Joint Committee on The Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 520 - 539)



Lord Pilkington of Oxenford

  520. Meeting Mr Dyke's point, Professor Barendt when he spoke to us—and I absolutely accept dual regulation and I can see what you mean about content regulator—felt the position ought to be described in legislation not the rather vague statements of a Charter, and he thinks the time has arrived, possibly not now but sometimes, when in detailed legislation it should be defined what public service is and the whole relationship. What do you think about that?
  (Mr Dyke) The definition of public service in this Bill is largely the definition that comes from the BBC Charter. It is all there: it is fairly widely defined in the Charter and in the letter of agreement, but that seems to me a discussion to be heard at the time of Charter renewal when I think there is a very valid discussion to be had about what is the best means of the relationship between BBC and Government and how it should be managed in the future, but it is not there now.

Baroness Cohen of Pimlico

  521. Lord Pilkington has had a good shot at asking my question!
  (Mr Davies) Perhaps I could just say that, in a sense you know, this is an issue between Parliament and the executive rather than between the BBC on the one hand and the governing process on the other. If we have a preference on this matter I think it probably is to retain the Charter, which has worked well in the past, but, as I say, it is mainly a matter between the executive and Parliament.

  522. Can I come at this one from a slightly different angle? We had Dr Derek Morris, the Chairman of the Competition Commission, giving evidence at an earlier stage and he said that he expected to get a certain amount of hassle, appeals, from your commercial rivals as to whether the BBC was infringing on their territory or shutting them off or whatever, and he said that he would find it very useful if there was a specific laying down of what the public interest role of the BBC was against which the various competition criteria could be arranged. Do you agree a clear definition of the BBC's public service commitment would assist in oversight, or do you just see that as a nuisance?
  (Mr Davies) I do not see it as a nuisance. I think it already exists in the Charter and the agreement to a considerable extent. I would need to consult the evidence that Derek gave to know exactly what he meant in terms of competition policy. In terms of competition policy, incidentally, we are sometimes surprised to read that the BBC is somehow not fully subject to competition law because the BBC is, and should be, entirely subject to UK law, to the OFCOM/OFT nexus in future and to European law, and everything that we do, both in our public service role and in our commercial subsidiaries, is subject to challenge under those legal restrictions. I have to say that although there have been, I would say, somewhere between several and many challenges about BBC activity that have been examined by the OFT, the OFT has never found against us on fair trading grounds.

  523. No, I do not think that is what Dr Morris was suggesting. He was just saying "Could I know very clearly the public interest role of the BBC?"
  (Mr Davies) Can I have a think about that and get back to the Committee, because I would like to see what he has in his mind.

  524. There is a kind of supplementary on this which is that I think several of us here see that the case for including a definition in the Communications Bill is distinct from the case for OFCOM control of the BBC: that this is not trying to infringe upon the present position whereby the BBC is not subject to tier 3 content regulation by OFCOM. Could you take that one on board as well perhaps?
  (Mr Davies) I will ask Caroline to come in in a minute because I am not sure I am grasping the track correctly here, but in the Bill there is a clear set of objectives—I think the word is "requirements" although our view is that "objectives" would be better—to be fulfilled by public service broadcasters, and that set of objectives or requirements is taken from the BBC agreement. Essentially, therefore, what DCMS has done is broadly taken what applied to the BBC and said that these are the objectives which should apply across all public service broadcasters. It is not clear to me whether Derek and yourself are suggesting we should do that better or differently. Is that what you are suggesting?

  525. I think he was suggesting that that had to be done in a way which enabled the Competition Commission to be very clear.
  (Mr Davies) It may be a good idea. I do not know what he has in his mind, though.

Lord Mcnally

  526. There is both a suspicion and occasional evidence has been given to us that the BBC uses its very solid base of public finance and public service commitment to push the envelope of its commercial activities in every direction and that there is not sufficient transparency about these activities.
  (Mr Dyke) When Richard Whish was asked by the Government and the governors to review those processes, he said, "I am not aware of any organisation that is subject to as much scrutiny internally and externally to ensure compliance with competition". Having spent my life in the private sector before joining the BBC, in the private sector I never remember discussing competition policy. In the public sector we only discuss competition policy. I cannot remember a meeting I have been to at the BBC where at some stage we did not discuss the Office of Fair Trading. Transparency is about what people can take issue with us on, and they have never taken us to the OFT and won. We have a whole system of compliance on competition policy—and I am interested you say "allegations in evidence". We would very much like to see the evidence.
  (Mr Davies) It is natural that people with whom we are competing clearly have an interest in alleging that we are using our licence fee somehow to subsidise our commercial activities, but whenever anybody from the outside—and it has happened on many occasions—has come in to look at either the procedures, which Richard Whish did, or the way the procedures are implemented, for which we have a British Standards kite mark and we are the first organisation that has achieved that, when any external person has come in from outside to look at this, they have found that our processes are tougher than anybody else's.

