Ofcom reins in BBC commercial activities
February 11, 2019
By Colin Mann
UK media regulator Ofcom has published two decisions relating to the BBC’s commercial and commissioning activities.
One of Ofcom’s principal functions in regulating the BBC is to set requirements around the interaction between the BBC public service and its commercial activities, to help preserve fair and effective competition.
Having reviewed how the commercial and trading requirements it imposed in 2017 are working in practice, a statement sets out Ofcom’s decision, following consultation, to make some modifications and clarifications. These include imposing new transparency and reporting obligations on the BBC.
Ofcom has clarified a number of the existing requirements and introduced some additional reporting measures to provide greater transparency of how the BBC is meeting its requirements:
Operational separation
The operational separation obligations require that the governance of the commercial subsidiaries is distinct and separate from the Public Service and place restrictions on the commercial subsidiaries accessing information regarding the Public Service’s strategy, priorities and activities which is not available to third parties.
Ofcom has broadly retained the existing requirements with some clarificatory amendments. Ofcom has also introduced new transparency and monitoring obligations, including a requirement on the BBC to publish an Annual Statement on operational separation. This will give Ofcom and other stakeholders confidence that an appropriate internal framework has been developed to ensure compliance with the requirements around information sharing and governance.
Supply and pricing of goods and services
These requirements regulate the terms and conditions on which the Public Service and commercial subsidiaries sell goods and services to each other. They also cover goods and services sold by the Public Service to third parties.
Ofcom remains of the view that the BBC should set prices for goods and services based on the relevant market price or market benchmark. Where there is no available or reliable market information, prices should be based on costs. Ofcom has decided that prices for business support services that the Public Service only provides to the commercial subsidiaries, such as HR, IT, finance and legal, should be based on their long run costs of provision.
Commercial rate of return
The BBC is required to earn a commercial rate of return on its commercial activities. Ofcom has clarified that the BBC must earn a commercial rate of return for each line of business as well as each commercial subsidiary. It also clarified that the BBC must earn, assess and set a commercial rate of return over an appropriate period of time and that it must notify Ofcom and take appropriate steps if it considers a line of business is not expected to earn a commercial rate of return over an appropriate period.
Monitoring, reporting and transparency
The monitoring, reporting and transparency requirements support all the other requirements. Ofcom has decided to introduce additional reporting requirements to provide it and other stakeholders with increased transparency. Ofcom has also reduced the frequency of the existing quarterly reporting to biannual and provided further clarity for some of the reporting requirements. This will enable Ofcom to monitor the relationship between the Public Service and the commercial subsidiaries and to fulfil our duties more effectively.
Other changes
Ofcom has made it clear where appropriate that the requirements apply to joint ventures that the commercial subsidiaries have entered into. Ofcom has also made a number of changes so that the requirements are clearer, more precise and less repetitive and have included definitions of certain terms. Such changes should ensure that the BBC and other stakeholders better understand how the requirements and guidance apply to the BBC.
Implementation timing
Ofcom’s decisions take effect immediately. It will therefore apply to the target rates of return information for the 2019/20 financial year to be provided to Ofcom by the end of March 2019 and information required at the same time as the BBC’s Annual Report and Accounts for the 2018/19 financial year due in July 2019. The first Annual Statement on Operational Separation is also due in July 2019.
The BBC also has requirements to increase the amount of programmes it commissions following a contestable process between producers on fair and reasonable terms, as set out in the Charter and Agreement.
The BBC has voluntarily agreed to submit additional information to Ofcom regarding its commissioning activity so it can assess its compliance in greater detail. Ofcom is not, therefore, imposing any additional requirements on the BBC at this time. A separate statement sets out its decisions in full.