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Home > Media and Analysts > Speeches and Presentations > 2006 > Jan > RTS Speech


27|01|06

RTS Speech - Broadcasting, Convergence and the Public Interest

Good evening everybody, and thank you Richard for that typically charming introduction. There is nothing quite like being introduced by a genial Australian from Osterly, and thank you also Simon for inviting me here to speak on an evening where two outstanding creative talents are honoured for careers of memorable excellence.

I have been a regulator now for a while, long enough for people to use our own decisions as a reason to judicially review us and also long enough, as Richard has kindly pointed out, for a few people to appear to be worryingly over- interested in how soon I might leave. Indeed, I remember turning 40 in this job and, I have to say, feeling reasonably pleased with myself with what we had managed to achieve. I was then gently reminded by Richard Hooper, our outstanding, recently retired and much missed Deputy Chairman, that by the time Mozart had reached my age, he had been dead for four years.

As many have observed, Ofcom was not a solution to a regulatory crisis, although the historical relationships between the regulators and the regulated were sometimes less than constructive.

Stakeholders will have their own view of our approach.

I would describe our approach as trying to avoid the transitory comfort, of ill-informed certainty. All of our decisions try to pivot around the essence of a regulator’s role in a market that is changing increasingly quickly. We have sought to achieve Balance and Competition.

Balance between players, balance between sectors, balance between incumbents and innovators, balance between legitimate consumer and social policy concerns and the increasingly competitive demands of the international capital markets. Open competition which seeks to share future added value rather than simply to preserve the margins of incumbency, whilst recognising the legitimate expectations of, ever shorter timescales, due to accelerating technology changes, trying, where possible, to avoid regulation by numbers.

Now, the last time I spoke to an RTS audience was around two and a half years ago and even then there were still people who viewed convergence as an over-discussed subject and who, I think, were privately relieved that the old media business model seemed to have some more life in it and indeed it does. Our experience since then, has in truth largely focused around convergence and its economic and cultural consequences on, to name but five, consolidation, content, access, rights, competition and what all this means for some of the historical conventions of broadcasting – particularly given that this time, in the main the technology delivers.

The other day, I did a pdf word search of the Comms Act 2003, in my view a relatively forward looking piece of legislation which underwent substantial Parliamentary and external review over a three year timescale and I was reminded that the word “broadcasting” is mentioned 483 times, but the words “internet” and “online” are mentioned not once, yet their impact on our regulatory responsibilities is immense.

So, what is going on today? We all know the statistics and the numbers, but they bear a quick reprise.

Is this groundhog day? Are we back in 1999 or the year 2000 with over-inflated prices being paid for sub-scale businesses in markets people don’t really understand, and where the revenue is not yet there and more often not even a means of charging for it? Are there too many infrastructure players chasing a limited pool of economically sustainable customers? Are we so late with some of the newer digital technologies that they will be overtaken before they arrive? And is the pressure on the free to air advertising model sufficiently compensated for by the remarkable performance of Freeview to allow the commercial broadcasters time to develop online businesses and a fresh approach to digital content?

The only two things you can say with certainty is that the nation has gone, and is going, digital, in all its forms, with a vengeance and with enthusiasm, and great content still wins out every time. The broadcasters, traditional and new, are investing more £s per audience share now than they have ever done, despite the challenges being faced, a declining advertising revenue pool and, perhaps most worryingly, a 16-34 audience whose time spent online is now comparable to the time spent with the television on in the background whilst doing many other things.

If you are a traditional phone company, telephone call prices are going down, and new services - 300,000 users of PSTN VOIP today (1 million peer to peer) – are arriving fast, broadband prices are going down, speed demands are going up, mobile margins are falling, competition is increasing. To date 3G appears to equal cheaper voice and limited incremental data or video income. In television, there is a limit on how much regulatory relief there is for Channel 3 and Channel 5 and can the new revenues or margins ever match the ones they used to have and can for a while still protect.

The BBC now talks about reach, rather than viewing share, driving an online estate, free archive access and universality of provision, all the way from high definition television through to interactive. At Channel 4, we have a new and almost singularly focused FTA public service broadcaster, currently flush with cash, but keenly aware of their Financial Prisoners dilemma. And an independent production community beginning to thrive and gain scale but heavily dependent upon regulatory intervention.

Implications for regulation and public policy

So what are the consequences and the challenges of these developments for regulation?

