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1. The analysis presented in this section of this document, when read in conjunction with the rest of this document, represents a Regulatory Impact Assessment (RIA), as defined by section 7 of the Communications Act 2003. You should send any comments on this RIA to us by the closing date for this consultation. We will consider all comments before deciding whether to implement our proposals.

2. RIAs provide a valuable way of assessing different options for regulation and showing why the preferred option was chosen. They form part of best practice policy-making and are commonly used by other regulators. This is reflected in section 7 of the Act, which means that generally we have to carry out RIAs where our proposals would be likely to have a significant effect on businesses or the general public, or when there is a major change in Ofcom's activities. In accordance with section 7 of the Act, in producing the RIA in this document Ofcom has had regard to such general guidance as it considers appropriate, including related Cabinet Office guidance.

3. Ofcom's regulatory impact assessment of the proposed Code is set out below.

Issue

4. Does the proposed Code contain regulation which is necessary, targeted, proportionate and consistent with its statutory duties and have the significant issues - which should be contained within a RIA - been correctly identified and assessed?

5. We have identified a number of proposals which may be regarded as having a significant effect. They are listed below and for convenience have been divided into three sections. (There are other less significant proposed changes discussed in the body of this consultation.)

Approach to the Code

5. Whether to have one or more Codes

6. The proposed approach to regulation and the structure of the Code (specifically the relationship between principles, rules, meanings and guidance)

Scheduling matters on television services

8. Whether the transmission of R18s and R18 standard material is compatible with the requirements of the Act and TWF Directive relating to the protection of minors

Whether such material should be prohibited or allowed on certain services. If it is allowed, whether those under eighteen, and adults who do not wish to view this material, can be adequately protected (by technical or other devices). Whether the restrictions regarding 'adult' television services should be changed and if so with what protections

9. Whether there should, or should not, be a watershed on premium subscription services and, if so, at what time

10. Whether programmes regarding the paranormal should be allowed on all television services at times when significant numbers of children are not available to view

Appeals for funds and merchandising

11. Whether there should be rules prohibiting appeals on television services for funds to make programmes and fund services

12. Whether religious programmes and/or services should be allowed to appeal for funds or not

13. Whether there should be rules regarding merchandising arrangements

Approach to the Code

1. Whether to have one or more Codes

Background

14. Ofcom is required by the Act, and also by the 1996 Act, to draw up a Code or Codes relating to standards in programmes, sponsorship and fairness and privacy. You can see the relevant sections of the Acts in annex 4.

15. Previously legislation regarding radio and television standards was contained in the Broadcasting Acts of 1990 and 1996. Those Acts resulted in the establishment of the RA, ITC and BSC. Those organisations no longer exist and their functions have been taken over by Ofcom. At the same time the necessary legislation regarding radio and television standards has been brought together in one Act with reference to certain parts of the 1996 Act.

Option one - one Code

16. An option is to have one Code that will apply to both radio and television and will cover standards for programmes, sponsorship and fairness and privacy.

Option two - multiple Codes

17. Another option is publish a selection of Codes, e.g. - one for radio programmes, one for television programmes, one for radio sponsorship and one for television sponsorship.

Benefits

18. The merit of publishing one Code is that all necessary regulation is contained in one place. It will be simple to use for members of the public, those working in the broadcast industry and linked industries (eg those concerned with sponsorship), and those concerned with training those who work in or want to work in broadcasting and associated industries.

19. There is also merit in bringing together radio and television standards as different mediums of communication converge.

20. Radio and television has most recently been regulated separately, sometimes on the basis of a different interpretation of the same legislation. Where those differences are not supported by legal requirements, or research, or regulatory experience, it is possible to standardise radio and television and remove unnecessary regulatory burdens upon broadcasters in line with the requirements of section 6 of the Act.

21. There is also an economic benefit in terms of administrative costs to Ofcom in having one Code and thus to the broadcasters who pay for the broadcasting related costs of Ofcom.

22. The benefit of option two is consistency with past practice.

Disadvantages

23. A disadvantage of option one is that the sections of the proposed Code regarding due impartiality, and election and referendum broadcasting, and the sections regarding sponsorship and commercial references and other matters do not apply to the BBC. There could be a risk of confusion with just one Code applying to many broadcasters. In order to meet that risk those sections will include a statement at the start explaining they do not apply to the BBC, as will the introduction to the Code as a whole.

