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

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Culture, Media and Sport Committee

Support for the Creative Economy

Tuesday 12 March 2013

John Tate, Magnus Brooke and Dan Brooke

Adam Minns and Adam Kinsley

Evidence heard in Public Questions 598 - 721

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 12 March 2013

Members present:

Mr John Whittingdale (Chair)

Mr Ben Bradshaw

Angie Bray

Tracey Crouch

Mr John Leech

Steve Rotheram

Jim Sheridan

________________

Examination of Witnesses

Witnesses: John Tate, Group Director, Strategic Operations, BBC, Magnus Brooke, Director of Policy and Regulatory Affairs, ITV, and Dan Brooke, Chief Marketing and Communications Officer, Channel 4, gave evidence.

Q598 Chair: Good morning. This is a further session of the Committee’s inquiry into support for the creative economy. May I welcome the Director of Strategy at the BBC, John Tate; the Director of Policy at ITV, Magnus Brooke; and the Chief Marketing Officer of Channel 4, Dan Brooke. Could you begin by giving a brief outline of the contribution that your respective organisations make to the creative economy?

John Tate: Thank you. I am very happy to be here and very happy to give you an opening contribution.

The BBC recognises its special duty to the creative economy of the country by way of its receipt of nearly £3.5 billion of licence fee money. It works across the UK creative industries, as you would expect it to, with of the order of 300 independent production companies. BBC Worldwide, in its exploitation of British intellectual property, takes BBC content abroad, but it takes UK content more widely abroad. It works with 200 independent production companies, operates in 200 countries around the world and accounts for about 10% of British creative exports in the relevant categories in which it operates. The BBC in the UK is a trainer of the industry, spending about £27 million a year in various efforts, including the BBC Academy and training both BBC and non-BBC staff. Of late, we have been trying to promote the benefits of the UK creative economy in the work the BBC does across the UK. We have done that in Salford. We are very proud of the result and we can talk more about that later on, if you would like.

We are involved in a mixed economy with the independent production economy in the work we do in-house with BBC productions, so titles like Top Gear, EastEnders and Dancing with the Stars abroad-or Strictly Come Dancing in the UK. We think they are of great worth both to the UK and, as I say, from commercial receipts abroad in many cases. We value very highly those titles we have supplied to us by the independent production community and the co-productions we are increasingly entering into, and we can talk more about those later on too, if you would like. I will leave the synopsis there, Chairman, and come back on any questions.

Q599 Chair: Fine. Thank you. Let’s go to Magnus next.

Magnus Brooke: ITV has a quite similar story in some ways to the BBC. We are an integrated producer-broadcaster. We invest nearly £1 billion a year in programming, the vast majority of which is original UK content. We invest in our own programmes, which we make in-house as a producer, but also very substantially in the indie sector. Around 40% of our content on ITV, our main channel, is original independent production. We also have a very rapidly growing international and UK content business, growing roughly in the last year at about 18%. Certainly, for the last few years, we have achieved double-digit earnings growth as a company, and our target is to expand internationally in particular. We expanded our international content production business about 21% in the last year. All this has a very significant feedback effect into the UK industry. The £750 million or so that we invest in original production in the UK we invest across the UK, not just in London and the south-east, but particularly in Manchester and Leeds, and with the indie sector. In a sense, the crucial thing is the multiplier effect of our spend across the creative economy in the craft sector, but also among actors and writers. We employ at any one time about 40 writers, I think, simply on the two soaps, so effectively full-time writers writing storylines, scripts and so on. There is a very substantial throughput of writers, actors, directors and craft talent through what are effectively drama factories in the north of England. In terms of the stimulus and offer of employment to the creative arts in the UK, I think we make a very substantial contribution.

Q600 Chair: You have had to close some regional studios?

Magnus Brooke: We have concentrated our production in Leeds and Manchester primarily. Some network production in East Anglia has moved, or we shut some of the network production. I noticed one of your questions is about hubs. There are real economies of scale in concentrating investment in a handful of centres-in London, Leeds and Manchester-and that is what we are trying to do. We are concentrating our investment in those places, and concentrating people as much as we can to get economies of scale and of scope in what we do, which we think is the most effective way of maximising the impact of our investment.

Q601 Chair: Dan?

Dan Brooke: Good morning. Thank you for the opportunity to give evidence. Channel 4 makes a substantial economic impact on the creative industries and supports tens of thousands of jobs, the detail of which we have put in our written submission. I think perhaps it is Channel 4’s strategic role that is the most important, and there are three strands to it. First, there is our unique remit, given to us by Parliament, for innovation, diversity and new talent, among other things, which very much makes us, as we have always been but remain, an important R&D lab for the British television industry in particular. Secondly, there is our publisher-broadcaster status, which makes us a very significant client of the independent production sector. We are on a mission at the moment to try to let 1,000 flowers bloom in the independent sector. We worked with 460 different producers last year, which is up 6% year on year, and last year we grew our investment in the nations and regions, which we are pleased with. The third strand is our not-for-profit status, which really means we can invest as much of our revenue as possible into UK-originated content. Last year, despite the economic climate, we spent a record amount, in Channel 4’s history, on investing in original UK content.

If one example could illustrate the impact of these three strands, it would be the Paralympics last year, where we took an event that I think very much was perhaps an afterthought to the Olympics and brought it into the mainstream. I think, based on available evidence, it had some impact on affecting social attitudes to disability in the process. We spent the thick end of £1 million developing new talent in the form of our disabled presenters, many of whom have now gone on to other things on Channel 4 that are nothing to do with disability. We nurtured a Welsh indie, Boomerang, which made 40 episodes of That Paralympic Show, and of course we broadcast two of those epic adverts for British creativity, the opening and closing ceremonies of the Paralympics.

The Paralympics, though, is only one example of our ongoing strategy for investing in innovation in the creative industries. Since we retired Big Brother, we have invested the money that was spent on that programme across a substantial range of genres. We have established 40 new returning series since the retiring of Big Brother, which of course is the export lifeblood of the independent sector. We started a new channel to maximise the audience for all this new British programming that we are making. We remain the pioneers in second-screen innovation in the UK and, of course, we are also reinventing our commercial model, principally through the use of data. We now have 7 million people registered on the Channel 4 database, including one in three people in the UK aged 16 to 24. This is very significantly helping us to grow our digital ad revenues.

In a nutshell, that is the contribution that we make. It is a contribution that Channel 4 has always made for the past 30 years, but we believe that contribution is as strong as ever and as needed as ever. I think in the last couple of years the stability on which the organisation is operating is probably more stable than it has been in previous years.

Chair: We will explore some of these issues in greater detail.

Q602 Tracey Crouch: In the written evidence from the BBC, there is a lot of mention of partnerships, particularly digital production partnerships. Could you outline the partnerships that you have, in particular the DPPs, and how you think this can help grow and sustain the creative economy?

John Tate: Partnerships are a fact of life at the BBC across its operations now. It is not altogether known how widely they have spread. You might take BBC Gaelic as a partnership operating successfully-

Jim Sheridan: Please take it.

John Tate: Please take it; okay. We have established The Space with the Arts Council. We have many other flourishing partnerships, and you might look at the example of YouView itself, which was very much a partnership of the BBC’s initially, but has gone on to be a stand-alone entity.

In the case of digital production, we are looking to create common standards in a way that benefits the whole industry, and that is a continuing tradition that BBC R&D and technology has done for many years since the BBC’s founding in 1922. Wherever we can make things of wider use to the industry we will. Subject to market impact and competitive tensions, we will look to make our standards and approaches common ones.

Dan Brooke: We work in partnership with a whole range of organisations in the industry. The absolutely critical one for Channel 4 is our relationships with independent producers, but we also have deep relationships with advertisers. Another area where we have put a considerable amount of effort in is partnering organisations to bring young people into the industry, particularly in the area of skills. We are a very significant partner of Skillset and the NFTS. We have a partnership with a whole range of different production companies and organisations to offer apprenticeships, internships and training programmes, which we do within London and within Channel 4, and also throughout the country in a whole diverse range of places. Specifically, as far as digital is concerned, we operate a programme called Fuel 4, which attempts to bring people from different creative disciplines together with the idea of fostering ideas in the area of convergence, and not only that but people from both creative and technology backgrounds, which is a productive exercise.

Q603 Tracey Crouch: Magnus, I presume that you have the same views on relationships?

Magnus Brooke: Very much so.

Q604 Tracey Crouch: Do you think these partnerships make a qualitative difference?

Magnus Brooke: I do. I think, as an organisation of our scale, it would be difficult to avoid having good partnership relations with your customers and suppliers, and also with other people in the industry, particularly around digital and terrestrial television. There is clearly a series of partnerships there, YouView being one example. They are very productive partnerships, actually, and in the public interest, offering better products than we could offer by ourselves.

The DPP thing is interesting because I think that is an example of a really productive and useful partnership between the broadcasters to try to establish a single standard for supply of content in a way that I hope lessens the barriers, particularly for independent producers, to getting their content online. Over time it will lessen the cost of supplying the major broadcasters, rather than us each having our own individual standards that you have to comply with as a supplier. I hope that is a helpful development.

Q605 Tracey Crouch: It is funded and led by you guys, but is it a significant amount of funding? What level of funding is it? Do you think it is enough?

Magnus Brooke: For the DPP?

Tracey Crouch: Yes.

Magnus Brooke: As far as I know. It is something that is in its relatively early stages. John may know more from the studio’s point of view. It is in its relatively early stages. We are very committed to it. I am certainly happy to go away and see how much we are funding it, but as far as I know we are putting quite a bit of funding into it, and it is beginning to pay off.

John Tate: We could write to the Committee afterwards, perhaps.

Magnus Brooke: Yes.

Q606 Tracey Crouch: I think that would be helpful. Can I turn to the film industry? I watched Made in Dagenham on Sunday, and it is a BBC2 film. Do you think you are doing enough to help the British film industry? That was an obvious example, and there are others, but I still feel that perhaps the broadcasters are not doing enough to help the film industry. I wanted to have your own views on that.

John Tate: We have roughly 70 projects on the slate at any one time in the area of film, and roughly about eight films a year come out of the BBC, but it is important to recognise the way that we work is very much in partnership across a range of organisations. We will not generate, produce and distribute a film in our own right. We will put together lots of different interests who are interested in the production of a film, and we will provide some seed money and different contributions, based on the different projects that we work with. We put in roughly £11 million a year to that effort. If you were looking at the larger picture, would you say that films are part of the BBC’s DNA, back at its origins? Well, perhaps they are not, but they are an important part of what we do none the less, particularly in the area of original UK-produced films.

