Cynulliad Cenedlaethol Cymru

You've nailed your colours to the mast very much on the future funding of S4C through the licence fee, but, of course, the licence fee and the figures there will be significantly less than the funding at the moment. I wonder if you could expand a bit about why you think that would, nevertheless, give you more security than under the present system.

I don't see that the figures would be less under that system. What I had to wrestle with, going through this, listening to what people were saying and using my own experience, was that, essentially, stability is the essential for the production sector, particularly at a time of disruption by digital, that that stability—. S4C is part of the UK ecosystem and should, therefore, benefit from it. My idea was that instead of being funded—a small amount, 10 per cent of its income—direct from Government, that if everything went into the licence fee—which is not the BBC licence fee, it is the licence fee—they would negotiate then with the Secretary of State, as the BBC does, but separately, for what is adequate for its funding in the future from 2022 onwards. The licence fee is tied to inflation, so there is absolutely no reason that S4C should not ask for that, which it couldn't do under the present arrangement.

So, the key, really, would be the starting point, but presumably some sort of formula, almost like a Barnett-time style arrangement, that basically says, 'This is it', because how do you—? I suppose the initial concern is that, firstly, if you don't start off satisfactorily, you're forever struggling, and it's how confident we are that that would be achieved.

History says that—having said that, it's only happened once to date. But in 1991, S4C moved from commercial funding—it came out of the commercial system—into direct funding from Government. The basis on which that funding was decided was the funding at the end of that period, and then it was inflation-proofed on top of that. I don't anticipate that this will be any different. I think the Minister, from my understanding, to the Welsh Affairs Committee made it clear that it wasn't the intention for S4C to lose out by this. Although it would have to, obviously, put its plans forward—it is still public money—it would be based on what it has now. It could be better, depending on what is presented.

Because it is within an environment where there has been a downward level of funding over the past few years in real terms, isn't it?

It is. I think that perhaps S4C has been too willing to use this lack of funding as a lever when in fact there are funds around that can be accessed—it's just they don’t come from the same place. Now, that is not a stable system, but if you get the stability into an area where there is total involvement of the audience, which is the licence fee, because the viewers and listeners do become part of the equation then, I think that stability is then guaranteed, but that hopefully will allow S4C, then, also to be bidding for other funds.

That takes us on to perhaps my final question, which is really about the commercialisation, the commercial opportunities that there are, and of course many of these are unpredictable. We've seen great successes within media where commercial opportunities have been seized. How do you think S4C could establish itself as really benefitting from a strong commercial operation?

It has been successful in the past. I think the level at which it operates is not Netflix. We need to be careful not to paint too rosy a picture. But there are opportunities, particularly in digital, particularly in Wales, particularly in the minority language. I think it has that unique position in the market that nobody can compete with, really. It has that particular aim on which it concentrates, and all those things bring opportunities, because throughout the world there are small communities who don't speak the majority language in that community. There are things in digital—digital is a global disruptor. So, there are opportunities there, and I'm pleased—you'll hear this next week from S4C—that they've come up with a plan, a commercial plan and a restructure, that really looks as though they're going for it. Because the fund that's been created over the years, which is worth about £20 million, is not enormous in the big world of digital. But it is a factor, particularly if you match it with other funds. They certainly have taken this on board and created a new commercial plan.

So, the commercial plan would be something that would be of interest to us, clearly.

I think it would be of interest, because I think the commercial plan does impact right across the production sector in Wales. It's not just about S4C. S4C does have that unique—. It is the only broadcaster in Wales that can invest specifically for Wales and for the Welsh language in terms of commercial investment—not to deride what ITV are doing or what Channel 4 are doing. It's not their main job, as it were.

Okay. I think I can see that.

Suzy Davies.

Can I just develop that point before I turn to my own questions? Obviously, there's statutory protection for sufficient funding for S4C at the moment, as you've indicated. Obviously, that law is a few years old now. Do you think it's drafted in a way that safely encompasses the new powers that S4C are going to have as a result of this?

I think so. I'm sorry to be—.

No, no, no, genuinely—it talks about sufficient funding for its purposes. Well, its purposes are going to change.

I think one of the problems is that Government has said clearly that it's going to enact on these requirements, but it's not a good time to enact any laws.

A bit busy.

They're are a bit busy with other things. It's just that slight worry that although the commitment is there, there's a change of Government—you know, it's those little things that really need to be battened down so that it happens. The will is there; I have no doubt about that at all. But the actual practicality of putting it through, you know, if there is a change of Government—. I don't think a change of personnel affects it at all; it's part and parcel of the policy of the department now. But I think it's worth keeping an eye on that. 

Do you think S4C has got any space at the moment to start working towards things like a unitary board before any legislation comes in?

Yes, they've agreed to that. In fact, it was confirmed in the Welsh Affairs Committee session that they are definitely expecting that to happen. You'll be able to ask them next week—Huw did indicate that they were looking at September. There are new members about to come on and those new members have been informed that they will be part of a unitary board and that in September the switch will happen. So, they'll call it a shadow board until the legislation, but it would be very unfortunate if, just because it wasn't done, you had problems later on, because the basis of S4C's worry over the years really has been the problem of being ultra vires. Any public body has got that problem. How far can they push it? An agreement with civil servants is great, but you really do need somebody to commit to it on the floor of the House, so, when that commitment comes, S4C can relax and go ahead on something that they're very comfortable with.

I think that's helpful. I've just got this outlying concern that a shadow board, in your terms, might allow S4C to enter into some contracts when actually the law that empowers all of that isn't quite in place yet because of other things, as you've said—it sounds like there might be a bit of blind eye thing, which is okay. 

I just wanted to ask why—because this committee also agreed that you needed a unitary authority, particularly when you're in partnership with agencies or departments within the Welsh Government, because obviously we have a role then in scrutiny—and I was wondering why you didn't quite go as far as saying, 'We could do with a charter here', which at some point could embody an element of formal joint responsibility for scrutiny of S4C, which doesn't go as far as devolving it completely, she winked.

I think it's a conversation and debate to be had. My problem with the issue in doing the report—. I had three months to deliver the report.

It may be outside your remit, I'm not sure.