24. There is also a fundamental difference in the impact radio and television have on listeners and viewers. For example, a scene of violence on radio may have less impact than one on television. There is risk that, in standardising rules so that they apply equally to television and radio, Ofcom will remove regulation necessary to protect the viewer and listener, or impose a higher regulatory burden than has hitherto been the case on either radio or television thereby potentially increasing the exposure to regulatory risk and economic sanctions. In order to minimise that perceived risk Ofcom proposes, where necessary, retaining separate rules for radio and television.

25. The disadvantage of option two is that multiple Codes would be more expensive and would create an extra burden in time and money for the public, programme makers, broadcasters and related industries in acquiring, cross referencing (where necessary), and training in the Codes (particularly in the light of converged broadcasters).

Recommendation

26. Ofcom proposes that there should be one Code.

27. Please see related question in section 3.

Approach to the Code

2. The proposed approach to regulation and structure of the Code (specifically the relationship between principles, rules, meanings and guidance)

Background

28. The legacy regulators operated six Codes in these areas as described in the summary. These were generally written with a narrative, giving guidance, intermixed with rules based on legislation and rules based on regulatory practice, research evidence and past cases.

Option one - an approach to the Code which continued the legacy regulators approach

29. It is possible to draft a Code which takes a similar approach.

Option two - an approach which separates principles, rules and guidance

30. It is possible to create a proposed draft Code composed or principles, rules and meanings, with an introductory section, which explains how the Code should be used. There would also be guidance on the Ofcom web site. This approach is described in the introduction to the Code (section 3) and the philosophy behind the approach is described in the introduction to the consultation (section 2). This has therefore not been described again in full here.

Benefits

31. The benefit of option one would be consistency with past practice and potentially greater regulatory certainty. Some stakeholders may also prefer more specific rules for specific types of services.

32. The merit in laying out the Code as proposed in option two is that broadcasters are encouraged to use the principles in interpreting the rules. The rules can be applied flexibly taking into account e.g. different audiences for different programmes and services, their expectations and what information those audiences may have received as well as the impact on somebody who views or hears a programme in passing.

33. This approach also acknowledges the possibility of increased media literacy in the future and appropriate and transparent labelling by broadcasters.

34. If broadcasters apply these principles and rules appropriately they would take ownership of the Code in way which will benefit broadcasters, programme makers and the public. The 'chilling' effect that broadcasters suggest exists (see below) would be properly reduced. The proposed Code would be used in a targeted way to protect the public but the flexibility in setting the Code (allowed by 319(4)) would enable audiences to receive creative, innovative and, where appropriate, provocative and challenging programming. This should lead to better protection of the audience and greater scheduling and commissioning freedom (within the standards set by legislation) for broadcasters.

Disadvantages

35. The disadvantage of option one is that broadcasters, and other interested parties, have put the case that they are concerned that the Codes are unclear because it is not obvious what is a rule and what is guidance. It is also unclear in the legacy Codes what has been drafted because of specific legislation and what has been drafted using the discretion granted the regulators by the 1990 Act. They also feel that the approach used in the legacy Codes is confusing. Broadcasters argue that this has a 'chilling' effect on innovation, creativity and freedom of expression. Importantly, as presently drafted, if a specific rule is not in a Code, it can be difficult to apply the regulation.

36. With option two the loss of the explanatory narrative (used in the legacy Codes which gives guidance in interpretation) may be viewed as a genuine loss in the quality of advice attached to the Code. As more is left to interpretation it could reduce certainty. However the creation of guidance on line which can be updated quickly to meet specific situations - and indeed more quickly than a printed Code can be updated - would be designed to assist here. Further it could also be argued that increased flexibility could also have the effect of reducing regulatory uncertainty.

Recommendation

37. Ofcom proposes that the Code should consist of an introduction, and sections with principles, rules and meanings supported by web based guidance as explained above.

38. Please see related questions in section 3.

Scheduling matters on television services

3. Whether the transmission of R18s and R18 standard material is compatible with the requirements of the Act and TWF Directive relating to the protection of minors

Whether such material should be prohibited or allowed on certain services

If it is allowed, whether those under eighteen, and adults who do not wish to view this material, can be adequately protected (by technical or other devices)

Whether the restrictions regarding 'adult' television services should be changed and if so with what protections

Background

39. This consultation seeks responses regarding the present prohibition on transmitting R18s and, consequently, R18 standard material. Should the prohibition be lifted or maintained? If it is not to be maintained then Ofcom seeks information on what technical protections or other protections are available which could ensure the protection of people under eighteen (and others who do not wish to access the material). Further, if the prohibition is lifted, on which services should it be lifted?

