Graf report published…

The Graf report – the independent review of BBC Online – has just been published. Despite the fact that I’m basically on holiday today, I am now going to start reading it in earnest. I’ll probably knock out a summary of the key points later in the day, but in the meantime I’m going to keep the most pertinent quotes below. Be warned – this is likely to be a very long post, and only really of use if you want to get a quick sense of the material suggestions in the Graf report:

Ultimately, if BBC Online is to continue to operate in content areas that go beyond traditional programme support, the Board of Governors or whoever regulates this service will have to exercise some fine judgements. They must do so, and be seen to do so in a rigorous, open and fair minded way. (Page Six)

When asked how much they individually valued the BBC internet site, 18% of the sample said ‘very much’ or ‘quite a lot’. This grew to 36% of 16-34 year old internet users. Also, when respondents in our audience research were made aware of the amount of their licence fee invested in Online (approximately 3%), most respondents, including light and nonusers of BBC Online, felt that this sum was fairly insignificant. They considered that the opportunity presented by BBC Online, to access BBC resources in more depth and at their convenience, represented value for money. This was a similar finding to public responses at a Board of Governors Seminar in early 2003. (Page Six / Seven)

The remit and the strategic objectives, which guide BBC Online, should be more clearly defined around public purposes and/or programme-related content and should be clearly communicated to the public and the online marketplace. I recommend that:

• The BBC considers aligning online services to the framework for online public purposes and strategic priorities, as outlined in chapters 8 and 9
• BBC Online must actively seek to engage and communicate its purposes and strategic objectives to its audiences and the wider market
• BBC Online continues to act as a home and guide to the internet for those who require it; it must however develop a more consistent and transparent approach to linking to all relevant sources (commercial and public) and ensure that its search tool prioritises user experience over BBC content
• The remit and strategic objectives should be directly underpinned by a financial and performance measurement system, which clearly links the BBC’s remit and strategic objectives, through BBC-wide new media objectives down to divisional priorities. This improved clarity should work to encourage focus and further efficiencies

BBC Online should be clearly distinctive from commercial offerings. The quality of a particular service, however high, does not constitute distinctiveness per se. At times, it seems that BBCwide Online goals are not effectively transmitted to actual delivery – for example, goals of distinctiveness can lose out to the day-to-day realities of competitiveness and, in some cases, there seems little real difference between BBC Online and its commercial rivals, apart from advertising content. [particularly highlighted: What’s On / Linking Policies and Homepage design]

Given that search is becoming such a fundamental part of how the internet is used, it is worth keeping a publicly funded, UK competitor in the market place. The size of the BBC site means that it needs an internal search engine in any event; a condition of also providing a worldwide web search facility should, however, be that it is reorganised to provide a truly independent capability, i.e. not one that favours BBC sites. (Page Ten)

In future, therefore:

• BBC Online should prioritise news, current affairs, information of value to the citizen, and education. Within these areas, it should prioritise innovative, rich, interactive content
• I believe that it is legitimate for BBC Online to provide online Sport content. As a public service provider the BBC should, however, prioritise sports news, programme support, the major listed events, and the provision of material on minority sports, with an emphasis on encouraging participation. It should not be competing for other online rights, unless linked to broadcast ones
• The BBC has a role as a home on the internet for those who wish to have a safe guide and introduction to the web. To fulfil this role properly, however, the BBC needs to rethink a number of areas within BBC Online, including the purpose and layout of its home page, its site navigation, its links policy, and its search engine

I, therefore, recommend that: The BBC sets a target of, at least, 25% for online content (excluding news) supplied by external and/or independent suppliers by the end of the current charter (Page Twelve)

The technical delivery of BBC Online is of a high standard. For example, BBC Radio Player, which enables users to access their favourite radio programmes or missed interviews within a two-week window has boosted radio listener numbers, and it has been met with broad consumer approval. If additional costs can be managed, the BBC might encourage more users to access rich, audio/visual content by the use of alternative streaming products, such as Windows Player and associated codec, or an open source alternative. (Page Twelve)

The BBC should continue to develop a ‘new relationship’ with users through more extensive engagement in community/user-generated content, which would further deploy the capacity of the medium to provide opportunities for interaction between users and producers. (Page Thirteen)

