House?
That is not enough, is it?
(Ms Airey) No.
703. You argued, like ITV did last week, that
come 2014 we do not want a competitive licensing process, and
that you want certainty. Is not that going to lead to complacency
and under-investment, in that having a competitive process keeps
you lean and mean?
(Ms Airey) 2014 being the end date for the existing
licences fills me with horror. It is a cartoon moment, as far
as I am concerned. We are hurtling towards a brick wall, and it
all stops there. There will be a terrible mess in 2014. There
does need to be certainty going forward for shareholders. I do
not think that is unreasonable, particularly when most of the
shareholders of existing broadcasters have invested so much in
the spectrum, so much in the brand for which there are going to
be viewers. What we would seek is that there is a renewal process
that starts, say, four years before 2014, and there is a degree
of automaticity to that licence renewal process, pretty much the
same as we have with the current ITC where you can renegotiate
your licence up to four years before your licence expires. You
have to go through an incredibly rigorous process of going through
what you would expect to do with OFCOM. I think that if you have
a cut-off date of 2014 and no certainty going forward, you may
well see a reduction in investment, because there is no certainty
going forward. This is different to the ITV licence renewal process
in 1990, because then there was a limited amount of spectrum going
forward. There is not a limited amount of spectrum, so you could
see shareholders saying, "Okay, there's no guarantee we're
going to continue on this platform, so we're going to shift."
(Mr Murray) I would like to add that in terms of the
certainty that it gives us in our investment decisions, we currently
are buying programmes ahead, things like film deals, through to
2007 and 2008, which we can do beyond the term of our current
licence period because we have some certainty over that. If you
were in a situation where you were coming up to 2014, you would
not necessarily be able to schedule your channel appropriately
or necessarily in the viewers' interests, because you were in
704. So how do new competitors come into the
(Ms Airey) They can take you over. They can buy you.
They can bid for digital spectrum.
705. If you wanted this certainty at a date
prior to 2014, under the draft legislation as it currently appliesand
perhaps the Bill team will correct me if I am wrongcould
you not seek a replacement for a digital licence at an earlier
date than 2014?
(Mr Murray) The digital licence also expires in 2014
in the draft legislation, as I understand it.
706. I do not know if you have read what Clive
Jones said. He slightly backed down on the non-investment point
when I challenged him and pointed out that, in the experience
of the Chairman and myself who were both at the time directors
of companies bidding, I do not recall, though we faced the threat
that we would not get renewal, that we cut back on our investment;
on the contrary, I think on the whole we felt we had to go on
investing in order to show that we were the serious players in
the game. So I expressed a certain amount of mild scepticism,
and now you have added a little additional factor, "Ah, there's
more spectrum now, so it's all going to be different." Is
that really so? We do need capacity for new people to come in.
Indeed, I was Chairman of HTV which originally got its licence
because they came in. Why are you all so totally alarmed at the
possibility that you have really got to fight for it again on
a fixed date?
(Ms Airey) We are not alarmed by having to fight for
our licence againfar from it. What we want to do is to
be able to offer some business continuity to our shareholders,
and we want to do that a good period of time before the licence
expires. If there is a process in place whereby I can say four
years before 2014 we make an application for the licence, if it
is considered to be not of the right level, or we have not covered
the right issues, then we have a right to go back again. Let us
face it, the existing broadcasters have invested huge sums of
money in their platform. My shareholders have invested £600
million in getting Channel 5 up and running. They are not to make
a penny profit, and they will not make a penny profit in the next
couple of years. We have been running this business for eight
years. Now surely there has to be some return on investment, and
it is not unreasonable to look to a length of period for a licence
renewal to do that. The difference between now and when I took
over last time is simply spectrum scarcity.
707. I am still wrestling with this slightly.
Is it not the case that if you choose to seek a replacement digital
licence, you can do so in the form where it does not take effect
until 1 January 2015, before 31 December 2014, so you can seek
a successor licence from 2015 onwards, before the end of the cut-off
date end of 2014? It has to be a digital licence, including continuation
of analogue services, so you can get some certainty before 2014,
it is not a brick wall.
(Ms Airey) We would like total certainty, and we can
708. Total certainty?
(Ms Airey) It is not unreasonable.
Mr Lansley: It is an unusual situation. I think
that it might be helpful if the Bill team and yourselves want
to run this through again at some point.
709. On the face of it, a reasonably open and
vigorous market place exists for independent and overseas made,
principally US-made, product. Do you feel that this marketplace
might become more restrictive following the significant changes
in ownership and the possible emergence of more vertically integrated
broadcasters, as appears to have been the case in the United States
over the last couple of years?
(Ms Airey) That is a very good question to end on.
I do not, from my experience to date, where there are vertically
integrated broadcasters in the UKGrenada, Carlton, and
obviously BBC. BBC only makes programmes for itself, so let us
put the BBC to one side. If we look at Carlton and Grenada, they
have a very, very vigorous production division who are keen to
make programmes for anybody, because good-quality programmes can
attain significant licence fees and therefore import revenues
and money for shareholders. If you are vertically integrated,
you are about making programming for your own platform. You are
absolutely right, what is happening in America is that there is
an increasing integration and of consolidation. Disney make programmes,
it seems to me, for most of ABC shows, and ABC are suffering as
a result. Fox take a lot of shows from 20th Century Fox, but they
are a good-quality producer. But 20th Century Fox and Warners,
who also have their own channels with a very vibrant production
community, are also making programmes for other broadcasters.
