Examination of Witnesses (Questions 860-877)|
THURSDAY 4 JULY 2002
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
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.
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.
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 investmentwhat
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.
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 meantand
I am particularly encouraged to recommend this having seen the
conditions on newspapersis 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
(Mr Cruickshank) Yes.
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
(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.
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.
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 proposingand we have
tested against as objective a test as we can manage as an operatoris
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
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.