´óÏó´«Ã½

Thursday 5 June 2008
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Thank you for inviting me to give this lecture; it really is an honour.

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I see that this year's Vital Topics have already ranged from the credit crunch to the global reach of Manchester United. I have to tell you: the most vital business topic for the ´óÏó´«Ã½ at the moment is quite different and if anything even more serious.

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What we're all biting our nails over is who Sir Alan's going to hire as his next apprentice: Alex, Clare, Helène or Lee.

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What's so interesting about the latest series of The Apprentice is not just that it's been pulling in large audiences on ´óÏó´«Ã½ One, but that it's being doing the same for the iPlayer.

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Along with a resurgent Doctor Who, Sir Alan's been dominating the 20 most-requested programmes, helping propel iPlayer traffic to nearly a million requests a day.

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You'll appreciate that getting a service like iPlayer off the ground hasn't been easy.

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On the 1st of April we had to use some particularly novel marketing tactics, using a video I'd like to play for you now. [PENGUINS VT]

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Light-hearted I know, but this is a great example of well-aimed short-form content really punching through and driving new media.

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In its first seven days alone, this little film had nearly two million viewings on YouTube, and just under half-a-million on iPlayer. Thanks to TV coverage, over a quarter of UK adults are now thought to have seen it at least once.

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How many of them now think Penguins fly and migrate to the tropics is an open question. I'd hazard a guess it's a good deal fewer than those who thought spaghetti grew on trees in 1957 when we put out a similar April fool – not that many in this audience will remember that!

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There may be a lesson here somewhere about levels of trust; who knows.

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The iPlayer is one of the most obvious embodiments of all the changes that are underway to create a ´óÏó´«Ã½ fit for the 21st century – the topic I've been asked to address in this lecture.

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But if technology is central to the challenges we face it's not in itself the real issue – the issue is how audiences respond to technological changes and how we respond to audiences.

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So, tonight I'd like to give you the bigger picture. To focus more on the whole future shape of public service broadcasting, in the context of Ofcom's current review of the sector.

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I know it's often said we live in an 'age of transition'. Listen to the pundits and we seem perpetually to be in one.

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I have a colleague who jokes that, when Adam and Eve left the Garden of Eden, Adam must have turned to Eve and said: "Eve, we live in an age of transition."

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And we've been living in one ever since it seems.

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And so my apologies in advance for telling you about yet another transition – though there's nothing hackneyed about this one.

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There's something special about the combination of forces at work in modern broadcasting, and it's making for really profound and disruptive change.

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The forces we face are, of course, common to many industries: globalisation, digitisation, market fragmentation, the erosion of old regulatory privileges.

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All require more agile, efficient and partnered approaches in future.

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Certainly, all of them disrupt the current system of public service broadcasting in the UK, and form the backdrop to Ofcom's current review of our sector.

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Challenges ahead

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Capturing the digital opportunity, while securing reach and impact for high quality programming, is now the defining challenge of public service broadcasting.

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Audiences, liberated from the old world of narrow choice, have become harder to define and to serve.

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Whether finding the right tone of voice; investing in the right platforms; or extracting the full benefit of new technology – the variables at the heart of broadcasting have become more complex and risky.

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Commercial broadcasters are being tested on multiple fronts.

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The weakening of television advertising is one, with the research firm Enders predicting that 2008 will be the year in which online advertising revenues overtake those from television.

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Achieving success online is another test, amid competition far greater and entry barriers far lower than those which shaped UK broadcasting, resulting in fragmented, harder-to-capture revenue streams.

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At the same time, broadcasters are seeing diminishing value from the scarce spectrum to which they had privileged access – with nearly 90% of homes in the UK now having access to at least 40 digital TV channels.

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Outside London, retrenchment driven by commercial pressures threatens to take the broadcasting industry in many UK cities below critical mass.

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A troubled economic climate adds further pressure.

