Abstract
As pressure on the licence fee increases, the debate is moving to subscription funding. How would it work?
Shortly before retiring as director-general of the BBC in August, Tony Hall told Radio 4’s The Media Show that he hoped “there will be a big debate about the best way to fund the BBC, and we should learn from other countries – are there fairer ways to pay?”.
Fairness, of course, is not the only issue that swirls around the future of the licence fee, and there is not just one kind of “fairness”. Hall was referring to the perceived “unfairness” to the poor of using a flat-rate fee to fund the BBC, whereby millionaires with half a dozen TV sets pay the same as pensioners and impoverished single parents.
But is it fair to other media companies, as the chair of the Commons Media Committee Julian Knight MP asked in September, to face a rival with a large guaranteed income, deployed at will to deliver entertainment rather than public service content; a rival which can compete fiercely for audiences; promote its radio stations on its television channels; and which can invest hundreds of millions of pounds in free online content when newspapers need digital income to replace collapsing circulation and advertising revenues?
And then there is the fairness to society as a whole: is it fair to threaten people with criminal sanctions for failing to pay for output which in many ways is very similar to that which is readily available, either on advertiser-funded channels or subscription services? Is it fair to provide no choice?
Tony Hall’s replacement Tim Davie, in his first speech to his 19,000 public service employees, chose to refer to subscription as a direct alternative to the licence – and like his chairman, Sir David Clementi, noted that the BBC might well thrive as a subscriber service, but would inevitably shed a proportion of its audience, even if the monthly cost was no greater than the licence fee’s £13: so losing its claim to universality.
They also argue that a straight switch to subscription would be “unfair” to millions of households dependent on the Freeview system, whose TV sets (thanks to historic BBC obstructionism) lack the conditional access modules allowing easy uptake of encrypted channels. That an upgrade is relatively cheap, and will in due course be rendered irrelevant by broadband roll-out, does not wholly remove the force of this objection.
The most widely held view on the subscription side of the argument is that BBC public service broadcasting (PSB) content should continue to be freely available, unencrypted, with only the entertainment elements of BBC TV being offered as a subscription option. That, for instance, was the view from another departing BBC executive, Sarah Sands, as she handed over the Today programme in September, and it was echoed by the formidable Dame Patricia Hodgson – former director of policy at the BBC and chair of Ofcom – in an interview for Radio 4’s The World This Weekend recently.
Such an approach dates back to at least the Peacock Report of 1986, which recommended that, in due course, BBC PSB output be financed by a Public Service Broadcasting Commission (PSBC), and the remainder of its output be funded commercially. Multiple reports since then have argued along similar lines. The PSBC would also support public service content on other channels and platforms: an increasingly important objective at a time when long-term competitive pressures have squeezed PSB output from ITV and Channel 4.
The BBC has publicly mused over replacing the licence fee with a surcharge on council tax or income tax: Hall, for one, arguing that moving away from a flat fee would be fairer to the poor. Council tax, for instance, costs the average Band H household three times the Band A level. Income tax is even more steeply progressive.
But if the BBC wants the same level of income as the licence fee affords, it would require an 11 per cent surcharge on council tax, costing Band H homes more than double the licence fee. And replacing the licence with an income tax surcharge would result in nearly half of all households paying little or nothing for the BBC, most likely provoking cries of “unfair” from the other half. That is why split funding is so important.
The best way of defusing these potential dangers is to divide the BBC’s activities and funding explicitly into public service and commercial. The BBC’s news, current affairs, documentaries, arts, religion, children’s, music and regional output in television, along with nearly all its radio services other than Radios 1 and 2, would fall in the first category. The second category would cover entertainment, features, drama, comedy and most travel and nature programmes: roughly 90 per cent of what is broadcast by BBC One, and about half of that shown by BBC Two.
If the level of public funding were half the amount raised by the licence fee, it would finance all the BBC’s public service offerings on TV and radio, and create a larger contestable fund for non-BBC providers than the £20 million a year that was set aside in the last Charter review. All kinds of “fairer” ways of funding public service content could be devised that ensured no one paid more than previously, whilst most homes would pay less: the over-75s’ concession of free licences could be re-instated. “Fairness” would prevail.
Is Planet Earth public service, commercial or both?
