“A New Future for Public Broadcasting”

( 21 November 2003 )

Good evening – or good morning as it is this end – and thank you for inviting me to address
your conference.

I’m conscious that the time difference means you’ve just enjoyed dinner while I’ve just had
breakfast. I must confess this is my first after-dinner speech with nothing stronger than a cup
of coffee to sustain me.

It would have been preferable if I could have been with you in person especially as I could
have flown on to Australia to see England in the Rugby World Cup final. Of course here in
England we all expected to be playing New Zealand in the final but I don’t want to intrude on
private grief.

[pause]

This morning I plan to talk about three things in particular and in the process hope to touch on
all the subjects I was asked to address by you. The three areas are:

Firstly, how public service broadcasting serves the public interest in the digital age
Secondly on distribution issues how the BBC got involved in free to air digital and our
interesting relationship with Sky
And finally a few details on the financial reforms we have carried out which have allowed
us to pay for much of what we’ve achieved in the digital world

So first, the purpose of public service broadcasting.

At the outset, we have to remember that although New Zealand broadcasting was originally
modelled on the BBC and the British system, today there are significant differences between
our two systems. The BBC still doesn’t carry advertising anywhere on our output - the vast
majority of our funding still comes direct from every household via the annual licence fee
which is currently £116 and will soon increase to £121.

Even so, there are still some fundamental similarities – particularly thanks to your current
Government’s determination to rebuild the role of public service broadcasting in New
Zealand. As I understand it after some years in the wilderness, public service broadcasting is
back at the heart of your system. In doing this, you’ve clearly recognised the needs of your
population as citizens as well as consumers.

When I met Martin Matthews when he visited the UK I was impressed by the new TV New
Zealand Charter – not just for its laudable aims but also for the simplicity with which they
were expressed. It’s a brilliant piece of work. While you’ve managed to express your
objectives on two sides of paper, the BBC charter and related agreement runs to something
like 40. Its hardly user friendly. As our charter is up for review in 2006, maybe we’ll be able
to do something about that. (We are also preparing for this charter review process by thinking
about what the BBC should be for in the 21st Century).
Our work on this is still in its early stages but I am sure that the provision of high quality UK-
made programmes which reflect our culture and our society will be the defining feature of the
future BBC.

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The globalised nature of today’s markets have never made it easier or more tempting for
broadcasters to buy more and make fewer programmes. In this environment, it’s the BBC’s
ability to invest in indigenous programming that will increasingly set us apart from our
advertiser funded commercial counterparts who, I suspect, will be forced to reduce the
amount they spend on original production as the market continues to fragment and more and
more people get multi-channel television.

I know you’ve carried out research in this area and the vast majority (77%) of people said
they supported the kind of programmes provided by NZ on Air. I believe this is further proof
of something we all instinctively know – that audiences want programmes which reflect their
own culture and values.

The BBC’s role as an investor in British programming and talent has always been central to
our remit. What’s becoming more apparent today is the increased importance this will have in
the future.

We recently published some independent research which highlighted the inevitable

consequences which current trends will have. Whether it’s the increasing reach of thematic
channels or the launch of new networks, content spend in the commercial sector will come
under pressure.

All the evidence suggests that TV markets operated on a purely commercial basis, behave like
any other market; they focus purely on the bottom line, import many of their programmes and
fail to provide audiences with the rich range of content we know they want.

Put a well funded public broadcaster at the heart of this system and you change the rules. In
this country, the BBC is responsible for nearly a third of all audio visual content spending and
40% of TV production spend.

Is this market distortion? Of course it is, but so too are our public hospitals, state education
and social services. As a society these are all things governments make a conscious decision
to provide in the best interests of our citizens. For instance last year the BBC launched two
new childrens’ channels – one called C Beebies for toddlers and the other called CBBC for 6-
12 year olds. When we announced we were doing this we came under attack from the likes of
Disney, Viacom and Fox all of whom had already launched childrens’ channels in the UK.

They claimed it was unfair that we were using public money to compete with them. But
surely in a democratic society we, the public, have the right to decide we want childrens’
channels which don’t carry advertisements, are essentially British and whose content reflect
our culture. Why should the BBC be dictated to by American media companies who are
effectively dumping American programmes in our market, simply to make an extra buck.

In today’s market driven world I know it’s unfashionable to say these sort of things and attack
the free market concept but in the world of television we should always remember that
globalisation actually means Americanisation.

Historically, the BBC’s presence in the UK market has meant that the principal commercial
channels have had to follow our lead if they are to compete. It ceases to be about who can
make or acquire the cheapest programmes and becomes a question of who can make the best

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programmes. You’ll be pleased to know our channels are now number one and three in the
childrens’ market in the UK. Why? Because parents trust the BBC and want children’s
channels which are fundamentally British not American.

The financial strength of the BBC historically also explains why ITV, our main independent
channel is the biggest commercial spender in Europe and shows 20% more home grown
programming than is required by regulators. They have to compete against us. Market
distortion? Of course – but it’s for the benefit of Britain.

So public funding of broadcasting is not about creating an oasis of quality in a desert of

reality TV and soap operas. What it does is raise the bar for the big commercial channels too
and of course in the process creates huge spin off benefits in the creative industries more
generally.

