House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Fourth Report

III. PUBLIC POLICY

Potentiality and the public interest

64. The range and potential of the technologies we have just described are astounding. And although at present, in the words of Mrs Roche, "convergence is more a technical than a market phenomenon",[168] some technical advances, most notably the Internet, are already changing the way many people around the world conduct their business and live their lives. Some products seen as at the cutting edge in this country are already commonplace in the US market. Others have barely advanced beyond the drawing board and may stay there. Professor Tony Prosser of Glasgow University told us that a main conclusion of an international study by him and others was "that there is no simple move to a complete new media world anywhere; convergence is incremental, gradual and uneven".[169] When it was suggested to Mr Lees of Microsoft Limited that the overall impact of technology could be overwhelming, he replied: "If it overwhelms us, people will not consume it and it will not be successful and it will not continue ... I am sure some things will happen faster than I have described and some things will happen more slowly because of the cultural impact they have".[170]

65. The economic benefit from developing products and then delivering services which can captivate customers, but not overwhelm them, is enormous. Broadcasting, information technology and telecommunications contribute around 5 per cent of the United Kingdom's Gross Domestic Product, provide around 700,000 jobs and are growing fast.[171] According to Mr Cruickshank:

"We have strong creative industries, the English language and the most advanced telecommunications networks in the world. It would be negligent not to exploit them well for the benefit of the country".[172]

Mr Smith remarked that the media and communications industry "employs and nurtures a wealth of creative talent and can be a major engine of future economic growth".[173]

66. English is the first language of the Internet. The BBC described the English language as "the global lingua franca" of the multi-media sectors and ITN considered it to be "one of Britain's greatest assets".[174] Turner Broadcasting has established CNN International's European headquarters in London and attributed this in part to "the attraction of London as an English-speaking business base".[175] The United Kingdom shares its language with the USA which is—though need not necessarily remain, if UK industry becomes more enterprising— the hub and driving force of many of the changes we are considering. The English language creates an opportunity (one which might reduce in size as advances in information and communication technologies facilitate translation services [176]), which we in Britain ought to grasp for the benefit of our economy.

67. New technologies and new services create jobs, many of them of high value and complementing existing skills in this country.[177] Dr Kim Howells spoke of the massive market for exports of educational software and was optimistic that this country had the skills to exploit that market.[178] As Mr Andy Egan of the Broadcasting, Entertainment, Cinematograph & Theatre Union (BECTU) observed, and as we ourselves learnt from our visit to Sony Pictures Imageworks in Los Angeles, new technologies such as computer special effects are labour intensive and might provide the opportunity to expand the creative workforce.[179] Britain possesses special talents in this field. Turner Broadcasting referred to "the creative and technical talent, the quality of television production and the advancement of broadcasting technology that exists" in this country.[180] The BBC believed that the United Kingdom had the most successful broadcasting production base outside the USA.[181] Lord Hollick considered that the United Kingdom "is in a strong position to be a major player" in emerging media markets as an area in which "we have some distinctive and very real and proven skills".[182]

68. As the Government has acknowledged, "a skilled workforce is essential if the [audio-visual] industry is to retain its competitive position in the future".[183] The importance of training was referred to by those throughout the production chain, from the Writers' Guild of Great Britain, representing those who originate broadcast content, to the Confederation of Aerial Industries on behalf of those who will instal some of the hardware of the digital age.[184] Skillset, the national training organisation for broadcast film, video and multi-media established by the major employers and unions in 1993, acknowledged certain potential gaps in training provision in the sector, arising from the shift from permanent employment to freelance, which had eroded training provision, and an above average reliance on a middle-aged workforce.[185] There is a danger that such reliance might encourage broadcasting and the more traditional audio-visual communications sector to underestimate the importance and relevance of new information technologies. If it comes about, the National Grid for Learning, which we considered earlier, should assist in ensuring that new generations entering the sector have a greater understanding of new technology. British Actors' Equity Association and the Musicians' Union, as well as the Writers' Guild, stressed the need for new media players to be as involved in training provision as the traditional broadcasters.[186] Having considered the education and training needs of the film industry, the recent Report of the Film Policy Review Group recommended that the "TV production training needs of broadcasters, for both their staff and freelance labour, should be looked at in more detail by [a] separate Government/Industry group".[187] We support this recommendation. It is of particular importance that the group involves representatives of the new as well as the well-established organisations in audio-visual communications and considers broadcasting not in isolation but as part of a wider communications sector affected by convergence.

