Introduction Management has undertaken a full evaluation of the BBC’s strategy for radio supply. This report presents the findings and recommendations for the review of Independent Supply. A separate report has been provided for the review of Out of London production. The objectives were to: • Assess whether the current definition and governance of the quota is appropriate. • Assess the effectiveness of the current quota • Recommend options for improving effective competition (output quality) or business efficiency (value for money) • Assess whether the level of the quota is appropriate The process has included a number of interviews with a selection of independent suppliers and the Radio Independents Group (RIG), representing a variety of perspectives in terms of the scale, genres produced, and the networks or Nations stations supplied, as well as consulting internal stakeholders. The Trust is required to assess the operation of the independent quota under the conditions of the Framework Agreement. This may involve a public consultation following consideration of management’s report, and could include publishing information from this review. 1. Context BBC radio’s commitment to independent production has evolved separately from television, and it is not a commitment shared by any other UK radio broadcaster. The BBC has increased its supply from the independent radio sector in recent years, but remains the sole sizeable customer.1 The commercial sector is unlikely to offer additional support to the sector in the foreseeable future, with Channel 4 Radio withdrawing and Guardian Media Group, which received a £1m grant from the Scott Trust for independent production in 2007, indicating that its investment in independently produced programmes is not commercially sustainable. The absence of alternative customers in the market is a limitation on the sector’s development. 1.1. Commitments to Independent Production In 2006, the commitment to Independent Radio Productions was formalised within the BBC Charter Agreement at 10% of eligible hours2, following more than a decade in which BBC Radio had operated a voluntary commitment. Eligibility was significantly extended to include the digital- only services and the Nations stations, and included sports output for the first time. These changes added over 47,000 hours to the eligible pool of output from 2007/08, nearly tripling the number of hours available to the independent sector. Only Radio 4 has a network-specific target, ensuring a total of 20% of eligible output is available to the independent sector, with a minimum guarantee of 10%. Radio 4 is thus the only station formally committed to operating a window of creative competition (WoCC). 1 Independent producers supply programming for a range of commercial purposes (e.g. audio mixes, airline programmes, podcasts), however the BBC is the only sizeable customer for long-form speech output and specialist music programmes. 2 Clause 58 (“the BBC Agreement”). Eligible output includes first-run originated programmes, but excludes news output, continuity and trails 3 Excluding drama, comedy, music documentaries and specially commissioned live music performances. There is no requirement for BBC Local Radio or the World Service to use external supply, though World Service regularly commissions a small amount of business from the indie sector, particularly documentaries. Under the Terms of Trade, implemented from Dec 2004, indie producers retain programme copyrights and the BBC licences the programmes for a 10 year period. Producers can request early release of the licence if the BBC has no intention of exercising its remaining rights (although certain output is excluded from this)3,and independent companies are free to exploit content commercially after the first broadcast, within certain parameters. Following the birth of the television independent sector with the establishment of Channel 4, every UK public service broadcaster in television has been required to source at least 25% of qualifying hours from independent producers since 1992. The extent of this commitment reflects the discrete nature of television programming and a desire to extend the market significantly beyond Channel 4. The Terms of Trade agreement in 2004 provided producers with the programme copyright, with the commissioning broadcaster taking only an exclusive licence for a limited time period. The TV WoCC was introduced by the BBC in 2007, ensuring a total of 50% of qualifying network programming is available to independent production companies. The additional cost of managing and reporting the WoCC were met through the existing business structures and tools, with a team already in place. Radio was specifically excluded from the WoCC by the DCMS who concluded that it was an industry at a different stage of development. 1.2. Types of Commissioning The vast majority of network radio’s output hours are produced by teams integrated with the networks and do not undergo a commissioning process. Of the commissioned output, the majority of radio contracts are won through the regular commissioning rounds which invite pitches for ad-hoc output such as documentaries, features, comedies and dramas, and through a number of ad-hoc commissions which take place outside of the round, particularly if they are topical. Returning strands and series are put out to tender on a rolling basis and represent a large volume of hours, but only a handful of contracts (see below). The music networks are heavily dependent on these types of contracts in meeting their quota requirements. The formats for these shows are typically owned by the BBC and key talent is usually contracted directly by the BBC. Returning vs. Ad-hoc 2008/09 % of indie hours No. of indie titles Returning Ad-hoc Returning Ad-hoc Radio 1 99% 1% 12 21 Radio 2 90% 10% 27 76 Radio 4 27% 73% 7 396 Networks actively encourage prospective ideas to be offered outside of the rounds, for ad-hoc or for more substantial output. Radio 4 also issues a ‘Special Events and Seasons’ brief, and in the last commissioning round, Radio 2 formally invited these types of pitches through a new ‘Ideas Welcome’ brief. 