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Jeremy Hunt: British media - the revolution we need

It is only a couple of months ago that I set out my stall at RTS in Cambridge, but even in that period a great deal has happened so I am grateful for the opportunity to explore in more detail some of the ideas I laid out.

Arthur C Clarke once said that "this is the first age that has paid much attention to the future" - which, he also said, "is rather ironic, since we may not have one." I mention that not as a reference to the dangers of climate change, but with respect to our great British broadcasters which, with the exception of the BBC and Sky, are suffering very badly at the moment.

But futurology can be dangerous. 

So we need to have due humility about the ability of anyone to shape the future, whether politicians, regulators or broadcasters. And if you believe markets have a role in fostering enterprise and creativity, you also need to leave space for outcomes that are unplanned and unforeseen. 

<h2>A technology industry approach to regulation </h2>

Because of the massive influence that the media has on our culture and our democracy, we have traditionally been wary of a totally laissez-faire approach to media regulation. The result has been some of the best quality TV in the world - but also a level of micro-regulation that has stifled innovation and made it very difficult for independent commercial operators to make a profit.

It has taken the combination of a bitter advertising recession and the structural changes wrought by the internet for this to sink home. But now that it has, we need to recognise that the media industry cannot be considered distinct from the technology industry and regulated in a totally different way. The media industry is the technology industry.

As convergence has happened for consumers and businesses, so it needs to happen for regulation as well.
Let's look at why.  

30% of adults regularly watch TV content on their PCs, while more than a quarter of iPlayer viewing is done through Virgin Media. Because it operates across platforms so successfully, the iPlayer gets more than 1.5 million download or stream requests every day.

Newsgathering too has converged: not just in the newsrooms of the Guardian or local newspapers, but also more fundamentally as blogs now lead the news agenda as well as comment on it - as we saw when Guido Fawkes broke the McBridegate story earlier this year.

Nor is it just broadcasting that is turning into a technology business. The music industry has been turned upside down by illegal filesharing. However that has sometimes obscured the fact that websites like Spotify, which offers legal downloading, now have more than 3 million UK users. Daniel Ek, its founder, tells me he is getting 60,000 new subscribers every day.

Because our broadcasting and media regulations were largely constructed in the pre-internet era, they have totally failed to keep up with the pace of change.
Technology industry regulation is fundamentally different to the regulation of traditional industries. There is a huge premium on encouraging innovation and new business models. 

Nimble and light touch regulation is necessary if we are to encourage the risk-taking upon which it depends. Investors in venture capitalist firms like Kleiner Perkins in Silicon Valley are looking for the next big idea. They want game changers like eBay, Amazon and Spotify. But they are not going to take the huge risks involved if they are worried any success will be taken out of their hands by over-paternalistic regulation.

The technology industry also demands a different attitude to monopolies. In technology there is a fundamental insecurity in dominant market positions which is quite different to the relative stability of more traditional sectors. By the time US and European anti-trust regulators got round to dealing with Microsoft's dominance of the desktop it was irrelevant - because a start-up called Google had arrived.
 
Because our regulation is stuck in the pre-internet dark ages, we have left our media industries exposed and vulnerable to huge market shocks. When TV and radio advertising is down 12%, newspaper advertising down 20%, and local newspaper advertising down nearly 40%, media businesses desparately need to be able to adapt and find new business models.

If they are allowed to. But because they are not, all our major advertiser-funded broadcasters are in serious difficulty. 8 commercial radio licences have been surrendered since 2008. Nearly all commercial local radio stations are likely to be loss making by the end of this year.  900 journalists have lost their jobs from local and regional newspapers since July 2008.

It is in this context that the government's Digital Britain white paper - and the Digital Economy Bill announced yesterday in the Queen's Speech - was such a colossal disappointment. Of course there are plenty of useful elements within it, and we will not seek to oppose it for opposition's sake. But on the big issues - whether top-slicing or the broadband tax - the government has looked for old economy solutions to new economy problems. 

