Ofcom PSB Review Phase 2: preparing for the digital future - Interactive Executive Summary

On this experimental site we encourage you to leave informal comments alongside the Executive Summary of Ofcom's Second Public Service Broadcasting Review - Phase Two: preparing for the digital future, published on 25 September 2008.

Alternatively, you can download the full consultation document, and/or respond formally to the consultation (closing date 4 December 2008). You can also follow the debate on the PSB Review blog.

The Public Service Broadcasting review so far


Ofcom is required by Parliament to review public service broadcasting at least once every five years, and to make recommendations about how its quality can be maintained and strengthened. In doing so, our focus is on audiences’ needs: both understanding them, and ensuring they continue to be met as sweeping changes take place in the media landscape.


Our comprehensive research in phase 1 showed the importance audiences place on the continued availability of high quality, original UK content that meets public purposes, from a range of providers. For now, linear television remains the main way of watching this content, but audiences are enthusiastically taking up the opportunities of digital media, especially younger audiences.


We found that the broadcasters are broadly fulfilling the purposes of public service broadcasting, but that the existing model for commercial provision of public service content lacks the flexibility to adapt to audiences’ evolving needs. The market is unlikely to deliver all that audiences consider important in the future, with gaps already emerging in valued genres.


We asked stakeholders for views on these findings and on four illustrative models for public service broadcasting delivery, alongside possible ways of funding those options. We also asked what action stakeholders considered appropriate in the short term. This phase 2 document addresses the many and varied responses we received, and elaborates on the choices lying ahead.

While the BBC is highly valued, stakeholders and audiences want alternatives to it, and do not agree on how to achieve this


The importance to viewers of public service broadcasting and UK originated content was widely accepted by respondents to our consultation. Audiences value the BBC very highly, but virtually nobody favoured it becoming the only provider of public service content.


Views about the need for new intervention to sustain provision beyond the BBC were more varied. Some respondents argued that the market would meet most future needs, while others suggested that existing indirect funding for the commercial public service broadcasters (PSBs) would support a greater level of ongoing provision than we forecast.


In contrast, some respondents felt that the growing pressures on commercial public service content demanded more urgent action, arguing for sharply reduced obligations, or for new funding to replace the declining indirect subsidy. Several respondents argued phase 1 neglected the role of local content, especially on digital terrestrial television.


There are compelling arguments and strong audience support for alternative public service provision to complement the BBC. However, some respondents argued we had overstated the importance of this. To investigate, we reviewed new viewing data showing that competition in public service provision enhances rather than reduces impact, opening up genres to audiences who tend not to watch similar content on the BBC. We also carried out further research which suggests that audiences would be willing to pay to ensure provision of public service content outside the BBC.

Commercial public service broadcasting under the current system will not survive the transition to an all-digital world


Our analysis of the funding available to the commercial PSBs for public service content, reviewed for this phase, shows they will continue to deliver much UK public service content, often for commercial reasons. The regulatory assets identified in phase 1 used to fund provision of this content, such as access to reserved spectrum, will retain some value beyond the completion of digital switchover in 2012.


But this will not be enough to sustain the current level of provision by ITV1 and Channel 4 across a range of genres. The value of the ITV1 licences will fall below the cost of their current obligations before 2012, with the result that ITV plc may have incentives to surrender those licences. After 2012 the obligations linked to the licences will need to be very limited if no replacement funding is available. By 2012, we estimate that Channel 4 will need additional funding in the order of £60-100 million to sustain investment in public service content, excluding the cost of its ambitious Next on 4 proposals.

The market will make a growing contribution, but is unlikely to meet all needs


Viewers have access to a wider range of content than ever before, on digital TV and online. Multichannel broadcasters now make a significant contribution to public service content, particularly in sport, entertainment, archive and acquired programming, and in one case, news. But they provide very little original programming in the genres under most pressure on commercial public service channels – current affairs, nations and regions programming, challenging UK drama, UK scripted comedy, and UK drama and factual programming for children. This is unlikely to change as provision on the commercial PSBs declines, because most multichannels do not reach the audiences required to justify large and risky investments in these areas and will themselves face increasing economic pressure.


In digital media, the potential exists for new commercial provision of content which meets public service purposes, especially online. However, our assessment shows online business models remain highly uncertain, especially for content already under pressure on commercial television. Moreover, it is unlikely that such content will have the reach and impact of television for some time to come. The BBC and Channel 4 may have roles to play in future in introducing audiences to a wider range of public service content from other providers.


Given the speed of ongoing change, the evolution of the market is particularly uncertain. It may come to meet more of audiences’ needs in future. We therefore need a more flexible model of intervention that focuses public funding on areas in which the market cannot deliver and recognises these may change over time.

