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25|01|05

Maintain and strengthen PSB - looking ahead to Phase 3

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

Speech to the Oxford Media Convention, 20/1/05

My main focus today will be on the issues that have kept us busy on Phase 3 of the PSB (Public Service Broadcasting) Review.

What I would like to do is cover three broad areas:

  1. I want to look at the situation in which we find ourselves at the start of 2005, highlighting some of the key trends and changes that need to inform our thinking in Ofcom and beyond.
  2. I want to set out what we have aimed to achieve in the PSB Review and how Phase 3, the final stage, fits into that.
  3. And finally, I would like to address some of the key issues that we have been debating internally - and with many of you here today - as we move to the culmination of the review.

2005 AND BEYOND

Let me start with some brief reflections - the good thing about turning up at events like this in January is that everyone tries to make predictions for the year and beyond. We have had predictions this morning about:

However, as they say, prediction is very difficult, especially if it is about the future. If you look back at the last 12 months you realise why. Who would have predicted a year ago that:

KEY EVENTS OF 2005 AND THE NEXT FIVE YEARS

Enjoyable as they may be, making predictions is a dangerous game. It is much more useful to try to understand the key underlying changes that are influencing the landscape in which our review is set.

For me the overriding features are those of uncertainty and instability and of change and opportunity. Change and opportunity, perhaps, on more fronts and in more respects than we have yet realised or at least yet embraced.

It is not that change of this kind is new, nor do many of these developments take place overnight; they do not necessarily create cliff edges or justify the kind of revolutionary zeal demanded by some of the convergence utopians - but they do infuse our times with uncertainty and instability, with change but also opportunity.

We have tried to imbue our work with a clear understanding of these and other developments, while retaining a calm sense of proportion and a realism about how fast and how extensively they will effect the communications world and PSB in particular.

2 WHAT WE HAVE AIMED TO ACHIEVE IN THE PSB REVIEW

In such an environment it is right to ask the underlying questions and in that spirit I want to turn to what we have tried to achieve in the PSB Review.

At the start of the review I addressed the Royal Television Society in December 2003. I set out six key themes for the Review. I want to use these as a way of illustrating how I think some of our work and our findings have begun to address the underlying questions.

First, the challenge of definition – where in the past we have relied upon a vague idea of trusting simply what people or institutions did, rather than an agreed set of aims.

We have addressed this head on, proposing a move towards a clear framework based on the purposes and characteristics of public service broadcasting - moving away from defining PSB simply by the institutions that provided it. It is a framework that has been broadly adopted in the BBC document “Building Public Value” and, with some sensible revisions, broadly welcomed and accepted throughout the industry.

Secondly, we have reasserted the case for public service broadcasting based on a view of market failure or social values, depending on your perspective, but principally rooted in our common interests as citizens. We have set out why we believe that this is an enduring rationale, one which will be credible now and beyond switchover. Again, while there are different emphases - sometimes resembling a theological debate among economists - the broad thrust of the argument seems to be made and, bar some notable dissenters, broadly accepted.

My second theme was the challenge of funding. Here, building on the underlying case in principle for PSB, we wanted to tackle the question of whether or not TV remained special enough to continue to justify the kind of expenditure that the UK has historically chosen. We asked whether or not the public supported the level of funding that we as a country invest in PSB.

On the basis of an analysis of the economic case and based on research conducted across the country and indeed cross country comparison, we have made an argument that the overall level of PSB funding should be maintained roughly at current levels. We have argued that if you accept this viewpoint then new forms of explicit funding will be needed to replace the implicit funding that will drain out of the system over the next few years.

However, we also observed that PSB needs to continue to achieve reach and impact to justify this expenditure. In addition how, contrary to what some might have expected, a strong market failure argument rooted in our interests as citizens runs entirely counter to the suggestion that PSB should be confined to the margins of television or of society. Instead it needs to remain at the heart of our society, valued by many and relevant to all.

Of course, this is something that will need to be reviewed in the future as the market develops, for as we have also argued there is already a significant level of commercial provision which contributes to meeting the purposes of PSB.

Third, the challenge of delivery which concerns the institutions or organisations through which we seek to deliver public service broadcasting. If we value competition between institutions, how will we maintain that competition in the future?

We have argued that institutions are a key part of delivering PSB and that institutional value is important. That is one reason why we rejected the arts-council-of-the-air model.

