Committee Reports > List of Committees > Joint > 1981 > Committee on State Sponsored Bodies > Report No. 18 - Radio Telefís Éireann

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Máirt, 25 Samhain, 1980

Tuesday, 25 November, 1980

Members Present:

SENATOR EOIN RYAN in the Chair

RADIO TELEFÍS ÉIREANN

Mr. Patrick J. Moriarty, Chairman; Mr. George T. Waters, Director-General; Mr. T. Vincent Finn, Deputy Director-General; Mr. Robert K. Gahan, Assistant Director-General; Mr. Gerard O’Brien, Financial Controller; Mr. Conor B. Sexton, Director of Personnel and Mr. Brian MacAongusa, Assistant to the Director-General, of Radio Telefís Éireann, called and examined.

1. Chairman.—I refer to your statutory obligation under section 24 of the 1960 Act. It states that the Authority is required to secure that its revenues are at least sufficient to meet all current costs and to provide suitably for capital expenditure. As regards capital, that has not been done over the years, and in at least two years, 1975 and 1979, you did not cover current expenses. Would you like to comment on why that has occurred and what you think your position will be in the next two or three years.

Mr. Moriarty.—We are satisfied we can comply with the statutory obligation of section 24. In 14 of the 19 years, surpluses have been recorded. We have had problems in the past two years but they were completely outside the control of RTE. In 1979, for example, there was a postal strike during the course of which television licences were not issued. When the strike was over, people got licences from a current date with an irretrievable loss of £1 million. That was a big factor in the last two years. In 1979, as well, there was a completely unbudgeted programme, the visit of the Pope, which cost RTE £600,000 in cash. That was an unusual and non-recurring item. They were the main reasons for those deficits. As I have said, in 14 of the 19 years we had surpluses. The balance of trading in that period shows surpluses of £5 million and deficits totalling £1½ million. RTE, among all State companies, is alone because we do not have real control over revenue. The amount of the licence fee is fixed by the Minister for Posts and Telegraphs, and the other portion of our income, advertising, we must work for by increased effort. We believe we have great difficulty complying with that statutory obligation.

2. Chairman.—Current needs have been provided for but the obligation in regard to capital needs has not been met. Is that so?

Mr. Moriarty.—That is so. The extent to which capital needs can be met depends on the level of licence fees. RTE aims to finance approximately 50 per cent of capital expenditure. It would suit RTE to be able to finance capital expenditure out of revenue, but we do not have any control over that. If the licence fee was sufficient to give a surplus to cover all capital expenditure, it would be better longterm than having to borrow at high interest rates.

3. Senator Cooney.—Would you comment on the level of your licence fee by comparison with other countries?

Mr. Moriarty.—I will ask my colleagues to do that, but the short answer is that having regard to population figures we have the second lowest or third lowest licence fee in Europe.

Mr. Waters.—Until the new fee comes into effect we are the second lowest in the league table of 13 European countries. Ours is £38. Italy is £31, and the next lowest are £42.50 in Britain and £50 in Finland.

4. Senator Cooney.—Do they have advertising revenue there?

Mr. Waters.—Yes. We have figures on that. Some have advertising, some do not. A good number have.

5. Senator Cooney.—Do they provide greater technical services than you?

Mr. Waters.—Some countries have only one television service. Denmark has one, Norway has one, and in both cases the licence fee is nearly double ours.

Mr. Moriarty.—We could give details of actual broadcasting hours in a number of those countries and the level of their licence fees.

Mr. Waters.—Since 1976 our contribution to capital development has increased from 15 per cent to 54 per cent. In 1980 we financed 54 per cent of our capital development from depreciation and surpluses. Our reliance on Exchequer capital has decreased over that period. That is a very interesting development. To some extent, we also use credits to finance our capital programme, but to a lesser extent than our Exchequer advances and our contributions towards it.

There are a number of ways of interpreting section 24 of the Act, which says we should make suitable provision with respect to capital expenditure. We have to bear the burden of interest charges on any money we borrow from the Exchequer, and they are all repayable advances. Only this year we have started to repay our initial drawings from the Exchequer.

6. Chairman.—You owe something like £19 million. Is that correct?

Mr. O’Brien.—We will owe £18.4 million at the end of December 1980 and we are repaying it on a 30-year annuity basis to the Exchequer. Over the next couple of years the main amount of repayment to the Exchequer in relation to these loans will be interest and the capital proportion will be small. As time progresses, the capital proportion will get greater. When that happens the need for greater cash flows to finance our capital expenditure will arise. At present, we are working on a basis of roughly break-even accounting. In a period of inflation the amount of depreciation being generated is not sufficient to keep up-to-date with the price of renewal. That creates a problem in relation to the financing of our capital programme because we are not generating sufficient cash flow to finance a greater part of the capital programme from our own resources than we are at present.

7. Chairman.—You are starting now with £18.4 million and over the next few years you will have pretty heavy capital expenditure, as well as paying that £18.4 million over 30 years, and you will have to be able to do that out of your own resources, or borrow further money. Is that correct?

Mr. Waters.—Yes. In order to finance our forward capital programme we will have to borrow from the Exchequer or from other sources at a rate equivalent to that at which we are borrowing now. It should cost from about £6 million to £7 million.

