DMB0022

Written evidence submitted by Pact

Introduction

1. Pact is the UK trade association representing and promoting the commercial interests of independent feature film, television, digital, children's and animation media companies.
    
2. Pact is a strong supporter of the UK Public Service Broadcasting (PSB) system, which in the UK is a key intervention in the UK broadcasting ecology and plays a significant role for creatives, producers and audiences alike. It underpins a wider creative economy and plays a strong part in providing high quality UK content which is beneficial to audiences across the UK

3. The delicate balance of legislative and regulatory interventions has led to the creation of a broadcasting ecology here in the UK which is internationally recognised as one of the most dynamic, innovative, creative and diverse in the world. In 2021, UK independent television sector revenues were over £3 billion.[1] The PSBs still accounted for over 77% of the total UK commissioning spend. This growth has meant the UK independent television sector has transformed from a cottage industry in 2003 to one of the most successful in the world.[2]

4. The UK is the second largest exporter of TV content in the world (after the USA)[3] and the biggest international exporter of programme formats (the templates for ideas which make a TV programme).

5. For further information, please contact Pact’s Head of Policy, Emily Oyama.
   

Overview

Pact thanks the DCMS Committee for giving it the opportunity to comment on the draft media bill. Pact is a strong supporter of the public service broadcasting system. It delivers significant benefits to audiences, public service broadcasters (PSBs), and independent producers in the UK.

The PSBs play a significant part in the success of the UK TV production sector. Over 70% of TV viewing share in the UK continues to be with the PSBs and in comparison to SVoDs broadcast viewings  is far ahead making up 72% of viewing.[4]  As Ofcom identifies, satisfaction with PSBs remain relatively high with 73% of all audiences in 2019 being satisfied with PSB services.[5] PSBs also continue to account for 77% of original UK commissions and therefore continue to hold buyer power within the UK domestic commissioning market.[6]

Pact recognises the urgency behind updating the legislation governing the PSBs given the fact that Ofcom published its views on PSB prominence over 2 years ago. It accepts that to future proof the system from technological changes the prominence of PSBs will need to be secured. That said it is important that any updating of the legislation minimises the impact it will have on the PSB compact whereby the BBC, ITV (and the other Channel 3 licensees), Channel 4, S4C and Channel 5 (the PSBs) receive certain benefits, such as prominence, and in the BBC’s case a licence funding in return for obligations that PSBs must meet, such as the Terms of Trade and a requirement to commission more content from independent producers. It is important for Government to consider – and publish evidence on – the full impact of the draft media bill including allowing the PSBs greater flexibility in a new PSB compact on the UK production market and on the overall ecology for audiences and PSBs.

As the draft currently stands, we welcome that it recognises the importance of the terms of trade regime and that this will now apply to online programming and any content that is deemed to be qualifying audio-visual content. The continuation of this and other obligations on the indie quota, origination and regional programming is important to maintain the successful supply side of the market.

On looking at the draft bill more closely Pact considers some issues need to be resolved to ensure that the bill will not have unintended effects on the market and content investment. Pact wishes to raise the point that with the PSBs flexibility in how it meets its independent production, regionality and origination quotas it’s possible that PSBs could programme all their content onto their on demand platform and risk gaming the system by moving content to services and platforms that minimise costs which could see a reduction on content budgets across the board. If spending is flat, it may mean that tariffs and content budgets would be at a reduced level than they currently are without careful planning. We commissioned Oliver & Ohlbaum (O&O) Associates to track the independent production quota over the last ten years and it found that although PSBs have met the 25% quota over the years the share of qualifying hours made by Qualifying indies has dropped since 2011.  Given this Pact has a particular interest in how the new framework flexibility given to PSBs would impact the level of new commissions on any future services and channels and how this would work with the current market. Ofcom’s subsequent role as regulator will be crucial.

With limited resources available, our concern is that PSBs providers might erode their obligations on the independent production quota, origination and regional programme making. There are points that we think need closer examination to assure the market that there are no unintended consequences of the draft bill. Under clause 8 and other areas of the draft bill it has chosen to move from proportion to duration of hours to calculate the minimum required to meet the independent production quota, regional and origination quotas which is set to be introduced under secondary legislation. Pact considers that the shift to calculate the remit quotas in hours rather than in percentage must focus on a higher average.

Q1. Should the Media Bill provide a clear definition of what prominence in online services looks like?

1.1    Pact recognises that technological change and global competition has driven a need to update the current regulatory framework and in relation to prominence. We agree that PSBs will need to ensure they have the tools to ensure the greatest accessibility for their services going into the future. Pact considers that a prescriptive system on prominence would be too difficult to implement given the pace of development that we are facing.  The principle-based approach that Government has set out is appropriate given this difficulty to avoid any legislation becoming obsolete in the future. Pact is concerned about the subsequent framework that will exist to hold the PSBs to account in meeting the obligations in return for an extension of prominence. Which we discuss further below.

