On-demand Consultation: Full text of responses from organisations April 2007 Introduction This document contains the full responses from organisations to the BBC Trust’s consultation on the provisional conclusions on the BBC’s on-demand proposals, where confidentiality allows. Listed in alphabetical order the responses contained are from: Association of British Orchestras Audience Council England Audience Council Northern Ireland Audience Council Scotland Audience Council Wales BBC Executive British Music Rights BPI BSkyB Friends of Radio Three ITV Muscians Union Open Rights Group PPL & VPL Radio Centre Radio Independents Group Voice of the Listener & Viewer We also received responses from four organisations who wished to keep their submissions confidential. Association of British Orchestras I am writing on behalf of the Association of British Orchestras with a late response to the BBC Trust’s position on a DRM-free audio download service offered by the BBC. Whilst we would certainly be supportive of such a service provided by the BBC if it were offering downloads of no more than 3 minutes per work or 25% of a work’s duration for works less than 12 minutes, we would be entirely opposed to any service offering tracks of a greater duration. British musicians and labels have been using commercial digital music stores to attract and nurture new classical consumers on a global level for a number of years. It is proving to be the most effective channel for reaching classical novices and their purchases account for the majority of downloads of classical music on digital services. The digital music stores have been very supportive of classical music and especially supportive of orchestras who run their own labels and the UK's independent record labels. Whilst the market for downloads of many genres of music may still be in its infancy, the download market for classical music has been strong with certain British labels seeing downloads account for over 35% of sales. If the Trust’s current policy was reversed, free downloads from such a popular online destination as the BBC would lead to a massive reduction in the support that the classical music receives from digital music stores. This would destroy the tremendous work that orchestras and classicals labels have undertaken over the past few years in using downloads to break down misconceptions about the elitism of classical music. It would result in a significant reduction in revenue to classical labels with serious consequences for the UK orchestras and musicians who either rely on labels being able to invest in new recordings or who have established their own record labels. We share the BBC’s interest in developing new classical audiences but do not see how compromising the commercial classical recording sector just as it is enjoying a resurgence can be helpful at this time. To conclude and to reiterate our position, we would accept a compromise position of downloads of not more than 3 minutes per work or 25% of a work’s duration for works less than 12 minutes. Audience Council England The response of the Audience Council England drew on comments made by the 12 Regional Audience Councils as well as its own discussions. The overwhelming view was that the BBC had to proceed with the proposals if it was not to be left behind in the digital world. 1. Public Value i. Greater freedom of access to services already paid for by the licence fee payer coupled with flexibility in viewing options were the two principal benefits of the proposals. ii. Value to licence fee payers was likely to increase as convergence develops. iii. Concerns centred on the impact of investment in the proposals on core BBC services following the recent licence fee settlement, and insufficient detail in the costings. iv. There was a need for clear BBC branding to avoid confusion. 2. Series Stacking i. This would be a useful facility to catch up with missed episodes of major series, particularly drama and natural history. ii. It was difficult to see why access to more than 13 episodes in any one series might be desired. iii. The seven day catch-up was felt to be inadequate as it would prevent block viewing, for example a Dr Who weekend. 3. The BBC’s Public Service Remit i. The proposals were likely to encourage adoption of new digital technologies and reach out to younger people who expect to use such technology daily, and who often see the BBC as out of date. ii. There was a preference for no DRM (digital rights management), allowing access to BBC output for an unspecified time. iii. Questions arose over loss of parental control and the future of the watershed, loss of the communal and family aspects of viewing, and protecting access to licence fee payers. 4. Competitive Impact i. The service should be offered across more than one platform to ensure the greatest possible access and value for money. This might be an area where the BBC could work in partnership with other organisations. ii. Public consumption is already moving towards convergence and will continue to do so regardless of BBC activity. iii. There was likely to be little market impact for DVD and CD sales because of the poorer quality of downloaded material; there were also limitations on viewing TV output on computers. 5. Other Comments In a converging world, the BBC has to serve its licence fee payers by keeping at the forefront of new technologies and not just following in others’ wake. Public expectations would have to be carefully managed in order not to alienate the digitally disadvantaged through over-promotion or a reduction in core services. Audience Council Northern Ireland The Audience Council for Northern Ireland wishes the following points to be taken into account in the On Demand Services Consultation on behalf of licence fee payers in Northern Ireland. 1. The importance of locally relevant content as part of the service offering : BBC NI should be facilitated in optimising the volume, range and scope of local programming as part of the on-demand service. 2. Classical music output : Council was concerned that constraints may be placed on the availability of the BBC’s classical music output. This could be detrimental to a public service role in reaching new audiences, and to the objective of “always striving to expand horizons and encourage audiences into new territory”1 Consideration should be given as to how the BBC’s extensive music archive can be made available to audiences in the future. 3. Access : Council noted the financial, technical and infrastructure issues which might need to be addressed to make the on-demand service available across Northern Ireland. This is particular need to take account of the rural / urban divide in high speed broadband provision as evidenced by Ofcom research.2 4. Download constraints : Council considered that the time limitations on downloading material under DRM did not reflect current usage patterns. As a consequence, audiences might seek different ways to meet their needs. Furthermore, the complex nature of DRM might make the proposition less accessible and user friendly for all audiences. 5. Responsiveness to change : Council suggested that On Demand Services should remain responsive to changing technologies and patterns of media consumption. 1 BBC Public Purpose Remit : Stimulating Creativity and Cultural Excellence 2 Statement Of The Policy Implications Arising From The Communications : Nations and Regions Research, Ofcom, 12 Oct 06 Audience Council Scotland At its meeting on 2 February the Audience Council heard presentations on the On- demand proposal from the BBC management and, separately, on the Public Value Test process and the Trust’s provisional conclusions from the Chief Economic Adviser, BBC Trust Unit. The Council then held a public consultation event on the Trust’s Preliminary Conclusions in Glasgow on 22 March. This submission reports on the result of the consultation event and then summarises the views expressed by Council members at the meeting of 2 February, and their assessment of the consultation. Audience consultation on the BBC Trust’s provisional conclusions on the BBC On-demand’ proposal Audience Council Scotland held a face-to-face audience consultation on the BBC Trust’s provisional conclusions on the BBC’s On-demand proposal in Glasgow on 22 March 2007. It was attended by 15 people from the West of Scotland area selected by an independent agency to reflect a range of age groups, backgrounds and degrees of involvement with digital media. Two participants did not own a computer, another did not have internet access. The remainder had internet access with a broadband connection. Some already used the BBC ‘listen again’ facility. The process Attendees received a presentation on the proposal from BBC staff involved in its development. National Trustee for Scotland, Jeremy Peat, explained the role of the Trust and its preliminary conclusions on the proposal. Attendees were then divided into smaller groups, facilitated by members of the Audience Council, in order to address each of the 12 consultation questions in turn. A final plenary session then considered the views expressed by the groups. Consultation questions 1. Do you agree with the BBC Trust’s proposal to approve the new BBC on-demand services, subject to the modifications outlined in the Trust’s report of its provisional conclusions? • Attendees said it would be an advantageous to viewers and listeners to be able to pick and choose when they wanted to download and view programmes. • It was felt that older members of the audience in particular would welcome an ‘on demand’ facility from a trusted brand such as the BBC. • It offered a legal way of downloading certain types of output. • Overall, attendees felt the service would be valuable to audiences and found no reason to withhold approval of the proposal. • However, a number regretted the absence of a ‘bookmark’ facility, pointing out that a viewer who was on holiday for a fortnight would be unable to catch up with programming during the first seven days. 2. In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? • The groups felt it was important for the BBC to remain up-to-date in the media marketplace. Some other providers were ahead of the BBC in this respect, and the service would help the BBC catch up. • One person said such a service would make the licence fee seem better value for money; another that the value of the service would depend on the proportion of content that was available - if too little, it would not offer a good return on the BBC’s investment. 3. The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is a nascent market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days is the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? • Most people agreed a 30 day window was sufficient, and that they were unlikely to be interested in content after that period. A minority felt strongly that programmes should be available indefinitely. It was suggested that, after the elapse of the 30 day window, programmes could be made available for downloading with no time restrictions on payment of a fee. 4. The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch-up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on- demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? • The groups understood the reasons behind the distinction between series with discrete runs and continuing series like Blue Peter or River City. However, it was suggested that for continuing series like EastEnders episodes could be made available for catch-up in batches of 10. • Several attendees were disappointed that they would be unable to download and view entire series of their favourite BBC programmes, Top Gear being a prominent example. • A number of people did not feel that the availability of a catch-up service would militate against the purchase of DVDs. Viewing on a PC and viewing on television were not seen as equivalents. • Overall, the groups felt that the remit on series stacking could be wider than the Trust was advising. 5. How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? • The groups felt the service should ultimately be available on all operating systems. 6. Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? • A majority of people said they would not use such a service. However, most saw no reason in principle why book readings from BBC radio should be treated differently from other catch-up content. 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? • Overall the groups saw no reason to treat classical music downloads differently from those in other music genres such as jazz (where there might be an equally ‘thin’ market for CDs) and pop. • Some felt classical music downloads could impact on commercial sales, while others suggested that, in practice, they could act as a stimulus. 8. How important is it to you that the BBC provides some means for parents to control which of its programmes are accessible on-demand to children? Is such a facility necessary or is it more a matter for parents to exercise controls over how children use the internet? • Parental control was felt to be very important, as children nowadays can operate computers from a very early age. The facility should apply to all content, not just post-watershed; the parents should be able to select where to implement controls. 9. What are your views on whether the BBC should offer content from non-BBC providers on the on-demand service on its website? • While some felt a wider choice of programming would be desirable, overall this was not felt to be a priority. There were some concerns that the BBC would not be able to control the quality of programmes from non-BBC providers and the BBC brand might suffer. 10. What are your views on whether and how the BBC should make available on-demand content on services run by other providers – such as multi-channel services or internet-based audio and video downloading services? • Overall, this was not felt to be a priority. Again it was felt that the unique BBC brand should be ‘safe-guarded’. 11. Do the revisions proposed to BBC Service Licences to allow the new services to go ahead seem appropriate? • Yes, subject to the comments on modifications made under questions 3,4,6 and 7 above. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? • No. 13. Do you have any comments on the process followed by the BBC Trust in performing this PVT? • No. Overall conclusions from consultation: - The service would enhance value for audiences and should be a priority for the BBC - 30 day window is sufficient - Provision of parental control is extremely important However: - The absence of a bookmark facility reduces value as a catch-up service - Remit on series stacking should be wider than the Trust is suggesting – non-stackable series could be made available in batches - Participants were not persuaded that book readings and classical music downloads should be treated differently from other BBC content - Availability of BBC content from other providers, and of other providers’ content from the BBC, is not a priority Audience Council Scotland Discussion at meeting of 2 February At its meeting of 2 February the Audience Council for Scotland heard presentations on the ‘on demand’ proposal from BBC management and, separately, on the Public Value Test process from Chief Economic Adviser, BBC Trust Unit. Technical infrastructure Members emphasised that the technical infrastructure supporting the service would be critical to its success. It was important that material could be downloaded at a reasonable speed, and, in the longer term, that the technology became available for transferring downloads from a PC to a television. The most recent published research on broadband in Scotland (A Study Into Broadband Reach in Scotland, Scottish Executive, December 2006) suggested that a differential may be opening up urban and rural Scotland, with a significant proportion of Scots (25%) not expected to achieve 5 megabyte broadband speeds for the foreseeable future. This could impact on the potential value of the service. However, members felt that the simulcast facility could offer an alternative means of access to BBC content for households where reception of Freeview was problematic. Nations and regions content There was some concern that, although it was ultimately intended to make all BBC content available for catch-up, initially only relatively low volumes of material from Nations and Regions would be available. ACS Assessment of Audience consultation The Audience Council agreed that, without exception, the public consultation held in Glasgow overwhelmingly welcomed the BBC's i-player proposal. It was felt by the consultees that on-demand was definitely something that the BBC should do if it is to maintain its market position and reputation for innovation. Whilst a question mark was raised over the exclusion of classical music and book readings, the revisions recommended by the BBC Trust PVT were largely accepted as sensible. Audience Council Wales Question 1 Do you agree with the BBC Trust's proposal to approve the new BBC on-demand services, subject to the modifications outlined in the Trust's report of its provisional conclusions? The ACW is broadly supportive of the iPlayer proposals as outlined by the BBC Trust in its provisional conclusions. It considers the iPlayer to be a particularly important tool in addressing the issue of universality of access in the context of regional opt outs. It would allow the broadcast of valued regional opt-outs which the audience demands to view in the prime time schedule as well as allowing the audience access to displaced Network programming at its convenience. Question 2 In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? Yes, it is important that the BBC is involved in the development of technical broadcasting innovations. Question 3 The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is an emerging market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days is the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? ACW considers that the Public Value created in allowing the audience to keep programmes with an informal educational or historical value for a longer period, for example those produced to mark the fortieth anniversary of the Aberfan disaster in 2006, would outweigh any negative impact arising from allowing a longer retention period. Question 4 The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch-up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on-demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? The Audience Council for Wales agreed with the Trust’s interim view that series stacking would be a useful feature of the iPlayer for the audience. It concurred with the distinction drawn by the Trust between series which consist of stand-alone episodes (e.g. Top Gear) and those considered to be landmark programmes, or where a distinct and continuous narrative thread (e.g. Doctor Who) was present. Series with a strong informal educational value such as BBC Cymru Wales’ recent Weatherman Walking and Iolo’s Wild Wales, which contribute significantly to the BBC’s Purposes, should also be included. Question 5 How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? The proposed seven day catch up service over the internet should be available to customers using software other than Microsoft software. Question 6 Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? Book readings from the BBC’s radio services should be made available as audio downloads over the internet. Radio 4’s recent Book at Bedtime, Welsh Classics is an example of material which contributes significantly to the BBC’s Public Purposes, and is unlikely to be made available commercially. The BBC would be building significant Public Value by allowing audiences to create and archive material of this kind for use at its leisure. Question 7 The BBC Trust concluded there was a fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether - and to what extent - the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? If the interim decision by the Trust means a blanket ban on the use of music in all downloadable content, such as classical music played within other genres or as soundtracks, this would have significant implications for the nature of programmes which could be made available on the iPlayer. It is important that the Trust is clear about these implications before implementing such a blanket ban, assuming this is the intention. Council asks the Trust to consider drawing a distinction between material produced by the BBC’s own orchestras and other performances or recordings. Having already paid for the BBC’s orchestras, performances and occasionally the musical compositions performed through the licence fee, audiences should be able to access this music through the iPlayer. Efforts should be made to find a solution which would avoid the need for such an apparently comprehensive ban on audio downloads of classical music. Question 8 How important is it to you that the BBC provides some means for parents to control which of its programmes are accessible on-demand to children? Is such a facility necessary or is it more a matter for parents to exercise controls over how children use the internet? The facility to exercise some parental control over downloadable programmes is desirable. Question 9 What are your views on whether the BBC should offer content from non-BBC providers on the on-demand service on its website? Question 10 What are your views on whether and how the BBC should make on-demand content available on services run by other providers - such as multi-channel services or internet- based audio and video downloading services? The BBC should make available on-demand content on services run by other providers. Question 11 Do the revisions proposed to BBC Service Licences to allow the new services to go ahead seem appropriate? Yes Question 12 Are there any other issues you would like the BBC Trust to consider in relation to the proposed in its services? - The seven-day window post transmission appears to be based on standard Network transmission times and dates, and takes no account of time-shifted material in the schedules of the Nations and Regions of the UK. An issue that needs to be resolved. - Audiences should have the opportunity to select a Welsh language version of the iPlayer interface. - It is essential that the BBC's Welsh language television programmes are available on the iPlayer. The BBC's Strategic Partnership agreement with S4C allows S4C a 7 day exclusive transmission window (and thereafter a series of non-exclusive windows) on new media platforms of non-news programmes produced for it by the BBC. The 7 day catch-up opportunity for the BBC's non-news Welsh language television programmes on iPlayer should not start until 7 days after the original transmission on S4C. The Strategic Partnership agreement recognises that BBC news programmes supplied to S4C may be available for streaming and downloading non-exclusively and immediately by the BBC and should therefore n the iPlayer catch-up window from transmission. BBC Executive 1. Introduction This paper sets out the BBC Executive’s response to the Trust’s PVT provisional conclusions and the modifications to the on-demand proposals which it is minded to include as appropriate conditions to any approval ultimately given. It also considers the underlying analysis and evidence for the Trust’s interim decision contained in both the PVA and MIA. The response represents the unified position of the BBC Executive, balancing both the public service and commercial sides of the business. Undertaking an assessment of the net public value of new services in a nascent market is a significant challenge. The Trust’s provisional conclusions and the supporting PVA and MIA reports provide a rigorous and substantial piece of analysis. The Executive welcomes the Trust’s provisional conclusions that each of the proposed service elements is likely to deliver significant public value, enough to justify the likely adverse market impact, and should be allowed to proceed. Overall, we also welcome the structured, evidence-based approach taken by the Trust to assessing the net public value of the proposals. The Executive does, however, have concerns about some of the Trust’s specific conclusions. It is our view that a number of the modifications to the on-demand services risk reducing their overall net public value: .. Determining the optimal window length is difficult in this developing market. However, from the evidence available to us, we consider that a storage window of 30 days is the minimum below which the public value of the internet TV catch-up service would be significantly diminished .. Although there is a case for limiting the scope of series stacking within the catch- up services, the Trust’s proposed editorial distinction would be extremely difficult to implement and is unlikely to maximise net public value. Setting a limit on the volume of BBC content that can be stacked within a given time frame would be a more effective modification .. The exclusion of classical music from non-DRM audio downloads would decrease, over time, Radio 3’s contribution to the BBC’s public purposes and its ability to introduce classical music to new audiences. We do not oppose the Trust’s decision to exclude book readings from the non-DRM proposal We would like the Trust to reconsider the conditions on series stacking and the exclusion of classical music from non-DRM audio downloads. This paper sets out alternative modifications in both areas that, the Executive believes, are likely to deliver a better net public value outcome than the Trust’s proposals. The Executive’s revised proposals aim to retain much of the public value of its original PVT application whilst addressing the concerns expressed in both the PVA and MIA. The revised proposals are also informed by supporting analysis and additional market research undertaken by the Executive in response to the Trust’s interim decision. The BBC Executive would also like greater clarity on the details and explanation of two of the Trust’s other modifications, namely: .. Requirement to provide the catch-up internet service on a ‘platform agnostic’ basis .. Syndication of BBC on-demand content to third parties The BBC Executive agrees that effective parental controls within the new on-demand services are important to safeguard public value. As requested by the Trust, this paper sets out our plans in this area. Finally, the BBC Executive would like the Trust to consider ‘bookmarking’ for TV downloads over the internet as part of the proposed approval. This feature is a standard piece