Investors
Michael Grade speech to Ofcom Nations and Regions Conference
29/06/2007
‘Britain’s Got Talent’
It is great to be here in Cardiff.
I should reveal that as well as speaking at this important Ofcom conference, I am here on an unofficial scouting trip ahead of the kick off in the soccer Championship in a few week’s time.
You’ll be aware, of course, of the champagne fixture of next season:
Cardiff City versus my beloved Charlton Athletic. Tuesday 4th December. 7.45 pm. Ninian Park.
Be there.
Bring your boots and you might even get a game the way our finances are looking….
Being here in Cardiff, I am inevitably reminded that it was a short distance away in the Wales Millennium Centre that a certain Carphone Warehouse salesman from Port Talbot recently made a stunning debut on ITV.
Paul Potts’ rendition of Nessum Dorma brought the Cardiff crowd to their feet – even the three judges.
And within a few weeks 13 million of us cheered as he was crowned winner of Britain’s Got Talent.
There may be one or two of you out there who will point out that Potts is not actually Welsh. He originally comes from Bristol.
But let me assure you that the residency test in Britain’s Got Talent is even more flexible than that employed by the Welsh Rugby Football Union. He’s Welsh alright.
Think of it as an overdue payback for years of one-sided sports commentary.
You know what I am talking about. Remember whenever the likes of Colin Jackson or Lynn Davies were competing?
On the podium receiving the gold medals, they were absolutely, 100%, bona fide British, according to the commentators.
Pulling up with a hamstring, on the other hand, and suddenly they’d become very emphatically Welsh…
Theme
I mention Britain’s Got Talent, not only because it is a show that we are hugely proud of, but because it is my theme this morning.
Whether it is opera singers from Port Talbot, writers from Swansea, actors from Belfast, or producers from Glasgow, Britain has got serious talent.
In television in particular, across each and every UK nation and region, we have a happy knack of producing genuinely world-class television talent on and off-screen.
And I am proud that ITV has and continues to be a central part in that tradition.
I want to talk today about how we can maintain the central place of the nations and regions in the UK television ecology going forward.
A lot of people will tell you that we need to legislate for it. Intervene more and more. Another licence requirement here. More targets there. Quotas absolutely everywhere.
My perspective is very different. I actually think we need to back off. To make sure everyone has a fair crack of the whip, but then let fair competition decide.
Remember: Paul Potts didn’t win Britain’s Got Talent because he was from Port Talbot. He didn’t win because the panel were operating a quota for Wales. There was no positive discrimination in favour of the nations by the producers.
He won because he got a chance and he was the best.
End of story.
There is a real lesson for us all there.
ITV’s role in the nations and regions
But I want to start today by emphasising the place that ITV plays in national broadcasting and reflecting all of Britain back to itself.
This year ITV will broadcast around 2,000 hours of dedicated programming for the nations of Wales, Scotland and Northern Ireland, across news, current affairs and other programming.
That represents a total investment of tens of millions of pounds every year across SMG, UTV and ITV Wales in programming for the nations.
Remember none of our main commercial competitors provide a single minute or invest a single penny in such programming. It is just ITV providing a vital alternative to the BBC in this critical genre.
In addition, producers in the nations continue to win network commissions out of the 50% of the ITV1 budget that goes outside London. That represents a further £30 million over the last couple of years, including programmes as diverse as Rebus and The All Star Poker Challenge.
Here in Cardiff we’ve bought out the Culverhouse Cross site and are seeking to turn it into a centre for Welsh production. Already we’ve got 13 different media companies on the site and we’ve housed major network productions from The History of Mr Polly for ITV1 to Gavin and Stacey for BBC3.
The development plans for the site which we’ve submitted to Vale of Glamorgan Council will help us build on these successes.
And on top of all that ITV is still running our special production fund for the nations and regions, targeting a further £9 million on producers in the nations and regions.
As a direct result, we have some very exciting projects in the pipeline with new to network producers based in the nations, including Wales, worth millions of pounds.
This national output forms a part of ITV’s wider commitment to the UK’s nations and regions.
50% of ITV commissions – more than any other major channel – are commissioned from outside London. That’s 50% of the highest commercial commissioning budget in Europe and over £250 million per year in total.
Across our nations, regions and sub-regions we’re still delivering 5,000 hours of regional news, current affairs and other programmes with a total investment of £130 million a year.
That is a huge contribution to PSB plurality and the impact we have on the health of our creative industries, up and down the country, is huge.
Last year a single ITV regional current affairs programme in one of our regions led to reclassification of the drug crystal meth. This year an on-screen campaign on carbon monoxide poisoning by Calendar in Yorkshire has been credited with saving lives.
