UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 743-ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Support for the creative ECONOMY

Tuesday 20 November 2012

Mr Alan Davey, Dame Liz Forgan, and MS Claire Enders

MR JOHN MCVAY

Evidence heard in Public Questions 123 - 217

USE OF THE TRANSCRIPT

1.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

Any public use of, or reference to, the contents should make clear that neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

3.

Members who receive this for the purpose of correcting questions addressed by them to witnesses are asked to send corrections to the Committee Assistant.

4.

Prospective witnesses may receive this in preparation for any written or oral evidence they may in due course give to the Committee.

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 20 November 2012

Members present:

Mr John Whittingdale (Chair)

Mr Ben Bradshaw

Tracey Crouch

Paul Farrelly

Mr Adrian Sanders

Jim Sheridan

Mr Gerry Sutcliffe

________________

Examination of Witnesses

Witnesses: Alan Davey, Chief Executive, Arts Council England, Dame Liz Forgan, Chair, Arts Council England, and Claire Enders, Enders Analysis, gave evidence.

Chair: Good morning. This is the second session of the Committee’s inquiry into support for the creative economy and I would like to welcome our first panel: Dame Liz Forgan, Chairman of the Arts Council, Alan Davey, the Chief Executive, and Claire Enders of Enders Analysis.

Q123 Mr Bradshaw: I would like to start with a general question for all three of you. What is your assessment of the major challenges facing our creative economy?

Dame Liz Forgan: I will start. Access to capital, training and I would add secure funding for the cultural sector that underpins it.

Claire Enders: Yes, in my own submission I pointed to the relatively poor state of the economy here in the UK, which has diminished spending on creative products, particularly among younger demographics who are facing historic levels of unemployment. I have also pointed to the continuing effects of piracy, which do diminish at some level legitimate sales, although that is a vexed point. Nevertheless, for the UK-which is more reliant than any other nation on the creative industries for exports and for employment and also for the creation of franchises of global significance-the enduring level of piracy is a continuing concern.

Q124 Mr Bradshaw: We will come on to piracy in a little bit more detail in a moment. Dame Liz, we see different figures bandied about as to the importance of the creative sector for the UK economy as a whole. Is there a reliable figure that you can give us? Can you quantify the value of this industry?

Dame Liz Forgan: The central important fact that one should never lose sight of is that the strength of the British cultural sector lies in the fact that the private sector and the public sector are absolutely closely and intimately entwined and always have been. That is an enormous strength in every possible way. We do have a figure. It is very difficult to disentangle what I call the cultural arts from the cultural industry and it is in some way a false distinction but we do have a number, and Alan is better at numbers than me. So just to be safe, I think he had better tell it to you.

Alan Davey: The number that we are sticking to is around the cultural sectors of the cultural economy that is a subsector of the larger creative economy. A report by Creative and Cultural Skills estimated that the cultural sector was worth about £28 billion each year to the UK economy. That is about 67,000 businesses with a contribution to GVA per head of £34,110, compared to £31,800 in the wider economy, but even that is difficult to describe, and other people have described different conglomerations of various bits of the sectors in different ways.

Just to return briefly to your previous question about the challenges, I would agree wholeheartedly with what has been said and my major worry is the health of the cultural economy that underpins the creative economy that acts as a foundation. That is particularly because of the uncertainty at the moment on local government finance, access into the industry, training and skills. There are some quite worrying signs from the education system, with the EBacc missing out arts and design as part of that core, sending a very poor signal. If we do not get it right by whatever means-by having either a sixth pillar of the EBacc or something for the other 20% that injects rigour into study and training, and then subsequent higher education routes-then I think we are building up trouble for ourselves in the future.

Mr Bradshaw: I think we will come onto skills and education again a little bit later, but Claire Enders, you wanted to come in there.

Claire Enders: Yes, I had the privilege of presenting an overall view of the creative industries in Europe and Brussels earlier this year. We did an enormous amount of work on the data involved and I would be very happy to send you the report that we did. That showed that the UK audiovisual economy on its own was £21 billion, which was the largest in Europe. This fuels exports, which we expect to exceed £10 billion a year. We are going to see a 25% to 30% growth in audiovisual exports since 2009. One third of that was newspapers and books. The UK is exporting content all over the world and, in fact, to put it into context, as I said, as a sector this is 11% of the UK’s export of services in 2009. We expect it to be maybe 15% or 16% in 2012 or 2013 whenever it is next measured in this way, and there are 1.5 million people employed in it.

It is undoubtedly seeing significant growth and I say that only because I have also just made a comment about piracy. These creative industries have continued to grow and they indeed have continued to grow very significantly despite the absence of some of the measures advocated in relation to elimination and reduction of copyright. I should just say that my gig in Brussels was really in defence of copyright because it is my view that the UK has an extraordinary position, not only because of the educational establishment, but because of the milieu, the way that there is a seamlessness between theatre, television and film and the franchises are worked on across an extraordinarily well-established craft base of costume makers and so on. I hesitate to say this is because I am an immigrant to this wonderful country, although of British origin, but the three most successful film franchises of all time came out of the genius of this country and indeed the collective genius because it was a genius that spanned many aspects.

Q125 Mr Bradshaw: If we cannot come to settle on a percentage figure, I know this is very difficult. I seem to remember when I was Culture Secretary a figure of 7% or 8% being bandied around as a proportion of our overall economy. It is true to say, is it not, that we have the biggest cultural economy as a proportion of our overall economy, and it has grown at twice the rate of the economy as a whole and will continue to in future?

Claire Enders: We have the highest per capita expenditure on television, on books, on newspapers, on magazines. We are in fact the most literate nation, the most densely cultured, the one that listens to the most speech radio and so on. I have to say I think that this is all part of an extraordinary ecosystem. I have lectured on this ecosystem to Chinese people who cannot understand how it is that we are so creative. It must be something in the water.

Q126 Mr Bradshaw: Thank you. That is a very nice way of putting it. Mr Davey, can I just ask you about the impact of your funding constraints-let me put it as diplomatically as that. What impact has that had? I am particularly interested in what you said about the parallel cuts in local government spending. Most commentators have said you did a very good job in the circumstances in managing this funding situation, but are you worried that you did not take into account enough the parallel cuts that are taking place in local government and that therefore the impact of the overall cuts on the culture in the regions has been much more significant than you thought it would be?

Alan Davey: When we made our dispositions two years ago, we had been subject to a 30% cut in grants and aid. We passed on a 15% cut to the budget of the organisations that we regularly fund who were the backbone of the culture in this country, and we did so in a way that we were not spreading it evenly. We wanted to put it in the right places so that the organisations that we funded were able to thrive and there would be fewer of them. We were confident we could keep the essential backbone of what made culture great in this country and that is what we tried to do.

We did try, to some extent, to take into account likely cuts in local government, or likely places where we would have to go with our money on the table and negotiate hard. We managed to do so in a number of instances. A particular example was Derby, which at one point was proposing to remove all culture funding. We and local industry went in and said, "We have this money on the table and we want to put it into where you are", and industry were saying, "Well, a city that does not value culture is not somewhere our employees are going to want to be". We have tried with the situation as it currently is and we have helped local authorities find solutions all around the country.

What is coming up now are much greater levels of cuts being proposed or talked about. They have not happened yet but, for example, Newcastle yesterday talked about a situation where in three years’ time they virtually eliminate all the funded culture. With Newcastle being a city that regards culture as important, that is very worrying. It is more than worrying; it is a very serious signal. When talking to Government about future funding, I would want them to take that whole picture into account. It is not just what goes through the Arts Council, and what we can do with our money, and what we can do using other people’s money on the table, but the fact that it is looking like one source of that funding from local government is under severe pressure because of all the priorities that they have to follow on adult social care, children’s services and all that. The graph the LGA have painted, they call the graph of doom, which is discretionary spending by 2017. There is not much room for it.

Things differ from authority to authority and different authorities will fight harder to keep cultural spending. I have had some very good talks, for example, with Liverpool recently who, on the back of City of Culture, really do want to back culture in any way that they can. They have made cuts, but culture is central to their economic plan going forward, the sense of Liverpool as a city to invest in but also for the citizens of Liverpool. It is a very disparate picture, and it is a worrying one. While we have some power, with the money that we have to persuade people to come along with us, we are not going to win every battle.

Q127 Chair: To what extent does the Arts Council take account of prospects, the growth and economic activity, or do you see your role as supporting art for art’s sake and leaving the market to support the potential economic successes?

Alan Davey: Liz might want to come in on this, but we do not begin with the premise that all our investment is about growth. Our investment is about allowing culture to happen. When we have made that investment, we know that, applied in certain ways, or applied in partnership with others, it can make a real contribution to growth in local economies and in the national economy. Take the case of Gateshead and Newcastle where there is a well-documented case of economic regeneration through cultural investment. If we had simply gone into that and said, "We want to do culture and it will lead to growth", that would not have worked.

What needed to happen was that the culture and the cultural offer needed to be ingrained into the local environment, to be accepted by local politicians and become part of life for local people. The Sage Gateshead, which is a big concert hall, but it is not just a big concert hall; it is an organisation that has done music education across the north-east. It has embedded itself into that community. It has embedded itself into the local economy and things have grown up round it, together with the new Baltic 39 workshops across the river in Newcastle.

We begin by saying, "How will our investment help culture to happen?" At the same time we are also conscious that growth will result as a consequence of that investment if we get that investment right in an artistic way.

Dame Liz Forgan: I agree with all of that. We would never use the phrase "Art for art’s sake". We do art for people’s sake and that covers a very broad spectrum of interest. This particular point that you make, absolutely homes in on the importance of the relationship with local government. For them, growth and economic activity is an absolute priority and when we sit with them as strategic partners, our perspective and theirs come together in something very good. If that partnership starts to wobble, there will be difficulties.

Alan Davey: I was speaking to the Treasurer of Liverpool recently. He understood that the fact that the Liverpool Philharmonic were now on top artistic form was helping the economic growth mission in Liverpool. He was grateful for what we had been doing to develop that artistic performance and saw that that is where we need to start from and that good things happen from the culture being worthwhile and what people want to engage with.

