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WEDNESDAY 20 MAY 2009 ________________ Present Bonham-Carter of Yarnbury, B Eccles of Moulton, B Gordon of Strathblane, L Hastings of Scarisbrick, L Inglewood, L Macdonald of Tradeston, L Manchester, Bp Maxton, L McIntosh of Hudnall, B (Chairman) Scott of Needham Market, B ________________ Witness: Mr Steve Morrison, Chief Executive, All3Media, examined. Q629 Chairman: Good morning, Mr Morrison; thank you very much for coming to see us. I am sorry you are not looking at the Chairman you might have expected to see, but he is not able to be with us today and he sends his apologies. We are very grateful to you for coming to talk to us. I know that you wanted to make some opening remarks which I am sure would be of great assistance to us, so if you could do that on the understanding, I am sure you realise, that we might want to jump in or pick up on the points that you make. Mr Morrison: Thank you very much. Thank you for inviting me here today. As you probably know, I am Steve Morrison, Chief Executive of All3Media. We are the largest UK TV independent production group and I am also the Chairman of Northwest Vision and Media which is the strategic authority for the creative industries in the north west of England. I have a very short statement. Since the recent changes in TV terms of trade the UK independent TV production centre has been flourishing and has seen remarkable growth. We currently export over 53 per cent of the world’s TV format hours when the UK is only six per cent of the global market. British people watched more TV per day last year than the year before. However, despite the appeal of our programmes internationally and at home, the funding model in our home market that underpins this content we produce is under grave threat. Britain traditionally has been used to seeing more rich content and national TV culture per viewer than virtually any other country, approximately £3 billion of original new commissions a year. Ofcom, our regulator, now calculates that there was a drop in spending of £314 million per annum in original British content between 2004 and 2008, and they forecast a further reduction of up to £375 million per annum by 2012. Thus the UK economic model is under threat, not just because of the current advertising downturn but because the public service broadcasters – that is the five main UK terrestrial channels – have diminished in relative scale in the face of digital multi-channel television and the internet which together now receive two-thirds of the income coming into UK TV and internet platforms. Despite the emergence of these new players the four traditional public service broadcasters are still responsible for over 90 per cent of the investment in UK originated content and the new platforms that earn two-thirds of the revenue contribute less than ten per cent of UK original programme spend. So as the traditional broadcasters have come under pressure, UK original commissioning has gone down. Our company, All3Media, also has production companies in Holland and Germany and we have discovered that most European countries have found innovative ways of raising money, not public funds or government money, but largely reuse fees paid for private copying and retransmission fees from pay platforms for the right to carry mainstream channel programmes. These methods raise nearly 700 million euros a year in Europe. I believe that the UK leads the world in digital switchover but not in finding new funding models for the digital era. I appreciate this opportunity to share these and other new methods with your Lordship’s Committee today. Q630 Chairman: Thank you very much indeed, Mr Morrison; that has certainly opened up some fairly rich topics for discussion. Before I invite colleagues to pursue some of the points 2 you raise, could you talk to us a little bit about your own company and what you do in effect and what sort of programming you are making? Mr Morrison: I hope that everyone here will have seen one of these programmes. We are a group of production companies; there are 18 companies in all. Most of the companies are in the UK but we also have companies in New Zealand, Holland, Germany, America and Australia. We make a broad range of what you might call “multi-genre” – across all the genres – so hopefully members will have seen Formula One, Richard and Judy, Wild at Heart, Midsomer Murders, Shameless, Skins, Victorian Farm and many, many more. Q631 Chairman: What you might call something for everybody. Mr Morrison: Hopefully everyone has seen something. The idea basically originated in this way, that we felt when we left our broadcasting roles – which were largely in Granada Television – that small independent producers needed the protection of a group in order to explore how they could build their business. As you probably know, what has happened in Britain is that we have moved from a fully funded economy where the broadcasters traditionally paid all the costs of the programme into what you might call a deficit funded economy where producers now have to fund the gap between what the primary broadcaster will pay and what the programme actually costs. This is particularly acute in drama and other high cost programmes. We felt that by setting up our own international distribution organisation – which is something we previously had at Granada – we could bring help to smaller producers to explore these other ways of recovering income and build their business. Q632 Chairman: Can I just understand what you said there a little bit more? You have a group of companies and that group is in effect a collection of independent producers operating under an umbrella, but are you saying that you also provide opportunities for small 3 independent companies to benefit from the scale of your operation, but to retain their independence. Mr Morrison: That is correct. The companies within the group run on a very devolved federal model. They run all their day to day business, their own programme development, their own programme production; we do not believe in running their business for them. We believe we are there to help them grow their business but they run it themselves. Our international distribution organisation which, if I am allowed modestly to say has just won the Queen’s Award for Industry, although it is quite young, also helps other independent production companies by giving them advances against the value of distributing their programmes around the world. Another company may come to us – nothing to do with our group, maybe even a competitor to our group – and say, “We have sold a programme to the BBC, there is still a gap, can you help us fund that gap?” Q633 Lord Inglewood: I just have a point for clarification. You have described your group as being federal. Mr Morrison: Yes. Q634 Lord Inglewood: I was not clear whether it is a federation of people who are completely independent from you or whether the federation is within your own ownership or whether it is partial? Mr Morrison: It is largely within our own ownership. We enter into ownership relations with these companies which partly rests on down payment for acquiring the company and also we incentivise the company to earn more as their business grows – what is conventionally called an earn-out arrangement – and in most instances we own the whole company until they earn- out part of its value. In the small minority of cases we might have a majority holding but the management retain a minority. 4 Q635 Lord Gordon of Strathblane: My interest is the alternative funding models. I think we all agree that the present system is in trouble. Mr Morrison: Yes. Q636 Lord Gordon of Strathblane: You have alluded to various things that happen, particularly on the continent. I wonder if you would like to expand a bit on that. Mr Morrison: What we discovered by having companies in Holland and Germany is that there are two very straightforward ways of raising money that we do not use in Britain. One is what I would call reuse fees so when a person buys a piece of kit – a DVD player or a personal video recorder or even a DVD – they pay a small amount within the price of that kit for the right to copy copyright material. They only pay it once so, for example, if you are in France and you buy a DVD player, within the price of that kit there is a fee which is recovered and put into a national fund to help pay for national content. That gives you the right to copy copyright material for as long as you use that piece of equipment. Q637 Lord Gordon of Strathblane: What is the size of the fee? Mr Morrison: It varies from country to country; 22 out of the 27 European countries do it. France charges, for example, one euro within the price of a DVD and 15 euros within the price of a DVD machine or a PVR; Germany charges 12 euros; other countries charge less. The only countries that do not do it are Malta, Luxembourg and Cyprus - which I believe are all too small to run such a system – and the UK and Ireland who have not yet seen the need to run such a system. Q638 Chairman: Just to be clear, these amounts that you have described that are charged in respect of each of those purchases, are they irrespective of the value of the equipment, is it just a flat fee? 5 Mr Morrison: It varies depending on the price of the equipment.

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