The British Film and Television Industries - Communications Committee Contents


CHAPTER 3: British television

137.  This chapter considers the issues facing the production and distribution of UK-originated content for television. The first part of the chapter outlines a brief history of British television and current viewing patterns; the importance of television in economic and cultural terms; and the regulation of the television industry. The second part of the chapter considers current pressures on the provision of UK content with a focus on specific programming genres; and the independent sector's contribution to UK content production.

A brief history of British television

TELEVISION'S EARLY DAYS

138.  The world's first regular television service was launched by the BBC in November 1936. The Marconi-EMI 405-line "high definition" service transmitted around four hours of programmes each day from Alexandra Palace, available only to owners of sets in the London area.[41] In May the following year, King George VI's Coronation procession became television's first outside broadcast, while the Wimbledon championships became Britain's first televised sporting event. This was, however, still very much a minority interest: when television was suspended on 1 September 1939 because of the war, there were fewer than 20,000 TV sets in operation.

139.  BBC television resumed in June 1946, with a combined £2 radio/television licence fee (separate from the pre-existing radio licence) introduced in the same month. Over the next few years, the service was gradually extended outside London, but the watershed broadcast was the televising of the Queen's Coronation in June 1953, covered by 21 cameras and watched live by around 27 million viewers in the UK as well as by viewers in Germany, Netherlands, France, and Belgium. This proved the catalyst for the purchase of television sets, and is generally regarded as the "tipping point" for television in the UK.

THE BBC/ITV DUOPOLY AND THE RISE OF TELEVISION

140.  In 1954, the Government decided that the second television channel should be operated on commercial lines, albeit regulated by a public body with a statutory responsibility to impose public service requirements. Rather than run by a single network, it was to be organised as a series of separately owned regional franchises, each with a monopoly of television advertising in its own geographical area and collectively known as ITV. The Independent Television Authority (ITA) was inaugurated in July of the same year as the overarching regulatory body, charged amongst its other duties with choosing appropriate ITV contractors among competing bidders. It also decreed that the news should be provided by a separate organisation, Independent Television News, underwritten by the successful ITV contractors. ITV launched in the London area through the contractor Associated-Rediffusion on 22 September 1955[42]. ITV then extended gradually to the Midlands, North and Central Scotland franchises in 1957, Wales, the West and Southern franchises in 1958, the North East and Ulster in 1959. The network was not complete until 1962.

141.  By the end of 1958, the number of television households exceeded the number of radio-only households, rising to over 10 million by the end of the 1950s. During the first years of the ITV franchises, as the medium took time to work its way into people's lives and advertisers needed to be wooed away from the familiar territory of newspapers, commercial television struggled to make money. By the beginning of the 1960s, however, on the back of popular shows such as The Adventures of Robin Hood, Coronation Street, Double Your Money and Take Your Pick—as well as a liberal smattering of American imports such as Bonanza, Rawhide and I Love Lucy—the tide turned and ITV companies' monopoly of television advertising made them exceptionally profitable. Roy Thomson, later Lord Thomson of Fleet and owner of Scottish Television from its inception in 1957, famously described his franchise as "a licence to print money".

142.  In 1962, the Pilkington Committee on Broadcasting produced its report, which was critical of the quality of ITV programming, and recommended greater regulatory scrutiny by the ITA. It also recommended that the third television channel should go to the BBC; that the technical standard should move from 405 to 625 lines; and that colour transmission should be expedited. The same year saw the first historic transatlantic satellite transmission, broadcast live via the Telstar satellite. BBC2 went on air in April 1964, and started transmission in colour three years later. A colour television licence was introduced for the first time in 1968[43]. The following year saw a colour service inaugurated on both ITV and BBC1.

143.  By the end of the 1960s, television licences had increased from 9 million in 1959 to 16 million and television was being blamed for plummeting cinema audiences: admissions had fallen from 600 to 200 million over the same period, while the number of cinemas had declined from 3,414 to 1,558.[44] The public service philosophy which had become ingrained within the BBC seemed to be mirrored by ITV, which during the course of the 1970s easily matched the BBC's output of original drama, documentary, arts, current affairs and children's programmes.[45]

144.  The radio-only licence was abolished in 1971, and the inexorable rise of the television medium was consolidated during the 1970s, a period of unusual stability where the only significant change was a change in the regulator's name as the ITA was rechristened the Independent Broadcasting Authority (to accommodate commercial radio) and technology advances saw the introduction of video cassette recorders in 1974. By the end of the 1970s, the number of colour television licences outnumbered black-and-white.

CHANNEL 4 AND THE BEGINNINGS OF CABLE AND SATELLITE

145.  There was a further round of ITV franchise changes in 1982, determined by the IBA on the basis of programme track record and commitments for the future[46]. A more profound change to the television ecology took place in the same year, with the start of Channel 4. The Annan Committee, set up in the 1970s to examine options for a fourth channel, had rejected ITV's calls for a second channel and recommended a wholly new approach to the funding and structure of television. The result was Channel 4, set up as a non-profitable body under the auspices of the IBA, with three very distinctive features.