8. Senator Hillery.—How do you propose to restructure your operations?

Mr. Moriarty.—We believe we do not have to restructure them. As Mr. O’Brien was explaining, from the beginning, we have been paying interest on our loans from the Exchequer, which are all repayable over a 30 year period, but because of the incidence with which we have borrowed over the years, it has not been £18 million from the beginning. The initial instalments will be relatively small and they will build up over a long period. They do not present us with an immediate problem. We expect, when we get back into a surplus situation when we get an increase in licence fees with effect from 1 December, that the overall viability of the organisation will enable us to repay those advances without any major restructuring of our finances.

Mr. Waters.—In our forward budgeting for next year we included the amount to be repaid to the Exchequer in our normal budgeting procedures. We have now budgeted to break even. This means we made some cuts in our expenditure in the coming year because of the unexpected delay in the application of the new licence fees. We still have made provision for the first repayment of the Exchequer advances.

9. Senator Hillery.—Great importance has been attached to the level of licence fees. In that context, what improvement can be effected in the present system of licence fees collection?

Mr. Moriarty.—The collection of licence fees is unsatisfactory. We estimate there is £6 million involved in the evasion of licence fees. Licences are issued by the Department of Posts and Telegraphs. We had discussions with the Minister. He appreciated the problem this presents to the financing of RTE. We believe the whole operation would be more efficient if it were based on a modern computer system similar to that which applies in most countries. The follow-up operation would certainly be more effective.

The Minister understands our problem. We agreed last July to set up a joint study group representing RTE and the Department to examine the feasability of doing this more effectively than is being done at present. We nominated our representatives on that study group which as yet, has not had its first meeting. We see all kinds of options for collecting these fees. One is that there should be a special unit in the Department which would have no responsibility other than collecting licence fees and which would give this the priority it deserves and should be based on a modern computer system. It would be in everyone’s interest if this were a joint operation and if the collection of licence fees were left with the Post Office.

Another option is to turn this matter over to RTE lock, stock and barrel, but there are certain difficulties inherent in that situation too. It is a strange situation that an organisation like RTE are totally unaccountable so far as the level of licence fees is concerned. They get a grant-in-aid for that portion of their revenue but they have no responsibility for the number of licence fees collected and no responsibility for the cost of collection. RTE must be the only commercial organisation in the world who are totally free from the basic responsibility for 50 per cent of their revenue, but there are problems in turning over this responsibility to RTE. We understand those problems and the Minister understands them also. What would be the ideal would be the setting up of a joint body to study and implement the most efficient way of dealing with the problem. There is £6 million to be collected.

10. Deputy Kenneally.—On what criteria do you base that amount?

Mr. Moriarty.—My colleagues will be able to give you the details but, basically, the situation is that there is in existence a television audience measurement organisation whose responsibility is to arrive at a good statistical estimate of the number of television sets, both colour and black and white, in the country. The number of unpaid licences is arrived at by subtracting the number for which we get credit from the number of estimated television sets.

Mr. Gahan.—The present TAM estimate is that there are 785,000 homes which have television sets. There are about 840,000 private households in the country but TAM only measure the number of television sets in private households. They do not take any account of shops, clubs, hotels and so on. As might be expected, the penetration throughout the country is well above 90 per cent. The latest figures available show that more than 50 per cent of television owners have colour sets. On the basis of the number of sets on a penetration of 93 per cent and taking into account the number of licenced sets, there remains outstanding a total of 170,000 sets in respect of which licence fees have not been paid. There is an odd coincidence in that it appears that those with monochrome sets pay their licence fees while those who have colour receivers are dishonest. In other words what is happening is that many people who have colour sets have only monochrome licences. I might add that the TAM figures have been checked against other surveys. They have been checked also against ESB figures as well as against the Post Office figures. Some years ago TAM were allowed by the Department of Posts and Telegraphs to check their samples and to compare their records with the licence holding at seven or eight head offices. Therefore, within the normal margin of two per cent or so, the figures revealed in the survey are accurate.

11. Deputy L. Lawlor.—Since this is not a new problem, might not the setting up of a study group delay further any productive action? Would RTE be of the opinion that it should be that agent collecting these licence fees?

Mr. Moriarty.—What has been happening during the last few months has been encouraging from our point of view. The Department has been quite active in regard to licence evasion and there has been much advertising. In addition there have been some prosecutions that have been given a certain amount of publicity. Therefore, it is not a case of nothing happening pending the making of better arrangements.

The Authority, like every other organisation I suppose, would like to have full responsibility for the collection of fees but there remains the position that the licences are issued by the Minister for Posts and Telegraphs. He is the licensing authority. I do not know whether new legislation will be necessary to hand this job over to RTE but we are confident that we could do the job effectively. There is a computer in the organisation and with that we are confident that we could set up an efficient system of collecting the fees. However, we must not forget that there would be industrial relations implications in this regard. Traditionally the job has been done by employees of the Department of Posts and Telegraphs. Their trade unions have an interest in retaining that work and there is also the question of postmasters who are paid a commission in respect of the collection of the fees. But I am sure that RTE could make similar arrangements. The immediate and short-term advantage might lie in not making very much change in the present arrangement other than that a special unit be set up which, with the aid of the best computer data recording, would bring about a big improvement. There might be also some form of joint management, which would include RTE, who are a very interested party.

12. Chairman.—Am I correct in understanding your view to be that on balance, it is better to leave the job to the Department but that in future RTE should be on a committee which would play a part in this task?

Mr. Moriarty.—RTE should play a very big part in the whole business but to aim at much more radical steps would involve negotiation with so many people that a long time would elapse before any benefit would accrue.

