Ofcom has said that allowing the BBC and other public service broadcasters to charge BSkyB and Virgin Media potentially tens of millions of pounds to air their channels would be a regulatory nightmare.
The broadcasting regulator’s negative view on the possibility of introducing “retransmission” fees – the government is currently reviewing whether the system should be adopted in the UK – is a blow in particular for ITV and Channel 4 which have lobbied hard for its introduction.
Ofcom said that while PSBs – ITV, BBC, Channel 4 and Channel 5 – would benefit financially, there would need to be heavy regulation to make it work and there are no guarantees how the windfall of funds would be spent.
“This might require complicated and lengthy backstop regulatory determinations to resolve commercial disagreements,” said Ofcom. “Even in the event that such disputes were resolved, there is currently no guarantee that all the money would be spent on public service content”.
Ofcom said that of “particular concern” were publicly listed ITV and Channel 5, owned by Viacom, which could “simply pass [retransmission income] on to shareholders” without strict regulation.
Various figures have been bandied about over the last few years as to the potential income that PSBs might make from retransmission charges, ranging from tens of millions of pounds to as much as £200m annually.
Ofcom said that in considering the introduction of retransmission fees, regulation would need to be watertight to prevent bust-ups in negotiations between broadcasters to “avoid the risk of channels being withheld and going off air”.
The media regulator did admit that Sky and Virgin benefit hugely from getting channels for no charge – the lion’s share of total viewing on their pay-TV services is of PSB channels.
“Ofcom recognises the value that PSB channels bring to pay-TV platforms,” it said. “While it is difficult to calculate precisely what value these channels bring, it is likely to be considerable”.
ITV has previously pointed out that US free-to-air broadcasters receive more than $3.3bn (£2bn) in retransmission payments from cable operators.
While it is ultimately the government that will decide whether to introduce retransmission fees – a decision is expected late this year or early 2016 – Ofcom’s view caused a flurry of analyst notes viewing it as a negative for ITV’s ambitions.
Analysts at Citi said that the report was Ofcom “essentially killing off” the prospect of retransmission fees.
“This will be disappointing for ITV and investors that had high hopes of this coming through,” said Catherine O’Neill, an analyst at Citi. “For Sky, it’s a mild positive”.
ITV’s share price fell almost 2% in morning trading following the publication of the report.
Brigitte Trafford, chief corporate affairs officer at Virgin Media, said that the PSBs “remain in good health with viewing and satisfaction remaining high” and seeking to leverage fees from pay-TV companies is not necessary.
“Like many businesses, PSBs need to adapt to changes in technology and the preferences of the young,” she said. “The answer to these challenges is not retransmission fees. We endorse Ofcom’s concern they will result in disputes and more regulation, with no assurance that any more money will be spent on public service programming and not simply pocketed by shareholders.”
Channel 4 said that if it were to gain income from the introduction of retransmission fees it would guarantee it was invested into programming.
“Channel 4 has made clear that any value it gains from platform fees will be invested directly back in to UK original content,” said a spokesman. “We believe that examples from other countries around the world clearly demonstrate that it is possible to implement a workable fair value transfer system between channels and platforms and we will be discussing this further with Ofcom and government”.
Ofcom said that there is an alternative to retransmission fees that has proved successful in other countries that could be investigated, a levy on pay-TV revenues, although this too is likely to prove controversial.
“[Levies] have been introduced in other developed markets as a more direct way of ensuring successful PSB outcomes than any retransmission fee regime through negotiation underpinned by a new and potentially complicated regulatory system,” said Ofcom. “This would be a matter for Parliament and such proposals would be highly controversial”.