The present management structure of the BBC, however, can make it difficult for an outsider to engage constructively with the organisation. Its operational structure reflects the relationship of New Media to the BBC’s Television and Radio divisions, as well as to its central policy and strategy units. BBC Online’s resulting matrix management structure has encouraged ‘360’- commissioning, and more coherent internal budget and strategy setting processes. It can, however, also create a culture and organisation that, at best is confusing and, at worst, is a recipe for dodged responsibility when dealing with third parties. (Page Thirteen)

In practical terms, a precautionary approach means that, if there is a ‘close call’ between the public service benefits of a proposed BBC Online service and the costs of that service, the proposal should not be taken forward. If the governors take this approach, they will be wary of any proposals for new online services that are not accompanied by a reasoned judgement on market impact. (Page 14)

With respect to any positive market impact of BBC Online, although it is clear that BBC Online will have stimulated some internet take-up, the evidence that this has been (or will be) a significant impact is weak. (Page 15)

Page impressions are an industry standard (in the commercial sector), which describe, or at least give some indication of the pattern in consumer demand. The BBC News website’s page impressions have grown from 21.6 million page impressions per month in December 1998 to 187.6 million in December 2002. However, any assessment of the impact of BBC Online’s news and information services presents challenges, in so much as which metrics are capable of giving a fair and meaningful description. Whilst the only consistent year on year metrics for BBC Online are page impressions, they only provide a description of how many pages have been delivered to users rather than how many individual users (or ‘unique users’) the site has, or any sense of the ‘stickiness’ of the site in terms of time spent. (Page 19)

BBC Sport online has, as an example of the impact of these types of services, reported an increase in page impressions from 33.2m to 92.8m between December 2000 and December 2002, and it now reaches 17% of the UK internet universe. Factual evidence alone, however, cannot accurately illustrate this objective’s impact on audiences. The review’s audience research revealed users and non-users alike were surprised at the extent of information and features on topics that did not necessary align with BBC broadcast programming.

The BBC has also used a number of technological solutions to enable users to access programming relevant to their interests at any time, from across the networks. For example, the BBC’s Radio Player, which streams live and archived radio programming, has been a significant step in the BBC opening up its audio archives (now available within a seven day window). It should be noted that the provision of streaming services, such as the BBC Radio Player which provides live and archived material, is a relatively complex technical process and, as a consumer proposition, constitutes a new and innovative technology-based service. However, the BBC Radio Player primarily relies on users using a single streaming application, provided by Real. Such downloads can deter new or inexperienced internet users and, on the BBC site, users cannot in most instances choose to use an alternative steaming application such as Windows Media player, which is pre-installed on any computer with a Windows operating system.

The review’s audience research presented some reservations about the design and ease of navigation from the BBC Online home page. Users, other than the very inexperienced, tend to be goal orientated, seeking to find a specific service or information as quickly as possible, but members of the public found the BBC Online homepage too cluttered and that it did not adequately serve as a guide to the rest of BBC Online. They did however find that the navigation within specific genres such as News and Radio was generally effective, particularly when indexes were kept concise and sites used minimal graphics, which they felt could unnecessarily slow download times. (Page 25)

Applications developed by the BBC, such as DNA 26 have also enabled user-generated content to be more stimulating for the user and more efficiently managed. The current growth in web log usage also allows users to contribute richer content (e.g. to news stories) in the form of text, pictures, and audio and video clips.

MORI research, conducted for the BBC, found that 7% of UK users were encouraged to go online specifically by the BBC 30. However, more detailed research would need to be undertaken to establish whether the BBC had played a key role in developing skills or building confidence.

News, education, provision for minority communities, and developing users’ confidence and skills base in new technologies reveal themselves to be the service’s key priorities. (Page 31)

There would seem to be, at best, a lack of understanding of BBC Online’s core purposes by the wider market, and at worst, an unnecessary adverse impact on their investment priorities due to other providers loss of trust in BBC management’s intentions. Such lack of understanding and trust would not be surprising given that there is some evidence to suggest that even within the BBC, the online service’s limitations are not consistently well understood. Whilst pseudo mini ‘E-bay’ sites for the sale of junior football kit or downloadable mobile phone ‘Ring tones’ may be quickly withdrawn by central editorial policy, their very emergence would suggest that Online’s remit is so broad that it risks being at times mistaken for universal. (Page 31)

Reach is a key means to ensure that increasing numbers of licence fee payers can derive some value from the BBC’s online services. This strategic goal does, however, risk the BBC being perceived by commercial operators as an aggressive, and unfairly advantaged competitive force. Submitters to the review also argued that the BBC’s current inconsistent approach to linking, the prominence of BBC Online results in its search engine, and the low level of joint venture or externally commissioned projects have compounded this impression.