Q607 Tracey Crouch: But £11 million is not very much money.

John Tate: If you look at the commercial reality of film, it is a very difficult marketplace. Certainly the Hollywood studios are pretty much locked up in their arrangements, let’s say, for the showing of films in the UK. We do not think it is a wise use of licence fee payers’ money to play in those leagues, so instead we operate at the level of original different productions that move the creative game on a bit in certain areas. It has had to take a fair share of savings, so we have had to make a reduction in that area along with our revised licence fee settlement-it has forced us to-but I think £11 million is still a great deal of money, particularly with the way that we use it to put together projects. It is not just us; it is many different actors working at the same time. We will be an organising force, but we will not be in all cases the heavy lifter, if you like.

Tracey Crouch: I shall refrain from mentioning how much the BBC spent on lawyers defending itself over Pollard.

John Tate: Thank you.

Q608 Tracey Crouch: Guys, do you want to come in?

Dan Brooke: Film 4 has always been an absolutely central part of Channel 4’s operations and I think Film 4 does make a very significant contribution to the British film industry. It is now part of our statutory remit that came in under the Digital Economy Act to make British films. We invest about £15 million a year across a range of different projects. That is the highest it has been for some time.

Tracey Crouch: Did you say 50 or 15?

Dan Brooke: £15 million. That was increased a couple of years ago. We are highly committed to film. We have recently established a new division of Film 4 called Film 4.0, which attempts to develop younger filmmakers making films that can enjoy digital distribution. That has turned out to be very successful with newer filmmakers, and with more established filmmakers who want to do work that is more experimental.

Magnus Brooke: ITV is essentially not in the film business. This is not a business we hugely understand, particularly in terms of distribution. It is also an industry in which you can lose a very large sum of money quite quickly, and the risks are very acute. What we have occasionally done in the past, although less so recently, is give some dramas a cinematic release where that has appeared to make sense. The Queen is the best example of that. The key thing to our contribution is really the drama contribution, and if you look at the number of film directors, producers, writers and others who come through that drama stable, it is enormous. Some of the best names in British cinema-Tom Hooper, Michael Apted; all sorts of people-have come through the ITV system and gone on to direct films. There is a real crossover between our investment in drama and a healthy film ecology in the UK.

Q609 Tracey Crouch: Turning to something different, Magnus, ITV is on the Creative Industries Council. Could you comment on how effective you think it is in setting the policy agenda, and do you have any recommendations for improving it?

Magnus Brooke: I think it is always useful to have a forum in which people from the industry can come directly and discuss things with Ministers and officials. It is a big group, and there are a lot of different and diverse entities around the table, which in principle, in many ways, is useful. I think Sky made the suggestion in its written evidence that there might be a case for some sort of sherpa group beforehand to help to focus the agenda and surface those things that really matter, and I think that makes a lot of sense.

Q610 Mr Bradshaw: Can I ask John Tate why the BBC spends so much less on independent production in radio than it does in television?

John Tate: The market for independent production in radio is a very different one. It is often very dependent on BBC commissions, as you probably know, so in certain areas-let’s say drama-if you are producing content, there may be nowhere else to go than Radio 4. It is quite a peculiar market; quite a small market. The network effect of it is not as it is certainly for television productions. We could not seek to have it distributed around the UK as much as we do with our television production and investment resources. It can be quite episodic and quite specific in the way that it operates. As I say, in many genres we are on many occasions the only commissioner of content, so businesses will spring up to meet a particular need and then may not have an outlet in future years. I think that is the way I would characterise it.

Q611 Mr Bradshaw: What would the BBC’s reaction be to a proposal to establish a quota in the same way there is a quota for TV production?

John Tate: You would have to think long and hard about transferring an approach from what is a well-developed, UK-wide, successfully exporting industry to an area that I have described in the terms that I have. It operates fundamentally differently, both in terms of scale and in terms of the buyer-supplier relationship, so you have to think about a very bespoke set of arrangements, not necessarily just bringing over methods like quotas.

Q612 Mr Bradshaw: One of the complaints of the independent radio stations, as you are probably aware, is the lack of transparency about the figures. Could you provide this Committee with figures as to how much not just in terms of volume, but in terms of spend, the BBC commissions independent radio production?

John Tate: I can provide that. It would need to be offline by way of further written evidence.

Q613 Angie Bray: Can I turn to creative start-ups and find out what you do to help them, what you could do to help perhaps more and what can be done to help you help start-ups more? Can I start with you, Dan?

Dan Brooke: Yes. As I said in my opening remarks, we are very much on a mission to help to make 1,000 flowers bloom. We have a number of initiatives, principally something called our Alpha Fund, whose aim is to direct hundreds of thousands of pounds of development money into projects specifically with start-up and smaller companies, and also companies not based in London, and companies started by people from diverse backgrounds. It has been extremely successful. The number of new companies with which Channel 4 has worked in the past 12 months is still being audited as part of our 2012 accounts, but I am confident that the number has gone up quite significantly. This is a self-imposed strategy of trying to get out and about, and to get our commissioners out and about-both people and money out-throughout the UK to root out the best possible ideas and the best possible producers to work with, and thus far we seem to be getting some traction with that strategy.

Q614 Angie Bray: How healthy is the Alpha Fund?

Dan Brooke: It is somewhere between £1 million and £2 million.

Q615 Angie Bray: Is that enough, or do you think it should grow?

Dan Brooke: In 2012 there was about 20 projects that the Alpha Fund helped to fund, which I think is quite significant. It would be great if it could be more. The people who run that fund do not come frequently and say, "If only we had double the budget," although clearly that would be nice.

Q616 Angie Bray: You are talking about 1,000 flowers blooming. What is the scale of your ambition realistically?

Dan Brooke: We have grown the number of producers we work with across television, film and online by 6%, and I would hope we would continue to develop that. Of course, it is partly dependent on supply, but we really are getting out and about throughout the country very actively to try to find the best people.

Q617 Angie Bray: John, did you want to come in on that?

John Tate: Yes. I think one of the ways that we look to benefit the industry as a whole is through the training budget that I described, and every year we are putting nearly £30 million into overall BBC training efforts for the industry.

Q618 Angie Bray: £30 million?

John Tate: £27 million point something, yes.

Q619 Angie Bray: Annually?

John Tate: Annually, yes.

Q620 Angie Bray: Into BBC training efforts?

John Tate: That is right, of which the BBC Academy is the single largest element. We have specific programmes. I should mention the work of Worldwide in relation to bringing on individual artists, helping them form businesses and helping them export their content. If you think of co-productions and joint ventures established by Worldwide-for example, the creation of Teletubbies or In The Night Garden-and the international success of those brands, they are directly attributable to Worldwide seeking out and working with the best talent and bringing them on in the way that you have described in your question. We have started something called the Connected Studio project. This is very much to find new ways of working across platforms, new content formats, and new creative IP, and that is leveraging off our traditional strength in studio production, but also the technologies we bring to bear and making those available to people to come in and see what they can do using our technologies and studio space.

I have talked about Worldwide, but I should also mention it as an export platform for wider UK creative industries. The very fact that you can knock on someone’s door in a far-flung country and say that you are from the BBC is worth a tremendous amount, if you are a small, struggling creative looking to get access to big buyers abroad. In working with over 200 indies through Worldwide, we do a lot of that sort of activity, as you can imagine.

Q621 Angie Bray: Do you have ambitions to do more? Is this an area you want to grow?

John Tate: Yes, we would like to do more. There are constraints, some of which the Government might think about helping us with, but we would like to do more. We need to be careful within the UK market, but overseas, in terms of acting as a platform for the export of the BBC and wider UK IP, I think we would like to do even more than we are doing now.

Magnus Brooke: The key for us is to commission on merit. As far as we are concerned, we want the best ideas and we want them to come to ITV, and we will do what it takes to get those best ideas. We worked with about 75 independent production companies last year. One of the things I observe about the independent sector is that it is constantly reinventing itself. People are constantly spinning out of existing independents, particularly when they get bought out, and setting up new businesses. It is a very fertile area for small businesses in the UK. You can establish a new business relatively cheaply. If you have good creative talent and you have the experience in the industry, it is not that difficult then to get commissions as relatively small businesses, albeit potentially with individuals with track records. It is actually quite a healthy sector, I think, and there is constant demand. We are between us pumping hundreds of millions of pounds a year into the independent sector, so there is very substantial demand, and therefore very substantial incentive for individuals to set up small businesses. In some ways, the key for me is the significant demand for the best ideas.

Q622 Angie Bray: How easy is it for a very small, newly set up company to penetrate to get your attention? If you are saying you are looking for the best, and there are obviously some well-known companies around that provide that, how easy is it for the new ones to get through that layer to get the recognition that they need so that you start commissioning from them?

Magnus Brooke: Again, I think it depends on the quality of the product that they have. Do they have some credibility? Do they have things that they can show you that attract your attention? We have people who are constantly scouting for new talent, and on-screen talent. We have people who are constantly going around regional theatre, drama schools and so on looking for new talent, but equally, from a commissioning point of view, the last thing you want is for a fantastic idea to go to either of these two guys. We have every incentive to get out there and be as active as we possibly can, and not just go to the usual suspects, precisely because of the dynamism of the industry. People are constantly setting themselves up as new entities. Some have track records and some have experience, and you very much want to tap into that, but if you simply rely on the same old suppliers, you are not going to get anywhere.

Q623 Angie Bray: Should the Government be doing more to help you to help these new creative growths?

John Tate: I think the framework for the creation and growth of an independent production company in the UK is about as good as you could imagine. Looking around the world, I think the UK is a comparatively attractive place to do business. The terms of trade were put in place to make sure that that was the case and that has produced a thriving industry. The industry now sees more foreign ownership and control by private equity companies. Might you want to think about having the terms of trade supporting original UK production optimised to remain fit for purpose? I think there may be a conversation there. Could Worldwide do more? Well, there is access to capital, and currently Worldwide’s borrowing facility counts towards public debt. We do not think that need be the case. There may be a conversation to be had with the Treasury about that. There are things that could be done, but I think, overall, that I would agree with Magnus that it is a relatively attractive place to do business.

Dan Brooke: Yes. I think there are things that the Government can do perhaps in more general ways. As I said, from our point of view, because we are a not-for-profit, we do invest as much of our revenue as possible into UK-originated programming. Any measures that the Government can introduce that would help us either to raise our revenues or to reduce our costs. In our case, we could pretty much guarantee that that investment would go into more UK-originated content.

