Joint Committee on The Draft Communications Bill Minutes of Evidence


Examination of Witnesses (Questions 700-717)

MS DAWN AIREY, MR GRANT MURRAY AND SUE ROBERTSON

MONDAY 24 JUNE 2002

  700. But Parliament does exist presumably to keep an eye on these things. Affirmative resolutions have to be debated.
  (Ms Airey) Absolutely.
  (Ms Robertson) And that is the procedure we would like.

  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.

Brian White

  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 that position.

  704. So how do new competitors come into the market?
  (Ms Airey) They can take you over. They can buy you. They can bid for digital spectrum.

Mr Lansley

  705. If you wanted this certainty at a date prior to 2014, under the draft legislation as it currently applies—and perhaps the Bill team will correct me if I am wrong—could 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.

Lord Crickhowell

  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 again—far 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.

Mr Lansley

  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 have that.

  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.

Chairman

  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 UK—Grenada, 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.

Lord Crickhowell

  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 authorities.

Paul Farrell

  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 country.

  713. But your base position was that there should be reciprocity?
  (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 US—we are talking about the US particularly—takeovers here would help give our TV industry the edge, or do you think it is an interesting hypothetical situation?
  (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.

Chairman

  715. If I understood what you were saying—which I am sure is right—it 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 do.

  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.

Lord Crickhowell

  717. And also what would happen before 31 December 2014.
  (Mr De Val) Yes. We need to put our heads together on that.

  Chairman: Thank you very much.





 
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