BBC’s Royal Charter

Review of the BBC’s Royal Charter - Ofcom response to the Green Paper

Introduction and summary

Scope of this document

1.1 This document represents Ofcom’s response to the Government’s Green Paper on the Review of the BBC’s Royal Charter (“the Green Paper”). The basis for our response lies in our statutory duties as set out in the Communications Act:

to secure the availability throughout the UK of a wide range of television and radio services which, taken as a whole, are both of high quality and calculated to appeal to a variety of tastes and interests, and
the maintenance of a sufficient plurality of providers of different television and radio services.

1.2 In formulating our response, we have drawn on much of the extensive analysis contained in our recent review of Public Service Broadcasting (PSB), which was charged by the Act with reporting on proposals for maintaining and strengthening the quality of public service broadcasting in the UK, in the context of the changing market and progress towards digital switchover.

1.3 We agree with much of the analysis and proposals in the Green Paper:

We support the principle of a strong, public-service focused, effective, and politically independent BBC
We agree that the BBC should be fully-funded by the licence fee model for the next Charter period, at a level that allows it to make the necessary investments both on-screen and on-line
We welcome the fact that the definitions of PSB purposes and characteristics set out in the Green Paper are consistent with those proposed by Ofcom in the PSB Review for all providers of public service broadcasting
We support the emphasis that the BBC should aim to complement the content provided on commercial channels, rather than directly competing with commercial providers using “copycat” and derivative programming formats
We agree that the BBC, given its privileged funding position, should play a key role in the digital switchover process, in supporting the independent production sector, and in playing a greater role in the Nations and Regions
Finally, we welcome proposals that Ofcom should carry out market impact assessments for the BBC’s proposed new services, and that we should carry out more work on options for a Public Service Publisher (PSP), as proposed in our PSB Review.

1.4 However, the Green Paper, perhaps understandably, does not fully address the public service broadcasting issues beyond the BBC. In particular, it stops short of setting out the steps needed to secure the longer term future of public service broadcasting in the round, in a fully digital world. Securing the BBC is not the same as securing PSB for the future.

1.5 In our PSB Review, we explained how the broadcasting landscape is changing, and we set out proposals to secure the future supply of a broad and rich range of programming and content from a range of suppliers. We argued that as the ability of commercial broadcasters such as ITV and Five to deliver a full range of PSB commitments unwinds, it will be essential to construct a new model for PSB, with the BBC at its heart, but with strong contributions from Channel 4, a new PSP, and perhaps local TV and broadband services. Direct public funding will be needed, to replace the implicit funding which is draining from the current system. Only by taking steps in the near term to put this new approach in place will we be able to ensure that we are prepared for the fully digital world.

1.6 Broadly speaking, Government faces a choice between two options:

A future, after digital switchover, in which PSB is the sole responsibility of the BBC
Or a future in which a broader system for PSB is secured, encouraging mutually-reinforcing competition for quality across a range of PSB providers in addition to the BBC - including Channel 4, local television services, and a PSP.

1.7 The first of these options risks delivering a long-term decline in PSB - as the BBC becomes more isolated, as its share of the sector declines, and as the market and audience tastes are increasingly conditioned by commercial rather than public service values.

1.8 The second option offers the prospect of a dynamic, innovative, and strongly supported mix of PSB from a range of suppliers - with a much wider influence and impact on the broadcasting sector and on public attitudes. We believe that this option can be secured, in a manner that strengthens rather than undermines the BBC’s funding, its quality and its independence.

