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Background to the reviews

1. The financial terms of the Channel 3, Channel 5 and Public Teletext licences require the holders of the licences to make licence payments (“Additional Payments”) to the Treasury. The financial terms were originally set following competitive tender processes, in 1991 for the Channel 3 licences and the Public Teletext licence and in 1995 for the Channel 5 licence.
2. The financial terms consist of a percentage of qualifying revenue (PQR) and a cash sum payable for each year of the licence period. The current financial terms were set by the Independent Television Commission ( ITC) at the time of the most recent renewals of the analogue broadcasting licences.
3. Section 225 of the Communications Act 2003 (the “Act”) allows for Channel 3, Channel 5 and Public Teletext licensees to apply for reviews of their financial terms for payments to the Treasury. Separately, the Act required Ofcom to offer to replace the existing analogue broadcasting licences with Digital Replacement Licences (DRLs) prior to 29 December 2004.
4. Ofcom published a consultation^(-1-) on draft versions of the DRLs in September 2004 and offered the licences in November. Each licensee took up the option to accept the DRLs, which expire on 31 December 2014 as set out in section 224 of the Act.
5. Under the Act, the earliest date on which a licensee can apply for a review of its financial terms is four years prior to the expiry date of its analogue licence. Ofcom consulted in January 2004^(-2-) on the process for undertaking reviews of the financial terms of the DRLs. In this consultation, Ofcom proposed to offer Channel 3 licensees the opportunity to align the expiry dates of their analogue licences and, therefore, the dates for reviews of the financial terms of the DRLs. Channel 3 licensees therefore had the option to apply for reviews from 31 December 2004.
6. In order to promote further consistency across all broadcasting licences, Ofcom subsequently proposed in July 2004 to extend the offer to bring forward the dates of their financial review periods to begin on 31 December 2004 to the Channel 5 and Public Teletext licensees.
7. In July 2004, Ofcom consulted^(-3-) on the methodology which Ofcom proposed to use for undertaking financial reviews of the Channel 3 licences. In October, Ofcom concluded that a broadly similar methodology should also be applied in the event that the Channel 5 or Public Teletext licensees applied for a review. On 13 October 2004, Ofcom set out the methodology to be adopted in its published Statement, “Methodology for reviews of financial terms for Channel 3, Channel 5 and Public Teletext licences” (“the October Statement.”)^(-4-)
8. In January 2005, Ofcom announced that all Channel 3 licence holders (other than Channel Television) and Channel 5 Broadcasting Limited, the current holder of the Channel 5 licence had applied for a review. Teletext Limited did not apply for a review of its Public Teletext licence. Licensees who did not apply for a review of their financial terms may choose to do so at a later date.
9. Today, Ofcom has announced the outcome of its review of financial terms for those licensees which applied for a review. The purpose of this document is to provide some background information in relation to the process and various factors relevant to the reviews. This document does not aim to provide an account of the reasons for the determination, and it should be regarded as background information only.

Next steps for licensees

10. Applicants have four weeks within which they can elect to accept these revised terms which, if accepted, will be backdated to January 1 st 2005.

 

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Footnotes:

1.-http://www.ofcom.org.uk/consult/condocs/drl/drl_condoc/

2.-http://www.ofcom.org.uk/media/news/2004/01/nr1_20040126

3.-http://www.ofcom.org.uk/consult/condocs/channel3_consultation/channel3_consultation/

4.-http://www.ofcom.org.uk/media/news/2004/10/20041013_nr

The full document is available below

• Reviews of financial terms for Channel 3 and Channel 5 licences: Background note [pdf]
  Full print version

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