Digital, Interactive and Web TV

Controversy 1999

• December 1999: OFT under pressure to review United - Carlton merger.
  • Rival broadcasters and advertisers want the Office of Fair Trading (OFT) to review the proposed United News & Media - Carlton Communications merger. Their concern stem from current rules that requires at least a 60% vote in favour from franchisees representing adverting on Independent Television companies for any strategic decision. The argument centres on how much control of adverting the combined United - Carlton will have and this depends on how it is actually measured. The companies say it will have a 36% share. Other companies want to include the companies' 20% stake in GMTV breakfast channel and their stake in Channel 5 which would raise the control level to 40%. Others also want Scottish Media Group and Ulster TV included as United sales advertising on their behalf. This would raise the level even higher. Advertisers are concerned that with less competition rates will rise.
  • There are also other limits. Under a formal agreement, no one company should have more than 25% of the commercial TV advertising market and under the Broadcasting Act no more than 15% of the viewers. Such a merger would clearly breach both these limits though the advertising limit was currently under review.
  • In January 2000 Granada threaten to gatecrash the merger by seeking permission from the OFT to acquire either United News & Media or Carlton Communications. Subsequently the OFT refered all the proposals to the Competition Commission, a process that could take many months. It must report on the United - Carlton merger by 16 May and the Granada 'bids' by 26 June
  • In April 2000 the Independent Television Commission helped the merger process when it gave a qualified backing to the United News & Media and Carlton Communications merger. It said that post any merger the share of advertising should be no more than 30% of the market.This would mean that a merged group would probably need to sell one of its 6 ITV regional franchises. In May 2000 the ITC said it could equally support a merger between Granada and either United News & Media or Carlton Communications with similar caveats. A Granda merger would be more beneficial in that it would not create a north/south imbalance in advertising as would a merger between United News & Media and Carlton Communications.
  • In July 2000, the Government, advised by the Competition Commission, agreed to relax the ownership rules. sayng that further consolidation of ITV ownership is deemed "both desirable and inevitable". It therefore recinded the voluntary rule that any one company should not exceed 25% of total UK TV advertising market but stated that no ITV company can own more than 2 of the 4 premium franchises. See Biggest Shake up in ITV History for the full details. With the report the playing field was now wide open for Granada to make a bid for either of United News & Media or Carlton Communications. What ever the outcome, advertisers expressed their disquiet with further consolidation and a likely, to them, even further rise in advertising rates. The Government retorted that there were plenty of other [i.e. smaller] TV franchises and other media to advertise in.
  • On 28 July 2000 it was over: Granada's bid of £1.75bn for United News and Media was accepted and made the company a £10bn TV empire. The enlarged Granada will have 30% (£1bn) of the ITV advertising revenue. This is after the disposal of HTV to keep within the ownership regulations. Savings of £30m in the first year were envisaged. Carlton, now much smaller compared to Granada both in UK coverage and market value, was the loser but was given the option of buying HTV for £400m.

• November 1999: Byers refers recent mergers and is accused of favouring Murdoch

  • Stephen Byers, the Secretary of State for Trade and Industry, surprised the industry in refering both the NTL's agreed acquisition of Cable and Wireless Communications (CWC), and into Vivendi's acquisition of a 25% stake in BSkyB.
  • The NTL-CWC merger was on the expected grounds that this would reduce the number of UK cable companies effectively from 3 to 2, leaving TeleWest with the much smaller part. Many commentators, including John Bridgeman, director general of the Office of Fair Trading, feel that the merger should actually be encouraged, as only a strong cable industry can provide a competitive force to BSkyB's satellite digital service and ONdigital's terrestrial digital service. The Independent Television Commission, the Consumers' Association and OFTEL had all welcomed the merger. On the other hand, BSkyB had already made representations on the ground that cable was a closed industry whereas satellite is open to anyone that wishes to broadcast.
  • It didn't help matters that Kim Howells, the competition and consumer affairs minister, was reported to have broken the Government's own 1990 rules by having lunch with Tony Ball, the CE of BSkyB. Then incredibly in January 2000, Denise Kingsmill who is heading the Competition Commission investigation, invited two journalists to lunch and told them she was thinking of forcing the two cable companies to open up their networks to competitors. Meanwhile, OFTEL announced that it would produce a report Access to Cable Networks by the end of January. BT has argued that when 3rd parties get access to its local loop from July 2001 then it should have access to cable subscribers. NTL is apparently open to this idea.
  • The other acquisition involves Vivendi purchasing the BSkyB stakes held by Pathe, Pearson and Granada to add to its existing control of Canal Plus. This was on the grounds that the acquisition "raises concerns in respect of the market for film and sports rights and for conditional access technology in the UK". Some commentators have suggested that this was a sweetener to Murdoch for earlier rejecting his takeover of Manchester United (see April 99 below). It is well known that Murdoch does not wish Vivendi to increase its stake as Vivendi has made it clear it wants more of a say in the running of BSkyB (Murdoch's News Corp only owns 40% of BSkyB but is seen as the controlling influence, especially since Murdoch himself became chair in June 99). Others suggested it was a warning to the French over their ban on British beef. The inquiry was due to report on 25 February 2000 but it was subsequently posponed until 24 March.
  • On 22 March 2000 the Commission agreed that the merger could go-ahead.

• September 1999: Confused football fans complain

  • UEFA has sold different rights to its Champions League to different broadcasters. On Wednesdays the BBC screens UEFA matches to all the public but on Tuesdays the matches are only available to 200,000 ONdigital viewers. This has caused anger and confusion amongst football fans. It has also caused BSkyB to complain to the OFT. It thinks it's unfair that it should be forced to make it's sporting fixtures available to other platforms whilst ONdigital keeps exclusive rights to the UEFA games.