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Being on an essentially fixed income, the ´óÏó´«Ã½ now faces cost pressures that we have no means of passing on.

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Efficiency-taking has therefore had, for us, to become a way of life.

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Amongst other measures, we're applying a 3% annual cash-releasing efficiency target, consolidating our property holdings and reducing our overall staffing levels – in some cases dramatically.

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Challenges of rising costs, complexity and response to new behaviours driven by technology are of course common to many industries.

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Wholesale restructuring has resulted in the emergence of profitable new business models in our sister industry of music, for example – but only after much efficiency-taking, experimentation and pain.

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As the MBA students in the audience will be well aware, the re-invention of an industry or a sector to cope with new ways of serving its market is essential.

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Nowhere has this reinvention been more pronounced than here in Manchester.

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But again, the benefits of this here – whether symbolised by the Metrolink or the new Hilton Hotel or the rising of mediacity:UK on the former quayside of the Ship Canal – were accompanied alongside much pain.

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At least two things make the reinvention underway in public service broadcasting, or 'PSB', a subject of such current debate.

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The first is that the difference between the old, protected world of limited competition and the new, radically open world of global choice is even more pronounced for broadcasters than for most other sectors.

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A second and related aspect of PSB is that, given its profound social role, an important decision must be made about the extent to which it can be left to the market alone.

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Globalisation

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Behind many of the developments causing such profound change in our society – whether in industries like broadcasting or in whole communities like Manchester – is the influence of globalisation.

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For the ´óÏó´«Ã½, globalisation means making new efforts to ensure that our programmes can continue to attract audiences in the face of well-funded international content and an ever-widening choice on the internet.

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While national approaches will, I hope, always loom large in broadcasting, best-in-class international content will increasingly – as in other industries – set quality expectations that extend across borders.

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Many leading UK programmes now take their benchmarks for quality and innovation as much from the best international output as from rival domestic programmes.

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As anyone who's watched Heroes or one of a dozen other American shows will know, the complacent view once common in Britain – that America may be able to do the explosions and the glamour, but can never match the quality of our writing – is now no longer so obvious.

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In our case the impact of globalisation is exacerbated by convergence.

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The very name AOL Time Warner indicates how barriers between television, cinema, print and online have broken down.

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Producing best-in-class output will increasingly require taking risks that earn global rewards.

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Even at the ´óÏó´«Ã½, we now often find ourselves of minimum scale to make content that rivals the world's best – dwarfed as we now are by the giants of global entertainment.

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Making a landmark natural history series like Planet Earth for the UK alone has been uneconomic for nearly 30 years. While many programme areas have yet to reach this point, there are powerful reasons to suggest that many soon will.

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The growth of new media, and in particular the internet, adds a new and similarly global influence on the ´óÏó´«Ã½'s output.

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Among the many effects of more global and more digital media is that the spur to quality and innovation is now – as it is in almost every industry – drawn from far broader terrain.

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Ofcom, in its current review of PSB, is rightly concerned that the spur to quality and innovation be maintained.

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In the old era of limited choice, of course, a principal spur to innovation and quality among UK broadcasters was the output of other UK broadcasters we all kept each other honest.

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While elements of this influence, if weaker, will remain, the spur to innovation and quality today is increasingly cross-platform and cross-border.

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Beyond plurality

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Related to this evolution in plurality is the fact that, contrary to much received wisdom, the public's capacity to engage with and digest a rich diet of content has being going up, not down.

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And so you get Five making best-in-class documentaries like Paul Merton in China or Children's output like Milkshake; or Sky's arts output or Ross Kemp in Afghanistan – not because they must, but because they're responding to a genuine demand for a richer mix of high quality content.

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The ´óÏó´«Ã½ does, and will continue to, play a powerful role in helping stimulate this development.

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When we do our job properly and produce high-quality and original UK content ourselves, we are setting the benchmark, conditioning the market – that is, feeding audience expectations for this class of content and thereby incentivising others to provide it as well.