Q128 Chair: You pointed to this in your evidence, and I am sure you could give examples of where while you did not necessarily put in a grant or funding with a view that this was in due course going to lead to significant economic return, nevertheless there are lots of very successful people or projects that started off with your basic help which have now gone on to produce a return.

Alan Davey: Yes, and we can show that through places like Margate, for example, but also through individuals. We might invest in an individual artist and they will go on and earn a great deal of money in other fields or fields related to culture. We all lived through the summer and the marvellous Olympics and the Cultural Olympiad, the opening ceremony and all that, and lots of the artists involved with that began in the culture sector.

Q129 Mr Bradshaw: In the subsidised cultural sector.

Alan Davey: In the subsidised cultural sector, so Danny Boyle, Stephen Daldry and others. If you look at the Bond film, it has grossed $570 odd million. There are doyens of the subsidised cultural sector who make that happen, whether it is Sam Mendes the director who cut his teeth at the Donmar and the RSC Chichester or others, down to the stars themselves.

Dame Liz Forgan: It is an absolutely symbiotic relationship between us, between the private commercial sector and the subsidised sector. You can look right across Britain and see that it in all ways, small and large. But I think if we sat down as an Arts Council and said, "Now we are going to invest in this artist because we have identified an economic potential in what they have done", that would be foolish. It is not our principal expertise and what we believe in is that if you get art right and you talk sensibly with people with a strategic economic responsibility for the place then you get a good outcome.

Q130 Mr Sutcliffe: Looking at the Olympics and the Paralympics and the wonderful success that we had as a country over the summer, lots of thought and planning went into that over many years. How do we build on our success and maintain that success? From your perspective, what are the issues that we need to face and we need to look at to have an effective legacy for the future?

Dame Liz Forgan: Alan knows more about this than me because he was heavily involved in actually getting it to happen. We did learn some very important lessons. One is that when artistic organisations work together, amazing things can happen. Secondly, when there is a vision and funding, you can involve the whole country. Vision and funding, the two things are absolutely critical to each other, and a really ambitious vision is that you can elicit from people all over the country extraordinary feats of creativity, and an extraordinary sense of common purpose and common joy in the culture of the country. The challenge of hanging onto that requires us to remain ambitious in our vision and to make sure there is just enough money. You cannot do it without some basic funding structure that is reliable.

Q131 Mr Sutcliffe: That is what I am trying to get at. In sports, it tends to dive away after the Olympics are over, and it takes a while to rebuild that. How can we maintain the momentum? I would be interested in what the Arts Council’s contribution was to the Cultural Olympiad and how you felt that achieved both financially and culturally. What I am worried about is that we drop off the end of the cliff. We need to keep the momentum going.

Alan Davey: We invested £39 million in about 650 projects up and down the country, and various other people invested other amounts-maybe a few millions at a time-to make the whole Cultural Olympiad and the 2012 Festival. We are evaluating it now and that evaluation is coming in the New Year.

Q132 Mr Sutcliffe: Is this from Liverpool University?

Alan Davey: Yes, that is right. We are talking to Government about emerging lessons from that evaluation and the Cultural Olympiad board, which I am on and which the Arts Council is part of, and the Arts Council is leading on the evaluation. We really want to catch the wave of what happened in the summer. What we were able to do was have collaborations up and down the country on a scale that had not happened before. The international collaborations really opened up our cultural practitioners to be able to get into partnerships that they had not been able to do before because we had that extra money there to allow it to happen. But the most extraordinary thing that happened was that there were lots of events up and down the country, many of which were free or pretty easy to access, that people participated in. The amount of time I spent on windswept, wet hillsides with thousands of people seeing something extraordinary in that summer, it is a wonder I did not die of pneumonia but we will leave that aside.

It was breathtaking and we are talking about how we capture that and that could be through working out how we can enable those extraordinary commissions to happen, the opening up of our cultural minds to international influences, and bringing them home and getting people to be able to experience them. As I say, we are talking to Government now and it is not quite clear where we might end up, but I agree with you that it is an important thing for us to catch. There are things happening next year, the Manchester International Festival for example. They will have even more ambition than ever on the back of last year, and there are great things happening in Derry, which are really significant. We are putting some money into that because we want English organisations to be a part of that and to really add something to it.

Q133 Mr Sutcliffe: We also have the Commonwealth Games in Glasgow in 2014, the Rugby Union World Cup 2015, and a whole decade of sport.

Alan Davey: We have many things to hang things on.

Q134 Mr Sutcliffe: It is important we keep those linkages together. What else do you think can be done? You talked earlier about local government finances and issues around that but I agree with you, there were some fantastic creative things that went on that were supposedly part of the Olympics and the Paralympics success, but they weren’t really, they were just events that had taken place. This report that comes out in spring, it will be an evaluation of what went on?

Alan Davey: It will be an evaluation of what went on, what its significance was in financial terms, for example. What I hope it is principally going to talk about is how people became engaged. There were really powerful economic spin offs from that. We have done a very quick study in the West Midlands that shows that there was an extra £80 million brought in to the local economy there, and £11 million Gross Value Added and so on, and we can replicate that in other areas of the country. One of the key things that happened in the summer was participation, people getting involved, and that is what we really have to look at and capture. It is not just that they were getting involved in any old thing, they were getting involved in really good things and we upped our game in a number of areas-in particular, I have to say, in the area of disabled arts, with our unlimited commissions, the biggest commission programme ever done for disabled artists in the world, which was hugely significant. Some of the work that came out of that has taken disability arts to another level and given people with disabilities the ambition to do even more.

As well as that, one of the things I am really proud of is our training of the Paralympic aerial artists for the opening ceremony. At the beginning of last year, we did not have people able to do that and LOCOG came to us and said, "Can you help get a bunch of people trained up?" We thought that was the right thing to do.

Dame Liz Forgan: The other lesson is that in order for the extraordinary wealth of creativity around this country to be released, it is necessary to have a network of animators. It just does not happen spontaneously. It coalesces around people or centres who start it happening. It can be in the schools, which is why a culture of education and people in schools that really take this seriously is so important, but also in the community art centres or somebody that just makes it happen, has the idea and people coalesce around them.

Q135 Mr Sutcliffe: I think that is important. Finally, and I do not know if it is a problem, but some of the companies that built things for the Olympics and Paralympics are not able to say that they have done that because of branding issues. Is that something that you have come across in your sector; is it a problem for your sector?

Alan Davey: Not as part of the Cultural Olympiad. We solved a lot of branding problems very early on. The sad thing is that I think they are having to be resold for the Rio Olympics. Every Olympics, one starts again, but with the kind of red ribbon branding and also the "Inspired by" mark, we did get somewhere and people can talk about their involvement in the Cultural Olympiad.

Q136 Mr Bradshaw: I intend to buy lots of copies of the BBC’s double DVD on the opening ceremony-Olympic-sized Christmas presents. Who will get the money from those? Will you get any of it back?

Alan Davey: Not us, no.

Q137 Mr Bradshaw: Who gets the royalties then? Does it all go to the BBC?

Alan Davey: I do not know how the broadcasting contracts work.

Q138 Mr Bradshaw: For the individual artists, who does it go back to?

Dame Liz Forgan: It might go back to LOCOG.

Alan Davey: Yes, I do not know the answer to that.

Dame Liz Forgan: International Olympic Committee.

Q139 Mr Sutcliffe: It would be quite nice to get some of our money back, would it not?

Claire Enders: I think it is worth saying that in the context that the legacy of the Olympics in the global space is enormous. It was the two years before that saw the systematic lead up of focusing on London, focusing on 2012. It is marvellous to get Olympics for 2012, it is such a beautiful number. We have seen the global audience of British brands go up and go up really in significant numbers. As I said, we are expecting some very significant changes in terms of audio visual exports, a 30% increase, and the BBC has gone up to around 250 million people as a global weekly audience. You have to think about it as a continuum again. People associate Burberry, the BBC, or BSkyB, and so on-there is basically this standard of excellence. Particularly in the context of the Beijing Olympic ceremony, which was so completely different, so choreographed, so expensive, the way that British people got around all of those constraints, and as a small and feisty nation of 62 million people up against a nation of 1.4 billion with enormous economic might and a willingness to show it, I think that everybody understood that. This has renewed forever the audiences for British brands. I am not just talking about Downton Abbey, I am talking about the British values as expressed in news, as expressed in products, design, fashion, education. We all know that the world wants to come to be educated here because this is an extraordinary milieu to live in. This is the most culturally dense, mediatised place on the earth. This is really hip.

I think that the Olympics really coated the world with a very pleasant, happy aura around anything with Great British values of originality and thinking and inclusion. Many people remarked on the way that British treated people with disabilities. You would never have seen a disabled person anywhere near a Chinese event. I have to say that I think the legacy of the Olympics will really pay back very quickly the investment that the nation made, it will be paid back in a matter of a very small number of years because of this extraordinary global audience, which is really embedded now. You have broadcasting markets that are developing from nothing and that are buying British formats, buying British programmes that are made, like Downton Abbey and so many others. Also you have many companies using British PR firms because their websites are now translated into our English not American English, and you can tell the difference in my accent. I was born American but I am entirely British.

We have a really very significant long term GDP positive from this and, as I said, I would love to be able to give some effort to calculate the payback, but it is a matter of years. It is not many.

Alan Davey: Can I just say that the opening ceremony was paid for by LOCOG? We did not put money into that explicitly, but the argument I would make is that lots of people who were part of that grew up in the subsidised sector.

Q140 Chair: Liz, in your first answer to Ben on challenges, you mentioned access to capital. Claire, you said in your submission that you did not think there was a market failure requiring public sector intervention and that it was pretty healthy to have businesses having to compete to obtain start-up capital. Is this a problem or is it not a problem?

