Ofcom is now consulting on proposals requiring Sky to wholesale designated premium channels - Core Premium Sports and Movie channels - on regulated terms – including price.Ofcom believes that requiring Sky to make its premium channels available to other retailers on a wholesale basis is the most appropriate way of ensuring fair and effective competition

According to Ofcom, whilst Sky says it is happy to provide these channels to anyone who wants them, the term on which Sky offers them are so prohibitive as to make the deal make little financial sense to the third parties. According to Ofcom:

“Sky currently supplies its Core Premium channels to only one major third-party retailer, Virgin. Sky appears to believe that it is under a de facto requirement to supply Virgin due to previous competition cases. From our review of Sky’s own statements, our view is that its prices to Virgin appear not to be based on a commercial calculation (e.g. weighing higher prices against greater sales volumes), but rather on Sky’s view as to the highest price it can charge without coming into conflict with the OFT’s 2002 margin squeeze test. At the current wholesale charges, Virgin makes an incremental loss when it sells premium channels to an existing basic subscriber.”

Ofcom also points out that evidence shows that when approached about wholesale deals, Sky usually tries to get a retail deal, so it can retail directly to subscribers on the third party platform instead.

Sky obviously thinks it is being penalised for its commercial success, and for taking the risks of setting up its business. It has a point. However, there is also little denying that if Ofcom’s evidence of Sky’s unwillingness to negotiate wholesale deals in good faith is true; making it almost impossible for rival platform providers to buy any of its premium content, then it has little choice but to step in.

Sky would no doubt argue back that if third party platform’s know they can get football and films from Sky in wholesale deal on regulated prices, why would any of them bother to bid against Sky for the rights to these things. The Premier League are certainly worried that their cash cow could be effected.

The problem Sky and indeed any company that is both a wholesale buyer and a retail seller of services has is demonstrating how the different costs its charges its own retail business verses what it offers to sell that same content to other third party retailers is justifiable. This was part of the reason BT was split up and why other incumbent telcos are being forced down the same path.

Ofcom points out, that Sky should look for the silver lining in all this, and realise that it could make £250m a year from new wholesale deals, which would help cope with any potential loss of direct subscription income.

One thing is for certain, and that is that anyone expecting this to be resolved quickly would be mistaken. Sky will appeal any decision to the CAT and to the Courts in an attempt to delay any action which forces them to offer their content on FRAND terms.

Let’s start with the basics: Most of the broadcasting code is ridiculous.  With a code of some sort required by the Communications Act 2003, Ofcom doesn’t have much choice — Parliament essentially created a two-tiered system with heavy content controls (reflected in the broadcasting code) on television and radio, with virtually none (other than the general criminal laws) covering the internet.  The result?  We citizens and consumers are now thought to desire/demand certain types of protection on television and radio that we have come not to expect for the internet.  Unsurprisingly, therefore, Ofcom’s document only mentions the “internet” once — and only in passing.

So don’t expect a rational system of media policy for content regulation in the UK.

Anyway… so back to the Ofcom consultation.  I thought the interesting aspect of the consultation is that it is targeted to four areas where Ofcom thinks updates are warranted.  Ofcom is willing to consider other areas for change, but only insofar as it will tee them up for future consultation.

I have a few suggestions.  Five juicy pieces of low hanging fruit Ofcom can pluck off the tree of regulation…

Rules 2.6-2.9. Folks, check these out! They relate to protecting viewers and listeners from depictions of exorcisms, the paranormal and hypnosis.  It’s like when you first saw The Matrix and it blew your mind.  Only Ofcom is there to make sure you don’t actually think The Matrix is real.

Rule 4.5. Certain religious programmes (excepting radio) cannot seek new recruits.  I thought that was the whole point of religious activities?  Helpfully Ofcom tells us that seeking new recruits means appealing for people to join.  So why is this rule in effect only for television, not for radio and not for the internet?

Rule 4.7. This rule regulates programmes in which a living person is claimed to have special powers.  LOL.

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Don’t you agree that these are completely weird rules?  It’s as if Ofcom thinks that these five rules separate reality versus fantasy for UK listeners and viewers.  Without them, we would be lost … joining the wrong religions, believing in false demi-gods, and falling prey to the power of wizards.  On Freeview.

