Written evidence submitted by Virgin Media O2
Virgin Media O2 Submission to DCMS Select Committee
Virgin Media O2 (“VMO2”) welcomes the opportunity to respond to the Culture, Media and Sport Committee’s Call for Evidence in support of the pre-legislative scrutiny of the Draft Media Bill.
VMO2 is one of the leading Pay-TV providers in the UK, providing linear and on-demand TV services to nearly 3.3 million customers across the country alongside a range of fixed and mobile connectivity services. We continue to grow and expand our footprint across the country, connecting more households to our gigabit-capable network and to our Pay-TV platform.
We are committed to ensuring that our customers have access to the best content across the UK, meaning that we carry all the Public Service Broadcasters’ (“PSB”) channels, as well as their on-demand programme services (“ODPS”), alongside a range of UK and non-UK on-demand programme services including Netflix and Disney+. Customers with VMO2 also benefit from our innovative Virgin TV 360 set-top box which combines 4K ultra-high-definition viewing with a range of features including voice search, profiles and multi-room streaming.
Taken together, this means that VMO2 is a key access point for PSB content for millions of households across the country. As we understand it, VMO2 will be in scope of the proposed Media Bill as a Regulated Television Selection Service (“RTSS”). We therefore have a strong interest in the proposed Media Bill taking a proportionate approach to prominence and regulation to ensure that the interests of the PSBs and other players, including traditional TV platforms, are balanced.
In our written response to the Call for Evidence, we set out our general position on the Draft Media Bill before focusing primarily on the issue of prominence for on-demand programme services. We have not provided written evidence on the other focus areas proposed by the Committee at this stage.
VMO2 supports the general principles of the Draft Media Bill
As a leading UK Pay-TV provider, and an access point to PSB and non-PSB content for millions of households across the country, VMO2 is supportive of the aim of the Draft Media Bill.
We recognise that this proposed legislation provides a necessary update to existing legislation regarding broadcasting across the UK. The Government’s White Paper ‘Up Next: the Government’s vision for the broadcasting sector’ published last year rightly highlighted the continued importance of the broadcasting sector, but also acknowledged the rapid changes to the broadcasting landscape which have taken place since the Communications Act 2003 took effect. VMO2 is therefore content that the Draft Media Bill is a necessary step to reflect the modern broadcasting landscape.
In addition, we support reforms which support the future of the UK’s public service broadcasters. Together, the PSBs provide a valuable contribution to the whole country – spending between them £2.6bn on first-run UK-originated content in 2021 – and our customers consistently want to watch their content, regardless of whether it is delivered live or on-demand. Ofcom’s Media Nations 2022 report showed that PSB channels still drove viewing habits, with audiences spending one hour and 42 minutes per person per day with them. Likewise, Ofcom reported that the overall share of live viewing made up by the PSB channels remained stable and in line with previous years, representing 57% of viewing in 2021.
However, the same Ofcom report also highlights the growing importance attached to non-PSB content by audiences and the declining time which younger audiences spend with PSB services. 2021 saw that weekly reach of PSB channels fell below 50% for the first time for audiences aged 16-24, according to Ofcom. In terms of choices between PSB video-on-demand (“VOD”) services and commercial Subscription VOD (“SVOD) services, Ofcom reported that the total number of people who used at least one SVOD was ‘roughly equal to the proportion’ of those who said they used a PSB VOD service. Likewise, Ofcom’s research noted around 40% of audiences who said they would turn to a non-PSB service first when looking for something to watch.
It is therefore right that the Government’s Draft Media Bill seeks to introduce a proportionate new framework for PSBs and other players alike whilst affirming the place of TV platforms in the dynamic ecosystem. We welcome the steps that the Draft Media Bill takes to modernise the regulatory regime by allowing PSBs to consider where audiences now consume their content when fulfilling their remits. Likewise, we welcome the steps taken to help to keep UK audiences safe and providing accessibility features when accessing on-demand content on RTSSs, recognising the need for the biggest services like Netflix and Amazon Prime Video to meet the same high standards as the PSBs.