The remit really didn't take me in that direction anyway, but I found it quite distracting. What I was afraid of was that that kind of discussion would be quite distracting for S4C. Do they know where they are? So, in 10 years, there may well be another report because we'll be coming to the end of the licence fee cycle, so that might be a particular thing that needs to be considered. A lot of work needs to be done, which hasn't been done, to work out how—. There is very clear accountability at the moment to Parliament. S4C understand that. There is a relationship between the department and Welsh Government, and S4C understand that. So, they can go ahead and they know how to operate in that. Actually changing that does need a lot of time to get around it.

Okay, thank you. Just one final question. Because there is now a change of governance structure and we're in a position where there's not going to be direct grant, if you like, from the UK Government, do you foresee any changes to the audit process for finance in particular, because you mentioned that, particularly with the commercial arm, there are new opportunities in here as well as potential risks? Is there likely to be a new strand or formula for how financial audit is done?

Yes. I think bringing in the NAO is quite important here, because the NAO do the BBC and so they understand the problem of independence of broadcasters. S4C needs a friend in court, in that sense, and as auditors they will be able to look at S4C's needs, just as much as they look at the BBC's needs when the reports go back to Government. So, I'm comfortable that the NAO can look at the whole picture, and it will certainly understand it. But, it can also be a friend in court for S4C during this very difficult adjustment period to the digital.

Well, as it happens, I agree. We have a strong role for the Wales Audit Office in the audit of the finances for this Commission, for example. It's been a huge help, so I think you're right. 

It just is that extra strength, really.

Diolch.

Jenny Rathbone.

Good morning. You've made it quite clear that you think that it's possible for S4C to generate the funds required from having a different approach—having a more commercial approach. What are the commercial constraints on S4C? Would you say that it was akin to an ITV company before 1991? Leaving aside the reach, you know, which is—

Yes. I don't think it is. The financial constraints are very much in the public domain. It cannot become so big that it becomes a problem for ITV, for example. ITV Wales made a strong point during the review that they wouldn't want S4C as a competitor to them in the advertising and that sort of thing.

'Them'? There's only one of them.

You can see that causing a problem. But there aren't any real constraints. I'm hoping that the new structure, where you actually bring in the commercial arm right into the centre, so that the commercial arm is actually part of this unitary board—. It's led by the chief executive, so it's accountable. He's the accounting officer. So, all the accountability is there and, other than that public prudence, I think the constraints are minimal. It is a public body that has a commercial arm, but with a very definite focus on that commercial arm—that it's about benefiting the core mission, and not buying lottery tickets.

Of promoting programmes in the Welsh language.

I think that, while programmes in the Welsh language are the core mission, and it must be creating content in the Welsh language, its main job is as the distributor of that content. That's where the commercial element becomes important—that it is able to create the applications, the platforms where it is able to benefit from—

Okay, so, do you think it would make commercial sense, for example, to be able to extend the reach of the programmes as far as the whole of the UK.

Absolutely, yes. Yes, that is all part of it, really.

Okay, so, are you aware of any calculations as to the size of the revenue that could be generated by that? Clearly, it depends on what programmes you are offering and how much audience you can attract. 

No. I mean, in the digital world, I think it would be very—. I'm certainly not qualified to do it.

Okay, fine. We'll move on from that.

But I think anybody would be taking a big risk in predicting in the digital environment.

Okay. But, obviously, the conundrum for the new unitary board is that the DCMS have made it clear that they are not going to give any funds after 2022, and you're arguing that the station ought to be able to survive with the licence fee and the commercial funds it can generate. 

No. It's more complex than that. Sorry. 

Okay. Fine.

I've understood where you are coming from now, sorry. The idea is—. You've got this public service, which is funded—not as much as it could be, but you know that, in the media world, it is a piece of string and it can be any length. But at least there is stability. So, producers working on the basis of that public service know for definite that they can prepare, they can plan, three, four or five years ahead, probably, on what the kind of level is going to be. You've then got a commercial fund that can be used in different ways. It can be used to match fund with commercial partners. It can be used with the data—collection of data is important for S4C—that the audience want. It can be developed in any way. But you also, at the moment, because it's a digital environment, have digital funds set up by Government—by the Welsh Government as well, but certainly by the UK Government—that are accessible to S4C, if only they put a bid in with a plan attached. The one contestable fund, which I'm—

We'll come on to that.

Yes, all right, yes. So, you're not saying, 'We're moving everything to the BBC'. You've actually still got a number of funds, except that one of them is stable, the other is risky, and the other one you had to work hard to get but you're not—you've got a chance of getting it, you know. So, it's—. I think that's the way S4C has always operated, to be quite honest.

Okay, but it was clear from when this committee did an inquiry earlier, which I wasn't involved in, that everyone was saying S4C is insufficiently funded. One of the evidences of that is the fact that it's 57 per cent repeats, which is clearly unacceptable, I would have thought. So, how are they going to generate enough funds to not have to rely on this strategy?

One of the awful things about doing a report is I didn't have to answer that question, and it is a difficult conundrum. I think the answer lies—. With digital, quite often, it's not the answers, it's the questions you ask, and the question needs to be asked about the service whether and for how long does the traditional service, which mirrors the BBC and ITV, rather than digital channels—how long does that have to go? Particularly when children are not accessing the programmes through television—the programmes are being accessed on iPads and phones. So, somewhere in the next 10 years, the tipping point will be reached. In America, it seems to have already been reached, and there will be that tipping point when the traditional linear schedule becomes subsidiary to—. As long as the content is being created, actually putting it in order, becomes—it becomes the individual's—. Hardly anybody now would sit for a whole night and watch any channel, so S4C isn't on its own.

Okay. Do you think they will be able to do this without falling foul of Ofcom?

Yes. There is no problem with Ofcom. I did consider the idea that it should be a licence, that S4C should apply for an Ofcom licence, but, having talked to Ofcom, I don't think that would help. That's yet another distraction, if you like. Since S4C is accountable to Parliament anyway, it doesn't have to have the licence, it does its own thing, and it does mean that they can adjust it. And Ofcom is well ahead of the game on this one. I think they understand very well, and they have all the figures that show what the trend is.

Okay, thank you.

Neil Hamilton.

