sign in sign up
<<
Home , BBC Alba, Religious broadcasting, Television broadcasting, The Hub (TV programme)

Broadcasting Sector Report

1. This is a report for the House of Commons Committee on Exiting the European Union following the motion passed at the Opposition Day debate on 1 November, which called on the Government to provide the Committee with assessments arising from the sectoral analysis it has conducted with regards to the list of 58 sectors referred to in the answer of 26 June 2017 to Question 239.

2. As the Government has already made clear, it is not the case that 58 sectoral impact assessments exist. The Government’s sectoral analysis is a wide mix of qualitative and quantitative analysis contained in a range of documents developed at different times since the referendum. This report brings together information about the sector in a way that is accessible and informative. Some reports aggregate some sectors in order to either avoid repetition of information or because of the strong interlinkages between some of these sectors.

3. This report covers: a description of the sector, the current EU regulatory regime, existing frameworks for how trade is facilitated between countries in this sector, and sector views. It does not contain commercially-, market- or negotiation-sensitive information.

Description of sector

Scope

4. The sector covers the production of audiovisual or audio () content and its distribution, which is subject to the framework of regulation overseen by (or, for TV stations based elsewhere in the European Economic Area (EEA), by another EEA regulator).

5. This report primarily covers linear (or live) visual broadcasting services (digital TV, live streaming, webcasting, near video-on-demand) and non-linear services (video services such as the BBC iPlayer, All4, etc, or subscription video on demand services such as ). Radio is part of the broadcasting sector and is a predominantly domestic-focused industry subject to national licensing. Though the main focus of this document is on visual content, radio is discussed where relevant.

6. There is a significant overlap with the creative industries ( and radio production and distribution is designated as a creative industry) as well as with the , manufacturing and technology sectors.

7. This report does not cover video games (discussed in the Creative Industries report) or such as Facebook or Snapchat.

1

8. The provision of equipment to receive television or radio services (e.g. manufacture and sale of television sets and , set-top boxes, satellite dishes etc.) are not covered by this report. Equipment used to distribute content (which most broadcasters lease or contract for) is covered as this is a sectoral cost, but the implications of the specialist equipment suppliers for this market - the majority of whom are based overseas - are not considered in any detail.

Sector Overview

9. Broadcasting can be roughly broken down into three phases: Production, Content arrangement and packaging, and Distribution.

10. Production (which overlaps with the Creative Industries sectoral report) refers to the production of TV, TV-like and audio content itself. This includes not only the production of television shows and news but also the presentation of sports programmes where the underlying rights are not owned by the broadcasters (e.g. Premier League, Olympic Games). There are a large number and range of producers and creative content companies (all part of the creative industries), of a range of sizes. Sectoral regulation has contributed towards creating a dynamic market of independents and non-independents (.e. integrated with broadcasters).

11. This market is driven by strong commissioning from public service broadcasters (PSBs), but in recent years there has been an increase in commissioning and co- production deals involving UK-based commercial broadcasters and international broadcasters. Alongside this investment ‘over the top’ (OTT) services such as Amazon Prime and Netflix which have entered the commissioning market with large budgets. This broader, international market is key if the sector is to continue to grow, particularly as PSB commissioning budgets have fallen by nearly a quarter in real terms since 2005.1

12. Content arrangement and packaging: Service companies include TV broadcasters, catch-up services and video on demand (VoD) services. The role here is to package and aggregate content whether by traditional channels or OTT portals. The main sub- sectors are:

● PSBs: These organisations each have certain obligations regarding broadcast content and how it is delivered. PSBs include: the BBC (including the BBC World Service), which is licence fee-funded but generates a commercial return from post-broadcast content via BBC Worldwide; (state- owned but commercially-funded); ITV and Channel 5 (commercially-owned and funded but meeting certain public service broadcasting requirements) and in (mostly funded by the BBC). All bar Channel 4, which is a ‘publisher broadcaster’, have production businesses. There are also smaller channels which serve a public service purpose, such as BBC Alba in (funded by the BBC and ), and local TV services (commercially owned but benefiting from BBC funding for distribution and

