BBC Trust Charter Review Consultation – Tomorrow's

BBC Trust Charter Review consultation – Tomorrow’s BBC November 2015

The BBC Trust asks: We would like to know whether you think the BBC is striking the right balance between continuing to do the things it does today, and focusing on new ideas. Is there anything in particular you think the BBC needs to consider in striking this balance?

1. Of all the sectors in which the BBC operates, audience data demonstrates that it is within speech radio that its market impact has been the greatest. Boasting an 84% audience share, compared with 49% within music radio and 33% within television, the BBC commands a position of dominance within speech radio that is without parallel in British media.

2. By way of comparison, an 84% market share within television would be roughly equivalent to the BBC also owning ITV, Channel 4, Sky, Channel 5 and UKTV1.

Figure 1: The BBC’s share of national music and speech radio listening

Television: Music radio: Speech radio:

Others 16% 33% Others 49% Others 51% 67%

84%

Source: RAJAR Q2 2015 / UTV analysis; BARB monthly audience viewing share, August 2015 BBC speech radio consists of Radio 4, Radio 4 Extra, 5 live, sports extra and BBC World Service; commercial speech radio consists of City Talk, LBC, LBC News and talkSPORT

3. The BBC’s structural advantages – strengths which are unavailable to independent speech radio providers resulting in an unequal competitive playing field – include:

 £200m of guaranteed annual funding

1 BARB, TV Monthly Viewership by Channel Group, September 2015

 A preferential allocation of national FM and AM frequencies

 Exclusive access to world’s best DAB transmission network, which has been funded through the licence fee to reach 97% of the UK population

 Access to an unrivalled network of domestic and international news bureaux and journalists

 Regular cross-promotion from the UK’s most-watched and most-listened to TV and radio channels

 A revenue model which does not require the inclusion of advertising within programming

4. Figure 2 demonstrates the effect of these advantages – which is that the BBC dominates top of mind unprompted associations for speech radio amongst the UK population, pointing to a deficit in speech radio plurality. This finding is taken from research by YouGov.

Figure 2. “Which brands/stations first come to mind when you think of speech radio (non-music content)?”

Source: YouGov, speech radio market research, January 2015 Base: All Nat Rep (1087)

5. In 2016 UTV intends to take a major step towards realising its vision of a competitive speech radio sector. As a part of the most significant expansion in the UK’s radio line-up in a generation, we will launch brand new speech radio stations with expected mainstream audience appeal: talkRADIO and talkSPORT 2. This forms part of a multi-million pound investment in new national radio services. UTV aims to increase choice and plurality for

listeners whilst creating additional opportunities for advertisers to capitalise on speech radio’s strengths as an advertising medium.

6. In tandem with this investment by the commercial sector, the BBC has an important role to play in promoting choice and competition. Research by UTV undertaken earlier this year revealed strong support for measures to ensure healthy levels of competition and plurality within speech radio broadcasting:

 55% of respondents told YouGov that it is not healthy for the UK speech radio market to be dominated by one company/provider.

 48% agreed that a diverse range of speech radio providers would be beneficial for UK society.

 53% agreed that new speech radio providers should be given the opportunity to prove themselves and compete against more established providers2.

7. Unfortunately to date the BBC does not appear to have embraced its responsibilities in this area. Instead its engagement with the speech radio market suggests an imprecise understanding of its impact on independent provision. The BBC Executive appears to struggle to differentiate between the approach it should adopt within sectors such as speech radio where it commands a dominant position, and others such as television where its market share is less pronounced and where it faces competition from new global players.

8. This view is by no means conjecture. Indeed it was reflected in recent BBC fair trading framework analysis by Fingleton Associates which identified “a risk that the Executive may underestimate its impact in some of the domestic markets in which it operates; for example, radio.”3

9. The BBC Trust’s recent ruling on expansion proposals for 5 live sports extra provides specific evidence of a BBC failure to grasp its impact on independent speech radio provision. The BBC Trust concluded “there are a number of areas where we think there is potential for the impact on audiences to be greater than the BBC projects”, declining to approve the proposal4.

10. This outcome raised questions as to the BBC’s internal understanding of its sectoral market power, its application of the competitive impact principle, its spending priorities and also its cost efficiency (given its ability to identify spare funds for 520 hours a year of additional sports radio coverage). One explanation is that the BBC’s impact assessment was undertaken retrospectively, rather than a view to genuinely influencing the BBC’s engagement with the market.