Well, my questions have been touched upon by Mick Antoniw and by Jenny already. My first question relates to the sentence in your report where you say that S4C should be using its scale and resources to explore all potential commercial revenues, and seek to maximise commercial revenue. I understand the points you've been making this morning, that we're moving away from linear broadcasting. Obviously, people will be able to pick and choose from a multiplicity of programmes via the internet, and the linear programme running schedule already looks like it's part of the dinosaur age. We have the fundamental problem for S4C that its principal purpose in life is to generate Welsh-language broadcasting and to distribute it, as you rightly emphasised earlier on, but the number of people who can understand Welsh worldwide is relatively small, and that clearly restricts its capacity to turn to commercial advantage the content that it produces. So, apart from the fact that we know that, in recent times, resistance to subtitled content has dramatically diminished and successful programmes in Danish et cetera have been marketed worldwide, so there's no reason why Welsh shouldn't join Danish and other languages in the same way, could you expand a little more—without wishing to trespass upon the evidence that S4C will undoubtedly give us about their new grand plan, which you mentioned earlier on—? How you feel S4C should be maximising its commercial revenue? Could you expand a bit more on what you've said already this morning?

I think you've touched on it there, really. Five years ago, there was a resistance—maybe five to 10 years ago, there was huge resistance to subtitling. People would have been thinking, 'Who wants to watch a Welsh-language programme with subtitles?' But as soon as the big beasts start doing it— and you realise that the huge problem for Netflix and Amazon is high-quality content. So, producing high-quality content opens up the market because you go to Netflix and automatically the stuff is subtitled. So, you've got a potential market there if you can come up with the idea and the quality.

The commercial fund does allow you to partner with people that you might not think of partnering with to up the scale and to leverage more investment. These are all wild suggestions for S4C to do, but I think it creates the possibilities for them, with the unitary board that this committee suggested anyway, to be able to enter that market. But what is essential then—. There is an interesting link then because it ties in with Welsh Government and how all of that works. The subtitling needs to be not somebody sitting down at a machine and translating. That has to happen automatically. You need voice recognition. The process of creating voice recognition in Welsh, which is probably the most important at the moment, has stalled a bit for different reasons. Google and Microsoft have been heavily involved in the words, as it were, so Google Translate is getting better and better, thanks to the Record of this organisation as well. But voice recognition is still something that—we're not in there. Now, S4C is in partnership with somebody who is doing voice recognition—a commercial company—with the Welsh Government's Welsh language plan, and they recognise—. It was one of the things that the Welsh Government, the Welsh language unit, recognised as one of the big challenges. But S4C, in the middle of that, actually can make it happen, and that opens new commercial avenues by making—. Because that subtitling has got to be on voice recognition.

That's fascinating. That's the first we've heard of that in this committee, so I think that potentially takes us to a new level here in this, which is excellent news. And I suppose that's what you were referring to where, earlier on in the same part of your report, you say: 

'Digital content is an area which is ripe for commercial investment.'

This is the essence of it as far as S4C is concerned. So, are they putting significant money into this area in partnership with Google or other internet giants, or what is happening there?

You'll have to ask them that, I think. [Laughter.]

Ask them. Right, thank you. Very good. Okay. [Laughter.]

Well, can I move on, then, to ask for your views on the potential of other sources of funding for S4C and, in particular, the UK Government's proposed public service broadcasting fund? How significant do you think this can be for S4C?

I think it's highly, highly significant. The fund has come out of the licence fee, oddly enough. When a Secretary of State—I think it was Jeremy Hunt—decided that BBC should pay for everything, including S4C, he decided that it should also pay for broadband. Its commitment to broadband finished with £60 million left in the kitty, and that was under the control of the Department for Culture, Media and Sport. So, they decided that they would repurpose it into a contestable fund for things that aren't in the main stream, if you like. They specify minority language, children, the arts, and, very specifically, outside London. So, nations and regions become a factor. So, all of a sudden, this fund becomes quite attractive, because probably the only organisation in the UK that fits in with that is S4C; but it's even better than that, in a sense, because Government want independent producers to access this fund. Teledwyr Annibynnol Cymru had been very quick off the mark, and they've already had meetings with Ministers about accessing it, with S4C's support. So, when the Minister talked about it, I didn't realise that; when she talked about it in evidence last week, I thought, 'This is great; things are moving'. But there are also pure digital funds tied in with universities that come into the game as well now, I think. So, where S4C is developing stuff, S4C's unique position means that academia can develop and access purpose and information, which would develop applications and things that are significant. So, I think S4C does become a player. So, that's the background to the scale, really. It's not that it's big; it's almost because it's small that it's able to play a part in that market.

Yes. Well, the children's market's always seemed to me to be an important opportunity for S4C because, obviously, developed language skills in the early years are not as significant as later, and, in addition to the obvious potential for promoting the Welsh language as early as possible in a child's development, there is the possibility that those programmes can be sold more widely, even to those who are not going to end up speaking Welsh as an everyday thing.

And for the last—. Cyw was celebrating its tenth birthday recently. That has not only captured the imagination in Wales, but has also really made an impact all over the place because, for a while, it was about the only public service channel for small children. So, they have a reputation. They don't need to build up. It's all there for starting a business, if you like.

Yes, indeed. Thank you very much.

I am head of the creative industry sector.

Mick, have you got anything more on that?

Only to say that I explained at the previous committee meeting that I had met both chief executives. There was a change in Pinewood—the chief executives changed—and both chief executives confirmed that they didn't want the information to be released, and we acted upon that. If Pinewood have changed their mind, and if they tell us that they are happy for the information to be released, the information would be released.

Suzy Davies.

Just an ancillary question, not specific to the management agreement, actually. But can you understand our concerns as a committee that when we're told yet again that commercial confidentiality is an issue, it comes within a context that predates you, to be fair, Minister, where everything seems to be covered by commercial confidentiality, including questions to Government about how they calculated benefit and which bit of the budget the support came from? This goes back to the days of Edwina Hart's control over the department. So, that's the question I'm asking you, really: whether you can understand why we're reluctant just to accept, 'It's commercially confidential, end of story.'

How else can you operate, except that you take at face value the definition of 'commercial' and 'confidential'?

Well, I do. I think the previous Minister didn't.