69. This recommendation relates to just one way in which public policy can affect the impact of changing technologies and the balance between beneficial and less beneficial consequences. The European Commission has contended that regulatory frameworks will affect Europe's competitive position in increasingly global communications markets.[188] The possible detrimental economic effects of an inappropriate regulatory framework were also referred to in evidence.[189] Regulatory frameworks might affect economic performance. However, public policy has broader purposes. The nature of public policy, the purposes of government action, and the priorities assigned to regulators affect cultural and social as well as economic outcomes. Public policy should acknowledge and seek to balance these different elements. In the remainder of this Report we consider the economic, cultural and social aims of government and regulatory action before turning to the structures suited to their achievement.

Competition policy, law and regulation

70. The industries affected by technological convergence have very different experiences of competition regulation. Broadcasting in this country began as a public monopoly; since the emergence of a commercial sector, entry control through licensing and subsequent regulation have been concerned greatly with content and standards given the pervasive influence of broadcast media. The telecommunications distribution infrastructure was seen initially as a natural monopoly, but since the early 1980s the United Kingdom has led the way in creating a more competitive telecommunications market, again on the basis of licensing.[190] The development of information technology largely through stand-alone pieces of equipment has led to a market structure where there has been no restrictions on entry and no sector-specific regulation.[191] Publishing and the printed media have also offered open access; content has largely been subject to self-regulation, although there is detailed statutory regulation of ownership in a cross-media context.[192]

71. Competition is widely seen as a crucial means of maximising the benefits of technological change for the consumer. According to Oftel, "competition is likely to be the best means of stimulating innovation, better quality, more choice and lower prices for consumers".[193] The Government also believes that "encouraging competition will drive down prices, enhance innovation and encourage private sector investment—to the benefit of the consumer".[194] Competition is multi-faceted; it has different connotations in the different industries affected by platform convergence; it operates at different levels—ensuring European success in global competition, ensuring effective cross-border competition in the European single market, ensuring effective British participation in European and global markets, ensuring the best deal for the domestic customer.

72. The industries affected by converging technological capacity have seen a growing trend towards mergers and alliances. In 1996 more than 15 per cent of the total value of worldwide mergers and acquisitions was generated by the information and communication industries.[195] The trend appears to be intensifying, as companies specialising in aspects of the multi-media market seek to co-operate with those whose specialism lies elsewhere and as organisations seek the capital base to invest in risky new ventures. Traditional British media organisations are seeking to diversify their interests.[196] In the USA computer software companies are engaged in a massive movement of capital into the audio-visual sector.[197] These developments pose a challenge for sector-specific regulators faced with cross-sector ventures and general competition regulators judging the market impact.[198]

73. Ownership in the media is subject to specific legislative and regulatory control, revised most recently in the Broadcasting Act 1996.[199] The fairness of existing controls was questioned by both the Newspaper Society and participants in the commercial radio sector.[200] It was also argued in evidence that a single media market was emerging in need of more cohesive regulation of ownership.[201] Professor Colin Seymour-Ure from the University of Kent at Canterbury pointed out that reliable information about press and cross-media ownership was not available in the public domain and proposed that a media register be established to record movements in media ownership of all kinds and draw attention to matters of public interest.[202] Sir David English, Chairman and Editor-in-Chief of Daily Mail and General Trust, went further, advancing detailed proposals for ownership limits across all media based on combining all viewing, listening and circulation; this approach was felt to be justified since "the distinctions between media, telecommunications and IT are fast disappearing".[203] This approach was supported by the CRCA.[204]