1.3. Industry Structure The industry is comprised of a small number of relatively large players (turnover of £1m or more) and a long-tail of very small businesses. Two-thirds of indies received an income of less than £50,000 from the BBC in 2008/09. In 2008/09, the three largest players accounted for 25% of the BBC’s spend on the sector. However, this figure is significantly higher in 2009/10 as one indie fared particularly well in the Spring commissioning rounds. Within the industry there are also a number of talent-owned indies. Whilst some of these companies have diversified their business by producing other programmes, others remain single- programme producers. 2. Definitions & Governance Performance against the Quota Requirement is reported quarterly to the Executive Board within the BBC’s Compliance Report. In 2008/09, A&M sourced 13.7% of eligible hours from the independent sector and all Nations stations met their quotas (Scotland 17%, Wales 10% and Northern Ireland 10%). The Quota for network radio is not specific to individual services, and may be met from anywhere within the A&M portfolio. However, performance has historically been guaranteed by asking each network to meet or exceed the target percentage, secured within the annual Statements of Programme Policy. The Charter Agreement requires the BBC to ensure it has secured a “suitable range and diversity” of programmes provided by external suppliers. By virtue of individual requirements on each network, a level of diversity is guaranteed, with the sector supplying programmes as varied as Gardeners’ Question Time (R4), Formula One racing (5L) and the Westwood Rap Show (R1). The proportion of eligible spend with the indie sector has been consistently above 10% in recent years, though marginally below the performance based on hours. The slight skew reflects the expensive nature of particular forms of in-house output which require specialist skills and account for significant volumes of output, for example, live performances of classical music. Table 2.1 – A&M Independently Produced Hours & Spend 2005/06 2006/07 2007/08 2008/09 % by Hours 14.2% 13.5% 12.7% 13.7% % by Spend 12.5% 12.8% 11.8% 12.0% The current requirement is based on hours of output, rather than spend which is a simple and transparent approach to measurement. There are no recommended changes to the definitions of the quota, or governance procedures. 4 Analysis based on the full contact list for independent producers, including potential suppliers. It is worth noting that Radio 4 has one of the lowest levels of eligible output of any of the networks, accounting for less than 7% of A&M’s total eligible output; it broadcasts World Service overnight and has a high proportion of news and repeats. However, Radio 4’s output has a high cost per hour and thus accounts for over 40% of the BBC’s spend on the independent radio sector. 3. The Effectiveness of Independent Supply In this review, we have evaluated the sources of value that the independent sector can offer the BBC, in particular seeking to identify where this value is distinctive to that offered by in-house production. In summary, there are three main potential sources of distinct value: developing talent from a variety of locations and industries, distinctive innovation driven by differences in the production model, and potential efficiency savings. Changes in commissioning processes are recommended to underpin these sources of value. 3.1. Developing talent Independent supply has the potential to diversify the talent base working within the radio industry and to represent a range of geographic locations beyond in-house production bases. Independent companies can also sometimes provide access to specific talent, for example where producers hold specialist music knowledge, or in suggesting on-air talent who may not have been previously considered. Although the nascent independent sector began with a large influx of ex-BBC staff, the leading companies have demonstrated success in developing staff from many others areas within the creative industries, and some companies claim that fewer than 30 per cent of employees have ever worked in-house. There are only a small number of companies who have the scale and stability to retain a permanent body of staff, and to invest in training new producers. Approximately half of the members of the industry body, RIG, are classified as ‘small’, with less than 5 hours of network business per year and only a quarter are classified as ‘large’, which requires just 10 hours of output to qualify. The industry’s structure is in part the result of the fractured nature of BBC commissions, with c. 40% of contracts issued worth less than £8,000. The preponderance of small one-off commissions leads to extensive use of freelancers and contractors, instead of full-time staff. Over 40% of independent companies registered4 with the BBC are based outside of London, and 33% of A&M’s spend on independent production is outside the M25 – more than half of which is with just 4 companies. There is some diversity in the locations, with a number based in Yorkshire and the South, although the majority are clustered around existing BBC production bases (particularly Manchester and Glasgow) where they can draw on the in-house pool of talent, and where the Nations stations provide additional business to the sector. Out of London companies may benefit from lower overheads, however they incur more costs in attending commissioner meetings and pitching sessions than London-based producers. 