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					Public Value Assessment:
BBC On-demand Service
Proposal
January 2007



This report    has   been   redacted   for
publication
Contents

Preface                                         5

1    Executive summary                         9

2    The service proposals                     18

3    Assessment approach                       26

4    Fit with BBC Public Purposes             32

5    Quality and distinctiveness               39

6    Impact (consumer and citizen benefits)    50

7    Reach                                    65

8    Cost and value for money                  82

9    Service parameters                        99

10   Conclusions                              110
Annexes
These are provided as supporting evidence at www.bbc.co.uk/bbctrust


A     List of industry respondents

B     Summary of industry responses received

C     The BBC Public Purposes

D     Relevant definitions

E     PwC report

F     Sparkler report

G     BBC Executive’s proposal (BBC Executive’s assessment of the public value
      of its new on-demand services, 26 June 2006)

H     Human Capital reports
      o Independent advice to BBC Executive on the potential for market
        impact of the BBC’s new on-demand proposals, 2006
      o BBC on-demand services – Deliberative Jury, March 2006

I     MORI report (Building a Digital Britain: Evaluating New Services)

J     Trial research:
      o iMP content trial research, February 2006
      o Cable video on-demand quantitative research, February 2006
      o Radio downloading and podcasting, December 2005
Preface
A. New BBC governance arrangements
The BBC Trust (also referred to as the ‘Trust’) came into existence on 1 January 2007 under
the BBC’s new Charter. This Charter marks a radical overhaul of how the BBC is governed,
with the BBC Trust replacing the previous Board of Governors as the independent body
responsible for regulating the BBC.

The new governance arrangements work by creating within the BBC two independent and
separate management bodies, the BBC Trust and the BBC Executive. These two bodies each
play important, but different, roles. The main roles of the BBC Trust are in setting the
overall strategic direction of the BBC, including its priorities, and in exercising oversight of
the work of the BBC Executive. The BBC Executive has responsibility for delivering the
BBC’s services in accordance with the priorities set by the BBC Trust and for all aspects of
operational, day-to-day management, except that of the BBC Trust’s resources. The BBC
Trust has its own dedicated support staff in the form of the Trust Unit. The Trust Unit is
managed by the BBC Trust in all respects and is independent from the BBC Executive and
the other staff of the BBC.

The BBC Trust is the guardian of the licence fee revenue and the public interest in the BBC.
It has ultimate responsibility, subject to the terms of the Charter and the Framework
Agreement, for the BBC’s stewardship of licence fee revenue and other resources; for
upholding the interests of licence fee payers and the public interest generally in the BBC and
for securing the effective promotion of the BBC’s public purposes. In exercising all its
functions, the BBC Trust must act in the public interest and, in particular, must comply with
the general duties specified in Article 23 of the Charter. These duties are to:

(a)    represent the interests of licence fee payers;
(b)    secure that the independence of the BBC is maintained;
(c)    carefully and appropriately assess the views of licence fee payers;
(d)    exercise rigorous stewardship of public money;
(e)    have regard to the competitive impact of the BBC’s activities on the wider market;
       and
(f)    ensure that the BBC observes high standards of openness and transparency.

The BBC Trust, in preparing this Public Value Assessment (PVA), has also been conscious of
principles of better regulation, specifically that regulation should be proportionate,
accountable, consistent, transparent and targeted.

It is the BBC Trust’s intention to ensure greater transparency in how the BBC does its
business and, for the first time, to give the public a say in setting the strategic direction of
the BBC. The issue of this document, which gives the BBC Trust’s PVA on a proposed new
BBC service, is one part of this greater transparency. The BBC Trust has borne in mind
throughout this PVA process that it must act in the public interest, and part of that is
communicating clearly. Although the process raises issues of some complexity, we have


                                                                                              5
sought to communicate in a way that can be readily understood by members of the public
and which facilitates intelligent consultation.

More information about the BBC’s new governance arrangements can be found on the BBC
Trust website at: www.bbc.co.uk/bbctrust.

B. Service licences
Under the new governance framework, the BBC Trust uses service licences to ensure that
each BBC service creates public value by delivering the BBC’s public purposes. Each of the
BBC’s 27 existing UK public services has a licence, which contains a description of the key
characteristics of the service, any conditions of service (for example minimum levels of
output) and indicators against which performance will be measured.

The Charter makes clear that the BBC should be able to alter its UK public services – for
example to respond to changes in technology, culture, market conditions, public
expectations and so on. However, any significant proposals for change from the BBC
Executive must be subject to full and public scrutiny. The chief means by which this scrutiny
takes place is the Public Value Test.

C. Public Value Test (PVT)
If the BBC Executive proposes to launch a new UK public service or make significant changes
to an existing UK public service, the BBC Trust will consider the proposal and decide
whether to launch a PVT. The BBC’s UK public services include all the BBC television and
radio channels broadcast in the UK and the BBC’s online services. They do not include the
BBC’s overseas services nor its commercial services, such as the publication of magazines or
sale of videos by the BBC subsidiary BBC Worldwide.

Where a PVT is undertaken the new service or change must not happen until that process is
complete. The PVT has several elements. A PVA is prepared by the BBC Trust to ascertain
the likely public value of the proposed change. This document is a PVA. In making this
assessment, the BBC Trust acts in accordance with the requirements of a Framework
Agreement concluded between the BBC and the Secretary of State for Culture, Media and
Sport (Framework Agreement). It also must comply with all its other legal duties including
the general duties in Article 23 of the Charter, set out above.

At the same time, the communications regulator Ofcom prepares a Market Impact
Assessment (MIA) examining the extent of any likely adverse impact on markets relevant to
the proposed change.

The BBC Trust then considers the outcome of these two assessments and reaches
provisional conclusions on the proposed change. In order to conclude that the proposed
change should be made, granting approval either with or without conditions, the BBC Trust
must be satisfied that any likely adverse impact on the market is justified by the likely public
value of the proposed change. It also must be satisfied that approval would be consistent
with the BBC Trust’s duties under Article 23 of the Charter and its other legal duties. The
BBC Trust’s provisional conclusions will be the subject of public consultation. The BBC
Trust will review and take account as appropriate of all representations received before
making its final decision on whether or not to approve the proposed change.
                                                                                              6
D. Public Value Assessment of the BBC on-demand service proposals

During 2006, the BBC Executive put forward an application to the BBC Board of Governors
for the launch of a package of new on-demand service. Although this was prior to the launch
of the new governance arrangements to be introduced under the BBC Trust, the Board of
Governors agreed that they would start the assessment of the proposals using the PVT
framework that was expected to take effect under the BBC Trust and pass this work to the
Trust in due course.

Shortly thereafter, on 10 October 2006, the BBC Governance Unit published Interim rules for
the conduct of a Public Value Test (Interim Rules). These Interim Rules, approved by the BBC
Board of Governors provide guidelines for the conduct of the PVA, MIA and PVT. They are
available in full at www.bbc.co.uk/trust. Pursuant to the transitional provisions under the
Charter and Framework Agreement, the BBC Trust has decided that it is generally
appropriate to adopt the Interim Rules for the purposes of conducting the PVT for the on-
demand proposals. The BBC Trust has decided to depart from the Interim Rules in a few
instances, for the reasons explained below.

The MIA of the proposed services is being considered by Ofcom, overseen by a joint
steering group on which the BBC Trust and Ofcom are equally represented, and is the
subject of a separate report.

Preparation of this PVA commenced before the transition to the new governance
arrangements on 1 January 2007. Accordingly, some of the work required to inform the
Public Value Assessment was undertaken by the BBC Governance Unit in late 2006 under
the guidance of the BBC Board of Governors. The BBC Governance Unit reported only to
the BBC Board of Governors and acted independently from the BBC Executive. On 1
January 2007, the BBC Governance Unit was replaced by the BBC Trust Unit, an
independent unit that supports and assists the BBC Trust and its members. The BBC Trust
Unit took over preparation of this PVA, under the supervision and guidance of the BBC
Trust, and has contributed its own analysis. Additional research has been obtained from the
external experts referred to in the body of this assessment.

As of 1 January 2007 the BBC Trust took over responsibility for the PVA from the Board of
Governors. The BBC Trust thanks the Board of Governors and the BBC Governance Unit
for its work on these proposals. Although the Interim Rules refer to the PVA being the work
of the BBC Trust Unit, it is more accurate to say that the assessment is and should be made
by the BBC Trust. The BBC Trust has accordingly departed from the Interim Rules in this
respect. The BBC Trust’s conclusions on the public value of the proposed on-demand
services, together with accompanying rationale and analysis, are set out in this document.

It should be noted that conclusion of the PVT process was originally scheduled for 28
February 2007. A decision of the Board of Governors on 10 October 2006 extended time
for completion of the process by one month. This is permitted by the terms of the

                                                                                          7
Framework Agreement where justified by the circumstances. Given that this is the first PVT
undertaken and it has had to be concluded during a transitional period in which
responsibilities were transferred between different organisations, the Board of Governors
(and the BBC Trust) consider that the extension is justified.

All comments and conclusions in this document are made solely in the context of the on-
demand proposals that are the subject of the present PVA. The matters dealt with and views
expressed in this PVA in no way fetter the BBC Trust’s ability to consider any and all
relevant matters in future PVTs and any non-PVT consideration of BBC activities.




                                                                                        8
1 Executive summary
Summary
Our overall conclusion is that the service proposals as a whole, and individually,
will deliver significant public value, primarily by making high quality BBC content
more readily available to audiences.
It is the BBC Trust’s view that certain service conditions should be considered to safeguard
the public value in the proposals put forward by the BBC Executive and to strive for even
more public value. It is recommended that these should include performance criteria around
quality and reach measures and a requirement that a formal review of performance against
these measures be conducted after two years of service operation. The full set of
recommendations is set out in section 10.4 of this document. It should be noted that the
service conditions outlined in this PVA deal only with public value. Conditions to mitigate
adverse market impact, if any, will be addressed in the MIA.



1.1   Introduction

During 2006, the BBC Executive put forward an application to the BBC Board of Governors
for the launch of a package of new on-demand services. Although this was prior to the
launch of the new governance arrangements to be introduced under the BBC Trust, the
Board of Governors agreed that they would start the assessment of the proposals using the
PVT framework that was expected to take effect under the BBC Trust and pass this work to
the Trust in due course under the terms of the transitional provisions of the Charter and
Framework Agreement. As of 1 January 2007, the BBC Trust took over responsibility for
the Public Value Assessment from the previous Board of Governors.

The BBC Trust Unit is the independent unit that supports and assists the BBC Trust.
Analysis has been carried out by the BBC Trust Unit so as to assist the BBC Trust in
undertaking this PVA (and formerly by the BBC Governance Unit in the transition period
prior to 1 January 2007 when it supported and assisted the Board of Governors). External
expert opinion and research was also provided by the BBC Executive with its application and
more was commissioned by the BBC Governance Unit. The Trust has considered the
research commissioned by the BBC Governance Unit, as the change in the governance
arrangements, including the shift in responsibility from the BBC Governance Unit to the
BBC Trust Unit, has not affected the relevance of that material. The BBC Trust thanks the
BBC Governors and the BBC Governance Unit for their work on these proposals.

The BBC Trust’s conclusions on the public value of the on-demand proposals, together with
accompanying rationale and analysis, are set out in this document.

1.2   The service proposals

The BBC Executive wishes to launch a package of on-demand services. These include four
individual service elements:

                                                                                          9
      A     seven-day TV catch-up over the internet;
      B     seven-day TV catch-up over cable;
      C     simulcast TV over the internet; and
      D     non-Digital Rights Management (DRM) audio downloads over the internet.

We consider it appropriate to assess separately the public value of each of the four
individual service elements, since they have different characteristics, costs and benefits.

The BBC Executive intends to combine the three internet-based proposals into a direct to
consumer offering called BBC iPlayer – to which reference is made in their application
document. The BBC iPlayer will also comprise other audio-video services already offered on
bbc.co.uk.

The Trust considers that the BBC iPlayer does not need separate approval under this PVT.
The Trust’s reasons for this decision were that many of the features of the BBC iPlayer were
already provided by other mechanisms on bbc.co.uk. In large part, the BBC iPlayer
represents a re-branding and amalgamation of existing mechanisms. To the extent it includes
new elements, these have been assessed and it is decided that they are already permitted by
the terms of other existing approvals, specifically the bbc.co.uk approval provided by the
Secretary of State. In any event, it is noted that the BBC iPlayer, as a brand, is not a service
in its own right. The full PVT approvals process only applies to UK public services. The plans
for the BBC iPlayer are not, however, irrelevant in the Trust’s consideration of the BBC
Executive’s application since the public value of the proposals relies to some extent on
features of the BBC iPlayer. The Trust’s consideration of the proposals has therefore had to
assess how features of the BBC iPlayer add to the public value of the proposal (for example,
in terms of quality and distinctiveness) and whether alternative means by which to access the
new services might be better.

We note that development of additional technical features which are not part of the
application and which could represent a significant change to the bbc.co.uk service may
require BBC Trust approval in the future.

1.3       The assessment approach

The BBC Trust’s PVA has been undertaken largely in accordance with the terms of the
Interim Rules for the conduct of a Public Value Test published by the BBC Governance Unit on
10 October 2007 (available in full at www.bbc.co.uk/bbctrust). Certain departures from the
Interim Rules have been made where noted below and for the reasons described below.
This departure is legitimate because the Interim Rules must be read subject to the overriding
obligations in the Charter and Framework Agreement and because the Trust is only
permitted to adopt the Interim Rules in so far as it considers it appropriate.

The BBC Trust has assessed the public value of each of the four service elements within the
proposals (set out in section 2) separately. At the outset, the BBC Board of Governors
considered which aspects of public value might be relevant to the proposals. The Trust has
reviewed the aspects considered relevant and agrees that these are the right ones and that

                                                                                            10
no other specific aspects are relevant in this particular case. The Governors concluded that
the main drivers of public value were likely to be:

   o   fit with public purposes;
   o   quality;
   o   impact;
   o   reach;
   o   cost and value for money

These are the factors identified as likely to be relevant in the Interim Rules. It should be
noted, however, that the BBC Trust has departed from the Interim Rules to adopt a broader
definition of ‘reach.’ In assessing reach for the purposes of this PVA, the Trust considers it
necessary to look at the number of people who access BBC content but also considers it
necessary to evaluate the potential volume of consumption of BBC content that the
proposals will achieve. The Trust’s assessment of reach therefore comprises four elements:
(i) will sufficient people use the proposed services for them to be worthwhile; (ii) will the
proposed services increase, maintain or lessen the reduction of total consumption of BBC
content; (iii) will the proposed services increase consumption by and reach to any particular
groups having special relevance to achievement of the BBC’s Public Purposes; and (iv) will
the proposed services increase the consumption and reach of content that tends to appear
in the margins of linear broadcast schedules. The BBC Trust has adopted this approach
because it considered it to be more appropriate in the context of the BBC’s Charter and
Framework Agreement duties. This broader definition of reach and the reasoning behind it is
revisited in sections 1.7 and 7 below.

The BBC Trust next considered how those aspects of public value should be explored and
evaluated. In coming to its conclusions on the public value of the proposals the BBC Trust
drew on a wide range of evidence. This included:

   o evidence submitted by the BBC Executive (included in Annexes H, I and J);
   o additional research/independent advice commissioned by the Trust (included in
     Annexes E and F);
   o analysis undertaken by the BBC Trust Unit;
   o representations from stakeholders (a list of respondents and a high level summary
     included in Annexes A and B respectively).

This evidence is referred to and summarised throughout this PVA report.




                                                                                          11
1.4   Fit with BBC Public Purposes

We consider that the service proposals have a good fit with the BBC’s public
purposes, contributing in particular to the take-up of emerging technologies.

Under the Charter, the BBC has six public purposes. Each individual BBC public service must
contribute in some way to these purposes overall (although not necessarily to each
individual purpose).

The proposals comprise in essence a delivery mechanism by which audiences can enjoy
existing BBC content through a different means of access.

Programmes and content are the primary means through which the BBC’s existing services
contribute to the public purposes. The value of the BBC’s existing services therefore lies in
making this content available. New services that provide additional ways to access BBC
content and thereby have a beneficial impact on either the number of people accessing it or
the volume of content consumed must therefore indirectly promote the public purposes
(in chapter 7 we explain further the considerations we take into account when assessing this
beneficial impact). It is the BBC Trust’s view that the proposed services will contribute
indirectly to the public purposes in this way.

Further, we consider that the four services proposed all contribute directly to the specific
purpose of ‘helping to deliver to the public the benefit of emerging communications
technologies and services….’ We would specifically note in this regard that because the BBC
is seen as a trusted guide and because its services will be free at the point of use, there
would seem to be a good prospect that it will lead people who would otherwise be reluctant
to access content in this way, due to lack of technological experience, to try new products
and technologies.

1.5   Quality and distinctiveness

We consider that the service proposals will deliver low–medium public value in
terms of quality and distinctiveness, reflecting technical issues that may impact
on user enjoyment.

The quality assessment was marked down slightly, with the exception of the seven-day
catch-up over cable service and non-DRM downloads, reflecting the fact that a number of
issues were raised by the audience who took part in trials arranged by the BBC Executive
that impaired their enjoyment of the online experience. These included technical concerns
about the picture quality and download speed – although the latter is beyond the control of
the BBC – and also a desire for a greater range of content available over a longer window.
We expect that some of these concerns will reduce with technological developments over
time.

Balancing the quality assessment, we see the proposals as distinctive from commercial
competitors and likely to remain so, being free at the point of use and without advertising.



                                                                                         12
In addition, for the internet proposals, the ease of accessing a wider range of BBC material
through bbc.co.uk is a further aspect of distinctiveness (though not identified as a main
driver). In assessing the quality and distinctiveness of the service proposals we have tried to
discount the effect of the overlying content and focused on the underlying delivery
components.

1.6   Impact

The proposed services should deliver both consumer and citizen benefits. Our
overall public value assessment is medium, acknowledging possible drawbacks.

We considered the impact of the services from both a consumer perspective and a citizen
perspective.

The services offer the audience greater control in the programme schedule, resulting in a
degree of flexibility for the consumer and the potential for viewing or listening to more
niche programmes which they may have otherwise missed on the schedule.

The impact on citizens was influenced by the recognition that the proposed services help to
promote the BBC’s public purposes, both directly in terms of the digital purpose of helping
everyone get the best out of new media technologies and indirectly by providing a greater
opportunity to consume niche content typically broadcast at off-peak times. Balanced against
this is the view that the proposals may encourage solitary consumption.

The on-demand proposals were judged to have good relative worth compared to other BBC
services, suggesting that time and place shift qualities are of value to audiences.

1.7   Reach

We assess the public value of the proposals as medium–high as each of the
services has the potential to achieve high reach and collectively they are likely to
maintain levels of consumption of BBC content.

Reach measures the number of people who access BBC content. It provides an indication of
how many people will use the proposed services. However, as noted above, it is only
through ensuring the consumption of its programmes that the BBC ensures that public value
in its content is realised. So, in assessing reach, we consider it necessary also to evaluate the
potential volume of consumption of BBC content that the proposals will achieve. Our
assessment of reach therefore comprises four elements: (i) will sufficient people use the
proposed services for them to be worthwhile; (ii) will the proposed services increase,
maintain or lessen the reduction of total consumption of BBC content; (iii) will the proposed
services increase consumption by and reach to any particular groups having special relevance
to achievement of the BBC’s Public Purposes; and (iv) will the proposed services increase
the consumption and reach of content that tends to appear in the margins of linear
broadcast schedules.

We believe that each of the proposed services will achieve significant reach by 2011. This
will be substitutional rather than additive – in other words, the services will not materially

                                                                                             13
increase the total number of people consuming BBC content overall. In the longer term,
should on-demand become more popular, there would be a risk to the total reach of the
BBC if the BBC were not offering on-demand services. The services may help in the long
term to increase the numbers of younger people using the BBC’s services. There are also
reasons for thinking that, by putting niche, specialist content on a more equal footing with
mainstream content, the proposals will result in more people accessing it. The BBC
Executive estimates that approximately 33% of television households will view at least 15
minutes of BBC content per week by 2011 using one or other of the three television
elements of the proposals. We take a slightly more cautious view, given that we question
some of the assumptions made by the BBC Executive in conducting their analysis and given
that we arrive at a different conclusion on what will drive usage.

Our assessment is based as much on the impact of the proposals on the total consumption
of BBC content as on the number of people using the services. This is because consumption
of the BBC’s high quality content is a prerequisite for the promotion of the BBC’s Public
Purposes. The proposals will help maintain the relevance of BBC services to audiences as
they begin to shift some of their consumption from linear schedules to on-demand. Taken
together, the three video on-demand services are forecast by the BBC Executive to account
for 11% of all BBC television consumption by 2011. The Trust’s more modest approach puts
this percentage at around 7%. In either case the BBC’s total share of consumption would be
significantly reduced if the proposals did not proceed.

Younger audiences in particular are likely to consume the internet-based proposals
disproportionately. So if the proposals did not proceed, there would be a disproportionately
negative impact on the amount of content consumed by the young, a demographic group
that the BBC already finds it hard to reach.

1.8   Cost and value for money

Overall we assessed the proposals as medium–high under this component of
public value since they will add value to the BBC over and above their cost.

We considered the value for money of the proposals using both an output-based measure
(cost per user hour) and a consumer worth measure (value yield).

Direct comparison with other BBC content-based services is not appropriate since these
proposed services are a delivery mechanism for existing content. Hence our comparison
focused on the potential outcome for the BBC as a whole, with and without the proposed
services. We did, however, look at other services when considering the opportunity cost of
investing in the proposed services. In this regard, it should be noted that the cost of the
proposals is small in the context of the BBC’s total expenditure (0.8%). If the BBC were
instead to use the money to produce more quality drama then it would produce only 50
extra hours per year. Since this would not do as much as the current proposals to reduce
the loss of consumption of BBC content in the future, the cost per user hour for BBC
content would be higher than it is now and higher than if the proposals were approved.

The BBC’s estimate of the cost of these proposals is largely based on the uncertain cost of
negotiating the necessary intellectual property rights to provide the services. Historically,

                                                                                         14
when the BBC has bought programmes it has acquired the right only to show them on
television. To acquire the right to also show them on the internet may cost it more. The
figure provided is uncertain but we have considered external expert advice, specifically that
from PricewaterhouseCoopers, and formed our own judgment that it is reasonable and may,
indeed, be quite conservative, meaning that the actual cost may be less than predicted.

On this evidence and for the reasons discussed in more depth in section 8, we conclude that
the services will each add value to the BBC over and above their cost and represent value
for money. The simulcast and non-DRM download service elements appear to offer the
greatest value for money by virtue of their relatively low operating costs.

1.9     Service parameters

In considering the proposals we have questioned the rationale behind some of the key
service parameters.

In particular, we have considered the following issues:

      o Does the BBC need to provide these services directly to the consumer?
      o Should the on-demand services include third party content, which will be available via
        the BBC iPlayer?
      o Are the proposed catch-up windows for the appropriate timeframe?
      o Are the series stacking timeframes appropriate?
      o Should all types of series be stacked?

We concluded that:

      o The BBC iPlayer interface is not required for distribution or technological reasons.
        However, it is desirable from a public value viewpoint due to: the expectation, of
        licence fee payers, to find BBC content through BBC services rather than solely
        through third parties; the encouragement that a BBC direct offering could bring to
        less technology-experienced users; the benefits a BBC direct offering could bring to
        the BBC brand, with audiences attributing the programme to the BBC rather than
        the access provider; the provision of richer context around programming including
        additional web functionality; the enhanced user-experience of accessing the on-
        demand proposals from one place; the value for money considerations. In addition,
        and importantly, the anticipated costs of the direct consumer offering are anticipated
        to be low. Further, the BBC iPlayer download manager delivers public value in terms
        of its efficiency.
      o There is intrinsic public value in BBC content. We believe that expanding the
        opportunities to access this content through further syndication would enhance
        public value.
      o Although we noted that some licence fee payers and, on the basis of responses, at
        least one industry body, might welcome access to third party content through the
        BBC iPlayer, it also poses difficult public value issues, including concerns over
                                                                                          15
       editorial responsibility and possible damage to the BBC public service reputation. The
       BBC Executive did not seek approval to provide third party content and we conclude
       in this PVA that the service as proposed already offers public value. We are not
       convinced that requiring access to third party content will necessarily increase the
       public value and do not recommend requiring it as a condition of approval. Although
       we cannot offer a definitive view, since we cannot fetter our discretion in the future,
       we anticipate that a further PVT would probably be required if the BBC Executive
       wished to include third party content in the future.
   o We believe that the seven-day consumption and distribution windows have public
     value and are appropriate in providing audiences with up to 14 days to catch-up over
     the internet.
   o We believe that the 13-week window for convenience in which to view downloads
     does not provide optimal public value. We recognise that public value exists in
     providing a window of convenience in which to view but this window should be
     significantly shorter than the 13 weeks proposed and more within the parameters of
     4 to 6 weeks.
   o    We believe that there is public value in series stacking. However, it is unlikely to be
       uniform across all series. Series staking should be restricted to series with a narrative
       arc and discrete run or landmark series with an exceptionally high impact.
   o With respect to series stacking, we also believe that the 13 week window for
     convenience, in which to view a series that has been stacked, does not provide
     optimal public value. We recognise that public value exists in providing a convenience
     window within which to view a series that has been stacked, but that this window of
     convenience should be significantly shorter than the 13 weeks proposed and more
     within the parameters of 4 to 6 weeks.

1.10 Conclusions

We assess the public value of the proposals as medium–high, as each of the
services has the potential to achieve high reach and collectively they are likely to
maintain high levels of consumption of BBC content.

The relevant considerations on public value which the Trust must consider in its
PVT assessment include that there is a strong fit with the BBC’s purposes, and
each of the services has the potential to achieve high reach and collectively are
likely to maintain high levels of consumption of BBC content. This is achieved
with good value for money. Quality, distinctiveness and impact are
demonstrated albeit at lower levels but these are also factors considered less
worthy of weight in the context of these proposals.

In weighing up the relative importance of the different drivers of public value in this
particular case, we assessed the potential reach of the proposed services as being
particularly significant. This is because (i) it lies at the heart of the strategic rationale for
launch and (ii) it is integral to the other drivers of public value. As noted, it is our view that
the proposed services are likely to maintain levels of consumption of BBC content.



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Having assessed reach as the significant driver, the value for money driver provides some
balance – since any impact on reach must come at a price that represents value for money.
The proposals do represent value for money on the basis that, when compared against the
BBC as a whole and given that the effect on reach was seen as key, they would have a
positive impact on the BBC’s overall cost per user hour as against not launching the
proposals or putting an equivalent investment into additional quality programmes.
Impact was given a slightly lower weighting since, for these proposals, the impact can be
seen to be driven to a great extent by the services’ reach. This is because, as a delivery
mechanism, if the service is reaching consumers and they are using it – then by definition it
has an impact. If the service is reaching consumers, it also thereby fits with the public
purposes. Quality was also given a slightly lower weighting as it was determined to a large
extent by content. This was discounted in our assessment as far as possible.
An explanation as to the use of weighting throughout this PVA is set out in section 3.2.3.