146.  First, rather than a vertically integrated broadcaster which produced programmes in-house, it was created as a publisher-broadcaster with a team of commissioning editors who would commission programmes from outside. Second, although funded commercially through the sale of airtime in the same way as ITV, its advertising sales were conducted by ITV and the revenue then returned to Channel 4. It therefore did not compete directly with ITV for commercial revenue, maintaining ITV's monopoly of television advertising which was felt to have underpinned the quantity and quality of its home-grown content. Third, it was obliged by statute to be innovative and to cater for tastes and interests not generally found on other channels. Experimentation and minority programming were therefore written into the DNA of Channel 4 from its inception, an explicit extension of the public service ethos which still governed British television.

147.  Breakfast television started in 1983 on both BBC and ITV (TVam winning the breakfast franchise) and Thames was the first channel to start 24 hour broadcasting in 1987. The 1980s ended with a four-channel all-day schedule on terrestrial television, run on public service lines, which for the vast majority of the audience comprised their total viewing experience. The 1980s also saw the first attempts at cable and satellite delivery systems which were to spawn a plethora of channels over the next 20 years. Europe's first satellite channel, later known as Sky, was launched in 1982. It could be received via the cable systems which were gradually emerging in urban areas after franchises had been awarded by the new Cable Authority (created in 1985).

148.  It was, however, advances in direct-to-home satellite broadcasting which were to have a greater impact. In 1986, the domestic franchise for a three-channel domestic satellite service was awarded by the IBA to British Satellite Broadcasting (BSB) which planned to launch its satellite dish-received service in late 1989. It was, however, pre-empted by the Rupert Murdoch-owned Sky four-channel system which launched its service in February 1989. In the event, planning issues and technical problems delayed the launch until April 1990.

THE 1990S—A RADICAL SHIFT

149.  Two days in November 1990 fundamentally reshaped British television. On 1 November the Broadcasting Act 1990, which aimed significantly to deregulate British television, received royal assent. ITV licences—now to be known as Channel 3 licences—were to be decided by auction rather than subjective "beauty parades", subject to passing a quality threshold. Channel 4 was to be separated from ITV as a stand-alone (though still non-profit) organisation competing with other commercial channels for advertising revenue. The IBA was split into an Independent Television Commission (ITC) and Radio Authority, both with significantly reduced powers over programme output. And all public service broadcasters were now obliged by law to commission a minimum 25 per cent of their non-news programmes from independent producers.

150.  The following day, in the wake of substantial losses by both operations, the two satellite companies which had been fighting a bitter war of attrition announced a "merger"—essentially a takeover in which the new operation, British Sky Broadcasting (BSkyB) was controlled and run by Sky. In 1992 BSkyB, despite still being very much a minority broadcaster, acquired the rights to exclusive live coverage of football's newly formed Premier League, a landmark deal which formed the basis of a lucrative subscription service centred around exclusive sports television contracts.

151.  Those Channel 3 franchises which had prospered in the new auction process started broadcasting in January 1993[47]. This was followed rapidly by the first wave of consolidations within the ITV system in the wake of relaxations in the 1990 Act and in anticipation of further deregulation, which came in the Broadcasting Act 1996. By 1997, the original 15 franchises had effectively been whittled down to five major companies: Carlton, Granada, United News and Media (owners of Meridian, Anglia and HTV), Ulster Television (UTV) and Scottish Media Group (STV and Grampian). In 2000, Granada took control of the former UNM franchises, leaving Carlton and Granada as the two "big beasts" of ITV in advance of further ownership deregulation in 2003.

152.  The Broadcasting Act 1996 also laid the groundwork for digital terrestrial television (DTT), which provided the possibility of multi-channel and interactive television via a terrestrial network Digital "multiplexes" for commercial DTT were awarded by the ITC to the consortium most likely to make the enterprise succeed. The winning group, British Digital Broadcasting, was owned primarily by the two major ITV groups Granada and Carlton, and was renamed ONdigital before launching in 1998. Designed as a subscription service, which required customers to buy set-top boxes to convert digital signals for analogue sets, ONdigital struggled with poor programming, unreliable signals, and a powerful subscription competitor in BSkyB. Despite giving away set-top boxes and being relaunched as ITV Digital in 2001, the enterprise collapsed under the weight of huge debts in 2002.

153.  While attempts were being made to kick-start DTT, the final piece of the analogue puzzle was completed in 1997 with the launch of Channel Five as a for profit company (subsequently rebranded as Five). It was initially available to around 70 per cent of television households. Five is now owned by the German conglomerate Bertelsmann.

154.  All the public service channels—the BBC and Channel 3 (ITV), Channel 4 and Five—received public support in return for undertaking certain programming commitments, including UK origination quota requirements set by the regulator. For the commercial PSBs, support included free or cheap access to the limited analogue spectrum which reached the great majority of UK households. In addition they benefited from free access to digital capacity as well as prominence on Electronic Programme Guides.