1.9 In order to secure the continued provision of a range of high quality content from a diversity of suppliers, the following actions should be taken:

Prior planning and early action are needed to help ensure that other PSB providers remain in the system alongside the BBC. This means bringing forward the Government’s reviews of PSB funding to ensure that they are completed by the end of the decade, and taking the necessary action before then to support the reviews, including reviews of the options for local TV, and more detailed work on the PSP and prospects for Channel 4
In advance of the funding reviews, more immediate steps should be taken to help finance pilot schemes for new forms of PSB. The funding for these pilot schemes could most easily come in the short term from an enhanced licence fee model
Alongside strong support for the BBC, there should be clear boundaries to and external scrutiny of its impact on the wider market. This requires a clearer and more consistent competition framework, with independent oversight of the BBC’s Fair Trading Commitment, and transparent and independent assessments of the market impact of BBC services
Cross-sector content regulation should evolve by the middle of the next Charter to ensure clear and consistent high standards for all broadcasters - rather than a two tier system which implies that only the BBC can be relied on to provide a gold standard
A clear system of governance, accountability and regulation is needed. This should ensure that the BBC has effective internal corporate governance via an Executive Board, a separate body which ensures accountability to the general public, and a single regulatory body taking a consistent approach across the broadcasting sector. Thought should be given now to how this system might evolve over time, given that in future it might be called on to allocate public funds to other broadcasters
Above all, the measures taken should aim to bind the BBC more closely into the broadcasting sector as a whole - rather than to set it apart. The BBC needs strong support, but it also requires clear boundaries. The more the BBC is seen to observe accepted and independently scrutinised rules, the more likely it is to retain wider public and industry support. The more it is seen to work with and support UK broadcasting as a whole - with an effective approach to governance and accountability - the stronger it will ultimately be.

1.10 The rest of this section summarises the recommendations in this document. Subsequent sections provide a more detailed discussion of each set of issues. Our response focuses on those Green Paper issues most relevant to Ofcom’s statutory duties and its obligations regarding the continued success of PSB - and so we open each section with a reference to the area of the Green Paper to which we are responding. In addition, Annex 1 sets out Ofcom’s answers to each of the Green Paper’s questions for consultation.

Planning for the future of PSB

1.11 Allowing the BBC to become a monopoly supplier of PSB would not be a desirable outcome - it would weaken the provision of PSB, the BBC itself, and would result in reduced public support for PSB. We offer the following recommendations:

We believe that there should be a clearer commitment to securing a diversity of suppliers of PSB, now and in the fully digital world. Securing the BBC is not the same as securing PSB as a whole
It is important to start planning for the future at this early stage, as the Government commits to the digital switchover process. The Green Paper proposes reviews of wider PSB funding and the BBC funding model towards the end of the digital switchover process. These reviews should be brought forward in time and be concluded by the end of the current decade - 2010
This would help to ensure that any required new mechanisms could be put in place before the completion of switchover. If the reviews take place on the Government’s proposed timetable, it will be too late to secure the effective supply of PSB for the future. In advance of these reviews, Ofcom will conclude its work on the mechanisms and spectrum arrangements for local TV (in 2005/6), a financial review of Channel 4 (in 2006/7) and detailed plans for the PSP to be operational by 2010
We also recommend that Government takes steps before the reviews to ensure that a modest amount of funding for pilot schemes and other PSB development is built up over time. An enhanced licence fee model could be used to provide the necessary funding
A commitment to the wider PSB system will require direct funding to other PSB providers. Consideration should be given now to the potential sources of funding and to the new models of accountability that would be needed for a world in which public funding for broadcasting is directed beyond the BBC. Final proposals should be advanced as part of the proposed funding reviews
An enhanced licence fee model should be considered as one possible longer term mechanism for wider PSB funding, alongside the other options set out in our PSB Review, such as spectrum proceeds.

As long as the BBC is fully-funded, an enhanced licence fee model will not, as some have suggested, weaken the BBC, or destroy its independence, and it could also be designed to ensure proper accountability to licence fee payers.

Governance, accountability and regulation in the broadcasting sector

1.12 There should be greater consistency and clarity in the separation of the three different roles of internal governance, accountability and regulation. The Green Paper goes some way to bringing clarity to the system, but it should go further - in some cases, further action should be taken now.

