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08|02|05

Ofcom review of public service television broadcasting - Phase 3 - Competition for quality

Ofcom’s decisions and proposals on Public Service Broadcasting

8 February 2005

Ofcom today published the final report and conclusions of its statutory review of television Public Service Broadcasting (PSB).

Section 264 of the Communications Act 2003 required Ofcom to report on the effectiveness of the existing television public service broadcasters - BBC, ITV, Channel 4, S4C, five and Teletext - in the delivery of their PSB obligations; and to make recommendations for maintaining and strengthening the quality of PSB for the future.

Today’s publication completes the period of analysis and public consultation. Additional proposals regarding broadcasting in the Nations have also been published today for consultation; that consultation will close on 19 April.

The report, Competition for Quality, sets out a framework for Public Service Broadcasting. The Review contains specific conclusions that will be implemented as well as proposals that will feed into the Government’s review of the BBC Charter and future thinking on public service content.

Ofcom’s analysis has taken place during a period of rapid change for the communications sector, with digital television take-up now at 56% and broadband connections reaching 21% of households. Previous phases of the Review underlined why the framework for delivering PSB will need to change. In those phases, Ofcom:

• Highlighted that the existing terrestrial analogue model of commercially-funded PSB will not survive the transition to digital and may erode rapidly prior to 2012.
• Published research showing that there is continued public support for the current scale of PSB.
• Established a new definition of PSB based on its core purposes and characteristics.
• Proposed a new PSB model for the digital age, including the establishment of a new Public Service Publisher (PSP).
• Explained how the transition to the new model will take place.

Today’s final report recommends that:

• The BBC should remain the cornerstone of PSB - strong, independent and properly funded by the licence fee.
• ITV1 should remain a free-to-air broadcaster and should focus on its core strengths of original production, news, regional news and drama.
• Channel 4 should remain a publicly owned, commercially funded broadcaster, with a specific remit for innovation.
• Five should be primarily market-led, focusing on UK original production.
• There should be a new Public Service Publisher (PSP) charged with using new media platforms such as broadband, mobile and digital broadcasting to deliver distinctive, high quality, UK-originated public service content.
• Other commercial digital channels should be encouraged to develop further their investment in high-quality UK content, using an incentive approach to PSB classification.
• Content production is also an important source of competition for quality; a strong independent production sector is a source of creativity. Ofcom will conduct a review of the production sector in 2005/6.

Responses to the Phase 2 consultation focused on a number of significant issues that Ofcom has considered further. Today’s report sets out conclusions in each of the following areas:

Channel 4

• There is not an immediate case for the direct public funding of Channel 4.
• Channel 4 should develop further its proposals for self-help including cost savings, commercial ventures and alliances.
• In the immediate future, Ofcom will consider the proposals for assistance which have been put forward by Channel 4, including:

• conferring the benefits of PSB on specific Channel 4 activities, with possible benefits in terms of EPG (Electronic Programming Guide) positioning and rights agreements; and,
• exemption from spectrum pricing;

• Consideration should be given by Government to proposals for funding the exceptional one-off expenditure associated with Channel 4’s transitional digital switchover roll-out costs.
• Ofcom will monitor Channel 4’s performance and finances, with a further review in 2006-07.

Nations and Regions

• Ofcom will require ITV1 to provide high-quality regional news and current affairs -the most significant and valued aspects of ITV1’s regional output.
• Ofcom proposes to increase ITV1’s quotas for out of London production for the network to 50% (both value and volume), representing more than £40 million additional spend per annum outside London in 2006 and beyond.
• ITV plc has proposed the introduction of a new £9 million Production Partnership Fund to support the creative sector outside London and other established network production centres.
• Ofcom proposes to work with ITV plc to secure improvements to the range of production centres around the UK represented on the ITV1 network.
• Ofcom will require ITV to commission increased levels of high-value network production from the Nations and Regions, rather than preserve low-budget regional programming which is not as highly valued by audiences.
• Ofcom will work with the Government and other stakeholders to explore the options for new forms of local broadband content and digital local television.
• Ofcom will implement reductions for non-news regional programming in the English Regions from three hours a week to 1.5 hours in 2005, with all of the reductions occurring out of peak hours.
• When digital switchover begins, Ofcom proposes to reduce the minimum requirement for non-news programming in all the English Regions to 0.5 hours a week.

