Joint Committee on The Draft Communications Bill Minutes of Evidence


Examination of Witnesses (Questions 860-877)

MR DON CRUICKSHANK, MR ANDREW FLANAGAN, MR DONALD EMSLIE AND MR JOHN PEARSON

THURSDAY 4 JULY 2002

Anne Picking

  860. This question is about Scottish representation within OFCOM. Are you confident that the Scottish interest will be adequately represented by a member of the Content Board, and do you think it is right to have a small strategic main Board with no absolute guarantee of Scottish membership?
  (Mr Cruickshank) We take the view that the broadcasting regulations properly preserve power for Westminster and therefore the rules and regulations applying to it should be applied evenly across the UK market. I suppose the only differences are in relation to content, and the specific Scottish, and indeed within Scotland, regional variations in tastes and expectations. As long as there is Scottish representation therefore on the Content Board, and that is backed up by the presence of officials from Scotland, that should suffice. The two main issues are actually, one, the way in which, from our perspective, as the owners of Scottish and Grampian, we are allowed on the television screen to have discretion about how we serve viewers in Scotland, and that would mean a specific request that we make of the Committee that it should recommend that the present networking arrangements, which are embedded in the 1990 and 1996 Acts, which were constructed in a world in which there were 15 separate ITV companies and are not appropriate for a world in which there may well be a company serving Northern Ireland, a company serving Scotland and one consolidated company, Granada and Carlton, serving England, are changed. A change to these networking arrangements would be particularly helpful in our capacity to serve Scottish viewers better, and in so doing to have a different sort of relationship with the Scottish member on the Content Board and also the officials of OFCOM in Scotland. Secondly, one question I have put down in the past is whether the Content Board should actually be within OFCOM, whether it might not be better for society if these tensions between economic regulation and content and standards were resolved rather more in public by having two statutory organisations rather than one.

Lord Pilkington of Oxenford

  861. You argue that OFCOM should be able to review the ITV networking arrangements to protect the interests of minority companies. To work that out, how do you envisage it happening? Would you like us to suggest a specific provision on the face of the Bill or would you want OFCOM to do this through its powers to license?
  (Mr Cruickshank) If I may, I will ask Donald Emslie, who as well as being Managing Director of our television interests is also Chairman of ITV and GMTV, which holds the rein, as it were, between Carlton and Granada, to answer that.
  (Mr Emslie) Where we would start from is that the 1990 Act and the 1996 Act have the networking agreements enshrined in that legislation, and we would want to see that continue into the Communications Bill. As was mentioned earlier, the networking arrangements were originally set up to service the needs of 15 separate companies, and while it was 15 separate companies and a federal structure within ITV, the network agreements worked very well. We now have a situation where Carlton and Granada combined own effectively 92 per cent of ITV, and therefore the minority shareholders, ourselves representing Scottish and Grampian, and also Northern Ireland, do not hold much sway within the network centre, and therefore what we would recommend is that OFCOM take the opportunity or the Bill should give OFCOM the opportunity to review these networking agreements in order to protect our interests and allow us to serve our viewers better. That might mean more flexibility from perhaps associate status with the UK network or some kind of opt-out system where we are not obliged to take all the programming that is commissioned by ITV and therefore we would not be obliged to pay for it either.

  862. You would want it specifically in the Bill?
  (Mr Emslie) We would want that in the Bill, yes.
  (Mr Cruickshank) Presently the opposite is embedded in the 1990 and 1996 Acts and this is not extracted in the Bill.

Nick Harvey

  863. You argued in your evidence to us that the draft Bill is proposing excessive content regulation for TV and radio in areas where commercial imperatives would be taking you in that direction anyway. Are there any particular licensing conditions you think will be more onerous under the draft Bill than would be the case at the moment under the current legislation?
  (Mr Cruickshank) The most onerous licence conditions that we face are the fact that on television, ITV as a whole pays £300 million to the Exchequer, takes on a public service broadcasting obligation at a cost of some £200 million out of our total revenue for the network of £1.7 billion, and that in the context of a prospective continued downturn in advertising and the way in which the BBC is targeting that same audience. That is a burden which is extremely onerous. As to content, let me ask Donald to comment.
  (Mr Emslie) In the most recent months ITC and ITV have made quite positive moves in terms of moving away from very prescriptive legislation, away from the box-ticking type of mentality, which I am sure the ITC talked to you about in the past, towards lighter-touch regulation, where the broadcasters have to effectively make statements of promises and be seen to be delivering these promises. That would be a welcome move away from the more onerous content regulations where ITV still has some prescriptive obligations to meet, whether it be religion or, in our case, Gallic, and we would welcome a more flexible regime. The broad remit is range and diversity and regionality, and we would then look after the interests of the Scottish viewers more closely.