1 PSB Annual Research Report Ofcom - July 2016 2

news content). All the major PSBs have both live broadcast channels and catch-up ‘players’ such as iPlayer;

● Commercial non-PSB broadcasters: including businesses with a specific focus on the UK (e.g. and UKTV) and international broadcasters using the UK as their European hub. The UK has become the biggest European broadcasting hub, with approximately 150 companies transmitting 7582 channels into the EU. Revenue for commercial multichannels was £2.5bn in 2016, having grown at an average of 5% each year since 2011.3 Further analysis from the Commercial Broadcasters Association (COBA) shows that broadcasters invested £725m in UK content, including £597m in first-run content in 2013.4 Some of these broadcasters have catch-up players (e.g. UKTV Player) but most are currently individual or suites of live broadcast channels;

● Subscription Video on Demand: Under a subscription contract, consumers pay a fee (usually monthly) in order to access these OTT services. Paid on- demand services have registered a steady growth; Netflix has a reported year-on-year growth of 17%, whilst Amazon more than doubled its subscription base over 2016.5 These emerging players are generally not based in the UK (for example, Netflix is based in the Netherlands6);

● Small International broadcasters: Ofcom licensee data suggests that there are a number of small international broadcasters established in the UK (some of which target the UK and some of which exclusively target Europe, generally either aimed at diaspora groups, providing or some special interest).7 These small companies benefit from the resources created by the hub of the larger broadcasters such as availability of skilled freelance staff, and competitive pricing for production, post production and distribution; and

● Radio: For radio, there is the BBC (funded by the licence fee) and commercial radio services (national and local) - local commercial radio has requirements to provide news and locally produced content and is funded primarily by advertising. There is also a sector providing mainly local community services with a smaller overall share of the market.8

13. Distribution, which includes free-to-view, subscription, and online. Pay platforms may provide equipment as part of the overall service. Radio operates separate distribution arrangements on analogue (FM, or Long Wave) or digital (DAB) as

2 Data from European Audiovisual Observatory: Audiovisual Service in Europe; this number includes 82 Ofcom broadcasting licences aimed at services both in the UK and Ireland 3 Communications Market Report Ofcom - August 2017 4 2014 Census: Multichannel Investment in TV Production COBA 2014 and Coba sector statistics 5 Communications Market Report Ofcom - August 2017 6 media.netflix.com/en/press-releases/netflix-announces-400-new-jobs-in-europe-and-two-new-european- original-series 7 List of cable and satellite broadcasters Ofcom 8 Communications Market 2016: Radio and Audio Ofcom 3

well as broadcasting online. For , the main free-to-air platforms are:

● Freeview - digital received via an aerial provides free-to- air TV to over 98.5%9 of UK households. Used by around 40% UK TV homes for primary sets (this excludes DTT hybrid services - see below ),10 and available in up to 75% of homes (this includes secondary sets); and11 ● - via a satellite without a subscription. Effective coverage is around 93%. Used by around 7% of UK TV homes.12

14. The main pay TV platforms are:

● Sky - via satellite and generally bundled with services including on- demand services. Subscription service. Effective coverage is estimated to be around 93%. Used by around 31% of UK TV homes; 13 ● Virgin - cable based subscription service also offering high as well as pay TV and on demand services. Effective coverage is around 50% of UK homes passed14 (with plans to expand coverage ). Used by around 15% of UK TV homes;15 ● IPTV/ Freeview Hybrid services - offered by BT, Talk Talk, Now TV (Sky) and EE - these services also provide access to Freeview services. Coverage extends to around more than 90% of homes which now have sufficient broadband speeds. Used by around 6% of TV homes; and16 ● Non linear pay services - for example Netflix, Now TV (non-Freeview offer) or Amazon Prime. According to research carried out by Ofcom, Netflix in 2016 had around 6.0 million UK subscribers whilst Amazon Prime have 3.8 million UK subscribers.17

15. The characteristics of TV platforms are changing to offer increasing access to on- demand services, which viewers can access in a large number of different ways. Supporting this is an increased amount of content production, including UK- originated content supported by investment/co-production funding from the US but also from European broadcasters, for example the BBC’s ‘Blue Planet II’ and ‘The Night Manager’, which were jointly funded by international partners.