Don't try and invite me to comment on anything that Mrs Hart may have done. 

Okay. I'm happy to leave it there, in that case, Minister. Thank you. Diolch.

Mick, you're the nearest we've got to a building contractor.

Yes. We had a valuation carried out before we acquired. The valuation said that the roof would be subject to routine maintenance but that it didn't have any major defect and valued the building on that basis. Contractually, our surveyors don't believe that there is any legal liability on the valuer. It wasn't a structural survey; it was a valuation. So, for there to be damages to sue, we'd have to prove that the value was significantly less than the value we paid for it as a result of the roof. The roof did leak. Pinewood, as our tenant, was insisting that it not leak at any stage in the future, and therefore officials decided not just to repair but to actually reinforce and improve the quality of the roof to extend its life, and that's why it cost more than a simple repair.

Okay. So, because it was a sort of general survey, it didn't go into the minutiae detail initially.

Yes, it was a valuation, not a building survey.

Suzy.

Are you actually saying that you bought a building on the basis of a valuation survey without having a full building survey done?

Yes.

Okay. Thank you.

Jenny Rathbone.

The Wales Audit Office report says that Welsh Government officials anticipated that, once renovated, the farmhouse could become a valuable asset. I'm struggling to understand how, given that, obviously, it used to be a very valuable asset, but it's now in the middle of an industrial area rather than a residential area. Did you ever consider not purchasing it, given that you were trying to set up a film studio?

Yes, it wasn't critical to the operation of the studio, from our perspective. The vendor was only prepared to sell both assets at the same time. But perhaps, more importantly, at the time, Pinewood anticipated that they could make value of that property. So, Pinewood had said, 'Oh, there's an opportunity for us to consider using the house, either as a prop for future productions, and/or to house crew and/or actors who are working on site.' So, Pinewood felt that the flexibility of the property might be of help to their business plan, but there was no immediate plan to use it.

But there were no discussions on who would pay for the renovation.

Well, that would then be: is it a tenant's improvement, or is it a landlord's improvement? If Pinewood had wanted us to invest money in renovating that, we would have expected them to pay a commercial price to us through an increased rent.

Okay, but obviously, you will have been aware that you were acquiring a grade II listed farmhouse—

Yes.

—and that obviously requires you to renovate the building; and at that point you thought it was a third of a million pounds.

At the time, and as far as we're aware, there is no requirement to make good that building, but it is possible that a local authority could require us to do that at some stage in the future.

Okay. So, at the moment, you have this asset that is deteriorating.

Can I just explain that? The actual listing of the building does not impose—. Obviously it imposes a certain legal requirement on the owner, but it would be up to a local authority—a local planning authority—acting under the heritage and listed buildings legislation to issue notice on the relevant authority, and we're not aware that there was any such notice—

Then or now.

—then or now.

There aren't any at the moment, but could it be a potential liability in the future?

Well, that's a matter for the local planning authority. I won't purport to intervene in that.

Is £360,000 still the estimated renovation cost, as far as you're aware?

It was an estimate made at the time. We haven't updated it.

Okay. So, your current plans for the farmhouse are what?

Until a tenant on the site wants to use that facility, we would leave it as it is. If, at some point, there became a requirement for us to make good, we would have to look at the options available to either sell it separately or include it as part of an increased asset available to the tenant.

Do you think, Minister, that in any way conflicts with your role as the Minister for culture to obviously preserve historic buildings?

No, because in my utility as Minister for heritage, I am entirely subject to legislation in that whole area of listing and heritage conservation. Any relations that I have in regard to listed buildings, and in regard to the condition of those buildings, or any development next to any monument, would be conveyed to me by Cadw inspectors, who are acting in their independent capacity as heritage inspectors, in the same way as if they were planning inspectors. It's the analogous situation. Therefore, if I receive from Cadw, and from a Cadw inspector, a specific statement where I am asked to take action in relation to a building, that is something that I would respond to very positively and very seriously, because it's an independent role that I have under the heritage legislation.

So, potentially, there could be two drivers of requiring the Welsh Government to renovate this property—the local authority and Cadw.

Well, the local authority would serve a notice if they wished to do so. I have not had any notices from Cadw in relation to that building. It would normally be the impact of development adjacent to something that was a listed building or a monument, and the effect of that on the monument would be the main concern in terms of heritage legislation. But that's a very specific area, and that is where Cadw's advice has to be supreme.

Okay, thank you.

Neil Hamilton.

Can we just revert to the question of the roof repair? One million pounds is quite a significant amount of money to pay to repair a building. When your valuer looked at it, presumably he paid a site visit.

Yes.

And there was nothing obvious that needed doing to the roof.

I haven't got a copy of the report in front of me, but I understand from my building colleagues that he pointed out that the roof would need normal maintenance from time to time. Roofs do leak—it's an old roof, roofs do leak—and we decided it would be pertinent not to continually replace the roof, but to improve the quality so that you would improve the longevity. Effectively, £1 million was spent to add value to our asset by increasing the longevity of the roof.

So, if you hadn't wanted to improve the quality of the roof—

A running repair could have worked.

—what sort of figure would we have been talking about? Sorry?

A running repair could have worked. I don't know. I can get back to you with an answer on that if you want.

Because, obviously, if it was a relatively small sum in comparison with what was actually spent, I can understand the rationale of just accepting the valuer's figure, but if it was going to be a substantial figure, I don't understand how he could have produced the valuation that he did in the knowledge that a substantial sum of money would need to be spent on repair.

So, I agree with your point. I can't answer your question specifically, but I'm happy to come back, if you want me to, with an answer to that.

I would, yes, thank you very much.

That would be great, thank you. We would appreciate that. Mick Antoniw.

Just very quickly on that, clearly the valuer was wrong. Clearly it was a mistake to rely on that valuation and, with hindsight, presumably you'll be thinking to yourselves, 'We should have had a structural assessment of that.' Has any lesson been learnt in terms of future situations like this?

I'm not sure I agree with your assumption, but it's fine that we may—

The valuer clearly was wrong, wasn't he?

Not materially. I don't believe—

One million quid wrong.