40. The R18 category is a special and legally restricted BBFC classification for explicit videos of consenting sex between adults. (The BBFC guidelines regarding R18s can be found on the BBFC website at www.bbfc.co.uk) The BBFC are currently classifying some 1400 videos in the R18 category a year. Such material may presently be supplied to adults only, over the counter, in licensed sex shops.

41. The content guidelines for R18s were significantly revised by the BBFC in 2000. Only material distributed in a form that attracts classification under the VRA - essentially videos and DVDs - is required to observe the VRA's restrictions. (The VRA does not prohibit the transmission of R18s on television.)

42. R18 standard material refers to material which has not been offered to the BBFC for classification, e.g. live sex shows or amateur videos, but if it were to be classified would be of R18 standard. This also covers foreign material which does not go through the BBFC system.

43. Section 1.4 of the ITC Programme Code stated that "No R18 film should be transmitted at any time." R18 standard material is also effectively prohibited.

44. The UK government can, and has, on the regulator's recommendation, proscribed services which are licensed abroad but which transmit R18 standard material into the UK. It has previously proscribed five services.

45. In order to recommend such a proscription to the Secretary of State the ITC had to be satisfied that the trade for the service existed in the UK. These proscriptions could in themselves be seen as evidence that some broadcasters wish to provide such services and that there are viewers who wish to receive them.

46. Ofcom is required to set standards which maintain generally accepted standards as required under section 319(2)(f) of the Act. The public must be adequately protected from the inclusion of offensive and harmful material in programmes as judged against generally accepted standards. Ofcom is also required to set standards to protect people under eighteen. The TWF Directive also requires that nothing is included in television broadcasts which might seriously impair the physical, mental or moral development of minors.

47. In a survey of public opinion of 1200 adults commissioned by the BSC and ITC (The Public's View 2002) it was found that 76% agreed that people should be allowed to pay extra to view particularly sexually explicit programmes on subscription services. The survey did not distinguish between R18s and R18 standard material and more commonly available 'adult' material.

48. The government has found no compelling evidence of harm to adults as R18s were made legally available in 2000. However the regulatory impact analysis of a government consultation paper on the regulation of R18 videos, published in 2000, explains the precautionary approach regarding children and R18s: "There is always a risk of age-restricted material, such as tobacco or alcohol, falling into the hands of, and being misused by, children. Unlike tobacco and alcohol, which are widely available, there is no known and substantiated health or other risk associated with watching a video which has been given an R18 classification. However, there is widespread public concern about the possibility of children viewing sexually explicit material which is clearly unsuitable for them and the Government takes the common sense view that exposure to such material at an early age may be harmful to children. There is, therefore, a need to ensure that controls on the distribution and viewing of these videos is as stringent as possible."

49. Ofcom also seeks responses as to whether the restrictions currently in place regarding transmitting 'adult' sex material on certain premium subscription services and on Pay Per View (PPV) and Pay Per Night (PPN) services should be changed and if so on what services and with what protections.

50. The ITC Programme Code does allow latitude for certain premium subscription services available to adults who have specifically chosen them in section 1.4(i). They must comply with measures that ensure the subscriber is an adult and may transmit such material only between 2200 and 0530.

51. Separately in the ITC Programme Code watershed rules may be waived for pay-per-view services "where security mechanisms, such as a PIN system or equivalent, satisfactorily restrict access to films or programmes solely to those authorised to view. The mandatory security mechanism and the safeguards that it provides for children must be clearly explained to all subscribers. It should normally be supported by a detailed billing system that enables subscribers to check all viewing and, in particular, out-of-watershed viewing. In addition operators are expected to implement a suitable film classification system, or equivalent, and to provide any additional information about programme content and reasons for any restrictions that might assist parents and other adults to judge the suitability of material for children. However such services must still "exercise caution" in daytime and "'adult' sex material" must still comply with the 2200 to 0530 transmission rule.