I suppose one can justify almost any regulation in that each of these in some sense could possibly protect a vulnerable person.  But these rules don’t really relate to any social problem that occurs on a regular enough basis to merit regulation.

There are many other portions of the broadcast code that are equally silly.  I recall the one episode where Ofcom adjudicated a Swedish language broadcast about the Swedish general election.  Classic.

I suppose all in all it’s just very hard to take much of this seriously.  Aside from the frauds associated with competitions — which Ofcom unfortunately did not pursue down the criminal route — these rules are often enforced with a hand slap at most.  With the steady rise of the internet some of these rules, particularly the ones aimed at regulation of news and current affairs, are already quaint.

So, sitting here in Atlanta, I thought I would analyse one local newscast to help make my point.  I watched the hour long local news for WSB TV here in Atlanta.  Here’s what I found out:

– For details of the newscast you can download this PDF file with a minute-by-minute review of the news content and advertising.  Click here: wsb-tv (only 5 pages long).  Folks, that took me about 2 hours to compile and analyse.  I’d like to see Ofcom conduct more research of this nature.

– The U.S. has no advertising limits during non children’s television programming.  So the amount and type of adverts is up to the broadcaster’s business judgment.  For an hour of very robust local news in Atlanta, you need to be prepared to sit through about 18 minutes of adverts.  I counted 17 minutes and 50 seconds, but I could be off somewhat — it was all so fast.

– 18 minutes per hour.  Now that’s about double the advertising that Ofcom would allow during the same time period.  Ofcom allows between 7-9 minutes per hour.  I think the EU maximum is 12 minutes per hour.  Trust me, 18 minutes is a considerable amount of advertising for one hour, but the alternative is probably a very diminished offering or stations dropping local news altogether.  Trust me, the U.S. government will not fund local television news under any scenario.  Not gonna happen…

– It’s surprising to me that the EU regulates this area more lightly than Ofcom.  If Ofcom were to just de-regulate up to the European 12 minute maximum, that already would pump much more private investment into broadcasting.  In any case I think it shows a trade-off that Ofcom and the government are really reluctant to explore.  Bottom line:  There probably is enough money in the UK system to support local news provision if (i) more advertising per hour were allowed and (ii) certain types of banned adverts could be aired (the latter being covered elsewhere).  Ofcom addressed the issue of advertising minutage limits issue in its 26 May 09 advertising statement, but I thought it was overly paternalistic.  It’s odd that Ofcom never really draws a link between its restrictions on advertising and the lack of local news provision in the UK.  If commercial television is mostly advertiser funded, there must be a strong link.

– The news budget available at WSB-TV Atlanta — even during these harsh economic times — really shows itself off during the programme.  Multiple live shots with on-the-scene reporting, the news and traffic chopper, loads of taped footage and interviews from news scenes.  The weather forecast is also very professional.  It is fast paced and many items are presented very quickly, but then again the same station runs another full-hour newscast at 6pm and another half-hour at 11pm.  I suppose they also need to appeal to the ipod /twitter generation.  Some of the coverage is too shallow because of the pace — but let’s face it — it is impressive to see that many reporters and that much on-the-scene reporting in your local city.

– Keep in mind that today in Atlanta between 5pm and 7pm I had available to me four different television sources for local only (Atlanta) news.  The total amount of local news available during that two hour time period was five hours total.  That doesn’t count national networks or cable networks such as CNN or MSNBC.  Or local radio.

– WSB is fairly typical for a larger market television station.  It is owned by a group owner.  There is also some overlap with other media interests.  In this case, it’s a newspaper and some radio stations.  Finally, it is affiliated with Disney-owned ABC so it can draw on larger resources from time to time.  The 5pm news cast also had a great lead in programme:  The Oprah Winfrey show.

More later, stay tuned…

More later when I’ve had time to read the entire report.  But here are some initial thoughts:

– Reviewing the comments on the MediaGuardian, Telegraph, etc., it seems that the report’s recommendations are not sitting well with the public, for a variety of reasons.  The new tax doesn’t help. I saw one commenter write something to the effect of: ‘I cannot believe the government are going to charge me to watch ITV!’.  Something like that.  Let’s face it, ITV is unwatchable.  Requiring the public to pay to watch ITV is a crime against humanity.