  864. If Parliament is legislating for a world in which new American owners might own a united ITV or Channel 5, would you agree that Parliament needs to build into the legislation the ability to impose reasonably onerous conditions on those new owners of 3 and 5, whose, to use your expression, commercial imperatives might be rather different from those that have typified the traditional independent UK broadcasting?
  (Mr Emslie) In broad terms, we would accept that what ITV delivers is there to be protected in terms of regionality, a diverse range of output, which in terms of a public service broadcaster is a new thing. I think the work we have been doing with the ITC and how the Bill takes that forward does give the viewers, who are the important people in this regard, the protection that it requires. The fact that the ITC licences, regardless of ownership, will continue to have regional remits, will continue to have accountability to their viewers and their communities and that we have to deliver news, current affairs, regionality, original production goes a long way to protect the critical nature of ITV as a regional service across the United Kingdom.

  865. Is there anything wrong with the Bill that you specifically would like to see taken out of it?
  (Mr Cruickshank) The presumption that opening ownership to non-EU companies or the argumentation that this might somehow improve the state of UK broadcasting and UK society and increase investment in the sector is naive, and even more naive is the thought that anyone might reciprocate. I find that almost irrelevant to the purpose of the Bill.
  (Mr Emslie) One thing I would add is that in terms of the nature of the way the Bill is drafted at the moment, where there is a public service remit, we do not believe that one description fits all, and you have to see the ecology of UK broadcasting from BBC, Channel 4 and ITV as providing different services which benefit the whole UK broadcasting ecology and therefore the way that it is drafted at the moment is with PSB requirements. I would say take the word "requirements" out and have something like "objectives" or "targets", which would then allow the whole of the UK broadcasting scene to deliver a service which is on the whole probably better.

Lord McNally

  866. Why is it more naive to think that, say, Disney might want to buy ITV than Porsche should want to buy Jaguar?
  (Mr Cruickshank) I used the word "naive" in relation to two observations. One was reciprocity.

  867. Let us leave reciprocity out because that is not on offer from the Government. It is not seeking reciprocity; it is seeking inward investment.
  (Mr Cruickshank) I am saying that is naive, particularly if we want to develop from the UK organisations, even the BBC, being able to invest in what is the largest marketplace in the world, which is the United States. On that point, my word "naive" is probably an under-statement of the case. To believe that opening up ownership of UK assets in the media business to non-EU companies would necessarily or even possibly promote further investment—what do you mean by investment? We mean investment in creative works which are attractive and informative to UK citizens and viewers. That is what I mean by investment. To believe that that is likely to be the result of non-EU ownership is what I meant by "naive".

  868. I recently heard Tessa Jowell make exactly that speech with extreme fervour.
  (Mr Cruickshank) I disagree.

Paul Farrelly

  869. Together with the issue of reciprocity, the general liberalising trend towards-cross-media ownership in the Bill is likely to be a matter of some discussion in Parliament and on this Committee. Generally, what benefits for plurality and diversity do you see in that trend? If you welcome the trend towards liberalising cross-media ownership, can you tell the Committee what benefits you see from it?
  (Mr Cruickshank) SMG is one of the very few UK companies which is active across various media. The only other one of any great significance is the BBC. We are about 8 per cent the size of the BBC, to put us in context. We are active across different media because we believe that acts in the interests of viewers and consumers, and particularly advertisers and therefore our shareholders. So we want to promote opportunities for cross-media management of media assets consistent with two things: one, the objective of competitive markets, ie competition law should be applied in this sector no less so than in any other, and secondly, the overlay of obligations for plurality of ownership and diversity of voice. It seems to me absolutely right that they should qualify competition rules in this important sector of the economy. I would observe en passant that it is highly likely that plurality of ownership would be satisfied by the application of general competition law, by an effective OFT and Competition Commission. Therefore, the issue to my mind is, for practical purposes, how do we procure diversity of voice in a competitive market? We believe all that is required here is the rule that there should be three media voices plus the BBC, that that can be made to work. That would require three things. One is that the overlay of the three radio and the radio-specific rule we think is odd. First of all, I do not think we should be looking at cross-media ownership through the prism of radio, which, after all, is a relatively under-developed sector of UK media, and actually, in terms of diversity of voice the BBC is relatively under-developed. Secondly, why discriminate against radio? Now that I have seen the Government's proposals on ownership of newspapers, it makes the suggested rules on ownership of radio seem even more discriminatory against this rather young sector. The third reason is that radio is under-developed and in fact there are many areas, not just in Scotland, where there are not actually three radio stations in addition to the BBC to start with. We would recommend that the three radio plus BBC radio rule is not applied because it is unnecessary and discriminates against radio, a young sector which needs to develop. Secondly, the Bill should not be attempting to define local, regional and national. Individual radio stations, individual titles, television licences, do not map very well on to that. What I meant—and I am particularly encouraged to recommend this having seen the conditions on newspapers—is that there should be an obligation on OFCOM, and perhaps on the Competition Commission as well, in line with the newspaper legislation which is proposed for a public interest test. The one that has been proposed for newspapers is accurate presentation, news, free expression of opinion and the maintenance of plurality of views in the UK press. Substitute "UK media" for "UK press" and there you have a general rule which OFCOM and the competition authorities could apply, which would mean you would not need some very dangerous definitions of local, regional and national in the Bill. By "dangerous" I mean they would crystallise in words rules which would not actually be to the benefit of viewers and readers. Thirdly, we should acknowledge that there are under-developed geographic areas. Again, quite a few of them are in Scotland. Then we need a flexible, case-by-case view of what diversity of voice is going to mean in those areas. We have two relatively large cities in Scotland, Aberdeen and Dundee, where the analysis is that they are relatively under-developed and the application of rules as in the Bill, because they stem from radio, would produce some very peculiar situations compared to the way in which these rules would apply in large metropolitan areas. In short, three media voices plus the BBC, a general obligation on OFCOM for a public interest test as per newspapers, and effective application of competition law will deliver the Government's objectives and, I think, produce a Bill which is more appropriate for the evolution of the broadcasting scene.