52. Some argue that the restrictions in place regarding R18s, R18 standard material and 'adult' material are unnecessary regulation and a restriction on freedom of expression and choice. But other stakeholder groups regard such material as so innately offensive and potentially harmful to adults as well as under eighteens that they consider a prohibition on R18 and R18 standard material an absolute necessity. Some want 'adult' sex material prohibited as well.

53. To remove or change the rules which prohibit R18s and R18 standard material and to waive the 2200 rule and/or associated rules regarding 'adult' sex material would be an important change affecting broadcasters and consumers with significant commercial impact.

54. Option one - continue the prohibition on R18s, and R18 standard material and maintain 'adult' material restrictions
Ofcom could continue the stance taken by previous regulators with a prohibition on the transmission of R18s and maintain the restrictions regarding the transmission of 'adult' sex material as described above.

55. Option two - if appropriate safeguards are in place - remove or change the rules regarding R18s and R18 standard material and 'adult' material
Under section 6 of the Act, Ofcom has a duty to ensure that it does not impose or maintain unnecessary regulatory burdens. It may now be the case that the technology exists to protect the under eighteens from R18s, R18 standard material and 'adult' sex material (before 2200) and also protect those adults who do not want to see such material by mistake while allowing adults who have made a deliberate decision to view it.

Benefits

56. Option one would continue to protect the under eighteens and also be based on the assumption that such material is so potentially offensive to society that its transmission would be a breach of generally accepted standards.

57. The basis for retaining the restrictions on 'adult' sex material on certain premium subscription services would be that the restrictions are necessary to prevent those under the age of eighteen accessing this material and so the restrictions protect under eighteens. Also it prevents offence to adults who do not wish to see such material.

58. The benefit of option two would be that it would give viewers greater choice. Many of the member states of Europe allow the broadcast transmission of R18s. This would bring the UK into line with Europe. There would be new channels offering such material and other channels would be able to schedule more freely, potentially bringing in new subscribers thereby increasing the revenues that such channels receive.

Disadvantages

59. The disadvantages of option one would be that it may be out of line with public opinion, limit choice for adults and inhibit the commercial development of existing and potential services.

60. The disadvantages of option two are that under eighteens may not be sufficiently protected and adults may be exposed to potential offence. Furthermore Ofcom would have to employ a person or persons to view and regulate such material. That might lead to an increase in regulatory costs to broadcasters.

61. There may also be an adverse economic impact on television services presently supplying 'adult' sex material via premium subscription services or via PPV or PPN. These services have built up a stock of material permitted by the ITC and may find themselves at a disadvantage. They risk losing viewers and may have to acquire fresh stock making old stock redundant.

Recommendation

62. The status quo will prevail regarding a prohibition on R18s, and R18 standard material and also on a 2200 start for 'adult' sex material plus the other protections currently in place regarding 'adult' sex material. It will only change if it can be established that there are sufficient safeguards (technical and otherwise) to protect persons under eighteen, and ensure that adults who do not wish to see such material are adequately protected from harm and offence.

63. Please see related question in section 5.

Scheduling matters on television services

4. Whether there should or should not be a watershed on premium subscription services and if so at what time

Background

64. Ofcom may maintain, remove or alter the watershed on premium subscription services.

65. The watershed, and the proposed associated principles and scheduling rules contained in section 4 of this consultation, is the principle tool used by viewers and television broadcasters to protect children (which Ofcom suggests are defined as under 15). It is also, of course, used by some adults to regulate their own viewing in matters of harm and offence but this is not its primary purpose.

66. Content unsuitable for children should not be transmitted before 2100 or after 0530, except on premium rate subscription services where the watershed is at 2000.

67. The watershed is a well understood concept and is highly supported by viewers. Research contained in The Watershed: providing a safe viewing Zone published by the ITC and the BSC in 2003 showed that 95% in a survey of a survey of 4,000 adults who had heard of the watershed thought that there should be a watershed to protect young people and 77% agreed that it was a must. 78% thought it should apply to all channels. Of the 4,000 questioned 82% had heard of the watershed and significantly 92% of parents. However only 41% thought it applied to multi channel television. This research, which explores these attitudes further, is a useful tool in approaching the issue explored in this part of the RIA.

68. The rules suggested in section 4 are drawn from the standard objective laid out in section 319(2)(a) of the Act, that "persons under the age of eighteen are protected." Some of the suggested rules in this section employ a more precautionary principle. and are necessarily restrictive. Many of the rules concern programme transmitted pre watershed and what they may contain.

