BBC Annual Report 2012/13

BBC Executive’s responses to follow‐up questions to 22 October 2013 oral evidence session

Lord Hall’s vision for the BBC

1. Given Lord Hall’s vision for iPlayer and the ability for users to become their own schedulers, assembling the content they like when they like from the BBC, will the BBC need as broad a portfolio of channels in future as it does today? Answer: Lord Hall’s speech on 8th October 2013 was explicit about the continued popularity of television channels, which serve a different need from services like iPlayer. Channels are social media, bringing people together in an environment where a channel scheduler has done the work of collecting together a set of programmes that they think viewers will want to watch. iPlayer still only accounts for around 3% of all BBC television viewing – the vast majority of what people watch today has been delivered via a television channel. But we also think channels will be different in the future – not just the traditional stream of linear programming. Users will be able to go back in time – through the backwards programme guide on YouView, for example. They will be able to go into the future or create their own schedule from programmes released early. Channels will know what users like to watch and suggest what they might want to watch next. Through services like the Connected Red Button, viewers of channels will be able to access extra coverage, alternative programmes, radio stations or content the BBC has made especially for online. 2. Viewers who only watch on‐demand and catch‐up services such as the iPlayer or 4oD don’t require a TV licence. Does the BBC’s plans for the iPlayer, with more content available for far longer on catch‐up— including programmes premiering online before broadcast—potentially undermine future licence fee revenue? Answer: At present a TV licence is needed if anyone in the household watches or records TV programmes in the year on any device at the same time as they are shown on TV. This requirement is commonly understood by people. Whilst a small number of homes watch only catch‐up TV and therefore do not need a licence, our analysis suggests they account for only 1‐2% of households overall (most households also watch some broadcast or live‐online TV and therefore need a TV licence).

In our view, the introduction of content premiered on iPlayer will not change this. We anticipate that the vast majority of households who watch content premiered on iPlayer will continue to also watch live TV, by broadcast means or online, and so will still need a TV licence. Premiering will enrich iPlayer as well as complement the BBC's broadcast services.

However, the licence fee definition could start to create perverse incentives, with a fee payable for some ways of consuming BBC TV but not others. We would welcome discussing this issue with the Committee to consider whether and when the licence fee should be modernised again.

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It is worth noting that the licence fee has always adapted flexibility to technology change over time, including through a relatively simple change to the regulations in 2004 to capture households watching linear TV over the internet – a change which is now well understood1.

3. Should TV licensing be required in future not only for those who watch programmes “as they are broadcast” but any use of iPlayer on any device? Answer: The licence fee definition remains robust, with only 1‐2% of households consuming exclusively on‐ demand content and so not requiring a licence fee. However, the definition could start to create perverse incentives, with a fee payable for some ways of consuming BBC TV but not others. We would welcome discussing this issue with the Committee to consider whether and when the licence fee should be modernised again. 4. How does the BBC currently enforce TV licensing for those who watch TV programmes as they are being broadcast on devices other than a television but claim only to watch catch‐up TV? Does the BBC seek, and do ISPs and mobile operators, provide usage information? Has the BBC successfully prosecuted anyone in this situation? Answer: We can and have prosecuted people watching TV illegally using equipment other than TV sets. There is no separate enforcement strategy as our existing approach enables us to catch people watching on any device. We don't have access to data from ISPs on people's web usage, and we are not seeking to obtain it. Fewer than 2 per cent of households watch only catch‐up TV and therefore do not need a licence2. Headcount 5. What is the current size of the BBC workforce and what is the headcount expected to be in 2015 when the Delivering Quality First saving target is to be achieved? Answer: The total BBC workforce (excluding commercial subsidiaries) comprised of 20,156 staff (18,644 full time equivalents) as at 31 October 2013. The DQF programme extends through to the 2016‐17 financial year and we anticipate that there will be further staff reductions through that period. Executive and talent pay 6. When negotiations were undertaken with existing senior managers over the introduction of the £150k cap on redundancy, was any attempt made to end the legacy of free private medical cover and car allowances that many still receive? What is the current cost to licence fee payers of these benefits? Answer: Car allowance and PMI are contractual, taxable benefits. Removing either benefit from current employees without consent constitutes a change in contractual terms which exposes the BBC to significant legal risks such as claims for unlawful deduction of wages, breach of contract and unfair

1 77% of those watching linear TV content on a PC or laptop at least weekly report that they know it requires a TV licence. 2 BARB Establishment Survey, Q2 2013. 2

dismissal. The BBC considers the legal risks when determining whether to remove contractual entitlements without consent. For changes to redundancy severance terms, while there is some legal risk, it is reduced because the majority of individuals will not be made redundant and there is no immediate impact on their terms and conditions. Removal of health care and car allowance would have an immediate and significant impact on the individual’s pay and benefits. PMI and car allowance have ceased being offered to new senior manager appointments since August 2011 and April 2012 respectively. The total annual spend on car allowance is £2.2m (in 2009, the annual spend on car allowance was c£3.6m). We do not offer the benefit to new SM appointments and the allowance is frozen so the annual cost will continue to reduce each year. The total annual spend on PMI, including insurance premium tax (IPT) was c£750k on renewal in January 2013. 7. It has been reported that last year BBC Worldwide bought Jeremy Clarkson out of Bedder 6, a company set up to bolster his pay, at a cost of £10 million to £15 million. What was the business case for buying Mr Clarkson out of this arrangement? Did this reduce the dividend that would otherwise have been returned for BBC public service operations in the year? Answer:

Bedder 6 was a joint venture between BBC Worldwide (BBCW) and Jeremy Clarkson (JC)/Andy Wilman (AW) (Top Gear presenter and Executive Producer respectively), established in November 2007. BBCW owned 50% of the shares in Bedder 6 and JC/AW 50%. The joint venture was set up to maximise the commercial value of Top Gear. It was successful in doing so with £149million of Top Gear revenues generated in the first five years. The joint venture ensured that the key talent was retained by the BBC.