In addition to recognising the value within the ethos and the tacit knowledge of existing broadcasters, we have also sought to create scope to build new institutional value as a means of refreshing and invigorating the framework for delivering PSB in the future. This thinking is one important dimension of our proposal for a new Public Service Publisher (PSP).

The PSP plays an important but by no means exclusive role in the fourth challenge: that of creativity and innovation.

We have argued that we need a better functioning market, with more opportunity to innovate – this is one reason why we have promoted broadband and why we support a move to a fully digital world. It is why we have made clear that we will review the production sector to ensure that creativity and innovation has the chance to flourish from this absolutely critical primary source.

But our main role here is to ensure that we have an open, diverse and plural system, through a range of different measures including remits, quotas, regulation and scope for new entry and so on. Programme makers, content creators, commissioners and broadcasters will do the rest.

It is that open, diverse and plural system which we seek to maintain and secure for the digital age through the full range of proposals that we make.

I also highlighted the challenge of transition, from an analogue/digital mix to an all digital world.

We have tried to advance this debate by describing the end of the analogue model of PSB and its consequences. In phase 3 we will lay out our final proposals for the transition to a post switchover world for key broadcasters and how we propose an evolution during the course of that transition to a new system for PSB in the digital age.

My final challenge was that of accountability and how we should define an effective model of accountability, regulation and governance in the 21st century.

We have hitherto held a self denying ordinance on this issue, regarding the principal issues of debate as a matter for Parliament, which indeed they are and they remain.

However many people have observed to us that our review will be incomplete in the absence of a coherent view of accountability, regulation and governance for the digital age; a coherent view of how the mix of implicit and explicit funding, regulatory levers and organisational incentives can be overseen sensibly and effectively to maximise the public interest. I want to return to this issue in a few moments since in our final document we will offer a few thoughts on this topic.

In summary, our case is that:

WHAT ARE THE KEY ISSUES TO RESOLVE IN PHASE 3

There are, of course, some key issues which remain to be determined. And that brings us to some of the tough nuts that we need to crack in the Phase 3 report and beyond; so let me turn to them directly.

The tough nuts seem to me to include:

Clearly, I cannot tell you exactly where we are going to come out on all of these issues, but what I would like to do is to give you some idea of how we have begun to weigh up the balance of argument.

Nations and Regions

Let me start with the Nations and Regions. You will remember that we proposed in Phase 2 that ITV1’s obligation in the English regions to show non-news regional programming should be reduced. We proposed a 1½ hour reduction in non news regional programming for England outside of peak. This is programming with the highest opportunity cost for ITV and at the same time among the least valued by viewers themselves.

Now there are a series of important questions and challenges that our consultation has raised:

The balance of the evidence suggests the second argument is a stronger one than the first. It may well be the case that if ITV were to quadruple the spend per hour on non-news, regional programming then viewers’ appreciation would rise in turn. However that is not going to happen and we cannot make it. The argument is a triumph of hope over reality.

Personally, I do not think these proposals should be seen in isolation. We have also proposed to increase ITV1’s regional production quota to ensure that at least 50 per cent of all network production is sourced from outside London.

And we are also seeking ways to ensure a wider dispersal of that network production across the Nations and Regions of the UK .

Channel 4

The long-term future of Channel 4 has, of course, now become a significant area for debate - and an area in which we have been in a healthy dialogue with Channel 4.

There is no doubt that there are difficult questions to be addressed - about whether Channel 4 is likely to need public support and, if so, what form such support might take. Is it indirect support, direct support, is it needed in the short term or the long term – is it temporary or permanent?

Whether C4 needs such support is a matter of technical analysis and then judgement. In the short term we need a dispassionate appraisal of the economics and a calm assessment of the scope for support based around the current model. This might include a range of issues that can in many ways be seen in their own right but which may have an influence on the overall position one way or another.

In the longer term, it is no secret that we set out ourselves in Phase 2 an analysis of the potential threat to the Channel 4 model as the historic system of cross-subsidy within the schedule is undermined by commercial pressures. That was our analysis and remains our analysis.

But equally, there are good reasons for being cautious about diving into a mixed-funding model for Channel 4:

I will not be the only one who noticed one senior politician recently comment that the BBC should not be showing Jerry Springer the Opera because it was an inappropriate use of public money - it would be fine, he said, for C4 to have shown it.