69. Some argue that, since adults have made a specific decision to purchase premium subscription services there should be much greater flexibility with regard to scheduling as any parent purchasing such a service will be fully aware of the nature of that service and that there is less scope for children accidentally accessing the service. Others are concerned that any change will lead to less protection for children.

70. The 2003 BARB Establishment Survey shows that children were present in 26.5% of all households. This rose to 36.8% of multi channel households.

71. Option one - maintain the 2000 watershed on premium subscription services.
One option is to maintain the watershed at 2000 hours on premium subscription services.

72. Option two - move the 2000 watershed on premium subscription services
Another option is to move the watershed on premium subscription services to another time. Respondents to this consultation are invited to suggest where the watershed might be and whether additional safeguards are required.

73. Option three - if suitable protections are in place - remove the watershed and associated rules on premium subscription services altoge ther.
A third option is to remove the watershed and the application of rules relating to the watershed from certain premium subscription services where broadcasters and platform operators can suggest, and put in place, suitable technical and other measures to ensure subscribers are adult, access is controlled by an adult and adults have appropriate information to make judgements on what children may watch.

Benefits

74. The benefits of option one are that the present rule is understood and applied so that children are protected but those who have paid for extra services are given the responsibility to make decisions after 2000 on behalf of their children. This would give full regulatory certainty to both viewers and broadcasters.

75. The benefits of option two are that some more scheduling leeway could be given to premium subscription services for the benefit of broadcasters and viewers but children would still be protected with a different watershed.

76. The benefits of option three is that those households without children are free to watch what they want when they want and for those with children they are free to watch what they want when they want having chosen to purchase such packages and being aware of the responsibility that goes with it.

77. Options two and three will benefit broadcasters who will be given more freedom to schedule adult material and so attract appropriate advertisers and sponsors. The potential economic benefit is that more relaxed scheduling may make services more attractive and bring in extra subscribers and/or could also lead to an increase in subscription fees.

Disadvantages

78. The disadvantage of option one and to a lesser extent option two is that the majority of households without children are given less choice in what they view and also that those households with children are not given their right to exercise full choice given they are paying extra for such services and have deliberately chosen them. This is also preventing broadcasters offering distinctive services and potentially limiting their revenues unnecessarily.

79. The disadvantage of option two and, to a greater extent, option three, is that children may be exposed to inappropriate content if adults fail or are unable to protect children in their households from unsuitable material.

An unintended but possible consequence of options two and three

There may be an upsurge in extremely cheap premium subscription service channels (e.g.1p) wishing to take advantage of no watershed or a different watershed and associated rules. This may benefit viewers by offering greater choice and broadcasters by offering greater commercial opportunity. It may also help distinguish those services which do offer a 'safe viewing zone'. However it may also lead to a drop in the public's understanding of the watershed and confidence in it on all television services and a possible loss of protection for children.

Recommendation

80. Ofcom makes no recommendation.

81. Please see related questions in section 4.

5. Whether programmes regarding the paranormal should be allowed on all television services at times when significant numbers of children are not available to view

Background

82. Programmes on these subjects range from religious programmes (astrology is a recognised part of some major religions and spiritualism is also a religion) to factual programmes and to entertainment programmes where there is no necessary expectation that the powers claimed are in fact real.

83. Section 7 of the RA Programme Code contained rules regarding the paranormal and supernatural issues. There are also rules regarding the occult and psychic practices in section 1.10 of the ITC Programme Code. This Code was updated recently in autumn 2003 following a consultation.

84. Television programmes regarding the paranormal are explicitly not allowed before the watershed on PSBs, that is ITV, Channel 4 and Five. The basis for this restriction is that children are more likely to see such material on PSBs before the watershed than on a cable and satellite channels and be exposed to matters on which they are not yet capable of making up their own minds.

85. Ofcom must protect those under eighteen according to section 319(2)(a) of the Act.

86. Option one - maintain the present restrictions
It would be possible to maintain the present restrictions on PSB services. This would, of course, extend the present restriction to the BBC.

87. Option two - bring all televisions services under one rule
The distinction regarding PSBs could be removed. The proposed rule could read "Demonstrations of the paranormal must not be transmitted when significant numbers of children may be expected to be watching in the case of television or are particularly likely to be listening in the case of radio. (Religious programmes are exempted from this rule but must comply with the provisions in the section regarding religious programmes in this Code)."