11. Separately it was concerning that an October 2015 KPMG report examining whether the BBC crowds out private sector activity devoted significant attention to the BBC’s role in television and music radio, but overlooked the speech radio sector – despite this being the BBC’s area

2 YouGov, speech radio market research, January 2015 3 Fingleton Associates, Fair Trading Policy Review – Independent Report for BBC Trust, April 2015,p. 36-37 http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/our_work/fair_trading/fair_trading_fingleton_jul15.pdf 4 BBC Trust, Assessment of proposed changes to BBC Radio 5 live sports extra, October 2015, p. 7

of highest market share. KPMG’s report, which was commissioned by the BBC Trust as an input to Charter Review, did not provide an explanation for this selective approach5.

12. Given the BBC’s track record, and the gaps in market impact insight highlighted above, it is not a surprise to see similar tendencies reflected in the BBC’s Charter Review proposals. In our view they lack what Fingleton Associates referred to recently as “a considered assessment of the market context of [the BBC’s] ‘smaller’ operations”6. As a result they are poorly calculated to deliver the maximum net benefit from the BBC’s available resources on behalf of licence fee payers. They appear to seek broadly to maintain the status quo rather than promoting increases in choice and competition or taking account of developments in the speech radio market.

13. Our own ideas for Charter Review – as outlined in more detail in our response to DCMS’s consultation – can be summarised as follows:

a. Policymakers and the BBC should embrace our goal of a more competitive speech radio sector with increased plurality and choice for listeners.

b. The BBC should be subject to robust regulatory oversight which ensures that each of its speech radio services fulfils a unique role. In the case of 5 live, this should be focused on news.

c. We call for much greater breadth to the sports coverage on BBC radio, with less emphasis on football, in line with the BBC’s public purpose objectives.

d. The BBC should implement a revised procurement approach in the area of radio sports rights, as well as a fresh approach to cross promotion, so as to avoid reinforcing an unfair advantage for the BBC over independent providers.

e. The BBC should develop a distribution strategy which takes account of its uniquely large share of the speech radio market, considers its impact on independent provision and ensures that listeners are not locked into a BBC walled garden.

f. The BBC should increase its spoken word production cost efficiency, with a rebalancing in expenditure away from genres which support commercial business models such as live sport and personality driven talk, thereby producing a more level financial playing field.

The BBC Trust asks: Do you think any of these ideas outlined in this document are more or less important than others?

14. The BBC Charter Review proposal with most relevance to the speech radio broadcasting sector is its personalised radio initiative.

15. Whilst the technology and user behaviour insights that have led to this proposal may be well founded, the way in which the BBC has applied them suggests an inadequate awareness of

5 KPMG for the BBC Trust, An economic review of the extent to which the BBC crowds out private sector activity, October 2015 6 Fingleton Associates, Fair Trading Policy Review – Independent Report for BBC Trust, April 2015,p. 36-37, p. 45, http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/our_work/fair_trading/fair_trading_fingleton_jul15.pdf

the BBC’s responsibility – in the words of the BBC Online service licence – to aid discovery of “content from other providers”7.

16. The proposal indicates a desire by the BBC to compete with commercial audio aggregation platforms such as TuneIn Radio, Spotify, Apple Music, Google Play, AudioBoom, Acast, Rdio and Deezer. Many of these services have similar functionality to that which is proposed as part of the BBC’s personalised radio service, and many of them also include BBC content. Where they differ from the BBC’s proposed new service is that they provide access to audio content from a wide array of third party sources in addition to the BBC.

17. The BBC argues that as a result of its proposal, “listeners will get access to all their favourite audio content in one place”, however this objective cannot be realised if the service provides access exclusively to BBC content as is proposed. The proposal misses an obvious opportunity to build on the foundation provided by the UK Radioplayer project, which on its launch in 2011 was similarly described as “a pan-industry world first by bringing radio together online in one place”8.

18. This BBC exclusive approach is both out of kilter with listener expectations of audio aggregation platforms, and also anti-competitive. The BBC currently has a significant existing competitive lead in relation to live and on-demand speech broadcasting and this proposal provides further discouragement for listeners to discover programming outside of a BBC walled garden. The personalised radio service appears to be designed to aid discovery of new content and channels of interest to listeners, but by excluding third party content the proposal appears designed to extend the BBC’s competitive lead as an audio content provider.

19. In addition, and although limited detail has been supplied at this stage, we would anticipate based on other BBC technology projects that this service would be backed by extensive marketing across BBC services to maximise uptake by listeners. Such cross-promotion is unfairly advantageous towards the BBC and is likely to exacerbate existing market distortions.

