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11|10|04

RTS Fleming Memorial Lecture 2004 - Television and the Digital Future

David Currie, Ofcom Chairman

It is a pleasure and a privilege to be asked to deliver this year’s Fleming lecture. The timing is apposite. Ofcom published on 30 September the second phase of our report into Public Service Broadcasting. This is the first opportunity to talk about the context in which that report has been written, and the reasons for our conclusions and proposals.

One reason why the Royal Television Society has been so durable is that its interests cover not just the Message, but the Medium and also the underlying technology – thus going one better than Marshall McLuhan ever managed.

Of the 54 lecturers who have preceded me, some seem to have been gifted a wonderful banner under which to speak. AGM Barlow in 1952 talked about ‘Guided Waves’, HG Jenkins in 1957 about ‘Luminescence’ and TR Scott in 1958 about ‘Crystal Valves’. A number of lecturers in recent years have given papers which have “public service broadcasting” within their titles, but that would be too limiting for the ground that I would like to cover this evening. I am very attracted by Lord Annan’s title from the 1977 lecture which was simply ‘Lord Annan answers his critics’. How very simple, if self centered. I will resist that temptation, unless you ask me back again next year to give a repeat performance.

If I were choosing a title today, I think it would be ‘What’s going to happen to television?’, and it is the context and detail of that question which I intend to address this evening. I will do so in two sections: first, I will review the changing context for communications in the UK , societal and technological; second, I will review Ofcom’s conclusions in phase 2 of our review of public service television, which, if our analysis is right, carry important implications for the future of the medium and of the industry.

I want to begin by looking at television in the broader market context. UK society and the communications industries within it are undergoing radical transformation. That is true in terms of social indicators, attitudes and in particular, the effect of new technology.

The Olympic motto is faster, higher, stronger. Even without the help of performance enhancing drugs, the technological outlook for the UK can be summarised as faster, better, smaller, cheaper. There is increasing availability of high speed data. Broadband is now used in fifteen percent of homes, with at least another 200,000 signing up every month – by way of comparison, this is faster than the monthly growth of Freeview and eight times the current monthly growth of Sky.

Mobility is increasingly prized. Three quarters of all adults own a mobile phone; last year, for the first time, Britain spent more on mobile than fixed telephony; and the barriers between fixed and mobile are blurring. We are becoming nomadic in technology as much as lifestyle.

Storage is becoming cheaper and widely available, enhanced by the proliferation of portable devices with high capacity storage such as iPod, digital cameras and portable hard drives. Customized services are now becoming available which are delivered as and when the consumer wishes for them, most obviously video on demand. PVRs like Sky Plus allow people to build their own channel – what they want when they want it.

Today, we are still in an era of transition. Most broadband is still 512kbps or less – not a natural medium for video-rich content. In today’s multi-channel world the linear schedule still just about holds sway.

Though even multi-channel has proved challenging enough for the traditional television broadcasters. The BBC , to its credit, had its epiphany in the late 1990s with the 100 Tribes work. To the BBC Top 200 managers, watching a Single Mum from Birmingham saying: ‘Oooh I love that Discovery stuff – it’s real brain food!’ was a cultural revolution. The inheritors of Reith were supplanted in that moment by the works of an inspired American former school-teacher who had understood the power of multi-channel TV.

The BBC, BSkyB and one or two others have adapted well, in a Darwinian sense, to today’s environment. But for the traditional broadcasters it is not a stable place. The current order is changing – quickly – and bringing with it an unprecedented challenge for traditional linear television broadcasting.

The rapid growth of first multi-channel, then digital, then PVRs and soon higher-speed broadband are simply the pre-tremors of the real volcanic eruption that technology is about to unleash. At the risk of being over-dramatic I would say that most traditional television broadcasters are today standing about the equivalent of one mile from Mount St Helen. When it blows, frankly, that is too close and then it will be too late to run.

There will no doubt be some people in this room who suspect they have heard all this before. After all, the industry has been debating the so-called “End Game” for as long as there’s been a digital multi-channel game to play – and yet the prophesies thus far have run years ahead of audience behaviour.

