BBC Trust BBC mobile Apps Trust final decision July 2010 BBC Trust / Trust final decision Contents Summary 1 Background to the Trust's consideration 2 How the Trust arrived at its final decision 3 Compliance with BBC Service licences 3 Test of significant change 3 Final conclusion 9 Summary The Trust has considered the BBC's proposal to launch mobile Apps for smart phones (the "Apps") and has formed the view that the proposals do not represent a significant change to the UK Public Services. It has therefore decided that a Public Value Test is not required. Clause 25 of the Framework Agreement provides that a Public Value Test (a "PVT") must be applied before a decision is taken to make any significant change to the UK Public Services (which can include introducing a new service or discontinuing a service). The PVT is a formal assessment process requiring the Trust to assess the public value of the proposed change, Ofcom to assess the market impact of the proposed change and two periods of public consultation. Ordinarily the overall assessment process lasts approximately six months and is an intensive and time consuming process. The Trust recognises its responsibility to undertake a PVT where there is evidence that a proposal constitutes a significant change.1 It also recognises that the purpose of clause 25 of the Framework Agreement is accordingly a necessary filter to ensure that the PVT is reserved for significant changes to the BBC's UK Public Services. Following concerns raised by newspaper industry representatives as to the BBC Executive's proposal to launch BBC Apps, the Trust decided to call in the proposal for consideration under clause 25 of the Framework Agreement. As set out in clause 25 of the Framework Agreement, whether proposals meet the criterion of significance is a matter for the judgment of the Trust. This document sets out the Trust's reasoning in arriving at its decision that the BBC Executive's proposals do not constitute a significant change to the BBC's UK Public Services and do not, therefore, require a PVT. In addition to its decision that the proposals do not require a PVT, the Trust is satisfied that, provided that the BBC makes its Apps available on other operating systems as soon as possible on fair, reasonable and non-discriminatory terms, the current proposals for News and Sports Apps are consistent with the BBC's regulatory requirements. The Trust expects the BBC Executive to ensure compliance with its regulatory requirements in respect of the BBC iPlayer App before launch later this year and the Trust will be updated accordingly. The Trust will also monitor the BBC’s progress in making the Apps available on other mobile devices. The Trust recognises that this is a rapidly developing area. By offering access to existing re-versioned content the Trust considers that these current proposals are consistent with BBC strategy. It noted that, separate from this provisional decision, the Trust is currently conducting a wide-ranging Strategy Review and is also conducting a public consultation on its Syndication Policy. Together those reviews are likely to consider the wider issues of the BBC’s longer term principles and priorities in distribution and syndication, with reference to universality and the public value created. 1 In this respect, the Trust noted that industry representatives referred to the comments made on 11 July 2006 by the former Chairman of the BBC to the Select Committee on Culture, Media and Sport as to when a PVT might be applied. 2 BBC Worldwide, the BBC’s commercial subsidiary which exists to secure commercial value for BBC content for the benefit of licence fee payers, offer Apps on a commercial basis outside the UK. Commercial activities are not funded by the licence fee and are subject to different regulatory requirements from activities conducted by the BBC’s UK Public Services. Commercial Apps are not therefore considered as part of this assessment. Background to the Trust's consideration The BBC Executive has proposed to launch ‘BBC News’ and ‘BBC Sport’ Apps, followed by a ‘BBC iPlayer’ App later in the year. Apps are third party software programmes that can be downloaded to mobile smart phone devices. The BBC Apps would provide improved mobile access to existing BBC Online content, for example by allowing users to directly access content through the App. However, the Apps would not provide any content that users can not currently access through a ‘web-browser’ on their mobile device. The Apps would be free to download for UK users from ‘apps stores’ and would not feature advertising. BBC Apps would initially be available for download on Apple devices, including the iPhone. Reversioned Apps would also be available for the Apple iPad device. Apps for other mobile operating systems would be launched in due course. The BBC Executive considers that there is a growing demand for mobile access to content given the amount of time that people spend out of the home, the evolution of mobile networks and the take-up of smartphone devices. Whilst the BBC has provided reversioned online content for mobile access, web Apps or widgets, for some time, smartphone Apps typically provide a faster and richer way of accessing content to accessing content through a mobile web browser. Further, given the nature of digital content, there are unauthorised Apps available in the market using BBC content which raises implications for the BBC's brand and reputation. The BBC Executive considers that providing its content as widely as possible is in the interest of licence fee payers and that there is public value in doing so given the quality and value for money of the proposed Apps. Accordingly, that the provision of BBC content through Apps contributes to the delivery of the BBC's public purposes. Following representations from industry earlier in the year the Trust's Strategic Approvals Committee determined that there was sufficient concern and evidence regarding the nascent nature of the Apps market and the emergence of pay access business models to lead it to conclude that the Trust should assess the potential significance of the BBC's proposals to launch Apps for mobile smart phones and consider whether a Public Value Test should be applied. 