Under the terms of the original agreement between BBCW and JC/AW, JC/AW had an option to put their shares and require BBCW to acquire their stake at market value, within five years. In April 2012 JC/AW exercised their put option. As a result BBCW reached a negotiated settlement with JC/AW to acquire their shares in a way that ensures JC/AW’s ongoing commitment to Top Gear. This settlement is structured to help safeguard the show’s long term future by incentivising JC/AW to participate in the development of the UK production and format and is forecast to deliver net incremental cash to BBCW over the next 10 years, and has a positive net present value to BBCW on conservative assumptions.

In total in 2012/13 BBCW returned £156million to the BBC in dividends and investment in content. The Bedder 6 deal did not reduce the level of dividend, which was paid in accordance with a pre‐determined target.

Does the overall figure in the annual report for pay on talent represent the total remuneration paid or are there any other deals with production companies via the BBC’s PSB or commercial operations in existence that may give a less full picture?

Answer:

The disclosures on talent spend in the BBC Annual Report and Accounts (for example, page 76 of the 2012/13 Annual Report and Accounts) represent the amounts paid directly to artists and

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contributors by the BBC in respect of their work on programmes for broadcast on the BBC’s public services. It excludes amounts paid to artists and contributors via independent production companies since the BBC does not have full visibility of, or manage, such payments, and amounts paid to artists and contributors by BBCW.

Bullying and harassment issues 8. In follow up to Lord Hall’s answer to Q6 of the transcript, how many disciplinary hearings have there been (and are forthcoming), and what has been the outcome of those that have already taken place? Answer: Between 1 January and 30 September 2013 there were 8 disciplinaries in relation to bullying and harassment/sexual harassment. These resulted in two written warnings, four final written warnings and one dismissal. The remaining case required no further action. 9. How many incidents of “whistle‐blowing” were reported at the BBC in 2012/13, and what proportion was made via the BBC’s independently administered “whistle‐blowing hotline”? What was the nature and outcome of these reported incidents? Answer:

In 2012 there were a total of 42 incidents of whistle‐blowing. 22 of these were reported via the Expolink service (the BBC’s independently administered ‘whistle‐blowing hotline’). The cases involved allegations of incidents of fraud, computer misuse, bullying/harassment, data protection breaches/violations and theft. Two resulted in termination of employment; 25 were referred to HR/management/the police.

In 2013 there have been a total of 23 incidents of whistle‐blowing so far. Six of these were reported via the Expolink service. The cases involved allegations of fraud, sexual assault, harassment/bullying, copyright infringement, HR/miscellaneous complaints or theft. One resulted in termination of employment (and was reported to the police); two employees were disciplined; nine were referred to HR/Management/litigation/the police; seven are still under investigation.

Governance 10. How does the present internal review of the BBC’s system of governance differ from the review Lord Patten held after his appointment in 2011, which concluded back then that improvements could and would be made in areas such as the roles and responsibilities of the Trust and the Executive Board, and the interaction between both boards? Why were the problems that ensued not picked up and resolved as a result of the previous governance review?

BBC Trust answering.

11. KPMG have been the BBC’s auditors since 1995. Does the BBC believe there is a risk that appointment of this length can undermine an auditor’s objectivity and independence? What actions have the BBC Executive taken to preserve their independence? What does the BBC assess as potential or perceived threats to auditor independence?

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Answer: The BBC takes the independence of its auditors very seriously. There are various mechanisms and processes to ensure independence of the auditors.

Responsibility for appointment, dismissal and fees The appointment governance process is established under the BBC’s Charter. The Charter requires the BBC to appoint an eligible auditor with the approval of the Trust and the Secretary of State (for Culture, Media and Sport). The BBC’s Audit Committee has the responsibility to oversee the appointment, dismissal and remuneration of the auditors and will make recommendations to the Trust accordingly. The Audit Committee is comprised entirely of non‐ executive directors, in line with good practice corporate governance.

Regular tendering The appointment of the external auditors is tested periodically through tendering exercises. In 2008 KPMG competed with other audit firms on the BBC’s consultancy framework and as a result of that exercise were awarded a further contract for audit services. This is now coming to an end (2013/14 is the final year) and another tender exercise is planned to commence shortly.

Review of non‐audit fees paid to auditors The Audit Committee has a formal process for awarding any additional work to KPMG and regularly monitors the level of fees for any such additional work to ensure that such work is not incompatible with auditor independence.