Claire Enders: We are talking about different things. I believe in a subsidy for the BBC which is mandatory not voluntary, as much as I believe in the same thing in relation to the Arts Council or the NHS and the educational services. We are talking about public goods and commercial goods. I think that we all understand that all of these float in the same universe, the BBC has commercial ventures, public service purposes and so on. It is very true that much of the skill base is learned in the subsidised sector, I would say that certainly for programme making, I am talking about the BBC, because the locus is not ITV or Channel 4. Those are organisations that use distributed talent, which is trained somewhere else or comes out of the sector. Also, I think that the UK does have a real need for a cutting edge creativity culture and that cannot always be satisfied. Sometimes it is satisfied by the commercial sector, but all of this lives in a continuum. For those who say, "Well, there should be more monetisation", it is a very difficult thing to get right and there are a lot of the arts that have a liveness and an experiential quality that do not make monetisation easy. I would say that the commercial creative industries, the exports and all this would not work without a source of extraordinarily well-educated, deep-thinking people who come out of your educational establishments and who are trained in so many ways and who percolate across.

Much of the creative sector is freelance, people working across such a range of different businesses and taking their genius with them. Our actors go across the planet to do adverts here, films there and so on. Everybody knows somehow that they are British. It is incredible. People refer to it, so there is a brand out there. You have to see it all as a continuum, and try not to hurt any part of this extraordinary thing because it works in a magical way. I just do not see the commercial sector as able to sustain the kinds of activities-particularly outside of London-that the Arts Council sustains and local councils sustain. The commercial sector is very London centric and that is true of advertising, movie making, book publishing. I am very glad that we are the global HQ for many of these enterprises, but nonetheless they are London centric.

Q141 Chair: Accepting all of that contribution in terms of skills and training and basic abilities that come from the subsidised sector, if you are a small start-up firm seeking seedcorn capital, do you think that the market will supply that?

Claire Enders: In London, it will in the digital sector, it will not necessarily in the arts sector at all. But you have to distinguish various things. Much of what the Arts Council does is arts experiences in different places, which are very distinct. If you look at the audience for those, it is across the whole population. We have recently done a piece of work that looks at the audiences for drama, opera, classical music, arts events, and so on. You are looking at phenomena that embraced substantially all of the population at some point in their year or are available. That is quite a different thing than sustaining 1.5 million people in creative industries and exporting a lot. These are not absolutely equivalent phenomena. They are really about the space that we live in and the inspiration that people are going to get.

You do see some cities do very well. Dundee is a very well-known example of partnerships between local councils, businesses, like DC Thomson, and the universities, and that has created an extraordinary urban regeneration. That is a very long term partnership. You do need these milieus to attract foreign students, to attract the best academics, to attract Nobel Prize winners, to attract everybody who is going to pay £15,000 to £20,000 a year for a degree in one of those universities, and all the people who support them around them.

Our fabric of the future is a creative knowledge fabric. People have said it for 20 years and they are so right, but I would argue that that has been the British genius for hundreds of years. David Hume beats manufacturers in the Midlands every day of the week for me, because the impact of David Hume, or any of the ideas that we are talking about, is global. It constantly reinforces the value of our assets.

What the Arts Council is doing is sustaining our fabric in a way that the creative industries sustain our Zeitgeist and our space and address the world with new stories and new ideas, but these are contiguous and holistic and symbiotic activities. The Arts Council is not fighting for every last shekel at MIPCOM, and it cannot do.

Dame Liz Forgan: I was making a rather more specific point. You asked me a specific question and I was talking about the small businesses which constitute many of the creative industries. Although Claire is right, there is a concentration in London, it is not exclusive. We see small creative businesses that have plans and ambition to expand, and it is difficult for them to do so because of lack of access to working capital, investment in things like their own IP and all sorts of other things such that we are ourselves about to start-in fact we may have begun it already-a small programme to try to address this issue.

Obviously, money is tight and every small business in the land in every industry is screaming for access to capital, but the creative industries are no different. That is the only point I was making.

Alan Davey: What a lot of start-ups have said to us is, "We do not want grants. What we are looking for is support in loans. When we go to the mainstream biz schemes, they say either we are too small or we do not understand what your business is", which is why we started these-on a very small scale-loan and business support schemes in East London and Yorkshire for small scale creative enterprise. They are tiny loans, a few thousand pounds, plus business support. It is a pilot and we will evaluate it and we will see if it is meeting the need in the right way and the lessons, and then try to expand it possibly with the help of other partners on the Creative Industries Council.

Q142 Chair: Why is the market not supplying them?

Alan Davey: Because of the range of uncertainties that these cultural projects and cultural products are presenting to potential funders. Just looking at a large scale example, who would have thought a play about a horse done by puppets would actually be worthy of investment, let alone four years’ worth of development to get the puppets right. There are lots of uncertainties in the world, but I think in the creative sector the extremities of the uncertainty are quite large, and it is about taste and it could be about knowledge and expertise.

Q143 Mr Bradshaw: Could it be that within the finances services sector they do not have imagination, but also if you look at it objectively this is a sector that has grown much better and faster than anything else they are likely to invest in? Do they just not have the right people to advise them on what to do and where to put their money?

Alan Davey: Getting sympathetic and understanding hearing is hard.

Claire Enders: But they are not well equipped. People who are putting project finance into independent production are looking at project financing of multi million pound projects. They are really not interested in £1,000 loans. At the very granular level, there are a number of ways people can develop their artistry and we have seen this on YouTube. There are many entrepreneurs on YouTube that are creative, whether they are musicians or makeup artists or any number of people. That is something that helps very young people start to get some kind of skill and some kind of ability to monetise.

Alan Davey: Start to make a living.

Claire Enders: Start to make a living. It really should be seen much more in that light than as a business challenge. Most businesses are not equipped to deal with that kind of training, and it is a very important part of enabling people to have a freelance existence. We all know that the creative sector is full of freelancers, not on the business side but obviously on the creative side because that is the right way to incentivise people, so giving people a better skill base.

I am hoping that most universities that teach journalism will enable people who would learn journalism how to be freelancers, because I think they are not going to find it easy to survive and it seems a waste. It should be seen in that light. Small things cannot be done by businesses. Certainly, the creative sectors, as we know, are dealing with these massive global franchises and so on, but the fact that the UK is where many of the world’s authors are managed and packaged is a real help for people in different industries, not theatre, but in writing and directing and so on. The fact that there are these interlocking points here in the UK with global networks is very important. The barriers to entry are not significant. There is an unlimited number of writers and creators in this country, but they do need help to monetise.

Alan Davey: I think that these micro businesses are at the basis of our healthy creative economy in this country. The very small scale single person enterprises are practised in their craft or their art, and often might cluster together and that creates something bigger. We have seen that all round the country and that concretes the economy as a whole.

Claire Enders: Sometimes networks evolve, like Etsy, which is a business that brings together lots of different kinds of craftspeople, many of them British. These are not crafts that the Arts Council has to deal with, but they are real crafts like jewellery creation and clothes creation. YouTube itself is a network that brings together lots of people with this sort of phenomenon in mind. There are many ways that people can get into the right network, but it is true, it is an over-characterisation of the British, but it is nonetheless true-as a sympathetic observer-that there are many lone geniuses in this country. The great thing about the modern age is that it is helping to get that talent into the global marketplace better, but they do need business skills. The people who are creatives here, and who want to knit the most beautiful jumpers or design the most beautiful clothes and the most beautiful jewellery, they do not tend to be born with the business thingy going.

Q144 Mr Bradshaw: Wrong side of the brain.

Claire Enders: Yes.

Q145 Tracey Crouch: One area of policy that the Committee did not explicitly put in its terms of reference but that the Arts Council did mention in its written submission, and that you have alluded to this morning, is that around migration and visas. I just wondered if you could perhaps expand on why you think the immigration system is adversely affecting the creative industries at the moment.

Dame Liz Forgan: It has been a long argument, and we haven’t made much progress with it, but there is no doubt that the visa barriers to artists coming to perform in this country-possibly coming here and then going to do a gig in Europe and then coming back again-the visa entanglements are a serious barrier to all artists, sometimes really great artists. Not only do those problems deprive audiences of their work, but it makes a very bad feeling about the country when serious artists are treated as if they were suspect arrivals at the border.

Q146 Tracey Crouch: Can you give any examples? Perhaps without naming names.

Alan Davey: We had a couple of examples in the summer of companies from particular countries who had real problems getting entry for the Cultural Olympiad. I have to say we are acting as an agent for the immigration authority for exceptional talent-that is a particular category-and that has been working well over the last year as a whole. It is the other tiers where companies may need to be coming over to appear in festivals, for example, or whether there might need to be last minute substitutions where problems arise. Currently, with the immigration authorities we have a dedicated desk to go to when there are problems and they have helped us solve lots of problems. I think there is a danger we might lose that dedicated help, but also that recognising that artists are going to be travelling around a lot has not yet been addressed at the fundamentals of the system.

Q147 Tracey Crouch: Would you say that is one of the key areas for change or improvement, maintaining this dedicated desk?

Alan Davey: Yes, it could be.

Q148 Tracey Crouch: What about around higher education? Obviously you are referencing students.

Claire Enders: Yes, and also business people. The fact is that I am involved with London Business School, which has experienced a drop in applicants since it became known that it is extremely difficult and time-consuming to get a visa to go to London Business School. It has become significantly more time-consuming. That is a difficulty. There are many American entertainment companies, which, as you know, are based here, and they find it much easier to move people around, and they would like to continue to find it easy. I am someone who came to this country and ended up going to London Business School, as it turns out, and staying here. There is a particular quality of life and appropriateness to living in the Greater London area for people in our industries, and sustaining that and attracting the best talent. I don’t think people are here in passing. Obviously that is not dealing with the issue of tax. I myself am devoted to paying the maximum tax I can both as an individual and as a company. I am also a philanthropist because I believe very deeply in the values that operate here, and I know why it is that so many people in this country give money to the arts despite paying an extraordinarily higher tax rate than in America. British people are very generous. I think that getting more people to become that sort of British person is just ace, and I certainly would not get in the way of it.

You have world renowned educational establishments that need to continue to attract the best and the brightest from around the world. There is no doubt that a drop in the funding of PhDs and other things has generally affected even the best universities; even Oxford and others are reporting a significant drop in people doing post-grad work there. I am always concerned about that. I believe that it has been 20 years since there was a Nobel Prize in the biomedical sciences and I do not understand why that is. Britain has always punched above its weight in every part of the creative sphere across science and everything else. Of course, if you believe, as I do, that the greatness of this nation has been laid down over 1,000 years of the knowledge economy then anything that stops and impedes or restricts the flow of talent, howsoever you define talent-and we have defined it very broadly and correctly in that way-would be something that would be of great concern. That talent is manifested, for example, at the grad school level where you are looking at a worldwide group of mathematicians, scientists, creatives, geniuses, designers and so on, and I think a lot of those people are so unique and have unique skills and therefore they are not taking a job from someone who might otherwise get it. Everybody has to work in a world where they have unique talents.

