Joint Committee on The Draft Communications Bill Minutes of Evidence


Examination of Witnesses (Questions 560 - 573)

THURSDAY 20 JUNE 2002

MR CLIVE JONES AND MR MICK DESMOND

  560. You do not think the Secretary of State's view on ownership is actually a reflection of a despair at ITV management actually being able to get its act together?
  (Mr Jones) Can we distinguish between what Mick and I do, which is running ITV 1 and 2, which remains Britain's most popular channel, which delivers to millions of viewers our soaps, our dramas, our comedies—
  (Mr Desmond)—our World Cup coverage.
  (Mr Jones)—and indeed our World Cup. This is a very successful channel which dominates peak time and always has. Okay, the BBC have a very good May, and good luck to the BBC, I am pleased they have had a very good May, but it is the first good May they have had in peak time for about 30 years. We are a very successful channel. We are very happy with the remit we have. Whatever Mr Andrew Neil might think about basket cases, maybe he should look at some of his newspapers and how they are performing. I think ITV and BBC1 will still be dominating viewing in the same way when the next Broadcast Bill or Communications Bill is brought before this Committee and the two Houses it represents; we are the dominant channels with BBC1 in the UK and we will remain the dominant channels.

Chairman

  561. I am saying this to try to be helpful but I think what you have said is very important. Lord Crickhowell and I, I hope helpfully, have been enormously involved for a great number of years in being directors of ITV companies, and all the business plans I ever saw in the early 1990s anticipated fluctuations in advertising revenue and all anticipated increased competition and the business plans were based on that. Do you think it is fair to say that the business has been guilty of over-reach, and part of the problem is not harvesting in the good years to deal with these bad years?
  (Mr Desmond) May I take the advertising issue first of all. I think nobody foresaw the peak of 1999-2000 revenues, not just in the UK but globally. We saw a huge growth in advertising revenue which was fundamentally driven by the internet and computer software and hardware providers which spiked revenue out of all proportion. Year 2000 was the year that our licence payments were actually measured against going forward with an RPI proposition going forward. We argued very much at that time there would be a year where we would see a decline. In the same way that the year 2000 massively surprised us and everybody in the advertising industry, so did the year 2001 when we saw a complete collapse of these categories which will never return to television, and you will see in the States exactly what is happening in that market. I do not think it is the case we could have squirrelled away monies for rainy days. At that time and indeed now—and we announced over three weeks ago we are starting to see a recovery in advertising revenue, cautiously optimistic as we are because we do not think it will be as buoyant as some pundits are forecasting—we are starting to invest again in the short term ahead of that recovery but it is tough.
  (Mr Jones) Our two companies invested £1.2 billion in trying to further the Government's ambition to create the first digital nation in the world and the first digital terrestrial television network. Sadly it did not work but we were doing it encouraged by the Government. Indeed we are now bidding, on a different basis, to continue helping to achieve that vision. The second thing to say is that Greg got a very good licence settlement at a good time in the economy. Our licence settlement, and we discussed spectrum earlier this week, means we pay spectrum tax and we are paying over £300 million a year in spectrum tax on top of corporation tax and other taxes, and when that was set by the ITC advertising was very high and they said our advertising revenue would grow for the next ten years at a rate of 3 per cent year on year—please God that it will return to that because it promptly died down. So we have a very inflexible licence regime and no ability—and this is no criticism of the ITC because under statute they have no ability—to vary it according to performance of the economy.
  (Mr Desmond) Can I perhaps pick up on Lord Crickhowell's comments to the BBC. One of the other issues in terms of the broadcasting environment is the re-interpretation of public service broadcasting in the BBC as opposed to the BBC entering into a head-to-head ratings war with BBC1 against ITV1 and pushing what we believe is public service broadcasting in terms of current affairs, documentaries, to the edges of the schedules and on to BBC2 and possibly even on to BBC4. We would like to see that tightened up and not be in this head-to-head war which is just turning into a ratings battle.

