Re: Give the market a free hand in Digital Britain

To
The Editor
Financial Times

Dear Sir,

Thanks for publishing this article by Mr. Jeremy Darroch. He is very kind enough to preach about innovation and sharing when Sky's whole business model is based on paying exorbitant money to buy sporting rights and deny the population the joys of weekend sports unless they are preparing to shell out atleast £45/month. Furthermore, Sky doesn't even share its content with other service providers (like Virgin Media) even on a pay-basis.

On the innovation front, the real innovation has come from BBC - its landmark Iplayer is a case in point.

Anyway, no matter what Mr. Darroch preaches (parrotting Mr. James Murdoch) the fact is only those companies will survive who take care of their customers and who innovate on a regular basis. The 6 billion pounds loss in the last quarter have shown the craks in Sky's approach. Very soon they will consume it, unless rather than talking the talk, they start walking the walk.

With kind regards,

Pradeep Kabra

Give the market a free hand in Digital Britain

By Jeremy Darroch

Published: February 3 2009 19:36 | Last updated: February 3 2009 19:36

So much has changed since Sky launched 20 years ago this week. The days when movies were an occasional treat and news happened three times a day are a distant memory. The pace of change has only accelerated since the launch of digital television, the rise of personal video recorders and the growth of broadband.

The consumer’s experience has been transformed. That is to be celebrated. But one feature has not changed much at all. The interim report on Digital Britain by Lord Carter, communications minister, reminds us that the traditional distrust of the market’s role in the provision of high-quality content is as strong as ever. Digital Britain proposes to support the creation of digital content and offset the decline in advertising revenues through alternative funding mechanisms. The usual suspects are rounded up for consideration: industry or equipment levies; allowing content providers to bid for public money; and various regulatory levers.

The document could have contemplated a more radical option. With a fresh approach, policymakers could choose to prioritise a positive climate for commercial investment. Consumers could make an informed choice about products and services they wish to consume and pay for. The revenues could drive profitable returns and reinvestment in further high-quality content.

What is the evidence such a formula could work? Look no further than the marketplace today. Subscription has grown over the past 20 years from zero to become the biggest single source of industry revenue. There is a growing array of content that meets public service broadcasting purposes without public subsidy. Our own channels make an important contribution in news, sport, entertainment and, increasingly, the arts. Broadcasters such as Discovery, National Geographic and The History Channel are also responding to consumer demand with increased investment in UK programmes.

While television advertising revenues are in decline and there are growing demands on public finances, there is nothing to suggest subscription will not continue to grow. Yet Digital Britain fails to comprehend fully that consumers’ willingness to pay for things they value can offer a sustainable model for funding high-quality content. It is accepted for newspapers, books, theatre and, of course, internet access. Why should television be different?

As consumers embrace the freedom to choose, the old system of regulatory levers is in decline. They worked best when advertisers had little choice of where to spend and a captive audience tuned in because there was no alternative. The certainties that underpinned the privileges and obligations of the commercial public service channels – ITV1, Channel 4 and Five – have gone forever. However, it takes longer to change broadcasting culture. Within the industry, too much time is spent on how to secure regulatory or political advantage instead of how to satisfy customers or viewers. Regulators and policymakers do not seem able to shake off their interventionist ways.

Nothing could be further from Sky’s view. We believe open competition and accountability to customers are a powerful force for the good of consumers and society. Government and regulators should encourage commercial investment and innovation. This is the approach advocated by Digital Britain, rightly, for development of super-fast broadband networks. But content is treated differently. Faced with threats to the public service broadcasting institutions, the proposed remedy is to increase the scale of state intervention still further. Digital Britain speaks of “a new organisation of the scale and reach needed for the multi-media, multi-platform digital world”, while Of­com, the telecommunications regulator, has referred to the possible nationalisation of Five within a larger state-controlled entity built out of Channel 4.

Never mind that there are already 17 channels on Freeview wholly or partly owned by the state. Or that the BBC receives £3.5bn of public money annually to provide a bedrock the market alone cannot deliver. Before being carried away by the rhetoric of big ideas, politicians and regulators should consider a more restrained framework. It would begin with more careful prioritisation at the BBC, which spends up to £100m of public money a year on Hollywood programming at a time when Ofcom has declared a crisis in UK regional news for the want of less than £50m a year.

And it would acknowledge the important role of private enterprise, safeguard the incentives for commercial investment and encourage the market to keep delivering for consumers.

The writer is chief executive, British Sky Broadcasting in Financial Times, 03-Feb-2009