Q624 Angie Bray: What kind of positive interventions on that front would help?

Dan Brooke: I think probably the most substantial one for us as a commercial PSB would be the harmonisation down of advertising minutage. We have this situation where commercial PSBs and non-PSBs have differing levels of advertising. I think if they were harmonised down, that would be of great benefit to viewers, partly because they would have fewer adverts, but also because it would produce a revenue upside to the commercial PSBs. As I have said, in our case, we would invest in UK-originated content, thereby benefiting the independent sector.

Q625 Angie Bray: Do you want to comment on that, Magnus?

Magnus Brooke: Yes. I would agree with that. I think that the critical thing both for us and independents, and in a sense where we are reliant, is the need to ensure a return on investment. I think there are two dimensions to that. One is broadcast-specific; the other one is more general. The broadcast-specific one is about the relationship between channels and platforms, and making sure that the intellectual property rules and the regulatory rules around the supply of our channels to platforms are such that we get a reasonable return from the exploitation of our content downstream by new and old platforms. I am not sure that is the case at the moment under the existing regime.

The second is a much more general thing about intellectual property and making sure that both we and independents-because there is a degree of sharing now at the back end of the secondary rights, and therefore secondary revenues-have a robust intellectual property framework in the UK, and also a broader framework in Europe that allows us to make a return on the exploitation of our content downstream, particularly looking at the way in which the exception regime may change in future. That is quite troubling.

Q626 Angie Bray: You presumably would agree with Dan about the advertising minutage?

Magnus Brooke: We would.

John Tate: If I may, there are things the Government could refrain from doing that might help as well, such as not introducing charging on our use of spectrum, which might see us freer to invest into the creative economy, rather than paying that money towards the use of spectrum.

Q627 Chair: Would you not say, however, as an economist, that spectrum charging actually is by far the most efficient method of allocating spectrum?

John Tate: I think the theory is flawed as it applies to broadcasting. It is a noble intent, in that it is a limited resource and you want to use it in the wisest way. If we take the BBC as an example-colleagues may wish to comment for their own organisations-we must reach the country basically universally, and the services we offer are licensed by the BBC Trust. The theory that we would adjust those in response to a tax on spectrum just does not work. The incentives would not work on us in the way that they are intended to in that market-like fashion. There is a fundamental flaw in the theory as it applies to broadcasting, particularly PSB and the BBC, and we think Ofcom should just think again.

Dan Brooke: There are a couple of other things as well. One is the area of EPG prominence, where I think the existing language around EPG prominence could be tightened up, but also now with more and more viewing on different platforms. If the concept of EPG prominence was expanded to include other platforms, I am sure that would be of great benefit to all the public service broadcasters. The other is maintaining the stability and importance of the DTT platform, because we all enjoy higher ratings on the DTT platform than we do on others. So, I would add those two things.

Chair: We may come on to EPG prominence.

Q628 Mr Leech: How important is the extension of tax relief to high-end TV animation and games?

Dan Brooke: For us it is a welcome initiative. There is probably only a handful of projects that Channel 4 do that would fall into this category every year. That may now rise as a result of the initiative. It is early days, so it is hard for us as a publisher-broadcaster to know whether the economic benefit of that is going to flow back to us, but in general we very much welcome the initiative.

Magnus Brooke: Yes, we particularly welcome it. There are probably three or four dramas that we make a year that may well end up being made in the UK now but might previously have been made overseas.

John Tate: I do not think I can add anything to the previous two answers. We welcome the initiative. I think it is of limited application to the BBC, although where we can and where it is relevant, we will take advantage of it.

Q629 Mr Leech: Do you see there being any changes to the actual programmes you commission or produce as a result of the changes?

Dan Brooke: We have not seen any evidence of that so far.

Q630 Mr Leech: Is there any danger that it will just lead to already profitable programming getting all the cash, and not necessarily developing other programming that is not being done at the moment?

Magnus Brooke: I think it does a little bit depend on what the purpose of it is. In our case, for example, we made Titanic abroad because the economics of the labour market and the tax regime made that make sense. If we had our time again with a new tax credit, I think that would be a much more finely balanced judgment. Potentially there is substantial additional economic activity happening in the UK, particularly driving craft industries. Those are the ones that you don’t tend to take to Hungary to film Titanic, because you would use local labour. I think that does make a difference in the UK. That is a production that will probably get made one way or another; it is just a question of where it gets made. I think the difference the tax credit makes is that it is more likely to get made in the UK.

Q631 Mr Leech: It would only be a balance between whether or not it was being made here as opposed to somewhere else-as opposed to being made at all.

Magnus Brooke: There may be marginal productions that might be more likely to get made, but in a sense it is not going to shift the dial, because all it is going to do is replace a subsidy or a low labour cost over there with a tax credit here. It is not going to make a decisive difference, probably.

Q632 Mr Leech: Are there any other views on that?

John Tate: We are careful about perverse incentives but, on balance, for the reasons Magnus gives, we are in favour of this measure, but the implementation is important, and we should watch it closely.

Q633 Mr Leech: Are documentaries likely to pass the threshold for tax incentives?

John Tate: Not in our case.

Magnus Brooke: From memory, I do not think they are included, are they? I think they are specifically excluded from the wording, the last time I looked at it. I think it is just drama.

Chair: I think it has now been extended to include documentaries.

Magnus Brooke: I can’t think of documentaries that would have that sort of budget-certainly that we would produce.

Chair: David Attenborough seems to spend a fortune on these documentaries.

John Tate: As I say, we would look to take advantage of it where we can, but it is going to be a distinct minority of cases.

Q634 Mr Leech: Being devil’s advocate, is there a danger that this could be seen as an additional way of the general taxation system publicly financing public sector broadcasting?

John Tate: I think that is a question for the Government.

Q635 Mr Leech: You don’t have any comments on that.

Dan Brooke: As I have said, in our case, the tax benefit principally arrives at the door of the producer, and it remains to be seen whether any benefit of that passes on to Channel 4. Obviously we hope that it would. Beyond that, I am not sure there is anything relevant for me to comment on.

Q636 Mr Leech: I have to say that I expected you all to be slightly more enthusiastic about these tax incentives than perhaps you appear to be. Is it that you are just not quite sure how helpful they will be in practice, or do you have some reservations that it is not actually going to make a great deal of difference?

Magnus Brooke: They are very welcome but, as I say, we are talking in our case about three or four productions a year. It makes a difference in that we would sooner make them in the UK if we could-we would rather not have to go abroad-but the truth is that it puts us almost in the same position we would otherwise have been in, but we are making it in the UK rather than-

Q637 Chair: To try to look at it positively, let us take one example that you have come up with. How much did you spend on Titanic, and how many people did you employ making Titanic? Presumably that money and that employment would have taken place in the UK had you chosen to make it with the tax incentive.

Magnus Brooke: Quite so, which is a very positive economic benefit for the UK.

Q638 Chair: But you do not happen to know how much you spent on Titanic?

Magnus Brooke: Well, I know in outline. It was very expensive-many millions of pounds.

Q639 Chair: Tens of millions of pounds?

Magnus Brooke: Probably not as much as that. You are absolutely right: it is about the economic benefit in the UK and the spend in the UK, rather than in another country, but from a producer and broadcaster point of view, you do not end up with lots more money because, in a sense, you are ending up with the same product at the end of the process at probably a similar cost.

Q640 Chair: From our point of view, we end up with British jobs and British investment.

Magnus Brooke: Quite so. From a public interest point of view, one can see the case for it, absolutely.

Q641 Mr Bradshaw: What are your predictions of the success, or otherwise, and the impact of local TV? You do not have to say anything if you do not particularly want to, but I will take your silence as a pretty good indication of what you think.

Can I go back to the question that you raised with Mr Brooke earlier, John, about the decline in the number of regional centres? I think what you were getting at was the regional news centres, although I may be wrong about this. Is ITV committed to its current level of regional news footprint in the English regions?

Magnus Brooke: In fact, we have just put proposals in as part of the licence process to Ofcom for a more local service for regional news, with slightly less minutage, but we think that is a proposal for regional news that is sustainable for a new licence period for another 10 years. What we are doing is making more local content in smaller areas, so going back to a pattern that is closer to where we were in 2009, but making some saving by reducing minutage, mainly at times when the audience is not watching in large numbers-so watching it during the day, at weekends and late at night-and concentrating on the programme at 6 pm.

Q642 Mr Bradshaw: Do you agree it is very important that the BBC does not have a monopoly of quality regional news provision on terrestrial television?

Magnus Brooke: We do, and that is why we are proposing, as part of the new 10-year licence settlement, to continue to provide an effective regional news service that absolutely provides competition to the BBC. We completely agree.

Q643 Mr Bradshaw: Can we move on to intellectual property and specifically the implementation or not, as the case may be, of the Digital Economy Act? Could you give us your views on the state of that implementation and whether you think it matters or not? I don’t mind who goes first. Dan, you are nodding, so why don’t you go first.

Dan Brooke: We believe, as you might expect, that a strong IP regime is incredibly important. We think the current system is strong and works well. The measures in the Digital Economy Act and similar measures we note in other countries appear to have a positive impact. We support them. We have a slightly differently nuanced position to perhaps some of our peers, because we do not own all the rights to the things that we commission and the rights that we do own we distribute entirely on a free-to-air basis. It is incredibly important that that content does not get pirated, and it is very high up our priority list, but perhaps it is even higher up the priority list of some others.

John Tate: I would echo the general welcome you have heard from Dan. I think the nuance for us would be-it is more than a nuance-that we are motivated by making available content on as wide a basis as possible and releasing the archive as much as we possibly can-getting content to as many people as possible. That said, ownership rules must be respected, and there are important considerations commercially in play. Are there slicker systems for the clearing of rights? I think there are, and there are some welcome moves in that direction. Of course, through Worldwide, we have a commercial motivation, and we are just generally interested in clamping down on piracy, but our overwhelming motivation is to get the content out there to people in the most convenient way.

Magnus Brooke: We are very supportive of the Digital Economy Act and keen for it to be implemented quickly. We are focused particularly on commercial piracy, so trying to concentrate our resources not on individuals, but on organisations and commercial entities seeking to make money out of pirating our content. That is where we put our enforcement resource.

Q644 Mr Bradshaw: What is your view of the Hargreaves reforms?