Lord Crickhowell

  562. Chairman, I am bound to say when you talked about squirrelling away I seemed to remember being a director of an ITV company which enabled the Chancellor to do a good deal of squirrelling away but it cut our resources pretty substantially, and that of course was a factor too. However, I want to take up your evidence on the nominated news provider. In your evidence you say you believe, "... the retention of the NNP system is anomalous and likely to damage the prospects for the maintenance of an independent third force in television news provision. ITV believes that permitting Channel 3 to own its own news supplier offers the best route to ensuring the retention of at least three major suppliers of TV news in the UK." I suppose the counter-argument is that news production is such a special requirement it needs special protective clauses in legislation of this kind. Would you comment and elaborate on why you think the Government has got this wrong and you would prefer change?
  (Mr Jones) First of all, to address the point at the core of our concern, we do recognise news is a key building block of public service broadcasting and it must be protected and must be protected in terms of our remit and by the Bill. I cannot envisage an ITV without a strong and vibrant national, international and regional news system. The raft of content provisions which relate to news and news on ITV within the Bill—quality, references to due impartiality, the national and international content of our news bulletin, demand for showing in peak and that news be spread throughout our programme service—place very powerful obligations on licensees, and if we were not to meet any of those criteria sanctions could come in against us. We could be warned, fined, ultimately our licence could be taken away. I do not quibble with any of those, I think they are right and proper and they are at the core of taking news on ITV. What I do not understand is why the Government is seeking additional levels of regulation applicable only to ITV to deliver the things that the statutory content rules do. I think the nominated news provider system is unnecessary and slightly daft; I have always thought it was daft. Essentially what it does is damage our news service and damages ITN and it undermines the prospects of maintaining this third force. A clear example: last year we put our news out to tender because our contract was coming to an end with ITN, and the ITC, not us, nominated another news provider and it contained an element of Sky News. I have no criticism of Sky News, they are a good organisation providing a good news service. But it did not come as any surprise at all that they underbid ITN. We had a very comprehensive tender document with clear demands on quality and all the rest of it but ITN volunteered, again not requested by us, to lower their price and lower their budget. We examined them very carefully and we had to be convinced they were going to deliver the service they were promising and they were rewarded by a six year contract of more than £200 million. But if you have a competing nominated news provider every time news contracts end you set up ITN as an Aunt Sally, someone will come in and undercut it. Actually if you set a price for the budget it is even worse, because they actually know the price to bid. We owned ITN for 35 years, it was a respected force—there were only two other forces then. We did not interfere with it, we never stopped it providing good news services for Channel 4 or Channel 5, we did not interfere with content. We are the only major broadcaster in the world which is not allowed to own its own news service. It is not a requirement on the BBC, it is not a requirement on Channel 4 or Channel 5. Why is ITV being singled out? There is no question our news service is well regarded and competitive against the BBC. Why are we singled out in this way? News always was safe in our hands. Regional news is considered to be safe in our hands but not national news. It does seem deeply ironic and inconsistent.

  563. Are you saying you would drop the clauses that insist on nominated news provider altogether and simply rely on section 181 and the obligations it puts on you, including one already quoted by the Chairman of the BBC back at me, about dissemination of information and so on?
  (Mr Jones) I would, Lord Crickhowell. The bottom line is that what must be continued to be required of us is that news on ITV will remain impartial, of very high quality and shown in peak. If the legislation secures those things, then I think you can have the assurance that OFCOM will keep us up to the mark, because if we do not they can take away our licence.

Lord McNally

  564. One of the reasons why there is suspicion of ITV is its treatment of ITN over the last ten years. It had one of the great national assets, probably great international assets, in ITN and over the last decade you have allowed the bean counters to get at that national asset and diminish it, I think, to the detriment of ITV. One of your weaknesses now, which was once one of your strengths, is the strength of ITN. Actually, I think you are right, I cannot see why a single ITV company should not be its own news provider so long as it has the commitment to news provision, and let's stick to national news provision, which ITN once had. Do you not to a certain extent somewhat regret the fact that ITN was squeezed and squeezed and squeezed? Even in your prosperous years the aim was to cut back on news spending by ITN and squeeze the budget, and the result is what I believe is a lost asset for ITV.
  (Mr Jones) ITN was at its very best, from your perspective, when it was wholly owned by ITV. I am not going to criticise the ownership or management of ITN. We now only own 40 per cent, and that is quite intriguing. Budgets: I think ITN have been well funded and have been able to grow their business off the back of the funding that ITV have put into the ITN service. They have been able to spin off services, and I do not quibble and I do not criticise. They have been able to build a business and provide news to Channel 4 at far less price than ITV pays for its news, and to Channel 5 at an even bigger margin of difference. I think we have funded it well. Technology has changed. I started in ITV news 25 years ago when it was shot on film and the film had to go into a bath and we had to reclaim the silver and it would take hours and you had to decide news stories at 9 o'clock in the morning to get them on at 6 o'clock at night. The world has changed. Reporters are now in Afghanistan and can report from there by digital phone, going straight up to satellite and providing pictures. Technology has changed the cost base of news. I think we fund ITN well and I think we will continue to fund ITN well. I actually think that the taking away of the nominated news provider system will further underpin ITN rather than diminish it. The thought of this process being extended to Channel 5 fills me with horror because I suspect it could damage the news quality on Channel 5 in the same way it runs the risk of damaging the news quality on ITV.