So what makes this particular prophesy any different?

Firstly, because what we are seeing today is the art of the actual rather than the art of the possible. All of the elements I will describe are being put in place now, if not in the UK, then certainly in a number of our international peer nations.

Secondly, because of what the audience has told us in our research for the PSB Review – that they value the core elements of PSB, but they also want more choice, more control – and that when technology gives them both these things, and works as advertised, they embrace it willingly and with surprising speed.

The next decade

Over the next decade, audiences will move away from the linear, scheduled world where there is a relatively limited number of distributors who push their content at the viewer – a world where traditionally you got what the broadcaster wanted you to get – and the regulator allowed the broadcaster to give to you.

We will instead enter a world where content is increasingly delivered through internet-protocol-based networks that are non-linear, on-demand and entirely self-scheduled. In that world, the viewer – not the broadcaster – will decide what is consumed and how.

What will this mean for scheduling and for the advertiser-funded model? For content rights and rights management? For content regulation? And for that set of public policy interventions that have characterised broadcasting since 1927 and still remained enshrined – albeit in slightly modernised form – in the Communications Act?

Let me take these in turn.

At a minimum, the select few who have mastered the darkest of television arts – competitive scheduling – may in time find themselves about as useful as master farriers in the age of the automobile. It is hard to schedule programmes head-to-head when, outside perhaps a handful of major sporting events, the viewer’s only choice is how much to watch, not what to watch.

As an aside this will also mean that the watershed, a simple but widely understood means of child protection, will lose its potency. There will need to be new means to achieve that end in an on-demand world.

For advertisers, the growth of on-demand technology will turn peak time for the broadcaster into any time for the audience – so why pay a premium for a mid-evening adult audience? For the viewer with PVR or similar, ad avoidance will become even easier than now – so advertisers will need to develop new techniques for this new world.

The core principle is that the viewer should be aware when someone is trying to sell them something. But does this mean the hard and fast division that prevails today between programme and advertisement? That boundary will blur, and it is not the end of the world if it does. The viewer is savvier than many give them credit for. We watch Bond films on the television, films heavily financed by product placement. But at the end, do we all rush out and buy the latest top of the range BMW? I think not.

There needs to be protection for children, who are only just coming to the age when they can decode adverts. But in the world of internet-protocol based networks delivering content on demand, we hope that aggregators will find it in their self-interest to provide safe havens not just in terms of content but in advertising too.

So to the content creators – the programme-makers and indeed the commissioners also. What does the new world hold for them, with media content delivered over multiple fixed and wireless networks? It means tremendous opportunity – global distribution at low cost, the ability to monetise back catalogues and archives as constraints on broadcast capacity and channel availability are lifted – and of course, digital technology also cuts the cost of production, increasing the margin available for both in-house and independent producers. That’s the good news.

The bad news? Another industry has led the way into an era of digitally-produced content, distributed via IP-based networks and stored on the user’s hard disk at home and on portable devices. That industry is of course the music industry, and its painful encounters with new technology provide a warning for all who wish to create and commission television content in the years ahead.

The digital era shifts the balance of control from producer to consumer. That’s one of its great, democratising strengths. It also makes it much harder to exchange creativity for cash; holding onto the money when your work is freely available on servers from Tashkent to Sao Tome is next to impossible.

The computer industry has come up with a phrase to describe the kind of software that its author knows will be pirated, but which he would “quite like to be paid for – if it’s OK with you!”. Software creators call it ‘donationware’ – the internet equivalent of an honesty bar in a gentleman’s club. Actually demanding payment simply isn’t an option.

In short, unless our programme-makers and commissioners wish to depend on goodwill and the viewer’s moral compunction to pay one’s dues in return for another’s creativity, they will need to enter the murky waters of digital rights management.

They will need to find a solution quickly – in the knowledge that their peers in the music industry, after five years of looking, have only just begun to find a path from the wilderness of ‘no-pay’ to the slightly more fertile soil of pay-per-download.