Overall we believe that the proposals will contribute significant public value. However, it is
the BBC Trust’s view that certain service conditions should be considered to safeguard the
public value in the proposals put forward by the BBC Executive and to strive for even more
public value. These should:


   o review and adapt the 13-week convenience windows for seven-day catch-up over the
     internet;
   o review and adapt the 13-week convenience window for series stacking;
   o restrict series stacking to certain types of series where there is most public value to
     be derived from series stacking;
   o establish technical quality and functionality performance criteria, to be reviewed after
     two years of the launch of the services;
   o review parental control over download access;
   o establish reach performance targets, to be reviewed after two years of the launch of
     the services;
   o ensure that efforts are made for the seven-day catch-up over internet service
     element to be provided on a platform-agnostic basis, or across major platforms,
     within a reasonable timeframe, subject to both value for money considerations and as
     technology allows; and
   o consider syndication and the publishing of relevant criteria.


The full service condition recommendations are set out in section 10.4 of this document.




                                                                                             17
2 The service proposals
Summary
The BBC Executive wishes to launch a package of on-demand services. These include four
individual service elements:

      o seven-day TV catch-up over the internet;
      o seven-day TV catch-up over cable;
      o simulcast TV over the internet; and
      o non-Digital Rights Management (DRM) audio downloads over the internet.

We consider it appropriate to assess separately the public value of each of the four
individual service elements since they have different characteristics, costs and benefits.

The BBC Executive intends to combine the three internet-based proposals into a direct to
consumer offering called BBC iPlayer – to which reference is made in their application
document. The BBC iPlayer will also comprise other audio-video services already offered on
bbc.co.uk. The Trust considers that the BBC iPlayer, as a branded interface, does not need
approval under this PVA. The Trust’s reasons for this decision were that many of the
features of the BBC iPlayer were already provided by other mechanisms on bbc.co.uk. In
large part, the BBC iPlayer represents a re-branding and amalgamation of existing
mechanisms. To the extent it includes new elements, these have been assessed and it is
decided that they are already permitted by the terms of other existing approvals, specifically
the bbc.co.uk approval provided by the Secretary of State. In any event, it is noted that the
BBC iPlayer effectively as a brand is not a service in its own right. The full PVT approvals
process only applies to UK public services. The BBC iPlayer is not a service in its own right,
but is a means to access BBC services.

The plans for the BBC iPlayer are not, however, irrelevant in the Trust’s consideration of
the BBC’s application since the public value of the proposals relies to some extent on
features of the BBC iPlayer. The Trust’s consideration of the proposals has therefore had to
assess how features of the BBC iPlayer add to the public value of the proposal (for example,
the ease of navigation is pertinent to quality and distinctiveness) and whether alternative
means by which to access the new services might be better.

We note that development of additional technical features which are not part of the
application and which could represent a significant change to the bbc.co.uk service may
require BBC Trust approval in the future.


2.1     Approach to assessment

Before undertaking an analysis to assess the public value of the service proposals, it is
important to understand the nature of the services proposed.

                                                                                          18
To this end, we sought detailed clarification from the BBC Executive. This was provided in a
series of question-and-answer sessions in which the BBC Executive provided us with
additional information to that presented in their application. We summarise in section 2.2–
2.4 below our understanding of the proposals.

In considering the nature of the proposals, we identified the key characteristics of each
individual service element and questioned the rationale behind some of the key service
parameters.

2.2   Overview of proposals

The BBC Executive wishes to launch a number of new, complementary on-demand services.
These proposed services involve a substantial broadening of the current scope of the BBC’s
existing on-demand offerings and an enhancement of their functionality.

In summary, the proposals presented for approval are:

                        Delivery       Type of             Timing                 Content
                                       content
Seven-day TV             Internet         TV         On-demand – within      BBC network TV
catch-up over the      (broadband)                    seven-day window     content (approx. 70%
internet                                            Can be stored for 13        at launch)
                                                     weeks for viewing              plus
                                                                               series stacking
Seven-day TV              Cable           TV         On-demand – within      BBC network TV
catch-up over cable   (ntl/Telewest                   seven-day window     content (approx. 70%
                            &                                                   at launch)
                      Homechoice)                                                   plus
                                                                               series stacking
Simulcast TV over        Internet         TV                Linear          Same as network TV
the internet           (broadband)                                            including regional
                                                                                  variations
Non-DRM audio            Internet        Audio            On-demand         Audio programmes,
downloads over the     (broadband)                                         with the removal of full
internet                                                                      track commercial
                                                                            music, without DRM


A fuller description of each individual service element is provided below in section 2.4.

2.3   General issues concerning the three internet-based services elements

We have identified two key issues which apply across the internet-based propositions:

 o     the role of the BBC iPlayer (see section 2.3.1);
 o     the impact of internet distribution (see section 2.3.2).



                                                                                                 19
2.3.1 The role of the BBC iPlayer

Description
As proposed, the three internet-based offerings would be combined into a direct-to-
consumer offering to be known as BBC iPlayer.1 BBC iPlayer is designed:
         ‘to unify the BBC’s provision of audio and video content on-demand and make it
         available to UK audiences through the internet.’
Hence the BBC Executive’s aim is for BBC iPlayer also to incorporate all the existing BBC
video and audio players and consoles currently within bbc.co.uk (excluding BBC Jam) under
a consistent user interface and brand.2

Users would be able to navigate to the BBC iPlayer from across bbc.co.uk. There would also
be a dedicated area of the site which would serve as a direct entry point into the BBC
iPlayer.

Comment

We considered whether the BBC iPlayer itself was a service proposition on which the Trust
should be providing a Public Value Assessment. We conclude that this is not the case. The
BBC iPlayer represents the provision of a user interface and branding to help consumers
access technical features which are either already provided on bbc.co.uk or subject to
approval in this PVT. The distinction between user interface and branding on the one hand
and technical features on the other is important. While changes to technical features may be
significant enough to require Trust approval, user interface and branding are matters for the
BBC Executive.

Whether or not the Trust ultimately approves one or more of the four individual on-
demand service elements, the BBC iPlayer could still be introduced as a means of unifying
and branding the existing BBC players. Existing approvals would permit it to be developed by
the BBC Executive. It is a useful way for the BBC to flag the provision of audio-video
material on bbc.co.uk, and help users manage how they access that material. It is not a
service in its own right.

The way the BBC Executive intends to implement the BBC iPlayer as it relates to the
proposed services includes certain technical features which are specified in the BBC
Executive’s PVT application – and hence subject to the approval that would be forthcoming if
the application is successful.

However, we note that the BBC Executive also has plans to include a technical feature that
would allow users in advance of transmission date to mark a programme to be downloaded.
This feature was advertised in promotional material which was shown to Ofcom but is not
specified in the formal application.




1
    Note that Non-DRM audio downloads will also be accessible through podcasting portals such as iTunes.
2
    Radio Player, News Player, Weather Player, Sport Player and Media Console Player.
                                                                                                           20
For the sake of clarity, we note that we believe such a technical feature would be a change
to the services as proposed that must be put before the Trust for consideration. This would
not necessarily trigger a full PVT but the Trust must be given a chance to consider the issues
arising from such a change in the specification of a service.

We also note that although the BBC iPlayer itself is beyond the scope of the assessment,
ultimately performance against the criteria of reach, quality, impact and value for money for
the services proposed would be influenced by how the BBC iPlayer is realised. So we
recommend that, were the proposals to be approved, the performance criteria and
conditions attached to the approval should include issues which would depend largely on
how the BBC iPlayer is developed and drives usage. We expand on this in section 5.2.

2.3.2 The impact of internet distribution

Description
For the three internet-based proposals, the services elements would be available primarily to
users with a broadband connection. This is because the delivery of rich media files requires
relatively fast internet access to allow the content to download to the user in a reasonable
time.

For seven-day TV catch-up over the internet, differing formats (e.g. high-definition versus
low-definition) would be available which would affect the file size. The range of formats
would be determined by criteria such as editorial and technical considerations and audience
demand for a programme.

In the short to medium term, delivery would be mainly to computer screens located in the
home or office – although content could be transferred from there to portable devices. In
the medium term, we would expect to see broadband delivery to television screens. This
will be driven by the market penetration of devices such as media centres and television set-
top boxes with broadband connectivity.

It is also possible that users will access the content through mobile devices. However, while
we expect mobile access to video to grow significantly over the next five years, we expect
demand to be for smaller files than would be offered as a result of these proposals, and to
be routed through operators’ gateways primarily, rather than directly to bbc.co.uk.

Rights management of seven-day catch-up TV and simulcast TV would be restricted to the
UK. Non-DRM audio, by definition, would be freely available and reproducible.3

Comment
It is apparent from the description above that viewing over the internet will be a very
different user experience than that to which consumers are accustomed with television.
Even with broadband connections, users will experience a time delay between requesting a
programme and it being available to view. This may represent a limitation on the value of the

3
 While the availability from bbc.co.uk of non-DRM downloads may or may not be restricted or qualified in some way, by
definition audiences will be able to subsequently share this material outside of any geography-, device- or time-limited
conditions.
                                                                                                                      21
proposals in the minds of many consumers. The possibilities open to the BBC Executive to
address this are two-fold:

    o to maximise the effectiveness of the distribution system to strike the optimal balance
      between speed of delivery and quality of viewing experience;
    o to manage users’ expectations about delivery and quality issues which are beyond the
      BBC’s control.

We explore this further in section 6 where we consider the reactions of licence fee payers
to the proposals.

2.4     Individual service proposals

2.4.1 Seven-day TV catch-up over the internet

Description of proposals
As proposed, the on-demand catch-up facility would provide audiences with retrospective
access to the BBC’s linear television schedule. It would be organised principally around a
window of seven days from the point of original broadcast. The seven-day window is defined
as follows:

    o Audiences will have seven days from the point at which it is broadcast within which to
      receive the programme from the BBC.4 Audiences will have a maximum of 13 weeks
      from the point that they download the file to open the file. If it is not opened within 13
      weeks it will be permanently disabled. They will then have another seven days from the
      point at which the programme is first viewed to watch that programme as many times
      as they like. After seven days from the point at which the programme was first viewed,
      the file will be deleted or permanently disabled.
    o In addition, the service will include ‘series stacking’ whereby all of the episodes in a
      series are available from the BBC from the point at which they are broadcast until
      seven days after the transmission of the last episode in the series. The viewers would
      then be able to watch any episode as many times as they like for seven days after the
      point at which each episode is first viewed. After seven days from the point at which it
      was opened, the episode is deleted or permanently disabled. The span between the
      earliest episode broadcast and the most recent episode broadcast within any series
      stacking proposition will be limited to a maximum of 13 weeks.

Catch-up TV content would be made available as rights-protected downloads delivered via a
peer-to-peer network.

A limited number of programmes5 will, in addition, be streamed (via unicast), offering the
option of immediate access without a download time. The streamed offer will be lower
quality than download option and at launch would be made available at quarter-screen size.


4
 Also includes packages of existing BBC radio content focused on particular genres, e.g. BBC Jazz or BBC Science.
5
 Approximately 60 hours of content per week at launch due to capacity constraints. This will consist of the most popular
programmes.
                                                                                                                      22
The technology required to use this streaming service is expected to be a minimum of
Windows 98 and Microsoft Windows Media Player 9 or RealPlayer.

In respect of the seven-day catch-up over the internet service, the files would require DRM
to ensure that they were appropriately restricted in terms of time and geographic
consumption. The only system that currently provides this security is Windows Media 10
and above. Further, the only comprehensively deployed operating system that currently
supports Windows Media Player 10 and above is the Windows XP operating system. As a
result of these DRM requirements the proposed BBC iPlayer download manager element
therefore requires Windows Media Player 10 and Windows XP. This means the service
would be unavailable to a minority of consumers who either do not use Microsoft or do not
have an up-to-date Microsoft operating system. However, over time, technology
improvements are likely to enable even more efficient methods of delivery. Further, it is our
understanding the BBC Executive are working towards the iPlayer download manager being
able to function on other operating systems.

The BBC Executive proposes, in time, to provide its complete TV schedule on-demand. At
launch, only around 70% of the BBC’s network TV schedules would be available, increasing
to more than 80% by 2010. It is anticipated that this 70–80% will include popular
programmes. This difference reflects the practicalities of negotiating on-demand rights for
the whole of the network content.

Comments
This service element is described as seven-day catch-up. In fact, audiences will have up to
14 weeks from the date of transmission to actually view a programme (assuming they have
downloaded it within seven days of its transmission). They will also be able to download
some programmes from as many as 13 weeks previously (under the series stacking
proposals). This gives a potential window of up to 27 weeks for certain programmes.

We consider that the range in which the time-shifting window is set has
implications for both the public value created by the proposals and the value
remaining in the secondary rights for commercial exploitation.

We consider this further in subsequent sections of this document and in particular in section
9.

We note that the kinds of series that could be made available for series stacking are not
defined. This makes it difficult to assess to what extent series stacking as proposed by the
BBC Executive contributes to public value. We consider this further in section 9.6,
specifically the restriction of series stacking to certain types of series where there is most
public value to be derived from series stacking.

We also note that the Microsoft-based strategy for rights management will limit usage.
Normally, we would expect BBC services to be universally available, as universal access to
BBC services is in the public interest. However, as set out above, other mainstream
technology platforms do not currently provide the appropriate security.



                                                                                          23
2.4.2 Seven-day TV catch-up over cable

Description
This service proposal would make BBC television content available on-demand within a
seven-day window via digital cable (ntl/Telewest) and broadband to TV (Homechoice)6. For
these platforms the seven-day window is defined as follows:

    o Audiences will have seven days from transmission to view a programme on-demand;
      unlike seven-day TV catch-up over the internet, the programme cannot be stored for
      later viewing. After seven days, the programme will no longer be available on a public
      service basis.
    o In addition, the service will include ‘series stacking’ whereby all of the episodes in a
      series are available for viewing from the point at which they are broadcast until seven
      days after the transmission of the last episode in the series. After this point no
      episodes will be available on a public service basis.

Comment
The seven-day window is also stretched on this service by the inclusion of series stacking –
although there is no storage option so the overall window is shorter than for catch-up by
internet.

The seven-day TV catch-up over cable is limited to ntl/Telewest and Homechoice. However,
the BBC Executive is prepared, in principle, to make BBC television content available to
other mediated on-demand distribution methods, subject to value for money and any
regulatory requirements imposed upon it by the Trust.

As with seven-day TV catch-up over the internet, series stacking is not clearly defined. We
recommend that the same service condition be imposed as discussed above, defining which
series can and cannot be stacked in order to assure that series stacking is only permitted so
far as it adds public value.

2.4.3 Simulcast TV over the internet

Description
This would provide UK audiences with the ability to watch a proportion of the BBC’s
existing public service television channels (anticipated to be around 70% at launch), including
their regional variations, over the internet. It is intended that it would ultimately be provided
via multicast streaming, subject to the development of this facility by internet service
providers.

Comment
Unlike the other service elements, this service is essentially providing the same linear
network content but through an internet connection rather than a television set.



6
    An asynchronous digital subscriber line (ADSL).
                                                                                             24
It has the potential in the future to provide network television through any mobile device
which can access the internet at reasonable download speed. We would, however, expect
mobile usage streamed television to be through the gateways of mobile operators and
content aggregators more than through bbc.co.uk.

2.4.4 Non-DRM downloads over the internet

Description
The BBC Executive proposes to provide audio programming, with the removal of full track
commercial music for download without Digital Rights Management (DRM) protection. This
would enable users to transfer programmes to portable devices such as MP3 players, and
would sit alongside the BBC’s existing seven-day catch-up streaming service for radio
programmes (BBC Radio Player), which largely ties users to listening to programmes at their
computer.

The content proposition would be restricted to those programmes where the rights holders
agree that non-rights protected distribution is appropriate. The proposed non-DRM
download service will not include full track commercial music or archived audio material.

By permitting a broader range of devices to access the material, the service will extend
audience choice around where and when they consume BBC programming.

Comment
The proposals provide for the provision of audio programming, excluding full track
commercial music. Speech-based audio programmes will thereby be relatively unaltered.

In respect of the availability of the speech-based programmes, specifically, we believe the
service will provide greater access to a largely niche output.

This service will either ‘superserve’ a heartland audience, by extending reach of these types
of programme to more of the kinds of people who already listen to them, or it could extend
reach more generally by bringing these programmes to a marginally younger audience – for
example through the provision of podcasts such as programmes from the Radio 1 schedule.




                                                                                         25
3 Assessment approach
Summary
The BBC Trust’s Public Value Assessment has been undertaken largely in accordance with
the terms of the Interim Rules for the conduct of a Public Value Test published by the BBC
Governance Unit on 10 October 2007 (available in full at www.bbc.co.uk/bbctrust). Certain
departures from the Interim Rules have been made where noted below and for the reasons
described below. This departure is legitimate because the Interim Rules must be read subject
to the overriding obligations in the Charter and Framework Agreement.

The BBC Trust has assessed the public value of each of the four service elements within the
proposals (set out in section 2) separately. At the outset, the BBC Board of Governors
considered which aspects of public value might be relevant to the proposals. The Trust has
reviewed the aspects considered relevant and agrees that these are the right ones and that
no other specific aspects are relevant in this particular case. The Governors concluded that
the main drivers of public value were likely to be:

   o   fit with public purposes;
   o   quality;
   o   impact;
   o   reach; and
   o   cost and value for money.

These are the factors identified as likely to be relevant in the Interim Rules. It should be
noted, however, that the BBC Trust has departed from the Interim Rules to adopt a broader
definition of ‘reach’ that looks not only at the number of users for the proposed new
services, but also at whom they will be, what they will consume and how this affects
consumption of existing BBC content generally. The BBC Trust has adopted this approach
because it considered it to be more appropriate in the context of the BBC’s Charter and
Framework Agreement duties. This broader definition of reach and the reasoning behind it is
explained more fully in section 7 below.

The BBC Trust next considered how those aspects of public value should be explored and
evaluated. In coming to its conclusions on the public value of the proposals the BBC Trust
drew on a wide range of evidence. This included:

   o evidence submitted by the BBC Executive (included in Annexes H, I and J);
   o additional research/independent advice commissioned by the Trust (included in
     Annexes E and F);
   o analysis undertaken by the BBC Trust Unit; and
   o representations from stakeholders (a list of respondents and a high level summary
     included in Annexes A and B respectively).

This evidence is referred to and summarised throughout this PVA report.

                                                                                        26
3.1     The Public Value Test

3.1.1 Background

The Public Value Test (‘PVT’) is a key component of the BBC’s new system of governance
which took effect with the new Charter and Agreement on 1 January 2007.

The Charter makes clear that the BBC should be able to alter its UK public services – for
example to respond to changes in technology, culture, market conditions and public
expectations. However, any significant service-related proposals for change from the BBC
Executive must be subject to full and proper scrutiny. The means by which this scrutiny
takes place prior to approval is the PVT.

The BBC Governors made clear their commitment to subject any proposal received from
the BBC Executive under the old Charter to a PVT, should the proposal have qualified for a
PVT under the terms of the new Charter. The Governors considered that the BBC’s on-
demand proposals fell into this category.

The Trust concurs with this and also considers that the BBC’s on-demand proposals would
represent a significant change to the existing public services offered by the BBC and hence
require a PVT.

3.1.2    The PVT process

There are two components to the Public Value Test:

 o the Public Value Assessment (PVA), which assesses the public value expected to be
   created by a service (see 3.2 below); and
 o the Market Impact Assessment (MIA), which assesses the likely impact on existing
   or potential value created in the wider market as a result of the new service. The MIA
   has been carried out by Ofcom in accordance with the methodology agreed between
   Ofcom and the BBC Governors. The MIA report will be available at
   www.bbc.co.uk/bbctrust.

Following receipt of the MIA from Ofcom, the Trust will then evaluate whether any likely
adverse impact on the market is justified by the likely public value of the change (section
26(6) of the Framework Agreement), and come to an initial judgment on the on-demand
proposal, also taking into account all its other legal duties including the general duties in
Article 23 of the Charter. The Trust will publish these provisional conclusions at
www.bbc.co.uk/bbctrust.co.uk and will consult on them.




                                                                                         27
Figure 1: Diagrammatical representation of the PVT

                                            Public Value Test (PVT)

      Public Value                                                                       Market Impact
    Assessment (PVA)                                                                    Assessment (MIA)

       Fit with Purposes                                                                 Agreed methodology

    Quality & Distinctiveness                                                            Competition based

            Impact                                                                         Economic effects

             Reach

         Cost and VFM


3.2       The Public Value Assessment

3.2.1 Evidence for assessment

In coming to our assessment of public value we drew on evidence from a variety of sources.
Much of the work was undertaken by the Governance Unit before it formally became the
Trust Unit on 1 January 2007.

From the BBC Executive
In Spring 2006, the BBC Executive provided the Trust Unit with the on-demand service
proposal and Terms of Reference for their proposed evidence set in support of that
proposal. Following Governance Unit approval of the Terms of Reference, the BBC
Executive gathered the appropriate evidence specified by the Governance Unit. This
evidence was formally received by the Governance Unit on 31 August 2006.

The BBC Executive’s evidence included a variety of analyses supported by specific consumer
research. Their primary consumer evidence was driven by:

    o trials (on-demand proposals only):7 participants in the BBC’s on-demand trials
      completed public value questionnaires (addressing reach, quality, impact and value) and
      assessed the effectiveness of the trial propositions; and
    o deliberative juries (all proposals):8 participants from the BBC trials and users of
      on-demand cable services evaluated the public value of the BBC’s proposed offerings.

From the general public and industry
The BBC Governance Unit also sought representations from the general public and industry
in relation to public value. The Trust has received responses from a number of industry
bodies including some commercial providers, a trade association and a viewers’
representative group, but not from any members of the general public. These responses

7
    Annex I of BBC Management’s assessment of the public value of its new on-demand proposals (see Annex G and Annex J).
8
    Human Capital ‘BBC on-demand services – Deliberative Jury’ March 2005 (see Annex H).
                                                                                                                    28
have been used to inform the PVA. A list of respondents is shown in Annex A. An
anonymised summary of the representations is set out in Annex B. Presentations were also
made to the predecessors of the Audience Councils created under the Charter.

From the Governance and Trust Units’ own analysis
Following a preliminary assessment of the evidence base submitted by the BBC Executive,
the Governance Unit undertook a series of interviews with the BBC Executive for the
purposes of:

    o scrutinising the evidence base;
    o questioning the underlying assumptions and assertions; and
    o requesting further evidence from BBC Executive as deemed appropriate by the Trust
      Unit.

From additional research commissioned by the Governance Unit
As noted above, the BBC Executive’s primary evidence was driven by trials and deliberative
juries. In focusing on trial users and users of cable services with on-demand facilities, the
Governance Unit believed the research, whilst credible and reliable, was not sufficiently
broad to draw hard conclusions about licence-fee payer attitudes as a whole, even though
the respondents were, in places, instructed to do so.

Accordingly, the Governance Unit commissioned Sparkler9 to conduct further research to
supplement that which was provided by the BBC Executive. This research, qualitative in
nature, sought to:

    o consider the views of a broader cross-section of licence-fee payers to help evaluate the
      public value of the proposals;
    o consider the role of the BBC in the on-demand world; and
    o further investigate the drivers of quality and distinctiveness of the proposed service.

In order to clarify points within the Sparkler report, the Governance and Trust Units also
entered into discussions with Sparkler.

The     Governance     Unit   also    sought      independent    expert media advice.
PricewaterhouseCoopers (PwC) was engaged to provide perspectives on the future
direction of the on-demand market. In particular, they were asked to:

    o validate or otherwise the new media assumptions and assertions made by the BBC
      Executive;
    o provide an overview of the current on-demand market and scenarios as to how it
      might develop;
    o determine the impact of the requirement for users to operate Microsoft Windows
      software to access seven-day catch-up via the internet;

9
 Sparkler is an independent brand and consumer insight consultancy that specialises in media brands, content and
communications.
                                                                                                                   29
 o assess the proposal’s ability to increase reach to niche content (the ‘long tail’); and
 o provide an assessment of features key to distinctiveness in this market.


The reports from both the Sparkler and PricewaterhouseCoopers analyses are included
in Annex E and F.

The Trust has considered the Sparkler and PricewaterhouseCoopers research
commissioned by the BBC Governance Unit, as the change in the governance arrangements,
including the shift in responsibility from the BBC Governance Unit to the BBC Trust Unit,
has not affected the relevance of the material. The Trust thanks the BBC Governors and the
Governance Unit for their work on these proposals.

3.2.2 Sharing of information with Ofcom

Throughout this process, the Trust and Ofcom liaised on the parallel MIA and PVA whilst
always being aware of the different roles to be performed by each. Information was shared
between Ofcom and the Trust and vice versa, except where submitted in confidence or
where otherwise overtly commercially sensitive, in order to ensure that the PVA and MIA
were conducted on the same factual basis. It should be noted that the Framework
Agreement specifically established the concept of a joint BBC Trust/Ofcom group called the
Joint Steering Group to oversee and co-ordinate the work of Ofcom on the MIA. The BBC
Trust’s conclusions on this PVA have been developed independently, without the input of
Ofcom.

3.2.3 Assessment approach

The purpose of the PVA is to ascertain the likely public value of the proposed new service.
In doing so we must consider from the outset which drivers of public value are relevant and
how those drivers should be explored and evaluated.

The BBC Trust considers in relation to the present proposals that there are five key drivers
of public value. In our assessment of these drivers we have considered the relative strength
with which the proposals support achievement of the particular public value in question.
Designation as ‘Low’ indicates that we do not believe the proposals have any material impact
on public value in this respect, ‘Medium’ indicates that the proposals have a material impact
on public value and ‘High’ indicates that the proposals offer substantial public value of the
type described.


The following table sets out the five drivers.




                                                                                             30
PVA – Drivers of Public Value
Fit with               Quality                Impact                   Reach                 Cost & value for
purposes                                                                                     money
Which public           Is the proposal high   Will the proposal        How far will the      How much will the
purposes does the      quality and            create consumer          proposal extend       proposal cost to
proposal address       distinctive?           and citizen benefit      the BBC’s reach       deliver and will it
and how does it fit                           (i.e. for society as a   and usage,            provide good value
with the BBC’s                                whole)?                  particularly for      for money?
strategy?                                                              under-served
                                                                       audiences?


