Βι¶ΉΤΌΕΔ

19 June 2002
Printable version

Speech given at the SMF Conference on the Future of Public Service Broadcasting

Good morning. It is a pleasure to be asked to speak at this event organised by the Social Market Foundation Β– not least because I am a director of this non partisan organisation.

This morning I will argue that the Βι¶ΉΤΌΕΔ has much to offer in the digital age. Developments in the marketplace will strengthen, not undermine, the fundamental case for the Βι¶ΉΤΌΕΔ. But we recognise that public ownership and our system of funding bring with them major responsibilities as well as advantages. We are ready to meet them.

First, I shall offer an assessment of how the Βι¶ΉΤΌΕΔ has reacted to the digital revolution so far. Second, I will comment on the Βι¶ΉΤΌΕΔΒ’s role in the much longer term, in the context of the exciting opportunities which new technologies can offer to every citizen. Third, I will explain why the Βι¶ΉΤΌΕΔ believes that the success of the DTT is crucial to grasping this opportunity. And fourth I shall argue that some strengthening of the draft Communications Bill is needed if the role of public service broadcasting (PSB) is to be safeguarded in the digital age.

First, let's look at the digital revolution up to now.

In thinking about this, I could easily see why the subject of public service broadcasting has been a recent focus of the SMF. Ever since its foundation, people have asked whether it is possible for the SMF to pursue a coherent research agenda which has both a "social" and a "market" orientation.

WellΒ…. I will leave it to others to decide whether the SMF is managing successfully to square this particular circle. But what I would like to say - and Tim has just argued this - is that we at the Βι¶ΉΤΌΕΔ face a similar challenge. Our sole purpose is one of public service Β– to provide distinctive and ambitious programming for all the people of Britain. But we have to provide this public service in the context of a rapidly developing and competitive market-place. If it ever could, the Βι¶ΉΤΌΕΔ can no longer ignore the disciplines and challenges of the market when it comes to fulfilling its public purpose.

Some of the disciplines usually associated with the market are obvious, and are now common ground. The Βι¶ΉΤΌΕΔ must continue its drive towards greater efficiency Β– and on this I am pleased to report that we have raised the percentage of income spent on content from 76% to 85% since Greg Dyke became Director General Β– thus hitting our target two years early.

In practical terms, this means the Βι¶ΉΤΌΕΔ, by becoming more efficient, is spending around Β£250m more on programmes and services now than two years ago. We must also make the best commercial use out of our programme archive Β– with the sole purpose of ploughing the benefits directly back into public service content for the licence payer.

But apart from recognising these simple market disciplines, we must also continue to modernise our services so that they complement, rather than duplicate, the rapid developments taking place in the private sector. With vastly increased competition, it is even more crucial than in the past that the Βι¶ΉΤΌΕΔ should remain both ambitious and distinctive.

Sometimes, the Βι¶ΉΤΌΕΔ is even now portrayed by its competitors as a lumbering giant which is becoming ever more dominant in the broadcasting and online markets. But actually the truth is entirely different. Far from being larger than ever before, the Βι¶ΉΤΌΕΔ is in fact, in relative terms, smaller than ever before Β– not because it has been failing its audiences, but because it faces far more competitors than ever in its history. The long-term trend of the Βι¶ΉΤΌΕΔ receiving a declining share of industry revenues continues.

The consumer has reaped the benefits from competition between the Βι¶ΉΤΌΕΔ and the private sector. A mixed broadcasting ecology, in which the Βι¶ΉΤΌΕΔ and the private sector all thrive, is the best hope of offering genuine choice to the consumer.

This extra competition will present the Βι¶ΉΤΌΕΔ with many new challenges Β– and I believe we are ready to meet them.

A few years ago, it was fashionable to argue that the Βι¶ΉΤΌΕΔ would have nothing unique to offer in a world of multi-channel television. Everything would, quite soon, be provided by the private sector. But so far, this has been proved wrong. Looking across the broadcasting landscape today, I do not see a large number of organisations with the resources and ambition to make programmes like The Blue Planet , The History of Britain, Stephen PoliakoffΒ’s drama series Perfect Strangers, or the current documentary series on The Hunt for Britain's Paedophiles.

And how many other broadcasters would have the expertise, (and possibly the nerve) to stage a rock concert in the Queen's back garden as a way of marking the Jubilee?