This issue affects not only the content creators – video peer-to-peer traffic is intensely bandwidth hungry – so there will be a commonality of interest between platform operators and content owners in creating a framework for orderly commercial downloading.

Future regulation

Lastly, what about regulation and that whole inherited hinterland of public policy intervention intended to ensure that what we watch is good for us and does not cause offence? How should this translate into an era of on-demand content delivered from a myriad of sources over IP networks?

On this point the debate has yet to begin. Parliament has decided in the Communications Act that Ofcom should have no remit over internet content. I believe this was the right outcome for today’s environment.

The Communications Act is carefully framed to make the distinction between television and radio broadcast content as opposed to material delivered over the internet. So a complaint to Ofcom about harm and offence in a television programme would be investigated by the regulator, and if in breach, would trigger regulatory action. However, if the same material were then to be streamed on the broadcaster’s website, it would be for the internet user to act as his or her own regulator – Ofcom has no role to play whatsoever.

The challenge for policymakers will arise at the point where traditional broadcasting and internet-based delivery truly blur. This is not esoteric future-gazing; we are close to this point now. This summer saw the launch of the UK's first video on demand over broadband. In France consumers can buy broadband video-on-demand (at a picture quality almost indistinguishable from conventional analogue), plus high-speed data and telephony for around £20 a month.

This is television; and yet it is actually the internet. The broadcast regulatory norms simply do not apply. Nor do they apply to content delivered over 3G mobile, nor content delivered to the home via fixed wireless broadband access, nor WiFi, nor Wimax, nor any one of the new technologies that will promise to turn our television consumption habits on their heads over the next decade.

To be clear, this is not a plea for Ofcom’s rulebook to be extended. It is, if anything, the opposite; a plea for honesty in the debate which must follow – in society, in industry and in Parliament – about what is appropriate and necessary in the future.

Television places the onus upon the supplier – the broadcaster – to ensure that the content is fit for consumption. Where that duty is not met, the viewer complains, and the regulator acts. But in the internet world, that same onus falls on the user – empowered by smart search engines, filtering software, parental controls and the like.

The regulatory regime for television acknowledges both the power of the medium to influence for good or ill, but also the relative paucity of the tools available to the viewer; the watershed, remote control and the off switch.

The internet offers greater risk of inappropriate content, but also greater control; there it is the user who is expected to be the regulator, backed by innovative technology to define and limit access as he or she sees fit. Sky Plus meets child-protected Google.

It would be a mistake to assume this debate should begin by assessing how the old template of television regulation could simply be stretched and remodelled to absorb and control the world of content delivered via IP. Equally, however, it cannot assume that self-regulation by a provider and caveat emptor by the user will in all circumstances be the answer in this new world.

We are clearly in a transitional phase. So where I believe this debate needs to begin is in developing a clear-sighted social compact on where user protections remain absolutely essential - child protection being an obvious case in point - and then focusing on how to deliver this more concentrated set of social objectives. But debate there needs to be.

The big brands, including the established broadcasters, if they successfully make the transition into the on-demand world can also serve as ‘safe havens’ for the viewer. It is in their self-interest to give the viewer a relatively high degree of confidence and trust in what they will get and what standards will be upheld on these services.

What I have described so far is the impending collision between the hitherto separate worlds of broadcast and broadband. It is against this background of social, technological and market change that Ofcom has been conducting the statutory review of public service television broadcasting (PSB). This three-stage process has advanced to the point where ten days ago we published our proposals for maintaining and strengthening PSB in the digital age. I want to use the rest of this lecture to explain the thinking that lies behind those proposals.

The Public Service Broadcasting Review

The remit that we have in the Communications Act is about as unambiguous a set of marching orders as a regulator might ask for. We are asked, firstly, to report on how, taken together, the existing four public service broadcasters - the BBC, ITV Channel 4 and Five - are delivering on the range of public service criteria set out in the Act. That we did in Phase I of our Review.

