House of Commons Culture, Media and Sport Committee BBC Commercial Operations Fifth Report of Session 2008–09 Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 25 March 2009 HC 24 Published on 7 April 2009 by authority of the House of Commons London: The Stationery Office Limited £0.00 The Culture, Media and Sport Committee The Culture, Media and Sport Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Culture, Media and Sport and its associated public bodies. Current membership Mr John Whittingdale MP (Conservative, Maldon and East Chelmsford) [Chairman] Janet Anderson MP (Labour, Rossendale and Darwen) Mr Philip Davies MP (Conservative, Shipley) Mr Nigel Evans MP (Conservative, Ribble Valley) Paul Farrelly MP (Labour, Newcastle-under-Lyme) Mr Mike Hall MP (Labour, Weaver Vale) Alan Keen MP (Labour, Feltham and Heston) Rosemary McKenna MP (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Adam Price MP (Plaid Cymru, Carmarthen East and Dinefwr) Mr Adrian Sanders MP (Liberal Democrat, Torbay) Helen Southworth MP (Labour, Warrington South) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at http://www.parliament.uk/parliamentary_committees/culture__media_and_sport. cfm Committee staff The current staff of the Committee are Tracey Garratty (Clerk), Martin Gaunt (Second Clerk), Elizabeth Bradshaw (Inquiry Manager), Anna Watkins/Lisa Wrobel (Senior Committee Assistants), Rowena Macdonald (Committee Assistant) and Laura Humble (Media Officer). Contacts All correspondence should be addressed to the Clerk of the Culture, Media and Sport Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6188; fax 020 7219 2031; the Committee’s email address is [email protected] 1 Contents Report Page 1 Introduction 3 2 Benefits of the BBC’s Commercial Operations 5 Financial benefit to the licence fee payer 6 Investment in UK creative industries 6 Champion of UK programming overseas 7 3 Governance 8 The four commercial criteria 8 The role of the BBC Trust 10 Cross-Directorships 16 4 Programme sales 18 BBC Programming 18 Non-BBC Programming 21 5 Production Houses 22 6 Magazines and Websites 25 Magazines 25 Performance and prospects 25 Market impact 27 Websites 30 7 Channel 4 and BBC Worldwide 32 8 BBC Local Video Proposal (not a commercial activity) 34 9 Conclusion 35 Conclusions and recommendations 37 Formal Minutes 43 Witnesses 44 List of written evidence 44 List of unprinted evidence 45 List of Reports from the Committee during the current Parliament 46 3 1 Introduction 1. In July 2008 the Committee announced a new inquiry into the commercial operations of the BBC.1 The BBC has engaged in commercial activities since the launch of The Radio Times in 1923 and its commercial arm has become an established part of the BBC’s business model.2 In recent years the BBC’s commercial activities have undergone a marked expansion, with the Corporation seeking both to maximise income from traditional sources and diversify into other areas. It was this growth in the scope and value of the BBC’s commercial activities, and the implications for the media industry and general public, that instigated our inquiry. We announced our terms of reference as follows: • The benefits and opportunities offered by the BBC undertaking a range of commercial activities in the UK and abroad; • The potential risks to the BBC, licence fee payers and other stakeholders; • The extent to which the BBC’s commercial activities meet the criteria required of them; • The appropriateness and effectiveness of the governance framework for the BBC’s commercial activities; • The future of BBC Worldwide and other BBC commercial subsidiaries; • How the money returned to the BBC by its commercial operations is invested. 2. The principle that the BBC should undertake commercial activities has enjoyed strong support from licence fee payers. In research by the Department for Culture, Media and Sport (DCMS) in 2005, 90% of those surveyed agreed that the BBC should raise as much money as it can from selling its programmes and other products.3 The principle has commanded consistent support from successive governments as a means to lessen the reliance on the licence fee and supplement the BBC’s budget. In 1996, the then Secretary of State for National Heritage, the Rt. Hon Virginia Bottomley MP, encouraged the BBC to “take full advantage of the new commercial opportunities which are now available”.4 Similar support has continued, as signified by comments from the current Parliamentary Under-Secretary of State in DCMS, the Rt. Hon Gerry Sutcliffe MP. He told the House last year that “the BBC should seek to maximise commercial revenue in appropriate areas and reinvest it in programming and talent to the benefit of licence fee payers”.5 3. The new Minister for Communications, Technology and Broadcasting, Lord Carter of Barnes, reiterated to us the view that it was legitimate for the BBC to seek to maximise its 1 The Committee is grateful to Martin Le Jeune, who acted as Specialist Advisor on this inquiry. 