§ 7.8 p.m.
§ Viscount Astor rose to move, That the draft order laid before the House on 8th May be approved [19th Report from the Joint Committee].
§ The noble Viscount said: My Lords, as your Lordships will be aware, the Broadcasting Act 1990 requires the BBC and Channel 3, 4 and 5 licensees and domestic satellite service licensees to ensure that at least 25 per cent. of the qualifying programmes broadcast on their services are made up of a range and diversity of independent productions. It also provides for the Secretary of State, after consultation with the BBC and the ITC, to define by order the meaning of qualifying programmes and independent productions. This draft order accordingly provides the necessary definitions of those terms.
§ The provisions in the Act relating to the 25 per cent. independent production requirement were essentially a formalisation of earlier voluntary agreements. Your Lordships will recall that in November 1986 the BBC and the independent television companies committed themselves in principle to achieve a 25 per cent. commissioning rate of independent productions by the end of 1992. A detailed scheme was subsequently agreed by all parties and announced in April 1988. We have been pleased with the progress the broadcasters have made towards achieving the 25 per cent. target by way of the interim targets which they have set themselves. The broadcasting White Paper indicated our intention to place this voluntary initiative on a statutory basis and there has, it is fair to say, been a general welcome for the provisions in the new Broadcasting Act.1271
§ Before laying this draft order, we had detailed consultations, not just with the BBC and the ITC, but with representatives of the independent production sector themselves. We have listened carefully to all the views expressed. Although the order will not come into force until 1st January 1993, we have been conscious of its importance in the context of the current application process for the new Channel 3 licences. We recognised that bidders would have a keen interest in knowing what the detailed rules regarding independent productions were to be. With that in mind, my right honourable friend the Home Secretary announced the outline of our proposed arrangements on 14th March this year and laid the draft order on 18th April. It was approved in another place on 21st May.
§ Many of the detailed provisions of the order follow the guidelines for the voluntary independent production initiative which have already been agreed. There is, however, one important difference relating to permissible levels of shareholding as between broadcasters and independents, about which I shall say more in a moment. More generally, we have incorporated in the order a number of detailed improvements and clarifications derived from our experience with the voluntary scheme.
§ As I said, the essential purpose of the order is to define the terms "qualifying programmes" and "independent productions" in order to make clear, first, what can qualify for inclusion in the 25 per cent. quota, and, secondly, to answer the question "25 per cent. of what?". In other words, qualifying programmes represent the 100 per cent. denominator, at least 25 per cent of which must be made up of independent productions, as defined.
§ Qualifying programmes include those which the broadcaster makes or commissions alone and also those in which there has been collaboration with other broadcasters, provided that the broadcaster in question contributes at least 25 per cent. of the cost. Programmes are also included in which pictures and sounds are received direct from abroad—for instance, from international sporting events such as World Cup football matches—but to which the broadcaster or independent producer in this country adds commentary and further pictures. To qualify, at least 25 per cent. of the pictures must be provided by the broadcaster who is broadcasting the programme.
§ Under the present voluntary initiative, an independent production company is defined as one in which broadcasters have no shareholding. Furthermore, an independent producer may not be part of the same group as a broadcaster. When we came to consider the content of the draft order, we concluded that it would not be practicable or sensible to carry over that provision as it stood. For instance, under the no cross-ownership provision, it would be technically possible for an independent producer's pension fund, invested in a portfolio of shares which included a broadcaster, to disqualify that independent producer from independent status.
§ It would be an administrative nightmare for broadcasters, independent producers and regulators 1272 alike to keep track of all the minor and possibly unintentional cross-shareholdings that could occur. Furthermore, a complete ban on cross-shareholdings would leave open the possibility of spiteful shareholding whereby an aggrieved broadcaster could buy just one single share in an independent producer simply to prevent a piece of work commissioned from that producer being counted as an independent production.
§ Having ruled out a total ban on cross-shareholding, we had to consider what level of shareholding between broadcasters and independents should be permitted, bearing in mind the need to ensure that independents really were independent and that the objectives of the 25 per cent. initiative were not frustrated. After consultation with the Director General of Fair Trading and consideration of a range of options, we decided that the level of cross-ownership should be fixed at 15 per cent. for independent producers in broadcasters' companies and vice versa. That level of shareholding achieves a nice balance, in that it is not enough to allow significant influence to be exerted on a company but is sufficient to reap some of the benefits of cross-shareholding.
§ When we consulted, we found that both broadcasters and many independent producers themselves considered our proposed arrangements not only workable but positively attractive. The broadcasters argued that the system would enable them to provide the financial security and stability which many independent producers sought and which would help move on the independent production sector from its "cottage industry" beginnings. It was also pointed out that our proposals could benefit would-be bidders for Channel 3 franchises with no previous broadcasting experience as it would allow them to establish formal links with experienced programme producers. Thus, both established and potential broadcasters saw merit in the 15 per cent. level of cross-shareholding.