– Emily Bell was underwhelmed.  Dan Sabbagh noted the failure of Lord Carter to reach the required deals to reach the more ambitious goals.  The Register soundly mocked the report.  Jeremy Hunt MP — and he nailed this one — said that the report mostly spawns more consultations and reviews.  I really thought Hunt delivered the most strategic critique of the report.

– My latest interest is the local news subsidy.  That is addressed in Chapter 5 of the report.  I read it earlier today.  The report’s assertion that the market will particularly fail to provide a plurality of news content (para. 25) is weak.  It’s certainly not evidence based and does not take into account the massive amount of government regulation of advertising since 2003.  It also misses the obvious U.S. comparison.  Jeremy Hunt MP further explores the U.S. example and claims:

In America even much smaller cities have not one but a whole clutch of local news channels, greatly enhancing both a sense of community and vibrant local democracy. None have access to a licence fee. So instead of putting yet more burden on taxpayers why is the government not embracing a digital-era version of syndicated local TV, something that could also prove to be a lifeline for our local newspaper industry?

(more on the U.S. local news comparison here).

Exciting times… stay tuned, folks…

Richards and Carter ride again!

The Palm Beach (FL) shut-off (like Apollo 11 he says!):

Ohio (wearing a helmet!):

Louisiana:

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The USA:  Six time zones.  3.8 million square miles.  A nation of 300+ million TV addicts.

It’s all digital now, baby!  Coast to coast.  Well, almost.

Some broadcasters pulled the analogue plug just after midnight.  Other stations will do it throughout the day on Friday.  Many vulnerable people left behind?  Probably.  I’ve heard that about 2-3 million Americans don’t know what’s going on and have not prepared.  I’ll update this post if anyone goes really crazy.

I thought this was amusing:  A station engineer from North Carolina remarked on his blog today:  ‘Ready or not I’m throwing the switch at 12:30 pm tomorrow afternoon.’   He will!

How to dispose of your analogue television in an eco-friendly manner:

I’ve always said that anyone looking at the issue of how to best fund / provision high quality local news should undertake comparative U.K. / U.S. research.  Why?  The U.S. has great local TV news in most communities. Multiple providers (plurality), HD newscasts, helicopters (bigger markets), ultra sophisticted weather RADAR, local sports, live spots at crime scenes, etc.  Here’s the great thing:  There is no boring debate on how to fund it.  For the most part, it’s advertiser funded.  It’s just not an issue for most people.  Even now, in the depths of the worst economic times since the Great Depression, the local broadcasters do not seem to have appreciably trimmed their coverage of local events (at least in Atlanta, the market where I live).

I raised this issue with Ofcom a few times in its PSB review.  I was told (or it was suggested to me, I cannot remember) at some point during the PSB review that Ofcom was going to examine the U.S. experience and see what it can tell us.  It was supposed to be addressed in Ofcom’s Sept 2008 Phase 2 report.  Ofcom mentioned the U.S. a few times, but it was really summary data and mostly relegated to Annex 12 (here), dealing with Scotland.  It wasn’t very robust and it didn’t answer the key question:  What explains why local news is flourishing in the U.S. but struggling in the U.K.?

So what would useful comparative research look like?

– I think it would be qualitative in nature

– It would target one or more U.S. markets that are demographically comparable to U.K. markets

– It would involve a content analysis of the local stations’ news output

– It would examine all of the advertising in and around local news

– It would examine other programming in and around local news (including web & network affiliate)

– It would look at the financial perspective (how local news fits into stations’ overall business)

– It would look at headcount, training, technology

– it would be a large research project, but one that could be completed in 6 months

According to Ofcom local TV ad spend in the U.S. is tens times larger per capita than the U.K.  I bet ITV would do a lot more local news if they could get ten times the local ad spend!  So, let’s get behind that number. What explains it?  Market structure?  Maybe in part.  Are we more local in the U.S.?  I doubt that.  Do we get more local pizza delivered?  Maybe.