However, we will continue to monitor the impact of the proposed reforms in the Draft Media Bill in the context of the UK Government’s wider plans to keep UK audiences and internet users safe whilst watching, scrolling and browsing. VMO2 considers it important that the relevant industries do not lose sight of the fact that many young people use apps and consume a mixture of TV-like content and user-generated content via means other than an RTSS. The Draft Media Bill recognises the importance of stronger regulation on TV-like platforms as a good first step, but we await further discussion and implementation of the Online Safety Bill to determine the right approach to protecting UK audiences across the whole digital ecosystem.
The Draft Media Bill must provide more clarity on the issue of prominence and the availability of PSB content
Part 1 of the Draft Media Bill affords PSBs greater flexibility in how they contribute to their remit and deliver against their quotas, allowing them to do so through the use of ODPS. In recognition of this, the second part of the Bill creates Part 3A to the Communications Act, which will establish a new principle-based prominence framework that extends beyond linear channels on the EPG to non-linear sections of TV user interface.
Government has made clear their policy intention is to support independent commercial negotiations between providers of Designated Internet Programme Services (“DIPS”) and providers of RTSS, and that the Bill will provide a legal backstop asserting the Must Offer / Must Carry obligations for the respective parties. In order to support this, the Bill has set out a number of ‘agreement objectives’ [362AI(5)].
Whilst VMO2 supports government’s position that negotiations between PSBs and TV platforms should not be unduly constrained by legislation, we have concerns that one of the agreement objectives will do precisely that. Clause 362AI(5)(b) states that:
“arrangements made between the provider of a designated internet programme service and the provider of a regulated television selection service are consistent with the former being able to meet costs reasonably incurred in fulfilling the public service remit for the licensed public service channel in question or (as the case may be) S4C’s public service remit”
At present, this clause offers two interpretations: firstly, that it is designed as protection against RTSS providers imposing disproportionately high charges on PSBs to carry their apps, which in turn erodes PSB budgets and destabilises their existence in the market, or that the clause will provide legal basis for PSBs to demand that RTSS providers subsidise the cost of creating public service content.
VMO2 has no contention with the former interpretation. In our view, zero net fees are a fundamental tenet of a Must Offer / Must Carry regime. The zero net fee principle was affirmed by government following its Balance of Payments Review in 2016. The principle is based on an equitable balance of obligations and benefits between PSBs and platforms. The PSB Compact, as it has come to be known, has been fundamental in the success of the linear prominence regime on several distribution platforms: it has served PSBs and TV platforms well, enabling both to thrive and realise the mutual benefits of this quid-pro-quo. It has also been key in establishing the UK PSB regime as arguably the most successful in the world. There is therefore, in our view a strong rationale for it to be extended to the regime for the distribution of PSB DIPS.
However, the second interpretation presents significant concern to Virgin Media O2 and would be a radical departure from the current, well-functioning dynamic. We do not believe this would be an appropriate legislative intervention, nor do we believe it is government’s policy intention. Therefore, it is necessary that further clarification of this clause is provided.
An intervention of this kind would unjustly create a dual burden on RTSS providers: not only would they be required to carry the PSB DIPS, but they would also be required to help the PSBs meet their costs. This would constitute an additional value transfer above the benefit derived through prominence, with no commensurate benefit for the RTSS or increased obligation on PSBs. As a result, it would enshrine an asymmetry of power that would heavily distort commercial negotiations between the two parties. Indeed, in government’s response to the balance of payments review, DCMS wrote that further payment to the advertising-funded commercial PSBs "would in effect remunerate the PSBs twice for the same broadcast". The same logic would apply for PSB ODPS offerings that receive prominence under the new regime, and hence there is little rationale that justifies allowing PSBs to bill their costs to RTSS providers.
Moreover, there is no evidence to suggest that such an arrangement would guarantee greater investment in public service remit content, and as such no benefit for citizens. On the contrary, it may have detrimental impacts for consumers of RTSS services, who may see increased cost in the bills from the passing through of a new fee placed upon the RTSS providers.
