ITV plc—supplementary written evidence (PSB0073)

House of Lords Communication Committee – Future of PSB Inquiry

We set out in this additional submission evidence in three areas:

1. A possible template for a new commercial PSB channel/pay-TV platform relationship – encompassing both prominence and must offer/must carry or include
2. A short discussion of the definition of public service broadcasting and content
3. Answers to the Committees two additional questions on skills and diversity.

1. PSB PROMINENCE AND MUST OFFER:  A NEW COMMERCIAL PSB CHANNEL/PLATFORM RELATIONSHIP

1.1              ITV very much welcomes Ofcom’s recent proposals to modernise the PSB prominence regime for the digital era.  It is right to ensure that content from the PSBs continues to be easily available and accessible to UK viewers.  Prominence helps to sustain a mass audience for content from the PSBs, makes it easy to find and access key PSB content such as news as well as supporting the cross subsidy model which enables ITV, inter alia, to spend £120m pa on news.

1.2              As linear TV consumption declines and as linear TV channels are less prominent overall on TV User Interfaces, the value of EPG prominence to the commercial PSBs has been going down.

1.3              As the value of the PSB licences declines, it is important to find ways to ensure that those licences continue to be viable and attractive if commercial PSB is to continue at the heart of national life. The PSB compact has always been a dynamic one – for example in the recent past reducing obligations on the PSBs as the benefit of analogue spectrum declined in the run up to Digital Switchover.

1.4              Alongside its recently published proposals on prominence, Ofcom acknowledged that there might well need to be some form of updated must offer/must carry regime to ensure that the PSBs offer the relevant content (i.e. linear channels and on-demand players) to the platforms and the platforms carry and/or include that content.

1.5              The debate over the coming months will be around the terms for such “carriage” (or more accurately in many cases the terms for “inclusion” on a User Interface).  Put simply, a PSB prominence benefit is potentially worthless (or even disadvantageous) to a commercial PSB if it comes with associated Must Offer obligations which undermine the economics of the commercial PSB in favour of the platform.

1.6              So for instance, at present the commercial PSBs negotiate supply of their on-demand Players (such as ITV Hub) with the platforms – there is a commercial supply relationship that helps to secure reinvestment in original PSB content.   If the value of that commercial relationship to the PSB was undermined in future as a result of a new regulated must offer obligation, this would reduce investment in PSB content and undermine the incentives to hold a commercial PSB licence.

1.7              Similarly, if PSBs continue to be obliged under any new arrangements, to supply their content to pay-TV platforms which are then free to sell recording and ad skipping apparatus to their customers with encouragement for use at scale the commercial model for the PSB will increasingly be undermined as will incentives to hold a commercial PSB license.

1.8              In both cases, continuing a system in which the PSBs subsidise the platforms will jeopardise future investment in PSB content and the viability of a cross subsidy model that pays for PSB including news.  Put simply, if most people are skipping the ads and recording the content on Pay-TV platforms and there is a mandated supply of the PSB on-demand players, how do the commercial PSBs make money in future either from advertising or secondary content exploitation such as BritBox if they are obliged to supply all their content to pay-TV platforms in a way which allows this without compensation.

The Challenge of the Commercial PSB/Pay-TV platform relationship

1.9              To illustrate this, we set out in our original written submission to the Committee’s inquiry the challenge of platforms facilitating and encouraging recording and ad-skipping. We provided an example in the form of an episode of Manhunt our most popular drama so far this year:

1.10              Across the three episodes of Manhunt, there were 33 minutes of commercial airtime; so 66 x 30 second spots. On average 1 million of the audience in Sky homes used their PVR to watch the programme and skip the ads – this resulted in a lost opportunity of 66 million commercial impacts. The total loss to ITV as a result was just under £1m.

The challenge of ad-skipping is present across all of ITV’s programming in Sky homes. We estimate that the lost commercial revenue opportunity to ITV due to ad-skipping within Sky+ recorded playback is £166m net airtime value per annum[1].

