(VII) THE ECONOMICS AND REGULATION OF
CONTENT PRODUCTION |
315. The debate on the quality of broadcasting and
the nature of public service broadcasting commitments in this
country often focuses on the details and mechanics of qualitative
regulation, which, in the Government's typology, is "tier
three" regulation. There are a number of important issues
relating to public service broadcasting remits that we consider
in the next section of this Report. Nevertheless, what has become
very apparent to us during our inquiry is that, in the future,
it will become ever more crucial to focus on the very basis for
the services whose output is so carefully examined and regulated
- on the economics and regulation of content production.
We have considerable sympathy with the observation of the Producers
Alliance for Cinema and Television (PACT):
"The draft Bill is almost
wholly concerned with the interests of broadcasters, channels
and platform owners and has little to say about the need to create
a competitive market producing high quality content which can
appeal domestically and internationally".
316. The aim of the recommendations we make in this
section is to ensure that OFCOM can tackle as an early priority
issues relating to the content production market so that firm
foundations are in place for the elaborate architecture of public
service television regulation under tier three.
317. The starting point for the production process
is the creativity and talent of the workforce. We have already
noted that OFCOM has a duty, under Clause 11 of the draft Bill,
"to take all such steps as they consider appropriate for
securing and promoting the development of opportunities for the
training and retraining" of persons employed or engaged by
broadcasters. Clause 224(3) enables OFCOM to establish licensing
conditions to require the holder "to make arrangements for
the training and retraining of persons whom he employs".
We view this provision as inadequate. One of the fundamental characteristics
of broadcasting in the United Kingdom is its dependence upon freelance
staff, including many production staff as well as actors and journalists.
Skillset, the sector skills council for the audio-visual industries,
has drawn attention to the case for broadcasters to be required
to contribute to the training of freelancers as a licence condition,
with different levels of contribution for public service broadcasters.
We consider current funding for training across broadcasting as
inadequate and are sympathetic to this proposal. We recommend
that Clause 224 be amended to enable licence conditions relating
to training to be applied to broadcasters both in relation to
their own employees and more generally in respect of the creative
advancement of the sector as a whole.
318. Training is one area in which there is already
close co-operation across the content creation sector, for radio,
television, film, video and interactive media. In its evidence,
the Film Council has noted the comparative weakness of current
links between British broadcasters and the British film industry.
Peter Woods, in our online forum, also expressed surprise that
links between television and film were not covered in the draft
Bill. The Film Council proposes that, alongside the regional and
independent production requirements, there should be a mechanism
for OFCOM to establish, in consultation with the broadcasters,
effective means for supporting the British film industry.
In the time available to us, we have not been able to explore
this matter as thoroughly as we would wish. We recommend that
the Government, the ITC and the Film Council explore with broadcasters
the current relationship between the broadcasting and film industries
and the role that OFCOM might play in fostering and furthering
the contribution of broadcasters to that relationship.
319. One of the most dramatic transformations in
the broadcasting production landscape in the last decade or so
has been the growth of the independent production sector. This
development is recognised as owing a great deal to the creation
of Channel 4 and to the establishment of quotas relating to independent
Government considers that "the independent productions quota
has helped maintain the diversity of British television, supported
the development of creative and technical skills and helped create
a thriving and innovative production industry".
Clause 189 and paragraphs 1 and 5 of Schedule 8 provide for a
continuation of the quota of 25 per cent of total time for independent
production for the public service broadcasters, although that
percentage may be amended by order.
320. Some evidence questioned whether the independent
production quota was continuing to serve its original purpose
effectively. According to PACT, "the quota has become a ceiling,
rather than the floor that was intended".
There has been a downward trend in independent commissions.
Both the ITC and Chrysalis suggested that the quota should in
future be measured in terms of value rather than time.
This proposal was not supported by PACT, which favoured a more
321. PACT's central argument was that the quota for
independent production was necessary because of weaknesses in
the operation of the production purchase market. If the programme
supply market could be rendered fully transparent and competitive,
then market intervention of the kind represented by the quota
would no longer be necessary.
Their proposed device for achieving this aim was the amendment
of Clause 189 (and presumably of paragraphs 1 and 5 of Schedule
8) to establish an enforceable code of practice relating to the
commissioning of content by public service broadcasters, subject
to oversight by OFCOM. The intentions of the code would be to
ensure equal access to programme-making opportunities, ensure
publication and monitoring of terms of trade, and otherwise regulate
fairness in commercial dealings.
322. Tessa Jowell indicated that she was willing
to look very closely at ways in which independent producers might
be disadvantaged or discriminated against. She reaffirmed her
view of the BBC licence fee as "venture capital for the nation's
creativity" and said that one important use of that money
was "to drive a healthy independent sector". She said
that she was studying the case for a code made by PACT.