Given the Government’s previous stance, and the general irrationality of the position outlined above, we do not believe it is the policy intent behind the clause to require RTSS providers to become a source of subsidy for PSBs. Furthermore, in corresponding with Government on this matter, we received a response from Minister Julia Lopez MP, which corroborated our view that the current dynamics have delivered for UK audiences: ‘we recognise that the current zero net fee arrangements in the linear space have worked well and we do not want to undermine that’. The letter goes on to state that VMO2 concerns had been understood and ‘it is important that the new prominence framework provides sufficient clarity for both parties during negotiations’.
Whilst we are pleased that Government recognises the zero net fee principle works well and its desire for clarity in the legislation, we do not believe that clause 362AI(5) currently reflects this stance. Further clarification is required to remedy this potential for misinterpretation and ensure the clause conveys the correct intent. In order to achieve this, we believe Government should explicitly recognise that the zero net fee principle is a foundation of the prominence regime for ODPS. This will preserve the sanctity in the balance between benefits and obligations that Must Offer / Must Carry presents, which in turn ensures both PSBs and RTSS providers are not unduly subject to fees that will undermine the continued availability of public service broadcasting.
Prominence requirements must not entrench a competitive advantage for online content platforms
The value chain encompassing access points for TV or TV-like content is complex and intertwining, and prominence is a contested issue. The Draft Media Bill only takes into account specific section of this ecosystem – namely, the user interface on smart TVs, set-top boxes and streaming sticks. The new prominence regime will not cover SVOD services, nor does it seek to grapple with the issue of TV-like content consumed via video sharing platforms (“VSPs”). However, the providers within scope of the legislation are operating in the same competitive media and content market as SVODs and VSPs. Therefore, we believe it is vital that Government and Ofcom take a holistic view when designing prominence requirements and ensure they do not penalise RTSS providers in such a way that entrenches the market power of the global digital giants.
Similar to the PSBs, Pay-TV providers like VMO2 are impacted by the increasingly competitive dynamics of the global media and content market. Recent years have seen more and more customers choose to “cut the cord” of their Pay-TV bundle as the availability of, and desire for, SVOD services has proliferated and changing consumption habits have grown VSP popularity. In order to remain competitive, many traditional Pay-TV providers adopt the position of aggregator, meaning that they offer customers an easy access point to a wide variety of these types of services. Consequently, Pay-TV providers are not immune to the leverage that global digital players have when entering into commercial negotiations with them. These players are not only very powerful in the media and content market, but they also have power in adjacent markets where we also must interact with them.
VMO2 understands Government’s policy intention for PSB VOD prominence; this legislation is designed to support the future of UK public service broadcasting and the positive externalities it creates for the country, in the context of a dramatically different and challenging landscape. However, the requirements within the prominence framework should not unfairly constrain RTSS who also feel the effects of this changed landscape, an exposure that is particularly acute for Pay-TV operators that are only present in the UK market, or inadvertently confer a competitive advantage to the global digital giants. One example where this could come about is in RTSS search functionality. It is vital that RTSS providers are not required to prioritise individual programming from PSB VOD services in search functionality. If they were to be required to do this, it creates a scenario whereby customers using SVOD or VSP services can search for a term and the results will be structured based on relevance (either simply to the term or to the user themselves). Whereas RTSS providers’ results would be less relevant and thus perhaps less intuitive for customers. This would thus be negative for consumers, who would have a poorer search experience, and for the competitive position of RTSS, whose search functionality would likely be regarded as inferior to SVOD or VSP services.
This is just one example of where overly prescriptive prominence requirements could improve user experience on content platforms that are not in scope of the legislation, and thus gradually entrench their dominant positions in the market. We call on Government to acknowledge that this is not their intention and to recognise the delicate balance within the ecosystem, as well as for Ofcom to be mindful of these risks when drafting the detailed guidance.
Securing prominence on the appropriate “internet television equipment”
We have also discussed with the Government the interpretation of “internet television equipment” as defined in the Bill.