KPMG processes As an established, well regarded, international audit firm, KPMG has its own processes for ensuring independence is maintained. It discusses these with the Audit Committee each year. These processes include the regular rotation of key audit personnel with a maximum time limit that staff may work on the BBC’s audit.

12. The BBC’s Charter expires in 2016 and is something that is not mentioned in relation to pension risk or in any area of the BBC’s risk register summarised in the annual report. Why is this not considered a risk, given that the Corporation has no assurances whatsoever on future funding or a range of other matters? Answer: The BBC acknowledges that, due to the way in which it is constituted under fixed term Royal Charters, on the expiry of each Charter the Corporation may be subject to changes in its status, scope, or funding model. The BBC seeks to mitigate this risk through the fulfilment of its Public Purposes, and by ensuring that it continues to serve all audiences with high quality, distinctive content. Recent statements suggest that there is prevailing public and political support from all three main parties for the BBC to continue as an entity beyond the expiry of this current Charter. The risk register included in the BBC Annual Report and Accounts is a summary of the main operational risks facing the Corporation. Charter Review is considered to be a broader strategic issue rather than an operational risk concerned with the day to day running of the BBC. Moreover, the BBC Annual Report and Accounts are prepared on a going concern basis in accordance with International Financial Reporting Standards, meaning that there is an underlying presumption that

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the business will continue to function for the foreseeable future. The risk register included in the Annual Report and Accounts is prepared on a basis consistent with this approach. In terms of the BBC’s risk management processes, Charter Review is reflected in terms of its potential impact on different areas of the BBC’s activity rather than as a risk in and of itself. For example, in its procurement of long‐term supply contracts the BBC will take account of Charter Review risk through the inclusion of provisions which define how contracts may be terminated in certain circumstances. With regard to pensions risk the Trustees of the BBC Pension Scheme are responsible for evaluating the quality of the BBC’s covenant as sponsor to continue to honour its financial obligations to the Pension Scheme in all eventualities, including an assessment of the likelihood and impact of any future changes under Charter Review. In discharging this responsibility the Pension Scheme Trustees commission an independent expert to conduct a covenant assessment as part of their statutory duty to carry out regular valuations of the Scheme. This has most recently been carried out as part of the 2013 actuarial valuation of the BBC Pension Scheme, and the Pension Scheme Trustees have taken this risk in to account in reaching their overall valuation. BBC Journalism, News and Current Affairs 13. In his recent speech Lord Hall said that the BBC’s ambition is to double its global audience by 2022 to half a billion. How will the BBC realise this ambition and what percentage of the half a billion audience does the BBC envisage would be paying for its content? Answer:

The growth of mobile internet around the world and the potential to expand the BBC’s global news reach on TV are the opportunities that are likely contribute most to reaching half a billion. Given the stretching nature of this target, the BBC has also asked Sir Howard Stringer (former Chairman of Sony) to assist in drawing together both internal ideas and external insights on how to achieve it. Commercial income is expected to play an important role in funding the investment required. It is impossible to say at this stage exactly how the BBC will be consumed in 2022; as now, some countries will be reached entirely by commercially funded services, but public funding will also remain essential in meeting the global audience requirements and in particular in providing news to markets of greatest need. 14. There has been a sizable increase in the proportion of complainants not satisfied with the BBC’s initial response to complaints and an increase year on year in the number appealing both to the Executive’s Editorial Complaints Unit and then on to the Trust’s Editorial Standards Committee. Why is that?

Answer:

There has not been a sizable increase in the proportion of complainants not satisfied with the BBC’s initial response to complaints. Between 1 April‐30 September 2013, 0.24% of Stage 1 complaints were escalated to Stage 2, representing a slight fall compared to 0.25% between 6

April‐September 2012. During the same period, 0.15% of complaints were escalated from Stage 2 to Stage 3, representing a slight rise from 0.1% between April‐September 2012.

The volume of complaints escalated from Stage 1 to the Editorial Complaints Unit (within this very small proportion), and then from Stage 2 to Stage 3, has increased sizeably. This is largely because of online and social media campaigns, which generate large numbers of almost identical complaints around a particular issue. In the current year to date there have been fewer occasions which provoked such campaigns, and the number of complaints referred to the ECU is somewhat lower. 15. Channel 4’s audience research shows that viewers perceive Channel 4 News as being more independent both from the influence of big businesses, and from the government, than the BBC and other broadcasters. Does the BBC accept their findings? BBC Trust answering. Programmes and audiences 16. The BBC reaches 96% of the population but reach of individual services varies significantly with some as low as 1%. Are there any BBC services whose reach is too low for effectively serving audiences and providing value for money? BBC Trust answering. 17. In 2012/13, what was the 15 minute reach among 16‐34 year olds for (i) each of the BBC’s television services and (ii) the television portfolio in aggregate? Answer: Please see the data below. As per the Annual Report, 3+ mins consecutive reach is also given for the BBC News Channel and BBC Parliament3. The BBC TV portfolio has higher reach amongst this age group than competitors’ TV portfolios.

