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Market Impact Assessment: BBC new on-demand proposals

23 Gorffennaf 2010

Executive summary

1.1 The new BBC Royal Charter and Agreement, which came into effect on 1 January 2007, included the setting up of a new Public Value Test (PVT) regime to assess whether the BBC's proposals to launch new services in future – or to amend existing services – would be in the wider public interest.

1.2 The decision on whether to authorise the proposed services sits with the BBC Trust. In reaching its conclusions, the Trust must take into account the findings of two separate research projects. The first – the Public Value Assessment (PVA) – is commissioned by the Trust directly and seeks to assess the broader public value of the proposed service to UK citizens and consumers. The second – conducted by Ofcom – is a Market Impact Assessment (MIA).

1.3 The purpose of an Ofcom MIA is to assess the likely impact of the proposed services on markets in which these would be provided as well as on other related markets. In carrying out an MIA, we are particularly concerned with assessing the extent to which the BBC’s proposed services might deter innovation and investment by relevant alternative providers in the commercial sector. Were those providers to be deterred from seeking to offer competing services this would ultimately have the effect of reducing choice for listeners and viewers, to the detriment of the public interest as a whole. Although the MIA on the BBC's on-demand services started before the new PVT regime came into force, it has been conducted in accordance with the new provisions.

1.4 In August 2006, BBC management applied to the BBC Governors for permission to introduce the following services:

  • catch-up TV over cable – a 7-day catch-up TV service available to customers of ntl:Telewest and Homechoice. This would include what is known as series stacking; - the ability to store and view an entire series of programmes within seven days of the broadcast of the last programme in that series. So for example, if a drama is broadcast in six parts over six consecutive weeks, it would be possible to view all six episodes up to a week after the broadcast of the last episode.
  • catch-up TV over the internet – a 7-day catch up service covering a large proportion of the BBC’s scheduled programming, and including series stacking (as above) as well as the opportunity to store downloaded programmes for up to 13 weeks before viewing;
  • simulcast TV over the internet – simulcasting is making a programme available on more than one channel or medium at the same time. The BBC's proposals include making the BBC channels which are broadcast on TV available simultaneously over the internet; and
  • non-DRM audio downloads – DRM or Digital Rights Management is the technology intended to protect the copyright associated with any creative work (such as a programme or musical performance) which is distributed digitally, for example by means of downloading from the internet. The BBC's proposals include making BBC radio programmes, excluding full-track commercial music, available to download from the internet without DRM systems in place. Those programmes could then be stored indefinitely and listened to on multiple devices, including iPods and MP3 players.

1.5 All of the proposed services, except for catch-up TV over cable, would be accessed from the internet using the proposed new BBC iPlayer software. This software is described in Section 2 and Annex 2.

1.6 The BBC Governors announced in August 2006 that they were initiating a PVT to evaluate the BBC's proposals for the new on-demand services. On September 15 2006 the Joint Steering Group (JSG) set up by Ofcom and the BBC Governors agreed the terms of reference for the Ofcom MIA. The original 3-month timetable for the MIA would have led to completion in December 2006. We subsequently agreed with the BBC Trust to extend this by five weeks to give stakeholders more time to prepare written submissions following the publication of additional information on the BBC proposals.


1.7 Most people still listen to radio and watch television programmes as they are broadcast, in real time, over established terrestrial, cable and satellite networks – in other words, conventional linear broadcasting. Non-linear listening or viewing – for example, using a personal video recorder such as Sky+ to watch programmes after they have been transmitted or downloading a radio programme onto an iPod – is growing quickly but currently remains the preference of a minority of the overall UK audience.

1.8 However, people's habits are changing. Audiences are interested in greater control and choice; not only over what they listen to or watch, but also when, where and how they listen to it or watch it. This growing enthusiasm for on-demand listening and viewing is accompanied by a rapid growth in the use of the internet as, in effect, a broadcasting medium in its own right – from podcasting to internet protocol television (IPTV).