I was enormously proud of our contribution to the Jubilee celebrations, a fantastic example of what the Βι¶ΉΤΌΕΔ is capable of:

- Over half of the population saw one of our three key broadcast over the Jubilee Weekend

- About 1.3m people attended 160 live music events staged and produced by the Βι¶ΉΤΌΕΔ around the country, with a further million gathering on the Mall for the fireworks which followed the Buckingham Palace rock concert.

We did what we've always been there to do - we created a public space and reflected a shared experience for people across the nation, bringing communities closer together and Britain closer to the world.

Similarly, when big events occur - whether the September 11 attacks, the foot and mouth crisis or the World Cup, it is still the Βι¶ΉΤΌΕΔ people turn to in the greatest numbers. Despite the proliferation of alternative news and information sources, almost two-thirds of the population turned to Βι¶ΉΤΌΕΔ news on September 11.

So I believe that the Βι¶ΉΤΌΕΔ can prove itself to those who said that the arrival of digital technology would sound its death knell. As competition from the private sector has expanded, we have continued to provide distinctive services which are different from those that the market alone can offer. We have continued to address a clear market failure.

But what about the longer term Β– my second topic?

We are still only in the early stages of the digital revolution. I have little doubt that the private sector will continue to provide increasing numbers of radio and television channels, funded by advertising or subscription. One day, it may be possible for consumers to purchase programmes, one by one, from content libraries over the web. I often read that, once this is possible, then everything can safely be left to the private sector Β– there will be no market failure for a public corporation like the Βι¶ΉΤΌΕΔ to address.

All this is a very long way off. But I am determined to ensure that the Βι¶ΉΤΌΕΔ will once again prove to be resilient to these challenges. While the impact of technological change is clear in terms of quantity, it is far from clear what the long term effects, particularly coupled with a largely deregulated market, will be on quality. The traditional Βι¶ΉΤΌΕΔ view has been that more players in the market Β– ITV and then Channel 4 Β– drove up the quality of programmes as well as increasing the number of services on offer.

I fear this may be more difficult in the digital world. Cut-throat competition could easily reduce the amount spent on original programmes by the commercial sector.

If these fears prove justified, then the Βι¶ΉΤΌΕΔ's role as a setter of standards, and a provider of original, British, quality programmes, could become more important, not less.

Furthermore, even when most people are able to pay for programmes via subscription or over the web, the nature of the product and of its cost structure means that the free market will not deliver an optimal outcome.

There is an economic explanation for this - brilliantly set out in a recent essay by the SMF Chairman David Lipsey. Essentially, the argument follows from the fact that once a programme is produced, the marginal costs of broadcasting it are effectively zero.

Consider The Blue Planet as an example. Making one copy of this series was an expensive and risky undertaking but, once the first copy had been put in the can, it could be shown to limitless numbers of viewers for virtually zero extra cost. The same is true of all forms of broadcasting, and of much of the content of the web.

Selling the Blue Planet at a price higher than zero would have the effect of deterring many people from benefiting from the product, even though the cost of showing it to them is effectively zero. This would be a clear failure of the free market.

So now we come to the conundrum Β– how can we pay for programmes like the Blue Planet if it is inefficient to charge a subscription for them? One answer would be to fund the programmes by advertising Β– but there is much experience throughout the world to suggest that advertising funding does not necessarily ensure quality and distinctiveness.

Furthermore, in a world of Tivo boxes and personal video recorders, which enable the audience to skip the "ads", the basis for advertising-funded television is becoming less certain.

This leaves us with only one alternative which will provide an efficient market outcome Β– public funding, probably through a licence fee. So even after Adam Smith's invisible hand is free to roam throughout the broadcasting landscape, the structure of costs in the new economy is therefore likely to mean that market failure persists.

One more word on this. Broadcasting and media industries have a very definite tendency to develop quickly towards the absolute dominance of a tiny number of players, or towards an outright monopoly. It follows that a public entity like the Βι¶ΉΤΌΕΔ Β– which exists to promote diversity, distinctiveness and choice Β– will remain very badly needed to combat this.

For the long term future, I therefore see a role for the Βι¶ΉΤΌΕΔ in producing an efficient market solution, and in guaranteeing quality and choice for British citizens. And here I am talking about the Βι¶ΉΤΌΕΔ as a total package, not a Βι¶ΉΤΌΕΔ which is unbundled into an artificial notion of public service components versus rest.

We have always existed to make the good popular and to make the popular good. To try artificially to separate the two into distinct channels would be difficult and damaging Β– for example, would the Rock Concert at Buckingham Palace count as public service, or entertainment? And if the latter, how many would have watched on a subscription channel? After all, only 40% of households now have digital, and even after switchover, we expect that many millions of households will still not have access to pay channels. Would they simply be barred from watching the Βι¶ΉΤΌΕΔΒ’s entertainment and sports offerings?