Whether this effect will eventually extend to the pay TV sector is far from certain. The UK
pay TV sector, dominated by Sky, is now earning annual revenues of £3.4 billion. It’s
estimated that just £100 million of that revenue goes back into making new programmes in
the UK. That’s a pretty pathetic recycle rate of just 3%. This compares with an average rate
of 55% among the UK’s main broadcasters, including the BBC.

This is one of the reasons we see a clear place for a new breed of high quality free to air BBC
television services. We’ve recently launched our own portfolio of digital TV channels into
this highly competitive market.
Now in addition to our two main analogue TV channels, BBC One and BBC Two, we have
six additional digital services, providing children’s programmes, arts, news and culture.

Like our childrens’ channels this new breed of BBC services are radically different from the
vast majority of what’s on offer to digital viewers. The channels are advertising-free, and the
programmes are overwhelmingly British and commissioned for the channels on which they
are seen.

These and our other services are changing people’s minds about digital. In the past, premium
sports or movies were the main reasons for getting digital. Today the BBC brand is bringing
more diverse groups of licence fee payers to digital television.

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We are also beginning to realise the potential power of the BBC brand outside the sphere of
broadcasting, particularly in partnership with other people. We’ve been discovering the value
of reaching out to communities in ways other than television and radio.

In the north of England we’ve been converting some of our radio stations into what we call
open centres where, as well as being broadcasters, they also deliver services so that people
can get internet access and IT training. We’ve also been working in partnership with local
councils to take these resources on the road in special buses – often connecting with people
who are neglected by or alienated from more traditional institutions. What we’ve discovered
is that the BBC name is something which has an association with glamour and is also a brand
which people trust. They don’t associate us with the often rather austere institutions of the
state which traditionally provide education and advice. In the future, we see enormous scope

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for the BBC to provide opportunities for individuals and to strengthen our links with different
communities in this way.

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Let me now turn to the subject of distribution – not something which normally gets
programme-makers excited – until that is you point out that this is how people actually get to
see their programmes.

We have three main ways of getting digital services in the UK: satellite, cable and digital
terrestrial.

Until March last year – all three were operating as pay TV services – and largely pursuing the
same group of customers. Had this model worked, it would have been a world first. Nowhere
else have three pay platforms all competed without one of them going under.

In our case, the loser was digital terrestrial which was operated by ITV Digital - an off- shoot
of our main commercial analogue channel.

There’s not time to go into all the details of why it went wrong but the bottom line, however,
was that that ITV Digital was technically weak, paid vastly over the odds for football rights in
an attempt to compete with Sky and couldn’t hang on to subscribers. Apart from that it did
well.

So in March last year, having lost £1.2 billion, ITV Digital finally went bust leaving a gaping
hole in the UK digital market.

While this was a disaster for ITV digital customers and the football clubs who’d come to rely
on the income, it did present an opportunity for a fresh start for DTT. Instead of competing
head-on with satellite and cable, we saw how we could re-engineer the whole concept as a
free-to-air alternative to pay TV.
In partnership with transmission specialists Crown Castle – we were awarded the licences and
created Freeview on the DTT platform. It offers 30 free channels and services, including the
full BBC portfolio - without the need for an ongoing subscription. All you need is to buy a
decoder box for less than £100 and you have access to Digital TV forever.
The popularity of Freeview has surprised even us.
By its first anniversary last month, Freeview was in 2m homes. It’s been the fastest growing
consumer product of recent times – selling a million units faster than DVD, mobile phones or
Playstation2.
And because the decoder boxes are open standard, the platforms’ success has brought large
numbers of new box manufacturers into the market. This in turn has brought prices down to
half what they were at launch. In fact you can buy Freeview boxes in the shops today for as
little as £40.

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The fundamental reason Freeview has proved a hit with consumers is because there are
millions of people in the UK who are not interested in digital TV if it means paying a monthly
subscription.
Freeview has removed that obstacle. By marketing it effectively to the very people who were
resistant to pay TV it has created demand for digital in areas of the market where previously it
didn’t exist.
This is good news for us in terms of getting our new digital services to the widest possible
audience – who after all have paid for them through the licence fee. It’s also good news for
the industry and for the British government which has set a target date of 2010 to switch the
whole country over to digital. Thanks to Freeview, this is now a realistic prospect.
DTT does have some drawbacks though. As well as limited channel capacity, universal
coverage is difficult to achieve without interfering with analogue transmission.
DTT Coverage in the UK is currently about 75%. By comparison, digital satellite has 98%
coverage. So for people living in some parts of the UK, Sky has been the only digital option -
even if you only wanted free to air digital services, including those from the BBC.
Sky’s strength in the market has traditionally given it power over broadcasters who had to pay
to use its’ conditional access system and encryption if they wanted to be on the platform
All this changed however when a new satellite was launched earlier this year. It offered a
tighter footprint which would not spill over in to much of Europe thereby doing away with the
need for encryption.
So when our contract with Sky came up for renewal earlier this year and they attempted to
hike our fees from £7m a year to a total of £85m over five years, we had both the opportunity
and incentive to switch to broadcasting in the clear, thereby by-passing Sky.
There were two main advantages in doing this. First, we saved huge amounts in encryption
fees yet could still have our services on Sky’s EPG. And second, we could spend this money
far more fruitfully on improved BBC regional services for satellite audiences.

