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Public Service Broadcasting Pt II: Cutting The Licence Fee

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About The Author

Chris Bridges (Executive Editor)

Chris is an IT and Data Protection solicitor at a top 20 full service firm and the founder of Keep Calm Talk Law. He also contributes to Computers and Law and other sector specific publications.

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Image © Stuart Pinfold

This article is part of the 'Public Service Broadcasting Reform 2015' series.

The BBC’s charter (the ‘Charter’) is reviewed every ten years, with the current expiring on 31 December 2016. In light of this, Chris Bridges explores how public service broadcasting is addressed in other countries, and considers alternative methods of funding British public broadcasting.

Other articles from this series are listed at the end of this article.

In yesterday’s article ‘Public Service Broadcasting Pt I: How Do We Compare?’, I provided a comparison between British, German and American public broadcasting, each of which takes a very different approach. I very briefly reference these below, however please feel free to read my earlier article for a more in-depth on the differences.

I ultimately concluded that in terms of structure and remit, nothing needs changing. The BBC’s programming is popular, but in true British fashion, we do not want to pay for it. Therefore the question arises, can we learn anything in terms of finance from Germany or the USA.

Given Germany’s higher licence fee, larger overall spending power and seemingly poorer content, I would conclude we have nothing to learn from our German friends in terms of finance.

Scrapping of the licence fee in favour of a public grant, as across the Atlantic, seems incredibly unlikely in this age of austerity. Ultimately, we would end up with more pressure on the public purse, and we all know what that means. The USA’s public grant falls short of £500 million USD, which our government might entertain. However to maintain the BBC as it is, the grant would need to be in excess of £4 billion GBP.

So what other solutions might there be to either dispose of or cut the licence fee, thus keeping the public happy?

Alternative Funding

Voluntary Subscription

This approach was recently advocated by Allister Heath of the Telegraph (who appears to write an annual criticism of the BBC). He believes that in the age of online streaming and other subscription services, traditional broadcasters such as the BBC are antiquated and no longer viable.

His argument has two fundamental flaws.

First, his maths is suspect on the viability of exclusive content on online subscription-based streaming services. I avoid detail, as that is not what we are here for, although if you do not take my word for it see The Wire on the economics of House of Cards, the Guardian on Netflix’s unsustainable content spend, and then consider how this has all now been dwarfed by Amazon’s $250m USD ‘Top Gear Guys’ deal.

Second, he asserts subscription based services are already technically possible, which is not true in the 39% of households that do not already have pay TV. Freeview does not support subscription channels; it did via Top Up TV, but this required non-standard hardware to decode, and is now defunct. In ten years’ time at the next Charter renewal, this may be possible; it all depends on how much basic technology has changed (i.e. Freeview or its successor).

These points aside, it undermines the point of public service broadcasting, no matter what purpose you see it serving. Would you call the NHS a public service if you had to pay for it, no matter what? This makes it a non-mover for me; I would rather see the BBC cut back than see it become a subscription-only service.

More Advertising

Figures above demonstrate that the BBC has made significant ground on bolstering the BBC’s commercial offering. However, the vast majority of this came from BBC Worldwide, the commercial arm responsible for the BBC world services.

The BBC is not permitted to carry advertising on its public services in order to keep them ‘independent of commercial interests’ and to ‘ensure they can be run purely to serve the general public interest.’ The only advertising the BBC currently sells is on BBC World services, which includes the website when accessed from abroad.

This could be changed on renewal of the Charter. If it did, how much might it bring in? Taking ITV as the closest example, the BBC could expect to achieve upwards of ITV’s 2014 broadcast figure of £1.32 billion, given its greater reach. This figure is around 35% of current licence fee revenue.

This would self-evidently allow a significant reduction in the licence fee (to ~£94.50), without ‘disruption’ of the current service, well…

Like many others, I love the BBC without adverts, which are most certainly disruptive. However, I cannot say I would complain about paying ~£50 less on my TV licence. As much as I hate to say it, perhaps it is about time, given the pressures of the changing market. This is of course from the point of view of the average consumer.

However, there are three strong arguments against doing so.

First, the absence of adverts on the BBC is in order to maintain neutrality. Earlier this year, we learnt Peter Oborne left the Telegraph because of the effect the need for advertising revenue had on Telegraph’s reporting on big stories. Organisations were essentially buying themselves immunity from bad press in the Telegraph. This is certainly not a sacrifice I would want made.

However, I am not convinced this could not be overcome with the proper framework and supervision. With the licence fee to ‘fall back on’, the BBC can afford not to be dependent on any advertising revenues it received. Plus, the BBC does not have owners to keep happy, which Peter Oborne implied was a key reason for the change with regards to advertisers lofty status at the Telegraph.

The third argument is creative restraint. When PBS (the American public broadcasting service) looked to introduce advertising during programmes (e.g. every 15 minutes), there was uproar. Some commentators noted how this can affect the creative process. Either scripts must be written with appropriate pause points, adapted to have pause points or shoe horned (resulting in really awkward ‘cut’ points).

I see no obvious way around this. The BBC could limit advertising to daytime TV, thus leaving the evening and weekends unchanged (when the popular programmes are shown). However, this would severely limit any revenue it brings in. Depending on how much it would limit it, it may make the exercise useless. Therefore, it would perhaps be worth meeting half way: no adverts during a 30 minute programme, with adverts every 30 minutes in others.

The final argument is a commercial one. The BBC’s competitors are already irate about its existence, criticising it for interfering with the free market. This will be all the more true if other broadcasters must compete in sales as well as content, against a corporation that does not have shareholder expectations to satisfy.