THE 2000S—AN ERA OF COMPETITION, PROLIFERATION AND NEW TECHNOLOGY

155.  With the DTT franchise now vacated, the ITC awarded it in 2002 to a new BBC-led consortium committed to free-to-air broadcasting and subsidised set-top boxes offering 28 channels. Branded as "Freeview", the new service sought to establish itself without monthly payments rather than compete with Sky's subscription model.

156.  The Communications Act 2003 continued the deregulatory trend of its predecessor, relaxing content obligations on commercial PSBs and clearing the way for a further consolidation of ITV. This was completed in 2004 when Granada and Carlton merged to become ITV plc, subject to restrictions on the sale of advertising airtime in light of OFT and Competition Commission concerns about its dominance of the television advertising market. The remaining Channel 3 licences, not part of ITV plc are owned by the Scottish Television Group (central and northern Scotland); Ulster Television (Northern Ireland); and the Channel Islands Group (Channel Islands).

157.  The Communications Act also heralded the biggest shake-up in broadcasting and telecoms regulation for years as five separate regulators, including the ITC, were brought together to create the Office of Communications (Ofcom) in anticipation of greater technological convergence between screen, print, telephone and computer. The regulation of commercial television passed to Ofcom in December 2003.

158.  In September 2005, the government announced a definitive region-by-region rolling programme of switchover from analogue to digital terrestrial television, beginning in 2008 and culminating in London in 2012. The first analogue signals were switched off permanently in Whitehaven, Cumbria in October 2007.

159.  Meanwhile, consolidation of media ownership continued. In November 2006, BSkyB acquired a 17.9 per cent stake in ITV to become its largest single shareholder. Following an investigation and ruling by the Competition Commission, the satellite company was ordered to reduce its shareholding to 7.5 per cent, but in 2009 obtained permission from the Court of Appeal to take the matter to the High Court. Its appeal is still pending. In February 2007, the cable company NTL rebranded itself as Virgin Media following Virgin's significant investment in the company.

160.  At the same time as ownership trends were shifting in commercial television, satellite and cable, technology was transforming the viewing experience. The 2000s saw VCRs become progressively obsolete as first DVDs and more recently recordable hard drives allowed easier time shifting and non-linear viewing. The Sky+, V+ (for Virgin), Freeview+ BT Vision boxes all now permit consumer-friendly recording as well as, increasingly, catch-up television on all channels. Accessibility of television via live streaming and catch-up programmes on the computer have also brought the convergence of televisions and computers closer, although the vast majority of television viewing remains television-centred.

THE IMPORTANCE OF THE TELEVISION INDUSTRY

161.  According to the latest ONS data[48], there are around 80,000 jobs in the television industry: in broadcast television, cable and satellite and the independent production sector. This amounts to just over a tenth of the entire workforce in the creative media. The television industry comprises over 1,450 businesses, which are broadly divided up into the following three sub-sectors (p 266):

  •   (a)  10 (terrestrial) broadcast television companies
  •   (b)  Around 250 cable and satellite broadcasters
  •   (c)  Around 1,100 independent production companies.

162.  The industry comprises a small number of large businesses and a large number of small companies. However, there is an increasing trend for the smaller independent production companies merging with others or being bought out to form much larger companies.

163.  According to an Ofcom survey[49], British viewers appreciate programmes that reflect UK cultures, values and identities. Over four-fifths of people think it is important for the main television channels to provide programmes that are made in the UK and reflect life in the UK. The importance of locally produced drama was emphasised to us by Peter Grant, an expert in trade law and international cultural policy, who said, "… people appreciate having their own stories told and their own experience reflected on the small screen. So there is a real demand for local programming, whether it is drama or the other categories" (Q 427).

164.  In addition, British television companies like the BBC, ITV and Channel 4, also make a significant contribution to our export economy. In 2008, the total revenue from the international sale of UK television programmes and associated activities was £980m[50], which is a 25 per cent increase on 2007. In that year, BBC Worldwide's overseas revenues amounted to around £430m and ITV's overseas revenues around £150m. The industry's main customer abroad is the US, accounting for over a third of total export revenue in 2008. Both UK television programmes and programme formats prove popular with other countries. Examples of popular television programmes include ITV's Midsomer Murders; Channel 4's Ramsay's Kitchen Nightmares; and the BBC's Doctor Who. Examples of popular formats include shows such as the BBC's Strictly Come Dancing and ITV's Who Wants to be a Millionaire?[51]

REGULATIONS GOVERNING UK CONTENT ON TELEVISION

165.  The BBC was set up by Royal Charter and Channel 4 by Act of Parliament. UK Legislation applies special regulatory provisions to each of the 'Public Service Broadcasters'. The three commercially funded channels are regulated in respect of these statutory requirements by Ofcom while the BBC is regulated both by the BBC Trust and, in certain areas, by Ofcom. Non-PSB television channels broadcast from the UK are also subject to regulation by Ofcom, but to a much lesser extent than the PSBs.

166.  All television channels licensed by Ofcom are subject to a range of licensing obligations and conditions, grounded in statute and enforced by Ofcom. Television businesses in the UK are also subject to UK Competition Law which is administered by Ofcom and the Competition Commission. In the case of competition issues with an EU dimension the European Commission can become involved.