13. Senator Cooney.—Would that not involve the setting up of a whole bureaucracy of your own?

Mr. Moriarty.—We would argue that we do not have bureaucracies.

14. Chairman.—Has it been suggested that the ESB might be involved?

Mr. Moriarty.—Yes, but there would be problems in that situation, too. They would have no bureaucracy, though.

Mr. Waters.—The Broadcasting Review Committee, which reported in 1974, had discussions with the ESB in this regard and concluded that the problems that would be involved would be too great.

15. Senator Cooney.—Is there any consultation between RTE and the Department at present in regard to the problem?

Mr. Moriarty.—Yes.

Mr. Waters.—The Department’s people have been making house-to-house calls and in conjunction with this, an advertising campaign has been launched.

16. Senator Cooney.—Is there not much closer co-operation than that required?

Mr. Waters.—The situation is ongoing. Licence fees are paid at all times of the year. They do not all become due on the same date and that is why it is important that the campaign be continuous. I have here some figures which give an indication of the situation in respect of evasion. In Ireland the figure is 22 per cent and in Italy which is the next highest, the figure is 12 per cent. In Austria it is 7 per cent while in the UK it is 5 per cent and 1 per cent and 2 per cent, respectively, in Denmark and Switzerland. In Norway the evasion is virtually nil.

17. Senator Cooney.—What input do you think you could make to the collection of fees that you are not making now, for whatever reason?

Mr. Waters.—The most important aspect of all this is that we have installed a computerised system. The present manual system is both labour-intensive and slow. Some changes are being made in the system by way of the installation of small computers in various areas around the country but we believe that there is a need for a centralised computer system and to that extent we would be in a position to give some advice. The other area that I would concentrate on very much would be the area of advertising campaigns on radio and television.

Mr. Finn.—The Director-General has instanced certain European countries in this context. In one of these countries in which there is a population of approximately the same size as our own, the evasion rate is virtually nil. It might help to outline some of the characteristics of the Norwegian system, though not all of these might be applicable to Ireland. At the same time, there may be a lesson to be learned from them. The Norwegians have a centralised computer system. In addition, the licence fee is payable by everybody on the same day. I think it is 1 March. Further, there is in operation a very tight dealer-registration system, an effective system by which dealers records are checked regularly. This system is so effective that dealers return to the licensing authority with great promptness details of sales and so on. Lastly, the penalties for non-payment are very severe. As a personal view I feel they are too severe and might not suit our country. It is possible in extreme cases for the police to enter premises and seize a set. I am not advocating that rigour but there are certain features of their system that might be translated to the Irish scene.

18. Senator Cooney.—Have these measures been put to the Department of Posts and Telegraphs?

Mr. Waters.—There have been discussions during the years on various aspects. I could not say that all of the measures have been put to them but many have.

19. Senator Cooney.—Has there been total or comparative failure to act on them?

Mr. Waters.—They are starting to do something about computerisation. We think a central computer system should be used, not the type of approach they are taking.

20. Senator Cooney.—What about dealer registration?

Mr. Waters.—Legislation was enacted in 1973 which requires every dealer to return the name and address of the puchaser of a TV set and it also requires renters to do the same. However, that legislation has been found to be faulty. There is no requirement for a dealer to return a nil sale. If he does not do so at the end of a month or three-month period, there is no obligation on him to do so afterwards. I think there is some discussion about changing the legislation to strengthen it.

Mr. Gahan.—The Department of Posts and Telegraphs are aware of the problem and they have been trying to get the legislation changed. There is a second weakness in the legislation. If a dealer sets up in business and does not register within six months and is not detected by the Department there is no ongoing offence. He can get away with it for life.

21. Chairman.—Is it your view that it will be impossible to deal with the situation without some further amendment of the law?

Mr. Waters.—Yes. There is also the loophole that there is no way of detecting a secondhand set.

22. Deputy Fitzsimons.—We tend to be lukewarm about licences generally. Mr. Finn’s suggestions relating to the Norwegian situation make sense. I think that people here are just careless about renewing or applying for licences. At the moment people are being prosecuted for not having a licence but they are generally good citizens. The Norwegian practice of setting aside one day in the year for obtaining licences is an excellent one. Because of the present recession your projection of income from licences seems to be extremely optimistic. If that target is not achieved, have you any contingency plans?

Mr. Moriarty.—With the modern system of computer recording and updating there are many options. We could have payment of licences by monthly instalments or by bankers orders. A few years ago P & T introduced a saving stamps scheme and that could be more effective. There are many options open if the flexibility of a sound computer system is available. Then the follow up would be more effective. There should be some stronger legislative provision in relation to the returns by traders of the sales of TV sets. When we last calculated it the level of evasion was 22 per cent. The past few months have been encouraging. Licence fees are being collected and action has been taken. Rather than having contingency plans for a deteriorating situation, we believe the position is improving and we would like to accelerate the progress that is being made.

23. Deputy Fitzsimons.—You expect the evasion percentage to drop to 9 per cent by 1990. Is that realistic?

Mr. Moriarty.—I will not admit that there will be a level of evasion as high as 9 per cent, or indeed indicate any specific level. It is not good to accept that a certain percentage of people will evade paying their licence fee. I know that electricity is being pirated as is cable television and other things, including broadcasting. We must have as an objective the aim of reducing the evasion rate to the minimum. I would be in favour of setting as our target reducing the figure to 2 per cent or 3 per cent and doing this long before the end of the decade. It just needs an efficient organisation, without having a situation as tough as that in Norway which Mr. Finn described. We should facilitate people by having instalment arrangements, saving stamps, payment through the banks or by P.O. Giro.