Baroness Cohen of Pimlico

  870. I was going to ask you whether you think there should be no particular controls over who owns radio stations in a particular region. I think you have answered that you would prefer to see three media voices plus the BBC and a public interest test.
  (Mr Cruickshank) Yes.

Paul Farrelly

  871. I take your comments on the previous question from Tom McNally that it was maybe naive to think that all the benefits that the Secretaries of State see from US investment without reciprocity would be immaterial here. The one word you used to qualify competition law and the competition authorities is the word "effective". There is a view that a regulator such as OFCOM needs perhaps the greater power that comes from specific cross-media ownership rules to make it effective. These are very simple tests. OFCOM has grave responsibilities, not just in the broadcasting sector but also for broadband, the Internet and the telecommunications sector. The same question would apply: what evidence is there that without such power, competition regulators in these very small local areas that are of concern to many people would otherwise be effective?
  (Mr Cruickshank) The UK has a very good record of independent regulation, and I believe is building a good record over the past year or so of effective competition law, applied rigorously by the OFT and by the Competition Commission, and I would place high reliance on that if I were Parliament. The danger of writing detail into the legislation is that there is always a delay before it becomes applicable. We are looking here at a rapidly developing sector, particularly television and radio. That is one danger. A second danger is that it is extraordinarily difficult to get these definitions right, and I have personal experience of that. This sort of legislation I think is dysfunctional. It is better to trust independent regulation and the effective application of competition law, both of which I think we can in the UK be assured of.

  872. You are almost alone in the Committee's experience in saying that competition law has been effectively applied.
  (Mr Cruickshank) I did not say that. In 1998 the Competition Act was passed, which for the first time gave the UK competition law which was worthy of its name. That legislation did not become effective until well into the year 2000. Competition authorities, ie John Vickers and the Competition Commission in due course, need time to develop a culture and jurisprudence to tackle competition issues which have been prevalent in the UK for many, many decades because of the absence of competition law. I am arguing that Parliament should trust the legislation passed in 1998. To double-guess that would be a mistake.

Lord McNally

  873. Could I ask for clarification on radio ownership? There have been some opinions expressed that radio is such a specially local medium with a particular power to influence locally that it does need these extra layers of regulation that are in the Bill. With the experience that you have of local radio, do you think that is a fair interpretation? You have described it as an under-developed, immature, young industry. Others fear it has a potency and an impact that need to be regulated. I wonder what your experience is on this.
  (Mr Pearson) I would be delighted to think that local radio has this amazingly large power. I am not sure we would agree that radio has more power locally or regionally or even nationally in the commercial sector than do press or television. I do not see how that actually works. We do feel that radio on all levels is being disproportionately regulated. It has a large amount of content regulation on top of it. We do not see the reasons why the regulation should be as it is. As Don was alluding to earlier, we feel that when you cross that with the cross-media regulation, radio is disproportionately hit yet again because the three plus one in most markets, if everyone believes in the consolidated future of media, means cross-media owners will thrive in most markets. If we then understand that there is 45 per cent ownership of the three at the top, you will end up with most markets for radio having two very strong members which are actually owned by cross-media interests locally and one owner who very understandably will wither on the vine because it does not have that power of investment or support. I do not think we agree that local radio has a disproportionate impact on local affairs. Most commercial local radio is entertainment and music-based.