  527. You have an aggressively entrepreneurial director general. Do you think the board of governors are up to controlling him?
  (Mr Davies) I quite like entrepreneurial people; I am not sure I like aggressive ones. So far we are doing okay.
  (Mr Dyke) Also, remember at the time of the last licence fee settlement the Secretary of State at that stage said, "We are looking to you for self help and we are challenging you to find £1.2 billion over the next ten years in self help, i.e. either by savings inside the organisation which we have been very successful at, or by competition or commercial revenue", so we cannot live both ways, but attracting that commercial revenue has to be done within the constraints of competition policy, competition law, that we abide by.
  (Mr Davies) Absolutely. I spent most of the 1990s with the opposite accusation being levelled at the BBC which was, "You folks have got this magnificent archive, it must be a treasure beyond all richness, and you are not taking advantage of it commercially", so we were being pressed and have been by Parliament and by Government and by external assessors to do this for a long time but, as Greg says, it must not be done, and in my view has not been, if it ever involves subsidy of private commercial activities by the licence fee, and there has to be a fire wall between the two of them. I honestly believe that we are utterly transparent in how we do this. We publish our fair trading guidelines and we implement them.

  Chairman: We were very impressed, all of us, by Dr Morris' evidence. He made some extremely constructive suggestions and it would be helpful if you could look at them and come back to us.

Lord Crickhowell

  528. Pursuing this general area, we have now got a definition in Clause 181 and very specific detail of public sector broadcasting requirements for it in Subclause (5). What proportion of your total output do you think is public sector broadcasting in terms of that definition? I think the Culture, Media and Sports Committee has already suggested that clearly not all of it can be, so we seem to have a situation where, yes, you have certain clear commercial things but, in fact, a large part of your other output cannot really be described as public sector broadcasting. Do you agree? What proportion of your output do you really think is public sector broadcasting in that sense?
  (Mr Davies) The first of the requirements mentioned information, provision of education and entertainment.

  529. I am referring particularly to Subclause (5) that covers a much tighter set of definitions.
  (Mr Davies) Subclause (5)(a) says that "... the public service broadcasters (taken together) comprise a public service for the dissemination of information and for the provision of education and entertainment", and I think it is deliberate that the word "entertainment" is in there to be a wider definition of public service broadcasting than maybe some people would like. We had a debate with Tim Yeo about this proposal, and they centred a little bit around this subject. To narrow that definition down has big disadvantages, and I set them out yesterday in the debate with Tim Yeo.

  530. I can see it had big disadvantages for the BBC, and I should declare an interest as a former chairman of a Channel 3 company but we were not allowed to act on that assumption. We had a much tighter agreement for public sector broadcasting and still have, so I do not see why the BBC should get away with it. You have said a lot about complying so marvellously with competition laws, and I feel slightly intrigued by your response to the specific ITN criticisms in your paper where you refer again and again to complying with the BBC's fair trading commitment and your commercial policy guidelines. I am sure you comply with your own guidelines but is that an adequate defence? Surely what we need is an independent set of protections provided by someone like OFCOM?
  (Mr Davies) OFCOM will be enforcing the law in this regard so I do not think there is necessarily a problem. Going back to what you were saying about ITV, the requirements under the Clause that you have pointed to will apply to public service broadcasters, including the BBC, ITV and others. So I do not think there will be a difference in the requirements as applied between the BBC and ITV. Secondly, in Subclause (b) it specifically mentions, apart from entertainment, drama, comedy and music, and that will apply to everybody. Greg, do you want to comment on ITN?
  (Mr Dyke) Just taking this week's broadcast, you had the last of "The History of Britain", an absolutely magnificent series—public service to the core. You had last night a "Panorama" investigation at 9.00 pm into what happened in Ireland in the 1970s—again, absolutely central to the public service core. You had a third part on BBC 2 of a series about paedophilia which again absolutely central to the public service—

