Ofcom today published an analysis of the regulatory framework for TV production in the UK.
This follows a request from the Secretary of State for Culture, Media and Sport in August 2015.
Ofcom's review recognises that the independent TV production industry has seen significant change, including consolidation and the acquisition of some of the largest UK producers by global media companies. The review shows that the industry continues to perform well, and regulation of the sector continues to meet the objectives set by Parliament.
This regulation aims to promote cultural diversity and open up the production system to new voices; to stimulate the growth of small and medium size enterprises, promoting creativity and fostering new talent; and to address any potential negative effects associated with the integration of broadcasters and producers, helping to ensure diversity of supply.
Ofcom's report acknowledges that consolidation has taken place in the UK production sector, but a diverse range of companies remain. In 2001, there were around 500 UK television production companies, most of them small producers. By 2014, there were around 230 small producers - those with revenues under £10m - with at least one programme broadcast by the main public service broadcasters (BBC, ITV, Channel 4 and Channel 5).
Levels of market entry also remain high. An average of 31% of all producers were new to the market in each year since 2009 and, in 2014, 84 producers were companies that were new to the market.
This diversity of supply is delivering benefits to viewers, with smaller producers continuing to supply a wide range of genres, including drama, current affairs and children's programmes.
Overall, the UK production market has developed into a very successful sector, generating £2.9bn in revenues in 2014, and growing at an annual compound rate of 2.5% since 2008.
Independent production is promoted through two main regulations. First, at least 25% of public service broadcasters' non-news programmes must be produced by independent producers. Second, the broadcasters must develop codes of practice setting out the principles that apply when agreeing contract terms with independent producers.
Under both these rules, a qualifying independent producer cannot be more than 25% owned by any company which also owns a UK broadcaster.
The UK TV production sector has seen rapid change, with significant consolidation, and many of the largest UK producers are now owned by large global media companies.
Since 2008, major US media groups such as NBC Universal and Warner Brothers have acquired a number of UK production companies. Today, seven of the ten largest UK producers are owned by large foreign media corporations.
However, four of these seven producers no longer meet the definition of a qualifying ‘independent producer'. As a result, the public service broadcasters are able to negotiate with these producers without regulatory oversight of the principles that apply when agreeing contract terms.
The broadcasters must also still commission at least 25% of their non-news programmes from other, qualifying independent producers.
Larger producers may themselves offer some benefits by bringing greater investment to the sector and being able to take greater risks when funding programmes.
The independent production sector remains diverse and vibrant. Given that the aims of the current regulation are being met, the Government could decide to maintain the status quo in the TV production sector.
However, if the Government were minded to change the regulation, Ofcom has considered a range of possible reforms that take account of what is a very dynamic marketplace:
Ofcom believes that complete deregulation of the sector would be uncertain and risky. Broadcasters would, in all likelihood, continue to be able to choose from a range of producers. But deregulation may lead to fewer opportunities for small producers and, as a result, there may be fewer opportunities for new creative people to get programmes on air and grow new businesses.
The Secretary of State also asked Ofcom to consider how regulation could further promote content production - particularly in genres such as drama, children's programmes and current affairs.
Ofcom believes that investment in content production, particularly in genres such as drama, children's programmes and current affairs, is driven by demand from the broadcasters. As such, intervening at the production level is unlikely to have any great effect on promoting investment in these areas.
The Secretary of State also asked Ofcom for an initial assessment of the potential effect of proposed changes for content production at the BBC. These proposals include the BBC's in-house production unit becoming a commercial subsidiary called BBC Studios, with the percentage of BBC commissions open to third-party competition to increase from 50% to 80%, before returning series are taken into account.
Production companies have told Ofcom they are generally positive about competing for a greater proportion of BBC commissions. However, some felt that the number of returning series that may be transferred to BBC Studios at launch could restrict the amount of commissions available.
There were also concerns about whether BBC Studios would have an advantage in the market, given its position within the BBC and closeness to BBC commissioning.
Ofcom believes that any market impact of the BBC's proposals is likely to be modest in the short term, and that viewers would be likely to benefit from increased competition for commissions and a greater choice of programmes.
However, the longer-term effects of the BBC's plans could be more significant and, at this stage, are difficult to predict. It will be important to ensure BBC Studios competes fairly for commissions from the BBC and other broadcasters. If the BBC Studios proposal is accepted, it may be necessary to review both how well the framework for BBC Studios is operating, alongside the wider impact of BBC Studios on the production sector.
The BBC is yet to finalise its plans for BBC Studios, and Ofcom's initial analysis is intended to feed into the Government's wider review of the BBC's Royal Charter.
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