167.  All channels licensed by Ofcom (like all other channels licensed by any EU Member State) are subject to the provisions of the EU Audiovisual Media Services (AVMS) Directive, which has been transposed into UK Law[52]. The European Union has developed strict rules relating to the permissibility of State Aids, which are widely defined and include support in kind as well as cash—for example, free use of spectrum. The European Commission can and does intervene if it identifies what it considers abuse. Television content is also subject to EU regulations. The AVMS Directive[53] provides that each channel must, where practicable, show a majority of European programmes. Ofcom requires broadcasting licensees to report annually on the proportion of European content included in their transmissions and, if this is less than a majority, to explain why it is not practical to achieve this. This information is then submitted by the Department of Media, Culture and Sport to the European Commission on a bi-annual basis (p 505).

Quotas and the Communications Act 2003

168.  All television channels licensed by Ofcom—and in some respects BBC channels too—are subject to a range of regulatory requirements set down by the Communications Act 2003. These are generally recognised as dividing into three levels or "tiers" of regulation:

  •   Tier 1 sets standards for matters such as harm, offence and political impartiality. These standards apply to all broadcasters including the BBC (although accuracy and impartiality are a matter for the BBC Trust);
  •   Tier 2 applies only to licensed public service broadcasters. As well as implementing the 25 per cent independent production quota, it requires Ofcom to set quotas for original UK production for each public service channel. It also requires Ofcom to set down minimum requirements for news and current affairs programmes on these channels.
  •   Tier 3 also applicable only to licensed public service broadcasters, relates to other areas of public service programming where Ofcom can offer guidance but not set quotas.

169.  Original productions are programmes made in the UK and can come from two sources: either commissioned from independent producers, or a broadcaster's own in-house production facilities. The table below shows the quotas currently set by Ofcom for each channel both in peak-time and for the whole day. It demonstrates that all channels comfortably exceeded their original production quotas in 2008. The table covers all UK content, though not necessarily first-run productions since it includes repeats.

TABLE 1

Original production quotas and performance by public service channel 2008
Quota all day% hours Achieved all day% hours Quota peak time% hoursAchieved peak time% hours
BBC 17086 9099
BBC 27082 8095
ITV16587 8596
Channel 46062 7076
Five5359 4249

Source: Ofcom Communications Market Report 2009

170.  Evidence we received suggested the PSB channels broadcast considerably more UK-originated content at peak time than they did 30 years ago. Andy Duncan, outgoing Chief Executive of Channel 4, told us, "One of the rather good things in the UK is that if you look at eight o'clock or nine o'clock in the schedules, typically it is British drama and British programming that dominates the schedules" (Q 2210). This represents a sea-change in the schedules of the 1970s when American imported drama featured heavily in the peak-time schedule. Michael Grade, Executive Director, ITV, said "… if you go back to the so-called golden age of broadcasting, pre-digital, pre-Sky, the BBC1 schedules, the ITV1 schedules, were packed with American material. Hawaii Five-0, Kojak, Starsky and Hutch, Six Million Dollar Man, Dynasty, Dallas, et cetera— … You do not see them on the main channels today, because Doc Martin, Benidorm, The Fixer, The Bill—these are programmes that are more popular than American material" (Q 1824).

171.  While this dominance of prime-time schedules by UK-produced programmes is to be welcomed, it is the overall level of new original programming that concerns us and which we address below.

UK CONTENT

172.  Despite two decades of multi-channel broadcasting, the vast majority of UK originated content, (other than in sport), is produced or commissioned by the public service broadcasters. In 2007 (the most recent year for which figures are available), PSBs represented over 90 per cent of all spend on original UK television programming, with cable and satellite channels accounting for the remaining 10 per cent[54].

Cable and satellite channels' contribution to UK content

173.  The Satellite and Cable Broadcasters' Group (SCBG), who represent the largest satellite and cable channels in the UK (Q 1566), told us that the SCBG members contributed £193m to UK-originated content in 2007 (Q 1581). This contrasts with PSB channels who contributed £2.6bn in UK-originated content in the same year. However, this figure does not include the expenditure of cable and satellite channels on sports programming or the acquisition of sports rights, and the contribution that this makes to sport in the UK.