20. In support of our concerns about the competitive impact of this proposal, we note recent analysis for the BBC Trust by Ofcom that “the BBC’s activities in the provision of on-demand content had the potential to impact on the wider market”, on the basis that “the strength of the BBC’s VOD proposition in respect of UK-originated content means that access to its content could be very important for platform providers”. Given the BBC’s much greater share of speech radio listening, this analysis is arguably even more applicable to the online audio market and we suggest it should also be applied to the BBC’s own platforms.9

21. It is our view that the personalised radio proposal should not proceed in its current form. Instead, we advocate a transfer of the development work and resources currently earmarked for it to UK Radioplayer so that they can benefit the entire UK radio sector. If for some reason this cannot be achieved in accordance with the fair trading framework then the proposal should be cancelled and the earmarked funds returned to licence fee payers through a reduction in the licence fee.

7 BBC Trust, BBC Online and Red Button Service Licence, April 2014, http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/regulatory_framework/service_licences/online/2014/online_red_button_apr14.pdf 8 BBC Media Centre, ‘BBC and commercial radio in world first with launch of Radioplayer’, March 2011, http://www.bbc.co.uk/pressoffice/pressreleases/stories/2011/03_march/31/radioplayer.shtml 9 BBC Trust, BBC Trust Fair Trading Policy – Public Consultation, June 2015, p. 18

The BBC Trust asks: Do you think there is anything the BBC should be doing less of compared to what it currently does, in order to fund the new ideas?

22. As previously noted, Charter Review offers a unique and timely opportunity for both the BBC and policy makers to ensure that the UK’s speech radio sector delivers to its fullest potential on behalf of listeners and the wider creative economy.

23. We have suggested that this can be achieved through increasing the distinctiveness of BBC services such as 5 live, as well as by making the BBC’s speech radio production and rights expenditure less out of kilter with independent providers. As well as benefitting the wider market, this approach will allow the BBC to transfer resources to higher priority public service areas such as news.

24. We note that the BBC Trust has now instructed the BBC Executive to rebalance expenditure by BBC 5 live away from sport and towards news on two separate occasions. We would question why this action has yet to be fully implemented and suggest that these efforts should be accelerated.

25. The BBC Trust has also provided encouragement to BBC Radio 5 live on more than one occasion for the station to participate in a pan-industry production costs benchmarking exercise. This would be with a view to establishing its cost efficiency and identifying opportunities for increased value for money. Despite UTV’s involvement, a pan-industry speech radio costs benchmarking exercise earlier this year proceeded without the participation of BBC Radio 5 live.

26. Radio sports rights is one obvious area where the BBC’s expenditure is out of kilter with that of the commercial sector. In fact the sports rights budget for BBC Radio 5 live is larger than talkSPORT’s entire programming budget, despite sport only making up a minority of 5 live’s output, compared with 100% of output in the case of talkSPORT.

27. In 2011, a previous Controller of 5 live described its sports rights budget as “extremely large”. The BBC Trust reported 5 live’s sports rights budget in that year as totalling £13m and it has since grown to around £16m10. Based on published information, it appears that the vast majority of this expenditure is on Premier League football rights meaning that rights for secondary or under-exposed sports make up a relatively modest proportion of total expenditure.

28. More generally in relation to sports coverage, DCMS’s recent Charter Review consultation highlighted a 9% increase in the volume of sports coverage on BBC radio during the current Charter period from 4,731 hours in 2006 to 5,166 hours in 2014. Over the same period, there has been a significant 23% decrease in news, weather and current affairs from 16,112 hours in 2006 to 13,059 hours in 2014. No explanation has been provided for these shifts in resource allocation by BBC Radio11.

29. Each of these examples points to opportunities for improved resource allocation during the next Charter period in line with public service priorities. Moreover, taking steps to address

10 Adrian Van Klaveren on Victoria Derbyshire, 15 September 2011; BBC Trust, ‘Service Review of 5 live and 5 live sports extra’, January 2012; BBC Trust, ‘Service Review of Radio 4, Radio 4 Extra, Radio 5 live and Radio 5 live sports extra’ August 2015, p. 36 11 DCMS, ‘BBC Charter Review Public consultation’, July 2015, p. 37

these areas will support the growth and development of independent speech radio provision. On both counts, the beneficiaries are licence fee payers, who will experience an expansion in the availability of varied and high quality speech programming distributed on a free-to-air basis.

The BBC Trust asks: Do you have a view on all these ideas taken together as a package across the next Charter period?

30. Our overriding impression of the BBC’s Charter Review proposals is of a sustained attempt by the BBC to reinforce the status quo. The BBC Executive appears unwilling to confront more substantive questions about the scope and distinctiveness of its services, as well as the BBC’s impact on the wider market – particularly in relation to areas such as speech radio.