Written evidence submitted by Virgin Media

Virgin Media welcomes the opportunity to support the committee’s inquiry into the future of public service broadcasting.

About Virgin Media

• At Virgin Media, we offer four award-winning services across the country to UK consumers and businesses: broadband, TV, landline and mobile phone.
• We are the biggest private investor in UK broadband, serving over 6 million customers nationwide. 
• Virgin Media’s TV platform continues to offer the most seamless way to watch all of the best entertainment, drama, sport and much more in one place. We were the first provider to add Netflix, YouTube and iPlayer to our TV offering and the first UK platform to have a 100% HD base.
• Our latest next-generation TV platform – Virgin TV 360 – offers an updated, modern and more visual user interface with new features such as Search & Control and Startover (which lets users skip back to the beginning of programmes on all major channels) to enhance the entertainment experience.

Executive Summary

• Virgin Media is supportive of the current regulatory regime and delivery model in place for public service broadcasting.

• The COVID-19 pandemic has demonstrated that the current TV ecosystem works well. The PSBs are reputable and relied upon sources of information, the SVoDs have provided additional entertainment content, and network operators, such as Virgin Media, have ensured infrastructure is resilient.
• Global competition in the supply of programming has increased in recent years; this is good for consumers. The PSBs have adapted well in the face of this competition. PSB viewership is still high, both on linear and On Demand services, and the UK’s aging population means that it is likely to remain so in the future.
• Further, the PSBs have adapted to this increased competition through collaboration with the SVoDs. PSBs have been able to leverage the popularity of their shows and benefit financially from growing SVoD market share by selling programming rights to them. PSBs and SVoDs are also co-producing content together, for example Channel 4 and Netflix has collaborated on number of scripted and unscripted programmes.
• Although attracting and retaining younger audiences is a particular challenge, the PSBs have clearly demonstrated they are able to continue to capture the imagination of this demographic (through shows such as ITV’s Love Island, BBC’s Normal People and Channel 4’s Friday Night Dinner), as well as adapting their broadcasting style to suit younger audiences’ viewing preferences, such as prominently displaying PSB news content on YouTube.
• Therefore, we see no existential threat that would justify enhanced regulatory intervention either to the benefit of PSBs or to place obligations on SVoDs beyond the extended prominence benefits contemplated by Ofcom. The current dynamic works well.
• Likewise, we do not believe there is yet adequate reason to transition from the current PSB delivery model, digital terrestrial television (DTT), to a wholly internet-based service (IPTV).
• IPTV is currently less accessible than DTT and the move would require significant investment. We believe it is a feasible position for the future, but key obstacles related to broadband infrastructure and access need to be addressed first.
• Whilst we believe no change is required to the current regulatory regime, we question the utility of commercial PSBs being afforded public service broadcaster status in the long term. The content produced by these organisations is largely driven by market demand rather than PSB obligations. In addition, pay-TV channels and SVoDs are now also producing PSB-like content. To ensure that important PSB content is still available to the wider public, a state-run broadcaster could still exist and government could then look at alternative ways to ensure that other PSB-style content is produced without licencing specific channels to do so.
• In the future, we believe that pay-TV services can work with PSBs to help them compete better, including using data and technology to help them better target content at specific audiences. However, these types of agreements can be done on a commercial basis.

Answers to questions

Regulation: Are the current regulations and obligations placed on PSBs, in return for benefits such as prominence and public funding, proportionate? What (if any regulation) should be introduced for SVoDs and other streaming services?

We are supportive of the current regulation that is in place for public service broadcasters and, at present, see no obvious market failure that needs to be addressed.

This is evidenced in the way that the TV ecosystem has responded to COVID-19. The PSBs have delivered high-quality programming that has met the general population’s needs and interests. In particular, individuals have been turning to the PSBs for accurate news content. Ofcom data shows that 76% of the UK population used the BBC as a source of information during the crisis[1]. Alongside this, the SVoDs have provided additional content to families currently in lockdown, with Netflix adding 4.6 million UK subscribers[2], and network providers like Virgin Media have ensured that our infrastructure has remained resilient and able to deal with rising demand for online content. This shows that the current system is working rather than failing. Although there may be short term impacts, like the loss of advertising revenue to commercial PSBs and the fact that new TV content has not been able to be made, this will likely not affect the long-term health of the current PSB regime.