David Liddiment, ITV's Director of Channels, made much the same
point at a Westminster Media Forum event on 17 July when he argued
that we should make the most of available talent by "maximising
the benefit for the creative health of Britain with the billions
of pounds of public money we'll be pouring into the BBC over the
next decade. We can do this by opening up BBC production to the
market, and by having common, sensible, flexible terms of trade
for all producers, independent or in-house." If we really
believe in the creative imperative then we could do far more to
unleash the creative potential of the United Kingdom production
323. However, the principal controller of the purse
strings of the generous "venture capital for the nation's
creativity" was equally robust in his thoughts: Greg Dyke
contended that the risks run by the independent sector were not
great and, without bearing the full risks, they could not expect
the full rights. He said that "we follow the law on independent
producers", but posed the question: " is it really our
job to make large numbers of independent producers extremely rich?"
Whilst recognising the continuing value of a strong in-house production
capability for the BBC, we believe this is a dramatic underestimation
of the difficulties facing the average independent producer and
one of the objects of the Bill must be to sustain this increasingly
important component of content creation.
324. The recent trend for broadcasters to comply
with the requirements of independent production quotas with remarkable
precision provides grounds for questioning whether a fair and
open market in programme supply is truly operating. These doubts
are compounded by very recent evidence both that the BBC has failed
to meet its 25 per cent requirement in the most recent financial
year and that the value of independent production purchased by
the BBC is less in percentage terms than the time. We recommend
that Clause 189 and paragraphs 1 and 5 of Schedule 8 be amended
to provide that OFCOM should monitor levels both for the time
allocated to independent productions and for the value of such
independent productions in line with the Secretary of State's
declared intention in evidence to us that the licence fee should
be "venture capital for the nation's creativity".
325. The precise operation and impact of quotas depends
to a considerable extent upon the definition of independent productions.
Clause 189(2) gives the Secretary of State power by order to define
independent productions. This replaces an existing power under
section 16(5)(a) of the Broadcasting Act 1990. Two issues have
arisen relating to the current definition. First, it excludes
independent producers owned by a foreign company with broadcast
interests. Second, it excludes ITV companies from independent
status, even when seeking commissions on channels other than ITV.
Granada have argued that this penalises regional production. We
recommend that the Government, in its response to this Report,
set out its views on the merits of defining independent productions
to include all programmes commissioned by a broadcaster from whom
the producer is independent in ownership terms.
326. Despite our recommendation about the operation
of quotas, we share the view of PACT that the need for a quota
system is itself an indication of market failure. We are concerned
that the draft Bill makes no provision for moving the independent
sector beyond this outmoded form of intervention. We recommend
that Clause 189 and paragraphs 1 and 5 of Schedule 8 be amended
so as to require OFCOM periodically to review the whole of the
programme supply market, together with its associated intellectual
property and other rights, including the role of the BBC in that
market, with a view to determining whether the market is operating
in a fair, transparent and non-discriminatory manner. We further
recommend that OFCOM be required under the terms of the final
Bill to undertake the first such review immediately after the
coming into force of the Act. Finally, we recommend that, having
undertaken the first such review, OFCOM consider whether it would
be appropriate to refer the operation of the programme supply
market to the Competition Commission for market investigation
under the terms of the Enterprise Bill.
327. The overall health of the programme supply market
in future will depend a great deal on the maintenance of strong
demand for domestic original production. Clause 190 gives OFCOM
a power to impose on the public service channels quotas for original
production, with the proportion of time allocated to such production
being such "as OFCOM consider appropriate for ensuring that
the channel is consistently of a high quality". This measure
is welcome in principle, but we have identified two areas of weakness
in the provision as it stands.
328. The first area of weakness relates to the definitions
in the Clause. Original productions are defined as "programmes
which were commissioned or produced with a view to their first
showing in the United Kingdom" being on the relevant channel.
As the ITC notes, this contains no requirement for the commissioned
programme to be made in Europe. The ITC proposes that Clause 190(3)
be amended to require that original productions are either produced
within the EEA or are a co-production in which a significant element
of the production is within the EEA. The ITC also points to another
weakness to which all such quotas are prone: a broadcaster could
comply with the letter but not the spirit of the quota through
cheap original productions not intended to serve mass audiences.
The ITC propose that specific quotas ought to be imposed for peak
We agree. We recommend that Clause 190 be amended to define
original productions as programmes commissioned with a view to
their first showing in the United Kingdom on the relevant channel
and which were also either produced in the European Economic Area
or were a co-production in which a significant element of the
production was within the European Economic Area. We further recommend
that the same Clause be amended to permit OFCOM to establish specified
levels for original productions in peak viewing times.
