Ofcom has published a report on its review of the operation of the UK television production sector (the Review). The Review is a response to the request by the Secretary of State for Culture, Media and Sport (the Secretary of State) that Ofcom “undertake a more detailed review of the operation of the television production sector and to set out options for reform of its regulation” following Ofcom’s review of Public Sector Broadcasting last year.
The regulatory backdrop to this Review is the Communications Act 2003, which regulates the use of independent television producers by public service broadcasters (PSBs) and aims to “promote cultural diversity and to open up the production system to new energies and voices; to stimulate the growth of small and medium sized enterprises (SMEs); promoting creativity and fostering new talent; and to tackle vertical integration within the UK programme supply market”. It contains two key requirements for PSBs: (i) an independent production quota, requiring at least 25% of programming to be commissioned from independent producers, and (ii) Codes of Practices, which set out the principles PSBs will apply when agreeing terms with independent producers.
The Review found that the UK television production sector “has changed significantly in the last twenty years and the last few years have seen that pace of change increase”. Some of these changes are a mark of the sector's success: its “cottage industry” has transformed into a highly successful sector benefitting from significant financial growth, international reach and a number of new market entrants. However, this success has led to growing levels of consolidation which has resulted in a smaller number of producers, a more concentrated market, an increase in vertical integration between broadcasters and producers and an increase in the level of foreign ownership. Yet despite the consolidation, levels of disruptive new market entrants remain high and there is still a “strong, vibrant long tail of small, qualifying UK producers”. Due to the dynamic nature of the market - which is being shaped by increasing global opportunities and the population's changing viewing habits - it is difficult to predict whether the next five years will bring radical or gradual change.
Despite these significant structural changes to the market, the Review found that the objectives of the regulatory regime are still largely being met. In addition, the Review found that the regulation is largely "self-correcting" and has continued to provide the envisaged protections in the new market structure. For example, an independent producer which has been bought by a company which also controls a UK broadcaster will no longer meet the definition of a qualifying independent producer and therefore cannot be included in the independent production quota. This means that small producers have more opportunities despite the level of consolidation. The Review did note, however, that the regulation does not require the use of SME producers or producers from a wide range of geographies.
The Review also identified two key concerns that could arise in the future:
- future consolidation may not be linked to vertical integration, which would mean that larger companies would continue to be protected by the regulation; and
- broadcasters and producers may be unable to reach a commercial agreement on the exploitation of rights and the associated revenues, particularly in the context of new digital platforms.
To address these concerns, the Review considered a number of options for reform with the view to “avoid further detailed and complicated regulation and to seek to promote industry negotiation, with regulatory action as a last resort.” It also dismissed complete deregulation on the grounds that the outcome would be “uncertain and risky”. In the end, Ofcom recommended to the Secretary of State two potential options that might merit further consideration. The first is to narrow the definition of a qualifying independent producer by introducing a size cap to ensure that only SME producers qualify for protection under the regulation. The second is to reform the rights and revenue shares between PSBs and producers, however Ofcom indicated a strong preference for this to be achieved through commercial negotiation rather than regulatory reform.
The Review concludes that although the current regulation is still effective and "there remains a diverse and vibrant SME production sector and the system continues to promote very high levels of market entry”, if the status quo continues then it would be “important” to keep the sector under review.