Existing institutions retain important roles, while competition for funding could create greater flexibility during an era of great change


The model for provision of public service content beyond the BBC now faces its greatest challenge – how to harness the opportunities opened up by digital media while responding to growing pressures on funding, and reconciling the divergent needs of different audiences.


Some respondents argued that the existing model is well placed to meet the challenges and opportunities that lie ahead, and that significant reform is not needed.


We agree that the existing public service institutions retain important roles, and that continued support for institutions with values aligned to delivery of public purposes should be an important element of any future model. However, our analysis is clear that a model in which institutions retain their current roles but with no new funding, and no flexibility to adapt to audiences’ changing needs, will not deliver the vision based on audiences’ priorities that we set out in our first consultation.


As we look forward to an all-digital world, new providers could play an important and growing role in meeting public service purposes. Competition for funding, which is widely used in other areas of public service, could enable an enhanced contribution from a range of alternative organisations. It could keep providers accountable and ensure the main public service institutions do not become complacent.


In phase 1, we set out four illustrative models for the future. The BBC-only model attracted scarcely any support, from either audiences or stakeholders. However, there was no consensus in relation to the three remaining models.

Three models for the post-switchover world


The evolution model was favoured by those who believed Channel 3 licensees retained an important role, especially in the devolved nations. The BBC/Channel 4 model was supported by many respondents and viewers, who welcomed Channel 4’s ambition to play an enhanced role. Audiences and stakeholders valued the flexibility of the competitive funding model, but expressed concern about possible bureaucracy.

Three models for the post-switchover world


Driven by this assessment, this document sets out three refined models for further consideration. All of these models would require significant change to the existing legislative framework. Given that the current model will become unsustainable before 2012, we continue to believe that there is a pressing need for action with a clear direction established by government no later than 2010.

An enhanced Evolution model


If audiences’ needs change relatively little over the next few years, and the existing broadcasters remain best placed to meet those needs, an enhanced Evolution model has advantages.


In this model the main commercial PSBs would retain obligations. ITV1 could become a network of nations-based licences, or a single UK licence, with obligations only for UK origination, UK and international news, and potentially news for the devolved nations and the English regions, for which replacement funding is likely to be required.


Channel 4 would have an extended remit to innovate and provide distinctive public service content across platforms, with additional funding.


Five’s role would focus on UK origination, in particular UK children’s programming, and news.


Even under this evolution model, there might be no need to retain a public teletext licence, nor a Channel 3 breakfast-time licence.

A refined BBC/Channel 4 model


If ITV1’s and Five’s incentives are no longer credibly aligned with public service purposes, and not for profit institutions are chosen as the primary way of securing those purposes, a BBC/Channel 4 model offers benefits.


In this model the BBC and Channel 4 would be the main recipients of public funding and regulatory assets. Channel 3 and Channel 5’s licences would be auctioned or the spectrum rights and other regulatory assets transferred directly to Channel 4 and the BBC to enhance their public service propositions.


Competition for new funding could be introduced for nations, regions and potentially local news. Channel 3 licensees would have no ongoing public service benefits or obligations, but could compete for funding to provide nations and regions news, alongside others. Five would also lose public service status but could similarly bid.

A refined competitive funding model


If audiences turn rapidly to new platforms and forms of content, and competition for funding is deemed the best way to ensure the accountable and efficient use of public resources, a competitive funding model offers advantages.


In this model, the BBC would remain as the cornerstone of provision, but additional funding would be opened up to a wider pool of providers. Channel 4 could retain its PSB status along with its existing regulatory assets, but be required to bid for any additional funds alongside other providers. Current Channel 3 licensees and Five could also bid for funding, alongside others, if they wished to continue to contribute.

Provision of news and information for the devolved nations is an essential requirement for any future model, and is likely to need replacement funding


Because the costs of provision for some Channel 3 licensees will soon outweigh the benefits of PSB status, it is likely that replacement funding will be needed for nations and regions services, particularly news. The options as we see them are:

  • Do nothing, and allow provision to decline over time, against clear audience preferences;
  • Provide new public funding for Channel 3 licensees in the nations and regions;
  • Introduce competitive funding for services in the nations and regions to enable other providers to bid, potentially enabling the creation of cross-media services in Scotland, Wales and Northern Ireland; or
  • Fund the creation of dedicated channels for the devolved nations, such as that proposed by the Scottish Broadcasting Commission.


In Scotland, our analysis shows that replacement funding is likely to be needed significantly earlier than 2012 in order to continue to meet audiences’ needs, particularly in relation to news.


New opportunities are opening up for market and community provision of local video content, as a consequence of the growth of broadband and the framework put in place by Ofcom for access to spectrum. The evidence suggests audiences value this type of content, but are concerned it should be of high quality. Funding models for local video content in the UK remain unproven; in addition to market provision, new competitive funding models could help to meet local needs if required.