At the end of the day you know very well that good ideas are limited,
that all broadcasters have a take on certain programming, that
the programmes that have been on Channel 5, that are made for
Channel 5, that have the Channel 5 brand on them, will never be
seen anywhere else, and the same with broadcasters in the United
States. You can delineate between a UPN product, a Warners programme,
a Fox programme, and they do not even necessarily need to be made
by those producers, but they are representative of that brand,
that network. So I am not overly concerned. Do I see more vertical
integration in the future? Yes, I do, because everybody is chasing
margins. Do I see a decline in the good-quality production? No,
because in the UK fortunately we have a pretty good independent
production community, as well as broadcasters who are also producers
who want to make programmes elsewhere.
710. I have two very quick questions arising
from your evidence. You say that "Satellite is now the overwhelming
platform of choice for most digital consumers. We are concerned
that the Government is proposing to wait until switch off before
the `must carry' obligations are extended to satellite and believe
that in order to ensure equality of treatment, this issue should
be addressed now." You will have heard BSkyB say that there
was absolutely no need for any of this, because effectively it
was there now. What is the answer to the earlier evidence that
you will have heard given?
(Mr Murray) The position is slightly more complicated
than was made out earlier on. The position with the cable companies,
for example, is quite clear. There is a must-carry provision that
corresponds to must-offer, and in that situation the way that
it is treated is that we do not pay them for carriage and they
do not pay us for us providing them with a channel for their platform.
The position with the d-sat. is an imbalance in negotiation, in
that we must offer our channel, and whilst they must have it,
it is a negotiation as to how much we pay and we have no leverage
in that negotiation. We feel that it would be appropriate to remove
the anomaly between the treatment for cable companies and the
treatment for satellite companies. The draft Bill acknowledges
that tacitly. It just seems to defer it until such time as there
is analogue switch off. In the interim period what will happen
is that there will be an ongoing negotiation to arrive at some
number which just seems ludicrously over-complicated and unnecessary.
711. Thank you. My second question is, from
your comment about NAR and the fear of the single dominant sales
house with a NAR in excess of 50 per cent, what I am not clear
is whether you are content to leave that for the competition authorities,
or whether you are actually seeking some change in the Bill? I
keep coming back to the Bill.
(Ms Airey) No, we are happy to leave it to the competition
712. If you could imagine for a moment that
you are broadcasters, but you are not broadcasters who are employed
by any particular company with its own shareholders and other
shareholders, do you think there is any argument whatsoever that
reciprocity should be a test of foreign ownership of our medium,
that if we let you in, you should let us in? Is there any argument
for that at all?
(Ms Airey) The best question is left till last! We
argued in our submission that reciprocity should apply, but we
were pleasantly surprised by what was in the Bill. Let us be very,
very candid here that we can all argue for reciprocity, but what
it is actually saying, in my opinion, is that the British media
is unlikely to have the capital purchasing power to have a chunk
of anything substantial in America, so what we are talking about
is the Americans coming to the UK. I have a degree of relaxation
about that, not because I have a channel who has shareholders,
who has a section of it up for sale, and a channel who clearly,
if the Bill goes through as it is, benefits from the changes in
cross-media ownership. I do not have a problem, because if somebody
comes in with money to invest in my schedule, which has considerable
safeguards against a third party, an American coming in and trying
to put in all of its mediocre product, that just will not happen,
because we have got tier 1, 2 and 3 within the Bill to fall back
on, but we also have an audience who is incredibly discerning,
who actually like, above and beyond anything else, domestic product
made specifically for them. So if somebody is prepared to give
me the inward investment to grow my channel, it does not make
any odds where the money comes from. At the moment 65 per cent
of our money comes from the Germans, comes ultimately from Bertelsmann
and RTL. They do not tell us what to do. They do not say to us,
"Take all these programmes from our German channels because
they work well there." They let me do what is best for this
market. So I am a bit of a tart! I will take money from wherever
it comes, and I think that is good for inward investment in this
713. But your base position was that there should
(Ms Airey) Yes, but we are very happy to embrace what
is in the Bill.
714. Do you think there is any firm evidence
for statements such as that unfettered USwe are talking
about the US particularlytakeovers here would help give
our TV industry the edge, or do you think it is an interesting
(Ms Airey) I think it is hypothetical, because I do
not think the Americans are waiting to come across the Atlantic
with bucketloads of money to buy the UK media industry, because,
to be frank, we are not very well-run businesses, because the
returns on invested capital the Americans can get from Europe
and the UK are simply not good enough compared with what they
get in the US. So I think you can be pragmatic, and you can breathe
a sigh of relief. If they did come in, they are only going to
come in if they believe that they can make a business out of it
and make more money out of it and, to be frank, money tends to
follow audiences, so if you can improve audience share, and you
improve audience share with quality programmes that match the
audience need, then thank you very much, that is fine by me, we
will take the money and we will spend it, but it will have to
be spent on domestic programming, because domestic programming
is what works best.
715. If I understood what you were sayingwhich
I am sure is rightit was that at the end of the day audience
share has an extraordinary ability to attract programming investment,
so in fact there is a clear relationship. If an investor came
in from outside who was prepared significantly to recapitalise
Channel 5, you would quite reasonably expect audience share to
follow that investment?
(Ms Airey) Yes, we would. We are a geared business,
and that makes us unusual in the terrestrial firmament. At the
moment the channel is still highly geared. If you fill up the
tank with more petrol you will get up and running faster. We have
already got up slightly faster than some of our rivals, which
is why they have been whingeing to you about what Channel 5 can
716. Do any of the Bill team have any questions
or points they wish to make?
(Mr De Val) There was the simple point that Sue Robertson
has made that the Secretary of State had power to amend public
service remits in Clause 188. These are already subject to affirmative
resolution procedures. There is also the point about what happens
at the end of 2014. Would it help the Committee if we provided
you with a note on that?
Chairman: Yes, it would.
717. And also what would happen before 31 December
(Mr De Val) Yes. We need to put our heads together
Chairman: Thank you very much.