With these observations on the table, let us be very clear there are no grumbles within Ofcom about the lead shown by Andy Duncan on the future of Channel 4. There are, rightly, questions for debate about the response - but Andy's ambition is one we welcome.

The PSP

Having analysed the gradual decline in the historic analogue model, we proposed one possible response.

In addition to the existing broadcasters, our Phase 2 report reached the view that we should consider a new provider of public service content for the digital age: a Public Service Publisher, or PSP.

Almost all of the responses to our consultation said that the idea of a PSP was a bold and imaginative response to the problem of declining funding available for public service broadcasting and the inexorable changes taking place within the system.

Our PSP seminar attracted well over 200 people when we had expected around 60 or so, in fact we ran out of seats. We were delighted that the seminar and our hypothetical tender process generated some tremendously creative and intriguing ideas.

The core questions in moving the debate forward are those of allocation, distribution, remit and funding.

The PSP would not only ensure that we maintained and strengthened PSB by virtue of its own contribution, it would inject fresh creative energy into the PSB system and improve it in the same way that all major new entrants into broadcasting - ITV, Channel 4, Sky - have done in the past.

On the specifics, the Phase 3 report will address some of the questions that I have described: the alternative remits. What sort of content it might distribute and how a PSP might actually be created.

The overall PSB system

Finally, I want to return to the overall system, since that is what we keep trying to keep our eye on amidst so many specific issues.

Our overall vision envisages a plurality of institutions, competing for quality and by doing so contributing to PSB purposes in the digital age.

There is one further important argument here. A number of respondents argued that commercial, multi-channel broadcasters deliver content that makes a significant contribution to PSB purposes. That is an important point and one which we accept fully.

I want to highlight in the first instance that we must ensure that regulation and policy does not harm the incentives of such broadcasters to continue to make this contribution.

But it also raises a fascinating question about the scope for increasing the number of recognised PSB services. We need to think carefully about the criteria we might apply and the privileges which any newly designated PSB channels would have access to. We will be addressing this issue.

Governance and accountability

Finally, I want to touch upon the issue of governance regulation and accountability: we stated in Phase 2 that there is a need to clarify the separate roles of governance and regulation of the BBC. It has been suggested to us more than once that there is a significant omission in our overall view of the PSB system -- unless we provide a comprehensive account of governance, regulation and accountability. Therefore, this is something we have been thinking hard about in Phase 3.

In our view the critical issue here is to be clear about the different functions: cross industry regulation, internal organisational governance and the accountability and oversight of direct public funding. Clarify these different functions; be clear about where responsibility lies and that will represent a significant advance on the current position. We will explain our thinking in the forthcoming document. As I said – no predictions or promises at this stage, however late in the day.

Implementation and follow through issues

Let me wrap up by reminding you that our PSB review findings fit into a broader scheme. Today we have launched our Annual Plan for 2005/6 (you can find it on our website). This sets out a variety of issues which we will pursue during the rest of this year.

In due course, a thorough look at the production sector.

This is by no means an exhaustive list, but that alone will keep us very busy.

CONCLUSIONS AND THE FUTURE

So the pursuit of enlightenment continues. PSB nirvana awaits - but probably not in this particular lifetime.

And it is I think important to say that what we have tried to do with the review is not to answer every question imaginable, nor to resolve every issue. This would be not a Herculean task, but an impossible one.

But with the completion of phase 3 what do we hope that we have achieved? Well, what we set out to do really:

Some may argue that we have made proposals that are inadequately supportive of PSB, that we should be doing more to protect or impose additional obligations on existing organisations. Or, that we are overstating the challenge of the move to digital and that the old system remains robust to all intents and purposes.

Others may argue that we have too much PSB already and that we should have argued for a decline in PSB’s role and that we should have launched a swingeing attack on the scale and scope of the BBC.

You will all have your own views.

Nonetheless, I hope that this - the first of our five-yearly reviews of PSB - will be recognised as a rigorous, detailed and constructive piece of work.

I hope that it will be recognised that our recommendations have been rooted in clear argument and in research and evidence.

I hope that it will be regarded as constituting an open, an engaging and a broad dialogue.

And I hope that our work has helped to spark a real debate --one which will continue this afternoon and for many months to come.

There may or may not be a crisis, but if we want to avoid a crisis perhaps we should start acting as if there will be one.


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