Dan Brooke: We are supportive of Hargreaves. There are a couple of detailed things. We do believe in a copyright exception for parody, and we are supportive of a private-copying exception, provided the definition of it is very narrow.

John Tate: A similar response. We are supportive in general. I would say more than in general-in most specific cases, we are supportive with a few exceptions.

Magnus Brooke: We are supportive of aspects of it. A code of conduct for collecting societies and orphan works are broadly sensible proposals. We are certainly supportive of the Hooper initiative to investigate whether there is a possibility of additional copyright exchange. We have difficulty on the extension of some of the exceptions. We think we can live with private copying, provided it is drawn very narrowly, but our difficulty with Hargreaves is around the rhetoric that surrounded it and the concept of IP as a barrier to growth. We think precisely the opposite. We think a strong IP regime with limited exceptions is the engine of growth. In the UK creative economy-the independent sector that we were talking about-UK producer-broadcasters are absolutely the engine of success and comparative advantage for the UK, and we find it hard to understand why IP is being attacked. In a sense, the debate moves a bit on to Brussels now, and particularly the 2001 copyright directive. We have real concern that there may be a broader assault on the principles of the 2001 directive. One of the reasons why I think Hargreaves ended up with quite a narrow set of exceptions is because it bumped into European law. If there is a kind of longer term threat here, from our point of view as a creative business investing in original content, it is actually from that framework being undermined.

Q645 Chair: You both said that you might accept the private-copying exception if it is drawn narrowly. Does that include cloud-based storage?

John Tate: I guess it probably would.

Magnus Brooke: I think the assumption in the current proposal is that it would include narrow cloud-based services but, in a sense, the devil is in the detail on the private-copying exception.

Q646 Chair: My question was not whether it was included in the proposals, but whether it was within your narrowly defined exception that you would be supportive of, because there are other creative industries that are most certainly not supportive of that.

Magnus Brooke: I think the difficulty with cloud-based services, and it is a definitional problem that you can already see, is how you define it. There is the concept of vanilla cloud-based services versus added-value services. In our experience dealing with commercial operators, and particularly technology companies, they are adept at creating all sorts of services in the cloud and exploiting intellectual property for no reward, which is the general concern about exceptions. Our issue is less with individual consumers format shifting from a CD to an iPod, and much more about commercial exploitation of exceptions. It is interesting if you look at the time-shifting exception these days; it is being used now in ways that can never have been foreseen in the age of the VCR. Suddenly you have devices that are storing 11 months of ITV1’s peak-time schedule, which is a very different concept to where you started with the time-shifting exception. I guess our concern a little bit about cloud storage is where does it stop and what is the definition of the things that are permitted or not, and how are other companies going to piggyback off your content via cloud-based services in order to make a lot of money via subscription services that they sell to consumers.

Q647 Jim Sheridan: Dan, you may have already answered this question about PSB levels, but Channel 4 in particular is asking for the repeal of section 73 of the Copyright Act. Is that the same thing that you referred to earlier on, or do you wish to comment further on why you wish this section repealed?

Dan Brooke: We would, yes. There are website-based services that are retransmitting our television channels and selling advertising around them. That obviously does not seem right, and it is reducing the potential revenue into Channel 4 that could otherwise be invested in UK-originated content. We would like to see that repealed.

Q648 Chair: You have had a success with TVCatchup, have you not?

Magnus Brooke: The right way of putting it is probably that we are on the road to success. We have had a judgment by the European Court, or rather guidance to the UK High Court, not about section 73, but about communication with the public, which is another aspect of the case that we are pursuing against TVCatchup. The issue we have left, and I very much agree with Dan, is that the UK court has so far held that TVCatchup can take advantage of section 73, which was designed in another era to facilitate cable rollout in the UK in the 1980s. There is no definition of cable, so TVCatchup takes the view that it is distributing its services by cable, and the UK courts in the first instance agreed with that. There is still a real issue with section 73 and people using it as a loophole. Indeed, I think it is the only place you can find adverts round the BBC’s television services online, and the foundation of that is section 73.

Q649 Chair: Would it be possible for each of you, however you wish to do it, to let me have a specific note on section 73?

Magnus Brooke: Very much so, yes.

Chair: That would be very helpful.

Q650 Steve Rotheram: Channel 4’s written evidence suggests limiting red tape to encourage apprenticeships and work experience schemes that are flexible enough to appeal to smaller organisations. Isn’t the old "bureaucracy gone mad and red tape holding up progress" argument a bit lame? If that is not the case, can individual members of the panel identify any unnecessary red tape or bureaucracy that is hindering the establishment of apprenticeships in the creative sector?

Dan Brooke: In our written submissions those were broad comments, and I can certainly come back to you in writing on any absolute specifics in that respect. Notwithstanding those observations, as I said in an earlier answer, we do go a long way, I think. Our remit is for innovation, diversity and new talent, and bringing new talent into the industry is incredibly important. We do operate a wide range of apprenticeships, internships and work experience, and those tend to be within Channel 4 or within production companies. We also make a significant effort getting out and about into the country. Last year we went to a range of places as diverse as Penzance, Barnsley, Derry, Dundee and Cardiff, holding open days and workshops for people who are interested in getting into the industry. We surveyed those people. One thing we are very interested in is that across 2012, of those who came to the workshops and open days who answered the survey, 60% said that they came from backgrounds where neither of their parents had been in higher education. We thought that that was a very interesting and valuable finding. So while there may be general levels of bureaucracy, I do not think it is overly holding us back from our ambition to try to bring many young people, but also people from very diverse backgrounds, into the industry.

Magnus Brooke: We are very committed to broadening the pool of our recruits at the bottom of our organisation. Indeed, we run a scheme for 14 to 17-year-olds called Work Inspiration every year, where we go out and make very active efforts to find people, particularly outside London and the south-east, who would not normally think of a career in the media. We run a two-week course every summer for them. We stay in touch with them subsequently. We have an apprentice scheme that some of them then go on to, and we have a very broad number of recruitment schemes for people for production and for office functions within ITV, and we are trying to reach as broad a group as we can. In some ways, having the presence that we do have on the ground in Leeds and Manchester, in particular, is very valuable, because we are part of the communities we serve and we need to recruit people for our business from those communities.

John Tate: We are an active participant in apprenticeship programmes, and I think there are two main drivers for that. One is, as you have heard from my fellow contributors, widening the voice and contribution, so getting beyond over-reliance on a graduate flow of recruits and reaching out to a wider base of potentially interested people and talent. Often we can start apprenticeships in a way that will lead to people developing the talents to fill the key gaps in the industry. An example of the latter is the technology apprentice scheme we are launching in September this year. I think there is a wider question about take-up and respect for apprenticeships within the industry. We will play our part, and we will look to other employers. Once we have trained people up and they go on to new things, we will look for their qualifications and experiences hopefully to meet with the credibility and respect they deserve. That is key, and the development of that credibility and respect is key in the wider industry. I think the jury is probably still out at the moment on that.

Q651 Steve Rotheram: But the industry already has a long tradition of apprenticeships going back many decades. Specifically, what is the hindrance to you being able to offer further apprenticeships? I noticed in Dan’s answer that he gave a long list of areas that were included in the road show workshops. One of them is not Liverpool. There were 100 apprenticeships advertised for the BBC, which is based in Salford. They were all for people in Manchester, not for people in Liverpool. If, for instance, the BBC wanted genuinely to become a hub for the north-west, it should not concentrate on just one part of the north-west. If Channel 4 is going round doing workshops, why are they not held somewhere like Liverpool that the BBC is not specifically targeting, if you are looking for new talent?

Dan Brooke: In our case, I do not think we would see it as a question of leaving out. We do quite a lot in Liverpool at the moment through Hollyoaks, which is produced near Liverpool. I take on board what you say and we will look at increasing our presence in that and other regions.

Q652 Jim Sheridan: As part of this inquiry, the Committee took itself off to America and spoke to some of the main players in the creative industries. Almost all of them were extremely complimentary about the UK system, and not just the tax incentives, which obviously they appreciated, because they identified areas such as skills, training and craftsmanship, and that was the reason why they brought some films to the UK. One of the questions I want to ask is: what are all of us doing to exploit that goodwill and to bring even more jobs, films-whatever it may be-to this country?

John Tate: If you take a step back and look at the advantages that Britain has in the creative industry-the English language certainly; well-developed capital markets; great latent creativity in the generation of ideas and IP-you might think that we can do more. If you look at the factors for that, and if you are trying to develop IP over a certain scale in certain areas, you will go to the States for the money. If you are J.K. Rowling and know there are the studios, the ideas and everything else in the UK, at some level you just have to get the US studios to back your idea and get the funding. I think there might be something, and I do not have the answers here, about the level of understanding within the UK’s capital markets for creative IP and the backing of creative IP. You have the City of London, one of the world’s biggest capital markets, the English language and great IP, so why is it not quite connecting in world-beating ways as much as it could? I think that is an interesting question for the Committee. It is not one I have any answers to immediately, I am afraid, but we are playing our part.

Magnus Brooke: I think the key thing is growth. The critical thing is growing your business and producing profit, and therefore persuading people to continue to invest, in ITV’s case, in ITV as a business that is producing attractive returns for investors who are looking across the world at potential investment opportunities. The critical thing is that we can say, "Here is a company that is growing rapidly. Invest in us," and it is an attractive investment proposition.

Q653 Jim Sheridan: The question I am asking is: are you out there selling yourselves, or are you saying, "No, we are good, guys; we will wait for the films to come here"? Are you out there selling yourselves?

Magnus Brooke: Absolutely we are. We have our international growth. Our studios business internationally outside the UK last year grew by over 20%. We are busy acquiring. We have just acquired a company called Gurney Productions in America, which is producing a lot of content in the American market. We have acquired producers in Finland and Norway. We have operations in Australia, Germany and France. One of our biggest priorities, and the key to our overall business plan, is growing our operations through acquisition, and also through organic growth outside the UK. The vital thing for us is that that produces a stream of profits that we can reinvest back in the UK creative industries. The critical thing is the virtuous circle for us-we invest in the UK, we make content famous on our own channels, and then we go round the world to sell the format and the finished programme, and then we have alliances with other producers in other territories. All that is a circle of reinvestment back into the UK’s creative industries, and that is the critical thing for us.

John Tate: In Liverpool, in February this year, Worldwide held the largest export fair for creative IP, with 700 attendees from around the world. It was a great success. I think we are going to do similar events in Latin America and China. As I say, outside the US majors, Worldwide is the largest exporter of TV programmes in the world.