Lord Crickhowell

  874. You have covered a lot of the ground. I was going to ask about cross-media ownership. Perhaps I can ask whether there is anything in the Bill or the rules which require you to divest yourselves of any of your current holdings.
  (Mr Cruickshank) No. Might I pick up this issue of cross-media? It may be helpful if we say what we mean by it. It is not about ownership; it is about serving viewers, listeners and advertisers. As a preamble, I would say that it does not surprise me that you have not had commercial organisations giving evidence to you who see very much in this idea of cross-media ownership, because, by and large, they have been promoting for many years a mono media strategy to the markets, and they are not going to announce a change in that strategy in front of such an August body as this. There are a lot of companies out there who are devoted, at times when the markets are very difficult, to a mono media culture, who find some of this quite threatening. I believe that this issue of cross-media ownership should, with proper regulation, not be an issue for government; it should be an issue for the play of ideas in a competitive marketplace, with the overlay of competition law and the obligations under plurality and diversity. We would like to be able to do it properly, like the BBC can, ie use the media that we own to promote appropriately, and that would mean that there should be a change in the rules in the Broadcasting Act which would allow us to use our media in the way the BBC does so very effectively. This is not a criticism of the BBC or a suggestion that the BBC should not be allowed to run 70 ads a week for non-BBC activities on BBC1. That is more ads than Ford runs in a week on commercial television. We want to able to do the same under appropriate rules about how we do it, and that means changes. Yes, we as an organisation believe our viewers and advertisers get many benefits, and it is helpful to both society and to the economy that cross-media should be allowed, within competition rules and subject to the plurality and diversity tests.

  875. Can I come back to the plurality and diversity at local level question? Perhaps I am not entirely surprised that an ex regulator should defend the record of regulation generally, though I have to say that the weight of evidence we have had that regulation has not been effective or speedy enough has been very powerful indeed. Bearing in mind the pressures that will be on OFCOM in its initial period, pressures of doing a great many things, re-organising and everything else, I have to say I am a bit sceptical that they will be speedy and effective in dealing with local situations. It is a very long time since I had to fight an election, but I have to tell you that there is a considerable neurosis among those of my colleagues who sit around this table and still fight elections about the power of local radio, and their anxieties if that was in the hands of a dominant player that they would regard as hostile, or the ability to generate single issue politics over local radio. So although I have a somewhat relaxed view, and from perhaps living in Wales and as a former chairman of HTV, I have a good deal of common ground with where you come from on some of these issues, I do have to tell you that politically, I suspect that, whatever this Committee may say, Parliament, and particularly the House of Commons, will be homing in very aggressively on these particular issues. I think you have to produce some pretty convincing evidence that the regime that you argue for of leaving it to the regulator, flexible case-by-case rules, general rules and so on, will actually work to protect local plurality and diversity.
  (Mr Cruickshank) First of all, my defence of independent regulation neither encompassed the old competition law and authorities nor the ITC. ITC is not independent. Let us be clear. It is nobody's fault; it is just a fact. What we are proposing—and we have tested against as objective a test as we can manage as an operator—is that the three plus BBC voices rule is sufficient to deliver exactly what you and others would wish in terms of plurality of ownership and also diversity of voice, and in particular, that it is confusing and I think will be dysfunctional to attempt to overlay a radio-only rule for the reasons I set out earlier and perhaps do not need to repeat.

Chairman

  876. I do not think there is anyone on the Committee who does not share your hope that the form of regulation proposed in the Bill will work. There is some scepticism because of what we have had to listen to. Moving on to the future, the type of regulation you are referring to, vigorous, effective, prompt, will require people of significant calibre and expertise and will sometimes have to be quite bold. That necessarily is pretty expensive. Are you comfortable with the notion that as an industry you will be paying for that?
  (Mr Cruickshank) Most of the effective regulation, including, I see, on newspaper ownership, will be for the OFT and Competition Commission to deliver, and is paid for from general funds. Secondly, I would not suggest that OFCOM should be enabled to use the general competition law. That should be a matter only for the OFT and the Competition Commission. They are the only organisation which has the capacity to attract the resources, not least because they come out of the Treasury, which is rather devoted to competitive markets, and the culture which is required. There is a huge difference in culture between knocking down a door at 6 am and dealing with fine issues of taste and judgment, and I am not sure that they can be accommodated in one organisation.

  877. You are suggesting that the provision in the Bill for OFCOM to have its own competition competence is a waste of time.
  (Mr Cruickshank) This is a general point about public policy. We are the only country in the world where competition law is not delivered by one devoted agency. We have this rather odd regime in which a number of independent regulators are legitimised but never actually use the general competition law. That I think is a real problem.





 
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