Replacement direct or indirect funding of £145-235 million is likely to be necessary by 2012


If audiences continue to want to enjoy the same mix of public and private content they have today, we estimate that public funding of between £330-420 million is likely to be required by 2012 in addition to the core licence fee. Towards that total, we estimate existing regulatory assets will contribute around £185 million, leaving a likely gap of £145-235 million. After 2012, it is increasingly difficult to be precise about funding requirements given uncertainty about the wider media environment.


A wide range of possible funding sources exist, the ultimate decisions about which lie with government and Parliament.


Regulatory assets will continue to have value, particularly reserved spectrum, and many respondents saw these assets as an appropriate funding source. Beyond 2012, the value of these assets becomes increasingly uncertain.


Some respondents to our consultation supported direct public funding; many expressed concern about its impact on the independence of content providers, although there are already successful examples of direct funding with arm’s length oversight to ensure independence is retained.


Many expressed concern about the impact on the BBC of the potential use of the licence fee to fund other providers. But the surplus in the current licence fee settlement that is ring-fenced to pay for costs of digital switchover, if retained, could be used for other purposes after 2012 without in any way curtailing the BBC’s ability to deliver high quality public service content. This surplus is worth around £130 million per annum in the current settlement. Our research indicates that using such a funding source after 2012 would be supported by audiences, and that understanding of what the licence fee currently funds is fairly limited.


Other proposals, such as the BBC developing partnerships with commercial broadcasters, or the transfer of some or all of BBC Worldwide to Channel 4’s ownership also have merit, although the practicalities require careful assessment.


Industry levy schemes could also offer attractive solutions. The argument for a broadly based industry levy would be significantly strengthened if there were further indication that digital business models were harming the prospects for investment in UK content. Our analysis suggests that this kind of impact has been fairly limited so far, but that this could change. The range of options for industry levies is broad - elsewhere in Europe schemes already exist to enable content rights holders to gain from reuse of broadcast content and the retransmission of channels over other platforms. 


In any model, we must be confident that recipients of public funding use resources effectively and efficiently. Any new model of funding should be transparent and proportionate, should not impact unduly on market provision and should be subject to independent scrutiny. Appropriate governance arrangements would be essential.

Channel 4 needs clarity about its future role and model by 2010


Channel 4 has an important ongoing role to play in public service content, but is experiencing increasing financial pressure. It has already cut its programme budget for 2008 and 2009 in order to break even. Its reserves could be used to sustain its public service investment to around 2010, but certainty about its long term role and funding is now a pressing priority.


The principal choices to address its funding deficit are:

  • increasing its regulatory assets, for example allocating to it regulatory assets currently held by ITV1 and Five (or by being allocated the value of these assets which would be delivered by auction);
  • building its scale by transferring some or all of BBC Worldwide to Channel 4; or
  • providing direct funding through the switchover surplus in the licence fee, an industry levy or direct taxation.


Alternatively, it could compete for additional funding, but not be allocated any further funding by right, as in our competitive funding model.


Any new public investment in Channel 4 is likely to require changes to its accountability arrangements, such as enhanced responsibilities for the Channel 4 Board or independent external oversight of its use of public resources and delivery of a revised remit.

Our proposals for the commercial PSBs’ obligations from 2009 are designed to ensure audiences’ priorities are secured


Ofcom is required to decide what obligations the commercially funded public service broadcasters should have. They retain important roles over the next few years, especially in providing high levels of original UK content, national and international news, and nations and regions news.


But their obligations must be sustainable and targeted at the areas most highly valued by audiences. In making these proposals, we are mindful of the need not to foreclose any long term options government and Parliament may wish to consider. However, even our proposed changes – most of which could take effect early in 2009 – may not be sufficient to achieve a sustainable settlement beyond 2012, and will need further assessment before this point.


ITV plc has proposed a series of areas where they wish to reduce or amend the obligations on ITV1. We have considered these carefully. In so doing, we have sought to align obligations with the continuing value of the ITV1 licences before the end of switchover.


Taken together, these proposals seek to ensure audiences’ priorities of UK programmes, UK news and nations and regions news are served. To do that we are proposing to reduce the costs of obligations substantially in other areas, consistent with existing legislation.


We therefore seek views on the following proposals for ITV1:

  • retained nations and regions news, but a modest reduction in the minimum requirement for news minutage, reflecting removal of some daytime bulletins;
  • reduced minimum requirements for nations and regions non-news programming, to 15 minutes in England and from 3 to 1.5 hours in Wales, Scotland and Northern Ireland;
  • reduced quotas for out-of-London production to 35%, in the context of new commitments to such production from the BBC and Channel 4 (see below);
  • reduced network current affairs minimum quota of 50 minutes per week, with the reduction largely outside peak time.