Ofcom's second public service broadcasting review

Phase 2: Preparing for the digital future

25 September 2008

2

Audiences should have a choice of providers

• Audiences value the BBC

• But they also want PSB alternatives to complement the BBC

• Stakeholder support

• Enhances reach and impact

• Valuable as an end in itself in news and current affairs

• Valuable to audiences, who are willing to pay

3

The current model of ITV1 provision is broken

Current costs soon exceed benefits

2009 2010 2011

ITV WalesCosts > benefits

During 2009

ITV PlcCosts > benefits

Before 2012

stvCosts > benefits

2009 - 2010

Post 2012:• UTV & GMTV: Benefits>costs • Five: Small net benefits

1

2

3

4

Licence handback becomes a rational option for ITV Plc

4

LEK central case LEK low case Current Ofcomanalysis min

Current Ofcomanalysis max

Channel 4 should have a significant role, but it needs an economic model and funding to support this

Note: Forecasts Channel 4’s financial shortfall by 2012. LEK's numbers based on EBITDA. Ofcom based on EBIT, due to differences in methodology

£32 m

£60 m

£100 m£119 m

5

0

100

200

300

400

Likely gap in 2012 Existing regulatory assets Estimate of total fundingrequired

Estimated funding gap - after 2012 considerable uncertainty

£330- 420 m£185 m£145 - 235m

Total funding of £330 - £420m per annum may be needed by 2012

6

Institutions and competition should play important roles

Institutions•Reach•Values

•Independence

•Flexibility•Transparency

•EfficiencyCompetition

Benefits

7

Long term models for PSB in the future need refining

2. BBC only1. Evolution

3. BBC/Channel 44. Broad

competitivefunding

8

All funding options identified in Phase 1 remain credible

• Regulatory assets

• Direct public funding

• Licence fee

• BBC assets

• Levy schemes

9

In the short term commercial PSBs' obligations must set them on a path consistent with the long-term models

• Ofcom’s proposed PSB priorities for ITV1 up to 2014:

– Original British programming, so quotas remain – UK and international news, so requirements unchanged– Peak-time current affairs unchanged but reduced outside peak– Peak-time news for the devolved nations unchanged but non-news minimum reduced– Current affairs in the nations unchanged– Regional news in England that prioritises peak-time over daytime and balances

regional with local

• As part of this re-prioritisation:

- ITV1’s Out of London production quota reduced to 35%, in line with pre-2004 figure

• Ofcom rejected the case for any change in:

– ITV1’s quota of independent productions

10

In the short term commercial PSBs' obligations must set them on a path consistent with the long-term models

• five’s role in PSB up to 2014:

-Original production quota fixed at 50%

-News and current affairs unchanged

-New commitment by five to enhanced delivery of children’s programmes

11

Our core principles for the future

• BBC remains the cornerstone of PSC

• Audiences should have a choice of providers in most areas of PSC

• TV remains essential, but PSC should be delivered across platforms

• Content for the devolved nations remains essential – particularly news

• Institutional & competitive funding could play important future complementary roles

• Channel 4 needs a new economic model to deliver its future public service contribution

• ITV1 and Five retain important PSC roles up to 2014 with re-prioritised focus

• After 2014, the case for obligations on ITV1 & Five is more evenly balanced

• Most of the Phase 1 funding sources are credible - a mix may be needed in future