BSkyB Issues Further Response to BBC Trust on Project Canvas

BSkyB have issued a further response to the BBC Trust over their project Canvas proposals.  Following the publication of the BBC Executive’s revised governance and cost proposals for Project Canvas, The BBC Trust gave industry stakeholders an opportunity to provide views on the new proposals.  Sky’s previous submissions have raised a range of fundamental concerns relating to the Canvas proposals. These concerns remain largely unaddressed and we would like to take this opportunity to briefly restate our primary objections and outline our general position on the development of common standards for the delivery of video over IP. We will then consider the specifics of governance and costs, as set out in the BBC Executive’s latest iteration of the proposals.

Ongoing concerns

There continue to be principled objections to the BBC engaging in the development, launch and operation of an entirely new content distribution platform, together with a limited number of venture partners, for the mutual benefit of current joint venture participants and to the exclusion of other industry participants.

This goes well beyond the BBC’s public purposes to create public service content and to distribute it as widely as possible, without discrimination. Given its unique and privileged position in receipt of substantial and guaranteed public funding, the current proposals remain inconsistent with the BBC’s obligations to adopt the least intrusive and most proportionate means of fulfilling its core public service purpose.

Sky remains platform agnostic and recognises the opportunity of broadband delivery, as demonstrated by Sky Player and its evolution. In addition to being available via PC and Mac, Sky Player recently launched on Microsoft’s Xbox and will soon launch on IP Vision’s Fetch TV service, with other deals likely to follow.

Sky is actively engaged with, and committed to, the distribution of content via the internet, through a range of platforms and devices that are currently serving consumer demand for such services. Sky, therefore, fully supports the aspiration for industry to innovate in this space and for common standards to develop.

Accordingly, Sky does not object to the BBC independently participating in the DTG’s work to develop technical standards (which it has failed to do so far), nor indeed to the delivery of television over the internet. Indeed, Sky is actively participating in the development of such standards through the DTG, which it considers to be the most suitable route for their development, with the appropriate degree of industry participation and consultation.

There is also no objection to the BBC seeking to make its content available to as many commercially developed platforms as possible, although it should do so without insisting on the use of its iPlayer service and brand.

With the DTG working to create a common set of standards, and with the evidence of new services coming to market/in the pipeline, there is little justification for the BBC to invest public money in replicating something that is already being delivered. Canvas is just one platform amongst many, but with the advantage of having the marketing, content and funding support of the BBC. This risks seriously distorting competition and dampening innovation from the commercial sector in this crucial stage of development.
Sky’s principled objections remain (as above) that the BBC’s public purposes and obligations could be achieved more efficiently and proportionately than presently planned.

Conditions required prior to approval

For the reasons outlined above, and based on the current proposals, Sky does not believe that Canvas should be allowed to proceed, or at least, not with the BBC, and the licence fee, playing an active role. Should Canvas be approved, however, the BBC Trust should require, as a minimum condition of that approval, the following:

• the BBC to make full membership of the joint venture open to all, irrespective of business model and of initial or subsequent participation, and to do so without discrimination;

• the BBC’s proposed control over the user interface (UI) is unnecessary and would stifle innovation and, accordingly, the BBC should be required to allow different UIs within the Canvas-approved specification;

• the BBC should be required to work with the DTG to develop all technical aspects of the proposals (including in relation to the UI and interoperability of the platform with pay services) in a way that allows full industry participation and minimises distortions of existing developments and investments;

• the BBC Trust should require the BBC to adopt a genuinely broad distribution strategy, prohibit it from insisting that its content appear only in its iPlayer service and brand and from making access to its content conditional on use of the Canvas specification, including the UI;

• further details are also required as to the proposals for accreditation of Canvas-compliant internet service providers, bearing in mind the conflict of interest arising from BT’s participation in the venture and the risks of accreditation being used to exclude competitors.

Governance and cost – a response to the BBC Executive’s ‘New Proposals’ (4th November)

The latest iteration of the proposals, in respect of governance and costs, as published on 4th November (the ‘New Proposals’) seek to address widespread industry concerns only in relation to one aspect, membership, of the joint venture, and fall some way short of addressing them. The remainder of this response is focussed on the New Proposals.

Notwithstanding their protestations to the contrary, the New Proposals represent an acknowledgement by the BBC that the initial proposition was not an open one, and that accordingly, there is no ‘principle of openness’ underlying the Canvas proposition.

Furthermore, the New Proposals pay lip-service to the idea of an open joint venture, and the governance changes will make little difference in practice to the current Canvas members’ ability to pick and choose their partners in future.