And in Wales “The Ferret” champions the cause of the Welsh consumer week after week in the heart of peak time on ITV.
Right across the network, our national and regional services are part of ITV’s DNA, our bond with our viewers, and play a crucial role in distinguishing us from the multi-channel hordes.
ITV’s wider PSB role
And remember all this massive PSB contribution in the nations and regions comes over and above our network public service output.
ITV News in which we invest twice as much and secure five times
the ratings of our nearest commercial competitor. We’re delighted
to be putting in place a contract with ITN to secure this through
to 2012.
There’s ITV’s arts coverage built around the peerless South Bank
Show – again secured for the long-term, through to 2009.
Plus there are still hundreds of hours of children’s programmes and
award winning religious output.
On top of this there is our massive investment in UK origination – more than Channel 4 and five put together.
In drama for example, we’re investing in fantastic British dramas as diverse as Coronation Street, Rebus, Time of Your Life, Emmerdale, Talk To Me, See No Evil, Heartbeat, The Queen, Midsomer Murders, Lewis, Mobile.
We spend £300 million per year on UK drama. Our nearest commercial competitor spends barely a tenth of that.
We’ve got the same lead in entertainment. And in free-to-air sports provision in the commercial sector we are virtually flying solo.
- Lewis Hamilton’s unprecedented success story in Formula 1 is playing out week after week, free-to-air on ITV.
- Only ITV is providing free-to-air coverage of Champion’s League soccer; and the FA Cup will join our football roster next year.
- And when Wales lift the Rugby World Cup this autumn that too will be live and free-to-air on ITV. One for the home crowd there…
Sport is part of the 90% of ITV’s peak schedule which is original programming and production, which I think is our core contribution to PSB.
Remember: we spend £1 billion a year on programmes, with the vast bulk ploughed into commissions from UK producers up and down the country.
That investment is not a function of any PSB obligation or licence requirement, but it is probably the most important public service ITV1 delivers.
Certainly there is a greater public interest in ITV continuing to deliver this commitment to high quality production right across its schedule, than there is in any quota for how many PSB angels should be dancing on licence pinheads.
Economic context
The breadth of ITV’s delivery – across the nations, the regions, and the network – is all the more remarkable when you consider the massive pressures on us these days.
We’re no longer competing against a handful of channels, but scores of them. And the likes of Google, Youtube and MySpace are muscling into our territory - and eating into our advertising revenues.
Since the start of the decade ITV1 revenues are down over half a billion pounds.
CRR – Contract Rights Renewal – makes a bad situation worse: last year alone ITV1 revenues dropped by £200 million.
Now, some of that pain is self-inflicted. On-screen we have not been performing as well as we should.
We’re seeking to address this. Simon Shaps and the commissioning team have a clear focus and we are starting to see some real green shoots from the extraordinary Britain’s Got Talent to dramas like Lewis, Time of Your Life and Kingdom.
We’ve got more work to do. And let’s be clear: we’re not afraid of increased competition. Quite the reverse: we’re determined to rise to meet it.
We’re putting our money where our mouth is: despite CRR and the revenue decline, we’ve held our investment in programming and original production year on year.
But we will not be able to do that indefinitely if performance on-screen and in revenue terms are not improved significantly.
Pressures on the nations and regions
Making the case for sustaining our investment in network programming is hard enough. But making it for investment in national and regional programming is even harder.
Take the ITV licence for ITV Wales and West.
It has the highest regional costs in the network. Already around 80% of its revenues are ploughed back into network and regional programmes.
On top of that it has to pay for transmission, sales, all the other raft of off-screen functions.
Even today the analogue licence is not generating a commercial return - and with digital switchover less than 2 years away there will be no let up in the pressure.
Ofcom recognised this when it set its licence payments to zero two years ago. But don’t be fooled into thinking that solves the problem. The fall in ITV revenues has been much greater than any reduction in licence payments.
In this hyper-competitive context, I have to say that some aspects of the debate on nations and regions still seem locked in the past.
There is an assumption that as much national programming as possible should be demanded, regardless of whether it is delivering for viewers, whether it is proportionate to the value of the licence, or whether it is commercially affordable.
Viewers to ITV Wales would prefer to see national programming at more appropriate levels, but scheduled where it matters.
In terms of production from the nations for the network, there is still talk of production quotas, turning back the ITV clock to the bad old days of “buggin’s turn” commissioning – a patrician age when regulation was based on the great and the good ‘knowing what was good for viewers’.
I frankly can’t understand why anyone would want to unpick 15 years of commissioning on merit, with equal access to all comers, in order to re-impose further obligations on the UK network which already has the best record of ex-London production.
