Channel 3 networking arrangements: 2015 Review

28 September 2015

Summary

1.1 The national Channel 3 television service is structured on a regional basis, and comprises regional licensees serving different parts of the UK. Regional Channel 3 licensees are required to enter into networking arrangements (‘NWA’)(-1-) in order to offer a nationwide system able to compete effectively with other UK television services. These arrangements must be approved by Ofcom and reviewed each year(-2-).

1.2 This document sets out Ofcom’s findings from a further annual review. In light of comments received from all interested parties(-3-) on whether the current arrangements continue to meet the criteria specified in the Communications Act 2003 (the ‘Act’), we have concluded that the NWA continue to meet these criteria and that no modifications are required of the NWA currently in force.

Background

Statutory requirements

1.3 Section 291 of the Act requires the holders of the 15 regional Channel 3 licences to conclude NWA that enable them to work together to produce a national television service. The scope of such arrangements is set out in section 290(4) of the Act, which defines NWA as arrangements that:

a) apply to all the holders of regional Channel 3 licences;

b) provide for programmes made, commissioned or acquired by or on behalf of one or more of the Channel 3 licensees to be available for broadcasting in all the regional Channel 3 services; and

c) are made for the purpose of enabling regional Channel 3 services (taken as a whole) to be a nationwide system of services which is able to compete effectively with other television programme services provided in the UK.

1.4 The NWA must be approved by Ofcom in accordance with Schedule 11 of the Act. and, in doing so, Ofcom must consider:

a) whether the NWA represent a satisfactory means of achieving the purpose set out in section 290(4) of the Act;(-4-)

b) the likely effect of the NWA on the ability of the persons who will be or are the holders of regional Channel 3 licences, or of any of them, to maintain the quality and range of regional programming and other programming which contributes to the regional character of the services(-5-);

c) whether the NWA would be likely to prejudice the ability of any of the regional Channel 3 licensees to comply with their public service remits or conditions imposed on them under sections 286, 287 or 352 of the Act(-6-); and

d) whether the NWA satisfy the first or second competition test set out in paragraph 6 of Schedule 11 of the Act.

1.5 Under section 293 of the Act, Ofcom is required to undertake a review of the NWA every year and may impose modifications where appropriate.

The current NWA and the latest review

1.6 In 2012, the Channel 3 licensees entered into a set of agreements, known as the Network Affiliate Agreements (‘NAA’), to replace and simplify the previous approved NWA. Under the NAA, ITV plc (through its subsidiary ITV Rights Ltd) became solely responsible for acquiring programme rights and devising a network schedule. It also takes on initial responsibility for programme compliance. ITV plc makes the network schedule available to each of the regional licensees on an affiliate basis, in return for a pre-determined fee.

1.7 The Channel 3 licensees then submitted the NAA for Ofcom’s approval. Following a review(-7-), Ofcom concluded that:

a) taken collectively, the NAA applied to all of the Channel 3 licensees;

b) the NAA specified the terms under which the network schedule will be made available to the regional licensees for broadcast;(-8-) and

c) the NAA were made for the purpose of enabling the Channel 3 licensees to provide a network service – including +1 and HD services – able to compete with other television programme services in the UK.

1.8 Accordingly, we considered that the NAA met each of the criteria in section 290(4) of the Act and therefore constituted NWA. In assessing whether the NAA satisfied the other relevant factors included in Schedule 11 of the Act, we considered that:

a) the NAA captured more accurately than the previous arrangements how, following licence consolidation, network programmes are typically acquired and commissioned for transmission across the regional Channel 3 services;

b) the NAA simplified the structure for the day-to-day provision of an effective system of networked regional services; and

c) the NAA satisfied the relevant competition tests set out in Schedule 11.

1.9 Therefore, we concluded in 2012 that the NAA met the criteria for NWA specified in the Act and approved them as NWA with effect from 1 July 2012.

1.10 The latest review of the current NWA was conducted in 2014. In January 2015, we published a statement(-9-) where we concluded that, having regard to the views of the interested parties and the CMA, that the NAA continued to meet the criteria for NWA specified in the Act and that no modifications were required to the NAA currently in force.

The current review

1.11 In July 2015, we sent all interested parties and the CMA a letter, setting out our initial assessment that the NAA continue to meet the criteria for NWA specified in the Act, in particular because:

a) we had not been notified of any proposed modifications of the terms of the NAA since we gave our approval in 2012; and

b) it appeared that there had not been any material change in the circumstances in which the NAA operate which would impact the assessment carried out in 2012;

1.12 We asked interested parties to comment on our provisional conclusion that the current arrangements continue to satisfy the statutory criteria.

1.13 In their responses, interested parties have told us that, in their view:

a) given that there has not been any material change in the circumstances in which the current arrangements operate, the NAA are still relevant and fit for the purpose of enabling the Channel 3 licensees to provide a network service able to compete with other television programme services in the UK;

b) the NAA work successfully between parties, and that there have been no issues or concerns that need to be raised to Ofcom’s assessment;

c) the NAA continue to meet the statutory criteria; and

d) no modifications to the NAA are required.

1.14 In accordance with Schedule 11 of the Act, we have consulted the CMA on our competition assessment of the NAA.  The CMA has confirmed that it has no objections to our assessment.

Conclusion

1.15 Given that:

a) there have been no modifications of the terms of the NAA approved by Ofcom in 2012 (which we considered met the criteria for NWA specified in the Act); and

b) there has been no material change in the circumstances in which the NAA operate

Ofcom has concluded, having regard to the views of the interested parties and the CMA, that the NAA continue to meet the criteria for NWA specified in the Act and that no modifications are required to the NAA currently in force.

Footnotes

1.- The 11 regional English and Welsh licences are currently held by ITV Broadcasting Ltd. The regional licence for the Channel Islands is held by Channel Television Ltd. ITV Broadcasting Ltd and Channel Television Ltd are wholly owned subsidiaries of ITV plc. The two Scottish licences are held by STV Central Ltd and STV North Ltd, both subsidiaries of STV Group plc (‘STV’). The licence in Northern Ireland is held by UTV Ltd (‘UTV’).

2.- Ofcom last carried out a review of the NWA in 2012.  Ofcom did not undertake a review in 2013 as the Government had signalled its intention to remove the requirement for annual reviews.   However, the Draft Public Bodies (Modification of Functions of OFCOM) Order 2013 was withdrawn on 24 February 2014 and the requirements of section 293 of the Act therefore remain unchanged.

3.- In the 2006 review of the NWA, we concluded that an appropriate approach to conducting future NWA reviews, including modifications, would be to consult initially the most directly interested parties (Channel 3 licensees, PACT and the Office of Fair Trading (now Competitions & Markets Authority)) on an informal basis and then decide whether formal consultation was appropriate. We intend to adopt this approach when carrying out this review.

4.- paragraph 7(3) of schedule 11 of the Act

5.- paragraph 7(4) of schedule 11 of the Act

6.- paragraph 8(2) of schedule 11 of the Act

7.- Ofcom, Modifications to Channel 3 networking arrangements, March 2012 (http://stakeholders.ofcom.org.uk/binaries/broadcast/tv-ops/ch3-networking-mods.pdf).

8.- The NAA relate only to linear television services, i.e., they explicitly excluding new media rights, including VOD rights, which are typically included in rights packages obtained by broadcasters. We understand, however, that the licensees have agreed new terms for the exploitation of new media rights, although these fall outside the scope of the NWA.

9.- Ofcom, Review of the Channel 3 networking arrangements, 27 January 2015 (http://stakeholders.ofcom.org.uk/broadcasting/tv/review-channel3/).