1.9 The markets for on-demand services, especially over the internet, are still at a very early stage in their development. The established broadcasters are all in the process of rolling out their plans for on-demand services, and a number of new providers are looking to exploit the potential of the new platforms. However, the markets for on-demand services are growing rapidly. That growth is expected to continue in the years ahead. Over the next five years our analysis suggests that linear TV viewing may fall by 20-30%, to be replaced largely by increased use of on-demand services. A similar pattern is expected for audio services. In both cases, there is also likely to be a significant increase in the overall level of listening and viewing, as audiences make greater use of PCs and portable audio devices outside the home. These trends promise to bring considerable benefits to the public as a whole.

1.10 We believe it is important that the BBC should take a proactive and forward-looking approach to reflect likely changes in audience behaviour and expectations. We also believe the BBC should be enabled to participate actively and fully in emerging markets. The BBC is the cornerstone of public service broadcasting in the UK, funded by all of us as licence fee-payers. As the internet grows in importance as a medium, the public will therefore rightly expect BBC television and radio content to be made available online and on demand. There are clearly very considerable public benefits to be gained from the BBC using new technology and new media to enhance and extend existing services into new markets.

1.11 However, it is also important that the BBC’s involvement in the market for on-demand services should contribute positively to the development of the market as a whole. It would not be in the wider public interest for the BBC's involvement to restrict competition, innovation or choice. There is a balance to be struck. It is appropriate for the BBC to respond to the fact that licence fee-payers are increasingly attracted to new on-demand markets. It is also appropriate to acknowledge that, unchecked, the BBC's power in nascent markets could harm the stimulus of competition necessary to ensure quality content for the long-term.

