BBC - About the BBC - Fair Trading bulletin Dec 05 to Feb 06

Fair Trading Bulletin December 2005 – February 2006

Following publication of the Governors’ conclusions on a revised Fair Trading complaints and appeals process (further details are available at http://www.bbcgovernors.co.uk/docs/fairtrading.html) the BBC has introduced a new process for dealing with Fair Trading complaints. The new process introduces clear separation between BBC Management (who deal with complaints) and BBC Governors (who deal with appeals).

The complaints detailed below reflect the outcome of investigation by BBC Management.

Where complainants are dissatisfied with Management’s findings they have the right of appeal to the Governors.

SUMMARY OF COMPLAINTS

This is a summary of complaints made against the BBC on fair trading grounds between 1 December 2005 and 28 February 2006 including complaints that have been made directly to the BBC, to the Office of Fair Trading (OFT), to Ofcom and to the European

Commission.

Updates are provided regarding complaints recorded in previous Fair Trading Bulletins. Where complaints have been rejected by external competition authorities this will also be reported.

Fair Trading Complaints made to the Office of Fair Trading, Ofcom or the European Commission

The BBC is aware of one formal investigation into the BBC’s activities by Ofcom during this period and one ongoing investigation by the European Commission.

- Complaint about BBC Broadcast’s (formerly Red Bee) supply of media access services to Channel 4 and BBC.

It has been reported in previous Bulletins that the BBC had received a number of complaints following successful bids by BBC Broadcast (a former subsidiary of the BBC now named Red Bee Media Ltd) to supply media access services to Channel 4 and Five. IMS submitted a formal, written complaint to Ofcom relating to an agreement for Red Bee to provide media access services to Channel 4.

IMS is a supplier of media access services to broadcasters, film and DVD distributors, advertisers and advertising agencies. Media access services are services, including subtitling, audio-description and signing, which are designed to meet the needs of individuals who are deaf or hard of hearing or blind or partially sighted. IMS alleges that the agreement between Red Bee and Channel 4:

is in breach of Chapter I of the Act because it prevents, restricts or distorts competition;
is in breach of Chapter II of the Act because it confers long-term exclusivity and has the potential to foreclose the market which amounts to an abuse of a dominant position; and

the price prevailing under the contract is predatory in breach of Chapter II of the
Act.

In July 2005 Ofcom opened a formal investigation into the allegations made and the BBC has responded to various information requests from Ofcom.

IMS's original complaint also contained an allegation related to the acquisition of Red Bee by Creative Broadcast Services Limited ("CBSL" - a subsidiary of the Macquarie Bank Group), namely that Red Bee’s exclusive contract to provide the BBC with media access services (the "BBC contract") is a breach of Chapter I of the Competition Act because it prevents, restricts or distorts competition.

Ofcom excluded this allegation from the scope of its original investigation, because the Office of Fair Trading ("OFT") was considering whether the broader Framework Agreement, of which the BBC contract is a part, was an ancillary restraint directly related and necessary to implement the merger, as part of its decision on whether to refer the merger to the Competition Commission. On 11 November 2005, the OFT published its decision, clearing the acquisition and declaring that the Framework Agreement was not an ancillary restraint.

In December 2005 Ofcom added the consideration of whether the BBC contract infringes Chapter I of the Act and/or Article 81 of the EC Treaty into the scope of its investigation and extended the timescale of its investigation of the Channel 4 contract. The investigation continues.

- Complaint to European Commission re Digital Curriculum

The BBC’s proposal to launch its Digital Curriculum service was cleared by the European Commission under the state aid rules, subject to conditions, on 1 October 2003.

In the last Bulletin it was reported that on 15 July 2005, the European Commission wrote to the UK Government stating that a complaint had been made to the Commission alleging that the proposed Digital Curriculum service did not comply, in certain respects, with the conditions previously imposed by the Commission. The letter also alleged that the scheme for the provision of electronic learning credits (eLCs) by the UK Government might be subject to abuse.

Since the last Bulletin, the UK authorities (DTI/DCMS) and the BBC have separately met with the EC. As a result, the EC requested a further written submission from the UK authorities, which has now been sent. The EC is considering the case.

Fair Trading Complaints to the BBC

The BBC has received three new complaints during the period and concluded its investigation into one outstanding complaint.

- Complaint from Spellbound Entertainment Ltd - Partially Upheld

It was reported in the last Bulletin that the Joint Managing Director of Spellbound

Entertainment Ltd had written to the BBC alleging that the behaviour of the BBC and BBC

Worldwide has created an unfair trading environment. Spellbound Entertainment Ltd produces and manages animated television properties targeting the children’s and family market.

Spellbound Entertainment alleges, inter-alia, that scheduling of its property, The Koala

Brothers, has been poor and inconsistent, essential pre-Christmas timeslots have been

pulled and that BBC Worldwide is able to “coordinate” with CBBC to gain an unfair commercial advantage for its programmes and brands.