Competition issues

1.13 The broadcasting market exhibits special features which, it is generally recognised, require sector specific competition rules. The BBC, like any other large player in the market, has the potential to distort competition though aspects of its conduct, and could have a significant and adverse impact on the development of a successful commercial sector. To secure a level playing-field in such a fast-moving market, the BBC's activities need to be subject to independent oversight from a competition authority which has sufficient powers to be able to act quickly - and on an ex ante basis if needed.

1.14 We believe that this objective can be achieved through the following mechanisms:

There should be a competition-focused BBC Fair Trading Commitment, which applies to licence-fee funded as well as commercial services, and which is subject to independent approval and oversight
The BBC Agreement should contain a general obligation that the BBC should have due regard to its effect on competition, to be informed by considerations similar to those contained in competition codes and guidelines issued to commercial licensees
Market impact assessments - of both new and significant changes to existing BBC services - should be carried out independently by Ofcom.

1.15 By ensuring that the system is both fair and seen to be fair, all parties in the sector - including the BBC - will benefit from this greater certainty and clarity.

Clarity in content regulation

1.16 There should also be greater clarity and consistency in content regulation. We therefore support the suggestion in the Green Paper that changes to the regimes for Tier 1 and Tier 2 regulation will be considered further. We believe that these issues should be resolved by the middle of the next Charter period, or earlier if there is evidence that the current arrangements are not working properly. In the meantime we commit to working with the Trust to ensure that we achieve a consistent approach across the sector.

1.17 Regarding Tier 2 regulation, we suggest that a clearer approach would be for the BBC’s production quotas in future to be set independently, in common with the sector as a whole; but the programme aspects of Tier 2 regulation should remain the responsibility of the Trust.

1.18 In reviewing the approach to Tier 1 accuracy and impartiality regulation, we suggest that the following principles should be applied:

Clear incentives to achieve the highest editorial standards across the sector - a gold standard for all, not a two tier system with one rule for the BBC and another for the rest
Consistency of application, with appropriate sanctions if codes are breached
Clarity of process, including public confidence in the independent scrutiny of broadcaster decisions, and in the opportunities for obtaining redress.

Governance and accountability

1.19 The proposed "BBC Trust" and new Executive Board represent an improvement on the current system, but need further detailed work:

A new model will be needed if PSB funding is to be directed to a plurality of providers in future. Ideally, the approach should be the same for all PSB providers, including the BBC
Government should therefore consider how the Trust could evolve into an external, independent body in the future. Thought should be given now to the steps that would be necessary in order to achieve this, with a view to finalising proposals as part of the proposed review of wider PSB funding
The Green Paper notes that “BBC Trust” is only a working title for the new body. We therefore ask Government to reconsider whether the “BBC Trust” is an appropriate name for a body that has a potential future role in serving the wider public interest (for example, would it be appropriate for the "BBC Trust" to be responsible for allocating funds to Channel 4?). The less possessive "The Trust" may be a better title.

Other Green Paper issues

1.20 This response also sets out Ofcom’s views on a number of other key issues:

We support the Green Paper’s approach to defining the public purposes and characteristics of the BBC. Ofcom and the BBC should be asked to propose a final and consistent definition of purposes and characteristics to be applied across the sector as a whole
It is important that these definitions are put into practical effect - through the planned public value tests and service licences for the BBC, and through a cross-sector approach to PSB assessment
We support the commitment to a key role for the BBC in digital switchover, but emphasise that the whole sector must remain fully engaged in the process, including through Switchco; and the BBC’s participation must be on a platform-neutral basis
Content production is an important source of plurality in the PSB system, and we welcome the Green Paper’s commitment to the independent production sector. We are considering these issues in more detail as part of our ongoing review of the television production sector
We also welcome the Green Paper’s commitment to a key role for the BBC in the Nations and Regions. Our policy conclusions in this area are being published separately, following the consultation on PSB in the Nations.