3.2. Distinctive Innovation Indies have established a strong track record in delivering innovative programming for network and Nations radio in certain areas and the sector’s success in Sony Awards has demonstrated that indies are capable of competing effectively with the quality of in-house teams. Performance in 2009 Sony Awards 864046111718Total20%937All Awards36%47Bronze25%1030Nominations22%1967Grand Total12%215Silver17%315Gold% indieIndieIn-house864046111718Total20%937All Awards36%47Bronze25%1030Nominations22%1967Grand Total12%215Silver17%315Gold% indieIndieIn-house Independent producers have given us examples of how their business model requires producers to work flexibly across multiple genres of output, as well as across the different services. This pattern of working is relatively rare for in-house producers who typically specialise in working for specific networks or genres. In 2008/09 alone, 24 companies supplied three or more different A&M services. In addition, external companies may also work on media production of audio output for commercial competitors potentially stimulating innovation in working practices. A number of examples were cited to illustrate how speech production might be mixed with music, or factual with drama, as a differentiator for an independent producer – even if they were ex-BBC staff. As part of the Out of London review, we found some of the smaller in-house production teams based outside of London also indicated this flexibility of work is benefiting their output creatively too. Some independent companies have also extended their business into digital media and are now able to offer interactive packages with their programmes, particularly important for the music networks. Independent producers are keen to apply their skills in new areas of business, wherever opportunities exist. In some areas, such as drama and light factual output, there are relatively low risks to the BBC involved, provided the company has established a track record in related types of output. In these instances, the skills gap may be small enough that the BBC can offer assistance in nurturing the additional production skills required. To support this skill-building, A&M holds an openly-competed development fund centrally. Recommendations: Developing talent 1. Improve access for out of London production companies to network commissioners. 2. Improve the stability of business and decrease dependency on small ad-hoc one-off commissions, for example using batch tendering, and ensuring a mix of short series / strands business is available. This will allow greater consolidation and support the sector in developing its own staff base. 5 There are 10 registered supplier lists organised by genre and timeslot (e.g. separate list for 1530 Afternoon Reading vs. 2245 Book at Bedtime) 6 Radio Independents Group Survey of Radio Commissioning 2008. 80% of independent companies submit proposals to Radio 4 in every round, and 37% to Radio 2. Radio 4’s registered supplier lists are specific to commissioning briefs5 and can pose a barrier to the growth of business who may be on one list but not another. This was identified as a particular issue in readings, where Radio 4 is the only customer for this particular genre of output and where experience cannot be gained elsewhere. Existing indies with an established track record in adjacent areas feel strongly that they should not be prevented from building new areas of business which have the potential to strengthen their overall portfolio of work. However, in some specialist areas, particularly investigative journalism and hard-edged news and current affairs strands, the editorial risks are large and the breadth of skills needed is very difficult to obtain. In instances where less experienced suppliers have attempted to produce these types of output, extensive support has been required from the BBC well beyond the programme budget. The BBC has sourced certain ‘hard edged’ television news and current affairs strands, such as Question Time, from indies by investing in full time in-house executive producer support to provide ongoing advice to the production team. Such an investment of resources is not economically viable in radio, given the much smaller programme budgets. These competitive constraints are also evidenced by the pattern which appears in the distribution of independent offers, with Radio 4’s commissioning briefs for plays, music documentaries and popular arts well over-subscribed, but relatively few proposals for Wednesday debates, politics and narrative histories and they are most typically offered by ex-BBC staff. With 10 network stations, 5 Nations stations and the World Service all working to a similar calendar of broadcasting seasons, there is some inevitable overlap between commissioning rounds. Both in-house and independent producers described a high burden associated with the rounds, and suggested that limiting the overlap between the deadlines would provide more creative space and opportunities to work across multiple networks. In particular, the deadlines for Radio 2 and Radio 4’s commissioning rounds have been scheduled within a week of each other three times in the last 3 years, even though they are the two networks most commonly pitched to.6 3.3. Efficiency Profit incentives should drive independent companies to seek cost efficiencies, particularly in producing ongoing strands. The BBC’s strong buying position in the radio industry has meant that substantial cost savings have been achieved. However, although we recognise these savings, we have not been able to demonstrate conclusively that independent productions are more efficient than in-house, once all costs are accounted for. Detailed benchmarking undertaken in the last year shows that a significant proportion of cost differences between independent and in-house Recommendations: Nurture innovation 1. Work with the sector to agree cost-effective initiatives to support skill-building in the industry. 