2 The Trust accordingly asked the BBC Executive to suspend the launch of the Apps pending the outcome of the Trust's consideration of the proposals. On 24 June 2010, the Trust considered the BBC's proposals and formed the provisional view that the proposals did not represent a significant change to the UK Public Services and it was accordingly minded not to require a PVT. Before reaching a final decision, the Trust decided to provide those organisations that had expressed concern to the Trust with an opportunity to make any final submissions to the Trust. The Trust received further representations in July and has taken account of relevant considerations raised in reaching its final decision. 3 The BBC Online service licence is available at: http://www.bbc.co.uk/bbctrust/assets/files/pdf/regulatory_framework/service_licences/online/2010/bbc_online_may10.pdf How the Trust arrived at its final decision In considering the potential significance of the proposals the Trust considered two key questions: a) Are the proposals covered by current service licences or do they require a variation to service licences? b) Do the proposals represent a significant change to the BBC’s UK Public Services requiring a Public Value Test? Compliance with BBC Service licences The Trust considered the proposals against existing service licences and determined that no variations to the wording of the service licences would be required if the proposals were to launch. In particular, the BBC Online service licence currently allows for the provision of downloadable Apps and the syndication and re-versioning of content for mobile platforms. It also allows for BBC iPlayer to simulcast BBC content over mobile internet protocol networks.3 Noting the recent development of mobile networks and smartphones, which enables users to access BBC Online content through browsers on mobile devices, the Trust considered that the proposals would not fundamentally change the way in which BBC Online content is already made available to users. Existing content would continue to be delivered over the same platforms, albeit through an enhanced interface and with enhanced functionality. Nor would the proposals deliver specific one-to-one content to users. The same content would be delivered to all users, although genres could be customised along similar lines to the current customisation possible of the BBC’s online pages. Test of significant change A Public Value Test (PVT) must be applied before a decision is taken to make any significant change to the UK Public Services. Whilst the Trust considered that the proposals do not require a variation to the wording of the BBC service licences, following representations from the industry which appeared to have some force and evidence, the Trust considered it appropriate to call in the proposals to consider whether the proposals constitute a significant change to the UK Public Services. In deciding whether a proposal constitutes a significant change to the UK Public Services, the Trust must have regard to the four considerations set out in clause 25(2) of the Framework Agreement. That is, the impact, financial implications, novelty and duration of the proposed change. 4 Representations received in July suggested that the Trust's acknowledgment of the benefit of this feature would be at odds with the findings of the Trust’s Service Review of bbc.co.uk in 2008. In this review the Trust raised concerns that personalisation of BBC Online could lead licence fee payers to potentially opt-out of news consumption. The Trust noted that its concern at the time of the Service Review focused on the ability for users to potentially personalise bbc.co.uk so as to by-pass all news content or to avoid items related to areas such as politics or foreign affairs. The Trust believes that by downloading a specific BBC News or Sport App users would actually be stating a preference for consuming more News and Sport content and would not therefore be in conflict with the conclusions of the Service Review. The Service Review also recognised that the Trust believes that without investment in content and such areas as improved search and navigation, Given that the market for Apps is nascent and evolving rapidly, the Trust commissioned external consultants Mediatique Ltd (“Mediatique”) to provide a report on the market context and possible future trends to enable the Trust to better understand the context. The report is published alongside this document. The Trust has taken account of the market analysis undertaken by Mediatique and has noted that the sampling employed in the report was intended to be indicative only and to identify the relevant business models. On this basis it is maintained that the sample of news and other Apps is illustrative of the general market trend. The Trust has accordingly found the report useful in this context. It has, however, formed its own view as to the significance of the proposals and has not relied on comments or analysis provided Mediatique which were not expressly commissioned. The Trust's consideration of the four factors set out in clause 25(2) is detailed below: Impact The Trust looked at the potential impact of the proposals on users and others. Recognising that it is not possible to definitively establish the incremental impacts of the proposals on users and others, the Trust assessed broader market trends and dynamics in attempting to reach conclusions. In assessing impact on users and others, the Trust considered the number of users that could potentially access