BBC Fair Trading: BBC Worldwide Group Trading Manual

BBC Fair Trading: BBC Worldwide Group Trading Manual 20 December 2017 1

Introduction This document sets out the specific arrangements the BBC is implementing to set charges for the goods and services BBC Worldwide Limited ( BBC Worldwide ) obtains from the BBC Public Service. Many of these arrangements, and supporting Service Level Agreements, are in place. The BBC expects that all of the arrangements described in this document will be fully implemented by the 2018-2019 financial year. Table 1 summarises the goods and services BBC Worldwide may use from the BBC Public Service and for which there are arrangements in place. BBC Worldwide will not necessarily use all of these services on a regular basis. Table 2 summarises the goods and services that BBC Worldwide may provide to the BBC Public Service. Table 3 summarises the commercial agreements BBC Worldwide has with the BBC Public Service that allow it to exploit intellectual property (IP) owned by the BBC Public Service. This document describes the methodologies in place where BBC Worldwide either currently pays the BBC Public Service for these rights, or where BBC Worldwide expects to have the option to invest in new IP developed by the BBC Public Service. Tables 1, 2 and 3 also describe the BBC s approach to charging for these goods and services. The remainder of this document further describes all goods and services traded between BBC Worldwide and the BBC Public Service. The BBC has carried out an internal review to ensure that all services potentially traded between the BBC Public Service and BBC Worldwide have been covered by this Manual. This included: A review of activity from both BBC Worldwide and the BBC Public Service; A review of transfer prices from the prior BBC Trust Fair Trading regime; and An accounting review from the BBC s finance accounting team. The activity, service and finance reviews provide assurance that all significant costs are covered by the transfer pricing arrangements. Where any additional or new service activity is identified between the BBC Public Service and BBC Worldwide or one of its subsidiaries, then an appropriate transfer pricing process will be put in place. Part of the annual budget process will include a review of the transfer pricing arrangements. This will identify the need for any changes to these arrangements. This Group Trading Manual will be updated each year and published via the BBC website. Each year details of any changes to these methodologies and the impact thereof will also be set out. 2

Table 1: Summary of BBC Worldwide transfer pricing from the BBC Public Service Services Provided Price Basis Rationale Apportionment Methodology Archives Archive - including material for Motion Gallery Based on usage of archive and associated services, including staff time Commercial Rights and Business Affairs (CRBA) CRBA Central Operations and Support Based on usage of CRBA systems, advice, and support, including staff time External Communications External communications Based on usage (staff time) Press Cutting Service Market price from contract agreed with external supplier Based on pass through cost of BBC Worldwide subscribers as a percentage of total users Finance Centre of Excellence (COE) Based on usage (staff time) 3

Business Process Operations (IBM Outsourced Processes) Market price from contract agreed with external supplier Based on proportion of BBC Worldwide spend of total BBC spend Finance staff Based on number and type of FTE allocated to BBC Worldwide Tax and Treasury Based on usage (staff time) HR HR Admin Based on BBC Worldwide dedicated FTEs as a proportion of total BBC Group s FTEs HR Admin Outsourced Market price from contract agreed with external supplier Based on pass through of costs based on BBC Worldwide s allocation by headcount of relevant services HR Staff Based on number and type of FTE allocated to BBC Worldwide Internal Communications & Engagement (including Diversity & Based on allocation by headcount, including 4

Inclusion) staff time Legal Legal assistance and advice across the BBC Group Based on usage (staff time) Marketing & Audiences Marketing & Audiences Staff Based on number and type of FTE allocated to BBC Worldwide Audience Data bespoke reports or research If commissioned from third parties: Market price from contract agreed with external supplier Based on pass through of third party cost for BBC Worldwide If undertaken by BBC Public Service: Based on reports or research commissioned, including staff time Creative Services Based on creative services provided, including staff time Pensions BBC Group pension schemes Based on cost of pension scheme provided to BBC Worldwide staff (i.e. number of BBC 5

Worldwide staff with pension schemes) Policy Policy Based on usage (staff time) Procurement Corporate Insurance Market price from contract agreed with external supplier Based on BBC Worldwide proportion of cover required from the total market price BBC group pays for insurances. Corporate Insurance support costs Based on usage (staff time) Procurement and Central Agency Based on usage (staff time) Procurements via preferred supplier lists Market price from contract agreed with external supplier Based on pass through of price of items procured by BBC Worldwide Property 6