  531. But no one is questioning that you do a lot of extremely good public sector broadcasting. My question is all your output public sector broadcasting—
  (Mr Dyke) At a time when the commercial sector is going through commercial difficulties, it is inevitable that the commercial sector will try to push us into a much more restrictive definition of public service broadcasting. You have to ask whether that is in the interests of Britain as a whole. Would the public service broadcasters have done the Jubilee as we did the Jubilee and spent many millions of pounds which in commercial terms would have made no sense? Would they have covered the last Olympics, which they could have done but opted not to? I could give you numerous examples where there is not a contradiction between public service broadcasting and being popular.
  (Mr Davies) I do not think we should let ITN—
  (Mr Dyke) These allegations constantly come from ITN that somehow suggest that ITN is straightforward, profit and loss, open market company. That is not the history of ITN at all, and you know it as well as I do. The 1990 Broadcasting Act gave the ITC powers to appoint nominated news providers. As a result of the 1990 Broadcasting Act ITN were the only nominated news broadcaster and, as you remember, every person bidding for the franchises was virtually told how much to put in to pay ITN, so therefore they got a guaranteed amount from the ITV companies upon which it has built a business, and it has built that business by, on the margin, selling to Channel 4, Channel 5 and all sorts of others. So let us not pretend that this is in any way a straightforward market based, profit and loss company: it was a regulated organisation with a price imposed which this Bill again allows you to do.

  532. Again, you are not answering my question. My specific criticism, which is very specific, is that in your response you simply turn to your own commercial policy guidelines of the fair trading commitment, and I am asking whether that is an adequate response?
  (Mr Davies) ITN in some ways here is quite typical of what we sometimes get. A commercial broadcaster alleges that we are acting either outside competition law or outside our own fair trading regulations which are tougher than competition law; they are voluntarily imposed by the governors on the organisation. There are many more allegations than upheld allegations, I can tell you, and they are in two stages. The governors examine whether the allegations are valid relative to our own guidelines which are tougher than competition law, and the courts and the OFT and, in future, OFCOM will be fully and absolutely able to enforce competition law.
  (Ms Thomson) First of all, just on that specific point, the fair trading guidelines are imposing something that goes further than competition law—that is the crucial issue about that—but their compliance with them is not only being sanctioned by Professor Whish and the ISO kite mark but is audited every year by a separate set of auditors, and that report is made available in the annual report. With your forebearance, could I go back to the point about ITV versus BBC remits because I think what you are referring to, Lord Crickhowell, are the licence provisions in the ITC licences. Under the new OFCOM in the Communications Bill Clause 182(2) the ITV remit is now only described as being "the provision of a range of high quality and diverse programming", whereas the BBC in its agreement has every single element of 181(5) written in its agreement as something it has to fulfil, so whatever the history of regulation and remits I do not think there is any argument that, moving forward, the BBC is going to be subject to a much tighter remit than ITV.
  (Mr Dyke) And should be, because we are now living in a world where it is going to be much tougher for all the commercial companies, where competition is getting greater, and it is right that they should live under a lighter touch regulatory system. We have no problem with that; that does not apply to us.
  (Mr Davies) However, we do not want to do the same as them. Sometimes in debates like this I feel I am in a corner, because it is assumed that the BBC is trying to "get away with" duplicating ITV and others. We do not want to do what they are doing; we want to do things that are distinctive and different.

Lord Mcnally

  533. Before we leave this, there is one clarification on the ITN point. Are you saying that, once OFCOM is in being, a complainant like ITN would go to OFCOM and OFCOM would have jurisdiction?
  (Mr Davies) It would have the ability to do that, absolutely, without any equivocation.

  534. And there would be no matter of saying "This is a matter for the governors"?
  (Mr Davies) The law will be applied. The governors will do their best to apply the law insofar as we can understand it and apply it. If we do not do this adequately, there is absolutely no question that ITN can go to OFCOM and get the law applied—as it can now, by the way, with the OFT and has not been able to, incidentally. Our own fair trading regulations which we impose voluntarily and which are in addition to what is required by the law are a matter for the BBC, and I do not think it is right to have an external body, whether OFCOM or the OFT, that would have somehow to enforce a set of regulations which are imposed by the governors.