§ Views among independent producers were, it is true, more mixed, with some arguing for only a minimal 5 per cent. or so cross-ownership, and others saying that a higher figure of perhaps 20 per cent. was needed. Those independent producers who argued for allowing a significant degree of cross-ownership said that they would welcome opportunities formally to team up with broadcasters and suggested that, without the chance to do so, independent producers could struggle to achieve any significant market position. I believe that the 15 per cent. figure in the order will assist the development of the independent production sector in that and other ways.
§ I have set out briefly the general provisions of the draft order and have outlined in some detail the reasons that led us to opt for the 15 per cent. level of cross-shareholding. Taken as a whole, I suggest that the measures represent a sensible framework within which the statutory 25 per cent. independent production requirement may operate. I commend them to the House.
§ Moved, That the draft order laid before the House on 8th May be approved [19th Report from the Joint Committee].—(Viscount Astor.)1273
§ 7.15 p.m.
§ Baroness Birk
My Lords, I thank the Minister for explaining the order so clearly. We are discussing it in the context of the bids for the Channel 3 franchises, which have all now been declared. When the Bill was before the House, we made clear our opposition to awarding contracts to the highest bidder as we were concerned about the consequences for national and regional programming. Those issues are still relevant today, as they are to the order that we are discussing. We certainly welcome the not-less-than 25 per cent. quota for independent producers and believe that they have an important role to play. However, a number of problems may arise as a result of the definitions of "qualifying programmes" and "independent producers" contained in the order and it is to those that I should like to address myself.
The first concern is the danger of cartels developing within the independent sector. In spite of what the Minister said, the Independent Programme Producers Association has expressed concern that the order contai as too few controls on cross-shareholding between broadcasters and independents. Under the terms of the order, a broadcaster could have up to a 15 per cent. shareholding in an independent producer. IPPA fears that that could lead to Channel 3 broadcasters gaining stakes in a number of independents and could eventually lead to cartels of broadcasters controlling most independent commissions within a regional area.
Equally possible under the terms of the order is the position whereby a number of independents could obtain a 15 per cent. stake in a Channel 3 licence holder. According to IPPA, that could lead to a cartel of major independent production companies carving up the 25 per cent. independent Channel 3 productions between them and still being free to bid for space in Channels 4 and 5 and the BBC. The Government have suggested, as the Minister said tonight, that any cartel arrangements would be investigated by the Office of Fair Trading, but, according to the independent producers, that does not appear to be the right way to go about it. Surely the cartel controls should have been included in the order. As the value of the involvement of the Office of Fair Trading in that specialised area is doubtful, however assiduous it is in its efforts in that field, will the Minister at least agree that the situation should be monitored as it develops and then, if necessary, a further order introduced to control cartels?
A further problem in the order—I gave the noble Earl, Lord Ferrers, notice of my intention to raise this issue, which I believe I am right in saying was not raised in another place—concerns the position of relatives of a director of a broadcasting company. The order makes it clear that no independent production company which has a 15 per cent. shareholding in a broadcasting company can maintain its independent producer status if any one of its shareholders controls more flan 15 per cent. of the share capital of that independent production company and is also a director of the broadcaster. If the director of a broadcasting company also controls the share capital of an independent production company, then it seems 1274 clear from the way in which the order is drafted that the director would be able simply to transfer the shares which he or she holds in the independent company to his or her spouse or other members of their immediate family in order to ensure that the independent production company still qualifies as an independent producer.
The confusion on this issue—which I understand has been looked at by a number of lawyers—seems all the more unnecessary when clear definitions on "connection" are given in other sections of the Broadcasting Act. For example, Schedule 2 (page 174) gives details of restrictions on the holding of licences and clearly states that for the purposes of measuring control or shareholdings, associates of individuals are to be included. Associates are defined in detail in the Act as an individual's:husband or wife and any relative, or husband or wife of a relative, of that individual or of that individual's husband or wife".
I cannot believe that in drafting this order it was the intention of the Home Secretary to allow an individual in such circumstances to take such action. That would appear to circumvent the proposals in the order for avoiding a conflict of interest between a broadcaster and an independent producer. Possibly that was not even realised or perhaps it was overlooked at the time and it should be looked at again.
A further worry within the industry is that the order provides little clarification of production costs. Existing distinctions between co-productions, which are acceptable for the quota, and acquisitions, pre-sales, output details and commissions, which are not acceptable, according to the IPPA are fast disappearing. That could lead to broadcasters fulfilling their 25 per cent. quota by disguising acquisition contracts to make them look like independent commissions. The independent producers are particularly anxious, as this could lead to the import of more American and Australian programmes at the expense of the UK industry. I wonder whether the Minister would also comment on the fact that in the order there is no reference to non-EC countries and the 25 per cent. quota.
