Written evidence submitted by DMG Media

The Future of Public Service Broadcasting DMG Media response to the Digital, Culture, Media and Sport Select Committee’s call for evidence

1. This response is made on behalf of DMG Media, the publishers of the , Mail on Sunday, MailOnline, Metro, Metro.co.uk, the ‘’ and inews. It is being submitted because BBC online news competes for audience with our digital titles and we are concerned that funding changes could give the BBC an unfair advantage.

2. DMG Media is not a broadcaster, and public service broadcasters have by longstanding convention not published newspapers. Therefore, whilst over the decades our news titles and the BBC may have had political and cultural differences, they have not been commercial rivals.

3. However the coming of the digital age has changed that. The philosophical foundation of the BBC was that in return for public funding and access to scarce broadcast spectrum, it would develop then-new technology (radio and television) and use it to provide, in addition to education and entertainment, an impartial news service. The written word was not part of its remit.

4. The unlimited possibilities of the internet have destroyed the rationale of that arrangement. Satellite, cable, and now streaming have brought new competitors into the entertainment market, global players with vastly greater resources than the BBC.

5. The BBC is dependent for funding on the licence fee, over which successive governments have resolutely retained control, doubtless believing that a national broadcaster which has to regularly come to the government of the day with a begging bowl is more likely to be compliant.

6. However, as the BBC lost to its new competitors one after another of Britain’s major sporting events and then even its position as the pre-eminent source of high-quality television drama, it did not react as common sense might have dictated, and concentrate on its service.

7. Instead it expanded, offering not only more broadcast channels, but becoming a major player in news delivered through the written word by launching an ever more ambitious online news service – notably described as ‘imperial’ by George Osborne when he was Chancellor of the Exchequer.1

8. There was no logic for this, no gap in the market to fill. Every city and every town of any substance in Britain has for more than a hundred years had its own newspapers. The digital revolution poses an existential threat to those newspapers – if they are to survive they have no option but to turn themselves into online publications, and with very few exceptions all have done so.

9. At a national level there are at least 13 online news publications filling the role of a national newspaper, not counting digital-only national news titles and those produced by commercial broadcasters. The BBC, under fire on every front, and with a source of income it cannot increase without doing deals with politicians, chose to launch another one, not just at national level, but locally as well.

10. In doing so it made the task of existing news publishers, struggling to move their journalism from print to digital, even more difficult. The BBC does not charge for its online news services, just as it has never charged subscriptions for its broadcast news. The result is that the public expect online news to be delivered free, and are very resistant to paying subscription fees. The latest Reuters Institute Digital News Report finds that 50pc of people the UK who do not have digital news subscriptions say ‘nothing would persuade them’ to pay for news online, considerably more than in the US (40pc).2

11. operated a subscription model for some years, but had to abandon it. The only publications which successfully charge subscriptions in the UK are upmarket, specialist players - , FT and to a lesser extent the Telegraph. However, while pay-walls offer reliable revenue, as long as the public have the alternative of a free offering from the BBC, they severely limit audience reach, and therefore page- views. And as online advertising is based on page-views, any benefit subscription revenue brings has to be balanced against greatly reduced advertising revenue.

12. The reason Britain was able to support a healthy and independent print media for more than 100 years was that newspapers always had two sources of revenue – circulation and advertising. The two tended to be counter-cyclical – when advertising

1 https://www.huffingtonpost.co.uk/2015/07/05/bbc-website-is-imperial-g_n_7729580.html 2 http://www.digitalnewsreport.org/survey/2020/overview-key-findings-2020/ was in recession newspaper pagination fell, and with it demand for newsprint which consequently became cheaper.

13. However digital news publications have to make a choice between either subscription revenue or advertising revenue. Mass-market titles such as ours have universally opted for the advertising business model. But here there is a second problem: the digital ad market is hugely complex and opaque, controlled ultimately by the two global platforms, Google and Facebook, but with revenue streams filtered through a host of intermediaries.

14. The consequence is that whereas newspapers traditionally received 83p for every £1 spent by an advertiser, recent research by the advertisers’ body ISBA3 shows digital news publications receive on average only 51p in every £1. Lack of transparency in the digital ad supply chain means that where the other 49p goes is not clear – ISBA reported they were unable to account at all for 15p of every advertiser’s £1 – the ‘unknown delta’.

15. At the same time Google and Facebook have come from nowhere in the space of twenty years to dominate the ad market – between them they held 68.5pc of the UK digital ad market in 20194. The combined ad revenue of newsbrands fell from £3.8bn in 1999 to £1.4bn in 20195. Nearly £2.5bn which 20 years ago funded a healthy, competitive and pluralistic news industry has disappeared into the coffers of two giant American companies which distribute news, but do not pay for it.