Q149 Tracey Crouch: But what is the biggest barrier therefore to those who wish to stay here for the long term, pay their tax and be philanthropists, or those who are here on a very short-term basis who just wish to contribute to the creative industries on a one-off visit, for example like the travelling artists?

Alan Davey: I think they are two separate problems, and they are both potentially worrying. On the higher education side, our worry is the viability of conservatoires and art schools-which on their current business model depend on numbers of foreign students paying full fees, and they have all reported increasing difficulty caused by the visa situation in attracting those students whom they depend on for their income-those institutes to be able to offer training to people in this country. I think it is something we have to watch because our conservatoires are wonderful; our art schools are producing brilliant artists and brilliant creative people who go out into work in other fields. We just have to watch ourselves here.

Q150 Tracey Crouch: Do you think it is possible to quantify the economic impact of those barriers?

Alan Davey: I don’t have those figures. I am not sure if the universities or UCAS, or someone like that, might. If I can find those figures I will let the Committee have them.

Q151 Mr Bradshaw: This is a live issue, as we understand it, around the Cabinet table, so are you confident that your sponsoring Department is representing your concerns in those discussions?

Alan Davey: Certainly, I have been talking at official level about our concerns on a number of issues around higher education, humanities and its place in the world and the fact that there is no underlying Government support for humanities teaching, and what that says and what that might say.

Q152 Mr Bradshaw: But on the specific immigration issue, do you have discussions with Maria Miller on it?

Alan Davey: I haven’t personally had discussion, but we have had discussions with officials, yes.

Q153 Mr Sanders: Turning to intellectual property, what is your view of the current intellectual property protections in the digital age?

Dame Liz Forgan: That is a short question. I think both of my colleagues here are more expert in this than I am. All I will say is that there is a real trade-off between the desire of artists to have their work seen and used in the widest possible way, i.e. not to have any barriers at all to the ability of people around the world to steal, mash, change and enjoy their work, and the desire of artists to be paid for what they do, and also the interest that the public has in a proper economic basis for art, otherwise it is unsustainable. I sense that my two colleagues will take different views of that but I thought I would just start with it.

Alan Davey: The Arts Council’s view is that artists should get proper recognition and pay for their work. We recognise that technology has been changing at a rapid pace and that in a number of sectors, the sectors themselves have not kept up with that technological change, and indeed have not kept up with consumer habits and desires. We recognise that our sector was quite far behind in knowing what the potential for exploiting their intellectual property was in terms of what they produced and their ability to do it, which was one of the reasons why we set up a training academy-using the BBC’s training academy-to train people in what is possible technologically and the ins and outs of how you might be able to exploit that. So when we established The Space, which is a digital platform for arts organisations’ output, over the summer-partly to reflect some of the things that were happening in 2012-a key part of that was to get the money from us they had to do the digital rights negotiations themselves. They got some help from the BBC and us, but we would not do it for them. They had to learn how to do it themselves, from very little knowledge I have to say. What has been reported back as an experience is they now know what the ins and outs are and what they have to look out for and what the possibilities for monetisation might be. Also the talent unions are saying, "Thank you for raising awareness among our people about what needs to be done in the right way". It is a difficult balance and I think the proposals in Hargreaves look promising to me overall. Claire might have another view.

Claire Enders: Yes, I do. I am only interested in facts, so I am really interested in any evidence of market failure and what the causal factors are or whatever. What I look at is the UK’s extraordinary situation and I look at it even in the context of a European regime that has always paid these fees for the famous blank tape levy that has been levied all over the world, except in the UK and the US, and seen that certainly in terms of keeping artists alive. That has not really worked. It does not change the dynamics of having to create art in French to have a subsidy. So to my mind, if you buy my view of the UK as being blessed with 1,000 years of a knowledge economy, it is based on copyright protection. I say that as someone who produces IP. I don’t see the problems at all. Despite Hargreaves’ conclusion about an absence of a fit for purpose copyright regime, or indeed a Google long war to establish fairer use in Europe, which I myself have fought against at the European level and will fight against to my last breath because the only company benefiting from fair use in America is Google-therefore unless this organisation, as I argued in Brussels, is prepared to contribute to the skills base, to the education base, to the fabric of our society from which these creative works are developed, then I just don’t buy their argument at all because they are the prime beneficiaries of America fair use provisions. Therefore I mistrust their motives.

I should say that the issue around technology is something I am very familiar with. I was the expert witness in the UK proceedings that set digital copyrights and I defended the creatives, and in the last year that I was American I was able to do this in the US Congress, so I defended songwriters and composers against the predations of Google and Apple and so on. All I can tell you is the offer from Apple, which was 2% of the retail price of an iTunes, which meant that iTunes would be able to price in any way that it liked, would have destroyed the business of thousands upon thousands of British and American songwriters and composers. There are no prizes for guessing that those two nations dominate global sales.

I am really familiar with their arguments; I am very familiar with arguments from organisations that say if we do this we are going to get that. I completely dispute Hargreaves’ estimate for the benefit of this copyright hub. If people want to keep busy doing something like the Hargreaves thing that is fine, as long as they don’t tamper with any of the ownership issues that sit at the heart of a creative. A creative has to have ownership and has to have the right to license. I can say this nation not only does everything more than any other nation-including, as you know, watch TV, although the Americans beat them-but it also has the biggest internet economy. In contrast to, say, Germany, which has 4% of sales going through e-commerce, we have 15% of retail sales. We have the most up to date nation-we have 80% broadband penetration and so on. Show me where the market failure exists. The UK has the biggest internet economy on a per capita basis and the biggest media economy on a per capita basis-it must be something in the water again. The copyright regime that we have seems to help our industries and our institutions to monetise here and to monetise around the world.

I think of the situation of European-I am talking about non-British European-newspapers that want to find some different way around their predicament and protect their languages-the protection of language in Europe is a very important political issue. We do not have that issue. Our copyright industries have developed, certainly in the music space when there is real money put on the table; the companies will take it and that is true of any use. We just heard recently that Netflix will be spending $2 billion on content rights. This is a company that spent a few hundred million on content rights five years ago. There are new uses all the time. If something is worthwhile people will be able to monetise. I see these problems as being transitory and also I see them as thematic. The tech companies have always valued their algorithms above the stuff that I make, which is words. That is just the way it is. A lot more British people can manage this than can manage those algorithms. There are only a few geniuses that will do those algorithms but there are many British people, and indeed people around the world, who need copyright protection for their creative works. I do not think there is anything wrong that a little tinkering won’t fix. Certainly, at the European level we are in statis now because Google cannot advance with the destruction of territorial copyright, which it had hoped for.

Q154 Mr Sanders: Do you see any merit at all, in the Hargreaves idea of an intellectual property office?

Claire Enders: No, none whatsoever. Obviously it will keep people busy, but the idea that this should be funded by the creative industries-I don’t understand this country. You want people to fund this office for no reason, and they certainly don’t see a purpose to it. They are really busy, I can tell you, I used to work for EMI. They scour their minds and the globe to find ways of making a living. They are not letting anything lie fallow. So I dispute the notion that companies are not maximising their revenues. Also, separately, I wonder why it has taken so long to get any respect for copyright in terms of online. There are wider issues around the anti-piracy regime online but they have to do with child protection as well, and so there is a wider complex around the protection of copyright and piracy that really goes into issues that many mothers, like me, and people in this country feel very deeply about.

I don’t believe there is any merit. You have to see this as a continuum. These tech companies will never rest until they destroy the value of creativity in their favour and they shove it in their direction. You can see that in every industry-music, newspapers, video, you name it. All I can tell you is that this country and America require these foundational paid-for creative industries. BSkyB is just as important as the BBC. In this whole nexus of funding for creativity there is this idea that there are cascades of funds coming from new tech sources that will be mysteriously arising out of the internet economy. After 15 to 20 years of the internet economy we would have seen them by now, so I dispute the market failure. I am sorry to feel so strongly about it.

Q155 Mr Sanders: Can I ask whether either Alan or Liz would like to defend the idea of an intellectual property office or whether they share Claire’s view?

Dame Liz Forgan: It is not my expertise.

Alan Davey: I am agnostic about how it is done, to be honest.

Q156 Mr Bradshaw: From what you just said, though, Claire Enders, you implied that you think politicians are beginning to wake up to the Google threat?

Claire Enders: Yes.

Q157 Mr Bradshaw: Do you think Hargreaves was a complete waste of space?

Claire Enders: It came out at a different time. Yes, it was a moment in time. When Gordon Brown went to No. 10 there was a Google moment, they were very quick-

Q158 Mr Bradshaw: Not Gordon Brown, David Cameron?

Claire Enders: No, this is some time ago. These Google initiatives have been going for a very great deal of time. I can tell you that Apple started on its plan to destroy copyright 15 years ago. So believe you me, they are at it in America, and elsewhere, they fund think-tanks, there are various enterprises and institutions that have come to be, this is a constant theme of the Google’s iBash, which I attend. They go on and on about these amazing nebulous-and they are real. Google has contributed greatly to the world’s economy, there is no doubt about it, but it does not pay tax, neither does Amazon or eBay. So it is all very well talking about these trickle down effects, but what matters to me is the livelihood of British creatives and trickle down effects just don’t count. If you look at YouTube the trickle down effects are £1,000 a month. I have said to the people at Google, "You know, you should not be encouraging young people to do this with their lives unless there is absolutely no alternative". They used to say people don’t have to go to university, they can just go on YouTube and start their own businesses in their garages communicating with people. That is just not realistic.

You can say things for a parcel of time. I myself managed to live through the US Congressional proceeding, which lasted six years, and in that time Apple still claimed at the last, when it was the world’s biggest music company, the biggest seller of devices, that iTunes was an experimental product that could be unseated by any new technology marvel and that it deserved to have a break. Apple needed a break from the creatives. You can’t invent this stuff. I just can’t believe it.