The Phase I research confirmed that the public like and value public service broadcasting; that the market unaided would produce programming of the type that today we call PSB; but that it would not do so in sufficient quantity or sufficient breadth. If we as a nation want the level of PSB that satisfies personal and societal needs, then some continuing intervention to deliver it will be needed.

Secondly we are asked to make recommendations to Parliament “with a view to maintaining and strengthening the quality of public service television broadcasting in the United Kingdom ”.

There are two points to note here. Firstly, the distinction in the twin halves of our remit between “the broadcasters” and “public service broadcasting” in the second part of our remit. This recognises that PSB need not necessarily in the future be synonymous with the institutions that have traditionally provided it. Secondly, the fact that Parliament created this remit is itself a clear recognition that the tide of the market is moving inexorably in one direction and that is to force a choice about how much we want – and are prepared to spend on – public service broadcasting as a nation.

Please note the words in our remit: “maintaining and strengthening”. Simply chronicling the pressures on – and by-standing the decline of – public service broadcasting, is not, therefore, an option for us. But any proposals to maintain and strengthen it, must start from a clear-sighted analysis of what is going to happen, absent other measures.

The central tenet of our report is that the existing analogue model of PSB, which has been sustained by a mixture of institutions, funding and regulation will not survive the transition to digital; and may well erode rapidly before then.

Some commentators have confused what we say here with the digital switchover process. They have then drawn the simple – if wrong – conclusion that if that process is postponed all will be well. To be sure, the switchover process is a catalyst. But what is driving this is the market and consumer choice. Already 55 per cent of homes have digital. The proportion is continuing to climb rapidly and can be expected to reach 75-80 per cent during this decade.

At that point, for the advertiser-funded broadcasters, they are already, in practice in a fully digital world. The value of the rump of analogue viewers- and thus of the analogue licence which has ‘funded’ their public service programming has diminished starkly. Their audience share in digital, multi-channel homes is lower and thus in time their share of the advertiser-funding cake. So they have both reduced incentives and reduced means of funding public service programming. And digital gives ITV and Five at least another potential route to market, without any public service obligations.

If that central tenet is accepted, what does it mean for the established broadcasters?

For the BBC it makes their role as the cornerstone of public service broadcasting even more important. With that goes an even greater responsibility to be rigorous in sticking to its public service purposes and, in its own well-chosen words, ‘building public value’.

We have recommended that a public-service focused BBC should be given a new 10 year Charter through to 2016 and that it should be fully-funded through a licence fee model to enable it to fulfil its responsibilities. However, there also needs to be an effective and rigorous mid-point review in 2011, probably the last year of analogue broadcasting. That may, incidentally, be the last year of analogue broadcasting.

ITV has been the traditional twin pillar, alongside the BBC, of public service broadcasting. But ITV’s analogue spectrum privileges – which today fund some 250 million pounds-worth of public service programming – will shrink to about 25 million pounds by switchover. That is the best-estimate value of ‘due prominence’ on electronic programme guides and of sufficient digital spectrum to give them universal access. Manifestly, that will buy a lot less public service programming.

Between now and then ITV need to be enabled to play to their core public service strengths – high-production value, originated programming and international, national and regional news. They have a strong tradition of out-of-London production for the network. That is a valuable counter to television’s natural metro-centric tendencies. So we propose to lock that in. But in England, certainly, regional non-news programming is relatively costly and not highly valued by viewers. We are proposing an immediate reduction in ITV’s obligations here and a glidepath out of it before switchover. The BBC has already indicated that it wishes to do more in the regions beyond news. That is welcome and we support that rebalancing of obligations.

Five’s contribution to public service to date has been modest but useful. They have an opportunity to show how far enlightened but essentially mark et-led self-interest will in fact produce public service programming. They will retain obligations for original UK-made programming; but we recognise the case for flexibility in the trade-off between more volume and higher value originated programming.

Channel Four, unlike ITV or Five, has no commercial shareholder pressure and in the short to medium term at least has a solid financial base. We believe it should remain a mainly not-for-profit entity and do not support its privatisation. But it does face an increasing tension between public service and its advertiser-funded model. To argue that that tension can simply be regulated away is to argue for pushing water uphill. But that tension could be reduced by giving Channel 4 greater scale over time. We have outlined how that might happen.