What about the World Cup? Four fifths of viewers have freely chosen to watch England matches on the advertising-free Βι¶ΉΤΌΕΔ. Would they now have to pay a subscription for this privilege? What about drama? Should "Crime and Punishment" be relegated to a subscription channel?

Our concern is that if you attempt to unbundle the Βι¶ΉΤΌΕΔ into two distinct parts, you might marginalise the public service channels thus losing mass audiences for national events, and for public service high points like Blue Planet and the the History of Britain. And we doubt whether subscription entertainment channels, even if run by the Βι¶ΉΤΌΕΔ, could conceivably provide the high quality drama and entertainment which we currently provide. For example, on Sky One, only 6% of programmes are original UK production, and over 80% are acquired from overseas. This is determined by the fundamental economics of subscription television.

If we get these issues right, the eventual destination of the digital revolution could be an immensely exciting one.

This brings me to my third topic, the future of DTT.

New technologies are bringing with them the possibility of hugely enhanced choices for everyone. The 40% of households which already have access to digital television tend to readily accept this is the case. But in my travels around the country, I have found that this is not always recognised by the rest of the population. Many people who have not yet gone digital apparently see very little advantage in doing so. They are not interested in subscription channels for movies and sport. They have not yet been persuaded to buy expensive new equipment to access digital free-to-air channels. And Β– a very major factor Β– they are totally confused about what is available, and how much they need to pay for it.

The Βι¶ΉΤΌΕΔ has a crucial role to play here too. We have our familiar responsibility to provide content which can drive digital take-up. Our portfolio of digital radio and television channels is designed to do just this. They have made a strong start. Βι¶ΉΤΌΕΔ Four, Radio 6 Music, Cbeebies and other new channels are winning critical acclaim, and are building audiences. Moreover the Βι¶ΉΤΌΕΔ's interactive services are leading the way, whether to enhance enjoyment of watching England playing in the World Cup or to fulfil the learning potential of Walking with Beasts. We still hope to get permission to launch Βι¶ΉΤΌΕΔ Three, a new public service television channel for young adults.

But even the very best content will be irrelevant if people are unable to access it. Up to now, those who have not wished to pay for subscription services via satellite, and who are not covered by cable, have faced difficulties in accessing digital services. DTT Β– digital television through your aerial Β– has not been a success, partly because of technical problems, and partly because the subscription package offered by ITV digital did not win sufficient subscribers.

Yet DTT remains vital if we are to attract the resistant half of the population towards the benefits of digital choice. The Βι¶ΉΤΌΕΔ believes that at least three requirements must be fulfilled if DTT is to succeed in future:

First, the way DTT is broadcast needs to be changed so that many more households can access the services on a plug-and-play basis, or with a simple aerial up-grade. This now seems to be common ground, but it does limit the number of channels that can be successfully carried on the platform.

Second, set-top boxes are needed in the market at a reasonable price Β– initially at less than Β£100, subsequently a good deal less. Again, this now seems to be on the cards.

Third, the line-up of channels must offer a compelling proposition to those who do not wish to subscribe for additional services. This means that the free-to-view package Β– whether in the form of new public service channels, or interactive services (like Wimbledon interactive) on existing channels Β– must be strong enough to persuade people to buy the boxes. It must also be simple enough to cut through the confusion which is currently rife in this arena.

The Βι¶ΉΤΌΕΔ has formed a non-profit making consortium with Crown Castle to bid for the three ITC multiplex licences which have become available following the failure of ITV Digital. BSkyB has committed to provide channels to one of the multiplexes. The Consortium aims to provide a free-to-view package, focusing on a selected range of quality services, provided by many of the valued broadcasters which the public already trusts. Crucially, these services will be made available through a terrestrial platform which is radically improved on past practice and is therefore far more reliable.

Our aim is to provide digital services for everyone focused. We believe that a simple and compelling proposition, which focuses on an enhanced set of free-to-air television and radio services, can attract several million households to DTT in the next few years and therefore serve the public interest. It offers a completely new start for the platform, something it badly needs.

The success of the DTT platform is important, but will not be sufficient.

This brings me to my fourth topic Β– regulation.

It is crucial to ensure that PSBs have access on fair and equal terms to all platforms if the principle of public choice is to be preserved. The Government has recognised this need in the draft Communications Bill but there are some areas where the proposals need to be strengthened if the public rather than the commercial interest is to prevail.