of web functionality that audiences will expect as part of the BBC iPlayer; it will improve the quality of the user experience; and is unlikely to have any significant negative market impact. Separate papers will be submitted to the Trust on this issue. We note that the Trust has taken Ofcom’s MIA findings and recommendations into account in framing the modifications to the on-demand services. While we recognise that undertaking robust assessments of the future impacts of new services on nascent markets is a significant challenge and that Ofcom’s MIA provides a substantial piece of analysis, the approach that has been adopted in the first MIA raises methodological issues that warrant future consideration. Based on advice from economics consultancy Oxera, the Executive believes that the following key issues should be taken into account by the Trust in this PVT and should inform the approach to future MIAs: .. Whether the substantive test for assessing the impact of the BBC’s activities should focus primarily on static welfare effects, as Ofcom has done, or should be based on an assessment of competitive distortion .. The evidential basis for Ofcom’s analysis of harm and its recommended changes to the new on-demand services .. The extent to which the beneficial impact of the BBC’s on-demand services, for example in promoting demand for other on-demand services, has been properly taken into account in the assessment These issues are considered in greater depth in Annex A to this paper. The remainder of this submission responds to the Trust’s proposed modifications to the new on-demand services and the reasoning behind them. 2. Modifications to the BBC’s on-demand proposals This section sets out the BBC Executive’s response to the modifications to the on- demand proposals put forward by the Trust. Where the Executive believes that the conditions risk diminishing the net public value of the proposals, we have proposed alternative modifications that aim to retain much of the public value of the original on- demand services whilst addressing the concerns expressed in both the PVA and MIA. The revised proposals are informed by new market research commissioned by the Executive (see Annex B) and other sources. The BBC Executive welcomes the Trust’s decision not to propose modifications to the ‘distribution’ and ‘consumption’ windows for the TV catch-up over the internet proposal. In terms of the ‘storage window’, the BBC Executive notes the Trust’s conclusion that the length of the window must balance the value delivered to licence fee payers by maximising access at no additional charge with the need to maintain the value of secondary rights in BBC programming. Achieving the right balance is, however, inherently complex. On-demand is still a nascent market where consumption patterns are unclear. In light of this, we interpret the Trust’s decision to set 30 days as the storage window for downloaded content as a ‘precautionary’ measure, although the Executive remains of the view that a longer window is not inconsistent with the obligation to generate secondary commercial revenues for reinvestment in the BBC’s public service activities, as the initial public service window will stimulate demand for products and services in the commercial window (e.g. DVDs). It is important to note that the original 13 weeks storage window is consistent with the new media terms agreed with PACT, which seek to balance the interests of rights holders with those of licence fee payers. In terms of potential impact on the market, there are reasons to believe that Ofcom’s assessment is likely to have over-estimated the reduction in producer surplus attributable to the storage window. Modification: Storage window for seven-day TV catch-up over the internet 3 iMP audience research (previously supplied to the Trust). On the basis of the available evidence in the PVA and MIA, it is the BBC Executive’s view that any further reduction of the storage window from 30 days would risk significantly reducing the overall public value of the catch-up service, net of the market impact. Public Value The BBC’s catch-up service is an extension of the existing linear TV schedule. It is designed to meet the demands of licence fee payers for greater control over how and when they consume content that they have already paid for. Usage will primarily be substitutional rather than additive as audiences shift some of their consumption from linear schedules to on-demand. As a result, licence fee payers will expect catch-up to be provided on the same terms as the BBC’s existing public service offerings, i.e. universally available and free at the point of use. If not, the public value generated by the catch-up service – in terms of maintaining the volume and distribution of BBC consumption and thereby the promotion of public purposes - would be substantially reduced. We welcome the Trust and Ofcom’s recognition that the storage window will enhance the value of the BBC’s catch-up service. It will provide the user with greater flexibility and control over when the downloaded content is viewed, allowing for holidays, busy periods at work and other activities that affect opportunities to consume programmes. This feature was not included in the BBC’s on-demand online trial (iMP). Research revealed that users in that trial regarded a window of seven days to view downloaded content from the point of linear broadcast as too short, particularly when compared with catch-up enabled through PVRs and more traditional technologies such as video recorders. The limited window was identified by users as a major drawback of the trial (only 7% of respondents regarded the 7 day limit as satisfactory). Specifically, the 7 day limit was cited (by 70% of respondents) as a key reason for the failure to view downloaded programmes. This is likely to cause frustration among consumers given the time investment required to download content over the internet. Extending the seven day limit was identified by users as the main recommendation for improving the catch- up service (over 90% of respondents agreed)3. BBC research, based on the ongoing NTL trial where programmes are available for longer than one week under ‘series stacking’, suggests there is a ‘long-tail’ of demand for BBC content. Figure 1 suggests a minimum four week window is required to capture 95% of all catch-up usage. 4 BBC analysis of data supplied by NTL for stacked series in 2006. Note that no stacked programme titles were available longer than eight weeks and many series were shorter than eight weeks. Distribution of on-demand requests after broadcast of programmes The data is limited to a relatively small sample of BBC programmes; however it suggests that the ‘long-tail’ value will vary between titles. As viewing habits shift from linear to on-demand and audiences place greater value on time-shifting and place-shifting, we would expect the ‘long-tail’ of demand for BBC programmes to, on average, increase rather than decrease. Younger audiences in particular are likely to value the increased flexibility and control offered by an extended opportunity to view content. In addition, it is reasonable to expect that long-tail consumption could, over time, disproportionately benefit niche, specialist programmes. On the basis that usage of the BBC’s catch-up internet service follows a similar pattern, reductions to the window length would have the effect, all else being equal, of increasing the cost per user hour (CPVH) of the proposal and decreasing its value to audiences. For example, the proposed reduction in the storage window to four weeks would increase average CPVH by 5.3%. Given the relatively fixed nature of the costs of the internet catch-up service, any further reduction from 30 days would further depress the value for money of the proposal. We also note that the audience research commissioned by the Trust as part of the PVA revealed a similar story with respondents citing the proposed seven-day limit as being too short – there was a general view that since they have already paid for their licence 5 Sparkler, BBC On-demand services: Qualitative research report, Nov 2006. 6 BBC Trust, Public Value Assessment , Jan 2007, p.90 fee they should be able to access older content.5 The inclusion of a storage window within the internet catch-up service is necessary to meet the apparent ‘long-tail’ of demand for BBC content. In addition, there is evidence that the catch-up service (like the linear schedule) will help to build consumer loyalty to particular BBC programmes, which will enhance their value in the secondary market6. Storage of BBC content that allows only limited viewing is unlikely to be a credible substitute for permanent ownership. However, we note the Trust’s point that a longer window could at some point create diminishing public value returns. On the available evidence in the PVA, the Trust proposed four to six weeks as the optimal length for the storage window in order to take account of the potential impact on the BBC’s secondary revenues. The 30 days proposed in the Trust’s interim PVT decision is at the bottom end of that range and, in the Executive’s view, represents the minimum below which the value of the service to audiences would be significantly compromised. Market Impact As this is a nascent market, there is currently no clear standard for the length and structure of on-demand windows. Commercial operators are experimenting with a range of different window structures and payment models. It is our understanding that, under the terms of agreements with PACT, the commercial PSBs have an exclusive 30 day window to make programmes available on-demand. This window is different to the BBC’s proposal; each is likely to have advantages and disadvantages for audiences in terms of the availability of content for download and the flexibility of storage and consumption. As a general point, we would caution against using the commercial sector as a benchmark for the BBC. Commercial providers face different economic incentives and trade-offs to the BBC whose windowing strategy should be based on the balance between public value and market impact. The Trust’s modification is heavily reliant on Ofcom’s conclusion that a 13-week storage window for the internet catch-up service (combined with series stacking) could have a significant impact on DVD/VHS sales/rentals and commercial VOD services. This assessment should be considered carefully as Ofcom have relied, in our view, on evidence that is questionable in a number of key areas: (i) the usage uplift to the BBC’s catch-up proposal from the storage window; (ii) the diversion rates from commercial services; (iii) and the value of the diverted usage. For example, the number of viewing hours diverted from DVDs to the BBC’s proposed service appears to be set arbitrarily in Ofcom’s assessment. 7 The Trust’s proposal is that stacking should be limited to ‘those series with a distinct run, with a beginning and end, and a narrative arc, or those which are landmark series with exceptionally high impact’. Editorial criteria such as ‘narrative arc’ and ‘landmark series’ are clearly open to interpretation, with the result that implementation could require title-by-title discussions. It would also appear that a significant part of Ofcom’s concern about the impact of the 13-week storage facility comes from its combination with the series stacking proposal, which the Trust intends to reduce in scope (see below). On the basis that market impact is proportionate to the length of the storage window, it is plausible to assume that it would be considerably mitigated by the Trust’s decision to shorten the window from 13 weeks to 30 days. It is reasonable to argue that a further restriction on market impact grounds would be a disproportionate response given the available evidence and analysis presented in the MIA. Any further reduction would also have to be set against the likely negative impact on public value which, given the research from the trials and elsewhere, could be substantial. In light of the value created by the storage window and the limited evidence of its substitution effects, we regard the Trust’s modification as the absolute limit below which the public value of the catch-up TV proposal would be significantly diminished. We note that the proposed review of the BBC’s new on-demand proposals after 24 months will provide an opportunity for the Trust to re-visit this issue if necessary. Modification: Scope of series stacking The BBC Executive welcomes the Trust’s conclusion that a series stacking feature will enhance the value of the catch-up proposals. However, we have decided to reconsider our original series stacking proposal in response to the concerns expressed in the Trust’s provisional conclusions. There is a case for restricting the scope of series stacking, but the approach taken must be carefully considered in order to maximise net public value. The Trust’s modification to series stacking risks significantly reducing public value without minimising potential market impact. It is also important that any restrictions on series stacking are workable. In the Executive’s view, the proposed definition of stackable series is sufficiently ambiguous to prevent effective implementation7. We would like the Trust to consider an alternative modification, based on a volume cap, that aims to retain much of the public value of the original proposal whilst addressing the concerns raised in both the PVA and MIA. 8 Human Capital, Quantitative Research, March 2007. 9 ibid Public Value There is clear public value in allowing users to catch-up with episodes in a series that they may have missed. Research undertaken for the BBC suggests that this facility would enhance the benefits that audiences derive from the BBC’s catch-up service and also help to maintain the reach of programmes.8 It is unclear, however, at this stage what the exact pattern of audience demand and usage will be for series stacking. It is, therefore, essential that the BBC retains flexibility over what types of programmes can be stacked in order to preserve consumer choice. The selection of stackable series should be based on an assessment of the extent to which stacking would deliver public value through, for example, bringing additional audience reach and impact by extending the life of, or bringing a wider audience to, a series that otherwise would not have been picked up by the audience. Audiences respond positively to a range of potential criteria for selecting programmes for stacking, including popularity, narrative thread and impact9. The evidence from the NTL on-demand trial suggests that the audience benefits delivered by stacking will not be limited to certain types of series or particular genres (see Figure 2). Some of the most popular stacked titles in the NTL trial (e.g. Top Gear and Vet Safari) may not meet the ‘distinct run and narrative arc’ criteria proposed by the Trust. At the same time, those series which do clearly fit the criteria may not necessarily be the most highly valued. Given the heterogeneity of consumers’ tastes, a narrow definition of series stacking would not maximise the value derived by licence fee payers from the facility. The only category that we agree with the Trust should be excluded from series stacking is continuous series such as soaps. 10 BBC analysis of data supplied by NTL for stacked series in 2006 11 BBC Trust, BBC on-demand proposals - PVT provisional conclusions, January 2007, p.10. The BBC Executive’s proposal is to stack series for a period of up to 13 weeks maximum. 12 Human Capital, op cit, March 2007 Requests for stacked series after first week of broadcast We welcome the Trust’s decision not to reduce the period over which a series could be stacked from the 13 weeks currently proposed, on the basis that ‘the public value of stacking lies in making available the whole series for the duration of its run’.11 Research undertaken for the BBC suggests that audiences favour stacking of full series (two thirds of respondents prefer all episodes of a series to be available).12 As with the on-demand viewing window, the BBC Executive notes the Trust’s view that series stacking needs to take account of the need to maintain the value of the BBC’s secondary rights. However, the Trust’s distinction between ‘narrative’ and ‘non- narrative’ series does not reflect the commercial value of programme titles. In terms of the examples cited by the Trust, there is clearly less secondary value in Blue Peter or Eastenders (non-stackable) compared to Planet Earth or Dr Who (stackable). Except Top Gear, none of the example non-stackable titles were commercially exploited by BBC Worldwide on DVD/VHS. The Trust’s modification would not be an effective means of maintaining the value of secondary rights in BBC programming. 13 BBC Trust, PVT provisional conclusions, p.10. Our view is that the cap should apply to total hours of on-demand content within a 12 month period. Market Impact In terms of potential market impact, the Trust’s proposed modification to series stacking appears to be based on two main assumptions: .. that a reduction in series stacking substantially decreases the potential market impact of the BBC’s catch-up TV service. This conclusion is reliant on Ofcom’s estimated market impact of series stacking; and .. the best way to achieve this reduction is to limit the scope of stackable series using an editorial restriction The first assumption is open to question, for the following reasons: .. Ofcom has relied on evidence that is questionable in several areas: (i) the growth in usage of the catch-up service due to series stacking; (ii) the level of diversion away from commercial services; (iii) and the value of that diverted usage to commercial services; and .. the fact that positive external effects of the BBC’s proposals (e.g. promoting demand for on-demand overall) do not appear to have been included in Ofcom’s assessment Taking these factors into account, Ofcom’s estimates are likely to overestimate the market impact of the BBC Executive’s proposal for series stacking. In terms of the second assumption, the evidence suggests that more proportionate modifications are available to alleviate the potential market impact, as set out below. BBC Executive’s revised proposal The BBC Executive would like the Trust to consider an alternative modification that would retain much of the public value of the original series stacking proposal whilst alleviating market impact. It is our view that an optimal approach would aim to constrain the amount of series stacking, while preserving a maximum amount of choice for licence fee payers. This is because of the heterogeneity of consumers’ tastes and the fact that, according to Ofcom’s assessment, the strength of the potential market impact mainly depends on the amount of stacking. The alternative modification would involve setting a limit on the volume of BBC content that can be offered for stacking over a given timeframe. We agree with the Trust’s view that 15% of content offered on-demand would be reasonable and note that this level would be consistent with the effect of the editorial restriction proposed by the Trust13. In our view, a volume cap would also have the advantage of being simpler and easier to administer than the Trust’s proposal. 14 There are two exceptions: Discovering Music the weekly programme which offers students the chance to hear works on the syllabus analysed and then performed by musicians - BBC Executive would like to include one full work per programme for download since this programme is tied in with the GCSE syllabus. Choral / liturgical music, which is sometimes longer than 10 minutes but rarely more than 15 minutes. Radio 3’s schedule typically consists of one programme per week from this genre. Within the volume cap, the BBC Executive would retain the flexibility to select a mix of series that are likely to maximise the value delivered to licence fee payers. This will involve taking into account the Trust’s requirement to maintain the value of the BBC’s return on secondary rights. The BBC Executive will seek to put in place a workable and proportionate framework to address this. Modification: Exclusion of book readings and classical music from non-DRM audio downloads In its provisional PVT findings, the Trust concluded that book readings and classical music should be excluded from the BBC’s proposed non-DRM audio download service. The Trust agreed with Ofcom’s concerns that there could be a negative market impact if the BBC allowed listeners to build an extensive library of book readings and classical music that would serve as a close substitute for commercially available products. The Trust also concluded that tightening the definition of classical music (e.g. excluding the most popular content) was not workable and that limiting the scope (e.g. restricting it to a few complete works each year) resulted in insufficient public value to outweigh the potential market impact. In recognition of the Trust’s provisional findings, BBC Executive wishes to submit a revised proposal for classical music which it believes retains much of the public value of the original proposal whilst addressing the concerns expressed by Ofcom on potential market impact. We do not oppose the Trust’s decision to exclude book readings from the non-DRM audio proposal. BBC Executive’s revised proposal The Executive’s revised proposal for non-DRM downloads of classical music is based on a reduction in the scale of the original proposal and will comprise, subject to rights clearances14: • short examples of classical music contained within complete broadcast programmes, of which no example will last longer than 10 minutes; and • stand-alone examples of classical music of no longer than 10 minutes duration. All of these examples (‘taster pieces’) will have been broadcast in full by a BBC radio station (generally Radio 3) thereby complementing the BBC’s linear output. It would 15 The Trust’s proposed exclusion of classical music downloads would also affect Radio 4 (and other BBC radio stations), since many of its programmes include classical music either as a signature tune or as part of the editorial content (e.g. Just A Minute, Sunday Worship). BBC Management proposes that programmes on Radio 4 (and other BBC radio stations) which contain examples of classical music within the editorial context of the programme will be subject to the same conditions outlined above. 16 Human Capital, op cit, March 2007 include music recorded by the BBC’s performing groups (currently representing around 7% of Radio 3’s output) and by third parties. Broadly the output on Radio 3 which features classical music can be categorised as follows15: • Regular programming. Examples include Building a Library (the weekly feature within CD Review, which includes extracts of different recordings of a single piece) and Words & Music (classical music interspersed with poems and prose). • Special Events/Seasons. Periods when regular programming is replaced by annual or one-off events. Examples include the British Composer Awards, The BBC Young Musician of the Year, BBC Radio 3 New Generation Artists and special composer seasons e.g. A Bach Christmas. In Annex C we provide an example of how the classical music download schedule for Radio 3 would have looked, under our proposal, during a ‘Regular’ week and during a ‘Special Event’. Public Value It is the Executive’s view that the public value generated by the revised proposal will far outweigh the minimal additional expenditure. This is because: a) The revised proposal has a clear fit with BBC strategy and its public purposes By making the BBC more relevant and responsive to listeners, on-demand will enhance the delivery of the BBC’s public purposes. Classical music is an integral part of the Radio 3 schedule. Audiences will expect the distinctive music output of Radio 3 to be made available free at the point of use on bbc.co.uk. Radio 3’s Service Licence requires the network to “use new technology to ensure its audiences have the maximum opportunity to access programmes as and when they want”. The inclusion of non-DRM examples of classical music will provide licence fee payers with greater flexibility and control over how they access this content. A survey recently commissioned by the BBC Executive16 of classical music listeners found that over 40% of respondents would be interested in the BBC’s revised proposal, which compares 17 Radio 3’s Service Licence states that it should, “encourage the take-up of digital platforms by making its high quality content available in new ways.” favourably to the around 10% who currently download classical music. Interest in the revised proposal increased to 54% amongst current Radio 3 listeners. The BBC is seen as a ‘trusted guide’ to new technologies and services; there is a good prospect that it will lead people who would otherwise be reluctant to access classical music content in this way to explore emerging technologies. This in turn may provide an additional stimulus to take-up of new digital services17. b) The revised proposal is high quality and distinctive Radio 3 offers a unique range and diversity of music, with very little overlap between its playlist and those of its competitors. For example, Radio 3 broadcasts around 16,000 individual works in a given year, around half of which are live or specially recorded. The station is the largest commissioner of new classical music in the world. The BBC’s taster pieces will be drawn from a representative cross-section of the Radio 3 schedule, from new talent to great composers, from choral works to modern classical. The Human Capital survey found that there would be a strong interest in the service including all types of classical music. For example, 42% of respondents who expressed an interest in the BBC’s revised proposals stated that they would be interested in taster pieces from ‘lesser known’ classical composers. c) The revised proposal will be highly valued and will have a strong audience impact Previous submissions by BBC Executive have demonstrated how audiences benefit from the time and place-shifting qualities of non-DRM downloading. The revised proposal will help maintain the overall value and appreciation that listeners’ attribute to the BBC’s classical music output (as well as its principal proponent, Radio 3). d) The revised proposal will have a positive impact on reach and overall usage The revised proposal represents an innovative way of introducing new audiences to classical music and enhancing enjoyment for existing listeners. For example, approximately one-quarter of people in the UK who downloaded the BBC Philharmonic’s Beethoven performances in 2005 had never listened to Radio 3 before, whilst two-thirds had never downloaded classical music before. The Human Capital survey found that the BBC’s revised proposal is likely to have similar positive effects on overall listening to classical music. For example, almost one-half of respondents estimated that people would listen to more classical music, whilst nearly ten times as many people stated that their overall listening to Radio 3 would increase rather than decrease. 