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Foreword

This document outlines some of Ofcom’s developing views with regard to provision of Public Service Broadcasting (PSB) in UK television in the digital age. The primary purpose of this document is to outline the areas of importance for the future provision of PSB and set out where Ofcom will be undertaking further work in this financial year . In particular we review our approach to work in the following areas:

• The Public Service Publisher (PSP) and new media
• The future of news in the digital world
• The financial viability and efficiency of Channel 4

Although all of these areas were discussed in the PSB Review of 2004/05, changes in the market in the last eighteen months have brought many of the issues behind these questions to the fore:

• The role of Video on Demand (VoD) in the market for distribution of programme content in 2004/05 was relatively small. Recently however, the market – both public service and commercial – has focussed on the far-reaching potential of VoD as high speed broadband services have taken off dramatically.
• The PSB Review identified news as the most valued programme genre on UK television. The move to digital is likely to bring further significant change, potentially increasing choice, but with uncertain other implications for viewers’ relationships with television news.
• Since the publication of the PSB Review Phase 2 in September 2004 (which looked at the performance of key PSB providers), Channel 4 has enjoyed strong performance. An assessment of this recent performance and its sustainability in the all-digital era will allow sufficient time before switchover in order to define the right role and requirements for Channel 4 in the digital world.

This document is intended to contribute to a debate of the major issues to be considered by Ofcom in relation to the delivery of PSB in the digital age, and to highlight the connections and common causes between those issues. Many are driven by the same or similar changes in the market and the decisions on each will have an impact on the development of others.

It is intended that this document will provide useful background by making these considerations explicit to stakeholders and will also set the context for the separate publication of reports in each area later in the 2006/07 financial year.

Introduction and summary

Context

1.1 A year and a half has passed since the publication of the third phase of Ofcom’s review of Public Service Broadcasting (the PSB Review, published in February 2005), which sought to define the TV system that would deliver output in viewers’ interests. In that time, the market has changed rapidly. Also, there have been a number of important policy developments, not least the publication of the White Paper on BBC Charter Review.

1.2 These events have not, however, concluded the debates on the future of PSB. A number of key questions regarding PSB funding and delivery remain unanswered:

• The White Paper confirms the Government’s support for PSB to be provided not just by the BBC – the ongoing plurality of PSB provision. However, there is still uncertainty over how this will be delivered. The Government’s policy is to conduct a review, as the impact of the move to digital becomes clearer during the course of the next Charter period, of the case for public funding – including licence fee money – to be distributed more widely beyond the BBC
• The questions posed by Ofcom’s PSB Review – namely whether explicit funding will be needed for PSB providers beyond the BBC – therefore still need to be addressed. A key issue here concerns the future viability of and operating model for Channel 4. Phase 3 of the PSB Review committed Ofcom to conduct a more detailed review of Channel 4’s financial position in 2006/07 – this was welcomed by the Government in the White Paper
• Further consideration also needs to be given to the possible role of and funding for a Public Service Publisher (PSP), proposed by Ofcom’s PSB Review as the first provider of public service content rooted in the ideas, creativity and ethos of new media
• Attention also needs to be paid to key areas of PSB programming that are valued by viewers. In particular, the PSB Review identified news as the most valued programme genre on UK television. However, there remain important questions about the future of news. Although there is now more television news available than ever before, provision is uneven and there are concerns over regional and national news and the implications of digital switchover for the future of news more generally.

1.3 Ofcom will carry out additional work on these issues in the financial year 2006/07. The work will comprise a financial review of Channel 4; the development of options for how the PSP might operate in practice; and a review of the prospects for the provision and use of news in the digital age. Ofcom will also commence a new programme of work to monitor the delivery of PSB against the purposes and characteristics defined in the PSB Review.

1.4 This document is intended to contribute to the debate on the future of PSB provision. This debate will continue over the coming years, not least because many of the key market developments are impossible to predict conclusively. Moreover, Ofcom is obliged to complete a second PSB Review by 2009/10. At that point, digital switchover will be underway and the evolution of the broadcast market will be clearer. The further work on Channel 4 and the PSP will feed into the next PSB Review, and will contribute to the Government review of the case for wider public funding for PSB. In Chapter 11 of the BBC white paper, the Government committed to review of the case for public funding “to be distributed more widely beyond the BBC”. This review will be conducted during the charter period, i.e., before 2016, but Government left open the possibility this could be sooner, noting Ofcom’s argument for a review before 2010.

Summary of this document

1.5 This document considers the implications of market change for the PSB system since the conclusion of the PSB Review, focusing on the respective roles of each of the UK’s PSB providers and their funding. In addition to assessing changes in the market, we also outline planned work on PSB to be undertaken by Ofcom during the current financial year.

Evolution of the PSB system

1.6 The system of PSB in UK television has evolved over the course of more than 70 years – the BBC was granted its first Royal Charter in 1927, and regular television broadcasting began in 1936. Competition was introduced gradually into the system: independent television (ITV) was launched in 1955, BBC Two went on air in 1964, Channel 4 came into being in 1982, and Channel 5 (later Five) was launched in 1997.

1.7 This system has operated on the basis of increasing the number of PSB providers (referred to as plurality of PSB provision) – and the assumption that this plurality creates competition for quality in the provision of PSB. UK viewers benefit from provision by five main public service television broadcasters – the BBC, Channel 3, Channel 4, Five and S4C (plus Teletext). In addition, there are a number of other broadcasters who contribute to PSB’s purposes and characteristics in a range of ways.