the proposals. As the proposals would be offered free at the point of use, and given the BBC’s cross-promotional capabilities, the Trust considered it likely that a majority of current users accessing BBC Online through Apple devices might download one or more BBC App. Whilst the proposals will initially only benefit licence fee payers with access to an Apple device, the number of users downloading a BBC App would also be expected to grow over time as smart phone penetration grows and the BBC extends its offerings to other mobile devices. The Trust noted that the popularity of the BBC Apps (as well as other respected brands) could also be supported if BBC Apps appear in top-score rankings which are commonly used by browsers to search for new Apps. The BBC’s proposed Apps could therefore be popular and of similar scale to Apps provided by other large content providers. Impact on users The Trust considered that the proposed Apps would deliver incremental benefits to users in the form of greater convenience (as Apps would provide direct access to content, rather than requiring users to browse through web-pages); quality (as Apps allow more data to be stored to handsets, providing greater reliability and limited offline access to content); and personalisation (due to the opportunity to personalise content and to share articles or personal contributions with other users).4 The existence of un-licensed Apps created by personalisation and audience participation, BBC Online will lose its appeal and thereby be hampered in its ability to promote the public purposes. In addition, the proposed Apps would not enable users to delete or remove ‘breaking news’ or ‘top stories’ categories from the top genre positions. third parties offering BBC content also suggests that there is both a latent demand from users and requirement for official BBC offerings. The Trust expects that these benefits would have a positive impact on users. In reaching this view the Trust notes that some users are currently accessing un-licensed BBC Apps and that Apps from other content providers have proved relatively popular, even when the same content is available through a mobile web-browser. This suggests that users value the additional functionality provided by Apps. The Trust noted, however, that the impact on users should not be overstated for the following reasons: • The proposals would not deliver any new content beyond that which can currently be accessed via a web browser. • The proposals would deliver greater convenience, such as faster access to content, although the time differential between accessing content via an App and web browser may not necessarily be large. • Many of the features, such as personalisation or content-sharing are already present through web pages. • Over time the incremental benefits of Apps in terms of access speed or functionality could reduce as web browser technology improves. However, in determining that the proposals would be expected to have an overall positive impact on users, the Trust noted that as Apps grow in popularity it expects the BBC to offer Apps on other operating systems as quickly as possible on fair, reasonable and non- discriminatory terms. Impact on others The Trust considered potential markets and whether the proposals would have an impact on other providers of Apps. In this context, the Trust also considered industry representations, which included assertions that there would be a large degree of overlap between the BBC proposals and commercial offerings, that BBC Apps would be advertising-free and would compete with advertising-supported Apps and that the BBC Apps would have a negative impact on the uptake of advertising-sponsored Apps. It noted that, given the proposals will not provide new content, the only substantive feature in which the proposed Apps could be considered a distinct consumer offering is that of faster access to the underlying BBC content. It noted from Mediatique’s report that there are already a wide range of free news and sports Apps in the market, including large content providers and brands. As regards whether the BBC's proposed Apps would have an impact on free Apps which are supported by advertising, the Trust considered that while the BBC does not compete for advertising revenues, it is possible that the BBC could reduce the volume of usage of other Apps and hence advertising revenues. Whilst noting the potential for overlap with other free Apps, the Trust considered that the degree of overlap will depend on the type of content offered by other providers of Apps. The Trust also noted the following: • That there are currently a wide range of established free alternative providers in the market so the BBC would not be the only free App. The incremental impact of the BBC App could potentially be reduced where there are a range of other free high-quality offerings. • BBC content is already available through a web browser – the incremental impact of the proposals may therefore be limited, especially if a proportion of the audience are already accessing BBC content or unofficial BBC Apps. • There could be a degree of demand-side substitution between Apps as well as other content sources – access to Apps is non-exclusive, so downloading an App does not prevent users from downloading other Apps. Some users could also be ‘promiscuous’ in their consumption, that is they could regularly access a range of Apps and a variety of news and content sources. The Trust considers that it has sufficiently identified and assessed the likely outcomes of the BBC’s proposals, in terms of the impact on free advertising sponsored Apps, through the analysis presented in this section. As stated above, the Trust’s analysis accepts that there could be potential overlaps with the news provision on other Apps, especially between advertising-supported proposals (paid for Apps are also considered below). In