Materiality assessments of the BBC's commercial activities
From time to time, the BBC may want to change the way its commercial subsidiaries operate or undertake new activities. For example, it may want to launch a new commercial activity in response to market developments.
Under the Agreement the BBC must consider whether any changes it proposes to make to its commercial activities are “material”. A material change to the BBC’s commercial activities is defined as:
- the carrying out of a new type of activity as a commercial activity; or
- a significant change to the BBC’s commercial arm
where 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.
The BBC must carry out and publish a commercial test on any proposed material change. Through this test the BBC must satisfy itself that the commercial activities will not distort the market or create an unfair competitive advantage. We also expect the BBC to consider whether the relevant activity complies with our trading and separation rules. Ofcom will consider the BBC’s commercial test under a trading and separation assessment on any proposed changes that we had found to be material.
If the BBC concludes that a proposed change is not material, it may proceed with the change. However, following assessment it is open to Ofcom to disagree. If we disagree, we can direct the BBC to carry out a commercial test or to stop carrying out the change in accordance with such directions as we consider appropriate.
The way that Ofcom approaches materiality assessments and the process we follow are set out in section five of our requirements and guidance on the BBC’s commercial and trading activities.
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).