The Head of Fair Trading has concluded his investigation and wrote to Spellbound on 20 January 2006.

The Head of Fair Trading found no evidence that BBC Worldwide invested titles were given undue prominence over other non-BBC Worldwide invested titles on the BBC’s children’s channels and services. The relative prominence of acquired and commissioned programming in the CBeebies schedule was a result of conditions laid on the channel in the DCMS consent to launch the channel.

The Head of Fair Trading also found no evidence that Koala Brothers had been inconsistently scheduled and no evidence that BBC Worldwide is given unfair access to commercially sensitive scheduling information. The Head of Fair Trading did not uphold Spellbound’s allegation that allowing BBC Worldwide to use the CBeebies logo and refusing Spellbound permission to do the same gave BBC Worldwide an unfair commercial advantage.

The Head of Fair Trading did find, however, that Spellbound was incorrectly advised that a three month holdback of the release of commercial products applied in respect of the release of DVDs. He apologised for this error but could find no evidence that this inaccurate information was provided wilfully. He made a number of recommendations to the Controller, CBBC to ensure that this error was not repeated in future.

- JG Palmers’ complaint about Frontline – Not Upheld

On 17 January 2006, the Managing Director of JG Palmers wrote to the BBC to complain about Frontline.

JG Palmers is a magazine wholesaling company that delivers magazines direct to retailers on behalf of publishers. Frontline is a joint venture magazines distribution company with BBC Magazines and three other magazine publishers as equal partners.

Frontline has recently undertaken a tender to reorganise its distribution activities. This has led to several smaller magazine wholesalers losing their contracts with Frontline. JG

Palmers was one of those companies. JG Palmers alleged that the change in distribution arrangements was not consistent with the BBC’s Fair Trading regime and was an abuse of

Frontline’s dominant position.

The Head of Fair Trading has now written to JG Palmers to advise that he had not found the process followed by Frontline to be in breach of either the BBC’s Fair Trading

Guidelines or UK or EC competition law. The complainant was advised that if dissatisfied with these conclusions, the allegation that BBC Magazines was abusing its dominant position could be pursued via the UK competition authorities.

- Calico Pie’s complaint about “Who Do You Think You Are?” genealogy software – Not

Upheld

On 10 January 2006, the BBC received a letter from Calico Pie, a company which specialises in designing and developing software. Calico Pie designed and wrote a genealogy software called Family Historian. The letter raised a number of issues concerning the sale of commercial products related to the BBC commissioned,

independently produced genealogy-based programme, ‘Who Do You Think You Are?’ The complaint raised a number of issues, two of which were considered to be related to Fair Trading.

The letter implied, inter alia, that allowing commercial products derived from programmes shown on the BBC to carry the name of the programme and the programme logo was tantamount to the BBC endorsing the commercial product. The complainant enquired if the BBC, as a public service broadcaster, was allowed by its Charter to use its position to endorse commercial products in this way.

This part of the complaint was rejected given that the programme name and logo were not licensed by the BBC but by ‘Wall to Wall’ – the independent production company that produced the programme in line with the BBC’s Code of Practice (“the Code”) for its dealings with independent producers agreed with Ofcom. Under the code, Wall to Wall Television, own “Who Do You Think You Are?”in its entirety – including the title and the associated programme branding.

The complainant also enquired if the reason that the BBC did not permit a link to the

Family Historian website from the bbc.co.uk webpage of “Who Do You Think You Are?” was because the BBC is ‘not normally allowed to endorse commercial products’. The Fair Trading Guidelines require that the BBC’s publicly funded services should not be used to unfairly promote the BBC’s or a third party’s commercial activities. Any links that are permitted are done where the link is editorially justified.

- PACT’s complaint re the BBC’s acquisition of ‘Trollz’ – Ongoing

On 19 December 2005, the BBC Chairman received a letter from PACT (the representative organisation of Independent Production Companies) that raised fair trading issues. This followed previous correspondence between PACT, Michael Grade and Mark Thompson on the same issue. The letter questioned whether the acquisition by the BBC of the broadcast rights to Trollz was consistent with the BBC’s Editorial Guidelines given that PACT alleged that the programme was based on pre-existing toys. The letter also alleged that broadcasting Trollz would amount to a breach of the Fair Trading Guidelines’ prohibition on the public service promoting the BBC’s commercial activities given that BBC Worldwide had distribution rights in the UK for products related to Trollz.

The Chairman responded to PACT on 10 February 2006 to advise that as Trollz had been broadcast and as BBC management had previously responded on this issue, PACT should raise its editorial concerns direct with the Governors’ Programme Complaints Committee.

The letter also noted that the editorial and fair trading questions were linked - a breach of fair trading would arise only if the programme was acquired and broadcast with the intention of promoting commercial products released by BBC Worldwide, i.e. if the BBC’s

Editorial Guidelines had also been breached. The Fair Trading investigation will therefore be deferred until the editorial complaints process is completed.