1.11              We have no difficulty with a commercial offer by a pay-TV platform of additional utility to pay-TV subscribers to enable them to record programmes.  But such recordings are a key Pay-TV subscriber attraction and retention device – recordings cease to be available to subscribers who churn off.  Sky[2], BT, Talk Talk and Virgin all sell a broadband package with a proprietary TV PVR box offering access to the free PSB channels for a monthly subscription fee.

1.12              The problem at present, however, is that all of the value from the platform’s provision of those devices effectively accrues to the platform and is not shared with the PSB as a result of a regulatory regime that is no longer fit for purpose.  In short, the idea that Sky/Comcast/NBC, Liberty Global and in future potentially global platform and Operating System providers such as Google, Amazon or Samsung need a leg up from PSBs in the UK market is clearly past its sell by date.

A potential solution – A new prominence and Must offer/Must carry or include regimes

1.13              Ad-skipping is just one outcome from the current legislative and regulatory framework influencing the relationship between PSBs and platforms, which currently works in favour of the platforms. There is a compelling case for fundamental reform of the regime for Must Offer/Must Carry to (a) modernise the regime and ensure that PSB content is both prominent but is also included on UIs in the first place and (b) to ensure that PSBs share appropriately in the value that their content creates for the platform.   We are not asking for subsidy from the platforms, simply the ability to monetise the value that we create through the risks we take to enable commercial PSB to continue to thrive.

Defining the overarching policy goals in statute

1.14              We believe that a new legal framework in this context should clearly enshrine the policy objectives that the interventions are intended to deliver. We believe those objectives should be to:

1. Deliver funding for UK PSB content: by ensuring that PSBs share appropriately in the value that their content creates for platform

2. Guarantee PSB content is available on major platforms: by requiring PSBs to offer a default package of services to major platforms
3. Guarantee that PSB content is easy to find and access on the same platforms: by requiring platforms to deliver significant prominence for PSB services

4. Allow PSBs to have a direct relationship with their consumers: ensuring they are able to collect data to deliver personalisation, recommendations, curated features, and advertising in a timely manner

1.15              In addition to enshrining these objectives, the legal framework should also define which services are entitled to prominence, and on which platform/service user interfaces they should be available and prominent.

1.16              A new regime is likely to consist of broadly two sets of interventions: one to secure prominence and one to secure availability on terms which support PSBs. We welcome Ofcom’s proposals to modernise the prominence regime and look forward to working with Ofcom and government in coming months to develop them further. The rest of this note considers what form a revised regime for PSB availability (must offer/must carry or include) might take.

Creating a new Must Offer/Must Carry regime around a new "Regulated PSB Offer" concept

1.17              Alongside securing prominence, legislation could require each PSB to make a “Regulated PSB Offer”: effectively, a standard (and standing) contractual proposal from PSBs to major platforms for the inclusion/carriage of PSB channels and associated VOD players on platform user interfaces. Whilst the Offer might take different forms for different PSBs, as a minimum it should:

• include a baseline offer for the inclusion of services in UIs: for free subject to a prohibition on recording, ad skipping, metadata usage, overlays or any other modifications to the service by the platform;
• be offered on reasonable contractual conditions: as approved/set by Ofcom; and
• specify where programme playout should/can occur: e.g. whether within PSB apps or via native platform media players

1.18              This would be intended to protect audiences by guaranteeing them access to PSB services on all major platforms whilst also enabling the PSBs to negotiate commercially with platforms on the terms for additional platform functionality, supporting investment in UK content and the delivery of the PSB purposes and objectives set by Parliament.

1.19              The framework should also ensure that platforms are not able to refuse to carry PSB services, denying audiences convenient access to them. Regulated platforms/UIs should be required to carry/include any service with a “Regulated PSB Offer” in place.

1.20              It would be for the platform to decide whether it wished to comply with its obligations by doing so on the terms set by the PSB Offer, or if it instead wished to instead negotiate commercially with PSBs for an enhanced offer, potentially enabling additional functionality such as ad-skipping. In reaching such a negotiated settlement, neither party should be able to waive prominence requirements as set by Ofcom.

1.21              Ofcom's role would be to ensure that the PSB adhered to its obligation to make a Regulated PSB Offer and to ensure that platforms adhere to their obligations as to inclusion.