But they are very powerful organisations and, after all, these organisations are there to keep politicians amused for long periods of time if at all possible and to try to convince them to change the law.

Q159 Mr Bradshaw: Would you therefore urge the Government to get on and complete implementation of the Digital Economy Act?

Claire Enders: That would be a good idea. I think it would show that the Government not only legislates but applies legislation. That would be a good thing. I say this as someone who had the first conversation about piracy with BT in 2001 and they said to the music industry, to the BPI, if you give us £2 million we will fix this for you. They could have done it. You remember this, John. We have been involved in this forever and ever. I cannot tell you how many conversations we have had. At one time you could put the software in the network traps and we could have solved the problem. I still believe it is something that has come under control slowly but is still very important for this nation to have standards. I say this because I do think that the unrestricted access of children to pornography, which was a problem 10 years ago-which is one of the reasons why we were very concerned about it 10 years ago-is still a real issue. I do think this was the will of Parliament. We must defend our copyright and industries. You cannot put the billions of pounds we put into the Olympics without understanding what it is we are protecting in the world space. It is also really about not robbing the brains of the young, if I may be so old-fashioned.

Q160 Jim Sheridan: Can I now move on to the skills and training, some of which has already been covered? Some of the education requirements in the arts are very specialised in terms of post-graduate degrees, Master’s, et cetera, which in itself is a barrier for poorer students. So the question is, how does someone progress their career in either management or indeed the arts profession without these degrees or post-graduates and so on?

Alan Davey: It has become increasingly a problem in recent years as Master’s courses, for example in directing, almost hoover up the market in training places. The training place comes with the Master’s degree and now there is no funding available for Master’s degrees and the cost of doing those courses is £12,000 to £16,000. So the fees are expensive. It is becoming worryingly prohibitive

We have to look at the various entries to profession. They don’t all have to be graduate entry routes. There are still ways into the profession that don’t require those further degrees. But the real shortage at the moment is of training places, internships and apprenticeships, whether it is on the technical level or the artistic.

Q161 Jim Sheridan: What are the other avenues?

Alan Davey: Getting training places with particular institutions, trainee directorships and all that. But, as I said, a lot of them have been cornered by the post-graduate markets, so what we have announced recently is a creative jobs initiative specifically to address this entry route problem for graduates and non-graduates. Let us look at the non-graduate skills, the technical level skills that people obtain in, say, the theatre and they spill over into the film industry and the more commercial ends of the creative industries. That is again rather important, not just to the theatre industry itself but it is the spillover effect as well. It is a problem. I do not think we have all the answers yet. We are talking to the industry all the time about bringing down the barriers to entry, for example, unpaid internships. We put out our guidance earlier in the year about that and people are largely sticking to it. I have to say the people that we fund are largely sticking to it.

I think the creative jobs fund will create 6,500 opportunities in the next two years. That is a dip in the water that will help improve things, but we have some wider problems to address about the high degree level requirements in some places and how we ensure there is proper access to those qualifications, because knowing young people who are trying to get into the profession at the moment, and I know several, it is very hard. A lot of it is down to chance and opportunity, and being in the right place at the right time.

Q162 Jim Sheridan: There is a perception out there among some of the public that your industry is very much elitist and class driven. Do you accept that?

Alan Davey: I don’t think it is that in outlook, but I think some of the facts of life mean that you might have to have parents behind you to allow you the space to have those opportunities. That is not a new thing. I think back to when I was growing up. To be quite frank I wanted to be a recording engineer. I had no idea how you would get into that at all, there was no career support, no one had a clue at school. So I ended up in Whitehall. But it was as unclear then as it is now. I have been doing a lot of research into this because it is something I am passionate about, and we have a lot to do there.

Q163 Jim Sheridan: We are not coming up with many solutions, that is the problem. We know what the problems are.

Alan Davey: Yes. We have put our money on the table with the creative jobs programme, 6,000 new entry points, and that is going to make a difference. That will make a difference. We are talking to other people in Government as well.

Dame Liz Forgan: It starts before that. It starts in school. If you think that the creative industries are a serious and important part of the British economy there is a large investment in the Arts Council and other aspects of it but it is not coherently seen from start to finish- children in schools right up to higher education. There are disjunctions at various points in that value chain, which don’t make any sense to me. We are now looking at the shrinking of cultural education in schools that I think is really sad and regrettable. I have just become Chair of the National Youth Orchestra that has worked like anything to widen access to it, but it has to do that through the schools that teach children to reach those levels and it gets harder and harder.

Q164 Jim Sheridan: Do you believe the arts is funded enough to allow decent pay throughout the industry, particularly apprenticeships?

Alan Davey: That is one of the things that we are trying to address with this jobs fund because organisations were saying they could not afford the training places, and that because budgets are tight what they do is they stop funding the people coming in at the beginning and try to do without them for as long as they can. They don’t want to do that but things are tight at the moment, definitely.

Q165 Jim Sheridan: Are they tight at the top as well?

Alan Davey: They are tight everywhere.

Q166 Mr Bradshaw: Sorry, can I just ask you the same question I asked you about immigration, the concerns that you have about the impact of the proposed changes to the national curriculum and EBacc? Have you communicated those to Maria Miller and is she fighting your corner in Cabinet?

Dame Liz Forgan: Yes, I wrote a letter to the Secretary for Education myself making the point. As you know, the arts sector as a whole has made the point. I just think it is fantastically important and I can’t understand why it is taking so long, even if we can’t manage the sixth leg of the baccalaureate, that we cannot have in place some absolutely explicit commitment by the Government to serious rigorous cultural education as part of what it wants from its schools.

Let me say, when you see it working it not only produces inspiring children doing art, it produces people who focus better on mathematics and French, who behave more calmly. I can give you a list of schools to go and see this working in practice if you want to. I do think it is a noble cause.

Q167 Mr Bradshaw: Is your letter to Michael Gove in the public domain?

Dame Liz Forgan: I doubt it, I don’t tend to publish my correspondence.

Chair: Nevertheless its existence is now in the public domain. I think that is all we have. Thank you to all three of you.

Examination of Witness

Witness: John McVay, Chief Executive, Pact (formerly the Producers Alliance for Cinema and Television), gave evidence

Chair: For the second session this morning can I welcome John McVay, the Chief Executive of Pact, who is well known to the Committee.

Q168 Tracey Crouch: Good morning, Mr McVay. Can you just start by giving a brief overview of Pact’s role in developing creative industries?

John McVay: Yes. We are a private sector trade association, we represent film, television, animation, children and digital producers. We have about 450 member companies across the UK and we represent the commercial interests of those companies, in terms of labour market relations, we do all the collective licences with the talent unions, we negotiate with commissioning broadcasters, buyers and we are increasingly active internationally to help drive UK growth in international markets. So across the value chain from ideas development to idea exploitation we provide services to our members and engage with Government in the development of policy.

Q169 Tracey Crouch: Can you put an economic or monetary value on that?

John McVay: Absolutely. The independent sector is now worth £2.4 billion. When I started at Pact 11 years ago, when I first met John and he was far better looking and I was far younger, the sector was worth about £800 million. So we have seen phenomenal growth. That growth is a direct consequence of the 2003 Communications Act. In fact exports grew in four years to last year by nearly 50%. Creating an IP owning, entrepreneurial production sector has been to the benefit domestically and internationally and I would say to the Exchequer as well.

Q170 Tracey Crouch: What would you say are your main priorities at the moment within Pact?

John McVay: Our main priorities are-we have so many sometimes, but I would say copyright. I was very interested in Claire Enders’ comments in answer to Adrian’s earlier question.

Q171 Tracey Crouch: I saw you shaking your head.

John McVay: Clearly as an international sector growing into new markets and as there are markets that sometimes don’t respect copyright as much as we do in the UK, that is a key issue for us. We are very focused on helping small companies, SMEs, become international from day one not from day five years later. So we are doing an awful lot with the help of UKTI to get more SMEs to more markets to meet more buyers and to have more opportunities to sell. We are working very hard with the Government on the proposed new tax credits for animation and high end TV drama. They would be my immediate shortterm priorities.

Q172 Tracey Crouch: You have a seat on the Creative Industries Council?

John McVay: I do, yes.

Q173 Tracey Crouch: Do you think it is a mere talking shop or do you think it is bringing any real value to growth and challenges to barriers?

John McVay: With all such large groupings, and it is a very large group, because creative industries are quite a broad church, you do have to have an extent of talking shop. To me there is a bit of a one size fits all, which I can understand from Government and officials is useful, in that we are all called the creative industries but within the creative industries we have many different business models, different markets, different ways of creation. You just heard from my colleagues on the Arts Council, they represent the publicly subsidised sector effectively, I am representing the commercial private sector. We all generate creative content, creative goods, which have commercial and cultural value to the nation, but we are all doing it in very different ways. In the same way people who work at Burberry are part of the creative industries, but what they do is very different as well. Trying to bring us together to focus on what are the key issues for a very poor part of the British economy is good. To try to get us all to do the same thing at the same time is more difficult. So, for me, the three key issues for the Creative Industries Council are access to finance, copyright and international growth.

Q174 Tracey Crouch: What do you think can be done to improve the effectiveness of the CIC?

John McVay: Focusing exclusively on those three things.

Q175 Tracey Crouch: Could it be structured differently?

John McVay: I think there have been one or two useful working groups. There was a very good group set up with Skillset looking at skills, and that has come up with some very important and new ideas around how we can improve the SMEs. One area that we will be investing in and helping Skillset and the Creative Industries Council develop is the concept of virtual boards for SMEs, which will basically be a dating system between SME entrepreneurs and experienced financial directors and CEOs from other established businesses, so that the SMEs at an early stage of development can access highlevel expertise without necessarily having to pay non-exec fees or try to evolve someone into a corporate structure. That is an idea-particularly looking at the 150 start-up companies I have every year-we are very keen on, and I think it would be very good for SMEs to access high level skills at the early stage of development, not when hurt in a car crash or when they have questions that they are finding difficulty answering.

Q176 Tracey Crouch: In the oral evidence that we have received so far the Treasury seems to be an incredibly important Department in the development and growth of the creative industries. Do you think it is wrong that they are not represented on the CIC?