One thing is certain:  We do have laws and policies that are substantially different.  So I would combine this qualitative research with a comparative U.K. / U.S. legal analysis of laws and policies relating to advertising, due impartiality, listed events, media ownership, etc.  I suspect most U.S. local stations make the bulk of their money doing things that are otherwise prohibited in the U.K. and/or Europe:  political / issue adverts, HFSS adverts, Olympics adverts, pharma adverts, more adverts per hour, news sponsorship, etc.  I think people should know the trade-offs involved:  How do these laws and policies siphon money away from local news in the U.K.?  Are U.K. policy makers making the right trade-offs?  Maybe they are, but the relevant facts are not on the table.

The U.K. — over the years and through a series of piece meal decisions — has opted for a legal/policy regime that minimises broadcasting revenue and robust debate in favour of a safe and less commercial television environment that is perceived as more fair.  That’s my take. We shouldn’t be surprised that (i) the internet is now the place for robust debate and political discussion in the U.K.; and (ii) television broadcasters are dumping news because it doesn’t pay.  Some people claim those developments are inevitable.  I disagree.

* * *

Anyway, I think Ofcom usually does a good job of integrating research into policy debates.  But in this case, the most compelling story about local / regional news is why it works astoundingly well in the U.S. and why it needs government intervention in the U.K.  But all we have is some anecdotal data and the desk research performed by Oliver and Ohlbaum for Ofcom.  Shouldn’t Ofcom or the U.K. government undertake much more research before addressing these important questions?

I think so.  But it appears as if the U.K. is about to make the really lazy choice to just shift the excess DSO portion of the BBC licence fee over for local news provision, blaming what it thinks are the natural forces of the digital revolution.

I pursued an anti-fraud case from 2001-2006 that involved the FCC’s radio spectrum auctions.  The case was complex, maybe even a bit boring from an outside perspective.  But it showcased a lax regulatory approach to compliance that was costing US taxpayers hundreds of millions of dollars.

The case bounced along under the radar for four years until John Wilke profiled it on the front page of the Wall Street Journal.  It was a colourful story that precisely distilled much of the evidence that was buried in piles of legal papers.  The net effect was that the WSJ article put searing pressure on public officials to react to my claims.  All of a sudden things changed:  Embarrassed by its inaction, the FCC became more cooperative with my legal team and started to actually review the evidence of misconduct we had unearthed.  (I think previously the FCC just hoped the case would quietly disappear.)  The Department of Justice announced it was going to intervene and attempt to bring the case to a conclusion.  The case was finally settled with the defendants and the federal government was repaid millions.  More importantly, I’m guessing the FCC is much more careful about how it auctions radio spectrum now.

So there is a huge public value to quality investigative journalism.

UPDATE:

Here is the stunning first paragraph of Wilke’s WSJ story on my case:

When the government auctioned off slices of radio spectrum for cellphone service, one big winner was Victoria Kane, an aerobics instructor who had no experience in the industry. Her start-up firm, Aer Force Communications, paid $18.9 million for five licenses that were later sold in a deal valued at $144 million.

Evidence-based intervention?

Ofcom has recently become involved in a spat with the BBC over regional news funding, according to The Guardian.  They report a senior Ofcom person as saying:

“This is an extraordinary development, for the BBC to say that our numbers are fantasy. It makes them look foolish, engaging in name calling, attacking Ofcom directly, at a key moment for the industry. I am furious. ..”

One of Ofcom’s guiding principles, according to their website:

(Ofcom’s Regulatory Principles, No.4) is that Ofcom will strive to ensure its interventions will be evidence-based, proportionate, consistent, accountable and transparent in both deliberation and outcome. A recent blog post recalled to mind a degree of skepticism over this objective and in November 2007 ‘Which?’ also published significant research which seems pertinent on the issue of Ofcom’s decision about junk food advertising and children’s TV.  In fact all-in-all it seems Ofcom’s decision was politically-driven, not evidence-driven.

Followers of this blog will recall that one of Ofcom’s primary duties is to further the interests of citizens in relation to communications matters. This duty was imposed by Parliament, against the express views of Lord Currie who regarded it as superfluous. Later the British Humanist Association were monitoring Ofcom’s annual plan and noticed a constant coupling of citizens and consumers. They wrote:

‘The point about the inclusion of reference to citizens in the Communications Act was that our interests as individual consumers can be very different from our interests as a community of citizens….’

