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Home > Media and Analysts > Speeches and Presentations > 2004 > Nov > 19|11|04


14|01|05

Speech to the Institute of Welsh Affairs, 19|11|04

Ed Richards, Senior Partner, Strategy & Market Developments, Ofcom

Thank you to the Institute of Welsh Affairs, who along with colleagues from Ofcom Wales, have organised today’s event.

I want to cover four main areas today :

I then want to say a few words about some key policy areas:

This is the second such meeting that I've attended in Wales as part of Ofcom's review of Public Service Broadcasting, and there have been numerous other meetings, including Ofcom's appearance before the National Assembly's Committee for Culture, Language and Sport, the Welsh Conference of the Voice of the Listener and Viewer and last week's Focus on Television at the Cardiff Screen Festival.

We always expect a vigorous debate in Wales and we welcome that.

Let me start by making clear what Ofcom is about and in contrast what it is not about.

We are concerned with:

We are certainly not about:

Equally, we are not about indulging wish fulfilment, myopia or any other form of fantasy policymaking which means not facing up to economic realities.

And that means recognising that the landscape in which we seek to achieve our public purposes is changing and fundamentally so.

That it is why the Communications Act, when asking us to make recommendations on maintaining and strengthening PSB, also tells us that we must consider the costs incurred in fulfilling PSB purposes, and the sources of income available for meeting these costs.

It is already clear that the status quo is not a long term option.

We cannot pretend that in an era when over around 60% of homes in the UK receive between 30 and 300 channels that the economics of terrestrial broadcasters remains as it was in an analogue era of 4 or 5 channels. The data that supports this view is incontrovertible:

The direction of travel is very clear. These changes owe little to Government policy, or Ofcom's regulation. They are brought about by technology change, consumer demand, market provision and viewer and household choice.

The consequences of such changes are very clear for commercially delivered PSB.

Every home that goes digital reduces the value of the universal analogue access that the commercial broadcaster's public service licence gives them; every digital home is also a multi-channel home which eats into those broadcasters' advertising revenue, which cross subsidises their public service output.

So digital reduces both the traditional incentives and the means of funding public service broadcasting. By digital switchover the cost of the current range of PSB programming will greatly exceed the value of any privileges available to Channel 3 licensees.

Of course, we need to make judgements about the transition, and of course we want ITV to continue to play an important role in PSB, now and in the future.

But the underlying issue here is whether people wish to engage with the future and to help make that future, to define it in the public interest - or whether they wish to cling to a fragile and disintegrating raft.

We can have the television that we want in this country but we need to adapt the way in which we achieve that outcome to the market, technological and consumer realities in which we operate. That is what the debate should focus on this afternoon.

This is the context of our proposal for a reduction in the obligation on the Channel 3 licensees to show non-news programming for the English regions - which faces a commercial challenge and is not highly valued by viewers. To be clear, our Phase 2 proposal for the English regions is actually very limited.

We propose to reduce the requirement on ITV to provide non-news programming from three hours to 1.5 hours per week, with all the reductions coming out of peak. Under this initial proposal:

And in return we propose to lock in and increase ITV's 2003 level of out-of-London production for the network to 50% – a significant increase in the current quota.

Overall, we know that a different approach needs to be taken in the Nations of the UK.

Historically, the Channel 3 licensees in Wales, Scotland and Northern Ireland have provided more dedicated programming for their local audiences, and a wider range of programming, than in the English regions. Some of this programming has secured audiences well above the channel's average in the nations.

And the BBC's national services have also opted out of the main BBC1 and BBC2 schedules to show local programming that has often been very popular.

This reflects audiences' different needs and interests in the nations. TV is the main source of news about Wales, for a Welsh audience. Our research found that Welsh audiences are more aware of programmes made for them and attach a qualitatively different significance to them. In Wales, it was much more about reflection of Welsh identities, and supporting Welsh culture, heritage and language. Programmes such as Wales This Week, Week In Week Out and The Ferret are popular with viewers.