2. Simplify R4 registered supplier lists to support business development amongst proven suppliers. This would permit ‘horizontal’ growth, without affecting qualification requirements for new companies. 3. Coordinate the timings of commissioning rounds to reduce overlap in deadlines, thus providing producers with space to pitch to multiple networks. 7 Pre-offers are provided to commissioners as a short summary paragraph. Formal rounds have a specified word limit. 8 Assumes 0.5 days to work on a pre-offer, and 3 days for a pitch in the main round. production is driven by the editorial specification of the programmes and that there are few process differences between different production bases. 4. Business Efficiency Conducting business with independent companies incurs additional business costs, not only to administration but also in the commissioning and development process, and the impact on economies of scale for in-house production. This review has identified a number of measures that will improve business efficiency of commissioning and development. Commissioning & Development In a recent Radio 4 commissioning round, 1,666 pre-offers7 were received from the indie sector, of which a quarter were worked up into full pitches, and only 7% of the original offers received commissions. In-house producers pitched over 1,000 pre-offers into the same round and achieved a higher success rate of 22%, due to internal limits on the number of pitches. Producers are aware that the level of competition has been increasing over time with more companies in the sector than ever. However, they do not have access to data on the overall rejection rates, which would inform their business decisions on where to invest development effort. Although it is not possible to accurately measure the total industry-wide hours involved in this process, we estimate that more than 3,000 producer days8 may have been used in developing ideas which were ultimately rejected. The actual commissioning budget from the round would have provided funds of less than £1m for producer time. Much of the development time could be reduced by limiting the number of main pitches requested, following the pre-offers round. Pressure on commissioners has also intensified with the level of competition, since each offer needs to be assessed, and feedback is expected for every rejection, often requiring face to face meetings. The opportunity cost of this feedback is a reduction in the time commissioners spend in helping producers creatively develop programmes which have already been commissioned. Current arrangements are not sustainable and the approach to feedback and programme evaluation should be reviewed to ensure an appropriate balance between quality and volume. Staffing 94% of A&M staff are on permanent contracts compared to 43% within Vision for three main reasons: • Returning strands account for well over 90% of A&M’s output, with about 70% in strands that have been running for at least 4 years. Permanent staffing is more efficient. • A static labour pool: television has a more diverse employment market whereas the BBC is the only scale employer of radio producers with the specific skills required to produce BBC output. • Staff retention: a market of freelancers is not sustainable as limited opportunities and job instability leads individuals to change industry. Permanency is a key benefit of radio work over television production. Figure 4.1 – Comparison of Staff Contracts 43% 94% 34% 6% 15% 7% Vision ProductionsA&MPermanentFixed contractFreelanceCasualsStaff by Contract Type These market conditions mean significant changes to the composition of staff are practically impossible to achieve and this inflexibility means that there is a high implementation cost associated with changes in the level of independent production, as well as difficulty in managing open competition efficiently. Studio Utilisation Radio production is dependent on studios, with far fewer programmes requiring significant spend on on-location recordings, compared to television. The load on internal studios and associated studio staff is affected by the use of external suppliers, who may choose to use alternative facilities outside the BBC, but the fixed cost of empty studios cannot be recovered until buildings are disposed of or re-fitted. Independent companies almost always use BBC studios for live productions as the requirements of the studios are extensive, and this helps to maintain studio utilisation. Nevertheless, it may be possible to increase the leasing of studio capacity for pre-recorded output, for example, in off- peak periods. Recommendations: Minimise impact on business efficiency 1. Reduce commissioning and development burdens by: - Publishing success rates of previous commissioning rounds to provide transparency and support producers’ decision-making - Cap the number of pre-offers per company into particularly low volume slots (e.g. < 25) - Restricting the number of pitches following a pre-offers round 2. Review system for evaluating and providing feedback on production performance. 