1.8 However, the PSB Review identified that changes in the market are threatening the established PSB system – the move from analogue to digital, and consequently multichannel, television may mean it is no longer realistic to expect commercial broadcasters to deliver significant PSB obligations due to their fragmenting audience base. As such, PSB provision from commercially-funded organisations is under potential threat. This was one of the most important, and at the time controversial, conclusions of the PSB Review.

Changes in the market

1.9 This paper analyses how the market has moved on since the conclusion of the PSB Review in February 2005. We find that some factors have developed less quickly than originally expected. For instance, the take-up and impact of personal video recorders (PVRs) has been slower than many thought, Channel 4 has continued to perform well, and the overall advertising market has held up to date, although serious concerns exist at the present time.

1.10 However, some of the threats to conventional PSB funding and delivery have accelerated. In particular, digital take-up has been well in excess of that forecast in the PSB Review. In addition, Ofcom’s analysis at that time paid insufficient attention to the future of new media content and distribution – an issue now of major significance to the industry. New mobile and internet based technologies have begun to move from the world of technical jargon (such as DVB-H, IPTV and W-LANs) into people’s homes with potentially far reaching consequences for both the consumption and creation of video content. These changes in the marketplace have created new opportunities for some services, e.g., local TV services, but have begun to affect the incentives of the commercial providers of the PSB system to deliver consistently high levels of PSB.

1.11 Developments in spectrum policy are another important part of this changing picture. In the past, spectrum has sometimes been provided free by the Government and/or the regulator to particular PSBs. This ‘gifting’ has implicitly been in return for a commitment to meet public service obligations. At its most general level, spectrum policy has been used as way of providing subsidies to support PSB – so reducing the need for other forms of funding. It is increasingly clear that this model needs to change. Spectrum is a valuable resource that can be used to support many types of wireless communication. New technologies and applications often face long delays in gaining access to spectrum in order to enter markets or expand services. It is increasingly important that the way spectrum is managed creates strong incentives for the most efficient use of the spectrum – so that the most valuable users, services and technologies gain access to spectrum quickly.

1.12 On the 27th July, Ofcom published a document proposing that, from 2014, broadcasters should also pay for spectrum use, on a similar basis to other users of valuable spectrum. This change will give broadcasters much stronger incentives to review their long-term spectrum holdings – which should have significant benefits for society. It will also strengthen further the need to consider alternative solutions in terms of financial support for PSB, the institutional make up of the PSB system, and the delivery of key PSB genres.

Ofcom response

1.13 Ofcom’s belief is that PSB in the UK should evolve with the grain of these trends rather than seek merely to minimise their impact on the current system. We need to ask how the quality of PSB can be maintained and strengthened in this changing world in order to further the interests of viewers. In our view, the pace of change means that we need to re-imagine the delivery of PSB for a post-switchover world – while the core public purposes endure, the modes of delivery and institutional framework may have to change. As a result, we need to define the appropriate PSB model for the future, not for the world as it is today – or as it has been in the past.

1.14 This document discusses a number of issues that follow from this analysis:

• New media forms of PSB provision: Over the 70 year history of PSB in the UK, the launch of new services and organisations at key moments has resulted in the injection of new creativity and dynamism in PSB, and has also strengthened the system overall. And so in the digital age a new institution may provide a new source of innovation and also plurality into the new world post-switchover. The PSB Review argued that future plural PSB provision may require the establishment of a new PSB provider – notionally described as the Public Service Publisher. The form of the PSP was given initial consideration in the PSB Review. We intend this year to develop more concrete proposals as to what the PSP might do. In conjunction with a small group of experts from within the new media industry, work is underway to develop a creative vision for the PSP as an entity rooted in the ideas, creativity and ethos of new media (although this will not preclude it from making use of broadcasting distribution where appropriate). Our Annual Plan set out a commitment to publish the output of our work by the end of the financial year
• The future of news: what are the prospects for television news after digital switchover? All PSB providers are obliged to carry news as part of their services. However, the decline of the efficacy of the existing arrangements to ensure PSB provision makes the enforcement of these PSB obligations more uncertain after digital switchover. In addition, there may also be changes to the commercial environment for non-PSB providers, which have implications for the provision of news output. Against this background, Ofcom will carry out a project to assess the prospects for television news in the wider context of access to and consumption of news in the post-switchover era. It will ask what services would be provided – both on PSB and non-PSB channels. It will consider how the market is likely to develop and what the implications are for ensuring plurality of news provision and/or maintaining the quality of that provision.
• The future of Channel 4: Channel 4 has played a key role in providing plurality in the PSB system over the past quarter century, but there are a range of questions about the future sustainability of its model for funding PSB. Ofcom will therefore this year conduct a full financial review of Channel 4. Ofcom’s review will consider Channel 4’s financial and operating performance – both now and in the future; its continuing fulfilment of its public service remit; and whether intervention may be needed. In doing so, Ofcom will need to examine Channel’s 4’s financial and operational performance in detail in order to assess the company’s future prospects in the digital era.

1.15 There are other important issues to consider, notably the potential risks to arts and children's programming on commercial public service channels and these too will need to be part of the debate. But the three areas set out above will be our immediate focus, alongside our ongoing monitoring of the health of PSB.

1.16 Before specifically addressing these issues in sections 4-7, the next two sections aim to provide context by revisiting some of the themes of the 2004/05 PSB Review and addressing how the market has changed in the short period since the Review’s completion.

The full document is available below:

• Digital PSB - Public Service Broadcasting post Digital Switchover [pdf]
  Full Print Version
• Channel 4 Group Financial Review - Terms of Reference [pdf]
  Published 27|07|06

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