But the economic issues facing regional programming are similar the UK over. And, the increasingly competitive TV landscape means that the challenges will only grow. Almost every slot in the schedule is fiercely contested these days. There are very few 'soft slots' where ITV Wales and the other national licensees can drop the network schedule in peak time without risking relative financial loss.

Our strategy going forward is to ensure that all the different actors in the PSB model play to their strengths, and do so in a way that is sustainable in the post-switchover world.

The BBC will continue to play a major part in the delivery of local programming for the Welsh audience, in both English and Welsh.

For ITV, that means a continued commitment to UK, international and national and regional news.

Let me be clear about this, because our proposals have been misinterpreted in some quarters. One organisation, in its submission to the Welsh Assembly's Culture, Welsh Language and Sport Committee, claimed that - "Ofcom's plans, if applied to Wales, could leave viewers with a single choice of Welsh television news: the BBC."

This is not true. Our phase 2 report said : "After digital switchover we propose to maintain, if financially sustainable, a core regional news service." The key words there are 'after digital switchover.' In fact we have written current regional news requirements into the new channel 3 licences, which run to 2014 - on current plans, well after digital switchover. Only then will we make a fresh judgement about whether regional news continues to be sustainable, based on our analysis of the market at that time.

News is popular as well as crucial to Wales - our expectation is that it will be sustainable, and our assumption is that as the regulator we will defend that position.

What I can say therefore is that the commitment to regional news will be in ITV1's licence from Ofcom next year - and the licence runs to 2014. So the future of the largest, most significant and most valued aspect of ITV1 Wales's output is not in question.

In relation to ITV Wales' regional non-news obligations, we are still consulting on how to move forward, and today is part of that process.

We have made no explicit proposals on this area precisely because of our recognition that the Nations present different circumstances and different needs. We have said that we want to engage in a full and frank debate about the future of national programming.

But nobody should be under any illusion. Non-news regional programming on ITV will, in our analysis, become increasingly difficult to sustain as an obligation as we move towards digital switchover - our powers to require any commercial operator to provide it will diminish.

Let me take this opportunity to clear up another misunderstanding in this area.

Ofcom is not making ITV reduce its regional non-news programming anywhere, nor will we ever do so.

All we have proposed in the English regions is a reduction in the minimum obligation on the licence holder.

Clearly, if the programming makes commercial sense as some have argued it does, then ITV would logically increase its presence in the schedule, or at the very least happily maintain the current position. That is a matter for ITV.

We need the Welsh broadcasting community and others to engage with us now about the model we want to put in place to replace this traditional framework as it erodes over time. It needs to be a debate from first principles, recognising the particular cultural, political, linguistic and economic issues of Wales. And engaging with the critical technological and economic changes that are emerging.

As I have said, there is a transition and we will seek to manage that transition with care and with attention to the interests of the people of Wales in line with our duties. But if we try to avoid the underlying structural issues until the last possible moment, we will find it is already too late.

Network Production for Wales

Local programming for local audiences is only one part of the regional and national broadcasting mix. The other element is network production across the UK for the main terrestrial channels, which has both cultural and economic significance.

It is important both to ensure the reflection of regional and national identities to the UK as a whole and to help maintain and develop creative production centres that bring economic as well as cultural benefits.

The level of total network spend in the UK is £2.4 billion per annum.

Looking across the broadcasting system, programme spend specifically in Wales is equivalent to around 5% of that figure - approx £120 million per annum.

But, in terms of production for the network itself, Wales has fared less well.

The ITV network showed no Welsh productions in peak time at all last year, nor in 2002. Three per cent of the BBC's peak-time output was produced in Wales in 2003 - 77 hours of programming - but this represented a significant increase over the period between 1998-2002, when on average the BBC produced just 22 hours of peak-time output per year in Wales.

