Overview of Ofcom’s work regarding the BBC’s commercial and trading activities
The BBC may only carry out commercial activities through subsidiary companies. The BBC’s commercial subsidiaries generate returns which can be reinvested in BBC programmes and services and supplement income from the licence fee.
The BBC Charter and Agreement require Ofcom to consider the impact of the BBC’s activities on fair and effective competition. One of Ofcom’s principal functions in regulating the BBC is to set requirements around the interaction between the BBC Public Service and its commercial activities.
We have put in place requirements aimed at addressing competition concerns that could arise from the relationship between the BBC Public Service and its commercial subsidiaries to ensure that commercial activities do not, as a result of their relationship with the BBC Public Service, trading activities or non-service activities, distort the market or create an unfair competitive advantage.
We have also considered how we will hold the BBC to account on the commissioning requirements in the Agreement. We have decided not to impose any additional requirements on the BBC in this area at this time, but we will continue to monitor how the BBC’s commissioning process operates.
In May 2023, the BBC proposed to move selected factual, entertainment and drama audio content from the BBC’s in-house production team to BBC Studios. This transfer is due to take place in April 2024. The BBC provided us with its assessment of this proposed change, which it concluded was non-material.
We have reviewed its assessment having had regard to our operational and financial separation requirements. We agree that the proposed change will not result in a significant risk of market distortion or unfair competitive advantage as a result of BBC Studios’ relationship with the Public Service.
BBC Studios produces and distributes content for consumers to watch in the UK and around the world. It also owns and operates channels (UKTV), has a joint venture international subscription video on demand service (BritBox in the US and Canada), sells programme formats internationally and consumer products such as DVDs and merchandise.
Given developments both in the media landscape and in BBC Studios over the past few years, it is important for us to enhance our understanding of how BBC Studios has implemented our rules and to provide additional transparency on this to stakeholders.
ITV and the BBC announced the launch of a new subscription video on demand service, BritBox on 19 July 2019. When engaging in a new or significantly changed activity, the BBC Charter requires the BBC to consider whether this is a material change to its commercial activities that would require a detailed examination prior to launch. The BBC Board assessed this proposal and determined it was not material.
Under the Charter, Ofcom also has a role to protect fair and effective competition, in particular in relation to the interaction between the BBC’s licence fee funded services and its commercial activities. On this basis, we have considered whether the BBC’s involvement in BritBox is a material change to its commercial activities.
Although the BBC is only taking a 10% stake in BritBox, there is potential for issues to emerge as the venture develops. We already have measures in place to regulate the boundary between the Public Service and the BBC’s commercial activities and we can use these to address most concerns, if they materialise. It is therefore important that we continue to monitor the BBC’s relationship with BritBox so that we can step in if required.
There are two areas where we do not have existing rules: where changes are made to the way in which the BBC makes its programmes available on commercial services (the Programme Release Policy); and in relation to cross-promotion on BBC iPlayer of programmes available on BritBox.
We consider that the changes to the Programme Release Policy will not create an unfair advantage or appreciably distort the market. The approach taken by the BBC Public Service fits with the BBC’s Charter objectives and the changes are likely to have limited competitive effects. It is important that the BBC adopts a fair and non-discriminatory approach to the revised policy and is flexible in considering applications from services other than BritBox. If that does not happen we would be likely to take further action.
We also recognise there are concerns around cross-promotion. It is not yet known whether and how cross-promotion will take place on BBC iPlayer and we note that the BBC already has its own rules on cross-promotion. Nonetheless, we are separately considering whether safeguards are needed in relation to how the BBC cross-promotes content on commercial services in order to anticipate future issues. We expect the BBC to inform us of its plans before it proceeds.
We have therefore decided that though the BritBox arrangements do not create a material change to the BBC’s commercial activities we will monitor developments closely and have the ability to step in if concerns arise in future.