I believe—this is a fine point of law, but I believe, had the valuer missed a defect in the property that materially affected the valuation, then we would have had a right of action against that valuer. I do not believe—it's not my assessment, it's the assessment of the surveyors who work for us. But they do not believe that the running repairs on the roof materially affected the valuation and, therefore, there were no damages pursued.

No, you've missed the point. I'm not criticising the valuer, the valuer is doing what he's asked to do. The point is that, with a property of this consequence, the two things you want to do—. One, you want to know the value of it, but you also want to know that it is structurally sound. So, the problem isn't with the valuer, the problem is all you've done is get a valuation and it turns out the valuation's giving you what it is, but, with hindsight, it was probably a mistake not to have a structural assessment.

That's a view. It's not the view our surveyors took. Our surveyors themselves are surveyors. They're able to look at a property, they're able to do their own analysis. They didn't think, at the time, that they needed an independent building survey.

Okay.

Adam Price.

Mick, could you—on the £800,000?

What we're talking about here is tenants' improvements. So, Pinewood told us in a business plan that they intended to add tenants' improvements to the building to make it more effective for them as a studio. In particular, they developed a suite of offices, which currently occupies 17 small microbusinesses in the supply chain who service the industry, but specifically the proximity to Pinewood facilitates their ability to service Pinewood, and that employs 34 people. They did that work, and I don't believe it cost £800,000, but they have provided some evidence that it cost a significant portion of that amount but not the full amount.

Mick, if I could just sort of intervene there, why is it then that the ministerial advice that was provided at the time of the recommendation to terminate the existing contracts, stated that they had completed works equivalent to £800,000? You're telling me now that that isn't the case: you have some evidence, you don't think it's £800,000, or you're certainly not sure. Why did the ministerial advice say unequivocally that they had completed those works?

Because that was their stated intention, and they had told us that that was their intention to do.

But why didn't you say that in the ministerial advice?

I haven't got the actual words in front of me. So—

Well, I believe it's quoted in the auditor general's report.

Okay. You're not wordsmithing, and I'm sorry I haven't got it in front of me. Do you know what page and what number?

Well, maybe the officials can help us out here, but—

Or I can come back to you on it.

I have the auditor general's report. If you can give me the reference, we'll chase it up now.

But it was your ministerial advice. You obviously don't recall putting that figure in. Can I—

A time thing, which might be helpful, is that at the time of the advice to the Minister, the work wouldn't have been done because the recommendation was for Pinewood to be granted a tenancy—a long lease—on the property, and therefore it couldn't have done any tenants' improvements at the time of that advice. However, they would and could have given us a commitment to doing it.

Yes. So, I think the page in the auditor general's report is page 35, and it's paragraph 3.10. So, it's there very, very clearly, and I would respectfully suggest that, seeing as this was going to be one of the main issues for the committee, you should really have familiarised yourselves with the information that the auditor general referred to. Can I—

I'm sorry. I will not accept criticism of the evidence presented to the committee by my officials. If you wish to complain about me, you're quite welcome to do so at any other time, but not in committee when officials are responding to your questions.

Well, we're trying to understand, Dafydd, why we're in a situation where—. You look at a whole—. This is a litany of errors. The ministerial advice provided to the Minister, we've just been told, was incorrect. That's not an acceptable situation. Indeed, if we delve a little bit further into the auditor general's report, Pinewood actually are contesting the statement that's contained in the ministerial advice that, actually, the original heads of terms specifically set out that Pinewood would make a contribution of £800,000, because it says that it's an either/or. Either

'Pinewood would make a contribution of £800,000 or Pinewood would complete the fit out works and Welsh Government would contribute £1.8 million...They went on to say that the Agreement to Lease makes no reference to the £800,000'.

If we just go back, I do believe—. This doesn't date what time they're referencing. Advice given to the Minister about a Pinewood agreement, a collaboration agreement, and a long lease on a property, could not pre-date tenants' improvements. So, let there be no doubt about that: the tenant doesn't have access to the building and could not have spent money improving the quality of a building before they had taken access to it and signed the lease to get access to it. So, in terms of what I said, I stand by that and hold to it. So, I'm happy to go back and talk to the auditor general about what they meant and what timeline was applied to their comment.

And then, separately, in terms of a heads of terms, Pinewood committed to us that they intended to improve the building once they became a tenant. They would spend money improving the building, and, in particular, they wanted to develop this suite of offices that they can, and did, develop to house the 17 sub-tenants or licensees, who sit underneath it and employ people there. Now, all I would simply say is that it is not normal for that heads of terms and tenants' improvements to feature as part of a lease. Tenants' improvements—it's normal for a lease to require a landlord, or a tenant, sorry, to make good the property at the end of the lease and hand it back in at least as good condition as it was at the outset. And, if a tenant does improvements to a building that the landlord decides have not added value and wants them removed, it is appropriate for the landlord to require the tenant to remove the tenants' improvements. 

Mick can I—?

So, I come back and say these are tenants' improvements and would not normally feature in a lease.

Can I just ask a few other things in terms of the Pinewood situation, which the auditor general points out? Paragraph 1.24 refers to the lease not being signed until October 2016, although the agreement for lease was signed on July 2014, and Pinewood occupied the site in early 2015. It seems a little bit strange to me as to why there was this huge delay in that. The VAT being omitted—after the collaboration agreement was signed, officials recognised that VAT had been omitted from the original sponsorship agreement, so you had to increase the annual sponsorship by £87,000. Finally, you acquired the site before signing the collaboration agreement. Now, just in normal business process, this does not paint a very, very rosy picture, does it? If you take them altogether, with some of the things that we've already talked about, there's a lack of attention to detail here, at the very least.

I can answer, Minister, if you'd like.

Yes, if you want to answer that.

You have two situations here. You wait until the detail—. So, we had a high-level agreement, we had terms, conditions at a high level agreed, and you are right that there were minor issues that had yet to be signed and agreed before the document could be completed. So, in principle, we had an agreement; in practice, there were points of detail that were yet to be clarified. You have a choice; you either then say, 'Well, let's press on and take advantage of the opportunity to grow the business and the industry on the basis of our relationship', or you delay everything for the detail to be completed. And, on balance, we decided to press on, and, subsequently, the detail was signed and completed to our satisfaction.