The review’s discussions with BBC staff made clear that, at a senior level, content divisions have an acute sense of their responsibility to make a ‘good’ judgement as to an appropriate balance between popular services and those that more obviously provide public service value. For example, whilst Sports feel they have a responsibility to provide up-to-date, impartial sports news, they also have an obligation to provide some entertainment and encourage participation in sports (for example, through Sports Academy). This strategy of case-by-case judgement has not, however, been actively articulated or discussed with the wider market, and the Board of Governors seek the public’s views on a particular service’s success in this regard on only an ad hoc basis. (Page 34)

BBC Online’s survey of users in early 2003 revealed that approximately 22% of users were from outside the UK 40. The BBC has developed geo-locators that can, with reasonable success (particularly for broadband content), re-direct overseas traffic to the BBC’s internationally facing site, which is funded by the World Service (and subsequently Grant-in-Aid rather than the licence fee). However, until such tools can guarantee 100% accuracy, and there is no risk of licence fee payers being blocked from reaching BBC content, more stringent measures have been deemed unworkable. Members of the public who took part in the review’s research were also not unduly concerned that non-licence fee payers were able to access the content and indeed, many felt proud that the UK had such a good advocate of the British nations on the internet. Some users were also appreciative of being able to access BBC content when abroad themselves, on holiday or on business. (Page 37)

Targets relating to ‘reach’ and consumption appear as priority targets throughout the period under review. The apparent prioritisation of reach as a target for BBC Online, particularly during the services rapid build has been interpreted by many competitors as evidence of the BBC’s fiercely competitive drive to gain audiences to the disadvantage of other commercial content providers. The BBC has argued that a reach target is essential to ensure public value is maximised. The BBC’s current reach target is based on users reached amongst the UK internet universe, rather than as a percentage of licence fee payers. (Page 38)

Submissions to the review made clear a sense of cynicism towards the Governors capacity to sufficiently challenge BBC management’s advice and strategic priorities for BBC Online. The dramatic growth in BBC Online’s budget, content genres and capabilities were cited as evidence of a service that been allowed to develop under a culture of ‘imperialism’, unfettered by careful consideration of the public value or market impact. (Page 39)

It is the nature and purpose of the BBC as a public-sector body (funded by the licence fee) to affect the mix of services consumed, and nature and conduct of other suppliers involved in the markets concerned. Thus, it might create economic changes or alleged ‘distortions’, or ‘crowd out’ private enterprise and investment. Such effects are inherent to public provision. (Page 41)

The KPMG report estimates that BBC Online may have reduced the total expenditure on UK online advertising by around ‘5 million per annum (out of an estimated total of the order of ‘200 million). However, while this figure has been the subject of significant dispute, its relationship to the public interest has not been established. We have not seen any reason why an online advertising market worth ‘X million per annum is any better or worse for the public interest than an online advertising market worth ‘Y million per annum. Some commercial operators have sought to demonstrate that BBC Online has an adverse market impact by showing that it diverts audiences and thereby revenues away from their own businesses. However, we found no reason why a consumer’s decision to use a BBC Online service rather than a commercial service should be considered in itself to be a factor operating against the public interest. (If BBC Online attracts audience in a way that has an adverse impact on competition this would be relevant to the assessment, as explained below.) (Page 43)

A common complaint about the BBC is that ‘the playing field is not level’. BBC Online has considerable competitive advantages derived from its access to licence fee revenues, and the cross-promotional and other resources that are connected to the BBC. If the BBC wants to provide certain online services it will almost certainly be able to do so, and does not need to receive any user revenues in order to justify its investment. However, genuine though they obviously are, and even though they might have adverse effects on competition as discussed below, these advantages do not preclude effective competition in the markets supplied by BBC Online. Effective competition does not need a level playing field. For instance, in the context of television the BBC competes against ITV1, Sky One and many others, and competition for audience appears generally effective despite the BBC’s funding advantages.