174.  BSkyB is one of the largest providers of satellite television in the UK, with 9.4 million subscribers (Q 1924) and revenue of over £5bn (Q 1919). David Wheeldon, Director of Public Affairs, BSkyB, told us that "we are investing considerably in UK content and that is growing" (Q 1998). However, this is difficult to check. BSkyB is not willing to provide us with detailed figures on its investment in UK content. The Committee is therefore unable to judge BSkyB's claim that their investment in UK content is increasing significantly. We greatly regret the refusal of BSkyB to provide this information. Christine Payne, General Secretary of Equity (the trade union representing performing artists), said that BSkyB's contribution to UK-originated drama is "very, very little, and this is of great concern to us, because as the television landscape is changing, then these channels seem to be taking all the advantages of the work that our members have done, but contributing very little back to it" (Q 254). We note that a recent Culture, Media and Sport Select Committee report[55] also recorded reluctance by the cable and satellite industry to provide figures: "Although the Satellite and Cable Broadcasters' Group originally agreed to provide us with its own estimate of the multi-channel sector's investment in UK-produced children's programming, we note that it has since declined to do so on grounds of commercial confidentiality. We find this failure … very disappointing"

175.  There are several types of programming where purely commercial players are unlikely to invest significantly in UK content for television or other platforms, because returns are too low and the commercial risk is too great. Without the PSBs, the UK production of certain programme genres would be likely to decline, which would be a loss for UK audiences, for employment in the industry and for the economy as a whole. Ofcom has identified the programme genres most at risk as children's programmes; regional news; documentaries; drama; and comedy.

The pressures on Public Service Broadcasters

176.  Given the important role of PSBs in producing and commissioning UK-originated content, it is of concern that the total value of expenditure on UK-originated output by the five main PSB channels has decreased by £500m in five years, from £3.1 bn in 2004 to £2.6 bn in 2008[56], a fall in real terms of around 15 per cent. The five main PSB channels broadcast 33,177 hours of first-run UK originated programming in 2008, down by 3 per cent (1,099 hours) since 2004[57].

177.  Financial pressures on the commercial PSBs, and uncertainties over the future of channels 3, 4 and 5, mean that their commitment to PSB content is now at considerable risk. As outlined in two previous reports by this Committee[58], the PSBs are subject to the following changes in the market:

  •   (a)  First, the move from analogue to digital broadcasting. In the analogue broadcasting market, the commercial PSBs benefited from access to limited analogue spectrum—an implied subsidy in return for which the companies undertook certain public service obligations.
  •   (b)  Second, falling advertising revenues and fragmenting audiences. A significant proportion of advertising revenue is migrating from television to the internet—in the UK, Google's advertising revenues are greater than ITV1's. The speed and severity of the current economic recession has intensified the fall in advertising revenues[59]. In addition, a system of just two commercial channels and little competition has been transformed into hundreds of competing channels and fragmenting audiences. These challenges exacerbate the tension between a commercially owned public service broadcaster's incentives to maintain a profitable business model and investing in high quality public service content.

FIGURE 5

Total TV industry revenue by source

Source: Ofcom Communications Market Report 2009

178.  Whilst the BBC has greater security of funding through the licence fee, they too faced pressures to deliver value for money for audiences, and meet demands for fresh programmes. The BBC has devised an efficiency programme, which started in April 2008, with a target to achieve 3 per cent cumulative savings of £1.9 bn[60]. Mark Thompson, Director-General, BBC said, "… what we are trying to do is to track, to benchmark quality, so you make sure you are maintaining or increasing the public perception of quality while delivering these efficiencies. So far across the piece, that seems to be going well and the public scores we are getting for quality are slightly up over this period even though we have already taken 15/20 per cent out of the budgets" (Q 2055).

179.  Channel 4's funding problems were addressed in our report on Public Service Broadcasting[61]. These still have not been resolved. Glyn Isherwood, Group Finance Controller, Channel 4, told us "The total programme budget for 2009 is about £530 million, which is £100 million less than the previous year, so there is substantial pressure on that programme budget" (Q 2162), and this is the lowest level since 2002. So, whilst we welcome the wider remit for Channel 4, especially in relation to UK content, which was proposed in the Digital Economy Bill[62] (November 2009), it is still not clear where the funding will come from, to implement this wider remit.

180.  The current difficulties of commercial PSBs contrast with the subscription based channels, such as BSkyB, where revenues have risen between 2003 and 2008. These channels have also seen a fall in advertising revenues but have a solid base in subscriptions, as shown by BSkyB whose subscriptions make up almost 80 per cent of their total revenue (Q 1919). These channels generated revenues of £4.3 billion in 2008, a six per cent increase on 2007[63].

CONSEQUENCES

181.  The pressures faced by the PSBs have an adverse impact on UK content both from an economic and quality point of view. Andy Duncan, Chief Executive of Channel 4 said "One of the worries I have for the British system as a whole is the engine of content investment has historically come from the licence fee and from the TV advertising income that ITV, Channel 4 and to a lesser extent Five … have earned, where the majority of that money has been reinvested back into content, and in Channel 4's case all of it has been reinvested back into content. The model that is now growing up is one where if you are a digital channel business you buy other people's used content to repeat and/or you acquire from the States ... The level of content investment in Britain is a worry whether you are looking at it from a cultural/social public value perspective or from a creative economy hardnosed business perspective. On both fronts it is a worry" (Q 2209).

182.  An integral part of the public service ethos in the UK has been a recognition that home-grown content and innovation are important ingredients of our television culture. In addition, certain programme genres, which have been identified as being central to public service purposes, have experienced falls in spending. Ofcom's figures show that in the five years leading up to 2008, spending on children's programmes has fallen by 48 per cent; news and current affairs by 14 per cent; factual programmes by four per cent; comedy by nine per cent; and drama by three per cent.