We recognise that all of this is essentially transitional as we move through the multi-channel world to the fully digital and emerging on-demand environment. And, absent other measures, the 400 million pounds or so of implicit funding for commercially provided public service broadcasting will by then have bled out of the system. Self-evidently, that is unlikely to lead to the ‘maintenance or strengthening’ of the quality of public service television.

So our core recommendation is that most if not all of that should be kept in the system. It fits with what viewers say that they are prepared to pay for public service broadcasting. But what is implicit today will need to be explicit tomorrow. It is for Government and Parliament – not Ofcom – to decide whether and how.

For our part, we have simply laid out the three basic options: firstly, direct taxation, in the way that the World Service and S4C are funded. It could possibly be hypothecated taxation from spectrum receipts. Secondly, it could come from an enhanced licence fee, once Parliament has settled the needs of a fully-funded (but not ever-expanding) BBC . Thirdly, it could be from a small levy on all other broadcasters’ turnover – a model used to fund PSB in some other countries.

If it is accepted that this funding should remain in the system and the mechanism for its provision is determined, the question then is: to whom should it go?

Some have argued that it should go to the BBC; and if only it raised its game then all would be well. But that would leave the BBC as an isolated monopoly provider of PSB. No other monopoly, without an external forcing function, tends to raise its game or innovate. There is no reason to believe that, however well intentioned the BBC is, it would resist the organisational and individual incentives that monopoly creates.

Moreover, all the feedback on our Phase I report, including that from the BBC, was that plurality in public service broadcasting was central to the success of the UK system, now and going forward. Why? Because different institutions inherently offer different perspectives and approaches, which give the diversity and scope for innovation that audiences value.

What about giving the public funding to Channel 4 to build it up, as an established institution, as a competitor for quality with the BBC ? We believe that Channel 4 will, indeed remain a significant provider of PSB, by virtue of its remaining privileges and its not-for-profit status; and that greater scale could strengthen it in that role. But direct public funding may not, we believe, be the best route to that end.

Experience from elsewhere shows that direct public funding and advertiser funding make poor bedfellows, creating conflicting incentives which damage the public service output. Channel 4 themselves have said clearly that their preference is for commercial solutions rather than direct public funding. Channel 4’s DNA is a public service ethos but within a culture of commercial self-reliance.

The final concern is precisely that Channel 4 is by now an ‘established institution’. And, despite Channel 4’s tradition of innovation in the analogue world, it is unlikely in the future that it will be established institutions and established broadcasters that one will look to exclusively for innovation, when there are the disjuncts in the mark et of the kind that television will experience over the next decade.

We favour competition as a driver of new ideas and innovation. We could therefore have recommended an ‘arts council of the air’ which would decide programme by programme what to fund in the existing broadcasters. But such an approach has not been very successful when it has been tried elsewhere. In practice a high proportion of the budget goes on bureaucracy; and designing creative output by not just one committee (the broadcaster’s own commissioners) but two (the arts council of the air) is not a recipe for great content.

So ‘No’ to an arts council of the air; ‘no’ to the BBC getting it all; and probably ‘no’ to direct public funding for Channel 4 itself. But to recap, we do believe that if public service broadcasting is to be maintained and strengthened the 400 million pounds that sustains the current commercial provision of public service broadcasting needs to be kept in the system, albeit made more explicit.

So, Ofcom is proposing a single, not-for-profit creative organisation – a public service publisher – that would be responsible for the whole process of commissioning, overseeing and distributing public service content from end to end. Initially it is likely to be mainly on digital television but increasingly on other new media platforms such as broadband servers and mobile devices. And in terms of timing it is worth remembering that the digital switchover process is expected to start in just over 2 years time.

We are proposing that there should be an open competition, every 10 years for the franchise to run this PSP. And, like the BBC, a mid-point review to ensure that the PSP is delivering on its promises and meeting audience needs.