18 The Beethoven Experience – Analysis of General & Download Survey Results, June 2005. 19 Ofcom, Market Impact Assessment of the BBC’s New On-Demand Proposals, p.6. 20 Indeed, the Human Capital survey found that almost 60% of respondents who currently downloaded classical music stated that they had gone on to buy a product after listening to a piece of classical music via the net. 21 See http://www.classicfm.com/article.asp?id=332005 A key objective of the BBC’s on-demand strategy is to increase reach and appreciation amongst younger audiences. The ‘average’ Radio 3 listener is 57 years old; the average age of those that downloaded music from Radio 3’s Beethoven offering was 40 years18 . The Human Capital survey found that interest in the BBC’s revised proposal amongst 18-34 year olds was approximately 20% higher than for the sample as a whole. As on-demand becomes more popular and the BBC’s competitors exploit new technologies further, there will be a risk to the overall reach and consumption of Radio 3 if the BBC is not offering non-DRM downloads of classical music. Market Impact The BBC Executive has some concerns with the methodology employed and the assumptions used by Ofcom in its MIA. In particular, we believe that Ofcom’s research provides insufficient evidence on which to base a robust prediction of the size of the potential impact of classical music downloads and Ofcom does not appear to have factored in the significant positive externalities associated with the expected increase in usage of commercial services. However without prejudice to the above, the Executive has amended its original proposal and provided detailed information on the scope, scale and nature of the new proposition. We believe that this should reassure stakeholders that the BBC service will complement the products provided by the commercial sector and help to drive an overall increase in demand for classical music. a) The revised proposal is likely to stimulate interest in classical music In its MIA of the BBC’s original proposal, Ofcom noted that the BBC’s non-DRM audio download proposal has19 “the potential to make a strong positive contribution to the growth of the UK market for audio downloads”20. A common commercial strategy for introducing consumers to new audio and video content is to offer free samples of music or excerpts of movies. Film companies, for example, distribute free trailers prior to the release date of new movies and commercial music download sites, such as Apple iTunes, offer a variety of song samples free of charge. Indeed, Classic FM currently offers a free classical music track to download every day21. This indicates that such taster offerings enhance the demand for these services rather than harm them. 22 Similar results emerged for classical music listening on the radio. For those people that stated that their radio listening would change following launch of the BBC’s service, over half stated that their listening to Classic FM would increase whilst just 12% stated that it would decrease. b) The revised proposal will be different from commercial offerings The classical music taster pieces will not be a credible substitute for the products currently offered by the commercial sector. This is because, for example: - The vast majority of the taster pieces will only cover a small part of a classical work in order to give the listener a flavour of the full musical offering. The taster pieces are likely to amount to just 5% (typically less than 10 hours) of Radio 3’s classical music output hours in a given week. - Most of the taster pieces will be contained within a radio programme so the music will be offered in an editorial context rather than being available for grouping with other pieces. This will limit the attractiveness of developing secondary sources of classical music drawn from the BBC’s download service. - The diversity and variety of classical music offered by Radio 3 (and other BBC stations) differentiates it from the type of music that is most commonly exploited by the commercial sector. Even where the commercial sector provides compilation CD's of movements of popular works (e.g. Mostly Mozart, Smooth Classics) the playlist of Radio 3 has little or no alignment with such compilations. The BBC Executive has gathered further evidence on the very low likelihood of a negative market impact arising from the revised proposal. Survey evidence suggests that only a very small percentage of people are likely to reduce their consumption of commercial, classical music products/services following the launch of the BBC’s service22. For example, the HC survey found that almost 90% respondents would buy the same or greater quantities of classical music CDs / cassettes. The scale of the BBC’s revised proposal must also be put in context. For example, a search on Amazon.com (7th March 2007) suggested that there were over 175,000 classical music albums available. These factors suggest that a slightly greater release of classical music by the BBC, in ‘taster form’ free of charge, would be highly unlikely to undermine third parties by duplicating their commercial catalogues, by depriving them of significant levels of commercial revenue or by having a significant impact on their investment incentives. 23 In December 2006, Apple and Linux users represented less than 5% of visitors to bbc.co.uk (BBC server logs) 24 Though the Executive notes that Ofcom’s MIA states that ‘We think it unlikely that the additional convenience provided by bundling in the iPlayer download manager would have more than a marginal influence on the value of a computer operating system, or would have a major impact on purchasing decisions’ (p16) In its PVT provisional conclusions the BBC Trust proposes to require the BBC Executive to adopt a ‘platform agnostic’ approach to rights management within a reasonable timeframe. To this end, they recommend that an alternative Digital Rights Management (DRM) framework to a Windows solution - that will allow Apple Mac and Linux users to access the TV catch-up over the internet proposal - is available within 24 months from launch. The BBC Executive has always sought a platform neutral approach to its internet services and is committed to promoting open standards that enable horizontal markets. This is important not only for those23 not currently using Microsoft systems of the required specification, but also in order to preserve the principle of choice within the computing market24. The proposed technical systems described in the Executive’s PVT application represent the initial solution for making the proposals as widely available as possible. It is worth noting that from launch the Executive expects to deliver the seven day TV catch-up over the internet proposal using a combination of streaming and Microsoft DRM protected downloads. Where programming is streamed it will be available to users of Apple Mac and Linux systems, though the amount of programming delivered via streaming will be more limited than the download option. The BBC Executive expects to evolve the technical systems from launch and will make every effort to make the internet catch-up service available on all major platforms, subject to value for money considerations (relating to, for example, the cost per user reached) and as technical viability allows. It will be necessary for any alternative DRM framework to be consistent with the terms of the Trust’s PVT decision that currently requires the availability of BBC TV content to be restricted to a 7-30-7 window in order to balance public value and market impact. The BBC Executive’s window-based content strategy is designed to balance extending ‘free’ access to content on an on-demand basis with the need to, inter alia, maintain the value of secondary rights. Consumption of content must also be restricted on a Modification: DRM strategy for seven day catch-up over the internet temporal basis due to the requirements of 3rd party rights holders. The only system that currently provides this security is Microsoft Windows Media 10. Notwithstanding the above, there are a number of ways that the technology solution underlying the seven day catch-up over the internet proposals could evolve in order to provide a platform neutral service to audiences: (i) Distribution of programming without DRM Removing the requirement to protect content with DRM technology would allow users of all computing systems to access BBC programming; indeed providing people with maximum flexibility in how they consume BBC content is the primary motivation for the non-DRM audio downloads proposal in the BBC Executive’s PVT application. At the current time, the vast majority of rights holders are opposed to the distribution of video material without DRM protection and business models to support such distribution are, as yet, unclear. Alongside the BBC’s desire to work closely with rights holders there is also the imperative to maintain the value of secondary revenues through BBC Worldwide in order to supplement the licence fee. These factors mean that at the current time most BBC programming can only be distributed in such a way that ensures consumption can be restricted on a temporal basis. The BBC Executive continues to explore where distribution without DRM may be appropriate in the future through projects such as the Creative Archive. (ii) Distribution of programming via streaming As noted above, the Executive expects to deliver some programming made available under the TV catch-up over the internet proposal via streaming. While this method has the advantage of reaching all computing platforms whilst retaining the integrity of the time-based window, there are compromises: .. The quality of the playback is less predictable and likely to be recognisably worse for the majority of users .. Users are only able to consume programming whilst they are connected to the internet whereas a download can be available offline .. Unicast streaming is a less efficient use of network resources and will incur significantly higher cost for the BBC. Multicast streaming (using some form of carousel system) is efficient but not yet widely deployed by ISPs. The advantages and disadvantages inherent in streamed delivery will be considered as part of the BBC Executive’s continuous evaluation of how its proposals can be made as widely available as possible to licence fee payers. (iii) Supporting other DRM systems The BBC could achieve wider platform support through implementing additional DRM systems alongside the proposed support for the Microsoft Windows system. Work is ongoing with Real Media, Adobe and Apple on how their respective DRM systems could be used to support time-based restrictions on access to BBC content. The nature of the technology market means that many systems will continuously emerge or recede, and value for money concerns will act as a constraint on the number of available platforms that can be supported. The BBC has no exclusive arrangement with Microsoft in this area. We expect at least one system to offer the opportunity to provide an equivalent level of service to Apple Mac and Linux users. (iv) Develop an alternative, cross platform DRM system While the BBC is not in a position to deploy the resources required to independently develop an end to end video playback, distribution and DRM system, it is in a position to contribute to projects that do have this aim. The collective investment of a number of stakeholders over the medium to longer term may provide an alternative cross platform solution that would achieve universality and have additional benefits for industry and audiences. The BBC is currently a consortium member of the European Union supported AXMEDIS project that aims to create a cross platform solution to media production, management and consumption based as far as possible on open, patent free standards. It is believed that such a system would benefit member states by accelerating the growth of digital media markets. The BBC is working with the consortium partners to understand the project’s viability and its applicability to challenges such as the one being considered here. The BBC is actively supporting the development of an open, royalty- free standard for video coding (known as DIRAC) that may also contribute to a future cross platform solution. The BBC Executive has already deployed significant resources working towards a platform neutral solution for the TV catch-up over the internet proposal. This is an inherently complex area that cuts across the BBC’s content strategy, relations with rights holders and involves dependencies on third parties. It is also an area that is rapidly evolving and where pragmatic flexibility is required. The BBC Executive is committed to continuing its efforts to solve the problem, but is unable to commit to a specific solution or time-frame. Instead, the BBC Executive asks that the Trust reviews progress on a regular basis to ensure that reasonable steps have been taken to adopt a platform neutral approach to the TV catch-up over the internet, subject to the terms of the PVT approval given by the Trust, value for money considerations and technology developments. Modification: Syndication of BBC on-demand content to third parties The BBC Executive agrees with the Trust’s conclusion that the BBC should make its public service on-demand content widely available to 3rd party providers who meet a specified set of requirements, in addition to those providers named in the PVT application (i.e. Virgin cable and Homechoice/Tiscali). The Executive is developing an approach to syndication which it anticipates will include the use of objective, proportionate and non-discriminatory criteria relating to the terms on which it would be prepared to supply BBC on-demand content to third parties. Such an approach will, of course, need to be consistent with the syndication criteria developed by the Trust. The key objectives for the distribution of BBC on-demand content should reflect those for linear content, including reach, quality of experience and ensuring credit back to the BBC. The provision of content via third parties should also be subject to the ability of the Executive to obtain distribution for BBC on-demand content on acceptable commercial terms which offer value for money to the licence fee payer. We agree with Ofcom’s MIA conclusion that the imposition of an access obligation on BBC on-demand content would be disproportionate in relation to any market impacts identified and the Executive would consider any suggestion that there is a necessity for such an obligation to be misguided. In terms of process, the Trust’s judgment that it does not expect to require a PVT for further syndication - if the terms and conditions comply with the policy to be published by the Trust - is clearly the correct approach. The setting of high-level criteria which the BBC Executive is required to apply appropriately in its operational decisions is consistent with the framework adopted by the Trust for many other areas, for example the Statement of Policy on Fair Trading and the Competitive Impact codes. Subject to the outcome of the PVT, the BBC Executive may enter into a number of syndication arrangements with a range of 3rd parties, in response to evolving audience expectations and new technologies. Applying the PVT process to individual syndication arrangements would be impractical and would introduce significant delays. For the same reasons, it would seem to be disproportionate to require the Service Licences for the BBC’s TV and radio services to be modified in order to allow further syndication that meets the criteria to be published by the Trust. 25 Spinach research, ‘TV & Radio Programme Labelling’, March 2004) 26 Ofcom Programme Information Research, September 2006 Modification: Parental controls In its provisional conclusions, the BBC Trust noted that the provision of BBC content on-demand by the proposed new services presents a heightened risk of children being exposed to post watershed material. The Trust requested that the BBC Executive explore ways to give parents greater control over the content that can be accessed by children, and to present options to the Trust by the end of the consultation period. In 2002 the BBC initiated a project examining the issues of parental control in anticipation of the erosion of the watershed as a result of the growth of personal video recorders (PVRs) and on-demand services. The project has informed the development of the BBC’s on-demand proposals and led to two principal methods of providing parents with the type of control afforded by the watershed convention used in traditional, scheduled broadcasting: .. Content labelling .. Personal Identification Number (PIN) protection Content labelling The project conducted research to develop a labelling system that would be appropriate for the BBC’s on-demand services and might be adopted by other providers to establish a consistent experience for audiences similar to the watershed convention. BBC research25 indicated strong support for a formal system of labelling for challenging content. While there is widespread understanding of the watershed, this becomes less relevant as audiences start to time-shift their viewing through technologies such as the iPlayer, Video on Demand (VOD) or Sky+. The most pressing demand for labelling is amongst parents of young children though it also allows all viewers to make informed choices. Ofcom has also commissioned research on labelling26, which broadly supports the findings of the BBC’s work. Labelling formats The BBC research examined audience comprehension of several formats of content labelling used in the European and American markets, ranging from an age-rating system through symbols and short-hand initials to long-form text information The conclusion was that age-rating was suitable for cinema release and film – entertainment people choose to go and see – but not for the broader range of programming available immediately in the living room to any member of the household. 27 ‘BBC On-Demand’ conducted by SPA research (September 2006) Research indicated that long-form text labelling was the format that most met audience needs. Respondents agreed that this was the only comprehensive way of reflecting the specific types of strong content available on television. This conclusion is echoed in Ofcom’s research, where 46% of respondents favoured long-form text labels compared to just 13% favouring age-ratings. Although text labels were the most popular, many identified a need for a short-hand symbol or letter to appear next to the programme title to indicate that content information was available. Further research27 concluded that a ‘G’ for ‘Guidance’ was the most suitable short-hand. Selecting programming for labelling The BBC currently gives on-air content advice announcements ahead of television programmes which contain the most challenging content, for example, “containing strong language and violence from the start …”. This is an industry-wide standard known as ‘Dentons’. This information is already replicated by the BBC on Electronic Programme Guides (EPGs). These Denton categories are: - Violence - Strong language - Upsetting / disturbing scenes - Sexual content - Flashing images (e.g. strobe lighting) In addition, that the BBC has developed a second category of text labels for post- watershed challenging content which do not receive an on-air Denton announcement. This extends the BBC proposals beyond those of other on-demand services. These additional categories are: - Moderate violence - Language which may offend - Adult humour - Adult themes - Nudity - (Graphic) drug use - Behaviour which could be imitated (i.e. where self-harm could be inflicted) - Graphic medical procedures The purpose of these secondary categories is to provide information about content which has had to be scheduled post-watershed, but which is not sufficiently strong to 28 ‘Content Labelling for On Demand’ conducted by Synovate research (September 2006) warrant an on-air announcement. Audience research repeatedly shows viewers have a higher expectation of the BBC compared to other broadcasters and, consequently, there is a greater need to offer advice about a wider range of challenging content. The BBC recently commissioned research28 into audience comprehension of these content labels. The research indicates that viewers understand and appreciate these additional categories. In addition to these formal categories of labelling, in exceptionally rare cases a programme may require a bespoke content label, for example ‘Jerry Springer the Opera’. For programmes broadcast on network linear television services, TV Operations determine what content labelling is needed. (A similar compliance function takes place in the Nations and Regions for variations to the schedules.) Procedures will be established to ensure that live content subsequently receives labelling for on-demand services if required (for instance, if unforeseen strong language is used). The following principles are suggested for the use of labels: .. Only post-watershed content will be considered for labelling (with the exception of flashing images) .. As now, programmes may receive more than one Denton (e.g. “containing strong language and violence”) .. A programme which receives a Denton will not normally receive an additional label as these reflect milder forms of challenging content: for example, audiences expect programmes with strong language to also cover adult themes. There may be exceptions to this rule, e.g. an audio and text Denton for flashing images may also require a secondary text-only label concerning adult themes. .. News Bulletins (including the ‘Ten O’clock News’ and ‘Newsnight’) will not normally receive labeling. Where appropriate, presenters will continue to give on-air announcements about challenging content within a bulletin. Post- watershed sequence programmes produced by BBC News (such as ‘Question Time’ or ‘This Week’) will be labelled where appropriate. For audio content on the BBC’s catch-up services a generic label “Language may offend” will be applied where appropriate. As the watershed does not apply in radio, content from any time of day could require labelling. It is envisaged that only a small amount of content will be affected. As with visual content, in exceptionally rare cases it may be appropriate to create a bespoke content label for a specific programme. Implementing content labelling of BBC material on the internet The BBC Trust’s provisional conclusions identified the BBC iPlayer user interface and branding through which the new on-demand proposals are delivered as a matter for the BBC Executive. The BBC Executive intends to implement content labelling within this user interface to ensure a high degree of parental control. The system of long-form text labelling and the ‘G’ short-hand was tested in the iMP trial. Subsequent research found that, whilst the labelling system was welcomed by audiences, the implementation needed to be enhanced. The following principles are currently expected to be implemented within the fixed-line computer user interface: .. The ‘G’ and long-form text should be visible alongside the programme synopsis (without the need for user intervention to ‘seek out’ the information e.g. clicking to open a pop-up window). It is important that the label is read in conjunction with the programme synopsis to place it in context .. For streamed Video on Demand content an interstitial slide providing content labelling information will appear immediately prior to playback (as was the case with the trial BBC2 broadband player). .. For downloaded content, labelling will be provided alongside the programme synopsis at the point of downloading (if available) and at the point a user chooses to play the programme. .. Equivalent arrangements will be put in place for audio on demand content. In terms of the syndication of BBC on-demand content to third party platforms, the BBC Executive will seek to ensure that such platforms apply an equivalent level of content labelling. Subject to the Trust’s proposed syndication policy, this will form part of the conditions that should be met by third parties in order to ensure an adequate consumer experience of the BBC’s on-demand content. PIN protection In addition to content labelling, the BBC Executive intends to offer a PIN protection system for on-demand content on bbc.co.uk where possible. PIN protection is intended as an additional layer of protection and where activated would restrict access to on- demand programming that had been labelled using the ‘G for Guidance’ system described above. Parents would be able to set the PIN to ensure that children would have to seek their permission before watching the programmes, allowing the parents to assess suitability based on the labelling. This is added security not available on linear television. PIN protection on downloaded programmes Where on-demand programmes are delivered via DRM download the BBC intends to offer the PIN protection feature. Access to all DRM protected downloads will require audiences to download and install a piece of software on their computer. This software manages the programme downloads and their associated DRM licences and is known as the ‘BBC iPlayer download manager’. During the sign up procedure required to receive the download manager audiences will be asked if they would like to enable the PIN protection feature. It could also be enabled later within the download manager itself. If the audience member chooses to enable PIN protection whenever a programme is downloaded that is labelled with ‘G for Guidance’ it will not play until the PIN number has been entered. This feature will be available from the launch of the iPlayer proposition. PIN protection on streamed programmes Whilst delivering on-demand programming via DRM download has significant benefits for audiences in terms of flexibility and control, a limited amount of on-demand programming will also be delivered using unicast or multicast streaming. Streaming delivery provides a more instantaneous audience experience and, as outlined