24. Chairman.—Is the fine sufficiently large as a deterrent?

Mr. Waters.—No. I believe there is legislation that will increase the fine considerably.

Mr. Gahan.—The cost of collection of licence fees in the past year was £1.6 million. We calculate that to be the highest in Europe—8.6 per cent of income. It is almost £3 per licence.

25. Deputy L. Lawlor.—Is that a fee charged?

Mr. Gahan.—Yes.

26. Deputy L. Lawlor.—Do you disagree with that?

Mr. Gahan.—We think it is very high.

Mr. Finn.—We do not have much choice. The broadcasting legislation states that if the collection costs are certified by the Minister that is that. We get some details. I would not like to suggest that it is just a global figure and that we have no knowledge of how it is made up. We get a certain amount of information from the Department. The Act states that the amount certified is the sum that is deducted.

Mr. Moriarty.—Collection costs for RTE amount to 8.6 per cent of total revenue; the UK and Denmark, 2 per cent; Austria, 4 per cent; Italy, 6.9 per cent; Sweden, 3 per cent; Finland, 3.7 per cent; France, 5.9 per cent. Italy is the second highest at 6.9 per cent.

27. Deputy B. Desmond.—The main question I want to ask is, whether you think it possible for the Authority to discharge its statutory obligation within the structure available under successive Governments, in regard to the funding of its capital and current requirements?

Mr. Moriarty.—Since RTE was founded, it has managed to do so, taking one year with another. In 14 of the 19 years we had surpluses, and without abnormal circumstances we could continue to do that with the expenditure levels we are now planning. I have looked at broadcasting systems in such countries as Germany, Holland and Sweden, where the resources available to them by way of studios, equipment and so forth, represent a Rolls-Royce by comparison with our Model T Ford. Broadcasting, particularly TV, is a powerful medium which could be used much more extensively to provide education, enlightenment and so forth, but we do not have the financial resources. The only occasion on which RTE were given a special licence fee increase was when RTE 2 was being established when an increase of £5 was allowed. If our television service is to be expanded in the educational field it will need considerably more resources.

28. Deputy B. Desmond.—Accepting all you have said in regard to licence fees, are you concerned as an Authority that you have not got an extra capital base, such as equity? You have got £18.4 million in repayable Exchequer loans which the Minister said recently you would have to commence to repay. I have been looking at your financial returns for the past few years and I do not think anything in them would suggest that you will be able to accumulate a surplus each year of £3 or £4 million to enable you to make the repayments in compliance with the July 1980 directive and at the same time to comply with the section 24 obligation to meet your current and growing expenditure and to make reasonable provision for capital cover. Therefore has not the Oireachtas put on you a wholly impossible task? What I am saying is that RTE has no capital base whatsoever, no equity fund.

29. Deputy L. Lawlor.—The StokesKennedy-Crowley report, on page 60, refers to a sufficient level of profit to cover capital expenditure, and on page 16 the Statute is referred to and it is stated that RTE appears to be labouring under rather complicated legislative provisions. In other words, can you really comply with the Statute as it exists?

Mr. Moriarty.—RTE has no equity capital. A private company with equity capital expects to be able to remunerate that capital by way of dividends. On the other hand, State companies that have equity capital unremunerated are in effect operating on subsidies from the taxpayers. RTE does not have equity capital and has to remunerate expenditure from licence fees. It cannot depend on the form of State capital that others have. In the longterm, it would be better for the independence and autonomy of the Authority that it would be able to make provision for repayments in a full commercial way. The Statute provides that RTE must break even, having paid all outgoings, and subsection (1) of section 24 states that suitable provision must be made for capital expenditure. A free interpretation of the section would mean a bigger contribution from the licence fee for capital expenditure.

30. Senator Cooney.—Would that mean a bigger licence fee?

Mr. Moriarty.—Yes, but with no free capital from the Government.

31. Senator Cooney.—The figures we have been given in regard to licence fees in other countries may be interesting, but they do not prove that the per capita contribution by way of licence fee is bigger. The burden on the licence holder here is much greater on a population basis, and consequently great attention must be paid to keeping the licence fee as low as possible. At the moment the licence fee and advertising revenue are not sufficient to meet capital and current expenditure. In 1975 and 1979, for instance, there were deficits. There will be a deficit in 1980, and you will not be able to meet current expenditure, not to mind capital. I do not think the answer can simply be increases in the licence fees. We have to take a very serious look at expenditure. I am anxious to know what steps were taken in the current year with regard to curtailing expenditure when the bad scene began to appear.

32. Deputy B. Desmond.— I want to ask about the present capital structuring of RTE. Would it be better for RTE to convert the Exchequer advances of £18 million into a straight equity capital base? I do not know RTE’s schedule of repayment. I do not know how much you paid this year; somebody said £40,000. It appears that in the first half of the eighties you might squeeze through, but as capital repayments grow, there is no prospect of RTE being able to meet that trend under your current financial structure. Pressures will grow and services could decline. Do you feel that we, as a Joint Committee, should tell the Oireachtas that a restructuring of your capital structure would be better in the long run?