These key drivers are the same as those identified as likely to be relevant in the Interim
Rules. It should be noted, however, that the BBC Trust has departed from the Interim Rules
to adopt a broader definition of ‘reach’ that looks not only at the number of users for the
proposed new services but also at who they will be, what they will consume and how this
affects consumption of existing BBC content generally. The BBC Trust has adopted this
approach because it considered it to be more appropriate in the context of the BBC’s
Charter and Framework Agreement duties. The broader definition of reach and the
reasoning for adopting that definition is explained more fully in section 7 below.

The relative importance of these will vary across different services. In reaching our overall
assessment of public value for any one service element, we weighed up our assessments
across the range of drivers but taking greater account of those drivers that we deemed to be
the more significant for the particular service in question.

The following table summarises the weight attached to the five drivers of public value for
this PVA.

PVA – Summary of weight of drivers of public value
Fit with               Impact                 Quality                  Reach                 Cost & value for
purposes                                                                                     money
Prerequisite for       Important but not      Less important, as       Particularly          Prerequisite    for
approval (i.e. the     itself determinative   the assessment           important/essential   approval.
Trust would not        of overall approval.   sought to exclude        .
conclude that                                 content.
there is public
value in the
proposals without
there being a clear
fit with the BBC
Public Purposes).

An analysis of each of these five drivers of public value is outlined in sections 4–8 of this
report. In section 10 we pull the different analyses together for each service element and
come to our conclusion on its public value.




                                                                                                                   31
4 Fit with BBC Public Purposes
Summary

We consider that the service proposals have a good fit with the BBC’s public
purposes, contributing in particular to the take-up of emerging technologies.

Under the Charter, the BBC has six public purposes. Each individual BBC public service
would be expected to contribute in some way to these purposes overall (although not
necessarily to each individual purpose).

The proposals comprise in essence a delivery mechanism by which audiences can enjoy
existing BBC content through a different means of access.

Programmes and content are the primary means through which the BBC’s existing services
contribute to the public purposes. New services that provide additional ways to access BBC
content and thereby have a beneficial impact on either the number of people accessing it or
the volume of content consumed must therefore indirectly promote the public purposes. It
is the BBC Trust’s view that the proposed services will contribute indirectly to the public
purposes in this way.

Further, we consider that the four services proposed all contribute directly to the specific
purpose of ‘helping to deliver to the public the benefit of emerging communications
technologies and services….’ We would specifically note in this regard that because the BBC
is seen as a trusted guide and because its services will be free at the point of use, there
would seem to be a good prospect that it will lead people who would otherwise be reluctant
to access content in this way to try new products and technologies.

      Purposes assessment               Purposes 1–5                     Purpose 6
                                  L          M          H        L          M          H

       All service elements




4.1    The six public purposes

The BBC exists to create public value; to serve its audiences not just as consumers, but as
members of a wider society. The BBC, as laid down in the Charter and Agreement, is
charged with creating public value through the following six public purposes:




                                                                                        32
           1.                 2.                    3.                   4.                   5.
      Sustaining          Promoting            Stimulating         Representing          Bringing the
      citizenship       education and         creativity and          the UK’s           world to the
       and civil           learning              cultural         nations, regions       UK and the
        society                                excellence               and               UK to the
                                                                   communities              world

        6.   Helping to deliver to the public the benefit of emerging communications technologies and
                                services and, in addition, taking a leading role in the
                                         switchover to digital television




A summary of each public purpose is provided in Annex C. The first five of these purposes
can be seen to relate most directly to BBC content while the sixth purpose is more
concerned with the delivery of that content.

The BBC’s public services (and non-services) must contribute to promoting these public
purposes if they are to justify their funding.

An individual service is not required to promote all six purposes, but would be expected to
be able to demonstrate a strong contribution to the public purposes overall.

4.2    Approach to assessment

In assessing fit with the public purposes we considered the following key questions for each
individual service element:

 o    To what extent do the proposed services advance the BBC’s five content-related
      public purposes? (section 4.3.1)
 o To what extent do the proposed services advance the BBC’s sixth digital public
   purpose? (section 4.3.2)
 o To what extent does the service work against the public purposes? (section 4.3.3)


We also considered how the proposals fit within the wider BBC strategy (section 4.3.5).
Although this is not expressly an ingredient of the PVA or PVT, the BBC’s strategy derives
from its public purposes and remits under the Charter. It is also a matter for which the BBC
Trust has ultimate responsibility. In these circumstances, consistency with the BBC strategy
is a matter that must affect the BBC Trust’s views on the public value of the proposals.

In answering the above questions we also drew on:

 o submissions by the BBC Executive (including their deliberative research and
   quantitative trial data); and
 o representations received from stakeholders.

                                                                                                        33
4.3   Analysis

4.3.1 To what extent do the proposals advance the BBC’s five content-related
      public purposes?

Public value is primarily delivered through content consumption
Programmes, and content more generally, are the primary means through which the BBC’s
existing services contribute to the public purposes and deliver public value. In order to
receive the benefits from public service broadcasting, the audiences need to consume the
content.

Expanding and extending the opportunities to consume the existing content, therefore, has
the potential to increase the impact of the BBC’s public service broadcasting output.

The on-demand service proposals are essentially a delivery mechanism for audiences to
consume existing BBC content in a different way. If we are satisfied that the proposals will
not detract from the overall BBC consumption of content – and may increase it – then the
proposals will indirectly support the first five public purposes (which are content-related).
As the purposes are content-related, they are only promoted to the extent that the content
is consumed. The purposes are therefore promoted by increasing (or maintaining or
arresting or slowing any decline in) the number of viewers of or listeners to programmes or
the amount of BBC content consumed. For example, presenting programmes on different
international cultures directly promotes the public purpose of ‘bringing the world to the
UK’. Pursuit of this purpose is more strongly promoted if the programme is presented in
such a way that 1 million people view it rather than 10,000. We deal below with each of the
five content-related public purposes.

Will the proposals increase content consumption?
As noted above, the proposals contribute to the public purposes if they do not detract, but
maintain, increase or combat any decline in the number of consumers reached and the
amount of content consumed. We considered the evidence in support of this.

The BBC Executive’s submission noted that BBC TV reach through linear channels is
forecast to decline during the next five years due to increasing competition from other linear
channels and other activities competing for leisure time, including internet usage. They note,
however, that the on-demand TV proposals would help mitigate most of this decline,
thereby delivering public value. We examine and conclude on these reach forecasts in more
detail in section 7. But in summary: we expect a positive impact on reach, with a
particular benefit to specialist programmes.

The BBC typically schedules niche or specialist radio and television programmes in off-peak
slots or on less popular channels, potentially marginalising them and minimising their reach.
The seven-day catch-up and non-DRM download proposals effectively remove scheduling
from the equation, thereby enabling such programmes to compete on more equal terms; this
has the potential to increase both the reach and consumption of these programmes – i.e. the
number of people using the programmes and the number of hours consumed.

                                                                                          34
This view is consistent with a number of representations received by the Trust Unit, the
analysis by PwC10 and the notion of the ‘long tail’,11 where programmes of intense but niche
appeal can become more accessible with interested audiences able to consume such
programmes in their own time.

The BBC Executive’s evidence provided a number of examples for this, such as Radio 1’s
Essential Mix, a dance programme broadcast at 3am on Sundays which receives a regular
audience of 62,000 listeners with an additional 48,000 requests through the BBC Radio
Player.

The disproportionate benefit to niche programming additionally strengthens the case for
such programming to be made.

Do the services contribute to specific content-related purposes?
The potential for disproportionately positive effect on the consumption and reach of
specialist programmes means that the proposals can be said to contribute, at least to
some degree, to the specific purposes as follows:

                                    Contribution
Public purpose

Representing the UK’s               Reflecting and celebrating Britain’s diversity in mainstream as well
nations, regions and                as specialist programmes is integral to promoting this purpose.
communities

Promoting education                 The BBC Executive’s deliberative research highlighted how
and learning                        respondents felt that the on-demand proposals could deliver
                                    strong educational benefits to society; for example, 67% believed
                                    that people would be able to learn more effectively by choosing
                                    to watch educational programmes that are typically broadcast off-
                                    peak.
                                    The research also pointed to greater learning by ‘osmosis’
                                    through greater access to more information and the ability to
                                    assist informal learning.

Stimulating creativity              Likely to benefit through specialist programming, such as arts,
and cultural excellence             potentially reaching a greater number of viewers.

The purposes may be furthered in other, additional ways. The deliberative research noted
that non-DRM downloads have the potential to encourage licence-fee payers to self-publish
their own content, thereby helping drive the culture and creativity purpose.

10
   PwC noted the potential for this. However, they also advised that effects should not be overplayed given the limitation
of the catch-up window.
11
   The Long Tail, by Chris Anderson (Wired Magazine, Issue 12.10, October 2004). (see
www.wired.com/wired/archive/12.10/tail.html?pg=2&topic=tail&topic_set=).

                                                                                                                        35
The citizenship purpose should also benefit from the proposals, with media literacy being
an essential tool of modern citizenship, building skills in judging the accuracy and
trustworthiness of content. Media literacy also enables users to engage confidently with the
technology and use it to create the communications they want.12

4.3.2 To what extent do the proposed services advance the BBC’s sixth digital
      public purpose?

We believe the services have the potential to contribute to the digital public purpose.

The deliberative research pointed to the service proposals’ ability to encourage broadband
take-up, particularly through seven-day catch-up over the internet.

Additionally, given the familiarity of the BBC to the UK population, the BBC may act as a
trusted guide by encouraging those users with less technological experience and know-how
to try new products and technologies. The new services thereby advance the sixth public
purpose by potentially appealing to a large part of the population, to include those people
that would otherwise not be interested in, or minded to consider, on-demand services and
internet usage more generally as a means of accessing television and radio content.

4.3.3 Counterfactual: to what extent do the service proposals work against the
      purposes?

The service proposals may lead to greater social disconnection
At the heart of the nations and regions public purpose lies the notion of communities, be
they of interest or place, connecting with each other.

Increasing the opportunities to consume as individuals, at any time or place, risks greater
fragmentation in terms of social connection and interaction. It may also work against the
public purpose’s goal of building social capital by bringing people together for shared
experiences. In this respect, BBC Executive’s deliberative research noted certain
respondents’ fears of creating a society where people walk around in their iPod ‘bubbles’.

While we acknowledge these risks, we note that context remains important since people
have been consuming media in a disconnected, insular way for decades; from magazines to
personal stereos. Moreover, the BBC does not produce, manufacture or distribute devices
for media consumption.

The service proposals may increase the risk of underage exposure to offensive,
inappropriate material
Under the linear schedule parents can take some comfort over the nature of the
programmes available to view before the watershed divide. However, with the ability to


12
  Despite this benefit, we noted how the purpose scored relatively poorly in the BBC Executive’s deliberative research.
However, analysis suggests that respondents were unclear as to the meaning of the purpose and that media literacy was not
communicated to them as being part of the purpose.
                                                                                                                     36
download programmes at will, (subject to the timeframe window), this assurance is likely to
be weakened.

There is a heightened risk of children being exposed to post-watershed material.

We understand from the BBC Executive that they will attempt to minimise this through
technology to assist parental control.

     We would recommend imposing a service condition designed to ensure the
     effectiveness of parental controls in order to safeguard public value.



4.3.4 Conclusion on fit with purposes

We consider that the proposed services have a natural fit with the sixth digital purpose.

In terms of the five content-related purposes, the proposed services contribute in a indirect
way through their delivery of the existing BBC content. There is further evidence of
contribution to individual content-related purposes. However, we consider this contribution
to be relatively minor.

We do not consider the potential downsides of the proposals identified in section 4.3.3 to
be sufficiently serious to offset or negate the contributions to identified purposes. With
specific respect to the weight that should be given to social connection, the Trust also
considers that internet usage, for parts of the population, is a form of engaging in social
activity. It is a means to communicate with people and a forum for discussion and therefore
brings people together, albeit in a different sense. With respect to the risk of underage
exposure to offensive material, the Trust, as set out above, recommends parental controls
to overcome this potential downside.

4.3.5 How do the proposals fit with the wider BBC strategy?

The BBC is charged with providing a public broadcasting service to all UK audiences. To
enable universal reach, the BBC has, over time, established a portfolio of public services,
primarily in radio, television and online, each seeking to provide a slightly different offering
to audiences. Through this approach the BBC is able to reach approximately 95% of the UK
population today.13

Audience demands are not static; in particular, technology is enabling new consumption
habits to form. The continuing take-up of broadband is facilitating the consumption of live
and time-shifted radio as well as the downloading of content for consumption on the move
through, for example, mobile phones and devices.

Although nascent, evidence suggests that demand for such on-demand services could be
strong, with new technology transforming the delivery and consumption of media. The BBC

13
  BBC estimates – the 95% is the percentage of people who have used, listened to or watched a BBC item at least once in
the past week.
                                                                                                                    37
Radio News daily podcast, for example, was downloaded over 800,000 times during
October 2006.

A strategy to maintain reach and relevance
Maintaining relevance: The proposals presented for approval are designed to reflect and
respond to the changing media environment; to enable the BBC to remain a relevant and
valued broadcaster in the digital world. Anecdotal evidence from the BBC Executive’s
deliberative research suggests that a BBC without the proposed on-demand services risks
being left behind, lacking relevance and impact among audiences.

Maintaining overall reach: On-demand viewing is forecast to be largely substitutional
(see section 7). As such, the proposals aim to maintain the overall reach of the BBC and with
it the public value delivered to audiences through increased access to BBC content.

Relevance to younger audiences
The application submitted by the BBC Executive did not focus on the impact of the service
proposals on younger audiences. However, we believe the impact is likely to be the greatest
on this user group.

Younger, more technology-savvy audiences are drifting away from traditional linear
television.14 They are also the most frequent users of the internet.15 Moreover, the BBC’s
experience with its website provides strong grounds for believing that internet distribution
in itself can increase the appeal of content to audiences (see section 7).

The proposals therefore provide an opportunity for the BBC to re-connect with an audience
that has proved increasingly difficult for it to reach.




14
     Ofcom: The Communications Market 2006, section 1.2.2 (October 2006) (see www.ofcom.org.uk).
15
     Office of National Statistics (see ONS www.statistics.gov.uk).
                                                                                                   38
5 Quality and distinctiveness
Summary
We consider that the service proposals will deliver low–medium public value in
terms of quality and distinctiveness, reflecting technical issues that may impact
on user enjoyment.

The quality assessment was marked down slightly, with the exception of the seven-day
catch-up over cable service, reflecting the fact that a number of issues were raised by the
audience who took part in trials arranged by the BBC Executive that impaired their
enjoyment of the online experience. These included technical concerns about the picture
quality and download speed – although the latter is beyond the control of the BBC – and
also a desire for a greater range of content available over a longer window. We expect that
some of these concerns will reduce with technological developments over time.

Balancing the quality assessment, we see the proposals as distinctive from commercial
competitors and likely to remain so, being free at the point of use and without advertising.

In addition, for the internet proposals, the ease of accessing a wider range of BBC material
through bbc.co.uk is an important aspect of distinctiveness (though not identified as a main
driver). In assessing the quality and distinctiveness of the service proposals we have tried to
discount the effect of the overlying content and focused on the underlying delivery
components.

                                           Quality                      Distinctiveness
                                  L         M              H       L          M           H
  Seven-day catch-up over the
           internet

  Seven-day catch-up over cable

 Simulcast TV over the internet

      Non-DRM downloads

            Overall




5.1   Approach to assessment

Any assessment of the public value or benefit that the on-demand services will provide must
include an evaluation of the quality and distinctiveness of those services. Though there is
some crossover in the characteristics of quality and distinctiveness, they will be considered
separately in order to examine fully their contribution to the overall PVA.


                                                                                           39
In assessing the evidence presented by the BBC Executive, we considered the following key
questions:

       o What are the key drivers of quality and distinctiveness and will the proposals deliver
         them?
       o What would be the impact on quality and distinctiveness if the proposed services did
         not launch?

The evidence highlighted how the content available played a vital role in driving audience
perceptions of quality and distinctiveness. However, the Trust has sought to discount
content in its final assessment of quality and distinctiveness, focusing instead on the
‘additionality’ of the proposition which, in this case, is the user experience. To do otherwise
would risk double counting the likely public value benefits delivered by the proposals.

The evidence submitted by the BBC Executive primarily focused on users in the pilot-tests
for each of the proposals, with the exception of the simulcast TV proposal which was not
user-tested. This inevitably resulted in a skew towards technology-literate adults.

Accordingly, we commissioned the Sparkler research with a broader base of licence fee
payers in order to investigate more fully the drivers and perceptions of quality and
distinctiveness for all four of the proposals and to probe more fully whether or not licence
fee payers in general think the BBC should be investing in these services.16

5.2       Assessment conclusions

Quality: Overall, the proposals are assessed to be of low–medium quality, reflecting a
number of technical issues that may impact on user enjoyment, including picture quality and
download speed, and users’ desire for content to be made available through a longer catch-
up window.

Content: Though the key focus of these propositions is the new way of distributing and
making existing BBC content available, the range of content available plays a vital role in
driving audience perceptions of quality. This includes the range, quantity and format of the
BBC content that will be included within each of the four proposals. The Sparkler research
found that content is crucial for the success of these services and, specifically,17 there must
be content that is seen as both appealing and relevant to the younger audiences to whom
these proposals would most likely appeal.

In terms of quantity, we note that though there was a limited amount of content available
during the trial period; around 70% of BBC content will be available with the launch of the
actual proposition, if approved.

On-demand period: The seven-day window also has an impact on the perceived quality of
the on-demand services from the perspective of the licence fee payer, as most participants
expected to be able to access more of the archived BBC content (see section 6.3.2.5).



17
     From discussion of the research findings between Sparkler and the Trust Unit.
                                                                                           40
However, we note that the on-demand proposals include the option of storing programmes
for up to 13 weeks after download, which in effect extends the on-demand period. Certain
representations received from stakeholders indicated that they considered this time period
to be appropriate and acceptable.

Interface: For the online proposals, the technical quality of the interface impacts on the
quality of the user-experience and concerns were raised through the audience trials
specifically concerning the speed of download and the picture quality.

 Implications for proposed services, if approved

       For the online proposals, including streamed TV, the technical quality and
       functionality of the interface will need to be monitored to ensure steps are
       being taken to maximise the experience for the user. This includes picture
       quality and the search and recommendation functions.

       As it is not possible to assess at this stage how well the full BBC iPlayer
       proposition will deliver on these particular aspects; any approval should
       require a formal review against particular performance criteria after two
       years.

       For the on-demand proposals, the range of content that is made available
       will need to be monitored to ensure that audiences are satisfied and able to
       choose programmes they want to watch, in particular from the point of
       view of younger audiences.


Distinctiveness: The assessment of the distinctiveness of these proposals needs to take
into account the emergent nature of the market. At the time that the BBC Executive’s
research was being undertaken there were few alternative commercial offerings against
which to compare the service. Since then, however, a number of companies have launched
or have announced an intention to launch similar services.

As part of their market analysis, PwC identified 17 key features which should be used to
assess the distinctiveness of these proposals in the on-demand world:

   o    inventory/content;
   o    range;
   o    uniqueness;
   o    innovativeness;
   o    speed;
   o    look and feel;
   o    ease of use/usability;
   o    navigation;
   o    mission;
   o    reputation;
   o    brand;

                                                                                      41
       o    target audience;
       o    funding;
       o    cost;
       o    intrusiveness of advertising;
       o    technology/platform; and
       o    access for persons with disabilities.

Following consideration of the BBC Executive’s proposals, PwC concluded that they
demonstrated particular distinctiveness in the following areas: content; reputation; no
advertising; and access for persons with disabilities.

Taking this information into account alongside the feedback from the audience in the
Sparkler research,18 we consider the proposals to be distinctive to other offerings primarily
as they are free at the point of use and without any advertising.

In addition, we note the following distinctive features:

Content: As with the characteristic of quality and with any BBC proposition, the content
itself is one of the primary influencers for the audiences’ perceptions of ‘distinctiveness’.

In particular, the core values believed to be imperative for all BBC content are a prerequisite
for the distinctiveness of that content. That is, the BBC content itself is a greater driver of
distinctiveness than the propositions themselves.

However, though the content itself is not the subject of this assessment process, we note
the important role it will play in the take-up of these services.

Online experience: for the online proposals, the accessibility to the wider bbc.co.uk
experience is also a key aspect of distinctiveness, primarily because there are no comparable
commercial online services.

This driver, however, is not applicable to the cable on-demand proposition and was also not
identified as particularly significant with the audience.

5.3        Key questions to determine public value

Introduction

Quality and distinctiveness are essential measures for assessing the public value of a service.
In the context of the proposals presented, the four on-demand services would need to
provide a service that (i) has a high quality user experience and (ii) is distinctive from
anything else in the market.

Primary sources of evidence
In their application, the BBC Executive presented the findings from a number of different
pieces of research as supporting evidence for assessing the quality and distinctiveness of the
individual propositions:
18
     From discussion of the research findings between Sparkler and the Trust Unit.
                                                                                           42
o Trials (on-demand proposals only):19 participants within each of the trial periods for
  the on-demand proposals completed questionnaires which included statements relating
  to perceptions of both quality and distinctiveness; and

o Deliberative juries (all proposals):20 participants in the early BBC trials and users of
  the cable trial were primarily asked to evaluate the benefits of these offerings to citizens
  and consumers but in the course of the deliberations they also discussed factors that
  affected quality and distinctiveness.

As most of the data within the BBC Executive’s application was primarily gathered amongst
the technologically literate and trial users of the propositions, the sample was undoubtedly
skewed towards an early adopter profile. We therefore commissioned a further piece of
work amongst a broader mix of licence fee payers to supplement the evidence:

o Sparkler qualitative research: A sophisticated qualitative approach was used to
  investigate further the perceived drivers of quality and distinctiveness.

In addition, a further report to consider the proposals from the wider new media
perspective was commissioned to inform our assessment:

o PwC report: A review of the proposals, including an assessment of the features
  deemed to be key in determining distinctiveness in this market.

5.3.1 What are the key drivers of quality and distinctiveness and will the
      proposals deliver against them?

Figure 2: Summary of data from trials – the percentage of triallists rating a proposal at least 8 out
of ten for a particular feature

                    Feature ‘Excellent’                   ‘Well-                  ‘Original’            ‘Different’
Proposal                                                  designed’
Seven-day catch-up
                   37%                                    33%                     59%                   n/a
over the internet

Seven-day catch-up
                   76%                                    n/a                     60%                   53%
over cable

Non-DRM
                                  73%                     n/a                     66%                   62%
downloads
*No trials have been carried out for simulcast TV over the internet
* Based on the BBC Executive’s trial research




19
      Annex 1 of BBC Management’s assessment of the public value of its new on-demand proposals (see Annex G and Annex
J).
20
      Human Capital ‘BBC on-demand services – Deliberative Jury’ (March 2005) (see Annex H).
                                                                                                                   43
5.3.1.1 Seven-day catch-up over the internet

Quality
A key part of the supporting evidence in response to this proposition was based on trials
conducted by the BBC Executive. Based on the trial, the BBC Executive asserted that 83% of
those surveyed believed the service to be excellent and 84% well designed. However, this
was based on those giving the service a score of five or more out of ten. The Trust believes
this threshold to be too undemanding as a measure of high appreciation. Accordingly, the
Trust has considered those scoring the service eight or more out of ten. This reveals that
37% believe the service, as trialled, to be excellent, with 33% believing it to be well designed.

Data from the trial and the deliberative research reveals a number of factors which impact
upon perceptions of quality:

o the range of content available;
o the seven-day catch-up window; and
o the speed of download.

We note that should approval be granted, the range and quantity of content would be
significantly broader than the limited content available in the trial, with initially around 70%
of the BBC’s network TV schedules available, increasing to over 80% by 2010. However, the
two other factors with a potentially negative impact on quality would be largely unaddressed,
with the speed of download beyond the BBC’s control, although download speeds should
increase as network efficiency is improved.

The BBC Executive’s research noted the adverse effect on perceptions of quality of the
limited seven-day download window. This was borne out by the Sparkler report. People
expressed a degree of dissatisfaction with this limitation believing that, as licence-fee payers,
they should be able to access older content. Such a view is likely to be exacerbated following
the launch of similar services from other broadcasters where content is being made available
for longer post broadcast periods, albeit not always for free. As a means of increasing the
public’s access to or use of on-demand content, the BBC Executive’s proposal would
however allow the user to store the programme for up to thirteen weeks before expiry,
once it has been downloaded within the seven-day window.

In addition, concerns were raised by non-triallists in the Sparkler research about the
potential quality of the actual viewing experience, as for most people the household
computer is at a table or desk with a single upright chair and therefore not comparable to
the more usual viewing experience. The Sparkler report also suggested, in relation to all the
internet-based services, that short-term demand would be moderate because the proposals
require a change in perceptions of how the internet can be used for entertainment purposes.
The report noted that this change might only come about with further advances in
technology, such as widely available and affordable TV sets that double as PC monitors. The
Sparkler sample of respondents indicated that the services were unlikely at this stage to
seriously entice new viewers.

For this reason, watching programmes of more than half an hour was seen to be unrealistic
and suggestions were made to provide specifically packaged content more appropriate for

                                                                                             44
viewing at a computer screen.21 The offering from BT Vision, for example, uses broadband
technology via a set-top box so that consumers can take advantage of the new service in
their ‘normal’ viewing environment.

In addition, if the current trend towards technological convergence continues as anticipated,
equipment such as the Windows Media Center could offer the user the opportunity of
having a television set that can be used as a home entertainment system or as a PC.

Distinctiveness
As with quality, we have adopted a higher threshold for distinctiveness than that presented
by the BBC Executive i.e. those scoring the service eight or more out of ten rather than five
or more. Accordingly, 59% believe the service to be original, rather than 93% as presented
by the BBC Executive.

In reinforcing the perceived distinctiveness of the service, the BBC Executive presented
results from a MORI quantitative survey (see Annex I) suggesting that 68% of respondents
believed that a ‘seven-day catch-up’ service would be original, different or distinctive. We
have partly discounted this research as the description of the service did not include
reference to this being an online proposal and that it would not, in general, be TV-based.
Furthermore, the survey was conducted nearly two years ago when the market was less
developed, with very little for respondents to compare the proposition to when making
judgements about distinctiveness.

The Sparkler research found this kind of service to be perceived as a true progression in the
technological world and one that could allow audiences less favourable of the BBC, such as
the young, to access high quality BBC content that they may otherwise have not seen.
However, alongside this was the thought that if this was one of the key rationales for
launching this service, then as content is crucial, the BBC should consider tailoring its
content more to the target audience and perhaps even creating more appropriate content.
However, participants also thought that, though the BBC should indeed ‘keep up’ with
advances in technology, distinctiveness or being ahead of the field should not be a key
motivation for the corporation.