88. This would be contained in section 1 of the Code - Protecting the Under Eighteens. Other related rules concerning due objectivity, preventing the giving of life-changing advice and appropriate information would be contained in section 2 of the proposed Code on Harm and Offence.

Benefits

89. The benefit of option one is that children would be 'protected' from exposure to programmes about the paranormal until 2100, on PSB services. The present prohibition on PSBs is particularly relevant in the light of 319(4)(d) and may particularly protect children during term time day time.

90. The benefits of option two is that all broadcasters including PSBs could make decisions based on the likely number of children in the audience as allowed for by section 319(4)(b) and can also provide information as also allowed for by section 319(4)(c). This would allow adult audiences without multi-channel services (or who have not bought, or have no access to, a relevant premium subscription service) access to such programmes. This is potentially significant for viewers.

91. Any change that allowed PSBs to transmit such material pre watershed would be a potentially significant change in that it would give the PSBs access to a new potentially highly commercial genre of programming. They have not previously been allowed to schedule paranormal programming such as medium entertainment shows in the afternoon during term time. That may open new sponsorship and advertising opportunities.

Disadvantages

92. During the ITC consultation some PSB broadcasters objected to the principle of applying specific regulation which differentiated between PSB and niche channels.

93. Option one would maintain that distinction.

94. However with option two certain television services who have built up a niche audience for such programmes may suffer commercially if there is competition, particularly from PSBs who have a significant share of the audience. This is potentially significant for these services.

95. Children may be more likely to come across such material if it is potentially available on all television services given the large audiences of the PSBs. However, they may be unable to assess it as objectively as an adult and may be offended, distressed, confused or potentially harmed. Adults who have not chosen to see such material may also come across it in error and may be offended.

Recommendation

96. Ofcom recommends that the proposed rule contained in option two should be included in the Code so that regulation is targeted where it is necessary and proportionate, and so that regulation is applied consistently across all services.

97. Please see related question in section 4.

Appeals for funds and merchandising

6. Whether rules prohibiting appeals on television services for funds to make programmes and fund services should be waived or not

Background

98. The 1990 Act explicitly required the legacy regulators to draw up a Code giving guidance regarding the rules to be observed regarding appeals for donations. As a result rules were included in section 6 of the ITC Programme Code and section 6 of the RA Programme Code. There is no such express requirement in the Act for rules to be drawn up by Ofcom.

99. Separately, charity appeals are allowed on television in programme time by TWF Directive and proposed rules for charity appeals are therefore included in section 14 of the consultation.

100. However there is a particular issue regarding appealing for funds (falling outside charity appeals) on which the ITC and RA regulated in a different manner. This is whether broadcasters should be permitted to appeals for funds to make programmes or to fund services.

101. 6.2 of the RA Programme Code specifically allows radio services to appeal for funds, goods or services on behalf of others and also for funds to make programmes, or to fund the radio station. Section 6.1 of the ITC Code however states that "Licensees are not permitted to broadcast appeals for funds to make programmes."

102. If such appeals were to be allowed on television (option two below) a further issue would arise: namely whether such appeals, insofar as they are broadcast on television, fall within the definition of television advertising in the TWF Directive.

103. In the TWF Directive, television advertising is defined as "any form of announcement broadcast whether in return for payment or other valuable consideration or broadcast for self-promotional purposes by a public or private undertaking in connection with a trade, business , craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations, in return for payments."

104. However, Ofcom is not proposing in this consultation to treat such appeals as advertising but as matters which properly fall within the scope of the proposed Ofcom Broadcasting Code.

105. Option one - maintain the present rules for television and radio
Ofcom could maintain the present difference between television and radio.

106. Option two - bring television into line with radio
Ofcom could remove the ITC prohibition on appealing for funds to make programmes and fund services so that television services were brought into line with radio.

107. The removal of this rule may affect all television services and is significant.

108. Option three - allow programmes and services to appeal of funds with new rules to give protections to audiences
It would be possible to create a rule whereby television services and programmes would be allowed to appeal for funds with some protections in place for audiences in the form of a new rule or rules eg that any monies raised must be for the use of the broadcaster in funding programmes or the service and not for any third party.