  535. But the whole thrust of an external regulator is that they are the regulator and that there is not this twin track?
  (Mr Davies) No. I absolutely have to say this: I come from the city, Goldman. Goldman had a ton of regulations which the management of Goldman Sachs imposed on us, the staff of Goldman Sachs. They were way outside what the law was imposing and what the regulator should do as well. So any entity can have a good custom and practice of its own in our view setting the public interest in this case which is outwith and above the requirements set by the law.
  (Ms Thomson) Chairman, I promise this will close down the issue. Would it be helpful if we wrote to the Committee outlining the provisions of the fair trading commitment, which bits are applied basically of the law and therefore are applied by OFCOM, and which extra bits are applied by the BBC, because I think that would clarify it for you?

  Chairman: It would, particularly if you parallel them with what is the law and what you would do. If I had thought of that ten minutes ago it would have been really good idea!

Anne Picking

  536. On the Content Board, all the evidence we have received so far suggests that its remit should be strengthened rather than weakened. Yet you appear to argue that it should only concentrate on tier 1 standards regulation. Would you not expect it to take the lead in tier 3 regulation of the public service broadcasting remit?
  (Mr Davies) I think the Content Board, which of course is there to advise the full board of OFCOM and is an advisory body, should give advice on the areas where OFCOM has jurisdiction, and that makes perfect sense to me. Now, insofar as it relates to the BBC that is tiers 1 and 2. I am not sure about tier 2 but tier 1 which is the basic standard would appear to me to be the obvious place where the Content Board's advice is needed to the board of OFCOM. To involve the Content Board or any part of OFCOM in tier 3 brings us back to the argument we had earlier about the public service remit and where the ultimate jurisdiction on that should be, so I think to give tier 3 to the Content Board vis-a-vis the BBC brings us into the double regulation argument we had before. We need to be logical about this: if OFCOM has a set of responsibilities then its advisory Content Board needs to relate to that set of responsibilities.


  537. The Content Board is statutory.
  (Mr Davies) Yes, but I think its statutory requirements are to advise the Content Board of OFCOM.

  538. But most of the evidence we have heard suggests that the Content Board's role needs to be strengthened. For example, it should have some ability to report directly to Parliament, because it would be possible to have a deregulatory regime at OFCOM which is only interested in the economic issues and shows little or no interest in the cultural and content area. Therefore if you are to chair a Content Board, what access do you have to make, as it were, your complaint?
  (Mr Davies) I have not thought in detail about those issues. At first blush I am perfectly sympathetic to the line but I do not think it is a directly relevant question to the BBC. It is about how OFCOM should function in the future. One of the fears about OFCOM and always has been is that somehow the telecom regulation would be the dominant and moving force within OFCOM, and fears about that are a clear disadvantage of setting up OFCOM in the first place which is why we have the Content Board. Whether or not the Content Board has enough power and visibility within OFCOM I am not expert on.
  (Mr Dyke) I would say again that we have to be very careful about setting up a system where you have dual regulation. The experience of dual regulation is that one regulator tends to fight with the other.

Mr Grogan

  539. I want to follow up on content. Some people would say that some of the most exciting content in recent years has come from independent production companies and they provided us with evidence suggesting that they should get a better crack at the whip, if you like, from the BBC and independent companies, and perhaps there should be a code of practice for the commissioning process. How would the BBC react to that?
  (Mr Dyke) This is probably the last market in the world where independent producers expect to be paid the full cost of the programme and a profit and own the rights, and some of them still do achieve that but that does not make sense. If you go to America or any other market in the world that does not happen. The idea that an independent producer is guaranteed a profit but owns the whole thing is rather bizarre. In the United States, where I used to run a production company, as did the Chairman, the risks taken by the producers are enormous. We in this country set up an independent sector where the risks are not great. I am not sure, therefore, they should be entitled to own all the rights. We follow the law on independent producers. Remember the Independent Producers' Organisation is only a trade organisation of people trying to make money and, therefore, you should not believe all people say as Gospel. These are people looking for the best interests of their businesses which is perfectly valid, but you have to set it in that perspective and, therefore, their aim is to maximise both the income and the rights ownership they can get, and the House's is to look after the public interest, so is it really our job to make large numbers of independent producers extremely rich?

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