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BBC Market impact assessment

Market impact assessment as part of the new BBC governance model

The Royal Charter for the continuation of the BBC came into effect on 1 January 2007, and runs to 31 December 2016. The BBC Governors have been replaced by a new body, the BBC Trust.

One of the main roles of the BBC Trust is to set the strategy through which the BBC operates in the public interest and, in particular, in the interests of licence fee payers. The BBC Executive Board is responsible for service delivery and the Trust holds the Executive Board to account. Each BBC service will have a Service Licence agreed by the Trust, which specifies aspects of the service including remit (what the service exists to do), the scope of the service, how it is distributed and the headline budget.

Before launching a new service (or making significant changes to an existing service), the BBC Trust will undertake a Public Value Test (PVT). This involves an assessment of how a proposed BBC service would contribute to the delivery of public value (taking account of the costs of the service), and an assessment of the market impact of the proposed service. Ofcom has responsibility for providing the market impact assessment (MIA), reporting to a steering group representing both the Trust and Ofcom. The BBC Trust has the final say as to whether (and how) to proceed with a new service, taking into account the output of the market impact assessment. Grounds for third parties to appeal against such decisions by the Trust seem limited, at most, to Judicial Review.

According to the Framework Agreement between the Secretary of State and the BBC, in deciding to launch a new service or change an existing service, the BBC Trust "must be satisfied that any likely adverse impact on the market is justified by the likely public value" of the change.

Recent Reckon news items on BBC market impact assessment:

History of BBC market impact assessment

The concept of "market impact" does not have an established meaning or definition in the context of the effects of a public service on commercial operators and markets. However, the term became used increasingly in the public policy debate surrounding the BBC. In the years leading up to the renewal of the BBC Charter, the Secretary of State for Culture, Media and Sport commissioned three independent reviews of different BBC services, each time specifying that the reviewer should produce an assessment of the market impact of the relevant service. These reviews have addressed BBC Online (the Graf review), the new BBC digital TV services (the Barwise review) and the new BBC digital radio services (the Gardam review).

Market impact links includes an annotated list of external links to documents related to these reviews.

In its Green Paper on BBC Charter Renewal, published in March 2005, the Government proposed that the BBC would remain a single corporation with no external regulator of its public service broadcasting role or of its fair trading commitment insofar as it goes beyond competition law. However, the BBC Governors would be replaced by a new body, the BBC Trust. The main role of the BBC Trust would be to set the strategy through which the BBC operates in the public interest, and in particular in the interests of licence fee payers. The Green Paper proposed that the BBC Trust would undertake public value tests, which would include a market impact assessment (the initial proposals were similar but not identical to those that have now come into effect, see above).

As part of the debate leading up to the the publication of the Government's White Paper in March 2005, the proposals for revision to the BBC governance model put forward in the Government's green paper were widely criticised, notably in a report by a House of Lords Select committee. In the white paper, the Government extended the role envisaged for Ofcom in undertaking market impact assessments, but rejected the view expressed in the Select committee report that if a market impact assessment indicated that the launch of a new BBC service would "risk stifling a new market" then the BBC service should not be launched.

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The nature of the market impact assessment

At first sight, the concept of "market impact" may seem straightforward: it is the effect of the service under examination on the market. However, in the context of the reviews of the BBC services there has been considerable debate as to what should be included in that assessment — i.e. what types of effect on the market are to be examined?

One approach has been to consider market impact assessment primarily from the perspective of the interests of commercial competitors to the BBC. Rivals of the BBC have claimed that a BBC service has an adverse market impact where it reduces the revenues available to commercial competitors (one is tempted to use the term "crowding out" here, but this can mean different things and is potentially misleading).

For example, in the case of BBC Online, there was a debate in the media on whether the existence of BBC Online caused total UK online advertising expenditure to be reduced by Y million or X million per year. One can certainly imagine that, in the presence of BBC Online, some commercial operators would have lower revenues or market shares than they would in a world without the BBC's online presence. However, since the very purpose of the BBC is to affect the nature and mix of services in the market and it therefore seems somewhat awkward to count this direct displacement effect as necessarily adverse.

From the debate surrounding the next BBC Charter, it is reasonably clear that the required market impact assessment should follow through any potential impacts on the revenues and costs of the BBC's commercial rivals to consider whether a proposed BBC service would impede competition in specific markets (on the basis that this could restrict the development of innovation and choice from the perspective of consumers in those markets). Besides effective competition, other policy aims might be relevant.

The BBC is clearly intended to compete for viewer/listener impacts and eyeballs and it is the essence of competition that success by one organisation operates to diminish the scale of rivals. The question then is whether the operation of a particular service could have an effect that, through its impact on market processes, could be seen to work against the interests of consumers or licence fee payers — especially in the longer term.

Ofcom's first market impact assessment concerned BBC proposals for various new on-demand services. In describing the purpose of that MIA, Ofcom states that it was "particularly concerned with assessing the extent to which the BBC's proposed services might deter innovation and investment by relevant alternative providers in the commercial sector", continuing that "[w]ere those providers to be deterred from seeking to offer competing services this would ultimately have the effect of reducing choice for listeners and viewers, to the detriment of the public interest as a whole" (page 3).

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Market impact assessment and State aid law

Under the new BBC Charter, market impact assessment is as an input to the discretionary decision-making of the BBC Trust as to what services the BBC should provide.

Regardless of how market impact considerations are taken forward in the decision-making of the BBC Trust, there are European Union rules that constrain the way that public services such as the BBC can be funded. Article 87 of the EC Treaty (which is based on Article 92 in the Treaty of Rome) prohibits certain State aids, and authorises the European Commission to clear some such aids as "compatible with the common market". The European Union's State aid rules can be understood to operate to prevent disproportionate funding of public services (amongst other things) lest this have an unnecessary impact on competition. Since the BBC is a State-funded public service, there is some overlap of interest with market impact assessment.

However, there are substantial differences between a State aid investigation of certain funding to the BBC and a market impact assessment of a publicly-funded BBC service. These differences extend beyond points of procedure to the substance of the economic and competition analysis required. In particular, whereas a market impact assessment might include analysis of how a BBC service (or BBC delivery decision) might affect competition in relevant markets, State aid rules do not require a consideration of how competition may differ between counterfactual worlds in order to decide whether or not State funding to the BBC is compatible with the Treaty (see for example Philip Morris (State aid)). The relevant part of the test under State aid law is whether the funding to the BBC would place other undertakings at competitive disadvantage — this can be relatively straightforward to demonstrate.

Under current arrangements for the funding of the BBC, the most important questions that the European Commission has to analyse in the case of State funding to a particular BBC service are: (i) whether the BBC has been entrusted by the UK with the provision of that service (e.g. whether the use of licence-fee income to finance a BBC service can be reconciled with the BBC Charter and Agreement); (ii) whether the BBC acts as an "undertaking" in providing that service; and (iii) whether the BBC uses more State resources than necessary in providing that service.

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Last changed by Nic at 1:17 PM on Wednesday 14 March 2007.

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Reckon Open "Market impact assessment" 2007-03-14T13:17:48
Link within Reckon Open: [[Market impact assessment]]