2012/13 Average weekly reach (15+ mins cons) Channel % of16‐34 year‐olds BBC One (SD+HD) 65.4 BBC Two 33.8 BBC Three 29.4 BBC Four 5.5 CBBC Channel 3.8 CBeebies 10.4 BBC News Channel 5.3 BBC News Channel (3+ mins cons in line with industry standards) 9.0

3 BARB, FY1213 = 020412‐310313; FY1112 = 040411‐010412. All homes. Run in AdvantEdge, reach data has been run in the Time Module. BBC Portfolio includes BBC One (inc. HD), BBC Two (inc. HD), BBC Three, BBC Four, BBC HD, BBC News, BBC Parliament, CBBC, CBeebies, BBC Red Button (inc. Olympic streams) 7

BBC Parliament 0.2 BBC Parliament (3+ mins cons in line with industry standards) 0.4 BBC TV Portfolio 76.2

18. What was the average amount of BBC television viewing for teenagers in 2012/13 and prior year? Answer: Please see below average weekly reach for the BBC TV portfolio and time spent watching the BBC TV portfolio in 2012/13 and 2011/124. The BBC TV portfolio has higher reach and time spent amongst this age group than competitors’ TV portfolios.

2012/13 13‐19 year‐ 2011/12 Measure olds 13‐19 year‐olds BBC TV Portfolio average weekly reach % (15+ min cons) 70.6 71.5 BBC TV Portfolio hours per head per week (hh:mm) 03:59 03:50

19. In 2012/13 and in the prior year, what were the 15‐minute and 30‐minute weekly reach figures for BBC Three among (i) 16 to 34 year olds and (ii) its overall audience, when acquired programmes and programmes transferred from BBC One and BBC Two are excluded? Answer: 2012/13 ‐ When acquisitions and transfers from BBC One/BBC Two are removed, 66% of the channel’s output remains (in terms of programme minutes broadcast). 15‐minute (consecutive) average weekly reach to programming excluding the acquisitions/transfers stands at 2.76m 16‐ 34 year‐olds (that is c65% of BBC Three’s average weekly reach to 16‐34 year olds before the exclusions) and 8.12m individuals overall (that is 62% of BBC’s Three average weekly reach to all individuals before the exclusions)5. 2011/12 ‐ When acquisitions and transfers from BBC One/BBC Two are removed, 65% of the channel’s output remains (in terms of programme minutes broadcast). 15‐minute (consecutive)

4 BARB, FY1213 = 020412‐310313; FY1112 = 040411‐010412. All homes. Run in AdvantEdge, reach data has been run in the Time Module. BBC Portfolio includes BBC One (inc. HD), BBC Two (inc. HD), BBC Three, BBC Four, BBC HD, BBC News, BBC Parliament, CBBC, CBeebies, BBC Red Button (inc. Olympic streams)

5 BARB, 15 mins consecutive average weekly reach (minus acquisitions/films and programmes transferred from BBC One/Two) among all individuals 4+ and 16‐34 year‐olds, FY1213 = 020412‐310313; FY1112 = 040411‐010412. Run in AdvantEdge, reach data has been run in the Programme Module. The definition of 15‐minute consecutive reach used for this analysis differs slightly from the channel reach figures provided earlier. This is because this is a more complex analysis only possible using a different application which bases channel reach on an individual watching the specified minutes consecutively of one programme and automatically excludes programmes of less than the specified reach minutes. This is different from the industry standard application for calculating channel reach which bases reach on an individual watching the specified number of minutes consecutively of the channel ‐ be that of one programme or split over more than one programme as long as it is consecutive. This application does not allow analysis at an individual programme level. 8

average weekly reach to programming excluding the acquisitions/transfers stands at 2.81m 16‐ 34 year‐olds (that is 64% of BBC Three’s average weekly reach to 16‐34 year olds before the exclusions) and 7.97m individuals overall (that is 61% of BBC’s Three average weekly reach to all individuals before the exclusions). We are unable to provide the 30 minute consecutive average weekly reach figure as requested. This is because the industry software we use for analysis of this type would automatically exclude any programme of under 30 minutes when calculating 30 minute consecutive average weekly reach. This would mean that the reach figure generated would exclude not only acquired programming and that transferred from BBC One and Two but also all BBC Three originations of under 30 minutes in length6. 20. What was the cost per user hour figure for BBC Three in 2012/13 excluding the hours viewed of acquired programming and transfers from BBC One and Two? Answer: The cost per user hour of BBC Three originations in 2012/13 is 9.4p. 21. The BBC spent £70 million in 2012/13 on acquired programmes. How much of this was spent on acquired programmes produced outside the UK and what was the comparative figure for 2011/12? Answer: In 2012/13, 85% of the £70m acquired programming was produced outside of the UK. The 15% UK‐produced acquisitions included children’s programmes like Shaun the Sheep and Rastamouse; stand‐up comedy shows from Andy Parsons and John Bishop and British movies like Calendar Girls. To put this in context, the BBC’s network TV spend on originations is £1.3bn7. In 2011/12, 85% of the £75m acquired programming was produced outside of the UK. 22. The BBC’s Purpose Remit Survey for 2012/13 found that 80% of people “would miss the BBC if it no longer existed”. This represents a decline from 82% in autumn 2011 and 85% in 2008/09. Why did the BBC not note this downward trend in the Annual Report whilst simultaneously highlighting small but favourable increased figures elsewhere? How concerned is the BBC that a fifth of the population wouldn’t miss the BBC if it no longer existed at all? BBC Trust answering. 23. The BBC’s Purpose Remit Survey also found that in 2012/13 a majority of important population segments didn’t think the BBC offered them much or was good value for money (e.g. C2DEs and black audiences). Why are these figures not reported in the Annual Report? BBC Trust answering.