Q654 Chair: The BBC identified four policy priorities in its submission, which I think will be of relevance to both the other two witnesses. I am not entirely convinced by any of them, so I would like to go through them. First of all, you are concerned about having to pay carriage fees, and you suggest that if you did not pay carriage fees, you would have more to invest in programme content. Well, you would have more to invest in programme content if you did not have to pay your electricity bill, but why shouldn’t you pay carriage fees?

John Tate: I think the analogy is not appropriate to the payment of fees for electricity. The licence fee payer creates something of value, and it is right that when other parties benefit from that value created, the flow of value is respected. In the case of our payments to Sky, its ability to offer the BBC’s channels is hugely important to it operating as a business.

Chair: Well, it has to by law.

John Tate: Hugely, hugely important to it operating as a business, so if it is to carry those channels, the flow of value is clearly from the licence fee payer who has created that content to Sky. It is operating very healthily-billions of pounds of turnover-and it should compensate and pay for the carriage, perhaps in an open or deregulated system, but at a minimum we would agree with Ed Vaizey’s comments that there should be a zero-payment regime. At a minimum, we think that is a very fair outcome.

Q655 Chair: Without a "must carry" obligation?

John Tate: I think it is overwhelmingly in Sky’s interest to carry the BBC, so the idea it would "go black", in the jargon, and pull the BBC services would undermine its business model. Carrying the BBC is essential to its business model, so the fact that it should come to fair terms with licence fee payers for the carriage of that valuable content is axiomatic.

Q656 Chair: Is it not the case that Sky has spent a huge amount of money on developing satellite television and the conditional access system and all the technology that goes with it, and it is entitled to expect that other broadcasters should pay something for having access to that?

John Tate: I don’t agree. Initially, it took a huge bet and invested behind that bet-and, all credit to it, that has paid off royally. Average revenue per user is more than £500, versus £145 for the BBC. As I say, it is far bigger than we are. It is turning over billions of pounds. The licence fee payer should not have to pay twice for the carriage of its content.

Q657 Chair: Do you agree?

Magnus Brooke: We certainly think that you need to look again at the relationship between channels and platforms, and it is a general point across all platforms. The historical interventions here were about forcing the analogue monopolist to provide channels to new entrant platforms. We completely understand, and it was a worthy and sensible policy objective to encourage competition to analogue monopoly. We absolutely understand that, but I think we are in a very different world now. We have a whole series of competing platforms, which are extremely powerful and are extracting value out of input provided for free by the public service broadcasters. It is not just about carriage of the services, although that is clearly an important thing, and a lot of the viewing in Sky and Virgin homes is to the PSB channels, which does suggest they are still deriving quite a lot of value out of the channels. New services, like PVR services, for example, which are using the time-shifting exception and, in the case of Virgin, section 73, effectively are subscription services-very innovative, sensible subscription services-that use the content of the public service broadcasters overwhelmingly as part of the overall attractiveness of their offer to consumers. I think there is a need to have a look again at whether the balance is right-whether in fact it should be free supply. Should the money go the other way? Should there be money going from platforms to channels?

Q658 Chair: That is a much more half-hearted approach than John Tate, who is saying, "This is an outrage. We shouldn’t have to pay, and if anything, they should be paying us." You are just saying, "Well, we should look at it again."

John Tate: Chairman, if I might go even further and say-[Interruption.] No, I am serious. I think comparing the creative lifeblood of the platform to a commodity like electricity is, frankly, insulting.

Q659 Chair: All right. Do you wish to harden your position?

Magnus Brooke: There has to be an assessment of the relative value of those, and, as it happens, I suspect you would probably end up in a position where the money doesn’t change hands. Potentially, in five years’ time, you might say some money ought to come from the platform to the channel, so it is a process that changes over time. Was it right 20 years ago that we should supply our channels for free, or indeed have to pay Sky? Possibly it was, because we were analogue monopolists, and there was a very substantial analogue surplus. Have economic conditions changed? Has the value of the channel to the platform potentially increased in a world of PVRs? Yes, it has. Do we think that necessitates the reassessment of the balance of value? Yes, it does.

Q660 Chair: Dan Brooke, are you with hard-cop BBC or soft-cop ITV?

Dan Brooke: I think the principal issue for us is, if there is going to be any kind of financial exchange on this matter, it should actively reflect the value that channels bring to platforms. It does not escape our notice that 50% of viewing is to PSB channels, and 70% is to the PSB portfolios, and further that the DCMS has commissioned a report from a third-party expert that has come back saying that there may indeed be very rational reasons for the financial flow to be in the opposite direction. That said, I think we are very much in the category of saying the relative value that is contributed in the equation should be looked at in close detail and the result based on that.

Q661 Chair: Let me take you on to a related issue, which is that although you do pay carriage fees, you also get something that is of immense economic benefit to you: prominence on the EPG. You seem to be suggesting to us that despite already possessing slots 1, 2, 3 and 4, you would like more prominence on the EPG. Perhaps you would like to say a bit about that.

John Tate: Yes. I wouldn’t describe them as going in tandem. I think there are different interventions. As Magnus rightly described, in the early days of the creation of the satellite platform, it may have been the right thing to give them an inducement. That is certainly not defensive to the flow of value today, I think, fundamentally.

The prominence question is a different way of supporting public service broadcasting, and over the years, the decades, Parliament has taken the decision, rightly in our view, that one of the key ways in which you support PSB alongside access to spectrum and the licence fee has been to make it duly prominent, and that has taken the form of prominence on EPGs, as you know. What we are saying-I would not necessarily speak for others, but I think our position is in common here-is that that the prominence regime that Parliament has decided upon should keep pace with the evolving media sector and the technologies used, and it should not be allowed to wither and be got around and be ignored.

Q662 Chair: It is not withering, though. You have held 1, 2, 3 and 4, and you are keeping 1, 2, 3 and 4.

John Tate: No. Look at the Sky sub-menuing system, on which CBeebies appears at 13th position for children’s channels. I think that is an example of withering.

Q663 Chair: These are quite valuable assets, and you could argue that, for instance, Sky’s dramatic increase in investment in original content means that it is now probably spending more on television original content than Channel 4.

John Tate: Well, it is not.

Q664 Chair: Yet. We have gone from a situation where it was spending very little but it is now spending a great deal. Should that not be reflected?

Dan Brooke: We are enormous supporters of the public service ecology in the UK, as John says, going back many decades. Were there to be people who are not currently PSBs wishing to join that group, we would be incredibly supportive, because it would further enhance this great tradition of public service that we have. If Sky wanted to seek that status-

Q665 Chair: Do you not think the Discovery Channel or Sky Arts are public service broadcasters?

John Tate: I think I am right in saying that together the PSBs still account for 90% of investment in UK original content, so Sky’s contribution, though welcome, is small, especially in comparison with its turnover.

Q666 Chair: It depends to some extent how you define original content. As I say, do you not think that now the world has changed so that Discovery, for instance, could equally be argued to be providing public service content?

Dan Brooke: I used to run Discovery in the UK and it makes fine content. It made fine content then, and I understand it makes fine content now. Our critical mission is to ensure the health and diversity of the PSB culture within the UK. If there are other channels that believe that they merit that status, we would genuinely encourage that.

Q667 Chair: You say that the two issues are separate. I am not sure they entirely are, because you seem to be arguing that you should, if anything, have even greater prominence on the electronic programme guide, but at the same time that you should not have to pay the broadcaster any of the fees that you currently have to pay.

John Tate: No. I think that the due prominence regime should keep pace with evolving technologies and platforms, so it should be fit for purpose. That is my argument. In terms of the carriage fees, I think they are, as I said, wholly illegitimate. I am aware of the implication in the question, but I think, as I say, it is offensive to the flow of value.

Q668 Chair: We will be interested to hear from our next witnesses on that. Can I very quickly touch on your other two policy priorities? One of them I have raised myself in the House, so I do have some sympathy with it, but I would be interested to see how great a threat you regard this. That is the possible occupation of an increasing amount of the spectrum by mobile services, and the threat that that might prove for your DTT transmission. You raised the possibility that you might have to be given additional access to spectrum to compensate for that. Just say a bit about that.

John Tate: DTT is an incredibly important way of reaching audiences in the UK, and we have just completed, as you will well know, the UK-wide digital switchover programme on time and under budget, and the way we serve viewers on DTT has lots of life left in it. I think I would agree with Ofcom’s assessment that DTT has a long shelf life, running to at least 2030, and we would probably say beyond that. While the explosion of mobile broadband that is fuelling demand for spectrum is understandable, it should not undermine the quality of experience viewers receive through DTT, and we are looking to make sure, with our fellow broadcasters, that that is the case.

Q669 Chair: Do you think there is a serious risk that existing DTT spectrum is going to be given over to mobile?

John Tate: There are commercially motivated positions-and these things are now decided internationally-that would, given a free hand, sign over lots of the spectrum to other uses and away from public service broadcasting but, as I say, over the years in Britain, we have taken the decision that access to spectrum is a key component of the way we support public service broadcasting, and we look for that to continue.

Q670 Chair: You do not have any sympathy with those in another place in this building who have suggested, "Well, it is all going to move online anyway, so DTT is in decline"?

John Tate: I thought that was a rather odd thing to say.

Magnus Brooke: I think eventually that may well happen. Ofcom has recently published their thoughts on the future for spectrum strategy and concluded that it was something for the 2030s, rather than for the next decade or even the decade after that.

Dan Brooke: We would agree with that. The DTT platform is incredibly important to television and incredibly important to the creative industries, for reasons that I outlined earlier. We are supportive of things like 5G, because we think that they represent opportunities for our business, but if, as a result, broadcasters are going to have to move to other spectrum, obviously that is a very significant exercise involving a lot of cost and a lot of planning. We would urge the Government to put as much effort into that process as we put into the digital switchover that we have just completed. I agree with my colleagues here. We do not agree with the idea that DTT in 10, 15 or 20 years will not be incredibly important, and we would observe that most external forecasters on this matter take the same position.

Q671 Chair: Just for the sake of completeness, finally, net neutrality. As far as I am aware, the Government have said that we want to see net neutrality. Ofcom has said that. Are you seriously concerned there is a risk that there is going to be some kind of bias against your programming by the ISPs?

John Tate: It is a fact that the providers of ISP infrastructure increasingly get into content incentives that have been created to privilege certain traffic. It is whether they are allowed to operate or to act on those incentives. We have seen in the BBC’s case the throttling of the iPlayer, so we have experienced this, and I think we are looking for a very clear statement in principle, not legislation, that net neutrality is to be respected in certain forms.

