MPs report on BBC commercial operations

07 April 2009

In a report published today the Culture, Media and Sport Committee calls for the BBC to rein in its commercial operations, which have expanded and diversified in recent years. It concludes that new activities undertaken by the BBC’s commercial arm – BBC Worldwide – have had an adverse impact on its commercial competitors and risk jeopardising the reputation of the BBC.

The Committee finds that a loosening of the rules that govern the limits to Worldwide’s operations has permitted new business ventures such as minority stakes in overseas production companies, the controversial acquisition of Lonely Planet, and a growing portfolio of magazines. The Committee calls for the commercial criteria and fair trading guidelines to be tightened so that in future BBC commercial activity must have a clear link with core BBC programming.

The Committee recommends stronger governance of the BBC’s commercial activities. It finds that the £50 million threshold at which a commercial transaction is referred to the BBC Trust is too high and calls for the threshold to be lowered considerably, to allow the Trust more scrutiny and a greater say in the BBC’s commercial decisions. It suggests a figure of £30 million as a more appropriate level, based on the value of 25 per cent of Worldwide’s net assets. The Committee finds that the BBC failed to meet the disclosure requirements which the Stock Exchange would require of any quoted company in its acquisition of Lonely Planet. It also recommends that the Chief Executive of BBC Worldwide should no longer serve on the BBC Executive Board. According to the Committee, his presence there gives Worldwide a significant, unfair advantage over its competitors and creates an unwelcome perception of special favours. The Committee believes that this would represent one practical step towards a more transparent, regularised and arms-length commercial relationship between the BBC and Worldwide.

The Committee calls for the BBC to increasingly open up the market for its programmes to competitive bidding. BBC Worldwide currently has an exclusive "first look" option on the rights to all BBC programming, yet the Committee is not convinced that this method ensures the BBC obtains maximum value for programming. The Committee believes that the benchmarking process the BBC uses to establish the value of its programmes is inadequate in comparison to competitive auctions which can drive up the value of programme rights. The Committee concludes that a competitive bidding process would ensure that Worldwide always paid the full market value to the BBC and hence the licence fee payer.

The Committee finds it very difficult to make a case for BBC Worldwide’s investments in overseas and UK production houses. It suggests that the BBC should support the independent production sector by commissioning programmes form a wide range of companies rather than by investing in a small selection of favoured companies. Moreover, the Committee believes that the attempt to create an international BBC Worldwide business creates the clear risk that it is this business, rather than the core public service remit, that will increasingly drive BBC programming. It concludes that this is not a risk that licence fee payers should have to bear.

The Committee recommends that new BBC magazines should only be launched if there is a clear link with core BBC programming, and where the public value of launching a magazine outweighs any adverse impact on the existing marketplace. It is highly critical of BBC Worldwide’s acquisition of the Lonely Planet company and of the BBC’s commercial websites, which it regards as competing with existing commercial providers.

As regards the proposed partnership between BBC Worldwide and Channel 4, the Committee is sceptical as to whether this would be the best solution for Channel 4, for the licence fee payer, or for the media industry as a whole. It sees a number of drawbacks to this proposal: it would be likely to make Worldwide an even more aggressively commercial organisation; there is no obvious synergy between Channel 4 and Worldwide; and any partnership, however great the scope, would still only account for a proportion of Channel 4’s £150 million annual funding gap. The Committee instead recommends that a proportion of the licence fee should be made available to Channel 4, in order for it to sustain its public service programming.

Committee Chairman John Whittingdale commented:

"We are in no doubt that the BBC should seek to obtain the maximum value from its brand and assets in order to reduce the pressure on the licence fee. However, in many cases there is no reason why the BBC need undertake commercial activities itself and where it does there should be a clear link to BBC programming. There is a balance to be drawn between generating a return for the BBC and preventing damage to its commercial competitors. We believe that the balance has tipped too far in favour of BBC Worldwide's expansion and we look to the BBC Trust to correct this".

Image: PA Photos

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