Can I just turn to another issue that has been raised in earlier sessions, which is about conflict of interest? In the earlier session, Mick, you said that conflict of interest was covered in the original agreement, but that does seem to be at odds with what the auditor general has said—that it

'was either not identified or considered immaterial by Welsh Government officials at the time of the February 2014 submission to the Minister'.

And we know that it was later identified by officials, of course, in evidence that we have before us at a later date. But the auditor general suggests that the conflict of interest issue was not identified as a major issue in that original agreement. So, could you explain the discrepancy there?

Yes. The heads of terms that were agreed, that were considered by both the media investment panel and the sector panel advisers to Ministers, were considered to allow a worthwhile relationship to develop between both Pinewood and Welsh Government.

In reality, in delivery, both the sector panel and the media investment panel concluded that Pinewood were behaving in a way that they felt might be contrary to the agreement and was creating a conflict of interest. That's why they advised to the Minister that we should look at the agreement and—we discussed this last time—whether there was action to enforce or whether we should consider re-cutting the agreement, effectively entering into a new agreement. In particular, their concerns were that Pinewood was saying that they were separately contracted to use London contractors for things like scaffolding and lighting, whereas clearly it was intended in our original collaboration remit that this work should come to the Welsh supply chain where there was capacity for the Welsh supply chain to supply it.

It was that conflict of interest that was the reason for Welsh Government first going to the original chief executive of Pinewood, Ivan Dunleavy, and saying, 'We're not happy with the way this is running; we would like to renegotiate the agreement.' Subsequently, the new chief executive of Pinewood, Paul Golding, came to us and said they would also like to renegotiate the agreement because they were changing their business model.

Yes. It's a value-for-money question. So, the question is: is the fee that has been paid to Pinewood value for money for Welsh Government? I would assess it based on the benefits that Pinewood have brought to Wales against the cost of the agreement, and we are here, and there's plenty of evidence in the papers that were provided to this committee showing the success and the growth that has happened within the industry. And I do believe that Pinewood's name and Pinewood's global reach and Pinewood's willingness to promote Wales globally as a centre for high-end film and TV production has played a very significant role in the success of the industry. So, I believe that it has been value for money.

Do you believe that some of the negative publicity around, I think, and agreement—? I think it's fair to say that there are serious concerns about the wisdom of some of the decisions that were made. Has that had a negative impact as well, which has to be set aside some of the positive—

Well, let me just try and answer that question, because I can only answer it with evidence. That's hearsay, I can't comment on hearsay.

[Inaudible.]

So, the evidence that I can provide—I spent last week at Bad Wolf with Natasha Hale. Natasha Hale has a studio that is jammed full of productions and a pipeline that will keep it busy for the next three or four years, totalling in excess of £300 million. Now, she is saying that the reputation that Wales now has is such that United States of America production houses are coming to her and saying, 'We see some great stuff being produced in Wales. We do most of our productions in America, but, when we have to do productions in the United Kingdom, we think we'd like to come to your studio in Wales', and—

But that's nothing to do with Pinewood. You could've done that—

Well, it is.

You could have done that without actually going down this cul de sac.

I accept that you don't believe it's anything to do with Pinewood. That's not my view. I can only answer honestly to your question. I believe that Pinewood were instrumental in creating that pipeline. Natasha Hale said that the industry is a victim of its own success. We now have more productions coming than we have facilities to house them, and our supply chain is challenged, because it needs to grow more quickly to meet the demand, to meet the production houses. Now, for me, that's a hugely successful economic outcome and I believe that Pinewood's role in that was material.

I have to move on, sorry, Adam. 

Just on this, in the pre and the current situation, how important is the reputational identity of Pinewood with Wales to the whole strategy?

Well, the key issue is the reputation of Wales as a location for film making. I must say, in the eight months I've been in this job, I only get very, very positive responses, wherever I go, because the amount of coverage of the landscape of Wales, of the drama played out against that landscape, and the interest, as we've just described, in the pipeline in further productions here, is immense.

So, the reputational value of Pinewood is an asset to Wales's reputation; they're things that go hand in hand, are they?

What is important to us is trying to develop the capacity, and colleagues will tell you that both the Dragon facility further west and further into Swansea, as well as the Bad Wolf capacity and Pinewood—there is not sufficient capacity for us to accept substantial further investment. This is a serious issue for us. So, rather than—well, it's not for me to suggest; I won't go down that route again. But there are certain issues that the committee might be interested in pursuing in terms of the potential of the industry, as well as the unfortunate history of parts of it. But that is the nature of the beast, I have to say.

Suzy Davies.

Thank you. I'm going to restrict my questions, because we're a bit short on time, but I think I have to express my concern that the lease that was signed on this did not include a schedule of works. It'd be quite right to say that a normal lease agreement would just be a case of returning the building in the condition you found it, but when you're buying a building and then leasing it out for a specific purpose, the very least you do is attach a schedule of works to make sure that the purpose for which you're buying the thing in the first place is actually met.

I want to turn now to value for money. The media investment budget plan estimated a leverage of public funding to spend of 1:3. It was 1:1, I think, at last calculation. Is that still correct? Has it improved, or—?

Do you want me to answer that?

Yes, Joedi, thank you.

It's at 1.4:1 at the moment, and we anticipate that that that will rise to 1.9:1 when the additional £7 million comes in. So, I think we said last time that spend has been around £20 million. It's projected to be £27 million, so when that £7 million comes back in it will be 1.9:1 However, if you factor in the recoupments—the £4.2 million, which we had back in the door—actually, that takes it over 2:1. So, we are on that projection to 3:1.

Well, that's comforting to know, but Pinewood, of course, estimated it at 1:6. There's a big disparity there. Were they just being overambitious and unevidenced in their forecast?

Do you want me to answer that? I think the original business plan, we recognised quite early on, was going to be difficult to achieve. There were changes in the marketplace that meant that it was much more difficult to offer the offering that we had on the table. So, there were a lot more people offering tax credit lending, for example. So, the original business plan said that the £30 million would have been spent within the first two years, or most of it, and it wasn't, obviously, because we're nowhere near that at the moment. But one of the main reasons was the changes in the marketplace, so, more lenders offering some of the things that we originally set out to do in the original business plan. So, that obviously had a knock-on effect—the less money out of the door, the less money you're going to get back in.