In recent months, there have been repeated calls from the commercial PSBs for a reset in the regulatory framework for PSBs to allow them to continue to compete in a more globalised market. However, our assessment of the current market for commercial PSBs leads us to an alternative conclusion.  Firstly, we refute the assertion that commercial PSBs are currently inadequately compensated for their PSB status. Using ITV as an example, we believe that the channel would continue to produce nearly all the content that it does today whether it was a PSB or not as it is what their viewership wants to watch – with the exception of regional news.

The latest ITV results state that the production of regional news has cost the main channel £72 million per annum in the past two years[3], accounting for less than 1% of the channel’s schedule costs for 2019. This would suggest that ITV is adequately compensated for this obligation through EPG prominence, which will arguably increase in benefit if Ofcom’s proposed extension of prominence to internet-connected devices is accepted, and the subsidised spectrum that it receives thanks to its PSB status. 

Secondly, we doubt the assertion that commercial PSBs are under threat because of the rise of SVoDs and that, as a result, the regulatory framework needs to place additional obligations on these providers. ITV’s live viewing figures have remained high[4], in part driven by the UK’s aging population and its reliance on traditional linear television[5]. In addition, younger people still see a place for PSB programming. ITV’s 2019 results notes that its family of channels remained the largest watched for the 16-34 age group[6] and Channel 4’s viewing share among 16-34 year olds is 50% higher than its all-audience share[7]. This shows that viewership for these PSBs remains resilient in spite of competition. Beyond this, this age cohort also values PSB content, with a recent Freeview study finding that 76% of 16-34 years olds agree that public service broadcasters help keep them informed about important events[8].

PSBs have also managed to benefit financially from the popularity of its programming by selling the rights to the SVoDs or co-producing content. For example, ITV Studios sold The Bodyguard to Netflix in 2018 so that it could be viewed by subscribers outside of the UK and Ireland[9]. BBC Studios has also done similar deals with the larger streaming platforms. Channel 4 and Netflix have co-produced a number of scripted and unscripted programmes[10] . When this programming is listed within SVoDs, it is always explicitly labelled as content made by each PSB, so that the viewer associates it with this broadcaster, and includes BBFC approved age ratings[11]. PSBs have also made commercial deals with certain SVoDs to make sure that their on-demand apps are available on their products, for example BBC iPlayer, ITV Hub and All 4 are available on Amazon Fire TV[12]. Although the PSBs are now taking programming off streaming platforms so that they can be held on BritBox, this is a commercial decision rather than one pointing to any kind of regulatory failure. All the evidence therefore suggests that no additional regulations should be put on the SVoDs.

Another common call for adjustment to the PSB regulatory framework is around public funding, and in particular a reset of the licence fee that funds the BBC. It has long been argued that the way that the licence fee is collected should be re-examined to bring it up-to-date with new viewing habits and increased competition. Whilst we understand these arguments, we would caution against any change that would see the BBC lose control of collecting the licence fee.

In particular, we disagree with the suggestion to replace the licence fee with a ‘broadband levy’. Firstly, it would be difficult to justify to broadband customers that there is a direct link between their payment for broadband services and BBC funding. While many of our customers will use broadband connections to access BBC content, they also use it for a variety of other activities and do not see one as a consequence of another. Secondly, it opens questions up about whether the BBC’s content would only be able to be accessed if you had a broadband connection and how this would impact vulnerable customers (e.g. the over-75s) or those without an internet connection. Thirdly, collecting payment across a vast ecosystem of ISPs would be difficult and costly to introduce without any perceived additional benefit from the current system. 

As the BBC has indicated a preference for the licence fee model to stay in place, it must also continue to operate within the constraints that this model imposes. In practice, this means that the BBC must operate using the funds collected by the licence fee and if the corporation wants to raise further revenue then it will need to raise this money from elsewhere or reduce its costs.

How would changes to the PSB model affect the accessibility of services? How would a wholly internet-based service compare to the current PSB model?

The current PSB regulatory model is distinct from the PSB delivery model. Changes to the overall PSB regime may entail or be facilitated by a change in the delivery model, and similarly changes to the delivery model may have consequences for the regulatory model and accessibility of services.