above, is currently the only secure method of delivering the catch internet proposition to audiences using Apple or Linux systems, which do not support a window-based DRM framework. Implementing PIN protection for streamed programmes is technically much more complex than for downloaded programmes. In addition, it would require all audiences who accessed ‘G for guidance’ streams to register and log in rather than only the relatively small audience who wised to use the feature for parental control purposes. For these reasons, the BBC Executive does not believe that, in the short term, implementing PIN protection for on-demand streaming would improve the public value of the service. Another option would be to restrict the use of on-demand streams to exclude ‘G for Guidance’ programming. Given the value of the technology in reaching those users on non-Microsoft platforms, such an approach would risk unduly compromising the quality and range of available BBC content for those audiences. Instead, the BBC Executive’s preferred option is to apply the content labelling guidelines, described above, to the majority of ‘G for Guidance’ programming that is streamed. If any of these programmes are particularly unsuitable for young audiences they would only be streamed after the traditional watershed or restricted to download delivery only. The scheduling teams within the BBC, advised by Editorial Policy, will ensure this limited material is identified and is not offered via streaming. As a result, the level of protection offered will be commensurate to that available on linear television. It is anticipated that the BBC’s new on-demand internet proposition will, subject to the outcome of the PVT, be rolled-out on a phased basis. While PIN protection will not be available for streamed content at launch, this issue will be kept under review and the Executive will continue to explore various technology solutions to further assist parental control. The BBC Executive agree that ensuring the effectiveness of parental controls across the iPlayer proposition is important, but the chosen solution must take account of technical considerations, value for money and the requirement to make BBC on-demand content as widely available as possible. PIN protection for ‘Seven day TV catch-up over cable’ Where BBC on-demand programming is made available via third party platforms, the BBC Executive will seek to ensure that such platforms employ PIN protection where possible. The intention would be to ensure that where a BBC programme is supplied with a ‘G for Guidance’ label the PIN protection system available on the platform would be triggered if the user had enabled the feature. While the BBC is actively discussing how parental controls can be implemented on third party platforms each third party has specific technical and commercial constraints which have to be accounted for. Other considerations It should be noted that the BBC’s efforts to improve the parental guidance features available to its on-demand audience will be more effective if such features are consistent with other parental guidance systems available to UK audiences. Over the past 4 years the BBC has taken the lead in this area and has encouraged the industry to collaborate on a content labelling system for on-demand services. The BBC has shared research widely and engaged in dialogue with both Ofcom and a range of stakeholder organisations, including Association for Television On-Demand (ATVOD), Broadband Stakeholders Group (BSG), Mobile Phone Association, the Internet Service Providers Association (ISPA), commercial PSBs, BSkyB, Tsicali (Homechoice), Virgin Media (NTL/Telewest), BT, AOL/Time Warner and the British Board of Film Classification (BBFC). The BBC continues to be actively represented at ATVOD and the BSG where UK industry’s response to the parental guidance impact of the forthcoming European Union ‘Audio Visual Media Services’ is being coordinated. The BBC’s understanding is that the proposals outlined above represent a more comprehensive approach to parental guidance than that of most other providers, whilst retaining a broad consistency that will be recognisable to audiences. 3. Other Issues arising from PVT This final section sets out the BBC Executive’s response to other issues arising from the Trust’s provisional PVT conclusions. 29 Human Capital, op cit, March 2007. Bookmarking for TV downloads over the internet The BBC Executive notes the Trust’s interim decision that ‘bookmarking’ will not covered by the proposed approval. We strongly urge the Trust to re-consider its position. This feature is a standard piece of web functionality offered by other on-demand services, including Channel 4’s; will aid ease of use and simplify user journeys; is an effective means of managing demand and maintaining service quality; and is highly unlikely to have any significant negative market impact. New audience research commissioned by the BBC suggests that audiences think pre-booking is a useful feature (85%) and would expect to find it on relevant websites (e.g. shopping websites, movies and DVD websites) (73%)29. Separate papers on this issue, outlining the Executive’s position, have been submitted to the Trust. DRM-protected audio downloads and series stacks The BBC currently offers radio content on-demand for a limited period after broadcast via the Radioplayer. This content is available as streams and includes all genres including full track commercial music. For clarity, the Executive would like to inform the Trust that some audio downloads will be made available on a DRM-protected basis, due to rights issues, and within series stacks. The addition of DRM to some audio material means that consumption would be restricted on a temporal basis. This would also enable consistency, where appropriate, with on-demand television content and compliment the proposal to offer audio content as downloads without DRM. DRM is necessary for certain types of radio content due to third party rights agreements. Without applying DRM, the BBC would not be able to make available a significant portion of its broadcast radio schedule on-demand as downloads. It is our view that this option is covered by the current PVT provisional approval. Ofcom’s MIA has already assessed the maximum market impact position of the BBC offering radio content for an unlimited period of time after broadcast and in such a form that allows series to be stacked. We would expect BBC DRM-protected radio content to follow the same approach to stacking as television content. We do recognise, however, that the restrictions imposed by the Trust on the genres that can be made available on a non-DRM basis (e.g. audio books) would also apply to any DRM-protected offering beyond seven days. We note that the Annex to the Service Licence for bbc.co.uk covers the provision of on-demand on both television and radio: ‘‘…It [BBC iPlayer] may also offer BBC broadcast television and radio content on the internet for seven days after it has been broadcast, and give users 30 days after download during which they may first access the content. It may also allow users retrospectively to download multiple episodes of a defined first-run series (known as ‘series stacking’) for first access within 30 days of download.’’ In addition, we would like to confirm the scope of the current Service Licences for the BBC’s radio services. As currently drafted, the Service Licences appear to specify both the window (i.e. limited period after broadcast) and the delivery mechanism (i.e. streaming) for on-demand audio content. This seems anomalous – as technology converges, delivery mechanisms (e.g. streaming and downloading) display the same functionality. This is also not consistent with the scope of the bbc.co.uk Service Licence which allows use of both streaming and download for content. The analysis in both the PVA and MIA suggests that the structure and length of the content window is the critical factor for an assessment of net public value. In light of this, it seems reasonable that the amended Service Licences for the radio services should be agnostic in terms of the delivery mechanisms for radio content. Subject to agreement with rights holders, this would enable the BBC to offer all genres of radio content as 7 day DRM downloads as well as 7 day streams. Proposed review of new on-demand services We note the Trust’s decision to review the performance of the on-demand proposals after 24 months. A critical issue for the Trust to consider is the appropriate starting- point for the 24 month period. In the Executive’s view, the review should take place 24 months after the four service elements have become fully available. Owing to a variety of reasons, including resource constraints within the BBC and its suppliers, it is expected that the new on-demand proposals will be rolled-out gradually over a number of months following the Trust’s PVT decision in early May 2007. This phased approach is in line with similar product launches on the internet and other media. A number of the service elements, including series stacking and streaming of the BBC’s television networks, are unlikely to be available until late 2007. In addition, the volume of BBC content available via the seven day TV catch-up service will increase over time, starting at around 400 hours (c50% of network schedule) and rising to the vast majority of the network schedule by late 2007, subject to rights agreements. We, therefore, think it would reasonable for the review clock to start from the point when the service elements are fully available; we expect this to be by November 2007. In order to effectively judge whether the new services have fulfilled their potential public value and the impact on the market, it will be necessary to assess the fully operational services in the round across an extended timeframe. The baseline assessment of the services provided in the PVA and MIA (and the analysis provided in the BBC Executive PVT application) assumes their full availability. When considering the focus of the review, it is important that the BBC’s launch of new on-demand services is viewed as a long-term strategy. The assessment criteria must reflect the fact that on-demand will still be at an early stage of development in 2009 or 2010 and the public value benefits achieved by the services will not be fully established. Annexes A. Ofcom’s Market Impact Assessment of the BBC’s on-demand proposals: Issues for consideration (Oxera) This is an opportune moment to consider the methodology adopted by Ofcom in its first MIA of a proposed new BBC service. The BBC Executive commissioned economic consultancy, Oxera, to assess the approach taken by Ofcom to assessing the market impact of the on-demand proposals and to identify methodological issues that warrant re-examination for future MIAs. This assessment has informed the BBC Executive response to the Trust’s interim PVT decision and the proposed modifications to the on- demand services. See attached report. B. Audience Research (Human Capital) See attached report. C. Indicative Sample Schedule for non-DRM Classical Music Downloads (1) “Regular week” Choral Evensong (Weekly, 60 minutes) Choral Evensong is one of the most popular Listen Again programme on Radio 3. Each broadcast comes live from a cathedral or church in Britain, with occasional OBs from, for example, Russia, the USA and France. The format of the service is a mixture of introits, psalms, canticles, anthems, readings, prayers and organ music, drawn from 1000 years and more of sacred music; new music and jazz settings of these elements have also been broadcast. Composer of the Week (Weekly, 45-60 minutes) Composer of the week comprises five, one hour episodes broadcast over a week. Our intention is to make a condensed version of this show with all music examples edited down to a maximum of 10 minutes. The programme covers the entire gamut of Western classical music, focussing on individual composers or historical periods. Recent surveys have included Claudio Monteverdi, Richard Wagner, and The Court of Queen Elizabeth I. Building a Library from CD Review (Weekly, 45 minutes) Segment pulled out from CD Review. Each week one work is appraised across many commercial discs with one particular disc being recommended, musical examples are always much shorter than 10 minutes. Building a Library is an important anchor point within the CD Review programme format. Its recommendations are available in a searchable database, and are made available annually as a downloadable word document. Recent surveys include Charpentier's Te Deum, Beethoven's 'Archduke' Trio and The Songs of Francis Poulenc. Music Matters (Weekly, 45 minutes) Radio 3's flagship classical music magazine programme, with topical in-depth interviews, features and discussions on the big ideas driving today's music world. Short musical extracts are sometimes used to illustrate a topic or as a bedding for a reading or an interview. Early Music Show Specials (Occasional, 45 minutes) Occasional specials focusing on a particular time or place – musical examples would be shortened to 10 minutes maximum. Recent programmes include The French Revolution; The Munich Court; Battle Music; and Hans Sachs. Private Passions (Weekly, 30 – 45 minutes) Michael Berkeley invites guests from every kind of background into his bedroom to discuss their innermost musical likes and dislikes, and the influence music has had on their lives. Download would have shortened clips of the musical choices. In Tune interviews (Weekly, 30 minutes) A weekly highlight package of interviews with some short musical examples included. In the music world, appearing on In Tune offers the same high profile and audience impact as an appearance on Radio 4's Today programme in the current affairs context. Discovering Music (Weekly, 45 minutes) This programme involves an analysis of a range of mostly symphonic music. Each programme de-constructs one piece, so that the listener has the opportunity to explore the music up close. We wish to make available just the analysis part of the programme as we believe it is a powerful learning tool and a stimulator of curiosity. Radio 3 preview (Weekly, 5 minutes) A short highlights package of the coming week on Radio 3 with short music extracts. (2) “In-Season Month” Top Ten (10 example downloads, 10 minutes maximum) Short clips of important works as a way of introducing the audience to pieces which are new to them. Research has shown that introducing people to music in the manner of a 'trusted guide' offers keys to understanding and demystifying an experience which can sometimes feel intimidating This would form part of a wider interactive service such as UGC, Rating or Voting. CD Guide / BAL Recommendations for a particular composer (45 minutes) Segment pulled out from a previously broadcast CD Review that recommended a work from a composer Radio 3 are focusing on as part of a season; musical examples are always much shorter than 10 minutes. Introduction / Overview of composer or theme (30-40 minutes) Edited version of some speech and music elements from across a season to form an introduction and start point for a composer or theme. Ofcom’s market impact assessment of the BBC’s new on-demand proposals Issues for consideration Prepared for BBC Management March 19th 2007 [BBC Executive annex A. Ofcom’s Market Impact Assessment of the BBC’s on-demand proposals: Issues for consideration (Oxera)] Oxera Consulting Ltd is registered in England No. 2589629 and in Belgium No. 0883.432.547. Registered offices at Park Central, 40/41 Park End Street, Oxford, OX1 1JD, UK, and Stephanie Square Centre, Avenue Louise 65, Box 11, 1050 Brussels, Belgium. Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, the Company accepts no liability for any actions taken on the basis of its contents. Oxera Consulting Ltd is not licensed in the conduct of investment business as defined in the Financial Services and Markets Act 2000. Anyone considering a specific investment should consult their own broker or other investment adviser. The Company accepts no liability for any specific investment decision, which must be at the investor’s own risk. 1 Introduction Ofcom has recently completed the market impact assessment (MIA) that it is required to undertake in the context of the public value test (PVT) for the BBC’s proposed new on- demand services. The conclusions of Ofcom’s MIA have been considered by the BBC Trust, and are reflected in its provisional decision on whether the public value that is likely to be generated by the launch of the proposed on-demand services will not be offset by the potential market impact. The Trust’s provisional decision is currently open for consultation. This is the first MIA undertaken by Ofcom for a PVT, and considering the difficulties inherent in predicting the impact of services that are yet to be launched, Ofcom’s report is broadly fit for purpose. However, this is also an opportune moment to consider the methodology adopted in the current MIA to consider whether there are methodological issues that might warrant re-examination for future MIAs. The BBC has asked Oxera to provide a commentary on the MIA undertaken by Ofcom to highlight, from an economics perspective, factors that should be incorporated into future MIAs. This commentary therefore considers the appropriateness of the overall methodology against the backdrop of the stated aims of an MIA, as well as highlighting more detailed methodological issues that could have been addressed in a different manner than that adopted by Ofcom in its first MIA. The particular issues addressed in this commentary are as follows: – whether the substantive test for assessing the impact of the BBC’s activities should focus on (predominantly static) welfare effects, as Ofcom has done, or should be based on an assessment of competitive distortion, placing greater emphasis on the dynamic effects; – the evidential basis for Ofcom’s analysis of harm and its recommendations to the Trust; – the extent to which the beneficial impacts of the BBC’s activities have been properly taken into account in the assessment—such as the experience gained from using the new on-demand services promoting consumers’ use of competitors’ services. 30 Ofcom (2007), ‘BBC new on-demand proposals, Market Impact Assessment’, para 1.3. 31 OECD (2005), ‘Preserving Competition: Keeping Predators at Bay’, Policy Brief. 32 Ofcom (2007), op. cit., para 5.30. 2 Competitive distortion: static versus dynamic There are two potential candidates in terms of the nature of the assessment that could be applied in the context of an MIA: a competition-based test, or, as has been adopted by Ofcom, a welfare-based test. In describing the aims, Ofcom states that the purpose of an MIA: is to assess the likely impact of the proposed services on markets in which these would be provided as well as on other related markets. […] we are particularly concerned with assessing the extent to which the BBC’s proposed services might deter innovation and investment by relevant alternative providers in the commercial sector.30 Given this aim, a competition-based test with its explicit focus on the dynamic effects on innovation and investment would be the appropriate approach. This approach would be analogous to that adopted under, for example, the market investigation power under the Enterprise Act 2002, and the objective function would be aligned with Ofcom’s competition powers, such as those under Chapter 1 of the Competition Act in which Ofcom would have to assess whether the agreements generate benefits of which consumers receive a fair share if the agreements are themselves found to be restrictive. Furthermore, an approach that focuses on the process of competition, rather than on individual competitors, would be supported by organisations such as the OECD: there is a broad consensus among OECD members that the goal of competition law enforcement ought to be the protection of competition, not of competitors.31 The objective function of a competition-based assessment could be to minimise distortion to competition, subject to counteracting welfare gains. The first stage of the market impact assessment would be to assess whether the service led to a distortion of competition, and if so to what extent. In this context, competition could be considered to be distorted (and at the extreme the market foreclosed) if the BBC’s proposed services would lead to a reduction in competitors’ incentives and ability to invest and innovate in competing services, or to operators ceasing to provide competing services (which, as Ofcom itself notes, is only likely to happen in ‘extreme’ cases32). If the proposed services were found not to generate a significant distortion to competition, there would be no further requirement to assess the effects of the service on the welfare of individual suppliers. However, if significant distortion were identified, this would trigger a second stage of inquiry within the market impact assessment to examine the welfare impacts for affected stakeholders, thereby enabling an assessment of whether the adverse effects of any distortion are counteracted by the benefits to consumers derived from the new service. 33 See, for example, Ofcom (2007), ‘BBC new on-demand proposals, Market Impact Assessment’, para 5.22. 34 Ibid, para 5.30. 35 Schumpeter, J.A. (1942), Capitalism, Socialism and Democracy, New York: Harper & Row, 1975. The alternative adopted by Ofcom is the primarily static welfare-based approach, focusing on the extent to which total welfare is affected by the new service. The key difference between a welfare-based approach and a competition-based approach is that the former would always need explicitly to address all the distributional aspects of the proposed service, whereas a pure competition-based assessment would only consider these once a significant distortion had been identified. Adopting a welfare-based approach therefore requires Ofcom to be more transparent about its decision-making criteria, and about the relative weights that it applies to the welfare derived by different economic groups. From an economics perspective, these two approaches could produce comparable results, provided that the benchmark employed in the assessment of harm arising from changes to producer surplus corresponds to the benchmark for the assessment of distortion of competition. However, a disadvantage of applying a welfare-based approach would be that adverse effects would be identified even if these did not significantly affect the process of competition. Furthermore, the increased focus on producing estimates of harm under a welfare-based approach could result in undue focus on the short-term (and more readily identifiable) effects, rather than the dynamic incentives to innovate. To the extent that Ofcom has sought to incorporate dynamic effects into its analysis, these are based on the premise that a reduction in usage of certain services (and hence producer surplus) resulting from the launch of the BBC’s proposed on-demand services will constrain investment and innovation of the providers of these adversely affected services.33 For example, Ofcom states that:34 If [other stakeholders] struggle to earn a return on their initial investments, they are likely to invest less in future service development and, in extreme cases, might cease to provide on-demand services. However, identifying a negative potential impact on other operators’ producer welfare is not by itself sufficient for concluding that incentives to invest and to innovate are necessarily harmed. The determinants of those incentives are complex and to give due regard to them would require a more sophisticated level of analysis than provided by Ofcom, taking into account, for example, the relationships between competition and innovation identified in the literature. The first generation of that literature on innovation predicted that it should decline with competition because more competition reduces the potential monopoly rents that can be obtained by successful innovators, referred to in the economics literature as the ‘Schumpeterian effect’, named after the Austrian economist, Joseph Schumpeter, who postulated that it is the prospect of earning monopoly rents that drives firms to invest and innovate.35 More recent economics literature has expanded the basic models based on the Schumpeterian effect by taking into account the theory that innovation rates depend not so much on the post-innovation profits or rents, but on the difference between the pre- and post-innovation profits. Moreover, these economics models predict that the difference between pre- and post-innovation rents can be positively related to the degree 36 See, for example, Ofcom’s recognition of the benefits of innovation, in Ofcom (2006), ‘Regulatory challenges posed by next generation access networks, Public discussion document’, November. of competition due to a relationship that has been referred to as the ‘escape-the- competition’ effect. While economics theory does not provide clear and unambiguous predictions about the drivers of innovation—and it is beyond the scope of this commentary to undertake that analysis—from a theoretical perspective the drivers of innovation will be more complex than recognised by Ofcom in its MIA. In particular, it cannot be excluded that a more thorough analysis of competitors’ likely reactions would lead to the conclusion that the impetus to rivalry generated by the launch of the proposed on-demand services would stimulate competitor responses, enhancing product differentiation, potentially placing greater emphasis on the quality of the programmes made available for download, and thereby generating further public value. Given that the use of the Internet to provide services, such as those proposed to be included in the BBC’s on-demand proposals, is at an early stage of development, it would be appropriate to focus the impact assessment on the dynamic elements, as implied by Ofcom’s stated aim. Such an approach would be supported by economics evidence that a major source of consumer welfare improvements over time is innovation and the development of new products and services.36 This stated aim would lead naturally to an assessment that focused more on the impact of the launch of a new BBC service, such as the proposed on-demand services, on the process of competition and innovation, and less on the static welfare impacts on producer surplus. The need to focus more directly on the dynamic incentives to invest and innovate is particularly important in the context of a broadcasting environment that is developing rapidly and one that is likely to face considerable change in the next few years as a result of innovation in the nature of the services and the development of alternative platforms for delivering broadcast material. It is therefore surprising that the approach followed by Ofcom in the bulk of its analysis reverses this focus, and relies almost entirely on an analysis of the static welfare impacts on affected parties. While Ofcom claims to have considered the impact that the proposed on-demand services could have on investment and innovation, the degree of sophistication that it has applied in its analysis does not appear to reflect the complexity of the analysis that would be required to make a rigorous assessment of the potential dynamic impact of the BBC’s on-demand service proposals. 