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Information Policy & Compliance
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Matt Rogerson
xxxxxxxxxxxxxxxxxxxxxxx@xxxxxxxxxxxxxx.xxx 23 February 2016
Dear Mr Rogerson,
Freedom of Information request - RFI20160238
Thank you for your request to the BBC of 1st February 2016, seeking the following
information under the Freedom of Information Act:
I'd be grateful if you could provide details of mechanism used by BBC public service news to
determine the transfer price paid by BBC Global News Ltd for content initial y paid for by the licence
fee. I am not interested in the actual price paid for content, but rather the formula used by BBC
public service news to determine what that price should be.
Response to your request -
Legal and regulatory framework
The BBC and its commercial subsidiaries are subject to a regulatory framework which
derives from European State Aid law and the BBC Charter and Agreement. Specific
provisions for commercial activity are set out in the BBC Trust’s Fair Trading Framework
and then applied in the BBC Executive’s Fair Trading Guidelines. Taken together these
documents describe both how commercial subsidiaries like BBC Global News Limited
(‘GNL’) can access content and assets initial y funded by the Licence Fee, and also how this
activity is overseen and monitored for compliance.
The BBC Agreement (specifically Sections 68(2) and 75) makes clear that the BBC Public
Service Group cannot carry out any commercial services, nor can the Licence Fee be used
to fund commercial activity. Any commercial services must therefore be provided through
an organisationally separate commercial subsidiary. There are conditions around how these
link to page 1
commercial services operate e.g. they must be services which promote the BBC’s public
purposes, be commercially efficient and must not distort the market.
In 2015, fol owing a review and public consultation which included input from the industry,
the BBC Trust introduced a new framework for the BBC’s commercial services (which
includes GNL). These new arrangements set out the requirements, boundaries and
expectations for the operation of the BBC’s commercial services under four principles
governing:
• strategic alignment between licence fee-funded and commercial services;
• how, where, and when commercial business can be conducted;
• how commercial performance will be assessed and how market distortion will be
prevented; and
• how the necessary financial and operational separation between the publicly funded
and commercial BBC activity will be maintained.
The full detail of this framework can be found here:
http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/our_work/commercial/commercial_fram
ework/commercial_framework.pdf
Transfer pricing
The charging to commercial subsidiaries for access to BBC Public Service assets or services
relies on the application of clear and simple pricing rules based on the principles of the BBC
Executive’s Fair Trading Guidelines. These principles specifically require that the public
service does not cross-subsidise commercial activity.
These pricing guidelines are set out in Chapter 3 of the Fair Trading Guidelines
1. The key
principle of ‘fair transfer pricing’ is that charges for goods and services supplied by BBC’s
Public Service Group should be set in line with prevailing market practice as far as possible.
This means in those circumstances where it reflects the prevailing market practice, it is
acceptable to price assets with reference to incremental costs. In the absence of any
verifiable or comparable information/data on prevailing market practice, prices should seek
to recover all relevant direct costs involved in providing the good(s) or service(s). The latter
direct cost approach also requires an appropriate contribution to the relevant overheads
and for reinvestment in the BBC’s Public Service Group.
In the specific example in your request, where content has been initially paid for with
Licence Fee funds by BBC News and is then re-used by GNL, GNL wil be charged the
1 The Fair Trading Guidelines are available to view at:
http://downloads.bbc.co.uk/aboutthebbc/insidethebbc/howwework/policiesandguidelines/pdf/fairtrading_guidelin
es_010812.pdf
incremental price of making that pre-existing content available to them. In these cases the
public service has acted as the commissioner of the content for public service use and has
full editorial control over that content.
The relationship with GNL (as with all the BBC’s commercial services), including the
application of transfer pricing, is kept under regular review and is subject to external
scrutiny. The application of the Fair Trading Guidelines is subject to an annual audit and the
latest report can be found in the 2014/15 Annual Report and Accounts available here:
http://downloads.bbc.co.uk/annualreport/pdf/2014-15/bbc-annualreport-201415.pdf
Ongoing Trust review of transfer pricing
Alongside the publication of the strategic framework in 2015 the BBC Trust concluded that
it should commission an independent review of separation and transfer pricing practices,
covering the levels of transparency and compliance when the BBC’s commercial services
buy rights to BBC content or pay to use BBC premises or services. The review will
independently assess whether the necessary controls and procedures are being applied to
ensure that fair market rates are being paid.
As set out in the Trust’s work plan for 2016 the findings of this review wil be published:
http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/about/how_we_operate/2016/workplan.
pdf
Appeal Rights
If you are not satisfied that we have complied with the Act in responding to your request,
you have the right to an internal review by a BBC senior manager or legal adviser. Please
contact us at the address above, explaining what you would like us to review and including
your reference number. If you are not satisfied with the internal review, you can appeal to
the Information Commissioner. The contact details are: Information Commissioner's Office,
Wycliffe House, Water Lane, Wilmslow SK9 5AF. Telephone 01625 545 700 or see
http://www.ico.gov.uk/
Yours sincerely,
Information Rights
BBC Legal