The development of the BBC’s online activities may also affect competition in other types of markets, such as those for technology. For example, the BBC’s principal choice of Real Networks’ proprietary audio and video encoding and streaming technologies means that consumers wishing to access the BBC’s online multimedia content will generally need to download and install RealPlayer on their computer. This feature could be considered to increase competition in markets for encoding software (on the grounds that other online providers can rely on the existence of a significant UK user base with access to RealPlayer, as well as to Windows Media Player which is pre-installed on the majority of computers), or to damage such competition (on the grounds that other/new encoding technologies are shut out from the market and cannot match either Microsoft’s or Real’s ability to establish a significant installed user base).

However, any potential adverse effect on competition arising from a requirement for Internet users to install RealPlayer in order to access BBC Online content would only exist if there was no alternative way for users to access substitutable content, which is to say in connection with a relevant content market in which BBC Online was in a dominant position. In these circumstances, competition law would place a special obligation on the BBC to avoid such a lessening of competition (as it would amount to an abuse of a dominant position).

For example, the existence (and editorial strength) of The BBC News website may have deterred newspaper publishers from introducing subscription charges on their online news websites, and thereby precluded investment in enhanced or specialised services on these sites, such as better archive searching tools and/or personalised news delivery services that would produce a genuinely customised online newspaper. At the current stage of market development we observe a mixture of free, registration-only, pay-per-view and pay-subscription models for online news content, which suggests that managerial decisions over appropriate business models could be a close call. For this reason, the impact of BBC Online, with a deep and wide supply of free news content, seems capable of having affected such decisions, and therefore of having affected the business models currently applied. In this way, BBC Online might have prevented ‘focused’ competition in these value-added and/or specialist services, and instead forced all UK mainstream news providers to compete with the BBC and with each other in broader online news markets. This outcome can be contrasted with professional business and financial news, where BBC Online does not operate and commercial providers compete in supplying a range of high-value-added subscription services. (Page 54)

Whilst these examples indicate that, in theory, BBC Online may have lessened competition in a range of online content markets, commercial stakeholders did not provide robust evidence (such as business plans or strategy papers) that could support these hypotheses. It has been put to us that the impact of BBC Online is so large that many investment ideas never get off the drawing board. This factor could reconcile the lack of evidence with the hypothesis that BBC Online has a significant deterrent effect.

Whilst this review did not uncover incontrovertible evidence that BBC Online has lessened competition in online and related markets, the level of concern among commercial operators and the inherent plausibility of the mechanism can be taken as an indication of the probability of future impacts of this nature. These impacts may be caused both by BBC Online’s supply of online content markets and by its supply of wholesale content markets. (Page 57)

Increased broadband and 3G access speeds and new compression technologies are already allowing a faster transfer of data to PCs and mobile handsets and this trend will accelerate over the next five years. Average broadband connection speeds will increase rapidly, permitting the reliable delivery of high resolution streaming and the rapid downloading of near-broadcast quality video. Mobile handsets will also become viable mainstream devices for downloading and consuming content, as hardware (including processor, storage, and display features) and software develop ‘ although such services are unlikely to become widely available at ‘massmarket’ prices for several years. These developments will make the Internet a genuine potential ‘third broadcasting medium’ for BBC content and services. BBC Online already provides live and archived (from the previous week) access to all of the BBC’s radio services, which can be consumed via a narrowband (at a tolerable sound quality) or broadband connection. Over the next two to three years, it will also become perfectly possible for many Internet users to stream or download full-length BBC television programmes (as opposed to just video clips); within the next five years, the majority of mobile devices will be capable of receiving and storing live and archived BBC radio (e.g. the ‘Chart Show’) and limited television (e.g. news bulletins; comedy clips) services. (Page 60)

The growing popularity of audio and video services over the Internet makes them a central component of future online service offerings, from a consumer point of view; as such, these services will be an area of core strategic importance for the BBC (and its competitors) in the coming years. As a publicly funded content provider, the BBC must strive for the optimal balance between distinctiveness, on the one hand, and audience reach on the other ‘ as well as the ability to influence the overall market. The provision of an appropriate level of audio and video services will be an important element in achieving this balance, and in preserving the attractiveness and relevance of BBC Online in the future. (Page 61)

More to come… (Sorry about the length – I’m really just pulling out the stuff I think is immediately pertinent and I know there’s a fair amount of it). I might filter it down a little later, or embolden the stuff that I think’s particularly interesting.