In reference to the Regulated Television Selection Services defined in Section 362AD, subsection (1) of the Draft Media Bill, the Government has set out the term “internet television equipment” to capture the range of devices which allow access to television over the internet. Subsection (2) then goes on to define “internet television equipment” as ‘any apparatus or combination of apparatus specified in regulations made by the Secretary of State setting out the descriptions of apparatus or combinations of apparatus that are internet television equipment for the purposes of this Part’. Further subsections (3) and (4) provide the Secretary of State with additional powers to include references to software and to provide exemptions in regulations for apparatus which may have other functions.
The Government has set out its intention that the term “internet television equipment” is designed to capture a wide range of devices that are primarily used to watch television services, but not every device capable of doing so. The Explanatory Notes to the Draft Media Bill set out that ‘the intention is to capture devices such as Smart TVs and set-top boxes, which are primarily used to access TSSs’. In additional briefings, the Department has told us that it considers that devices like set-top boxes and Smart TVs would be captured, whereas mobile phone handsets would not.
We draw the Committee’s attention to this definition for two reasons, both of which highlight risks of the proposed prominence regime and subsequent Regulations which could lead to significant regulatory challenges if not addressed carefully by the Government.
Firstly, VMO2 notes the risk presented from either over- or under-specifying the apparatus captured by the Regulations. DCMS has been unable to provide reassurance so far on how the Regulations made under this Section would appropriately capture or exclude similar devices based on their technological capability. VMO2, alongside many other providers of television services, uses a range of devices to provide TV services to customers which can depend on their internet connection, personal choice or the length of time since they took out our services. Some of these devices may be considered “legacy devices” – that is, they continue to provide a core service for our customers without having access to the newest features. Without careful consideration, the Regulations made under this subsection of the Draft Media Bill could therefore require VMO2 and others to implement prominence on a device which is a “set top box” but is not supported or updated, nor technologically capable of delivering the DIPS in their current form. We consider this concern would equally apply to older and no-longer-supported devices including Smart TVs and streaming sticks.
Secondly, we note the risk of the Secretary of State’s Regulations drawing arbitrary distinctions between devices based on their perceived primary use for watching television content. Whilst there are some categorisations upon which the Secretary of State might rely in making these Regulations – for example, Smart TVs – it is not clear where other apparatus including tablets, games consoles or computers may fall. This is despite evidence that, for those adults surveyed who had a TV set, laptop, tablet or smartphone in the home, 25% of adults reported watching programmes, sport or films on a laptop/computer; 23% on a smartphone; and 18% on tablets. These figures are significantly higher for those aged 16-34, rising for example to 39% of that age group who would use a smartphone to watch programmes, sport or films.
These two risks highlight the tension between capturing the devices where relevant content is consumed and capturing devices proportionately to ensure that the definitions are meaningful and technologically sound. To address these concerns in a proportionate way, VMO2 would welcome an explicit commitment from the Government to consult with manufacturers, platform operators, and other interested parties before making, or revising, Regulations under this section.
 DCMS, ‘Up Next: the Government’s vision for the Broadcasting Sector’ (April 2022) <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1071939/E02740713_CP_671_Broadcasting_White_Paper_Accessible__1_.pdf>
 Ofcom, ‘Media Nations 2022’ (August 2022), pg.67.
 'Media Nations 2022', pg.51.
 ‘Media Nations 2022’, pg.51.
 ‘Media Nations 2022’, pg.53.
 ‘Media Nations 2022’, pg.18-20.
 DCMS, ‘The balance of payments between television platforms and public service broadcasters consultation report’ (5 July 2016), pg.14. <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/534872/The_balance_of_payments_between_television_platforms_and_public_service_broadcasters_consultation_report___1_.pdf>
 Explanatory Notes, Draft Media Bill, paragraph 10.
 Explanatory Notes to the Draft Media Bill, paragraph 109.
 Ofcom Technology Tracker 2022, Table 122, ‘QT13. Which of these, if any, do you or does anyone in your household use to watch programmes, sport or films?’