The BBC Executive’s submission stated that one of the primary drivers of distinctiveness, for
the three online proposals, is the ability to ‘package and present content in a way consistent
with the BBC’s public service remit and give users a greater overall experience through
additional web functionality’ and supporting materials on bbc.co.uk. Although commercial
services are unlikely to offer this wider experience, we note that respondents to the
Sparkler research highlighted that such additions were expected from the BBC and as such
were not perceived to be particularly original or innovative. However, we note that despite
this relatively high expectation by the licence fee payer of the BBC, this is likely to be a
factor that distinguishes the online proposals from other commercial offerings.




21
     From discussion of the research findings between Sparkler and the Trust Unit.
                                                                                          45
5.3.1.2 Seven-day catch-up over cable

Quality
Supporting evidence for this proposition was again based on trials conducted by the BBC
Executive. Based on scores of eight out of 10 or above 76% rated the service as excellent.
This is notably higher than the corresponding figure for seven-day catch-up over the internet
(at 37%).

However, it is less clear what the actual drivers of quality are. The high level of perceived
quality could be attributable to the proposal being an extension to triallists normal viewing
habits. Only minimal changes to behaviour would be required; unlike viewing via the internet
there is no need to view in a different room or on a smaller sized (PC) screen. The Sparkler
research showed viewing via the television to be a major advantage over seven-day catch-up
over the internet. It was also seen to be more appealing to those who were less comfortable
or au fait with new PC-based technologies.

The result could also be attributable to the availability of a broader range of content with
programmes available from other broadcasters (such as ITV, C4 and Sky), enhancing the
overall experience and, with it, perception of quality.

As with the previous proposal, the Sparkler research revealed that the seven-day download
window was restrictive, considering the breadth of the full BBC television archive.

Distinctiveness
Based on those giving the service a score of five or more out of ten, the BBC Executive
asserted that 95% of those surveyed thought the service to be distinctive or different and
96% innovative or original. Again, adopting a threshold of eight or more out of 10 reveals
figures of 53% and 60% respectively. As with quality, the perceived distinctiveness of the
proposition appears to be more favourable than for seven-day catch-up over the internet.

As with quality, the drivers of distinctiveness are difficult to discern. Unlike seven-day catch-
up over the internet there were no additional enhancement features. Moreover, the BBC
was one of a number of broadcasters with programmes on the trial. One inference from this
is that content, rather than the service itself, is a driver of distinctiveness.

5.3.1.3 Simulcast TV over the internet

Trials were not carried out for this proposal so evidence for understanding the levels and
drivers of quality and distinctiveness is limited primarily to the deliberative juries and also the
Sparkler research.

Quality
As with seven-day catch-up over the internet, technical factors such as broadband speed,
size of screen and comfort in viewing could potentially affect the quality of the experience of
the viewer, though no trials have been carried out for this service. Again, this was supported
by findings from the Sparkler research as people queried the potential quality of the viewer
experience of watching a full programme at a computer. While some could see its appeal in


                                                                                               46
providing an additional way to access BBC content there was seen to be little need for it at
the present time.

Distinctiveness
Given the lack of trials for this proposal, our conclusion on the key features driving
distinctiveness of the simulcast TV over the internet proposal are that it is free at the point
of use, without advertising, and easy to access.

5.3.1.4 Non-DRM downloads over the internet

Quality
Based on those giving the service a score of five or more out of ten, the BBC Executive
asserted that 97% of those surveyed thought the service to be excellent. Again, adopting a
threshold of eight or more out of ten reveals a figure of 73%.

As with the seven-day catch-up over the internet, the place-shifted potential is seen to be
one of the most appealing characteristics.

Distinctiveness
In considering the appeal of the service the Sparkler research revealed that most people
prefer listening to the radio ‘live’ and usually use it as a lateral medium, listening while they
are doing something else. Research into radio listening by the Radio Advertising Bureau22 has
shown that it is very much a personal experience, primarily centred on music and talk,
especially for commercial stations. Therefore, the notion of downloading missed
programmes is not deemed essential by most people. In addition, though the proposal was
generally perceived to be more appealing to the young, the lack of music is seen to be a
major limitation.

However, we do note that a key driver of distinctiveness for this proposal is the potential
for extending access to the quality speech programmes such as comedy, drama and
documentaries.

5.3.1.5 Overarching points for consideration

Quality

Risk to BBC reputation: the Sparkler research noted how for the internet based TV
services, ‘…experience of current streaming services tainted perceptions of quality that
could be delivered.’ ‘Technological issues have been experienced in the past and are
expected to be encountered with these new services too’. However, against this the BBC is
seen to be highly trustworthy and ‘it is expected to deliver in whatever it does’. Accordingly,
whilst expectations of all these services would be tainted with wariness based on experience
of other services, the expectations from any BBC service would be higher. The expectation
of an ability to deliver quality at a higher level than the prevailing market creates a risk to the
BBC’s reputation and brand.



22
     ‘Radio Days 2’, Radio Advertising Bureau research, 1999 (see www.rab.co.uk).
                                                                                               47
Access to the online host: a common theme throughout is the perception of quality being
influenced by technical factors, including download speeds and the quality of the on-screen
image. We note that not all of the technical-related influences are within the BBC’s control. A
poor user experience may therefore be equated with certain functional issues for which the
BBC has no remedy. Similarly, controls regarding content accessed via third parties may also
be limited. This may be less of an issue for syndicated content where contractual
arrangements may see safeguards in place.

Perceptions of quality may vary by user: expectations of quality in terms of technology
tend to vary by user. In general, heavier users of technology have higher expectations than
lighter users. Equating this to internet usage, one could generalise that younger audiences
might reasonably be expected to have higher expectations than older audiences. This is
particularly important given the proposals are envisaged to appeal disproportionately to this
group and given that higher standards are likely to be expected of the BBC.

The Sparkler research also noted that lifestage also has an impact on expectations and needs
of a user. For instance, generally speaking, it was found that although older people may
consume a lot of television and radio, they tend to have more fixed routines and therefore
are less likely to miss something they want to watch or hear. In addition, as media tends to
be less of a priority to them, they feel less of a need to look at the schedules retrospectively.

Perceptions of quality may change over time: as technology advances so too will user
expectations and this is particularly important given that higher standards are likely to be
expected of the BBC. The Sparkler research noted how experience of current streaming
services tainted the perception of quality that could be delivered. It will therefore be
essential that the BBC keeps pace with technological change if perceptions of quality are to
be maintained.

In addition, if approved, the online services will need to ensure that features which are
integral to the service such as navigation and search functions are optimised and perceived
to be high quality and effective by the user.

Edited content: in terms of user experience and viewing programmes on a computer
screen, a number of respondents from the Sparkler research suggested that programmes
could be edited and packaged in a way so as to maximise the enjoyment of the experience,
such as highlights or ‘best of’ packages. Younger people in particular felt that the YouTube-
style 3-4 minutes of footage was the appropriate length of time that should be expected.23
However, we note that the full BBC iPlayer will incorporate existing BBC Players24 which
already provide specially edited and shortened video footage.

Distinctiveness

Quality more important than distinctiveness? Findings from the Sparkler research
suggest that distinctiveness is less important than quality. It noted that it is not essential for
the BBC to be different, but rather to move ‘at pace at the head of the pack when it comes


23
     From discussion of the research findings between Sparkler and the Trust Unit.
24
     Radio Player, News Player, Weather Player, Sport Player and Media Console Player.
                                                                                              48
to the world of media….[the BBC] does not need to be a leader….[but it] should be up
there and it should be competitive’. This notion does not lend itself to distinctiveness.

In addition, findings from the Sparkler research indicate that the BBC is perceived to be a
multi-media broadcaster and that these proposals would ‘successfully position it as part of
the technological revolution, but not leading it.’

Distinctiveness through quality content? The BBC Executive advanced a point of
distinctiveness to be the proposals’ provision of ‘on-demand access to the same high quality
content [as] available on linear services’.

However, rival broadcasters will also be providing high quality content that is similarly
available via linear platforms (and on-demand). Moreover, the provision of ‘high quality’
content is a fundamental requirement of all public service broadcasters (PSBs), and as such is
not unique to these propositions. In this respect, distinctiveness would only be driven to the
extent that the content proposition is ‘distinctive’, including the depth and breadth of
content made available.

5.3.2 Counterfactual: What would be the impact on quality and distinctiveness
      if the proposed services did not launch?

Section 4 highlighted how the proposals are designed to reflect and respond to the changing
media environment; to enable the BBC to remain a relevant and valued broadcaster in the
digital world.

Should the emergent consumer behaviours in this nascent market become common
behaviours, as expected, then by not launching the proposed services the BBC risks being
left behind as the only major broadcaster not offering such a service. The BBC would lack
relevance and impact among audiences. There would also be an unfavourable impact on the
BBC brand.

A BBC lacking relevance and impact would hinder its ability to deliver quality content to
audiences and as such reduce the value of the BBC to licence fee payers.




                                                                                          49
6 Impact (consumer and citizen benefits)
Summary


The proposed services should deliver both consumer and citizen benefits. Our
overall public value assessment is medium, acknowledging possible drawbacks.

We considered the impact of the services from both a consumer perspective and a citizen
perspective.

The services potentially offer the audience greater control of the programme schedule,
resulting in a degree of flexibility for the consumer and the potential for viewing or listening
to more niche programmes which they may have otherwise missed on the schedule.

The impact on citizens was influenced by the recognition that the proposed services help to
promote the BBC’s public purposes, both directly in terms of the digital purpose of helping
everyone get the best out of new media technologies and indirectly by providing a greater
opportunity to consume niche content typically broadcast at off-peak times. Balanced against
this is the view that the proposals may encourage solitary consumption.

The on-demand proposals were judged to have good relative worth compared to other BBC
services, suggesting that time and place shift qualities are of value to audiences.


                                       Consumer Impact                   Citizen Impact
                                   L         M         H           L           M           H
Seven-day catch-up over the
internet

Seven-day catch-up over cable

Simulcast TV over the
internet

Non-DRM downloads

Overall




6.1   Approach to assessment

Any assessment of the public value or benefit that the on-demand services will provide must
include an evaluation of the consumer and citizen benefits delivered by those services. This is
not least because these are matters that the Trust is required to consider by Clause 28 of


                                                                                            50
the Framework Agreement. The two have therefore been considered separately in
determining their contribution to public value.

In assessing the evidence presented by the BBC Executive, we considered the following key
questions:

      o     What is the positive impact from both a consumer and a citizen perspective?
      o     Are there any risks or negative impacts associated with these proposals?
      o     What would be the impact to the consumer and citizen if the proposed services
            did not launch?

The evidence submitted by the BBC Executive was heavily focused on information from
participants in the pilot-tests. This inevitably resulted in a skew towards technology-literate
adults. Accordingly, we commissioned the Sparkler research among a broader base of
licence fee payers – including a range of life stages – in order to investigate more fully the
potential consumer and citizen benefits.

6.2   Assessment conclusions

Consumer impact
Overall, the proposals are judged to deliver a medium impact in terms of consumer benefits.

Specifically:

      o     Flexibility: the proposals were seen to be a way to help audiences take control
            of their media consumption, enabling them to watch more of what they want,
            when they want to watch it.

There was also a general consensus that as media technology changed, the BBC would have
to ensure that its content was made available to those who chose to access programmes in
these new ways.

Issues were also highlighted that could reduce these positive impacts, including the cost of
technology to access the content.

Citizen impact
The proposals are seen to have medium citizen benefit.

In particular:

      o     Direct promotion of BBC public purposes: The proposals support the
            BBC’s sixth public purpose of helping everyone in the UK to get the best out of
            new media technologies now and in the future.

      o     Indirect promotion of the public purposes: The proposals offer a greater
            opportunity for people to consume content that might typically be broadcast at
            off-peak times, such as educational programmes.


                                                                                           51
Though older people were able to see the potential benefits of these services, they did not
see them as a priority for their generation but rather a positive way for BBC to ‘connect’
with the younger, more disenfranchised audience. With public value inherent in BBC
content, this reconnection would help deliver the benefits of public service broadcasting to
this audience group.

Concerns were raised about the online proposals creating less opportunity for social viewing
opportunities. In particular, the rising role of media and technology in relationships is
perceived to be driving the family unit apart either because of disputes concerning access to
technology or the family being physically separated in the pursuit of individual needs.

Worth
The on-demand proposals were given a relatively high monetary value compared to other
BBC services, suggesting that the time and place-shift qualities are of value to audiences as
consumers and citizens.

6.3       Assessment

Consumer and citizen benefits both need to be considered in any assessment of the public
value delivered by a BBC service. As a public service broadcaster funded by the UK licence
fee payer, the BBC must ensure it is providing services that are not only enjoyable and
beneficial at an individual level but that are also seen to have benefits for the wider society.

6.3.1 Primary sources of evidence

The primary sources of evidence for ascertaining the potential impact of the proposals were
as follows:

         -    Trials (on-demand proposals only):25 participants from seven-day catch-up
              over the internet, seven-day catch-up over cable and podcasting trials completed
              questionnaires within the trial periods addressing both consumer and citizen
              impact.

         -    Deliberative juries (all proposals):26 a separate forum within which participants
              were asked to evaluate the benefits of these offerings to citizens and consumers by
              understanding respondents’ views about media in the future and the impact that it
              might have on society; understanding the role that the respondents feel the BBC
              should play in that future; and evaluating the consumer and citizen value of the four
              on-demand offerings.

The trial data was drawn from participants in the trials themselves whilst the deliberative
juries consisted mainly of early adopters i.e. those most suited to understanding the issues
surrounding on-demand media. However, researching amongst such a technology literate,
early adopter profile has limitations in terms of drawing broader conclusions across licence
fee payers as a whole.



26
     Human Capital ‘BBC on-demand services - Deliberative Jury’ (March 2005) (see Annex H).
                                                                                               52
Accordingly, we commissioned a further piece of research across a broader mix of licence
fee payers to supplement the evidence base as presented to us:

      -    Sparkler qualitative research: this investigated the extent to which the
           proposals could deliver consumer and citizen benefits as viewed by a representative
           cross-sample of licence-fee payers.

Evidence Limitations

In measuring consumer and citizen benefits, the research is unable to present a precise
measurement of the proposals’ benefits; it provides evidence as to respondents’ perceptions
of public value, rather than its real value. Audiences also tend to under-appreciate the citizen
benefits flowing to others. It is particularly important to bear such limitations in mind when
considering assessments of monetary worth.

6.3.2 What is the positive impact of these proposed services from both a
      consumer and a citizen perspective?

6.3.2.1 Introduction

In undertaking an assessment of impact, the proposals were analysed overall in terms of
consumer benefits (6.3.2.2) and citizen benefits (6.3.2.3). Thereafter the worth of the
proposals was considered (6.3.2.4).

6.3.2.2 Consumer benefits

The on-demand proposals appear to have a positive impact on the consumer.

Flexibility

The most significant benefit relating to the on-demand proposals was that of flexibility.
Respondents in the deliberative juries, for instance, agreed that these services would, in
effect, release people from fixed TV schedules, potentially allowing them more free-time to
undertake more social activities.

The Sparkler research also found that people acknowledged that services such as Sky+, and
potentially the BBC on-demand propositions, help audiences take control of their viewing
and also make it more efficient in terms of being able to watch more of what they want to
watch such as dramas or full series. Cable subscribers who already had access to the on-
demand service were very complimentary about it. They enjoyed being able to watch missed
programmes without the need for forward planning.

Additional evidence to support this particular benefit comes from the deliberative research
commissioned by BBC Governors in March 2006 as part of the licence fee bid.27 A

27
  ‘BBC Governors’ Licence Fee Bid Forum’ Opinion Leader Research, (March 2006) (see
www.bbc.co.uk/foi/docs/finance/licence_fee/BBC_Licence_Fee_Bid_Citizens_Forum_conducted_by_Opinion_Leader_Resea
rch.pdf).

                                                                                                            53
representative sample of licence fee payers at a one day Citizens’ Forum were asked to
prioritise resource allocation across the BBC services. Findings showed that the participants
welcomed the opportunity to view a missed programme up to seven-days after broadcast,
with people valuing the flexibility and choice that a service like this would offer them.

6.3.2.3 Citizen benefits

Overall these services were seen to reflect well on the BBC, demonstrating openness by
broadening the audience base and reaching out to all types of people, including younger
audiences.

Promotion of BBC public purposes

As highlighted in section 4, programmes and content more generally are the primary means
through which the BBC’s services contribute to the public purposes and deliver public value.
In order to receive the benefits from public service broadcasting, audiences need to
consume the content.

Typically, the BBC schedules niche or specialist radio and television programmes in off-peak
slots or on less popular channels, potentially reducing their reach. However, specialist
programmes are key to a number of public purposes.

Figure 3: How important do you think each service will be in fulfilling the BBC’s public purposes
(mean scores, where 0 = not very important and 10 = very important)




Of all the public purposes, education was seen to be one that could particularly benefit from
the proposals (see the above table); respondents felt that the proposals could deliver strong
educational benefits to society by enabling people to consume content they would have
otherwise missed. The deliberative research highlighted how 67% of respondents believed
that people would be able to learn more effectively by choosing to watch programmes that
                                                                                             54
are typically broadcast off-peak. Similarly, the Sparkler research found that some parents
could see the potential for educational benefits as they could watch schools programmes or
relevant documentaries that could be beneficial to the education of their children.

The evidence also suggests that the proposals would contribute directly to the promotion of
the digital purpose, helping to deliver to the public the benefit of emerging communication
technologies and services.

We note that the citizenship purpose was the one that respondents believed would benefit
the least. However, an analysis of the research suggests that this was due to it being the least
understood of all the public purposes.

Under-served audiences

The online proposals are potentially a way for the BBC to open up its content to a wider
audience, in particular younger people. The trial research, for example, showed that BBC
Three comedy programmes made available via the internet were viewed by a younger
skewing audience than the corresponding broadcast audience (see section 7 for further
details).

The Sparkler research found that older people were able to see the potential benefits of
these services, although they did not see them as a priority for their generation they did see
them as a positive way for BBC to ‘connect’ with a younger, more disenfranchised audience.

Although there is no demographic breakdown provided in the BBC Executive’s reach model,
PwC highlighted the fact that ‘the young will tend to use new technology earlier, and more,
than older generations’. Therefore, acceptance by this market is crucial to the successful
take-up of these services. Recent figures by the Office for National Statistics (ONS) show
that there is still a large divide between the young and the old, with 83% of 16-24 year olds
accessing the internet within the last 3 months, compared with 15% of those aged 65 and
over. This report also states that only 10% of the 16-24 age group have never used the
internet, compared with 82% of the 65+ age group.28

Maintaining relevance

More generally, the participants in the deliberative juries felt that as the media world was
moving towards the provision of on-demand content, the BBC would lack relevance if it did
not play an active role. This was supported by the Sparkler research which found a general
acceptance that media technology was changing and that the BBC had to ensure its content
was made available to those who chose to access programmes in these new ways.




28
     Office of National Statistics (see http://www.statistics.gov.uk/pdfdir/inta0806.pdf).
                                                                                             55
6.3.2.4              Worth

Methodology

The original terms of reference for the BBC Executive application, as agreed with the
Governance Unit, stated that ‘willingness-to-pay’ (WTP) research would be included as part
of the evidence-base for the proposals. However, the approach taken by BBC Executive did
not follow a typical WTP methodology, with the participants in the deliberative juries being
asked to imagine they no longer had to pay the licence fee and to then state what they
thought each BBC service (existing and proposed) was worth to the ‘average person’ in
terms of a monthly monetary value.

After considering the methodology of previous work commissioned by the BBC Executive ,29
we believe the approach adopted to be preferable to typical WTP research as it removes
ability to pay from the equation when respondents are considering their answers as well as
bias to the services they specifically consume.

The BBC Executive provided a variety of evidence addressing consumer and citizen worth. In
considering the evidence base we decided to focus on the deliberative research as this
produced comparable results for each of the proposals.

Results

The results as presented by the BBC Executive suggested that participants ascribed a
significantly higher total value to these proposed services than, for example, the BBC’s radio
services or smaller television channels. Presented with this information it was not clear what
conclusions could or should be drawn from the data. Moreover, it was also difficult to make
clear inferences when respondents were asked to compare the worth of content services,
such as BBC One, with a distribution platform that would provide the same, or at least some
of the same, content.

Following discussions with the BBC Executive and Human Capital, who conducted the
deliberative research, we concluded that the most meaningful way to present the worth of
the proposals was to do so in relation to the combined worth of the services whose content
they carry. The results are shown in figure 4 below.




29
     Human Capital, ‘Measuring the Value of the BBC’ October 2004, (see www.bbc.co.uk/thefuture/pdfs/value_bbc.pdf).
                                                                                                                       56
Figure 4: Relative value/worth of on-demand proposals as stated by participants in the deliberative
juries


                 £25
                          £21.10

                 £20


                 £15
     £ / month




                                                                      £11.20

                 £10


                  £5                   £4.00
                                                     £2.80                          £2.20

                  £0
                       Total BBC TV 7 day catch- 7 day catch-       Total BBC     Non-DRM
                         channels up over cable up over the           Radio      downloads
                                                     net             stations




The chart suggests that although content is the main driver of value, there is incremental
value in the opportunity to time shift. For catch-up over cable this is 19% of the underlying
linear broadcast and for catch-up over the internet 13%. For radio, podcasting provides a
similar result at 18%.

Although inappropriate to place too much weight on the specific numbers themselves, the
results are not dissimilar from other providers in the market, such as the premium paid by
subscribers to receive Sky+ (over Sky), currently £10 per month for those who do not
subscribe to two or more premium channels.30

These findings also complement those of the Governors’ one-day Citizens’ Forum
commissioned in March 2006,31 where participants were asked to prioritise resources across
existing and proposed new services. The results appeared to endorse the opportunity to
time-shift their viewing, with respondents allocating resources to it.



6.3.2.5 The individual proposals

Having considered the overall impact of the proposals each will now be considered in turn.




30
  Sky website 10 January 2007 (www.sky.com).
31
  ‘BBC Governors’ Licence Fee Bid Forum’ Opinion Leader Research (March 2006) (see
www.bbc.co.uk/foi/docs/finance/licence_fee/BBC_Licence_Fee_Bid_Citizens_Forum_conducted_by_Opinion_Leader_Resea
rch.pdf).
                                                                                                            57
Figure 5: Summary of trial data – the percentage of triallists rating a proposal at least eight out of
ten for the particular consumer or citizen benefit

                  Benefit Consumer:                          Citizen:
                          ‘Useful/beneficial’                ‘Benefit to others/society’
Proposal
Seven-day catch-up
                   59%                                       69%
over the internet

Seven-day       catch-up
                             73%                             62%
over cable

Non-DRM downloads 70%                                        59%

N.B. No trials have been carried out for simulcast TV over the internet


A Seven-day catch-up over the internet (iMP)

Consumer benefits: in general, this proposal was perceived to generate a positive impact
to the consumer with 59% of triallists agreeing that it is a service that is ‘useful or beneficial’
to them as individuals. Additional feedback from them during the deliberative juries indicates
this is primarily as it allows them to watch programmes they may have missed without the
need for forward-planning.

Findings from the Sparkler research support these findings with participants also suggesting
that this service could allow for greater flexibility and encourage consumption on
consumers’ terms as opposed to dictated by the schedule.

The users in the seven-day catch-up over the internet trial (which used a sample of BBC
content) indicated that they felt that impact could be greater if the range of content was
increased and also the speed of download. At launch approximately 70% of BBC content will
be available. This was echoed in the qualitative research commissioned by the Trust Unit
which also suggested that more appropriate content would be needed and would also need
to be packaged in such a way that would encourage them to use it, such as in smaller
segments.

Citizen benefits: the evidence as presented by the BBC Executive suggests that those
involved in the trial were positive about the level of citizen impact that this service could
potentially generate, with 69% in high agreement.

In addition, the BBC Executive’s report stated that triallists believed the on-demand
proposals could increase the audience to niche programmes, although it is not clear if this
would represent new behaviour or if these respondents tended to watch this type of
programme anyway.




                                                                                                  58
B Seven-day catch-up over cable (VoD)

Consumer benefits: participants in the trial research gave this a higher valuation for
consumer impact than those in any of the other trials with 73% agreeing that it would be
useful to them (see figure 5 above). A relatively high number (61%) also agreed that it would
change their usage of television for the better.

This was supported by findings from the Sparkler research which found that this proposal is
generally well received and a service that the BBC should be providing. The most probable
rationale for this is that the interface for this proposed service is a television screen as
opposed to via the PC and, therefore, a more familiar viewing scenario.

Citizen benefits: The BBC Executive trial research found that there was broad support for
this service, with 62% of triallists agreeing that it is worth the BBC providing it for the
benefit of others and society as a whole, although we note this is lower than the
corresponding consumer figure.

Participants in the Sparkler research, particularly women who had children, acknowledged
that there may be some benefits in being able to view various educational programmes, as
these tended to be on at inconvenient times of the day. Interestingly, this was not echoed in
the discussions about the seven-day catch-up over the internet proposal.

C Simulcast TV over the internet

There was limited evidence available to assess the potential impact of this service though
participants in the Sparkler research felt that it could possibly be useful for people at work
who wanted to view large scale events such as the World Cup or the Ashes.

D Non-DRM downloads over the internet

Consumer benefits: participants in the trial research gave this a relatively high valuation
for consumer impact with 70% agreeing that it would be useful to them (see figure 5 above).

The portability of this service was mentioned by both the triallists and Sparkler as a
potentially useful and interesting feature.

Citizen benefits: 59% of triallists agree that this service would benefit others or society.
When prompted, participants in the Sparkler research mention a few areas where this
particular service may be useful to some individuals (though not to them personally) such as
listening to particular interviews that they’d missed or drama and comedy programmes.




                                                                                          59
6.3.3 Are there any risks or negative impacts associated with the proposed
      services?

6.3.3.1 Content

This is a relatively new distribution platform and as such media habits have yet to be
established or fully understood. Accordingly, the extent to which people will be more likely
to choose niche programming via this method compared to linear broadcasts is still to be
determined. It must also be acknowledged that evidence from the trial research has shown
that while 80% of TV titles available were downloaded at least once in the course of a
month, demand was skewed to the top titles; the top five accounted for a third of all
programmes viewed.32 However, the fact that popular broadcast programmes are also
popular online does not, in itself, undermine the argument for the long tail. Moreover, the
limited choice of programming made available in the trial makes its difficult to draw firm
conclusions as to likely future behaviour.

BBC Executive application suggests that the proposals could encourage viewing of factual
programmes, stating that the trial research showed that people did watch factual
programmes ‘which they may not necessarily have watched on linear television’. However,
we cannot conclude that these triallists would not have chosen to watch them when
originally broadcast, as opposed to choosing them for the first time as suggested in the
submission as their linear media consumption was not monitored.