9 OFCOM, 2007, “Predicted coverage of public service and commercial multiplexes following switchover” https://www.ofcom.org.uk/tv-radio-and-on-demand/information-for-industry/guidance/tech-guidance/dttcoverage 10 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 11 Freeview estimates 2012: https://www.freeview.co.uk/about-us#JSHcQ2ZTDo5kSMaX.97 12 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 13 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 14 Annual Report Liberty Global Annual Report - 2016 15 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 16 OfCom, CSV data file for Figure 2.37 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.37 17 OfCom, CSV data file for Figure 2.3 - CSV, part of Communications Market Report - Ofcom - August 2017 - Figure 2.3 4

16. Some large businesses combine one or more elements of the chain (i.e. are vertically integrated). Examples of different business models are set out in table which also illustrates the range of ownership models, the location of their major businesses and the breadth of their operations.

17. This description of the sector illustrates the variety of different business models that will have implications for the way the sector might develop. For example, integrated broadcasters, platform-led businesses and those offering hybrid Freeview/IPTV services.

18. The production sector generates revenues from a range of sources (see Table 1).

Table 1: Production sector revenues18

Concentration of sector

16. In terms of broadcasters’ audience share, the Ofcom table below shows how this has changed over the last 30 years. In spite of the emergence of multi-channel TV and the completion of TV switchover in 2012, the PSB family of channels still account for 70% of audience share. This is connected to the change in platforms used to access television, while pay and free satellite begin to decline.

18 Oliver & Ohlbaum research for Ofcom Ofcom - December 2015 5

Figure 1: Audience share - 1988-201619

17. Ofcom also estimate the reach of selected VoD platforms. BBC iPlayer is the most used service (63% of adults used this service for watching TV programmes/, with other platforms used by fewer people ITV (used by 40% of adults), Netflix (31%) and All4 (26%).20

18. In terms of production, the four PSBs remain the main commissioners of new UK TV programmes. In 2001 the BBC, ITV, Channel 4 and Channel 5 accounted for 90% of all programme commissions in the UK in terms of investment.21 In 2014, the PSBs remained the largest buyers of UK TV programmes, still accounting for around 85% of all UK non-sport new TV programme investment, a figure that has remained broadly flat over the past five years.22

19. The PSBs all use external independent production companies - indeed Channel 4 is prohibited by legislation from building its own production business for its main channel, though it is permitted to take a minority share in independent producers. The figure below shows how production revenues are distributed across PSBs and the independent production sector. Industry estimates suggest that the independent sector’s revenues are likely to rise further in future years as the BBC’s in-house production guarantee is removed.23

19 Communications Market Report Figure 2.45 -Ofcom - August 2017 20 Communications Market Report Ofcom - August 2017 p. 13 21 Review of the operation of the television production sector Ofcom - November 2017 22 TV Production Sector Evolution and Impact on PSBs - Mediatique - December 2015 23 TV Production Sector Evolution and Impact on PSBs - Mediatique - December 2015 6

Figure 2: UK internal and external production, 2007-201424

20. Both the size and structure of the independent (external) supply sector in the UK have evolved over recent . There has been consolidation of smaller independent producers and talent into large holding companies typically running multiple production brands.25 This has been driven by easy access to , enabling investment, expansion and acquisition. This consolidation has led to a concentration of supply at the top end of the market,26 and improvements in efficiency and the costs of production. However, a long tail of small independent producers remains – in part reflecting the fluidity of the market, in which production talent can establish new start-up operations with relative ease.27

