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Carriage of TV Channels in the UK: Policy Options and Implications

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Carriage of TV Channels in the UK: Policy Options and Implications Carriage of TV Channels in the UK: policy options and implications Report for the Department for Culture, Media and Sport July 2012 Mediatique Limited is a registered Limited company in England and Wales. Company No. 4575079. VAT registration 927 5293 00 Mediatique Limited is authorised and regulated by The Financial Services Authority Contents Abstract. ......................................................................................................................................................... 4 Executive summary ......................................................................................................................................... 5 1. Introduction ....................................................................................................................................... 9 Background...................................................................................................................................................... 9 Overview of this report ................................................................................................................................. 13 Sources and acknowledgements ................................................................................................................... 15 2. Estimating benefits and payment flows arising from carriage ............................................................. 18 Benefits at stake ............................................................................................................................................ 19 From benefits to ‘fair share’ payments ......................................................................................................... 22 Preliminary implications ................................................................................................................................ 24 3. Impact on content and consumers of a change to carriage regulation ................................................. 25 Summary and overview ................................................................................................................................. 25 The public service broadcasters .................................................................................................................... 29 Platform operators ........................................................................................................................................ 31 Conclusions.................................................................................................................................................... 33 4. Practical considerations arising from a carriage consent regime ......................................................... 36 Uncertainty about the outcome of commercial negotiations and content impacts ..................................... 36 Potential tensions with other aspects of PSB policy ..................................................................................... 38 Open platforms, free-to-air signals and the TPS regime ............................................................................... 39 Long-term considerations ............................................................................................................................. 43 Summary ....................................................................................................................................................... 46 5. Policy options .................................................................................................................................. 47 Options involving carriage consent (options A-D) ......................................................................................... 48 Options not involving carriage consent (options E-F) ................................................................................... 51 Other considerations ..................................................................................................................................... 52 Summary ....................................................................................................................................................... 53 Appendix A: Quantitative model .................................................................................................................... 55 Analytical framework .................................................................................................................................... 55 Estimation of key parameters ....................................................................................................................... 60 Appendix B: The US regime ............................................................................................................................ 64 Legal and regulatory regime .......................................................................................................................... 64 Negotiations in practice ................................................................................................................................ 64 Key differences versus the UK ....................................................................................................................... 65 Further reading ............................................................................................................................................. 66 Appendix C: Glossary of terms ....................................................................................................................... 67 Mediatique Limited is a registered Limited company in England and Wales. Company No. 4575079. VAT registration 927 5293 00 Mediatique Limited is authorised and regulated by The Financial Services Authority 2 Disclaimer The sources used by Mediatique in the compilation of this report are believed to be accurate but Mediatique takes no responsibility for the accuracy of information derived from third-party sources. Mediatique has not undertaken legal or technical due diligence of any kind. The information contained in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information. This document may not be reproduced without the consent of Mediatique. The opinions expressed in this report have been informed by sources believed to be reliable but neither Mediatique, nor any of its directors, officers, or employees accepts liability from any loss arising from the use hereof or makes any representations as to its accuracy and completeness. Mediatique Limited is a registered Limited company in England and Wales. Company No. 4575079. VAT registration 927 5293 00 Mediatique Limited is authorised and regulated by The Financial Services Authority 3 Carriage of TV Channels in the UK: policy options and implications Abstract In this report for the Department for Culture, Media and Sport, Mediatique reviews the regulatory and commercial context governing the carriage of public service broadcasting (PSB) channels on pay TV platforms. The central objective is to consider whether a deregulatory regime – allowing PSB channels and platforms to negotiate the terms of carriage – would lead to a more equitable flow of payments between the parties, and whether this in turn would lead to an increase in expenditure on UK original content. In order to address these issues, we review the current legislation and guidelines affecting PSB channel carriage and the dynamics around payment flows and content outcomes. We thereafter table options that might be considered by Government and stakeholders as a means of meeting the dual objectives of deregulation and positive original content outcomes. In the course of the analysis, we have used historical data, (limited) international evidence and a simple numerical model to determine possible outcomes that could arise in the event that PSBs and platform operators freely negotiated the terms of carriage of core PSB channels. This simulation of a ‘carriage consent’ regime is provided as a means of informing the debate about payment flows, and is subject to a range of constraints in terms of any policy execution – for example, around current domestic and European legislation and implementation risks affecting consumers and viewers. We also point out a number of further complications – including whether a deregulatory approach would necessarily and reliably lead to increased investment in UK content, a key Government policy goal. We conclude that an outcome whereby payments flow from TV platform operators to PSBs is plausible and that this could lead to an increase in expenditure on original UK content industry wide. However, we stress that our analysis and modelling permit other conclusions to be drawn. Further, the implementation challenges are considerable. As a result, this paper should be viewed as a contribution to the current debate on platform fees and original content expenditure, and is aimed at providing a detailed framework for further discussion rather than a firm set of conclusions and policy recommendations. Mediatique Limited is a registered Limited company in England and Wales. Company No. 4575079. VAT registration 927 5293 00 Mediatique Limited is authorised and regulated by The Financial Services Authority 4 Carriage of TV Channels in the UK: policy options and implications Executive summary Overview DCMS, as part of its preparations for a Communications Bill, has identified
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