Finally, I should like to say a word about training within the broadcasting industry. During the Committee stage in this House, as a result of pressure from the Opposition the Government introduced amendments which make Channel 3 and Channel 5 companies responsible for describing their proposals for encouraging the training of staff in independent companies. We should still like to see the Government encourage licence holders to have more active involvement in the training of freelances and others employed by the independents.
Certainly the 25 per cent. quota is to be very much welcomed. But the points that I raised would both clarify and improve the order if they were incorporated in it, in particular the point that deals with the possibility, because it is contrary to what is already in Schedule 2 to the Act, of the ability to transfer shareholdings to an immediate relative. As this is a draft order it would surely not be too difficult for the Government to take it back and incorporate those improvements. I am sure that the noble 1275 Viscount will appreciate that these are not party political points but points of substance. If the order is left as it is at the moment it will not work as I feel sure that the Government intended it to do.
My Lords, perhaps I may deal with some of the points raised by the noble Baroness. Regarding the danger of cartels developing, we do not consider that it is at all likely that a group of broadcasters—or for that matter independent producers—could gang together with a common interest without intervention from other Channel 3 licensees or the Office of Fair Trading. In particular, it is likely that such arrangements would constitute a restrictive trade practice or breach competition rules as they apply to the network.
In those circumstances, where it seems unlikely that the nightmare scenario of a coalition of broadcasters would happen in practice, we should not want to impose any unnecessary restrictions on aggregated shareholdings. The Office of Fair Trading would not be in favour of that. Moreover, once we have set out a maximum level of shareholding—say at 30 per cent. —we move back into the realm of the possibility of spiteful shareholding or unwitting investment above the permitted level through, say, a pension fund.
Finally, it would be administratively very difficult for the ITC to administer a maximum level as it would involve it in continuous investigation as to the percentage of independent producers with an interest in a broadcaster, and vice versa. On another point, we shall of course undertake to keep the position under review.
I turn to some of the other points that were made. The definition of "associate" in Schedule 2 to the Broadcasting Act 1990 is specifically affected by Article 3 of the draft order. The noble Baroness asked whether it would be possible for a close relative of a person who is a director of a Channel 3 licence holder and has a 15 per cent. shareholding in an independent production company to have any further shareholding in the independent production company. The answer is that this would not be possible. The intention of Article 3(4) and (5) is to set out that neither a broadcaster nor an associate of a broadcaster taken together may have a shareholding greater than 15 per cent. in a producer or an associate of a producer, or vice versa.
The intention of the first two lines of subsection (5), which states that:any reference to a broadcaster or producer includes a reference to a person connected with, respectively, a broadcaster or producer",
is to ensure that all connected bodies are treated as one person. Accordingly, since two close relatives would be connected persons for these purposes, if one of them were a director of a broadcaster the maximum combined shareholding that a person and all persons connected with him could have in an independent producer would be 15 per cent.
1276 The noble Baroness also asked me why the order did not specify that independent productions must be of European origin. It is possible that we might be deemed to have contravened our GATT obligations if we specified that independent producers must be European. However, I do not believe that that will necessarily mean that there will be a large influx of non-European independent productions. The Broadcasting Act requires that a proper proportion of programmes included in a regional Channel 3 service must be of European origin. In its invitation to apply for regional Channel 3 licences, the ITC has set out that it will expect the majority of hours of programming to be of European origin.
The ITC has also indicated that it would expect at least 65 per cent. of the hours of programming transmitted within the calendar year to be originally produced or commissioned for regional Channel 3 services. Consequently not more than 35 per cent. should be acquired programmes originally made for some other market.
In addition, the ITC has reflected the requirement in the European Community's directive on television broadcasting that at least 10 per cent. of transmission time, excluding the time allocated to news, sports events, games, advertising and the Teletext service, must consist of European independent productions.
I believe that the effect of the combination of those requirements will be that the overwhelming majority of independent productions will be of European origin; and I dare say that the vast majority will be British. I hope that that deals with the point raised by the noble Baroness.
§ Baroness Birk
My Lords, perhaps I may return to the point about relatives, of which I gave the noble Viscount notice. It has not been raised previously.
The position is not as clear as it might be. I have been amazed at the experience of a number of people who have been in touch with me on the issue. They are extremely worried. I listened carefully to what the noble Viscount said. It does not seem to mirror Schedule 2 at page 174 of the Broadcasting Act 1990. I do not wish to hold up the order. However, I am worried about whether I should obtain an undertaking on monitoring the control of cartels in regard to relatives. Many people who know more about the matter than I do are anxious about this.
My Lords, in my answer to the noble Baroness I stated that we thought that that would not be possible. However, I shall read carefully what she said today and write to her to clarify the position.
§ On Question, Motion agreed to.