Office space in the UK and Overseas Based on floor space occupied by BBC Worldwide (m²) Quality, Risk & Assurance Internal Audit and Risk; Safety, Security and Resilience Based on usage (staff time) and number and type of FTE allocated to BBC Worldwide Simultaneous European Relay Procurement of SER arrangements overseas in relation to the BBC Public Service channels Based on fees payable to the BBC Public Service minus gross commission as taken by BBC Worldwide Strategy Subscription Service Market price from contract agreed with external supplier Based on allocation of third party costs to BBC Worldwide Technology Technology staff Based on usage (staff time) Core Technology Service and End User Compute Service ( EUC ) Market price from contract agreed with external supplier Based on use of relevant service by BBC Worldwide s users 7

Non-Core Technology Service (other non-core) If commissioned from third parties: Market price from contract agreed with external supplier Based on use of relevant service by BBC Worldwide s users If undertaken by BBC Public Service: Based on allocated cost to BBC Worldwide Training BBC Academy Face to face and online training courses Based on use Development of new courses; training courses and events (Masterclasses) Based on the price to develop/deliver new courses for BBC Worldwide, including staff time Training Courses and Events: Informal Events N/A no charge these course/events are provided free of charge as they are open to external third parties as well as to BBC Worldwide New Talent Schemes Based on use of new talent schemes by BBC Worldwide, including staff time Other Based on use, including staff time where 8

relevant 9

Table 2: Summary of BBC Worldwide transfer pricing to the BBC Public Service Services Provided Price Basis Rationale Apportionment Methodology Content Rights Management Management of repeat fees range; BBC Worldwide then uses its internal cost base to set a transfer price in line with the market benchmark Based on usage (staff time) Finance Business Process Operations If commissioned from third parties: Market price from contract agreed with external supplier Based on proportion of the BBC Public Service spend of total BBC Worldwide spend or pass through based on the BBC Public Service s use of relevant service If undertaken by BBC Worldwide: Verifiable, comparable information on market price range; BBC Worldwide then uses its internal cost base to set a transfer price in line with the market benchmark Based on usage (staff time) Pensions Private pension schemes Market price from contract agreed with external supplier BBC Worldwide pays a private pension provider for this service provided at market price Based on cost of pension scheme provided to BBC Public Service staff (i.e. number of BBC Public Service staff who are members of private pension schemes) Procurement Procurements via preferred Market price from contract Based on pass through of price of items 10

supplier lists agreed with external supplier procured by BBC Worldwide on behalf of the BBC Public Service Property Office space overseas Market price from contract agreed with external supplier BBC Worldwide procure property at a market rate and pass through cost. Based on floor space occupied by the BBC Public Service (m²) Technology Non-Core Technology Service (other non-core) Market price from contract agreed with external supplier Based on use of relevant services provided to the BBC Public Service by BBC Worldwide 11

Table 3: Summary of BBC Worldwide s rights acquisitions from the BBC Public Service Services Provided Price Basis Rationale Apportionment Methodology Rights acquisition Upfront investment (to acquire rights) in BBC in-house production Market price derived by benchmarking for a licence to exploit IP The BBC Public Service benchmarks prices charged to BBC Worldwide against the prices paid by third parties for equivalent rights Based on a separate licensing agreement which specifies the prices for each title. Rights archive licensing Market price derived by benchmarking for a licence to exploit IP The BBC Public Service benchmarks prices charged to BBC Worldwide against the prices paid by third parties for equivalent rights Based on a separate licensing agreement which applies pre-agreed commercial terms for the rights licenced in respect of each title. 12