One of the questions I was asked to address today was what effect this decision had on our
relationship with Sky. Well I can’t pretend they were happy but then keeping Sky happy isn’t
my job.
What I can tell you today is that since then, we’ve continued to work successfully with Sky in
some areas while competing with them in others. But then that’s the world we live in today…
I’m sure Sky would rather have had the £85 million…. But then who wouldn’t? Their
interests lie with serving their shareholders. Ours lie with serving the interests of the public
who pay their licence fees.
Even so, we’ve collaborated with Sky on Freeview where they have three free to air channels,
on improving the range of BBC regional services available on satellite and more recently on
developing a standard EPG for the DTT platform.
What you can’t afford in today’s market is to have a one-dimensional relationship with the big
players like Sky. Competition is good for the consumer but so too is the ability to co-operate
when its in our mutual interests to do so.

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===

So I’ve talked about public service programming and some of the steps we’ve taken to ensure
they are widely available. Finally, let me turn to the subject of money – without which none
of this is possible.

In one of my first big speeches as Director General – I made the simple observation that
money matters when you’re trying to make outstanding programmes. I also pointed out that
money on its own is not enough it’s easy to spend a lot of money making some very average
programmes.

It’s our job to deliver maximum value to audiences. This means producing wonderful,
enriching programmes for the widest range of audiences. It also means recognising that
public funding is a privilege, not a right.

We have to spend the public’s money in ways they would approve of. In our case, I said that
meant spending less on what I called the Three Cs – cabs, croissants and consultants – and
more on what goes on screen. At the same time I set tough targets for our commercial
subsidiaries in terms of the amount they contribute to programme-making budgets. These
subsidiaries last year handed back nearly £130 million for programme-making and saved us
£23 million in reduced costs.

Today, The BBC is spending more money on the things that people want. Instead of spending
24% of our income on our overhead, on running the organisation, we have cut that by 50%
down to 13% and our aim is to get that figure even lower. At the same time, We’ve increased
our programme spend by more than one-third (35%).

But most people in the BBC are not turned on by talk of efficiency savings. What gets them
out of bed in the morning is the prospect of having the opportunity to pursue creative ideas.
So the process of financial reform is just one part of a wider programme of cultural change at
the BBC called Making it Happen.

The overarching aim of Making it Happen is to make the BBC the world’s most creative
organisation. We know we will only do this if we change as an organisation. The BBC like
many public bodies has historically been averse to taking risks and prone to playing it safe.

Learning to take risks and to try new things is essential to the success of Making it Happen.
This applies as much to how we run the organisation as to what we put on air.

If we hadn’t been willing to take a risk with untried talent in the form of Ricky Gervais and
Stephen Merchant, we’d never have had The Office which has become the comedy hit of the
decade. And if we’d listened too much to market research or to audience focus groups we’d
never have made our recent drama documentary about Pompei or our modern take on
Chaucer’s Canterbury Tales. Both these programmes
went out in peak time on BBC One and attracted big audiences (10 and 8m (peak)
respectively)

This may explain why, as many of our main commercial broadcasters are struggling, the BBC
has been enjoying the kind of success we haven’t seen for many years. We’ve seen record

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levels of audience approval, BBC One has overtaken ITV for the first time as the most
watched TV channel and we’ve vastly increased the choice we offer viewers and listeners.

This isn’t meant to sound boastful. It’s evidence of the potential of public service
broadcasting – even in the most competitive environment.

Finally, what we cannot afford is to allow ourselves to be pushed to the margins as some
would like. To do that is to follow the American and even the Australian model of public
service broadcasting and leave market forces alone to determine the kind of programmes
people get. Looking at the state of much of American TV and radio today, I’m not sure what
that has to commend it.

We can’t afford to be monkeys in a market of 800lb gorillas like Sky. The long term survival
of public service broadcasting depends on our ability to be 800lb gorillas too.

Governments have a role to play in creating the right conditions for public service
broadcasting to flourish. Secure funding is key to this. But so too is a recognition that
broadcasting is a creative process which can be crushed by the weight of too many targets,
rules and restrictions. Governments have a terrible tendency to talk about light touch
regulation while binding the broadcasters in endless red tape and performance indicators.

Its also up to us as a public broadcaster to help ourselves. We must be willing to capitalise on

our assets and exploit our unique position to deliver the kind of home-grown programmes
which take time, money and talent to make. Ultimately, this and this alone is how we will
ensure our place in the broadcasting landscape of the 21st century.

As the BBC goes into the charter renewal process this country faces a choice. If it wants a
broadcast system which reflects our culture and our society it will need a well funded BBC.
If Britain doesn’t want that I have no doubt the BBC will become like public service
broadcasting in the United States and Britain will lose its own distinctive broadcasting
system.

Thank you for listening – I’ll be happy to take any questions you may have.