37 Gale Group Inc. (2005), ‘European video software markets; DVD spending beats VHS spending by more than eight to one’, Screen Digest 205 issue 405, July. 3 The evidential basis for the analysis of harm It is inevitably a challenging task to make any quantitative predictions about the impact of the introduction of the BBC’s proposed on-demand services in a nascent market such as on-line broadcasting. Ofcom has sought to get the best picture possible of these uncharted waters by drawing on a number of sources: discussions with and written submissions from stakeholders, desk research, and an extensive consumer survey carried out for Ofcom by Ipsos MORI. Although these sources provide a rich set of data, there are nonetheless some issues that warrant consideration on the evidential base put forward by Ofcom to underpin its conclusions and recommendations to the Trust on service modifications. The quantitative analysis of consumer and producer surplus effects has been undertaken from estimates of: 1) The take-up and usage of the proposed on-demand services. 2) The level of the demand for a set of affected services in the counterfactual where the BBC services do not exist. 3) The substitution effects linked to the proposed on-demand services—ie, the diversion of usage from the affected services and the value of these substitution effects to consumers and producers. A crucial point in assessing the potential quantitative market impact of the proposed on- demand services is the estimation of the extent to which the new services generates diversion away from other services in the market. To assess this issue, Ofcom commissioned an extensive consumer survey. However, the results of this survey do not answer fully the question of how much usage of the affected services will be diverted to the proposed BBC on-demand services. If, for example, the survey reveals that a certain percentage of consumers would reduce their usage of some other service after the introduction of the proposed BBC on-demand services, and another percentage of consumers would increase their usage of that service, the decisive question of how much they would change their usage and what the net effect will be is left unanswered. The diversion rates derived from this information therefore lack a sound empirical foundation and appear rather arbitrary. Furthermore, some of the quantifications appear to be based on assumptions that may be questionable. For example, evaluating the producer surplus loss resulting from reduced DVD sales and rentals at prices and margins, which, in light of empirical evidence (DVD and VHS tape sales prices in Europe declined by more than a third between 1999 and 200437), seems to be unsustainable over the forecast horizon (2007– 11), may lead to an upward bias in the estimated adverse impact. Furthermore, conclusions on those elements of the service that Ofcom has argued require modification in order to limit their adverse effects on the market are also based on assumption rather than evidence. For example, Ofcom assumes that the take-up of the proposed on-demand services—and hence the potential negative impact on other services due to the diversion of usage of these services to BBC’s proposed on-demand services—would fall significantly if the series-stacking element were to be excluded, but provides no evidence for the magnitude of that reduction on competing services. In summary, while it is a difficult task to quantify the potential market impact of the proposed on-demand services, Ofcom’s quantitative assessment suffers from some deficiencies. In particular, for those elements of the service that Ofcom concludes have sufficiently adverse effects to require the service to be modified, the evidential basis for these conclusions should require greater focus than has been provided in the current MIA. 4 Positive externalities The final specific issue that warrants attention is the extent to which the BBC’s launch of a new service, such as the proposed on-demand services, could generate benefits to other users by promoting consumers’ awareness of this genre of services. In this context, there is a distinction to be drawn between the functional elements of the services, and the content that the operators are providing. At the functional level, the promotion of the on-demand services that the BBC would undertake will enhance awareness of the catch-up service and hence take-up of the BBC’s service. This will have been factored into the demand projections prepared by the BBC, which Ofcom has used in its MIA. The use of the catch-up service, including the series-stacking element, can be expected to generate benefits for other broadcasters if their experience of the BBC service increases their likelihood of using others’ similar services. The beneficial effects of the BBC’s service on the demand for others’ services would be unlikely to eliminate fully the potential diversionary effects of viewers switching from other services to the BBC’s new on-demand services, but could enable other operators to achieve higher levels of growth for their services than is recognised by Ofcom. Therefore, by not explicitly taking these effects into account, Ofcom could be overstating the identified negative impacts on other stakeholders. For future clarity, and indeed analytical accuracy, it would appear necessary for Ofcom to be explicit not only about the transmission mechanisms for the potential beneficial effects that the BBC’s actions could have on demand for other operators’ services, but also about how it deals with the evidence it gathers on such beneficial spillovers, as they could have a potentially significant impact on the conclusions reached. 5 Conclusion Undertaking robust assessments of the future impacts of new services on nascent markets is a significant challenge, and Ofcom’s MIA provides a useful piece of analysis and a significant contribution to the debate. However, as noted at the outset of this commentary, given that this is the first MIA undertaken by Ofcom, it is an opportune moment to consider the detailed methodological approach that has been adopted, in order to highlight factors that could be given greater weight or treated differently in future assessments. The final two factors highlighted in this report focus on whether Ofcom has provided sufficiently robust evidence for its conclusions, and has taken into account all the relevant factors that are necessary for a welfare-based approach. In that context, it has been emphasised that there is a particular need to ensure that conclusions are based on robust evidence, especially where those conclusions are to recommend modifications to the proposed services. Furthermore, Ofcom should also be explicit not only about the transmission mechanisms for the potential beneficial effects that the BBC’s actions could have on demand for other operators’ services, but also how it deals with the evidence it gathers on such beneficial spillovers. Perhaps of more importance is the first factor highlighted in this commentary, which ask questions about precisely what it is that an MIA should be addressing. In particular, should an MIA focus on welfare effects, or on an analysis of the competitive distortions that can arise as a result of the BBC’s actions. While there are merits to both approaches, there is a risk that a focus on the welfare effects could lead to undue attention being given to measuring the shorter-term effects on competitors, at the expense of a more detailed focus on the process of competition and, in this case in particular, the determinants of innovation. Given that the market for on-demand audio and video services is still at a very early stage and undergoing rapid changes, a competition-based test with its particular focus on the dynamic effects is the appropriate one. In relation to innovation, it is clear that the drivers of innovation are complex and difficult to assess accurately; nevertheless, the approach adopted by Ofcom in the MIA is based on the premise that reductions in producer surplus resulting from the launch of the proposed BBC on-demand services will directly constrain investment and innovation by the BBC’s competitors. This does not reflect the complexity of the analysis that would be required to make a rigorous assessment of the potential dynamic impact of the BBC’s proposed on-demand services and does not represent a sufficiently robust basis for analysing the effects on innovation. BPI The BPI is responding only to Question 7 of the consultation. 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? The BPI wrote in 2005 to James Lancaster (BBC’s Head of Rights Negotiation) setting out our concern that the making available by the BBC of free downloads of Beethoven’s symphonies risked undermining the market for our members’ commercial releases and threatened to distort competition. The BBC Trust has reviewed the BBC’s proposals for on-demand services involving classical music and agreed with OFCOM’s Market Impact Assessment that ‘there is a potential negative market impact if the BBC allows listeners to build an extensive library of classical music that will serve as a close substitute for commercially available downloads or CDs.’ It concluded that classical music should be excluded from the non-DRM downloads service because it would be difficult to define effectively a specification that would prevent such negative market impact, without reducing the benefit of introducing new audiences to classical music. The BPI supports the BBC playing a public service role in introducing new audiences to, and stimulating demand for, classical music. The BPI believes that on-demand services, if appropriately limited to avoid a negative market impact, can help to achieve that goal. Accordingly, the BPI has consulted with members of its Classical Committee, who are prepared to support the making available by the BBC of non-DRM downloads of extracts of BBC classical recordings, subject to certain conditions. We would like to put forward the following proposals: • An initial trial at an agreed time, linked to a specific event or programme. This will enable the record industry to see whether such a download offer would have a promotional or substitutional effect on the market for commercial recordings. • Any further non-DRM free classical music downloads should be offered by the BBC only after consultation with the commercial recording industry and normally in connection with a specific BBC programme, event or season. An ongoing dialogue and partnership between the BBC and the BPI would help to ensure that the public benefit is maximised without unfairly undermining the commercial sector. • Non-DRM downloads of classical music offered by the BBC should be limited to an extract of a maximum of 90 seconds or 25% of the total playing time (whichever is the shorter). Where a classical music work is divided into movements, arias, or other sub-divisions common with longer pieces, this rule should apply to each individual shorter component. Provided that these conditions are followed, the BPI believes that on-demand non-DRM downloads of classical recordings, in which the BBC controls all of the necessary rights, may help the BBC to deliver public value by allowing consumption of BBC programming on an interactive basis and educating listeners about classical music, while helping to promote classical music to the benefit of the commercial sector. As regards non-classical music, we understand that the BBC has no plans to offer non- DRM downloads of full track commercial music. Obviously any on-demand offering by the BBC of sound recordings, or clips of recordings, controlled by BPI members, or of BBC recordings of artists exclusively contracted to BPI members, would require rights clearance through the relevant member company or PPL/VPL in the usual way. British Music Rights Introduction British Music Rights (BMR) is an umbrella organisation1 that represents the interests of nearly 50,000 composers, songwriters and music publishers and is a leading industry voice in raising awareness of the value of music to the British economy, culture and society We are pleased to have the opportunity to respond to the BBC Trust’s public consultation for the BBC’s on-demand services. In broad terms BMR is supportive of the BBC in its development of the proposed exciting and ambitious new digital services on the basis that they offer additional opportunities for music to be enjoyed, providing however that due respect is paid to the rights in such music and that such services do not stifle the nascent commercial market for online music services. Response to the BBC Trust’s public consultation on the BBC’s on-demand services: o Music made available through the proposed new services within the BBC’s public service remit should: o be restricted to BBC Licence Fee payers and not be made available outside the UK; o not be made available beyond a limited catch up period; and o not be comprised of the type of music programming that commercial services could provide (whether in the form of CDs/DVDs/videos or as online content). o With reference to the series stacking under catch-up services, there should be reasonable limits to the length of time early episodes in long-running series can be made available – e.g. 6 weeks. o With reference to non DRM downloads, the proposed exclusion of “full track commercial music” should be strengthened to clarify that (i) it applies equally to all music genres; ii) applies equally to live performances; and (iii) there should be a maximum duration of no more than 30 second of any single musical work; any exceptions to the 30 second rule must be subject to negotiation with rights holders. o The BBC Trust recommended that classical music should be excluded from the non-DRM downloads. We believe there may be public value to permitting classical music to be made available as non DRM downloads as part of an audio package, and that the availability of such material could also help to stimulate consumer interest and expand the market, so long as agreed limits to the duration of any single musical work are strictly adhered to. The agreed limits must be negotiated with rights holders. o Licences for such new services will need to be reviewed every six months in view of the rapid rate of development of the services, their uptake, and their impact on the market. o Music made available through new revenue-generating services should follow published licensing schemes. o It is vital that the BBC reports promptly and accurately for all uses of music made under those licences so that MCPS and PRS can distribute correctly and efficiently the monies due to their members from the use of their music in such services. o The BBC should take an active role in raising consumer awareness of copyright. 1 British Music Rights’ member organisations are: The British Academy of Composer & Songwriters; the Mechanical-Copyright Protection Society (MCPS) the Music Publishers Association (MPA); and the Performing Right Society (PRS). BSkyB 1. Executive Summary 1.1. Ofcom is consulting on its provisional conclusions on the BBC’s ‘on-demand’ proposals. Sky’s response is limited to those aspects of the Trust’s conclusions that are of particular concern to Sky in the context of this consultation. However, Sky continues to be concerned as to the overall structure of the PVT and, in particular, the lack of transparency and certainty inherent in a ‘test’ that comprises a comparison of the “public value” of BBC proposals, against their market impact as addressed by Ofcom. Sky remains of the view that the MIA should only take place after the PVA.1 1.2. The Trust proposes allowing all of the proposals put forward by the BBC in substantially unaltered state, subject only to some minor modifications. Sky’s concerns regarding these approvals are as follows: 1.2.1. the 30 day storage window proposed by the Trust in relation to the ‘seven-day TV catch-up over the internet’ is excessively long and should be reduced; and 1.2.2. the Trust’s proposal for reduced ‘series stacking’ by categorising programming as ‘stackable’ and ‘non-stackable’ is unworkable and should be removed. 1.3. Sky welcomes the Trust’s pragmatic approach to the syndication of BBC content to third parties and urges the Trust to publish its criteria for syndication as soon as possible in order to ensure that competitors to the BBC’s trial partners are placed on an equivalent footing in respect to their on-demand offerings. The criteria should also include an appropriate dispute resolution mechanism to minimise delays where there is doubt as to whether the criteria have been met without having to involve the Trust in a new PVT. 1.4. Sky also welcomes the Trust’s commitment to transparency, demonstrated by its publication of the BBC Executive’s PVT application. Sky notes that the failure of the Trust’s predecessor to publish this information at the outset presented a significant obstacle to meaningful comment on the ‘on-demand’ proposals by stakeholders and trusts that, in future, all PVTs will be accompanied by the publication of all relevant information, and in particular, the BBC Executive’s application, including supporting evidence. 1.5. In future, the Trust must ensure that any proposal for new BBC activities published for consultation contains an adequate description of the proposed activity. In the present case such a description was clearly not provided either as part of the BBC Executive’s application to the Governors or as part of the materials provided to stakeholders initially for consultation. It must be the Trust’s role to ensure that stakeholders have the information necessary to assess the impact of the proposed activities within the short timeframes provided the Framework Agreement. 1 See Sky’s response to Ofcom’s market impact assessment dated 9 November 2006. 2. Internet storage window 2.1. Both the Trust’s PVA and Ofcom’s MIA concluded that the 13 week storage window requested by the BBC Executive was too long and that the period for storage should be “much shorter”, and “removed or substantially reduced”, respectively. 2.2. In its PVA, the Trust stated that “[d]etermining how much shorter and ultimately whether there is a convenience window where public value is optimal is difficult in this developing market”. The Trust plumped for a period of four to six weeks based upon “the limited information available” - mainly evidence of storage periods permitted by commercial download services - and “exercising [its] judgement” - balancing the increased public value gained by greater opportunities to view BBC content against the negative impact on secondary rights revenues. In relation to public value, the Trust noted that “the empirical evidence simply does not exist at present to show with any confidence where the tipping point [when public value starts to decrease due to extra rights costs and lost commercial income] may be” (page 107 of the PVA). 2.3. Ofcom expressed significant concerns regarding the storage window for the internet catch-up service finding that “it is likely to have a more direct effect on the demand for competing internet-based VOD services” which it identified as being “at a very early phase in their development” where “the potential for negative effects on investment and innovation are likely to be correspondingly greater”. Ofcom stated that removing the 13 week storage window would “mitigate market impact substantially” for BBC content that is a close substitute for commercial content, and would bring the scope of the service more in line with the proposed cable catch-up service. Ofcom concluded that “unless the PVA provides strong reasons for taking a different course” (emphasis added) the 13 week storage window should be removed or substantially reduced. 2.4. The Trust’s analysis in the PVT has not provided “strong reasons” for taking a different course. Having relied upon its “judgement” in recommending a four to six week period under the PVA, the Trust has again exercised that same judgment, based on the same “limited information” to conclude that a period of four weeks is appropriate. 2.5. By basing its decision on the storage windows used by commercial on-demand download services, the Trust has targeted precisely those nascent services identified by Ofcom as being most threatened by the BBC’s proposals. At a time when business models for such services are being developed,2 and there is a lack of empirical evidence otherwise supporting any such a decision, the Trust’s conclusion appears unjustified. 2.6. Accordingly, the Trust should take a ‘precautionary approach’, allowing only a very limited storage window, in order to minimise the potential for irreparable harm to competition. A storage window of between 48 hours and seven days would enable viewers to gain the necessary public value of the seven day download service with a storage window, without creating the significant negative impacts of a 30 day storage window, allowing development of the market unimpeded by a publicly funded service. The duration of the storage window could then be reviewed after a six to 12 month period, at which time empirical evidence would be available on which to base a more considered analysis. 2 For example, Channel 4 recently changed to an advertising funded model for its seven day catch-up service. 3. Series stacking 3.1. The BBC Executive proposed allowing ‘series stacking’ for up to 13 weeks (in relation to both the cable and internet services), allowing large volumes of content to be available for download via the internet (or view immediately via cable), and for storage over a lengthy period. This was rightly criticised by the Trust, as not providing “optimal public value”, and by Ofcom as it made the service “a more direct substitute for commercial services” with a significant negative market impact. 3.2. The Trust’s PVA recommended that the period available for series stacking be reduced in line with its recommendation for storage, and that the definition of the types of ‘series’ to which it might be applied be restricted to those “with a narrative arc and discrete run or landmark series with an exceptionally high impact” (page 109 of the PVA). 3.3. Ofcom concluded that “unless the PVA or PVT provide compelling reasons for doing otherwise, the scope of series stacking should be substantially reduced, through the adoption of a tighter definition of what qualifies as “a series”, or through other restrictions.” It is, however, important to note that, having examined possible modifications to the proposals, Ofcom expressly contemplated that it might not be possible to find a “workable method of substantially reducing the scope of series stacking” and that in such case, “for precautionary reasons” it recommended that series stacking should be “excluded altogether”. 3.4. For the reasons set out below, the Trust’s PVT proposal that series stacking be limited to those series “with a distinct run, with a beginning and end, and a narrative arc or those which are landmark series with exceptionally high impact” is not workable and does not achieve the substantial reduction in scope required by Ofcom: 3.4.1. all ‘series’ have a “beginning and end” and therefore, according to the Trust, a “distinct run”. Without further clarification, therefore, this criterion is of little use as a means of distinguishing “stackable series”. It is not clear whether the Trust would consider series such as Doctor Who, Planet Earth, or The Power of Art as having a “distinct run” given the BBC’s ability to commission and broadcast additional programmes for each ‘series’. We note that, in providing examples, the Trust has not specified the reasons for each being categorised as ‘stackable’, or not. This is unhelpful. For example, it is not clear whether the Trust views Doctor Who as being ‘landmark’ or not. Nor is it clear whether each new episode of Doctor Who would be available to be stacked for the a) duration of the franchise, b) until the ‘end’ of the current commissioned ‘series’, or c) until the next regeneration (when a ‘narrative arc’ might end, or begin); 3.4.2. “narrative arc” may be used to encompass the full gamut of links between two related programmes. Whilst one might expect Planet Earth to be considered ‘stackable’ as a “landmark series with exceptionally high impact” (whatever that may mean, see below), it would also be possible to see the individual programmes within the series as also being linked by a ‘narrative arc’ as, together they tell “the epic story of life on Earth” (from the description on the BBC DVD of the series), even though each is able to be viewed on a standalone basis. The Trust appears to envisage that a ‘narrative arc’ exists between Strictly Come Dancing programmes, perhaps due to viewers’ continuing interest from week to week. It is arguable that, similarly, each programme in the Top Gear series has a ‘narrative arc’ as viewers benefit from having seen preceding programmes, appreciating regular competitions between guests and the developing relationships between the presenters. The Trust has, however, seen fit to categorise one series as ‘stackable’ and not the other; and 3.4.3. the Trust has provided no guidance as to the criteria by which the BBC executive should categorise a series as being “landmark”, with “exceptionally high impact”. These are not criteria that can be judged prior to broadcast, irrespective of how much the BBC spends on a series or how much it promotes it as being ‘landmark’. Such criteria are unhelpful, therefore, in providing either the BBC Executive or stakeholders with any certainty as to what content may be stacked. 3.5. The significant market impact of the proposals is compounded by the Trust’s expansion of stacking to cover an indefinite period, thus ignoring its own view as to the public value of the proposals. 