Benefits

109. Option one continues a well understood system.

110. Option two could reduce the dependence upon other methods of raising funds e.g. advertising, sponsorship, premium rate phone calls, subscription etc. (Subscription channels may wish to use this method but it is possible that subscribers may be less likely to have a positive willingness to contribute.) However, it is not clear if this would become a substitute for other methods of raising funds or if it would be a complimentary mechanism.

111. It is possible that new television services may be created that take advantage of such a proposed change, thus giving more choice to viewers. It is also possible that extra funds would flow into specific types of programming that viewers want again giving more choice, range and quality to viewers.

112. Option three would have many of the benefits of option two but regulation would be aimed at preventing harm to viewers.

Disadvantages

113. The disadvantage of option one is that television services may be denied an opportunity to fund programmes and services that viewers would be prepared to support.

114. With option two there is a risk that, given the substantial market share held by some channels this could have a distorting effect on the market and could raise competition issues as ITV or other PSBs may disproportionably benefit from a relaxation of this rule.

115. Section 319(4)(f) of the Act refers to the desirability of maintaining the independence of editorial control over programme content. It may be difficult to maintain editorial control if programmes are funded by donation, either by special interest groups or by large organisations. Such groups may want to pay for programmes in order to bring their unmediated message to the audience, (although of course such programming would be subject to the new Code). Any funding that fell within the definition of sponsorship would of course be subject to the sponsorship section of this Code (see section 12 of this consultation).

116. There is also a risk that without the boundaries provided by new rules, viewers will be sending money to fund programmes and services without proper protections in place regarding how their money is spent. This then would be a matter of potential harm to viewers.

117. Option three would provide viewers with protection from harm but is an increase in regulation and might deny programmes and services the right to appeal for funds without going through potentially unnecessary hurdles and limiting channels from extracting additional revenues from viewers where viewers may potentially be willing to pay more to have their specific preferences met.

118. If appealing for funds is not essentially advertising there is no legislative reason to treat radio and television differently. Appealing for funds has not created problems for the listeners and thus the RA previously.

Recommendation

119. Ofcom makes no recommendation.

120. Please see related questions in section 13

7. Whether religious programmes and/or services should be allowed to appeal for funds or not

Background

121. The Act, in section 319(6)(a), requires Ofcom to set standards containing provision designed to secure that religious programmes do not involve "any improper exploitation of the susceptibilities of the audience for such a programme".

122. This is the same wording as that of the 1990 Act. However the ITC and RA interpreted the provision differently. The ITC did not allow fundraising by religious services, whereas the RA allowed it, with conditions.

123. The previous section of the RIA (section 6) has an essential bearing on this matter. Responses to that will have an impact upon the outcome of this section of the RIA as well.

124. Option one - maintain the present situation whereby radio services and programmes may appeal but television services and programmes may not.
An option would be to maintain the present situation whereby religious radio services and programmes may appeal for funds but religious television services and programmes may not.

125. Option two - retain the prohibition on religious programmes on television appealing for funds
Another option would be to lift the prohibition for specific religious services but keep it for religious programmes on television.

126. Option three - remove the prohibition on appealing for funds on religious programmes and services.
An option would be to lift the prohibition altogether.

Benefits

127. Option one would continue the well understood current situation.

128. Option two would mean that new services could be started. This is a significant effect. There would be economic benefit to the new broadcasters and to those who work in the industry.

129. There would be more choice for viewers. This again is significant.

130. Option three has the same benefits as option two but additionally this would bring religious programmes into line with other programmes and give access to those appealing for funds to many more viewers.

Disadvantages

131. If it is agreed, in response to this consultation, that it is acceptable for television programmes and services to appeal for funds, it may not be proportionate or consistent to treat these services differently, as proposed in option one.

132. Television services licensed in Spain (some of which were originally UK based) transmit into the UK and can be found on Sky's EPG alongside UK regulated services. They fundraise. There have been no significant numbers of complaints from viewers as to the appropriateness of such direct appeals. It is difficult to postulate potential harm to the susceptible if such services have been broadcasting such material for a number of years with no evidence of a detrimental effect or groundswell of negative opinion although only broadcast to a limited number of viewers.

133. Disallowing fundraising in the new multi-channel environment may put some UK based specialist religious television services at risk of closure. They are competing with services established abroad but received in the UK, which are allowed to fundraise under other European Union states' regulations.

134. Option two however might open the door for individuals and/or groups who might use any relaxation of the rules to exploit peoples' susceptibilities purely for commercial gain.