Q672 Chair: Has not Ofcom basically said that?

John Tate: Yes. It has made very encouraging statements to that effect, and they are to be welcomed.

Q673 Chair: It is not a serious concern at the moment?

John Tate: No, it is a very serious concern, because if you are looking at the evolution of ISPs and content owners and content distributors, you are setting up a massive incentive there to traffic-shape, and you have to keep a close eye on that as we move on.

Chair: I think that has covered all the points we have. Thank you very much.

Examination of Witnesses

Witnesses: Adam Minns, Executive Director, Commercial Broadcasters Association, and Adam Kinsley, Director of Policy, BSkyB, gave evidence.

Chair: We will now move to the second part of this morning’s session. I understand that Dee Forbes, the Chairman of the Commercial Broadcasters Association, is unwell and therefore unable to join us, but I welcome Adam Minns, the Director of COBA; and Adam Kinsley, the Director of Policy at BSkyB.

Q674 Angie Bray: Can each of you start by outlining the roles you play in supporting the creative economy, and perhaps tell us what you think the Government could do to help you to make an even more significant contribution? Shall I start with you, Adam?

Adam Minns: Thank you for inviting me today. Dee Forbes, our Chair, does send her apologies. She is ill, but she was very keen to be here today.

Over the last year, we have spent a lot of time and resource analysing and evidencing our investments in the UK production sector, and the changing, shifting patterns in investment in UK television production. I hope we can discuss some of that this morning. There are three headlines I would like to highlight.

The first is that broadcasters in the digital, cable and satellite sector, COBA members, are increasing their investment in UK television content. It went up by 27% over the last three years, despite the difficult economic market. The second point I would highlight is that, thanks in part to that increasing investment, coupled with other sources such as investment from the independent production sector itself, the total investment cake into UK content has gone up over the last three years, despite, I suppose, some relatively flat spending by the public service broadcasters. The third point I would like to make is that my members, many of which are multinational broadcasters, invest more in the UK than any other European member state, so we think that helps establish the UK as a European broadcasting hub. All in all, I think my sector is increasing its investment in the UK and UK content strongly, and we are moving towards a more mixed ecology in terms of investment in UK production.

Q675 Angie Bray: Is that investment safe? Should we take it for granted?

Adam Minns: We never take it completely for granted, but, as was touched on by the previous panel, the UK has a range of long-term advantages that make it attractive to invest in domestic content. There is a strong production sector, great content, skills, the English language and infrastructure. Coupled with that, I think investment is coming from a range of different players, so you have Sky increasing its investment, as was mentioned earlier, but also there are a range of different channels within the cable and satellite sector that are increasing their investment. Investment in UK children’s content went up by 60% over the last three years. You have Fox, National Geographic, Discovery and UKTV all increasing their investment as well. I think, given a reasonable regulatory regime, we have every reason to be optimistic, yes.

Adam Kinsley: Thank you for inviting me in this morning. I am also suffering a little bit, but I couldn’t leave Adam on his own.

Sky has been making a significant contribution for the past two decades, but what is really notable is the increase in the scale and the breadth of our contribution in terms of what we are putting on screen and the technological advances that we are making in how our viewers are watching that content. Last year we invested £2.3 billion in content, and two thirds of that is invested here in the UK. What is really interesting is that the growth areas are in original programming and areas that have not been traditionally associated with Sky. We have committed to increase our spend on UK production and content by 50% over a three-year period, so next year we will be spending £600 million on UK content and production. It is in important genres such as high-end drama and entertainment where we are seeing the best talent coming to Sky and looking at working with us on exciting projects. It is in the arts-we are hosting the South Bank Awards this afternoon-and it is in comedy, where we will be spending more than the BBC on British comedy.

On the technological side, Sky has obviously been a pioneer, bringing in Sky+, HD and 3D, but now we have around 800 software engineers, who are constantly looking to innovate and bring new ways to watch this content. We are seeing huge growth in things like on demand. In October last year, we had around 1.7 million downloads. By December it was up to 4.4 million, so it is a huge growth area. With things like Sky Go, where people are watching content on the move, we are seeing around 3.1 million unique visits.

It is a significant investment in itself, but it is sustaining the wider sector and wider economy. We did a study last year to try to quantify that, and Sky’s activities were said to bring around £5 billion to UK GDP, supporting around 120,000 jobs and bringing £2.3 billion to the Exchequer. It is a significant contribution. In terms of what the Government can do to support or grow this, we have managed to achieve all of that in the last period where we have had a relatively stable regulatory environment.

Q676 Angie Bray: Can I ask you a question? Sky has been quite late at the party, so to speak. There has been a lot of criticism about the lack of investment that Sky was making in original programming. You appear now to have done quite a change of tack. What actually triggered that change?

Adam Kinsley: I think we always were contributing, but it had been in genres that were news, sports and movies, and there was a call from people expecting Sky to do more in British content. We have realised that if we want to reach out to wider audiences and more customers, investing in those areas that they really want to watch is something that we need to do, so we started that several years back and it is growing steadily every year quite significantly. It is basically filling the gaps that maybe are not being served as well by some of the traditional broadcasters. If you look at Sky Arts, in particular, it is filling a huge void, and I think that it is proving massively popular, so it is giving customers what they want-what they are not going to get anywhere else. We are having to fight for every viewer who comes to Sky, so we have to give them that content.

Q677 Angie Bray: You started to talk about what you think the Government could do. Could I put it another way to start with? Do you think that you can continue to grow your contribution without further Government intervention, or does there have to be Government intervention to get more out of you? Adam Minns, can I come to you on that?

Adam Minns: Our biggest concern domestically is that we want to have consistency and clarity going forward in terms of the legislative and regulatory frameworks we work in. We think we are growing strongly and we think the overall market is growing strongly, and we do not see a need for large-scale changes domestically. On a European level, we do see a threat around the country of origin principle. Again, we don’t believe there is a need for any large-scale changes at the moment.

Just on your question, also the tax credits that you talked about earlier are a very welcome development and will help encourage investment.

Q678 Angie Bray: You were saying you think there is more the Government could do to encourage-

Adam Kinsley: No, I was going to answer your question as to whether there was. We don’t come here with a wish list, as we have heard in the previous session. We have managed to achieve this in a stable regulatory environment, and the biggest threats to the growing investment that we are making are changes that are basically very UK-focused and that move the deckchairs around because we are looking at the market in a UK context. You were out in the west coast of America last week. That is where the competition is for us. Looking at this market parochially and with regulatory interventions on that level, picking winners, is not going to help anyone and will only introduce regulatory uncertainty for us. That is the biggest threat to our growing investment.

Q679 Angie Bray: So, really, certainty is the key?

Adam Kinsley: Yes, it is critical. We made our commitment to invest £600 million by 2014 several years ago. It is a long-run investment, and you need that certainty to make those decisions.

Q680 Angie Bray: Can we see further investment from you in the future? Are you able to predict that?

Adam Kinsley: Yes. It is difficult to predict, but all the time we are introducing more investment in a wider set of genres. We have recently just announced a great new slate for drama. That is new for us. In the right conditions, I think it will grow.

Adam Minns: I can only echo that, really. As I said before, our biggest concern is to have consistency and clarity in legislation. We think the current framework is working very well. The UK has underlying long-term advantages. We talked about production sector skills and so on. The final piece in that jigsaw was probably around the TV tax credits that are coming in, and that makes the UK all round a very competitive place.

Q681 Chair: You will have heard my exchange in the previous session, particularly with Dan Brookes, about investment in original content. I have just been looking at the figures we have had submitted. According to your submission, you are spending £450 million rising to £600 million in original UK content, and Channel 4 said it is spending £419 million rising to £450 million, so on the figures we have been given, you are spending more.

Adam Kinsley: I would make that assertion too, yes.

Q682 Chair: Dan Brookes seemed very clear that you were miles behind. Would you like to-

Adam Kinsley: I think that we are spending more. In fact, our investment in content overall is more than any other broadcaster. While you are picking up on the previous evidence, there were also some numbers we would dispute with, I think, John Tate from the BBC.

Adam Minns: The 90% figure. John Tate said that PSBs are responsible for 90% of UK content investment.

Chair: He did.

Adam Minns: That is a very old figure, going back to Ofcom’s public service broadcasting review, and that is five years old-something like that. We commissioned some research last year-we have made this public and it is in our submission-that the total investment from the actual PSB channels is currently 73%, including their portfolio channels as well.

Q683 Mr Bradshaw: What is the definition of original UK content?

Adam Kinsley: For us, that is going to be original investments. First run, it is going to be production. It is going to be across the genres I mentioned before. It is arts, comedy and drama.

Q684 Mr Bradshaw: But not the Premier League?

Adam Kinsley: No; absolutely not including any acquisitions, any sports rights. It is absent all of that. This is a like-for-like comparison with the PSBs.

Q685 Mr Bradshaw: The criticism that was made of Sky in the past-I remember from my time as Secretary of State-was that you were not fulfilling your obligations. I think there is some EU legislation around this, isn’t there? Anyway, you were way below the level of investment in original domestic content. Is that no longer the case?

Adam Kinsley: I am not sure if that was the case then, but it certainly will not be the case now, no. As I say, we will spend £2.3 billion in total, and two thirds of that is going to be in the UK, and £600 million next year, excluding any rights or acquisitions.

Q686 Chair: Can I invite perhaps both of you to let us have additional written submissions just responding to some of the claims in the last session? It would be interesting to establish who is right in this fairly simple question as to who is spending more.

Adam Kinsley: Yes.

Chair: Thank you. Steve, did you want to-

Steve Rotheram: It was exactly that-just to see whether we could have a written submission on the like for like, and perhaps we can do a comparison. We are going to have to ask the others who were here earlier for that as well, Chair.

Chair: Absolutely.

Q687 Jim Sheridan: On the question of the watershed, is now the time to review the timing of the watershed in terms of 15-certificate content and obviously the appropriate protection? Would that interfere in any way with the family viewing?

Adam Minns: This came about in our thinking as a result of the convergence question, where we are moving into a world where we have linear channels sitting next to non-linear, on-demand services. Currently, in on demand, you can access a whole range of content up to R18, I think, at any time of the day. In the linear world, you can currently show 12 and 15-rated films, providing they are on a subscription channel. You could show something like James Bond before the watershed behind a PIN, but you couldn’t show anything else. A drama, like the Terry Pratchett dramas, for example, is 12-certificate. You couldn’t show that before the watershed. Our thinking then was-perhaps not now but looking forward-how can linear channels respond to that and respond to changing consumer expectations and competition? If we can get the PIN right and we can make sure it provides strong protection, we think that that could be a way forward. That is not to replace the watershed, but this is something that could run alongside it and just give channels more flexibility.