2. THE DEFINITION OF PUBLIC SERVICE BROADCASTING AND CONTENT

2.1              There was a brief discussion at the Committee hearing as to whether particular programmes were “public service” or not which we wanted to follow up on.

For many years it has been acknowledged that PSB is far more than simply the delivery of news, current affairs and a handful of market-failure genres.

2.2              PSB is a system with a number of key components, including:

• Delivery of a broad range of UK made and focussed content across genres: drama, entertainment, current affairs, factual programmes, free to air sport, news, current affairs etc.
• In ITV’s case bringing the whole country, old and young, rich and poor together with a mix of programmes.
• Creating a mass audience for accurate and impartial news programmes with a very significant audience inheritance from more “commercial” PSB programming.  News programming that no one sees is of limited assistance in maintaining democratic debate.
• Cross subsidising content such as nations and regions news by showing programming that generates much higher advertising revenue.

2.3              There is no question but that the PSB system still delivers UK content investment at a scale unmatched by the rest of the commercial market. It is a system built on a free-to-air platform of scale, and the content and creativity of six different organisations. This system, through the substantial legislative framework placed on it also guarantees key outcomes in the public interest:

• Guarantees investment in key genres: such as accurate and impartial news and current affairs, and programmes for the nations and regions, with a proportion of this required to be provided in peak viewing time to maximise public value
• Guarantees delivery of a range and diversity of programming: PSB channels offer a wider range of genres than the SVODs and commercial channels, who are focused mainly on drama, entertainment, sport and archive content
• Guarantees content is available free to all UK citizens: allowing everyone to take part in the national conversation and see the best of British content regardless of their ability to pay.  The new world of SVOD is a world of payment and exclusion based on ability to pay.
• Guarantees investment at scale in the Nations and Regions: where much of the non-PSB commercial sector is primarily notable for its absence
• Guarantees investment in independent productions: at a time when the likes of Sky and Netflix are looking to expand in-house

2.4              In reality, Parliament is clear that PSB channels exist “for the dissemination of information and for the provision of education and entertainment.” Parliament’s definition of PSB also includes drama, comedy, music, feature films, the arts, news, current affairs, sport, leisure, religion, children’s programmes, and programmes for the nations and regions. PSB was never intended to be a market-failure model offering only worthy programmes which few people watch.

2.5              Again, we are proud of our track record in delivering content that meets these purposes and characteristics as defined by Parliament. Whether its our news and current affairs, regional dramas like Vera or Cold Feet, “all life is here” entertainment of Britain’s Got Talent (which changed perceptions of cerebral palsy when Lost Voice Guy won last year), the shared community of our soap operas (tackling issues such as Muslim homosexuality, dementia, acid attacks and heroin addiction), the national and individual stories of our sports coverage or the contemporary and historical story telling of our dramas set in places across the UK, we create shared experiences that unite communities across the country at a time when many things are pulling the country in different directions. When viewed through Parliament’s own framework, ITV’s role therefore clearly goes well beyond our news and current affairs output (of which we are rightly proud).

2.6              As we set out in our main submission, we also play a key role outside London in terms of production and employment. The benefits of Coronation Street and Emmerdale to the regional economy are, of course, well known, representing huge long-term investments in the north of England, supporting hundreds of jobs and delivering on-screen portrayal. Our dramas – Cold Feet, Vera, Endeavour, Doc Martin, Midsomer Murders – are also well known for their OOL setting and contribution outside London.

2.7              But the same can also be said for more unexpected titles, which some might view as not being PSB content in the narrow sense often (incorrectly) used: Judge Rinder, Eat Shop Save, David Dickinson’s Real Deal, or Saturday Morning with James Martin. These programmes also support the regional economy (and, audience figures suggest, they are also undeniably entertaining).

2.8              ITV is required to commission 25% of its programmes from independent producers. The result is that some of our biggest shows – including both Britain’s Got Talent and X-Factor – are made by indies.  And, of course, many programmes are both made outside London and by independent producers, including Tipping Point, Dickinson’s Real Deal, and James Martin’s Saturday Morning.

2.9               Criticism of certain programmes as ‘not PSB’ are therefore missing the way in which the system works and the broad range of benefits it delivers.