Size of business in the sector28

21. In 2014, 99.8% of firms in the sector (inc. ) were SMEs. Of these, 95% were micro firms with fewer than 10 employees - this is much higher than the UK economy average of 88.3% micro firms (see Table 2).29 These data would suggest that the broadcasting sector is not concentrated and is dominated by small firms. However, further analysis shows that the largest companies (those with more than £70m in turnover), represented 46% of UK sector revenues in 2014.30

24 TV Production Sector Evolution and Impact on PSBs Mediatique- December 2015 25 TV Production Sector Evolution and Impact on PSBs Mediatique- December 2015 26 TV Production Sector Evolution and Impact on PSBs Mediatique- December 2015 27 TV Production Sector Evolution and Impact on PSBs Mediatique- December 2015 28 Sector Economic Estimates, Audiovisual ad-hoc release- DCMS- October 2016 29 ‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 4b) 30 Trends in TV Production, Ofcom -2015 7

% of firms in each size band Micro Small Medium Large (by number of employees) 0-4 5-9 10-49 50-249 250+

Audio-visual sector 89.8% 5.2% 4.1% 0.8% 0.2%

UK Total 75.7% 12.6% 9.6% 1.7% 0.4%

Table 2: Percentage of firms in each size band31

Summary statistics

22. GVA of the audiovisual sector (inc. film) was £18.3bn in 2015, growth of 39% since 2010, compared with overall UK growth of 17.4%. The sector has also grown and now represents 1.1% of total UK GVA.32

Audiovisual 2010 2011 2012 2013 2014 2015 % change sector 2010-2015

GVA (£bn) 13.1 13.7 14.1 14.9 15.3 18.3 39.1

Table 3: GVA of the audiovisual sector, 2010-2015 (DCMS economic estimates)

23. According to DCMS estimates, the audio-visual sector employed 186,000 people in 2015.33

Breakdown of growth

24. As explained above, the broadcasting sector is made of different sub-sectors, such as production, content aggregation/packaging and distribution which form the basis of the broadcasting sector. The official statistics do not disaggregate between film production and television production, for example.

25. The annual Ofcom Communications Report gives estimates of revenues from specific sub sectors within the sector. These estimates show that, for example, online TV industry revenue has grown by over 466% since 2011, while traditional TV broadcast revenues have grown by 10%. The main driver of revenue, according to Ofcom, is an increase in pay-TV subscription revenue, up by 2.8% year on year to reach £6.4bn.

31 ‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 4b) 32 ‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 1) 33 ‘DCMS Sectors Economic Estimates: Audio Visual tables’, DCMS, August 2016 (table 5a) 8

2011 2012 2013 2014 2015 2016

Total TV industry revenue (£bn) 13.3 13.1 13.1 13.3 13.7 13.8

Total online TV industry 0.3 0.4 0.6 0.9 1.3 1.7 revenue (£bn)

Table 4: Broadcast TV industry revenue, 2010-201634

26. These estimates from Ofcom also show that television broadcast revenue accounts for a large part of UK TV industry revenue (89% of revenue generated in 2016). This shows that traditional broadcast revenue is still the dominant part of the sector.

Trade with the EU

28. The UK is currently one of the biggest European broadcasting hubs. A survey published in 2014 by the Commercial Broadcasters Association (COBA) states that over eight out of ten multi-territory commercial broadcasters surveyed stated that London was their European or global headquarters.35 Currently, 55% of the TV channels (758 channels) based in the UK mainly target the European market.36 Similarly, 53% of the UK-based video-on-demand services (152 video-on-demand services) primarily target EU audiences. Overall, a third of the available TV channels established in the EU are based in the UK (1,389 out of the 4,063 channels available in the EU). and France host 262 and 356 channels respectively.37

29. DCMS economic estimates38 suggest that the EU is the most significant market for the for the UK’s AV sector. Total UK exports to the EU of AV services was £3.0 billion in 2015. - 40.9% of total UK AV services exports. The UK imported £1.4bn of services from the EU in the same year - 36.9% of total UK AV sector services imports.