74. Professor Prosser believed that the differences between types of market would make it difficult to apply a single test and that "it will be very difficult in the future to control media concentration through tests of market share". He argued that regulation would be concerned increasingly with "gateways".[205] A "gateway" is the means of consumer access to a particular platform; digital technology and the transmission of different kinds of material over the same network transform the nature of these gateways. The growing importance of the gateway as a focal point of power in the media market and thus of regulation was a recurring theme in evidence.[206] Lord Hollick saw "fair and open access on platforms" as "vitally important".[207] The BBC was particularly concerned that the power available to the controller of the gateway necessary to almost any digital delivery system would be enhanced as the memory power of the gateway was enhanced.[208] Both the ITC and Oftel endorsed the growing importance of gateways and the potential for bottlenecks developing and being exploited for commercial advantage. Oftel pointed out that the actions of "gatekeepers" might escape normal legal and economic definitions of market dominance.[209]

75. The gateway takes many forms. Consideration of just two kinds of gateway of immediate importance in the audio-visual field—the set-top box and the Electronic Programme Guide—demonstrates the complexity and urgency of the regulatory issues raised by platform convergence. Prior to the arrival of an integrated TV or TV/PC, the set-top box will be the means of access for the consumer to digital television. We sought information about box technology from those expected to lead the introduction of digital television in the British market in its various forms—BDB, BSkyB, and Cable & Wireless Communications. The boxes marketed by the first two of these for digital terrestrial and digital satellite should be "inter-operable": that is to say, a consumer who had purchased a set-top box for digital satellite television, but wished to change to digital terrestrial, or vice versa, could do so having purchased an adaptor costing about £50.[210] The set-top box made available by Cable & Wireless for its digital cable subscribers will not be "inter-operable": any such subscriber wishing to switch would cease renting the cable box, and purchase another box.[211] The "inter-operability" of set-top boxes poses a whole series of regulatory dilemmas: the availability of different and incompatible boxes might confuse consumers and hinder market growth, but imposition of a common standard might lead to a "lowest common denominator" box and hinder innovation, for example relating to Internet capability; a greater level of standardisation might increase the cost of the box, thus constraining market growth.[212] Nevertheless, we believe that it is in the overwhelming interest of consumers that there should be a fully open set-top box available at an acceptable price. We deplore the failure of broadcasters and manufacturers to co-operate on producing such a box and regret that the Government has not taken action to bring about such co-operation. We recommend that the Government presses these interests, by every means at its disposal, to work together even at this belated stage.

76. The Electronic Programme Guide is a type of software in a set-top box or receiver which takes data about programmes and services and displays these in the form of an on-screen guide which the consumer will use to navigate through the increasing array of channels, programmes and interactive services to be offered in the digital era. Initially, at least, it will be the means of entry to digital services on television. According to Oftel, "the presentation and design of these Guides will have a strong impact on how consumers do or do not exercise the new choices available to them".[213] Some witnesses evinced concern that, in the words of Mr Singer of Flextech, "an integrated content networker can mutate the Electronic Programme Guide to the benefit of his content on his network".[214] BSkyB stated that its Guide "will be available to all on fair, reasonable and non-discriminatory terms".[215] Both Turner Broadcasting and the National Consumer Council argued for regulation of the neutrality of Guides, the latter pointing out that the issue cut across divides between competition and infrastructure regulation on the one hand and content regulation on the other.[216]

77. The overall framework of competition law is provided by European Community law, as implemented by the European Commission (through DG IV), and by national competition authorities, such as the Office of Fair Trading (OFT), as well as sector specific regulators such as Oftel. Broadcasting in Europe has traditionally been national in character, even where no language barriers exist between neighbouring States, and consequently has been less affected than some other sectors by European Commission regulation which is concerned with cross-border trade. Convergence blurs distinctions between different market sectors; technological advances such as satellite television and the Internet affect the national character of audio-visual communications. These changes in turn increase the importance of European regulation. The European Commission's regulatory powers are concerned with mergers, anti-competitive practices and the abuse of a dominant position; they do not relate either to issues of type of ownership (in terms of either nationality or public/private ownership) or the regulation of technological innovations, such as set-top boxes.