My view is that producers across the UK need a healthy profitable ITV with incentives to maximise investment in the best UK production whatever the post-code.
And as I go around the newly devolved nations of the UK, including Wales, I have to say that I detect a new confidence, a self-belief that sits very oddly with all this talk of production quotas and positive discrimination.
Let me reassure you: given the pressure that we are under, ITV will commission the best ideas that producers put in front of us. In-house or indy. Regional, national or metropolitan. Inside the M25, west of the Severn Bridge or North of Carlisle.
The choice for ITV
My belief is that prescribed levels of programming for the nations or production quotas for the network are less and less relevant.
In an era of digital choice, viewers are ready, willing and able to decide for themselves what they watch and when.
The real choice for ITV in terms of national and regional provision is much more stark and more immediate.
There are two options in front of us.
Option 1 is to accept that post-DSO ITV will become a streamlined UK network on the lines of Channel 4 or five – and we could start preparing for that now.
Replacing regional programmes with network would save ITV around £100 million per annum with minimal revenue risk if we kept our regional sales.
That’s option 1. It is not the path I want to take, but – from a strictly business perspective – it’s a perfectly reasonable option.
Option 2 instead seeks to create a new generation of sustainable national and regional services on ITV1. Different from what we’ve had in the past, but fit for purpose in today’s ultra competitive world.
Let’s be clear: this is the choice. There is no option 3, no third way of everything just as it always has been and all our fingers crossed.
As Ofcom – with great foresight – set out several years ago, the status quo is not an option.
ITV is currently on-course at switchover to be carrying over £100 million of regional costs – on top of all our network PSB obligations – for licences worth a fraction of that sum.
No reasonable regulator can leave obligations in place if they imply a regulatory burden disproportionate to the value of the licences.
And remember: the clock is ticking. The start of switchover is just months away.
If we don’t move to a sustainable system now, the danger is that pressures will build up. And then when things come to a head, we will end up losing entirely something that – had we acted sooner - we might have sustained.
I think that would be a real loss for PSB in the UK – and also for ITV. Remember: no other commercial broadcaster provides any regional services. In regional news in particular, plurality of provision – an alternative to the BBC – depends on ITV being able to remain in the game.
ITV would also I believe lose something of real value – even if it doesn’t show on any balance sheet. Our regional services have helped define our relationship with our viewers. They like that service to be there. They turn to it when they need to – be it the foot and mouth crisis in the Borders or the floods in Sheffield earlier this week.
A Sustainable model for ITV nations and regions
That is why I favour the second option: creating a new generation of sustainable national and regional services for ITV.
As I have said before – and emphasised to staff across ITV - I believe that, together with our massive investment in UK production, ITV’s unique regional identity can be one of our two core assets in the digital age.
But that will only happen if we can develop a robust and sustainable economic framework for our national and regional services.
Sustainability requires a stronger revenue model and a more affordable cost base for the services we provide to the nations and regions.
If we can drive the revenues from one end and the cost structure from the other, we can achieve a regional service that ultimately washes its face, giving it the best possible chance of being sustained.
On both sides, it is a question of self-help first and foremost – ITV coming up with commercial solutions to the challenges it faces, rather than looking for a bail out. But – in each case – I think that there are regulatory changes going with the commercial grain that can play a role.
On the revenue side, we at ITV are actively seeking to improve the commercial case for investment in national and regional services.
We are out there building our airtime sales from the nations and regions. These were once the poor relation, but now they represent over 10% of ITV revenues and we want to increase that further.
We’ve also invested millions in ITV Local, our dedicated broadband proposition for the nations and regions.
I am delighted to confirm that today the service rolls out to Wales. Log on and enjoy a state-of-the-art digital news and broadband service delivered out of our Cardiff newsroom.
I am also delighted to announce that as part of this offering, ITV Wales is joining forces with S4C to deliver a bilingual broadband portal for the Welsh nation.
It will build on the valued programmes ITV Wales already produces for S4C, which include current affairs and documentaries. And we are delighted that ITV and S4C are able to work together to make it happen.
Together with the revamped ITV.com – the best broadband proposition of any UK broadcaster – we are confident that this online commitment will help us tap new non-TV revenues at the national, regional and local levels.
This kind of innovation will get us some of the way, but it won’t close the funding gap. The next stage in driving the revenue requires some regulatory imagination.
Under the current advertising rules, most national and regional programmes on ITV carry no advertising minutage.
Just watch our main national and regional news programmes weeknights at 6 pm. Most nights there is no centre break and no end break advertising in programmes like Wales Tonight, just straight into the national news at 6.30.