30. Ofcom estimates that the EU TV industry was worth £59bn39 in revenue in 2015, £14.3bn of which is generated from the UK market. The UK also provides 34% of the available TV channels and VoD services in the EU.

EU nationals in the broadcasting sector

31. 194,000 people were employed in the audiovisual sector in 2015, including 11,000 EU nationals. They account for 5.7% of the total audiovisual workforce.40

34 Communications Market Report Ofcom - August 2017 p. 39 35 Building a Global TV Hub COBA - 2014 36 Audiovisual Service in Europe European Audiovisual Observatory 2017 37 Audiovisual Service in Europe European Audiovisual Observatory 2017 38 DCMS Economic Estimates - DCMS - 2017 39 International communications report Ofcom - December 2016 40 Sector Economic Estimates: Audiovisual - DCMS - 2017 9

UK % UK EU % EU non-EU % non-EU

AV sector 194,000 87.6% 11,000 5.7% 13,000 6.7%

Table 5: Employment in the UK broadcasting sector by nationality

Devolved administrations, crown dependencies and overseas territories

32. Regulation of broadcasting is not devolved. UK broadcasting legislation has largely been extended to the Crown Dependencies (Isle of Man, Jersey and Guernsey) by Orders in Council. In general, broadcasting regulation and legislation in the Crown Dependencies is guided by the UK Government.

33. Some domestic broadcast output by PSB channels varies by administration. For example, the BBC has designated services in Scotland, Wales and and regional TV and local radio services for England. S4C is a dedicated channel for speakers, and BBC Alba is a Gaelic-language channel in Scotland. ITV and Channel 4 also have various regional commitments. In addition there are currently over 30 new local TV services41 covering England, Wales and Northern Ireland.42

34. The main PSB channels all have a requirement to produce a proportion of their content outside of London as well BBC, Channel 3 and Channel 4 having specific regional programme commitments.

35. There are a range of production hubs around the UK, including in Scotland, Northern Ireland and Wales. Multichannel broadcasters commission content from the nations and regions. For example Game of Thrones was filmed predominantly in Northern Ireland.

36. Employment in the sector is split across the UK, including Scotland with 13,000 employees (7% of the sector employment in the UK) and Wales with 7,000 employees (4% of the sector employment in the UK).43

37. Under the Belfast (Good Friday) Agreement the UK made a commitment to explore the scope for achieving more widespread availability of TG4 (at the time “Teilifis na Gaeilge”), an television service from Ireland, in Northern Ireland. The UK also committed in the Agreement to give active consideration to signing the Council of Europe’s Charter on Regional and Minority Languages (ETS 148), and the provision of Irish language broadcasting is a declared commitment of the UK under that Charter. There have been a series of arrangements between the UK and Ireland

41 http://www.digitaluk.co.uk/channels/local_tv_services 42 manage your-licence tv-broadcast-licences Ofcom - October 2017 43 DCMS, DCMS economic estimates Audio-visual sector, 2017, Table 5d, https://www.google.com/url?q=https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/651 354/DCMS_Sectors_Economic_Estimates_2017_- _Audio_Visual_ad_hoc_release.xlsx&sa=D&ust=1511193754008000&usg=AFQjCNG0NJuuqYmuU11e8n2d5m0 J3s_lvw Data for Northern Ireland not available 10

to support the transmission of Irish language Services to Northern Ireland via a dedicated terrestrial multiplex launched in October 201244 (the UK Govt supports this with a grant to TG4 to cover a share of distribution costs).45 The majority of these obligations are not covered by EU law, and broadcasting is a reserved area for the UK government. However, the ability to broadcast directly into Ireland from an establishment in Northern Ireland (or anywhere else in the UK) is provided for by the Country of Origin (COO) principle in the AVMS Directive.