assessing impacts the Trust also took full account of the proposals presented by the BBC Executive, including the fact that the proposed Apps would not include advertising. To some extent this could potentially make the BBC offering relatively more attractive to users than similar offerings with advertising. However, there is no evidence to suggest that this would be a major factor for users in determining which online or mobile content source to access. In addition, this would not change the fundamental analysis discussed above, for example that the BBC proposals would be competing against a range of high- quality offerings, that users could currently access BBC content through their web-browser if advertising-free content was important to them, and that users may seek a variety of news and content sources. It is also not self-evident that this current position would change over time. We do not therefore believe that this points to evidence that the BBC proposals would have a deterministic impact on the long-term commercial viability of other operators. The Trust also considered whether the BBC’s proposals would undermine the nascent market for paid-for Apps and the ability of commercial providers to establish economic models, including whether business models based on a user-pays approach could potentially become unviable in future as a result of the BBC's launch of the free Apps. The Trust noted the analysis of the market and its future evolution supplied by Mediatique and that the market for Apps could trend towards predominately free provision. The Trust also considered industry representations which disagreed with this view and suggested that there is significant contradictory evidence that the Apps market is not tending towards free provision. The Trust noted the alternative reports relied on, which state that the majority of smartphone users would pay for an App and the degree of take up for paid iPad Apps launched by The Times and others. Acknowledging that there is inevitably some uncertainty regarding the future direction of the Apps market, the Trust does not believe that this evidence, which refers to the iPad only and a consumer survey of willingness to pay, supports the view of an alternative market outcome to the analysis provided by Mediatique. In such circumstances, where the market trends towards free provision, the Trust considers it likely that the online market and any variant of it will only support pay models where there is a specific hook, such as access to distinctive content or functionality. The Trust also noted that one of the most popular paid news Apps is that provided by the Guardian where users are charged for its download, but the same content is freely available online through a web browser and that it might be that demand exists due to the Guardian’s editorial approach or the functionality of the App. The BBC’s current proposals involve the means of access to, and re-versioning of, content rather than the creation of new content accessible only through the Apps. While the Trust considered that BBC Apps could be expected to be high quality and provide distinctive BBC online content, there is no evidence to suggest that their functionality will be entirely unique or substantially better than the other high quality offerings in the market. In addition, while news and sport content may be considered important content genres for some App providers, it would be unlikely that demand for paid-for news Apps would be directly impacted by the BBC proposals unless the BBC’s editorial approach is considered sufficiently similar to those Apps to dampen demand. Absent such evidence that the BBC is the closest substitute to such paid for offerings it is unlikely that the BBC App alone would cause the market to develop in such as way as to prevent others successfully monetising Apps. In particular, the BBC would only be one of a range of other free content providers in the market. The Trust also noted that Apps appear to have proved popular as a means of quickly accessing content which may, in part, be due to deficiencies in access speeds for standard online browsers. Further, that it is possible that access speeds could converge over time, due to greater re-versioning of sites for mobile access and improvements in web browser technology. The Trust noted therefore that whilst it was not possible to be certain regarding future market outcomes, it was possible that the speed advantage of Apps, and hence any potential impacts on users or others, could decline over time. Devices such as the iPad could also further blur the lines between mobile and online content. In this respect, the Trust noted that certain providers such as The Times have decided to charge independently for iPad access, whilst others such as the Financial Times and Sky News have not. The Trust considered its impact analysis in respect of the BBC News App was equally relevant to the proposed BBC Sports App, due to the similarities in the market dynamics for other content types. This analysis was also considered to be relevant to the proposed BBC iPlayer App, although there could be expected to be less overlap between this App and other offerings due the type of content and lower prevalence in the market of long- form audio-visual Apps. The Trust also noted that the proposals could have a transitory impact on handset providers and Apps stores through its initial exclusivity on the Apple platform. However, any impacts would fall as the BBC extended its offering to other operating systems. In terms of its overall impact analysis, the Trust accordingly formed the view that the BBC Apps would likely have an immediate positive impact on users with access to Apple devices and users of other mobile devices in the near future. Accordingly, that the proposals were a positive development for licence fee payers. Whilst the proposals could have some