16. The result has been that news publishers have found it difficult to build a sustainable business model for their digital titles. Despite being hugely popular with readers and operating on a global scale, with editorial and commercial operations in the USA (where it is eighth largest news website6) and Australia (second largest (Neilsen)), as well as the UK (second largest7), it took MailOnline a decade from launch to turn profitable, in the third quarter of 2017. Many other news websites have yet to reach this goal.

17. This is not a problem that can be attributed simply to legacy print businesses failing to understand the internet. American-owned digital-only news publishers HuffPost and Buzzfeed both launched editorial and commercial operations in the UK. Both have struggled to sustain a profitable business. Verizon, the owner of Huffpost was said by the to be looking for a buyer for the title late last year8, even

3 https://www.isba.org.uk/media/2424/executive-summary-programmatic-supply-chain-transparency- study.pdf 4 https://www.emarketer.com/content/facebook-and-google-maintain-grip-in-uk-digital-ad-market 5 https://www.statista.com/statistics/248766/advertising-spending-in-the-uk-by-media/ 6 http://www.ebizmba.com/articles/news-websites 7 http://www.digitalnewsreport.org/survey/2020/united-kingdom-2020/ 8 https://www.ft.com/content/6e80c144-f1fb-11e9-ad1e-4367d8281195 before the Covid crisis. This followed lay-offs earlier in the year. Buzzfeed, badly hit by the advertising drought caused by the Covid, closed its British and Australian news operations last month9.

18. The Government, to its credit, recognises the vital importance of independent and reliable news to the healthy functioning of democratic, and has taken steps to address the problem with the Cairncross Review into a sustainable future for journalism and the Furman Review into unlocking digital competition. Both recommended codes of conduct to reduce platform dominance and increase transparency and competition in the digital ad market.

19. This was followed by the Competition and Markets Authority’s ongoing market study into digital platforms and the digital advertising market. It is due to publish its final report by the beginning of July, and DMG Media very much hopes that in addition to codes of conduct it will launch a full-scale Market Investigation into Google’s control of the open digital ad market, with a view to the break-up of its vertically-integrated businesses.

20. All this work will be seriously undermined if one of the consequences of any review of public service broadcasting is that the BBC is enabled to take advertising to fund its online news services. It would be particularly disastrous if the BBC were allowed to operate a hybrid model, where it still received reduced licence fee income, but also took advertising.

21. This already happens to a degree – the BBC operates two online food channels: BBC Food, which is licence fee funded, and BBC Good Food, which is advertising funded. It also runs advertising funded news on its websites in the USA and Australia. Even , normally the BBC’s biggest cheer-leader, has been critical of its use licence fee money to make commercial incursions into these markets.

22. The fact that the BBC is a state broadcaster and required to be impartial gives it enormous pull with the public – even if its impartiality has been called into serious question by its coverage of the Brexit debate and 2020 Reuters Digital News Report finds that public trust levels have fallen notably since 201810. The same report records that 35pc of the public say they use BBC online news on more than three days a week, compared to 10pc for each for the two largest commercial players, MailOnline and the Guardian.

9 https://www.theguardian.com/media/2020/may/13/buzzfeed-pulls-plug-on-uk-and-australian-news- operations 10 http://www.digitalnewsreport.org/survey/2020/overview-key-findings-2020/ 23. If the BBC were able to use this reach to sell advertising, while still subsidised by the state via the licence fee, it would have a devastating effect on the digital ad market. Not only would the BBC flood the market with inventory, its state subsidy would enable it to undercut commercial rivals.

24. This would be particularly damaging for local news publications. The extreme financial pressures regional publishers are facing have led them to participate in the BBC Local Democracy Reporter scheme, under which the BBC funds reporters employed by local papers, but has the right to publish the content they produce. This has enabled the BBC to expand into local news, an area where it never had a significant presence in the past. Local Democracy reporters have to work under BBC editorial guidelines, and critics would argue this allows the BBC to imprint its left of centre metropolitan viewpoint on news published by once proudly independent local newspapers.

25. It is vital for democracy that the public has access to news from a diverse range of sources, offering a variety of opinions, from right to left to none at all. DMG Media’s Metro, which pre-Covid had the largest circulation of any newspaper in the UK, mostly the young urbanites highly sought by advertisers, is a prime example of the latter. It would be disastrous if a hybrid funding model allowed the BBC – which despite all its claims of impartiality and diversity is still a state broadcaster presenting the worldview of the London-based Oxbridge-educated elite which dominates the civil service and the professions – to wreck the fragile but highly competitive commercial online news market.

26. We therefore strongly suggest that, whatever recommendations it may make about the future of public service broadcasting, the committee rules out the possibility of the BBC being allowed to carry advertising on its online news service.

Peter Wright Editor Emeritus DMG Media June 2020