In response Ofcom set up the Citizens Communication And Convergence Consultation.  However just after the consultation period ended in 2008 Ofcom’s lead person, who had been involved with it for over 2 years, moved to their Consumer Panel. It remains to be seen how the 25 submissions are to be analysed and incorporated into Ofcom’s decision-making processes.

More recently it’s reported that Ofcom has been caught up in European telecoms decision-making, specifically in the matter of the Telecoms Package, debated in the European Parliament in May 2009 and due to be revisited shortly. I’m told:

‘To the surprise of many, Ofcom was heavily involved in direct lobbying of Members of the European Parliament on the Telecoms package, across a range of issues. Ofcom took part and intervened in a number of Council discussions, normally reserved to governments. Ofcom was also allegedly present at most if not all internal governmental discussions in Westminster, not acting only in an advisory capacity ….’

Ed Richards has been invited to comment on these points, so far without success.

The question of Net Neutrality, for example, is admittedly a complex one, but in principle it ill behooves a regulator which conducted a consultation about its duties to citizens some months ago and has not yet formally digested the submissions received (many from eminent authorities), let alone incorporated the findings into its decision-making processes, to act in the manner reported.

With the European elections upon us, readers might like to ponder how their European Parliamentary representatives have conducted themselves on telecoms policy. Heartily recommended is IPtegrity - they have a special section or Europe-wide you can check here.

Steve Unger, competition policy director for Ofcom, sent this letter to the MediaGuardian today:

Although the “argument” over the future of Pay TV may have been raging for over three years (TV review: Ofcom’s three-year Sky drama is set to run and run, 25 May), we launched our investigation in March 2007, and we received the first submission from Sky’s competitors that we were able to disclose to Sky in June of that year, slightly less than two years ago.

In the course of our work we have faced the challenge of a huge volume of submissions from interested parties, the last of which we received as late as last week. As Steve Hewlett says: “Once you appreciate some of this detail you can begin to see that the scope for legal challenge and counter-challenge is almost endless.” That is why, as ever, we are being thorough in our research and analysis as we make our own independent assessment of the competition issues.

We recognise the commercial challenges currently being faced by companies in this sector, and the need to reach closure on the current regulatory debate, and we will be setting out our proposed way forward this month.

Well, despite the complexity here, I think Ofcom needs to recognise that its delay is unacceptable and has undoubtedly harmed Sky’s legitimate commercial interests.

Think about it … back in March 2007 when Ofcom started looking into this matter nobody knew who Barack Obama was.  Yeah, it’s been that long!

Want a comparison that is more on-point?  The telecoms strategic review, a regulatory intervention of significantly more importance to the UK economy, took about 1 year and 9 months to conclude — start to finish.  Moreover, the telecoms strategic review commenced just as Ofcom was formed from its merger of the legacy regulators.  This Pay TV matter is a minnow by comparison and commenced well after Ofcom became a seasoned regulator.  Amazingly, the Pay TV consultation started with a big dispute about Ofcom’s delay in getting it started.  It only got worse.

(Another, obscure procedural point:  What submission did Ofcom receive last week?  There is no way to determine with Ofcom’s dysfunctional consultation website system when an interested party submits a document on a pending policy matter.  Other interested parties and the public are deprived of any ability to review the documents.  Ofcom really needs to work on its fairness and transparency in these types of matters.)

I haven’t read the research ($20 to purchase it — thanks, guys) but here is a link to the abstract.  It appears that the researchers only reviewed three terrestrial television channels in the UK over a one week period in 2006.  That means they did not review satellite/cable dedicated children’s channels.  Still, one cannot really say Ofcom did that much research after its July 2004 report.  The regulator was basically ordered to adopt restrictions by the UK government.

Advertising restrictions that cover lawful products and lawful speech are severe limits on our freedom of expression.  Yet they are often most commonly associated with media panics, pseudo-science and gesture politics.

I suppose the broader point is whether any restrictions on advertising really serve their purpose, particularly when they are aimed at the increasingly narrow medium of television.