It would be open to any established broadcaster to bid (except, of course, the BBC), as it would be for other established and new media companies, independent producers, platform operators or any combination of these in consortium.

We have considered carefully the obvious riposte to this proposal: in an era of audience fragmentation, how will adding one new institution, which does not even have an established brand identity, tip the scales? It is an important question. Our answer is this: firstly, plurality means more than monopoly (the BBC) and preferably more than a duopoly (the BBC and Channel 4); secondly, the 300 million pounds a year that we have suggested is, in itself a not insignificant sum for public service. It could produce 3 hours a day of high value, high quality attractive video content, with reversioned material for broadband servers and mobile devices on top of that with additional spin off material – such as archive or interactive – from the core content.

If an established broadcaster was in the consortium to run the PSP then it could showcase the material on its established channel and cross-promote it. If an established internet player were in the consortium, the PSP could find itself at the top of the search engine entries: ‘due prominence’ for the on-demand age. And, thirdly, a new public service publisher does not need to carry the whole burden of Public Service. It has to do enough, as a catalyst, to keep the BBC on its mettle and act as a continuing spur to innovation in the BBC and Channel 4.

What next?

The PSP concept appears to have aroused genuine interest; but also, with that a desire to see how the concept might be fleshed out. We have deliberately not sought to propose something that pops out fully formed on an unsuspecting world like Athene from Zeus’s head.

Just as in our Phase I report, where we set out some firm findings but also posed some questions, so in this, our Phase II report, much of our analysis and proposals are firm, but we beg three questions:

First, how should the PSP concept be fleshed out?

Second, programming in and for the Nations. How best can mark et realities and National expectations in a post-devolution UK be reconciled?

Third, what is a sensible glide path out from ITV’s remaining non-news regional obligations in England ?

The consultation, already underway and leading to our final, Phase III Report at the turn of the year, is a very real one. As regards the PSP concept we will be engaging with expert groups to work up the technical and operational details, contract mechanics, distribution and so on.

We want to engage with stakeholders from across the communications sector, broadcasters, producers and new media companies on the creative aspects of developing a PSP’s content proposition.

There has already been one major stakeholder event to start the debate; and there will be at least one more full stakeholder seminar before Christmas where the results of this work that is being set in train can be assessed and discussed before we make firm proposals in our final report.

Similarly we will be consulting in the Nations. There will be a series of seminars on expectations and new ways of delivering Nation-specific PSB in a post-devolved UK . There will be more Nation-focused audience research; and technical and economic modelling of local and regional content delivery in a post-switchover/on-demand world. Again, leading by the time of our final report to firm propositions for each of the Nations which, we hope, will command consensus.

Our final report will be implemented, as regards the commercial broadcasters through their new digital licences (and reflected in the licences financial terms); it will be a significant input to the remaining strategic stages of the digital switchover process; and we hope that our firm recommendations to Parliament will intersect closely with the debates on BBC Charter Renewal which will be underway in earnest next Spring.

Conclusion

Let me return, finally, to the question with which I started this lecture: ‘what is going to happen to television?’ Over the coming decade it faces an increasing pace of radical change, with an impending collision between conventional broadcast and increasingly powerful and pervasive broadband.

I have spoken specifically this evening about the Public Service Broadcasting Review. But the changes for consumers, the degree of greater choice for viewers, and the extent to which power moves into the user’s hands in content, will be affected at least as much by developments in the two other parts of Ofcom’s responsibilities:

The output of our Telecommunications Strategic Review and facilitating higher bandwidth broadband;

and in spectrum, where liberalisation and market mechanisms will throw up new mobile and nomadic services, wireless broadband, the wireless home network and much else, which will transform what content we get and how we get it.

But, if we, collectively, recognise that changing framework and can get it right, television will continue to be able to create content in a way that makes the good popular and the popular good; and continue to give us as citizens the quality, the education by stealth, and the information we need to help us participate to the full in democracy and society.

Those were the hall marks of the best of television in the last century. The challenge now is for them to be repurposed and equipped for the needs of this century.

Thank you.