78. The principal purpose of the Competition Bill [Lords] currently before Parliament is to give effect in United Kingdom law to certain competition provisions of European Community law. If implemented, it will enhance the powers of both the OFT and certain sectoral regulators such as Oftel.[217] The Bill prohibits abuse of dominance and anti-competitive agreements and gives sectoral regulators concurrent powers with OFT to enforce such prohibitions.[218]

79. Some witnesses argued that this strengthened framework of competition law should provide the main means of regulating media and information technology markets. Mr Lees of Microsoft Limited believed that the model of "very little regulation" combined with governance by competition law had served the PC industry well and should have more general application.[219] Mr Booth of BSkyB said that "increasing competition, in tandem with the strengthening of competition law, will reduce the need for additional and detailed regulation. Instead, economic regulation in the digital age can rely simply on a strengthened competition law".[220] BSkyB further proposed that sectoral economic regulators were unnecessary in the broadcasting sector and that all responsibility should be given to the OFT.[221]

80. Others contested these proposals. First, it was suggested that there was a continuing role for sector specific regulators with relevant expertise.[222] The Government's view is that it is essential for the powers under the Competition Bill to be "exercised by the sector regulator in such a fast-moving market".[223] Second, it was argued that the media had and would retain distinct characteristics requiring distinct regulatory approaches. In addition to the gateway issues to which we have already referred, these include the concept of public interest in broadcasting content and of "merit goods" beyond monetary value.[224]

81. Competition policy will play an increasingly important role in regulation of media and communications in future. Although it has not been a central concern of this inquiry, ownership across the media will remain a matter of specific public interest and an arena for specific legislative provision. Convergence will make it more difficult to control ownership on a sectoral basis, but will equally ensure that judgements about the importance of ownership in different kinds of media become increasingly subjective. Competition policy will need to balance the dangers of oligopoly on the one hand with the prospect on the other that excessive concern over ownership and size in a domestic context might create a market so fragmented that the United Kingdom lacks organisations with the range of skills and the investment capital to compete effectively in increasingly global markets. Dominant positions are often beneficial viewed in an international context; they are also often a legitimate reward for risk and innovation. The aim of regulation should be to reduce the possibilities for the abuse of a dominant position, not to reduce dominance. This will depend greatly on swift, coherent and effective regulation of infrastructure and gateways. This regulation will require sector-specific skills and focus.

82. Competition law and regulation for the media and communications sectors are necessary, but not sufficient. There is still a role for specific media regulation. Economic regulation with economic goals does not provide for two priorities which have been central to public policy and should remain so: cultural objectives regarding content and its provision; and social objectives in relation to the universal availability of certain services.

Content provision

(i) Changing technologies and the primacy of content

83. On several occasions during this inquiry we were reminded by witnesses of the truism that people watch programmes; they do not watch technology or delivery systems.[225] Like some other truisms, this statement contains a strong element of truth, but is incomplete. Technology already enables viewers to do more than watch programmes; they can flick to a teletext page when a programme fails to excite or inform. In future, technology will offer an increasing range of options to change the context of, or even alter, programme content. The primacy of content will remain, but the primacy of programmes and channels depends on their quality and appeal in a more diverse market.

84. Viewing habits change. In the USA, the proportion of television viewing on the four networks has already fallen below 60 per cent; indeed, we were told at a meeting with NBC, the largest of the networks, that the latest figure was 50 per cent.[226] Although the US television market has long been more channel-diverse than its British counterpart and the terrestrial channels here still attract 86 per cent of all viewing, Sir Christopher Bland, Chairman of the BBC, agreed that the share of the market for the BBC and ITV would diminish.[227] Just as importantly, television viewing is falling as a share of the "info-entertainment" market. Recent US audience measurements indicate that Internet users already consume 59 per cent less television than average viewers; BT told us that surges in Internet use, for example over Christmas in 1997, appeared to relate to the perceived quality of the programming schedule; this pattern is most conspicuous among the young.[228]