I just wonder, Joedi, if it might help if you tell them how the leverage changes—so, if you ignore the fund, how leverage changes in public support for film productions over time, since this sector was created, and what it's moved from to.

So, originally—with grant funding in particular, it's difficult to assess the commercial funding in the same way—

I don't really want to know about grant funding. I take your evidence on that; it's how it works where you've got an investment pot, if you like. I think you answered—it's fine.

What you were referring to was the grant funding in particular.

Because, Wales Screen Fund—I don't have questions on that. Bearing in mind that circumstances change and everyone was, perhaps, a little overambitious, at what point did you think that it was worth asking Pinewood if they would take a cut in what they were getting out of this to reflect the changing conditions? We're always asked with austerity, 'How are you cutting your cloth accordingly?' How was Pinewood asked to cut its cloth accordingly when you realised that the area in which you were operating wasn't as lucrative as you thought?

That's a timing piece. We did sit down with Pinewood and renegotiate a new agreement.

They don't seem to have been taking any less as a result of that renegotiated agreement, on the figures we have available. In fact, they've had more for looking after Pinewood studios.

Yes, so—

Under the original agreement, Mick, they weren't being paid to deliver the media investment budget.

But they were getting consequentials from it in terms of post-production and scaffolding, to use the—

Lighting and post-production were the main things, but we weren't paying them directly for their services on the media investment budget. Any fees they were taking were from the production budget itself.

But the arrangement with Pinewood is that they got a studio in this as well. The two came together. You've repeated it a few times that the agreement had to cover both, so was there no—? You didn't deal with them separately, presumably. Did you ask them to take a cut in their sponsorship budget, for example, just to help with this?

Well, they were still doing all of the activities relating to the sponsorship work, and we have kept records that evidence the number of productions that have come into Wales as a result of Pinewood support. So, it's difficult to—. Our enquiries have increased over the last five years. I think we have to attribute some of that to Pinewood and Pinewood's brand here, and we have kept records of it. But it's difficult to attribute directly some of the stuff that didn't go through the media investment budget, or didn't go into the studio through Pinewood. But I think it's fair to attribute some of it to them, definitely.

Suzy—

We're out of time, I know.

We're running out of time. Can you ask the question about the Isle of Man, and then we have to—

Right, okay. Are you happy for me to do that, Mick?

Yes, please do.

Obviously, part of the enthusiasm for coming into this arrangement in the first place was the situation with the Isle of Man, and we'd like some detail on what due diligence was done on that, because, in 2010, the Public Accounts Committee equivalent in the Tynwald said that things weren't working particularly well with the media investment budget they had at the time. It was okay—they didn't hate it, but they didn't really have any evidence to see how it was working between 2007 and 2009 into 2010, and they were going to do another piece of work on the back of that. As of last month, that £20 million investment, which included Pinewood and another body, to be fair—they are not direct comparators—. They'd managed, through the equivalent of an MIB, £12 million of the £20 million that they'd spent. They'd written off £6 million, and £1million—they still didn't know whether it was coming in or not. It was still to come in. So, basically, a third of the fund—or a third of the investment—was written off. So, when you're saying, 'We don't know yet how our MIB is going to do', if you take their figures for a much older project, if you like, it's not looking that healthy, particularly as we haven't even managed to spend our £30 million. So, what due diligence was done then?

So, on the Pinewood agreement with the Isle of Man, my understanding was that that started in October 2012. We entered into our agreement with Pinewood in 2014. So, the whole of their business plan was based on their private experiences in investing their own money in production, but also on the Isle of Man fund.

Where there was no evidence at that stage.

Yes. However, it was too early to tell what the success of that fund was going to be. But, I do think it's fair to say that we had no reason at that stage to doubt Pinewood's experience, abilities in this field. This is what they do. That was their experience, and we had no reason to doubt that.

Okay. I really have to end it here. We will have more questions on this, but we need to discuss with the Public Accounts Committee whether they take on work and such, but thank you for giving us evidence in that regard.

One of the trends—. This has been an education for me, in terms of the actual diversity of all the skills and experiences, and so on, that we have within Wales. One of the things that jumped out at me, of course, is that we don't have any body that really has any significant input from the people who actually work on the ground in the industry. And I'm just wondering whether now—. For example, you'll be familiar with BECTU, now with Prospect, and Equity, and, of course, those teachers unions as well within this. To what extent will there be the opportunity for that engagement within these structures, because it seems to me it's always been the voice that's been missing. The people who—. If you want to know what's happening in an industry you go to the ground level and you ask the workers what's happening, and you have to obviously judge that subsequently. But how will this be different? Will there be an opportunity for that level of input? Will there be, for example, a union rep on the board?

Membership of the board will be procured openly by the public procurement procedures, and I would be very surprised if I was not provided with a list that included active members of the relevant trade unions who are, of course, the key figures in cultural production alongside the major investors. So, we would expect a partnership on the board and partnership among the production staff themselves. 

And to the Chair's earlier point about Ffilm Cymru, their experience and professionalism is well appreciated and understood. They could well be invited to apply to join the board to share that with the creative—.

And on the education side, because one of the things as well that's come through is in terms of the skills issue—you have differing views as to whether you import as opposed to the generation of the local skills base, and of course the engagement with the colleges seem to me to be fundamental to this, and the development of that. I'm wondering how you see that being a significant part of the whole package.

Certainly, and I think that we need to make—I would expect Creative Wales to make very direct approaches to all the providers of relevant courses, and getting a better fit between the more academic teaching that goes on and the skills needs and the employability of the students. 

The other thing I should have added—very remiss of me, as a former board member of the British Film Institute—is that we will be working very closely with the British Film Institute, where Ffilm Cymru, obviously, is part of that whole strategic relationship. But I'm also looking forward to an approach to Creative Wales that will be specifically aligned to the word 'creativity'. I have looked at—and this is why I've taken a bit more time over this than I would have done had I not observed what's happened in Scotland. I don't want to make any comment, clearly, on what has happened in Scotland, but the attempt to create an institution that took in the arts council has not been successful because, clearly, they're reconsidering that in Scotland. So, having made it quite clear that I expect the arts council and its clients to continue, and it will be funded in the same way, in the development of Creative Wales there will be room for partnership across the board and certainly the provision of creative skills generally for the economy will be the main driver.