3. Establish workstream to review approach to studio pricing 5. Appropriateness of the Quota 5.1. Guaranteed level During this review, we have critically assessed the role of in-house production and the public value generated by BBC production. The uniqueness of BBC radio output means that work within the industry depends solely on the quantity of originations, of which there is a limited, and decreasing, value. Radio production teams are lean, with even the largest speech teams in A&M employing fewer than 90 people for over 1,000 hours of output. In the integrated networks, the ratios are even larger, with an average of over 100 hours of originations on Radio 1 per production staff. There are three critical considerations which underpin the need to maintain in-house production at significant scale: 1. Editorial control: Each radio station requires a core hub of programming to provide strategic control over the station’s sound, brand and reputation. This also sets the standard for external productions. In-house experience is also critical for a small number of productions which are highly editorially sensitive, for example within news and hard- edged current affairs. 2. Unique capability: Some output is reliant on a large investment in specialist skills and equipment. There may be too little work available in the area to support a competitive market. These are situations of natural monopoly in supply, and the skills should continue to be provided solely by in-house teams, for example, in the live broadcast of classical music. Some programming also requires access to internal resources and networks, e.g. large-scale cross-media events. 3. Industry training: The scale of in-house production supports a high quality training infrastructure, through both formal training and on-the-job development. The balance of output between in-house and the independent sector is important in all genres to ensure the required production skills are built up across the whole industry, particularly as there are no alternative broadcasters to provide this. In addition, a mix of internal programmes is required to provide in-house producers with a clear internal development path. In addition, the extent to which independent productions can offer distinctive benefits to the BBC depends on the degree to which each station is integrated. The production model varies by station according to the type of output broadcast. With integrated production, programmes are largely driven by centralised decision-making and the sound across all of the station’s output is consistent. This includes the scheduling of music, setting promotional priorities, managing systems and the teams for live music output. Central planning is also needed to ensure output is coordinated between programmes preventing inappropriate overlaps or clashes. For example, this is the case for planning archive use on 6 Music and Radio 7, and classical music on Radio 3. In these areas, the production of individual programmes depends on the centrally determined inputs and cannot be easily separated for production by non- integrated teams. Separating production is also less efficient: Radio 2’s overnight strands, produced in Birmingham, were reintegrated with the London team this year as a cost saving initiative. Scope is therefore limited for independent producers to offer creative and efficiency benefits, given that programmes rely so heavily on centralised functions. There are more possibilities for using independent supply in areas where output is not integrated, or where the programme is not strongly linked with the central network team, but this represents a relatively small proportion of A&M’s output. Whilst Radio 4 does not organisationally have any integrated production teams, it is co-located with the General Factual team which is responsible for producing the station’s core live strands, such as Woman’s Hour. The General Factual team does not supply any other network, and its output accounts for around one-third of Radio 4’s eligible output. In areas where independent production may be beneficial, for example specialist music programming, there is a strong case for retaining a proportion of this output in-house, to sustain production capability and training. Having reviewed A&M’s current schedules against these considerations we have found limited scope to increase the current quota level beyond 10%. However, management recognises that the current level of independent production is sustainable, and proposes that the present performance is locked-in with a 12.5% guarantee. Setting an increased target for Radio 4 will have a real impact on in-house production staff as some additional output will be guaranteed, rather than won through the WoCC. To accommodate these shifts, the changes in Radio 4’s commitments would need to be phased in over a 2 year period to allow HR planning and provide sufficient implementation time to switch between in-house and independent production. This is particularly difficult if output is continuous throughout the year and has no break in production to aid the transition. Furthermore, the commissioning process for 2010/11 is already complete. Implementing the required changes will have an impact on in-house staffing levels, and though the full impact has not been calculated, we will review costs and prices to ensure that this is at worst cost neutral. Other networks will be able to meet the increased requirement through current and planned programme tenders. We highlighted the disparate structure of the radio independent sector in previous sections, and the benefits to the health of the sector that greater consolidation might bring. The BBC will make operational changes to support the sustainability of business, helping the sector to improve the level of permanent staffing, training and development. However, the long-term scope for further growth of independent supply to BBC network radio is limited by the continued importance of strong in-house capability. Separate assessments of each Nation’s radio station are needed, as each station operates its own commitment to independent production. Differences in the composition of output suggest that the appropriate level of independent production is likely to differ between Nations. For example, the level of independent supply for Radio Scotland is significantly above that of other Nations stations, reflecting the larger amount of speech content in its schedule and a labour market supported by a relatively strong local commercial market. 