John McVay: I would welcome the Treasury to be represented. I think you were right to identify the Treasury’s role. The two very welcome tax credits that were announced by the Government last April will drive inward investment. We will see more work coming to the UK and we will see work that has gone offshore coming back to the UK. So there will be a direct return to the taxpayer for the investment that has been put in. That will have a multiple effect in the economy overall. For me, having the Treasury sitting alongside some of the more, what is often called, lovey issues on creative industries-to me they are not lovey issues, they are fundamental to the long-term economic well-being of our country.

Q177 Mr Sanders: To what do you attribute the near doubling of independent television sector revenues since 2005?

John McVay: The Communications Act allowed us to own our copyright and our intellectual property. As soon as you give people back the things that they created they tend to want to go and do something with it. We saw a blossoming of entrepreneurial activity. From 2005, we saw a significant growth in exports as the world markets opened up to UK television, and particularly UK independent production, but also we saw from about 2009 a significant decline in investment by broadcasters in the programming in the UK. Because of the recession commercial broadcasters don’t have the same money they used to spend, which means, as a producer, they are not giving me as much money as I need to make the product, so what I do is pass that risk on to the markets by getting advances from buyers in other territories and then put that back into the programme. If everything goes swimmingly well and I get a hit we all make money. Of course, we are in a hits business so not everything will make lots of money but the architecture of why we are doing so well is a direct consequence of the 2003 Communications Act because you created an environment for people to be incentivised to do something with what they owned and then the market came along and couldn’t provide all the money within the UK to cover the cost of production.

Q178 Mr Sanders: So you would say the Communications Act was what started it off?

John McVay: It was a biblical moment for my industry.

Q179 Mr Sanders: What could the Government do that would have a major positive impact on future growth of the sector?

John McVay: Going back to my three key points for the Creative Industries Council, we need to find ways to access capital at an early stage of development for SMEs. That is at the highest risk point, that is when you have very highly motivated creative entrepreneurs who the banks and the traditional financiers don’t understand, they think they are very strange people who talk about strange things such as global format hits. We need to tackle that. The overall ecology and ecosystem we have in the UK is fine, it is working very well for everyone, I would always encourage Government to leave things alone if they are working, the temptation is to maybe get involved.

Another one would be to give absolute clarity to the copyright regime in the UK. To remove any uncertainty, to be clear that copyright is the property right and that if you want people to invest in companies you have to give clarity and security to the owners and investors in the copyright and the IP, that is at the heart of the business. We have been through a period of two years where we were lacking clarity, where there was a great deal of doubt, and referencing back to Claire’s comments about Google, a push that there is something wrong with our copyright regime. The fact is that most people come to the UK because we have one of the best copyright regimes in the world, that is why people invest here, that is why people like creating intellectual property here.

The third one is take a long-term view on exports. I know that there are changes coming with UKTI where we are looking at hopefully getting a three year plan. The reason why we favour long-term planning on exports for our sector is that if you really want to break a Chinese broadcaster, if you really want to get commissions out of a Chinese broadcaster, you need to go there more than once and it is quite hard for an SME to plan a three-year cycle of investment if at year three they come to me saying, "Is there any support to subsidise the flight costs to Beijing again?" and I say, "I don’t know". That is the current situation. The more the Government could get clarity on that-and I know Lord Green has been doing a fair bit of work on this-the easier it will be for me to convince SMEs to plan to go to China three years from now because we will be able to give them a structure, we will be able to give them training, we will be able to give them all the information they need to get into that market.

Q180 Mr Sanders: Of those three, which is top of your wish list for the Communications Act?

John McVay: That is a difficult one. I would say my main one is growth exports. We have to recognise that particularly in the TV economy in the UK it is flat, it is not going back to the level of spend we had in 2006. The way we bring more money into our economy and money back into our own programming for the British public is by selling more into new territories. We have worked very hard to convince and work with the Government to get a co-production treaty with Brazil, but we are not stopping there. We will be producing a document early next year that is mapping all the other new markets. I know everyone knows about BRIC, but when it comes to the audiovisual and entertainment markets there are massive opportunities emerging around the globe. We are looking at Africa, we looking at a number of other territories-North Africa within 10 years. These societies are going to leap frog the legacy technology that we have had and they will go straight to digital, and they are also becoming more affluent, which means they have the technology and the leisure time. What do people like to do with leisure time? They like to be entertained.

We have a simple choice as a country, either we let the Americans supply all that programming or we supply it. I think we have a fantastic moment because we are seen as being innovative, disruptive culturally-we are not the same as everyone else-but we also have a reputation for producing very high quality product and that is what people value. If you are going to go home and watch telly, you want to watch something that is great quality, that is engaging, exciting, and that is part of our tradition.

Q181 Chair: Some have argued that the terms of trade as established in the Communications Act 2003 were necessary because at that stage the independent production sector was very small and embryonic companies needed that help. It has been fantastically successful and we now have some of the most successful independents in the world. They have gone on to argue, therefore, that in some ways it is now the broadcasters and the commissioners who are needing a bit of help and we should revisit the terms of trade. I know your answer to this is no, but perhaps you would like to say why.

John McVay: The people who say that, to me, betray an unfortunate British attitude-if something is successful, let’s do something to stop it. I just don’t see the point of that attitude. I think where we are in the world we should be supporting success. Secondly, I can see no direct harm in the legislation to the actual broadcasters, and, thirdly, if it was not for the fact that my members go out and raise £250 million from the international markets, which they put back into British programming, those very same broadcasters-if you were to change the legislation-would have to find £250 million extra to put back into the programmes to make them to the same quality that the British public enjoy. So if they want to make less quality programming, and if that is their business model, then I think that is a bit depressing. What we have arrived at, and this is a great British solution, is if you look at the ecology of our broadcasting sector, the balance between the publicly funded BBC, the commercial sector, pay TV, with Sky investing, all the CABSAT channels now investing, we have arrived at an ecology where there is what I call a Rubik’s cube of tension between the different types of channels, the different models, buyers and suppliers and all it has done is move us up. We have one of the most successful ecologies on the planet, sometimes by hook, sometimes by crook, but having got there why would we want to change it? There is no evidence that this is not delivering value and opportunity. Value to the public, value for the licence fee, value to Sky subscribers and opportunity internationally for everyone. Everyone has that opportunity.

Q182 Chair: Can I just explore the financing? You said something I was not aware of, I do not think. Let’s say I am Channel 4 and I commission a brand new drama series. Are you saying it is the production company or Pact that then goes out-

John McVay: Production company.

Q183 Chair: It is the production company that then goes out and gets orders for that series from other countries ahead of it being screened?

John McVay: Yes. What happened with the 2003 Act, the trade-off between giving us our intellectual property rights, which we can then monetise, was that for the first time in 60 years broadcasters could pay the price they thought the programme was worth. Prior to that they had to pay 100% of the cost because they wholly owned it, so there was no way for us to make it unless they fully paid for it. So the trade-off was they got price flexibility. What that has meant, particularly since 2005, which was part of the driver to Adrian’s question, was broadcasters do not pay for the full cost of the programmes they commission. So typically something like Downton, you might see that Universal pay for half the cost of Downton because they think they can make the money back on the international markets. That is the same with a Channel 4 drama-if they only give me 70% of the budget as a producer I will go to a distributor, they will then give me an advance, I might then sell DVD rights or other rights, and I will take that money and put it into making the programme. So Channel 4 for 70% of the costs gets 100% of the benefit and they take all the advertising.

So what has happened is, cleverly-and I don’t think this was engineered, but it was certainly part of our thinking-the UK industry has passed risk on to the international markets. We are using other people’s money, so they take risk to put back into our economy. That sustains the creative culture and entrepreneurship that we have here. I think that is a good thing. I remember speaking to Stephen Carter when he was doing Digital Britain, when they were looking around for models about how to make other creative industries more entrepreneurial, I said, "There’s one sitting in your lap". If you can find a way to get other creative sectors to own intellectual property and become entrepreneurial you unlock value. Okay, it is more challenging, my members don’t like having to work harder but that is the world we are in and I think it has been to the benefit of-

Q184 Chair: But the production company presumably has only sold into one or two more territories?

John McVay: Sometimes a lot more than that. We have formats that have gone into over 120 countries.

Q185 Chair: Indeed, I am talking about pre-being transmitted, when you are still in the stage of making the programme. You have sold it to Channel 4 and you have then sold it to a couple of other places.

John McVay: Yes, or sometimes a lot more than that because we run a pavilion at MIPTV and MIPCOM and increasingly at other global market events and it is a UK Indie pavilion, and we have to beat buyers off with a stick. The UK has a fantastic reputation for high quality British television driven initially by the BBC.

Q186 Chair: Surely usually you are saying, "Here is a programme, you can sit down and watch it. Do you like it? Do you want to buy it for your territory?" But in this instance you are saying you can’t show it because it hasn’t been made yet. You are pitching an unknown programme.

John McVay: Sometimes you are because you need to get the money to make it but clearly the reputation of the producer, who is cast in it, who the writer is, what your track record is, is a market value. That is why we are deeply resistant to collective licensing in this market because collective licensing would force us to sell our rights at a non-commercial basis, so we would not be able to be confident we could raise the money to put into making the primary work. That is why for us leaving it at market values allows different quality productions to achieve a different value in the market.

Q187 Chair: We were going to come on to that but since we are there can-

John McVay: I am sorry, I have just segued.

Chair: No, it is quite useful because collective licensing in other parts of the creative industry is regarded as rather a good thing and has been very beneficial, but you are saying it undermines your entire model?

John McVay: Yes, we much prefer the market to place a value. If you look at a low cost drama made on YouTube by some kids from school, it is very different from Sherlock made for the BBC, which has a multi-million pound investment to achieve that quality. I wouldn’t want to see Sherlock not being able to achieve the funding because what would happen is that you would not get the same quality production. The costs of audiovisual content are radically different to producing a piece of music or writing a book. They are fundamentally different. You have different underlying costs, you also have more complex underlying rights arrangements with the authors, directors and actors. It is a more complex world and I have sat across from Google and many others who propose collective licensing as a way to make us billions of pounds. I agree with Claire, I don’t think the numbers in the Hargreaves report are accurate. We are doing quite well in the market. Exports are going up year on year and a third of our earnings are from international licensing at market rates.