Reforming the system

2.10               The PSB system has historically been based on assessing the delivery of PSB obligations only through a single, designated linear television channel. Our main channel content is what Ofcom is required by Parliament to consider its regular PSB Reviews.  This approach looks unlikely to optimise value to citizens and consumers in future.  A hybrid approach looks more likely to meet people’s needs as technology and viewing habits change.  Ofcom’s recent review of content for children is a good example of how this might work.

2.11               Supporting PSB in future will require bold and ambitious change by policy makers. But even here it is important to recognise that this can be done in a way that is aligned to the current approach. This is because historically PSB benefits were not constrained only to the designated PSB channels. Notably, PSB licence holders have been given access to ring-fenced spectrum to carry sufficient channels to support a free-to-air platform of scale, not just the PSB service. Prominence has applied to ITV’s PSB channel in full, regardless of anyone’s view of the individual programmes within that service.

2.12              Prominence for Hub – and a revised framework for the relationship between platforms and broadcasters – is therefore building on what has worked before, not a radical departure from it.

3. ANSWERS TO THE COMMITTEES TWO ADDITIONAL QUESTIONS ON SKILLS AND DIVERSITY.

How Could Public Policy better support the development of skills in the production sector?

3.1               ITV’s overwhelming priority in this context, would be to reform the Apprenticeship Levy which simply isn’t working.    In ITV’s case, we have paid out £2.2m in the years to 2018 in levy payments but had only about 11% back in assistance for on-going training and development.  

3.2              Over the past 4 or 5 years we have taken on between 30 and 40 apprentices, paid them the London living wage but then been only able to recover a fraction of the total cost of doing this from our levy contributions.    It would be cheaper for us not to take on any apprentices and simply pay the levy. 

3.3              The current levy system simply isn’t designed for TV – it takes no account of the industry, the structure of engagement and employment which is often short term, the need for flexibility in an industry changing very fast and the cost of employing apprentices in the first place.   Something is going badly wrong with a scheme where a big contributor such as ITV cannot find a way to fund more on-going training from the Levy than we do.  

3.4              In truth, the government should either scrap the levy and give companies relief on apprenticeship costs or relax the rules on admissible expenditure so that there are incentives to take up courses and activities of real value to businesses and employees.  This would need to be far more flexible, to cover more roles, to properly capture freelancers who move to work from one company to another as well as to enable use in continuing professional development since not everyone has the time to do a full time apprenticeship.

3.5              The final thing we would add here is that there is a real need for more active control around the quality and relevance of courses that purport to offer a path into the TV industry.   A lot of these courses simply aren’t preparing people effectively for careers in TV in any practical sense – there ought to be recognisable, industry approved, courses and qualifications rather than the current free for all.  

How could public policy address the under-representation of different groups and regions in production?

3.6               In many ways it already is, driven by Ofcom.   For instance, ITV has a very significant Out of London quota of 35% of our programmes by value and volume of programmes which ITV consistently exceeds.   Nearly half of the ITV group employees work outside London and we have a network of key production hubs outside London in England, Scotland and Wales.    We have a very strong track record of representing the diversity of the UK regions on screen across all our programming in dramas such as Vera or Doc Martin or Cold Feet as well as in entertainment, factual programming, nations and regions news etc.

3.7               Ofcom has also been very active in driving the issue of diversity in particular by highlighting the performance of the major broadcasters on a variety of metrics.  The publication of this comparative data has had a galvanising effect across the sector.

3.8              ITV is an unashamedly mass audience channel and ITV is for everybody. We want to represent all audiences in the UK – doing so isn’t just the right thing to do, it makes commercial sense.  There is a lot of work in progress and a lot more to do, but it is worth us setting out some of the progress to date on and off screen.

On Screen 

3.9               What ITV does best is bring diverse representation to big audiences and popular culture – whether that’s Lost Voice Guy winning Britain’s Got Talent in front of 10m viewers, Paul Merson talking about mental health in Harry’s Heroes, or James Moore (an actor with cerebral palsy) who joined Emmerdale a year ago, winning Best Newcomer at this year's National Television Awards.  We also continue to represent the diversity of modern Britain in the casting and content of our shows, for instance in ITV2’s RTS award winning Timewasters and Don’t Hate the Playaz, and in dramas like Butterfly and Cleaning Up.