Key findings and recommendations

1.12 Our main findings and recommendations are as follows:

  1. The three video services proposed by the BBC could account for around 3 billion viewer hours by 2011, or about 3% of total UK viewing hours. In the same timeframe, the non-DRM audio service could account for a further 0.8 billion downloaded programme hours. Our research and analysis indicates that a significant proportion of this usage – over half in the case of the simulcast and non-DRM audio services – is likely to represent “new demand” i.e. an increase in overall hours as audiences listen to and watch more content outside the home. The proposed services are likely to have a considerable effect in expanding this new market, bringing substantial public benefits as a consequence.
  2. However, we are concerned about the proposed inclusion of series stacking in the proposals for catch-up TV over cable and over the internet. We recognise that series stacking is likely to be valued by viewers, but in many cases it would make the service a more direct substitute for commercial services. The BBC is currently proposing a very broad definition of what constitutes “a series”, which would include anything other than one-off programmes and repeats. We recommend that, unless the PVA or PVT identify compelling reasons for doing otherwise, the scope of series stacking should be substantially reduced, either through the adoption of a tighter definition of what qualifies as “a series” or through other restrictions. One possibility would be to narrow the definition of a series, to include only programmes where a plot line is developed over a maximum of 12 episodes, broadcast over a period of no more than 12 weeks. This would exclude long running soaps and programmes where there are no plot linkages from one episode to the next. Other options would be to set a limit for the volume of programming that could be stacked over a given timeframe, or to reduce the period over which a series could be stacked from the 13 weeks currently proposed to some shorter period. The best approach should be determined by the BBC Trust, taking account of the implications for both the public value and the market impact of the services. If it is not possible to specify a workable method of substantially reducing the scope of series stacking, then for precautionary reasons we would recommend that series stacking should be excluded altogether.
  3. In the case of catch-up TV over the internet, the market impact of the proposed service is likely to be significantly increased by the ability to store downloaded programmes for up to 13 weeks, before they are viewed. This effect would be especially strong if the 13-week storage period was combined with series stacking. In our view, unless the PVA provides strong reasons for taking a different course, the 13-week storage window should either be removed or substantially reduced.
  4. We estimate that, for the average broadband customer, using the proposed internet-based services would involve downloading an additional 3GB of data per month. The costs of the broadband capacity required to support the services could in aggregate be between £399 million and £831 million over the next 5 years. However, it is important to note that typical broadband connection speeds and download caps are likely to continue rising in the years ahead, and new technological solutions are likely to reduce the costs of incremental capacity over time. As such, the cost estimates set out above are likely to be at the higher end of the possible range. Furthermore, to the extent that that the additional capacity would also be available for use by a wide range of other services, including commercial on-demand services, it would not necessarily be appropriate to attribute the associated costs to the BBC services in isolation. Some customers may nevertheless have to move to a more expensive broadband package in order to be able to use the BBC services. Whilst the costs of the broadband capacity required to deliver the services are to some extent relevant for the Ofcom MIA, they should in our view be taken account principally in the BBC Trust's PVA.
  5. When assessing future applications from BBC management to launch catch-up TV services on other retail platforms (e.g. IPTV, satellite), we believe that the BBC Trust should consider whether the proposed terms and conditions are non-discriminatory, in terms of their likely impact on the development of competition. If there are material differences between the terms proposed and those already applied to other service providers, the Trust should consider whether there is an objective justification for the differences, and whether they have the potential to restrict or distort competition. In addition, if the terms proposed are the same, but the circumstances facing the service provider are materially different in relevant respects, the Trust should again consider whether the proposed terms could have a negative effect on competition. If the proposals raise doubts, a PVT should be conducted, so that the market impact can be fully assessed.
  6. Stakeholder feedback indicates that the proposed simulcast service is by far the least contentious of the proposed services. This is primarily because the other major broadcasters are all likely to offer similar services over the internet, with no direct charge to consumers.
  7. The proposed non-DRM audio download service has the potential to make a strong positive contribution to the growth of the UK market for audio downloads, by enabling consumers to store and access a wide range of non-music content on portable devices such as iPods and mp3 players. For certain specific types of content, however, the proposed service could have a significant negative effect on investment in competing on-demand services, and related markets. This risk is especially high in the case of recordings of live classical music and book readings. We recommend that, unless the PVA or PVT provide strong reasons for doing otherwise, recordings of book readings should be excluded from the proposed BBC service. With regard to classical music, we recognise that the impact of the service would vary considerably with the nature of the content offered – BBC recordings of popular and established classical works could have a negative impact on commercial sales, whereas recordings of new or less mainstream material could help to stimulate consumer interest and expand the market. We believe that BBC management should be requested to specify much more tightly the range of classical content they propose to make available, taking account of the prospective impact on commercial services. If this approach proves to be impracticable, then unless the PVA or PVT identify strong reasons for not doing so, recordings of live classical music should in our view be excluded from the scope of the service.
  8. Although the proposed budget for the acquisition of content rights is significant (approximately £ Redactions m over the next 5 years), the available evidence does not in our view support the conclusion that the BBC’s proposals would to involve an overpayment for content rights.
  9. We note that the BBC’s internet TV services will initially use Microsoft’s Windows Media Player 10 and associated DRM solution, although there are plans to develop a Real Player alternative in the near future. We consider that the extension to Real Player will be important to lessen the potential impact on the market for media player and DRM software. It will also have the benefit of extending service availability to users of other operating systems such as Apple’s OS X.
  10. It will be important for the Trust to ensure that the BBC does not use its ability to cross-promote its services to secure an unfair competitive advantage for the commercial services offered by BBC Worldwide, in terms of access to or from the iPlayer platform. The Fair Trading Guidelines and rules on cross-promotion should be used for this purpose.
  11. Our market assessment is based on the service budgets provided by the BBC, which in our view should be included in the relevant service licences. This is consistent with the approach adopted in other BBC service licences. If the BBC wishes to exceed the limits, a further PVT should be undertaken, so that the market impact of doing so (as well as the public value) can be properly assessed.
  12. If the BBC wishes to extend the scope of the proposed services to include non-BBC content, specially commissioned content or full-track commercial music, Ofcom should carry out a further MIA as such extensions could have important implications for the way in which the services would impact on the market.

1.13 Ofcom believes that the recommendations above will secure the best balance between enabling the BBC to bring new services to benefit licence-fee payers while avoiding the most significant adverse consequences for the development of the market and hence the overall interests of viewers and listeners. It is also important to note that, where our proposals would lead to a reduction in the scope of the proposed services, the BBC would still be free to offer the excluded services on a commercial basis, through BBC Worldwide. There would, for example, be no restriction on the commercial provision of the full box set of a 15–part series such as Bleak House.

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