85. Mr Campbell Cowie of the London Business School believed that the transition from analogue to digital would lead to "the fundamental reversal of the economics of television ... When you start moving into an environment where distribution is no longer scarce relative to content, the market power ... moves up the supply chain from distribution to content".[229] Mr Horsman cited Premier League football as one example where the producers might "retain a greater share of the value of the exploitation of their rights".[230] Equity and the Musicians' Union noted the opportunity which would arise from an increased demand for both archival and original programming from broadcast outlets, but also drew attention to the danger that such a gain might be offset by a failure to appreciate the legal and moral rights of performers in a more diverse media and communications industry.[231] They were also not alone in drawing attention to the complexity of the copyright issues raised by digital media, including the Internet.[232]

86. Capturing and retaining the economic value of programming content is of vital importance, but, as already noted, the value of broadcast content is not just economic. It has long been recognised that broadcast content has non-economic merits, which can be summed up as quality and diversity.[233] Mr Lees of Microsoft Limited stressed the extent to which the Internet and new media would offer diversity.[234] Others, including Mr Smith, argued that multiplicity was not itself a guarantee of "real competition, genuine choice or diversity or high quality".[235] These characteristics of British broadcasting result in part from the regulatory approach which we consider later. They result first and foremost from the financing, skills and commitment of the content providers whom we now consider.

(ii) The BBC

87. The National Heritage Committee observed in 1993 that "the BBC invented the concept of public service broadcasting".[236] Another previous Select Committee accurately characterised the BBC as "the cornerstone of British broadcasting".[237] This Committee's predecessors examined the BBC's future just over a year ago and concluded that "of all the many innovations instituted in Britain during the century which is approaching its end, the BBC is by far the most outstanding. Despite its imperfections, the BBC is nevertheless an asset of which this country has justification to be proud".[238]

88. The BBC's strategy for continuing to merit such accolades is based around the provision of compelling content. The BBC invests £800 million a year in original programme-making; it is the biggest content house outside the USA and Japan. Sir Christopher Bland told us that "the BBC stands or falls by the quality, range, vigour and independence of its radio and television programmes". Through "its past archive and present creativity", programmes provided "the powerful base on which the BBC's future depends".[239] Radio broadcasting, where a strong and diverse commercial sector has achieved considerable market share, illustrates the BBC's strategy. The BBC spends nearly £400 million a year of licence fee funds on national, regional and local radio services, designed to be spent on programming which is different from that available in the commercial sector.[240] The BBC is also developing digital radio. Overall, however, its aim in both radio and visual media is not to develop new technology, or to support one form of distribution against another, but to provide programming content for all platforms available on all platforms.[241]

89. The BBC's commitment to developing content for all platforms is exemplified by the fact that BBC On-Line is the largest Internet site in Europe and one of the largest in the world. Sir Christopher Bland considered that the BBC was "leading the way as a content provider on the Internet".[242] In 1998-99 the BBC will spend around £22.5 million of licence fee payers' money on this service. The BBC has plans for integrating these on-line services with broadcasts.[243] In advance of the launch of digital television, the BBC has begun broadcasting a 24-hour news service. The BBC said that further free-to-air services would be available on all digital platforms following their launch.[244]

90. The second main strand of the BBC's strategy is to enhance its commercial revenue with a view to becoming "one or perhaps the world's leading global television broadcaster".[245] In 1993, this Committee's predecessors supported the extension of the BBC's commercial role.[246] The BBC now has a commercial turnover of just over £350 million per year; this produces about 5 per cent of overall revenue; the Director General did not expect that proportion to rise much beyond 10 or 15 per cent over the next decade.[247] The BBC expects its main form of commercial expansion to be joint ventures, such as that with Flextech to launch a range of subscription television channels exploiting the BBC's production skills and archive and that with Discovery intended to create the world's leading provider of factual programme channels.[248]