Because we have less advertising minutage than our digital competitors, we’re forced to strip out the ads and run them elsewhere – in Emmerdale, Coronation Street and nine o’clock network drama.
So in the currency of television advertising – commercial impacts – our national and regional news programmes make a minimal contribution.
Rather than incentivising us to invest in national and regional programming, the ad rules work to undermine their commercial value.
But what if ITV got an advertising credit for its national and regional programmes - say another two or three minutes for every hour of national and regional programmes we ran?
Immediately ITV would have an added incentive to invest in programming for the nations and regions.
And ITV uniquely could use that additional minutage to attract new money to TV, helping regional and national companies build their businesses.
That’s one opportunity. There may be others in areas like sponsorship, where regional services have faced barriers in the past.
Looking at the structural side, I think that – after 50 years - a comprehensive modernisation of the services that ITV provides is long, long over-due.
Again it is a two stage process.
Stage one was self help again. We’ve undertaken a £40 million investment in digitising our national and regional newsrooms. I’ve visited most of them already and I have to say that I am hugely impressed by the benefits of this investment.
Stage two means looking again at a federal structure we have inherited from the 1950s analogue transmitter map, overlaid by rounds of licence renewal.
In some areas, that is not a problem: the map still makes sense. Wales is clearly one such case, as are the other nations.
But elsewhere, the boundaries bear little relationship to regional and community identities on the ground.
And there’s little consistency across services:
The BBC is well ahead in regional news ratings terms in England. But it offers just 12 main regional services while ITV offers fully 16.
Four ITV regional programmes cover around half the English population. The other 50% are served by another 12 programmes and further sub-regional opts to boot.
It is not clear that this level of complexity and specificity is delivering maximum value for ITV viewers. It is actually some of our larger regions that have been performing most strongly in ratings and quality terms over recent years.
Take Granada Reports, the largest single regional news programme outside London. Ratings are up and it recently won an unprecedented national BAFTA for coverage of the Morecambe Bay cockle picking tragedy, which took us from the North West all the way to China.
As the economics of switchover bite, deploying that level of resources may only be feasible across regional services with that kind of critical mass. Otherwise we risk spreading ourselves too thin.
And with some flexibility and imagination, I genuinely believe that we can arrive at services for the nations and regions on ITV which combine the best of both worlds:
A structure that allows us to justify continuing heavy investment in every single service, but with enough of a national, regional and sub-regional focus to ensure that every viewer receives a service as good as we deliver today.
Indeed, with broadband complementing broadcast, I think those regional services could be better than ever.
If we are to arrive at the “sustainable model” for regional news that Ofcom has talked about, we need to look at all these issues.
Addressing the revenue opportunity and the structure, I think we may be able to get to a commercial solution to the real challenges we face.
And that is what I believe we all want to see:- regional news on ITV sustained for the digital age.
Network PSB issues
We should be under no illusion that – even then – there will remain pressures at the network level. Certainly the case for investing over £800 million in network programmes becomes more difficult to make every day that passes.
Again I think that there are solutions within our grasp: from advertising reform – and yes, that includes CRR – to an approach to spectrum allocation led by public value, rather than market price. Future proofing Freeview for HD must be part of that.
But those are issues – spanning the BBC, Channel 4 and ITV – for another day, another speech, another conference.
To return to my main theme today: it is my very firm view that, across the UK broadcasting ecology, across the commercial and public sector, across the nations and the regions, Britain really has got talent.
If we are going to continue to unleash the best of that talent going forward, we need to start thinking very radically.
Legislation, targets, quotas, all the many forms of intervention that the best regulatory minds can come up with, are not going to do it for us.
The days of spectrum scarcity, of dictating outcomes to broadcasters and to viewers, are long gone. They’ve got a choice, and they enjoy choice.
We need to give the commercial broadcasters the freedom they need if they are to compete in a tougher and tougher market.
We can then trust commercial self-interest to see that that money is spent on delivering viewers the best ideas from the best producers – regardless of race or creed, passport or postcode.
ITV also needs the freedom to modernise an analogue system of national and regional services for the digital era.
As I have said, Wales and the nations may be insulated from this process in terms of news. But I know that, nonetheless, some will portray any move from past patterns of delivery as the end of regional broadcasting as we know it.
But as I have said that is not – I repeat not – inevitable.
Perhaps speaking here in Cardiff the right parallel is with political devolution.
The doom-mongers predicted that devolution would put us on a slippery slope to the break up of Britain.
But in fact devolution has not meant the end of the union. Indeed, it may actually have strengthened it for the future.
The same, I believe, could apply to ITV’s national and regional services:
Moving to a sustainable model is not a betrayal of our heritage, but the only means of securing ITV’s national and regional services for the digital future.
Thank you.