Q2. Are proposals allowing a Public Service Broadcaster to meet its remit by online programming as well as linear appropriate?

2.1    Pact agrees that it is appropriate for Public Service Broadcasters to meet its remit such as the independent production quota, regional and origination quotas by online programming as well as linear programmes especially since the terms of trade regime will also apply to any qualifying audio-visual content including online commissions. By allowing PSBs to meet their remit through online programming it will give them flexibility to choose how best to programme for audiences of the future.

2.2    We expect Government to publish a full impact assessment of the draft bill as it passes through parliament to enable MPs to consider its full impact on the broader sector. Pact considers that any assessment should focus on how allowing the PSBs greater flexibility in how it meets its PSB remit will affect the UK production market and the overall ecology for audiences and PSBs.

2.3    Careful attention will need to be paid to how we can safeguard these quotas in the new framework. As we understand it under clause 8 the draft bill outlines a move from proportion to duration of hours to calculate the minimum required ( possibly using an average estimate based on previous 5 years) to meet the independent production quota which is set to be introduced under secondary legislation. Pact considers that when calculating it should also exclude COVID impacted years in any calculation of an average.  Pact is concerned that arriving at an average number of hours will erode the amount of independent produced content over time. If PSBs produce more hours during successful years Qualifying Independents should benefit from this. There is a risk here that there is a levelling down of any independent quota and with the added flexibility of meeting the quota through different services there could be gaming of the system by moving content to services and platforms that minimise costs which could see a reduction on content budgets across the board. A minimum number of hours based on commissioning trends from the past would also raise questions on how appropriate this should be for any future commissioning strategies.

2.4    It is critical that Ofcom have sufficient oversight of the PSBs in meeting the independent production, regional and origination quotas. How this is monitored, reviewed and reported on will be crucial. As we can see below commissioning strategies have varied over the years and with a percentage it usefully tracked the changes in commissioning strategies. Without this it will mean Ofcom’s role in monitoring and checking that the quota is at an appropriate level will be important. A reliance on Ofcom reports mean that the reports and recommendations need to be robust and have sufficient mechanisms for industry to engage and have clear routes for complaints. Public scrutiny and/or industry engagement is vital to ensure transparency of the system. As Ofcom will understand Pact has found engagement with the BBC for example in recent years, which has followed an ex-post framework of regulation, less than transparent and would want to make sure that any new framework allows for industry engagement ahead of any revised minimum quota being agreed. Without careful planning and clear routes for review and monitoring there is a risk that performance against the quota under hours could prompt further decline.

2.5    We welcome Ofcom’s existing powers will continue to be used in relation to the enforcement of the updated PSB licence conditions.  The Secretary of State will also continue to hold the power to revise the existing minimum if Ofcom reporting suggests that PSBs are underperforming. The Secretary of state will also have new powers to suggest new quotas if a particular genre appears to be underserved. These will all be important mechanisms if the minimum quota needs to be updated and or other aspects of the PSBs role within the UK production sector need to be considered.

A new minimum independent production quota

2.6    To help us look at an appropriate minimum for each channel we commissioned O&O Associates to look at how PSBs have complied with the independent production quota over the years and how this converted into hours and spend. The research found that although all PSBs have complied with the quota over the years the share of qualifying hours produced by Qualifying Independents has fallen since 2011.

Figure 1.

PSB main channel qualifying hours, by producer type, 2011-2021

2.7    That said spend on Qualifying Independents is stable and the PSBs continue to play a vital role in the success of the UK independent sector, accounting for most production investment in the UK. In 2021 total PSB spend on new UK TV content was £2.6bn[7] which is 77% of the investment in original UK programming each year.

Figure 2.

PSB first-run UK-originated spend, by channel: 2016-2021

2.4    To calculate a new minimum we have taken an average of the last five years excluding 2020 given that this was a year that COVID impacted commissioning levels. (note that Channel 4 is currently set at 25% but after negotiations with Government, Channel 4 and industry this will be at a new elevated level.) Pact considers that the average highlighted in yellow could be the new minimum. We also commissioned O&O Associates to model for illustrative purposes how each PSB would have met the quota over the last 10 years. PSBs would have mostly complied but whether this will predict future commissioning strategies remains to be seen. This is set out below.