In the last six years, and across all five main channels combined, the total investment in network programming in Wales was, on average, less than £9m per year - just 1% of total network spending and that share is inflated by the BBC 2003 figure.

This is beginning to change. The BBC is producing Dr Who in Wales - and although this may not do much to improve representation of Wales and Welsh identity on network TV, it does bring significant expenditure to Wales and help to develop the talent base.

And on ITV, Russell T Davies' new six-part drama Mine All Mine with Griff Rhys Jones has been made and set in Swansea but again it is to be produced by a company in Manchester.

Viewers tell us that they value the representation of local, regional and national voices and identities on UK screens; we surely want to see more of Wales in this respect.

This is one reason why we have proposed to lock in and increase ITV's current levels of out-of-London production at 50%.

Perhaps more importantly from a Welsh perspective, we have also said that we will actively discuss with ITV and others ways to improve the range of production around the UK.

We have said that we expect to see the whole of the UK, especially the Nations, better represented in the range of commissions.

This presents a real challenge. Network production decisions are inevitably going to be driven primarily by merit, by commissioning from the best available. So I think that Wales as a community needs to ask some important questions in this area:

It is an opportunity that will not last forever - the question is, can Wales grasp the opportunity?

S4C

I'd now like to turn my attention to the third pillar of the existing PSB system in Wales, S4C.

S4C has made a powerful contribution to broadcasting life in Wales over the last 22 years.

Let me make one thing absolutely clear. Ofcom is unequivocally committed to maintaining a high quality Welsh language service into the digital age, fully funded and with sufficient access to digital transmission capacity. That is not a matter for debate.

But the upheaval of digital TV has started to pose questions about the current S4C model. In some ways S4C has been turned from being a mainstream channel in the analogue era, to being a niche channel in the digital era. S4C secured just over 4% of Welsh viewing last year. Viewing has declined particularly amongst younger people, many of whom have grown up with no conception of a world with only four channels.

Yet the 2001 Census indicated an increase in the total number of Welsh speakers to around 20.8% of the population - from 18.7% in 1991 and which I believe is the first rise for nearly 100 years - and it is generally assumed that around 30% of the population has some degree of fluency/understanding.

S4C’s research, conducted since 1999, reveals that the Welsh speaking audience is made up of individuals with very different levels of fluency. The key target audience of young Welsh speakers is beginning to grow (41% of young people are now categorised as Welsh speakers, up from 26% in 1991). But many of them do not live in Welsh speaking families and they may not be viewing Welsh language programmes.

S4C's advertising revenues are falling and will continue to do so in the short term as Channel Four becomes accessible to more and more viewers in Wales. In the long term, after switchover, when rescheduled Channel 4 output will no longer be available it will face even greater challenges.

It is important to note as well, that in many ways S4C have made bold attempts to think ahead about the digital age with their early presence on the Sky and Cable platforms.

Some of the key issues that I am highlighting were addressed in Roger Laughton's report which raised a number of important questions, most particularly in relation to S4C's relationship with the BBC and its investment in SDN.

But the Laughton Report did not, in our view, get to the root of some of the most fundamental questions relating to S4C's position in the digital age.

The governance and structure of S4C is not, ultimately, our decision; it is a matter for the Welsh Authority and the UK Government. So I want to preface my final remarks by saying that what follows are suggestions for debate not Ofcom recommendations. But in the context of our review of PSB in the UK, where we have to think about PSB taken as a whole, we think that we can contribute creatively to that debate.

To that end we want to propose three options that need to be considered if we are to emerge with a strong and resilient Welsh language television broadcasting service in the future.

First, we could continue with an arrangement broadly but not entirely along the lines of the status quo.