Crucially, as demonstrated below in sections 2 and 5, since there is no free-to-air or open principle underpinning Canvas, the BBC’s “central rationale for involvement”, by its own admission, is non-existent. Accordingly, the Trust cannot approve the Canvas proposals and should instead require that the BBC limit its participation to making its content available to the open standard that will be developed by the DTG.

There is no ‘free-to-air principle’ underlying Canvas

The BBC Executive’s ‘Governance Model’ document states that “[w]ithout a guaranteed PSB majority, there is concern that the free-to-air and open principles of Canvas, which are central to the rationale for BBC involvement, will no longer have adequate protection”.

The statement that there is a ‘free-to-air principle’ underlying the Canvas venture is fanciful when considering that: (i) the BBC accepts that the joint venture cannot discriminate in favour of free-to-air services over pay services; and (ii) the BBC’s founding joint venture partner is a pay television provider which intends to cease to provide its own platform so that it can replace it with the Canvas platform once launched.

The governance changes are of limited effect and membership is likely to remain unjustifiably exclusive

The proposals for membership of the joint venture remain exclusionary. Firstly, the admission criteria to be applied by the Canvas board are subjective and therefore open to arbitrary interpretation:

• the overarching criterion (paragraph 1 of the Appendix) that applicants “would be of benefit/make a positive contribution to the venture as a whole”, which is subject to the Board’s ability (paragraph 2 of the Appendix) not to consider any new applicants “where it reasonably determines that the addition of any new members to the Company would undermine the operational efficiency or viability of the Company”, is totally subjective.

• when read in light of the criteria in b(i) and (ii) of the Appendix (the commitments to spend a “reasonable proportion of own marketing budget to promoting Canvas” and “to affording Canvas effective prominence within such marketing” to be determined with reference to “comparable existing shareholders’ own Canvas marketing commitments”), it is clear that the BBC’s proposals for membership remain exclusionary and disproportionate. Why is it necessary to require partners in an ‘open’ venture to commit to marketing the venture in a particular way, potentially to the detriment of other products? How can the BBC itself comply with these admission criteria, given the restrictions on the BBC in advertising commercial services? If the BBC is to be excluded from the “Commercial Objects”, this should be made clear on the face of the proposals and justified.

• the ability to limit the number of shareholders for reasons of “operational efficiency or viability” (in paragraph 2 of the Appendix) is also subjective and arbitrary, with existing members, should they face the possibility of no longer forming the overall majority and risk losing control, more likely to seek to protect their own positions as founding members, than to act in the interests of “operational efficiency or viability”. The proposals on super-majority voting are adequate to safeguard against any legitimate concerns of operational efficiency/viability. The current members should not be allowed to maintain de facto the privileged shares they sought to protect under the original proposals.

Secondly, the “commercial objects” reinforce the exclusive nature of the arrangements. In particular, applicants have to commit to “promote, develop and enhance take-up of broadband services and the availability of Public Service and other Broadcast content in the UK”. This obligation is likely to prevent non-PSB content providers from joining, as they would not be able to agree to promote competing (PSB) content.

Thirdly, it is perverse to have as an object of the Canvas joint venture in of itself the “Promotion of broadband”, with the availability of content secondary to, or at least conflated with, that. Surely the object should be to enhance the availability of audiovisual media and other services delivered to the television, and as a by-product of that, potentially to promote broadband take-up.

Finally, the level of funding that new shareholders are required to meet is set at a level that will exclude many, if not all, new members. More particularly, the budget is disproportionately high when compared to any other start-up and cannot be said to represent ‘value for money’ for the licence fee payer or be proportionate when considering the application of state aid law. For example, the £15.5m marketing costs for the first year are two and a half times the current marketing budget of Freeview, notwithstanding the clear overlap between the two services and likely cross-promotional marketing (as would be the case for BBC/ITV Freesat).

By its own admission, there is no rationale for the BBC’s involvement

The ‘Governance Model’ document states that “…the free-to-air and open principles of Canvas, … are central to the rationale for BBC involvement”. As Sky has demonstrated above, and in its previous submissions, the Canvas joint venture, including this latest iteration of it, is not based on any “open principles”, but rather is intended to be an exclusive commercial joint venture to the benefit of its founding partners. Equally, there are also no “free-to-air…principles” underlying Canvas, which is to include pay and free to air content providers among its original shareholders, and which will make available free and pay content.

Accordingly, since there is no free-to-air or open principle underpinning Canvas, the BBC’s “central rationale for involvement”, by its own admission, is non-existent, and the BBC Trust must reject the BBC Executive’s application.