Mr. Moriarty.—As we see it, that sort of restructuring is not necessary. Our immediate obligation would be to have a capital repayment of £93,000 in the current year, building up to an annual repayment of something of the order of £340,000, ten years from now. Our capital expenditure programme in the immediate four or five years may seem large but we are doubling the size of the studios in Donnybrook and this has taken a lot of capital expenditure by way of buildings, equipment and so on. We have plans to build another office block there and then this type of expenditure should tail off. We are not pessimistic about our ability to finance the repayment of capital. We are hopefully developing alternative sources of income.

As mentioned in our submission, we are encouraged by our ability to sell programmes abroad and there are many more innovative ways we can reduce the cost of making television programmes—by co-producing with other broadcasting companies and selling the product abroad. One of the major objectives of the re-organisation we carried out last year was to get into the commercial business of making good programmes. We do not see why all the good television programmes should be made in California. There are actors, actresses, artistes, writers and creative people in this country as good as those in any other part of the world. We believe we should have the best television film industry possible. Hopefully, licence fees and advertising will not be the only source of revenue RTE will have in the future.

33. Deputy B. Desmond.— I have some difficulty in reconciling what you say with what was in your submission, where you indicated that over the next five years RTE will tend to increase its assets on an annual basis by about £3½ million per year. Either this presupposes enormous increases in licence fees or in advertising revenue, which is roughly on a 50-50 basis, or it presupposes very substantial Exchequer loan advances to RTE. I am anxious to know what is the ball game, because it appears there is no way you can increase your assets by £3½ million a year over the next few years on the basis of your current accounts.

Mr. O’Brien.— Going back to the earlier question about the conversion of Exchequer loans to equity capital, I have to refer to what our Chairman said. Doing that, at the same time without taking a look at the more liberal interpretation of section 24 of the Act would leave us in the same position. For example, the £18 million of Exchequer advances in terms of interest cost us roughly £2 million. If that debt was lifted, RTE would have nearly £2 million to expend on additional capital, additional programmes and so on. One of the difficulties that might arise if one looks at the way the Act has been interpreted to date in relation to the fixing of both advertising and licence fee increases, is that one could say that that £2 million, relieved by way of conversion of Exchequer advances into equity, can go against the inflation which will occur next year. This means we do not increase our advertising rates or our licence fees and next year we will be in the same position in relation to capital as we were originally. It is really a question of earning enough or allowing a certain amount of financing into the equation when fixing the licence fees and advertising rates needed. That does not happen at the moment.

We mentioned in our submission that RTE need to spend over the next five years around £6 million a year, at present-day prices, to develop and replace existing assets. One of the problems is that if we are to be working on the basis of barely breaking even, or breaking even with difficulty, the cash flow will not be sufficient to meet even half that capital expenditure because our total cash flow, in the absence of any surplus, is the total of our depreciation fund which, in 1980, is roughly £2.4 million. As a cash flow that clearly is not sufficient. If there is no surplus on top of that, you still have to meet working capital requirments, which are rising roughly at the rate of £0.6 million per annum, and that leaves £1.9 million of the cash flow available for capital investment. At present prices that would not even cover the renewal of capital. For example, the radio VHF network has to be renewed because it has been in use for 16 to 17 years and there are difficulties with it. That will cost in the region of £3 million to £4 million to replace at present-day prices and we have not generated that level of depreciation in relation to our old transmitter system. Therefore we have not built up the funds to replace the assets that are wasting away.

The whole question of funding comes down to the interpretation of the Act and the requirment to break even. There is no increment for a return on capital or rewarding capital consumed at present-day prices over the years involved. Does that answer your question?

34. Deputy B. Desmond.—That is very illuminating. Do you think that trying to evaluate these issues—in terms of trying to fund your capital payment—is the appropriate function of the Department of Post and Telegraphs? Do you think it appropriate that licence fees and advertising rates are determined by the Department, subject to the National Prices Commission? Do you think that kind of straitjacket operation on a statutory basis is the most appropriate way of funding RTE?

Mr. Moriarty.—All State companies have a parent department. They are responsible to a Minister and the Minister has a Department to advise him. By and large there are good relations between RTE and the Department of Posts and Telegraphs. It is not for me to say whether the Department have the capacity—the economic and financial analysis capacity — to assist us, but down through the years a modus operandi has been worked out between the Department and RTE and this has had the result of the finances being in a reasonably healthy state, taking one year with the next, but we are still very much on a shoestring. On the question posed by Senator Cooney, we have budgeted for the current financial year on certain assumptions, one of which was that a certain level of licence fees would be collected and that an increase in the fees would be granted and would be effective from a certain date but when there was failure in both respects—there was an under-collection of £300,000 in licence fees for the financial year ended last September and our new licence fees did not take effect from 1 October—we were in a very difficult situation. Those may seem small fluctuations in overall terms but they were big factors so far as we are concerned having regard to our working so much on a shoestring basis. The result was that the Director-General had to take immediate and positive action. By a ruthless process he had to cut the budget to the extent of about £3 million. The arrangements between RTE and the Department are adequate in a balancing situation but in a situation where very small fluctuations leave us in a shoestring position, the result is major upheavals in terms of expenditure.

35. Senator Cooney.—Do I take it that your budget for each year does not come into operation until October or November?

Mr. Moriarty.—Our year starts on 1 October and our budgets are adopted by the Authority in August or September.

