With BBC Resources finally wearing its long-awaited For Sale sign, speculation is rife about who will eventually own the BBC's studios, OB fleet and post-production operations.
The sale - which is due to be completed by March next year - has also reignited the debate about whether broadcasters and production companies should retain post facilities and technical support in-house or whether these should be provided by an outside commercial company working under an outsourcing contract.
Many of the leading outsource service providers - such as Technicolor Network Services - have always been standalone commercial operations; others were once internal departments or subsidiaries of broadcasters or production companies that were divested and which now operate commercially, sometimes with a contract guaranteeing work from the previous owner.
Former BBC-owned divisions dominate the latter category. The sale of BBC Resources is the latest in a series of divestments by the corporation including the sale of the BBC's technical products and services division, BBC Technology, to Siemens in 2004 and in 2005 of BBC Broadcast, the playout, graphics design and branding department now trading as Red Bee Media, to a consortium led by Macquarie Capital Alliance Group.
Scaling back assets
But what led the BBC to sell so many core assets - and is the strategy sound? The sale of BBC Resources and BBC Broadcast were recommended in a commercial review undertaken by the BBC in 2004, which concluded that the corporation should in future focus on businesses that exported or exploited its brand or content. The corporation had already begun to scale back commercial activities earlier in 2004 with the sale of BBC Technology to Siemens.
The review also recommended that the money made from the sales should be ploughed back into programme-making.
The sale of BBC Resources is expected to raise around £150m in total; which compares favourably with the £150m raised by the sale of BBC Technology and the £166m from the BBC Broadcast sale.
The services provided by BBC Resources were effectively outsourced in 1998 when it separated from the BBC and became incorporated. Since then it has operated at arm's length as a commercially run subsidiary of the BBC. According to a BBC Resources spokeswoman, the sale of Resources is best viewed as a change of ownership rather than as outsourcing since the business model will remain the same. The BBC will still purchase facilities and services from BBC Resources once sold and the BBC production community will still be able to buy production facilities from other suppliers in the market too, which would not be possible in an exclusive outsourcing arrangement.
This places the relationship between the BBC and a commercially owned Resources on a very different footing to that between the BBC and the divested BBC Technology, now owned by Siemens. As Siemens IT Solutions and Services, the former BBC Technology division is providing technical support and hi-tech infrastructure to the BBC on a 10-year outsourcing contract worth an estimated £1.9bn. One of the first major projects it undertook was the supply, installation and support of equipment at BBC Scotland's new broadcast centre at Pacific Quay in Glasgow. It is also working on the continuing installation of new facilities at the Broadcasting House West 1 site in London.
Tech sale 'makes sense'
According to Keith Little, the BBC's chief information officer within the Future Media and Technology division, who negotiated the IT streams portion of the outsourcing deal with Siemens, the BBC Technology sale makes strategic sense. He maintains that the increasingly complex nature of modern-day broadcast operations require similarly sophisticated IT systems together with the necessary skills to operate them. Therefore having a supplier experienced in that field made more sense than trying to adapt an existing internal department to do the job.
'Installing and running desktop systems is a huge expenditure,' Little explains, adding that the BBC does not have the necessary economies of scale to deliver value for money if it provides those services internally. He goes on to explain that a company that does have the necessary economies of scale can leverage it to support a great number of desktops.
However, the sale of the technology arm has not been without controversy. In June this year the House of Commons public accounts committee (PAC) issued a report that criticised BBC management's handling of the sale, claiming that inexact figures were given to the BBC governors in 2004 when they were asked to approve the sale. As a result, claimed the PAC, in the first year of the contract with Siemens, savings were 38% lower than the BBC's original forecast.
A statement issued to Broadcast on behalf of the BBC Trust pointed out that a National Audit Office report published by the governors in July 2006 had concluded that the deal with Siemens was achieving savings and that performance against targets was high. 'To date the contract has delivered £55m savings and is forecast to deliver in excess of £275m over the life of the contract in addition to the £150m Siemens paid for BBC Technology at the outset of the partnership,' it said.
The statement added that the NAO (National Audit Office) report highlighted that the savings were not 'fully in line with the figures reported to the governors in September 2004'. Following the creation of the BBC Trust, the Trust has its own advisers who provide an independent resource to examine investment proposals, including large outsourcing contracts, and review their progress.
So does the BBC Technology sale provide a salutary lesson about the complexities involved in outsourcing?
As an independent consultant, Adrian Scott, who now works for Pro-Bel, wrote a due diligence report for Ernst & Young which was advising the BBC on the sale of BBC Broadcast. 'I'm sure people have learned a lot from the sale of BBC Technology. Many see it as a good move, and that experience will be used in how the divestment of BBC Resources is handled,' he comments. 'Others think an organisation must be mad to outsource its technology, which is a core business.'