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Clearly we're not the only ones driving this trend, for so too are the deeper drivers I've described, like globalisation and the public's growing appetite for thought-provoking content.

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Of course, there will be areas of public service output that remain uneconomic for anyone but the ´óÏó´«Ã½ to provide. But one can't rush to the easy conclusion that these areas – absent competition – will want for quality.

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An open, creative culture at the ´óÏó´«Ã½ has been able to maintain high quality in areas that lack much direct competition – whether Radio 4, Radio 3, natural history, or whole areas of older Children's content.

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I certainly do not take from this that plurality isn't important. Just that it is one consideration amongst many and ought not, therefore, to crowd out other important considerations like efficiency, quality, range, reach, impact, and making the most of new technology and new media.

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Certainly, the ´óÏó´«Ã½ realises that it has a very special duty to guarantee provision in areas where we are likely to remain a dominant player.

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The ´óÏó´«Ã½ Trust has recently tripled our guaranteed minimum volume of Children's output on ´óÏó´«Ã½ One and Two, for example, to 1,500 hours per year.

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We have also recently announced new investment in ´óÏó´«Ã½ Children's of £15m over five years, to be directed towards both online and TV origination.

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As part of our Delivering Creative Future strategy, the ´óÏó´«Ã½ announced new investment in a multi-platform content offer for teens under the brand ´óÏó´«Ã½ Switch.

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This investment amounts to £7-10m per annum in television, online and radio content investment that the market would not provide.

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Finally, and subject to approval by the ´óÏó´«Ã½ Trust, the ´óÏó´«Ã½ intends to extend the transmission hours of our channel for older children, C´óÏó´«Ã½, to 9pm.

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Way forward

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So in all the discussion of a new regulatory settlement for PSB, we must take account of some ineluctable forces that need to be worked with, rather than against, if a new and sustainable approach is to be achieved.

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I would suggest that there are two particular areas around which a strong, secure future for public service broadcasting can be achieved.

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The first is a refocused ´óÏó´«Ã½, resourced to condition the market around high-quality and original UK content; the second a sustainable and strategic regulatory settlement.

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As for my fist point, the ´óÏó´«Ã½'s role, we certainly cannot be complacent and unchanging.

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Rather we need a more efficient, re-focussed ´óÏó´«Ã½. A ´óÏó´«Ã½ that takes important and sometimes painful changes to meet its purposes. And a ´óÏó´«Ã½ that shares some of its advantages in a new spirit of partnership and collaboration.

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The ´óÏó´«Ã½'s current efforts to re-focus and respond to changing audience expectations include:

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Investing and focusing on quality and distinctiveness – and not quantity and replication

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Embracing new media to transform how content is made and made available, and also to change the nature of that content itself and how audiences interact with it

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Developing new relationships with audiences – creating more space for participation, feedback and involvement to produce a more open ´óÏó´«Ã½

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Creating new relationships with other content and service providers – finding new ways of leading audiences not just to ´óÏó´«Ã½ content but also to interesting and stimulating material from others.

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Necessary though all of these changes are, we do not think them sufficient.

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Tessa Jowell, when she was Secretary of State, described us as the venture capital for the creative industries and we must rise to this challenge, leveraging our advantages to assist the sector.

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For the ´óÏó´«Ã½, greater partnership may mean sharing some of the benefits of public investment and scale, and thereby helping the industry as a whole to prosper and grow.

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This doesn't mean splitting the licence fee.

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Not just because we think a ´óÏó´«Ã½ owned and funded by licence fee payers, held to account on their behalf by the ´óÏó´«Ã½ Trust, is an effective and straightforward system.

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But also because – just as importantly – the real solutions to the pressures faced by commercial broadcasters are not to be found in chunks of the licence fee used in some attempt to preserve the past glories of PSB, any more than they are to be found in more regulation.