The current PSB delivery model operates over both Digital Terrestrial Television (DTT) and Internet Protocol Television (IPTV) in tandem, with linear services operating over the former and the latter required for catch up or On Demand services.

We recognise the benefits that come with moving to an IP based system and it is something we support for the future. It would free up valuable spectrum, the technologies used to transmit over IP are more efficient than those for cable, and it would encourage the uptake of increased speeds across the country.

However, we strongly advise against viewing a transition to a wholly internet-based service as a simple or cheap way forward. It is neither, and would rely upon two things: firstly, ongoing and significant investment in broadband networks and secondly, everyone in the country being able to access adequate internet provision.

A wholly internet-based television service considerably increases the pressure on broadband networks, and in turn requires significant investment into network capacity by broadband providers.

As an example, in June 2018, Amazon Prime Video secured the rights for 20 Premier League matches a season for three years from 2019, beginning in December. The midweek fixtures saw 10 games streamed over the three day period (3-5 December), with six simultaneous games occurring on Wednesday 4 December. These six games drew in 600,000 concurrent streams, which is Virgin Media’s largest recorded audience for a football event. Our internal forecasts estimated that this reached 1.3 - 1.4 million streamers across all Internet Service Providers. Additionally, we saw a hitherto unprecedented 50 per cent increase in broadband peak traffic, reaching five Terabits per second (Tbps).

Virgin Media spent nine months preparing for this, which included liaison with Amazon, intensive internal forecasting, and a range of network upgrade works. This level of preparation meant our network fared well, however we did still see areas of congestion on the network and some minor issues.

If the whole PSB system were to move to a wholly internet-based service, broadband providers would see this type of considerable demand and pressure on their networks much more frequently.

The resource and investment this would require is distinct from the ongoing multi-million pound investment Virgin Media is making in expanding its network and upgrading it to be gigabit-capable.  Whilst the upgrade and expansion of our network will undoubtedly improve network capability and access to better broadband speeds, a move from DTT to IPTV is not simply a question of speeds. It is, instead, a question of what investment is required to create the capacity of such an increase in concurrent demand en masse – something which the broadband network is not currently set up to support.

Delivering a wholly internet-based service would require substantial investment in the core and backbone networks to create the capacity needed. Whilst there are benefits of moving to IPTV in the long term, such as stimulating demand for better broadband speeds, it would also create an economic cost on network providers due to the added demand created from changing the PSB delivery model. Changing the delivery model will fundamentally alter the economics of the current ecosystem.

Another important aspect of changing the PSB delivery model to a wholly internet-based one is universality, which is one of the key obligations of the PSBs. Shifting the PSB delivery model from DTT to IPTV relies upon adequate broadband being available to everyone in the country. Whilst internet access is near ubiquitous, there still remains a proportion of the UK population who find themselves unable to access a decent connection. Recent figures show 3.4% per cent of the UK do not have access to superfast broadband (a download speeds of at least 30Mbps) and 1.5% per cent do not have access to 10Mbps[13], which is the minimum requirement for IPTV.

In reality, as data-intensive services and consumer applications increase, those speeds will not be sufficient for multiple people within households to utilise both broadband and IPTV concurrently. Instead, people will need next-generation, gigabit-capable connections. In the 2018 Future Telecoms Infrastructure Review, DCMS recognised that the market would deliver this for the majority of the country, but there are homes in the hardest to reach areas that are economically unviable for private network builders to pass and require Government support[14]. This raises a question of whether network builders will become entangled, by proxy, in the universality obligation. 

Additionally, there are citizens who chose not to have an internet connection or belong to demographics that typically are part of the digitally excluded. For example, according to the ONS, over half of the 5.3 million adults in the UK who don’t use the internet are over 75, and across all age groups disabled adults make up a large proportion of internet non-users. In the 16-24 age group, 60% of non-users were disabled[15].

Detailed consideration would be required to ensure those who are already digitally excluded do not become further isolated, particularly as the pandemic has demonstrated that television is a vital source of information for many people. Ensuring all households are connected, not just have access to a connection, would likely require some form of consumer education campaign.