Okay, thank you. 

Yes, but just quickly, though, I'd like to know what you're going to be expecting from the chair of Creative Wales, because what I'm picking up is they're going to be responsible for advising you on strategy, because obviously that's where the knowledge is, and they're also going to be directing planning and implementation—so up and down the chain, if I can put it like that. Where's the challenge to Government in this set-up?

Well, the challenge to Government is that we are creating within Government a body that will be inviting and appointing into Government people of substantial commercial and other experience in the sector to actually administer the budgets that I've been referring to—the investment budgets. We've got £15 million or whatever there, and there are other budgets. I won't give you a figure now because we haven't actually written a business plan. This is the first launch, if you like, for this new policy. But I'm certain that there are people out there in the industry who would be very, very willing to join the board of something called Creative Wales. 

Yes, and who would take Government on if they thought their hopes weren't being realised, effectively. 

Well, we are not in the business of being taken on. We are in the business of promoting this thing to happen. This is why we're opening the doors. 

No, I know—that's my question on challenge. Okay, it'll be up to us to challenge, then. Okay, that's fine.

Just on skills, obviously we know that Screen Alliance Wales, which is this not-for-profit institution that Natasha Hale is involved in—we heard really good evidence from them saying how they would like to take things forward. How do you see that fitting in with Creative Wales? Because obviously you're not going to be looking for duplication here at all.

No, we won't be looking for duplication. I'm very pleased with what I've seen that's developed out of what is a private sector initiative. Obviously, in the way I've described the body Creative Wales will be a public-private partnership in its essence. So, unless we have participation from existing suppliers in whatever field that impinges on it, then I think that we will have failed in what we'd be trying to do. So, the invitation is to people across the sector to seize the opportunity of a closer partnership with Government. 

Okay. Well, bearing in mind that one of the reasons we're asking these questions is that there are gaps in the skill mix that we have at the moment. Forgive me if I'm wrong in this, but I see Creative Wales is partly about setting strategy to get those skills, and also implementing ways of, as you say, creating these public-private partnerships, or whatever it is. If we don't have the skills, we haven't quite got the people, apart from Bad Wolf—that's the only one I can think of—to, I don't know, create the level that will go out looking for those skills or creating those skills themselves. I know there are colleges, but, presumably, you're looking for something—. This is what I'm coming to: it's not just about FE and HE this, is it? We're looking everywhere for these skills to emerge. How do you foresee Creative Wales setting the strategy for that, and then helping to implement it?

Well, I would anticipate that at least one, if not more, of the members of the board would have specific responsibility for the liaison between the businesses, the industry, the skills Minister, my colleague Baroness Eluned Morgan, and the other aspects of Government, in terms of the Cabinet Secretary for Education, and HE and FE. Creative Wales will take an overall view of the provision, but will also report continually on the way implementation takes place, and I think it's key that we have this mix. There are too many times in Government where I've seen bodies being set up to assess what's going on in a field, and then leaving it—I've been part of some of these exercises myself—with no implementation. Creative Wales will do much more than that. Joedi. 

Do you want me to just add to that?

Yes, with a bit of—[Inaudible.]

I think the intention is that we will have people on the ground doing exactly that. So, we will have people on the ground helping to map, working with people like Screen Alliance Wales, mapping the provision, working out where the gaps are, and then working really closely with the colleges—the FE colleges and the HE colleges—and also, where we haven't got people delivering what we need to deliver, helping to put structures in place to do that as well. You will know that one of the main ways of learning in film and tv in particular is on the job, and it's very difficult to have apprenticeships because the productions don't often run long enough for them to do that. So, it's looking at different structures for things like that, and how we can better improve that and get more people upskilled in the industry, so that it will absolutely focus on that. 

Well, I'm pleased to hear that, because if this is focused entirely through our education institutions, then we're missing huge tricks here. Bearing in mind that this is going to be almost cross-Government from what you're saying, taking in the skills sector as well, when in, I don't know, three or four years' time, we want to scrutinise somebody to find out where these building blocks are, who are we going to ask? Is it going to be you?

My successor. [Laughter.]

I was rather hoping we'll need answers before the end of this Assembly, Minister. 

Well, if I'm still here, you can call me and my colleagues. 

Are we going to have a separate fund for Welsh productions, because that's been one of the core things we've heard from many of the production companies? Is that something you intend to do as part of this? Because if it's just going to be unreachable, then that's not going to change anything for people.

We are interested in increasing the amount of film and media activity made in Wales. We don't have definitions of Welshness. I'm a big fan of the noir activities that are now on our screens from Snowdonia, because it pictures the real life of those of us who live in those hills very much. I'm finding it very enjoyable. I love the fact, obviously, that other productions—Keeping Faith particularly—are now worldwide. It is a great time to be creative in Wales, and the intention of this body is to ride, if I can use a surfing metaphor, that great wave. 

The UK Government has a creative industries sector deal. I haven't seen anything come out of the Welsh Government in response to that as yet, specifically. So, can you say whether you're going to take part in that?

Yes, of course. We will be in discussion, and we will be working in partnership with whatever is produced. With any deal at the UK level, and getting directly involved, obviously, in other deals within the creative industry, as you will understand—.

Perhaps, Minister, I can just confirm that we have an application currently pending for a creative cluster in south Wales, and we've been shortlisted from 52 cities applying for it to 12, and UK Government intend to appoint eight cities. So, we are down to 12, of which eight will get appointed, and Welsh Government supported the universities of south Wales in making that bid, together with the BBC in Wales.

So, you're in the semi-final.

In the semi-final, sadly. [Laughter.] We are still in the semi-final.

Just to add to that, we have our feet at the table at the Creative Industries Council as well, who you will now have been heavily involved in sector deals. So, we're there, we have a voice, we have been involved in it, but at different levels, because there are lots of strands to it, basically.

So, this is very much work in progress. Do you know what the timescale is for UK Government to make a decision on that?

We believe it will happen by the end of this month, but sometimes these things get delayed.

Very soon, anyway, by the sound of it. Good. Let's hope you're successful.

We love making use of UK resources. [Laughter.]