135. To remove the prohibition simply for religious services but not for religious programmes on a whole, would mean that appeals for funds would go to a limited number of viewers and may inhibit the economic growth of this area.

136. Television advertising regulation in section 10.6 and 10.7 of the ITC Advertising Standards Code forbids appeals for funds by religious charities unless it is for disadvantaged third parties and is not connected with other objectives, e.g. proselytising. Programming would be out of step with television advertising regulation. (However an additional benefit would be that there would be no adverse impact on the television advertising industry). Rule 3.9 of the RA Advertising and Sponsorship Code does allow appeals for funds or donations for religious organisations/charities provided they comply with the relevant Code rules on charity advertising.

137. The disadvantage of option three would be that those who come across a religious programme on a general channel which is appealing for funds either to support its religion or to make programmes may be offended if they are members of a different religion or have no religious beliefs. They may also be offended if under eighteens in their families are exposed to such appeals.

Recommendation

138. Ofcom makes no recommendation.

139. Please see related question in section 7.

8. Whether there should be rules regarding merchandising arrangements

Background

140. The ITC Code of Programme Sponsorship currently contains a rule which restricts the extent to which income from merchandising can be used to fund a programme. This rule allows broadcasters to enter into merchandising arrangements with third parties to produce products based on programme characters or other elements of the programme. However, neither the programme nor its transmission can be funded in any way by the product manufacturer or broadcaster (or their agent). The merchandising rule exists in addition to the sponsorship rules (see section 12 of this consultation document). By implication, this rule, together with the rule relating to similarity between an advertiser's marketing activities and a programmes content (section 17 of the ITC Code of Programme Sponsorship), has meant that a programme cannot normally be based on an existing product.

141. Option one - retain or create new merchandising rules
Ofcom could retain or create rules which require the arms-length relationship between the broadcaster/programme maker and the merchandising manufacturer to be maintained, so that money from merchandise could not be fed back into the programme.

142. Option two - remove merchandising rules
Ofcom could remove specific restrictions on merchandising arrangements.

Benefits

143. The basis for option one would be that the independence of editorial control of the programme (the Act, section 319(4)(f)) could be compromised if there is a direct link between sales of merchandising and the programme.

144. Retaining specific rules for merchandising would maintain an arms-length relationship between the merchandise and the content of the relevant programme. This would prevent the market in programmes, particularly children's programmes, being influenced by companies who might wish to make or fund programmes (based on existing commercial products) that could then be offered to broadcasters at a discount, reflecting their promotional value for the company concerned.

145. Option two would remove specific restrictions on merchandising arrangements and could open up the option to make programmes based on existing commercial products. This could stimulate the programme making market, allowing broadcasters to draw on sources of programme funding which, to the extent this attracts new or larger audiences, could in turn increase advertising revenues.

146. Removing restrictions would create a level playing field for programmes based on existing products and other programmes.

Disadvantages

147. The disadvantage of option one is that including specific rules for merchandising in the Ofcom Code could maintain an inconsistency in approach to pre-existing commercial products and those that are launched after, or simultaneously to, a related programme. This could be viewed as distortionary in that it applies different rules to different potential investors and as a result could have an impact on downstream competition.

148. Removing merchandising rules, as suggested in option two, could make it more difficult to get programmes on air that did not have associated merchandising, thereby narrowing the range of programmes available to viewers and impacting upon companies and programme makers who specialise in programming that is not associated with merchandising. (Where PSBs are concerned the five yearly PSB review and related decisions allow Ofcom to encourage PSB investment in other forms of programmes for children.)

Recommendation

149. Ofcom proposes to remove specific restrictions on merchandising arrangements. We consider that to the extent that funding arrangements for programmes need to be regulated, that is appropriately covered by the rules for programme sponsorship.

150. Please see related question in section 13

Conclusion

151. It is intended that the changes proposed in this document would take effect two months after publication of the new Ofcom Broadcasting Code.

Questions

14.1 Has this RIA correctly identified the significant changes (as described in the opening paragraph of the RIA) made in this consultation paper. If not, what other changes are significant, and why?

14.2 Do you disagree with the assessment of benefits and disadvantages drawn up in this RIA and, if so, how would you suggest it should be altered?

14.3 Can you assist with information which will help us quantify the increased costs or savings of the various options in this RIA?

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