Further description of goods and services the BBC Public Service may provide to BBC Worldwide ARCHIVES The Archives team provides an Archive Library Service which includes the provision of research, management and loans services to facilitate access to and management of BBC archive content including the duplication and provision of content which is made available via BBC Motion Gallery and for which BBC Worldwide pays the BBC Public Service. BBC archive content is any content created during the production process plus any accompanying business records that meet selection criteria set by BBC Archives. BBC Motion Gallery is a footage licensing service provided by BBC Worldwide, offering creative professionals and clients a collection of stock footage with licensing worldwide. BBC Motion Gallery also produces and distributes short form programmes for broadcast on television and new media platforms. The Archive Library Service is charged on a pay-as-you-use basis when required by any production company, including BBC Worldwide. BBC archive content can be accessed via a number of different BBC Archive Systems and Nations Archive systems. The Archives team also manages a number of third party licensing and subscription services. If BBC Worldwide wants to access Third party licensing and subscription services for non-bbc (i.e. commercial) purposes, BBC Worldwide will pay the BBC Public Service market rate for these based on the costs that the BBC Public Service pays for its subscriptions. COMMERCIAL RIGHTS AND BUSINESS AFFAIRS CRBA Central Operations and Support The CRBA Central Operations service provides support services such as ACON, Fast Clear and Compliance Manager systems, including processing and support in relation to queries relevant to ACON, and tracking existing rights. The CRBA Central Support service provides advice and support from the BBC s central CRBA team, and includes lobbying and negotiating deals with talent unions and rights owners on behalf of BBC Worldwide as part of the BBC Group. The Central Support service also includes support and advice provided by technology lawyers. Given the nature of these services, appropriate safeguards are put in place (including NDA s, confidentiality clauses, Terms of Use) where relevant to ensure that information is kept confidential. EXTERNAL COMMUNICATIONS External Communications Service 13

The External Communications service includes weekend and out of hours support and advice on issues regarding public relations, the media and public affairs specific to BBC Worldwide, designed to help promote BBC Worldwide's services and talent to the global creative industry, and/or defend BBC Worldwide's reputation when necessary. There are a number of External Communications posts in Press/Media Relations and/or Public Affairs that are part dedicated to BBC Worldwide on an ongoing basis offering aforementioned support to BBC Worldwide. Press Cutting Service The Press Cutting service includes early bird round ups, BBC daily media news and BBC national press for BBC Worldwide staff identified by the business. FINANCE Centre of Excellence (COE) The Finance Centre of Excellence (COE) represents Finance and Accounting costs of a team working exclusively for BBC Worldwide, and consists of activities required to assist production of BBC Worldwide s Management and Statutory Accounts. This cost also includes undertaking various month end accounting processes and GL reconciliations, in addition to responding to queries and maintaining financial data. Business Process Operations The BPO service may comprise the following elements which are outsourced as a commodity service to IBM such as: Purchase to Pay, Expenses and Advances, Contributor Payments, Order to Cash, Payroll, and Application and Infrastructure Management. Tax and Treasury The Tax team provides stewardship and controllership to all matters relating to corporate and employment taxes and VAT. The Treasury team provides stewardship and controllership to all matters relating to Treasury, including cash and liquidity management. HR HR Admin HR Admin is an HR service centre, providing services such as general HR advice, support and guidance, on boarding, HR helpdesk, benefits and pension information, and freelance management. Other services are provided by specialist outsourced suppliers. HR Staff The HR function plays a business partnering related role, with a focus on forward looking, large scale and/or high-impact people, talent and Organisational Design (OD).. 14

There are a number of posts within HR that deal exclusively with BBC Worldwide. Internal Communications & Engagement (including Diversity & Inclusion) Internal Communications & Engagement manages BBC-wide internal communications channels including: Ariel, online news for employees, Gateway, the staff intranet, Team Talk, the monthly briefing for managers, internal campaigns and advice to senior management. The Diversity & Inclusion service includes the provision of BBC Group diversity and inclusion policies and strategies, to enable BBC Worldwide to draw on the widest possible range of experiences, talent and ideas. LEGAL The Legal department provides legal assistance and advice across the BBC Group. BBC Worldwide is able to engage and seek counsel from the following legal departments: General Counsel s office, commercial legal, litigation, employment law, intellectual property; workplace, and competition legal. MARKETING AND AUDIENCES Marketing & Audiences Staff The Marketing & Audiences team provides analysis and advice on audience data, reporting and insight requirements for BBC Worldwide, as well as effective and impactful marketing and social media campaigns. Marketing services include brand strategy and brand management, media planning and buying, reputation management, and TV social media strategy. Audience services include supplying and reporting audience data, audience insight and audience planning and creative strategy. There are a number of posts within Marketing and Audiences that deal exclusively with BBC Worldwide. Audience Data BBC Worldwide receives reports on audience data visiting its websites both from the BBC Public Service via a third party supplier and also commissions bespoke reports or research from the Marketing & Audiences team. Bespoke reports are charged to BBC Worldwide. Creative Services Creative Services involves the provision of show reels, packaged clips, promotional reels, unit stills, iconic shots, design work (including guidelines and imagery) and copywriting, as requested by BBC Worldwide. PENSIONS The BBC s principal pension scheme offered to all staff is its defined contribution pension scheme, LifePlan. This scheme offers to match employee s contributions; the average matched contribution is eight per cent. In addition to this scheme, the BBC also has a number of legacy defined benefit pension schemes which are closed to new members but remain open to new accrual by existing members. BBC Worldwide staff includes members of both schemes. The BBC Public Service staff who work with BBC Worldwide are also members of both schemes. 15