6 This processing issue of the system automatically excluding programmes of under 30 minutes in length also pertains to the 15‐minute reach results as the system will have excluded all programmes of under 15 minutes when calculating the 15‐ minute reach excluding acquisitions and transfers. However, because only a small proportion of the schedule is under 15 minutes in length this is not the material issue for the 15‐minute consecutive reach that it is for 30‐minute consecutive reach when using the Programme Module. 7 Ofcom figures for 2013. 9

24. The figures showing that 4 out of 10 people still think the BBC is not good value for money hasn’t changed in at least five years, despite the BBC’s longstanding aims for improvement. Why is that? BBC Trust answering. 25. The Annual Report states that the average listener and viewer spends 19.5 hours a week with the BBC. How does this break down by average for television, radio and online? Answer: In 2012/13 the 96% of the UK adults who used the BBC each week spent 19:26 hours on average per week with BBC services. This 19:26 breaks down as follows8:

• BBC Television: 10:07

• BBC Radio: 08:15

• BBC Online: 01:04 26. Weekly reach figures for BBC television and radio are based on 15 minute reach. Why is reach for BBC online services, including viewership of both live and on‐demand programmes on BBC iPlayer, based on 3+ minute reach? Answer: 3‐minute reach is used for BBC Online in order to also capture the activities that people naturally want to access as quickly as possible in the online sphere e.g. checking news headlines, the weather, sports results. As stated in the Annual Report, in 2012/13, the average weekly reach of BBC Online based on 3‐minute reach was 48.1%. For the reason stated above, this is the preferred reach criteria. However, for information, in 2012/13 the average weekly reach of BBC Online based on 15‐minute reach was 38.7%9. BBC Children’s services 27. What improvements to BBC Children’s services will we see by the end of this current financial year? Answer:

BBC Children’s has initiated a number of initiatives in response to the recent BBC Trust review of BBC Children’s services. In most cases the timescale for reporting back on these is one year since the publication of the report (September 2014). Listed below are the BBC Trust’s recommendations for BBC Children’s, plus some key initiatives which viewers should start to see implemented before the end of this current financial year:

8 Cross‐Media Insight Survey by GfK, 2012/13 = Weeks 14 2012 to 13 2013, adults 16+. This data is from the Cross‐Media Insight Survey run by GfK for the BBC. This survey is designed to give a weekly Pan‐BBC reach figure – such a figure is not possible to ascertain from industry sources such as BARB and RAJAR as they measure TV and Radio separately. The Cross‐Media Insight Survey also collects details of the amount of time that those adults using the BBC each week record as spending with BBC services in a daily diary– those figures are given above. 9 Cross‐Media Insight Survey by GfK, 2012/13 = Weeks 14 2012 to 13 2013, adults 16+

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BBC Trust: We fully support plans by BBC Children’s to improve the services’ reach to older children and to those who have more choice in satellite and cable households. We also support the plans to improve the transition of children aged 4‐6 between CBeebies and CBBC. The increase in non‐linear viewing creates further opportunities to serve children of different ages in different ways.

The opportunities created by non‐linear viewing dovetail with plans to improve reach to older children, as access to iPlayer via mobiles and tablets is higher amongst the 9‐12 year old audience. We are beginning to premier some programmes online (such as The 4 O’clock Club) and we are also creating more online‐only or red button‐only content such as the recent Wolfblood ‘secret’ episode.

We are also exploring a CBBC YouTube channel, as a means of highlighting content to audiences who are not regular consumers of CBBC but do use YouTube often. This channel could include preview clips of upcoming programmes, behind the scenes films of how CBBC shows are made and special interviews with cast. All of the material on a BBC Children’s YouTube channel would point users back to the CBBC website. A new comments feature on the CBBC website has recently launched, enabling fan‐based participation around key programmes which appeal to an older age range.

Creating drama and comedy shows with the right ‘older’ tone, in terms of characters, subject matter and production values, is also key to reaching 9‐12 year olds. Drama and comedy in particular perform well in satellite and cable households, and this is reflected in the CBBC commissioning and investment strategy. CBBC will continue to produce dramas which appeal to an older age range, such as Wolfblood, The Dumping Ground and the newly‐commissioned World’s End, as well as comedy dramas such as the 4 O’clock Club, All At Sea and the new Hank Zipzer next year. In addition, the first‐ever CBBC comedy panel show called The Dog Ate My Homework will air soon and will provide a platform for developing CBBC comedy talent.

There are plans to extend recent collaborations with BBC One in order to re‐purpose prime‐ time content for the CBBC audience. An upcoming example is Richard Hammond’s Miracles of Nature, due to be broadcast in January 2014. Further collaborations, such as showing family films across both BBC Three and CBBC, are also in development.

A mix of strategic initiatives is already in place to transition the 4‐6 year olds CBeebies audience across to CBBC. A recent pilot navigated CBeebies viewers across to the CBBC schedule, and this experiment will be repeated again over Christmas 2013. An online game is now in production which will, for the first time, appeal to both the CBBC and CBeebies audience and exist in different variations on both websites. Versions of key CBBC programme brands are also being considered for CBeebies.