PBS ultimately adopted ‘commercial breaks’ in 2011, and there was very little apparent backlash, and as noted in my previous comparison article, in 2015 PBS was still ranked as America’s most trusted institution. If they can do it, we can do it, right?

Service Changes

Mission Creep

Pundits, often employed by or linked to the BBC’s competitors, are quick to criticise the BBC for growing beyond its remit with rapid bloating since the last charter. They point out there are many more channels, a much more comprehensive news website, and an on-demand service. There has clearly been ‘mission creep’, but is this a bad thing?

Given the circumstances, it is actually quite admirable. The BBC has lost licence fee income in real terms during the current Charter.

In 2005, revenue from the licence fee was £3.1 billion. Today, it is £3.7 billion, a 19% rise. Using thisismoney.co.uk’s inflation calculator, total inflation since 2005 has been 37.14%. Therefore, the BBC has lost ~£550 million of annual licence fee revenue in real terms.

Further, in 2005 the BBC brought in just £98 million (£134m today with inflation) in commercial revenue, excluding an asset sale (BBC Broadcast). Today, commercial business brings home £1.07 billion. This represents around a 746% increase in real terms.

Efficiencies have allowed the BBC to add additional channels to carry the less watched content and to ensure they fulfil their purpose, whilst freeing up room on BBC One and Two for more ‘mainstream’ programming. The growth of the online platform seems justifiable in its own right in order to remain competitive.

The question is, should these efficiencies have been used to cut the licence fee instead of growing the offering? In light of the changing market, the common sense answer is yes; with the greater number of channels available, and streaming services snapping up top stars, the need for the BBC is not what it once was.

However, the common sense answer is not always the correct one. Efficiencies could come in various forms, which must be considered before one can draw a defensible conclusion.

Stop Using Independent Studios

In 2014, 31% of BBC production was by independent studios. Put simply, this means the BBC commissioned 31% of its programmes (measured by the hour) from commercial, profit-making studios.

Some oppose the idea of using the licence fee to fund commercial studios, believing they offer less value for money.

Whilst this is fundamentally true, as the studio must make a profit, it overlooks the benefits of doing so. Indeed, the BBC is obliged to source 25% of its content from external producers, but can have no more than 50% produced out of house.

There are good reasons for this, two of which I list below without detailed explanation, as they are fairly self-evident:

  1. It keeps things fresh. When in-house producers are pitted against external producers, it encourages greater creativity. It is hardly a secret that competition is healthy; and
  2. It contributes to the strength of the British television industry. We have long fought to be ‘up there’ in the creative industries, and we are finally making progress. The BBC injects a substantial amount of cash into the creative industries, creating jobs, and hopefully opportunities for the future.

Therefore, I do not see cutting external production as a viable option if we are to maintain quality. Twenty-five percent of production is an acceptable quota, and the 50% cap ensures internal production is not damaged.

However, external production should be subject to a higher degree of scrutiny and review. If a series produced externally is not successful, it should not be renewed. Thus, new productions should be on short-term contracts, which I suspect they already are.

Mainstream Programming Cut

Mainstream programming in most cases will carry the highest cost, with the largest budgets, the biggest stars, and the highest salaries. These would make the greatest saving, but it would also mean a drastic reduction in the size of the BBC, and its popularity, at least in viewing statistics.

The most popular programmes would likely be sold off to other channels, so we would not lose them. Provided the programmes sold off are sold only to Freeview channels, there will be no loss of access.

However, chances are (due to overheads) more jobs would be lost than are created at competitor broadcasters. Whilst from an economist’s point of view this is simply resource allocation at play, there could be non-negligible social impact, with the BBC employing over 21,000.

It is impossible to speculate whether this would have a long-term impact on British television. The BBC is certainly world-renowned for its programming, hundreds of millions of pounds of which is licenced abroad. Other broadcasters may take their shoes, perhaps not. One thing is for sure, one of the world’s leading television brands would vanish.

Less Popular Programming Cut

This would likely allow consolidation onto two or three channels. The less popular programming content is probably the cheapest to produce, providing an inferior saving. Therefore, the BBC would shrink, but not as much as in the above scenario.

The cut programs are more likely never to be seen than their popular counterparts discussed above; other broadcasters may not be able to commercially justify them. Ultimately, this could mean certain niches of content are never produced, although this argument carries less weight in an era of online streaming and channel-filled TV guides.

The question to answer is, do we still need an organisation to complete an incomplete market, and how much is the BBC currently catering for those minorities that are not currently being served? Further, should these minorities have to pay subscription fees to access these channels (e.g. a Sky subscription to access documentary or religious channels), or should they be available free?

My Conclusion

I believe the BBC is one of the finest institutions in the world. A vast majority of the world seems to feel the same, but not in the UK: as the saying goes ‘you don’t know how lucky until you are until its gone’. We have an exceptional public broadcaster which produces content the vast majority of the population enjoys; it is the cornerstone of free TV. Without it, I dare say there would be a ten-fold increase in TV Guide flicking, in my home at least.

Of course, the BBC is not there to serve my desire alone. If the public demands change, change they must get. However, we need to be cautious; hasty decisions should not be made, else we may lose a flagship of British culture, one we should be proud of, even if the vast majority of our countrymen are not.

Therefore, I would not myself advocate any change. However, given the current climate surrounding the BBC I think some efforts will have to be made to bolster public support. The only change I would entertain myself would be the introduction of advertising, provided impact on creativity was limited and there was proper oversight of impartiality in news programming as far as advertisers were concerned. This, I think, is an acceptable compromise.

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Tagged: Commercial Law, Media

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