negative impact on other providers of Apps, the nature of the market and the BBC's later entry is such that the extent of any such impact is difficult to precisely determine and, taking appropriate account of the market analysis provided by Mediatique and the Trust's analysis, is likely to be limited and hence not expected to lead to a reduction in plurality in the Apps market. Industry representatives also proposed that any market impacts caused by the introduction of the BBC Apps could be reduced by the BBC licensing its content to third parties. In assessing the potential significance of the proposals under clause 25 of the Framework Agreement the Trust is not required to consider alternative proposals that are not before it for consideration. However, the Trust noted the potential difficulties in licensing BBC content, which must be provided free at the point of use, in this way and for use on a commercial basis within the UK within existing regulatory requirements. Financial implications The Trust considered the financial implications of the proposals and decided that they are low and not significant. For the purposes of assessing significance the Trust took a cautious approach by estimating the upper-range of costs, but notes that actual costs could be lower. On this basis it is estimated that the cost of developing all three Apps for the range of Apple products could amount to around £300k for the first year, and lower ongoing costs thereafter. It is also estimated that total development costs of delivering Apps for Apple and three other major UK mobile operating systems would be under £1 million – which is equivalent to 0.7% of the BBC Online annual budget – and that actual costs would potentially be lower. Costs would also be phased over time in line with the roll out of Apps and additional operating systems. Costs are therefore substantially less than 10% of the current BBC Online service licence budget, the level which may entail variation of the licence and approval from the BBC Trust. Novelty The Trust accepted that while the BBC has not previously offered mobile Apps of this type before it has offered web Apps on mobile devices. It also currently optimises online content for mobile distribution. Based on these two factors the Trust does not consider this to be a new area of activity for the BBC. The Trust also noted that while the market and business models such as paid Apps continue to evolve, a number of free news and sports Apps have been made available for some time. The Trust considered that the proposals would not involve the BBC in a new area of activity, as yet untested and on balance considered that the proposals are not therefore novel. Duration It is expected that the duration of the proposals would, in principle, be unlimited once launched. However, the Trust noted that it is required to consider all the relevant factors under clause 25 and that this alone does not mean it is a significant change, taking account of the other factors. Final conclusion The Trust’s requirements in relation to the application of the PVT are clearly established in the Charter and Agreement. Having taken into account the above considerations, the Trust’s view is that the proposals do not represent a significant change to the UK Public Services. In particular, the current proposals involve a means of access to, and re- versioning of, BBC content rather than the creation of new content accessible only through the Apps. Further, that BBC content is already available through mobile browsers. It therefore decided that a Public Value Test is not required. The Trust considered suggestions that it should delay the proposal for 12 months to allow the market to develop or impose a time limit on the proposals, bearing in mind the delay to the initial launch date proposed by the BBC Executive of April 2010. The role of the Trust in relation to these proposals is to assess their potential significance and accordingly whether a PVT is required. In this instance, the Trust considers that the proposals are not significant and it is not therefore appropriate to seek to impose conditions on the launch of the BBC Executive's proposals. The Trust is mindful that the significance of the proposals will depend, to an extent, on how the Apps market develops in the future and that the launch of the BBC's Apps should be appropriately monitored. Noting the Executive's internal advice that the competitive impact of the proposals should be reviewed six months after launch, the Trust expects the Executive to undertake a review of the proposals at that time in order to ensure ongoing compliance with regulatory requirements. In circumstances where the BBC's Apps have an unanticipated impact on the market it will remain open to the Trust to call the proposals back in for further consideration or to consider any fair trading complaints on appeal. In reviewing the BBC's proposals, the Trust also noted the strategic context for the proposals and formed the view that the proposals are line with previous BBC activity. For example, the BBC has previously offered a range of basic web Apps for other mobile devices, such as shortcuts to content or RSS feeds. The proposals are also in line with current market trends including the growing penetration of smart phones and mobile internet usage. The Trust recognises that this is a rapidly developing area. By offering access to existing re-versioned content the Trust considers that these current proposals are consistent with BBC strategy. It noted that, separate from this decision, the Trust is currently conducting a wide-ranging Strategy Review and is also conducting a public consultation on its Syndication Policy. Together those reviews are likely to consider the wider issues of the BBC’s longer term principles and priorities in distribution and syndication, with reference to universality and the public value created.