183.  The two genres—children's programming; and regional news and current affairs—which have seen the steepest falls in expenditure, are also the areas of UK-generated content that Ofcom believe need to be safeguarded. This was explained by Peter Phillips, Partner for Strategy and Market Developments, Ofcom. He said "What we said in the Public Service Broadcasting Review was that we felt that news programming should be the highest priority given the feedback that we had from audiences about what mattered to them. The next set of priorities that we set out in addition to that were around children's programming, where we have seen very significant changes in the amount of UK-originated children's programming, particularly for older, school age children, and particularly in the areas of drama and factual programming for those children" (Q 2249).

Children's programmes

184.  In the five years leading up to 2008, the volume of first-run originated children's programming fell from 1,887 hours per annum to 919 hours[64]. Reasons include re-focused PSB requirements, increased commercial pressures, greater restrictions on advertising in and around children's programming and significant changes in children's consumption of media[65].

185.  Ofcom told us that the reduction in the volume of first-run originated children's programming is particularly acute for "older, school age children, and particularly in the areas of drama and factual programming" (Q 2249). The Digital Economy Bill (clause 21) has placed a requirement on Channel 4 to make "relevant media content that appeals to the tastes and interests of older children and young adults". Andy Duncan, told us that Channel 4 "would be very happy and willing to take on additional responsibilities towards the older children's group in particular" (Q 2189)

186.  Cuts in funding of children's programming are also affecting UK-originated programmes for younger children. Anne Wood, Creative Director, Ragdoll Productions, said the "Director General of the BBC has cut the children's budget—and many others—to the bone in the interests of saving money. If you have no investment, you have no creative risk taking … It comes down to the funding every single time" (Q 688). Anna Home, Chair, Save Kids' TV argued that "children today see a huge amount of the world, particularly of the American world, and relatively little of their own". She pointed to drama "where children see themselves reflected, their own lives reflected, in a context which they comprehend", which she said was "hugely important, both for their education and for their cultural development as citizens" (Q 1489).

187.  The reduction of both output and expenditure in children's programming could have serious consequences, according to Ofcom. In December 2009, Colette Bowe, Chair of Ofcom, told a House of Commons Committee[66] "we are sleepwalking into a situation where we do not have UK-generated content of a high quality for our kids. I believe that would be a very bad outcome".

Regional news

188.  News and current affairs shows the second steepest fall in PSB expenditure in the five years to 2008[67]. The BBC is continuing its regional news service, though making efficiency savings in this area (Q 2055). In contrast, ITV is withdrawing from regional news. In its written evidence to us, ITV outlined that it currently invests around £55m per annum in regional news but earns insufficient return on that investment. It is aware that a high value is placed on regional news by many viewers, the Government and Ofcom, and believes that a publicly-funded model is the best option to guarantee a secure future for regional news on Channel 3. It supports proposals for an alternative model of regional news provision in which ITV provides the time slots while the service itself is provided by third party news organisations (p 403). The Government agrees and Digital Britain stated that "An early priority is for independently financed news consortia providing an independent stream of multi-media and broadcast news using Channel 3 Licensees' broadcast regional news slots as one means of distribution". Building on Digital Britain's proposal, clause 28 of the Digital Economy Bill (November 2009) includes provision for appointed providers of regional or local news[68], enabling third party organisations to provide news on Channel 3 (ITV).

Documentaries and drama

189.  Other programme genres are also under pressure. Roger Graef, documentary maker and CEO, Films of Record, told us that new technology has resulted in financial pressures on makers of factual programmes, "there is the economic reductionist pressure of very tight budgets: because technology allows you to shoot and edit quicker, the accountants who look at the budgets say in that case we must shorten the budget and shorten the schedule. In my experience with documentaries, especially open-ended ones which are not scripted in advance, very often the best things happen on the very last day … That flexibility—the investment and the open-ended process—has really eroded big time" (Q 688).

190.  On expenditure on drama, Michael Grade confirmed that current economic conditions had caused ITV to reduce its original drama output from eight to seven hours a week (Q 1838). But there is a more fundamental threat to television drama production from the United States. American imports such as West Wing and The Wire offer high quality competition. Because US producers are able to recoup their costs from their large domestic market, they can be highly price competitive in overseas markets. Peter Grant told us that the US is "able to sell [televised drama] in other countries at prices that make it almost impossible for other countries to compete in the high value, audiovisual sector without government support" (Q 424). The UK is particularly vulnerable to this competition, compared to other European countries, because of the lack of a language barrier.

THE INDEPENDENT SECTOR'S CONTRIBUTION TO UK CONTENT

191.  The uncertain future of the PSBs means an uncertain future for another part of the UK television industry: the independent production sector.

192.  According to PACT (p 10), the independent sector (comprising production companies that are external to broadcasters) plays an increasingly important role in creating UK content. The independent sector has an annual turnover of more than £2 billion, creates around half of all UK television programmes each year across the BBC, ITV1, Channel 4 and Five and provides 21,000 jobs.