POLICY The Policy team helps the BBC achieve its aims by: managing the BBC s relationship with the UK Government, Ofcom and European Union political institutions; developing positions on public policy issues affecting the BBC at UK and EU levels; advising on public policy and regulatory developments relevant to the BBC, including the BBC Charter and Agreement and Ofcom s Operating Framework; and supporting the development and regulatory approval of the BBC s strategic priorities under the Charter and Agreement framework. BBC Policy generally provides a service for the BBC group, not for BBC Worldwide. PROCUREMENT Corporate Insurance, including support costs Corporate Insurance and Support provides specialist insurance advice on insurance coverage, management and payment of claims falling within the corporate insurance arrangement; and ensures global compliance statutory and contractual insurance requirements in the UK and abroad. Procurement and Central Agency & Preferred Supplier Lists The Procurement Agency service involves provision of procurement advice, support and contract management regarding high volume/low value procurements using preferred supplier lists and internal BBC systems. Central Agency provides services including authorising procurement requests, advice and support over the best routes to buy, engaging with suppliers and ensuring preferred suppliers are used where possible. PROPERTY BBC Worldwide uses office space in the UK and overseas under licence from the BBC Public Service. A charge for each location is determined, based on a market benchmark on the price of equivalent class of office space in the same geographical location (e.g. a cost per m²). It is also cross checked against the total cost for the building, including relevant overheads like maintenance costs based on the most recent information. This price is then broken down based on the Net Internal Area (NIA) for that building to arrive at a cost per m². BBC Worldwide is then charged based on the proportion of the NIA it uses. QUALITY, RISK & ASSURANCE (QRA) Internal Audit and Risk The Internal Audit department is an independent, objective assurance and advisory function. It involves the assessment of the effectiveness of BBC s internal controls, management of financial risk and compliance with regulation and policy. Safety, Security & Resilience (SSR) Group The SSR Group is a corporate function that routinely provides professional, technical and operational support to BBC Worldwide, and is available 24/7, including duty officers. 16

SIMULTANEOUS EUROPEAN RELAY AGREEMENT BBC Worldwide acts as an agent for the BBC Public Service in relation to the exploitation of the BBC Public Service s rights to transmit and authorise the transmission of the BBC Public Service channels and programmes included in those television services by means of simultaneous European relay. BBC Worldwide takes a commission for this service and passes the remainder of the fee back to the BBC Public Service. STRATEGY Subscription Service The Strategy team subscribes to a number of external subscription services, of which BBC Worldwide pays for access to a small number. TECHNOLOGY Technology Staff The Technology team sits within the Design & Engineering division of the BBC. Design & Engineering delivers products, platforms and services globally, supporting the BBC's digital products and services. Technology Staff are employed by the BBC Public Service and provide technology expertise and direction to BBC Worldwide to ensure the effective delivery of all technology services that drive BBC Worldwide s operations. There are a number of posts within Technology that deal exclusively with BBC Worldwide. Core Technology Service and End User Compute (EUC) Service The Core Technology Service consists of technology governance, information security, telephony service, circuits and networks, supported applications, specialist change support, infrastructure storage, core and technology support. The EUC Service relates to system access and software licensing for each user within BBC Worldwide. Non-Core Technology Service The Non-Core Technology service involves providing digital products and/or services, such as software development, software licensing, software tools, content management services, publishing infrastructure, operational services, hosting and distribution services, and Research & Development (R&D) products and services. TRAINING BBC ACADEMY Training Courses and Events 17

BBC Academy is the BBC s in house training department, which provides a number of training services pan- BBC, including training courses and events. New Talent Schemes The New Talent department is responsible for the overall management of apprenticeships, trainee schemes and other pre-entry programmes in the BBC. The service involves talent attraction, recruitment, sourcing and management placements, induction, financial management, training and pastoral care. 18