BBC Trust: We support the current scope of the BBC’s radio and audio output for children but the Executive should find ways to promote it more effectively so that audience awareness levels increase and more children might discover speech radio programming that appeals to them.

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BBC Children’s is developing further initiatives to increase awareness of CBeebies Radio. These include: a possible tie‐in with the CBeebies schedule in order to navigate viewers to appropriate radio content; an increase in navigation messages via continuity links and trails (already underway); and exploring how CBeebies Radio could be supported on the BBC’s other radio networks. Underpinning all these initiatives are plans to further develop and simplify how parents can access CBeebies radio content in order to make it easier for children to discover audio programming.

BBC Trust: To allow us to monitor the impact of DQF more effectively, and to support performance accountability generally, the Executive should establish robust quality metrics for children’s content, which are regularly analysed and reported to the Trust as standard.

In the next financial year BBC Children’s will meet its DQF targets and will continue to deliver a high‐quality mix of content, partly via securing commercial co‐production funds from other partners. The children’s tracker ChatterBox has become our tool for understanding what children think about our brands and content. The survey has been designed with children in mind (although some adult supervision is naturally required for younger ones), with length of survey and language kept front of mind. This will provide a much improved understanding of our audience’s attitudes to the quality and overall brand strengths of CBBC and CBeebies. As the audience data builds over successive quarters, this will become a key component in how we report back to the Trust.

BBC Trust: We support the development of plans by BBC Children’s to improve its online and interactive offer to meet audience needs and expectations better.

Responding to the growth in consumption via mobile and tablet is a critical element of BBC Children’s online plans. Already underway and due to deliver in 2014 are fundamental changes to both the CBBC & CBeebies website, which will enable them to better serve content to mobile devices. Developments around the recently launched and highly successful CBeebies app are planned, as are app plans for CBBC, both due in the next six months.

BBC Children’s are also working with the BBC iPlayer team about potential enhancements which will benefit younger users.

A possible YouTube channel has already been outlined above – which would link back to the CBBC website. The first CBBC interactive game show will launch early in 2014, allowing viewers to play along at home online, in sync with the broadcast content.

28. Does the BBC believe that the 9‐12 year‐old and the 12‐16 year‐old audiences are underserved, and if so how does it plans to deal with the problem? Answer:

The BBC Trust’s review of BBC Children’s services did not conclude that older children (9‐12 and 12‐16 year olds) were underserved, although they did ask the BBC Executive to address a number of challenges identified during the review. To fully reach 9‐16 year olds, BBC Children’s must deliver the right mix of content on the right platforms. 12

It is worth noting that trend data shows that younger audiences tend to move away from the BBC, and TV consumption in general, but then return as they grow older. However, although there is no dedicated BBC service for 12‐16 year olds, we know that they consume BBC services in significant quantities. For example: • BBC One has a reach of 57.4% to 12‐15 year olds10; Radio 1 has reach of 30.4% • Programmes such as Doctor Who, Miranda, Waterloo Road, The Voice, Eastenders and The Apprentice do particularly well with this age bracket • We also have a strong online offer (iPlayer and Bitesize) which appeals to this age bracket

We continue to look to strengthen our relationship with this young audience: • On BBC One and Two, we invest to ensure our content has the widest appeal – focusing on drama, factual entertainment and entertainment • Developing our iPlayer proposition, with more investment in online‐first or online‐only content, which is likely to skew younger • Creation of a dedicated group to identify, create or kickstart ideas which will primarily benefit a younger audiences • 29. What proposals does the BBC have for improving the reach of BBC Children’s regionally, amongst boys, and amongst BAME audiences? Answer:

BBC Children’s acknowledge the challenges highlighted in the BBC Trust review of BBC Children’s services: • There are variations in the 2012‐13 average weekly reach of CBBC, most notably the South versus the North, Scotland and Northern Ireland. • In 2012‐13, 4% more girls than boys watched CBBC. • Weekly reach amongst white children was 3.7% higher than amongst children from BAME homes in 2012‐13.

Regional reach Since BBC Children’s moved to Salford in 2011 and enhanced its production activity in the North of England, the gap in CBBC viewing between northern and southern audiences has narrowed from 5% in mid‐2012 to 3.2% in mid‐2013.

We believe our regional portrayal and activity is improving all the time, partly thanks to our production unit in Glasgow and new commissions from independent production companies based in Northern Ireland and Wales. In addition, BBC Children’s hosts live events across the country; for example, 40,000 attended ‘Live in Leeds’ this summer, with another event in Newcastle planned for 2014.

Examples of children’s programmes produced outside of London and the South include:

10 We do not have data to hand for 12‐16 year olds 13

• All at Sea, made in Scarborough • The Dumping Ground, made in Newcastle • Wolfblood, made in Northumberland • 4 o’clock Club, made in Manchester • Young Dracula, made in Liverpool • Stepping Up, made in Liverpool and Wales • Hit the Stage and the animated segments within comedy‐drama Roy, both made in Northern Ireland • Numerous studio shows continue to be made in Salford, including: Blue Peter, The Slammer, Swashbuckle, Friday Wind Up, Daredevil • Time for School contrasts two very different communities for a young audience – one in Birmingham and the other on Holy Island • New CBeebies drama series Katie Morag is filmed on the Isle of Lewis, set in one of UK’s most far‐flung communities

The BBC Trust review acknowledged that regional disparities are in part driven by the relative penetration of satellite and cable (where BBC services perform less well) – and therefore BBC Children’s plans in relation to satellite and cable homes should also help improve BBC Children’s regional reach.