• September 1999: Government defines terms for analogue switch-off - Consumer groups concerned.

  • At the annual Royal Television Society's Convention, Chris Smith, the Secretary of State for Culture, Media and Sport defined the circumstances under which the analogue system could be switched-off:
    • Digital TV signals to be available to 99.4% of the population.
    • 95% of consumers to be accessing a digital TV service.
  • The situation to be reviewed every 2 years. Consumer groups are concerned that 95% of consumers may well have access to digital TV services via their main TV set but they will also have other analogue sets in their homes. Also, digital video recorders are only just appearing on the market and at a premium over analogue ones.
  • Currently the average home has 3 TVs and 1 video recorder. So whilst the main family TV set may become digital and the main video become DVD when consumers do upgrade (e.g. to widescreen), they may well keep the old TV and video for personal viewing. Current digital set-top boxes can only work with 1 TV and cannot record 1 channel while the viewer watches another. A scenario of likely replacement shows that by 2010 there could still be 30m analogue TVs in the UK. These problems will need to be overcome along with the challenge of how to deal with a possible 30% or more who may refuse to subscribe to pay-TV and therefore see no reason to upgrade to digital. Continues in March 2001.

• 1999: High Definition TV and digital? Differing views in US and Europe.

  • This debate has rumbled on for some time. The US and Australia have opted to introduce HDTV at the same time as going digital. They believe there is demand for movies to be shown in the high definition. The Europeans argue for resources to go into interactivity and refer to the huge library of archive material that in not in HD format. Also existing viewers only needed a set top box whereas US viewers will need to acquire expensive new TVs.

• May 1999-March 2000: BBC proposes a £24 Digital Licence Fee but only gets £3

  • The BBC, which is afraid of losing out on the digital TV revolution, proposes a Digital Licence Fee payable by all consumers who want to receive digital TV irrespective of the medium. A sum of £24 has been suggested, decreasing to zero by 2010. This fee would be in addition to the existing £101 TV Licence Fee. The digital fee, like the existing fee, would of course go entirely to the BBC. Currently the BBC is spending £175m per annum running its digital services, including £24m on internet services, and £54m on News 24 (almost twice the £30m budget). If it were to get this additional funding, the BBC has promised to create multi-media learning packages for schools and a chain of drop-in Open Centres where the BBC would assist local communities to make radio programmes and on-lines services. As at November 99, only 10,000 viewers had so far signed up for the BBC digital channels, with most of these being part of a subscription package with BSkyB.
  • All the other satellite, cable and terrestrial players have objected strongly, calling the fee a tax and saying that the current £2.2bn annual licence fee should be sufficient. These players argue that such a fee will significantly slow the take up of digital TV and that this would then delay the Government's plans to terminate analogue services and sell off the frequencies. It is also in the interests of the players that analogue services are ended as this would reduce their transmission overheads. The Government is expected to make a decision in the Autumn of 1999. Meanwhile, these opponents have threatened to take their case to the European Commission.
  • Whilst no date has been set by the Government, the analogue services are expected to be terminated after 2010 but a favourable take-up of digital services could bring this forward, some say as early as 2006. The Government has defined a number of tests that must be first met:
    • 90% of the population must be able to receive digital signals.
    • 95% of the population should have digital equipment in the home (today 6% have digital TVs).
    • digital equipment should be affordable to those on low incomes.
  • In December 1999 the BBC suffered a blow when the House of Commons Culture, Media and Sports select committee opposed the digital levy. It also criticised the high cost of News 24 (£54m), the high spend on promoting digital, the £5 levy on licence holders who pay by direct debit, and that it considered self-regulation no longer sustainable.
  • A good response by the BBC was obviously needed. In January 2000 it offered to provide a free sports channel in return for approval on its licence fee proposals. Immediately the commercial channels hit back, arguing that given the huge cost of acquiring sport viewing rights the proposed licence fee would in effect become a compulsory channel subscription. Meanwhile the BBC's new director general, Greg Dyke, ordered a shake-up of the BBC's Choice digital channel.
  • It was of all of no avail. On 21 February 2000, the government announced that the basic licence fee would rise by £3 to £104 but that there would be no additional digital levy and that households with someone over 75s would be entitled to a free licence and those with a blind person a 50% reduction. The basic fee increase was 1.5% above inflation and this would also apply each year until 2006. This would give an additional income of £200m per annum. Further, the BBC's books will be opened up for independent scrutiny and there would have to be a substantial reduction in costs in the order of £1b p.a.. The BBC said staff cuts were likely and it would also need to look for more revenue from commercial operations.
• April 1999: BSkyB's bid for Manchester United football team and stadium is rejected but it can retain the Premier League.
  • Trade Secretary Stephen Byers said that the deal "may be expected to operate against the public interest and it should be prohibited. ..... that the merger would adversely affect competition between broadcasters". BSkyB still retains the live TV rights to premier league matches under a contract that runs to 2001.
  • Later, in February 2000, the OFT agreed to allow BSkyB to taking a 9% stake in Leeds United.

Back Up to Controversy Contents

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External Resources

1. See the Controversy Content page for a list of earlier resources prior to 30 July 2000.
2. Rees, Jon, 2000, Granada is top cat of ITV world, Sunday Business, 30 July 2000.
3. See the full list of resources for this web site for other related resources.

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