TNAG-0351-FCO40-387-Future-of-broadcasting-in-Hong-Kong-1972 — Page 28

CONFIDENTIAL

XCC(72) 24

(d)

· 4-

·

Tender procedures (recommendations 66-69). subject to certain minor modifications it is proposed that the same procedures should be adopted for the selection of licensees as were employed for the selection of the first wireless television licensee in 1965.

Royalty (recommendations 83-87)

10

The subject of royalty was considered in paragraphs 34- 37 of memorandum XCC(72) 14 where it was proposed that:

(a)

(b)

(c)

royalty should be based on net profits;

the rate of royalty should be fixed by the Government;

the second licensee should be required to pay a royalty of 25% of net profits and that, sub- ject to the licensee's agreement, the same rate should be applied to TVB on the renewal of its licence.

Accordingly it is recommended for the consideration of Honourable Members that recommendations 83-86 made by the working party should be adopted.

11

In recommendation 87 the working party adopted a majority recommendation that the third licensee should also be required to pay a royalty of 25% of net profits. The issue is examined in para- graphs 409-411 of the working party's report.

12

In discussions with the working party TVB advised that revenue on its English service was 10% of that obtained by its Chinese service and that 70% of direct programme costs were attributable to the Chinese service and 30% to the English service. The third licensee (producing only a Chinese service) is likely therefore to have a distinct advantage over TVB and the second licensee. On the other hand the third licensee will lose revenue as a result of being required to transmit ETV programmes on its only service and there is a possibility that the English services may increase their audience at the expense of the Chinese services.

98 L 4 out t

13

It is not possible, therefore, to determine a rate of royalty for the third station which would ensure all three licensees the opportunity to make equal profits. This situation inevitably follows from the decision that while three Chinese services are desirable there is only room for two English services. The other alternatives of three English services, shared English services or bilingual services were rightly rejected by the working party (Chapter 10 of the report refers).

}

CONFIDENTIAL