38. Gibraltar has had its own broadcasting legislation and its own regulator (the Gibraltar Broadcasting Corporation (GBC) since 2000. It caters mostly for domestic use, providing news and entertainment.The Gibraltar Parliament in October 2012 passed the Broadcasting Act 2012, which transposed the EU Audiovisual Media Services Directive into the Gibraltar statute book.46

The current EU regulatory regime

The Audiovisual Media Services Directives (AVMSD)

39. The main framework creating a single market for broadcasting (including video on demand) and setting out standards on a minimum harmonisation basis is the Audiovisual Media Services Directive (AVMSD).47

40. The AVMSD is the European framework for television and television-like services. It amended and extended the EU’s 1989 Television Without Frontiers Directive (TVWF), providing less detailed but more flexible regulation. The proposal to update TVWF was tabled by the European Commission in December 2005. Essentially, the AVMSD was introduced to a "level playing field" between traditional TV-based broadcasts and online broadcasts. Renamed as the AVMSD, it entered into force on 19 December 2007 and had to be transposed by Member States by the end of 2009.

41. The primary objective of AVMSD is to ensure the effective operation of the internal market for television broadcasting services by ensuring the freedom to provide broadcasting services throughout the EU. It sets out basic content standards for service providers, including rules on advertising. AVMSD requires TV services broadcast in the EU to be regulated by an EU Member State and for channels to be physically based within an EU Member State. The legal requirement is for the head office and the “significant” part of the workforce to be based in the country of jurisdiction.

44 Statement by the UK and Republic of Ireland Governments - May 2012 https://www.gov.uk/government/news/access-to-republic-of-ireland-digital-tv-channels-confirmed-for-northern- ireland 45 Memorandum of Understanding between the Government of the of Great Britain and Northern Ireland and the Government of Ireland regarding the Digital Switchover and the provision of digital television services in Northern Ireland and Ireland February 2010 46 Gibraltar Regulatory Authority Broadcasting 47 Directive 2010/13/EU of the European Parliament and of the Council of 10 March 2010 11

42. The central principle that underpins the single market for audiovisual media services is the Country of Origin principle (COO) first created under the TVWF directive. This acts as a system of mutual recognition of establishment and licensing which enables broadcasters to operate across the EU from a licensed establishment in any one EU country. Each national regulatory authority (in the UK, this is Ofcom) is responsible for ensuring the compliance of broadcasters with the minimum broadcast standards set out in the AVMSD (for example, as to advertising content or the prohibition on audiovisual media services containing any incitement to hatred based on race, sex, or nationality). The AVMSD was implemented in the UK by a series of regulations which primarily amended broadcasting legislation (the Communications Act 2003 and the Broadcasting Acts 1990 and 1996).

43. As part of the Digital Single Market Strategy, the Commission is proposing changes to AVMSD to reflect the impact of technological developments since the original Directive was negotiated in 2010. The file is currently subject to trilogue talks between the European Parliament, the European Commission and the Council of EU are expected to finish in late 2017 or early 2018. The proposed changes are mostly focused on including more services to level up content standards throughout Europe or to strengthen procedures. The UK already has stricter rules than the Directive in certain areas (for example on child protection and advertising). The current revision would not result in any major changes to the UK regulatory framework, although it will introduce some regulation of video-sharing platforms (such as YouTube) for the first time.

EU Digital Single Market

44. The EU Digital Single Market strategy aims to remove digital trade barriers between EU countries. As well as the AVMSD review, this includes reforms in several areas of substantial interest to the broadcasting industry, including:

● The Cable and Satellite Directive48 is being reviewed in order to assess if its scope needs to be enlarged to cover broadcasters' online transmissions and whether further measures are needed to improve cross-border access to broadcasters' services in Europe; and ● Portability Regulation49 is important for the the sale of distribution rights to content across the EU (allowing consumers to continue to use digital content when traveling within the EU) and the Geoblocking Regulation.50 There are also changes to the Copyright Directive51, and proposals to reform the IP Enforcement Directive.52

48 The Council Directive 93/83/EEC of 27 September 1993 49 EU Portability Regulation European Commission - June 2017 50 Proposal for Geoblocking Regulation European Commision - May 2016 51 Proposals relating to copyright directive European Commission - September 2017 52 Review of IP enforcement directive European Commission - April 2016 12