36. Senator Cooney.—Do you submit your budgets to the Department?

Mr. Moriarty.—No. We submit an application for a licence fee in the course of which we give the Department all the information about expenditure, revenue and so on, but our budgets, with the exception of the capital budget, do not have to be approved by the Department.

37. Senator Cooney.—Your current budget was based on the expectation that a certain fee increase would be allowed at a certain time. Was the Department aware at the time you adopted your budget that it had this condition built in?

Mr. Moriarty.—In February last we applied for an increase in licence fees to be approved by October. In addition, we applied for an increase in advertising rates.

Mr. O’Brien.—I was involved in the submission of the application. With our application we furnished details covering three years, including the current financial year. We covered the next two years, based on the licence application we had made and we covered a further year to show the effect of inflation in terms of a non-increase in licence fees. We spelled out our assumptions in relation to each financial year and indicated that one of the most important aspects was the question of the timing of the licence fee increase.

38. Chairman.—In other words you set out your proposals and also what you would need in order to implement them. Is that so?

Mr. O’Brien.—We broke everything down in great detail. The application was based on the same criteria as that applied by the NPC in assessing price increases for commercial organisations. The reason for adopting that approach is that we are not sure at any point in time whether the application will go to the NPC or whether it will be dealt with totally by the Department. We take the line of basing our application on what is required by the NPC and they require details under the various subheads—payroll, the various overheads, interest and depreciation calculations, movements in sterling and so on. Therefore, the application was very detailed.

39. Senator Cooney.—For the year just ended a deficit is showing up. In your budget for that year, did you envisage a licence fee increase during the year?

Mr. Moriarty.—We did not.

Mr. O’Brien.—We did envisage, and this was discussed in the previous year, a certain level of licence revenue in the year 1979-80 but that level has not been achieved.

40. Chairman.—Would the advertising rate be included in this presentation?

Mr. O’Brien.—Yes.

41. Chairman.—Would your revenue and your expenditure be combined in your presentation?

Mr. O’Brien.—Combined and detailed.

Mr. Moriarty.—The advertising aspect of our application is referred normally by the Department to the NPC while the Department itself deals with the licence fee application.

42. Deputy B. Desmond.—What about advertising rates?

Mr. Moriarty.—They are subject to review and recommendation by the NPC. Normally they are granted by the Department in the form recommended by the NPC.

43 Senator Cooney.—When you realised that your budget for this year was not working out and that you would have to impose economies to the extent of £3 million, where did you make those economies and at what time of the year?

Mr. Waters.—It was only very late in the year when we realised that we would have to find economies. We realised at the beginning of the new financial year that the licence fee would fall short of the 1979-80 projection. We had to look then at all our budgets throughout the organisation and to make deductions wherever possible. We had to consider the programming areas, particularly in television. We had to reduce the volume of programmes and the expenditure on programmes. We had to review our transmission operations and we decided to reduce power on some of our transmitters, especially on medium-wave radio transmitters which consume a good deal of power. We had to consider also the situation in respect of trade transmissions during the day. We have decided now on most of the cut-backs.

44. Senator Cooney.—Are these in respect of 1980-81?

Mr. Waters.—Yes.

45. Senator Cooney.—Was it possible to alter course in 1979-80 when you realised that the expected increase in licence fees was not being achieved?

Mr. Waters.—We did not know that until the end of the financial year, 1979-80.

46. Senator Cooney.—Had you no idea until then of the level of collection achieved by the Department?

Mr. Waters.—No.

Mr. Moriarty.—During the course of the year the Department passes to RTE the amount collected in licence fees but after the end of the year there is a balancing figure in terms of the amount that was collected after the financial year had ended but which related to that year. In the year we are talking of, that amount fell short by £300,000.

47. Chairman.—At the end of each month or even each quarter does the Department give you any indication of how collection is going?

Mr. Waters.—It gives us a statement as to the level of licence payments for each month.

48. Senator Cooney.—In respect of 198081, with cuts to the extent of £3 million and with extra licence fee revenue coming in, what surplus had you projected?

Mr. Waters.—We had not projected a surplus. We were thinking in terms of a breakeven situation, or possibly of a small deficit.

49. Chairman.—Therefore, so far as capital for the coming year is concerned, is there no provision?

Mr. Waters.—No, except for depreciation.

Mr. O’Brien.—I wish to make a point in relation to the way we are advised of licence collection. Every month we get data relating to the number of licences sold but not stating how much money has been collected. We do not know until some weeks after the end of our financial year the actual amount we will get. Adjustments may have to be made at the end of any year relative to the previous year. During the year we are not sure if we will achieve the level of licence revenue we have predicted and which the Post Office have advised us is possible. To break even we have to provide some leeway as the licence fee revenue may fall short of the amount predicted.

50. Chairman.—The Department have imposed on you the obligation of providing not only for current expenditure but also for capital expenditure and must they not be aware, on the basis of the presentation you have made to them, that there will be no surplus for capital?

Senator Cooney.—Unless further economies can be made.

Mr. O’Brien.—A sum of £2 million from internal sources is the most we can provide under the present arrangement.

Mr. Moriarity.—There will be a contribution, as Mr. O’Brien has said, of £2 million because of depreciation even if we only break even. One of the difficulties regarding cutbacks is that programmes are started and contractual obligations are entered into. Programmes go into stock a long time before they are broadcast and there is not much flexibility in the short term. Jobs are not being filled and every opportunity is availed of to reduce current expenditure.