Of course, many households would choose to pay voluntarily for access to the BBC entertainment package: but there is no compulsion involved. Millions of homes pay up to £100 a month for packages from Sky and Virgin Media: that is their choice. Enders Analysis has estimated that up to 50 per cent of homes might choose to pay for a premium BBC service, suggesting that some £1.7billion a year might thereby be generated. Given that this model presumed a single channel, rather than what is more likely – a suite of channels (for example, BBC Drama, BBC Comedy, BBC Arts, BBC Sport, BBC Nature) – such a target might turn out to be too modest. And then there is the world market to address: where Netflix finds more than half its subscribers.
Universality is actually a very recent doctrine. BBC radio and television services took decades before they became universally available. When BBC Two was launched, at the same time as colour television, the higher fee for a colour licence became in effect a fee for receiving BBC Two. When the Davies Report in 1999 recommended an additional digital licence fee to fund new digital BBC services, part of the reasoning was that these services would not be universally available, so should only be paid for by those choosing to receive them. The same will be true of any future BBC subscription package.
As for Freeview, all the BBC’s public service TV content would continue to be available on that platform until the system were phased out. Access to new entertainment content would require a broadband, cable or satellite connection, but it is likely that repeats would be sub-licensed to the publicly funded channels (on terms that would need to be approved by the PSBC).
Similarly, if a BBC subscription service included a premium sports channel, highlights could be assigned to a public service channel. The main iPlayer service would be reserved for subscribers, but PSBC funding could be used to create a version that would be free-to-air.
Of course, there can be lots of arguments about “borderline” material – is Planet Earth public service, or commercial, or both? It happens to be a highly commercial production which also serves a public purpose. One way of dealing with such genres is to assign first transmission to a commercially funded broadcaster, but for the PSBC to fund the purchase of a public service “window” for subsequent free-to-air transmission.
An obvious way of managing the split would apply to the Proms. The BBC Premium package might schedule the entire season live, while cutting a deal with the public service channel to show some concerts live and others “as live” or in excerpts. That way, viewers as a whole are far better served, while the free-to-air public service audience loses nothing.
However, the kind of split floated by Julian Knight – the iPlayer service converts to subscription, leaving the current BBC channel line-up unchanged – is unlikely to generate enough revenue. Only with a clear split between commercial and public service output can a dynamic entity be created that will invigorate the production sector and compete internationally, while still leaving a large volume of public service content freely available, funded by a mechanism designed to revive public service output more widely.
About £1.5billion is a reasonable estimate of what the BBC spends on public service content on radio and TV, including World Service radio. According to Ofcom, the BBC spends barely £1billion on the direct costs of all its first run origination (including PSB), so even allowing for a healthy overhead margin, the £1.7billion projected by Enders Analysis for subscription income would be more than enough to fund commercial output, on an increasingly large scale.
So what kind of BBC should emerge from any forthcoming negotiation with government? Tim Davie is ideally suited to managing a transition: he has been running BBC Studios for six years, overseeing a large production company making content for the BBC and the commercial sector, closely linked to a distribution company that is the UK’s largest, representing independent producers as well as his own in-house ones.
He is also responsible for the BBC’s overseas ventures – channels and streaming services funded by a mixture of subscription and advertising – as well as one of the biggest channel packages in the UK, constituting UKTV’s dozen or so brands, which the BBC now both owns and operates.
This business is already capable of generating more than £100million annually from carriage fees and advertising. Running it is a channel management team that would love to incorporate a suite of BBC channels – Drama, Sport, Comedy, Documentaries, Arts, Children’s, Entertainment, Features – into its portfolio, to match the constantly expanding Sky offer.
Perhaps the likeliest route to market would be to offer consumers a rich menu of options (pick three services from eight, plus UKTV, for £12 a month, say), either directly through their broadband connection, or through wholesalers such as Virgin Media and Sky.
The BBC has, almost from its inception – with the launch of the Radio Times – been engaged in commercial activity, and for the most part this should be applauded. Its commercial activities currently generate one third of its gross revenues.
The BBC needs to think through the politics of any prospective change. Might ministers underwrite the BBC pension scheme deficit for a number of years as an incentive for the BBC to re-structure itself? Given the “win” that Boris Johnson would try to claim in not just decriminalising evasion, but eliminating the licence fee as such and halving the cost to UK households of funding public service broadcasting, he should be in a generous mood. Indeed, in due course, the subscription channels will be contributing hundreds of millions of pounds a year to the Treasury in VAT.
The BBC has shifted many functions, such as transmitters, studios, outside broadcasts, graphics and all of TV production to external or ring-fenced delivery. Devolving entertainment, and persuading the public to pay for it voluntarily, would be the biggest challenge yet, but there is no reason to believe that Tim Davie cannot deliver it.