5.2. Open Competition Radio 4 is the only network with a formal commitment to open competition through an official WoCC. This in effect limits the size of in-house guarantees that the network can offer, ensuring that at least 20 per cent of output is available to the independent sector overall. We have assessed whether it is appropriate to extend the WoCC, either on Radio 4 or by application to other networks but believe it would have negative consequences for the sector. The WoCC creates additional unseen costs to the industry by encouraging a larger volume of development work and creating additional pressure on commissioners in assessing offers and providing feedback (see also section 4). The development burden has a direct impact on the ability of companies to sustain growth. In addition, rigidity in the labour market means that a significant change to the scale of Radio 4’s WoCC will have a direct impact on internal production efficiency, requiring both a reduction in the headcount and increased use of fixed contracts. The extension of a WoCC to other networks has also been considered, but it cannot be widely implemented without incurring significant incremental cost, and it is likely to cause undesirable effects. Output is typically concentrated in a small number of titles with the top 25 programmes on a music network typically accounting for over 80% of output, compared to only 35% for Radio 4 (similar to BBC One at 36%). These large strands are typically in place for 2-4 years and cannot contribute to the WoCC whilst they are contracted. Placing more content within a WoCC would undermine in-house production and solicit wasted development effort from the industry. It would require the programme contract periods to be shortened, in turn preventing independent companies from retaining staff and limit the opportunities to improve production efficiency. Importantly, a WoCC would require open competition to be applied to integrated output for which there is no pre-existing commissioning process. It would also require network commissioners to choose between independent and their own in-house producers on fair and objective grounds, which would require independent regulation to oversee and to avoid charges of partiality. It is worth noting that we found the integrated networks already do choose to use open competition wherever ad-hoc output is commissioned, for example in documentaries, dramas and comedies. In these areas, the networks already gain the creative benefits offered by a formal WoCC with only minimal additional effort in administration. The volumes of these hours are generally too small to warrant a regulated WoCC, and doing so would not create any new opportunities for indies. As an example, Radio 1 openly commissions documentaries of which the indies win c. 50%. 6. Strategy & Recommendations 6.1. Strategy The BBC will nurture and support the development of the independent sector in order to maximise the public value of external supply on three key objectives: • Developing Talent: the sector should provide the BBC with access to a far wider range of potential locations than in-house production bases. The sector’s effectiveness in finding and training new / different talent should also be supported. Recommendations: Quota 1. Increase the quota from 10% to 12.5% for A&M from 2010/11. The internal management of this target should not be implemented through application to individual networks, but managed within the portfolio of stations, for example permitting the target to be shared across sister stations. 2. Increase the minimum guarantee on Radio 4 to 12.5% and maintain the present WoCC, ensuring that a total of 22.5% of output is available to independent producers each year. Implementation to be phased and completed over a 2 year period, following Trust approval. 3. A formal WoCC is not recommended for networks other than Radio 4. 4. [Recommendation for Nations quotas to follow]. • Distinctive innovation: independent producers should be supported with access to diverse genres and services. • Efficiency: independent production can offer direct cost savings to the BBC through competitive pricing, provided the impact on business efficiency is also managed. Independent production will continue to play a complementary role to in-house radio production, and as the independent sector strengthens, it may provide the additional benefit of diversity in employment, particularly in locations outside of London, and thus greater fluidity in the labour market. 6.2. Summary of Recommendations The Trust is invited to note: • Management recommends an increase in the Quota Requirement for independent production from 10% to 12.5% from 2010/11, for A&M, and; • an increase of the minimum guarantee on Radio 4 to 12.5%, and continued operation of the 10% WoCC, phased in for completion in the 2011/12 commissioning round. • A&M’s proposals for significant improvements to commissioning practices and transparency, supporting the growth and sustainability of businesses and consolidation in the sector.