91. Sir Christopher admitted that the BBC was required to perform a "balancing act" between its primary purpose as a licence fee-funded public service broadcaster and its secondary ambitions for commercial expansion.[249] Some questioned the success of this balancing act. Mr David Elstein saw "a growing apparent conflict between the BBC's publicly-funded status and its burgeoning commercial activities".[250] Sir Robin Biggam, Chairman of the ITC, believed that the segregation would cause "major problems" in future and "more stresses and strains within the BBC".[251] Oftel and ITN both argued that there was an inevitable element of "cross-subsidy" from the public to the commercial sphere, since the latter depended for much of its success upon exploitation of the brand identity developed in the former.[252] ITN also pointed to the ease with which users of BBC On-Line could move to "Beeb", the BBC's commercial web-site including advertising.[253] BSkyB saw "a pressing need" to address the distorting effect on the market of new digital services provided by the BBC from licence fee-paid funds, presaged in its view by the free provision of BBC News 24 to cable networks, undercutting the position of Sky News.[254] Others were concerned about promotion by the BBC of its radio services and its magazines on television.[255]

92. Sir Christopher Bland was "rather encouraged by the complaints about our commercial activities, because it indicates ... that the BBC is a strong competitor". He asked the Committee to listen for "the sound of axes being ground" when such criticisms were made. He claimed that the BBC's commercial activities were "ring-fenced" from licence fee funds and subject to "rigorous" scrutiny to ensure that there was no element of cross-subsidy or unfair competition.[256] Certain commercial activities of the BBC are subject to monitoring by the OFT and others require the approval of the Secretary of State. Mr Smith considered that the provision of BBC News 24 free to cable viewers in advance of launch of digital terrestrial television was "a sensible extension of their public service role".[257] We understand that the BBC is considering how to achieve greater transparency in its commercial accounts after the matter was raised in the course of this inquiry.[258] We believe that the BBC continues to face a problem here. On the one hand, the BBC feels a compulsion to increase its commercial activities—and, indeed, it could be argued that it is doing far from enough to increase these activities. On the other hand, the greater the BBC's commercial sector the more its "purity" as a publicly-funded corporation may be compromised, and the more its claim to be funded by the licence may be called into question.

93. The Government has made a commitment to fund the BBC through the licence fee up to 2002. The Secretary of State expected to review the BBC's financing in depth in the two years before then.[259] Just as the National Heritage Committee's Report in 1993 influenced the terms of renewal of the BBC's Royal Charter, so we expect a Select Committee inquiry to play an integral role in the pre-2002 review.[260] We do not propose to comment in detail on the BBC's funding at this time. Suffice it to say that some witnesses considered that digital technology, which would eventually enable all services to be subscriber-based, and changing viewing habits might lead to growing questions about the licence fee's legitimacy, while others—not surprisingly, including the BBC itself—felt that the licence fee would become increasingly important as a distinctive source of income in a more diverse and competitive media and communications market.[261]

(iii) ITV

94. ITV is the United Kingdom's most popular television channel, securing 38.8 per cent of the peak-time audience share in 1997. It is one channel run by several companies, financed by advertising, with a strong regional commitment and subject to positive programming requirements. It spends about three quarters of a billion pounds every year on original programme production.[262] It will provide a second channel (ITV2) for digital television, with original programming, including trials of new styles of programming, and "catch-up TV", in other words repeats of recent programming on ITV1; Mr Richard Eyre, Chief Executive of the ITV Association (ITVA), said that ITV2 would be "genuinely new".[263] ITV is developing its web-site, particularly for children.[264] ITN (an independent broadcaster which provides news programmes and bulletins for ITV, Channel 4 and Channel 5) produces a web-site which it expects to attract a growing international audience and is preparing to launch the "Information Channel" as a digital service combining video, audio, text and enhanced graphics.[265]

95. The ITVA believed that its ability to attract mass audiences would be of great value to advertisers in a more diverse market, enabling it to continue to attract a disproportionate amount of advertising income.[266] It was concerned that it was required to pay so much to the Exchequer for its franchises (about £400 million annually) when it had a less and less advantageous position in a more diverse market, preferring the idea of taxation linked to revenue.[267] Overall, Mr Leslie Hill, Chairman of the ITVA, was confident that it could "continue to survive and prosper for years to come", utilising its brand strength nationally and regionally and its production base.[268] The challenge faced by ITV in the future was aptly described by Mr Barry Cox, Director of the ITVA: "What we do not know is, are we the canals before the railways came, or are we the railways 30 years ago, in the age of motorways and mass travel ... We manage what I hope are the railways, not the canals".[269]

