PSB2 Digital Future

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PSB2 Digital Future Ofcom’s Second Public Service Broadcasting Review Phase 2: preparing for the digital future Consultation Publication date: 25 September 2008 Closing Date for Responses: 4 December 2008 Contents Section Page 1 Executive summary 1 2 Stakeholders’ responses to our phase 1 consultation 10 3 New evidence from audiences and economic analysis 25 4 Refined models for public service content in the future 52 5 The models in the nations, regions and localities 67 6 Funding options 86 7 Regulatory decisions for the short term 113 8 Next steps 120 Annex Page 1 Detailed analysis of short-term regulatory options 123 2 Responding to this consultation 146 3 Ofcom’s consultation principles 148 4 Consultation response cover sheet 149 5 Glossary 151 Ofcom’s Second Public Service Broadcasting Review - Phase 2: preparing for the digital future Section 1 1 Executive summary The Public Service Broadcasting review so far 1.1 Ofcom is required by Parliament to review public service broadcasting at least once every five years, and to make recommendations about how its quality can be maintained and strengthened. In doing so, our focus is on audiences’ needs: both understanding them, and ensuring they continue to be met as sweeping changes take place in the media landscape. 1.2 Our comprehensive research in phase 1 showed the importance audiences place on the continued availability of high quality, original UK content that meets public service purposes, from a range of providers. For now, linear television remains the main way of watching this content, but audiences are enthusiastically taking up the opportunities of digital media, especially younger audiences. 1.3 We found that the broadcasters are broadly fulfilling the purposes of public service broadcasting, but that the existing model for commercial provision of public service content lacks the flexibility to adapt to audiences’ evolving needs. The market is unlikely to deliver all that audiences consider important in the future, with gaps already emerging in valued genres. 1.4 We asked stakeholders for views on these findings and on four illustrative models for public service broadcasting delivery, alongside possible ways of funding those options. We also asked what action stakeholders considered appropriate in the short term. This phase 2 document addresses the many and varied responses we received, and elaborates on the choices lying ahead. While the BBC is highly valued, stakeholders and audiences want alternatives to it, and do not agree on how to achieve this 1.5 The importance to viewers of public service broadcasting and UK originated content was widely accepted by respondents to our consultation. Audiences value the BBC very highly, but virtually nobody favoured it becoming the only provider of public service content. 1.6 Views about the need for new intervention to sustain provision beyond the BBC were more varied. Some respondents argued that the market would meet most future needs, while others suggested that existing indirect funding for the commercial public service broadcasters (PSBs) would support a greater level of ongoing provision than we forecast. 1.7 In contrast, some respondents felt that the growing pressures on commercial public service content demanded more urgent action, arguing for sharply reduced obligations, or for new funding to replace the declining indirect subsidy. Several respondents argued phase 1 neglected the role of local content, especially on digital terrestrial television. 1.8 There are compelling arguments and strong audience support for alternative public service provision to complement the BBC. However, some respondents argued we had overstated the importance of this. To investigate, we reviewed new viewing data showing that competition in public service provision enhances rather than reduces 1 Ofcom’s Second Public Service Broadcasting Review - Phase 2: preparing for the digital future impact, opening up genres to audiences who tend not to watch similar content on the BBC. We also carried out further research which suggests that audiences would be willing to pay to ensure provision of public service content outside the BBC. Commercial public service broadcasting under the current system will not survive the transition to an all-digital world 1.9 Our analysis of the funding available to the commercial PSBs for public service content, reviewed for this phase, shows they will continue to deliver much UK public service content, often for commercial reasons. The regulatory assets identified in phase 1 used to fund provision of this content, such as access to reserved spectrum, will retain some value beyond the completion of digital switchover in 2012. 1.10 But this will not be enough to sustain the current level of provision by ITV1 and Channel 4 across a range of genres. The value of the ITV1 licences will fall below the cost of their current obligations before 2012, with the result that ITV plc may have incentives to surrender those licences. After 2012 the obligations linked to the licences will need to be very limited if no replacement funding is available. By 2012, we estimate that Channel 4 will need additional funding in the order of £60-100 million to sustain investment in public service content, excluding the cost of its ambitious Next on 4 proposals. The market will make a growing contribution, but is unlikely to meet all needs 1.11 Viewers have access to a wider range of content than ever before, on digital TV and online. Multichannel broadcasters now make a significant contribution to public service content, particularly in sport, entertainment, archive and acquired programming, and in one case, news. But they provide very little original programming in the genres under most pressure on commercial public service channels – current affairs, nations and regions programming, challenging UK drama, UK scripted comedy, and UK drama and factual programming for children. This is unlikely to change as provision on the commercial PSBs declines, because most multichannels do not reach the audiences required to justify large and risky investments in these areas and will themselves face increasing economic pressure. 1.12 In digital media, the potential exists for new commercial provision of content which meets public service purposes, especially online. However, our assessment shows online business models remain highly uncertain, especially for content already under pressure on commercial television. Moreover, it is unlikely that such content will have the reach and impact of television for some time to come. The BBC and Channel 4 may have roles to play in future in introducing audiences to a wider range of public service content from other providers. 1.13 Given the speed of ongoing change, the evolution of the market is particularly uncertain. It may come to meet more of audiences’ needs in future. We therefore need a more flexible model of intervention that focuses public funding on areas in which the market cannot deliver and recognises these may change over time. Existing institutions retain important roles, while competition for funding could create greater flexibility during an era of great change 1.14 The model for provision of public service content beyond the BBC now faces its greatest challenge – how to harness the opportunities opened up by digital media while responding to growing pressures on funding, and reconciling the divergent needs of different audiences. 2 Ofcom’s Second Public Service Broadcasting Review - Phase 2: preparing for the digital future 1.15 Some respondents argued that the existing model is well placed to meet the challenges and opportunities that lie ahead, and that significant reform is not needed. 1.16 We agree that the existing public service institutions retain important roles, and that continued support for institutions with values aligned to delivery of public purposes should be an important element of any future model. However, our analysis is clear that a model in which institutions retain their current roles but with no new funding, and no flexibility to adapt to audiences’ changing needs, will not deliver the vision based on audiences’ priorities that we set out in our first consultation. 1.17 As we look forward to an all-digital world, new providers could play an important and growing role in meeting public service purposes. Competition for funding, which is widely used in other areas of public service, could enable an enhanced contribution from a range of alternative organisations. It could keep providers accountable and ensure the main public service institutions do not become complacent. 1.18 In phase 1, we set out four illustrative models for the future. The BBC-only model attracted scarcely any support, from either audiences or stakeholders. However, there was no consensus in relation to the three remaining models. 1.19 The evolution model was favoured by those who believed Channel 3 licensees retained an important role, especially in the devolved nations. The BBC/Channel 4 model was supported by many respondents and viewers, who welcomed Channel 4’s ambition to play an enhanced role. Audiences and stakeholders valued the flexibility of the competitive funding model, but expressed concern about possible bureaucracy. Three models for the post-switchover world 1.20 Driven by this assessment, this document sets out three refined models for further consideration. All of these models would require significant change to the existing legislative framework. Given that the current model will become unsustainable before 2012, we continue to believe that there is a pressing need for action with a clear direction established by government no later than 2010. An enhanced Evolution model 1.21 If audiences’ needs change relatively little over the next few years, and the existing broadcasters remain best placed to meet those needs, an enhanced Evolution model has advantages. 1.22 In this model the main commercial PSBs would retain obligations. ITV1 could become a network of nations-based licences, or a single UK licence, with obligations only for UK origination, UK and international news, and potentially news for the devolved nations and the English regions, for which replacement funding is likely to be required.
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