Deregulation Bill

Debate between Viscount Colville of Culross and Lord Grade of Yarmouth

Tuesday 11th November 2014 Grand Committee

[Lord Grade of Yarmouth]

My Lords, I first went into broadcasting in 1973 and remained in and out of it over a period of some 40 years. While all around me the industry changed at a breathtaking pace in terms of technology, industrial practices and the ambition of programme content, one thing remained a constant throughout and remains so today—the inability of legislators to keep up with the changes in the sector. I believe that there is an old saying in Whitehall: “Nothing endures like the temporary”. What we have before us today is exactly such a case, which absolutely proves that aphorism.

This clause we are seeking to abolish sits in the 1988 Act and was designed to stimulate in an analogue world the advance and competitive regime of the cable industry. It was deemed at the time that the dominance of the public service broadcasters—I think there were only four channels at that time—would put them in a position to wreck the fledgling cable industry by demanding ridiculous terms in return for carrying the services. Therefore it was a necessary market correction at the time.

That was 1988. We now have I do not know how many possible channels—hundreds and hundreds. The public service broadcasters, who are commercially funded and free-to-air by advertising, are seeing their market being chipped away at by the online market, which is growing at breakneck speed. I can see no reason whatever why the cable and satellite gatekeepers should profit, through this legislation, from the efforts and the investment made in the British creative industries by the public service broadcasters. This is utterly anomalous and belongs in the days of valves and steam radio.

It is interesting to take note of the United States, which has a very developed television market that has a mixed economy of free-to-air, cable and satellite. We have rapidly caught up with that market; I suspect that we in the UK have as developed a market as the United States has. The carriage fees are at the heart of the 1988 Act; we are trying to establish that satellite operators and cable gatekeepers should pay a commercial rate for carrying the public service broadcasters’ services. In the United States, this is common practice and produces some $3.3 billion of revenue each year for those who are investing in content. Among the happy recipients of those carriage fees is Fox Broadcasting, a division of News Corp, which is one of the largest shareholders in Sky, which over here is objecting to the idea that it should have to pay carriage fees—some mistake here, I suspect. This cannot be right.

We have before us a Deregulation Bill, which is the perfect vehicle for getting rid of this anomaly and making sure that the return that is due to those who invest in British content in the UK is forthcoming and that the market is not inhibited by an outdated measure in the 1988 Act that was designed to stimulate a completely different market. It is now penalising the PSBs.

I imagine that one of the biggest gatekeepers in this country, Sky, will say—as indeed I think it has said—that if you are going deregulate on carriage fees and allow commercial negotiation between the public service broadcasters and Sky for it to carry programmes that the BBC and, most particularly, ITV, Channel 4 and Channel 5, provide, it should be coupled with deregulation of the electronic programme guide, where prominence is an important issue for broadcasters. This is a nice diversionary tactic. While you could possibly say that it comes under a generic term of deregulation, putting the regulation of Sky’s EPG on the same footing as exploiting the investment of British public service broadcasters and failing to allow negotiation of a fair price for carriage are two very different matters. Let us not forget that Sky is a dominant player and gatekeeper—it has some 50% of the market and is in more than 10 million homes now. It has done an amazing job and created new funds to be invested in broadcasting in this country through subscription. However, it is also a service provider—it has its own channels—so there is an innate conflict in being a dominant gatekeeper and a service provider. So it needs to be regulated.

The public service broadcasters have considerable benefits for viewers imposed on them through contract: I am thinking of regional news, prime-time news and all kinds of things that are not commercial that they are required to do in return for their broadcasting licence. In return for doing that, they get some value from the due prominence provisions on the EPG. That is very important not least at the nations and regions level, where nations and regions news is under tremendous pressure from the economics of advertiser-funded broadcasting, which continues to be under threat. So I hope that the Government will not fall for the three-card trick of trying to couple the EPG argument with the deregulation of this section of the 1988 Act.

I look forward to hearing what my noble friend the Minister is going to say in trying to offer some arguments—I struggle to think of any—in favour of not repealing this section. However, if the Minister needs one more argument—just to make sure that we have the full set—I refer him to the fact that, as I understand it, the European Commission has opened a formal infringement procedure against the UK Government, on the basis that Section 73 of the Copyright, Designs and Patents Act 1988 is incompatible with EU law. A formal letter has been sent to the UK Government informing them of this, although so far it is only available to the UK Government. There is, therefore, a serious issue about whether this is compliant—and I can feel the answer floating behind me from the subs’ bench on to the field of play. I look forward to hearing the answer.

It is time that this was booted into touch. Legislative opportunities to repeal creaking, outdated and damaging legislation—as it has transpired—come along very rarely indeed. This is a perfect opportunity to show that the Government are supporting the creative industries and making sure that there is a fair commercial marketplace between the public service broadcasters and the new providers, the new distributors—the cable companies and satellite companies. I look forward to what my noble friend the Minister has to say in support of this creaking anachronism.

[Viscount Colville of Culross]

My Lords, I put my name down to support Amendment 80 because I believe it is in keeping with the spirit of this Bill, which is to strip away regulation and to open up commercial activity—in this case in the television market. The noble Lord, Lord Grade, has explained the restrictions on public service broadcasters created by this antiquated section. The Secretary of State for Culture, Media and Sport acknowledged this in his RTS speech in September, when he said:

“I will be taking a long, hard look at the balance of payments between broadcasters and platforms … I still want to know whether the amount of regulation around these transactions is really necessary”.

He went on to ask:

“Can we take government out of what should be a private matter between two private companies?”.

The broadcasting of PSB channels on Virgin Media draws in extra viewers, adding to the number of subscribers to the platform. However, Virgin does not reinvest in original British content. Obviously it is doing very well from this arrangement. It is charging its subscribers extra for a new set-top box to record viewers’ favourite shows. They are signing up in record numbers, not least to time-shift their viewing of programmes. ITV estimates that 40% to 50% of viewers record its top-value drama programmes, such as “Downton”, and watch them at a later date. Virgin's new set-top boxes even go on automatically to record viewers’ favourite programmes. Not only does Virgin make extra revenue from this service but the commercial stations increasingly lose advertising revenue from the use of these set-top boxes. Guess what, my Lords: when you have a pre-recorded programme, you whizz through the adverts. So the commercial impact—a major source of revenue—is severely diminished.

The absurdity of this arrangement is revealed by the fact that even though the main channels, ITV1, Channel 4 and Channel 5, cannot charge retransmission fees, their digital counterparts, ITV2, ITV3 and ITV4, and E4, can do so, with great effect. If this amendment becomes law it will open up the regulatory system for the negotiation of retransmission fees, not just for Virgin Media but also for other platforms, such as Sky.

Ofcom has in place a regulatory framework left over from the rollout of digital television. It means that the emphasis is on the value of the programme content for Sky and the platforms rather than for the content providers. Surely that should be redressed at a later stage, but your Lordships need to repeal Section 73 first, which will pave the way for a level playing field between the content providers and the platform operators.

It is hard to say how much revenue will be generated for the broadcasters, but the latest report by Morgan Stanley reckons it could provide between £50 million and £100 million in revenue. Those are very disparate figures, but they give us a clue to the huge sums in play. There are clearly concerns that this extra money will go straight into the profits of the broadcasting companies. However, in the MacTaggart lecture this August, David Abrahams, CEO of Channel 4, said:

“I commit, here and now, that Channel 4 will reinvest all of the proceeds of a fair deal back into commissioning more original UK content”.

Commercial television is a very competitive market. If one channel invests in content and the others do not, they will start losing viewers and market share to their rivals.