Q188 Paul Farrelly: Just a very quick supplementary to this line of questioning. John, I am very sorry I was late this morning.

It would be very unusual in any market where risk is transferred for reward not to be transferred as well.

John McVay: Yes, yes, it does.

Q189 Paul Farrelly: It sounds very much like buying an apartment off plan. when you haven’t seen the final product you expect a discount because you are funding the project up front.

John McVay: Yes.

Q190 Paul Farrelly: Do you think if the industry did not have to transfer more risk offshore and funding from whatever source was better in the UK that we might reap more of the benefits from our own production?

John McVay: No, because everyone in the value chain shares in the reward. So the broadcaster commissions me, I have revenue splits with the broadcaster, they share in the money I make from exploitation, the distributor who sells to other territories takes a commission and if they sell more their commission gets bigger. No one gives you money for nothing, so all the way down the chain there are revenue splits and because we do not have enough money in the UK and we have to get money from the global markets for big budget productions that is driving us to be even more entrepreneurial and to sell more because we are incentivised to do that. I think that is a good thing. If we went back to a lovely UK, where everything could be financed in the UK and we sat in a UK bubble, I think we would be missing out because the rest of the world is doing what we are doing.

At MIPCOM several years ago the Poles came to the market, Polish commercial television, and they were wanting to pay 20 zlotys or whatever for programming and everyone said, "No, no, no, you can’t buy it for that". They came back to the market this year in October and they are paying real money, euros, for British programming. Everyone is doing that.

Q191 Paul Farrelly: You are driving a bigger market then?

John McVay: I could probably get a bit lyrical like Claire about this. I think we are in a fantastic opportunity in the UK, we are well placed, particularly in the audiovisual sector, we are the second largest export, we have a fantastic brand, we are known internationally for quality, the Olympics has given us a great opportunity as being quirky, as being innovative. To illustrate that, we had Hulu, which is the US VOD service, in London two weeks ago who are here to commission. They just co-funded The Thick of It and they are here commissioning British independent production companies and broadcasters to make programmes for a US video on demand service. I was chatting to one of the buyers and I said, "Why are you here? You could go anywhere in the world, why London? Why the UK?" he said, "You don’t get what you’ve got, do you?" I said, "What do you mean?" He said, "You’re disruptive, you’re quirky, you’re irreverent, you’ve got all these qualities that you don’t see in US television". It’s heavily scripted, it’s very controlled, they are very sensitive to the makeup of their demographics. We are less respectful. That may not be to your happiness sometimes, but the environment we have is a very exciting environment, particularly for these developing markets that have never had mass media television before. If you go back to what Monty Python would be like if you had never seen telly before-we have that and I think that is a quality that we should be maximising and not be afraid of it.

Chair: I can see why they take that view if they part fund The Thick of It.

John McVay: Their promo for Hulu, to sell the Hulu service to their young demographic who are all Santa Monica type tech kids, is a promo of Malcolm Tucker bawling out some poor spad on a phone with all the choice language and at the end of it Malcolm Tucker says, "Where can I see this programme where the Minister said blah, blah, blah?" and the spad says, "Oh, you’ll have to catch up on Hulu". It was the promo for an American VOD service. If an American VOD service can see that cultural challenge and use that to sell their services in America then that is good for us overall, I think.

Q192 Chair: Just before we move on from this, staying on copyright, you said why you believe that the investment required into an audiovisual work is so much greater than a recording track and that makes it different. Therefore up until now in debating Hargreaves we have largely heard that while there was a lot of concern about Hargreaves the one thing in Hargreaves that people thought was quite a good idea was the digital copyright exchange. You have some concerns about the digital copyright exchange as well?

John McVay: If the digital copyright exchange is an advertising service for rights that I have available that I would like someone to come and make me an offer for, I am perfectly content. That is our proposal. If it is the thin end of a wedge to collective licensing where there is not stuff on the digital copyright exchange because rights owners have decided not to use it, that then becomes a debate from tech companies saying, "Well, we still can’t get what we want, could the Government please do something about that and make this compulsory?" That does give me concerns.

Q193 Chair: Have you talked to Richard Hooper about that?

John McVay: I have.

Q194 Chair: Is he sympathetic to your argument?

John McVay: I wouldn’t say sympathetic. I think he understands my argument and certainly they are keen to make sure that the interests of British rights owners are properly taken into account, but I do have concerns that a long-term objective is to transfer value from our audiovisual creative industries to tech companies.

Q195 Mr Sutcliffe: You mentioned a couple of times the Olympics and the Paralympics and the success of that, particularly the impact on your sector. What has it been, what is going to lead to and how long can it last?

John McVay: I remember watching the Olympics at home, the opening ceremony, and friends around the globe who were watching it in one way or another were emailing me saying, "This is a fantastic moment" and of course every single buyer, every single other broadcaster around the globe watched it and whether they now want to go and hire Danny Boyle, I think it was a Zeitgeist moment where the overall values of how-it was so different from China, it was so quirky, it was so idiosyncratic and that is exactly the type of products we make for the national markets. That is what people like to buy. The sort of wall to wall low level US sitcom of a couple in some quirky arrangement in Malibu, that has its place but there is a generation of people, particularly younger people, who are not interested in that, who are digital natives who do seek out and do want things that are a bit more challenging. That is why, for me, the Olympics was a great moment because we didn’t have to go and explain who we were, it did it for us. So when you go, "Hi, I’m British" they don’t go, "Are you American or what is your sensibility?" It was a great 21st century exposition of our culture and that can only be to our benefit.

Q196 Mr Sutcliffe: This treaty with Brazil, is that from the Olympics?

John McVay: That was prior to the Olympics. We had been working on it for some time and we organised a trade mission to Rio in February and we signed our tripartite agreement with the Brazilian Government, our Brazilian equivalent in Rio and also the British Council to try to help our Government here sign the co-production treaty, which they duly did. We can now support the implementation of that. But there is another key moment around the treaty since most of the co-production treaties we have around the globe are not fit for purpose in that they only deal with film. We need to revise all our treaties and make them audiovisual treaties and that would be a huge boost to our exports as well.

Q197 Mr Sutcliffe: So you are saying this is the first of many hopefully.

John McVay: This is the first of many we would hope but we have a very good treaty with Israel, which is an audiovisual treaty, and indeed I am hopefully over in Tel Aviv in December to meet with our Israeli counterparts about more co-production work there. We would like to see those treaties around the globe because people do want to work with us and treaties coupled with tax incentives, coupled with our high levels of investment makes us a very attractive country to work with.

Q198 Mr Sutcliffe: You said all the broadcasters were here for the Olympics and the Paralympics, and they were. I went to a thing in Bradford at the Media Museum for JHK and saw their technology developments for the next 20-odd years. Are we into that sort of discussion with the technologies of the future for audiovisual? What level are we at in terms of trying to keep up with the pace of things?

John McVay: From my sector we look at technology as a means to get to our audience, whether that is on your phone, your laptop, whatever the platform is-Hulu, YouTube, we work with everyone, Netflix, LoveFilm, whoever is a new shop window or opportunity; I welcome every one of them provided they pay us, which is always the challenge. Some of the models that come to my door from tech companies say, "We really love your stuff, it would be really good, it would help us, could you give us it for nothing?" That is a bit hard when you are trying to make a living and then you also have to pay writers, directors and actors. All these opportunities should be welcomed provided that you can strike proper commercial rates. Sometimes as a copyright owner I may choose to give things away because I think that is a good thing to do, but if I want price for my product I should be able to negotiate that.

Q199 Mr Sutcliffe: I am thinking more of changing a format because what they were showing on there was what TV sets are going to look like in 25 years’ time.

John McVay: Yes, Smart TVs. We are currently looking at a project that we will be discussing with Samsung, the leading Smart TV seller both in the US and the UK. We are very interested in that for a number of reasons. It is clear that audiences like to become communities. I don’t know if anyone has the guilty secret of liking Strictly Come Dancing, but you can see the community that is built up around those great moments. Smart telly allows you to do more with that community, to engage with them, to have more interaction and people want that. You have so much choice, when you find something you are passionate about there is nothing wrong with wanting to do more with that. I am a keen fly fisherman, and if they could make a Strictly Come Fly Fishing I would be quite happy because I have the same passion, I have the same commitment. Again, the technology allows you to do more, to engage more and to get more value from your entertainment or education experience for that matter.

Q200 Jim Sheridan: You would have heard in the previous session the question and answers about training and skills and so on. We are now joined by a significant number of young people behind you and perhaps, through the Chair, you could tell us what your sector is doing in terms of training and education for young people.

John McVay: We have a number of initiatives, one we are heavily involved in, Skillset, which is a sector of Skills Council and we support their work and feed into all the development of apprenticeships that they do. Our members contribute directly to a training charity called the Independent Training Fund, but we also are about to produce a report next year that will quantify all the different training initiatives, graduate schemes and various other things that our members do across the sector. That has come from work we have been doing for three years to promote diversity in the industry. What came out from that is it discovered that many of our members do a lot of activity, say, with a black writer’s group in Hackney or with a drama group in Glasgow, and they are doing that because it is a way to find talent, to find new voices but no one ever issues a press release about it. It is actually quite a lot about making the industry accessible, finding talent and then trying to get that talent into the industry. So we are going to quantify that next year because some of it is in kind on the job, some of it is external, but no one captures that information. So we will do a report on that and that will be produced next year.

Q201 Jim Sheridan: I am reliably informed that a number of young people work in the industry for nothing in order to network and make contacts and so on. Is that the case? Young people working for nothing.

John McVay: Unfortunately, I think that does happen. We are not supporters of that. Four years ago we issued joint guidance with Skillset and HMRC about unpaid work experience, which is illegal; it should only be undertaken under specific circumstances. We advised all our member companies not to do that. We have seen a significant decline in unpaid work experience since then. If you turn up at an employer’s place of work and you are instructed to do anything, you have entered into a contract, and as such you should be paid the minimum wage. We are not supporters of unpaid internships, we would rather people were paid because it affects diversity and opportunity. If someone can afford to come and work in London, paid for by their parents, then you are absolutely discounting a whole range of people who are probably talented and could come and do that. That is bad for our business.