Our consultation and final decision on the materiality of the BritBox service
In April 2019, BBC Studios and Discovery announced an agreement on the future of their UKTV joint venture (the UKTV deal). Under the terms of the deal, Discovery took full control of UKTV’s lifestyle channels and BBC Studios UKTV’s entertainment channels. As required under the Charter and Agreement, the BBC assessed the UKTV deal and concluded that it does not constitute a ‘material change’ to its commercial activities. Our job is to ensure that the BBC’s commercial subsidiaries do not gain an unfair advantage over other rival services because of their relationship with the Public Service. The question of whether there has been a material change is addressed in two parts:
- is it a new activity or a significant change to the BBC’s commercial activities? and
- is there a significant risk of market distortion or an unfair competitive advantage as a result of the change to the relationship with the Public Service?
The first part is primarily factual. In the case of the UKTV deal, we consider that it is likely to be a significant change given the scale of the transaction.
For the second part, we considered potential competition issues, including if Public Service content was supplied directly to UKTV below market rates, and the risk of UKTV profits being used to subsidised other commercial activities that are not earning a commercial rate of return over an appropriate period. However, we are confident that our trading and separation regulation sufficiently safeguards against any potential market distortion or unfair competitive advantage arising as a result of the UKTV deal.
In light of that, we decided not to conduct a further formal competition assessment of the UKTV deal.
The BBC proposed to merge two of its commercial subsidiaries, BBC Studios and BBC Worldwide, into a single entity, also to be called BBC Studios. The BBC assessed the proposed merger and concluded that it did not constitute a material change as defined in the Agreement.
We considered that there might be some potential concerns arising from bringing the BBC’s two largest commercial subsidiaries together, in particular on transparency. The BBC provided voluntary commitments in respect of the proposed merger to give assurance that transparency over the relationship between the BBC Public Service and the new BBC Studios will be preserved. Taking the characteristics of the BBC’s proposed change, our trading and separation requirements, and the commitments provided by the BBC together, we did not consider it was appropriate to conduct a formal assessment under the Agreement of the proposed change.
Related documents
The BBC provided voluntary commitments in relation to the BBC’s merger of BBC Studios and BBC Worldwide, set out here: The merger of BBC Studios and BBC Worldwide: the BBC’s commitments (PDF, 589.9 KB). (PDF, 589.9 KB)
If the BBC is making a significant change to its commercial activities or undertaking a new activity, it must consider whether the change is “material”. This includes determining whether there is a significant risk that the change may, as a result of the relationship of the activity with the BBC Public Service, distort the market or create an unfair competitive advantage.
We have published updated requirements and guidance on the BBC’s commercial and trading activities (PDF, 291.6 KB).
In 2017, we published requirements aimed at addressing competition concerns that could arise from the relationship between the BBC Public Service and its commercial subsidiaries to ensure that commercial activities do not, as a result of their relationship with the BBC Public Service, trading activities or non-service activities, distort the market or create an unfair competitive advantage.
Following further work in this area, including looking at the processes and practices around the operation of the commercial subsidiaries and their relationships with the BBC’s Public Service, we have published our statement setting out our decisions to modify the requirements (PDF, 1.3 MB).
Related documents
In July 2018 we published proposed modifications to our requirements (and guidance) in respect of the BBC’s commercial and trading activities.
The BBC’s commercial and trading activities: requirements and guidance (PDF, 307.2 KB). We published requirements covering the BBC’s trading activities (in addition to the commercial activities) in July 2017.
Deadlines for the publication and provision of information under the Monitoring, Reporting and Transparency requirements (PDF, 650.1 KB). We specified the dates by which the BBC must publish or provide information to Ofcom (as applicable) under our requirements for the first time and in subsequent periods in October 2017.
We have undertaken work on our approach to assessing the BBC’s compliance with the commissioning requirements set out in Schedule 3(7) of the Agreement which apply to the BBC’s television, radio and online public services. Schedule 3(7) requires the BBC to increase the amount of programmes it commissions following a contestable process between producers on fair and reasonable terms.
Our statement setting out our decisions can be found in the section ‘Commissioning for the BBC Public Services’ on the Competition page.