Today’s report sets out for the first time Ofcom’s proposals for public service broadcasting in Scotland, Wales and Northern Ireland. Ofcom is therefore consulting on these proposals until 19 April 2005. Ofcom proposes to:

• Establish a licence requirement for non-news output in Scotland, Wales and Northern Ireland in a way that recognises the additional needs of audiences in the Nations.
• Require Scottish TV and Grampian TV to broadcast at least four hours per week of English language non-news regional programming.
• Establish ITV Wales’ non-news regional output at a minimum of four hours per week.
• Establish Ulster Television’s (UTV) non-news regional output at a minimum of four hours per week.
• When the first UK region achieves digital switchover, reduce the requirement for non-news programming for Scotland, Wales and Northern Ireland to three hours per week.

The report also sets out a range of options for provision of enhanced indigenous language services for the Nations:

• In Wales, Ofcom proposes greater transparency in the relationship between the BBC and S4C. In the longer term, consider the use of a competitive tender model for the provision of Welsh language services.
• In Scotland, the prospect of a dedicated Gaelic service, initially delivered by digital satellite, providing more content and a richer programming range than is currently provided on mainstream channels.
• In Northern Ireland, the full implementation of the proposals in the Belfast/Good Friday Agreement with regard to cross-border television broadcasting.

The Public Service Publisher (PSP)

• Ofcom’s outline proposal for the PSP attracted significant interest and support from a wide variety of stakeholders. Many welcomed the PSP as a potential source of innovation.
• At the heart of the PSP proposal will be content for all distribution channels - broadband and mobile, together with a broadcast element.
• Possible remits for the PSP are:

• A premier supplier of high quality digital and broadband public service content, available on a free-to-view/download basis.
• The provision of local and communities services, using new media and, potentially, a new, truly local television service model.

• These services could be provided through a single PSP, but it may be more effective to award separate contracts. The PSP (or PSPs) would be established through the periodic award of a contract to a specific provider.
• Ofcom has considered three main options for the potential development of connections between the PSP and a broadcast distribution channel. In considering any options, the benefits of stimulating greater competition for the PSP contract need to be balanced against the benefits of giving the PSP the advantage of a link to an established not for profit broadcaster.

Public Service Broadcasting regulation, accountability and governance

• Ofcom believes that there are three distinct roles within Public Service Broadcasting. These roles are:

1. Cross-Sector Regulation - applicable to all participants in the market.

2. Accountability - effective oversight of the use of public funds for PSB.

3. Internal Governance - Ensuring compliance within the organisation.

• Ofcom does not believe that it should have any responsibilities for the governance or management of the BBC. This would further confuse an already complex and imperfect set of relationships. Instead, Ofcom believes that the three distinct roles of cross-sector regulation, accountability and internal governance should be further clarified.
• Ofcom proposes that the approach to competition issues should be the same across the sector - with the BBC subject to the same ex-ante rules as commercial broadcasters.
• Where the BBC is proposing new services, the impact assessments of those services on the market as a whole should be carried out by Ofcom rather than advisers appointed by the BBC Governors.
• Regulation of Tier 2 quotas (for example, governing independent and regional production obligations) should be standardised across the sector.

Next steps

• Ofcom will take forward the implementation of its final conclusions. Some aspects of the conclusions will be taken into account in Ofcom’s review of the financial terms for the Channel 3 and Five licences.
• Ofcom today opens a formal public consultation on its proposals for Public Service Broadcasting in Scotland, Wales and Northern Ireland. Final proposals for the Nations are scheduled to be published in May/June 2005.
• No more than five years after the current review, as required by statute, Ofcom will conduct a further Review of Public Service Television Broadcasting.

Stephen Carter, Chief Executive, said: “We believe that our decisions and recommendations are rooted in the realities of the developing digital television market.”

He added: “The challenge for the next five years will be to guarantee the provision of high quality public service content from a variety of providers.”

The final report and conclusions of Ofcom’s Review of Public Service Broadcasting are available online at http://www.ofcom.org.uk/consult/condocs/psb3/

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