<h2>Local news </h2>

Let's look, for example, at what the government is proposing on local news. Essentially it wants to prop up the failed regional news model with licence fee cash. 

Why is this so flawed?

Firstly, because it will set in stone the current failed model and stifle any possibility of better local news models emerging.

Once the licence fee is paying for regional news, then all the efforts of those people receiving the subsidy will be put into lobbying ministers and Ofcom as to why it should continue. What they will not be doing is developing the new business models for local media that are being opened up by the internet.

Secondly it will undermine one of the most successful elements of British broadcasting, namely the fact that our broadcasters compete on their ability to attract viewers not subsidy.

New Zealand has adopted a system with similarities to what the government proposes - so what did Ofcom find when they looked at it? "There is less risk-taking and innovation - tried and tested ideas are more likely to get funded than new ideas...The system encourages 'games playing' by the broadcasters, who aim to get public funding, even for programmes they would have made anyway." 

<h2>Our alternative </h2>

Ofcom research suggests that what 78% of consumers want is local news about their local area.  Regional is not local - and we now have an unprecedented opportunity to put this right. Why is it that none of our major cities have proper local TV - when their American counterparts offer as many as 8 local TV channels to choose from?

We have floated various models as to how this might happen. We do not claim to have the solution, but we are trying start a sensible debate.

One option was suggested by Roger Parry in a report he did for me. That is to use interleaved spectrum to create around 80 local television franchises.

I am a big supporter of the idea that we need to create space for community and volunteer-led local TV stations. But I also recognise the challenge of making them commercially viable - as we have seen from the struggles of the brave and spirited Channel M in Manchester.

Another option is to use space on existing multiplexes to create a national network that local programming could affiliate to. This has the advantage that costs are dramatically lowered: local affiliates only need to finance around four hours of programming a day outside prime time. Advertising can be sold nationally with local opt-outs. This is the system that has worked successfully in the US and other countries for many years.

Who might want to invest in such a model? We could set up a new network, although given that we already have as many networks as America with a fifth of the population many would question whether there is room for one more.

But becoming the backbone for a network of local affiliates could be an opportunity for ITV, 4 and five - either on their main channels or subsidiary ones. As for the local affiliates, one could imagine investment from a combination of new players and existing local newspaper groups.

<h2>Regulatory reform </h2>

But to make this happen we need massive reform of our outdated regulatory framework.

The start must be massive reform of the cross-media ownership rules for local media operators. We need to allow media operators more flexibility to own businesses operating on both the same and different platforms.

Concerns about local monopolies need to be framed with a sensible understanding about the much lower barriers to entry for new players as a result of technology changes. We also need to recognise that barriers to consolidation, far from protecting plurality of provision, may in fact destroy provision altogether.

There are other sections of the 2003 Communications Act that should go.  

Section 266, for example.  Do we really need to see an annual statement of programme policy?  When consumers can switch medium and content with such increasing ease, couldn't we live without annual PSB reports and five yearly reviews that simply generate more work for regulatory bureaucracy? 

Or Section 314 on the definition of 'local'.  Localness to me is that which is relevant to the local audience, not necessarily that which is made locally.  

Why too should commercial PSBs be forced to sell all their advertising airtime?  We all know the history of CRR. But right now it means that the biggest and most successful advertising market in Europe is also the cheapest - with its broadcasters slowly being driven out of business. 

Of course there are regulations that must stay - on taste and decency, for example, or advertising minutage. But the public wants choice and innovation as well as quality - and we need to ensure the regulations recognise the proper balance between those needs.

<h2>Conclusion</h2>

Let me finish on a note of optimism.

Aldous Huxley said "Experience is not what happens to a man. It is what a man does with what happens to him." So too for our struggling media industries. This is a time of great challenge, but also of unprecedented opportunities.

We need you to embrace the new business models of the future to ensure that you not just survive, but thrive as well.
And you need a government with the courage to make the reforms necessary to allow you to get on with the job.

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