51. Senator Cooney.—You mentioned that an inherent part of your operation is providing outlets for artistic talents. Obviously RTE have a role to play here and one way that was done was making “Strumpet City” which cost a lot of money. I understand you hope to recoup this through sales. On the other hand, you have not the money to engage in that aspect of your role without impinging on the statutory obligation to break even. It might be regarded as a social public service and there is thus a conflict in the order given to you. Do you see your primary role as that of breaking even or does that have to go by the board to fulfil this non-commercial role?

Mr. Moriarty.—There is a myth that RTE have a monopoly. The only monopoly they have is a monopoly of responsibility to provide a public service broadcasting system. The Act imposes many statutory obligations of a cultural nature on RTE—the promotion of the Irish language, culture and so on. For example, we have a few orchestras and without them grand opera would not survive in Dublin or Wexford. These are non-commercial activities to which a national public service broadcasting organisation has an obligation. This is in conflict with the requirement to break even. However, I think such requirement is a necessary discipline on an organisation and I would not lightly advocate that it should be abandoned or that there should be an open cheque for RTE or for any semi-State company. The requirement to break even is a valuable control mechanism for the Oireachtas and the Government. I hope there will be a recognition of that and, while it would not be a question of an open cheque, that there would be a more liberal interpretation of the Act and that RTE would be able to put forward pleas that would impress the Government of the day in relation to its national role and would give it reasonable flexibility to do that.

52. Senator Cooney.—Is it not the position now that you have to order your priorities in the cultural area of your activities? Obviously the RTE orchestras would be No. 1 for preservation in your priorities but at the end of that list would there not be ventures such as “Strumpet City” that, quite frankly, you cannot afford?

Mr. Moriarty.—We would argue that we can afford “Strumpet City” because we have sold it extensively in Europe and the UK. We are in the process of concluding negotiations in the United States. We are going to make many more programmes that could be sold abroad. They will never really make money but they will provide high quality broadcasting for home broadcast and will reduce considerably the cost of producing such programmes. We believe RTE are a dynamic organisation and that there is an opportunity to make world TV films and to sell them. There is one channel in the United States—the public broadcasting service—and Americans refer to it as the “English Channel” because most of what they show comes from the BBC or ITV. There is no reason that much of it should not come from RTE.

53. Senator Cooney.—I agree entirely with what you say but is it not the case that such measures are available only to an organisation with ample capital to invest in that regard? If you had a capital surplus it would be an ideal way to spend it but it is a different situation when you are straitened for finance.

Mr. Moriarty.—We financed “Strumpet City” totally. We are now in the process of planning a major opus—“The Year of the French”—which will be financed as a co-production with French television and with some American finance. We are launching a series that was co-produced with the BBC on the history of Ireland. It is a 13-instalment venture and is done by Robert Kee. It was co-financed with the BBC and it will probably have a sale potential.

54. Senator Cooney.—I agree entirely. An entrepreneur can operate successfully only when he is capitalised properly. You cannot go on having politically and socially unacceptable hikes in the licence fee. What you are doing may make good sense commercially for people who have the capital. Culturally you are doing a very desirable and commendable job, but in terms of pure finance as a requirement of the statute, I wonder is it a wise course? Even in ventures which are commercially viable, there would be a considerable time lag between expenditure and the time it is paid for, affecting cash flow.

Mr. Moriarty.—There is an opportunity for job creation in the making of broadcasting units for sale. All other sorts of job creation ventures get money from other sources, whether from the IDA or somewhere else. Perhaps we must get into hard negotiations with Government Departments about this in the future, and have a much wider canvas. There is nothing in the way of an investment reserve that we can draw from.

55. Chairman.—You have power in the 1976 Act to borrow from sources other than the State. If you build up your status as a maker of television films, would it not be possible to borrow specifically for that? Would that not be a responsible and reasonable way to deal with it?

Mr. Waters.—We have financed “Strumpet City” solely out of our own resources. We did it on the basis that we would recoup at least the extra amount of money we had spent to make quality productions over and above the money spent on seven hours of normal viewing time. It would cost more than our normal drama output but we reckon that income from sales abroad would repay the extra amount. That has almost happened now; we have sold “Strumpet City” all over Europe and elsewhere. In common with other broadcasting organisations, we are finding it difficult to finance that kind of production. The tendency nowadays is to engage more and more in coproductions; you would get another broadcasting organisation or a film company to come in and join in a venture to make a series or a particular programme. In relation to “The Year of the French”, we are doing it on the basis that it does not impinge at all on our budgeting for the year—in other words, we will supply the manpower, but the financing of it is coming mainly from other organisations involved. At the end of the day, when the programme has been finished and sold, we reap some of the benefits from the sale.

56. Senator Cooney.—Do you agree that the proper way to finance such ventures is from an alternative source?

Mr. Waters.—Yes.

Mr. Moriarty.—Part of the finance for “The Year of the French” is coming from the French television authorities, but some of it is being raised with an American distributing company as a straightforward commercial loan.

57. Deputy B. Desmond.—How many people would be engaged in that work? I have in mind the IDA situation. The IDA give a capital advance of £10,000 for each job created. That is what the IDA give to every American industrialist who comes in here.

Mr. Waters.—“The Year of the French” production involves the employment of a great number of extras. There are battle scenes involving many people, not actors. I would only hazard a guess, but it will be in the order of hundreds. The production work will go on during a period of two-and-a-half to three years. Of course they would not be engaged all the time.

