CONFIDENTIAL
9
XCC(72)14
35
The selection of the correct rate of royalty is not an easy matter in the absence of facts. It is very probable, however, that the establishment of further licensees will reduce TVB's present level of profits and the working party recommends a rate of 25% of net profits (recommendation 85) compared with the existing rate of 10% of gross takings. This rate seems reasonable.
36
It is proposed that this rate should be applied to the second licensee (recommendation 85) and also to TVB (recommendation 86) except in the unlikely event that TVB prefers to retain its existing rate. The new rate will be advantageous to TVB in comparison with the current rate but even if it were not, TVB, in correspondence prior to the grant of its licence, accepted that the rate of royalty could be altered on the renewal of its licence.
37
The working party was divided (recommendation 87) on the rate of royalty to be paid by the third station. This issue is linked with the question of free air-time for ETV (paragraph 18 above) and it is proposed that it should be considered at a later date.
Grant of licences
38
The working party's majority recommendation on the grant of the second wireless television licence is controversial. The issues are considered in some depth in Chapter 16 of the report and in the note of reservation submitted by one member at page 187.
39
The normal procedure is for a licence to be granted only after a public tender. This course was followed, for example, in the grants of the wireless sound licence to Commercial Radio in 1959 and the wireless television licence to TVB in 1965. Rediffusion was an applicant for both licences but was never a serious contender in the eyes of Government as success would have given the company a monopoly.
40
In 1959 and 1965, therefore, a public tender was the obvious course to take. The majority of the working party, however, contends that the situation is now very different. There is already a well-established wireless television service whose success is such that, even if no further wireless television services were to be established, Rediffusion's service, handicapped by the high cost of maintaining the wired network, will eventually be forced to close down. The establish- ment of a second wireless television licensee will lead to the rapid collapse of Rediffusion's service.
41
In this situation the working party considers that "where competition on a tender is between a known applicant already providing a satisfactory service and an unknown applicant, it would not be a good argument that the other applicant may provide an equally good service. The grant of the licence to the unknown applicant could only be justified if there were certainty that it would provide a better service.
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CONFIDENTIAL