The Covid-19 pandemic has clearly demonstrated the system works well for the needs of the UK at this time. Both the DTT system and the broadband networks have been extremely resilient and coped well with these sudden increases in viewing. Therefore, we believe that whilst network operators prioritise working towards the Government’s ambition of nationwide gigabit-capable broadband by 2025, there is no specific need to pursue DTT switch-off yet. As we begin to explore transition to IPTV, we would urge policymakers and Government to consider how the economic implications for network operators can be mitigated, as well as ensuring responsibilities of the PSBs is not transferred to network operators.

Looking ahead: What should a PSB look like in a digital age? What services should they provide, and to whom? In what way, and to whom, should they be accountable? Is the term ‘public service broadcasting’ still relevant and, if not, what is a suitable alternative?

Arguably PSBs are already operating in a digital age, with the growth of competition from global SVoD services being the biggest change that they have faced as a result. As a consequence of this increased competition, and therefore fragmented audiences watching content across different platforms, it has been argued that it is less clear who PSB’s services are for than in previous eras, thus making them less relevant.

However, looking at the evidence available, the demand for traditional broadcast television looks robust despite its digital challengers. According to BARB’s data, weekly reach for linear TV across the population averaged over 90% in 2019, with 83% for 16-34s and 98% for over-75s[16], with PSBs being the primary beneficiaries of this. This is also reflected in the viewing figures we see from our own customers, with over 70% of the viewership for our linear services being for PSB content.

Many argue that this level of viewership will not continue in the long-term as audiences move away from linear television and towards digital services. This argument ignores the fact that the UK has an aging population, where one in four people in the UK will be aged 65 or over by 2050[17]. This audience will have aged with traditional broadcast content as a significant part of their viewing habits, so we can expect that to continue. This suggests a large part of the current audience for PSB content will continue to exist in the coming years.

Although it is true that there is a greater challenge in keeping PSB relevant for younger audiences, who are increasingly watching content over a variety of different platforms, this does not suggest an existential crisis for PSB. Rather, PSBs need to compete better with these new digital platforms to keep younger viewers interested.  Arguably, they have already started to do this through providing content that younger viewers want to watch and also providing different platforms through which PSB content can be watched in non-linear formats. For example, ITV’s Love Island remained the most-watched digital channel for 16-34 year olds for the third year in a row and over 80% of 16-34 year olds are registered to the ITV Hub, either using it for simulcast viewing or catch-up services[18]. PSBs are adapting the way they offer content to accommodate the changing viewing habits of younger audiences. For example, all episodes of series 1 (2018) and series 2 (2019) of the BBC’s Killing Eve were made available as a box set on BBC iPlayer immediately after the broadcast of the first episode[19]. They are also making an effort to ensure that PSB news content is available on digital platforms, for example through YouTube’s Top News shelf, and therefore more accessible to younger audiences.

This innovation shows that, rather than becoming obsolete, PSBs are adapting to the digital age. In the future, we believe that pay-TV services like ours can help PSBs continue to compete as it is mutually beneficial for us to do so. We have already done this in the past, for example offering the PSBs’ VOD players prominence in our EPGs. There may be more sophisticated ways to work together using data and technology, including helping commercial PSBs target advertising to specific audiences using our data about consumer behaviour. However, these types of agreements can be done on a commercial basis and without any amends to the regulatory structures.

While we believe that public sector broadcasting still holds value, the question of whether all PSB content is relevant in its current format deserves meaningful consideration.  We believe that there is value in having a state-owned broadcaster to provide news and factual content to viewers, but we question whether the content currently produced by commercial PSBs constitutes a valuable public service. Arguably, these channels would continue to produce the content they already do regardless of whether they were classified as a PSB or not and, as a result, should not receive the consummate benefits that come with this status.

In addition, pay-TV channels have started to produce PSB-like content that satisfies viewer demand for it. For example, Sky has started to develop regional news content alongside its national Sky News Channel. SVoDs are also starting to produce content directly for British audiences to suit viewers’ tastes, seen in Netflix’s decision to spend $500 on British-made TV[20]. This shows that PSB-like content would exist regardless of whether commercial PSBs kept their licences.

In future, the Government could also look at alternative models for delivering PSB-style content to ensure it remained universally accessible, without needing a specific commercial PSB channel. This would ensure that valuable PSB content is still produced and widely distributed, as well as allowing both government and the wider TV ecosystem to gain more value out of the assets currently awarded to PSBs, such as spectrum and EPG prominence.