State Aid Rules

45. State aid rules53 are generally applicable and restrict government’s ability to sponsor the domestic broadcasting industry. However Protocol No 29, annexed to the Treaty of Lisbon54, asserts that public service broadcasting in the Member States is directly related to the democratic, social and cultural needs of each society and to the need to preserve media pluralism. To support these principles, Member States may therefore provide for the funding of public service broadcasting in so far as such funding is granted for the fulfilment of the public service remit as defined by each Member State, and such funding does not affect trading conditions and competition in the Union. For the UK, the TV Licence is the core revenue stream for the BBC to produce its content on all of its platforms and discharge their remit as a Public Service Broadcaster.55 This and other flexibilities within state aid rules have been applied to schemes to establish and support (a) UK/Ireland cross border TV services (2012) local TV services (which required approval granted in Dec 201256) and to extend local DAB radio services (completes end 2017).

46. State aid for films and other audiovisual works must be granted in accordance with the Commission's Communication57 on aid for films and other audiovisual works. In summary, aid must be directed towards cultural works (assessed by national criteria - in the UK’s case this is commonly via statutory ‘cultural tests’) and limits are placed on aid intensity and on required territorial spend for production activities. HMT have overall responsibility for the operation and reporting of the creative industries tax reliefs. State aid rules also cover investment in infrastructure, for example funding to create a transmission network for local TV provided by the BBC required full approval which the EU granted in December 2012.

EU employment law and free movement of people

47. EU employment law and the free movement of people is also used to obtain and retain talent in this sector.

The Council of Europe’s Convention on Transfrontier Television (CTT)

48. The UK is party to the CTT58, which provided the basis for subsequent EU Directives (AVMSD and its predecessor the Television Without Frontiers Directive) in this area. It was negotiated in parallel with the European Communities Directive on “Television Without Frontiers” in 1989. The Convention aims to foster and strengthen the rights of citizens by strengthening the free exchange of information and ideas, for example freedom of expression, and sets out a number of rules for the free circulation of television programmes across countries, which are parties to the Convention.

53 State Aid, The Basic Guide, Department for Business, Energy and Industrial Strategy- 2015 54 Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union European Commision - 2012 55 BBC Annual Report and Accounts 2016/2017 BBC 2017 56 State aid – United Kingdom, Local Television in the UK, 2012 European Commission - 2012 57 Communication from the Commission on State aid for films and other audiovisual works, European Commission - 2013 58 The European Convention on Transfrontier Television Council of Europe - 1993 13

49. The Convention also commits all signatory countries to a ‘European Works’ quota, which requires parties to ensure that broadcasters based in their territories reserve over 50% of their transmission time for European works59. The provisions in the Audiovisual Media Services Directive60 relating to European works apply not only to works originating in Member States but to works originating in countries that have signed and ratified the Convention. There is a disconnect clause in CTT which requires EU Member States to implement EU law, i.e. AVMSD, rather than CTT.

International Standards

50. The International Union (ITU) is the United Nations’ specialised agency for information and communication technologies. They allocate global and satellite orbits and develop the technical standards that ensure communication networks and technologies seamlessly interconnect. They have developed rules on how the spectrum needed to transmit TV and radio should be used, as well as international standards on how communication equipment interact (along with other International standards bodies).61

51. WorldDAB, the global industry forum for , facilitating the adoption and implementation of broadcast digital radio based on DAB / DAB+ (Digital Audio Broadcasting) have developed the digital radio standards of choice for broadcasters across Europe, Asia Pacific and other regions.62

52. There are also technical standards for the production and distribution of TV which are overseen by European groups such as the Broadcasting Group (which oversees the base technical standards used on all TV platforms) and whose standards are approved by recognition bodies such as the European Telecommunications Standards Institute (ETSI) which are recognised by the EU. (Both these radio and TV standards feed into EU standards and show up in the Framework Directive, which is also being reviewed as part of the Digital Single Market strategy). Other standards bodies are managed by international bodies that are independent of our EU status and are usually industry led.