The difficulty can come, Scott says, when an outsourcing company has the skills and expertise to fulfil some but not all of its clients' requirements. In the case of Siemens it had a strong background in IT but had less knowledge of broadcast engineering. For its part, Siemens agrees that at the time it bought BBC Technology, the company had 'relatively limited' experience of broadcast engineering. The company adds that although it does have a subsidiary that fits out OB vans and studios, and work was being done in IPTV 'prior to the contract, we did not have experience of large-scale projects.' Both Siemens and the BBC maintain that as part of the contract Siemens acquired skills and experience in broadcasting that it added to its own skills. The BBC retained some specialist engineering activities, such as coding, in-house because they fell outside the scope of the outsource agreement with Siemens.
The sale of BBC Broadcast - now Red Bee Media - to a consortium led by Macquarie Capital Alliance Group in August 2005 was arguably less controversial than that of BBC Technology, whose technical infrastructure and products were seen as core to a broadcaster's way of doing business. Chris Howe, director of emerging technology at Red Bee, says BBC Broadcast had been providing a 'good, steady service' as part of the BBC but the broadcaster did not feel the necessity to own the department any longer.
'The BBC has control over what its channels look and feel like and we make that happen for them,' explains Howe. 'We're providing a service in a competitive market. Not only is there a service level agreement within the contract which we have to meet, but we have to retain the contract to stay in business. That gives us the incentive to keep on the ball, achieve lower costs and provide new technology.'
Beyond the BBC, the most common example of outsourcing is channel playout. One leading provider of these -services is Arqiva Satellite Media Solutions. Its studio centre at Chalfont Grove was originally part of the Services Sound and Vision Corporation, providing facilities for the British Forces Broadcasting Service (BFBS). Currently owned by a consortium of investors headed by the Macquarie Communications Infrastructure Group, Arqiva is a fully commercial provider of playout and post-production facilities and uplinks, as well as studios.
Head of marketing services John Dunlop says outsourcing is now more common in broadcasting - for a good -reason. 'Five years ago servers for playout came within the realm of broadcast -technology.' he says. 'Now they're based on IT systems. So the people operating them have to be retrained and if a company isn't outsourcing then its costs increase because it may have several sites to staff and upgrade.'
Technicolor Network Services is another leading provider of playout -facilities. Its clients include ITV, French international news channel France 24, Canal+ and Disney.
Will Berryman, senior vice-president for business development, maintains that outsourcing is a 'viable option' for businesses of different sizes and has been the case in television for some time. Berryman comes from a public service broadcast background in Australia and understands the reservations some have over outsourcing, particularly the concerns large organisations might have that they are not directly running their own facilities.
Focusing on content
Commenting on the BBC's divestments, he says the corporation 'did a very brave thing' in outsourcing so many of its service requirements, adding that these days PSBs have a responsibility to create content, not to run facilities. He observes that commercial suppliers are able to re-invest on a more regular basis than publicly funded broadcasters and that all clients benefit from regularly upgraded facilities.
Outsourcing is now a key part of how modern broadcasters operate. How much further people will go in contracting out operations remains to be seen. Arqiva's Dunlop anticipates an increase in the outsourcing of uplinking and space segment provision as well as storage facilities for broadcast archives. Arqiva is already storing approximately 10,000 hours of material for clients at its playout centre and this is growing by 200 hours a day.
Many in the broadcast market are still deciding whether outsourcing makes sense - especially as lower kits costs, particularly for editing software, are persuading some indies to take part or all of the post functions in-house. However, Red Bee's Chris Howe comments that outsourced operations can be run more vigorously than if they were internal departments of a large, amorphous organisation.
In addition, as competition for viewers increases broadcasters are now concentrating more on their programming and letting someone else worry about how it gets to the viewer. As Technicolor Network Services' Will Berryman says, if a TV boss is in a taxi the driver is more likely to say 'I think your shows are really great' than 'I think your master control room is really great'.
BBC Resources sale countdown
The process for selling BBC Resources began officially on 16 August this year, with advertisements heralding the sell-off placed in the Financial Times, The Timesand Broadcast. The sale of the BBC's studios, post-production and OB services division has long been expected and is a continuation of the public broadcaster's policy of divesting itself of non-core activities.
There was speculation that the various parts of BBC Resources could be sold off separately but in the official statement, project director Andrew Thornton, who is heading the sales, said: 'We are looking for a partner that will nurture [the skills and expertise within the division] and continue to work closely with us to provide the unrivalled quality of services we need, as well as to capitalise on this in the wider industry.' The reference to 'a partner' could imply a single buyer is being sought.
In the current financial and business climate, the bidder is likely to be a private equity company, although some of the big media groups may make a bid.
The sale of BBC Resources and transfer of its staff are expected to be completed by the end of March 2008, subject to contract negotiations and approval from the BBC's executive board and the BBC Trust.
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