In conventional digital television, switchover has moved from an aspirational target to a reality with the first region going fully digital in 2008. With 40m sets and 30m VCRs to be replaced and/or converted.

Got right, this process will result in every household having a choice of at least two, and probably three, digital broadcasting platforms, to pick what best suits their needs, and this is before you consider the benefits and opportunities afforded by DSL, full 3G, wireless broadband or DVBH. And it will yield a significant national asset: a band of spectrum about two thirds the size of that released for 3G mobile in 2000, and it is high quality spectrum in both volume and potential value.

There are many uses identifiable today from this Digital Dividend, and there are some big decisions to make about who gets to use it and for what.

One is about the future capabilities of the DTT platform. My own view is that the growth of Freeview PVRs and overnight downloading will do much to extend the range of choice on that platform: it could effectively become, what is in today’s terms, an 80 or 100 channel platform plus interactivity of a sort without additional spectrum. But should it also be a High-Definition platform, and can the continued development of ever better quality traditional television legitimately be sold, or paid for, by the British public, as a universal service need, and indeed, to be honest, is that deliverable or desirable, given the increasing range of other options?

The second regulatory challenge is that posed by home or distance storage to advertising-funded television. Advertising is an economic good, and at its best rather enjoyable, and in broadcasting a social good: it has enabled the funding of diverse, high quality programmes free to everyone, rich or poor. So there is a public policy interest in enabling that model to evolve to meet the challenges that the PVR world will pose.

This does not mean that we want a US-style free-for-all in the UK domestic advertising market. Our proposals upon which we are consulting, are for a tightly regulated, introduction of advertising liberalisation. In my experience, there has always been an excessive nervousness associated with the liberalisation of advertising techniques, but mass advertising faces the same challenges as mass broadcasting, and for similar reasons. It needs to adapt and have the freedom to do so, otherwise television advertising will face a similar fate as classified advertising revenues.

The second impact is in new media rights; who owns them? When? Where? How? This is both a complex and increasingly important subject. Both the broadcasters, the independents, and increasingly many of the newer players, have turned to us and said: ‘Can you give us a sensible framework for commercial negotiations?’ We have sought to do that, and with, I think, some success so far.

If I am allowed, let me make three observations about where to next, Firstly, in content creation and delivery: often it is those who live in scarcity that tend to be more innovative and inventive than those who live in plenty. This is in the main a challenge for the broadcasters who will, let’s be honest, remain the dominant force, certainly for the next five years, but we now live in a world where the price of content is multiple and variable. Where one pays 36p per day for everything you get from the BBC. And if, like me, you are a Sky premium subscriber, you pay £1.40 per day for movies, sport, consistently good customer service, storage technology, interactivity and 300+ channels. When you top up your iPod, you pay 79p per track. On Google Videosearch you pay £1.49 to watch an episode or a video of CSI, whilst on Vodafone 3 you pay £5 each month to watch unlimited amounts of a bundle of channels, and also we are still willing to pay £10-15 to see Brokeback Mountain at Leicester Square. This is a real opportunity for people creating and packaging content as we see. Traditional television content meeting old fashioned retail and the imperatives of convenience, price, range and quality.

For the producers and the production companies, they need to decide whether they are manufacturers or retailers, or both, and, of course, there is a fundamental difference between exploiting an existing brand like Coronation Street, or Lost, or Sky News, than there is in creating a brand, getting the first run. Television remains the cinematic window although the online communities of interest may well become routes to market for the creative idea that you could not sell to the broadcaster last Tuesday, and that will create an interesting shift in the balance of power between the broadcasters, the distributors and the creators. The producer and the new media channels are more likely I suspect, to be innovative than the traditional commissioner and broadcaster, although they lack the offline audiences and investment scale. But there is potentially a mutually beneficial trade off between control over exploitation, and revenue share.

Secondly, unlike the last set of codes of practice, this exercise starts from a fundamentally different place. Last time, and informed by the rigorous analysis of Sir Bob Phillis’s expert group, there was a clear public policy objective: a transfer of value in secondary rights from the broadcasters to the producers. This time around, it is more complex. There are I think three categories of objective. Firstly, those that, rightly, exercised the politicians – diversity, plurality, a spread of production centres outside London and a range of points of commissioning, not to mention great telly. Secondly, whether to affirm the outcome of the first review in today’s marketplace: for all the talk of the growth of the super-indie - not, in my opinion, an unwelcome phenomenon – the fact is that the top 13 independents, who each turn over a bit more than £20 million a year, put together they still account for less than the Channel 3 licensees’ in-house production budget.