A number of other concerns or issues have been raised relating to the nature of the content
of the proposed services:

High quality content: a consistent message from both the Sparkler research and also the
research commissioned by the BBC Governance Unit in March 2006 as part of the licence
fee bid33 is that although there is support in principle for the BBC’s proposed contribution to
supporting a digital UK including developing new services and keeping up to date with
technological advances, it is important that creating a range of ground-breaking, high quality
content should be the main focus.

Participants in the Sparkler research were also keen to emphasise the point that if it came
down to a value for money choice between the BBC creating original content or making that
content available on new platforms, they would undoubtedly prefer the investment in
content. Although this point is noted by the Trust, consideration of this point on the basis of
opportunity costs (as set out in section 8 of this document) provides that if the BBC were to
use the money for the on-demand services to alternatively produce more content, then it
would only produce 50 extra hours of quality drama per year.

Relevant content: Another key aspect about the content that has come through strongly,
particularly in the Sparkler research, is that it must be relevant to the intended audience.

32
     BBC iMP Content Trial Research (December 2005) (see Annex J).
33
  ‘BBC Governors’ Licence Fee Bid Forum’ Opinion Leader Research (March 2006) (see
www.bbc.co.uk/foi/docs/finance/licence_fee/BBC_Licence_Fee_Bid_Citizens_Forum_conducted_by_Opinion_Leader_Resea
rch.pdf).

                                                                                                            60
Specifically, the online propositions in themselves will not necessarily attract the young – the
BBC must provide content that is particularly appealing to them.

Post-watershed content: Another concern about the content that was highlighted in the
deliberative research commissioned by the BBC Executive is the fear that children could be
exposed to offensive content from the internet regardless of attempts at parental controls.

6.3.3.2 The proposals

On-demand proposals: Despite the explosion of media and content there is still not
enough time to watch and listen to everything which one might want. When considering the
seven-day catch-up over the internet service in particular, the amount of additional time
required to download desired content must be regarded as a negative influence on the
overall impact. In addition, from this evidence it would suggest that the reach that would be
achieved via the on-demand proposals will be primarily substitutional rather than
incremental.

Evidence from both the BBC Executive and also the Sparkler research found that people
have reservations about the seven-day window and claim that it is too limited. This was a
factor that was raised in discussions about each of the on-demand proposals and in particular
with regard to the BBC, there were difficulties in comprehending why, as licence fee payers,
they were unable to access the BBC archive.

Online proposals: there were a number of cautious comments expressed about the
potential negative impacts of the online proposals on society. In particular, the rising role of
media and technology in relationships is said to be driving the family unit apart,34 either
because of access to technology disputes or because the family is being physically separated
in the pursuit of individual needs.

The Sparkler research found that whilst people agreed that the online television services
would enable greater flexibility for consumers and perhaps encourage younger people to
access BBC content, it was also felt that it could have a potentially detrimental impact on the
family unit as internet usage is perceived to be primarily a solitary activity.

Concerns were also raised in this research about the need for people to be up-to-date with
the latest computers and the best broadband service, which could potentially exclude a large
proportion of the population who are less able to afford them.

Figures reported by Oliver & Ohlbaum35 suggest that by 2010, only 40% of homes will be
able to download an hour of video in less than ten minutes via their PCs, possibly rising to
60% five years later. They also suggest that by 2015 only around 10% of Freeview homes will
opt for enhancements to their service to allow them to access IPTV video on demand
services such as through BT Vision.




34
     Cited in the Sparkler report.
35
  ‘ The Likely Commercial Development of On-demand TV in the UK’, Oliver and Ohlbaum (May 2006)
                                                                                                  61
6.3.3.3 The public value in activities that would otherwise be undertaken

It is implicit in the conclusion that the proposals will result in greater BBC content
consumption than would otherwise occur in that viewers/listeners will forego other
activities, which may or may not include switching their viewing from a different TV channel
to the BBC. It must be recognised that this involves a loss of something of value to the
individual; in the language of economists, a loss of consumer surplus. At the same time,
however, consumers would not switch to the BBC unless they considered their
consumption of BBC content to be of greater value to them than the activities foregone. In
short, the consumer surplus gained must necessarily exceed the consumer surplus foregone.

Ofcom has helpfully calculated figures for the consumer surplus gained and foregone which
we understand will be included in the MIA. We have not sought to verify or reproduce
those calculations, not least because of the inherent uncertainty in trying to reduce the
worth to tangible figures, and are content to note that the proposals will necessarily result in
a net gain in consumer surplus if consumers choose to access them. We do wish to record,
however, that we are cognisant of the public value provided by other activities and,
particularly, by other public service broadcasters and have not failed to take this into
account in assessing the extent to which the proposals may add public value.

6.3.3.4 Evidence specific to the individual proposals

A. Seven-day catch-up over the internet

There is mixed evidence addressing the extent of impact of the proposals on viewing habits.
Although the iMP triallists believed it would, as a concept, have an impact on
viewing/listening, the broader base of people involved in the Sparkler research did not
believe it would have a significant impact on their viewing. The Sparkler report found that
the consumer benefits of all the internet-based services were limited by the audiences’
perceptions of the role of the internet as a platform. It suggested that people are not ready
for the internet to make the transition from being a platform that delivers ‘infotainment’ to
one that delivers entertainment. As a result, Sparkler concluded that TV content on the
internet has limited appeal at this stage. However, participants in the Sparkler research did
agree that they felt that this proposal was a natural and inevitable progression for the BBC.

B. Seven-day catch-up over cable

When participants in the VoD deliberative juries were asked to value this service from the
perspective of the average person it was given a lower value than when considering it from a
consumer perspective. Evidence from the BBC Executive application and also the Sparkler
research suggests that this is because it is not a universal product, only being available to
those who can or do subscribe to cable services.

C. Simulcast TV over the internet

There was very little evidence submitted by the BBC Executive regarding the potential
appeal and impact for this proposal. However, it was investigated in the Sparkler research
and it was found that of the four proposals, this is the one that was least well received. The

                                                                                            62
main reason was that people struggled to come up with scenarios in which it would be used
by themselves or by other people. In particular, as most people already have a number of
televisions in their households, they could not envisage needing to watch something live on
their home computer.

Although participants in the Sparkler research felt that there may be possibilities for people
to use it when they were at work if there was some event being televised, it was also felt
that not many people would have the time to do this, or if they did it would have a negative
impact on their work productivity.

It was therefore concluded that there was little need for this at present but it was
acknowledged in the Sparkler research that some audience viewing behaviours are likely to
adapt to such changes in technology. However, the Sparkler research did suggest that the
proposal would currently only appeal to a niche audience with specific needs.

D. Non-DRM downloads over the internet

Doubts were raised in the Sparkler research about the potential impact that this service
would have on people’s listening habits. Participants claimed that radio listening tended to be
live and although they were able to name certain types of programmes that people may want
to download they did not feel that this was a useful service to them personally; radio
listening was not by appointment. The Sparkler research suggested that, as with simulcast TV
over the internet, the proposal would currently only appeal to a niche audience with specific
needs.

However, this should be contrasted to actual BBC usage data of non-DRM downloads,
which suggests there is significant demand for the service. The two may be squared through
the Sparkler research noting that whilst the proposal was not for them, there was
acknowledgment that the proposals generally may be of particular interest to a younger
demographic.

The general evidence base suggests that the removal of full track commercial music may
reduce the appeal of the service.

6.3.4 What would be the impact to the consumer and citizen if the proposed
      services did not launch?

We have considered the counter-factual for each of the proposals and conclude that a
consistent message coming from across the range of evidence reviewed as part of this
assessment is that the BBC would lack relevance if it did not play an active role in this
evolving media world.

Specifically:

Online proposals

Though the online proposals do not generate a particularly large impact in themselves, if the
online proposals were not launched, there could potentially be a negative consequence on

                                                                                           63
the viewing of BBC material and ultimately on the BBC brand, in particular amongst the
younger licence fee payers and those who embrace new technological advances, since they
will have access to on-demand services through other broadcasters, but not through the
BBC.

Seven-day catch-up over cable

This could potentially have the biggest impact on the consumer and in particular the BBC if it
was not launched, as the research discussed above has shown that this service currently
meets a need and fits with current viewing behaviour. If the BBC programmes were not
available on this platform then the salience of the overall brand as well as individual channels
would be diminished.




                                                                                            64
7 Reach
Summary

We assess the public value of the proposals as medium–high as each of the
services has the potential to achieve high reach and collectively are likely to
maintain high levels of consumption of BBC content.

Reach measures the number of people who access BBC content. It provides an indication
of how many people will use the proposed services. However, as we note in section 4, it
is only through ensuring the consumption of its programmes that the BBC ensures that
public value in its content is realised. So, in assessing reach, we consider it necessary also
to evaluate the potential volume of consumption of BBC content that the proposals will
achieve. Our assessment of reach therefore comprises four elements: (i) will sufficient
people use the proposed services for them to be worthwhile; (ii) will the proposed
services increase, maintain or lessen the reduction of total consumption of BBC content;
(iii) will the proposed services increase consumption by and reach to any particular
groups having special relevance to achievement of the BBC’s Public Purposes; and (iv)
will the proposed services increase the consumption and reach of content that tends to
appear in the margins of linear broadcast schedules.

We believe that each of the proposed services will achieve significant reach by 2011. This
will be substitutional rather than additive – in other words, the services will not
materially increase the total number of people consuming BBC content over all. In the
longer term, should on-demand become more popular, there would be a risk to the total
reach of the BBC if the BBC were not offering on-demand services. The services may
help in the long term to increase the numbers of younger people using the BBC’s
services. There are also reasons for thinking that, by putting niche, specialist content on
a more equal footing with mainstream content, the proposals will result in more people
accessing it. The BBC Executive estimates that approximately 33% of television
households will view at least 15 minutes of BBC content per week by 2011, using one or
other of the three television elements of the proposals. We take a slightly more cautious
view, given that we question some of the assumptions made by the BBC Executive in
conducting their analysis and given that we arrive at a different conclusion on what will
drive usage.

Our assessment is based as much on the impact of the proposals on the total
consumption of BBC content as on the number of people using the services. This is
because consumption of the BBC’s high quality content is a prerequisite for the
promotion of the BBC’s Public Purposes. The proposals will help maintain the relevance
of BBC services to audiences as they begin to shift some of their consumption from
linear schedules to on-demand. Taken together, the three video on-demand services are
forecast by the BBC Executive to account for 11% of all BBC television consumption by
2011. The Trust’s more modest approach puts this percentage at around 7%. So the
BBC’s total share of consumption would be significantly reduced if the proposals did not

                                                                                                 65
proceed.

Younger audiences in particular are likely to consume the internet-based proposals
disproportionately. So if the proposals did not proceed, there would be a
disproportionately negative impact on the amount of content consumed by the young, a
demographic group that the BBC already finds it hard to reach.

                                                                      Reach
                                                            L          M            H

Seven-day catch-up over the internet

Seven-day catch-up over cable

Simulcast TV over the internet

Non-DRM downloads

Overall


These scores and our general assessment of reach should be considered in the context that
reach is weighted particularly highly in assessing the overall public value of these particular
proposals (as set out in section 3.2.3).

7.1 Approach to assessment

7.1.1 Why consider reach?

In the Interim Rules, it is suggested that reach is a key driver of public value. In that context,
the reference is to the number of users of the proposed new service or the extent to which
the service is consumed by its target audience. This is a relevant consideration (addressed
below), but we have concluded that it is helpful to address broader considerations pertaining
to reach (such as the reach of specific types of programming, or reach to under-served
sections of the audience) as well as the volume of content consumed. These broader
considerations tie in well with the duties of the BBC under the Charter and Framework
Agreement.

Reach measures the number of people who access BBC content. In assessing the public value
of the proposals, we consider it relevant also to assess the potential volume of consumption
of BBC content that the proposals will achieve. Not only can trends in consumption
determine reach in the long term, but consumption is a prerequisite for the delivery of
public value. In order to promote its Public Purposes, the BBC must ensure that its content
is consumed.

Clause 12 of the Framework Agreement requires the BBC to do all that is reasonably
practicable to ensure that viewers, listeners and other users are able to access the public
services that are intended for them in a range of ways, which it is particularly noted could
include on-demand. More generally, it is the BBC’s main object under Article 3(2) of the

                                                                                              66
Charter to promote its Public Purposes. As already noted, five of the six Public Purposes are
wholly or mainly related to content. If viewers are not consuming the content then the
Public Purposes cannot be achieved. Promoting the Public Purposes necessarily involves
increasing the numbers of people consuming BBC content overall.

It is a further consideration that reach is not just about the total number of people using the
BBC’s services. In a linear world, specialist content that tends to appeal to niche sections of
the audience will generally be placed in the margins of the schedules. On-demand services
make it easier for audiences to find and consume such content. Insofar as such content
serves the BBC’s Public Purposes, public value will be enhanced if the numbers of those
consuming the content is maintained or increased – or if such content is consumed in
greater volume.

Similarly, the BBC has a role in serving minority and under-served audiences. A further
useful measure of reach, tied to achievement of the Public Purposes, is therefore the extent
to which BBC content is consumed by those for whom it is intended or, indeed, the extent
to which any BBC content reaches particular groups.

So, for these reasons, our assessment of reach comprises four elements: (i) will sufficient
people use the proposed services for them to be worthwhile; (ii) will the proposed services
increase, maintain or lessen the reduction of total consumption of BBC content; (iii) will the
proposed services increase consumption by and reach to any particular groups having special
relevance to achievement of the BBC’s Public Purposes; and (iv) will the proposed services
increase the consumption and reach of content that tends to appear in the margins of linear
broadcast schedules.

7.1.2 Key questions considered

In order to determine public value delivered through reach, the Trust posed a series of key
questions. These were:

     o     How will the proposal drive reach? What are the forecasts?
     o     What are the risks associated with these forecasts?
     o     What would happen to reach if the proposed service did not launch?

7.1.3 Primary sources of evidence and issues

The primary sources of evidence for ascertaining the potential reach of the proposals were
as follows:

     o     Reach model: The BBC Executive developed, in conjunction with Human
           Capital, an extensive reach model to project reach for each of the proposals to
           2011.
     o     Trials: Participants from the BBC Executive’s trials completed questionnaires
           addressing likely usage
     o     PricewaterhouseCoopers: Provided a report to assess the robustness or
           otherwise of the forecasts, including consideration of the assumptions and
           assertions underlying them.

                                                                                           67
By their very nature, triallists of the services were more likely to be technology literate,
early adopters. In light of this we additionally sought to gauge propensity for use among a
broader cross-section of licence-fee payers. This formed part of the research conducted by
Sparkler.


Evidence Issues

Consideration as to how reach could vary within demographic groupings would provide a
richer picture to assist with an overall analysis. In particular, it would assist any assessment
of value for audiences the BBC has found difficult to reach. For example, on-demand might
add unique reach among younger audience groups who tend to be more inclined to use
interactive and on-demand media than traditional linear television. The evidence set,
however, did not provide such forecasts. Demographic evidence was consequently sought
on a piecemeal basis.

7.2   Assessment conclusions

Through addressing these questions, the Trust determined that the public value – in terms of
reach – delivered by the proposed service is ‘Medium/High’.

7.2.1 A strategy to maintain the use of the public services provided by the BBC

The BBC’s strategy is essentially a move to maintain reach and relevance as the media
market changes to one in which a substantial amount of consumption is expected to shift
towards on-demand. All the main UK broadcasters are expected to be providing on-demand
services – Sky, Channel 4 and five are already doing so, and ITV intends to launch later this
year. In addition, aggregators such as Google and iTunes are consolidating their position as
distributors of on-demand content, while sites such as YouTube (now part of Google) are
stimulating the provision of user-generated video.

In this context, the BBC’s proposals aim to achieve significant reach in their own right in
order to maintain consumption of BBC services – and thereby, in the long term, maintain
overall reach. We take a slightly more conservative view of the projected reach than does
the BBC Executive, but nonetheless believe that the proposals have the potential to achieve
high reach, albeit by substituting consumption of linear services. We believe consumption of
BBC content will fall significantly if the proposals do not proceed.

7.2.2 A conservative approach to forecasting

We tested the BBC Executive’s forecasts against the advice received from
PricewaterhouseCoopers. We also conducted a series of discussions with Ofcom’s MIA
team in order to establish a shared understanding of growth of the proposed BBC services.
In the light of these considerations, we made a number of adjustments to the reach model.
Our main points of caution vis-à-vis the BBC Executive’s forecasts are as follows:



                                                                                            68
     o      The BBC Executive’s assessment of the competition its proposals will face is
            based on the existing main alternatives to the BBC. Our view is that on-demand
            will usher in structural changes to the market, with many more niche offerings.
     o      The BBC Executive’s assumptions are based on data obtained from observing
            early adopters in the trials of the BBC proposals. Usage among the general
            population is likely to be less enthusiastic. However, we expect a lingering skew
            towards usage among younger audience groups.
     o      The BBC Executive’s forecast is sensitive to penetration of personal video
            recorders (PVRs). We believe that PVR penetration may be slightly higher than
            the BBC Executive’s forecast – which would tend to displace on-demand
            consumption.
     o      We believe the assumptions underlying the BBC Executive’s forecast for seven-
            day TV catch-up over the internet and over cable to be slightly optimistic.
     o      There is considerable uncertainty in forecasting the reach of non-DRM audio
            downloads over the internet, and we believe the assumptions underlying the BBC
            Executive’s forecast to be optimistic.

7.2.3 Revised forecasts

Accordingly, we have adjusted the forecasts from the reach model and assess the likely
reach of the four services to be as follows:

Figure 6: Forecast reach of BBC on-demand proposals by 2011

                  Seven-day TV         Seven-day TV         Simulcast TV         Non-DRM
                  catch-up over        catch-up over        over the             audio
                  the internet         cable                internet             downloads over
                                                                                 the internet

                  (Percentage of all   (Percentage of all   (Percentage of all   (Percentage of all
                  TV households)       TV households)       TV households)       households)

The BBC           19.8%                8.4%                 11.1%                5.5%
Executive
forecast

BBC Trust’s       14.1%                5.6%                 8.4%                 4.5%
adjusted
forecast


Given this is a nascent market, it is difficult to have a high degree of confidence in these
forecasts.


     We therefore recommend the setting of reach targets for these
     services to ensure that the predicted public value is actually
     achieved.

We also have some concerns that, for seven-day TV catch-up over the internet, the strategy
to enforce rights-compliance relies on the latest Microsoft formats (see section 2.4.1 above
                                                                                                      69
and section 9.2.2 below). This constrains the available audience and so has implications for
the universality of BBC services at launch.


       A condition for the service should require provision of the seven-day
       catch-up service on a platform-agnostic basis within a reasonable
       timescale subject to value for money considerations, and as technology
       allows.


Although the latest version of Microsoft formats are not required for the other services, the
streaming service will require the minimum of Windows 98 and Windows Media Player
version 9 or RealPlayer.

In general, we note however, that a minority of users opt for non-Microsoft operating
systems, and the impact on the universality of BBC services would therefore be minimal.

7.3    Key questions to determine public value

7.3.1 What are the reach forecasts and how will the proposal drive reach?

7.3.1.1 Reach forecasts

The definition of reach which we have used for the purposes of this PVA is set out above at
section 7.1.1. The following forecasts provided by the BBC Executive, however, rely on the
narrower definition of reach, being the number of users of BBC content. This narrower
definition reflects only one aspect of the definition of reach (part (i)) that we have adopted).

The BBC Executive have provided forecasts for each of the four on-demand proposals.
Reach for video on-demand is measured as the percentage of TV households who use at
least 15 minutes of the service in a week; for non-DRM audio downloads it is the percentage
of households downloading BBC content in a week. By 2011, reach for each element is
forecast to be as follows:36

       o      Seven-day TV catch-up over the internet: 19.8% of all television households.
       o      Seven-day TV catch-up over cable: 8.4% of all television households.
       o      Simulcast TV over the internet: 11.1% of all television households.
       o      Non-DRM downloads over the internet: 5.5% of all homes.

It is noted, however, (as set out in figure 7 below) that the number of new people who will
obtain access to the on-demand services i.e. the reach beyond television households, will be
fairly nominal.

Figure 7 below is the BBC Executive’s estimate of the aggregate reach of the proposals, in
relation to the TV services:


36
  The BBC Executive revised their reach forecasts after submitting their application, so the figures quoted here differ from
those in the original application document.
                                                                                                                        70
Figure 7:
Reach of BBC TV services in 2011




As provided for in figure 7, 0.6% represents the number of new people that will obtain
access to the on-demand services. This forecast is based on the BBC Executive’s unadjusted
reach projections which we consider to be slightly on the optimistic side.
7.3.1.2 Drivers of reach

The forecasts assume that usage of new on-demand services will be substitutional – i.e.
people will switch some consumption from linear broadcast offerings to on-demand services.
The implication of this is that BBC on-demand services would not substantially increase the
number of households consuming BBC content of the BBC but would help to maintain
consumption among audiences who might otherwise drift away (and, in the longer term,
could help to maintain the total number of people using the BBC). On-demand would
account for 11% of all BBC television consumption by 2011, as set out in the BBC
Executive’s reach models. The Trust’s more modest approach considers this percentage to
be more like 7%. It is assumed that some or all of this consumption would be lost to the
BBC if the proposed services did not proceed.
Reach of the internet-based propositions is assumed to be driven primarily by their adoption
among homes with broadband access, and to a lesser extent the increasing penetration of
broadband. Growth of the cable offering is driven by increasing penetration of on-demand
enabled set-top boxes within cable networks. After 2011, it is assumed that growth in the
reach of seven-day TV catch-up over the internet slows as increased penetration of cable
on-demand and PVRs substitutes for on-demand consumption using the internet.
7.3.2 What are the risks associated with these forecasts?
Our analysis of the forecasts focused on two broad areas: market scenarios and service
usage. The latter is particularly significant and in this instance we additionally consider the
risks to each of the four proposals. Beyond this we have also considered the potential
impact on reach of consumer download costs.



                                                                                           71
7.3.2.1 Risk Factors: market scenarios

The BBC Executive model is based on the assumption that the BBC’s main competitors in
the on-demand market will broadly be those currently active in linear broadcasting. As such,
the BBC would capture the entire shift from linear BBC services to on-demand.

We are of the view that the on-demand market is likely to bring significant structural change,
with new forms of competitors arising, particularly from the internet and overseas
broadcasters. In order to evaluate the impact of such change on the reach of the BBC’s
services, PwC were engaged to provide a view on the possible future shape of the on-
demand market.

PwC considered two phases of the value chain, production and packaging (the distributing
gateways to which consumers turn to access content), providing four scenarios for
production and three for packaging.37 The scenarios presented are not completely distinct
from one another and should, instead, be viewed as a spectrum of possibilities.

Production Scenarios:
   1. Domestic broadcasters dominate – Consumer demand is focused on the existing
      mainstream broadcasters, and the BBC broadly maintains its existing position in both
      linear and on-demand services.
   2. Imports take over – Consumer demand shifts towards American programmes such as
      Lost, 24 and new equivalents. The BBC would suffer a decline in viewing along with
      other major broadcasters, though it could hold a niche position as a champion of UK
      content.
   3. The rise of user-generated content – Consumer demand shifts radically towards more
      niche, special interest and personal interest content, sacrificing quality for diversity.
      The BBC would experience a drain of viewers along with other broadcasters,
      although it may be better-placed than most to adapt to the new conditions.
   4. Low demand for on-demand – Consumer spending may prioritise other new
      developments than on-demand, such as high definition television. This would tend to
      reinforce the status quo, with the main broadcasters maintaining their share of
      viewing.


Packaging scenarios
   1. Big brands – On-demand content is made available predominantly by big name players
      such as the existing main broadcasters, and internet aggregators like Google and
      Yahoo. In this scenario, the BBC should expect to remain a major player.
   2. Emergence of niche – On-demand content is distributed predominantly by smaller
      companies such as programme-makers distributing their own content and specialist
      aggregators catering to specific tastes. Demand for BBC consumers could be
      expected to hold up, but consumers would access it mainly through third-party
      distributors.



37
     These scenarios are illustrative having been formed within a hypothetical context.
                                                                                           72
       3. Big brands and niche mix – Mainstream content is still dominated by the big brands,
          while niche providers find scope to meet demands for which the mainstream
          providers do not cater.

Although future market directions are extremely difficult to forecast, our view on the most
likely outcome is a market in which user-generated and niche content occupies an increasing
share, but within which big brands remain the major players.

Impact on Forecasts: Our judgment is that this may lead to slightly lower reach than
originally forecast in the BBC Executive’s model. Accordingly, we have adjusted the BBC
Executive’s reach forecast down by 10% across the four proposals.

In so doing we gave consideration to the considerable volume of niche content provided by
the BBC in addition to mainstream programming. In a market where consumers are seeking
niche programmes, the consumption and reach of BBC content might be expected to hold
up relatively well. This is borne out in the podcast market. Among the 100 most popular
free podcasts on iTunes are a plethora of new audio content providers offering material
which might be expected to appeal to BBC radio listeners (e.g. Guardian Unlimited, Times
Online, The Philosophy Podcast). Nonetheless, in this intensely competitive environment,
30% of the top 100 most popular free podcasts on iTunes are from the BBC.38 This
compares with a 54% BBC share of the radio market, in which there are relatively few
alternative providers to the BBC.39

7.3.2.2 Risk factors: service usage

The reach forecasts are driven by assumptions about likely usage of the proposed services.
The BBC Executive have derived these assumptions from observations of behaviour in their
on-demand trials, historical evidence and industry forecasts.

In addressing the risk factors we will:

A          provide general observations on issues potentially affecting all four services; and
B          analyse the forecasts for each of the four proposals.

A. General observations

Our general observations relate to demographics, the impact of personal video recorders
and of mobiles. In light of these observations we have adjusted the BBC Executive’s forecast
to allow for a higher PVR penetration. Within this section, consideration is also given to the
‘long tail’.

Demographics

The sample of users involved in the on-demand trials was skewed towards early adopters.
Such users would be expected to have a greater facility to use the technology than the
general population and therefore a greater propensity to use the services. Basing forecasts

38
     As of 7 December 2006 (www.apple.com/itunes/store/podcasts)
39
     BBC Press Office, 26 October 2006.
                                                                                                 73
on their observed behaviour would therefore tend to overstate the expected reach of the
service.

Conversely, the qualitative research undertaken by Sparkler indicated that a skew in usage
towards younger audiences is likely to linger for some time. The BBC Executive’s public
value case is partly based on this expectation because, if borne out, it would mean that the
BBC would provide better value to a section of the audience (aged 16 to 34) that the BBC
has perennially found hard to reach through traditional television and radio services.

