ANALYSIS: BBC defends online offensive

BBCi has begun its biggest-ever drive amid accusations of exceeding its remit in an ongoing battle with the commercial sector.

A BBCi TV campaign featuring Formula One driver Jenson Button, which broke this week, may not seem controversial to the casual observer, but to its commercial rivals, the cross-media marketing marks the latest phase of a bitter battle over the BBC's remit in the digital media arena.

The campaign, created by BBC Broadcast, runs through December and into January and is intended to promote the BBC's 24/7 interactive TV digital information services, with the strapline 'BBC at your beck and call'.

The BBC's interactive TV services, such as those being promoted via this advertising, are not implicated in the ongoing review into the BBC's online remit. But the TV campaign will no doubt raise questions from the commercial sector about what exactly the BBC is up to.

In the past few weeks, the battle between the commercial sector and the Corporation has reached boiling point, with wave after wave of industry bodies, including the British Internet Publishers Alliance (BIPA), Incorporated Society of British Advertisers (ISBA) and the Interactive Advertising Bureau (IAB), accusing the BBC of distorting the online market with its ambitious expansion.

Philip Graf, the former Trinity Mirror boss, is now responsible for policing the battle between the commercial media companies and the BBC. He is due to report to culture secretary Tessa Jowell in the spring, and has a remit that includes presenting recommendations on future policy for the regulation of the BBC's online activities.

Broken promises

BIPA, which represents the views of several major media brands, including The Telegraph Group, Sky and News International, has accused the BBC of "breaking a catalogue of promises".

Since the issue of the BBC's online dominance was first raised in 2001, BIPA has campaigned as a lone voice against the Corporation's interactive ambitions and has long been clamouring for a review.

Hugo Drayton, its chairman and managing director of the Telegraph Group, says that now the calls to make the BBC rein in its online ambitions are "coming from lots of different angles", he is fairly confident that the tide is starting to turn against the BBC.

At the heart of the argument now facing the BBC is the claim that in recent years it has expanded well beyond the terms of its original charter to run an online service.

Rather than providing just linear news, weather and travel services, which would be expected from a public-service broadcaster online, BIPA is particularly aggrieved that it now runs web sites as diverse as "Celebdaq, Fightbox and three surfing sites". BIPA claims this sort of activity has directly encroached on the commercial sector.

When the BBC was granted its charter in 1998, it was done so on the proviso that it managed a tight annual budget of £21m accompanied by a promise that the "BBC's public service online proposition will not have any competitive effect in the marketplace either now or in the foreseeable future".

It is over this promise that BIPA and the other industry bodies are taking the BBC to task. It forms the basis of their argument that the Corporation has broken promises and far exceeded its remit.

As part of its case, BIPA alleges that the BBC is now spending more than £75m a year on its online activities, which Drayton calls "unacceptable".

BBC director of new media and technology Ashley Highfield disputes the argument that the BBC has gone beyond the foundations of the 1998 charter, adding that the £21m sum was meant to apply only to the first year of the service.

"We were explicitly told to offer a broad range of deep content and we were told to be the home for the licence-fee payer on the internet. We have not gone beyond the terms of our charter, as we have done what we were allowed to do," he says.

Resurgent spending

In recent months, online advertising has experienced something of a renaissance, with big-brand advertisers including McDonalds and Lever Faberge finally committing marketing budget to new media.

But this resurgence of interest in online has led to accusations that because the BBC has distorted the market, commercial publishers will not be able to reap as much financial reward from it as they would if the Corporation was not a dominant online publisher.

In a KPMG report, which the BBC submitted to the Department of Culture, Media and Sport (DCMS) as required by the review, the Corporation claimed that its effect on online advertising had been minimal and that the commercial sector had lost out on about £5m at most.

The BBC's commercial rivals have rubbished this. Drayton says it "has undoubtedly had a massive impact on the market and more importantly has dissuaded people from entering it".

A spokesman for ISBA agrees with Drayton, adding that there is clear proof that commercial publishers are being limited in their activities online. He claims that this is a direct result of the BBC's dominant position.

Highfield says the BBC would stand by the assertion that it has only had "a minimal impact" on online advertising. While he admits that overall the BBC has "had a huge impact on the market", he says the question that the government must answer is whether "the obvious benefits the BBC brings outweighs the negative impact that the commercial sector has felt".

To prove the argument that the BBC has restricted the commercial sector's ability to take advantage of the boom in digital advertising, the IAB has submitted independent research to the Graf enquiry. This submission claims that the findings of the KPMG report are flawed.

According to IAB chief executive Danny Meadows-Klue, commercial internet companies have suffered a displacement of between £17.5m and £40.4m in advertising revenues as a direct result of the BBC's online activities.

"The internet is made up of several different market segments. It is not just one market as the KPMG report presumes. As a result of this segmentation, the impact is much greater than the BBC is claiming," he explains.

The KPMG report was intended to determine the impact that the BBC's online activity has on the marketplace and as a result it studied specific content genres represented on the internet. One of these is news. The KPMG report conceded that it was "possible" that news sites' low share of advertising revenue was a consequence of BBC Online's news dominance.

Revenue hindrance

Both the IAB and ISBA have seized on this in their submission, claiming that independent research shows that the revenue potential of the commercial news market could be up to 50% higher in the absence of BBC Online.

The arguments for and against the BBC's online activities are clear, but what is also clear in the eyes of BIPA and the other industry bodies is that it has overstepped the mark and is now encroaching on the commercial sector.

The BBC's Highfield is bullish. He insists this is not the case and that as well as serving the best interests of the online British public, it has also helped develop the internet industry, which in turn has benefited its commercial rivals.

"We have been responsible for bringing more than two million users onto the internet for the first time. We have driven the internet economy, with two-thirds of users on BBCi's sites going off to third-party web sites. This means that 95% of the internet market is happy with what we do because of that," he says.

The claim that 95% of the market is satisfied with the BBC's position is backed by a leading ISP, AOL UK. Jonathan Lambeth, head of corporate media relations, says that the BBC "has played a very important role in promoting the internet and encouraging take-up".

He supports Highfield's claim that the BBC helps internet businesses by driving traffic to their sites, but adds that it "only remained a small proportion of our total traffic".

BIPA and the other industry bodies are equally adamant that they do not want to see the BBC shut down its online ventures, but they do want to see more stringent regulation from Ofcom of ongoing and future BBC online projects. They also want to see the creation of what they hope will be a "more level playing field".

Whether their hopes are realised remains to be seen, with Graf now facing the unenviable task of listening to argument and counter-argument before presenting his proposals to the government next spring on how the BBC should be allowed to proceed online.

HOW THE NUMBERS TELL TWO STORIES

Pro-BBC Online

- The total market is worth £7.6bn, e-commerce is worth £6.1bn, and internet access is worth £1.3bn. But advertising revenue is worth just £200m, while paid-for content is worth £12m.

- Two million internet users cite the BBC as the reason they first went online.

- £21m annual budget only applied to its first year.

- 65% of BBCi users have clicked through to links from BBC web sites to third-party sites.

Source: KPMG report, June 2003

Anti-BBC Online

- The IAB claims that as a direct consequence of the BBC's dominance online, companies have lost between £17m and £40.4m in advertising revenue in 2003 alone.

- ISBA claims ad revenues on news sites would rise by up to 50% if the BBC were not present in this category.

- BIPA alleges the BBC has overspent on its allocated online budget. In 1998, it was granted £21m funding for its online activities. BIPA claims the BBC now spends more than £75m a year.

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