Reach amongst boys Some of the key elements which make content attractive for boys are: action‐adventure drama, comedy, animation and gaming in particular. CBBC will continue to create online games based around the most popular TV shows and will make these games increasingly available for mobile and tablet. As already highlighted, the first CBBC interactive gameshow to allow online ‘playalong’ via second screen is due to launch in January 2014. CBBC app plans are in development and these have great potential to deliver gaming content.

CBBC will continue to commission action‐adventure dramas such as Wizards v Aliens, comedies such as 4 O’clock Club, All At Sea and Hank Zipzer, and is unique in providing entirely UK‐produced animation series such as Strange Hill High and Dennis & Gnasher.

Although there is less gender disparity within the CBeebies audience, it is worth noting recently‐ commissioned content in two areas favoured by boys – pirates in the highly successful Swashbuckle (plus associated online games) and dinosaurs via a BBC Bristol production featuring the Natural History Unit’s extensive ‘Walking With Dinosaurs’ archive. Immersive dinosaur games will also be available soon.

In animation, we show strong boy‐oriented action titles such as Mike the Knight, Tree Fu Tom and Octonauts

Reach amongst BAME audiences Diverse portrayal on BBC Children’s is critically important. At both the commissioning and production stage, we interrogate producers on the subject of diverse portrayal and insist that our programmes reflect the broadest possible spectrum of children and families across the UK.

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Diversity onscreen is enabled partly via a wide‐range of presenting talent – such as Cat Sandion and Sidney Sloane on CBeebies, the Newsround reporting team and new Blue Peter presenter Radzi Chingyanganya on CBBC. We also make sure that a diverse range of talent feature in primary roles within drama and comedy shows – examples being the protagonists in The Dumping Ground, 4 O’clock Club, Wolfblood and Johnny & Inel.

We also take steps to make sure that a wide range of our audience feature onscreen, whether in the wider cast of scripted programmes or as participants in series such as Nina & the Neurons and the award‐winning Something Special (which engages with a very diverse range of children who have learning disabilities).

BBC Studios and Post Production

30. The BBC’s Annual Report and Accounts stated that the new post‐production house’s “sales pipeline is encouraging”, but in evidence Anne Bulford said that a few months into the venture it became clear that the demand simply was not going to come through. Why did you keep this statement in the BBC’s Annual Report and Accounts (page 109)?

Answer: It should be emphasised that the post production operation being referred to sits within the BBC Commercial Holdings Group, rather than being licence fee funded. Following the decision to sell BBC Television Centre BBC Studios and Post Production, a commercially funded subsidiary, was required to review its operations all of which had been historically housed within the building. A decision was made in Autumn 2012 to re‐locate the small post production team (c.15 individuals) to a new base in Charlotte Street. The operation was set‐up on a trial basis (short term lease / limited capital investment) to test whether the business could be made to work in a new central London location. The alternative would have been immediate closure. The business had a soft launch in Spring 2013 and initial indications were encouraging (for example many customer visits and expressions of interest and a good number of business leads being pursued and won). In May/June 2013 (when S&PP provided their update for the BBC Annual Report), the sales pipeline was still looking promising with one very material longer term contract in discussion. However in the ensuing weeks, many key target projects were not secured and it was clear that demand for the business was lower than anticipated and certainly less stable/predictable. After reviewing the sales pipeline and other operational factors the decision was taken to close the operation during 2014. By acting decisively, the company was able to minimise losses. The venture did not involve licence fee funding. 31. What were the Charlotte Street post production facility losses for the year? Answer: The Charlotte Street operation was not funded by the licence fee. This is therefore a commercially confidential matter.

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32. Why hasn’t BBC Studios and Post Production turned a profit in any of the last six years? What is the projected profit or loss for the year 2013‐14? Answer: BBC S&PP has made an operating profit (excluding exceptional items) for each of the last 4 years. The Company has encountered a number of exceptional, one‐off costs in recent years largely due to BBC‐related initiatives, which have led to net losses. These include restructuring costs generated by the move of the BBC Sports and Children’s divisions to Salford and asset write‐offs connected with the sale of BBC Television Centre. As a commercially funded limited company, BBC S&PP does not customarily make public announcements about forecast trading results due to commercial sensitivities. 33. Does BBC Studios and Post Production make a profit on the services provided to Channel 4, ITV and Sky? If not, why does it continue providing those services? Answer: As a commercial operation, BBC S&PP does not make disclosures about the profitability of individual client contracts. 34. Has the BBC considered selling off BBC Studios and Post Production (or further parts of it) and buying in capacity and services from others? Answer: BBC S&PP emerged from the BBC Resources division in 2008 when a number of strategic options were looked at for the Corporation’s commercial studios and post production operations. As the 100% shareholder in BBC S&PP, the Corporation regularly reviews the full range of strategic options for BBC S&PP. Delivering Quality First (DQF) programme 35. In 2012‐13, the BBC incurred £43.7m in restructuring costs. What is the payback period for the restructuring costs incurred by each of UK PSB Group, BBC Worldwide, BBC World Service and BBC Monitoring in 2011‐12 and 2012‐13? Answer: The £43.7m recognised in 2012‐13 in the accounts consists mainly of accounting entries (as per accounting standards). It is not therefore based on actual payments made in the year. The BBC calculates payback periods on the expected cash timings for restructuring cases, consequently the payback analysis provided below has been based on the actual redundancy payments incurred during each of the financial years in question (cash payments), as opposed to the year in which a provision was raised for these payments (accounting entries):