BBC Executive’s application does not provide evidence to assess the rate of usage among
younger audience groups and we have not attempted to do so. However, in addition to the
Sparkler research, the BBC’s experience with its website provides strong grounds for
believing that internet distribution can, in itself, increase the appeal of content to younger
audience groups. The chart (figure 8) below provides an example of this, comparing viewing
to BBC comedy programmes via television with viewing to the same programmes via the
internet.

Figure 8:




Taking all this into account, our view is that the proposals are likely to increase consumption
of BBC content by younger audiences – and, in the long term, may increase the numbers of
younger people using the BBC. It is important not to overstate the potential for internet
distribution alone to increase reach to younger audience groups. The Sparkler research
revealed that young people tend to cite the content proposition rather than the distribution
mechanism as the greater influence on their propensity to view.

On balance, we conclude that the early adopter skew of the trial sample combined with the
likely greater appeal of the services to younger audiences in the short to medium term
means that the BBC Executive’s forecast does not need adjusting for demographic
considerations. Furthermore, we agree that the potential for the on-demand services to


                                                                                           74
increase consumption by and reach to younger audience groups represents a
significant part of the public value of the proposals.

The impact of personal video recorders (PVRs)

Reach is sensitive to the penetration of PVRs. Evidence from the trials suggests that the
more the public adopt PVRs, the lower will be the demand for on-demand services.
Moreover, as the storage capacity of PVRs increases, this is likely to become even more
pronounced. PwC considered the BBC Executive’s estimates for PVR penetration to be
slightly low (around 40% by 2011), thereby leading to overestimates in reach. In light of this
we have increased PVR penetration to 47%, although the overall impact of this amendment
on reach is minimal.

The impact of mobiles

Access to TV on-demand services from mobile devices has not been included in the reach
forecasts.

PwC advised that mobile devices could soon provide faster internet access than normal PC
broadband in the home today. In this situation, consumers would be highly likely to access
on-demand services on bbc.co.uk. This could deliver a significant upside to the BBC’s
forecasts; usage on portable devices is likely to be additive rather than substitutional, with
portable devices extending the times of day when consumers may be minded to consume
audio-video content.

The take-up of MP3 players gives an indication of the appeal of media content on the move –
although demand for video content, which requires more attention from the consumer, may
not achieve the same level as for audio content.

However, despite this potential we believe it appropriate to discount the impact of mobile
devices over the next three to five years and, taking the following into account, have left
forecasts unadjusted:

     o     Stakeholders in the mobile industry informed us that whilst mobile usage is
           conducive to downloading short video items, the large data files involved in
           accessing full programmes mean catch-up TV is unlikely to drive significant usage
           via mobile over the forecast period.
     o     Similarly, while simulcast TV could be a compelling proposition via mobile,
           consumers are likely to access this through network operators’ gateways, mobile
           broadcast services or other aggregators.
     o     The BBC Executive advanced that any additional usage arising from mobile is
           likely to manifest largely from users who have already accessed the service and as
           such would not significantly increase reach.

The long tail

The BBC Executive argue that the proposals should more efficiently match supply with
demand; users would be able to find programmes they specifically wish to consume as

                                                                                          75
opposed to having to consume whatever programme is being broadcast at that particular
moment. In this context, the peak time ‘hits’ of linear television are likely to have a slightly
reduced impact in the on-demand environment with audiences unable to be channelled
towards such programmes by the schedules. Different forms of promotion and navigation
apply in an on-demand world, based on helping users find the content most relevant to their
interests. As a consequence, we might reasonably expect to see a long-tail effect, whereby
niche content occupies a larger share of on-demand consumption than is currently the case
in linear schedules.

PwC noted the potential for this but they advised that the effects should not be overplayed,
since the pool of content available for seven-day catch-up is, by definition, limited.
Nonetheless, the ability for on-demand to put niche programmes on an equal footing with
the most popular programmes has the potential to enhance both their share of consumption
and reach and hence the value of special interest content. Evidence from the BBC’s podcast
trial would appear to corroborate this. For example, In Our Time – a 45-minute Radio 4
speech programme which explores each week a historical subject in depth – was the most
popular weekly podcast in October 2006, receiving nearly 600,000 downloads.



         The potential for on-demand to enhance both the number of people
         accessing special interest programmes and the volume of consumption of
         those programmes contributes to the public value of the proposals.
         Although we do not consider this to be a service condition in itself, we
         consider it part of the success criteria by which performance should be
         judged.


B. The four proposals

In this section we consider the specific risks to forecasts for each of the four proposals. We
also highlight any amendments made to the reach model as a consequence.

Seven-day TV catch-up over the internet

Factors overestimating reach
Analysis from PwC suggests reach for this service, as forecast in the BBC Executive’s reach
model, is optimistic. Although we broadly accept the BBC Executive’s underlying assumptions
we note the following risks:

         o      The BBC Executive base their forecast on broadband penetration. We
                considered the extent to which usage would be affected by download speeds. By
                2010, only around 40% of homes will be able to download one-hour video files in
                reasonable time periods (less than 10 minutes).40 PwC believe the inability to
                download content in reasonable time will have an impact on reach.



40
     ‘The Likely Commercial Development of On-demand TV in the UK’, Oliver ad Ohlbaum (May 2006).
                                                                                                    76
                Whilst acknowledging this, we believe the impact is likely to be minimal. The BBC
                Executive forecasts take account of data from their trial in which users
                encountered slow download speeds. Evidence suggests that this was an off-
                putting factor for some, affecting perceptions of quality, but that over a short
                period people modified their expectations of quick access to content and
                adjusted their behaviour to download content for later use.

         o      The BBC Executive forecast that, by 2009, the BBC’s PC on-demand service will
                be used by a higher proportion of broadband households than forecasters are
                expecting for the market as a whole.41 PwC suggest that the penetration achieved
                by the BBC will be closer to 55% of broadband households rather than the 70%
                predicted by the BBC Executive. We accept this analysis and have adjusted the
                reach model accordingly.

Following discussions with the Ofcom MIA team, adjustments were made to the reach
model refining how it allowed for the impact of media centres. Broadly speaking, we
assumed less intensive usage by more viewers per household.

Taking these factors into account, we consider that the BBC Executive’s forecast for the
reach of seven-day catch-up TV over the internet is overstated.

Forecasts underestimating reach
The BBC Executive propose a strategy at launch to enforce compliance with rights which
requires users to have Windows XP (or later) as their operating system and Windows
Media Player 10 (or later) as their player. This puts a constraint on reach by excluding
Windows users with earlier operating systems as well as a minority of consumers who
choose Apple and Linux systems.

The proposed approach raises concerns regarding universality. We consider that the public
value of the service would be higher if the BBC adopted a platform-neutral approach. We
expect the BBC Executive to be sensitive to such concerns in the long run, as provided for
in our recommendation of an appropriate service condition (see sections 7.2.3 above and
section 10.4 below) and, in reflecting this, have increased the reach forecast by 5%.

Cumulative impact
The cumulative effect of our adjustments reduces the BBC Executive’s forecast reach for
seven-day TV catch-up over the internet from 19.8% of all TV households to 14.1%.

 Seven-day TV catch-up over cable

Factors overestimating reach
Analysis from PwC suggests reach for this service, as forecast by the BBC Executive, is
optimistic. Growth is driven by the gradual expansion of digital cable and with it, the
enablement of on-demand which will be available to 100% of cable households. Although we
broadly accept the BBC Executive’s underlying assumptions we note the following risks:



41
     Enders Analysis, UK PC video-on-demand (March 2006).
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     o     The model predicts that 96% of cable households will access BBC on-demand
           content by 2011 – equivalent to the current monthly reach of BBC linear TV.
           This is based on assumptions about how electronic programme guides will drive
           users to on-demand content. As with PwC, we view this assumption to be
           optimistic and have adjusted the figure down to 85%.

     o     The BBC Executive have assumed usage will be 75–100% higher than that
           achieved during the proposal’s trial; the proposed content offering would be
           substantially broader and users would be more familiar with the on-demand
           environment. PwC noted that BBC content in the trial performed extremely well
           in relation to competitor content. Although they broadly accept these usage
           forecasts, PwC believe the skew in the trial towards early adopters leaves the
           forecast optimistic in the short term.

           We further note that the BBC is likely to face more compelling competitor
           propositions in future, which may reduce the BBC’s reach and overall share of
           consumption. In light of these considerations we have revised the usage
           assumptions down by half, to 35% in 2005 rising to 50% in 2011.

Taking these factors into account, we consider the BBC Executive’s forecast for the reach of
seven-day catch-up TV over cable is likely to be overstated. The impact of our adjustments
reduces the BBC Executive’s forecast reach for seven-day TV catch-up over cable from 11%
of all TV households to 5.6%.

Simulcast TV over the internet

Analysis from PwC suggests reach for this service, as forecast by the BBC Executive, is not
unreasonable. Growth is driven by the increasing penetration of broadband households and
by the increasing provision of multicast streaming technology by internet service providers.

Penetration is assumed to grow at half the rate experienced by the BBC with its simulcast
radio service. This assumption appears reasonable.

As this service simply replicates linear television on the internet, we believe it to be less
important to the BBC than the three other proposals in terms of maintaining the level of
consumption of BBC content. We note, however, research from Sparkler which indicated
that younger audiences expect internet access to television to become routine. Simulcast TV
over the internet may therefore become more significant in terms of reach in the medium to
long term.

Factors overestimating reach
Although we make no changes to the specific assumptions which generate the forecast reach
for this service, we have made adjustments to account for a greater PVR penetration than
provided for under the BBC Executive model. This reduces forecast reach for simulcast TV
over the internet from 11% of all TV households to 8.4%.




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Non-DRM audio downloads over the internet

Factors overestimating reach
PwC were unable to refute or support the BBC Executive’s forecast of reach for this
service. Growth will be driven by the increasing penetration of broadband across UK
households. PwC suggest there is a high degree of uncertainty in forecasting this sector of
the market primarily due to a lack of evidence. The BBC’s non-DRM audio download trial is
one of the strongest sources of data available. However, we note the following risk to
forecasts:

     o     The BBC Executive have assumed that 50% of content downloaded is actually
           consumed. Although we are unable to determine whether such an assumption is
           appropriate we believe it prudent to factor in a more conservative figure. PwC
           suggest adopting an assumption that only one-third, rather than one-half, of
           content downloaded is consumed. We agree with this and have adjusted the
           reach model accordingly.

Taking this into account, forecast reach of non-DRM audio downloads over the internet is
reduced from 5.5% to 4.5%.

7.3.2.3 Risk factors: consumer download costs

One issue, which was also raised by stakeholders, is the impact of the BBC Executive’s
proposals on the internet costs of users. As licence fee payers start to download larger and
a wider range of files, broadband providers will face increased costs in transferring the
additional data. It is possible that providers could pass these costs onto consumers in one
form or another.

The impact of this is that if costs were passed on – and hence the cost of using the services
were to rise – this could have the effect of reducing demand or the reach of the proposals.
The impact on reach would obviously depend on the extent to which costs were passed on
to consumers and the extent to which broadband providers were able to identify and
separately cost for specifically accessing BBC content.

In assessing the level of likely impact, the BBC Executive commissioned independent
consultants Analysys Consulting to estimate the potential impact of the BBC’s proposals on
the wider broadband market and consumers. Some of the key conclusions of this work are
that:

o The BBC service should be seen in the context of a developing market with the amount
  of data downloaded expected to continue rising.

o The amount of data downloaded through the BBC’s proposed services will therefore be
  small relative to total internet traffic. It is estimated that the share of total UK internet
  volume of data downloaded through the BBC catch-up TV services will peak at less than
  7% in 2009.



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o Overall the potential costs increase attributable to BBC catch-up TV service on-demand
  content is estimated to be around £0.17 per household per month for those using the
  service. Market developments suggest that broadband providers are not expected to
  pass these costs on to consumers.

We note that it is very difficult to accurately predict how the broadband market will
develop. However, notwithstanding any sensitivities around this analysis, our view is that
consumers are unlikely to face significant download costs when accessing the BBC’s
proposed services. To the extent that the volume of data accessed through the proposed
services grows over time, we believe this may be countered by changes in technology and
the market.

Our conclusion is therefore that whilst there may be some limited impact on reach in the
short to medium term which contributes to our cautious approach to reach, this will not be
large and will not significantly affect the analysis presented in this report.

7.3.3 Counterfactual: what would happen to reach if the proposed service did
      not launch?

If the proposed service did not launch, the BBC would lack a service proposition to meet
the needs of consumers moving from linear broadcast to on-demand media. At the same
time, the BBC’s key competitors would have launched their on-demand propositions and
new on-demand competitors would have entered the market.

In the period to 2011, this is likely to result in a decrease in the amount of BBC content
consumed – with a commensurate loss of public value.

A simple example may explain this more clearly. Assume each BBC viewer today watches an
average of 10 hours of BBC television programmes each week. If these proposals are not
approved, the same viewer may watch only, say 9.3 hours of BBC television programmes in
2011. This is because that viewer will be watching less broadcast television and more on his
or her computer. If the BBC’s proposals are approved so that it can make television
programmes available on the internet, then the viewer may still watch 10 hours of BBC
television programmes in 2011, but with 0.7% hours being over the internet.

Beyond 2011, the loss of consumption is likely to start feeding into a decrease in the total
number of consumers accessing any BBC services. Both of these trends are likely to be seen
disproportionately among younger audiences.

If individual parts of the proposed service did not launch there would be a differential impact
on the amount of content consumed. Based on the BBC Executive’s forecast, the loss of
seven-day catch-up TV over the internet would mean the loss of up to 7.5% of total BBC TV
consumption, while the loss of its cable equivalent would mean the loss of up to 4.3% of
BBC TV consumption. The loss of simulcast TV over the internet would see the loss of up
to 5% of BBC TV consumption in broadband households while the loss of non-audio
downloads over the internet would equate to a loss of up to 1.5% of BBC radio
consumption in broadband households.


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Without the proposals, the BBC would also lose the opportunity to increase the public value
of its specialist niche programming.

More generally, the volume of consumption is critical to the BBC’s ability to deliver public
value on a number of fronts. Content is the primary means through which the BBC’s
services contribute to the Public Purposes. Any decline in consumption as a result of not
launching the proposed service would therefore hinder the BBC’s ability to promote its
Public Purposes. Similarly, if audiences are to benefit from the BBC’s quality content then
they need to consume BBC output in the first place. This applies even though content was
excluded from our overall judgment on quality. There would also be value for money
implications if the proposed service did not launch, with the cost per user hour increasing
faster than would otherwise be the case.




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8 Cost and value for money
Summary
Overall we assessed the proposals as medium–high under this component of public value.

We considered the value for money of the proposals using both an output-based measure (cost
per user hour) and a consumer worth measure (value yield).

Direct comparison with other BBC content-based services is not appropriate since these
proposed services are of a different nature, being a delivery mechanism for existing content.
Hence our comparison focused on the potential outcome for the BBC as a whole, with and
without the proposed services. We did, however, look at other services when considering the
opportunity cost of investing in the proposed services. In this regard, it should be noted that the
cost of the proposals is small in the context of the BBC’s total expenditure (0.8%). If the BBC
were instead to use the money to produce more quality drama then it would produce only 50
extra hours per year. Since this would not do as much as the current proposals to reduce the
loss of viewers in the future, the cost per user hour for BBC content would be higher than it is
now and higher than if the proposals were approved.

The BBC’s estimate of the cost of these proposals is largely based on the uncertain cost of
negotiating the necessary intellectual property rights to provide the services. Historically, when
the BBC has bought programmes it has acquired the right only to show them on television. To
acquire the right to also show them on the internet may cost it more. The figure provided is
uncertain but we have considered external expert opinion on it and formed our own judgment
that it is reasonable and may, indeed, be quite conservative.

On this evidence and for the reasons discussed in more depth in section 8, we conclude that the
services will each add value to the BBC over and above their cost and hence represent value for
money. The simulcast and non-DRM download service elements appear to offer the greatest
value for money by virtue of their relatively low ongoing operating costs (although this should be
considered alongside the fact that licence payers seem less excited by those service elements as
discussed in other sections of this report).

                                                                    Value for money
Assessment
                                                               L           M             H

Seven-day catch-up over the internet

Seven-day catch-up over cable

Simulcast TV over the internet

Non-DRM downloads

Overall




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8.1     Approach to assessment

8.1.1 Why look at cost and value for money?

Any assessment of the public value or benefit that the on-demand services will provide must
include an evaluation of the costs involved in providing those services. It is only by
considering the costs involved alongside the benefits anticipated that we can conclude
whether the proposals offer value for money.

Where the benefits outweigh the costs there is value in the proposals. However, we must
also consider the value to be created against that which might be created were the BBC to
spend the required investment in other ways or to spend nothing – in other words the
relative value.

8.1.2 Key questions considered

The Trust considered the following key questions:

      o What is the cost to the BBC of providing the services?
          o How much will the services cost to deliver:
                  – as a whole package?
                  – as individual elements?
          o Will providing the service put at risk any current or future income streams
              available to the BBC?

      o Do the proposals deliver in the most efficient manner possible?
           o Is there an alternative method of delivery which is more cost-effective?
           o Could the stated objectives be met more cost-effectively by alternative
              services?

      o Do the proposals offer value for money?
           o What is the cost per unit of consumption?
           o How does this compare with other existing BBC services?
           o How does this compare with other options available to the BBC?
           o What value will be created for the proposed spend?
           o How does this compare with other existing BBC services?


8.1.3 Issues encountered and assumptions made

We have questioned the BBC Executive on their cost estimates in order to understand what
they contain, how they have been prepared and the risks affecting different components so
that we may come to a view on their reasonableness.

In doing so we have not reproduced the BBC Executive’s modelling work in full but have
taken some account of the internal financial controls operating within the BBC concerning
budgetary build and approvals. We note that these processes are, more generally, subject to

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review by the BBC’s own internal audit function and also the annual external audit. The
Trust itself also has an oversight role and requires the BBC Executive to account to it on
how it has maintained its internal control function.

In respect of the costing of the services provided by the BBC Executive, we note that should
this PVT application be successful, the costs within this application will form the basis for
agreeing any service licence budgets required in connection with these services.

The costs presented in the application are the marginal costs to the BBC and not the full
costs of the service (since some of the required infrastructure already exists within the BBC
for other activities). This PVA considers the value created by the BBC undertaking the
services proposed and hence it is the marginal cost rather than full cost that is most relevant
to this assessment.

In the course of our work we have shared cost information obtained from the BBC
Executive with Ofcom, who are undertaking the MIA.

In assessing the value for money of the proposals we were unable to make direct
comparisons with existing BBC content-based services due to the very different nature of
these proposals – which are a delivery mechanism of the existing content. Hence we have
considered value for money by comparing the outcome on the BBC as a whole, both
without the new service proposals and with the new service proposals.

8.2   Assessment conclusions

Costs
Costs are relatively fixed in nature and tend not to vary with usage.
The costs quoted by the BBC are incremental costs only and so do not represent the true
cost of the service. The majority of the incremental costs relate to rights and there is some
evidence to suggest that the BBC may be able to negotiate to bring these down.
Costs are not readily apportioned between the different elements of the proposals since the
majority of costs are shared across more than one service element. This makes
consideration of the individual elements on a stand alone basis more difficult – although the
non-DRM downloads service element does not share any common costs with the other
service elements.
In terms of the overall BBC public service expenditure the proposals are a relatively small
percentage (~0.8%) and in that respect should not impact significantly on the provision of
other existing public service activities of the BBC.
The on-demand proposals on secondary rights prices may have an impact on BBC
Worldwide’s trading activities and its profitability – although it is not obvious whether such
impact might be beneficial or adverse in nature to BBC public broadcasting activities.




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Efficiency
The alternative distribution methods currently available appear more costly than the one
proposed.
The alternative distribution methods would not achieve greater reliability or quality of
service for the user.
Value
We considered the value for money of the proposals against two different measures of
value: the first was an output consumed measure (cost per user hour) and the second
used a consumer value measure (value yield).
The incremental cost per user hour for all elements of the new proposals is less than that
for existing content services.
However, direct comparisons of cost per user hour with other individual services provided
by the BBC are not very meaningful since these proposals are different in nature, being
essentially a delivery mechanism rather than a content-based service, and are costed on an
incremental basis as opposed to the more fully costed content-based services. Therefore the
most appropriate means of value comparison is to compare the effect on cost per user hour
for the BBC as a whole with and without the new services.
Without the new services, modelling shows that overall consumption of BBC content will
decline in the future as consumers substitute linear viewing for other options available. This
will increase the average cost per viewer hour.
The effect of the proposed on-demand services is to reduce this projected decline in viewer
hours (leaving total demand more or less constant as on-demand becomes a substitute for
linear viewing). Although cost per viewer hour is still higher than today (due to increased
costs) the position is relatively better than the scenario without BBC on-demand services.
Hence the proposals can be said to create value for the BBC.
Increasing BBC spend in linear services by an equivalent amount to the proposed new
services only marginally reduces the decline in linear viewing hours. This represents
relatively worse value in terms of the effect on cost per viewer hour.
Even allowing for the sensitivities around the projected reach model, the conclusions on
relative value remain valid.
We also considered the value attributed by licence fee payers to the proposals (their worth)
set against the incremental cost of provision. Although we have reservations about the
absolute worth values obtained (see section 6), this does give us some evidence as to the
relative worth or value of the proposals.
Consumers do see value in the proposals and our analysis of this measure suggests the
proposals will offer value for money.
The findings for relative value created by the individual service elements replicate those from
the overall on-demand package albeit at a lower level. However, the relative value created is
greatest for the combined package of service elements.
The two service elements offering greatest value for money are the simulcast and non-DRM
downloads element. This reflects the fact they these services have relatively low ongoing
operating costs following set-up and so any additional reach is generated at very low cost
per user hour.
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8.3      Analysis

8.3.1 Cost of the proposals

8.3.1.1 Overview of the costs of the proposals

The BBC Executive application set out the marginal cost to the BBC of providing the
package of on-demand proposals. This is also broken down by the four individual service
elements, with a number of costs being apportioned across more than one element.

The proposals will cost the BBC an additional £131m over the five-year period 2006/7–
2011/12. This amount covers all four parts of the proposal and is split between [ x ] of start-
up and [ x ] of operational costs. For ease of reference through the rest of this chapter, the
split of costs across the four parts of the proposal and by major type of cost is shown below.

                                Simulcast TV       Seven-day TV     Seven-day TV         Non-DRM
                                    over the       catch-up over    catch-up over   downloads over
                                    internet         the internet           cable      the internet   Total
Direct costs (£m)
Build/Start-up                            x                    x               x                 x       x
Opex (fixed)                              x                    x               x                 x       x
Total                                     x                    x               x                 x       x

Shared costs (£m)
BBC iPlayer
 Marketing                                     x                                                         x
 Build                                         x                                                         x
 Operational                                   x                                                         x
 Total                                         x                                                         x

Common Costs
(rights and playout)                                    x                                                x


Grand Total Costs
(£m)
Start-up                                                                                                  x
Operating                                                                                                 x
Total                                                                                                 131.2

Source: BBC Corporate Finance


The cost summary shows that there are significant shared costs between the four individual
parts of the proposal such that it makes sense to consider the costs as a whole first before
drilling down to individual service level.

8.3.1.2 Nature of costs included

To the extent that any benchmarking is possible between these proposals and other
offerings (whether from the BBC or commercial providers), it is important to understand
the nature of costs included so that inappropriate value comparisons are not made.




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The costs in the proposals comprise incremental costs that will be incurred by the BBC
only if the proposals are implemented. In summary these incremental costs, as set out in
figure 9 below, comprise:

Figure 9: Incremental costs

                                                                 £m
Start-up expenditure – (the build of the BBC iPlayer)            x
Operating expenditure:
    Rights                                                       x
    Play out costs                                               x
    Other operational costs                                      x
    Marketing (in 07/08 to promote BBC iPlayer)                  x
Total operating expenditure                                      x
Total                                                            131.2


The costs do not represent the true cost of the service because they only include those
costs the BBC will incur additional to existing operational and development costs. This
means they cannot be taken as the cost that another entrant to the market would incur in
providing such a service as these. This will depend on the individual provider’s existing
infrastructure and activities.

In particular, the costs above do not include any element for:

    o other infrastructure enablers that the BBC Executive are already building for use by
      bbc.co.uk and which will also be used by BBC iPlayer; or
    o cost of content that will be available through the services (other than additional
      rights required specific to the proposed on-demand services).

The great majority of the costs for these services are fixed in nature and will not change
with usage. This means that over time, assuming usage improves, there will be a fall in cost
per user hour. Therefore some caution is needed in interpreting any value measures
associated with cost per user hour since these will vary according to the time period
selected and according to the assumptions made within the reach model.

8.3.1.3 Rights costs

Of the total cost of £131m over five years, the vast majority of costs [ x ] are content-
related and directly attributed to the incremental rights needed to provide the existing BBC
content on an on-demand basis.

The BBC Executive’s application notes that these rights costs will be subject to negotiation.
Given the implied uncertainty over the cost estimate for rights, and that it forms such a high
percentage of the overall cost, we questioned the BBC Executive further to gain a better
understanding of how this figure was derived and how it might vary in the future.


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There is no single model for rights calculation across all genres and across all suppliers. For
some programmes the BBC already owns the required rights and in other cases it will need
to negotiate new agreements. The figures in this proposal were estimated by the BBC
Executive through a bottom-up approach and took account of existing rights deals in place,
historic practice and likely outcome of future negotiations.

The BBC Executive believe that the on-demand consumption will be a substitution for linear
consumption and as such should not add significant additional cost to the BBC’s overall
rights expenditure on an ongoing basis. Putting this in context, the cost of rights included in
the proposal represents [ x ] of the BBC’s current total rights spend.

We sought evidence from external media commentators to compare with the BBC
Executive’s view on the future of rights costs. PwC concluded:
          ‘the BBC Executive assumption that the take-up of on-demand services largely
          substitutes for linear viewing is in line with consensus and reasonable’.

Oliver and Ohlbaum42 believe that free on-demand services, whether facilitated by seven-day
catch-up features or PVR functionality, as currently structured, will bring content owners no
extra revenue despite generating extra value for consumers and increasing and protecting
effective channel viewing levels.

These independent views provide support for BBC Executive’s opinion that rights costs
should not be significant and suggest that the BBC’s proposals may even be overstating the
costs.

In fact, the pricing of on-demand rights costs is likely to be affected in the future by the
length of the on-demand window, with a longer window more likely to command a higher
price (since this is more likely to erode the value of any secondary rights). Elsewhere in this
report we note concerns about the length of the proposed on-demand window and we
recommend that this be reduced.