(iv) Channel 4

96. The development of Channel 4 from its birth in the early 1980s demonstrates the capacity for the provision of public service broadcasting without public finance. Last year, our predecessors "heard no justification for any change" to this unique arrangement and reiterated an earlier recommendation for abolition of the funding arrangement whereby Channel 4's very success required it to make payments to ITV.[270] This recommendation has subsequently been implemented by the new Government, with the funding formula to be abolished after a transitional year in 1998 with a lower payment to ITV.[271] Channel 4 explained to us how this change to proper independence would enable it to invest yet more money in the British film industry, allocate more money to new programming, increase its budget for industry training schemes, increase the proportion of programming sub-titled for the deaf and hard of hearing and increase production in the nations and regions of the United Kingdom, including the opening of a new office in Glasgow. Mr Michael Jackson, the Chief Executive, said that Channel 4 would be "emphatically improving our service".[272] A new programming remit has been agreed with the ITC to underpin these commitments.[273]

97. As was noted earlier, Channel 4 will be providing a second channel on digital television, based on the brand strengths of Channel 4 and partly subscription-based. The new channel will seek to build on areas of success for Channel 4 itself, such as films and horse-racing coverage and also provide additional educational programming.[274] Channel 4 does not currently broadcast on its web-site, but will do so in due course, as well as considering the prospects for integrating the Internet and broadcast television.[275] Channel 4 considered that, although its advertising income was unlikely to increase in real terms, it provided a sound and viable base for its unique remit. Mr Jackson thought that "original programming is the best defence against increasing competition from more channels. The best defence by being distinctive, by being angular, by being different ... The story of British television is a story of intelligent, distinctive, minority broadcasting, increasing in power, purpose and resonance".[276]

(v) S4C

98. Sianel Pedwar Cymru (S4C) represents yet another means of financing public service broadcasting. Its main responsibility is to provide a wide range of programming in Wales in the Welsh language. It is funded directly by grant-in-aid from the Department for Culture, Media and Sport, initially calculated as a proportion of overall advertising revenue, but now tied to the Retail Price Index. Its funding will therefore not rise in real terms, although it should benefit in the longer term from additional commercial activities.[277] S4C considered that digital television offered a major opportunity, by enabling the full Channel 4 service to be available throughout the United Kingdom (thus overcoming feelings of deprivation that S4C schedules could not accommodate all Channel 4 programming) and by enabling S4C to offer additional Welsh language services. It will launch a new Welsh language service this year (S4C1) and has longer term plans for S4C2, whose services might include Welsh educational programming and live coverage of the Welsh Assembly.[278] We consider S4C's regulatory role later.

(vi) Channel 5

99. The launch of Channel 5 at the end of March 1997 represented an act of faith in the continuing viability and vibrancy of terrestrial free-to-air television. Its Chief Executive, Mr David Elstein, believed that this act of faith would be amply re-paid; Channel 5 was on course to reach operating break-even during its third year of broadcasting. The Channel 5 brand and schedule had been designed to compete in the multi-channel age and it was particularly successful in holding its audience in multi-channel homes. He thought that "general entertainment, old-style channels—the current five terrestrial channels—will survive well".[279] The service is now available to about 80 per cent of the population; about 70 per cent has tuned in to watch it, including some for whom the picture quality remains unsatisfactory. The service is also available through cable and satellite. Digital television will gradually extend availability, but a universal service will probably only arrive after analogue switch-off.[280]