Q688 Jim Sheridan: It will not reduce in any way the family viewing aspect of things?

Adam Minns: I don’t think so. Do you mean in terms of protecting children and making sure they don’t-

Jim Sheridan: Yes.

Adam Minns: I think there are two key factors on that. The first is to make sure that the technology is in place so that parents can control. They can change their PIN codes whenever they want. I think that is already in place. You can do that in under a minute online. The second point is to make sure that parents understand that that is important and also how to do it as well, and we are getting there with that. We are looking at that internally to work out what is the best way of promoting that to parents. It is education and technology.

Adam Kinsley: Just to add that the concept of the watershed is obviously very well known and it works for terrestrial TV, and it is a little bit one size fits all. There are more controls that are available to go on top of that. On the Sky set-top box, you have flexibility as a parent to set your own watershed, to remove certain channels, to block other channels and to put PIN restrictions on certain viewing. As the discussion and debate continues around convergence, it may well be that there are new ways of protecting families in addition to the watershed concept, and the proposal that COBA makes is just future-proofing that environment.

Q689 Angie Bray: Changing the subject, how effective do you think the Creative Industries Council is at driving policy development?

Adam Minns: I don’t sit in it, but I have spoken to its co-chair.

Angie Bray: You must have views on it.

Adam Minns: Indeed I do. As you have heard from other witnesses, it is a broad church, and that creates difficulties in getting consensus. From what I have been told by the co-chair, its bid to map data-which goes to your point about like-for-like data-across the creative industries is one work stream it is working on. I think there may also be some possibilities around the Joint Skills Initiative. It sounds promising.

Adam Kinsley: Like others have said, it is a good thing that the Government are trying to get together the creative industries, but the creative industries span a very wide spectrum of views. It was good to hear in the previous session that ITV picked up on our suggestion, which was that one of the core things for us is making sure that Government’s policy is right when it comes to intellectual property, and that has not been on the agenda for the Creative Industries Council.

Q690 Angie Bray: Why is that? I would have thought that it must be one of the most serious issues facing the creative industries, and it is not actually on the agenda.

Adam Kinsley: Yes, and we think it should be. It may be that the right people are not on it to discuss what can be quite technical and esoteric policy developments, which was why we suggested that it could be that you had some sort of sub-group of sherpas that could do the thinking there to try to make sure that Government were getting the views from the creative industries when it comes to intellectual property.

Q691 Angie Bray: Given what you are saying and what we heard in a previous session, is there now sufficient pressure on it to make this one of the issues it is going to be looking at in some detail?

Adam Kinsley: I think a submission has gone in making that point. I don’t know the status of that, if I am honest.

Adam Minns: I would have to clarify with Nicola Mendelsohn if that is on the agenda currently. I am sorry; I don’t have that information with me. I will have to clarify with the co-chair whether that is going to be on the agenda.

Q692 Angie Bray: All right. You have talked about setting up these small, detailed groups to look at detailed policy. Are there any other changes that you would recommend on the way it operates, the members on it and things that you think could improve it?

Adam Kinsley: Nothing springs to mind from us, no.

Q693 Angie Bray: You think it is fine and dandy as it is?

Adam Kinsley: I guess it depends what it is trying to achieve. I think it is important that-

Q694 Angie Bray: What is it trying to achieve?

Adam Kinsley: That is a good question. It is a forum for the creative industries to put their issues to Government. It is one way that the Government can listen to industry, but it probably is not going to be sufficient if that is the only way. I think there need to be other ways of reaching out and making sure the views of industry are properly heard.

Q695 Angie Bray: Other organisations, rather than changing this one?

Adam Kinsley: Yes, or just other gateways and other discussion points.

Adam Minns: Perhaps a more formal way of putting forward ideas, like IP, and seeing whether that can be put on to the agenda would be helpful-more openness on that front-but otherwise it seems to have a very broad cross-section of people. As we said, it is a broad church. I don’t think there are particular gaps other than, as an earlier witness talked about, individual directors and writers, but beyond that it seems to be fairly comprehensive in terms of the people sitting on it.

Q696 Angie Bray: Is there a danger of it being too comprehensive?

Adam Minns: Yes. As I said, that can bog things down, and you can get a one-size-fits-all approach sometimes. Comparing an issue in the fashion industry is not always relevant for an issue in the television industry, but there may be some common ground at the same time.

Q697 Angie Bray: Perhaps the suggestion of having these groups form within it to look at detailed policy might be a way of doing that.

Adam Minns: It certainly sounds interesting, yes.

Q698 Mr Leech: I was quite surprised by our previous witnesses not being particularly enthusiastic about the changes to the tax incentives to include high-end TV. Do you share their cautious support, or are you more enthusiastic in your support for the extension of tax relief?

Adam Minns: I look at the potential for what it can do and I think it is amazing. You look at what Game of Thrones has done in Northern Ireland, where you are now well into the third series in Northern Ireland. It is creating sustained investment to the extent we have probably not seen before in Northern Ireland in the television sector. If we can attract more productions like that, I think that is going to be an incredible strength for the UK. As you are all aware, the UK animation sector has been under a lot of pressure in recent years, and again that could be a real asset. I know that my members are looking at how they can increase their animation production in the UK as a result of that.

Q699 Mr Leech: Will it result in more original content, or will it result in more content that would have already been produced simply being produced here rather than abroad?

Adam Minns: It is really hard to predict that categorically, but I think the clearest and most obvious increase will be in attracting productions to the UK that were going to take place in other countries, or to keep in the UK productions that might have moved out of the UK.

Q700 Mr Leech: But it will not necessarily increase the original content.

Adam Minns: It could lead to that, but I am not able to predict that with any certainty.

Q701 Mr Leech: What is your view on the decision to extend it to documentaries? Will that be taken up?

Adam Minns: Documentaries have a lower cost per hour on average than high-end drama.

Q702 Mr Leech: Is there an issue about the threshold and whether or not you feel that the threshold for documentaries perhaps should have been lower?

Adam Minns: There is an argument for looking at different genres and whether there should be different thresholds for different genres, but beyond that I am not really in a position to say. I know Discovery, one of my members, has suggested that in its submission, but it is not something that we have discussed at COBA level.

Q703 Mr Leech: What proportion of documentaries would reach that threshold?

Adam Minns: I think a very small number. There are some very high-end documentaries involving special effects and things that are quite global and do move overseas. In terms of volume, it is a small amount. In terms of the value, it would be quite considerable.

Q704 Chair: Can I ask you to react to the discussion we had in the last session, Adam Kinsley? John Tate seemed to suggest that the BBC having to pay carriage fees to your company was deeply offensive. How do you respond to that?

Steve Rotheram: I think he said that about your comparison to electricity.

Chair: You are quite right. I stand corrected by my colleague. He did say that about my comparison with electricity payments, but-

Adam Kinsley: I heard the debate, and, I have to be honest, it was somewhat confused. It might be worth me setting out exactly how the regime does work, because some things were said in the last session about Sky carrying certain channels and profiting from them, which is not really how the system works. It is really important to understand that the way the legislative structure and regulatory regime works here is that there is an obligation on the Sky platform to be an open platform. It is unique in that, so it differs from the Virgin Media cable platform, BT Vision, YouView or any other platform. The Sky platform has to be open, and what that means is that any broadcaster that has an Ofcom-licensed channel has the right to have its channel included in the Sky EPG listing. What that does is give it huge benefits. It gives it access to 11 million homes that have Sky satellite equipment, regardless of whether they are a Sky customer or not. So you could have a Sky box and no longer be a Sky customer, and you would still receive those channels across those homes.

In return for Sky being subject to that obligation and providing that listing, the regulation sets out that we are entitled to recover the costs of developing and operating the platform. The way in which we set out those charges is regulated by Ofcom, and we have to do so in FRND-fair, reasonable and non-discriminatory-terms. At one point, this was not subject to a transparent rate card, so there was more of a negotiation, which I think is what had been proposed in the previous panel, but Ofcom determined that that was inappropriate and there should be a published transparent rate card. The last rate card we issued was in 2012, and that saw the platform contribution charges come down by 40%, because we had recouped most of the costs of developing the platform. We also took the opportunity to put out an indicative rate card for 2014, which showed that the costs would come down a further 40%, and you can see the direction of travel here. By 2014, the PSBs in aggregate will be paying around £6.7 million for these services, which includes regionalisation, interactive services and so on.

Q705 Chair: You say "in aggregate". How much would the BBC will be paying?

Adam Kinsley: The figures are transparent. I don’t have them right in front of me. It is going to be a subset. It is going to be something in the order of £4 million. It may not be like electricity, but I do think it is a normal distribution charge. It is the same type of cost that you would incur when you buy satellite space from Astra or any other distribution charge. If you look at the BBC’s accounts, they spend more than £560 million on distribution fees, so the context here is that it is a relatively small number, and it is getting smaller.

The question was raised that there are benefits to the platform for having the PSBs on it. It is an interesting point, and it is one that Ofcom has already opined on in the past, because it is not a new point. What Ofcom said was that there is a benefit to the platform of having those channels there-indeed any channels, including COBA members, and we have over 200 broadcasters on that. There are benefits for the platform of having all those channels there, but there are also huge benefits to channels from being on the platform. What Ofcom determined was that it would be inappropriate for Sky to try to quantify those benefits in either direction for each channel, and in fact that what we should do is simply recover the costs, so that is what we do. We think it is a fair system, and-

Q706 Chair: Will the downward path hit zero at a future date?

Adam Kinsley: There is always going to be an operational element to it, but the significant development cost, which was over £1 billion, has been recovered. I should also add that around 90% of those costs have been incurred by Sky channels, so the PSB element of this is quite marginal. I think that the regime works. It is subject to quite complex regulatory levers. It is not a simple regime, when you look at it and try to unpack it.

We have heard what the Minister said at a very high level when he spoke at Oxford, and we are happy to talk to him about exactly how we would come up with a new system and how that might work, but as yet we have not had the opportunity to have those conversations.

Q707 Mr Leech: Just a couple of points on that particular issue. Did you say it was going down to £4 million?

Adam Kinsley: Sorry, that is really broad. I do have the number: it will go down to £6.7 million for all of the PSBs.

