CONFIDENTIAL
XCC(72)14
31
8
In recommendation 48 the working party, after having examined conservatively-based cost and revenue projections in paragraphs 209 - 215, considers that by 1973 there will be sufficient revenue to sup- port two licensees operating both Chinese and English services. Para- graphs 274 - 279 project these cost/revenue estimates forward on what seems to be a reasonable basis and the working party in recommendation 59 concludes that by 1975 there will be sufficient revenue available to support a third licensee operating a Chinese service only (assuming, of course, that the second licensee is established by early 1973). In paren- thesis, however, the working party, while recommending that undesirable features of cigarette advertising should be prohibited, points out that a complete ban would have serious effects on the amount of advertising revenue available (recommendation 47).
32
Of the six services that are technically feasible the working party advises that one should be reserved for possible future needs (recommendation 56). The remaining five are accordingly allocated to TVB and the two new licensees (paragraph 168 and recommendations 58 and 60).
33
The working party recommends that the second licensee should commence broadcasting as soon as possible after the expiry of TVB's monopoly on 19th November 1972 (recommendation 57). The working party was equally divided on when the third licensee should begin transmissions (recommendation 60) but an acceptable compromise solu- tion would be for it to be established two years after the second licensee starts broadcasting. Referring back to its favourable view of vocational training by pay-television (paragraph 28 above) the working party con- siders that the third licensee's programme could include the provision of specialised services by means of pay-television (recommendations 60 and 64).
Royalty
34
Two principal recommendations are made on royalty. Firstly it is recommended that royalty should, in future, be based on profits and no longer on gross takings (recommendation 83). The reasons (which are considered to be sound) for changing the existing basis are set out in paragraphs 389 - 401 of the report. Secondly it is proposed (recommendation 84) that the rate of royalty should be decided by the Government and should not be a matter for tender. As pointed out in paragraphs 402 3 of the report the 1965 Television Selection Committee did not consider royalty offers to be a significant factor in the choice of a suitable television licensee. Experience has shown that offers of royalty in tenders of this nature are not necessarily based on a realistic com- mercial appraisal of the financial advantages to be derived from the con- cession. In addition the intention of charging royalty is to obtain a rea- sonable payment for a franchise rather than to maximise the return to public revenue and, of course, the highest rate tendered does not neces- sarily guarantee the highest return. If therefore royalty is to be excluded from tender procedures the selection of a suitable licensee will be based on the other factors which include composition of the company, financial standing and the technical and programme proposals. In selecting a suitable television licensee it is considered that these factors are more important than the rate of royalty offered.
CONFIDENTIAL