The BBC Executive have built up their cost estimates by allocating the required additional
rights to the named on-demand services. For some content the BBC already owns the rights
and hence no additional cost was included. It is unclear whether, as the on-demand business
models develop, more rights will be charged for separately rather than as a whole package
or whether broadcasters will seek to negotiate more all encompassing rights packages. This
has implications for the setting of service licence budgets should the proposals be approved.
We recommend that where content costs are included within the budget these should be as
budget amendments to the relevant content-related service licence budget (e.g. BBC One)
so that this does not become a budget problem should rights packages change in time.




42
     ‘UK TV content in the digital age – opportunities and challenges’ Oliver and Ohlbaum (January 2006)
(www.pact.co.uk/press/releases)

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8.3.1.4 Effect on current or future BBC income streams

The BBC Executive have set out the direct costs of the on-demand proposals in their
application but this does not discuss whether the proposals may have any indirect effects
on the income available to BBC public broadcasting activities. We consider that there are
two possible impacts:

       o increase in potential licence fee evasion; and
       o effect on commercial return from BBC Worldwide.

Both these areas are considered below.

Effect on licence fee evasion

The proposals will enable consumers to watch television programmes directly through their
broadband computer link without recourse to a physical television set. This may, in some
consumers’ eyes, encourage evasion as they may perceive that they no longer need a
television licence if they can argue that they do not physically own a television set.

This is a risk of which the BBC Executive are aware. However, it should be noted that even
on the BBC Executive’s estimates – which we have assessed to be optimistic, see section 7 –
the three new television proposals will only result in a 0.6% increase in the number of BBC
viewers. All others using the new services will already have televisions sets, by definition.
Indeed, the 0.6% will also include many people with television sets, both some new viewers
obtained through the cable on-demand services and some viewers who are drawn back to
the BBC by the internet services but who already consume non-BBC linear television
content. Accordingly, the scale on which any licensing issues may arise is expected to be
very small with the result that we do not consider this to constitute a material cost of these
proposals. If the situation should change in the future then the BBC Trust would expect to
approach the government for new legislation. It should be noted that it is not only the BBC’s
internet on-demand services that give rise to this issue but also internet on-demand
television services from other providers.

Commercial return from BBC Worldwide

The BBC has commercial interests in the resale of its programmes through its subsidiary
BBC Worldwide. Profits generated by BBC Worldwide are passed back to the BBC’s public
sector broadcasting operations. If the on-demand proposals put at risk any element of these
commercial profits this should be considered an indirect cost of the proposals to the BBC.

The trading activities of BBC Worldwide focus on the acquisition, development, exploitation,
licensing and sale of intellectual property rights. These rights are acquired from the BBC
(and from independent production companies) and are exploited across all media formats.
BBC Worldwide must pay fair charges for any goods or services it buys or receives from
other parts of the BBC.

The on-demand proposals are viewed as an extension of free to air linear broadcasting and
fit within the primary consumption window. The BBC intends to offer on-demand content

                                                                                          89
within the secondary window on a commercial basis though BBC Worldwide. Whether –
and how – the free on-demand proposals affect BBC Worldwide’s trading activities will
depend on:

         o the impact on secondary rights prices; and
         o the success of the disabling technology.

Effect on secondary rights prices

The effect on secondary rights prices is a difficult area due to the fast-moving developments
in the commercial market place for on-demand services. In January 2006 Oliver and
Ohlbaum43 claimed that on-demand proposals from free to air broadcasters are likely to blur
the distinction between primary and other rights windows. They claimed that there is a real
danger that six months after a programme has been broadcast a much higher proportion of
its overall lifetime appeal has been exploited. If all this re-use in the first six months is
conducted under a primary licence, then secondary rights are likely to be worth a great deal
less.

If this scenario is true it suggests that BBC Worldwide may therefore be able to acquire
secondary rights from the BBC for a lower amount. This may not affect BBC Worldwide’s
profitability if it can still achieve similar profit margins on the rights acquired but it could
affect BBC public broadcasting’s own budget for productions if BBC Worldwide invests
lower amounts back into BBC programmes.

However, an alternative view of the future suggests that as on-demand commercial business
models develop there may be a change in the perceived windows for primary and secondary
rights. As noted earlier, the length of the on-demand window is likely to affect the pricing of
such rights. A window of only a few days is likely to have little effect on secondary rights
whereas a window of many weeks may well do so.

BBC Worldwide have suggested that a limited window is unlikely to harm secondary
commercial exploitation (and by implication rights prices). This is on the basis of their
experience with DVD sales whereby repeats or additional showings that increase the public
awareness of the product in question lead to further sales despite the fact that such
additional showings in theory give the potential customer a chance to record rather than
buy. Indeed Oliver & Ohlbaum44 have moved on from their January 2006 position and appear
to support this view.

Taking the above considerations into account, and the fact that we recommend in the
conclusions to this report that the 13- week window be significantly shortened, we do not
perceive that there is a major risk of indirect costs arising to the BBC’s public service
broadcasting through lower income from BBC Worldwide.




43
     ‘UK TV content in the digital age – opportunities and challenges’ Oliver and Ohlbaum (January 2006)
(www.pact.co.uk/press/releases)
44
     ‘Beyond Demand TV Marketplace’ Oliver and Ohlbaum (November 2006).
                                                                                                           90
Disabling technology

The proposals assume that disabling technology will make programmes available for a limited
period only and will not allow users to copy programmes for forwarding to other users.

We questioned the BBC Executive as to their views on any potential downside for BBC
Worldwide revenue streams were such disabling technology to be cracked.

The BBC Executive have not given us a monetary value for any revenue streams that might
be at risk. They note that the risk to BBC Worldwide revenue only crystallises if a means is
found of unencrypting programme files and then sharing these more widely through a
suitable file sharing network. The impact will depend on the volume of such illegal
downloads. The BBC Executive have not quantified this risk, suggesting that experience to
date suggests that while illegal file sharing has had a measurable effect on the content
industries it requires a high level of expertise and mainstream audiences have shown a
preference for legal alternatives.

We accept the BBC Executive’s argument that there is no significant monetary risk at this
time.

8.3.1.5 Putting the cost in context for the BBC

The BBC’s total expenditure on public service activities was £3,236m in 2005/06.45 The
additional operating expenditure that the BBC will incur in providing the full range of on-
demand services requested is given in the application as [ x ] spread over five years – which
averages [ x ] a year or [ x ] of annual BBC expenditure on public service activities.

Expressed in this way, the costs appear a relatively small percentage of BBC expenditure and
so, cost-wise, we might expect that the proposals will not impact significantly on the
provision of other public service activities of the BBC.

However, a more useful comparison is to consider the scale of the proposed expenditure
against that required to fund existing BBC services so that we can understand their relative
costs. Although we acknowledge that such a comparison must be interpreted against the
background of very different service propositions – with the on-demand proposals
essentially a delivery mechanism for content provided through the other services – it does
provide an insight into the size of the funding required compared with what is available for
the content-based services.

The BBC’s service licences include a budget for each service which is a measure of direct
programme costs and programme-related costs. Using this as a basis for comparison, the
table below shows the existing BBC services which are currently provided for a similar level
of expenditure to the incremental costs of the on-demand proposals:




45
     BBC Annual Report and Accounts 2005/06: Financial statements: Note 2b (pages 106–7).

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Figure 10: Incremental costs comparison


Service                                               £m          Source
Radio 1                                               30.4        From service licence budget
On-demand proposals as a whole                        x           Average from application
Radio Scotland                                        20.7        From service licence budget
BBCi (red button)                                     19.6        From service licence budget
CBeebies                                              16.0        From service licence budget


An alternative comparison to which licence fee payers may more readily relate is the
number of hours of original output that could be funded from an equivalent investment to
that proposed for the on-demand proposals.

Figure 11: Number of hours of original output comparison

                                                    Cost per
Genre (analogue service) – originated                hour**       Number of hours that could be funded
programmes                                            £’000       by
                                                                  x*
Drama                                                  526.3      x hours (< 1 hour per week)
Entertainment                                         199.3       x hours (> 2 hour per week)
Sports                                                158.4       x hours (2–4 hours per week)
Factual and learning                                   108.5      x hours (> 4 hours per week)


* Average annual operating cost for on-demand proposals.
**Source: BBC Annual Report 2005/06: Broadcasting Facts and Figures.

Cost of individual service propositions

Because so many of the costs are shared between more than one of the four individual
service elements, the costs for each individual service need to be considered alongside the
other elements. In the table below we have restated the costs to show these for each
individual service. Where a range is given, the lower end represents the cost where some
cost elements can be shared with other services, with the top end representing the cost if
that element alone were undertaken.

The figures use the hours figures given by the BBC Executive as their base case as the means
for apportioning the shared costs. Although we have some reservations about the total size
of these (see section 7), this should not impact significantly on the allocation in the results
below.




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Figure 12: Summary of individual costs for the four distinct service elements within the overall proposals


                                                                 Over 5 years                Average per year
                                                                     £m                            £m
Seven-day TV catch-up – internet                                   73.1–117.0                      14.6–23.4
Seven-day TV catch-up over cable                                   48.3–111.3                      9.7–22.3
Simulcast                                                            3.3–10.7                       0.7–2.1
Non-DRM download                                                        6.6                           1.3
Combined package total costs                                          131.2                          26.2


From this we can see that the majority of the costs comprise the first two service elements
within the overall proposals. In annual cost terms, both the simulcast and non-DRM
downloads have an annual cost lower than that of any of the existing services (with BBC
Parliament coming in at lowest cost of £2.3m). In terms of further programme investment
foregone, the simulcast and non-DRM download elements equate to 2–3 hours of quality
drama each in a year.

8.3.2 Efficiency of the proposals

Having understood the nature of the costs within the proposal and their relative size
compared with other BBC expenditure, we must now consider the cost-efficiency of the
proposals.

Is this the only method of delivery?

This question seeks to examine whether the BBC Executive have considered alternative
ways of delivering the proposed services.

For these services the main ongoing operating costs will comprise rights and distribution
costs. We questioned the BBC Executive as to which other distribution technologies had
been considered in order to consider whether there were more efficient means of
distributing the content to achieve the stated objectives.

BBC Executive confirmed that they had considered a number of distribution technologies.
The main alternatives were:

    o streaming;
    o download without using a peer-to-peer network; and
    o download using a peer-to-peer network.




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Streaming

Streaming is used extensively for existing A/V content on bbc.co.uk, in particular for the
radio player. Streamed content is delivered from the BBC’s servers to the user in real time
and the user will have a good experience provided that there is sufficient serving capacity
and a reliable and fast enough network connection. However, the internet is not a managed
network and there is no guarantee of quality of service between any server and any user.

The BBC Executive note this is acceptable for the radio player where the bit-rate
requirements are relatively low but not for video which needs a much higher bit-rate. The
BBC Executive have also claimed that the costs for large-scale video streaming would be
higher than their proposals (although they do not quantify by how much).

We have noted in earlier sections of the report that technical quality of the service is
important and that we recommend setting conditions around this. In light of this, we accept
the BBC Executive’s concerns over the streaming option.

Download without using peer-to-peer network versus using peer-to-peer network

The BBC Executive believe that the peer-to-peer distribution solution is a more efficient use
of the network at launch because it spreads load cost among different areas of the internet.
While modelling the extent of this effect is complex, the BBC Executive’s early calculations
suggested that the cost of servicing one year’s expected usage without utilising a peer-to-
peer network would cover three years’ of usage using the peer-to-peer method. Although
we have not checked the detailed modelling of this alternative distribution method, we
accept the logic of this argument as there is general consensus that using peer-to-peer
networks will be less costly than not doing so.

Could the stated objectives of the services be met more cost-effectively by similar or
alternative services?

The service aims to give consumers more chances to view existing BBC content. The main
alternative to the BBC doing this in the manner described in the application is through
providing the content direct to other operators through syndication. The options for this
are discussed in more detail in section 9.2, which concludes that although there is no
technological reason for the BBC to provide the services directly through the BBC iPlayer
interface (as separate from the BBC iPlayer download manager), the value for money
reasons for doing so are compelling. This reflects the fact that the vast majority of costs
relate to rights costs – which will be incurred whether the BBC offers directly to consumers
or syndicates the content to third parties.

8.3.3 Do the proposals offer value for money?

In this section we consider whether the proposals offer value for money by comparing the
costs of the services with the benefits realised.

Whilst it is possible to measure the costs of services in financial terms, it is much harder to
measure the value created by proposals numerically. This is because there are many different

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ways in which value can be assessed, some of which lend themselves to mathematical
expression and some which are more intangible in nature and for which financial
measurement may not be appropriate or suitable.

In this section we will attempt to quantify value in numerical terms (as far as this is possible)
in order to compare this against the costs of each specific proposal and come up with a
measure of value per £ spent. This can then be compared with similar value measures for
other BBC services to give an indication of the relative value of the proposals.

We then go on to consider in section 10 the cost/benefit comparison in much wider terms,
balancing the whole range of benefits and costs (objective and subjective) identified
throughout this document.

What is an appropriate numerical measure of value?

We consider there to be two starting points for the measurement in financial terms of the
value created by the proposed services. These are:

   o To use a measure of the output consumed as a proxy for value generated. This
     can be compared with the cost incurred in providing the service to give a cost per
     unit of output consumed.
   o To use the value ascribed to the services by licence fee payers – in other words the
     perceived worth of the service to the consumer. This can be compared with the
     cost incurred in providing the service to give a value yield (value generated per £
     spent).

Both of these approaches have drawbacks when applied to the proposals under
consideration. A major drawback of the output consumed measure is that the value
calculated is not directly comparable with that for other content based services since the
costs for the proposals are for the marginal cost of the new delivery mechanisms. For the
value measure the major drawback concerns the difficulty for respondents in measuring the
value of the delivery mechanism itself without undue influence from the actual content to be
delivered. Both approaches are dependent on the reliability of the future reach and
consumption estimates.

However, although they cannot give us a definitive answer as to whether the proposals
represent value for money, they can provide an indication of the relative value for money
of the proposals against other existing BBC services and other uses that could be made of
the required investment.

Using output consumed as a proxy for value

Under this approach we need to estimate the hours of output likely to be consumed under
each of the proposals and compare with cost.




                                                                                             95
                            Cost of service proposal
Cost per hour =             -------------------------------------------------
                            Hours of output consumed

The calculation is complicated by the fact that expected consumption of the services will
grow in time so that the time period selected will have a big effect on the results. To take
account of this we have produced two calculations – the first is the result taking the five year
time period presented by the BBC Executive (2006/07–2010/2011) and the second is the
result taken in year 5 alone (reflecting the growth in projected demand and the expected
ongoing annual cost).

A further variable concerns the expected consumption patterns predicted for the future and
their reliability. In section 7 of this report we considered the BBC Executive’s reach
projections and discuss the amendments that we made to this. The calculations in the table
below use the amended reach and consumption numbers as discussed in section 7.

The BBC Executive submission considered three scenarios: a base case, on-demanding
Britain and the PVR-preferred scenario. The range for each result in the table shows the
difference according to which scenario is selected, with the lowest cost reflecting the
increased take-up under the on-demanding Britain scenario and the higher end of the range
reflecting lower estimated consumption under the PVR-preferred scenario.

                                      Cost per user hour *                 Cost per user hour *
                                 (calculated from 5-year data for     (based on yr 5 data (2010/11)
                                       2006/07 – 2010/11)
Seven-day    catch-up     over           1.55–2.19 pence                        0.83–1.49 pence
internet
Seven-day catch-up over cable            1.92–3.23 pence                        0.90–1.65 pence
Simulcast                                0.22–0.44 pence                        0.02–0.05 pence
Non-DRM download                         0.70–0.81 pence                        0.53–0.63 pence


All on-demand proposals                  1.61–2.05 pence                        0.83–1.18 pence


The range varies for the different scenarios of on-demanding Britain through to PVR-
preferred scenario.

We need to put these figures in context. Costs per viewer hour usually quoted for the
broadcast industry are around 5 pence per hour. For the BBC, the Executive quote a figure
of just over 5 pence an hour for BBC One and BBC Two, rising more steeply for the
remaining BBC television channels where audience levels are lower. On this basis it appears
that all the service elements offer good value. However, the 5 pence an hour industry figure
refers to services that are content-based. The services in the application are costed on an
incremental basis and so the figures are not directly comparable.



                                                                                                      96
The figures do show that the two seven-day catch-up services are the more expensive in
terms of cost per viewer hour – and that these are the more sensitive to movements in
expected consumption patterns.

In comparative terms the simulcast offers the greatest value for money on this measure.
Indeed, this service has a particularly low ongoing cost once the start-up costs have been
removed from the calculations.

Using worth as a proxy for value

Under this approach we need to determine a measure for the value that licence fee payers
attribute to the services. Comparing this against the cost of the service may give an
indication of whether the expenditure is worthwhile:

                            Value attributed to service
Value yield =               -------------------------------------------------
                            Cost of providing service

The BBC Executive favour this method and presented detailed calculations of value yields
within their submission. We have commented on this research within section 6 to this
document when considering the impact of the proposed services.

We noted that the work had some limitations in that licence fee payers found it hard to
distinguish between the nature of the proposals as a delivery platform and the content
carried.
We therefore also believe that the results from this calculation are only appropriate in giving
a relative indication of value rather than an absolute indication.

The value yields for the separate services are:

                                            Value yield                        Value yield
                                 (calculated from 5 year data        (based on yr 5 data 2010/11)
                                 2006/07 – 2010/11)
Seven-day    catch-up     over   4x                                  7x
internet
Seven-day catch-up over cable    4x                                  7x
Simulcast                        33x                                 230x
Non-DRM download                 16x                                 20x


All on-demand proposals          5x                                  10x


These show that in relative terms the simulcast service provides best value for money –
because it has very low ongoing operating costs with little in the way of extra rights to buy.



                                                                                                    97
What happens if the proposals do not go ahead?

We have noted our reservations about these methods of assessing and comparing value for
money of the proposals with existing BBC services due to their very different natures. One
way around this is to consider the value measures under the following scenarios:

   (i)     for the BBC output as a whole assuming the proposals go ahead;
   (ii)    for the BBC output as a whole assuming the proposals do not go ahead; and
   (iii)   for the BBC output as a whole assuming the proposals do not go ahead but that
           an equivalent amount of investment is made in content on the linear channels.

The table below shows the effect of these three scenarios on cost per user hour for BBC
content as a whole.

Scenario             (i) On-demand proposals        (ii) On-demand                 (iii) On-demand
                     go ahead                       proposals do not go            proposals do not go
                                                    ahead                          ahead but equivalent
                                                                                   investment is made in
                                                                                   content

Costs                BBC cost base rises by 1%      BBC cost base remains the      BBC cost base rises by 1%
                                                    same

Output               Total BBC output consumed      Total BBC output consumed      Total BBC output consumed
consumed             remains at similar level as    is predicted to fall by 11%    is predicted to fall by 10.2%
                     people substitute linear for
                     on-demand viewing

Effect on cost per   Cost per user hour for BBC     Cost per user hour for BBC     Cost per user hour for BBC
hour                 content as a whole will rise   content as a whole will rise   content as a whole will rise
                     by 1%                          by 12.4%                       by 12.4%


These calculations are based on the figures provided by the BBC Executive. PwC, in their
assessment of the BBC Executive’s assumptions and assertions (and as discussed in earlier
sections of this report), support the assumption in scenario (i) that the take-up of on-
demand services largely substitutes for linear viewing. The predicted fall in overall viewing in
scenario 2 reflects the BBC Executive’s view that 11% of viewing will be on-demand by
2010/11 and that if the BBC does not have such an offering much or all of this consumption
will be lost to the BBC. We have not adjusted the figures in the table above to reflect our
adjustments to the BBC Executive’s reach model. To do so would amend the output
consumed slightly but would not affect the findings from this analysis that scenario (i) shows
significantly better value in terms of cost per hour consumed.




                                                                                                        98
9 Service parameters
Summary
In considering the proposals we have questioned the rationale behind some of the key
service parameters.

In particular, we have considered the following issues:
   o Does the BBC need to provide these services directly to the consumer?
   o Should the on-demand services include third party content, which will be available via
     the BBC iPlayer?
   o Are the proposed catch-up windows the appropriate timeframe?
   o Are the series stacking timeframes appropriate?
   o Should all types of series be stacked?

We concluded that:
   o The BBC iPlayer interface is not required for distribution or technological reasons.
     However, it is desirable from a public value viewpoint due to: the expectation of
     licence fee payers to find BBC content through BBC services rather than solely
     through third parties; the encouragement that a BBC direct offering could bring to
     less technology-experienced users; the benefits a BBC direct offering could bring to
     the BBC brand, with audiences attributing the programme to the BBC rather than
     the access provider; the provision of richer context around programming including
     additional web functionality; the enhanced user-experience of accessing the on-
     demand proposals from one place; the value for money considerations. In addition,
     and importantly, the anticipated costs of the direct consumer offering are anticipated
     to be low. Further, the BBC iPlayer download manager delivers public value in terms
     of its efficiency.
   o There is intrinsic public value in BBC content. We believe that expanding the
     opportunities to access this content through further syndication would enhance
     public value.
   o Although we noted that some licence fee payers and, on the basis of responses, at
     least one industry body, might welcome access to third party content through the
     BBC iPlayer as a part of the on-demand services provided by the BBC through its
     BBC iPlayer, it poses difficult public value issues, including concerns over editorial
     responsibility and possible damage to the BBC public service reputation. The BBC
     Executive did not seek approval to provide third party content and we conclude in
     this PVA that the service as proposed already offers public value. We are not
     convinced that requiring access to third party content will necessarily increase the
     public value and do not recommend requiring it as a condition of approval. Although
     we cannot offer a definitive view, since we cannot fetter our discretion in the future,
     we anticipate that a further PVT would probably be required if the BBC Executive
     wished to include third party content in the future.

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      o We believe that the seven-day consumption and distribution windows have public
        value and are appropriate in providing audiences with up to 14 days to catch up over
        the internet.
      o We believe that the 13-week window for convenience in which to view downloads
        does not provide optimal public value. We recognise that public value exists in
        providing a window of convenience in which to view but this window should be
        significantly shorter than the 13 weeks proposed and more within the parameters of
        four to six weeks.
      o There is public value in series stacking. However, series staking should be restricted
        to series with a narrative arc and discrete run or landmark series with an
        exceptionally high impact.
      o With respect to series stacking, we also believe that the 13-week window for
        convenience, in which to view a series that has been stacked, does not provide
        optimal public value. We recognise that public value exists in providing a convenience
        window within which to view a series that has been stacked, but this window of
        convenience should be significantly shorter than the 13 weeks proposed and more
        within the parameters of four to six weeks.



9.1     Further considerations around service parameters

During our review of the proposals (section 2) and the key drivers of public value (sections
4 to 8) we highlighted particular aspects of the proposed services where we considered that
further consideration was needed.

In particular, we have considered the following issues:

       o     Does the BBC need to provide these services directly to the consumer (see
             section 9.2)?
       o     Should third party content be available via the BBC iPlayer (see section
             9.3)?
       o     Are the proposed catch-up windows the appropriate timeframe (see
             section 9.4)?
       o     Are the series stacking timeframes appropriate (see section 9.5)?
       o     Should all types of series be stacked (see section 9.6)?




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9.2     Does the BBC need to provide these services directly to the consumer?

9.2.1 The issue

                                   BBC content

         Linear transmission
                                                             Non-linear access



                               C                          A, D                       B

      Analogue/digital                 BBC direct-to-
        TV/radio                        consumer via                             Third party
                                     bbc.co.uk (through                          syndication
                                        BBC iPlayer)




 A = seven-day TV catch-up over internet    C = simulcast TV over internet
 B = seven-day TV catch-up over cable      D = non-DRM audio downloads




The proposals from the BBC Executive are essentially concerned with giving licence fee
payers more chances to view the BBC content. Of the four individual service elements,
three involve a direct-to-consumer offering through the bbc.co.uk gateway while the
fourth (seven-day catch-up over cable) involves syndication of the programmes to a third
party (the cable provider).

We considered why the proposals were split between syndication and direct-to-consumer in
this way and whether this was the best combination in terms of public value.

9.2.2 Analysis

There is no option for a direct to consumer offering in respect of the proposed seven-day
TV catch-up over cable service. The BBC is not a cable operator and in order to make
content available over this medium in a catch-up form it must syndicate to a third party.

However, for the three internet-based offerings there is potentially a choice. The BBC could
opt to provide the services:
   (i)    through the bbc.co.uk site – as described in the proposals;
   (ii)   through intermediaries such as Google and other aggregators; or
   (iii)  through (i) and (ii) above.




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Public value benefits from the bbc.co.uk gateway
Licence-fee payers might reasonably expect to find BBC content through BBC services
rather than solely through third parties. They would therefore naturally expect to use the
bbc.co.uk gateway for any internet access to BBC services.

The Trust further notes the 2004 Graf review of BBC Online46 which stated that:

       ‘the fixed internet has the potential to become, for the BBC, one of the main
       means of distributing its content to TV and mobile devices, as well as to the PC’
       and that the ‘provision of an appropriate level of audio and video services will be
       an important element in…preserving the attractiveness and relevance of BBC
       Online in the future’.

Indeed, as noted in section 5, providing a service free at the point of use, without
advertising, on bbc.co.uk would also provide a source of distinctiveness.

Leveraging the BBC’s reputation as trustworthy and independent could also encourage use
by less technology experienced users (PwC report). This gateway strategy is therefore
consistent with the BBC’s digital public purpose.

There may also be benefits to the BBC brand over and above the programme brand, with
audiences directly attributing the programme to the BBC, rather than the access provider.
Anecdotal comments from BBC research reveals, for example, how audiences in Sky
households often credit BBC programmes to Sky rather than the BBC.

The BBC iPlayer
There is a distinction between the concept of supplying content in a non-linear format and
the role of the BBC iPlayer in this. As we set out in sections 1.2 and 2.3.1, we are not
assessing the public value of the BBC iPlayer as a service in its own right. However, the BBC
Executive’s proposals as described in their application do assume that the BBC iPlayer will be
an integral part of the new services. Hence it is appropriate for us to consider how this
impacts on the public value considerations around syndication versus BBC gateway.

The term ‘BBC iPlayer’ has been used to refer to two related but separate concepts:

     (i)     a ‘user interface’ collecting together all the BBC on-demand content and
             providing the controls to access it; and
     (ii)    a ‘download manager’ that users will be required to download and install on their
             computers in order to subsequently download BBC on-demand content. The
             purpose of the download manager is to manage the licences that give effect to
             the digital rights management (DRM) restrictions preventing viewing beyond the
             various storage and consumption windows.