329. The second area of possible weakness relates
to the capacity of OFCOM to ensure that these levels reflect the
changing market positions of particular channels. We welcome and
support suggestions that required levels of original production
ought to be linked to changes in revenue or audience share.
Tessa Jowell also seemed sympathetic to this notion when she spoke
of being "perfectly open to racking up the quantitative aspects
of regulation under tier two".
We envisage the system operating as a ratchet, with required levels
of original production being varied in a transparent way in response
to changes in revenue or audience share. We note that there are
particular problems in applying such a system to ITV because of
the networking system and we have sought to take account of this
in making our proposals.
OFCOM already has power to review Channel 3 licences and require
changes in licence conditions in the event of changes of control
under Clauses 234 and 235. We recommend that OFCOM be empowered
to review production commitments of public service channels and
Channel 3 licensees in response to any significant change in the
revenue or audience share of the relevant channel. We further
recommend that OFCOM be required to issue guidance on the changes
that would trigger such reviews and give an indication of likely
alterations to requirements for original production arising from
330. The domestic production sector is and can be
supported not only by public service broadcasters, but also by
other broadcasters providing licensed services. Article 4 of
the EC "Television without Frontiers" Directive requires
Member States to "ensure, where practicable and by appropriate
means, that broadcasters reserve for European works ... a majority
proportion of their transmission time".
At present, the Department for Culture, Media and Sport is responsible
for meeting this obligation. Giving effect to this obligation,
and interpreting the phrase "where practicable", has
proved far from straightforward, as both Commissioner Reding and
BSkyB told us.
The Government proposes to pass responsibility for this matter
to OFCOM. Clause
222 enables OFCOM to set conditions on licensees in relation to
international obligations. We welcome the Government's decision
to give OFCOM responsibility for United Kingdom compliance with
obligations under the EC "Television without Frontiers"
Directive and support the provision for licence conditions to
secure such compliance in Clause 222. We believe that these powers
provide OFCOM with a valuable tool for strengthening the contribution
of all licensed broadcasters to the European production base.
331. The final component of the quantitative regulation
of public service channels relates to production in the nations
and regions of the United Kingdom. Clause 193 gives OFCOM powers
to establish conditions for Channel 3 services to ensure that
"suitable" proportions of programming made in the United
Kingdom are made outside the M25 area in "a range of production
centres in different parts of the United Kingdom". Clause
194 requires regional Channel 3 services to comply with conditions
relating to high quality regional programming, including that
a proportion is to be broadcast in peak viewing times and that
a proportion is to be produced in the relevant region. These last
two aspects are new.
Requirements on Channel 4 are set out in Clause 195.
332. ITV expressed concern that the power for OFCOM
to set conditions on investment in production centres across the
United Kingdom was unduly prescriptive and cut across the principle
of commissioning on merit under the networking arrangement.
BECTU argued that the provisions ought to be strengthened by the
inclusion of percentages that match the current proportions and
by a requirement for quotas to be "substantial and significant".
Both ITV and the ITC noted that Channel 5, which currently has
a voluntary commitment to out-of-London production, was not going
to be subject to statutory quotas.
We recommend that the word "suitable", where it appears
in Clause 193, be altered to "substantial". We also
recommend that the same Clause be amended to make it clear that
Channel 3's regional production requirements apply equally to
network and regional programmes. We further recommend that OFCOM
be granted a power to include conditions relating to regional
programme-making in the regulatory regime for Channel 5. Finally,
we recommend that the review provisions linked to audience and
revenue changes that we have earlier recommended in respect of
original production levels apply also to regional production levels.
613 QQ 3, 32. Back
Ev 289. Back
Ev 617, para 4; Q 858. Back
Ev 617, para 7. Back
Ev 578, paras 16-18. Back
Ev 289. Back
Policy, para 8.6.4. Back
Q 991. Back
Ev 289. Back
Q 774. Back
Ev 572; Appendix 107. Back
Q 769. Back
QQ 768-769, 772, 783, 784. Back
Q 781; Ev 289, passim. Back
Q 1012. Back
Q 539. Back
Appendix 107. Back
Ev 439, para 4(iii); Ev 202, section 4.4. Back
Q 988. Back
Ev 1. Back
Council Directive 89/552/EEC of 3 October 1989 on the co-ordination
of certain provisions laid down by law, regulation or administrative
action in Member States concerning the pursuit of television broadcasting
QQ 199, 639-640. Back
Policy, para 18.104.22.168. Back
EN, para 334. Back
Ev 439, para 38; Q 550. Back
Ev 331, para 19. Back
Ev 4, para 30; Ev 439, para 40. Back