Thirdly, in new media, it is about balancing the broadcasters’ legitimate objectives – the ability to have long-term skin in the game to give them the scale over time (and increasingly over different media) and the incentives to invest to compete effectively on our home turf with the output of the American studios, namely to make great British programmes; whilst at the same time not preventing other distribution platforms from exploiting content innovatively and providing new investment for something that does not look like a programme but has great content.

Got right this balance is not about transferring value but about a sharing of added value. It can be a positive-sum game, but it will need more flexibility from the broadcasters, than we have heard to date and more recognition from the independents that you cannot simply bank the regulatory benefits in television. You have to look at this discussion as a bundle.

And finally, the thing that I wrestle with most is how do all of these businesses, increasingly converging in common areas, create a model which allows enough money to be spent to create fantastic content. The perverse benefit, of limiting television to three channels or even four or five, means the audience has fewer choices, so if they wanted domestic, easily available, great entertainment, they had to go somewhere. It has been said to me that there are two customers for a traditional free to air media business – the audience and the advertiser. One in part had to be there - the audience, and the other had absolutely no choice other than to be there – the advertiser, often, I would say, treated by the broadcasters in their desire to follow the rules of editorial separation, as slightly below the salt . Outstanding creativity serves to disguise some of these facts, and we are lucky in this country, we have lots of it but the success of BSkyB has proven that, in this sector, a single minded focus on the customer brings enormous rewards. So if the customer is to become king, where they get the content that they want, on the device that they want, at the time that they want, in the form that they want, at a price they are willing to pay, will this create dominant content brands, content blockbusters, a big hits phenomenon familiar from the cinematic world, and is the very nature of creativity in content changing? My own view is that it is, and irrevocably, and faster than any of us thought.

Positively, if one looks at what many households are spending on communications - between £1000 and £1500 a year. If I look back to my previous, previous life, Bob Hoskins encouraging us “that it’s good to talk” sounds like a public information commercial from the 1950s, rather than an award-winning advertising campaign to use up unused network capacity. Today, you can’t stop people talking, texting, snapping, downloading, filming, blogging, surfing, creating. This is the active participation and democratisation that technology is bringing to media.

The food manufacturers call this, I think, experiential marketing. You see it in the rise and rise of organic produce, home grown produce, the fact that the name of the person who baked the crisp is on the packet, you see pictures of the cow that produced the milk that you drink on the date that it was milked, on the recycled package that it comes in. Personalised, individualised, and interestingly, in many cases, creating substantially higher margin products where customers are willing to pay more per portion of butter, milk, crisps, chocolate, wine, not unlike in content and entertainment.

We don’t think that big ideas are dead or big media is dead or big media companies with big production budgets are dead, but rather, increasingly, that the value for the audience and the advertisers will be in allowing greater access, greater control and greater personal usage.

For the regulator, we have got to get out of the way, be more flexible rather than certain, and work harder than most to look ahead and stay informed.

We all read the analyst’s reports, some of you even write them. We all I suspect marvel at Google’s share price and perhaps we take some quiet reassurance, from the fact that a large proportion of the market is still a long way from experiencing the world that I describe. And hey, and Coronation Street still pulls in around 12 million viewers every Monday, Wednesday and Friday night.

For the regulator, like you, we are trying to keep up, often struggling to keep informed but keep a perspective. In the public policy arena, it will be concerning if the White Paper on the BBC does not recognise the need for a long-term plurality of players whose motivations are non-commercial. For the commercial players, they need more freedom. For the network operators they need to continue to invest in the technology to make it seamless and have the ability to get a return on their risk. For the producers and the production companies, they need greater ownership of the value they create, to share in the incentive to stretch and distribute their ideas in multiple different ways and they need to think a bit about how to retail. For the platforms, the key question is ‘how many are necessary’? We have five mobile networks, one satellite network, soon to be one cable network, one commercial DAB platform and a range of players materially unbundling the local loop, one terrestrial television network – soon to be digital - and one universal public switched telephony network. There is only so much outstanding content and whilst these new distribution platforms will allow it to be used and consumed and packaged in different ways, ultimately the content is king and the customer is king are the articles of faith or the clichés that need to be respected in equal measure.

Stephen Carter


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