2 Ev 79 3 Department for Culture, Media and Sport, Review of the BBC’s Royal Charter: What you said about the BBC, July 2004, p 29 4 Rt Hon Virginia Bottomley MP, Secretary of State for National Heritage, letter to Marmaduke Hussey, BBC Chairman, 1 April 1996 (see Ev 79) 5 HC Deb, 20 May 2008, col 51WH 4 commercial returns.6 However, his support for this principle was not unqualified: he added that the BBC is “on the horns of a dilemma”.7 Set against the benefits that might be reaped from an unchecked expansion in the BBC’s commercial operations was, he told us, the potential unfairly to distort the market, chill competition, and chill innovation.8 4. The BBC has three commercial subsidiaries: • BBC Worldwide, a wholly owned commercial subsidiary of the BBC formed in 1995 as a result of a restructuring of its predecessor, BBC Enterprises; • BBC World News, a commercially funded, international 24-hour news channel; • BBC Resources, parts of which were sold off during 2007–08, but which still retains the commercial arms of BBC Studios and BBC Post Production.9 5. The Committee’s inquiry focused almost exclusively on BBC Worldwide, as this subsidiary accounts for the vast majority of the BBC’s commercial income. Worldwide’s core business is, according to the BBC, “the commercial exploitation and export of the BBC brand and BBC content”.10 However, in recent years Worldwide has also sought to use its capabilities as a global media business to distribute non-BBC content. Such a move was encouraged by the latest BBC Charter Review, published in 2005: “The BBC should not restrict itself to the sale of BBC programmes. It should look to work closely in partnership with other UK broadcasters in developing its programme sales strategy. It should use the scale and power of BBC Worldwide to showcase the widest possible array of UK talent and secure the best possible deal for UK plc”.11 6. As a result, in 2007, BBC Worldwide announced five objectives as part of a new five year growth plan: • Increase overseas revenue towards two-thirds of total revenue; • Grow online revenues to more than 10%; • Roll out of BBC-branded channels overseas; • Create a global production business; • Acquire businesses to help achieve the overall plan.12 7. Worldwide now operates seven different divisions, with the collective aim of meeting these objectives. The divisions span the operation of overseas television channels and the 6 Q 254 7 Q 254 8 Q 254 9 Ev 95 10 Ev 79 11 Department for Culture, Media and Sport, Review of the BBC’s Royal Charter: A strong BBC, independent of government, March 2005, p 44 12 BBC Worldwide: Annual Review 2007–08, July 2008, p 9–10 5 distribution of television programmes, to the publication of magazines, development of commercial websites, and DVD sales.13 Its newest division, called “Global Brands”, was formed to “manage properties that have global reach”, such as the newly acquired Lonely Planet business.14 Worldwide has a total staff of 2480, and in 2007–08 generated a profit of 118 million.15 In 2003–04, profit was just £37 million with a staff of 2143, indicating the rapid growth that Worldwide has undergone in recent years.16 8. The BBC is not permitted simply to undertake any commercial activity it chooses. Its commercial operations are governed by a set of requirements set out in the BBC’s Agreement with the Secretary of State.17 These requirements are designed to guard against the possibility that the BBC’s reputation could be damaged, or that markets could be unfairly distorted by its presence. They also require that the BBC’s commercial functions exhibit commercial efficiency, and fit with the BBC’s core values or purposes. 9. In February 2008, the BBC Trust instigated a review of the BBC’s commercial activities. The Trust told us that the aim of the review was “to reassess BBC Worldwide’s strategy and governance arrangements”.18 The BBC Executive was conducting the review in the first instance, and planned to report its findings to the Trust in November 2008. On 4 March 2009, the Trust published an interim statement which sets out its “emerging thoughts” on the BBC’s commercial activities.19 However, it has opted to delay making final decisions on the strategy and governance of Worldwide due to the prospect of a possible partnership between Worldwide and Channel 4.