53. Finally, the European Broadcasting Union (EBU)63 is an allegiance facilitating collaboration of 73 public service media services in 56 countries in Europe (and an additional 34 associates in Asia, Africa and the Americas) to promote public service broadcasting. The BBC currently chairs the Radio Group.64

59 Article 10 European Convention on Transfrontier Television 60 Audiovisual Media Services Directive 61 World Radiocommunication Conference, 2015 62 World DAB 63 European Broadcasting Union 64 European Broadcasting Union 14

Existing frameworks for how trade is facilitated between countries in this sector

54. The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.

55. Broadcasting is a highly regulated sector. As set out in the section above, in the EU audio-visual services are subject to the Audiovisual Media Services Directive (AVMSD). In relation to third countries , the EU maintains a principle of ‘cultural exception’, justified on the grounds that cultural goods and services should be treated differently to commercial goods and services in trade with third countries, because of the importance of preserving cultural diversity. The UK’s regulatory regime, which is underpinned by AVMSD, provide safeguards and protections to citizens and consumers, through advertising standards, and the Ofcom broadcasting code which includes requirements on accuracy and fairness or preventing incitement to hatred.

56. The EU excludes AV services from its trade agreements, starting in the WTO General Agreement on Trade in Services (GATS)65, both by carving the sector out from its schedule of commitments and by maintaining a series of Most Favoured Nation (MFN) exemptions. All WTO Members are parties to GATS which sets out a framework for trade in services including general rules, principles and obligations, which the parties must abide by, and a schedule of commitments in which each party sets out how open and non-discriminatory it intends to be across the service sectors covered.66 This is not unusual or peculiar to the EU, for example the North American Free Trade Agreement (NAFTA) contains a general exception on cultural industries.67

57. The EU has no precedent for including trade commitments on cross-border broadcasting with third countries, however it has pursued cooperative measures as part of a range of its trade agreements The Deep and Comprehensive Free Trade Agreement between Ukraine and the EU68 provides that cooperation on broadcasting and audio-visual services should lead to a gradual alignment with the EU acquis. The EU Korean agreement includes a Protocol on Cultural Co-operation, which includes limited provisions on audiovisual works, as does the CARIFORUM-EU Economic Partnership Agreement69. Both cultural cooperation agreements include commitments to recognise joint productions as counting towards the respective

65 https://www.wto.org/english/docs_e/legal_e/26-gats.pdf 66 The UK is a member of the WTO in its own right, but its current commitments are listed in wider EU schedules. The Department for International Trade is leading a process to create UK-only schedules – reflecting our current level of openness. 67 Article 2107 North American Free Trade Agreement 68 The Deep and Comprehensive Free Trade Agreement between Ukraine and the EU 69 The Deep and Comprehensive Free Trade Agreement between Ukraine and the EU 15

party’s content quota. Additionally, the EEA agreement has an annex on electronic communications audio-visual services and information society.

58. There are some limited precedents for extending the AVMSD definition of European Works to include non-European countries (see section 2.5). For example, the EU- Korea Protocol on Cultural Co-operation includes provision for some Korean- EU co- productions to count as European Works. This was included as to foster the circulation of audiovisual works for the mutual benefit of the EU and Korea70, and in recognition of Korea’s domestic policies on cultural diversity and measures to promote local content in Korea.

59. The UK has a series of bilateral audio-visual co-production agreements with non-EU countries including China, Brazil and South Africa. These secure various benefits for qualifying films and television programmes produced jointly by co-producers based in the UK and other countries. Such benefits include access to shooting locations, visa- free entry for personnel and tax benefits subject to adherence to certain criteria.

Sector views

[This information was provided by the Government to the Committee, but the Committee has decided not to publish this section]

70 http://trade.ec.europa.eu/doclib/docs/2009/march/tradoc_142541.pdf 16