(vii) Satellite and cable broadcasters

100. A decade ago, television for a British audience had to fit within the constraints of four general free-to-air terrestrial channels. Since then, these constraints have disappeared. The outcome has been the creation of what Turner Broadcasting describe as the most successful cable and satellite broadcasting industry in Europe, with over 50 major broadcasters and 150 licence holders.[281] The members of the Satellite and Cable Broadcasters' Group (SCBG) are responsible for 200,000 hours of broadcasting in ten different languages, spending over £300 million on original European programming each year.[282] Some suppliers, such as Flextech, offer a whole range of channels for satellite and cable; some, such as Live TV, provide a cable-only service with regional stations.[283] The most prominent broadcaster is BSkyB. Mr Ian McGarry, General Secretary of Equity, was sceptical about BSkyB's production contribution, telling us at a relatively sparsely attended evidence session that "there are more people in this room than there are actors who have gained work and employment from the investment of BSkyB".[284] BSkyB stated that it was placing increasing emphasis on original programming. Its Chief Executive, Mr Mark Booth, believed that its appeal went well beyond the premium products of sport and movies.[285]

(viii) Independent production

101. Independent production has been another beneficiary of the growing diversity of British television. Its television sector has an annual turnover of over £750 million and in 1996 it produced almost 5,000 hours of network programming. This has partly resulted from the introduction of a 25 per cent independent production quota on analogue terrestrial television. The Producers Alliance for Cinema and Television argued that a similar quota ought to be imposed on digital television services, rather than the current requirement for digital television of 10 per cent of newly commissioned material being from independent producers.[286] Mr Michael Jackson, Chief Executive of Channel 4, expected that there would continue to be ease of entry into the independent production sector, but that there would be a trend towards the conglomeration of a relatively few major suppliers. He pointed to the difficulties in securing a balance between the independent sector's wish to maximise its benefits from rights on the one hand and its occasional reluctance to risk early investment and dependence on others for distribution on the other.[287]

(ix) Commercial radio

102. The commercial radio sector has expanded greatly during the 1990s, acquiring a national as well as local and regional dimensions. There are now 203 terrestrial radio services licensed by the Radio Authority. Commercial radio has 50 per cent of the listening audience, but the Radio Authority stressed that "commercial radio is still in a development stage". Despite doubts about the commercial prospects for digital radio in the short and medium-term we have already discussed, the CRCA saw grounds for optimism in its success so far and the age composition of its audience: commercial radio now accounted for two thirds of listening by people aged between 15 and 44 years—what it termed "the commercial radio generation".[288]

(x) Conclusions

103. With the exception of our earlier remarks concerning the publicly-funded and thus publicly accountable BBC, we do not propose to comment on the prospects for individual content providers. We note, with a certain degree of scepticism, that commercial terrestrial broadcasters remain optimistic about their prospects. Viewing of traditional commercial mainstream services and of the BBC is certain to fall as a proportion of television viewing. Although the fall is unlikely to be precipitate, it is eventually likely to be substantial. In any case, television viewing in the traditional sense is likely to fall as more and more households gain access to the Internet, which itself will become a new mode of entertainment.

104. We agree with the view expressed by almost all those in the sector that investment in production is essential. Nevertheless, despite their investment in new media, we were concerned at a prevailing and somewhat complacent view that the impact of the Internet on broadcasting will be gradual, perhaps even marginal. There are already clear indications from the USA and this country that the Internet is having an impact on the size of the television audience, particularly amongst young people. This is at a time when the Internet is only just beginning to tap its vast potential as an audio-visual and advertising medium. The Internet is global by its very nature and its growth will expose the whole of British broadcasting to global competition. Broadcasters may find it an increasing problem to sell their programmes abroad as global access becomes commonplace.

105. Other technological developments might make it increasingly possible to order television programmes on an individual basis, potentially reducing the brand identity of channels by which those channels understandably set such store. British broadcasting is of a quality admired throughout the world; that quality ought to be maintained and enhanced for a new and more diverse market; British broadcasters, especially the terrestrial commercial broadcasters, have not yet done enough to realise their potential in the global market-place.

168 Official Report of the House of Commons, European Standing Committee B, Wednesday 8 April 1998, col 4. Back

169 Q 26. Back

170 Q 104. Back

171 Evidence, p 326. Back