3.6. Accordingly, the Trust should heed Ofcom’s warning and exclude series stacking altogether, or reformulate the restrictions, for example, limiting series stacking to the most recent episode in a series only, consistent with the use of the service as a ‘catch- up’ service. 3.7. Any form of series stacking should be limited to new series, as recommended by the Trust. The Trust should, however, restrict series stacking to only the first broadcast of a particular series on any BBC public service, including the programme being made available in any on-demand service. 4. Syndication to third parties 4.1. In the PVT the Trust has recognised both the benefit of the wider provision of BBC content and the potential detrimental impact to the competitive landscape of requiring further PVTs for future individual syndication arrangements, particularly given the ongoing provision of BBC licence-fee content to the VOD services provided to cable and Homechoice customers. 4.2. Sky welcomes the Trust’s proposal to develop and publish criteria for syndication which, if met, would allow additional service providers, such as Sky, to include BBC programming in their VOD services without additional PVTs. 4.3. The Trust has made it clear that “BBC content should be available to all significant players on a non-discriminatory basis” (page 12 of the PVT). The Trust must accordingly ensure that the criteria developed for syndication should be sufficiently flexible to accommodate a variety of services and not seek to replicate in an identical fashion either the BBC’s own internet service or the services developed with the cable and DSL operators. The public value in syndication may be achieved differently when accessed via different platforms or services, without detriment to the BBC. Accordingly, the syndication criteria should be objective, transparent and the minimum necessary to protect the public service status of the BBC’s programming and its rights in the content, and might, for example, be limited to requirements that qualifying services: 4.3.1. be able to make BBC on-demand content available free from any incremental charge at the point of access and without advertising in or around programmes; 4.3.2. operate an effective DRM solution; and 4 4.3.3. be able to comply with the BBC’s editorial compliance needs, for example, by withdrawing content from a service in certain pre-determined exceptional circumstances. 4.4. In order to ensure that the unnecessary delays identified by the Trust are not realised in relation to these syndication criteria, an appropriate dispute resolution mechanism should also be developed, providing third parties with access to an independent arbitrator with power to adjudicate between the parties should a dispute arise as to whether the criteria have been met. 5. The publication of information during the Public Value Test 5.1. Sky appreciates that the Trust has only been in existence since 1 January 2007 and is ‘finding its way’ under the new Charter and Framework Agreement. These provisional conclusions are the first published by the Trust and relate a procedure begun by its predecessor. Sky’s ability to comment meaningfully on the BBC’s proposals has been severely limited by the lack of information published during the initial stages of the consultation, and in particular in the context of Ofcom’s market impact assessment. While the Trust has sought to remedy this information deficit by publishing a large volume of supporting information at the same time as it published its provisional conclusions, this is too late in the process to provide a meaningful opportunity for stakeholders to comment on the impact of the proposals or their public value. Sky looks forward to the lessons which have been learned during this PVT being applied to future tests. Sky 29 March 2007 Friends of Radio 3 Response of Friends of Radio 3 to questions 2, 5, 7 and 12 only. 2. In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? Yes. 5. How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? It is very important that audiences using alternative software should be able to access the material. 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? We see no reason why there should be a blanket exclusion on classical music. i) Market Impact Assessment: we feel that few people with sufficient interest in classical music to buy commercial CDs in any quantity would be satisfied with building up an ‘extensive library’ of free downloads as a substitute. We have in the past made the point that superior audio quality is required for listening to classical music, and downloads – certainly at the moment – do not provide that quality. Downloads have an interest but are NOT a substitute for CDs as far as classical music is concerned. ii) There could, if nothing else, be an annual limit on the number of such downloads, making reliance on building up an 'extensive library' unrealistic. iii) We feel that it would be very possible to define particular types of BBC content which would have no effect of the sale of commercial CDs, one obvious area being some BBC commissions (with the agreement of the composers). These are seldom recorded and in fact after one or two performances are usually shelved, which does not provide value for money. Downloads would offer an opportunity for listeners to become familiar with the new pieces in a way which they would otherwise never be able to. This is often necessary for a full appreciation of unfamiliar new work. Creating interest also creates a market. iv) Similarly, there is much non-mainstream music. There are small independent labels who specialise in interesting work of this kind which the big labels do not touch. The BBC could cooperate with them to ensure that they were not releasing material which the independents had plans to issue. v) CD buyers might well download unfamiliar works to try them out but they would then be likely to buy similar CDs rather than make do with inferior downloads. Again, it has the potential to create a market. vi) We also feel that there must be a great deal of BBC archive material of classical music which is unique in character and will never be provided by any commercial record company. This is prized particularly by those who already have extensive collections and who are aware that no such performances are available on commercial CDs. vii) Those who are least likely to attend concerts, listen to Radio 3, visit classical sections in record stores or buy classical CDs online (especially younger people) may well be tempted to download free material in order to investigate, and this should be encouraged. A potential new market could be developed. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? Yes. The proposed services appear to relate to current or future radio and TV programmes. There is likely to be considerable interest in those items preserved in the BBC archive – particularly in drama or poetry – which are of historical and literary value and which for various reasons have not been made available through the BBC’s commercial arm. This will probably apply more to radio material than to television, where a lot of material has been commercially available on VHS and latterly on DVD. The BBC should explore a mechanism for releasing more of this valuable archive radio material. The BBC’s current drama productions, including dramatised poetry readings, should be made available as audio downloads, except where there are commercial alternatives of the same work already on the market. ITV Plc ITV Plc response to the BBC Trust interim decision on the BBC’s On- demand Service Proposal Introduction ITV welcomes the opportunity to comment on the BBC Trust’s interim decision on the BBC’s on-demand proposals. ITV has been following the public value test throughout the process, given the potential competitive impact the BBC’s offering will have on the wider market, and ITV’s services in particular. ITV welcomes the Trust’s acknowledgement of many of the key concerns raised by Ofcom’s market impact assessment, and that these have been reflected in the limitations the Trust proposes to place on the BBC Executive’s original ambitions. As ITV has argued before, it is important that the strong traditions of competition and plurality that have existed in traditional television broadcasting are translated as far as possible into the digital world. In offering viewers the opportunity to catch-up on programming via internet based platforms, the same principles of consumer choice should continue to apply into the digital world, albeit on a different delivery platform. This is particularly so in relation to the provision of services offering television-based content, where viewers have come to expect competition and choice. As the Trust is aware, ITV is planning to launch its own on-demand service later this year. Like the BBC, ITV will offer viewers the opportunity to catch up with programmes first shown on linear television, either for a fixed period after primary transmission or via the archive. Rather than competing in the provision of new content, the BBC and ITV services will compete primarily through the offer of new means of access to broadcast content. The move into on-demand is an important step for ITV and other commercial operators in adapting to the digital world. It is a key way for ITV to remain relevant and accessible. ITV hopes that the launch of its on-demand service will provide a valuable new revenue stream that will help support programme investment in the coming years in the face of increasing pressure on traditional television advertising. Maintaining strong competition between the BBC and ITV in the digital space will become – arguably – increasingly important through the provision of high value, high quality UK originated content, as the proportion of material available online becomes increasingly dominated by imported and user-generated material. While ITV recognises that the BBC’s move into the on-demand market is an appropriate response to the digital world, it must be recognised that the BBC is able to do so free from the unpredictability and uncertainty of the commercial market. The BBC’s presence in the on-demand market must therefore not be in a position to unduly stifle commercial innovation and reduce the availability of a range of high quality programming. Following the MIA process, ITV now has relatively few concerns about the proposed way forward; those outstanding issues are set out below in response to the questions outlined in the consultation document. 1. Do you agree with the BBC Trust’s proposal to approve the new BBC on- demand services, subject to the modifications outlined in the Trust’s report of its provisional conclusions? ITV supports a strong and competitive BBC. Viewers have benefited enormously over 50 years from plurality of provision and competition in the provision of high quality content, particularly between the BBC and ITV in providing high levels of UK made content. ITV is the BBC’s closest competitor in terms of investment in UK made programming, spending as we do around £1 billion a year. Only ITV is in a position to provide competition to the BBC in programme areas like regional news, UK made drama and high end family entertainment programmes. This should be maintained as far as possible in the provision of content regardless of platform. ITV does not dispute the BBC Trust’s decision to approve in principle the BBC’s on- demand services. As all mainstream broadcasters – and particularly the public service broadcasters – adapt to remain relevant in the digital world, an on-demand catch up facility is a logical and appropriate development. However, as ITV argued in response to Ofcom’s MIA, the launch of the iPlayer must not come at any cost. As much as it is appropriate for the BBC to offer new distribution methods in the digital world, it is increasingly important that ITV and other commercial operators are able to do so, both from a commercial and public interest perspective. ITV – traditionally a key provider in the provision of high quality free to air programming – will launch a comprehensive on-demand online service later this year with the re-launch of www.itv.com, funded predominantly by advertising, a decision influenced, at least in part, by the BBC’s proposal to offer full catch-up services free to viewers. ITV and the BBC will therefore together lead the way in offering free to view on-demand television content. Over time, ITV will also seek to develop some elements of paid for material, particularly where content is exclusive (ie. non broadcast) or of particular premium (e.g. premium sport, such as ITV’s existing pay Champions’ League coverage). As the traditional TV advertising market comes under increasing pressure from fragmenting audiences and increased online spending, it is important that ITV is able to attract viewers across digital platforms and offer advertisers digital opportunities. Building a successful and popular broadband offer is crucial to ITV’s future commercial and popular success. However, the online advertising market is uncertain and unpredictable, given that this is a nascent and fast changing market. While ITV has high hopes for its own on-demand service to be launched later this year, it is a relatively high risk venture and an area in which ITV will require flexibility to adapt and change as the market develops. It is vital that the BBC’s unique and privileged structure does not diminish ITV’s ability to compete, both in terms of offering content in way that viewers want and generating commercial revenue. The BBC’s investment in the iPlayer should be framed in such a way that ensures viewers can continue to enjoy competition and plurality in the provision of high quality programming, regardless of platform. Rather than meaning that the BBC can offer broadcast content in the face of commercial competition, commercial competition should be allowed to flourish in the face of BBC competition. ITV welcomes the modifications imposed by the Trust in terms of limiting the period of time for which content would be available (the modified series stacking proposal) and requiring the iPlayer to be based on catch up of material originally broadcast on TV and radio, as opposed to offering exclusive or preview material, where ITV believes there is great opportunity for paid for commercial activity. It is important that the limitations that the Trust has set out are adhered to, to the spirit and the letter; that the BBC’s performance can be measured; and that as the market develops there will be sufficient flexibility to review and amend the terms of approval should the BBC’s presence in the market have an adverse effect on competition. 2. In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? The BBC’s core priority should be to fulfil the public purposes enshrined in the new Charter and Agreement through high quality, originally made programming. The method of distributing that content is a secondary consideration, insofar as linear television and radio are set to remain the most frequently accessed means of achieving impact for many years to come, and therefore the cornerstone of the BBC’s public service delivery. While ITV believes it is appropriate for the BBC to invest in offering on-demand, the context in which it is doing so should not simply be seen as the BBC responding to the rest of the market. In terms of its main broadcast competitors, the BBC has had several years lead time in which to research and test its on-demand proposition, and it will launch the iPlayer with considerably less risk than, say, ITV. It does not, for example, have to seek revenue in a highly competitive and uncertain market. The BBC is able to launch the iPlayer from its already highly developed and familiar web offering through bbc.co.uk The BBC should not consider the iPlayer as a response to the global social networking phenomenon. As outlined in the annex to the bbc.co.uk service licence, the Player is about making existing programming more accessible via a new platform in competition with other high quality content providers and as television viewing habits shift to the internet. As such, the rationale for this investment should be seen as maintaining competition and plurality in high quality content distribution, based on original linear broadcasting activity. Given the pressures for commercial operators entering the online on-demand space, the BBC’s investment should be moderated to ensure that it is not behaving not anti- competitively, at a time when commercial operators like ITV are taking significant risks to ensure content is available across multi-platforms. 3. The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is a nascent market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days in the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? ITV argued in its response to the MIA that the length of time for which content could be stored should be reduced from the original proposal, which could have made content available for many months at a time. ITV welcomes the recommendation that the storage period should be substantially reduced from the original proposal. However, ITV originally suggested that it should be shortened further (for example to seven days). This was due to a number of factors: that ITV has negotiated a rights agreement with independent producers based around 30 days in order to allow commercial exploitation to help support programme costs (a deliberately a longer window than the BBC’s agreement with independent producers); and to enable commercial operators the flexibility to experiment with charging models as the market develops (for example charging between a 7 and 30 day window). If all BBC on-demand content is available for 30 days it could reduce the ability to experiment with other commercial models in the market’s critical development phase by creating audience expectation that all content will be provided for free over a 30 day period. While the 30 window might reflect the current plans of broadcasters such as ITV, it is important to keep the appropriate length of storage window under regular review as the market develops, to ensure the commercial sector has flexibility to alter its model over time. Furthermore, the BBC should itself be flexible about the length of time for which content is made available – it should not necessarily be assumed that all content should always be available for the maximum length of time if it is particularly competitive with content offered commercially or where the BBC might be better able to derive commercial value. The BBC has a duty to maximise commercial revenues to help support the core public services. Where certain programming has strong commercial appeal (such as a film or high profile drama), the BBC might consider offering on a shorter window through the public service before offering it on a commercial basis. 4. The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on-demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? ITV welcomes the recommendation to limit the amount and type of content that can be series-stacked. As ITV argued, under the original proposals the BBC could have had an impact on the commercial DVD market as well as the opportunities for commercial exploitation through paid for downloading. As argued in response to question 3, even the revised storage proposals pose a material threat to the flexibility to experiment with paid-for models within the 30 day window. The BBC should therefore be prepared to modify the series stacking arrangements in light of any future market changes. ITV is also concerned that the definitions around the type of content that might be series stacked. ITV understands the concept that narrative-based programming with a clear beginning and end over a series would merit from series stacking. However, it is less clear why ‘landmark series’ with exceptionally high impact should be series stacked. For example, a viewer having access to only one episode of Planet Earth is unlikely to lose any meaning as it is not dependent on other programmes in the series. If they have had high impact on television it is reasonable to assume that they have been watched in large numbers or attracted sufficient interest to be accessed as a one-off post primary transmission. The emphasis on landmark programming would also seem also to be at odds with the purpose to increasing reach to ‘niche’ and ‘specialist’ programming as outlined in the on-demand remit1. 1 BBC iPlayer draft remit (p20 of consultation paper) It is arguable that for landmark, high impact programming, there will also be greater willingness to pay through the BBC’s commercial activities, which would help fulfil the onus on the BBC’s to support the core public services through commercial activity. ITV recommends that series stacking is confined only to those programmes where there is a clear narrative arc and not to landmark programming. Furthermore, ITV would recommend that rather than expecting no more than 15% of content to be series stacked that this should be set at a fixed limit to provide greater certainty for the BBC’s competitors. In addition, the proportion of material that is series stacked should be one of the performance measurements in future reviews. 5. How important is it that the proposed seven-day catch up service over the internet is available to consumers who are not using Microsoft software? The BBC has a core purpose to be accessible to as many people as possible, as well as helping deliver the benefit of digital technologies. To make the iPlayer available only to those using Microsoft software would seem to be a failure to fulfil these objectives. 6. Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? No comment. 7. The BBC Trust concluded there was a fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? No comment. As consumers increasingly access content in an on-demand environment, it seems appropriate that the BBC should seek to ensure that viewers - and particularly children - are protected from content that might be unsuitable or offensive. 8. How important is it to you that the BBC provides some means for parents to control which of its programmes are accessible on-demand to children? Is such a facility necessary or is it more a matter for parents to exercise controls over how children use the internet? The provision of a content labelling system would seem to be a sensible inclusion in the BBC’s plans. However, ITV believes that the nature of such a system should be a matter for the BBC and that other on-demand operators should be able to develop their own labelling and access control systems that best suit their individual services as they are developed. 9. What are your views on whether the BBC should offer content from non-BBC providers on the on-demand service on its website? 10. What are your views on whether and how the BBC should make available on-demand content on services run by other providers – such as multi-channel services or internet-based audio and video downloading services? ITV has grouped together the questions about whether the BBC should offer content on behalf of third parties and make its own content available to others. Over time, there may be opportunities for closer co-operation between providers of on-demand content. As such, the opportunities for the BBC to make content available to others or to offer third party material should be kept under review. However, as part of any such review, consideration should be given to whether such partnerships should be on a public service or commercial basis. Where commercial opportunities might exist, this could help achieve the dual objectives of creating commercial opportunities for the BBC to deliver back to the public services and ensuring greater scope for commercial operators to develop and broaden their services. A more valuable contribution would be for the BBC to provide on general release the findings of its research into on-demand on which the iPlayer’s plans are based. Substantial sums of public money were spent on this research and more general access to it would help the whole sector develop successfully in the public interest. 11. Do the revisions proposed to the BBC Service Licences to allow the new services to go ahead seem appropriate? While ITV recognises the reasons why the BBC has opted to set out the remit of the on-demand services in an annex rather than a stand alone service licence (given that the service will not offer new content but provide a new means to access existing broadcast content), this raises some questions. Not least, the core bbc.co.uk service licences to which the on-demand remit will be annexed have not yet been finalised. Furthermore, the remits of bbc.co.uk and the iPlayer remit are somewhat at odds. The purpose of the iPlayer is described as increasing the impact and reach of the BBC’s public service radio and television output. This is described as being a primarily new means of access to existing output, by and large post transmission and explicitly not offering new or specially commissioned, exclusive material (other than news and current affairs). However, by contrast, the remit for bbc.co.uk states that it services the public purposes ‘through the provision of innovative and distinctive online content’ as well as extending the range of the BBC’s broadcast services. ITV would welcome clarification that, in sitting under the bbc.co.uk remit, the iPlayer will not be expected to focus on innovation or distinctiveness, but that its purpose will be to maintain reach of existing television and radio content as outlined in the annex. It is important that the terms of the annexed iPlayer remit are explicit and measurable, both in terms of ensuring that the Trust is able to make a detailed performance assessment and that the BBC’s competitors are clear about the terms of approval and key performance indicators. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? ITV welcomes the stipulation that there will have to be a review of the BBC’s on- demand service after a period of no more than 24 months. The comments that ITV has made in relation to the BBC’s proposals are based on our best assumption of how the market will develop and ITV’s own plans in this area. However, the commercial on-demand market, particularly for broadcasters, is new and remains risky and uncertain in terms of take up and revenue models. ITV believes that the market as a whole will therefore need to be kept under more regular review to ensure that the BBC’s privileged and relatively risk-free market entry is not stifling commercial innovation and development. ITV recommends that there should therefore be a preliminary review of the broadcast on-demand market after a period of 12 months which might lead to a more comprehensive review of the BBC’s services if needs be. ITV is keen to ensure that the remit for the iPlayer makes it explicitly clear that no premium or exclusively produced content will be provided (except the news and current affairs material already provided via bbc online). While ITV’s on-demand service will predominantly feature catch-up material at first, there is scope over time to offer more premium, exclusive content on a paid-for commercial basis. The BBC’s free provision of such content could severely hamper the ability to develop paid-for revenue models. Therefore the service licence annex should make clearer that only material originally broadcast on public service BBC TV and radio services (except news and current affairs) will form part of the service and that any move away from this would require a separate public value test. ITV is also concerned that there will no be sufficient budgetary detail about the actual cost of the iPlayer. Only central (e.g. technology) costs will be presented in the annex to the service licence; all programme related costs are proposed to be subsumed into general programming budgets. This will therefore mean that there will be no way to assess how much the BBC iPlayer costs and how much the BBC is allocating to costs such as programme rights. In order to be able to compete effectively, the BBC should not be in a position where it is able to use the licence to substantially outspend commercial competitors for rights costs or technological development. Transparency about the cost of the iPlayer, with clearly identifiable core costs would help provide greater competitive certainty. 13. Do you have any comments on the process followed by the BBC Trust in performing this PVT? It was acknowledged early on in the PVT process that the amount of time given to the MIA process was insufficient. While it was helpful that the timing for responses was extended, ITV would welcome reassurance that all future PVTs will follow the revised timetable. The timeframe was also upset by the paucity of information made available to interested partied. While this was improved, ITV still believes that insufficient detail was provided to make a proper assessment of the BBC’s proposals. For example, there was insufficient information about the purpose, objectives, expected reach and impact and budget of the proposals. This made it difficult to comment on the likely impact on the wider market in a meaningful way. ITV would recommend that in future greater detail, including more about the structure and anticipated scale and impact of future proposals should be included, with indicative budgetary information. Ends Open Rights Group Summary The Open Rights Group (ORG) is an independent non-profit advocacy group which campaigns for digital rights in the UK.As a body involved in digital rights we have grave concerns over the BBC proposal to make heavy use of Digital Restrictions Management (DRM). Digital Restrictions Management blocks and controls access to content without consideration of implied legal rights, and can cause serious problems to many users even when it functions correctly. In addition, the Open Rights Group is gravely concerned that the BBC proposes to limit some of the services to Microsoft Windows XP and Vista. These products are associated with higher-end PC systems and upgrades which are often out of reach of poorer citizens or libraries. This will worsen the digital divide and is contrary to stated government policy. The use of DRM criminalises making BBC-interoperable devices (software, PVRs etc) without getting a license from an American monopoly. It requires UK technologists, companies and hobbyists to get permission from a foreign power in order to make use of BBC video. This is completely inappropriate for a public service broadcaster supported by the license fee and contrary to the Royal Charter. This proposal is also of concern because Microsoft are currently appealing a decision by the European Commission that it unlawfully obtained monopoly positions (Decision COMP/37.792). This decision relates in part to PC video-playing tools. The BBC proposal would continue and greatly extend this distortion of the market. There is a serious likelihood of judicial review by other vendors or of the BBC decision being dragged into the ongoing Microsoft investigation. The Open Rights Group is worried both about the market distortion and the possibility that legal review could delay or disrupt the entire project, wasting licence payers' money — as happened with Research Machines v BBC, which required the intervention of the Culture Secretary (BBC Governors Report 2002/3, page 68) and has happened very recently with the suspension of the BBC Jam educational service, following complaints. It is also the opinion of the Open Rights Group that such a DRM tie to Microsoft is unnecessary and inappropriate. Within our answers we provide a short term alternative model that is library-friendly, end-user–friendly and cross-platform. This would be far preferable to the BBC's use of DRM, in particular of Microsoft-specific DRM products. Questions 1. Do you agree with the BBC Trust's proposal to approve the new BBC on-demand services, subject to the modifications outlined in the Trust's report of its provisional conclusions? We believe that the Trust's conditions are inadequate. We question the value of the internet-based service as proposed. We do not believe the use of extensive DRM for television has been adequately justified or explained. Nor, more importantly, do we believe that it will create a viable service. 2. In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? There is clear value in the BBC supporting on-demand services where appropriate, including via cable services. The notion that recycling existing content onto the internet using DRM is providing value is dubious at best. The report itself observes that "simulcast and non-DRM download" offer the greatest value (1.8). The statement that "public value is primarily delivered through content consumption" also illustrates the failure of the BBC to grasp the further opportunities for the internet as a medium including increased availability of archive programming through the internet. We further note the low interest in the DRM based services (page 43) and the low value for money they offer (page 82). 3. The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is an emerging market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days is the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? Existing PVR systems provide equivalent facilities without DRM restrictions and without time limits. This is true both of standalone devices and PC plug-in cards that receive “free to air” transmissions. Many of these allow the recording to be saved to tape or digital storage media indefinitely. Regardless of the finer points of law, end-users consider this to be “fair” and expect that facility. The Gowers proposals may also change the law in this area in favour of the end-user, making the DRM even less appealing. The report estimates 47% penetration of PVR devices into the target market area. As the prices of PVR devices fall, the ability of a restrictive and less convenient internet service to compete will be nonexistent. If launched with the proposed restrictions, the service is probably doomed to failure. History tells us that DRM technology does not work. DVD was cracked with ease, HDMI is believed to have been cracked, and recently the AACS encryption used for high definition discs has been broken. In another case (that of Sony), the software installed to implement the restrictions was flawed and led to a class action lawsuit in the USA. The report maintains that the risk of DRM being cracked is low but all the evidence is to the contrary: people will crack DRM schemes when they feel excluded (eg by the Windows XP requirement). HD DVD was cracked by a single individual who was simply upset that he could not watch the film on his monitor. (http://www.slyck.com/story1390.html) Curiously, the BBC itself has recently been active in dropping DRM and encryption on their satellite feeds. This proposal implies that the same content being watched, on the same computer, with the same ability to record the data or share it is somehow different. Media convergence means there is no practical difference between unencrypted satellite, free-to-air digital TV, DAB or the internet in terms of control of content. The BBC has also failed to explain why DRM is needed for video but not audio and what the distinction is. When you consider the simulcast of the Proms on television and radio, the value is clearly in the audio rather than the video of the musicians, yet the simplistic BBC proposal suggests that it is necessary only to lock up pictures of trombones, arm-waving conductors and the reactions of the audience. 4. The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch-up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on- demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? This essentially falls within the answer to Question 3 above. Stacking restrictions assume that users will not simply adapt their habits or switch to existing PVR technology that does not enforce awkward rules. This technology is cheap and getting cheaper. Stacking restrictions have an additional problem. They imply that the user owns the system and will download and watch material on the same computer. There are many cases where this is not true. Users travel, families share a PC, and people also use services such as libraries. In libraries, watching educational series is a legitimate purpose, yet the PC is not owed by an individual. Such a requirement is exclusionary, and hurts the poorest most. It is very difficult to see how such stacking would work in a household with a shared computer. There is a better approach to implementing this service than the use of heavy DRM restrictions and library-unfriendly, market-distorting technology which will serve to widen — not narrow — the digital divide. The BBC could provide the following instead, which can easily be implemented with current tools and infrastructure: o A system where, given licence or other information, a user may create an account with the BBC. o Having logged in, the user is then permitted to see live streams (restricted by location), and‘catch-up’ TV. This would be implemented by streaming the data from the BBC site, not byplacing files on end users' hard discs where the data will be vulnerable to DRM cracks. o Any policy for stacking would be implemented on the BBC website, which also means the stacking policy could be tuned per programme and dynamically if problems are found. o No new streaming video tools are needed beyond those currently used. Such an approach is cheaper, lower risk, more inclusive (it works for example in libraries) and more flexible than the current BBC proposal. It may not appeal to consultants looking to make huge profits at public expense however, precisely because it is simple, clean and low-risk. It does not, of itself, address the desire for users to obtain content in DRM-free downloadable form for any platform, but it provides a basis until the BBC is able to identify more open solutions for the download of content, preferably ones which do not depend upon DRM. Such solutions would provide interoperating implementations for playback available from different manufacturers and for many pieces of equipment. The Open Rights Group considers it is quite possible that, as already is clearly happening in the music world, the use of DRM will soon be abandoned by the market itself. The BBC may also want to consider quality and DRM issues together. It is not unreasonable to argue that the basis of the existing BBC “protection” of internet streaming is not in fact DRM but the quality limits of the footage. 5. How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? The proposal is not limited to Microsoft software but specifically to Windows XP and Vista. The question is thus phrased in a misleading fashion as it is estminated around 20% of users (often the poorer ones) do not have Windows XP or Vista but do have Microsoft Windows products. The BBC Charter requires that the independence of the BBC is maintained, that it acts in the public interest, and that it must have regard to the competitive impact of its actions; it is clear the proposal meets none of these conditions. It is also clear that an enormous commercial incentive exists for competitors to Microsoft to seek judicial review or to refer the proposal to the EU Commissioners — who are already pursuing Microsoft for monopoly abuses involving video clients. The recent £150m BBC Jam suspension illustrates the harm that can be caused by non-compliance with the Charter and the regulations. Meglena Kuneva, the EU Commissioner for Consumer Rights, was recently quoted in Focus magazine: “Do you find it reasonable that a CD will play in all CD players, but an iTunes song will only play on an iPod?" asked Kuneva. "It doesn't [seem reasonable] to me. Something must change." It is likely that EU consumer legislation will address this problem and the BBC should be proactive and avoid potentially expensive changes to or curtailment of the service when European law is changed. As an alternative implementation scheme exists, there is no justification for the BBC being permitted to proceed in this manner. The Trust would, without doubt, have thrown out a proposal that some programmes did not work on anything smaller than a 36” TV set or did not work on Sony TV sets. The computer world is no different. The proposed "within two years" is valueless. Windows Vista is a product of the moment; the desktop battle with Apple and Linux is underway and, two years on, the damage is done. At the very least it should defer such a Microsoft-only decision until the end of the final appeals in European Commission v Microsoft and its verdict. 6. Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? The BBC already provides digital MPEG1L2 streams of the radio services to DAB users. DAB devices such as 'The Bug' permit the recording and transfer of these streams to personal computers or PDA devices. In short, the BBC already offers this service easily and conveniently in all but name. We welcome the BBC providing such a service in accordance with copyright law and proper renumeration of authors for in-copyright works. 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether — and to what extent — the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? The Open Rights Group does not understand why the BBC distinguishes classical music from other audio works. If the BBC wishes to offer out-of-copyright works it should say so; and if it wishes to offer a performance by musicians of a work still within copyright it should say so. The Open Rights Group does not understand why a 1750s folk song would be considered different to a Bach piece. The Open Rights Group welcomes the availability of more content on the internet and hopes that the BBC will look at ways to use the internet to increase the value to society, by including features not available via conventional non-interactive media. Such features include web-based notes synchronised with the audio feed, or the ability to listen to specific channels of the recording to understand how the music is built up. The Open Rights Group furthermore notes that, as with question 6, the BBC already streams MPEG1L2 audio of their concerts to DAB users who have the technology to record the audio. 8. How important is it to you that the BBC provides some means for parents to control which of its programmes are accessible on-demand to children? Is such a facility necessary or is it more a matter for parents to exercise controls over how children use the internet? The internet provides standard content-labelling mechanisms, known as PICS. The tools to use them are present in most operating systems and publically documented for open implementation in any others. The BBC should use those standards. The basis for internet service from a public service organisation should always be open standards, freely-implementable and well documented. If the BBC persists in using DRM and further protection of video feeds is needed, then it should be integrated with the DRM and the age rules set by the person who types in the TV licence details. This could be a condition of the licence modification if DRM is used — or the use of the PICS standard if not. 9. What are your views on whether the BBC should offer content from non-BBC providers on the ondemand service on its website? The BBC should provide links to non-BBC material when appropriate and be allowed to host material that is directly relevant to a programme, with the permission of the rights owners. This is necessary as the BBC may want to refer to a piece of content that is hosted on a small system unable to cope with the demand caused by linking, or on the other side of the world, such as end-user video clips of a news event. It is this ability to tie together media, for the user to explore, which is at the heart of the internet — not the recycling of existing, non-interactive content. The BBC should therefore be encouraged to embrace these opportunities. The increasing trend for the BBC to buy in content, including content commissioned directly for the BBC itself, means that the ability to offer non-BBC content will grow more important over time. 10. What are your views on whether and how the BBC should make available on-demand content on services run by other providers — such as multi-channel services or internet-based audio and video downloading services? The BBC should evaluate such opportunities as they arise. When they are in the interest of the BBC (as defined by the BBC Charter), it should make use of those opportunities, whilst taking care not to harm its good name by poor choices of association. It must not, however, be allowed to use such options to “farm out” responsibilities to other parties who then fail to fulfil them. 11. Do the revisions proposed to BBC Service Licences to allow the new services to go ahead seem appropriate? They do not. The proposed use of DRM is poor and the high-cost, low-value internet provision of existing content under restrictive DRM policies should not go ahead in this form. The highly exclusionary — and potentially unlawful — proposals which tie the services to recent computers and software made by a single manufacturer should not be accepted, particularly in the light of the continuing EU case against Microsoft. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? The BBC Trust needs to consider the following questions more fully: o What are the impacts of current DRM technology on the disabled user (and not just to the blind user)? o What are the implications of DRM on shared computers such as library terminals? o If the current proposal is allowed and 24 months later the BBC says “we haven't fixed the platform problem”, would the Trust really have the ability to kill the service? o What is the impact of the European Commission v Microsoft case and the fact it directly bears upon the choice of supporting only a single platform? o What is the market impact of the proposals on the desktop personal computer market? o Whether it would accept a BBC TV proposal that did not work on Sony TV sets, but which would “hopefully” be fixed in 24 months. If not, why are computers different? o What is the time and financial impact of judicial review or European level intervention ? We believe the Trust evidence indicates that the Trust is weak in its understanding of internet technology and has failed to consider the broader markets outside the media, despite this proposal having a huge impact on the technology markets. In particular, it has failed to consider the personal computer market; this despite the main beneficiary of the proposals being a convicted US monopolist currently on trial in the EU for alleged monopoly offences related directly to media players. In short, the Trust does not appear to have done its job at this point and should urgently visit those areas and rework the decision after the consultation period. PPL & VPL BBC On-Demand Proposals BBC Trust Preliminary Conclusions, 31 January 2007 PPL1 and VPL2 broadly welcome the BBC Trust’s decision to approve the new BBC On- Demand Services, subject to the provisos recommended by Ofcom in their Market Impact Assessment. A. CONSULTATION QUESTIONS 1. Do you agree with the BBC Trust’s proposal to approve the new BBC on-demand services, subject to the modifications outlined in the Trust’s report of its provisional conclusions? 1. Yes. The new BBC on-demand services clearly show increased public value, as they will enable licence-fee payers to view BBC content at a convenient time. But they will also have market impact, some positive and some negative. Ofcom demonstrated a good understanding of the nascent on-demand market and made a number of recommendations designed to ensure that these free BBC on-demand services can co-exist with rival commercial services. We welcome the fact that the BBC Trust accepted Ofcom’s well-considered recommendations. 3. The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is a nascent market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days is the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? 2. It is probably too early to give a definitive answer as to the appropriate storage window as consumer behaviour has not had a chance to react and adapt to the new services. Two factors will have overriding importance in determining this. 3. Firstly, this is a service allowing BBC content to be viewed at a time convenient to the citizen. It is not a service to allow consumers to build up a collection. The public service window should give citizens a reasonable time in which to view material when it is released by the BBC but they should not be retaining a copy longer than is necessary for that time-shifting. The BBC’s Listen Again radio service provides this service for audio and has been operating for five years. 1 PPL is the UK licensing society for 40,000 performers and 3,000 record companies. 2 VPL is the UK licensing society for 1,000 music video producers. During that time it has become well established and well used. It offers a listening window of seven days and it may be that that should be the public service window for BBC audio-visual content as well. 4. Secondly, consideration should be given to the business models of commercial players. As a general rule, if the commercial sector opts for a paid-for service, the BBC should not be able to undercut that pricing structure with a similar service offered free of charge. Channel 4 offers an On-Demand service which is paid-for, with a 28-day window for rental. It seems likely that others will offer similar services in the future. It will be difficult for these services to compete with a free offering from the BBC unless there is some discernible difference in the service offering. The most obvious differential is the length of the free public service window when compared with the commercial paid-for option. 4. The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch-up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on-demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? 5. Series stacking is obviously an attractive service to viewers and, almost as a consequence, has a consumer value. As when considering the appropriate length for the public service window, the same considerations should apply, ie actual time-shifting behaviour (as opposed to building a library) and comparable commercial offerings. See paragraphs 2-4 above. 5. How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? 6. It is certainly desirable that BBC services should be widely available across different platforms, driven by viewer choice. Record companies have had similar issues in licensing online services because of a lack of interoperability between devices and systems. As a major buyer of platform services, the BBC will influence how those platforms are developed. A degree of interoperability in the DRM systems that support these services would benefit the BBC as well as other players in the market and, ultimately, improve the consumer offering. BBC Trust New Services 3 PPL & VPL Response 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? 7. The market for classical music sales is fragile and has been hit particularly badly by the overall declines in CD sales in recent years. In a declining market it is often the niche genres that suffer disproportionately. 8. Conversely, there are signs of significant growth in online sales of classical repertoire, ahead of the market average. Against this backdrop, the BBC offering free downloads of classical music could have a significant negative effect. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? Downloads of Commercial Music 9. Ofcom noted in their Market Impact Assessment that, were the BBC to offer full track downloads of commercial music, that would significantly change the nature of the offering and should trigger a fresh market impact assessment. As the online market for music is growing rapidly, a free offering from the BBC would most likely undermine the market pricing which is now being established. BBC Archive 10. The BBC has a rich archive of material, valuable to consumers and the BBC alike. With the advent of digital technology, it now becomes possible to make available much of that archive using new business models. The economics of the ‘long tail’ mean that large volumes of catalogue can be digitised and distributed online, even where sales of an individual title are very low. As well as being an attractive service to users, the archive has the potential to generate revenue to cover the costs of the service and provide a surplus to help fund new programming by the BBC. 11. The appropriate vehicle for releasing the BBC archive is BBC Worldwide as the market impact of any release of BBC archive material will be considerable. There should be a default to adopting similar pricing and business models as the rest of the market. In general, this would mean charging for BBC archive material, similar to the current charges for online content (eg iTunes) or, to use the physical analogy, the sale of a DVD. This makes BBC Worldwide the obvious route for releasing the archive. Any BBC (public) service using archive material should be rejected in the market impact assessment and public value test if there is the potential for release under a commercial model. Respect for Rights 12. As the BBC moves increasingly from primary use to secondary uses, their relationships with creators and contributors are changing. The days of transactional arrangements, based on one or two transmissions, are largely gone. The demand now is for rights-based agreements which provide flexibility for the BBC Trust New Services 4 PPL & VPL Response BBC and remuneration for the creator over a period of time and over a multiplicity of uses. For these arrangements to work, it is essential that the BBC respects the rights of all creators, from orchestral musicians to record companies. 