BBC One and Two

• BBC One and BBC Two would have been compliant every year from 2011-21: For BBC One and BBC Two, the tested quota was 1,705 hours.
• Most years BBC One and BBC Two cleared the modelled quota quite comfortably, with the closest clearance in 2014. This is because, in 2011-21, total QI hours have been broadly stable; future performance and PSB strategies would need to be assessed.
• Given that the new quota would likely be measured across multiple services of a single broadcaster, the two channels were not tested separately

ITV

• ITV would also have been compliant every year from 2011-21: For ITV, the modelled QI quota was 955 hours. ITV cleared the quota comfortably in every year over the review period, with relatively stable QI commissioning hours

Channel 4

• Channel 4 performance against a quota measured in hours would have declined over 2011-21: For C4, the modelled QI quota was 596 hours per year. It would have significantly exceeded the quota earlier on in the review period, with the compliance margin decreasing in recent years but still comfortably above the quota. The question here is to what extent the recent downward trend in QI hours, and uptick in 2021, indicate future strategy.

Channel 5

• Channel 5 may not have been compliant over 2016-18 depending on how the quota was set:
• Significant changes to commissioning trends over the last five years mean that there are differences in output across the years averaged to calculate the proposed quota.
• Performance would have been lowest in 2016-18, and if the quota was set as proposed, C5 would not have complied in 2017. Here it is necessary to consider to what extent the rise in QI hours from 2019 onwards is indicative of future strategy and should inform an hours version of the quota

Q.3 Are the proposals in the draft Bill adequate for securing the future of Channel 4 and supporting independent content producers?

Future of Channel 4 Corporation

3.1 Pact understands that the Government is committed to setting out the exact details on the future of Channel 4 Corporation particularly with regards to the independent production sector primarily under secondary legislation. We are working closely with Government on this with a particular interest in

-          ensuring there is regulation that seeks to avoid adverse impacts on competition set out in primary legislation;

-          The ability for Ofcom to specify in C4C’s licence any conditions it considers appropriate to secure fair and effective competition in the commissioning of programmes;

-          The application to C4C of the ‘trading and separation’ rules that apply between the BBC Public Service and its commercial subsidiaries, also to be enforced by Ofcom;

-          Greater reporting and transparency requirements on C4C and the ability for Ofcom to enforce those.

Q4. Video On Demand

4.1    Pact considers that the above proposals could be implemented provided it does not inhibit the VoD services ability to innovate and commission diverse content. The classification system seems to be relatively straight forward given that VoD services are already voluntarily implementing these. As we have mentioned previously in our submissions to DCMS Pact considers that rules that the VoD service need to adhere to must be set out at the outset so that producers who might be commissioned by VoD services have a clear understanding about how to meet any compliance issues related to the production of content on those platforms. It is vital that there is consistency in the compliance rules so that producers know what services are captured by these new rules as it will have implications on any commissioning process and how they may shape future commissioning pitches.

Q.5 Is Ofcom able to deliver its new and updated obligations set out in the draft bill

5.1    As PSBs will be given more flexibility to meet their remit we need assurances that Ofcom has the resources to properly hold the PSBs to account. It will be important that the delegated legislation that will be drafted alongside the draft bill when it passes through parliament can provide more detail into how it intends to hold the PSBs to account through their reporting.   Pact wants reassurance from Government and Ofcom that equal weight would be given to media issues going forward especially with regards to the BBC and Channel 4 especially since Ofcom has taken on many more responsibilities relating to online harms and regulating tech platforms.

Q.6 Is the draft bill flexible enough to address future developments in audience habits and new technology?

6.1    Much of the drafting is at the discretion of the Secretary of State and through delegated regulation which will be easier to amend and by drafting some of the legislation according to principles will make it easier to adapt to upcoming technologies.

Q.7 Does the draft Bill provide sufficient protection for those without internet access or who prefer to use broadcast services?

7.1  Pact notes that Digital Terrestrial Television (DTT) will continue to have an impact (as identified by Ofcom) over the next 10 years and 20 million UK households continue to use it.[8] Consequently, it has not got to the stage where linear PSB content has become obsolete. High quality content continues to be the key factor in driving people towards the PSBs and there continues to be an interest in TV viewing. If the PSBs are creating engaging and relevant content, then they will continue to amass the viewing figures and reach that their channels already secure amongst the UK audience. That is why it is vital that originated programming continues to be a default for PSBs so that both audiences who access digitally and terrestrially enjoy quality programming. We welcome that Ofcom has an overarching obligation to judge whether enough of the PSB remit is ‘maintaining and strengthening the quality of the audiovisual content made available,‘ and will need to prepare a report on the matters found in the review. Pact considers that this will provide sufficient protection for those without internet access especially given that licences for Freeview multiplex has now been extended until 2034 by Ofcom[9]