Paul Farrelly

  565. Clive, you said that ITN provides Channel 4 and Channel 5 with the news at a lower price than ITV, presumably that is on a marginal cost basis.
  (Mr Jones) Yes.

  566. If we went your route, do you think OFCOM or the Bill should contain special "cannot refuse" provisions so that that service in a much more competitive TV environment would still be available for Channel 4 and Channel 5?
  (Mr Jones) Absolutely. They are run as separate departments within ITN, they have their own department for ITV, a separate department for Channel 4 and a separate department for Channel 5. I think there are some economies of scale they achieve in certain technical areas and a shared resource. I would not want ITN in any way to be restricted or diminished from offering a service to Channel 4 or Channel 5. I do not think ITN is the third force in British news, it is the second force in British news, and this ability to provide a range of services including radio is useful and beneficial to the general ecology.

  567. My second question picks up a point in your evidence on media ownership. What is interesting in reading the nominated news provider clauses of the Bill is that the Secretary of State implicitly recognises the possibility that Channel 5 might at some stage in the future match ITV, Channel 3, for audience share and therefore might be brought into the nominated news provider scheme. Given that possibility, that Channel 5 may indeed grow, what justification do you think there is for treating Channel 5 differently from Channel 3 with respect to cross media ownership in all this?
  (Mr Jones) I refer back to Mick's earlier remarks. It seems unusual to make Channel 5 a special case. I think the main risk is this linkage or the potential linkage between a dominant pay platform operator and a terrestrial player. I do not think it would serve British television well if Channel 5 were to become a Barker channel for BskyB by promoting its pay TV programming, particularly if they were able to corner the market in terms of content, particularly American acquisitions, and sport. I do not think it would hurt ITV, I think the biggest sufferer however would be Channel 4, and Channel 4 has a crucial place in the broadcasting ecology of the UK. It would seem to me a disaster if a channel of that vibrancy and quality were squeezed out by a change in the ownership of channels. I cannot quite see where it came from, it seems unique and distinct and outof left field.
  (Mr Desmond) I think you can go further, over and above the potential they may well have in the market for rights. If we took the BSkyB and Channel 5 relationship, and the weight of the very strong Murdoch press in terms of the ability it already has in the market to refer to programmes—and at the moment it is probably the World Cup and Channel 4's Big Brother—you could see a concerted effort to turn editorial space away from some of these competing channels and refer quite strongly to Channel 5 in disguise. That is another way that the ecology of broadcasting can be changed by another medium and the strength of that other medium.

Baroness Cohen of Pimlico

  568. I want to ask you about "must carry". ITV is on record as welcoming the Government's statement of intent to extend "must carry" to satellite and your belief that without an explicit guarantee that public service broadcasters will be available on the satellite platform in the run up to switchover, it seems unlikely we will ever get to the point where analogue can be switched off. Gazing at that, one wonders whether your relationship with BSkyB should not be overseen by OFCOM rather than have a specific "must carry" written into the provisions of the Bill?
  (Mr Desmond) I think we are one step further than the BBC, we think it should be written into the Bill now. There are two specific issues here. If the Government wants to achieve its stated aim and public policy objective, of universal availability of public service broadcasters, it has to ensure fair treatment in the various platforms. There is clarity in terms of how public service broadcasters are treated within the cable environment, there is clarity in the DTT environment, and I think we need that when it comes to digital satellite and the relationship with Sky. Again I agree with Greg here, we have no problem in terms of paying for conditional access, our use of conditional access is very much to ensure we can deliver each of our licence obligations in each of our regions and not have an overspill into neighbouring licences, unlike pay channels who need that conditional access in order to gather subscription. Whilst we have not got a problem with paying, it is at what level we pay. We believe conditional access is of minimal cost to Sky, probably in the hundreds of thousands, as opposed to the £17 million we pay for one channel, and we question, certainly as the BBC comes up for renewal of its carriage deal with BskyB, more than one channel what it will be expected to pay. We believe there should be transparency in terms of what we pay, we do not believe we should be subsidising Sky's give away of boxes, and we believe that taxpayers' money in the case of the BBC or indeed what we pay would be better spent in terms of strengthening our programming output.