58. Deputy Deasy.—How much did “Strumpet City” cost, and how much has been realised on its sales?

Chairman.—In reply to any question of that sort you can say there is commercial confidentiality. We would prefer you to limit your approach to the very limit in that respect.

Mr. O’Brien.—The increment of additional money we put into “Strumpet City” over and above what we would have done normally was £300,000. We have almost recouped that.

59. Senator Cooney.—What was the total cost?

Mr. O’Brien.—It is very difficult to say. Roughly I would say £800,000, including all the people involved, the cost of their salaries while participating.

60. Chairman.—Was the difference because you were making it for your own purposes?

Mr. O’Brien.—That is so.

61. Chairman.—It would have cost you £500,000, but in order to make it acceptable abroad you spent an additional £300,000. Is that the position?

Mr. Waters.—It might be interesting to hear some figures. Our programme sales last year, including “Strumpet City”, amounted to about £440,000. We made a great jump forward last year in relation to sales abroad.

62. Senator Cooney.—How much did “Strumpet City” earn, or will earn?

Mr. O’Brien.—It is close on £280,000 to date.

Mr. Waters.—If we sell it to the American market it could yield 40,000 dollars per episode, and there are seven.

63. Senator Cooney.—How much have you contracted for to date?

Mr. Moriarty.—We have actually contracted for £300,000.

64. Chairman.—Is the revenue from advertising and licence fees about equal?

Mr. Waters.—Yes. It is about 45 per cent of total revenue for each.

65. Chairman.—If the sale of films proceeds on the basis you hope for, the balance would be increased considerably?

Mr. Waters.—It will take many years to build up any sort of big income from sales abroad. It is a very competitive market. We would have to put more money into it than we are able to now, particularly in order to sell to the US.

66. Deputy Deasy.—Can you apportion your revenue as between T.V. and radio advertising?

Mr. Gahan.—Advertising revenue can be broken down to 75 per cent television and 25 per cent radio.

67. Deputy Deasy.—Have you suffered any reduction in radio advertising because of pirate radio?

Mr. Gahan.—Not anything significant. This is the busiest time of the year. As you will be aware, legislation limits us to the percentage of broadcasting time we can give to advertising. It is 10 per cent. At this time of year, advertising time on RTE 1 is sold 100 per cent, and RTE 2.80 per cent. Radio 1 would also be sold 100 per cent and Radio 2 about 85 per cent. One cannot say what is going to the pirates that might have come to us. From our observations, in local areas, particularly in the south, pirates are having some impact.

68. Deputy Deasy.—Mr. Waters has expressed strong opposition to the concept of local independent radio. It is virtually certain now that such local radio will be licensed. What effect do you expect it will have on your revenue?

Mr. Waters.—It is news to hear that it is imminent.

Deputy Deasy.—The Bill is imminent.

Mr. Moriarty.—If you say the Bill is imminent, it is.

Deputy Deasy.—The Taoiseach has promised it this session.

Mr. Moriarty.—My view is, and it would be shared by members of the Authority, that successive Governments since the foundation of the State have supported total public service broadcasting. Local commercial broadcasting of any sort will represent a U-turn from that position. This matter came up for debate on a number of occasions, first, when television was being established and later when the second channel was proposed. This was debated in the Oireachtas and support was given for the notion of public service broadcasting. I strongly believe that the airways and the frequencies necessary to control the airways are a national asset, the same as any other national asset, and the benefits from those airways should be available to the whole population. I believe they should not be made available for the accumulation of private profits. I am supported in that view by all my colleagues on the present RTE Authority.

We have been talking today about the shoestring finances of RTE. Three of the best broadcasting channels in the world, BBC 1, BBC 2 and ITV, are available to 50 per cent of the people of Ireland. Radio broadcasting from the United Kingdom and the Continent is available to 100 per cent of the people. In a very short time satellite television and radio programmes from all over Europe will be available to every house in Ireland. That seriously threatens the financial base RTE have in the form of advertising. So does local commercial radio because there is a limit to the number of people who listen to radio. If there are overlapping local radio broadcasting with RTE, advertisers will pay less for the privilege of advertising on RTE and this will be a serious threat to RTE.

69. Deputy B. Desmond.—I find myself in agreement with what you say. RTE get 45-47 per cent of their revenue from advertising. Has the present recession affected you?

Mr. Moriarty.—No not so far, in contrast to the situation in the United Kingdom where there is a reported fall-off in television advertising because of the recession.

70. Deputy B. Desmond.—Some people advocate—I do not share their view—that there is a vast reservoir of wealth here. What about the five national Sunday newspapers? Do they hit you?

Mr. Moriarty.—No. There is no sign that the recession is affecting RTE.

Mr. Gahan.—This is the peak time of year for advertising and there is maximum demand. If there is difficulty, it will be in January. Our projections for the first quarter of 1981 are quite weak at this stage.

71. Deputy B. Desmond.—If you had public service radio broadcasting at local level, could you still get a substantial proportion of it?

Mr. Moriarty.—We have had proposals for national community radio with the Minister for the past six months. This would provide advertising service, in conjunction with local provincial newspapers. We believe this is the right way to go about local broadcasting, which will cover the whole country, and it will not only apply to the areas of high-density population where it would be profitable.

Chairman.—We agreed to finish at 6 o’clock and obviously this matter will need to be discussed further. I propose we adjourn until 4 p.m. next week.

The witnesses withdrew.