The reason why we set up a diversity project is diversity is not a feel good issue, it is a business issue. We live in one of the most diverse countries in Europe, it is a core business issue for us and we want to see as many people from across the country from different communities in our industry because that is good for our industry.

Q202 Jim Sheridan: Of your member companies have any of them been punished for taking on unpaid staff?

John McVay: That would be a matter for HMRC.

Q203 Jim Sheridan: You do not take any action against them?

John McVay: We are a private trade association, we are not a police force and we are not the Government so we are quite happy to make clear the law of the land and exactly how people should or should not do things, but it would be a matter for the authorities to take any action on unpaid national insurance or anything like that.

Q204 Jim Sheridan: Have you any idea how many apprenticeships there are in the industry?

John McVay: No, but I am sure I can get that number for you. Skillset would have that number because they administer that on behalf of the sector.

Q205 Chair: You are not talking about two weeks for somebody studying it for ‘A’ levels coming in?

John McVay: No, if they are in education it is fine. It is people who are not in education or formal recognised training. If they turn up and work on a work experience effectively they should be paid the minimum wage.

Q206 Chair: I saw one or two alarmed looks behind you.

John McVay: No, if it is a formal course you are fine, that is the law, that is how it is described. But we think this is a critical issue and it is something that other parts of the creative industries have suffered from as well. It is partly because we are seen as a very attractive industry. It is an industry that can be exciting, you can be creative, and we have an oversupply of people trying to get into the industry and unfortunately that often leads to things happening that I don’t think is right.

Q207 Mr Bradshaw: I notice in your evidence you suggest that tax relief should be extended to children’s programming; does that imply that you think the current public service obligations are failing?

John McVay: Yes, for about seven years we have been saying that the current obligations fail. The reason is because Ofcom does not have the powers to require the amount of children programming. Indeed, ITV who used to have a children’s channel no longer have a children’s channel. Channel 5 used to have a children’s channel, no longer have a children’s channel. So the only buyer left in the market is the BBC. The BBC is under extreme pressure on its last licence fee settlement, they are manning the guns, they are still holding to the amount they spend on children’s but that is going to come under pressure and we are concerned. We think if the tax credit system were extended to children’s it would have the same effect as for animation. It would allow more work, more investment and it would also encourage other channels to invest in children’s programming, otherwise we leave the BBC as a monopoly buyer, and having a monopoly buyer for suppliers is never good. The BBC has a particular editorial position-that is fine, that is its position-but clearly for children we should have as broad range of views in children’s programming as we do for young adults and adults.

Q208 Mr Bradshaw: But children’s programming is part of licence obligations, isn’t it? So why can’t Ofcom enforce those obligations?

John McVay: It can’t enforce the amount that is spent, it can only enforce the fact that you do it. That is why ITV were able to exit and, indeed, Channel 4 don’t do children’s either.

Q209 Mr Bradshaw: Do you think the Government would have been better top slicing the licence fee to fund children’s programming rather than local TV?

John McVay: That is a very interesting question. It opens up a whole range of debate about why you would top slice licence fees and issues around broadband, and so on, so I wouldn’t want to answer that in that one specific because I think it is a broader question. Our plea would be for the Government to consider children’s programming because children’s programming generally is funded internationally. That is a core engagement for our future citizens. We are effectively left with a monopoly buyer. Therefore adding the word "children’s" to the animation tax credit would not be that difficult.

Q210 Paul Farrelly: This is a different angle on tax and I am not sure whether Pact have a view or whether your members are particularly affected by it, but you will have seen the growing number of reports about the tax avoidance activities of the likes of Amazon and Google.

John McVay: Certain multinational companies, yes.

Paul Farrelly: The reality at the moment is that quite a number of the content providers to whom you would feed content, the likes of NBC Universal, for example, Vivendi and Bertelsmann are arguing that they are not operating on a level playing field and they have opened a second front on tax to supplement the one that they have opened on copyright issues. You understand?

John McVay: I understand, yes.

Paul Farrelly: Do you have a view on this and does it affect your members at all?

John McVay: Yes, clearly I can see the linkage that they are creating because if our members are working very hard to go and raise money internationally, bring the money back to the UK, then exploit all that and pay revenue to the Exchequer and to the public that is reinvested in our society, the double whammy there is that we are then faced with organisations who want to take our content for free or at low rates who don’t pay tax here, so that is a bit egregious. Also, we are in international markets. My price to sell something is affected by the taxation I will pay on that so I want to maximise as much as possible. If I am in a market where other people are not paying the same tax or can undercut me then that is an issue. As far as I know all our members are very happy and do pay their taxes in the UK. We welcome that. We should-it is because of the benefit of UK legislation that they have profitable businesses.

But I understand the argument. I think it is a broader question about international franchising, about how you are able to sell franchises from one territory to another territory at what some might see as a huge margin in order to make a franchise in territory two loss making. That seems to me to be quite an accountant’s view of it. I am not sure that is what you would do in business.

Q211 Paul Farrelly: It is clearly a higher level concern from a tax and societal point of view, but of course the higher the revenues from certain creative non-tax payers, particularly the said companies, the more scope there might be for tax relief.

John McVay: Yes, if you look particularly at something like Google that sells advertising, which takes money out of our economy through advertising, they are taking business away from ITV, Channel 4 and our commercial broadcasters who invest in British content, so that means they are investing less, and then Google doesn’t pay tax on it while ITV, Channel 4, Channel 5 or whoever else are still paying tax. I have a bit of sympathy with the commercial broadcasters as well because they are trying to work in a harder market. I don’t know what the rates are, but the business, because it is not paying tax, may not factor the cost of tax into the advertising rates it applies to broadcasters. So that means there is more money going out of our economy that previously was being invested in our economy.

Q212 Tracey Crouch: Can I just ask one last question on the children’s programming? Is it a case that it has just become more expensive to produce children’s programmes with all the fancy animation and everything else? I am of a Roobarb and Custard and Mr Ben era so what you have described today is obviously a lot more expensive in terms of production. When you referenced in your written submission the continuing decline of investment, is it a case that it has just become more expensive to produce good-quality children’s programmes?

John McVay: No, I would say digital technology has made it cost effective to produce. I would never argue to drive to the bottom on production and things like that but I would say the market is driving very real efficiencies. The BBC as the main buyer for children’s programming from 2007 until this year has had a 5% reduction of its programming spend, including children’s year on year. But the volume and quality has remained the same. So that must mean there is an efficiency going on in the production, and our members are always looking at ways to make things more productively. I don’t think it is about we have just stayed still or become more expensive. Yes, some things are very expensive. You do an Aardman animation, that is all cel-animation, that is people moving little models, that is really expensive but the new technology allows you to do things as well. You can do Roobarb and Custard-in fact my kids do stuff like Roobarb and Custard on their PCs at home for their mates on YouTube. So technology has allowed it to be cheaper, the question is the technology doesn’t create fantastic work. You still need someone who needs to be paid who is a scriptwriter, who is a great creative director, you still need someone to get that to market. So there are some fixed costs but they are more human costs, I think.

Q213 Tracey Crouch: When was the heyday in children’s programming spend?

John McVay: I would say we have probably seen a decline since 2006. There has been a 17% change.

Q214 Tracey Crouch: What is its current spend?

John McVay: Current spend is about £88 million.

Q215 Chair: How much do you put down to the HFSS advertising ban?

John McVay: That has been very hard to quantify. I think some people have used that as a reason not to do it. Children’s programming has always been challenging commercially, particularly for the commercial mixed schedule channels, and when they moved to a more return on investment approach, like ITV do, per slot if you look at a ROI on a half hour of children’s programming it is probably not making the advertising revenue. Taken together I think it is important that you don’t do that with children’s programming because what children’s programming does is build an audience for you in the future. Roobarb and Custard, Mr Ben, you remember that, that is something that gives you a resonance with that channel and with that brand and with that engagement that you remember for the rest of your life because it was an important moment as a child. I think it is a short-term commercial approach not to invest in kid’s programming because that is your audience of the future. We have had that argument with commercial broadcasters unsuccessfully. We are delighted the BBC is still there but we worry that we only really have the BBC left.

Q216 Chair: Your argument is that you get used to pressing button three from a very young age and therefore go on doing so essentially?

John McVay: Yes. This is the thing, when people look at television they think every TV station is the same, but of course we know when we go to watch something that they are not, there are certainly values that are implicit in the type of programming. You would get Noel Edmonds’ Swap Shop on the BBC, ITV would do it different.

Mr Sanders: That is enough to put you off.

John McVay: Oh well.

Q217 Chair: Just one very last quick question. Last week we had Pinewood who were very keen on clusters and hubs and having skills close by and felt this was a real benefit. You do not seem very keen on that, or at least you do not seem to think it is as important?

John McVay: It is very important for production for high end drama and feature film production; it is a lot better to have set builders and painters and decorators around the corner than two hours away. So on that physical part of it, increasingly the ability to connect with buyers-in fact we will be producing an app shortly for producers that will have all UK buyers on an app, which will be a live updated what the buyers want app. That means someone in the Hebrides can find out what someone in Discovery is wanting next year and can get that in real time. That cuts costs, it creates connectivity. In that respect we think the ability for people to get high speed broadband and information, and particularly if they can then stream content back and we are looking at more applications for that, that is a good thing.

We launched the first ever app supported by UKTI MIPCOM in October. That is an app for buyers internationally where they load it onto their phone and then it is a complete catalogue of thousands of hours of British programmes, and it is free. Our members can put their programming up there, clips of the programmes, and then if they buyer likes something they can scrapbook it. If they then click on the programme it takes them right through to the contact details of the company that owns it-sort of a model for a digital copyright exchange maybe. That is not compulsory, it is entirely voluntary and we think because of the utility of that that will be a big success, so that is where we come in on that. If you want to go and meet key people who work in the feature film industry globally, go and live in Hollywood because that is where it is. If you want to connect with financiers from Hollywood there are other ways to do that without necessarily having to live in Hollywood.

Chair: John, that is very helpful, thank you.

John McVay: Thank you very much for the opportunity.

Prepared 23rd November 2012