Q708 Mr Leech: All right. Given in the overall economics that is a very small amount of the revenue that comes into Sky, are you saying that that cost simply covers the costs of putting the BBC on to your network?

Adam Kinsley: Yes. That is a cost recovery number.

Q709 Mr Leech: Can you explain where those costs come from-is it just from having BBC on Channel 101 or ITV on Channel 103?

Adam Kinsley: Yes. I think that the PSBs collectively have around 60 channels across the platform. The reason the BBC pays more than another channel is because it has lots of regionalisation, and that is pretty expensive to try to put into place. There are also other interactive services-red-button technology-that it chooses to use, which many other broadcasters don’t use. It is basically the operational costs of doing that, plus an element of reducing fixed costs for the development of the overall platform.

Q710 Mr Leech: Hypothetically, if you didn’t have any BBC or ITV channels on your Sky network, but your cable competitors, for instance, or internet competitors did, the loss that Sky would make from losing customers to your competitors would surely be worth the £6.7 million-however much it might be in the future-that the BBC or the other public sector broadcasters have to pay.

Adam Kinsley: Hypothetically, possibly, but you are mixing up the cost recovery number, which we are charging on a non-discriminatory basis, with another discussion, which is about the relative benefits. There is an element of this that is not hypothetical, because for a period ITV did not offer its channels on the Sky platform. It determined after a period that that was not the best commercial decision, and it decided that it was going to. If we are talking about the net benefits, I think the case study demonstrates that the benefits are probably flowing to the PSBs.

Q711 Mr Leech: The point I am trying to make is you say it is impossible to quantify the benefit to Sky of having the channels on your network, but I am asserting to you that I suspect that it is significantly higher to you to have those BBC, ITV and Channel 4 channels on your system for the amount of money that you would potentially lose in terms of customers migrating from Sky to cable or internet services that did provide BBC and ITV on their networks. While I can appreciate you wanting to recover your costs, I suspect the benefits that you receive for having those channels on your network far outweigh the costs that BBC and ITV are having to pay.

Adam Kinsley: I think you are mixing apples and pears. One number is to do with cost recovery, and one number is to do with the benefits to the platform, and I think the thing that we are missing from the equation is the huge benefits that the channels have from being on the platform. I didn’t say it was impossible. What I said was that Ofcom determined it would be inappropriate.

Chair: Steve?

Steve Rotheram: No, John has just covered that quite comprehensively. I agree with John.

Q712 Chair: Perhaps we could quickly cover the other discussion we had, which was EPG prominence for PSBs, and particularly that some of sub-pages of the EPG do not reflect their contribution.

Adam Kinsley: Yes. We have to come up with a model for EPG allocation that balances a number of things. It needs to ensure not only that there is appropriate prominence for the PSBs, but that there is a fair allocation for channels that may have moved to that genre earlier. DCMS has commissioned a report by Technologia, which determined that the system we have is a fair one and it does balance all the needs, and most broadcasters are happy with that. The one anomaly that the BBC raised is to do with the children’s channels, and what I would say on that is that when you look at the share of viewing that those channels have, the facts don’t really bear out the arguments made by the BBC, because they get the highest share of viewing anyway. I would also point to a comparison of where they sit on the Sky EPG, where they get a higher share of viewing, perversely, than they do on the Virgin platform, which has them higher up the EPG rankings. I think that the debate may be being over-analysed, and it may not be quite as significant as is being portrayed.

There was a broader point that was made by some of the other members, which is to do with prominence on new emerging platforms that might be video on demand, or they might indeed be platforms like Sky Go. It has been argued that there ought to be some sort of regulatory "must be found" notion there. That is an interesting one, because on the one hand we hear the PSBs say that, but then, on the other, when it comes to the commercial day-to-day reality, a different attitude is portrayed by different PSBs. For example, we have been in commercial discussions with Channel 4, and Channel 4’s channels will be carried on Sky Go from next week, in fact, so they will be found and they will be prominent, and yet when we try to have those same conversations with the BBC, they are far more reluctant to have them. I don’t know whether there is a regulatory gap that needs filling or whether it is a state of mind from some of the PSBs.

Adam Minns: Can I make a couple of points on that? Earlier on there were two debates around the EPG going on. One was should we extend prominence on to on-demand platforms, and the other was should we tighten up the definition. That was where the children’s example comes in and where the BBC were talking about the channel being No. 13. On the first, it is a really complex area. Extending that prominence to on-demand platforms is interesting, but I think it does raise potential competition points and the potential to dampen innovation. That has to be looked at as part of any conversation or debate around this, and so far I don’t think it has been.

I would make a few points on the tightening up of due prominence so that the BBC children’s channels would be top of the Sky section. The first is that the BBC children’s channels do very well already on Sky and on other platforms, and CBeebies is top in its demographic. The second point is that they already have a due prominence. It just doesn’t give them the top slot, but it does give them the best available slot, and that has meant that they have leap-frogged over channels like Nick Jr, which shows 50% British shows. The third point is that, uniquely, because of its licence fee funding, the BBC isn’t dependent on its EPG position to determine its investment in UK content, whereas we are. As we have put in our submission, we have increased our investment in UK children’s content by 60% over the last few years, and the BBC’s proposals would damage that.

Q713 Mr Bradshaw: Can I have your views on IP and the status of the Digital Economy Act and its implementation?

Adam Minns: With DEA, whatever the rights or wrongs of the process behind it, it has been an opportunity missed in terms of there are two or three years where we have not managed to do anything to address it, and IP is incredibly important to our businesses. It is probably the single most important thing there is, and that does seem to be a shame. I think it has undermined confidence.

Adam Kinsley: I would absolutely echo that. We are very anxious to see it implemented, and the fact that we are sitting here in 2013 and we are still some way off seeing any progress is a little bit depressing. What we need to think about is that when we come up with the next set of reforms for IP, which may be less helpful for the creative industries, we need to think very carefully about how we do that and the time it is going to take to implement those as well.

Q714 Mr Bradshaw: When you say "the next set of reforms", are you referring to-

Adam Kinsley: Hargreaves.

Mr Bradshaw: The Hargreaves reforms. Can you talk about those, and also why you think implementation of the Digital Economy Act has been delayed?

Adam Kinsley: There have been lots of reasons why it has been delayed. It has been legally difficult, clearly. There have been some challenges to it, and there have been some other legal, technical reasons why it has been delayed.

Q715 Mr Bradshaw: But in the context of Hargreaves and the different direction that seems to be taking us-

Adam Kinsley: Yes. I would like to think the reasons for the delay are not connected. I don’t think they are. When it comes to intellectual property, it is a really important cornerstone for the creative industries. It encourages risk-taking, and it tries to protect ideas and it creates property rights around all of that. Some of the current debates around intellectual property seem to be about deregulation, and it seems quite a strange notion to try to deregulate a property right. It does not seem like the right thing to do, and that is why I think there has been some resistance from the creative industries, because of the general rhetoric surrounding that. We have not seen the detailed proposals from the Government on this, so it is quite hard to comment on the specific exemptions, but the language around it and the direction of travel does not seem to be a particularly healthy one.

Adam Minns: What I would say on the exceptions is that, in principle, we would prefer them to be unbundled so that we can look at them individually and have individual impact assessments wherever possible.

Q716 Chair: Can I see if we can find agreement across both panels? Do you share the concern about the use of section 73?

Adam Kinsley: Looking at the European case last week, I think there may be some issues that the UK Government have to make sure are in line with the European Court’s ruling, but other than that it is probably more one for the Government to work out.

Q717 Jim Sheridan: Unfortunately, I didn’t have the opportunity to go on the recent visit to the Sky Skills Studios that a number of my colleagues went to. What evidence is there to suggest that Sky Skills is enhancing the creative industries curriculum?

Adam Kinsley: It was a shame you couldn’t come. It is a great facility, and it is an exciting way of engaging young people and giving them an experience of the creative industries, using really state-of-the-art technology, green screens and fantastic editing suites. Hopefully it will tap into the creative juices of these young people and they can see what the creative industries can offer. It is one element of what Sky is doing to try to encourage people in this space. Hopefully some of those schoolchildren will be excited by that, but probably more tangibly we offer a very good apprentice scheme. We have around 100 people joining us this year, which is across the mix of our business, and that, together with our graduate scheme, is probably where the growth is going to be. The Sky Skills Studio is a very exciting model. We are going to get 12,000 schoolchildren from lots of MPs’ constituencies, so I am sure we can get you to come along and showcase it to you.

Q718 Jim Sheridan: How many of these 12,000 schoolchildren are from outside London?

Adam Kinsley: I should know the facts and I can get those to you. It is not just about London. I think we have had people coming from quite far afield, people making the journey and travelling several hours to come down. We did give the Committee the facts last week, but unfortunately they are not at my fingertips.

Chair: I am not sure there are many yet from Scotland.

Q719 Jim Sheridan: I would hazard a guess. At the end of the apprenticeships, are they guaranteed jobs?

Adam Kinsley: To be honest, I am not sure exactly how the scheme works, but I think that the apprenticeships scheme is embedded within Sky. I think these are full jobs, but I would have to get back to you.

Q720 Jim Sheridan: Are there any other broadcasters that have similar schemes-the BBC or any others?

Adam Kinsley: I think the BBC does have an apprenticeship scheme. I do not think it is on the same scale as Sky’s, actually. I think I read in its submission that it had around 50 people, but I am not sure now.

Q721 Jim Sheridan: Can I perhaps focus on the really young children? Regardless of what you think of the Disney Channel, it does make a significant contribution to young children’s education. Does Sky do anything like that?

Adam Kinsley: Sorry, I am not quite sure-

Jim Sheridan: The Disney Channel has very good young children’s education around how to count, read and all these kinds of things. Does Sky or any other broadcaster do similar?

Adam Kinsley: I think some other broadcasters on the Sky platform do. I don’t know if you have examples of that, Adam?

Adam Minns: Disney is a COBA member, as are Nickelodeon and Cartoon Network. Do you mean in terms of their educational remit towards younger children?

Jim Sheridan: Yes.

Adam Minns: I think it goes across the board. That is really part of the culture in those channels. Disney you have mentioned. Nickelodeon, for example, had a three-year anti-bullying campaign. It partnered with the Government and I think that was very high profile. Turner does a lot of outreach work with the Leonard Cheshire Disability charity and Diane Abbott’s schools programme-there is a lot of that educational and CSR ethos in those channels, yes.

Chair: I think we have finished all our questions. Thank you both very much.

Prepared 19th March 2013