It follows from this that the iPlayer is not a necessary requirement to offer on-demand
content. This was a point noted by PwC:

46
  Graf Review of BBC Online (see www.culture.gov.uk/NR/rdonlyres/45F9953F-CE61-4325-BEA6-
400DF9722494/0/BBCOnlinereview.pdf).
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      ‘it is not clear that BBC iPlayer is needed for the BBC to distribute programmes
      in a non-linear fashion. It could simply make them available in an industry
      standard format and let the consumers download using software already present
      on their computer or other device’.47
In other words, the BBC Executive could allow content to be accessed using industry
standard formats (as is the case with MP3 for non-DRM downloads) from the bbc.co.uk site
rather than developing its own download manager, with the BBC’s download manager
requiring users to have Windows Media Player 10 and Windows XP. This excludes users of
Macs and PCs running Linux operating systems, and runs counter to the principle of
universal access.

At the present time, however, Windows Media Player 10 operating on Window XP is the
only industry standard media player capable of supporting the DRM restrictions required by
the BBC Executive’s application (see section 2.4.1). Removing the requirement for the BBC
download manager would not remove the requirement for Windows Media Player 10 and
Windows XP and so not address the issue of universality. Despite this, we have
recommended a platform-agnostic service condition in section 7.2.3 with a view to the
service, within a reasonable timeframe, being made universally available as the technology
allows (subject to value for money considerations).

There are a number of benefits to the BBC Executive’s proposals as presented. The use of
the BBC download manager will improve the efficiency with which the BBC can distribute
downloaded files and associated DRM licences to audiences from the BBC website.

The user interface, in residing on bbc.co.uk, also contributes to the provision of richer
context around programming, including the provision of supporting materials and additional
web functionality (including links to and from the service to other BBC content).

Accessing the BBC’s on-demand proposals from one place is also likely to provide an
enhanced user experience. The BBC Executive’s aim is for the BBC iPlayer interface to
incorporate all the existing BBC video and audio players currently available at bbc.co.uk
under a consistent user interface and brand, with a dedicated area of the site serving as a
direct entry point into the on-demand content. Users would also be able to navigate to the
BBC iPlayer from across bbc.co.uk.

These factors combined illustrate additional direct public value benefits of providing the
services through the BBC iPlayer interface and indirect public value benefits by
allowing files to be downloaded through the BBC iPlayer download manager.

Public value benefits from third party syndication
There is intrinsic public value in BBC content. It follows from this that expanding the
opportunities to access this content would enhance the public value delivered by it.




47
  This comment was beyond the scope of PwC’s assignment. Accordingly no judgment was made by the organisation on
the issue raised.
                                                                                                            103
At issue, then, is whether further widening the access to BBC content on-demand through
third parties might lessen the public value benefits mentioned above from the bbc.co.uk
gateway by more than the additional value created from the wider potential access.

Value for money considerations
Section 8 notes that [ x ] of the proposals’ costs are content-related and would be incurred
regardless of distributor.

Of the remainder, many of the technology costs associated with the services would – subject
to contract negotiation – be incurred by the BBC regardless of whether the on-demand
proposals were provided though bbc.co.uk or through syndication. For example, where
access to content hosted on bbc.co.uk is through third party websites, as with iTunes for
non-DRM downloads, the costs would be incurred directly by the BBC. Beyond these costs,
the direct additional costs for BBC iPlayer are minimal. The incremental cost to the BBC of
providing the bbc.co.uk gateway in addition to any third party syndication is relatively small.

Hence, although the BBC’s on-demand proposals could be delivered solely through third
parties, we believe value for money considerations to be compelling for direct provision
through bbc.co.uk.

9.2.3 Conclusion

Although there is no technological reason why the BBC has to provide on-demand services
directly through its BBC iPlayer interface, we believe the arguments in favour of the BBC
iPlayer interface, set out in the above analysis, to be compelling.

However, we also accept that expanding opportunities to access content will increase public
value and so do not consider that the BBC iPlayer interface should necessarily be the sole
means by which to access content.

      Although not a service condition, in light of the potential further public
      value in syndication we recommend the consideration of syndication and
      suggest the creation of a code or guidelines for syndication without the
      need for further PVTs as a matter of course.



9.3    Should third party content be available via BBC iPlayer?

9.3.1 The issue

The BBC Executive is not seeking approval for non-BBC content to be made available on the
BBC iPlayer. However, a number of representations received from industry advocated that
broadcasters and content providers should be given access to the BBC iPlayer (using an
open application interface) and access to the BBC iPlayer electronic programme guide.




                                                                                          104
9.3.2 Analysis

Experience from the seven-day catch-up over cable and the non-DRM download
(‘podcasting’) trials suggest that audiences would welcome access to both BBC and non-BBC
content in one place.

For example, podcasts are downloadable directly from the bbc.co.uk website and indirectly
via third party websites. The latter route has proved the most popular, with approximately
80% of downloads coming via third party sites, most notably iTunes.

Similarly, of all the trials, the cable trial obtained the highest overall score for quality and
impact, this trial again having both BBC and non-BBC content on it. Although there are
limitations in interrogating the results, the availability of both BBC and non-BBC content is
likely to have played a contributory part. Combined, these two trials suggest that iPlayer
could attract more audiences and potentially deliver greater public value in terms of quality
and impact by including non-BBC content.

In this context, however, any increase in public value would be driven by the content, rather
than the BBC iPlayer proposition itself. This has a number of associated risks. It would for
example – subject to the content made available – have the ability to reduce the perceived
quality of the BBC iPlayer proposition. Other content-related considerations would have to
be factored in too, for example: would the content be provided for free, either at the point
of access or through embedded advertising?

Reach and usage forecasts would also have to be considered. More content may increase
reach and usage to the BBC iPlayer but what would be the impact on the consumption of
BBC content? Were it to fall, then an assessment of the public value of this content would
need to be considered to determine whether the overall impact was positive or negative.

There would also be a risk to the BBC’s reputation in hosting non-BBC content. The
Sparkler research noted that licence fee payers have high expectations of quality from the
BBC and that content is a key driver of this. The BBC Executive might therefore feel obliged
to exercise control over any hosting or access via the BBC iPlayer to non-BBC content.

9.3.3 Conclusion

Although we accept that some licence fee payers may welcome access to third party content
through the BBC gateway, we do not believe there is a clear public value case for this. The
BBC Executive has not sought approval for third party content to be provided as part of its
on-demand proposals and it is the conclusion of this PVA that the proposals deliver
significant public value without third party content. In the circumstances, and given the
uncertainty over the public value – if any – that might come from allowing third party
content, the BBC Trust does not recommend, in this PVA, requiring third party access as a
service condition for approval of the proposals. Although we cannot offer a definitive view,
since we cannot fetter our discretion in the future, we anticipate that a further PVT would
probably be required if the BBC Executive wished to include third party content in the
future.


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9.4     Are the proposed catch-up windows the most appropriate time-frame?

9.4.1 The issue

As proposed, the on-demand catch-up facility would be organised around a seven-day
window from the point of the original broadcast. For catch-up over the internet, audiences
will have seven days within which to receive the programme (‘distribution window’ or
‘download window’), a further 13 weeks within which to open it (‘convenience window’),
followed by a further seven days to then view it (‘consumption window’). For catch-up over
cable, audiences will have seven days from the point of broadcast within which to view; a
combined seven-day consumption/distribution window.

9.4.2 Analysis

Why seven-day windows?
The seven-day windows are based on conventional schedules for linear broadcasting, with
programmes typically broadcast weekly. Seven days therefore provides viewers with a
chance to catch-up on the previous week’s episode before watching the next scheduled
broadcast episode. Seven days is also the period of time that is routinely agreed between the
BBC and the Producers Alliance for Cinema and Television (PACT), which seeks to balance
the interests of rights holders with those of licence-fee payers, i.e. the rights costs for a
longer window would be greater.

Should it be longer?
Evidence from the seven-day catch-up over the internet trial revealed that users perceived
seven-day download window to be a major drawback of the service. Only 7% of respondents
regarded the seven-day limit as satisfactory and 70% of respondents cited it as a major
reason for failing to download programmes. The Sparkler research revealed a similar story
with respondents citing the proposed seven-day limit as being too short; that as licence-fee
payers they should be able to access older content.

A 13-week window of ‘convenience’: In light of the comments made by those who
trialled the seven-day catch-up over the internet service, the BBC Executive proposed the
13-week window of convenience. The BBC Executive considered that a 13-week
convenience window is an appropriate window to address the feedback on the seven-day
download window and is a balance between the interests of licence-fee payers – allowing for
holidays and other activities that affect opportunities to consume programmes – and rights
holders. Thirteen weeks is also consistent with terms agreed by the BBC with PACT.

Should the 13-week window of convenience be shorter?
Research from Channel 4 ‘shows that 90% of total VOD viewing takes place within the first
two days after a programme is broadcast’.48 As such the broadcaster contends that anything
above this catch-up period is not a public service but a substitute for a commercial one.

In addition, we note that BBC research, based on the NTL trial and where programmes
were available for longer than one week under the series stacking proposition, showed that

48
  Channel 4’s response to the BBC Trust’s Public Value Assessment of the BBC’s new on-demand proposals (7 November
2006).
                                                                                                             106
approximately 55% of programmes were viewed within a week of initial broadcast, 95%
were viewed within four weeks and near to 100% within six weeks of initial broadcast. If this
pattern, based on a limited trial, is representative of broader consumer behaviour, then a
shorter window might be sufficient for meeting licence-fee payers’ consumption patterns.
We thereby consider this research as relevant to our analysis here and also to our analysis
in section 9.5.2 below.

We also consider that the 13-week window of convenience is based on the linear
broadcasting markets’ established practice of secondary rights, that is beyond 13 weeks
programmes are commercially exploited beyond the primary rights associated with the initial
broadcast. We note, however, that the online market is nascent, specifically the time at
which secondary rights become affected has yet to be firmly established. With respect to the
market at the moment, we are aware that ITV intends to launch a catch-up service that will
enable viewers to watch any programme broadcast on any ITV channel within the last 30
days. This service will be advertiser-funded. Further, Channel 4 has launched a service
whereby viewers can rent, for a fee, commissioned programmes, generally for up to 28 days
after broadcast (with a limited number of older programmes also available). Once opened,
the programmes have to be consumed within 48 hours.

Are there other public value considerations?

Providing greater opportunities to view BBC content can increase public value, but this is
unlikely to be the case indefinitely. The longer the window, the greater is the potential
impact on secondary income streams (see section 8.3.1.4). Also, longer windows may affect
the cost of acquiring necessary rights, depending on how the market develops. At some
stage public value could therefore decrease through extra rights costs and lost income to
the BBC’s commercial activities (with profit from commercial activities providing public value
to licence fee payers through reinvestment in programming). There may therefore be a
tipping point beyond which public value is diminished. The empirical evidence simply does
not exist at present to show with any confidence where the tipping point may be and we
must therefore exercise judgement based on our experience.

9.4.3 Conclusion

There is public value in making content available for download for a period of seven days.
Allowing more than seven days would incur additional costs because of the BBC’s
agreements with PACT, thereby leading to less public value. The Trust also notes the
Channel 4 research that ‘catch-up’ occurred mostly within the first 48 hours. In addition,
allowing more than seven days could impact on BBC Worldwide’s revenues from a longer
window as this would reduce the amount for re-investment into programming (see section
8.3.1.4).

There is also public value in providing a window of convenience in which to view this
downloaded content. However, the Trust, in its Public Value Assessment, has to perform a
balancing act between the public value generated in providing programmes for ‘free’ and the
public value created by commercially exploiting the secondary rights. As stated above, rights
costs may also be relevant. In light of this balancing, we do not think that the 13-week
window provides optimal public value and consider that it should be much shorter.

                                                                                         107
Determining how much shorter and ultimately whether there is a convenience window
where public value is optimal is difficult in this developing market. Given the issues of rights
costs and the potential impact on BBC Worldwide there will be a point at which an increase
in the length of the download window will create diminishing public value returns. From the
limited information available to us, and exercising judgement, we consider the overall public
value of a convenience window is likely to be higher with a window that is within the
parameters of about four to six weeks rather than a window of 13 weeks.



         We thereby recommend a reduction in the 13-week convenience
         window, to more within the parameters of four to six weeks, so as to
         achieve greater public value.



9.5        Are series stacking timeframes appropriate?

9.5.1 The issue

As proposed by the BBC Executive, the on-demand catch-up facility would include series
stacking whereby all of the episodes in selected series would be available from the point at
which they are broadcast until seven days after the transmission of the last episode in the
series, up to a maximum of 13 weeks.

9.5.2 Analysis

The BBC Executive considered the maximum 13-week download or distribution window to
be appropriate as the majority of series have no more than 13 episodes.49 Allowing
audiences to enter a series during its run would be of public value.

As with seven-day catch-up, there is an additional 13-week window of convenience from the
point of download (of each episode) and a further seven-day consumption window. Our
consideration of the public value of this 13-week convenience window are the same as those
set out in section 9.4.2 above.

9.5.3 Conclusion

There is public value in providing a window of convenience in which to view stacked series.
However, in line with our conclusion at 9.4.3, we do not think that the 13-week window
provides optimal public value and consider that it should be shorter. For the reasons set out
in our conclusion at 9.4.3. and with reference to the NTL trial explained above, we consider
that a 4- to 6-week window would have better public value than a 13-week window.


              We thereby recommend a reduction in the 13-week convenience
              window for series stacking so as to achieve greater public value.

49
     Series that run beyond 13 weeks will have earlier episodes removed when the 13-week limit is reached.
                                                                                                             108
9.6   Should all types of series be stacked?

We note that the proposals do not clearly define whether series stacking will apply to all
types of series, or only those that are of a particular type. We believe that there is public
value in series stacking. However, it is unlikely to be uniform across all series, with certain
series delivering greater public value than others.

Narrative arc: Series that contain a strong narrative thread or arc are likely to be of
greater public value to audiences (in terms of series stacking) than those where episodes are
‘independent’ of each other. Where episodes are ‘dependent’ on each other a viewer who is
late to a series would receive less value from the series’ remaining episodes than they would
otherwise receive had they watched from the series beginning.

Linked to this it is appropriate that the series has a discrete run, i.e. a beginning and an end.

Impact: Landmark series that deliver exceptionally high impact, and with it public value, may
also be appropriate for series stacking.

Consideration of the potential impact of series stacking on secondary rights should also be
taken into account and balanced against the public value in series stacking. We consider that
the following service condition strikes this balance.



       There is public value in series stacking. However, it should be
       restricted to series with a narrative arc and discrete run or landmark
       series with an exceptionally high impact.




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10 Conclusions
Summary
Our overall conclusion is that the proposals as a whole, and individually, will
deliver significant public value. The most relevant considerations on public value
which the Trust should consider in its PVT assessment include that there is a
strong fit with the BBC’s purposes, and the proposals will play a significant role
in maintaining reach in the future. This is achieved with good value for money.
Quality, distinctiveness and impact are demonstrated, albeit at lower levels, but
these are also factors considered less worthy of weight in the context of these
proposals.

In weighing up the relative importance of the different drivers of public value in this
particular case, we assessed the potential reach of the proposed services as being
particularly significant. This is because (i) it lies at the heart of the strategic rationale for
launch and (ii) it is integral to the other drivers of public value. As noted, it is our view that
the proposed services will play a significant role in maintaining BBC reach in the future.
Having assessed reach as the most significant driver, the value for money driver provides
some balance – since any impact on reach must come at a price that represents value for
money. The proposals do represent value for money on the basis that, when compared
against the BBC as a whole and given that the effect on reach was seen as key, they would
have a positive impact on the BBC’s overall cost per use hour as against not launching the
proposals or putting an equivalent investment into additional quality programmes.
Impact was given a slightly lower weighting since, for these proposals, the impact can be
seen to be driven to a great extent by the services’ reach. This is because, as a delivery
mechanism, if the service is reaching consumers and they are using it – by definition it has an
impact. If the service is reaching consumers, it also thereby fits with the public purposes.
Quality was also given a slightly lower weighting as it was determined to a large extent by
content. This was discounted in our assessment as far as possible.
An explanation as to the use of weighting throughout this PVA is set out in section 3.2.3.
Overall we believe that the proposals will contribute significant public value. However, it is
the BBC Trust’s view that certain service conditions should be considered to safeguard the
public value in the proposals put forward by the BBC Executive and to strive for even more
public value. These should be:
       •   review and adapt the 13-week convenience windows for seven-day catch-up over
           the internet;
       •   review and adapt the 13-week convenience window for series stacking;
       •   restrict series stacking to certain types of series where there is most public value
           to be derived from series stacking;
       •   establish technical quality and functionality performance criteria, to be reviewed
           after two years of the launch of the services;


                                                                                             110
       •   review parental control over download access;
       •   establish reach performance targets, to be reviewed after two years of the launch
           of the services;
       •   ensure that all efforts are made for the seven-day catch-up over internet service
           element to be provided on a platform-agnostic basis, or across major platforms,
           within a reasonable timeframe, subject to value for money considerations and
           technology developments; and
       •   consider syndication and the publishing of relevant criteria.
The full service condition recommendations are set out in section 10.4 of this document.

10.1 Approach to overall assessment

In the previous sections of this document we have provided a detailed analysis of how the
individual service proposals rate against the separate drivers of public value.

In section 10.2 we consider the relative importance of the public value drivers to
understand which we see as key to our overall assessment.

In section 10.3, for each service proposal we pull together in one place our key findings and
assessments to consider the detailed findings as a balanced whole. From this analysis, we
conclude whether we believe that the individual service proposals contribute public value.

In so doing, we also note in section 10.4 any areas where we believe conditions should be
attached if the proposals are approved in the context of the PVT.

10.2 Relative importance of public value drivers

In weighing up the relative importance of the different drivers of public value, we assessed
the potential reach of the proposed services as being particularly significant. We discuss
each driver in turn below.

10.2.1 Fit with BBC purposes (detailed discussion in section 4)

We consider the service proposals to have a strong fit with the BBC’s sixth public purpose,
which is ‘helping to deliver to the public the benefit of emerging communications
technologies and services’.

They also contribute in a secondary way to the BBC’s public purposes through their effect
on consumption of existing BBC content.

However, we expect that any service proposals under consideration need to fit with BBC
purposes. Hence this is a prerequisite for approval, but not the most significant
consideration in terms of our overall public value assessment of these proposals.




                                                                                        111
10.2.2 Reach (detailed discussion in section 7)

Reach provides an indication of the relevance of BBC services. We see the extent to which
the proposals contribute to BBC reach as being particularly important at a time when
audiences are expected to start to shift their viewing from the linear to on-demand world
(whether via BBC-provided or commercially provided services).

The proposals represent a strategy by the BBC Executive to stay abreast of new
technological developments, to mitigate the risk of a significant reduction in consumption,
and ultimately reach, of BBC content – with the resultant loss in public value from BBC
content.

We consider that the proposals contribute high public value to the extent that they can
increase or maintain the volume of BBC content consumed or, in the long term, the number
of people who use BBC services.

10.2.3 Value for money (detailed discussion in section 8)

Having assessed reach as the most significant driver, the value for money driver provides
some balance. Any impact on reach must come at a sensible price.

We conclude that the proposals would represent value for money on the basis that, when
compared against the BBC as a whole and given that the effect on reach was seen as key,
they would have a positive impact on the BBC’s overall cost per user hour as against not
launching the proposals or against putting an equivalent investment into additional quality
programmes.

As for the fit with purposes, value for money is a prerequisite for approval.

10.2.4 Quality (detailed discussion in section 5)

The quality of a service is important for various reasons – for example it will affect the user
experience and ultimately the value they attribute to the service. It also has a wider effect on
the reputation of the BBC.

For these services the technology available will be a key driver behind the quality of the user
experience. We expect the technology to continue to develop and improve over time. A
lower weighting was given to this public value driver as quality was largely seen to be driven
by the underlying content. This was discounted in our assessment as far as possible.

However, we believe it necessary that any service licence should include a review of
technical quality as part of a two-year formal review.

10.2.5 Impact (detailed discussion in section 6)

We gave this public value driver a slightly lower weighting in relation to the other drivers
since, for these proposals, the impact can be seen to be driven to a great extent by the

                                                                                           112
services’ reach. This is because, as a delivery mechanism, if the service is reaching consumers
and they are using it – by definition it has had an impact.

This is in contrast to how we might approach a content-based service where the impact of
the content – particularly on the target audience groups – would be seen as a far greater
driver of public value.

10.3 Analysis and conclusion by individual service element

In the tables that follow we have summarised the findings for each individual service element
across the main drivers of public value. (The detailed analysis behind these summaries can be
found within sections 4–8.)




                                                                                          113
10.3.1 Seven-day catch-up over the internet

                       Assessment        L    M   H   Comment

                       Purposes 1–5                   §   Indirectly contributes through the content-related purposes (1–5).
Fit with purpose
                       Purpose 6                      §   Directly contributes to the digital purpose.

                       Quality                        §   Perception of quality likely to be held back by a potentially poor user experience
                                                          (e.g. download speed); technology improvements may improve quality over
                                                          time; catch-up window will also impact.
Quality                                               §   Free at the point of use and without advertising; content is also driving
                       Distinctiveness                    distinctiveness; provision of richer context around programming through
                                                          bbc.co.uk helpful.


                       Consumer                       §   Provides increased flexibility to the individual and enhanced accessibility to BBC
                                                          content; enables individuals to take control of their media consumption;
                       Impact
Impact                                                    relatively high worth.
                                                      §   Greater access to niche programming (with high public value), reduced ‘family’
                       Citizen impact                     viewing.

                                                      §   Expected to deliver the highest reach of all the proposals; driven by the demand
Reach                                                     for catch-up TV and internet penetration.


                                                      §   Expected to deliver value over and above its cost.
Cost and VFM
                                                      §   Has a favourable impact on cost per user hour of BBC services as a whole.

                                                      §   Good reach and VFM drive a quite high overall score.
Overall public value                                  §   Quality at launch is holding the rating back, but quality is expected to
                                                          increase in line with technological developments, such as high speed
                                                          broadband uptake.

                                                                                                                                           114
10.3.2 Seven-day catch-up over cable

                   Assessment          Comment

                   Purposes 1–5        §   Indirectly contributes through the content-related purposes (1–5).
Fit with purpose
                   Purpose 6           §   Directly contributes to the digital purpose.

                   Quality             §   A better user experience than the internet service (TV v. PC). Inclusion of non-
                                           BBC content may further increase perceptions of quality.
Quality                                §   Free at the point of use and without advertising. Inclusion of non-BBC content
                                           helps offset the lack of richer context (through bbc.co.uk).
                   Distinctiveness


                   Consumer            §   As for the internet service; television interface of additional value.
Impact             impact
                                       §   As for the internet service.
                   Citizen impact

                                       §   The number of cable households will limit reach.
Reach


                                       §   Expected to deliver value over and above its cost.
Cost and VFM
                                       §   Has a favourable impact on cost per user hour of BBC services as a whole.

Overall public                         §   Good quality and VFM.
value                                  §   Limited ‘all household’ reach depressing overall score.




                                                                                                                        115
10.3.3 Simulcast TV over the internet

                       Assessment        Comment

                       Purposes 1–5      §   Indirectly contributes through the content-related purposes (1–5); score
                                             reduced as no additional benefit of viewing to niche programming.
Fit with purpose
                                         §   Directly contributes to the digital purpose.
                       Purpose 6

                       Quality           §   Technical factors could drive a poor user experience.

Quality
                       Distinctiveness   §   No specific benefits (driven by TV broadcast); provision of richer context
                                             around programming through bbc.co.uk helpful.
                       Consumer          §   No specific benefits.

Impact                 impact
                       Citizen impact    §   No specific benefits.


                                         §   Demand for the service will limit reach.
Reach


                                         §   Has a favourable impact on cost per user hour of BBC services as a whole.
Cost and VFM
                                         §   High rating is driven by a very low ongoing operating cost once set up.

                                         §   Limited public value across RQI combined.
Overall public value
                                         §   High VFM underpinning the overall rating.




                                                                                                                         116
10.3.4 Non-DRM downloads

                       Assessment        Comment

                       Purposes 1–5      §   Indirectly contributes through the content-related purposes (1–5); content
                                             limitations reduce the score; self publishing may promote culture purpose.
Fit with purpose       Purpose 6
                                         §   Directly contributes to the digital purpose.


                       Quality           §   Place-shift potential is appealing (content: limited music is a downside).
Quality                                  §   Portability drives a higher score.
                       Distinctiveness


                       Consumer          §   Portability is favourable.
Impact                 impact
                                         §   Providing further opportunities to consume is of value.
                       Citizen impact
                                         §   Reach will be curtailed by the number of download devices. Music limitations
Reach                                        may also have an impact.


                                         §   Has a favourable impact on cost per user hour of BBC services as a whole.
Cost and VFM
                                         §   Relatively low cost to set up and on ongoing basis.

                                         §   Good VFM and reasonable reach drive a medium overall evaluation.
Overall public value




                                                                                                                            117
118
10.4 Service conditions

Throughout our analysis in the preceding sections we have highlighted areas where we
consider that the BBC Trust should consider imposing conditions or consider service
parameters to safeguard or enhance the public value in these proposals. These suggested
conditions deal only with steps that the Trust considers should be taken to preserve or
increase public value. It is not part of the Trust’s function in producing the PVA (as opposed
to in conducting the PVT) to consider conditions that may mitigate any adverse market
impact.
We summarise below those areas which we recommend the Trust should consider:

Issue                             Recommended action

Risk of underage exposure to Explore technology improvements to allow some parental
offensive, inappropriate     control over download access and build into any service
material                     licence.
(section 4.3.3)                   Review situation after two years.

Technical quality and             We have an expectation that this will improve over time as
functionality of user interface   technology develops.
could be improved
                                  At outset establish performance criteria.
(section 5.2)
                                  Review technical quality as part of a two-year formal review
                                  to determine whether this is at an acceptable level and is
                                  meeting the performance targets set.

Reach targets                     Reach is seen as the key public value driver for these
                                  services. It therefore makes sense to monitor reach.
(section 7)
                                  At outset establish reach performance targets.
                                  Review outcome against these as part of formal two year
                                  review.

Universal platform                The seven-day catch-up over the internet proposal requires
(section 2 and section 7)         users to have an up-to-date Microsoft operating system for
                                  full functionality.
                                  Review the provision of this service on a platform-agnostic
                                  basis (or across major platforms) within a reasonable
                                  timeframe and subject to value for money considerations and
                                  as technology allows.

13-week convenience               Decreasing the length of the convenience window would
window                            increase the public value. A shorter convenience window
(section 9)                       more within the parameters of four- to six-week window
                                  would provide better public value. This also applies to the
                                  convenience window for series stacking.


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Series stacking   There is no definition as to what types of series will be
                  stacked. We believe that there is public value in series
(section 9)
                  stacking. However, it is unlikely to be uniform across all
                  series. Series staking should be restricted to series with a
                  narrative arc and discrete run or landmark series with an
                  exceptionally high impact.




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ANNEXES


These are provided as supporting evidence at www.bbc.co.uk/bbctrust




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