Further description of goods and services BBC Worldwide may provide to the BBC Public Service CONTENT RIGHTS MANAGEMENT BBC Worldwide manages the administration of royalty and repeat fees to actors and writers for the content it distributes. As part of this service, BBC Worldwide administers fees for repeats and other uses payable by the BBC Public Service and charges them for the costs of this service. There are NDAs in place to protect sensitive and confidential information handled in this process. FINANCE The BPO service comprises the following elements which are outsourced such as: Purchase to Pay, Expenses and Advances, Contributor Payments, Order to Cash, Payroll, and Application and Infrastructure Management. BBC Worldwide administers local currency payroll for the BBC Group s overseas office(s), including for staff employed by the BBC Public Service, for which a charge is made to the BBC Public Service. In addition BBC Worldwide administers some central Finance functions overseas, including payroll, processing supplier invoices, reimbursing staff expense, issuing recharge invoices and posting journals. PENSIONS BBC Worldwide provides and administers private pension schemes for BBC Public Service employees in certain overseas offices for which the BBC Public Service pays BBC Worldwide. PROCUREMENT As part of its ongoing business activity, BBC Worldwide sends staff members to trade shows such as MIPCOM, MIPTV etc. Additionally, staff members of the BBC Public Service will attend. From time to time, BBC Worldwide will administer bookings for such events (including the BBC Public Service) and recharge costs to the BBC Public Service for costs incurred by their attendees. PROPERTY The BBC Public Service uses office space in a number of overseas offices under licence from BBC Worldwide. 19

TECHNOLOGY The Non-Core Technology service involves providing digital products and/or services, such as software development, software licensing, software tools, content management services, publishing infrastructure, operational services, hosting and distribution services, and Research & Development (R&D) products and services. 20

Further description of BBC Worldwide s content acquisitions from the BBC Public Service Upfront investment (to acquire rights) in BBC in-house production BBC Worldwide has historically invested upfront in the rights to BBC in-house productions, to which the BBC Public Service owns the IP to share the costs of production. In certain exceptional cases BBC Worldwide will also pay a share of profits back to the BBC Public Service. Each piece of content has its own licence agreement, which specifies the rights BBC Worldwide has to exploit the IP, as well as the investment paid to the BBC Public Service. The majority of licences are based on standard terms agreed between BBC Worldwide and the BBC Public Service; all investments are made on market terms. BBC Worldwide will continue to have the option to provide upfront investment to the BBC Public Service in-house production, such as Radio/Audio, Children s, Current Affairs and potentially Nations commissions. Under this arrangement BBC Worldwide would make a one-off investment in the cost of producing a particular programme, to obtain a licence to exploit the IP for a specified period of time. The BBC Public Service has used, and will continue to be able to use, the open offer benchmarking process to ensure that the price BBC Worldwide pays is in line with the market price for BBC commissioned content. BBC Worldwide will also have the option to re-invest in the BBC Public Service content when existing licences expire. This would also be based on standard terms. Rights archive licensing Rights archive licensing involves BBC Worldwide contracting with the BBC Public Service to licence specified rights to exploit the BBC Public Service s IP for a defined period of time. BBC Worldwide pays an ongoing return to the BBC Public Service (e.g. a royalty or share of the net profits BBC Worldwide makes from exploiting the rights acquired under a specific rights archive licence). Rights archive licensing relates specifically to programmes that have already been commissioned (i.e. no distributor licenced the rights before production or otherwise has licensed the distribution rights). BBC Worldwide has licences in place to exploit the BBC Public service IP across a range of genres from BBC inhouse production, reflecting the range of BBC in-house productions historical output. Each piece of content has its own licence, which specifies the rights BBC Worldwide has to exploit the IP, as well as the payment to the BBC Public Service. The majority of licences are based on standard terms agreed between BBC Worldwide and the BBC Public Service and were made on market terms (at the time such terms were entered into). BBC Worldwide will also have the option to relicense BBC Public Service IP when rights archive licences expire. This would also be based on standard terms. Returning series For returning series, spin offs, or recommissions BBC Worldwide may have already licenced the rights (in line with the approach described above) to distribute BBC Public Service IP, but BBC Studios or a third party producer may now be responsible for producing a programme. Any new licensing agreement between the BBC Public Service and BBC Worldwide in respect of the returning series or spin-off will be on similar standard terms by separate individual licence. 21