193.  Historically, the independent production sector has delivered high levels of UK content for the PSBs (p 80). The creation of Channel 4 as a publisher-broadcaster and the formal introduction, through the Broadcasting Act 1990, of a statutory 25 per cent independent quota were the key drivers in opening up a market that previously relied on in-house production at the BBC and ITV.

194.  Following an assessment by the Independent Television Commission (ITC) of the independent production sector in 2002, the ITC recommended a radical shift in the relationship between broadcasters (as programme commissioners) and independent producers. Broadcasters were in a strong negotiating position because there was little interest in commissioning from the multichannel sector. The ITC concluded that intervention was required to promote growth in the independent sector.

195.  The ITC, and subsequently Ofcom, developed Terms of Trade/Codes of Practice to help independent producers to negotiate a fair deal in the primary rights package, establishing a balance in the relationship between the parties. These terms of trade relate to how rights should be sold and priced. Primary rights are a matter of negotiation between broadcaster and independent producer, subject to Ofcom's approval. The terms of trade introduced in the Communications Act 2003 enabled independent TV producers to retain control of a share of intellectual property rights when they create programmes for broadcasters. The major broadcasters told us that the Terms of Trade put them at a commercial disadvantage. Michael Grade said, "It is a nonsense that there are regulated terms of trade between two commercial organisations. If you are an independent producer, you have plenty of places you can sell your wares to" (Q 1867).

The BBC and the independents

196.  As noted, the BBC must commission at least 25 per cent of its qualifying television programme hours from independent producers. However, as noted by the House of Lords Select Committee on the BBC Charter Review in 2005, the BBC did not always succeed in meeting this obligation, and saw it both as a ceiling as well as a floor. Many witnesses who gave evidence to the Committee felt that "an increase in independent commissioning at the BBC would benefit the industry and the quality of programming" (paragraph 225).

197.  Following the 2005 Green Paper[69], the BBC, with a view to increasing independent production, put forward a plan to introduce the Window of Creative Competition (WOCC), which identified a further 25 per cent of BBC commissions over and above the 25 per cent minimum quota for which all producers, both in-house and external, can compete.

198.  The WOCC began operating in 2007 and has, to date, been successful. According to the BBC[70], in the financial year 2008/9, independent production companies won three-quarters and in-house won a quarter of network programme hours available within it. The BBC Trust reviews the operation of the WOCC, and other commissioning arrangements as set out in the BBC Agreement, at least every two years. The BBC Trust said, in a review conducted on the BBC Trust's behalf by PriceWaterhouseCoopers in 2008[71], concluded that "commissioners had clear incentives to pick the best ideas and PwC found no obvious bias towards accepting in-house ideas over independent ones or vice versa".

Conclusions

199.  From its inception, British television was governed by a public service ethos which was applied as much to the commercially funded sector as to the publicly funded BBC. For the first 45 years of post-war television, change was incremental and as recently as the early 1990s a four-channel terrestrial service provided the vast majority of television consumption.

200.  From the beginning of commercial television, a clear separation of revenue streams (between the licence fee-funded BBC and advertising-funded ITV and Channel 4) provided stability of programme funding, and substantial returns for ITV companies in return for their regional advertising monopolies. However, the major legislative changes of the 1990 Broadcasting Act coupled with the arrival of cable and satellite channels and a fifth terrestrial channel signalled a profound shift in the television market-place in the 1990s, when the "licence to print money" gave way to significant competition for viewers and commercial revenue. The arrival of pay channels, in particular, heralded a new source of television revenue through subscription.

201.  The last ten years have seen two major technologically driven changes. First, the shift from analogue to digital transmission in terrestrial, cable and satellite television has spawned a proliferation of channels, both advertising and subscription based. Revenue from subscription channels now exceeds that from both public funding (the licence fee) and advertising. Second, a new generation of hard drive recorders along with catch-up TV (such as the BBC iPlayer) and online viewing through computers provide a number of different approaches to television consumption.

202.  The television industry today plays a vital role in the UK economy, providing around 80,000 jobs and contributing about £1 billion to the export economy. In addition to a small number of large terrestrial broadcasters, the industry comprises a large number of small independent production companies which have injected considerable creative and economic dynamism.

203.  Television also plays an important cultural role in the life of the nation, and overall levels of TV viewing have remained remarkably consistent, despite the upheavals of the last 20 years, at around 25 hours per week. Both opinion research and viewing figures demonstrate that British audiences place particular value on UK-originated programmes. In recognition of both the economic and cultural importance of original UK content, British legislation has consistently empowered regulatory bodies to set minimum quotas on the levels of UK programming which the PSBs are expected to transmit. For the most part, these have been comfortably exceeded.

204.  The exponential growth in the number of channels and the substantial revenues now being earned through subscription and pay per view have not been matched by a proportionate increase in the volume of UK-originated content. Over 90 per cent of UK-originated content on television is therefore still produced by the public service broadcasters—notably the BBC, ITV and Channel 4.