13. The BBC should also recognise that if it launches a service which is prejudicial to the wider commercial interests of creators for any reason, rightholders may exercise their option to refuse a licence. PPL and VPL would therefore welcome a dialogue with the BBC during the development phase of any new services. 13. Do you have any comments on the process followed by the BBC Trust in performing this PVT? 14. Aside from some early teething problems with the BBC not producing sufficiently detailed descriptions of the new services, this PVT has gone well. This may be because the BBC Trust chose to adopt the recommendations of Ofcom based on their Market Impact Assessment. The process may be called into question if, in any future PVT, the BBC Trust rejects aspects of the Market Impact Assessment for any reason. PPL March 2007 Radio Centre Background 1. The RadioCentre formed in July 2006 from the merger of the Radio Advertising Bureau (RAB) and the Commercial Radio Companies Association (CRCA). Its members consist of the overwhelming majority of UK Commercial Radio stations, who fund the organisation. The role of the RadioCentre is to maintain and build a strong and successful Commercial Radio industry - in terms of both listening hours and revenues. Introduction 2. The RadioCentre broadly welcomes the BBC Trust’s conclusions from this first Public Value Test. We recognise that the Trust has worked carefully to absorb the recommendations from Ofcom’s Market Impact Assessment. 3. We expressed concern about the initial process, in particular the lack of information, and timetable of the consultation but have accepted the Trust’s reassurances that these will be improved in future consultations. 4. Below we answer those questions within the follow-up consultation which relate to our remaining concerns. Q4. Series Stacking 5. We welcome the Trust’s conclusion that BBC management’s proposals regarding series stacking required greater definition. We also broadly agree with the definitions of stackable series provided on page 10 of the consultation. However, we do not agree that the examples of series meet these criteria. For example, we cannot see why a reality programme of no ‘landmark’ value and with no narrative value, other than ‘evictions’, such as Strictly Come Dancing, should merit inclusion as a series for stacking. We would also question whether Doctor Who has a genuine ‘narrative arc’. 6. We disagree with the Trust’s assertion (pg 10) that “the public value of stacking lies in making available the whole series for the duration of its run”, particularly where the series consists of as many as 13 episodes (which may span back three months). We believe there is a considerable danger in allowing several stacked series of this many episodes to be available simultaneously, as would be the inevitable result of this proposal. A consumer who decides, in week 13, to download several entire series will inevitably choose to consumer less content from other broadcasters as a result. 7. We therefore reiterate our previous assertion that the only way to ensure clarity is to limit free access to content to 7 days after transmission. Series stacking could be made available, but should be done at a cost. Alternatively, we recommend that far less than three months of content be made available in this way. 38 Jemina Kiss, ‘BBC Worldwide lays out digital plans’, http://media.guardian.co.uk/bbc/story/0,,2027192,00.html, 5 March 2007. Q6. Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? 8. We agree with the Trust that these should not form part of the offering. Q7. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? 9. We agree with the Trust that such downloads could have an undesirable market impact and therefore should not be allowed. 10. However, we believe that this should also be extended, at least in the short term, to live music of other genre, including live sessions from popular artists. The market for such audio is nascent, but if the BBC were to establish a precedent of offering such content for free, it would prevent Commercial Radio stations from being able to charge for similar music sessions as downloads. Q9. What are your views on whether the BBC should offer content from non-BBC providers on the on-demand service on its website? 11. We would urge the BBC Trust to continue to assess the greater public value which could be achieved by including non-BBC content on the iPlayer. We disagree with Ofcom that the increased market dominance of the iPlayer as a result of such open access would be a negative factor: dominance is only a problem if it is abused – if the iPlayer was open access, then its dominance would only serve to enhance competition amongst content providers. We note that BBC Worldwide is open to offers from other broadcasters for access to the commercial version of the iPlayer, suggesting that there are no technical or logistical barriers in the way38. Non-broadcast content 12. We agree with the comments made by the Trust in this area. However, our objection relates not to specially–edited material (which would simply mirror the editing which consumers could do to non-DRM material for themselves) but to the BBC using on-line downloads to make available specially extended or enhanced programmes. Book-making / advance booking of downloads 13. We note that, in the consultation, the Trust makes it clear that advance ‘bookmarking’ of content does not form part of this proposal. However, during the period of the consultation, we have received telephone contact from a Trust official asking us to clarify our view on this (RadioCentre had previously raised concerns about this issue with Ofcom). For the sake of absolute clarity, no form of advance booking or bookmarking was part of the original proposals from BBC management and therefore should not form any part of the service to be approved by the Trust. We disagree with the Trust official who suggested that this was a minor alteration to the service, such as changing a font or background screen colour. RadioCentre 28 March 2007 Radio Independents Group ANSWERS Q1: No. The BBC Trust’s proposal ignores the underlying rights and commercial needs of the independent radio production sector. The proposals have been drawn up with very little, if any, thought for the impact on the radio side of the BBC. At a time of diminishing programme budgets, the BBC should be looking at ways to monetarise their archive and output, rather than simply ‘give it away’! Q2: Yes, but not at the expense of underlying rights holders and existing commercial exploitation. While it is vital that the BBC continues to move with the technological progress of viewing and listening habits, and to find ways to allow licence fee payers access to that which they pay for, it is important that the Corporation continues to progress its attitude towards its independent suppliers and underlying rights holders. The BBC cannot simple wade into a complex and in places fragile commercial marketplace without due care to those that have created the very environment that is now so appealing. The UK’s independent radio producers are core supporters of the BBC as both a broadcaster and a production resource, and as a public broadcaster it serves many important purposes. But as the Corporation moves into multi-platform delivery it is imperative that it is aware of the existing and maturing commercial activity already in place and embraced by the viewers & listene! rs of the UK. Q3: This decision seems to have been solely made by considering the impact on DVD and other TV-related commercial sales. For the radio market, the 2005 Terms of Trade include a hard-won right for the indie producer to commercially exploit their programme after the current 7 day Listen Again window closes. It is imperative that such exploitation take place close to transmission to help build a sense of immediacy and relevance. And while for many one-off programmes it may be true that a 30 day Listen Again window will impact only in this limited way, for multi-part programmes, series and the like, there is a potential that a first episode may not be available to commercially exploit for many months after initial transmission. RIG supports the BBC’s attempt to offer listeners an enhanced Listen Again experience, and as such support a 30 day window. HOWEVER, we require that independent productions are allowed to invoke commercial exploitation rights following the initial ! 7 days in the case of a one-off programme, or 14 days in the case of a multi-part or series. Q4: As with our answer to Question 3, RIG believes that series stacking for radio series is acceptable as an enhancement for BBC radio listeners’ experience of our programmes with the exception of readings where there is a commercial alternative available either on download format or as a physical product. But once again we must caveat this with the requirement that such stacking does not infringe our hard-fought for commercial rights. It is unacceptable that such stacking should lead to delays that could be many months in duration for indies who wish to commercially exploit the programmes that they hold the underlying rights to. Q5: Vital. The BBC must recognise that while Microsoft is an important and valuable part of the multimedia world, it is by no means the only platform. The incredible sales of iPods and similar devises, the emergence of convergence devices such as PSPs, and the dominance of services such as iTunes all point directly to the fact that online consumers use a variety of formats, platforms and Operating Systems. And while it is desirable to try and steer the market towards convergence and single platform, it is not the BBC’s job to do so. RIG believes that BBC material should be made available in a number of accessible formats and not restrict use of said material to a single platform or system. Q6: Only as commercially acceptably priced paid-for downloads where ALL rights holders get paid a fair amount for the use of the material. The audiobook download market is growing month by month and the BBC has an incredible archive of such material. So much so that they already have a huge almost anti-competitive advantage over their rivals in both the download and the manufactured product market without moving into FREE downloads, thereby giving them a further advantage over their competitors which in turn may generate complaints to the Office of Fair Trading from commercial competitors. Free downloads will inevitably result in the bankruptcy of smaller organisations in the same field. It is vital to recognise that, as with radio documentaries, features, comedies and dramas, a sudden deluge of ‘free’ BBC material would decimate the existing download-to-own market which has been carefully built up over many years by many dedicated publishers, producers, distributor! s, and the BBC itself through BBC Audiobooks and Worldwide. Q7: There should be opportunities to listen again to any and all radio programmes, but where commercial rights are involved, be it music or otherwise, non-DRM and free to download must not be permitted. The issue with copyright-free Classical music impacts most heavily on the classical music recording industry, and it may be a better case that the BBC and the industry take this opportunity to partner in the release of a range of BBC-funded free to download concerts and privately funded follow on commercial CDs and materials, rather than fight over the same marketplace. The licence fee payers fund a number of extremely expensive orchestras and it is of the utmost importance that those who fund the music should get to hear the music. Q8: NA Q9: While the BBC should always promote its own material first and foremost, it is also important to maintain the role of trusted source of information. The availability of external content on the BBC website should be carefully monitored and a quality threshold maintained. However, there should be no barrier to the BBC offering such materials so long as they do not compete with existing BBC product, or impact on the commercial viability of any other BBC programme/series. Q10: So long as there is no cost or acquisition fees for the BBC to do so, and in paid for download cases the BBC gets a fair share of the income which is then solely ploughed back in to programming budgets, then there should be no problem in widening the source material catchment. Q11: No. Dwindling programming budgets mean that more use will not be paid for in a fair manner. To secure the right to offer the majority of these enhanced online services, underlying rights holders will need to be paid increased rates – everyone from actors, publishers, authors and musicians through to independent producers. As such the proposed revisions do not tally with the reality of decreasing programme budgets. It is ill-advised to attempt to get ‘more value for money’ at a time when in radio budgets are already stretched to breaking point. The BBC may need to consider reducing its expectation regarding the number of transmissions, or repeat rights in order to afford the increases in costs due to these new rights acquisitions. Q12: [1] The BBC should link access to the material to the license fee database, ensuring ONLY those who have paid the annual fee should have access to premium and free to download material. [2] The BBC and Ofcom have overlooked the young but growing download to own market developed since 2004 by the independent radio production sector. In negotiating the 2005 Terms of Trade the indie sector was able to regain control of their commercial rights in the programmes they make for the BBC, and have spent considerable time and effort building a market for these programmes. In partnership with BBC Worldwide and other distributors, radio indies are selling documentaries, features and series around the world via services such as iTunes. With radio budgets at an all time low, commercial exploitation is one of the few ways radio indies have to earn additional revenue (which is shared with the BBC, helping to bring in much needed additional revenue for the Corporation) from their creative endeavours. If the BBC were to make a large number of docs and features freely available to the market, it would destroy the emerging download to own commercial market and remove once ! again a source of additional revenue from radio indies. With no appreciable increases in the Indie Quota in radio, and near-impossible budgets, RIG contends that the Trust and the BBC Management are being short-sighted in applying to radio the proposals designed ostensibly for the TV market, and would call on the BBC Trust to engage in a meaningful discussion with the radio sector, both in house and independent, in order to examine the realities of enhanced online proposals on what already offers superb and unarguable value for money. [3] It is important to remember that as technology develops ‘Listen Again’ will in effect become a FREE download and indeed for those who have the necessary equipment it already is, with piracy an evolving problem. It is vital that as underlying rights holders we fiercely protect our interests, our rights, our revenue and our copyright. Voice of the Listener and Viewer The Voice of the Listener and Viewer is pleased to be able to respond for a second time to this proposal. Voice of the Listener & Viewer (VLV) is an independent, non-profit-making association, free from political, commercial and sectarian affiliations, working for quality and diversity in British broadcasting. VLV represents the interests of listeners and viewers as citizens and consumers across the full range of broadcasting issues. VLV is concerned with the structures, regulation, funding and institutions that underpin the British broadcasting system. VLV does not handle complaints. Before covering the questions you particularly ask us to address we wish to make the following general points. 1. Most of the broadcast content and online material provided by the BBC is unique in that it is paid for by the annual licence fee. The content is driven by some or all of the six purposes enshrined in the new BBC Charter. This gives the licence fee payers a special relationship to the material and a unique “ownership”. We consider this gives certain rights to the access and use of the content. 2. The TV channels, radio stations and websites do not carry advertising as they are funded from the licence fee. 3. Much of the content is not available from other broadcasters in such quantities e.g. new music, experimental drama and new comedy. The contribution of the BBC to speech radio and live music broadcasting is unique. 4. The ability to defer listening or viewing is not new. For decades licence fee payers have been able to link receivers to recording devices via a timer and defer consumption of a programme to a more convenient time. The internet has seen a quantum leap in the sophistication of the process; however the principal of deferred consumption and storage of programmes is not new. 5. We welcome the process used for the first time to assess the BBC iPlayer. This has enabled the participation of the public and the provision of a lot of information about this change. Response to Questions 1. Do you agree with the BBC Trust’s proposal to approve the new BBC on-demand services, subject to the modifications outlined in the Trust’s report of its provisional conclusions? We fully support the proposal for this new on-demand service but give below at questions 3,4 and 7 reservations about some of the modifications suggested by the BBC Trust. 2. In a market in which most broadcasters are expected to be offering on-demand services, would you agree that it is a priority for the BBC to be investing in this area? In a multiplatform world we agree that BBC content should be available on all platforms. 3. The BBC Trust has proposed setting a limit of 30 days as the amount of time that programmes can be stored on a computer before being viewed. As this is a nascent market, there is currently no clear standard on the length of the storage window. On balance, the Trust thinks 30 days is the right length of time. How long do you think consumers should be able to store BBC programmes on their computers before viewing them? The amount of time licence fee payers should be able to store programmes before viewing them should be at least as long as other broadcasters - 30 days should be a minimum. Viewers will only have 7 days to access programmes after the initial download. Given the medium to long term value of much content, due to the six purposes of the BBC enshrined in the new Charter, we ask the Trustees to significantly extend the 30 day storage and 7 day viewing window for high profile series and similar single landmark programmes. 4. The BBC Trust concluded that public value would be created by allowing series stacking. This would allow viewers to catch-up with all episodes of a series for the duration of its run. The Trust recognised that although it would provide increased opportunities to view BBC programmes, it could also deter people from buying DVDs or using commercial video-on- demand services. Do you consider series stacking to be a useful feature? What kind of series would you expect to be included? Should there be any limitation on the number of episodes of a series made available for catch-up or the length of time for which they can be viewed? We support the proposal to allow series that have a unity or other landmark features to be stacked and less significant programmes and soaps to be available only for deferred viewing for 30 days and 7 days storage. If the Trust adopts our suggestion for an extension of the 30 and 7 days for series that have a unity or other landmark features and similar single programmes then licence payers will be able to gain the maximum benefit from programmes. 5. How important is it that the proposed seven-day catch-up service over the internet is available to consumers who are not using Microsoft software? We believe in plurality in all media and platforms so support the requirement for the iPlayer to be available to users who do not have Microsoft. While recognising the current technical concerns we do not consider that a solution should take 24 months and would hope licence fee payers who do not have Microsoft Software will be able to access the iPlayer by the end of 2007. 6. Should the BBC be allowed to offer book readings from its radio services as audio downloads over the internet? We welcome the facility to download book readings and support the distinction between abridged works that can be downloaded and unabridged readings that cannot. Most of the radio output in this genre is of significantly abridged works. While unabridged downloads could represent unfair competition to commercial recordings abridged readings could stimulate the market. 7. The BBC Trust concluded there was fine balance between public value and market impact in deciding whether to allow the BBC to offer audio downloads of classical music. While such downloads could help introduce new listeners to classical music, they could also deter purchases of commercial recordings. What is your view on whether – and to what extent – the BBC should be allowed to offer radio broadcasts of classical music as audio downloads over the internet? We recognise the importance of CD sales to the economics of classical music-making, however we consider that the MIA finding on the effect of classical music downloads from BBC radio misjudges the programme content. A significant amount of the output is from “in house” ensembles. The BBC ensembles are unique in the amount of unfamiliar repertoire and new music they perform. This is a direct result of the funding from the licence fee. We consider that the BBC “in house” performances should be available for download in the same way as all other programmes funded by the licence fee. They are no different from broadcasts of live non-classical music performances broadcast by the BBC. 8. How important is it to you that the BBC provides some means for parents to control which of its programmes are accessible on-demand to children? Is such a facility necessary or is it more a matter for parents to exercise controls over how children use the internet? It is primarily the responsibility of parents to control which programmes their children access but the on-demand services do partially remove the watershed. Therefore it would be helpful if some means should be provided to help parents exercise control over access to material they consider unsuitable for their children. This should not delay the introduction of the service. The benefits of time shifting and stacking of programmes for use at a time convenient for parents and children outweigh any possible problems of access to post watershed material. 9. What are your views on whether the BBC should offer content from non-BBC providers on the on-demand service on its website? The iPlayer is a BBC service and, if it includes non BBC material, especially supported by advertising, would dilute the service and potentially confuse the listener and viewer. They might not be able to distinguish BBC and non-BBC content and think they are paying twice; watching material paid for with advertising that they have already paid for via the licence fee. 10. What are your views on whether and how the BBC should make available on-demand content on services run by other providers – such as multi-channel services or internet-based audio and video downloading services? We consider that BBC content should be available on all platforms and this should apply to the on-demand service providing this content. 11. Do the revisions proposed to BBC Service Licences to allow the new services to go ahead seem appropriate? In general the proposed revisions to the BBC Service Licences are appropriate but we hope the Trust will incorporate modifications to accommodate our concerns at questions 3, 4 and 7 above and note our comments at questions 5, 6 and 8. 12. Are there any other issues you would like the BBC Trust to consider in relation to the proposed services? Beyond our introductory remarks we have the following comments to make: (a) The use of this service requires access to the internet and, for the TV element, broadband. Internet penetration may have plateaued at between 60% and 70% of the population. Some of the 30% to 40% without internet access may not want this service. While on-demand services are not central to public service broadcasting some will be denied access, often the elderly and those on low incomes. We do not have a solution to this but note the development. (b) The efficient collection of the licence fee is essential to maintaining the income of the BBC. We consider that the Trust has down-played the potential loss of income from a switch to internet viewing. Digital switch over might result in a move from conventional TV sets to other receivers. (c) Two of the services are already available for radio listeners, seven day catch up and simulcast over the internet via radio player. The value placed on this service by listeners was indicated by the JICTAR figures for the last quarter of 2006 which showed a continuing increase in deferred listening. It is essential that all the existing facilities along with the access to the archive migrate seamlessly to any new on-demand service. (d)We consider that the facility to bookmark programmes in advance of transmission for later downloading is a useful aspect of this technology. It should be made available to licence fee payers as soon as possible. 13. Do you have any comments on the process followed by the BBC Trust in performing this PVT? We have concerns about the short length of time allowed by the Trust for consultations. We may also have detailed comments about the layout and ease-of-use of consultation material. However, these apply to the general approach of the BBC Trust to consultation rather than this specific consultation. We hope to make detailed comments at a later date. March 2007