We believe that as the pace of change in the TV industry accelerates, S4C would benefit from more regular review ; we should consider the case for a formal five-year review of remit and performance to coincide with the next Ofcom PSB review and the proposed mid-term review of the BBC. New arrangements for the supply of programmes to S4C by the BBC could also be introduced. This could, for example, include a voucher scheme to strengthen S4C's editorial control and commissioning responsibility for programming sourced from the BBC. It could also include a joint management board responsible for the programme service. Another option would be to transfer the proportion of the licence fee used to fund BBC Wales' Welsh language television programmes directly to S4C. In its 2003/04 Annual Report, BBC Wales estimated this sum to be some £20.3 million.

The second possibility that some people have suggested is incorporating S4C entirely within BBC Wales. The current government grant could be paid directly to the BBC to continue to finance the service and retain the S4C brand. There could be significant cost savings through sharing of resources, and the channel could benefit from closer co-operation with BBC Radio Cymru and BBC Cymru'r Byd.

But there are significant objections to this approach. One of the most important features of S4C is its status as an independent Welsh institution. The BBC's priorities centrally might not coincide with those for the Welsh language service. And what price plurality in an environment dominated, by a single institution? So we are somewhat sceptical about this approach – but it should be considered.

In fact, we believe that a more radical approach also merits attention.

Our new proposal for a 'Public Service Publisher', could offer us a way of thinking about the possibilities. So a third option is to convert S4C into a Welsh language Public Service Publisher, operating under a contestable franchise to provide a fully funded Welsh language service.

The franchise might run for ten years; existing S4C management could of course bid to run the franchise, but the competition would not be restricted to them – others would be free to propose their own ideas for delivering a really effective service in the digital age. It is possible that several other parties may express an interest in running the service.

In the early years we would of course expect that any bid would maintain a linear television channel. But as technology evolves, we would expect bidders to respond to the range of different channels available to deliver services to the Welsh audience.

Naturally someone would have to award the franchise – to determine the outcome of the competition for ideas and value for money that the process would represent. That suggests a formal separation between the Welsh Authority and the management of the Welsh language services – so the former would more clearly award and then hold to account the management of the service.

I want to emphasise that this is a provisional idea – designed to inject the kind of structure and governance arrangements that would strengthen Welsh language broadcasting – not to diminish it.

Indeed, the test against which each of these ideas need to measured is their ability to do precisely that – to strengthen the service to Welsh speaking communities compared to the status quo.

Next steps

I want to finish with some general comments about the future prospects for national broadcasting in a devolved UK.

I genuinely believe that there is an exciting future for Welsh broadcasting that will help to build a creative economy in Wales that is stronger than it has been before. Some people have seen our phase 2 report as a threat to national and regional broadcasting. That is untrue, and is based on a misunderstanding – or on misinformation.

We said in Phase 2 that we recognise the vital importance of regional and national broadcasting in the PSB mix. The priorities begin with regional and national news and current affairs, delivered by a plurality of providers. Our Phase 2 report makes an explicit commitment to this, and we believe we can maintain ITV1's news commitment right through to switchover and beyond in the Nations as well as the regions of England.

Secondly, there is a challenge in relation to network production from Wales. We will work with ITV to review how network production can be more widely dispersed. Radical change cannot be expected overnight, and the primary question is one for the broadcasting community in Wales: what level of aspiration do you have? And what, among yourselves, are you going to do about it?

Thirdly, we want to act now to ensure Wales retains a high quality, fully funded Welsh language service, building on the strong foundations in place today. In our view that means being willing to debate tough choices about strategy, structure and governance. Only by doing that will a service emerge with the resilience necessary for the challenges of the digital age.

And finally, we will continue to explore the prospects for a new PSP and what that might offer Wales, and other parts of the UK. We will explore the possibility of new local services, exploiting the potential of new technologies and of spectrum released through switchover to meet viewers interests.

The digital transformation of the UK – already with us and growing over time - will irrevocably reshape the way regional and national TV is delivered; we want to ensure that we take steps today and in the next few years such that we are ready to make that change work in the interests of the people of Wales and not against them.


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