3.10               ITV Network as a commissioning Broadcaster has a clear set of guidelines for diversity and inclusion.  As part of our Social Partnership the Commissioning Commitments which we insist on at the time of signing off commissions.  In other words, we are making real effort to hardwire diversity into programme making.  Producers are expected to commit to a minimum of two of the production promises on screen:

• Reflect diversity within the lead characters, main presenters or hosts of the programme.
• Include mainstream diversity, so that casting is not only based on or limited to programmes where diversity is the key theme.
• Reflect diversity in contributors, contestants and background characters

3.11               We don’t want producers to tick boxes for the sake of it, so if a programme represents diversity and inclusion on screen in a different and measurable way, we ask producers to state how this will be achieved and then scrutinise that.

3.12              We also ask producers to confirm that they have access to the Diamond monitoring form in Silvermouse, in accordance with the Diamond Guidance Notes, and to confirm which steps they have taken to implement Diamond within the production process. (Diamond is the cross industry/cross broadcaster Diversity monitoring project).

3.13               The statistics to date from project Diamond (in the table below) show real promise. There is more to do in encouraging freelancers and others to participate in Diamond, but over 18,000 people have to date.

3.14               We also have on screen targets (perceived) to be achieved by 2022

Off screen 

3.15               There are two elements to our off screen commitment – what we seek to do with our production partners and what we do ourselves in our own business as ITV plc group.

Production partners

3.16              Again, pursuant to our Social Partnership Commissioning Commitments, we expect our production partners to commit to a minimum of two of the following:

• Employ someone from an under-represented group in a senior role (Producer level or above) on the production.
• Employ a production team/crew that is representative and inclusive in line with labour workforce estimates (see the Commissioning Commitments overview.)
• Provide a career development opportunity or an opportunity for someone from an under-represented group to step up to a more senior role.
• Employ at least one paid trainee, intern or apprentice from an under-represented group.

ITV plc group

3.17               As the table below illustrates, our workforce make up, based on disclosed population, shows us that 54% of our workforce are female, 12% are BAME, and 7% of our workforce are LGBT, and 4% of workforce have a disability/long term health condition.  We have made incremental improvements in terms of disclosure levels, and representation over the past couple of year

ITV reported data - based on disclosed population

2019 data is at 30th March 2019

3.18               We are particularly strong on gender diversity at all levels and we are in the top 10 performing companies for % of women on the board and in direct report roles.  53% of our all colleague workforce being women, and 42% of our senior leaders are women.

3.19              But there is more to do in some areas (for instance disability), as well as in building diversity at the senior level (particularly BAME and to a lesser extent gender) and we know that, though changing the composition of an entire workforce, in particular, takes time.

3.20              In this context, we also have a number of entry level and apprenticeship initiatives where are particularly looking to attract emerging talent from underrepresented backgrounds.  Some 27% of our 2018/19 apprentices came from BAME backgrounds; 10% disclosed a disability and 82% of that group was female.   70% of our apprentices go on to get permanent jobs at ITV and a further 10% go on to get jobs with other media organisations or decide to go back to further education. Our apprentices are paid living wage in line with the Living Wage Foundation guidelines.

3.21              In addition, ITV continues as a very active supporter of the Creative Access scheme of which we were a founder member in 2012. The Creative Access programme has a simple purpose which is to offer entry level opportunities in TV production to people from BAME and/or socio economically disadvantaged backgrounds. Creative Access itself is based in ITV’s offices and has facilitated over 200 placements at ITV and at many other organisations in the creative sector.

3.22              But at the same time as supporting entry level initiatives we are also putting increased focus on developing our future leaders, with our High Potential Leadership Programme.  This is targeted at high potential managers, to prepare them for more senior leadership positions in accelerated timeframes. The programme aims to strengthen the diversity of our talent pipeline across the business. 

3.23              This year we have made a commitment, which has been approved by the PLC and Management boards, to share our diversity and inclusion targets externally, which we will do the second half of 2019 (see below for details of these targets

July 2019