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The real solutions lie in helping the sector work with, and not against, the forces shaping the industry. That is: capturing the digital opportunity while maintaining quality, reach and impact.

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And here I think the ´óÏó´«Ã½ has a real role to play. We're investing heavily in ways to take efficiencies from new digital technologies, as well as unleash their potential to boost our ability to secure reach across platforms.

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We're having to invest heavily in R&D to drive our new media presence.

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And we're extending the tradition of partnership that we used to build Freeview, to ensure that this key platform on which high-quality UK content is distributed never becomes just an "economy" or value option, with viewers feeling compelled to pay a subscription to access the best.

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For the same reason we've been pressing ahead with Freesat, which was launched last month.

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We're thinking carefully about how, within certain parameters, we can open up our efforts in all these areas to the benefit of the sector, and we'll be saying more on the specifics of what we propose later in the year.

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However, the licence fee can, and is, already playing an increasingly important role in supporting creative industries across the country.

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By the end of the current Charter period, the ´óÏó´«Ã½ will be making 50% of its network television output outside London, up from around a third today.

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A crucial part of the strategy to achieve this will be the ´óÏó´«Ã½'s partnership with the independent sector, which will involve independent producers of all sizes in all parts of the UK – and independent production has risen from just a quarter of our output four years ago to around 40% today.

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In Salford, the ´óÏó´«Ã½ has committed to establishing the UK's largest production centre outside London, with development of the site and its production facilities well underway – as many of you will probably have seen.

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This state-of-the-art high-definition broadcasting centre will be at the heart of the new mediacity:UK providing facilities, talent and support to broadcasters, independent companies and many others.

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We have recently completed a similar project at Pacific Quay in Glasgow – now one of the most sophisticated digital production centres in Europe, supporting a thriving media cluster in the city.

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To further enhance our impact across the whole of the UK, the ´óÏó´«Ã½ has committed to reaching 17% of eligible television output being produced in Scotland, Northern Ireland and Wales by the end of the current Charter period – a nearly three-fold increase from levels of output today.

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And so, by working in partnership, the licence fee is coming to benefit not just audiences but also broadcasters, producers and creative talent across the UK.

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The result will be public service broadcasting better able to serve a more devolved country, and more strongly rooted in its many communities – owned by and accountable to licence fee payers throughout the UK.

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Strategic regulation

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If a strong, partnering ´óÏó´«Ã½ is an important part of securing the future of public service broadcasting, so too is a strategic regulatory settlement for the sector.

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Such a settlement should aim for a mix of institutions, with different funding sources, ownership structures and editorial approaches. Each with a role to play in the future of UK broadcasting, although with obligations adjusted to reflect new market realities.

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There should also be recognition that, over time, new media has a role to play in the provision of some of the PSB objectives – for examples for regional news or for educational content – alongside the ´óÏó´«Ã½.

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Overall, if a strategic new settlement is introduced alongside a strong ´óÏó´«Ã½, there is a real opportunity to achieve less PSB regulation over time, rather than a potentially costly extension of the PSB regulatory and funding framework.

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Moreover, the new settlement should be one in which commercial broadcasters can make flexible decisions in response to the forces at work on their industry.

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For only then can they earn the returns that will allow them to invest in capturing the digital opportunity.

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Only then can they meet the higher quality expectations set by global competition.

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Only then can they make a sustainable contribution to the UK creative economy.

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And only then can they maintain their healthy pressure on the ´óÏó´«Ã½.

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Conclusion

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Public service broadcasting is rapidly approaching a juncture.

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One direction leads to a more complex public service broadcasting sector, with finely inter-woven structures and regulation; with public subsidies here and there. Potentially even the special relationship between the public's money and the ´óÏó´«Ã½ severed.

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The other, a place where Britain continues to lead the world in broadcasting. A place where the ´óÏó´«Ã½ is not master of all it surveys – but strives to lift up the entire sector with it.

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Thank you.