Brian White

  569. But is that not because you thought by keeping ITV on DSAT you could kill off satellite through DTT, and you made a fundamental mistake and got it wrong and now you are paying the penalty?
  (Mr Jones) We got it very, very wrong indeed and it cost us £1.2 billion. I accept what Greg was saying earlier, it is not only "must carry", it should be coupled with "must offer". Sky set up as a pay platform and is a very successful pay platform, but I think public service broadcasters enhance the pay platform by offering the free-th-air channels—BBC, Channel 4, Channel 5, ITV1 and ITV2—and I do not think licence payers and our advertisers should pay for the privilege. The bulk of the money should actually go back into programming, but that does not mean we should not pay proper and reasonable charges.

  570. One of the things you argue very strongly is that when licences come to an end in 2014, you should have an expectation of renewal rather than a competitive situation. Given it is a market place, why should there not be a competitive process at that point?
  (Mr Jones) I discussed this with the DCMS last week and they explained the core policy objectives behind running licences to 2014 would be to ensure we continue to invest and were kept up to the mark in terms of public service broadcasting, and that we continued to invest in the roll-out on digital infrastructure. If our licences come to an end in 2014, you are not going to have much chance of keeping us to either of those two things. Why should we invest masses amounts of money in public service broadcasting or into the digital infrastructure if you are going to take our licences away? Or we are going to revert to that wonderful process which the lady whose picture is to my left brought in in the early 1990s, are we going to go back to that very crazy auction system which probably did more damage to ITV and public service broadcasting than anything in the last 20 or 30 years? Obviously OFCOM is going to have to make a decision. If they have the powers to ensure we deliver our licence obligations all the way through our licences, that is fine, but there has to be a process to ensure that sometime in 2012 and 2011 they have to have a process, as they do now, for the proper evaluation of our licence services and whether we should keep going. The present situation is the publishing process for license renewal is open to public consultation, including consultation by us, they agree the process, they properly evaluate the value of the licences, and we make a submission based on what is happening in the economy and the advertising revenue and they make us an offer. Whether that is the right process or not, there should be a revised process and it is for OFCOM to decide and Parliament to decide clearly at the end of the licence. The present company is going to decide whether it will renew those terms. It is about certainty and about not disrupting programming to viewers. There will be plenty of controls on us within the Bill to ensure we deliver, and if we do not deliver they take the licences away and re-advertise anyway, but I do not understand why this should come to a sharp end in 2014. The same applies to Channel 4 and Channel 5. Again, it does not seem a sensible device.

Lord Crickhowell

  571. You would not expect me, Clive, to be very sympathetic to the bidding system which eventually meant the company of which I was a director finished up being owned by the company of which you are a director. However, I am still a little puzzled by your statement there would be no investment, because I do not recall, before we had to make our painfully high bid in order to renew our licence against competition, that we stopped investing, or indeed that our predecessors, who of course lost the licence, stopped investing before the previous licence changed. I do not recall that that happened, I think we all thought we would have to go on investing to put ourselves in a position to adequately service the thing for which we were bidding, and indeed we had to meet the basic requirements to persuade the regulator we were putting in a legitimate and deliverable bid. So I am a little puzzled by your suggestion that if there was this cut off, investment will suddenly stop; puzzled and a little sceptical, frankly.
  (Mr Jones) You are right, Lord Crickhowell. Maybe I should rephrase it and make myself clear. If there is no right to renewal beyond 2014, it will create uncertainty and it could undermine investment. If there is a renewal process in 2014, you are incentivising investment, you are incentivising investment in the programme service and incentivising continued investment in the digital infrastructure. I was wrong to say it would stop or we would stop, I was trying to indicate we would not be incentivised to continue to invest and there might be a temptation to play fast and loose.

Chairman

  572. You are not asking for automaticity?
  (Mr Jones) No, I think there should be a proper licence renewal process. OFCOM should publish the process by which they do it and they should name that process and leave it for Parliament to decide.

  573. Thank you very much indeed. I believe one of the Bill team has something to say.
  (Mr De Val) I thought it might help the Committee to clarify and go back to the very first question about whether the content will have an executive role or an advisory role. Clause 18(2) does at least try to make clear that we envisage the Content Board carrying out functions on OFCOM's behalf. The Content Board is part of OFCOM, it is up to OFCOM what functions it has. The Bill clearly envisages it will have some functions but they will be executive functions and it will be up to OFCOM to say what they are.

  Chairman: Thank you very much indeed.





 
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