205.  Until now, the commercial PSBs have received financial support from their use of the limited analogue spectrum. With completion of the digital switchover programme in 2012, this implied subsidy will disappear. At the same time, an unprecedented cyclical decline in advertising revenue because of the economic downturn has been exacerbated both by fragmenting audiences and by a structural shift of some TV advertising revenue to online.

206.  One consequence has been a dramatic fall in overall spending by the PSBs on UK-originated programming, down by around 15 per cent in real terms from £3.1 billion in 2004 to £2.6 billion in 2008. There is a consensus in the industry that this rapid decline is set to fall further if remedial action is not taken.

207.  There is a particular risk that the commercial PSBs will be driven towards acquiring more programmes from abroad (especially from the US), which are generally cheaper than equivalent hours of UK-originated output. If unchecked, a continuing reduction in investment in UK television content could have damaging consequences for the economy, for jobs, and for British culture.


41   For the first 3 months, this system alternated with the 240-line John Logie Baird system until it was agreed that the Marconi system afforded better quality reception. Back

42   The BBC responded with the first example of competitive scheduling by killing off Grace Archer in its hugely popular radio series The ArchersBack

43   The same year saw some significant changes in ITV franchises, with London Weekend Television replacing ATV for the London weekend franchise and Thames created by a forced merger of ABC and Rediffusion London for the weekday franchise. Yorkshire TV was given a new franchise out of part of the Granada area, Harlech replaced TWW, ATV took over the all-week Midland franchise and Granada the all-week North-West franchise. Back

44   Figures from the British Film Institute  Back

45   Appendix seven lists popular British television programmes by decade from the 1950s onwards Back

46   ATV, Southern and Westward were replaced respectively by Central in the Midlands, TVS in the South and TSW in the South-West. Back

47   Carlton replaced Thames, Westcountry replaced TSW, Meridian replaced TVS and TVam lost out to GMTV for the breakfast franchise.  Back

48   ONS Annual Business Inquiry, November 2009 Back

49   OfcomPSBReviewphase1annex5,quantitativesurvey2007 Back

50   PACT Annual TV exports survey. Associated activities include DVD/Video sales, formats and licencing. Back

51   AccordingtoChrisBonney,ManagingDirectorofOutrightDistribution,ascitedintheGuardianarticle,'BritishTVexportsdefyrecession',27November2009 Back

52   AVMS replaced the Television Without Frontiers (TWF) Directive on 10 December 2007 and was transposed into UK legislation on 10 November 2009 Back

53   TheDirectivesays thattelevisionbroadcastersshallensurethat,wherepracticable,andsubjecttoparagraphs2and3:
a) amajorityoftheirTransmissionTimeisdevotedtoEuropeanprogramming;
b) atleast10%oftheirTransmissionTimeorprogrammingbudgetisdevotedto
Europeanprogrammingcreatedbyproducerswhoareindependentof broadcasters;and
c) atleast50%ofprogrammingincludedintheirTransmissionTimeinaccordancewith(b)aboveiscreatednolessthanfiveyearsearlierbyproducerswhoareindependentofbroadcasters.
 
Back

54   OfcomCommunicationsMarketReport,2009,p.89 Back

55   Culture, Media and Sport Committee, First Report (2007-08): Public service content (HC 36) Back

56   Ofcom Public Service Broadcasting Annual Report 2009, p.33 Back

57   Ibid p.34 Back

58   HouseofLordsCommunicationsCommittee-First Report (2007-08): TheOwnershipoftheNews (HL 122);and Second Report (2008-09) PublicServiceBroadcasting (HL61) Back

59   NetadvertisingrevenueforITV1,GMTV1,Channel4andFivedecreased8percentyear onyearto£2.1bn(source:OfcomCommunicationsMarketReport,2009) Back

60   BBCannualreportandaccounts,2008/09.July2009 Back

61   HouseofLordsCommunicationsCommittee-PublicServiceBroadcasting:Short-TermCrisis,.Long-TermFuture?(HL61).Session2008-09 Back

62   Clauses21and22 Back

63   OfcomCommunicationsMarketReport,2009,p.82. Back

64   Ofcom PSB annual report 2009, p.145 Back

65   DigitalBritain,2009,p.147(box) Back

66   Joint Culture, Media and Sport; and Business, innovation and Skills Select Committee evidence on Ofcom's 2009-10 Annual Plan, 1 December 2009 Back

67   Thisincludesnationalnews;andlocal/regionalnews Back

68   Clause28,subsection(1)statesthat"OFCOMmay(a)appointapersontoproviderelevantmediacontentconsistingofregionalnewsorlocalnews(orboth)forallorpartofadesignatedChannel3area,and(b)payamountstotheappointedpersonforusein,orinconnectionwith,theprovisionofsuchcontent. Back

69   Review of the BBC's Royal Charter: A strong BBC, independent of government Back

70   http://www.bbc.co.uk/pressoffice/pressreleases/stories/2009/05_may/07/wocc.shtml Back

71   TheOperationoftheWOCC-FirstBiennialReviewbytheBBCTrust,July2008 Back


 
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