2011/12 Payback 2012/13 Payback UK PSB Group 1.2 1.3 BBC World Service and BBC Monitoring 1.1 1.5 BBC Worldwide 0.8 0.7

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36. Why have finance and operations costs increased by 19% to £67.7m in 2012‐13? Answer:

Between 2011‐12 and 2012‐13 finance and operations commenced two key projects, incurring an additional c£10m of expenditure. These transformation projects are underway to deliver ongoing savings under our DQF efficiency programme, with one completing in the current financial year. There was also a £1.6m prepayment made against our group insurance premiums in the year, the benefit of which is being seen in 2013‐14. The current recurring costs of the division are now below those seen in 2012‐13, in line with our DQF savings targets. Long‐term Contractual Commitments 37. Could you provide a breakdown of the £2.5bn “other fixed payments on long term outsourcing arrangements” on page 59 of the BBC Full Financial Statements 2012/13? Answer: Please see the breakdown in the table below:

Sum of other commitments (£m) Distribution 1,816 Technology 232 Broadcast services 132 Property 88 Other 201 TOTAL 2,469

38. Does the BBC have any significant variable cost long‐term contractual commitments relating to future years beyond the £3.6bn fixed costs quoted in the Annual Report? Answer: All of the contracts in the table above have variable elements that are dependent on a number of factors. The variable elements are considered as part of the forecasting and budgeting process for the BBC as they are not committed payments. Foreign Exchange and Interest Rate Risk Management 39. How does the BBC assess the costs to itself of covering its FX and interest rate risk in the way in does (e.g. by using forward rate agreements, interest rate caps and collars)? How does the BBC determine its risk appetite and how often is this reviewed? Why is the coverage of swaps and collars of £132.6m (70%) higher than the current level of borrowings? Answer:

Foreign Exchange

The BBC has historically run a conservative Foreign Exchange policy with the primary objective being to protect the business from cash flow volatility related to foreign currency movements. All the foreign exchange activity carried out is purely for hedging purposes and no speculative 17 trading activity takes place. The Group Treasury function is not run as a profit centre but as a cost centre.

For major contractual commitments any individual exposure over £25k sterling equivalent is hedged (or smaller contractual payments amounting to over £100k per annum). The hedges are arranged as and when each contracted exposure arises and out to the end of the current Charter Period for any longer term commitments.

Additionally within the commercial business a rolling monthly hedge programme is used to hedge forecast foreign currency cash‐inflows over a two year time horizon. By the start of each financial year 80% of that years forecast exposures will be hedged and 40% of the subsequent years. The cash flow forecasts are reviewed on a regular basis and formally on a quarterly basis to ensure the level of hedging is consistent with the underlying exposures. A similar policy is employed for the World Service and News gathering for foreign currencies required to run their operations.

There is no direct cost to the BBC in covering foreign exchange risk over the relatively short timeframes involved with most contracts. For longer term hedging any cost beyond market rates and spreads is limited to credit charges made by the banks to cover their potential exposure to the trading counterparty over the term of the deal. The BBC does not pay option premia.

The policy was most recently reviewed earlier this year as part of the BBC Finance Effectiveness programme and there is regular monthly reporting to senior management.

Interest Rates

The general policy employed is to have 80% of the projected total interest payable over each financing cycle at a fixed rate. Traditionally interest rate swaps / caps or collars have been used for this purpose. The hedges are constructed against forecast debt levels on completion of each piece of financing being arranged.

The level of hedges in place within the commercial business at March 2013 was, as noted in the Annual Report, £132.6 million higher than the actual level of debt at that date. It should be noted that £70 million of hedges matured in early to mid‐April 2013. Most of the remainder of the over‐hedge is related to seasonality within the business, the peak debt runs at a level c£50 million higher than year end debt. The final factor is related to the hedges being arranged against debt forecasts that have a four or five year time horizon and there is inevitably some variation between these long range debt forecasts and actual debt.

Upon completion of the current budget cycle a full review of the interest rate hedges in place will be undertaken and any hedges that are, in the light of those long term forecasts, no longer required will be unwound. This exercise will be completed by the end of the 2013/14 financial year.

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No interest rate hedges are held at the BBC at this stage in relation to the Public Service facilities arranged. Annually, upon completion of each budget cycle a full review of the interest rate hedges in place is undertaken and any hedges that are, in the light of those long term forecasts, no longer required are unwound. This year's exercise will be completed by the end of the 2013/14 financial year.

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